<PAGE>
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
AND
AMENDMENT NO. 13 TO
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
(EXACT NAME OF REGISTRANT)
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(NAME OF DEPOSITOR)
ONE SUN LIFE EXECUTIVE PARK
WELLESLEY HILLS, MASSACHUSETTS 02181
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER: (617) 237-6030
BONNIE S. ANGUS, SECRETARY
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
ONE SUN LIFE EXECUTIVE PARK
WELLESLEY HILLS, MASSACHUSETTS 02181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES OF COMMUNICATIONS TO:
DAVID N. BROWN, ESQ.
COVINGTON & BURLING
1201 PENNSYLVANIA AVENUE, N.W.
P.O. BOX 7566
WASHINGTON, D.C. 20044
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after effectiveness of the Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Variable Annuity
Contracts * ** ** $500.00
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</TABLE>
* Pursuant to the provisions of Rule 24f-2 under the Investment Company
Act of 1940, an indefinite amount of securities is being registered under
the Securities Act of 1933.
** Not applicable.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), SHALL DETERMINE.
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<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
Registration Statement on Form N-4
Cross Reference Sheet Required by Rule 495(a) under
The Securities Act of 1933
ITEM NUMBER IN FORM N-4 LOCATION IN PROSPECTUS; CAPTION
PART A
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis Cover Pages; Expense Summary
4. Condensed Financial Performance Data
Information
5. General Description of A Word About the Company, the
Registrant, Depositor Fixed Account, the Variable
and Portfolio Companies Account, and the Series Fund;
Additional Information
About the Company
6. Deductions and Expenses How the Contract Charges Are Assessed;
Cash Withdrawals, Withdrawal Charges and
Market Value Adjustment
7. General Description of Purchase Payments and Contract
Variable Annuity Contracts Values During Accumulation
Period; Other Contractual
Provisions
8. Annuity Period Annuity Provisions
9. Death Benefit Death Benefit
10. Purchases and Contract Purchase Payments and Contract
Value Values During Accumulation
Period
11. Redemptions Cash Withdrawals, Withdrawal
Charges and Market Value
Adjustment
12. Taxes Federal Tax Status
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Not Applicable
Statement of Additional
Information
reggold
<PAGE>
ITEM NUMBER IN FORM N-4 LOCATION IN PROSPECTUS; CAPTION
PART B
15. Cover Page Not Applicable
16. Table of Contents Not Applicable
17. General Information and A Word About the Company, the
History Fixed Account, the Variable
Account and the Series Fund;
Additional Information About the
Company
18. Services Other Contractual Provisions;
Administration of the Contracts
19. Purchase of Securities Purchase Payments and Contract
Being Offered Values During Accumulation Period
20. Underwriters Distribution of the Contracts
21. Calculation of Performance Performance Data
Data
22. Annuity Payments Annuity Provisions
23. Financial Statements Financial Statements
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Attached hereto and made a part hereof is the Preliminary Prospectus
dated June 5, 1996.
<PAGE>
PROSPECTUS
, 1996
MFS REGATTA CLASSIC
--------------------------------------------------
The master group flexible payment deferred annuity contracts (the
"Contracts") and related certificates offered by this Prospectus are designed
for use in connection with retirement and deferred compensation plans, some of
which may qualify as retirement programs under Sections 401, 403, or 408 of the
Internal Revenue Code. The Contracts are issued by Sun Life Assurance Company of
Canada (U.S.) (the "Company"), a wholly-owned subsidiary of Sun Life Assurance
Company of Canada, having its Principal Executive Offices at One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02181, telephone (617) 237-6030.
The Contracts provide that annuity payments will begin on a selected future
date. The Contracts provide for the accumulation of values on either a variable
basis, a fixed basis, or a fixed and variable basis and provide for fixed and
variable annuity payments as elected.
Each Participant under a Contract will receive a Certificate evidencing such
Participant's coverage under the Contract. The initial Purchase Payment for each
Certificate must be at least $25,000 and each additional Purchase Payment must
be at least $1,000, unless waived by the Company. The prior approval of the
Company is required before it will accept a Purchase Payment in excess of
$1,000,000.
The Participant may elect to have values under the Certificate accumulate on
a fixed basis in the Fixed Account, which pays interest at the applicable
Guaranteed Interest Rate(s) for the duration of the particular Guarantee
Period(s) selected by the Participant, or on a variable basis in Sun Life of
Canada (U.S.) Variable Account F (the "Variable Account"), a separate account of
the Company, or divided between the Fixed Account and the Variable Account. The
assets of the Variable Account are divided into Sub-Accounts. Each Sub-Account
uses its assets to purchase, at their net asset value, shares of a specific
series of MFS/Sun Life Series Trust (the "Series Fund"), a mutual fund
registered under the Investment Company Act of 1940, and advised by
Massachusetts Financial Services Company, a subsidiary of the Company. Eighteen
series are available for investment under the Contracts: (1) Money Market
Series; (2) High Yield Series; (3) Capital Appreciation Series; (4) Government
Securities Series; (5) World Governments Series; (6) Total Return Series; (7)
Managed Sectors Series; (8) Conservative Growth Series; (9) Utilities Series;
(10) World Growth Series; (11) Research Series; (12) World Asset Allocation
Series; (13) World Total Return Series; (14) Emerging Growth Series; (15)
MFS/Foreign & Colonial International Growth Series; (16) MFS/Foreign & Colonial
International Growth and Income Series; (17) MFS/Foreign & Colonial Emerging
Markets Equity Series; and (18) Value Series. The Series Fund pays its
investment adviser certain fees charged against the assets of each Series. The
value of the variable portion, if any, of a Participant's Account and the amount
of variable annuity payments will vary to reflect the investment performance of
the series of the Series Fund selected by the Participant and the deduction of
the contract charges described under "How the Contract Charges Are Assessed" on
page 24. For more information about the Series Fund, see "The Series Fund" on
page 14 and the accompanying Series Fund prospectus.
(CONTINUED ON NEXT PAGE)
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF
MFS/SUN LIFE SERIES TRUST. YOU SHOULD RETAIN THESE PROSPECTUSES FOR FUTURE
REFERENCE.
*ANY REFERENCE IN THIS PROSPECTUS TO RECEIPT BY THE COMPANY MEANS RECEIPT AT ITS
ANNUITY SERVICE MAILING ADDRESS, C/O SUN LIFE ANNUITY SERVICE CENTER, P.O. BOX
1024, BOSTON, MASSACHUSETTS 02103.
<PAGE>
If the Participant elects to have values accumulated on a fixed basis,
Purchase Payments are allocated to one or more Guarantee Periods made available
by the Company in connection with the Fixed Account as selected by the
Participant. The Fixed Account is the general account of the Company (See "The
Fixed Account" on page 12). The Company will credit interest at a rate of not
less than three percent (3%) per year, compounded annually, to amounts allocated
to the Fixed Account and guarantees these amounts at various interest rates (the
"Guaranteed Interest Rates") for the duration of the Guarantee Period elected by
the Participant, subject to the imposition of any applicable withdrawal charge,
Market Value Adjustment, or account administration fee. The Company may not
change a Guaranteed Interest Rate for the duration of the Guarantee Period;
however, Guaranteed Interest Rates applicable to subsequent Guarantee Periods
cannot be predicted and will be determined at the sole discretion of the Company
(subject to the minimum guarantee of three percent (3%)). That part of the
Contract relating to the Fixed Account is registered under the Securities Act of
1933, but the Fixed Account is not subject to the restrictions of the Investment
Company Act of 1940.
The Company does not deduct a sales charge from Purchase Payments. However,
a withdrawal charge (contingent deferred sales charge) may be assessed by the
Company. This charge is intended to reimburse the Company for expenses relating
to the distribution of the Contracts and Certificates. After a Purchase Payment
has been held by the Company for one year it may be withdrawn without charge.
Also, no withdrawal charge is assessed upon annuitization or upon transfers.
Other amounts withdrawn, adjusted by any applicable Market Value Adjustment with
respect to the Fixed Account, will be subject to a withdrawal charge of 1%. In
no event will the the withdrawal charges assessed against a Participant's
Account exceed 1% of Purchase Payments (See "Withdrawal Charges" on page 21).
In addition, any cash withdrawal of amounts allocated to the Fixed Account,
other than a withdrawal effective within 30 days prior to the Expiration Date of
the applicable Guarantee Period, will be subject to a Market Value Adjustment.
The Market Value Adjustment will reflect the relationship between the Current
Rate (which is the Guaranteed Interest Rate currently declared by the Company
for Guarantee Periods equal to the balance of the Guarantee Period applicable to
the amount being withdrawn) and the Guaranteed Interest Rate applicable to the
amount being withdrawn. Generally, if the Guaranteed Interest Rate is lower than
the Current Rate, then the application of the Market Value Adjustment will
result in a lower payment upon withdrawal. Similarly, if the Guaranteed Interest
Rate is higher than the Current Rate, the application of the Market Value
Adjustment will result in a higher payment upon withdrawal (See "Market Value
Adjustment" on page 22).
The Company reserves the right to defer the payment of amounts withdrawn
from the Fixed Account for a period not to exceed six months from the date
written request for such withdrawal is received by the Company.
Special restrictions on withdrawals apply to Certificates used with Tax
Sheltered Annuities established pursuant to Section 403(b) of the Internal
Revenue Code (See "Section 403(b) Annuities" on page 22).
In addition, under certain circumstances withdrawals may result in tax
penalties (See "Federal Tax Status"). For a discussion of cash withdrawals,
withdrawal charges and the Market Value Adjustment see "Cash Withdrawals,
Withdrawal Charges and Market Value Adjustment" beginning on page 20.
On each Account Anniversary and on surrender of a Certificate for full value
the Company will deduct a $50 annual account administration fee ("Account Fee")
from the Participant's Account. After the Annuity Commencement Date the annual
Account Fee will be deducted pro rata from each variable annuity payment made
during the year. In addition, the Company makes a deduction from the Variable
Account at the end of each Valuation Period equal to an annual rate of 0.15% of
the daily net assets of the Variable Account. These charges are to reimburse the
Company for administrative expenses related to the issuance and maintenance of
the Contracts and Certificates. The Account Fee will be waived by the Company
when a Participant's Account Value is greater than $100,000 on the Account
Anniversary (See "Administrative Charges" on page 25).
2
<PAGE>
The Company also deducts a mortality and expense risk charge at the end of
each Valuation Period equal to an annual rate of 1.00% of the daily net assets
of the Variable Account for mortality and expense risks assumed by the Company
(See "Mortality and Expense Risk Charge" on page 25).
Under certain circumstances the Company may substitute shares of another
registered open-end investment company or unit investment trust both for Series
Fund shares already purchased by the Variable Account and as the security to be
purchased in the future. Also, upon notice to the Owner, Participant or the
Payee during the annuity period, the Company may modify the contract if such
modification: (i) is necessary to make the Contract or the Variable Account
comply with any law or regulation issued by a governmental agency to which the
Company or the Variable Account is subject; or (ii) is necessary to assure
continued qualification of the Contract under the Internal Revenue Code or other
federal or state laws relating to retirement annuities or annuity contracts; or
(iii) is necessary to reflect a change in the operation of the Variable Account
or the Sub-Accounts; or (iv) provides additional Variable Account and/or fixed
accumulation options (See "Substituted Securities" and "Change in Operation of
Variable Account" on page 32 and "Modification" on page 32).
In addition, the Contracts provide that the Company may change the
withdrawal charges, Account Fee, mortality and expense risk charges,
administrative expense charges, transfer charges, the tables used in determining
the amount of the first monthly variable annuity payment and fixed annuity
payments and the formula used to calculate the Market Value Adjustment, provided
that such modification shall apply only with respect to Participant's Accounts
established after the effective date of such modification (See "Modification" on
page 32).
In the event of the death of the Annuitant prior to the Annuity Commencement
Date, the Company will pay a death benefit to the Beneficiary. If the death of
the Annuitant occurs on or after the Annuity Commencement Date, no death benefit
will be payable except as may be provided under the Annuity Option elected (See
"Death Benefit" on page 23).
Annuity Payments will begin on the Annuity Commencement Date. The
Participant selects the Annuity Commencement Date, frequency of payments and the
Annuity Option (See "Annuity Provisions" on page 26).
Premium taxes payable to any governmental entity will be deducted from the
Participant's Account (See "Premium Taxes" on page 25).
Subject to certain conditions, and during the Accumulation Period, the
Participant may transfer amounts among the Sub-Accounts or Guarantee Periods
available under the Contract. Currently there is no charge for transfers.
Transfers from or within the Fixed Account will be subject to the Market Value
Adjustment unless the transfer is effective within 30 days prior to the
Expiration Date of the amount transferred and other restrictions may apply (See
"Transfer Privilege; Restriction on Market Timers" on page 19).
After the Annuity Commencement Date, the Payee may, subject to certain
restrictions, exchange the value of a designated number of Annuity Units of
particular Sub-Accounts then credited with respect to the particular Payee for
other Annuity Units, the value of which would be such that the dollar amount of
an annuity payment made on the date of the exchange would be unaffected by the
fact of the exchange (See "Exchange of Variable Annuity Units" on page 29).
The Company will vote Series Fund shares held by the Sub-Accounts at
meetings of shareholders of the Series Fund, but will follow voting instructions
received from persons having the right to give voting instructions. The Owner or
Participant is the person having the right to give voting instructions prior to
the Annuity Commencement Date. On or after the Annuity Commencement Date the
Payee is the person having such voting rights. Any shares attributable to the
Company and Series Fund shares for which no timely voting instructions are
received will be voted by the Company in the same proportion as the shares for
which instructions are received from persons having such right (See "Voting of
Series Fund Shares" on page 31).
3
<PAGE>
The Company will furnish Participants and such other persons having voting
rights with certain reports and statements described under "Periodic Reports" on
page 32. Such reports, other than prospectuses, will not include the Company's
financial statements.
If a Participant is not satisfied with the Certificate it may be returned to
the Company at its Annuity Service Mailing Address within ten days after it was
delivered to the Participant. When the Company receives the returned Certificate
it will be cancelled and the Participant's Account Value at the end of the
Valuation Period during which the Certificate was received by the Company will
be refunded. However, if applicable state law so requires, the full amount of
any Purchase Payment received by the Company will be refunded, the "free look"
period may be greater than ten days and alternative methods of returning the
Certificate may be acceptable.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act"), as amended, and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information can be inspected and
copied at the public reference facilities of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. and at the Commission's Regional Offices
located at 75 Park Place, New York, New York and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed registration statements (the "Registration
Statements") with the Commission under the Securities Act of 1933 relating to
the Contracts offered by this Prospectus. This Prospectus has been filed as a
part of the Registration Statements and does not contain all of the information
set forth in the Registration Statements and exhibits thereto, and reference is
hereby made to such Registration Statements and exhibits for further information
relating to the Company and the Contracts. The Registration Statements and the
exhibits thereto may be inspected and copied, and copies can be obtained at
prescribed rates, in the manner set forth in the preceding paragraph.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K for the year ended December 31, 1995 and
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 heretofore
filed by the Company 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 hereby to the extent that a statement contained
in a later-filed document or herein shall modify or supersede such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will furnish, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of the document referred to above which has been incorporated by reference
in this Prospectus, other than exhibits to such document (unless such exhibits
are specifically incorporated by reference in the Prospectus). Requests for such
document should be directed to Bonnie S. Angus, Secretary, Sun Life Assurance
Company of Canada (U.S.), One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02181, telephone (617) 237-6030.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions 7
Expense Summary 9
Performance Data 11
This Prospectus Is a Catalog of Facts 11
Uses of the Contract 11
A Word About the Company, the Fixed Account, the Variable
Account and the Series Fund 12
The Company 12
The Fixed Account 12
The Variable Account 13
The Series Fund 14
Purchase Payments and Contract Values During Accumulation
Period 16
Purchase Payments 16
Participant's Account 17
Variable Accumulation Value 17
Fixed Accumulation Value 18
Guarantee Periods 18
Dollar Cost Averaging 19
Guaranteed Interest Rates 19
Transfer Privilege; Restriction on Market Timers 19
Cash Withdrawals, Withdrawal Charges and Market Value
Adjustment 20
Cash Withdrawals 20
Withdrawal Charges 21
Amount of Withdrawal Charge 22
Section 403(b) Annuities 22
Market Value Adjustment 22
Death Benefit 23
Death Benefit Provided by the Contract 23
Election and Effective Date of Election 23
Payment of Death Benefit 24
Amount of Death Benefit 24
How the Contract Charges Are Assessed 24
Administrative Charges 25
Premium Taxes 25
Mortality and Expense Risk Charge 25
Withdrawal Charges 26
Annuity Provisions 26
Annuity Commencement Date 26
Election--Change of Annuity Option 26
Annuity Options 27
Determination of Annuity Payments 28
Fixed Annuity Payments 28
Variable Annuity Payments 28
Annuity Unit Value 29
Exchange of Variable Annuity Units 29
Annuity Payment Rates 29
</TABLE>
5
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Other Contractual Provisions 29
Payment Limits 29
Designation and Change of Beneficiary 29
Exercise of Contract Rights 30
Change of Ownership 30
Death of Participant 30
Voting of Series Fund Shares 31
Periodic Reports 32
Substituted Securities 32
Change in Operation of Variable Account 32
Splitting Units 32
Modification 32
Discontinuance of New Participants 33
Custodian 33
Right to Return Contract 33
Federal Tax Status 33
Introduction 33
Tax Treatment of the Company and the Variable Account 34
Taxation of Annuities in General 34
Qualified Retirement Plans 36
Pension and Profit-Sharing Plans 36
Tax-Sheltered Annuities 36
Individual Retirement Accounts 36
Administration of the Contracts 37
Distribution of the Contracts 37
Additional Information About the Company 38
Selected Financial Data 38
Management's Discussion and Analysis of Financial
Condition and Results of Operations 38
Liquidity 41
Reinsurance 41
Reserves 41
Investments 41
Competition 42
Employees 42
Properties 42
The Company's Directors and Executive Officers 42
State Regulation 45
Legal Proceedings 46
Legal Matters 46
Accountants 46
Registration Statements 46
Financial Statements 47
Interim Period Financial Statements 78
Appendix A--Variable Accumulation Unit Value, Variable
Annuity Unit Value and Variable Annuity Payment
Calculations
Appendix B--State Premium Taxes
Appendix C--Withdrawals, Withdrawal Charges and the Market
Value Adjustment
Appendix D--Calculation of Performance Data; Advertising and
Sales Literature
</TABLE>
6
<PAGE>
DEFINITIONS
The following terms as used in this Prospectus have the indicated meanings:
ACCOUNT YEARS AND ACCOUNT ANNIVERSARIES: The first Account Year shall be
the period of 12 months plus a part of a month as measured from the Date of
Coverage for each Participant to the first day of the calendar month which
follows the calendar month of coverage. All Account Years and Anniversaries
thereafter shall be 12 month periods based upon such first day of the calendar
month which follows the calendar month of coverage. If, for example, the Date of
Coverage is in March, the first Account Year will be determined from the Date of
Coverage but will end on the last day of March in the following year; all other
Account Years and all Account Anniversaries will be measured from April 1.
ACCUMULATION PERIOD: The period before the Annuity Commencement Date and
during the lifetime of the Annuitant.
ANNUITANT: The person or persons named in the Application and on whose life
the first annuity payment is to be made. The Participant may not designate a
"Co-Annuitant" unless the Participant and Annuitant are different persons. If
more than one person is so named, all provisions of the Contract which are based
on the death of the "Annuitant" will be based on the date of death of the last
surviving of the persons so named. By example, the death benefit will become due
only upon the death, prior to the Annuity Commencement Date, of the last
surviving of the persons so named. Collectively, these persons are referred to
in this Contract as "Annuitants." The Participant is not permitted to name a
"Co-Annuitant" under a Qualified Contract.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
under each Certificate is to be made.
*ANNUITY OPTION: The method for making annuity payments.
ANNUITY UNIT: A unit of measure used in the calculation of the amount of
the second and each subsequent variable annuity payment from the Variable
Account.
APPLICATION: The document signed by each Participant that serves as his or
her application for participation under this Contract.
*BENEFICIARY: The person or entity having the right to receive the death
benefit set forth in each Certificate and, for Non-Qualified Contracts, who is
the "designated beneficiary" for purposes of Section 72(s) of the Internal
Revenue Code in the event of the Participant's death.
CERTIFICATE: The document for each Participant which evidences the coverage
of the Participant under the Contract.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
CONTRACT APPLICATION: The document signed by the Owner that evidences the
Owner's application for this Contract.
DATE OF COVERAGE: The date on which a Participant's Account becomes
effective.
DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to the
Company.
EXPIRATION DATE: The last day of a Guarantee Period.
FIXED ACCOUNT: The Fixed Account consists of all assets of the Company
other than those allocated to a separate account of the Company.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar
amount.
GUARANTEE AMOUNT: Any portion of a Participant's Account Value allocated to
a particular Guarantee Period with a particular Expiration Date (including
interest earned thereon).
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is
credited.
- ---------
*As specified in the Application, unless changed.
7
<PAGE>
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during any Guarantee Period.
ISSUE DATE: The date on which the Contract becomes effective.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement
plan which does not receive favorable federal income tax treatment under
Sections 401, 403, or 408 of the Internal Revenue Code. The Participant's
interest in the Contract must be owned by a natural person or agent for a
natural person for the Contract to receive favorable income tax treatment as an
annuity.
*OWNER: The person, persons or entity entitled to the ownership rights
stated in the Contract and in whose name or names the Contract is issued. The
Owner may designate a trustee or custodian of a retirement plan which meets the
requirements of Section 401, Section 408(c) or Section 408(k) of the Internal
Revenue Code to serve as legal owner of assets of a retirement plan, but the
term "Owner", as used herein, shall refer to the organization entering into the
Contract.
PARTICIPANT: The person named in the Certificate who is entitled to
exercise all rights and privileges of ownership under the Certificate, except as
reserved by the Owner.
PARTICIPANT'S ACCOUNT: An account established for each Participant to which
Net Purchase Payments are credited.
PARTICIPANT'S ACCOUNT VALUE: The variable accumulation value, if any, plus
the fixed accumulation value, if any, of a Participant's Account for any
Valuation Period.
PAYEE: A recipient of payments under the Contract. The term includes an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Annuitant.
PURCHASE PAYMENT (PAYMENT): An amount paid to the Company as consideration
for the benefits provided by the Contract.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which receives favorable federal income tax treatment under Sections 401, 403,
or 408 of the Internal Revenue Code of 1986, as amended.
RECEIPT: Receipt by the Company at its Annuity Service Mailing Address
shown on the cover of this Prospectus.
SERIES FUND: MFS/Sun Life Series Trust.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific series or sub-series of the Series Fund.
VALUATION PERIOD: The period of time from one determination of Variable
Accumulation Unit and Annuity Unit values to the next subsequent determination
of these values. Such determination shall be made as of the close of the New
York Stock Exchange on each day the Exchange is open for trading and on such
other days on which there is a sufficient degree of trading in the portfolio
securities of the Variable Account so that the values of Variable Accumulation
Units and Annuity Units might be materially affected.
VARIABLE ACCOUNT: A separate account of the Company consisting of assets
set aside by the Company, the investment performance of which is kept separate
from that of the general assets of the Company.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of
the value of the variable portion of a Participant's Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount
in relation to the investment performance of specified Sub-Accounts of the
Variable Account.
YEAR: Any consecutive period of 365 days.
- ---------
*As specified in the Application, unless changed.
8
<PAGE>
EXPENSE SUMMARY
The purpose of the following table and Example is to help Participants and
prospective purchasers to understand the costs and expenses that are borne,
directly and indirectly, by Participants WHEN PAYMENTS ARE ALLOCATED TO THE
VARIABLE ACCOUNT. The table reflects expenses of the Variable Account as well as
of the Series Fund. The information set forth should be considered together with
the narrative provided under the heading "How the Contract Charges Are Assessed"
in this Prospectus, and with the Series Fund's prospectus. In addition to the
expenses listed below, premium taxes may be applicable.
<TABLE>
<CAPTION>
CAPITAL
MONEY HIGH APPRE- GOVERNMENT WORLD
PARTICIPANT MARKET YIELD CIATION SECURITIES GOVERNMENTS
TRANSACTION EXPENSES SERIES SERIES SERIES SERIES SERIES
-------------------------- ------ ------ ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases 0 0 0 0 0
Deferred Sales Load (as a
percentage of Purchase
Payments withdrawn)
Number of Complete Years
Purchase Payment in
Account
Less than 1........... 1% 1% 1% 1% 1%
1 or more............. 0% 0% 0% 0% 0%
Exchange fee(1)........... 0 0 0 0 0
<CAPTION>
ANNUAL ACCOUNT FEE (2) $50 Per Participant's Account
--------------------------
SEPARATE ACCOUNT ANNUAL
EXPENSES
--------------------------
<S> <C> <C> <C> <C> <C>
(as a percentage of
average separate account
assets)
Mortality and Expense Risk
Fees..................... 1.00% 1.00% 1.00% 1.00% 1.00%
Administrative Expense
Charge................... 0.15% 0.15% 0.15% 0.15% 0.15%
Other Fees and Expenses of
the Separate Account..... 0.00% 0.00% 0.00% 0.00% 0.00%
Total Separate Account
Annual Expenses.......... 1.15% 1.15% 1.15% 1.15% 1.15%
<CAPTION>
SERIES FUND ANNUAL
EXPENSES
--------------------------
<S> <C> <C> <C> <C> <C>
(as a percentage of Series
Fund average net assets)
Management Fees........... 0.50% 0.75% 0.75% 0.55% 0.75%
Other Expenses............ 0.09% 0.12% 0.08% 0.08% 0.14%
Total Series Fund Annual
Expenses................. 0.59% 0.87% 0.83% 0.63% 0.89%
<CAPTION>
TOTAL MANAGED CONSERVATIVE
PARTICIPANT RETURN SECTORS GROWTH UTILITIES
TRANSACTION EXPENSES SERIES SERIES SERIES SERIES
-------------------------- ------ ------- ------------ ----------
<S> <C> <C> <C> <C>
Sales Load Imposed on
Purchases 0 0 0 0
Deferred Sales Load (as a
percentage of Purchase
Payments withdrawn)
Number of Complete Years
Purchase Payment in
Account
Less than 1........... 1% 1% 1% 1%
1 or more............. 0% 0% 0% 0%
Exchange fee(1)........... 0 0 0 0
ANNUAL ACCOUNT FEE (2)
--------------------------
SEPARATE ACCOUNT ANNUAL
EXPENSES
--------------------------
<S> <C> <C> <C> <C>
(as a percentage of
average separate account
assets)
Mortality and Expense Risk
Fees..................... 1.00% 1.00% 1.00% 1.00%
Administrative Expense
Charge................... 0.15% 0.15% 0.15% 0.15%
Other Fees and Expenses of
the Separate Account..... 0.00% 0.00% 0.00% 0.00%
Total Separate Account
Annual Expenses.......... 1.15% 1.15% 1.15% 1.15%
SERIES FUND ANNUAL
EXPENSES
--------------------------
<S> <C> <C> <C> <C>
(as a percentage of Series
Fund average net assets)
Management Fees........... 0.70% 0.75% 0.55% 0.75%
Other Expenses............ 0.06% 0.09% 0.09% 0.20%
Total Series Fund Annual
Expenses................. 0.76% 0.84% 0.64% 0.95%
</TABLE>
<TABLE>
<CAPTION>
WORLD WORLD
WORLD ASSET TOTAL EMERGING
PARTICIPANT GROWTH RESEARCH ALLOCATION RETURN GROWTH
TRANSACTION EXPENSES SERIES SERIES SERIES SERIES SERIES
- ------------------------------ -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases 0 0 0 0 0
Deferred Sales Load (as a
percentage of Purchase
Payments withdrawn)
Number of Complete Years
Purchase Payment in Account
Less than 1............... 1% 1% 1% 1% 1%
1 or more................. 0% 0% 0% 0% 0%
Exchange fee(1)............... 0 0 0 0 0
<CAPTION>
ANNUAL ACCOUNT FEE (2) $50 Per Participant's Account
- ------------------------------
SEPARATE ACCOUNT ANNUAL
EXPENSES
- ------------------------------
<S> <C> <C> <C> <C> <C>
(as a percentage of average
separate account assets)
Mortality and Expense Risk
Fees........................ 1.00% 1.00% 1.00% 1.00% 1.00%
Administrative Expense
Charge...................... 0.15% 0.15% 0.15% 0.15% 0.15%
Other Fees and Expenses of the
Separate Account............ 0.00% 0.00% 0.00% 0.00% 0.00%
Total Separate Account Annual
Expenses.................... 1.15% 1.15% 1.15% 1.15% 1.15%
<CAPTION>
SERIES FUND ANNUAL EXPENSES
- ------------------------------
<S> <C> <C> <C> <C> <C>
(as a percentage of Series
Fund average net assets)
Management Fees............... 0.75% 0.75% 0.75% 0.75% 0.75%
Other Expenses................ 0.32% 0.20% 0.36% 0.44% 0.25%
Total Series Fund Annual
Expenses.................... 1.07% 0.95% 1.11% 1.19% 1.00%
<CAPTION>
MFS/FOREIGN MFS/FOREIGN
MFS/FOREIGN & COLONIAL & COLONIAL
& COLONIAL INTERNATIONAL EMERGING
PARTICIPANT INTERNATIONAL GROWTH AND MARKETS EQUITY
TRANSACTION EXPENSES GROWTH SERIES INCOME SERIES SERIES VALUE SERIES
- ------------------------------ ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Sales Load Imposed on
Purchases 0 0 0 0
Deferred Sales Load (as a
percentage of Purchase
Payments withdrawn)
Number of Complete Years
Purchase Payment in Account
Less than 1............... 1% 1% 1% 1%
1 or more................. 0% 0% 0% 0%
Exchange fee(1)............... 0 0 0 0
ANNUAL ACCOUNT FEE (2)
- ------------------------------
SEPARATE ACCOUNT ANNUAL
EXPENSES
- ------------------------------
<S> <C> <C> <C> <C>
(as a percentage of average
separate account assets)
Mortality and Expense Risk
Fees........................ 1.00% 1.00% 1.00% 1.00%
Administrative Expense
Charge...................... 0.15% 0.15% 0.15% 0.15%
Other Fees and Expenses of the
Separate Account............ 0.00% 0.00% 0.00% 0.00%
Total Separate Account Annual
Expenses.................... 1.15% 1.15% 1.15% 1.15%
SERIES FUND ANNUAL EXPENSES
- ------------------------------
<S> <C> <C> <C> <C>
(as a percentage of Series
Fund average net assets)
Management Fees............... 0.00%(3) 0.975% 0.00%(3) 0.00%(3)
Other Expenses................ 1.50%(4) 0.525% 1.50%(4) 1.50%(4)
Total Series Fund Annual
Expenses.................... 1.50% 1.50%(4) 1.50% 1.50%
</TABLE>
- ------------
(1) A Market Value Adjustment may be imposed on amounts transferred from or
within the Fixed Account.
(2) The Annual Account Fee is $50. The Company will waive the Account Fee when
the Participant's Account Value is greater than $100,000 on the Account
Anniversary.
(3) The Series Fund's investment adviser (the "Adviser") has voluntarily reduced
the management fees for the Value Series, and the MFS/Foreign & Colonial
International Growth Series and Emerging Markets Equity Series to 0% of
average daily net assets on an annualized basis. This voluntary fee
reduction may be rescinded at any time. Absent this voluntary reduction,
management fees payable would be 0.75% for the Value Series, 0.975% for the
International Growth Series and 1.25% for the Emerging Markets Equity
Series.
(4) Other expenses of the Value Series and the MFS/Foreign & Colonial Series are
based on estimated amounts for the current fiscal year. The Adviser has
undertaken to reimburse each of these series for expenses that exceed 1.50%
of the average daily net assets of such series on an annualized basis, as
more fully described in the Series Fund's Prospectus. Absent such
reimbursement, expenses of the MFS/Foreign & Colonial International Growth
and Income Series for 1995 would have been 1.63%. The other series commenced
operations in 1996.
9
<PAGE>
EXAMPLE
If you do or do not surrender your Certificate, or if you annuitize at the
end of the applicable time period, you would pay the following expenses on a
$1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Capital Appreciation Series $ $
Conservative Growth Series
Emerging Growth Series [TO COME]
High Yield Series
Government Securities Series
MFS/Foreign & Colonial International
Growth and Income Series
MFS/Foreign & Colonial International
Growth Series
MFS/Foreign & Colonial Emerging Markets
Equity Series
Managed Sectors Series
Money Market Series
Research Series
Total Return Series
Utilities Series
Value Series
World Governments Series
World Growth Series
World Asset Allocation Series
World Total Return Series
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LOWER THAN THOSE SHOWN.
10
<PAGE>
PERFORMANCE DATA
From time to time the Variable Account may publish reports to shareholders,
sales literature and advertisements containing performance data relating to the
Sub-Accounts. Performance data will consist of total return quotations which
will always include quotations for the period subsequent to the date each Sub-
Account became available for investment under the Contracts, and for recent one
year and, when applicable, five and ten year periods. Such quotations for such
periods will be the average annual rates of return required for an initial
Purchase Payment of $1,000 to equal the actual variable accumulation value
attributable to such Purchase Payment on the last day of the period, after
reflection of all applicable withdrawal and contract charges. In addition, the
Variable Account may calculate non-standardized rates of return that do not
reflect withdrawal and contract charges. Results calculated without withdrawal
and/or contract charges will be higher. Performance figures used by the Variable
Account are based on the actual historical performance of the Series Fund for
specified periods, and the figures are not intended to indicate future
performance. The Variable Account may also from time to time compare its
investment performance to various unmanaged indices or other variable annuities
and may refer to certain rating and other organizations in its marketing
materials. More detailed information on the computations is set forth in
Appendix D.
THIS PROSPECTUS IS A CATALOG OF FACTS
This Prospectus contains information about the master group deferred annuity
contract (the "Contract") which provides fixed benefits, variable benefits or a
combination of both. It describes its uses and objectives, its benefits and
costs, and the rights and privileges of the Owner and the Participant, as
applicable. It also contains information about the Company, the Variable
Account, the Fixed Account and the Series Fund. It has been carefully prepared
in non-technical language to help you decide whether the purchase of a Contract
will fit the needs of your retirement plan. We urge you to read it carefully and
retain it for future reference. The Contract has appropriate provisions relating
to variable and fixed accumulation values and variable and fixed annuity
payments. A Variable Annuity and a Fixed Annuity have certain similarities. Both
provide that 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. The Company assumes the
mortality and expense risks under the Contract, for which it receives certain
amounts. The significant difference between a Variable Annuity and a Fixed
Annuity is that under a Variable Annuity, all investment risk is assumed by the
Participant or Payee and the amounts of the annuity payments vary with the
investment performance of the Variable Account; under a Fixed Annuity, the
investment risk is assumed by the Company (except in the case of early
withdrawals (See "Cash Withdrawals" and "Market Value Adjustment")) and the
amounts of the annuity payments do not vary. However, the Participant bears the
risk that the Guaranteed Interest Rate to be credited on amounts allocated to
the Fixed Account may not exceed the minimum guaranteed rate for any Guarantee
Period.
USES OF THE CONTRACT
The Contract is designed for use in connection with retirement plans which
meet the requirements of Section 401 (including Section 401(k)), Section 403,
Section 408(b), Section 408(c) or Section 408(k) of the Internal Revenue Code;
however, the Company may discontinue offering new Contracts in connection with
certain types of qualified plans. Certain federal tax advantages are currently
available to retirement plans which qualify as (1) self-employed individuals'
retirement plans under Section 401; (2) corporate or association retirement
plans under Section 401; (3) annuity purchase plans sponsored by certain tax
exempt organizations or public school systems under Section 403(b); or (4)
individual retirement accounts, including employer or association of employees
individual retirement accounts under Section 408(c) and SEP-IRAs under Section
408(k) (See "Federal Tax Status").
The Contract is also designed so that it may be used in connection with
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 Contract is issued to the Owner covering all Participants. Each
Participant receives a Certificate which evidences his or her participation
under the Contract. For the purposes of determining benefits under the Contract,
a Participant's Account is established for each Participant.
11
<PAGE>
A WORD ABOUT THE COMPANY,
THE FIXED ACCOUNT, THE VARIABLE ACCOUNT AND THE SERIES FUND
THE COMPANY
The Company is a stock life insurance company incorporated under the laws of
Delaware on January 12, 1970. Its Executive Office mailing address is One Sun
Life Executive Park, Wellesley Hills, Massachusetts 02181, telephone (617)
237-6030. It has obtained authorization to do business in forty-eight states,
the District of Columbia and Puerto Rico, and it is anticipated that the Company
will be authorized to do business in all states except New York. The Company
issues life insurance policies and individual and group annuities. The Company
has formed a wholly-owned subsidiary, Sun Life Insurance and Annuity Company of
New York, which issues individual fixed and combination fixed/variable annuity
contracts and group life and long-term disability insurance in New York and
which offers in New York contracts similar to the Contract offered by this
Prospectus. The Company's other subsidiaries are Massachusetts Financial
Services Company and Sun Capital Advisers, Inc., registered investment advisers,
Sun Investment Services Company, a registered broker-dealer and investment
adviser, Sun Benefit Services Company, Inc., which offers claims, administrative
and pension brokerage services, New London Trust, F.S.B., a federally chartered
savings bank, Massachusetts Casualty Insurance Company, which issues individual
disability income policies, and Sun Life Financial Services Limited which
provides off-shore administrative services to the Company and Sun Life Assurance
Company of Canada.
The Company is a wholly-owned subsidiary of Sun Life Assurance Company of
Canada, 150 King Street West, Toronto, Ontario, Canada. Sun Life Assurance
Company of Canada is a mutual life insurance company incorporated pursuant to
Act of Parliament of Canada in 1865 and currently transacts business in all of
the Canadian provinces and territories, all states except New York, the District
of Columbia, Puerto Rico, the Virgin Islands, Great Britain, Ireland, Hong Kong,
Bermuda and the Philippines (See "Additional Information about the Company").
THE FIXED ACCOUNT
The Fixed Account is made up of all of the general assets of the Company
other than those allocated to any separate account. Purchase Payments will be
allocated to Guarantee Periods available in connection with the Fixed Account to
the extent elected by the Participant at the time of the establishment of a
Participant's Account or as subsequently changed. In addition, all or part of
the Participant's Account Value may be transferred to Guarantee Periods
available under the Contract as described under "Transfer Privilege". Assets
supporting amounts allocated to Guarantee Periods become part of the Company's
general account assets and are available to fund the claims of all classes of
customers of the Company, including claims for benefits under Certificates.
The Company will invest the assets of the Fixed Account in those assets
chosen by the Company and allowed by applicable state laws regarding the nature
and quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
The Company intends to invest the assets of the Fixed Account primarily in
debt instruments as follows: (1) Securities issued by the United States
Government or its agencies or instrumentalities, which issues may or may not be
guaranteed by the United States Government; (2) Debt securities which have an
investment grade, at the time of purchase, within the four highest grades
assigned by Moody's Investors Services, Inc. (Aaa, Aa, A or Baa), Standard &
Poor's Corporation (AAA, AA, A or BBB) or any other nationally recognized rating
service; (3) Other debt instruments, including, but not limited to, issues of or
guaranteed by banks or bank holding companies and other corporations, which
obligations, although not rated by Moody's or Standard & Poor's, are deemed by
the Company's management to have an investment quality comparable to securities
which may be purchased as stated above; and (4) Other evidences of indebtedness
secured by mortgages or deeds of trust representing liens upon real estate.
Notwithstanding the foregoing, the Company may also invest a portion of the
Fixed Account in below investment grade debt instruments.
12
<PAGE>
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 offered by this Prospectus, 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 Contract which cannot be changed
(except as described under "Modification" with respect to Participant's Accounts
established after the effective date of such modification). In addition, the
Company guarantees that it will not increase charges for maintenance of the
Contracts, regardless of its actual expenses (except as described under
"Modification" with respect to Participant's Accounts established after the
effective date of such modification).
Investment income from the Fixed Account allocated to the Company includes
compensation for mortality and expense risks, distribution expenses and
administrative expenses borne by the Company in connection with contracts
participating in the Fixed Account. The Company expects to derive a profit from
this compensation. The amount of investment income allocated to the Contracts
will vary from Guarantee Period to Guarantee Period in the sole discretion of
the Company. However, the Company guarantees that it will credit interest at a
rate of not less than 3% per year, compounded annually, to amounts allocated to
the Fixed Account under the Contract. The Company may credit interest at a rate
in excess of the minimum rate; however, the Company is not obligated to credit
any interest in excess of such rate. There is no specific formula for the
determination of excess interest credits. Such credits, if any, will be
determined by the company based on information as to expected investment yields.
Some of the factors that the Company may consider in determining whether to
credit interest to amounts allocated to the Fixed Account and the amount
thereof, are: general economic trends; rates of return currently available and
anticipated on the Company's investments; regulatory and tax requirements; and
competitive factors. The Company's general investment strategy will be to invest
amounts allocated to the Fixed Account in investment-grade debt securities and
mortgages using immunization strategies with respect to the applicable Guarantee
Periods. This includes, with respect to investments and average terms of
investments, using dedication (cash flow matching) and/or duration matching to
minimize the Company's risk of not achieving the rates it is crediting under
Guarantee Periods in volatile interest rate environments. ANY INTEREST CREDITED
TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3% WILL BE DETERMINED IN
THE SOLE DISCRETION OF THE COMPANY. THE PARTICIPANT ASSUMES THE RISK THAT
INTEREST CREDITED ON AMOUNTS ALLOCATED TO THE FIXED ACCOUNT MAY NOT EXCEED 3%
FOR ANY GIVEN YEAR.
The Company is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in the Company's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and contract owners and to its sole stockholder.
THE VARIABLE ACCOUNT
The basic objective of a variable annuity contract is to provide variable
annuity payments which will be to some degree responsive to changes in the
economic environment, including inflationary forces and changes in rates of
return available from various types of investments. The Contract is designed to
seek to accomplish this objective by providing that variable annuity payments
(1) will reflect the investment performance of the Variable Account with respect
to amounts allocated to the Variable Account before the Annuity Commencement
Date and (2) will reflect the investment performance of the Variable Account
after that date. Since the Variable Account is always fully invested in Series
Fund shares, its investment performance
13
<PAGE>
reflects the investment performance of the Series Fund. Values of Series Fund
shares held by the Variable Account fluctuate and are subject to the risks of
changing economic conditions as well as the risk inherent in the ability of the
Series Fund's management to make necessary changes in its portfolios to
anticipate changes in economic conditions. Therefore, the Participant bears the
entire investment risk that the basic objectives of the Contract may not be
realized, and that the adverse effects of inflation may not be lessened and
there can be no assurance that the aggregate amount of variable annuity payments
will equal or exceed the aggregate amount of Purchase Payments made with respect
to a particular Participant's Account for the reasons described above or because
of the premature death of a Payee.
Another important feature of the Contract related to its basic objective is
the Company's promise that the dollar amount of variable annuity payments made
during the lifetime of the Payee(s) will not be adversely affected by the actual
mortality experience of the Company or by the actual expenses incurred by the
Company in excess of expense deductions provided for in the Contract.
Sun Life of Canada (U.S.) Variable Account F (the "Variable Account") was
established by the Company as a separate account on July 13, 1989 pursuant to a
resolution of its Board of Directors. Under Delaware insurance law and the
Contract, the income, gains or losses of the Variable Account are credited to or
charged against the assets of the Variable Account without regard to the other
income, gains, or losses of the Company. These assets are held in relation to
the Contracts described in this Prospectus and such other variable annuity
contracts issued by the Company and designated by it as providing benefits which
vary in accordance with the investment performance of the Variable Account.
Although the assets maintained in the Variable Account will not be charged with
any liabilities arising out of any other business conducted by the Company, all
obligations arising under the Contracts, including the promise to make annuity
payments, are general corporate obligations of the Company.
The Variable Account meets the definition of a separate account under the
federal securities laws and is registered as a unit investment trust under the
Investment Company Act of 1940. Registration with the Securities and Exchange
Commission does not involve supervision of the management or investment
practices or policies of the Variable Account or of the Company by the
Commission.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of a specific series of the Series
Fund. All amounts allocated to the Variable Account will be used to purchase
Series Fund shares as designated by the Participant at their net asset value.
Any and all distributions made by the Series Fund with respect to the shares
held by the Variable Account will be reinvested to purchase additional shares at
their net asset value. Deductions from the Variable Account for cash
withdrawals, annuity payments, death benefits, Account Fees, contract charges
against the assets of the Variable Account for the assumption of mortality and
expense risks, distribution expenses, administrative expenses and any applicable
taxes will, in effect, be made by redeeming the number of Series Fund shares at
their net asset value equal in total value to the amount to be deducted. The
Variable Account will be fully invested in Series Fund shares at all times.
THE SERIES FUND
MFS/Sun Life Series Trust (the "Series Fund") is an open-end investment
management company registered under the Investment Company Act of 1940.
Currently shares of the Series Fund are also sold to other separate accounts
established by the Company and Sun Life Insurance and Annuity Company of New
York in connection with individual and group variable annuity contracts and
variable life insurance contracts. In the future, shares of the Series Fund may
be sold to other separate accounts established by the Company or its affiliates
to fund other variable annuity or variable life insurance contracts. The Company
and its affiliates will be responsible for reporting to the Series Fund's Board
of Trustees any potential or existing conflicts between the interests of
variable annuity contract owners/participants and the interests of owners of
variable life insurance contracts that provide for investment in shares of the
Series Fund. The Board of Trustees, a majority of whom are not "interested
persons" of the Series Fund, as that term is defined in the Investment Company
Act of 1940, also intends to monitor the Series Fund to identify the existence
of any such irreconcilable material conflicts and to determine what action, if
any, should be taken by the Series Fund and/or the Company and its affiliates
(see "Management of the Series Fund" in the Series Fund prospectus).
14
<PAGE>
The Series Fund is composed of nineteen independent portfolios of
securities, each of which has separate investment objectives and policies.
Shares of the Series Fund are issued in nineteen series, each corresponding to
one of the portfolios; however, the Contracts provide for investment only in
shares of the eighteen series of the Series Fund described below. Additional
portfolios may be added to the Series Fund which may or may not be available for
investment by the Variable Account.
(1) MONEY MARKET SERIES ("MMS") will seek maximum current income to the
extent consistent with stability of principal by investing exclusively in money
market instruments maturing in less than 13 months, including U.S. government
securities and repurchase agreements collateralized by such securities,
obligations of the larger banks and prime commercial paper.
(2) HIGH YIELD SERIES ("HYS") will seek high current income and capital
appreciation by investing primarily in fixed income securities of U.S. and
foreign issuers which may be in the lower rated categories or unrated (commonly
known as "junk bonds") and which may include equity features. These securities
generally involve greater volatility of price and risk to principal and income
and less liquidity than securities in the higher rated categories. Any person
contemplating allocating Purchase Payments to the Sub-Account investing in
shares of the High Yield Series should review the risk disclosure in the Series
Fund prospectus carefully and consider the investment risks involved.
(3) CAPITAL APPRECIATION SERIES ("CAS") will seek capital appreciation by
investing in securities of all types, with a major emphasis on common stocks.
(4) GOVERNMENT SECURITIES SERIES ("GSS") will seek current income and
preservation of capital by investing in U.S. Government and Government-related
Securities.
(5) WORLD GOVERNMENTS SERIES ("WGS") will seek moderate current income and
preservation and growth of capital by investing in a portfolio of U.S. and
Foreign Government Securities.
(6) TOTAL RETURN SERIES ("TRS") will seek primarily to obtain above-average
income (compared to a portfolio entirely invested in equity securities)
consistent with prudent employment of capital; its secondary objective is to
take advantage of opportunities for growth of capital and income. Assets will be
allocated and reallocated from time to time between money market, fixed income
and equity securities. Under normal market conditions, at least 25% of the Total
Return Series' assets will be invested in fixed income securities and at least
40% and no more than 75% of its assets will be invested in equity securities.
(7) MANAGED SECTORS SERIES ("MSS") will seek capital appreciation by varying
the weighting of its portfolio of common stocks among certain industry sectors.
Dividend income, if any, is incidental to its objective of capital appreciation.
(8) CONSERVATIVE GROWTH SERIES ("CGS") will seek long-term growth of capital
and future income while providing more current dividend income than is normally
obtainable from a portfolio of only growth stocks by investing a substantial
proportion of its assets in the common stocks or securities convertible into
common stocks of companies believed to possess better than average prospects for
long-term growth and a smaller proportion of its assets in securities whose
principal characteristic is income production.
(9) UTILITIES SERIES ("UTS") will seek capital growth and current income
(income above that available from a portfolio invested entirely in equity
securities) by investing, under normal market conditions, at least 65% of its
assets in equity and debt securities issued by both domestic and foreign utility
companies.
(10) WORLD GROWTH SERIES ("WGR") will seek capital appreciation by investing
in securities of companies worldwide growing at rates expected to be well above
the growth rate of the overall U.S. economy.
(11) RESEARCH SERIES ("RES") will seek to provide long-term growth of
capital and future income.
(12) WORLD ASSET ALLOCATION SERIES ("WAA") will seek total return over the
long term through investments in foreign and domestic equity and fixed income
securities and will also seek to have low volatility of share price (i.e. net
asset value per share) and reduced risk (compared to an aggressive equity/ fixed
income portfolio).
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<PAGE>
(13) WORLD TOTAL RETURN SERIES ("WTR") will seek total return by investing
in securities which will provide above average current income (compared to a
portfolio invested entirely in equity securities) and opportunities for
long-term growth of capital and income. The series will invest primarily in
global equity and fixed income securities (i.e. those of U.S. and non-U.S.
issuers).
(14) EMERGING GROWTH SERIES ("EGS") will seek to provide long-term growth of
capital by investing primarily (i.e. at least 80% of its assets under normal
circumstances) in common stocks of emerging growth companies, including small
and medium sized companies that are early in their life cycle but which have the
potential to become major enterprises. Dividend and interest income from
portfolio securities, if any, is incidental to its objective of long-term growth
of capital.
(15), (16) AND (17) The following three series are collectively referred to
as the "MFS/Foreign & Colonial Series."
(15) MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH SERIES ("IGS") will seek
capital appreciation by investing, under normal market conditions, at least 65%
of its total assets in equity securities of companies whose principal activities
are outside the U.S. growing at rates expected to be well above the growth rate
of the overall U.S. economy.
(16) MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME SERIES ("IGI")
will seek capital appreciation and current income by investing, under normal
market conditions, at least 65% of its total assets in equity and fixed income
securities of issuers whose principal activities are outside the U.S.
(17) MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES ("EME") will seek
capital appreciation by investing, under normal market conditions, at least 65%
of its total assets in equity securities of issuers whose principal activities
are located in emerging market countries.
(18) VALUE SERIES ("VAL") will seek capital appreciation.
The investment adviser of the Series Fund, Massachusetts Financial Services
Company ("MFS"), is paid fees by the Series Fund for its services pursuant to
investment advisory agreements. MFS, a Delaware corporation, is a subsidiary of
the Company. MFS also serves as investment adviser to each of the funds in the
MFS Family of Funds, and to certain other investment companies established or
distributed by MFS and/ or the Company. MFS Asset Management, Inc., a subsidiary
of MFS, provides investment advice to substantial private clients. MFS and its
predecessor organizations have a history of money management dating from 1924.
MFS operates as an autonomous organization and the obligation of performance
with respect to the investment advisory and underwriting agreements (including
supervision of the sub-advisers noted below) is solely that of MFS. The Company
undertakes no obligation in this respect.
The investment advisory agreements for the World Growth Series and the
MFS/Foreign & Colonial Series permit MFS from time to time to engage one or more
sub-advisers to assist in the performance of its services. MFS has engaged
Foreign & Colonial Management Limited ("FCM") and its subsidiary, Foreign &
Colonial Emerging Markets Limited ("FCEM"), as sub-advisers of these series and
has engaged Oechsle International Advisors, L.P. as an additional sub-adviser of
the World Growth Series. FCM and FCEM replaced Batterymarch Financial
Management, Inc. as sub-advisers to the World Growth Series as of May 1, 1996.
A more detailed description of the Series Fund, its management, its
investment objectives, policies and restrictions and its expenses may be found
in the accompanying current prospectus of the Series Fund and in the Series
Fund's Statement of Additional Information.
PURCHASE PAYMENTS AND CONTRACT VALUES DURING ACCUMULATION PERIOD
PURCHASE PAYMENTS
(1) PLACE, AMOUNT AND FREQUENCY
All Purchase Payments are to be paid to the Company at its Annuity Service
Mailing Address. The amount of Purchase Payments may vary; however, the Company
will not accept an initial Purchase Payment to be allocated to a Participant's
Account which is less than $25,000, and each additional Purchase
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<PAGE>
Payment must be at least $1,000 unless waived by the Company. In addition, the
prior approval of the Company is required before it will accept a Purchase
Payment which would cause the value of a Participant's Account to exceed
$1,000,000. If the value of a Participant's Account exceeds $1,000,000, no
additional Purchase Payments will be allocated without the prior approval of the
Company.
A completed Application and the initial Purchase Payment are forwarded to
the Company for acceptance. Upon acceptance, the Contract and Certificate(s), as
applicable, are issued to the Owner and/or Participant(s), respectively, and the
initial Purchase Payment is then credited to the Participant's Account. The
initial Purchase Payment must be applied within two business days of receipt by
the Company of a completed Application. The Company may retain the Purchase
Payment for up to five business days while attempting to complete an incomplete
Application. If the Application cannot be made complete within five business
days, the prospective participant will be informed of the reasons for the delay
and the Purchase Payment will be returned immediately unless the prospective
participant specifically consents to the Company's retaining the Purchase
Payment until the Application is made complete. Thereafter, the Purchase Payment
must be applied within two business days. Subsequent Purchase Payments are
applied at the end of the Valuation Period during which they are received by the
Company.
(2) ACCOUNT CONTINUATION
A Participant's Account shall be continued automatically in full force
during the lifetime of the Annuitant until the Annuity Commencement Date or
until the Participant's Account is surrendered. Purchase Payments may be made at
any time while the Participant's Account is in force.
(3) ALLOCATION OF NET PURCHASE PAYMENTS
The Net Purchase Payment is that portion of a Purchase Payment which remains
after deduction of any applicable premium or similar tax. Each Net Purchase
Payment will be allocated either to Guarantee Periods available in connection
with the Fixed Account or to Sub-Accounts of the Variable Account or to both
Sub-Accounts and the Fixed Account in accordance with the allocation factors
specified in the Application, or as subsequently changed.
The allocation factors for new Payments among the Guarantee Period(s) and
the Sub-Accounts may be changed by the Participant at any time by giving written
notice of the change to the Company. Any change will take effect with the first
Purchase Payment received with or after receipt of notice of the change by the
Company and will continue in effect until subsequently changed.
PARTICIPANT'S ACCOUNT
The Company will establish a Participant's Account for each Participant
under a Contract and will maintain the Participant's Account during the
Accumulation Period. The Participant's Account Value for any Valuation Period is
equal to the sum of the variable accumulation value, if any, plus the fixed
accumulation value, if any, of the Participant's Account for that Valuation
Period.
VARIABLE ACCUMULATION VALUE
The variable accumulation value, if any, of a Participant's Account for any
Valuation Period is equal to the sum of the value of all Variable Accumulation
Units credited to the Participant's Account for such Valuation Period.
(1) CREDITING VARIABLE ACCUMULATION UNITS
Upon receipt of a Purchase Payment by the Company, all or that portion, if
any, of the Net Purchase Payment to be allocated to any Sub-Accounts in
accordance with the allocation factors will be credited to the Participant's
Account in the form of Variable Accumulation Units. The number of particular
Variable Accumulation Units to be credited is determined by dividing the dollar
amount allocated to the particular Sub-Account by the Variable Accumulation Unit
value of the particular Sub-Account for the Valuation Period during which the
Purchase Payment is applied by the Company to the Participant's Account.
(2) VARIABLE ACCUMULATION UNIT VALUE
The Variable Accumulation Unit value for each Sub-Account was established at
$10.00 for the first Valuation Period of the particular Sub-Account. The
Variable Accumulation Unit value for the particular Sub-Account for any
subsequent Valuation Period is determined by methodology which is the
mathematical
17
<PAGE>
equivalent of multiplying the Variable Accumulation Unit value for the
particular Sub-Account for the immediately preceding Valuation Period by the Net
Investment Factor for the particular Sub-Account for such subsequent Valuation
Period. The Variable Accumulation Unit value for each Sub-Account for any
Valuation Period is the value determined as of the end of the particular
Valuation Period and may increase, decrease or remain the same from Valuation
Period to Valuation Period in accordance with the Net Investment Factor
described below. For a hypothetical example of the calculation of the value of a
Variable Accumulation Unit, see Appendix A.
(3) NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one; therefore the
value of a Variable Accumulation Unit may increase, decrease or remain the same.
The Net Investment Factor for any Sub-Account for any Valuation Period is
determined by dividing (a) by (b) and then subtracting (c) from the result
where:
(a) is the net result of:
(1) the net asset value of a Series Fund share held in the
Sub-Account determined as of the end of the Valuation Period, plus
(2) the per share amount of any dividend or other distribution
declared by the Series Fund on the shares held in the Sub-Account if the
"ex-dividend" date occurs during the Valuation Period, plus or minus
(3) a per share credit or charge with respect to any taxes paid or
reserved for by the Company during the Valuation Period which are
determined by the Company to be attributable to the operation of the
Sub-Account (no federal income taxes are applicable under present law);
(b) is the net asset value of a Series Fund share held in the
Sub-Account determined as of the end of the preceding Valuation Period; and
(c) is the asset charge factor determined by the Company for the
Valuation Period to reflect the charges for assuming the mortality and
expense risks and administrative expense risks.
FIXED ACCUMULATION VALUE
The fixed accumulation value, if any, of a Participant's Account for any
Valuation Period is equal to the sum of the values of all Guarantee Amounts
credited to the Participant's Account for such Valuation Period.
GUARANTEE PERIODS
The Participant may elect one or more Guarantee Period(s) from among those
made available by the Company. The period(s) elected will determine the
Guaranteed Interest Rate(s). A Purchase Payment, or the portion thereof (at
least $1,000) (or the amount transferred in accordance with the Transfer
Privilege) allocated to a particular Guarantee Period, less any applicable
premium or similar taxes and any amounts subsequently withdrawn, will earn
interest at the Guaranteed Interest Rate during the Guarantee Period. Initial
Guarantee Periods begin on the date the Purchase Payment is applied, or, in the
case of a transfer, on the effective date of the transfer, and end the number of
calendar months in the Guarantee Period elected from the end of the calendar
month in which the amount was allocated to the Guarantee Period (the "Expiration
Date"). Subsequent Guarantee Periods begin on the first day following the
Expiration Date.
Any portion of a Participant's Account Value allocated to a particular
Guarantee Period with a particular Expiration Date (including interest earned
thereon) will be referred to herein as a "Guarantee Amount". Interest will be
credited daily at a rate equivalent to the compound annual rate. As a result of
additional Purchase Payments, renewals and transfers of portions of the
Participant's Account Value described under "Transfer Privilege" below, which
will begin new Guarantee Periods, Guarantee Amounts allocated to Guarantee
Periods of the same duration may have different Expiration Dates. Thus each
Guarantee Amount will be treated separately for purposes of determining any
Market Value Adjustment (See "Market Value Adjustment").
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<PAGE>
The Company will notify the Participant in writing at least 45 and no more
than 75 days prior to the Expiration Date for any Guarantee Amount except for
Guarantee Amounts held under a Dollar Cost Averaging Option described below. A
new Guarantee Period of the same duration as the previous Guarantee Period will
commence automatically on the first day following the Expiration Date of the
previous Guarantee Period unless the Company receives, prior to the Expiration
Date, a written election by the Participant of a new Guarantee Period from among
those being offered by the Company at such time, or instructions to transfer all
or a portion of the Guarantee Amount to one or more Sub-Accounts in accordance
with the Transfer Privilege Provision. Each new Guarantee Amount must be at
least $1,000 unless it is equal to the entire Guarantee Amount being tranferred.
DOLLAR COST AVERAGING
The Participant may also elect an available Dollar Cost Averaging Option in
connection with selected Initial Guarantee Periods [subject to a minimum amount
of $1,000]. Dollar Cost Averaging Options are available monthly or quarterly:
1. Monthly Dollar Cost Averaging Option: Amounts allocated will be divided
among 12 separate sequentially maturing Guarantee Periods. The first
Guarantee Period ends one full calendar month following the date the Net
Purchase Payment is applied and each subsequent Guarantee Period shall
end one full calendar month later, sequentially thereafter. The
Guarantee Amount at the Expiration Date of each such Guarantee Period
will equal 1/12 of the Net Purchase Payment applied under this Option,
with the Guarantee Amount at the last Expiration Date including all
interest earned in the 12 Guarantee Periods.
2. Quarterly Dollar Cost Averaging: Amounts allocated will be divided among
four separate sequentially maturing Guarantee Periods. The first
Guarantee Period ends three full calendar months following the date the
Net Purchase Payment is applied and each subsequent Guarantee Period
shall end three full calendar months later, sequentially thereafter. The
Guarantee Amount at the Expiration Date of each such Guarantee Period
will equal 1/4 of the Net Purchase Payment applied under this Option,
with the Guarantee Amount at the last Expiration Date including all
interest earned.
Only initial and subsequent Purchase Payments may be allocated to a Dollar
Cost Averaging Option. Previously applied amounts may not be transferred to any
Dollar Cost Averaging Option.
GUARANTEED INTEREST RATES
The Company periodically will establish an applicable Guaranteed Interest
Rate for each Guarantee Period offered by the Company. Current Guaranteed
Interest Rates may be changed by the Company frequently or infrequently
depending on interest rates available to the Company and other factors as
described below. Rates will be guaranteed for the duration of the respective
Guarantee Periods. However, Participant's Account Value withdrawn from the Fixed
Account will be subject to any applicable withdrawal charge and Account Fee and
may be subject to a Market Value Adjustment on withdrawal or surrender (See
"Market Value Adjustment").
The Guaranteed Interest Rate will not be less than 3% per year, compounded
annually. The Company has no specific formula for determining the rate of
interest that it will declare as a Guaranteed Interest Rate, as these rates will
be reflective of interest rates available on the types of debt instruments in
which the Company intends to invest amounts allocated to the Fixed Account (See
"The Fixed Account"). In addition, the Company's management may consider other
factors in determining Guaranteed Interest Rates including: regulatory and tax
requirements; sales commissions and administrative and distribution expenses
borne by the Company; general economic trends; and competitive factors. The
Participant bears the risk that the Guaranteed Interest Rate to be credited on
amounts allocated to the Fixed Account may not exceed 3% per year.
TRANSFER PRIVILEGE; RESTRICTION ON MARKET TIMERS
At any time during the Accumulation Period the Participant may, upon written
request received by the Company, transfer all or part of the Participant's
Account Value to one or more Sub-Accounts or Guarantee Periods available under
the Contract, subject to the following conditions: (1) not more than 12
transfers may
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<PAGE>
be made in any Account Year; (2) a minimum of 30 days must elapse between
transfers made to or from the Fixed Account or among Guarantee Periods; (3) the
amount being transferred from a Sub-Account may not be less than $1,000, unless
the total Participant's Account Value attributable to a Sub-Account is being
transferred; (4) any Participant's Account Value remaining in a Sub-Account may
not be less than $1,000; (5) the total Participant's Account Value attributable
to the Guarantee Amount must be transferred; and (6) transfers may not be
allocated to the Monthly or Quarterly Dollar Cost Averaging Options described
above. In addition, transfers of a Guarantee Amount will be subject to the
Market Value Adjustment described below unless the transfer is effective within
30 days prior to the Expiration Date applicable to the Guarantee Amount; and
transfers involving Variable Accumulation Units shall be subject to such terms
and conditions as may be imposed by the Series Fund. Currently, there is no
charge for transfers; however, the Company reserves the right to impose a charge
of up to $15 for each transfer. A transfer generally will be effective on the
date the request for transfer is received by the Company. Under current law,
there will not be any tax liability to the Participant if a Participant makes a
transfer.
The Contracts are not designed for professional market timing organizations
or other entities using programmed and frequent transfers. The Series Fund has
reserved the right to temporarily or permanently refuse exchange requests if, in
the judgment of the Series Fund's investment adviser, a series would be unable
to invest effectively in accordance with its investment objective and policies,
or would otherwise potentially be adversely affected. In particular, a pattern
of exchanges that coincide with a "market timing" strategy may be disruptive to
a series and therefore may be refused. Accordingly, the Variable Account may not
be in a position to effectuate transfers and may refuse transfer requests
without prior notice. Persons who wish to employ such strategies should not
purchase a Contract.
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
At any time before the Annuity Commencement Date and during the lifetime of
the Annuitant, the Participant may elect to receive a cash withdrawal payment
from the Company. Any such election shall specify the amount of the withdrawal
and will be effective on the date that it is received by the Company.
The Participant may request a full surrender or partial withdrawal. A full
surrender will result in a cash withdrawal payment equal to the value of the
Participant's Account at the end of the Valuation Period during which the
election becomes effective less the Account Fee, plus or minus any applicable
Market Value Adjustment, and less any applicable withdrawal charge. A request
for a partial withdrawal will result in the cancellation of a portion of the
Participant's Account Value equal to the dollar amount of the cash withdrawal
payment, plus or minus any applicable Market Value Adjustment and plus any
applicable withdrawal charge. If a partial withdrawal is requested which would
leave a Participant's Account Value of less than the Account Fee, then such
partial withdrawal will be treated as a full surrender. The Account Fee and any
applicable Market Value Adjustment will be deducted from the Participant's
Account before the application of any withdrawal charge.
In the case of a partial withdrawal, the Participant may instruct the
Company as to the amounts to be withdrawn from each Sub-Account and/or Guarantee
Amount. If not so instructed, the Company will effect such withdrawal pro-rata
from each Sub-Account and Guarantee Amount in which the Participant's Account
Value is invested at the end of the Valuation Period during which the withdrawal
becomes effective. ALL CASH WITHDRAWALS OF ANY GUARANTEE AMOUNT, EXCEPT THOSE
EFFECTIVE WITHIN 30 DAYS PRIOR TO THE EXPIRATION DATE OF SUCH GUARANTEE AMOUNT,
WILL BE SUBJECT TO THE MARKET VALUE ADJUSTMENT.
Cash withdrawals from a Sub-Account will result in the cancellation of
Variable Accumulation Units attributable to the Participant's Account with an
aggregate value on the effective date of the withdrawal equal to the total
amount by which the Sub-Account is reduced. The cancellation of such units will
be based on the Variable Accumulation Unit values of the Sub-Account for the
Valuation Period during which the cash withdrawal is effective.
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<PAGE>
The Company, upon request, will advise the Participant of the amounts that
would be payable in the event of a full surrender or partial withdrawal.
Any cash withdrawal payment will be paid within seven days from the date the
election becomes effective, except as the Company may be permitted to defer such
payment in accordance with the Investment Company Act of 1940 and applicable
state insurance law. Deferral of amounts withdrawn from the Variable Account is
currently permissible only (1) for any period (a) during which the New York
Stock Exchange is closed other than customary week-end and holiday closings or
(b) during which trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission, (2) for any period during
which an emergency exists as a result of which (a) disposal of securities held
by the Series Fund is not reasonably practicable or (b) it is not reasonably
practicable to determine the value of the net assets of the Series Fund or (3)
for such other periods as the Securities and Exchange Commission may by order
permit for the protection of security holders. The Company reserves the right to
defer the payment of amounts withdrawn from the Fixed Account for a period not
to exceed six months from the date written request for such withdrawal is
received by the Company. The Company is not required to pay interest on amounts
so deferred.
Since the Qualified Contracts offered by this Prospectus will be issued in
connection with retirement plans which meet the requirements of Sections 401,
403, and 408 of the Internal Revenue Code, reference should be made to the terms
of the particular retirement plan for any limitations or restrictions on cash
withdrawals. For special restrictions applicable to withdrawals from Contracts
used with Tax-Sheltered Annuities established pursuant to Section 403(b) of the
Internal Revenue Code, see "Section 403(b) Annuities" below.
A cash withdrawal under either a Qualified or Non-Qualified Contract offered
by this Prospectus also may result in a tax penalty. The tax consequences of a
cash withdrawal payment under both Qualified and Non-Qualified Contracts should
be carefully considered (See "Federal Tax Status").
WITHDRAWAL CHARGES
No sales charges are deducted from Purchase Payments. 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").
No withdrawal charge is assessed upon annuitization, upon payment of the
death benefit or upon the transfer of Participant's Account Value among the
Sub-Accounts or between the Sub-Accounts and the Fixed Account or within the
Fixed Account.
The withdrawal charge is not assessed with respect to a Participant's
Account established for the personal account of an employee of the Company or of
any of its affiliates, or of a licensed insurance agent engaged in distributing
the Contracts and Certificates, and the Company may waive the withdrawal charge
with respect to Purchase Payments derived from the surrender of contracts or
certificates issued in connection with other combination fixed/variable annuity
contracts issued by the Company.
For purposes of a full surrender or partial withdrawal, each withdrawal is
allocated to previously unliquidated Purchase Payments on a first-in, first-out
basis until all Purchase Payments have been liquidated. Once all Purchase
Payments have been liquidated, any additional withdrawals will come from the
earnings on the Contract and are not subject to a withdrawal charge. The amount
subject to a withdrawal charge is the amount of the partial withdrawal or full
surrender up to the maximum of the sum of all unliquidated Purchase Payments.
AMOUNT OF WITHDRAWAL CHARGE
A withdrawal charge percentage of 1% is applied to Purchase Payments
withdrawn which have been credited to a Participant's Account for less than one
year (365 days).
When a withdrawal is made from a Qualified Contract to comply with mandatory
minimum distribution requirements, no withdrawal charge will be applied to the
amount required to be distributed during each
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Account Year. These required distributions may commence during and continue
after the year in which the Annuitant attains age 70 1/2. Any amounts withdrawn
in excess of the required minimum distribution during each Account Year will be
subject to any applicable withdrawal charge.
In no event shall the aggregate withdrawal charges assessed against a
Participant's Account exceed 1% of the aggregate Purchase Payments made under a
Certificate (See Appendix C for examples of withdrawals, withdrawal charges and
the Market Value Adjustment). The Company may, upon notice to the Owner, modify
the withdrawal charge, provided that such modification shall apply only to
Participant's 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 these Contracts to
receive tax deferred treatment, the Contract must provide that cash withdrawals
of amounts attributable to salary reduction contributions (other than
withdrawals of accumulation account value as of December 31, 1988 ("Pre-1989
Account Value")) may be made only when the Participant attains age 59 1/2,
separates from service with the employer, dies or becomes disabled (within the
meaning of Section 72(m)(7) of the Code). These restrictions apply to any growth
or interest on or after January 1, 1989 on Pre-1989 Account Value, salary
reduction contributions made on or after January 1, 1989, and any growth or
interest on such contributions ("Restricted Account Value").
Withdrawals of Restricted Account Value are also permitted in cases of
financial hardship, but only to the extent of contributions; earnings on
contributions cannot be withdrawn for hardship reasons. While specific rules
defining hardship have not been issued by the Internal Revenue Service, it is
expected that to qualify for a hardship distribution, the Participant must have
an immediate and heavy bona fide financial need and lack other resources
reasonably available to satisfy the need. Hardship withdrawals (as well as
certain other premature withdrawals) will be subject to a 10% tax penalty, in
addition to any withdrawal charge applicable under the Contract (See "Federal
Tax Status").
Under the terms of a particular Section 403(b) plan, the Participant may be
entitled to transfer all or a portion of the Participant's Account Value to one
or more alternative funding options. Participants should consult the documents
governing their plan and the person who administers the plan for information as
to such investment alternatives.
With respect to these restrictions on withdrawals from the Variable Account,
the Company is relying upon a no-action letter dated November 28, 1988 from the
staff of the Securities and Exchange Commission to the American Council of Life
Insurance, the requirements for which have been complied with by the Company.
For information on the federal income tax withholding rules that apply to
distributions from Qualified Contracts (including Section 403(b) Annuities) see
"Federal Tax Status".
MARKET VALUE ADJUSTMENT
Any cash withdrawal of a Guarantee Amount, other than a withdrawal effective
within 30 days prior to the Expiration Date of the Guarantee Amount will be
subject to a Market Value Adjustment ("MVA") (for this purpose, transfers,
distributions on the death of a Participant and amounts applied to purchase an
annuity are treated as cash withdrawals). The MVA will be applied to the amount
being withdrawn which is subject to the MVA, after deduction of any applicable
Account Fee and before deduction of any applicable withdrawal charge.
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<PAGE>
The MVA will reflect the relationship between the Current Rate (as defined
below) for the Guarantee Amount being withdrawn and the Guaranteed Interest Rate
applicable to the amount being withdrawn. It also reflects the time remaining in
the applicable Guarantee Period. 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, the application of the MVA will
result in a higher payment upon withdrawal.
The Market Value Adjustment is determined by the application of the
following formula:
<TABLE>
<S> <C>
N/12
1 + I
( ----- ) -1
1 + J
</TABLE>
where,
I is the Guaranteed Interest Rate being credited to the Guarantee Amount
subject to the Market Value Adjustment,
J is the Guaranteed Interest Rate declared by the Company, as of the
effective date of the application of the Market Value Adjustment, for current
allocations to Guarantee Period(s). If the Guarantee Period was originally
established through Monthly or Quarterly Dollar Cost Averaging Options, J is the
Guaranteed Interest Rate declared for current allocations to these options. For
all other Guarantee Periods, J is the Guaranteed Interest Rate delcared for
current allocations to Guarantee Periods equal to the balance of the Guarantee
Period of the Guarantee Amount subject to the Market Value Adjustment, rounded
to the next higher number of complete years (the "Current Rate"). If the
Guarantee Period was originally established through the Monthly or Quarterly
Dollar Cost Averaging Options, J is the Guaranteed Interest Rate declared for
current allocations to the Monthly and Quarterly Dollar Cost Averaging Options.
In the determination of J for Guarantee Periods other than those established
under the Monthly or Quarterly Dollar Cost Averaging Options, if the Company
does not currently offer the applicable Guarantee Period, then J will be
determined by linear interpolation of Current Rates for Guarantee Periods that
are available.
N is the number of complete months remaining in the Guarantee Period of the
Guarantee Amount subject to the Market Value Adjustment.
The Company may, upon notice to the Owner, modify the formula used to
calculate the Market Value Adjustment, provided that such modification shall
apply only to Participant's Accounts established after the effective date of
such modification (See "Modification").
See Appendix C for examples of the application of the Market Value
Adjustment.
DEATH BENEFIT
DEATH BENEFIT PROVIDED BY THE CONTRACT
In the event of the death of the Annuitant prior to the Annuity Commencement
Date, the Company will pay a death benefit to the Beneficiary. If there is no
designated Beneficiary living on the date of death of the Annuitant, the Company
will, upon receipt of Due Proof of Death of both the Annuitant and the
designated Beneficiary, pay the death benefit in one sum to the Participant or,
if the Annuitant was the Participant, to the estate of the
Participant/Annuitant. If the death of the Annuitant occurs on or after the
Annuity Commencement Date, no death benefit will be payable under the Contract
except as may be provided under the Annuity Option elected.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Participant may elect to have the death benefit applied under one or
more Annuity Options to effect a Variable Annuity or a Fixed Annuity or a
combination of both for the Beneficiary as Payee after the death of the
Annuitant. If no election of a method of settlement of the death benefit by the
Participant is in effect on the date of death of the Annuitant, the Beneficiary
may elect (a) to receive the death benefit in the form of a single cash payment;
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<PAGE>
or (b) to have the death benefit applied under one or more of the Annuity
Options (on the Annuity Commencement Date described under "Payment of Death
Benefit") to effect a Variable Annuity or a Fixed Annuity or a combination of
both for the Beneficiary as Payee. Either election described above may be made
by filing with the Company a written election in such form as the Company may
require. Any election of a method of settlement of the death benefit by the
Participant will become effective on the date it is received by the Company. For
the purposes of the Payment of Death Benefit and Amount of Death Benefit
sections below, any election of the method of settement of the death benefit by
the Participant which is in effect on the date of death of the Annuitant will be
deemed effective on the date Due Proof of Death of the Annuitant is received by
the Company. Any election of a method of settlement of the death benefit by the
Beneficiary will become effective on the later of: (a) the date the election is
received by the Company; or (b) the date Due Proof of Death of the Annuitant is
received by the Company. If an election by the Beneficiary is not received by
the Company within 60 days following the date Due Proof of Death of the
Annuitant is received by the Company, the Beneficiary will be deemed to have
elected a cash payment as of the last day of the 60 day period.
In all cases, no Participant or Beneficiary shall be entitled to exercise
any rights that would adversely affect the treatment of the Contract as an
annuity contract under the Internal Revenue Code. (See "Other Contractual
Provisions -- Death of Participant").
PAYMENT OF DEATH BENEFIT
If the death benefit is to be paid in cash to the Beneficiary, payment will
be made within seven days of the date the election becomes effective or is
deemed to become effective, except as the Company may be permitted to defer any
such payment of amounts derived from the Variable Account in accordance with the
Investment Company Act of 1940. If the death benefit is to be paid in one sum to
the Participant or, if the Annuitant was the Participant, to the estate of the
deceased Participant/Annuitant, payment will be made within seven days of the
date Due Proof of Death of the Annuitant, the Participant and/or the designated
Beneficiary, as applicable, is received by the Company. If settlement under one
or more of the Annuity Options is elected the Annuity Commencement Date will be
the first day of the second calendar month following the effective date or the
deemed effective date of the election, and the Participant's Account will be
maintained in effect until the Annuity Commencement Date.
AMOUNT OF DEATH BENEFIT
The death benefit is determined as of the effective date or deemed effective
date of the death benefit election.
If the Annuitant was less than age 86 on the Date of Coverage, the death
benefit is equal to the greatest of (1) the Participant's Account Value for the
Valuation Period during which the death benefit election is effective or is
deemed to become effective; (2) the amount that would have been payable in the
event of a full surrender of the Participant's Account on the date the death
benefit election is effective or is deemed to become effective; and (3) total
Purchase Payments made with respect to the Participant's Account, minus the sum
of all partial withdrawals.
If the Annuitant was age 86 or greater on the Date of Coverage, the death
benefit is equal to (2) above.
If (2) or (3) is operative the Participant's Account Value will be increased
by the excess of (2) or (3), as applicable, over (1) and the increase will be
allocated to the Sub-Accounts based on the respective values of the Sub-Accounts
on the date the amount of the death benefit is determined. If no portion of the
Participant's Account is allocated to the Sub-Accounts, the entire increase will
be allocated to the Sub-Account invested in the Money Market Series of the
Series Fund.
HOW THE CONTRACT CHARGES ARE ASSESSED
As more fully described below, charges under the Contract offered by this
Prospectus are assessed in three ways: (1) as deductions for the Account Fee
and, if applicable, for premium taxes; (2) as charges against the assets of the
Variable Account for the assumption of mortality and expense risks and
administrative expenses; and (3) as withdrawal charges (contingent deferred
sales charges). In addition, certain
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deductions are made from the assets of the Series Fund for investment management
fees and expenses. These fees and expenses are described in the Series Fund's
Prospectus and Statement of Additional Information.
ADMINISTRATIVE CHARGES
Prior to the Annuity Commencement Date, on each Account Anniversary the
Company deducts from the value of each Participant's Account an annual account
administration fee ("Account Fee") in the amount of $50 as partial compensation
for expenses relating to the issue and maintenance of the Contract, the
Certificate and the Participant's Account. If a Participant's Account is
surrendered for its full value on other than the Account Anniversary, the
Account Fee will be deducted in full at the time of such surrender. The Account
Fee will be deducted on a pro rata basis from amounts allocated to each
Guarantee Period and each Sub-Account in which the Participant's Account is
invested at the time of such deduction. Also, the Company will waive the Account
Fee when the Participant's Account Value is greater than $100,000 on the Account
Anniversary. On the Annuity Commencement Date, the value of the Participant's
Account will be reduced by a proportionate amount of the Account Fee to reflect
the time elapsed between the last Account Anniversary and the day before the
Annuity Commencement Date. After the Annuity Commencement Date, an annual
Account Fee of $50 will be deducted in equal amounts from each variable annuity
payment made during the year. No such deduction will be made from fixed annuity
payments.
The Company makes a deduction from the Variable Account at the end of each
Valuation Period (during both the Accumulation Period and after annuity payments
begin) at an effective annual rate of 0.15% to reimburse the Company for those
administrative expenses attributable to the Contracts, the Certificates, the
Participant's Accounts and the Variable Account which exceed the revenues
received from the Account Fee. The Company believes that the administrative
expense charge has been set at a level that will recover no more than the actual
costs associated with administering the Contracts and Certificates. For a
description of administrative services provided see "Administration of the
Contracts" on Page 37 of this Prospectus.
The Contract provides that the Company may modify the Account Fee and the
administrative expense charge, provided that such modification shall apply only
with respect to Participant's Accounts established after the effective date of
such modification (See "Modification"). The Company does not expect to make a
profit from the Account Fee or the administrative expense charge.
PREMIUM TAXES
A deduction, when applicable, is made for premium or similar state or local
taxes (See Appendix B). It is currently the policy of the Company to deduct the
tax from the amount applied to provide an annuity at the time annuity payments
commence; however, the Company reserves the right to deduct such taxes when
incurred.
MORTALITY AND EXPENSE RISK CHARGE
The mortality risk assumed by the Company arises from the contractual
obligation to continue to make annuity payments to each Annuitant regardless of
how long the Annuitant lives and regardless of how long all annuitants as a
group live. This assures each annuitant that neither the longevity of fellow
annuitants nor an improvement in the life expectancy generally will have an
adverse effect on the amount of any annuity payment received under the Contract.
The Company assumes this mortality risk by virtue of annuity rates incorporated
into the Contract which cannot be changed except with respect to Participant's
Accounts established after the effective date of such change, as provided in the
section of this Prospectus entitled "Modification". The expense risk assumed by
the Company is the risk that the administrative charges assessed under the
Contract may be insufficient to cover the actual total administrative expenses
incurred by the Company.
For assuming these risks, the Company makes a deduction from the Variable
Account at the end of each Valuation Period during both the Accumulation Period
and after annuity payments begin at an effective annual rate of 1.00%. If the
deduction is insufficient to cover the actual cost of the mortality and expense
risk undertaking, the Company will bear the loss. Conversely, if the deduction
proves more than sufficient, the excess will be profit to the Company and would
be available for any proper corporate purpose including,
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among other things, payment of distribution expenses. The Company will recoup
its expected costs associated with registering and distributing the Contracts by
the assessment of the withdrawal charge (contingent deferred sales charge)
described below. However, the withdrawal charge may prove to be insufficient to
cover actual distribution expenses. If this is the case, the deficiency will be
met from the Company's general corporate funds which may include amounts derived
from the mortality and expense risk charges.
The Contract provides that the Company may modify the mortality and expense
risk charge; however, such modification shall apply only with respect to
Participant's Accounts established after the effective date of such modification
(See "Modification").
Mortality and expense risk charges, administrative charges and distribution
expense charges assessed under other contracts participating in the investment
experience of the Variable Account were the only expenses of the Variable
Account for the year ended December 31, 1995.
WITHDRAWAL CHARGES
No deduction for sales charges is made from Purchase Payments. However, a
withdrawal charge (contingent deferred sales charge) of 1% of Purchase Payments,
when applicable, will be used to cover certain expenses relating to the sale of
the Contract and Certificates thereunder, including commissions paid to sales
personnel, the costs of preparation of sales literature and other promotional
costs and acquisition expenses. Gross commissions paid on the sale of these
Contracts are not more than 1.20% of the Purchase Payments. In addition, after
the first Account Year, a trail commission of no more than 1.00% of the
Participant's Account Value may be paid (See "Cash Withdrawals" and "Withdrawal
Charges").
ANNUITY PROVISIONS
ANNUITY COMMENCEMENT DATE
Annuity payments will begin on the Annuity Commencement Date which is
selected by the Participant, as specified in the Application. The date selected
by the Participant may not be sooner than the first day of the second calendar
month following the Date of Coverage. This date may be changed by the
Participant from time to time by written notice to the Company, provided that
notice of each change is received by the Company at least 30 days prior to the
then current Annuity Commencement Date and the new Annuity Commencement Date is
a date which is: (1) at least 30 days after the date notice of the change is
received by the Company; (2) the first day of a month; and (3) not later than
the first day of the first month following the Annuitant's 90th birthday, unless
otherwise restricted, in the case of a Qualified Contract, by the particular
retirement plan or by applicable law. In most situations, current law requires
that the Annuity Commencement Date under a Qualified Contract be no later than
April 1 following the year the Annuitant reaches age 70 1/2 , and the terms of
the particular retirement plan may impose additional limitations. The Annuity
Commencement Date may also be changed by an election of an Annuity Option as
described in the Death Benefit section of this Prospectus.
On the Annuity Commencement Date the Participant's Account will be cancelled
and its adjusted value will be applied to provide an annuity under one or more
of the options described below. No withdrawal charge will be imposed upon
amounts applied to purchase an annuity. However, the Market Value Adjustment may
apply, as noted under "Determination of Amount." NO PAYMENTS MAY BE REQUESTED
UNDER THE CONTRACT'S CASH WITHDRAWAL PROVISIONS ON OR AFTER THE ANNUITY
COMMENCEMENT DATE, AND NO CASH WITHDRAWAL WILL BE PERMITTED EXCEPT AS MAY BE
AVAILABLE UNDER THE ANNUITY OPTION ELECTED.
Since the Contracts offered by this Prospectus may be issued in connection
with retirement plans which meet the requirements of Section 401, 403 or 408 of
the Internal Revenue Code, as well as certain non-qualified plans, reference
should be made to the terms of the particular plan for any limitations or
restrictions on the Annuity Commencement Date.
ELECTION--CHANGE OF ANNUITY OPTION
During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Participant may elect one or more of the Annuity Options described
below, or such other settlement option as may be agreed
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to by the Company, for the Annuitant as Payee. The Participant may also change
any election, but written notice of any election or change of election must be
received by the Company at least 30 days prior to the Annuity Commencement Date.
If no election is in effect on the 30th day prior to the Annuity Commencement
Date, Annuity Option B, for a Life Annuity with 120 monthly payments certain,
will be deemed to have been elected. If there is no election of a sole Annuitant
in effect on the 30th day prior to the Annuity Commencement Date, the person
designated as "Co-Annuitant" will be the Payee under the applicable Annuity
Option.
Any election may specify the proportion of the adjusted value of the
Participant's Account to be applied to provide a Fixed Annuity and a Variable
Annuity. In the event the election does not so specify, or if no election is in
effect on the 30th day prior to the Annuity Commencement Date, then the portion
of the adjusted value of the Participant's Account to be applied to provide a
Fixed Annuity and a Variable Annuity will be determined on a pro rata basis from
the composition of the Participant's Account on the Annuity Commencement Date.
Annuity Options may also be elected by the Participant or the Beneficiary as
provided in the Death Benefit section of this Prospectus.
Reference should be made to the terms of a particular retirement plan and
any applicable legislation for any limitations or restrictions on the options
which may be elected.
NO CHANGE OF ANNUITY OPTION IS PERMITTED AFTER THE ANNUITY COMMENCEMENT
DATE.
ANNUITY OPTIONS
No lump sum settlement option is available under the Contract. The
Participant may surrender a Certificate prior to the Annuity Commencement Date;
however, any applicable surrender charge will be deducted from the cash
withdrawal payment and a Market Value Adjustment, if applicable, will be
applied.
Annuity Options A, B, C and D are available to provide either a Fixed
Annuity or a Variable Annuity. Annuity Option E is available only to provide a
Fixed Annuity.
Annuity Option A. Life Annuity: Monthly payments during the lifetime of
the Payee. This option offers a higher level of monthly payments than Annuity
Options B or C because no further payments are payable after the death of the
Payee and there is no provision for a death benefit payable to a Beneficiary.
Annuity Option B. Life Annuity with 60, 120, 180 or 240 Monthly Payments
Certain: Monthly payments during the lifetime of the Payee and in any event for
60, 120, 180 or 240 months certain as elected. The election of a longer period
certain results in smaller monthly payments than would be the case if a shorter
period certain were elected. In the event of the death of the Payee under this
option, the Contract provides that if there is no designated beneficiary
entitled to the remaining payments then living, the discounted value of the
remaining payments, if any, will be calculated and paid in one sum to the
deceased Payee's estate. In addition, any beneficiary who becomes entitled to
any remaining payments under this option may elect to receive the amounts due
under this option in one sum. The discounted value for variable annuity payments
will be based on interest compounded annually at the assumed interest rate of 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 each type of Annuity Unit
credited with respect to the Payee and fixed monthly payments, if any, will be
equal to the same percentage of the fixed monthly payment payable during the
joint lifetime of the Payee and the designated second person.
* Annuity Option D. Monthly Payments for a Specified Period
Certain: Monthly payments for a specified period of time (at least five years
but not exceeding 30 years), as elected. In the event of the death
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* The election of this annuity option may result in the imposition of a penalty
tax.
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of the Payee under this option, the Contract provides that, as described under
Annuity Option B above, in certain circumstances the discounted value of the
remaining payments, if any, will be calculated and paid in one sum.
* Annuity Option E. Fixed Payments: The amount applied to provide fixed
payments in accordance with this option will be held by the Company at interest.
Fixed payments will be made in such amounts and at such times (at least over a
period of five years) as may be agreed upon with the Company and will continue
until the amount held by the Company with interest is exhausted. The final
payment will be for the balance remaining and may be less than the amount of
each preceding payment. Interest will be credited annually on the amount
remaining unpaid at a rate which shall be determined by the Company from time to
time but which shall not be less than 3% per year, compounded annually. The rate
so determined may be changed at any time and as often as may be determined by
the Company, provided, however, that the rate may not be reduced more frequently
than once during each calendar year.
DETERMINATION OF ANNUITY PAYMENTS
On the Annuity Commencement Date the Participant's Account will be cancelled
and its adjusted value will be applied to provide a Variable Annuity or a Fixed
Annuity or a combination of both. The adjusted value will be equal to the
Participant's Account Value for the Valuation Period which ends immediately
preceding the Annuity Commencement Date, reduced by a proportionate amount of
the Account Fee to reflect the time elapsed between the last Account Anniversary
and the day before the Annuity Commencement Date, plus or minus any applicable
Market Value Adjustment and minus any applicable premium or similar taxes.
If the amount to be applied under any annuity option is less than $2,000, or
if the first annuity payment payable in accordance with such option is less than
$20, the Company will pay the amount to be applied in a single payment to the
Payee.
FIXED ANNUITY PAYMENTS
The dollar amount of each fixed annuity payment will be determined in
accordance with the Annuity Payment Rates found in the Contract which are based
on a minimum guaranteed interest rate of 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.
VARIABLE ANNUITY PAYMENTS
The dollar amount of the first variable annuity payment will be determined
in accordance with the Annuity Payment Rates found in the Contract which are
based on an assumed interest rate of 3% per year, unless these rates are changed
(See "Modification"). All variable annuity payments other than the first are
determined by means of Annuity Units credited with respect to the particular
Payee. The number of Annuity Units to be credited in respect of a particular
Sub-Account is determined by dividing that portion of the first variable annuity
payment attributable to that Sub-Account by the Annuity Unit value of that
Sub-Account for the Valuation Period which ends immediately preceding the
Annuity Commencement Date. The number of Annuity Units of each particular
Sub-Account credited with respect to the particular Payee then remains fixed
unless an exchange of Annuity Units is made as described below. The dollar
amount of each variable annuity payment after the first may increase, decrease
or remain constant, and is equal to the sum of the amounts determined by
multiplying the number of Annuity Units of a particular Sub-Account credited
with respect to the particular Payee by the Annuity Unit value for the
particular Sub-Account for the Valuation Period which ends immediately preceding
the due date of each subsequent payment. If the net investment return on the
assets of the Variable Account is the same as the assumed interest rate (3% per
year), variable annuity payments will remain level. If the net investment return
exceeds the assumed interest rate variable annuity payments will increase and,
conversely, if it is less than the assumed interest rate the payments will
decrease.
For a hypothetical example of the calculation of a Variable Annuity Payment,
see Appendix A.
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* The election of this annuity option may result in the imposition of a penalty
tax.
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ANNUITY UNIT VALUE
The Annuity Unit value for each Sub-Account was established at $10.00 for
the first Valuation Period of the particular Sub-Account. The Annuity Unit Value
for the particular Sub-Account for any subsequent Valuation Period is determined
by multiplying the Annuity Unit value for the particular Sub-Account for the
immediately preceding Valuation Period by the Net Investment Factor (See
"Variable Accumulation Value, Net Investment Factor") for the particular
Sub-Account for the current Valuation Period and then multiplying that product
by a factor to neutralize the assumed interest rate of 3% per year used to
establish the Annuity Payment Rates found in the applicable Contract. For a one
day Valuation Period the factor is 0.99991902.
For a hypothetical example of the calculation of the value of a Variable
Annuity Unit, see Appendix A.
EXCHANGE OF VARIABLE ANNUITY UNITS
After the Annuity Commencement Date the Payee may, by filing a written
request with the Company, exchange the value of a designated number of Annuity
Units of particular Sub-Accounts then credited with respect to the particular
Payee into other Annuity Units, the value of which would be such that the dollar
amount of an annuity payment made on the date of the exchange would be
unaffected by the fact of the exchange. No more than twelve (12) exchanges may
be made within each Account Year.
Exchanges may be made only among Sub-Accounts. Exchanges will be made using
the Annuity Unit values for the Valuation Period during which any request for
exchange is received by the Company.
ANNUITY PAYMENT RATES
The Contract contains Annuity Payment Rates for each Annuity Option
described in this Prospectus. The rates show, for each $1,000 applied, the
dollar amount of: (a) the first monthly variable annuity payment based on the
assumed interest rate specified in the Contract; and (b) the monthly fixed
annuity payment, when this payment is based on the minimum guaranteed interest
rate of 3% per year. These rates may be changed by the Company with respect to
Participant's Accounts established after the effective date of such change (See
"Modification").
The annuity payment rates may vary according to the Annuity Option elected
and the adjusted age of the Payee. The Contract also describes the method of
determining the adjusted age of the Payee. The mortality table used in
determining the annuity payment rates for Options A, B and C is the 1983
Individual Annuitant Mortality Table A.
OTHER CONTRACTUAL PROVISIONS
PAYMENT LIMITS
The initial Purchase Payment credited to each Participant's Account must be
at least $25,000 and each additional Purchase Payment must be at least $1,000,
unless waived by the Company. In addition, the prior approval of the Company is
required before it will accept a Purchase Payment which would cause the value of
a Participant's Account to exceed $1,000,000. If the value of a Participant's
Account exceeds $1,000,000, no additional Purchase Payments will be accepted
without the prior approval of the Company. Purchase Payments may be made
annually, semi-annually, quarterly, monthly or at any other frequency acceptable
to the Company. The Participant may, subject to the minimum payment, increase or
decrease the amount of Purchase Payments or change the frequency of payment, but
the Participant is not obligated to continue Purchase Payments in the amount or
frequency elected. There are no penalties for failure to continue to make
Purchase Payments. While the Contract and the Participant's Account are in
force, Purchase Payments may be made at any time prior to the Annuity
Commencement Date.
DESIGNATION AND CHANGE OF BENEFICIARY
The beneficiary designation contained in the Application will remain in
effect until changed. The interest of any Beneficiary is subject to the
particular Beneficiary surviving the Annuitant and, in the case of a Non-
Qualified Contract, the Participant as well.
Subject to the rights of an irrevocably designated Beneficiary, the
Participant may change or revoke the designation of a Beneficiary at any time
while the Annuitant is living by filing with the Company a written beneficiary
designation or revocation in such form as the Company may require. The change or
revocation
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will not be binding upon the Company until it is received by the Company. When
it is so received the change or revocation will be effective as of the date on
which the beneficiary designation or revocation was signed, but the change or
revocation will be without prejudice to the Company on account of any payment
made or any action taken by the Company prior to receiving the change or
revocation.
Reference should be made to the terms of a particular retirement plan and
any applicable legislation for any restrictions on the beneficiary designation.
EXERCISE OF CONTRACT RIGHTS
The Contract shall belong to the Owner. All Contract rights and privileges
may be expressly reserved by the Owner, failing which, each Participant shall be
entitled to exercise such rights and privileges in connection with such
Participant's Certificate. In any case, such rights and privileges can be
exercised without the consent of the Beneficiary (other than an irrevocably
designated Beneficiary) or any other person. Such rights and privileges may be
exercised only during the lifetime of the Annuitant and prior to the Annuity
Commencement Date, except as otherwise provided in the Contract.
The Annuitant becomes the Payee on and after the Annuity Commencement Date.
The Beneficiary becomes the Payee on the death of the Annuitant. Such Payees may
thereafter exercise such rights and privileges, if any, of ownership which
continue.
CHANGE OF OWNERSHIP
Ownership of a Qualified Contract may not be transferred except to: (1) the
Annuitant; (2) a trustee or successor trustee of a pension or profit sharing
trust which is qualified under Section 401 of the Internal Revenue Code; (3) the
employer of the Annuitant provided that the Qualified Contract after transfer is
maintained under the terms of a retirement plan qualified under Section 403(a)
of the Internal Revenue Code for the benefit of the Annuitant; (4) the trustee
of an individual retirement account plan qualified under Section 408 of the
Internal Revenue Code for the benefit of the Owner; or (5) as otherwise
permitted from time to time by laws and regulations governing the retirement or
deferred compensation plans for which a Qualified Contract may be issued.
Subject to the foregoing, a Qualified Contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as security for
the performance of an obligation or for any other purpose to any person other
than the Company.
The Owner of a Non-Qualified Contract may change the ownership of the
Contract during the lifetime of any Annuitant and prior to the last Annuity
Commencement Date; and each Participant, in like manner, may change the
ownership interest in a Contract evidenced by that Participant's Certificate. A
change of ownership will not be binding upon the Company until written
notification is received by the Company. When such notification is so received,
the change will be effective as of the date on which the request for change was
signed by the Owner or Participant, as appropriate, but the change will be
without prejudice to the Company on account of any payment made or any action
taken by the Company prior to receiving the change.
DEATH OF PARTICIPANT
If a Participant under a Non-Qualified Contract dies prior to the Annuitant
and before the Annuity Commencement Date, that Participant's Account Value, plus
or minus any applicable Market Value Adjustment, 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 Certificate 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 Certificate in
the spouse's own name as both Participant and Annuitant.
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If the Payee dies on or after the Annuity Commencement Date and before the
entire accumulation under such Participant's Account has been distributed, the
remaining portion of such Participant's Account, if any, must be distributed at
least as rapidly as the method of distribution then in effect.
In 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.
VOTING OF SERIES FUND SHARES
The Company will vote Series Fund shares held by the Sub-Accounts at
meetings of shareholders of the Series Fund, but will follow voting instructions
received from persons having the right to give voting instructions. The Owner or
Participant is the person having the right to give voting instructions prior to
the Annuity Commencement Date. On or after the Annuity Commencement Date the
Payee is the person having such voting rights. Any shares attributable to the
Company and Series Fund shares for which no timely voting instructions are
received will be voted by the Company in the same proportion as the shares for
which instructions are received from Owners, Participants and Payees.
Owners of Qualified Contracts may be subject to other voting provisions of
the particular plan and of the Investment Company Act of 1940. Employees who
contribute to plans which are funded by the Contracts may be entitled to
instruct the Owners as to how to instruct the Company to vote the Series Fund
shares attributable to their contributions. Such plans may also provide the
additional extent, if any, to which the Owners shall follow voting instructions
of persons with rights under the plans. If no voting instructions are received
from any such person with respect to a particular Participant's Account, the
Owner may instruct the Company as to how to vote the number of Series Fund
shares for which instructions may be given.
Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights afforded by the Investment Company
Act of 1940, nor any duty to inquire as to the instructions received or the
authority of Owners, Participants or others to instruct the voting of Series
Fund shares. Except as the Variable Account or the Company has actual knowledge
to the contrary, the instructions given by Owners and Payees will be valid as
they affect the Variable Account, the Company and any others having voting
instruction rights with respect to the Variable Account.
All Series Fund proxy material, together with an appropriate form to be used
to give voting instructions, will be provided to each person having the right to
give voting instructions at least ten days prior to each meeting of the
shareholders of the Series Fund. The number of Series Fund shares as to which
each such person is entitled to give instructions will be determined by the
Company on a date not more than 90 days prior to each such meeting. Prior to the
Annuity Commencement Date, the number of Series Fund shares as to which voting
instructions may be given to the Company is determined by dividing the value of
all of the Variable Accumulation Units of the particular Sub-Account credited to
the Participant's Account by the net asset value of one Series Fund share as of
the same date. On or after the Annuity Commencement Date, the number of Series
Fund shares as to which such instructions may be given by a Payee is determined
by dividing the reserve held by the Company in the Sub-Account with respect to
the particular Payee by the net asset value of a Series Fund share as of the
same date. After the Annuity Commencement Date, the number of Series Fund shares
as to which a Payee is entitled to give voting instructions will generally
decrease due to the decrease in the reserve.
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<PAGE>
PERIODIC REPORTS
During the Accumulation Period the Company will send the Participant, or
such other person having voting rights, at least once during each Account Year,
a statement showing the number, type and value of Accumulation Units credited to
the Participant's Account and the Fixed Accumulation Value of such account,
which statement shall be accurate as of a date not more than two months previous
to the date of mailing. In addition, every person having voting rights will
receive such reports or prospectuses concerning the Variable Account and the
Series Fund as may be required by the Investment Company Act of 1940 and the
Securities Act of 1933. The Company will also send such statements reflecting
transactions in the Participant's Account as may be required by applicable laws,
rules and regulations.
Upon request, the Company will provide the Participant with information
regarding fixed and variable accumulation values.
SUBSTITUTED SECURITIES
Shares of any or all Series of the Series Fund may not always be available
for purchase by the Sub-Accounts of the Variable Account or the Company may
decide that further investment in any such shares is no longer appropriate in
view of the purposes of the Variable Account or in view of legal, regulatory or
federal income tax restrictions. In such event, shares of another series or
shares of another registered open-end investment company or unit investment
trust may be substituted both for Series Fund shares already purchased by the
Variable Account and/or as the security to be purchased in the future provided
that these substitutions meet applicable Internal Revenue Service
diversification guidelines and have been approved, if required, by the
Securities and Exchange Commission. In the event of any substitution pursuant to
this provision, the Company may make appropriate endorsement to the Contract to
reflect the substitution.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At the Company's election and subject to any necessary vote by persons
having the right to give instructions with respect to the voting of Series Fund
shares held by the Sub-Accounts, the Variable Account may be operated as a
management company under the Investment Company Act of 1940 or it may be
deregistered under the Investment Company Act of 1940 in the event registration
is no longer required. Deregistration of the Variable Account requires an order
by the Securities and Exchange Commission. In the event of any change in the
operation of the Variable Account pursuant to this provision, the Company may
make appropriate endorsement to the Contract to reflect the change and take such
other action as may be necessary and appropriate to effect the change.
SPLITTING UNITS
The Company reserves the right to split or combine the value of Variable
Accumulation Units, Annuity Units or any of them. In effecting any such change
of unit values, strict equity will be preserved and no change will have a
material effect on the benefits or other provisions of the Contract.
MODIFICATION
Upon notice to the Owner and Participant(s) (or the Payee(s) during the
annuity period), the Contract may be modified by the Company if such
modification: (i) is necessary to make the Contract or the Variable Account
comply with any law or regulation issued by a governmental agency to which the
Company or the Variable Account is subject; or (ii) is necessary to assure
continued qualification of the Contract under the Internal Revenue Code or other
federal or state laws relating to retirement annuities or annuity contracts; or
(iii) is necessary to reflect a change in the operation of the Variable Account
or the Sub-Account(s) (See "Change in Operation of Variable Account"); or (iv)
provides additional Variable Account and/or fixed accumulation options. In the
event of any such modification, the Company may make appropriate endorsement to
the Contract to reflect such modification.
In addition, upon notice to the Owner the Contract may be modified by the
Company to change the withdrawal charges, Account Fees, mortality and expense
risk charges, administrative expense charges, the tables used in determining the
amount of the first monthly variable annuity and fixed annuity payments and the
formula used to calculate the Market Value Adjustment, provided that such
modification shall apply only to Participant's Accounts established after the
effective date of such modification. In order to exercise its modification
rights in these particular instances, the Company must notify the Owner of such
modification in
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<PAGE>
writing. The notice shall specify the effective date of such modification which
must be at least 60 days following the date of mailing of the notice of
modification by the Company. All of the charges and the annuity tables which are
provided in the Contract prior to any such modification will remain in effect
permanently, unless improved by the Company, with respect to Participant's
Accounts established prior to the effective date of such modification.
DISCONTINUANCE OF NEW PARTICIPANTS
The Company, by giving 30 days' prior written notice to the Owner, may limit
or discontinue the acceptance of new Applications and the issuance of new
Certificates under a Contract. Such limitation or discontinuance shall have no
effect on rights or benefits with respect to any Participant's Accounts
established prior to the effective date of such limitation or discontinuance.
CUSTODIAN
The Company is the Custodian of the assets of the Variable Account. The
Company will purchase Series Fund shares at net asset value in connection with
amounts allocated to the Sub-Accounts in accordance with the instructions of the
Participant and redeem Series Fund shares at net asset value for the purpose of
meeting the contractual obligations of the Variable Account, paying charges
relative to the Variable Account or making adjustments for annuity reserves held
in the Variable Account.
RIGHT TO RETURN CONTRACT
If the Participant is not satisfied with the Certificate it may be returned
by mailing it to the Company at the Annuity Service Mailing Address on the cover
of this Prospectus within ten days after it was delivered to the Participant.
When the Company receives the returned Certificate it will be cancelled and the
Participant's Account Value at the end of the Valuation Period during which the
Certificate was received by the Company will be refunded to the Participant.
However, if applicable state law so requires, the full amount of any Purchase
Payment(s) received by the Company will be refunded, the "free look" period may
be greater than ten days and alternative methods of returning the Certificate
may be acceptable.
With respect to Individual Retirement Accounts, under the Employee
Retirement Income Security Act of 1974 ("ERISA") a Participant establishing an
Individual Retirement Account 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
Individual Retirement Account is established. If the Participant is furnished
with such disclosure statement before the seventh day preceding the date the
Individual Retirement Account is established, the Participant will not have any
right of revocation. If the disclosure statement is furnished after the seventh
day preceding the establishment of the Individual Retirement Account, then the
Participant may give a notice of revocation to the Company at any time within
seven days after the Date of Coverage. Upon such revocation, the Company will
refund the Purchase Payment(s) made by the Participant. The foregoing right of
revocation with respect to an Individual Retirement Account is in addition to
the return privilege set forth in the preceding paragraph. The Company will
allow a participant establishing an Individual Retirement Account a "ten day
free-look," notwithstanding the provisions of ERISA.
FEDERAL TAX STATUS
INTRODUCTION
The Contracts and related Certificates described in this Prospectus are
designed for use by employer, association and other group retirement plans under
the provisions of Sections 401 (including Section 401(k)), 403, 408(b), 408(c)
and 408(k) of the Internal Revenue Code (the "Code"), as well as certain non-
qualified retirement plans, such as payroll savings plans. The ultimate effect
of federal income taxes may depend upon the type of retirement plan for which
the Contract or Certificate is purchased and a number of different factors. This
discussion is general in nature, is based upon the Company's understanding of
current federal income tax laws, and is not intended as tax advice. Congress has
the power to enact legislation affecting the tax treatment of annuity contracts,
and such legislation could be applied retroactively to Contracts purchased
before the date of enactment. Also, because the Internal Revenue Code, as
amended, is not in force in the Commonwealth of Puerto Rico, some references in
this discussion will not
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<PAGE>
apply to Contracts or Certificates issued in Puerto Rico. Any person
contemplating the purchase of a Contract or Certificate should consult a
qualified tax adviser. THE COMPANY DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX
STATUS, FEDERAL, STATE OR LOCAL, OF ANY CONTRACT OR CERTIFICATE OR ANY
TRANSACTION INVOLVING THE CONTRACTS OR CERTIFICATES.
TAX TREATMENT OF THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under the Code. The
operations of the Variable Account are accounted for separately from other
operations of the Company for purposes of federal income taxation, but the
Variable Account is not taxable as a regulated investment company or otherwise
as an entity separate from the Company. The income of the Variable Account
(consisting primarily of interest, dividends and net capital gains) is not
taxable to the Company to the extent that it is applied to increase reserves
under contracts participating in the Variable Account.
TAXATION OF ANNUITIES IN GENERAL
Purchase Payments made under Non-Qualified Contracts are not deductible from
the Participant's income for federal income tax purposes. Participants under
Qualified Contracts should consult a tax adviser regarding the tax treatment of
Purchase Payments.
Generally, no taxes are imposed on the increase in the value of a Contract
or Certificate until a distribution occurs, either as an annuity payment or as a
cash withdrawal or lump-sum payment prior to the Annuity Commencement Date.
However, corporate Owners and Participants and other Owners and Participants
that are not natural persons are subject to current taxation on the annual
increase in the value of a Non-Qualified Contract, unless the non-natural person
holds the Contract as agent for a natural person (such as where a bank or other
entity holds a Contract as trustee under a trust agreement). This current
taxation of annuities held by non-natural persons does not apply to earnings
accumulated under an immediate annuity, which the Code defines as a single
premium contract with an annuity commencement date within one year of the date
of purchase. Also, the Internal Revenue Service could assert that Owners or
Participants under both Qualified 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 Contract.
The Code is unclear in its application to a group annuity contract where the
Owner is distinct from the individuals who receive the Contract benefits (the
Participants). The following discussion is the Company's best understanding of
the operation of the Code in the context of group contracts. However, Owners and
Participants should consult a qualified tax adviser.
A partial cash withdrawal (that is, a withdrawal of less than the entire
Participant's Account Value) from a Certificate issued under a Non-Qualified
Contract (a "Non-Qualified Certificate") before the Annuity Commencement Date is
treated first as a withdrawal from the increase in the Participant's Account
Value, rather than as a return of Purchase Payments. The amount of the
withdrawal allocable to this increase will be includible in the Participant's
income and subject to tax at ordinary income rates. If part or all of a
Participant's Account Value is assigned or pledged as collateral for a loan, the
amount assigned or pledged must be treated as if it were withdrawn from the
Certificate.
In the case of annuity payments under a Non-Qualified Certificate after the
Annuity Commencement Date, a portion of each payment is treated as a nontaxable
return of Purchase Payments. The nontaxable portion is determined by applying to
each annuity payment an "exclusion ratio," which, in general, is the ratio that
the total amount the Participant paid for the Certificate bears to the Payee's
expected return under the Certificate. The remainder of the payment is taxable
at ordinary income rates.
The total amount that a Payee may exclude from income through application of
the "exclusion ratio" is limited to the amount the Participant paid for the
Certificate. If the Annuitant survives for his full life expectancy, so that the
Payee recovers the entire amount paid for the Certificate, any subsequent
annuity payments will be fully taxable as income. Conversely, if the Annuitant
dies before the Payee recovers the entire amount paid, the Payee will be allowed
a deduction for the amount of unrecovered Purchase Payments.
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<PAGE>
Taxable cash withdrawals and lump-sum payments from Non-Qualified
Certificates may be subject to a penalty tax equal to 10% of the amount treated
as taxable income. This 10% penalty also may apply to certain annuity payments.
This penalty will not apply in certain circumstances (such as where the
distribution is made upon the death of the Participant). The withdrawal penalty
also does not apply to distributions under an immediate annuity (as defined
above).
In the case of a Certificate issued under a Qualified Contract (a "Qualified
Certificate"), distributions generally are taxable and distributions made prior
to age 59 1/2 are subject to a 10% penalty tax, although this penalty tax will
not apply in certain circumstances. Certain distributions, known as "eligible
rollover distributions," if rolled over to certain other qualified retirement
plans (either directly or after being distributed to the Participant or Payee),
are not taxable until distributed from the plan to which they are rolled over.
In general, an eligible rollover distribution is any taxable distribution other
than a distribution that is part of a series of payments made for life or for a
specified period of 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 Certificates are purchased.
If the Participant under a Non-Qualified Certificate dies, the value of the
Certificate generally must be distributed within a specified period (See "Other
Contractual Provisions -- Death of Participant"). For contracts owned by
non-natural persons, a change in the Annuitant is treated as the death of the
Participant.
A purchaser of a Qualified Certificate should refer to the terms of the
applicable retirement plan and consult a tax adviser regarding distribution
requirements upon the death of the Participant.
A transfer of a Non-Qualified Certificate by gift (other than to the
Participant's spouse) is treated as the receipt by the Participant of income in
an amount equal to the Participant's Account Value minus the total amount paid
for the Certificate.
The Company will withhold and remit to the U.S. government a part of the
taxable portion of each distribution made under a Non-Qualified Certificate or
under a Qualified Certificate issued for use with an individual retirement
account unless the Participant or Payee provides his or her taxpayer
identification number to the Company and notifies the Company (in the manner
prescribed) before the time of the distribution that he or she chooses not to
have any amounts withheld.
In the case of distributions from a Qualified Certificate (other than
distributions from a Certificate issued for use with an individual retirement
account), the Company or the plan administrator must withhold and remit to the
U.S. government 20% of each distribution that is an eligible rollover
distribution (as defined above) unless the Participant or Payee elects to make a
direct rollover of the distribution to another qualified retirement plan that is
eligible to receive the rollover. If a distribution from a Qualified Certificate
is not an eligible rollover distribution, then the Participant or Payee can
choose not to have amounts withheld as described above for Non-Qualified
Certificates and Qualified Certificates issued for use with individual
retirement accounts.
Amounts withheld from any distribution may be credited against the
Participant's or Payee's federal income tax liability for the year of the
distribution.
The Internal Revenue Service has issued regulations that prescribe
investment diversification requirements for mutual fund series underlying
nonqualified variable contracts. Contracts that do not comply with these
regulations do not qualify as annuities for federal income tax purposes, and
therefore the annual increase in the value of such contracts is subject to
current taxation. The Company believes that each series of the Series Fund
complies with the regulations.
The preamble to the regulations states that the Internal Revenue Service may
promulgate guidelines under which a variable contract will not be treated as an
annuity for tax purposes if the owner has excessive control over the investments
underlying the contract. It is not known whether such guidelines, if in fact
promulgated, would have retroactive effect. If guidelines are promulgated, the
Company will take any action (including modification of the Contract, the
Certificate and/or the Variable Account) necessary to comply with the
guidelines.
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THE FOLLOWING INFORMATION SHOULD BE CONSIDERED ONLY WHEN AN IMMEDIATE
ANNUITY CONTRACT AND A DEFERRED ANNUITY CONTRACT ARE PURCHASED TOGETHER: The
Company understands that the Treasury Department is in the process of
reconsidering the tax treatment of annuity payments under an immediate annuity
contract (as defined above) purchased together with a deferred annuity contract.
The Company believes that any adverse change in the existing tax treatment of
such immediate annuity contracts is likely to be prospective, that is, it would
not apply to contracts issued before such a change is announced. However, there
can be no assurance that any such change, if adopted, would not be applied
retroactively.
QUALIFIED RETIREMENT PLANS
The Qualified Contracts described in this Prospectus are designed for use
with several types of qualified retirement plans. The tax rules applicable to
participants in such qualified retirement plans vary according to the type of
plan and its terms and conditions. Therefore, no attempt is made herein to
provide more than general information about the use of the Qualified Contracts
with the various types of qualified retirement plans. Participants under such
plans as well as Owners, Annuitants, Payees and Beneficiaries are cautioned that
the rights of any person to any benefits under these plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Qualified Contracts issued in connection therewith. 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
and Employer/Association of Employees Established Individual Retirement Account
Trusts, known as an Individual Retirement Account ("IRA"). These IRA's are
subject to limitations on the amount that may be contributed, the persons who
may be eligible, and on the time when distributions may commence. In addition,
certain distributions from some other types of retirement plans may be placed on
a tax-deferred basis in an IRA. Sale of the Contracts for use with IRA's may be
subject to special requirements imposed by the Internal Revenue Service.
Purchasers of the Contracts for such purposes will be provided with such
supplementary information as may be required by the Internal Revenue Service or
other appropriate agency, and will have the right to revoke the Contract under
certain circumstances as described in the section of this Prospectus entitled
"Right to Return Contract."
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ADMINISTRATION OF THE CONTRACTS
The Company performs certain administrative functions relating to the
Contracts, the Participant's Accounts, and the Variable Account. These functions
include, but are not limited to, maintaining the books and records of the
Variable Account and the Sub-Accounts; maintaining records of the name, address,
taxpayer identification number, Contract number, Participant's Account number
and type, the status of each Participant's Account and other pertinent
information necessary to the administration and operation of the Contracts;
processing Applications, Purchase Payments, 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"), 500 Boylston Street, Boston, Massachusetts
02116, a wholly-owned subsidiary of Massachusetts Financial Services Company,
which in turn is a subsidiary of the Company. Clarendon is registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 as
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. Clarendon also acts as the general distributor of certain other annuity
contracts issued by the Company and its wholly-owned subsidiary, Sun Life
Insurance and Annuity Company of New York, and variable life insurance contracts
issued by the Company. Commissions and other distribution compensation will be
paid by the Company and will not be more than 1.20% of Purchase Payments. 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 1.00% of the Participant's 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 Certificates or other contracts offered by the
Company. Commissions will not be paid with respect to Participant's Accounts
established for the personal account of employees of the Company or any of its
affiliates, or of persons engaged in the distribution of the Contracts.
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ADDITIONAL INFORMATION ABOUT THE COMPANY
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the financial statements and notes thereto included in this
Prospectus beginning on page 59.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ---------- ---------- ----------
(IN 000'S)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity deposits and other revenue $ 1,095,646 $ 1,200,143 $1,772,745 $ 908,933 $ (151,073)
Net investment income and realized gains (losses) 366,063 334,896 243,796 209,087 162,031
----------- ----------- ---------- ---------- ----------
1,461,709 1,535,039 2,016,541 1,118,020 10,958
----------- ----------- ---------- ---------- ----------
Benefits and Expenses
Policyholder benefits 1,238,603 1,312,721 1,786,919 921,180 (161,110)
Other expenses 176,660 209,819 240,440 232,221 168,689
----------- ----------- ---------- ---------- ----------
1,415,263 1,522,540 2,027,359 1,153,401 7,579
----------- ----------- ---------- ---------- ----------
Operating Gain (Loss) 46,446 12,499 (10,818) (35,381) 3,379
Interest on Surplus Notes (31,813) (31,150) (26,075) (18,000) (12,500)
Equity in Income of Subsidiaries 59,875 62,629 62,640 49,009 42,702
Federal Income Tax Expense (38,593) (42,521) (22,491) (4,000) (13,615)
----------- ----------- ---------- ---------- ----------
Net Income (Loss) $ 35,915 $ 1,457 $ 3,256 $ (8,372) $ 19,966
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
Assets $12,499,683 $10,137,822 $9,199,090 $7,494,407 $6,405,599
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
Surplus Notes $ 650,000 $ 335,000 $ 335,000 $ 265,000 $ 180,000
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
</TABLE>
See Note 1 to financial statements for the effect of the reinsurance agreements
on net income.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
FINANCIAL CONDITION
ASSETS
For management purposes it is the Company's practice to segment its general
account to facilitate the matching of assets and liabilities; however, all
general account assets stand behind all general account liabilities. A majority
of the Company's assets are income producing investments. Particular attention
is paid to the quality of these assets.
The Company's bond holdings consist of a diversified portfolio of both
public and private issues. It is the Company's policy to acquire only investment
grade securities. Private placements are rated internally with reference to the
National Association of Insurance Commissioners ("NAIC") designation issued by
the NAIC Securities Valuation Office. The overall quality of the Company's bond
portfolio remains high. At December 31, 1995, 2.3% of the Company's holdings of
bonds were rated below investment grade (i.e. below NAIC rating "1" or "2"). Net
unrealized gains on below investment grade bonds were $2,133,727 at December 31,
1995. Bond write downs resulting from intrinsic impairments amounted to
$3,500,000 during 1995.
The Company holds real estate primarily because such investments
historically have offered better yields over the long-term than fixed income
investments. Real estate investments are used to enhance the yield of products
with long-term liability durations. Properties for which market value is lower
than cost
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adjusted for depreciation (book value) are reported at market value. During
1995, the change in the difference between the market value and book value for
properties reported at market value was $3,583,000.
Significant attention has been given to insurance companies' exposure to
mortgage loans secured by real estate. The Company had a mortgage portfolio of
$1,066,911,000 at December 31, 1995, representing 25.3% of cash and invested
assets. At December 31, 1994, mortgage loans represented 28.9% of cash and
invested assets. The Company underwrites commercial mortgages with a maximum
loan to value ratio of 75%. The Company as a rule invests only in properties
that are almost fully leased. The portfolio is diversified by region and by
property type. The level of arrears in the portfolio is substantially below the
industry average. At December 31, 1995, 0.77% of the Company's portfolio was 60
days or more in arrears, compared to the most recent industry delinquency ratio
published by the American Council of Life Insurance of 2.35%. The expense in the
year for the provision for losses and for losses on foreclosures was $4,133,000.
In 1994, the Company entered into a leveraged lease agreement under which a
fleet of rail cars was leased for a term of 9.75 years. The investment is
classified as other invested assets in the attached balance sheet.
In the normal course of business, the Company makes commitments to purchase
investments at a future date. As of December 31, 1995 the Company had
outstanding mortgage commitments of $13,100,000 which will be funded during
1996.
LIABILITIES
The majority of the Company's liabilities consist of reserves for life
insurance and annuity contracts and deposit funds.
CAPITAL AND SURPLUS
Total capital stock and surplus of the Company was $792,452,000 at December
31, 1995. The Company issued surplus notes during 1995 totalling $315,000,000 to
an affiliate, Sun Canada Financial Co. The Company repaid $335,000,000 of
surplus notes to its parent in 1996. During 1994, the Company reduced its
carrying value of MCIC, a wholly-owned subsidiary, by $18,397,000, the
unamortized amount of goodwill. The reduction was accounted for as a direct
charge to surplus. The Company's management considers its surplus position to be
adequate.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Income from operations before surplus note interest, equity in income of
subsidiaries and federal income taxes increased by $33,947,000 from $12,499,000
in 1994 to $46,446,000 in 1995. Reinsurance agreements with the parent had the
effect of decreasing net income by $31,327,000 in 1994 as compared to increasing
net income by $9,637,000 in 1995. The increase in net income associated with the
reinsurance agreements is due to the lack of surplus strain associated with the
assumption of new contracts issued. No contracts issued in 1994 or thereafter
have been assumed by the Company. It is the acquisition costs of new contract
issues which caused the loss from the reinsurance agreements in prior years.
Prior to reinsurance, net income from operations decreased by $7,017,000 from
$43,826,000 in 1994 to $36,809,000 in 1995. Realized losses on investments and
amortization of the interest maintenance reserve decreased by $2,315,000
primarily due to fewer writedowns in the group pension product line. Operating
expenses increased by $5,261,000 from $32,231,000 in 1994 to $37,492,000 in
1995, reflecting increased expenses allocated from the parent and increased
salaries due to additional staffing. The remaining decrease in net income in
1995 as compared to 1994 of approximately $4,071,000 reflects the strain
associated with the Company's market value adjusted annuity product, partially
offset by profits associated with the maturing block of individual and group
fixed annuities.
Total income decreased by approximately $73,330,000 from $1,535,039,000 in
1994 to $1,461,709,000 in 1995. Revenues from reinsurance transactions decreased
by $4,307,000 reflecting the assumed block of business being closed as of
December 31, 1993. Premiums and annuity considerations on a pre-reinsurance
basis decreased by $7,728,000 reflecting decreased group pension lottery sales
of $22,084,000 offset
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<PAGE>
by increased annuitizations of $14,356,000. Fixed annuity deposits decreased by
$26,091,000 as interest rates remained at low levels. Sales of group pension
guaranteed investment contracts increased by $49,229,000 reflecting the transfer
of the parent's agents' pension fund from the parent to the Company. Net
transfers from the separate accounts decreased by $80,758,000 reflecting the
decline in interest rates. Pre-reinsurance net investment income increased by
$2,219,000 reflecting an increase in the Company's invested asset base. Realized
losses and amortization of the interest maintenance reserve decreased by
$2,315,000. Other income decreased by $16,711,000 from $33,377,000 in 1994 to
$16,666,000 reflecting a decrease in the surplus transfer from the separate
accounts. Mortality and expense risk charges increased by $8,616,000 as a result
of market appreciation in the separate accounts.
Benefits and expenses decreased by approximately $107,277,000 from
$1,522,540,000 in 1994 to $1,415,263,000 in 1995. Reinsurance had the effect of
decreasing benefits and expenses by $45,272,000, primarily from lower
commissions due to no assumption of new contract issues. Prior to reinsurance,
benefits and expenses decreased by approximately $62,004,000. The change in the
liability for annuity and other deposit funds increased by $83,094,000 as a
result of fewer maturities of contracts for which the guarantee periods have
expired, and increased sales of group pension guaranteed investment contracts
described above. The change in reserves decreased by $16,694,000 reflecting the
decrease in group pension lottery sales. Annuity and other deposit fund
withdrawals decreased by $8,424,000 reflecting fewer maturities. Transfers to
the non-unitized separate account decreased by $124,285,000 from $455,688,000 in
1994 to $331,403,000 reflecting fewer sales and transfers from unitized separate
accounts of individually marketed fixed annuities as a result of the decline in
interest rates. Operating expenses increased by $5,261,000 reflecting the
increased expenses described above.
1994 COMPARED TO 1993
Income from operations before surplus note interest, equity in income of
subsidiaries and federal income taxes was $12,499,000 in 1994 versus a loss of
$10,818,000 in 1993. The increase in income is a result of reinsurance
agreements with the parent which decreased income from operations by
approximately $31,327,000 in 1994 and $54,567,000 in 1993. The relatively flat
change in income before reinsurance results from a combination of factors:
realized losses on investments decreased by $6,237,000; mortality and expense
risk charges increased by $9,357,000; general expenses increased by $8,061,000
and approximately $6,000,000 of additional surplus strain (selling costs and
reserves required on new business in excess of the premium) was incurred
reflecting the increased volume of new sales.
Total revenues decreased by $481,502,000 from $2,016,541,000 in 1993 to
$1,535,039,000 in 1994. Revenues from reinsurance transactions decreased by
$690,973,000, from $959,536,000 in 1993 to $268,563,000 in 1994. 1993 revenues
include the termination of the reinsurance agreement under which the Registrant
reinsured with its parent 100% of certain fixed annuity contracts. Before the
impact of the reinsurance agreements, total revenues increased by $209,471,000
in 1994. Sales of individually marketed fixed annuities increased by
$389,745,000 as a result of improved interest rates and product enhancements.
This was offset by decreased sales of group pension deposit contracts of
$271,913,000, reflecting management's decision to limit sales due to the
volatility of interest rates and changes in the competitive marketplace.
Realized losses on investments decreased, reflecting fewer mortgage writedowns
in 1994. Mortality and expense risk charges increased, reflecting the increase
in separate account net assets.
Benefits and expenses decreased by $504,819,000 from $2,027,359,000 in 1993
to $1,522,540,000 in 1994. Reinsurance had the effect of increasing benefits and
expenses by $299,890,000 in 1994 as compared to $1,014,103,000 in 1993. As noted
above, the 1993 results include the termination of the reinsurance agreement
with the parent under which 100% of certain fixed annuity contracts were
reinsured. Before the impact of reinsurance, benefits increased by $209,394,000.
Before reinsurance, the liability for annuity and other deposit funds and
actuarial reserves decreased as a result of lower sales of group pension deposit
contracts and increased surrender activity. Annuity and other deposit fund
withdrawals increased as a result of increased surrenders of fixed annuities for
which interest rate guarantee periods have expired. Transfers to the
non-unitized separate account increased reflecting the increase in fixed annuity
sales described above. Prior to reinsurance, commissions increased by
$35,497,000 reflecting increased sales of individual combination fixed/variable
annuity contracts. General expenses increased due to an increase in
40
<PAGE>
the amount allocated from the parent under the service agreement, and costs of
selling and administration associated with the increased sales and inforce block
of individually marketed fixed/variable annuity contracts. Federal income tax
expense increased as net operating loss carry forwards were utilized in 1993.
LIQUIDITY
The Company's cash inflow consists primarily of premiums on insurance and
annuity products, income from investments, repayments of investment principal
and sales of investments. The Company's cash outflow is primarily to meet death
and other maturing insurance and annuity contract obligations, to pay out on
contract terminations, to fund investment commitments and to pay normal
operating expenses and taxes. Cash outflows are met from the normal net cash
inflows.
The Company segments its business internally and matches projected cash
inflows and outflows within each segment. Targets for money market holdings are
established for each segment, which in the aggregate meet the day to day cash
needs of the Company. If greater liquidity is required, government issued bonds,
which are highly liquid, are sold to provide the necessary funds. Government and
publicly traded corporate bonds comprise 65.9% 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.
REINSURANCE
The Company has agreements with its parent company which provide that the
parent company will reinsure the mortality risks of the individual life
insurance contracts sold by the Company. Under these agreements basic death
benefits and supplementary benefits are reinsured on a yearly renewable term
basis and coinsurance basis, respectively. Reinsurance transactions under these
agreements in 1995 had the effect of decreasing net income from operations by
$2,184,000.
Effective January 1, 1991 the Company entered into an agreement with the
parent company under which 100% of certain fixed annuity contracts issued by the
Company were reinsured. This agreement was terminated effective December 31,
1993.
Effective January 1, 1991 the Company entered into an agreement with the
parent company under which certain individual life insurance contracts issued by
the parent were reinsured by the Company on a 90% coinsurance basis. Also
effective January 1, 1991 the Company entered into an agreement with the parent
which provides that the parent will reinsure the mortality risks in excess of
$500,000 per policy for the individual life insurance contracts assumed by the
Company in the reinsurance agreement described above. Death benefits are
reinsured on a yearly renewable term basis. The life reinsurance assumed
agreement requires the reinsurer to withhold funds in an amount equal to the
reserves assumed.
The Company also has executed a reinsurance agreement with an unaffiliated
company which provides reinsurance of certain individual life insurance
contracts on a modified coinsurance basis and under which all deficiency
reserves are ceded.
RESERVES
In accordance with the life insurance laws and regulations under which the
Company operates it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on its outstanding
contracts. Reserves are based on mortality tables in general use in the United
States and are computed to equal amounts that, with additions from premiums to
be received, and with interest on such reserves compounded annually at certain
assumed rates, will be sufficient to meet the Company's policy obligations at
their maturities or in the event of an insured's death. In the accompanying
Financial Statements these reserves are determined in accordance with statutory
regulations which are generally accepted accounting principles for the Company.
INVESTMENTS
Of the Company's total assets of $12.5 billion at December 31, 1995, 58.5%
consisted of unitized and non-unitized separate account assets, 22.8% were
invested in bonds and similar securities, 8.5% in mortgages, 1.1% in
subsidiaries, 0.7% in real estate, and the remaining 8.4% in cash and other
assets.
41
<PAGE>
COMPETITION
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other entities
marketing insurance products. There are approximately 1,750 stock, mutual and
other types of insurers in the life insurance business in the United States.
According to the most recent Best's Review, Life-Health Edition, as of December
31, 1994 the Company ranked 46th among all life insurance companies in the
United States based upon total assets. Its parent company, Sun Life Assurance
Company of Canada, ranked 19th. Best's Insurance Reports, Life-Health Edition,
1995, assigned the Company and the parent company its highest classification,
A++, as of December 31, 1994. Standard & Poor's and Duff & Phelps have assigned
the Company and the parent company their highest ratings for claims paying
ability, AAA. These ratings should not be considered as bearing on the
investment performance of the Series Fund shares held in the Sub-Accounts of the
Variable Account. However, the ratings are relevant to the Company's ability to
meet its general corporate obligations under the Contracts.
EMPLOYEES
The Company and Sun Life Assurance Company of Canada have entered into a
Service Agreement which provides that the latter will furnish the Company, as
required, with personnel as well as certain services and facilities on a cost
reimbursement basis. As of December 31, 1995 the Company had 255 direct
employees who are employed at its Principal Executive Office in Wellesley Hills,
Massachusetts and its Annuity Service Center in Boston, Massachusetts.
PROPERTIES
The Company occupies office space owned by it and leased to its parent, Sun
Life Assurance Company of Canada, and certain unrelated parties for lease terms
not exceeding five years.
THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
The directors and principal officers of the Company are listed below,
together with information as to their ages, dates of election and principal
business occupations during the last five years (if other than their present
business occupations). Except as otherwise indicated, the directors and officers
of the Company who are associated with Sun Life Assurance Company of Canada
and/or its subsidiaries have been associated with Sun Life Assurance Company of
Canada for more than five years either in the position shown or in other
positions.
JOHN D. MCNEIL, 62, Chairman and Director (1982*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Chairman and a Director of Sun Life Assurance Company of Canada and
Sun Life Insurance and Annuity Company of New York; a Director of Massachusetts
Financial Services Company; President and a Director of Sun Growth Variable
Annuity Fund, Inc.; Chairman and a Trustee of MFS/Sun Life Series Trust;
Chairman and a Member of the Boards of Managers of Money Market Variable
Account, High Yield Variable Account, Capital Appreciation Variable Account,
Government Securities Variable Account, World Governments Variable Account,
Total Return Variable Account and Managed Sectors Variable Account; and a
Director of Shell (Canada) Limited and Canadian Pacific, Ltd.
JOHN R. GARDNER, 58, President and Director (1986*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is President and a Director of Sun Life Assurance Company of Canada, and
Sun Life Insurance and Annuity Company of New York; and a Director of
Massachusetts Financial Services Company, Massachusetts Casualty Insurance
Company and Sun Life Financial Services Limited.
- ---------
* Year Elected Director
42
<PAGE>
DAVID D. HORN, 54, Senior Vice President and General Manager and Director (1970,
1985*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Senior Vice President and General Manager for the United States of Sun
Life Assurance Company of Canada; Chairman and President and a Director of Sun
Investment Services Company; Senior Vice President and a Director of Sun Life
Insurance and Annuity Company of New York; Vice President and a Director of Sun
Growth Variable Annuity Fund, Inc.; President and a Director of Sun Benefit
Services Company, Inc., Sun Canada Financial Co., and Sun Life Financial
Services Limited; a Director of Sun Capital Advisers, Inc.; Chairman and a
Director of Massachusetts Casualty Insurance Company; a Trustee of MFS/ Sun Life
Series Trust; and a Member of the Boards of Managers of Money Market Variable
Account, High Yield Variable Account, Capital Appreciation Variable Account,
Government Securities Variable Account, World Governments Variable Account,
Total Return Variable Account and Managed Sectors Variable Account.
ANGUS A. MACNAUGHTON, 64, Director (1985*)
Metro Tower, Suite 1170,
950 Tower Lane
Foster City, California 94404
He is President of Genstar Investment Corporation and a Director of Sun Life
Assurance Company of Canada, Sun Life Insurance and Annuity Company of New York,
Canadian Pacific, Ltd., Stelco, Inc. and Varian Associates, Inc.
JOHN S. LANE, 61, Director (1991*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Senior Vice President, Investments of Sun Life Assurance Company of
Canada; and a Director of Sun Investment Services Company, Sun Capital Advisers,
Inc. and Sun Life Insurance and Annuity Company of New York.
RICHARD B. BAILEY, 69, 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. Prior to October
1, 1991, he was Chairman and a Director of Massachusetts Financial Services
Company.
A. KEITH BRODKIN, 60, Director (1990*)
500 Boylston Street
Boston, Massachusetts 02116
He is Chairman and a Director of Massachusetts Financial Services Company; a
Director of Sun Life Insurance and Annuity Company of New York; and a
Director/Trustee and/or Officer of the Funds in the MFS Family of Funds.
M. COLYER CRUM, 63, Director (1986*)
Harvard Business School
Soldiers Field Road
Boston, Massachusetts 02163
He is a Professor at the Harvard Business School; and a Director of Sun Life
Assurance Company of Canada, Sun Life Insurance and Annuity Company of New York,
Merrill Lynch Ready Assets Trust, Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch Special Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
U.S.A. Government Reserves, Merrill Lynch Natural Resources Trust, Merrill Lynch
U.S. Treasury
- ---------
* Year Elected Director
43
<PAGE>
Money Fund, MuniVest California Insured Fund, Inc., MuniVest Florida Fund, Inc.,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
New York Insured Fund, Inc., MuniYield Florida Insured Fund, MuniYield Insured
Fund II, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund III, Inc. and MuniYield
Pennsylvania Fund.
ROBERT A. BONNER, 51, Vice President, Pensions (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Pensions for the United States of Sun Life Assurance
Company of Canada.
ROBERT E. MCGINNESS, 54, Vice President and Counsel (1983)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President and Counsel for the United States of Sun Life Assurance
Company of Canada; Vice President and Counsel and a Director of Sun Investment
Services Company and Sun Benefit Services Company, Inc.; Assistant Secretary and
a Director of New London Trust, F.S.B.; and a Director of Massachusetts Casualty
Insurance Company.
C. JAMES PRIEUR, 45, Vice President, Investments (1993)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Investments for the United States of Sun Life
Assurance Company of Canada; Vice President, Investments of Sun Investment
Services Company and Sun Life Insurance and Annuity Company of New York; and a
Director of Sun Capital Advisers, Inc., New London Trust, F.S.B. and Sun Canada
Financial Co.
S. CAESAR RABOY, 59, Vice President, Individual Insurance (1991)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Individual Insurance for the United States of Sun Life
Assurance Company of Canada; Vice President of Sun Life Insurance and Annuity
Company of New York; and Vice President and a Director of Sun Life Financial
Services Limited. Prior to 1990 he was President and Chief Operating Officer of
Connecticut Mutual Life Insurance Company.
ROBERT P. VROLYK, 43, Vice President and Actuary (1986)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Finance for the United States of Sun Life Assurance
Company of Canada; Vice President, Controller and Actuary of Sun Life Insurance
and Annuity Company of New York; a Director of Massachusetts Casualty Insurance
Company; and Vice President and a Director of Sun Canada Financial Co.
44
<PAGE>
BONNIE S. ANGUS, 54, Secretary (1974)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
She is Assistant Secretary for the United States of Sun Life Assurance
Company of Canada; and Secretary of Sun Investment Services Company, Sun Benefit
Services Company, Inc., MFS/Sun Life Series Trust, Sun Growth Variable Annuity
Fund, Inc., Money Market Variable Account, High Yield Variable Account, Capital
Appreciation Variable Account, Government Securities Variable Account, World
Governments Variable Account, Total Return Variable Account, Managed Sectors
Variable Account, Sun Life Insurance and Annuity Company of New York, Sun
Capital Advisers, Inc., New London Trust, F.S.B., Sun Life Financial Services
Limited and Sun Canada Financial Co.
L. BROCK THOMSON, 54, Vice President and Treasurer (1974)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Vice President, Portfolio Management for the United States of Sun Life
Assurance Company of Canada; Vice President and Treasurer of Sun Investment
Services Company, Sun Capital Advisers, Inc., Sun Benefit Services Company, Inc.
and Sun Life Insurance and Annuity Company of New York; and Assistant Treasurer
of Massachusetts Casualty Insurance Company.
The directors, officers and employees of the Company are covered under a
commercial blanket bond and a liability policy. The directors, officers and
employees of Massachusetts Financial Services Company and Clarendon Insurance
Agency, Inc. are covered under a fidelity bond and errors and omissions policy.
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 1995
totalled $812,410.
Directors of the Company who are also officers of Sun Life Assurance Company
of Canada or its affiliates receive no compensation in addition to their
compensation as officers of Sun Life Assurance Company of Canada or its
affiliates. Messrs. Crum and MacNaughton receive compensation in the amount of
$5,000 per year, plus $800 for each meeting attended, plus expenses.
No shares of the Company are owned by any executive officer or director. The
Company is a wholly-owned subsidiary of Sun Life Assurance Company of Canada,
150 King Street West, Toronto, Ontario, Canada M5H 1J9.
STATE REGULATION
The Company is subject to the laws of the State of Delaware governing life
insurance companies and to regulation by the Commissioner of Insurance of
Delaware. An annual statement is filed with the Commissioner of Insurance on or
before March 1st in each year relating to the operations of the Company for the
preceding year and its financial condition on December 31st of such year. Its
books and records are subject to review or examination by the Commissioner or
his agents at any time and a full examination of its operations is conducted at
periodic intervals.
45
<PAGE>
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, and proposed legislation to prohibit the use of
gender in determining insurance and pension rates and benefits.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Variable Account. The
Company and its subsidiaries are engaged in various kinds of routine litigation
which, in management's judgment, is not of material importance to their
respective total assets or material with respect to the Variable Account.
LEGAL MATTERS
The organization of the Company, its authority to issue the Contracts and
the validity of the form of the Contracts have been passed upon by David D.
Horn, Esq., Senior Vice President and General Manager of the Company. Covington
& Burling, Washington, D.C., has advised the Company on certain legal matters
concerning federal securities laws applicable to the issue and sale of the
Contracts and federal income tax laws applicable to the Contracts.
ACCOUNTANTS
The financial statements of the Variable Account for the year ended December
31, 1995 and the financial statements of the Company for the years ended
December 31, 1995, 1994 and 1993 included in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein, and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
REGISTRATION STATEMENTS
Registration statements have been filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 as amended, with
respect to the Contracts offered by this Prospectus. This Prospectus does not
contain all the information set forth in the registration statements and the
exhibits
46
<PAGE>
filed as part of the registration statements, to all of which reference is
hereby made for further information concerning the Variable Account, the Fixed
Account, the Company, the Series Fund, the Contract and the Certificates.
Statements found in this Prospectus as to the terms of the Contracts, the
Certificates and other legal instruments are summaries, and reference is made to
such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this
Prospectus should be considered only as bearing on the ability of the Company to
meet its obligations with respect to amounts allocated to the Fixed Account and
with respect to the death benefit and the Company's assumption of the mortality
and expense risks. They should not be considered as bearing on the investment
performance of the Series Fund shares held in the Sub-Accounts of the Variable
Account. The Variable Account value of the interests of Owners, Participants,
Annuitants, Payees and Beneficiaries under the Contracts is affected primarily
by the investment results of the Series Fund. The financial statements of the
Variable Account reflect units outstanding and expenses incurred under other
contracts participating in the Variable Account which impose certain contract
charges that are different from those imposed under the Contracts.
-------------------
47
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1995
<TABLE>
<CAPTION>
Assets:
Investments in MFS/Sun Life Series Trust: Shares Cost Value
----------- -------------- --------------
<S> <C> <C> <C>
Capital Appreciation Series ("CAS").............................................. 20,694,441 $ 555,400,190 $ 661,970,636
Conservative Growth Series ("CGS")............................................... 12,268,501 217,219,949 270,130,493
Emerging Growth Series ("EGS")................................................... 5,301,215 63,686,760 67,239,716
MFS/Foreign & Colonial International Growth and Income Series ("FCG")............ 708,797 7,067,308 7,178,745
Government Securities Series ("GSS")............................................. 21,859,555 276,753,000 292,703,791
High Yield Series ("HYS")........................................................ 13,520,748 114,301,393 120,648,644
Managed Sectors Series ("MSS")................................................... 6,986,407 153,500,488 177,775,494
Money Market Series ("MMS")...................................................... 232,452,692 232,452,692 232,452,692
Research Series ("RES").......................................................... 5,290,149 63,199,027 71,822,398
Total Return Series ("TRS")...................................................... 55,713,387 851,548,080 1,024,281,880
Utilities Series ("UTS")......................................................... 3,409,214 34,769,429 41,796,297
World Asset Allocation Series ("WAA")............................................ 2,115,612 23,284,489 25,862,059
World Governments Series ("WGS")................................................. 11,075,887 133,922,934 138,299,644
World Growth Series ("WGR")...................................................... 11,457,908 127,633,799 141,460,196
World Total Return Series ("WTR")................................................ 1,164,889 12,758,587 13,783,458
-------------- --------------
$2,867,498,125 $3,287,406,143
--------------
--------------
Receivable from sponsor......................................................................................... 162,592
--------------
Net assets................................................................................................ $3,287,568,735
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
Deferred Variable Annuity Contracts Reserve for
-------------------------------------- Variable
NET ASSETS APPLICABLE TO CONTRACT OWNERS: Units Unit Value Value Annuities Total
---------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
MFS Regatta Contracts:
CAS.................................... 6,615,207 $ 20.6225 $ 136,410,833 $ 245,038 $ 136,655,871
GSS.................................... 3,535,152 15.5323 54,908,660 225,698 55,134,358
HYS.................................... 1,068,412 17.8678 19,081,169 8,030 19,089,199
MSS.................................... 2,150,361 18.9987 40,851,418 86,338 40,937,756
MMS.................................... 3,453,907 12.2910 42,442,851 164,363 42,607,214
TRS.................................... 13,106,997 17.8165 233,507,279 1,162,925 234,670,204
WGS.................................... 1,730,002 16.2514 28,118,590 77,135 28,195,725
-------------- ----------- --------------
$ 555,320,800 $1,969,527 $ 557,290,327
-------------- ----------- --------------
MFS Regatta Gold Contracts:
CAS.................................... 27,782,739 $ 18.8392 $ 523,347,352 $2,166,217 $ 525,513,569
CGS.................................... 16,712,586 16.1344 269,625,529 530,164 270,155,693
EGS.................................... 5,346,104 12.5675 67,183,165 -- 67,183,165
FCG.................................... 711,179 10.0942 7,178,745 -- 7,178,745
GSS.................................... 18,082,586 13.0981 236,851,391 782,886 237,634,277
HYS.................................... 6,880,080 14.7137 101,211,247 310,936 101,522,183
MSS.................................... 8,542,869 15.9925 136,616,983 216,172 136,833,155
MMS.................................... 17,186,041 11.0111 189,244,865 338,871 189,583,736
RES.................................... 5,341,160 13.3663 71,394,271 510,203 71,904,474
TRS.................................... 53,091,748 14.8406 787,862,944 1,668,256 789,531,200
UTS.................................... 3,410,047 12.2403 41,738,359 55,148 41,793,507
WAA.................................... 2,141,041 12.0393 25,776,833 90,584 25,867,417
WGS.................................... 8,272,858 13.2523 109,635,499 519,035 110,154,534
WGR.................................... 11,421,691 12.3321 140,851,336 646,294 141,497,630
WTR.................................... 1,170,586 11.6516 13,639,351 159,580 13,798,931
-------------- ----------- --------------
$2,722,157,870 $7,994,346 $2,730,152,216
-------------- ----------- --------------
NET ASSETS APPLICABLE TO SPONSOR................................... $ 126,192 $ -- $ 126,192
-------------- ----------- --------------
Net assets................................................. $3,277,604,862 $9,963,873 $3,287,568,735
-------------- ----------- --------------
-------------- ----------- --------------
</TABLE>
See notes to financial statements
48
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1995
<TABLE>
<CAPTION>
CAS CGS EGS FCG GSS
Sub-Account Sub-Account Sub-Account* Sub-Account** Sub-Account
------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ 12,222,330 $ 4,213,752 $ -- $ -- $ 15,080,454
Mortality and expense risk
charges......................... 6,566,319 2,296,967 245,139 9,593 3,262,464
Distribution expense charges..... 180,081 -- -- -- 80,215
Administrative expense charges... 607,879 275,636 29,417 1,151 311,281
------------- ------------ ------------ ----------- ------------
Net investment income
(expense)................... $ 4,868,051 $ 1,641,149 $ (274,556) $(10,744) $ 11,426,494
------------- ------------ ------------ ----------- ------------
------------- ------------ ------------ ----------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains on investment
transactions:
Proceeds from sales............ $ 168,445,760 $ 7,669,518 $17,109,373 $ 11,837 $ 78,420,543
Cost of investments sold....... 159,776,008 6,109,739 14,892,586 12,080 79,967,164
------------- ------------ ------------ ----------- ------------
Net realized gains
(losses).................... $ 8,669,752 $ 1,559,779 $ 2,216,787 $ (243) $ (1,546,621)
------------- ------------ ------------ ----------- ------------
Net unrealized appreciation
(depreciation) on investments:
End of year.................... $ 106,570,446 $ 52,910,544 $ 3,552,956 $111,437 $ 15,950,791
Beginning of year.............. (24,453,057) 124,681 -- -- (13,654,356)
------------- ------------ ------------ ----------- ------------
Change in unrealized
appreciation................ $ 131,023,503 $ 52,785,863 $ 3,552,956 $111,437 $ 29,605,147
------------- ------------ ------------ ----------- ------------
Realized and unrealized gains.... $ 139,693,255 $ 54,345,642 $ 5,769,743 $111,194 $ 28,058,526
------------- ------------ ------------ ----------- ------------
INCREASE IN NET ASSETS FROM
OPERATIONS...................... $ 144,561,306 $ 55,986,791 $ 5,495,187 $100,450 $ 39,485,020
------------- ------------ ------------ ----------- ------------
------------- ------------ ------------ ----------- ------------
<CAPTION>
HYS MSS MMS
Sub-Account Sub-Account Sub-Account
------------ ------------ -------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ 6,506,329 $ 4,070,752 $ 10,112,163
Mortality and expense risk
charges......................... 1,234,228 1,785,559 2,360,642
Distribution expense charges..... 25,060 54,132 57,813
Administrative expense charges... 123,047 160,137 225,464
------------ ------------ -------------
Net investment income
(expense)................... $ 5,123,994 $ 2,070,924 $ 7,468,244
------------ ------------ -------------
------------ ------------ -------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains on investment
transactions:
Proceeds from sales............ $ 55,764,339 $ 25,990,021 $ 393,915,269
Cost of investments sold....... 53,874,507 23,211,669 393,915,269
------------ ------------ -------------
Net realized gains
(losses).................... $ 1,889,832 $ 2,778,352 $ --
------------ ------------ -------------
Net unrealized appreciation
(depreciation) on investments:
End of year.................... $ 6,347,251 $ 24,275,006 $ --
Beginning of year.............. (491,661) (6,047,477) --
------------ ------------ -------------
Change in unrealized
appreciation................ $ 6,838,912 $ 30,322,483 $ --
------------ ------------ -------------
Realized and unrealized gains.... $ 8,728,744 $ 33,100,835 $ --
------------ ------------ -------------
INCREASE IN NET ASSETS FROM
OPERATIONS...................... $ 13,852,738 $ 35,171,759 $ 7,468,244
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
*For the period from May 1, 1995 (commencement of investment operations) to
December 31, 1995.
**For the period from October 4, 1995 (commencement of investment operations) to
December 31, 1995.
See notes to financial statements
49
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- continued
<TABLE>
<CAPTION>
RES TRS UTS WAA WGS
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 5,213 $ 32,466,536 $ 667,466 $ 6,090 $ 7,171,231
Mortality and expense risk charges.... 347,162 10,927,279 354,562 162,497 1,688,912
Distribution expense charges.......... -- 323,202 -- -- 41,714
Administrative expense charges........ 41,659 988,072 42,547 19,500 160,955
----------- ------------- ----------- ----------- ------------
Net investment income (expense)... $ (383,608) $ 20,227,983 $ 270,357 $ (175,907) $ 5,279,650
----------- ------------- ----------- ----------- ------------
----------- ------------- ----------- ----------- ------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains on investment
transactions:
Proceeds from sales................. $3,467,672 $ 84,253,831 $8,132,861 $1,134,082 $ 37,103,469
Cost of investments sold............ 3,086,840 67,830,111 7,866,953 1,013,492 37,082,327
----------- ------------- ----------- ----------- ------------
Net realized gains................ $ 380,832 $ 16,423,720 $ 265,908 $ 120,590 $ 21,142
----------- ------------- ----------- ----------- ------------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $8,623,371 $ 172,733,800 $7,026,868 $2,577,570 $ 4,376,710
Beginning of year................... 11,209 12,939,657 (420,499) 17,780 (7,922,900)
----------- ------------- ----------- ----------- ------------
Change in unrealized
appreciation..................... $8,612,162 $ 159,794,143 $7,447,367 $2,559,790 $ 12,299,610
----------- ------------- ----------- ----------- ------------
Realized and unrealized gains......... $8,992,994 $ 176,217,863 $7,713,275 $2,680,380 $ 12,320,752
----------- ------------- ----------- ----------- ------------
INCREASE IN NET ASSETS FROM
OPERATIONS........................... $8,609,386 $ 196,445,846 $7,983,632 $2,504,473 $ 17,600,402
----------- ------------- ----------- ----------- ------------
----------- ------------- ----------- ----------- ------------
<CAPTION>
WGR WTR
Sub-Account Sub-Account Total
------------ ----------- -------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 3,100,162 $ 2,399 $ 95,624,877
Mortality and expense risk charges.... 1,457,299 79,873 32,778,495
Distribution expense charges.......... -- -- 762,217
Administrative expense charges........ 174,876 9,584 3,171,205
------------ ----------- -------------
Net investment income (expense)... $ 1,467,987 $ (87,058) $ 58,912,960
------------ ----------- -------------
------------ ----------- -------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains on investment
transactions:
Proceeds from sales................. $ 24,859,820 $ 971,428 $ 907,249,823
Cost of investments sold............ 23,988,619 908,827 873,536,191
------------ ----------- -------------
Net realized gains................ $ 871,201 $ 62,601 $ 33,713,632
------------ ----------- -------------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $ 13,826,397 $1,024,871 $ 419,908,018
Beginning of year................... (867,181) 4,178 (40,759,626)
------------ ----------- -------------
Change in unrealized
appreciation..................... $ 14,693,578 $1,020,693 $ 460,667,644
------------ ----------- -------------
Realized and unrealized gains......... $ 15,564,779 $1,083,294 $ 494,381,276
------------ ----------- -------------
INCREASE IN NET ASSETS FROM
OPERATIONS........................... $ 17,032,766 $ 996,236 $ 553,294,236
------------ ----------- -------------
------------ ----------- -------------
</TABLE>
See notes to financial statements
50
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CAS CGS EGS FCG
Sub-Account Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- ------------- -------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
----------------------------- ----------------------------- ------------- -------------
1995 1994 1995 1994 1995* 1995**
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(expense).................. $ 4,868,051 $ 27,825,823 $ 1,641,149 $ 147,916 $ (274,556) $ (10,744)
Net realized gains
(losses)................... 8,669,752 12,649,928 1,559,779 469,410 2,216,787 (243)
Net unrealized gains
(losses)................... 131,023,503 (57,996,267) 52,785,863 (3,896,273) 3,552,956 111,437
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from operations... $ 144,561,306 $ (17,520,516) $ 55,986,791 $ (3,278,947) $ 5,495,187 $ 100,450
------------- ------------- ------------- ------------- ------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments
received................. $ 120,979,478 $ 131,738,032 $ 74,122,408 $ 54,704,628 $ 34,471,454 $ 4,120,619
Net transfers between
Sub-Accounts and Fixed
Account.................. 51,189,081 (30,000,160) 19,980,665 5,906,300 27,751,346 3,003,996
Withdrawals, surrenders,
annuitizations and
contract charges......... (35,672,499) (22,127,701) (11,060,939) (4,909,494) (532,429) (46,320)
------------- ------------- ------------- ------------- ------------- -------------
Net accumulation
activity............... $ 136,496,060 $ 79,610,171 $ 83,042,134 $ 55,701,434 $ 61,690,371 $ 7,078,295
------------- ------------- ------------- ------------- ------------- -------------
Annuitization Activity:
Annuitizations............ $ 1,153,294 $ 325,123 $ 201,542 $ 131,189 $ 50,528 $ --
Annuity payments and
contract charges......... (216,005) (135,087) (58,715) (58,514) (593) --
Net transfers between
Sub-Accounts............. 531,083 (13,777) 2,298 68,480 4,223 --
Adjustment to annuity
reserve.................. 131,042 (138,996) 30,462 (3,424) (56,551) --
------------- ------------- ------------- ------------- ------------- -------------
Net annuitization
activity............... $ 1,599,414 $ 37,263 $ 175,587 $ 137,731 $ (2,393) $ --
------------- ------------- ------------- ------------- ------------- -------------
Increase in net assets from
participant transactions... $ 138,095,474 $ 79,647,434 $ 83,217,721 $ 55,839,165 $ 61,687,978 $ 7,078,295
------------- ------------- ------------- ------------- ------------- -------------
Increase in net assets.... $ 282,656,780 $ 62,126,918 $ 139,204,512 $ 52,560,218 $ 67,183,165 $ 7,178,745
NET ASSETS:
Beginning of year........... 379,512,660 317,385,742 130,951,181 78,390,963 -- --
------------- ------------- ------------- ------------- ------------- -------------
End of year................. $ 662,169,440 $ 379,512,660 $ 270,155,693 $ 130,951,181 $ 67,183,165 $ 7,178,745
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
*For the period from May 1, 1995 (commencement of investment operations) to
December 31, 1995.
**For the period from October 4, 1995 (commencement of investment operations) to
December 31, 1995.
See notes to financial statements
51
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
GSS HYS MSS
Sub-Account Sub-Account Sub-Account
----------------------------- ---------------------------- -----------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
----------------------------- ---------------------------- -----------------------------
1995 1994 1995 1994 1995 1994
------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income......... $ 11,426,494 $ 10,541,212 $ 5,123,994 $ 3,353,160 $ 2,070,924 $ 10,371,457
Net realized gains (losses)... (1,546,621) 989,314 1,889,832 (1,835,584) 2,778,352 2,312,910
Net unrealized gains
(losses)..................... 29,605,147 (19,932,794) 6,838,912 (3,354,235) 30,322,483 (16,183,713)
------------- ------------- ------------- ------------ ------------- -------------
Increase (decrease) in net
assets from operations... $ 39,485,020 $ (8,402,268) $ 13,852,738 $ (1,836,659) $ 35,171,759 $ (3,499,346)
------------- ------------- ------------- ------------ ------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments
received................... $ 47,266,837 $ 81,307,573 $ 20,152,853 $ 25,863,588 $ 34,586,296 $ 29,286,189
Net transfers between
Sub-Accounts and Fixed
Account.................... (42,381,252) (10,559,956) 22,611,563 (10,800,800) 9,193,092 (4,775,869)
Withdrawals, surrenders,
annuitizations and contract
charges.................... (21,245,942) (18,857,834) (7,980,818) (6,561,955) (9,392,233) (7,012,701)
------------- ------------- ------------- ------------ ------------- -------------
Net accumulation
activity................. $ (16,360,357) $ 51,889,783 $ 34,783,598 $ 8,500,833 $ 34,387,155 $ 17,497,619
------------- ------------- ------------- ------------ ------------- -------------
Annuitization Activity:
Annuitizations.............. $ 354,393 $ 519,211 $ 16,894 $ 143,700 $ 92,920 $ 68,728
Annuity payments and
contract charges........... (168,285) (131,378) (68,402) (71,050) (56,337) (32,033)
Net transfers between
Sub-Accounts............... (53,070) (128,389) 8,428 119,221 94,161 976
Adjustment to annuity
reserve.................... 33,716 41,563 (25,024) (8,871) (2,133) (388)
------------- ------------- ------------- ------------ ------------- -------------
Net annuitization
activity................. $ 166,754 $ 301,007 $ (68,104) $ 183,000 $ 128,611 $ 37,283
------------- ------------- ------------- ------------ ------------- -------------
Increase in net assets from
participant transactions..... $ (16,193,603) $ 52,190,790 $ 34,715,494 $ 8,683,833 $ 34,515,766 $ 17,534,902
------------- ------------- ------------- ------------ ------------- -------------
Increase in net assets...... $ 23,291,417 $ 43,788,522 $ 48,568,232 $ 6,847,174 $ 69,687,525 $ 14,035,556
NET ASSETS:
Beginning of year............. 269,477,218 225,688,696 72,043,150 65,195,976 108,083,386 94,047,830
------------- ------------- ------------- ------------ ------------- -------------
End of year................... $ 292,768,635 $ 269,477,218 $ 120,611,382 $ 72,043,150 $ 177,770,911 $ 108,083,386
------------- ------------- ------------- ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------- -------------
</TABLE>
See notes to financial statements
52
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
MMS RES
Sub-Account Sub-Account
------------------------------ --------------------------
Year Ended Year Ended
December 31, December 31,
------------------------------ --------------------------
1995 1994 1995 1994*
-------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (expense)....... $ 7,468,244 $ 4,088,955 $ (383,608) $ (4,034)
Net realized gains (losses)........... -- -- 380,832 (3,877)
Net unrealized gains (losses)......... -- -- 8,612,162 11,209
-------------- ------------- ------------ -----------
Increase (decrease) in net assets
from operations.................. $ 7,468,244 $ 4,088,955 $ 8,609,386 $ 3,298
-------------- ------------- ------------ -----------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $ 172,273,093 $ 169,065,890 $ 44,406,655 $ 1,223,399
Net transfers between Sub-Accounts
and Fixed Account.................. (115,663,895) (47,970,496) 15,859,913 2,663,995
Withdrawals, surrenders,
annuitizations and contract
charges............................ (34,523,223) (21,288,054) (1,251,158) (19,412)
-------------- ------------- ------------ -----------
Net accumulation activity......... $ 22,085,975 $ 99,807,340 $ 59,015,410 $ 3,867,982
-------------- ------------- ------------ -----------
Annuitization Activity:
Annuitizations...................... $ 583,368 $ 559,738 $ 404,830 $ --
Annuity payments and contract
charges............................ (185,934) (103,980) (20,548) --
Net transfers between
Sub-Accounts....................... (656,607) 122,710 (57,959) --
Adjustment to annuity reserve....... (33,157) 96,065 82,075 --
-------------- ------------- ------------ -----------
Net annuitization activity........ $ (292,330) $ 674,533 $ 408,398 $ --
-------------- ------------- ------------ -----------
Increase in net assets from
participant transactions............. $ 21,793,645 $ 100,481,873 $ 59,423,808 $ 3,867,982
-------------- ------------- ------------ -----------
Increase in net assets.............. $ 29,261,889 $ 104,570,828 $ 68,033,194 $ 3,871,280
NET ASSETS:
Beginning of year..................... 203,055,253 98,484,425 3,871,280 --
-------------- ------------- ------------ -----------
End of year........................... $ 232,317,142 $ 203,055,253 $ 71,904,474 $ 3,871,280
-------------- ------------- ------------ -----------
-------------- ------------- ------------ -----------
<CAPTION>
TRS
Sub-Account
------------------------------
Year Ended
December 31,
------------------------------
1995 1994
-------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (expense)....... $ 20,227,983 $ 19,183,787
Net realized gains (losses)........... 16,423,720 9,131,549
Net unrealized gains (losses)......... 159,794,143 (56,210,282)
-------------- -------------
Increase (decrease) in net assets
from operations.................. $ 196,445,846 $ (27,894,946)
-------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $ 114,688,434 $ 222,713,883
Net transfers between Sub-Accounts
and Fixed Account.................. (1,317,333) (7,151,070)
Withdrawals, surrenders,
annuitizations and contract
charges............................ (63,409,172) (51,917,624)
-------------- -------------
Net accumulation activity......... $ 49,961,929 $ 163,645,189
-------------- -------------
Annuitization Activity:
Annuitizations...................... $ 238,231 $ 816,949
Annuity payments and contract
charges............................ (656,053) (624,252)
Net transfers between
Sub-Accounts....................... 17,486 (63,499)
Adjustment to annuity reserve....... (16,966) 21,464
-------------- -------------
Net annuitization activity........ $ (417,302) $ 150,662
-------------- -------------
Increase in net assets from
participant transactions............. $ 49,544,627 $ 163,795,851
-------------- -------------
Increase in net assets.............. $ 245,990,473 $ 135,900,905
NET ASSETS:
Beginning of year..................... 778,210,931 642,310,026
-------------- -------------
End of year........................... $1,024,201,404 $ 778,210,931
-------------- -------------
-------------- -------------
</TABLE>
*For the period from November 7, 1994 (commencement of investment operations) to
December 31, 1994.
See notes to financial statements
53
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
UTS WAA WGS
Sub-Account Sub-Account Sub-Account
--------------------------- -------------------------- -----------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
--------------------------- -------------------------- -----------------------------
1995 1994 1995 1994* 1995 1994
------------ ------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (expense)....... $ 270,357 $ (199,726) $ (175,907) $ (2,966) $ 5,279,650 $ 9,480,795
Net realized gains (losses)........... 265,908 (122,032) 120,590 (147) 21,142 (873,333)
Net unrealized gains (losses)......... 7,447,367 (443,189) 2,559,790 17,780 12,299,610 (16,425,541)
------------ ------------ ------------ ----------- ------------- -------------
Increase (decrease) in net assets
from operations.................... $ 7,983,632 $ (764,947) $ 2,504,473 $ 14,667 $ 17,600,402 $ (7,818,079)
------------ ------------ ------------ ----------- ------------- -------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $ 12,426,034 $ 17,617,955 $ 14,182,774 $ 1,457,362 $ 12,226,329 $ 37,946,650
Net transfers between Sub-Accounts
and Fixed Account.................. 2,364,291 2,488,460 6,506,983 1,534,984 (8,347,691) (17,688,160)
Withdrawals, surrenders,
annuitizations and contract
charges............................ (2,335,754) (828,336) (403,056) (3,895) (8,464,694) (8,869,406)
------------ ------------ ------------ ----------- ------------- -------------
Net accumulation activity......... $ 12,454,571 $ 19,278,079 $ 20,286,701 $ 2,988,451 $ (4,586,056) $ 11,389,084
------------ ------------ ------------ ----------- ------------- -------------
Annuitization Activity:
Annuitizations...................... $ 16,672 $ 27,927 $ -- $ -- $ 9,873 $ 303,841
Annuity payments and contract
charges............................ (7,291) -- (10,989) -- (159,462) (162,696)
Net transfers between
Sub-Accounts....................... 9,915 -- 78,757 -- -- (142,264)
Adjustment to annuity reserve....... (2,791) 1 5,357 -- 49,038 (338)
------------ ------------ ------------ ----------- ------------- -------------
Net annuitization activity........ $ 16,505 $ 27,928 $ 73,125 $ -- $ (100,551) $ (1,457)
------------ ------------ ------------ ----------- ------------- -------------
Increase in net assets from
participant transactions............. $ 12,471,076 $ 19,306,007 $ 20,359,826 $ 2,988,451 $ (4,686,607) $ 11,387,627
------------ ------------ ------------ ----------- ------------- -------------
Increase in net assets.............. $ 20,454,708 $ 18,541,060 $ 22,864,299 $ 3,003,118 $ 12,913,795 $ 3,569,548
NET ASSETS:
Beginning of year..................... 21,338,799 2,797,739 3,003,118 -- 125,436,464 121,866,916
------------ ------------ ------------ ----------- ------------- -------------
End of year........................... $ 41,793,507 $ 21,338,799 $ 25,867,417 $ 3,003,118 $ 138,350,259 $ 125,436,464
------------ ------------ ------------ ----------- ------------- -------------
------------ ------------ ------------ ----------- ------------- -------------
</TABLE>
*For the period from November 7, 1994 (commencement of investment operations) to
December 31, 1994.
See notes to financial statements
54
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
WGR WTR
Sub-Account Sub-Account Total
---------------------------- -------------------------- ---------------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
---------------------------- -------------------------- ---------------------------------
1995 1994 1995 1994* 1995 1994
------------- ------------ ------------ ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(expense)....................... $ 1,467,987 $ (890,634) $ (87,058) $ (1,446) $ 58,912,960 $ 83,894,299
Net realized gains............... 871,201 1,495,414 62,601 63 33,713,632 24,213,615
Net unrealized gains (losses).... 14,693,578 (1,584,010) 1,020,693 4,178 460,667,644 (175,993,137)
------------- ------------ ------------ ----------- --------------- ---------------
Increase (decrease) in net
assets from operations........ $ 17,032,766 $ (979,230) $ 996,236 $ 2,795 $ 553,294,236 $ (67,885,223)
------------- ------------ ------------ ----------- --------------- ---------------
PARTICIPANT TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 27,109,744 $ 62,712,792 $ 10,064,130 $ 756,005 $ 743,077,138 $ 836,393,946
Net transfers between
Sub-Accounts and Fixed
Account....................... 5,024,725 21,605,891 1,710,064 626,641 (2,514,452) (94,120,240)
Withdrawals, surrenders,
annuitizations and contract
charges....................... (7,221,767) (3,238,104) (505,397) (1,410) (204,045,401) (145,635,926)
------------- ------------ ------------ ----------- --------------- ---------------
Net accumulation activity.... $ 24,912,702 $ 81,080,579 $ 11,268,797 $ 1,381,236 $ 536,517,285 $ 596,637,780
------------- ------------ ------------ ----------- --------------- ---------------
Annuitization Activity:
Annuitizations................. $ 398,205 $ 139,258 $ 141,543 $ -- $ 3,662,293 $ 3,035,664
Annuity payments and contract
charges....................... (48,306) (9,292) (6,755) -- (1,663,675) (1,328,282)
Net transfers between
Sub-Accounts.................. 6,845 36,542 (394) -- (14,834) --
Adjustment to annuity
reserve....................... 42,104 (4,670) 15,473 -- 252,645 2,406
------------- ------------ ------------ ----------- --------------- ---------------
Net annuitization activity... $ 398,848 $ 161,838 $ 149,867 $ -- $ 2,236,429 $ 1,709,788
------------- ------------ ------------ ----------- --------------- ---------------
Increase in net assets from
participant transactions........ $ 25,311,550 $ 81,242,417 $ 11,418,664 $ 1,381,236 $ 538,753,714 $ 598,347,568
------------- ------------ ------------ ----------- --------------- ---------------
Increase in net assets......... $ 42,344,316 $ 80,263,187 $ 12,414,900 $ 1,384,031 $ 1,092,047,950 $ 530,462,345
NET ASSETS:
Beginning of year................ 99,153,314 18,890,127 1,384,031 -- 2,195,520,785 1,665,058,440
------------- ------------ ------------ ----------- --------------- ---------------
End of year...................... $ 141,497,630 $ 99,153,314 $ 13,798,931 $ 1,384,031 $ 3,287,568,735 $ 2,195,520,785
------------- ------------ ------------ ----------- --------------- ---------------
------------- ------------ ------------ ----------- --------------- ---------------
</TABLE>
*For the period from November 7, 1994 (commencement of investment operations) to
December 31, 1994.
See notes to financial statements
55
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Sun Life of Canada (U.S.) Variable Account F (the "Variable Account"), a
separate account of Sun Life Assurance Company of Canada (U.S.), the Sponsor,
was established on July 13, 1989 as a funding vehicle for the variable portion
of certain group combination fixed/variable annuity contracts. The Variable
Account is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 as a unit investment trust.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account is invested in shares of a specific series of MFS/Sun Life Series
Trust (the "Series Trust"), an open-end management investment company registered
under the Investment Company Act of 1940. Massachusetts Financial Services
Company, a wholly-owned subsidiary of the Sponsor, is investment adviser to the
Series Trust.
(2) SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATIONS
Investments in shares of the Series Trust are recorded at their net asset value.
Realized gains and losses on sales of shares of the Series Trust are determined
on the identified cost basis. Dividend income and capital gain distributions
received by the Sub-Accounts are reinvested in additional Series Trust shares
and are recognized on the ex-dividend date.
Exchanges between Sub-Accounts requested by contract owners are recorded in the
new Sub-Account upon receipt of the redemption proceeds.
FEDERAL INCOME TAX STATUS
The operations of the Variable Account are part of the operations of the Sponsor
and are not taxed separately; the Variable Account is not taxed as a regulated
investment company. The Sponsor qualifies for the federal income tax treatment
granted to life insurance companies under Subchapter L of the Internal Revenue
Code. Under existing federal income tax law, investment income and capital gains
earned by the Variable Account on contract owner reserves are not subject to
tax.
(3) CONTRACT CHARGES
A mortality and expense risk charge based on the value of the Variable Account
is deducted from the Variable Account at the end of each valuation period for
the mortality and expense risks assumed by the Sponsor. The deductions are
transferred periodically to the Sponsor. Currently, the deduction is at an
effective annual rate of 1.25%.
Each year on the contract anniversary, an account administration fee ("Account
Fee") equal to the lesser of $30 or 2% of the participant's account value is
deducted from the participant's account to reimburse the Sponsor for certain
administrative expenses. After the annuity commencement date the Account Fee
will be deducted pro rata from each variable annuity payment made during the
year.
The Sponsor does not deduct a sales charge from purchase payments. However, a
withdrawal charge (contingent deferred sales charge) of up to 6% of certain
amounts withdrawn, when applicable, may be deducted to cover certain expenses
relating to the sale of the contracts and certificates.
For assuming the risk that withdrawal charges may be insufficient to compensate
it for the costs of distributing the MFS Regatta contracts, the Sponsor makes a
deduction from the Variable Account at the end of each valuation period for the
first seven account years at an effective annual rate of 0.15% of the net assets
attributable to such contracts. No deduction for the distribution expense charge
is made after the seventh account anniversary.
As reimbursement for administrative expenses attributable to MFS Regatta Gold
contracts which exceed the revenues received from the Account Fees described on
the preceding page derived from such contracts, the Sponsor makes a deduction
from the Variable Account at the end of each valuation period at an effective
annual rate of 0.15% of the net assets attributable to such contracts.
56
<PAGE>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(4) ANNUITY RESERVES
Annuity reserves are calculated using the 1983 Individual Annuitant Mortality
Table and an assumed interest rate of 4% or 3%, as stated in each participant's
contract. Required adjustments to the reserves are accomplished by transfers to
or from the Sponsor.
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS
<TABLE>
<CAPTION>
Units Transferred
Between Sub-Accounts and
Units Outstanding Fixed Accumulation
Beginning of Year Units Purchased Account
---------------------- ---------------------- -------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
---------------------- ---------------------- -------------------------
1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
MFS REGATTA CONTRACTS
------------------------------
CAS Sub-Account............... 6,184,731 7,272,302 8,683 9,333 1,002,774 (455,183)
GSS Sub-Account............... 4,235,203 4,708,841 48 10,633 (289,212) (21,084)
HYS Sub-Account............... 839,825 1,087,265 -- -- 332,946 (47,560)
MSS Sub-Account............... 2,066,642 2,431,072 12,503 1,536 206,072 (134,616)
MMS Sub-Account............... 3,873,044 3,081,737 6,171 4,866 315,466 1,706,748
TRS Sub-Account............... 14,225,539 15,806,723 4,093 10,133 117,384 (92,067)
WGS Sub-Account............... 1,967,375 2,300,611 -- 2,332 (87,581) (73,063)
MFS REGATTA GOLD CONTRACTS
------------------------------
CAS Sub-Account............... 19,909,649 13,245,124 7,106,728 9,091,150 2,287,026 (1,559,101)
CGS Sub-Account............... 10,979,711 6,412,270 5,181,021 4,513,854 1,359,507 483,956
EGS Sub-Account............... -- -- 2,978,021 -- 2,420,603 --
FCG Sub-Account............... -- -- 414,060 -- 301,717 --
GSS Sub-Account............... 18,784,262 13,661,303 3,836,496 7,175,667 (3,241,260) (868,594)
HYS Sub-Account............... 4,605,818 3,599,473 1,439,990 1,996,981 1,286,018 (717,869)
MSS Sub-Account............... 6,351,641 4,525,423 2,269,426 2,365,855 411,655 (238,446)
MMS Sub-Account............... 14,774,386 6,055,673 16,108,059 16,275,632 (11,138,037) (6,440,721)
RES Sub-Account............... 392,528 -- 3,726,811 124,868 1,346,160 269,642
TRS Sub-Account............... 48,270,556 32,979,812 8,512,923 18,470,599 (391,980) (520,442)
UTS Sub-Account............... 2,273,439 279,796 1,164,148 1,824,507 204,917 258,454
WAA Sub-Account............... 299,210 -- 1,294,348 145,953 590,509 153,647
WGR Sub-Account............... 9,182,555 1,778,644 2,422,350 5,802,910 475,925 1,954,152
WGS Sub-Account............... 8,334,019 7,008,613 981,591 3,238,912 (532,375) (1,467,047)
WTR Sub-Account............... 138,126 -- 922,160 75,613 159,909 62,654
</TABLE>
<TABLE>
<CAPTION>
Units Withdrawn,
Surrendered and Units Outstanding
Annuitized End of Year
------------------------- ----------------------
Year Ended Year Ended
December 31, December 31,
------------------------- ----------------------
1995 1994 1995 1994
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
MFS REGATTA CONTRACTS
------------------------------
CAS Sub-Account............... (580,981) (641,721) 6,615,207 6,184,731
GSS Sub-Account............... (410,887) (463,187) 3,535,152 4,235,203
HYS Sub-Account............... (104,359) (199,880) 1,068,412 839,825
MSS Sub-Account............... (134,856) (231,350) 2,150,361 2,066,642
MMS Sub-Account............... (740,774) (920,307) 3,453,907 3,873,044
TRS Sub-Account............... (1,240,019) (1,499,250) 13,106,997 14,225,539
WGS Sub-Account............... (149,792) (262,505) 1,730,002 1,967,375
MFS REGATTA GOLD CONTRACTS
------------------------------
CAS Sub-Account............... (1,520,664) (867,524) 27,782,739 19,909,649
CGS Sub-Account............... (807,653) (430,369) 16,712,586 10,979,711
EGS Sub-Account............... (52,520) -- 5,346,104 --
FCG Sub-Account............... (4,598) -- 711,179 --
GSS Sub-Account............... (1,296,912) (1,184,114) 18,082,586 18,784,262
HYS Sub-Account............... (451,746) (272,767) 6,880,080 4,605,818
MSS Sub-Account............... (489,853) (301,191) 8,542,869 6,351,641
MMS Sub-Account............... (2,558,367) (1,116,198) 17,186,041 14,774,386
RES Sub-Account............... (124,339) (1,982) 5,341,160 392,528
TRS Sub-Account............... (3,299,751) (2,659,413) 53,091,748 48,270,556
UTS Sub-Account............... (232,457) (89,318) 3,410,047 2,273,439
WAA Sub-Account............... (43,026) (390) 2,141,041 299,210
WGR Sub-Account............... (659,139) (353,151) 11,421,691 9,182,555
WGS Sub-Account............... (510,377) (446,459) 8,272,858 8,334,019
WTR Sub-Account............... (49,609) (141) 1,170,586 138,126
</TABLE>
57
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Participants in Sun Life of Canada (U.S.) Variable Account F
and the Board of Directors of Sun Life Assurance Company of Canada (U.S.):
We have audited the accompanying statement of condition of Sun Life of Canada
(U.S.) Variable Account F (the "Variable Account") as of December 31, 1995, the
related statement of operations for the year then ended and the statements of
changes in net assets for the years ended December 31, 1995 and 1994. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation with the custodian of securities held for the Variable Account as
of December 31, 1995. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Variable Account as of December 31,
1995, the results of its operations and the changes in its net assets for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 2, 1996
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds $ 2,846,067 $ 2,471,152
Preferred stock 1,149 0
Mortgage loans 1,066,911 1,120,981
Investments in subsidiaries 138,282 134,807
Real estate 95,574 89,487
Other invested assets 38,387 26,036
Policy loans 38,355 36,584
Cash (20,280) (11,459)
Investment income due and accrued 62,719 56,096
Funds withheld on reinsurance assumed 741,091 566,693
Due from separate accounts 148,675 132,496
Other assets 26,349 27,683
-------------- --------------
General account assets 5,183,279 4,650,556
-------------- --------------
Unitized separate account assets 5,275,808 4,061,821
Non-unitized separate account assets 2,040,596 1,425,445
-------------- --------------
$ 12,499,683 $ 10,137,822
-------------- --------------
-------------- --------------
LIABILITIES
Policy reserves $ 1,937,302 $ 1,765,326
Annuity and other deposits 2,290,656 2,277,104
Policy benefits in process of payment 5,884 5,796
Accrued expenses and taxes 44,114 12,386
Other liabilities 36,080 50,087
Due to parent and affiliates--net 9,498 41,881
Interest maintenance reserve 25,218 18,140
Asset valuation reserve 42,099 28,409
-------------- --------------
General account liabilities 4,390,851 4,199,129
-------------- --------------
Unitized separate account liabilities 5,275,784 4,057,759
Non-unitized separate account liabilities 2,040,596 1,425,445
-------------- --------------
11,707,231 9,682,333
-------------- --------------
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 786,552 449,589
-------------- --------------
Total capital stock and surplus 792,452 455,489
-------------- --------------
$ 12,499,683 $ 10,137,822
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
(IN 000'S)
INCOME
Premiums and annuity considerations $ 274,244 $ 313,025 $ 469,157
Annuity and other deposit funds 722,327 699,189 1,205,680
Transfers from separate
accounts--net 21,455 102,213 350
Net investment income 366,598 337,747 253,496
Amortization of interest maintenance
reserve 899 3,316 2,703
Realized losses on investments (1,434) (6,166) (12,403)
Expense allowance on reinsurance
ceded 0 0 8,475
Mortality and expense risk charges 60,954 52,338 42,981
Other income--net 16,666 33,377 46,102
---------- ---------- ----------
1,461,709 1,535,039 2,016,541
BENEFITS AND EXPENSES
Increase (decrease) in liability for
annuity and other deposit funds 13,552 (69,542) 894,128
Increase in policy reserves 171,976 219,334 589,559
Death, surrender benefits, and
annuity payments 189,744 166,889 128,902
Annuity and other deposit fund
withdrawals 531,928 540,352 146,260
Transfers to non-unitized separate
account 331,403 455,688 28,070
---------- ---------- ----------
1,238,603 1,312,721 1,786,919
Operating expenses 37,492 32,231 24,170
Commissions 108,672 150,011 204,016
Dividends 25,722 22,928 8,074
Taxes, licenses and fees 4,774 4,649 4,180
---------- ---------- ----------
1,415,263 1,522,540 2,027,359
---------- ---------- ----------
Net income (loss) from operations
before surplus note interest and
equity in income of subsidiaries 46,446 12,499 (10,818)
Surplus note interest (31,813) (31,150) (26,075)
---------- ---------- ----------
Net income (loss) from operations
before equity in income of
subsidiaries and federal income tax 14,633 (18,651) (36,893)
Equity in income of subsidiaries 59,875 62,629 62,640
Federal income tax expense (38,593) (42,521) (22,491)
---------- ---------- ----------
NET INCOME $ 35,915 $ 1,457 $ 3,256
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN 000'S)
<S> <C> <C> <C>
CAPITAL STOCK $ 5,900 $ 5,900 $ 5,900
PAID-IN SURPLUS 199,355 199,355 199,355
SURPLUS NOTES
Balance, beginning of year 335,000 335,000 265,000
Issued during year 315,000 0 70,000
---------- ---------- ----------
Balance, end of year 650,000 335,000 335,000
---------- ---------- ----------
UNASSIGNED SURPLUS
Balance, beginning of year (84,766) (57,067) (57,485)
Net income 35,915 1,457 3,256
Writedown of goodwill 0 (18,397) 0
Change in non-admitted assets (2,270) (1,485) (191)
Unrealized gains (losses) on real estate 2,009 (671) (4,440)
Change in and transfers of separate account
surplus (1) (227) 117
Change in asset valuation reserve (13,690) (8,376) 1,676
---------- ---------- ----------
Balance, end of year (62,803) (84,766) (57,067)
---------- ---------- ----------
TOTAL SURPLUS 786,552 449,589 477,288
---------- ---------- ----------
TOTAL CAPITAL STOCK AND SURPLUS $ 792,452 $ 455,489 $ 483,188
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
(IN 000'S)
Cash flows from operating activities:
Net income (loss) from operations
before surplus note interest and
equity in income of subsidiaries $ 46,446 $ 12,499 $ (10,818)
Adjustments to reconcile net income
(loss) from operations to net cash
provided by (used in) operating
activities:
Increase (decrease) in liability for
annuity and other deposit funds 13,552 (69,542) 894,128
Increase in policy reserves 171,976 219,334 589,559
Increase in investment income due and
accrued (6,623) (2,736) (21,746)
Net accrual and amortization of
discount and premium on investments 3,127 7,272 5,911
Realized losses on investments 1,434 6,166 12,403
Change in non-admitted assets (2,270) (1,485) (191)
Change in funds withheld on
reinsurance (174,398) (199,826) (1,087,862)
Other (11,160) (71,746) 24,953
----------- ----------- -----------
Net cash provided by (used in) operating
activities 42,084 (100,064) 406,337
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale and maturity of
investments 1,705,685 1,596,851 1,173,345
Purchase of investments (1,820,843) (1,491,159) (1,618,587)
Net change in short-term investments (254,897) (20,543) (38,782)
Investment in subsidiaries (6,000) (4,894) (15,250)
Dividends from subsidiaries 37,927 37,444 42,520
----------- ----------- -----------
Net cash provided by (used in) investing
activities (338,128) 117,699 (456,754)
----------- ----------- -----------
Cash flows from financing activities:
Issue of surplus notes 315,000 0 70,000
Payment of interest on surplus notes (31,813) (31,150) (26,075)
Repayment of seed capital 4,036 0 0
----------- ----------- -----------
Net cash provided by (used in) financing
activities 287,223 (31,150) 43,925
----------- ----------- -----------
Decrease in cash during the year (8,821) (13,515) (6,492)
Cash balance, beginning of year (11,459) 2,056 8,548
----------- ----------- -----------
Cash balance, end of year $ (20,280) $ (11,459) $ 2,056
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1. 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 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 its parent. Sun Life Assurance
Company of Canada (the parent company) is a mutual life insurance company. The
Company, which is domiciled in the State of Delaware, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Delaware Insurance Department. Statutory accounting
practices are considered to be generally accepted accounting principles for
mutual insurance companies and subsidiaries of mutuals. Prescribed accounting
practices include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and general
administrative rules. Permitted accounting practices encompass all accounting
practices not so prescribed. The permitted accounting practices adopted by the
Company are not material to the financial statements. Preparation of the
financial statements requires management to make certain estimates and
assumptions.
Assets in the balance sheets are stated at values prescribed or permitted to be
reported by state regulatory authorities. Bonds are carried at cost adjusted for
amortization of premium or accrual of discount. Investments in subsidiaries are
carried on the equity basis. Mortgage loans acquired at a premium or discount
are carried at amortized values and other mortgage loans at the amounts of the
unpaid balances. Real estate investments are carried at the lower of cost or
appraised value, adjusted for accumulated depreciation, less encumbrances.
Depreciation of buildings and improvements is calculated using the straight line
method over the estimated useful life of the property. For life and annuity
contracts, premiums are recognized as revenues over the premium paying period,
whereas commissions and other costs applicable to the acquisition of new
business are charged to operations as incurred. Furniture and equipment
acquisitions are capitalized but treated as nonadmitted assets. Furniture and
equipment depreciation is calculated on a straight line basis over the useful
life of the assets.
MANAGEMENT AND SERVICE CONTRACTS--
The Company has an agreement with its parent company which provides that the
parent company will furnish, as requested, personnel as well as certain services
and facilities on a cost reimbursement basis. Expenses under this agreement
amounted to approximately $20,293,000 in 1995, $18,452,000 in 1994, and
$13,883,000 in 1993.
REINSURANCE--
The Company has agreements with the parent company which provide that the parent
company will reinsure the mortality risks of the individual life insurance
contracts sold by the Company. Under these agreements basic death benefits and
supplementary benefits are reinsured on a yearly renewable term basis and
coinsurance basis, respectively. Reinsurance transactions under these agreements
had the effect of decreasing income from operations by approximately $2,184,000,
$2,138,000, and $1,046,000, for the years ended December 31, 1995, 1994 and
1993, respectively.
Effective January 1, 1991, the Company entered into an agreement with the parent
company under which 100% of certain fixed annuity contracts issued by the
Company were reinsured. Effective December 31, 1993 this agreement was
terminated. This agreement had the effect of decreasing income from operations
by approximately $9,930,000 in 1993.
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Effective January 1, 1991, the Company entered into an agreement with the parent
company under which certain individual life insurance contracts issued by the
parent company were reinsured by the Company on a 90% coinsurance basis. Also,
effective January 1, 1991, the Company entered into an agreement with the parent
company which provides that the parent company will reinsure the mortality risks
in excess of $500,000 per policy for the individual life insurance contracts
assumed by the 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 $11,821,000 in
1995, and decreasing income by approximately $29,188,000, and $43,591,000 for
the years ended December 31, 1994 and 1993, respectively.
The life reinsurance assumed agreement requires the reinsurer to withhold funds
in amounts equal to the reserves assumed.
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1995, 1994 and 1993 before the effect of
reinsurance transactions with the parent company.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
(IN 000'S)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $ 890,560 $ 962,320 $ 762,553
Net investment income and realized gains (losses) 306,893 304,155 293,557
------------ ------------ ------------
Subtotal 1,197,453 1,266,475 1,056,110
------------ ------------ ------------
Benefits and Expenses:
Policyholder benefits 1,030,342 1,092,192 926,827
Other expenses 130,302 130,457 85,575
------------ ------------ ------------
Subtotal 1,160,644 1,222,649 1,012,402
------------ ------------ ------------
Income from operations $ 36,809 $ 43,826 $ 43,708
------------ ------------ ------------
------------ ------------ ------------
</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 $1,599,000 in 1995, increasing
income from operations by $1,854,000 in 1994 and decreasing income from
operations by $390,000 in 1993.
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 values.
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Deposits to all separate accounts are reported as increases in separate account
liabilities and are not reported as revenues. Mortality and expense risk charges
and surrender fees incurred by the separate accounts are included in income of
the Company.
The Company has established a non-unitized separate account for amounts
allocated to the fixed portion of certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Any difference between the assets and liabilities of the separate accounts is
treated as payable to or receivable from the general account of the Company.
Amounts payable to the general account of the Company were $148,675,000 in 1995
and $132,496,000 in 1994.
OTHER--
Income on investments is recognized on the accrual method.
The reserves for life insurance and annuity contracts, developed by accepted
actuarial methods, have been established and maintained on the basis of
published mortality tables using assumed interest rates and valuation methods
that will provide reserves at least as great as those required by law and
contract provisions.
Net income reported in the Company's statutory Annual Statement differs from net
income reported in these financial statements. Dividends from subsidiaries are
included in income and undistributed income (losses) of subsidiaries are
included as gains (losses) in unassigned surplus in the statutory Annual
Statement. Both the dividends and the undistributed income (losses) are included
in net income in these financial statements.
Investments in non-insurance subsidiaries are carried at their stockholders'
equity value, determined in accordance with generally accepted accounting
principles. Investments in insurance subsidiaries are carried at their statutory
surplus values.
Certain reclassifications have been made in the 1993 and 1994 financial
statements to conform to the classifications used in 1995.
2. INVESTMENTS IN SUBSIDIARIES:
The Company owns all of the outstanding shares of Massachusetts Financial
Services Company (MFS), Sun Life Insurance and Annuity Company of New York (Sun
Life (N.Y.)), Sun Investment Services Company (Sunesco), Sun Benefit Services
Company, Inc. (Sunbesco), Massachusetts Casualty Insurance Company (MCIC), New
London Trust, F.S.B. (NLT), Sun Capital Advisers, Inc. (Sun Capital), and Sun
Life Finance Corporation (Sunfinco).
Effective January 1, 1994, NLT acquired all of the outstanding shares of
Danielson Federal Savings and Loan Association of Danielson, Connecticut. These
two banks have been merged into a newly formed federally chartered savings bank
now called New London Trust, F.S.B.
MFS, a registered investment adviser, serves as investment adviser to the mutual
funds in the MFS family of funds and certain mutual funds and separate accounts
established by the Company, and the MFS Asset Management Group provides
investment advice to substantial private clients.
Clarendon Insurance Agency, Inc., a wholly-owned subsidiary of MFS, serves as
the distributor of certain variable contracts issued by the Company and Sun Life
(N.Y.). 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
65
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
New York. Sunesco is a registered investment adviser and broker-dealer. MCIC is
a life insurance company which issues only individual disability income
policies. Sun Capital, a registered investment adviser, Sunfinco, and Sunbesco
are currently inactive.
In 1994, the Company reduced its carrying value of MCIC by $18,397,000, the
unamortized amount of goodwill. The reduction was accounted for as a direct
charge to surplus.
During 1995, 1994 and 1993, the Company contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
MCIC $6,000,000 $6,000,000 $6,000,000
Sun Capital 0 0 250,000
New London Trust 0 0 9,000,000
</TABLE>
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1995, 1994 and 1993 and for the years then ended, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN 000'S)
<S> <C> <C> <C>
Intangible assets $ 12,174 $ 13,485 $ 14,891
Other assets, net of liabilities 126,108 121,321 112,332
--------- --------- ---------
Total net assets $ 138,282 $ 134,806 $ 127,223
--------- --------- ---------
--------- --------- ---------
Total income $ 570,794 $ 495,097 $ 424,324
Operating expenses (504,070) (425,891) (355,679)
Income tax expense (31,193) (29,374) (24,507)
--------- --------- ---------
Net income $ 35,531 $ 39,832 $ 44,138
--------- --------- ---------
--------- --------- ---------
</TABLE>
3. STOCK, SURPLUS NOTES, CONTRIBUTIONS AND NOTE RECEIVABLE:
The Company has issued surplus notes to its parent of $335,000,000 during the
years 1982 through 1993 at interest rates between 7.25% and 10%. The Company
subsequently repaid all principal and interest associated with these surplus
notes on January 16, 1996. On December 19, 1995 the Company issued surplus notes
totalling $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 as
regards free surplus exclusive of the principal amount and accrued interest, if
any, on these notes; and, in the case of principal repayments, with the consent
of the Delaware Insurance Commissioner. Interest payments require the consent of
the Delaware Insurance Commissioner after December 31, 1993. Payment of
principal and interest on the notes issued in 1995 also requires the consent of
the Canadian Office of the Superintendent of Financial Institutions. The Company
expensed $31,813,000, $31,150,000 and $26,075,000 in respect of interest on
surplus notes for the years 1995, 1994 and 1993, respectively. On December 19,
1995, the parent borrowed $120,000,000 at 5.6 % through a short term note from
the Company maturing on January 16, 1996. The note, which is classified under
short-term bonds at December 31, 1995, was repaid in full by the parent at
maturity.
66
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
4. BONDS:
The amortized cost and estimated market value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(IN 000'S)
Long-term bonds:
United States government and
government agencies and authorities $ 467,597 $ 22,783 $ 443 $ 489,937
States, provinces and political
subdivisions 2,252 81 0 2,333
Foreign governments 38,303 4,551 6 42,848
Public utilities 513,704 45,466 203 558,967
Transportation 215,786 22,794 2,221 236,359
Finance 225,074 13,846 84 238,836
All other corporate bonds 1,045,745 67,371 7,415 1,105,701
---------- ---------- ---------- ----------
Total long-term bonds 2,508,461 176,892 10,372 2,674,981
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 337,606 0 0 337,606
---------- ---------- ---------- ----------
$2,846,067 $176,892 $10,372 $3,012,587
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(IN 000'S)
Long-term bonds:
United States government and
government agencies and authorities $ 444,100 $ 5,017 $11,010 $ 438,107
States, provinces and political
subdivisions 252 0 17 235
Foreign governments 20,965 147 187 20,925
Public utilities 458,839 11,414 11,619 458,633
Transportation 215,478 5,099 9,444 211,133
Finance 193,355 3,734 4,010 193,080
All other corporate bonds 1,055,455 15,785 31,171 1,040,069
---------- --------- ---------- ----------
Total long-term bonds 2,388,444 41,196 67,458 2,362,182
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 82,708 0 0 82,708
---------- --------- ---------- ----------
$2,471,152 $41,196 $67,458 $2,444,890
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
67
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
4. BONDS (CONTINUED):
The amortized cost and estimated market value of bonds at December 31, 1995 and
1994 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 or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
(IN 000'S)
Maturities are:
Due in one year or less $ 678,775 $ 681,119
Due after one year through five
years 844,446 866,230
Due after five years through ten
years 256,552 269,549
Due after ten years 884,187 1,000,908
---------- ----------
2,663,960 2,817,806
Mortgage-backed securities 182,107 194,781
---------- ----------
$2,846,067 $3,012,587
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
(IN 000'S)
Maturities are:
Due in one year or less $ 209,875 $ 209,527
Due after one year through five
years 953,222 930,578
Due after five years through ten
years 319,858 311,360
Due after ten years 877,062 885,462
---------- ----------
2,360,017 2,336,927
Mortgage-backed securities 111,135 107,963
---------- ----------
$2,471,152 $2,444,890
---------- ----------
---------- ----------
</TABLE>
Proceeds from sales of investments in debt securities during 1995, 1994, and
1993 were $1,510,553,000, $1,390,974,000, and $911,644,000, gross gains were
$24,757,000, $15,025,000, and $43,674,000 and gross losses were $5,742,000,
$30,041,000 and $687,000, respectively.
Long-term bonds at December 31, 1995 and 1994 included $20,000,000 of bonds
issued to the Company by a subsidiary company, MFS, during 1987. These bonds
will mature in 2000.
Bonds included above with an amortized cost of approximately $2,059,000 and
$1,561,000 at December 31, 1995 and 1994, respectively, were on deposit with
governmental authorities as required by law.
At year end 1995, the Company had outstanding mortgage-backed securities (MBS)
forward commitments amounting to a par value of $137,675,000 to be funded
through the sale of certain short-term securities shown above.
68
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
5. 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 program. The total par
value of securities out on loan was $250,729,000 at December 31, 1995.
6. 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
provisions have been made. In those cases where, in management's judgement, the
mortgage loans' values are impaired, appropriate losses are recorded.
The following table shows the geographic distribution of the mortgage portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
---------- -----------
(IN 000'S)
<S> <C> <C>
California $ 153,811 $ 131,953
Massachusetts 83,999 101,932
Pennsylvania 141,468 136,778
Ohio 83,915 79,478
Washington 91,900 90,422
Michigan 69,125 75,592
New York 81,480 93,178
All other 361,213 411,648
---------- -----------
$1,066,911 $1,120,981
---------- -----------
---------- -----------
</TABLE>
The Company has restructured mortgage loans totalling $49,846,000, against which
there are provisions of $8,799,000 at December 31, 1995.
The Company has made commitments of mortgage loans on real estate into the
future. The outstanding commitments for these mortgages amount to $13,100,000 at
December 31, 1995.
69
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
7. INVESTMENTS--GAINS AND LOSSES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------- ------- --------
(IN 000'S)
<S> <C> <C> <C>
Net realized gains (losses) (pre-tax):
Bonds $(2,300) $ 0 $ 0
Mortgage loans 418 (5,689) (9,975)
Stocks 0 0 445
Real estate 391 (334) (2,873)
Other assets 57 (143) 0
------- ------- --------
$(1,434) $(6,166) $(12,403)
------- ------- --------
------- ------- --------
Changes in unrealized gains (losses):
Bonds $ 0 $ 0 $ 84
Mortgage loans (1,574) 0 0
Real estate 3,583 (671) (4,113)
Stocks 0 0 (411)
------- ------- --------
$ 2,009 $ (671) $ (4,440)
------- ------- --------
------- ------- --------
</TABLE>
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rate risk are charged or credited to an interest
maintenance reserve and amortized into income over the remaining contractual
life of the security sold. The realized capital gains and losses credited or
charged to the interest maintenance reserve were a credit of $12,714,000 in
1995, a charge of $14,070,000 in 1994 and a credit of $40,993,000 in 1993. All
gains and losses are net of applicable taxes.
8. INVESTMENT INCOME:
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN 000'S)
<S> <C> <C> <C>
Interest income from bonds $205,445 $200,339 $204,405
Interest income from mortgage loans 99,753 106,347 99,790
Interest income from policy loans 2,777 2,670 2,503
Real estate investment income 10,693 8,649 8,593
Interest income on funds withheld 57,373 30,741 19,420
Other 2,627 1,418 645
-------- -------- --------
Gross investment income 378,668 350,164 335,356
Investment expenses 12,070 12,417 12,679
Interest expense on funds withheld 0 0 69,181
-------- -------- --------
$366,598 $337,747 $253,496
-------- -------- --------
-------- -------- --------
</TABLE>
70
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
9. 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, gains or losses are deferred in IMR and amortized over the remaining life
of the hedged assets. At December 31, 1995, 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.
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1995
--------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
----------------- ------------
(IN 000'S)
<S> <C> <C>
Conventional interest rate swaps $367,000 $3,275
Foreign currency swap 2,745 290
Forward spread lock swaps $ 50,000 $ 112
</TABLE>
The market values of interest rate swaps and forward spread lock agreements are
primarily obtained from dealer quotes. The market value is the estimated amount
that the Company would receive or pay on termination or sale, taking into
account current interest rates and the current creditworthiness of the counter
parties. 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.
10. LEVERAGED LEASES:
The Company is a lessor in a leveraged lease agreement entered into on October
21, 1994 under which equipment having an estimated economic life of 25-40 years
was leased for a term of 9.75 years. The Company's equity investment represented
22.9% of the purchase price of the equipment. The balance of the purchase price
was furnished by third party long-term debt financing, secured 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.
71
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
10. LEVERAGED LEASES (CONTINUED):
The Company's net investment in leveraged leases is composed of the following
elements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1995 1994
--------- ---------
(IN 000'S)
<S> <C> <C>
Lease contracts receivable $ 111,611 $ 121,716
Less non-recourse debt (111,594) (121,699)
--------- ---------
17 17
Estimated residual value of leased assets 41,150 41,150
Less unearned and deferred income (13,132) (15,292)
--------- ---------
Investment in leveraged leases 28,035 25,875
Less fees (213) (237)
--------- ---------
Net investment in leveraged leases $ 27,822 $ 25,638
--------- ---------
--------- ---------
</TABLE>
The net investment is classified as other invested assets in the accompanying
balance sheets.
11. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES:
Withdrawal characteristics of general account and separate account annuity
reserves and deposits:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
AMOUNT % OF TOTAL
---------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal--with adjustment
--with market value adjustment $3,796,596 36.36%
--at book value less surrender charges (surrender
charge >5%) 4,066,126 38.94
--at book value (minimal or no charge or adjustment) 1,278,215 12.24
Not subject to discretionary withdrawal provision 1,301,259 12.46
---------- ----------
Total annuity actuarial reserves and deposit liabilities $10,442,196 100.00%
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
AMOUNT % OF TOTAL
---------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal--with adjustment
-- with market value adjustment $3,083,623 35.98%
-- at book value less surrender charges (surrender
charge > 5%) 2,915,460 34.02
-- at book value (minimal or no charge or
adjustment) 1,252,843 14.62
Not subject to discretionary withdrawal provision 1,318,092 15.38
---------- ----------
Total annuity actuarial reserves and deposit liabilities $8,570,018 100.00%
---------- ----------
---------- ----------
</TABLE>
12. RETIREMENT PLANS:
The Company participates with its parent company in a non-contributory defined
benefit pension plan covering essentially all employees. The benefits are based
on years of service and compensation.
72
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
12. RETIREMENT PLANS (CONTINUED):
The funding policy for the pension plan is to contribute an amount which at
least satisfies the minimum amount required by ERISA. The Company is charged for
its share of the pension cost based upon its covered participants. Pension plan
assets consist principally of a variable accumulation fund contract held in a
separate account of the parent company.
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 87, which is in accordance with generally accepted accounting
principles.
The following table sets forth the funded status for the pension plan (for the
parent, Sun Life (U.S.), Sun Life (N.Y.) and Sunesco) at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
TOTAL PENSION PLAN
------------------
1995 1994
-------- --------
(IN 000'S)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(40,949) $(38,157)
Accumulated benefit obligation (42,452) (39,686)
-------- --------
-------- --------
Projected benefit obligation for service rendered to
date $(60,885) $(53,494)
Plan assets at fair value 117,178 101,833
-------- --------
Difference between plan assets and projected benefit
obligation 56,293 48,339
Unrecognized net gain from past experience different
from that assumed and effects of changes in assumptions (9,016) (1,238)
Unrecognized net asset at January 1, 1994, being
recognized over 17 years (30,842) (32,898)
-------- --------
Prepaid pension cost included in other assets $ 16,435 $ 14,203
-------- --------
-------- --------
</TABLE>
The components of the 1995 and 1994 pension cost for the pension plan were:
<TABLE>
<CAPTION>
TOTAL PENSION
PLAN
-----------------
1995 1994
-------- -------
(IN 000'S)
<S> <C> <C>
Service cost $ 3,389 $ 2,847
Interest cost 4,050 3,770
Actual return on plan assets (16,388) (8,294)
Net amortization and deferral 6,715 (818)
-------- -------
Net pension income $ (2,234) $(2,495)
-------- -------
-------- -------
</TABLE>
The Company's share of the group's accrued pension cost at December 31, 1995 and
1994 was $420,000 and $417,000, respectively. The Company's share of net
periodic pension cost was $3,000 and $417,000, respectively.
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation were
7.5% and 4.5%, respectively. The expected long-term rate of return on assets was
7.5%.
73
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
12. RETIREMENT PLANS (CONTINUED):
The Company also participates with its parent 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. Employer
contributions were $185,000, $152,000 and $124,000 for the years ended December
31, 1995, 1994, and 1993, respectively.
13. OTHER POST-RETIREMENT BENEFIT PLANS:
In addition to pension benefits the Company provides certain health, dental, and
life insurance benefits ("post-retirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers Accounting for Post-retirement Benefits
other than Pensions". SFAS No. 106 requires the Company to accrue the estimated
cost of retiree benefit payments during the years the employee provides
services. SFAS No. 106 allows recognition of the cumulative effect of the
liability in the year of adoption or the amortization of the obligation over a
period of up to 20 years. The Company has elected to recognize this obligation
of approximately $400,000 over a period of ten years. The Company's cash flows
are not affected by implementation of this standard, but implementation
decreased net income by $142,000, $114,000, and $120,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. The Company's post-retirement
health care plans currently are not funded.
The following table sets forth the plan's funded status, reconciled with amounts
recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------- -------
(IN 000'S)
<S> <C> <C>
Accumulated post-retirement benefit obligation:
--Retirees $ 0 $ 0
--Fully eligible active plan participants (601) (444)
--Other active plan participants 0 0
------- -------
--Accumulated post-retirement benefit obligation in excess
of plan assets (601) (444)
--Unrecognized gains from past experience (55) (110)
--Unrecognized transition obligation 280 320
------- -------
--Accrued post-retirement benefit cost $(376) $(234)
------- -------
------- -------
Net periodic post-retirement benefit cost components:
--Service cost--benefits earned $ 65 $ 49
--Interest cost on accumulated post-retirement benefit
obligation 42 33
--Amortization of transition obligation 40 40
--Net amortization and deferral (5) (8)
------- -------
--Net periodic post-retirement benefit cost $ 142 $ 114
------- -------
------- -------
</TABLE>
The discount rate used in determining the accumulated post-retirement benefit
obligation was 7.5% in 1995 and 8% in 1994, and the assumed health care cost
trend rate was 12.0% graded to 6% over 10 years after which it remains constant.
74
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
13. OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED):
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the post-retirement
benefit obligation as of December 31, 1995 by $149,000 and the estimated service
and interest cost components of the net periodic post-retirement benefit cost
for 1995 by $29,000.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------
ESTIMATED
CARRYING AMOUNT FAIR VALUE
--------------- ------------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds 2,846,067 3,012,586
Mortgages 1,066,911 1,111,895
Real estate 95,575 98,437
LIABILITIES
Insurance reserves 124,066 124,066
Individual annuities 434,261 431,263
Pension products 2,227,882 2,265,386
Derivatives -- 3,387
<CAPTION>
DECEMBER 31, 1994
------------------------------
ESTIMATED
CARRYING AMOUNT FAIR VALUE
--------------- ------------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds $2,471,152 $2,444,890
Mortgages 1,120,981 1,107,012
Real estate 89,487 91,072
LIABILITIES
Insurance reserves 129,302 129,302
Individual annuities 475,557 476,570
Pension products 2,772,618 2,668,382
Derivatives -- 1
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
using prices for publicly traded bonds of similar credit risk and maturity and
repayment characteristics.
The fair values of the Company's general account reserves and liabilities under
investment-type contracts (insurance, annuity and pension contracts that do not
involve mortality or morbidity risks) are estimated using discounted cash flow
analyses or surrender values. Those contracts that are deemed to have short term
guarantees have a carrying amount equal to the estimated market value.
75
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
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.
15. STATUTORY INVESTMENT VALUATION RESERVES:
The asset valuation reserve (AVR) provides a reserve for losses from investments
in bonds, stocks, mortgage loans, real-estate and other invested assets with
related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rate risk 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>
1995 1994
---------------- ---------------
AVR IMR AVR IMR
------- ------- ------- ------
(IN 000'S) (IN 000'S)
<S> <C> <C> <C> <C>
Balance, beginning of year $28,409 $18,140 $20,033 $31,414
Realized capital gains (losses), net of
tax (1,524) 7,977 (1,320) (9,958)
Amortization of investment gains 0 (897) 0 (3,316)
Unrealized investment gains (losses) 3,650 0 (3,537) 0
Required by formula 11,564 0 13,233 0
------- ------- ------- ------
Balance, end of year $42,099 $25,218 $28,409 $18,140
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
16. FEDERAL INCOME TAXES:
The Company and its subsidiaries file a consolidated federal income tax return.
Federal income taxes are calculated for the consolidated group based upon
amounts determined to be payable as a result of operations within the current
year. No provision is recognized for timing differences which may exist between
financial statement and taxable income. Such timing differences include
reserves, depreciation and accrual of market discount on bonds. Cash payments
for federal income taxes were approximately $12,429,000, $43,200,000 and
$25,000,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
17. RISK-BASED CAPITAL:
Effective December 31, 1993 the NAIC adopted risk-based capital requirements for
life insurance companies. The risk-based capital requirements provide a method
for measuring the minimum acceptable amount of adjusted capital that a life
insurer should have, as determined under statutory accounting practices, taking
into account the risk characteristics of its investments and products. The
Company has met the minimum risk-based capital requirements for 1995 and 1994.
18. NEW ACCOUNTING PRONOUNCEMENT:
In April, 1993, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." Under this
interpretation, annual financial statements of mutual life insurance enterprises
for fiscal years beginning after December 15, 1992, shall provide a brief
description that financial statements prepared on the basis of statutory
accounting practices will no longer be described as prepared in conformity with
generally accepted accounting principles. In January 1995, Statement of
Financial Accounting Standards
76
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED):
No. 120 (SFAS No. 120) "Accounting and Reporting by Mutual Life Insurance
Enterprises for Certain Long Duration Participating Contracts" was issued. SFAS
No. 120 delays the effective date of interpretation No. 40 until fiscal years
beginning after December 15, 1995.
Beginning in 1996, the Company will file financial statements prepared in
accordance with all applicable pronouncements that define generally accepted
accounting principles for all enterprises.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDER
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS
We have audited the accompanying balance sheets of Sun Life Assurance Company of
Canada (U.S.) (a wholly-owned subsidiary of Sun Life Assurance Company of
Canada) as of December 31, 1995 and 1994, and the related statements of
operations, capital stock and surplus, and cash flows for each of the three
years in the period ended December 31, 1995. 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.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
1994, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 7, 1996
77
<PAGE>
INTERIM PERIOD FINANCIAL STATEMENTS
(TO COME)
APPENDIX A
(TO COME)
APPENDIX B
STATE PREMIUM TAXES
The amount of applicable tax varies depending on the jurisdiction and is
subject to change by the legislature or other authority. In many jurisdictions
there is no tax at all. The Company believes that as of May 31, 1996 premium
taxes will be imposed with respect to Contracts offered by this Prospectus only
by the jurisdictions listed below at the rates indicated. For information
subsequent to May 31, 1996 a tax adviser should be consulted.
<TABLE>
<CAPTION>
RATE OF TAX
-------------------------
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
---------------------------------------- --------- -------------
<S> <C> <C>
California .50% 2.35%
District of Columbia 2.25% 2.25%
Kansas -- 2.00%
Kentucky 2.00% 2.00%
Maine -- 2.00%
Mississippi -- 1.00%*
Nevada -- 3.50%
South Dakota -- 1.25%
West Virginia 1.00% 1.00%
Wyoming -- 1.00%
<FN>
* No tax on purchase payments received on or after July 1, 1995.
</TABLE>
78
<PAGE>
APPENDIX C
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: VARIABLE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
VARIABLE ACCOUNT)
(TO COME)
PART 2--FIXED ACCOUNT--EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
(TO COME)
79
<PAGE>
APPENDIX D
CALCULATION OF PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN:
The table below shows, for various Sub-Accounts of the Variable Account, the
Average Annual Total Return for the stated periods (or shorter period indicated
in the note below), based upon a hypothetical initial Purchase Payment of
$1,000, calculated in accordance with the formula set out below the table. For
purposes of determining these investment results, the actual investment
performance of each Series of MFS/Sun Life Series Trust is reflected from the
date such Series commenced operations ("Inception"), although the Contracts have
been offered only since , 1996. No information is shown for the
Emerging Growth Series, the MFS/ Foreign & Colonial Series and the Value Series
as they did not commence operations until 1995 and 1996.
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1995
<TABLE>
<CAPTION>
5 YEAR 10 YEAR
PERIOD PERIOD
OR OR
LIFETIME LIFETIME
1 YEAR OF OF DATE OF
PERIOD SERIES SERIES INCEPTION
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Capital Appreciation Series............. August 13, 1985
Conservative Growth Series.............. December 5, 1986
Government Securities Series............ August 12, 1985
High Yield Series....................... August 13, 1985
Managed Sectors Series.................. May 27, 1988
Research Series......................... November 7, 1994
Total Return Series..................... May 16, 1988
Utilities Series........................ November 16, 1993
World Asset Allocation Series........... November 7, 1994
World Governments Series................ May 16, 1988
World Growth Series..................... November 16, 1993
World Total Return Series............... November 7, 1994
</TABLE>
- ---------
*From Date of Inception, as the lifetimes of these series are less than the
periods indicated.
The length of the period and the last day of each period used in the above table
are set out in the table heading and in the footnotes above. The Average Annual
Total Return for each period was determined by finding the average annual
compounded rate of return over each period that would equate the initial amount
invested to the ending redeemable value for that period, in accordance with the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial Purchase Payment
of $1,000
T = average annual total return for the
period
n = number of years
ERV = redeemable value (as of the end of the
period) of a hypothetical $1,000
Purchase Payment made at the beginning
of the 1-year, 5-year, or 10-year period
(or fractional portion thereof)
The formula assumes that: 1) all recurring fees have been deducted from the
Participant's Account; 2) all applicable non-recurring Contract charges are
deducted at the end of the period; and 3) there will be a full surrender at
the end of the period.
The $50 annual Account Fee will be allocated among the Sub-Accounts so that
each Sub-Account's allocated portion of the Account Fee is proportional to the
percentage of the number of Certificates that have amounts allocated to that
Sub-Account. Because the impact of Account Fees on a particular Certificate may
differ from those assumed in the computation due to differences between actual
allocations and the assumed ones, the total return that would have been
experienced by an actual Certificate over these same time periods may have been
different from that shown above.
80
<PAGE>
NON-STANDARDIZED INVESTMENT PERFORMANCE:
The Variable Account may illustrate its results over various periods and
compare its results to indices and other variable annuities in sales materials
including advertisements, brochures and reports. Such results may be computed on
a "cumulative" and/or "annualized" basis.
"Cumulative" quotations are arrived at by calculating the change in the
Accumulation Unit value of a Sub-Account between the first and last day of the
base period being measured, and expressing the difference as a percentage of the
Accumulation Unit value at the beginning of the base period.
"Annualized" quotations (described in the following table as "Compound
Growth Rate") are calculated by applying a formula which determines the level
rate of return which, if earned over the entire base period, would produce the
cumulative return.
[To Come]
81
<PAGE>
ADVERTISING AND SALES LITERATURE
As set forth in the Prospectus, the Company may refer to the following
organizations (and others) in its marketing materials:
A.M. BEST'S RATING SYSTEM is designed to evaluate the various factors
affecting the overall performance of an insurance company in order to provide an
opinion as to an insurance company's relative financial strength and ability to
meet its contractual obligations. The procedure includes both a quantitative and
qualitative review of each company.
DUFF & PHELPS CREDIT RATING COMPANY's Insurance Company Claims Paying
Ability Rating is an independent evaluation by a nationally accredited rating
organization of an insurance company's ability to meet its future obligations
under the contracts and products it sells. The rating takes into account both
quantitative and qualitative factors.
LIPPER VARIABLE INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE is a
publisher of statistical data covering the investment company industry in the
United States and overseas. Lipper is recognized as the leading source of data
on open-end and closed-end funds. Lipper currently tracks the performance of
over 5,000 investment companies and publishes numerous specialized reports,
including reports on performance and portfolio analysis, fee and expense
analysis.
STANDARD & POOR's insurance claims-paying ability rating is an opinion of an
operating insurance company's financial capacity to meet obligations of its
insurance policies in accordance with their terms.
VARDS (Variable Annuity Research Data Service) provides a comprehensive
guide to variable annuity contract features and historical fund performance. The
service also provides a readily understandable analysis of the comparative
characteristics and market performance of funds inclusive in variable contracts.
STANDARD & POOR'S INDEX--broad-based measurement of changes in stock-market
conditions based on the average performance of 500 widely held common stocks;
commonly known as the Standard & Poor's 500 (S&P 500). The selection of stocks,
their relative weightings to reflect differences in the number of outstanding
shares, and publication of the index itself are services of Standard & Poor's
Corporation, a financial advisory, securities rating, and publishing firm. The
index tracks 400 industrial company stocks, 20 transportation stocks, 40
financial company stocks, and 40 public utilities.
NASDAQ-OTC Price Index--this index is based on the National Association of
Securities Dealers Automated Quotations (NASDAQ) and represents all domestic
over-the-counter stocks except those traded on exchanges and those having only
one market maker, a total of some 3,500 stocks. It is market value-weighted and
was introduced with a base of 100.00 on February 5, 1971.
DOW JONES INDUSTRIAL AVERAGE (DJIA)--price-weighted average of 30 actively
traded blue chip stocks, primarily industrials, but including American Express
Company and American Telephone and Telegraph Company. Prepared and Published by
Dow Jones & Company, it is the oldest and most widely quoted of all the market
indicators. The average is quoted in points, not dollars.
In its advertisements and other sales literature for the Variable Account
and the Series Fund, the Company intends to illustrate the advantages of the
Contracts in a number of ways:
COMPOUND INTEREST ILLUSTRATIONS. These will emphasize several advantages of
the variable annuity contract. For example, but not by way of limitation, the
literature may emphasize the potential savings through tax deferral; the
potential advantage of the Variable Account over the fixed account; and the
compounding effect when a participant makes regular deposits to his or her
account.
DOLLAR COST AVERAGING ILLUSTRATIONS. These illustrations will generally
discuss the price-leveling effect of making regular investments in the same
Sub-Accounts over a period of time, to take advantage of the trends in market
prices of the portfolio securities purchased by those Sub-Accounts.
SYSTEMATIC WITHDRAWAL PROGRAM. A service provided by the Company, through
which a Participant may take any distribution allowed by Code Section 401(a)(9)
in the case of Qualified Contracts, or permitted under Code Section 72 in the
case of Non-Qualified Contracts, by way of a series of partial withdrawals.
Withdrawals under this program may be fully or partially includible in income
and may be subject to a 10% penalty tax. Consult your tax advisor.
THE COMPANY'S OR MFS'S CUSTOMERS. Sales literature for the Variable Account
and the Series Fund may refer to the number of clients which they serve. As of
the date of this Prospectus, MFS was serving over [To Come] million investor
accounts.
THE COMPANY'S OR MFS'S ASSETS, SIZE. The Company may discuss its general
financial condition (see, for example, the references to Standard & Poor's, Duff
& Phelps and A.M. Best Company above); it may refer to its assets; it may also
discuss its relative size and/or ranking among companies in the industry or
among any sub-classification of those companies, based upon recognized
evaluation criteria. For example, at year-end 1994 the Company was the 46th
largest U.S. life insurance company based upon overall assets and its parent
company, Sun Life Assurance Company of Canada, was the 19th largest.
82
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
ANNUITY SERVICE MAILING ADDRESS:
C/O SUN LIFE ANNUITY SERVICE CENTER
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE:
Toll Free (800) 752-7215
In Massachusetts (617) 348-9600
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
500 Boylston Street
Boston, Massachusetts 02116
LEGAL COUNSEL
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, D.C. 20044
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
CLASSIC-1 7/96
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
The information required in a Statement of Additional Information is
contained in the Prospectus included in Part A of this Amendment to the
Registration Statement.
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following Financial Statements are included in the Registration
Statement:
Included in Part A:
A. Financial Statements of the Registrant:
1. Statement of Condition, December 31, 1995;
2. Statement of Operations, Year Ended December 31, 1995;
3. Statements of Changes in Net Assets, Years Ended December 31, 1995 and
December 31, 1994;
4. Notes to Financial Statements; and
5. Independent Auditors' Report.
B. Financial Statements of the Depositor:
1. Balance Sheets, December 31, 1995 and 1994;
2. Statements of Operations, Years Ended December 31, 1995, 1994 and
1993;
3. Statements of Capital Stock and Surplus, Years Ended December 31,
1995, 1994 and 1993;
4. Statements of Cash Flows, Years Ended December 31, 1995, 1994 and
1993;
5. Notes to Financial Statements; and
6. Independent Auditors' Report.
7. *Balance Sheets, March 31, 1996 and 1995;
8. *Statements of Operations, Three Months Ended March 31, 1996 and
1995;
9. *Statements of Capital Stock and Surplus, Three Months Ended
March 31, 1996 and 1995;
10. *Statements of Cash Flows, Three Months Ended March 31, 1996 and
1995; and
11. *Notes to Unaudited Financial Statements Three Months Ended
March 31, 1996 and 1995.
*To be filed by Amendment.
<PAGE>
(b) The following Exhibits are incorporated in the Registration
Statement by reference unless otherwise indicated:
(1) Resolution of Board of Directors of the depositor dated
December 3, 1985 authorizing the establishment of the Registrant (Filed as
Exhibit 1 to the Registration Statement of the Registrant on Form N-4, File
No. 33-29852);
(2) Not Applicable;
(3) (a) Distribution Agreement between the depositor,
Massachusetts Financial Services Company and Clarendon Insurance Agency, Inc.
(Filed as Exhibit 3 (a) to the Registration Statement of the Registrant on Form
N-4, File No. 33-29852);
(b)(i) Specimen Sales Operations and General Agent
Agreement (Filed as Exhibit 3 (b)(i) to the Registration Statement of the
Registrant on Form N-4, File No. 33-29852);
(b)(ii) Specimen Broker-Dealer Supervisory and Service
Agreement (Filed as Exhibit 3 (b)(ii) to the Registration Statement of the
Registrant on Form N-4, File No. 33-29852); and
(b)(iii) Specimen Registered Representatives Agent
Agreement (Filed as Exhibit 3 (b)(iii) to the Registration Statement of the
Registrant on Form N-4, File No. 33-29852);
(4) (a) Flexible Payment Combination Fixed/Variable Group
Annuity Contract (To be filed by Amendment);
(b) Certificate to be issued in connection with Contract
filed as Exhibit 4(a) (To be filed by Amendment);
(5) (a) Form of Application to be used with the annuity
contract filed as Exhibit 4(a) (To be filed by Amendment);
(b) Form of Application to be used with the Certificate
filed as Exhibit 4(b) (To be filed by Amendment);
(6) Certificate of Incorporation and By-laws of the depositor (Filed
as Exhibits 3(a) and 3(b), respectively, to the Registration Statement of the
Depositor on Form S-1, File No. 33-29851);
(7) Not Applicable;
(8) None;
<PAGE>
(9) Opinion of Counsel and Consent to its use as to the legality of the
securities being registered (To be filed by Amendment);
(10) (a) Consent of Deloitte & Touche, LLP (Filed herewith); and
(b) Consent of David D. Horn, Esq. (Filed herewith);
(11) None;
(12) Not Applicable;
(13) Schedule for Computation of Performance Quotations (To be
filed by Amendment); and
(14) Financial Data Schedule meeting the requirements of
Rule 483 under the Securities Act of 1933 (Filed herewith).
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------ ----------------------
John D. McNeil Chairman and Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
John R. Gardner President and Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
David D. Horn Senior Vice President
One Sun Life Executive Park and General Manager
Wellesley Hills, MA 02181 and Director
John S. Lane Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
Richard B. Bailey Director
500 Boylston Street
Boston, MA 02116
A. Keith Brodkin Director
500 Boylston Street
Boston, MA 02116
<PAGE>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------ ---------------------
M. Colyer Crum Director
Harvard Business School
Soldiers Field Road
Boston, MA 02163
Angus A. MacNaughton Director
950 Tower Lane
Metro Tower, Suite 1170
Foster City, CA 94404
Robert A. Bonner Vice President, Pensions
One Sun Life Executive Park
Wellesley Hills, MA 02181
Robert E. McGinness Vice President and Counsel
One Sun Life Executive Park
Wellesley Hills, MA 02181
C. James Prieur Vice President, Investments
One Sun Life Executive Park
Wellesley Hills, MA 02181
S. Caesar Raboy Vice President, Individual
One Sun Life Executive Park Insurance
Wellesley Hills, MA 02181
L. Brock Thomson Vice President
One Sun Life Executive Park and Treasurer
Wellesley Hills, MA 02181
Robert P. Vrolyk Vice President and Actuary
One Sun Life Executive Park
Wellesley Hills, MA 02181
Bonnie S. Angus Secretary
One Sun Life Executive Park
Wellesley Hills, MA 02181
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
No person is directly or indirectly controlled by the Registrant. The
Registrant is a separate account of Sun Life Assurance Company of Canada (U.S.),
a wholly-owned subsidiary of Sun Life Assurance Company of Canada.
The following is a list of all corporations directly or indirectly
controlled by or under common control with Sun Life Assurance Company of Canada,
showing the state or other sovereign power under the laws of which each is
organized and the percentage ownership of voting securities giving rise to the
control relationship:
<PAGE>
Percent of
State or Country Ownership
or Jurisdiction of Voting
of Incorporation Securities
---------------- ----------
Sun Life Assurance Company of Canada Canada 100%
- --------------------------------------------------------------------------------
Sun Life Assurance Company of Canada
(U.S.).................................... Delaware 100%
Sun Life Assurance Company of Canada
(U.K.) Limited ........................... United Kingdom 100%
Sun Life of Canada Investment Management
Limited .................................. Canada 100%
Sun Life of Canada Benefit Management
Limited .................................. Canada 100%
Spectrum United Holdings, Inc............... Canada 100%
Sun Canada Financial Co..................... Delaware 100%
Sun Life Insurance and Annuity Company of
New York ................................. New York 0%**
Sun Investment Services Company ............ Delaware 0%**
Sun Benefit Services Company, Inc. ......... Delaware 0%**
Sun Growth Variable Annuity Fund, Inc. ..... Delaware 0%*
Massachusetts Financial Services Company ... Delaware 0%+
New London Trust, F.S.B................. Federally Chartered 0%**
Massachusetts Casualty Insurance Company.... Massachusetts 0%**
Clarendon Insurance Agency, Inc. ........... Massachusetts 0%***
MFS Service Center, Inc..................... Delaware 0%***
MFS/Sun Life Series Trust .................. Massachusetts 0%****
Lifetime Advisers, Inc. .................... Delaware 0%***
Sun Capital Advisers, Inc. ................. Delaware 0%**
MFS International, Ltd. .................... Ireland 0%***
MFS Asset Management, Inc. ................. Delaware 0%***
MFS Fund Distributors, Inc. ................ Delaware 0%***
MFS Retirement Services, Inc. .............. Delaware 0%***
Sun Life Financial Service Limited.......... Bermuda 0%**
- --------
* 100% of the issued and outstanding voting securities of Sun Growth
Variable Annuity Fund, Inc. are owned by separate accounts of Sun Life
Assurance Company of Canada (U.S.).
** 100% of the issued and outstanding voting securities of New London
Trust, F.S.B., Sun Life Insurance and Annuity Company of New York,
Sun Investment Services Company, Sun Benefit Services Company, Inc.,
Sun Capital Advisers, Inc., Sun Life Financial Services Limited, and
Massachusetts Casualty Insurance Company are owned by Sun Life
Assurance Company of Canada (U.S.).
*** 100% of the issued and outstanding voting securities of Clarendon
Insurance Agency, Inc., MFS Service Center, Inc., Lifetime Advisers, Inc.,
MFS Financial Services, Inc., MFS International, Ltd., MFS Asset
Management, Inc., MFS Fund Distributors, Inc., and MFS Retirement
Services, Inc. are owned by Massachusetts Financial Services Company.
**** 100% of the issued and outstanding voting securities of MFS/Sun Life
Series Trust are owned by separate accounts of Sun Life Assurance Company
of Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
+ 94.8% of the issued and outstanding voting securities of Massachusetts
Financial Services Company are owned by Sun Life Assurance Company of
Canada (U.S.).
<PAGE>
Omitted from the list are subsidiaries of Sun Life Assurance Company of
Canada which, considered in the aggregate, would not constitute a "significant
subsidiary" (as that term is defined in Rule 8b-2 under Section 8 of the
Investment Company Act of 1940) of Sun Life Assurance Company of Canada.
None of the companies listed is a subsidiary of the Registrant; therefore,
the only financial statements being filed are those of Sun Life Assurance
Company of Canada (U.S.).
Item 27. NUMBER OF CONTRACT OWNERS:
As of March 31, 1996 there were _______ qualified and _______
non-qualified Contracts participating in the investment experience of the
Variable Account.
Item 28. INDEMNIFICATION
Pursuant to Section 145 of the Delaware Corporation Law, Article 8 of the
By-laws of Sun Life Assurance Company of Canada (U.S.), a copy of which was
filed as Exhibit 3(b) to the Registration Statement of the Depositor on Form S-
1, File No. 33-29851, provides for the indemnification of directors, officers
and employees of Sun Life Assurance Company of Canada (U.S.).
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of Sun
Life Assurance Company of Canada (U.S.) pursuant to the certificate of
incorporation, by-laws, or otherwise, Sun Life (U.S.) has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Sun Life (U.S.) of expenses incurred or paid by a director,
officer, controlling person of Sun Life (U.S.) in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, Sun Life (U.S.) will,
unless in the opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by them is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. PRINCIPAL UNDERWRITERS
(a) Clarendon Insurance Agency, Inc., which is a wholly-owned subsidiary
of Massachusetts Financial Services Company, acts as general distributor for the
Registrant, Sun Life of Canada (U.S.) Variable Accounts C, D,and E, Sun Life
(N.Y.) Variable Accounts A, B and C and Money Market Variable Account, High
Yield Variable Account, Capital Appreciation Variable Account, Government
Securities Variable Account, World Governments Variable Account, Total Return
Variable Account and Managed Sectors Variable Account.
<PAGE>
Name and Principal Positions and Offices
Business Address* with Underwriter
- ------------------ ---------------------
A. Keith Brodkin................. Chairman and Director**
Arnold D. Scott.................. Director
Jeffrey L. Shames................ Director
Cynthia M. Orcutt................ President
Bruce C. Avery................... Vice President
Joseph W. Dello Russo............ Treasurer
Stephen E. Cavan................. Secretary and Clerk
Robert T. Burns.................. Assistant Secretary
Thomas B. Hastings............... Assistant Treasurer
- ------------------
* The principal business address of all directors and officers of the
principal underwriter except Ms. Orcutt is 500 Boylston Street, Boston,
Massachusetts 02116. The principal business address of Ms. Orcutt is One
Sun Life Executive Park, Wellesley Hills, Massachusetts 02181.
** Mr. Brodkin is a Director of Sun Life Assurance Company of Canada (U.S.)
and Sun Life Insurance and Annuity Company of New York.
(c) Inapplicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained by Sun Life Assurance Company of Canada (U.S.), in
whole or in part, at its executive office at One Sun Life Executive Park,
Wellesley Hills, Massachusetts 02181, at the offices of the Sun Life Annuity
Service Center at 50 Milk Street, Boston, Massachusetts 02103 or at the offices
of Massachusetts Financial Services Company at 500 Boylston Street, Boston,
Massachusetts 02116.
Item 31. MANAGEMENT SERVICES
Not Applicable.
Item 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file post-effective
amendments to the Registration Statement as frequently
as necessary to ensure that the audited financial
statements in the Registration Statement are never more
than 16 months old for as long as payments under the
variable annuity contracts may be accepted.
(b)(c) Inapplicable.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant has caused this Registration Statement to be
signed on its behalf in the Town of Wellesley and Commonwealth of
Massachusetts on the 5th day of June, 1996.
Sun Life of Canada (U.S.)
Variable Account F
(Registrant)
Sun Life Assurance Company of
Canada (U.S.)
(Depositor)
By:* /s/ JOHN D. McNEIL
---------------------
John D. McNeil
Chairman
Attest: /s/ BONNIE S. ANGUS
-----------------------
Bonnie S. Angus
Secretary
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities with the Depositor, Sun Life Assurance Company of Canada (U.S.), and
on the dates indicated.
Signatures Title Date
---------- ----- ----
Chairman and
Director
(Principal
* /s/ JOHN D. McNEIL Executive Officer) June 5, 1996
- --------------------------
John D. McNeil
Vice President
and Actuary
(Principal Financial
and Accounting
/s/ ROBERT P. VROLYK Officer) June 5, 1996
- --------------------------
Robert P. Vrolyk
- -------------------------
* By Bonnie S. Angus pursuant to Power of Attorney filed with Post-Effective
Amendment No. 5 to the Registration Statement of the Registrant on Form N-
4, File No. 33-41628.
<PAGE>
Signatures Title Date
---------- ----- ----
* /s/ RICHARD B. BAILEY Director June 5, 1996
- -------------------------------
Richard B. Bailey
* /s/ A. KEITH BRODKIN Director June 5, 1996
- -------------------------------
A. Keith Brodkin
* /s/ M. COLYER CRUM Director June 5, 1996
- -------------------------------
M. Colyer Crum
* /s/ JOHN R. GARDNER President and June 5, 1996
- ------------------------------- Director
John R. Gardner
Senior Vice President
* /s/ DAVID D. HORN and General Manager June 5, 1996
- ------------------------------- and Director
David D. Horn
* /s/ JOHN S. LANE Director June 5, 1996
- -------------------------------
John S. Lane
* /s/ ANGUS A. MacNAUGHTON Director June 5, 1996
- -------------------------------
Angus A. MacNaughton
- ---------------------------
* By Bonnie S. Angus pursuant to Power of Attorney filed with Post-Effective
Amendment No. 5 to the Registration Statement of the Registrant on Form N-
4, File No. 33-41628.
<PAGE>
Exhibit 10(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Sun Life of
Canada (U.S.) variable Account F on Form N-4 of our report dated February 2,
1996 accompanying the financial statements of Sun Life of Canada (U.S.)
Variable Account F and to the use of our report dated February 7, 1996
accompanying the financial statements of Sun Life Assurance Company of Canada
(U.S.) appearing in the Prospectus, which is part of such Registration
Statement, and to the incorporation by reference of our reports dated
February 7, 1996 appearing in the Annual Report on Form 10-K of Sun Life
Assurance Company of Canada (U.S.) for the year ended Decemeber 31, 1995.
We also consent to the reference to us under the heading "Accountants" in
such Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 5, 1996
<PAGE>
Exhibit 10(b)
CONSENT OF COUNSEL
I hereby consent to the reference to me in the Registration Statement on
Form N-4 of Sun Life of Canada (U.S.) Variable Account F under the caption
"Legal Matters" in the Prospectus contained therein.
DAVID D. HORN, ESQ.
June 5, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> N/A
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