<PAGE>
As Filed with the Securities and Exchange Commission on October 14, 1997
REGISTRATION NO. 33
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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
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
MARGARET HANKARD, SENIOR ASSOCIATE COUNSEL
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
RETIREMENT PRODUCTS AND SERVICES
SUITE 200
ONE COPLEY PLACE
BOSTON, MASSACHUSETTS 02116
(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 OFFERING: As soon as practicable after the
effective date of the registration statement
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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.
<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 Condensed Financial Information;
Information Performance Data
5. General Description of A Word About the Company, the
Registrant, Depositor Fixed Account, the Variable
and Portfolio Companies Account, and the Funds;
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
<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 Funds;
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 Prospectus dated January
____, 1998.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
JANUARY , 1998
[PRODUCT NAME]
--------------------------------------------------
The flexible payment deferred annuity contracts (the "Contracts") 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
on either a group or individual basis 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. In some instances, Individual Contracts may be made
available on a variable basis only.
The issuance of an individual Contract ("Individual Contract") will be
evidenced by the Contract. Participation in a group Contract ("Group Contract")
will be evidenced by the issuance of a certificate ("Certificate") describing
the participating individual's interest under the Group Contract. Unless
otherwise expressly indicated, references in this Prospectus to "Contracts"
include Individual Contracts, Group Contracts and Certificates issued under
Group Contracts, and references to "Participants" include both Individual
Contract owners and participating individuals under Group Contracts.
The initial Purchase Payment for each Contract must be at least $5,000 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 Contract 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 the following
specific series or sub-series of one of the following Funds: [insert Fund and
series list]. Each 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 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 Funds, see "The Funds"
on page 14 and the accompanying Fund prospectuses.
(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 PROSPECTUSES OF
EACH OF THE MFS/SUN LIFE SERIES TRUST [INSERT REMAINING FUNDS]. 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 with durations of from one
to ten years, as selected by the Participant. The Fixed Account is the general
account of the Company (See "The Fixed Account" on page 12). The Company will
credit interest at a rate not less than the minimum specified in the applicable
Contract (at least 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). 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,
if any part of a Participant's Account is withdrawn, a withdrawal charge
(contingent deferred sales charge) may be assessed by the Company. This charge
is intended to reimburse the Company for expenses relating to the distribution
of the Contracts. A portion (specified in the applicable Contract) of the
Participant's Account Value may be withdrawn in each Account Year without the
imposition of a withdrawal charge, and after a Purchase Payment has been held by
the Company for seven years 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 ranging
from 6% to 0%. In no event will the the withdrawal charges assessed against a
Participant's Account exceed 6% of Purchase Payments (See "Withdrawal Charges"
on page 19).
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 or the withdrawal of interest credited to a
Guarantee Amount during the current Account Year, 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 Contracts used with Tax
Sheltered Annuities established pursuant to Section 403(b) of the Internal
Revenue Code (See "Section 403(b) Annuities" on page 21).
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 18.
On each Account Anniversary and on surrender of a Contract for full value
the Company will deduct an annual account administration fee ("Account Fee")
from the Participant's Account. The amount of this fee is $30 in Account Years
one through five; thereafter, it may be changed annually, subject to a maximum
of $50. After the Annuity Commencement Date an Account Fee of $30 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. The Account Fee may be waived by the Company under certain
circumstances (See "Administrative Charges" on page 24).
2
<PAGE>
The Company also deducts a mortality and expense risk charge at the end of
each Valuation Period equal to an annual rate of 1.25% of the daily net assets
of the Variable Account for mortality and expense risks assumed by the Company
(See "Mortality and Expense Risk Charge" on page 24).
Under certain circumstances the Company may substitute shares of another
registered open-end investment company or unit investment trust both for Fund
shares already purchased by the Variable Account and as the security to be
purchased in the future. Also, upon notice to the Participant, or, in the case
of a Group Contract, the Owner or Participant, or, under any Contract, to 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 31 and "Modification" on page 31).
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 31).
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 22).
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 25).
Premium taxes payable to any governmental entity will be deducted from the
Participant's Account (See "Premium Taxes" on page 24).
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 (except of interest credited during the current Account Year to the
Guarantee Amount transferred) 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 18).
After the Annuity Commencement Date, the Payee may, subject to certain
restrictions, exchange the value of a designated number of Annuity Units of
particular Sub-Accounts then credited with respect to the particular Payee for
other Annuity Units, the value of which would be such that the dollar amount of
an annuity payment made on the date of the exchange would be unaffected by the
fact of the exchange (See "Exchange of Variable Annuity Units" on page 28).
The Company will vote Fund shares held by the Sub-Accounts at meetings of
shareholders of the Funds, but will follow voting instructions received from
persons having the right to give voting instructions. Except in the case of a
particular Group Contract where the right to give voting instructions is
reserved by the Owner, the 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 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 Fund Shares" on page 30).
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 31. Such reports, other than prospectuses, will not include the Company's
financial statements.
If a Participant is not satisfied with the Contract, 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 Contract it
will be cancelled and the Participant's Account Value at the end of the
Valuation Period during which the Contract 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
Contract 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 Commission maintains a WebSite that contains reports, proxy and
information statements and other information about the Company, which files
documents electronically with the Commission, at the following address:
http://www.sec.gov.
The Company has filed registration statements (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, 1996 and the
Quarterly Report on Form 10-Q for the nine months ended September 30, 1997
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,
copies of the documents referred to above which have been incorporated by
reference in this Prospectus, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference in the Prospectus). Requests
for such document should be directed to [enter name and title], Sun Life
Assurance Company of Canada (U.S.), Retirement Products and Services, One Copley
Place, Suite 200, Boston, Massachusetts 02109, telephone (617) ___- ____.
4
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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 Funds 12
The Company 12
The Fixed Account 12
The Variable Account 13
The Funds 14
Purchase Payments and Contract Values During Accumulation
Period 15
Purchase Payments 15
Participant's Account 15
Variable Accumulation Value 15
Fixed Accumulation Value 16
Guarantee Periods 16
Guaranteed Interest Rates 17
Dollar Cost Averaging 17
Transfer Privilege; Restriction on Market Timers 18
Cash Withdrawals, Withdrawal Charges and Market Value
Adjustment 18
Cash Withdrawals 18
Withdrawal Charges 19
Amount of Withdrawal Charge 21
Section 403(b) Annuities 21
Market Value Adjustment 22
Death Benefit 22
Death Benefit Provided by the Contract 22
Election and Effective Date of Election 22
Payment of Death Benefit 23
Amount of Death Benefit 23
How the Contract Charges Are Assessed 24
Administrative Charges 24
Premium Taxes 24
Mortality and Expense Risk Charge 24
Withdrawal Charges 25
Annuity Provisions 25
Annuity Commencement Date 25
Election--Change of Annuity Option 26
Annuity Options 26
Determination of Annuity Payments 27
Fixed Annuity Payments 27
Variable Annuity Payments 27
Variable Annuity Unit Value 28
Exchange of Variable Annuity Units 28
Annuity Payment Rates 28
</TABLE>
5
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TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Other Contractual Provisions 28
Payment Limits 28
Designation and Change of Beneficiary 29
Exercise of Contract Rights 29
Change of Ownership 29
Death of Participant 29
Voting of Fund Shares 30
Periodic Reports 31
Substituted Securities 31
Change in Operation of Variable Account 31
Splitting Units 31
Modification 31
Discontinuance of New Participants 32
Custodian 32
Right to Return 32
Federal Tax Status 32
Introduction 32
Tax Treatment of the Company and the Variable Account 33
Taxation of Annuities in General 33
Qualified Retirement Plans 35
Pension and Profit-Sharing Plans 35
Tax-Sheltered Annuities 35
Individual Retirement Accounts 35
Administration of the Contracts 36
Distribution of the Contracts 36
Additional Information About the Company 37
Selected Financial Data 37
Management's Discussion and Analysis of Financial
Condition and Results of Operations 37
Reinsurance 40
Reserves 40
Investments 41
Competition 41
Employees 41
Properties 41
The Company's Directors and Executive Officers 41
State Regulation 44
Legal Proceedings 45
Legal Matters 45
Accountants 45
Registration Statements 45
Financial Statements 45
Appendix A--Variable Accumulation Unit Value, Variable
Annuity Unit Value and Variable Annuity Payment
Calculations 68
Appendix B--State Premium Taxes 68
Appendix C--Withdrawals, Withdrawal Charges and the Market
Value Adjustment 69
Appendix D--Calculation of Performance Data; Advertising and
Sales Literature 73
</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
survivor of the persons so named. By example, the death benefit will become due
only upon the death, prior to the Annuity Commencement Date, of the last
survivor of the persons so named. Collectively, these persons are referred to in
this Contract as "Annuitants." The Participant is not permitted to name a
"Co-Annuitant" under a Qualified Contract.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
under each Certificate is to be made.
*ANNUITY OPTION: The method for making annuity payments.
ANNUITY UNIT: A unit of measure used in the calculation of the amount of
the second and each subsequent variable annuity payment from the Variable
Account.
APPLICATION: The document signed by each Participant that serves as his or
her application for participation under a Group Contract or purchase of an
Individual 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 a Group 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 a Group Contract.
DATE OF COVERAGE: The date on which a Participant's Account becomes
effective.
DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to the
Company.
FIXED ACCOUNT: The Fixed Account consists of all assets of the Company
other than those allocated to a separate account of the Company.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar
amount.
FUND(S): [insert definition]
GROUP CONTRACT: A Contract issued by the Company on a group basis.
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.
INDIVIDUAL CONTRACT: A Contract issued by the Company on an individual
basis.
ISSUE DATE: The date on which a Group 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 a Group Contract and in whose name or names the Group 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), Section 408(k) or
Section 408(p) 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 Group Contract.
PARTICIPANT: In the case of an Individual Contract, the owner of the
Contract. In the case of a Group Contract, the person named in the Certificate
who is entitled to exercise all rights and privileges of ownership under the
Certificate, except as reserved by the Owner.
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.
SEVEN YEAR ANNIVERSARY: The seventh Account Anniversary and each succeeding
Account Anniversary occurring at any seven year interval thereafter, for
example, the 14th, 21st and 28th Account Anniversaries.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific series or sub-series of a Fund.
VALUATION PERIOD: The period of time from one determination of Variable
Accumulation Unit and Annuity Unit values to the next subsequent determination
of these values. Such determination shall be made as of the close of the New
York Stock Exchange on each day the Exchange is open for trading and on such
other days on which there is a sufficient degree of trading in the portfolio
securities of the Variable Account so that the values of the Variable Account's
Accumulation Units and Annuity Units might be materially affected.
VARIABLE ACCOUNT: A separate account of the Company consisting of assets
set aside by the Company, the investment performance of which is kept separate
from that of the general assets of the Company.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of
the value of the variable portion of a Participant's Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount
in relation to the investment performance of specified Sub-Accounts of the
Variable Account.
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 each 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 each Fund's prospectus. In addition to the expenses
listed below, premium taxes may be applicable.
[TO BE PROVIDED BY AMENDMENT.]
9
<PAGE>
EXAMPLE
If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming a 5% annual
return on assets:*
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
</TABLE>
- ------------------------------
* Expenses under Contracts containing the cumulative free withdrawal provision
described on page of this Prospectus would be lower than those illustrated,
for the one and three year periods.
If you do not surrender your Contract, or if you annuitize at the end of the
applicable time period, you would pay the following expenses on a $1,000
investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
</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 Funds 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 and individual
deferred annuity contracts (the "Contracts") which provide fixed benefits,
variable benefits or a combination of both. It describes their uses and
objectives, their benefits and costs, and the rights and privileges of the Owner
and Participant, as applicable. It also contains information about the Company,
the Variable Account, the Fixed Account and the Funds. 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), Section 408(k) or Section 408(p) 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), SEP-IRAs under
Section 408(k) and Simple Retirement Accounts under Section 408(p) (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.
The Contracts are available on a group basis and, in certain states, on an
individual basis. An Individual Contract is issued directly to the owner of the
Contract. A Group Contract is issued to the Owner covering all individuals
participating under the Group Contract. Each such individual receives a
Certificate which evidences his or her participation under the Group Contract.
In this Prospectus, unless otherwise indicated, both the owners of Individual
Contracts and participating individuals under Group Contracts are referred to as
Participants; the term Contracts includes Individual Contracts, Group Contracts
and Certificates issued under Group Contracts. For the purposes of determining
benefits under both Individual Contracts and Group Contracts, a Participant's
Account is established for each Participant.
11
<PAGE>
A WORD ABOUT THE COMPANY,
THE FIXED ACCOUNT, THE VARIABLE ACCOUNT AND THE FUNDS
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 active subsidiaries are Massachusetts Financial
Services Company and Sun Capital Advisers, Inc., registered investment advisers,
Sun Life of Canada (U.S.) Distributors, Inc., 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 "Sun Life (Canada)".
The Company is an indirect wholly-owned subsidiary of Sun Life (Canada), 150
King Street West, Toronto, Ontario, Canada. Sun Life (Canada) is a mutual life
insurance company incorporated pursuant to Act of Parliament of Canada in 1865
and currently transacts business in all of the Canadian provinces and
territories, all states except New York, the District of Columbia, Puerto Rico,
the Virgin Islands, Great Britain, Ireland, Hong Kong, Bermuda and the
Philippines. All of the outstanding common stock of the Company is held by a
wholly-owned subsidiary of Sun Life (Canada), Sun Life of Canada (U.S.)
Holdings, Inc., which was formed to serve as the holding company for the U.S.
subsidiaries of Sun Life (Canada) and for general corporate financing purposes.
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
minimum rate specified in the Contract (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 THE MINIMUM RATE SPECIFIED IN THE CONTRACT WILL BE
DETERMINED IN THE SOLE DISCRETION OF THE COMPANY. THE PARTICIPANT ASSUMES THE
RISK THAT INTEREST CREDITED ON AMOUNTS ALLOCATED TO THE FIXED ACCOUNT MAY NOT
EXCEED THE MINIMUM GUARANTEE 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.
13
<PAGE>
Since the Variable Account is always fully invested in Fund shares, its
investment performance reflects the investment performance of the Funds. Values
of 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 each 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 Fund or series thereof.
All amounts allocated to the Variable Account will be used to purchase Fund
shares as designated by the Participant at their net asset value. Any and all
distributions made by a 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 Fund shares at their net asset value
equal in total value to the amount to be deducted. The Variable Account will be
fully invested in Fund shares at all times.
THE FUNDS
[TO BE PROVIDED BY AMENDMENT.]
14
<PAGE>
PURCHASE PAYMENTS AND CONTRACT VALUES DURING ACCUMULATION PERIOD
PURCHASE PAYMENTS
(1) PLACE, AMOUNT AND FREQUENCY
All Purchase Payments are to be paid to the Company at its Annuity Service
Mailing Address. The 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 $5,000, 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 allocated without the prior approval of the Company.
A completed Application (and in the case of a Group Contract, a completed
Contract Application, if required) and the initial Purchase Payment are
forwarded to the Company for acceptance. Upon acceptance, in the case of an
Individual Contract the Contract is issued to the Participant, and in the case
of a Group Contract the Contract and Certificate(s), as applicable, are issued
to the Owner and/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 particular Participant's Application, or as subsequently
changed.
The allocation factors for new Payments between the Guarantee Periods and
among 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 of a Participant's Account, if any, for any
Valuation Period is equal to the sum of the value of all Variable Accumulation
Units credited to the Participant's Account for such Valuation Period.
15
<PAGE>
(1) CREDITING VARIABLE ACCUMULATION UNITS
Upon receipt of a Purchase Payment by the Company, all or that portion, if
any, of the Net Purchase Payment to be allocated to any Sub-Accounts in
accordance with the allocation factors will be credited to the Participant's
Account in the form of Variable Accumulation Units. The number of particular
Variable Accumulation Units to be credited is determined by dividing the dollar
amount allocated to the particular Sub-Account by the Variable Accumulation Unit
value for the particular Sub-Account for the Valuation Period during which the
Purchase Payment is applied by the Company to the Participant's Account.
(2) VARIABLE ACCUMULATION UNIT VALUE
The Variable Accumulation Unit value for each Sub-Account was established at
$10.00 for the first Valuation Period of the particular Sub-Account. The
Variable Accumulation Unit value for the particular Sub-Account for any
subsequent Valuation Period is determined by methodology which is the
mathematical equivalent of multiplying the Variable Accumulation Unit value for
the particular Sub-Account for the immediately preceding Valuation Period by the
Net Investment Factor for the particular Sub-Account for such 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 Fund share held in the Sub-Account
determined as of the end of the Valuation Period, plus
(2) the per share amount of any dividend or other distribution
declared by the Fund 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 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 risk.
FIXED ACCUMULATION VALUE
The fixed accumulation value of a Participant's Account, if any, for any
Valuation Period is equal to the sum of the values of all Guarantee Amounts
credited to the Participant's Account for such Valuation Period.
GUARANTEE PERIODS
The Participant may elect one or more Guarantee Period(s) with durations of
from one to ten years 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
16
<PAGE>
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 years in the Guarantee
Period elected from the end of the calendar month in which the amount was
allocated to the Guarantee Period (the "Expiration Date"). Subsequent Guarantee
Periods begin on the first day following the Expiration Date.
Any portion of a Participant's Account Value allocated to a particular
Guarantee Period with a particular Expiration Date (including interest earned
thereon) will be referred to herein as a "Guarantee Amount". Interest will be
credited daily at a rate equivalent to the compound annual rate. As a result of
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").
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 an approved dollar cost averaging program described
below. A new Guarantee Period of the same duration as the previous Guarantee
Period will commence automatically at the end of the previous Guarantee Period
unless the Company receives, prior to the end of such Guarantee Period, a
written election by the Participant of a different Guarantee Period from among
those being offered by the Company at such time, or instructions to transfer all
or a portion of the Guarantee Amount to one or more Sub-Accounts in accordance
with the Transfer Privilege Provision. Each new Guarantee Amount must be at
least $1,000.
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, but once established rates will be guaranteed for the duration
of the respective Guarantee Periods. However, Participant's Account Value
withdrawn from the Fixed Account will be subject to any applicable withdrawal
charge and Account Fee and may be subject to a Market Value Adjustment on
withdrawal or surrender (See "Market Value Adjustment").
The Guaranteed Interest Rate will not be less than the minimum guaranteed
rate specified in the Contract, compounded annually. The Company has no specific
formula for determining the rate of interest that it will declare as a
Guaranteed Interest Rate, as these rates will be reflective of interest rates
available on the types of debt instruments in which the Company intends to
invest amounts allocated to the Fixed Account (See "The Fixed Account"). In
addition, the Company's management may consider other factors in determining
Guaranteed Interest Rates for a particular duration including: regulatory and
tax requirements; sales commissions and administrative and distribution expenses
borne by the Company; general economic trends; and competitive factors. The
Participant bears the risk that the Guaranteed Interest Rate to be credited on
amounts allocated to the Fixed Account may not exceed the minimum guaranteed
rate for any Guarantee Period.
DOLLAR COST AVERAGING
The Participant may select a dollar-cost averaging program by allocating a
minimum of $5,000 to a designated Sub-Account or to the Fixed Account. Amounts
allocated to the Fixed Account under the program will earn interest at a
specified rate declared by the Company. Each month or quarter a level amount
will be transferred automatically, at no cost, to one or more Sub-Accounts
chosen by the Participant, up to a maximum of four. The program continues until
the Participant's Account Value allocated to the program is depleted or the
Participant elects to stop the program. The final amount transferred from the
Fixed Account will include all interest earned.
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<PAGE>
No Market Value Adjustment, either positive or negative, will apply to
amounts automatically transferred from the Fixed Account under the program,
except that if the program is discontinued or altered prior to completion,
amounts remaining in the Fixed Account will be liquidated and the Market Value
Adjustment will be applied. Any additions to the program will be treated as
commencing a new program.
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 be made in any Account Year and a minimum of 30 days must elapse
between transfers made to or from the Fixed Account or among Guarantee Periods;
(2) 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; (3) any Participant's Account Value remaining in a
Sub-Account may not be less than $1,000; and (4) the total Participant's Account
Value attributable to the Guarantee Amount must be transferred; however, the
transfer of interest credited to such Guarantee Amount during the current
Account Year and automatic transfers to a Sub-Account of amounts allocated to a
Guarantee Period with a one-year duration in connection with an approved dollar
cost averaging program are not subject to this restriction. In addition,
transfers of a Guarantee Amount (except the automatic transfers described under
(4) above) 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 Funds.
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. Certain of the Funds
have reserved the right to temporarily or permanently refuse exchange requests
from the Variable Account if, in the judgment of such Fund's investment adviser,
the Fund, or any available series thereof, 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. In addition, the Company reserves the right, for similar reasons, to
refuse exchange requests involving transfers to or from the Fixed Account.
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
18
<PAGE>
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 OR THE WITHDRAWAL OF INTEREST CREDITED DURING THE
CURRENT ACCOUNT YEAR, WILL BE SUBJECT TO THE MARKET VALUE ADJUSTMENT.
Cash withdrawals from a Sub-Account will result in the cancellation of
Variable Accumulation Units attributable to the Participant's Account with an
aggregate value on the effective date of the withdrawal equal to the total
amount by which the Sub-Account is reduced. The cancellation of such units will
be based on the Variable Accumulation Unit values of the Sub-Account at the end
of the Valuation Period during which the cash withdrawal is effective.
The Company, upon request, will advise the Participant of the amounts that
would be payable in the event of a full surrender or partial withdrawal.
Any cash withdrawal payment will be paid within seven days from the date the
election becomes effective, except as the Company may be permitted to defer such
payment in accordance with the Investment Company Act of 1940 and applicable
state insurance law. Deferral of amounts withdrawn from the Variable Account is
currently permissible only (1) for any period (a) during which the New York
Stock Exchange is closed other than customary week-end and holiday closings or
(b) during which trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission, (2) for any period during
which an emergency exists as a result of which (a) disposal of securities held
by any Fund is not reasonably practicable or (b) it is not reasonably
practicable to determine the value of the net assets of a 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").
A portion of the Participant's Account Value may be withdrawn each year
without imposition of any withdrawal charge, and after a Purchase Payment has
been held by the Company for seven years it may be withdrawn free of any
withdrawal charge. In addition, 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 the Company may waive the withdrawal charge with respect to
19
<PAGE>
Purchase Payments derived from the surrender of combination fixed/variable
annuity contracts and/or certificates issued by the Company. In addition, if
approval has been received from state regulatory authorities having jurisdiction
over the applicable Contract, the Company will waive the withdrawal charge
arising from a full surrender if: 1) at least one year has elapsed since the
Contract's Date of Coverage; and 2) the Participant is confined to an eligible
nursing home (a licensed hospital or licensed skilled or intermediate care
nursing facility at which treatment is available on a daily basis and daily
medical records are kept for each patient) and has been confined there for the
preceding 180 days, or for such shorter period as may be provided for, depending
upon the jurisdiction in which the Contract was issued. Such withdrawal may be
subject to the 10% tax penalty described above.
All other full or partial withdrawals are subject to a withdrawal charge
which will be applied in accordance with the applicable methodology described
below:
CONTRACTS ISSUED IN JURISDICTIONS WHERE APPROVAL OF THE CUMULATIVE FREE
WITHDRAWAL PROVISION HAS BEEN RECEIVED FROM THE APPROPRIATE STATE REGULATORY
AUTHORITY:
Contracts issued in these jurisdictions provide for the accumulation of the
10% annual free withdrawal amount into future years. The applicable withdrawal
charge will be determined on the following basis:
(1) Old Payments and new Payments: With respect to a particular Account
Year, "new Payments" are those Payments made in that Account Year or in the six
immediately preceding Account Years, and "old Payments" are those Payments not
defined as new Payments.
(2) Order of liquidation: To effect a full surrender or partial withdrawal,
each withdrawal is allocated first to the free withdrawal amount and then to
previously unliquidated Payments (on a first-in, first-out basis) until all
Purchase Payments have been liquidated.
(3) Free withdrawal amount: The free withdrawal amount is equal to 10% of
any new Payments, irrespective of whether these new Payments have been
liquidated. Any portion of the free withdrawal amount that is not used in the
current Account Year is cumulative into future years.
(4) Maximum withdrawal amount without a withdrawal charge: The maximum
amount that can be withdrawn without a withdrawal charge in an Account Year is
equal to the sum of (a) any previously unliquidated free withdrawal amount, and
(b) any previously unliquidated old Payments.
(5) Amount subject to withdrawal charge: The amount subject to the
withdrawal charge is the amount of the partial withdrawal or full surrender less
the maximum withdrawal amount without a withdrawal charge, up to a maximum of
the sum of all unliquidated new Payments.
CONTRACTS ISSUED IN JURISDICTIONS WHERE APPROVAL OF THE CUMULATIVE FREE
WITHDRAWAL PROVISION HAS NOT BEEN RECEIVED FROM THE APPROPRIATE STATE REGULATORY
AUTHORITY:
Contracts issued in these jurisdictions do not provide for the accumulation
of the 10% annual free withdrawal amount into future years.
The applicable withdrawal charge will be determined as follows:
(1) Old Payments, new Payments and accumulated value: With respect to a
particular Account Year, "new Payments" are those Payments made in that Account
Year or in the six immediately preceding Account Years; "old Payments" are those
Payments not defined as new Payments; and "accumulated value" is the
Participant's Account Value less the sum of old and new Payments.
(2) Order of liquidation: To effect a full surrender or partial withdrawal,
the oldest previously unliquidated Payment will be deemed to have been
liquidated first, then the next oldest, and so forth. Once all old and new
Payments have been withdrawn, additional amounts withdrawn will be attributed to
accumulated value.
(3) Maximum free withdrawal amount: The maximum amount that can be withdrawn
without a withdrawal charge in an Account Year is equal to the sum of (a) any
old Payments not already liquidated, and (b) 10% of any new Payments,
irrespective of whether these new Payments have been liquidated.
20
<PAGE>
(4) Amount subject to withdrawal charge: The amount subject to the
withdrawal charge will be the excess, if any, of (a) amounts liquidated from old
and new Payments (as specified above) over (b) the remaining maximum free
withdrawal amount at the time of the withdrawal.
AMOUNT OF WITHDRAWAL CHARGE
The withdrawal charge percentage varies according to the number of complete
Account Years between the Account Year in which a Purchase Payment was credited
to a Participant's Account and the Account Year in which it was withdrawn. The
amount of the withdrawal charge is determined by multiplying the amount subject
to the withdrawal charge by the withdrawal charge percentage, in accordance with
the following table:
<TABLE>
<CAPTION>
NUMBER OF COMPLETE
ACCOUNT YEARS WITHDRAWAL CHARGE
------------------ -----------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
</TABLE>
In no event shall the aggregate withdrawal charges assessed against a
Participant's Account exceed 6% of the aggregate Purchase Payments made under a
Contract (See Appendix C for examples of withdrawals, withdrawal charges and the
Market Value Adjustment). The Company may, upon notice to the Owner of a Group
Contract, modify the withdrawal charges, provided that such modification shall
apply only to 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.
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".
21
<PAGE>
MARKET VALUE ADJUSTMENT
Any cash withdrawal of a Guarantee Amount, other than a withdrawal effective
within 30 days prior to the Expiration Date of the Guarantee Amount or the
withdrawal of interest credited on such Guarantee Amount during the current
Account Year, will be subject to a Market Value Adjustment ("MVA") (for this
purpose, transfers (except automatic transfers to a Sub-Account of amounts
allocated to a Guarantee Period with a one-year duration in connection with an
approved dollar cost averaging program), 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.
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 Periods equal to the balance of the Guarantee Period of
the Guarantee Amount subject to the Market Value Adjustment, rounded to the next
higher number of complete years (the "Current Rate"), and
N is the number of complete months remaining in the Guarantee Period of the
Guarantee Amount subject to the Market Value Adjustment.
In the determination of J, if the Company currently does not offer the
applicable Guarantee Period, then the rate will be determined by linear
interpolation of the current rates for Guarantee Periods that are available.
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;
22
<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 age 85 or less 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; (3) the
Participant's Account Value on the Seven Year Anniversary immediately preceding
the date the death benefit election is effective or is deemed to become
effective, adjusted for any subsequent Purchase Payments and partial withdrawals
and charges made between such Seven Year Anniversary and the date the election
is effective or is deemed to become effective; and (4) the total Purchase
Payments made with respect to the Participant's Account, minus the sum of all
partial withdrawals. For the purposes of determining the amount payable under
(4), each Purchase Payment and each partial withdrawal will accumulate daily at
a rate equivalent to 5% per year until the first day of the month following the
Annuitant's 80th birthday. No such accumulation will apply to a Purchase Payment
or partial withdrawal once that Purchase Payment or partial withdrawal has, as a
result of such accumulation, grown to double its original amount.
If the Annuitant was age 86 or greater on the Date of Coverage, the death
benefit is equal to (2) above.
If (2), (3) or (4) is operative the Participant's Account Value will be
increased by the excess of (2), (3) or (4), as applicable, over (1) and the
increase will be allocated to the Sub-Accounts based on the respective
23
<PAGE>
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 [insert by amendment the fund selected].
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 deductions are made from the assets of each
Fund for investment management fees and expenses. These fees and expenses are
described in each Fund's prospectus and statement of additional information.
ADMINISTRATIVE CHARGES
Each year on the Account Anniversary, the Company deducts from each
Participant's Account an annual account administration fee ("Account Fee") as
partial compensation for expenses relating to the issue and maintenance of the
Contract and the Participant's Account. In Account Years one through five the
Account Fee is equal to the lesser of $30 and 2% of the Participant's Account
Value; thereafter the Account Fee may be changed annually, but in no event may
it exceed the lesser of $50 and 2% of the Participant's Account Value. 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
Account Fee will be waived by the Company when: (1) the entire Participant's
Account Value has been allocated to the Fixed Account during the entire previous
Account Year; or (2) the Participant's Account Value is greater than $75,000 at
the time of such deduction. On the Annuity Commencement Date, the value of the
Participant's Account will be reduced by a proportionate amount of the Account
Fee to reflect the time elapsed between the last Account Anniversary and the day
before the Annuity Commencement Date. After the Annuity Commencement Date, an
annual Account Fee of $30 will be deducted in equal amounts from each variable
annuity payment made during the year. No deduction will be made from fixed
annuity payments.
The 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 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. For a description of administrative services
provided see "Administration of the Contracts" on page 36 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 on or
after the date they are 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
24
<PAGE>
incorporated into the Contract which cannot be changed except, in the case of a
Group Contract only, with respect to Participant's Accounts established after
the effective date of such change, as provided in the section of this Prospectus
entitled "Modification". The expense risk assumed by the Company is the risk
that the administrative charges assessed under the Contract may be insufficient
to cover the actual total administrative expenses incurred by the Company.
For assuming these risks, the Company makes a deduction from the Variable
Account at the end of each Valuation Period during both the Accumulation Period
and after annuity payments begin at an effective annual rate of 1.25%. If the
deduction is insufficient to cover the actual cost of the mortality and expense
risk undertaking, the Company will bear the loss. Conversely, if the deduction
proves more than sufficient, the excess will be profit to the Company and would
be available for any proper corporate purpose including, among other things,
payment of distribution expenses. The Company will recoup its expected costs
associated with registering and distributing the Contracts by the assessment of
the withdrawal charges (contingent deferred sales charges) described below.
However, the withdrawal charges may prove to be insufficient to cover actual
distribution expenses. If this is the case, the deficiency will be met from the
Company's general corporate funds which may include amounts derived from the
mortality and expense risk charges.
A Group 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 and administrative expense
charges are the only expenses of the Variable Account.
WITHDRAWAL CHARGES
No deduction for sales charges is made from Purchase Payments. However, a
withdrawal charge (contingent deferred sales charge) of up to 6% of certain
amounts withdrawn, when applicable, will be used to cover certain expenses
relating to the sale of the Contracts, 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 % of the Purchase Payments. In addition, after
the first Account Year, a trail commission of no more than % 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.
25
<PAGE>
Since the Contracts offered by this Prospectus may be issued in connection
with retirement plans which meet the requirements of Section 401, 403 or 408 of
the Internal Revenue Code, as well as certain non-qualified plans, reference
should be made to the terms of the particular plan for any limitations or
restrictions on the Annuity Commencement Date.
ELECTION--CHANGE OF ANNUITY OPTION
During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Participant may elect one or more of the Annuity Options described
below, or such other settlement option as may be agreed to by the Company, for
the Annuitant as Payee. The Participant may also change any election, but
written notice of any election or change of election must be received by the
Company at least 30 days prior to the Annuity Commencement Date. If no election
is in effect on the 30th day prior to the Annuity Commencement Date, Annuity
Option B, for a Life Annuity with 120 monthly payments certain, will be deemed
to have been elected. If there is no election of a sole Annuitant in effect on
the 30th day prior to the Annuity Commencement Date, the person designated as
"Co-Annuitant" will be the Payee under the applicable Annuity Option.
Any election may specify the proportion of the adjusted value of the
Participant's Account to be applied to provide a Fixed Annuity and a Variable
Annuity. In the event the election does not so specify, or if no election is in
effect on the 30th day prior to the Annuity Commencement Date, then the portion
of the adjusted value of the Participant's Account to be applied to provide a
Fixed Annuity and a Variable Annuity will be determined on a pro rata basis from
the composition of the Participant's Account on the Annuity Commencement Date.
Annuity Options may also be elected by the Participant or the Beneficiary as
provided in the Death Benefit section of this Prospectus.
Reference should be made to the terms of a particular retirement plan and
any applicable legislation for any limitations or restrictions on the options
which may be elected.
NO CHANGE OF ANNUITY OPTION IS PERMITTED AFTER THE ANNUITY COMMENCEMENT
DATE.
ANNUITY OPTIONS
No lump sum settlement option is available under the Contract. The
Participant may surrender a Contract prior to the Annuity Commencement Date;
however, any applicable surrender charge will be deducted from the cash
withdrawal payment and a Market Value Adjustment, if applicable, will be
applied.
Annuity 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
specified in the applicable Contract. 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
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election of this option of the number of each type of Annuity Unit credited to
the Contract with respect to the Payee and fixed monthly payments, if any, will
be equal to the same percentage of the fixed monthly payment payable during the
joint lifetime of the Payee and the designated second person.
* Annuity Option D. Monthly Payments for a Specified Period
Certain: Monthly payments for a specified period of time (at least five years
but not exceeding 30 years), as elected. In the event of the death of the Payee
under this option, the Contract provides that, as described under Annuity Option
B above, in certain circumstances the discounted value of the remaining
payments, if any, will be calculated and paid in one sum.
* 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 yearly on the amount remaining
unpaid at a rate which shall be determined by the Company from time to time but
which shall not be less than the minimum rate specified in the applicable
Contract (at least 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 at the end of the Valuation Period which ends
immediately preceding the Annuity Commencement Date, reduced by a proportionate
amount of the Account Fee to reflect the time elapsed between the last Account
Anniversary and the day before the Annuity Commencement Date, plus or minus any
applicable Market Value Adjustment and minus any applicable premium or similar
taxes.
If the amount to be applied under any annuity option is less than $2,000, or
if the first annuity payment payable in accordance with such option is less than
$20, the Company will pay the amount to be applied in a single payment to the
Payee.
FIXED ANNUITY PAYMENTS
The dollar amount of each fixed annuity payment will be determined in
accordance with the Annuity Payment Rates found in the Contract which are based
on the minimum guaranteed interest rate specified in the applicable Contract (at
least 3% per year), or, if more favorable to the Payee(s), in accordance with
the Annuity Payment Rates published by the Company and in use on the Annuity
Commencement Date.
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 applicable Contract
which are based on an assumed interest rate of at least 3% per year, unless
these rates are changed with respect to a Group Contract (See "Modification").
All variable annuity payments other than the first are determined by means of
Annuity Units credited to the Contract with respect to the particular Payee. The
number of Annuity Units to be credited in respect of a particular Sub-Account is
determined by dividing that portion of the first variable annuity payment
attributable to that Sub-Account by the Annuity Unit value of that Sub-Account
at the end of the Valuation Period which ends immediately preceding the Annuity
Commencement Date. The number of Annuity Units of each particular Sub-Account
credited with respect to the particular Payee then remains fixed unless an
exchange of Annuity Units is made as described below. The dollar amount of each
variable annuity payment after the first may increase, decrease or remain
constant, and is equal to the sum of the amounts determined by multiplying the
number of Annuity Units of a particular Sub-Account credited with respect to the
particular Payee by the Annuity Unit value for the particular Sub-Account for
the Valuation Period which ends immediately preceding the due date of each
subsequent payment. If the net investment return on the assets of the
- ------------------------
* The election of this annuity option may result in the imposition of a penalty
tax.
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Variable Account is the same as the assumed interest rate, variable annuity
payments will remain level. If the net investment return exceeds the assumed
interest rate variable annuity payments will increase and, conversely, if it is
less than the assumed interest rate the payments will decrease.
For a hypothetical example of the calculation of a Variable Annuity Payment,
see Appendix A.
VARIABLE ANNUITY UNIT VALUE
The Annuity Unit value for each Sub-Account was established at $10.00 for
the first Valuation Period of the particular Sub-Account. The Annuity Unit Value
for the particular Sub-Account for any subsequent Valuation Period is determined
by multiplying the Annuity Unit value for the particular Sub-Account for the
immediately preceding Valuation Period by the Net Investment Factor (See
"Variable Accumulation Value, Net Investment Factor") for the particular
Sub-Account for the current Valuation Period and then multiplying that product
by a factor to neutralize the assumed interest rate used to establish the
Annuity Payment Rates found in the Contract. For a one day Valuation Period the
factor is 0.99991902 using an assumed interest rate of 3% per year.
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 between Sub-Accounts. Exchanges will be made
using the Annuity Unit values for the Valuation Period during which any request
for exchange is received by the Company.
ANNUITY PAYMENT RATES
The Contract contains Annuity Payment Rates for each Annuity Option
described in this Prospectus. The rates show, for each $1,000 applied, the
dollar amount of: (a) the first monthly variable annuity payment based on the
assumed interest rate specified in the applicable Contract (at least 3%); and
(b) the monthly fixed annuity payment, when this payment is based on the minimum
guaranteed interest rate specified in the Contract (at least 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.
OTHER CONTRACTUAL PROVISIONS
PAYMENT LIMITS
The initial Purchase Payment credited to each Participant's Account must be
at least $5,000 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.
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DESIGNATION AND CHANGE OF BENEFICIARY
The beneficiary designation contained in the Application will remain in
effect until changed. The interest of any Beneficiary is subject to the
particular Beneficiary surviving the Annuitant and, in the case of a Non-
Qualified Contract, the Participant as well.
Subject to the rights of an irrevocably designated Beneficiary, the
Participant may change or revoke the designation of a Beneficiary at any time
while the Annuitant is living by filing with the Company a written beneficiary
designation or revocation in such form as the Company may require. The change or
revocation will not be binding upon the Company until it is received by the
Company. When it is so received the change or revocation will be effective as of
the date on which the beneficiary designation or revocation was signed, but the
change or revocation will be without prejudice to the Company on account of any
payment made or any action taken by the Company prior to receiving the change or
revocation.
Reference should be made to the terms of a particular retirement plan and
any applicable legislation for any restrictions on the beneficiary designation.
EXERCISE OF CONTRACT RIGHTS
An Individual Contract shall belong to the individual Participant to whom
the Contract is issued. A Group Contract shall belong to the Owner. In the case
of a Group Contract, all Contract rights and privileges may be expressly
reserved by the Owner, failing which, each Participant shall be entitled to
exercise such rights and privileges. In any case, such rights and privileges can
be exercised without the consent of the Beneficiary (other than an irrevocably
designated Beneficiary) or any other person. Such rights and privileges may be
exercised only during the lifetime of the 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 Participants under a Group
Contract; or (5) as otherwise permitted from time to time by laws and
regulations governing the retirement or deferred compensation plans for which a
Qualified Contract may be issued. Subject to the foregoing, a Qualified Contract
may not be sold, assigned, transferred, discounted or pledged as collateral for
a loan or as security for the performance of an obligation or for any other
purpose to any person other than the Company.
The Owner of a Non-Qualified Contract may change the ownership of the
Contract during the lifetime of any Annuitant and prior to the last Annuity
Commencement Date; and each Participant, in like manner, may change the
ownership interest in a Contract. A change of ownership will not be binding upon
the Company until written notification is received by the Company. When such
notification is so received, the change will be effective as of the date on
which the request for change was signed by the Owner or Participant, as
appropriate, but the change will be without prejudice to the Company on account
of any payment made or any action taken by the Company prior to receiving the
change.
DEATH OF PARTICIPANT
If a Participant under a Non-Qualified Contract dies prior to the 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),
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the person named as Beneficiary shall be considered the designated beneficiary,
and if no person then living has been so named, then the Annuitant shall
automatically be the designated beneficiary. If the designated beneficiary is
the surviving spouse of the deceased Participant, the spouse can elect to
continue the Contract in the spouse's own name as Participant, in which case
these mandatory distribution requirements will apply on the spouse's death.
When the deceased Participant was also the Annuitant, the Death Benefit
provision of the Contract controls unless the deceased Participant's surviving
spouse is the designated beneficiary and elects to continue the Contract in the
spouse's own name as both Participant and Annuitant.
If the Payee dies on or after the Annuity Commencement Date and before the
entire accumulation under such Participant's 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
Contract 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 FUND SHARES
The Company will vote Fund shares held by the Sub-Accounts at meetings of
shareholders of the Funds, but will follow voting instructions received from
persons having the right to give voting instructions. Except in the case of a
Group Contract where the right to give voting instructions is reserved by the
Owner, the 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 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, as applicable.
Owners of Qualified Contracts issued on a group basis 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
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 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, as applicable, to instruct the
voting of Fund shares. Except as the Variable Account or the Company has actual
knowledge to the contrary, the instructions given by Owners under Group
Contracts and Payees will be valid as they affect the Variable Account, the
Company and any others having voting instruction rights with respect to the
Variable Account.
All Fund proxy material, together with an appropriate form to be used to
give voting instructions, will be provided to each person having the right to
give voting instructions at least ten days prior to each meeting of the
shareholders of a Fund. The number of 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 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
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particular Sub-Account credited to the Participant's Account by the net asset
value of one Fund share as of the same date. On or after the Annuity
Commencement Date, the number of 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
Fund share as of the same date. After the Annuity Commencement Date, the number
of Fund shares as to which a Payee is entitled to give voting instructions will
generally decrease due to the decrease in the reserve.
PERIODIC REPORTS
During the Accumulation Period the Company will send the Participant, or
such other person having voting rights, at least once during each Account Year,
a statement showing the number, type and value of Accumulation Units credited to
the Participant's Account and the Fixed Accumulation Value of such account,
which statement shall be accurate as of a date not more than two months previous
to the date of mailing. In addition, every person having voting rights will
receive such reports or prospectuses concerning the Variable Account and the
Funds 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 Funds may not always be available for purchase by the
Sub-Accounts of the Variable Account or the Company may decide that further
investment in any such shares is no longer appropriate in view of the purposes
of the Variable Account. In either event, shares of another registered open-end
investment company or unit investment trust may be substituted both for Fund
shares already purchased by the Variable Account and/or as the security to be
purchased in the future provided that these substitutions have been approved by
the Securities and Exchange Commission, if required by law. 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 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 Participant, in the case of an Individual Contract, and
the Owner and Participant(s), in the case of a Group Contract (or the Payee(s)
during the annuity period), the Contract may be modified by the Company if such
modification: (i) is necessary to make the Contract or the Variable Account
comply with any law or regulation issued by a governmental agency to which the
Company or the Variable Account is subject; or (ii) is necessary to assure
continued qualification of the Contract under the Internal Revenue Code or other
federal or state laws relating to retirement annuities or annuity contracts; or
(iii) is necessary to reflect a change in the operation of the Variable Account
or the Sub-Account(s) (See "Change in Operation of Variable Account"); or (iv)
provides additional Variable Account and/or fixed accumulation options. In the
event of any such modification, the Company may make appropriate endorsement in
the Contract to reflect such modification.
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In addition, upon notice to the Owner, a Group 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 writing. The notice shall specify the effective
date of such modification which must be at least 60 days following the date of
mailing of the notice of modification by the Company. All of the charges and the
annuity tables which are provided in the Group Contract prior to any such
modification will remain in effect permanently, unless improved by the Company,
with respect to 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 Group Contract. Such limitation or discontinuance shall
have no effect on rights or benefits with respect to any Participant's Accounts
established under such Group Contract 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 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 Fund shares at net asset value for the purpose of meeting
the contractual obligations of the Variable Account, paying charges relative to
the Variable Account or making adjustments for annuity reserves held in the
Variable Account.
RIGHT TO RETURN
If the Participant is not satisfied with the Contract 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 Contract it will be cancelled and the
Participant's Account Value at the end of the Valuation Period during which the
Contract was received by the Company will be refunded to the Participant.
However, if applicable state law so requires, the full amount of any Purchase
Payment(s) received by the Company will be refunded, the "free look" period may
be greater than ten days and alternative methods of returning the Contract may
be acceptable.
With respect to Individual Retirement Accounts, under the Code 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 the Code.
FEDERAL TAX STATUS
INTRODUCTION
The Contracts described in this Prospectus are designed for use by personal
retirement plans and employer, association and other group retirement plans
under the provisions of Sections 401 (including Section 401(k)), 403, 408(b),
408(c), 408(k) and 408(p) of the Internal Revenue Code (the "Code"), as well as
certain non-qualified retirement plans, such as payroll savings plans. The
ultimate effect of federal
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income taxes may depend upon the type of retirement plan for which the Contract
is purchased and a number of different factors. This discussion is general in
nature, is based upon the Company's understanding of current federal income tax
laws, and is not intended as tax advice. Congress has the power to enact
legislation affecting the tax treatment of annuity contracts, and such
legislation could be applied retroactively to Contracts purchased before the
date of enactment. Also, because the Internal Revenue Code, as amended, is not
in force in the Commonwealth of Puerto Rico, some references in this discussion
will not apply to Contracts issued in Puerto Rico. Any person contemplating the
purchase of a Contract should consult a qualified tax adviser. THE COMPANY DOES
NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS, FEDERAL, STATE OR LOCAL, OF ANY
CONTRACT OR CERTIFICATE OR ANY TRANSACTION INVOLVING THE CONTRACTS.
TAX TREATMENT OF THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under the Code. 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
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 following discussion applies both with respect to Individual Contracts
and Group Contracts. Because the Code is unclear in its application to a group
annuity contract where the Owner is distinct from the individuals who receive
the Contract benefits, the discussion as applied to the Group Contracts is the
Company's best understanding of the operation of the Code in the context of
group contracts. However, Owners and Participants should consult a qualified tax
adviser.
A partial cash withdrawal (that is, a withdrawal of less than the entire
Participant's Account Value) under a Non-Qualified Contract 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 Contract.
In the case of annuity payments under a Non-Qualified Contract after the
Annuity Commencement Date, a portion of each payment is treated as a nontaxable
return of Purchase Payments. The nontaxable portion is determined by applying to
each annuity payment an "exclusion ratio," which, in general, is the ratio that
the total amount the Participant paid for the Contract bears to the Payee's
expected return under the Contract. The remainder of the payment is taxable at
ordinary income rates.
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The total amount that a Payee may exclude from income through application of
the "exclusion ratio" is limited to the amount the Participant paid for the
Contract. If the Annuitant survives for his full life expectancy, so that the
Payee recovers the entire amount paid for the Contract, any subsequent annuity
payments will be fully taxable as income. Conversely, if the Annuitant dies
before the Payee recovers the entire amount paid, the Payee will be allowed a
deduction for the amount of unrecovered Purchase Payments.
Taxable cash withdrawals and lump-sum payments from Non-Qualified Contracts
may be subject to a penalty tax equal to 10% of the amount treated as taxable
income. This 10% penalty also may apply to certain annuity payments. This
penalty will not apply in certain circumstances (such as where the distribution
is made upon the death of the Participant). The withdrawal penalty also does not
apply to distributions under an immediate annuity (as defined above).
In the case of a Qualified Contract, distributions generally are taxable and
distributions made prior to age 59 1/2 are subject to a 10% penalty tax,
although this penalty tax will not apply in certain circumstances. Certain
distributions, known as "eligible rollover distributions," if rolled over to
certain other qualified retirement plans (either directly or after being
distributed to the Participant or Payee), are not taxable until distributed from
the plan to which they are rolled over. In general, an eligible rollover
distribution is any taxable distribution other than a distribution that is part
of a series of payments made for life or for a specified period of ten years or
more. Owners, Participants, Annuitants, Payees and Beneficiaries should seek
qualified advice about the tax consequences of distributions, withdrawals,
rollovers and payments under the retirement plans in connection with which the
Contracts are purchased.
If the Participant under a Non-Qualified Contract dies, the value of the
Contract generally must be distributed within a specified period (See "Other
Contractual Provisions -- Death of Participant"). For contracts owned by
non-natural persons, a change in the Annuitant is treated as the death of the
Participant.
A purchaser of a Qualified Contract should refer to the terms of the
applicable retirement plan and consult a tax adviser regarding distribution
requirements upon the death of the Participant.
A transfer of a Non-Qualified Contract by gift (other than to the
Participant's spouse) is treated as the receipt by the Participant of income in
an amount equal to the Participant's Account Value minus the total amount paid
for the Contract.
The Company will withhold and remit to the U.S. government a part of the
taxable portion of each distribution made under a Non-Qualified Contract or
under a Qualified Contract issued for use with an individual retirement account
unless the Participant or Payee provides his or her taxpayer identification
number to the Company and notifies the Company (in the manner prescribed) before
the time of the distribution that he or she chooses not to have any amounts
withheld.
In the case of distributions from a Qualified Contract (other than
distributions from a Contract issued for use with an individual retirement
account), the Company or the plan administrator must withhold and remit to the
U.S. government 20% of each distribution that is an eligible rollover
distribution (as defined above) unless the Participant or Payee elects to make a
direct rollover of the distribution to another qualified retirement plan that is
eligible to receive the rollover. If a distribution from a Qualified Contract is
not an eligible rollover distribution, then the Participant or Payee can choose
not to have amounts withheld as described above for Non-Qualified Contracts and
Qualified Contracts issued for use with individual retirement accounts.
Amounts withheld from any distribution may be credited against the
Participant's or Payee's federal income tax liability for the year of the
distribution.
The 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 the Funds comply 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
34
<PAGE>
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 and/or the Variable Account) necessary to comply
with the guidelines.
THE FOLLOWING INFORMATION SHOULD BE CONSIDERED ONLY WHEN AN IMMEDIATE
ANNUITY CONTRACT AND A DEFERRED ANNUITY CONTRACT ARE PURCHASED TOGETHER: The
Company understands that the Treasury Department is in the process of
reconsidering the tax treatment of annuity payments under an immediate annuity
contract (as defined above) purchased together with a deferred annuity contract.
The Company believes that any adverse change in the existing tax treatment of
such immediate annuity contracts is likely to be prospective, that is, it would
not apply to contracts issued before such a change is announced. However, there
can be no assurance that any such change, if adopted, would not be applied
retroactively.
QUALIFIED RETIREMENT PLANS
The Qualified Contracts described in this Prospectus are designed for use
with several types of qualified retirement plans. The tax rules applicable to
participants in such qualified retirement plans vary according to the type of
plan and its terms and conditions. Therefore, no attempt is made herein to
provide more than general information about the use of the Qualified Contracts
with the various types of qualified retirement plans. Participants under such
plans as well as Owners, Annuitants, Payees and Beneficiaries are cautioned that
the rights of any person to any benefits under these plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Qualified Contracts issued in connection therewith. Any person
contemplating the purchase of a Qualified Contract should consult a qualified
tax adviser. In addition, Owners, Participants, Payees, Beneficiaries and
administrators of qualified retirement plans should consider and consult their
tax adviser concerning whether the Death Benefit payable under the Contract
affects the qualified status of their retirement plan. Following are brief
descriptions of various types of qualified retirement plans and the use of the
Qualified Contracts in connection therewith.
PENSION AND PROFIT-SHARING PLANS
Sections 401(a), 401(k) and 403(a) of the Code permit business employers and
certain associations to establish various types of retirement plans for
employees. The Tax Equity and Fiscal Responsibility Act of 1982 eliminated most
differences between qualified retirement plans of corporations and those of
self-employed individuals. The Contract may be purchased by those who would have
been covered under the rules governing old H.R. 10 (Keogh) Plans as well as by
corporate plans. Such retirement plans may permit the purchase of the Qualified
Contracts to provide benefits under the plans. Employers intending to use the
Qualified Contracts in connection with such plans should seek qualified advice
in connection therewith.
TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees of
certain types of charitable, educational and scientific organizations specified
in Section 501(c) (3) of the Code to purchase annuity contracts and, subject to
certain limitations, exclude the amount of purchase payments from gross income
for tax purposes. These annuity contracts are commonly referred to as
"Tax-Sheltered Annuities." Purchasers of the Qualified Contracts for such
purposes should seek qualified advice as to eligibility, limitations on
permissible amounts of Purchase Payments and tax consequences of distributions
(See "Section 403(b) Annuities").
INDIVIDUAL RETIREMENT ACCOUNTS
Sections 219 and 408 of the Code permit eligible individuals to contribute
to an individual retirement program, including Simplified Employee Pension
Plans, Employer/Association of Employees Established Individual Retirement
Account Trusts, and Simple Retirement Accounts, known as an Individual
Retirement Account ("IRA"). These 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
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<PAGE>
Service. Purchasers of the Contracts for such purposes will be provided with
such supplementary information as may be required by the Internal Revenue
Service or other appropriate agency, and will have the right to revoke the
Contract under certain circumstances as described in the section of this
Prospectus entitled "Right to Return Contract."
ADMINISTRATION OF THE CONTRACTS
The Company performs certain administrative functions relating to the
Contracts, the Participant's Accounts, and the Variable Account. These functions
include, 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 wholly-owned subsidiary of the Company. Clarendon is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as broker-dealer and is a member of the National
Association of Securities Dealers, Inc. Clarendon also acts as the general
distributor of certain other annuity contracts issued by the Company and its
wholly-owned subsidiary, Sun Life Insurance and Annuity Company of New York, and
variable life insurance contracts issued by the Company. Commissions and other
distribution compensation will be paid by the Company and will not be more than
% 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 % 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 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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<PAGE>
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 .
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(IN 000'S)
Revenues
Premiums, annuity deposits and
other revenue................. $ 2,131,939 $ 1,883,901 $ 1,997,525 $ 2,443,310 $ 1,339,282
Net investment income and
realized gains (losses)....... 312,870 315,966 312,583 311,322 292,746
-------------- -------------- -------------- -------------- --------------
2,444,809 2,199,867 2,310,108 2,754,632 1,632,028
-------------- -------------- -------------- -------------- --------------
Benefits and expenses
Policyholder benefits 2,149,145 1,995,208 2,102,290 2,515,320 1,426,756
Other expenses 175,342 150,937 186,892 232,365 229,004
-------------- -------------- -------------- -------------- --------------
2,324,487 2,146,145 2,289,182 2,747,685 1,655,760
-------------- -------------- -------------- -------------- --------------
Operating gain (loss) 120,322 53,722 20,926 6,947 (23,732)
Federal income tax expense
(benefit) (2,702) 17,807 19,469 3,691 (15,360)
-------------- -------------- -------------- -------------- --------------
Net income (loss) $ 123,024 $ 35,915 $ 1,457 $ 3,256 $ (8,372)
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Assets $ 13,759,005 $ 12,359,683 $ 10,117,822 $ 9,179,090 $ 7,474,407
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Surplus notes $ 315,000 $ 650,000 $ 335,000 $ 335,000 $ 265,000
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See Note 1 to financial statements for the effect of the reinsurance agreements
on net income.
See Note 1 to financial statements for changes in accounting principles and
reporting.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
FINANCIAL CONDITION
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, 1996, 5.0% 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 $837,435 at December 31,
1996.
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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<PAGE>
adjusted for depreciation (book value) are reported at market value. During
1996, the change in the difference between the market value and book value for
properties reported at market value was $4,624,000.
Significant attention has been given to insurance companies' exposure to
mortgage loans secured by real estate. The Company had a mortgage portfolio of
$938,932,000 at December 31, 1996, representing 26.9% of cash and invested
assets. At December 31, 1995, mortgage loans represented 26.5% 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, 1996, 0.45% 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 2.51%. The expense in the
year for the provision for losses and for losses on foreclosures was $2,767,000.
During 1996, the Company purchased three limited partnership investments for
an aggregate total of $12,285,000 that were formed to own and operate apartment
complexes which qualify for low income tax credits. The credits are taken
annually over a ten year period, but are fully vested at the end of a fifteen
year compliance period. The Company also committed to an additional limited
partnership interest for $10,180,000 in 1995. These investments are classified
as other invested assets in the balance sheet.
In the normal course of business, the Company makes commitments to purchase
investments at a future date. As of December 31, 1996 the Company had
outstanding mortgage commitments of $9,800,000 which will be funded during 1997.
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 $567,143,000 at December
31, 1996. 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 Massachusetts Casualty Insurance Company, 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
1996 COMPARED TO 1995
Net income from operations after dividends and before federal income taxes
increased by $61.1 million for the year ending December 31, 1996 as compared to
December 31, 1995. Net income associated with the reinsurance agreements with
the parent increased by $23.9 million in 1996. The net income improvement in the
reinsured business results from improved mortality experience, improved
investment performance and fewer significant death claims in 1996 as compared to
1995. Prior to reinsurance, earnings from the life line of business remained
relatively flat. The remaining $37.2 million increase is attributable to the
Company's retirement products and services line of business, which markets
combination fixed/variable annuities and group pension guaranteed investment
contracts. The decline in interest rates during 1995 resulted in the split of
these combination fixed/variable annuity sales to change from 45% fixed and 55%
variable in 1995 to 25% fixed and 75% variable in 1996. In addition, total gross
sales increased by $235.9 million in 1996 as compared to 1995. The declining
interest rate environment and strong market performance in 1995 resulted in
unrealized gains on assets held in the separate accounts, which generated a
substantial increase in fees calculated as a percentage of the separate account
net assets, which are then transferred to the general account. The declining
interest rates also resulted in increases in reserves due to the increase in the
market value adjustment provision of certain fixed annuities. The resultant
reserve increases were in excess of the unrealized gains causing strain on the
1995 earnings. In 1996, interest rates increased, resulting in a reduction in
the unrealized gains on assets held in the separate accounts and a
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<PAGE>
corresponding reduction in reserves and a release of some of the reserve strain
incurred in 1995. The earnings on these market value adjusted products fluctuate
as the change in the market value of the assets do not move in tandem with the
change in the market value of the liabilities.
Total income increased by $239.4 million for the year ended December 31,
1996 as compared to December 31, 1995. Sales of combination fixed/variable
annuities (net of annuitizations) increased by $282.7 million primarily due to
an increase in variable sales held in the separate accounts. This increase in
variable sales was driven by strong performance in the stock market. Reinsurance
had the effect of increasing income by approximately $9.4 million. Premiums and
annuity considerations increased by $8.2 million reflecting increased
annuitizations. Considerations from supplementary contracts increased by $1.2
million. Sales of group pension guaranteed investment contracts decreased by $53
million as this market remains highly competitive and sensitive to small changes
in guaranteed interest rates. Net investment income decreased by $9.1 million,
reflecting a decrease in the general account invested assets.
Benefits and expenses increased by $178.3 million for the year ended
December 31, 1996 as compared to December 31, 1995. Reinsurance had the effect
of decreasing benefits and expenses by $14.5 million. Deaths, annuity payments
and surrender benefits and other funds withdrawals increased by $438.9 million
as a result of increased surrenders of fixed annuities for which interest rate
guarantee periods have expired as well as withdrawals from the separate
accounts. Policy reserves increased by $9.4 million, reflecting increased
annuitizations and increased reserves for minimum death benefit guarantees. The
decrease in liability for premium and other deposit funds of $405.9 million
reflects lower interest rates and higher surrenders of contracts described
above. Commissions increased by $21.8 million, reflecting the increase in total
sales of combination fixed/variable annuities. General expenses increased by
$2.6 million reflecting an increase in salaries due to staff increases and
retainer fees. Transfers to separate accounts increased by $126.8 million,
reflecting increased exchange activity out of the general account into the
separate accounts.
1995 COMPARED TO 1994
Net income from operations after dividends and before federal income taxes
increased by $23.7 million for the year ending December 31, 1995 as compared to
December 31, 1994. Reinsurance agreements with the parent had the effect of
increasing net income by $40.9 million from a loss of $9.6 million in 1994 to a
gain of $31.3 million 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 new contracts were assumed by the Company
beginning in 1994. The remaining decrease in net income from operations of $17.2
million is attributable to the Company's retirement products and services line
of business, which markets combination fixed/variable annuities and group
pension guaranteed investment contracts. The declining interest rate environment
in 1995 resulted in unrealized gains on assets held in the separate accounts,
which generated a substantial increase in fees calculated as a percentage of the
separate account net assets, which are then transferred to the general account.
The declining interest rates also resulted in increases in reserves due to the
increase in the market value adjustment provision. The resultant reserve
increases were in excess of the unrealized gains causing strain on the 1995
earnings. The earnings on these market value adjusted products fluctuate as the
change in the market value of the assets do not move in tandem with the change
in the market value of the liabilities.
Total income decreased by $119.2 million for the year ended December 31,
1995 as compared to December 31, 1994. Reinsurance had the effect of decreasing
income by approximately $4.3 million. Premiums and annuity considerations
decreased by $5.5 million, reflecting decreased group pension lottery sales of
$22.1 million partially offset by increased annuitizations. Considerations from
supplementary contracts decreased by $1.8 million. Sales of combination
fixed/variable (net of annuitizations) decreased by $151.3 million, reflecting
the decline in the interest rate environment during 1995. Sales of group pension
guaranteed investment contracts increased by $49.2 million reflecting the
transfer of the parents' agent's pension fund from the parent to the Company.
Net investment income and amortization of the interest maintenance reserve
decreased by $5.6 million, primarily due to capital losses incurred late in
1994, which were then amortized through the interest maintenance reserve during
1995.
39
<PAGE>
Benefits and expenses decreased by $143 million for the year ended December
31, 1994. Reinsurance had the effect of decreasing benefits and expenses by
$45.2 million. Deaths, annuity payments and surrender benefits and other fund
withdrawals increased by $106.5 million as a result of increased surrenders of
fixed annuities for which interest rate guarantee periods have expired, as well
as withdrawals from the separate accounts. Policy reserves decreased by $16.7
million primarily resulting from increased reserves for minimum death benefit
guarantees. The increase in liability for premium and other deposit funds of
$83.1 million reflects fewer maturities of contracts for which the guarantee
periods have expired, and increased sales of group pension guaranteed investment
contracts described above. Commissions decreased by $5.5 million, reflecting the
decrease in total sales of combination fixed/variable annuities. General
expenses increased by $3.3 million, reflecting increased expenses allocated from
the parent and increased salaries due to staffing. Transfers to separate
accounts decreased by $268.8 million, reflecting less exchange activity out of
the separate accounts into the general account and fewer variable annuity sales
transferred to the separate accounts.
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 previously 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 1996 had the effect of decreasing net income from operations
by $1,603,000.
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. These agreements had the effect of
increasing income from operations by approximately $35,161,000 for the year
ended December 31, 1996.
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
40
<PAGE>
reserves compounded annually at certain assumed rates, will be sufficient to
meet the Company's policy obligations at their maturities or in the event of an
insured's death. In the accompanying Financial Statements these reserves are
determined in accordance with statutory regulations.
INVESTMENTS
Of the Company's total assets of $13.8 billion at December 31, 1996, 65.6%
consisted of unitized and non-unitized separate account assets, 16.4% were
invested in bonds and similar securities, 6.8% in mortgages, 1.0% in
subsidiaries, 0.7% in real estate, and the remaining 9.5% in cash and other
assets.
COMPETITION
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other entities
marketing insurance products. According to the most recent Best's Review,
Life-Health Edition, as of December 31, 1995 the Company ranked 39th among all
life insurance companies in the United States based upon total assets. Its
parent company, Sun Life Assurance Company of Canada, ranked 18th. Best's
Insurance Reports, Life-Health Edition, 1996, assigned the Company and the
parent company its highest classification, A++, as of December 31, 1995.
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, 1996 the Company had 269 direct
employees who are employed at its Principal Executive Office in Wellesley Hills,
Massachusetts and its Retirement Products & Services Division 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, 63, 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; 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.
- ------------------------
* Year Elected Director
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<PAGE>
DONALD A. STEWART, 51, President and Director (1996*)
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.
DAVID D. HORN, 56, 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 a Director of Sun Life of Canada
(U.S.) Distributors, Inc.; President and Director of Sun Life of Canada (U.S.)
Holdings, Inc.; Senior Vice President and a Director of Sun Life Insurance and
Annuity Company of New York; 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. and 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, 66, 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, 62, Director (1991*)
150 King Street West
Toronto, Ontario, Canada M5H 1J9
He is Senior Vice President, Investments of Sun Life Assurance Company of
Canada; and a Director of Sun Life of Canada (U.S.) Distributors, Inc., Sun
Capital Advisers, Inc. and Sun Life Insurance and Annuity Company of New York.
RICHARD B. BAILEY, 71, Director (1983*)
500 Boylston Street
Boston, Massachusetts 02116
He is a Director of Sun Life Insurance and Annuity Company of New York and a
Director/Trustee of certain Funds in the MFS Family of Funds. Prior to October
1, 1991, he was Chairman and a Director of Massachusetts Financial Services
Company.
A. KEITH BRODKIN, 62, 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.
- ------------------------
* Year Elected Director
42
<PAGE>
M. COLYER CRUM, 65, Director (1986*)
104 West Cliff Street
Weston, MA 02193
He is Professor Emeritus of the Harvard Business School; and a Director of
Sun Life Assurance Company of Canada, Sun Life Insurance and Annuity Company of
New York, Merrill Lynch Ready Assets Trust, Merrill Lynch Basic Value Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch Capital Fund, Inc.,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Natural Resources Trust,
Merrill Lynch U.S. Treasury Money Fund, MuniVest California Insured Fund, Inc.,
MuniVest Florida Fund, Inc., MuniVest Michigan Insured Fund, Inc., MuniVest New
Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniYield Florida
Insured Fund, MuniYield Insured Fund II, Inc., MuniYield Michigan Insured Fund,
Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund
III, Inc. and MuniYield Pennsylvania Fund. Prior to July, 1996, he was a
Professor at the Harvard Business School.
S. CAESAR RABOY, 61, Senior Vice President and Deputy General Manager and
Director (1996*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He is Senior Vice President and Deputy General Manager for the United States
of Sun Life Assurance Company of Canada; Senior Vice President and a Director of
Sun Life Insurance and Annuity Company of New York; and Vice President and a
Director of Sun Life Financial Services Limited and Sun Life of Canada (U.S.)
Distributors, Inc.
ROBERT A. BONNER, 53, Vice President, Pensions (1986)
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.
C. JAMES PRIEUR, 46, 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, Massachusetts Casualty Insurance 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., and Sun
Life of Canada (U.S.) Holdings, Inc.
L. BROCK THOMSON, 56, 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.
ROBERT P. VROLYK, 44, 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 Sun Life of Canada (U.S.) Holdings, Inc.; and Vice President and a
Director of Sun Canada Financial Co.
- ------------------------
* Year Elected Director
43
<PAGE>
MARGARET SEARS MEAD, 47, Assistant Vice President and Secretary (1996)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
She is Assistant Vice President and Counsel for the United States of Sun
Life Assurance Company of Canada; and Assistant Vice President and Secretary of
Sun Life Insurance and Annuity Company of New York and Secretary of Sun Life of
Canada (U.S.) Holdings, Inc.
The directors, officers and employees of the Company are covered under a
commercial blanket bond and a liability policy. The directors, officers and
employees of Massachusetts Financial Services Company and Clarendon Insurance
Agency, Inc. are covered under a fidelity bond and errors and omissions policy.
EXECUTIVE COMPENSATION
All of the executive officers of the Company also serve as officers of Sun
Life Assurance Company of Canada and receive no compensation directly from the
Company. Allocations have been made as to such officers' time devoted to duties
as executive officers of the Company and its subsidiaries. The allocated cash
compensation of all executive officers of the Company as a group for services
rendered in all capacities to the Company and its subsidiaries during 1996
totalled $936,945.
Directors of the Company who are also officers of Sun Life Assurance Company
of Canada or its affiliates receive no compensation in addition to their
compensation as officers of Sun Life Assurance Company of Canada or its
affiliates. Messrs. Bailey, Crum 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 of Canada (U.S.) Holdings,
Inc., One Sun Life Executive Park, Wellesley Hills, Massachusetts 02181.
STATE REGULATION
The Company is subject to the laws of the State of Delaware governing life
insurance companies and to regulation by the Commissioner of Insurance of
Delaware. An annual statement is filed with the Commissioner of Insurance on or
before March 1st in each year relating to the operations of the Company for the
preceding year and its financial condition on December 31st of such year. Its
books and records are subject to review or examination by the Commissioner or
his agents at any time and a full examination of its operations is conducted at
periodic intervals.
The Company is also subject to the insurance laws and regulations of the
other states and jurisdictions in which it is licensed to operate. The laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers with respect to licensing to transact business, overseeing
trade practices, licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. Each insurance company is required to file detailed
annual reports with supervisory agencies in each of the jurisdictions in which
it does business and its operations and accounts are subject to examination by
such agencies at regular intervals.
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.
44
<PAGE>
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.
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 [enter name
and title] for 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 Company for the years ended December 31,
1996, 1995 and 1994 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
REGISTRATION STATEMENTS
Registration statements have been filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 as amended, with
respect to the Contracts offered by this Prospectus. This Prospectus does not
contain all the information set forth in the registration statements and the
exhibits filed as part of the registration statements, to all of which reference
is hereby made for further information concerning the Variable Account, the
Fixed Account, the Company, the Funds and the Contracts. Statements found in
this Prospectus as to the terms of the Contracts and other legal instruments are
summaries, and reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this
Prospectus should be considered only as bearing on the ability of the Company to
meet its obligations with respect to amounts allocated to the Fixed Account and
with respect to the death benefit and the Company's assumption of the mortality
and expense risks. They should not be considered as bearing on the investment
performance of the Fund shares held in the Sub-Accounts of the Variable Account.
The Variable Account value of the interests of Owners, Participants, Annuitants,
Payees and Beneficiaries, as applicable, under the Contracts is affected
primarily by the investment results of the Funds. The financial statements of
the Variable Account reflect units outstanding and expenses incurred under the
Contracts and other contracts participating in the Variable Account which impose
certain contract charges that are different from those imposed under the
Contracts.
-------------------
45
<PAGE>
[Financial Statements of Sun Life of Canada (U.S.) Variable Account F will be
provided by amendment.]
46
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
(IN 000'S)
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 2,258,858 $ 2,706,067
Preferred stock 0 1,149
Mortgage loans 938,932 1,066,911
Investments in subsidiaries 144,043 138,282
Real estate 100,385 95,574
Other invested assets 51,378 38,387
Policy loans 40,554 38,355
Cash 1,305 (20,280)
Investment income due and accrued 68,190 62,719
Funds withheld on reinsurance assumed 878,798 741,091
Due from separate accounts 220,999 148,675
Other assets 27,509 26,349
-------------- --------------
General account assets 4,730,951 5,043,279
Unitized separate account assets 6,919,219 5,275,808
Non-unitized separate account assets 2,108,835 2,040,596
-------------- --------------
Total Assets $ 13,759,005 $ 12,359,683
-------------- --------------
-------------- --------------
LIABILITIES
Policy reserves $ 2,099,980 $ 1,937,302
Annuity and other deposits 1,898,309 2,290,656
Policy benefits in process of payment 2,677 5,884
Accrued expenses and taxes 57,719 44,114
Other liabilities 63,987 36,080
Due to (from) parent and affiliates--net (41,326) (130,502)
Interest maintenance reserve 28,676 25,218
Asset valuation reserve 53,911 42,099
-------------- --------------
General account liabilities 4,163,933 4,250,851
Unitized separate account liabilities 6,919,094 5,275,784
Non-unitized separate account liabilities 2,108,835 2,040,596
-------------- --------------
13,191,862 11,567,231
-------------- --------------
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 561,243 786,552
-------------- --------------
Total capital stock and surplus 567,143 792,452
-------------- --------------
Total Liabilities, Capital Stock and Surplus $ 13,759,005 $ 12,359,683
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
47
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATUTORY STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(IN 000'S)
Premiums and annuity considerations $ 282,466 $ 279,407 $ 316,008
Deposit-type funds 1,775,230 1,545,542 1,647,623
Considerations for supplementary
contracts without life contingencies
and dividend accumulations 2,340 1,088 2,906
Net investment income 303,753 312,872 315,433
Amortization of interest maintenance
reserve 1,557 1,025 4,128
Miscellaneous income 71,903 57,864 30,988
---------- ---------- ----------
Total 2,437,249 2,197,798 2,317,086
---------- ---------- ----------
Death benefits 12,394 15,317 4,836
Annuity benefits 146,654 140,497 135,256
Surrender benefits and other fund
withdrawals 1,507,263 1,074,396 965,186
Interest on policy or contract funds 2,205 739 572
Payments on supplementary contracts
without life contingencies and of
dividend accumulations 2,120 1,888 2,334
Increase in aggregate reserves for life
and accident and health policies and
contracts 162,678 171,975 219,334
Increase in liability for premium and
other deposit funds (392,348) 13,553 (69,541)
Increase in reserve for supplementary
contracts without life contingencies
and for dividend and coupon
accumulations 327 (663) 714
---------- ---------- ----------
Total 1,441,293 1,417,702 1,258,691
Commissions on premiums and annuity
considerations (direct business only) 109,894 88,037 93,576
Commissions and expense allowances on
reinsurance assumed 18,910 22,012 59,085
General insurance expenses 37,206 34,580 31,243
Insurance taxes, licenses and fees,
excluding federal income taxes 8,431 7,685 5,638
Increase in loading on and cost of
collection in excess of loading on
deferred and uncollected premiums 901 (1,377) (2,650)
Net transfers to Separate Account 678,663 551,784 820,671
---------- ---------- ----------
Total 2,295,298 2,120,423 2,266,254
---------- ---------- ----------
Net gain from operations before
dividends to policyholders and federal
income tax 141,951 77,375 50,832
Dividends to policyholders 29,189 25,722 22,928
---------- ---------- ----------
Net gain from operations after dividends
to policyholders and before federal
income tax 112,762 51,653 27,904
Federal income taxes incurred (excluding
tax on capital gains) (2,702) 17,807 19,469
---------- ---------- ----------
Net gain from operations after dividends
to policyholders and federal income tax
and before realized capital gains or
(losses) 115,464 33,846 8,435
Net realized capital gains or (losses)
less capital gains tax and transferred
to the interest maintenance reserve 7,560 2,069 (6,978)
---------- ---------- ----------
NET INCOME $ 123,024 $ 35,915 $ 1,457
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
48
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(IN 000'S)
CAPITAL AND SURPLUS, BEGINNING OF YEAR $ 792,452 $ 455,489 $ 483,188
---------- ---------- ----------
Net income 123,024 35,915 1,457
Change in net unrealized capital gains or (losses) (1,715) 2,009 (671)
Change in non-admitted assets and related items 67 (2,270) (1,485)
Change in asset valuation reserve (11,812) (13,690) (8,376)
Other changes in surplus in Separate Accounts Statement 100 (4,038) (227)
Increase (decrease) in surplus notes (335,000) 315,000 0
Miscellaneous gains and losses in surplus 27 4,037 (18,397)
---------- ---------- ----------
Net change in capital and surplus for the year (225,309) 336,963 (27,699)
---------- ---------- ----------
Capital and surplus, end of year $ 567,143 $ 792,452 $ 455,489
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
49
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATUTORY STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
(IN 000'S)
Cash Provided
Premiums, annuity considerations and
deposit funds received $ 2,059,577 $ 1,826,456 $ 2,287,695
Considerations for supplementary
contracts and dividend accumulations
received 2,340 1,088 2,906
Net investment income received 324,914 374,398 351,058
Other income received 88,295 25,348 30,989
----------- ----------- -----------
Total receipts 2,475,126 2,227,290 2,672,648
----------- ----------- -----------
Benefits paid (other than dividends) 1,671,483 1,231,936 1,326,223
Insurance expenses and taxes paid
(other than federal income and
capital gains taxes) 172,015 150,463 187,699
Net cash transfers to Separate Accounts 755,605 568,188 963,127
Dividends paid to policyholders 22,689 17,722 13,303
Federal income tax (recoveries)
payments (excluding tax on capital
gains) (15,363) (20,655) 2,976
Other--net 2,205 739 572
----------- ----------- -----------
Total payments 2,608,634 1,948,393 2,493,900
----------- ----------- -----------
Net cash from operations (133,508) 278,897 178,748
----------- ----------- -----------
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains of
$1,554,873 for 1996, $8,610,951 for
1995 and $19,271,876 for 1994) 1,768,147 1,658,655 1,508,156
Issuance (repayment) of surplus notes (335,000) 315,000
Other cash provided 147,956 419,446 26,512
----------- ----------- -----------
Total cash provided 1,581,103 2,393,101 1,534,668
----------- ----------- -----------
Cash Applied
Cost of long-term investments acquired 1,318,880 1,749,714 1,442,155
Other cash applied 235,982 796,207 264,233
----------- ----------- -----------
Total cash applied 1,554,862 2,545,921 1,706,388
----------- ----------- -----------
Net change in cash and short-term
investments (107,267) 126,077 7,028
Cash and short-term investments:
Beginning of year 197,326 71,249 64,221
----------- ----------- -----------
End of year $ 90,059 $ 197,326 $ 71,249
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
50
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Sun Life Assurance Company of Canada (U.S.) (the "Company") is incorporated as a
life insurance company and is currently engaged in the sale of individual 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. Prescribed accounting
practices include practices described in a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles for mutual life insurance companies and stock life insurance
companies wholly owned by mutual life insurance companies. In April 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation"), that became effective in 1996, that has changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly-owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with generally accepted accounting principles
("GAAP"). Consequently, these financial statements prepared in conformity with
statutory accounting practices as described above, vary from and are not
intended to present the Company's financial position and results of operations
and capital in conformity with generally accepted accounting principles. (See
Note 19 for further discussion relative to the Company's basis of financial
statement presentation.) The effects on the financial statements of the
variances between the statutory basis of accounting and GAAP, although not
reasonably determinable, are presumed to be material.
INVESTED ASSETS AND RELATED RESERVES
Bonds are carried at cost adjusted for amortization of premium or accrual of
discount. Investments in non-insurance subsidiaries are carried on the equity
basis. Investments in insurance subsidiaries are carried at their statutory
surplus values. Mortgage loans acquired at a premium or discount are carried at
amortized values and other mortgage loans at the amounts of the unpaid balances.
Real estate investments are carried at the lower of cost adjusted for
accumulated depreciation or appraised value, less encumbrances. Short-term
investments are carried at amortized cost, which approximates fair value.
Depreciation of buildings and improvements is calculated using the straight-line
method over the estimated useful life of the property, generally 40 to 50 years.
POLICY AND CONTRACT RESERVES
The reserves for life insurance and annuity contracts, developed by accepted
actuarial methods, have been established and maintained on the basis of
published mortality tables using assumed interest rates and valuation methods
that will provide reserves at least as great as those required by law and
contract provisions.
51
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
INCOME AND EXPENSES
For life and annuity contracts, premiums are recognized as revenues over the
premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
SEPARATE ACCOUNTS
The Company has established unitized separate accounts applicable to various
classes of contracts providing for variable benefits. Contracts for which funds
are invested in separate accounts include variable life insurance and individual
and group qualified and non-qualified variable annuity contracts.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders are shown as separate captions in the financial statements.
Assets held in the separate accounts are carried at market values.
The Company has also established a non-unitized separate account for amounts
allocated to the fixed portion of certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Gains (losses) from mortality experience and investment experience, not
applicable to contract owners, are transferred to (from) the general account.
Accumulated gains (losses) that have not been transferred are recorded as a
payable (receivable) to (from) the general account. Amounts payable to the
general account of the Company were $220,999,000 in 1996 and $148,675,000 in
1995.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
During 1996, the Company changed its method of accounting and reporting for
deposits, withdrawals, and benefits with respect to unitized separate accounts.
Previously, deposits were recorded as direct increases in liabilities of the
separate accounts while withdrawals and benefits were recorded as direct
decreases in that liability. Effective for 1996, the Company recorded: deposits
as revenue in the general account; withdrawals and benefits as expenses in the
general account; and the transfer of those funds between the general account and
the separate account are reflected as an expense (income) item. Amounts
presented for the years ended December 31, 1995 and 1994 have been restated to
conform to this presentation. The effect of this change was to increase revenues
and expenses by $1.4 billion in 1996, $878 million in 1995, and $988 million in
1994; there is no impact on net income of the general account. This new method
of reporting is consistent with the accounting treatment for deposits and
withdrawals and benefits of the non-unitized separate account of the Company,
and is consistent with prescribed statutory accounting practices.
Prior to 1996, dividends paid to the Company by its subsidiaries and the
undistributed gains (losses) of those subsidiaries were included in net income
of the Company. For Annual Statement reporting, dividends were (and continue to
be) reported in net income while undistributed gains (losses) are reported
directly to surplus (as a separate component of unassigned surplus). As a
result, net income as reported in these financial statements is $2.5 million
less than net income reported in the Annual Statement in 1995 and $1.4 million
greater than the Annual Statement in 1994. Effective for 1996, the Company
changed its method of accounting for investments in subsidiaries to conform with
the prescribed statutory accounting practices used in the preparation of its
Annual Statement. As a result of the change, $5.7 million in undistributed
losses of subsidiaries are reported directly as a separate component of
unassigned surplus rather than being included in net income for the year ended
December 31, 1996. The amounts as reported in prior years have not been
restated.
52
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
The Company has also revised the form of its statutory statements of operations,
changes in capital stock and surplus, and cash flow in order to match more
exactly the presentation used in the preparation of its Annual Statement. As a
result, reclassifications have been made in the amounts reported in 1995 and
1994 audited financial statements to conform to the presentation used for the
1996 amounts. Other than as described in the preceding paragraph, none of the
changes have impacted net income or statutory surplus as reported in the 1995
and 1994 audited financial statements.
OTHER
Preparation of the financial statements requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
2. INVESTMENTS IN SUBSIDIARIES:
The Company owns all of the outstanding shares of Sun Life Insurance and Annuity
Company of New York (Sun Life (N.Y.)), Massachusetts Casualty Insurance Company
(MCIC), Sun Investment Services Company (Sunesco), New London Trust, F.S.B.
(NLT), Sun Life Financial Services Limited, Inc. (SLFSL), Sun Benefit Services
Company, Inc. (Sunbesco), Sun Capital Advisers, Inc. (Sun Capital), and Sun Life
Finance Corporation (Sunfinco).
The Company owns 94.8% of the outstanding shares of Massachusetts Financial
Services Company (MFS). The Company previously owned 100% of the shares. During
1996, MFS issued additional shares to officers of MFS, thereby reducing the
Company's ownership to 94.8%.
Sun Life (N.Y.) is engaged in the sale of individual fixed and variable annuity
contracts and group life and disability insurance contracts in the State of New
York. MCIC is a life insurance company which issues only individual disability
income policies. Sunesco is a registered investment adviser and broker-dealer.
NLT is a federally chartered savings bank. SLFSL serves as the marketing
administrator for the distribution of the Parent company's offshore products.
Sun Capital, a registered investment adviser, Sunfinco, and Sunbesco are
currently inactive.
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, through a subsidiary, provides investment
advice to substantial private clients.
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.
On December 31, 1996, the Company issued to the parent a $58,000,000 note which
is scheduled for repayment on February 15, 1997 at an interest rate of 5.70%.
Also on December 31, 1996, the Company was issued a $58,000,000 note by MFS at
an interest rate of 5.76% due on demand on or after March 1, 1997. On December
31, 1996 and 1995 the Company had an additional $20,000,000 in notes issued by
MFS, scheduled to mature in 2000. All of these notes are reported as due from
parent and affiliates.
During 1996, 1995 and 1994, the Company contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------ ------------
<S> <C> <C> <C>
MCIC $ 10,000,000 $ 6,000,000 $ 6,000,000
SLFSL 1,500,000 0 0
</TABLE>
53
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1996, 1995 and 1994 and for the years then ended, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN 000'S)
<S> <C> <C> <C>
Intangible assets $ 9,646 $ 12,174 $ 13,485
Other assets 1,376,014 1,233,372 1,165,595
Liabilities (1,241,617) (1,107,264) (1,044,273)
------------ ------------ ------------
Total net assets $ 144,043 $ 138,282 $ 134,807
------------ ------------ ------------
------------ ------------ ------------
Total revenues $ 717,280 $ 570,794 $ 495,097
Operating expenses (624,199) (504,070) (425,891)
Income tax expense (42,820) (31,193) (29,374)
------------ ------------ ------------
Net income $ 50,261 $ 35,531 $ 39,832
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
3. BONDS:
The amortized cost and estimated fair value of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
(IN 000'S)
Long-term Bonds:
United States government and government agencies and
authorities $ 267,756 $ 12,272 $ (8,927) $ 271,101
States, provinces and political subdivisions 2,253 20 (0) 2,273
Foreign governments 18,812 1,351 (0) 20,163
Public utilities 415,641 24,728 (1,223) 439,146
Transportation 167,937 14,107 (2,243) 179,801
Finance 290,025 7,912 (472) 297,465
All other corporate bonds 1,007,680 42,338 (14,496) 1,035,522
------------ ----------- ----------- ------------
Total long-term bonds 2,170,104 102,728 (27,361) 2,245,471
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 88,754 0 0 88,754
------------ ----------- ----------- ------------
$ 2,258,858 $ 102,728 $ (27,361) $ 2,334,225
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
54
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3. BONDS (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
(IN 000'S)
Long-term Bonds:
United States government and government agencies and
authorities $ 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 1,025,745 67,371 (7,415) 1,085,701
------------ ----------- ------------ ------------
Total long-term bonds 2,488,461 176,892 (10,372) 2,654,981
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 217,606 0 0 217,606
------------ ----------- ------------ ------------
$ 2,706,067 $ 176,892 $ (10,372) $ 2,872,587
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31, 1996 and
1995 are shown below by contractual maturity. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call and/or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ ------------
<S> <C> <C>
(IN 000'S)
Maturities:
Due in one year or less $ 314,130 $ 315,507
Due after one year through five years 743,215 751,858
Due after five years through ten years 268,376 280,153
Due after ten years 714,504 775,051
------------ ------------
$ 2,040,225 $ 2,122,569
Mortgage-backed securities 218,633 211,656
------------ ------------
$ 2,258,858 $ 2,334,225
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ ------------
<S> <C> <C>
(IN 000'S)
Maturities:
Due in one year or less $ 558,775 $ 561,119
Due after one year through five years 824,446 846,230
Due after five years through ten years 256,552 269,549
Due after ten years 884,187 1,000,908
------------ ------------
2,523,960 2,677,806
Mortgage-backed securities 182,107 194,781
$ 2,706,067 $ 2,872,587
------------ ------------
------------ ------------
</TABLE>
55
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3. BONDS (CONTINUED):
Proceeds from sales and maturities of investments in debt securities during
1996, 1995, and 1994 were $1,554,016,000, $1,510,553,000, and $1,390,974,000,
gross gains were $16,975,000, $24,757,000, and $15,025,000 and gross losses were
$10,885,000, $5,742,000, and $30,041,000 , respectively.
Bonds included above with an amortized cost of approximately $2,060,000 and
$2,059,000 at December 31, 1996 and 1995, respectively, were on deposit with
governmental authorities as required by law.
4. SECURITIES LENDING:
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chemical Bank of New York. The custodian has
indemnified the Company against losses arising from this program. The total par
value of securities out on loan was $51,537,000 and $250,729,000 and the income
resulting from this program was $137,000, $2,000 and $26,000 at December 31,
1996, 1995 and 1994, respectively.
5. MORTGAGE LOANS:
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
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 geographical distribution of the mortgage
portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ------------
(IN 000'S)
<S> <C> <C>
California $ 154,272 $ 153,811
Massachusetts 79,929 83,999
Michigan 57,119 69,125
New York 67,742 81,480
Ohio 75,405 83,915
Pennsylvania 115,584 141,468
Washington 75,819 91,900
All other 313,062 361,213
---------- ------------
$ 938,932 $ 1,066,911
---------- ------------
---------- ------------
</TABLE>
The Company has restructured mortgage loans totalling $29,261,000, and
$49,846,000 at December 31, 1996 and 1995, respectively, against which there are
provisions of $5,893,000 and $8,799,000 at December 31, 1996 and 1995,
respectively.
The Company has made commitments of mortgage loans on real estate into the
future. The outstanding commitments for these mortgages amount to $9,800,000 and
$13,100,000 at December 31, 1996 and 1995, respectively.
56
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. INVESTMENTS GAINS AND LOSSES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN 000'S)
<S> <C> <C> <C>
Net realized gains (losses)
Bonds $ 5,631 $ 3,935 $ (858)
Mortgage loans 763 292 (5,689)
Real estate 599 391 (334)
Other assets 567 (2,549) (97)
--------- --------- ---------
$ 7,560 $ 2,069 $ (6,978)
--------- --------- ---------
--------- --------- ---------
Changes in unrealized gains (losses):
Common stock of affiliates $ (5,739) $ 0 $ 0
Mortgage loans (600) (1,574) 0
Real estate 4,624 3,583 (671)
--------- --------- ---------
$ (1,715) $ 2,009 $ (671)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve (IMR) and amortized into income over the remaining contractual life of
the security sold. The gross realized capital gains and losses credited or
charged to the interest maintenance reserve were a credit of $7,710,000 in 1996,
a credit of $12,714,000 in 1995, and a charge of $14,070,000 in 1994. All gains
and losses are transferred net of applicable taxes.
7. NET INVESTMENT INCOME:
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN 000'S)
<S> <C> <C> <C>
Interest income from bonds $ 178,695 $ 205,445 $ 200,338
Income from investment in common stock of affiliates 50,408 35,403 39,577
Interest income from mortgage loans 92,591 99,766 106,404
Real estate investment income 16,249 14,979 12,950
Interest income from policy loans 2,790 2,777 2,669
Other 1,710 2,672 1,212
---------- ---------- ----------
Gross investment income 342,443 361,042 363,150
Interest on surplus notes (23,061) (31,813) (31,150)
Investment expenses (15,629) (16,357) (16,567)
---------- ---------- ----------
$ 303,753 $ 312,872 $ 315,433
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
8. DERIVATIVES:
The Company uses derivative instruments for interest risk management purposes,
including hedges against specific interest rate risk and to minimize the
Company's exposure to fluctuations in interest rates. The Company's use of
derivatives has included U.S. Treasury futures, conventional interest rate
swaps, and forward spread lock interest rate swaps.
In the case of interest rate futures, gains or losses on contracts that qualify
as hedges are deferred until the earliest of the completion of the hedging
transaction, determination that the transaction will no longer take place, or
determination that the hedge is no longer effective. Upon completion of the
hedge, where it is impractical to allocates gains (losses) to specific hedged
assets or liabilities, gains ( losses) are deferred in IMR and amortized over
the remaining life of the hedged assets. At December 31, 1996 and 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, 1996
---------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
------------------ -------------
(IN 000'S)
<S> <C> <C>
Conventional interest rate swaps $ 429,000 $ (2,443)
Foreign currency swap 2,100 70
Forward spread lock swaps 50,000 (50)
</TABLE>
<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 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 counterparties. The Company is exposed to
potential credit loss in the event of non-performance by counterparties. The
counterparties are major financial institutions and management believes that the
risk of incurring losses related to credit risk is remote.
9. LEVERAGED LEASES:
The Company is a lessor in a leveraged lease agreement entered into on October
21, 1994, under which equipment having an estimated economic life of 25-40 years
was leased for a term of 9.75 years. The Company's equity investment represented
22.9% of the purchase price of the equipment. The balance of the purchase price
was furnished by third-party long-term debt financing, collateralized by the
equipment and non-recourse to the Company. At the end of the lease term, the
Master Lessee may exercise a fixed price purchase option to purchase the
equipment.
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
9. LEVERAGED LEASES (CONTINUED):
The Company's net investment in leveraged leases is composed of the following
elements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1996 1995
---------- ----------
(IN 000'S)
<S> <C> <C>
Lease contracts receivable $ 101,244 $ 111,611
Less non-recourse debt 101,227 (111,594)
---------- ----------
17 17
Estimated residual value of leased assets 41,150 41,150
Less unearned and deferred income (11,501) (13,132)
---------- ----------
Investment in leveraged leases 29,666 28,035
Less fees (188) (213)
---------- ----------
Net investment in leveraged leases $ 29,478 $ 27,822
---------- ----------
---------- ----------
</TABLE>
The net investment is classified as other invested assets in the accompanying
statements of admitted assets, liabilities, capital stock and surplus.
10. 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 $1,603,000,
$2,184,000, and $2,138,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
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 $35,161,000 and
$11,821,000 for the years ended December 31, 1996 and 1995, respectively, and
decreasing income by approximately $29,188,000 for the year ended December 31,
1994. The life reinsurance assumed agreement requires the reinsurer to withhold
funds in amounts equal to the reserves assumed.
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
10. REINSURANCE (CONTINUED):
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1996, 1995 and 1994 before the effect of
reinsurance transactions with the parent company.
<TABLE>
<CAPTION>
PRO-FORMA RESULTS PRE-REINSURANCE
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN 000'S)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $ 1,858,145 $ 1,619,337 $ 2,053,408
Net investment income and realized gains 312,870 315,967 312,582
------------ ------------ ------------
Subtotal 2,171,015 1,935,304 2,365,990
------------ ------------ ------------
Benefits and Expenses:
Policyholder benefits 1,928,720 1,760,917 2,183,282
Other expenses 155,531 130,302 130,456
------------ ------------ ------------
Subtotal 2,084,251 1,891,219 2,313,738
------------ ------------ ------------
Income from operations $ 86,764 $ 44,085 $ 52,252
------------ ------------ ------------
------------ ------------ ------------
</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 $46,000 in 1996, and by
$1,599,000 in 1995, and increasing income from operations by $1,854,404 in 1994.
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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, 1996
----------------------------
AMOUNT % OF TOTAL
-------------- ------------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment
--with market value adjustment $ 3,547,683 30.44%
--at book value less surrender charges (surrender charge >5%) 5,626,117 48.27
--at book value (minimal or no charge or adjustment) 1,264,586 10.85
Not subject to discretionary withdrawal provision 1,218,157 10.44
-------------- ------
Total annuity actuarial reserves and deposit liabilities $ 11,656,543 100.00%
-------------- ------
-------------- ------
</TABLE>
<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>
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.
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 separate accounts of the parent company.
The Company's share of the group's accrued pension cost at December 31, 1996,
1995 and 1994 was $446,000, $420,000, and $417,000, respectively. The Company's
share of net periodic pension cost was $27,000, $3,000, and $417,000, for 1996,
1995 and 1994, respectively.
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. Company
contributions were $233,000, $185,000 and $152,000 for the years ended December
31, 1996, 1995, and 1994, respectively.
OTHER POST-RETIREMENT BENEFIT PLANS:
In addition to pension benefits the Company provides certain health, dental, and
life insurance benefits ("post-retirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount.
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
12. RETIREMENT PLANS (CONTINUED):
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employer's 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 $209,000, $142,000, and $114,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. Effective June 5, 1996, the
Company made certain changes regarding eligibility and benefits to its post-
retirement health benefits plans for retirees on or after that date. The impact
of these changes is a decrease of 1996 post-retirement benefit costs of
$599,000. The Company's post-retirement health care plans currently are not
funded.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
----------------- --------------------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds $ 2,258,858 $ 2,339,126
Mortgages 938,932 958,909
LIABILITIES
Insurance reserves 122,606 122,606
Individual annuities 373,488 367,878
Pension products 1,911,284 1,922,602
Derivatives -- (2,423)
<CAPTION>
DECEMBER 31, 1995
---------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
----------------- --------------------
(IN 000'S)
<S> <C> <C>
ASSETS
Bonds $ 2,706,067 $ 2,872,586
Mortgages 1,066,911 1,111,895
LIABILITIES
Insurance reserves 124,066 124,066
Individual annuities 434,261 431,263
Pension products 2,227,882 2,265,386
Derivatives -- 3,387
</TABLE>
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
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
taking into account prices for publicly traded bonds of similar credit risk and
maturity and repayment and liquidity characteristics.
The fair values of the Company's general account reserves and liabilities under
investment-type contracts (insurance, annuity and pension contracts that do not
involve mortality or morbidity risks) are estimated using discounted cash flow
analyses or surrender values. Those contracts that are deemed to have short-term
guarantees have a carrying amount equal to the estimated market value.
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
The fair values of derivative financial instruments are estimated using the
process described in Note #8.
14. STATUTORY INVESTMENT VALUATION RESERVES:
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, stocks, mortgage loans, real estate and other invested
assets with related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve ("IMR") and amortized into income over the remaining contractual life of
the security sold.
The tables shown below present changes in the major elements of the AVR and IMR.
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
AVR IMR AVR IMR
--------- --------- --------- ---------
(IN 000'S) (IN 000'S)
<S> <C> <C> <C> <C>
Balance, beginning of year $ 42,099 $ 25,218 $ 28,409 $ 18,140
Realized investment gains (losses), net of tax 3,160 5,011 (1,524) 7,977
Amortization of investment (gains) losses 0 (1,557) 0 (899)
Unrealized investment gains (losses) 1,502 0 3,650 0
Required by formula 7,150 4 11,564 0
--------- --------- --------- ---------
Balance, end of year $ 53,911 $ 28,676 $ 42,099 $ 25,218
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
15. FEDERAL INCOME TAXES:
The Company and its subsidiaries file a consolidated federal income tax return.
Federal income taxes are calculated for the consolidated group based upon
amounts determined to be payable as a result of operations within the current
year. No provision is recognized for timing differences which may exist between
financial statement and taxable income. Such timing differences include
reserves, depreciation and accrual of market discount on bonds. Cash payments
for federal income taxes were approximately $19,264,000, $12,429,000 and
$43,200,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
16. SURPLUS NOTES AND NOTE RECEIVABLE:
The Company had issued and outstanding surplus notes to its parent with an
aggregate carrying value of $335,000,000 during the period 1982 through January
16, 1996 at interest rates between 7.25% and 10%. The Company repaid all
principal and interest associated with these surplus notes on January 16, 1996.
On December 19, 1995 the Company issued surplus notes 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 regarding 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. In addition, with regard to surplus notes outstanding through
January 16, 1996, subsequent to December 31, 1994 interest payments required the
consent of the Delaware Insurance Commissioner. Payment of principal and
interest on the notes issued in 1995 also requires the consents of the Delaware
Insurance Commissioner and Canadian Office of the Superintendent of Financial
Institutions.
During 1996, 1995 and 1994, the Company obtained the required consents, and
expensed $23,061,000, $31,813,000 and $31,150,000 in respect of interest on
surplus notes for the years 1996, 1995 and 1994, 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 included in due from parent and affiliates at December 31, 1995, was repaid
in full by the parent at maturity.
17. 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 $20,192,000 in 1996, $20,293,000 in 1995, and
$18,452,000 in 1994.
18. RISK-BASED CAPITAL:
Effective December 31, 1993 the NAIC adopted risk-based capital requirements for
life insurance companies. The risk-based capital requirements provide a method
for measuring the minimum acceptable amount of adjusted capital that a life
insurer should have, as determined under statutory accounting practices, taking
into account the risk characteristics of its investments and products. The
Company has met the minimum risk-based capital requirements at December 31, 1996
and 1995.
19. ACCOUNTING POLICIES AND PRINCIPLES:
The financial statements of the Company have been prepared on the basis of
statutory accounting practices, which prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting practices and GAAP are described as follows. Under statutory
accounting practices, financial statements are not consolidated and investments
in subsidiaries are shown at net equity value. Accordingly, the assets,
liabilities and results of operations of the Company's subsidiaries are not
consolidated with the assets, liabilities and results of operations,
respectively, of the Company. Changes in net equity value of the common stock of
the Company's United States life insurance subsidiaries are directly reflected
in the
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
19. ACCOUNTING POLICIES AND PRINCIPLES (CONTINUED):
Company's surplus. Changes in the net equity value of the common stock of all
other subsidiaries are directly reflected in the Company's Investment Valuation
Reserves. Dividends paid by subsidiaries to the Company are included in the
Company's net investment income.
Other differences between statutory accounting practices and GAAP include the
following: Statutory accounting practices do not recognize the following assets
or liabilities which are reflected under GAAP-- deferred policy acquisition
costs, deferred federal income taxes and statutory non-admitted assets. Asset
Valuation Reserves and Interest Maintenance Reserves are established under
statutory accounting practices but not under GAAP. Methods for calculating real
estate depreciation and investment valuation allowances differ under statutory
accounting practices than under GAAP. Actuarial assumptions and reserving
methods differ under statutory accounting practices and GAAP. Premiums for
universal life and investment type products are recognized as income for
statutory purposes and as deposits to policyholders' accounts for GAAP.
Because the Company's management uses financial information prepared in
conformity with accounting principles generally accepted in Canada in the normal
course of business, the management of the Company has determined that the cost
of complying with Statement No. 120 would exceed the benefits that the Company,
or the users of its financial statements would experience. Consequently, the
Company has elected not to apply such standards in the preparation of these
financial statements.
65
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
We have audited the accompanying statutory statements of admitted assets,
liabilities, and capital stock and surplus of Sun Life Assurance Company of
Canada (U.S.) as of December 31, 1996 and 1995, and the related statutory
statements of operations, changes in capital stock and surplus, and cash flow
for each of the three years in the period ended December 31, 1996. 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 audits 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 signficant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Notes 1 and 19 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles, although not
reasonably determinable, are presumed to be material.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, and capital stock and
surplus of Sun Life Assurance Company of Canada (U.S.) as of Dcember 31, 1996
and 1995, and the results of its operations and its cash flow for each of the
three years in the period ended December 31, 1996 on the basis of accountng
described in Notes 1 and 19.
However, because of the effects of the matter discussed in the second preceding
paragraph, in our opinion, the financial statements referred to above do not
present fairly, in conformity with generally accepted accounting principles, the
financial position of Sun Life Assurance Company of Canada (U.S.) as of December
31, 1996 and 1995 or the results of its operations or its cash flow for each of
the three years in the period ended Decemeber 31, 1996.
In our previous report dated February 7, 1996, we expressed an opinion that the
1995 and 1994 financial statements, prepared using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware,
presented fairly, in all material respects, the financial position of Sun Life
Assurance Company of Canada (U.S.) as of December 31, 1995, and the results of
its operations, and its cash flow for the years ended December 31, 1995 and 1994
in conformity with generally accepted accounting principles. As described in
Notes 1 and 19 to the financial statements, pursuant to the provisions of
Statement of Financial Accounting Standards No. 120, ACCOUNTING AND REPORTING BY
MUTUAL LIFE INSURANCE ENTERPRISES AND BY INSURANCE ENTERPRISES FOR CERTAIN
LONG-DURATION PARTICIPATING CONTRACTS, financial statements of mutual life
insurance enterprises (and stock life insurance companies that are wholly owned
subsidiaries of mutual life insurance companies) for periods ending on or before
December 15, 1996, prepared using accounting practices prescribed or permitted
by insurance regulators, are not considered presentations in conformity with
generally accepted accounting principles when presented for comparative purposes
with the enterprise's financial statements for periods subsequent to the
effective date of Statement No. 120. Accordingly, our present opinion on the
presentation of the 1995 and 1994 financial statements in accordance with
generally accepted accounting principles, as presented herein, is different from
that expressed in our previous report.
As management as stated in Note 19, because the Company's management uses
financial information prepared in accordance with accounting principles
generally accepted in Canada in the normal course of business, the management of
Sun Life Assurance Company of Canada (U.S.) has determined that the cost of
complying with Statement No. 120 would exceed the benefits that the Company, or
the users of its financial statements, would experience. Consequently, the
Company has elected not to apply such standards in the preparation of these
financial statements.
DELOITTE & TOUCHE LLP
February 3, 1997
66
<PAGE>
[Updated interim financial statements and Management's Discussion and Analysis
of Financial Condition and Results of Operation will be provided by amendment.]
67
<PAGE>
APPENDIX A
ILLUSTRATIVE EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATIONS:
Suppose the net asset value of a Fund share at the end of the current
valuation period is $18.38; at the end of the immediately preceding valuation
period was $18.32; the Valuation Period is one day; and no dividends or
distributions caused Fund shares to go "ex-dividend" during the current
Valuation Period. $18.38 divided by $18.32 is 1.00327511. Subtracting the one
day risk factor for mortality and expense risks and the administrative expense
charge of .00003809 (the daily equivalent of the current maximum charge of 1.40%
on an annual basis) gives a net investment factor of 1.00323702. If the value of
the variable accumulation unit for the immediately preceding valuation period
had been 14.5645672, the value for the current valuation period would be
14.6117130 (14.5645672 X 1.00323702).
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY UNIT VALUE CALCULATIONS:
Suppose the circumstances of the first example exist, and the value of an
annuity unit for the immediately preceding valuation period had been 12.3456789.
If the first variable annuity payment is determined by using an annuity payment
based on an assumed interest rate of 4% per year, the value of the annuity unit
for the current valuation period would be 12.3843113 (12.3456789 X 1.00323702
(the Net Investment Factor) X 0.99989255). 0.99989255 is the factor, for a one
day Valuation Period, that neutralizes the assumed interest rate of four percent
(4%) per year used to establish the Annuity Payment Rates found in certain
Contracts. (The factor that neutralizes the assumed interest rate of three
percent (3%) per year used to establish the Annuity Payment Rates found in other
Contracts is 0.99991902.)
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATIONS:
Suppose that a Participant's Account is credited with 8,765.4321 variable
accumulation units of a particular Sub-Account but is not credited with any
fixed accumulation units; that the variable accumulation unit value and the
annuity unit value for the particular Sub-Account for the valuation period which
ends immediately preceding the annuity commencement date are 14.5645672 and
12.3456789 respectively; that the annuity payment rate for the age and option
elected is $6.78 per $1,000; and that the annuity unit value on the day prior to
the second variable annuity payment date is 12.3843113. The first variable
annuity payment would be $865.57 (8,765.4321 X 14.5645672 X 6.78 divided by
1,000). The number of annuity units credited would be 70.1112 ($865.57 divided
by 12.3456789) and the second variable annuity payment would be $868.28 (70.1112
X 12.3843113).
APPENDIX B
STATE PREMIUM TAXES
The amount of applicable tax varies depending on the jurisdiction and is
subject to change by the legislature or other authority. In many jurisdictions
there is no tax at all. The Company believes that as of December 31, 1997
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 December 31, 1997 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%
Kentucky 2.00% 2.00%
Maine -- 2.00%
Nevada -- 3.50%
South Dakota -- 1.25%
West Virginia 1.00% 1.00%
Wyoming -- 1.00%
</TABLE>
68
<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)
WITHDRAWAL CHARGE CALCULATION FOR CONTRACTS WHICH CONTAIN THE CUMULATIVE
WITHDRAWAL PROVISION:
FULL SURRENDER:
Assume a Purchase Payment of $40,000 is made on the Date of Coverage, no
additional Purchase Payments are made and there are no partial withdrawals. The
table below presents four examples of the withdrawal charge resulting from a
full surrender of the Participant's Account, based on hypothetical Account
Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE PURCHASE WITHDRAWAL WITHDRAWAL
ACCOUNT ACCOUNT WITHDRAWAL PAYMENTS CHARGE CHARGE
YEAR VALUE AMOUNT LIQUIDATED PERCENTAGE AMOUNT
------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $41,000 $ 4,000(a) $37,000 6.00% $2,220
3 $52,000 $12,000(b) $40,000 5.00% $2,000
7 $80,000 $28,000(c) $40,000 3.00% $1,200
9 $98,000 $28,000(d) $40,000 0.00% $ 0
</TABLE>
- ------------------------
(a) The free withdrawal amount during an account year is equal to 10% of new
payments (those payments made in current account year or in the six
immediately preceding account years) less any prior partial withdrawals in
that account year. Any portion of the free withdrawal amount that is not
used in the current Account Year is carried forward into future years. In
the first account year 10% of new payments is $4,000. Therefore, on full
surrender $4,000 is withdrawn free of the withdrawal charge and the purchase
payment liquidated is $37,000 (account value less free withdrawal amount).
The withdrawal charge amount is determined by applying the withdrawal charge
percentage to the purchase payment liquidated.
(b) In the third account year, the free withdrawal amount is equal to $12,000
($4,000 for the current account year, plus an additional $8,000 for account
years 1 & 2 because no partial withdrawals were taken and the unused free
withdrawal amount is carried forward into future account years). The
withdrawal charge percentage is applied to the liquidated purchase payment
(account value less free withdrawal amount).
(c) In the seventh account year, the free withdrawal amount is equal to $28,000
($4,000 for the current account year, plus an additional $24,000 for account
years 1-6, $4,000 for each account year because no partial withdrawals were
taken and the unused free withdrawal amount is carried forward into future
account years). The withdrawal charge percentage is applied to the
liquidated purchase payment (account value less free withdrawal amount, but
not greater than actual purchase payments).
(d) There is no withdrawal charge on any purchase payment liquidated that has
been in the participant's account for at least seven years.
PARTIAL WITHDRAWAL:
Assume a single purchase payment of $40,000 is deposited at issue, no
additional purchase payments are made, no partial withdrawals have been taken
prior to the fifth account year, and there are a series of three partial
withdrawals made during the fifth account year of $9,000, $12,000, and $15,000.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL FREE PURCHASE WITHDRAWAL WITHDRAWAL
ACCOUNT WITHDRAWAL WITHDRAWAL PAYMENTS CHARGE CHARGE
VALUE AMOUNT AMOUNT LIQUIDATED PERCENTAGE AMOUNT
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(a) $64,000 $ 9,000 $20,000 $ 0 4.00% $ 0
(b) $56,000 $12,000 $11,000 $ 1,000 4.00% $ 40
(c) $40,000 $15,000 $ 0 $15,000 4.00% $600
</TABLE>
- ------------------------
(a) The free withdrawal amount during an account year is equal to 10% of new
payments (those payments made in current account year or in the six
immediately preceding account years) less any prior partial withdrawals in
that account year. Any portion of the free withdrawal amount that is not
used in the
69
<PAGE>
current account year is carried forward into future years. In the fifth
account year, the free withdrawal amount is equal to $20,000 ($4,000 for the
current account year, plus an additional $16,000 for account years 1-4,
$4,000 for each account year because no partial withdrawals were taken). The
partial withdrawal amount ($9,000) is less than the free withdrawal amount
so no purchase payments are liquidated and no withdrawal charge applies.
(b) Since a partial withdrawal of $9,000 was taken, the remaining free
withdrawal amount is equal to $11,000. The $12,000 partial withdrawal will
first be applied against the $11,000 free withdrawal amount, and then will
liquidate purchase payments of $1,000, incurring a withdrawal charge of $40.
(c) The free withdrawal amount is zero since the previous partial withdrawals
have already used the free withdrawal amount. The entire partial withdrawal
amount will result in purchase payments being liquidated and will incur a
withdrawal charge. At the beginning of the next account year, 10% of
purchase payments would be available for withdrawal requests during that
account year.
WITHDRAWAL CHARGE CALCULATION FOR CONTRACTS WHICH DO NOT CONTAIN THE CUMULATIVE
WITHDRAWAL PROVISION.
This example assumes that the date of the full surrender or partial
withdrawal is during the 9th Account Year.
<TABLE>
<CAPTION>
1 2 3 4 5 6
--- ------- ------ ------- -- -------
<S> <C> <C> <C> <C>
1 $ 1,000 $1,000 $ 0 0% $ 0
2 1,200 1,200 0 0 0
3 1,400 1,280 120 3 3.60
4 1,600 0 1,600 4 64.00
5 1,800 0 1,800 4 72.00
6 2,000 0 2,000 5 100.00
7 2,000 0 2,000 5 100.00
8 2,000 0 2,000 6 120.00
9 2,000 0 2,000 6 120.00
------- ------ ------- -------
$15,000 $3,480 $11,520 $ 579.60
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
EXPLANATION OF COLUMNS IN TABLE
COLUMNS 1 AND 2:
Represent Purchase Payments ("Payments") and amounts of Payments. Each
Payment was made on the first day of each Account Year.
COLUMN 3:
Represents the amounts that may be withdrawn without the imposition of
withdrawal charges, as follows:
a) Payments 1 and 2, $1,000 and $1,200, respectively, have been
credited to the Certificate for more than seven years.
b) $1,280 of Payment 3 represents 10% of Payments that have been
credited to the Certificate for less than seven years. The 10% amount is
applied to the oldest unliquidated Payment, then the next oldest and so
forth.
COLUMN 4:
Represents the amount of each Payment that is subject to a withdrawal
charge. It is determined by subtracting the amount in Column 3 from the Payment
in Column 2.
COLUMN 5:
Represents the withdrawal charge percentages imposed on the amounts in
Column 4.
70
<PAGE>
COLUMN 6:
Represents the withdrawal charge imposed on each Payment. It is determined
by multiplying the amount in Column 4 by the percentage in Column 5.
For example, the withdrawal charge imposed on Payment 8
= Payment 8 Column 4 X Payment 8 Column 5
= $2,000 X 6%
= $120
FULL SURRENDER:
The total of Column 6, $579.60, represents the total amount of withdrawal
charges imposed on Payments in this example.
PARTIAL WITHDRAWAL:
The sum of amounts in Column 6 for as many Payments as are liquidated
reflects the withdrawal charges imposed in the case of a partial withdrawal.
For example, if $7,000 of Payments (Payments 1, 2, 3, 4, and 5) were
withdrawn, the amount of the withdrawal charges imposed would be the sum of
amounts in Column 6 for Payments 1, 2, 3, 4 and 5 which is $139.60.
PART 2--FIXED ACCOUNT--EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
The MVA factor is:
<TABLE>
<S> <C>
N/12
1 + I
( ----- ) -1
1 + J
</TABLE>
These examples assume the following:
1) the Guarantee Amount was allocated to a five year Guarantee Period
with a Guaranteed Interest Rate of 6% or .06 (l).
2) the date of surrender is two years from the Expiration Date (N =
24).
3) the value of the Guarantee Amount on the date of surrender is
$11,910.16.
4) the interest earned in the current Account Year is $674.16.
5) no transfers or partial withdrawals affecting this Guarantee Amount
have been made
6) withdrawal charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of surrender, the current rate (J) is 8% or .08
<TABLE>
<C> <S> <C> <C>
N/12
1 + l
The MVA factor = ( ------ ) -1
1 + J
24/12
1 + .06
= ( ------ ) -1
1 + .08
= (.981)2 -1
= .963 -1
= - .037
</TABLE>
The value of the Guarantee Amount less interest credited to the Guarantee
Amount in the current Account Year is multiplied by the MVA factor to determine
the MVA
($11,910.16 - $674.16) X (-.037) = -$415.73
71
<PAGE>
-$415.73 represents the MVA that will be deducted from the value of the
Guarantee Amount before the deduction of any withdrawal charge.
For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA would
be ($2,000.00 - $674.16) X (-.037) = -$49.06. -$49.06 represents the MVA that
will be deducted from the partial withdrawal amount before the deduction of any
withdrawal charge.
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of surrender, the current rate (J) is 5% or .05.
N/12
1 + l
The MVA factor = ( ------ ) -1
1 + J
24/12
1 + .06
= ( ------ ) -1
1 + .05
= (1.010)2 -1
= 1.019 -1
= .019
The value of the Guarantee Amount less interested credited to the Guarantee
Amount in the current Account Year is multiplied by the MVA factor to determine
the MVA
($11,910.16 - $674.16) X .019 = $213.48
$213.48 represents the MVA that would be added to the value of the Guarantee
Amount before the deduction of any withdrawal charge.
For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA would
be ($2,000.00 - $674.16) X .019 = $25.19.
$25.19 represents the MVA that would be added to the value of the partial
withdrawal amount before the deduction of any withdrawal charge.
72
<PAGE>
APPENDIX D
CALCULATION OF PERFORMANCE DATA
[TO BE PROVIDED BY AMENDMENT.]
73
<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 Funds, 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 Funds may refer to the number of clients which they serve. As of the
date of this Prospectus, MFS was serving over 1.9 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 1995 the Company was the 39th
largest U.S. life insurance company based upon overall assets and its parent
company, Sun Life Assurance Company of Canada, was the 18th largest.
74
<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
[INSERT PRODUCT CODE]
<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 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 (to be provided by amendment):
B. Financial Statements of the Depositor:
1. Statutory Statements of Admitted Assets, Liabilities and Capital
Stock and Surplus, December 31, 1996 and 1995;
2. Statutory Statements of Operations, Years Ended December 31, 1996,
1995 and 1994;
3. Statutory Statements of Changes in Capital Stock and Surplus, Years
Ended December 31, 1996, 1995 and 1994;
4. Statutory Statements of Cash Flow, Years Ended December 31, 1996,
1995 and 1994;
5. Notes to Statutory Financial Statements; and
6. Independent Auditors' Report.
Financial statements for the nine months ended September 30, 1997 will be
provided by amendment.
<PAGE>
(b) (1) Resolution of Board of Directors of the depositor dated
December 3, 1985 authorizing the establishment of the Registrant;
(2) Not Applicable;
(3) (a) Distribution Agreement between the depositor,
Massachusetts Financial Services Company and Clarendon Insurance Agency, Inc.
(to be filed by amendment);
(b)(i) Specimen Sales Operations and General Agent
Agreement (to be filed by amendment);
(b)(ii) Specimen Broker-Dealer Supervisory and Service
Agreement (to be filed by amendment); and
(b)(iii) Specimen Registered Representatives Agent
Agreement (to be filed by amendment);
(4) (a) Form of Flexible Payment Combination Fixed/Variable
Group Annuity Contract;
(b) Form of Certificate to be issued in connection with
the Contract filed as Exhibit 4(a);
(5) (a) Form of Application to be used with the Contract
filed as Exhibit 4(a);
(b) Form of Application to be used with the Certificate
filed as Exhibit 4(b);
(6) Certificate of Incorporation and By-laws of the Depositor;
(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;
(b) Consent of Counsel (To be filed by
amendment); and
(c) Certification of Counsel (To be filed by amendment);
(11) None;
(12) Not Applicable;
(13) Schedule for Computation of Performance Quotations (To be
filed by amendment);
(14) Not Applicable; and
(15) Powers of Attorney.
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
Donald A. Stewart 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
104 Westcliff Street
Weston, Massachusetts 02193
Angus A. MacNaughton Director
950 Tower Lane
Metro Tower, Suite 1170
Foster City, CA 94404
S. Caesar Raboy Senior Vice President and Deputy
One Sun Life Executive Park General Manager and Director
Wellesley Hills, MA 02181
Robert A. Bonner Vice President, Pensions
One Sun Life Executive Park
Wellesley Hills, MA 02181
C. James Prieur Vice President, Investments
One Sun Life Executive Park
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
Margaret Sears Mead Assistant Vice President and
One Sun Life Executive Park Secretary
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 of Canada (U.S.) Holdings, Inc., which
is in turn 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 of Canada (U.S.) Holdings,
Inc.......................................Delaware 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 Life of Canada (U.S.)
Distributors, Inc......................... Delaware 0%***
Sun Benefit Services Company, 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%*****
Sun Capital Advisers, Inc. ................. Delaware 0%***
MFS International, Ltd. .................... Ireland 0%****
MFS Institutional Advisors, Inc. ........... Delaware 0%****
MFS Fund Distributors, Inc. ................ Delaware 0%****
MFS Retirement Services, Inc. .............. Delaware 0%****
Sun Life Financial Services Limited......... Bermuda 0%***
- --------
* Sun Life of Canada (U.S.) Holdings, Inc. owns 100% of the issued and
outstanding voting securities of Sun Life Assurance Company of Canada
(U.S.).
** 93.6% of the issued and outstanding voting securities of Massachusetts
Financial Services Company are owned by 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 Life of Canada (U.S.) Distributors, Inc., 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., MFS International,
Ltd., MFS Institutional Advisors, 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.
<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:
Not applicable.
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
is filed as Exhibit 6 to this Registration Statement, 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
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
Sun Life Assurance Company of Canada (U.S.) represents that the fees
and charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by the insurance company.
The registrant is relying on the no-action letter issued by the Division
of Investment Management of the Securities and Exchange Commission to the
American Council of Life Insurance, Ref. No. IP-6-88, dated November 28, 1988,
the requirements for which have been complied with by the Registrant.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant has caused this Registration Statement to be
signed on its behalf in the City of Boston and Commonwealth of
Massachusetts on the 14th day of October, 1997.
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
Assistant Vice President
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) October 14, 1997
- --------------------------
John D. McNeil
Vice President
and Actuary
(Principal Financial
and Accounting
* /s/ ROBERT P. VROLYK Officer) October 14, 1997
- --------------------------
Robert P. Vrolyk
- -------------------------
* By Bonnie S. Angus pursuant to Power of Attorney filed as Exhibit 15
to this Registration Statement.
<PAGE>
Signatures Title Date
---------- ----- ----
* /s/ RICHARD B. BAILEY Director October 14, 1997
- -------------------------------
Richard B. Bailey
* /s/ A. KEITH BRODKIN Director October 14, 1997
- -------------------------------
A. Keith Brodkin
* /s/ M. COLYER CRUM Director October 14, 1997
- -------------------------------
M. Colyer Crum
President and
- ------------------------------- Director
Donald A. Stewart
Senior Vice President
* /s/ DAVID D. HORN and General Manager October 14, 1997
- ------------------------------- and Director
David D. Horn
* /s/ JOHN S. LANE Director October 14, 1997
- -------------------------------
John S. Lane
* /s/ ANGUS A. MacNAUGHTON Director October 14, 1997
- -------------------------------
Angus A. MacNaughton
* /s/ S. CAESAR RABOY Senior Vice President
- ------------------------------- and Deputy General
S. Caesar Raboy Manager and
Director
- ---------------------------
* By Bonnie S. Angus pursuant to Power of Attorney filed as Exhibit 15
to this Registration Statement.
<PAGE>
Exhibit 1
WRITTEN CONSENT IN LIEU OF MEETING
WHEREAS Section 3.08 of the By-Laws of Sun Life Assurance Company of Canada
(U.S.) provides that any action required or permitted to be taken at any
meeting may be taken without a meeting, if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee;
and
WHEREAS, in order for the corporation to be able to offer certain variable
life insurance contracts it is necessary for the officers of the corporation
to establish new separate accounts:
NOW, THEREFORE, the undersigned, being all of the director of Sun Life
Assurance Company of Canada (U.S.), do hereby adopt the following resolution:
RESOLVED, that the officers of the corporation be
and hereby are authorized to take whatever action
is necessary or desirable to establish and maintain
one or more separate accounts to be used in connection
with certain variable contracts to be issued by the
corporation, and to comply with all federal and state
insurance, securities or other laws and regulations or
requirements relating thereto.
FURTHER RESOLVED, that such separate accounts be registered
as unit investment trusts under the Investment Company Act of
1940, as amended, and that application be made for such exemptions
from that Act as may be necessary or desirable.
FURTHER RESOLVED, that there be filed with the Securities and
Exchange Commission in accordance with the provisions of the
Securities Act of 1933, as amended, registration statements and
any amendments thereto, relating to variable contracts which are
to be registered pursuant to that Act.
<PAGE>
FURTHER RESOLVED, that the officers of the corporation be and they
hereby are authorized to take such further action as may in their
judgment be necessary or desirable to implement the foregoing
resolutions and as may be appropriate to enable the corporation to
transact the business of issuing and selling variable contracts
participating in these registered separate accounts.
December 3, 1985
/s/ David D. Horn
-------------------------------
/s/ Thomas M. Galt
-------------------------------
/s/ John A. Brindle
-------------------------------
/s/ John D. McNeil
-------------------------------
/s/ Walter J. McCarthy
-------------------------------
/s/ Richard B. Bailey
-------------------------------
/s/ Angus A. MacNaughton
------------------------------
/s/ Albert L. Fairley, Jr.
------------------------------
<PAGE>
[Letterhead of Sun Life OF CANADA (U.S.)]
Sun Life Assurance Company of Canada (U.S.) ("the Company") will pay an
annuity commencing on the Annuity Commencement Date to the Annuitant if then
living, by applying the adjusted value of the Participant's Account in
accordance with the Settlement provisions. If the Annuitant dies while the
contract is in effect and before the Annuity Commencement Date, the Company will
pay a death benefit to the Beneficiary upon receipt of Due Proof of Death of the
Annuitant. Under certain circumstances, if the Participant dies prior to the
Annuitant and before the Annuity Comencement Date, a distribution is required by
law.
All payments will be made to the persons and in the manner set forth in
this contract. Provisions and endorsements printed or written by the Company on
the following pages form part of the contract.
Signed by the Company at its Executive Office, Wellesley Hills,
Massachusetts on the Issue Date.
/s/ Donald A. Stewart /s/ Margaret Sears Mead
Donald A. Stewart Margaret Sears Mead
President Secretary
Flexible Payment Deferred Combination Variable and Fixed Group Annuity Contract
Nonparticipating
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO A PARTICIPANT, INCLUDING WITHDRAWALS,
TRANSFERS, AMOUNTS APPLIED TO PURCHASE AN ANNUITY, AND DISTRIBUTIONS RESULTING
FROM THE DEATH OF THE PARTICIPANT. PAYMENTS MADE FROM GUARANTEE AMOUNTS WHICH
ARE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE PERIOD OR THE WITHDRAWAL OF
INTEREST CREDITED TO GUARANTEE AMOUNTS DURING THE CURRENT ACCOUNT YEAR ARE NOT
SUBJECT TO THE MARKET VALUE ADJUSTMENT.
USE OF CONTRACT. This contract is available for retirement and deferred
compensation plans some of which may qualify for special tax treatment under the
Internal Revenue Code Sections 401, 403 or 408.
<PAGE>
TABLE OF CONTENTS:
Page
CONTRACT SPECIFICATIONS PAGE 4
- --------------------------------------------------------------------------------
DEFINITIONS 5
- --------------------------------------------------------------------------------
FIXED AND VARIABLE ACCOUNTS 7
Fixed Account 7
Variable Account and Sub-Accounts 7
Ownership of Assets 7
Investments of the Sub-Accounts 8
Substitution 8
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS 8
Payments 8
Account Continuation 8
Allocation of Net Purchase Payments 8
- --------------------------------------------------------------------------------
CONTRACT VALUES DURING ACCUMULATION PERIOD 9
Participant's Account 9
Crediting Variable Accumulation Units 9
Variable Accumulation Unit Value 9
Variable Accumulation Value 9
Net Investment Factor 9
Guarantee Periods 10
Guaranteed Interest Rates 11
Fixed Accumulation Value 11
Transfer Privilege 11
Account Fee 11
- --------------------------------------------------------------------------------
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT 12
Cash Withdrawals 12
Withdrawal Charges 13
Market Value Adjustment 13
- --------------------------------------------------------------------------------
DEATH BENEFIT 14
Death Benefit Provided by the Contract 14
Election and Effective Date of Election 14
Payment of Death Benefit 15
Amount of Death Benefit 15
- --------------------------------------------------------------------------------
SETTLEMENT PROVISIONS 16
General 16
Election and Effective Date of Election 16
Determination of Amount 16
Effect of Annuity Commencement Date on Participant's Account 16
Annuity Commencement Date 17
Fixed Annuity Payments 17
Variable Annuity Payments 17
Annuity Unit Value 17
Exchange of Variable Annuity Units 18
Account Fee 18
Description of Annuity Options 18
Amounts Payable on Death of Payee 19
Annuity Payment Rates 19
- --------------------------------------------------------------------------------
2
<PAGE>
Page
OWNERSHIP PROVISIONS 21
Exercise of Contract Rights 21
Change of Ownership 21
Death of Participant 21
Voting of Series Fund Shares 22
Periodic Reports 22
- --------------------------------------------------------------------------------
BENEFICIARY PROVISION 23
Designation and Change of Beneficiary 23
- --------------------------------------------------------------------------------
GENERAL PROVISIONS 23
Age and Sex Misstatement 23
Contract 23
Currency 23
Determination of Values 23
Discontinuance of New Participants 24
Governing Law 24
Guarantees 24
Incontestability 24
Modification 24
Nonparticipating 24
Payments by the Company 25
Proof of Age 25
Proof of Survival 25
Splitting Units 25
- --------------------------------------------------------------------------------
QUALIFIED CONTRACT PROVISIONS E-1
3
<PAGE>
DEFINITIONS
Any reference in this certificate to receipt and received by the Company means
receipt at the Company's annuity service mailing address shown on the first page
of this certificate.
ACCOUNT YEARS AND ACCOUNT ANNIVERSARIES: The first Account Year shall be the
period of 12 months plus a part of a month as measured from the Date of Coverage
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 death, prior to the Annuity Commencement Date, of the last surviving
of the persons so named. Collectively, these persons are referred to in the
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 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 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.
CODE: The Internal Revenue Code of 1986, as amended.
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.
- ----------
*As specified in the Application, unless changed.
5
<PAGE>
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.
FUND(S):
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.
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.
NET INVESTMENT FACTOR: 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.
NET PURCHASE PAYMENT: The portion of a Purchase Payment which remains after the
deduction of any applicable premium or similar tax.
NON-QUALIFIED CONTRACT: A contract used in connection with a retirement plan
which does not receive favorable federal income tax treatment under Sections
401, 403, or 408 of the Code. The Participant's interest in the contract must be
owned by a natural person or agent for a natural person for the contract to
receive favorable income tax treatment as an annuity.
*OWNER: The person, 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 Code to
serve as legal owner of assets of a retirement plan, but the term Owner, as used
herein, refers 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 to which Net Purchase Payments are credited.
PARTICIPANTS 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): The amount paid to the Company as consideration for
the benefits provided by the contract.
QUALIFIED CONTRACT: A contract used in connection with a retirement plan which
received favorable federal income tax treatment under Sections 401, 403 or 408
of the Code.
SEVEN YEAR ANNIVERSARY: The seventh Account Anniversary and each succeeding
Account Anniversary occurring at any seven year interval thereafter, for
example, the 14th, 21st, and 28th Account Anniversaries.
- ----------
*As specified in the Application, unless changed.
6
<PAGE>
SUB-ACCOUNT: That portion of the Variable Account which invests in shares of
specific series or sub-series of the Series Fund.
VALUATION PERIOD: The period of time from one determination of Variable
Accumulation Unit and Annuity Unit values to the next subsequent determination
of these values. Such determination shall be made as of the close of the New
York Stock Exchange on each day the Exchange is open for trading and on such
other days on which there is a sufficient degree of trading in the portfolio
securities of the Variable Account so that the values of the Variable Account's
Accumulation Units and Annuity Units might be materially affected.
VARIABLE ACCOUNT: A separate account of the Company consisting of assets set
aside by the Company, the investment performance of which is kept separate from
that of the general assets of the Company.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of the
value of the variable portion of a Participant's Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified Sub-Accounts of the Variable
Account.
FIXED AND VARIABLE ACCOUNTS
Fixed Account
The Fixed Account consists of all assets of the Company other than those
allocated to any separate account of the Company. Any portion of a Net Purchase
Payment allocated by a Participant to a Guarantee Period(s) will become part of
the Fixed Account.
Variable Account and Sub-Accounts
The Variable Account to which the variable accumulation values and
Variable Annuity payments, if any, under the contract relate is Sun Life of
Canada (U.S.) Variable Account F. It was established by the Company on July 13,
1989, pursuant to a resolution of its Board of Directors and is registered as a
unit investment trust under the Investment Company Act of 1940. That portion of
the assets of the Variable Account equal to the reserves and other contract
liabilities with respect to the Variable Account shall not be chargeable with
liabilities arising out of any other business the Company may conduct.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of a designated series or sub-series
of the Series Fund. The values of the Variable Accumulation Units and the
Annuity Units described in the contract reflect the investment performance of
the Sub-Accounts.
At the Company's election and subject to any 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 of any change in the operation
of the Variable Account pursuant to this provision, the Company may make
appropriate endorsement to the contract and this certificate to reflect the
change and take such other action as may be necessary and appropriate to reflect
the change.
Ownership of Assets
The Company shall have exclusive and absolute ownership and control of its
assets, including all assets of the Sub-Accounts.
7
<PAGE>
Investments of the Sub-Accounts
All amounts allocated to a Sub-Account will be used to purchase shares of
a specific series or sub-series of the Series Fund. The Series Fund shares
available on the Issue Date are shown on the Contract Specifications page; more
series may be subsequently added or deleted. The Series Fund is an open-end
investment company (mutual fund) registered under the Investment Company Act of
1940. Any and all distributions made by the Series Fund with respect to shares
held by a Sub-Account will be reinvested to purchase additional shares of that
series at net asset value. Deductions from the Sub-Accounts will, in effect, by
made by redeeming a number of Series Fund shares at net asset value equal in
total value to the amount to be deducted. Each Sub-Account will be fully
invested in Series Fund shares at all times.
Substitution
Shares of the series corresponding to a particular portfolio of securities
held by the Series Fund may not always be available for purchase by the
Sub-Accounts or the Company may decide that further investment in 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 Sub-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 by the Securities and
Exchange Commission and such other regulatory authorities as may be necessary.
In the event of any substitution pursuant to this provision, the Company may
make appropriate endorsement to the contract and this certificate to reflect the
substitution.
PURCHASE PAYMENTS
Payments
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 for any Certificate which is less
than $5,000, and each additional Purchase Payment must be at least $1,000. 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.
The initial Purchase Payment attributable to a particular certificate is
shown on the Certificate Specifications page.
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.
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 to the Participant's Account upon receipt by
the Company, either to the Sub-Accounts or to the Fixed Account or to both the
Sub-Accounts and the Fixed Account in accordance with the allocation factors
specified in the Application, or as subsequently changed.
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The allocation factors for new Purchase Payments among the Guarantee
Periods 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.
CONTRACT VALUES DURING ACCUMULATION PERIOD
Participants Account
The Company will establish a Participant's Account for each Participant
under this 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 variable accumulation value, if any, plus the fixed accumulation
value, if any, of the Participant's Account for that Valuation Period.
Variable Account Value
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 the Sub-Accounts 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 received by the Company.
Variable Accumulation Unit Value
The Variable Accumulation Unit value for each Sub-Account was established
at $10.00 for the first Valuation Period of the particular Sub-Account. The
Variable Accumulation Unit value for the particular Sub-Account for any
subsequent Valuation Period is determined by methodology which is the
mathematical equivalent of multiplying the Variable Accumulation Unit value for
the particular Sub-Account for the immediately preceding Valuation Period by the
Net Investment Factor for the particular Sub-Account for such 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 constant from Valuation
Period to Valuation Period in accordance with the Net Investment Factor
described below.
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 of each Sub-Account credited to the Participant's Account for
such Valuation Period. The variable accumulation value of each Sub-Account is
determined by multiplying the number of Variable Accumulation Units, if any,
credited to each Sub-Account by the Variable Accumulation Unit value of the
particular Sub-Account for such Valuation Period.
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.
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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;
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.
The asset charge factor for any Valuation Period is equal to the daily
asset charge factor multiplied by the number of 24 hour periods in the Valuation
Period. The daily asset charge factor will be determined by the Company
annually, but in no event may it exceed the maximum daily asset charge factor
specified on the Certificate Specifications page.
Fixed Account Value
Guarantee Periods
The Participant elects 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 (at least $1,000)
thereof (or amount transferred in accordance with the Transfer Privilege
provision described below) allocated to a particular Guarantee Period will earn
interest at the Guaranteed Interest Rate during the Guarantee Period. Initial
Guarantee Periods begin on the date a Net Purchase Payment is applied (or, in
the case of a transfer, on the effective date of the transfer) and end when the
number of calendar years in the Guarantee Period elected (measured from the end
of the calendar month in which the amount was allocated to the Guarantee Period)
has elapsed. The last day of a Guarantee Period is the Expiration Date.
Subsequent Guarantee Periods begin on the first day following the Expiration
Date.
Any portion of a Participant's Account Value allocated to a particular
Guarantee Period with a particular Expiration Date (including interest earned
thereon) is referred to as a Guarantee Amount. As a result or additional
Purchase Payments, renewals and transfers of portions of the Participants
Account Value, Guarantee Amounts allocated to Guarantee Periods of the same
duration may have different Expiration Dates, and each Guarantee Amount will be
treated separately for purposes of determining any market value adjustment.
The Company will notify the Participant in writing at least 45 and no more
than 75 days prior to the Expiration Date for any Guarantee Amount. A new
Guarantee Period of the same duration as the previous Guarantee Period will
commence automatically at the end of the previous Guarantee Period unless the
company receives, in writing prior to the end of such Guarantee Period, an
election by the Participant of a different Guarantee Period from among those
being offered by the Company at such time, 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 lest
$1,000 unless it is equal to the entire Guarantee Amount being transferred.
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Guarantee Interest Rates
The company periodically will establish an applicable Guaranteed Interest
Rate for each Guarantee Period offered by the Company. These rates will be
guaranteed for the duration of the respective Guarantee Periods.
No Guaranteed Interest Rate shall be less than 3% per year, compounded
annually.
Fixed Accumulation Value
Upon receipt of a Purchase Payment by the Company, all or that portion, if
any, of the Net Purchase Payment which is allocated to the Fixed Account will be
credited to the Participant's Account and allocated to the Guarantee Period(s)
selected by the Participant. 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.
Transfer Privilege
At any time during the Accumulation Period the Participant may transfer
all or part of the Participant's Account Value to one or more Sub-Accounts or
Guarantee Periods, subject to the conditions set forth below. A transfer will
generally be effective on the date the request for transfer is received by the
Company.
Transfers involving Sub-Accounts will reflect the purchase or cancellation
of Variable Accumulation Units having an aggregate value equal to the dollar
amount being transferred to or from a particular Sub-Account. The purchase or
cancellation of such units shall be made using Variable Accumulation Unit values
of the applicable Sub-Account for the Valuation Period during which the transfer
is effective. Transfers to a Guarantee Period will result in a new Guarantee
Period for the amount being transferred. Any such Guarantee Period will begin on
the effective date of the transfer and end on the Expiration Date. The amount
transferred into such Guarantee Period will earn interest at the Guaranteed
Interest Rate declared by the Company for that Guarantee Period as of the
effective date of the transfer.
Transfers shall be subject to the following conditions: (1) not more than
12 transfers may be made in any Account Year; (2) 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; (3) any
Participant's Account Value remaining in a Sub-Account may not be less than
$1,000; and (4) the total Participant's Account Value attributable to the
Guarantee Amount must be transferred, except for an "interest out" transfer (the
entire amount of interest credited to all Guarantee Amounts during the current
Account Year is transferred to one or more Sub-Accounts). In addition, transfers
of a Guarantee Amount (except interest credited to such Guarantee Amount during
the current Account Year) 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.
Account Fee
Prior to the Annuity Commencement Date, on each Account Anniversary the
Company will deduct from the value of each Participant's Account an annual
account fee to reimburse the Company for administrative expenses relating to the
contract and the Participant's Account. In Account Years one through five the
account fee is equal to the lesser of $30 or 2% of the Participant's Account
Value; thereafter the account fee may be changed annually, but in no event may
it exceed the lesser of $50 or 2% of the Participant's Account Value. 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. If a Participant's Account is
surrendered for its full value on other than an Account Anniversary, the account
fee will be deducted in full at the time of such surrender. The Company
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will waive the account fee when either a) the entire Participant's Account Value
has been allocated to the Fixed Account during the entire previous Account Year,
or b) the Participant's Account Value is greater than $75,000 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 $30 will be
deducted in equal amounts from each Variable Annuity payment made during the
year. No such deduction is made from Fixed Annuity payments.
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 by filing with the Company at its annuity service mailing
address, a written election in such form as the Company may require. Any such
election shall specify the amount of the withdrawal and will be effective on the
date that it is received by the Company. 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. 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 Participant may request a full surrender or a 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 partial
withdrawal (a payment of an amount less than that paid under a full surrender)
will result in the cancellation of a portion of the Participant's Account Value
with an aggregate dollar 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.
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. If a partial withdrawal is requested which would leave a
Participant's Account Value less than the account fee, then such partial
withdrawal will be treated as a full surrender.
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.
All cash withdrawals of any Guarantee Amount, except those effective
within 30 days prior to the Expiration Date of such Guarantee Amount or the
withdrawal of interest credited to such Guarantee Amount during the current
Account Year, will be subject to the market value adjustment described below.
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Withdrawal Charges
If a cash withdrawal is made, a withdrawal charge may be assessed by the
Company. The amount of any withdrawal charge is determined as follows:
Old Payments, and new Payments: With respect to a particular Account Year,
new Payments are those Payments made in that Account Year or in the six
immediately preceding Account Years; and old Payments are those Payments not
defined as new Payments.
Order of liquidation: For purposes of a full surrender or partial
withdrawal, each withdrawal is allocated first to the free withdrawal amount
and then to previously unliquidated Payments (on a first-in, first-out basis)
until all Purchase Payments have been liquidated.
Free withdrawal amount: The free withdrawal amount is equal to 10% of any
new Payments, irrespective of whether these new Payments have been liquidated.
Any portion of the free withdrawal amount that is not used in the current
Account Year is cumulative into future years.
Maximum withdrawal amount without a withdrawal charge: The maximum amount
that can be withdrawn without a withdrawal charge in an Account Year is equal to
the sum of: (a) any previously unliquidated free withdrawal amount, and (b) any
previously unliquidated old Payments.
Amount subject to withdrawal charge: For any partial withdrawal or full
surrender, the amount subject to withdrawal charge is the amount of the partial
withdrawal or full surrender less the maximum withdrawal amount without a
withdrawal charge, up to a maximum of the sum of all unliquidated new Payments.
Withdrawal charge percentage: The withdrawal charge percentage varies
according to the number of complete Account Years between the Account Year in
which a Purchase Payment was credited to the Participant's Account and the
Account Year in which it is withdrawn.
Amount of withdrawal charge: The amount of the withdrawal charge is
determined by multiplying the amount subject to a withdrawal charge by the
withdrawal charge percentage(s) according to the following table:
Number of Complete Withdrawal Charge
Account Years Percentage
------------- ----------
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
No withdrawal charge is imposed upon amounts applied to purchase an
annuity.
Nursing Home Withdrawal Privilege
The Company will waive the withdrawal charge arising from a full surrender
if: (1) at least one year has elapsed since the certificate's Date of Coverage,
and (2) the Annuitant is confined to an eligible nursing home and has been
confined there for at least the preceding one hundred eighty (180) days. Proof
of the Annuitant's confinement to an eligible nursing home must be provided to
the Company at its annuity service mailing address in such form as the Company
may require.
For purposes of this section, an eligible nursing home is a licensed
hospital or licensed skilled or intermediate care nursing facility at which
medical treatment is available on a daily basis and daily medical records are
kept for each patient.
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Market Value Adjustment
Any cash withdrawal (which for purposes of this section include transfers,
distributions on the death of a Participant, and amounts applied to purchase an
annuity) of a Guarantee Amount, other than a withdrawal effective within 30 days
prior to the Expiration Date of the Guarantee Amount, or the withdrawal of
interest credited on such Guarantee Amount during the current Account Year, will
be subject to a market value adjustment.
The market value adjustment will reflect the relationship between the
current rate (as described in the formula below) for the amount being withdrawn
and the Guaranteed Interest Rate applicable to the amount being withdrawn. It
also reflects the time remaining in the applicable Guarantee Period.
The market value adjustment will be determined by multiplying the amount
being withdrawn after the deduction of any applicable account fee and before
deduction of any applicable withdrawal charge by the market value adjustment
factor. The market value adjustment factor is:
[(1 + I)/(1 + J)]^(N/12) - 1
where,
I is the Guaranteed Interest Rate being credited to the Guarantee Amount
subject to the market value adjustment,
J is the Guaranteed Interest Rate declared by the Company, as of the
effective date of the application of the market value adjustment, for
current allocations to Guarantee Periods equal to the balance of the
Guarantee Period of the Guarantee Amount subject to the market value
adjustment, rounded to the next higher number of complete years (the
current rate), and
N is the number of complete months remaining in the Guarantee Period of
the Guarantee Amount subject to the market value adjustment.
In the determination of J, if the Company does not currently offer the
applicable Guarantee Period, then the rate will be determined by linear
interpolation of the current rates for Guarantee Periods that are available.
DEATH BENEFIT
Death Benefit Provided by the Contract
If the Annuitant dies while this contract and the applicable Certificate
are in effect and before the Annuity Commencement Date, the Company, upon
receipt of Due Proof of Death of the Annuitant, will pay a death benefit to the
Beneficiary in accordance with this Death Benefit provision. If there is no
designated Beneficiary living on the date of death of the Annuitant, the Company
will pay the death benefit upon receipt of Due Proof of Death of both the
Annuitant and the designated Beneficiary in one sum to the Participant or, if
the Annuitant was the Participant, to the estate of the deceased
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 form of annuity 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 of the Annuity Options in accordance with the contract's Settlement
provisions 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. This
election may be made or subsequently revoked by filing with the Company at its
annuity service mailing address, a written election or revocation of an election
in such form as the Company may require. Any election or revocation of an
election of a method of settlement of the death benefit by the Participant will
become effective on the date it is received by the Company. For the purposes of
the Payment of Death Benefit section below, any election of the method of
settlement 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.
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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 cash payment, in
which event the Participant's Account will be cancelled; or (b) to have the
death benefit applied under one or more of the Annuity Options in accordance
with the Settlement provisions to effect, on the Annuity Commencement Date
determined in the Payment of Death Benefit section below, a Variable Annuity or
a Fixed Annuity or a combination of both for the Beneficiary as Payee. This
election may be made by filing with the Company at its annuity service mailing
address, a written election in such form as the Company may require. Any written
election of a method of settlement of the death benefit by the Beneficiary will
become effective on the later of: (a) the date the election is received by the
Company; or (b) the date Due Proof of Death of the Annuitant is received by the
Company. If a written 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 shall be deemed to have elected a cash
payment as of the last day of the 60 day period.
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
If the Annuitant was less than age 86 on the Date of Coverage, the death
benefit is determined as of the effective date or deemed effective date of the
death benefit election and is equal to the greatest of (a) the Participant's
Account Value for the Valuation Period during which the death benefit election
is effective or is deemed to become effective; (b) subject to the conditions set
forth in the next paragraph, the excess of (i) the sum of all Purchase Payments
made under the certificate over (ii) the sum of all partial withdrawals; (c) the
Participant's Account Value on the Seven Year Anniversary immediately preceding
the date of death benefit election is effective or is deemed to become
effective, adjusted for any subsequent Purchase Payments and partial withdrawals
and charges made between the immediately preceding Seven Year Anniversary and
the date the death benefit elective is effective or is deemed to become
effective; or (d) 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.
For the purposes of calculating the amount due under (b) in the preceding
paragraph, the following conditions will apply: i) until the first day of the
month following the Annuitant's 80th birthday, each Purchase Payment and each
partial withdrawal will accumulate daily at a rate equivalent to 5% per year;
ii) no such accumulation will apply to a Purchase Payment or partial withdrawal
once that Purchase Payment of partial withdrawal has, as a result of such
accumulation, grown to double its original amount.
If (b), (c), or (d) is operative, the Participant's Account Value will be
increased by the excess of (b), (c) or (d) as applicable over (a) 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 on that
date, the entire increase will be allocated to the Sub-Account invested in the
Money Market Series of the Series Fund.
If the Annuitant was 86 or greater on the Date of Coverage, the death
benefit is determined as of the effective date or deemed effective date of the
death benefit election and is equal to 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 or is deemed to become effective.
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SETTLEMENT PROVISIONS
General
On the Annuity Commencement Date, the adjusted value of the Participant's
Account as determined in accordance with the Determination of Amount provision
below will be applied, as specified by the Participant, under one or more of the
Annuity Options provided in the contract or under such other settlement options
as may be agreed to by the Company. However, 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.
After the Annuity Commencement Date, no change of Annuity Option is
permitted and no payments may be requested under the Cash Withdrawals provision
of the contract. Exchanges of Variable Annuity Units are permitted.
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 adjusted value of the Participant's
Account applied on the Annuity Commencement Date under one or more of the
Annuity Options provided in the contract; if more than one person is named as
Annuitant, due to the designation of a co-annuitant, the Participant may elect
to name one of such persons to be the sole Annuitant as of the Annuity
Commencement Date. The Participant may also change any election but any election
or change of election must be effective at least 30 days prior to the Annuity
Commencement Date. This election or change of election may be made by filing
with the Company at its annuity service mailing address, a written election or
change of election in such form as the Company may require. Any such election or
change of election will become effective on the date it is received by the
Company. If no such election is in effect on the 30th day prior to the Annuity
Commencement Date, the adjusted value of the Participant's Account will be
applied under Annuity Option B, for a life annuity with 120 monthly payments
certain. If there is no election of a sole Annuitant in effect on the 30th day
prior to the Annuity Commencement Date, the person designated as co-annuitant
will be the Payee under the applicable Annuity Option.
Any such 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, then the portion of the
adjusted value of the Participant's Account to be applied to provide a Fixed
Annuity and/or a Variable Annuity will be determined on a pro rata basis from
the composition of the Participant's Account on the Annuity Commencement Date.
The Annuity Options in the contract may also be elected as provided in the
Death Benefit section of the contract.
Determination of Amount
The adjusted value of the Participant's Account to be applied to provide a
Variable Annuity or a Fixed Annuity or a combination of both, shall be equal to
the Participant's Account Value for the Valuation Period which ends immediately
preceding the Annuity Commencement Date, minus 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 tax.
Effect of Annuity Commencement Date on Participant's Account
On the Annuity Commencement Date the Participant's Account will be
cancelled.
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Annuity Commencement Date
The Annuity Commencement Date is set forth on the Certificate
Specifications page. This date may be changed from time to time by the
Participant provided that each change is effective at least 30 days prior to the
then current Annuity Commencement Date and the new Annuity Commencement Date is
a date which is: (1) at least 30 days after the effective date of the change;
(2) the first day of a month; and (3) not later than the first day of the first
month following the Annuitant's 90th birthday. Any change of the Annuity
Commencement Date may be made by filing with the Company at its annuity service
mailing address, a written designation of a new Annuity Commencement Date in
such form as the Company may require. Any such change will become effective on
the date the designation is received by the Company.
The Annuity Commencement Date may also be changed by an election of a
settlement option as provided in the Death Benefit section of the contract.
Fixed Annuity Payments
The dollar amount of each Fixed Annuity payment shall be determined in
accordance with the annuity payment rates shown on page 20, which are based on
the 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 shall be
determined in accordance with the annuity payment rates shown on page 20, which
are based on an assumed interest rate of 3% per year.
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 Sub-Account credited
with respect to the Payee then remains fixed unless an exchange of Annuity Units
is made pursuant to the Exchange of Variable Annuity Units section 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 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.
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 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 contract. The factor is
0.99991902 for a one day Valuation Period.
17
<PAGE>
Exchange of Variable Annuity Units
After the Annuity Commencement Date the Payee may, by filing a written
request with the Company at its annuity service mailing address, exchange the
value of a designated number of Annuity Units of particular Sub-Accounts then
credited with respect to such 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 exchange. No more than 12 exchanges may
be made in any Account Year.
Exchanges may be made among the Sub-Accounts only. Exchanges shall be made
using the Annuity Unit values for the Valuation Period during which the request
for exchange is received by the Company.
Account Fee
After the Annuity Commencement Date an annual account fee amounting to $30
will be deduced in equal amounts from each Variable Annuity payment made during
the year as provided in the Contract Values During Accumulation Period section
of the contract. No such deduction is made from Fixed Annuity payments.
Description of Annuity Options
Annuity Options A, B, C and D are available on either a Fixed Annuity or a
Variable Annuity basis. Annuity Option E is available on a Fixed Annuity basis
only.
Annuity Option A. Life Annuity: Monthly payments during the lifetime of
the Payee.
Annuity Option B. Life Annuity with 60, 120, 180 or 240 Monthly Payments
Certain: Monthly payments during the lifetime of the Payee and in any event for
sixty (60), one hundred twenty (120), one hundred eighty (180) or two hundred
forty (240) months certain as elected.
Annuity Option C. Joint and Survivor Annuity: Monthly payments payable
during the joint lifetime of the Payee and a designated second person and during
the lifetime of the survivor. During the lifetime of the survivor variable
monthly payments, if any, will be determined using the percentage chosen at the
time of the election of this option of the number of each type of Annuity Unit
credited with respect to the Payee, and each fixed monthly payment, if any, will
be equal to the same percentage of the fixed monthly payment payable during the
joint lifetime of the Payee and the designated second person.
Annuity Option D. Monthly Payments for a Specified Period Certain: Monthly
payments for any specified period of time (at least (5) years but not exceeding
thirty (30) years), as elected.
Annuity Option E. Fixed Payments: The amount applied to provide fixed
payments in accordance with this Annuity 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 (5) 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 on an
annual basis 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.
18
<PAGE>
Amounts Payable on Death of Payee
In the event of the death of the Payee on or after the Annuity
Commencement Date, the Company will pay any remaining payments under any Annuity
Option then in effect to the Payee's designated beneficiary as they become due.
If there is no designated beneficiary entitled to these remaining payments then
living, the Company will pay the amount specified in the schedule below for any
Annuity Option then in effect in one sum to the deceased Payee's estate. Any
beneficiary who becomes entitled to any remaining payments under any Annuity
Option may elect to receive the amount specified in the schedule below for such
option in one sum. In the event of the death of a beneficiary who has become
entitled to receive any remaining payments under any Annuity Option, the Company
will pay the amount specified for such option in the schedule below in one sum
to the deceased beneficiary's estate. All payments made in one sum by the
Company as provided in this paragraph are made in lieu of paying any remaining
payments under the Annuity Option then in effect
Option Amount
------ ------
B The discounted value of the remaining payments, if any,
for the certain period.
D The discounted value of the remaining payments, if any,
for the certain period.
E The unpaid balance of the proceeds and interest.
In the case of Options B and D the discounted value will be based, for
payments being made on a variable basis, on interest compounded annually at the
assumed interest rate and on the. assumptions that the particular Annuity Unit
values applicable to the remaining payments will be the particular Annuity Unit
values for the Valuation Period which ends on the day before the date of the
determination and that this value will remain unchanged thereafter.
Annuity Payment Rates
The annuity payment rates below show, for each $1,000 applied, the dollar
amount of both (a) the first monthly Variable Annuity payment based on the
assumed interest rate of 3% and (b) the monthly Fixed Annuity payment, when the
payment is based on the minimum guaranteed interest rate of 3% per year.
The mortality table used in determining the annuity payment rates for
Options A, B and C is the 1983 Individual Annuitant Mortality Table A. In using
this mortality table, ages of Annuitants will be reduced by one year for Annuity
Commencement Dates occurring during the 1990's, reduced two years for Annuity
Commencement Dates occurring during the decade 2000-2009, and so on.
The annuity payment rates in the tables shown below reflect rates of
mortality appropriate for Annuity Commencement Dates occurring during the 1980s.
Thus, for Annuity Commencement Dates occurring during the 1990s the term
adjusted age as used in the tables below, means actual age less one year.
Adjusted age shall mean actual age less two year for Annuity Commencement Dates
occurring in the decade 2000-2009, and so on.
Adjusted ages will be determined based on the actual age(s) of the
Annuitant(s), in completed years and months as of the Annuity Commencement Date.
The tables below show annuity payment rates for exact adjusted ages; rates for
adjusted ages expressed in completed years and months will be based on straight
line interpolation between the appropriate annuity payment rates.
19
<PAGE>
The dollar amount of each annuity payment for any adjusted age or
combination of adjusted ages not shown below or for any other form of Annuity
Option agreed to by the Company will be quoted by the Company on request.
AMOUNT OF FIRST MONTHLY ANNUITY PAYMENT PER $1,000
SINGLE LIFE ANNUITY
OPTION A OPTION B
LIFE ANNUITY LIFE ANNUITY WITH PAYMENTS CERTAIN
------------ -------------------------------------------------------
60 Payments 120 Payments 180 Payments 240 Payments
-------------------------------------------------------
Adjusted
Age Male Female Male Female Male Female Male Female Male Female
20 3.04 2.93 3.03 2.93 3.03 2.93 3.03 2.93 3.03 2.93
25 3.14 3.02 3.14 3.02 3.14 3.02 3.14 3.02 3.13 3.01
30 3.28 3.13 3.28 3.13 3.27 3.12 3.27 3.12 3.26 3.12
35 3.44 3.26 3.44 3.26 3.44 3.26 3.43 3.25 3.41 3.24
40 3.66 3.42 3.65 3.42 3.64 3.42 3.63 3.41 3.60 3.40
45 3.93 3.63 3.92 3.63 3.90 3.63 3.87 3.61 3.82 3.59
50 4.27 3.90 4.26 3.90 4.22 3.89 4.17 3.86 4.08 3.82
55 4.70 4.25 4.88 4.25 4.62 4.22 4.53 4.18 4.39 4.11
60 5.28 4.72 5.25 4.70 5.14 4.66 4.96 4.57 4.71 4.44
65 6.10 5.35 6.03 5.32 5.81 5.22 5.46 5.05 5.02 4.79
70 7.23 6.25 7.07 6.18 6.61 5.96 5.96 5.60 5.27 5.12
75 8.82 7.56 8.44 7.39 7.49 6.89 6.38 6.14 5.42 5.35
80 11.06 9.53 10.17 9.07 8.33 7.89 6.66 6.55 5.49 5.47
85 14.16 12.48 12.12 11.19 8.97 8.74 6.81 6.77 5.51 5.50
OPTION C
JOINT AND SURVIVOR ANNUITY
(Assumed election of Joint and Two-Thirds Survivor)
Adjusted Age of Female
--------------------------------------------------
Adjusted Age
of Male 55 60 65 70 75
------- -- -- -- -- --
55 4.25 4.47 4.72 4.99 5.29
60 4.44 4.71 5.01 5.34 5.71
65 4.65 4.97 5.33 5.75 6.23
70 4.88 5.24 5.68 6.20 6.81
75 5.11 5.52 6.04 6.68 7.45
OPTION D
PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
Years Amount Years Amount Years Amount Years Amount
----- ------ ----- ------ ----- ------ ----- ------
5 17.91 12 8.24 19 5.73 26 4.59
6 15.14 13 7.71 20 5.51 27 4.47
7 13.16 14 7.26 21 5.32 28 4.37
8 11.68 15 6.87 22 5.15 29 4.27
9 10.53 16 6.53 23 4.99 30 4.18
10 9.61 17 6.23 24 4.84
11 8.86 18 5.96 25 4.71
20
<PAGE>
OWNERSHIP PROVISIONS
Exercise of Contract Rights
The contract shall belong to the Owner. All contract rights and privileges
may be expressly reserved by the Owner, tailing 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 irrevocable
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 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 Code
for the benefit of the Annuitant; (4) the trustee of an individual retirement
account plan qualified under Section 405 of the 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
he 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 this 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 payment beginning within one year after the date of death of the
Participant. For this purpose (and for purposes of Section 72(s) of the Code)
the person named as 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 tine 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.
21
<PAGE>
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 as
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 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 Code.
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, as the case may be, 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 ace received from persons have such voting
rights.
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 retirement or deferred compensation 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,
Participants 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 Owner, each
Participant and each Payee having the right to give voting instructions at least
ten days prior to each meeting or the shareholders of the Series Fund. The
number of particular 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 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 particular Sub-Account with respect to the particular
Payee by the net asset value of a Series Fund share as of the same date.
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.
22
<PAGE>
BENEFICIARY PROVISION
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
Beneficiary surviving the Annuitant and, in the case of a Non-Qualified
Contract, surviving the Participant as well.
Subject to the rights of an irrevocable Beneficiary, the Participant may
change or revoke the designation of a Beneficiary at any time while the
Annuitant is living. To do so, the Participant must file the change or
revocation with the Company at its annuity service mailing address in such form
as the Company may require. The change or revocation will not be binding upon
the Company until it is received by the Company. When it is so received the
change or revocation will be effective as of the date on which the beneficiary
designation or revocation was signed, but the change or revocation will be
without prejudice to the Company on account of any payment made or any action
taken by the Company prior to receiving the change or revocation.
GENERAL PROVISIONS
Age and Sex Misstatement
If any date of birth or sex, or both, as been misstated in the
Application, or elsewhere, the amounts payable pursuant to the contract will be
the amounts which would have been provided using the correct age or sex, or
both. Any deficiency in payments already made by the Company shall be paid
immediately and any excess in the payments already made by the Company shall be
charged against the benefits falling due after the adjustment.
Contract
The contract is issued in consideration of the Contract Application and
payment of the Purchase Payment(s). This contract and the Contract Application,
a copy of which is attached, constitute the entire contract. All statements made
in the Contract Application and each Participant's Application will be deemed
representations and not warranties, and no statement will void the contract or a
Participant's interest therein or be used in defense to a claim unless it is
contained in the Contract Application or the Application of that Participant and
a copy is attached to the contract or Certificate, as applicable, at issue. Only
the President, a Vice President, the Actuary or the Secretary of the Company has
authority to agree on behalf of the Company to any alteration of the contract or
any Certificate, or to any waiver of the rights or requirements of the Company.
Currency
All amounts due under the contract are payable in United States dollars,
lawful money of the United States of America.
Determination of Values
The method of determination by the Company of the Net Investment Factor
and the number and value of Accumulation Units and Annuity Units shall be
conclusive upon the Owner, the Participant, any Payee and any Beneficiary
23
<PAGE>
Discontinuance of New Participants
The Company, by giving 30 days' prior written notice to the Owner, may
limit or discontinue the acceptance of new Applications and the issuance of new
Certificates under this contract. Such limitation or discontinuance shall have
no effect on rights or benefits with respect to any Participant's Account
established prior to the effective date of such limitation or discontinuance.
Governing Law
This contract and all Certificates issued in connection with it will be
governed by the laws of the jurisdiction where the Contract Application is
signed.
Guarantees
Subject to the Net Investment Factor provision, the Company guarantees
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
the expense deductions provided for in the contract and other contracts
providing benefits which vary in accordance with the investment performance of
the Sub-Accounts.
Incontestability
This contract is incontestable.
Modification
Upon notice to the Owner, Participant(s) or (he Payee(s) during the
annuity period, this contract may be modified by the Company, but only if such
modification (a) 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 (b) is necessary to assure
continued qualification of the contract under the Code or other federal or state
laws relating to retirement annuities or annuity contracts; or (c) is necessary
to reflect a change in the operation of the Variable Account or the
Sub-Accounts; or (d) provides additional Variable Account and/or Fixed Account
options. In the event of any such modification, the Company may make appropriate
endorsement to the contract to reflect such modification.
In addition, upon 60 days' prior written notice to the Owner, the contract
may be modified by the Company to change the withdrawal charges, 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 any such modification. All of the
charges and the annuity tables which are provided in the contract prior to any
such modification will remain in effect permanently, unless improved by the
Company, with respect to Participant's Accounts established prior to the
effective date of such modification.
Nonparticipating
The contract is nonparticipating and will not share in any surplus
earnings of the Company.
24
<PAGE>
Payments by the Company
All sums payable by the Company pursuant to the contract are payable only
at its Executive Office or such other place as may be designated by the Company.
The Company may require surrender of the contract upon final payment of all sums
payable by the Company pursuant to the contract.
Proof of Age
The Company shall have the right to require evidence of the age of any
Payee under Annuity Options A, B, and C prior to the Annuity Commencement Date.
Proof of Survival
The Company shall have the right to require evidence of the survival of
any Payee under Annuity Options A, B and C at the time any payment payable to
such Payee is due.
Splitting Units
The Company reserves the right to split or combine the value of Variable
Accumulation Units, Annuity Unit or any of them. In effecting any such change of
unit values, strict equity wilt be preserved and no change will have a material
effect on the benefits or other provisions of this contract.
25
<PAGE>
[Letterhead of Sun Life Assurance Company Of Canada (U.S.)]
Flexible Payment Deferred Combination Variable and Fixed Group Annuity Contract
Nonparticipating
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO A PARTICIPANT, INCLUDING WITHDRAWALS,
TRANSFERS, AMOUNTS APPLIED TO PURCHASE AN ANNUITY, AND DISTRIBUTIONS RESULTING
FROM THE DEATH OF THE PARTICIPANT. PAYMENTS MADE FROM GUARANTEE AMOUNTS WHICH
ARE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE PERIOD OR THE WITHDRAWAL OF
INTEREST CREDITED TO GUARANTEE AMOUNTS DURING THE CURRENT ACCOUNT YEAR ARE NOT
SUBJECT TO THE MARKET VALUE ADJUSTMENT.
<PAGE>
Sun Life
OF CANADA (U.S.)
Sun Life Assurance Company of Canada (U.S.)
A Wholly-Owned Subsidiary of Sun Life
Assurance Company of Canada
Executive Office: Home Office:
One Sun Life Executive Park Wilmington, Delaware
Wellesley Hills, Massachusetts 02181
Annuity Service Mailing Address:
Sun Life Annuity Service Center
P.O. Box 1024
Boston, Massachusetts 02103
This is the certificate which evidences the interest of the Participant
named in the Certificate Specifications page in the Combination Variable and
Fixed Group Annuity contract ("contract") issued by Sun Life Assurance Company
of Canada (U.S.) ("the Company").
The contract is the legal contract. This certificate is merely a summary
of the rights, duties and benefits of that contract. A copy of the contract may
be obtained by requesting it in writing from the Company. If there is any
conflict, the contract is the controlling document.
The Company will pay an annuity commencing on the Annuity Commencement
Date to the Annuitant if then living, by applying the adjusted value of the
Participant's Account in accordance with the Settlement provisions. If the
Annuitant dies while the contract is in effect and this certificate is in force
and before the Annuity Commencement Date, the Company will pay a death benefit
to the Beneficiary upon receipt of Due Proof of Death of the Annuitant. Under
certain circumstances, if the Participant dies prior to the Annuitant and before
the Annuity Commencement Date, a distribution is required by law.
All payments will be made to the persons and in the manner set forth in
the contract.
Signed by the Company at its Executive Office, Wellesley Hills,
Massachusetts on the Date of Coverage.
/s/Donald A. Stewart /s/Margaret Sears Mead
Donald A. Stewart Margaret Sears Mead Secretary
President Secretary
Certificate for
Flexible Payment Deferred Combination Variable and Fixed Group Annuity Contract
Nonparticipating
ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO A PARTICIPANT INCLUDING WITHDRAWALS,
TRANSFERS, AMOUNTS APPLIED TO PURCHASE AN ANNUITY, AND DISTRIBUTIONS RESULTING
FROM THE DEATH OF THE PARTICIPANT. PAYMENTS MADE FROM GUARANTEE AMOUNTS WHICH
ARE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE PERIOD OR THE WITHDRAWAL OF
INTEREST CREDITED TO GUARANTEE AMOUNTS DURING THE CURRENT ACCOUNT YEAR ARE NOT
SUBJECT TO THE MARKET VALUE ADJUSTMENT.
RIGHT TO RETURN CERTIFICATE. Please read this certificate. If not satisfied with
it, the Participant may, within 10 days after its receipt, return it by
delivering or mailing it to the annuity service mailing address indicated above.
Immediately upon receipt of the certificate by the Company, the certificate will
be deemed void as though it had never been applied for, and the Participant's
Account Value at the end of the Valuation Period during which the certificate is
received by the Company will be refunded to the Participant.
IMPORTANT NOTICE:
It is not necessary to employ any person to collect any payment or benefit
provided by the contract. When you require help or advice, write directly to the
Company at its annuity service mailing address.
The contract contains many benefits. In your own best interest you should
consult the Company if anyone advises you to surrender this certificate or to
replace it with a new contract or certificate.
<PAGE>
TABLE OF CONTENTS
Page
CERTIFICATE SPECIFICATIONS PAGE ........................................... 4
DEFINITIONS ............................................................... 5
FIXED AND VARIABLE ACCOUNTS ............................................... 7
Fixed Account ........................................................ 7
Variable Account and Sub-Accounts .................................... 7
Ownership of Assets .................................................. 7
Investments of the Sub-Accounts ...................................... 8
Substitution ......................................................... 8
PURCHASE PAYMENTS ......................................................... 8
Payments ............................................................. 8
Account Continuation ................................................. 8
Allocation of Net Purchase Payments .................................. 8
CERTIFICATE VALUES DURING ACCUMULATION PERIOD ............................. 9
Participant's Account ................................................ 9
Crediting Variable Accumulation Units ................................ 9
Variable Accumulation Unit Value ..................................... 9
Variable Accumulation Value .......................................... 9
Net Investment Factor ................................................ 9
Guarantee Periods .................................................... 10
Guaranteed Interest Rates ............................................ 11
Fixed Accumulation Value ............................................. 11
Transfer Privilege ................................................... 11
Account Fee .......................................................... 11
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT .......... 12
Cash Withdrawals ..................................................... 12
Withdrawal Charges ................................................... 13
Nursing Home Withdrawal Privilege .................................... 13
Market Value Adjustment .............................................. 14
DEATH BENEFIT ............................................................. 14
Death Benefit Provided by the Contract ............................... 14
Election and Effective Date of Election .............................. 14
Payment of Death Benefit ............................................. 15
Amount of Death Benefit .............................................. 15
SETTLEMENT PROVISIONS ..................................................... 16
General .............................................................. 16
Election and Effective Date of Election .............................. 16
Determination of Amount .............................................. 16
Effect of Annuity Commencement Date on Participants Account .......... 16
Annuity Commencement Date ............................................ 17
Fixed Annuity Payments ............................................... 17
Variable Annuity Payments ............................................ 17
Annuity Unit Value ................................................... 17
Exchange of Variable Annuity Units ................................... 18
Account Fee .......................................................... 18
Description of Annuity Options ....................................... 18
Amounts Payable on Death of Payee .................................... 19
Annuity Payment Rates ................................................ 19
2
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Page
OWNERSHIP PROVISIONS ...................................................... 21
Exercise of Contract Rights .......................................... 21
Change of Ownership .................................................. 21
Death of Participant ................................................. 21
Voting of Series Fund Shares ......................................... 21
Periodic Reports ..................................................... 22
BENEFICIARY PROVISION ..................................................... 23
Designation and Change of Beneficiary ................................ 23
GENERAL PROVISIONS ........................................................ 23
Age and Sex Misstatement ............................................. 23
This Certificate ..................................................... 23
Currency ............................................................. 23
Determination of Values .............................................. 23
Governing Law ........................................................ 23
Guarantees ........................................................... 24
Incontestability ..................................................... 24
Modification ......................................................... 24
Nonparticipating ..................................................... 24
Payments by the Company .............................................. 24
Proof of Age ......................................................... 24
Proof of Survival .................................................... 24
Splitting Units ...................................................... 24
QUALIFIED CERTIFICATE PROVISIONS .......................................... E-1
3
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DEFINITIONS
Any reference in this certificate to receipt and received by the Company means
receipt at the Company's annuity service mailing address shown on the first page
of this certificate.
ACCOUNT YEARS AND ACCOUNT ANNIVERSARIES: The first Account Year shall be the
period of 12 months plus a part of a month as measured from the Date of Coverage
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 death, prior to the Annuity Commencement Date, of the last surviving
of the persons so named. Collectively, these persons are referred to in the
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 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 the Participant that serves as his or her
application for participation under the contract, a copy of which is attached to
this certificate.
*BENEFICIARY: The person or entity having the right to receive the death benefit
and, for a certificate issued under a Non-Qualified Contract, who is the
designated beneficiary for purposes of Section 72(s) of the Code in the event of
the Participant's death.
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
CONTRACT APPLICATION: The document signed by the Owner that evidences the
Owner's application for the contract.
DATE OF COVERAGE: The date on which this certificate 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.
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* As specified in the Application, unless changed.
5
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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.
FUND(S):
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.
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during any Guarantee Period.
NET INVESTMENT FACTOR: 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.
NET PURCHASE PAYMENT: The portion of a Purchase Payment which remains after the
deduction of any applicable premium or similar tax.
NON-QUALIFIED CONTRACT: A contract used in connection with a retirement plan
which does not receive favorable federal income tax treatment under Sections
401, 403, or 408 of the Code. The Participant's interest in the contract
evidenced by this certificate must be owned by a natural person or agent for a
natural person for the contract to receive favorable income tax treatment as an
annuity.
*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 Code to
serve as legal owner of assets of a retirement plan, but the term Owner, as used
herein, refers to the organization entering into the contract.
PARTICIPANT: The person named in this 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 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 relating to this certificate. The term includes
an Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Annuitant.
PURCHASE PAYMENT (PAYMENT): The amount paid to the Company as consideration for
the benefits provided by the contract.
QUALIFIED CONTRACT: A contract used in connection with a retirement plan which
received favorable federal income tax treatment under Sections 401, 403 or 408
of the Code.
SEVEN YEAR ANNIVERSARY: The seventh Account Anniversary and each succeeding
Account Anniversary occurring at any seven year interval thereafter, for
example, the 14th, 21st, and 28th Account Anniversaries.
- -----------------
* As specified in the Application, unless changed.
6
<PAGE>
SUB-ACCOUNT: That portion of the Variable Account which invests in shares of
specific series or sub-series of the Series Fund.
VALUATION PERIOD: The period of time from one determination of Variable
Accumulation Unit and Annuity Unit values to the next subsequent determination
of these values. Such determination shall be made as of the close of the New
York Stock Exchange on each day the Exchange is open for trading and on such
other days on which there is a sufficient degree of trading in the portfolio
securities of the Variable Account so that the values of the Variable Account's
Accumulation Units and Annuity Units might be materially affected.
VARIABLE ACCOUNT: A separate account of the Company consisting of assets set
aside by the Company, the investment performance of which is kept separate from
that of the general assets of the Company.
VARIABLE ACCUMULATION UNIT: A unit or 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.
FIXED AND VARIABLE ACCOUNTS
Fixed Account
The Fixed Account consists of all assets of the Company other than those
allocated to any separate account of the Company. Any portion of a Net Purchase
Payment allocated by a Participant to a Guarantee Period(s) will become part of
the Fixed Account.
Variable Account and Sub-Accounts
The Variable Account to which the variable accumulation values and
Variable Annuity payments, if any, under the contract relate is Sun Life or
Canada (U.S.) Variable Account F. It was established by the Company on July 13,
1989, pursuant to a resolution of its Board of Directors and is registered as a
unit investment trust under the Investment Company Act of 1940. That portion of
the assets of the Variable Account equal to the reserves and other contract
liabilities with respect to the Variable Account shall not be chargeable with
liabilities arising out of any other business the Company may conduct.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub- Account invests exclusively in shares of a designated series or sub-series
of the Series Fund. The values of the Variable Accumulation Units and the
Annuity Units described in the contract reflect the investment performance of
the Sub-Accounts.
At the Company's election and subject to any 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 of any change in the operation
of the Variable Account pursuant to this provision, the Company may make
appropriate endorsement to the contract and this certificate to reflect the
change and take such other action as may be necessary and appropriate to reflect
the change.
Ownership of Assets
The Company shall have exclusive and absolute ownership and control of its
assets, including all assets of the Sub-Accounts.
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Investments of the Sub-Accounts
All amounts allocated to a Sub-Account will be used to purchase shares of
a specific series or sub-series of the Series Fund. The Series Fund shares
available on the Date of Coverage are shown on the Certificate Specifications
page; more series may be subsequently added or deleted. The Series Fund is an
open-end investment company (mutual fund) registered under the Investment
Company Act of 1940. Any and all distributions made by the Series Fund with
respect to shares held by a Sub-Account will be reinvested to purchase
additional shares of that series at net asset value. Deductions from the Sub-
Accounts will, in effect, by made by redeeming a number of Series Fund shares at
net asset value equal in total value to the amount to be deducted. Each Sub-
Account will be fully invested in Series Fund shares at all times.
Substitution
Shares of the series corresponding to a particular portfolio of securities
held by the Series Fund may not always be available for purchase by the Sub-
Accounts or the Company may decide that further investment in 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 Sub-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 by the Securities and
Exchange Commission and such other regulatory authorities as may be necessary.
In the event of any substitution pursuant to this provision, the Company may
make appropriate endorsement to the contract and this certificate to reflect the
substitution.
PURCHASE PAYMENTS
Payments
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 which is less than $5,000, and each
additional Purchase Payment must be at least $1,000. In addition, the prior
approval of the Company is required before it will accept a Purchase Payment
which would cause the value to exceed $1,000,000. If the value exceeds
$1,000,000, no additional Purchase Payments will be allocated without the prior
approval of the Company.
The initial Purchase Payment attributable to this certificate is shown on
the Certificate Specifications page.
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.
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 to the Participant's Account upon receipt by
the Company, either to the Sub-Accounts or to the Fixed Account or to both the
Sub-Accounts and the Fixed Account in accordance with the allocation factors
specified in the Application, or as subsequently changed.
8
<PAGE>
The allocation factors for new Purchase Payments among the Guarantee
Periods 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.
CERTIFICATE VALUES DURING ACCUMULATION PERIOD
Participant's Account
The Company will establish a Participant's Account for each Participant
under the 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 variable accumulation value, if any, plus the fixed accumulation
value, if any, of the Participant's Account for that Valuation Period.
Variable Account Value
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 the Sub-Accounts 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 received by the Company.
Variable Accumulation Unit Value
The Variable Accumulation Unit value for each Sub-Account was established
at $10.00 for the first Valuation Period of the particular Sub-Account. The
Variable Accumulation Unit value for the particular Sub-Account for any
subsequent Valuation Period is determined by methodology which is the
mathematical equivalent of multiplying the Variable Accumulation Unit value for
the particular Sub-Account for the immediately preceding Valuation Period by the
Net Investment Factor for the particular Sub-Account for such 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 constant from Valuation
Period to Valuation Period in accordance with the Net Investment Factor
described below.
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 of each Sub-Account credited to the Participant's Account for
such Valuation Period. The variable accumulation value of each Sub-Account is
determined by multiplying the number of Variable Accumulation Units, if any,
credited to each Sub-Account by the Variable Accumulation Unit value of the
particular Sub-Account for such Valuation Period.
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.
9
<PAGE>
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;
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.
The asset charge factor for any Valuation Period is equal to the daily
asset charge factor multiplied by the number of 24 hour periods in the Valuation
Period. The daily asset charge factor will be determined by the Company
annually, but in no event may it exceed the maximum daily asset charge factor
specified on the Certificate Specifications page.
Fixed Account Value
Guarantee Periods
The Participant elects 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 (at least $1,000)
thereof (or amount transferred in accordance with the Transfer Privilege
provision described below) allocated to a particular Guarantee Period will earn
interest at the Guaranteed Interest Rate during the Guarantee Period. Initial
Guarantee Periods begin on the date a Net Purchase Payment is applied (or, in
the case of a transfer, on the effective date of the transfer) and end when the
number of calendar years in the Guarantee Period elected (measured from the end
of the calendar month in which the amount was allocated to the Guarantee Period)
has elapsed. The last day of a Guarantee Period is the Expiration Date.
Subsequent Guarantee Periods begin on the first day following the Expiration
Date.
Any portion of a Participant's Account Value allocated to a particular
Guarantee Period with a particular Expiration Date (including interest earned
thereon) is referred to as a Guarantee Amount. As a result of additional
Purchase Payments, renewals and transfers of portions of the Participants
Account Value, Guarantee Amounts allocated to Guarantee Periods of the same
duration may have different Expiration Dates, and each Guarantee Amount will be
treated separately for purposes of determining any market value adjustment.
The Company will notify the Participant in writing at least 45 and no more
than 75 days prior to the Expiration Date for any Guarantee Amount. A new
Guarantee Period of the same duration as the previous Guarantee Period will
commence automatically at the end of the previous Guarantee Period unless the
company receives, in writing prior to the end of such Guarantee Period, an
election by the Participant of a different Guarantee Period from among those
being offered by the Company at such time, 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 lest
$1,000 unless it is equal to the entire Guarantee Amount being transferred.
10
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Guarantee Interest Rates
The company periodically will establish an applicable Guaranteed Interest
Rate for each Guarantee Period offered by the Company. These rates will be
guaranteed for the duration of the respective Guarantee Periods.
No Guaranteed Interest Rate shall be less than 3% per year, compounded
annually.
Fixed Accumulation Value
Upon receipt of a Purchase Payment by the Company, all or that portion, if
any, of the Net Purchase Payment which is allocated to the Fixed Account will be
credited to the Participant's Account and allocated to the Guarantee Period(s)
selected by the Participant. 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.
Transfer Privilege
At any time during the Accumulation Period the Participant may transfer
all or part of the Participant's Account Value to one or more Sub-Accounts or
Guarantee Periods, subject to the conditions set forth below. A transfer will
generally be effective on the date the request for transfer is received by the
Company.
Transfers involving Sub-Accounts will reflect the purchase or cancellation
of Variable Accumulation Units having an aggregate value equal to the dollar
amount being transferred to or from a particular Sub-Account. The purchase or
cancellation of such units shall be made using Variable Accumulation Unit values
of the applicable Sub-Account for the Valuation Period during which the transfer
is effective. Transfers to a Guarantee Period will result in a new Guarantee
Period for the amount being transferred. Any such Guarantee Period will begin on
the effective date of the transfer and end on the Expiration Date. The amount
transferred into such Guarantee Period will earn interest at the Guaranteed
Interest Rate declared by the Company for that Guarantee Period as of the
effective date of the transfer.
Transfers shall be subject to the following conditions: (1) not more than
12 transfers may be made in any Account Year; (2) 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; (3) any
Participant's Account Value remaining in a Sub-Account may not be less than
$1,000, and (4) the total Participant's Account Value attributable to the
Guarantee Amount must be transferred, except for an "interest out" transfer (the
entire amount of interest credited to all Guarantee Amounts during the current
Account Year is transferred to one or more Sub-Accounts). In addition, transfers
of a Guarantee Amount (except interest credited to such Guarantee Amount during
the current Account Year) 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.
Account Fee
Prior to the Annuity Commencement Dale, on each Account Anniversary the
Company will deduct from the value of each Participant's Account an annual
account fee to reimburse the Company for administrative expenses relating to the
contract and the Participant's Account. In Account Years one through five the
account fee is equal to the lesser of $30 or 2% of the Participant's Account
Value; thereafter the account fee may be changed annually, but in no event may
it exceed the lesser of $50 Of 2% of the Participant's Account Value. 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. If a Participant's Account is
surrendered for its full value on other than an Account Anniversary, the account
fee will be deducted in full at the time of such surrender The Company
11
<PAGE>
will waive the account fee when either a) the entire Participant's Account Value
has been allocated to the Fixed Account during the entire previous Account Year,
or b) the Participant's Account Value is greater than $75,000 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 $30 will be
deducted in equal amounts from each Variable Annuity payment made during the
year. No such deduction is made from Fixed Annuity payments.
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 by filing with the Company at its annuity service mailing
address, a written election in such form as the Company may require. Any such
election shall specify the amount of the withdrawal and will be effective on the
date that it is received by the Company. 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. 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 Participant may request a full surrender or a 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 partial
withdrawal (a payment of an amount less than that paid under a full surrender)
will result in the cancellation of a portion of the Participant's Account Value
with an aggregate dollar 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.
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. If a partial withdrawal is requested which would leave a
Participant's Account Value less than the account fee, then such partial
withdrawal will be treated as a full surrender.
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.
All cash withdrawals of any Guarantee Amount, except those effective
within 30 days prior to the Expiration Date of such Guarantee Amount or the
withdrawal of interest credited to such Guarantee Amount during the current
Account Year, will be subject to the market value adjustment described below.
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<PAGE>
Withdrawal Charges
If a cash withdrawal is made, a withdrawal charge may be assessed by the
Company. The amount of any withdrawal charge is determined as follows:
Old Payments, and new Payments: With respect to a particular Account
Year new Payments are those Payments made in that Account Year or in the
six immediately preceding Account Years; and old Payments are those
Payments not defined as new Payments.
Order of liquidation: For purposes of a full surrender or partial
withdrawal, each withdrawal is allocated first to the free withdrawal
amount and then to previously unliquidated Payments (on a first-in, first-
out basis) until all Purchase Payments have been liquidated.
Free withdrawal amount: The free withdrawal amount is equal to 10%
of any new Payments, irrespective of whether these new Payments have been
liquidated. Any portion of the free withdrawal amount that is not used in
the current Account Year is cumulative into future years.
Maximum withdrawal amount without a withdrawal charge: The maximum
amount that can be withdrawn without a withdrawal charge in an Account
Year is equal to the sum of: (a) any previously unliquidated free
withdrawal amount, and (b) any previously unliquidated old Payments.
Amount subject to withdrawal charge: For any partial withdrawal or
full surrender, the amount subject to withdrawal charge is the amount of
the partial withdrawal or full surrender less the maximum withdrawal
amount without a withdrawal charge, up to a maximum of the sum of all
unliquidated new Payments.
Withdrawal charge percentage: The withdrawal charge percentage
varies according to the number of complete Account Years between the
Account Year in which a Purchase Payment was credited to the Participant's
Account and the Account Year in which it is withdrawn.
Amount of withdrawal charge: The amount of the withdrawal charge is
determined by multiplying the amount subject to a withdrawal charge by the
withdrawal charge percentage(s) according to the following table:
Number of Complete Withdrawal Charge
Account Years Percentage
------------- ----------
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
No withdrawal charge is imposed upon amounts applied to purchase an
annuity.
Nursing Home Withdrawal Privilege
The Company will waive the withdrawal charge arising from a full surrender
if: (1) at least one year has elapsed since the certificate's Date of Coverage,
and (2) the Annuitant is confined to an eligible nursing home and has been
confined there for at least the preceding one hundred eighty (180) days. Proof
of the Annuitant's confinement to an eligible nursing home must be provided to
the Company at its annuity service mailing address in such form as the Company
may require.
For purposes of this section, an eligible nursing home is a licensed
hospital or licensed skilled or intermediate care nursing facility at which
medical treatment is available on a daily basis and daily medical records are
kept for each patient.
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Market Value Adjustment
Any cash withdrawal (which for purposes of this section include transfers,
distributions on the death of a Participant, and amounts applied to purchase an
annuity) of a Guarantee Amount, other than a withdrawal effective within 30 days
prior to the Expiration Date of the Guarantee Amount, or the withdrawal of
interest credited on such Guarantee Amount during the current Account Year, will
be subject to a market value adjustment.
The market value adjustment will reflect the relationship between the
current rate (as described in the formula below) for the amount being withdrawn
and the Guaranteed Interest Rate applicable to the amount being withdrawn. It
also reflects the time remaining in the applicable Guarantee Period.
The market value adjustment will be determined by multiplying the amount
being withdrawn after the deduction of any applicable account fee and before
deduction of any applicable withdrawal charge by the market value adjustment
factor. The market value adjustment factor is:
[(1 + I)/(1 + J)]^(N/12) - 1
where,
I is the Guaranteed Interest Rate being credited to the Guarantee Amount
subject to the market value adjustment,
J is the Guaranteed Interest Rate declared by the Company, as of the
effective date of the application of the market value adjustment, for
current allocations to Guarantee Periods equal to the balance of the
Guarantee Period of the Guarantee Amount subject to the market value
adjustment, rounded to the next higher number of complete years (the
current rate), and
N is the number of complete months remaining in the Guarantee Period of
the Guarantee Amount subject to the market value adjustment.
In the determination of J, if the Company does not currently offer the
applicable Guarantee Period, then the rate will be determined by linear
interpolation of the current rates for Guarantee Periods that are available.
DEATH BENEFIT
Death Benefit Provided by the Contract
If the Annuitant dies while the contract and this certificate are in
effect and before the Annuity Commencement Date, the Company, upon receipt of
Due Proof of Death of the Annuitant, will pay a death benefit to the Beneficiary
in accordance with this Death Benefit provision. If there is no designated
Beneficiary living on the date of death of the Annuitant, the Company will pay
the death benefit upon receipt of Due Proof of Death of both the Annuitant and
the designated Beneficiary in one sum to the Participant or, if the Annuitant
was the Participant, to the estate of the deceased 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 form of annuity 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 of the Annuity Options in accordance with the contract's Settlement
provisions 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. This
election may be made or subsequently revoked by filing with the Company at its
annuity service mailing address, a written election or revocation of an election
in such form as the Company may require. Any election or revocation of an
election of a method of settlement of the death benefit by the Participant will
become effective on the date it is received by the Company. For the purposes of
the Payment of Death Benefit section below, any election of the method of
settlement 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.
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<PAGE>
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 cash payment, in
which event the Participant's Account will be cancelled; or (b) to have the
death benefit applied under one or more of the Annuity Options in accordance
with the Settlement provisions to effect, on the Annuity Commencement Date
determined in the Payment of Death Benefit section below, a Variable Annuity or
a Fixed Annuity or a combination of both for the Beneficiary as Payee. This
election may be made by filing with the Company at its annuity service mailing
address, a written election in such form as the Company may require. Any written
election of a method of settlement or 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 a written 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 shall be deemed to have elected a cash
payment as of the last day of the 60 day period.
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
If the Annuitant was less than age 86 on the Date of Coverage, the death
benefit is determined as of the effective date or deemed effective date of the
death benefit election and is equal to the greatest of (a) the Participant's
Account Value for the Valuation Period during which the death benefit election
is effective or is deemed to become effective; (b) subject to the conditions set
forth in the next paragraph, the excess of (i) the sum of all Purchase Payments
made under the certificate over (ii) the sum of all partial withdrawals; (c) the
Participant's Account Value on the Seven Year Anniversary immediately preceding
the date of death benefit election is effective or is deemed to become
effective, adjusted for any subsequent Purchase Payments and partial withdrawals
and charges made between the immediately preceding Seven Year Anniversary and
the date the death benefit elective is effective or is deemed to become
effective; or (d) 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.
For the purposes of calculating the amount due under (b) in the preceding
paragraph, the following conditions will apply: i) until the first day of the
month following the Annuitant's 80th birthday, each Purchase Payment and each
partial withdrawal will accumulate daily at a rate equivalent to 5% per year;
ii) no such accumulation will apply to a Purchase Payment or partial withdrawal
once that Purchase Payment or partial withdrawal has, as a result of such
accumulation, grown to double its original amount.
If (b), (c) or (d) is operative, the Participant's Account Value will be
increased by the excess of (b), (c) or (d) as applicable, over (a) 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 on that
date, the entire increase will be allocated to the Sub-Account invested in the
Money Market Series of the Series Fund.
If the Annuitant was 86 or greater on the Date of Coverage, the death
benefit is determined as of the effective date or deemed effective date of the
death benefit election and is equal to 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 or is deemed to become effective.
15
<PAGE>
SETTLEMENT PROVISIONS
General
On the Annuity Commencement Date, the adjusted value of the Participant's
Account as determined in accordance with the Determination of Amount provision
below will be applied, as specified by the Participant, under one or more of the
Annuity Options provided in the contract or under such other settlement options
as may be agreed to by the Company. However, 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.
After the Annuity Commencement Date, no change of Annuity Option is
permitted and no payments may be requested under the Cash Withdrawals provision
of the contract. Exchanges of Variable Annuity Units are permitted.
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 adjusted value of the Participant's
Account applied on the Annuity Commencement Date under one or more of the
Annuity Options provided in the contract; if more than one person is named as
Annuitant, due to the designation of a co-annuitant, the Participant may elect
to name one of such persons to be the sole Annuitant as of the Annuity
Commencement Date. The Participant may also change any election but any election
or change of election must be effective at least 30 days prior to the Annuity
Commencement Date. This election or change of election may be made by filing
with the Company at its annuity service mailing address, a written election or
change of election in such form as the Company may require. Any such election or
change of election will become effective on the date it is received by the
Company. If no such election is in effect on the 30th day prior to the Annuity
Commencement Date, the adjusted value of the Participant's Account will be
applied under Annuity Option B, for a life annuity with 120 monthly payments
certain. If there is no election of a sole Annuitant in effect on the 30th day
prior to the Annuity Commencement Date, the person designated as co-annuitant
will be the Payee under the applicable Annuity Option.
Any such 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, then the portion of the
adjusted value of the Participant's Account to be applied to provide a Fixed
Annuity and/or a Variable Annuity will be determined on a pro rata basis from
the composition of the Participant's Account on the Annuity Commencement Date.
The Annuity Options in the contract may also be elected as provided in the
Death Benefit section of the contract.
Determination of Amount
The adjusted value of the Participant's Account to be applied to provide a
Variable Annuity or a Fixed Annuity or a combination of both, shall be equal to
the Participant's Account Value for the Valuation Period which ends immediately
preceding the Annuity Commencement Date, minus 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 tax.
Effect of Annuity Commencement Date on Participant's Account
On the Annuity Commencement Date the Participant's Account will be
cancelled.
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<PAGE>
Annuity Commencement Date
The Annuity Commencement Date is set forth on the Certificate
Specifications page. This date may be changed from time to time by the
Participant provided that each change is effective at least 30 days prior to the
then current Annuity Commencement Date and the new Annuity Commencement Date is
a date which is: (1) at least 30 days after the effective date of the change;
(2) the first day of a month; and (3) not later than the first day of the first
month following the Annuitant's 90th birthday. Any change of the Annuity
Commencement Date may be made by filing with the Company at its annuity service
mailing address, a written designation of a new Annuity Commencement Date in
such form as the Company may require. Any such change will become effective on
the date the designation is received by the Company.
The Annuity Commencement Date may also be changed by an election of a
settlement option as provided in the Death Benefit section of the contract.
Fixed Annuity Payments
The dollar amount of each Fixed Annuity payment shall be determined in
accordance with the annuity payment rates shown on page 20, which are based on
the 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 shall be
determined in accordance with the annuity payment rates shown on page 20, which
are based on an assumed interest rate of 3% per year.
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 Sub-Account credited with
respect to the Payee then remains fixed unless an exchange of Annuity Units is
made pursuant to the Exchange of Variable Annuity Units section 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 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.
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 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 contract. The factor is
0.99991902 for a one day Valuation Period.
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<PAGE>
Exchange of Variable Annuity Units
After the Annuity Commencement Date the Payee may, by filing a written
request with the Company at its annuity service mailing address, exchange the
value of a designated number of Annuity Units of particular Sub-Accounts then
credited with respect to such 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 exchange. No more than 12 exchanges may
be made in any Account Year.
Exchanges may be made among the Sub-Accounts only. Exchanges shall be made
using the Annuity Unit values for the Valuation Period during which the request
for exchange is received by the Company.
Account Fee
After the Annuity Commencement Date an annual account fee amounting to $30
will be deduced in equal amounts from each Variable Annuity payment made during
the year. No such deduction is made from Fixed Annuity payments.
Description of Annuity Options
Annuity Options A, B, C and D are available on either a Fixed Annuity or a
Variable Annuity basis. Annuity Option E is available on a Fixed Annuity basis
only.
Annuity Option A. Life Annuity: Monthly payments during the lifetime of
the Payee.
Annuity Option B. Life Annuity with 60, 120, 180 or 240 Monthly Payments
Certain: Monthly payments during the lifetime of the Payee and in any event for
sixty (60), one hundred twenty (120), one hundred eighty (180) or two hundred
forty (240) months certain as elected.
Annuity Option C. Joint and Survivor Annuity: Monthly payments payable
during the joint lifetime of the Payee and a designated second person and during
the lifetime of the survivor. During the lifetime of the survivor variable
monthly payments, if any, will be determined using the percentage chosen at the
time of the election of this option of the number of each type of Annuity Unit
credited with respect to the Payee, and each fixed monthly payment, if any, will
be equal to the same percentage of the fixed monthly payment payable during the
joint lifetime of the Payee and the designated second person.
Annuity Option D. Monthly Payments for a Specified Period Certain: Monthly
payments for any specified period of time (at least (5) years but not exceeding
thirty (30) years), as elected.
Annuity Option E. Fixed Payments: The amount applied to provide fixed
payments in accordance with this Annuity 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 (5) 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 on an
annual basis 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.
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<PAGE>
Amounts Payable on Death of Payee
In the event of the death of the Payee on or after the Annuity
Commencement Date, the Company will pay any remaining payments under any Annuity
Option then in effect to the Payee's designated beneficiary as they become due.
If there is no designated beneficiary entitled to these remaining payments then
living, the Company will pay the amount specified in the schedule below for any
Annuity Option then in effect in one sum to the deceased Payee's estate. Any
beneficiary who becomes entitled to any remaining payments under any Annuity
Option may elect to receive the amount specified in the schedule below for such
option in one sum. In the event of the death of a beneficiary who has become
entitled to receive any remaining payments under any Annuity Option, the Company
will pay the amount specified for such option in the schedule below in one sum
to the deceased beneficiary's estate. All payments made in one sum by the
Company as provided in this paragraph are made in lieu of paying any remaining
payments under the Annuity Option then in effect.
Option Amount
------ ------
B The discounted value of the remaining payments, if any, for
the certain period.
D The discounted value of the remaining payments, if any, for
the certain period.
E The unpaid balance of the proceeds and interest.
In the case of Options B and D the discounted value will be based, for
payments being made on a variable basis, on interest compounded annually at the
assumed interest rate and on the assumptions that the particular Annuity Unit
values applicable to the remaining payments will be the particular Annuity Unit
values for the Valuation Period which ends on the day before the date of the
determination and that this value will remain unchanged thereafter.
Annuity Payment Rates
The annuity payment rates below show, for each $1,000 applied, the dollar
amount of both (a) the first monthly Variable Annuity payment based on the
assumed interest rate of 3% and (b) the monthly Fixed Annuity payment, when the
payment is based on the minimum guaranteed interest rate of 3% per year.
The mortality table used in determining the annuity payment rates for
Options A, B and C is the 1983 Individual Annuitant Mortality Table A. In using
this mortality table, ages of Annuitants will be reduced by one year for Annuity
Commencement Dates occurring during the 1990's, reduced two years for Annuity
Commencement Dates occurring during the decade 2000-2009, and so on.
The annuity payment rates in the tables shown below reflect rates of
mortality appropriate for Annuity Commencement Dates occurring during the 1980s.
Thus, for Annuity Commencement Dates occurring during the 1990s the term
adjusted age as used in the tables below, means actual age less one year.
Adjusted age shall mean actual age less two year for Annuity Commencement Dates
occurring in the decade 2000-2009, and so on.
Adjusted ages will be determined based on the actual age(s) of the
Annuitant(s), in completed years and months, as of the Annuity Commencement
Date. The tables below show annuity payment rates for exact adjusted ages; rates
for adjusted ages expressed in completed years and months will be based on
straight line interpolation between the appropriate annuity payment rates.
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<PAGE>
The dollar amount of each annuity payment for any adjusted age or
combination of adjusted ages not shown below or for any other form of Annuity
Option agreed to by the Company will be quoted by the Company upon request.
AMOUNT OF FIRST MONTHLY ANNUITY PAYMENT PER $1,OOO
SINGLE LIFE ANNUITY
<TABLE>
<CAPTION>
OPTION A OPTION B
LIFE ANNUITY LIFE ANNUITY WITH PAYMENTS CERTAIN
------------ ----------------------------------------------------------------------------
60 Payments 120 Payments 180 Payments 240 Payments
----------------------------------------------------------------------------
Adjusted
Age Male Female Male Female Male Female Male Female Male Female
--- ---- ------ ---- ------ ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 3.04 2.93 3.03 2.93 3.03 2.93 3.03 2.93 3.03 2.93
25 3.14 3.02 3.14 3.02 3.14 3.02 3.14 3.02 3.13 3.01
30 3.28 3.13 3.28 3.13 3.27 3.12 3.27 3.12 3.26 3.12
35 3.44 3.26 3.44 3.26 3.44 3.26 3.43 3.25 3.41 3.24
40 3.66 3.42 3.65 3.42 3.64 3.42 3.63 3.41 3.60 3.40
45 3.93 3.63 3.92 3 63 3 90 3.63 3.87 3.61 3.82 3.59
50 4.27 3.90 4.26 3.90 4.22 3.89 4.17 3.86 4.08 3.82
55 4.70 4.25 4.68 4.25 4.62 4.22 4.53 4.18 4.39 4.11
60 5.28 4.72 5.25 4.70 5.14 4.66 4.96 4.57 4.71 4.44
65 6.10 5.35 6.03 5.32 5.61 5.22 5.48 5.05 5.02 4.79
70 7.23 6.25 7.07 6.18 6.61 5.96 5.96 5.60 5.27 5.12
75 8.82 7.56 8.44 7.39 7.49 6.89 6.38 6.14 5.42 5.35
80 11.06 9.53 10.17 9 07 8.33 7.89 6.66 6.55 5.49 5.47
85 14.16 12.48 12.12 11.19 8.97 8.74 6.81 6.77 5.51 5.50
</TABLE>
OPTION C
JOINT AND SURVIVOR ANNUITY
(Assumed election of Joint and Two-Thirds Survivor)
Adjusted Age of Female
-----------------------------------------------------
Adjusted Age
of Male 55 60 65 70 75
------- -- -- -- -- --
55 4.25 4.47 4.72 4.99 5.29
60 4.44 4.71 5.01 5.34 5.71
65 4.65 4.97 5.33 5.76 6.23
70 4.88 5.24 5.68 6.20 6.81
75 5.11 5.52 6.04 6.68 7.45
OPTION D
PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
Years Amount Years Amount Years Amount Years Amount
----- ------ ----- ------ ----- ------ ----- ------
5 17.91 12 8.24 19 5.73 26 4.59
6 15.14 13 7.71 20 5.51 27 4.47
7 13.16 14 7.26 21 5.32 28 4.37
8 11.68 15 6.87 22 5.15 29 4.27
9 10.53 16 6.53 23 4.99 30 4.18
10 9.61 17 6.23 24 4.84
11 8.86 18 5.96 25 4.71
20
<PAGE>
OWNERSHIP PROVISIONS
Exercise of Contract Rights
The contract shall belong to the Owner. Unless any rights and privileges
have been expressly reserved by the Owner, the Participant shall be entitled to
exercise all rights and privileges in connection with this certificate. In any
case, such rights and privileges can be exercised without the consent of the
Beneficiary (other than an irrevocable Beneficiary) or any other person. Such
rights and privileges may be exercised only during the lifetime of the 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 and any interest therein, evidenced by
this certificate, 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 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 Code for the
benefit of the Annuitant; (4) the trustee of an individual retirement account
plan qualified under Section 408 of the 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 the 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 payment beginning within one year after the date of death of the
Participant. For this purpose (and for purposes of Section 72(s) of the Code),
the person named as 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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<PAGE>
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 as
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 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 Code.
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, as the case may be, 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 have such voting
rights.
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 retirement or deferred compensation 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,
Participants 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 Owner, each
Participant and each Payee 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 particular 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 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 particular Sub-Account with respect to the particular
Payee by the net asset value of a Series Fund share as of the same date.
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.
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<PAGE>
BENEFICIARY PROVISION
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
Beneficiary surviving the Annuitant and, in the case of a certificate issued
under a Non-Qualified Contract, surviving the Participant as well.
Subject to the rights of an irrevocable Beneficiary, the Participant may
change or revoke the designation of a Beneficiary at any time while the
Annuitant is living. To do so, the Participant must file the change or
revocation with the Company at its annuity service mailing address in such form
as the Company may require. The change or revocation will not be binding upon
the Company until it is received by the Company. When it is so received the
change or revocation will be effective as of the date on which the beneficiary
designation or revocation was signed, but the change or revocation will be
without prejudice to the Company on account of any payment made or any action
taken by the Company prior to receiving the change or revocation.
GENERAL PROVISIONS
Age and Sex Misstatement
If any date of birth or sex, or both, as been misstated in the
Application, or elsewhere, the amounts payable pursuant to the contract under
this certificate will be the amounts which would have been provided using the
correct age or sex, or both. Any deficiency in payments already made by the
Company shall be paid immediately and any excess in the payments already made by
the Company shall be charged against the benefits falling due after the
adjustment.
This Certificate
This certificate is issued in consideration of the Application and payment
of the initial Purchase Payment. All statements made in the Application will be
deemed representations and not warranties, and no statement will void the
certificate or be used in defense to a claim unless it is contained in the
Application and a copy is attached to the certificate at issue. Only the
President, a Vice President, the Actuary or the Secretary of the Company has
authority to agree on behalf of the Company to any alteration of the contract or
any certificate, or to any waiver of the rights or requirements of the Company.
Currency
All amounts due under the contract are payable in United States dollars,
lawful money of the United States of America.
Determination of Values
The method of determination by the Company of the Net Investment Factor
and the number and value of Accumulation Units and Annuity Units shall be
conclusive upon the Owner, the Participant, any Payee and any Beneficiary.
Governing Law
The contract and this certificate will be governed by the laws of the
jurisdiction where the Contract Application is signed.
23
<PAGE>
Guarantees
Subject to the Net Investment Factor provision, the Company guarantees
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
the expense deductions provided for in the contract and other contracts
providing benefits which vary in accordance with the investment performance of
the Sub-Accounts.
Incontestability
The contract and this certificate are incontestable.
Modification
Upon notice to the Owner, Participant(s) or the Payee(s) during the
annuity period, the contract and this certificate may be modified by the
Company, but only if such modification (a) is necessary to make the contract,
certificate 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 (b) is necessary to assure continued qualification of the contract and/or
certificate under the Code or other federal or state laws relating to retirement
annuities or annuity contracts; or (c) is necessary to reflect a change in the
operation of the Variable Account or the Sub-Accounts; or (d) provides
additional Variable Account and/or Fixed Account options. In the event of any
such modification, the Company may make appropriate endorsement in the contract
and this certificate to reflect such modification.
Nonparticipating
The contract is nonparticipating and will not share in any surplus
earnings of the Company.
Payments by the Company
All sums payable by the Company pursuant to this certificate are payable
only at its Executive Office or such other place as may be designated by the
Company. The Company may require surrender of the certificate upon final payment
of all sums payable by the Company pursuant to the certificate.
Proof of Age
The Company shall have the right to require evidence of the age of any
Payee under Annuity Options A, B, and C prior to the Annuity Commencement Date.
Proof of Survival
The Company shall have the right to require evidence of the survival of
any Payee under Annuity Options A, B and C at the time any payment payable to
such Payee is due.
Splitting Units
The Company reserves the right to split or combine the value of Variable
Accumulation Units, Annuity Unit 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 this certificate.
24
<PAGE>
SunLife
OF CANADA (U.S.) Sun Life Assurance Company of Canada (U.S.)
A Wholly-Owned Subsidiary of Sun Life Assurance Company
of Canada
Executive Office:
One Sun Life Executive Park
Weilesley Hills, Massachusetts 02181
Home Office:
Wilmington Delaware
Annuity Service Mailing Address:
Sun Life Annuity Service Center
P.O. Box 1024
Boston, Massachusetts 02103
Certificate for
Flexible Payment Deferred Combination Variable and Fixed Group Annuity Contract
Nonparticipating
ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO A PARTICIPANT, INCLUDING WITHDRAWALS,
TRANSFERS, AMOUNTS APPLIED TO PURCHASE AN ANNUITY, AND DISTRIBUTIONS RESULTING
FROM THE DEATH OF THE PARTICIPANT. PAYMENTS MADE FROM GUARANTEE AMOUNTS WHICH
ARE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE PERIOD OR THE WITHDRAWAL OF
INTEREST CREDITED TO GUARANTEE AMOUNTS DURING THE CURRENT ACCOUNT YEAR ARE NOT
SUBJECT TO THE MARKET VALUE ADJUSTMENT.
<PAGE>
<TABLE>
<S> <C> <C>
SUN LIFE ASSURANCE COMPANY OF CANADA
(U.S.)
Please make checks payable to Sun Life
Assurance Company of Canada (U.S.).
Send the application and check to Sun
Life of Canada (U.S.)
Annuity Service Center, P.O. Box 1024, [PRODUCT NAME]
Boston, MA 02103 GROUP/OWNER APPLICATION
FOR COMBINATION FIXED/VARIABLE GROUP ANNUITY CONTRACT ("CONTRACT APPLICATION")
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1. GROUP/OWNER Name
----------------------------------------------------------------------------------------------------
First Middle Last
<S> <C>
Address
----------------------------------------------------------------------------------------------------
City ----------------------------------------------------------------------------------- State
--------- Zip -------
Tax Identification Number ---------- / ---------- / ----------
2. TRUSTEES ----------------------------------------------------------------------------------------------------
(if applicable) Ownership: Trustee(s) specified in question 2 will be the owner(s) of the contract.
3. MAILING Unless the following box is checked, confirmation statements for the plan will be mailed to the
INSTRUCTIONS address above.
/ / Mail statements directly to the Participant.
4. PLAN SELECTION -
IRS TAX-QUALIFIED / / 401(k)* / / 403(b)* / / Self-employed* / / SEP/IRA
ONLY / / Other
----------------------------------------------------------------------------------------------------
5. INVESTMENT Please note: Participants will be limited to those options which the Group/Owner selects below.
OPTIONS Please check.
SUB-ACCOUNTS INVESTED IN FUNDS
FIXED ACCOUNT GUARANTEE PERIODS:
<CAPTION>
</TABLE>
<TABLE>
<S> <C>
6. SPECIAL
INSTRUCTIONS &
TRANSFER OF ASSETS
INFORMATION
(if applicable)
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
7. ACCEPTANCE I hereby represent the answers to the above questions to be correct and true to the best
of my knowledge and belief and agree that this application shall be a part of any Contract
issued by the Company. ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT WHEN BASED ON THE
INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND NOT GUARANTEED AS TO DOLLAR
AMOUNT. ALL PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD ADJUSTMENTS
IN AMOUNTS PAYABLE. I acknowledge receipt of a current prospectus and [underlying fund]
prospectuses.
Date Signed at
City State
Authorized Signature
for Group/Owner Agent
Print Agent Name and Telephone Number
Trustee(s) Agent
Signature(s) Signature of Agent
</TABLE>
<TABLE>
<S> <C>
8. AGENT Will this Contract replace or change any existing life insurance or annuity in this or any other
company?
/ / Yes / / No If yes, please explain under SPECIAL INSTRUCTIONS.
General Agent
--------------------------------------------------------------------------------------------------
Branch Office Address
------------------------------------------------------------------------------------------
Street City State Zip
Branch Office Telephone Number ( ----) ----------------------
</TABLE>
APP-FP-CONT R 5/97
<PAGE>
<TABLE>
<S> <C> <C>
SUN LIFE ASSURANCE COMPANY OF CANADA
(U.S.)
Please make checks payable to Sun Life
Assurance Company of Canada (U.S.).
Send the application and check to Sun
Life of Canada (U.S.)
Annuity Service Center, P.O. Box 1024, [PRODUCT NAME]
Boston, MA 02103 PARTICIPANT APPLICATION
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1. PARTICIPANT Name
----------------------------------------------------------------------------------------------------
First Middle Last
<S> <C>
Address
----------------------------------------------------------------------------------------------------
City ----------------------------------------------------------------------------------- State
--------- Zip -------
Participant Sex / / M / / F Date of Birth --------------- Social Security Number
-------- / -------- / --------
2. ANNUITANT / / Same as Participant, or
---------------------------------------------------------------------------------------
First Middle Last
Address
----------------------------------------------------------------------------------------------------
City ----------------------------------------------------------------------------------- State
--------- Zip -------
Annuitant Sex / / M / / F Date of Birth --------------- Social Security Number
-------- / -------- / --------
3. CO-ANNUITANT Name
----------------------------------------------------------------------------------------------------
Co-Annuitant Sex / / M / / F Date of Birth --------------- Social Security Number
-------- / -------- / --------
4. BENEFICIARY Name
----------------------------------------------------------------------------------------------------
First Middle Last
Relationship to Annuitant
---------------------------------------------------------------------------------------
BENEFICIARY DESIGNATION MUST BE CONSISTENT WITH YOUR APPLICABLE RETIREMENT PLAN
/ / 401(k)* / / Self-employed / / IRA Rollover / / CRT**
5. PLAN SELECTION / / 403(b)* / / IRA Transfers / / SEP-IRA / / Non-qualified / / Other*
----------------
*Owner/Trustee
------------------------------------------------------------------------------------------------
**Please contact the Sun Life Annuity Service Center for the required CRT waiver form, call
1-800-752-7215.
6. PURCHASE PAYMENT SUB-ACCOUNTS INVESTED IN FUNDS
ALLOCATION FIXED ACCOUNT GUARANTEE PERIODS
(WHOLE %, MUST TOTAL
100%, NO FRACTIONS)
</TABLE>
<TABLE>
<S> <C>
7. PURCHASE PAYMENT Initial purchase payment of $ ------------------------------------------- (minimum $5000)
8. SPECIAL INSTRUCTIONS (Annuity Elections, etc.)
9. ANNUITY Year of annuity commencement ------------------------
COMMENCEMENT DATE The first day of --------------------------------------- Month
Will this contract replace or change any existing life insurance or annuity in this or any other
10. REPLACEMENT company? / / Yes / / No
CONTRACT If yes, please explain under Special Instructions and request replacement information from your agent.
11. ACCEPTANCE I hereby represent my answers to the above questions to be correct and true to the best of my knowledge
and belief and agree that this application shall be a part of any Certificate issued by the Company. ALL
PAYMENTS AND VALUES PROVIDED BY THIS CERTIFICATE WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE VARIABLE
ACCOUNT ARE VARIABLE AND NOT GUARANTEED AS TO DOLLAR AMOUNT. PAYMENTS AND VALUES BASED ON THE FIXED
ACCOUNT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD
AND DOWNWARD ADJUSTMENTS IN AMOUNTS PAYABLE. I acknowledge receipt of a current prospectus and
[underlying fund] prospectuses.
--------------------------------------- ---------------------------------------
Phone
Agent Name (Print) Number Date
--------------------------------------- ---------------------------------------
Signed
Agent Signature at City State
--------------------------------------- ---------------------------------------
Participant Signature Annuitant/Co-Annuitant Signature
</TABLE>
<TABLE>
<S> <C>
12. AGENT Will this contract replace or change any existing life insurance or annuity in this or any other
company?
/ / Yes / / No If yes, please explain under SPECIAL INSTRUCTIONS and complete replacement forms where
applicable.
General Agent/Dealer
---------------------------------------------------------------------------------------------
Branch Office Address
------------------------------------------------------------------------------------------
Street City State Zip
</TABLE>
APP-FR-CERT R 5/97
<PAGE>
Exhibit 6
STATE OF DELAWARE
841 SILVER LAKE BLVD.
DONNA LEE H. WILLIAMS P.O. BOX 7007
INSURANCE COMMISSIONER DOVER, DELAWARE 19903-1507
(302) 739-4251
FACSIMILE (302) 739-5280
DEPARTMENT OF INSURANCE
CERTIFIED CHARTER DOCUMENTS
I, DONNA LEE H. WILLIAMS, Insurance Commissioner of the State of
Delaware, do hereby certify that the attached corporate charter documents of
the
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.),
consisting of a Certificate of Incorporation as filed with the Delaware
Secretary of State on January 12, 1970 and a Certificate of Amendment filed
on December 21, 1984, are true and correct copies of the documents on file
with this Department.
IN WITNESS WHEREOF, I HAVE HEREUNTO
SET MY HAND AND AFFIXED THE OFFICIAL
SEAL OF THIS DEPARTMENT AT THE CITY
OF DOVER, THIS 31ST DAY OF OCTOBER,
1996.
/s/ Donna Lee H. Williams
-----------------------------------
Donna Lee H. Williams
Insurance Commissioner
<PAGE>
STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
I, EUGENE BUNTING, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THAT THE ABOVE AND FOREGOING IS A TRUE AND CORRECT COPY OF
Certificate of Incorporation of the "SUN LIFE ASSURANCE COMPANY OF CANADA
(U.S.), as received and filed in this office the twelfth day of January, A.D.
1970, at 10 o'clock A.M.
IN TESTIMONY WHEREOF, I HAVE HEREUNTO
SET MY HAND AND OFFICIAL SEAL AT DOVER
THIS TWENTY SIXTH DAY OF JANUARY IN THE
YEAR OUR LORD ONE THOUSAND NINE
HUNDRED AND SEVENTY.
[OFFICIAL SEAL]
/s/ Eugene Bunting
-----------------------------------
SECRETARY OF STATE
/s/ R.A. Caldwell
-----------------------------------
ASS'T SECRETARY OF STATE
<PAGE>
CERTIFICATE OF INCORPORATION
of
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
1. The name of the corporation is Sun Life Assurance Company of Canada
(U.S.).
2. The address of its registered office in the State of Delaware is
100 West Tenth Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purpose to be conducted or promoted is:
(a) to transact the business of life insurance in all its branches,
to carry on the business of sickness, accident, health and
disability insurance in all their branches, and to grant annuities
of all kinds whether dependent on human life or otherwise and
whether immediate or deferred and whether contingent or otherwise,
and to issue policies in respect of the foregoing which are
participating or non-participating, fixed or variable in amount,
and on an individual or group basis,
(b) to reinsure all or any risks connected with any of the businesses
aforesaid and to transact the business of reinsurance,
(c) to create and maintain one or more separate accounts attributable
to any class of business for the time being and from time to time
carried on by the corporation, with power to keep separate the
assets of any such account from the assets of any other account,
to the end that that portion of the assets of each such account
equal to the reserves and other contract liabilities with respect
to such account shall not be chargeable with liabilities arising
out of any other business which the corporation may conduct,
<PAGE>
(d) to invest any moneys of the corporation, including the assets of
any separate account or accounts established and maintained by
it, as may be authorized by law, and to hold, sell or otherwise
deal with such investments,
(e) to provide advisory, management or sales distribution services to
any investment company registered under the Investment Company Act
of 1940, or to any entity carrying on an investment or insurance
business or a business reasonably incidental to them,
(f) in general to possess and exercise all powers and privileges
granted and to engage in activities authorized by the general
corporation law of Delaware or by any other law of Delaware to the
extent reasonably incidental to the transaction of its business.
4. The total number of shares of stock which the corporation shall have
authority to issue is five thousand (5,000) shares of common stock and the
par value of each of such shares is one thousand dollars ($1,000.00)
amounting in the aggregate to five million dollars ($5,000,000).
5. The name and mailing address of each incorporator is as follows:
NAME ADDRESS
---- -------
David N. Brown 888 16th Street, N.W.
Washington, D.C. 20006
W. Crosby Roper, Jr. 888 16th Street, N.W.
Washington, D.C. 20006
Cyril V. Smith, Jr. 888 16th Street, N.W.
Washington, D.C. 20006
6. The corporation is to have perpetual existence.
- 2 -
<PAGE>
7. Notwithstanding any other provision of this certificate of
incorporation, the corporation may:
(a) with respect to any separate account registered with the
Securities and Exchange Commission as a unit investment trust,
exercise voting rights in connection with any securities of a
regulated investment company registered under the Investment
Company Act of 1940 and held in such separate account in
accordance with instructions from persons having interests in
such account ratably as determined by the corporation;
(b) with respect to any separate account registered with the
Securities and Exchange Commission as a management investment
company, establish for such account a committee, board, or
other body, the members of which may or may not be otherwise
affiliated with the corporation and may be elected to such
membership by the vote of persons having interests in such
account ratably as determined by the corporation; such committee,
board or other body may have the power, exercisable alone or in
conjunction with others, to manage such separate acount and the
investment of its assets and to make such other provisions in
respect of any such separate account as may be deemed appropriate
to facilitate compliance with any Federal or State law now or
hereafter in effect, subject, however, to any required approvals
of regulatory agencies; and
(c) to the extent that the corporation deems it necessary or desirable
in order to comply with any applicable regulatory requirements,
provide for persons having an interest in any separate account
other voting and special rights and procedures for the conduct of
the business of such account, including, without limitation,
rights and procedures relating to investment policies, investment
advisory and management services, selection of certified public
accountants and other matters affecting the administration of such
separate account.
- 3 -
<PAGE>
8. Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by
the board of directors or in the by-laws of the corporation. Election of
directors need not be by written ballot unless the by-laws of the corporation
shall so provide.
9. The corporation may amend, alter, change or repeal any provision
contained in this certificate of incorporation, in the manner now or
hereafter prescribed by statute.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation
Law of the State of Delaware, do make this certificate, hereby declaring and
certifying that this is our act and deed and the facts herein stated are
true, and accordingly have hereunto set our hands this 7th day of January,
1970.
/s/ David N. Brown
--------------------------------------
/s/ W. Crosby Roper, Jr.
--------------------------------------
/s/ Cyril V. Smith, Jr.
--------------------------------------
- 4 -
<PAGE>
UNITED STATES OF AMERICA )
DISTRICT OF COLUMBIA ) ss:
BE IT REMEMBERED that on this 7th day of January, A.D. 1970, personally
came before me, a Notary Public for the District of Columbia, David N. Brown,
W. Crosby Roper, Jr. and Cyril V. Smith, Jr., all of the parties to the
foregoing certificate of incorporation, known to me personally to be such,
and severally acknowledged the said certificate to be the act and deed of the
signers respectively and that the facts stated therein are true.
GIVEN under my hand and seal of office the day and year aforesaid.
/s/ Ruth M. Miles
------------------------------------
Notary Public
" " " " " " " " " " " " " " " " My commission expires
" Ruth M. Miles " May 14, 1971
" Notary Public "
" District of Columbia "
" " " " " " " " " " " " " " " "
<PAGE>
PAGE 1
STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
I, GLENN C. KENTON, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE
CERTIFICATE OF AMENDMENT OF SUN LIFE ASSURANCE COMPANY 0F CANADA (U.S.) FILED
IN THIS OFFICE ON THE TWENTY-FIRST DAY OF DECEMBER, A.D. 1984, AT 10 O'CLOCK
A.M.
| | | | | | | | | | |
/s/ Glenn C. Kenton
-----------------------------------
Glenn C. Kenton, Secretary of State
AUTHENTICATION: 10408638
DATE: 12/31/1984
724366073
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting duly
held on December 3, 1984, adopted a resolution proposing and declaring
advisable the following amendment to the Certificate of Incorporation of said
corporation:
"RESOLVED, that the Certificate of Incorporation of Sun Life
Assurance Company of Canada (U.S.) be amended by changing the
Fourth Article thereof so that, as amended, said Article shall
be and read as follows:
"4. The total number of shares of stock which the corporation
shall have authority to issue is ten thousand (10,000) shares
of common stock and the par value of each of such shares is
one thousand dollars ($1,000.00) amounting in the aggregate
to ten million dollars ($10,000,000.00)."
FURTHER RESOLVED, that the officers of the corporation be and hereby
are authorized to do and perform any and all acts and things
necessary or advisable to perfect and carry out such amendment."
<PAGE>
- 2 -
SECOND: That in lieu of a meeting and vote of stockholders, the stockholders
have given unanimous written consent to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said Sun Life Assurance Company of Canada (U.S.) has
caused this certificate to be signed by David D. Horn, its Vice President and
General Manager and attested by Bonnie S. Angus, its Secretary, this 20th day
of December, 1984.
ATTEST: SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
By /s/ Bonnie S. Angus By /s/ David D. Horn
------------------- -----------------------------------------
Secretary Vice President and General Manager
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
BY-LAWS
ARTICLE 1
OFFICES
Section 1.01. REGISTERED OFFICE. The registered office of the
corporation shall be in the city of Wilmington, County of New Castle, State
of Delaware.
Section 1.02. OTHER OFFICES. The corporation may also have
offices at such other places both within and without the State of Delaware as
the board of directors may from time to time determine or the business of the
corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.01. PLACE OF MEETINGS. All meetings of stockholders
shall be held at such place, either within or without the State of Delaware,
as shall be designated from time to time by the board of directors and stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.02. ANNUAL MEETING. Annual meetings of stockholders
shall be held in each year on such date and at such time as shall be
determined from time to time by the board of directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof. At each
annual meeting the stockholders shall elect by a plurality vote a board of
directors, and transact such other business as may properly be brought before
the meeting.
Section 2.03. NOTICE OF ANNUAL MEETING. Written notice of the
annual meeting stating the place, date and hour of the meeting shall be given
to each stockholder entitled to vote at such meeting not less than ten nor
more than fifty days before the date of the meeting.
Section 2.04. STOCKHOLDERS' LIST. The officer who has charge of
the stock ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if
<PAGE>
- 2 -
not so specified, at the place where the meeting is to be held. The list
shall shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 2.05. SPECIAL MEETINGS. Special meeting of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the certificate of incorporation, may be called by the
president and shall be called by the president or secretary at the request in
writing of a majority of the board of directors or at the request in writing
of the holders of a majority of the outstanding stock.
Section 2.06. NOTICE OF SPECIAL MEETINGS. Written notice of a
special meeting stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called, shall be given not less
than ten nor more than fifty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 2.07. LIMITATION ON BUSINESS AT SPECIAL MEETING. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
Section 2.08. QUORUM. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meeting of the
stockholders for the transaction of business except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting.
Section 2.09. VOTED REQUIRED FOR ACTION. When a quorum is
present at any meeting, the vote of the holders of a majority of the stock
having voting power present in person or represented by proxy shall decide
any question brought before such meeting, unless the question is one upon
which by express provision of the statute or of the certificate of
incorporation, a different vote is required in which case such
<PAGE>
- 3 -
express provision shall govern and control the decision of such question.
Section 2.10. VOTING - PROXY. Unless otherwise provided in the
certificate of incorporation each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three years from its date, unless the proxy provides
for a longer period.
Section 2.11. WRITTEN CONSENT IN LIEU OF VOTE. Any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action
so taken, shall be signed by the holders of all shares of outstanding stock
entitled to vote thereon at a meeting.
ARTICLE 3
DIRECTORS
Section 3.01. NUMBER OF DIRECTORS. The number of directors which
shall constitute the whole board shall not be less than three nor more than
ten. The first board shall consist of five directors. Thereafter, within the
limits above specified, the number of directors shall be determined by
resolution of the board of directors or by the stockholders at the annual
meeting. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 3.02 of this Article, and each
director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
Section 3.02. VACANCIES AND NEWLY CREATED DIRECTORSHIPS.
Vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors
then in office, though less than a quorum, or by a sole remaining director,
and the directors so chosen shall hold office until the next annual election
and until their successors are duly elected and shall qualify, unless sooner
displaced.
Section 3.03. POWERS OF DIRECTORS. The business and affairs of
the corporation shall be managed by its board of directors which may exercise
all such powers of the corporation and do all such lawful acts and things as
are not by statute or by the certificate of incorporation or by these by-laws
directed or required to be exercised or done by the stockholders,
<PAGE>
- 4 -
including, without limitation, the creation of one or more separate accounts
and adoption of rules and regulations providing for the operation and
management of any such separate account by a board, committee or other body
selected as authorized by such rules and regulations and the provisions of
the certificate of incorporation.
Section 3.04. PLACE OF MEETING. The board of directors of the
corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 3.05. REGULAR MEETINGS. Regular meetings of the board of
directors may be held without notice at such time and at such place as
shall from time to time be determined by the board.
Section 3.06. SPECIAL MEETINGS. Special meetings of the board may be
called by the president on three days' notice to each director, either
personally or by mail, telegram or telephone; special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of two directors.
Section 3.07. QUORUM. At all meetings of the board one-third of the
whole number of directors as last fixed prior to such meeting, but in any
event not less than two, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board
of directors the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 3.08. WRITTEN CONSENT IN LIEU OF MEETING. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the board of directors or
of any committee thereof may be taken without a meeting, if all members of the
board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the board
or committee.
Section 3.09 COMMITTEES. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at
<PAGE>
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any meeting of the committee. Any such committee, to the extent provided in
the resolution of the board of directors, shall have and may exercise all the
powers and authority of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the board of directors.
Section 3.10. COMMITTEE MINUTES AND REPORTS. Each committee shall
keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 3.11 COMPENSATION. The compensation of the members of the
board of directors shall be authorized by the holders of a majority of the
outstanding stock. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE 4
NOTICES
Section 4.01 MANNER OF GIVING NOTICE. Whenever, under the provisions
of the statutes or of the certificate of incorporation or of these by-laws,
notice is required to be given to any director or stockholder, it shall not
be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address
as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the
same shall be deposited in the mail. Notice to directors
may also be given by telegram or telephone.
<PAGE>
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Section 4.02. WAIVER OF NOTICE. Whenever any notice is required to
be given under the provisions of the statutes or of the certificate of
incorporation or of these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE 5
OFFICERS
Section 5.01. PRINCIPAL AND OTHER OFFICERS. The officers of the
corporation shall include a president, a secretary and a treasurer. The board
of directors may also appoint a chairman, one or more vice-presidents, and
such other officers as are from time to time desired. Any number of offices
may be held by the same person, unless the certificate of of incorporation or
these by-laws otherwise provide.
Section 5.02. TIME AND MANNER OF SELECTION. The board of directors at
its first meeting after each annual meeting of stockholders shall choose a
president, a secretary, a treasurer and such other officers as it shall deem
necessary.
Section 5.03 COMPENSATION. The remuneration of all officers of the
corporation shall be fixed by the board of directors.
Section 5.04 TERM OF OFFICE - VACANCIES. The officers of the
corporation shall hold office until their successors are chosen and qualified
or until their earlier resignation or removal. Any officer elected or
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the whole board of directors. Any vacancy
occurring in any office of the corporation shall be filled by the board of
directors.
Section 5.05. THE CHAIRMAN. The chairman, if one be appointed, shall
preside at all meetings of the stockholders and of the board of directors,
and shall perform such other duties and have such other powers as the board
of directors may from time to time prescribe.
Section 5.06. THE PRESIDENT. The president shall be the chief
executive officer of the corporation, and if there is no chairman, or in the
absence of the chairman, or at the chairman's request, the president shall
preside at all meetings of the stockholders and of the board of directors,
shall have general management of the business of the corporation and shall
see that all orders and resolutions of the board of directors are carried
into effect.
<PAGE>
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Section 5.07. THE VICE-PRESIDENTS. In the absence of the president or
in the event of his inability or refusal to act, the vice-president (or in
the event there be more than one vice-president, the vice-presidents in the
order designated, or in the order of their election) shall perform the duties
of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. The vice-presidents shall
perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
Section 5.08. THE SECRETARY. The secretary shall attend all meetings of
the board of directors and all meetings of the stockholders and record all
the proceedings of the meetings of the corporation and of the board of
directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
board of directors, and shall perform other duties as may be prescribed by
the board of directors or president, under whose supervision he shall be. He
shall have custody of the corporate seal of the corporation and he shall have
authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by his signature. The board of directors may give
general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature.
Section 5.09. TREASURER. The treasurer shall keep full and accurate
books of account in which shall be recorded all receipts and disbursements of
the corporation, and shall pursuant to the direction of the board of
directors or of the president, under whose supervision he shall be, control
the deposit of moneys, the safekeeping of securities and the disbursement of
the funds of the corporation; he shall render to the president, or the board
of directors at the regular meetings thereof, or whenever required of him, an
account of all his transactions as treasurer and of the financial condition
of the corporation; and he shall perform such other duties as may from time
to time be prescribed by the board or directors or the president.
Section 5.10. OTHER OFFICERS. Officers other than the president,
secretary and treasurer, shall perform such duties as may be assigned to them
by the board of directors.
<PAGE>
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ARTICLE 6
STOCK
Section 6.01. STOCK CERTIFICATES. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the
name of the corporation by, the president or a vice-president and the
treasurer or the secretary of the corporation, certifying the number of
shares owned by him in the corporation.
Section 6.02. FACSIMILE SIGNATURE. Where a certificate is
countersigned (1) by a transfer agent other than the corporation or its
employee, or (2) by a registrar other than the corporation or its employee,
any other signature on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
Section 6.03. LOST CERTIFICATES. The board of directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the board
of directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the
same in such manner as it shall require and/or give the corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 6.04. TRANSFER OF STOCK. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to issue a
new certificate to the person entitled thereto, cancel the old certificate
and record the transaction upon its books.
Section 6.05. FIXING RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, to express consent to corporate
action in writing
<PAGE>
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without a meeting, to receive payment of any dividend or other distribution
or allotment of any rights, to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the date of a
stockholders' meeting, nor more than sixty days prior to the distribution of
such rights, the exercise of such rights or the taking of any other lawful
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 6.06. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the record holder of any shares of the corporation as the
owner thereof for all purposes, including all rights deriving from such
shares, and shall not be bound to recognize any equitable or other claim to,
or interest in, such shares or rights deriving from such shares, on the part
of any other person, whether or not the corporation shall have either actual
or constructive notice thereof.
ARTICLE 7
GENERAL PROVISIONS
Section 7.01. DIVIDENDS. Dividends upon the capital stock of the
corporation may be declared by the board of directors at any regular or
special meeting out of any funds legally available therefor. Cash dividends
may be paid out of that part of the corporation's available and accumulated
surplus funds which was derived from realized net operating profits of its
business and realized capital gains. A cash dividend otherwise lawful may be
paid out of such earned surplus even though total surplus is at the time less
that previously contributed or paid in surplus. Stock dividends may be paid
out of any available surplus funds.
Section 7.02. EXECUTION OF INSTRUMENTS. Except as otherwise provided
in these by-laws, all deeds, mortgages, bonds, contracts, policies, reports
and other instruments may be executed on behalf of the company by the
president or any vice-president or by any other officer authorized to act in
such manner, whether by law, the certificate of incorporation, these by-laws,
or any general or special authorization of the board of directors. The
corporate seal may be affixed and attested by the secretary or any other
officer authorized by the board of directors.
<PAGE>
- 10 -
Section 7.03. FACSIMILE SIGNATURES. Any policy, insurance contract,
annuity contract, contract of deposit, premium receipt, dividend notice or
endorsement or amendment of any such instrument may be signed by means of an
engraved, lithographed or otherwise mechanically produced facsimile of the
signature of the president, secretary or other person or persons as may be
designated for this purpose by resolution of the board of directors, and the
execution by the corporation of any such instrument so signed shall be as
valid and binding upon the corporation as though manual signatures of the
authorized officers had been used in the signing thereof. If any officer
whose facsimile signature has been used as above provided has ceased to hold
office prior to the delivery of the instrument, the instrument may
nevertheless be issued and delivered by the corporation and shall be valid
and binding on the corporation.
Section 7.04. DISBURSEMENT OF FUNDS. All checks, drafts or demands for
money and notes of the corporation shall be signed by such officer or
officers or such other person or persons as the board of directors may from
time to time designate.
Section 7.05. VOTING STOCK IN OTHER CORPORATIONS. Unless otherwise
ordered by the board of directors, the chairman, the president, or any
vice-president shall have full power and authority to attend and act and vote
at any meeting of stockholders of any corporation in which this corporation
may hold stock, and the chairman, the president or, any vice-president of the
corporation may execute proxies authorizing designated persons to vote shares
of stock of other corporations standing in the name of this corporation.
Section 7.06. FISCAL YEAR. The fiscal year of the corporation shall be
the calendar year unless otherwise fixed by resolution of the board of
directors.
Section 7.07. SEAL. The corporate seal shall have inscribed thereon
the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE 8
INDEMNIFICATION
Section 8.01(a). Every person who is or was a director, officer or
employee of this corporation or of any other corporation which he served at
the request of this corporation and in which this corporation owns or owned
shares of capital stock or of which it is or was a creditor shall have
<PAGE>
- 11 -
a right to be indemnified by this corporation against all liability and
reasonable expenses incurred by him in connection with or resulting from any
claim, action, suit or proceeding in which he may become involved as a party
or otherwise by reason of his being or having been a director, officer or
employee of this corporation or such other corporation, Provided (1) said
claim, action, suit or proceeding shall be prosecuted to a final
determination and he shall be vindicated on the merits, or (2) in the absence
of such a final determination vindicating him on the merits, the board of
directors shall determine that he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; said determination to
be made by the board of directors acting through a quorum of disinterested
directors, or in its absence on the opinion of counsel.
(b) For purposes of the preceding subsection: (1) "liability and
reasonable expenses" shall include but not be limited to reasonable counsel
fees and disbursements, amounts of any judgment, fine or penalty, and
reasonable amounts paid in settlement; (2) "claim, action, suit or
proceeding" shall include every such claim, action, suit or proceeding,
whether civil or criminal, derivative or otherwise, administrative, judicial
or legislative, any appeal relating thereto, and shall include any reasonable
apprehension or threat of such a claim, action, suit or proceeding; (3) a
settlement, plea of nolo contendere, consent judgment, adverse civil
judgment, or conviction shall not of itself create a presumption that the
conduct of the person seeking indemnification did not meet the standard of
conduct set forth in subsection (a) (2) hereof.
(c) Notwithstanding the foregoing, the following limitations shall apply
with respect to any action by or in the right of the corporation: (1) no
indemnification shall be made in respect of any claim, issue or matter as to
which the person seeking indemnification shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper; and (2) indemnification
shall extend only to reasonable expenses, including reasonable counsel's fees
and disbursements.
(d) The right of indemnification shall extend to any person otherwise
entitled to it under this by-law whether or not that person continues to be a
director, officer or employee of
<PAGE>
- 12 -
this corporation or such other corporation at the time such liability or
expense shall be incurred. The right of indemnification shall extend to the
legal representative and heirs of any person otherwise entitled to
indemnification. If a person meets the requirements of this by-law with
respect to some matters in a claim, action, suit or proceeding, but not with
respect to others, he shall be entitled to indemnification as the former.
Advances against liability and expenses may be made by the corporation on
terms fixed by the board of directors subject to an obligation to repay if
indemnification proves unwarranted.
(e) This by-law shall not exclude any other rights of indemnification or
other rights to which any director, officer or employee may be entitled to by
contract, vote of the stockholders or as a matter of law. If any clause,
provision or application of this section shall be determined to be invalid,
the other clauses, provisions or applications of this section shall not be
affected but shall remain in full force and effect. The provisions of this
by-law shall be applicable to claims, actions, suits, or proceedings made or
commenced after the adoption hereof, whether arising from acts or omissions
to act occurring before or after the adoption hereof.
(f) Nothing contained in this by-law shall be construed to protect any
director or officer of the corporation against any liability to the
corporation or its security holders to which he would otherwise by subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
ARTICLE 9
AMENDMENTS
Section 9.01. These by-laws may be altered, amended or repealed or new
by-laws be adopted by the stockholders at any meeting of the stockholders.
Adopted January 23, 1970
Amended April 12, 1985 (Sec. 3.01)
<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 3, 1997
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 3, 1997 appearing in the Annual Report on Form 10-K of Sun Life
Assurance Company of Canada (U.S.) for the year ended December 31, 1996. We
also consent to the reference to us under the heading "Accountants" in such
Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 14, 1997
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that John D. McNeil, whose signature
appears below, constitutes and appoints Bonnie S. Angus, David D. Horn,
W. Crosby Roper, Jr. and David N. Brown, and each of them, his
attorneys-in-fact, each with the power of substitution, for him in any and
all capacities, to sign any registration statements and amendments to
registration statements for Sun Life Assurance Company of Canada (U.S.) and
its separate accounts and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.
/s/ John D. McNeil August 16, 1982
------------------------------ ----------------------
John D. McNeil Date
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Robert P. Vrolyk, whose
signature appears below, constitutes and appoints Margaret Sears Mead, Bonnie
S. Angus, David D. Horn and David N. Brown, and each of them, his
attorneys-in-fact, each with the power of substitution, for him in any and
all capacities, to sign an initial Registration Statement for Sun Life of
Canada (U.S.) Variable Account F, and any amendments thereto, and to file the
same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact or his substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Robert P. Vrolyk
---------------------
Robert P. Vrolyk
October 9, 1997
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Richard B. Bailey, whose
signature appears below, constitutes and appoints Bonnie S. Angus, David D.
Horn and David N. Brown, and each of them, his attorneys-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for Sun
Life Assurance Company of Canada (U.S.) and its separate accounts and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact or his substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Richard B. Bailey
---------------------------
Richard B. Bailey
June 1, 1983
- -------------
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that A. Keith Brodkin, whose
signature appears below, constitutes and appoints Bonnie S. Angus, David D.
Horn and David N. Brown, and each of them, his attorneys-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for Sun
Life Assurance Company of Canada (U.S.) and its separate accounts and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact or his substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ A. Keith Brodkin
---------------------------
A. Keith Brodkin
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that M. Colyer Crum, whose signature
appears below, constitutes and appoints Bonnie S. Angus, David D. Horn and
David N. Brown, and each of them, his attorneys-in-fact, each with the power
of substitution, for him in any and all capacities, to sign any registration
statements and amendments to registration statements for Sun Life Assurance
Company of Canada (U.S.) and its separate accounts and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact or his substitute or substitutes, may do or
cause to be done by virtue hereof.
July 25, 1986
/s/ M. Colyer Crum
---------------------------
M. Colyer Crum
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that David D. Horn, whose signature
appears below, constitutes and appoints Bonnie S. Angus and David N. Brown,
and each of them, his attorneys-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any registration statements and
amendments to registration statements for Sun Life Assurance Company of
Canada (U.S.) and its separate accounts and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may do or cause to be
done by virtue hereof.
October 25, 1988
/s/ David D. Horn
---------------------------
David D. Horn
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that John S. Lane, whose signature
appears below, constitutes and appoints Bonnie S. Angus, David D. Horn and
David N. Brown, and each of them, his attorneys-in-fact, each with the power
of substitution, for him in any and all capacities, to sign any registration
statements and amendments to registration statements for Sun Life Assurance
Company of Canada (U.S.) and its separate accounts and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact or his substitute or substitutes, may do or
cause to be done by virtue hereof.
/s/ John S. Lane
---------------------------
John S. Lane
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Angus A. MacNaughton, whose
signature appears below, constitutes and appoints Bonnie S. Angus, David D.
Horn and David N. Brown, and each of them, his attorneys-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for Sun
Life Assurance Company of Canada (U.S.) and its separate accounts and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact or his substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Angus A. MacNaughton
---------------------------
Angus A. MacNaughton
Date: November 15, 1985
-----------------
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that S. Caesar Raboy, whose
signature appears below, constitutes and appoints Margaret Sears Mead, Bonnie
S. Angus, David D. Horn and David N. Brown, and each of them, his
attorneys-in-fact, each with the power of substitution, for him in any and
all capacities, to sign an initial Registration Statement for Sun Life of
Canada (U.S.) Variable Account F, and any amendments thereto, and to file the
same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact or his substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ S. Caesar Raboy
---------------------------
S. Caesar Raboy
Date: October 10, 1997
-----------------
