<PAGE>
As Filed with the Securities and Exchange Commission on January 16, 1998
REGISTRATION NO. 333-37907
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 1 /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
-------------------
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 Performance Data
Information
5. General Description of A Word About the Company, the
Registrant, Depositor Fixed Account, the Variable
and Portfolio Companies Account, and the 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 February
____, 1998.
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
FEBRUARY __, 1998
PROFILE
FUTURITY
VARIABLE AND FIXED
ANNUITY CONTRACT
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU
SHOULD KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE
FULLY DESCRIBED IN THE FULL PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE
READ THE PROSPECTUS CAREFULLY.
1. THE FUTURITY ANNUITY The flexible payment deferred annuity contract
("Contract") is offered by Sun Life of Canada (U.S.) (the "Company") and is
designed for use in connection with retirement and deferred compensation plans,
some of which may qualify for favorable federal income tax treatment. The
Contract is intended to help you achieve your retirement savings or other
long-term investment goals. The Contract has two phases: a pay-in phase and a
pay-out phase. During the pay-in phase, any investment earnings under your
Contract accumulate on a tax-deferred basis and are only taxed as income when
withdrawn. You determine the length of the pay-in phase. During the pay-out
phase, you will receive annuity payments in amounts determined in part by the
amount of money you have accumulated under your FUTURITY Annuity during the
pay-in phase.
Purchase payments may currently be allocated among 33 sub-accounts
("Sub-Accounts"), each of which invests in underlying shares of a corresponding
mutual fund or series thereof (collectively the "Funds") and the Company's fixed
account (the "Fixed Account," and collectively with the "Sub-Accounts," the
"Investment Options"). If you wish your investment to accumulate on a variable
basis, you may allocate your Contract value among any of the 33 Sub-Accounts
that you select. The 33 Funds are listed in Section 4. In general, they seek to
earn a higher rate of return than that offered by the Fixed Account.
If you wish your investment in the Contract to accumulate on a fixed basis,
you may allocate purchase payments to the Fixed Account for one or more preset
time periods, as may be made available by the Company from time to time
("Guarantee Periods"), as you select. The Company will credit interest on
amounts allocated to the Fixed Account at a guaranteed rate of interest to be
declared from time to time, which will be at least 3%. The actual interest rate
to be credited ("Guaranteed Interest Rate"), once determined, will be locked-in
for the duration of the applicable Guarantee Period. Amounts allocated to the
Fixed Account may be subject to a market value adjustment upon withdrawal or
transfer.
The Contract is designed to meet your need for investment flexibility. You
can simultaneously invest in any or all of the Investment Options, allowing you
to determine the portion of any earnings that may accumulate on a variable or
fixed basis. Until the Company begins making annuity payments under your
Contract, you can, subject to certain limitations, transfer money between
Investment Options up to 12 times each year without incurring transfer charges
or adverse tax consequences. The Company may adjust any amounts you transfer
from the Fixed Account, as described in Section 5.
2. ANNUITY PAYMENTS (THE PAY-OUT PHASE) Just as you can elect to have your
Contract value accumulate on either a fixed or variable basis, or a combination
of both, you can elect to receive annuity payments on either a fixed or variable
basis. If you choose to have any part of your annuity payments come from the
Funds, the dollar amount of your annuity payments may fluctuate.
You can select from among 4 methods of receiving either variable or fixed
annuity payments under your Contract: (1) monthly payments continuing for your
lifetime (assuming you are the annuitant); (2) monthly payments for your
lifetime, but with payments continuing to your chosen beneficiary for 5, 10, 15
or 20 years if you die before the end of the period you have selected; (3)
monthly payments for your lifetime and the life of another person (usually your
spouse) you have chosen; and (4) monthly payments for a specified number of
years (between 5 and 30), but with payments continuing to the beneficiary for
the remainder of the period
<PAGE>
specified if you die before the specified number of years selected has elapsed.
The amount applied to provide fixed annuity payments will be held by the Company
at interest. Your fixed payments will then be made in such amounts and at such
times (at least over a period of 5 years) as you may agree upon with the Company
and will continue until the amount held by the Company with interest is
exhausted. Once the pay-out period begins, you cannot change your choice of
annuity payment method.
3. PURCHASING A CONTRACT You may purchase a Contract for $5,000 or more,
under most circumstances. You may increase the value of your investment by
adding $1,000 or more at any time during the pay-in phase. Your registered
representative can help you fill out the proper forms.
4. INVESTMENT OPTIONS You can invest your money in any or all of the
following Investment Options:
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC. MFS/SUN LIFE SERIES TRUST
V.I. Capital Appreciation Capital Appreciation Series
V.I. Growth Fund Emerging Growth Series
V.I. Growth and Income Fund Government Securities Series
V.I. International Equity Fund High Yield Series
Money Market Series
Utilities Series
THE ALGER AMERICAN FUND OCC ACCUMULATION TRUST
Growth Portfolio Equity Portfolio
Income and Growth Portfolio Mid Cap Portfolio
Small Capitalization Portfolio Small Cap Portfolio
GOLDMAN SACHS VARIABLE INSURANCE TRUST SALOMON BROTHERS VARIABLE SERIES FUNDS INC
CORE Large Cap Equity Fund Variable Capital Fund
CORE Small Cap Equity Fund Variable Investors Fund
CORE U.S. Equity Fund Variable Strategic Bond Fund
Growth and Income Fund Variable Total Return Fund
International Equity Fund
J.P. MORGAN SERIES TRUST II WARBURG PINCUS TRUST
Equity Fund Emerging Markets Portfolio
International Opportunities Portfolio International Equity Portfolio
Small Company Portfolio Post-Venture Capital Portfolio
Small Company Growth Portfolio
LORD ABBETT SERIES FUND, INC.
Growth and Income Portfolio
</TABLE>
In addition to the variable Investment Options listed above, you may also
allocate your money to the Fixed Account for one or more pre-set Guarantee
Periods, as made available by the Company.
Market conditions will determine the value of your investment in any Fund
listed above, each of which is described in the relevant Fund prospectus.
5. EXPENSES The charges under the Contracts are as follows.
During the first 5 years of your Contract, the Company imposes an Annual
Account Fee equal to the lesser of $30 or 2% of the value of your Contract.
Thereafter this fee may change, but it will not exceed the lesser of $50 or 2%
of the value of your Contract. The Company also deducts insurance charges equal
to 1.40% of the average daily value of your Contract allocated among the
Sub-Accounts.
2
<PAGE>
There are no sales charges when you purchase your Futurity Annuity. However,
if you withdraw money from your Contract, the Company will, with certain
exceptions, impose withdrawal charges. These withdrawal charges are equal to a
percentage of each purchase payment you withdraw and are determined in
accordance with the table below. The percentage varies according to the number
of complete years that have elapsed since the date you made the purchase payment
and the date you withdraw it.
<TABLE>
<CAPTION>
# OF COMPLETED ACCOUNT
YEARS SINCE PAYMENT WITHDRAWAL CHARGE
- ------------------------ -------------------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
</TABLE>
If you withdraw money allocated to the Fixed Account, other than a
withdrawal made within 30 days prior to the expiration date of the Guarantee
Period you have chosen or the withdrawal of interest credited to money allocated
to the Fixed Account during the current year, the amount you withdraw will be
subject to a market value adjustment. This adjustment reflects the relationship
between 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 applicable Guaranteed Interest Rate is lower
than the rate currently in effect, then the application of the adjustment will
result in a lower cash payment upon withdrawal. Conversely, if the applicable
Guaranteed Interest Rate is higher than the current rate, the application of the
adjustment will result in a higher cash payment.
In addition to the charges the Company imposes under the Contracts, there
are investment charges imposed by the Funds which range from 0.56% to 1.50% of
the average daily value of the Funds, depending upon which Fund you have
allocated money to under your Contract.
The following chart is designed to help you understand the expenses you will
incur under your Contract. The column "Total Annual Expenses" shows the total of
the 1.40% insurance charges, the investment expenses for each Fund, and a $30
Annual Account Fee (which is represented as 0.10% below). The next two columns
show two examples of the expenses, in dollars, you would pay under a Contract.
The examples assume that you invested $1,000 in a Contract which earns 5%
annually and that you withdraw your money (1) at the end of one year and (2) at
the end of 10 years. For the first year, the Total Annual Expenses are deducted,
as well as withdrawal charges. For year 10, the example shows the aggregate of
all of the annual expenses deducted for the 10 years, but there is no withdrawal
charge.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL TOTAL ANNUAL
INSURANCE FUND ANNUAL EXPENSES AT END OF:
FUND CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- -------------------------------------------- --------------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
[To be provided]
</TABLE>
For more detailed information about Contract fees and expenses, please refer
to the fee table and discussion of Contract charges contained in the full
Prospectus which accompanies this Profile.
6. TAXES Your earnings are not taxed until you take them out of your
Contract. If you take money out, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings. Annuity payments during the
pay-out phase are considered in part a return of your original investment. That
portion of each payment is not taxable as income. However, if your Contract is
funded with pre-tax or tax deductible dollars (such as with a pension or IRA
contribution), then the entire payment will be taxable. In all cases, you should
consult with your tax adviser for specific tax information.
3
<PAGE>
7. ACCESS TO YOUR MONEY You can withdraw money from your Contract at any
time during the pay-in phase. You may withdraw a portion of the value of your
Contract in each year without the imposition of a withdrawal charge. In
addition, there may be other circumstances under which the Company may waive the
withdrawal charge. After a purchase payment has been held by the Company for 7
years you may withdraw it without charge. Also, no withdrawal charge is assessed
upon annuitization or transfers. Other amounts withdrawn will be subject to a
withdrawal charge ranging from 6% to 0%. All amounts withdrawn from the Fixed
Account during a Guarantee Period are subject to a market value adjustment. You
may be required to pay income tax and possible tax penalties on any money you
withdraw. Each purchase payment you make under your Contract has its own 7 year
withdrawal charge period.
8. PERFORMANCE The value of your Contract will increase or decrease
depending upon the investment performance of the Fund you choose. The following
table shows total return figures for each Fund. that had been in existence for a
full year as of December 31, 1997 and for which the Company intends to advertise
performance information. The figures shown in the table reflect the deduction of
the insurance charges under the Contract described in Section 5, but do not
reflect the deduction of any withdrawal charges, which, had they been reflected,
would have the effect of reducing the performance figures shown. The total
return figures provided below represent the past performance of each Fund shown
and are no guarantee of future results.
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
---------- ------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
V.I. Capital Appreciation
Fund.......................
V.I. Growth Fund............
V.I. Growth and Income
Fund.......................
V.I. International Equity
Fund.......................
THE ALGER AMERICAN FUND
Growth Portfolio............
Income and Growth
Portfolio..................
Small Capitalization
Portfolio..................
J.P. MORGAN SERIES TRUST II
Equity Portfolio............
International Opportunities
Portfolio..................
Small Company Portfolio.....
LORD ABBETT SERIES FUND, INC.
Growth and Income
Portfolio..................
MFS/SUN LIFE SERIES TRUST
Capital Appreciation
Series.....................
Emerging Growth Series......
Government Securities
Series.....................
High Yield Series...........
Money Market Series.........
Utilities Series............
OCC ACCUMULATION TRUST
Equity Portfolio............
Small Cap Portfolio.........
WARBURG PINCUS TRUST
Emerging Markets
Portfolio..................
Post-Venture Capital
Portfolio..................
Small Company Growth
Portfolio..................
<CAPTION>
1994 1995 1996 1997
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS,
V.I. Capital Appreciation
Fund.......................
V.I. Growth Fund............
V.I. Growth and Income
Fund.......................
V.I. International Equity
Fund.......................
THE ALGER AMERICAN FUND
Growth Portfolio............
Income and Growth
Portfolio..................
Small Capitalization
Portfolio..................
J.P. MORGAN SERIES TRUST II
Equity Portfolio............
International Opportunities
Portfolio..................
Small Company Portfolio.....
LORD ABBETT SERIES FUND, INC.
Growth and Income
Portfolio..................
MFS/SUN LIFE SERIES TRUST
Capital Appreciation
Series.....................
Emerging Growth Series......
Government Securities
Series.....................
High Yield Series...........
Money Market Series.........
Utilities Series............
OCC ACCUMULATION TRUST
Equity Portfolio............
Small Cap Portfolio.........
WARBURG PINCUS TRUST
Emerging Markets
Portfolio..................
Post-Venture Capital
Portfolio..................
Small Company Growth
Portfolio..................
</TABLE>
9. DEATH BENEFIT If you die before your Contract reaches the pay-out
phase, the beneficiary will receive a death benefit. If the annuitant is age 85
or less on the date coverage begins, the death benefit is equal to the greatest
of: (1) the value of your Contract on the date the death benefit election is
effective; (2) the amount that would have been payable in the event of a full
surrender of the Contract on the date the death benefit is effective; (3) the
value of your Contract on the 7 year anniversary of your Contract, plus any
purchase payments made and minus any partial withdrawals taken (and withdrawal
charges assessed) subsequently; and (4) the total purchase payments made under
the Contract, minus the sum of all partial withdrawals (purchase payments and
partial withdrawals will accumulate daily at a rate equal to 5% per year until
the first day of the month following the Annuitant's 80th birthday, up to a cap
equal to double the original amount of the Purchase Payment or partial
withdrawal, as applicable). If the annuitant is age 86 or greater on the date
coverage begins, different rules apply.
10. OTHER INFORMATION
FREE LOOK. Depending upon applicable state law, if you cancel your Contract
within 10 days after receiving it the Company will send you whatever your
Contract is worth on the day the Company receives your request (this may be more
or less than the original purchase payment) and will not deduct a withdrawal
4
<PAGE>
charge. 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 10 days and alternative methods of returning the
Contract may be acceptable.
NO PROBATE. In most cases, when you die, the Beneficiary will receive the
death benefit without going through probate. However, avoiding probate does not
mean that the Beneficiary will not have tax liability as a result of receiving
the death benefit.
WHO SHOULD PURCHASE A CONTRACT? This Contract is designed for investors
seeking long-term tax-deferred accumulation of assets, generally for retirement
or other long-term purposes. The tax-deferred feature is most attractive to
investors in high federal and state tax brackets. You should not buy this
Contract if you are looking for a short-term investment or if you cannot risk a
decrease in the value of your investment.
CONFIRMATIONS AND QUARTERLY STATEMENTS. You will receive a confirmation of
each transaction within your Contract. On a quarterly basis, you will receive a
complete statement of your transactions over the past quarter and a summary of
your account values during that period.
ADDITIONAL FEATURES. The FUTURITY Annuity offers the following additional
convenient features:
Dollar Cost Averaging -- You can have a specified amount of money
automatically invested in the available investment options each month,
theoretically letting you take advantage of a lower average cost per unit over
time than may be available with a one-time purchase.
11. INQUIRIES If you would like more information about buying a Contract,
please contact your broker or registered representative. If you have any other
questions, please contact the Company at:
SUN LIFE OF CANADA (U.S.)
Retirement Products & Services
P.O. Box 9133
Boston, MA 02117
Tel. No. (888) 388-8748
5
<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>
SUBJECT TO COMPLETION PRELIMINARY
PROSPECTUS
FEBRUARY , 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 states, 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
mutual funds or series thereof (the "Funds"):
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC. MFS/SUN LIFE SERIES TRUST
V.I. Capital Appreciation Fund Capital Appreciation Series
V.I. Growth Fund Emerging Growth Series
V.I. Growth and Income Fund Government Securities Series
V.I. International Equity Fund High Yield Series
Money Market Series
THE ALGER AMERICAN FUND Utilities Series
Growth Portfolio
Income and Growth Portfolio OCC ACCUMULATION TRUST
Small Capitalization Portfolio Equity Portfolio
Mid Cap Portfolio
GOLDMAN SACHS VARIABLE INSURANCE TRUST Small Cap Portfolio
CORE Large Cap Growth Fund
CORE Small Cap Equity Fund SALOMON BROTHERS VARIABLE SERIES FUNDS INC
CORE U.S. Equity Fund Variable Capital Fund
Growth and Income Fund Variable Investors Fund
International Equity Fund Variable Strategic Bond Fund
Variable Total Return Fund
J.P. MORGAN SERIES TRUST II
Equity Portfolio WARBURG PINCUS TRUST
International Opportunities Portfolio Emerging Markets Portfolio
Small Company Portfolio International Equity Portfolio
Post-Venture Capital Portfolio
LORD ABBETT SERIES FUND, INC. Small Company Growth Portfolio
Growth and Income Portfolio
</TABLE>
(CONTINUED ON NEXT PAGE)
<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.
*ANY REFERENCE IN THIS PROSPECTUS TO RECEIPT BY THE COMPANY MEANS RECEIPT AT ITS
ANNUITY SERVICE MAILING ADDRESS, C/O SUN LIFE ASSURANCE COMPANY OF CANADA
(U.S.), RETIREMENT PRODUCTS AND SERVICES, P.O. BOX 9133, BOSTON, MASSACHUSETTS
02117.
<PAGE>
Each Fund pays its investment adviser certain fees charged against the assets of
the Fund. 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 Fund selected by the Participant and the deduction of the
contract charges described under "How the Contract Charges Are Assessed" on page
30. For more information about the Funds, see "The Funds" on page 18 and the
accompanying Fund prospectuses.
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 16). The Company will
credit interest at a rate not less than three percent (3%) per year, compounded
annually, to amounts allocated to the Fixed Account and guarantees these amounts
at various interest rates (the "Guaranteed Interest Rates") for the duration of
the Guarantee Period elected by the Participant, subject to the imposition of
any applicable withdrawal charge, Market Value Adjustment, or account
administration fee. The Company may not change a Guaranteed Interest Rate for
the duration of the Guarantee Period; however, Guaranteed Interest Rates
applicable to subsequent Guarantee Periods cannot be predicted and will be
determined at the sole discretion of the Company (subject to the minimum
guarantee). 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 27).
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 28).
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 28).
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 26.
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
2
<PAGE>
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 31).
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 31).
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 and 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 38 and "Modification" on page 38).
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 38).
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 29).
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 32).
Premium taxes payable to any governmental entity will be deducted from the
Participant's Account (See "Premium Taxes" on page 31).
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; Telephone Transfers; Restriction on Market
Timers" on page 24).
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 35).
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
3
<PAGE>
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 37).
The Company will furnish Participants and such other persons having voting
rights with certain reports and statements described under "Periodic Reports" on
page 37. 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, the
Quarterly Report on Form 10-Q for the nine months ended September 30, 1997, and
the Interim Report on Form 8-K dated January 8, 1998 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 documents should be directed to the Secretary, Sun Life Assurance
Company of Canada (U.S.), One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02181, telephone (800) 225-2950.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions 7
Expense Summary 9
Performance Data 14
This Prospectus Is a Catalog of Facts 14
Uses of the Contract 14
A Word About the Company, the Fixed Account, the Variable
Account and the Funds 16
The Company 16
The Fixed Account 16
The Variable Account 17
The Funds 18
Purchase Payments and Contract Values During Accumulation
Period 21
Purchase Payments 21
Participant's Account 22
Variable Accumulation Value 22
Fixed Accumulation Value 23
Guarantee Periods 23
Guaranteed Interest Rates 23
Dollar Cost Averaging 24
Asset Allocation 24
Transfer Privilege; Telephone Transfers; Restriction on
Market Timers 24
Waivers; Reduced Charges; Credits; Bonus Guaranteed
Interest Rates 25
Cash Withdrawals, Withdrawal Charges and Market Value
Adjustment 26
Cash Withdrawals 26
Withdrawal Charges 27
Amount of Withdrawal Charge 27
Section 403(b) Annuities 28
Market Value Adjustment 28
Death Benefit 29
Death Benefit Provided by the Contract 29
Election and Effective Date of Election 29
Payment of Death Benefit 30
Amount of Death Benefit 30
How the Contract Charges Are Assessed 30
Administrative Charges 31
Premium Taxes 31
Mortality and Expense Risk Charge 31
Withdrawal Charges 32
Annuity Provisions 32
Annuity Commencement Date 32
Election--Change of Annuity Option 32
Annuity Options 33
Determination of Annuity Payments 34
Fixed Annuity Payments 34
Variable Annuity Payments 34
Variable Annuity Unit Value 34
Exchange of Variable Annuity Units 35
Annuity Payment Rates 35
</TABLE>
5
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Other Contractual Provisions 35
Payment Limits 35
Designation and Change of Beneficiary 35
Exercise of Contract Rights 36
Change of Ownership 36
Death of Participant 36
Voting of Fund Shares 37
Periodic Reports 37
Substituted Securities 38
Change in Operation of Variable Account 38
Splitting Units 38
Modification 38
Discontinuance of New Participants 39
Custodian 39
Right to Return 39
Federal Tax Status 39
Introduction 39
Tax Treatment of the Company and the Variable Account 40
Taxation of Annuities in General 40
Qualified Retirement Plans 42
Pension and Profit-Sharing Plans 42
Tax-Sheltered Annuities 42
Individual Retirement Accounts 42
Roth IRAs 42
Administration of the Contracts 43
Distribution of the Contracts 43
Additional Information About the Company 44
Selected Financial Data 44
Management's Discussion and Analysis of Financial
Condition and Results of Operations 44
Liquidity 47
Recent Reorganization 47
Reinsurance 47
Reserves 47
Investments 48
Competition 48
Employees 48
Properties 48
Year 2000 Compliance 49
The Company's Directors and Executive Officers 49
State Regulation 52
Legal Proceedings 52
Legal Matters 52
Accountants 52
Registration Statements 53
Financial Statements 53
Appendix A--Variable Accumulation Unit Value, Variable
Annuity Unit Value and Variable Annuity Payment
Calculations 81
Appendix B--State Premium Taxes 82
Appendix C--Withdrawals, Withdrawal Charges and the Market
Value Adjustment 83
Appendix D--Calculation of Performance Data; Advertising and
Sales Literature 86
</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. Unless otherwise expressly indicated,
references in this Prospectus to "Contracts" include Certificates.
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: A registered management investment company, or series thereof, in
which the assets of a Sub-Account may be invested.
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).
- ------------------------
*As specified in the Application, unless changed.
7
<PAGE>
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is
credited.
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during 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 tables and Examples 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 tables reflect 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.
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
PARTICIPANT TRANSACTION EXPENSES
Sales Load Imposed on Purchases....... $ 0
Deferred Sales Load (as a percentage
of Purchase Payments withdrawn)(1)
Number of Complete Account Years
Purchase Payment in Account
0-1................................. 6%
2-3................................. 5%
4-5................................. 4%
6................................... 3%
7 or more........................... 0%
Exchange fee(2)....................... $ 0
ANNUAL ACCOUNT FEE
Per Participant's Account(3).......... $30
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average separate
account assets)
Mortality and Expense Risk Fees....... 1.25%
Administrative Expense Charge......... 0.15%
Other Fees and Expenses of the
Separate Account.................... 0.00%
Total Separate Account Annual
Expenses............................ 1.40%
</TABLE>
- ---------
(1) A portion of the Participant's Account may be withdrawn each year without
imposition of any withdrawal charge, and after a Purchase Payment has been
held by the Company for seven years it may be withdrawn free of any
withdrawal charge.
(2) A Market Value Adjustment may be imposed on amounts transferred from or
within the Fixed Account.
(3) The Annual Account Fee is the lesser of $30 and 2% of the Participant's
Account Value in Account Years one through five; thereafter, the fee may be
changed annually, but it may not exceed the lesser of $50 and 2% of the
Participant's Account Value.
9
<PAGE>
UNDERLYING FUND ANNUAL EXPENSES (1)
(AS A PERCENTAGE OF UNDERLYING FUND NET ASSETS)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND
FEES 12B-1 FEES EXPENSES EXPENSES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund......
AIM V.I. Growth Fund....................
AIM V.I. Growth and Income Fund.........
AIM V.I. International Equity Fund......
Alger American Growth Portfolio.........
Alger American Income and Growth
Portfolio..............................
Alger American Small Capitalization
Portfolio..............................
Goldman Sachs CORE Large Cap Equity Fund
(2).................................... 0.70% 0.10% 0.80%
Goldman Sachs CORE Small Cap Equity Fund
(2).................................... 0.75% 0.15% 0.90%
Goldman Sachs CORE U.S. Equity Fund
(2).................................... 0.70% 0.10% 0.80%
Goldman Sachs Growth and Income Fund
(2).................................... 0.75% 0.15% 0.90%
Goldman Sachs International Equity Fund
(2).................................... 1.00% 0.25% 1.25%
J.P. Morgan Equity Portfolio (3)........
J.P. Morgan International Opportunities
Portfolio (3)..........................
J.P. Morgan Small Company Portfolio
(3)....................................
Lord Abbett Growth and Income Portfolio
(4)....................................
MFS/Sun Life Capital Appreciation
Series.................................
MFS/Sun Life Emerging Growth Series.....
MFS/Sun Life Government Securities
Series.................................
MFS/Sun Life High Yield Series..........
MFS/Sun Life Money Market Series........
MFS/Sun Life Utilities Series...........
OCC Equity Portfolio (3)................
OCC Mid Cap Portfolio (2)............... 0.65% 0.35% 1.00%
OCC Small Cap Portfolio (3).............
Salomon Brothers Variable Capital Fund
(2).................................... 0.85% 0.15% 1.00%
Salomon Brothers Variable Investors Fund
(2).................................... 0.70% 0.30% 1.00%
Salomon Brothers Variable Strategic Bond
Fund (2)............................... 0.75% 0.25% 1.00%
Salomon Brothers Variable Total Return
Fund (2)............................... 0.80% 0.20% 1.00%
Warburg Pincus Emerging Markets
Portfolio (2).......................... 0.45% 0.95% 1.40%
Warburg Pincus International Equity
Portfolio (3)..........................
Warburg Pincus Post-Venture Capital
Portfolio (3)..........................
Warburg Pincus Small Company Growth
Portfolio (3)..........................
</TABLE>
- ---------
(1) Unless otherwise indicated, the information in the table is based on amounts
incurred during the Fund's most recent fiscal year. The information relating
to Fund expenses was provided by the Funds and has not been independently
verified by the Company. Participants should consult the Fund prospectuses
for more information about Fund expenses.
(2) These Funds will commence operations in 1998. Accordingly, "Other Expenses"
is based on estimates for the current fiscal year, net of any applicable
expense reimbursement or waiver. The investment advisers for the indicated
Funds have voluntarily agreed to waive or reimburse a portion of the
management fees and/or operating expenses resulting in a reduction of the
total expenses. Absent any such waiver or reimbursement, "Management Fees,"
"Other Expenses" and "Total Fund Expenses" are expected to be: 0.70%, 0.50%
and 1.20% for the Goldman Sachs CORE Large Cap Equity Fund; 0.75%, 1.03%,
and 1.78% for the Goldman Sachs CORE Small Cap Equity Fund; 0.70%, 0.76%,
and 1.46% for the Goldman Sachs CORE U.S. Equity Fund; 0.75%, 0.76%, and
1.51% for the Goldman Sachs Growth and Income Fund; 1.00%, 1.22%, and 2.22%
for the Goldman Sachs International Equity Fund; 0.80%, 0.35%, and 1.15% for
the OCC Mid Cap Portfolio; 0.95%, 1.91% and 2.86% for the Salomon Brothers
10
<PAGE>
Variable Capital Fund; 0.70%, 1.91% and 2.61% for the Salomon Brothers
Variable Investors Fund; 0.75%, 1.91% and 2.66% for the Salomon Brothers
Variable Strategic Bond Fund; 0.80%, 1.91% and 2.71% for the Salomon
Brothers Variable Total Return Fund; and 1.25%, 0.95%, and 2.20% for the
Warburg Pincus Emerging Markets Portfolio.
(3) The investment advisers and, in certain cases, the administrators for the
indicated Funds have voluntarily agreed to waive or reimburse a portion of
the management fees and/or operating expenses, resulting in a reduction of
the total expenses. Absent any such waiver or reimbursement, "Management
Fees," "Other Expenses" and "Total Fund Expenses" would have been: %,
%, and % for the OCC Equity Portfolio; %, %, and % for the
OCC Small Cap Portfolio; %, %, and % for the Warburg Pincus
International Equity Portfolio; %, %, and % for the Warburg Pincus
Post-Venture Capital Portfolio; and %, %, and % for the Warburg
Pincus Small Company Growth Portfolio. Absent any waiver or reimbursement,
"Total Fund Expenses" would have been % for the J.P. Morgan Equity
Portfolio, % for the J.P. Morgan International Opportunities Portfolio,
and % for the J.P. Morgan Small Company Portfolio.
(4) This Fund has a 12b-1 plan which provides for payments to Lord Abbett & Co.
for remittance to a life insurance company for certain distribution expenses
(see the Fund prospectus). The 12b-1 plan provides that such remittances, in
the aggregate, will not exceed 0.15% on an annual basis, of the daily net
asset value of shares of the Growth and Income Portfolio. For the current
fiscal year, the 12b-1 fees are estimated to be %. The examples below for
this Portfolio reflect the estimated 12b-1 fees.
11
<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>
AIM V.I. Capital Appreciation Fund......
AIM V.I. Growth Fund....................
AIM V.I. Growth and Income Fund.........
AIM V.I. International Equity Fund......
Alger American Growth Portfolio.........
Alger American Income and Growth
Portfolio...............................
Alger American Small Capitalization
Portfolio...............................
Goldman Sachs CORE Large Cap Growth
Fund....................................
Goldman Sachs CORE Small Cap Equity
Fund....................................
Goldman Sachs CORE U.S. Equity Fund.....
Goldman Sachs Growth and Income Fund....
Goldman Sachs International Equity
Fund....................................
J.P. Morgan Equity Portfolio............
J.P. Morgan International Opportunities
Portfolio...............................
J.P. Morgan Small Company Portfolio.....
Lord Abbett Growth and Income
Portfolio...............................
MFS/Sun Life Capital Appreciation
Series..................................
MFS/Sun Life Emerging Growth Series.....
MFS/Sun Life Government Securities
Series..................................
MFS/Sun Life High Yield Series..........
MFS/Sun Life Money Market Series........
MFS/Sun Life Utilities Series...........
OCC Equity Portfolio....................
OCC Mid Cap Portfolio...................
OCC Small Cap Portfolio.................
Salomon Brothers Variable Capital
Fund....................................
Salomon Brothers Variable Investors
Fund....................................
Salomon Brothers Variable Strategic Bond
Fund....................................
Salomon Brothers Variable Total Return
Fund....................................
Warburg Pincus Emerging Markets
Portfolio...............................
Warburg Pincus International Equity
Portfolio...............................
Warburg Pincus Post-Venture Capital
Portfolio...............................
Warburg Pincus Small Company Growth
Portfolio...............................
</TABLE>
12
<PAGE>
EXAMPLE
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>
AIM V.I. Capital Appreciation Fund......
AIM V.I. Growth Fund....................
AIM V.I. Growth and Income Fund.........
AIM V.I. International Equity Fund......
Alger American Growth Portfolio.........
Alger American Income and Growth
Portfolio...............................
Alger American Small Capitalization
Portfolio...............................
Goldman Sachs CORE Large Cap Growth
Fund....................................
Goldman Sachs CORE Small Cap Equity
Fund....................................
Goldman Sachs CORE U.S. Equity Fund.....
Goldman Sachs Growth and Income Fund....
Goldman Sachs International Equity
Fund....................................
J.P. Morgan Equity Portfolio............
J.P. Morgan International Opportunities
Portfolio...............................
J.P. Morgan Small Company Portfolio.....
Lord Abbett Growth and Income
Portfolio...............................
MFS/Sun Life Capital Appreciation
Series..................................
MFS/Sun Life Emerging Growth Series.....
MFS/Sun Life Government Securities
Series..................................
MFS/Sun Life High Yield Series..........
MFS/Sun Life Money Market Series........
MFS/Sun Life Utilities Series...........
OCC Equity Portfolio....................
OCC Mid Cap Portfolio...................
OCC Small Cap Portfolio.................
Salomon Brothers Variable Capital
Fund....................................
Salomon Brothers Variable Investors
Fund....................................
Salomon Brothers Variable Strategic Bond
Fund....................................
Salomon Brothers Variable Total Return
Fund....................................
Warburg Pincus Emerging Markets
Portfolio...............................
Warburg Pincus International Equity
Portfolio...............................
Warburg Pincus Post-Venture Capital
Portfolio...............................
Warburg Pincus Small Company Growth
Portfolio...............................
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LOWER THAN THOSE SHOWN.
13
<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 include (1) quotations for the period subsequent to the date each Sub-
Account became available for investment under the Contracts (if longer than one
year), and for recent one year and, when applicable, five and ten year periods
from that date and (2) quotations for the same periods subsequent to the date
the Fund commenced operations. 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. In addition, the Company may
begin offering Participants under Contracts used in connection with individual
retirement plans under Section 408 the opportunity to convert the Contracts into
Contracts used in connection with Roth IRAs under Section 408A, and may also
begin offering new Contracts for use in connection with Roth IRAs. Certain
federal tax advantages are currently available to retirement plans which qualify
as (1) self-employed individuals' retirement plans under Section 401; (2)
corporate or association retirement plans under Section 401; (3) annuity
purchase plans sponsored by certain tax exempt organizations or public school
systems under Section 403(b); or (4) individual retirement accounts, including
employer or association of employees individual retirement accounts under
Section 408(c), SEP-IRAs under Section 408(k), Simple Retirement Accounts under
Section 408(p), and Roth IRAs under Section 408A (See "Federal Tax Status").
14
<PAGE>
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.
15
<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 Sun Capital Advisers,
Inc., a registered investment adviser, Clarendon Insurance Agency, Inc., a
registered broker-dealer that acts as the general distributor of the Contracts
and other annuity and life insurance contracts issued by the Company and its
affiliates, Sun Life of Canada (U.S.) Distributors, Inc., a registered
broker-dealer and investment adviser, New London Trust, F.S.B., a federally
chartered savings bank, Massachusetts Casualty Insurance Company, which issues
individual disability income policies, 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.
16
<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 THREE PERCENT (3%) PER YEAR WILL BE DETERMINED IN THE SOLE
DISCRETION OF THE COMPANY. THE PARTICIPANT ASSUMES THE RISK THAT INTEREST
CREDITED ON AMOUNTS 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.
17
<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
The Contract offers a number of Fund options, which are briefly discussed
below. Each Fund is a mutual fund registered under the Investment Company Act of
1940, or a separate series of shares of such a mutual fund. More comprehensive
information, including a discussion of potential risks, is found in the current
prospectuses for the Funds (the "Fund Prospectuses"). The Fund Prospectuses
should be read in connection with this Prospectus. A copy of each Fund
Prospectus may be obtained without charge from the Company by calling
1-888-388-8748, or writing to Sun Life Assurance Company of Canada (U.S.),
Retirement Products and Services, P.O. Box 9133, Boston Massachusetts 02117.
The Funds currently available are:
AIM VARIABLE INSURANCE FUNDS, INC. (advised by AIM Advisors, Inc.)
AIM V.I. CAPITAL APPRECIATION FUND seeks to provide capital appreciation
through investments in common stocks, with emphasis on medium-sized and smaller
emerging growth companies.
18
<PAGE>
AIM V.I. GROWTH FUND seeks to provide growth of capital through investments
primarily in common stocks of leading U.S. companies considered by AIM to have
strong earnings momentum.
AIM V.I. GROWTH AND INCOME FUND seeks to provide growth of capital, with
current income as a secondary objective by investing primarily in dividend
paying common stocks which have prospects for both growth of capital and
dividend income.
AIM V.I. INTERNATIONAL EQUITY FUND seeks to provide long-term growth of
capital by investing in international equity securities, the issuers of which
are considered by AIM to have strong earnings momentum.
THE ALGER AMERICAN FUND (advised by Fred Alger Management, Inc.)
ALGER AMERICAN GROWTH PORTFOLIO seeks long-term capital appreciation by
investing primarily in equity securities of companies with market
capitalizations of $1 billion or more.
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO seeks primarily to provide a high
level of dividend income by investing in dividend paying equity securities.
Capital appreciation is a secondary objective.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks long-term capital
appreciation by investing primarily in equity securities of companies with
market capitalizations within the range of the Russell 2000 Growth Index or the
S&P SmallCap 600 Index.
GOLDMAN SACHS VARIABLE INSURANCE TRUST (advised by Goldman Sachs Asset
Management, a separate operating division of Goldman, Sachs & Co., except for
Goldman Sachs International Equity Fund, which is advised by Goldman Sachs Asset
Management International, an affiliate of Goldman Sachs & Co.)
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND seeks long-term growth of capital
through a broadly diversified portfolio of equity securities of large cap U.S.
issuers that are expected to have better prospects for earnings growth than the
growth rate of the general domestic economy. Dividend income is a secondary
consideration.
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND seeks long-term growth of capital
through a broadly diversified portfolio of equity securities of U.S. issuers
which are included in the Russell 2000 Index at the time of investment.
GOLDMAN SACHS CORE U.S. EQUITY FUND seeks long-term growth of capital and
dividend income through a broadly diversified portfolio of large cap and blue
chip equity securities representing all major sectors of the U.S. economy.
GOLDMAN SACHS GROWTH AND INCOME FUND seeks long-term growth of capital and
growth of income through investments in equity securities that are considered to
have favorable prospects for capital appreciation and/or dividend paying
ability.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND seeks long-term capital appreciation
through investments in equity securities of companies that are organized outside
the U.S. or whose securities are principally traded outside the U.S.
J.P. MORGAN SERIES TRUST II (advised by J.P. Morgan Investment Management Inc.)
J.P. MORGAN EQUITY PORTFOLIO seeks to provide a high total return from a
portfolio comprised of selected equity securities.
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO seeks to provide a high
total return from a portfolio of equity securities of foreign corporations.
J.P. MORGAN SMALL COMPANY PORTFOLIO seeks to provide a high total return
from a portfolio of equity securities of small companies.
LORD ABBETT SERIES FUND, INC. (advised by Lord Abbett & Co.)
GROWTH AND INCOME PORTFOLIO seeks to provide long-term growth of capital and
income without excessive fluctuation in market value.
19
<PAGE>
MFS/SUN LIFE SERIES TRUST (advised by Massachusetts Financial Services Company,
an affiliate of the Company)
CAPITAL APPRECIATION SERIES seeks capital appreciation by investing in
securities of all types, with major emphasis on common stocks.
EMERGING GROWTH SERIES seeks long-term growth of capital by investing
primarily (I.E., at least 80% of its assets under normal circumstances) in
common stocks of emerging growth companies. Emerging growth companies include
companies that MFS believes are early in their life cycle but which have the
potential to become major enterprises. Dividend and interest income from
portfolio securities, if any, is incidental to its objective of long-term growth
of capital.
GOVERNMENT SECURITIES SERIES seeks current income and preservation of
capital by investing in U.S. Government and Government-related Securities.
HIGH YIELD SERIES seeks high current income and capital appreciation by
investing primarily in fixed income securities of United States and foreign
issuers which may be in the lower rated categories or unrated (commonly known as
"junk bonds") and may include equity features. Securities offering the high
current income sought by the High Yield Series generally involve greater
volatility of price and risk of principal and income, and less liquidity than
securities in the higher rated categories on common stocks.
MONEY MARKET SERIES seeks maximum current income to the extent consistent
with stability of principal by investing exclusively in money market instruments
maturing in less than 13 months. AN INVESTMENT IN THIS SERIES IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE SERIES
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
UTILITIES SERIES seeks capital growth and current income (income above that
available from a portfolio invested entirely in equity securities) by investing
at least 65% of its assets under normal market conditions in equity and debt
securities issued by domestic and foreign utility companies.
OCC ACCUMULATION TRUST (advised by OpCap Advisors)
EQUITY PORTFOLIO seeks long-term capital appreciation through investment in
a diversified portfolio of equity securities selected on the basis of a value
oriented approach to investing.
MID CAP PORTFOLIO seeks long-term capital appreciation through investment in
a diversified portfolio of equity securities. The portfolio will invest
primarily in companies with market capitalizations of between $500 million and
$5 billion.
SMALL CAP PORTFOLIO seeks capital appreciation through investment in a
diversified portfolio of equity securities of companies with market
capitalizations of under $1 billion.
SALOMON BROTHERS VARIABLE SERIES FUNDS INC (advised by Salomon Brothers Asset
Management Inc. ("SBAM"); with respect to the Strategic Bond Fund, SBAM has a
consulting agreement with its affiliate, Salomon Brothers Asset Management
Limited, regarding currency transactions and investments in non-dollar
denominated debt securities.)
SALOMON BROTHERS VARIABLE CAPITAL FUND seeks capital appreciation through
investments primarily in common stock or securities convertible into common
stocks that are believed to have above average price appreciation potential and
may involve above average risk.
SALOMON BROTHERS VARIABLE INVESTORS FUND seeks long-term growth of capital
and, secondarily, current income, primarily through investments in common stocks
of well-known companies.
SALOMON BROTHERS VARIABLE STRATEGIC BOND FUND seeks a high level of current
income and, secondarily, capital appreciation, through investments in a globally
diverse portfolio of fixed-income investments. The fund reserves the right to
invest predominantly in medium or lower rated securities, commonly known as
"junk bonds."
SALOMON BROTHERS VARIABLE TOTAL RETURN FUND seeks above average income
(compared to a portfolio entirely invested in equity securities) and,
secondarily, growth of capital and income, through investments in a broad
variety of equity and fixed income securities and short-term obligations.
20
<PAGE>
WARBURG PINCUS TRUST (advised by Warburg Pincus Asset Management, Inc.; with
respect to the Post-Venture Capital Portfolio, Warburg Pincus Asset Management,
Inc. has retained Abbott Capital Management, L.P., regarding the Fund's
investments in United States or foreign private limited partnerships or other
investment funds.)
EMERGING MARKETS PORTFOLIO seeks long-term growth of capital by investing
primarily in equity securities of non-United States issuers consisting of
companies in emerging securities markets.
INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing in equity securities of non-U.S. issuers.
POST-VENTURE CAPITAL PORTFOLIO seeks long-term growth of capital by
investing primarily in equity securities of issuers in their post-venture
capital stage of development and pursues an aggressive investment strategy.
SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by investing in equity
securities of small-sized domestic companies.
The Funds may also be available to registered separate accounts offering
variable annuity and variable life products of other affiliated and unaffiliated
participating insurance companies, as well as to the Variable Account and other
separate accounts of the Company. Although the Company does not anticipate any
disadvantages to this, there is a possibility that a material conflict may arise
between the interest of the Variable Account and one or more of the other
separate accounts participating in the Funds. A conflict may occur due to a
change in law affecting the operations of variable life and variable annuity
separate accounts, differences in the voting instructions of the Participants
and Payees and those of other companies, or some other reason. In the event of
conflict, the Company will take any steps necessary to protect Participants and
Payees, including withdrawal of the Variable Account from participation in the
underlying Funds which are involved in the conflict or substitution of shares of
other Funds.
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.
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<PAGE>
(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.
(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
22
<PAGE>
(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
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. 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").
23
<PAGE>
The Guaranteed Interest Rate will not be less than three percent (3%) per
year, compounded annually. The Company has no specific formula for determining
the rate of interest that it will declare as a Guaranteed Interest Rate, as
these rates will be reflective of interest rates available on the types of debt
instruments in which the Company intends to invest amounts allocated to the
Fixed Account (See "The Fixed Account"). In addition, the Company's management
may consider other factors in determining Guaranteed Interest Rates 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 three percent (3%) per year 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.
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.
The main objective of a dollar cost averaging program is to minimize the
impact of short-term price fluctuations. Since the same dollar amount is
transferred to other available investment options at set intervals, dollar cost
averaging allows a Participant to purchase more Accumulation Units (and,
indirectly, more Fund shares) when prices are low and fewer Accumulation Units
(and, indirectly, fewer Fund shares) when prices are high. Therefore, a lower
average cost per Accumulation Unit may be achieved over the long-term. A dollar
cost averaging program allows Participants to take advantage of market
fluctuations. However, it is important to understand that a dollar cost
averaging program does not assure a profit or protect against loss in a
declining market.
ASSET ALLOCATION
One or more asset allocation investment programs may be made available in
connection with the Contracts. An asset allocation program is offered by a
registered investment adviser to provide continuous advice for the allocation of
the Participant's Account Value among the available investment options. These
programs will be fully described in a separate brochure. Participants may elect
to enter into an asset allocation investment program, under the terms and
conditions described in the brochure.
TRANSFER PRIVILEGE; TELEPHONE TRANSFERS; RESTRICTION ON MARKET TIMERS
At any time during the Accumulation Period the Participant may, upon 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
24
<PAGE>
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.
Transfers may be requested either in writing or by telephone. This telephone
exchange privilege is made available to Participants automatically without the
Participant's election. The Company will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Such procedures may
include the following: requesting identifying information, such as name,
Contract number, Social Security Number, and/or personal identification number;
tape recording all telephone transactions; or providing written confirmation
thereof to both the Participant and any agent of record, at the last address of
record; or such other procedures as the Company may deem reasonable. Although
the Company's failure to follow reasonable procedures may result in the
Company's liability for any losses due to unauthorized or fraudulent telephone
transfers, the Company will not be liable for following instructions
communicated by telephone which it reasonably believes to be genuine. Any losses
incurred pursuant to actions taken by the Company in reliance on telephone
instructions reasonably believed to be genuine shall be borne by the
Participant.
The Contracts are not designed for professional market timing organizations
or other entities using programmed and frequent transfers. Persons who wish to
employ such strategies should not purchase a Contract. Accordingly, transfers
may be subject to restriction if exercised by a market timing firm or any other
third party authorized to initiate transfer transactions on behalf of multiple
Participants. In imposing such restrictions, the Company may, among other
things, not accept (1) the transfer instructions of any agent acting under a
power of attorney on behalf of more than one Participant, or (2) the transfer
instructions of individual Participants who have executed preauthorized transfer
forms that are submitted by market timing firms or other third parties on behalf
of more than one Participant at the same time. The Company will not impose any
such restrictions or otherwise modify transfer rights unless such action is
reasonably intended to prevent the use of such rights in a manner that will
disadvantage or potentially impair the contract rights of other Participants.
In addition, 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 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
Fund 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. The Company also reserves the right, for similar reasons, to
refuse or delay exchange requests involving transfers to or from the Fixed
Account.
WAIVERS; REDUCED CHARGES; CREDITS; BONUS GUARANTEED INTEREST RATES
The Company may reduce or waive the withdrawal charge or Annual Account Fee,
credit additional amounts, or grant bonus Guaranteed Interest Rates in
situations where selling and/or maintenance costs associated with the Contracts
are reduced, such as the sale of several Contracts to the same Participant,
sales of large Contracts, and certain group sales. In addition, the Company may
waive the Annual Account Fee, credit additional amounts, or grant bonus
Guaranteed Interest Rates in connection with Contracts sold to officers,
directors and employees of the Company or its affiliates, registered
representatives and employees of broker-dealers with a current selling agreement
with the Company and their affiliates, employees of affiliated asset management
firms, and persons who have retired from such positions ("Eligible Employees")
and immediate family members of Eligible Employees. The Company may reduce or
waive such charges and fees, credit additional amounts, or grant bonus
Guaranteed Interest Rates on any Contract where, for example, expenses
associated with the sale of the Contract and/or costs or services associated
with administering and maintaining the Contract are reduced. Eligible Employees
and their immediate family members may also purchase a Contract without regard
to minimum Purchase Payment requirements. For other situations in which
withdrawal charges may be waived, see "Withdrawal Charges."
25
<PAGE>
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
At any time before the Annuity Commencement Date and during the lifetime of
the Annuitant, the Participant may elect to receive a cash withdrawal payment
from the Company. Any such election shall specify the amount of the withdrawal
and will be effective on the date that it is received by the Company.
The Participant may request a full surrender or partial withdrawal. A full
surrender will result in a cash withdrawal payment equal to the value of the
Participant's Account at the end of the Valuation Period during which the
election becomes effective less the Account Fee, plus or minus any applicable
Market Value Adjustment, and less any applicable withdrawal charge. A request
for a partial withdrawal will result in the cancellation of a portion of the
Participant's Account Value equal to the dollar amount of the cash withdrawal
payment, plus or minus any applicable Market Value Adjustment and plus any
applicable withdrawal charge. If a partial withdrawal is requested which would
leave a Participant's Account Value of less than the Account Fee, then such
partial withdrawal will be treated as a full surrender. The Account Fee and any
applicable Market Value Adjustment will be deducted from the Participant's
Account before the application of any withdrawal charge.
In the case of a partial withdrawal, the Participant may instruct the
Company as to the amounts to be withdrawn from each Sub-Account and/or Guarantee
Amount. If not so instructed, the Company will effect such withdrawal pro-rata
from each Sub-Account and Guarantee Amount in which the Participant's Account
Value is invested at the end of the Valuation Period during which the withdrawal
becomes effective. ALL CASH WITHDRAWALS OF ANY GUARANTEE AMOUNT, EXCEPT THOSE
EFFECTIVE WITHIN 30 DAYS PRIOR TO THE EXPIRATION DATE OF SUCH GUARANTEE AMOUNT
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.
26
<PAGE>
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
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
Participant'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:
The Contracts 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.
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
27
<PAGE>
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".
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
28
<PAGE>
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;
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
29
<PAGE>
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 values of
the Sub-Accounts on the date the amount of the death benefit is determined. If
no portion of the Participant's Account is allocated to the Sub-Accounts, the
entire increase will be allocated to the Sub-Account invested in the Money
Market Series of MFS/Sun Life Series Trust.
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.
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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. 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 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
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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.
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
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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,
which will not be less than three percent (3%) per year. The discounted value
for payments being made on a fixed basis will be based on the interest rate
initially used by the Company to determine the amount of each payment.
Annuity Option C. Joint and Survivor Annuity: Monthly payments payable
during the joint lifetime of the Payee and a designated second person and during
the lifetime of the survivor. During the lifetime of the survivor, variable
monthly payments, if any, will be determined using the percentage chosen at the
time of election of this option of the number of each type of Annuity Unit
credited 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.
- ------------------------
* The election of this annuity option may result in the imposition of a penalty
tax.
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* 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 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 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
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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 (at least 3%); and (b) the monthly fixed annuity payment,
when this payment is based on the minimum guaranteed interest rate (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.
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.
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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), 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.
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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 as of the
record date set by the Fund for 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 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
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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.
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.
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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. As noted
above, the Company may begin offering Participants under Contracts used in
connection with individual retirement plans under Section 408 the opportunity to
convert the Contracts into Contracts used in connection with Roth IRAs under
Section 408A, and may also begin offering new Contracts for use in connection
with Roth IRAs. The ultimate effect of federal income taxes may depend upon the
type of retirement plan for which the Contract is purchased and a number of
different factors. This discussion is general in nature, is based upon the
Company's understanding of current federal income tax laws, and is not intended
as tax advice. Congress has the power to enact legislation affecting the tax
treatment of annuity contracts, and such legislation could be applied
retroactively to Contracts purchased before the date of enactment. Also, because
the 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
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Contract should consult a qualified tax adviser. THE COMPANY DOES NOT MAKE ANY
GUARANTEE REGARDING THE TAX STATUS, FEDERAL, STATE OR LOCAL, OF ANY CONTRACT OR
ANY TRANSACTION INVOLVING THE CONTRACTS.
TAX TREATMENT OF THE COMPANY 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.
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
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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 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
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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 Service. Purchasers of the Contracts for such
purposes will be provided with such supplementary information as may be required
by the Internal Revenue Service or other appropriate agency, and will have the
right to revoke the Contract under certain circumstances as described in the
section of this Prospectus entitled "Right to Return Contract."
ROTH IRAS
Section 408A of the Code permits an individual to contribute to an
individual retirement program called a Roth IRA. Unlike contributions to a
regular IRA under Section 408 of the Code, contributions to a Roth IRA are not
made on tax-deferred basis, but distributions are tax-free if certain
requirements are satisfied. Like
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regular IRAs, Roth IRAs are subject to limitations on the amount that may be
contributed and the time when distributions may commence. A regular IRA may be
converted into a Roth IRA, and the resulting income may be spread over four
years if the conversion occurs before January 1, 1999. If and when Contracts are
made available for use with Roth IRAs, they may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the
Contracts for this purpose will be provided with such supplementary information
as may be required by the Internal Revenue Service or other appropriate agency.
ADMINISTRATION OF THE CONTRACTS
The Company performs certain administrative functions relating to the
Contracts, 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 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, or of immediate family
members of such employees or persons. In addition, commissions may be waived or
reduced in connection with certain transactions described under "Waivers,
Reduced Charges; Credits; Bonus Guaranteed Interest Rates."
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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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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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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.
46
<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.
RECENT REORGANIZATION
Effective December 24, 1997, the Company and its ultimate parent, Sun Life
Assurance Company of Canada ("Sun Life of Canada"), reorganized the corporate
structure of a part of their United States business operations, by completing,
with the approval of the Delaware Insurance Department, the establishment of a
two-tier holding company structure. In connection with this reorganization,
Massachusetts Financial Services Company ("MFS"), the registered investment
adviser that serves as adviser to the MFS/Sun Life Series Trust and the Compass
Variable Accounts, is no longer a subsidiary of the Company, but remains under
the control of Sun Life of Canada through two other wholly-owned holding company
subsidiaries. On December 24, 1997. The Company's stock in MFS was transferred
via a dividend to the Company's immediate parent, Sun Life of Canada (U.S.)
Holdings, Inc. There is no change in directors, officers, or day-to-day
management of any of the companies within this holding company system and, in
the case of MFS, its executive officers continue to report to the Chairman of
Sun Life of Canada.
MFS, which was acquired by the Company in 1982, has approximately
$67,243,000,000 under management as of September 30, 1997. The Company's
Statutory Statements of Operations for the year ended December 31, 1996,
reflected dividends from MFS of $49,350,000 in net investment income and an
income tax benefit of $29,973,000. For the nine month period ending September
30, 1997, the Company's share of the stockholder's equity of MFS, reflected in
its Statutory Statement of Admitted Assets, Liabilities, and Capital Stock and
Surplus, was $54,490,000. This Statement also reflected an intercompany income
tax receivable from MFS of $90,986,000 as of September 30, 1997. The
reorganization is not expected to have any material effect on the operations of
MFS or the Company.
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
47
<PAGE>
these agreements basic death benefits and supplementary benefits are reinsured
on a yearly renewable term basis and coinsurance basis, respectively.
Reinsurance transactions under these agreements in 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 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, 1996 the Company ranked 38th among all
life insurance companies in the United States based upon total assets. Its
parent company, Sun Life Assurance Company of Canada, ranked 19th. Best's
Insurance Reports, Life-Health Edition, 1997, assigned the Company and the
parent company its highest classification, A++, as of December 31, 1996.
Standard & Poor's and Duff & Phelps have assigned the Company and the parent
company their highest ratings for claims paying ability, AAA. Moody's Investor
Service, Inc. has assigned the Company an unsolicited rating of Aa1 for
financial strength. These ratings should not be considered as bearing on the
investment performance of the 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.
48
<PAGE>
YEAR 2000 COMPLIANCE
The Company's business, financial condition, and results of operations could
be materially and adversely affected by the failure of its systems and
applications (or those either provided or operated by third-parties) to properly
operate or manage dates beyond the year 1999. However, the Company has
investigated the nature and extent of the work necessary to render its computer
systems capable of processing beyond the turn of the century ("Year 2000
compliant"), and has made substantial progress toward achieving this goal,
including upgrading and/or replacing existing systems. The Company expects that
its principal systems will be Year 2000 compliant by the end of 1998, leaving
1999 for extensive testing. While it is believed that these efforts involve
substantial costs, the Company closely monitors associated costs and continues
to evaluate associated risks based on actual expenses. Based on available
information, the Company believes that it will be able to manage its total Year
2000 transition without a material adverse effect on its business operations,
financial condition, or results of operations.
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.
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, Director (1985*)
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
He was formerly Senior Vice President and General Manager for the United
States of Sun Life Assurance Company of Canada, retiring in November, 1997. He
is a Director of Sun Life Insurance and Annuity Company of New York; a Trustee
of MFS/Sun Life Series Trust; and a Member of the Boards of Managers of Money
Market Variable Account, High Yield Variable Account, Capital Appreciation
Variable Account, Government Securities Variable Account, World Governments
Variable Account, Total Return Variable Account and Managed Sectors Variable
Account.
- ------------------------
* Year Elected Director
49
<PAGE>
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.
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.
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*)
0 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.
- ------------------------
* Year Elected Director
50
<PAGE>
C. JAMES PRIEUR, 46, Senior Vice President and General Manager (1993)
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; Vice President, Investments of Sun Life of
Canada (U.S.) Distributors, Inc., a 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.; 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 Life of Canada
(U.S.) Distributors, Inc., 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.
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 1997
totalled $ .
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.
51
<PAGE>
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.
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 legality of the Contracts and the validity of the form of the Contracts
under Delaware law have been passed upon for the Company by Margaret Sears Mead,
Assistant Vice President and Secretary of the Company. Covington & Burling,
Washington, D.C., has advised the Company on certain legal matters concerning
federal securities laws applicable to the issue and sale of the Contracts and
federal income tax laws applicable to the Contracts.
ACCOUNTANTS
The financial statements of the Company as of December 31, 1996, 1995 and
for each of the three years in the period ended December 31, 1996 included and
incorporated by reference in this Prospectus
52
<PAGE>
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are included and incorporated by reference herein, and have
been so included and incorporated 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. No financial statements are
included for the Variable Account, because, as of the date of this Prospectus,
the Variable Account had not commenced operations with respect to the
Sub-Accounts, and consequently had no assets or liabilities attributable to the
Contracts.
-------------------
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<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.
54
<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.
55
<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.
56
<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.
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
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.
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
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.
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
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>
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
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>
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
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>
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
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.
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
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>
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
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.
65
<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.
66
<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.
67
<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.
68
<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>
69
<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.
70
<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
71
<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.
72
<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
73
<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>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(UNAUDITED) (SEE NOTE BELOW)
(IN 000'S)
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 2,050,234 $ 2,190,103
Common stocks 151,148 144,043
Mortgage loans on real estate 789,117 938,932
Properties acquired in satisfaction of debt 23,895 23,391
Investment real estate 75,992 76,995
Policy loans 39,505 40,554
Cash & short-term investments 649,015 90,059
Other invested assets 54,377 51,378
Life insurance premiums and annuity considerations due &
uncollected 9,166 11,282
Investment income due and accrued 55,669 68,191
Receivable from parent, subsidiaries and affiliates 34,906 20,829
Other assets 987,419 880,141
------------------ -----------------
General account assets 4,920,443 4,535,898
Unitized separate account assets 8,866,932 6,919,219
Non-unitized separate account assets 2,413,695 2,108,835
------------------ -----------------
Total Admitted Assets $ 16,201,070 $ 13,563,952
------------------ -----------------
------------------ -----------------
LIABILITIES
Aggregate reserve for life policies and contracts $ 2,192,547 $ 2,099,980
Supplementary contracts 2,460 2,205
Policy and contract claims 3,379 2,108
Provision for policyholders' dividends and coupons payable 31,250 27,500
Liability for premium and other deposit funds 1,548,669 1,898,309
Surrender values on cancelled policies 110 72
Interest maintenance reserve 30,668 28,675
Commissions to agents due and accrued 3,636 3,245
General expenses due or accrued 11,175 4,654
Transfers from Separate Accounts due or accrued (294,281) (232,743)
Taxes, licenses and fees due or accrued, excluding FIT 308 342
Federal income taxes due or accrued 48,589 49,479
Unearned investment income 21 19
Amounts withheld or retained by company as agent or trustee 100 27
Remittances and items not allocated 689 1,359
Borrowed money 600,000 0
Asset valuation reserve 63,003 53,911
Other liabilities 12,573 29,738
------------------ -----------------
General account liabilities 4,254,896 3,968,880
Unitized separate account liabilities 8,866,803 6,919,094
Non-unitized separate account liabilities 2,413,695 2,108,835
------------------ -----------------
Total liabilities 15,535,394 12,996,809
------------------ -----------------
Common capital stock 5,900 5,900
Surplus notes 315,000 315,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 145,421 46,888
Surplus 659,776 561,243
------------------ -----------------
Total common capital stock and surplus 665,676 567,143
------------------ -----------------
Total Liabilities, Capital Stock and Surplus $ 16,201,070 $ 13,563,952
------------------ -----------------
------------------ -----------------
</TABLE>
NOTE: The balance sheet at December 31, 1996 has been taken from the audited
financial statements at that date.
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
74
<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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
(IN 000'S)
<S> <C> <C>
INCOME
Premiums and annuity considerations $ 194,085 $ 205,837
Deposit-type funds 1,691,235 1,309,408
Considerations for supplementary contracts without life
contingencies and dividend accumulations 940 2,465
Net investment income 209,363 220,344
Amortization of interest maintenance reserve 813 994
Net gain from operations from Separate Accounts Statement 4 0
Other income 61,338 51,720
---------- ----------
Total 2,157,778 1,790,768
---------- ----------
Benefits and expenses
Death benefits 15,994 9,428
Annuity benefits 109,690 107,718
Surrender benefits and other fund withdrawals 1,388,459 1,158,162
Interest on policy or contract funds 194 719
Payments on supplementary contracts without life
contingencies and
of dividend accumulations 766 1,689
Increase aggregate reserves for life and accident and health
policies
and contracts 92,567 126,179
Decrease in liability for premium and other deposit funds (349,640) (293,567)
Increase in reserve for supplementary contracts without life
contingencies and for dividend and coupon accumulations 255 851
---------- ----------
Total 1,258,285 1,111,179
Commissions on premiums and annuity considerations
(direct business only) 104,650 79,597
Commissions and expense allowances on reinsurance assumed 12,858 13,483
General insurance expenses 32,028 27,710
Insurance taxes, licenses and fees, excluding federal income
taxes 5,297 6,012
Increase (decrease) in loading on and cost of collection in
excess of loading on deferred and uncollected premiums (286) 859
Net transfers to Separate Accounts 621,996 470,625
---------- ----------
Total 2,034,828 1,709,465
---------- ----------
Net gain from operations before dividends to policyholders
and FIT 122,950 81,303
Dividends to policyholders 24,227 19,480
---------- ----------
Net gain from operations after dividends to policyholders
and before FIT 98,723 61,823
Federal income tax benefit (excluding tax on capital gains) (833) (9,878)
---------- ----------
Net gain from operations after dividends to policyholders
and FIT and before realized capital gains 99,556 71,701
Net realized capital gains (losses) less capital gains tax
and transferred
to the IMR 5,183 (2,974)
---------- ----------
Net income $ 104,739 $ 68,727
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
75
<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>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
(IN 000'S)
<S> <C> <C>
CAPITAL AND SURPLUS, BEGINNING OF PERIOD $ 567,143 $ 792,452
--------- ---------
Net income 104,739 68,725
Change in net unrealized capital gains 2,329 8,356
Change in non-admitted assets and related items 557 (877)
Change in asset valuation reserve (9,092) (12,202)
Other changes in surplus in Separate Accounts Statement 0 0
Decrease in surplus notes 0 (335,000)
Miscellaneous gains and losses in surplus 0 0
--------- ---------
Net change in capital and surplus for the period 98,533 (270,998)
--------- ---------
Capital and surplus, end of period $ 665,676 $ 521,454
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
76
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
STATUTORY STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
(IN 000'S)
<S> <C> <C>
Cash Provided
Premiums, annuity considerations and
deposit funds received $ 1,887,722 $ 1,518,219
Considerations for supplementary
contracts and dividend accumulations
received 940 2,465
Net investment income received 236,074 241,173
Other income received 61,338 51,718
----------- -----------
Total receipts 2,186,074 1,813,575
----------- -----------
Benefits paid (other than dividends) 1,513,599 1,279,467
Insurance expenses and taxes paid
(other than federal income and capital
gains taxes) 147,956 136,438
Net cash transfers to Separate Accounts 683,534 533,964
Dividends paid to policyholders 20,477 16,480
Federal income tax recoveries
(excluding tax on capital gains) (317) (16,788)
Other--net 194 719
----------- -----------
Total payments 2,365,443 1,950,280
----------- -----------
Net cash from operations (179,369) (136,705)
----------- -----------
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains of
$374,528 for 1997, $3,686,461 for
1996) 820,973 1,434,509
Other cash provided 607,676 2,140
----------- -----------
Total cash provided from investments 1,428,649 1,436,649
----------- -----------
Total cash provided 1,249,280 1,299,944
----------- -----------
Cash Applied
Cost of long-term investments acquired 554,900 1,030,792
Other cash applied 135,424 466,598
----------- -----------
Total cash applied 690,324 1,497,390
----------- -----------
Net change in cash and short-term
investments 558,956 (197,446)
Cash and short-term investments:
Beginning of year 90,059 317,325
----------- -----------
End of year $ 649,015 $ 119,879
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
77
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) GENERAL
In management's opinion all adjustments, which include only normal recurring
adjustments, necessary for a fair presentation of the financial statements have
been made.
(2) MANAGEMENT AND SERVICE CONTRACTS
Expenses under the agreement with the parent which enables the parent to provide
certain services amounted to approximately $10,685,000 for the nine month period
in 1997 and $13,562,000 for the same period in 1996.
(3) INVESTMENTS IN SUBSIDIARIES
The following is combined unaudited summarized financial information of the
subsidiaries as of September 30, 1997 and 1996 and for the nine months then
ended:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(000'S)
<S> <C> <C>
Intangible assets $ 9,980 $ 10,668
Other assets, net of
liabilities 144,906 140,119
----------- -----------
Total net assets $ 154,886 $ 150,787
----------- -----------
----------- -----------
Total income $ 665,904 $ 513,021
Total expenses (585,857) (439,852)
Income tax expense (36,944) (32,437)
----------- -----------
Net income $ 43,103 $ 40,732
----------- -----------
----------- -----------
</TABLE>
In determining the equity in income of subsidiaries for the periods, the Company
has excluded expenses of approximately $28,443,000 for the nine month period in
1997 and $25,365,000 for the same period in 1996, representing payables to the
Registrant in lieu of federal income taxes.
(4) INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
(000'S)
<S> <C> <C>
Interest income from bonds $ 141,310 $ 135,661
Interest income from investment income in common stocks & affiliates 33,681 27,298
Interest income from mortgage loans 59,716 71,410
Real estate investment income 10,290 7,958
Interest income from policy loans 2,230 2,043
Other (353) 1,124
---------- ----------
Gross investment income 246,874 245,494
Interest on surplus notes and borrowed money 29,375 17,636
Investment expenses 8,136 7,514
---------- ----------
$ 209,363 $ 220,344
---------- ----------
---------- ----------
</TABLE>
78
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(5) OTHER
The Company's parent company, Sun Life Assurance Company of Canada has
established a wholly-owned subsidiary, Sun Life of Canada (U.S.) Holdings, Inc.
("Holdco"), a Delaware corporation, to serve as the holding company for the
Company and its subsidiaries, and for general corporate financing purposes. As
of May 1, 1997, Holdco owns all of the outstanding common stock of the Company.
The management and day-to-day operations of the Company did not change, and the
Company believes that this transaction did not constitute a change of control.
Holdco was organized in connection with a financing arrangement under Rule 144A
of the Securities Act of 1933 that raised $600 million on May 6, 1997. The
proceeds of this financing arrangement are to be used for general corporate
purposes including (but not limited to) funding existing corporate operations as
well as for possible future acquisition and business opportunities of Sun Life
Assurance Company of Canada and its subsidiaries, including the Company. It is
expected that approximately half of the proceeds will be used by the Company for
its business purposes.
As a result of the external financing arrangement described above, other
information, the Company received $600 million of cash in exchange for a $600
million short-term note payable to Holdco. The cash is currently invested in
short-term securities.
79
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET INCOME
Net income from operations increased by $36 million for the nine months ended
September 30, 1997 as compared to the same period in 1996. Net income associated
with the reinsurance agreements with the parent decreased by $2.1 million in
1997. Prior to reinsurance, earnings from the life line of business remained
relatively flat. The remaining earnings of approximately $38.1 million are
attributed to the Company's retirement products and services lines of business,
which markets combination fixed/variable annuities and group pension guaranteed
investment contracts. This increase in earnings reflects profits being generated
from the large in-force block of annuity business held in both the general
account and the separate accounts. Strong market appreciation in the separate
accounts generated a significant increase in mortality and expense fees, which
are calculated as a percentage of net assets. The beginning period assets held
in the unitized separate accounts increased by over 31% or $1.7 billion for the
period ending September 30, 1997 as compared to the same period in 1996. The
profits associated with the growth in this business line more than offset the
additional strain associated with sales of new business for the nine months
ended September 30, 1997, as compared to the same period in 1996. Federal income
tax expense increased, reflecting the increase in earnings.
INCOME
Total income increased $367 million for the period ended September 30, 1997 as
compared to the same period in 1996. Reinsurance income increased approximately
$6.8 million. Premiums and annuity considerations decreased by $8.9 million,
reflecting decreased annuitizations. Sales of combination fixed/variable
annuities (net of annuitizations) increased by $381.8 million, reflecting the
introduction of a new dollar cost averaging program for annuities. Under the
dollar cost averaging program, deposits are made into the fixed portion of the
annuity contract and receive a bonus rate of interest for the first policy year.
During the year, the fixed deposit is exchanged to the variable portion of the
contract in equal periodic installments. Considerations for supplementary
contracts decreased by $1.5 million. Net investment income and amortization of
the interest maintenance reserve decreased by $11.2 million, reflecting a
decrease in the general account invested assets from year end of approximately
$400 million after adjusting for the $600 million transfer described in Note 5
of the Notes to Unaudited Financial Statements.
BENEFITS AND EXPENSES
Benefits and expenses after dividends to policyholders increased by $330.1
million for the period ended September 30, 1997 as compared to the same period
in 1996. Reinsurance benefits and expenses increased by $8.9 million. Deaths,
annuity payments and surrender benefits and other fund withdrawals increased by
$227.9 million, reflecting surrenders of a block of annuity business for which
the seven year surrender charge period has expired. Initial sales of this
particular block of business issued seven years prior totalled over $450
million. Partially offsetting this increase is a reduction in the group pension
surrenders. Interest on policy or contract funds decreased by $.5 million.
Payments on supplementary contracts decreased by $.9 million. Policy reserves
decreased by $28.7 million, reflecting both increased surrender activity and a
decrease in reserves held for minimum death benefit guarantees. The change in
the liability for premium and other deposit funds decreased by $56.1 million,
reflecting the increase in surrenders. The reserve for supplementary contracts
decreased by $.6 million. Commissions increased by $25.1 million, reflecting the
increase in total sales of combination fixed/variable annuities. General
insurance expenses increased by $4.3 million, reflecting increased staff and
other costs associated with the increased block of variable annuities.
Insurance, taxes, licenses and fees decreased by $.7 million. Net transfers to
the separate accounts increased by $151.4 million, reflecting increased sales of
combination fixed/variable annuities.
80
<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).
81
<PAGE>
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>
82
<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
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 current account year is carried forward into future years. In
the fifth account year, the free withdrawal amount is
83
<PAGE>
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.
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
-$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.
84
<PAGE>
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of surrender, the current rate (J) is 5% or .05.
N/12
1 + l
The MVA factor = ( ------ ) -1
1 + J
24/12
1 + .06
= ( ------ ) -1
1 + .05
= (1.010)2 -1
= 1.019 -1
= .019
The value of the Guarantee Amount less interested credited to the Guarantee
Amount in the current Account Year is multiplied by the MVA factor to determine
the MVA
($11,910.16 - $674.16) X .019 = $213.48
$213.48 represents the MVA that would be added to the value of the Guarantee
Amount before the deduction of any withdrawal charge.
For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA would
be ($2,000.00 - $674.16) X .019 = $25.19.
$25.19 represents the MVA that would be added to the value of the partial
withdrawal amount before the deduction of any withdrawal charge.
85
<PAGE>
APPENDIX D
CALCULATION OF PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN:
The table below shows, for various Sub-Accounts of the Variable Account, the
Average Annual Total Return for the stated periods (or shorter period indicated
in the note below), based upon a hypothetical initial Purchase Payment of
$1,000, calculated in accordance with the formula set out below the table. For
purposes of determining the investment results in this table, the actual
investment performance of each Fund is reflected from the date the Fund
commenced operations ("Inception"), although the Contracts have been offered
only since February , 1998. After the Sub-Accounts have been in operation for
one year, a similar table will be provided showing investment results for
periods beginning with the operation of the Sub-Accounts. No information is
shown for the Funds that have not commenced operations or that have been in
operation for less than one year.
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE (1) INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund...... June 1, 1993
AIM V.I. Growth Fund.................... June 1, 1993
AIM V.I. Growth and Income Fund......... May 2, 1994
AIM V.I. International Equity Fund...... June 1, 1993
Alger American Growth Portfolio......... January 9, 1989
Alger American Income and Growth
Portfolio.............................. November 15, 1988
Alger American Small Capitalization
Portfolio.............................. September 21, 1988
J.P. Morgan Equity Portfolio............ January 3, 1995 (1)
J.P. Morgan International Opportunities
Portfolio.............................. January 3, 1995 (1)
J.P. Morgan Small Company Portfolio..... January 3, 1995 (1)
Lord Abbett Growth and Income
Portfolio.............................. December 11, 1989
MFS/Sun Life Capital Appreciation
Series................................. August 13, 1985
MFS/Sun Life Emerging Growth Series..... May 1, 1995
MFS/Sun Life Government Securities
Series................................. August 12, 1985
MFS/Sun Life High Yield Series.......... August 13, 1985
MFS/Sun Life Money Market Series........ August 29, 1985
MFS/Sun Life Utilities Series........... November 16, 1993
OCC Equity Portfolio.................... August 1, 1988 (2)
OCC Small Cap Portfolio................. August 1, 1988 (2)
Warburg Pincus International Equity
Portfolio.............................. June 30, 1995
Warburg Pincus Post-Venture Capital
Portfolio.............................. September 30, 1996
Warburg Pincus Small Company Growth
Portfolio.............................. June 30, 1995
</TABLE>
- ------------------------
(1) From commencement of investment operations.
(2) On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the OCC Accumulation Trust, at which
time the OCC Accumulation Trust commenced operations. The total net assets
for each of the Equity and Small Cap Portfolios immediately after the
transaction were $86,789,755 and $139,812,573, respectively, with respect to
the Old Trust, and for each of the Equity and Small Cap Portfolios,
$3,764,598 and $8,129,274, respectively, with respect to the OCC
Accumulation Trust. The Equity and Small Cap Portfolios commenced operations
as part of the OCC Accumulation Trust on September 16, 1994. The Old Trust
commenced operations on August 1, 1988.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity and Small Cap reflect the performance of the
corresponding Portfolios of the Old Trust.
86
<PAGE>
The length of the period and the last day of each period used in the above table
are set out in the table heading and in the footnotes above. The Average Annual
Total Return for each period was determined by finding the average annual
compounded rate of return over each period that would equate the initial amount
invested to the ending redeemable value for that period, in accordance with the
following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial Purchase Payment
of $1,000
T = average annual total return for the
period
n = number of years
ERV = redeemable value (as of the end of the
period) of a hypothetical $1,000
Purchase Payment made at the beginning
of the 1-year, 5-year, or 10-year period
(or fractional portion thereof)
The formula assumes that: 1) all recurring fees have been deducted from the
Participant's Account; 2) all applicable non-recurring Contract charges are
deducted at the end of the period; and 3) there will be a full surrender at
the end of the period.
The $30 annual Account Fee will be allocated among the Sub-Accounts so that
each Sub-Account's allocated portion of the Account Fee is proportional to the
percentage of the number of Individual Contracts and Certificates that have
amounts allocated to that Sub-Account. Because the impact of Account Fees on a
particular Contract may differ from those assumed in the computation due to
differences between actual allocations and the assumed ones, the total return
that would have been experienced by an actual Contract over these same time
periods may have been different from that shown above.
ADDITIONAL NON-STANDARDIZED INVESTMENT PERFORMANCE:
The Variable Account may illustrate its results over various periods and
compare its results to indices and other variable annuities in sales materials
including advertisements, brochures and reports. Such results may be computed on
a "cumulative" and/or "annualized" basis.
"Cumulative" quotations are arrived at by calculating the change in the
Accumulation Unit value of a Sub-Account between the first and last day of the
base period being measured, and expressing the difference as a percentage of the
Accumulation Unit value at the beginning of the base period.
"Annualized" quotations (described in the following table as "Compound
Growth Rate") are calculated by applying a formula which determines the level
rate of return which, if earned over the entire base period, would produce the
cumulative return.
87
<PAGE>
NON-STANDARDIZED INVESTMENT PERFORMANCE
$10,000 INVESTED IN ...WOULD HAVE GROWN TO THIS AMOUNT ON
THIS SUB-ACCOUNT UNDER A DECEMBER 31, 1997*
FUTURITY CONTRACT,
THIS MANY YEARS AGO...
<TABLE>
<CAPTION>
AIM V.I. GROWTH
AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. GROWTH FUND AND INCOME FUND
---------------------------------------------- ---------------------------------------------- -----------------
NUMBER CUMULATIVE COMPOUND NUMBER CUMULATIVE COMPOUND NUMBER
OF GROWTH GROWTH OF GROWTH GROWTH OF
YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS
- ----- ----------------- ---------- -------- ------- ----- ----------------- ---------- -------- ------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1 1
2 2 2
3 3 3
4 4 4
5 5 5
10 10 10
Life Life Life
<CAPTION>
NUMBE CUMULATIVE COMPOUND
OF GROWTH GROWTH
YEARS AMOUNT RATE RATE
- ----- ---------- -------- -------
<S> <C> <C> <C>
1
2
3
4
5
10
Life
</TABLE>
<TABLE>
<CAPTION>
ALGER AMERICAN
INCOME AND GROWTH
AIM V.I. INTERNATIONAL EQUITY FUND ALGER AMERICAN GROWTH PORTFOLIO PORTFOLIO
---------------------------------------------- ---------------------------------------------- -----------------
NUMBER CUMULATIVE COMPOUND NUMBER CUMULATIVE COMPOUND NUMBER
OF GROWTH GROWTH OF GROWTH GROWTH OF
YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS
- ----- ----------------- ---------- -------- ------- ----- ----------------- ---------- -------- ------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1 1
2 2 2
3 3 3
4 4 4
5 5 5
10 10
Life Life Life
<CAPTION>
NUMBE CUMULATIVE COMPOUND
OF GROWTH GROWTH
YEARS AMOUNT RATE RATE
- ----- ---------- -------- -------
<S> <C> <C> <C>
1
2
3
4
5
10
Life
</TABLE>
- ----------------------------------------
*For purposes of determining these investment results, the actual investment
performance of each Fund is reflected from the date the Fund commenced
operations, although the Contracts have been offered only since February ,
1998. No information is shown for Funds that have not commenced operations or
that have been in operation for less than one year. The charges imposed under
the Contract against the assets of the Variable Account for mortality and
expense risks and administrative expenses have been deducted. However, the
annual Account Fee is not reflected and these examples do not assume surrender
at the end of the period.
88
<PAGE>
NON-STANDARDIZED INVESTMENT PERFORMANCE -- continued:
$10,000 INVESTED IN ...WOULD HAVE GROWN TO THIS AMOUNT ON
THIS SUB-ACCOUNT UNDER A DECEMBER 31, 1997*
FUTURITY CONTRACT,
THIS MANY YEARS AGO...
<TABLE>
<CAPTION>
J.P. MORGAN
INTERNATIONAL
OPPORTUNITIES
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO J.P. MORGAN EQUITY PORTFOLIO PORTFOLIO
---------------------------------------------- ---------------------------------------------- -----------------
NUMBER CUMULATIVE COMPOUND NUMBER CUMULATIVE COMPOUND NUMBER
OF GROWTH GROWTH OF GROWTH GROWTH OF
YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS
- ----- ----------------- ---------- -------- ------- ----- ----------------- ---------- -------- ------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1 1
2 2 2
3 3 3
4 4 4
5 5 5
Life Life Life
<CAPTION>
NUMBE CUMULATIVE COMPOUND
OF GROWTH GROWTH
YEARS AMOUNT RATE RATE
- ----- ---------- -------- -------
<S> <C> <C> <C>
1
2
3
4
5
Life
</TABLE>
<TABLE>
<CAPTION>
MFS/SUN LIFE
CAPITAL
APPRECIATION
J.P. MORGAN SMALL COMPANY PORTFOLIO LORD ABBETT GROWTH AND INCOME PORTFOLIO SERIES
---------------------------------------------- ---------------------------------------------- -----------------
NUMBER CUMULATIVE COMPOUND NUMBER CUMULATIVE COMPOUND NUMBER
OF GROWTH GROWTH OF GROWTH GROWTH OF
YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS
- ----- ----------------- ---------- -------- ------- ----- ----------------- ---------- -------- ------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1 1
2 2 2
3 3 3
4 4 4
5 5 5
10
Life Life Life
<CAPTION>
NUMBE CUMULATIVE COMPOUND
OF GROWTH GROWTH
YEARS AMOUNT RATE RATE
- ----- ---------- -------- -------
<S> <C> <C> <C>
1
2
3
4
5
Life
</TABLE>
- ----------------------------------------
*For purposes of determining these investment results, the actual investment
performance of each Fund is reflected from the date the Fund commenced
operations, although the Contracts have been offered only since February ,
1998. No information is shown for Funds that have not commenced operations or
that have been in operation for less than one year. The charges imposed under
the Contract against the assets of the Variable Account for mortality and
expense risks and administrative expenses have been deducted. However, the
annual Account Fee is not reflected and these examples do not assume surrender
at the end of the period.
89
<PAGE>
NON-STANDARDIZED INVESTMENT PERFORMANCE -- continued:
$10,000 INVESTED IN ...WOULD HAVE GROWN TO THIS AMOUNT ON
THIS SUB-ACCOUNT UNDER A DECEMBER 31, 1997*
FUTURITY CONTRACT,
THIS MANY YEARS AGO...
<TABLE>
<CAPTION>
MFS.SUN LIFE HIGH
MFS/SUN LIFE EMERGING GROWTH SERIES MFS/SUN LIFE GOVERNMENT SECURITIES SERIES YIELD SERIES
---------------------------------------------- ---------------------------------------------- -----------------
NUMBER CUMULATIVE COMPOUND NUMBER CUMULATIVE COMPOUND NUMBER
OF GROWTH GROWTH OF GROWTH GROWTH OF
YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS
- ----- ----------------- ---------- -------- ------- ----- ----------------- ---------- -------- ------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1 1
2 2 2
3 3 3
4 4 4
5 5 5
10 10
Life Life Life
<CAPTION>
NUMBE CUMULATIVE COMPOUND
OF GROWTH GROWTH
YEARS AMOUNT RATE RATE
- ----- ---------- -------- -------
<S> <C> <C> <C>
1
2
3
4
5
Life
</TABLE>
<TABLE>
<CAPTION>
OCC EQUITY
MFS/SUN LIFE MONEY MARKET SERIES MFS/SUN LIFE UTILITIES SERIES PORTFOLIO
---------------------------------------------- ---------------------------------------------- -----------------
NUMBER CUMULATIVE COMPOUND NUMBER CUMULATIVE COMPOUND NUMBER
OF GROWTH GROWTH OF GROWTH GROWTH OF
YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS
- ----- ----------------- ---------- -------- ------- ----- ----------------- ---------- -------- ------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1 1
2 2 2
3 3 3
4 4 4
5 5 5
Life Life Life
<CAPTION>
NUMBE CUMULATIVE COMPOUND
OF GROWTH GROWTH
YEARS AMOUNT RATE RATE
- ----- ---------- -------- -------
<S> <C> <C> <C>
1
2
3
4
5
Life
</TABLE>
- ----------------------------------------
*For purposes of determining these investment results, the actual investment
performance of each Fund is reflected from the date the Fund commenced
operations, although the Contracts have been offered only since February ,
1998. No information is shown for Funds that have not commenced operations or
that have been in operation for less than one year. The charges imposed under
the Contract against the assets of the Variable Account for mortality and
expense risks and administrative expenses have been deducted. However, the
annual Account Fee is not reflected and these examples do not assume surrender
at the end of the period.
90
<PAGE>
NON-STANDARDIZED INVESTMENT PERFORMANCE -- continued:
$10,000 INVESTED IN ...WOULD HAVE GROWN TO THIS AMOUNT ON
THIS SUB-ACCOUNT UNDER A DECEMBER 31, 1997*
FUTURITY CONTRACT,
THIS MANY YEARS AGO...
<TABLE>
<CAPTION>
OCC SMALL CAPITALIZATION PORTFOLIO WARBURG PINCUS INTERNATIONAL EQUITY PORTFOLIO
---------------------------------------------- ----------------------------------------------
NUMBER CUMULATIVE COMPOUND NUMBER CUMULATIVE COMPOUND
OF GROWTH GROWTH OF GROWTH GROWTH
YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS AMOUNT RATE RATE
- ----- ----------------- ---------- -------- ------- ----- ----------------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1
2 2
3 3
4 4
5 5
10
Life Life
<CAPTION>
NUMBE
OF
YEARS
- -----
<S> <C> <C> <C>
1
2
3
4
5
Life
</TABLE>
<TABLE>
<CAPTION>
WARBURG PINCUS POST-VENTURE CAPITAL PORTFOLIO WARBURG PINCUS SMALL COMPANY GROWTH PORTFOLIO
---------------------------------------------- ----------------------------------------------
NUMBER CUMULATIVE COMPOUND NUMBER CUMULATIVE COMPOUND
OF GROWTH GROWTH OF GROWTH GROWTH
YEARS PERIODS AMOUNT RATE RATE YEARS PERIODS AMOUNT RATE RATE
- ----- ----------------- ---------- -------- ------- ----- ----------------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1
2 2
3 3
4 4
5 5
10
Life Life
<CAPTION>
NUMBE
OF
YEARS
- -----
<S> <C> <C> <C>
1
2
3
4
5
Life
</TABLE>
- ----------------------------------------
*For purposes of determining these investment results, the actual investment
performance of each Fund is reflected from the date the Fund commenced
operations, although the Contracts have been offered only since February ,
1998. No information is shown for Funds that have not commenced operations or
that have been in operation for less than one year. The charges imposed under
the Contract against the assets of the Variable Account for mortality and
expense risks and administrative expenses have been deducted. However, the
annual Account Fee is not reflected and these examples do not assume surrender
at the end of the period.
91
<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.
MORNINGSTAR, Inc. is an independent financial publisher offering
comprehensive statistical and analytical coverage of open-end and closed-end
funds and variable annuities. This coverage for mutual funds includes, among
other information, performance analysis rankings, risk rankings (e.g.
aggressive, moderate or conservative), and "style box" matrices. Style box
matrices display, for equity funds, the investment philosophy and size of the
companies in which the fund invests and, for fixed-income funds, interest rate
sensitivity and credit quality of the investment instruments.
IBBOTSON ASSOCIATES, Inc. is a consulting firm that provides a variety of
historical data including total return, capital appreciation and income on the
stock market as well as other investment asset classes, and inflation. With its
permission, this information will be used primarily for comparative purposes and
to illustrate general financial planning principles.
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:
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 A FUND'S CUSTOMERS. Sales literature for the Variable
Account and the Funds may refer to the number of clients which they serve.
92
<PAGE>
THE COMPANY'S OR A FUND'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 1996 the Company was the 38th
largest U.S. life insurance company based upon overall assets and its parent
company, Sun Life Assurance Company of Canada, was the 19th largest.
COMPOUND INTEREST ILLUSTRATIONS. These will emphasize several advantages of
the variable annuity contract. For example, but not by 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.
The Company may use hypothetical illustrations of the benefits of tax
deferral, including but not limited to the following chart:
The chart below assumes an initial investment of $10,000 which remains fully
invested for the entire time period, an 8% annual return, and a 33% combined
federal and state income tax rate. It compares how three different investments
might fare over 10, 20, and 30 years. The first example illustrates an
investment in a non-tax-deferred account and assumes that taxes are paid
annually out of that account. The second example illustrates how the same
investment would grow in a tax-deferred investment, such as an annuity. And the
third example illustrates the net value of the tax-deferred investment AFTER
paying taxes on the full account value.
<TABLE>
<CAPTION>
10 YEARS 20 YEARS 30 YEARS
-------- -------- --------
<C> <C> <C>
Non-Tax-Deferred
Account $ 16,856 $ 28,413 $ 47,893
Tax-Deferred
Account $ 21,589 $ 46,610 $100,627
Tax-Deferred
Account
After
Paying
Taxes $ 17,765 $ 34,528 $ 70,720
</TABLE>
THIS ILLUSTRATION IS HYPOTHETICAL AND DOES NOT REPRESENT THE PROJECTED
PERFORMANCE OF THE SUN LIFE OF CANADA (U.S.) FUTURITY VARIABLE ANNUITY OR ANY OF
ITS INVESTMENT OPTIONS. THE ILLUSTRATION DOES NOT REFLECT THE DEDUCTION OF ANY
CHARGES OR FEES RELATED TO PORTFOLIO MANAGEMENT, MORTALITY AND EXPENSE, OR
ACCOUNT ADMINSTRATION. TAXES ON EARNINGS WITHIN AN ANNUITY ARE DUE UPON
WITHDRAWAL. WITHDRAWALS MAY ALSO BE SUBJECT TO SURRENDER CHARGES AND, IF MADE
PRIOR TO AGE 59 1/2, A 10% FEDERAL PENALTY TAX.
93
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
ANNUITY SERVICE MAILING ADDRESS:
RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117
TELEPHONE:
Toll Free (888) 388-8748
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
LEGAL COUNSEL
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, D.C. 20044
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
[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 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.
B. Unaudited Financial Statements of the Depositor:
1. Statutory Statements of Admitted Assets, Liabilities and Capital
Stock and Surplus, September 30, 1997 and 1996;
2. Statutory Statements of Operations, Nine Months Ended September 30,
1997 and 1996;
3. Statutory Statements of Changes in Capital Stock and Surplus, Nine
Months Ended September 30, 1997 and 1996;
4. Statutory Statements of Cash Flow, Nine Months Ended September 30,
1997 and 1996; and
5. Notes to Unaudited Financial Statements.
<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) Form of Marketing Services Agreement between the
depositor, Sun Life of Canada (U.S.) Distributors, Inc., and Clarendon
Insurance Agency, Inc.**;
(b)(i) Specimen Sales Operations and General Agent
Agreement**;
(b)(ii) Specimen Broker-Dealer Supervisory and Service
Agreement**; and
(b)(iii) Specimen General Agent
Agreement**;
(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) Not Applicable;
<PAGE>
(9) Opinion of Counsel and Consent to its use as to the legality of the
securities being registered**;
(10) (a) Consent of Deloitte & Touche, LLP**; and
(b) Consent of Counsel**;
(11) None;
(12) Not Applicable;
(13) Not Applicable;
(14) Not Applicable; and
(15) Powers of Attorney*.
* Filed as an Exhibit to the Registration Statement of the Registrant on
Form N-4, File No. 333-37907, filed on October 14, 1997 and incorporated
herein by reference.
** Filed herewith.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------ ----------------------
John D. McNeil Chairman and Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
Donald A. Stewart President and Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
David D. Horn Director
One Sun Life Executive Park
Wellesley Hills, MA 02181
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 West Cliff 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 and General Manager
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 Assurance Company of Canada -
U.S. Operations Holdings, Inc.............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 of Canada (U.S.) Holdings,
Inc.......................................Delaware 0%*
Sun Life of Canada (U.S.) Financial
Services Holdings, Inc.................... Delaware 0%*
Sun Life Assurance Company of Canada
(U.S.) -.................................. Delaware 0%**
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%****
- --------
* 100% of the issued and outstanding voting securities of Sun Life
of Canada (U.S.) Holdings, Inc. and Sun Life of Canada (U.S.)
Financial Services Holdings, Inc. is owned by Sun Life Assurance
Company of Canada - U.S. Operations Holdings, Inc.
** 100% of the issued and outstanding voting securities of Sun Life
Assurance Company of Canada (U.S.). is owned by Sun Life of Canada
(U.S.) Holdings, Inc.
*** 93.6% of the issued and outstanding voting securities of Massachusetts
Financial Services Company is owned by Sun Life of Canada (U.S.)
Financial Services Holdings, Inc.
**** 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, Clarendon Insurance Agency, Inc., and Massachusetts Casualty
Insurance Company is owned by Sun Life Assurance Company of Canada
(U.S.).
***** 100% of the issued and outstanding voting securities of MFS Service
Center, Inc., MFS International, Ltd., MFS Institutional Advisors,
Inc., MFS Fund Distributors, Inc., and MFS Retirement Services, Inc.
is owned by Massachusetts Financial Services Company.
****** 100% of the issued and outstanding voting securities of MFS/Sun Life
Series Trust is 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 the Registrant, 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
- ------------------ ---------------------
John D. McNeil................... Chairman and Director
Robert P. Vrolyk................. Vice President and Actuary
Richard B. Bailey................ Director
A. Keith Brodkin................. Director
M. Colyer Crum................... Director
Donald A. Stewart................ President and Director
David D. Horn.................... Director
John S. Lane..................... Director
Angus A. McNaughton.............. Director
S. Caesar Raboy.................. Senior Vice President and
Deputy General Manager
and Director
- ------------------
* 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 One Copley Place, Boston, Massachusetts 02117 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 Amendment to the Registration
Statement to be signed on its behalf in the City of Boston and Commonwealth
of Massachusetts on the 15th day of January, 1998.
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) January 15, 1998
- --------------------------
John D. McNeil
Vice President
and Actuary
(Principal Financial
and Accounting
* /s/ ROBERT P. VROLYK Officer) January 15, 1998
- --------------------------
Robert P. Vrolyk
- -------------------------
* By Bonnie S. Angus pursuant to Power of Attorney filed as Exhibit 15
to the Registration Statement of the Registrant on Form N-4, File No.
333-37907 filed on October 14, 1997 and incorporated herein by
reference.
<PAGE>
Signatures Title Date
---------- ----- ----
* /s/ RICHARD B. BAILEY Director January 15, 1998
- -------------------------------
Richard B. Bailey
* /s/ A. KEITH BRODKIN Director January 15, 1998
- -------------------------------
A. Keith Brodkin
* /s/ M. COLYER CRUM Director January 15, 1998
- -------------------------------
M. Colyer Crum
President and January 15, 1998
- ------------------------------- Director
Donald A. Stewart
* /s/ DAVID D. HORN Director January 15, 1998
- -------------------------------
David D. Horn
* /s/ JOHN S. LANE Director January 15, 1998
- -------------------------------
John S. Lane
* /s/ ANGUS A. MacNAUGHTON Director January 15, 1998
- -------------------------------
Angus A. MacNaughton
* /s/ S. CAESAR RABOY Senior Vice President
- ------------------------------- and Deputy General January 15, 1998
S. Caesar Raboy Manager and
Director
- ---------------------------
* By Bonnie S. Angus pursuant to Power of Attorney filed as Exhibit 15
to the Registration Statement of the Registrant on Form N-4, File No.
333-37907 filed on October 14, 1997 and incorporated herein by
reference.
<PAGE>
FORM OF
MARKETING SERVICES AGREEMENT
THIS AGREEMENT entered into by and between Sun Life Assurance Company of
Canada (U.S.) ("Sun Life (U.S.)"), a Delaware corporation, and Sun Life of
Canada (U.S.) Distributors, Inc. ("SLD"), a Delaware corporation and Clarendon
Insurance Agency, Inc. ("Clarendon"), a Massachusetts corporation.
WITNESSETH
WHEREAS Sun Life (U.S.) proposes to issue and offer for sale certain life
insurance and annuity contracts (the "Plans") which may or may not be deemed to
be securities under the Securities Act of 1933 ("33 Act"); and
WHEREAS SLD and Clarendon are registered as broker-dealers with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act
of 1934 ("34 Act") and are members of the National Association of Securities
Dealers, Inc. ("NASD"); and
WHEREAS SLD and Clarendon propose to coordinate the marketing of the
Plans and to perform certain administrative services in conjunction therewith.
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
I
THE PLANS
---------
A. TYPE OF PLANS
The Plans issued by Sun Life (U.S.) to which this Agreement applies are
listed in Exhibit A. Exhibit A may be amended from time to time as agreed
upon by Sun Life (U.S.), SLD and Clarendon.
B. SUSPENSION/RESTRICTION
Sun Life (U.S.) may, at its option and at its sole discretion, suspend
or restrict in any manner the sale or method of distribution of all or any of
the Plans, including sales by all or any individuals licensed to sell Sun
Life (U.S.)'s products. If any suspension or restriction is required by any
regulatory authority having jurisdiction, written notice shall be given to
SLD and Clarendon immediately upon receipt by Sun Life (U.S.) of notice of
such required suspension or restriction. In all other cases, Sun Life (U.S.)
will provide thirty (30) days' prior notice to SLD and Clarendon of any such
suspension or restriction.
<PAGE>
2
C. PLAN CHANGES
Sun Life (U.S.) may, at its option and in its sole discretion, amend,
add or delete features of all or any of the Plans. In the event of any such
amendment, addition, or deletion, Sun Life (U.S.) will provide written notice
of such change to SLD and Clarendon. If the change is required by any
regulatory authority having jurisdiction, written notice shall be given to
SLD and Clarendon immediately upon receipt by Sun Life (U.S.) of notice of
such required change. In all other cases, Sun Life (U.S.) will provide
written notice to SLD and Clarendon at least thirty (30) days prior to the
effective date of such change.
II
MARKETING COORDINATION AND SALES ADMINISTRATION
-----------------------------------------------
A. GENERAL DISTRIBUTOR
Clarendon is hereby appointed by Sun Life (U.S.) as the General
Distributor of the Plans. Clarendon shall, at all times, when performing its
functions under this Agreement, be registered as a securities broker-dealer
with the SEC and the NASD and shall be licensed or registered as a securities
broker-dealer and, as applicable, a life insurance agency, in those
jurisdictions where the performance of the duties contemplated by this
Agreement would require such licensing or registration.
B. DISTRIBUTION AGREEMENTS
Clarendon will distribute the Plans pursuant to either a Sales
Operations and General Agent Agreement or a Broker-Dealer Supervisory and
Service Agreement and Registered Representative's Agent Agreement (the
"Distribution Agreements"). [Copies of the Distribution Agreements as
currently in effect are attached as Exhibits B, C, D, and E respectively.]
Clarendon, through SLD shall negotiate all Distribution Agreements on behalf
of Sun Life (U.S.) and all such Distribution Agreements shall be
substantially in the form of the Distribution Agreements attached hereto
unless otherwise agreed to by Sun Life (U.S.). No Commission Schedule
attached to any Distribution Agreement may provide for commission payments in
excess of specified maximums established by Sun Life (U.S.) from time to
time. The originals of such agreements and all correspondence, memoranda and
other documents relating to the Distribution Agreements shall be retained by
Sun Life (U.S.).
C. AGENTS/REGISTERED REPRESENTATIVES ("AGENTS")
1. APPOINTMENT AND TERMINATION OF AGENTS
(a) Sun Life (U.S.) will appoint and dismiss individuals as its
agents in those jurisdictions in which Sun Life (U.S.) transacts an
insurance business. Sun Life (U.S.) reserves the right to terminate
any and all such appointments as its agent and will provide written
notice of any such termination to the appropriate regulatory
authority.
<PAGE>
3
2. TRAINING OF AGENTS
SLD shall train agents of Sun Life (U.S.) who have been appointed to
properly solicit applications for the Plans in accordance with
guidelines established by Sun Life (U.S.).
3. SUPERVISION OF AGENTS
SLD shall coordinate the supervision of the agents of Sun Life (U.S.)
associated with broker-dealers in connection with the offering and
sale of the Plans. SLD will establish and Sun Life (U.S.) will approve
such rules and procedures as may be necessary to insure proper
supervision of the agents.
4. SALES ASSISTANCE TO AGENTS
SLD shall provide sales assistance to agents of Sun Life (U.S.). This
sales assistance shall include, but not be limited to, assistance from
SLD's field representatives as well as from SLD's home office
personnel. SLD shall also prepare sales promotional programs for the
Plans and assist the agents in utilizing the programs. In addition,
SLD shall provide broker-dealers and agents with sufficient quantities
of any applicable sales promotional materials, prospectuses, sample
Plans, applications and service forms.
5. PAYMENT OF COMMISSIONS TO AGENTS
All commission payments required to be made pursuant to the
Distribution Agreements shall be made by Sun Life (U.S.).
D. SALES MATERIALS AND OTHER DOCUMENTS
1. SLD'S RESPONSIBILITIES
SLD shall be responsible for the design, preparation and printing of
all promotional material to be used in the distribution of the Plans
and the approval of such promotional material by the SEC and the NASD
where required.
2. SUN LIFE (U.S.)'S RESPONSIBILITIES
a) Sun Life (U.S.) or its agent shall be responsible for the
design, preparation and printing of Plans, applications for Plans and
forms becoming part of the Plans and service forms.
b) Sun Life (U.S.) shall provide SLD with sufficient quantities of
any prospectuses for the Plans and the separate accounts, applications
and sample Plans (including any endorsements).
<PAGE>
4
c) Sun Life (U.S.) shall obtain sufficient quantities of
prospectuses of the mutual funds underlying any Plans for distribution
to broker-dealers, agents, and Plan purchasers.
d) Sun Life (U.S.) shall be responsible for the approval of
promotional material by insurance regulatory authorities, if required.
3. SUN LIFE (U.S.)'S RIGHT TO APPROVE
Sun Life (U.S.) shall review and approve or disapprove, in writing,
PRIOR TO ITS USE, all sales promotional material proposed by SLD or
in use. Sun Life (U.S.) reserves the right to require modification or
withdrawal from use of any such material to comply with applicable
laws, rules and regulations.
E. ADVERTISING
Neither SLD nor any of its agents or affiliates shall print, publish or
distribute any advertisement, circular or any document relating to the Plans
or relating to Sun Life (U.S.) unless such advertisement, circular or
document shall have been approved by Sun Life (U.S.). Neither Sun Life (U.S.)
nor any of its agents or affiliates shall print, publish or distribute any
advertisement, circular or any document relating to the Plans or relating to
SLD unless such such advertisement, circular or document shall have been
approved in writing by SLD. However, nothing herein shall prohibit any person
from advertising annuities in general or on a generic basis.
F. SALES RECORDS - PRODUCTION REPORTS
Sun Life (U.S.) shall establish and maintain sales records in such form
as it may deem appropriate, and shall provide SLD with such reports and
materials relative to the marketing and distribution of Plans as may
reasonably be required by SLD.
G. BOOKS, RECORDS, AND SUPERVISION
1. BOOKS AND RECORDS
Clarendon may request that all or some of the books and records
required to be maintained by it as a registered broker-dealer in
connection with the offer and sale of the Plans be prepared and
maintained by Sun Life (U.S.) or SLD. Sun Life (U.S.) and SLD agree
to prepare and maintain such books and records at their respective
costs upon request, and agree that such books and records are the
property of Clarendon, that they will be made and preserved in
accordance with Rules 17a-3 and 17a-4 under the 34 Act and that they
will be subject to examination by the SEC in accordance with Section
17(a) of the 34 Act.
<PAGE>
5
H. ASSIGNMENT OF DUTIES
Sun Life (U.S.) acknowledges that Clarendon may assign all or part of
its duties under this Agreement to SLD or to Sun Life (U.S.) or to another
affiliate of Sun Life (U.S.). No other assignment of Clarendon's duties under
this Agreement is permitted.
I. SUPERVISION
To extent permitted by law, Clarendon has delegated in full to SLD its
responsibility for the securities activities of all persons associated with
Sun Life (U.S.) and SLD who maintain books and records on behalf of Clarendon.
Sun Life (U.S.) and SLD acknowledge that Clarendon has full responsibility
for all such persons in connection with their training, supervision and
control as contemplated by the 34 Act.
III
COMPENSATION
------------
A. GENERAL
For performing marketing coordination and sales administration services
under this Agreement, SLD and Clarendon will be compensated by Sun Life
(U.S.), as may be agreed to from time to time.
B. TIME OF PAYMENT
Sun Life (U.S.) will pay all compensation due SLD and Clarendon
hereunder on a ____________________ basis.
C. CHANGES IN COMPENSATION
Compensation payable under this Agreement may be increased or decreased
to reflect any change in marketing coordination responsibilities. Such
increase or decrease will be mutually agreed upon by the parties hereto in
writing.
D. INDEBTEDNESS
Nothing in this Agreement shall be construed as giving SLD or Clarendon
the right to incur any indebtedness on behalf of Sun Life (U.S.). However, Sun
Life (U.S.) may offset amounts owed it by SLD or Clarendon under this
Agreement against amounts payable to SLD or Clarendon for any reason; and SLD
and Clarendon may offset amounts owed to them by Sun Life (U.S.) under this
Agreement against any amounts payable to Sun Life (U.S.) for any reason,
provided that no such offset is permitted in connection with Plan premiums or
purchase payments and payments under the Plans.
<PAGE>
6
IV
OTHER PROVISIONS
----------------
A. PRODUCT DEVELOPMENT
SLD shall assist Sun Life (U.S.) or its agent in the design and
development of life insurance and annuity products for distribution pursuant
to the Distribution Agreements. This assistance may include conducting market
research studies as reasonably requested by Sun Life (U.S.), consulting with
respect to product design, and assisting in the development of sales training,
sales promotional and advertising material relating to new insurance and
annuity products. SLD acknowledges that all such studies and materials are
the property of Sun Life (U.S.).
B. OWNERSHIP OF BUSINESS RECORDS
Sun Life (U.S.) shall own all business records maintained by SLD or
Clarendon pertaining to the duties and responsibilities of SLD and Clarendon
under this Agreement. Such records shall be delivered to Sun Life (U.S.)
promptly upon reasonable request or upon termination of this Agreement. SLD
and Clarendon will maintain all records and accounts in accordance with Sun
Life (U.S.)'s standards or requirements, or otherwise, with generally
accepted procedures as they apply to the accounting and insurance industry.
SLD and Clarendon will also at Sun Life (U.S.)'s request make any such
records available to Sun Life (U.S.)'s auditors or to any governmental
authority having jurisdiction over Sun Life (U.S.), and such records shall be
open to inspection at all times by Sun Life (U.S.) or its designees.
C. APPROVAL OF PRACTICES AND PROCEDURES
Sun Life (U.S.) shall have the right to review and approve the
standards, practices and procedures utilized by SLD and Clarendon in
fulfilling their obligations under the Agreement. Sun Life (U.S.) reserves
the right, from time to time, to prescribe rules and regulations respecting
the conduct of the business covered hereby.
D. COMPLAINTS
1. SLD shall immediately forward to Sun Life (U.S.) any material
received by SLD or Clarendon relating to any complaint concerning
Sun Life (U.S.) or the Plans.
2. In the case of complaints or inquiries relating to the Plans
distributed pursuant to the Distribution Agreements, Sun Life (U.S.)
may, at its option, request SLD to investigate such complaints or
inquiries. In such instances, SLD shall promptly forward to Sun Life
(U.S.) copies of all material relating to such investigations.
<PAGE>
7
E. LIMITATIONS ON AUTHORITY
SLD and Clarendon shall have authority only as expressly granted in this
Agreement. No party to this Agreement shall enter into any proceeding in a
court of law or before a regulatory agency in the name of any other party,
without the express written consent of that party. Further, if any legal or
administrative proceedings are commenced against any party arising out of the
obligations, duties or services performed under this Agreement by any third
party or any federal, state or other governmental or regulatory authority,
that party, as the case may be, shall immediately notify the other parties of
this fact.
F. ARBITRATION
Any controversy or claim arising out of any matter relating to this
Agreement or the breach of this Agreement shall be determined by arbitration
in accordance with the rules then in existence of the American Arbitration
Association, and judgment upon any award rendered in any such arbitration
proceeding may be entered in any court having jurisdiction thereof. The Board
of Arbitration shall be composed of three persons selected in the following
manner: Sun Life (U.S.) shall have the right to select one arbitrator, SLD
and Clarendon shall have the right to select the second arbitrator, and the
two arbitrators thus selected shall have the right to select an umpire. In
the event that the parties cannot agree upon the selection of an umpire, the
parties shall agree to delegate the authority of such election to the then
President of the American Council of Life Insurance.
G. REIMBURSEMENT
To the extent that this Agreement provides for any reimbursement of
expenses, the basis for reimbursement shall be reviewed from time to time by
the parties to this Agreement, and the books, accounts and records of each
party to this Agreement shall be so maintained as to clearly and accurately
disclose the nature and details of each transaction between the parties,
including such accounting information as is necessary to support the
reasonableness of the charges made hereunder.
V
GENERAL PROVISIONS
------------------
A. WAIVER
Failure of any party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any of the
conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute
a waiver of any other provisions, whether or not similar, nor shall any
waiver constitute a continuing waiver.
<PAGE>
8
B. BOND
SLD and Clarendon will maintain whatever bond may be required by Sun
Life (U.S.) and such bond shall be of a type and amount and issued by a
reputable company, all as approved by Sun Life (U.S.).
C. BINDING EFFECT
This Agreement shall be binding on and shall inure to the benefit of the
parties to it and their respective successors and assigns.
D. INDEMNIFICATION
Each party hereby agrees to release, indemnify and hold harmless the
other party, its officers, directors, employees, agents, servants,
predecessors or successors from any claims or liability to third parties
arising out of the breach of this Agreement or arising out of the acts or
omissions of a party to this Agreement not authorized by this Agreement.
E. NOTICES
All notices, requests, demands and other communication under this
Agreement shall be in writing, and shall be deemed to have been given on the
date of service if served personally on the party to whom notice is to be
given, or on the date of mailing, if sent by First Class Mail, Registered or
Certified, postage prepaid and properly addressed as follows:
TO SUN LIFE (U.S.)
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02181
Attn:
-----------------------
TO SLD
Sun Life of Canada (U.S.) Distributors, Inc.
PO Box 9133
Boston, MA 02117
Attn:
-----------------------
TO CLARENDON
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, MA 02181
Attn:
-----------------------
<PAGE>
9
F. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the
Commonwealth of Massachusetts.
G. COMPLIANCE
All parties agree to observe and comply with the existing laws and rules
or regulations of applicable local, state or federal regulatory authorities,
and with those which may be enacted or adopted during the term of this
Agreement regulating the business contemplated hereby in any jurisdiction in
which business described herein is to be transacted.
H. TERMINATION
This Agreement may be terminated by any of the parties upon six (6)
months' prior written notice to the other party.
<PAGE>
10
Executed this day of January, 1998.
----------
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
By
-----------------------------------------
By
-----------------------------------------
SUN LIFE OF CANADA (U.S.) DISTRIBUTORS, INC.
By
-----------------------------------------
By
-----------------------------------------
CLARENDON INSURANCE AGENCY, INC.
By
-----------------------------------------
By
-----------------------------------------
<PAGE>
EXHIBIT A
THE PLANS
Futurity Combination Variable/Fixed Annuity Contract
Exhibits B - E = Current Distribution Agreements
<PAGE>
One signed and authorized copy Sun Life Annuity Service Center
of this agreement, plus a fully P.O. Box 1024
completed commission schedule Boston, MA 02103
should be returned to:
- --------------------------------------------------------------------------------
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
A Wholly-Owned Subsidiary of Sun Life Assurance Company of Canada
<TABLE>
<CAPTION>
<S> <C> <C>
EXECUTIVE OFFICE: HOME OFFICE: ANNUITY SERVICE MAILING ADDRESS:
One Sun Life Executive Park Wilmington, Delaware Sun Life Annuity
Wellesley Hills, Massachusetts 02181 Service Center
P.O. Box 1024
Boston, Massachusetts 02103
</TABLE>
- --------------------------------------------------------------------------------
SALES OPERATIONS AND GENERAL AGENT AGREEMENT
- --------------------------------------------------------------------------------
AGREEMENT by and between Sun Life Assurance Company of Canada (U.S.)
(hereinafter referred to as Sun Life of Canada (U.S.), a Delaware Corporation;
Clarendon Insurance Agency, Inc. (hereinafter referred to as Clarendon), a
registered broker-dealer with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers Inc.; and
____________________________ (hereinafter referred to as Broker-dealer), also a
registered broker-dealer with the Securities and Exchange Commission under the
Securities Act of 1934 and a member of the National Association of Securities
Dealers Inc.; and
____________________________ (hereinafter referred to as the General Agent), as
follows:
- --------------------------------------------------------------------------------
I WITNESSETH
- --------------------------------------------------------------------------------
WHEREAS, Sun Life of Canada (U.S.) has agreed with General Agent to have
General Agent's insurance agents (herein-after referred to as sub-agents)
solicit and sell those certain Insurance and Annuity Plans, more particularly
described in this Agreement; and, because certain of said Plans may be deemed to
be securities under the Securities Act of 1933 and applicable state laws, Sun
Life of Canada (U.S.) desires that the sub-agents be associated with
Broker-dealer and Broker-dealer hereby covenants that each such sub-agent is
registered as its registered representative with the National Association of
Securities Dealers Inc. (hereinafter referred to as NASD) and may engage in the
offer or sale of such of the Plans which constitute a security under federal or
state law; and
WHEREAS, Sun Life of Canada (U.S.) has agreed with Clarendon that Clarendon
shall be responsible for the training and supervision of such sub-agents, with
respect to the solicitation and offer or sale of any of said Plans which
constitute a security under federal and state law, and also for the training and
supervision of any other "persons associated" with Broker-dealer who are engaged
directly or indirectly therewith; and Clarendon wishes to, and hereby does,
delegate, to the extent legally permitted, said supervisory duties to
Broker-dealer, who hereby agrees to accept such delegation; and
WHEREAS, Sun Life of Canada (U.S.) has agreed with General Agent that
General Agent will limit solicitations to those jurisdictions where it has been
duly licensed to solicit sales of life insurance policies, fixed annuity, and
variable annuity contracts and General Agent agrees to provide Sun Life of
Canada (U.S.) with a list of such jurisdictions and agrees further to notify Sun
Life of Canada (U.S) of any change to such list; and General Agent hereby
agrees that General Agent shall be responsible for the training and supervision
of such sub-agents with respect to the solicitation and sale of any of said
Plans which are regulated by the jurisdiction's insurance department or similar
regulatory agency; and
WHEREAS, Sun Life of Canada (U.S.) has established life insurance and
annuity plans for use with groups and for individuals and Sun Life of Canada
(U.S.) agrees to furnish to General Agent and to keep current a list of the
types of plans, (hereinafter referred to as the "Plans") which Sun Life of
Canada (U.S.) has available for offering by the General Agent.
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
- --------------------------------------------------------------------------------
II APPOINTMENT OF GENERAL AGENT FOR INSURANCE AND ANNUITY PLANS
- --------------------------------------------------------------------------------
A. APPOINTMENT
Sun Life of Canada (U.S.) hereby appoints General Agent as a general agent
of Sun Life of Canada (U.S.) for the solicitation of sales of the Plans.
<PAGE>
- --------------------------------------------------------------------------------
III AUTHORITY OF GENERAL AGENT
- --------------------------------------------------------------------------------
A. DISTRIBUTION AUTHORITY
General Agent is authorized to procure, through the sub-agents appointed by
it, applications for the Plans. Sun Life of Canada (U.S.), in its sole
discretion and without notice to General Agent, may suspend sales of any Plans
hereunder or may amend any policies or contracts evidencing such plans.
B. APPOINTMENT OF SUB-AGENTS
General Agent is authorized to appoint sub-agents to solicit sales of the
Plans hereunder. All sub-agents appointed by General Agent pursuant to this
Agreement shall be duly licensed under the applicable insurance laws to sell the
said Plans by the proper authorities within the applicable jurisdictions where
General Agent proposes to offer the Plans and where Sun Life of Canada (U.S.) is
duly authorized to conduct business. Sun Life of Canada (U.S.) will provide
General Agent with a list which shows: (1) the jurisdictions where Sun Life of
Canada (U.S.) is authorized to do business; and (2) any limitations on the
availability of the Plans in any of such jurisdictions. General Agent agrees to
fulfill all requirements set forth in the General Letter of Recommendation
attached as Exhibit A in conjunction with the submission of
licensing/appointment papers for all applicants as sub-agents submitted by
General Agent.
C. SECURING APPLICATIONS
All applications for the Plans covered hereby shall be made on application
forms supplied by Sun Life of Canada (U.S.), and all payments collected by
General Agent or any sub-agent of General Agent shall be remitted promptly in
full, together with such application forms and any other required documentation,
directly to Sun Life of Canada (U.S.) at the address indicated on such
application or to such other address as Sun Life of Canada (U.S.) may, from time
to time designate in writing. Checks or money orders in payment on any such
Plan shall be drawn to the order of "Sun Life Assurance Company of Canada
(U.S.)". All applications are subject to acceptance or rejection by Sun Life of
Canada (U.S.) at its sole discretion.
D. SUPERVISION OF SUB-AGENTS
1. General Agent shall supervise any sub-agents appointed by it to solicit
sales of the Plans hereunder and General Agent shall be responsible, without
regard to any technical distinction between this relationship and that which
exists in law between principal and agent, for all acts and omissions of each
sub-agent within the scope of his agency appointment at all times. General
Agent shall exercise all responsibilities required by the applicable federal and
state law and regulations other than those responsibilities which under
applicable Securities laws are the responsibilities of Broker-dealer;
provided however, Broker-dealer shall continue to have full responsibility under
applicable securities laws for such sub-agents in their capacity as registered
representatives including by example, but without limitation, training and
supervisory duties over such sub-agents. Nothing contained in this Agreement or
otherwise shall be deemed to make any sub-agents appointed by General Agent an
employee or agent of Sun Life of Canada (U.S.). Sun Life of Canada (U.S.) shall
not have any responsibility for the supervision of any sub-agents of General
Agent and if the act or omission of a sub-agent or any other employee of General
Agent is the proximate cause of any claim, damage or liability to Sun Life of
Canada (U.S.)(including reasonable attorneys' fees). General Agent shall be
responsible and liable therefore.
2. Sun Life of Canada (U.S.) may, by written notice to General Agent,
refuse to permit any sub-agent to solicit applications for the sale of any of
the Plans hereunder and may, by such notice, require General Agent to cause any
such sub-agent to cease any such solicitation or sales, and, Sun Life of Canada
(U.S.) may require General Agent to cancel the appointment of any sub-agent.
3. General Agent is responsible for the selection or appointment of
sub-agents for the sales of the Plans hereunder. General Agent is responsible
for preparation and transmission of the proper appointment and licensing forms
and to insure that all sales personnel are appropriately licensed.
4. General Agent will pay all fees to state insurance regulatory
authorities in connection with obtaining necessary licenses and appointments for
sub-agents appointed hereunder. All fees payable to such regulatory authorities
in connection with the initial appointment of sub-agents who already possess
necessary licenses will be paid by Sun Life of Canada (U.S.). Any renewal
license fees due after the initial appointment of a sub-agent hereunder will be
paid by General Agent.
5. Before a sub-agent is permitted to sell the Plans, General Agent,
Broker-dealer and the sub-agent shall have entered into an agreement pursuant to
which the sub-agent will be appointed a sub-agent of General Agent and a
registered representative of Broker-dealer and in which the sub-agent will agree
that his selling activities relating to the securities-regulated Plans will be
under the supervision and control of Broker-dealer and his selling activities
relating to the insurance-regulated Plans will be under the supervision and
control of General Agent; and that the sub-agent's right to continue to sell
such Plans is subject to his continued compliance with such agreement.
E. MONEY RECEIVED BY GENERAL AGENT
All money payable in connection with any of the Plans, whether as premium,
purchase payment or other-
<PAGE>
wise and whether paid by or on behalf of any policyholder, contract owner or
certificateholder or anyone else having an interest in the Plans is the
property of Sun Life of Canada (U.S.), and shall be transmitted immediately in
accordance with the administrative procedures of Sun Life of Canada (U.S.)
without any deduction or offset for any reason, including by example but not
limitation, any deduction or offset for compensation claimed by General Agent.
- --------------------------------------------------------------------------------
IV COMPENSATION
- --------------------------------------------------------------------------------
A. COMMISSIONS
Commissions payable to General Agent or any sub-agent in connection with
the Plans shall be paid by Sun Life of Canada (U.S.) to the person(s) entitled
thereto through General Agent or as otherwise required by law. Sun Life of
Canada (U.S.) will provide General Agent with a copy of its current Commission
Schedule. Commissions will be paid as a percentage of premiums or purchase
payments (Premiums and Purchase Payments are hereinafter referred to
collectively as "Payments") received in cash or other legal tender and accepted
by Sun Life of Canada (U.S.) on applications obtained by the various sub-agents
appointed by General Agent hereunder. Upon termination of this Agreement, all
compensation to the General Agent hereunder shall cease, however, General Agent
shall continue to be liable for any chargebacks pursuant to the provisions of
said Commission Schedule or for any other amounts advanced by or otherwise due
SUN LIFE OF CANADA (U.S.) hereunder.
B. TIME OF PAYMENT
Sun Life of Canada (U.S.) will pay any compensation due General Agent
thereunder within fifteen (15) days after the end of the calendar month in which
Payments upon which such compensation is based are accepted by Sun Life of
Canada (U.S.).
C. AMENDMENT OF SCHEDULES
Sun Life of Canada (U.S.) may, upon at least ten (10) days prior written
notice to General Agent change the commission schedule. Any such change
shall be by written amendment of the commission schedule and shall apply to
compensation due on applications received by Sun Life of Canada (U.S.) after
the effective date of such notice.
D. PROHIBITION AGAINST REBATES
If General Agent or any sub-agent of General Agent shall rebate or offer to
rebate all or any part of a Payment on a policy or contract or certificate
issued hereunder, or if General Agent or any sub-agent of General Agent shall
withhold any Payment on any policy or contract or certificate issued hereunder,
the same may be grounds for termination of this Agreement by Sun Life of Canada
(U.S.). If General Agent or any sub-agent of General Agent shall at any time
induce or endeavor to induce any owner or any policy or contract issued
hereunder or any certificate holder to discontinue Payments or to relinquish any
such policy or contract or certificate except under circumstances where there is
reasonable grounds for believing the policy, contract or certificate is not
suitable for such person, any and all compensation due General Agent hereunder
shall cease and terminate.
E. INDEBTEDNESS
Nothing in this Agreement shall be construed as giving General Agent the
right to incur any indebtedness on behalf of Sun Life of Canada (U.S.).
General Agent hereby authorizes Sun Life of Canada (U.S.) to set off liabilities
of General Agent to Sun Life of Canada (U.S.) against any and all amounts
otherwise payable to General Agent by Sun Life of Canada (U.S.).
- --------------------------------------------------------------------------------
V DUTIES OF BROKER DEALER
- --------------------------------------------------------------------------------
A. SUPERVISION OF REGISTERED REPRESENTATIVES
Broker-dealer agrees that it has full responsibility for the training and
supervision of all persons, including sub-agents of General Agent, associated
with Broker-dealer who are engaged directly or indirectly in the offer or sale
of such of the Plans as are subject to the federal securities laws and that all
such persons shall be subject to the control of Broker-dealer with respect to
such persons' securities-regulated activities in connection with such Plans.
Broker-dealer will cause the sub-agents, in their capacity as registered
representatives to be trained in the sale of such of the Plans as are subject to
the federal securities laws; will use its best efforts to cause such sub-agents
to qualify under applicable federal and state laws to engage in the sale of such
policies and/or contracts; and will cause such sub-agents to be registered
representatives of Broker-dealer before such sub-agents engage in the
solicitation of any of such policies and/or contracts. Broker-dealer shall
cause such sub-agent's qualifications to be certified to the satisfaction of
Clarendon; and shall notify Clarendon if any of said sub-agents cease to be a
registered representative of Broker-dealer.
B. REGISTERED REPRESENTATIVES AGREEMENT
Broker-dealer agrees that it shall train and supervise the General Agent's
sub-agents in connection with such of the Plans as are subject to the federal
securities law
<PAGE>
and agrees that, before a sub-agent shall be permitted to sell such Plans,
such sub-agent will be appointed a registered representative of Broker-dealer
and, along with Broker-dealer and General Agent, such sub-agent will have
entered into the agreement more particularly described in Section III,
Paragraph D5.
C. COMPLIANCE WITH NASD RULES OF FAIR PRACTICE AND FEDERAL AND STATE
SECURITIES LAW
Broker-dealer will fully comply with the requirements of the National
Association of Securities Dealers, Inc. and of the Securities Exchange Act of
1934 and all other applicable federal or state laws and will establish such
rules and procedures as may be necessary to cause diligent supervision of the
securities activities of the sub-agents. Upon request by Clarendon,
Broker-dealer shall furnish such appropriate records as may be necessary to
establish such diligent supervision.
D. NOTICE OF SUB-AGENT NONCOMPLIANCE
In the event a sub-agent fails or refuses to submit to supervision of
Broker-dealer in accordance with this Agreement, or otherwise fails to meet
the rules and standards imposed by Broker-dealer on its registered
representatives, Broker-dealer shall certify such fact to Sun Life of Canada
(U.S) and General Agent and shall immediately notify such sub-agent that he
is no longer authorized to sell the Plans, and Broker-dealer and General
Agent shall take whatever additional action may be necessary to terminate the
sales activities of such sub-agent relating to the Plans.
E. PROSPECTUSES, SALES PROMOTION MATERIAL AND ADVERTISING
Broker-dealer shall be provided, without any expense to Broker-dealer,
with prospectuses relating to those of the Plans which are subject to federal
securities laws and such other material as Clarendon determines to be
necessary or desirable for use in connection with sales of those Plans. No
sales promotion materials or any advertising relating to any of the
securities-regulated Plans shall be used by Broker-dealer unless the specific
item has been approved in writing by Clarendon.
- --------------------------------------------------------------------------------
VI GENERAL PROVISIONS
- --------------------------------------------------------------------------------
A. WAIVER
Failure of any party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any of the
conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute
a waiver of any other provisions, whether or not similar, nor shall any
waiver constitute a continuing waiver.
B. INDEPENDENT CONTRACTORS
Both Sun Life of Canada (U.S.) and Clarendon are independent contractors
with respect both to Broker-dealer and to General Agent.
C. LIMITATIONS
No party other than Sun Life of Canada (U.S.) shall have the authority on
behalf of Sun Life of Canada (U.S.) to make, alter, or discharge any policy or
contract or certificate issued by Sun Life of Canada (U.S), to waive any
forfeiture or to grant, permit, nor to extend the time of making any Payments,
nor to guarantee dividends, nor to alter the forms which Sun Life of Canada
(U.S) may prescribe or substitute other forms in place of those prescribed by
Sun Life of Canada (U.S.); nor to enter into any proceeding in a court of law or
before a regulatory agency in the name of or on behalf of Sun Life of Canada
(U.S.).
D. FIDELITY BOND
General Agent represents that all directors, officers, employees and
sub-agents of General Agent who are licensed pursuant to this agreement as
Sun Life of Canada (U.S) agents for state insurance law purposes or who have
access to funds of Sun Life of Canada (U.S), including but not limited to
funds submitted with applications for the Plans or funds being returned to
owners or certificate holders, are and shall be covered by a blanket fidelity
bond, including coverage for larceny and embezzlement, issued by a reputable
bonding company. This bond shall be maintained by General Agent at General
Agent's expense. Such bond shall be, at least, of the form, type, and amount
required under the NASD Rules of Fair Practice, endorsed to extend coverage
to General Agent's life insurance and fixed annuity transactions. Sun Life
of Canada (U.S) may require evidence, satisfactory to it, that such coverage
is in force and General Agent shall give prompt written notice to Sun Life of
Canada (U.S) of any notice of cancellation or change of coverage.
General Agent assigns any proceeds received from the fidelity bonding
company to Sun Life of Canada (U.S) to the extent of Sun Life of Canada
(U.S)'s loss due to activities covered by the bond. If there is any
deficiency amount, whether due to a deductible or otherwise, General Agent
shall promptly pay Sun Life of Canada (U.S) such amount on demand and General
Agent hereby indemnifies and holds harm-less Sun Life of Canada (U.S) from
any such deficiency and from the costs of collection thereof (including
reasonable attorneys' fees).
E. BINDING EFFECT
This Agreement shall be binding on and shall inure the benefit of the
parties to it and their respective suc-
<PAGE>
cessors and assign provided that neither Broker-dealer nor General Agent may
assign this Agreement or any rights or obligations hereunder without the
prior written consent of Sun Life of Canada (U.S).
F. REGULATIONS
All parties agree to observe and comply with the existing laws and rules or
regulations of applicable local, state, or federal regulatory authorities and
with those which may be enacted or adopted during the term of this Agreement
regulating the business contemplated hereby in any jurisdiction in which the
business described herein is to be transacted.
G. NOTICES
All notices or communications shall be sent to the address shown in sub
paragraph VI M of this Agreement or to such other address as the party may
request by giving written notice to the other parties.
H. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts.
I. AMENDMENT OF AGREEMENT
Sun Life of Canada (U.S) reserves the right to amend this Agreement at
any time and the General Agent's submission of an application after notice of
any such amendment has been sent to the other parties shall constitute the
other parties' agreement to any such amendment.
J. SALES PROMOTION MATERIALS AND ADVERTISING
Neither Broker-dealer, General Agent nor any of its sub-agents shall
print, publish or distribute any advertisement, circular or any document
relating to the Plans distributed pursuant to this Agreement or relating to
Sun Life of Canada (U.S) unless such advertisement, circular or document
shall have been approved in writing by Sun Life of Canada (U.S) or by
Clarendon, and in the case of items within the scope of Section V, Paragraph
E approved in writing by Claredon. Provided, however, that nothing herein
shall prohibit Broker-dealer, General Agent or any sub-agent from advertising
life insurance and annuities in general or on a generic basis.
K. GENERAL AGENT AS BROKER DEALER
If Broker-dealer and General Agent are the same person or legal entity,
such person or legal entity shall have the rights and obligations hereunder
of both Broker-dealer and General Agent and this Agreement shall be binding
and enforceable by and against such person or legal entity in both capacities.
L. TERMINATION
This Agreement may be terminated, without cause, by any party upon thirty
(30) days prior written notice; and may be terminated, for cause, by any
party immediately; and shall be terminated if Clarendon or Broker-dealer
shall cease to be a registered Broker-dealer under the Securities Exchange
Act of 1934 and a member of the NASD.
- --------------------------------------------------------------------------------
M. ADDRESS FOR NOTICES
GENERAL AGENT
- ----------------------------------------------------
Licensed General Agent or Agency Name:
Address:
--------------------------------------------
- ----------------------------------------------------
Tax ID No.:
-----------------------------------------
- ----------------------------------------------------
Print Name and Title of Authorized Officer
By
--------------------------------------------------
Signature and Title of Authorized Officer Date
- --------------------------------------------------------------------------------
NASD BROKER/DEALER
Registered Name:
------------------------------------
Home/Office Address:
--------------------------------
- ----------------------------------------------------
Tax ID No.:
-----------------------------------------
- ----------------------------------------------------
Print Name and Title of Authorized Officer
By
--------------------------------------------------
Signature and Title of Authorized Officer Date
Clarendon Insurance Agency, Inc.
Attn:
CLARENDON INSURANCE AGENCY, INC.
By:
-------------------------------------------------
Sun Life of Canada (U.S.)
Attn:
One Sun Life Executive Park
Wellesley Hills, MA 02181
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
By:
-------------------------------------------------
<PAGE>
EXHIBIT A
GENERAL LETTER OF RECOMMENDATION
GENERAL AGENT hereby certifies to Sun Life of Canada (U.S.) that all the
following requirements will be fulfilled in conjunction with the submission of
licensing/appointment papers for all applicants as agents of Sun Life of Canada
(U.S.) submitted by GENERAL AGENT. GENERAL AGENT will, upon request, forward
proof of compliance with same to Sun Life of Canada (U.S.) in a timely manner.
1. We have made a thorough and diligent inquiry and investigation relative to
each applicant's identity, residence and business reputation and declare
that each applicant is personally known to us, has been examined by us, is
known to be of good moral character, has a good business reputation, is
reliable, is financially responsible and is worthy of a license. Each
individual is trustworthy, competent and qualified to act as an agent for
Sun Life of Canada (U.S.) to hold himself out in good faith to the general
public. We vouch for each applicant.
2. We have on file a B-300, B-301, or U-4 form which was completed by each
applicant. We have fulfilled all the necessary investigative requirements
for the registration of each applicant as a registered representative
through our NASD member firm, and each applicant is presently registered as
an NASD registered representative.
The above information in our files indicates no fact or condition which
would disqualify the applicant from receiving a license and all the
findings of all investigative information is favorable.
3. We certify that all educational requirements have been met for the specific
state each applicant is requesting a license in, and that, all such persons
have fulfilled the appropriate examination, education and training
requirements.
4. If the applicant is required to submit his picture, his signature, and
securities registration in the state in which he is applying for a license,
we certify that those items forwarded to Sun Life of Canada (U.S.) are
those of the applicant and the securities registration is a true copy of
the original.
5. We hereby warrant that the applicant is not applying for a license with Sun
Life of Canada (U.S.) in order to place insurance chiefly and solely on his
life or property, lives or property of his relatives, or property or
liability of his associates.
6. We certify that each applicant will receive close and adequate supervision,
and that we will make inspection when needed of any or all risks written by
these applicants, to the end that the insurance interest of the public
will be properly protected.
7. We will not permit any applicant to transact insurance as an agent until
duly licensed therefore. No applicants have been given a contract or
furnished supplies, nor have any applicants been permitted to write, solicit
business, or act as an agent in any capacity, and they will not be so
permitted until the certificate of authority or license applied for is
received.
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
A WHOLLY-OWNED SUBSIDIARY OF SUN LIFE ASSURANCE COMPANY OF CANADA
<TABLE>
<S> <C> <C>
EXECUTIVE OFFICE: HOME OFFICE: ANNUITY SERVICE MAILING ADDRESS:
One Sun Life Executive Park Wilmington, Delaware Sun Life Annuity
Wellesley Hills, Massachusetts 02161 Service Center
P.O. Box 1024
Boston, Massachusetts 02103
</TABLE>
- -------------------------------------------------------------------------------
BROKER-DEALER SUPERVISORY AND SERVICE AGREEMENT
- -------------------------------------------------------------------------------
AGREEMENT by and between Sun Life Assurance Company of Canada (U.S.)
("Sun Life of Canada (U.S.)"), a Delaware Corporation, Clarendon Insurance
Agency, Inc. ("Clarendon"), a registered broker-dealer with the Securities
and Exchange Commission under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers Inc. and
____________________ (Broker-Dealer), also a registered broker-dealer with
the Securities and Exchange Commission under the Security Exchange Act of
1934 and a member of the National Association of Securities Dealers Inc.
- -------------------------------------------------------------------------------
I WITNESSETH
- -------------------------------------------------------------------------------
WHEREAS, Sun Life of Canada (U.S.) proposes to have Broker-Dealer's
registered representatives ("Representatives") who are also insurance agents
solicit and sell certain Insurance and Annuity Plans (the "Plans") more
particularly described in this Agreement and which are deemed to be
securities under the Securities Act of 1933; and
WHEREAS, Sun Life of Canada (U.S.) has appointed Clarendon as the
General Distributor of the Plans and has agreed with Clarendon that Clarendon
shall be responsible for the training and supervision of such Representatives,
with respect to the solicitation and offer or sale of any of the Plans, and
also for the training and supervision of any other "persons associated" with
Broker-Dealer who are engaged directly or indirectly therewith; and Clarendon
proposes to delegate, to the extent legally permitted, said supervisory
duties to Broker-Dealer; and
WHEREAS, Sun Life of Canada (U.S.) and Clarendon propose to have
Broker-Dealer provide certain administrative services to facilitate
solicitations for and sales of the Plans.
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
- -------------------------------------------------------------------------------
II APPOINTMENT OF BROKER-DEALER
- -------------------------------------------------------------------------------
A. APPOINTMENT
Sun Life of Canada (U.S.) and Clarendon hereby appoint Broker-Dealer to
supervise solicitations for and sales of the Plans and to provide certain
administrative services to facilitate solicitations for and sales of the
Plans.
- -------------------------------------------------------------------------------
III AUTHORITIES AND DUTIES OF BROKER-DEALER
- -------------------------------------------------------------------------------
A. PLANS
The Plans issued by Sun Life of Canada (U.S.) to which this Agreement
applies are listed in Exhibit A. Exhibit A may be amended from time to time
by Sun Life of Canada (U.S.). Sun Life of Canada (U.S.), in its sole
discretion and without notice to Broker-Dealer, may suspend sales of any
Plans or may amend any policies or contracts evidencing such Plans.
B. LICENSING REPRESENTATIVES
Broker-Dealer shall assist Clarendon in the appointment of
Representatives under the applicable insurance laws to sell the Plans.
Broker-Dealer shall fulfill all requirements set forth in the General Letter
of Recommendation attached as Exhibit B in conjunction with the submission of
licensing/appointment papers for all applicants as insurance agents of Sun
Life of Canada (U.S.).
<PAGE>
All such licensing/appointment papers should be submitted to Clarendon by
Broker-Dealer.
C. SECURING APPLICATIONS
All applications for Plans shall be made on application forms supplied by
Sun Life of Canada (U.S.) and all payments collected by Broker-Dealer or any
Representative of Broker-Dealer shall be remitted promptly in full, together
with such application forms and any other required documentation, directly to
Sun Life of Canada (U.S.) at the address indicated on such application or to
such other address as Sun Life of Canada (U.S.) may, from time to time,
designate in writing. Broker-Dealer shall review all such applications for
completeness. Checks or money orders in payment on any such Plan shall be
drawn to the order of "Sun Life Assurance Company of Canada (U.S.)". All
applications are subject to acceptance or rejection by Sun Life of Canada
(U.S.) at its sole discretion.
D. MONEY RECEIVED BY BROKER-DEALER
All money payable in connection with any of the Plans, whether as
premium, purchase payment or otherwise and whether paid by or on behalf of
any policyholder, contract owner or certificate holder or anyone else having
an interest in the Plans is the property of Sun Life of Canada (U.S.), and
shall be transmitted immediately in accordance with the administrative
procedures of Sun Life of Canada (U.S.) without any deduction or offset for
any reason, including by example but not limitation, any deduction or offset
for compensation claimed by Broker-Dealer.
E. SUPERVISION OF REPRESENTATIVES
Broker-Dealer shall have full responsibility for the training and
supervision of all Representatives associated with Broker-Dealer who are
engaged directly or indirectly in the offer or sale of the Plans and all such
persons shall be subject to the control of Broker-Dealer with respect to such
persons' securities-regulated activities in connection with the Plans.
Broker-Dealer will cause the Representatives to be trained in the sale of the
Plans; will use its best efforts to cause such Representatives to qualify
under applicable federal and state laws to engage in the sale of the Plans;
and will cause such Representatives to be registered representatives of
Broker-Dealer before such Representatives engage in the solicitation of
applications for the Plans and will cause such Representatives to limit
solicitation of applications for the Plans to jurisdictions where Sun Life of
Canada (U.S.) has authorized such solicitation. Broker-Dealer shall cause
such Representatives' qualifications to be certified to the satisfaction of
Clarendon and shall notify Clarendon if any Representative ceases to be a
registered representative of Broker-Dealer.
F. REPRESENTATIVES AGREEMENT
Broker-Dealer shall cause each such Representative to execute a
Registered Representative's Agent Agreement with Sun Life of Canada (U.S.)
before a Representative shall be permitted to solicit applications for the
sale of the Plans. Clarendon shall furnish Broker-Dealer with copies of
Registered Representative's Agent Agreements for execution by the
Representatives.
G. COMPLIANCE WITH NASD RULES OF FAIR PRACTICE AND FEDERAL AND STATE
SECURITY LAWS
Broker-Dealer shall fully comply with the requirements of the National
Association of Securities Dealers, Inc. and of the Securities Exchange Act of
1934 and all other applicable federal or state laws and will establish such
rules and procedures as may be necessary to cause diligent supervision of the
securities activities of the Representatives. Upon request by Clarendon,
Broker-Dealer shall furnish such appropriate records as maybe necessary to
establish such diligent supervision.
H. NOTICE OF REPRESENTATIVE'S NONCOMPLIANCE
In the event a Representative fails or refuses to submit to supervision
of Broker-Dealer or otherwise fails to meet the rules and standards imposed
by Broker-Dealer on its Representatives, Broker-Dealer shall certify such
fact to Sun Life of Canada (U.S.) and shall immediately notify such
Representative that he or she is no longer authorized to sell the Plans, and
Broker-Dealer shall take whatever additional action may be necessary to
terminate the sales activities of such Representative relating to the Plans.
I. PROSPECTUSES, SALES PROMOTION MATERIAL AND ADVERTISING
Broker-Dealer shall be provided, without any expenses to Broker-Dealer,
with prospectuses relating to the Plans and such other material as Clarendon
determines to be necessary or desirable for use in connection with sales of
the Plans. No sales promotion materials or any advertising relating to the
Plans shall be used by Broker-Dealer unless the specific item has been
approved in writing by Clarendon.
- -------------------------------------------------------------------------------
IV COMPENSATION
- -------------------------------------------------------------------------------
A. SUPERVISORY FEES, SERVICE FEES AND COMMISSIONS
Supervisory and Service Fees payable to Broker-Dealer and commissions
payable to Representatives in connection with the Plans shall be paid by Sun
Life of Canada (U.S.) to the person(s) entitled thereto through Broker-Dealer
or as otherwise required by law. Clarendon will provide Broker-Dealer with a
copy of Sun Life of
<PAGE>
Canada (U.S.)'s current Supervisory and Service Fee Schedule. These fees and
commissions will be paid as a percentage of premiums or purchase payments
(Premiums and Purchase Payments are hereinafter referred to collectively as
"Payments") received in cash or other legal tender and accepted by Sun Life
of Canada (U.S.) on applications obtained by the various Representatives of
the Broker-Dealer. Upon termination of this Agreement, all compensation to
the Broker-Dealer hereunder shall cease; however, Broker-Dealer shall
continue to be liable for any chargebacks pursuant to the provisions of said
Supervisory and Service Fee Schedule and Commission Schedule or for any other
amounts advanced by or otherwise due Sun Life of Canada (U.S.) hereunder.
B. TIME OF PAYMENT
Sun Life of Canada (U.S.) shall pay any compensation due Broker-Dealer and
Representatives of Broker-Dealer within fifteen (15) days after the end of
the calendar month in which Payments upon which such compensation is based
are accepted by Sun Life of Canada (U.S.).
C. AMENDMENT OF SCHEDULES
Sun Life of Canada (U.S.) may, upon at least ten (10) days prior written
notice to Broker-Dealer change the Supervisory and Service Fee Schedule and
the Commission Schedule. Any such change shall be by written amendment of the
particular schedule or schedulers and shall apply to compensation due on
applications received by Sun Life of Canada (U.S.) after the effective date
of such notice.
D. PROHIBITION AGAINST REBATES
If Broker-Dealer or any Representative of Broker-Dealer shall rebate or
offer to rebate all or any part of a Payment on a policy or contract or
certificate issued by Sun Life of Canada (U.S.), or if Broker-Dealer or any
Representative of Broker-Dealer shall withhold any Payment on any policy or
contract or certificate issued by Sun Life of Canada (U.S.), the same may be
grounds for termination of this Agreement by Sun Life of Canada (U.S.). If
Broker-Dealer or any Representative of Broker-Dealer shall at any time induce
or endeavor to induce any owner of any policy or contract issued hereunder or
any certificate holder to discontinue Payments or to relinquish any such
policy or contract or certificate except under circumstances where there is
reasonable grounds for believing the policy, contract or certificate is not
suitable for such person, any and all compensation due Broker-Dealer
hereunder shall cease and terminate.
E. INDEBTEDNESS
Nothing in this Agreement shall be construed as giving Broker-Dealer the
right to incur any indebtedness on behalf of Sun Life of Canada (U.S.).
Broker-Dealer hereby authorizes Sun Life of Canada (U.S.) to set off
liabilities of Broker-Dealer to Sun Life of Canada (U.S.) against any and all
amounts otherwise payable to Broker-Dealer by Sun Life of Canada (U.S.).
- -------------------------------------------------------------------------------
V GENERAL PROVISIONS
- -------------------------------------------------------------------------------
A. WAIVER
Failure of any party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any of the
conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute
a waiver of any other provisions, whether or not similar, nor shall any
waiver constitute a continuing waiver.
B. INDEPENDENT CONTRACTORS
Sun Life of Canada (U.S.) and Clarendon are independent contractors with
respect to Broker-Dealer and to Representatives.
C. LIMITATIONS
No party other than Sun Life of Canada (U.S.) shall wave authority on
behalf of Sun Life of Canada (U.S.) to make, alter, or discharge any policy
or contract or certificate issued by Sun Life of Canada (U.S.), to waive any
forfeiture or to grant, permit, nor to extend the time of making any
Payments, nor to guarantee dividends, nor to alter the forms which Sun Life
of Canada (U.S.) may prescribe or substitute other forms in place of those
described by Sun Life of Canada (U.S.); nor to enter into any proceeding in a
court of law or before a regulatory agency in the name of or on behalf of Sun
Life of Canada (U.S.).
D. FIDELITY BOND
Broker-Dealer represents that all directors, officers, employees and
Representatives of Broker-Dealer who are licensed pursuant to this Agreement
as Sun Life of Canada (U.S.) agents for state insurance law purposes or who
have access to funds of Sun Life of Canada (U.S.), including but not limited
to funds submitted with applications for the Plans or funds being returned to
owners or certificate holders, are and shall be covered by a blanket fidelity
bond, including coverage for larceny and embezzlement, issued by a reputable
bonding company. This bond shall be maintained by Broker-Dealer at
Broker-Dealer's expense. Such bond shall be, at least, of the form, type and
amount required under the NASD Rule of Fair Practice. Sun Life of Canada
(U.S.) may require evidence, satisfactory to it, that such coverage is in
force and Broker-Dealer shall give prompt written notice to Sun Life of
Canada (U.S.) of any notice of cancellation or change of coverage.
<PAGE>
Broker-Dealer assigns any proceeds received from the fidelity company to
Sun Life of Canada (U.S.) to the extent of Sun Life of Canada (U.S.)'s loss due
to activities covered by the bond. If there is any deficiency amount, whether
due to a deductible or otherwise. Broker-Dealer shall promptly pay Sun Life of
Canada (U.S.) such amount on demand and Broker-Dealer hereby indemnifies and
holds harmless Sun Life of Canada (U.S.) from any such deficiency and from the
costs of collection thereof (including reasonable attorney's fees).
E. BINDING EFFECT
This Agreement shall be binding on and shall inure to the benefit of the
parties to it and their respective successors and assigns provided that
Broker-Dealer may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Sun Life of Canada (U.S.).
F. REGULATIONS
All parties agree to observe and comply with the existing laws and rules or
regulations of applicable local, state, or federal regulatory authorities and
with those which may be enacted Or adopted during the term of this Agreement
regulating the business contemplated hereby in any jurisdiction in which the
business described herein is to be transacted.
G. NOTICES
All notices or communications shall be sent to the address shown in sub
paragraph L of Section V of this Agreement or to such other address as the party
may request by giving written notice to the other parties.
H. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts.
I. AMENDMENT OF AGREEMENT
Sun Life of Canada (U.S.) reserves the right to amend this Agreement at any
time and the submission of an application by a Representative of a Broker-Dealer
after notice of any such amendment has been sent to the other parties shall
constitute the other parties agreement to any such amendment.
J. SALES PROMOTION MATERIALS AND ADVERTISING
Broker-Dealer shall not print, publish or distribute any advertisement,
circular or any document relating to the Plans or relating to Sun Life of Canada
(U.S.) unless such advertisement, circular or document shall have been approved
in writing by Sun Life of Canada (U.S.) or by Clarendon; and in the case of
items within the scope of Section III, sub paragraph I approved in writing by
Clarendon. Provided, however, that nothing herein shall prohibit Broker-Dealer
from advertising Life insurance and annuities in general or on a generic basis.
K. TERMINATION
This Agreement may be terminated, without cause, by any party upon thirty
(30) days prior written notice and may be terminated, for cause, by any party
immediately; and shall be terminated if Clarendon or Broker-Dealer shall cease
to be registered Broker-Dealers under the Securities Exchange Act of 1934 and
members of the NASD.
- --------------------------------------------------------------------------------
L. ADDRESS FOR NOTICES
NASD Registered Name:
-------------------------------
- ----------------------------------------------------
Home Office Address:
--------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
Tax ID Number:
--------------------------------------
Date:
-----------------------------------------------
- ----------------------------------------------------
Print Name and Title of Authorized Officer
- ----------------------------------------------------
Signature and Title of Authorized Officer
Claredon Insurance Agency, Inc.
Attn:
CLARENDON INSURANCE AGENCY, INC.
By:
-------------------------------------------------
Sun Life of Canada (U.S.)
Attn:
One Sun Life Executive Park
Wellesley Hills, MA 02181
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
By:
-------------------------------------------------
<PAGE>
EXHIBIT B
General Letter of Recommendation
BROKER-DEALER hereby certifies to Sun Life of Canada (U.S.) that all the
following requirements will be fulfilled in conjunction of licensing/
appointment papers for all applicants as agents of Sun Life of Canada (U.S.)
submitted by BROKER-DEALER. BROKER DEALER will, upon request, forward proof of
compliance with same to Sun Life of Canada (U.S.) in a timely manner.
1. We have made a thorough and diligent inquiry and investigation relative to
each applicants identity, residence and business reputation and declare
that each applicant is personally known to us, has been examined by us, is
known to be of good moral character, has a good business reputation, is
reliable, is financially responsible and is worthy of a license. Each
individual is trustworthy, competent and qualified to act as an agent for
Sun Life of Canada (U.S.) to hold himself out in good faith to the general
public. We vouch for each applicant.
2. We have on file a B-300, B-301, or U-4 form which was completed by each
applicant. We have fulfilled all the necessary investigative requirements
for the registration of each applicant as a registered representative
through our NASD member firm, and each applicant is presently registered as
an NASD registered representative.
The above information in our files indicates no fact or condition which
would disqualify the applicant from receiving a license and all the
findings of all investigative information if favorable.
3. We certify that all educational requirements have been met for the specific
state each applicant is requesting a license in, and that, all such persons
have fulfilled the appropriate examination, education and training
requirements.
4. If the applicant is required to submit his picture, his signature, and
securities registration in the state in which he is applying for a license,
we certify that those items forwarded to Sun Life of Canada (U.S.) are
those of the applicant and the securities registration is a true copy of
the original.
5. We hereby warrant that the applicant is not applying for a license with Sun
Life of Canada (U.S.) in order to place insurance chiefly and solely on his
life or property, lives or property of his relatives, or property or
liability of his associates.
6. We certify that each applicant will receive close and adequate supervision,
and that we will make inspection when needed of any or all risks written by
these applicants, to the end that the insurance interest of the public will
be properly protected.
7. We will not permit any applicant to transact insurance as an agent until
duly licensed therefore. No applicants have been given a contract or
furnished supplies, nor have any applicants been permitted to write,
solicit business, or act as an agent in any capacity, and they will not be
so permitted until the certificate of authority or license applied for is
received.
<PAGE>
Two copies of this agreement should Sun Life Annuity Service Center
be returned to: P.O. Box 1024
Boston, MA 02103
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
A Wholly-Owned Subsidiary of Sun Life Assurance Company of Canada
<TABLE>
<CAPTION>
<S> <C> <C>
EXECUTIVE OFFICE: HOME OFFICE: ANNUITY SERVICE MAILING ADDRESS:
One Sun Life Executive Park Wilmington, Delaware Sun Life Annuity
Wellesley Hills, Massachusetts 02181 Service Center
P.O. Box 1024
Boston, Massachusetts 02103
</TABLE>
- --------------------------------------------------------------------------------
GENERAL AGENT AGREEMENT
- --------------------------------------------------------------------------------
AGREEMENT by and between Sun Life Assurance Company of Canada (U.S.) ("Sun
Life of Canada (U.S.)"), a Delaware Corporation; Clarendon Insurance Agency,
Inc. ("Clarendon"), a Massachusetts Corporation, and ______________("General
Agent"), as follows:
- --------------------------------------------------------------------------------
I WITNESSETH
- --------------------------------------------------------------------------------
WHEREAS, Sun Life of Canada (U.S.) proposes to have General Agent and
General Agent's insurance agents ("sub-agents") solicit and sell certain
Insurance and Annuity Plans, ("Plans"); and
WHEREAS, Clarendon has agreed with Sun Life of Canada (U.S.) to coordinate
the marketing of the Plans.
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
- --------------------------------------------------------------------------------
II APPOINTMENT OF GENERAL AGENT FOR INSURANCE AND ANNUITY PLANS
- --------------------------------------------------------------------------------
A. APPOINTMENT
Sun Life of Canada (U.S.) hereby appoints General Agent as a general agent
of Sun Life of Canada (U.S.) for the solicitation of sales of the Plans.
- --------------------------------------------------------------------------------
III AUTHORITY AND DUTIES OF GENERAL AGENT
- --------------------------------------------------------------------------------
A. PLANS AND DISTRIBUTION AUTHORITY
The Plans issued by Sun Life of Canada (U.S.) to which this Agreement
applies are listed in Exhibit A. Exhibit A may be amended from time to time by
Sun Life of Canada (U.S.). Sun Life of Canada (U.S.), in its sole discretion and
without notice to General Agent, may suspend sales of any Plans or may amend any
policies or contracts evidencing such Plans. General Agent is authorized to
procure directly and/or through the sub-agents appointed by it, applications for
the Plans but shall limit solicitations to those jurisdictions where it has been
licensed to solicit sales of life insurance policies and annuity contracts.
B. APPOINTMENT OF SUB-AGENTS
General Agent is authorized to appoint sub-agents to solicit sales of the
Plans. All sub-agents appointed by General Agent pursuant to this Agreement
shall be duly licensed under the applicable insurance laws to sell the Plans
by the proper authorities within the jurisdictions where General Agent
proposes to offer the Plans and where Sun Life of Canada (U.S.) is duly
authorized to conduct business. Sun Life of Canada (U.S.) shall provide
General Agent with a list which shows: (1) the jurisdictions where Sun Life
of Canada (U.S.) is authorized to do business; and (2) any limitations on the
availability of the Plans in any of such jurisdictions, General Agent agrees
to fulfill all requirements set forth in the General Letter of Recommendation
attached as Exhibit B in conjunction with the submission of
licensing/appointment papers for all applications as sub-agents submitted by
General Agent and to submit such other forms regarding each sub-agent as Sun
Life of Canada (U.S.) and Clarendon may require. No applicant will be
appointed as an agent of Sun Life of Canada (U.S.) unless all such papers and
forms have been completed and are satisfactory to Clarendon.
<PAGE>
C. SECURING APPLICATIONS
All applications for the Plans covered hereby shall be made on application
forms supplied by Sun Life of Canada (U.S.) and all payments collected by
General Agent or any sub-agent of General Agent shall be remitted promptly in
full, together with such application forms and any other required documentation,
directly to Sun Life of Canada (U.S.) at the address indicated on such
application or to such other address as Sun Life of Canada (U.S.) may, from
time to time designate in writing. Checks or money orders in payment on any
such Plan shall be drawn to the order of "Sun Life Assurance Company of Canada
(U.S.)". All applications are subject to acceptance or rejection by Sun Life of
Canada (U.S.) at its sole discretion.
D. SUPERVISION OF SUB-AGENTS
1. General Agent shall supervise any sub-agents appointed by it to solicit
sales of the Plans and General Agent shall be responsible, without regard to any
technical distinction between this relationship and that which exists in law
between principal and agent, for all acts and omissions of each sub-agent within
the scope of his agency appointment at all times. General Agent shall exercise
all responsibilities required by the applicable state law and regulations.
Nothing contained in this Agreement or otherwise shall be deemed to make any
sub-agents appointed by General Agent an employee or agent of Sun Life of Canada
(U.S.) or Clarendon. Neither Sun Life of Canada (U.S.) nor Clarendon shall have
any responsibility for the supervision of any sub-agents of General Agent and if
the act or omission of a sub-agent or any other employee of General Agent is the
proximate cause of any claim, damage or liability to Sun Life of Canada (U.S.)
and/or Clarendon (including reasonable attorneys' fees). General Agent shall be
responsible and liable therefor.
2. Sun Life of Canada (U.S.) or Clarendon may, by written notice to
General Agent, refuse to permit any sub-agent to solicit applications for the
sale of any of the Plans and may, by such notice, require General Agent to
cause any sub-agent to cease any such solicitation or sales, and, Sun Life of
Canada (U.S.) or Clarendon may require General Agent to cancel the appointment
of any sub-agent.
3. General Agent is responsible for the selection or appointment of
sub-agents for the sales of the Plans. General Agent is responsible for
preparation and transmission of the proper appointment and licensing forms to
Clarendon and to insure that all sales personnel are appropriately licensed.
4. General Agent shall pay all fees to state insurance regulatory
authorities in connection with obtaining necessary licenses and appointments for
sub-agents appointed hereunder. All fees payable to such regulatory authorities
in connection with the initial appointment of sub-agents who already possess
necessary licenses shall be paid by Sun Life of Canada (U.S.). Any renewal
license fees due after the initial appointment of a sub-agent hereunder shall be
paid by General Agent.
5. Before a sub-agent is permitted to sell the Plans, General Agent and
the sub-agent shall have entered into an agreement pursuant to which the
sub-agent shall be appointed a sub-agent of General Agent and in which the
sub-agent shall agree that his or her selling activities relating to the Plans
shall be under the supervision and control of General Agent, and that the
sub-agent's right to continue to sell such Plans is subject to his or her
continued compliance with such agreement.
E. MONEY RECEIVED BY GENERAL AGENT
All money payable in connection with any of the Plans, whether as
premium, purchase payment or otherwise and whether paid by or on behalf of
any policy holder, contract owner or certificateholder or anyone else having
an interest in the Plans is the property of Sun Life of Canada (U.S.), and
shall be transmitted immediately in accordance with the administrative
procedures of Sun Life of Canada (U.S.) without any deduction or offset for
any reason, including by example but not limitation, any deduction or offset
for compensation claimed by General Agent.
- --------------------------------------------------------------------------------
IV COMPENSATION
- --------------------------------------------------------------------------------
A. COMMISSIONS
Commissions payable to General Agent or to any sub-agent in connection
with the Plans shall be paid by Sun Life of Canada (U.S.) or by Clarendon on
behalf of Sun Life of Canada (U.S.) to the person(s) entitled thereto through
General Agent or as otherwise required by law. Sun Life of Canada (U.S.) shall
provide General Agent with a copy of its current Commission Schedule.
Commissions shall be paid as a percentage of premiums or purchase payments
(Premiums and Purchase Payments are hereinafter referred to collectively as
"Payments") received and accepted by Sun Life of Canada (U.S.) on applications
obtained by the various sub-agents appointed by General Agent. Upon termination
of this Agreement, all compensation to the General Agent and any sub-agents
appointed by General Agent shall cease; however, General Agent shall continue to
be liable for any chargebacks pursuant to the provisions of said Commission
Schedule or for any other amounts advanced by or otherwise due Sun Life of
Canada (U.S.).
<PAGE>
B. TIME OF PAYMENT
Sun life of Canada (U.S.) shall pay any compensation due General Agent
hereunder within fifteen (15) days after the end of the calendar month in which
Payments upon which such compensation is based are accepted by Sun Life of
Canada (U.S.).
C. AMENDMENT OF SCHEDULES
Sun Life of Canada (U.S.) may, upon at least ten (10) days prior written
notice to General Agent change the commission schedule. Any such change shall
be by written amendment of the commission schedule and shall apply to
compensation due on applications received by Sun Life of Canada (U.S.) after
the effective date of such notice.
D. PROHIBITION AGAINST REBATES
If General Agent or any sub-agent of General Agent shall rebate or offer to
rebate all or any part of a Payment on a Plan, or if General Agent or any
sub-agent of General Agent shall withhold any Payment on any Plan, the same
shall be grounds for termination of this Agreement by Sun Life of Canada (U.S.):
If General Agent or any sub-agent of General Agent shall at any time induce or
endeavor to induce any owner of any Plan to discontinue Payments or to
relinquish any such Plan except under circumstances where there is reasonable
grounds for believing the Plan is not suitable for such person, any and all
compensation due General Agent shall cease and terminate.
E. INDEBTEDNESS
Nothing in this Agreement shall be construed as giving General Agent the
right to incur any indebtedness on behalf of Sun Life of Canada (U.S.). General
Agent hereby authorizes Sun Life of Canada (U.S.) to set off liabilities of
General Agent to Sun Life of Canada (U.S.) against any and all amounts otherwise
payable to General Agent by Sun Life of Canada (U.S.).
- --------------------------------------------------------------------------------
V GENERAL PROVISIONS
- --------------------------------------------------------------------------------
A. WAIVER
Failure of either party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any of the
conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
B. INDEPENDENT CONTRACTORS
Sun Life of Canada (U.S.) and Clarendon are independent contractors with
respect to General Agent and sub-agents.
C. LIMITATIONS
The General Agent shall not have the authority on behalf of Sun Life of
Canada (U.S.) to make, alter, or discharge any Plan issued by Sun Life of Canada
(U.S.), to waive any forfeiture or to grant, permit, nor to extend the time of
making any Payments, nor to guarantee dividends, nor to alter the forms which
Sun Life of Canada (U.S.) may prescribe or substitute other forms in place of
those prescribed by Sun Life of Canada (U.S.); nor to enter into any proceeding
in a court of law or before a regulatory agency in the name of or on behalf of
Sun Life of Canada (U.S.).
D. INDEMNIFICATION
General Agent shall indemnify and hold Sun Life of Canada (U.S.) and
Clarendon harmless from any and all expenses, costs, causes of action, loss or
damages from negligent, fraudulent or unauthorized acts or omissions by General
Agent and/or sub-agents.
E. BINDING EFFECT
This Agreement shall be binding on and shall inure to the benefit of the
parties to it and their respective successors and assigns provided that the
General Agent may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Sun Life of Canada (U.S.).
F. REGULATIONS
All parties agree to observe and comply with the existing laws and rules or
regulations of applicable local, state, or federal regulatory authorities and
with those which may be enacted or adopted during the term of this Agreement
regulating the business contemplated hereby in any jurisdiction in which the
business described herein is to be transacted.
G. NOTICES
All notices or communications shall be sent to the address shown in sub
paragraph M of Section V of this Agreement or to such other address as the party
may request by giving written notice to the other parties.
H. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts.
I. AMENDMENT OF AGREEMENT
Sun Life of Canada (U.S.) reserves the right to amend this Agreement at any
time and the General Agent's submission of an application after notice of any
such amendment has been sent to the other parties shall constitute the other
parties' agreement to any such amendment.
<PAGE>
J. SALES PROMOTION MATERIALS AND ADVERTISING
Neither General Agent nor any of its sub-agents shall print, publish or
distribute any advertisement, circular or any document relating to the Plans
distributed pursuant to this Agreement or relating to Sun Life of Canada (U.S.)
unless such advertisement, circular or document shall have been approved in
writing by Sun Life of Canada (U.S.). Provided, however, that nothing herein
shall prohibit General Agent or any sub-agent from advertising life insurance
and annuities in general or on a generic basis.
K. AUDIT REQUIREMENTS
General Agent shall supply Sun Life of Canada (U.S.) with all information
reasonably required with respect to this Agreement including financial
statements. Sun Life of Canada (U.S.) shall have the right to inspect without
notice but only at reasonable times the relevant books and records of the
General Agent pertaining to the Agreement.
L. TERMINATION
This Agreement may be terminated, without cause, by any party upon thirty
(30) days prior written notice; and may be terminated, for cause, by any party
immediately; and shall be terminated if Clarendon or Broker-dealer shall cease
to be a registered Broker-dealer under the Securities Exchange Act of 1934 and a
member of the NASD. Upon termination, Sun Life of Canada (U.S.) shall be
entitled, at its sole discretion, to assign the Plans sold hereunder to such
other Broker-dealer and/or General Agent as may be selected by it and upon such
assignment, all rights and duties hereunder, including compensation, shall pass
to the new Broker-dealer and/or General Agent so selected.
M. ADDRESS FOR NOTICES
SUNLIFE ASSURANCE CO. OF CANADA (U.S.)
Attn: Secretary's Department
One Sun Life Executive Park
Wellesley Hills, MA 02181
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
By
-----------------------------------------
Name and Address of General-Agent:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
General Agent's Signature
By
-----------------------------------------
(Signature of General Agent)
-------------------------------------------
Name and Title of General Agent
Dated
--------------------------------------
Tax ID Number of General Agent
or agency
----------------------------------
<PAGE>
EXHIBIT A
Attached to and made part of the General Agent Agreement with Sun Life Assurance
Company of Canada (U.S.) "Sun Life of Canada (U.S.)".
Commission will be paid to General Agent (or to Agency if required by law) in
the percentages shown below:
TYPE OF PLAN COMMISSION
Horizon One-Year Guaranteed Fixed Annuity
Horizon Five-Year Guaranteed Fixed Annuity -
ADDITIONAL PAYMENTS ONLY
Horizon Plus Guaranteed Fixed Annuity
Initial Payments
Additional Payments
Amount Applied to any Five Year
Subsequent Guarantee Period
Amount Applied to any One Year
Subsequent Guarantee Period
The payee of such Commissions, whether General Agent or Agency is hereafter
referred to as "payee".
Commissions will be paid to the Payee based on premiums or purchase payments
paid in cash or check and accepted by Sun Life of Canada (U.S.) on plans made
available by Sun Life of Canada (U.S.) under the said GENERAL AGENT AGREEMENT,
except that commissions will not be paid on premiums or purchase payments
submitted directly from the proceeds of the surrender of Spectrum Variable
Annuity Contracts issued by Nationwide Life Insurance Company.
COMMISSION CHARGEBACKS
In the event a policy, contract or certificate is returned to Sun Life of Canada
(U.S.) pursuant to the so-called "ten day free look" or "right to return
contract" provision of the policy or contract, the full commission paid thereon
shall be charged back to the Payee. It should be noted that the ten day period
in which any Owner may return the contract commences upon receipt of the
contract by the Owner. If a contract is mailed to the General Agent or
Sub-Agent for the delivery to the owner, such a "ten day free look" must
commence within 30 days after mailing to the General Agent or Sub-Agent, the
General Agent shall be responsible for paying to the Owner any loss in contract
value as a result of late delivery.
With regard to Horizon I & V contracts allocated to the fixed account, in the
event a policy, contract or certificate is fully surrendered during the first
contract year, the full commission paid thereon shall be charged back to the
Payee if the full surrender occurs prior to the date six months preceding the
first contract anniversary and 50% of the commission paid thereon shall be
charged back to the Payee if the full surrender occurs between the date six
months preceding the contract anniversary and the first contract anniversary.
With regard to the HORIZON PLUS contracts, in the event a policy, contract, or
certificate is fully surrendered, commissions will be charged back to the Payee
as follows: All commissions paid on an amount surrendered within six months of
said amount being paid to the Company shall be charged back; 50% of commissions
paid on an amount surrendered after six months, but within twelve months of said
amount being paid to the Company, shall be charged back.
To the extent permitted by law, the amount so charged back may, at the option of
Sun Life of Canada (U.S.), be set off against commission payments otherwise due
to the Payee.
REFUND OF PREMIUMS OR PURCHASE PAYMENTS
Should any premium or purchase payment on any policy, contract, or certificate
issued by Sun Life of Canada (U.S.) be refunded for any reason, Payee shall
repay or return any commissions received by it with respect to such premiums or
purchase payment.
<PAGE>
EXHIBIT B
GENERAL LETTER OF RECOMMENDATION
GENERAL AGENT hereby certifies to Sun Life of Canada (U.S.) that all the
following requirements will be fulfilled in conjunction with the submission
of licensing/appointment papers for all applicants as sub-agents submitted by
GENERAL AGENT. GENERAL AGENT will, upon request, forward proof of compliance
with same to Sun Life of Canada (U.S.) in a timely manner.
1. We have made a thorough and diligent inquiry and investigation relative to
each applicant's identity, residence and business reputation. We declare
that each applicant is known to be of good moral character and that the
individuals's reliability and financial responsibility are documented by
evidence of past performance. Each individual is trustworthy, competent
and qualified to act as an agent of Sun Life of Canada (U.S.) and to hold
himself out in good faith to the general public. We vouch for each
applicant.
2. We certify that all educational requirements have been met for the specific
state each applicant is requesting a license in, and that, all such persons
have fulfilled the appropriate examination, education and training
requirements.
3. We hereby warrant that the applicant is not applying for a license with Sun
Life of Canada (U.S.) in order to place insurance chiefly and solely on his
life or property, lives or property of his relatives, or property or
liability of his associates.
4. We certify that each applicant will receive close and adequate supervision,
and that we will make inspection when needed of any or all risks written by
these applicants, to the end that the insurance interest of the public will
be properly protected.
5. We will not permit any applicant to transact insurance as an agent until
duly licensed therefore. No applicants have been given a contract or
furnished supplies, nor have any applicants been permitted to write,
solicit business, or act as an agent in any capacity, and they will not be
so permitted until the certificate of authority or license applied for is
received.
<PAGE>
EXHIBIT 9
Sun Life Assurance Company of Canada (U.S.)
Sun Life of Canada (U.S.) Variable Account F
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
Re: Registration Statement on Form N-4,
File No. 333-37907
-----------------------------------
Gentlemen and Ladies:
I have acted as counsel to Sun Life Assurance Company of Canada
(U.S.) (the "Company") and Sun Life of Canada (U.S.) Variable Account F (the
"Account") in connection with the above-captioned registration statement (the
"Registration Statement") with respect to the registration of an indefinite
amount of securities in the form of variable annuity contracts (the
"Contracts") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended. In giving this opinion, I have examined the
Registration Statement and have examined such other documents and reviewed
such questions of Delaware law as I considered necessary and appropriate.
Based on such examination and review it is my opinion that:
1. The Company is a corporation duly organized and validly existing
under the laws of the State of Delaware.
2. The Account is a duly organized and existing separate account
established by the Company pursuant to the provisions of 18 Delaware Code
Section 2932.
3. The Contracts when issued in the manner described in the
Registration Statement will be validly issued and will represent binding
obligations of the Company and the Account under Delaware law.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to reference to this opinion under the caption
"Legal Matters" in the prospectus constituting a part of the Registration
Statement.
Very truly yours,
/s/ Margaret Sears Mead, Esq.
January 16, 1998
<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 our report dated February 3,1997
accompanying the statutory 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 report
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
January 16, 1998
<PAGE>
Exhibit 10(b)
CONSENT OF COUNSEL
I hereby consent to the reference to me in Pre-effective Amendment
No. 1 to the Registration Statement on Form N-4 of Sun Life of Canada (U.S.)
Variable Account F under the caption "Legal Matters" in the Prospectus
contained therein.
Margaret Sears Mead, ESQ.
January 16, 1998
