<PAGE>
As Filed with the Securities and Exchange Commission on September 29, 1999
REGISTRATION NO. 333-82957
811-05846
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM N-4
PRE-EFFECTIVE AMENDMENT NO. 1
TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
AND
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
(Exact Name of Registrant)
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Name of Depositor)
ONE SUN LIFE EXECUTIVE PARK
WELLESLEY HILLS, MASSACHUSETTS 02181
(Address of Depositor's Principal Executive Offices)
DEPOSITOR'S TELEPHONE NUMBER: (781) 237-6030
EDWARD M. SHEA, ASSISTANT VICE PRESIDENT AND SENIOR COUNSEL
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
ONE COPLEY PLACE
BOSTON, MASSACHUSETTS 02116
(Name and Address of Agent for Service)
COPIES OF COMMUNICATIONS TO:
JOAN E. BOROS, ESQ.
JORDEN BURT BOROS CICCHETTI BERENSON & JOHNSON LLP
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 400 EAST
WASHINGTON, D.C. 20007-0805
Approximate Date of Proposed Public Offering: Upon the date of effectiveness
or as soon thereafter as practicable.
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 shall thereafter become effective in accordance with Section
8(a) of the Securities Act of 1933 or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a) may determine.
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Attached hereto and made a part hereof is the Prospectus dated September
__, 1999:
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
SEPTEMBER , 1999
PROFILE
FUTURITY ACCOLADE
VARIABLE AND FIXED
ANNUITY
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 ACCOLADE ANNUITY
The Futurity Accolade Annuity is a flexible payment deferred annuity
contract ("Contract") 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: an Accumulation Phase and an Income Phase.
During the Accumulation Phase you make payments into the Contract; any
investment earnings under your Contract accumulate on a tax-deferred basis and
are taxed as income only when withdrawn. During the Income Phase, we make
annuity payments in amounts determined in part by the amount of money you have
accumulated under your Contract during the Accumulation Phase. You choose when
the Income Phase begins.
You may choose among 35 variable investment options and a range of fixed
interest options. For a variable investment return you choose one or more
Sub-Accounts in our Variable Account, each of which invests in shares of a
corresponding mutual fund or series thereof (collectively, the "Funds") listed
in Section 4. The value of any portion of your Contract allocated to the
Sub-Accounts will fluctuate up or down depending on the performance of the Funds
you select, and you may experience losses. For a fixed interest rate, you may
choose one or more Guarantee Periods offered in our Fixed Account, each of which
earns its own Guaranteed Interest Rate if you keep your money in that Guarantee
Period for the specified length of time. In addition, your Contract will be
credited with extra interest at the rate you selected when you applied for the
Contract.
The Contract is designed to meet your need for investment flexibility. At
any time you may have amounts allocated among up to 18 of the available variable
and fixed options. Until we begin making annuity payments under your Contract,
you can, subject to certain limitations, transfer money between options up to 12
times each year without a transfer charge or adverse tax consequences.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
Just as you can elect to have your Contract value accumulate on either a
variable or fixed basis, or a combination of both, you can elect to receive
annuity payments on either a variable or fixed basis or both. If you choose to
have any part of your annuity payments come from the Sub-Accounts, the dollar
amount of your annuity payments may fluctuate.
The Contract offers a variety of annuity options. You can select from
among the following 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 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 10 and
30), with a cash-out option for variable payments. We may also agree to other
annuity options in our discretion.
Once the Income Phase begins, you cannot change your choice of annuity
payment method.
<PAGE>
3. PURCHASING A CONTRACT
You may purchase a Contract for $10,000 or more, under most circumstances.
You may increase the value of your investment by adding $1,000 or more at any
time during the Accumulation Phase. We will not accept a Purchase Payment if
your Account Value is over $1 million, or if the Purchase Payment would cause
your Account Value to exceed $1 million, unless we have approved the Payment in
advance.
4. ALLOCATION OPTIONS
You can allocate your money among Sub-Accounts investing in the following
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
THE ALGER AMERICAN FUND Massachusetts Investors Growth Stock Series
Growth Portfolio Massachusetts Investors Trust Series
Income and Growth Portfolio New Discovery Series
Small Capitalization Portfolio Total Return Series
GOLDMAN SACHS VARIABLE INSURANCE TRUST Utilities Series
VIT CORE Large Cap Growth Fund OCC ACCUMULATION TRUST
VIT CORE Small Cap Equity Fund Equity Portfolio
VIT CORE U.S. Equity Fund Managed Portfolio
VIT Growth and Income Fund Mid Cap Portfolio
VIT International Equity Fund Small Cap Portfolio
J.P. MORGAN SERIES TRUST II SUN CAPITAL ADVISERS TRUST
U.S. Disciplined Equity Portfolio Sun Capital Blue Chip Mid Cap Fund
International Opportunities Portfolio Sun Capital Investors Foundation Fund
Small Company Portfolio Sun Capital Investment Grade Bond Fund
LORD ABBETT SERIES FUND, INC. Sun Capital Money Market Fund
Growth and Income Portfolio Sun Capital Real Estate Fund
Sun Capital Select Equity Fund
</TABLE>
Market conditions will determine the value of an investment in any Fund.
Each Fund is described in the relevant Fund Prospectus.
In addition to these variable options, you may also allocate your money to
one or more of the Guarantee Periods we make available. For each Guarantee
Period, we offer a Guaranteed Interest Rate for the specified length of time.
5. EXPENSES
The charges under the Contracts are as follows:
During the first 5 years of a Contract, we impose an annual Account Fee
equal to the lesser of $35 or 2% of the value of your Contract. After the fifth
year, we may change this fee annually, but it will never exceed the lesser of
$50 or 2% of the value of your Contract. During the Income Phase, the annual
Account Fee is $35. We also deduct insurance charges (which include an
administrative expense charge) equal to 1.45% per year of the average daily
value of the Contract allocated among the Sub-Accounts.
2
<PAGE>
If you elected an optional death benefit rider, we will deduct an
additional charge based upon your age on the date we issued the Contract
("Contract Date"):
<TABLE>
<CAPTION>
ADDITIONAL CHARGE
YOUR AGE ON PER YEAR AS A %
CONTRACT DATE OF THE AVERAGE DAILY VALUE
- ------------------------------ ---------------------------
<S> <C>
less than 70 0.20%
at least 70 but less than 80 0.40%
</TABLE>
No optional death benefit is offered if you are 80 or older.
There are no sales charges when you purchase your Futurity Accolade
Annuity. However, if you withdraw money from your Contract, we will, with
certain exceptions, impose a withdrawal charge. Your Contract allows a "free
withdrawal amount," which you may withdraw before you incur the withdrawal
charge. The rest of your withdrawal is subject to a withdrawal charge equal to a
percentage of each purchase payment you withdraw and is determined in accordance
with the table below. The percentage varies according to the number of Contract
years the purchase payment has been held in your account, including the year in
which you made the Payment, but not the year in which you withdrew it.
<TABLE>
<CAPTION>
NUMBER OF
COMPLETE ACCOUNT
YEARS FROM THE
TIME OF PAYMENT WITHDRAWAL CHARGE
- ----------------- -----------------------
<S> <C>
0 or 1 8%
2 or 3 7%
4 6%
5 5%
6 4%
7 2%
8 1%
More than 8 0%
</TABLE>
If you withdraw, transfer, or annuitize money allocated to a Guarantee
Period more than 30 days before the expiration date of the Guarantee Period, the
amount will be subject to a Market Value Adjustment. This adjustment reflects
the relationship between our current Guaranteed Interest Rates and the
Guaranteed Interest Rate applicable to the amount being withdrawn. Generally, if
your Guaranteed Interest Rate is lower than the relevant current rate, then the
adjustment will decrease your Contract value. Conversely, if your Guaranteed
Interest Rate is higher than the relevant current rate, the adjustment will
increase your Contract value. The Market Value Adjustment will not apply to the
withdrawal of interest credited during the current year, or to transfers as part
of our dollar cost averaging program.
In addition to the charges we impose under the Contracts, there are
charges (which include management fees and operating expenses) imposed by each
Fund, which range from 0.51% to 1.28% of the average net assets of the Fund,
depending upon which Fund you have selected. The investment advisers to some of
the Funds have agreed to waive or reimburse a portion of Fund expenses; without
this agreement, Fund expenses could be higher. Some of these arrangements may be
terminated at any time.
The following chart is designed to help you understand the expenses you
will incur under your Contract, if you invest in one or more of the
Sub-Accounts. The column "Total Annual Expenses" shows the sum of the "Total
Annual Insurance Charges," as defined just above the chart, and the total
expenses (net of any applicable expense reimbursement or fee waiver) for each
Fund. 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 or (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.
3
<PAGE>
"Total Annual Insurance Charges" include the insurance charges of 1.45%,
plus an additional 0.10%, which is used to represent the $35 annual Account Fee
based on an assumed Contract value of $35,000. The actual impact of the Account
Fee may be greater or less than 0.10%, depending upon the value of your
Contract.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL
TOTAL ANNUAL TOTAL ANNUAL TOTAL EXPENSES
INSURANCE SERIES ANNUAL AT END
SUB-ACCOUNT CHARGES* EXPENSES EXPENSES 1 YEAR
- ----------------------------------------------------------- ---------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 1.55% 0.67% 2.22% $ 95
AIM V.I. Growth Fund 1.55% 0.72% 2.27% $ 95
AIM V.I. Growth and Income Fund 1.55% 0.65% 2.20% $ 94
AIM V.I. International Equity Fund 1.55% 0.91% 2.46% $ 97
Alger American Growth Portfolio 1.55% 0.79% 2.34% $ 96
Alger American Income and Growth Portfolio 1.55% 0.70% 2.25% $ 95
Alger American Small Capitalization Portfolio 1.55% 0.89% 2.44% $ 97
Goldman Sachs VIT CORE Large Cap Growth Fund 1.55% 0.80% 2.35% $ 96
Goldman Sachs VIT CORE Small Cap Equity Fund 1.55% 0.90% 2.45% $ 97
Goldman Sachs VIT CORE U.S. Equity Fund 1.55% 0.80% 2.35% $ 96
Goldman Sachs VIT Growth and Income Fund 1.55% 0.90% 2.45% $ 97
Goldman Sachs VIT International Equity Fund 1.55% 1.25% 2.80% $ 100
J.P. Morgan U.S. Disciplined Equity Portfolio 1.55% 0.87% 2.42% $ 97
J.P. Morgan International Opportunities Portfolio 1.55% 1.20% 2.75% $ 100
J.P. Morgan Small Company Portfolio 1.55% 1.15% 2.70% $ 99
Lord Abbett Growth and Income Portfolio 1.55% 0.51% 2.06% $ 93
MFS/Sun Life Capital Appreciation Series 1.55% 0.77% 2.32% $ 96
MFS/Sun Life Emerging Growth Series 1.55% 0.78% 2.33% $ 96
MFS/Sun Life Government Securities Series 1.55% 0.62% 2.17% $ 94
MFS/Sun Life High Yield Series 1.55% 0.82% 2.37% $ 96
MFS/Sun Life Massachusetts Investors Growth Stock Series 1.55% 0.97% 2.52% $ 98
MFS/Sun Life Massachusetts Investors Trust Series 1.55% 0.59% 2.14% $ 94
MFS/Sun Life New Discovery Series 1.55% 1.28% 2.83% $ 101
MFS/Sun Life Total Return Series 1.55% 0.70% 2.25% $ 95
MFS/Sun Life Utilities Series 1.55% 0.86% 2.41% $ 96
OCC Equity Portfolio 1.55% 0.94% 2.49% $ 97
OCC Managed Portfolio 1.55% 0.82% 2.37% $ 96
OCC Mid Cap Portfolio 1.55% 1.05% 2.60% $ 98
OCC Small Cap Portfolio 1.55% 0.88% 2.43% $ 97
Sun Capital Blue Chip Mid Cap Fund 1.55% 1.00% 2.55% $ 98
Sun Capital Investors Foundation Fund 1.55% 0.90% 2.45% $ 97
Sun Capital Investment Grade Bond Fund 1.55% 0.75% 2.30% $ 95
Sun Capital Money Market Fund 1.55% 0.65% 2.20% $ 94
Sun Capital Real Estate Fund 1.55% 1.25% 2.80% $ 100
Sun Capital Select Equity Fund 1.55% 0.90% 2.45% $ 97
<CAPTION>
SUB-ACCOUNT 10 YEARS
- ----------------------------------------------------------- -------------
<S> <C>
AIM V.I. Capital Appreciation Fund $ 255
AIM V.I. Growth Fund $ 261
AIM V.I. Growth and Income Fund $ 253
AIM V.I. International Equity Fund $ 280
Alger American Growth Portfolio $ 268
Alger American Income and Growth Portfolio $ 258
Alger American Small Capitalization Portfolio $ 278
Goldman Sachs VIT CORE Large Cap Growth Fund $ 269
Goldman Sachs VIT CORE Small Cap Equity Fund $ 279
Goldman Sachs VIT CORE U.S. Equity Fund $ 269
Goldman Sachs VIT Growth and Income Fund $ 279
Goldman Sachs VIT International Equity Fund $ 313
J.P. Morgan U.S. Disciplined Equity Portfolio $ 276
J.P. Morgan International Opportunities Portfolio $ 308
J.P. Morgan Small Company Portfolio $ 303
Lord Abbett Growth and Income Portfolio $ 239
MFS/Sun Life Capital Appreciation Series $ 266
MFS/Sun Life Emerging Growth Series $ 267
MFS/Sun Life Government Securities Series $ 250
MFS/Sun Life High Yield Series $ 271
MFS/Sun Life Massachusetts Investors Growth Stock Series $ 286
MFS/Sun Life Massachusetts Investors Trust Series $ 247
MFS/Sun Life New Discovery Series $ 316
MFS/Sun Life Total Return Series $ 258
MFS/Sun Life Utilities Series $ 275
OCC Equity Portfolio $ 283
OCC Managed Portfolio $ 271
OCC Mid Cap Portfolio $ 293
OCC Small Cap Portfolio $ 277
Sun Capital Blue Chip Mid Cap Fund $ 289
Sun Capital Investors Foundation Fund $ 279
Sun Capital Investment Grade Bond Fund $ 264
Sun Capital Money Market Fund $ 253
Sun Capital Real Estate Fund $ 313
Sun Capital Select Equity Fund $ 279
</TABLE>
- ------------------------------
* This figure includes insurance charges of 1.45% plus an additional 0.10% to
represent the $35 annual Account Fee.
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.
4
<PAGE>
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 your
Contract is funded with pre-tax or tax deductible dollars (such as with a
pension or IRA contribution) -- we call this a Qualified Contract -- your entire
withdrawal will be taxable. If you are younger than 59 1/2 when you take money
out, you may be charged a 10% federal penalty tax on the earnings. Annuity
payments during the Income Phase are considered in part a return of your
original investment. That portion of each payment is not taxable, except under a
Qualified Contract, in which case the entire payment will be taxable. In all
cases, you should consult with your tax adviser for specific tax information.
7. ACCESS TO YOUR MONEY
You can withdraw money from your Contract at any time during the
Accumulation Phase. You may withdraw a portion of the value of your Contract in
each year without the imposition of the withdrawal charge -- the greater of (1)
your Contract's earnings in the prior Account Year and (2) 10% of all Purchase
Payments you have made in the last 9 years, plus any Purchase Payment we have
held for at least 9 years. All other purchase payments you withdraw will be
subject to a withdrawal charge ranging from 8% to 0%. You may also be required
to pay income tax and possible tax penalties on any money you withdraw.
We do not assess a withdrawal charge upon annuitization or transfers. In
certain circumstances, we will waive the withdrawal charges for a full or
partial withdrawal when you are confined to an eligible nursing home. In
addition, there may be other circumstances under which we may waive the
withdrawal charge.
In addition to the withdrawal charge, amounts you withdraw, transfer or
annuitize from the Fixed Account before your Guarantee Period has ended may be
subject to a Market Value Adjustment.
8. PERFORMANCE
If you invest in the Variable Account, the value of your Contract will
increase or decrease depending upon the investment performance of the Fund you
choose. The Sub-Accounts have not been in operation for a full calendar year;
therefore no performance information is provided in this Profile.
9. DEATH BENEFIT
If you die before the Contract reaches the Income Phase, the beneficiary
will receive a death benefit. To calculate the death benefit, we use a "Death
Benefit Date", which is the earliest date we have both due proof of death and a
written request specifying the manner of payment.
BASIC DEATH BENEFIT
If you were 85 or younger when we issued your Contract, the death benefit
is the greatest of:
(1) the value of the Contract on the Death Benefit Date;
(2) the amount we would pay in the event of a full surrender of the
Contract on the Death Benefit Date; and
(3) your total Purchase Payments (adjusted for partial withdrawals)
calculated as of the Death Benefit Date.
If you were 86 or older on the date we issued your Contract, the death benefit
is equal to the amount set forth in (2) above.
OPTIONAL DEATH BENEFIT RIDERS
Subject to availability in your state, you may enhance this basic death
benefit rider by electing one of two optional death benefit riders: the Maximum
Anniversary Account Value Rider or the Earnings Enhancement Rider.
5
<PAGE>
MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER
If you elected the Maximum Anniversary Account Value Rider, you must be 79
or younger when we issued your Contract; the death benefit is the greater of:
- any death benefit amounts payable under (1), (2) and (3) above, AND
- your highest Contract value on any Account Anniversary before your 81st
birthday, adjusted for any subsequent purchase payments, partial
withdrawals, and charges made between that Account Anniversary and the
Death Benefit Date.
EARNINGS ENHANCEMENT RIDER
To elect the Earnings Enhancement Rider, you must be 79 or younger when we
issue your Contract. If you were 70 or younger when we issued your Contract, the
death benefit is:
- the greatest of any death benefit amounts payable under (1), (2) and (3),
above PLUS
- 40% of the lesser of your net Purchase Payment and your Account Value
minus net Purchase Payments, calculated as of the Death Benefit Date.
If you elected the Death Benefit Interest Rider and were at least 70 but
less than 80 when we issued your Contract, the death benefit will be:
- the greatest of any death benefit amounts payable under (1), (2) and (3),
above, plus
- 25% of the lesser of your net Purchase Payment and your Account Value
minus net Purchase Payment, calculated as of the Death Benefit Date.
If your spouse is the beneficiary and your spouse elects to continue the
Contract after your death, the benefits under the Earnings Enhancement Rider
will not be payable until the death of your spouse.
10. OTHER INFORMATION
FREE LOOK. Depending upon applicable state law, if you cancel your
Contract within 10 days after receiving it we will send you the value of your
Contract less any Purchase Payment Interest credited as of the day we received
your cancellation request (this may be more or less than the original purchase
payment) and we will not deduct a withdrawal charge. However, if applicable
state or federal law requires, we will refund the full amount of any purchase
payment(s) we receive and the "free look" period may be greater than 10 days.
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? The Contract is designed for those seeking
long-term tax deferred accumulation of assets and annuity features, generally
for retirement or other long-term purposes. The tax-deferred feature is most
attractive to purchasers in high federal and state income tax brackets. You
should note that qualified retirement investments automatically provide tax
deferral regardless of whether the underlying contract is an annuity. You should
not buy a 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 or
an acknowledgment of transactions 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 Accolade Annuity offers the following
additional convenient features, which you may choose at no extra charge.
Dollar Cost Averaging -- This program lets you invest gradually in up to
12 Sub-Accounts.
6
<PAGE>
Asset Allocation -- One or more asset allocation programs may be available
in connection with the Contract. Under this program, we will periodically
re-allocate your investment among certain Sub-Accounts as directed by Sun
Capital Advisers' Asset Allocation Committee.
Systematic Withdrawal Program -- This program allows you to receive
quarterly, semi-annual or annual payments during the Accumulation Phase.
Portfolio Rebalancing Programs -- Under this program, we automatically
reallocate your investments in the Sub-Accounts to maintain the proportions you
select. You can elect rebalancing on a quarterly, semi-annual or annual basis.
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 us at:
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
ANNUITY SERVICE MAILING ADDRESS
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117
TEL: TOLL FREE (888) 786-2435
IN MASSACHUSETTS (617) 348-9600
7
<PAGE>
PROSPECTUS
SEPTEMBER , 1999
FUTURITY ACCOLADE
Sun Life Assurance Company of Canada (U.S.) and Sun Life of Canada (U.S.)
Variable Account F offer the flexible payment deferred annuity contracts and
certificates described in this Prospectus to groups and individuals.
You may choose among 35 variable investment options and a range of fixed
options. The variable options are Sub-Accounts in the Variable Account, each of
which invests in shares of one of the following mutual funds or a 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
THE ALGER AMERICAN FUND Massachusetts Investors Growth Stock Series
Growth Portfolio Massachusetts Investors Trust Series
Income and Growth Portfolio New Discovery Series
Small Capitalization Portfolio Total Return Series
GOLDMAN SACHS VARIABLE INSURANCE TRUST Utilities Series
VIT CORE Large Cap Growth Fund OCC ACCUMULATION TRUST
VIT CORE Small Cap Equity Fund Equity Portfolio
VIT CORE U.S. Equity Fund Managed Portfolio
VIT Growth and Income Fund Mid Cap Portfolio
VIT International Equity Fund Small Cap Portfolio
J.P. MORGAN SERIES TRUST II SUN CAPITAL ADVISERS TRUST
U.S. Disciplined Equity Portfolio Sun Capital Blue Chip Mid Cap Fund
International Opportunities Portfolio Sun Capital Investors Foundation Fund
Small Company Portfolio Sun Capital Investment Grade Bond Fund
LORD ABBETT SERIES FUND, INC. Sun Capital Money Market Fund
Growth and Income Portfolio Sun Capital Real Estate Fund
Sun Capital Select Equity Fund
</TABLE>
The fixed account options are available for specified time periods, called
Guarantee Periods, and pay interest at a guaranteed rate for each period.
PLEASE READ THIS PROSPECTUS AND THE FUND PROSPECTUSES CAREFULLY BEFORE
INVESTING AND KEEP THEM FOR FUTURE REFERENCE. THEY CONTAIN IMPORTANT INFORMATION
ABOUT THE FUTURITY ACCOLADE ANNUITY AND THE FUNDS.
We have filed a Statement of Additional Information dated September ,
1999 (the "SAI") with the Securities and Exchange Commission (the "SEC"), which
is incorporated by reference in this Prospectus. The table of contents for the
SAI is on page 79 of this Prospectus. You may obtain a copy without charge by
writing to our Annuity Service Mailing Address or by telephoning (888) 786-2435
or (617) 348-9600. In addition, the SEC maintains a website (http://www.sec.gov)
that contains the SAI, material incorporated by reference, and other information
regarding companies that file with the SEC.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR 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 US MEANS RECEIPT AT THE FOLLOWING
ADDRESS:
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
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms
Expense Summary
Summary of Contract Expenses
Underlying Fund Annual Expenses
Examples
The Futurity Accolade Annuity
Communicating To Us About Your Contract
Sun Life Assurance Company of Canada (U.S.)
The Variable Account
Variable Account Options: The Funds
The Fixed Account
The Fixed Account Options: The Guarantee Periods
The Accumulation Phase
Issuing Your Contract
Amount and Frequency of Purchase Payments
Allocation of Net Purchase Payments
Your Account
Your Account Value
Purchase Payment Interest
Variable Account Value
Fixed Account Value
Transfer Privilege
Waivers; Reduced Charges; Credits; Bonus Guaranteed Interest Rates
Optional Programs
Withdrawals, Withdrawal Charge and Market Value Adjustment
Cash Withdrawals
Withdrawal Charge
Market Value Adjustment
Contract Charges
Account Fee
Administrative Expense Charge
Mortality and Expense Risk Charge
Charges for Optional Death Benefit Riders
Premium Taxes
Fund Expenses
Modification in the Case of Group Contracts
Death Benefit
Amount of Death Benefit
Method of Paying Death Benefit
Non-Qualified Contracts
Selection and Change of Beneficiary
Payment of Death Benefit
Due Proof of Death
The Income Phase -- Annuity Provisions
Selection of the Annuitant or Co-Annuitant
Selection of the Annuity Commencement Date
Annuity Options
Selection of Annuity Option
Amount of Annuity Payments
Exchange of Variable Annuity Units
Account Fee
Annuity Payment Rates
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Annuity Options as Method of Payment for Death Benefit
Other Contract Provisions
Exercise of Contract Rights
Change of Ownership
Voting of Fund Shares
Periodic Reports
Substitution of Securities
Change in Operation of Variable Account
Splitting Units
Modification
Discontinuance of New Participants
Reservation of Rights
Right to Return
Federal Tax Status
Introduction
Deductibility of Purchase Payments
Pre-Distribution Taxation of Contracts
Distributions and Withdrawals from Non-Qualified Contracts
Distribution and Withdrawals from Qualified Contracts
Withholding
Purchase of Immediate Annuity Contract and Deferred Annuity Contract
Investment Diversification and Control
Tax Treatment of the Company and the Variable Account
Qualified Retirement Plans
Pension and Profit-Sharing Plans
Tax-Sheltered Annuities
Individual Retirement Accounts
Roth IRAs
Administration of the Contracts
Distribution of the Contracts
Performance Information
Available Information
Incorporation of Certain Documents by Reference
Additional Information About the Company
Business of the Company
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Demutualization
Year 2000 Compliance
Sale of Subsidiary
Quantitative and Qualitative Disclosures About Market Risk
Reinsurance
Reserves
Investments
Competition
Employees
Properties
State Regulation
Legal Proceedings
Accountants
Financial Statements
Table of Contents of Statement of Additional Information
Appendix A -- Glossary
Appendix B -- Withdrawals, Withdrawal Charges and the Market Value Adjustment
</TABLE>
3
<PAGE>
SPECIAL TERMS
Your Contract is a legal document that uses a number of specially defined
terms. We explain most of the terms that we use in this Prospectus in the
context where they arise, and some are self-explanatory. In addition, for
convenient reference, we have compiled a list of these terms in the Glossary
included at the back of this Prospectus as Appendix A. If, while you are reading
this Prospectus, you come across a term that you do not understand, please refer
to the Glossary for an explanation.
EXPENSE SUMMARY
The purpose of the following table is to help you understand the costs and
expenses that you will bear directly and indirectly under a Contract WHEN YOU
ALLOCATE MONEY TO THE VARIABLE ACCOUNT. The table reflects expenses of the
Variable Account as well as of each Fund. The table should be considered
together with the narrative provided under the heading "Contract Charges" in
this Prospectus, and with the Funds' prospectuses. In addition to the expenses
listed below, we may deduct premium taxes.
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
TRANSACTION EXPENSES
Sales Load Imposed on Purchase Payments............................................ $ 0
Deferred Sales Load (as a percentage of Purchase Payments withdrawn) (1)
Number of Complete Account Years Purchase Payment in Account
0 or 1......................................................................... 8%
2 or 3......................................................................... 7%
4.............................................................................. 6%
5.............................................................................. 5%
6.............................................................................. 4%
7.............................................................................. 2%
8.............................................................................. 1%
More than 8.................................................................... 0%
Transfer Fee (2)................................................................... $ 0
ANNUAL ACCOUNT FEE per Contract or Certificate (3) $ 35
VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of average Variable Account
assets)
Mortality and Expense Risk Charge................................................ 1.30%
Administrative Expense Charge.................................................... 0.15%
Other Fees and Expenses of the Variable Account.................................. 0.00%
-----
Total Variable Account Annual Expenses............................................. 1.45%
</TABLE>
- ------------------------
(1) A portion of your Account may be withdrawn each year without imposition of
any withdrawal charge, and after a Purchase Payment has been in your Account
for 9 Account Years it may be withdrawn free of the withdrawal charge.
(2) A Market Value Adjustment may be imposed on amounts transferred from or
within the Fixed Account.
(3) The Annual Account Fee is the lesser of $35 and 2% of your Account Value in
Account Years 1 through 5; thereafter, the fee may be changed annually, but
it may not exceed the lesser of $50 and 2% of your Account Value.
(4) An additional charge will apply if you elect one of the optional death
benefit riders. For more information refer to "Charges for Optional Death
Benefit Riders."
4
<PAGE>
UNDERLYING FUND ANNUAL EXPENSES (1)
(AS A PERCENTAGE OF FUND NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER ANNUAL
FEES (AFTER EXPENSES (AFTER EXPENSES (AFTER
REIMBURSEMENT)(2) REIMBURSEMENT)(2) REIMBURSEMENT)(2)
------------------- ------------------- -------------------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund....................... 0.62% 0.05% 0.67%
AIM V.I. Growth Fund..................................... 0.64% 0.08% 0.72%
AIM V.I. Growth and Income Fund.......................... 0.61% 0.04% 0.65%
AIM V.I. International Equity Fund....................... 0.75% 0.16% 0.91%
Alger American Growth Portfolio.......................... 0.75% 0.04% 0.79%
Alger American Income and Growth Portfolio............... 0.62% 0.08% 0.70%
Alger American Small Capitalization Portfolio............ 0.85% 0.04% 0.89%
Goldman Sachs VIT CORE Large Cap Growth Fund(3).......... 0.70% 0.10% 0.80%
Goldman Sachs VIT CORE Small Cap Equity Fund(3).......... 0.75% 0.15% 0.90%
Goldman Sachs VIT CORE U.S. Equity Fund(3)............... 0.70% 0.10% 0.80%
Goldman Sachs VIT Growth and Income Fund(3).............. 0.75% 0.15% 0.90%
Goldman Sachs VIT International Equity Fund(3)........... 1.00% 0.25% 1.25%
J.P. Morgan U.S. Disciplined Equity Portfolio(4)......... 0.35% 0.52% 0.87%
J.P. Morgan International Opportunities Portfolio(4)..... 0.60% 0.60% 1.20%
J.P. Morgan Small Company Portfolio(4)................... 0.60% 0.55% 1.15%
Lord Abbett Growth and Income Portfolio.................. 0.50% 0.01% 0.51%
MFS/Sun Life Capital Appreciation Series................. 0.73% 0.04% 0.77%
MFS/Sun Life Emerging Growth Series...................... 0.72% 0.06% 0.78%
MFS/Sun Life Government Securities Series................ 0.55% 0.07% 0.62%
MFS/Sun Life High Yield Series........................... 0.75% 0.07% 0.82%
MFS/Sun Life Massachusetts Investors Growth Stock
Series.................................................. 0.75% 0.22% 0.97%
MFS/Sun Life Massachusetts Investors Trust Series........ 0.55% 0.04% 0.59%
MFS/Sun Life New Discovery Series(5)..................... 0.90% 0.38% 1.28%
MFS/Sun Life Total Return Series......................... 0.65% 0.05% 0.70%
MFS/Sun Life Utilities Series............................ 0.75% 0.11% 0.86%
OCC Equity Portfolio(6).................................. 0.80% 0.14% 0.94%
OCC Managed Portfolio(6)................................. 0.78% 0.04% 0.82%
OCC Mid Cap Portfolio(6)................................. 0.00% 1.05% 1.05%
OCC Small Cap Portfolio(6)............................... 0.80% 0.08% 0.88%
Sun Capital Blue Chip Mid Cap Fund(3)(8)................. 0.80% 0.20% 1.00%
Sun Capital Investors Foundation Fund(3)(8).............. 0.75% 0.15% 0.90%
Sun Capital Investment Grade Bond Fund(3)(7)............. 0.60% 0.15% 0.75%
Sun Capital Money Market Fund(3)(7)...................... 0.50% 0.15% 0.65%
Sun Capital Real Estate Fund(3)(7)....................... 0.95% 0.30% 1.25%
Sun Capital Select Equity Fund(3)(8)..................... 0.75% 0.15% 0.90%
</TABLE>
5
<PAGE>
- ------------------------
(1) The information relating to Fund expenses was provided by the Funds and we
have not independently verified it. You should consult the Fund prospectuses
for more information about Fund expenses.
(2) For all Funds except the Sun Capital Blue Chip Mid Cap Fund, Sun Capital
Investors Foundation Fund and the Sun Capital Select Equity Fund, the
"Management Fees," "Other Expenses" and "Total Fund Annual Expenses" are
based on actual expenses for the fiscal year ended December 31, 1998, net of
any applicable expense reimbursement or waiver. Expense figures shown for
the Sun Capital Blue Chip Mid Cap Fund, the Sun Capital Investors Foundation
Fund and the Sun Capital Select Equity Fund are estimates for 1999, based on
the applicable expense reimbursement waiver; no actual expenses are shown
because these Funds will commence operations in September 1999.
(3) 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
Annual Expenses" for the year ended December 31, 1998 were: 0.70%, 2.17%,
and 2.87% for the Goldman Sachs VIT CORE Large Cap Growth Fund; 0.75%,
3.17%, and 3.92% for the Goldman Sachs VIT CORE Small Cap Equity Fund;
0.70%, 2.13%, and 2.83% for the Goldman Sachs VIT CORE U.S. Equity Fund;
0.75%, 1.94%, and 2.69% for the Goldman Sachs VIT Growth and Income Fund;
1.00%, 1.97%, and 2.97% for the Goldman Sachs VIT International Equity Fund;
0.60%, 3.50% and 4.10% for the Sun Capital Investment Grade Bond Fund;
0.50%, 11.79% and 12.29% for the Sun Capital Money Market Fund; and 0.95%,
6.49% and 7.44% for the Sun Capital Real Estate Fund. Estimated total
operating expenses (annualized, before expense limitations) for the Sun
Capital Blue Chip Mid Cap Fund, the Sun Capital Investors Foundation Fund
and the Sun Capital Select Equity Fund for the year ending December 31, 1999
are 5.85%, 5.80%, and 5.80%, respectively. Fee waivers and expense
reimbursements for the Goldman Sachs Funds may be discontinued at any time.
Fee waivers and expense reimbursements for the Sun Capital Funds may be
discontinued at any time after September 1, 2000.
(4) An affiliate of the adviser has agreed to reimburse the Funds, to the extent
certain expenses exceed the following percentages of the Fund's daily net
assets during fiscal year 1999: 0.90% for the J.P. Morgan U.S. Disciplined
Equity Portfolio, 1.20% for the J.P. Morgan International Opportunities
Portfolio, and 1.15% for the J.P. Morgan Small Company Portfolio. Absent
this reimbursement, "Total Fund Annual Expenses" would have been 1.48% for
the J.P. Morgan U.S. Disciplined Equity Portfolio, 3.26% for the J.P. Morgan
International Opportunities Portfolio, and 3.43% for the J.P. Morgan Small
Company Portfolio.
(5) The Fund's adviser has agreed to bear the Fund's expenses, excluding
management fees, taxes, extraordinary expenses and brokerage and transaction
costs, in excess of 0.35% of the annual percentage of the Fund's average
daily net assets. Absent the fee waiver and/or expense reimbursement, Other
Expenses would have been 0.70% and Total Fund Annual Expenses would have
been 1.60%. These arrangements will remain in effect until at least May 1,
2000, absent an earlier modification by the Fund's Board of Trustees.
(6) Total Fund Annual Expenses for the OCC Equity Portfolio, the OCC Small Cap
Portfolio, the OCC Managed Portfolio and the OCC Mid Cap Portfolio are
limited contractually by OpCap Advisers so that the Funds' respective
annualized operating expenses (net of expense offsets) do not exceed 1% of
average daily net assets. Absent this limit, "Management Fees", "Other
Expenses" and "Total Expenses" were 0.80%, 3.48%, and 4.28% for the OCC Mid
Cap Portfolio. "Other Expenses" are shown gross of expense offsets afforded
the portfolio, which effectively lowered custody expenses.
(7) To the extent that the expense ratio of any Fund in the Sun Capital Advisers
Trust falls below the Fund's expense limit, the Fund's adviser reserves the
right to be reimbursed for management fees waived and Fund expenses paid by
it during the prior two years.
(8) The management fee for each of the Sun Capital Blue Chip Mid Cap Fund, the
Sun Capital Investors Foundation Fund, and the Sun Capital Select Equity
Fund decreases to 0.75%, 0.70%, and 0.70%, respectively, as the assets of
such Fund exceed $300 million.
6
<PAGE>
EXAMPLES
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund........................................ $ 95 $ 132 $ 173 $ 255
AIM V.I. Growth Fund...................................................... 95 134 176 261
AIM V.I. Growth and Income Fund........................................... 94 132 172 253
AIM V.I. International Equity Fund........................................ 97 140 185 280
Alger American Growth Portfolio........................................... 96 136 179 268
Alger American Income and Growth Portfolio................................ 95 133 174 258
Alger American Small Capitalization Portfolio............................. 97 139 184 278
Goldman Sachs VIT CORE Large Cap Growth Fund.............................. 96 136 180 269
Goldman Sachs VIT CORE Small Cap Equity Fund.............................. 97 139 185 279
Goldman Sachs VIT CORE U.S. Equity Fund................................... 96 136 180 269
Goldman Sachs VIT Growth and Income Fund.................................. 97 139 185 279
Goldman Sachs VIT International Equity Fund............................... 100 150 202 313
J.P. Morgan U.S. Disciplined Equity Portfolio............................. 97 138 183 276
J.P. Morgan International Opportunities Portfolio......................... 100 148 199 308
J.P. Morgan Small Company Portfolio....................................... 99 147 197 303
Lord Abbett Growth and Income Portfolio................................... 93 128 165 239
MFS/Sun Life Capital Appreciation Series.................................. 96 135 178 266
MFS/Sun Life Emerging Growth Series....................................... 96 136 179 267
MFS/Sun Life Government Securities Series................................. 94 131 170 250
MFS/Sun Life High Yield Series............................................ 96 137 181 271
MFS/Sun Life Massachusetts Investors Growth Stock Series.................. 98 141 188 286
MFS/Sun Life Massachusetts Investors Trust Series......................... 94 130 169 247
MFS/Sun Life New Discovery Series......................................... 101 151 203 316
MFS/Sun Life Total Return Series.......................................... 95 133 174 258
MFS/Sun Life Utilities Series............................................. 96 138 183 275
OCC Equity Portfolio...................................................... 97 141 187 283
OCC Managed Portfolio..................................................... 96 137 181 271
OCC Mid Cap Portfolio..................................................... 98 144 192 293
OCC Small Cap Portfolio................................................... 97 139 184 277
Sun Capital Blue Chip Mid Cap Fund........................................ 98 142 190 289
Sun Capital Investors Foundation Fund..................................... 97 139 185 279
Sun Capital Investment Grade Bond Fund.................................... 95 135 177 264
Sun Capital Money Market Fund............................................. 94 132 172 253
Sun Capital Real Estate Fund.............................................. 100 150 202 313
Sun Capital Select Equity Fund............................................ 97 139 185 279
</TABLE>
7
<PAGE>
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund........................................ $ 23 $ 69 $ 119 $ 255
AIM V.I. Growth Fund...................................................... 23 71 122 261
AIM V.I. Growth and Income Fund........................................... 22 69 118 253
AIM V.I. International Equity Fund........................................ 25 77 131 280
Alger American Growth Portfolio........................................... 24 73 125 268
Alger American Income and Growth Portfolio................................ 23 70 120 258
Alger American Small Capitalization Portfolio............................. 25 76 130 278
Goldman Sachs VIT CORE Large Cap Growth Fund.............................. 24 73 126 269
Goldman Sachs VIT CORE Small Cap Equity Fund.............................. 25 76 131 279
Goldman Sachs VIT CORE U.S. Equity Fund................................... 24 73 126 269
Goldman Sachs VIT Growth and Income Fund.................................. 25 76 131 279
Goldman Sachs VIT International Equity Fund............................... 28 87 148 313
J.P. Morgan U.S. Disciplined Equity Portfolio............................. 25 75 129 276
J.P. Morgan International Opportunities Portfolio......................... 28 85 145 308
J.P. Morgan Small Company Portfolio....................................... 27 84 143 303
Lord Abbett Growth and Income Portfolio................................... 21 65 111 239
MFS/Sun Life Capital Appreciation Series.................................. 24 72 124 266
MFS/Sun Life Emerging Growth Series....................................... 24 73 125 267
MFS/Sun Life Government Securities Series................................. 22 68 116 250
MFS/Sun Life High Yield Series............................................ 24 74 127 271
MFS/Sun Life Massachusetts Investors Growth Stock Series.................. 26 78 134 286
MFS/Sun Life Massachusetts Investors Trust Series......................... 22 67 115 247
MFS/Sun Life New Discovery Series......................................... 29 88 149 316
MFS/Sun Life Total Return Series.......................................... 23 70 120 258
MFS/Sun Life Utilities Series............................................. 24 75 129 275
OCC Equity Portfolio...................................................... 25 78 133 283
OCC Managed Portfolio..................................................... 24 74 127 271
OCC Mid Cap Portfolio..................................................... 26 81 138 293
OCC Small Cap Portfolio................................................... 25 76 130 277
Sun Capital Blue Chip Mid Cap Fund........................................ 26 79 136 289
Sun Capital Investors Foundation Fund..................................... 25 76 131 279
Sun Capital Investment Grade Bond Fund.................................... 23 72 123 264
Sun Capital Money Market Fund............................................. 22 69 118 253
Sun Capital Real Estate Fund.............................................. 28 87 148 313
Sun Capital Select Equity Fund............................................ 25 76 131 279
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED TO BE REPRESENTATIONS OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LOWER THAN THOSE SHOWN.
8
<PAGE>
THE FUTURITY ACCOLADE ANNUITY
Sun Life Assurance Company of Canada (U.S.) (the "Company", "we" or "us")
and Sun Life of Canada (U.S.) Variable Account F (the "Variable Account") offer
the Futurity Accolade Annuity to groups and individuals for use in connection
with their retirement plans. The Contracts are available on a group basis and,
in certain states, may be available on an individual basis. We issue an
Individual Contract directly to the individual owner of the Contract. We issue a
Group Contract to the Owner covering all individuals participating under the
Group Contract. Each individual receives a Certificate that evidences his or her
participation under the Group Contract.
In this Prospectus, unless we state otherwise, we refer to both the owners
of Individual Contracts and participating individuals under Group Contracts as
"Participants" and we address all those Participants as "you"; we use the term
"Contracts" to include Individual Contracts, Group Contracts and Certificates
issued under Group Contracts. For the purpose of determining benefits under both
Individual Contracts and Group Contracts, we establish an Account for each
Participant, which we will refer to as "your" Account or a "Participant
Account."
The Contract provides a number of important benefits for your retirement
planning. It has an Accumulation Phase, during which you make payments under the
Contract and allocate them to one or more Variable Account or Fixed Account
options, and an Income Phase, during which we make payments based on the amount
you have accumulated. The Contract provides tax deferral, so that you do not pay
taxes on your earnings under the Contract until you withdraw them. It provides a
death benefit if you die during the Accumulation Phase. Finally, if you so
elect, during the Income Phase we will make payments to you or someone else for
life or for another period that you choose.
You choose these benefits on a variable or fixed basis or a combination of
both. When you choose variable investment options or a Variable Annuity option,
your benefits will be responsive to changes in the economic environment,
including inflationary forces and changes in rates of return available from
different types of investments. With these options, you assume all investment
risk under the Contract. When you choose a Guarantee Period in our Fixed Account
or a Fixed Annuity option, we assume the investment risk, except in the case of
early withdrawals, where you bear the risk of unfavorable interest rate changes.
You also bear the risk that the interest rates we will offer in the future and
the rates we will use in determining your Fixed Annuity may not exceed our
minimum guaranteed rate, which is 3% per year, compounded annually.
The Contracts are designed for use in connection with retirement and
deferred compensation plans, some of which qualify for favorable federal income
tax treatment under Sections 401, 403, 408 or 408A of the Internal Revenue Code.
The Contracts are also designed so that they 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. We refer to Contracts used with plans that receive favorable tax treatment
as "Qualified Contracts," and all others as "Non-Qualified Contracts."
COMMUNICATING TO US ABOUT YOUR CONTRACT
All materials sent to us, including Purchase Payments, must be sent to our
Annuity Service Mailing Address set forth on the first page of this Prospectus.
For all telephone communications, you must call (888) 786-2435 or (617)
348-9600.
Unless this Prospectus states differently, we will consider all materials
sent to us and all telephone communications to be received on the date we
actually receive them at the Annuity Service Mailing Address. However, we will
consider Purchase Payments, withdrawal requests and transfer instructions to be
received on the next Business Day if we receive them (1) on a day that is not a
Business Day or (2) after 4:00 p.m., Eastern Time.
When we specify that notice to us must be in writing, we reserve the
right, in our sole discretion, to accept notice in another form.
9
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
We are a stock life insurance company incorporated under the laws of
Delaware on January 12, 1970. We do business in 48 states, the District of
Columbia, and Puerto Rico, and we have an insurance company subsidiary that does
business in New York. Our Executive Office mailing address is One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02481.
We are an indirect wholly-owned subsidiary of Sun Life Assurance Company
of Canada ("Sun Life (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 U.S. states (except New York), the District of Columbia, Puerto Rico, the
Virgin Islands, Great Britain, Ireland, Hong Kong, Bermuda and the Philippines.
THE VARIABLE ACCOUNT
We established the Variable Account as a separate account on July 13,
1989, pursuant to a resolution of our 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
other variable annuity contracts that provide benefits that 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 we conduct, all obligations arising under the
Contracts, including the promise to make annuity payments, are general corporate
obligations of the Company.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of a specific Fund. All amounts
allocated to the Variable Account will be used to purchase Fund shares as
designated by you at their net asset value. Any and all distributions made by
the Fund with respect to the shares held by the Variable Account will be
reinvested to purchase additional shares at their net asset value. Deductions
will be made 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,
administrative expenses and any applicable taxes. The Variable Account will be
fully invested in Fund shares at all times.
VARIABLE ACCOUNT OPTIONS:
THE FUNDS
The Contract offers Sub-Accounts that invest in 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 ABOUT THE FUNDS, INCLUDING A DISCUSSION OF
THEIR MANAGEMENT, INVESTMENT OBJECTIVES, EXPENSES, AND POTENTIAL RISKS, IS FOUND
IN THE CURRENT PROSPECTUSES FOR THE FUNDS (THE "FUND PROSPECTUSES"). THE FUND
PROSPECTUSES SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS BEFORE YOU
INVEST. A COPY OF EACH FUND PROSPECTUS, AS WELL AS A STATEMENT OF ADDITIONAL
INFORMATION FOR EACH FUND, MAY BE OBTAINED WITHOUT CHARGE FROM THE COMPANY BY
CALLING 1-888-388-8748 (617-348-9600, IN MASSACHUSETTS) 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 A I M Advisors, Inc.)
AIM V.I. CAPITAL APPRECIATION FUND seeks growth of capital through
investment in common stocks, with emphasis on medium- and small-sized
growth companies.
AIM V.I. GROWTH FUND seeks growth of capital primarily by investing in
seasoned and better capitalized companies considered to have strong
earnings momentum.
10
<PAGE>
AIM V.I. GROWTH AND INCOME FUND seeks growth of capital with a secondary
objective of current income.
AIM V.I. INTERNATIONAL EQUITY FUND seeks to provide long-term growth of
capital by investing in a diversified portfolio of international equity
securities whose issuers are considered 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 which have 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. It invests primarily in the equity securities of small
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 VIT 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 VIT 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 VIT 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 VIT 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 VIT 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 U.S. DISCIPLINED EQUITY PORTFOLIO (formerly, the J.P. Morgan
Equity Portfolio) seeks to provide a high total return from a portfolio 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 companies.
J.P. MORGAN SMALL COMPANY PORTFOLIO seeks to provide a high total return
from a portfolio of small company stocks.
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.
11
<PAGE>
MFS/SUN LIFE SERIES TRUST (advised by Massachusetts Financial Services Company,
an affiliate of the Company)
CAPITAL APPRECIATION SERIES will seek to maximize capital appreciation by
investing in securities of all types, with major emphasis on common stocks.
EMERGING GROWTH SERIES will seek long-term growth of capital.
GOVERNMENT SECURITIES SERIES will seek current income and preservation of
capital by investing in U.S. Government and U.S. Government-related
securities.
HIGH YIELD SERIES will seek high current income and capital appreciation by
investing primarily in certain low rated or unrated fixed income securities
(possibly with equity features) of U.S. and foreign issuers (also known as
"junk bonds").
MASSACHUSETTS INVESTORS GROWTH STOCK SERIES will seek to provide long-term
growth of capital and future income rather than current income.
MASSACHUSETTS INVESTORS TRUST SERIES will seek long-term growth of capital
and future income while providing more current dividend income than is
normally obtainable from a portfolio of only growth stocks.
NEW DISCOVERY SERIES will seek capital appreciation.
TOTAL RETURN SERIES will primarily seek to obtain above-average income
(compared to a portfolio entirely invested in equity securities) consistent
with prudent employment of capital; its secondary objective is to take
advantage of opportunities for growth of capital and income since many
securities offering a better than average yield may also possess growth
potential.
UTILITIES SERIES will seek capital growth and current income (income above
that available from a portfolio invested entirely in equity securities) by
investing under normal market conditions, at least 65% of its assets in
equity and debt securities of both domestic and foreign companies in the
utilities industry.
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.
MANAGED PORTFOLIO seeks to achieve growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary based on the portfolio
manager's assessments of the relative outlook for such investments.
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.
SUN CAPITAL ADVISERS TRUST (advised by Sun Capital Advisers, Inc., an affiliate
of the Company; Wellington Management Company, LLP serves as investment
subadviser to Sun Capital Blue Chip Mid Cap Fund, Sun Capital Investors
Foundation Fund and Sun Capital Select Equity Fund)
SUN CAPITAL BLUE CHIP MID CAP FUND seeks long-term capital growth by
investing primarily in a diversified portfolio of common stocks and other
equity securities of U.S. companies with market capitalizations within the
range represented by the Standard & Poor's Mid Cap 400 Index.
SUN CAPITAL INVESTORS FOUNDATION FUND seeks long-term capital growth by
investing primarily in a diversified portfolio of common stocks and other
equity securities of U.S. companies with
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market capitalizations generally within the range represented by the
Standard & Poor's 500 Index. Investments are selected using a combination
of fundamental analysis and quantitative tools.
SUN CAPITAL INVESTMENT GRADE BOND FUND seeks high current income consistent
with relative stability of principal by investing at least 80% of its
assets in investment grade bonds. The Fund may invest up to 20% of its
assets in lower rated or unrated bonds (also known as high yield or junk
bonds).
SUN CAPITAL MONEY MARKET FUND seeks to maximize current income, consistent
with maintaining liquidity and preserving capital, by investing exclusively
in high quality U.S. dollar-denominated money market securities.
SUN CAPITAL REAL ESTATE FUND primarily seeks long-term capital growth and,
secondarily, seeks current income and growth of income. The Fund invests at
least 80% of its assets in securities of real estate investment trusts and
other real estate companies.
SUN CAPITAL SELECT EQUITY FUND seeks long-term capital growth by investing
in 20 to 40 common stocks and other equity securities of large
capitalization U.S. companies selected primarily from the Standard & Poor's
500 Index.
The Funds may also be available to registered separate accounts offering
variable annuity and variable life products of other affiliated and unaffiliated
insurance companies, as well as to the Variable Account and other separate
accounts of the Company. Although we do not anticipate any disadvantages to
this, there is a possibility that a material conflict may arise between the
interests 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, we
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.
Certain of the investment advisers to the Funds may reimburse us for
administrative costs in connection with administering the Funds as options under
the Contracts. These amounts are not charged to the Funds or Participants, but
are paid from assets of the advisers.
Certain publically available mutual funds may have similar investment
goals and principal investment policies and risks as one or more of the Funds,
and may be managed by a Fund's portfolio managers(s). While a Fund may have many
similarities to these other funds, its investment performance will differ from
their investment performance. This is due to a number of differences between a
Fund and these similar products, including differences in sales charges, expense
ratios and cash flows.
THE FIXED ACCOUNT
The Fixed Account is made up of all the general assets of the Company
other than those allocated to any separate account. Amounts you allocate to
Guarantee Periods become part of the Fixed Account, and are available to fund
the claims of all classes of our customers, including claims for benefits under
the Contracts.
We will invest the assets of the Fixed Account in those assets we choose
that are allowed by applicable state insurance laws. 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. We intend to invest primarily in investment-grade fixed
income securities (i.e. rated by a nationally recognized rating service within
the four highest grades) or instruments we believe are of comparable quality. We
are 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. You will not have a direct or indirect interest in the Fixed Account
investments.
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THE FIXED ACCOUNT OPTIONS:
THE GUARANTEE PERIODS
You may elect one or more Guarantee Period(s) from those we make available
from time to time. We publish Guaranteed Interest Rates for each Guarantee
Period offered. We may change the Guaranteed Interest Rates we offer from time
to time, but no Guaranteed Interest Rate will ever be less than 3% per year,
compounded annually. Also, once we have accepted your allocation to a particular
Guarantee Period, we promise that the Guaranteed Interest Rate applicable to
that allocation will not change for the duration of the Guarantee Period.
We determine Guaranteed Interest Rates in our discretion. We do not have a
specific formula for establishing the rates for different Guarantee Periods. Our
determination will be influenced by the interest rates on fixed income
investments in which we may invest with amounts allocated to the Guarantee
Periods. We will also consider other factors in determining these rates,
including regulatory and tax requirements, sales commissions and administrative
expenses borne by us, general economic trends and competitive factors. We cannot
predict the level of future interest rates.
We may from time to time in our discretion offer interest rate specials
for new Purchase Payments that are higher than the rates we are then offering
for renewals or transfers.
Early withdrawals from your allocation to a Guarantee Period, including
cash withdrawals, transfers, and commencement of an annuity, may be subject to a
Market Value Adjustment, which could decrease or increase the value of your
Account. See "Cash Withdrawals, Withdrawal Charge, and Market Value Adjustment."
THE ACCUMULATION PHASE
During the Accumulation Phase of your Contract, you make payments into
your Account, and your earnings accumulate on a tax-deferred basis. The
Accumulation Phase begins with our acceptance of your first Purchase Payment and
ends the Business Day before your Annuity Commencement Date. The Accumulation
Phase will end sooner if you surrender your Contract or die before the Annuity
Commencement Date.
ISSUING YOUR CONTRACT
When you purchase a Contract, a completed Application and the initial
Purchase Payment are sent to us for acceptance. When we accept an Individual
Contract, we issue the Contract to you. When we accept a Group Contract, we
issue the Contract to the Owner; we issue a Certificate to you as a Participant
when we accept your Application.
We will credit your initial Purchase Payment to your Account within two
business days of receiving your completed Application. If your Application is
not complete, we will notify you. If we do not have the necessary information to
complete the Application within 5 business days, we will send your money back to
you or ask your permission to retain your Purchase Payment until the Application
is made complete. Then we will apply the Purchase Payment within 2 business days
of when the Application is complete.
AMOUNT AND FREQUENCY OF PURCHASE PAYMENTS
The amount of Purchase Payments may vary; however, we will not accept an
initial Purchase Payment of less than $10,000, and each additional Purchase
Payment must be at least $1,000, unless we waive these limits. In addition, we
will not accept a Purchase Payment if your Account Value is over $1 million, or
if the Purchase Payment would cause your Account Value to exceed $1 million,
unless we have approved the Payment in advance. Within these limits, you may
make Purchase Payments at any time during the Accumulation Phase.
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ALLOCATION OF NET PURCHASE PAYMENTS
You may allocate your Purchase Payments among the different Sub-Accounts
and Guarantee Periods we offer. At any time, you may have amounts allocated
among up to 18 of the available options.
In your Application, you may specify the percentage of each Purchase
Payment to be allocated to each Sub-Account or Guarantee Period. These
percentages are called your allocation factors. You may change the allocation
factors for future Payments by sending us written notice of the change, on our
required form. We will use your new allocation factors for the first Purchase
Payment we receive with or after we have received notice of the change, and for
all future Purchase Payments, until we receive another change notice.
Although it is currently not our practice, we may deduct applicable
premium or similar taxes from your Purchase Payments. See "Contract Charges --
Premium Taxes." In that case, we will credit your Net Purchase Payment, which is
the Purchase Payment minus the amount of those taxes.
YOUR ACCOUNT
When we accept your first Purchase Payment, we establish an Account for
you, which we maintain throughout the Accumulation Phase of your Contract.
YOUR ACCOUNT VALUE
Your Account Value is the sum of the value of the two components of your
Contract: the Variable Account portion of your Contract ("Variable Account
Value") and the Fixed Account portion of your Contract ("Fixed Account Value").
These two components are calculated separately, as described below.
PURCHASE PAYMENT INTEREST
We will credit your Contract with interest at the rate you selected when
you applied for the Contract. Currently, we offer two interest rate options:
OPTION A: THE 2%/FIVE-YEAR ANNIVERSARY INTEREST OPTION: Under this option,
we will credit your Contract with interest at a rate of 2% of each Purchase
Payment received prior to the first Account Anniversary. In addition, if you
chose this option, we will credit your Contract with interest at a rate of
2% of your Contract Value at the end of every Fifth-Year Anniversary.
OPTION B: THE 3%/4% INTEREST OPTION: Under this option, we will credit your
Contract with interest at 3% of each Purchase Payment IF the sum of all
Purchase Payments, reduced by the sum of all withdrawals, (your "Principal")
is less than $100,000 on the day we receive the Purchase Payment, and 4% of
each Purchase Payment if your Principal is $100,000 or more on the day we
receive the Purchase Payment.
If you choose this option, there may be an additional credit paid at the end
of the first Account Year. If your Principal at the end of your first
Account Year is greater than or equal to $100,000, and some of your Purchase
Payment(s) received a credit of 3% (rather than 4%), then an additional 1%
will be paid on the amount of Purchase Payment(s) that received a 3% credit.
For example, if you deposit $80,000 at issue, deposit $70,000 two months
later, and then withdraw $30,000 two months after that, you will receive (in
the first Account Year) a total Purchase Payment Interest credit of $5700.
The amount would be determined as follows:
- a credit of 3% on the initial deposit of $80,000, which equals $2400,
plus
- a credit of 4% on the additional deposit of $70,000, which equal
$2800, plus
- a credit of 1% on the first Account Year Principal amount that only
received 3% ($80,000 - $30,000 = $50,000), which equals $500.
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We credit Purchase Payment Interest during the same Valuation Period in
which we receive the Purchase Payment. We allocate the Purchase Payment Interest
to the Sub-Accounts and/or the Guarantee Periods in the same proportion as the
Net Purchase Payment is allocated. For any additional 1% interest under Option
(B) or any Five-Year Anniversary Credit under Option (A), we allocate the credit
on a pro-rata basis to all Sub-Accounts and/or Guarantee Periods in which you
are invested, excluding any Guarantee Periods established to support a dollar
cost averaging program. We will not credit interest if the Contract is returned
during the "free look period." (See "Right to Return" for a description of the
free look period.) After the Contract is issued, you may not change the Purchase
Payment Interest option selected.
We may credit Purchase Payment Interest at rates other than those
described above on 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 affiliates
of such representatives and broker-dealers, employees of affiliated asset
management firms, and persons who have retired from such positions ("Eligible
Employees") and immediate family members of Eligible Employees.
VARIABLE ACCOUNT VALUE
VARIABLE ACCUMULATION UNITS
In order to calculate your Variable Account Value, we use a measure called
a Variable Accumulation Unit for each Sub-Account. Your Variable Account Value
is the sum of your Account Value in each Sub-Account, which is the number of
your Variable Accumulation Units for that Sub-Account times the value of each
Unit.
VARIABLE ACCUMULATION UNIT VALUE
The value of each Variable Accumulation Unit in a Sub-Account reflects the
net investment performance of that Sub-Account. We determine that value once on
each day that the New York Stock Exchange is open for trading (a "Business
Day"), at the close of trading, which is currently 4:00 p.m., Eastern Time. The
period that begins at the time Variable Accumulation Units are valued on a
Business Day and ends at that time on the next Business Day is called a
Valuation Period. On days other than Business Days, the value of a Variable
Accumulation Unit does not change.
To measure these values, we use a factor -- which we call the Net
Investment Factor-- which represents the net return on the Sub-Account's assets.
At the end of any Valuation Period, the value of a Variable Accumulation Unit
for a Sub-Account is equal to the value of that Sub-Account's Variable
Accumulation Units at the end of the previous Valuation Period, multiplied by
the Net Investment Factor. We calculate the Net Investment Factor by dividing
(1) the net asset value of a Fund share held in the Sub-Account at the end of
that Valuation Period, plus the per share amount of any dividend or capital
gains distribution made by that Fund during the Valuation Period, by (2) the net
asset value per share of the Fund share at the end of the previous Valuation
Period; we then deduct a factor representing the mortality and expense risk
charge and administrative expense charge for each day in the Valuation Period.
See "Contract Charges."
For a hypothetical example of how we calculate the value of a Variable
Accumulation Unit, see the Statement of Additional Information.
CREDITING AND CANCELING VARIABLE ACCUMULATION UNITS
When we receive an allocation to a Sub-Account, either from a Net Purchase
Payment or a transfer of Account Value, we credit that amount to your Account in
Variable Accumulation Units. Similarly, we cancel Variable Accumulation Units
when you transfer or withdraw amounts from a Sub-Account, or when we deduct
certain charges under the Contract. We determine the number of Units credited or
canceled by dividing the dollar amount by the Variable Accumulation Unit value
for that Sub-Account at the end of the Valuation Period during which the
transaction or charge is effective.
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FIXED ACCOUNT VALUE
Your Fixed Account value is the sum of all amounts allocated to Guarantee
Periods, either from Net Purchase Payments, transfers or renewals, plus interest
credited on those amounts, and minus withdrawals, transfers out of Guarantee
Periods, and any deductions for charges under the Contract taken from your Fixed
Account Value.
CREDITING INTEREST
We credit interest on amounts allocated to a Guarantee Period at the
applicable Guaranteed Interest Rate for the duration of the Guarantee Period.
The Guarantee Period begins the day we apply your allocation and ends when the
number of calendar years (or months if the Guarantee Period is less than one
year) in the Guarantee Period (measured from the end of the calendar month in
which the amount was allocated to the Guarantee Period) have elapsed. The last
day of the Guarantee Period is its Expiration Date. During the Guarantee Period,
we credit interest daily at a rate that yields the Guaranteed Interest Rate on
an annual effective basis.
GUARANTEE AMOUNTS
Each separate allocation you make to a Guarantee Period, together with
interest credited thereon, is called a Guarantee Amount. Each Guarantee Amount
is treated separately for purposes of determining the Market Value Adjustment.
RENEWALS
We will notify you in writing between 45 and 75 days before the Expiration
Date for any Guarantee Amount. A new Guarantee Period of the same duration will
begin automatically for that Guarantee Amount on the first day following the
Expiration Date, unless before the Expiration Date we receive (1) written notice
from you electing a different Guarantee Period from among those we then offer or
(2) instructions to transfer the Guarantee Amount to one or more Sub-Accounts,
in accordance with the transfer privilege provisions of the Contract (described
below). Each new allocation to a Guarantee Period must be at least $1,000.
EARLY WITHDRAWALS
If you withdraw, transfer, or annuitize an allocation to a Guarantee
Period before the Expiration Date, we will apply a Market Value Adjustment to
the transaction. This could result in an increase or decrease of your Account
Value, depending on interest rates at the time. You bear the risk that you will
receive less than your principal if the Market Value Adjustment applies.
TRANSFER PRIVILEGE
PERMITTED TRANSFERS
During the Accumulation Phase, you may transfer all or part of your
Account Value to one or more Sub-Accounts or Guarantee Periods then available,
subject to the following restrictions:
- you may not make more than 12 transfers in any Account Year;
- the amount transferred from a Sub-Account must be at least $1,000
unless you are transferring your entire balance in that Sub-Account;
- your Account Value remaining in a Sub-Account must be at least $1,000;
- the amount transferred from a Guarantee Period must be the entire
Guarantee Amount, except for transfers of interest credited during the
current Account Year;
- at least 30 days must elapse between transfers to or from Guarantee
Periods;
- transfers to or from Sub-Accounts are subject to terms and conditions
that may be imposed by the Fund; and
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- we impose additional restrictions on market timers, which are further
described below.
These restrictions do not apply to transfers made under an approved dollar
cost averaging program.
There is usually no charge imposed on transfers; however, we reserve the
right to impose a transfer charge of $15 for each transfer. Transfers out of a
Guarantee Period more than 30 days before expiration of the period will be
subject to the Market Value Adjustment described below. Under current law there
is no tax liability for transfers.
REQUESTS FOR TRANSFERS
You may request transfers in writing or by telephone. The telephone
transfer privilege is available automatically, and does not require your written
election. We will require personal identifying information to process a request
for transfer made by telephone. We will not be liable for following instructions
communicated by telephone that we reasonably believe are genuine.
If we receive your transfer request before 4:00 p.m. Eastern Time on a
Business Day, it will be effective that day. Otherwise, it will be effective the
next Business Day.
MARKET TIMERS
The Contracts are not designed for professional market timing
organizations or other entities using programmed and frequent transfers. If you
wish to employ such strategies, you should not purchase a Contract. Accordingly,
transfers may be subject to restrictions 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, we 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 at the same time by market timing firms or other third
parties on behalf of more than one Participant. We will not impose these
restrictions unless our actions are reasonably intended to prevent the use of
such transfers in a manner that will disadvantage or potentially impair the
Contract rights of other Participants.
In addition, some of the Funds have reserved the right to temporarily or
permanently refuse exchange requests from the Variable Account if, in the
judgment of the 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. We also reserve 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
We may reduce or waive the withdrawal charge or Account Fee, credit
additional amounts, or grant bonus Guaranteed Interest Rates in certain
situations. These situations may include sales of Contracts (1) 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, and (2) 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 affiliates of such
representatives and broker-dealers, employees of affiliated asset management
firms, and persons who have retired from such positions ("Eligible Employees")
and immediate family members of Eligible Employees. 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 "Withdrawals, Withdrawal Charge and Market Value Adjustment."
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OPTIONAL PROGRAMS
DOLLAR COST AVERAGING
Dollar cost averaging allows you to invest gradually, over time, in up to
12 Sub-Accounts. You may select a dollar cost averaging program at no extra
charge by allocating a minimum of $1,000 to a designated Sub-Account or to a
Guarantee Period we make available in connection with the program. Amounts
allocated to the Fixed Account under the program will earn interest at a rate
declared by the Company for the Guarantee Period you select. Each month or
quarter, as you select, we will transfer the same amount automatically to one or
more Sub-Accounts that you choose, up to a maximum of 12 Sub-Accounts. The
program continues until your Account Value allocated to the program is depleted
or you elect to stop the program. The final amount transferred from the Fixed
Account will include all interest earned.
Only Purchase Payments may be allocated to a dollar cost averaging
program. Previously applied amounts may not be transferred to a dollar cost
averaging program.
No Market Value Adjustment (either positive or negative) will apply to
amounts automatically transferred from the Fixed Account under the dollar cost
averaging program. However, if you discontinue or alter the program prior to
completion, amounts remaining in the Fixed Account will be transferred to the
Sun Capital Money Market Fund Sub-Account, unless you instruct us otherwise, and
the Market Value Adjustment will be applied. Any new allocation of a Purchase
Payment to the program will be treated as commencing a new dollar cost averaging
program and is subject to the $1,000 minimum.
The main objective of a dollar cost averaging program is to minimize the
impact of short-term price fluctuations on Account Value. In general, since you
transfer the same dollar amount to the variable investment options at set
intervals, dollar cost averaging allows you to purchase more Variable
Accumulation Units (and, indirectly, more Fund shares) when prices are low and
fewer Variable Accumulation Units (and, indirectly, fewer Fund shares) when
prices are high. Therefore, you may achieve a lower average cost per Variable
Accumulation Unit over the long term. A dollar cost averaging program allows you
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 programs may be available in connection with
the Contracts, at no extra charge. Asset allocation is the process of investing
in different asset classes -- such as equity funds, fixed income funds, and
money market funds -- depending on your personal investment goals, tolerance for
risk, and investment time horizon. By spreading your money among a variety of
asset classes, you may be able to reduce the risk and volatility of investing,
although there are no guarantees, and asset allocation does not insure a profit
or protect against loss in a declining market.
Currently, you may select one of three asset allocation models, each of
which represents a combination of Sub-Accounts with a different level of risk.
The available models are the conservative asset allocation model, the moderate
asset allocation model, and the aggressive asset allocation model. Each model
allocates a different percentage of Account Value to Sub-Accounts investing in
the various asset classes, with the conservative model allocating the lowest
percentage to Sub-Accounts investing in the equity asset class and the
aggressive model allocating the highest percentage to the equity asset class.
These models, as well as the terms and conditions of the asset allocation
program, are fully described in a separate brochure. Additional programs may be
available in the future.
If you elect an asset allocation program, we will automatically allocate
your Purchase Payments among the Sub-Accounts represented in the model you
choose. Sun Capital Advisers' Asset Allocation Committee will direct the
allocations. By your election of an asset allocation program, your thereby
authorize us to automatically reallocate your Account Value on a quarterly basis
to reflect the current composition of the model you have selected, without
further instruction, until we receive notification that you wish to terminate
the program or choose a different model.
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SYSTEMATIC WITHDRAWAL PROGRAM
If you have an Account Value of $10,000 or more, you may select our
Systematic Withdrawal Program.
Under the Systematic Withdrawal Program, you determine the amount and
frequency of regular withdrawals you would like to receive from your Fixed
and/or Variable Account Value and we will effect them automatically. You may
change or stop the Systematic Withdrawal Program at any time, by written notice
to us. Withdrawals may be included in income and subject to a 10% federal tax
penalty, as well as all charges and any Market Value Adjustment applicable upon
withdrawal. You should consult your adviser before choosing this option.
PORTFOLIO REBALANCING PROGRAM
Under the Portfolio Rebalancing Program, we transfer funds among the
Sub-Accounts to maintain the percentage allocation you have selected among these
Sub-Accounts. At your election, we will make these transfers on a quarterly,
semi-annual or annual basis.
Portfolio Rebalancing does not permit transfers to or from any Guarantee
Period.
WITHDRAWALS, WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
REQUESTING A WITHDRAWAL
At any time during the Accumulation Phase you may withdraw in cash all or
any portion of your Account Value. To make a withdrawal, you must send us a
written request at our Annuity Service Mailing Address. Your request must
specify whether you want to withdraw the entire amount of your Account or, if
less, the amount you wish to withdraw.
All withdrawals may be subject to a withdrawal charge (see "Withdrawal
Charge" below) and withdrawals from your Fixed Account Value also may be subject
to a Market Value Adjustment (see "Market Value Adjustment" below). Upon request
we will notify you of the amount we would pay in the event of a full or partial
withdrawal. Withdrawals also may have adverse federal income tax consequences,
including a 10% penalty tax. See "Federal Tax Status." You should carefully
consider these tax consequences before requesting a cash withdrawal.
FULL WITHDRAWALS
If you request a full withdrawal, we calculate the amount we will pay you
as follows. We start with the total value of your Account at the end of the
Valuation Period during which we receive your withdrawal request; we deduct the
Account Fee for the Account Year in which the withdrawal is made; we add or
subtract the amount of any Market Value Adjustment applicable to your Fixed
Account Value; and finally, we deduct any applicable withdrawal charge.
A full withdrawal results in the surrender of your Contract, and
cancellation of all rights and privileges under your Contract.
PARTIAL WITHDRAWALS
If you request a partial withdrawal we will pay you the actual amount
specified in your request and then reduce the value of your Account by deducting
the amount paid, adding or deducting any Market Value Adjustment applicable to
amounts withdrawn from the Fixed Account, and deducting any applicable
withdrawal charge.
You may specify the amount you want withdrawn from each Sub-Account and/or
Guarantee Amount to which your Account is allocated. If you do not so specify,
we will deduct the total amount you request pro rata, based on your allocations
at the end of the Valuation Period during which we receive your request.
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If you request a partial withdrawal that would result in your Account
Value being reduced to an amount less than the Account Fee for the Account Year
in which you make the withdrawal, we will treat it as a request for a full
withdrawal.
TIME OF PAYMENT
We will pay you the applicable amount of any full or partial withdrawal
within 7 days after we receive your withdrawal request, except in cases where we
are permitted to defer payment under the Investment Company Act of 1940 and
applicable state insurance law. Currently, we may defer payment of amounts you
withdraw from the Variable Account only for the following periods:
- when the New York Stock Exchange is closed (except weekends and
holidays) or when trading on the New York Stock Exchange is restricted;
- when it is not reasonably practical to dispose of securities held by a
Fund or to determine the value of the net assets of a Fund, because an
emergency exists; or
- when an SEC order permits us to defer payment for the protection of
Participants.
We also may defer payment of amounts you withdraw from the Fixed Account for up
to six months from the date we receive your withdrawal request. We do not pay
interest on the amount of any payments we defer.
WITHDRAWAL RESTRICTIONS FOR QUALIFIED PLANS
If yours is a Qualified Contract, you should carefully check the terms of
the plan for limitations and restrictions on cash withdrawals.
Special restrictions apply to withdrawals from Contracts used for Section
403(b) annuities. See "Federal Tax Status -- Tax-Sheltered Annuities."
WITHDRAWAL CHARGE
We do not deduct any sales charge from your Purchase Payments when they
are made. However, we may impose a withdrawal charge (known as a "contingent
deferred sales charge") on certain amounts you withdraw. We impose this charge
to defray some of our expenses related to the sale of the Contracts, such as
commissions we pay to agents, the cost of sales literature, and other
promotional costs and transaction expenses.
FREE WITHDRAWAL AMOUNT
In each Account Year you may withdraw a portion of your Account Value --
which we call the "free withdrawal amount" -- before incurring the withdrawal
charge. For any year, the free withdrawal amount is equal to the amount of all
Purchase Payments made before the last 9 Account Years that you have not
previously withdrawn, plus the greater of:
(1) your Contract's earnings (defined below) during the prior Account
Year; and
(2) 10% of the amount of all Purchase Payments you have made during the
last 9 Account Years, including the current Account Year.
Any portion of the "free withdrawal amount" that you do not use in an Account
Year is not cumulative -- that is, it will not be carried forward or available
for use in future years.
Your Contract's earnings during the prior Account Year are equal to:
(a) the difference between your Account Value at the end of the prior
Account Year and your Account Value at the beginning of the prior
Account Year, MINUS
(b) any Purchase Payments made during the prior Account Year, PLUS
(c) any partial withdrawals and charges taken during the prior Account
Year.
For an example of how we calculate the free withdrawal amount, refer to
Appendix B.
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WITHDRAWAL CHARGE ON PURCHASE PAYMENTS
If you withdraw more than the free withdrawal amount in any Account Year,
we consider the excess amount to be withdrawn first from Payments that you have
not previously withdrawn. We impose the withdrawal charge on the amount of these
Payments. Thus, the maximum amount on which we will impose the withdrawal charge
in any year will never be more than the total of all Payments that you have not
previously withdrawn.
The amount of your withdrawal, if any, that exceeds the total of the free
withdrawal amount plus the aggregate amount of all New Payments not previously
withdrawn, is not subject to the withdrawal charge.
ORDER OF WITHDRAWAL
When you make a withdrawal, we consider the oldest Purchase Payment that
you have not already withdrawn to be withdrawn first, then the next oldest, and
so forth. Once all Purchase Payments are withdrawn, the balance withdrawn is
considered to be accumulated value.
CALCULATION OF WITHDRAWAL CHARGE
We calculate the amount of the withdrawal charge by multiplying the
Purchase Payments you withdraw by a percentage. The percentage varies according
to the number of Account Years the Purchase Payment has been held in your
Account, including the year in which you made the Payment, but not the year you
withdraw it. The applicable percentages are as follows:
<TABLE>
<CAPTION>
NUMBER OF
COMPLETE
ACCOUNT YEARS
FROM TIME OF
PAYMENT PERCENTAGE
- -------------- ---------------
<S> <C>
0 or 1 8%
2 or 3 7%
4 6%
5 5%
6 4%
7 2%
8 1%
More than 8 0%
</TABLE>
For example, again using the same facts as in the example above, the
percentage applicable to the withdrawals in Account Year 10 of Purchase Payments
made in Account Year 8 would be 7%, because the number of Account Years the
Purchase Payments have been held in your Account would be two.
The withdrawal charge will never be greater than 8% of the aggregate
amount of Purchase Payments you make under the Contract.
For a Group Contract, we may modify the withdrawal charges and limits,
upon notice to the Owner of the Group Contract. However, any modification will
only apply to Accounts established after the date of the modification.
For additional examples of how we calculate withdrawal charges, see
Appendix B.
TYPES OF WITHDRAWALS NOT SUBJECT TO WITHDRAWAL CHARGE
If approved in your state, we will waive the withdrawal charge for a full
or partial withdrawal if (a) at least one year has passed since we issued your
Contract and (b) you are confined to an eligible nursing home and have been
confined there for at least the preceding 180 days, or any shorter period
required by your state. An "eligible nursing home" means a licensed hospital or
licensed skilled or intermediate care nursing facility at which medical
treatment is available on a daily basis and daily medical records are kept for
each patient. You must provide us evidence of confinement in the form we
determine.
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For each Qualified Contract, the free withdrawal amount in any Account
Year will be the greater of the free withdrawal amount described above and any
amounts required to be withdrawn to comply with the minimum distribution
requirement of the Internal Revenue Code. This applies only to the portion of
the required minimum distribution attributable to that Qualified Contract.
We do not impose the withdrawal charge on amounts you apply to provide an
annuity, amounts we pay as a death benefit, or amounts you transfer among the
Sub-Accounts, between the Sub-Accounts and the Fixed Account, or within the
Fixed Account.
MARKET VALUE ADJUSTMENT
We will apply a market value adjustment if you withdraw or transfer
amounts from your Fixed Account Value more than 30 days before the end of the
applicable Guarantee Period. For this purpose, using Fixed Account Value to
provide an annuity is considered a withdrawal, and the Market Value Adjustment
will apply. However, we will not apply the Market Value Adjustment to automatic
transfers to a Sub-Account from a Guarantee Period as part of our dollar cost
averaging program.
We apply the Market Value Adjustment separately to each Guarantee Amount
in the Fixed Account -- that is to each separate allocation you have made to a
Guarantee Period, together with interest credited on that allocation. However,
we do not apply the adjustment to the amount of interest credited during your
current Account Year. Any withdrawal from a Guarantee Amount is attributed first
to such interest.
A Market Value Adjustment may decrease, increase or have no effect on your
Account Value. This will depend on changes in interest rates since you made your
allocation to the Guarantee Period and the length of time remaining in the
Guarantee Period. In general, if the Guaranteed Interest Rate we currently
declare for Guarantee Periods equal to the balance of your Guarantee Period (or
your entire Guarantee Period for Guarantee Periods of less than one year) is
higher than your Guaranteed Interest Rate, the Market Value Adjustment is likely
to decrease your Account Value. If our current Guaranteed Interest Rate is
lower, the Market Value Adjustment is likely to increase your Account Value.
We determine the amount of the Market Value Adjustment by multiplying the
amount that is subject to the adjustment by the following formula:
<TABLE>
<S> <C>
N/12
1 + I
( -------- ) -1
1 + J + b
</TABLE>
where:
I is the Guaranteed Interest Rate applicable to the Guarantee Amount from
which you withdraw, transfer or annuitize;
J is the Guaranteed Interest Rate we declare at the time of your
withdrawal, transfer or annuitization for Guarantee Periods equal to the length
of time remaining in the Guarantee Period applicable to your Guarantee Amount,
rounded to the next higher number of complete years, for Guarantee Periods of
one year or more. For any Guarantee Periods of less than one year, J is the
Guaranteed Interest Rate we declare at the time of your withdrawal, transfer or
annuitization for a Guarantee Period of the same length as your Guarantee
Period. If, at that time, we do not offer the applicable Guarantee Period we
will use an interest rate determined by straight-line interpolation of the
Guaranteed Interest Rates for the Guarantee Periods we do offer;
N is the number of complete months remaining in your Guarantee Period; and
b is a factor that currently is 0% but that in the future we may increase
to up to 0.25%. Any increase would be applicable only to Participants who
purchase their Contracts after the date of that increase.
We will apply the Market Value Adjustment to the amount being withdrawn
after deduction of any Account Fee, if applicable, but before we impose any
withdrawal charge on the amount withdrawn.
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<PAGE>
For examples of how we calculate the Market Value Adjustment, see Appendix
B.
No Market Value Adjustment will apply to Contracts issued in the states of
Maryland, Texas and Washington, or to one-year Guarantee Periods under Contracts
issued in the state of Oregon.
CONTRACT CHARGES
ACCOUNT FEE
Each year during the Accumulation Phase of your Contract we will deduct
from your Account an Account Fee to help cover the administrative expenses we
incur related to the issuance of Contracts and the maintenance of Accounts. We
deduct the Account Fee on each Account Anniversary, which is the anniversary of
the first day of the month after we issue your Contract. In Account Years 1
through 5, the Account Fee is equal to the lesser of (a) $35 and (b) 2% of your
Account Value. After Account Year 5, we may change the Account Fee each year,
but the Account Fee will never exceed the lesser of (a) $50 and (b) 2% of your
Account Value. We deduct the Account Fee pro rata from each Sub-Account and each
Guarantee Amount, based on the allocation of your Account Value on your Account
Anniversary.
We will not charge you the Account Fee if:
(1) your Account has been allocated only to the Fixed Account during the
applicable Account Year; or
(2) your Account Value is more than $100,000 on your Account Anniversary.
If you make a full withdrawal of your Account, we will deduct the full
amount of the Account Fee at the time of the withdrawal. In addition, on the
Annuity Commencement Date we will deduct a pro rata portion 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, we will deduct an annual Account Fee
of $35 in the aggregate in equal amounts from each Variable Annuity payment we
make during the year. We do not deduct any fee from Fixed Annuity payments.
ADMINISTRATIVE EXPENSE CHARGE
We deduct an administrative expense charge from the assets of the Variable
Account at an annual effective rate equal to 0.15% during both the Accumulation
Phase and the Income Phase. This charge is designed to reimburse expenses we
incur in administering the Contracts, the Accounts and the Variable Account that
are not covered by the Account Fee.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense charge from the assets of the Variable
Account at an effective annual rate equal to 1.30% during both the Accumulation
Phase and the Income Phase. The mortality risk we assume arises from our
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 obligation assures each Annuitant that neither
the longevity of fellow Annuitants nor an improvement in life expectancy
generally will have an adverse effect on the amount of any annuity payment
received under the contract. The expense risk we assume is the risk that the
Account Fee and administrative expense charge we assess under the Contracts may
be insufficient to cover the actual total administrative expenses we incur. If
the amount of the charge is insufficient to cover the mortality and expense
risks, we will bear the loss. If the amount of the charge is more than
sufficient to cover the risks, we will make a profit on the charge. We may use
this profit for any proper corporate purpose, including the payment of marketing
and distribution expenses for the Contracts.
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<PAGE>
CHARGES FOR OPTIONAL DEATH BENEFIT RIDERS
If you have elected an optional death benefit rider, we will deduct a
charge from the assets of the Variable Account based upon your age on the
Contract Date. If you are less than 70 years old on the Contract Date, we will
deduct a charge at an effective annual rate equal to 0.20% of the net assets of
the Variable Account. If you are between 70 and 79 years old on the Contract
Date, we will deduct a charge at an effective annual rate of 0.40%
PREMIUM TAXES
Some states and local jurisdictions impose a premium tax on us that is
equal to a specified percentage of the Purchase Payments you make. In many
states there is no premium tax. We believe that the amounts of applicable
premium taxes currently range from 0% to 3.5%. You should consult a tax adviser
to find out if your state imposes a premium tax and the amount of any tax.
In order to reimburse us for the premium tax we may pay on Purchase
Payments, our policy is to deduct the amount of such taxes from the amount you
apply to provide an annuity at the time of annuitization. However, we reserve
the right to deduct the amount of any applicable tax from your Account at any
time, including at the time you make a Purchase Payment or make a full or
partial withdrawal. We do not make any profit on the deductions we make to
reimburse premium taxes.
FUND EXPENSES
There are fees and charges deducted from each Fund. These fees and
expenses are described in the Fund's Prospectus and Statement of Additional
Information.
MODIFICATION IN THE CASE OF GROUP CONTRACTS
For Group Contracts, we may modify the Account Fee, the administrative
expense charge and the mortality and expense risk charge upon notice to Owners.
However, such modification will apply only with respect to Participant Accounts
established after the effective date of the modification.
DEATH BENEFIT
If you die during the Accumulation Phase, we will pay a death benefit to
your Beneficiary, using the payment method elected (a single cash payment or one
of our Annuity Options). If the Beneficiary is not living on the date of death,
we will pay the death benefit in one sum to your estate. We do not pay a death
benefit if you die during the Income Phase. However, the Beneficiary will
receive any payments provided under an Annuity Option that is in effect.
If your spouse is your Beneficiary, upon your death your spouse may elect
to continue the Contract as the Participant, rather than receive the death
benefit. In that case, the Contract's Account Value will be equal to your
Contract's death benefit, as calculated under the basic death benefit or under
the Maximum Anniversary Account Value Rider, discussed below under "Basic Death
Benefit" and "Optional Death Benefit Riders," respectively. However, if you have
elected the Earnings Enhancement Rider, the Contract's Account Value on the
Death Benefit Date will be equal to your Contract's death benefit as calculated
under the basic death benefit. All other provisions, including any withdrawal
charges and the Earnings Enhancement Rider, will continue as if your spouse had
purchased the Contract on the original date of coverage.
AMOUNT OF DEATH BENEFIT
To calculate the amount of your death benefit, we use a "Death Benefit
Date." The Death Benefit Date is the date we receive proof of your death in an
acceptable form ("Due Proof of Death") if you have elected a death benefit
payment method before your death and it remains effective. Otherwise, the Death
Benefit Date is the later of the date we receive Due Proof of Death or, the date
we receive the Beneficiary's election of either payment method or, if the
Beneficiary is your spouse, Contract continuation. If we do not receive the
Beneficiary's election within 60 days after we receive Due Proof of Death, the
Death Benefit Date will be the last day of the 60 day period.
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<PAGE>
The amount of the death benefit is determined as of the Death Benefit
Date.
THE BASIC DEATH BENEFIT
In general, if you were 85 or younger on your Contract Date (the date we
accepted your first Purchase Payment), the death benefit will be the greatest of
the following amounts:
(1) Your Account Value for the Valuation Period during which the Death
Benefit Date occurs;
(2) The amount we would pay if you had surrendered your entire Account on
the Death Benefit Date;
(3) Your total Purchase Payments (adjusted for partial withdrawals as
described in "Calculating the Death Benefit") as of the Death Benefit
Date.
For examples of how to calculate this basic death benefit, see Appendix C.
If you were 86 or older on your Contract Date, the death benefit is equal
to amount (2) above; because this amount will reflect any applicable withdrawal
charges and market value adjustment, it may be less than your Account Value.
OPTIONAL DEATH BENEFIT RIDERS
Subject to availability in your state, you may enhance this basic death
benefit by electing one of two optional death benefit riders. You must make your
election before the date on which your Contract becomes effective. You will pay
a charge for any optional death benefit rider you elect. For a description of
these charges, see "Charges for Optional Death Benefit Riders." These riders are
only available if you are less than 80 on the Contract Date. Any optional death
benefit election may not be changed after the Contract is issued. For a complete
description of how the death benefits under the riders are calculated, see
"Calculating the Death Benefit."
MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER
Under this rider, the death benefit will be the greater of:
- any of the death benefit amounts payable under options (1), (2) and (3)
under the basic death benefit, above, and
- your highest Account Value on any Account Anniversary before your 81st
birthday, adjusted for any subsequent Purchase Payments, partial
withdrawals and charges made between that Account Anniversary and the
Death Benefit Date.
EARNINGS ENHANCEMENT RIDER
Under this rider, if you were less than 70 years old on your Contract Date,
the death benefit will be:
- the greatest of any of the death benefit amounts payable under options
(1), (2) and (3) under the basic death benefit, above, plus
- 40% of the lesser of your net Purchase Payments and your Account Value
minus net Purchase Payments, calculated as of the Death Benefit Date.
If you were at least 70 but less than 80 on your Contract Date and you
elected the Earnings Enhancement Rider, the death benefit will be:
- the greatest of any of the death benefit amounts payable under options
(1), (2) and (3) under the basic death benefit, above, plus
- 25% of the lesser of your net Purchase Payments and your Account Value
minus net Purchase Payments, calculated as of the Death Benefit Date.
26
<PAGE>
Net Purchase Payments under this rider will be adjusted for all partial
withdrawals as described in "Calculating the Death Benefit."
If your spouse is the Beneficiary and, upon your death, your spouse elects
to continue the Contract as Participant, the benefits under this optional death
benefit rider will not be payable until the death of your spouse.
For examples of how the death benefit is calculated under the Earnings
Enhancement Rider, see Appendix D.
CALCULATING THE DEATH BENEFIT
In calculating the death benefit amount payable under option (3) of the
basic death benefit or either of the optional death benefit riders, any partial
withdrawals will reduce the death benefit amount to an amount equal to the death
benefit amount immediately before the withdrawal multiplied by the ratio of the
Account Value immediately after the withdrawal to the Account Value immediately
before the withdrawal.
If the death benefit is the amount payable under options (2) or (3) of the
basic death benefit or under either of the optional death benefit riders, your
Account Value will be increased by the excess, if any, of that amount over
option (1) of the basic death benefit. Any such increase will be allocated to
the Sub-Accounts in proportion to your Account Value in those Sub-Accounts on
the Death Benefit Date. Also, any portion of this new Account Value attributed
to the Fixed Account will be transferred to the Sun Capital Money Market
Sub-Account (without the application of a Market Value Adjustment). If your
spouse, as the named Beneficiary, elects to continue the Contract after your
death, your spouse may transfer any such Fixed Account portion back to the Fixed
Account and begin a new Guarantee Period.
METHOD OF PAYING DEATH BENEFIT
The death benefit may be paid in a single cash payment or as an annuity
(either fixed, variable or a combination), under one or more of our Annuity
Options. We describe the Annuity Options in this Prospectus under "Income Phase
- -- Annuity Provisions."
During the Accumulation Phase, you may elect the method of payment for the
death benefit. If no such election is in effect on the date of your death, the
Beneficiary may elect either a single cash payment or an annuity. If the
Beneficiary is the Owner's spouse, the Beneficiary may elect to continue the
Contract. These elections are made by sending us a completed election form,
which we will provide. If we do not receive the Beneficiary's election within 60
days after we receive Due Proof of Death, we will pay the death benefit in a
single cash payment.
If we pay the death benefit in the form of an Annuity Option, the
Beneficiary becomes the Annuitant under the terms of that Annuity Option.
NON-QUALIFIED CONTRACTS
If your Contract is a Non-Qualified Contract, special distribution rules
apply to the payment of the death benefit. The amount of the death benefit must
be distributed either (1) as a lump sum within 5 years after your death or (2)
if in the form of an annuity, over a period not greater than the life or
expected life of the "designated beneficiary" within the meaning of Section
72(s) of the Internal Revenue Code, with payments beginning no later than one
year after your death.
The person you have named a Beneficiary under your Contract, if any, will
be the "designated beneficiary." If the named Beneficiary is not living, the
Annuitant automatically becomes the designated beneficiary.
If the designated beneficiary is your surviving spouse, your spouse may
continue the Contract in his or her own name as Participant. To make this
election, your spouse must give us written notification within 60 days after we
receive Due Proof of Death. In that case, we will not pay a death benefit, and
27
<PAGE>
the Account Value will be increased to reflect either the basic death benefit
calculation or the calculation under the Maximum Anniversary Account Value
Rider. If you have elected the Earnings Enhancement Rider, your Account Value
will be increased to reflect the basic death benefit calculation. The special
distribution rules will then apply on the death of your spouse.
During the Income Phase, if the Annuitant dies, the remaining value of the
Annuity Option in place must be distributed at least as rapidly as the method of
distribution under that option.
If the Participant is not a natural person, these distribution rules apply
on a change in, or the death of, any Annuitant or Co-Annuitant.
Payments made in contravention of these special rules would adversely
affect the treatment of the Contracts as annuity contracts under the Internal
Revenue Code. Neither you nor the Beneficiary may exercise rights that would
have that effect.
SELECTION AND CHANGE OF BENEFICIARY
You select your Beneficiary in your Application. You may change your
Beneficiary at any time by sending us written notice on our required form,
unless you previously made an irrevocable Beneficiary designation. A new
Beneficiary designation is not effective until we record the change.
PAYMENT OF DEATH BENEFIT
Payment of the death benefit in cash will be made within 7 days of the
Death Benefit Date, except if we are permitted to defer payment in accordance
with the Investment Company Act of 1940. If an Annuity Option is elected, the
Annuity Commencement Date will be the first day of the second calendar month
following the Death Benefit Date, and your Account will remain in effect until
the Annuity Commencement Date.
DUE PROOF OF DEATH
We accept the following as proof of any person's 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 we find satisfactory.
THE INCOME PHASE -- ANNUITY PROVISIONS
During the Income Phase, we make regular monthly payments to your
Annuitant.
The Income Phase of your Contract begins with the Annuity Commencement
Date. On that date, we apply your Account Value, adjusted as described below,
under the Annuity Option or Options you have selected, and we make the first
payment.
Once the Income Phase begins, no lump sum settlement option or cash
withdrawals are permitted, except pursuant to Annuity Option D, Monthly Payments
for a Specified Period Certain, as described below under the heading "Annuity
Options," and you cannot change the Annuity Option selected. You may request a
full withdrawal before the Annuity Commencement Date, which will be subject to
all charges applicable on withdrawals. See "Cash Withdrawals, Withdrawal Charge
and Market Value Adjustment."
SELECTION OF THE ANNUITANT OR CO-ANNUITANT
You select the Annuitant in your Application. The Annuitant is the person
who receives payments during the Income Phase and on whose life these payments
are based. In your Contract, the Annuity Options refer to the Annuitant as the
"Payee." If you name someone other than yourself as Annuitant and the Annuitant
dies before the Income Phase, you become the Annuitant.
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<PAGE>
In a Non-Qualified Contract, if you name someone other than yourself as
Annuitant, you may also select a Co-Annuitant, who will become the new Annuitant
if the original Annuitant dies before the Income Phase (if both the Annuitant
and Co-Annuitant die before the Income Phase, you become the Annuitant). If you
have named both an Annuitant and a Co-Annuitant, you may designate one of them
to become the sole Annuitant as of the Annuity Commencement Date, if both are
living at that time. If you have not made that designation on the 30th day
before the Annuity Commencement Date, and both the Annuitant and the
Co-Annuitant are still living, the Co-Annuitant will become the Annuitant.
When an Annuity Option has been selected as the method of paying the death
benefit, the Beneficiary is the Annuitant.
SELECTION OF THE ANNUITY COMMENCEMENT DATE
You select the Annuity Commencement Date in your Application. The
following restrictions apply to the date you may select:
- The earliest possible Annuity Commencement date is the first day of the
first month following your first Account Anniversary.
- The latest possible Annuity Commencement Date is the first day of the
month following the Annuitant's 95th birthday or, if there is a
Co-Annuitant, the 95th birthday of the younger of the Annuitant and
Co-Annuitant.
- The Annuity Commencement Date must always be the first day of a month.
You may change the Annuity Commencement Date from time to time by sending
us written notice, with the following additional limitations:
- We must receive your notice at least 30 days before the current Annuity
Commencement Date.
- The new Annuity Commencement Date must be at least 30 days after we
receive the notice.
There may be other restrictions on your selection of the Annuity
Commencement Date imposed by your retirement plan or applicable law. In most
situations, current law requires that for a Qualified Contract, certain minimum
distributions must commence no later than April 1 following the year the
Annuitant reaches age 70 1/2 (or, for Qualified Contracts other than IRAs, no
later than April 1 following the year the Annuitant retires, if later than the
year the Annuitant reaches age 70 1/2).
ANNUITY OPTIONS
We offer the following Annuity Options for payments during the Income
Phase. Each Annuity Option may be selected for either a Variable Annuity, a
Fixed Annuity, or a combination of both. We may also agree to other settlement
options, in our discretion.
ANNUITY OPTION A -- LIFE ANNUITY
We provide monthly payments during the lifetime of the Annuitant. Annuity
payments stop when the Annuitant dies. There is no provision for continuation of
any payments to a Beneficiary.
ANNUITY OPTION B -- LIFE ANNUITY WITH 60, 120, 180 OR 240 MONTHLY PAYMENTS
CERTAIN
We make monthly payments during the lifetime of the Annuitant. In
addition, we guarantee that the Beneficiary will receive monthly payments for
the remainder of the period certain, if the Annuitant dies during that period.
The election of a longer period results in smaller monthly payments. If no
Beneficiary is designated, we pay the discounted value of the remaining payments
in one sum to the Annuitant's estate. The Beneficiary may also elect to receive
the discounted value of the remaining payments in one sum. The discount rate for
a Variable Annuity will be the assumed interest rate in effect; the discount
rate for a Fixed Annuity will be based on the interest rate we used to determine
the amount of each payment.
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<PAGE>
ANNUITY OPTION C -- JOINT AND SURVIVOR ANNUITY
We make monthly payments during the lifetime of the Annuitant and another
person you designate and during the lifetime of the survivor of the two. We stop
making payments when the last survivor dies. There is no provision for
continuance of any payments to a Beneficiary.
ANNUITY OPTION D -- MONTHLY PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
We make monthly payments for a specified period of time from 10 to 30
years, as you elect. If payments under this option are paid on a variable
annuity basis, the Annuitant may elect to receive in one sum the discounted
value of the remaining payments, less any applicable withdrawal charge. The
discount rate for this purpose will be the assumed interest rate in effect. If
the Annuitant dies during the period selected, the remaining income payments are
made as described under Annuity Option B. The election of this Annuity Option
may result in the imposition of a penalty tax.
SELECTION OF ANNUITY OPTION
You select one or more of the Annuity Options, which you may change from
time to time during the Accumulation Phase, as long as we receive your selection
or change in writing at least 30 days before the Annuity Commencement Date. If
we have not received your written selection on the 30th day before the Annuity
Commencement Date, you will receive Annuity Option B, for a life annuity with
120 monthly payments certain.
You may specify the proportion of your Adjusted Account Value you wish to
provide a Variable Annuity or a Fixed Annuity. Under a Variable Annuity, the
dollar amount of payments will vary, while under a Fixed Annuity, the dollar
amount of payments will remain the same. If you do not specify a Variable
Annuity or a Fixed Annuity, your Adjusted Account Value will be divided between
Variable and Fixed Annuities in the same proportions as your Account Value was
divided between the Variable and Fixed Accounts on the Annuity Commencement
Date. You may allocate your Adjusted Account Value applied to a Variable Annuity
among the Sub-Accounts, or we will use your existing allocations.
There may be additional limitations on the options you may elect under
your particular retirement plan or applicable law.
REMEMBER THAT THE ANNUITY OPTIONS MAY NOT BE CHANGED ONCE ANNUITY PAYMENTS
BEGIN.
AMOUNT OF ANNUITY PAYMENTS
ADJUSTED ACCOUNT VALUE
The Adjusted Account Value is the amount we apply to provide a Variable
Annuity and/or a Fixed Annuity. We calculate Adjusted Account Value by taking
your Account Value on the Business Day just before the Annuity Commencement Date
and making the following adjustments:
- We deduct a proportional amount of the Account Fee, based on the
fraction of the current Account Year that has elapsed;
- If applicable, we apply the Market Value Adjustment to your Account
Value in the Fixed Account, which may result in a deduction, an
addition, or no change; and
- We deduct any applicable premium tax or similar tax if not previously
deducted.
VARIABLE ANNUITY PAYMENTS
Variable Annuity payments may vary each month. We determine the dollar
amount of the first payment using the portion of your Adjusted Account Value
applied to a Variable Annuity and the Annuity Payment Rates in your Contract,
which are based on an assumed interest rate of 3% per year, compounded annually.
See "Annuity Payment Rates."
To calculate the remaining payments, we convert the amount of the first
payment into Annuity Units for each Sub-Account; we determine the number of
those Annuity Units by dividing the portion
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of the first payment attributable to the Sub-Account by the Annuity Unit Value
of that Sub-Account for the Valuation Period ending just before the Annuity
Commencement Date. This number of Annuity Units for each Sub-Account will remain
constant (unless the Annuitant requests an exchange of Annuity Units). However,
the dollar amount of the next Variable Annuity payment -- which is the sum of
the number of Annuity Units for each Sub-Account times its Annuity Unit Value
for the Valuation Period ending just before the date of the payment -- will
increase, decrease, or remain the same, depending on the net investment return
of the Sub-Accounts.
If the net investment return of the Sub-Accounts selected is the same as
the assumed interest rate of 3%, compounded annually, the payments will remain
level. If the net investment return exceeds the assumed interest rate, payments
will increase and, conversely, if it is less than the assumed interest rate,
payments will decrease.
Please refer to the Statement of Additional Information for more
information about calculating Variable Annuity Units and Variable Annuity
payments, including examples of these calculations.
FIXED ANNUITY PAYMENTS
Fixed Annuity payments are the same each month. We determine the dollar
amount of each Fixed Annuity payment using the fixed portion of your Adjusted
Account Value and the applicable Annuity Payment Rates. These will be either (1)
the rates in your Contract, which are based on a minimum guaranteed interest
rate of 3% per year, compounded annually, or (2) new rates we have published and
are using on the Annuity Commencement Date, if they are more favorable. See
"Annuity Payment Rates."
MINIMUM PAYMENTS
If your Adjusted Account Value is less than $2,000, or the first annuity
payment for any Annuity Option is less than $20, we will pay the Adjusted
Account Value to the Annuitant in one payment.
EXCHANGE OF VARIABLE ANNUITY UNITS
During the Income Phase, the Annuitant may exchange Annuity Units from one
Sub-Account to another, up to 12 times each Account Year. To make an exchange,
the Annuitant sends us, at our Annuity Service Mailing Address, a written
request stating the number of Annuity Units in the Sub-Account he or she wishes
to exchange and the new Sub-Account for which Annuity Units are requested. The
number of new Annuity Units will be calculated so the dollar amount of an
annuity payment on the date of the exchange would not be affected. To calculate
this number, we use Annuity Unit values for the Valuation Period during which we
receive the exchange request.
Before exchanging Annuity Units from one Sub-Account to another, the
Annuitant should carefully review the relevant Fund prospectuses for the
investment objectives and risk disclosure of Funds into which the Sub-Accounts
invest.
We permit only exchanges among Sub-Accounts. No exchanges to or from a
Fixed Annuity are permitted.
ACCOUNT FEE
During the Income Phase, we deduct the annual Account Fee of $35 in equal
amounts from each Variable Annuity Payment. We do not deduct the Account Fee
from Fixed Annuity payments.
ANNUITY PAYMENT RATES
The Contract contains Annuity Payment Rates for each Annuity Option
described in this Prospectus. The rates show, for each $1,000 applied, the
dollar amount of: (a) the first monthly Variable Annuity payment based on the
assumed interest rate specified in the applicable Contract (at least 3% per
year, compounded annually); and (b) the monthly Fixed Annuity payment, when this
payment is
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based on the minimum guaranteed interest rate specified in the Contract (at
least 3% per year, compounded annually). We may change these rates under Group
Contracts for Accounts established after the effective date of such change (See
"Other Contract Provisions -- Modification").
The Annuity Payment Rates may vary according to the Annuity Option elected
and the adjusted age of the Annuitant. The Contract also describes the method of
determining the adjusted age of the Annuitant. The mortality table used in
determining the Annuity Payment Rates for Options A, B and C is the 1983
Individual Annuitant Mortality Table.
ANNUITY OPTIONS AS METHOD OF PAYMENT FOR DEATH BENEFIT
You or your Beneficiary may also select one or more Annuity Options to be
used in the event of your death before the Income Phase, as described under the
"Death Benefit" section of this Prospectus. In that case, your Beneficiary will
be the Annuitant. The Annuity Commencement Date will be the first day of the
second month beginning after the Death Benefit Date.
OTHER CONTRACT PROVISIONS
EXERCISE OF CONTRACT RIGHTS
An Individual Contract belongs to the individual to whom the Contract is
issued. A Group Contract belongs to the Owner. In the case of a Group Contract,
the Owner may expressly reserve all Contract rights and privileges; otherwise,
each Participant will be entitled to exercise such rights and privileges. In any
case, such rights and privileges can be exercised without the consent of the
Beneficiary (other than an irrevocably designated Beneficiary) or any other
person. Such rights and privileges may be exercised only during the lifetime of
the Participant before the Annuity Commencement Date, except as the Contract
otherwise provides.
The Annuitant becomes the Payee on and after the Annuity Commencement
Date. The Beneficiary becomes the Payee on the death of the Participant prior to
the Annuity Commencement Date, or on the death of the Annuitant after the
Annuity Commencement Date. Such Payee 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 or custodian 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 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 on us until we receive written notification. When
we receive such notification, 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 us on account of any
payment we make or any action we take before receiving the change. If you change
the Owner of a Non-Qualified Contract, you will become immediately liable for
the payment of taxes on any gain realized under the Contract prior to the change
of ownership, including possible liability for a 10% federal excise tax.
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VOTING OF FUND SHARES
We will vote Fund shares held by the Sub-Accounts at meetings of
shareholders of the Funds or in connection with similar solicitations, but will
follow voting instructions received from persons having the right to give voting
instructions. During the Accumulation Phase, you will have the right to give
voting instructions, except in the case of a Group Contract where the Owner has
reserved this right. During the Income Phase, the Payee -- that is the Annuitant
or Beneficiary entitled to receive benefits -- is the person having such voting
rights. We will vote any shares attributable to us and Fund shares for which no
timely voting instructions are received in the same proportion as the shares for
which we receive instructions 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 that are funded by the Contracts may
be entitled to instruct the Owners as to how to instruct us 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 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, or 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 10 days prior to each meeting of the
shareholders of the Fund. We will determine the number of Fund shares as to
which each such person is entitled to give instructions as of the record date
set by the Fund for such meeting which is expected to be not more than 90 days
prior to each such meeting. Prior to the Annuity Commencement Date, the number
of Fund shares as to which voting instructions may be given to the Company is
determined by dividing the value of all of the Variable Accumulation Units of
the particular Sub-Account credited to the Participant 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 we will send you, 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 your
Account and the Fixed Accumulation Value of your Account, which statement shall
be accurate as of a date not more than 2 months previous to the date of mailing.
These periodic statements contain important information concerning your
transactions with respect to a Contract. It is your obligation to review each
such statement carefully and to report to us, at the address or telephone number
provided on the statement, any errors or discrepancies in the information
presented therein within 60 days of the date of such statement. Unless we
receive notice of any such error or discrepancy from you within such period, we
may not be responsible for correcting the error or discrepancy.
In addition, every person having voting rights will receive such reports
or prospectuses concerning the Variable Account and the Funds as may be required
by the Investment Company Act of 1940
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and the Securities Act of 1933. We will also send such statements reflecting
transactions in your Account as may be required by applicable laws, rules and
regulations.
Upon request, we will provide you with information regarding fixed and
variable accumulation values.
SUBSTITUTION OF SECURITIES
Shares of any or all Funds may not always be available for investment
under the Contract. We may add or delete Funds or other investment companies as
variable investment options under the Contracts. We may also substitute for the
shares held in any Sub-Account shares of another registered open-end investment
company or unit investment trust, provided that the substitution has been
approved , if required, by the SEC. In the event of any substitution pursuant to
this provision, we may make appropriate endorsement to the Contract to reflect
the substitution.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At our 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 SEC. In the
event of any change in the operation of the Variable Account pursuant to this
provision, we 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
We reserve 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 Income Phase), we 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; (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; (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"); (iv) provides additional Variable
Account and/or fixed accumulation options; or (v) as may otherwise be in the
best interests of Owners, Participants, or Payees, as applicable. In the event
of any such modification, we may make appropriate endorsement in the Contract to
reflect such modification.
In addition, upon notice to the Owner, we may modify a Group Contract 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
applies only to Participant Accounts established after the effective date of
such modification. In order to exercise our modification rights in these
particular instances, we 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 we mail notice of modification. 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 Accounts established prior to the effective
date of such modification.
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DISCONTINUANCE OF NEW PARTICIPANTS
We may limit or discontinue the acceptance of new Applications and the
issuance of new Certificates under a Group Contract by giving 30 days prior
written notice to the Owner. This will not affect rights or benefits with
respect to any Participant Accounts established under such Group Contract prior
to the effective date of such limitation or discontinuance.
RESERVATION OF RIGHTS
We reserve the right, to the extent permitted by law, to: (1) combine any
2 or more variable accounts; (2) add or delete Funds or other investment
companies and corresponding Sub-Accounts; (3) add or remove Guarantee Periods
available at any time for election by a Participant; and (4) restrict or
eliminate any of the voting rights of Participants (or Owners) or other persons
who have voting rights as to the Variable Account. Where required by law, we
will obtain approval of changes from Participants or any appropriate regulatory
authority. In the event of any change pursuant to this provision, we may make
appropriate endorsement to the Contract to reflect the change.
RIGHT TO RETURN
If you are not satisfied with your Contract, you may return it by mailing
or delivering it to us at the Annuity Service Mailing Address on the cover of
this Prospectus within 10 days after it was delivered to you. When we receive
the returned Contract, it will be cancelled and we will refund to you your
Account Value less any Purchase Payment Interest credited at the end of the
Valuation Period during which we received it. However, if applicable state law
requires we will return the full amount of any Purchase Payment(s) we received.
State law may also require us to give you a longer "free look" period or allow
you to return the Contract to your sales representative.
If you are establishing an Individual Retirement Account ("IRA"), the
Internal Revenue Code requires that we give you a disclosure statement
containing certain information about the Contract and applicable legal
requirements. We must give you this statement on or before the date the IRA is
established. If we give you the disclosure statement before the seventh day
preceding the date the IRA is established, you will not have any right of
revocation under the Code. If we give you the disclosure statement at a later
date, then you may give us a notice of revocation at any time within 7 days
after your Contract Date. Upon such revocation, we will refund your Purchase
Payment(s). This right of revocation with respect to an IRA is in addition to
the return privilege set forth in the preceding paragraph. We allow a
Participant establishing an IRA a "ten day free-look," notwithstanding the
provisions of the Internal Revenue Code.
FEDERAL TAX STATUS
INTRODUCTION
This section describes general federal income tax consequences based upon
our understanding of current federal tax laws. Actual federal tax consequences
may vary depending on, among other things, the type of retirement plan with
which you use a Contract and whether (depending on the site of Contract
issuance) Puerto Rico tax law applies. Also, Congress has the power to enact
legislation affecting the tax treatment of annuity contracts, and such
legislation could apply retroactively to Contracts that you purchased before the
date of enactment. We do not make any guarantee regarding the federal, state, or
local tax status of any Contract or any transaction involving any Contract. You
should consult a qualified tax professional for advice before purchasing a
Contract or executing any other transaction (such as a rollover, distribution,
withdrawal or payment) involving a Contract.
DEDUCTIBILITY OF PURCHASE PAYMENTS
For federal income tax purposes, Purchase Payments made under
Non-Qualified Contracts are not deductible.
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PRE-DISTRIBUTION TAXATION OF CONTRACTS
Generally, an increase in the value of a Contract will not give rise to
tax, prior to distribution.
However, corporate (or other non-natural person) Owners of, and
Participants under, a Non-Qualified Contract incur current tax, regardless of
distribution, on Contract value increases. Such current taxation does not apply,
though, to (i) immediate annuities, which the Internal Revenue Code (the "Code")
defines as a single premium contract with an annuity commencement date within
one year of the date of purchase, or (ii) any Contract that the non-natural
person holds as agent for a natural person (such as where a bank or other entity
holds a Contract as trustee under a trust agreement).
The Internal Revenue Service could assert that Owners or Participants
under both Qualified Contracts and Non-Qualified Contracts annually receive a
taxable deemed distribution equal to the cost of any life insurance benefit
under the Contract.
You should note that qualified retirement investments automatically
provide tax deferral regardless of whether the underlying contract is an
annuity.
DISTRIBUTIONS AND WITHDRAWALS FROM NON-QUALIFIED CONTRACTS
The Account Value will include an amount attributable to Purchase
Payments, the return of which is not taxable, and an amount attributable to
investment earnings, the return of which is taxable at ordinary income rates.
The relative portions of a distribution that derive from nontaxable Purchase
Payments and taxable investment earnings depend upon the timing of the
distribution.
If you withdraw less than your entire Account Value under a Non-Qualified
Contract before the Annuity Commencement Date, you must treat the withdrawal
first as a return of investment earnings. You may treat only withdrawals in
excess of the amount of the Account Value attributable to investment earnings as
a return of Purchase Payments. Account Value amounts assigned or pledged as
collateral for a loan will be treated as if withdrawn from the Contract.
If a Payee receives annuity payments under a Non-Qualified Contract after
the Annuity Commencement Date, however, the Payee treats a portion of each
payment as a nontaxable return of Purchase Payments. In general, the nontaxable
portion of such a payment bears the same ratio to the total payment as the
Purchase Payments bear to the Payee's expected return under the Contract. The
remainder of the payment constitutes a taxable return of investment earnings.
Once the Payee has received nontaxable payments in an amount equal to total
Purchase Payments, all future distributions constitute fully taxable ordinary
income. If the Annuitant dies before the Payee recovers the full amount of
Purchase Payments, the Payee may deduct an amount equal to unrecovered Purchase
Payments.
Upon the transfer of a Non-Qualified Contract by gift (other than to the
Participant's spouse), the Participant must treat an amount equal to the Account
Value minus the total amount paid for the Contract as income.
A penalty tax of 10% may apply to taxable cash withdrawals and lump-sum
payments from Non-Qualified Contracts. This penalty will not apply in certain
circumstances, such as distributions pursuant to the death of the Participant or
distributions under an immediate annuity (as defined above), or after age
59 1/2.
DISTRIBUTIONS AND WITHDRAWALS FROM QUALIFIED CONTRACTS
Generally, distributions from a Qualified Contract will constitute fully
taxable ordinary income. Also, a 10% penalty tax will, except in certain
circumstances, apply to distributions prior to age 59 1/2.
Distributions from a Qualified Contract are not subject to current
taxation or a 10% penalty, however, if:
- the distribution is a hardship distribution or part of a series of
payments for life or for a specified period of 10 years or more (an
"eligible rollover distribution"), and
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- the Participant or Payee rolls over the distribution (with or without
actually receiving the distribution) into a qualified retirement plan
eligible to receive the rollover.
Only you or your spouse may elect to roll over a distribution to an
eligible retirement plan.
WITHHOLDING
In the case of an eligible rollover distribution (as defined above) from a
Qualified Contract (other than from a Contract issued for use with an individual
retirement account), we (or the plan administrator) must withhold and remit to
the U.S. Government 20% of the distribution, 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; however, only you and
your spouse may elect a direct rollover. In the case of a distribution from (i)
a Non-Qualified Contract, (ii) a Qualified Contract issued for use with an
individual retirement account, or (iii) a Qualified Contract where the
distribution is not an eligible rollover distribution, we will withhold and
remit to the U.S. Government a part of the taxable portion of each distribution
unless, prior to the distribution, the Participant or Payee provides us his or
her taxpayer identification number and instructs us (in the manner prescribed)
not to withhold. The Participant or Payee may credit against his or her federal
income tax liability for the year of distribution any amounts that we (or the
plan administrator) withhold.
PURCHASE OF IMMEDIATE ANNUITY CONTRACT AND DEFERRED ANNUITY CONTRACT
You should consider the following information only if you intend to
purchase an immediate annuity contract and a deferred annuity contract together.
We understand that the Treasury Department might reconsider the tax treatment of
annuity payments under an immediate annuity contract (as defined above)
purchased together with a deferred annuity contract. We believe that any adverse
change in the existing tax treatment of such immediate annuity contracts would
not apply to contracts issued before the Treasury Department announces the
change. However, there can be no assurance that the Treasury Department will not
apply any such change retroactively.
INVESTMENT DIVERSIFICATION AND CONTROL
The Treasury Department has issued regulations that prescribe investment
diversification requirements for mutual fund series underlying nonqualified
variable contracts. Contracts must comply with these regulations to qualify as
annuities for federal income tax purposes. Contracts that do not meet the
guidelines are subject to current taxation on annual increases in value. We
believe that each Fund complies with these regulations. The preamble to the
regulations states that the Internal Revenue Service may promulgate guidelines
under which an owner's excessive control over investments underlying the
contract will preclude the contract from qualifying as an annuity for federal
tax purposes. We cannot predict whether such guidelines, if in fact promulgated,
will be retroactive. We will take any action (including modification of the
Contract and/or the Variable Account) necessary to comply with any retroactive
guidelines.
TAX TREATMENT OF THE COMPANY AND THE VARIABLE ACCOUNT
As a life insurance company under the Code, we will record and report
operations of the Variable Account separately from other operations. The
Variable Account will not, however, constitute a regulated investment company or
any other type of taxable entity distinct from our other operations. We will not
incur tax on the income of the Variable Account (consisting primarily of
interest, dividends, and net capital gains) if we use this income to increase
reserves under Contracts participating in the Variable Account.
QUALIFIED RETIREMENT PLANS
You may use Qualified Contracts with several types of qualified retirement
plans. Because tax consequences will vary with the type of qualified retirement
plan and the plan's specific terms and conditions, we provide below only brief,
general descriptions of the consequences that follow from using Qualified
Contracts in connection with various types of qualified retirement plans. We
stress that
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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 of the
Qualified Contracts that you are using. These terms and conditions may include
restrictions on, among other things, ownership, transferability, assignability,
contributions and distributions. Owners, Participants, Payees, Beneficiaries and
administrators of qualified retirement plans should consider, with the guidance
of a tax adviser, whether the death benefit payable under the Contract affects
the qualified status of their retirement plan.
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. Self-employed persons may therefore use Qualified
Contracts as a funding vehicle for their retirement plans, as a general rule.
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. The Code imposes restrictions on cash withdrawals
from Section 403(b) annuities.
If the Contracts are to receive tax deferred treatment, cash withdrawals
of amounts attributable to salary reduction contributions (other than
withdrawals of accumulation account value as of December 31, 1988) 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 (i) any post-1988 salary reduction
contributions, (ii) any growth or interest on post-1988 salary reduction
contributions, and (iii) any growth or interest on pre-1989 salary reduction
contributions that occurs on or after January 1, 1989. It is permissible,
however, to withdraw post-1988 salary reduction contributions in cases of
financial hardship. While the Internal Revenue Service has not issued specific
rules defining financial hardship, we expect 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 Contracts. Under certain circumstances the 10% tax penalty will not
apply if the withdrawal is for medical expenses.
Under the terms of a particular Section 403(b) plan, the Participant may
be entitled to transfer all or a portion of the 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.
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. Such IRAs are subject to
limitations on contribution levels, 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 in an IRA on a tax-deferred
basis. If we sell Contracts for use with IRAs, the Internal Revenue Service or
other agency may impose supplementary information requirements. We will provide
purchasers of the Contracts for such purposes with any necessary information.
You will have the right to revoke the Contract under certain circumstances, as
described in the section of this Prospectus entitled "Right to Return."
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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
traditional IRA under Section 408 of the Code, contributions to a Roth IRA are
not tax-deductible. Provided certain conditions are satisfied, distributions are
generally tax-free. Like traditional IRAs, Roth IRAs are subject to limitations
on contribution amounts and the timing of distributions. If an individual
converts a traditional IRA into a Roth IRA the full amount of the IRA is
included in taxable income. The Internal Revenue Service and other agencies may
impose special information requirements with respect to Roth IRAs. If and when
we make Contracts available for use with Roth IRAs, we will provide any
necessary information.
ADMINISTRATION OF THE CONTRACTS
We perform certain administrative functions relating to the Contracts,
Participant 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 Account number and type, the
status of each Participant Account and other pertinent information necessary to
the administration and operation of the Contracts; processing Applications,
Purchase Payments, transfers and full and partial withdrawals; 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
We offer the Contracts on a continuous basis. The Contracts are sold by
licensed insurance agents in those states where the Contracts may be lawfully
sold. Such agents will be registered representatives of broker-dealers
registered under the Securities Exchange Act of 1934 who are members of the
National Association of Securities Dealers, Inc. and who have entered into
distribution agreements with the Company and the general distributor, Clarendon
Insurance Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481. Clarendon, a wholly-owned subsidiary of the Company,
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 6.25% 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 0.50% 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. We
reserve the right to offer these additional incentives only to certain
broker-dealers that sell or are expected to sell during specified time periods
certain minimum amounts of the Contracts or Certificates or other contracts
offered by the Company. Promotional incentives may change at any time.
Commissions may be waived or reduced in connection with certain transactions
described in this Prospectus under the heading "Waivers; Reduced Charges;
Credits; Bonus Guaranteed Interest Rates."
PERFORMANCE INFORMATION
From time to time the Variable Account may publish reports to
shareholders, sales literature and advertisements containing performance
information relating to the variable options. This information may include
standardized and non-standardized "Average Annual Total Return," "Cumulative
Growth Rate" and "Compound Growth Rate." We may also advertise "yield" and
"effective yield" for some variable options.
Average Annual Total Return measures the net income of the variable option
and any realized or unrealized gains or losses of the Funds in which it invests,
over the period stated. Average Annual Total Return figures are annualized and
represent the average annual percentage change in the value of
39
<PAGE>
an investment in a variable option over that period. Standardized Average Annual
Total Return information covers the period since we started offering the
Sub-Accounts available under the Futurity products or, if shorter, the life of
the Sub-Account. Non-standardized Average Annual Total Return covers the life of
each Fund, which may predate the Futurity products. Cumulative Growth Rate
represents the cumulative change in the value of an investment in the variable
option for the period stated, and is arrived at by calculating the change in the
Accumulation Unit Value of a variable option between the first and last day of
the period being measured. The difference is expressed as a percentage of the
Accumulation Unit Value at the beginning of the base period. "Compound Growth
Rate" is an annualized measure, calculated by applying a formula that determines
the level of return which, if earned over the entire period, would produce the
cumulative return.
Average Annual Total Return figures assume an initial purchase payment of
$1,000 and reflect all applicable withdrawal and Contract charges. The
Cumulative Growth Rate and Compound Growth Rate figures that we advertise do not
reflect withdrawal charges, the Account Fee, or any Purchase Payment Interest,
although such figures do reflect all recurring charges. If such figures were
calculated to reflect Purchase Payment Interest credited, the calculation would
also reflect any withdrawal charges made. Results calculated without withdrawal
and/or certain Contract charges will be higher. We may also use other types of
rates of return that do not reflect withdrawal and Contract charges.
The performance figures used by the Variable Account are based on the
actual historical performance of the Funds for the specified periods, and the
figures are not intended to indicate future performance.
Yield is a measure of the net dividend and interest income earned over a
specific one month or 30-day period (7-day period for the Sun Capital Money
Market Fund Sub-Account), expressed as a percentage of the value of the variable
options Accumulation Units. Yield is an annualized figure, which means that we
assume that the variable options generates the same level of net income over a
one-year period and compound that income on a semi-annual basis. We calculate
the effective yield for the Sun Capital Money Market Fund Sub-Account similarly,
but include the increase due to assumed compounding. The Sun Capital Money
Market Fund Sub-Account's effective yield will be slightly higher than its yield
as a result of its compounding effect.
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
information on performance and our computations is set forth in the Statement of
Additional Information.
The Company may also advertise the ratings and other information assigned
to it by independent industry ratings organizations. Some of these organizations
are A.M. Best, Moody's Investor's Service, Standard and Poor's Insurance Rating
Services, and Duff and Phelps. Each year A.M. Best reviews the financial status
of thousands of insurers, culminating in the assignment of Best's rating. These
ratings reflect A.M. Best's current opinion of the relevant financial strength
and operating performance of an insurance company in comparison to the norms of
the life/health industry. Best's ratings range from A++ to F. Standard and
Poor's and Duff and Phelps' ratings measure the ability of an insurance company
to meet its obligations under insurance policies it issues. These two ratings do
not measure the insurance company's ability to meet non-policy obligations.
Ratings in general do not relate to the performance of the Sub-Accounts.
We may also advertise endorsements from organizations, individuals or
other parties that recommend the Company or the Contracts. We may occasionally
include in advertisements (1) comparisons of currently taxable and tax deferred
investment programs, based on selected tax brackets; or (2) discussions of
alternative investment vehicles and general economic conditions.
AVAILABLE INFORMATION
The Company and the Variable Account have filed with the SEC registration
statements under the Securities Act of 1933 relating to the Contracts. This
Prospectus does not contain all of the
40
<PAGE>
information contained in the registration statements and their exhibits. For
further information regarding the Variable Account, the Company and the
Contracts, please refer to the registration statements and their exhibits.
In addition, the Company is subject to the informational requirements of
the Securities Exchange Act of 1934. We file reports and other information with
the SEC to meet these requirements. You can inspect and copy this information
and our registration statements at the SEC's public reference facilities at the
following locations: WASHINGTON, D.C. -- 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; CHICAGO, ILLINOIS -- 500 West Madison Street, Chicago,
IL 60661; NEW YORK, NEW YORK -- 7 World Trade Center, 13th Floor, New York, NY
10048. The Washington, D.C. office will also provide copies by mail for a fee.
You may also find these materials on the SEC's website (http:// www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1998 filed with the SEC is incorporated by reference in this Prospectus. Any
statement contained in a document we incorporate by reference is deemed modified
or superceded to the extent that a later filed document, including this
Prospectus, shall modify or supercede that statement. Any statement so modified
or superceded shall not be deemed, except as so modified or superceded, to
constitute part of this Prospectus.
The Company will furnish, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of the document referred to above which has been incorporated by reference
in this Prospectus, other than exhibits to such document (unless such exhibits
are specifically incorporated by reference in this Prospectus). Requests for
such document should be directed to the Secretary, Sun Life Assurance Company of
Canada (U.S.), One Sun Life Executive Park, Wellesley Hills, Massachusetts
02481, telephone (800) 225-3950.
ADDITIONAL INFORMATION ABOUT THE COMPANY
BUSINESS OF THE COMPANY
We are engaged in the sale of individual variable life insurance and
individual and group fixed and variable annuities. These contracts are sold in
both the tax qualified and non-tax qualified markets. These products are
distributed through individual insurance agents, insurance brokers and
registered broker-dealers.
The following table sets forth premiums and deposits by major product
categories for each of the last three years. See notes to financial statements
for industry segment information.
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Individual insurance products $ 155,907 $ 204,670 $ 207,845
Retirement products $ 2,194,895 $ 2,204,693 $ 1,834,327
------------ ------------ ------------
$ 2,350,802 $ 2,409,363 $ 2,042,172
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
We have obtained authorization to do business in 48 states, the District
of Columbia and Puerto Rico, and anticipate that we will be authorized to do
business in all states except New York. We have 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. Our 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 that
we and our affiliates issue, 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, Sun Life Financial Services Limited, which
provides off-shore administrative services to us and our parent, Sun Life
Assurance
41
<PAGE>
Company of Canada ("Sun Life (Canada)"), and Sun Life Information Services
Ireland Limited, an offshore technology center.
We are a wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings,
Inc. ("Life Holdco"). Life Holdco is a wholly-owned subsidiary of Sun Life
Assurance Company of Canada -- U.S. Operations Holdings, Inc. ("U.S. Holdco").
U.S. Holdco is a wholly-owned subsidiary of Sun Life (Canada), 150 King Street
West, Toronto, Ontario, Canada. Sun Life (Canada) is a mutual life insurance
company incorporated pursuant to Act of Parliament of Canada in 1865 and
currently transacts business in all of the Canadian provinces and territories,
all U.S. states (except New York), the District of Columbia, Puerto Rico, the
Virgin Islands, Great Britain, Ireland, Hong Kong, Bermuda and the Philippines.
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the statutory financial statements of the Company and notes
thereto included in this Prospectus beginning on page 55.
<TABLE>
<CAPTION>
FOR THE FOR THE YEARS ENDED DECEMBER 31,
PERIOD ENDED ---------------------------------------------------------------
JUNE 30, 1999 1998 1997 1996 1995 1994
------------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity deposits and other revenue $ 1,474,229 $ 2,581,463 $ 2,623,629 $ 2,215,322 $ 1,883,901 $ 1,997,525
Net investment income and realized gains 83,175 187,208 298,121 310,172 315,966 312,583
------------- ----------- ----------- ----------- ----------- -----------
1,557,404 2,768,671 2,921,750 2,525,494 2,199,867 2,310,108
------------- ----------- ----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 1,387,356 2,416,950 2,579,104 2,232,528 1,995,208 2,102,290
Other expenses 115,776 214,607 206,065 175,342 150,937 186,892
------------- ----------- ----------- ----------- ----------- -----------
1,503,132 2,631,557 2,785,169 2,407,870 2,146,145 2,289,182
------------- ----------- ----------- ----------- ----------- -----------
Operating gain 54,272 137,114 136,581 117,624 53,722 20,926
Federal income tax expense (benefit) 12,921 11,713 7,339 (5,400) 17,807 19,469
------------- ----------- ----------- ----------- ----------- -----------
Net income $ 41,351 $ 125,401 $ 129,242 $ 123,024 $ 35,915 $ 1,457
------------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- -----------
Assets $17,812,745 $16,902,621 $15,925,357 $13,621,952 $12,359,683 $10,117,822
------------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- -----------
Surplus notes $ 565,000 $ 565,000 $ 565,000 $ 315,000 $ 650,000 $ 335,000
------------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See Note 1 to financial statements for changes in accounting principles and
reporting.
See discussion in Management's Discussion and Analysis of Financial Conditions
and Results of Operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAUTIONARY STATEMENT
This Prospectus includes forward looking statements by the Company under
the Private Securities Litigation Reform Act of 1995. These statements are not
matters of historical fact; they relate to such topics as future product sales,
Year 2000 compliance, volume growth, market share, market risk and financial
goals. It is important to understand that these forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those that the statements anticipate. These risks and
uncertainties may concern, among other things:
- The Company's ability to identify and address Year 2000 issues
successfully, in a timely manner, and at reasonable cost. They also may
concern the ability of the Company's vendors, suppliers, other service
providers, and customers to successfully address their own Year 2000
issues in a timely manner.
42
<PAGE>
- Heightened competition, particularly in terms of price, product
features, and distribution capability, which could constrain the
Company's growth and profitability.
- Changes in interest rates and market conditions.
- Regulatory and legislative developments.
- Developments in consumer preferences and behavior patterns.
RESULTS OF OPERATIONS FOR DECEMBER 31, 1998
NET INCOME
Net income decreased by $3.8 million to $125.4 million in 1998, reflecting
an increase of $22.5 million in income from operations and a decrease of $26.3
million in net realized capital gains. (In the following discussion, "income
from operations" refers to the statutory statement of operations line item, net
gain from operations after dividends to policyholders and federal income tax and
before realized capital gains.)
Income from operations increased from $102.5 million in 1997 to $125.0
million in 1998, mainly as a result of the following factors:
- A $16.7 million increase, to $31.4 million in 1998, in the income from
operations from the Company's Retirement Products and Services segment.
(This is discussed in the "Retirement Products and Services Segment"
section below.)
- The effect of terminating certain reinsurance agreements with the
Company's ultimate parent. The termination of these agreements was the
predominant factor in the $71.1 million increase in income from
operations for the Company's Individual Insurance segment.
- The effects of the Company's December 1997 reorganization (described in
the "Corporate Segment" section below), as a result of which
Massachusetts Financial Services Company ("MFS") was no longer a
subsidiary of the Company. As a result of this reorganization,
dividends from subsidiaries were lower in 1998 than in 1997 and certain
subsidiary tax benefits were no longer available to the Company. Also
affecting income from operations for the Corporate segment in 1998 was
that income earned on the proceeds of a December 1997 issuance of a
$250 million surplus note was lower than the related interest expense.
Net realized capital gains decreased from $26.7 million in 1997 to $0.4
million in 1998. This change also reflected the Company's reorganization, as a
result of which the Company had a realized capital gain of $21.2 million in
1997.
Net income increased by $6.2 million to $129.2 million in 1997, as
compared to 1996 reflecting a decrease of $15.6 million in income from
operations and an increase of $21.8 million in net realized capital gains.
Income from operations decreased from $118.2 million in 1996 to $102.5
million in 1997, mainly as a result of the following factors:
- A $7.6 million decrease, to $14.7 million, in income from operations
from the Company's Retirement Products and Services segment. (This is
discussed in the "Retirement Products and Services Segment" section
below.)
- An increase of $6.5 million, compared to 1996, in the effects of the
reinsurance arrangements between the Company and its ultimate parent.
- A decrease, by approximately $9 million, in dividends from
subsidiaries, as well as higher taxes and expenses in the Corporate
segment.
As noted above, the $21.9 million increase in net realized capital gains,
from $4.8 million in 1996 to $26.7 million in 1997, was caused mainly by the
December 1997 Company reorganization, as a result of which the Company had a
realized capital gain of $21.2 million in 1997.
43
<PAGE>
INCOME FROM OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its three
business segments: the Retirement Products and Services segment, the Individual
Insurance segment and the Corporate segment. The following table provides a
summary:
Income from Operations by Segment*
($ in millions)
<TABLE>
<CAPTION>
% CHANGE
----------------------------
1998 1997 1996 1998/1997 1997/1996
--------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Individual Insurance 89.1 18.0 11.5 395.0% 56.5%
Retirement Products and Services 31.4 14.7 22.3 113.6% (34.1)%
Corporate 4.5 69.8 84.4 (93.6)% (17.3)%
--------- --------- --------- ----- -----
125.0 102.5 118.2 22.0% (13.3)%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
*Before realized capital gains
These results are discussed more fully below.
RETIREMENT PRODUCTS AND SERVICES SEGMENT
The Retirement Products and Services segment focuses on the savings and
retirement needs of those preparing for retirement or those who have already
retired. It primarily markets to upscale consumers in the U.S., selling
individual and group fixed and variable annuities. Its major product lines,
"Regatta" and "Futurity," are combination fixed/variable annuities. In these
combination annuities, contract holders have the choice of allocating payments
either to a fixed account, which provides a guaranteed rate of return, or to
variable accounts. Withdrawals from the Company's fixed account are subject to
market value adjustment. In the variable accounts, the contract holder can
choose from a range of investment options and styles. The return depends upon
investment performance of the options selected. Investment funds available under
Regatta are managed by MFS, an affiliate of the Company. Investment funds
available under Futurity products are managed by several investment managers,
including MFS and Sun Capital Advisers, Inc., a subsidiary of the Company.
The Company distributes these annuity products through a variety of
channels. For the Regatta products, about half are sold through securities
brokers, a further one-fourth through financial institutions, and the remainder
through insurance agents and financial planners. The Futurity products,
introduced in February 1998, are distributed through a dedicated wholesaler
network, including Sun Life of Canada (US) Distributors, Inc., that services
similar distribution channels.
Although new pension products are not currently sold, there has been a
substantial block of group retirement business in-force, including guaranteed
investment contracts ("GICs"), pension plans and group annuities. A significant
portion of these pension contracts are non-surrenderable, with the result that
the Company's liquidity exposure is limited. GICs were marketed directly in the
U.S. through independent managers. In 1997, the Company decided to no longer
market group pension and GIC products.
Following are the major factors affecting the Retirement Products and
Services segment results compared to the prior year:
1998 COMPARED TO 1997:
- A SHIFTING PATTERN IN SALES. Annuity deposits declined by about $27
million, or 1%, to $2.2 billion in 1998. Fixed annuity account deposits
were lower by approximately 7% in 1998, while deposits into variable
annuity accounts have been increasing in total and as a proportion of
total annuity deposits. These trends reflected market conditions and
competitive factors.
44
<PAGE>
Deposits into the Dollar Cost Averaging (DCA) programs, a feature of
the Company's combination fixed/variable annuity products, were a
significant element of account deposits. Under these programs, which
were redesigned in late 1996, deposits are made into the fixed portion
of the annuity contract and receive a bonus rate of interest for the
policy year. During the year, the fixed deposit is systematically
transferred to the variable portion of the contract in equal periodic
installments. DCA deposits overall were flat in 1998 compared to 1997.
This pattern resulted, in part, from heightened competition, as other
companies introduced similar DCA programs within the past year. During
the fourth quarter of 1998, the Company introduced a higher DCA rate
and a new six-month DCA program. DCA deposits for that quarter were
higher, compared to the preceding 1998 quarters.
An increase in variable account deposits in 1998 reflected both the
continuing strong growth in equity markets generally and the continuing
strong performance of the investment funds underlying the Company's
variable annuity products. The continuing strong equity markets, low
interest rate environment, and demographic trends, among other factors,
have increased the demand and market for wealth accumulation products
in the U.S., particularly for variable annuities. These factors have
contributed to the growth in the Company's variable account deposits in
1998, despite heightened competition.
The Company introduced its Futurity line of products in February 1998.
Related deposits represented about 6% of the total for the Retirement
Products and Services segment in 1998, reflecting this recent
introduction. The Company expects that sales for the Futurity product
will continue to increase in the future, based on its beliefs that
market demand is growing for multi-manager variable annuity products,
such as Futurity; that the productivity of Futurity's wholesale
distribution network, established in 1998, will continue to grow; and
that the marketplace will respond favorably to future introductions of
new Futurity products and product enhancements.
- HIGHER FEE INCOME RESULTING FROM HIGHER VARIABLE ANNUITY ACCOUNT
BALANCES. The main factors driving this growth in account balances have
been market appreciation and net deposit activity. This growth has
generated corresponding increases in fee income, since fees are
determined based on the average assets held in these accounts. Fee
income increased by approximately $43 million, or 39%, in 1998.
- WHILE THERE HAS BEEN A SHIFT TO VARIABLE ACCOUNTS FROM THE GENERAL
ACCOUNT, NET INVESTMENT INCOME HAS DECLINED. Net investment income
reflects only income earned on invested assets of the general account.
In 1998, net investment income for the Retirement Products and Services
segment decreased by about $40 million, or 20%, compared to 1997,
mainly as a result of the decline in average invested assets in the
Company's general account. This decline in average general account
assets mainly reflected the shift in deposits in recent years from the
fixed account to variable accounts. It also reflected the Company's
decision in 1997 to no longer market group pension and GIC products.
- LOWER POLICYHOLDER BENEFITS, MAINLY REFLECTING LOWER SURRENDER ACTIVITY
COMPARED TO 1997. During 1997 and into the first half of 1998,
surrender and withdrawal activity was high. This activity primarily
related to a block of separate account contracts that had been issued
seven or more years previously and for which the surrender charge
periods had expired. While variable account surrenders have continued
to rise, general account surrenders have declined. As a result of this
pattern of activity, policyholder benefits (of which surrenders and
withdrawals, the related changes in the liability for premium and other
deposit funds, and related separate account transfers are the major
elements) increased in 1997 and were lower in 1998. The Company expects
that as the separate account block of business continues to grow, and
as a higher proportion of it is no longer subject to surrender charges,
surrenders will tend to increase.
45
<PAGE>
- INVESTMENTS IN TECHNOLOGY AND INFRASTRUCTURE TO ENHANCE ANNUITY
OPERATIONS. As a result of these investments, operational expenses
increased by approximately $12 million, or 25%, in 1998 compared to
1997. These increases reflected three main factors:
(1) HIGHER VOLUMES OF ANNUITY BUSINESS, REQUIRING GREATER
ADMINISTRATIVE SUPPORT. The Company expects that increases in the
volume of its annuity business will continue to have a similar
effect on expenses in the near term.
(2) IMPROVEMENTS TO THE COMPUTER SYSTEMS AND TECHNOLOGY THAT
SUPPORT THE ANNUITY BUSINESS. These improvements involved
information systems supporting the growth of the Company's
in-force business, particularly its combination fixed/variable
annuities. The Company expects to continue to invest in its
systems and technology in the future. The extent and nature of
these investments will depend on the Company's assessments of
the relative costs and benefits of given projects.
(3) COSTS ASSOCIATED WITH THE PRODUCT DESIGN AND IMPLEMENTATION OF
THE NEW FUTURITY MULTI-MANAGER ANNUITY PRODUCT AND THE DEVELOPMENT
OF A NEW PRODUCT WITHIN THE REGATTA PRODUCT LINE. The Company
expects to continue to invest in further product enhancements
in the future.
1997 COMPARED TO 1996:
- STRONG FIXED ACCOUNT DEPOSITS. Fixed account deposits in 1997 were
approximately $650 million, or 240%, higher than in 1996. This increase
resulted mainly from the Company's redesign of its DCA programs in late
1996. The Company benefited at the time from the popularity of its DCA
program features and from the absence of major competitors offering
similar features.
- IN 1997, VARIABLE ANNUITY DEPOSITS WERE ABOUT $200 MILLION, OR 16%,
LOWER THAN IN 1996. This trend reflected heightened competition,
uncertainties in the marketplace regarding the attractiveness of
variable annuities, and customer preferences for depositing into the
DCA programs rather than directly into the variable accounts.
- HIGHER FEE INCOME RESULTING FROM HIGHER VARIABLE ANNUITY ACCOUNT
BALANCES. The main factors driving this growth in account balances were
market appreciation and net deposit activity. This growth generated
corresponding increases in fee income, since fees are determined based
on the average assets held in these accounts.
- DECLINING GENERAL ACCOUNT BALANCES, RESULTING IN DECLINING NET
INVESTMENT INCOME. In 1997, net investment income for the Retirement
Products and Services segment decreased by about 16%, mainly as a
result of a decline in average invested assets in the Company's general
account. This decline in average general account assets mainly
reflected the Company's decision in 1997 to no longer market group
pension and GIC products.
- HIGHER POLICYHOLDER BENEFITS, MAINLY REFLECTING HIGH SURRENDER ACTIVITY
IN 1997. As noted above, surrender and withdrawal activity was high in
1997. This activity primarily related to a block of separate account
contracts that had been issued seven or more years previously and for
which the surrender charge period had expired. As a result of this
pattern of activity, policyholder benefits (of which surrenders and
withdrawals, the related changes in the liability for premium and other
deposit funds, and related separate account transfers are the major
elements) were unusually high in 1997 compared to 1996.
- HIGHER COMMISSIONS. Commissions increased by approximately $22 million,
or 20%, in 1997, directly reflecting higher sales of combination
fixed/variable annuity products in 1997 compared to 1996.
46
<PAGE>
- HIGHER OPERATIONAL EXPENSES. Operational expenses increased by
approximately $5 million, or 13%, as a result of the additional
staffing needed to administer higher volumes of business and because of
non-recurring costs of moving the Retirement Products and Services
operations to a new facility.
- INDIVIDUAL INSURANCE SEGMENT
The Individual Insurance segment comprises two main elements: internal
reinsurance and variable life products.
INTERNAL REINSURANCE
In recent years, the Company has had various reinsurance agreements with its
ultimate parent, Sun Life (Canada). In some of these arrangements, Sun Life
(Canada) has reinsured the mortality risks of individual life policies sold in
prior years by the Company. In another agreement, which became effective January
1, 1991 and terminated October 1, 1998, the Company reinsured certain individual
life insurance contracts issued by Sun Life (Canada). The latter agreement had a
significant effect on net income in both 1997 and 1998. The former agreements,
in the aggregate, also affected net income in those years, but to a much lesser
extent. The effects of these agreements on the Company's net income are
summarized in the following table.
Internal Reinsurance-Effect on Income From Operations Before Income Taxes
($ in millions)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
1991 Agreement
Effect on operations $ 24.6 $ 37.1 $ 35.2
Effect of termination 65.7 -- --
Other Agreements
Effect on operations (2.1) (1.4) (1.6)
--------- --------- ---------
Total $ 88.2 $ 35.7 $ 33.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
Because the 1991 agreement was in effect only through the first nine
months of 1998, related net income was correspondingly lower in 1998 than in
1997. Also contributing to the lower 1998 net income from operations from this
agreement were proportionately higher death claims in 1998. The effect of
terminating this agreement was to further increase 1998 net income by $65.7
million. Neither the net income effect of this agreement's operations nor that
of its termination will recur. The termination-related increase in 1998
represents a reasonable approximation of the value of the stream of future
earnings that the agreement would have generated had it not been terminated.
VARIABLE LIFE PRODUCTS
This business includes the sale of individual variable life insurance products,
primarily the Company's variable universal life product for the company-owned
life insurance ("COLI") market. This product was introduced in late 1997. The
Company expects the variable life business to grow and become more significant
in the future.
CORPORATE SEGMENT
This segment includes the capital of the Company, its investments in
subsidiaries and items not otherwise attributable to either the Retirement
Products and Services and Individual Insurance segments. In 1998, income from
operations decreased by $65.3 million to $4.5 million for this segment. This
decrease reflected two main factors:
- DIVIDENDS FROM SUBSIDIARIES WERE LOWER THAN IN 1997 BY $37.5 MILLION.
This decrease mainly resulted from a December 1997 reorganization, in
which the Company transferred its ownership of MFS to its parent
company. As a result of this reorganization, the Company received no
dividends from MFS in 1998. By comparison, it received $33.1 million of
MFS dividends in 1997.
47
<PAGE>
- Net investment income other than dividends from subsidiaries, was lower
than in 1997 by $5.9, reflecting the effect of the Company's December
1997 issuance of a $250 million surplus note to its upstream holding
company. Interest expense exceeded investment earnings on the related
funds.
In 1997, income from operations for this segment decreased by $14.6
million, to $69.8 million. This decrease mainly reflected a decrease, by
approximately $9 million, in dividends from subsidiaries. It also reflected
higher taxes and expenses.
FINANCIAL CONDITION AND LIQUIDITY
ASSETS
The Company's total assets comprise those held in its general account and
those held in its separate accounts. General account assets support general
account liabilities. Separate accounts and their assets are of two main types:
- Those assets held in a "fixed" separate account, which the Company
established for amounts that contract holders allocate to the fixed
portion of their combination fixed/variable deferred annuity contracts.
Fixed separate account assets are available to fund general account
liabilities and general account assets are available to fund the
liabilities of this fixed separate account. The Company manages the assets
of this fixed separate account according to general account investment
policy guidelines.
- Those assets held in a number of registered and non-registered "variable"
separate accounts as investment vehicles for the Company's variable life
and annuity contracts. Policyholders may choose from among various
investment options offered under these contracts according to their
individual needs and preferences. Policyholders assume the investment
risks associated with these choices. General account and fixed separate
account assets are not available to fund the liabilities of these variable
accounts.
The following table summarizes significant changes in asset balances
during 1998 and 1997. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS % CHANGE
1998 1997 1996 1998/1997 1997/1996
---------- ---------- ---------- ------------ ------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
General account assets $ 2,932.2 $ 4,513.5 $ 4,593.9 (35.0)% (1.75)%
Fixed separate account assets 2,195.6 2,343.9 2,108.8 (6.3)% 11.15%
---------- ---------- ---------- ------ ------
$ 5,127.8 $ 6,857.4 $ 6,702.7 (25.2)% 2.31%
Variable separate account assets 11,774.8 9,068.0 6,919.2 29.9% 31.06%
---------- ---------- ---------- ------ ------
Total assets $ 16,902.6 $ 15,925.4 $ 13,621.9 6.1% 16.91%
---------- ---------- ---------- ------ ------
---------- ---------- ---------- ------ ------
</TABLE>
General account and fixed separate account assets, taken together,
decreased by 25% in 1998, but variable separate account assets increased by 30%
that year. In 1997, growth in the general account and fixed separate account was
low; variable separate account assets increased by 31%. This growth in variable
accounts relative to the general and fixed accounts reflects two main factors:
appreciation of the funds held in the variable separate accounts has exceeded
that of the funds held in the general and fixed separate accounts; and annuity
deposits into variable accounts have increased, while annuity deposits into
fixed accounts have slowed. The Company believes this pattern reflects a shift
in the preferences of policyholders, which is largely attributable to the strong
performance of equity markets in general and of the Company's variable account
funds in particular.
The assets of the Company's general account are available to support
general account liabilities. For management purposes, it is the Company's
practice to segment its general account to facilitate the matching of assets and
liabilities. General account assets primarily comprise cash and invested assets,
which represented 98.7% of general account assets at year-end 1998. Major types
of invested asset holdings included bonds, mortgages, real estate and common
stock. The Company's bond holdings
48
<PAGE>
comprised 60.9% of the Company's portfolio at year-end 1998. Bonds included both
public and private issues. It is the Company's policy to acquire only
investment-grade securities. As a result, the overall quality of the bond
portfolio is high. At year-end 1998, only 5.3% of these securities were rated
below-investment-grade; I.E., they had National Association of Insurance
Commissioners ("NAIC") ratings lower than "1" or "2." The Company's mortgage
holdings amounted to $535.0 million at year-end 1998, representing 18.5% of the
total portfolio. All mortgage holdings at year-end 1998 were in good standing.
The Company believes that the high quality of its mortgage portfolio is largely
attributable to its stringent underwriting standards. At year-end 1998,
investment real estate amounted to $78.0 million, representing about 2.7% of the
total portfolio. The Company invests in real estate to enhance yields and,
because of the long-term nature of these investments, the Company uses them for
purposes of matching with products having long-term liability durations. Common
stock holdings amounted to $128.4 million, representing about 4.4% of the
portfolio. These holdings comprised the Company's ownership shares in
subsidiaries.
Other general account assets decreased by $1,021.4 million in 1998. This
change primarily reflected the effect of terminating the internal reinsurance
agreement with the Company's ultimate parent, discussed in "Internal
Reinsurance," above.
LIABILITIES
As with assets, the proportion of variable separate account liabilities to
total liabilities has been increasing. Most of the Company's liabilities
comprise reserves for life insurance and for annuity contracts and deposit
funds. The Company expects the declining trend in general account liabilities to
continue, because it believes that net maturities will continue to exceed sales
for the fixed contracts associated with these liabilities. This trend stems
mainly from the Company's 1997 decision to discontinue selling group pension and
GIC contracts and to focus its marketing efforts on its combination
fixed/variable annuity products.
In December 1997, the Company borrowed $110.0 million from Sun Life
Assurance Company of Canada -- U.S. Operations Holdings, Inc. ("U.S. Holdco"),
its upstream holding company. The Company repaid this note during the first
quarter of 1998.
The termination of the internal reinsurance agreement discussed above
resulted in a $1.0 billion decrease in liabilities as compared to 1997.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
NET INCOME
Net income increased by $6.1 million to $41.3 million in the first six
months of 1999 as compared to the same period in 1998. This change mainly
reflected an increase in net realized gains of $6.3 million, most of which
resulted from the Company's sale, in February 1999, of its subsidiary,
Massachusetts Casualty Insurance Company. Income from operations of $34.1
million for the first six months of 1999 was essentially unchanged from the same
period in 1998. Income from operations refers to the statutory statement of
operations line item "net gain from operations after dividends to policyholders
and federal income tax and before realized capital gains." That income from
operations remained essentially unchanged reflects the following factors, which,
taken together, effectively offset each other:
- Income from operations from the Company's Wealth Management segment
increased by $4.5 million to $28.8 million for the first six months of
1999. (This increase is discussed in the "Wealth Management Segment"
section below.)
- The Company's termination of certain reinsurance agreements with its
ultimate parent in the fourth quarter of 1998 affected income from
operations for the Protection segment. Active reinsurance agreements in
the first six months of 1998 had the effect of decreasing income from
operations by $.5 million in that period; those still active in the first
half of 1999 had the effect of reducing income from operations by $0.4
million in that period. Other activity in the Protection Segment resulted
in a decrease to income from operations of $4.5 million in the first half
of 1999 compared to the same period in 1998.
49
<PAGE>
INCOME FROM OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its three
business segments: the Wealth Management segment, the Protection segment and the
Corporate segment. The following table provides a summary.
Income From Operations
Before Net Realized Capital Gains or Losses
($ in millions)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- --------- % CHANGE
-----------
<S> <C> <C> <C>
Wealth Management................................................................ $ 28.8 $ 24.4 18.0%
Protection....................................................................... (0.9) 3.7 -124.3%
Corporate........................................................................ 6.2 6.2 --
--------- --------- -----------
$ 34.1 $ 34.3 -0.6%
--------- --------- -----------
--------- --------- -----------
</TABLE>
WEALTH MANAGEMENT SEGMENT
The Wealth Management segment focuses on the savings and retirement needs of
those preparing for retirement or those who have already retired. It primarily
markets to upscale consumers in the U.S., selling individual and group fixed and
variable annuities. Its major product lines, "Regatta" and "Futurity," are
combination fixed/variable annuities. In these combination annuities, contract
holders have the choice of allocating payments either to a fixed account, which
provides a guaranteed rate of return, or to variable accounts. Withdrawals from
the fixed account are subject to market value adjustment. In the variable
accounts, the contract holder can choose from a range of investment options and
styles. The return depends upon investment performance of the options selected.
Investment funds available under Regatta are managed by Massachusetts Financial
Services ("MFS"), an affiliate of the Company. Investment funds available under
Futurity products are managed by several investment managers, including MFS and
Sun Capital Advisers, Inc., a subsidiary of the Company.
The Company distributes these annuity products through a variety of
channels. For the Regatta products, about half are sold through securities
brokers; a further one-fourth through financial institutions, and the remainder
through insurance agents and financial planners. The Futurity products,
introduced in February 1998, are distributed by Sun Life of Canada (US)
Distributors, Inc., through a dedicated wholesaler network and similar
distribution channels.
Although new pension products are not currently sold, there has been a
substantial block of group retirement business in-force, including guaranteed
investment contracts ("GICs"), pension plans and group annuities. A significant
portion of these pension contracts are non-surrenderable, with the result that
the Company's liquidity exposure is limited. GICs were marketed directly in the
U.S. through independent managers. In 1997, the Company decided to no longer
market group pension and GIC products.
Following are the major factors affecting the Wealth Management segment
results in the first six months of 1999 as compared to the same period in the
prior year.
Deposit-type funds, which primarily comprised annuity deposits, increased
by $348.2 million, or 35% to $1,344.2 million in the first six months of 1999
compared to the same period in 1998. Fixed annuity account deposits were higher
by approximately $430 million in the first six months of 1999 compared to the
same period in 1998 mainly as a result of the success of Company's introduction,
during the fourth quarter of 1998, of a higher Dollar Cost Averaging (`DCA')
rate and a new six-month DCA program. Under these programs, which were
redesigned in late 1996, deposits are made into the fixed portion of the annuity
contract and receive a bonus rate of interest for the policy year. During the
50
<PAGE>
year, the fixed deposit is systematically transferred to the variable portion of
the contract in equal periodic installments.
Deposits directly into variable accounts declined by approximately 16% in
the first six months of 1999 compared to the same period in 1998. The Company's
management believes this decline was a consequence of the heightened interest in
the DCA programs in 1999.
Sales of the Futurity line of products, introduced in February 1998,
represented approximately 12% of total annuity deposits for the first six months
of 1999. The Company expects that sales for the Futurity product will continue
to increase in the future, based on its beliefs that market demand is growing
for multi-manager variable annuity products, such as Futurity; that the
productivity of Futurity's wholesale distribution network, established in 1998,
will continue to grow; and that the marketplace will respond favorably to future
introductions of new Futurity products and product enhancements.
Fee income increased as a result of higher variable annuity account
balances. Fee income was higher by $14.5 million, or 22% in the first six months
of 1999 compared to the same period in 1998. The main factors driving this
growth in account balances have been market appreciation and net deposit
activity. This growth has generated corresponding increases in fee income, since
fees are determined based on the average assets held in these accounts.
There has been a shift to variable account products from the general
account products. As a consequence, there has been a decline in average general
account invested assets and, in turn, net investment income has declined. Net
investment income reflects only income earned on invested assets of the general
account. In the first six months of 1999, net investment income for the Wealth
Management segment decreased by $22.5 million, or 27%, compared to the same
period in 1998. This decline in average general account assets mainly reflects
the Company's decision in 1997 to no longer market group pension and GIC
products. It also reflects the shift in deposits in recent years from the fixed
account to variable accounts.
Policyholder benefits (the major elements of which are surrenders and
withdrawals, changes in the liability for premium and other deposit funds, and
related separate account transfers) were higher in the first six months of 1999
as compared to the same period in 1998, mainly as a result of higher variable
annuity surrenders. This activity primarily related to a block of separate
account contracts that had been issued seven or more years previously and for
which the surrender charge periods had expired. The company expects that as the
separate account block of business continues to grow and as increasing amounts
are no longer subject to surrender charges, surrenders will tend to increase.
The Company is establishing a conservation program with the aim of improving
asset retention.
Operational expenses, which include general insurance expenses and
insurance taxes, licenses and fees, excluding federal income taxes, decreased by
approximately $1.2 million, or 4 %, in the first six months of 1999 compared to
the same period in 1998. This decrease mainly reflected the fact that
operational expenses during the second quarter of 1998 included certain
non-recurring costs associated with the Company's decision to no longer market
its group pension products. If these non-recurring costs were excluded from the
comparison, then operational expenses would have shown an increase in the first
six months of 1999 compared to the same period in 1998. This increase would have
reflected such factors as higher volumes of annuity business, requiring greater
administrative support; ongoing improvements to the computer systems and
technology that support the growth of the Company's in-force business,
particularly its combination fixed/variable annuities; and costs associated with
the product design, implementation, and distribution of the new Futurity
multi-manager annuity product.
PROTECTION SEGMENT
The Protection segment comprises two main elements, internal reinsurance and
variable life products.
In recent years, the Company has had various reinsurance agreements with
its ultimate parent, SLOC. In some of these arrangements, SLOC has reinsured the
mortality risks in excess of the Company's retention of individual life policies
sold in prior years by the Company. These agreements, in the
51
<PAGE>
aggregate, had an immaterial effect on net income in both 1998 and 1999. In
another agreement, which became effective January 1, 1991 and terminated October
1, 1998, the Company reinsured certain individual life insurance contracts
issued by SLOC. This latter agreement had a significant effect on net income in
the first six months of 1998 but not in 1999.
The Company's primary individual variable life insurance product is its
variable universal life product marketed to the company-owned life insurance
("COLI") market. This product was introduced in late 1997. The Company's
management expects its variable life business to grow and become more
significant in the future. It is developing a new variable universal life
product that it expects to launch later in 1999. During the first half of 1999,
expenses involved with the development of this product had the effect of
reducing income from operations for the Protection segment in comparison with
the same period in 1998.
CORPORATE SEGMENT
This segment includes the capital of the Company, its investments in
subsidiaries and items not otherwise attributable to either the Wealth
Management or the Protection segments. In the first six months of 1999, income
from operations for this segment remained nearly unchanged at approximately $6.2
million, as compared to the same period in 1998.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
NET INCOME
Net income decreased by $16.6 million to $3.7 million for the quarter
ended June 30, 1999 as compared to the same quarter in 1998. This change
primarily reflected a decrease of $16.8 million in income from operations, to
$2.7 million for the second quarter of 1999 as further discussed below. It also
reflected an increase of $ 0.2 million in net realized capital gains.
INCOME FROM OPERATIONS BY SEGMENT
The following table provides a summary of income from operations by
business segment:
Income From Operations
Before Net Realized Capital Gains or Losses
($ in millions)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
--------------------
1999 1998
--------- --------- % CHANGE
-----------
<S> <C> <C> <C>
Wealth Management................................................................ $ 7.2 $ 12.3 -41.3%
Protection....................................................................... (1.2) 1.4 -189.0%
Corporate........................................................................ (3.3) 5.9 -155.8%
--------- --------- -----------
$ 2.7 $ 19.5
--------- --------- -----------
--------- --------- -----------
</TABLE>
WEALTH MANAGEMENT SEGMENT
Following are the major factors affecting the Wealth Management segment
results in the second quarter of 1999 as compared to the same period in 1998.
Most of the factors had the effect of increasing income from operations;
however, increased policyholder benefit costs and lower net investment income,
both discussed below, resulted in the overall decline in income from operations
in the second quarter of 1999 as compared to the same quarter in 1998.
Deposit-type funds, which primarily comprise annuity deposits, increased
by $197.4 million, or 38% to $717.9 million in the second quarter of 1999
compared to the same 1998 quarter. Fixed annuity account deposits were higher by
approximately $250 million in the second quarter of 1999 compared to the same
1998 quarter, mainly as a result of the success of the dollar cost averaging
(DCA) programs.
52
<PAGE>
Deposits directly into variable accounts declined by approximately 24% in the
second quarter of 1999 compared to the same quarter in 1998. The Company's
management believes this decline was a consequence of the heightened interest in
the DCA programs in 1999. Sales of the Futurity line of products, introduced in
February 1998, represented approximately 14% of total annuity deposits in the
second quarter of 1999, a slightly higher percentage than in the first quarter
of 1999.
Fee income increased as a result of higher variable annuity account
balances. Fee income was higher by $6.67 million, or 19% in the second quarter
of 1999 compared to the same quarter in 1998. The main factors driving this
growth in account balances were market appreciation and net deposit activity.
This growth has generated corresponding increases in fee income, since fees are
determined based on the average assets held in these accounts.
In the second quarter of 1999, net investment income for the Wealth
Management segment decreased by $11.0 million, or 27%, compared to the same
period in 1998. This decline in average general account assets mainly reflects
the Company's decision in 1997 to no longer market group pension and GIC
products; it also reflects the shift in deposits in recent years from the fixed
account to variable accounts.
Policyholder benefits (the major elements of which are surrenders and
withdrawals, changes in the liability for premium and other deposit funds, and
related separate account transfers) were higher in the second quarter of 1999 as
compared to the same quarter in 1998, mainly as a result of higher variable
annuity surrenders. This activity primarily related to a block of separate
account contracts that had been issued seven or more years previously and for
which the surrender charge periods had expired. The company expects that as the
separate account block of business continues to grow and as increasing amounts
are no longer subject to surrender charges, surrenders will tend to increase.
The Company has established a conservation program with the aim of improving
asset retention.
Operational expenses decreased by approximately $2.6 million, or 15 %, in
second quarter of 1999 compared to the same quarter in 1998. This decrease
mainly reflected the fact that operational expenses during the second quarter of
1998 included certain non-recurring costs associated with the Company's decision
to no longer market its group pension products. If these non-recurring costs
were excluded from the comparison, then operational expenses would have shown an
increase in the second quarter of 1999 compared to the same period in 1998. This
increase would have reflected such factors as higher volumes of annuity
business, requiring greater administrative support; ongoing improvements to the
computer systems and technology that support the growth of the Company's
in-force business, particularly its combination fixed/variable annuities; and
costs associated with the product design, implementation, and distribution of
the new Futurity multi-manager annuity product.
PROTECTION SEGMENT
The Protection segment comprises two main elements, internal reinsurance and
variable life products.
As noted above, the Company has had various reinsurance agreements with
its ultimate parent, SLOC. Active reinsurance agreements in the second quarter
of 1998 had the effect of decreasing income from operations by $.8 million in
that period; those still active in the second quarter of 1999 had the effect of
reducing income from operations by $0.5 million in that period. Other activity
in the Protection segment resulted in a decrease to income from operations of
$2.3 million.
The Company's primary individual variable life insurance product is its
variable universal life product marketed to the company-owned life insurance
("COLI") market. This product was introduced in late 1997. The Company's
management expects its variable life business to grow and become more
significant in the future. It is developing a new variable universal life
product that it expects to launch later in 1999. During the first half of 1999,
expenses involved with the development of this product had the effect of
reducing income from operations for the Protection segment in comparison with
the same period in 1998.
53
<PAGE>
CORPORATE SEGMENT
This segment includes the capital of the Company, its investments in
subsidiaries and items not otherwise attributable to either the Wealth
Management or the Protection segments. In the second quarter of 1999, income
from operations for this segment decreased by $9.1 million, as compared to the
same period in 1998. There were three main factors causing this change.
- Dividends from subsidiaries were lower by approximately $3 million in the
second quarter of 1999 compared to the same 1998 quarter.
- Investment income was lower in the second quarter of 1999 compared to the
same period in 1998, because dividend payments to policyholders, of $45
million in 1998 and $70 million in April 1999, reduced the average
invested asset balance in this segment.
- Higher expenses for the segment contributed to the decline in income from
operations for this segment in the second quarter of 1999 as compared to
the second quarter of 1998.
FINANCIAL CONDITION AND LIQUIDITY FOR THE SIX MONTHS ENDED JUNE 30, 1999
ASSETS
The Company's total assets are held in either its general account or its
separate accounts.
General account assets are carried at book value and support general
account liabilities. For management purposes, it is the Company's practice to
segment its general account to facilitate the matching of assets and
liabilities. General account assets primarily comprise cash and invested assets,
which represented nearly 100% of general account assets both at June 30, 1999
and December 31, 1998. Major types of invested asset holdings included bonds,
mortgages, real estate and common stock.
Separate accounts and their assets are carried at market value and are of
two main types:
- Those assets held in a "fixed" (or "non-unitized") separate account, which
the Company established for amounts that contract holders allocate to the
fixed portion of their combination fixed/ variable deferred annuity
contracts. Fixed separate account assets are available to fund general
account liabilities and general account assets are available to fund the
liabilities of this fixed separate account. The Company manages the assets
of this fixed separate account according to general account investment
policy guidelines.
- Those assets held in a number of registered and non-registered "variable"
(or "unitized") separate accounts as investment vehicles for the Company's
variable life and annuity contracts. Policyholders may choose from among
various investment options offered under these contracts according to
their individual needs and preferences. Policyholders assume the
investment risks associated with these choices. General account and fixed
separate account assets are not available to fund the liabilities of these
variable accounts.
The following table summarizes significant changes in asset balances
during the first six months of 1999. The changes are discussed below.
Assets
($ in millions)
<TABLE>
<CAPTION>
6/30/99 12/31/98 % CHANGE
--------- ---------- -----------
<S> <C> <C> <C>
General Account assets....................................................... $ 2,573.0 $ 2,932.2 -12.3%
Fixed Separate Account assets................................................ 2,245.3 2,195.6 2.3%
--------- ---------- -----------
4,818.3 5,127.8 -6.0%
Variable Separate Account assets............................................. 12,994.5 11,774.7 10.4%
--------- ---------- -----------
Total assets................................................................. $17,812.8 $ 16,902.5 5.4%
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
54
<PAGE>
General account and fixed separate account assets, taken together,
decreased by 6% in the first six months of 1999. Variable separate account
assets increased by 10%, during that period. In management's vie, these changes
are consistent overall with broader trends seen both in the Company and in the
industry in recent years, as variable accounts have shown rapid growth while
fixed accounts have tended to grow more slowly or even decline. The pattern
shown in the first six months of 1999 mainly reflected strong deposits into the
Company's DCA programs, which management believes is largely the result of the
Company's enhancements to these programs in late 1998. It also reflected market
appreciation of approximately $840 million for separate account assets during
this period. The company is investigating other strategies for growing general
account assets.
LIABILITIES
As with assets, the proportion of variable separate account liabilities to
total liabilities has been increasing. Most of the Company's liabilities
comprise reserves for life insurance and for annuity contracts and deposit
funds. The Company's 1997 decision to discontinue selling group pension and GIC
contracts and to focus its marketing efforts on its combination fixed/variable
annuity products had the effect of reducing general account liabilities.
CAPITAL MARKETS RISK MANAGEMENT
See Item 3. "Quantitative and Qualitative Disclosures About Market Risk,"
in this Quarterly Report on Form 10-Q for a discussion of the Company's capital
markets risk management.
CAPITAL RESOURCES
CAPITAL ADEQUACY
The National Association of Insurance Commissioners ("NAIC") adopted
regulations at the end of 1993 that established minimum capitalization
requirements for insurance companies, based on risk-based capital
("RBC")formulas. These requirements are intended to identify undercapitalized
companies, so that specific regulatory actions can be taken on a timely basis.
The RBC formula for life insurance companies sets capital requirements related
to asset, insurance, interest rate, and business risks. According to the RBC
calculation, the Company's capital was well in excess of its required capital
both at June 30, 1999 and December 31, 1998.
LIQUIDITY
The Company's liquidity requirements are generally met by funds from
operations. The Company's main uses of funds are to pay out death benefits and
other maturing insurance and annuity contract obligations; to make pay-outs on
contract terminations; to purchase new investments; to fund new business
ventures; and to pay normal operating expenditures and taxes. The Company's main
sources of funds are premiums and deposits on insurance and annuity products;
proceeds from the sale of investments; income from investments; and repayments
of investment principal. In managing its general account and fixed separate
account assets in relation to its liabilities, the Company has segmented these
assets by product or by groups of products. The Company manages each segment's
assets based on an investment policy that it has established for that segment.
Among other matters, this investment policy considers liquidity
requirements and provides cash flow estimates. The Company reviews these
policies quarterly. The Company's liquidity targets are intended to enable it to
meet its day-to-day cash requirements. On a quarterly basis, the Company
compares its total "liquifiable" assets to its total demand liabilities.
Liquifiable assets comprise cash and assets that could quickly be converted to
cash should the need arise. These assets include short-term investments and
other current assets and investment-grade bonds. The Company's policy is to
maintain a liquidity ratio in excess of 100% and it did so throughout 1998.
Based on its ongoing liquidity analyses, the Company believes that its available
liquidity is more than sufficient to meet its liquidity needs.
55
<PAGE>
DEMUTUALIZATION
On January 27, 1998, Sun Life (Canada) announced that its Board of
Directors had requested that management develop a plan to demutualize which
would involve converting from a mutual structure, with ownership by
policyholders, to a shareholder-owned company. The process of demutualization
would provide that the ownership interest currently held by policyholders be
distributed to them in the form of shares, without affecting their interests as
policyholders. In June 1999, the Sun Life (Canada)'s Board of Directors approved
the demutualization timetable recommended by management. Later in 1999, Sun Life
(Canada)'s Board of Directors will be asked to review and approve the plan for
demutualization. The Company expects to be able to complete its demutualization
in the first half of the year 2000. Demutualization would require regulatory and
policyholder approval. Based on information known to date, the potential
demutualization of Sun Life (Canada) is not expected to have any significant
impact on the Company.
YEAR 2000 COMPLIANCE
The statements in this section include "Year 2000 Readiness Disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
During the fourth quarter of 1996, the Company, Sun Life (Canada) and
affiliates began a comprehensive analysis of its information technology ("IT")
and non-IT systems, including its hardware, software, data, data feed products,
and internal and external supporting services, to address the ability of these
systems to correctly process date calculations through the year 2000 and beyond.
The Company created a full-time Year 2000 project team in early 1997 to manage
this endeavor across the Company. This team, which works with dedicated
personnel from all business units and with the legal and audit departments,
reports directly to the Company's senior management on a monthly basis. In
addition, the Company's Year 2000 project is periodically reviewed by internal
and external auditors.
To date, relevant systems have been identified and their components
inventoried, needed resolutions have been documented, timelines and project
plans have been developed, and remediation and testing are in process. 98% of
the components have been remediated and tested and, based on those tests, have
been certified as Year 2000 compliant. The majority of the remaining components
are in the testing phase and are expected to be certified over the course of
this year.
In mid-1997, the project team contacted all key vendors to obtain their
representation that the products and services provided will not have a Year 2000
issue. Where appropriate, vendor testing has been conducted. In addition, the
project team continues to work with critical business partners, such as
third-party administrators, investment property managers, investment mortgage
correspondents, and others, with the goal that these partners will continue to
be able to support the Company's business during and after the Year 2000.
Non-IT applications, including building security, HVAC systems, and other
such systems, as well as IT applications have been tested. Compliant client
server and mainframe environments were used to allow for testing of critical
dates such as December 31,1999, January 1, 2000, February 28, 2000, February 29,
2000 and March 1, 2000 without impact to current production.
Although the Company expects to have addressed Year 2000 issues it has
found with its systems before the end of 1999, there can be no assurance that
these issues will not impact the Company's operations. Factors giving rise to
this uncertainty include possible loss of technical resources to perform the
work, failure to identify all susceptible systems, non-compliance by
third-parties whose systems and operations affect the Company, and other similar
uncertainties. A possible worst-case scenario might include one or more of the
Company's systems being affected by the Year 2000. Such a scenario could result
in disruption to the Company's operations. Consequences of such disruptions
could include, among other possibilities, the inability to update customers'
accounts, process payments and other financial transactions; and report accurate
data to customers, management, regulators, and others. Consequences also could
include business interruptions or shutdowns, reputational harm, increased
56
<PAGE>
scrutiny by regulators, and litigation related to Year 2000 issues. Such
potential consequences, depending on their nature and duration, could have a
material impact on the Company's results of operations and financial position.
In order to mitigate the risks to the Company of material adverse
operational or financial impacts from the Year 2000 problem, the Company has
established contingency planning at the business unit and corporate levels. Each
business unit has ranked its applications as being of high, medium or low
business risk. Each business area has identified its critical business
processes, developed alternate plans of action where possible, and is in the
process of refining and testing those alternatives. On the corporate level, the
Company is in the process of enhancing its business continuation plan by
identifying minimum requirements for facilities, computing, staffing, and other
factors, and it is developing a plan to support those requirements.
As of year-end 1998, the Company had expended, cumulatively, approximately
$4.2 million on its Year 2000 effort, and it expects to incur a further $1.3
million on this effort in 1999, of which approximately $0.5 million was incurred
in the six months ended June 30, 1999.
SALE OF SUBSIDIARY
In February 1999, the Company completed the sale of its wholly-owned
subsidiary, Massachusetts Casualty Insurance Company ("MCIC"), to Centre
Solutions (U.S.) Limited, a wholly-owned subsidiary of Centre Reinsurance
Holdings, Limited, for approximately $34 million. MCIC sold individual
disability insurance throughout the U.S. This transaction is not expected to
have a significant effect on the operations of the Company.
PENDING SALE OF SUBSIDIARY
In April 1999, the Company announced plans to sell its wholly owned
subsidiary, New London Trust F.S.B. ("NLT"). The Company anticipates that
certain assets will first be sold to banks in Connecticut and New Hampshire and
that the stock of NLT will then be acquired by a subsidiary of Phoenix Home Life
Mutual Insurance Company. The Company anticipates that the sale will be
completed in the fourth quarter of 1999, subject to state and federal regulatory
approvals. This transaction is not expected to have a significant effect on the
ongoing operations of the Company.
CHANGE OF RATINGS
The Company's financial condition is assessed by four independent rating
agencies. These ratings provide an important source of information for
customers, investors and other users of financial and operating data. The
Company currently holds these ratings from the following agencies:
- A.M. Best -- On June 7, 1999, A.M. Best affirmed the A++ financial
strength rating (its
highest rating) it has assigned to the Company.
- Duff & Phelps -- On August 10, 1999, Duff & Phelps reaffirmed the AAA
claims paying ability rating (its highest rating) it has assigned to the
Company. At the same time, it issued a negative outlook for the rating,
indicating that it could be lowered at some future point.
- Moody's Investors Service -- On August 10, 1999, Moody's confirmed the Aa2
financial strength rating (its third highest rating) it has assigned to
the Company. At the same time, it issued a negative outlook for the
rating, indicating that it could be lowered at some future point.
- Standard & Poor's -- On August 6, 1999, S&P lowered the Company's
financial strength rating from AAA (its highest rating) to AA+ (its second
highest rating). At the same time, it changed its outlook for the rating
from negative to stable, indicating that it is unlikely to change the
rating in the immediate future.
The latter three agencies all took their recent actions in response to the
loss cited in the parent company's second quarter earnings statement, a loss
triggered by provisions taken with respect to pension compensation in the parent
company's United Kingdom operations. They also cited the parent company's
challenge with respect to reinsurance.
57
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This discussion covers market risks associated with investment portfolios
that support the Company's general account liabilities. This discussion does not
cover market risks associated with those investment portfolios that support
separate account products. For these products, the policyholder, rather than the
Company, assumes these market risks.
GENERAL
The assets of the Company's general account are available to support
general account liabilities. For purposes of managing these assets in relation
to these liabilities, the Company notionally segments these assets by product or
by groups of products. The Company manages each segment's assets based on an
investment policy that it has established for that segment. The policy covers
the segment's liability characteristics and liquidity requirements, provides
cash flow estimates, and sets targets for asset mix, duration, and quality. Each
quarter, investment and business unit managers review these policies to ensure
that the policies remain appropriate, taking into account each segment's
liability characteristics.
TYPES OF MARKET RISKS
The Company's management believes that stringent underwriting standards
and practices have resulted in high-quality portfolios and have the effect of
limiting credit risk. It is the Company's policy, for example, not to purchase
below-investment-grade securities. Also, as a matter of investment policy, the
Company assumes no foreign currency or commodity risk; nor does it assume equity
price risk except to the extent that it holds real estate in its portfolios. (At
year-end 1998, investment real estate holdings represented approximately 3% of
its total general account portfolio.) The management of interest rate risk
exposure is discussed below.
INTEREST RATE RISK MANAGEMENT
The Company's fixed interest rate liabilities are primarily supported by
well diversified portfolios of fixed interest investments. They are also
supported by holdings of real estate and floating rate notes. All of these fixed
interest investments are held for other than trading purposes and can include
publicly issued and privately placed bonds and commercial mortgage loans. Public
bonds can include Treasury bonds, corporate bonds, and money market instruments.
The Company's fixed income portfolios also hold securitized assets, including
mortgage-backed securities (MBS) and asset-backed securities. These securities
are subject to the same standards applied to other portfolio investments,
including relative value criteria and diversification guidelines. In portfolios
backing interest-sensitive liabilities, the Company's policy is to limit MBS
holdings to less than 10% of total portfolio assets. In all portfolios, the
Company restricts MBS investments to pass-through securities issued by U.S.
Government agencies and to collateralized mortgage obligations, which are
expected to exhibit relatively low volatility. The Company does not engage in
leveraged transactions and it does not invest in the more speculative forms of
these instruments such as the interest-only, principal-only, inverse floater, or
residual tranches.
Changes in the level of domestic interest rates affect the market value of
fixed interest assets and liabilities. Segments whose liabilities mainly arise
from the sale of products containing interest rate guarantees for certain terms
are sensitive to changes in interest rates. In these segments, the Company uses
"immunization" strategies, which are specifically designed to minimize the loss
from wide fluctuations in interest rates. The Company supports these strategies
using analytical and modeling software acquired from outside vendors.
Significant features of the Company's immunization models include:
- an economic or market value basis for both assets and liabilities;
- an option pricing methodology;
- the use of effective duration and convexity to measure interest rate
sensitivity; and
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<PAGE>
- the use of "key rate durations" to estimate interest rate exposure at
different parts of the yield curve and to estimate the exposure to
non-parallel shifts in the yield curve.
The Company's Interest Rate Risk Committee meets monthly. After reviewing
duration analyses, market conditions and forecasts, the Committee develops
specific asset management strategies for the interest-sensitive portfolios.
These strategies may involve managing to achieve small intentional mismatches,
either in terms of total effective duration or for certain key rate durations,
between the liabilities and related assets of particular segments. The Company
manages these mismatches to a tolerance range of plus or minus 0.5.
Asset strategies may include the use of Treasury futures or interest rate
swaps to adjust the duration profiles for particular portfolios. All derivative
transactions are conducted under written operating guidelines and are marked to
market. Total positions and exposures are reported to the Company's Board of
Directors on a monthly basis. The counterparties to hedging transactions are
major highly rated financial institutions, with respect to which the risk of the
Company's incurring losses related to credit exposures is considered remote.
Liabilities categorized as financial instruments and held in the Company's
general account at December 31, 1998 and June 30, 1999 had a fair value of
$1,538.3 million and $1,246.9 million, respectively. Fixed income investments
supporting those liabilities had a fair value of $2,710.1 million and $2,290.9
million, respectively at those dates. The Company performed a sensitivity
analysis on these interest-sensitive liabilities and assets at December 31, 1998
and at June 30, 1999. The December 31, 1998 analysis showed that if there were
an immediate increase of 100 basis points in interest rates, the fair value of
the liabilities would show a net decrease of $46.3 million and the corresponding
assets would show a net decrease of $113.2 million. The June 30, 1999 analysis
showed that if there were an immediate increase of 100 basis points in interest
rates, the fair value of the liabilities would show a net decrease of $37.7
million and the corresponding assets would show a net decrease of $90.4 million.
By comparison, liabilities categorized as financial instruments and held
in the Company's general account at December 31, 1997 and December 31, 1998 had
a fair value of $1,986.4 million and $1,538.3 million, respectively. Fixed
income investments supporting those liabilities had a fair value of $3,276.2
million at December 31, 1997 and $2,710.1 at December 31, 1998. The Company
performed a sensitivity analysis on these interest-sensitive liabilities and
assets at December 31, 1997 and at December 31, 1998. The analysis at December
31, 1997 showed that if there were an immediate increase of 100 basis points in
interest rates, the fair value of the liabilities would show a net decrease of
$56.0 million and the corresponding assets would show a net decrease of $108.0
million. The analysis at December 31, 1998 showed that if there were an
immediate increase of 100 basis points in interest rates, the fair value of the
liabilities would show a net decrease of $46.3 million and the corresponding
assets would show a net decrease of $113.2 million.
The Company produced these estimates using computer models. Since these
models reflect assumptions about the future, they contain an element of
uncertainty. For example, the models contain assumptions about future
policyholder behavior and asset cash flows. Actual policyholder behavior and
asset cash flows could differ from what the models show. As a result, the
models' estimates of duration and market values may not reflect what actually
will occur. The models are further limited by the fact that they do not provide
for the possibility that management action could be taken to mitigate adverse
results. The Company's management believes that this limitation is one of
conservatism, that is, it will tend to cause the models to produce estimates
that are generally worse than one might actually expect, all other things being
equal.
Based on its processes for analyzing and managing interest rate risk, the
Company believes its exposure to interest rate changes will not materially
affect its near-term financial position, results of operations, or cash flows.
59
<PAGE>
REINSURANCE
The Company has agreements with Sun Life (Canada) which provide that Sun
Life (Canada) will reinsure the mortality risks of the individual life insurance
contracts previously sold by the Company. Under 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 1998 had the effect of decreasing net income from operations by
$2,128,000.
Effective January 1, 1991 the Company entered into an agreement with Sun
Life (Canada) under which certain individual life insurance contracts issued by
Sun Life (Canada) were reinsured by the Company on a 90% coinsurance basis. Also
effective January 1, 1991, the Company entered into an agreement with Sun Life
(Canada) which provides that Sun Life (Canada) will reinsure the mortality risks
in excess of $500,000 per policy for the individual life insurance contracts
assumed by the Company in the reinsurance agreement described above. Death
benefits are reinsured on a yearly renewable term basis. The life reinsurance
assumed agreement requires the reinsurer to withhold funds in an amount equal to
the reserves assumed. These agreements had the effect of increasing income from
operations by approximately $24,579,000 for the year ended December 31, 1998.
The Company terminated these agreements, effective October 1, 1998, resulting in
an increase in income from operations of $65,679,000, which included a cash
settlement.
The Company has also executed reinsurance agreements with unaffiliated
companies. These agreements provide reinsurance of certain individual life
insurance contracts on a modified coinsurance basis under which all deficiency
reserves are ceded; as well as reinsurance for variable universal life on a
yearly renewable term basis for which the Company has a maximum retention of
$2,000,000.
RESERVES
In accordance with the life insurance laws and regulations under which the
Company operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on its outstanding
contracts. Reserves are based on mortality tables in general use in the United
States and are computed to equal amounts that, with additions from premiums to
be received, and with interest on such reserves compounded annually at certain
assumed rates, will be sufficient to meet the Company's policy obligations at
their maturities or in the event of an insured's death. In the accompanying
Financial Statements, these reserves are determined in accordance with statutory
regulations.
INVESTMENTS
Of the Company's total assets of $16.9 billion at December 31, 1998, 82.7%
($13.98 billion) consisted of unitized and non-unitized separate account assets,
10.4% ($1.76 billion) was invested in bonds and similar securities, 3.2% ($541
million) was invested in mortgages, 0.7 % ($118.3 million) was invested in
subsidiaries, 0.6% ($101.4 million) was invested in real estate, and the
remaining 2.4% ($405.6 million) was invested 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 a 1998 statistical study, published
by A.M. Best, the Company ranked 37th among North American life insurance
companies based upon total assets as of December 31, 1997. Its ultimate parent
company, Sun Life (Canada), ranked 21st.
EMPLOYEES
The Company and Sun Life (Canada) have entered into a service agreement
which provides that the latter will furnish the Company, as required, with
personnel as well as certain services and facilities on a cost reimbursement
basis. Expenses under this agreement amounted to approximately $16,344,000 in
1998. As of , 1999, the Company had direct employees employed at its
Principal
60
<PAGE>
Executive Office in Wellesley Hills, Massachusetts and at its Retirement
Products and Services Division in Boston, Massachusetts.
PROPERTIES
The Company occupies office space owned by it and leased to Sun Life
(Canada), and certain unrelated parties for lease terms not exceeding five
years. The Company also occupies office space which it leases from unaffiliated
parties for various lease terms. Rent received by the Company under the leases
amounted to approximately $6,856,000 in 1998.
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 lst 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. We
and our subsidiaries are engaged in various kinds of routine litigation which,
in management's judgment, is not of material importance to our respective total
assets or material with respect to the Variable Account.
ACCOUNTANTS
The financial statements of the Variable Account for the year ended
December 31, 1998 included in the Statement of Additional Information and the
statutory financial statements of the
61
<PAGE>
Company for the years ended December 31, 1998, 1997 and 1996 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
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 financial statements of the Variable Account for the year ended
December 31, 1998 are included in the Statement of Additional Information.
------------------------
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
DECEMBER 31, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 1,763,468 $ 1,910,699
Common stocks 128,445 117,229
Mortgage loans on real estate 535,003 684,035
Properties acquired in satisfaction of debt 17,207 22,475
Investment real estate 78,021 78,426
Policy loans 41,944 40,348
Cash and short-term investments 265,226 544,418
Other invested assets 64,177 55,716
Life insurance premiums and annuity considerations due and uncollected -- 9,203
Investment income due and accrued 35,706 39,279
Federal income tax recoverable and interest thereon 1,110 --
Receivable from parent, subsidiaries and affiliates -- 27,136
Funds withheld on reinsurance assumed -- 982,653
Other assets 1,928 1,842
------------- -------------
General account assets 2,932,235 4,513,459
Separate account assets:
Unitized 11,774,745 9,068,021
Non-unitized 2,195,641 2,343,877
------------- -------------
Total Admitted Assets $ 16,902,621 $ 15,925,357
------------- -------------
------------- -------------
LIABILITIES
Aggregate reserve for life policies and contracts $ 1,216,107 $ 2,188,243
Supplementary contracts 1,885 2,247
Policy and contract claims 369 2,460
Provision for policyholders' dividends and coupons payable -- 32,500
Liability for premium and other deposit funds 1,000,875 1,450,705
Surrender values on cancelled policies 5 215
Interest maintenance reserve 40,490 33,830
Commissions to agents due or accrued 2,615 2,826
General expenses due or accrued 5,932 6,238
Transfers from Separate Accounts due or accrued (361,863) (284,078)
Taxes, licenses and fees due or accrued, excluding FIT 401 105
Federal income taxes due or accrued 25,019 56,384
Unearned investment income 23 34
Amounts withheld or retained by company as agent or trustee 529 47
Remittances and items not allocated 5,176 1,363
Borrowed money -- 110,142
Asset valuation reserve 44,392 47,605
Payable to parent, subsidiaries, and affiliates 30,381 --
Payable for securities 428 27,104
Other liabilities 9,770 2,924
------------- -------------
General account liabilities 2,022,534 3,680,894
Separate account liabilities:
Unitized 11,774,522 9,067,891
Non-unitized 2,195,641 2,343,877
------------- -------------
Total liabilities 15,992,697 15,092,662
------------- -------------
CAPITAL STOCK AND SURPLUS
Common capital stock 5,900 5,900
------------- -------------
Surplus notes 565,000 565,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 139,669 62,440
------------- -------------
Surplus 904,024 826,795
------------- -------------
Total common capital stock and surplus 909,924 832,695
------------- -------------
Total Liabilities, Capital Stock and Surplus $ 16,902,621 $ 15,925,357
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
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<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN 000'S)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 210,198 $ 254,066 $ 266,942
Deposit-type funds 2,140,604 2,155,297 1,775,230
Considerations for supplementary
contracts without life
contingencies and dividend
accumulations 2,086 1,615 2,340
Net investment income 184,532 270,249 303,753
Amortization of interest maintenance
reserve 2,282 1,166 1,557
Income from fees associated with
investment management and
administration and contract
guarantees from Separate Account 141,211 109,757 83,278
Net gain from operations from
Separate Account -- 5 --
Other income 87,364 102,889 87,532
---------- ---------- ----------
Total 2,768,277 2,895,044 2,520,632
---------- ---------- ----------
BENEFITS AND EXPENSES:
Death benefits 15,335 17,284 12,394
Annuity benefits 153,636 148,135 146,654
Disability benefits and benefits
under accident and health policies 104 132 105
Surrender benefits and other fund
withdrawals 1,933,833 1,854,004 1,507,263
Interest on policy or contract funds (140) 699 2,205
Payments on supplementary contracts
without life contingencies and
dividend accumulations 2,528 1,687 2,120
Increase (decrease) in aggregate
reserves for life and accident and
health policies and contracts (972,135) 127,278 162,678
Decrease in liability for premium
and other deposit funds (449,831) (447,603) (392,348)
Increase (decrease) in reserve for
supplementary contracts without
life contingencies and for
dividend and coupon accumulations (362) 42 327
---------- ---------- ----------
Total 682,968 1,701,658 1,441,398
Commissions on premiums and annuity
considerations (direct business
only) 137,718 132,700 109,894
Commissions and expense allowances
on reinsurance assumed 13,032 17,951 18,910
General insurance expenses 58,132 46,624 37,206
Insurance taxes, licenses and fees,
excluding federal income taxes 7,388 8,267 8,431
Increase (decrease) in loading on
and cost of collection in excess
of loading on deferred and
uncollected premiums (1,663) 523 901
Net transfers to Separate Accounts 722,851 844,130 761,941
Reserve and fund adjustments on
reinsurance terminated 1,017,112 -- --
---------- ---------- ----------
Total 2,637,538 2,751,853 2,378,681
---------- ---------- ----------
Net gain from operations before
dividends to policyholders and
Federal Income Taxes 130,739 143,191 141,951
Dividends to policyholders (5,981) 33,316 29,189
---------- ---------- ----------
Net gain from operations after
dividends to policyholders and
before Federal Income Taxes 136,720 109,875 112,762
Federal income tax expense
(benefit), (excluding tax on
capital gains) 11,713 7,339 (5,400)
---------- ---------- ----------
Net gain from operations after
dividends to policyholders and
federal income taxes and before
realized capital gains 125,007 102,536 118,162
Net realized capital gains less
capital gains tax and transferred
to the IMR 394 26,706 4,862
---------- ---------- ----------
NET INCOME $ 125,401 $ 129,242 $ 123,024
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN 000'S)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Capital and surplus, Beginning of year $ 832,695 $ 567,143 $ 792,452
---------- ----------- -----------
Net income 125,401 129,242 123,024
Change in net unrealized capital gains (losses) (384) 1,152 (1,715)
Change in non-admitted assets and related items (1,086) (463) 67
Change in reserve on account of change in valuation basis -- 39,016 --
Change in asset valuation reserve 3,213 6,307 (11,812)
Surplus (contributed to) withdrawn from Separate Accounts
during period 82 -- 100
Other changes in surplus in Separate Accounts Statements 10 -- --
Change in surplus notes -- 250,000 (335,000)
Dividends to stockholders (50,000) (159,722) --
Aggregate write-ins for gains and losses in surplus (7) 20 27
---------- ----------- -----------
Net change in capital and surplus for the year 77,229 265,552 (225,309)
---------- ----------- -----------
Capital and surplus, End of year $ 909,924 $ 832,695 $ 567,143
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
65
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash Provided by Operations:
Premiums, annuity considerations and
deposit funds received $ 2,361,669 $ 2,410,919 $ 2,059,577
Considerations for supplementary
contracts and dividend accumulations
received 2,086 1,615 2,340
Net investment income received 236,944 345,279 324,914
Other income received 253,147 208,223 88,295
----------- ----------- -----------
Total receipts 2,853,846 2,966,036 2,475,126
----------- ----------- -----------
Benefits paid (other than dividends) 2,107,736 2,020,747 1,671,483
Insurance expenses and taxes paid
(other than federal income and
capital gains taxes) 217,023 203,650 172,015
Net cash transferred to Separate
Accounts 800,636 895,465 755,605
Dividends paid to policyholders 26,519 28,316 22,689
Federal income tax payments
(recoveries),(excluding tax on
capital gains) 46,965 1,397 (15,363)
Other--net (138) 698 2,205
----------- ----------- -----------
Total payments 3,198,741 3,150,273 2,608,634
----------- ----------- -----------
Net cash used in operations (344,895) (184,237) (133,508)
----------- ----------- -----------
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains of
$2,038 for 1998, $750 for 1997 and
$1,555 for 1996) 1,261,396 1,343,803 1,768,147
Issuance (repayment) of surplus notes -- 250,000 (335,000)
Other cash provided (used) (40,529) 71,095 147,956
----------- ----------- -----------
Total cash provided 1,220,867 1,664,898 1,581,103
----------- ----------- -----------
Cash Applied:
Cost of long-term investments acquired (967,901) (773,783) (1,318,880)
Other cash applied (187,263) (310,519) (177,982)
----------- ----------- -----------
Total cash applied (1,155,164) (1,084,302) (1,496,862)
Net change in cash and short-term
investments (279,192) 396,359 (49,267)
Cash and short-term investments:
Beginning of year 544,418 148,059 197,326
----------- ----------- -----------
End of year $ 265,226 $ 544,418 $ 148,059
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
66
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Sun Life Assurance Company of Canada (U.S.) (the "Company") is
incorporated as a life insurance company and is currently engaged in the sale of
individual variable life insurance, individual fixed and variable annuities,
group fixed and variable annuities and group pension contracts.
Effective May 1, 1997, the Company became a wholly-owned subsidiary of the
newly established Sun Life of Canada (U.S.) Holdings, Inc. ("Life Holdco"). On
December 18, 1997, Life Holdco became a wholly-owned subsidiary of the Sun Life
Assurance Company of Canada - U.S. Operations Holdings, Inc. ("US Holdco"). US
Holdco is a wholly-owned subsidiary of Sun Life Assurance Company of Canada
("SLOC"). Prior to December 18, 1997, Life Holdco was a direct wholly-owned
subsidiary of SLOC.
The Company, which is domiciled in the State of Delaware, prepares its
financial statements in accordance with statutory accounting practices
prescribed or permitted by the State of Delaware Insurance Department.
Prescribed accounting practices include practices described in a variety of
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations and general administrative rules. Permitted
accounting practices encompass all accounting practices not so prescribed. The
permitted accounting practices adopted by the Company are not material to the
financial statements. Prior to 1996, statutory accounting practices were
recognized by the insurance industry and the accounting profession as generally
accepted accounting principles for mutual life insurance companies and stock
life insurance companies wholly-owned by mutual life insurance companies. In
April 1993, the Financial Accounting Standards Board ("FASB") issued an
interpretation (the "Interpretation"), that became effective in 1996, which
changed the previous practice of mutual life insurance companies (and stock life
insurance companies that are wholly-owned subsidiaries of mutual life insurance
companies) with respect to utilizing statutory basis financial statements for
general purposes, in that it will no longer allow such financial statements to
be described as having been prepared in conformity with generally accepted
accounting principles ("GAAP"). Consequently, these financial statements
prepared in conformity with statutory accounting practices, as described above,
vary from and are not intended to present the Company's financial position,
results of operations or cash flow in conformity with generally accepted
accounting principles. (See Note 20 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
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 mortgage backed securities are generally carried at
amortized cost. Changes in prepayment assumptions and resulting cash flows are
evaluated periodically. The adjusted yield is used to calculate investment
income in future periods. If current book value exceeds future undiscounted cash
flows, a realized capital loss is recorded and amortized through IMR.
Investments in insurance subsidiaries are carried at their statutory surplus
values. Mortgage loans acquired at a premium or discount are carried at
amortized values and other mortgage loans are carried at the amounts of the
unpaid balances. Real estate investments are carried at the lower of cost,
adjusted for accumulated depreciation or appraised value, less encumbrances.
Short-term investments are carried at amortized cost, which approximates fair
value. Depreciation of buildings and improvements is calculated using the
straight-line method over the estimated useful life of the property, generally
40 to 50 years.
67
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
POLICY AND CONTRACT RESERVES
The reserves for life insurance and annuity contracts, developed by
accepted actuarial methods, have been established and maintained on the basis of
published mortality tables using assumed interest rates and valuation methods
that will provide reserves at least as great as those required by law and
contract provisions.
INCOME AND EXPENSES
For life and annuity contracts, premiums are recognized as revenues over
the premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
SEPARATE ACCOUNTS
The Company has established unitized separate accounts applicable to
various classes of contracts providing for variable benefits. Contracts for
which funds are invested in separate accounts include variable life insurance
and individual and group qualified and non-qualified variable annuity contracts.
Assets and liabilities of the separate accounts, representing net deposits
and accumulated net investment earnings less fees, held primarily for the
benefit of contract holders, are shown as separate captions in the financial
statements. Assets held in the separate accounts are carried at market value as
determined by quoted market prices of the underlying investments.
The Company has also established a non-unitized separate account for
amounts allocated to the fixed portion of certain combination fixed/variable
deferred annuity contracts. The assets of this account are available to fund
general account liabilities, and general account assets are available to fund
liabilities of this account.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, are transferred to (from)
the general account. Accumulated gains (losses) that have not been transferred
are recorded as a payable (receivable) to (from) the general account. Amounts
payable to the general account of the Company were $361,863,000 in 1998 and
$284,078,000 in 1997.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
As described more fully in Note 10, during 1997 the Company changed
certain assumptions used in determining actuarial reserves.
In March 1998, the National Association of Insurance Commissioners adopted
the Codification of Statutory Accounting Principles ("Codification"). The
Codification, which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be effective January 1,
2001. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices and it is uncertain when, or
if, the state of Delaware will require adoption of Codification for the
preparation of statutory financial statements. The Company has not finalized the
quantification of the effects of Codification on its statutory 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.
Certain prior year amounts have been reclassified to conform to amounts as
presented in the current year.
68
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
2. INVESTMENTS IN SUBSIDIARIES
The Company owns all of the outstanding shares of Sun Life Insurance and
Annuity Company of New York ("Sun Life (N.Y.)"), Massachusetts Casualty
Insurance Company ("MCIC"), Sun Life of Canada (U.S.) Distributors, Inc.
(formerly Sun Investment Services Company) ("Sundisco"), New London Trust,
F.S.B. ("NLT"), Sun Life Financial Services Limited ("SLFSL"), Sun Benefit
Services Company, Inc. ("Sunbesco"), Sun Capital Advisers, Inc. ("Sun Capital"),
Sun Life Finance Corporation ("Sunfinco"), Sun Life of Canada (U.S.) SPE 97-1,
Inc. ("SPE 97-1"), Clarendon Insurance Agency, Inc. ("Clarendon") and Sun Life
Information Services Ireland Ltd. ("SLISL").
On February 5, 1999, the Company finalized the sale of MCIC, a disability
insurance company which issues primarily individual disability income policies,
to Centre Solutions (U.S.) Limited, a wholly-owned subsidiary of Centre
Reinsurance Holdings Limited for approximately $34 million. The impact of this
sale to the ongoing operations of the Company is not expected to be material.
On September 28, 1998, the Company formed SLISL as an offshore technology
center for the purpose of completing systems projects for affiliates.
On October 30, 1997, the Company established a wholly-owned special
purpose corporation, SPE 97-1, for the purpose of engaging in activities
incidental to securitizing mortgage loans.
On December 31, 1997, the Company purchased from Massachusetts Financial
Services ("MFS") all of the outstanding shares of Clarendon, a registered
broker-dealer that acts as the general distributor of certain annuity and life
insurance contracts issued by the Company and its affiliates.
Prior to December 24, 1997, the Company owned 93.6% of the outstanding
shares of MFS. On December 24, 1997, the Company transferred all of its shares
of MFS to Life Holdco in the form of a dividend valued at $159,722,000. As a
result of this transaction, the Company realized a gain of $21,195,000 of
undistributed earnings.
MFS, a registered investment adviser, serves as investment adviser to the
mutual funds in the MFS family of funds as well as certain mutual funds and
separate accounts established by the Company. The MFS Asset Management Group
provides investment advice to substantial private clients.
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.
Sundisco is a registered investment adviser and broker-dealer.
NLT is a federally chartered savings bank.
SLFSL serves as the marketing administrator for the distribution of the
offshore products of Sun Life Assurance Company of Canada (Bermuda), an
affiliate.
Sun Capital is a registered investment adviser.
Sunfinco and Sunbesco are currently inactive.
On September 28, 1998 a $500,000 note was issued by SLISL to the Company
at a rate of 6.0%, maturing on September 28, 2002.
A $110,000,000 note was issued to the Company by MFS on February 11, 1998
at an interest rate of 6.0% due February 11, 1999. Another $110,000,000 note was
issued to the Company by MFS on December 22, 1998 at an interest rate of 5.55%
due February 11, 1999.
69
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED):
On December 23, 1997, the Company issued a $110,000,000 note to US Holdco
at an interest rate of 5.80%, which was repaid on March 1, 1998. A $110,000,000
note was also issued to the Company by MFS on December 23, 1997 at an interest
rate of 5.85% and was repaid on February 11, 1998.
On December 31, 1996, the Company issued a $58,000,000 note to SLOC at an
interest rate of 5.70% which was repaid on February 10, 1997. Also on December
31, 1996, the Company was issued a $58,000,000 note by MFS at an interest rate
of 5.76%. This note was repaid to the Company on February 10, 1997. On December
31, 1998, 1997 and 1996, the Company had an additional $20,000,000 in notes
issued by MFS, scheduled to mature in 2000.
During 1998, 1997, and 1996, the Company contributed capital in the
following amounts to its subsidiaries:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
MCIC -- $ 2,000 $ 10,000
SLFSL $ 750 1,000 1,500
SPE 97-1 -- 20,377 --
Sundisco 10,000 -- --
Sun Capital 500 -- --
Clarendon 10 -- --
SLISL 502 -- --
</TABLE>
Summarized combined financial information of the Company's subsidiaries as
of December 31, 1998, 1997 and 1996 and for the years then ended, follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Intangible assets $ -- $ -- $ 9,646
Other assets 1,315,317 1,190,951 1,376,014
Liabilities (1,186,872) (1,073,966) (1,241,617)
------------- ------------- -------------
Total net assets $ 128,445 $ 116,985 $ 144,043
------------- ------------- -------------
------------- ------------- -------------
Total revenues $ 222,853 $ 750,364 $ 717,280
Operating expenses (221,933) (646,896) (624,199)
Income tax expense (1,222) (43,987) (42,820)
------------- ------------- -------------
Net income (loss) $ (302) $ 59,481 $ 50,261
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
On December 24, 1997, the Company transferred all of its shares of MFS to
its parent, Life Holdco.
70
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
3. BONDS
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government agencies and
authorities $ 140,417 $ 7,635 $ (177) $ 147,875
States, provinces and political subdivisions 16,632 2,219 -- 18,851
Public utilities 397,670 38,740 (238) 436,172
Transportation 197,207 22,481 (18) 219,670
Finance 144,958 12,542 (494) 157,006
All other corporate bonds 866,584 50,814 (6,419) 910,979
------------ ----------- ----------- ------------
Total long-term bonds 1,763,468 134,431 (7,346) 1,890,553
------------ ----------- ----------- ------------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and commercial
paper 43,400 -- -- 43,400
Affiliates 220,000 -- -- 220,000
------------ ----------- ----------- ------------
Total short-term bonds 263,400 -- -- 263,400
------------ ----------- ----------- ------------
Total bonds $ 2,026,868 $ 134,431 $ (7,346) $ 2,153,953
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government agencies and
authorities $ 126,923 $ 5,529 $ -- $ 132,452
States, provinces and political subdivisions 22,361 2,095 -- 24,456
Public utilities 398,939 35,338 (91) 434,186
Transportation 214,130 22,000 (390) 235,740
Finance 157,891 5,885 (120) 163,656
All other corporate bonds 990,455 52,678 (5,456) 1,037,677
------------ ----------- ----------- ------------
Total long-term bonds 1,910,699 123,525 (6,057) 2,028,167
------------ ----------- ----------- ------------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and commercial
paper 431,032 -- -- 431,032
Affiliates 110,000 -- -- 110,000
------------ ----------- ----------- ------------
Total short-term bonds 541,032 -- -- 541,032
------------ ----------- ----------- ------------
Total bonds $ 2,451,731 $ 123,525 $ (6,057) $ 2,569,199
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
71
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
3. BONDS (CONTINUED):
The amortized cost and estimated fair value of bonds at December 31, 1998
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, 1998
--------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Maturities:
Due in one year or less $ 459,631 $ 460,787
Due after one year through five years 329,625 336,516
Due after five years through ten years 264,372 283,840
Due after ten years 703,341 781,253
------------ ------------
1,756,969 1,862,396
Mortgage-backed securities 269,899 291,557
------------ ------------
Total bonds $ 2,026,868 $ 2,153,953
------------ ------------
------------ ------------
</TABLE>
Proceeds from sales and maturities of investments in debt securities
during 1998, 1997, and 1996 were $1,016,811,000, $980,264,000, and
$1,554,016,000, gross gains were $17,025,000, $10,732,000, and $16,975,000 and
gross losses were $866,000, $2,446,000, and $10,885,000, respectively.
Bonds included above with an amortized cost of approximately $2,572,000,
$2,578,000 and $2,060,000 at December 31, 1998, 1997 and 1996, respectively,
were on deposit with governmental authorities as required by law.
Excluding investments in U.S. government and agencies securities, the
Company is not exposed to significant concentration of credit risk in its
portfolio.
4. SECURITIES LENDING
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chase Manhattan Bank of New York. The custodian has
indemnified the Company against losses arising from this program. There were no
securities out on loan as of December 31, 1998 and 1997. Income resulting from
this program was $94,000, $200,000 and $137,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
5. MORTGAGE LOANS
The Company invests in commercial first mortgage loans throughout the
United States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
allowances for losses have been made. In those cases where, in management's
judgment, the mortgage loans' values are impaired, appropriate losses are
recorded.
72
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
5. MORTGAGE LOANS (CONTINUED):
The following table shows the geographical distribution of the mortgage
loan portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
California $ 82,397 $ 119,122
Massachusetts 53,528 58,981
Michigan 34,357 42,912
New York 21,190 45,696
Ohio 36,171 51,862
Pennsylvania 93,587 97,949
Washington 36,548 54,948
All other 177,225 212,565
---------- ----------
$ 535,003 $ 684,035
---------- ----------
---------- ----------
</TABLE>
The Company has restructured mortgage loans totaling $30,743,000 and
$26,284,000 at December 31, 1998 and 1997, respectively, against which there are
allowances for losses of $2,120,000 and $3,026,000, respectively.
The Company has made commitments of mortgage loans on real estate into the
future. The outstanding commitments for these mortgages amount to $18,005,000
and $12,300,000 at December 31, 1998 and 1997, respectively.
6. INVESTMENT GAINS AND LOSSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net realized gains (losses):
Bonds $ 5,659 $ 2,882 $ 5,631
Common stock of affiliates -- 21,195 --
Common stocks 48
Mortgage loans 2,374 3,837 763
Real estate 955 2,912 599
Other invested assets (3,827) (717) 567
---------- ---------- ---------
Subtotal 5,209 30,109 7,560
Capital gains tax expense 4,815 3,403 2,698
---------- ---------- ---------
Total $ 394 $ 26,706 $ 4,862
---------- ---------- ---------
---------- ---------- ---------
Changes in unrealized gains (losses):
Common stock of affiliates $ (302) $ (2,894) $ (5,739)
Mortgage loans (1,312) 1,524 (600)
Real estate 403 3,377 4,624
Other invested assets 827 (855) --
---------- ---------- ---------
Total $ (384) $ 1,152 $ (1,715)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Realized capital gains and losses on bonds and mortgages and interest rate
swaps which relate to changes in levels of interest rates are charged or
credited to an interest maintenance reserve ("IMR") and amortized into income
over the remaining contractual life of the security sold. The net realized
capital
73
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
6. INVESTMENT GAINS AND LOSSES (CONTINUED):
gains credited to the interest maintenance reserve were $8,943,000 in 1998,
$6,321,000 in 1997, and $7,710,000 in 1996. All gains and losses are transferred
net of applicable income taxes.
7. NET INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income from bonds $ 167,436 $ 188,924 $ 178,695
Income from investment in common stock of affiliates 3,675 41,181 50,408
Interest income from mortgage loans 53,269 76,073 92,591
Real estate investment income 15,932 17,161 16,249
Interest income from policy loans 2,881 3,582 2,790
Other investment income (loss) (641) (193) 1,710
---------- ---------- ----------
Gross investment income 242,552 326,728 342,443
---------- ---------- ----------
Interest on surplus notes and notes payable (44,903) (42,481) (23,061)
Investment expenses (13,117) (13,998) (15,629)
---------- ---------- ----------
Net investment income $ 184,532 $ 270,249 $ 303,753
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
8. DERIVATIVES
The Company uses derivative instruments for interest rate risk management
purposes, including hedges against specific interest rate risk and to minimize
the Company's exposure to fluctuations in interest rates. The Company's use of
derivatives has included U.S. Treasury futures, conventional interest rate
swaps, and forward spread lock interest rate swaps.
In the case of interest rate futures, gains or losses on contracts that
qualify as hedges are deferred until the earliest of the completion of the
hedging transaction, determination that the transaction will no longer take
place, or determination that the hedge is no longer effective. Upon completion
of the hedge, where it is impractical to allocate gains or losses to specific
hedged assets or liabilities, gains or losses are deferred in IMR and amortized
over the remaining life of the hedged assets. At December 31, 1998 and 1997
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 the IMR and amortized over the shorter of the remaining
life of the hedged asset sold 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.
74
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
8. DERIVATIVES (CONTINUED):
Options are used to hedge the stock market interest exposure in the
mortality and expense risk charges and guaranteed minimum death benefit features
of the Company's variable annuities. The Company's open positions are as
follows:
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1998
---------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
------------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Conventional interest rate swaps $ 45,000 $ 508
Foreign currency swap 1,178 263
</TABLE>
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1997
---------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
------------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Conventional interest rate swaps $ 80,000 $ (2,891)
Foreign currency swap 1,700 208
Forward spread lock swaps 50,000 274
Asian Put Option S & P 500 75,000 693
</TABLE>
The market value of swaps is the estimated amount that the Company would
receive or pay on termination or sale, taking into account current interest
rates and the current credit worthiness of the counterparties. The Company is
exposed to potential credit loss in the event of nonperformance 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.
75
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
9. LEVERAGED LEASES (CONTINUED):
The Company's net investment in leveraged leases is composed of the
following elements:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Lease contracts receivable $ 78,937 $ 92,605
Less non-recourse debt (78,920) (92,589)
---------- ----------
17 16
Estimated residual value of leased assets 41,150 41,150
Less unearned and deferred income (8,932) (10,324)
---------- ----------
Investment in leveraged leases 32,235 30,842
Less fees (138) (163)
---------- ----------
Net investment in leveraged leases $ 32,097 $ 30,679
---------- ----------
---------- ----------
</TABLE>
The net investment is included in "other invested assets" on the balance
sheet.
10. REINSURANCE
The Company has agreements with SLOC which provide that SLOC will reinsure
the mortality risks of the individual life insurance contracts sold by the
Company. Under these agreements basic death benefits and supplementary benefits
are reinsured on a yearly renewable term basis and coinsurance basis,
respectively. Reinsurance transactions under these agreements had the effect of
decreasing income from operations by approximately $2,128,000, $1,381,000 and
$1,603,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Effective January 1, 1991, the Company entered into an agreement with SLOC
under which certain individual life insurance contracts issued by SLOC were
reinsured by the Company on a 90% coinsurance basis. During 1997 SLOC changed
certain assumptions used in determining the gross and the ceded reserve balance.
The Company reflected the effect of the changes in assumptions to its assumed
reserves as a direct credit to surplus. The effect of the change was a
$39,016,000 decrease in reserves. Also, the agreement required SLOC to reinsure
the mortality risks in excess of $500,000 per policy for the individual life
insurance contracts assumed by the Company. Such death benefits are reinsured on
a yearly renewable term basis. The life reinsurance assumed agreement required
the reinsurer to withhold funds in amounts equal to the reserves assumed. These
agreements had the effect of increasing income from operations by approximately
$24,579,000, $37,050,000 and $35,161,000 for the years ended December 31, 1998,
1997 and 1996, respectively. The Company terminated this agreement effective
October 1, 1998, resulting in an increase in income from operations of
$65,679,000 which included a cash settlement.
76
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
10. REINSURANCE (CONTINUED):
The following are summarized pro-forma results of operations of the
Company for the years ended December 31, 1998, 1997 and 1996 before the effect
of reinsurance transactions with SLOC:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $ 2,377,364 $ 2,340,733 $ 1,941,423
Net investment income and realized gains 187,208 298,120 310,172
------------ ------------ ------------
Subtotal 2,564,572 2,638,853 2,251,595
------------ ------------ ------------
Benefits and Expenses:
Policyholder benefits 2,312,247 2,350,354 2,011,998
Other expenses 203,238 187,591 155,531
------------ ------------ ------------
Subtotal 2,515,485 2,537,945 2,167,529
------------ ------------ ------------
Income from operations $ 49,087 $ 100,908 $ 84,066
------------ ------------ ------------
------------ ------------ ------------
</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 increasing income from operations by $3,008,000 in 1998, and
decreasing income from operations by $2,658,000 in 1997 and $46,000 in 1996.
11. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES
The withdrawal characteristics of general account and separate account
annuity reserves and deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------
AMOUNT % OF TOTAL
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 2,896,529 19
At book value less surrender charges (surrender charge >5%) 10,227,212 66
At book value (minimal or no charge or adjustment) 1,264,453 8
Not subject to discretionary withdrawal provision 1,106,197 7
------------- ---
Total annuity actuarial reserves and deposit liabilities $ 15,494,391 100
------------- ---
------------- ---
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------
AMOUNT % OF TOTAL
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 3,415,394 25
At book value less surrender charges (surrender charge >5%) 7,672,211 57
At book value (minimal or no charge or adjustment) 1,259,698 9
Not subject to discretionary withdrawal provision 1,164,651 9
------------- ---
Total annuity actuarial reserves and deposit liabilities $ 13,511,954 100
------------- ---
------------- ---
</TABLE>
77
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
12. SEGMENT INFORMATION
The Company offers financial products and services such as fixed and
variable annuities, retirement plan services and life insurance on an individual
basis. Within these areas, the Company conducts business principally in two
operating segments and maintains a corporate segment to provide for the capital
needs of the various operating segments and to engage in other financing related
activities.
The Individual Insurance segment markets and administers a variety of life
insurance products sold to individuals and corporate owners of individual life
insurance. The products include whole life, universal life and variable life
products.
The Retirement Products and Services ("RPS") segment markets and
administers individual and group variable annuity products, individual and group
fixed annuity products which include market value adjusted annuities, and other
retirement benefit products.
The following amounts pertain to the various business segments:
<TABLE>
<CAPTION>
FEDERAL
TOTAL TOTAL PRETAX INCOME TOTAL
(IN THOUSANDS) REVENUES EXPENDITURES* INCOME TAXES ASSETS
- ----------------------------------------------------- ------------ -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1998
Individual Insurance $ 229,710 $ 144,800 $ 84,910 $ (4,148) $ 199,683
RPS 2,527,608 2,483,715 43,893 12,486 16,123,905
Corporate 10,959 3,042 7,917 3,375 579,033
------------ -------------- ---------- ---------- -------------
Total $ 2,768,277 $ 2,631,557 $ 136,720 $ 11,713 $ 16,902,621
------------ -------------- ---------- ---------- -------------
1997
Individual Insurance 304,141 272,333 31,808 13,825 1,143,697
RPS 2,533,006 2,507,591 25,414 10,667 14,043,221
Corporate 57,897 5,244 52,653 (17,153) 738,439
------------ -------------- ---------- ---------- -------------
Total $ 2,895,044 $ 2,785,169 $ 109,875 $ 7,339 $ 15,925,357
------------ -------------- ---------- ---------- -------------
1996
Individual Insurance 281,309 255,846 25,463 13,931 817,115
RPS 2,174,602 2,151,126 23,476 1,203 12,057,572
Corporate 64,721 898 63,823 (20,534) 689,266
------------ -------------- ---------- ---------- -------------
Total $ 2,520,632 $ 2,407,870 $ 112,762 $ (5,400) $ 13,563,953
------------ -------------- ---------- ---------- -------------
</TABLE>
- ------------------------
* Total expenditures include dividends to policyholders of $(5,981) for 1998,
$33,316 for 1997 and $29,189 for 1996.
13. RETIREMENT PLANS
The Company participates with SLOC in a noncontributory defined benefit
pension plan covering essentially all employees. The benefits are based on years
of service and compensation.
The funding policy for the pension plan is to contribute an amount which
at least satisfies the minimum amount required by ERISA; currently, the plan is
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of
separate accounts of SLOC.
The Company's share of the group's accrued pension cost was $1,178,000 and
$593,000 at December 31, 1998 and 1997, respectively. The Company's share of net
periodic pension cost was $586,000, $146,000 and $27,000, for 1998, 1997 and
1996, respectively.
78
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
13. RETIREMENT PLANS (CONTINUED):
The Company also participates with SLOC and certain affiliates in a 401(k)
savings plan for which substantially all employees are eligible. The Company
matches, up to specified amounts, employees' contributions to the plan. Company
contributions were $231,000, $259,000 and $233,000 for the years ended December
31, 1998, 1997 and 1996, 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.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions." SFAS No. 106 requires an accrual of 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 obligation of approximately $455,000 is recognized
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
$95,000, $117,000, and $8,000 for the years ended December 31, 1998, 1997, and
1996, respectively. The Company's post retirement health, dental and life
insurance benefits currently are not funded.
79
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
13. RETIREMENT PLANS (CONTINUED):
OTHER POST-RETIREMENT BENEFIT PLANS CONTINUED
The following table sets forth the change in the pension and other
postretirement benefit plans' benefit obligations and assets as well as the
plans' funded status reconciled with the amount shown in the Company's financial
statements at December 31:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
1998 1997 1998 1997
---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 79,684 $ 70,848 $ 9,845 $ 9,899
Service cost 4,506 4,251 240 306
Interest cost 6,452 5,266 673 725
Amendments -- 1,000 -- --
Actuarial loss (gain) 21,975 -- 308 (801)
Benefits paid (1,825) (1,681) (647) (284)
---------- ---------- ---------- ---------
Benefit obligation at end of year $ 110,792 $ 79,684 $ 10,419 $ 9,845
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
The Company's share:
Benefit obligation at beginning of year $ 5,094 $ 4,529 $ 385 $ 384
Benefit obligation at end of year $ 9,125 $ 5,094 $ 416 $ 385
Change in plan assets:
Fair value of plan assets at beginning of year $ 136,610 $ 122,807 $ -- $ --
Actual return on plan assets 16,790 15,484 -- --
Employer contribution -- -- 647 284
Benefits paid (1,825) (1,681) (647) (284)
---------- ---------- ---------- ---------
Fair value of plan assets at end of year $ 151,575 $ 136,610 $ -- $ --
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Funded status $ 40,783 $ 56,926 $ (10,419) $ (9,845)
Unrecognized net actuarial gain (loss) (2,113) (18,147) 586 257
Unrecognized transition obligation (asset) (24,674) (26,730) 185 230
Unrecognized prior service cost 7,661 8,241 -- --
---------- ---------- ---------- ---------
Prepaid (accrued) benefit cost $ 21,657 $ 20,290 $ (9,648) $ (9,358)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
The Company's share of accrued benefit cost $ (1,178) $ (593) $ (195) $ (102)
Weighted-average assumptions as of December 31:
Discount rate 6.75% 7.50% 6.75% 7.50%
Expected return on plan assets 8.00% 7.50% N/A N/A
Rate of compensation increase 4.50% 4.50% N/A N/A
</TABLE>
80
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
13. RETIREMENT PLANS (CONTINUED):
For measurement purposes, a 10.1% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998 (5.7% for
dental benefits). The rates were assumed to decrease gradually to 5% for 2005
and remain at that level thereafter.
<TABLE>
<CAPTION>
1998 1997 1998 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 4,506 $ 4,251 $ 240 $ 306
Interest cost 6,452 5,266 673 725
Expected return on plan assets (10,172) (9,163) -- --
Amortization of transition obligation (asset) (2,056) (2,056) 45 45
Amortization of prior service cost 580 517 -- --
Recognized net actuarial (gain) loss (677) (789) (20) 71
---------- --------- --------- ---------
Net periodic benefit cost $ (1,367) $ (1,974) $ 938 $ 1,147
---------- --------- --------- ---------
---------- --------- --------- ---------
The Company's share of net periodic benefit cost $ 586 $ 146 $ 95 $ 117
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components $ 210 $ (170)
Effect on postretirement benefit obligation 2,026 (1,697)
</TABLE>
81
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
----------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Bonds $ 2,026,868 $ 2,153,953
Mortgages 535,003 556,143
Derivatives -- 771
LIABILITIES:
Insurance reserves $ 121,100 $ 121,100
Individual annuities 274,448 271,849
Pension products 1,104,489 1,145,351
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
----------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Bonds $ 2,451,731 $ 2,569,199
Mortgages 684,035 706,975
LIABILITIES:
Insurance reserves $ 123,128 $ 123,128
Individual annuities 307,668 302,165
Pension products 1,527,433 1,561,108
Derivatives -- (1,716)
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized
cost. The fair values of long-term bonds which are publicly traded are based
upon market prices or dealer quotes. For privately placed bonds, fair values are
estimated by taking into account prices for publicly traded bonds of similar
credit risk and maturity and repayment and liquidity characteristics.
The fair values of the Company's general account insurance reserves and
liabilities under investment-type contracts (insurance, annuity and pension
contracts that do not involve mortality or morbidity risks) are estimated using
discounted cash flow analyses or surrender values. Those contracts that are
deemed to have short-term guarantees have a carrying amount equal to the
estimated market value.
The fair values of mortgages are estimated by discounting future cash
flows using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
The fair values of derivative financial instruments are estimated using
the process described in Note 8.
15. STATUTORY INVESTMENT VALUATION RESERVES
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, stocks, mortgage loans, real estate and other invested
assets with related increases or decreases being recorded directly to surplus.
82
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
15. STATUTORY INVESTMENT VALUATION RESERVES (CONTINUED):
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 table shown below presents changes in the major elements of the AVR
and IMR.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997
-------------------- --------------------
AVR IMR AVR IMR
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of year $ 47,605 $ 33,830 $ 53,911 $ 28,675
Net realized investment gains, net of tax 256 8,942 17,400 6,321
Amortization of net investment gains -- (2,282) -- (1,166)
Unrealized investment losses (6,550) -- (2,340) --
Required by formula 3,081 -- (21,366) --
--------- --------- --------- ---------
Balance, end of year $ 44,392 $ 40,490 $ 47,605 $ 33,830
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
16. FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return. Federal income taxes are calculated for the consolidated group based
upon amounts determined to be payable as a result of operations within the
current year. No provision is recognized for timing differences which may exist
between financial statement and taxable income. Such timing differences include
reserves, depreciation and accrual of market discount on bonds. Cash payments
for federal income taxes were approximately $48,144,000, $31,000,000 and
$19,264,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
The Company is currently undergoing an audit by the Internal Revenue Service.
The Company believes that there will be no material audit adjustments for the
periods under examination.
17. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE)
On December 22, 1997, the Company issued a $250,000,000 surplus note to
Life Holdco. This note has an interest rate of 8.625% and is due on or after
November 6, 2027.
On May 9, 1997, the Company issued a short-term note of $600,000,000 to
Life Holdco at an interest rate of 5.10%, which was extended at various interest
rates. This note was repaid on December 22, 1997.
On December 19, 1995, the Company issued surplus notes totaling
$315,000,000 to an affiliate, Sun Canada Financial Co., at interest rates
between 5.75% and 7.25%. Of these notes, $157,500,000 will mature in the year
2007 and $157,500,000 will mature in the year 2015. Interest on these notes is
payable semiannually.
Principal and interest on surplus notes are payable only to the extent
that the Company meets specified requirements regarding free surplus exclusive
of the principal amount and accrued interest, if any, on these notes and with
the consent of the Delaware Insurance Commissioner.
The Company accrued $4,259,000 and $ 964,000 for interest on surplus notes
for the years ended December 31, 1998 and 1997, respectively.
The Company accrued $4,259,000 and $964,000 for interest on surplus notes
for the years ended December 31, 1998 and 1997, respectively.
83
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
17. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE) (CONTINUED):
The Company expensed $44,903,000, $42,481,000 and $23,061,000 for interest
on surplus notes and notes payable for the years ended December 31, 1998, 1997
and 1996, respectively.
18. TRANSACTIONS WITH AFFILIATES
The Company has an agreement with SLOC which provides that SLOC will
furnish, as requested, personnel as well as certain services and facilities on a
cost-reimbursement basis. Expenses under this agreement amounted to
approximately $16,344,000 in 1998, $15,997,000 in 1997, and $20,192,000 in 1996.
The Company leases office space to SLOC under lease agreements with terms
expiring in September, 1999 and options to extend the terms for each of thirteen
successive five-year terms at fair market rental not to exceed 125% of the fixed
rent for the term which is ending. Rent received by the Company under the leases
for 1998 amounted to approximately $6,856,000.
19. 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, 1998, 1997 and 1996.
20. ACCOUNTING POLICIES AND PRINCIPLES
The financial statements of the Company have been prepared on the basis of
statutory accounting practices which, prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting practices and GAAP are described as follows. Under statutory
accounting practices, financial statements are not consolidated and investments
in subsidiaries are shown at net equity value. Accordingly, the assets,
liabilities and results of operations of the Company's subsidiaries are not
consolidated with the assets, liabilities and results of operations,
respectively, of the Company. Changes in net equity value of the common stock of
the Company's United States life insurance subsidiaries are directly reflected
in the Company's surplus. Changes in the net equity value of the common stock of
all other subsidiaries are directly reflected in the Company's Asset Valuation
Reserve. Dividends paid by subsidiaries to the Company are included in the
Company's net investment income.
Other differences between statutory accounting practices and GAAP include
the following: statutory accounting practices do not recognize the following
assets or liabilities which are reflected under GAAP: deferred policy
acquisition costs, deferred federal income taxes and statutory nonadmitted
assets. Asset Valuation Reserves and Interest Maintenance Reserves are
established under statutory accounting practices but not under GAAP. Methods for
calculating real estate depreciation and investment valuation allowances differ
under statutory accounting practices and GAAP. Actuarial assumptions and
reserving methods differ under statutory accounting practices and GAAP. Premiums
for universal life and investment-type products are recognized as income for
statutory purposes and as deposits to policyholders' accounts for GAAP.
Because the Company's management uses financial information prepared in
conformity with accounting principles generally accepted in Canada in the normal
course of business, the management of Sun Life Assurance Company of Canada
(U.S.) has determined that the cost of complying with Statement No. 120,
"Accounting and Reporting by Mutual Insurance Enterprises and by Insurance
Enterprises for Certain Long Duration Participating Contracts", exceeds 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.
84
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital stock and surplus of Sun Life Assurance Company of
Canada (U.S.) (the "Company") as of December 31, 1998 and 1997, 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, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Notes 1 and 20 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 is a comprehensive basis of accounting other than generally accepted
accounting principles. The effects on the financial statements of the
differences between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the statutory financial statements referred to above
present fairly, in all material respects, the admitted assets, liabilities, and
capital stock and surplus of Sun Life Assurance Company of Canada (U.S.) as of
December 31, 1998 and 1997, and the results of its operations and its cash flow
for each of the three years in the period ended December 31, 1998 on the basis
of accounting described in Notes 1 and 20.
However, because of the differences between the two bases of accounting
referred to in the second preceding paragraph, in our opinion, the statutory
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, 1998 and 1997 or the
results of its operations or its cash flow for each of the three years in the
period ended December 31, 1998.
As management has stated in Note 20, 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, ACCOUNTING AND REPORTING BY MUTUAL LIFE
INSURANCE ENTERPRISES AND BY INSURANCE ENTERPRISES FOR CERTAIN LONG-DURATION
PARTICIPATING CONTRACTS, would exceed the benefits that the Company, or the
users of its financial statements, would experience. Consequently, the Company
has elected not to apply such standards in the preparation of these financial
statements.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 5, 1999
85
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
-------------- -------------------
(IN 000'S)
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 1,335,349 $ 1,763,468
Common stocks 88,456 128,445
Mortgage loans on real estate 616,325 535,003
Properties acquired in satisfaction of debt 17,019 17,207
Investment real estate 77,136 78,021
Policy loans 43,232 41,944
Cash & short-term investments 279,160 265,226
Other invested assets 65,753 64,177
Investment income due and accrued 28,486 35,706
Federal income tax recoverable and interest thereon 3,510 1,110
Other assets 18,529 1,928
-------------- -------------------
General account assets 2,572,955 2,932,235
Separate account assets
Unitized 12,994,455 11,774,745
Non-unitized 2,245,335 2,195,641
-------------- -------------------
TOTAL ADMITTED ASSETS $ 17,812,745 $ 16,902,621
-------------- -------------------
-------------- -------------------
LIABILITIES
Aggregate reserve for life policies and contracts $ 1,207,664 $ 1,216,107
Supplementary contracts 2,093 1,885
Policy and contract claims 772 369
Liability for premium and other deposit funds 733,194 1,000,875
Surrender values on cancelled policies 537 5
Interest maintenance reserve 42,782 40,490
Commissions to agents due or accrued 2,490 2,615
General expenses due or accrued 6,807 5,932
Transfers from Separate Accounts due or accrued (436,782) (361,863)
Taxes, licenses and fees due or accrued, excluding FIT 686 401
Federal income taxes due or accrued 46,013 25,019
Unearned investment income 65 23
Amounts withheld or retained by company as agent or trustee 694 529
Remittances and items not allocated 14,778 5,176
Asset valuation reserve 47,386 44,392
Payable to parent, subsidiaries, and affiliates 23,327 30,381
Payable for securities 6,158 428
Other liabilities 11,817 9,770
-------------- -------------------
General account liabilities 1,710,481 2,022,534
Separate account liabilities
Unitized 12,994,210 11,774,522
Non-unitized 2,245,335 2,195,641
-------------- -------------------
TOTAL LIABILITIES 16,950,026 15,992,697
-------------- -------------------
Common capital stock 5,900 5,900
-------------- -------------------
Surplus notes 565,000 565,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 92,464 139,669
-------------- -------------------
Surplus 856,819 904,024
-------------- -------------------
Total common capital stock and surplus 862,719 909,924
-------------- -------------------
TOTAL LIABILITIES, CAPITAL STOCK AND SURPLUS $ 17,812,745 $ 16,902,621
-------------- -------------------
-------------- -------------------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
86
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1999 1998
------------ -----------
(IN 000'S)
<S> <C> <C>
INCOME
Premiums and annuity considerations $ 34,121 $ 136,155
Deposit-type funds 1,344,238 996,025
Considerations for supplementary contracts without life contingencies and dividend
accumulations 1,042 1,144
Net investment income 80,636 99,731
Amortization of interest maintenance reserve 1,815 923
Net gain from operations from Separate Accounts Statement 0 3
Income from fees associated with investment management, administration and contract
guarantees from Separate Accounts 82,776 68,136
Other income 12,052 53,379
------------ -----------
Total 1,556,680 1,355,496
------------ -----------
BENEFITS AND EXPENSES
Death benefits 1,189 15,833
Annuity benefits 74,947 73,077
Disability benefits and benefits under accident and health policies 0 22
Surrender benefits and other fund withdrawals 1,215,489 988,182
Interest on policy or contract funds 185 262
Payments on supplementary contracts without life contingencies and of dividend
accumulations 925 1,199
Increase (decrease) in aggregate reserves for life and accident and health policies
and contracts (8,444) 58,249
Decrease in liability for premium and other deposit funds (267,681) (281,439)
Increase in reserve for supplementary contracts without life contingencies and for
dividend and coupon accumulations 208 (14)
------------ -----------
Total 1,016,818 855,371
Commissions on premiums and annuity considerations (direct business only) 79,768 66,615
Commissions and expense allowances on reinsurance assumed 0 8,226
General insurance expenses 31,186 29,784
Insurance taxes, licenses and fees, excluding federal income taxes 4,822 3,730
Decrease in loading on and cost of collection in excess of loading on deferred and
uncollected premiums 0 (234)
Net transfers to Separate Accounts 377,059 325,455
------------ -----------
Total 1,509,653 1,288,947
------------ -----------
NET GAIN FROM OPERATIONS BEFORE DIVIDENDS TO POLICYHOLDERS AND FIT 47,027 66,549
Dividends to policyholders 0 19,908
------------ -----------
NET GAIN FROM OPERATIONS AFTER DIVIDENDS TO POLICYHOLDERS AND BEFORE FIT 47,027 46,641
Federal income tax expense (excluding tax on capital gains) 12,921 12,394
------------ -----------
NET GAIN FROM OPERATIONS AFTER DIVIDENDS TO POLICYHOLDERS AND FIT AND BEFORE
REALIZED CAPITAL GAINS 34,106 34,247
Net realized capital gains less capital gains tax and transferred to the IMR 7,245 955
------------ -----------
NET INCOME $ 41,351 $ 35,202
------------ -----------
------------ -----------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
87
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------
1999 1998
----------- -----------
(IN 000'S)
<S> <C> <C>
INCOME
Premiums and annuity considerations $ 16,911 $ 72,364
Deposit-type funds 717,868 520,420
Considerations for supplementary contracts without life contingencies and dividend
accumulations 776 846
Net investment income 34,049 50,128
Amortization of interest maintenance reserve 904 352
Net gain from operations from Separate Accounts Statement 0 2
Income from fees associated with investment management, administration and contract
guarantees from Separate Accounts 42,323 35,925
Other income 6,401 27,377
----------- -----------
Total 819,232 707,414
----------- -----------
BENEFITS AND EXPENSES
Death benefits 376 7,890
Annuity benefits 37,464 38,039
Disability benefits and benefits under accident and health policies 0 0
Surrender benefits and other fund withdrawals 648,670 531,101
Interest on policy or contract funds 85 195
Payments on supplementary contracts without life contingencies and of dividend
accumulations 596 947
Increase (decrease) in aggregate reserves for life and accident and health policies
and contracts (3,564) 29,179
Decrease in liability for premium and other deposit funds (142,025) (164,218)
Increase in reserve for supplementary contracts without life contingencies and for
dividend and coupon accumulations 197 (82)
----------- -----------
Total 541,799 443,051
Commissions on premiums and annuity considerations (direct business only) 41,387 36,837
Commissions and expense allowances on reinsurance assumed 0 3,984
General insurance expenses 17,118 17,770
Insurance taxes, licenses and fees, excluding federal income taxes 2,569 1,577
Decrease in loading on and cost of collection in excess of loading on deferred and
uncollected premiums 0 (184)
Net transfers to Separate Accounts 208,603 169,850
----------- -----------
Total 811,476 672,885
----------- -----------
NET GAIN FROM OPERATIONS BEFORE DIVIDENDS TO POLICYHOLDERS AND FIT 7,756 34,529
Dividends to policyholders 0 10,118
----------- -----------
NET GAIN FROM OPERATIONS AFTER DIVIDENDS TO POLICYHOLDERS AND BEFORE FIT 7,756 24,411
Federal income tax expense (excluding tax on capital gains) 5,028 4,872
----------- -----------
NET GAIN FROM OPERATIONS AFTER DIVIDENDS TO POLICYHOLDERS AND FIT AND BEFORE
REALIZED CAPITAL GAINS 2,728 19,539
Net realized capital gains less capital gains tax and transferred to the IMR 967 738
----------- -----------
NET INCOME $ 3,695 $ 20,277
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
88
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
----------------------
1999 1998
---------- ----------
(IN 000'S)
<S> <C> <C>
CAPITAL AND SURPLUS, BEGINNING OF PERIOD $ 909,924 $ 832,695
---------- ----------
Net income 41,351 35,202
Change in net unrealized capital gains (11,831) (1,755)
Change in non-admitted assets and related items 1,284 (441)
Change in asset valuation reserve (2,995) 1,380
Surplus (contributed to) withdrawn from Separate Accounts during period (35) 48
Other changes in surplus in Separate Accounts Statement 21 0
Dividends to stockholders (75,000) (50,000)
---------- ----------
Net change in capital and surplus for the period (47,205) (15,566)
---------- ----------
CAPITAL AND SURPLUS, END OF PERIOD $ 862,719 $ 817,129
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
89
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
------------ ------------
(IN 000'S)
<S> <C> <C>
CASH PROVIDED
Premiums, annuity considerations and deposit funds received $ 1,378,359 $ 1,133,357
Considerations for supplementary contracts and dividend accumulations received 1,042 1,144
Net investment income received 110,543 125,061
Other income received 94,828 55,654
------------ ------------
Total receipts 1,584,772 1,315,216
------------ ------------
Benefits paid (other than dividends) 1,291,617 1,077,801
Insurance expenses and taxes paid (other than federal income and capital gains
taxes) 114,741 109,174
Net cash transfers to Separate Accounts 451,978 313,788
Dividends paid to policyholders 0 16,908
Federal income tax (recoveries) payments (excluding tax on capital gains) (8,073) 13,264
Other--net 185 0
------------ ------------
Total payments 1,850,448 1,530,935
------------ ------------
Net cash from operations (265,676) (215,719)
------------ ------------
Proceeds from long-term investments sold, matured or repaid (after deducting taxes
on capital gains of $965,960 for 1999, $1,797,495 for 1998) 609,423 757,517
Issuance (repayment) of surplus notes 0 0
Other cash provided 29,887 (43,091)
------------ ------------
Total cash provided 639,310 714,446
------------ ------------
CASH APPLIED
Cost of long-term investments acquired 231,739 710,436
Other cash applied 127,961 134,319
------------ ------------
Total cash applied 359,700 844,755
------------ ------------
NET CHANGE IN CASH AND SHORT-TERM INVESTMENTS 13,934 (346,028)
CASH AND SHORT-TERM INVESTMENTS:
BEGINNING OF PERIOD 265,226 544,418
------------ ------------
END OF PERIOD $ 279,160 $ 198,390
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO UNAUDITED STATUTORY FINANCIAL STATEMENTS.
90
<PAGE>
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.
The accompanying unaudited financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1998.
(2) TRANSACTIONS WITH AFFILIATES
The Company has an agreement with its ultimate parent, Sun Life Assurance
Company of Canada ("SLOC") which provides that SLOC will furnish, as requested,
personnel as well as certain services and facilities on a cost-reimbursement
basis. Expenses under this agreement amounted to approximately $8,048,561 and
$14,591,646, respectively, for the three and six month periods in 1999 and
$6,401,000 and $10,685,000 for the same periods in 1998.
The Company leases office space to SLOC under lease agreements with terms
expiring in September, 1999 and options to extend the terms for each of thirteen
successive five-year terms at fair market rental not to exceed 125% of the fixed
rent for the term which is ending. Rent received by the Company under the leases
for the six month period amounted to approximately $3,504,000.
(3) INVESTMENTS IN SUBSIDIARIES
The following is combined unaudited summarized financial information of
the subsidiaries as of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ --------------
(000'S)
<S> <C> <C>
Assets $ 1,092,339 $ 1,315,317
Liabilities (1,001,879) (1,186,872)
------------ --------------
Total equity $ 90,460 $ 128,445
------------ --------------
------------ --------------
</TABLE>
In determining the equity of subsidiaries for the periods, the Company has
excluded approximately $2,004,000 for the six month period in 1999 and $566,000
for the year ended December 1998 representing deferred taxes.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
----------------------
1999 1998
--------- -----------
(000'S)
<S> <C> <C>
Total revenue $ 53,081 $ 126,152
Operating expenses (55,192) (124,389)
Income tax benefit (expense) 207 (1,795)
--------- -----------
Net loss $ (1,904) $ (32)
--------- -----------
--------- -----------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- ---------
(000'S)
<S> <C> <C>
Total revenue $ 26,890 $ 63,685
Operating expenses (28,530) (64,453)
Income tax benefit (expense) 612 (730)
--------- ---------
Net loss $ (1,028) $ (1,498)
--------- ---------
--------- ---------
</TABLE>
91
<PAGE>
In determining the equity in income of subsidiaries for the periods, the
Company has excluded expenses of approximately $460,000 and $493,000 for the
three and six month periods in 1999 and $868,000 and $1,973,000 for the same
periods in 1998, representing payables to the Company in lieu of federal income
taxes.
SALE OF SUBSIDIARY
In February 1999, the Company completed the sale of its wholly-owned
subsidiary, Massachusetts Casualty Insurance company ("MCIC") to Centre
Solutions (U.S.) Limited, a wholly-owned subsidiary of Centre Reinsurance
Holdings, Limited for approximately $34 million. MCIC sold individual disability
insurance throughout the U.S. This transaction is not expected to have a
significant effect on the ongoing operations of the Company.
PENDING SALE OF SUBSIDIARY
In April 1999, the Company announced plans to sell its wholly owned
subsidiary, New London Trust F.S.B. ("NLT"). The Company anticipates that
certain assets will first be sold to banks in Connecticut and New Hampshire and
that the stock of NLT will then be acquired by a subsidiary of Phoenix Home Life
Mutual Insurance Company. The Company anticipates that the sale will be
completed in the fourth quarter of 1999, subject to state and federal regulatory
approvals. This transaction is not expected to have a significant effect on the
ongoing operations of the Company.
(4) INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- ---------
(000'S)
<S> <C> <C>
Interest income from bonds $ 68,259 $ 88,078
Income from investment in common stocks of affiliates 6,500 3,000
Interest income from mortgage loans 25,398 27,885
Real estate investment income 7,788 7,881
Interest income from policy loans 1,458 1,392
Other investment income (loss) (806) 242
--------- ---------
Gross investment income 108,597 128,478
Interest on surplus notes and other (21,633) (23,271)
Investment expenses (6,328) (5,476)
--------- ---------
Net investment income $ 80,636 $ 99,731
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- ---------
(000'S)
<S> <C> <C>
Interest income from bonds $ 31,465 $ 41,555
Income from investment in common stocks of affiliates 0 3,000
Interest income from mortgage loans 13,365 13,505
Real estate investment income 3,880 3,914
Interest income from policy loans 463 858
Other investment income (loss) (1,015) 433
--------- ---------
Gross investment income 48,158 63,265
Interest on surplus notes and other (10,817) (10,817)
Investment expenses (3,292) (2,320)
--------- ---------
Net investment income $ 34,049 $ 50,128
--------- ---------
--------- ---------
</TABLE>
92
<PAGE>
(5) SEGMENT INFORMATION
The Company currently offers financial products and services such as fixed
and variable annuities, and life insurance on an individual basis including
corporate owned life insurance. Within these areas, the Company conducts
business principally in two operating segments and maintains a corporate segment
to provide for the capital needs of the various operating segments and to engage
in other financing related activities.
The Protection segment markets and administers a variety of life insurance
products sold to individuals and corporate owners of individual life insurance.
The in force products include whole life, universal life and variable life. This
segment was formerly referred to as the "Individual Insurance" segment; no
changes have been made to the composition of this segment.
The Wealth Management segment markets and administers individual and group
variable annuity products, individual and group fixed annuity products which
include market value adjusted annuities, and other retirement benefit products.
This segment was formerly referred to as the "Retirement Products and Services"
segment; no changes have been made to the composition of this segment.
<TABLE>
<CAPTION>
TOTAL TOTAL PRE-TAX INCOME
SIX MONTHS ENDED JUNE 30, REVENUES EXPENDITURES INCOME TAXES
- ------------------------------------------------------------ ------------ --------------- --------- ---------
(000'S)
<S> <C> <C> <C> <C>
1999
Protection $ 18,871 $ 20,031 $ (1,160) $ (229)
Wealth Management 1,531,742 1,487,402 44,340 15,491
Corporate 6,067 2,220 3,847 (2,341)
------------ --------------- --------- ---------
Total $ 1,556,680 $ 1,509,653 47,027 $ 12,921
------------ --------------- --------- ---------
------------ --------------- --------- ---------
1998
Protection $ 152,566 $ 144,560 $ 8,006 $ 4,340
Wealth Management 1,194,096 1,161,617 32,479 8,106
Corporate 8,834 2,678 6,156 (52)
------------ --------------- --------- ---------
Total $ 1,355,496 $ 1,308,855 $ 46,641 $ 12,394
------------ --------------- --------- ---------
------------ --------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
TOTAL TOTAL PRE-TAX INCOME
THREE MONTHS ENDED JUNE 30, REVENUES EXPENDITURES INCOME TAXES
- ------------------------------------------------------------ ------------ --------------- --------- ---------
(000'S)
<S> <C> <C> <C> <C>
1999
Protection $ 8,552 $ 9,984 $ (1,432) $ (224)
Wealth Management 811,951 799,123 12,828 5,605
Corporate (1,271) 2,368 (3,639) (353)
------------ --------------- --------- ---------
Total $ 819,232 $ 811,475 $ 7,757 $ 5,028
------------ --------------- --------- ---------
------------ --------------- --------- ---------
1998
Protection $ 81,654 $ 77,650 $ 4,004 $ 2,646
Wealth Management 620,110 603,631 16,479 4,185
Corporate 5,650 1,722 3,928 (1,959)
------------ --------------- --------- ---------
Total $ 707,414 $ 683,003 $ 24,411 $ 4,872
------------ --------------- --------- ---------
------------ --------------- --------- ---------
</TABLE>
93
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Calculation of Performance Data -- Average Annual Total Return.......................
Non-Standardized Investment Performance..............................................
Advertising and Sales Literature.....................................................
Calculations.........................................................................
Example of Variable Accumulation Unit Value Calculation............................
Example of Variable Annuity Unit Calculation.......................................
Example of Variable Annuity Payment Calculation....................................
Calculation of Annuity Unit Values.................................................
Distribution of the Contracts........................................................
Designation and Change of Beneficiary................................................
Custodian............................................................................
Financial Statements.................................................................
</TABLE>
94
<PAGE>
This Prospectus sets forth information about the Contracts and the
Variable Account that a prospective purchaser should know before investing.
Additional information about the Contracts and the Variable Account has been
filed with the Securities and Exchange Commission in a Statement of Additional
Information dated May 1, 1999 which is incorporated herein by reference. The
Statement of Additional Information is available upon request and without charge
from Sun Life Assurance Company of Canada (U.S.). To receive a copy, return this
request form to the address shown below or telephone (617) 348-9600 or (888)
786-2435.
- --------------------------------------------------------------------------------
To: Sun Life Assurance Company of Canada (U.S.)
Annuity Service Mailing Address:
c/o Retirement Products and Services
P.O. Box 9133
Boston, Massachusetts 02117
Please send me a Statement of Additional Information for
Futurity Accolade Variable and Fixed Annuity
Sun Life of Canada (U.S.) Variable Account F.
Name
- --------------------------------------------------------------
Address
- --------------------------------------------------------------
- -------------------------------------------------------------------------
City
- ------------------------------------ State
- -------------- Zip
- ------
Telephone
- ----------------------------------------------------------------
95
<PAGE>
APPENDIX A
GLOSSARY
The following terms as used in this Prospectus have the indicated
meanings:
ACCOUNT or PARTICIPANT ACCOUNT: An account established for each
Participant to which Net Purchase Payments are credited.
ACCOUNT VALUE: The Variable Accumulation Value, if any, plus the Fixed
Accumulation Value, if any, of your Account for any Valuation Period.
ACCOUNT YEAR and ACCOUNT ANNIVERSARY: Your first Account Year is the
period of (a) 12 full calendar months plus (b) the part of the calendar month in
which we issue your Contract (if not on the first day of the month), beginning
with the Contract Date. Your Account Anniversary is the first day immediately
after the end of an Account Year. Each Account Year after the first is the 12
calendar month period that begins on your Account Anniversary. If, for example,
the Contract Date is in March, the first Account Year will be determined from
the Contract Date but will end on the last day of March in the following year;
your Account Anniversary is April 1 and all Account Years after the first will
be measured from April 1.
ACCUMULATION PHASE: The period before the Annuity Commencement Date and
during the lifetime of the Annuitant during which you make Purchase Payments
under the Contract. This is called the "Accumulation Period" in the Contract.
ANNUITANT: The person or persons to whom the first annuity payment is
made. If the Annuitant dies prior to the Annuity Commencement Date, the new
Annuitant will be the Co-Annuitant, if any. If the Co-Annuitant dies or if no
Co-Annuitant is named, the Participant becomes the Annuitant upon the
Annuitant's death prior to the Annuity Commencement Date. If you have not named
a sole Annuitant on the 30th day before the Annuity Commencement Date and both
the Annuitant and Co-Annuitant are living, the Co-Annuitant will be the sole
Annuitant during the Income Phase
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
under each Contract is to be made.
*ANNUITY OPTION: The method you choose 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 you or other evidence acceptable to us
that serves as your application for participation under a Group Contract or
purchase of an Individual Contract.
*BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity
having the right to receive the death benefit and, for Non-Qualified Contracts,
who, in the event of the Participant's death, is the "designated beneficiary"
for purposes of Section 72(s) of the Internal Revenue Code. After the Annuity
Commencement Date, the person or entity having the right to receive any payments
due under the Annuity Option elected, if applicable, upon the death of the
Payee.
BUSINESS DAY: Any day the New York Stock Exchange is open for trading.
CERTIFICATE: The document for each Participant which evidences the
coverage of the Participant under a Group Contract.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
CONTRACT DATE: The date on which we issue your Contract. This is called
the "Date of Coverage" in the Contract.
DEATH BENEFIT DATE: If you have elected a death benefit payment option
before your death that remains in effect, the date on which we receive Due Proof
of Death. If your Beneficiary elects the
* You specify these items on the Contract Specifications page or Certificate
Specifications page and may change them, as we describe in this Prospectus.
96
<PAGE>
death benefit payment option, the later of (a) the date on which we receive the
Beneficiary's election and (b) the date on which we receive Due Proof of Death.
If we do not receive the Beneficiary's election within 60 days after we receive
Due Proof of Death, the Death Benefit Date will be the last day of the 60 day
period and we will pay the death benefit in cash.
DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to the
Company.
EXPIRATION DATE: The last day of a Guarantee Period.
FIFTH-YEAR ANNIVERSARY: The fifth Account Anniversary and each succeeding
Account Anniversary occurring at any five year interval thereafter; for example,
the 10th, 15th and 20th Account Anniversaries.
FIXED ACCOUNT: The general account of the Company, consisting of all
assets of the Company other than those allocated to a separate account of the
Company.
FIXED ACCOUNT VALUE: The value of that portion of your Account allocated
to the Fixed Account.
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 assets of a Sub-Account may be invested.
GROUP CONTRACT: A Contract issued by the Company on a group basis.
GUARANTEE AMOUNT: Each separate allocation of your Account Value to a
particular Guarantee Period (including interest earned thereon).
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is
credited.
GUARANTEED INTEREST RATE: The rate of interest we credit on a compound
annual basis during any Guarantee Period.
INCOME PHASE: The period on and after the Annuity Commencement Date and
during the lifetime of the Annuitant during which we make annuity payments under
the Contract.
INDIVIDUAL CONTRACT: A Contract issued by the Company on an individual
basis.
NET INVESTMENT FACTOR: An index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one.
NET PURCHASE PAYMENT: The portion of a Purchase Payment which remains
after the deduction of any applicable premium tax or similar tax.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement
plan that does not receive favorable federal income tax treatment under Sections
401, 403, 408, or 408A 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 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),
Section 408(p) or Section 408A 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 Contract who
is entitled to exercise all rights and privileges of ownership under the
Contract, except as reserved by the Owner.
97
<PAGE>
PAYEE: A recipient of payments under a Contract. The term includes an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Participant.
PRINCIPAL: The sum of all Net Purchase Payments less the sum of all
withdrawals.
PURCHASE PAYMENT (PAYMENT): An amount paid to the Company as consideration
for the benefits provided by a Contract.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which may receive favorable federal income tax treatment under Sections 401,
403, 408 or 408A of the Internal Revenue Code of 1986, as amended.
SERIES FUND: MFS/Sun Life Series Trust.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific Fund or series of a Fund.
VALUATION PERIOD: The period of time from one determination of Variable
Accumulation Unit or Annuity Unit values to the next subsequent determination of
these values. Value determinations are made as of the close of the New York
Stock Exchange on each day that the Exchange is open for trading.
VARIABLE ACCOUNT: Variable Account F of the Company, which is 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
Variable Account Value.
VARIABLE ACCOUNT VALUE: The value of that portion of your Account
allocated to the Variable Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount
in relation to the investment performance of the Variable Account.
98
<PAGE>
APPENDIX B
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 WITHDRAWAL:
Assume a Purchase Payment of $40,000 is made on the Contract Date, 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 withdrawal of your Account, based on hypothetical Account Values.
<TABLE>
<CAPTION>
PAYMENT
HYPOTHETICAL CUMULATIVE FREE SUBJECT TO WITHDRAWAL WITHDRAWAL
ACCOUNT ACCOUNT ANNUAL ANNUAL WITHDRAWAL WITHDRAWAL CHARGE CHARGE
YEAR VALUE EARNINGS EARNINGS AMOUNT CHARGE PERCENTAGE AMOUNT
--------------- ------------ ----------- ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) 1 $ 41,000 $ 1,000 $ 1,000 $ 4,000 $ 36,000 8.00% $ 2,880
2 $ 45,100 $ 4,100 $ 5,100 $ 4,000 $ 36,000 8.00% $ 2,880
3 $ 49,600 $ 4,500 $ 9,600 $ 4,100 $ 35,900 7.00% $ 2,513
(b) 4 $ 52,100 $ 2,500 $ 12,100 $ 4,500 $ 35,500 7.00% $ 2,485
5 $ 57,300 $ 5,200 $ 17,300 $ 4,000 $ 36,000 6.00% $ 2,160
6 $ 63,000 $ 5,700 $ 23,000 $ 5,200 $ 34,800 5.00% $ 1,740
7 $ 66,200 $ 3,200 $ 26,200 $ 5,700 $ 34,300 4.00% $ 1,372
(c) 8 $ 72,800 $ 6,600 $ 32,800 $ 4,000 $ 36,000 2.00% $ 720
9 $ 80,000 $ 7,200 $ 40,000 $ 6,600 $ 33,400 1.00% $ 334
(d) 10 $ 88,000 $ 8,000 $ 48,000 $ 40,000 $ 0 0.00% $ 0
</TABLE>
(a) The free withdrawal amount in any year is equal to the amount of any
Purchase Payments made prior to the last nine Account Years ("Old Payments")
that were not previously withdrawn plus the greater of (1) the Contract's
earnings during the prior Account Year, and (2) 10% of any Purchase Payments
made in the last nine Account Years ("New Payments"). In Account Year 1, the
free withdrawal amount is $4,000, which equals 10% of the Purchase Payment
of $40,000. On a full withdrawal of $41,000, the amount subject to a
withdrawal charge is $36,000, which equals the New Payments of $40,000 minus
the free withdrawal amount of $4,000. The $1,000 of earnings is not subject
to a withdrawal charge.
(b) In Account Year 4, the free withdrawal amount is $4,500, which equals the
prior Account Year's earnings. On a full withdrawal of $52,100, the amount
subject to a withdrawal charge is $35,500, which equals the New Payments of
$40,000 minus the free withdrawal amount of $4,500. The $12,100 of earnings
is not subject to a withdrawal charge.
(c) In Account Year 8, the free withdrawal amount is $4,000, which equals 10% of
the Purchase Payment of $40,000. On a full withdrawal of $72,800, the amount
subject to a withdrawal charge is $36,000, which equals the New Payments of
$40,000 minus the free withdrawal amount of $4,000. The $32,800 of earnings
is not subject to a withdrawal charge.
(d) In Account Year 10, the free withdrawal amount is $40,000, which equals 100%
of the Purchase Payment of $40,000, which is now considered a New Payment.
On a full withdrawal of $88,000, the amount subject to a withdrawal charge
is $0, since there are no New Payments remaining.
PARTIAL WITHDRAWAL:
Assume a single Purchase Payment of $40,000 is made on the Contract Date,
no additional Purchase Payments are made, no partial withdrawals have been taken
prior to the fourth Account Year,
99
<PAGE>
and there are a series of four partial withdrawals made during the fourth
Account Year of $4,100, $9,000, $12,000, and $20,000.
<TABLE>
<CAPTION>
REMAINING
HYPOTHETICAL FREE AMOUNT OF
ACCOUNT WITHDRAWAL WITHDRAWAL
VALUE AMOUNT SUBJECT TO WITHDRAWAL
ACCOUNT BEFORE CUMULATIVE AMOUNT OF BEFORE WITHDRAWAL CHARGE
YEAR WITHDRAWAL EARNINGS EARNINGS WITHDRAWAL WITHDRAWAL CHARGE PERCENTAGE
--------------- ------------ ----------- ----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 41,000 $ 1,000 $ 1,000 $ 0 $ 4,000 $ 0 8.00%
2 $ 45,100 $ 4,100 $ 5,100 $ 0 $ 4,000 $ 0 8.00%
3 $ 49,600 $ 4,500 $ 9,600 $ 0 $ 4,100 $ 0 7.00%
(a) 4 $ 50,100 $ 500 $ 10,100 $ 4,100 $ 4.500 $ 0 7.00%
(b) 4 $ 46,800 $ 800 $ 10,900 $ 9,000 $ 400 $ 8,600 7.00%
(c) 4 $ 38,400 $ 600 $ 11,500 $ 12,000 $ 0 $ 12,000 7.00%
(d) 4 $ 26,800 $ 400 $ 11,900 $ 20,000 $ 0 $ 14,900 7.00%
<CAPTION>
WITHDRAWAL
CHARGE
AMOUNT
-----------
<S> <C>
$ 0
$ 0
$ 0
(a) $ 0
(b) $ 602
(c) $ 840
(d) $ 1,043
</TABLE>
(a) In Account Year 4, the free withdrawal amount is $4,500, which equals the
prior Account Year's earnings. The partial withdrawal amount of $4,100 is
less than the free withdrawal amount, so there is no withdrawal charge.
(b) Since a partial withdrawal of $4,100 was taken, the remaining free
withdrawal amount in Account Year 4 is $4,500 - $4,000 = $400. Therefore,
$400 of the $9,000 withdrawal is not subject to a withdrawal charge, and
$8,600 is subject to a withdrawal charge.
(c) Since the total of the two prior Account Year 4 partial withdrawals
($13,100) is greater than the free withdrawal amount of $4,500, there is no
remaining free withdrawal amount. The entire withdrawal amount of $12,000 is
subject to a withdrawal charge.
(d) Since the total of the three prior Account Year 4 partial withdrawals
($25,100) is greater than the free withdrawal amount of $4,500, there is no
remaining free withdrawal amount. Since the total amount of New Purchase
Payments was $40,000 and $25,100 of new Purchase Payments have already been
withdrawn, only $14,900 of this $20,000 withdrawal comes from liquidating
Purchase Payments. The remaining $5,100 of this withdrawal comes from
liquidating earnings and is not subject to a withdrawal charge.
Note that since all of the Purchase Payments were liquidated by the final
withdrawal of $20,000, the total withdrawal charge for the four Account Year 4
withdrawals is $2,485, which is the same amount that was assessed for a full
liquidation in Account Year 4 in the example on the previous page. Any
additional Account Year 4 withdrawals in the example shown on this page 85 would
come from the liquidating of earnings and would not be subject to a withdrawal
charge.
PART 2 -- FIXED ACCOUNT -- EXAMPLES OF THE MARKET VALUE ADJUSTMENT ("MVA")
The MVA Factor is:
<TABLE>
<C> <C>
N/12
1 + I
( -------- ) -1
1 + J + b
</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.
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.
100
<PAGE>
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
and the b factor is zero.
<TABLE>
<C> <S> <C> <C>
N/12
1 + I
The MVA factor = ( -------- ) -1
1 + J + b
</TABLE>
<TABLE>
<C> <S> <C> <C>
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.
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of surrender, the current rate (J) is 5% or .05
and the b factor is zero.
<TABLE>
<C> <S> <C> <C>
N/12
1 + I
The MVA factor = ( -------- ) -1
1 + J + b
</TABLE>
<TABLE>
<C> <S> <C> <C>
24/12
1 + .06
= ( ------ ) -1
1 + .05
= (1.010)(2) -1
= 1.019 -1
= .019
</TABLE>
The value of the Guarantee Amount less interested credit 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.
101
<PAGE>
APPENDIX C
CALCULATION OF BASIC DEATH BENEFIT
EXAMPLE 1:
Assume a Purchase Payment of $60,000 is made on the Contract Date, and an
additional Purchase Payment of $40,000 is made one year later. Assume that all
of the money is invested in Sub-Accounts. No withdrawals are made. The Account
Value at the Death Benefit Date is $80,000. The calculation of the death benefit
to be paid is as follows:
Account Value at Death Benefit Date = $80,000
Cash Surrender Value at Death Benefit Date = $76,500
Total of all Purchase Payments = $100,000
Greatest of Account Value, Cash Surrender Value and Total of all Purchase
Payments =
Greatest of $80,000, $76,500 and $100,000 = $100,000
Total paid on Death Benefit Date = Basic Death Benefit = $100,000
EXAMPLE 2:
Assume a Purchase Payment of $60,000 is made on the Contract Date, and an
additional Purchase Payment of $40,000 is made one year later. Assume that all
of the money is invested in Sub-Accounts. After the Account Value has dropped to
$80,000, a $20,000 withdrawal is made, so that the Account Value is now $60,000.
The Account Value at the Death Benefit Date is also $60,000. The calculation of
the death benefit to be paid is as follows:
Account Value immediately before Withdrawal = $80,000
Total of all Purchase Payments = $100,000
Amount of Withdrawal = $20,000
Account Value immediately after Withdrawal = $60,000
Total of all Purchase Payments adjusted for Withdrawal = $100,000 x
($60,000 / $80,000)
= $75,000
Account Value at Death Benefit Date = $60,000
Cash Surrender Value at Death Benefit Date = $57,000
Adjusted Total of all Purchase Payments = $75,000
Greatest of Account Value, Cash Surrender Value and Adjusted Total of all
Purchase Payments
= Greatest of $60,000, $57,000 and $75,000 = $75,000
Total paid on Death Benefit Date = Basic Death Benefit = $75,000
102
<PAGE>
APPENDIX D
CALCULATION OF EARNINGS ENHANCEMENT OPTIONAL DEATH BENEFIT
EXAMPLE 1:
Assume a Purchase Payment of $60,000 is made on the Contract Date, and an
additional Purchase Payment of $40,000 is made one year later. Assume that all
of the money is invested in Sub-Accounts. No withdrawals are made. The Account
Value at the Death Benefit Date is $150,000. The calculation of the death
benefit to be paid is as follows:
Account Value at Death Benefit Date = $150,000
Basic Death Benefit = $150,000
Total of all Purchase Payments = $100,000
Lesser of Purchase Payments and Account Value minus Purchase Payments
= Lesser of $100,000 and ($150,000 - $100,000)
= Lesser of $100,000 and $50,000 = $50,000
40% of (Lesser of Purchase Payments and Account Value minus Purchase
Payments) =
40% of $50,000 = $20,000
Total paid on Death Benefit Date = Basic Death Benefit plus Earnings
Enhancement Death
Benefit = $150,000 + $20,000 = $170,000
EXAMPLE 2:
Assume a Purchase Payment of $60,000 is made on the Contract Date, and an
additional Purchase Payment of $40,000 is made one year later. Assume that all
of the money is invested in Sub-Accounts. After the Account Value has grown to
$150,000, a $20,000 withdrawal is made, so that the Account Value is now
$130,000. The Account Value at the Death Benefit Date is also $130,000. The
calculation of the death benefit to be paid is as follows:
Account Value immediately before Withdrawal = $150,000
Total of all Purchase Payments = $100,000
Amount of Withdrawal = $20,000
Account Value immediately after Withdrawal = $130,000
Total of all Purchase Payments adjusted for Withdrawal = $100,000 x
($130,000 / $150,000
= $86,667
Account Value at Death Benefit Date = $130,000
Basic Death Benefit = $130,000
Lesser of adjusted Purchase Payments and Account Value minus adjusted
Purchase Payments
= Lesser of $86,667 and ($130,000 - $86,667)
= Lesser of $86,667 and $43,333 = $43,333
40% of (Lesser of adjusted Purchase Payments and Account Value minus
adjusted Purchase
Payments) = 40% of $43,333 = $17,333
Total paid on Death Benefit Date = Basic Death Benefit plus Earnings
Enhancement Death
Benefit = $130,000 + $17,333 = $147,333
103
<PAGE>
<TABLE>
<S> <C>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
ANNUITY SERVICE MAILING ADDRESS:
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117
TELEPHONE:
Toll Free (888) 786-2435
In Massachusetts (617) 348-9600
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
FUT ACC 9/99
</TABLE>
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
Attached hereto and made a part hereof is the Statement of Additional
Information dated , 1999.
<PAGE>
September __, 1999
FUTURITY ACCOLADE
VARIABLE AND FIXED ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
TABLE OF CONTENTS
Calculation of Performance Data - Average Annual Total Return...................
Non-Standardized Investment Performance ........................................
Advertising and Sales Literature ...............................................
Calculations ...................................................................
Example of Variable Accumulation Unit Value Calculation....................
Example of Variable Annuity Unit Calculation ..............................
Example of Variable Annuity Payment Calculation ...........................
Calculation of Annuity Values .............................................
Distribution of the Contracts ..................................................
Designation and Change of Beneficiary ..........................................
Custodian ......................................................................
Financial Statements ...........................................................
The Statement of Additional Information sets forth information
which may be of interest to prospective purchasers of Futurity Accolade
Variable and Fixed Annuity Contracts (the "Contracts") issued by Sun Life
Assurance Company of Canada (U.S.) (the "Company") in connection with Sun
Life of Canada (U.S.) Variable Account F (the "Variable Account") which is
not included in the Prospectus dated September __, 1999. This Statement of
Additional Information should be read in conjunction with the Prospectus, a
copy of which may be obtained without charge from the Company 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,
or by telephoning (617) 348-9600 or (888) 786-2435.
The terms used in this Statement of Additional Information have the
same meanings as in the Prospectus.
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE PURCHASERS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
<PAGE>
-2-
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
after 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 September __, 1999. No information is shown for the
Funds that have not commenced operations or that have been in operation for
less than one year.
The Securities and Exchange Commission defines "standardized" total
return information to mean Average Annual Total Return, based on a
hypothetical initial purchase payment of $1,000 and calculated in accordance
with the formula set forth after the table, but presented only for periods
subsequent to the commencement of the offering of the Futurity annuities.
Since as of the date of the Prospectus the Company has been offering the
Futurity annuities for less than a year, no standardized total return
information is currently provided. Standardized total return information will
be provided after the Sub-Accounts have been in operation for one year.
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION> 10 YEAR FUND
1 YEAR 3 YEAR 5 YEAR OR INCEPTION
PERIOD PERIOD PERIOD LIFE(1) DATE
------ ------ ------ ------- -------------------
<S> <C> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 12.58% 13.72% 15.44% 17.05% May 5, 1993
AIM V.I. Growth Fund 27.47% 20.64% 18.16% 17.84% May 5, 1993
AIM V.I. Growth and Income Fund 21.04% 22.04% 19.80% May 2, 1994
AIM V.I. International Equity Fund 8.72% 10.72% 9.31% 11.85% May 5, 1993
Alger American Growth Portfolio 41.53% 26.18% 22.59% 20.66% January 1, 1989
Alger American Income and Growth Portfolio 25.75% 27.19% 20.51% 14.43% November 15, 1988
Alger American Small Capitalization Portfolio 8.78% 7.44% 11.51% 18.73% September 21, 1988
Goldman Sachs CORE Large Cap Fund - - - 4.73% February 13, 1998
Goldman Sachs CORE Small Cap Fund - - - (15.51)% February 13, 1998
Goldman Sachs CORE U.S. Equity Fund - - - 7.85% February 13, 1998
Goldman Sachs Growth and Income Fund - - - (12.66)% January 12, 1998
Goldman Sachs International Equity Fund - - - (0.34)% January 12, 1998
J.P. Morgan U.S. Disciplined Equity Portfolio (2) 16.58% 21.74% - 24.79% January 3, 1995
J.P. Morgan International Opportunities Portfolio (2) (2.10)% 4.80% - 6.50% January 3, 1995
J.P. Morgan Small Company Portfolio (2) (11.99)% 9.37% - 15.01% January 3, 1995
Lord Abbett Growth and Income Portfolio 6.38% 16.42% 16.22% 14.88% December 1, 1989
MFS/Sun Life Capital Appreciation Series 21.79% 22.17% 18.51% 18.85% June 12, 1985
MFS/Sun Life Emerging Growth Series 27.19% 21.87% - 25.24% May 1, 1995
MFS/Sun Life Government Securities Series 1.94% 3.35% 4.95% 7.54% June 12, 1985
MFS/Sun Life High Yield Series (6.16)% 5.61% 6.27% 8.47% June 12, 1985
MFS/Sun Life Utilities Series 10.97% 21.11% 17.49% 17.18% November 16, 1993
MFS/Sun Life New Discovery Series - - - (0.13)% May 5, 1998
MFS/Sun Life Massachusetts Investors Growth Series - - - 14.53% May 1, 1998
MFS/Sun Life Total Return Series 5.05% 12.78% 12.55% 12.17% May 16, 1988
MFS/Sun Life Massachusetts Investors Trust 17.26% 24.25% 21.49% 17.94% December 5, 1986
OCC Equity Portfolio (3) 5.09% 18.08% 19.01% 16.43% August 1, 1988
OCC Managed Portfolio (3) 0.27% 14.63% 17.83% 18.23% August 1, 1988
OCC Mid Cap Portfolio - - - (8.40)% February 9, 1998
OCC Small Cap Portfolio (3) (15.24)% 6.86% 6.98% 12.12% August 1, 1988
SunCap Money Market Fund - - - 5.33% December 7, 1998
SunCap Investment Grade Fund Bond - - - 5.67% December 7, 1998
SunCap Real Estate Fund - - - 4.62% December 7, 1998
</TABLE>
(1) From commencement of investment operations.
(2) From January 3, 1995 (commencement of operations) to December 31, 1996,
Chubb Investment Advisory Corporation ("Chubb Investment Advisory"), a
wholly owned subsidiary of Chubb Life Insurance Company of America,
served as each of these Fund's investment manager, and Morgan Guaranty
Trust Comapny of New York, an affiliate of J.P. Morgan Investment
Management Inc. ("J.P. Morgan") served as such Fund's sub-investment
adviser. Effective January 1, 1997, J.P. Morgan began serving as each
Fund's investment adviser.
(3) 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, Managed and Small Cap Portfolios
immediately after the transaction were $86,789,755, $682,601,380, and
$139,812,573, respectively, with respect to the Old Trust, and for each
of the Equity, Managed and Small Cap Portfolios, $3,764,598,
$51,345,102, and $8,129,274, respectively, with respect to the OCC
Accumulation Trust. The Equity, Managed and Small Cap Portfolios
commenced operations on August 1, 1998. For the period prior to September
16, 1994, the performance figures above for each of the Equity, Managed,
and Small Cap Portfolios reflect the performance of the corresponding
Portfolios of the Old Trust.
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:
<PAGE>
-3-
n
P(l + 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 $35 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 sports. 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.
<PAGE>
-4-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity Accolade Contract, this many years ago... on December 31, 1998
</TABLE>
<TABLE>
<CAPTION>
AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. GROWTH FUND
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>
1 12/31/97-12/31/98 $11,762 17.62% 17.62% 1 12/31/97-12/31/98 $13,222 32.22% 32.22%
2 12/31/96-12/31/98 $12,983 29.83% 13.94% 2 12/31/96-12/31/98 $15,968 59.68% 26.36%
3 12/31/95-12/31/98 $15,051 50.51% 14.60% 3 12/31/95-12/31/98 $17,790 77.90% 21.17%
4 12/31/94-12/31/98 $20,117 101.17% 19.09% 4 12/31/94-12/31/98 $23,619 136.19% 23.97%
5 12/31/93-12/31/98 $20,318 103.18% 15.23% 5 12/31/93-12/31/98 $22,696 126.96% 17.81%
Life 05/05/93-12/31/98 $24,047 140.47% 16.77% Life 05/05/93-12/31/98 $24,874 148.74% 17.47%
<CAPTION>
AIM V.I. GROWTH AND INCOME FUND AIM V.I. INTERNATIONAL EQUITY FUND
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>
1 12/31/97-12/31/98 $12,591 25.91% 25.91% 1 12/31/97-12/31/98 $11,384 13.84% 13.84%
2 12/31/96-12/31/98 $15,581 55.81% 24.82% 2 12/31/96-12/31/98 $11,799 17.99% 8.62%
3 12/31/95-12/31/98 $18,383 83.83% 22.50% 3 12/31/95-12/31/98 $13,963 39.63% 11.77%
4 12/31/94-12/31/98 $23,493 134.93% 23.80% 4 12/31/94-12/31/98 $16,127 61.27% 12.69%
5 12/31/93-12/31/98 $15,635 56.35% 9.35%
Life 05/02/94-12/31/98 $23,264 132.64% 19.82% Life 05/05/93-12/31/98 $18,754 87.54% 11.75%
<CAPTION>
ALGER GROWTH PORTFOLIO ALGER INCOME AND 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>
1 12/31/97-12/31/98 $14,601 46.01% 46.01% 1 12/31/97-12/31/98 $13,053 30.53% 30.53%
2 12/31/96-12/31/98 $18,095 80.95% 34.52% 2 12/31/96-12/31/98 $17,525 75.25% 32.38%
3 12/31/95-12/31/98 $20,219 102.19% 26.45% 3 12/31/95-12/31/98 $20,688 106.88% 27.42%
4 12/31/94-12/31/98 $27,160 171.60% 28.38% 4 12/31/94-12/31/98 $27,534 175.34% 28.82%
5 12/31/93-12/31/98 $27,147 171.47% 22.11% 5 12/31/93-12/31/98 $24,889 148.89% 20.01%
10 12/31/88-12/31/98 $36,731 267.31% 13.89%
Life 01/09/89-12/31/98 $63,121 531.21% 20.27% Life 11/15/88-12/31/98 $37,030 270.30% 13.79%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-5-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity Accolade Contract, this many years ago... on December 31, 1998
</TABLE>
<TABLE>
<CAPTION>
ALGER SMALL CAPITALIZATION PORTFOLIO GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
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>
1 12/31/97-12/31/98 $11,389 13.89% 13.89%
2 12/31/96-12/31/98 $12,502 25.02% 11.81%
3 12/31/95-12/31/98 $12,837 28.37% 8.68%
4 12/31/94-12/31/98 $18,245 82.45% 16.22%
5 12/31/93-12/31/98 $17,191 71.91% 11.44%
10 12/31/88-12/31/98 $52,786 427.86% 18.10%
Life 09/21/88-12/31/98 $50,833 408.33% 17.13% Life 02/13/98-12/31/98 $10,994 9.94% 9.94%
<CAPTION>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND GOLDMAN SACHS CORE U.S. EQUITY FUND
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>
Life 02/13/98-12/31/98 $8,939 (10.61)% (10.61)% Life 02/13/98-12/31/98 $11,299 12.99% 12.99%
<CAPTION>
GOLDMAN SACHS CORE GROWTH AND INCOME FUND GOLDMAN SACHS INTERNATIONAL EQUITY FUND
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>
Life 01/12/98-12/31/98 $9,243 (7.57)% (7.57)% Life 01/12/98-12/31/98 $10,497 4.97% 4.97%
<CAPTION>
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO J.P. INTERNATIONAL OPPORTUNITIES 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>
1 12/31/97-12/31/98 $12,154 21.54% 21.54% 1 12/31/97-12/31/98 $10,323 3.23% 3.23%
2 12/31/96-12/31/98 $16,647 66.47% 29.02% 2 12/31/96-12/31/98 $11,201 12.01% 5.83%
3 12/31/95-12/31/98 $18,252 82.52% 22.21% 3 12/31/95-12/31/98 $11,961 19.61% 6.15%
Life 01/03/95-12/31/98 $24,139 141.39% 24.68% Life 01/03/95-12/31/98 $13,299 32.99% 7.40%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-6-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity Accolade Contract, this many years ago... on December 31, 1998
</TABLE>
<TABLE>
<CAPTION>
J.P. MORGAN SMALL COMPANY PORTFOLIO LORD ABBETT GROWTH AND INCOME 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>
1 12/31/97-12/31/98 $9,313 (6.87)% (6.87)% 1 12/31/97-12/31/98 $11,154 11.54% 11.54%
2 12/31/96-12/31/98 $11,241 12.41% 6.02% 2 12/31/96-12/31/98 $13,700 37.00% 17.05%
3 12/31/95-12/31/98 $13,492 34.92% 10.50% 3 12/31/95-12/31/98 $16,082 60.82% 17.16%
4 12/31/94-12/31/98 $20,625 106.25% 19.84%
5 12/31/93-12/31/98 $20,888 108.88% 15.87%
Life 01/03/95-12/31/98 $17,670 76.70% 15.32% Life 12/11/89-12/31/98 $34,136 241.36% 14.51%
<CAPTION>
MFS/SUN LIFE CAPITAL APPRECIATION SERIES MFS/SUN LIFE EMERGING GROWTH SERIES
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>
1 12/31/97-12/31/98 $12,690 26.90% 26.90% 1 12/31/97-12/31/98 $13,198 31.98% 31.98%
2 12/31/96-12/31/98 $15,398 53.98% 24.09% 2 12/31/96-12/31/98 $15,862 58.62% 25.94%
3 12/31/95-12/31/98 $18,437 84.37% 22.62% 3 12/31/95-12/31/98 $18,311 83.11% 22.34%
4 12/31/94-12/31/98 $24,433 144.33% 25.02%
5 12/31/93-12/31/98 $23,210 132.10% 18.34%
10 12/31/88-12/31/98 $54,007 440.07% 18.37%
Life 06/12/85-12/31/98 $73,277 632.77% 15.82% Life 05/01/95-12/31/98 $22,997 129.97% 25.46%
<CAPTION>
MFS/SUN LIFE GOVERNMENT SECURITIES SERIES MFS/SUN LIFE HIGH YIELD SERIES
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>
1 12/31/97-12/31/98 $10,717 7.17% 7.17% 1 12/31/97-12/31/98 $9,917 (0.83)% (0.83)%
2 12/31/96-12/31/98 $11,485 14.85% 7.17% 2 12/31/96-12/31/98 $11,065 10.65% 5.19%
3 12/31/95-12/31/98 $11,500 15.00% 4.77% 3 12/31/95-12/31/98 $12,226 22.26% 6.93%
4 12/31/94-12/31/98 $13,333 33.33% 7.46% 4 12/31/94-12/31/98 $14,100 41.00% 8.97%
5 12/31/93-12/31/98 $12,855 28.55% 5.15% 5 12/31/93-12/31/98 $13,584 35.84% 6.32%
10 12/31/88-12/31/98 $19,723 97.23% 7.03% 10 12/31/88-12/31/98 $21,412 114.12% 7.91%
Life 06/12/85-12/31/98 $25,328 153.28% 7.09% Life 06/12/85-12/31/98 $28,208 182.08% 7.95%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-7-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity Accolade Contract, this many years ago... on December 31, 1998
</TABLE>
<TABLE>
<CAPTION>
MFS/SUN LIFE TOTAL RETURN SERIES MFS/SUN LIFE, MASSACHUSETTS INVESTORS GROWTH SERIES
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>
1 12/31/97-12/31/98 $11,000 10.08% 10.08%
2 12/31/96-12/31/98 $13,233 32.33% 15.04%
3 12/31/95-12/31/98 $14,879 48.79% 14.16%
4 12/31/94-12/31/98 $18,581 85.81% 16.75%
5 12/31/93-12/31/98 $17,904 79.04% 12.35%
10 12/31/88-12/31/98 $30,060 200.60% 11.63%
Life 05/16/86-12/31/98 $30,644 206.44% 11.11% Life 05/01/98-12/31/98 $11,953 19.53% 19.53%
<CAPTION>
MFS/SUN LIFE NEW DISCOVERY SERIES MFS/SUN LIFE MASSACHUSETTS INVESTORS TRUST SERIES
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>
1 12/31/97-12/31/98 $12,206 22.06% 22.06%
2 12/31/96-12/31/98 $15,871 58.71% 25.98%
3 12/31/95-12/31/98 $19,614 96.14% 25.18%
4 12/31/94-12/31/98 $25,565 165.65% 27.67%
5 12/31/93-12/31/98 $25,891 158.91% 20.96%
10 12/31/88-12/31/98 $49,441 394.41% 17.33%
Life 05/05/98-12/31/98 $10,516 5.16% 5.16% Life 12/05/86-12/31/98 $50,545 405.45% 14.37%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-8-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity Accolade Contract, this many years ago... on December 31, 1998
</TABLE>
<TABLE>
<CAPTION>
MFS/SUN LIFE UTILITIES SERIES OCC 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>
1 12/31/97-12/31/98 $11,592 15.92% 15.92% 1 12/31/97-12/31/98 $11,027 10.27% 10.27%
2 12/31/96-12/31/98 $15,165 51.65% 23.15% 2 12/31/96-12/31/98 $13,761 37.61% 17.31%
3 12/31/95-12/31/98 $17,985 79.85% 21.61% 3 12/31/95-12/31/98 $16,737 67.37% 18.73%
4 12/31/94-12/31/98 $23,469 134.69% 23.77% 4 12/31/94-12/31/98 $22,893 128.93% 23.01%
5 12/31/93-12/31/98 $21,981 119.81% 17.06% 5 12/31/93-12/31/98 $23,418 134.18% 18.55%
10 12/31/88-12/31/98 $43,546 335.46% 15.85%
Life 11/16/93-12/31/98 $21,979 119.79% 16.61% Life 08/01/88-12/31/98 $44,217 342.17% 15.33%
<CAPTION>
OCC MANAGED PORTFOLIO OCC MID CAP 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>
1 12/31/97-12/31/98 $10,555 5.55% 5.55%
2 12/31/96-12/31/98 $12,722 27.22% 12.79%
3 12/31/95-12/31/98 $15,392 53.92% 15.46%
4 12/31/94-12/31/98 $22,089 120.89% 21.91%
5 12/31/93-12/31/98 $22,333 123.33% 17.43%
10 12/31/88-12/31/98 $50,710 407.10% 17.63%
Life 08/01/88-12/31/98 $52,618 426.18% 17.27% Life 02/09/98-12/31/98 $9,697 (3.03)% (3.03)%
<CAPTION>
OCC SMALL CAP PORTFOLIO SUN CAPITAL INVESTMENT GRADE BOND FUND
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>
1 12/31/97-12/31/98 $8,967 (10.33)% (10.33)%
2 12/31/96-12/31/98 $10,802 8.02% 3.93%
3 12/31/95-12/31/98 $12,643 26.43% 8.13%
4 12/31/94-12/31/98 $14,349 43.49% 9.45%
5 12/31/93-12/31/98 $13,996 39.96% 6.95%
10 12/31/88-12/31/98 $29,873 198.73% 11.56%
Life 08/01/88-12/31/98 $30,276 202.76% 11.21% Life 12/07/98-12/31/98 $9,981 (0.19)% (0.19)%
<CAPTION>
SUN CAPITAL MONEY MARKET FUND SUN CAPITAL REAL ESTATE FUND
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>
Life 12/07/98-12/31/98 $10,014 0.14% 0.14% Life 12/07/98-12/31/98 $10,083 0.83% 0.83%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-9-
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.
MOODY'S Investors Services, Inc.'s insurance claims-paying rating is a
system of rating an insurance company's financial strength, market leadership,
and ability to meet financial obligations. The purpose of Moody's ratings is to
provide investors with a simple system of gradation by which the relative
quality of insurance companies may be noted.
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.
<PAGE>
-10-
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
valueweighted 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. 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 Series Fund, 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 Internal
Revenue Code Section 401 (a) (9) in the case of Qualified Contracts, or
permitted under Internal Revenue 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 AND THE FUNDS CUSTOMERS. Sales literature for the
Variable Account and the Funds may refer to the number of clients which they
serve.
THE COMPANY'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
<PAGE>
-11-
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 December 31, 1997, the Company was the 37th largest
U.S. life insurance company based upon overall assets and its ultimate parent
company, Sun Life Assurance Company of Canada, was the 21st largest.
COMPOUND INTEREST ILLUSTRATIONS. These will emphasize several
advantages of the variable annuity contract. For example, but not by way of
limitation, the literature may emphasize the potential savings through tax
deferral; the potential advantage of the Variable Account over the Fixed
Account; and the compounding effect when a participant makes regular deposits to
his or her account.
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
- --------------------------------------------------------------------------------
<S> <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 $17,765 $34,528 $ 70,720
- --------------------------------------------------------------------------------
Paying Taxes
- --------------------------------------------------------------------------------
</TABLE>
THIS ILLUSTRATION IS HYPOTHETICAL AND DOES NOT REPRESENT THE PROJECTED
PERFORMANCE OF THE FUTURRITY II 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
ADMINISTRATION. 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.
<PAGE>
-12-
CALCULATIONS
EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATION
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 .00004002 (the daily equivalent of the current maximum
charge of 1.45% on an annual basis) gives a net investment factor of
1.00323509. 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 14.6116849 (14.5645672 X 1.00323648).
EXAMPLE OF VARIABLE ANNUITY UNIT CALCULATION
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 3% per year, the value
of the annuity unit for the current valuation period would be 12.3846153
(12.3456789 X 1.00323509 (the Net Investment Factor) X 0.99991902).
0.99991902 is the factor, for a one day Valuation Period, that neutralizes
the assumed interest rate of 3% per year used to establish the Annuity
Payment Rates found in certain Contracts. (The factor that neutralizes the
assumed interest rate of 4% per year used to establish the Annuity Payment
Rates found in other Contracts is 0.99989255).
EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATION
Suppose that a Participant 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 12.3846153. 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 $868.30 (70.1112 X 12.3846153).
CALCULATION OF ANNUITY VALUES
The Fixed Annuity Unit Value for each Sub-Account is $10.00 for the
first Valuation Period of the Sub-Account. For subsequent Valuation periods,
the Variable Annuity Unit Value for the Sub-Account is the previous Variable
Annuity Unit Value times the Net Investment Factor for the Sub-Account.
DISTRIBUTION OF THE CONTRACTS
We offer the Contracts on a continuous basis. The Contracts are 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 and
principal underwriter of the Contracts, Clarendon Insurance Agency, Inc.
("Clarendon"), One Sun Life Executive Park, Wellesley Hills, Massachusetts
02481. Clarendon is a wholly-owned subsidiary of the Company. Clarendon is
registered with the SEC 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 to the selling agents and will not be more than 6.25% 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 0.05% 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.
The Company reserves the right to offer these additional incentives only to
certain
<PAGE>
-13-
broker-dealers that sell or are expected to sell during specified time
periods certain minimum amounts of the Contracts or Certificates or other
contracts offered by the Company. Promotional incentives may change at any
time. Commissions will not be paid with respect to Participant 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 in the Prospectus under the heading "Waivers; Reduced Charges;
Credits; Bonus Guaranteed Interest Rates."
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation in the Application will remain in effect
until changed.
Subject to the rights of an irrevocably designated Beneficiary, you
may change or revoke the designation of Beneficiary by filing the change or
revocation with us in the form we require. The change or revocation will not be
binding on us until we receive it. When we receive it, the change or revocation
will be effective as of the date on which it was signed, but the change or
revocation will be without prejudice to us on account of any payment we make or
any action we take before receiving the change or revocation.
Please refer to the terms of your particular retirement plan and any
applicable legislation for any restrictions on the beneficiary designation.
CUSTODIAN
We are the Custodian of the assets of the Variable Account. We
will purchase Fund shares at net asset value in connection with amounts
allocated to the Sub-Accounts in accordance with your instructions, and we
will 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.
FINANCIAL STATEMENTS
The Financial Statements of Sun Life of Canada (U.S.) Variable
Account F for the year ended December 31, 1998 included in this Statement of
Additional Information have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
<PAGE>
-14-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
Investments in: Shares Cost Value
---------- ------------ ------------
<S> <C> <C> <C>
AIM Variable Insurance Funds, Inc.
V.I. Capital Appreciation Fund
("AIM1")........................... 61,653 $ 1,425,203 $ 1,553,666
V.I. Growth Fund ("AIM2")........... 103,597 2,338,409 2,569,205
V.I. Growth and Income Fund
("AIM3")........................... 159,010 3,374,591 3,776,476
V.I. International Equity Fund
("AIM4")........................... 122,897 2,275,430 2,411,238
The Alger American Fund
Growth Portfolio ("AL1")............ 68,386 3,143,210 3,639,502
Income and Growth Portfolio
("AL2")............................ 177,491 2,056,754 2,328,678
Small Capitalization Portfolio
("AL3")............................ 18,330 709,561 805,956
Goldman Sachs Variable Insurance Trust
CORE Large Cap Growth Fund
("GS1")............................ 199,410 2,099,757 2,329,110
CORE Small Cap Equity Fund
("GS2")............................ 31,269 272,617 282,676
CORE US Equity Fund ("GS3")......... 281,905 2,922,399 3,219,352
Growth and Income Fund ("GS4")...... 176,926 1,920,797 1,848,880
International Equity Fund ("GS5")... 27,320 308,722 325,384
J.P. Morgan Series Trust II
Equity Portfolio ("JP1")............ 201,127 3,112,186 3,185,847
International Equity Portfolio
("JP2")............................ 46,142 478,044 485,416
Small Cap Stock Portfolio ("JP3")... 16,051 191,610 190,370
Lord Abbett Series Fund, Inc.
Growth and Income Portfolio
("LA1")............................ 163,870 3,361,117 3,382,278
MFS/Sun Life Series Trust
Capital Appreciation Series
("CAS")............................ 100,566 3,989,435 4,619,240
Emerging Growth Series ("EGS")...... 209,516 4,099,958 4,877,239
Government Securities Series
("GSS")............................ 122,595 1,629,018 1,642,109
High Yield Series ("HYS")........... 230,697 2,116,785 2,113,993
Money Market Series ("MMS")......... 3,829,919 3,829,919 3,829,919
Utilities Series ("UTS")............ 169,613 2,694,298 2,897,748
OCC Accumulation Trust
Equity Portfolio ("OP1")............ 99,730 3,657,753 3,859,556
Mid Cap Portfolio ("OP2")........... 92,501 863,619 905,583
Small Cap Portfolio ("OP3")......... 30,984 686,779 715,731
Managed Portfolio ("OP4")........... 24 999 1,053
Salomon Brothers Variable Series
Funds, Inc.
Variable Capital Fund ("SB1")....... 19,989 207,998 231,269
Variable Investors Fund ("SB2")..... 29,980 310,630 330,084
Variable Strategic Bond Fund
("SB3")............................ 287,433 2,978,552 2,911,700
Variable Total Return Fund
("SB4")............................ 286,820 2,918,463 2,982,932
Sun Capital Advisers Trust
Sun Capital Money Market Fund
("SCA1")........................... 2,003 2,003 2,003
Sun Capital Investment Grade Bond
Fund ("SCA2")...................... 1,808 18,012 18,033
Sun Capital Real Estate Fund
("SCA3")........................... 721 6,999 7,096
Warburg Pincus Trust
Emerging Markets Portolio ("WP1")... 20,125 168,179 164,827
International Equity Portfolio
("WP2")............................ 15,073 167,510 165,652
Post-Venture Capital Portfolio
("WP3")............................ 11,625 129,509 136,947
Small Company Growth Portfolio
("WP4")............................ 23,191 341,750 371,281
------------ ------------
$ 60,808,575 $ 65,118,029
------------
------------
LIABILITY:
Payable to sponsor................................................ (475)
------------
Net assets.................................................. $ 65,117,554
------------
------------
</TABLE>
See notes to financial statements
<PAGE>
-15-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1998 -- continued
<TABLE>
<CAPTION>
Applicable to Owners of
Deferred Variable Annuity Contracts Reserve for
----------------------------------- Variable
Units Unit Value Value Annuities Total
--------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSETS APPLICABLE TO CONTRACT OWNERS:
FUTURITY CONTRACTS:
AIM Variable Insurance Funds, Inc.
V.I. Capital Appreciation Fund........... 141,292 $11.2634 $ 1,552,536 $ -- $ 1,552,536
V.I. Growth Fund......................... 204,502 12.5052 2,557,319 -- 2,557,319
V.I. Growth and Income Fund.............. 332,662 11.2957 3,757,624 -- 3,757,624
V.I. International Equity Fund........... 216,812 10.9969 2,384,292 -- 2,384,292
The Alger American Fund
Growth Portfolio......................... 285,990 12.6460 3,616,606 -- 3,616,606
Income and Growth Portfolio.............. 194,995 11.8414 2,308,987 -- 2,308,987
Small Capitalization Portfolio........... 77,472 10.3887 804,820 -- 804,820
Goldman Sachs Variable Insurance Trust
CORE Large Cap Growth Fund............... 210,952 11.0000 2,320,458 -- 2,320,458
CORE Small Cap Equity Fund............... 31,476 8.9463 281,589 -- 281,589
CORE US Equity Fund...................... 282,488 11.3062 3,193,980 -- 3,193,980
Growth and Income Fund................... 199,770 9.2498 1,847,844 -- 1,847,844
International Equity Fund................ 30,394 10.5032 319,257 -- 319,257
J.P. Morgan Series Trust II
Equity Portfolio......................... 293,787 10.8269 3,180,766 -- 3,180,766
International Opportunities Portfolio.... 52,419 9.2403 484,365 -- 484,365
Small Company Portfolio.................. 22,655 8.3553 189,285 -- 189,285
Lord Abbett Series Fund, Inc.
Growth and Income Portfolio.............. 333,805 10.0766 3,363,604 -- 3,363,604
MFS/Sun Life Series Trust
Capital Appreciation Series.............. 403,733 11.3759 4,592,910 -- 4,592,910
Emerging Growth Series................... 397,132 12.1772 4,835,955 -- 4,835,955
Government Securities Series............. 150,350 10.5829 1,591,131 40,272 1,631,403
High Yield Series........................ 217,924 9.6667 2,106,712 -- 2,106,712
Money Market Series...................... 371,404 10.3120 3,829,919 -- 3,829,919
Utilities Series......................... 278,221 10.3843 2,889,100 -- 2,889,100
OCC Accumulation Trust
Equity Portfolio......................... 363,748 10.5664 3,843,506 -- 3,843,506
Mid Cap Portfolio........................ 93,160 9.7036 903,990 -- 903,990
Small Cap Portfolio...................... 86,567 8.2560 714,696 -- 714,696
Salomon Brothers Variable Series Funds,
Inc.
Variable Capital Fund.................... 21,329 10.8433 231,269 -- 231,269
Variable Investors Fund.................. 32,282 10.2249 330,084 -- 330,084
Variable Strategic Bond Fund............. 277,473 10.4937 2,911,700 -- 2,911,700
Variable Total Return Fund............... 293,921 10.1488 2,982,932 -- 2,982,932
Warburg Pincus Trust
Emerging Markets Portfolio............... 22,480 7.2856 163,778 -- 163,778
International Equity Portfolio........... 18,253 9.0185 164,615 -- 164,615
Post-Venture Capital Portfolio........... 14,715 9.2305 135,822 -- 135,822
Small Company Growth Portfolio........... 41,843 8.8466 370,171 -- 370,171
------------ ----------- ------------
$ 64,761,622 $ 40,272 $ 64,801,894
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
See notes to financial statements
<PAGE>
-16-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1998 -- continued
<TABLE>
<CAPTION>
Applicable to Owners of
Deferred Variable Annuity Contracts Reserve for
----------------------------------- Variable
Units Unit Value Value Annuities Total
--------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
FUTURITY II CONTRACTS:
AIM Variable Insurance Funds, Inc.
V.I. Capital Appreciation Fund........... 100 $11.2991 $ 1,130 $ -- $ 1,130
V.I. Growth Fund......................... 1,049 11.3293 11,886 -- 11,886
V.I. Growth & Income Fund................ 1,704 11.0655 18,852 -- 18,852
V.I. International Equity Fund........... 2,553 10.5553 26,946 -- 26,946
The Alger American Fund
Growth Portfolio......................... 2,044 11.1993 22,896 -- 22,896
Income and Growth Portfolio.............. 1,785 11.0273 19,691 -- 19,691
Small Capitalization Portfolio........... 100 11.3603 1,136 -- 1,136
Goldman Sachs Variable Insurance Trust.....
CORE Large-Cap Growth Fund............... 786 11.0085 8,652 -- 8,652
CORE Small Cap Equity Fund............... 100 10.8679 1,087 -- 1,087
CORE US Equity Fund...................... 2,341 10.8370 25,372 25,372
Growth and Income Fund................... 100 10.3642 1,036 -- 1,036
International Equity Fund................ 578 10.5999 6,127 -- 6,127
J.P. Morgan Series Trust II................
Equity Portfolio......................... 474 10.7114 5,081 -- 5,081
International Opportunities Portfolio.... 100 10.5058 1,051 -- 1,051
Small Company Portfolio.................. 100 10.8537 1,085 -- 1,085
Lord Abbett Series Fund, Inc.
Growth and Income Portfolio.............. 1,763 10.5917 18,674 -- 18,674
MFS/Sun Life Series Trust
Capital Appreciation Series.............. 2,367 11.1244 26,330 -- 26,330
Emerging Growth Series................... 3,662 11.2723 41,284 -- 41,284
Government Securities Series............. 1,027 9.9595 10,231 -- 10,231
High Yield Series........................ 729 9.9916 7,281 -- 7,281
Utilities Series......................... 821 10.5369 8,648 -- 8,648
OCC Accumulation Trust
Equity Portfolio......................... 1,517 10.5784 16,050 -- 16,050
Mid Cap Portfolio........................ 150 10.6171 1,593 -- 1,593
Small Cap Portfolio...................... 100 10.3520 1,035 -- 1,035
Managed Portfolio........................ 100 10.5329 1,053 -- 1,053
Sun Capital Advisers Trust
Sun Capital Money Market Fund............ 200 10.0143 2,003 -- 2,003
Sun Capital Investment Grade Bond Fund... 1,806 9.9809 18,033 -- 18,033
Sun Capital Real Estate Fund............. 705 10.0837 7,096 -- 7,096
Warburg Pincus Trust
Emerging Markets Portfolio............... 100 10.4931 1,049 -- 1,049
International Equity Portfolio........... 100 10.3709 1,037 -- 1,037
Post-Venture Capital Portfolio........... 100 11.2546 1,125 -- 1,125
Small Company Growth Portfolio........... 100 11.0954 1,110 -- 1,110
------------ ----------- ------------
$ 315,660 $ -- $ 315,660
------------ ----------- ------------
$ 65,077,282 $ 40,272 $ 65,117,554
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
See notes to financial statements
<PAGE>
-17-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Period Ended December 31, 1998
<TABLE>
<CAPTION>
AIM1 AIM2 AIM3 AIM4 AL1
Sub-Account* Sub-Account* Sub-Account** Sub-Account* Sub-Account**
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 6,285 $ 156,348 $ 44,556 $ 18,795 $ 15,307
Mortality and expense risk charges.... (5,754) (10,256) (10,435) (9,450) (8,129)
Distribution expense charges.......... (690) (1,231) (1,252) (1,134) (975)
------------- -------------- ------------- ------------- -------------
Net investment income (loss)...... $ (159) $ 144,861 $ 32,869 $ 8,211 $ 6,203
------------- -------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $ 51,118 $ 262,798 $ 194,277 $ 606,332 $ 134,431
Cost of investments sold............ (57,244) (260,107) (194,824) (658,114) (152,992)
------------- -------------- ------------- ------------- -------------
Net realized gain (losses)........ $ (6,126) $ 2,691 $ (547) $ (51,782) $ (18,561)
------------- -------------- ------------- ------------- -------------
Net unrealized appreciation on
investments:
End of period....................... $128,463 $ 230,796 $ 401,885 $ 135,808 $ 496,292
Beginning of period................. -- -- -- -- --
------------- -------------- ------------- ------------- -------------
Change in unrealized
appreciation..................... $128,463 $ 230,796 $ 401,885 $ 135,808 $ 496,292
------------- -------------- ------------- ------------- -------------
Realized and unrealized gains....... $122,337 $ 233,487 $ 401,338 $ 84,026 $ 477,731
------------- -------------- ------------- ------------- -------------
INCREASE IN NET ASSETS FROM
OPERATIONS............................. $122,178 $ 378,348 $ 434,207 $ 92,237 $ 483,934
------------- -------------- ------------- ------------- -------------
------------- -------------- ------------- ------------- -------------
<CAPTION>
AL3 GS1 GS2 GS3 GS4
Sub-Account** Sub-Account*** Sub-Account* Sub-Account* Sub-Account*
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 833 $ 3,540 $ 874 $ 14,485 $ 16,477
Mortality and expense risk charges.... (2,460) (8,520) (1,123) (13,699) (9,031)
Distribution expense charges.......... (296) (1,022) (134) (1,644) (1,084)
------------- -------------- ------------- ------------- -------------
Net investment income (loss)...... $ (1,923) $ (6,002) $ (383) $ (858) $ 6,362
------------- -------------- ------------- ------------- -------------
REALIZED AND UNREALIZED LOSSES:
Realized losses on investment
transactions:
Proceeds from sales................. $ 28,682 $ 145,615 $ 31,350 $ 420,752 $ 53,455
Cost of investments sold............ (31,697) (152,360) (36,619) (430,572) (62,276)
------------- -------------- ------------- ------------- -------------
Net realized losses............... $ (3,015) $ (6,745) $ (5,269) $ (9,820) $ (8,821)
------------- -------------- ------------- ------------- -------------
Net unrealized appreciation
(depreciation) on investments:
End of period....................... $ 96,395 $ 229,353 $ 10,059 $ 296,953 $ (71,917)
Beginning of period................. -- -- -- -- --
------------- -------------- ------------- ------------- -------------
Change in unrealized appreciation
(depreciation)................... $ 96,395 $ 229,353 $ 10,059 $ 296,953 $ (71,917)
------------- -------------- ------------- ------------- -------------
Realized and unrealized gains
(losses)........................... $ 93,380 $ 222,608 $ 4,790 $ 287,133 $ (80,738)
------------- -------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS.................... $ 91,457 $ 216,606 $ 4,407 $ 286,275 $ (74,376)
------------- -------------- ------------- ------------- -------------
------------- -------------- ------------- ------------- -------------
<CAPTION>
AL2
Sub-Account**
-------------
<S> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 14,144
Mortality and expense risk charges.... (6,477)
Distribution expense charges.......... (777)
-------------
Net investment income (loss)...... $ 6,890
-------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $ 70,034
Cost of investments sold............ (75,270)
-------------
Net realized gain (losses)........ $ (5,236)
-------------
Net unrealized appreciation on
investments:
End of period....................... $271,924
Beginning of period................. --
-------------
Change in unrealized
appreciation..................... $271,924
-------------
Realized and unrealized gains....... $266,688
-------------
INCREASE IN NET ASSETS FROM
OPERATIONS............................. $273,578
-------------
-------------
GS5
Sub-Account+
-------------
<S> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 2,340
Mortality and expense risk charges.... (1,316)
Distribution expense charges.......... (158)
-------------
Net investment income (loss)...... $ 866
-------------
REALIZED AND UNREALIZED LOSSES:
Realized losses on investment
transactions:
Proceeds from sales................. $ 40,264
Cost of investments sold............ (43,080)
-------------
Net realized losses............... $ (2,816)
-------------
Net unrealized appreciation
(depreciation) on investments:
End of period....................... $ 16,662
Beginning of period................. --
-------------
Change in unrealized appreciation
(depreciation)................... $ 16,662
-------------
Realized and unrealized gains
(losses)........................... $ 13,846
-------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS.................... $ 14,712
-------------
-------------
</TABLE>
*For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
***For the period March 12, 1998 (commencement of operations) through December
31, 1998.
+For the period March 17, 1998 (commencement of operations) through December
31, 1998.
See notes to financial statements
<PAGE>
-18-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Period Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
JP1 JP2 JP3 LA1 CAS
Sub-Account** Sub-Account** Sub-Account** Sub-Account** Sub-Account*
-------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 241,743 $ 4,493 $ 4,121 $ 205,897 $ 9,457
Mortality and expense risk charges.... (8,628) (1,808) (717) (11,202) (16,870)
Distribution expense charges.......... (1,035) (217) (86) (1,344) (2,024)
-------------- ------------ -------------- ------------- -------------
Net investment income (loss)...... $ 232,080 $ 2,468 $ 3,318 $ 193,351 $ (9,437)
-------------- ------------ -------------- ------------- -------------
REALIZED AND UNREALIZED LOSSES:
Realized losses on investment
transactions:
Proceeds from sales................. $ 576,853 $ 10,067 $ 55,312 $ 315,782 $ 1,184,955
Cost of investments sold............ (618,907) (11,959) (58,372) (319,246) (1,219,402)
-------------- ------------ -------------- ------------- -------------
Net realized losses............... $ (42,054) $ (1,892) $ (3,060) $ (3,464) $ (34,447)
-------------- ------------ -------------- ------------- -------------
Net unrealized appreciation
(depreciation) on investments:
End of period....................... $ 73,661 $ 7,372 $ (1,240) $ 21,161 $ 629,805
Beginning of period................. -- -- -- -- --
-------------- ------------ -------------- ------------- -------------
Change in unrealized appreciation
(depreciation)................... $ 73,661 $ 7,372 $ (1,240) $ 21,161 $ 629,805
-------------- ------------ -------------- ------------- -------------
Realized and unrealized gains
(losses)........................... $ 31,607 $ 5,480 $ (4,300) $ 17,697 $ 595,358
-------------- ------------ -------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 263,687 $ 7,948 $ (982) $ 211,048 $ 585,921
-------------- ------------ -------------- ------------- -------------
-------------- ------------ -------------- ------------- -------------
<CAPTION>
GSS HYS MMS UTS OP1
Sub-Account*** Sub-Account* Sub-Account*** Sub-Account** Sub-Account***
-------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 1,514 $ 9,226 $ 69,015 $ 2,328 $ 296
Mortality and expense risk charges.... (5,898) (8,450) (17,964) (9,095) (12,274)
Distribution expense charges.......... (708) (1,015) (2,156) (1,092) (1,473)
-------------- ------------ -------------- ------------- -------------
Net investment income (loss)...... $ (5,092) $ (239) $ 48,895 $ (7,859) $ (13,451)
-------------- ------------ -------------- ------------- -------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $ 658,482 $ 201,108 $ 6,791,349 $ 61,276 $ 121,931
Cost of investments sold............ (635,156) (218,864) (6,791,349) (62,407) (137,860)
-------------- ------------ -------------- ------------- -------------
Net realized gains (losses)....... $ 23,326 $ (17,756) $ -- $ (1,131) $ (15,929)
-------------- ------------ -------------- ------------- -------------
Net unrealized appreciation
(depreciation) on investments:
End of period....................... $ 13,091 $ (2,792) $ -- $ 203,450 $ 201,803
Beginning of period................. -- -- -- -- --
-------------- ------------ -------------- ------------- -------------
Change in unrealized appreciation
(depreciation)....................... $ 13,091 $ (2,792) $ -- $ 203,450 $ 201,803
-------------- ------------ -------------- ------------- -------------
Realized and unrealized gains
(losses)........................... $ 36,417 $ (20,548) $ -- $ 202,319 $ 185,874
-------------- ------------ -------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 31,325 $ (20,787) $ 48,895 $ 194,460 $ 172,423
-------------- ------------ -------------- ------------- -------------
-------------- ------------ -------------- ------------- -------------
<CAPTION>
EGS
Sub-Account***
--------------
<S> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 9,770
Mortality and expense risk charges.... (17,496)
Distribution expense charges.......... (2,099)
--------------
Net investment income (loss)...... $ (9,825)
--------------
REALIZED AND UNREALIZED LOSSES:
Realized losses on investment
transactions:
Proceeds from sales................. $ 1,285,214
Cost of investments sold............ (1,329,156)
--------------
Net realized losses............... $ (43,942)
--------------
Net unrealized appreciation
(depreciation) on investments:
End of period....................... $ 777,281
Beginning of period................. --
--------------
Change in unrealized appreciation
(depreciation)................... $ 777,281
--------------
Realized and unrealized gains
(losses)........................... $ 733,339
--------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 723,514
--------------
--------------
OP2
Sub-Account***
--------------
<S> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 4,411
Mortality and expense risk charges.... (3,729)
Distribution expense charges.......... (447)
--------------
Net investment income (loss)...... $ 235
--------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $ 185,099
Cost of investments sold............ (204,397)
--------------
Net realized gains (losses)....... $ (19,298)
--------------
Net unrealized appreciation
(depreciation) on investments:
End of period....................... $ 41,964
Beginning of period................. --
--------------
Change in unrealized appreciation
(depreciation)....................... $ 41,964
--------------
Realized and unrealized gains
(losses)........................... $ 22,666
--------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 22,901
--------------
--------------
</TABLE>
*For the period February 26, 1998 (commencement of operations) through
December 31, 1998.
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
***For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-19-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Period Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
OP3 OP4 SB1 SB2 SB3 SB4
Sub-Account** Sub-Account+ Sub-Account** Sub-Account** Sub-Account* Sub-Account**
------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ -- $ -- $ 4,723 $ 1,344 $ 133,766 $51,585
Mortality and expense risk
charges......................... (1,648) (1) (1,045) (1,425) (11,087) (10,981)
Distribution expense charges..... (198) -- (125) (171) (1,331) (1,318)
------------- ------------- ------------- ------------- ------------- ------------
Net investment income
(loss)...................... $ (1,846) $ (1) $ 3,553 $ (252) $ 121,348 $39,286
------------- ------------- ------------- ------------- ------------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales............ $ 41,674 $ -- $ 14,423 $ 17,667 $ 287,467 $76,303
Cost of investments sold....... (48,893) -- (16,180) (18,524) (277,837) (77,449)
------------- ------------- ------------- ------------- ------------- ------------
Net realized gains
(losses).................... $ (7,219) $ -- $ (1,757) $ (857) $ 9,630 $(1,146)
------------- ------------- ------------- ------------- ------------- ------------
Net unrealized appreciation
(depreciation) on investments:
End of period.................. $ 28,952 $ 54 $ 23,271 $ 19,454 $ (66,852) $64,469
Beginning of period............ -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- ------------
Change in unrealized
appreciation
(depreciation).............. $ 28,952 $ 54 $ 23,271 $ 19,454 $ (66,852) $64,469
------------- ------------- ------------- ------------- ------------- ------------
Realized and unrealized gains
(losses)...................... $ 21,733 $ 54 $ 21,514 $ 18,597 $ (57,222) $63,323
------------- ------------- ------------- ------------- ------------- ------------
INCREASE IN NET ASSETS FROM
OPERATIONS........................ $ 19,887 $ 53 $ 25,067 $ 18,345 $ 64,126 $102,609
------------- ------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------- ------------
<CAPTION>
SCA1 SCA2 SCA3 WP1 WP2 WP3
Sub-Account+ Sub-Account+ Sub-Account+ Sub-Account* Sub-Account** Sub-Account**
------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ 4 $ 18 $-- $-- $ -- $--
Mortality and expense risk
charges......................... (1) (4) (1) (606) (1,215) (478)
Distribution expense charges..... -- (1) -- (73) (146) (57)
------------- ------------- ------------- ------------- ------------- ------------
Net investment income
(loss)...................... $ 3 $ 13 $ (1) $ (679) $ (1,361) $ (535)
------------- ------------- ------------- ------------- ------------- ------------
REALIZED AND UNREALIZED LOSSES:
Realized losses on investment
transactions:
Proceeds from sales............ $ 1 $ 5 $ 1 $ 10,430 $ 969,366 $ 1,327
Cost of investments sold....... (1) (6) (1) (15,247) (1,002,396) (1,566)
------------- ------------- ------------- ------------- ------------- ------------
Net realized losses.......... $-- $ (1) $-- $ (4,817) $ (33,030) $ (239)
------------- ------------- ------------- ------------- ------------- ------------
Net unrealized appreciation
(depreciation) on investments:
End of period.................. $-- $ 21 $ 97 $ (3,352) $ (1,858) $ 7,438
Beginning of period............ -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- ------------
Change in unrealized
appreciation
(depreciation).............. $-- $ 21 $ 97 $ (3,352) $ (1,858) $ 7,438
------------- ------------- ------------- ------------- ------------- ------------
Realized and unrealized gains
(losses)...................... $-- $ 20 $ 97 $ (8,169) $ (34,888) $ 7,199
------------- ------------- ------------- ------------- ------------- ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................... $ 3 $ 33 $ 96 $ (8,848) $ (36,249) $ 6,664
------------- ------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------- ------------
</TABLE>
*For the period February 20, 1998 (commencement of operations) through December
31, 1998.
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
+For the period December 15, 1998 (commencement of operations) through December
31, 1998.
See notes to financial statements
<PAGE>
-20-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Period Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
WP4
Sub-Account** Total
------------- -------------
<S> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ -- $ 1,047,695
Mortality and expense risk charges.... (2,028) (231,301)
Distribution expense charges.......... (243) (27,756)
------------- -------------
Net investment income (loss)...... $ (2,271) $ 788,638
------------- -------------
REALIZED AND UNREALIZED LOSSES:
Realized losses on investment
transactions:
Proceeds from sales................. $ 130,688 15,035,888
Cost of investments sold............ (156,790) (15,377,120)
------------- -------------
Net realized losses............... $ (26,102) $ (341,232)
------------- -------------
Net unrealized appreciation on
investments:
End of period....................... $ 29,531 4,309,454
Beginning of period................. -- --
------------- -------------
Change in unrealized
appreciation...................... $ 29,531 $ 4,309,454
------------- -------------
Realized and unrealized gains....... $ 3,429 $ 3,968,222
------------- -------------
INCREASE IN NET ASSETS FROM
OPERATIONS............................. $ 1,158 $ 4,756,860
------------- -------------
------------- -------------
</TABLE>
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
See notes to financial statements
<PAGE>
-21-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AIM1 AIM2 AIM3 AIM4 AL1 AL2
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------ ------------ ------------ ------------ ------------
Period Ended Period Ended Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1998* 1998* 1998** 1998* 1998** 1998**
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ (159) $ 144,861 $ 32,869 $ 8,211 $ 6,203 $ 6,890
Net realized gains (losses)........... (6,126) 2,691 (547) (51,782) (18,561) (5,236)
Net unrealized gains.................. 128,463 230,796 401,885 135,808 496,292 271,924
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets from
operations....................... $ 122,178 $ 378,348 $ 434,207 $ 92,237 $ 483,934 $ 273,578
------------ ------------ ------------ ------------ ------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.......... $1,229,109 $2,015,774 $2,099,297 $1,910,796 $2,399,047 $1,751,908
Net transfers between Sub-Accounts
and Fixed Account.................. 212,774 193,750 1,293,608 416,832 768,779 350,911
Withdrawals, surrenders,
annuitizations and contract
charges............................ (10,395) (18,667) (50,636) (8,627) (12,258) (47,719)
------------ ------------ ------------ ------------ ------------ ------------
Net accumulation activity......... $1,431,488 $2,190,857 $3,342,269 $2,319,001 $3,155,568 $2,055,100
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets from
participant transactions............. $1,431,488 $2,190,857 $3,342,269 $2,319,001 $3,155,568 $2,055,100
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets.............. $1,553,666 $2,569,205 $3,776,476 $2,411,238 $3,639,502 $2,328,678
NET ASSETS:
Beginning of period................... -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
End of period......................... $1,553,666 $2,569,205 $3,776,476 $2,411,238 $3,639,502 $2,328,678
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
*For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
See notes to financial statements
<PAGE>
-22-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
AL3 GS1 GS2 GS3 GS4 GS5
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------ ------------ ------------ ------------ ------------
Period Ended Period Ended Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1998** 1998*** 1998* 1998* 1998* 1998+
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ (1,923) $ (6,002) $ (383) $ (858) $ 6,362 $ 866
Net realized losses............. (3,015) (6,745) (5,269) (9,820) (8,821) (2,816)
Net unrealized gains (loss)..... 96,395 229,353 10,059 296,953 (71,917) 16,662
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net
assets from operations....... $ 91,457 $ 216,606 $ 4,407 $ 286,275 $ (74,376) $ 14,712
------------ ------------ ------------ ------------ ------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.... $ 437,232 $1,763,717 $ 258,204 $2,581,300 $1,443,172 $ 238,188
Net transfers between
Sub-Accounts and Fixed
Account...................... 285,561 357,499 20,679 407,943 493,897 72,560
Withdrawals, surrenders,
annuitizations and contract
charges...................... (8,294) (8,712) (614) (56,166) (13,813) (76)
------------ ------------ ------------ ------------ ------------ ------------
Net accumulation activity... $ 714,499 $2,112,504 $ 278,269 $2,933,077 $1,923,256 $ 310,672
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets from
participant transactions....... $ 714,499 $2,112,504 $ 278,269 $2,933,077 $1,923,256 $ 310,672
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets........ $ 805,956 $2,329,110 $ 282,676 $3,219,352 $1,848,880 $ 325,384
NET ASSETS:
Beginning of period............. -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
End of period................... $ 805,956 $2,329,110 $ 282,676 $3,219,352 $1,848,880 $ 325,384
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
*For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
***For the period March 12, 1998 (commencement of operations) through December
31, 1998.
+For the period March 17, 1998 (commencement of operations) through December
31, 1998.
See notes to financial statements
<PAGE>
-23-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
JP1 JP2 JP3 LA1 CAS EGS
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------ ------------ ------------ ------------ ------------
Period Ended Period Ended Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1998** 1998** 1998** 1998** 1998* 1998***
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ 232,080 $ 2,468 $ 3,318 $ 193,351 $ (9,437) $ (9,825)
Net realized losses............. (42,054) (1,892) (3,060) (3,464) (34,447) (43,942)
Net unrealized gains (losses)... 73,661 7,372 (1,240) 21,161 629,805 777,281
------------ ------------ ------------ ------------ ------------ ------------
Increase(decrease) in net
assets from operations..... $ 263,687 $ 7,948 $ (982) $ 211,048 $ 585,921 $ 723,514
------------ ------------ ------------ ------------ ------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.... $1,481,091 $401,185 $126,177 $2,829,156 $1,880,023 $3,011,641
Net transfers between
Sub-Accounts and Fixed
Account...................... 1,474,721 78,547 65,945 363,979 2,200,342 1,178,725
Withdrawals, surrenders,
annuitizations and contract
charges...................... (33,652) (2,264) (770) (21,905) (47,046) (36,641)
------------ ------------ ------------ ------------ ------------ ------------
Net accumulation activity... $2,922,160 $477,468 $191,352 $3,171,230 $4,033,319 $4,153,725
------------ ------------ ------------ ------------ ------------ ------------
Annuitization activity:
Annuitizations................ $ -- $-- $-- $ -- $ -- $ --
Annuity payments.............. -- -- -- -- -- --
Annuity transfers............. -- -- -- -- -- --
Adjustments to annuity
reserve...................... -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net annuitization
activity................... $ -- $-- $-- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets from
participant transactions....... $2,922,160 $477,468 $191,352 $3,171,230 $4,033,319 $4,153,725
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets........ $3,185,847 $485,416 $190,370 $3,382,278 $4,619,240 $4,877,239
NET ASSETS:
Beginning of period............. -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
End of period................... $3,185,847 $485,416 $190,370 $3,382,278 $4,619,240 $4,877,239
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
*For the period February 26, 1998 (commencement of operations) through
December 31, 1998.
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
***For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-24-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
GSS HYS MMS UTS OP1 OP2
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------ ------------ ------------ ------------ ------------
Period Ended Period Ended Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1998* 1998+ 1998* 1998** 1998* 1998*
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ (5,092) $ (239) $ 48,895 $ (7,859) $ (13,451) $ 235
Net realized gain (losses)...... 23,326 (17,756) -- (1,131) (15,929) (19,298)
Net unrealized gains (losses)... 13,091 (2,792) -- 203,450 201,803 41,964
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net
assets from operations..... $ 31,325 $ (20,787) $ 48,895 $ 194,460 $ 172,423 $ 22,901
------------ ------------ ------------ ------------ ------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.... $1,300,822 $1,355,408 $5,275,423 $1,634,726 $2,532,266 $772,014
Net transfers between
Sub-Accounts and Fixed
Account...................... 323,387 786,221 (1,482,996) 1,078,739 1,176,486 114,451
Withdrawals, surrenders,
annuitizations and contract
charges...................... (92,714) (6,849) (11,403) (10,177) (21,619) (3,783)
------------ ------------ ------------ ------------ ------------ ------------
Net accumulation activity... $1,531,495 $2,134,780 $3,781,024 $2,703,288 $3,687,133 $882,682
------------ ------------ ------------ ------------ ------------ ------------
Annuitization activity:
Annuitizations................ $ 40,389 $ -- $ -- $ -- $ -- $--
Annuity payments.............. (1,490) -- -- -- -- --
Annuity transfers............. 40,390 -- -- -- -- --
Adjustments to annuity
reserve...................... (475) -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net annuitization
activity................... $ 78,814 $ -- $ -- $ -- $ -- $--
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets from
participant transactions....... $1,610,309 $2,134,780 $3,781,024 $2,703,288 $3,687,133 $882,682
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets........ $1,641,634 $2,113,993 $3,829,919 $2,897,748 $3,859,556 $905,583
NET ASSETS:
Beginning of period............. -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
End of period................... $1,641,634 $2,113,993 $3,829,919 $2,897,748 $3,859,556 $905,583
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
*For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
+For the period February 26, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-25-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
OP3 OP4 SB1 SB2 SB3 SB4
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------ ------------ ------------ ------------ ------------
Period Ended Period Ended Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1998** 1998* 1998** 1998** 1998*** 1998**
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ (1,846) $ (1) $ 3,553 $ (252) $ 121,348 $ 39,286
Net realized gain (losses)...... (7,219) -- (1,757) (857) 9,630 (1,146)
Net unrealized gains (losses)... 28,952 54 23,271 19,454 (66,852) 64,469
------------ ------ ------------ ------------ ------------ ------------
Increase in net assets from
operations................. $ 19,887 $ 53 $ 25,067 $ 18,345 $ 64,126 $ 102,609
------------ ------ ------------ ------------ ------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.... $507,596 $ 1,000 $200,980 $263,704 $2,139,351 $1,946,618
Net transfers between
Sub-Accounts and Fixed
Account...................... 197,133 -- 8,030 49,888 722,156 945,488
Withdrawals, surrenders,
annuitizations and contract
charges...................... (8,885) -- (2,808) (1,853) (13,933) (11,783)
------------ ------ ------------ ------------ ------------ ------------
Net accumulation activity... $695,844 $ 1,000 $206,202 $311,739 $2,847,574 $2,880,323
------------ ------ ------------ ------------ ------------ ------------
Annuitization activity:
Annuitizations................ $-- $ -- $-- $-- $ -- $ --
Annuity payments.............. -- -- -- -- -- --
Annuity transfers............. -- -- -- -- -- --
Adjustments to annuity
reserve...................... -- -- -- -- -- --
------------ ------ ------------ ------------ ------------ ------------
Net annuitization
activity................... $-- $ -- $-- $-- $ -- $ --
------------ ------ ------------ ------------ ------------ ------------
Increase in net assets from
participant transactions....... $695,844 $ 1,000 $206,202 $311,739 $2,847,574 $2,880,323
------------ ------ ------------ ------------ ------------ ------------
Increase in net assets........ $715,731 $ 1,053 $231,269 $330,084 $2,911,700 $2,982,932
NET ASSETS:
Beginning of period............. -- -- -- -- -- --
------------ ------ ------------ ------------ ------------ ------------
End of period................... $715,731 $ 1,053 $231,269 $330,084 $2,911,700 $2,982,932
------------ ------ ------------ ------------ ------------ ------------
------------ ------ ------------ ------------ ------------ ------------
</TABLE>
*For the period December 15, 1998 (commencement of operations) through
December 31, 1998.
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
***For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-26-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
SCA1 SCA2 SCA3 WP1 WP2 WP3
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------ ------------ ------------ ------------ ------------
Period Ended Period Ended Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1998*** 1998*** 1998*** 1998* 1998** 1998**
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income(loss)..... $ 3 $ 13 $ (1) $ (679) $ (1,361) $ (535)
Net realized losses............. -- (1) -- (4,817) (33,030) (239)
Net unrealized gains (losses)... -- 21 97 (3,352) (1,858) 7,438
------ ------------ ------ ------------ ------------ ------------
Increase(decrease) in net
assets from operations..... $ 3 $ 33 $ 96 $ (8,848) $(36,249) $ 6,664
------ ------------ ------ ------------ ------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.... $2,000 $18,000 $7,000 $133,941 $169,921 $113,755
Net transfers between
Sub-Accounts and Fixed
Account...................... -- -- -- 40,476 32,859 17,358
Withdrawals, surrenders,
annuitizations and contract
charges...................... -- -- -- (742) (879) (830)
------ ------------ ------ ------------ ------------ ------------
Net accumulation activity... $2,000 $18,000 $7,000 $173,675 $201,901 $130,283
------ ------------ ------ ------------ ------------ ------------
Annuitization activity:
Annuitizations................ $-- $-- $-- $-- $-- $--
Annuity payments.............. -- -- -- -- -- --
Annuity transfers............. -- -- -- -- -- --
Adjustments to annuity
reserve...................... -- -- -- -- -- --
------ ------------ ------ ------------ ------------ ------------
Net annuitization
activity................... $-- $-- $-- $-- $-- $--
------ ------------ ------ ------------ ------------ ------------
Increase in net assets from
participant transactions....... $2,000 $18,000 $7,000 $173,675 $201,901 $130,283
------ ------------ ------ ------------ ------------ ------------
Increase in net assets........ $2,003 $18,033 $7,096 $164,827 $165,652 $136,947
NET ASSETS:
Beginning of period............. -- -- -- -- -- --
------ ------------ ------ ------------ ------------ ------------
End of period................... $2,003 $18,033 $7,096 $164,827 $165,652 $136,947
------ ------------ ------ ------------ ------------ ------------
------ ------------ ------ ------------ ------------ ------------
</TABLE>
*For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
***For the period December 15, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-27-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
WP4
Sub-Account Total
------------ ------------
Period Ended Period Ended
December 31, December 31,
1998** 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)............... $ (2,271) $ 788,638
Net realized losses........................ (26,102) (341,232)
Net unrealized gains....................... 29,531 4,309,454
------------ ------------
Increase in net assets from
operations............................. $ 1,158 $ 4,756,860
------------ ------------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received............... $378,201 $46,609,743
Net transfers between Sub-Accounts and
Fixed Account........................... (5,371) 14,241,357
Withdrawals, surrenders, annuitizations
and contract charges.................... (2,707) (569,220)
------------ ------------
Net accumulation activity.............. $370,123 $60,281,880
------------ ------------
Annuitization activity:
Annuitizations........................... $-- $ 40,389
Annuity payments......................... -- (1,490)
Annuity transfers........................ -- 40,390
Adjustments to annuity reserve........... -- (475)
------------ ------------
Net annuitization activity............. $-- $ 78,814
------------ ------------
Increase in net assets from participant
transactions.............................. $370,123 $60,360,694
------------ ------------
Increase in net assets................... $371,281 $65,117,554
NET ASSETS:
Beginning of period........................ -- --
------------ ------------
End of period.............................. $371,281 $65,117,554
------------ ------------
------------ ------------
</TABLE>
**For the period March 27, 1998 (commencement of operations) though December 31,
1998.
See notes to financial statements
<PAGE>
-28-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Sun Life of Canada (U.S.) Variable Account F (the "Variable Account") is a
separate account of Sun Life Assurance Company of Canada (U.S.), (the
"Sponsor"), and was established on July 13, 1989 as a funding vehicle for the
variable portion of Futurity contracts, Futurity II contracts (collectively, the
"Contracts") and certain other group and individual fixed and variable annuity
contracts issued by the Sponsor. The Variable Account is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940 as a
unit investment trust.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account is invested in shares of a single corresponding investment portfolio
of certain registered open-end mutual funds. With respect to the Futurity
contracts the funds are: AIM Variable Insurance Funds, Inc., The Alger American
Fund, Goldman Sachs Variable Insurance Trust, J.P. Morgan Series Trust II, Lord
Abbett Series Fund, Inc., MFS/ Sun Life Series Trust, OCC Accumulation Trust,
Salomon Brothers Variable Series Funds Inc. and Warburg Pincus Trust. With
respect to the Futurity II contracts the funds are: AIM Variable Insurance
Funds, Inc., The Alger American Fund, Goldman Sachs Variable Insurance Trust,
J.P. Morgan Series Trust II, Lord Abbett Series Fund, Inc., MFS/Sun Life Series
Trust, OCC Accumulation Trust, Sun Capital Advisers Trust and Warburg Pincus
Trust (collectively, the "Funds").
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Sponsor's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
INVESTMENT VALUATIONS
Investments in shares of the Funds are recorded at their net asset value.
Realized gains and losses on sales of shares of the Funds are determined on the
identified cost basis. Dividend income and capital gain distributions received
by the Sub-Accounts are reinvested in additional Fund shares and are recognized
on the ex-dividend date.
Exchanges between Sub-Accounts requested by contract participants are recorded
in the new Sub-Account upon receipt of the redemption proceeds.
FEDERAL INCOME TAX STATUS
The operations of the Variable Account are part of the operations of the Sponsor
and are not taxed separately. The Variable Account is not taxed as a regulated
investment company. The Sponsor qualifies for the federal income tax treatment
granted to life insurance companies under Subchapter L of the Internal
<PAGE>
-29-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
Revenue Code. Under existing federal income tax law, investment income and
capital gains earned by the Variable Account on contract owner reserves are not
taxable and, therefore, no provision has been made for federal income taxes.
(3) CONTRACT CHARGES
A mortality and expense risk charge based on the value of the Sub-Accounts
included in the Variable Account is deducted from the Variable Account at the
end of each valuation period for the mortality and expense risks assumed by the
Sponsor. The deductions are transferred periodically to the Sponsor. Currently,
the deduction is at an effective annual rate of 1.25%.
Each year on the account anniversary, an account administration fee ("Account
Fee") equal to the lesser of $30 in the case of Futurity contracts and $35 in
the case of Futurity II contracts or 2% of the participant's account value in
Account Years one through five (thereafter, the Account fee may be changed
annually, but it may not exceed the lesser of $50 or 2% of the participant's
account value) is deducted from the participant's account to reimburse the
Sponsor for certain administrative expenses. After the annuity commencement date
the Account Fee will be deducted pro rata from each variable annuity payment
made during the year. As reimbursement for administrative expenses attributable
to Contracts which exceed the revenues received from the Account Fees, the
Sponsor makes a deduction from the Variable Account at the end of each valuation
period at an effective annual rate of 0.15% of the net assets attributable to
such Contracts.
The Sponsor does not deduct a sales charge from purchase payments. However, a
withdrawal charge (contingent deferred sales charge) of up to 6% of certain
amounts withdrawn, when applicable, may be deducted to cover certain expenses
relating to the sale of the Contracts, including commissions paid to sales
personnel, the costs of preparation of sales literature, and other promotional
costs and acquisition expenses.
(4) ANNUITY RESERVES
Annuity reserves are calculated using the 1983 Individual Annuitant Mortality
Table and an assumed interest rate of 3% per year. Required adjustments to the
reserves are accomplished by transfers to or from the Sponsor.
<PAGE>
-30-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS
<TABLE>
<CAPTION>
Units Transferred
Between
Sub-Accounts
Units Outstanding and Fixed Units Withdrawn, Units
Beginning of Accumulation Surrendered, Outstanding End
Period Units Purchased Account and Annuitized of Year
----------------- --------------- ------------------- ----------------- ---------------
Period Ended Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31,
1998 1998 1998 1998 1998
----------------- --------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
FUTURITY CONTRACTS:
AIM1 *........................ -- 120,297 21,989 (994) 141,292
AIM2 *........................ -- 188,055 18,286 (1,839) 204,502
AIM3 **....................... -- 211,522 126,191 (5,051) 332,662
AIM4 *........................ -- 175,562 42,064 (814) 216,812
AL1 **........................ -- 220,381 66,702 (1,093) 285,990
AL2 **........................ -- 166,134 33,387 (4,526) 194,995
AL3 **........................ -- 46,464 31,855 (847) 77,472
GS1 ***....................... -- 174,066 37,773 (887) 210,952
GS2 *......................... -- 28,820 2,730 (74) 31,476
GS3 *......................... -- 245,810 41,721 (5,043) 282,488
GS4 *......................... -- 146,654 54,644 (1,528) 199,770
GS5 +......................... -- 22,922 7,479 (7) 30,394
JP1 **........................ -- 153,409 143,890 (3,512) 293,787
JP2 **........................ -- 43,568 9,107 (256) 52,419
JP3 **........................ -- 14,226 8,529 (100) 22,655
LA1 **........................ -- 295,576 40,527 (2,298) 333,805
CAS ++........................ -- 182,671 225,749 (4,687) 403,733
EGS *......................... -- 286,458 114,747 (4,073) 397,132
GSS *......................... -- 124,697 30,755 (5,102) 150,350
HYS ++........................ -- 136,139 82,554 (769) 217,924
MMS *......................... -- 520,396 (145,427) (3,565) 371,404
UTS **........................ -- 168,365 110,939 (1,083) 278,221
OP1 *......................... -- 249,514 116,381 (2,147) 363,748
OP2 *......................... -- 80,719 12,844 (403) 93,160
OP3 **........................ -- 62,966 24,744 (1,143) 86,567
SB1 **........................ -- 20,954 660 (285) 21,329
SB2 **........................ -- 27,151 5,324 (193) 32,282
SB3 *......................... -- 208,817 69,996 (1,340) 277,473
SB4 **........................ -- 199,267 95,844 (1,190) 293,921
WP1 *......................... -- 17,004 5,576 (100) 22,480
WP2 **........................ -- 17,656 697 (100) 18,253
WP3 **........................ -- 12,602 2,213 (100) 14,715
WP4 **........................ -- 42,727 (84) (800) 41,843
</TABLE>
*For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
**For the period March 27, 1998 (commencement of operations) through December
31, 1998.
***For the period March 12, 1998 (commencement of operations) through December
31, 1998.
+For the period March 17, 1998 (commencement of operations) through December
31, 1998.
++For the period February 26, 1998 (commencement of operations) through
December 31, 1998.
<PAGE>
-31-
FUTURITY AND FUTURITY II SUB-ACCOUNTS INCLUDED IN SUN LIFE OF CANADA (U.S.)
VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS -- continued
<TABLE>
<CAPTION>
Units Transferred
Between
Sub-Accounts
Units Outstanding and Fixed Units Withdrawn, Units
Beginning of Accumulation Surrendered, Outstanding End
Period Units Purchased Account and Annuitized of Year
----------------- ----------------- ------------------- ----------------- ---------------
Period Ended Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31,
1998 1998 1998 1998 1998
----------------- ----------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
FUTURITY II CONTRACTS:
AIM1#......................... -- 100 -- -- 100
AIM2#......................... -- 1,049 -- -- 1,049
AIM3#......................... -- 1,704 -- -- 1,704
AIM4##........................ -- 2,553 -- -- 2,553
AL1#.......................... -- 2,044 -- -- 2,044
AL2##......................... -- 1,785 -- -- 1,785
AL3#.......................... -- 100 -- -- 100
GS1###........................ -- 786 -- -- 786
GS2#.......................... -- 100 -- -- 100
GS3##......................... -- 2,341 -- -- 2,341
GS4#.......................... -- 100 -- -- 100
GS5###........................ -- 578 -- -- 578
JP1#.......................... -- 474 -- -- 474
JP2#.......................... -- 100 -- -- 100
JP3#.......................... -- 100 -- -- 100
LA1##......................... -- 1,763 -- -- 1,763
CAS#.......................... -- 2,367 -- -- 2,367
EGS###........................ -- 3,662 -- -- 3,662
GSS##......................... -- 1,027 -- -- 1,027
HYS##......................... -- 729 -- -- 729
UTS###........................ -- 821 -- -- 821
OP1##......................... -- 1,517 -- -- 1,517
OP2#.......................... -- 150 -- -- 150
OP3#.......................... -- 100 -- -- 100
OP4#.......................... -- 100 -- -- 100
SCA1#......................... -- 200 -- -- 200
SCA2#......................... -- 1,806 -- -- 1,806
SCA3#......................... -- 705 -- -- 705
WP1#.......................... -- 100 -- -- 100
WP2#.......................... -- 100 -- -- 100
WP3#.......................... -- 100 -- -- 100
WP4#.......................... -- 100 -- -- 100
</TABLE>
#For the period December 15, 1998 (commencement of operations) through
December 31, 1998.
##For the period December 17, 1998 (commencement of operations) through
December 31, 1998.
###For the period December 29, 1998 (commencement of operations) through
December 31, 1998.
<PAGE>
-32-
INDEPENDENT AUDITORS' REPORT
To the Participants in Futurity and Futurity II
and the Board of Directors of Sun Life Assurance Company of Canada (U.S.):
We have audited the accompanying statement of condition of AIM V.I. Capital
Appreciation Sub-Account, AIM V.I. Growth Sub-Account, AIM V.I. Growth and
Income Sub-Account, AIM V.I. International Equity Sub-Account, The Alger
American Growth Sub-Account, The Alger American Income and Growth Sub-Account,
The Alger American Small Capitalization Sub-Account, Goldman Sachs CORE Large
Cap Growth Sub-Account, Goldman Sachs CORE Small Cap Equity Sub-Account, Goldman
Sachs CORE U.S. Equity Sub-Account, Goldman Sachs Growth and Income Sub-Account,
Goldman Sachs International Equity Sub-Account, J.P. Morgan Equity Sub-Account,
J.P. Morgan International Opportunities Sub-Account, J.P. Morgan Small Company
Sub-Account, Lord Abbett Growth and Income Sub-Account, MFS/Sun Life Capital
Appreciation Sub-Account, MFS/Sun Life Emerging Growth Sub-Account, MFS/Sun Life
Government Securities Sub-Account, MFS/Sun Life High Yield Sub-Account, MFS/Sun
Life Money Market Sub-Account, MFS/Sun Life Utilities Sub-Account, OCC Equity
Sub-Account, OCC Mid Cap Sub-Account, OCC Managed Sub-Account, OCC Small Cap
Sub-Account, Salomon Brothers Variable Capital Sub-Account, Salomon Brothers
Variable Investors Sub-Account, Salomon Brothers Variable Strategic Bond
Sub-Account, Salomon Brothers Variable Total Return Sub-Account, Sun Capital
Investment Grade Bond Sub-Account, Sun Capital Money Market Sub-Account, Sun
Capital Real Estate Sub-Account, Warburg Pincus Emerging Markets Sub-Account,
Warburg Pincus International Equity Sub-Account, Warburg Pincus Post-Venture
Capital Sub-Account and Warburg Pincus Small Company Growth Sub-Account of Sun
Life of Canada (U.S.) Variable Account F, (the "Sub-Accounts") as of December
31, 1998, the related statement of operations and the statement of changes in
net assets for the period then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities held at December 31, 1998 by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Sub-Accounts as of December 31, 1998,
the results of their operations and the changes in their net assets for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 1999
<PAGE>
-33-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
ANNUITY SERVICE MAILING ADDRESS:
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117
TELEPHONE:
Toll Free (888) 786-2435
In Massachusetts (617) 348-9600
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
<PAGE>
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. Condensed Financial Information - Accumulation Unit Values.
B. Financial Statements of the Depositor:
Audited:
1. Statutory Statements of Admitted Assets,
Liabilities and Capital Stock and Surplus,
December 31, 1998 and 1997;
2. Statutory Statements of Operations, Years Ended
December 31, 1998, 1997 and 1996;
3. Statutory Statements of Changes in Capital Stock
and Surplus, Years Ended December 31, 1998, 1997
and 1996;
4. Statutory Statements of Cash Flow, Years Ended
December 31, 1998, 1997 and 1996;
5. Notes to Statutory Financial Statements; and
6. Independent Auditors' Report.
Unaudited:
1. Statutory Statements of Admitted Assets,
Liabilities and Capital Stock and Surplus -
June 30, 1999 and December 31, 1998
2. Statutory Statements of Operations - Six Months
Ended June 30, 1999 and June 30, 1998
3. Statutory Statements of Operations - Three Months
Ended June 30, 1999 and June 30, 1998
4. Statutory Statements of Changes in Capital Stock
and Surplus - Six Months Ended June 30, 1999 and
June 30, 1998
5. Statutory Statements of Cash Flow Six Months Ended
June 30, 1999 and June 30, 1998
6. Notes to Unaudtied Statutory Financial Statements
Included in Part B
A. Financial Statements of the Registrant:
1. Statement of Condition, December 31, 1998;
2. Statement of Operations, Year Ended December 31,
1998;
3. Statements of Changes in Net Assets, Years Ended
December 31, 1998 and December 31, 1997;
4. Notes to Financial Statements; and
5. Independent Auditors' Report.
(b) The following Exhibits are incorporated in the Registration
Statement by reference unless otherwise indicated:
(1) Resolution of Board of Directors of the depositor
dated December 3, 1985 authorizing the
establishment of the Registrant (Incorporated
herein by reference to Exhibit 1 to the
Registration Statement of the Registrant on Form
N-4, File No. 333-37907, filed on October 14,
1997);
(2) Not Applicable;
(3)(a) Distribution Agreement between the Depositor,
Massachusetts Financial Services Company and
Clarendon Insurance Agency, Inc. (Incorporated
herein by reference to Exhibit 3(a) to
Pre-Effective Amendment No. 1 to the Registration
Statement of the Registrant on Form N-4, File No.
333-37907, filed on January 16, 1998);
(b)(i) Specimen Sales Operations and General Agent
Agreement (Incorporated herein by reference to
Exhibit 3(b)(i) to Pre-Effective Amendment No. 1
to the Registration Statement of the Registrant on
Form N-4, File No. 333-37907, filed on January 16,
1998);
<PAGE>
(b)(ii) Specimen Broker-Dealer Supervisory and Service
Agreement (Incorporated herein by reference to
Exhibit 3(b)(ii) to Pre-Effective Amendment No. 1
to the Registration Statement of the Registrant on
Form N-4, File No. 333-37907, filed on January 16,
1998); and
(b)(iii) Specimen Registered Representatives Agent
Agreement (Incorporated herein by reference to
Exhibit 3(b)(iii) to Pre-Effective Amendment No.
1 to the Registration Statement of the Registrant
on Form N-4, File No. 333-37907, filed on January
16, 1998);
(4)(a)(i) Form of Flexible Payment Combination
Fixed/Variable Group Annuity Contract;*
(b)(i) Form of Certificate to be
issued in connection with Contract filed as
Exhibit 4(a)(i);*
(c)(i) Form of Flexible Payment Combination
Fixed/Variable Individual Annuity Contract;*
(5)(a) Form of Application to be used with the annuity
contract filed as Exhibit 4(a)(i);*
(b) Form of Application to be used with the
Certificate filed as Exhibit 4(b)(i) and the
annuity contract filed as Exhibit 4(c)(i);*
(6) Certificate of Incorporation and By-laws of the
depositor (Incorporated herein by reference to
Exhibits 3(a) and 3(b), respectively, to the
Registration Statement of the Depositor on Form
S-1, File No. 333-37907, filed on October 14,
1997);
(7) Not Applicable;
(8) Not Applicable;
(9) Opinion of Counsel and Consent to its use as to
the legality of the securities being registered
(Filed as Exhibit 9 to the Registration
Statement of the Registrant on Form N-4, File
No. 333-82957, filed July 15, 1999);
(10) Consent of Deloitte & Touche, LLP*
(11) Financial Statement Schedules I and VI
(Incorporated herein by reference to the
Depositor's Form 10-K Annual Report for the
fiscal year ended December 31, 1998, filed on
March 31, 1999)
(12) Not Applicable;
(13) Schedule for Computation of Performance
Quotations (Incorporated by reference to
Exhibit 13 to Post-Effective Amendment No. 10
to the Registration Statement of the Registrant
on Form N-4, File No. 33-41628, filed on
April 29, 1998);
(14) Not Applicable; and
(15) Powers of Attorney (Filed as Exhibit 15 to the
Registration Statement of the Registrant on
Form N-4, File No. 333-82957, filed July 15,
1999)
* Filed herewith
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal Positions and Offices
Business Address with Depositor
---------------- --------------
Donald A. Stewart Chairman and Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
C. James Prieur President and Director
One Sun Life Executive Park
Wellesley Hills, MA 02481
James A. McNulty, III Senior Vice President
One Sun Life Executive Park and General Manager
Wellesley Hills, MA 02481 and Director
Gregory W. Gee Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
David D. Horn Director
Strong Road
New Vineyard, ME 04956
Richard B. Bailey Director
63 Atlantic Avenue
Boston, MA 02110
M. Colyer Crum Director
104 Westcliff Road
Weston, MA 02193
Angus A. MacNaughton Director
c/o Genstar Investment Corporation
555 California Street, Suite 4850
San Francisco, CA 94104
S. Caesar Raboy Director
220 Boylston Street
Boston, MA 02110
<PAGE>
Name and Principal Positions and Offices
Business Address with Depositor
---------------- --------------
Robert P. Vrolyk Vice President, Finance,
One Sun Life Executive Park Actuary and Treasurer
Wellesley Hills, MA 02481
James M.A. Anderson Vice President, Investments
One Sun Life Executive Park
Wellesley Hills, MA 02481
Peter F. Demuth Vice President and Chief Counsel
One Sun Life Executive Park and Assistant Secretary
Wellesley Hills, MA 02481
Robert K. Leach Vice President, Finance
One Copley Place and Product
Boston, MA 02116
Edward J. Ronan Vice President, Retirement
One Copley Place Products and Services
Boston, MA 02116
Ellen B. King Counsel, Litigation and Secretary
One Sun Life Executive Park
Wellesley Hills, MA 02481
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., a wholly-owned subsidiary of Sun Life Assurance Company of Canada -
U.S. Operations Holdings, Inc., which is in turn a wholly-owned subsidiary of
Sun Life Assurance Company of Canada.
The organization chart of Sun Life Assurance Company of Canada is
incorporated by reference from Exhibit 16 to Post-Effective Amendment No. 5
to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F
on Form N-4 (File No. 333-05227) filed September 13, 1998.
<PAGE>
None of the companies listed in Exhibit 16 is a subsidiary of the
Registrant; therefore, the only financial statements being filed are those of
Sun Life Assurance Company of Canada (U.S.).
Item 27. NUMBER OF CONTRACT OWNERS:
As of September 29, 1999, no Futurity Accolade Contracts had been issued
by the Registrant.
Item 28. INDEMNIFICATION
Pursuant to Section 145 of the Delaware Corporation Law, Article 8 of
the By-laws of Sun Life Assurance Company of Canada (U.S.), a copy of which
was filed as Exhibit 3(b) to the Registration Statement of the Depositor on
Form S-1, File No. 33-29851, provides for the indemnification of directors,
officers and employees of Sun Life Assurance Company of Canada (U.S.).
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of Sun Life Assurance Company of Canada (U.S.) pursuant to the certificate of
incorporation, by-laws, or otherwise, Sun Life (U.S.) has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Sun Life (U.S.) of expenses incurred
or paid by a director, officer, controlling person of Sun Life (U.S.) in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, Sun Life (U.S.) will submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against
public policy as expressed in the Act, unless in the opinion of their counsel
the matter has been settled by controlling precedent, and will be governed by
the final adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITERS
(a) Clarendon Insurance Agency, Inc., a wholly-owned subsidiary of Sun
Life Assurance Company of Canada (U.S.), acts as general distributor for the
Registrant, Sun Life of Canada (U.S.) Variable Accounts C, D, E, G, H and I,
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.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* with Underwriter
---------------- ----------------
<S> <C>
Anne M. Georges.................... President and Director
Robert P. Vrolyk................... Treasurer and Director
James M.A. Anderson................ Director
S. Caesar Raboy.................... Director
C. James Prieur.................... Director
Roy P. Creedon..................... Secretary
Donald E. Kaufman.................. Vice President
Cynthia M. Orcutt.................. Vice President
Laurie Lennox...................... Vice President
Maura A. Murphy.................... Assistant Secretary
Peter Marion....................... Tax Officer
</TABLE>
- -------------
* The principal business address of all directors and officers of the
principal underwriter except Ms. Georges, Ms. Lennox and Mr. Raboy is One Sun
Life Executive Park, Wellesley Hills, Massachusetts 02481. The principal
business address of Ms. Georges and Ms. Lennox is One Copley Place, Boston,
Massachusetts 02116. The principal business address of Mr. Raboy is 220
Boylston Street, Boston, Massachusetts 02110.
(a) 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, in whole or in part, by Sun Life Assurance Company
of Canada (U.S.) at its executive office at One Sun Life Executive Park,
Wellesley Hills, Massachusetts 02481, at the offices of the Sun Life Annuity
Service Center at One Copley Place, Boston, Massachusetts 02116, or at the
offices of Clarendon Insurance Agency, Inc., at One Sun Life Executive Park,
Wellesley Hills, Massachusetts 02481.
Item 31. MANAGEMENT SERVICES
Not Applicable.
Item 32. UNDERTAKINGS
Representation with respect to Section 26(e)of the Investment Company
Act of 1940: Sun Life Assurance Company of Canada (U.S.) represents that the
fees and charges deducted under the Contracts, 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
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 certifies that it meets all of the requirements
of Securities Act Rule 485 for effectiveness of this Registration Statement
and has caused this Registration Statement to be signed on its behalf, in the
Town of Wellesley Hills, and Commonwealth of Massachusetts on this 29th day of
September, 1999.
<TABLE>
<S> <C> <C>
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
(Registrant)
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Depositor)
By: /s/ C. JAMES PRIEUR
----------------------------
C. James Prieur
President
</TABLE>
Attest: /s/ EDWARD M. SHEA
- --------------------------
Edward M. Shea
Assistant Vice President and Senior Counsel
As required by the Securities Act of 1933, this 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ --------------
<S> <C> <C>
/s/ C. JAMES PRIEUR President and Director September 29, 1999
- ------------------------------------- (Principal Executive Officer)
C. James Prieur
/s/ ROBERT P. VROLYK Vice President, Finance, Actuary September 29, 1999
- ------------------------------------- and Treasurer (Principal Financial
Robert P. Vrolyk and Accounting Officer)
* /s/ DONALD A. STEWART Chairman and Director September 29, 1999
- -------------------------------------
Donald A. Stewart
* /s/ RICHARD B. BAILEY Director September 29, 1999
- -------------------------------------
Richard B. Bailey
</TABLE>
* By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 15 to
Registrant's Registration Statement on Form N-4 (File No. 333-82957), filed
July 15, 1999.
II-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ --------------
<S> <C> <C>
* /s/ M. COLYER CRUM Director September 29, 1999
- -------------------------------------
M. Colyer Crum
* /s/ DAVID D. HORN Director September 29, 1999
- -------------------------------------
David D. Horn
* /s/ GREGORY W. GEE Director September 29, 1999
- -------------------------------------
Gregory W. Gee
* /s/ ANGUS A. MACNAUGHTON Director September 29, 1999
- -------------------------------------
Angus A. MacNaughton
/s/ JAMES A. MCNULTY, III Senior Vice President and September 29, 1999
- ------------------------------------- General Manager and Director
James A. McNulty, III
*/s/ S. CAESAR RABOY Director September 29, 1999
- -------------------------------------
S. Caesar Raboy
</TABLE>
* By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 15 to
Registrant's Registration Statement on Form N-4 (File No. 333-82957), filed
July 15, 1999.
II-2
<PAGE>
[LOGO]
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 of Canada (U.S.)
Wellesley Hills, Massachusetts 02481 Retirement Products and Services
Boston, Massachusetts 02103
P.O. Box 9133
</TABLE>
Sun Life Assurance Company of Canada (U.S.) ("the Company") will pay an
annuity commencing on the Annuity Commencement Date by applying the adjusted
value of the Participant's Account in accordance with the settlement provisions.
If the Participant dies while the Contract is in effect and before the Annuity
Commencement Date, the Company may pay a Death Benefit to the Beneficiary upon
receipt of Due Proof of Death of the Participant. Under certain circumstances,
if the Participant dies before the Annuity Commencement Date, a distribution is
required by law. This Contract is the legal Contract. If there is any conflict
between the provisions of this Contract and any Certificate issued in connection
with it, the Contract is the controlling document.
All payments will be made to the persons and in the manner set forth in
this Contract. Provisions and endorsements printed or written by the Company on
the following pages form part of the Contract.
Signed by the Company at its Executive Office, Wellesley Hills,
Massachusetts on the Issue Date.
/s/ C. JAMES PRIEUR /s/ ELLEN B. KING
C. James Prieur Ellen B. King
President Secretary
Flexible Payment Deferred Combination Variable and Fixed Group Annuity Contract
Nonparticipating
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO A PARTICIPANT, INCLUDING WITHDRAWALS,
TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY. PAYMENTS FROM GUARANTEE
AMOUNTS WHICH ARE MADE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE PERIOD OR
THE WITHDRAWAL OF INTEREST CREDITED TO GUARANTEE AMOUNTS DURING THE CURRENT
ACCOUNT YEAR ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT.
FA-GR-CONT-99-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
CONTRACT SPECIFICATIONS 4
DEFINITIONS 7
FIXED AND VARIABLE ACCOUNTS 10
Fixed Account 10
Variable Account and Sub-Accounts 10
Ownership of Assets 10
Investments of the Sub-Accounts 10
PURCHASE PAYMENTS 10
Payments 10
Purchase Payment Interest
Account Continuation 11
Allocation of Net Purchase Payments 11
CONTRACT VALUES DURING ACCUMULATION PERIOD 11
Participant's Account 11
Variable Account Value 11
Crediting Variable Accumulation Units 11
Variable Accumulation Unit Value 12
Variable Accumulation Value 12
Net Investment Factor 12
Fixed Account Value 12
Guarantee Periods 12
Guaranteed Interest Rates 12
Fixed Accumulation Value 13
Transfer Privilege 13
Account Fee 14
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT 14
Cash Withdrawals 14
Withdrawal Charges 15
Nursing Home Withdrawal Privilege 15
Market Value Adjustment 16
DEATH BENEFIT 16
Death Benefit Provided by the Contract 17
Election and Effective Date of Election 17
Payment of Death Benefit 17
Amount of Death Benefit 17
SETTLEMENT PROVISIONS 18
General 18
Election and Effective Date of Election 18
Determination of Amount 18
</TABLE>
FA-GR-CONT-99-1 -2-
<PAGE>
<TABLE>
<S> <C>
Effect of Annuity Commencement Date on Participant's Account 18
Annuity Commencement Date 19
Fixed Annuity Payments 19
Variable Annuity Payments 19
Annuity Unit Value 19
Exchange of Variable Annuity Units 19
Account Fee 20
Description of Annuity Options 20
Amounts Payable on Death of Payee 20
Annuity Payment Rates 21
OWNERSHIP PROVISIONS 23
Exercise of Contract Rights 23
Death of Participant 23
Voting of Fund Shares 23
Periodic Reports 24
Designation and Change of Beneficiary 24
GENERAL PROVISIONS 24
Age and Sex Misstatement 24
Contract 24
Currency 24
Determination of Values 24
Discontinuance of New Participants 25
Governing Law 25
Guarantees 25
Incontestability 25
Modification 25
Nonparticipating 26
Payments by the Company 26
Proof of Age 26
Proof of Survival 26
Splitting Units 26
Rights Reserved by the Company 26
QUALIFIED CONTRACT PROVISIONS
</TABLE>
FA-GR-CONT-99-1 -3-
<PAGE>
CONTRACT SPECIFICATIONS
<TABLE>
<S> <C>
Owner [Futurity Insurance Trust]
Contract Number [79-7900-111111]
Issue Date [June 21, 1998]
INITIAL PURCHASE PAYMENT [$100,000]
Minimum Initial Purchase Payment [$10,000]
Minimum Additional Payment [$1,000]
Maximum Purchase Payment [Any Purchase Payment that would cause Account
(without prior approval of the Company) Value to exceed $1,000,000]
PURCHASE PAYMENT INTEREST OPTION A:
---------
[During first Account Year] [2% of any Purchase Payment]
[Each Five Year Anniversary] [2% of Participant's Account Value]
or OPTION B:
---------
[Principal is equal to or less than $99,999] [3 % of each Purchase Payment. An additional
1% will be credited to any Principal that
received 3% during the first Account Year if
Principal equals or exceeds $100,000 on
the first Account Anniversary.]
[Principal is equal to or more than $100,000] [4% of each Purchase Payment]
ANNUAL ASSET CHARGES (for the Variable Account only) [1.40% - Basic Death Benefit]
[1.65% - Optional Death Benefit where Certificate
Owner is 70 or younger on Date of Coverage]
[1.85% - Optional Death Benefit where Certificate
Owner is 71-79 on Date of Coverage]
ANNUITY OPTION [Deferred]
Minimum Annuity Purchase Amount [$5,000]
Minimum Initial Annuity Payment Amount [$50]
Account Fee After Annuity Commencement Date [$35]
ACCOUNT FEE [$35]
MAXIMUM ACCOUNT FEE [$50]
MINIMUM ACCOUNT VALUE FOR WAIVER OF ACCOUNT FEE [$100,000]
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF COMPLETE WITHDRAWAL
WITHDRAWAL CHARGES ACCOUNT YEARS FROM TIME OF PAYMENT CHARGES
---------------------------------- -------
<S> <C> <C>
0-1 8%
2-3 7%
4 6%
5 5%
6 4%
7 2%
8 1%
9 or more 0%
</TABLE>
<TABLE>
<S> <C>
[INITIAL GUARANTEE PERIOD(S)] ["1-10 Year"]
GUARANTEED INTEREST RATE
Minimum Guarantee Period Amount [$1,000]
Minimum Guaranteed Interest Rate [3%]
Market Value Adjustment ("b" Factor) [0%] Maximum 0.25%
</TABLE>
FA-GR-CONT-99-1 -4-
<PAGE>
<TABLE>
<S> <C>
CURRENT FEE PER TRANSFER [$0]
Maximum Fee Per Transfer [$25]
Maximum Number of Transfers Per Account Year [12]
Minimum Transfer Amount [$1,000]
Minimum Remaining in Sub-Account after Transfer [$1,000]
OPTIONAL DEATH BENEFIT [None]
or
[Maximum Anniversary Account Value] [The greatest of 1, 2 and 3 shown in the "Amount
of Death Benefit" provision and the highest
Participant's Account Value on any Account
Anniversary prior to the Participant's 81st
birthday, adjusted for any subsequent Purchase
Payments and partial withdrawals and charges
made between such Account Anniversary and the
Death Benefit Date]
or
[Earnings Enhancement] [The greatest of 1, 2 and 3 shown in the "Amount
of Death Benefit" provision plus 40% of the
lesser of Net Purchase Payments and the
Participant's Account Value minus Net Purchase
Payments. (Net Purchase Payments will be
adjusted for any partial withdrawals as
described in the "Amount of Death Benefit"
provision.). This amount will be calculated as
of the Death Benefit Date unless the
Participant's spouse is the beneficiary and
elects to continue the Certificate, in which
case this benefit will be determined on the
Death Benefit Date following the spouse's
death.]
or
[The greatest of 1, 2 and 3 shown in the "Amount
of Death Benefit" provision plus 25% of the
lesser of Net Purchase Payments and the
Participant's Account Value minus Net Purchase
Payments. (Net Purchase Payments will be
adjusted for any partial withdrawals as
described in the "Amount of Death Benefit"
provision.) This amount will be calculated as of
the Death Benefit Date unless the Participant's
spouse is the beneficiary and elects to continue
the Certificate, in which case this benefit will
be determined on the Death Benefit Date
following the spouse's death.]
</TABLE>
FA-GR-CONT-99-1 -5-
<PAGE>
SUB-ACCOUNTS INVESTED IN FUNDS
AVAILABLE FUND OPTIONS:
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
THE ALGER AMERICAN FUND
Alger American Growth Portfolio
Alger American Income and Growth Portfolio
Alger American Small Capitalization Portfolio
GOLDMAN SACHS VARIABLE INSURANCE TRUST
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 SERIES TRUST II
J.P. Morgan Disciplined Equity Portfolio
J.P. Morgan International Opportunities Portfolio
J.P. Morgan Small Company Portfolio
LORD ABBETT SERIES FUND, INC.
Lord Abbett Growth and Income Portfolio
OCC ACCUMULATION TRUST
OCC Equity Portfolio
OCC Mid Cap Portfolio
OCC Small Cap Portfolio
OCC Managed Portfolio
SUN CAPITAL ADVISERS, INC.
Sun Capital Blue Chip Mid Cap Fund
Sun Capital Investors Foundation Fund
Sun Capital Money Market Fund
Sun Capital Investment Grade Bond Fund
Sun Capital Real Estate Fund
Sun Capital Select Equity Fund
FA-GR-CONT-99-1 -6-
<PAGE>
DEFINITIONS
Any reference in this Contract to "RECEIPT" and "RECEIVED" by the Company means
receipt at the Company's Annuity Service Mailing Address shown on the first page
of this Contract.
ACCOUNT YEARS AND ACCOUNT ANNIVERSARIES: The first Account Year shall be the
period of 12 months plus a part of a month as measured from the Date of Coverage
for each Participant through the last day of the calendar month of coverage. All
Account Years and Account 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 occurs in March, the first
Account Year will be determined from the Date of Coverage but will end on the
last day of March in the following year; all 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 Participant.
ANNUITANT: The person or persons named in the Certificate Specifications page,
and on whose life the first annuity payment is to be made. If the Annuitant dies
prior to the Annuity Commencement Date, the new Annuitant will be the
Co-Annuitant, if any. If the Co-Annuitant dies or if no Co-Annuitant is named,
the Participant becomes the Annuitant upon the Annuitant's death prior to the
Annuity Commencement Date.
ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment is to be
made. This date may not be earlier than the first Account Anniversary.
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, if any, signed by each Participant that serves as his
or her application for participation under this Contract.
BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity having
the right to receive the Death Benefit set forth in the Certificate, and, for a
Certificate issued under a Non-Qualified Contract, who, in the event of the
Participant's death, is the designated Beneficiary for purposes of Section 72(s)
of the Code. After the Annuity Commencement Date, the person or entity having
the right to receive any payments due under the Annuity Option elected, if
applicable, upon the death of the Payee. The Certificate must be owned by a
natural person or agent for a natural person for the Certificate to receive
favorable income tax treatment as an annuity.
CERTIFICATE: The document for each Participant which evidences the coverage of
the Participant under this Contract.
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
CONTRACT APPLICATION: The document, if any, signed by the Owner that evidences
the Owner's application for this Contract.
DATE OF COVERAGE: The date on which a Participant's Certificate becomes
effective.
DEATH BENEFIT DATE: The date on which the death benefit election is effective,
which is the date on which the Company receives Due Proof of Death.
DUE PROOF OF DEATH: An original certified copy of an official death certificate,
an original certified copy of a decree of a court of competent jurisdiction as
to the finding of death, or any other proof satisfactory to the Company.
FA-GR-CONT-99-1 -7-
<PAGE>
EXPIRATION DATE: The last day of a Guarantee Period.
FIXED ACCOUNT: Part of the General Account of the Company, consisting of all
assets of the Company other than those allocated to a separate account of the
Company.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar amount.
FUND(S): One or more open-end management investment companies or "mutual funds"
registered under the Investment Company Act of 1940.
GUARANTEE AMOUNT: Any portion of a Participant's Account Value allocated to a
particular Guarantee Period with a particular Expiration Date (including
interest earned thereon).
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during any Guarantee Period.
ISSUE DATE: The date on which the Contract becomes effective.
NET INVESTMENT FACTOR: An index applied by the Company to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater than, less than, or equal to one.
NET PURCHASE PAYMENT: The portion of a Purchase Payment which remains after the
deduction of any applicable front-end sales load or premium or similar tax, if
any.
NON-QUALIFIED CONTRACT: A contract used in connection with a retirement plan
which does not receive favorable federal income tax treatment under Sections
401, 403, 408 or 408A of the Code. The Participant's interest in the Contract
must be owned by a natural person or agent for a natural person for the Contract
to receive favorable income tax treatment as an annuity.
*OWNER: The person, persons or entity entitled to the ownership rights stated in
the Contract and in whose name or names the Contract is issued. The Owner may
designate a trustee or custodian of a retirement plan which meets the
requirements of Section 401, Section 408(c), Section 408(k), or Section 408(p)
of the Code to serve as legal owner of assets of a retirement plan, but the term
Owner, as used herein, refers to the organization entering into the Contract.
PARTICIPANT: The person named in the Certificate Specifications page who is
entitled to exercise all rights and privileges of ownership under the
Certificate, except as reserved by the Owner.
PARTICIPANT'S ACCOUNT: An account to which Net Purchase Payments are credited.
PARTICIPANT'S ACCOUNT VALUE: The variable accumulation value, if any, plus the
fixed accumulation value, if any, of a Participant's Account for any Valuation
Period.
PAYEE: A recipient of payments under the Contract.
PURCHASE PAYMENT (PAYMENT): The amount paid to the Company as consideration for
the benefits provided by the Contract.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan which
may receive favorable federal income tax treatment under Sections 401, 403, 408
or 408A of the Code.
SEVEN YEAR ANNIVERSARY: The seventh Account Anniversary and each succeeding
Account Anniversary occurring at any seven year interval thereafter; for
example, the 14th, 21st and 28th Account Anniversaries.
FA-GR-CONT-99-1 -8-
<PAGE>
SUB-ACCOUNT: That portion of the Variable Account which invests in shares of
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 that the Exchange is open for trading.
VARIABLE ACCOUNT: A separate account of the Company consisting of assets set
aside by the Company, the investment performance of which is kept separate from
that of the general assets of the Company.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of the
value of the variable portion of a Participant's Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified Sub-Accounts of the Variable
Account.
- -------------
* As Specified in the Contract Specifications page, unless changed.
FA-GR-CONT-99-1 -9-
<PAGE>
FIXED AND VARIABLE ACCOUNTS
FIXED ACCOUNT
The Fixed Account consists of all assets of the Company other than those
allocated to any separate account of the Company. Any portion of a Net Purchase
Payment allocated by a Participant to a Guarantee Period(s) will become part of
the Fixed Account.
VARIABLE ACCOUNT AND SUB-ACCOUNTS
The Variable Account to which the variable accumulation values and
Variable Annuity payments, if any, under the Contract relate was established by
the Company pursuant to a resolution of its Board of Directors. The Company has
registered the Variable Account as a unit investment trust under the Investment
Company Act of 1940. That portion of the assets of the Variable Account equal to
the reserves and other Contract liabilities with respect to the Variable Account
shall not be chargeable with liabilities arising out of any other business the
Company may conduct.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of a designated series or sub-series
of a Fund. The values of the Variable Accumulation Units and the Annuity Units
described in the Contract reflect the investment performance of the
Sub-Accounts.
OWNERSHIP OF ASSETS
The Company shall have exclusive and absolute ownership and control of
its assets, including all assets of the Sub-Accounts. The Company reserves the
right to transfer assets of a Sub-Account, in excess of the reserves and other
policy liabilities with respect to that Sub-Account, to another Sub-Account or
to the Company's General Account.
Investments of the Sub-Accounts
All amounts allocated to a Sub-Account will be used to purchase shares
of a specific series or sub-series of a Fund. The Fund shares available on the
Issue Date are shown on the Contract Specifications page; more series and/or
Funds may be subsequently added or deleted. Each Fund is an open-end management
investment company ("mutual fund") registered under the Investment Company Act
of 1940. Any and all distributions made by a Fund with respect to shares held by
a Sub-Account will be reinvested to purchase additional shares of that Fund at
net asset value. Deductions from the Sub-Accounts will, in effect, be made by
reducing the number of Accumulation Units attributable to a Participant's
Account. Each Sub-Account will be fully invested in Fund shares at all times.
PURCHASE PAYMENTS
PAYMENTS
All Purchase Payments are to be paid to the Company at its Annuity
Service Mailing Address. The amount of Purchase Payments may vary; however, the
Company will not accept an initial Purchase Payment for any Certificate which is
less than the minimum amount set forth on the Certificate Specifications page,
and each additional Purchase Payment must be at least the minimum additional
amount specified on the Certificate Specifications page. In addition, the prior
approval of the Company is required before it will accept a Purchase Payment
which would cause the Participant's Account Value to exceed the maximum Purchase
Payment amount specified on the Certificate Specifications page. If the
Participant's Account Value exceeds such maximum amount, no additional Purchase
Payments will be allocated without the prior approval of the Company.
PURCHASE PAYMENT INTEREST
Purchase Payments will be credited with interest at the rate shown on
the Certificate Specifications page. A Participant may choose between two
Purchase Payment Interest options: Option A provides for the crediting of
interest
FA-GR-CONT-99-1 -10-
<PAGE>
at the rate shown on the Specification Page to each Purchase Payment made during
the first Account Year. On each Five Year Anniversary, additional interest
(called "Five Year Anniversary Interest") will be credited to the Participant's
Account Value at the rate shown on the Specification Page. Option B provides for
the crediting of interest at the rate shown on the Specification Page to all
Purchase Payment accepted by the Company. If no option is elected on or before
the Date of Coverage, Option A will automatically apply.
Interest under either option will be credited during the same Valuation
Period that the Purchase Payment is received (or on any Five Year Anniversary if
Option A is elected) and allocated to the Sub-Accounts and/or Fixed Account in
the same proportion as the Net Purchase Payment is allocated. If Option A was
elected, any Five Year Anniversary Interest will be proportionally allocated to
the Sub-Accounts and/or the Fixed Account (excluding any Fixed Account if used
to support a dollar cost averaging transfer program) based on their respective
values.
No interest will be credited if the Certificate is returned pursuant to
the Right To Return provision.
ACCOUNT CONTINUATION
Account shall be continued automatically in full force during the
lifetime of the Participant until the Annuity Commencement Date or until the
Participant's Account is surrendered.
ALLOCATION OF NET PURCHASE PAYMENTS
The Net Purchase Payment is that portion of a Purchase Payment which
remains after deduction of any applicable front-end sales load and premium tax
or similar tax. Each Net Purchase Payment will, upon receipt by the Company, be
allocated to the Participant's Account, either to the Sub-Accounts or to the
Fixed Account or to both the Sub-Accounts and the Fixed Account in accordance
with the allocation factors specified in the Application, or as subsequently
changed by the Participant. Purchase Payment Interest will be credited on a
proportional basis to the same Sub-Accounts and/or Fixed Accounts as Net
Purchase Payments.
The allocation factors for new Purchase Payments among the Guarantee
Periods and the Sub-Accounts may be changed by the Participant at any time by
giving notice of the change to the Company, in accordance with the Company's
procedures then in effect. The Participant may effect such change directly, or
through an authorized third party, subject to the Company's approval given in
its sole discretion, and further subject to adherence to such Company procedures
as may be adopted from time to time. Any change will take effect with the first
Purchase Payment received with or after receipt of notice of the change by the
Company and will continue in effect until subsequently changed.
CONTRACT VALUES DURING ACCUMULATION PERIOD
PARTICIPANT'S ACCOUNT
The Company will establish a Participant's Account for each Participant
under this Contract and will maintain the Participant's Account during the
Accumulation Period. The Participant's Account Value for any Valuation Period is
equal to the variable accumulation value, if any, plus the fixed accumulation
value, if any, of the Participant's Account for that Valuation Period.
VARIABLE ACCOUNT VALUE
CREDITING VARIABLE ACCUMULATION UNITS
Upon receipt of a Purchase Payment by the Company, all or that portion,
if any, of the Net Purchase Payment to be allocated to the Sub-Accounts will be
credited to the Participant's Account in the form of Variable Accumulation
Units. The number of particular Variable Accumulation Units to be credited is
determined by dividing the dollar amount allocated to the particular Sub-Account
by the Variable Accumulation Unit value of the particular Sub-Account for the
Valuation Period during which the Purchase Payment is received by the Company.
FA-GR-CONT-99-1 -11-
<PAGE>
VARIABLE ACCUMULATION UNIT VALUE
The Variable Accumulation Unit value for each Sub-Account was
established at $10.00 for the first Valuation Period of the particular
Sub-Account. The Variable Accumulation Unit value for the particular Sub-Account
for any subsequent Valuation Period is determined by methodology which is the
mathematical equivalent of multiplying the Variable Accumulation Unit value for
the particular Sub-Account for the immediately preceding Valuation Period by the
Net Investment Factor for the particular Sub-Account for such subsequent
Valuation Period. The Variable Accumulation Unit value for each Sub-Account for
any Valuation Period is the value determined as of the end of the particular
Valuation Period and may increase, decrease or remain constant from Valuation
Period to Valuation Period in accordance with the Net Investment Factor
described below.
VARIABLE ACCUMULATION VALUE
The variable accumulation value, if any, of a Participant's Account for
any Valuation Period is equal to the sum of the value of all Variable
Accumulation Units of each Sub-Account credited to the Participant's Account for
such Valuation Period. The variable accumulation value of each Sub-Account is
determined by multiplying the number of Variable Accumulation Units, if any,
credited to each Sub-Account by the Variable Accumulation Unit value of the
particular Sub-Account for such Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater than, less than, or equal to one; therefore,
the value of a Variable Accumulation Unit may increase, decrease or remain
unchanged.
The Net Investment Factor for any Sub-Account for any Valuation Period
is determined by dividing (a) by (b) and then subtracting (c) from the result
where:
(a) is the net result of:
1) the net asset value of a Fund share held in the Sub-Account
determined as of the end of the Valuation Period, plus
2) the per share amount of any dividend or other distribution
declared by the Fund on the shares held in the Sub-Account if
the ex-dividend date occurs during the Valuation Period, plus
or minus
3) a per share credit or charge with respect to any taxes paid or
reserved for by the Company during the Valuation Period which
are determined by the Company to be attributable to the
operation of the Sub-Account;
(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 risks.
The asset charge factor for any Valuation Period is equal to the daily asset
charge factor multiplied by the number of 24 hour periods in the Valuation
Period. The daily asset charge factor will be determined by the Company based
upon the Annual Asset Charge shown on the Certificate Specifications Page.
FIXED ACCOUNT VALUE
GUARANTEE PERIODS
FA-GR-CONT-99-1 -12-
<PAGE>
The Participant elects one or more Guarantee Period(s) from among those
made available by the Company. The period(s) elected will determine the
Guaranteed Interest Rate(s). A Purchase Payment or the portion (at least equal
to the minimum Guarantee Period amount set forth on the Certificate
Specifications page) thereof (or amount transferred in accordance with the
"Transfer Privilege" provision described below) allocated to a particular
Guarantee Period, less any applicable premium taxes or similar taxes and any
amounts subsequently withdrawn, will earn interest at the Guaranteed Interest
Rate in effect during the Guarantee Period. Initial Guarantee Periods begin on
the date a Net Purchase Payment is applied (or, in the case of a transfer, on
the effective date of the transfer) and end when the number of calendar years in
the Guaranteed Period elected (measured from the end of the calendar month in
which the amount was allocated to the Guaranteed Period) has elapsed. The last
day of a Guarantee Period is the Expiration Date. Subsequent Guarantee Periods
begin on the first day following the Expiration Date.
Any portion of a Participant's Account Value allocated to a particular
Guarantee Period with a particular Expiration Date (including interest earned
thereon) is referred to as a Guarantee Amount. As a result of additional
Purchase Payments, renewals and transfers of portions of the Participant's
Account Value, Guarantee Amounts allocated to Guarantee Periods of the same
duration may have different Expiration Dates, and each Guarantee Amount will be
treated separately for purposes of determining any market value adjustment.
The Company will notify the Participant in writing at least 45 and no
more than 75 days prior to the Expiration Date for any Guarantee Amount. A
new Guarantee Period of the same duration as the previous Guarantee Period
will commence automatically at the end of the previous Guarantee Period
unless the Company receives, in writing prior to the end of such Guarantee
Period, an election by the Participant of a different Guarantee Period from
among those being offered by the Company at such time, or instructions to
transfer all or a portion of the Guarantee Amount to one or more Sub-Accounts
in accordance with the "Transfer Privilege" provision. Each new Guarantee
Amount must be at least the amount set forth on the Certificate
Specifications page unless it is equal to the entire Guarantee Amount being
transferred.
GUARANTEED INTEREST RATES
The Company periodically will establish an applicable Guaranteed
Interest Rate for each Guarantee Period offered by the Company. These rates will
be guaranteed for the duration of the respective Guarantee Periods.
No Guaranteed Interest Rate will be less than the minimum rate per year
set forth on the Certificate Specifications page, compounded annually.
FIXED ACCUMULATION VALUE
Upon receipt of a Purchase Payment by the Company, all or that portion,
if any, of the Net Purchase Payment which is allocated to the Fixed Account will
be credited to the Participant's Account and allocated to the Guarantee
Period(s) selected by the Participant. The fixed accumulation value, if any, of
a Participant's Account for any Valuation Period is equal to the sum of the
values of all Guarantee Amounts credited to the Participant's Account for such
Valuation Period.
TRANSFER PRIVILEGE
At any time during the Accumulation Period the Participant may transfer
all or part of the Participant's Account Value to one or more Sub-Accounts or
Guarantee Periods, subject to the conditions set forth below. Except as
described below, a transfer will generally be effective on the date the request
for transfer is received by the Company.
Transfers involving Sub-Accounts will reflect the purchase or
cancellation of Variable Accumulation Units having an aggregate value equal to
the dollar amount being transferred to or from a particular Sub-Account. The
purchase or cancellation of such units shall be made using Variable Accumulation
Unit values of the applicable Sub-Account for the Valuation Period during which
the transfer is effective. Transfers to a Guarantee Period will result in a new
Guarantee Period for the amount being transferred. Any such Guarantee Period
will begin on the effective date of the transfer and end on the Expiration Date.
The amount transferred into such Guarantee Period will earn interest at the
Guaranteed Interest Rate declared by the Company for that Guarantee Period as of
the effective date of the transfer.
FA-GR-CONT-99-1 -13-
<PAGE>
Transfers will be subject to the following conditions: (1) not more than
12 transfers may be made in any Account Year; a minimum of 30 calendar days must
elapse between the transfers made to or from the Fixed Account or among
Guarantee Periods within the Fixed Account; (2) the amount being transferred
from a Sub-Account may not be less than the amount set forth on the Certificate
Specifications page 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 the amount set forth on the
Certificate Specifications page; and (4) the total Participant's Account Value
attributable to the Guarantee Amount must be transferred, except for an
"interest out" transfer (I.E., the entire amount of interest credited to all
Guarantee Amounts during the current Account Year is transferred to one or more
Sub-Accounts). In addition, transfers of a Guarantee Amount (except interest
credited to such Guarantee Amount during the current Account Year) will be
subject to the market value adjustment described below unless the transfer is
effective within 30 days prior to the Expiration Date applicable to the
Guarantee Amount. Transfers involving Variable Accumulation Units shall be
subject to such terms and conditions as may be imposed by the Funds. Similarly,
the Company reserves the right in its sole discretion to delay the effective
date of any transfer involving the Fixed Account for reasons similar to those
underlying delays of transfers among Sub-Accounts. The Company also reserves the
right in its sole discretion to refuse or delay all transfer requests initiated
on behalf of a Participant by any third party authorized by the Participant to
make such requests. Currently, there is no charge for transfers; however, the
Company reserves the right to impose a charge for each transfer as shown on the
Certificate Specifications page. The Company reserves the right to limit the
amount which may be transferred from the Sub-Accounts to the Fixed Account.
ACCOUNT FEE
Prior to the Annuity Commencement Date, on each Account Anniversary the
Company will deduct from the value of each Participant's Account an annual
account fee to reimburse the Company for administrative expenses relating to the
Contract and the Participant's Account. In Account Years one through five the
account fee is equal to the lesser of the amount specified on the Certificate
Specifications page 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
the maximum amount specified on the Certificate Specifications page and 2% of
the Participant's Account Value. The account fee will be deducted on a PRO RATA
basis from amounts allocated to each Guarantee Period and each Sub-Account in
which the Participant's Account is invested at the time of such deduction. If a
Participant's Account is surrendered for its full value on other than an Account
Anniversary, the account fee will be deducted in full at the time of such
surrender. The Company will waive the account fee when either (a) the entire
Participant's Account Value has been allocated to the Fixed Account during the
entire previous Account Year, or (b) the Participant's Account Value is greater
than the amount specified on the Certificate Specifications page on the Account
Anniversary. On the Annuity Commencement Date the value of the Participant's
Account will be reduced by a proportionate amount of the account fee to reflect
the time elapsed between the last Account Anniversary and the day before the
Annuity Commencement Date.
After the Annuity Commencement Date an annual account fee in an amount
specified on the Certificate Specifications page will be deducted in equal
amounts from each Variable Annuity payment made during the year. No such
deduction is made from Fixed Annuity payments.
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
At any time before the Annuity Commencement Date, the Participant may
elect to receive a cash withdrawal payment from the Company by filing with the
Company at its Annuity Service Mailing Address, a written election in such form
as the Company may require. Any such election shall specify the amount of the
withdrawal and will be effective on the date that it is received by the Company.
Any cash withdrawal payment will be paid within seven days from the date the
election becomes effective, except as the Company may be permitted to defer such
payment in accordance with the Investment Company Act of 1940. The Company
reserves the right to defer the payment of amounts withdrawn from the Fixed
Account for a period not to exceed six months from
FA-GR-CONT-99-1 -14-
<PAGE>
the date written request for such withdrawal is received by the Company.
The Participant may request a full surrender or a partial withdrawal. A
full surrender will result in a cash withdrawal payment equal to the value of
the Participant's Account at the end of the Valuation Period during which the
election becomes effective less the account fee, plus or minus any applicable
market value adjustment, and less any applicable withdrawal charge. A partial
withdrawal (I.E., a payment of an amount less than that paid under a full
surrender) will result in the cancellation of a portion of the Participant's
Account Value with an aggregate dollar value equal to the dollar amount of the
cash withdrawal payment, plus or minus any applicable market value adjustment
and plus any applicable withdrawal charge.
In the case of a partial withdrawal, the Participant may instruct the
Company as to the amounts to be withdrawn from each Sub-Account and/or Guarantee
Amount. If not so instructed, the Company will effect the partial withdrawal PRO
RATA from each Sub-Account and Guarantee Amount in which the Participant's
Account Value is invested at the end of the Valuation Period during which the
withdrawal becomes effective. If a partial withdrawal is requested which would
leave a Participant's Account Value less than the account fee, then such partial
withdrawal will be treated as a full surrender.
Cash withdrawals from a Sub-Account will result in the cancellation of
Variable Accumulation Units attributable to the Participant's Account with an
aggregate value on the effective date of the withdrawal equal to the total
amount by which the Sub-Account is reduced. The cancellation of such units will
be based on the Variable Accumulation Unit value(s) of the Sub-Account(s) for
the Valuation Period during which the cash withdrawal is effective.
All cash withdrawals of any Guarantee Amount, except those effective
within 30 days prior to the Expiration Date of such Guarantee Amount or the
withdrawal of interest credited to such Guarantee Amount during the current
Account Year, will be subject to the market value adjustment described below.
WITHDRAWAL CHARGES
If a cash withdrawal is made, a withdrawal charge may be assessed by the
Company. The amount of any withdrawal charge is determined as follows:
- OLD PAYMENTS AND NEW PAYMENTS: With respect to a particular Account
Year, new Payments are those Payments made in that Account Year or in
the eight immediately preceding Account Years; and old Payments are
those Payments not defined as new Payments.
- ORDER OF LIQUIDATION: For purposes of a full surrender or partial
withdrawal, each withdrawal is allocated first to any previously
unliquidated Payments (on a first-in, first-out basis) until all
Purchase Payments have been liquidated. Any remaining balance that is
withdrawn will be considered "earnings" as defined below.
- FREE WITHDRAWAL AMOUNT: The free withdrawal amount is equal to the
greater of
- earnings" in the prior Account Year, defined as the positive
difference in the Participant's Account Value as measured on the
first and last days of the prior Account Year and adjusted for any
Purchase Payments and/or withdrawals made during the prior Account
Year; and
- 10% of any new Payments, irrespective of whether such new Payments
have been liquidated, plus any previously unliquidated old
Payments.
- MAXIMUM WITHDRAWAL AMOUNT WITHOUT A WITHDRAWAL CHARGE: The maximum
amount that can be withdrawn without a withdrawal charge in an
Account Year is the free withdrawal amount.
FA-GR-CONT-99-1 -15-
<PAGE>
- AMOUNT SUBJECT TO WITHDRAWAL CHARGE: For any partial withdrawal or
full surrender, the amount subject to withdrawal charge is the amount
of the Purchase Payment withdrawn less the maximum withdrawal amount
without a withdrawal charge, up to a maximum of the sum of all
unliquidated new Payments.
- WITHDRAWAL CHARGE PERCENTAGE: The withdrawal charge percentage varies
according to the number of complete Account Years between the Account
Year in which a Purchase Payment was credited to the Participant's
Account and the Account Year in which it is withdrawn.
- AMOUNT OF WITHDRAWAL CHARGE: The amount of the withdrawal charge is
determined by multiplying the amount subject to a withdrawal charge
by the withdrawal charge percentage(s) set forth on the Certificate
Specifications page.
No withdrawal charge is imposed upon amounts applied to purchase an
annuity. For any Qualified Certificate, the free withdrawal amount in
any Account Year will be the greater of the free withdrawal amount
described above and any amounts required to be withdrawn to comply
with the minimum distribution requirements of the Code. This applies
only to the portion of the required minimum distribution attributable
to that Qualified Certificate.
NURSING HOME WITHDRAWAL PRIVILEGE
The Company will waive the withdrawal charge arising from a full
surrender if: (1) at least one year has elapsed since the Certificate's Date of
Coverage, and (2) the Participant is confined to an eligible nursing home and
has been confined there for at least the preceding one hundred eighty (180)
days. Proof of the Participant's confinement to an eligible nursing home must be
provided to the Company at its Annuity Service Mailing Address in such form as
the Company may require.
For purposes of this section, an eligible nursing home is a licensed
hospital or licensed skilled or intermediate care nursing facility at which
medical treatment is available on a daily basis and daily medical records are
kept for each patient.
MARKET VALUE ADJUSTMENT
Any cash withdrawal (which for purposes of this section includes
transfers and amounts applied to purchase an annuity) of a Guarantee Amount,
other than a withdrawal effective within 30 days prior to the Expiration Date of
the Guarantee Amount, or the withdrawal of interest credited on such Guarantee
Amount during the current Account Year, will be subject to a market value
adjustment.
The market value adjustment will reflect the relationship between the
current rate (as described in the formula below) for the amount being withdrawn
and the Guaranteed Interest Rate applicable to the amount being withdrawn. It
also reflects the time remaining in the applicable Guarantee Period.
The market value adjustment will be determined by multiplying the amount
being withdrawn after the deduction of any applicable account fee and before
deduction of any applicable withdrawal charge by the market value adjustment
factor. The market value adjustment factor is:
N/12
[(1 + I)/(1 + J + b)] - 1
where,
I is the Guaranteed Interest Rate being credited to the Guarantee
Amount subject to the market value
FA-GR-CONT-99-1 -16-
<PAGE>
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. For any Guarantee Period of less
than one year, J is the Guaranteed Interest Rate we declare for a Guarantee
Period of the same length as your Guarantee Period (the current rate);
b is a factor which the Company will determine for each Certificate and
which is set forth on the Certificate Specifications page and which will not
exceed .25%, and
N is the number of complete months remaining in the Guarantee Period of
the Guarantee Amount subject to the market value adjustment.
In the determination of J, if the Company does not currently offer the
applicable Guarantee Period, then the rate will be determined by linear
interpolation of the current rates for Guarantee Periods that are available.
DEATH BENEFIT
DEATH BENEFIT PROVIDED BY THE CONTRACT
If the Participant dies while this Contract and the applicable
Certificate are in effect and before the Annuity Commencement Date, the Company,
upon receipt of Due Proof of Death of the Participant, may pay a Death Benefit
to the Beneficiary in accordance with this Death Benefit provision. If the
Participant is not a natural person, the Annuitant is considered the Participant
for the purpose of this Death Benefit provision.
If there is no designated Beneficiary living on the date of death of the
Participant, the Company will pay the Death Benefit upon receipt of Due Proof of
Death of the Participant or the Beneficiary, if applicable, in one sum to the
estate of the deceased Participant. If the death of the Participant occurs on or
after the Annuity Commencement Date, no Death Benefit will be payable under the
Contract except as may be provided under the form of annuity elected.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the lifetime of the Participant and prior to the Annuity
Commencement Date, the Participant may elect to have the Death Benefit applied
under one or more of the Annuity Options in accordance with the Contract's
settlement provisions to effect a Variable Annuity or a Fixed Annuity or a
combination of both for the Beneficiary as Payee after the death of the
Participant. This election may be made or subsequently revoked by filing with
the Company at its Annuity Service Mailing Address, a written election or
revocation of an election in such form as the Company may require. Any election
or revocation of an election of a method of settlement of the Death Benefit by
the Participant will become effective on the date it is received by the Company.
For the purposes of the "Payment of Death Benefit" section below, any election
of the method of settlement of the Death Benefit by the Participant which is in
effect on the date of death of the Participant will be deemed effective on the
date Due Proof of Death of the Participant is received by the Company.
If no election of a method of settlement of the Death Benefit by the
Participant is in effect on the date of death of the Participant, the
Beneficiary may elect (a) to receive the Death Benefit in the form of a cash
payment, in which event the Participant's Account will be canceled; or (b) to
have the Death Benefit applied under one or more of the Annuity Options in
accordance with the settlement provisions to effect, on the Annuity Commencement
Date determined in the "Payment of Death Benefit" section below, a Variable
Annuity or a Fixed Annuity or a combination of both for the Beneficiary as
Payee. In no event shall any method of settlement be exercised which would
violate the mandatory distribution requirements of Section 72(s) of the Code.
For additional options available if the designated Beneficiary is the surviving
spouse, please refer to the section of this Contract entitled "OWNERSHIP
PROVISIONS - Death of Participant."
The election of a method of settlement may be made by filing with the
Company at its Annuity Service
FA-GR-CONT-99-1 -17-
<PAGE>
Mailing Address, a written election in such form as the Company may require. Any
written election of a method of settlement of the Death Benefit by the
Beneficiary will become effective on the later of: (a) the date the election is
received by the Company; or (b) the date Due Proof of Death of the Participant
is received by the Company. If a written election by the Beneficiary is not
received by the Company within 60 days following the date Due Proof of Death of
the Participant is received by the Company, the Beneficiary shall be deemed to
have elected a cash payment as of the last day of such 60 day period.
PAYMENT OF DEATH BENEFIT
If the Death Benefit is to be paid in cash, payment will be made within
seven days of the Death Benefit Date, except as the Company may be permitted to
defer any such payment in accordance with the Investment Company Act of 1940. 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 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 Death Benefit Date.
If the Participant 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 in which
the Death Benefit Date occurs; and
(2) the amount which would have been payable in the event of a full
surrender of the Participant's Account on the Death Benefit Date;
and
(3) Net Purchase Payments, adjusted for any partial withdrawals, as of
the Death Benefit Date; and
(4) any Optional Death Benefit, if elected on or before the Date of
Coverage, as shown on the Certificate Specifications page.
If the Participant was age 86 or older on the Date of Coverage, the
Death Benefit will be equal to (2) above.
A partial withdrawal will affect the amount payable under (3) and (4) on
a basis proportional to the reduction in Participant's Account Value brought
about by such withdrawal. That is, any partial withdrawal will reduce the death
benefit amount to an amount equal to the death benefit amount immediately before
the withdrawal multiplied by the ratio of the Participant's Account Value
immediately after the withdrawal to the Participant's Account Value immediately
before the withdrawal.
If (2) or (3) is operative, the Participant's Account Value will be
increased by the excess of (2) or (3) over (1) and the increase will be
allocated to the Sub-Accounts based on the respective values of the Sub-Accounts
on the Death Benefit Date. If the "Maximum Account Anniversary Value" Optional
Death Benefit (4) is elected and is operative, the Participant's Account Value
will be increased by the excess of (4) over (1) and the increase will be
allocated as described above. 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 either a money market fund, if available, or the
Company's General Account.
SETTLEMENT PROVISIONS
GENERAL
On the Annuity Commencement Date, the adjusted value of the
Participant's Account as determined in accordance with the "Determination of
Amount" provision below will be applied, as specified by the Participant, under
one or more of the Annuity Options provided in the Contract or under such other
settlement options as may be agreed to by the Company. However, if the amount to
be applied under any Annuity Option is less than the
FA-GR-CONT-99-1 -18-
<PAGE>
Minimum Annuity Purchase Amount, set forth on the Certificate Specifications
page, or if the first annuity payment payable in accordance with such option is
less than the Minimum Initial Annuity Payment Amount set forth on the
Certificate Specifications page, the Company will pay the amount to be applied
in a single payment to the Payee.
After the Annuity Commencement Date, no change of Annuity Option is
permitted and no payments may be requested under the Cash Withdrawals provision
of the Contract. Exchanges of Variable Annuity Units are permitted.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the lifetime of the Participant and prior to the Annuity
Commencement Date, the Participant may elect to have the adjusted value of the
Participant's Account applied on the Annuity Commencement Date under one or more
of the Annuity Options provided in the Contract. If more than one person is
named as Annuitant, due to the designation of a Co-Annuitant, the Participant
may elect to name one of such persons to be the sole Annuitant as of the Annuity
Commencement Date.
The Participant may also change any election but any election or
change of election must be effective at least 30 days prior to the Annuity
Commencement Date. This election or change of election may be made by filing
with the Company as its Annuity Service Mailing Address, a written election
or change of election in such form as the Company may require. Any such
election or change of election will become effective on the date it is
received by the Company. If no such election is in effect on the 30th day
prior to the Annuity Commencement Date, the adjusted value of the
Participant's Account will be applied under Annuity Option B for a life
annuity with 120 monthly payments certain. If there is no election of a sole
Annuitant in effect on the 30th day prior to the Annuity Commencement Date,
the person designated as Co-Annuitant will be the Payee under the applicable
Annuity Option.
Any such election may specify the proportion of the adjusted value of
the Participant's Account to be applied to provide a Fixed Annuity and/or a
Variable Annuity. In the event the election does not so specify, then the
portion of the adjusted value of the Participant's Account to be applied to
provide a Fixed Annuity and/or a Variable Annuity will be determined on a PRO
RATA basis from the composition of the Participant's Account on the Annuity
Commencement Date.
The Annuity Options in the Contract may also be elected as provided in
the "Death Benefit" section of the Contract.
DETERMINATION OF AMOUNT
The adjusted value of the Participant's Account is applied to provide
a Variable Annuity or a Fixed Annuity or a combination of both. This value
shall be equal to the Participant's Account Value for the Valuation Period
which ends immediately preceding the Annuity Commencement Date, minus a
proportionate amount of the account fee to reflect the time elapsed between
the last Account Anniversary and the day before the Annuity Commencement
Date, plus or minus any applicable market value adjustment and minus any
applicable premium tax or similar tax.
EFFECT OF ANNUITY COMMENCEMENT DATE ON PARTICIPANT'S ACCOUNT
The Participant's Account will be canceled on the Annuity Commencement
Date.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is set forth on the Certificate
Specifications page. This date may be changed from time to time by the
Participant, provided that each change is effective at least 30 days prior to
the then current Annuity Commencement Date and the new Annuity Commencement
Date is a date which is: (1) at least 30 days after the effective date of the
change; (2) the first day of a month; and (3) not later than the first day of
the first month following the Annuitant's 90th birthday, unless otherwise
restricted, in the case of a Qualified Contract, by the retirement plan or by
applicable law. If more than one person is named as Annuitant, due to the
designation of a Co-Annuitant, the Annuity Commencement Date will not be
later than the first day of the first month following the 90th birthday of
the youngest of those persons so named. Any change of the Annuity
FA-GR-CONT-99-1 -19-
<PAGE>
Commencement Date may be made by filing with the Company at its Annuity Service
Mailing Address, a written designation of a new Annuity Commencement Date in
such form as the Company may require. Any such change will become effective on
the date the designation is received by the Company.
The Annuity Commencement Date may also be changed by an election of a
settlement option as provided in the "Death Benefit" section of this Contract.
FIXED ANNUITY PAYMENTS
The dollar amount of each Fixed Annuity payment shall be determined in
accordance with the annuity payment rates shown on pages 23 and 24, which are
based on the minimum guaranteed interest rate of 3% per year or, if more
favorable to the Payee(s), in accordance with the annuity payment rates
published by the Company and in use on the Annuity Commencement Date.
VARIABLE ANNUITY PAYMENTS
The dollar amount of the first Variable Annuity payment shall be
determined in accordance with the annuity payment rates shown on pages 23 and
24, which are based on an assumed interest rate of 3% per year.
All Variable Annuity payments other than the first are determined by
means of Annuity Units credited with respect to the particular Payee. The
number of Annuity Units to be credited in respect of a particular Sub-Account
is determined by dividing that portion of the first Variable Annuity payment
attributable to that Sub-Account by the Annuity Unit value of that
Sub-Account for the Valuation Period which ends immediately preceding the
Annuity Commencement Date. The resulting number of Annuity Units of each
Sub-Account credited with respect to the Payee remains fixed unless an
exchange of Annuity Units is made pursuant to the "Exchange of Variable
Annuity Units" section below. The dollar amount of each Variable Annuity
payment after the first may increase, decrease or remain constant, and is
equal to the sum of the amounts determined by multiplying the number of
Annuity Units of a particular Sub-Account credited with respect to the Payee
by the Annuity Unit value for the particular Sub-Account for the Valuation
Period which ends immediately preceding the due date of each subsequent
Variable Annuity payment.
ANNUITY UNIT VALUE
The Annuity Unit value for each Sub-Account was established at $10.00
for the first Valuation Period of the particular Sub-Account. The Annuity Unit
value for the particular Sub-Account for any subsequent Valuation Period is
determined by multiplying the Annuity Unit value for the particular Sub-Account
for the immediately preceding Valuation Period by the Net Investment Factor for
the particular Sub-Account for the current Valuation Period and then multiplying
that product by a factor to neutralize the assumed interest rate of 3% per year
used to establish the annuity payment rates found in the Contract.
EXCHANGE OF VARIABLE ANNUITY UNITS
After the Annuity Commencement Date the Payee may, by filing a written
request with the Company at its Annuity Service Mailing Address, exchange the
value of a designated number of Annuity Units of a particular Sub-Account then
credited with respect to such 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 such exchange. The maximum number of
exchanges that may be made in any Account Year is set forth on the Certificate
Specifications page.
Exchanges may be made among the Sub-Accounts only. Exchange shall be
made using the Annuity Unit values for the Valuation Period during which the
request for exchange is received by the Company.
ACCOUNT FEE
FA-GR-CONT-99-1 -20-
<PAGE>
After the Annuity Commencement Date an annual account fee equal to the
amount specified on the Certificate Specifications page will be deducted in
equal amounts from each Variable Annuity payment made during the year as
provided in the "Contract Values During Accumulation Period" section of this
Contract. No such deduction is made from Fixed Annuity payments.
DESCRIPTION OF ANNUITY OPTIONS
Annuity Options A, B, C and D are available on either a Fixed Annuity or
a Variable Annuity basis.
Annuity Option A. Life Annuity: Monthly payments during the lifetime of
the Payee. These payments will terminate at the death of the Payee without any
provision for continuation of payments to a Beneficiary.
Annuity Option B. Life Annuity with 60, 120, 180 or 240 Monthly Payments
Certain: Monthly payments during the lifetime of the Payee and in any event for
sixty (60), one hundred twenty (120), one hundred eighty (180) or two hundred
forty (240) months certain as elected.
Annuity Option C. Joint and Survivor Annuity: Monthly payments
payable during the joint lifetime of the Payee and a designated second person
and during the lifetime of the survivor. During the lifetime of the survivor,
variable monthly payments, if any, will be determined using the percentage
chosen at the time of the election of this option of the number of each type
of Annuity Unit credited with respect to the Payee, and each fixed monthly
payment, if any, will be equal to the same percentage of the Fixed Monthly
payment payable during the joint lifetime of the Payee and the designated
second person.
Annuity Option D. Monthly Payments for a Specified Period Certain:
Monthly payments for any specified period of time (at least ten (10) years
but not exceeding thirty (30) years), as elected.
AMOUNTS PAYABLE ON DEATH OF PAYEE
In the event of the death of the Payee on or after the Annuity
Commencement Date, the Company will pay any remaining payments under any Annuity
Option then in effect to the Payee's designated Beneficiary as they become due.
If there is no designated Beneficiary entitled to these remaining payments then
living, the Company will pay the amount specified in the schedule below for any
Annuity Option then in effect in one sum to the deceased Payee's estate. Any
Beneficiary who becomes entitled to any remaining payments under any Annuity
Option may elect to receive the amount specified in the schedule below for such
option in one sum. In the event of the death of a Beneficiary who has become
entitled to receive any remaining payments under any Annuity Option, the Company
will pay the amount specified for such option in the schedule below in one sum
to the deceased Beneficiary's estate. All payments made in one lump sum by the
Company, as provided in this paragraph, are made in lieu of paying any remaining
payments under the Annuity Option then in effect.
<TABLE>
<CAPTION>
Option Amount
- ------ ------
<S> <C>
B The discounted value of the remaining payments,
if any, for the certain period.
D The discounted value of the remaining payments,
if any, for the certain period.
</TABLE>
In the case of Options B and D, the discounted value will be based, for
payments being made on a variable basis, on interest compounded annually at the
assumed interest rate and on the assumptions that the particular Annuity Unit
values applicable to the remaining payments will be the particular Annuity Unit
values for the Valuation Period which ends on the day before the date of the
determination and that the discounted value will remain unchanged thereafter.
ANNUITY PAYMENT RATES
The annuity payment rate tables below show, for each $1,000 applied, the
dollar amount of both (a) the first monthly Variable Annuity payment based on
the assumed interest rate of 3% and (b) the monthly Fixed Annuity payment, when
the payment is based on the minimum guaranteed interest rate of 3% per year.
The mortality table used in determining the annuity payment rates for
Annuity Options A, B and C is the 1983 Individual Annuitant Mortality Table A.
In using this mortality table, ages of Annuitants will be reduced by one year
for Annuity Commencement Dates occurring during the 1990s, reduced by two years
for Annuity
FA-GR-CONT-99-1 -21-
<PAGE>
Commencement Dates occurring during the decade 2000-2009, and so on.
The annuity payment rates in the tables shown below reflect rates of
mortality appropriate for Annuity Commencement Dates occurring during the
1990s. Thus, for Annuity Commencement Dates occurring in the decade 2000-2009
the term ADJUSTED AGE, as used in the tables below, means actual age less one
year. ADJUSTED AGE shall mean actual age less two years for Annuity
Commencement Dates occurring during the decade 2010-2019, and so on.
ADJUSTED AGES will be determined based on the actual age(s) of the
Annuitant(s), in completed years and months, as of the Annuity Commencement
Date. The tables below show annuity payment rates for exact ADJUSTED AGES; rates
for ADJUSTED AGES expressed in completed years and months will be based on
straight line interpolation between the appropriate annuity payment rates.
The dollar amount of each annuity payment for any adjusted age or
combination of adjusted ages not shown below or for any other form of Annuity
Option agreed to by the Company will be quoted by the Company on request.
FA-GR-CONT-99-1 -22-
<PAGE>
AMOUNT OF FIRST MONTHLY ANNUITY PAYMENT PER $1,000
SINGLE LIFE ANNUITY
<TABLE>
<CAPTION>
OPTION A OPTION B
LIFE ANNUITY LIFE ANNUITY WITH PAYMENTS CERTAIN
60 PAYMENTS 120 PAYMENTS 180 PAYMENTS 240 PAYMENTS
ADJUSTED MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE
AGE ---- ------ ----- ------ ---- ------ ---- ------ ----- ------
--------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 3.02 2.92 3.02 2.92 3.01 2.92 3.01 2.91 3.01 2.91
25 3.12 3.00 3.12 3.00 3.12 3.00 3.11 3.00 3.11 2.99
30 3.25 3.10 3.25 3.10 3.24 3.10 3.24 3.10 3.23 3.09
35 3.41 3.23 3.41 3.23 3.40 3.23 3.39 3.22 3.38 3.22
40 3.61 3.39 3.61 3.39 3.60 3.38 3.58 3.38 3.56 3.37
45 3.87 3.59 3.86 3.59 3.85 3.58 3.82 3.57 3.77 3.55
50 4.19 3.84 4.18 3.84 4.15 3.83 4.10 3.81 4.03 3.77
55 4.60 4.18 4.59 4.17 4.54 4.15 4.45 4.11 4.32 4.04
60 5.15 4.61 5.12 4.60 5.03 4.56 4.87 4.48 4.64 4.37
65 5.91 5.21 5.85 5.18 5.66 5.10 5.36 4.95 4.96 4.72
70 6.97 6.04 6.84 5.98 6.44 5.80 5.86 5.49 5.23 5.06
75 8.45 7.26 8.14 7.12 7.32 6.69 6.31 6.04 5.40 5.32
80 10.55 9.07 9.80 8.69 8.17 7.69 6.62 6.48 5.48 5.45
85 13.46 11.79 11.72 10.74 8.86 8.59 6.79 6.74 5.51 5.50
90 17.33 15.74 13.66 12.99 9.30 9.18 6.85 6.84 5.51 5.51
</TABLE>
OPTION C
JOINT AND SURVIVOR ANNUITY
(ASSUMED ELECTION OF JOINT AND TWO-THIRDS SURVIVOR)
<TABLE>
<CAPTION>
ADJUSTED AGE OF FEMALE
----------------------
ADJUSTED AGE 55 60 65 70 75
OF MALE ---- ---- ---- ---- ----
- ------------
<S> <C> <C> <C> <C> <C>
55 4.17 4.38 4.62 4.87 5.15
60 4.36 4.60 4.89 5.20 5.55
65 4.56 4.85 5.19 5.58 6.02
70 4.77 5.11 5.52 6.01 6.57
75 4.99 5.38 5.86 6.45 7.16
</TABLE>
<TABLE>
<CAPTION>
OPTION D
PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
YEARS AMOUNT YEARS AMOUNT YEARS AMOUNT
- ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
10 9.61 17 6.23 24 4.84
11 8.86 18 5.96 25 4.71
12 8.24 19 5.73 26 4.59
13 7.71 20 5.51 27 4.47
14 7.26 21 5.32 28 4.37
15 6.87 22 5.15 29 4.27
16 6.53 23 4.99 30 4.18
</TABLE>
FA-GR-CONT-99-1 -23-
<PAGE>
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
The Contract shall belong to the Owner. Unless any Contract rights and
privileges have been expressly reserved by the Owner, the Participant shall be
entitled to exercise all rights and privileges in connection with such
Participant's Certificate. In any case, such rights and privileges can be
exercised without the consent of the Beneficiary (other than an irrevocable
Beneficiary) or any other person. Such rights and privileges may be exercised
only during the lifetime of the Participant and prior to the Annuity
Commencement Date, except as otherwise provided in the Contract.
The Annuitant becomes the Payee on and after the Annuity Commencement
Date. The Beneficiary becomes the Payee on the death of the Participant prior to
the Annuity Commencement Date, or on the death of the Annuitant after the
Annuity Commencement Date. Such Payees may thereafter exercise such rights and
privileges, if any, of ownership which continue.
DEATH OF PARTICIPANT
If a Participant under a Non-Qualified Contract dies prior the Annuity
Commencement Date, that Participant's Account must be distributed to the
"designated Beneficiary" (as defined below) either (1) as a lump sum within five
years after the date of death of the Participant, or (2) as an annuity over some
period not greater than the life or expected life of the designated Beneficiary,
with annuity payment beginning within one year after the date of death of the
Participant. For this purpose (and for purposes of Section 72(s) of the Code),
the person named as Beneficiary shall be considered the designated Beneficiary,
and if no person then living has been so named, then the Annuitant shall
automatically be the designated Beneficiary. If the designated Beneficiary is
the surviving spouse of the deceased Participant, the spouse can elect to
continue the Certificate in the spouse's own name as Participant, in which case
the mandatory distribution requirements will apply on the spouse's death. As
designated Beneficiary, the surviving spouse may also choose to have the
Participant's Account distributed as an annuity over some period not greater
than his or her life or expected life, with annuity payments beginning within
one year after the date of death of the Participant.
If the Payee dies on or after the Annuity Commencement Date and before
the entire accumulation under such Participant's Account has been distributed,
the remaining portion of such Participant's Account, if any, must be distributed
as least as rapidly as the method of distribution then in effect.
In any case in which a non-natural person constitutes a holder of the
Certificate for the purposes of Section 72(s) of the Code, (1) the distribution
requirements described above shall apply upon the death of any Annuitant, and
(2) a change in any Annuitant shall be treated as the death of such Annuitant.
In all cases, no Participant or Beneficiary shall be entitled to
exercise any rights that would adversely affect the treatment of the Contract as
an annuity Contract under the Code.
VOTING OF 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. The Owner or Participant,
as the case may be, is the person having the right to give voting instructions
prior to the Annuity Commencement Date. On or after the Annuity Commencement
Date, the Payee is the person having such voting rights. Any shares attributable
to the Company and any Fund shares for which no timely voting instructions have
been received will be voted by the Company in the same proportion as the shares
for which instructions are received from persons have such voting rights.
Neither the Variable Account nor the Company is under any duty to
provide information concerning the voting instruction rights of persons who may
have such rights under retirement or deferred compensation plans, other than
rights afforded by the Investment Company Act of 1940, nor do they have any duty
to inquire as to the instructions received or the authority of Owners,
Participants, or others to instruct on the voting of Fund shares. Except as the
Variable Account or the Company has actual knowledge to the contrary, the
instructions given by Owners, Participants and Payees will be valid as they
affect the Variable Account, the Company and any others
FA-GR-CONT-99-1 -24-
<PAGE>
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 Owner, each Participant
and each Payee having the right to give voting instructions at least 10 days
prior to each meeting of the shareholders of the Fund. The number of particular
Fund shares as to which each such person is entitled to give instructions will
be determined by the Company as of a date not more than 90 days prior to each
such meeting. Prior to the Annuity Commencement Date, the number of Fund shares
as to which voting instructions may be given to the Company is determined by
dividing the value of all 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 particular
Sub-Account with respect to the particular Payee by the net asset value of a
Fund share as of the same date.
PERIODIC REPORTS
During the Accumulation Period the Company will send to the
Participant, or such other person having voting rights, at least once during
each Account Year, a statement showing the number, type and value of
Accumulation Units credited to the Participant's Account and the fixed
accumulation value of such account, which statement shall be accurate as of a
date not more than two months previous to the date of mailing. In addition,
every person having voting rights will receive such reports or prospectuses
concerning the Variable Account and each Fund as may be required by the
Investment Company Act of 1940 and the Securities Act of 1933. The Company will
also send such statements reflecting transactions in the Participant's Account
as may be required by applicable laws, rules and regulations.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in any Application will remain in
effect until changed.
Subject to the rights of an irrevocable Beneficiary, the designation of
Beneficiary may be changed or revoked. Any change or revocation must be filed
with the Company at its Annuity Service Mailing Address in such form as the
Company may require. The change or revocation will not be binding upon the
Company until it is received by the Company. When it is so received the change
or revocation will be effective as of the date on which the Beneficiary
designation or revocation was signed, but the change or revocation will be
without prejudice to the Company on account of any payment made or any action
taken by the Company before the Company receives and acknowledges the change or
revocation.
GENERAL PROVISIONS
AGE AND SEX MISSTATEMENT
If any date of birth or sex, or both, has been misstated in the
Application, if any, or elsewhere, the amounts payable pursuant to the Contract
will be the amounts which would have been provided using the correct age or sex,
or both. Any deficiency in payments already made by the Company shall be paid
promptly and any excess in the payments already made by the Company shall be
charged against the benefits falling due after the adjustment.
CONTRACT
The Contract is issued in consideration of the Contract Application, if
any, and payment of the initial Purchase Payment. This Contract and the Contract
Application, if any, a copy of which may be attached, constitute the entire
Contract. All statements made in the Contract Application and any Participant's
Application will be deemed representations and not warranties, and no statement
will void the Contract or a Participant's interest therein or be used in defense
to a claim unless it is contained in such Contract Application or Participant's
Application, if any, or in any similar document of that Participant and a copy
is attached to the Contract or Certificate, as applicable, at issue. Only the
President, a Vice President, the Actuary or the Secretary of the Company has
authority to agree on behalf of the Company to any alteration of the Contract or
any Certificate, or to any waiver of the rights or requirements of the Company.
FA-GR-CONT-99-1 -25-
<PAGE>
CURRENCY
All amounts due under the Contract are payable in U.S. dollars, lawful
money of the United States of America.
DETERMINATION OF VALUES
The method of determination by the Company of the Net Investment Factor
and the number and value of Accumulation Units and Annuity Units shall be
conclusive upon the Owner, the Participant, any Payee and any Beneficiary.
DISCONTINUANCE OF NEW PARTICIPANTS
The Company, by giving 30 days' prior written notice to the Owner, may
limit or discontinue the acceptance of new Applications and the issuance of new
Certificates under this Contract. Such limitation or discontinuance shall have
no effect on rights or benefits with respect to any Participant's Account
established prior to the effective date of such limitation or discontinuance.
GOVERNING LAW
This Contract and all Certificates issued in connection with it will be
governed by the laws of the jurisdiction where the Contract Application is
signed.
GUARANTEES
Subject to the Net Investment Factor provision, the Company guarantees
that the dollar amount of Variable Annuity payments made during the lifetime of
the Payee(s) will not be adversely affected by the actual mortality experience
of the Company or by the actual expenses incurred by the Company in excess of
the expense deductions provided for in the Contract and other Contracts
providing benefits which vary in accordance with the investment performance of
the Sub-Accounts.
INCONTESTABILITY
This Contract is incontestable, subject to the "Age and Sex
Misstatements", "Proof of Age" and "Proof of Survival" provisions contained
herein.
MODIFICATION
Upon notice to the Owner, the Participant(s) or the Payee(s) during the
annuity period, this Contract may be modified by the Company, but only if such
modification (a) is necessary to make the Contract or the Variable Account
comply with any law or regulation issued by a governmental agency to which the
Company or the Variable Account is subject; or (b) is necessary to assure
continued qualification of the Contract under the Code or other federal or state
laws relating to retirement annuities or annuity contracts; or (c) is necessary
to reflect a change in the operation of the Variable Account or the
Sub-Accounts; (d) provides additional Variable Account and/or Fixed Account
options; or (e) as may otherwise be in the best interests of Owners,
Participants or Payees, as applicable. In the event of any such modification,
the Company may make appropriate endorsement to the Contract to reflect such
modification.
In addition, upon 60 days' prior written notice to the Owner, the
Contract may be modified by the Company to change the withdrawal charges,
account fees, mortality and expense risk charges, administrative expense
charges, the tables used in determining the amount of the first monthly Variable
Annuity and Fixed Annuity payments and the formula used to calculate the market
value adjustment, provided that any such modification shall apply only to
Participant's Accounts established after the effective date of the modification.
All of the charges and the annuity tables which are provided in the Contract
prior to any such modification will remain in effect permanently, unless
improved by the Company, with respect to Participant's Accounts established
prior to the effective date of such modification,
FA-GR-CONT-99-1 -26-
<PAGE>
NONPARTICIPATING
The Contract is nonparticipating and will not share in any profits or
surplus earnings of the Company and therefore, no dividends are payable.
PAYMENTS BY THE COMPANY
All sums payable by the Company pursuant to the Contract are payable
only at its Executive Office or such other place as may be designated by the
Company. The Company may require surrender of the Contract upon final payment of
all sums payable by the Company pursuant to the Contract.
PROOF OF AGE
The Company shall have the right to require evidence of the age of any
Payee under Annuity Options A, B, and C prior to the Annuity Commencement Date.
PROOF OF SURVIVAL
The Company shall have the right to require evidence of the survival of
any Payee under Annuity Options A, B and C at the time any payment payable to
such Payee is due.
SPLITTING UNITS
The Company reserves the right to split or combine the value of Variable
Accumulation Units, Annuity 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 this Contract.
RIGHTS RESERVED BY THE COMPANY
The Company reserves the right, to the extent permitted by law, to: (1)
deregister the Variable Account under the Investment Company Act of 1940; (2)
combine any two or more Variable Accounts; (3) operate the Variable Account as a
management investment company or any other form permitted by law; (4) substitute
shares of a Fund for shares of another investment company if shares of such Fund
are not available, or if, in the Company's judgment, further investment in such
Fund's shares is no longer appropriate; (5) add or delete Funds, or series or
sub-series thereof, and corresponding Sub-Accounts; (6) add or remove Guarantee
Periods available at any time for election by a Participant; and (7) restrict or
eliminate any of the voting rights of Participants (or Owners) or other persons
who have voting rights as to the Variable Account.
FA-GR-CONT-99-1 -27-
<PAGE>
[LOGO]
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 OF CANADA (U.S.)
WELLESLEY HILLS, MASSACHUSETTS 02481 RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02103
</TABLE>
FLEXIBLE PAYMENT DEFERRED COMBINATION VARIABLE AND FIXED GROUP ANNUITY CONTRACT
NONPARTICIPATING
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO A PARTICIPANT, INCLUDING WITHDRAWALS,
TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY. PAYMENTS MADE FROM
GUARANTEE AMOUNTS WHICH ARE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE
PERIOD OR THE WITHDRAWAL OF INTEREST CREDITED TO GUARANTEE AMOUNTS DURING THE
CURRENT ACCOUNT YEAR ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT.
FA-GR-CONT-98-1
<PAGE>
Exhibit 4(b)(i)
FORM OF CERTIFICATE
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
A WHOLLY-OWNED SUBSIDIARY OF SUN LIFE ASSURANCE COMPANY OF CANADA
<TABLE>
<CAPTION>
EXECUTIVE OFFICE: HOME OFFICE: ANNUITY SERVICE MAILING ADDRESS:
<S> <C> <C>
One Sun Life Executive Park Wilmington, DE Sun Life Assurance Company of Canada (U.S.)
Wellesley Hills, MA 02481 Retirement Products and Services
P.O. Box 9133
Boston, MA 02117
</TABLE>
This Certificate evidences the interest of the Participant named in the
Certificate Specifications Page in the combination variable and fixed group
annuity Contract ("Contract") issued by Sun Life Assurance Company of Canada
(U.S.) ("the Company").
The Contract is the legal Contract. This Certificate is merely a
summary of the rights, duties and benefits of that Contract. A copy of the
Contract may be obtained by requesting it in writing from the Company. If there
is any conflict between the provisions of the Contract and those of this
Certificate, the Contract is the controlling document.
The Company will pay an annuity commencing on the Annuity Commencement
Date by applying the adjusted value of the Participant's Account in accordance
with the settlement provisions.
If the Participant dies while the Contract is in effect and this
Certificate is in force and before the Annuity Commencement Date, the Company
may pay a Death Benefit to the Beneficiary upon receipt of Due Proof of Death of
the Participant.
Under certain circumstances, if the Participant dies prior to the
Annuitant and before the Annuity Commencement Date, a distribution is required
by law.
All payments will be made to the persons and in the manner set forth in
the Contract.
Signed by the Company at its Executive Office, Wellesley Hills,
Massachusetts on the Date of Coverage.
/s/ C. JAMES PRIEUR /s/ ELLEN B. KING
C. James Prieur Ellen B. King
PRESIDENT SECRETARY
CERTIFICATE FOR FLEXIBLE PAYMENT DEFERRED COMBINATION
VARIABLE AND FIXED GROUP ANNUITY CONTRACT
NONPARTICIPATING
ALL PAYMENTS AND VALUES PROVIDED BY THIS CERTIFICATE WHEN BASED ON THE
INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT
GUARANTEED AS TO DOLLAR AMOUNT.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO A PARTICIPANT, INCLUDING WITHDRAWALS,
TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY. PAYMENTS MADE FROM
GUARANTEE AMOUNTS WHICH ARE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE
PERIOD OR THE WITHDRAWAL OF INTEREST CREDITED TO GUARANTEE AMOUNTS DURING THE
CURRENT ACCOUNT YEAR ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT.
RIGHT TO RETURN CERTIFICATE. Please read this Certificate. If not satisfied with
it, the Participant may, within 10 days after its receipt, return it by
delivering or mailing it to the Annuity Service Mailing Address indicated above.
Immediately upon receipt of the Certificate by the Company, the Certificate will
be deemed void as though it had never been applied for, and the Participant's
Account Value at the end of the Valuation Period during which the Certificate is
received by the Company, less any Purchase Payment Interest, will be refunded to
the Participant.
IMPORTANT NOTICE: It is not necessary to employ any person to collect any
payment or benefit provided by the Contract. When you require help or advice,
write directly to the Company at its Annuity Service Mailing Address. The
Contract contains many benefits. In your own best interest you should consult
the Company if anyone advises you to surrender this Certificate or replace it
with a new contract.
FA-GR-CERT-99-1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
CERTIFICATE SPECIFICATIONS PAGE..............................................
DEFINITIONS..................................................................
FIXED AND VARIABLE ACCOUNTS..................................................
Fixed Account..........................................................
Variable Account and Sub-Accounts......................................
Ownership of Assets....................................................
Investments of the Sub-Accounts........................................
PURCHASE PAYMENTS............................................................
Payments...............................................................
Purchase Payment Interest..............................................
Account Continuation...................................................
Allocation of Net Purchase Payments....................................
CONTRACT VALUES DURING ACCUMULATION PERIOD...................................
Participant's Account..................................................
Variable Account Value.................................................
Crediting Variable Accumulation Units..................................
Variable Accumulation Unit Value.......................................
Variable Accumulation Value............................................
Net Investment Factor..................................................
Fixed Account Value....................................................
Guarantee Periods......................................................
Guaranteed Interest Rates..............................................
Fixed Accumulation Value...............................................
Transfer Privilege.....................................................
Account Fee............................................................
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT.............
Cash Withdrawals.......................................................
Withdrawal Charges.....................................................
Nursing Home Withdrawal Privilege......................................
Market Value Adjustment................................................
DEATH BENEFIT................................................................
Death Benefit Provided by the Contract.................................
Election and Effective Date of Election................................
Payment of Death Benefit...............................................
Amount of Death Benefit................................................
SETTLEMENT PROVISIONS........................................................
General................................................................
Election and Effective Date of Election................................
Determination of Amount................................................
Effect of Annuity Commencement Date on Participant's Account...........
Annuity Commencement Date..............................................
Fixed Annuity Payments.................................................
Variable Annuity Payments..............................................
Annuity Unit Value.....................................................
Exchange of Variable Annuity Units.....................................
Account Fee............................................................
</TABLE>
FA-GR-CERT-99-1
<PAGE>
<TABLE>
<S> <C>
Description of Annuity Options.........................................
Amounts Payable on Death of Payee......................................
Annuity Payment Rates..................................................
OWNERSHIP PROVISIONS.........................................................
Exercise of Contract Rights............................................
Death of Participant...................................................
Voting of Fund Shares..................................................
Periodic Reports.......................................................
Designation and Change of Beneficiary..................................
GENERAL PROVISIONS...........................................................
Age and Sex Misstatement...............................................
This Certificate.......................................................
Currency...............................................................
Determination of Values................................................
Governing Law..........................................................
Guarantees.............................................................
Incontestability.......................................................
Modification...........................................................
Nonparticipating.......................................................
Payments by the Company................................................
Proof of Age...........................................................
Proof of Survival......................................................
Splitting Units........................................................
Rights Reserved by the Company.........................................
QUALIFIED CERTIFICATE PROVISIONS............................................
</TABLE>
FA-GR-CERT-99-1
<PAGE>
CERTIFICATE SPECIFICATIONS
<TABLE>
<S> <C>
CERTIFICATE NUMBER [79-7900-123456]
PARTICIPANT/ANNUITANT [John J. Doe]
[Mary J. Doe]
AGE OF PARTICIPANT [35]
AGE OF ANNUITANT [35]
DATE OF COVERAGE [June 21, 1998]
ACCOUNT ANNIVERSARY DATE [June 30, 1999]
INITIAL PURCHASE PAYMENT [$100,000]
Minimum Initial Purchase Payment [$10,000]
Minimum Additional Payment [$1,000]
Maximum Purchase Payment [Any Purchase Payment that would cause Account Value to exceed
(without prior approval of the Company) $1,000,000]
PURCHASE PAYMENT INTEREST OPTION A:
[During first Account Year] [2% of any Purchase Payment]
[Each Five Year Anniversary] [2% of Participant's Account Value]
or OPTION B:
[Principal is equal to or less than $99,999] [3% of each Purchase Payment. An additional 1% will be credited
to any Principal that received 3% during the first Account Year
if Principal equals or exceeds $100,000 on the first Account
Anniversary.]
[Principal is equal to or more than $100,000] [4% of each Purchase Payment]
BENEFICIARY (RELATIONSHIP) [Susan J. Doe (Daughter)]
ANNUITY COMMENCEMENT DATE [July 1, 2050]
ANNUITY OPTION [Deferred]
Minimum Annuity Purchase Amount [$5,000]
Minimum Initial Annuity Payment Amount [$50]
Account Fee After Annuity Commencement Date [$35]
ACCOUNT FEE [$35]
MAXIMUM ACCOUNT FEE [$50]
MINIMUM ACCOUNT VALUE FOR WAIVER OF ACCOUNT FEE [$100,000]
NUMBER OF COMPLETE WITHDRAWAL
WITHDRAWAL CHARGES ACCOUNT YEARS FROM TIME OF PAYMENT CHARGES
---------------------------------- -------
0-1 8%
2-3 7%
4 6%
5 5%
6 4%
7 2%
8 1%
9 or more 0%
[INITIAL GUARANTEE PERIOD(S)] ["1-10 Year" or "None Elected"]
GUARANTEED INTEREST RATE ["1YR - 4.5%", "3YR - 5.6%" or "N/A"]
Minimum Guarantee Period Amount [$1,000]
Minimum Guaranteed Interest Rate [3%]
Market Value Adjustment ("b" Factor) [0%] Maximum 0.25%
</TABLE>
FA-GR-CERT-99-1
<PAGE>
<TABLE>
<S> <C>
CURRENT FEE PER TRANSFER [$0]
Maximum Fee Per Transfer [$25]
Maximum Number of Transfers Per Account Year [12]
Minimum Transfer Amount [$1,000]
Minimum Remaining in Sub-Account after Transfer [$1,000]
Annual Asset Charge [1.45%] or [1.65%] or [1.85%]
OPTIONAL DEATH BENEFIT [None]
or
[Maximum Anniversary Account Value] [The greatest of 1,2 and 3 shown in the "Amount of Death
Benefit" provision and the highest Participant's Account Value
on any Account Anniversary prior to the Participant's 81st
birthday, adjusted for any subsequent Purchase Payments and
partial withdrawals and charges made between such Account
Anniversary and the Death Benefit Date]
or
[Earnings Enhancement] [The greatest of 1,2 and 3 shown in the "Amount of Death
Benefit" provision plus 40% of the lesser of Net Purchase
(SHOULD APPEAR ONLY IF OWNER 70 OR YOUNGER ON ISSUE DATE) Payments and the Participant's Account Value minus Net Purchase
Payments. (Net Purchase Payments will be adjusted for any
partial withdrawals as described in the "Amount of Death Benefit"
provision.) This amount will be calculated as of the Death
Benefit Date unless the Participant's spouse is the beneficiary
and elects to continue the Certificate, in which case this
benefit will be determined on the Death Benefit Date following
the spouse's death.]
or
[The greatest of 1,2 and 3 shown in the "Amount of Death
Benefit" provision plus 25% of the lesser of Net Purchase
(SHOULD APPEAR ONLY IF OWNER 71-79 ON ISSUE DATE) Payments and the Participant's Account Value minus Net Purchase
Payments. (Net Purchase Payments will be adjusted for any
partial withdrawals as described in the "Amount of Death Benefit"
provision.) This amount will be calculated as of the Death
Benefit Date unless the Participant's spouse is the beneficiary
and elects to continue the Certificate, in which case this
benefit will be determined on the Death Benefit Date following
the spouse's death.]
</TABLE>
FA-GR-CERT-99-1
<PAGE>
SUB-ACCOUNTS INVESTED IN FUNDS
AVAILABLE FUND OPTIONS:
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
THE ALGER AMERICAN FUND
Alger American Growth Portfolio
Alger American Income and Growth Portfolio
Alger American Small Capitalization Portfolio
GOLDMAN SACHS VARIABLE INSURANCE TRUST
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 SERIES TRUST II
J.P. Morgan Disciplined Equity Portfolio
J.P. Morgan International Opportunities Portfolio
J.P. Morgan Small Company Portfolio
LORD ABBETT SERIES FUND, INC.
Lord Abbett Growth and Income Portfolio
OCC ACCUMULATION TRUST
OCC Equity Portfolio
OCC Mid Cap Portfolio
OCC Small Cap Portfolio
OCC Managed Portfolio
SUN CAPITAL ADVISERS, INC.
Sun Capital Blue Chip Mid Cap Fund
Sun Capital Investors Foundation Fund
Sun Capital Money Market Fund
Sun Capital Investment Grade Bond Fund
Sun Capital Real Estate Fund
Sun Capital Select Equity Fund
FA-GR-CERT-99-1
<PAGE>
DEFINITIONS
Any reference in this Certificate to "RECEIPT" and "RECEIVED" by the Company
means receipt at the Company's Annuity Service Mailing Address shown on the
first page of this Certificate.
ACCOUNT YEARS AND ACCOUNT ANNIVERSARIES: The first Account Year shall be the
period of 12 months plus a part of a month as measured from the Date of Coverage
through the last day of the calendar month of coverage. All Account Years and
Account 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 occurs in March, the first Account Year will be
determined from the Date of Coverage but will end on the last day of March in
the following year; all 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 Participant.
ANNUITANT: The person or persons named on the Certificate Specifications page
and on whose life the first annuity payment is to be made. If the Annuitant dies
prior to the Annuity Commencement Date, the new Annuitant will be the
Co-Annuitant, if any. If the Co-Annuitant dies or if no Co-Annuitant is named,
the Participant becomes the Annuitant upon the Annuitant's death prior to the
Annuity Commencement Date.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
is to be made. This date may not be earlier than the first Account
Anniversary.
*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, if any, signed by each Participant that serves as his
or her Application for participation under the Contract, a copy of which may be
attached to and made part of this Certificate.
*BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity
having the right to receive the Death Benefit set forth in this Certificate and,
for a Certificate issued under a Non-Qualified Contract, who, in the event of
the Participant's death, is the designated Beneficiary for purposes of Section
72(s) of the Code. After the Annuity Commencement Date, the person or entity
having the right to receive any payments due under the Annuity Option elected,
if applicable, upon the death of the Payee. This Certificate must be owned by a
natural person or agent for a natural person for the Certificate to receive
favorable income tax treatment as an annuity.
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
CONTRACT APPLICATION: The document, if any, signed by the Owner that
evidences the Owner's Application for the Contract.
DATE OF COVERAGE: The date on which this Certificate becomes effective.
DEATH BENEFIT DATE: The date on which the Death Benefit election is effective,
which is the date on which the Company receives Due Proof of Death.
DUE PROOF OF DEATH: An original certified copy of an official death certificate,
an original certified copy of a decree of a court of competent jurisdiction as
to the finding of death, or any other proof satisfactory to the Company.
EXPIRATION DATE: The last day of a Guarantee Period.
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FIVE YEAR ANNIVERSARY: The fifth Account Anniversary and each succeeding
Account Anniversary occurring at any five year interval thereafter; for
example, the 10th, 15th and 20th Account Anniversaries
FIXED ACCOUNT: Part of the General Account of the Company, consisting of
all assets of the Company other than those allocated to a separate account of
the Company.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar amount.
FUND(S): One or more open-end management investment companies or "mutual
funds" registered under the Investment Company Act of 1940.
GUARANTEE AMOUNT: Any portion of a Participant's Account Value allocated to a
particular Guarantee Period with a particular Expiration Date (including
interest earned thereon).
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during any Guarantee Period.
NET INVESTMENT FACTOR: An index applied by the Company to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater than, less than, or equal to one.
NET PURCHASE PAYMENT: The portion of a Purchase Payment which remains after the
deduction of any applicable front-end sales load or premium or similar tax, if
any.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which does not receive favorable federal income tax treatment under Sections
401, 403, 408, or 408A of the Code. The Participant's interest in the Contract
evidenced by this Certificate must be owned by a natural person or agent for a
natural person for the Contract to receive favorable income tax treatment as an
annuity.
OWNER: The person, persons or entity entitled to the ownership rights stated in
the Contract and in whose name or names the Contract is issued. The Owner may
designate a trustee or custodian of a retirement plan which meets the
requirements of Section 401, Section 408(c), Section 408(k), or Section 408 (p)
of the Code to serve as legal owner of assets of a retirement plan, but the term
Owner, as used herein, refers to the organization entering into the Contract.
PARTICIPANT: The person named in the Certificate Specifications page who
is entitled to exercise all rights and privileges of ownership under the
Certificate, except as reserved by the Owner.
PARTICIPANT'S ACCOUNT: An account to which Net Purchase Payments are credited.
PARTICIPANT'S ACCOUNT VALUE: The variable accumulation value, if any,
plus the fixed accumulation value, if any, of a Participant's Account
for any Valuation Period.
PAYEE: A recipient of payments relating to this Certificate.
PRINCIPAL: The sum of all Net Purchase Payments less the sum of all withdrawals
PURCHASE PAYMENT (PAYMENT): The amount paid to the Company as consideration
for the benefits provided by the Contract.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan which
may receive favorable federal income tax treatment under Sections 401, 403, 408
or 408A of the Code.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares of
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 that the Exchange is open for trading.
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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.
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*As specified in the Certificate Specifications page, unless changed.
<PAGE>
FIXED AND VARIABLE ACCOUNTS
FIXED ACCOUNT
The Fixed Account consists of all assets of the Company other than
those allocated to any separate account of the Company. Any portion of a Net
Purchase Payment allocated by a Participant to a Guarantee Period(s) will become
part of the Fixed Account.
VARIABLE ACCOUNT AND SUB-ACCOUNTS
The Variable Account to which the variable accumulation values and
Variable Annuity payments, if any, under the Contract relate was established by
the Company pursuant to a resolution of its Board of Directors. The Company has
registered the Variable Account as a unit investment trust under the Investment
Company Act of 1940. That portion of the assets of the Variable Account equal to
the reserves and other contract liabilities with respect to the Variable Account
shall not be chargeable with liabilities arising out of any other business the
Company may conduct.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of a designated series or sub-series
of a Fund. The values of the Variable Accumulation Units and the Annuity Units
described in the Contract reflect the investment performance of the
Sub-Accounts.
OWNERSHIP OF ASSETS
The Company shall have exclusive and absolute ownership and control of
its assets, including all assets of the Sub-Accounts. The Company reserves the
right to transfer the assets of a Sub-Account, in excess of the reserves and
other policy liabilities with respect to that Sub-Account, to another
Sub-Account or to the Company's General Account.
INVESTMENTS OF THE SUB-ACCOUNTS
All amounts allocated to a Sub-Account will be used to purchase shares
of a specific series or sub-series of a Fund. The Fund shares available on the
Date of Coverage are shown on the Certificate Specifications page; more series
and/or Funds may be subsequently added or deleted. Each Fund is an open-end
investment company ("mutual fund") registered under the Investment Company Act
of 1940. Any and all distributions made by a Fund with respect to shares held by
a Sub-Account will be reinvested to purchase additional shares of that series at
net asset value. Deductions from the Sub-Accounts will, in effect, be made by
reducing the number of Accumulation Units attributable to a Participant's
Account. Each Sub-Account will be fully invested in Fund shares at all times.
PURCHASE PAYMENTS
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PAYMENTS
All Purchase Payments are to be paid to the Company at its Annuity
Service Mailing Address. The amount of Purchase Payments may vary; however, the
Company will not accept an initial Purchase Payment for any Certificate which is
less than the minimum amount specified on the Certificate Specifications page,
and each additional Purchase Payment must be at least the minimum additional
amount specified on the Certificate Specifications page. In addition, the prior
approval of the Company is required before it will accept a Purchase Payment
which would cause the Participant's Account Value to exceed the maximum Purchase
Payment amount specified on the Certificate Specifications page. If the
Participant's Account Value exceeds such maximum amount, no additional Purchase
Payments will be allocated without the prior approval of the Company.
PURCHASE PAYMENT INTEREST
Purchase Payments will be credited with interest at the rate shown on
the Certificate Specifications page. A Participant may choose between two
Purchase Payment Interest options: Option A provides for the crediting of
interest at the rate shown on the Specification Page to each Purchase Payment
made during the first Account Year. On each Five Year Anniversary, additional
interest (called "Five Year Anniversary Interest") will be credited to the
Participant's Account Value at the rate shown on the Specification Page. Option
B provides for the crediting of interest at the rate shown on the Specification
Page to all Purchase Payment accepted by the Company. If no option is elected on
or before the Date of Coverage, Option A will automatically apply.
Interest under either option will be credited during the same Valuation
Period that the Purchase Payment is received (or on any Five Year Anniversary if
Option A is elected) and allocated to the Sub-Accounts and/or Fixed Account in
the same proportion as the Net Purchase Payment is allocated. If Option A was
elected, any Five Year Anniversary Interest will be proportionally allocated to
the Sub-Accounts and/or the Fixed Account (excluding any Fixed Account if used
to support a dollar cost averaging transfer program) based on their respective
values.
No interest will be credited if the Certificate is returned pursuant to
the Right To Return provision.
ACCOUNT CONTINUATION
A Participant's Account shall be continued automatically in full force
during the lifetime of the Participant until the Annuity Commencement Date or
until the Participant's Account is surrendered.
ALLOCATION OF NET PURCHASE PAYMENTS
The Net Purchase Payment is that portion of a Purchase Payment which
remains after deduction of any applicable front-end sales load and premium tax
or similar tax. Each Net Purchase Payment will, upon receipt by the Company, be
allocated to the Participant's Account, either to the Sub-Accounts or to the
Fixed Account or to both the Sub-Accounts and the Fixed Account in accordance
with the allocation factors specified in the Application, or as subsequently
changed by the Participant. Purchase Payment Interest will be credited on a
proportional basis to the same Sub-Accounts and/or Fixed Accounts as Net
Purchase Payments.
The allocation factors for new Purchase Payments among the Guarantee
Periods and the Sub-Accounts may be changed by the Participant at any time by
giving notice of the change to the Company, in accordance with the Company's
procedures then in effect. The Participant may effect such change directly, or
through an authorized third party, subject to the Company's approval given in
its sole discretion, and further subject to adherence to such Company procedures
as may be adopted from time to time. Any change will take effect with the first
Purchase Payment received with or after receipt of notice of the change by the
Company and will continue in effect until subsequently changed.
CONTRACT VALUES DURING ACCUMULATION PERIOD
PARTICIPANT'S ACCOUNT
The Company will establish a Participant's Account for each Participant
under the Contract and will maintain the Participant's Account during the
Accumulation Period. The Participant's Account Value for any Valuation Period is
equal to the variable accumulation value, if any, plus the fixed accumulation
value, if any, of the Participant's Account for that Valuation Period.
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VARIABLE ACCOUNT VALUE
CREDITING VARIABLE ACCUMULATION UNITS
Upon receipt of a Purchase Payment by the Company, all or that portion,
if any, of the Net Purchase Payment to be allocated to the Sub-Accounts will be
credited to the Participant's Account in the form of Variable Accumulation
Units. The number of particular Variable Accumulation Units to be credited is
determined by dividing the dollar amount allocated to the particular Sub-Account
by the Variable Accumulation Unit value of the particular Sub-Account for the
Valuation Period during which the Purchase Payment is received by the Company.
VARIABLE ACCUMULATION UNIT VALUE
The Variable Accumulation Unit value for each Sub-Account was
established at $10.00 for the first Valuation Period of the particular
Sub-Account. The Variable Accumulation Unit value for the particular Sub-Account
for any subsequent Valuation Period is determined by methodology which is the
mathematical equivalent of multiplying the Variable Accumulation Unit value for
the particular Sub-Account for the immediately preceding Valuation Period by the
Net Investment Factor for the particular Sub-Account for such subsequent
Valuation Period. The Variable Accumulation Unit value for each Sub-Account for
any Valuation Period is the value determined as of the end of the particular
Valuation Period and may increase, decrease or remain constant from Valuation
Period to Valuation Period in accordance with the Net Investment Factor
described below.
VARIABLE ACCUMULATION VALUE
The variable accumulation value, if any, of a Participant's Account for
any Valuation Period is equal to the sum of the value of all Variable
Accumulation Units of each Sub-Account credited to the Participant's Account for
such Valuation Period. The variable accumulation value of each Sub-Account is
determined by multiplying the number of Variable Accumulation Units, if any,
credited to each Sub-Account by the Variable Accumulation Unit value of the
particular Sub-Account for such Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater than, less than, or equal to one; therefore,
the value of a Variable Accumulation Unit may increase, decrease or remain
unchanged.
The Net Investment Factor for any Sub-Account for any Valuation Period
is determined by dividing (a) by (b) and then subtracting (c) from the result
where:
(a) is the net result of:
1) the net asset value of a Fund share held in the
Sub-Account determined as of the end of the Valuation
Period, plus
2) the per share amount of any dividend or other
distribution declared by the Fund on the shares held in
the Sub-Account if the ex-dividend date occurs during
the Valuation Period, plus or minus
3) a per share credit or charge with respect to any taxes
paid or reserved for by the Company during the
Valuation Period which are determined by the Company to
be attributable to the operation of the Sub-Account;
(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
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(c) is the asset charge factor determined by the Company for the
Valuation Period to reflect the charges for assuming the
mortality and expense risks and administrative expense risks.
The asset charge factor for any Valuation Period is equal to the daily
asset charge factor multiplied by the number of 24 hour periods in the Valuation
Period. The daily asset charge factor will be determined by the Company based
upon the Annual Asset Charge shown on the Certificate Specifications Page.
FIXED ACCOUNT VALUE
GUARANTEE PERIODS
The Participant elects one or more Guarantee Period(s) from among those
made available by the Company. The period(s) elected will determine the
Guaranteed Interest Rate(s). A Purchase Payment or the portion (at least equal
to the minimum Guarantee Period amount set forth on the Certificate
Specifications page) thereof, including any applicable Purchase Payment Interest
(or amount transferred in accordance with the "Transfer Privilege" provision
described below) allocated to a particular Guarantee Period, less any applicable
premium taxes or similar taxes and any amounts subsequently withdrawn, will earn
interest at the Guaranteed Interest Rate in effect during the Guarantee Period.
Initial Guarantee Periods begin on the date a Net Purchase Payment is applied
(or, in the case of a transfer, on the effective date of the transfer) and end
when the number of calendar years in the Guarantee Period elected (measured from
the end of the calendar month in which the amount was allocated to the Guarantee
Period) has elapsed. The last day of a Guarantee Period is the Expiration Date.
Subsequent Guarantee Periods begin on the first day following the Expiration
Date.
Any portion of a Participant's Account Value allocated to a particular
Guarantee Period with a particular Expiration Date (including interest earned
thereon) is referred to as a Guarantee Amount. As a result of additional
Purchase Payments, renewals and transfers of portions of the Participant's
Account Value, Guarantee Amounts allocated to Guarantee Periods of the same
duration may have different Expiration Dates, and each Guarantee Amount will be
treated separately for purposes of determining any market value adjustment.
The Company will notify the Participant in writing at least 45 and no
more than 75 days prior to the Expiration Date for any Guarantee Amount. A new
Guarantee Period of the same duration as the previous Guarantee Period will
commence automatically at the end of the previous Guarantee Period unless the
Company receives, in writing prior to the end of such Guarantee Period, an
election by the Participant of a different Guarantee Period from among those
being offered by the Company at such time, or instructions to transfer all or a
portion of the Guarantee Amount to one or more Sub-Accounts in accordance with
the "Transfer Privilege" provision. Each new Guarantee Amount must be at least
the amount set forth on the Certificate Specifications page unless it is equal
to the entire Guarantee Amount being transferred.
GUARANTEED INTEREST RATES
The Company periodically will establish an applicable Guaranteed
Interest Rate for each Guarantee Period offered by the Company. These rates will
be guaranteed for the duration of the respective Guarantee Periods.
No Guaranteed Interest Rate will be less than the minimum rate per year
set forth on the Certificate Specifications page, compounded annually.
FIXED ACCUMULATION VALUE
Upon receipt of a Purchase Payment by the Company, all or that portion,
if any, of the Net Purchase Payment which is allocated to the Fixed Account will
be credited to the Participant's Account and allocated to the Guarantee
Period(s) selected by the Participant. The fixed accumulation value, if any, of
a Participant's Account for any Valuation Period is equal to the sum of the
values of all Guarantee Amounts credited to the Participant's Account for such
Valuation Period.
TRANSFER PRIVILEGE
<PAGE>
At any time during the Accumulation Period the Participant may transfer
all or part of the Participant's Account Value to one or more Sub-Accounts or
Guarantee Periods, subject to the conditions set forth below. Except as
described below, a transfer will generally be effective on the date the request
for transfer is received by the Company.
Transfers involving Sub-Accounts will reflect the purchase or
cancellation of Variable Accumulation Units having an aggregate value equal to
the dollar amount being transferred to or from a particular Sub-Account. The
purchase or cancellation of such units shall be made using Variable Accumulation
Unit values of the applicable Sub-Account for the Valuation Period during which
the transfer is effective. Transfers to a Guarantee Period will result in a new
Guarantee Period for the amount being transferred. Any such Guarantee Period
will begin on the effective date of the transfer and end on the Expiration Date.
The amount transferred into such Guarantee Period will earn interest at the
Guaranteed Interest Rate declared by the Company for that Guarantee Period as of
the effective date of the transfer.
Transfers will be subject to the following conditions: (1) not more
than 12 transfers may be made in any Account Year; a minimum of 30 calendar days
must elapse between transfers made to or from the Fixed Account or among
Guarantee Periods within the Fixed Account; (2) the amount being transferred
from a Sub-Account may not be less than the amount set forth on the Certificate
Specifications page 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 the amount set forth on the
Certificate Specifications page; and (4) the total Participant's Account Value
attributable to the Guarantee Amount must be transferred, except for an
"interest out" transfer (I.E. the entire amount of interest credited to all
Guarantee Amounts during the current Account Year is transferred to one or more
Sub-Accounts). In addition, transfers of a Guarantee Amount (except interest
credited to such Guarantee Amount during the current Account Year) will be
subject to the market value adjustment described below unless the transfer is
effective within 30 days prior to the Expiration Date applicable to the
Guarantee Amount. Transfers involving Variable Accumulation Units shall be
subject to such terms and conditions as may be imposed by the Funds. Similarly,
the Company reserves the right in its sole discretion to delay the effective
date of any transfer involving the Fixed Account for reasons similar to those
underlying delays of transfers among Sub-Accounts. The Company also reserves the
right in its sole discretion to refuse or delay all transfer requests initiated
on behalf of a Participant by any third party authorized by the Participant to
make such transfer requests. Currently, there is no charge for transfers;
however, the Company reserves the right to impose a charge for each transfer as
shown on the Certificate Specifications page. The Company reserves the right to
limit the amount which may be transferred from the Sub-Accounts to the Fixed
Account.
ACCOUNT FEE
Prior to the Annuity Commencement Date, on each Account Anniversary the
Company will deduct from the value of each Participant's Account an annual
account fee to reimburse the Company for administrative expenses relating to the
Contract and the Participant's Account. In Account Years one through five the
account fee is equal to the lesser of the amount specified on the Certificate
Specifications page 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
the maximum amount specified on the Certificate Specifications page and 2% of
the Participant's Account Value. The account fee will be deducted on a PRO RATA
basis from amounts allocated to each Guarantee Period and each Sub-Account in
which the Participant's Account is invested at the time of such deduction. If a
Participant's Account is surrendered for its full value on other than an Account
Anniversary, the account fee will be deducted in full at the time of such
surrender. The Company will waive the account fee when either (a) the entire
Participant's Account Value has been allocated to the Fixed Account during the
entire previous Account Year, or (b) the Participant's Account Value is greater
than the amount specified on the Certificate Specifications page on the Account
Anniversary. On the Annuity Commencement Date the value of the Participant's
Account will be reduced by a proportionate amount of the account fee to reflect
the time elapsed between the last Account Anniversary and the day before the
Annuity Commencement Date.
After the Annuity Commencement Date, an annual account fee in an amount
specified on the Certificate Specifications page will be deducted in equal
amounts from each Variable Annuity payment made during the year. No such
deduction is made from Fixed Annuity payments.
<PAGE>
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
At any time before the Annuity Commencement Date, the Participant may
elect to receive a cash withdrawal payment from the Company by filing with the
Company at its Annuity Service Mailing Address, a written election in such form
as the Company may require. Any such election shall specify the amount of the
withdrawal and will be effective on the date that it is received by the Company.
Any cash withdrawal payment will be paid within seven days from the date the
election becomes effective, except as the Company may be permitted to defer such
payment in accordance with the Investment Company Act of 1940. The Company
reserves the right to defer the payment of amounts withdrawn from the Fixed
Account for a period not to exceed six months from the date written request for
such withdrawal is received by the Company.
The Participant may request a full surrender or a partial withdrawal. A
full surrender will result in a cash withdrawal payment equal to the value of
the Participant's Account at the end of the Valuation Period during which the
election becomes effective less the account fee, plus or minus any applicable
market value adjustment, and less any applicable withdrawal charge. A partial
withdrawal (I.E., a payment of an amount less than that paid under a full
surrender) will result in the cancellation of a portion of the Participant's
Account Value with an aggregate dollar value equal to the dollar amount of the
cash withdrawal payment, plus or minus any applicable market value adjustment
and plus any applicable withdrawal charge.
In the case of a partial withdrawal, the Participant may instruct the
Company as to the amounts to be withdrawn from each Sub-Account and/or Guarantee
Amount. If not so instructed, the Company will effect the partial withdrawal PRO
RATA from each Sub-Account and Guarantee Amount in which the Participant's
Account Value is invested at the end of the Valuation Period during which the
withdrawal becomes effective. If a partial withdrawal is requested which would
leave a Participant's Account Value less than the account fee, then such partial
withdrawal will be treated as a full surrender.
Cash withdrawals from a Sub-Account will result in the cancellation of
Variable Accumulation Units attributable to the Participant's Account with an
aggregate value on the effective date of the withdrawal equal to the total
amount by which the Sub-Account is reduced. The cancellation of such units will
be based on the Variable Accumulation Unit value(s) of the Sub-Account(s) for
the Valuation Period during which the cash withdrawal is effective.
All cash withdrawals of any Guarantee Amount, except those effective
within 30 days prior to the Expiration Date of such Guarantee Amount or the
withdrawal of interest credited to such Guarantee Amount during the current
Account Year, will be subject to the market value adjustment described below.
WITHDRAWAL CHARGES
If a cash withdrawal is made, a withdrawal charge may be assessed by
the Company. The amount of any withdrawal charge is determined as follows:
[diamond] 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 eight immediately preceding Account Years; and old
Payments are those Payments not defined as new Payments.
[diamond] ORDER OF LIQUIDATION: For purposes of a full surrender or partial
withdrawal, each withdrawal is allocated first to any previously
unliquidated Payments (on a first-in, first-out basis) until all
Purchase Payments have been liquidated. Any remaining balance that
is withdrawn will be considered "earnings" as defined below.
[diamond] FREE WITHDRAWAL AMOUNT: The free withdrawal amount is equal to
the greater of:
- "earnings" in the prior Account Year, defined as the
positive difference in the Participant's Account Value
as measured on the first and last days of the prior
Account Year and adjusted for any Purchase Payments
and/or withdrawals made during the prior Account Year;
and
- 10% of any new Payments, irrespective of whether such
new Payments have been liquidated, plus any previously
unliquidated old Payments.
[diamond] MAXIMUM WITHDRAWAL AMOUNT WITHOUT A WITHDRAWAL CHARGE: The maximum
amount that can be withdrawn without a withdrawal charge in an
Account Year is the free withdrawal amount.
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[diamond] AMOUNT SUBJECT TO WITHDRAWAL CHARGE: For any partial withdrawal or
full surrender, the amount subject to withdrawal charge is the
amount of the Purchase Payment withdrawn less the maximum
withdrawal amount without a withdrawal charge, up to a maximum of
the sum of all unliquidated new Payments.
[diamond] WITHDRAWAL CHARGE PERCENTAGE: The withdrawal charge percentage
varies according to the number of complete Account Years between
the Account Year in which a Purchase Payment was credited to the
Participant's Account and the Account Year in which it is
withdrawn.
[diamond] AMOUNT OF WITHDRAWAL CHARGE: The amount of the withdrawal charge
is determined by multiplying the amount subject to a withdrawal
charge by the withdrawal charge percentage(s) set forth on the
Certificate Specifications page.
No withdrawal charge is imposed upon amounts applied to purchase
an annuity. For any Qualified Certificate, the free withdrawal
amount in any Account Year will be the greater of the free
withdrawal amount described above and any amounts required to be
withdrawn to comply with the minimum distribution requirements of
the Code. This applies only to the portion of the required minimum
distribution attributable to that Qualified Certificate.
NURSING HOME WITHDRAWAL PRIVILEGE
The Company will waive the withdrawal charge arising from a full
surrender if: (1) at least one year has elapsed since the Certificate's Date of
Coverage, and (2) the Participant is confined to an eligible nursing home and
has been confined there for at least the preceding one hundred eighty (180)
days. Proof of the Participant's confinement to an eligible nursing home must be
provided to the Company at its Annuity Service Mailing Address in such form as
the Company may require.
For purposes of this section, an eligible nursing home is a licensed
hospital or licensed skilled or intermediate care nursing facility at which
medical treatment is available on a daily basis and daily medical records are
kept for each patient.
MARKET VALUE ADJUSTMENT
Any cash withdrawal (which for purposes of this section includes
non-dollar cost averaging program transfers and amounts applied to purchase an
annuity) of a Guarantee Amount, other than a withdrawal effective within 30 days
prior to the Expiration Date of the Guarantee Amount, or the withdrawal of
interest credited on such Guarantee Amount during the current Account Year, will
be subject to a market value adjustment.
The market value adjustment will reflect the relationship between the
current rate (as described in the formula below) for the amount being withdrawn
and the Guaranteed Interest Rate applicable to the amount being withdrawn. It
also reflects the time remaining in the applicable Guarantee Period.
The market value adjustment will be determined by multiplying the
amount being withdrawn after the deduction of any applicable account fee and
before deduction of any applicable withdrawal charge by the market value
adjustment factor. The market value adjustment factor is:
[(1 + I)/(1 + J + b)](N/12)-1
where,
I is the Guaranteed Interest Rate being credited to the Guarantee
Amount subject to the market value adjustment,
J is the Guaranteed Interest Rate declared by the Company, as of the
effective date of the application of the market value adjustment, for current
allocations to Guarantee Periods equal to the balance of the Guarantee Period of
the Guarantee Amount subject to the market value adjustment, rounded to the next
higher number of complete years. For any Guarantee Period of less than one year
J is the Guaranteed Interest Rate we declare for a Guarantee Period of
the same length as your Guarantee Period (the current rate);
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b is a factor which the Company will determine for each Certificate and
which is set forth on the Certificate Specifications page and which will not
exceed .25%, and
N is the number of complete months remaining in the Guarantee Period of
the Guarantee Amount subject to the market value adjustment.
In the determination of J, if the Company does not currently offer the
applicable Guarantee Period, then the rate will be determined by linear
interpolation of the current rates for Guarantee Periods that are available.
DEATH BENEFIT
DEATH BENEFIT PROVIDED BY THE CONTRACT
If the Participant dies while the Contract and this Certificate are in
effect and before the Annuity Commencement Date, the Company, upon receipt of
Due Proof of Death of the Participant, may pay a Death Benefit to the
Beneficiary in accordance with this Death Benefit provision. If the Participant
is not a natural person, the Annuitant is considered the Participant for the
purpose of this Death Benefit provision.
If there is no Designated Beneficiary living on the date of death of
the Participant, the Company will pay the Death Benefit upon receipt of Due
Proof of Death of the Participant or the Beneficiary, if applicable, in one sum
to the estate of the deceased Participant. If the death of the Participant
occurs on or after the Annuity Commencement Date, no Death Benefit will be
payable under the Contract except as may be provided under the form of annuity
elected.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the lifetime of the Participant and prior to the Annuity
Commencement Date, the Participant may elect to have the Death Benefit applied
under one or more of the Annuity Options in accordance with the Contract's
settlement provisions to effect a Variable Annuity or a Fixed Annuity or a
combination of both for the Beneficiary as Payee after the death of the
Participant. This election may be made or subsequently revoked by filing with
the Company at its Annuity Service Mailing Address, a written election or
revocation of an election in such form as the Company may require. Any election
or revocation of an election of a method of settlement of the Death Benefit by
the Participant will become effective on the date it is received by the Company.
For the purposes of the "Payment of Death Benefit" section below, any election
of the method of settlement of the Death Benefit by the Participant which is in
effect on the date of death of the Participant will be deemed effective on the
date Due Proof of Death of the Participant is received by the Company.
If no election of a method of settlement of the Death Benefit by the
Participant is in effect on the date of death of the Participant, the
Beneficiary may elect (a) to receive the Death Benefit in the form of a cash
payment, in which event the Participant's Account will be canceled; or (b) to
have the Death Benefit applied under one or more of the Annuity Options in
accordance with the settlement provisions to effect, on the Annuity Commencement
Date determined in the "Payment of Death Benefit" section below, a Variable
Annuity or a Fixed Annuity or a combination of both for the Beneficiary as
Payee. In no event shall any method of settlement be exercised which would
violate the mandatory distribution requirements of Section 72(s) of the Code.
For additional options available if the designated Beneficiary is the surviving
spouse, please refer to the section of this Certificate titled "OWNERSHIP
PROVISIONS - Death of Participant."
The election of a method of settlement may be made by filing with the
Company at its Annuity Service Mailing Address, a written election in such form
as the Company may require. Any written election of a method of settlement of
the Death Benefit by the Beneficiary will become effective on the later of: (a)
the date the election is received by the Company; or (b) the date Due Proof of
Death of the Participant is received by the Company. If a written election by
the Beneficiary is not received by the Company within 60 days following the date
Due Proof of Death of the Participant is received by the Company, the
Beneficiary shall be deemed to have elected a cash payment as of the last day of
such 60 day period.
PAYMENT OF DEATH BENEFIT
If the Death Benefit is to be paid in cash, payment will be made within
seven days of the Death Benefit Date, except as the Company may be permitted to
defer any such payment in accordance with the Investment Company Act of 1940. If
settlement under
<PAGE>
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 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 Death Benefit Date.
If the Participant 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 in which
the Death Benefit Date occurs; and
(2) the amount which would have been payable in the event of a full
surrender of the Participant's Account on the Death Benefit Date;
and
(3) Net Purchase Payments, adjusted for any partial withdrawals, as
of the Death Benefit Date; and
(4) any Optional Death Benefit, if elected on or before the Date of
Coverage, as shown on the Certificate Specifications page.
If the Participant was age 86 or older on the Date of Coverage, the
Death Benefit will be equal to (2) above.
A partial withdrawal will affect the amount payable under (3) and (4)
on a basis proportional to the reduction in Participant's Account Value brought
about by such withdrawal. That is, any partial withdrawal will reduce the death
benefit amount by the ratio of the Participant's Account Value immediately after
the withdrawal to the Participant's Account Value immediately before the
withdrawal.
If (2) or (3) is operative, the Participant's Account Value will be
increased by the excess of (2) or (3) over (1) and the increase will be
allocated to the Sub-Accounts based on the respective values of the Sub-Accounts
on the Death Benefit Date. If the "Maximum Anniversary Value" Optional Death
Benefit (4) is elected and is operative, the Participant's Account Value will be
increased by the excess of (4) over (1) and the increase will be allocated as
described above. 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 either a money market Fund, if available, or the Company's General Account.
SETTLEMENT PROVISIONS
GENERAL
On the Annuity Commencement Date, the adjusted value of the
Participant's Account as determined in accordance with the "Determination of
Amount" provision below will be applied, as specified by the Participant, under
one or more of the Annuity Options provided in the Contract or under such other
settlement options as may be agreed to by the Company. However, if the amount to
be applied under any Annuity Option is less than the Minimum Annuity Purchase
Amount set forth on the Certificate Specifications page, or if the first annuity
payment payable in accordance with such option is less than the Minimum Initial
Annuity Payment Amount set forth on the Certificate Specifications page, the
Company will pay the amount to be applied in a single payment to the Payee.
After the Annuity Commencement Date, no change of Annuity Option is
permitted and no payments may be requested under the Cash Withdrawals provision
of the Contract. Exchanges of Variable Annuity Units are permitted.
ELECTION AND EFFECTIVE DATE OF ELECTION
<PAGE>
During the lifetime of the Participant and prior to the Annuity
Commencement Date, the Participant may elect to have the adjusted value of the
Participant's Account applied on the Annuity Commencement Date under one or more
of the Annuity Options provided in the Contract. If more than one person is
named as Annuitant, due to the designation of a Co-Annuitant, the Participant
may elect to name one of such persons to be the sole Annuitant as of the Annuity
Commencement Date.
The Participant may also change any election but any election or change
of election must be effective at least 30 days prior to the Annuity Commencement
Date. This election or change of election may be made by filing with the Company
at its Annuity Service Mailing Address, a written election or change of election
in such form as the Company may require. Any such election or change of election
will become effective on the date it is received by the Company. If no such
election is in effect on the 30th day prior to the Annuity Commencement Date,
the adjusted value of the Participant's Account will be applied under Annuity
Option B, for a life annuity with 120 monthly payments certain. If there is no
election of a sole Annuitant on the 30th day prior to the Annuity Commencement
date, the person designated as Co-Annuitant will be the Payee under the
applicable Annuity Option. Any such election may specify the proportion of the
adjusted value of the Participant's Account to be applied to provide a Fixed
Annuity and/or a Variable Annuity. In the event the election does not so
specify, then the portion of the adjusted value of the Participant's Account to
be applied to provide a Fixed Annuity and/or a Variable Annuity will be
determined on a PRO RATA basis from the composition of the Participant's Account
on the Annuity Commencement Date.
The Annuity Options in the Contract may also be elected as provided in
the "Death Benefit" section of the Contract.
DETERMINATION OF AMOUNT
The adjusted value of the Participant's Account is applied to provide a
Variable Annuity or a Fixed Annuity or a combination of both. This value shall
be equal to the Participant's Account Value for the Valuation Period which ends
immediately preceding the Annuity Commencement Date, minus a proportionate
amount of the account fee to reflect the time elapsed between the last Account
Anniversary and the day before the Annuity Commencement Date, plus or minus any
applicable market value adjustment and minus any applicable premium or similar
tax.
EFFECT OF ANNUITY COMMENCEMENT DATE ON PARTICIPANT'S ACCOUNT
The Participant's Account will be canceled on the Annuity Commencement
Date.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is set forth on the Certificate
Specifications page. This date may be changed from time to time by the
Participant provided that each change is effective at least 30 days prior to the
then current Annuity Commencement Date and the new Annuity Commencement Date is
a date which is: (1) at least 30 days after the effective date of the change;
(2) the first day of a month; and (3) not earlier than the first Account
Anniversary; and (4) not later than the first day of the first month following
the Annuitant's 95th birthday, unless otherwise restricted, in the case of a
Qualified Certificate, by the particular retirement plan or by applicable law.
If more than one person is named as Annuitant, due to the designation of a
Co-Annuitant, the Annuity Commencement Date will not be later than the first day
of the first month following the 95th birthday of the youngest of those persons
so named. Any change of the Annuity Commencement Date may be made by filing with
the Company at its Annuity Service Mailing Address, a written designation of a
new Annuity Commencement Date in such form as the Company may require. Any such
change will become effective on the date the designation is received by the
Company.
The Annuity Commencement Date may also be changed by an election of a
settlement option as provided in the "Death Benefit" section of the Contract.
FIXED ANNUITY PAYMENTS
<PAGE>
The dollar amount of each Fixed Annuity payment shall be determined in
accordance with the annuity payment rates shown on pages and , which are
based on the minimum guaranteed interest rate of 3% per year or, if more
favorable to the Payee(s), in accordance with the annuity payment rates
published by the Company and in use on the Annuity Commencement Date.
VARIABLE ANNUITY PAYMENTS
The dollar amount of the first Variable Annuity payment shall be
determined in accordance with the annuity payment rates shown on pages and
, which are based on an assumed interest rate of 3% per year.
All Variable Annuity payments other than the first are determined by
means of Annuity Units credited with respect to the particular Payee. The number
of Annuity Units to be credited in respect of a particular Sub-Account is
determined by dividing that portion of the first Variable Annuity payment
attributable to that Sub-Account by the Annuity Unit value of that Sub-Account
for the Valuation Period which ends immediately preceding the Annuity
Commencement Date. The resulting number of Annuity Units of each Sub-Account
credited with respect to the Payee remains fixed unless an exchange of Annuity
Units is made pursuant to the Exchange of Variable Annuity Units section below.
The dollar amount of each Variable Annuity payment after the first may increase,
decrease or remain constant, and is equal to the sum of the amounts determined
by multiplying the number of Annuity Units of a particular Sub-Account credited
with respect to the Payee by the Annuity Unit value for the particular
Sub-Account for the Valuation Period which ends immediately preceding the due
date of each subsequent Variable Annuity payment.
ANNUITY UNIT VALUE
The Annuity Unit Value for each Sub-Account was established at $10.00
for the first Valuation Period of the particular Sub-Account. The Annuity Unit
value for the particular Sub-Account for any subsequent Valuation Period is
determined by multiplying the Annuity Unit value for the particular Sub-Account
for the immediately preceding Valuation Period by the Net Investment Factor for
the particular Sub-Account for the current Valuation Period and then multiplying
that product by a factor to neutralize the assumed interest rate of 3% per year
used to establish the annuity payment rates found in the Contract. The factor
for a one day Valuation Period is set forth on the Certificate Specifications
page.
EXCHANGE OF VARIABLE ANNUITY UNITS
After the Annuity Commencement Date the Payee may, by filing a written
request with the Company at its Annuity Service Mailing Address, exchange the
value of a designated number of Annuity Units of a particular Sub-Account then
credited with respect to such 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 such exchange. The maximum number of
exchanges that may be made in any Account Year is set forth on the Certificate
Specifications page.
Exchanges may be made among the Sub-Accounts only. Exchanges shall be
made using the Annuity Unit values for the Valuation Period during which the
request for exchange is received by the Company.
ACCOUNT FEE
After the Annuity Commencement Date an annual account fee equal to the
amount specified on the Certificate Specifications page will be deducted in
equal amounts from each Variable Annuity payment made during the year. No such
deduction is made from Fixed Annuity payments.
DESCRIPTION OF ANNUITY OPTIONS
[diamond] ANNUITY OPTIONS A, B, C AND D ARE AVAILABLE ON EITHER A FIXED ANNUITY
OR A VARIABLE ANNUITY BAsis.
[diamond] ANNUITY OPTION A. Life Annuity: Monthly payments during the lifetime
of the Payee. These payments will terminate at the death of the
Payee without any provision for continuation of payments to a
Beneficiary.
<PAGE>
[diamond] ANNUITY OPTION B. Life Annuity with 60, 120, 180 or 240 Monthly
Payments Certain: Monthly payments during the lifetime of the Payee
and in any event for sixty (60), one hundred twenty (120), one
hundred eighty (180) or two hundred forty (240) months certain as
elected.
[diamond] ANNUITY OPTION C. Joint and Survivor Annuity: Monthly payments payable
during the joint lifetime of the Payee and a designated second person
and during the lifetime of the survivor. During the lifetime of the
survivor variable monthly payments, if any, will be determined using
the percentage chosen at the time of the election of this option of
the number of each type of Annuity Unit credited with respect to the
Payee, and each fixed monthly payment, if any, will be equal to the
same percentage of the fixed monthly payment payable during the joint
lifetime of the Payee and the designated second person.
[diamond] ANNUITY OPTION D. Monthly Payments for a Specified Period Certain:
Monthly payments for any specified period of time (at least (10)
years but not exceeding thirty (30) years), as elected.
AMOUNTS PAYABLE ON DEATH OF PAYEE
In the event of the death of the Payee on or after the Annuity
Commencement Date, the Company will pay any remaining payments under any Annuity
Option then in effect to the Payee's designated Beneficiary as they become due.
If there is no designated Beneficiary entitled to these remaining payments then
living, the Company will pay the amount specified in the schedule below for any
Annuity Option then in effect, in one sum to the deceased Payee's estate. Any
Beneficiary who becomes entitled to any remaining payments under any Annuity
Option may elect to receive the amount specified in the schedule below for such
option in one sum. In the event of the death of a Beneficiary who has become
entitled to receive any remaining payments under any Annuity Option, the Company
will pay the amount specified for such option in the schedule below in one sum
to the deceased Beneficiary's estate. All payments made in one lump sum by the
Company, as provided in this paragraph, are made in lieu of paying any remaining
payments under the Annuity Option then in effect.
<TABLE>
<CAPTION>
OPTION AMOUNT
<S> <C>
B The discounted value of the remaining payments, if any, for
the certain period.
D The discounted value of the remaining payments, if any, for
the certain period.
</TABLE>
In the case of Options B and D the discounted value will be based, for
payments being made on a variable basis, on interest compounded annually at the
assumed interest rate and on the assumptions that the particular Annuity Unit
values applicable to the remaining payments will be the particular Annuity Unit
values for the Valuation Period which ends on the day before the date of the
determination and that the discounted value will remain unchanged thereafter.
ANNUITY PAYMENT RATES
The annuity payment rate tables below show, for each $1,000 applied,
the dollar amount of both (a) the first monthly Variable Annuity payment based
on the assumed interest rate of 3% and (b) the monthly Fixed Annuity payment,
when the payment is based on the minimum guaranteed interest rate of 3% per
year.
The mortality table used in determining the annuity payment rates for
Annuity Options A, B and C is the 1983 Individual Annuitant Mortality Table A.
In using this mortality table, ages of Annuitants will be reduced by one year
for Annuity Commencement Dates occurring during the 1990s, reduced by two years
for Annuity Commencement Dates occurring during the decade 2000-2009, and so on.
The annuity payment rates in the tables shown below reflect rates of
mortality appropriate for Annuity Commencement Dates occurring during the 1990s.
Thus, for Annuity Commencement Dates occurring in the decade 2000-2009 the term
ADJUSTED AGE as used in the tables below, means actual age less one year.
ADJUSTED AGE shall mean actual age less two years for Annuity Commencement Dates
occurring in the decade 2010-2019, and so on.
<PAGE>
ADJUSTED AGES will be determined based on the actual age(s) of the
Annuitant(s), in completed years and months, as of the Annuity Commencement
Date. The tables below show annuity payment rates for exact ADJUSTED AGES, rates
for ADJUSTED AGES expressed in completed years and months will be based on
straight line interpolation between the appropriate annuity payment rates.
The dollar amount of each annuity payment for any adjusted age or
combination of adjusted ages not shown below or for any other form of Annuity
Option agreed to by the Company will be quoted by the Company upon request.
<PAGE>
AMOUNT OF FIRST MONTHLY ANNUITY PAYMENT PER $1,000
SINGLE LIFE ANNUITY
<TABLE>
<CAPTION>
OPTION A OPTION B
LIFE ANNUITY LIFE ANNUITY WITH PAYMENTS CERTAIN
ADJUSTED 60 PAYMENTS 120 PAYMENTS 180 PAYMENTS 240 PAYMENTS
AGE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE
------------------------------------ --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 3.02 2.92 3.02 2.92 3.01 2.92 3.01 2.91 3.01 2.91
25 3.12 3.00 3.12 3.00 3.12 3.00 3.11 3.00 3.11 2.99
30 3.25 3.10 3.25 3.10 3.24 3.10 3.24 3.10 3.23 3.09
35 3.41 3.23 3.41 3.23 3.40 3.23 3.39 3.22 3.38 3.22
40 3.61 3.39 3.61 3.39 3.60 3.38 3.58 3.38 3.56 3.37
45 3.87 3.59 3.86 3.59 3.85 3.58 3.82 3.57 3.77 3.55
50 4.19 3.84 4.18 3.84 4.15 3.83 4.10 3.81 4.03 3.77
55 4.60 4.18 4.59 4.17 4.54 4.15 4.45 4.11 4.32 4.04
60 5.15 4.61 5.12 4.60 5.03 4.56 4.87 4.48 4.64 4.37
65 5.91 5.21 5.85 5.18 5.66 5.10 5.36 4.95 4.96 4.72
70 6.97 6.04 6.84 5.98 6.44 5.80 5.86 5.49 5.23 5.06
75 8.45 7.26 8.14 7.12 7.32 6.69 6.31 6.04 5.40 5.32
80 10.55 9.07 9.80 8.69 8.17 7.69 6.62 6.48 5.48 5.45
85 13.46 11.79 11.72 10.74 8.86 8.59 6.79 6.74 5.51 5.50
90 17.33 15.74 13.66 12.99 9.30 9.18 6.85 6.84 5.51 5.51
</TABLE>
OPTION C
JOINT AND SURVIVOR ANNUITY
(ASSUMED ELECTION OF JOINT AND TWO-THIRDS SURVIVOR)
<TABLE>
<CAPTION>
ADJUSTED AGE OF FEMALE
- ----------------------------------------------------------------------------------------------------------
ADJUSTED AGE
OF MALE 55 60 65 70 75
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
55 4.17 4.38 4.62 4.87 5.15
- ----------------------------------------------------------------------------------------------------------
60 4.36 4.60 4.89 5.20 5.55
- ----------------------------------------------------------------------------------------------------------
65 4.56 4.85 5.19 5.58 6.02
- ----------------------------------------------------------------------------------------------------------
70 4.77 5.11 5.52 6.01 6.57
- ----------------------------------------------------------------------------------------------------------
75 4.99 5.38 5.86 6.45 7.16
- ----------------------------------------------------------------------------------------------------------
</TABLE>
OPTION D
PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
<TABLE>
<CAPTION>
YEARS AMOUNT YEARS AMOUNT YEARS AMOUNT
<S> <C> <C> <C> <C> <C>
10 9.61 17 6.23 24 4.84
11 8.86 18 5.96 25 4.71
12 8.24 19 5.73 26 4.59
13 7.71 20 5.51 27 4.47
14 7.26 21 5.32 28 4.37
15 6.87 22 5.15 29 4.27
16 6.53 23 4.99 30 4.18
</TABLE>
<PAGE>
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
The Contract shall belong to the Owner. Unless any rights and
privileges have been expressly reserved by the Owner, the Participant shall be
entitled to exercise all rights and privileges in connection with this
Certificate. In any case, such rights and privileges can be exercised without
the consent of the Beneficiary (other than an irrevocable Beneficiary) or any
other person. Such rights and privileges may be exercised only during the
lifetime of the Participant and prior to the Annuity Commencement Date, except
as otherwise provided in the Contract.
The Annuitant becomes the Payee on and after the Annuity Commencement
Date. The Beneficiary becomes the Payee on the death of the Participant prior to
the Annuity Commencement Date, or on the death of the Annuitant after the
Annuity Commencement Date. Such Payees may thereafter exercise such rights and
privileges, if any, of ownership which continue.
DEATH OF PARTICIPANT
If a Participant under a Non-Qualified Contract dies prior to the
Annuity Commencement Date, that Participant's Account must be distributed to the
"designated Beneficiary" (as defined below) either (1) as a lump sum within five
years after the date of death of the Participant, or (2) as an annuity over some
period not greater than the life or expected life of the designated Beneficiary,
with annuity payment beginning within one year after the date of death of the
Participant. For this purpose (and for purposes of Section 72(s) of the Code),
the person named as Beneficiary shall be considered the designated Beneficiary
and if no person then living has been so named, then the Annuitant shall
automatically be the designated Beneficiary. If the designated Beneficiary is
the surviving spouse of the deceased Participant, the spouse can elect to
continue the Certificate in the spouse's own name as Participant, in which case
the mandatory distribution requirements will apply on the spouse's death. As
designated Beneficiary, the surviving spouse may also choose to have the
Participant's Account distributed over some period not greater than his or her
life or expected life, with annuity payments beginning within one year after the
date of death of the Participant.
If the Payee dies on or after the Annuity Commencement Date and before
the entire accumulation under such Participant's Account has been distributed,
the remaining portion of such Participant's Account, if any, must be distributed
as least as rapidly as the method of distribution then in effect.
In any case in which a non-natural person constitutes a holder of the
Certificate for the purposes of Section 72(s) of the Code, (1) the distribution
requirements described above shall apply upon the death of any Annuitant, and
(2) a change in any Annuitant shall be treated as the death of such Annuitant.
In all cases, no Participant or Beneficiary shall be entitled to
exercise any rights that would adversely affect the treatment of the Contract as
an annuity Contract under the Code.
VOTING OF FUND SHARES
The Company will vote Fund shares held by the Sub-Accounts at meetings
of shareholders of the Funds or in connection with similar solicitations, but
will follow voting instructions received from persons having the right to give
voting instructions. The Owner or Participant, as the case may be, is the person
having the right to give voting instructions prior to the Annuity Commencement
Date. On or after the Annuity Commencement Date the Payee is the person having
such voting rights. Any shares attributable to the Company and any Fund shares
for which no timely voting instructions have been received will be voted by the
Company in the same proportion as the shares for which instructions are received
from persons have such voting rights.
Neither the Variable Account nor the Company is under any duty to
provide information concerning the voting instruction rights of persons who may
have such rights under retirement or deferred compensation plans, other than
rights afforded by the Investment Company Act of 1940, nor do they have any duty
to inquire as to the instructions received or the authority of Owners,
Participants, or others to instruct on the voting of Fund shares. Except as the
Variable Account or the Company has actual knowledge to the contrary, the
instructions given by Owners, Participants and Payees will be valid as they
affect the Variable Account, the Company and any others having voting
instruction rights with respect to the Variable Account.
<PAGE>
All Fund proxy material, together with an appropriate form to be used
to give voting instructions, will be provided to each Owner, each Participant
and each Payee having the right to give voting instructions at least ten days
prior to each meeting of the shareholders of the Fund. The number of particular
Fund shares as to which each such person Is entitled to give instructions will
be determined by the Company as of a date not more than 90 days prior to each
such meeting. Prior to the Annuity Commencement Date, the number of Fund shares
as to which voting instructions may be given to the Company is determined by
dividing the value of all 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 particular
Sub-Account with respect to the particular Payee by the net asset value of a
Fund share as of the same date.
PERIODIC REPORTS
During the Accumulation Period the Company will send to the
Participant, or such other person having voting rights, at least once during
each Account Year, a statement showing the number, type and value of
Accumulation Units credited to the Participant's Account and the fixed
accumulation value of such account, which statement shall be accurate as of a
date not more than two months previous to the date of mailing. In addition,
every person having voting rights will receive such reports or prospectuses
concerning the Variable Account and each Fund as may be required by the
Investment Company Act of 1940 and the Securities Act of 1933. The Company will
also send such statements reflecting transactions in the Participant's Account
as may be required by applicable laws, rules and regulations.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in any Application will remain in
effect until changed.
Subject to the rights of an irrevocable Beneficiary, the designation of
Beneficiary may be changed or revoked. Any change or revocation must be filed
with the Company at its Annuity Service Mailing Address in such form as the
Company may require. The change or revocation will not be binding upon the
Company until it is received by the Company. When it is so received the change
or revocation will be effective as of the date on which the Beneficiary
designation or revocation was signed, but the change or revocation will be
without prejudice to the Company on account of any payment made or any action
taken by the Company before the Company receives and acknowledges the change or
revocation.
GENERAL PROVISIONS
AGE AND SEX MISSTATEMENT
If any date of birth or sex, or both, has been misstated in the
Application, if any, or elsewhere, the amounts payable pursuant to the Contract
under this Certificate will be the amounts which would have been provided using
the correct age or sex, or both. Any deficiency in payments already made by the
Company shall be paid promptly and any excess in the payments already made by
the Company shall be charged against the benefits falling due after the
adjustment.
THIS CERTIFICATE
This Certificate is issued in consideration of the Application, if any,
and payment of the initial Purchase Payment. All statements made in any
Application will be deemed representations and not warranties, and no statement
will void the Certificate or be used in defense to a claim unless it is
contained in such Application, if any, or in a similar document, and a copy is
attached to the Certificate at issue. Only the President, a Vice President, the
Actuary or the Secretary of the Company has authority to agree on behalf of the
Company to any alteration of the Contract or any Certificate, or to any waiver
of the rights or requirements of the Company.
CURRENCY
All amounts due under the Contract are payable in U.S. dollars, lawful
money of the United States of America.
<PAGE>
DETERMINATION OF VALUES
The method of determination by the Company of the Net Investment Factor
and the number and value of Accumulation Units and Annuity Units shall be
conclusive upon the Owner, the Participant, any Payee and any Beneficiary.
GOVERNING LAW
The Contract and this Certificate will be governed by the laws of the
jurisdiction where the Contract Application is signed.
GUARANTEES
Subject to the Net Investment Factor provision, the Company guarantees
that the dollar amount of Variable Annuity payments made during the lifetime of
the Payee(s) will not be adversely affected by the actual mortality experience
of the Company or by the actual expenses incurred by the Company in excess of
the expense deductions provided for in the Contract and other Contracts
providing benefits which vary in accordance with the investment performance of
the Sub-Accounts.
INCONTESTABILITY
The Contract and this Certificate are incontestable, subject to the Age
and Sex Misstatement, Proof of Age and Proof of Survival provisions contained
herein.
MODIFICATION
Upon notice to the Owner, the Participant(s) or the Payee(s) during the
annuity period, the Contract and this Certificate may be modified by the
Company, but only if such modification (a) is necessary to make the Contract,
Certificate or the Variable Account comply with any law or regulation issued by
a governmental agency to which the Company or the Variable Account is subject;
or (b) is necessary to assure continued qualification of the Contract and/or
Certificate under the Code or other federal or state laws relating to retirement
annuities or annuity Contracts; or (c) is necessary to reflect a change in the
operation of the Variable Account or the Sub-Accounts; (d) provides additional
Variable Account and/or Fixed Account options; or (e) as may otherwise be in the
best interests of Owners or Participants, as applicable. In the event of any
such modification, the Company may make appropriate endorsement in the Contract
and this Certificate to reflect such modification.
NONPARTICIPATING
The Contract is nonparticipating and will not share in any profits or
surplus earnings of the Company, and therefore, no dividends are payable.
PAYMENTS BY THE COMPANY
All sums payable by the Company pursuant to this Certificate are
payable only at its Executive Office or such other place as may be designated by
the Company. The Company may require surrender of the Certificate upon final
payment of all sums payable by the Company pursuant to the Certificate.
PROOF OF AGE
The Company shall have the right to require evidence of the age of any
Payee under Annuity Options A, B, and C prior to the Annuity Commencement Date.
<PAGE>
PROOF OF SURVIVAL
The Company shall have the right to require evidence of the survival of
any Payee under Annuity Options A, B and C at the time any payment payable to
such Payee is due.
SPLITTING UNITS
The Company reserves the right to split or combine the value of
Variable Accumulation Units, Annuity Unit or any of them. In effecting any such
change of unit values, strict equity will be preserved and no change will have a
material effect on the benefits or other provisions of this Certificate.
RIGHTS RESERVED BY THE COMPANY
The Company reserves the right, to the extent permitted by law, to: (1)
deregister the Variable Account under the Investment Company Act of 1940; (2)
combine any two or more Variable Accounts; (3) operate the Variable Account as a
management investment company or any other form permitted by law; (4) substitute
shares of a Fund for shares of another investment company if shares of such Fund
are not available, or if, in the Company's judgment, further investment in such
Fund's shares is no longer appropriate; (5) add or delete Funds, or series or
sub-series thereof, and corresponding Sub-Accounts; (6) add or remove Guarantee
Periods available at any time for election by a Participant; and (7) restrict or
eliminate any of the voting rights of Participants (or Owners) or other persons
who have voting rights as to the Variable Account.
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
A WHOLLY-OWNED SUBSIDIARY OF SUN LIFE ASSURANCE COMPANY OF CANADA
<TABLE>
<CAPTION>
EXECUTIVE OFFICE: HOME OFFICE: ANNUITY SERVICE MAILING ADDRESS:
<S> <C> <C>
One Sun Life Executive Park Wilmington, DE Sun Life of Canada (U.S.)
Wellesley Hills, MA 02481 Retirement Products and Services
P.O. Box 9133
Boston, MA 02117
</TABLE>
CERTIFICATE FOR FLEXIBLE PAYMENT DEFERRED COMBINATION
VARIABLE AND FIXED GROUP ANNUITY CONTRACT
NONPARTICIPATING
ALL PAYMENTS AND VALUES PROVIDED BY THIS CERTIFICATE WHEN BASED ON THE
INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT
GUARANTEED AS TO DOLLAR AMOUNT.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO A PARTICIPANT, INCLUDING WITHDRAWALS,
TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY. PAYMENTS MADE FROM
GUARANTEE AMOUNTS WHICH ARE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE
PERIOD OR THE WITHDRAWAL OF INTEREST CREDITED TO GUARANTEE AMOUNTS DURING THE
CURRENT ACCOUNT YEAR ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT.
<PAGE>
SUN LIFE 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, DE Sun Life Assurance Company of Canada (U.S.)
Wellesley Hills, MA 02481 Retirement Products and Services
P.O. Box 9133
Boston, MA 02117
</TABLE>
Sun Life Assurance Company of Canada (U.S.) will pay an annuity
commencing on the Annuity Commencement Date to the Annuitant, if then living, by
applying the adjusted value of the Accumulation Account in accordance with the
settlement provisions.
If the Owner dies while the Contract is in effect and this Contract is
in force and before the Annuity Commencement Date, the Company may pay a Death
Benefit to the Beneficiary upon receipt of Due Proof of Death of the Owner.
Under certain circumstances, if the Owner dies prior to the Annuitant
and before the Annuity Commencement Date, a distribution is required by law.
All payments will be made to the persons and in the manner set forth in
the Contract.
Signed by the Company at its Executive Office, Wellesley Hills,
Massachusetts on the Date of Coverage.
<TABLE>
<S> <C>
/s/ C. JAMES PRIEUR /s/ ELLEN B. KING
C. James Prieur Ellen B. King
PRESIDENT SECRETARY
</TABLE>
FLEXIBLE PAYMENT DEFERRED COMBINATION
VARIABLE AND FIXED ANNUITY CONTRACT
NONPARTICIPATING
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO THE OWNER, INCLUDING WITHDRAWALS, TRANSFERS
AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY. PAYMENTS MADE FROM GUARANTEE AMOUNTS
WHICH ARE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE PERIOD OR THE
WITHDRAWAL OF INTEREST CREDITED TO GUARANTEE AMOUNTS DURING THE CURRENT CONTRACT
YEAR ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT.
RIGHT TO RETURN CONTRACT. Please read this Contract. If not satisfied with it,
the Owner may, within 10 days after its receipt, return it by delivering or
mailing it to the Annuity Service Mailing Address indicated above. Immediately
upon receipt of the Contract by the Company, the Contract will be deemed void as
though it had never been applied for, and the Accumulation Account Value at the
end of the Valuation Period during which the Contract is received by the
Company, less any Purchase Payment Interest, will be refunded to the Owner.
IMPORTANT NOTICE: It is not necessary to employ any person to collect any
payment or benefit provided by the Contract. When you require help or advice,
write directly to the Company at its Annuity Service Mailing Address. The
Contract contains many benefits. In your own best interest you should consult
the Company if anyone advises you to surrender this Contract or replace it with
a new contract.
FA-IND-MVA-99-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CONTRACT SPECIFICATIONS PAGE ................................................4
DEFINITIONS .................................................................7
FIXED AND VARIABLE ACCOUNTS .................................................7
Fixed Account ............................................................7
Variable Account and Sub-Accounts ........................................7
Ownership of Assets ......................................................7
Investments of the Sub-Accounts ..........................................7
PURCHASE PAYMENTS ...........................................................7
Payments .................................................................7
Purchase Payment Interest ................................................8
Account Continuation .....................................................8
Allocation of Net Purchase Payments ......................................8
CONTRACT VALUES DURING ACCUMULATION PERIOD ..................................8
Accumulation Account......................................................8
Variable Account Value ...................................................8
Crediting Variable Accumulation Units ....................................8
Variable Accumulation Unit Value .........................................9
Variable Accumulation Value ..............................................9
Net Investment Factor ....................................................9
Fixed Account Value ......................................................9
Guarantee Periods ........................................................9
Guaranteed Interest Rates ...............................................10
Fixed Accumulation Value ................................................10
Transfer Privilege ......................................................10
Account Fee .............................................................11
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT ...........11
Cash Withdrawals ........................................................11
Withdrawal Charges ......................................................12
Nursing Home Withdrawal Privilege .......................................12
Market Value Adjustment .................................................12
DEATH BENEFIT ..............................................................13
Death Benefit Provided by the Contract ..................................13
Election and Effective Date of Election .................................13
Payment of Death Benefit ................................................14
Amount of Death Benefit .................................................14
SETTLEMENT PROVISIONS ......................................................16
General .................................................................16
Election and Effective Date of Election .................................16
Determination of Amount .................................................16
Effect of Annuity Commencement Date on Owner's Account ..................16
Annuity Commencement Date ...............................................16
Fixed Annuity Payments ..................................................17
Variable Annuity Payments ...............................................17
Annuity Unit Value ......................................................17
Exchange of Variable Annuity Units ......................................17
Account Fee .............................................................18
Description of Annuity Options ..........................................18
Amounts Payable on Death of Payee .......................................18
</TABLE>
FA-GR-CERT-99-1 2
<PAGE>
<TABLE>
<S> <C>
Annuity Payment Rates ....................................................18
OWNERSHIP PROVISIONS .......................................................21
Exercise of Contract Rights ..............................................21
Death of Owner ...........................................................21
Voting of Fund Shares ....................................................21
Periodic Reports .........................................................22
Designation and Change of Beneficiary ....................................22
GENERAL PROVISIONS .........................................................22
Age and Sex Misstatement .................................................22
This Contract ............................................................22
Currency .................................................................22
Determination of Values ..................................................23
Governing Law ............................................................23
Guarantees ...............................................................23
Incontestability .........................................................23
Modification .............................................................23
Nonparticipating .........................................................23
Payments by the Company ..................................................23
Proof of Age .............................................................23
Proof of Survival ........................................................24
Splitting Units ..........................................................24
Rights Reserved by the Company ...........................................24
QUALIFIED CONTRACT PROVISIONS ................................................
</TABLE>
FA-GR-CERT-99-1 3
<PAGE>
CONTRACT SPECIFICATIONS
<TABLE>
<S> <C>
CONTRACT NUMBER [79-7900-123456]
OWNER/ANNUITANT [John J. Doe]
[Mary J. Doe]
AGE OF OWNER [35]
AGE OF ANNUITANT [35]
DATE OF COVERAGE [June 21, 1998]
ACCOUNT ANNIVERSARY DATE [June 30, 1999]
INITIAL PURCHASE PAYMENT [$100,000]
Minimum Initial Purchase Payment [$10,000]
Minimum Additional Payment [$1,000]
Maximum Purchase Payment [Any Purchase Payment that would not cause Account Value to exceed
(without prior approval of the Company) $1,000,000]
PURCHASE PAYMENT INTEREST OPTION A:
---------
[During first Contract Year] [2% of any Purchase Payment]
[Each Five Year Anniversary] [2% of Accumulation Account Value]
or OPTION B:
---------
[Principal is equal to or less than $99,999] [3 % of each Purchase Payment. An additional 1 % will be credited
to any Principal that received 3% during the first Account Year if
Principal equals or exceeds $ 100,000 on the first Account
Anniversary.]
[Principal is equal to or more than $ 100,000] [4% of each Purchase Payment]
BENEFICIARY (RELATIONSHIP) [Susan J. Doe (Daughter)]
ANNUITY COMMENCEMENT DATE [July 1, 2050]
ANNUITY OPTION [Deferred]
Minimum Annuity Purchase Amount [$5,000]
Minimum Initial Annuity Payment Amount [$50]
Account Fee After Annuity Commencement Date [$35]
ACCOUNT FEE [$35]
MAXIMUM ACCOUNT FEE [$50]
MINIMUM ACCOUNT VALUE FOR WAIVER OF ACCOUNT FEE [$100,000]
Maximum Account Fee [$50]
Minimum Account Value For Waiver of Account [$100,000]
</TABLE>
<TABLE>
Fee
NUMBER OF COMPLETE WITHDRAWAL
WITHDRAWAL CHARGES CONTRACT YEARS FROM TIME OF PAYMENT CHARGES
- ------------------ ----------------------------------- ----------
<S> <C> <C>
0-1 8%
2-3 7%
4 6%
5 5%
6 4%
7 2%
8 1%
9 or more 0%
</TABLE>
<TABLE>
<S> <C>
[INITIAL GUARANTEE PERIOD(S)] [1 - 10 Years" or "None Elected"]
GUARANTEED INTEREST RATE ["1YR - 4.5%", "3YR - 5.6%" or "N/A"]
Minimum Guarantee Period Amount [$ 1,000]
Minimum Guaranteed Interest Rate [3%]
Market Value Adjustment ("b" Factor) [0%] Maximum 0.25%
</TABLE>
FA-GR-CERT-99-1 4
<PAGE>
<TABLE>
<S> <C>
CURRENT FEE PER TRANSFER [$0]
Maximum Fee Per Transfer [$25]
Maximum Number of Transfers Per Account [12]
Year
Minimum Transfer Amount [$ 1,000]
Minimum Remaining in Sub-Account after [$ 1,000]
Transfer
ANNUAL ASSET CHARGE [1.45%] or [1.65%] or [1.85%]
OPTIONAL DEATH BENEFIT [None]
or
[Maximum Anniversary Account Value] [The greatest of 1, 2 and 3 shown in the "Amount
of Death Benefit" provision and the highest
Accumulation Account Value on any Contract Anniversary
prior to the Owner's 81st birthday, adjusted for any
subsequent Purchase Payments and partial withdrawals
and charges made between such Contract Anniversary and
the Death Benefit Date]
or
[Earnings Enhancement] [The greatest of 1, 2 and 3 shown in the "Amount of
(SHOULD APPEAR ONLY IF OWNER 70 OR YOUNGER ON ISSUE Death Benefit" provision plus 40% of the lesser of Net
DATE) Purchase Payments and the Accumulation Account Value
minus Net Purchase Payments. (Net Purchase Payments
will be adjusted for any partial withdrawals as
described in the "Amount of Death Benefit" provision.).
This amount will be calculated as of the Death Benefit
Date unless the Owner's spouse is the beneficiary and
elects to continue the Contract, in which case this
benefit will be determined on the Death Benefit Date
following the spouse's death.]
or
(SHOULD APPEAR ONLY IF OWNER 71-79 ON ISSUE DATE) [The greatest of 1, 2 and 3 shown in the "Amount of
Death Benefit" provision plus 25% of the lesser of Net
Purchase Payments and the Accumulation Account Value
minus Net Purchase Payments. (Net Purchase Payments
will be adjusted for any partial withdrawals as
described in the "Amount of Death Benefit" provision.)
This amount will be calculated as of the Death Benefit
Date unless the Owner's spouse is the beneficiary and
elects to continue the Contract, in which case this
benefit will be determined on the Death Benefit Date
following the spouse's death.]
</TABLE>
4A
FA-MD-MVA-99-1
<PAGE>
4B
FA-IND-MVA-99-1
<PAGE>
FA-IND-MVA-99-1
<PAGE>
SUB-ACCOUNTS INVESTED IN FUNDS
AVAILABLE FUND OPTIONS:
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
THE ALGER AMERICAN FUND
Alger American Growth Portfolio
Alger American Income and Growth Portfolio
Alger American Small Capitalization Portfolio
GOLDMAN SACHS VARIABLE INSURANCE TRUST
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 SERIES TRUST 11
J.P. Morgan Disciplined Equity Portfolio
J.P. Morgan International Opportunities Portfolio
J.P. Morgan Small Company Portfolio
LORD ABBETT SERIES FUND, INC.
Lord Abbett Growth and Income Portfolio
OCC ACCUMULATION TRUST
OCC Equity Portfolio
OCC Mid Cap Portfolio
OCC Small Cap Portfolio
OCC Managed Portfolio
SUN CAPITAL ADVISERS, INC.
Sun Capital Blue Chip Mid Cap Fund
Sun Capital Investors Foundation Fund
Sun Capital Money Market Fund
Sun Capital Investment Grade Bond Fund
Sun Capital Real Estate Fund
Sun Capital Select Equity Fund
4C
FA-IND-MVA-99-1
<PAGE>
DEFINITIONS
Any reference in this Contract to "RECEIPT" AND "RECEIVED" by the Company means
receipt at the Company's Annuity Service Mailing Address shown on the first page
of this Contract.
CONTRACT YEARS and CONTRACT ANNIVERSARIES: The first Contract Year shall be the
period of 12 months plus a part of a month as measured from the Date of Coverage
through the last day of the calendar month of coverage. All Contract Years and
Contract 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 occurs in March, the first Contract Year
will be determined from the Date of Coverage but will end on the last day of
March in the following year; all other Contract Years and all Contract
Anniversaries will be measured from April 1.
ACCUMULATION ACCOUNT: An account established for this Contract to which Net
Purchase Payments are credited
ACCUMULATION PERIOD: The period before the Annuity Commencement Date and during
the lifetime of the Owner.
ANNUITANT: The person or persons named on the Contract Specifications page and
on whose life the first annuity payment is to be made. If the Annuitant dies
prior to the Annuity Commencement Date, the new Annuitant will be the
Co-Annuitant, if any. If the Co-Annuitant dies or if no Co-Annuitant is named,
the Owner becomes the Annuitant upon the Annuitant's death prior to the Annuity
Commencement Date.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment is to be
made. This date may not be earlier than the first Contract Anniversary.
*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, if any, signed by the Owner that serves as his or her
Application for this Contract.
*BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity
having the right to receive the Death Benefit set forth in this Contract and,
for a Contract issued under a Non-Qualified Contract, who, in the event of the
Owner's death, is the designated Beneficiary for purposes of Section 72(s) of
the Code. After the Annuity Commencement Date, the person or entity having the
right to receive any payments due under the Annuity Option elected, if
applicable, upon the death of the Payee. This Contract must be owned by a
natural person or agent for a natural person for the Contract to receive
favorable income tax treatment as an annuity.
CODE: The Internal Revenue Code of 1986, as amended,
COMPANY: Sun Life Assurance Company of Canada (U.S.).
DATE OF COVERAGE: The date on which this Contract becomes effective.
DEATH BENEFIT DATE: The date on which the Death Benefit election is effective,
which is the date on which the Company receives Due Proof of Death.
DUE PROOF OF DEATH: An original certified copy of an official death certificate,
an original certified copy of a decree of a court of competent jurisdiction as
to the finding of death, or any other proof satisfactory to the Company.
EXPIRATION DATE: The last day of a Guarantee Period.
FIVE YEAR ANNIVERSARY: The fifth Contract Anniversary and each succeeding
Contract Anniversary occurring at any five year interval thereafter; for
example, the 10th, 15th and 20th Contract Anniversaries
FIXED ACCOUNT: Part of the General Account of the Company, consisting of all
assets of the Company other than those allocated to a separate account of the
Company.
FA-IND-MVA-99-1 5
<PAGE>
FIXED ANNUITY: An annuity with payments which do not vary as to dollar amount.
FUND(S): One or more open-end management investment companies or "mutual funds"
registered under the Investment Company Act of 1940.
GUARANTEE AMOUNT: Any portion of an Accumulation Account Value allocated to a
particular Guarantee Period with a particular Expiration Date (including
interest earned thereon).
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during any Guarantee Period.
NET INVESTMENT FACTOR: An index applied by the Company to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater than, less than, or equal to one.
NET PURCHASE PAYMENT: The portion of a Purchase Payment which remains after
the deduction of any applicable front-end sales load or premium tax or
similar tax, if any.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which does not receive favorable federal income tax treatment under Sections
401, 403, 408, or 408A of the Code. The Owner's interest in the Contract
evidenced by this Contract must be owned by a natural person or agent for a
natural person for the Contract to receive favorable income tax treatment as an
annuity.
OWNER: The person, persons or entity entitled to the ownership rights stated in
the Contract and in whose name or names the Contract is issued. The Owner may
designate a trustee or custodian of a retirement plan which meets the
requirements of Section 401, Section 408(c), Section 408(k), or Section 408(p)
of the Code to serve as legal owner of assets of a retirement plan, but the term
Owner, as used herein, refers to the organization entering into the Contract.
PAYEE: A recipient of payments relating to this Contract.
PRINCIPAL: The sum of all Net Purchase Payments less the sum of all withdrawals
PURCHASE PAYMENT (PAYMENT): The amount paid to the Company as consideration for
the benefits provided by this Contract.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan which
may receive favorable federal income tax treatment under Sections 401, 403, 408
or 408A of the Code.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares of
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 that the Exchange is open for trading.
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 an Accumulation Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified Sub-Accounts of the Variable
Account.
- -------------
*As specified in the Contract Specifications page, unless changed.
FA-IND-MVA-99-1 6
<PAGE>
FIXED AND VARIABLE ACCOUNTS
FIXED ACCOUNT
The Fixed Account consists of all assets of the Company other than
those allocated to any separate account of the Company. Any portion of a Net
Purchase Payment allocated by an Owner to a Guarantee Period(s) will become part
of the Fixed Account.
VARIABLE ACCOUNT AND SUB-ACCOUNTS
The Variable Account to which the variable accumulation values and
Variable Annuity payments, if any, under the Contract relate was established by
the Company pursuant to a resolution of its Board of Directors. The Company has
registered the Variable Account as a unit investment trust under the Investment
Company Act of 1940. That portion of the assets of the Variable Account equal to
the reserves and other contract liabilities with respect to the Variable Account
shall not be chargeable with liabilities arising out of any other business the
Company may conduct.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of a designated series or sub-series
of a Fund. The values of the Variable Accumulation Units and the Annuity Units
described in the Contract reflect the investment performance of the
Sub-Accounts.
OWNERSHIP OF ASSETS
The Company shall have exclusive and absolute ownership and control of
its assets, including all assets of the Sub-Accounts. The Company reserves the
right to transfer the assets of a Sub-Account, in excess of the reserves and
other policy liabilities with respect to that Sub-Account, to another
Sub-Account or to the Company's General Account.
INVESTMENTS OF THE SUB-ACCOUNTS
All amounts allocated to a Sub-Account will be used to purchase shares
of a specific series or sub-series of a Fund. The Fund shares available on the
Date of Coverage are shown on the Contract Specifications page; more series
and/or Funds may be subsequently added or deleted. Each Fund is an open-end
investment company ("mutual fund") registered under the Investment Company Act
of 1940. Any and all distributions made by a Fund with respect to shares held by
a Sub-Account will be reinvested to purchase additional shares of that series at
net asset value. Deductions from the Sub-Accounts will, in effect, be made by
reducing the number of Accumulation Units attributable to the Accumulation
Account. Each Sub-Account will be fully invested in Fund shares at all times.
PURCHASE PAYMENTS
PAYMENTS
All Purchase Payments are to be paid to the Company at its Annuity
Service Mailing Address. The amount of Purchase Payments may vary; however, the
Company will not accept an initial Purchase Payment for any Contract which is
less than the minimum amount specified on the Contract Specifications page, and
each additional Purchase Payment must be at least the minimum additional amount
specified on the Contract Specifications page. In addition, the prior approval
of the Company is required before it will accept a Purchase Payment which would
cause the Accumulation Account Value to exceed the maximum Purchase Payment
amount specified on the Contract Specifications page. If the Accumulation
Account Value exceeds such maximum amount, no additional Purchase Payments will
be allocated without the prior approval of the Company.
PURCHASE PAYMENT INTEREST
Purchase Payments will be credited with interest at the rate shown on
the Contract Specifications page. An Owner may choose between two Purchase
Payment Interest options: Option A provides for the crediting of interest at the
rate shown on the Specification Page to each Purchase Payment made during the
first Contract Year. On each Five Year Anniversary, additional interest (called
"Five Year Anniversary Interest") will be credited to the Accumulation Account
Value at the rate shown on the Specifications
FA-IND-MVA-99-1 7
<PAGE>
Page. Option B provides for the crediting of interest at the rate shown on the
Specifications Page to all Purchase Payment accepted by the Company. If no
option is elected on or before the Date of Coverage, Option A will
automatically apply.
Interest under either option will be credited during the same Valuation
Period that the Purchase Payment is received (or on any Five Year Anniversary if
Option A is elected) and allocated to the Sub-Accounts and/or Fixed Account in
the same proportion as the Net Purchase Payment is allocated. If Option A was
elected, any Five Year Anniversary Interest will be proportionally allocated to
the Sub-Accounts and/or the Fixed Account (excluding any Fixed Account if used
to support a dollar cost averaging transfer program) based on their respective
values.
No interest will be credited if the Contract is returned pursuant to
the "Right To Return" provision.
ACCOUNT CONTINUATION
An Accumulation Account shall be continued automatically in full force
during the lifetime of the Owner until the Annuity Commencement Date or until
the Accumulation Account is surrendered.
ALLOCATION OF NET PURCHASE PAYMENTS
The Net Purchase Payment is that portion of a Purchase Payment which
remains after deduction of any applicable front-end sales load and premium tax
or similar tax. Each Net Purchase Payment will, upon receipt by the Company, be
allocated to the Accumulation Account, either to the Sub-Accounts or to the
Fixed Account or to both the Sub-Accounts and the Fixed Account in accordance
with the allocation factors specified in the Application, or as subsequently
changed by the Owner. Purchase Payment Interest will be credited on a
proportional basis to the same Sub-Accounts and/or Fixed Accounts as Net
Purchase Payments.
The allocation factors for new Purchase Payments among the Guarantee
Periods and the Sub-Accounts may be changed by the Owner at any time by giving
notice of the change to the Company, in accordance with the Company's procedures
then in effect. The Owner may effect such change directly, or through an
authorized third party, subject to the Company's approval given in its sole
discretion, and further subject to adherence to such Company procedures as may
be adopted from time to time. Any change will take effect with the first
Purchase Payment received with or after receipt of notice of the change by the
Company and will continue in effect until subsequently changed.
CONTRACT VALUES DURING ACCUMULATION PERIOD
ACCUMULATION ACCOUNT
The Company will establish an Accumulation Account for each Owner and
will maintain the Accumulation Account during the Accumulation Period. The
Accumulation Account Value for any Valuation Period is equal to the variable
accumulation value, if any, plus the fixed accumulation value, if any, of the
Accumulation Account for that Valuation Period.
VARIABLE ACCOUNT VALUE
CREDITING VARIABLE ACCUMULATION UNITS
Upon receipt of a Purchase Payment by the Company, all or that portion,
if any, of the Net Purchase Payment to be allocated to the Sub-Accounts will be
credited to the Accumulation Account in the form of Variable Accumulation Units.
The number of particular Variable Accumulation Units to be credited is
determined by dividing the dollar amount allocated to the particular Sub-Account
by the Variable Accumulation Unit value of the particular Sub-Account for the
Valuation Period during which the Purchase Payment is received by the Company.
VARIABLE ACCUMULATION UNIT VALUE
The Variable Accumulation Unit value for each Sub-Account was
established at $ 10.00 for the first Valuation Period of the particular
Sub-Account. The Variable Accumulation Unit value for the particular Sub-Account
for any subsequent Valuation Period is
FA-IND-MVA-99-1 8
<PAGE>
determined by methodology which is the mathematical equivalent of multiplying
the Variable Accumulation Unit value for the particular Sub-Account for the
immediately preceding Valuation Period by the Net Investment Factor for the
particular Sub-Account for such subsequent Valuation Period. The Variable
Accumulation Unit value for each Sub-Account for any Valuation Period is the
value determined as of the end of the particular Valuation Period and may
increase, decrease or remain constant from Valuation Period to Valuation Period
in accordance with the Net Investment Factor described below.
VARIABLE ACCUMULATION VALUE
The variable accumulation value, if any, of an Accumulation Account for
any Valuation Period is equal to the sum of the value of all Variable
Accumulation Units of each Sub-Account credited to the Accumulation Account for
such Valuation Period. The variable accumulation value of each Sub-Account is
determined by multiplying the number of Variable Accumulation Units, if any,
credited to each Sub-Account by the Variable Accumulation Unit value of the
particular Sub-Account for such Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater than, less than, or equal to one; therefore,
the value of a Variable Accumulation Unit may increase, decrease or remain
unchanged.
The Net Investment Factor for any Sub-Account for any Valuation Period
is determined by dividing (a) by (b) and then subtracting (c) from the result
where:
(a) is the net result of:
1) the net asset value of a Fund share held in the Sub-Account
determined as of the end of the Valuation Period, plus
2) the per share amount of any dividend or other distribution
declared by the Fund on the shares held in the Sub-Account if
the ex-dividend date occurs during the Valuation Period, plus
or minus
3) a per share credit or charge with respect to any taxes paid or
reserved for by the Company during the Valuation Period which
are determined by the Company to be attributable to the
operation of the Sub-Account;
(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 risks.
The asset charge factor for any Valuation Period is equal to the daily
asset charge factor multiplied by the number of 24 hour periods in the Valuation
Period. The daily asset charge factor will be determined by the Company based
upon the Annual Asset Charge shown on the Contract Specifications Page.
FIXED ACCOUNT VALUE
GUARANTEE PERIODS
The Owner elects one or more Guarantee Period(s) from among those made
available by the Company. The period(s) elected will determine the Guaranteed
Interest Rate(s). A Purchase Payment or the portion (at least equal to the
minimum Guarantee Period amount set forth on the Contract Specifications page)
thereof, including any applicable Purchase Payment Interest (or amount
transferred in accordance with the "Transfer Privilege" provision described
below) allocated to a particular Guarantee Period, less any applicable premium
taxes or similar taxes and any amounts subsequently withdrawn, will earn
interest at the Guaranteed Interest Rate
FA-IND-MVA-99-1 9
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in effect during the Guarantee Period. Initial Guarantee Periods begin on the
date a Net Purchase Payment is applied (or, in the case of a transfer, on the
effective date of the transfer) and end when the number of calendar years in the
Guarantee Period elected (measured from the end of the calendar month in which
the amount was allocated to the Guarantee Period) has elapsed. The last day of a
Guarantee Period is the Expiration Date. Subsequent Guarantee Periods begin on
the first day following the Expiration Date.
Any portion of an Accumulation Account Value allocated to a particular
Guarantee Period with a particular Expiration Date (including interest earned
thereon) is referred to as a Guarantee Amount. As a result of additional
Purchase Payments, renewals and transfers of portions of the Accumulation
Account Value, Guarantee Amounts allocated to Guarantee Periods of the same
duration may have different Expiration Dates, and each Guarantee Amount will be
treated separately for purposes of determining any market value adjustment.
The Company will notify the Owner in writing at least 45 and no more
than 75 days prior to the Expiration Date for any Guarantee Amount. A new
Guarantee Period of the same duration as the previous Guarantee Period will
commence automatically at the end of the previous Guarantee Period unless the
Company receives, in writing prior to the end of such Guarantee Period, an
election by the Owner 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
the amount set forth on the Contract Specifications page unless it is equal to
the entire Guarantee Amount being transferred.
GUARANTEED INTEREST RATES
The Company periodically will establish an applicable Guaranteed
Interest Rate for each Guarantee Period offered by the Company. These rates will
be guaranteed for the duration of the respective Guarantee Periods.
No Guaranteed Interest Rate will be less than the minimum rate per year
set forth on the Contract Specifications page, compounded annually.
FIXED ACCUMULATION VALUE
Upon receipt of a Purchase Payment by the Company, all or that portion,
if any, of the Net Purchase Payment which is allocated to the Fixed Account will
be credited to the Accumulation Account and allocated to the Guarantee Period(s)
selected by the Owner. The fixed accumulation value, if any, of an Accumulation
Account for any Valuation Period is equal to the sum of the values of all
Guarantee Amounts credited to the Accumulation Account for such Valuation
Period.
TRANSFER PRIVILEGE
At any time during the Accumulation Period the Owner may transfer all
or part of the Accumulation Account Value to one or more Sub-Accounts or
Guarantee Periods, subject to the conditions set forth below. Except as
described below, a transfer will generally be effective on the date the request
for transfer is received by the Company.
Transfers involving Sub-Accounts will reflect the purchase or
cancellation of Variable Accumulation Units having an aggregate value equal to
the dollar amount being transferred to or from a particular Sub-Account. The
purchase or cancellation of such units shall be made using Variable Accumulation
Unit values of the applicable Sub-Account for the Valuation Period during which
the transfer is effective. Transfers to a Guarantee Period will result in a new
Guarantee Period for the amount being transferred. Any such Guarantee Period
will begin on the effective date of the transfer and end on the Expiration Date.
The amount transferred into such Guarantee Period will earn interest at the
Guaranteed Interest Rate declared by the Company for that Guarantee Period as of
the effective date of the transfer.
Transfers will be subject to the following conditions: (1) not more
than 12 transfers may be made in any Contract Year; a minimum of 30 calendar
days must elapse between transfers made to or from the Fixed Account or among
Guarantee Periods within the Fixed Account; (2) the amount being transferred
from a Sub-Account may not be less than the amount set forth on the Contract
Specifications page unless the total Accumulation Account Value attributable to
a Sub-Account is being transferred; (3) any Accumulation Account Value remaining
in a Sub-Account may not be less than the amount set forth on the Contract
Specifications page; and (4) the total Accumulation Account Value attributable
to the Guarantee Amount must be transferred, except for an "interest out"
transfer (I.E. the entire amount of interest credited to all Guarantee Amounts
during the current Account Year is transferred to one
FA-IND-MVA-99-1 10
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or more Sub-Accounts). In addition, transfers of a Guarantee Amount (except
interest credited to such Guarantee Amount during the current Contract Year)
will be subject to the market value adjustment described below unless the
transfer is effective within 30 days prior to the Expiration Date applicable to
the Guarantee Amount. Transfers involving Variable Accumulation Units shall be
subject to such terms and conditions as may be imposed by the Funds. Similarly,
the Company reserves the right in its sole discretion to delay the effective
date of any transfer involving the Fixed Account for reasons similar to those
underlying delays of transfers among Sub-Accounts. The Company also reserves the
right in its sole discretion to refuse or delay all transfer requests initiated
on behalf of an Owner by any third party authorized by the Owner to make such
transfer requests. Currently, there is no charge for transfers; however, the
Company reserves the right to impose a charge for each transfer as shown on the
Contract Specifications page. The Company reserves the right to limit the amount
which may be transferred from the Sub-Accounts to the Fixed Account.
ACCOUNT FEE
Prior to the Annuity Commencement Date, on each Account Anniversary the
Company will deduct from the value of each Accumulation Account an annual
account fee to reimburse the Company for administrative expenses relating to the
Contract. In Contract Years one through five the account fee is equal to the
lesser of the amount specified on the Contract Specifications page and 2% of the
Accumulation Account Value; thereafter the account fee may be changed annually,
but in no event may it exceed the lesser of the maximum amount specified on the
Contract Specifications page and 2% of the Accumulation Account Value. The
account fee will be deducted on a PRO RATA basis from amounts allocated to each
Guarantee Period and each Sub-Account in which the Participant's Account is
invested at the time of such deduction. If the Accumulation Account is
surrendered for its full value on other than a Contract Anniversary, the account
fee will be deducted in full at the time of such surrender. The Company will
waive the account fee when either (a) the entire Accumulation Account Value has
been allocated to the Fixed Account during the entire previous Contract Year, or
(b) the Accumulation Account Value is greater than the amount specified on the
Contract Specifications page on the Contract Anniversary. On the Annuity
Commencement Date the value of the Accumulation Account will be reduced by a
proportionate amount of the account fee to reflect the time elapsed between the
last Contract Anniversary and the day before the Annuity Commencement Date.
After the Annuity Commencement Date, an annual account fee in an amount
specified on the Contract Specifications page will be deducted in equal amounts
from each Variable Annuity payment made during the year. No such deduction is
made from Fixed Annuity payments.
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
At any time before the Annuity Commencement Date, the Owner may elect
to receive a cash withdrawal payment from the Company by filing with the Company
at its Annuity Service Mailing Address, a written election in such form as the
Company may require. Any such election shall specify the amount of the
withdrawal and will be effective on the date that it is received by the Company.
Any cash withdrawal payment will be paid within seven days from the date the
election becomes effective, except as the Company may be permitted to defer such
payment in accordance with the Investment Company Act of 1940. The Company
reserves the right to defer the payment of amounts withdrawn from the Fixed
Account for a period not to exceed six months from the date written request for
such withdrawal is received by the Company.
The Owner may request a full surrender or a partial withdrawal. A full
surrender will result in a cash withdrawal payment equal to the value of the
Accumulation Account at the end of the Valuation Period during which the
election becomes effective less the account fee, plus or minus any applicable
market value adjustment, and less any applicable withdrawal charge. A partial
withdrawal (i.e., a payment of an amount less than that paid under a full
surrender) will result in the cancellation of a portion of the Accumulation
Account Value with an aggregate dollar value equal to the dollar amount of the
cash withdrawal payment, plus or minus any applicable market value adjustment
and plus any applicable withdrawal charge.
In the case of a partial withdrawal, the Owner 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 the partial withdrawal PRO RATA
from each Sub-Account and Guarantee Amount in which the Accumulation Account
Value is invested at the end of the Valuation Period during which the withdrawal
becomes effective. If a partial withdrawal is requested which would leave an
Accumulation Account Value less than the account fee, then such partial
withdrawal will be treated as a full surrender.
FA-IND-MVA-99-1 11
<PAGE>
Cash withdrawals from a Sub-Account will result in the cancellation of
Variable Accumulation Units attributable to the Accumulation 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 value(s) of the Sub-Account(s) for
the Valuation Period during which the cash withdrawal is effective.
All cash withdrawals of any Guarantee Amount, except those effective
within 30 days prior to the Expiration Date of such Guarantee Amount or the
withdrawal of interest credited to such Guarantee Amount during the current
Contract Year, will be subject to the market value adjustment described below.
WITHDRAWAL CHARGES
If a cash withdrawal is made, a withdrawal charge may be assessed by the
Company. The amount of any withdrawal charge is determined as follows:
- OLD PAYMENTS AND NEW PAYMENTS: With respect to a particular Contract
Year, new Payments are those Payments made in that Contract Year or in
the eight immediately preceding Contract Years; and old Payments are
those Payments not defined as new Payments.
- ORDER OF LIQUIDATION: For purposes of a full surrender or partial
withdrawal, each withdrawal is allocated first to any previously
unliquidated Payments (on a first-in, first-out basis) until all
Purchase Payments have been liquidated. Any remaining balance that is
withdrawn will be considered "earnings" as defined below.
- FREE WITHDRAWAL AMOUNT: The free withdrawal amount is equal to the
greater of
- "earnings" in the prior Contract Year, defined as the positive
difference in the Accumulation Account Value as measured on the
first and last days of the prior Contract Year and adjusted for any
Purchase Payments and/or withdrawals made during the prior Contract
Year; and
- 10% of any new Payments, irrespective of whether such new Payments
have been liquidated, plus any previously unliquidated old Payments.
- MAXIMUM WITHDRAWAL AMOUNT WITHOUT A WITHDRAWAL CHARGE: The maximum
amount that can be withdrawn without a withdrawal charge in a Contract
Year is the free withdrawal amount.
- AMOUNT SUBJECT TO WITHDRAWAL CHARGE: For any partial withdrawal or full
surrender, the amount subject to withdrawal charge is the amount of the
Purchase Payment withdrawn less the maximum withdrawal amount without a
withdrawal charge, up to a maximum of the sum of all unliquidated new
Payments.
- WITHDRAWAL CHARGE PERCENTAGE: The withdrawal charge percentage varies
according to the number of complete Contract Years between the Contract
Year in which a Purchase Payment was credited to the Accumulation
Account and the Contract Year in which it is withdrawn.
- AMOUNT OF WITHDRAWAL CHARGE: The amount of the withdrawal charge is
determined by multiplying the amount subject to a withdrawal charge by
the withdrawal charge percentage(s) set forth on the Contract
Specifications page.
No withdrawal charge is imposed upon amounts applied to purchase an
annuity. For any Qualified Contract, the free withdrawal amount in any
Contract Year will be the greater of the free withdrawal amount
described above and any amounts required to be withdrawn to comply with
the minimum distribution requirements of the Code. This applies only to
the portion of the required minimum distribution attributable to that
Qualified Contract.
NURSING HOME WITHDRAWAL PRIVILEGE
The Company will waive the withdrawal charge arising from a full surrender
if. (1) at least one year has elapsed since the Contract's Date of Coverage,
and (2) the Owner is confined to an eligible nursing home and has been
confined there for at least the preceding one hundred eighty (180) days.
Proof of the Owner's confinement to an eligible nursing home must be provided
to the Company at its Annuity Service Mailing Address in such form as the
Company may require.
FA-IND-MVA-99-1 12
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For purposes of this section, an eligible nursing home is a licensed
hospital or licensed skilled or intermediate care nursing facility at which
medical treatment is available on a daily basis and daily medical records are
kept for each patient.
MARKET VALUE ADJUSTMENT
Any cash withdrawal (which for purposes of this section includes
non-dollar cost averaging program transfers and amounts applied to purchase an
annuity) of a Guarantee Amount, other than a withdrawal effective within 30 days
prior to the Expiration Date of the Guarantee Amount, or the withdrawal of
interest credited on such Guarantee Amount during the current Account Year, will
be subject to a market value adjustment.
The market value adjustment will reflect the relationship between the
current rate (as described in the formula below) for the amount being withdrawn
and the Guaranteed Interest Rate applicable to the amount being withdrawn. It
also reflects the time remaining in the applicable Guarantee Period.
The market value adjustment will be determined by multiplying the
amount being withdrawn after the deduction of any applicable account fee and
before deduction of any applicable withdrawal charge by the market value
adjustment factor. The market value adjustment factor is:
N/12
[(1 + I)/(1 + J + b)] -1
where,
I is the Guaranteed Interest Rate being credited to the Guarantee
Amount subject to the market value adjustment,
J is the Guaranteed Interest Rate declared by the Company, as of the
effective date of the application of the market value adjustment, for current
allocations to Guarantee Periods equal to the balance of the Guarantee Period of
the Guarantee Amount subject to the market value adjustment, rounded to the next
higher number of complete years. For any Guarantee Period of less than one year,
J is the Guaranteed Interest Rate we declare for a Guarantee Period of
the same length as your Guarantee Period (the current rate);
b is a factor which the Company will determine for each Contract and
which is set forth on the Contract Specifications page and which will not exceed
.25%, and
N is the number of complete months remaining in the Guarantee Period of
the Guarantee Amount subject to the market value adjustment.
In the determination of J, if the Company does not currently offer the
applicable Guarantee Period, then the rate will be determined by linear
interpolation of the current rates for Guarantee Periods that are available.
DEATH BENEFIT
DEATH BENEFIT PROVIDED BY THE CONTRACT
If the Owner dies while the Contract is in effect and before the
Annuity Commencement Date, the Company, upon receipt of Due Proof of Death of
the Owner, may pay a Death Benefit to the Beneficiary in accordance with this
Death Benefit provision. If the Owner is not a natural person, the Annuitant is
considered the Owner for the purpose of this Death Benefit provision.
If there is no Designated Beneficiary living on the date of death of
the Owner, the Company will pay the Death Benefit upon receipt of Due Proof of
Death of the Owner or the Beneficiary, if applicable, in one sum to the estate
of the deceased Owner. If the death of the Owner occurs on or after the Annuity
Commencement Date, no Death Benefit will be payable under the Contract except as
may be provided under the form of annuity elected.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the lifetime of the Owner and prior to the Annuity Commencement
Date, the Owner may elect to have the Death Benefit applied under one or more of
the Annuity Options in accordance with the Contract's settlement provisions to
effect a Variable
FA-IND-MVA-99-1 13
<PAGE>
Annuity or a Fixed Annuity or a combination of both for the Beneficiary as Payee
after the death of the Owner. This election may be made or subsequently revoked
by filing with the Company at its Annuity Service Mailing Address, a written
election or revocation of an election in such form as the Company may require.
Any election or revocation of an election of a method of settlement of the Death
Benefit by the Owner will become effective on the date it is received by the
Company. For the purposes of the "Payment of Death Benefit" section below, any
election of the method of settlement of the Death Benefit by the Owner which is
in effect on the date of death of the Owner will be deemed effective on the date
Due Proof of Death of the Owner is received by the Company.
If no election of a method of settlement of the Death Benefit by the
Owner is in effect on the date of death of the Owner, the Beneficiary may elect
(a) to receive the Death Benefit in the form of a cash payment, in which event
the Accumulation Account will be canceled; or (b) to have the Death Benefit
applied under one or more of the Annuity Options in accordance with the
settlement provisions to effect, on the Annuity Commencement Date determined in
the "Payment of Death Benefit" section below, a Variable Annuity or a Fixed
Annuity or a combination of both for the Beneficiary as Payee. In no event shall
any method of settlement be exercised which would violate the mandatory
distribution requirements of Section 72(s) of the Code. For additional options
available if the designated Beneficiary is the surviving spouse, please refer to
the section of this Contract titled "OWNERSHIP PROVISIONS -- Death of Owner."
The election of a method of settlement may be made by filing with the
Company at its Annuity Service Mailing Address, a written election in such form
as the Company may require. Any written election of a method of settlement of
the Death Benefit by the Beneficiary will become effective on the later of: (a)
the date the election is received by the Company; or (b) the date Due Proof of
Death of the Owner is received by the Company. If a written election by the
Beneficiary is not received by the Company within 60 days following the date Due
Proof of Death of the Owner is received by the Company, the Beneficiary shall be
deemed to have elected a cash payment as of the last day of such 60 day period.
PAYMENT OF DEATH BENEFIT
If the Death Benefit is to be paid in cash, payment will be made within
seven days of the Death Benefit Date, except as the Company may be permitted to
defer any such payment in accordance with the Investment Company Act of 1940. 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 of the election and the Accumulation Account will be
maintained in effect until the Annuity Commencement Date.
AMOUNT OF DEATH BENEFIT
The Death Benefit is determined as of the Death Benefit Date.
If the Owner was age 85 or less on the Date of Coverage, the Death
Benefit is equal to the greatest of:
(1) the Accumulation Account Value for the Valuation Period in which
the Death Benefit Date occurs; and
(2) the amount which would have been payable in the event of a full
surrender of the Accumulation Account on the Death Benefit Date;
and
(3) Net Purchase Payments, adjusted for any partial withdrawals, as of
the Death Benefit Date; and
(4) any Optional Death Benefit, if elected on or before the Date of
Coverage, as shown on the Contract Specifications page.
If the Owner was age 86 or older on the Date of Coverage, the Death
Benefit will be equal to (2) above.
A partial withdrawal will affect the amount payable under (3) and (4)
on a basis proportional to the reduction in Accumulation Account Value brought
about by such withdrawal. That is, any partial withdrawal will reduce the death
benefit amount by the ratio of the Accumulation Account Value immediately after
the withdrawal to the Accumulation Account Value immediately before the
withdrawal.
FA-IND-MVA-99-1 14
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If (2) or (3) is operative, the Accumulation Account Value will be
increased by the excess of (2) or (3) over (1) and the increase will be
allocated to the Sub-Accounts based on the respective values of the Sub-Accounts
on the Death Benefit Date. If the "Maximum Anniversary Value" Optional Death
Benefit (4) is elected and is operative, The Accumulation Account Value will be
increased by the excess of (4) over (1) and the increase will be allocated as
described above. If no portion of the Accumulation Account is allocated to the
Sub-Accounts, the entire increase will be allocated to the Sub-Account invested
in either a money market fund, if available, or the Company's General Account.
FP-IND-MVA-99-1 15
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SETTLEMENT PROVISIONS
GENERAL
On the Annuity Commencement Date, the adjusted value of the
Accumulation Account as determined in accordance with the "Determination of
Amount" provision below will be applied, as specified by the Owner, under one or
more of the Annuity Options provided in the Contract or under such other
settlement options as may be agreed to by the Company. However, if the amount to
be applied under any Annuity Option is less than the Minimum Annuity Purchase
Amount set forth on the Contract Specifications page, or if the first annuity
payment payable in accordance with such option is less than the Minimum Initial
Annuity Payment Amount set forth on the Contract Specifications page, the
Company will pay the amount to be applied in a single payment to the Payee.
After the Annuity Commencement Date, no change of Annuity Option is
permitted and no payments may be requested under the "Cash Withdrawals"
provision of the Contract. Exchanges of Variable Annuity Units are permitted.
ELECTION AND EFFECTIVE DATE OF ELECTION
During the lifetime of the Owner and prior to the Annuity Commencement
Date, the Owner may elect to have the adjusted value of the Accumulation Account
applied on the Annuity Commencement Date under one or more of the Annuity
Options provided in the Contract. If more than one person is named as Annuitant,
due to the designation of a Co-Annuitant, the Owner may elect to name one of
such persons to be the sole Annuitant as of the Annuity Commencement Date.
The Owner may also change any election but any election or change of
election must be effective at least 30 days prior to the Annuity Commencement
Date. This election or change of election may be made by filing with the Company
at its Annuity Service Mailing Address, a written election or change of election
in such form as the Company may require. Any such election or change of election
will become effective on the date it is received by the Company. If no such
election is in effect on the 30th day prior to the Annuity Commencement Date,
the adjusted value of the Accumulation Account will be applied under Annuity
Option B, for a life annuity with 120 monthly payments certain. If there is no
election of a sole Annuitant on the 30th day prior to the Annuity Commencement
Date, the person designated as Co-Annuitant will be the Payee under the
applicable Annuity Option. Any such election may specify the proportion of the
adjusted value of the Accumulation Account to be applied to provide a Fixed
Annuity and/or a Variable Annuity. In the event the election does not so
specify, then the portion of the adjusted value of the Accumulation Account to
be applied to provide a Fixed Annuity and/or a Variable Annuity will be
determined on a PRO RATA basis from the composition of the Accumulation Account
on the Annuity Commencement Date.
The Annuity Options in the Contract may also be elected as provided in
the "Death Benefit" section of the Contract.
DETERMINATION OF AMOUNT
The adjusted value of the Accumulation Account is applied to provide a
Variable Annuity or a Fixed Annuity or a combination of both. This value shall
be equal to the Accumulation Account Value for the Valuation Period which ends
immediately preceding the Annuity Commencement Date, minus a proportionate
amount of the account fee to reflect the time elapsed between the last Contract
Anniversary and the day before the Annuity Commencement Date, plus or minus any
applicable market value adjustment and minus any applicable premium tax or
similar tax.
EFFECT OF ANNUITY COMMENCEMENT DATE ON ACCUMULATION ACCOUNT
The Accumulation Account will be canceled on the Annuity Commencement
Date.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is set forth on the Contract
Specifications page. This date may be changed from time to time by the Owner,
provided that each change is effective at least 30 days prior to the then
current Annuity Commencement Date and the new Annuity Commencement Date is a
date which is: (1) at least 30 days after the effective date of the change; (2)
the first day of a month; and (3) not earlier than the first Contract
Anniversary; and (4) not later than the first day of the first month following
the
FP-IND-MVA-99-1 16
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Annuitant's 95th birthday, unless otherwise restricted, in the case of a
Qualified Contract, by the particular retirement plan or by applicable law. If
more than one person is named as Annuitant, due to the designation of a
Co-Annuitant, the Annuity Commencement Date will not be later than the first day
of the first month following the 95th birthday of the youngest of those persons
so named. Any change of the Annuity Commencement Date may be made by filing with
the Company at its Annuity Service Mailing Address, a written designation of a
new Annuity Commencement Date in such form as the Company may require. Any such
change will become effective on the date the designation is received by the
Company.
The Annuity Commencement Date may also be changed by an election of a
settlement option as provided in the "Death Benefit" section of the Contract.
FIXED ANNUITY PAYMENTS
The dollar amount of each Fixed Annuity payment shall be determined in
accordance with the annuity payment rates shown on pages 20 and 21, which are
based on the minimum guaranteed interest rate of 3% per year or, if more
favorable to the Payee(s), in accordance with the annuity payment rates
published by the Company and in use on the Annuity Commencement Date.
VARIABLE ANNUITY PAYMENTS
The dollar amount of the first Variable Annuity payment shall be
determined in accordance with the annuity payment rates shown on pages 20 and
21, which are based on an assumed interest rate of 3% per year.
All Variable Annuity payments other than the first are determined by
means of Annuity Units credited with respect to the particular Payee. The number
of Annuity Units to be credited in respect of a particular Sub-Account is
determined by dividing that portion of the first Variable Annuity payment
attributable to that Sub-Account by the Annuity Unit value of that Sub-Account
for the Valuation Period which ends immediately preceding the Annuity
Commencement Date. The resulting number of Annuity Units of each Sub-Account
credited with respect to the Payee remains fixed unless an exchange of Annuity
Units is made pursuant to the "Exchange of Variable Annuity Units" section
below. The dollar amount of each Variable Annuity payment after the first may
increase, decrease or remain constant, and is equal to the sum of the amounts
determined by multiplying the number of Annuity Units of a particular
Sub-Account credited with respect to the Payee by the Annuity Unit value for
the particular Sub-Account for the Valuation Period which ends immediately
preceding the due date of each subsequent Variable Annuity payment.
ANNUITY UNIT VALUE
The Annuity Unit Value for each Sub-Account was established at $10.00
for the first Valuation Period of the particular Sub-Account. The Annuity Unit
value for the particular Sub-Account for any subsequent Valuation Period is
determined by multiplying the Annuity Unit value for the particular Sub-Account
for the immediately preceding Valuation Period by the Net Investment Factor for
the particular Sub-Account for the current Valuation Period and then multiplying
that product by a factor to neutralize the assumed interest rate of 3% per year
used to establish the annuity payment rates found in the Contract. The factor
for a one day Valuation Period is set forth on the Contract Specifications page.
EXCHANGE OF VARIABLE ANNUITY UNITS
After the Annuity Commencement Date the Payee may, by filing a written
request with the Company at its Annuity Service Mailing Address, exchange the
value of a designated number of Annuity Units of a particular Sub-Account then
credited with respect to such 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 such exchange. The maximum number of
exchanges that may be made in any Account Year is set forth on the Contract
Specifications page.
Exchanges may be made among the Sub-Accounts only. Exchanges shall be
made using the Annuity Unit values for the Valuation Period during which the
request for exchange is received by the Company.
FA-IND-MVA-99-1 17
<PAGE>
ACCOUNT FEE
After the Annuity Commencement Date an annual account fee equal to the
amount specified on the Contract Specifications page will be deducted in equal
amounts from each Variable Annuity payment made during the year. No such
deduction is made from Fixed Annuity payments.
DESCRIPTION OF ANNUITY OPTIONS
- ANNUITY OPTIONS A, B, C AND D ARE AVAILABLE ON EITHER A FIXED ANNUITY
OR A VARIABLE ANNUITY BASIS.
- ANNUITY OPTION A. Life Annuity: Monthly payments during the lifetime
of the Payee. These payments will terminate at the death of the Payee
without any provision for continuation of payments to a Beneficiary.
- ANNUITY OPTION B. Life Annuity with 60, 120, 180 or 240 Monthly
Payments Certain: Monthly payments during the lifetime of the Payee
and in any event for sixty (60), one hundred twenty (120), one
hundred eighty (180) or two hundred forty (240) months certain as
elected.
- ANNUITY OPTION C. Joint and Survivor Annuity: Monthly payments
payable during the joint lifetime of the Payee and a designated
second person and during the lifetime of the survivor. During the
lifetime of the survivor variable monthly payments, if any, will be
determined using the percentage chosen at the time of the election of
this option of the number of each type of Annuity Unit credited with
respect to the Payee, and each fixed monthly payment, if any, will be
equal to the same percentage of the fixed monthly payment payable
during the joint lifetime of the Payee and the designated second
person.
- ANNUITY OPTION D. Monthly Payments for a Specified Period Certain:
Monthly payments for any specified period of time (at least ten (10)
years but not exceeding thirty (30) years), as elected.
AMOUNTS PAYABLE ON DEATH OF PAYEE
In the event of the death of the Payee on or after the Annuity
Commencement Date, the Company will pay any remaining payments under any Annuity
Option then in effect to the Payee's designated Beneficiary as they become due.
If there is no designated Beneficiary entitled to these remaining payments then
living, the Company will pay the amount specified in the schedule below for any
Annuity Option then in effect, in one sum to the deceased Payee's estate. Any
Beneficiary who becomes entitled to any remaining payments under any Annuity
Option may elect to receive the amount specified in the schedule below for such
option in one sum. In the event of the death of a Beneficiary who has become
entitled to receive any remaining payments under any Annuity Option, the Company
will pay the amount specified for such option in the schedule below in one sum
to the deceased Beneficiary's estate. All payments made in one lump sum by the
Company, as provided in this paragraph, are made in lieu of paying any remaining
payments under the Annuity Option then in effect.
<TABLE>
<CAPTION>
OPTION AMOUNT
<S> <C>
B The discounted value of the remaining payments, if any, for the certain period.
D The discounted value of the remaining payments, if any, for the certain period.
</TABLE>
In the case of Options B and D the discounted value will be based, for
payments being made on a variable basis, on interest compounded annually at the
assumed interest rate and on the assumptions that the particular Annuity Unit
values applicable to the remaining payments will be the particular Annuity Unit
values for the Valuation Period which ends on the day before the date of the
determination and that the discounted value will remain unchanged thereafter.
ANNUITY PAYMENT RATES
The annuity payment rate tables below show, for each $1,000 applied,
the dollar amount of both (a) the first monthly Variable Annuity payment based
on the assumed interest rate of 3% and (b) the monthly Fixed Annuity payment,
when the payment is based on the minimum guaranteed interest rate of 3% per
year.
FA-IND-MVA-99-1 18
<PAGE>
The mortality table used in determining the annuity payment rates for
Annuity Options A, B and C is the 1983 Individual Annuitant Mortality Table A.
In using this mortality table, ages of Annuitants will be reduced by one year
for Annuity Commencement Dates occurring during the 1990s, reduced by two years
for Annuity Commencement Dates occurring during the decade 2000-2009, and so on.
The annuity payment rates in the tables shown below reflect rates of
mortality appropriate for Annuity Commencement Dates occurring during the 1990s.
Thus, for Annuity Commencement Dates occurring in the decade 2000-2009 the term
ADJUSTED AGE as used in the tables below, means actual age less one year.
ADJUSTED AGE shall mean actual age less two years for Annuity Commencement Dates
occurring in the decade 2010-2019, and so on.
ADJUSTED AGES will be determined based on the actual age(s) of the
Annuitant(s), in completed years and months, as of the Annuity Commencement
Date. The tables below show annuity payment rates for exact ADJUSTED AGES,
rates for ADJUSTED AGES expressed in completed years and months will be based
on straight line interpolation between the appropriate annuity payment rates.
The dollar amount of each annuity payment for any adjusted age or
combination of adjusted ages not shown below or for any other form of Annuity
Option agreed to by the Company will be quoted by the Company upon request.
FA-IND-MVA-99-1 19
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF FIRST MONTHLY ANNUITY PAYMENT PER $1,000
SINGLE LIFE ANNUITY
OPTION A OPTION B
LIFE ANNUITY LIFE ANNUITY WITH PAYMENTS CERTAIN
ADJUSTED 60 PAYMENTS 120 PAYMENTS 180 PAYMENTS 240 PAYMENTS
AGE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 3.02 2.92 3.02 2.92 3.01 2.92 3.01 2.91 3.01 2.91
25 3.12 3.00 3.12 3.00 3.12 3.00 3.11 3.00 3.11 2.99
30 3.25 3.10 3.25 3.10 3.24 3.10 3.24 3.10 3.23 3.09
35 3.41 3.23 3.41 3.23 3.40 3.23 3.39 3.22 3.38 3.22
40 3.61 3.39 3.61 3.39 3.60 3.38 3.58 3.38 3.56 3.37
45 3.87 3.59 3.86 3.59 3.85 3.58 3.82 3.57 3.77 3.55
50 4.19 3.84 4.18 3.84 4.15 3.83 4.10 3.81 4.03 3.77
55 4.60 4.18 4.59 4.17 4.54 4.15 4.45 4.11 4.32 4.04
60 5.15 4.61 5.12 4.60 5.03 4.56 4.87 4.48 4.64 4.37
65 5.91 5.21 5.85 5.18 5.66 5.10 5.36 4.95 4.96 4.72
70 6.97 6.04 6.84 5.98 6.44 5.80 5.86 5.49 5.23 5.06
75 8.45 7.26 8.14 7.12 7.32 6.69 6.31 6.04 5.40 5.32
80 10.55 9.07 9.80 8.69 8.17 7.69 6.62 6.48 5.48 5.45
85 13.46 11.79 11.72 10.74 8.86 8.59 6.79 6.74 5.51 5.50
90 17.33 15.74 13.66 12.99 9.30 9.18 6.85 6.84 5.51 5.51
</TABLE>
<TABLE>
<CAPTION>
OPTION C
JOINT AND SURVIVOR ANNUITY
(ASSUMED ELECTION OF JOINT AND TWO-THIRDS SURVIVOR)
ADJUSTED AGE
OF MALE ADJUSTED AGE OF FEMALE
55 60 65 70 75
<S> <C> <C> <C> <C> <C>
55 4.17 4.38 4.62 4.87 5.15
60 4.36 4.60 4.89 5.20 5.55
65 4.56 4.85 5.19 5.58 6.02
70 4.77 5.11 5.52 6.01 6.57
75 4.99 5.38 5.86 6.45 7.16
</TABLE>
<TABLE>
<CAPTION>
OPTION D
PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
YEARS AMOUNT YEARS AMOUNT YEARS AMOUNT
<S> <C> <C> <C> <C> <C>
10 9.61 17 6.23 24 4.84
11 8.86 18 5.96 25 4.71
12 8.24 19 5.73 26 4.59
13 7.71 20 5.51 27 4.47
14 7.26 21 5.32 28 4.37
15 6.87 22 5.15 29 4.27
16 6.53 23 4.99 30 4.18
</TABLE>
FA-IND-MVA-99-1 20
<PAGE>
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
The Contract shall belong to the Owner. The Owner shall be entitled to
exercise all rights and privileges in connection with this Contract. In any
case, such rights and privileges can be exercised without the consent of the
Beneficiary (other than an irrevocable Beneficiary) or any other person. Such
rights and privileges may be exercised only during the lifetime of the Owner 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 Owner prior to the
Annuity Commencement Date, or on the death of the Annuitant after the Annuity
Commencement Date. Such Payees may thereafter exercise such rights and
privileges, if any, of ownership which continue.
DEATH OF OWNER
If an Owner under a Non-Qualified Contract dies prior to the Annuity
Commencement Date, that Accumulation Account must be distributed to the
"designated Beneficiary" (as defined below) either (1) as a lump sum within five
years after the date of death of the Owner, or (2) as an annuity over some
period not greater than the life or expected life of the designated Beneficiary,
with annuity payment beginning within one year after the date of death of the
Owner. For this purpose (and for purposes of Section 72(s) of the Code), the
person named as Beneficiary shall be considered the designated Beneficiary and
if no person then living has been so named, then the Annuitant shall
automatically be the designated Beneficiary. If the designated Beneficiary is
the surviving spouse of the deceased Owner, the spouse can elect to continue the
Contract in the spouse's own name as Owner, in which case the mandatory
distribution requirements will apply on the spouse's death. As designated
Beneficiary, the surviving spouse may also choose to have the Accumulation
Account distributed over some period not greater than his or her life or
expected life, with annuity payments beginning within one year after the date of
death of the Owner.
If the Payee dies on or after the Annuity Commencement Date and before
the entire accumulation under such Accumulation Account has been distributed,
the remaining portion of such Accumulation Account, if any, must be distributed
as least as rapidly as the method of distribution then in effect.
In any case in which a non-natural person constitutes a holder of the
Contract for the purposes of Section 72(s) of the Code, (1) the distribution
requirements described above shall apply upon the death of any Annuitant, and
(2) a change in any Annuitant shall be treated as the death of such Annuitant.
In all cases, no Owner or Beneficiary shall be entitled to exercise any
rights that would adversely affect the treatment of the Contract as an annuity
Contract under the Code.
VOTING OF FUND SHARES
The Company will vote Fund shares held by the Sub-Accounts at meetings
of shareholders of the Funds or in connection with similar solicitations, but
will follow voting instructions received from persons having the right to give
voting instructions. The Owner 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 any Fund shares for which no timely voting
instructions have been received will be voted by the Company in the same
proportion as the shares for which instructions are received from persons having
such voting rights.
Neither the Variable Account nor the Company is under any duty to
provide information concerning the voting instruction rights of persons who may
have such rights under retirement or deferred compensation plans, other than
rights afforded by the Investment Company Act of 1940, nor do they have any duty
to inquire as to the instructions received or the authority of Owners or others
to instruct on the voting of Fund shares. Except as the Variable Account or the
Company has actual knowledge to the contrary, the instructions given by Owners
and Payees will be valid as they affect the Variable Account, the Company and
any others having voting instruction rights with respect to the Variable
Account.
All Fund proxy material, together with an appropriate form to be used
to give voting instructions, will be provided to each Owner and each Payee
having the right to give voting instructions at least ten days prior to each
meeting of the shareholders of the
FA-IND-MVA-99-1 21
<PAGE>
Fund. The number of particular Fund shares as to which each such person is
entitled to give instructions will be determined by the Company as of a date not
more than 90 days prior to each such meeting. Prior to the Annuity Commencement
Date, the number of Fund shares as to which voting instructions may be given to
the Company is determined by dividing the value of all the Variable Accumulation
Units of the particular Sub-Account credited to the Accumulation 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 particular Sub-Account with respect to the particular Payee by the net asset
value of a Fund share as of the same date.
PERIODIC REPORTS
During the Accumulation Period the Company will send to the Owner, 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 Accumulation Account and the fixed accumulation value of such account, which
statement shall be accurate as of a date not more than two months previous to
the date of mailing. In addition, every person having voting rights will receive
such reports or prospectuses concerning the Variable Account and each Fund as
may be required by the Investment Company Act of 1940 and the Securities Act of
1933. The Company will also send such statements reflecting transactions in the
Accumulation Account as may be required by applicable laws, rules and
regulations.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in any Application will remain in
effect until changed.
Subject to the rights of an irrevocable Beneficiary, the designation of
Beneficiary may be changed or revoked. Any change or revocation must be filed
with the Company at its Annuity Service Mailing Address, in such form as the
Company may require. The change or revocation will not be binding upon the
Company until it is received by the Company. When it is so received the change
or revocation will be effective as of the date on which the Beneficiary
designation or revocation was signed, but the change or revocation will be
without prejudice to the Company on account of any payment made or any action
taken by the Company before the Company receives and acknowledges the change or
revocation.
GENERAL PROVISIONS
AGE AND SEX MISSTATEMENT
If any date of birth or sex, or both, has been misstated in the
Application, if any, or elsewhere, the amounts payable pursuant to the Contract
will be the amounts which would have been provided using the correct age or sex,
or both. Any deficiency in payments already made by the Company shall be paid
promptly and any excess in the payments already made by the Company shall be
charged against the benefits falling due after the adjustment.
THIS CONTRACT
This Contract is issued in consideration of the Application, if any,
and payment of the initial Purchase Payment. All statements made in any
Application will be deemed representations and not warranties, and no statement
will void the Certificate or be used in defense to a claim unless it is
contained in such Application, if any, or in a similar document, and a copy is
attached to the Contract at issue. Only the President, a Vice President, the
Actuary or the Secretary of the Company has authority to agree on behalf of the
Company to any alteration of the Contract or to any waiver of the rights or
requirements of the Company.
CURRENCY
All amounts due under the Contract are payable in U.S. dollars, lawful
money of the United States of America.
FA-IND-MVA-99-1 22
<PAGE>
DETERMINATION OF VALUES
The method of determination by the Company of the Net Investment Factor
and the number and value of Accumulation Units and Annuity Units shall be
conclusive upon the Owner, any Payee and any Beneficiary.
GOVERNING LAW
The Contract will be governed by the laws of the jurisdiction where the
Contract Application is signed.
GUARANTEES
Subject to the Net Investment Factor provision, the Company guarantees
that the dollar amount of Variable Annuity payments made during the lifetime of
the Payee(s) will not be adversely affected by the actual mortality experience
of the Company or by the actual expenses incur-red by the Company in excess of
the expense deductions provided for in the Contract and other Contracts
providing benefits which vary in accordance with the investment performance of
the Sub-Accounts.
INCONTESTABILITY
The Contract and is incontestable, subject to the Age and Sex
Misstatement, Proof of Age and Proof of Survival provisions contained herein.
MODIFICATION
Upon notice to the Owner, or the Payee(s) during the annuity period,
the Contract may be modified by the Company, but only if such modification (a)
is necessary to make the Contract or the Variable Account comply with any law or
regulation issued by a governmental agency to which the Company or the Variable
Account is subject; or (b) is necessary to assure continued qualification of the
Contract under the Code or other federal or state laws relating to retirement
annuities or annuity Contracts; or (c) is necessary to reflect a change in the
operation of the Variable Account or the Sub-Accounts; (it) provides additional
Variable Account and/or Fixed Account options; or (e) as may otherwise be in the
best interests of Owners . In the event of any such modification, the Company
may make appropriate endorsement in the Contract to reflect such modification.
NONPARTICIPATING
The Contract is nonparticipating and will not share in any profits or
surplus earnings of the Company, and therefore, no dividends are payable.
PAYMENTS BY THE COMPANY
All sums payable by the Company pursuant to this Contract are payable
only at its Executive Office or such other place as may be designated by the
Company. The Company may require surrender of the Contract upon final payment of
all sums payable by the Company pursuant to the Contract.
PROOF OF AGE
The Company shall have the right to require evidence of the age of any
Payee under Annuity Options A, B, and C prior to the Annuity Commencement Date.
FA-IND-MVA-99-1 23
<PAGE>
PROOF OF SURVIVAL
The Company shall have the right to require evidence of the survival of
any Payee under Annuity Options A, B and C at the time any payment payable to
such Payee is due.
SPLITTING UNITS
The Company reserves the right to split or combine the value of
Variable Accumulation Units, Annuity Unit or any of them. In effecting any such
change of unit values, strict equity will be preserved and no change will have a
material effect on the benefits or other provisions of this Contract.
RIGHTS RESERVED BY THE COMPANY
The Company reserves the right, to the extent permitted by law, to: (1)
deregister the Variable Account under the Investment Company Act of 1940; (2)
combine any two or more Variable Accounts; (3) operate the Variable Account as a
management investment company or any other form permitted by law; (4) substitute
shares of a Fund for shares of another investment company if shares of such Fund
are not available, or if, in the Company's judgment, further investment in such
Fund's shares is no longer appropriate; (5) add or delete Funds, or series or
sub-series thereof, and corresponding Sub-Accounts; (6) add or remove Guarantee
Periods available at any time for election by an Owner; and (7) restrict or
eliminate any of the voting rights of Owners or other persons who have voting
rights as to the Variable Account.
FA-IND-MVA-99-1 24
<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, DE Sun Life of Canada (U.S.)
Wellesley Hills, MA 02481 Retirement Products and Services
P.O. Box 9133
Boston, MA 02117
</TABLE>
FLEXIBLE PAYMENT DEFERRED COMBINATION
VARIABLE AND FIXED ANNUITY CONTRACT
NONPARTICIPATING
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO AN OWNER, INCLUDING WITHDRAWALS, TRANSFERS AND
AMOUNTS APPLIED TO PURCHASE AN ANNUITY. PAYMENTS MADE FROM GUARANTEE AMOUNTS
WHICH ARE WITHIN 30 DAYS PRIOR TO THE END OF A GUARANTEE PERIOD OR THE
WITHDRAWAL OF INTEREST CREDITED TO GUARANTEE AMOUNTS DURING THE CURRENT CONTRACT
YEAR ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT.
FA-IND-MVA-99-1 25
<PAGE>
LOGO FUTURITY ACCOLADE VARIABLE ANNUITY
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
Retirement Products & Services
P.O. Box 9133, Boston, MA 02117 1-888-786-2435
A. GROUP/OWNER INFORMATION
Name ____________________________________________________________________
Address _________________________________________________________________
City ____________________ State ______ Zip ______________________________
Tax Identification Number ____/____/______
B. TRUSTEES (If APPLICABLE)
Ownership: Trustee(s) specified will be the Owner(s) of the Contract
_________________________________________________________________________
C. MAILING INSTRUCTIONS
Unless the box below is checked, confirmation statements will be mailed
to the Address in Section A.
[ ] Mail statements directly to the Participant
D. PLAN SELECTION
Qualified Plan Type _____________________________________________________
E. SPECIAL INSTRUCTIONS AND TRANSFER OF ASSETS INFORMATION (IF APPLICABLE)
_________________________________________________________________________
F. REPLACEMENT CONTRACT
Will this Certificate/Contract replace or change any existing life
insurance or annuity in this or any other company?
[ ] Yes [ ] No
If yes, explain in Section E, SPECIAL INSTRUCTIONS, and request
replacement information from your registered representative.
G. ACCEPTANCE
I hereby represent that my answers to the questions on this Application
are correct and true to the best of my knowledge and belief. ALL PAYMENTS
AND VALUES PROVIDED BY THE CERTIFICATE/CONTRACT WHEN BASED ON THE
INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND NOT
GUARANTEED AS TO DOLLAR AMOUNT. PAYMENTS AND VALUES BASED ON THE FIXED
ACCOUNT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA, THE OPERATION
OF WHICH MAY RESULT IN UPWARD OR DOWNWARD ADJUSTMENTS OF THE AMOUNTS
PAYABLE. I have read the applicable fraud warning for my state listed
below. I acknowledge receipt of current product and prospectus
information.
Authorized Signature ______________________________________________
Trustee Signature (if applicable) _________________________________
Signed at ___________________________________ Date ________________
City __________________________ State __________ Zip ______________
H. REGISTERED REPRESENTATIVE
Will this Contract replace or change any existing life insurance Or
annuity in this or any other company? [ ] YES [ ] NO
If yes, explain in Section E, SPECIAL INSTRUCTIONS, and complete
replacement forms where applicable.
Registered Representative Signature _______________________________
Registered Representative Name ____________________________________
Broker/Dealer _____________________________________________________
Branch Office Address _____________________________________________
City __________________________ State __________ Zip ______________
Phone # ___________________________________________________________
Home Office Address _______________________________________________
City __________________________ State __________ Zip ______________
Phone # ___________________________________________________________
FA-G/0-APP-99
<PAGE>
LOGO FUTURITY ACCOLADE VARIABLE ANNUITY
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S..)
Retirement Products & Services
P.O. Box 9133, Boston, MA 02117 1-888-388-8748
A. PURCHASE PAYMENT INTEREST OPTION ELECTION
Indicate the rate at which interest should be credited to your account by
choosing either Option A or Option B, below. If no election is made, the
Purchase Payment Interest crediting method will default to Option A. ONCE
ELECTED THIS OPTION MAY NOT BE CHANGED.
Select One [ ] Option A - 2% / Five Year Anniversary Interest Option
[ ] Option B - 3% / 4% Interest Option
B. PARTICIPANT/OWNER INFORMATION
Name ____________________________________________________________________
Address _________________________________________________________________
City ____________________ State ______ Zip ______________________________
Date of Birth ___/___/_____ Social Security Number ________/______/______
Gender [ ] M [ ] F
<TABLE>
<S> <C> <C>
C. ANNUITANT INFORMATION CO-ANNUITANT INFORMATION (OPTIONAL)
Name ________________________________________ Name ________________________________________
Date of Birth ___/___/_____ Date of Birth ___/___/_____
Social Security Number ________/______/______ Social Security Number ________/______/______
Gender [ ] M [ ] F Gender [ ] M [ ] F
</TABLE>
D. PLAN SELECTION
<TABLE>
<S> <C>
[ ] Non Qualified [ ] CRT (A CRT waiver form must accompany this application)
[ ] IRA Transfer [ ] IRA Rollover [ ] Roth IRA Transfer [ ] Roth IRA Conversion
[ ] Qualified Plan Type ________________________ Owner/Trustee (if applicable) ___________________
</TABLE>
E. BENEFICIARY INFORMATION
<TABLE>
<CAPTION>
Name Relationship to Participant/Owner Social Security Number
<S> <C> <C> <C>
[ ] Primary ___________________________ _________________________________ ________/______/______
[ ] Primary [ ] Contingent ___________________________ _________________________________ ________/______/______
[ ] Primary [ ] Contingent ___________________________ _________________________________ ________/______/______
[ ] Please check here if you are attaching additional beneficiary
information
</TABLE>
Beneficiary designations must be consistent with your applicable
retirement plan. For Non-Qualified Contracts, the Certificate/Owner may
be continued after the death of the Participant/Owner if the
Participant/Owner's spouse is the Beneficiary; otherwise the death
benefit must be distributed. Unless otherwise specified, the death
benefit will be divided equally among all Primary Beneficiaries who
survive the Participant/Owner. If no Primary Beneficiary survives the
Participant/Owner, the death benefit will be divided equally among any
contingent Beneficiaries who survive the Participant/Owner.
F. OPTIONAL DEATH BENEFIT RIDERS (SUBJECT TO STATE AVAILABILITY AND AGE
RESTRICTIONS)
Optional death benefit riders may ONLY be chosen at time of application.
Optional riders are offered as an enhancement to the basic Death Benefit
described in the prospectus. If an optional rider is not elected, the
basic Death Benefit will be paid to the beneficiary upon the death of an
Participant/Owner. Optional Death Benefit riders cannot be chosen if an
Participant/Owner is age 80 or over at the time of application. Once
elected this option may not be changed.
Select One [ ] Maximum Anniversary Value Rider
[ ] Earnings Enhancement Rider
G. SPECIAL INSTRUCTIONS
(Transfer Company Information, Additional Beneficiaries, Annuity
Commencement Date, Annuity Option Election Etc.)
_________________________________________________________________________
_________________________________________________________________________
H. REPLACEMENT CONTRACT
Will this Certificate/Contract replace or change any existing life
insurance or annuity in this or any other company? [ ] Yes [ ] No
If yes, explain in Section G, SPECIAL INSTRUCTIONS, and request
replacement information from your registered representative.
PLEASE COMPLETE REVERSE SIDE
FA-APP-99
<PAGE>
I. PURCHASE PAYMENT ALLOCATION
Please indicate how you would like your purchase payment allocated, using
whole percentages. Your allocation must total 100%. This allocation will
be used for future investments unless otherwise specified. Make check
payable to Sun Life of Canada (U.S.).
Initial Purchase Payment: $______________
Minimum initial payment: $10,000.
Please estimate dollar amounts for 1035 exchanges, transfers, rollovers
etc
SUB ACCOUNTS
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC. ____% MFS/Sun Life High Yield Series (51)
____% AIM V.I. Capital Appreciation Fund (01) ____% MFS/Sun Life Massachusetts Investors Growth
____% AIM V.I. Growth Fund (02) Stock Series (49)
____% AIM V.I. Growth and Income Fund (03) ____% MFS/Sun Life Massachusetts Investors Trust Series (58)
____% AIM V.I. International Equity Fund (04) ____% MFS/Sun Life New Discovery Series (48)
____% MFS/Sun Life Total Return Series (56)
THE ALGER AMERICAN FUND ____% MFS/Sun Life Utilities Series (53)
____% Alger American Growth Portfolio (10)
____% Alger American Income and Growth Portfolio (11) OCC ACCUMULATION TRUST
____% Alger American Small Capitalization Portfolio (12) ____% OCC Accumulation Trust Equity Portfolio (60)
____% OCC Accumulation Trust Managed Portfolio (63)
GOLDMAN SACHS VARIABLE INSURANCE TRUST ____% OCC Accumulation Trust Mid Cap Portfolio (61)
____% Goldman Sachs V.I.T. CORE Large Cap Growth Fund (20) ____% OCC Accumulation Trust Small Cap Portfolio (62)
____% Goldman Sachs V.I.T. CORE Small Cap Equity Fund (21)
____% Goldman Sachs V.I.T. CORE U.S. Equity Fund (22) SUN CAPITAL ADVISERS, INC.
____% Goldman Sachs V.I.T. Growth and Income Fund (23) ____% Sun Capital Money Market Fund (85)
____% Goldman Sachs V.I.T. International Equity Fund (24) ____% Sun Capital Investment Grade Bond Fund (86)
____% Sun Capital Real Estate Fund (87)
J.P. MORGAN SERIES TRUST II
____% J.P. Morgan U.S. Disciplined Equity Portfolio (30) SUN CAPITAL ADVISERS, INC. (WELLINGTON MANAGEMENT
____% J.P. Morgan International Opportunities Portfolio (31) SUB-ADVISED FUNDS)
____% J.P. Morgan Small Company Portfolio (32) ____% Sun Capital Blue Chip Mid Cap Fund (88)
____% Sun Capital Investors Foundation Fund (89)
LORD ABBETT SERIES FUND, INC. ____% Sun Capital Select Fund (84)
____% Lord Abbeft Growth and Income Portfolio (40)
SUN LIFE OF CANADA (U.S.) FIXED ACCOUNT GUARANTEE OPTIONS
MFS/SUN LIFE SERIES TRUST ____% One-Year Fixed (80)
____% MFS/Sun Life Capital Appreciation Series (52) ____% DCA Guarantee Option
____% MFS/Sun Life Emerging Growth Series (54)
____% MFS/Sun Life Government Securities Series (57) APPLY 60-DAY RATE HOLD [ ] YES [ ]NO
ESTIMATED DOLLAR AMOUNT $____________________
Note: A Rate Hold is irrevocable and is only available
for 1035 exchanges and direct trustee-to-trustee transfers.
</TABLE>
J. ACCEPTANCE
I hereby represent that my answers to the questions on this Application
are correct and true to the best of my knowledge and belief ALL PAYMENTS
AND VALUES PROVIDED BY THE CERTIFICATE/CONTRACT WHEN BASED ON THE
INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND NOT
GUARANTEED AS TO DOLLAR AMOUNT. PAYMENTS AND VALUES BASED ON THE FIXED
ACCOUNT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA, THE OPERATION
OF WHICH MAY RESULT IN UPWARD OR DOWNWARD ADJUSTMENTS OF THE AMOUNTS
PAYABLE. I have read the applicable fraud warning for my state listed
below. I acknowledge receipt of current product and prospectus
information.
Participant/Owner Signature(s)_________________________________________
Date _________________ Signed at: (City & State)_______________________
K. FOR REGISTERED REPRESENTATIVE ONLY
Will this Certificate/Contract replace Or change any existing life
insurance or annuity in this or any other company? [ ] Yes [ ] No
If yes, explain in section F, SPECIAL INSTRUCTIONS, and complete
replacement forms if applicable.
Registered Representative Signature (print)__________________________
Registered Representatives Name _____________________________________
Broker/Dealer _______________________________________________________
Branch Office Address _______________________________________________
Phone # _____________________________________________________________
City ____________________________ State __________ Zip ______________
[ ] Option A [ ] Option B [ ] Option C
Broker Dealer Account # _____________________________________________
FRAUD WARNING
For applicants in ARKANSAS, KENTUCKY, MAINE NEW MEXICO OHIO AND
PENNSYLVANIA:
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE
COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE OR
STATEMENT OF CLAIM CONTAINING ANY MATERIALLY FALSE INFORMATION OR
CONCEALS FOR THE PURPOSE OF MISLEADING, INFORMATION CONCERNING ANY
FACT MATERIAL THERETO, COMMITS A FRAUDULENT INSURANCE ACT, WHICH IS A
CRIME AND SUBJECTS SUCH A PERSON TO CRIMINAL AND CIVIL PENALTIES
For applicants in NEW JERSEY:
ANY PERSON WHO INCLUDES ANY FALSE OR MISLEADING INFORMATION ON AN
APPLICATION FOR AN INSURANCE POLICY IS SUBJECT TO CRIMINAL AND CIVIL
PENALTIES.
For applicants in COLORADO:
IT IS UNLAWFUL TO KNOWINGLY PROVIDE FALSE, INCOMPLETE OR MISLEADING FACTS
OR INFORMATION TO AN INSURANCE COMPANY FOR THE PURPOSE OF DEFRAUDING OR
ATTEMPTING TO DEFRAUD THE COMPANY. PENALTIES MAY INCLUDE IMPRISONMENT,
FINES, DENIAL OF INSURANCE AND CIVIL DAMAGES. ANY INSURANCE COMPANY OR
AGENT OF AN INSURANCE COMPANY WHO KNOWINGLY PROVIDES FALSE, INCOMPLETE OR
MISLEADING FACTS OR INFORMATION TO A POLICYHOLDER OR CLAIMANT WITH REGARD
TO A SETTLEMENT OR AWARD PAYABLE FROM INSURANCE PROCEEDS SHALL BE
REPORTED TO THE COLORADO DIVISION OF INSURANCE WITHIN THE DEPARTMENT OF
REGULATORY AGENCIES.
For Applicants in FLORIDA:
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO INJURE, DEFRAUD, OR DECEIVE
ANY INSURER FILES A STATEMENT OF CLAIM OR AN APPLICATION CONTAINING ANY
FALSE, INCOMPLETE OR MISLEADING INFORMATION IS GUILTY OF A FELONY OF THE
THIRD DEGREE.
AGENT'S FLORIDA LICENSE ID NUMBER _________________________________
FA-APP-99
<PAGE>
EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to the
Registration Statement of Sun Life of Canada (U.S.) Variable Account F on
Form N-4 of our report date February 4, 1999 accompanying the financial
statements of Sun Life of Canada (U.S.) Variable Account F appearing in the
Statement of Additional Information, which is part of such Registration
Statement, to the use of our report dated February 5, 1999 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 reports dated February 5, 1999
appearing in the Annual Report on Form 10-K of Sun Life Assurance Company of
Canada (U.S.) for the year ended December 31, 1998.
We also consent to the references to us under the heading "Accountants" in
such Prospectus and under the heading "Financial Statements" in such
Statement of Additional Information.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 29, 1999
