<PAGE>
As Filed with the Securities and Exchange Commission on April 23, 1999
REGISTRATION NO. 33-41628
811-05846
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM N-4
POST-EFFECTIVE AMENDMENT NO. 13 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
AND
AMENDMENT NO. 20 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:
RUTH EPSTEIN, ESQ.
COVINGTON & BURLING
1201 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20044-7566
- --------------------------------------------------------------------------------
/X/ IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON APRIL 26, 1999
PURSUANT TO PARAGRAPH (b) OF RULE 485.
/X/ THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Attached hereto and made a part hereof is the Prospectus dated May 1, 1999
for each of the following:
MFS Regatta Platinum
MFS Regatta Gold
Futurity II
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
MAY 1, 1999
PROFILE
MFS REGATTA PLATINUM
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 MFS REGATTA PLATINUM ANNUITY
The MFS Regatta Platinum 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 25 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 series of the MFS/Sun Life Series Trust (collectively, the
"Series") 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 Series 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.
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 5, 10, 15 or 20 years if
you die before the end of the period you have selected; (3) monthly payments for
your lifetime and the life of another person (usually your spouse) you have
chosen; and (4) monthly payments for a specified number of years (between 5 and
30), 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.
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
<PAGE>
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
Series of the MFS/ Sun Life Series Trust:
<TABLE>
<S> <C>
Bond Series Managed Sectors Series
Capital Appreciation Series Massachusetts Investors Growth Stock Series
Capital Opportunities Series Massachusetts Investors Trust Series
Emerging Growth Series MFS/Foreign & Colonial Emerging Markets Equity Series
Equity Income Series Money Market Series
Global Asset Allocation Series New Discovery Series
Global Governments Series Research Series
Global Growth Series Research Growth and Income Series
Global Total Return Series Research International Series
Government Securities Series Strategic Income Series
High Yield Series Total Return Series
International Growth Series Utilities Series
International Growth and Income
Series
</TABLE>
Market conditions will determine the value of an investment in any Series.
Each series is described in the Prospectus of the MFS/Sun Life Series Trust.
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 1.40% per year of the average daily
value of the Contract allocated among the Sub-Accounts.
There are no sales charges when you purchase your MFS Regatta Platinum
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 withdraw it.
<TABLE>
<CAPTION>
NUMBER OF
YEARS IN ACCOUNT WITHDRAWAL CHARGE
- ----------------- -----------------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 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
2
<PAGE>
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
Series, which range from 0.56% to 1.55% of the average net assets of the Series,
depending upon which Series you have selected. The investment adviser has agreed
to waive or reimburse a portion of expenses for some of the Series; without this
agreement, Series expenses could be higher. Some of these arrangements may be
terminated after one year, or earlier if the Series Fund's Board of Trustees
agrees.
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 for each Series. 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.
"Total Annual Insurance Charges" include the insurance charges of 1.40%,
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 EXPENSES
TOTAL ANNUAL TOTAL ANNUAL TOTAL AT END
INSURANCE SERIES ANNUAL 1
SUB-ACCOUNT CHARGES EXPENSES EXPENSES YEAR 10 YEARS
- ---------------------------------------- --------------- --------------- --------- ---- --------
<S> <C> <C> <C> <C> <C>
Bond Series 1.50% 1.03% 2.53% $81 $287
(1.40% + 0.10%)
Capital Appreciation Series 1.50% 0.77% 2.27% $79 $261
(1.40% + 0.10%)
Capital Opportunities Series 1.50% 0.86% 2.36% $79 $270
(1.40% + 0.10%)
Emerging Growth Series 1.50% 0.78% 2.28% $79 $262
(1.40% + 0.10%)
Equity Income Series 1.50% 1.03% 2.53% $81 $287
(1.40% + 0.10%)
Global Asset Allocation Series 1.50% 0.90% 2.40% $80 $274
(1.40% + 0.10%)
Global Governments Series 1.50% 0.88% 2.38% $80 $272
(1.40% + 0.10%)
Global Growth Series 1.50% 1.01% 2.51% $81 $285
(1.40% + 0.10%)
Global Total Return Series 1.50% 0.93% 2.43% $80 $277
(1.40% + 0.10%)
Government Securities Series 1.50% 0.62% 2.12% $77 $245
(1.40% + 0.10%)
High Yield Series 1.50% 0.82% 2.32% $79 $266
(1.40% + 0.10%)
International Growth Series 1.50% 1.32% 2.82% $84 $315
(1.40% + 0.10%)
International Growth and Income Series 1.50% 1.16% 2.66% $82 $299
(1.40% + 0.10%)
Managed Sectors Series 1.50% 0.80% 2.30% $79 $264
(1.40% + 0.10%)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL EXPENSES
TOTAL ANNUAL TOTAL ANNUAL TOTAL AT END
INSURANCE SERIES ANNUAL 1
SUB-ACCOUNT CHARGES EXPENSES EXPENSES YEAR 10 YEARS
- ---------------------------------------- --------------- --------------- --------- ---- --------
<S> <C> <C> <C> <C> <C>
Massachusetts Investors Growth Stock 1.50% 0.97% 2.47% $81 $281
Series (1.40% + 0.10%)
Massachusetts Investors Trust Series 1.50% 0.59% 2.09% $77 $242
(1.40% + 0.10%)
MFS/Foreign & Colonial Emerging Markets 1.50% 1.50% 3.00% $86 $332
Equity Series (1.40% + 0.10%)
Money Market Series 1.50% 0.56% 2.06% $77 $239
(1.40% + 0.10%)
New Discovery Series 1.50% 1.28% 2.78% $83 $311
(1.40% + 0.10%)
Research Series 1.50% 0.76% 2.26% $79 $260
(1.40% + 0.10%)
Research Growth and Income Series 1.50% 0.95% 2.45% $80 $279
(1.40% + 0.10%)
Research International Series 1.50% 1.55% 2.05% $86 $336
(1.40% + 0.10%)
Strategic Income Series 1.50% 1.29% 2.79% $84 $312
(1.40% + 0.10%)
Total Return Series 1.50% 0.70% 2.20% $78 $253
(1.40% + 0.10%)
Utilities Series 1.50% 0.86% 2.36% $79 $270
(1.40% + 0.10%)
</TABLE>
For more detailed information about Contract fees and expenses, please
refer to the fee table and discussion of Contract charges contained in the full
Prospectus which accompanies this Profile.
6. TAXES
Your earnings are not taxed until you take them out of your Contract. If
you take money out, earnings come out first and are taxed as income. If 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 -- 10% of all payments
you have made in the last 7 years, plus any payment we have held for at least 7
years. All other purchase payments you withdraw will be subject to a withdrawal
charge ranging from 6% 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
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 one or more Sub-Accounts, the value of your Contract will
increase or decrease depending upon the investment performance of the Series you
choose.
4
<PAGE>
The following chart shows total returns for investment in the Sub-Accounts
where the corresponding Series has at least one full calendar year of
operations. The returns reflect all charges and deductions of the Series and
Sub-Accounts and deduction of the Annual Account Fee. They do not reflect
deduction of any withdrawal charges or premium taxes. These charges, if
included, would reduce the performance numbers shown. Past performance is not a
guarantee of future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
---------------------------------------------------------------------------------
SUB-ACCOUNT 1998 1997 1996 1995 1994 1993 1992
---------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bond Series -- -- -- -- -- -- --
Capital Appreciation Series 26.86% 21.33% 19.70% 32.51% (5.03)% 16.28% 11.53%
Capital Opportunities Series 25.13% 25.73% -- -- -- -- --
Emerging Growth Series 31.94% 20.16% 15.38% -- -- -- --
Equity Income Series -- -- -- -- -- -- --
Global Asset Allocation Series 5.00% 9.24% 14.28% 19.85% -- -- --
Global Governments Series 13.80% (2.24)% 3.11% 14.00% (5.91)% 17.16% (1.01)%
Global Growth Series 12.89% 13.63% 11.42% 14.29% 1.40% -- --
Global Total Return Series 16.64% 11.98% 12.58% 16.19% -- -- --
Government Securities Series 7.16% 7.15% 0.11% 15.92% (3.61)% 7.07% 5.14%
High Yield Series (0.86)% 11.55% 10.46% 15.32% (3.68)% 16.01% 13.34%
International Growth Series 0.43% (3.09)% -- -- -- -- --
International Growth and Income Series 19.86% 4.95% 3.33% -- -- -- --
Managed Sectors Series 10.70% 23.80% 15.86% 30.34% (3.38)% 2.52% 4.91%
Massachusetts Investors Growth Stock
Series -- -- -- -- -- -- --
Massachusetts Investors Trust Series 22.05% 30.04% 23.57% 35.44% (2.57)% 6.82% 4.05%
MFS/Foreign & Colonial Emerging Markets
Equity Series (31.00)% 8.75% -- -- -- -- --
Money Market Series 3.50% 3.52% 3.37% 3.90% 2.17% 1.11% 1.81%
New Discovery Series -- -- -- -- -- -- --
Research Series 21.85% 19.06% 22.00% 35.44% -- -- --
Research Growth and Income Series 20.41% -- -- -- -- -- --
Research International Series -- -- -- -- -- -- --
Strategic Income Series -- -- -- -- -- -- --
Total Return Series 10.13% 20.18% 12.38% 24.93% (3.71)% 11.72% 6.77%
Utilities Series 15.89% 30.80% 18.57% 30.48% (6.36)% -- --
<CAPTION>
SUB-ACCOUNT 1991 1990 1989
---------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Bond Series -- -- --
Capital Appreciation Series 38.89% (11.02)% 45.06%
Capital Opportunities Series -- -- --
Emerging Growth Series -- -- --
Equity Income Series -- -- --
Global Asset Allocation Series -- -- --
Global Governments Series 13.10% 11.67% 8.31%
Global Growth Series -- -- --
Global Total Return Series -- -- --
Government Securities Series 14.17% 7.26% 11.19%
High Yield Series 45.49% (15.65)% 2.41%
International Growth Series -- -- --
International Growth and Income Series -- -- --
Managed Sectors Series 59.67% (11.80)% 43.27%
Massachusetts Investors Growth Stock
Series -- -- --
Massachusetts Investors Trust Series 34.87% (4.86)% 33.89%
MFS/Foreign & Colonial Emerging Markets
Equity Series -- -- --
Money Market Series 4.23% 6.26% 7.31%
New Discovery Series -- -- --
Research Series -- -- --
Research Growth and Income Series -- -- --
Research International Series -- -- --
Strategic Income Series -- -- --
Total Return Series 19.87% 1.15% 15.80%
Utilities Series -- -- --
</TABLE>
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.
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;
(3) the value of the Contract on the most recent 7 year anniversary of the
Contract, plus any purchase payments made and adjusted for any partial
withdrawals and charges made after that anniversary;
(4) your highest Contract Value on any Account Anniversary before your
81st birthday, adjusted for subsequent purchase payments and partial
withdrawals and charges made between that Account Anniversary and the
Death Benefit Date; and
(5) your total Purchase Payments, plus interest on Purchase Payments
allocated to and transfers to the Variable Account -- while they
remain in the Variable Account -- at 5% per year until the first day
of the month following your 80th birthday, or until the Purchase
Payment
5
<PAGE>
or amount transferred has doubled in amount, whichever is earlier;
this amount is adjusted for partial withdrawals.
If you were 86 or older when we issued your Contract, the death benefit is
equal to the amount set forth in (2) above, in this Section 9.
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 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 of
each transaction within your Contract. On a quarterly basis, you will receive a
complete statement of your transactions over the past quarter and a summary of
your account values during that period.
ADDITIONAL FEATURES. The MFS Regatta Platinum 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.
Asset Allocation -- One or more asset allocation programs may be available
in connection with the Contract.
Systematic Withdrawal and Interest Out Program -- These programs allow 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.
Secured Future Program -- This program guarantees the return of your
Purchase Payment, and also allows you to allocate a portion of your investment
to one or more variable investment options.
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 1024
BOSTON, MASSACHUSETTS 02103
TEL: TOLL FREE (800) 752-7215
IN MASSACHUSETTS (617) 348-9600
6
<PAGE>
PROSPECTUS
MAY 1, 1999
MFS REGATTA PLATINUM
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 25 variable investment options and a range of fixed
options. The variable options are Sub-Accounts in the Variable Account. Each
Sub-Account invests in one of the following series of the MFS/Sun Life Series
Trust (the "Series Fund"), a mutual fund advised by our affiliate, Massachusetts
Financial Services Company:
<TABLE>
<S> <C>
Bond Series Managed Sectors Series
Capital Appreciation Series Massachusetts Investors Growth Stock Series
Capital Opportunities Series Massachusetts Investors Trust Series
Emerging Growth Series MFS/Foreign & Colonial Emerging Markets Equity Series
Equity Income Series Money Market Series
Global Asset Allocation Series New Discovery Series
Global Government Series Research Series
Global Growth Series Research Growth and Income Series
Global Total Return Series Research International Series
Government Securities Series Strategic Income Series
High Yield Series Total Return Series
International Growth Series Utilities Series
International Growth and Income
Series
</TABLE>
The fixed account options are available for specified time periods, called
Guarantee Periods, and pay interest at a guaranteed rate for each period.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE SERIES
FUND. PLEASE READ THIS PROSPECTUS AND THE SERIES FUND PROSPECTUS CAREFULLY
BEFORE INVESTING AND KEEP THEM FOR FUTURE REFERENCE. THEY CONTAIN IMPORTANT
INFORMATION ABOUT THE MFS REGATTA PLATINUM ANNUITY AND THE SERIES FUND.
We have filed a Statement of Additional Information dated May 1, 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 75 of this Prospectus. You may obtain a copy without charge by
writing to our Annuity Service Mailing Address or by telephoning (800) 752-7215
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 1024, BOSTON, MASSACHUSETTS
02103
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms
Expense Summary
Summary of Contract Expenses
Series Fund Annual Expenses
Examples
Condensed Financial Information
The MFS Regatta Platinum Annuity
Communicating To Us About Your Contract
Sun Life Assurance Company of Canada (U.S.)
The Variable Account
Variable Account Options: The MFS/Sun Life Series Trust
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
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
Premium Taxes
Series 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
Annuity Options as Method of Payment for Death Benefit
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Other Contract Provisions
Exercise of Contract Rights
Change of Ownership
Voting of Series 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
Capital Resources
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 -- Condensed Financial Information-- Accumulation Unit Values
Appendix C -- 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 Series of the Series Fund. The table should
be considered together with the narrative provided under the heading "Contract
Fees" in this Prospectus, and with the Series Fund's prospectus. 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 Account Years Purchase Payment in Account
0-1............................................................................ 6%
2-3............................................................................ 5%
4-5............................................................................ 4%
6.............................................................................. 3%
7 or more...................................................................... 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................................................ 1.25%
Administrative Expense Charge.................................................... 0.15%
Other Fees and Expenses of the Variable Account.................................. 0.00%
-----
Total Variable Account Annual Expenses............................................. 1.40%
</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 7 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
<PAGE>
SERIES FUND ANNUAL EXPENSES (1)
(AS A PERCENTAGE OF SERIES FUND NET ASSETS)
<TABLE>
<CAPTION>
OTHER TOTAL FUND
MANAGEMENT EXPENSES(2) EXPENSES
FEES (AFTER REIMBURSEMENT) (AFTER REIMBURSEMENT)
--------------- ------------------------ ------------------------
<S> <C> <C> <C>
Bond Series....................................... 0.60% 0.43% 1.03%(3)
Capital Appreciation Series....................... 0.73% 0.04% 0.77%
Capital Opportunities Series...................... 0.75% 0.11% 0.86%
Emerging Growth Series............................ 0.72% 0.06% 0.78%
Equity Income Series.............................. 0.75% 0.28% 1.03%(3)
Global Asset Allocation Series.................... 0.75% 0.15% 0.90%
Global Governments Series......................... 0.75% 0.13% 0.88%
Global Growth Series.............................. 0.90% 0.11% 1.01%
Global Total Return Series........................ 0.75% 0.18% 0.93%
Government Securities Series...................... 0.55% 0.07% 0.62%
High Yield Series................................. 0.75% 0.07% 0.82%
International Growth Series....................... 0.98% 0.34% 1.32%
International Growth and Income Series............ 0.98% 0.18% 1.16%
Managed Sectors Series............................ 0.74% 0.06% 0.80%
Massachusetts Investors Growth Stock Series....... 0.75% 0.22% 0.97%
Massachusetts Investors Trust Series.............. 0.55% 0.04% 0.59%
MFS/Foreign & Colonial Emerging Markets Equity
Series........................................... 1.25% 0.25% 1.50%
Money Market Series............................... 0.50% 0.06% 0.56%
New Discovery Series.............................. 0.90% 0.38% 1.28%(3)
Research Series................................... 0.70% 0.06% 0.76%
Research Growth and Income Series................. 0.75% 0.20% 0.95%
Research International Series..................... 1.00% 2.55% 1.55%(3)
Strategic Income Series........................... 0.75% 0.54% 1.29%(3)
Total Return Series............................... 0.65% 0.05% 0.70%
Utilities Series.................................. 0.75% 0.11% 0.86%
</TABLE>
- --------------------------
(1) The information relating to Series Fund expenses was provided by the Series
Fund and we have not independently verified it. You should consult the
Series Fund prospectus for more information about Series Fund expenses
(2) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into such other
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the series' expenses). Any such fee reductions are not
reflected under "Other Expenses."
(3) "Other Expenses" and "Total Fund Expenses" are based on actual expenses for
the fiscal year ended December 31, 1998, net of any expense reimbursement
and/or fee waiver. MFS has agreed to bear the expenses of certain of the
Series (excluding management fees, taxes, extraordinary expenses and
brokerage and transaction costs) in excess of the following annual
percentage of such Series' average daily net assets:
<TABLE>
<S> <C>
Bond Series..................................................... 0.40%
Equity Income Series............................................ 0.25%
New Discovery Series............................................ 0.35%
Research International Series................................... 0.50%
Strategic Income Series......................................... 0.50%
</TABLE>
Without taking into account the fee waiver and/or expense reimbursement,
expenses for these Series would have been as follows: Bond Series -- Other
Expenses 0.47% and Total Fund Expenses 1.07%; Equity Income Series -- Other
Expenses 0.76% and Total Fund Expenses 1.51%; New Discovery Series -- Other
Expenses 0.70% and Total Fund Expenses 1.60%; Research International Series
-- Other Expenses 2.86% and Total Fund Expenses 3.86%; and Strategic Income
Series -- Other Expenses 0.67% and Total Fund Expenses 1.42%.
These arrangements will remain in effect until at least May 1, 2000, absent
an earlier modification by the Series' Board of Trustees.
5
<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>
Bond Series............................................................... $ 81 $ 118 $ 160 $ 287
Capital Appreciation Series............................................... $ 79 $ 110 $ 147 $ 261
Capital Opportunities Series.............................................. $ 79 $ 113 $ 152 $ 270
Emerging Growth Series.................................................... $ 79 $ 110 $ 148 $ 262
Equity Income Series...................................................... $ 81 $ 118 $ 160 $ 287
Global Asset Allocation Series............................................ $ 80 $ 114 $ 154 $ 274
Global Governments Series................................................. $ 80 $ 113 $ 153 $ 272
Global Growth Series...................................................... $ 81 $ 117 $ 159 $ 285
Global Total Return Series................................................ $ 80 $ 115 $ 155 $ 277
Government Securities Series.............................................. $ 77 $ 106 $ 140 $ 245
High Yield Series......................................................... $ 79 $ 112 $ 150 $ 266
International Growth Series............................................... $ 84 $ 126 $ 173 $ 315
International Growth and Income Series.................................... $ 82 $ 121 $ 166 $ 299
Managed Sectors Series.................................................... $ 79 $ 111 $ 149 $ 264
Massachusetts Investors Growth Stock Series............................... $ 81 $ 116 $ 157 $ 281
Massachusetts Investors Trust Series...................................... $ 77 $ 105 $ 139 $ 242
MFS/Foreign & Colonial Emerging Markets Equity Series..................... $ 86 $ 131 $ 182 $ 332
Money Market Series....................................................... $ 77 $ 104 $ 137 $ 239
New Discovery Series...................................................... $ 83 $ 125 $ 172 $ 311
Research Series........................................................... $ 79 $ 110 $ 147 $ 260
Research Growth and Income Series......................................... $ 80 $ 115 $ 156 $ 279
Research International Series............................................. $ 86 $ 132 $ 184 $ 336
Strategic Income Series................................................... $ 84 $ 125 $ 172 $ 312
Total Return Series....................................................... $ 78 $ 108 $ 144 $ 253
Utilities Series.......................................................... $ 79 $ 113 $ 152 $ 270
</TABLE>
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>
Bond Series............................................................... $ 26 $ 79 $ 135 $ 287
Capital Appreciation Series............................................... $ 23 $ 71 $ 122 $ 261
Capital Opportunities Series.............................................. $ 24 $ 74 $ 126 $ 270
Emerging Growth Series.................................................... $ 23 $ 71 $ 122 $ 262
Equity Income Series...................................................... $ 26 $ 79 $ 135 $ 287
Global Asset Allocation Series............................................ $ 24 $ 75 $ 128 $ 274
Global Governments Series................................................. $ 24 $ 74 $ 127 $ 272
Global Growth Series...................................................... $ 25 $ 78 $ 134 $ 285
Global Total Return Series................................................ $ 25 $ 76 $ 130 $ 277
Government Securities Series.............................................. $ 22 $ 66 $ 114 $ 245
High Yield Series......................................................... $ 24 $ 72 $ 124 $ 266
International Growth Series............................................... $ 29 $ 87 $ 149 $ 315
International Growth and Income Series.................................... $ 27 $ 83 $ 141 $ 299
Managed Sectors Series.................................................... $ 23 $ 72 $ 123 $ 264
Massachusetts Investors Growth Stock Series............................... $ 25 $ 77 $ 132 $ 281
Massachusetts Investors Trust Series...................................... $ 21 $ 65 $ 112 $ 242
MFS/Foreign & Colonial Emerging Markets Equity Series..................... $ 30 $ 93 $ 158 $ 332
Money Market Series....................................................... $ 21 $ 65 $ 111 $ 239
New Discovery Series...................................................... $ 28 $ 86 $ 147 $ 311
Research Series........................................................... $ 23 $ 71 $ 121 $ 260
Research Growth and Income Series......................................... $ 25 $ 76 $ 131 $ 279
Research International Series............................................. $ 31 $ 94 $ 160 $ 336
Strategic Income Series................................................... $ 28 $ 87 $ 147 $ 312
Total Return Series....................................................... $ 22 $ 69 $ 118 $ 253
Utilities Series.......................................................... $ 24 $ 74 $ 126 $ 270
</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.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
Historical information about the value of the units we use to measure the
variable portion of your Contract ("Variable Accumulation Units") is included in
the back of this Prospectus as Appendix B.
THE MFS REGATTA PLATINUM 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 MFS Regatta Platinum 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 (800) 752-7215 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
7
<PAGE>
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.
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 Series of the MFS/Sun
Life Series Trust (the "Series Fund"). All amounts allocated to the Variable
Account will be used to purchase Series Fund shares as designated by you at
their net asset value. Any and all distributions made by the Series Fund with
respect to the shares held by the Variable Account will be reinvested to
purchase additional shares at their net asset value. Deductions from the
Variable Account for cash withdrawals, annuity payments, death benefits, Account
Fees, contract charges against the assets of the Variable Account for the
assumption of mortality and expense risks, administrative expenses and any
applicable taxes will, in effect, be made by redeeming the number of Series Fund
shares at their net asset value equal in total value to the amount to be
deducted. The Variable Account will be fully invested in Series Fund shares at
all times.
VARIABLE ACCOUNT OPTIONS:
THE MFS/SUN LIFE SERIES TRUST
The MFS/Sun Life Series Trust (the "Series Fund") is an open-end
management investment company registered under the Investment Company Act of
1940. Our affiliate, Massachusetts Financial Services Company ("MFS"), serves as
the investment adviser to the Series Fund.
The Series Fund is composed of 26 independent portfolios of securities,
each of which has separate investment objectives and policies. Shares of the
Series Fund are issued in 26 Series, each corresponding to one of the
portfolios. The Contracts provide for investment by the Sub-Accounts in shares
of the 25 Series of the Series Fund described below. Additional portfolios may
be added to the Series Fund which may or may not be available for investment by
the Variable Account.
BOND SERIES will primarily seek as high a level of current income as is
believed to be consistent with prudent investment risk; its secondary
objective is to seek to protect shareholders' capital.
8
<PAGE>
CAPITAL APPRECIATION SERIES will seek to maximize capital appreciation by
investing in securities of all types, with major emphasis on common stocks.
CAPITAL OPPORTUNITIES SERIES will seek capital appreciation.
EMERGING GROWTH SERIES will seek long-term growth of capital.
EQUITY INCOME SERIES will primarily seek reasonable income by investing
mainly in income producing securities; its secondary objective is to seek
capital appreciation.
GLOBAL ASSET ALLOCATION SERIES (FORMERLY, THE WORLD ASSET ALLOCATION
SERIES) will seek total return over the long term through investments in
equity and fixed income securities and will also seek to have low
volatility of share price (I.E., net asset value per share) and reduced
risk (compared to an aggressive equity/fixed income portfolio).
GLOBAL GOVERNMENTS SERIES (FORMERLY, THE WORLD GLOBAL GOVERNMENTS SERIES)
will seek to provide moderate current income, preservation of capital and
growth of capital by investing in debt obligations that are issued or
guaranteed as to principal and interest by either (i) the U.S. Government,
its agencies, authorities, or instrumentalities, or (ii) the governments of
foreign countries (to the extent that the Series' adviser believes that the
higher yields available from foreign government securities are sufficient
to justify the risks of investing in these securities).
GLOBAL GROWTH SERIES (FORMERLY, THE WORLD GROWTH SERIES) will seek capital
appreciation by investing in securities of companies worldwide growing at
rates expected to be well above the growth rate of the overall U.S.
economy.
GLOBAL TOTAL RETURN SERIES (FORMERLY, THE WORLD TOTAL RETURN SERIES) will
seek total return by investing in securities which will provide above
average current income (compared to a portfolio invested entirely in equity
securities) and opportunities for long-term growth of capital and income.
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 lower rated or unrated securities (possibly
with equity features) of U.S. and foreign issuers (also known as "junk
bonds").
INTERNATIONAL GROWTH SERIES will seek capital appreciation.
INTERNATIONAL GROWTH AND INCOME SERIES will seek capital appreciation and
current income.
MANAGED SECTORS SERIES will seek capital appreciation by varying the
weighting of its portfolio among 13 industry sectors.
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 (FORMERLY, THE CONSERVATIVE GROWTH
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.
MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES will seek capital
appreciation.
MONEY MARKET SERIES will seek maximum current income to the extent
consistent with stability of principal by investing exclusively in money
market instruments maturing in less than 13 months.
NEW DISCOVERY SERIES will seek capital appreciation.
RESEARCH SERIES will seek to provide long-term growth of capital and future
income.
9
<PAGE>
RESEARCH GROWTH AND INCOME SERIES will seek to provide long-term growth of
capital, current income and growth of income.
RESEARCH INTERNATIONAL SERIES will seek capital appreciation.
STRATEGIC INCOME SERIES will seek to provide high current income by
investing in fixed income securities and will seek to take advantage of
opportunities to realize significant capital appreciation while maintaining
a high level of current income.
TOTAL RETURN SERIES will seek primarily to obtain above-average income
(compared to a portfolio entirely invested in equity securities) consistent
with prudent employment of capital; its secondary objective is to take
advantage of opportunities for growth of capital and income 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.
The Series Fund pays fees to MFS for its services pursuant to investment
advisory agreements. MFS also serves as investment adviser to each of the funds
in the MFS Family of Funds, and to certain other investment companies
established by MFS and/or us. MFS Institutional Advisers, Inc., a wholly-owned
subsidiary of MFS, provides investment advice to substantial private clients.
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS operates as an autonomous organization and the obligation of
performance with respect to the investment advisory and underwriting agreements
(including supervision of the sub-advisers noted below) is solely that of MFS.
We undertake no obligation in this regard.
MFS has retained Foreign & Colonial Management Limited ("FCM") and its
subsidiary, Foreign & Colonial Emerging Markets Limited ("FCEM"), as
sub-advisers to manage the MFS/Foreign & Colonial Emerging Markets Series and to
manage the assets of the Global Growth Series.
MFS may serve as the investment adviser to other mutual funds which have
similar investment goals and principal investment policies and risks as the
Series, and which may be managed by a Series' portfolio managers(s). While a
Series 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 Series and these similar products, including
differences in sales charges, expense ratios and cash flows.
The Series Fund also offers its shares to other separate accounts
established by the Company and our New York subsidiary in connection with
variable annuity and variable life insurance contracts. Although we do not
anticipate any disadvantages to this arrangement, 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 investing in the Series Fund. A
conflict may occur due to differences in tax laws affecting the operations of
variable life and variable annuity separate accounts, or some other reason. We
and the Series Fund's Board of Trustees will monitor events for such conflicts,
and, in the event of a conflict, we will take steps necessary to remedy the
conflict, including withdrawal of the Variable Account from participation in the
Series which is involved in the conflict or substitution of shares of other
Series or other mutual funds.
MORE COMPREHENSIVE INFORMATION ABOUT THE SERIES FUND, AND THE MANAGEMENT,
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS, EXPENSES AND POTENTIAL RISKS OF
EACH SERIES MAY BE FOUND IN THE ACCOMPANYING CURRENT PROSPECTUS OF THE SERIES
FUND. YOU SHOULD READ THE SERIES FUND PROSPECTUS CAREFULLY BEFORE INVESTING. THE
SERIES FUND'S STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE BY CALLING
1-800-752-7215.
10
<PAGE>
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.
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 on 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
11
<PAGE>
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.
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.
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.,
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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 Series 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 Series during the Valuation Period, by (2) the
net asset value per share of the Series 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. 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.
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 all or some of the Guarantee Amount to one or more
Sub-
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<PAGE>
Accounts, in accordance with the transfer privilege provisions of the Contract.
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 Series Fund; and
- 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
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<PAGE>
the use of such transfers in a manner that will disadvantage or potentially
impair the Contract rights of other Participants.
In addition, the Series Fund has reserved the right to temporarily or
permanently refuse exchange requests from the Variable Account if, in MFS'
judgment, a Series would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. In particular, a pattern of exchanges that coincide with a market
timing strategy may be disruptive to a Series and therefore may be refused.
Accordingly, the Variable Account may not be in a position to effectuate
transfers and may refuse transfer requests without prior notice. 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."
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, except that if you discontinue or alter the program prior to
completion, amounts remaining in the Fixed Account will be transferred to the
Money Market Series 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. 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 Series Fund shares) when prices are low and fewer Variable
Accumulation Units (and, indirectly, fewer Series 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.
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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 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 stock 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. By your election of an asset allocation program, you 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.
SYSTEMATIC WITHDRAWAL AND INTEREST OUT PROGRAMS
If you have an Account Value of $10,000 or more, you may select our
Systematic Withdrawal or Interest Out 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. Under the
Interest Out Program, we will automatically pay to you or reinvest interest
credited for all Guarantee Periods you have chosen. You may change or stop
either 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 these options.
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.
SECURED FUTURE PROGRAM
Under this program, we divide your Purchase Payment between the Fixed
Account and the Variable Account. For the Fixed Account portion, you choose a
Guarantee Period from among those we offer, and we allocate to that Guarantee
Period the portion of your Purchase Payment necessary so that at the end of the
Guarantee Period, your Fixed Account allocation, including interest, will equal
the entire amount of your original Purchase Payment. The remainder of the
original Purchase Payment will be invested in Sub-Accounts of your choice. At
the end of the Guarantee Period, you will be guaranteed the amount of your
Purchase Payment (assuming no withdrawals), plus you will have the benefit, if
any, of the investment performance of the Sub-Accounts you have chosen.
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<PAGE>
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.
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 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
the Series Fund or to determine the value of the net assets of the
Series 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 6 months from the date we receive your withdrawal request. We do not pay
interest on the amount of any payments we defer.
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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 (1) 10% of the
amount of all Purchase Payments you have made during the last 7 Account Years,
including the current Account Year (the "Annual Withdrawal Allowance"), plus (2)
the amount of all Purchase Payments made before the last 7 Account Years that
you have not previously withdrawn. Any portion of the Annual Withdrawal
Allowance that you do not use in an Account Year is cumulative; that is, it is
carried forward and available for use in future years.
For convenience, we refer to Purchase Payments made during the last 7
Account Years (including the current Account Year) as "New Payments," and all
Purchase Payments made before the last 7 Account Years as "Old Payments."
For example, assume you wish to make a withdrawal from your Contract in
Account Year 10. You made an initial Purchase Payment of $10,000 in Account Year
1, you made one additional Purchase Payment of $8,000 in Account Year 8, and you
have made no previous withdrawals. Your Account Value in Account Year 10 is
$35,000. The free withdrawal amount for Account Year 10 is $19,400, calculated
as follows:
- $800, which is the Annual Withdrawal Allowance for Account Year 10 (10%
of the $8,000 Purchase Payment made in Account Year 8, the only New
Payment); plus
- $8,600, which is the total of the unused Annual Withdrawal Allowances
of $1,000 for each of Account Years 1 through 7 and $800 for each of
Account Years 8 and 9 that are carried forward and available for use in
Account Year 10; plus
- $10,000, which is the amount of all Old Payments that you have not
previously withdrawn.
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 New Payments that you
have not previously withdrawn. We impose the withdrawal charge on the amount of
these New 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 New
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
New Payments are withdrawn on a first-in first-out basis until all New
Payments have been withdrawn. For example, assume the same facts as in the
example above. In Account Year 10 you wish to withdraw $25,000. We attribute the
withdrawal first to the free withdrawal amount of $19,400, which
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is not subject to the withdrawal charge. The remaining $5,600 is withdrawn from
the Purchase Payment made in Account Year 8 (the only New Payment) and is
subject to the withdrawal charge. The $2,400 balance of the Account Year 8
Purchase Payment will remain in your Account. If you make a subsequent $5,000
withdrawal in Account Year 10, $2,400 of that amount will be withdrawn from the
remainder of the Account Year 8 Purchase Payment and will be subject to the
withdrawal charge. The other $2,600 of your withdrawal (which exceeds the amount
of all New Payments not previously withdrawn) will not be subject to the
withdrawal charge.
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 in
which you withdraw it. The applicable percentages are as follows:
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS PERCENTAGE
- -------------- ---------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 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 5%, 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 6% 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, please see
Appendix C.
TYPES OF WITHDRAWALS NOT SUBJECT TO WITHDRAWAL CHARGE
We do not impose a withdrawal charge on withdrawals from the Accounts of
(a) our employees, (b) employees of our affiliates, or (c) licensed insurance
agents who sell the Contracts. We also may waive withdrawal charges with respect
to Purchase Payments derived from the surrender of other annuity contracts we
issue.
If approved in your state, we will waive the withdrawal charge for a full
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.
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.
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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.
For examples of how we calculate the Market Value Adjustment, see Appendix
C.
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 Oregon.
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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 $75,000 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 1.25% 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.
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.
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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.
SERIES FUND EXPENSES
There are fees and charges deducted from each Series of the Series Fund.
These fees and expenses are described in the Series 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 amount of your death benefit, calculated as described
below, will become the Contract's Account Value on the Death Benefit Date. All
other provisions, including any withdrawal charges, 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.
The amount of the death benefit is determined as of the Death Benefit
Date.
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 Account Value on the Seven-Year Anniversary immediately before
the Death Benefit Date, adjusted for subsequent Purchase Payments and
partial withdrawals and charges made between the Seven-Year
Anniversary and the Death Benefit Date;
4. Your highest Account Value on any Account Anniversary before your 81st
birthday, adjusted for subsequent Purchase Payments and partial
withdrawals and charges made between that Account Anniversary and the
Death Benefit Date; and
5. Your total Purchase Payments plus the following interest accruals,
adjusted for partial withdrawals; interest will accrue on Purchase
Payments allocated to and transfers to the Variable
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Account while they remain in the Variable Account at 5% per year until
the first day of the month following your 80th birthday, or until the
Purchase Payment or amount transferred has doubled in amount,
whichever is earlier.
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.
In calculating the death benefit amount payable under (3), (4), and (5),
any partial withdrawals will reduce the amount by the ratio of the Account Value
immediately following the withdrawal to the Account Value immediately before the
withdrawal.
If the death benefit is amount (2), (3), (4), or (5), your Account Value
will be increased by the excess, if any, of that amount over amount (1). 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 Money Market Series Sub-Account (without the application of a Market Value
Adjustment). The Beneficiary may then transfer 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. With respect
to a Non-Qualified Contract, if the Beneficiary is the Owner's spouse, the
Beneficiary may elect to continue the Non-Qualified 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
the Account Value will be increased to reflect the 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.
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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.
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.
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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
second month following your Contract Date.
- 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 you reach
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
this purpose 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.
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.
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ANNUITY OPTION D -- MONTHLY PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
We make monthly payments for a specified period of time from 5 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 a Variable Annuity 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 Annuities 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 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
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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.
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 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.
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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.
VOTING OF SERIES FUND SHARES
We will vote Series Fund shares held by the Sub-Accounts at meetings of
shareholders of the Series Fund 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 Series 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.
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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 Series
Fund shares attributable to their contributions. Such plans may also provide the
additional extent, if any, to which the Owners shall follow voting instructions
of persons with rights under the plans. If no voting instructions are received
from any such person with respect to a particular Participant Account, the Owner
may instruct the Company as to how to vote the number of Series Fund shares for
which instructions may be given.
Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights afforded by the Investment Company
Act of 1940, 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 Series 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 Series Fund proxy material, together with an appropriate form to be
used to give voting instructions, will be provided to each person having the
right to give voting instructions at least 10 days prior to each meeting of the
shareholders of the Series Fund. We will determine the number of Series Fund
shares as to which each such person is entitled to give instructions as of the
record date set by the Series 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 Series Fund shares as to which voting instructions may be
given to the Company is determined by dividing the value of all of the Variable
Accumulation Units of the particular Sub-Account credited to the Participant
Account by the net asset value of one Series Fund share as of the same date. On
or after the Annuity Commencement Date, the number of Series Fund shares as to
which such instructions may be given by a Payee is determined by dividing the
reserve held by the Company in the Sub-Account with respect to the particular
Payee by the net asset value of a Series Fund share as of the same date. After
the Annuity Commencement Date, the number of Series Fund shares as to which a
Payee is entitled to give voting instructions will generally decrease due to the
decrease in the reserve.
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 Series Fund as may be
required by the Investment Company Act of 1940 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 Series of the Series Fund may not always be available
for investment under the Contract. We may add or delete Series 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
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another Series or 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 Series Fund shares held
by the Sub-Accounts, the Variable Account may be operated as a management
company under the Investment Company Act of 1940 or it may be deregistered under
the Investment Company Act of 1940 in the event registration is no longer
required. Deregistration of the Variable Account requires an order by the 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.
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.
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<PAGE>
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 Series, sub-series thereof 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 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.
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
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<PAGE>
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 not 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
- 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.
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<PAGE>
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 or
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 series of the Series 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 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
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<PAGE>
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."
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
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<PAGE>
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 7.34% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of the Participant's Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation. 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 will not be paid with respect to 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 this Prospectus
under the heading "Waivers; Reduced Charges; Credits; Bonus Guaranteed Interest
Rates." The Company began offering the Contracts in 1998. During 1998,
approximately $3,190,367 in commissions was paid to Clarendon in connection with
the distribution of the Contracts.
PERFORMANCE INFORMATION
From time to time the Variable Account may publish reports to
shareholders, sales literature and advertisements containing performance
information relating to the Sub-Accounts. This information may include
standardized and non-standardized "Average Annual Total Return," "Cumulative
Growth Rate" and "Compound Growth Rate." The Government Securities Series
Sub-Account and the High Yield Series Sub-Account may also advertise "yield."
The Money Market Series Sub-Account may advertise "yield" and "effective yield."
Average Annual Total Return measures the net income of the Sub-Account and
any realized or unrealized gains or losses of the Series 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 an investment in
a Sub-Account over that period. Standardized Average Annual Total Return
information
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<PAGE>
covers the period after the Variable Account was established or, if shorter, the
life of the Series. Non-standardized Average Annual Total Return covers the life
of each Series, which may predate the Variable Account. Cumulative Growth Rate
represents the cumulative change in the value of an investment in the
Sub-Account for the period stated, and is arrived at by calculating the change
in the Accumulation Unit Value of a Sub-Account between the first and the 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 or the Account Fee, although they reflect all
recurring charges. 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 Series Fund for the specified periods, and
the figures are not intended to indicate future performance. For periods before
the date the Contracts became available, we calculate the performance
information for the Sub-Account on a hypothetical basis. To do this, we reflect
deductions of the current Contract fees and charges from the historical
performance of the corresponding series.
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 Money Market Series
Sub-Account), expressed as a percentage of the value of the Sub-Account's
Accumulation Units. Yield is an annualized figure, which means that we assume
that the Sub-Account 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 Money Market Series Sub-Account similarly, but include
the increase due to assumed compounding. The Money Market 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
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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
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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,
in all U.S. states (except New York), and in 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 [45.]
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity deposits and other revenue $ 2,581,463 $ 2,623,629 $ 2,215,322 $ 1,883,901 $ 1,997,525
Net investment income and realized gains 187,208 298,121 310,172 315,966 312,583
----------- ----------- ----------- ----------- -----------
2,768,671 2,921,750 2,525,494 2,199,867 2,310,108
----------- ----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 2,416,950 2,579,104 2,232,528 1,995,208 2,102,290
Other expenses 214,607 206,065 175,342 150,937 186,892
----------- ----------- ----------- ----------- -----------
2,631,557 2,785,169 2,407,870 2,146,145 2,289,182
----------- ----------- ----------- ----------- -----------
Operating gain 137,114 136,581 117,624 53,722 20,926
Federal income tax expense (benefit) 11,713 7,339 (5,400) 17,807 19,469
----------- ----------- ----------- ----------- -----------
Net income $ 125,401 $ 129,242 $ 123,024 $ 35,915 $ 1,457
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Assets $16,902,621 $15,925,357 $13,621,952 $12,359,683 $10,117,822
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Surplus notes $ 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
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<PAGE>
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.
- 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
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.
39
<PAGE>
- 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 $21.2 million in 1997.
INCOME FROM OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its three
business segments: the Retirement Products and Services segment, the Individual
Insurance segment and the Corporate segment. The following table provides a
summary:
Income from Operations by Segment*
($ 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:
40
<PAGE>
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.
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
41
<PAGE>
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.
- 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.
42
<PAGE>
- 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.
- 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.
43
<PAGE>
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.
- 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
44
<PAGE>
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 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.
CAPITAL MARKETS RISK MANAGEMENT
See "Quantitative and Qualitative Disclosures About Market Risk" below 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
45
<PAGE>
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 at year-end 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.
DEMUTUALIZATION
On January 27, 1998, Sun Life (Canada) announced that its Board of
Directors had requested management world-wide to develop a plan to convert from
a mutual life insurance company into a publicly traded stock company through
demutualization worldwide. Management has put in place a full time task force
which, together with a worldwide team of actuarial, financial and legal
advisers, has begun work. The Board will decide later this year whether to
proceed with demutualization, following the completion of the plan.
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
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. Over 90%
of the components have been remediated, tested and are 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 either
their certification for the products and services provided or their plan to make
those products and services compliant. Approximately 95% of these vendors have
responded and the project team has reviewed the responses
46
<PAGE>
and validated and conducted tests with the vendors where appropriate. 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 objective of assuring Year 2000
compliance.
Non-IT applications, including building security, HVAC systems, and other
such systems, will be tested. Compliant client server and mainframe environments
have been built which 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 all critical systems to be Year 2000
compliant before the end of 1999, there can be no assurance that this result
will be achieved. 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 significant systems being non-compliant.
Such a scenario could result in material 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 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 failure to achieve planned Year 2000
compliance, 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 to ensure that the most critical are
addressed first. The business units also have developed alternate plans of
action where possible, and established dates for the alternate plans to be
enacted. 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.
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.
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
47
<PAGE>
policies to ensure that the policies remain appropriate, taking into account
each segment's liability characteristics.
TYPES OF MARKET RISKS
The Company's 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
- 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.
48
<PAGE>
Liabilities categorized as financial instruments and held in the Company's
general account at December 31, 1998 had a fair value of $1,538.3 million. Fixed
income investments supporting those liabilities had a fair value of $2,710.1
million at that date. The Company performed a sensitivity analysis on these
interest-sensitive liabilities and assets at December 31, 1998. The 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.
By comparison, liabilities categorized as financial instruments and held
in the Company's general account at December 31, 1997 had a fair value of
$1,986.4 million. Fixed income investments supporting those liabilities had a
fair value of $3,276.2 million at that date. The Company performed a sensitivity
analysis on these interest-sensitive liabilities and assets at December 31,
1997. The 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 $56.0 million and the corresponding assets would show a net decrease
of $108.0 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 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.
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.
49
<PAGE>
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 March 31, 1999, the Company had 392 direct employees employed at its
Principal 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
50
<PAGE>
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 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 Series 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.
------------------------
51
<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.
52
<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.
53
<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.
54
<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.
55
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS
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.
56
<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.
57
<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.
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
58
<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):
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.
59
<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>
60
<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.
61
<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
62
<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.
63
<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.
64
<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.
65
<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>
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 (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.
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
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.
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
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>
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
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>
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>
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
14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized
cost. The fair values of long-term bonds which are publicly traded are based
upon market prices or dealer quotes. For privately placed bonds, fair values are
estimated 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.
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.
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
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.
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
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
20. ACCOUNTING POLICIES AND PRINCIPLES (CONTINUED):
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.
73
<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
74
<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>
75
<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 (800)
752-7215.
- --------------------------------------------------------------------------------
To: Sun Life Assurance Company of Canada (U.S.)
Annuity Service Mailing Address:
c/o Retirement Products and Services
P.O. Box 1024
Boston, Massachusetts 02103
Please send me a Statement of Additional Information for
MFS Regatta Platinum Variable and Fixed Annuity
Sun Life of Canada (U.S.) Variable Account F.
Name
- --------------------------------------------------------------
Address
- --------------------------------------------------------------
-------------------------------------------------------------------------
City
- ------------------------------------ State
- -------------- Zip
- -------
Telephone
- ----------------------------------------------------------------
76
<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 Participant 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.
77
<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.
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.
GROUP CONTRACT: A Contract issued by the Company on a group basis.
GUARANTEE AMOUNT: Each separate allocation of 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.
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.
PURCHASE PAYMENT (PAYMENT): An amount paid to the Company as consideration
for the benefits provided by a Contract.
78
<PAGE>
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.
SEVEN-YEAR ANNIVERSARY: The seventh Account Anniversary and each
succeeding Account Anniversary occurring at any seven year interval thereafter;
for example, the 14th, 21st and 28th Account Anniversaries.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific series of the Series 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.
79
<PAGE>
APPENDIX B
CONDENSED FINANCIAL INFORMATION--ACCUMULATION UNIT VALUES
The following information should be read in conjunction with the Variable
Account's financial statements appearing in the Prospectus, all of which has
been audited by Deloitte & Touche LLP, independent certified public accountants.
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
1998*
------------
BOND SERIES
<S> <C>
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.4201
Units outstanding end of period................. 628,000
CAPITAL APPRECIATION SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $11.3405
Units outstanding end of period................. 1,683,164
CAPITAL OPPORTUNITIES SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.8048
Units outstanding end of period................. 556,955
EMERGING GROWTH SERIES
Unit Value:
Beginning of period $10.0000
End of period................................. $11.5819
Units outstanding end of period................. 1,651,404
EQUITY INCOME SERIES
Unit Value:
Beginning of period $10.0000
End of period................................. $10.5234
Units outstanding end of period................. 272,362
GLOBAL ASSET ALLOCATION SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $ 9.7081
Units outstanding end of period................. 228,839
GLOBAL GOVERNMENTS SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $11.2639
Units outstanding end of period................. 76,270
GLOBAL GROWTH SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.2820
Units outstanding end of period................. 162,856
GLOBAL TOTAL RETURN SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.4567
Units outstanding end of period................. 152,857
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
1998*
------------
GOVERNMENT SECURITIES SERIES
<S> <C>
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.4116
Units outstanding end of period................. 816,102
HIGH YIELD SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $ 9.5030
Units outstanding end of period................. 1,000,705
INTERNATIONAL GROWTH SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $ 9.3254
Units outstanding end of period................. 338,938
INTERNATIONAL GROWTH AND INCOME SERIES
Unit Value:
Beginning of period........................... $ 10.000
End of period................................. $10.3378
Units outstanding end of period................. 199,346
MANAGED SECTORS SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.5861
Units outstanding end of period................. 211,044
MASSACHUSETTS INVESTORS TRUST SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.7939
Units outstanding end of period................. 5,331,018
MASSACHUSETTS INVESTORS GROWTH STOCK SERIES
Unit Value:
Beginning of period $10.0000
End of period................................. $11.9094
Units outstanding end of period................. 2,428,134
MFS/FOREIGN & COLONIAL EMERGING MARKETS
EQUITY SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $ 8.1616
Units outstanding end of period................. 72,586
MONEY MARKET SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.1878
Units outstanding end of period................. 886,479
NEW DISCOVERY SERIES
Unit Value:
Beginning of period $10.0000
End of period................................. $10.4124
Units outstanding end of period................. 436,178
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
1998*
------------
RESEARCH SERIES
<S> <C>
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $11.0189
Units outstanding end of period................. 1,751,713
RESEARCH GROWTH AND INCOME SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.3415
Units outstanding end of period................. 387,080
RESEARCH INTERNATIONAL SERIES
Unit Value:
Beginning of period $10.0000
End of period................................. $ 9.4845
Units outstanding end of period................. 181,131
STRATEGIC INCOME SERIES
Unit Value:
Beginning of period $10.0000
End of period................................. $ 9.8713
Units outstanding end of period................. 157,634
TOTAL RETURN SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.2907
Units outstanding end of period................. 2,318,847
UTILITIES SERIES
Unit Value:
Beginning of period........................... $10.0000
End of period................................. $10.9233
Units outstanding end of period................. 819,649
</TABLE>
- ------------------------
* Unit value on date of commencement of operations of the respective
Sub-Account.
82
<PAGE>
APPENDIX C
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: VARIABLE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
VARIABLE ACCOUNT)
WITHDRAWAL CHARGE CALCULATION:
FULL 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>
FREENEWWITHDRAWALWITHDRAWALACCOUNT
WITHDRAWALPAYMENTSCHARGECHARGEYEAR
AMOUNTWITHDRAWNPERCENTAGEAMOUNT
--------
HYPOTHETICAL
ACCOUNT
VALUE
--
------- ------- ------- ------
(a) 1 $ 41,000 $ 4,000 $ 37,000 6.00% $ 2,220
<S> <C> <C> <C>
(b) 3 $ 52,000 $ 12,000 $ 40,000 5.00% $ 2,000
(c) 7 $ 80,000 $ 28,000 $ 40,000 3.00% $ 1,200
(d) 9 $ 98,000 $ 68,000 0 0.00% 0
</TABLE>
(a) The free withdrawal amount in any Account Year is equal to (1) the Annual
Withdrawal Allowance for that year (i.e., 10% of all Purchase Payments made
in the last seven Account Years ("New Payments")); plus (2) any unused
Annual Withdrawal Allowances from previous years; plus (3) any Purchase
Payments made before the last seven Account Years ("Old Payments") not
previously withdrawn. In Account Year 1, the free withdrawal amount is
$4,000 (the Annual Withdrawal Allowance for that year) because there are no
unused Annual Withdrawal Allowances from previous years and no Old Payments.
The $41,000 full withdrawal is attributed first to the $4,000 free
withdrawal amount. The remaining $37,000 is withdrawn from the Purchase
Payment made in Account Year 1 and is subject to the withdrawal charge.
(b) In Account Year 3, the free withdrawal amount is $12,000 (the $4,000 Annual
Withdrawal Allowance for the current year plus the unused $4,000 Annual
Withdrawal Allowances for each of Account Years 1 and 2). The $52,000 full
withdrawal is attributed first to the free withdrawal amount and the
remaining $40,000 is withdrawn from the Purchase Payment made in Account
Year 1.
(c) In Account Year 7, the free withdrawal amount is $28,000 (the $4,000 Annual
Withdrawal Allowance for the current Account Year plus the unused Annual
Withdrawal Allowance of $4,000 for each of Account Years 1 through 6). The
$80,000 full withdrawal is attributed first to the free withdrawal amount.
The next $40,000 is withdrawn from the Purchase Payment made in Account Year
1 and is subject to the withdrawal charge. The remaining $12,000 exceeds the
total of the free withdrawal amount plus all New Payments not previously
withdrawn, so it is not subject to the withdrawal charge.
(d) In Account Year 9, the free withdrawal amount is $68,000, calculated as
follows. There are no Annual Withdrawal Allowances for Account Years 8 or 9
because there are no New Payments in those years. The $40,000 Purchase
Payment made in Account Year 1 is now an Old Payment that constitutes a
portion of the free withdrawal amount. In addition, the unused Annual
Withdrawal Allowances of $4,000 for each of Account Years 1 through 7 are
carried forward and available for use in Account Year 9. The $98,000 full
withdrawal is attributed first to the free withdrawal amount. Because the
remaining $30,000 is not withdrawn from New Payments, this part of the
withdrawal also will not be subject to the withdrawal charge.
83
<PAGE>
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 fifth Account Year, and there are a series of three partial
withdrawals made during the fifth Account Year of $9,000, $12,000, and $15,000.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL FREE NEW WITHDRAWAL WITHDRAWAL
ACCOUNT WITHDRAWAL WITHDRAWAL PAYMENTS CHARGE CHARGE
VALUE AMOUNT AMOUNT WITHDRAWN PERCENTAGE AMOUNT
------------ ----------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(a) $ 64,000 $ 9,000 $ 20,000 $ 0 4.00% $ 0
(b) $ 56,000 $ 12,000 $ 11,000 $ 1,000 4.00% $ 40
(c) $ 40,000 $ 15,000 $ 0 $ 15,000 4.00% $ 600
</TABLE>
(a) In the fifth Account Year, the free withdrawal amount is equal to $20,000
(the $4,000 Annual Withdrawal Allowance for the current year, plus the
unused $4,000 for each of the Account Years 1 through 4). The partial
withdrawal amount ($9,000) is less than the free withdrawal amount so no New
Payments are withdrawn and no withdrawal charge applies.
(b) Since a partial withdrawal of $9,000 was taken, the remaining free
withdrawal amount is equal to $11,000. The $12,000 partial withdrawal will
first be applied against the $11,000 free withdrawal amount. The remaining
$1,000 will be withdrawn from the $40,000 New Payment, incurring a
withdrawal charge of $40.
(c) The free withdrawal amount is zero since the previous partial withdrawals
have already used the free withdrawal amount. The entire partial withdrawal
amount will result in New Payments being withdrawn and will incur 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.
6) withdrawal charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
84
<PAGE>
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.
85
<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 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE:
Toll Free (800) 752-7215
In Massachusetts (617) 348-9600
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte Touche LLP
125 Summer Street
Boston, Massachusetts 02110
PLAT-1 5/99
</TABLE>
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
MAY 1, 1999
PROFILE
MFS REGATTA GOLD
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 MFS REGATTA GOLD ANNUITY
The MFS Regatta Gold 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 25 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 series of the MFS/Sun Life Series Trust (collectively, the
"Series") 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 Series 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.
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 5, 10, 15 or 20 years if
you die before the end of the period you have selected; (3) monthly payments for
your lifetime and the life of another person (usually your spouse) you have
chosen; and (4) monthly payments for a specified number of years (between 5 and
30), with a cash-out option for variable payments. You can also select a fixed
payment option where we will hold the amount applied to provide fixed annuity
payments, with interest accrued at the rate we determine from time to time,
which will be at least 3% per year. 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.
3. PURCHASING A CONTRACT
You may purchase a Contract for $5,000 or more, under most circumstances.
You may increase the value of your investment by adding $1,000 or more at any
time during the Accumulation Phase. We will not accept a Purchase Payment if
your Account Value is over $1 million, or if the Purchase
<PAGE>
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
Series of the MFS/ Sun Life Series Trust:
<TABLE>
<S> <C>
Bond Series Managed Sectors Series
Capital Appreciation Series Massachusetts Investors Growth Stock Series
Capital Opportunities Series Massachusetts Investors Trust Series
Emerging Growth Series MFS/Foreign & Colonial Emerging Markets Equity Series
Equity Income Series Money Market Series
Global Asset Allocation Series New Discovery Series
Global Governments Series Research Series
Global Growth Series Research Growth and Income Series
Global Total Return Series Research International Series
Government Securities Series Strategic Income Series
High Yield Series Total Return Series
International Growth Series Utilities Series
International Growth and Income
Series
</TABLE>
Market conditions will determine the value of an investment in any Series.
Each series is described in the Prospectus of the MFS/Sun Life Series Trust.
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 $30 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 $30. We also deduct insurance charges (which include an
administrative expense charge) equal to 1.40% per year of the average daily
value of the Contract allocated among the Sub-Accounts.
There are no sales charges when you purchase your MFS Regatta Gold
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 withdraw it.
<TABLE>
<CAPTION>
NUMBER OF
YEARS IN ACCOUNT WITHDRAWAL CHARGE
- ----------------- -----------------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 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
2
<PAGE>
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
Series, which range from 0.56% to 1.55% of the average net assets of the Series,
depending upon which Series you have selected. The investment adviser has agreed
to waive or reimburse a portion of expenses for some of the Series; without this
agreement, Series expenses could be higher. Some of these arrangements may be
terminated after one year, or earlier if the Series Fund's Board of Trustees
agrees.
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 for each Series. 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.
"Total Annual Insurance Charges" include the insurance charges of 1.40%,
plus an additional 0.10%, which is used to represent the $30 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 ANNUAL TOTAL ANNUAL TOTAL TOTAL EXPENSES
INSURANCE SERIES ANNUAL AT END
SUB-ACCOUNT CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- ------------------------------------------------- ---------------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Bond Series 1.50% 1.03% 2.53% $ 81 $ 287
(1.40% + 0.10%)
Capital Appreciation Series 1.50% 0.77% 2.27% $ 79 $ 261
(1.40% + 0.10%)
Capital Opportunities Series 1.50% 0.86% 2.36% $ 79 $ 270
(1.40% + 0.10%)
Emerging Growth Series 1.50% 0.78% 2.28% $ 79 $ 262
(1.40% + 0.10%)
Equity Income Series 1.50% 1.03% 2.53% $ 81 $ 287
(1.40% + 0.10%)
Global Asset Allocation Series 1.50% 0.90% 2.40% $ 80 $ 274
(1.40% + 0.10%)
Global Governments Series 1.50% 0.88% 2.38% $ 80 $ 272
(1.40% + 0.10%)
Global Growth Series 1.50% 1.01% 2.51% $ 81 $ 285
(1.40% + 0.10%)
Global Total Return Series 1.50% 0.93% 2.43% $ 80 $ 277
(1.40% + 0.10%)
Government Securities Series 1.50% 0.62% 2.12% $ 77 $ 245
(1.40% + 0.10%)
High Yield Series 1.50% 0.82% 2.32% $ 79 $ 266
(1.40% + 0.10%)
International Growth Series 1.50% 1.32% 2.82% $ 84 $ 315
(1.40% + 0.10%)
International Growth and Income Series 1.50% 1.16% 2.66% $ 82 $ 299
(1.40% + 0.10%)
Managed Sectors Series 1.50% 0.80% 2.30% $ 79 $ 264
(1.40% + 0.10%)
Massachusetts Investors Growth Stock Series 1.50% 0.97% 2.47% $ 81 $ 281
(1.40% + 0.10%)
Massachusetts Investors Trust Series 1.50% 0.59% 2.09% $ 77 $ 242
(1.40% + 0.10%)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL TOTAL EXPENSES
INSURANCE SERIES ANNUAL AT END
SUB-ACCOUNT CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- ------------------------------------------------- ---------------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
MFS/Foreign & Colonial Emerging Markets Equity 1.50% 1.50% 3.00% $ 86 $ 332
Series (1.40% + 0.10%)
Money Market Series 1.50% 0.56% 2.06% $ 77 $ 239
(1.40% + 0.10%)
New Discovery Series 1.50% 1.28% 2.78% $ 83 $ 311
(1.40% + 0.10%)
Research Series 1.50% 0.76% 2.26% $ 79 $ 260
(1.40% + 0.10%)
Research Growth and Income Series 1.50% 0.95% 2.45% $ 80 $ 279
(1.40% + 0.10%)
Research International Series 1.50% 1.55% 2.05% $ 86 $ 336
(1.40% + 0.10%)
Strategic Income Series 1.50% 1.29% 2.79% $ 84 $ 312
(1.40% + 0.10%)
Total Return Series 1.50% 0.70% 2.20% $ 78 $ 253
(1.40% + 0.10%)
Utilities Series 1.50% 0.86% 2.36% $ 79 $ 270
(1.40% + 0.10%)
</TABLE>
For more detailed information about Contract fees and expenses, please
refer to the fee table and discussion of Contract charges contained in the full
Prospectus which accompanies this Profile.
6. TAXES
Your earnings are not taxed until you take them out of your Contract. If
you take money out, earnings come out first and are taxed as income. If 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 as income
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 -- 10% of all payments
you have made in the last 7 years, plus any payment we have held for at least 7
years. All other purchase payments you withdraw will be subject to a withdrawal
charge ranging from 6% to 0%. (If you purchased your Contract before November
1994 or your state requires, your withdrawal charge will be calculated
differently, using the alternative method we describe in the Prospectus. You
should check your Contract to see which method applies to you.) 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
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 one or more Sub-Accounts, the value of your Contract will
increase or decrease depending upon the investment performance of the Series you
choose.
The following chart shows total returns for investment in the Sub-Accounts
where the corresponding Series has at least one full calendar year of
operations. The returns reflect all charges and deductions of the Series and
Sub-Accounts and deduction of the Annual Account Fee. They do not
4
<PAGE>
reflect deduction of any withdrawal charges or premium taxes. These charges, if
included, would reduce the performance numbers shown. Past performance is not a
guarantee of future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
---------------------------------------------------------------------------------
SUB-ACCOUNT 1998 1997 1996 1995 1994 1993 1992
---------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bond Series -- -- -- -- -- -- --
Capital Appreciation Series 26.83% 21.33% 19.70% 32.51% (5.03)% 16.26% 11.53%
Capital Opportunities Series 21.10% 25.73% -- -- -- -- --
Emerging Growth Series 31.91% 20.16% 15.38% -- -- -- --
Equity Income Series -- -- -- -- -- -- --
Global Asset Allocation Series 4.97% 9.24% 14.28% 19.85% -- -- --
Global Governments Series 13.77% (2.24)% 3.11% 14.00% (5.91)% 17.16% (1.01)%
Global Growth Series 12.87% 13.63% 11.42% 14.29% 1.40% -- --
Global Total Return Series 16.61% 11.98% 12.58% 16.19% -- -- --
Government Securities Series 7.13% 7.15% 0.11% 15.92% (3.61)% 7.07% 5.14%
High Yield Series (0.88)% 11.55% 10.46% 15.32% (3.68)% 16.01% 13.34%
International Growth Series 0.41% 3.09% -- -- -- -- --
International Growth and Income Series 19.84% 4.95% 3.33% -- -- -- --
Managed Sectors Series 10.62% 23.80% 15.86% 30.34% (3.38)% 2.52% 4.91%
Massachusetts Investors Growth Stock
Series -- -- -- -- -- -- --
Massachusetts Investors Trust Series 22.03% 30.04% 23.57% 35.44% (2.57)% 6.82% 4.05%
MFS/Foreign & Colonial Emerging Markets
Equity Series (31.02)% 8.78% -- -- -- -- --
Money Market Series 3.48% 3.52% 3.37% 3.90% 2.17% 1.11% 1.81%
New Discovery Series -- -- -- -- -- -- --
Research Series 21.82% 19.07% 22.00% 35.44% -- -- --
Research Growth and Income Series 20.38% -- -- -- -- -- --
Research International Series -- -- -- -- -- -- --
Strategic Income Series -- -- -- -- -- -- --
Total Return Series 10.10% 20.18% 12.38% 24.93% (3.71)% 11.72% 6.77%
Utilities Series 15.86% 30.80% 18.57% 30.46% (6.36)% -- --
<CAPTION>
SUB-ACCOUNT 1991 1990 1989
---------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Bond Series -- -- --
Capital Appreciation Series 38.89% (11.02)% 45.06%
Capital Opportunities Series -- -- --
Emerging Growth Series -- -- --
Equity Income Series -- -- --
Global Asset Allocation Series -- -- --
Global Governments Series 13.10% 11.67% 8.31%
Global Growth Series -- -- --
Global Total Return Series -- -- --
Government Securities Series 14.17% 7.27% 11.19%
High Yield Series 45.49% (15.65)% (2.41)%
International Growth Series -- -- --
International Growth and Income Series -- -- --
Managed Sectors Series 59.67% (11.80)% 43.27%
Massachusetts Investors Growth Stock
Series -- -- --
Massachusetts Investors Trust Series 34.87% (4.86)% 33.69%
MFS/Foreign & Colonial Emerging Markets
Equity Series -- -- --
Money Market Series 4.23% 6.26% 7.31%
New Discovery Series -- -- --
Research Series -- -- --
Research Growth and Income Series -- -- --
Research International Series -- -- --
Strategic Income Series -- -- --
Total Return Series 19.87% 1.15% 15.80%
Utilities Series -- -- --
</TABLE>
9. DEATH BENEFIT
If the annuitant dies 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.
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;
(3) the value of the Contract on the most recent 7 year anniversary of the
Contract, plus any purchase payments made and adjusted for any partial
withdrawals and charges made after that anniversary;
(4)your total purchase payments minus the sum of partial withdrawals;
interest will accrue daily on each purchase payment and each partial
withdrawal at a rate equivalent to 5% per year until the first day of
the month following the annuitant's 80th birthday, or until the
purchase payment or partial withdrawal has doubled in amount, whichever
is earlier.
If the annuitant was 86 or older when we issued your Contract, the death
benefit is equal to the amount set forth in (2) above, in this Section 9.
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 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
5
<PAGE>
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 of
each transaction within your Contract. On a quarterly basis, you will receive a
complete statement of your transactions over the past quarter and a summary of
your account values during that period.
ADDITIONAL FEATURES. The MFS Regatta Gold 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.
Asset Allocation -- One or more asset allocation programs may be available
in connection with the Contract.
Systematic Withdrawal and Interest Out Program -- These programs allow you
to receive quarterly, semi-annual or annual payments during the Accumulation
Phase.
Portfolio Rebalancing Program -- 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.
Secured Future Program -- This program guarantees the return of your
Purchase Payment, and also allows you to allocate a portion of your investment
to one or more variable investment options.
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 1024
BOSTON, MASSACHUSETTS 02103
TEL: TOLL FREE (800) 752-7215
IN MASSACHUSETTS (617) 348-9600
6
<PAGE>
PROSPECTUS
MAY 1, 1999
MFS REGATTA GOLD
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 25 variable investment options and a range of fixed
options. The variable options are Sub-Accounts in the Variable Account. Each
Sub-Account invests in one of the following series of the MFS/Sun Life Series
Trust (the "Series Fund"), a mutual fund advised by our affiliate, Massachusetts
Financial Services Company:
<TABLE>
<S> <C>
Bond Series Managed Sectors Series
Capital Appreciation Series Massachusetts Investors Growth Stock Series
Capital Opportunities Series Massachusetts Investors Trust Series
Emerging Growth Series MFS/Foreign & Colonial Emerging Markets Equity Series
Equity Income Series Money Market Series
Global Asset Allocation Series New Discovery Series
Global Government Series Research Series
Global Growth Series Research Growth and Income Series
Global Total Return Series Research International Series
Government Securities Series Strategic Income Series
High Yield Series Total Return Series
International Growth Series Utilities Series
International Growth and Income
Series
</TABLE>
The fixed account options are available for specified time periods, called
Guarantee Periods, and pay interest at a guaranteed rate for each period.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE SERIES
FUND. PLEASE READ THIS PROSPECTUS AND THE SERIES FUND PROSPECTUS CAREFULLY
BEFORE INVESTING AND KEEP THEM FOR FUTURE REFERENCE. THEY CONTAIN IMPORTANT
INFORMATION ABOUT THE MFS REGATTA GOLD ANNUITY AND THE SERIES FUND.
We have filed a Statement of Additional Information dated May 1, 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 77 of this Prospectus. You may obtain a copy without charge by
writing to our Annuity Service Mailing Address or by telephoning (800) 752-7215
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 1024, BOSTON, MASSACHUSETTS
02103
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms 4
Expense Summary 4
Summary of Contract Expenses 4
Series Fund Annual Expenses 5
Examples 6
Condensed Financial Information 7
The MFS Regatta Gold Annuity 7
Communicating to Us About Your Contract 7
Sun Life Assurance Company of Canada (U.S.) 8
The Variable Account 8
Variable Account Options: The MFS/Sun Life Series Trust 8
The Fixed Account 10
The Fixed Account Options: The Guarantee Periods 11
The Accumulation Phase 11
Issuing Your Contract 11
Amount and Frequency of Purchase Payments 12
Allocation of Net Purchase Payments 12
Your Account 12
Your Account Value 12
Variable Account Value 12
Fixed Account Value 13
Transfer Privilege 14
Waivers; Reduced Charges; Credits; Bonus Guaranteed Interest Rates 15
Optional Programs 15
Withdrawals, Withdrawal Charge and Market Value Adjustment 16
Cash Withdrawals 16
Withdrawal Charge 18
Market Value Adjustment 20
Contract Charges 21
Account Fee 21
Administrative Expense Charge 22
Mortality and Expense Risk Charge 22
Premium Taxes 22
Series Fund Expenses 22
Modification in the Case of Group Contracts 22
Death Benefit 22
Amount of Death Benefit 23
Method of Paying Death Benefit 23
Selection and Change of Beneficiary 24
Payment of Death Benefit 24
Due Proof of Death 24
The Income Phase -- Annuity Provisions 24
Selection of the Annuitant or Co-Annuitant 24
Selection of the Annuity Commencement Date 25
Annuity Options 25
Selection of Annuity Option 26
Amount of Annuity Payments 26
Exchange of Variable Annuity Units 27
Account Fee 28
Annuity Payment Rates 28
Annuity Options as Method of Payment for Death Benefit 28
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Other Contract Provisions 28
Exercise of Contract Rights 28
Change of Ownership 28
Death of Participant 29
Voting of Series Fund Shares 29
Periodic Reports 30
Substitution of Securities 30
Change in Operation of Variable Account 31
Splitting Units 31
Modification 31
Discontinuance of New Participants 31
Reservation of Rights 31
Right to Return 32
Federal Tax Status 32
Introduction 32
Deductibility of Purchase Payments 32
Pre-Distribution Taxation of Contracts 32
Distributions and Withdrawals from Non-Qualified Contracts 33
Distribution and Withdrawals from Qualified Contracts 33
Withholding 33
Purchase of Immediate Annuity Contract and Deferred Annuity Contract 34
Investment Diversification and Control 34
Tax Treatment of the Company and the Variable Account 34
Qualified Retirement Plans 34
Pension and Profit-Sharing Plans 35
Tax-Sheltered Annuities 35
Individual Retirement Accounts 35
Roth IRAs 35
Administration of the Contracts 36
Distribution of the Contracts 36
Performance Information 36
Available Information 37
Incorporation of Certain Documents by Reference 38
Additional Information About the Company 38
Business of the Company 38
Selected Financial Data 39
Management's Discussion and Analysis of Financial Condition and Results of Operations 39
Demutualization 47
Year 2000 Compliance 47
Sale of Subsidiary 48
Quantitative and Qualitative Disclosure About Market Risk 48
Reinsurance 50
Reserves 50
Investments 50
Competition 50
Employees 51
Properties 51
State Regulation 51
Legal Proceedings 52
Accountants 52
Financial Statements 52
Table of Contents of Statement of Additional Information 77
Appendix A -- Glossary 79
Appendix B -- Condensed Financial Information-- Accumulation Unit Values 82
Appendix C -- Withdrawals, Withdrawal Charges and the Market Value Adjustment 84
</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 Series of the Series Fund. The table should
be considered together with the narrative provided under the heading "Contract
Fees" in this Prospectus, and with the Series Fund's prospectus. 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 Account Years Purchase Payment in Account
0-1............................................................................ 6%
2-3............................................................................ 5%
4-5............................................................................ 4%
6.............................................................................. 3%
7 or more...................................................................... 0%
Transfer Fee (2)................................................................... $ 0
ANNUAL ACCOUNT FEE per Contract or Certificate (3) $ 30
VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of average Variable Account
assets)
Mortality and Expense Risk Charge................................................ 1.25%
Administrative Expense Charge.................................................... 0.15%
Other Fees and Expenses of the Variable Account.................................. 0.00%
-----
Total Variable Account Annual Expenses............................................. 1.40%
</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 7 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 $30 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
<PAGE>
SERIES FUND ANNUAL EXPENSES (1)
(AS A PERCENTAGE OF SERIES FUND NET ASSETS)
<TABLE>
<CAPTION>
OTHER TOTAL FUND
MANAGEMENT EXPENSES(2) EXPENSES
FEES (AFTER REIMBURSEMENT) (AFTER REIMBURSEMENT)
--------------- ------------------------ ------------------------
<S> <C> <C> <C>
Bond Series(3).................................... 0.60% 0.43% 1.03%
Capital Appreciation Series....................... 0.73% 0.04% 0.77%
Capital Opportunities Series...................... 0.75% 0.11% 0.86%
Emerging Growth Series............................ 0.72% 0.06% 0.78%
Equity Income Series(3)........................... 0.75% 0.28% 1.03%(3)
Global Asset Allocation Series.................... 0.75% 0.15% 0.90%
Global Governments Series......................... 0.75% 0.13% 0.88%
Global Growth Series.............................. 0.90% 0.11% 1.01%
Global Total Return Series........................ 0.75% 0.18% 0.93%
Government Securities Series...................... 0.55% 0.07% 0.62%
High Yield Series................................. 0.75% 0.07% 0.82%
International Growth Series....................... 0.98% 0.34% 1.32%
International Growth and Income Series............ 0.98% 0.18% 1.16%
Managed Sectors Series............................ 0.74% 0.06% 0.80%
Massachusetts Investors Growth Stock Series....... 0.75% 0.22% 0.97%
Massachusetts Investors Trust Series.............. 0.55% 0.04% 0.59%
MFS/Foreign & Colonial Emerging Markets Equity
Series........................................... 1.25% 0.25% 1.50%
Money Market Series............................... 0.50% 0.06% 0.56%
New Discovery Series(3)........................... 0.90% 0.38% 1.28%(3)
Research Series................................... 0.70% 0.06% 0.76%
Research Growth and Income Series................. 0.75% 0.20% 0.95%
Research International Series(3).................. 1.00% 0.55% 1.55%(3)
Strategic Income Series(3)........................ 0.75% 0.54% 1.29%(3)
Total Return Series............................... 0.65% 0.05% 0.70%
Utilities Series.................................. 0.75% 0.11% 0.86%
</TABLE>
- ------------------------
(1) The information relating to Series Fund expenses was provided by the Series
Fund and we have not independently verified it. You should consult the
Series Fund prospectus for more information about Series Fund expenses
(2) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into such other
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the series' expenses). Any such fee reductions are not
reflected under "Other Expenses."
(3) "Other Expenses" and "Total Fund Expenses" are based on actual expenses for
the fiscal year ended December 31, 1998, net of any expense reimbursement
and/or fee waiver. MFS has agreed to bear the expenses of certain of the
Series (excluding management fees, taxes, extraordinary expenses and
brokerage and transaction costs) in excess of the following annual
percentage of such Series' average daily net assets:
<TABLE>
<S> <C>
Bond Series...................................................... 0.40%
Equity Income Series............................................. 0.25%
New Discovery Series............................................. 0.35%
Research International Series.................................... 0.50%
Strategic Income Series.......................................... 0.50%
</TABLE>
Without taking into account the fee waiver and/or expense reimbursement,
expenses for these Series would have been as follows: Bond Series -- Other
Expenses 0.47% and Total Fund Expenses 1.07%; Equity Income Series -- Other
Expenses 0.76% and Total Fund Expenses 1.51%; New Discovery Series -- Other
Expenses 0.70% and Total Fund Expenses 1.60%; Research International Series
-- Other Expenses 2.86% and Total Fund Expenses 3.86%; and Strategic Income
Series -- Other Expenses 0.67% and Total Fund Expenses 1.42%.
These arrangements will remain in effect until at least May 1, 2000, absent
earlier modification by the Series' Board of Trustees.
5
<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>
Bond Series............................................................... $ 81 $ 118 $ 160 $ 287
Capital Appreciation Series............................................... $ 79 $ 110 $ 147 $ 261
Capital Opportunities Series.............................................. $ 79 $ 113 $ 152 $ 270
Emerging Growth Series.................................................... $ 79 $ 110 $ 148 $ 262
Equity Income Series...................................................... $ 81 $ 118 $ 160 $ 287
Global Asset Allocation Series............................................ $ 80 $ 114 $ 154 $ 274
Global Governments Series................................................. $ 80 $ 113 $ 153 $ 272
Global Growth Series...................................................... $ 81 $ 117 $ 159 $ 285
Global Total Return Series................................................ $ 80 $ 115 $ 155 $ 277
Government Securities Series.............................................. $ 77 $ 106 $ 140 $ 245
High Yield Series......................................................... $ 79 $ 112 $ 150 $ 266
International Growth Series............................................... $ 84 $ 126 $ 173 $ 315
International Growth and Income Series.................................... $ 82 $ 121 $ 166 $ 299
Managed Sectors Series.................................................... $ 79 $ 111 $ 149 $ 264
Massachusetts Investors Growth Stock Series............................... $ 81 $ 116 $ 157 $ 281
Massachusetts Investors Trust Series...................................... $ 77 $ 105 $ 139 $ 242
MFS/Foreign & Colonial Emerging Markets Equity Series..................... $ 86 $ 131 $ 182 $ 332
Money Market Series....................................................... $ 77 $ 104 $ 137 $ 239
New Discovery Series...................................................... $ 83 $ 125 $ 172 $ 311
Research Series........................................................... $ 79 $ 110 $ 147 $ 260
Research Growth and Income Series......................................... $ 80 $ 115 $ 156 $ 279
Research International Series............................................. $ 86 $ 132 $ 184 $ 336
Strategic Income Series................................................... $ 84 $ 125 $ 172 $ 312
Total Return Series....................................................... $ 78 $ 108 $ 144 $ 253
Utilities Series.......................................................... $ 79 $ 113 $ 152 $ 270
</TABLE>
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>
Bond Series............................................................... $ 26 $ 79 $ 135 $ 287
Capital Appreciation Series............................................... $ 23 $ 71 $ 122 $ 261
Capital Opportunities Series.............................................. $ 24 $ 74 $ 126 $ 270
Emerging Growth Series.................................................... $ 23 $ 71 $ 122 $ 262
Equity Income Series...................................................... $ 26 $ 79 $ 135 $ 287
Global Asset Allocation Series............................................ $ 24 $ 75 $ 128 $ 274
Global Governments Series................................................. $ 24 $ 74 $ 127 $ 272
Global Growth Series...................................................... $ 25 $ 78 $ 134 $ 285
Global Total Return Series................................................ $ 25 $ 76 $ 130 $ 277
Government Securities Series.............................................. $ 22 $ 66 $ 114 $ 245
High Yield Series......................................................... $ 24 $ 72 $ 124 $ 266
International Growth Series............................................... $ 29 $ 87 $ 149 $ 315
International Growth and Income Series.................................... $ 27 $ 83 $ 141 $ 299
Managed Sectors Series.................................................... $ 23 $ 72 $ 123 $ 264
Massachusetts Investors Growth Stock Series............................... $ 25 $ 77 $ 132 $ 281
Massachusetts Investors Trust Series...................................... $ 21 $ 65 $ 112 $ 242
MFS/Foreign & Colonial Emerging Markets Equity Series..................... $ 30 $ 93 $ 158 $ 332
Money Market Series....................................................... $ 21 $ 65 $ 111 $ 239
New Discovery Series...................................................... $ 28 $ 86 $ 147 $ 311
Research Series........................................................... $ 23 $ 71 $ 121 $ 260
Research Growth and Income Series......................................... $ 25 $ 76 $ 131 $ 279
Research International Series............................................. $ 31 $ 94 $ 160 $ 336
Strategic Income Series................................................... $ 28 $ 87 $ 147 $ 312
Total Return Series....................................................... $ 22 $ 69 $ 118 $ 253
Utilities Series.......................................................... $ 24 $ 74 $ 126 $ 270
</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.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
Historical information about the value of the units we use to measure the
variable portion of your Contract ("Variable Accumulation Units") is included in
the back of this Prospectus as Appendix B.
THE MFS REGATTA GOLD 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 MFS Regatta Gold Annuity on a group basis in connection with retirement
plans. 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 participating
individuals under Group Contracts as "Participants" and we address Participants
as "you"; we use the term "Contracts" to include Group Contracts and
Certificates issued under Group Contracts. For the purpose of determining
benefits under the 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 the Annuitant dies 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 (800) 752-7215 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.
7
<PAGE>
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.
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 Series of the MFS/Sun
Life Series Trust (the "Series Fund"). All amounts allocated to the Variable
Account will be used to purchase Series Fund shares as designated by you at
their net asset value. Any and all distributions made by the Series Fund with
respect to the shares held by the Variable Account will be reinvested to
purchase additional shares at their net asset value. Deductions from the
Variable Account for cash withdrawals, annuity payments, death benefits, Account
Fees, contract charges against the assets of the Variable Account for the
assumption of mortality and expense risks, administrative expenses and any
applicable taxes will, in effect, be made by redeeming the number of Series Fund
shares at their net asset value equal in total value to the amount to be
deducted. The Variable Account will be fully invested in Series Fund shares at
all times.
VARIABLE ACCOUNT OPTIONS:
THE MFS/SUN LIFE SERIES TRUST
The MFS/Sun Life Series Trust (the "Series Fund") is an open-end
management investment company registered under the Investment Company Act of
1940. Our affiliate, Massachusetts Financial Services Company ("MFS"), serves as
the investment adviser to the Series Fund.
The Series Fund is composed of 26 independent portfolios of securities,
each of which has separate investment objectives and policies. Shares of the
Series Fund are issued in 26 Series, each corresponding to one of the
portfolios. The Contracts provide for investment by the Sub-Accounts in shares
of the 25 Series of the Series Fund described below. Additional portfolios may
be added to the Series Fund which may or may not be available for investment by
the Variable Account.
BOND SERIES will primarily seek as high a level of current income as is
believed to be consistent with prudent investment risk; its secondary
objective is to seek to protect shareholders' capital.
CAPITAL APPRECIATION SERIES will seek to maximize capital appreciation by
investing in securities of all types, with major emphasis on common stocks.
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CAPITAL OPPORTUNITIES SERIES will seek capital appreciation.
EMERGING GROWTH SERIES will seek long-term growth of capital.
EQUITY INCOME SERIES will primarily seek reasonable income by investing
mainly in income producing securities; its secondary objective is to seek
capital appreciation.
GLOBAL ASSET ALLOCATION SERIES (formerly, the World Asset Allocation
Series) will seek total return over the long term through investments in
equity and fixed income securities and will also seek to have low
volatility of share price (I.E., net asset value per share) and reduced
risk (compared to an aggressive equity/fixed income portfolio).
GLOBAL GOVERNMENTS SERIES (formerly, the World Governments Series) will
seek to provide moderate current income, preservation of capital and growth
of capital by investing in debt obligations that are issued or guaranteed
as to principal and interest by either (i) the U.S. Government, its
agencies, authorities, or instrumentalities, or (ii) the governments of
foreign countries (to the extent that the Series' adviser believes that the
higher yields available from foreign government securities are sufficient
to justify the risks of investing in these securities).
GLOBAL GROWTH SERIES (formerly, the World Growth Series) will seek capital
appreciation by investing in securities of companies worldwide growing at
rates expected to be well above the growth rate of the overall U.S.
economy.
GLOBAL TOTAL RETURN SERIES (formerly, the World Total Return Series) will
seek total return by investing in securities which will provide above
average current income (compared to a portfolio invested entirely in equity
securities) and opportunities for long-term growth of capital and income.
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 lower rated or unrated securities (possibly
with equity features) of U.S. and foreign issuers (also known as "junk
bonds").
INTERNATIONAL GROWTH SERIES will seek capital appreciation.
INTERNATIONAL GROWTH AND INCOME SERIES will seek capital appreciation and
current income.
MANAGED SECTORS SERIES will seek capital appreciation by varying the
weighting of its portfolio among 13 industry sectors.
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 (formerly, the Conservative Growth
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.
MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES will seek capital
appreciation.
MONEY MARKET SERIES will seek maximum current income to the extent
consistent with stability of principal by investing exclusively in money
market instruments maturing in less than 13 months.
NEW DISCOVERY SERIES will seek capital appreciation.
RESEARCH SERIES will seek to provide long-term growth of capital and future
income.
RESEARCH GROWTH AND INCOME SERIES will seek to provide long-term growth of
capital, current income and growth of income.
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RESEARCH INTERNATIONAL SERIES will seek capital appreciation.
STRATEGIC INCOME SERIES will seek to provide high current income by
investing in fixed income securities and will seek to take advantage of
opportunities to realize significant capital appreciation while maintaining
a high level of current income.
TOTAL RETURN SERIES will seek primarily to obtain above-average income
(compared to a portfolio entirely invested in equity securities) consistent
with prudent employment of capital; its secondary objective is to take
advantage of opportunities for growth of capital and income 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.
The Series Fund pays fees to MFS for its services pursuant to investment
advisory agreements. MFS also serves as investment adviser to each of the funds
in the MFS Family of Funds, and to certain other investment companies
established by MFS and/or us. MFS Institutional Advisers, Inc., a wholly-owned
subsidiary of MFS, provides investment advice to substantial private clients.
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS operates as an autonomous organization and the obligation of
performance with respect to the investment advisory and underwriting agreements
(including supervision of the sub-advisers noted below) is solely that of MFS.
We undertake no obligation in this regard.
MFS has retained Foreign & Colonial Management Limited ("FCM") and its
subsidiary, Foreign & Colonial Emerging Markets Limited ("FCEM"), as
sub-advisers to manage the MFS/Foreign & Colonial Emerging Markets Series and to
manage the assets of the Global Growth Series.
MFS may serve as the investment adviser to other mutual funds which have
similar investment goals and principal investment policies and risks as the
Series, and which may be managed by a Series' portfolio manager(s). While a
Series 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 Series and these similar products, including
differences in sales charges, expense ratios and cash flows.
The Series Fund also offers its shares to other separate accounts
established by the Company and our New York subsidiary in connection with
variable annuity and variable life insurance contracts. Although we do not
anticipate any disadvantages to this arrangement, 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 investing in the Series Fund. A
conflict may occur due to differences in tax laws affecting the operations of
variable life and variable annuity separate accounts, or some other reason. We
and the Series Fund's Board of Trustees will monitor events for such conflicts,
and, in the event of a conflict, we will take steps necessary to remedy the
conflict, including withdrawal of the Variable Account from participation in the
Series which is involved in the conflict or substitution of shares of other
Series or other mutual funds.
MORE COMPREHENSIVE INFORMATION ABOUT THE SERIES FUND AND THE MANAGEMENT,
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS, EXPENSES AND POTENTIAL RISKS OF
EACH SERIES MAY BE FOUND IN THE ACCOMPANYING CURRENT PROSPECTUS OF THE SERIES
FUND. YOU SHOULD READ THE SERIES FUND PROSPECTUS CAREFULLY BEFORE INVESTING. THE
SERIES FUND'S STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE BY CALLING
1-800-752-7215.
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.
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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.
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 on 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 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.
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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 $5,000, 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.
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.
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
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Factor. We calculate the Net Investment Factor by dividing (1) the net asset
value of a Series 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 Series during the Valuation Period, by (2) the net asset value per
share of the Series 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. 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.
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 all or some of the Guarantee Amount to one or more
Sub-Accounts, in accordance with the transfer privilege provisions of the
Contract. 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.
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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 Series Fund; and
- 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, the Series Fund has reserved the right to temporarily or
permanently refuse exchange requests from the Variable Account if, in MFS'
judgment, a Series would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. In particular, a pattern of exchanges that coincide with a market
timing strategy may be disruptive to a Series and therefore may be refused.
Accordingly, the Variable Account may not be in a position to effectuate
transfers and may refuse transfer requests without prior notice. We also
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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."
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, except that if you discontinue or alter the program prior to
completion, amounts remaining in the Fixed Account will be transferred to the
Money Market Series 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. 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 Series Fund shares) when prices are low and fewer Variable
Accumulation Units (and, indirectly, fewer Series 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 declining market.
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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 stock 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. By your election of an asset allocation program, you 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.
SYSTEMATIC WITHDRAWAL AND INTEREST OUT PROGRAMS
If you have an Account Value of $10,000 or more, you may select our
Systematic Withdrawal or Interest Out 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. Under the
Interest Out Program, we will automatically pay to you or reinvest interest
credited for all Guarantee Periods you have chosen. You may change or stop
either 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 these options.
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.
SECURED FUTURE PROGRAM
Under this program, we divide your Purchase Payment between the Fixed
Account and the Variable Account. For the Fixed Account portion, you choose a
Guarantee Period from among those we offer, and we allocate to that Guarantee
Period the portion of your Purchase Payment necessary so that at the end of the
Guarantee Period, your Fixed Account allocation, including interest, will equal
the entire amount of your original Purchase Payment. The remainder of the
original Purchase Payment will be invested in Sub-Accounts of your choice. At
the end of the Guarantee Period, you will be guaranteed the amount of your
Purchase Payment (assuming no withdrawals), plus you will have the benefit, if
any, of the investment performance of the Sub-Accounts you have chosen.
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
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"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.
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 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
the Series Fund or to determine the value of the net assets of the
Series 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 6 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."
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<PAGE>
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.
If you purchased your Contract before November 1994, or if your state does
not permit our current withdrawal charge, we use the Alternate Withdrawal
Charge, described below.
The withdrawal charge will never be greater than 6% of the aggregate
amount of Purchase Payments you make under the 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.
FREE WITHDRAWAL AMOUNT
In each Account Year you may withdraw a portion of your Account Value --
which we will call the "free withdrawal amount" -- before incurring the
withdrawal charge. For any year, the free withdrawal amount is equal to (1) 10%
of the amount of all Purchase Payments you have made during the last 7 Account
Years, including the current Account Year (the "Annual Withdrawal Allowance"),
plus (2) the amount of all Purchase Payments made before the last 7 Account
Years that you have not previously withdrawn. Any portion of the Annual
Withdrawal Allowance that you do not use in an Account Year is cumulative; that
is, it is carried forward and available for use in future years.
For convenience, we refer to Purchase Payments made during the last 7
Account Years (including the current Account Year) as "New Payments," and all
Purchase Payments made before the last 7 Account Years as "Old Payments."
For example, assume you wish to make a withdrawal from your Contract in
Account Year 10. You made an initial Purchase Payment of $10,000 in Account Year
1, you made one additional Purchase Payment of $8,000 in Account Year 8, and you
have made no previous withdrawals. Your Account Value in Account Year 10 is
$35,000. The free withdrawal amount for Account Year 10 is $19,400, calculated
as follows:
- $800, which is the Annual Withdrawal Allowance for Account Year 10 (10%
of the $8,000 Purchase Payment made in Account Year 8, the only New
Payment); plus
- $8,600, which is the total of the unused Annual Withdrawal Allowances
of $1,000 for each of Account Years 1 through 7 and $800 for each of
Account Years 8 and 9 that are carried forward and available for use in
Account Year 10; plus
- $10,000, which is the amount of all Old Payments that you have not
previously withdrawn.
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 New Payments that you
have not previously withdrawn. We impose the withdrawal charge on the amount of
these New 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 New
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.
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<PAGE>
ORDER OF WITHDRAWAL
New Payments are withdrawn on a first-in first-out basis until all New
Payments have been withdrawn. For example, assume the same facts as in the
example above. In Account Year 10 you wish to withdraw $25,000. We attribute the
withdrawal first to the free withdrawal amount of $19,400, which is not subject
to the withdrawal charge. The remaining $5,600 is withdrawn from the Purchase
Payment made in Account Year 8 (the only New Payment) and is subject to the
withdrawal charge. The $2,400 balance of the Account Year 8 Purchase Payment
will remain in your Account. If you make a subsequent $5,000 withdrawal in
Account Year 10, $2,400 of that amount will be withdrawn from the remainder of
the Account Year 8 Purchase Payment and will be subject to the withdrawal
charge. The other $2,600 of your withdrawal (which exceeds the amount of all New
Payments not previously withdrawn) will not be subject to the withdrawal charge.
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 in
which you withdraw it. The applicable percentages are as follows:
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS PERCENTAGE
- -------------- ---------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 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 5%, because the number of Account Years the
Purchase Payments have been held in your Account would be two.
For additional examples of how we calculate withdrawal charges, please see
Appendix C.
ALTERNATE WITHDRAWAL CHARGE
If you purchased your Contract before November 1994, or if your state does
not permit the withdrawal charge described above, we will impose the withdrawal
charge as follows:
FREE WITHDRAWAL AMOUNT
In each Account Year you may withdraw a portion of your Account Value
which we will call the "free withdrawal amount" before incurring the withdrawal
charge. For any year, the free withdrawal amount is equal to (1) 10% of the
amount of all Purchase Payments you have made during the last 7 Account Years,
including the current Account Year (the "Annual Withdrawal Allowance"), plus (2)
the amount of all Purchase Payments made before the last 7 Account Years that
you have not previously withdrawn. The Annual Withdrawal Allowance is not
cumulative; any portion of the Annual Withdrawal Allowance that you do not use
in an Account Year will not be carried forward or available for use in future
years.
For convenience, we refer to Purchase Payments made during the last 7
Account Years (including the current Account Year) as "New Payments," and all
Purchase Payments made before the last 7 Account Years as "Old Payments." Your
Account Value minus New Payments and Old Payments is called "accumulated value."
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<PAGE>
ORDER OF WITHDRAWAL
When you make a withdrawal, we consider the oldest Payment that you have
not already withdrawn to be withdrawn first, then the next oldest, and so forth.
Once all Old Payments and New 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 in
which you withdraw it. The applicable percentages are as follows:
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS PERCENTAGE
- -------------- ---------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
</TABLE>
For additional examples of how we calculate the Alternate Withdrawal
Charge, please see Appendix C.
TYPES OF WITHDRAWALS NOT SUBJECT TO WITHDRAWAL CHARGE
We do not impose a withdrawal charge on withdrawals from the Accounts of
(a) our employees, (b) employees of our affiliates, or (c) licensed insurance
agents who sell the Contracts. We also may waive withdrawal charges with respect
to Purchase Payments derived from the surrender of other annuity contracts we
issue.
If approved in your state, we will waive the withdrawal charge for a full
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.
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.
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<PAGE>
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
</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; and
N is the number of complete months remaining in your Guarantee Period.
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.
For examples of how we calculate the Market Value Adjustment, see Appendix
C.
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) $30 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 $75,000 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.
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<PAGE>
After the Annuity Commencement Date, we will deduct an annual Account Fee
of $30 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 1.25% 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.
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.
SERIES FUND EXPENSES
There are fees and charges deducted from each Series of the Series Fund.
These fees and expenses are described in the Series Fund's Prospectus and
Statement of Additional Information.
MODIFICATION IN THE CASE OF 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 the Annuitant dies 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 you have named more than one
Annuitant, the death benefit will be payable after the death of the last
surviving of the Annuitants.) If the Beneficiary is not living on the date of
death, we will pay the death benefit in one sum to you or to your estate. We do
not pay a death benefit if the
22
<PAGE>
Annuitant dies during the Income Phase. However, the Beneficiary will receive
any payments provided under an Annuity Option that is in effect.
If you have a Non-Qualified Contract and your spouse is your Beneficiary,
upon your death (if you are the Annuitant) your spouse may elect to continue the
Contract as the Participant, rather than receive the death benefit. In that
case, the death benefit provisions of the Contract will not apply until the
death of your spouse. See "Other Contract Provisions -- Death of Participant."
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 the Annuitant's
death in an acceptable form ("Due Proof of Death") if you have elected a death
benefit payment method before the Annuitant's 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 either the Beneficiary's election of 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.
The amount of the death benefit is determined as of the Death Benefit
Date.
If the Annuitant was 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 Account Value on the Seven-Year Anniversary immediately before
the Death Benefit Date, adjusted for subsequent Purchase Payments and
partial withdrawals and charges made between the Seven-Year
Anniversary and the Death Benefit Date; and
4. Your total Purchase Payments minus the sum of partial withdrawals;
interest will accrue daily on each Purchase Payment and each partial
withdrawal at a rate equivalent to 5% per year until the first day of
the month following the Annuitant's 80th birthday, or until the
Purchase Payment or partial withdrawal has doubled in amount,
whichever is earlier.
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.
If the death benefit we pay is amount (2), (3), or (4), your Account Value
will be increased by the excess, if any, of that amount over amount (1). 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 Money Market Series Sub-Account (without the application of a Market Value
Adjustment). The Beneficiary may then transfer 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 the Annuitant's
death, the Beneficiary may elect either a single cash payment or an annuity.
With respect to a Non-Qualified Contract, if you were the Annuitant and the
Beneficiary is your spouse, the Beneficiary may elect to continue the
Non-Qualified 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.
23
<PAGE>
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.
Neither you nor the Beneficiary may exercise rights that would adversely
affect the treatment of the Contract as an annuity contract under the Internal
Revenue Code. (See "Other Contract Provisions -- Death of Participant.")
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.
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 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.
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<PAGE>
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
second month following your Contract Date.
- 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, contain 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, except that Option E is available only
for a Fixed Annuity. 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
this purpose 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.
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.
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<PAGE>
*ANNUITY OPTION D -- MONTHLY PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
We make monthly payments for a specified period of time from 5 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 a Variable Annuity 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.
*ANNUITY OPTION E -- FIXED PAYMENTS
We hold the portion of your Adjusted Account Value selected for this
option at interest, and make fixed payments in such amounts and at such times as
you and we may agree. We continue making payments until the amount we hold is
exhausted. The final payment will be for the remaining balance and may be less
than the previous installments. We will credit interest yearly on the amount
remaining unpaid at a rate we determine from time to time, but never less than
3% per year (or a higher rate if specified in your Contract) compounded
annually. We may change the rate at any time, but will not reduce it more
frequently than once each calendar year.
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 Annuities 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.
- ------------------------
* The election of this Annuity Option may result in the imposition of a penalty
tax.
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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 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.
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 $30 in equal
amounts from each Variable Annuity Payment. We do not deduct the Account Fee
from Fixed Annuity payments.
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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 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 the Annuitant's 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
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
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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.
DEATH OF PARTICIPANT
If your Contract is a Non-Qualified Contract and you die prior to the
Annuitant and before the Annuity Commencement Date, special distribution rules
apply. In that case, your Account Value, plus or minus any Market Value
Adjustment, must be distributed to your "designated beneficiary" within the
meaning of Section 72(s) of the Internal Revenue Code, 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,
with payments beginning no later than one year after your death.
The person you have named as 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
elect to continue the Contract in his or her own name as Participant. If you
were the Annuitant as well as the Participant, your surviving spouse (if the
designated beneficiary) may elect to be named as both Participant and Annuitant
and continue the Contract; in that case, we will not pay a death benefit and the
Account Value will not be increased to reflect the death benefit calculation. In
all other cases where you are the Annuitant, the death benefit provisions of the
Contract control, subject to the condition that any Annuity Option elected
complies with the special distribution requirements described above.
If your spouse elects to continue the Contract (either in the case where
you are the Annuitant or in the case where you are not the Annuitant), your
spouse must give us written notification within 60 days after we receive Due
Proof of Death, and the special distributioon rules described above will apply
on the death of your spouse.
If you are the Annuitant and you die during the Income Phase, the
remaining value of the Annuity Option in place must be distributed at least as
rapidly as the method of distribution under the 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.
If yours is a Qualified Contract, any distributions upon your death will
be subject to the laws and regulations governing the particular retirement or
deferred compensation plan in connection with which the Qualified Contract was
issued.
VOTING OF SERIES FUND SHARES
We will vote Series Fund shares held by the Sub-Accounts at meetings of
shareholders of the Series Fund 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 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 Series 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 Series
Fund shares attributable to their contributions. Such plans may also provide the
additional extent, if any, to which the Owners shall follow voting instructions
of persons with rights under
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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 Series Fund shares for which instructions may be
given.
Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights afforded by the Investment Company
Act of 1940, 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 Series 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 Series Fund proxy material, together with an appropriate form to be
used to give voting instructions, will be provided to each person having the
right to give voting instructions at least 10 days prior to each meeting of the
shareholders of the Series Fund. We will determine the number of Series Fund
shares as to which each such person is entitled to give instructions as of the
record date set by the Series 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 Series Fund shares as to which voting instructions may be
given to the Company is determined by dividing the value of all of the Variable
Accumulation Units of the particular Sub-Account credited to the Participant
Account by the net asset value of one Series Fund share as of the same date. On
or after the Annuity Commencement Date, the number of Series Fund shares as to
which such instructions may be given by a Payee is determined by dividing the
reserve held by the Company in the Sub-Account with respect to the particular
Payee by the net asset value of a Series Fund share as of the same date. After
the Annuity Commencement Date, the number of Series Fund shares as to which a
Payee is entitled to give voting instructions will generally decrease due to the
decrease in the reserve.
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 Series Fund as may be
required by the Investment Company Act of 1940 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 Series of the Series Fund may not always be available
for investment under the Contract. We may add or delete Series 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 Series
or 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.
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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 Series Fund shares held
by the Sub-Accounts, the Variable Account may be operated as a management
company under the Investment Company Act of 1940 or it may be deregistered under
the Investment Company Act of 1940 in the event registration is no longer
required. Deregistration of the Variable Account requires an order by the 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 Owner and Participant(s), (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.
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 Series, sub-series thereof 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.
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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 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.
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.
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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 not 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
- 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 or
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
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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 series of the Series 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 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.
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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."
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
35
<PAGE>
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 7.34% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of the Participant's Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation. 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 will not be paid with respect to 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 this Prospectus
under the heading "Waivers; Reduced Charges; Credits; Bonus Guaranteed Interest
Rates." During 1996, 1997 and 1998, approximately $18,652,927, $16,576,365, and
$12,076,614, respectively, was paid to and retained by Clarendon in connection
with distribution of the Contracts.
PERFORMANCE INFORMATION
From time to time the Variable Account may publish reports to
shareholders, sales literature and advertisements containing performance
information relating to the Sub-Accounts. This information may include
standardized and non-standardized "Average Annual Total Return," "Cumulative
Growth Rate" and "Compound Growth Rate." The Government Securities Series
Sub-Account and the High Yield Series Sub-Account may also advertise "yield."
The Money Market Series Sub-Account may advertise "yield" and "effective yield."
Average Annual Total Return measures the net income of the Sub-Account and
any realized or unrealized gains or losses of the Series 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 an investment in
a Sub-Account over that period. Standardized Average Annual Total Return
information covers the period after the Variable Account was estabilished or, if
shorter, the life of the Series. Non-standardized Average Annual Return covers
the life of each Series, which may predate the Variable Account. Cumulative
Growth Rate represents the cumulative change in the value of an investment in
the Sub-Account for the period stated, and is arrived at by calculating the
change in the Accumulation Unit Value of a Sub-Account between the first and the
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.
36
<PAGE>
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 or the Account Fee, although they reflect all
recurring charges. 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 Series Fund for the specified periods, and
the figures are not intended to indicate future performance. For periods before
the date the Contracts became available, we calculate the performance
information for the Sub-Account on a hypothetical basis. To do this, we reflect
deductions of the current Contract fees and charges from the historical
performance of the corresponding series.
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 Money Market Series
Sub-Account), expressed as a percentage of the value of the Sub-Account's
Accumulation Units. Yield is an annualized figure, which means that we assume
that the Sub-Account 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 Money Market Series Sub-Account similarly, but include
the increase due to assumed compounding. The Money Market 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 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
37
<PAGE>
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 $ 204,671 $ 207,845
Retirement products $ 2,194,895 $ 2,204,693 $ 1,834,327
------------ ------------ ------------
$ 2,350,802 $ 2,409,364 $ 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 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,
in all U.S. states (except New York), and in the District of
38
<PAGE>
Columbia, Puerto Rico, the Virgin Islands, Great Britain, Ireland, Hong Kong,
Bermuda and the Philippines.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(IN $ THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity deposits and other revenue $ 2,581,463 $ 2,623,629 $ 2,215,322 $ 1,883,901 $ 1,997,525
Net investment income and realized gains 187,208 298,121 310,172 315,966 312,583
----------- ----------- ----------- ----------- -----------
2,768,671 2,921,750 2,525,494 2,199,867 2,310,108
----------- ----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 2,416,950 2,579,104 2,232,528 1,995,208 2,102,290
Other expenses 214,607 206,065 175,342 150,937 186,892
----------- ----------- ----------- ----------- -----------
2,631,557 2,785,169 2,407,870 2,146,145 2,289,182
----------- ----------- ----------- ----------- -----------
Operating gain 137,114 136,581 117,624 53,722 20,926
Federal income tax expense (benefit) 11,713 7,339 (5,400) 17,807 19,469
----------- ----------- ----------- ----------- -----------
Net income $ 125,401 $ 129,242 $ 123,024 $ 35,915 $ 1,457
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Assets $16,902,621 $15,925,357 $13,621,952 $12,359,683 $10,117,822
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Surplus notes $ 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 Condition
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.
- - 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.
39
<PAGE>
RESULTS OF OPERATIONS
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 & Other Segment" section below), as a result of which 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 $21.2 million in 1997.
INCOME FROM OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its three
business segments: the Retirement Products and Services segment, the Individual
Insurance segment and the Corporate segment. The following table provides a
summary.
40
<PAGE>
INCOME FROM OPERATIONS BY SEGMENT*
($ 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 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.
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
41
<PAGE>
past year. During the 4th 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.
- - 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.
42
<PAGE>
(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.
- - HIGHER OPERATIONAL EXPENSES. Operational expenses increased by approximately
$5 million, or 13%, as a result of the additional staffing needed to
administer higher volumes of business and because of non-recurring costs of
moving the Retirement Products and Services operations to a new facility.
INDIVIDUAL INSURANCE SEGMENT
The Individual Insurance segment comprises two main elements, internal
reinsurance and variable life products.
INTERNAL REINSURANCE
In recent years, the Company has had various reinsurance agreements with its
ultimate parent, Sun Life (Canada). In some of these arrangements, Sun Life
(Canada) has reinsured the mortality risks of individual life policies sold in
prior years by the Company. In another agreement, which became effective January
1, 1991 and terminated October 1, 1998, the Company reinsured certain individual
life insurance contracts issued by Sun Life (Canada). The latter agreement had a
significant effect on net income in both 1997 and 1998. The former agreements,
in the aggregate, also affected net income in those years, but to a much lesser
extent. The effects of these agreements on the Company's net income are
summarized in the following table.
43
<PAGE>
INTERNAL REINSURANCE-EFFECT ON INCOME FROM OPERATIONS BEFORE INCOME TAXES
($ 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.
- 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 $9 million, in dividends from subsidiaries. It also reflected
higher taxes and expenses.
FINANCIAL CONDITION AND LIQUIDITY
ASSETS
The Company's total assets comprise those held in its general account and
those held in its separate accounts. General account assets support general
account liabilities. Separate accounts and their assets are of two main types:
- Those assets held in a "fixed" separate account, which the Company
established for amounts that contract holders allocate to the fixed
portion of their combination fixed/variable deferred annuity contracts.
Fixed separate account assets are available to fund general account
liabilities and general account assets are available to fund the
liabilities of this fixed separate account. The
44
<PAGE>
Company manages the assets of this fixed separate account according to
general account investment policy guidelines.
- Those assets held in a number of registered and non-registered "variable"
separate accounts as investment vehicles for the Company's variable life
and annuity contracts. Policyholders may choose from among various
investment options offered under these contracts according to their
individual needs and preferences. Policyholders assume the investment
risks associated with these choices. General account and fixed separate
account assets are not available to fund the liabilities of these variable
accounts.
The following table summarizes significant changes in asset balances
during 1998 and 1997. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS % CHANGE
1998 1997 1996 1998/1997 1997/1996
---------- ---------- ---------- ------------ ------------
($ 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 has reflected 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 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 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% 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.
45
<PAGE>
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"),
an 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.
CAPITAL MARKETS RISK MANAGEMENT
See "Quantitative and Qualitative Disclosures About Market Risk," below
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 at
year-end 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.
46
<PAGE>
DEMUTUALIZATION
On January 27, 1998, SLOC announced that its Board of Directors requested
management world-wide to develop a plan to convert from a mutual life insurance
company into a publicly traded stock company through demutualization worldwide.
Management has put in place a full time task force which, together with a
worldwide team of actuarial, financial and legal advisers, has begun work. The
Board will decide later this year whether to proceed with demutualization,
following the completion of the plan. Demutualization would require regulatory
and policyholder approval. Based on information known to date, the potential
demutualization of SLOC is not expected to have any significant impact on the
Company.
YEAR 2000 COMPLIANCE
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, remediation and testing are in process. Over 90% of
the components have been remediated and tested and are 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 1999.
In mid-1997, the project team contacted all key vendors to obtain either
their certification for the products and services provided or their plan to make
those products and services compliant. Approximately 95% of these vendors have
responded, and the project team has reviewed the responses and validated and
conducted tests with the vendors where appropriate. 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 objective of assuring Year 2000 compliance.
Non-IT applications, including building security, HVAC systems, and other
such systems will be tested. Compliant client server and mainframe environments
have been built which 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 all critical systems to be Year 2000
compliant before the end of 1999, there can be no assurance that this result
will be completely achieved. 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 significant
systems being non-compliant. Such a scenario could result in material 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
management, customers, regulators, and others. Consequences also could include
business interruptions or shutdowns, reputational harm, increased 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 failure to achieve planned Year 2000
compliance, 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 to ensure that the most critical are
addressed first. The
47
<PAGE>
business units also have developed alternate plans of action where possible, and
established dates for the alternate plans to be enacted. 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 December 31, 1998, the Company 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.
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
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 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 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.
48
<PAGE>
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;
- 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 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 had a fair value of $1,538.3 million. Fixed
income investments supporting those liabilities had a fair value of $2,710.1
million at that date. The Company performed a sensitivity analysis on these
interest-sensitive liabilities and assets at December 31, 1998. The 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.
By comparison, liabilities categorized as financial instruments and held
in the Company's general account at December 31, 1997 had a fair value of
$1,986.4 million. Fixed income investments supporting those liabilities had a
fair value of $3,276.2 million at that date. The Company performed a sensitivity
analysis on these interest-sensitive liabilities and assets at December 31,
1997. The 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 $56.0 million and the corresponding assets would show a net decrease
of $108.0 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 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.
49
<PAGE>
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.
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. The Company terminated these agreements, effective October
1, 1998, resulting in an increase in income from operations by approximately
$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 all life insurance companies in the
United States 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
50
<PAGE>
on a cost reimbursement basis. As of March 31, 1999, the Company had 392 direct
employees who are employed at its Principal 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. Rent received by the Company under the leases amounted to approximately
$6,856,000 in 1998.The Company also occupies office space which it leases from
unaffiliated parties for various lease terms.
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.
51
<PAGE>
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 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 Series 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.
------------------------
52
<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.
53
<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.
54
<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.
55
<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.
56
<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.
57
<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.
58
<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.
59
<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.
60
<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>
61
<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.
62
<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>
63
<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)
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 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.
64
<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.
65
<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.
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 (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.
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
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>
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.
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
12. SEGMENT INFORMATION (CONTINUED)
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.
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.
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
13. RETIREMENT PLANS (CONTINUED)
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.
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>
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
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>
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
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.
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
15. STATUTORY INVESTMENT VALUATION RESERVES
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, stocks, mortgage loans, real estate and other invested
assets with related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest 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.
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
17. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE) (CONTINUED)
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.
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
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
20. ACCOUNTING POLICIES AND PRINCIPLES (CONTINUED)
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.
75
<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
76
<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>
77
<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 (800)
752-7215.
- --------------------------------------------------------------------------------
To: Sun Life Assurance Company of Canada (U.S.)
Annuity Service Mailing Address:
c/o Retirement Products and Services
P.O. Box 1024
Boston, Massachusetts 02103
Please send me a Statement of Additional Information for
MFS Regatta Gold Variable and Fixed Annuity
Sun Life of Canada (U.S.) Variable Account F.
Name
- --------------------------------------------------------------
Address
- --------------------------------------------------------------
-------------------------------------------------------------------------
City
- ------------------------------------ State
- -------------- Zip
- -------
Telephone
- ----------------------------------------------------------------
78
<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 named in the Application and whose life
the first annuity payment is to be made. In a Non-Qualified Contract, if you
name someone other than yourself as Annuitant, you may also name a co-annuitant.
If you do, all provisions of the Contract based on the death of the Annuitant
will be based on the date of death of the last surviving of the persons named.
By example, if the Annuitant dies prior to the Annuity Commencement Date, the
co-annuitant will become the new annuitant. The death benefit will become due
only on the death before the Annuity Commencement Date of the last surviving
annuitant and co-annuitant named. These persons are referred to collectively in
the Contract as "Annuitants." 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.
*BENEFICIARY: The person or entity having the right to receive the death
benefit and, for Non-Qualified Contracts, who is the "designated beneficiary"
for purposes of Section 72(s) of the Internal Revenue Code.
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.
* You specify these items on the Contract Specifications page or Certificate
Specifications page, and may change them, as we describe in this Prospectus.
79
<PAGE>
DEATH BENEFIT DATE: If you have elected a death benefit payment option
before the Annuitant's death that remains in effect, the date on which we
receive Due Proof of Death. If your Beneficiary elects the 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 Guarantee Period.
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.
GROUP CONTRACT: A Contract issued by the Company on a group basis.
GUARANTEE AMOUNT: Each separate allocation of 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.
NET INVESTMENT FACTOR: An index applied to measure the investment
performance of a Sun-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: The person named in the Certificate who is entitled to
exercise all rights and privileges of ownership under the Certificate, except as
reserved by the Owner.
PAYEE: A recipient of payments under a Contract. The term includes an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Participant.
PURCHASE PAYMENT (PAYMENT): An amount paid to the Company as consideration
for the benefits provided by a Contract.
80
<PAGE>
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.
SEVEN-YEAR ANNIVERSARY: The seventh Account Anniversary and each
succeeding Account Anniversary occurring at any seven year interval thereafter;
for example, the 14th, 21st and 28th Account Anniversaries.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific series of the Series 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.
81
<PAGE>
APPENDIX B
CONDENSED FINANCIAL INFORMATION--ACCUMULATION UNIT VALUES
The following information should be read in conjunction with the Variable
Account's financial statements appearing elsewhere in this Prospectus, all of
which has been audited by Deloitte & Touche LLP, independent certified public
accountants.
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------------------------------------------------
1991* 1992 1993 1994 1995 1996 1997
------------ ---------- ------------- ----------- ------------- ------------- -----------
BOND SERIES
<S> <C> <C> <C> <C> <C> <C> <C>
Unit Value:
Beginning of
Period............. -- -- -- -- -- -- --
End of Period........ -- -- -- -- -- -- --
Units outstanding end
of period............ -- -- -- -- -- -- --
CAPITAL APPRECIATION SERIES
Unit Value:
Beginning of
period............. $10.0000 $ 11.5021 $ 12.8402 $ 14.9429 $ 14.2064 $ 18.8932 $ 22.5700
End of period........ $11.5021 $ 12.8402 $ 14.9429 $ 14.2064 $ 18.8392 $ 22.5700 $ 27.4057
Units outstanding end
of period............ 124,454 5,131,355 13,245,142 19,909,649 27,782,739 32,796,793 35,528,897
CAPITAL OPPORTUNITIES SERIES
Unit Value:
Beginning of
period............. -- -- -- -- -- $ 10.0000** $ 10.9234
End of period........ -- -- -- -- -- $ 10.9234 $ 13.7450
Units outstanding end
of period............ -- -- -- -- -- 1,520,787 6,175,224
EMERGING GROWTH SERIES
Unit Value:
Beginning of period -- -- -- -- $ 10.0000** $ 12.5675 $ 14.5136
End of period........ -- -- -- -- $ 12.5675 $ 14.5136 $ 17.4544
Units outstanding end
of period............ -- -- -- -- 5,346,104 16,998,044 25,039,986
EQUITY INCOME SERIES
Unit Value:
Beginning of
Period............. -- -- -- -- -- -- --
End of Period........ -- -- -- -- -- -- --
Units outstanding end
of period............ -- -- -- -- -- -- --
GLOBAL ASSET ALLOCATION SERIES
Unit Value:
Beginning of
period............. -- -- -- $ 10.0000** $ 10.0367 $ 12.0393 $ 13.7702
End of period........ -- -- -- $ 10.0367 $ 12.0393 $ 13.7702 $ 15.0565
Units outstanding end
of period............ -- -- -- 299,210 2,141,041 5,539,010 7,928,833
GLOBAL GOVERNMENTS SERIES
Unit Value:
Beginning of
period............. $10.0000 $ 10.6125 $ 10.5161 $ 12.3309 $ 11.6151 $ 13.2523 $ 13.6780
End of period........ $10.6125 $ 10.5161 $ 12.3309 $ 11.6151 $ 13.2523 $ 13.6780 $ 13.3854
Units outstanding end
of period............ 44,190 3,405,280 7,008,613 8,334,019 8,272,858 7,510,766 6,127,641
GLOBAL GROWTH SERIES
Unit Value:
Beginning of
period............. -- -- $ 10.0000** $ 10.6200 $ 10.7803 $ 12.3321 $ 13.7523
End of period........ -- -- $ 10.6200 $ 10.7803 $ 12.3321 $ 13.7523 $ 15.6398
Units outstanding end
of period............ -- -- 1,778,644 9,182,555 11,421,691 13,989,946 15,058,757
GLOBAL TOTAL RETURN SERIES
Unit Value:
Beginning of
period............. -- -- -- $ 10.0000** $ 10.0195 $ 11.6516 $ 13.1290
End of period........ -- -- -- $ 10.0195 $ 11.6516 $ 13.1290 $ 14.7153
Units outstanding end
of period............ -- -- -- 138,126 1,170,586 2,836,079 4,676,853
GOVERNMENT SECURITIES SERIES
Unit Value:
Beginning of
period............. $10.0000 $ 10.3731 $ 10.9166 $ 11.6996 $ 11.2891 $ 13.0981 $ 13.1252
End of period........ $10.3731 $ 10.9166 $ 11.6996 $ 11.2891 $ 13.0981 $ 13.1252 $ 14.0763
Units outstanding end
of period............ 256,848 5,447,047 13,661,303 18,784,262 18,082,586 19,714,114 20,508,844
HIGH YIELD SERIES
Unit Value:
Beginning of
period............. $10.0000 $ 10.0378 $ 11.3864 $ 13.2209 $ 12.7475 $ 14.7137 $ 16.2674
End of period........ $10.0378 $ 11.3864 $ 13.2209 $ 12.7475 $ 14.7137 $ 16.2674 $ 18.1622
Units outstanding end
of period............ 6,734 1,380,530 3,599,473 4,605,818 6,880,080 8,424,289 11,699,195
INTERNATIONAL GROWTH SERIES
Unit Value:
Beginning of
period............. -- -- -- -- -- $ 10.0000** $ 9.7480
End of period........ -- -- -- -- -- $ 9.7460 $ 9.4566
Units outstanding end
of period............ -- -- -- -- -- 564,742 2,390,056
INTERNATIONAL GROWTH AND INCOME SERIES
Unit Value:
Beginning of
period............. -- -- -- -- $ 10.0000** $ 10.0942 $ 10.4404
End of period........ -- -- -- -- $ 10.0942 $ 10.4404 $ 10.9674
Units outstanding end
of period............ -- -- -- -- 711,179 3,360,596 4,441,911
MANAGED SECTORS SERIES
Unit Value:
Beginning of
period............. $10.0000 $ 11.7627 $ 12.3521 $ 12.6760 $ 12.2606 $ 15.9925 $ 18.5452
End of period........ $11.7627 $ 12.3521 $ 12.6760 $ 12.2606 $ 15.9925 $ 18,5452 $ 22.9770
Units outstanding end
of period............ 51,219 2,614,510 4,525,423 6,351,641 8,542,869 10,541,726 11,326,719
MASSACHUSETTS INVESTORS GROWTH STOCK SERIES
Unit Value:
Beginning of
Period............. -- -- -- -- -- -- --
End of Period........ -- -- -- -- -- -- --
Units outstanding end
of period............ -- -- -- -- -- -- --
MASSACHUSETTS INVESTORS SERIES
Unit Value:
Beginning of
period............. $10.0000 $ 10.9605 $ 11.4156 $ 12.2052 $ 11.9036 $ 16.1344 $ 19.9527
End of period........ $10.9605 $ 11.4156 $ 12.2052 $ 11.9036 $ 16.1344 $ 19.9527 $ 25.9656
Units outstanding end
of period............ 85,141 2,557,065 6,412,270 10,979,711 16,712,586 26,199,975 40,709,531
<CAPTION>
1998
-----------
BOND SERIES
<S> <C>
Unit Value:
Beginning of
Period............. $ 10.0000**
End of Period........ $ 10.5921
Units outstanding end
of period............ 1,182,239
CAPITAL APPRECIATION SERI
Unit Value:
Beginning of
period............. $ 27,4057
End of period........ $ 34.7871
Units outstanding end
of period............ 37,500,481
CAPITAL OPPORTUNITIES SER
Unit Value:
Beginning of
period............. $ 13.7450
End of period........ $ 17.2085
Units outstanding end
of period............ 10,262,282
EMERGING GROWTH SERIES
Unit Value:
Beginning of period $ 17.4544
End of period........ $ 23.0408
Units outstanding end
of period............ 28,900,957
EQUITY INCOME SERIES
Unit Value:
Beginning of
Period............. $ 10.0000**
End of Period........ $ 10.4065
Units outstanding end
of period............ 528,238
GLOBAL ASSET ALLOCATION S
Unit Value:
Beginning of
period............. $ 15.0565
End of period........ $ 15.8203
Units outstanding end
of period............ 7,576,691
GLOBAL GOVERNMENTS SERIES
Unit Value:
Beginning of
period............. $ 13.3854
End of period........ $ 15.2422
Units outstanding end
of period............ 5,048,219
GLOBAL GROWTH SERIES
Unit Value:
Beginning of
period............. $ 15.6398
End of period........ $ 17.6676
Units outstanding end
of period............ 14,522,129
GLOBAL TOTAL RETURN SERIE
Unit Value:
Beginning of
period............. $ 14.7153
End of period........ $ 17.1741
Units outstanding end
of period............ 5,354,633
GOVERNMENT SECURITIES SER
Unit Value:
Beginning of
period............. $ 14.0763
End of period........ $ 15.0941
Units outstanding end
of period............ 23,218,234
HIGH YIELD SERIES
Unit Value:
Beginning of
period............. $ 18.1622
End of period........ $ 18.0207
Units outstanding end
of period............ 14,190,817
INTERNATIONAL GROWTH SERI
Unit Value:
Beginning of
period............. $ 9.4566
End of period........ $ 9.5047
Units outstanding end
of period............ 3,290,043
INTERNATIONAL GROWTH AND
Unit Value:
Beginning of
period............. $ 10.9674
End of period........ $ 13.1538
Units outstanding end
of period............ 5,214,558
MANAGED SECTORS SERIES
Unit Value:
Beginning of
period............. $ 22.9770
End of period........ $ 25.4406
Units outstanding end
of period............ 11,245,144
MASSACHUSETTS INVESTORS G
Unit Value:
Beginning of
Period............. $ 10.0000**
End of Period........ $ 11.9635
Units outstanding end
of period............ 4,121,518
MASSACHUSETTS INVESTORS S
Unit Value:
Beginning of
period............. $ 25.9656
End of period........ $ 31.7109
Units outstanding end
of period............ 51,880,765
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------------------------------------------------
1991* 1992 1993 1994 1995 1996 1997
------------ ---------- ------------- ----------- ------------- ------------- -----------
MFS/FOREIGN & COLONIAL EMERGING
MARKETS EQUITY SERIES
<S> <C> <C> <C> <C> <C> <C> <C>
Unit Value:
Beginning of
period............. -- -- -- -- -- $ 10.0000** $ 9.9199
End of period........ -- -- -- -- -- $ 9.9199 $ 10.8010
Units outstanding end
of period............ -- -- -- -- -- 329,630 2,159,228
MONEY MARKET SERIES
Unit Value:
Beginning of
period............. $10.0000 $ 10.0370 $ 10.2288 $ 10.3527 $ 10.5878 $ 11.0111 $ 11.3932
End of period........ $10.0370 $ 10.2288 $ 10.3527 $ 10.5878 $ 11.0111 $ 11.3932 $ 11.8058
Units outstanding end
of period............ 417,559 4,101,024 6,055,673 14,774,386 17,186,041 27,275,583 21,463,139
NEW DISCOVERY SERIES
Unit Value:
Beginning of
Period............. -- -- -- -- -- -- --
End of Period........ -- -- -- -- -- -- --
Units outstanding end
of period............ -- -- -- -- -- -- --
RESEARCH SERIES
Unit Value:
Beginning of
period............. -- -- -- $ 10.0000** $ 9.8615 $ 13.3663 $ 16.3209
End of period........ -- -- -- $ 9.8615 $ 13.3663 $ 16.3209 $ 19.4490
Units outstanding end
of period............ -- -- -- 392,528 5,341,160 19,577,745 35,654,917
RESEARCH GROWTH AND INCOME
Unit Value:
Beginning of
period............. -- -- -- -- -- -- $ 10.0000**
End of period........ -- -- -- -- -- -- $ 10.9235
Units outstanding end
of period............ -- -- -- -- -- -- 535,928
RESEARCH INTERNATIONAL SERIES
Unit Value:
Beginning of
Period............. -- -- -- -- -- -- --
End of Period........ -- -- -- -- -- -- --
Units outstanding end
of period............ -- -- -- -- -- -- --
STRATEGIC INCOME SERIES
Unit Value:
Beginning of
Period............. -- -- -- -- -- -- --
End of Period........ -- -- -- -- -- -- --
Units outstanding end
of period............ -- -- -- -- -- -- --
TOTAL RETURN SERIES
Unit Value:
Beginning of
period............. $10.0000 $ 10.3042 $ 11.0125 $ 12.3142 $ 11.8694 $ 14.8406 $ 16.6932
End of period........ $10.3042 $ 11.0125 $ 12.3142 $ 11.8694 $ 14.8406 $ 16.6932 $ 20.0793
Units outstanding end
of period............ 280,202 12,952,314 32,979,812 48,270,556 53,091,748 59,508,016 66,303,467
UTILITIES SERIES
Unit Value:
Beginning of
period............. -- -- $ 10.0000** $ 10.0000 $ 9.3739 $ 12.2403 $ 14.5260
End of period........ -- -- $ 10.0000 $ 9.3739 $ 12.2403 $ 14.5260 $ 19.0140
Units outstanding end
of period............ -- -- 279,796 2,273,439 3,410,047 4,671,192 6,101.638
<CAPTION>
1998
-----------
MFS/FOREIGN & COLONIAL EM
MARKETS EQUITY SERIES
<S> <C>
Unit Value:
Beginning of
period............. $ 10.8010
End of period........ $ 7.4615
Units outstanding end
of period............ 2,147,348
MONEY MARKET SERIES
Unit Value:
Beginning of
period............. $ 11.8058
End of period........ $ 12.2282
Units outstanding end
of period............ 29,387,086
NEW DISCOVERY SERIES
Unit Value:
Beginning of
Period............. $ 10.0000**
End of Period........ $ 10.5258
Units outstanding end
of period............ 794,859
RESEARCH SERIES
Unit Value:
Beginning of
period............. $ 19.4490
End of period........ $ 23.7119
Units outstanding end
of period............ 38,553,986
RESEARCH GROWTH AND INCOM
Unit Value:
Beginning of
period............. $ 10.9235
End of period........ $ 13.1605
Units outstanding end
of period............ 2,408,676
RESEARCH INTERNATIONAL SE
Unit Value:
Beginning of
Period............. $ 10.0000**
End of Period........ $ 9.3330
Units outstanding end
of period............ 190,267
STRATEGIC INCOME SERIES
Unit Value:
Beginning of
Period............. $ 10.0000**
End of Period........ $ 9.9530
Units outstanding end
of period............ 622,914
TOTAL RETURN SERIES
Unit Value:
Beginning of
period............. $ 20.0793
End of period........ $ 22.1273
Units outstanding end
of period............ 71,102,020
UTILITIES SERIES
Unit Value:
Beginning of
period............. $ 19.0140
End of period........ $ 22.0489
Units outstanding end
of period............ 9,023,102
</TABLE>
- ----------------------------------
* From November 18, 1991 (date of commencement of issuance of the Contracts) to
December 31, 1991.
** Unit value on date of commencement of operations of the respective
Sub-Account.
83
<PAGE>
APPENDIX C
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: VARIABLE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
VARIABLE ACCOUNT)
WITHDRAWAL CHARGE CALCULATION FOR CERTIFICATES WITH DATE OF COVERAGE ON OR AFTER
NOVEMBER 1, 1994 WHICH CONTAIN THE CUMULATIVE WITHDRAWAL PROVISION:
FULL SURRENDER:
Assume a Purchase Payment of $40,000 is made on the Date of Coverage, no
additional Purchase Payments are made and there are no partial withdrawals. The
table below presents four examples of the withdrawal charge resulting from a
full surrender of the Participant's Account, based on hypothetical Account
Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE PURCHASE WITHDRAWAL WITHDRAWAL
ACCOUNT ACCOUNT WITHDRAWAL PAYMENTS CHARGE CHARGE
YEAR VALUE AMOUNT LIQUIDATED PERCENTAGE AMOUNT
------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $41,000 $ 4,000(a) $37,000 6.00% $2,220
3 $52,000 $12,000(b) $40,000 5.00% $2,000
7 $80,000 $28,000(c) $40,000 3.00% $1,200
9 $98,000 $36,000(d) $40,000 0.00% $ 0
</TABLE>
- ------------------------
(a) The free withdrawal amount during an account year is equal to 10% of new
payments (those payments made in current account year or in the six
immediately preceding account years) less any prior partial withdrawals in
that account year. Any portion of the free withdrawal amount that is not
used in the current Account Year is carried forward into future years. In
the first account year 10% of new payments is $4,000. Therefore, on full
surrender $4,000 is withdrawn free of the withdrawal charge and the purchase
payment liquidated is $37,000 (account value less free withdrawal amount).
The withdrawal charge amount is determined by applying the withdrawal charge
percentage to the purchase payment liquidated.
(b) In the third account year, the free withdrawal amount is equal to $12,000
($4,000 for the current account year, plus an additional $8,000 for account
years 1 & 2 because no partial withdrawals were taken and the unused free
withdrawal amount is carried forward into future account years). The
withdrawal charge percentage is applied to the liquidated purchase payment
(account value less free withdrawal amount).
(c) In the seventh account year, the free withdrawal amount is equal to $28,000
($4,000 for the current account year, plus an additional $24,000 for account
years 1-6, $4,000 for each account year because no partial withdrawals were
taken and the unused free withdrawal amount is carried forward into future
account years). The withdrawal charge percentage is applied to the
liquidated purchase payment (account value less free withdrawal amount, but
not greater than actual purchase payments).
(d) There is no withdrawal charge on any purchase payment liquidated that has
been in the participant's account for at least seven years.
PARTIAL WITHDRAWAL:
Assume a single purchase payment of $40,000 is deposited at issue, no
additional purchase payments are made, no partial withdrawals have been taken
prior to the fifth account year, and there
84
<PAGE>
are a series of three partial withdrawals made during the fifth account year of
$9,000, $12,000, and $15,000.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL FREE PURCHASE WITHDRAWAL WITHDRAWAL
ACCOUNT WITHDRAWAL WITHDRAWAL PAYMENTS CHARGE CHARGE
VALUE AMOUNT AMOUNT LIQUIDATED PERCENTAGE AMOUNT
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(a) $64,000 $ 9,000 $20,000 $ 0 4.00% $ 0
(b) $56,000 $12,000 $11,000 $ 1,000 4.00% $ 40
(c) $40,000 $15,000 $ 0 $15,000 4.00% $600
</TABLE>
- ------------------------
(a) The free withdrawal amount during an account year is equal to 10% of new
payments (those payments made in current account year or in the six
immediately preceding account years) less any prior partial withdrawals in
that account year. Any portion of the free withdrawal amount that is not
used in the current account year is carried forward into future years. In
the fifth account year, the free withdrawal amount is equal to $20,000
($4,000 for the current account year, plus an additional $16,000 for account
years 1-4, $4,000 for each account year because no partial withdrawals were
taken). The partial withdrawal amount ($9,000) is less than the free
withdrawal amount so no purchase payments are liquidated and no withdrawal
charge applies.
(b) Since a partial withdrawal of $9,000 was taken, the remaining free
withdrawal amount is equal to $11,000. The $12,000 partial withdrawal will
first be applied against the $11,000 free withdrawal amount, and then will
liquidate purchase payments of $1,000, incurring a withdrawal charge of $40.
(c) The free withdrawal amount is zero since the previous partial withdrawals
have already used the free withdrawal amount. The entire partial withdrawal
amount will result in purchase payments being liquidated and will incur a
withdrawal charge. At the beginning of the next account year, 10% of
purchase payments would be available for withdrawal requests during that
account year.
WITHDRAWAL CHARGE CALCULATION FOR CERTIFICATES WITH DATE OF COVERAGE BEFORE
NOVEMBER 1, 1994 AND CERTIFICATES ISSUED AFTER THAT DATE WHICH DO NOT CONTAIN
THE CUMULATIVE WITHDRAWAL PROVISION.
This example assumes that the date of the full surrender or partial
withdrawal is during the 9th Account Year.
<TABLE>
<CAPTION>
1 2 3 4 5 6
--- ------------ ---------- ---------- --- ----------
<S> <C> <C> <C> <C> <C>
1 $ 1,000 $ 1,000 $ 0 0% $ 0
2 1,200 1,200 0 0 0
3 1,400 1,280 120 3 3.60
4 1,600 0 1,600 4 64.00
5 1,800 0 1,800 4 72.00
6 2,000 0 2,000 5 100.00
7 2,000 0 2,000 5 100.00
8 2,000 0 2,000 6 120.00
9 2,000 0 2,000 6 120.00
--
------------ ---------- ---------- ----------
$ 15,000 $ 3,480 $ 11,520 $ 579.60
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
</TABLE>
EXPLANATION OF COLUMNS IN TABLE
COLUMNS 1 AND 2:
Represent Purchase Payments ("Payments") and amounts of Payments. Each
Payment was made on the first day of each Account Year.
85
<PAGE>
COLUMN 3:
Represents the amounts that may be withdrawn without the imposition of
withdrawal charges, as follows:
a) Payments 1 and 2, $1,000 and $1,200, respectively, have been credited
to the Certificate for more than seven years.
b) $1,280 of Payment 3 represents 10% of Payments that have been credited
to the Certificate for less than seven years. The 10% amount is applied to the
oldest unliquidated Payment, then the next oldest and so forth.
COLUMN 4:
Represents the amount of each Payment that is subject to a withdrawal
charge. It is determined by subtracting the amount in Column 3 from the Payment
in Column 2.
COLUMN 5:
Represents the withdrawal charge percentages imposed on the amounts in
Column 4.
COLUMN 6:
Represents the withdrawal charge imposed on each Payment. It is determined
by multiplying the amount in Column 4 by the percentage in Column 5.
For example, the withdrawal charge imposed on Payment 8
= Payment 8 Column 4 X Payment 8 Column 5
= $2,000 X 6%
= $120
FULL SURRENDER:
The total of Column 6, $579.60, represents the total amount of withdrawal
charges imposed on Payments in this example.
PARTIAL WITHDRAWAL:
The sum of amounts in Column 6 for as many Payments as are liquidated
reflects the withdrawal charges imposed in the case of a partial withdrawal.
For example, if $7,000 of Payments (Payments 1, 2, 3, 4, and 5) were
withdrawn, the amount of the withdrawal charges imposed would be the sum of
amounts in Column 6 for Payments 1, 2, 3, 4 and 5 which is $139.60.
PART 2--FIXED ACCOUNT--EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
The MVA factor is:
<TABLE>
<S> <C>
N/12
1 + I
( ----- ) -1
1 + J
</TABLE>
These examples assume the following:
1) the Guarantee Amount was allocated to a five year Guarantee Period
with a Guaranteed Interest Rate of 6% or .06 (l).
2) the date of surrender is two years from the Expiration Date (N =
24).
3) the value of the Guarantee Amount on the date of surrender is
$11,910.16.
4) the interest earned in the current Account Year is $674.16.
5) no transfers or partial withdrawals affecting this Guarantee Amount
have been made
86
<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.
<TABLE>
<C> <S> <C> <C>
N/12
1 + l
The MVA factor = ( ------ ) -1
1 + J
24/12
1 + .06
= ( ------ ) -1
1 + .08
= (.981)2 -1
= .963 -1
= - .037
</TABLE>
The value of the Guarantee Amount less interest credited to the Guarantee
Amount in the current Account Year is multiplied by the MVA factor to determine
the MVA
($11,910.16 - $674.16) X (-.037) = -$415.73
-$415.73 represents the MVA that will be deducted from the value of the
Guarantee Amount before the deduction of any withdrawal charge.
For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA
would be ($2,000.00 - $674.16) X (-.037) = -$49.06. -$49.06 represents the MVA
that will be deducted from the partial withdrawal amount before the deduction of
any withdrawal charge.
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of surrender, the current rate (J) is 5% or .05.
N/12
1 + l
The MVA factor = ( ------ ) -1
1 + J
24/12
1 + .06
= ( ------ ) -1
1 + .05
= (1.010)2 -1
= 1.019 -1
= .019
The value of the Guarantee Amount less interested credited to the
Guarantee Amount in the current Account Year is multiplied by the MVA factor to
determine the MVA
($11,910.16 - $674.16) X .019 = $213.48
$213.48 represents the MVA that would be added to the value of the
Guarantee Amount before the deduction of any withdrawal charge.
For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA
would be ($2,000.00 - $674.16) X .019 = $25.19.
$25.19 represents the MVA that would be added to the value of the partial
withdrawal amount before the deduction of any withdrawal charge.
87
<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 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE:
Toll Free (800) 752-7215
In Massachusetts (617) 348-9600
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte Touche LLP
125 Summer Street
Boston, Massachusetts 02110
GOLD-1 5/99
</TABLE>
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
MAY 1, 1999
PROFILE
FUTURITY II
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 II ANNUITY
The Futurity II 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 36 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.
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 5, 10, 15 or 20 years if
you die before the end of the period you have selected; (3) monthly payments for
your lifetime and the life of another person (usually your spouse) you have
chosen; and (4) monthly payments for a specified number of years (between 5 and
30), 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.
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
<PAGE>
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
CORE Large Cap Growth Fund OCC ACCUMULATION TRUST
CORE Small Cap Equity Fund Equity Portfolio
CORE U.S. Equity Fund Managed Portfolio
Growth and Income Fund Mid Cap Portfolio
International Equity Fund Small Cap Portfolio
J.P. MORGAN SERIES TRUST II SUN CAPITAL ADVISERS TRUST
Equity Portfolio Sun Capital Investment Grade Bond Fund
International Opportunities Portfolio Sun Capital Money Market Fund
Small Company Portfolio Sun Capital Real Estate Fund
LORD ABBETT SERIES FUND, INC. WARBURG PINCUS TRUST
Growth and Income Portfolio Emerging Markets Portfolio
International Equity Portfolio
Post-Venture Capital Portfolio
Small Company Growth Portfolio
</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 1.40% per year of the average daily
value of the Contract allocated among the Sub-Accounts.
There are no sales charges when you purchase your Futurity II 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
2
<PAGE>
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
YEARS IN ACCOUNT WITHDRAWAL CHARGE
- ----------------- -----------------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 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 0.59% to 1.40% 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.
"Total Annual Insurance Charges" include the insurance charges of 1.40%,
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 1.50% 0.67% 2.17% $ 78
(1.40% + 0.10%)
AIM V.I. Growth Fund 1.50% 0.72% 2.22% $ 78
(1.40% + 0.10%)
AIM V.I. Growth and Income Fund 1.50% 0.65% 2.15% $ 78
(1.40% + 0.10%)
AIM V.I. International Equity Fund 1.50% 0.91% 2.41% $ 80
(1.40% + 0.10%)
Alger American Growth Portfolio 1.50% 0.79% 2.29% $ 79
(1.40% + 0.10%)
Alger American Income and Growth Portfolio 1.50% 0.70% 2.20% $ 78
(1.40% + 0.10%)
Alger American Small Capitalization Portfolio 1.50% 0.89% 2.39% $ 80
(1.40% + 0.10%)
<CAPTION>
SUB-ACCOUNT 10 YEARS
- ----------------------------------------------------------- -------------
<S> <C>
AIM V.I. Capital Appreciation Fund $ 250
AIM V.I. Growth Fund $ 255
AIM V.I. Growth and Income Fund $ 248
AIM V.I. International Equity Fund $ 275
Alger American Growth Portfolio $ 263
Alger American Income and Growth Portfolio $ 257
Alger American Small Capitalization Portfolio $ 273
</TABLE>
3
<PAGE>
<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>
Goldman Sachs VIT CORE Large Cap Growth Fund 1.50% 0.80% 2.30% $ 79
(1.40% + 0.10%)
Goldman Sachs VIT CORE Small Cap Equity Fund 1.50% 0.90% 2.40% $ 80
(1.40% + 0.10%)
Goldman Sachs VIT CORE U.S. Equity Fund 1.50% 0.80% 2.30% $ 79
(1.40% + 0.10%)
Goldman Sachs VIT Growth and Income Fund 1.50% 0.90% 2.40% $ 80
(1.40% + 0.10%)
Goldman Sachs VIT International Equity Fund 1.50% 1.25% 2.75% $ 83
(1.40% + 0.10%)
J.P. Morgan Equity Portfolio 1.50% 0.90% 2.40% $ 80
(1.40% + 0.10%)
J.P. Morgan International Opportunities Portfolio 1.50% 1.20% 2.70% $ 83
(1.40% + 0.10%)
J.P. Morgan Small Company Portfolio 1.50% 1.15% 2.65% $ 82
(1.40% + 0.10%)
Lord Abbett Growth and Income Portfolio 1.50% 0.51% 2.01% $ 76
(1.40% + 0.10%)
MFS/Sun Life Capital Appreciation Series 1.50% 0.77% 2.27% $ 79
(1.40% + 0.10%)
MFS/Sun Life Emerging Growth Series 1.50% 0.78% 2.28% $ 79
(1.40% + 0.10%)
MFS/Sun Life Government Securities Series 1.50% 0.62% 2.12% $ 77
(1.40% + 0.10%)
MFS/Sun Life High Yield Series 1.50% 0.82% 2.32% $ 79
(1.40% + 0.10%)
MFS/Sun Life Massachusetts Investors Growth Stock Series 1.50% 0.97% 2.47% $ 81
(1.40% + 0.10%)
MFS/Sun Life Massachusetts Investors Trust Series 1.50% 0.59% 2.09% $ 77
(1.40% + 0.10%)
MFS/Sun Life New Discovery Series 1.50% 1.28% 2.78% $ 83
(1.40% + 0.10%)
MFS/Sun Life Total Return Series 1.50% 0.70% 2.20% $ 78
(1.40% + 0.10%)
MFS/Sun Life Utilities Series 1.50% 0.86% 2.36% $ 79
(1.40% + 0.10%)
OCC Equity Portfolio 1.50% 0.94% 2.44% $ 80
(1.40% + 0.10%)
OCC Managed Portfolio 1.50% 0.82% 2.32% $ 79
(1.40% + 0.10%)
OCC Mid Cap Portfolio 1.50% 1.05% 2.55% $ 81
(1.40% + 0.10%)
OCC Small Cap Portfolio 1.50% 0.88% 2.38% $ 80
(1.40% + 0.10%)
Sun Capital Investment Grade Bond Fund 1.50% 0.75% 2.25% $ 78
(1.40% + 0.10%)
Sun Capital Money Market Fund 1.50% 0.65% 2.15% $ 78
(1.40% + 0.10%)
Sun Capital Real Estate Fund 1.50% 1.25% 2.75% $ 83
(1.40% + 0.10%)
Warburg Pincus Emerging Markets Portfolio 1.50% 1.40% 2.90% $ 85
(1.40% + 0.10%)
Warburg Pincus International Equity Portfolio 1.50% 1.33% 2.83% $ 84
(1.40% + 0.10%)
Warburg Pincus Post-Venture Capital Portfolio 1.50% 1.40% 2.90% $ 85
(1.40% + 0.10%)
Warburg Pincus Small Company Growth Portfolio 1.50% 1.14% 2.64% $ 82
(1.40% + 0.10%)
<CAPTION>
SUB-ACCOUNT 10 YEARS
- ----------------------------------------------------------- -------------
<S> <C>
Goldman Sachs VIT CORE Large Cap Growth Fund $ 264
Goldman Sachs VIT CORE Small Cap Equity Fund $ 274
Goldman Sachs VIT CORE U.S. Equity Fund $ 264
Goldman Sachs VIT Growth and Income Fund $ 274
Goldman Sachs VIT International Equity Fund $ 308
J.P. Morgan Equity Portfolio $ 274
J.P. Morgan International Opportunities Portfolio $ 303
J.P. Morgan Small Company Portfolio $ 298
Lord Abbett Growth and Income Portfolio $ 234
MFS/Sun Life Capital Appreciation Series $ 262
MFS/Sun Life Emerging Growth Series $ 265
MFS/Sun Life Government Securities Series $ 246
MFS/Sun Life High Yield Series $ 268
MFS/Sun Life Massachusetts Investors Growth Stock Series $ 281
MFS/Sun Life Massachusetts Investors Trust Series $ 242
MFS/Sun Life New Discovery Series $ 311
MFS/Sun Life Total Return Series $ 253
MFS/Sun Life Utilities Series $ 270
OCC Equity Portfolio $ 278
OCC Managed Portfolio $ 266
OCC Mid Cap Portfolio $ 289
OCC Small Cap Portfolio $ 272
Sun Capital Investment Grade Bond Fund $ 258
Sun Capital Money Market Fund $ 248
Sun Capital Real Estate Fund $ 308
Warburg Pincus Emerging Markets Portfolio $ 322
Warburg Pincus International Equity Portfolio $ 319
Warburg Pincus Post-Venture Capital Portfolio $ 322
Warburg Pincus Small Company Growth Portfolio $ 298
</TABLE>
For more detailed information about Contract fees and expenses, please
refer to the fee table and discussion of Contract charges contained in the full
Prospectus which accompanies this Profile.
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 -- 10% of all payments
you have made in the last 7 years, plus any payment we have held for at least 7
years. All other purchase payments you withdraw will be subject to a withdrawal
charge ranging from 6% 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
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.
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;
(3) the value of the Contract on the most recent 7 year anniversary of the
Contract, plus any purchase payments made and adjusted for any partial
withdrawals and charges made after that anniversary;
(4) your highest Contract Value on any Account Anniversary before your
81st birthday, adjusted for subsequent purchase payments and partial
withdrawals and charges made between that Account Anniversary and the
Death Benefit Date; and
(5) your total Purchase Payments, plus interest on Purchase Payments
allocated to and transfers to the Variable Account -- while they
remain in the Variable Account -- at 5% per year until the first day
of the month following your 80th birthday, or until the Purchase
Payment or amount transferred has doubled in amount, whichever is
earlier; this amount is adjusted for partial withdrawals.
5
<PAGE>
If you were 86 or older when we issued your Contract, the death benefit is
equal to the amount set forth in (2) above, in this Section 9.
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 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 of
each transaction within your Contract. On a quarterly basis, you will receive a
complete statement of your transactions over the past quarter and a summary of
your account values during that period.
ADDITIONAL FEATURES. The Futurity II 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.
Asset Allocation -- One or more asset allocation programs may be available
in connection with the Contract.
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
6
<PAGE>
PROSPECTUS
MAY 1, 1999
FUTURITY II
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 36 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
CORE Large Cap Growth Fund OCC ACCUMULATION TRUST
CORE Small Cap Equity Fund Equity Portfolio
CORE U.S. Equity Fund Managed Portfolio
Growth and Income Fund Mid Cap Portfolio
International Equity Fund Small Cap Portfolio
J.P. MORGAN SERIES TRUST II SUN CAPITAL ADVISERS TRUST
Equity Portfolio Sun Capital Investment Grade Bond Fund
International Opportunities Portfolio Sun Capital Money Market Fund
Small Company Portfolio Sun Capital Real Estate Fund
LORD ABBETT SERIES FUND, INC. WARBURG PINCUS TRUST
Growth and Income Portfolio Emerging Markets Portfolio
International Equity Portfolio
Post-Venture Capital Portfolio
Small Company Growth Portfolio
</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 II ANNUITY AND THE FUNDS.
We have filed a Statement of Additional Information dated May 1, 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 78 of this Prospectus. You may obtain a copy without charge by
writing to our Annuity Service Mailing Address or by telephoning (800) 752-7215
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
Condensed Financial Information
The Futurity II 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
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
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
Annuity Options as Method of Payment for Death Benefit
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
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 -- Condensed Financial Information-- Accumulation Unit Values
Appendix C -- 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 Fees" 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 Account Years Purchase Payment in Account
0-1............................................................................ 6%
2-3............................................................................ 5%
4-5............................................................................ 4%
6.............................................................................. 3%
7 or more...................................................................... 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................................................ 1.25%
Administrative Expense Charge.................................................... 0.15%
Other Fees and Expenses of the Variable Account.................................. 0.00%
-----
Total Variable Account Annual Expenses............................................. 1.40%
</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 7 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
<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 Equity Portfolio(4).......................... 0.40% 0.50% 0.90%
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 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%
Warburg Pincus Emerging Markets Portfolio(3)............. 0.20% 1.20% 1.40%
Warburg Pincus International Equity Portfolio............ 1.00% 0.33% 1.33%
Warburg Pincus Post-Venture Capital Portfolio(3)......... 1.08% 0.32% 1.40%
Warburg Pincus Small Company Growth Portfolio............ 0.90% 0.24% 1.14%
</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) "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.
(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" 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; 0.95%, 6.49% and 7.44% for the Sun Capital Real
Estate Fund; 1.25%, 6.96%, and 8.21% for the Warburg Pincus Emerging Markets
Portfolio; and 1.25%, 0.45%, and 1.70% for the Warburg Pincus Post-Venture
Capital Portfolio. Fee waivers and expense reimbursements for the Warburg
Pincus Emerging Markets Portfolio and the Warburg Pincus Post-Venture
Capital Portfolio, the Sun Capital Funds, and the Goldman Sachs Funds may be
discontinued at any time.
(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 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
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.
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........................................ $ 78 $ 107 $ 142 $ 250
AIM V.I. Growth Fund...................................................... $ 78 $ 109 $ 145 $ 255
AIM V.I. Growth and Income Fund........................................... $ 78 $ 107 $ 141 $ 248
AIM V.I. International Equity Fund........................................ $ 80 $ 114 $ 154 $ 275
Alger American Growth Portfolio........................................... $ 79 $ 111 $ 148 $ 263
Alger American Income and Growth Portfolio................................ $ 78 $ 109 $ 146 $ 257
Alger American Small Capitalization Portfolio............................. $ 80 $ 114 $ 153 $ 273
Goldman Sachs VIT CORE Large Cap Growth Fund.............................. $ 79 $ 111 $ 149 $ 264
Goldman Sachs VIT CORE Small Cap Equity Fund.............................. $ 80 $ 114 $ 154 $ 274
Goldman Sachs VIT CORE U.S. Equity Fund................................... $ 79 $ 111 $ 149 $ 264
Goldman Sachs VIT Growth and Income Fund.................................. $ 80 $ 114 $ 154 $ 274
Goldman Sachs VIT International Equity Fund............................... $ 83 $ 124 $ 170 $ 308
J.P. Morgan Equity Portfolio.............................................. $ 80 $ 114 $ 154 $ 274
J.P. Morgan International Opportunities Portfolio......................... $ 83 $ 122 $ 168 $ 303
J.P. Morgan Small Company Portfolio....................................... $ 82 $ 121 $ 165 $ 298
Lord Abbett Growth and Income Portfolio................................... $ 78 $ 107 $ 142 $ 250
MFS/Sun Life Capital Appreciation Series.................................. $ 79 $ 110 $ 148 $ 262
MFS/Sun Life Emerging Growth Series....................................... $ 79 $ 111 $ 149 $ 265
MFS/Sun Life Government Securities Series................................. $ 77 $ 106 $ 140 $ 246
MFS/Sun Life High Yield Series............................................ $ 79 $ 112 $ 151 $ 268
MFS/Sun Life Massachusetts Investors Growth Stock Series.................. $ 81 $ 116 $ 157 $ 281
MFS/Sun Life Massachusetts Investors Trust Series......................... $ 77 $ 105 $ 139 $ 242
MFS/Sun Life New Discovery Series......................................... $ 83 $ 125 $ 172 $ 311
MFS/Sun Life Total Return Series.......................................... $ 78 $ 108 $ 144 $ 253
MFS/Sun Life Utilities Series............................................. $ 79 $ 113 $ 152 $ 270
OCC Equity Portfolio...................................................... $ 80 $ 115 $ 155 $ 278
OCC Managed Portfolio..................................................... $ 76 $ 99 $ 125 $ 207
OCC Mid Cap Portfolio..................................................... $ 81 $ 118 $ 161 $ 289
OCC Small Cap Portfolio................................................... $ 80 $ 113 $ 153 $ 272
Sun Capital Investment Grade Bond Fund.................................... $ 78 $ 110 $ 146 $ 258
Sun Capital Money Market Fund............................................. $ 78 $ 107 $ 141 $ 248
Sun Capital Real Estate Fund.............................................. $ 83 $ 124 $ 170 $ 308
Warburg Pincus Emerging Markets Portfolio................................. $ 85 $ 128 $ 177 $ 322
Warburg Pincus International Equity Portfolio............................. $ 84 $ 127 $ 175 $ 319
Warburg Pincus Post-Venture Capital Portfolio............................. $ 85 $ 128 $ 177 $ 322
Warburg Pincus Small Company Growth Portfolio............................. $ 82 $ 121 $ 165 $ 298
</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........................................ $ 22 $ 68 $ 116 $ 250
AIM V.I. Growth Fund...................................................... $ 23 $ 69 $ 119 $ 255
AIM V.I. Growth and Income Fund........................................... $ 22 $ 67 $ 115 $ 248
AIM V.I. International Equity Fund........................................ $ 24 $ 75 $ 129 $ 275
Alger American Growth Portfolio........................................... $ 23 $ 72 $ 123 $ 263
Alger American Income and Growth Portfolio................................ $ 23 $ 70 $ 120 $ 257
Alger American Small Capitalization Portfolio............................. $ 24 $ 75 $ 128 $ 273
Goldman Sachs VIT CORE Large Cap Growth Fund.............................. $ 23 $ 72 $ 123 $ 264
Goldman Sachs VIT CORE Small Cap Equity Fund.............................. $ 24 $ 75 $ 128 $ 274
Goldman Sachs VIT CORE U.S. Equity Fund................................... $ 23 $ 72 $ 123 $ 264
Goldman Sachs VIT Growth and Income Fund.................................. $ 24 $ 75 $ 128 $ 274
Goldman Sachs VIT International Equity Fund............................... $ 28 $ 85 $ 145 $ 308
J.P. Morgan Equity Portfolio.............................................. $ 24 $ 75 $ 128 $ 274
J.P. Morgan International Opportunities Portfolio......................... $ 27 $ 84 $ 143 $ 303
J.P. Morgan Small Company Portfolio....................................... $ 27 $ 82 $ 141 $ 298
Lord Abbett Growth and Income Portfolio................................... $ 22 $ 68 $ 116 $ 250
MFS/Sun Life Capital Appreciation Series.................................. $ 23 $ 71 $ 122 $ 262
MFS/Sun Life Emerging Growth Series....................................... $ 23 $ 72 $ 124 $ 265
MFS/Sun Life Government Securities Series................................. $ 22 $ 67 $ 114 $ 246
MFS/Sun Life High Yield Series............................................ $ 24 $ 73 $ 125 $ 268
MFS/Sun Life Massachusetts Investors Growth Stock Series.................. $ 25 $ 77 $ 132 $ 281
MFS/Sun Life Massachusetts Investors Trust Series......................... $ 21 $ 65 $ 112 $ 242
MFS/Sun Life New Discovery Series......................................... $ 28 $ 86 $ 147 $ 311
MFS/Sun Life Total Return Series.......................................... $ 22 $ 69 $ 118 $ 253
MFS/Sun Life Utilities Series............................................. $ 24 $ 74 $ 126 $ 270
OCC Equity Portfolio...................................................... $ 25 $ 76 $ 130 $ 278
OCC Managed Portfolio..................................................... $ 23 $ 67 $ 109 $ 207
OCC Mid Cap Portfolio..................................................... $ 26 $ 79 $ 136 $ 289
OCC Small Cap Portfolio................................................... $ 24 $ 74 $ 127 $ 272
Sun Capital Investment Grade Bond Fund.................................... $ 23 $ 70 $ 120 $ 258
Sun Capital Money Market Fund............................................. $ 22 $ 67 $ 115 $ 248
Sun Capital Real Estate Fund.............................................. $ 28 $ 85 $ 145 $ 308
Warburg Pincus Emerging Markets Portfolio................................. $ 29 $ 90 $ 153 $ 322
Warburg Pincus International Equity Portfolio............................. $ 29 $ 89 $ 151 $ 319
Warburg Pincus Post-Venture Capital Portfolio............................. $ 29 $ 90 $ 153 $ 322
Warburg Pincus Small Company Growth Portfolio............................. $ 27 $ 82 $ 141 $ 298
</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>
CONDENSED FINANCIAL INFORMATION
Information about the value of the units we use to measure the variable
portion of your Contract ("Variable Accumulation Units") is included in the back
of this Prospectus as Appendix B. This information covers the period from
commencement of operations of the Sub-Accounts on December 9, 1998 through
December 31, 1998.
THE FUTURITY II 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 II 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
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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.
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
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 will, in effect, be made by redeeming the
number of Fund shares at their net asset value equal in total value to the
amount to be deducted. The Variable Account will be fully invested in Fund
shares at all times.
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.
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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.
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 EQUITY PORTFOLIO seeks to provide a high total return from a
portfolio of selected equity securities.
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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.
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)
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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, including those issued by U.S. and
foreign companies (including companies in emerging market countries), the
U.S. Government and its agencies and instrumentalities (including those
which issue mortgage-backed securities), foreign governments (including
those of emerging market countries), and multinational organizations such
as the World Bank. 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, including
those issued by U.S. and foreign banks, corporate issuers, the U.S.
Government and its agencies and instrumentalities, foreign governments and
multinational organizations such as the World Bank. The fund may invest in
all types of money market securities, including commercial paper,
certificates of deposit, bankers' acceptances, mortgage-backed and
asset-backed securities, repurchase agreements and other short-term debt
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 trusts and other real
estate companies. The Fund generally focuses its investments in equity
REITs, which invest most of their assets directly in U.S. or foreign real
property, receive most of their income from rents and may also realize
gains by selling appreciated properties.
WARBURG PINCUS TRUST (advised by Warburg Pincus Asset Management, Inc.
("Warburg"); Warburg has retained Abbott Capital Management, L.P. regarding
investments in private investment funds for the Post-Venture Capital Portfolio.)
EMERGING MARKETS PORTFOLIO seeks long-term growth of capital by investing
primarily in equity securities of non-United States issuers consisting of
companies in emerging securities markets.
INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing in equity securities of non-U.S. issuers.
POST-VENTURE CAPITAL PORTFOLIO seeks long-term growth of capital by
investing primarily in equity securities of issuers in their post-venture
capital stage of development and pursues an aggressive investment strategy.
SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by investing in equity
securities of small-sized domestic companies.
The Funds may also be available to registered separate accounts offering
variable annuity and variable life products of other affiliated and unaffiliated
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
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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.
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 on 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
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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.
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.
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.
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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. 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.
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
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we receive (1) written notice from you electing a different Guarantee Period
from among those we then offer or (2) instructions to transfer all or some of
the Guarantee Amount to one or more Sub-Accounts, in accordance with the
transfer privilege provisions of the Contract. 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
- 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
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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 advisor, 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."
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, except that 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. 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
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<PAGE>
(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 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 stock 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. 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.
SYSTEMATIC WITHDRAWAL PROGRAM
If you have an Account Value of $10,000 or more, you may select our
Systematic Withdrawal or Interest Out 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.
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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.
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 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."
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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 (1) 10% of the
amount of all Purchase Payments you have made during the last 7 Account Years,
including the current Account Year (the "Annual Withdrawal Allowance"), plus (2)
the amount of all Purchase Payments made before the last 7 Account Years that
you have not previously withdrawn. Any portion of the Annual Withdrawal
Allowance that you do not use in an Account Year is cumulative; that is, it is
carried forward and available for use in future years.
For convenience, we refer to Purchase Payments made during the last 7
Account Years (including the current Account Year) as "New Payments," and all
Purchase Payments made before the last 7 Account Years as "Old Payments."
For example, assume you wish to make a withdrawal from your Contract in
Account Year 10. You made an initial Purchase Payment of $10,000 in Account Year
1, you made one additional Purchase Payment of $8,000 in Account Year 8, and you
have made no previous withdrawals. Your Account Value in Account Year 10 is
$35,000. The free withdrawal amount for Account Year 10 is $19,400, calculated
as follows:
- $800, which is the Annual Withdrawal Allowance for Account Year 10 (10%
of the $8,000 Purchase Payment made in Account Year 8, the only New
Payment); plus
- $8,600, which is the total of the unused Annual Withdrawal Allowances
of $1,000 for each of Account Years 1 through 7 and $800 for each of
Account Years 8 and 9 that are carried forward and available for use in
Account Year 10; plus
- $10,000, which is the amount of all Old Payments that you have not
previously withdrawn.
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 New Payments that you
have not previously withdrawn. We impose the withdrawal charge on the amount of
these New 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 New
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
New Payments are withdrawn on a first-in first-out basis until all New
Payments have been withdrawn. For example, assume the same facts as in the
example above. In Account Year 10 you wish to withdraw $25,000. We attribute the
withdrawal first to the free withdrawal amount of $19,400, which is not subject
to the withdrawal charge. The remaining $5,600 is withdrawn from the Purchase
Payment made in Account Year 8 (the only New Payment) and is subject to the
withdrawal charge. The $2,400 balance of the Account Year 8 Purchase Payment
will remain in your Account. If you make a subsequent $5,000 withdrawal in
Account Year 10, $2,400 of that amount will be withdrawn from the remainder of
the Account Year 8 Purchase Payment and will be subject to the withdrawal
charge. The
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<PAGE>
other $2,600 of your withdrawal (which exceeds the amount of all New Payments
not previously withdrawn) will not be subject to the withdrawal charge.
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
ACCOUNT YEARS PERCENTAGE
- -------------- ---------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 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 5%, 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 6% 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, please see
Appendix C.
TYPES OF WITHDRAWALS NOT SUBJECT TO WITHDRAWAL CHARGE
We do not impose a withdrawal charge on withdrawals from the Accounts of
(a) our employees, (b) employees of our affiliates, or (c) licensed insurance
agents who sell the Contracts. We also may waive withdrawal charges with respect
to Purchase Payments derived from the surrender of other annuity contracts we
issue.
If approved in your state, we will waive the withdrawal charge for a full
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.
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
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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.
For examples of how we calculate the Market Value Adjustment, see Appendix
C.
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
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<PAGE>
(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 $75,000 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 1.25% 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.
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.
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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 amount of your death benefit, calculated as described
below, will become the Contract's Account Value on the Death Benefit Date. All
other provisions, including any withdrawal charges, 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.
The amount of the death benefit is determined as of the Death Benefit
Date.
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 Account Value on the Seven-Year Anniversary immediately before
the Death Benefit Date, adjusted for subsequent Purchase Payments and
partial withdrawals and charges made between the Seven-Year
Anniversary and the Death Benefit Date;
4. Your highest Account Value on any Account Anniversary before your 81st
birthday, adjusted for subsequent Purchase Payments and partial
withdrawals and charges made between that Account Anniversary and the
Death Benefit Date; and
5. Your total Purchase Payments plus the following interest accruals,
adjusted for partial withdrawals; interest will accrue on Purchase
Payments allocated to and transfers to the Variable Account while they
remain in the Variable Account at 5% per year until the first day of
the month following your 80th birthday, or until the Purchase Payment
or amount transferred has doubled in amount, whichever is earlier.
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.
In calculating the death benefit amount payable under (3), (4), and (5),
any partial withdrawals will reduce the amount by the ratio of the Account Value
immediately following the withdrawal to the Account Value immediately before the
withdrawal.
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<PAGE>
If the death benefit is amount (2), (3), (4), or (5), your Account Value
will be increased by the excess, if any, of that amount over amount (1). 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). The Beneficiary may then transfer 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. With respect
to a Non-Qualified Contract, if the Beneficiary is the Owner's spouse, the
Beneficiary may elect to continue the Non-Qualified 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
the Account Value will be increased to reflect the 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.
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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.
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
second month following your Contract Date.
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- 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.
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 5 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.
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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 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.
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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.
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 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
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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.
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
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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 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
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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.
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 at the end of the Valuation Period during which we received it.
However, if
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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.
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.
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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 not 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
- 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.
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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 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
36
<PAGE>
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."
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
37
<PAGE>
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 7.46% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of the Participant's Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation. 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 will not be paid with respect to 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 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 Sub-Accounts. This information may include "Average
Annual Total Return," "Cumulative Growth Rate" and "Compound Growth Rate." Some
Sub-Accounts may advertise "yield" and "effective yield."
Average Annual Total Return measures the net income of the Sub-Account and
any realized or unrealized gains or losses of the Fund 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 an investment in
a Sub-Account over that period. Cumulative Growth Rate represents the cumulative
change in the value of an investment in the Sub-Account for the period stated,
and is arrived at by calculating the change in the Accumulation Unit Value of a
Sub-Account between the first and the 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 or the Account Fee, although they reflect all
recurring charges. 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. For periods before the
date the Contracts became available, we calculate the performance
38
<PAGE>
information for the Sub-Account on a hypothetical basis. To do this, we reflect
deductions of the current Contract fees and charges from the historical
performance of the corresponding series.
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
Sub-Account's Accumulation Units. Yield is an annualized figure, which means
that we assume that the Sub-Account 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 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.
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<PAGE>
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 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.
40
<PAGE>
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 54.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity deposits and other revenue $ 2,581,463 $ 2,623,629 $ 2,215,322 $ 1,883,901 $ 1,997,525
Net investment income and realized gains 187,208 298,121 310,172 315,966 312,583
----------- ----------- ----------- ----------- -----------
2,768,671 2,921,750 2,525,494 2,199,867 2,310,108
----------- ----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 2,416,950 2,579,104 2,232,528 1,995,208 2,102,290
Other expenses 214,607 206,065 175,342 150,937 186,892
----------- ----------- ----------- ----------- -----------
2,631,557 2,785,169 2,407,870 2,146,145 2,289,182
----------- ----------- ----------- ----------- -----------
Operating gain 137,114 136,581 117,624 53,722 20,926
Federal income tax expense (benefit) 11,713 7,339 (5,400) 17,807 19,469
----------- ----------- ----------- ----------- -----------
Net income $ 125,401 $ 129,242 $ 123,024 $ 35,915 $ 1,457
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Assets $16,902,621 $15,925,357 $13,621,952 $12,359,683 $10,117,822
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Surplus notes $ 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.
- 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.
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<PAGE>
RESULTS OF OPERATIONS
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 $21.2 million in 1997.
INCOME FROM OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its three
business segments: the Retirement Products and Services segment, the Individual
Insurance segment and the Corporate segment. The following table provides a
summary:
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<PAGE>
Income from Operations by Segment*
($ 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.
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
43
<PAGE>
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.
- 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
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<PAGE>
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.
- HIGHER OPERATIONAL EXPENSES. Operational expenses increased by
approximately $5 million, or 13%, as a result of the additional
staffing needed to administer higher volumes of business and because of
non-recurring costs of moving the Retirement Products and Services
operations to a new facility.
INDIVIDUAL INSURANCE SEGMENT
The Individual Insurance segment comprises two main elements: internal
reinsurance and variable life products.
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<PAGE>
INTERNAL REINSURANCE
In recent years, the Company has had various reinsurance agreements with
its ultimate parent, Sun Life (Canada). In some of these arrangements, Sun Life
(Canada) has reinsured the mortality risks of individual life policies sold in
prior years by the Company. In another agreement, which became effective January
1, 1991 and terminated October 1, 1998, the Company reinsured certain individual
life insurance contracts issued by Sun Life (Canada). The latter agreement had a
significant effect on net income in both 1997 and 1998. The former agreements,
in the aggregate, also affected net income in those years, but to a much lesser
extent. The effects of these agreements on the Company's net income are
summarized in the following table.
INTERNAL REINSURANCE-EFFECT ON INCOME FROM OPERATIONS BEFORE INCOME TAXES
($ 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.
- 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 $9 million, in dividends from subsidiaries. It also reflected
higher taxes and expenses.
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FINANCIAL CONDITION AND LIQUIDITY
ASSETS
The Company's total assets comprise those held in its general account and
those held in its separate accounts. General account assets support general
account liabilities. Separate accounts and their assets are of two main types:
- Those assets held in a "fixed" separate account, which the Company
established for amounts that contract holders allocate to the fixed
portion of their combination fixed/variable deferred annuity contracts.
Fixed separate account assets are available to fund general account
liabilities and general account assets are available to fund the
liabilities of this fixed separate account. The Company manages the assets
of this fixed separate account according to general account investment
policy guidelines.
- Those assets held in a number of registered and non-registered "variable"
separate accounts as investment vehicles for the Company's variable life
and annuity contracts. Policyholders may choose from among various
investment options offered under these contracts according to their
individual needs and preferences. Policyholders assume the investment
risks associated with these choices. General account and fixed separate
account assets are not available to fund the liabilities of these variable
accounts.
The following table summarizes significant changes in asset balances
during 1998 and 1997. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS % CHANGE
1998 1997 1996 1998/1997 1997/1996
---------- ---------- ---------- ------------ ------------
($ 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 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,
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<PAGE>
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.
CAPITAL MARKETS RISK MANAGEMENT
See "Quantitative and Qualitative Disclosures About Market Risk" below 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 at
year-end 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.
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<PAGE>
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.
DEMUTUALIZATION
On January 27, 1998, Sun Life (Canada) announced that its Board of
Directors had requested management world-wide to develop a plan to convert from
a mutual life insurance company into a publicly traded stock company through
demutualization worldwide. Management has put in place a full time task force
which, together with a worldwide team of actuarial, financial and legal
advisers, has begun work. The Board will decide later this year whether to
proceed with demutualization, following the completion of the plan.
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
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. Over 90%
of the components have been remediated, tested and are 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 either
their certification for the products and services provided or their plan to make
those products and services compliant. Approximately 95% of these vendors have
responded and the project team has reviewed the responses and validated and
conducted tests with the vendors where appropriate. 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 objective of assuring Year 2000 compliance.
Non-IT applications, including building security, HVAC systems, and other
such systems, will be tested. Compliant client server and mainframe environments
have been built which 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 all critical systems to be Year 2000
compliant before the end of 1999, there can be no assurance that this result
will be achieved. 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 significant systems being non-compliant.
Such a scenario could result in material 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
49
<PAGE>
business interruptions or shutdowns, reputational harm, increased 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 failure to achieve planned Year 2000
compliance, 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 to ensure that the most critical are
addressed first. The business units also have developed alternate plans of
action where possible, and established dates for the alternate plans to be
enacted. 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.
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.
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 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
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<PAGE>
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
- 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 had a fair value of $1,538.3 million. Fixed
income investments supporting those liabilities had a fair value of $2,710.1
million at that date. The Company performed a sensitivity analysis on these
interest-sensitive liabilities and assets at December 31, 1998. The 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.
By comparison, liabilities categorized as financial instruments and held
in the Company's general account at December 31, 1997 had a fair value of
$1,986.4 million. Fixed income investments supporting those liabilities had a
fair value of $3,276.2 million at that date. The Company performed a sensitivity
analysis on these interest-sensitive liabilities and assets at December 31,
1997. The 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 $56.0 million and the corresponding assets would show a net decrease
of $108.0 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
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<PAGE>
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 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.
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.
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<PAGE>
COMPETITION
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other entities
marketing insurance products. 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 March 31, 1999, the Company had 392 direct employees employed at its
Principal 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
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<PAGE>
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 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.
------------------------
54
<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.
55
<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.
56
<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.
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF 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.
58
<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.
59
<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.
60
<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.
61
<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.
62
<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>
63
<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.
64
<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
65
<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.
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 (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.
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
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.
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
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>
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
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.
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
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.
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
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>
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
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>
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
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.
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
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.
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
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.
76
<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
77
<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>
78
<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 II Variable and Fixed Annuity
Sun Life of Canada (U.S.) Variable Account F.
Name
- --------------------------------------------------------------
Address
- --------------------------------------------------------------
- -------------------------------------------------------------------------
City
- ------------------------------------ State
- -------------- Zip
- ------
Telephone
- ----------------------------------------------------------------
79
<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.
80
<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.
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 allocated
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 favorable income tax treatment as an annuity.
OWNER: The person, persons or entity entitled to the ownership rights
stated in a Group Contract and in whose name or names the Group Contract is
issued. The Owner may designate a trustee or custodian of a retirement plan
which meets the requirements of Section 401, Section 408(c), Section 408(k),
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.
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.
81
<PAGE>
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.
SEVEN-YEAR ANNIVERSARY: The seventh Account Anniversary and each
succeeding Account Anniversary occurring at any seven year interval thereafter;
for example, the 14th, 21st and 28th Account Anniversaries.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific 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.
82
<PAGE>
APPENDIX B
CONDENSED FINANCIAL INFORMATION - ACCUMULATION UNIT VALUES
The following information should be read in conjunction with the Variable
Account's Financial Statements appearing the Statement of Additional
Information. All of the Variable Account's Financial Statements have been
audited by Deloitte & Touche LLP, independent certified public accountants.
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1998*
--------------------
<S> <C>
AIM V.I. CAPITAL APPRECIATION FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.2991
Units outstanding at end of period........................................................ 100
AIM V.I. GROWTH FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.3293
Units outstanding at end of period........................................................ 1,049
AIM V.I. GROWTH AND INCOME FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.0655
Units outstanding at end of period........................................................ 1,704
AIM V.I. INTERNATIONAL EQUITY FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.5553
Units outstanding at end of period........................................................ 2,553
ALGER AMERICAN GROWTH PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.1993
Units outstanding at end of period........................................................ 2,044
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.0273
Units outstanding at end of period........................................................ 1,785
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.3603
Units outstanding at end of period........................................................ 100
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.0085
Units outstanding at end of period........................................................ 786
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.8679
Units outstanding at end of period........................................................ 100
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1998*
--------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND
<S> <C>
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.8370
Units outstanding at end of period........................................................ 2,341
GOLDMAN SACHS GROWTH AND INCOME FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.3642
Units outstanding at end of period........................................................ 100
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.5999
Units outstanding at end of period........................................................ 578
J.P. MORGAN SERIES TRUST II EQUITY PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.7114
Units outstanding at end of period........................................................ 474
J.P. MORGAN SERIES TRUST II INTERNATIONAL OPPORTUNITIES PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.5058
Units outstanding at end of period........................................................ 100
J.P. MORGAN SERIES TRUST II SMALL COMPANY PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.8537
Units outstanding at end of period........................................................ 100
LORD ABBETT SERIES FUND GROWTH AND INCOME PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.5917
Units outstanding at end of period........................................................ 1,763
MFS/SUN LIFE CAPITAL APPRECIATION SERIES
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.1244
Units outstanding at end of period........................................................ 2,367
MFS/SUN LIFE EMERGING GROWTH SERIES
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.2723
Units outstanding at end of period........................................................ 3,662
MFS/SUN LIFE GOVERNMENT SECURITIES SERIES
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 9.9595
Units outstanding at end of period........................................................ 1,027
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1998*
--------------------
MFS/SUN LIFE HIGH YIELD SERIES
<S> <C>
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 9.9916
Units outstanding at end of period........................................................ 729
MFS/SUN LIFE UTILITIES SERIES
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.5369
Units outstanding at end of period........................................................ 821
OCC ACCUMULATION TRUST EQUITY PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.5784
Units outstanding at end of period........................................................ 1,517
OCC ACCUMULATION TRUST MANAGED PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.5329
Units outstanding at end of period........................................................ 100
OCC ACCUMULATION TRUST MID CAP PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.6171
Units outstanding at end of period........................................................ 150
OCC ACCUMULATION TRUST SMALL CAP PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.3520
Units outstanding at end of period........................................................ 100
SUN CAPITAL MONEY MARKET FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.0143
Units outstanding at end of period........................................................ 200
SUN CAPITAL INVESTMENT GRADE BOND FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 9.9809
Units outstanding at end of period........................................................ 1,806
SUN CAPITAL REAL ESTATE FUND
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.0837
Units outstanding at end of period........................................................ 705
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1998*
--------------------
WARBURG PINCUS TRUST EMERGING MARKETS PORTFOLIO
<S> <C>
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.4931
Units outstanding at end of period........................................................ 100
WARBURG PINCUS TRUST INTERNATIONAL EQUITY PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 10.3709
Units outstanding at end of period........................................................ 100
WARBURG PINCUS TRUST POST-VENTURE CAPITAL PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.2546
Units outstanding at end of period........................................................ 100
WARBURG PINCUS TRUST SMALL COMPANY GROWTH PORTFOLIO
Unit Value:
Beginning of Period..................................................................... $ 10.0000
End of Period........................................................................... $ 11.0954
Units outstanding at end of period........................................................ 100
</TABLE>
- ------------------------
* From commencement of operations on December 9, 1998 to December 31, 1998.
86
<PAGE>
APPENDIX C
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: VARIABLE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
VARIABLE ACCOUNT)
WITHDRAWAL CHARGE CALCULATION:
FULL 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>
HYPOTHETICAL FREE NEW WITHDRAWAL WITHDRAWAL
ACCOUNT ACCOUNT WITHDRAWAL PAYMENTS CHARGE CHARGE
YEAR VALUE AMOUNT WITHDRAWN PERCENTAGE AMOUNT
--------------- ------------ ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(a) 1 $ 41,000 $ 4,000 $ 37,000 6.00% $ 2,220
(b) 3 $ 52,000 $ 12,000 $ 40,000 5.00% $ 2,000
(c) 7 $ 80,000 $ 28,000 $ 40,000 3.00% $ 1,200
(d) 9 $ 98,000 $ 68,000 0 0.00% 0
</TABLE>
(a) The free withdrawal amount in any Account Year is equal to (1) the Annual
Withdrawal Allowance for that year (i.e., 10% of all Purchase Payments made
in the last seven Account Years ("New Payments")); plus (2) any unused
Annual Withdrawal Allowances from previous years; plus (3) any Purchase
Payments made before the last seven Account Years ("Old Payments") not
previously withdrawn. In Account Year 1, the free withdrawal amount is
$4,000 (the Annual Withdrawal Allowance for that year) because there are no
unused Annual Withdrawal Allowances from previous years and no Old Payments.
The $41,000 full withdrawal is attributed first to the $4,000 free
withdrawal amount. The remaining $37,000 is withdrawn from the Purchase
Payment made in Account Year 1 and is subject to the withdrawal charge.
(b) In Account Year 3, the free withdrawal amount is $12,000 (the $4,000 Annual
Withdrawal Allowance for the current year plus the unused $4,000 Annual
Withdrawal Allowances for each of Account Years 1 and 2). The $52,000 full
withdrawal is attributed first to the free withdrawal amount and the
remaining $40,000 is withdrawn from the Purchase Payment made in Account
Year 1.
(c) In Account Year 7, the free withdrawal amount is $28,000 (the $4,000 Annual
Withdrawal Allowance for the current Account Year plus the unused Annual
Withdrawal Allowance of $4,000 for each of Account Years 1 through 6). The
$80,000 full withdrawal is attributed first to the free withdrawal amount.
The next $40,000 is withdrawn from the Purchase Payment made in Account Year
1 and is subject to the withdrawal charge. The remaining $12,000 exceeds the
total of the free withdrawal amount plus all New Payments not previously
withdrawn, so it is not subject to the withdrawal charge.
(d) In Account Year 9, the free withdrawal amount is $68,000, calculated as
follows. There are no Annual Withdrawal Allowances for Account Years 8 or 9
because there are no New Payments in those years. The $40,000 Purchase
Payment made in Account Year 1 is now an Old Payment that constitutes a
portion of the free withdrawal amount. In addition, the unused Annual
Withdrawal Allowances of $4,000 for each of Account Years 1 through 7 are
carried forward and available for use in Account Year 9. The $98,000 full
withdrawal is attributed first to the free withdrawal amount. Because the
remaining $30,000 is not withdrawn from New Payments, this part of the
withdrawal also will not be subject to the withdrawal charge.
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 fifth Account Year,
87
<PAGE>
and there are a series of three partial withdrawals made during the fifth
Account Year of $9,000, $12,000, and $15,000.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL FREE NEW WITHDRAWAL WITHDRAWAL
ACCOUNT WITHDRAWAL WITHDRAWAL PAYMENTS CHARGE CHARGE
VALUE AMOUNT AMOUNT WITHDRAWN PERCENTAGE AMOUNT
------------ ----------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(a) $ 64,000 $ 9,000 $ 20,000 $ 0 4.00% $ 0
(b) $ 56,000 $ 12,000 $ 11,000 $ 1,000 4.00% $ 40
(c) $ 40,000 $ 15,000 $ 0 $ 15,000 4.00% $ 600
</TABLE>
(a) In the fifth Account Year, the free withdrawal amount is equal to $20,000
(the $4,000 Annual Withdrawal Allowance for the current year, plus the
unused $4,000 for each of the Account Years 1 through 4). The partial
withdrawal amount ($9,000) is less than the free withdrawal amount so no New
Payments are withdrawn and no withdrawal charge applies.
(b) Since a partial withdrawal of $9,000 was taken, the remaining free
withdrawal amount is equal to $11,000. The $12,000 partial withdrawal will
first be applied against the $11,000 free withdrawal amount. The remaining
$1,000 will be withdrawn from the $40,000 New Payment, incurring a
withdrawal charge of $40.
(c) The free withdrawal amount is zero since the previous partial withdrawals
have already used the free withdrawal amount. The entire partial withdrawal
amount will result in New Payments being withdrawn and will incur 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.
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>
88
<PAGE>
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.
89
<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
125 Summer Street
Boston, Massachusetts 02110
FUT II 5/99
</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 May 1, 1999 for each of the following:
MFS Regatta Platinum
MFS Regatta Gold
Futurity II
<PAGE>
May 1, 1999
MFS REGATTA PLATINUM
VARIABLE AND FIXED ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
TABLE OF CONTENTS
Calculation of Performance Data ................................................
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 MFS Regatta Platinum 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 May 1, 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 1024, Boston, Massachusetts 02103, or by telephoning (617) 348-9600 or
(800)-752-7215.
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
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN:
The table below shows, for various Sub-Accounts of the Variable Account,
the Standardized Average Annual Total Return for the stated periods (or
shorter period indicated in the note below), based upon a hypothetical
initial Purchase Payment of $1,000, calculated in accordance with the formula
set out below. For purposes of determining these investment results, the
actual investment performance of each Series of MFS/Sun Life Series Trust is
reflected from the date the Variable Account was established, or such later
date that the Series commenced operations (the "Commencement Date"), although
the Contracts have been offered only since _______, 1998. No information is
shown for the Bond Series, Equity Income Series, Massachusetts Investors
Growth Stock Series, New Discovery Series, Research International Series or
Strategic Income Series as such Series had been in operation for less than
one year as of December 31, 1998.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
PERIOD PERIOD PERIOD LIFE DATE
----------- ----------- ----------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation Series............. 20.73% 17.88% -- 15.99% July 13, 1989
Capital Opportunities Series*........... 19.14% -- -- 21.94% June 3, 1996
Emerging Growth Series.................. 25.81% -- -- 24.67% May 1, 1995
Global Asset Allocation Series (1)...... (0.62)% -- -- 10.92% November 7, 1994
Global Governments Series (2)........... 7.89% 3.72% -- 7.14% July 13, 1989
Global Growth Series (3)................ 6.97% 10.07% -- 11.15% November 16, 1993
Global Total Return Series (4).......... 10.71% -- -- 13.19% November 7, 1994
Government Securities Series............ 1.31% 4.59% -- 6.51% July 13, 1989
High Yield Series....................... (6.24)% 5.73% -- 7.68% July 13, 1989
International Growth Series*............ (4.96)% -- -- (3.36)% June 3, 1996
International Growth and Income
Series................................. 13.93% -- -- 7.53% October 2, 1995
Managed Sectors Series.................. 4.77% 14.40% -- 13.39% July 13, 1989
Massachusetts Investors Trust Series (5) 15.58% 20.52% -- 15.89% July 13, 1989
MFS/Foreign & Colonial Emerging Markets
Equity Series*......................... (34.46)% -- -- (11.85)% June 5, 1996
Money Market Series..................... (2.06)% 2.80% -- 3.46% July 13, 1989
Research Series......................... 15.69% -- -- 22.49% November 7, 1994
Research Growth and Income Series....... 14.44% -- -- 14.86% May 12, 1997
Total Return Series..................... 3.93% 11.79% -- 10.95% July 13, 1989
Utilities Series........................ 9.82% 16.59% -- 16.13% November 16, 1993
</TABLE>
- ------------------------
*Actual returns, not annualized.
(1) Formerly, the World Asset Allocation Series.
(2) Formerly, the World Governments Series.
(3) Formerly, the World Growth Series.
(4) Formerly, the World Total Return Series.
(5) Formerly, the Conservative Growth Series.
The length of the period and the last day of each period used in
the above table are set out in the table heading and in the footnotes above.
The Average Annual Total Return for each period was determined by finding the
average annual compounded rate of return over each period that would equate
the initial amount invested to the ending redeemable value for that period,
in accordance with the following formula:
n
P(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.
<PAGE>
-3-
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN:
The table below shows, for various Sub-Accounts of the Variable Account,
the Non-Standardized 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 under "Standardized Average Annual Total Return." For purposes of
determining these investment results, the actual investment performance of
each Series of MFS/Sun Life Series Trust is reflected from the date such
Series commenced operations ("Inception"), although the Contracts have been
offered only since __________, 1998. No information is shown for the Bond
Series, Equity Income Series, Massachusetts Investors Growth Stock Series,
New Discovery Series, Research International Series or Strategic Income
Series as such Series had been in operation less than one year as of December
31, 1998.
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation Series............. 20.73% 17.88% 18.36% 16.04% August 13, 1985
Capital Opportunities Series**.......... 19.14% -- -- 21.94% June 3, 1996
Emerging Growth Series.................. 25.81% -- -- 24.67% May 1, 1995
Government Securities Series............ 1.31% 4.59% 6.99% 7.16% August 12, 1985
High Yield Series....................... (6.24)% 5.73% 7.86% 8.02% August 13, 1985
International Growth Series**........... (4.96)% -- -- (3.36)% June 3, 1996
International Growth and Income Series.. 13.93% -- -- 7.53% October 2, 1995
Managed Sectors Series.................. 4.77% 14.40% 15.83% 15.28% May 27, 1988
Massachusetts Investors Trust Series.... 15.58% 20.52% 17.32% 14.34% December 5, 1986
MFS/Foreign & Colonial Emerging Markets
Equity Series**........................ (34.46)% -- -- (11.85)% June 5, 1996
Money Market Series..................... (2.06)% 2.80% 3.67% 3.93% August 29, 1985
Research Series......................... 15.69% -- -- 22.49% November 7, 1994
Research Growth and Income Series....... 14.44% -- -- 14.86% May 12, 1997
Total Return Series..................... 3.93% 11.79% 11.58% 11.34% May 16, 1988
Utilities Series........................ 9.82% 16.59% -- 16.13% November 16, 1993
Global Asset Allocation Series.......... (0.62)% -- -- 10.92% November 7, 1994
Global Governments Series............... 7.89% 3.72% 6.91% 6.81% May 16, 1988
Global Growth Series.................... 6.97% 10.07% -- 11.15% November 16, 1993
Global Total Return Series.............. 10.71% -- -- 13.19% November 7, 1994
</TABLE>
- ------------------------
*From commencement of investment operations
**Actual returns, not annualized.
<PAGE>
-4-
NON-STANDARDIZED COMPOUND GROWTH RATE
The table below shows, for various Sub-Accounts of the Variable Account,
the Non-Standardized Compound Growth Rate for the stated periods (or shorter
period indicated in the note below), based upon a hypothetical investment,
calculated in accordance with the formula set out under "Standardized Average
Annual Return," except that no withdrawal charges or annual Account Fees have
been deducted. If withdrawal charges or Account Fees were reflected, returns
would be lower (see "Standardized Average Annual Total Return" and "Non
Standardized Average Annual Return"). For purposes of determining these
investment results, the actual investment performance of each Series of
MFS/Sun Life Series Trust is reflected from the date such Series commenced
operations ("Inception"), although the Contracts have been offered only since
________, 1998. No information is shown for the Bond Series, Equity Income
Series, Massachusetts Investors Growth Stock Series, New Discovery Series,
Research International Series or Strategic Income Series as such Series had
been in operation less than one year as of December 31, 1998.
NON-STANDARDIZED COMPOUND GROWTH RATE
PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation Series............. 26.96% 18.42% 18.45% 16.12% August 13, 1985
Capital Opportunities Series**.......... 25.23% -- -- 23.45% June 3, 1996
Emerging Growth Series.................. 32.04% -- -- 25.56% May 1, 1995
Government Securities Series............ 7.26% 5.23% 7.11% 7.27% August 12, 1985
High Yield Series....................... (0.76)% 6.40% 7.99% 8.14% August 13, 1985
International Growth Series**........... 0.53% -- -- (1.94)% June 3, 1996
International Growth and Income Series.. 19.96% -- -- 8.82% October 2, 1995
Managed Sectors Series.................. 10.80% 14.97% 15.91% 15.36% May 27, 1988
Massachusetts Investors Trust Series.... 22.15% 21.05% 17.42% 14.45% December 5, 1986
MFS/Foreign & Colonial Emerging Markets
Equity Series**........................ (30.90)% -- -- (10.75)% June 5, 1996
Money Market Series..................... 3.60% 3.39% 3.80% 4.06% August 29, 1985
Research Series......................... 21.95% -- -- 23.15% November 7, 1994
Research Growth and Income Series....... 20.51% -- -- 18.27% May 12, 1997
Total Return Series..................... 10.23% 12.44% 11.70% 11.47% May 16, 1988
Utilities Series........................ 15.99% 17.14% -- 16.69% November 16, 1993
Global Asset Allocation Series.......... 5.10% -- -- 11.70% November 7, 1994
Global Governments Series............... 13.90% 4.34% 7.02% 6.92% May 16, 1988
Global Growth Series.................... 12.99% 10.72% -- 11.75% November 16, 1993
Global Total Return Series.............. 16.74% -- -- 13.93% November 7, 1994
</TABLE>
- ------------------------
*From commencement of investment operations
**Actual returns, not annualized.
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>
-5-
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>
-6-
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 OR MFS' CUSTOMERS. Sales literature for the Variable
Account and the Funds may refer to the number of clients which they serve.
THE COMPANY'S OR MFS' 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>
-7-
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 MFS REGATTA PLATINUM 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>
-8-
CALCULATIONS
EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATION
Suppose the net asset value of a Series 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 Series 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 .00003863 (the daily equivalent of the
current maximum charge of 1.40% on an annual basis) gives a net investment
factor of 1.00323648. 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 14.6117051 (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 12.3846325
(12.3456789 X 1.00323648 (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 3% per year used to establish the Annuity Payment
Rates found in other Contracts is 0.99991902).
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 12.3846325.
The first variable annuity payment would be $865.57 (8,765.4321 X 14.5845672
X 6.78 divided by 1,000). The number of annuity units credited would be
70.1112 ($865.57 divided by 12.3456789) and the second variable annuity
payment would be $868.28 (70.1112 X 12.3846325).
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 7.34% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of the Participant's Account Value.
In addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation.
The Company reserves the right to offer these additional incentives only to
certain
<PAGE>
-9-
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 Series Fund shares at net asset value in connection with
amounts allocated to the Sub-Accounts in accordance with your instructions,
and we will redeem Series Fund shares at net asset value for the purpose of
meeting the contractual obligations of the Variable Account, paying charges
relative to the Variable Account or making adjustments for annuity reserves
held in the Variable Account.
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>
-10-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1998
<TABLE>
<CAPTION>
Assets:
<S> <C> <C> <C>
Investment in MFS/Sun Life Series Trust: Shares Cost Value
----------- -------------- --------------
Bond Series ("BDS").............................................................. 1,833,052 $ 19,308,754 $ 19,594,756
Capital Appreciation Series ("CAS").............................................. 32,535,812 1,207,116,273 1,494,454,468
Capital Opportunities Series ("COS")............................................. 11,033,845 154,891,892 187,374,642
Conservative Growth Series ("CGS")............................................... 45,143,592 1,273,801,516 1,726,636,223
Emerging Growth Series ("EGS")................................................... 30,106,934 505,953,776 700,846,932
Equity Income Series ("EIS")..................................................... 808,548 7,896,401 8,491,757
MFS/Foreign & Colonial Emerging Markets Equity Series ("FCE").................... 2,266,785 22,335,481 16,977,985
International Growth Series ("FCI").............................................. 3,626,435 35,824,144 35,304,699
International Growth and Income Series ("FCG")................................... 5,453,761 65,412,844 71,908,458
Government Securities Series ("GSS")............................................. 29,861,826 385,880,145 399,987,008
High Yield Series ("HYS")........................................................ 31,251,222 294,351,362 286,371,075
Managed Sectors Series ("MSS")................................................... 11,831,026 317,435,697 334,165,044
Massachusetts Investors Growth Stock Series ("MIS").............................. 6,724,723 69,779,820 81,191,995
Money Market Series ("MMS")...................................................... 417,135,145 417,135,145 417,135,145
New Discovery Series ("NWD")..................................................... 1,250,089 11,775,479 13,279,492
Research Series ("RES").......................................................... 41,174,957 725,772,331 947,967,793
Research Growth & Income Series ("RGS").......................................... 2,708,382 32,789,497 36,276,888
Research International Series ("RSS")............................................ 373,636 3,392,628 3,519,310
Strategic Income Series ("SIS").................................................. 774,644 7,563,923 7,781,098
Total Return Series ("TRS")...................................................... 85,415,374 1,568,357,466 1,816,228,173
Utilities Series ("UTS")......................................................... 12,363,259 176,926,102 211,219,612
World Asset Allocation Series ("WAA")............................................ 8,540,141 119,915,782 123,362,461
World Governments Series ("WGS")................................................. 7,341,822 83,199,514 89,769,321
World Growth Series ("WGR")...................................................... 16,637,922 227,100,556 260,469,628
World Total Return Series ("WTR")................................................ 5,736,216 80,641,108 95,255,576
-------------- --------------
$7,814,557,636 $9,385,569,539
--------------
--------------
Receivable from Sponsor......................................................................................... 124,848
--------------
Net Assets................................................................................................ $9,385,694,387
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
Applicable to Owners of Reserve
Deferred Variable Annuity Contracts for
------------------------------------- Variable
NET ASSETS APPLICABLE TO CONTRACT OWNERS: Units Unit Value Value Annuities Total
---------- ---------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
MFS REGATTA CONTRACTS:
CAS -- Level 1......................... 464,349 $38.0799 $ 17,690,821 $ 128,185 $ 17,819,006
CAS -- Level 2......................... 9,053,993 15.3711 139,037,017 502,016 139,539,033
GSS -- Level 1......................... 325,241 17.8992 5,834,948 85,153 5,920,101
GSS -- Level 2......................... 2,656,978 11.4928 30,519,539 186,149 30,705,688
HYS -- Level 1......................... 73,632 21.8836 1,617,626 4,912 1,622,538
HYS -- Level 2......................... 1,320,379 11.1015 14,660,653 65,418 14,726,071
MSS -- Level 1......................... 196,463 30.2227 5,814,583 64,763 5,879,346
MSS -- Level 2......................... 2,730,897 13.6177 37,269,491 76,615 37,346,106
MMS -- Level 1......................... 268,447 13.6495 3,851,232 27,783 3,879,015
MMS -- Level 2......................... 3,722,758 10.7906 39,934,531 3,596 39,938,127
TRS -- Level 1......................... 898,137 26.5642 23,875,313 222,411 24,097,724
TRS -- Level 2......................... 12,506,430 13.3189 166,507,969 1,042,925 167,550,894
WGS -- Level 1......................... 89,328 18.6916 1,681,850 39,205 1,721,055
WGS -- Level 2......................... 834,010 11.2037 9,329,126 36,551 9,365,677
------------ ---------- --------------
$497,624,699 $2,485,682 $ 500,110,381
------------ ---------- --------------
</TABLE>
See notes to financial statements
<PAGE>
-11-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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 Reserve
Deferred Variable Annuity Contracts for
NET ASSETS APPLICABLE TO CONTRACT OWNERS --------------------------------------- Variable
(CONTINUED): Units Unit Value Value Annuities Total
---------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
MFS REGATTA GOLD CONTRACTS:
BDS.................................... 1,182,239 $10.5921 $ 12,523,169 $ 148,957 $ 12,672,126
CAS.................................... 37,500,481 34.7871 1,304,369,755 6,496,774 1,310,866,529
COS.................................... 10,262,282 17.2085 176,609,581 303,057 176,912,638
CGS.................................... 51,880,765 31.7109 1,645,157,266 5,065,107 1,650,222,373
EGS.................................... 28,900,957 23.0408 665,946,545 1,249,399 667,195,944
EIS.................................... 528,238 10.4065 5,496,893 -- 5,496,893
FCE.................................... 2,147,348 7.4615 16,021,601 19,295 16,040,896
FCI.................................... 3,290,043 9.5047 31,272,468 50,802 31,323,270
FCG.................................... 5,214,558 13.1538 68,597,649 89,079 68,686,728
GSS.................................... 23,218,234 15.0941 350,499,319 1,093,255 351,592,574
HYS.................................... 14,190,817 18.0207 255,739,789 889,807 256,629,596
MSS.................................... 11,245,144 25.4406 285,790,341 972,779 286,763,120
MIS.................................... 4,121,518 11.9635 49,306,625 88,325 49,394,950
MMS.................................... 29,387,086 12.2282 359,428,914 1,587,715 361,016,629
NWD.................................... 794,859 10.5258 8,366,403 37,385 8,403,788
RES.................................... 38,553,986 23.7119 913,668,029 2,442,962 916,110,991
RGS.................................... 2,408,676 13.1605 31,700,558 131,422 31,831,980
RSS.................................... 190,267 9.3330 1,776,592 -- 1,776,592
SIS.................................... 622,914 9.9530 6,199,328 -- 6,199,328
TRS.................................... 71,102,020 22.1273 1,573,134,778 4,410,143 1,577,544,921
UTS.................................... 9,023,102 22.0489 198,939,550 710,512 199,650,062
WAA.................................... 7,576,691 15.8203 119,890,942 617,113 120,508,055
WGS.................................... 5,048,219 15.2422 76,964,930 444,193 77,409,123
WGR.................................... 14,522,129 17.6676 256,577,775 663,609 257,241,384
WTR.................................... 5,354,633 17.1741 91,961,363 521,228 92,482,591
-------------- ---------- --------------
$8,505,940,163 $28,032,918 $8,533,973,081
-------------- ---------- --------------
</TABLE>
See notes to financial statements
<PAGE>
-12-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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 Reserve
Deferred Variable Annuity Contracts for
NET ASSETS APPLICABLE TO CONTRACT OWNERS --------------------------------------- Variable
(CONTINUED): Units Unit Value Value Annuities Total
---------- ---------- -------------- ---------- --------------
MFS REGATTA CLASSIC CONTRACTS:
<S> <C> <C> <C> <C> <C>
BDS.................................... 35,123 $10.4200 $ 365,971 $ -- $ 365,971
CAS.................................... 465,812 15.2806 7,116,057 -- 7,116,057
COS.................................... 277,518 15.9773 4,429,393 -- 4,429,393
CGS.................................... 1,213,193 15.7220 19,066,338 701 19,067,039
EGS.................................... 959,802 15.2416 14,625,520 -- 14,625,520
EIS.................................... 12,113 10.6318 128,778 -- 128,778
FCE.................................... 43,654 7.8620 343,375 -- 343,375
FCI.................................... 83,820 9.8139 822,725 -- 822,725
FCG.................................... 90,582 12.7274 1,152,339 -- 1,152,339
GSS.................................... 297,310 11.5012 3,424,501 -- 3,424,501
HYS.................................... 342,363 11.2212 3,840,819 -- 3,840,819
MSS.................................... 140,324 13.2363 1,856,704 -- 1,856,704
MIS.................................... 232,788 11.9830 2,790,662 -- 2,790,662
MMS.................................... 270,417 10.7995 2,919,832 -- 2,919,832
NWD.................................... 29,182 10.5430 307,881 -- 307,881
RES.................................... 872,289 14.3354 12,502,110 -- 12,502,110
RGS.................................... 33,882 12.9744 439,317 -- 439,317
RSS.................................... 2,234 11.0101 24,596 -- 24,596
SIS.................................... 2,577 9.8850 25,477 -- 25,477
TRS.................................... 1,731,292 13.1773 22,813,315 1,386 22,814,701
UTS.................................... 178,136 14.8587 2,640,990 -- 2,640,990
WAA.................................... 53,167 11.5822 616,156 -- 616,156
WGS.................................... 40,074 11.4588 459,164 -- 459,164
WGR.................................... 121,297 12.8959 1,563,449 -- 1,563,449
WTR.................................... 91,253 13.0681 1,192,112 723 1,192,835
-------------- ---------- --------------
$ 105,467,581 $ 2,810 $ 105,470,391
-------------- ---------- --------------
</TABLE>
See notes to financial statements
<PAGE>
-13-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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
NET ASSETS APPLICABLE TO CONTRACT OWNERS ------------------------------------- Variable
(CONTINUED): Units Unit Value Value Annuities Total
-------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
MFS REGATTA PLATINUM CONTRACTS:
BDS.................................... 628,000 $10.4201 $ 6,543,991 $ -- $ 6,543,991
CAS.................................... 1,683,164 11.3405 19,087,857 21,268 19,109,125
COS.................................... 556,955 10.8048 6,017,955 -- 6,017,955
CGS.................................... 5,331,018 10.7939 57,543,942 58,386 57,602,328
EGS.................................... 1,651,404 11.5819 19,126,029 -- 19,126,029
EIS.................................... 272,362 10.5234 2,866,086 -- 2,866,086
FCE.................................... 72,586 8.1616 592,467 -- 592,467
FCI.................................... 338,938 9.3254 3,160,703 -- 3,160,703
FCG.................................... 199,346 10.3378 2,060,785 -- 2,060,785
GSS.................................... 816,102 10.4116 8,497,341 -- 8,497,341
HYS.................................... 1,000,705 9.5030 9,509,687 9,324 9,519,011
MSS.................................... 211,044 10.5861 2,234,121 21,614 2,255,735
MIS.................................... 2,428,134 11.9094 28,917,948 87,345 29,005,293
MMS.................................... 886,479 10.1878 9,031,808 119,936 9,151,744
NWD.................................... 436,178 10.4124 4,541,543 23,912 4,565,455
RES.................................... 1,751,713 11.0189 19,301,999 96,452 19,398,451
RGS.................................... 387,080 10.3415 4,002,882 -- 4,002,882
RSS.................................... 181,131 9.4845 1,718,122 -- 1,718,122
SIS.................................... 157,634 9.8713 1,556,293 -- 1,556,293
TRS.................................... 2,318,847 10.2907 23,862,327 210,689 24,073,016
UTS.................................... 819,649 10.9233 8,953,383 10,545 8,963,928
WAA.................................... 228,839 9.7081 2,221,401 -- 2,221,401
WGS.................................... 76,270 11.2639 858,944 -- 858,944
WGR.................................... 162,856 10.2820 1,674,403 -- 1,674,403
WTR.................................... 152,857 10.4567 1,598,349 697 1,599,046
-------------- ----------- --------------
$ 245,480,366 $ 660,168 $ 246,140,534
-------------- ----------- --------------
Net Assets............................. $9,354,512,809 $31,181,578 $9,385,694,387
-------------- ----------- --------------
-------------- ----------- --------------
</TABLE>
See notes to financial statements
<PAGE>
-14-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1998
<TABLE>
<CAPTION>
BDS CAS COS CGS
Sub-Account* Sub-Account Sub-Account Sub-Account
--------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ -- $145,840,372 $ 5,578,765 $ 93,714,906
Mortality and expense risk
charges......................... (73,456) (15,736,721) (1,733,280) (17,202,966)
Distribution expense charges..... -- (84,682) -- --
Administrative expense charges... (8,815) (1,803,725) (207,994) (2,064,356)
--------------- ------------ ------------ -------------
Net investment income (loss)... $ (82,271) $128,215,244 $ 3,637,491 $ 74,447,584
--------------- ------------ ------------ -------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions
Proceeds from sales............ $5,147,887 $333,053,338 $ 18,663,825 $ 67,989,586
Cost of investments sold....... (4,931,477) (266,350,843) (13,493,338) (34,336,835)
--------------- ------------ ------------ -------------
Net realized gains
(losses).................... $ 216,410 $ 66,702,495 $ 5,170,487 $ 33,652,751
--------------- ------------ ------------ -------------
Net unrealized appreciation
(depreciation) on investments
End of year.................... $ 286,002 $287,338,195 $ 32,482,750 $ 452,834,707
Beginning of year.............. -- 165,968,995 11,851,082 285,383,733
--------------- ------------ ------------ -------------
Change in unrealized
appreciation
(depreciation).............. $ 286,002 $121,369,200 $ 20,631,668 $ 167,450,974
--------------- ------------ ------------ -------------
Realized and unrealized gains
(losses)...................... $ 502,412 $188,071,695 $ 25,802,155 $ 201,103,725
--------------- ------------ ------------ -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................... $ 420,141 $316,286,939 $ 29,439,646 $ 275,551,309
--------------- ------------ ------------ -------------
--------------- ------------ ------------ -------------
<CAPTION>
EGS EIS FCE
Sub-Account Sub-Account* Sub-Account
------------- ------------ ------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ 18,895,299 $-- $ 747,426
Mortality and expense risk
charges......................... (6,840,338) (28,468) (249,740)
Distribution expense charges..... -- -- --
Administrative expense charges... (820,840) (3,416) (29,969)
------------- ------------ ------------
Net investment income (loss)... $ 11,234,121 $(31,884) $ 467,717
------------- ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions
Proceeds from sales............ $ 67,761,609 3,$017,698 $ 16,258,903
Cost of investments sold....... (45,241,707) (3,135,184) (20,682,560)
------------- ------------ ------------
Net realized gains
(losses).................... $ 22,519,902 ($117,486) $ (4,423,657)
------------- ------------ ------------
Net unrealized appreciation
(depreciation) on investments
End of year.................... $ 194,893,156 $595,356 $ (5,357,496)
Beginning of year.............. 69,992,703 -- (1,673,420)
------------- ------------ ------------
Change in unrealized
appreciation
(depreciation).............. $ 124,900,453 $595,356 $ (3,684,076)
------------- ------------ ------------
Realized and unrealized gains
(losses)...................... $ 147,420,355 $477,870 $ (8,107,733)
------------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................... $ 158,654,476 $445,986 $ (7,640,016)
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-15-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
FCI FCG GSS HYS MSS MIS
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............... $ 317,696 1$,908,465 $20,116,757 $ 17,576,410 $ 49,435,052 $ --
Mortality and expense risk charges.... (374,634) (770,139) (4,519,127) (3,406,720) (3,954,559) (248,138)
Distribution expense charges.......... -- -- (23,267) (11,390) (25,353) --
Administrative expense charges........ (44,956) (92,417) (519,028) (397,417) (449,194) (29,777)
----------- -------------- ----------- ------------ ------------ --------------
Net investment income (loss)...... $ (101,894) 1$,045,909 $15,055,335 $ 13,760,883 $ 45,005,946 $(277,915)
----------- -------------- ----------- ------------ ------------ --------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions
Proceeds from sales................. $6,476,662 39$,966,952 $141,956,429 $127,769,004 $ 83,847,621 5$,759,463
Cost of investments sold............ (6,610,768) (34,355,430) (134,011,602) (123,024,988) (72,366,519) (5,468,843)
----------- -------------- ----------- ------------ ------------ --------------
Net realized gains (losses)....... $ (134,106) 5$,611,522 $ 7,944,827 $ 4,744,016 $ 11,481,102 $290,620
----------- -------------- ----------- ------------ ------------ --------------
Net unrealized appreciation
(depreciation) on investments
End of year......................... $ (519,445) 6$,495,614 $14,106,863 $ (7,980,287) $ 16,729,347 11$,412,175
Beginning of year................... (418,012) 2,425,793 11,293,081 12,659,920 40,525,807 --
----------- -------------- ----------- ------------ ------------ --------------
Change in unrealized appreciation
(depreciation)................... $ (101,433) 4$,069,821 $ 2,813,782 $(20,640,207) $(23,796,460) 11$,412,175
----------- -------------- ----------- ------------ ------------ --------------
Realized and unrealized gains
(losses)........................... $ (235,539) 9$,681,343 $10,758,609 $(15,896,191) $(12,315,358) 11$,702,795
----------- -------------- ----------- ------------ ------------ --------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ (337,433) 10$,727,252 $25,813,944 $ (2,135,308) $ 32,690,588 11$,424,880
----------- -------------- ----------- ------------ ------------ --------------
----------- -------------- ----------- ------------ ------------ --------------
<CAPTION>
MMS
Sub-Account
------------
<S> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 17,312,637
Mortality and expense risk charges.... (4,328,735)
Distribution expense charges.......... (17,272)
Administrative expense charges........ (502,176)
------------
Net investment income (loss)...... $ 12,464,454
------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions
Proceeds from sales................. $648,695,089
Cost of investments sold............ (648,695,089)
------------
Net realized gains (losses)....... $ --
------------
Net unrealized appreciation
(depreciation) on investments
End of year......................... $ --
Beginning of year................... --
------------
Change in unrealized appreciation
(depreciation)................... $ --
------------
Realized and unrealized gains
(losses)........................... $ --
------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 12,464,454
------------
------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-16-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
NWD RES RGS RSS SIS
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.......... $-- $ 34,036,093 $76,267 $-- $--
Mortality and expense risk
charges......................... (49,668) (9,949,193) (243,948) (13,748) (33,096)
Distribution expense charges..... -- -- -- -- --
Administrative expense charges... (5,960) (1,193,903) (29,274) (1,650) (3,971)
------------ ------------- ------------ ----------- ------------
Net investment income
(loss)...................... $(55,628) $ 22,892,997 ($196,955) ($15,398) $(37,067)
------------ ------------- ------------ ----------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains(losses) on
investment transactions
Proceeds from sales............ 1,$614,329 $ 55,466,811 6,$084,512 5$50,369 3,$456,275
Cost of investments sold....... (1,692,255) (33,492,897) (5,571,502) (645,339) (3,545,101)
------------ ------------- ------------ ----------- ------------
Net realized gains (losses).... $(77,926) $ 21,973,914 $513,010 ($94,970) $(88,826)
------------ ------------- ------------ ----------- ------------
Net unrealized appreciation on
investments
End of year.................... 1,$504,013 $ 222,195,462 3,$487,391 1$26,682 $217,175
Beginning of year.............. -- 111,290,775 263,416 -- --
------------ ------------- ------------ ----------- ------------
Change in unrealized
appreciation................ 1,$504,013 $ 110,904,687 3,$223,975 1$26,682 $217,175
------------ ------------- ------------ ----------- ------------
Realized and unrealized
gains......................... 1,$426,087 $ 132,878,601 3,$736,985 $31,712 $128,349
------------ ------------- ------------ ----------- ------------
INCREASE IN NET ASSETS FROM
OPERATIONS........................ 1,$370,459 $ 155,771,598 3,$540,030 $16,314 $91,282
------------ ------------- ------------ ----------- ------------
------------ ------------- ------------ ----------- ------------
<CAPTION>
TRS UTS
Sub-Account Sub-Account
------------- --------------
<S> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ 187,021,256 $ 17,526,264
Mortality and expense risk
charges......................... (21,072,561) (1,979,657)
Distribution expense charges..... (122,533) --
Administrative expense charges... (2,406,174) (237,559)
------------- --------------
Net investment income
(loss)...................... $ 163,419,988 $ 15,309,048
------------- --------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains(losses) on
investment transactions
Proceeds from sales............ $ 285,917,310 $ 9,858,290
Cost of investments sold....... (234,220,673) (6,719,351)
------------- --------------
Net realized gains (losses).... $ 51,696,637 $ 3,138,939
------------- --------------
Net unrealized appreciation on
investments
End of year.................... $ 247,870,707 $ 34,293,510
Beginning of year.............. 297,846,753 28,380,652
------------- --------------
Change in unrealized
appreciation................ $ (49,976,046) $ 5,912,858
------------- --------------
Realized and unrealized
gains......................... $ 1,720,591 $ 9,051,797
------------- --------------
INCREASE IN NET ASSETS FROM
OPERATIONS........................ $ 165,140,579 $ 24,360,845
------------- --------------
------------- --------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-17-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
WAA WGS WGR WTR
Sub-Account Sub-Account Sub-Account Sub-Account Total
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 9,239,610 $ 1,161,945 $ 18,963,375 $ 3,790,536 $ 643,259,131
Mortality and expense risk charges.... (1,568,686) (1,115,945) (3,101,995) (1,031,335) (99,626,853)
Distribution expense charges.......... -- (8,707) -- -- (293,204)
Administrative expense charges........ (188,242) (125,206) (372,239) (123,760) (11,662,018)
------------ ------------ ------------ ------------ -------------
Net investment income (loss)...... $ 7,482,682 $ (87,913) $ 15,489,141 $ 2,635,441 $ 531,677,056
------------ ------------ ------------ ------------ -------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions
Proceeds from sales................. $ 28,323,513 $ 36,276,075 $ 47,578,064 $ 15,451,732 $2,056,941,346
Cost of investments sold............ (24,630,654) (36,774,597) (35,986,240) (11,648,715) (1,807,632,507)
------------ ------------ ------------ ------------ -------------
Net realized gains (losses)....... $ 3,692,859 $ (498,522) $ 11,591,824 $ 3,803,017 $ 249,308,839
------------ ------------ ------------ ------------ -------------
Net unrealized appreciation
(depreciation) on investments
End of year......................... $ 3,446,679 $ 6,569,807 $ 33,369,072 $ 14,614,468 $1,571,011,903
Beginning of year................... 9,486,253 (5,701,264) 31,911,034 8,223,467 1,079,710,768
------------ ------------ ------------ ------------ -------------
Change in unrealized appreciation
(depreciation)................... $ (6,039,574) $ 12,271,071 $ 1,458,038 $ 6,391,001 $ 491,301,135
------------ ------------ ------------ ------------ -------------
Realized and unrealized gains
(losses)........................... $ (2,346,715) $ 11,772,549 $ 13,049,862 $ 10,194,018 $ 740,609,974
------------ ------------ ------------ ------------ -------------
INCREASE IN NET ASSETS FROM
OPERATIONS............................. $ 5,135,967 $ 11,684,636 $ 28,539,003 $ 12,829,459 $1,272,287,030
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
</TABLE>
See notes to financial statements
<PAGE>
-18-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BDS CAS COS
Sub-Account Sub-Account Sub-Account
------------ -------------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998* 1998 1997 1998 1997
------------ --------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ (82,271) $ 128,215,244 $ 74,369,495 $ 3,637,491 $ (375,236)
Net realized gains............... 216,410 66,702,495 86,668,781 5,170,487 337,679
Net unrealized gains............. 286,002 121,369,200 32,342,322 20,631,668 11,106,441
------------ --------------- --------------- ------------- ------------
Increase in net assets from
operations.................. $ 420,141 $ 316,286,939 $ 193,380,598 $ 29,439,646 $ 11,068,884
------------ --------------- --------------- ------------- ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 9,875,456 $ 107,933,141 $ 191,209,464 $ 38,230,487 $ 29,587,412
Net transfers between
Sub-Accounts and Fixed
Account....................... 9,534,568 47,848,492 28,967,751 40,051,430 31,786,583
Withdrawals, surrenders,
annuitizations and contract
charges....................... (395,676) (114,794,853) (177,738,789) (7,541,790) (2,199,052)
------------ --------------- --------------- ------------- ------------
Net accumulation activity.... $ 19,014,348 $ 40,986,780 $ 42,438,426 $ 70,740,127 $ 59,174,943
------------ --------------- --------------- ------------- ------------
Annuitization Activity:
Annuitizations................. $ 164,170 $ 1,220,067 $ 1,367,156 $ 142,386 $ 136,454
Annuity payments and contract
charges....................... (3,903) (1,025,009) (736,487) (46,545) (15,580)
Net Transfers between
Sub-Accounts.................. -- (41,318) 40,842 25,440 --
Adjustments to annuity
reserves...................... (12,668) (88,123) (64,938) (10,400) (4,256)
------------ --------------- --------------- ------------- ------------
Net annuitization activity..... $ 147,599 $ 65,617 $ 606,573 $ 110,881 $ 116,618
------------ --------------- --------------- ------------- ------------
Increase in net assets from
contract owner transactions..... $ 19,161,947 $ 41,052,397 $ 43,044,999 $ 70,851,008 $ 59,291,561
------------ --------------- --------------- ------------- ------------
Increase in net assets......... $ 19,582,088 $ 357,339,336 $ 236,425,597 $ 100,290,654 $ 70,360,445
------------ --------------- --------------- ------------- ------------
NET ASSETS:
Beginning of year................ -- 1,137,110,414 900,684,817 87,069,332 16,708,887
------------ --------------- --------------- ------------- ------------
End of year...................... $ 19,582,088 $ 1,494,449,750 $ 1,137,110,414 $ 187,359,986 $ 87,069,332
------------ --------------- --------------- ------------- ------------
------------ --------------- --------------- ------------- ------------
<CAPTION>
CGS
Sub-Account
--------------------------------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 74,447,584 $ 24,679,106
Net realized gains............... 33,652,751 9,412,903
Net unrealized gains............. 167,450,974 162,512,568
--------------- ---------------
Increase in net assets from
operations.................. $ 275,551,309 $ 196,604,577
--------------- ---------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 265,107,890 $ 211,472,643
Net transfers between
Sub-Accounts and Fixed
Account....................... 206,082,223 176,163,947
Withdrawals, surrenders,
annuitizations and contract
charges....................... (88,307,981) (42,133,444)
--------------- ---------------
Net accumulation activity.... $ 382,882,132 $ 345,503,146
--------------- ---------------
Annuitization Activity:
Annuitizations................. $ 2,012,633 $ 947,612
Annuity payments and contract
charges....................... (713,563) (271,967)
Net Transfers between
Sub-Accounts.................. (116,539) 354,557
Adjustments to annuity
reserves...................... 265,082 52,749
--------------- ---------------
Net annuitization activity..... $ 1,447,613 $ 1,082,951
--------------- ---------------
Increase in net assets from
contract owner transactions..... $ 384,329,745 $ 346,586,097
--------------- ---------------
Increase in net assets......... $ 659,881,054 $ 543,190,674
--------------- ---------------
NET ASSETS:
Beginning of year................ 1,067,010,686 523,820,012
--------------- ---------------
End of year...................... $ 1,726,891,740 $ 1,067,010,686
--------------- ---------------
--------------- ---------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-19-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
EGS EIS FCE
Sub-Account Sub-Account Sub-Account
---------------------------- ------------ --------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998* 1998 1997
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 11,234,121 $ (3,455,859) $ (31,884) $ 467,717 $ (230,489)
Net realized gains (losses)...... 22,519,902 8,307,222 (117,486) (4,423,657) 974,141
Net unrealized gains (losses).... 124,900,453 53,637,553 595,356 (3,684,076) (1,720,809)
------------- ------------- ------------ ------------ ------------
Increase (decrease) in net
assets from operations...... $ 158,654,476 $ 58,488,916 $ 445,986 $ (7,640,016) $ (977,157)
------------- ------------- ------------ ------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 90,838,283 $ 95,095,489 $ 4,758,335 $ 2,734,886 $ 9,918,873
Net transfers between
Sub-Accounts and Fixed
Account....................... 40,488,353 57,336,795 3,493,264 (1,032,098) 12,522,767
Withdrawals, surrenders,
annuitizations and contract
charges....................... (30,769,813) (16,909,470) (205,828) (897,534) (953,005)
------------- ------------- ------------ ------------ ------------
Net accumulation activity.... $ 100,556,823 $ 135,522,814 $ 8,045,771 $ 805,254 $ 21,488,635
------------- ------------- ------------ ------------ ------------
Annuitization Activity:
Annuitizations................. $ 453,478 $ 158,875 $ -- $ 3,586 $ 39,195
Annuity payments and contract
charges....................... (113,219) (58,246) -- (7,084) (5,864)
Net transfers between
Sub-Accounts.................. (5,495) 21,015 -- -- --
Adjustments to annuity
reserves...................... 128,245 7,823 -- 218 (1,465)
------------- ------------- ------------ ------------ ------------
Net annuitization activity... $ 463,009 $ 129,467 $ -- $ (3,280) $ 31,866
------------- ------------- ------------ ------------ ------------
Increase in net assets from
contract owner transactions..... $ 101,019,832 $ 135,652,281 $ 8,045,771 $ 801,974 $ 21,520,501
------------- ------------- ------------ ------------ ------------
Increase (decrease) in net
assets........................ $ 259,674,308 $ 194,141,197 $ 8,491,757 $ (6,838,042) $ 20,543,344
------------- ------------- ------------ ------------ ------------
NET ASSETS:
Beginning of year................ 441,273,185 247,131,988 -- 23,814,780 3,271,436
------------- ------------- ------------ ------------ ------------
End of year...................... $ 700,947,493 $ 441,273,185 $ 8,491,757 $ 16,976,738 $ 23,814,780
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
<CAPTION>
FCI
Sub-Account
--------------------------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ (101,894) $ (193,476)
Net realized gains (losses)...... (134,106) (156,246)
Net unrealized gains (losses).... (101,433) (353,885)
------------ ------------
Increase (decrease) in net
assets from operations...... $ (337,433) $ (703,607)
------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 8,231,578 $ 10,356,882
Net transfers between
Sub-Accounts and Fixed
Account....................... 5,579,377 8,764,120
Withdrawals, surrenders,
annuitizations and contract
charges....................... (1,479,723) (683,649)
------------ ------------
Net accumulation activity.... $ 12,331,232 $ 18,437,353
------------ ------------
Annuitization Activity:
Annuitizations................. $ 1,716 $ 55,177
Annuity payments and contract
charges....................... (5,621) (2,405)
Net transfers between
Sub-Accounts.................. -- --
Adjustments to annuity
reserves...................... 2,415 (416)
------------ ------------
Net annuitization activity... $ (1,490) $ 52,356
------------ ------------
Increase in net assets from
contract owner transactions..... $ 12,329,742 $ 18,489,709
------------ ------------
Increase (decrease) in net
assets........................ $ 11,992,309 $ 17,786,102
------------ ------------
NET ASSETS:
Beginning of year................ 23,314,389 5,528,287
------------ ------------
End of year...................... $ 35,306,698 $ 23,314,389
------------ ------------
------------ ------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-20-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
FCG GSS
Sub-Account Sub-Account
-------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1998 1997 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 1,045,909 $ (87,178) $ 15,055,335 $ 16,257,472
Net realized gains (losses)...... 5,611,522 575,848 7,944,827 (320,218)
Net unrealized gains (losses).... 4,069,821 1,624,106 2,813,782 5,893,925
------------ ------------ ------------- -------------
Increase (decrease) in net
assets from operations...... $ 10,727,252 $ 2,112,776 $ 25,813,944 $ 21,831,179
------------ ------------ ------------- -------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 7,721,923 $ 8,465,356 $ 33,941,912 $ 45,924,248
Net transfers between
Sub-Accounts and Fixed
Account....................... 8,246,837 5,802,185 49,410,266 9,720,766
Withdrawals, surrenders,
annuitizations and contract
charges....................... (4,121,150) (2,204,864) (40,854,521) (58,612,247)
------------ ------------ ------------- -------------
Net accumulation activity.... $ 11,847,610 $ 12,062,677 $ 42,497,657 $ (2,967,233)
------------ ------------ ------------- -------------
Annuitization Activity:
Annuitizations................. $ 34,551 $ 45,941 $ 1,080,791 $ 142,666
Annuity payments and contract
charges....................... (28,601) (6,247) (563,274) (181,979)
Net transfers between
Sub-Accounts.................. (17,030) -- (10,317) (55,523)
Adjustments to annuity
reserves...................... (10,148) 62 17,162 111,855
------------ ------------ ------------- -------------
Net annuitization activity... $ (21,228) $ 39,756 $ 524,362 $ 17,019
------------ ------------ ------------- -------------
Increase (decrease) in net assets
from contract owner
transactions.................... $ 11,826,382 $ 12,102,433 $ 43,022,019 $ (2,950,214)
------------ ------------ ------------- -------------
Increase in net assets......... $ 22,553,634 $ 14,215,209 $ 68,835,963 $ 18,880,965
------------ ------------ ------------- -------------
NET ASSETS:
Beginning of year................ 49,346,218 35,131,009 331,304,242 312,423,277
------------ ------------ ------------- -------------
End of year...................... $ 71,899,852 $ 49,346,218 $ 400,140,205 $ 331,304,242
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
<CAPTION>
HYS
Sub-Account
----------------------------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 13,760,883 $ 9,894,976
Net realized gains (losses)...... 4,744,016 6,191,967
Net unrealized gains (losses).... (20,640,207) 5,472,328
------------- -------------
Increase (decrease) in net
assets from operations...... $ (2,135,308) $ 21,559,271
------------- -------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 54,795,963 $ 56,445,474
Net transfers between
Sub-Accounts and Fixed
Account....................... 20,587,340 35,346,824
Withdrawals, surrenders,
annuitizations and contract
charges....................... (24,841,987) (37,189,764)
------------- -------------
Net accumulation activity.... $ 50,541,316 $ 54,602,534
------------- -------------
Annuitization Activity:
Annuitizations................. $ 514,021 $ 403,156
Annuity payments and contract
charges....................... (301,855) (164,426)
Net transfers between
Sub-Accounts.................. -- --
Adjustments to annuity
reserves...................... 44,449 2,369
------------- -------------
Net annuitization activity... $ 256,615 $ 241,099
------------- -------------
Increase (decrease) in net assets
from contract owner
transactions.................... $ 50,797,931 $ 54,843,633
------------- -------------
Increase in net assets......... $ 48,662,623 $ 76,402,904
------------- -------------
NET ASSETS:
Beginning of year................ 237,675,412 161,272,508
------------- -------------
End of year...................... $ 286,338,035 $ 237,675,412
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements
<PAGE>
-21-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
MSS MIS
Sub-Account Sub-Account
---------------------------- ------------
Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998*
------------- ------------- ------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 45,005,946 $ 25,345,850 $ (277,915)
Net realized gains (losses)...... 11,481,102 19,553,090 290,620
Net unrealized gains (losses).... (23,796,460) 11,613,272 11,412,175
------------- ------------- ------------
Increase in net assets from
operations.................. $ 32,690,588 $ 56,512,212 $ 11,424,880
------------- ------------- ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 22,720,393 $ 56,177,555 $ 42,898,409
Net transfers between
Sub-Accounts and Fixed
Account....................... (5,210,223) 12,554,894 27,944,745
Withdrawals, surrenders,
annuitizations and contract
charges....................... (28,997,564) (57,321,938) (1,223,987)
------------- ------------- ------------
Net accumulation activity.... $ (11,487,394) $ 11,410,511 $ 69,619,167
------------- ------------- ------------
Annuitization Activity:
Annuitizations................. $ 360,666 $ 558,077 $ 158,201
Annuity payments and contract
charges....................... (278,169) (166,248) (10,253)
Net transfers between
Sub-Accounts.................. (6,870) -- --
Adjustments to annuity
reserves...................... (3,336) (43,539) (1,090)
------------- ------------- ------------
Net annuitization activity... $ 72,291 $ 348,290 $ 146,858
------------- ------------- ------------
Increase (decrease) in net assets
from contract owner
transactions.................... $ (11,415,103) $ 11,758,801 $ 69,766,025
------------- ------------- ------------
Increase (decrease) in net
assets........................ $ 21,275,485 $ 68,271,013 $ 81,190,905
------------- ------------- ------------
NET ASSETS:
Beginning of year................ 312,825,526 244,554,513 --
------------- ------------- ------------
End of year...................... $ 334,101,011 $ 312,825,526 $ 81,190,905
------------- ------------- ------------
------------- ------------- ------------
<CAPTION>
MMS NWD
Sub-Account Sub-Account
---------------------------- ------------
Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998*
------------- ------------- ------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 12,464,454 $ 12,238,449 $ (55,628)
Net realized gains (losses)...... -- -- (77,926)
Net unrealized gains (losses).... -- -- 1,504,013
------------- ------------- ------------
Increase in net assets from
operations.................. $ 12,464,454 $ 12,238,449 $ 1,370,459
------------- ------------- ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 84,539,955 $ 151,523,026 $ 5,928,260
Net transfers between
Sub-Accounts and Fixed
Account....................... 205,348,459 (1,240,893) 6,269,724
Withdrawals, surrenders,
annuitizations and contract
charges....................... (180,586,976) (229,658,956) (345,722)
------------- ------------- ------------
Net accumulation activity.... $ 109,301,438 $ (79,376,823) $ 11,852,262
------------- ------------- ------------
Annuitization Activity:
Annuitizations................. $ 1,223,366 $ 79,534 $ 59,889
Annuity payments and contract
charges....................... (267,886) (200,563) (3,118)
Net transfers between
Sub-Accounts.................. (4,847) (312,207) --
Adjustments to annuity
reserves...................... (38,667) (31,750) (2,368)
------------- ------------- ------------
Net annuitization activity... $ 911,966 $ (464,986) $ 54,403
------------- ------------- ------------
Increase (decrease) in net assets
from contract owner
transactions.................... $ 110,213,404 $ (79,841,809) $ 11,906,665
------------- ------------- ------------
Increase (decrease) in net
assets........................ $ 122,677,858 $ (67,603,360) $ 13,277,124
------------- ------------- ------------
NET ASSETS:
Beginning of year................ 294,227,489 361,830,849 --
------------- ------------- ------------
End of year...................... $ 416,905,347 $ 294,227,489 $ 13,277,124
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-22-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
RES RGS
Sub-Account Sub-Account
---------------------------- -------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998 1997**
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).................... $ 22,892,997 $ 5,840,008 $ (196,955) $ (21,782)
Net realized gains (losses)..................... 21,973,914 5,057,991 513,010 8,741
Net unrealized gains............................ 110,904,687 68,490,719 3,223,975 263,416
------------- ------------- ------------ -----------
Increase in net assets from operations...... $ 155,771,598 $ 79,388,718 $ 3,540,030 $ 250,375
------------- ------------- ------------ -----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.................... $ 103,921,694 $ 153,316,348 $ 13,378,132 $ 2,950,897
Net transfers between Sub-Accounts and Fixed
Account...................................... 82,986,033 119,233,197 14,755,314 2,726,224
Withdrawals, surrenders, annuitizations and
contract charges............................. (44,188,615) (24,008,616) (1,413,449) (29,969)
------------- ------------- ------------ -----------
Net accumulation activity................... $ 142,719,112 $ 248,540,929 $ 26,719,997 $ 5,647,152
------------- ------------- ------------ -----------
Annuitization Activity:
Annuitizations................................ $ 452,588 $ 415,748 $ 73,112 $ --
Annuity payments and contract charges......... (211,454) (139,282) (12,398) --
Net transfers between Sub-Accounts............ 34,374 12,992 58,620 --
Adjustments to annuity reserves............... (35,852) (40,528) (2,709) --
------------- ------------- ------------ -----------
Net annuitization activity.................. $ 239,656 $ 248,930 $ 116,625 $ --
------------- ------------- ------------ -----------
Increase in net assets from contract owner
transactions................................... $ 142,958,768 $ 248,789,859 $ 26,836,622 $ 5,647,152
------------- ------------- ------------ -----------
Increase in net assets........................ $ 298,730,366 $ 328,178,577 $ 30,376,652 $ 5,897,527
------------- ------------- ------------ -----------
NET ASSETS:
Beginning of year............................... 649,281,186 321,102,609 5,897,527 --
------------- ------------- ------------ -----------
End of year..................................... $ 948,011,552 $ 649,281,186 $ 36,274,179 $ 5,897,527
------------- ------------- ------------ -----------
------------- ------------- ------------ -----------
<CAPTION>
RSS SIS
Sub-Account Sub-Account
------------ -----------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998* 1998*
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).................... $ (15,398) $ (37,067)
Net realized gains (losses)..................... (94,970) (88,826)
Net unrealized gains............................ 126,682 217,175
------------ -----------
Increase in net assets from operations...... $ 16,314 $ 91,282
------------ -----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.................... $2,275,775 $3,255,808
Net transfers between Sub-Accounts and Fixed
Account...................................... 1,268,571 4,501,699
Withdrawals, surrenders, annuitizations and
contract charges............................. (41,350) (67,691)
------------ -----------
Net accumulation activity................... $3,502,996 $7,689,816
------------ -----------
Annuitization Activity:
Annuitizations................................ $ -- $ --
Annuity payments and contract charges......... -- --
Net transfers between Sub-Accounts............ -- --
Adjustments to annuity reserves............... -- --
------------ -----------
Net annuitization activity.................. $ -- $ --
------------ -----------
Increase in net assets from contract owner
transactions................................... $3,502,996 $7,689,816
------------ -----------
Increase in net assets........................ $3,519,310 $7,781,098
------------ -----------
NET ASSETS:
Beginning of year............................... -- --
------------ -----------
End of year..................................... $3,519,310 $7,781,098
------------ -----------
------------ -----------
</TABLE>
* For the period May 6, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
** For the period July 7, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
See notes to financial statements
<PAGE>
-23-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
TRS UTS
Sub-Account Sub-Account
-------------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998 1997
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income........................... $ 163,419,988 $ 116,769,728 $ 15,309,048 $ 7,729,340
Net realized gains.............................. 51,696,637 66,640,057 3,138,939 2,083,741
Net unrealized gains (losses)................... (49,976,046) 74,650,982 5,912,858 14,781,219
--------------- --------------- ------------- -------------
Increase in net assets from operations...... $ 165,140,579 $ 258,060,767 $ 24,360,845 $ 24,594,300
--------------- --------------- ------------- -------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.................... $ 144,694,740 $ 260,379,742 $ 39,799,198 $ 16,090,619
Net transfers between Sub-Accounts and Fixed
Account...................................... 99,107,901 90,568,461 40,165,423 13,552,388
Withdrawals, surrenders, annuitizations and
contract charges............................. (174,048,588) (276,158,725) (10,679,491) (5,005,318)
--------------- --------------- ------------- -------------
Net accumulation activity................... $ 69,754,053 $ 74,789,478 $ 69,285,130 $ 24,637,689
--------------- --------------- ------------- -------------
Annuitization Activity:
Annuitizations................................ $ 2,556,048 $ 1,271,371 $ 357,771 $ 165,628
Annuity payments and contract charges......... (1,415,164) (935,550) (266,331) (60,528)
Net transfers between Sub-Accounts............ 104,077 87,811 93,575 28,886
Adjustments to annuity reserves............... 157,679 (136,590) 117,915 2,804
--------------- --------------- ------------- -------------
Net annuitization activity.................. $ 1,402,640 $ 287,042 $ 302,930 $ 136,790
--------------- --------------- ------------- -------------
Increase (decrease) in net assets from contract
owner transactions............................. $ 71,156,693 $ 75,076,520 $ 69,588,060 $ 24,774,479
--------------- --------------- ------------- -------------
Increase in net assets........................ $ 236,297,272 $ 333,137,287 $ 93,948,905 $ 49,368,779
--------------- --------------- ------------- -------------
NET ASSETS:
Beginning of year............................... 1,579,783,984 1,246,646,697 117,306,075 67,937,296
--------------- --------------- ------------- -------------
End of year..................................... $ 1,816,081,256 $ 1,579,783,984 $ 211,254,980 $ 117,306,075
--------------- --------------- ------------- -------------
--------------- --------------- ------------- -------------
<CAPTION>
WAA
Sub-Account
----------------------------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 7,482,682 $ 3,255,293
Net realized gains.............................. 3,692,859 2,612,317
Net unrealized gains (losses)................... (6,039,574) 2,483,575
------------- -------------
Increase in net assets from operations...... $ 5,135,967 $ 8,351,185
------------- -------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.................... $ 8,860,816 $ 23,232,543
Net transfers between Sub-Accounts and Fixed
Account...................................... (4,974,353) 17,783,698
Withdrawals, surrenders, annuitizations and
contract charges............................. (6,184,345) (5,742,891)
------------- -------------
Net accumulation activity................... $ (2,297,882) $ 35,273,350
------------- -------------
Annuitization Activity:
Annuitizations................................ $ 196,381 $ 167,170
Annuity payments and contract charges......... (88,583) (51,214)
Net transfers between Sub-Accounts............ 1,087 79,307
Adjustments to annuity reserves............... (39,140) 487
------------- -------------
Net annuitization activity.................. $ 69,745 $ 195,750
------------- -------------
Increase (decrease) in net assets from contract
owner transactions............................. $ (2,228,137) $ 35,469,100
------------- -------------
Increase in net assets........................ $ 2,907,830 $ 43,820,285
------------- -------------
NET ASSETS:
Beginning of year............................... 120,437,782 76,617,497
------------- -------------
End of year..................................... $ 123,345,612 $ 120,437,782
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements
<PAGE>
-24-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
WGS WGR WTR
Sub-Account Sub-Account Sub-Account
---------------------------- ---------------------------- --------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998 1997 1998 1997
------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ (87,913) $ 2,978,724 $ 15,489,141 $ 1,724,285 $ 2,635,441 $ 518,499
Net realized gains (losses)........... (498,522) (5,597,019) 11,591,824 8,571,645 3,803,017 1,518,827
Net unrealized gains (losses)......... 12,271,071 (269,307) 1,458,038 16,669,581 6,391,001 4,352,747
------------- ------------- ------------- ------------- ------------ ------------
Increase (decrease) in net assets
from operations.................. $ 11,684,636 $ (2,887,602) $ 28,539,003 $ 26,965,511 $ 12,829,459 $ 6,390,073
------------- ------------- ------------- ------------- ------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $ 3,786,224 $ 11,552,959 $ 15,688,080 $ 26,811,741 $ 8,845,349 $ 15,459,554
Net transfers between Sub-Accounts
and Fixed Account.................. (12,675,687) (19,473,409) (6,628,067) 3,906,046 8,428,546 13,106,711
Withdrawals, surrenders,
annuitizations and contract
charges............................ (11,908,423) (17,997,612) (14,148,887) (13,503,627) (4,603,063) (2,840,427)
------------- ------------- ------------- ------------- ------------ ------------
Net accumulation activity......... $ (20,797,886) $ (25,918,062) $ (5,088,874) $ 17,214,160 $ 12,670,832 $ 25,725,838
------------- ------------- ------------- ------------- ------------ ------------
Annuitization Activity:
Annuitizations...................... $ 158,700 $ 101,934 $ 107,920 $ 112,909 $ 134,223 $ 215,870
Annuity payments and contract
charges............................ (130,085) (132,080) (104,706) (92,720) (61,120) (28,925)
Net transfers between
Sub-Accounts....................... -- (8,188) (114,522) (249,492) -- --
Adjustments to annuity reserves..... 3,766 (5,055) (5,286) (31,480) 16,790 (3,240)
------------- ------------- ------------- ------------- ------------ ------------
Net annuitization activity........ $ 32,381 $ (43,389) $ (116,594) $ (260,783) $ 89,893 $ 183,705
------------- ------------- ------------- ------------- ------------ ------------
Increase (decrease) in net assets from
contract owner transactions.......... $ (20,765,505) $ (25,961,451) $ (5,205,468) $ 16,953,377 $ 12,760,725 $ 25,909,543
------------- ------------- ------------- ------------- ------------ ------------
Increase (decrease) in net assets... $ (9,080,869) $ (28,849,053) $ 23,333,535 $ 43,918,888 $ 25,590,184 $ 32,299,616
------------- ------------- ------------- ------------- ------------ ------------
NET ASSETS:
Beginning of year..................... 98,894,832 127,743,885 237,145,701 193,226,813 69,684,288 37,384,672
------------- ------------- ------------- ------------- ------------ ------------
End of year........................... $ 89,813,963 $ 98,894,832 $ 260,479,236 $ 237,145,701 $ 95,274,472 $ 69,684,288
------------- ------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------- ------------ ------------
</TABLE>
See notes to financial statements
<PAGE>
-25-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
Total
---------------------------------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 531,677,056 $ 297,237,205
Net realized gains..................................................................... 249,308,839 212,441,467
Net unrealized gains................................................................... 491,301,135 463,550,753
--------------- ---------------
Increase in net assets from operations............................................. 1,272,287,030 $ 973,229,425
--------------- ---------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received........................................................... 1,124,762,687 $ 1,375,970,825
Net transfers between Sub-Accounts and Fixed Account................................. 891,578,137 619,129,055
Withdrawals, surrenders, annuitizations and contract charges......................... (792,649,007) (970,892,363)
--------------- ---------------
Net accumulation activity.......................................................... $ 1,223,691,817 $ 1,024,207,517
--------------- ---------------
Annuitization Activity:
Annuitizations....................................................................... 11,466,264 $ 6,384,473
Annuity payments and contract charges................................................ (5,657,941) (3,250,311)
Net transfers between Sub-Accounts................................................... 235 --
Adjustments to annuity reserves...................................................... 503,934 (185,108)
--------------- ---------------
Net annuitization activity......................................................... $ 6,312,492 $ 2,949,054
--------------- ---------------
Increase in net assets from contract owner transactions................................ $ 1,230,004,309 $ 1,027,156,571
--------------- ---------------
Increase in net assets............................................................... $ 2,502,291,339 $ 2,000,385,996
--------------- ---------------
NET ASSETS:
Beginning of year...................................................................... 6,883,403,048 4,883,017,052
--------------- ---------------
End of year............................................................................ $ 9,385,694,387 $ 6,883,403,048
--------------- ---------------
--------------- ---------------
</TABLE>
See notes to financial statements
<PAGE>
-26-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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"), a
separate account of Sun Life Assurance Company of Canada (U.S.), (the
"Sponsor"), was established on July 13, 1989 as a funding vehicle for the
variable portion of Regatta contracts, Regatta Gold contracts, Regatta Classic
contracts, Regatta Platinum contracts (collectively, the "Contracts") and
certain other 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 attributable to the Contracts is invested in shares of a specific
corresponding series of MFS/Sun Life Series Trust (the "Series Trust"), an
open-end management investment company registered under the Investment Company
Act of 1940. Massachusetts Financial Services Company ("MFS"), an affiliate of
the Sponsor, is the investment adviser to the Series Trust.
(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 Series Trust are recorded at their net asset value.
Realized gains and losses on sales of shares of the Series Trust are determined
on the identified cost basis. Dividend income and capital gain distributions
received by the Sub-Accounts are reinvested in additional Series Trust shares
and are recognized on the ex-dividend date.
Exchanges between Sub-Accounts requested by participants under the Contracts are
recorded in the new Sub-Account upon receipt of the redemption proceeds.
FEDERAL INCOME TAX STATUS
The operations of the Variable Account are part of the operations of the Sponsor
and are not taxed separately. The Variable Account is not taxed as a regulated
investment company. The Sponsor qualifies for the federal income tax treatment
granted to life insurance companies under Subchapter L of the Internal Revenue
Code. Under existing federal income tax law, investment income and capital gains
earned by the Variable Account on contract owner reserves are not taxable and,
therefore, no provision has been made for federal income taxes.
<PAGE>
-27-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(3) CONTRACT CHARGES
A mortality and expense risk charge based on the value of the Variable Account
is deducted from the Variable Account at the end of each valuation period for
the mortality and expense risks assumed by the Sponsor. The deductions are
transferred periodically to the Sponsor. Currently, the deduction is at an
effective annual rate of 1.25% for Regatta, Regatta Gold and Regatta Platinum
contracts and 1.00% for Regatta Classic contracts.
Each year on the account anniversary, an account administration fee ("Account
Fee") equal to the lesser of $30 or 2% of the participant's account value in the
case of Regatta and Regatta Gold contracts, $35 in the case of Regatta Platinum
contracts and $50 in the case of Regatta Classic contracts is deducted from the
participant's account to reimburse the Sponsor for certain administrative
expenses. After the annuity commencement date, the Account Fee will be deducted
pro rata from each variable annuity payment made during the year.
The Sponsor does not deduct a sales charge from purchase payments. However, in
the case of Regatta, Regatta Gold and Regatta Platinum, a withdrawal charge
(contingent deferred sales charge) of up to 6% of certain amounts withdrawn,
when applicable, may be deducted to cover certain expenses relating to the sale
of the contracts and certificates. In the case of Regatta Classic, a withdrawal
charge of 1% is applied to purchase payments withdrawn which have been credited
to a participant's account for less than one year.
For assuming the risk that withdrawal charges may be insufficient to compensate
it for the costs of distributing the Regatta contracts, the Sponsor makes a
deduction from the Variable Account at the end of each valuation period for the
first seven account years at an effective annual rate of 0.15% of the net assets
attributable to such contracts. No deduction for the distribution expense charge
is made after the seventh account anniversary.
As reimbursement for administrative expenses attributable to Regatta Gold,
Regatta Classic and Regatta Platinum contracts, which exceed the revenues
received from the Account Fees described above derived from such contracts, the
Sponsor makes a deduction from the Variable Account at the end of each valuation
period at an effective annual rate of 0.15% of the net assets attributable to
such contracts.
(4) ANNUITY RESERVES
Annuity reserves are calculated using the 1983 Individual Annuitant Mortality
Table and an assumed interest rate of 4% or 3%, as stated in each participant's
contract or certificate, as applicable. Required adjustments to the reserves are
accomplished by transfers to or from the Sponsor.
<PAGE>
-28-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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
and
Units Outstanding Units Fixed Accumulation
Beginning of Year Purchased Account
--------------------- -------------- ----------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1998 1997 1998 1997
--------- ---------- ----- ------- ---------- ----------
MFS REGATTA CONTRACTS:
------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAS -- Level 1................ 2,993,020 6,316,305 -- 860 (2,286,027) (2,421,311)
CAS -- Level 2................ 5,390,680 58,968 -- 624,374 5,658,421 6,542,104
GSS -- Level 1................ 1,462,222 3,362,650 -- -- (932,035) (1,340,875)
GSS -- Level 2................ 1,514,633 55,891 -- 265,628 1,951,275 2,012,610
HYS -- Level 1................ 537,033 1,204,380 -- -- (384,324) (510,706)
HYS -- Level 2*............... 975,126 -- -- 64,893 742,028 1,416,411
MSS -- Level 1................ 941,686 2,202,213 -- 881 (678,909) (924,959)
MSS -- Level 2................ 2,022,757 14,270 -- 240,391 1,359,567 2,378,532
MMS -- Level 1................ 1,518,722 3,859,738 12,315 1,948 1,824,176 3,301,197
MMS -- Level 2................ 1,845,809 59,562 8,252 310,378 6,810,959 6,074,695
TRS -- Level 1................ 5,756,653 12,461,003 4,933 1,598 (4,180,220) (4,580,966)
TRS -- Level 2................ 7,838,741 32,548 2,056 815,196 8,389,482 10,202,663
WGS -- Level 1................ 700,338 1,460,289 -- -- (536,114) (584,950)
WGS -- Level 2................ 483,253 3,325 -- 34,073 702,569 686,256
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
---------------------- --------------------
Year Ended Year Ended
December 31, December 31,
1998 1997 1998 1997
---------- ---------- --------- ---------
MFS REGATTA CONTRACTS:
------------------------------
<S> <C> <C> <C> <C>
CAS -- Level 1................ (242,644) (902,834) 464,349 2,993,020
CAS -- Level 2................ (1,995,108) (1,834,766) 9,053,993 5,390,680
GSS -- Level 1................ (204,946) (559,553) 325,241 1,462,222
GSS -- Level 2................ (808,930) (819,496) 2,656,978 1,514,633
HYS -- Level 1................ (79,077) (156,641) 73,632 537,033
HYS -- Level 2*............... (396,775) (506,178) 1,320,379 975,126
MSS -- Level 1................ (66,314) (336,449) 196,463 941,686
MSS -- Level 2................ (651,427) (610,436) 2,730,897 2,022,757
MMS -- Level 1................ (3,086,766) (5,644,161) 268,447 1,518,722
MMS -- Level 2................ (4,942,262) (4,598,826) 3,722,758 1,845,809
TRS -- Level 1................ (683,229) (2,124,982) 898,137 5,756,653
TRS -- Level 2................ (3,723,849) (3,211,666) 12,506,430 7,838,741
WGS -- Level 1................ (74,896) (175,001) 89,328 700,338
WGS -- Level 2................ (351,812) (240,401) 834,010 483,253
</TABLE>
*For the period January 6, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
<PAGE>
-29-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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
and
Units Outstanding Fixed Accumulation
Beginning of Year Units Purchased Account
---------------------- ----------------------
----------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- -------------------- ----------
MFS REGATTA GOLD
CONTRACTS:
------------
<S> <C> <C> <C> <C> <C> <C>
BDS+.......................... -- -- 437,383 -- 776,227 --
CAS........................... 35,528,897 32,796,793 2,963,417 4,171,857 1,606,290 753,855
COS........................... 6,175,224 1,520,787 2,085,178 2,333,873 2,487,753 2,499,269
CGS........................... 40,709,531 26,199,975 7,531,155 8,951,992 6,682,559 7,405,405
EGS........................... 25,039,986 16,998,044 3,519,560 5,826,649 1,929,406 3,279,517
EIS+.......................... -- -- 235,337 -- 312,512 --
FCE........................... 2,159,228 329,630 203,168 815,491 (114,376) 1,097,883
FCI........................... 2,390,056 564,742 532,412 997,740 520,640 902,857
FCG........................... 4,441,911 3,360,596 449,506 760,057 655,503 531,069
GSS........................... 20,508,844 19,714,114 1,760,124 1,627,923 2,891,419 723,328
HYS........................... 11,699,195 8,424,289 2,333,919 2,340,052 1,143,802 1,768,446
MSS........................... 11,326,719 10,541,726 838,284 1,191,194 (135,303) 289,858
MIS+.......................... -- -- 2,049,150 -- 2,166,812 --
MMS........................... 21,463,139 27,275,583 5,295,611 7,818,118 9,723,034 (8,894,337)
NWD+.......................... -- -- 252,432 -- 573,525 --
RES........................... 35,654,917 19,577,745 1,299,737 10,988,440 3,631,861 6,437,281
RGS........................... 533,928 -- 857,568 276,177 1,134,366 260,605
RSS+.......................... -- -- 83,591 -- 110,312 --
SIS+.......................... -- -- 207,182 -- 423,614 --
TRS........................... 66,303,467 59,508,016 5,585,984 7,069,596 4,374,616 4,111,016
UTS........................... 6,101,638 4,671,192 1,559,584 966,544 1,878,542 773,360
WAA........................... 7,928,833 5,539,010 440,970 1,565,894 (400,015) 1,218,708
WGS........................... 6,127,641 7,510,766 199,740 324,862 (782,796) (1,252,245)
WGR........................... 15,058,757 13,989,946 815,222 1,725,746 (504,727) 242,250
WTR........................... 4,676,853 2,836,079 458,384 1,085,978 506,340 962,291
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
---------------------- ----------------------
Year Ended Year Ended
December 31, December 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
MFS REGATTA GOLD
CONTRACTS:
------------
<S> <C> <C> <C> <C>
BDS+.......................... (31,371) -- 1,182,239 --
CAS........................... (2,598,123) (2,193,608) 37,500,481 35,528,897
COS........................... (485,873) (178,705) 10,262,282 6,175,224
CGS........................... (3,042,480) (1,847,841) 51,880,765 40,709,531
EGS........................... (1,587,995) (1,064,224) 28,900,957 25,039,986
EIS+.......................... (19,611) -- 528,238 --
FCE........................... (100,672) (83,776) 2,147,348 2,159,228
FCI........................... (153,065) (75,283) 3,290,043 2,390,056
FCG........................... (332,362) (209,811) 5,214,558 4,441,911
GSS........................... (1,942,153) (1,556,521) 23,218,234 20,508,844
HYS........................... (986,099) (833,592) 14,190,817 11,699,195
MSS........................... (784,556) (696,059) 11,245,144 11,326,719
MIS+.......................... (94,444) -- 4,121,518 --
MMS........................... (7,094,698) (4,736,225) 29,387,086 21,463,139
NWD+.......................... (31,098) -- 794,859 --
RES........................... (2,032,529) (1,348,549) 38,553,986 35,654,917
RGS........................... (117,186) (2,854) 2,408,676 533,928
RSS+.......................... (3,636) -- 190,267 --
SIS+.......................... (7,882) -- 622,914 --
TRS........................... (5,162,047) (4,385,161) 71,102,020 66,303,467
UTS........................... (516,662) (309,458) 9,023,102 6,101,638
WAA........................... (393,097) (394,779) 7,576,691 7,928,833
WGS........................... (496,366) (455,742) 5,048,219 6,127,641
WGR........................... (847,123) (899,185) 14,522,129 15,058,757
WTR........................... (286,944) (207,494) 5,354,633 4,676,853
</TABLE>
+For the period May 6, 1997 (commencement of operations of Sub-Account) through
December 31, 1998.
<PAGE>
-30-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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
and Fixed
Units Outstanding Accumulation
Beginning of Year Units Purchased Account
----------------- ---------------- ------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1998 1997 1998 1997
--------- ------ ------- ------- -------- --------
MFS REGATTA CLASSIC
CONTRACTS:
------------------------------
<S> <C> <C> <C> <C> <C> <C>
BDS+.......................... -- -- 33,440 -- 1,859 --
CAS........................... 265,497 1,892 170,863 246,247 49,860 23,978
COS........................... 160,778 9,578 98,617 107,548 29,367 46,458
CGS........................... 554,216 3,545 449,788 446,522 267,481 122,228
EGS........................... 318,028 9,744 613,049 289,836 55,590 22,223
EIS+.......................... -- -- 9,590 -- 2,523 --
FCE........................... 40,698 140 16,413 44,896 (12,814) (3,278)
FCI........................... 67,892 2,249 20,502 75,178 (3,210) (7,901)
FCG*.......................... 51,038 -- 34,300 42,039 8,318 9,735
GSS........................... 113,243 6,514 139,510 89,817 51,253 21,240
HYS........................... 155,306 8,219 224,640 120,521 (2,332) 30,370
MSS**......................... 118,243 -- 59,666 92,458 (29,055) 28,860
MIS++......................... -- -- 78,233 -- 156,319 --
MMS........................... 77,105 13,813 733,426 366,163 (366,138) (259,749)
NWD++......................... -- -- 13,601 -- 15,614 --
RES........................... 553,996 25,665 279,626 497,934 85,963 37,701
RGS#.......................... 6,085 -- 9,086 5,777 19,504 320
RSS........................... -- -- 942 -- 1,292 --
SIS+++........................ -- -- 1,726 -- 851 --
TRS........................... 951,205 40,575 681,412 859,444 155,997 66,034
UTS**......................... 77,009 -- 97,613 41,263 15,497 36,412
WAA........................... 50,531 6,448 16,112 44,701 (8,665) (150)
WGS****....................... 19,394 -- 20,516 18,266 639 2,357
WGR........................... 85,526 71 47,642 77,864 (2,579) 7,879
WTR***........................ 45,122 -- 38,335 49,398 8,687 (3,919)
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
---------------- ------------------
Year Ended Year Ended
December 31, December 31,
1998 1997 1998 1997
------- ------- --------- -------
MFS REGATTA CLASSIC
CONTRACTS:
------------------------------
<S> <C> <C> <C> <C>
BDS+.......................... (176) -- 35,123 --
CAS........................... (20,408) (6,620) 465,812 265,497
COS........................... (11,244) (2,806) 277,518 160,778
CGS........................... (58,292) (18,079) 1,213,193 554,216
EGS........................... (26,865) (3,775) 959,802 318,028
EIS+.......................... -- -- 12,113 --
FCE........................... (643) (1,060) 43,654 40,698
FCI........................... (1,364) (1,634) 83,820 67,892
FCG*.......................... (3,074) (736) 90,582 51,038
GSS........................... (6,696) (4,328) 297,310 113,243
HYS........................... (35,251) (3,804) 342,363 155,306
MSS**......................... (8,530) (3,075) 140,324 118,243
MIS++......................... (1,764) -- 232,788 --
MMS........................... (173,976) (43,122) 270,417 77,105
NWD++......................... (33) -- 29,182 --
RES........................... (47,296) (7,305) 872,289 553,996
RGS#.......................... (793) (12) 33,882 6,085
RSS........................... -- -- 2,234 --
SIS+++........................ -- -- 2,577 --
TRS........................... (57,322) (14,848) 1,731,292 951,205
UTS**......................... (11,983) (666) 178,136 77,009
WAA........................... (4,811) (468) 53,167 50,531
WGS****....................... (475) (1,229) 40,074 19,394
WGR........................... (9,292) (288) 121,297 85,526
WTR***........................ (891) (357) 91,253 45,122
</TABLE>
*For the period January 7, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
**For the period January 22, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
***For the period February 11, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
****For the period February 21, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
#For the period July 7, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
+For the period June 22, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
++For the period May 7, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
+++For the period June 26, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
<PAGE>
-31-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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 Units Withdrawn,
Beginning of Fixed Accumulation Surrendered, and Units Outstanding
Period Units Purchased Account Annuitized End of Period
------------------ --------------- -------------------- ---------------- -----------------
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>
MFS REGATTA PLATINUM
CONTRACTS:
------------------------------
BDS+.......................... -- 491,319 143,015 (6,334) 628,000
CAS++......................... -- 1,489,422 215,237 (21,495) 1,683,164
COS*.......................... -- 480,199 80,801 (4,045) 556,955
CGS++......................... -- 4,380,217 1,013,330 (62,529) 5,331,018
EGS++......................... -- 1,412,976 254,376 (15,948) 1,651,404
EIS+++........................ -- 237,608 35,740 (986) 272,362
FCE+++........................ -- 67,723 4,892 (29) 72,586
FCI+++........................ -- 305,695 37,500 (4,257) 338,938
FCG*.......................... -- 167,384 34,931 (2,969) 199,346
GSS*.......................... -- 686,599 142,121 (12,618) 816,102
HYS+++........................ -- 917,703 95,977 (12,975) 1,000,705
MSS**......................... -- 180,220 35,500 (4,676) 211,044
MIS++......................... -- 2,052,872 400,450 (25,188) 2,428,134
MMS+++........................ -- 1,436,884 (492,250) (58,155) 886,479
NWD+++........................ -- 366,459 75,832 (6,113) 436,178
RES**......................... -- 1,463,540 319,544 (31,371) 1,751,713
RGS+.......................... -- 306,364 82,311 (1,595) 387,080
RSS***........................ -- 162,752 19,544 (1,165) 181,131
SIS#.......................... -- 123,410 35,045 (821) 157,634
TRS+++........................ -- 1,926,233 434,196 (41,582) 2,318,847
UTS**......................... -- 647,482 178,704 (6,537) 819,649
WAA*.......................... -- 175,049 56,466 (2,676) 228,839
WGS+++........................ -- 78,588 (2,199) (119) 76,270
WGR*.......................... -- 125,715 37,960 (819) 162,856
WTR##......................... -- 116,666 37,792 (1,601) 152,857
</TABLE>
+For the period June 30, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
++For the period June 5, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
+++For the period June 18, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
*For the period June 23, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
**For the period June 16, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
***For the period June 29, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
#For the period June 26, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
##For the period July 7, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
<PAGE>
-32-
INDEPENDENT AUDITOR'S REPORT
To the Participants in Regatta, Regatta Gold, Regatta Classic and Regatta
Platinum Sub-Accounts and the Board of Directors of Sun Life Assurance Company
of Canada (U.S.):
We have audited the accompanying statement of condition of Sun Life of Canada
(U.S.) Bond Sub-Account, Capital Appreciation Sub-Account, Capital Opportunities
Sub-Account, Conservative Growth Sub-Account, Emerging Growth Sub-Account,
Equity Income Sub-Account, MFS/Foreign & Colonial Emerging Markets Equity
Sub-Account, International Growth Sub-Account, International Growth and Income
Sub-Account, Government Securities Sub-Account, High Yield Sub-Account, Managed
Sectors Sub-Account, Massachusetts Investors Growth Stock Sub-Account, Money
Market Sub-Account, New Discovery Sub-Account, Research Sub-Account, Research
Growth and Income Sub-Account, Research International Sub-Account, Strategic
Income Sub-Account, Total Return Sub-Account, Utilities Sub-Account, World Asset
Allocation Sub-Account, World Governments Sub-Account, World Growth Sub-Account,
and World Total Return 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 for the year then ended and the statements of changes in net assets
for the years ended December 31, 1998 and 1997. 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 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE:
Toll Free (800) 752-7215
In Massachusetts (617) 348-9600
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte Touche LLP
125 Summer Street
Boston, Massachusetts 02110
<PAGE>
May 1, 1999
MFS REGATTA GOLD
VARIABLE AND FIXED ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
TABLE OF CONTENTS
Calculation of Performance Data ................................................
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 MFS Regatta Gold 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 May 1, 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 1024, Boston, Massachusetts 02103, or by telephoning (617) 348-9600 or
(800)-752-7215.
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
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN:
The table below shows, for various Sub-Accounts of the Variable Account,
the Standardized Average Annual Total Return for the stated periods (or
shorter period indicated in the note below), based upon a hypothetical
initial Purchase Payment of $1,000, calculated in accordance with the formula
set out below. For purposes of determining these investment results, the
actual investment performance of each Series of MFS/Sun Life Series Trust is
reflected from the date the Variable Account was established, or such later
date that the Series commenced operations (the "Commencement Date"), although
the Contracts have been offered only since __________________. No
information is shown for the Bond Series, Equity Income Series, Massachusetts
Investors Growth Stock Series, New Discovery Series, Research International
Series or Strategic Income Series as such Series had not yet commenced
operations as of December 31, 1997.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
PERIOD PERIOD PERIOD LIFE DATE
----------- ----------- --------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation Series............. 20.59% 17.64% -- 15.76% July 13, 1989
Capital Opportunities Series*........... 19.16% -- -- 22.00% June 3, 1996
Emerging Growth Series.................. 25.78% -- -- 24.65% May 1, 1995
Government Securities Series............ 1.28% 4.52% -- 6.39% July 13, 1989
High Yield Series....................... (6.23)% 5.75% -- 7.72% July 13, 1989
International Growth Series*............ (4.95)% -- -- (3.29)% June 3, 1996
International Growth and Income
Series................................. 13.90% -- -- 7.59% October 2, 1995
Managed Sectors Series.................. 4.60% 14.36% -- 13.33% July 13, 1989
Massachusetts Investors Trust Series (5) 15.75% 20.46% -- 15.83% July 13, 1989
MFS/Foreign & Colonial Emerging Markets
Equity Series*......................... (34.48)% -- -- (11.83)% June 5, 1996
Money Market Series..................... (2.18)% 2.70% -- 3.26% July 13, 1989
Research Series......................... 15.63% -- -- 22.48% November 7, 1994
Research Growth and Income Series....... 14.47% -- -- 14.92% May 12, 1997
Total Return Series..................... 3.84% 11.50% -- 10.60% July 13, 1989
Utilities Series........................ 9.89% 16.66% -- 16.21% November 16, 1993
Global Asset Allocation Series (1)...... (0.68)% -- -- 10.97% November 7, 1994
Global Governments Series (2)........... 7.81% 3.71% -- 7.10% July 13, 1989
Global Growth Series (3)................ 6.84% 10.04% -- 11.10% November 16, 1993
Global Total Return Series (4).......... 10.67% -- -- 13.25% November 7, 1994
</TABLE>
- ------------------------
*Actual returns, not annualized.
(1) Formerly, the World Asset Allocation Series.
(2) Formerly, the World Governments Series.
(3) Formerly, the World Growth Series.
(4) Formerly, the World Total Return Series.
(5) Formerly, the Conservative Growth Series.
The length of the period and the last day of each period used in the above table
are set out in the table heading and in the footnotes above. The Average Annual
Total Return for each period was determined by finding the average annual
compounded rate of return over each period that would equate the initial amount
invested to the ending redeemable value for that period, in accordance with the
following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial Purchase Payment
of $1,000
T = average annual total return for the
period
n = number of years
ERV = redeemable value (as of the end of the
period) of a hypothetical $1,000
Purchase Payment made at the beginning
of the 1-year, 5-year, or 10-year period
(or fractional portion thereof)
The formula assumes that: 1) all recurring fees have been deducted from the
Participant's Account; 2) all applicable non-recurring Contract charges are
deducted at the end of the period; and 3) there will be a full surrender at
the end of the period.
The $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 Certificates that have amounts allocated to that
Sub-Account. Because the impact of Account Fees on a particular Certificate may
differ from those assumed in the computation due to differences between actual
allocations and the assumed ones, the total return that would have been
experienced by an actual Contract over these same time periods may have been
different from that shown above.
<PAGE>
-3-
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN:
The table below shows, for various Sub-Accounts of the Variable Account,
the Non-Standardized 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 under "Standardized Average Annual Total Return." For purposes of
determining these investment results, the actual investment performance of
each Series of MFS/Sun Life Series Trust is reflected from the date such
Series commenced operations ("Inception"), although the Contracts have been
offered only since _________________. No information is shown for the Bond
Series, Equity Income Series, Massachusetts Investors Growth Stock Series,
New Discovery Series, Research International Series or Strategic Income
Series as such Series had been in operation less than one year as of December
31, 1997.
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation Series............. 20.59% 17.64% 18.17% 15.86% August 13, 1985
Capital Opportunities Series**.......... 19.16% -- -- 22.00% June 3, 1996
Emerging Growth Series.................. 25.78% -- -- 24.65% May 1, 1995
Government Securities Series............ 1.28% 4.52% 6.86% 7.01% August 12, 1985
High Yield Series....................... (6.23)% 5.75% 7.90% 8.06% August 13, 1985
International Growth Series**........... (4.95)% -- -- (3.29)% June 3, 1996
International Growth and Income Series.. 13.90% -- -- 7.59% October 2, 1995
Managed Sectors Series.................. 4.60% 14.36% 15.77% 15.22% May 27, 1988
Massachusetts Investors Trust Series.... 15.75% 20.46% 17.26% 14.27% December 5, 1986
MFS/Foreign & Colonial Emerging Markets
Equity Series**........................ (34.48)% -- -- (11.83)% June 5, 1996
Money Market Series..................... (2.18)% 2.70% 3.47% 3.68% August 29, 1985
Research Series......................... 15.63% -- -- 22.48% November 7, 1994
Research Growth and Income Series....... 14.47% -- -- 14.92% May 12, 1997
Total Return Series..................... 3.84% 11.50% 11.23% 11.01% May 16, 1988
Utilities Series........................ 9.89% 16.66% -- 16.21% November 16, 1993
Global Asset Allocation Series.......... (0.68)% -- -- 10.97% November 7, 1994
Global Governments Series............... (7.81)% 3.71% 6.87% 6.77% May 16, 1988
Global Growth Series.................... 6.84% 10.04% -- 11.10% November 16, 1993
Global Total Return Series.............. 10.67% -- -- 13.25% November 7, 1994
</TABLE>
- ------------------------
*From commencement of investment operations
**Actual returns, not annualized.
<PAGE>
-4-
NON-STANDARDIZED COMPOUND GROWTH RATE:
The table below shows, for various Sub-Accounts of the Variable Account,
the Non-Standardized Compound Growth Rate 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
under "Standardized Average Annual Return," except that no withdrawal charges
or annual Account Fees have been deducted. If withdrawal charges and Account
Fees were reflected, returns would be lower (see "Standardized Average Annual
Total Return" and "Non-Standardized Average Annual Total Return"). For
purposes of determining these investment results, the actual investment
performance of each Series of MFS/Sun Life Series Trust is reflected from the
date such Series commenced operations ("Inception"), although the Contracts
have been offered only since ________________. No information is shown for
the Bond Series, Equity Income Series, Massachusetts Investors Growth Stock
Series, New Discovery Series, Research International Series or Strategic
Income Series as such Series had been in operation less than one year as of
December 31, 1998.
NON-STANDARDIZED COMPOUND GROWTH RATE
PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation Series............. 26.93% 18.41% 18.45% 16.12% August 13, 1985
Capital Opportunities Series**.......... 25.20% -- -- 23.44% June 3, 1996
Emerging Growth Series.................. 32.01% -- -- 25.55% May 1, 1995
Government Securities Series............ 7.23% 5.23% 7.11% 7.27% August 12, 1985
High Yield Series....................... (0.78)% 6.39% 7.99% 8.13% August 13, 1985
International Growth Series**........... 0.51% -- -- 1.95% June 3, 1996
International Growth and Income Series.. 19.94% -- -- 8.81% October 2, 1995
Managed Sectors Series.................. 10.72% 14.95% 15.90% 15.35% May 27, 1988
Massachusetts Investors Trust Series.... 22.13% 21.04% 17.42% 14.45% December 5, 1986
MFS/Foreign & Colonial Emerging Markets
Equity Series**........................ (30.92)% -- -- (10.76)% June 5, 1996
Money Market Series..................... 3.58% 3.39% 3.80% 4.05% August 29, 1985
Research Series......................... 21.92% -- -- 23.14% November 7, 1994
Research Growth and Income Series....... 20.48% -- -- 18.25% May 12, 1997
Total Return Series..................... 10.20% 12.44% 11.70% 11.47% May 16, 1988
Utilities Series........................ 15.96% 17.13% -- 16.69% November 16, 1993
Global Asset Allocation Series.......... 5.07% -- -- 11.69% November 7, 1994
Global Governments Series............... 13.87% 4.33% 7.02% 6.92% May 16, 1988
Global Growth Series.................... 12.97% 10.71% -- 11.75% November 16, 1993
Global Total Return Series.............. 16.71% -- -- 13.93% November 7, 1994
</TABLE>
- ------------------------
*From commencement of investment operations
**Actual returns, not annualized.
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>
-5-
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>
-6-
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 OR MFS' CUSTOMERS. Sales literature for the Variable
Account and the Funds may refer to the number of clients which they serve.
THE COMPANY'S OR MFS' 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>
-7-
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 MFS REGATTA GOLD 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>
-8-
CALCULATIONS
EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATION
Suppose the net asset value of a Series 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 Series Fund shares to go "ex-dividend"
during the current Valuation Period. $18.38 divided by $18.32 is 1.00327511.
Subtracting the one day risk factor for mortality and expense risks and the
administrative expense charge of .00003809 (the daily equivalent of the
current maximum charge of 1.40% on an annual basis) gives a net investment
factor of 1.00323702. If the value of the variable accumulation unit for the
immediately preceding valuation period had been 14.5645672, the value for the
current valuation period would be 14.6117130 (14.5645672 X 1.00323702).
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 4% per year, the value
of the annuity unit for the current valuation period would be 12.3843113
(12.3456789 X 1.00323702 (the Net Investment Factor) X 0.99989255).
0.99989255 is the factor, for a one day Valuation Period, that neutralizes
the assumed interest rate of 3% per year used to establish the Annuity
Payment Rates found in certain Contracts. (The factor that neutralizes the
assumed interest rate of 3% per year used to establish the Annuity Payment
Rates found in other contracts is 0.99991902).
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 12.3843113.
The first variable annuity payment would be $865.57 (8,765.4321 X 14.5645672
X 6.78 divided by 1,000). The number of annuity units credited would be
70.1112 ($865.57 divided by 12.3456789) and the second variable annuity
payment would be $868.28 (70.1112 X 12.3843113).
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 7.34% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of the Participant's Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation.
The Company reserves the right to offer these additional incentives only to
certain
<PAGE>
-9-
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 Series Fund shares at net asset value in connection with
amounts allocated to the Sub-Accounts in accordance with your instructions,
and we will redeem Series Fund shares at net asset value for the purpose of
meeting the contractual obligations of the Variable Account, paying charges
relative to the Variable Account or making adjustments for annuity reserves
held in the Variable Account.
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>
-10-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1998
<TABLE>
<CAPTION>
Assets:
<S> <C> <C> <C>
Investment in MFS/Sun Life Series Trust: Shares Cost Value
----------- -------------- --------------
Bond Series ("BDS").............................................................. 1,833,052 $ 19,308,754 $ 19,594,756
Capital Appreciation Series ("CAS").............................................. 32,535,812 1,207,116,273 1,494,454,468
Capital Opportunities Series ("COS")............................................. 11,033,845 154,891,892 187,374,642
Conservative Growth Series ("CGS")............................................... 45,143,592 1,273,801,516 1,726,636,223
Emerging Growth Series ("EGS")................................................... 30,106,934 505,953,776 700,846,932
Equity Income Series ("EIS")..................................................... 808,548 7,896,401 8,491,757
MFS/Foreign & Colonial Emerging Markets Equity Series ("FCE").................... 2,266,785 22,335,481 16,977,985
International Growth Series ("FCI").............................................. 3,626,435 35,824,144 35,304,699
International Growth and Income Series ("FCG")................................... 5,453,761 65,412,844 71,908,458
Government Securities Series ("GSS")............................................. 29,861,826 385,880,145 399,987,008
High Yield Series ("HYS")........................................................ 31,251,222 294,351,362 286,371,075
Managed Sectors Series ("MSS")................................................... 11,831,026 317,435,697 334,165,044
Massachusetts Investors Growth Stock Series ("MIS").............................. 6,724,723 69,779,820 81,191,995
Money Market Series ("MMS")...................................................... 417,135,145 417,135,145 417,135,145
New Discovery Series ("NWD")..................................................... 1,250,089 11,775,479 13,279,492
Research Series ("RES").......................................................... 41,174,957 725,772,331 947,967,793
Research Growth & Income Series ("RGS").......................................... 2,708,382 32,789,497 36,276,888
Research International Series ("RSS")............................................ 373,636 3,392,628 3,519,310
Strategic Income Series ("SIS").................................................. 774,644 7,563,923 7,781,098
Total Return Series ("TRS")...................................................... 85,415,374 1,568,357,466 1,816,228,173
Utilities Series ("UTS")......................................................... 12,363,259 176,926,102 211,219,612
World Asset Allocation Series ("WAA")............................................ 8,540,141 119,915,782 123,362,461
World Governments Series ("WGS")................................................. 7,341,822 83,199,514 89,769,321
World Growth Series ("WGR")...................................................... 16,637,922 227,100,556 260,469,628
World Total Return Series ("WTR")................................................ 5,736,216 80,641,108 95,255,576
-------------- --------------
$7,814,557,636 $9,385,569,539
--------------
--------------
Receivable from Sponsor......................................................................................... 124,848
--------------
Net Assets................................................................................................ $9,385,694,387
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
Applicable to Owners of Reserve
Deferred Variable Annuity Contracts for
------------------------------------- Variable
NET ASSETS APPLICABLE TO CONTRACT OWNERS: Units Unit Value Value Annuities Total
---------- ---------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
MFS REGATTA CONTRACTS:
CAS -- Level 1......................... 464,349 $38.0799 $ 17,690,821 $ 128,185 $ 17,819,006
CAS -- Level 2......................... 9,053,993 15.3711 139,037,017 502,016 139,539,033
GSS -- Level 1......................... 325,241 17.8992 5,834,948 85,153 5,920,101
GSS -- Level 2......................... 2,656,978 11.4928 30,519,539 186,149 30,705,688
HYS -- Level 1......................... 73,632 21.8836 1,617,626 4,912 1,622,538
HYS -- Level 2......................... 1,320,379 11.1015 14,660,653 65,418 14,726,071
MSS -- Level 1......................... 196,463 30.2227 5,814,583 64,763 5,879,346
MSS -- Level 2......................... 2,730,897 13.6177 37,269,491 76,615 37,346,106
MMS -- Level 1......................... 268,447 13.6495 3,851,232 27,783 3,879,015
MMS -- Level 2......................... 3,722,758 10.7906 39,934,531 3,596 39,938,127
TRS -- Level 1......................... 898,137 26.5642 23,875,313 222,411 24,097,724
TRS -- Level 2......................... 12,506,430 13.3189 166,507,969 1,042,925 167,550,894
WGS -- Level 1......................... 89,328 18.6916 1,681,850 39,205 1,721,055
WGS -- Level 2......................... 834,010 11.2037 9,329,126 36,551 9,365,677
------------ ---------- --------------
$497,624,699 $2,485,682 $ 500,110,381
------------ ---------- --------------
</TABLE>
See notes to financial statements
<PAGE>
-11-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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 Reserve
Deferred Variable Annuity Contracts for
NET ASSETS APPLICABLE TO CONTRACT OWNERS --------------------------------------- Variable
(CONTINUED): Units Unit Value Value Annuities Total
---------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
MFS REGATTA GOLD CONTRACTS:
BDS.................................... 1,182,239 $10.5921 $ 12,523,169 $ 148,957 $ 12,672,126
CAS.................................... 37,500,481 34.7871 1,304,369,755 6,496,774 1,310,866,529
COS.................................... 10,262,282 17.2085 176,609,581 303,057 176,912,638
CGS.................................... 51,880,765 31.7109 1,645,157,266 5,065,107 1,650,222,373
EGS.................................... 28,900,957 23.0408 665,946,545 1,249,399 667,195,944
EIS.................................... 528,238 10.4065 5,496,893 -- 5,496,893
FCE.................................... 2,147,348 7.4615 16,021,601 19,295 16,040,896
FCI.................................... 3,290,043 9.5047 31,272,468 50,802 31,323,270
FCG.................................... 5,214,558 13.1538 68,597,649 89,079 68,686,728
GSS.................................... 23,218,234 15.0941 350,499,319 1,093,255 351,592,574
HYS.................................... 14,190,817 18.0207 255,739,789 889,807 256,629,596
MSS.................................... 11,245,144 25.4406 285,790,341 972,779 286,763,120
MIS.................................... 4,121,518 11.9635 49,306,625 88,325 49,394,950
MMS.................................... 29,387,086 12.2282 359,428,914 1,587,715 361,016,629
NWD.................................... 794,859 10.5258 8,366,403 37,385 8,403,788
RES.................................... 38,553,986 23.7119 913,668,029 2,442,962 916,110,991
RGS.................................... 2,408,676 13.1605 31,700,558 131,422 31,831,980
RSS.................................... 190,267 9.3330 1,776,592 -- 1,776,592
SIS.................................... 622,914 9.9530 6,199,328 -- 6,199,328
TRS.................................... 71,102,020 22.1273 1,573,134,778 4,410,143 1,577,544,921
UTS.................................... 9,023,102 22.0489 198,939,550 710,512 199,650,062
WAA.................................... 7,576,691 15.8203 119,890,942 617,113 120,508,055
WGS.................................... 5,048,219 15.2422 76,964,930 444,193 77,409,123
WGR.................................... 14,522,129 17.6676 256,577,775 663,609 257,241,384
WTR.................................... 5,354,633 17.1741 91,961,363 521,228 92,482,591
-------------- ---------- --------------
$8,505,940,163 $28,032,918 $8,533,973,081
-------------- ---------- --------------
</TABLE>
See notes to financial statements
<PAGE>
-12-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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 Reserve
Deferred Variable Annuity Contracts for
NET ASSETS APPLICABLE TO CONTRACT OWNERS --------------------------------------- Variable
(CONTINUED): Units Unit Value Value Annuities Total
---------- ---------- -------------- ---------- --------------
MFS REGATTA CLASSIC CONTRACTS:
<S> <C> <C> <C> <C> <C>
BDS.................................... 35,123 $10.4200 $ 365,971 $ -- $ 365,971
CAS.................................... 465,812 15.2806 7,116,057 -- 7,116,057
COS.................................... 277,518 15.9773 4,429,393 -- 4,429,393
CGS.................................... 1,213,193 15.7220 19,066,338 701 19,067,039
EGS.................................... 959,802 15.2416 14,625,520 -- 14,625,520
EIS.................................... 12,113 10.6318 128,778 -- 128,778
FCE.................................... 43,654 7.8620 343,375 -- 343,375
FCI.................................... 83,820 9.8139 822,725 -- 822,725
FCG.................................... 90,582 12.7274 1,152,339 -- 1,152,339
GSS.................................... 297,310 11.5012 3,424,501 -- 3,424,501
HYS.................................... 342,363 11.2212 3,840,819 -- 3,840,819
MSS.................................... 140,324 13.2363 1,856,704 -- 1,856,704
MIS.................................... 232,788 11.9830 2,790,662 -- 2,790,662
MMS.................................... 270,417 10.7995 2,919,832 -- 2,919,832
NWD.................................... 29,182 10.5430 307,881 -- 307,881
RES.................................... 872,289 14.3354 12,502,110 -- 12,502,110
RGS.................................... 33,882 12.9744 439,317 -- 439,317
RSS.................................... 2,234 11.0101 24,596 -- 24,596
SIS.................................... 2,577 9.8850 25,477 -- 25,477
TRS.................................... 1,731,292 13.1773 22,813,315 1,386 22,814,701
UTS.................................... 178,136 14.8587 2,640,990 -- 2,640,990
WAA.................................... 53,167 11.5822 616,156 -- 616,156
WGS.................................... 40,074 11.4588 459,164 -- 459,164
WGR.................................... 121,297 12.8959 1,563,449 -- 1,563,449
WTR.................................... 91,253 13.0681 1,192,112 723 1,192,835
-------------- ---------- --------------
$ 105,467,581 $ 2,810 $ 105,470,391
-------------- ---------- --------------
</TABLE>
See notes to financial statements
<PAGE>
-13-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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
NET ASSETS APPLICABLE TO CONTRACT OWNERS ------------------------------------- Variable
(CONTINUED): Units Unit Value Value Annuities Total
-------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
MFS REGATTA PLATINUM CONTRACTS:
BDS.................................... 628,000 $10.4201 $ 6,543,991 $ -- $ 6,543,991
CAS.................................... 1,683,164 11.3405 19,087,857 21,268 19,109,125
COS.................................... 556,955 10.8048 6,017,955 -- 6,017,955
CGS.................................... 5,331,018 10.7939 57,543,942 58,386 57,602,328
EGS.................................... 1,651,404 11.5819 19,126,029 -- 19,126,029
EIS.................................... 272,362 10.5234 2,866,086 -- 2,866,086
FCE.................................... 72,586 8.1616 592,467 -- 592,467
FCI.................................... 338,938 9.3254 3,160,703 -- 3,160,703
FCG.................................... 199,346 10.3378 2,060,785 -- 2,060,785
GSS.................................... 816,102 10.4116 8,497,341 -- 8,497,341
HYS.................................... 1,000,705 9.5030 9,509,687 9,324 9,519,011
MSS.................................... 211,044 10.5861 2,234,121 21,614 2,255,735
MIS.................................... 2,428,134 11.9094 28,917,948 87,345 29,005,293
MMS.................................... 886,479 10.1878 9,031,808 119,936 9,151,744
NWD.................................... 436,178 10.4124 4,541,543 23,912 4,565,455
RES.................................... 1,751,713 11.0189 19,301,999 96,452 19,398,451
RGS.................................... 387,080 10.3415 4,002,882 -- 4,002,882
RSS.................................... 181,131 9.4845 1,718,122 -- 1,718,122
SIS.................................... 157,634 9.8713 1,556,293 -- 1,556,293
TRS.................................... 2,318,847 10.2907 23,862,327 210,689 24,073,016
UTS.................................... 819,649 10.9233 8,953,383 10,545 8,963,928
WAA.................................... 228,839 9.7081 2,221,401 -- 2,221,401
WGS.................................... 76,270 11.2639 858,944 -- 858,944
WGR.................................... 162,856 10.2820 1,674,403 -- 1,674,403
WTR.................................... 152,857 10.4567 1,598,349 697 1,599,046
-------------- ----------- --------------
$ 245,480,366 $ 660,168 $ 246,140,534
-------------- ----------- --------------
Net Assets............................. $9,354,512,809 $31,181,578 $9,385,694,387
-------------- ----------- --------------
-------------- ----------- --------------
</TABLE>
See notes to financial statements
<PAGE>
-14-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1998
<TABLE>
<CAPTION>
BDS CAS COS CGS
Sub-Account* Sub-Account Sub-Account Sub-Account
--------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ -- $145,840,372 $ 5,578,765 $ 93,714,906
Mortality and expense risk
charges......................... (73,456) (15,736,721) (1,733,280) (17,202,966)
Distribution expense charges..... -- (84,682) -- --
Administrative expense charges... (8,815) (1,803,725) (207,994) (2,064,356)
--------------- ------------ ------------ -------------
Net investment income (loss)... $ (82,271) $128,215,244 $ 3,637,491 $ 74,447,584
--------------- ------------ ------------ -------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions
Proceeds from sales............ $5,147,887 $333,053,338 $ 18,663,825 $ 67,989,586
Cost of investments sold....... (4,931,477) (266,350,843) (13,493,338) (34,336,835)
--------------- ------------ ------------ -------------
Net realized gains
(losses).................... $ 216,410 $ 66,702,495 $ 5,170,487 $ 33,652,751
--------------- ------------ ------------ -------------
Net unrealized appreciation
(depreciation) on investments
End of year.................... $ 286,002 $287,338,195 $ 32,482,750 $ 452,834,707
Beginning of year.............. -- 165,968,995 11,851,082 285,383,733
--------------- ------------ ------------ -------------
Change in unrealized
appreciation
(depreciation).............. $ 286,002 $121,369,200 $ 20,631,668 $ 167,450,974
--------------- ------------ ------------ -------------
Realized and unrealized gains
(losses)...................... $ 502,412 $188,071,695 $ 25,802,155 $ 201,103,725
--------------- ------------ ------------ -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................... $ 420,141 $316,286,939 $ 29,439,646 $ 275,551,309
--------------- ------------ ------------ -------------
--------------- ------------ ------------ -------------
<CAPTION>
EGS EIS FCE
Sub-Account Sub-Account* Sub-Account
------------- ------------ ------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ 18,895,299 $-- $ 747,426
Mortality and expense risk
charges......................... (6,840,338) (28,468) (249,740)
Distribution expense charges..... -- -- --
Administrative expense charges... (820,840) (3,416) (29,969)
------------- ------------ ------------
Net investment income (loss)... $ 11,234,121 $(31,884) $ 467,717
------------- ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions
Proceeds from sales............ $ 67,761,609 3,$017,698 $ 16,258,903
Cost of investments sold....... (45,241,707) (3,135,184) (20,682,560)
------------- ------------ ------------
Net realized gains
(losses).................... $ 22,519,902 ($117,486) $ (4,423,657)
------------- ------------ ------------
Net unrealized appreciation
(depreciation) on investments
End of year.................... $ 194,893,156 $595,356 $ (5,357,496)
Beginning of year.............. 69,992,703 -- (1,673,420)
------------- ------------ ------------
Change in unrealized
appreciation
(depreciation).............. $ 124,900,453 $595,356 $ (3,684,076)
------------- ------------ ------------
Realized and unrealized gains
(losses)...................... $ 147,420,355 $477,870 $ (8,107,733)
------------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................... $ 158,654,476 $445,986 $ (7,640,016)
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-15-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
FCI FCG GSS HYS MSS MIS
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............... $ 317,696 1$,908,465 $20,116,757 $ 17,576,410 $ 49,435,052 $ --
Mortality and expense risk charges.... (374,634) (770,139) (4,519,127) (3,406,720) (3,954,559) (248,138)
Distribution expense charges.......... -- -- (23,267) (11,390) (25,353) --
Administrative expense charges........ (44,956) (92,417) (519,028) (397,417) (449,194) (29,777)
----------- -------------- ----------- ------------ ------------ --------------
Net investment income (loss)...... $ (101,894) 1$,045,909 $15,055,335 $ 13,760,883 $ 45,005,946 $(277,915)
----------- -------------- ----------- ------------ ------------ --------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions
Proceeds from sales................. $6,476,662 39$,966,952 $141,956,429 $127,769,004 $ 83,847,621 5$,759,463
Cost of investments sold............ (6,610,768) (34,355,430) (134,011,602) (123,024,988) (72,366,519) (5,468,843)
----------- -------------- ----------- ------------ ------------ --------------
Net realized gains (losses)....... $ (134,106) 5$,611,522 $ 7,944,827 $ 4,744,016 $ 11,481,102 $290,620
----------- -------------- ----------- ------------ ------------ --------------
Net unrealized appreciation
(depreciation) on investments
End of year......................... $ (519,445) 6$,495,614 $14,106,863 $ (7,980,287) $ 16,729,347 11$,412,175
Beginning of year................... (418,012) 2,425,793 11,293,081 12,659,920 40,525,807 --
----------- -------------- ----------- ------------ ------------ --------------
Change in unrealized appreciation
(depreciation)................... $ (101,433) 4$,069,821 $ 2,813,782 $(20,640,207) $(23,796,460) 11$,412,175
----------- -------------- ----------- ------------ ------------ --------------
Realized and unrealized gains
(losses)........................... $ (235,539) 9$,681,343 $10,758,609 $(15,896,191) $(12,315,358) 11$,702,795
----------- -------------- ----------- ------------ ------------ --------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ (337,433) 10$,727,252 $25,813,944 $ (2,135,308) $ 32,690,588 11$,424,880
----------- -------------- ----------- ------------ ------------ --------------
----------- -------------- ----------- ------------ ------------ --------------
<CAPTION>
MMS
Sub-Account
------------
<S> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 17,312,637
Mortality and expense risk charges.... (4,328,735)
Distribution expense charges.......... (17,272)
Administrative expense charges........ (502,176)
------------
Net investment income (loss)...... $ 12,464,454
------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions
Proceeds from sales................. $648,695,089
Cost of investments sold............ (648,695,089)
------------
Net realized gains (losses)....... $ --
------------
Net unrealized appreciation
(depreciation) on investments
End of year......................... $ --
Beginning of year................... --
------------
Change in unrealized appreciation
(depreciation)................... $ --
------------
Realized and unrealized gains
(losses)........................... $ --
------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 12,464,454
------------
------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-16-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
NWD RES RGS RSS SIS
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.......... $-- $ 34,036,093 $76,267 $-- $--
Mortality and expense risk
charges......................... (49,668) (9,949,193) (243,948) (13,748) (33,096)
Distribution expense charges..... -- -- -- -- --
Administrative expense charges... (5,960) (1,193,903) (29,274) (1,650) (3,971)
------------ ------------- ------------ ----------- ------------
Net investment income
(loss)...................... $(55,628) $ 22,892,997 ($196,955) ($15,398) $(37,067)
------------ ------------- ------------ ----------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains(losses) on
investment transactions
Proceeds from sales............ 1,$614,329 $ 55,466,811 6,$084,512 5$50,369 3,$456,275
Cost of investments sold....... (1,692,255) (33,492,897) (5,571,502) (645,339) (3,545,101)
------------ ------------- ------------ ----------- ------------
Net realized gains (losses).... $(77,926) $ 21,973,914 $513,010 ($94,970) $(88,826)
------------ ------------- ------------ ----------- ------------
Net unrealized appreciation on
investments
End of year.................... 1,$504,013 $ 222,195,462 3,$487,391 1$26,682 $217,175
Beginning of year.............. -- 111,290,775 263,416 -- --
------------ ------------- ------------ ----------- ------------
Change in unrealized
appreciation................ 1,$504,013 $ 110,904,687 3,$223,975 1$26,682 $217,175
------------ ------------- ------------ ----------- ------------
Realized and unrealized
gains......................... 1,$426,087 $ 132,878,601 3,$736,985 $31,712 $128,349
------------ ------------- ------------ ----------- ------------
INCREASE IN NET ASSETS FROM
OPERATIONS........................ 1,$370,459 $ 155,771,598 3,$540,030 $16,314 $91,282
------------ ------------- ------------ ----------- ------------
------------ ------------- ------------ ----------- ------------
<CAPTION>
TRS UTS
Sub-Account Sub-Account
------------- --------------
<S> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ 187,021,256 $ 17,526,264
Mortality and expense risk
charges......................... (21,072,561) (1,979,657)
Distribution expense charges..... (122,533) --
Administrative expense charges... (2,406,174) (237,559)
------------- --------------
Net investment income
(loss)...................... $ 163,419,988 $ 15,309,048
------------- --------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains(losses) on
investment transactions
Proceeds from sales............ $ 285,917,310 $ 9,858,290
Cost of investments sold....... (234,220,673) (6,719,351)
------------- --------------
Net realized gains (losses).... $ 51,696,637 $ 3,138,939
------------- --------------
Net unrealized appreciation on
investments
End of year.................... $ 247,870,707 $ 34,293,510
Beginning of year.............. 297,846,753 28,380,652
------------- --------------
Change in unrealized
appreciation................ $ (49,976,046) $ 5,912,858
------------- --------------
Realized and unrealized
gains......................... $ 1,720,591 $ 9,051,797
------------- --------------
INCREASE IN NET ASSETS FROM
OPERATIONS........................ $ 165,140,579 $ 24,360,845
------------- --------------
------------- --------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-17-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
WAA WGS WGR WTR
Sub-Account Sub-Account Sub-Account Sub-Account Total
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 9,239,610 $ 1,161,945 $ 18,963,375 $ 3,790,536 $ 643,259,131
Mortality and expense risk charges.... (1,568,686) (1,115,945) (3,101,995) (1,031,335) (99,626,853)
Distribution expense charges.......... -- (8,707) -- -- (293,204)
Administrative expense charges........ (188,242) (125,206) (372,239) (123,760) (11,662,018)
------------ ------------ ------------ ------------ -------------
Net investment income (loss)...... $ 7,482,682 $ (87,913) $ 15,489,141 $ 2,635,441 $ 531,677,056
------------ ------------ ------------ ------------ -------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions
Proceeds from sales................. $ 28,323,513 $ 36,276,075 $ 47,578,064 $ 15,451,732 $2,056,941,346
Cost of investments sold............ (24,630,654) (36,774,597) (35,986,240) (11,648,715) (1,807,632,507)
------------ ------------ ------------ ------------ -------------
Net realized gains (losses)....... $ 3,692,859 $ (498,522) $ 11,591,824 $ 3,803,017 $ 249,308,839
------------ ------------ ------------ ------------ -------------
Net unrealized appreciation
(depreciation) on investments
End of year......................... $ 3,446,679 $ 6,569,807 $ 33,369,072 $ 14,614,468 $1,571,011,903
Beginning of year................... 9,486,253 (5,701,264) 31,911,034 8,223,467 1,079,710,768
------------ ------------ ------------ ------------ -------------
Change in unrealized appreciation
(depreciation)................... $ (6,039,574) $ 12,271,071 $ 1,458,038 $ 6,391,001 $ 491,301,135
------------ ------------ ------------ ------------ -------------
Realized and unrealized gains
(losses)........................... $ (2,346,715) $ 11,772,549 $ 13,049,862 $ 10,194,018 $ 740,609,974
------------ ------------ ------------ ------------ -------------
INCREASE IN NET ASSETS FROM
OPERATIONS............................. $ 5,135,967 $ 11,684,636 $ 28,539,003 $ 12,829,459 $1,272,287,030
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
</TABLE>
See notes to financial statements
<PAGE>
-18-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BDS CAS COS
Sub-Account Sub-Account Sub-Account
------------ -------------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998* 1998 1997 1998 1997
------------ --------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ (82,271) $ 128,215,244 $ 74,369,495 $ 3,637,491 $ (375,236)
Net realized gains............... 216,410 66,702,495 86,668,781 5,170,487 337,679
Net unrealized gains............. 286,002 121,369,200 32,342,322 20,631,668 11,106,441
------------ --------------- --------------- ------------- ------------
Increase in net assets from
operations.................. $ 420,141 $ 316,286,939 $ 193,380,598 $ 29,439,646 $ 11,068,884
------------ --------------- --------------- ------------- ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 9,875,456 $ 107,933,141 $ 191,209,464 $ 38,230,487 $ 29,587,412
Net transfers between
Sub-Accounts and Fixed
Account....................... 9,534,568 47,848,492 28,967,751 40,051,430 31,786,583
Withdrawals, surrenders,
annuitizations and contract
charges....................... (395,676) (114,794,853) (177,738,789) (7,541,790) (2,199,052)
------------ --------------- --------------- ------------- ------------
Net accumulation activity.... $ 19,014,348 $ 40,986,780 $ 42,438,426 $ 70,740,127 $ 59,174,943
------------ --------------- --------------- ------------- ------------
Annuitization Activity:
Annuitizations................. $ 164,170 $ 1,220,067 $ 1,367,156 $ 142,386 $ 136,454
Annuity payments and contract
charges....................... (3,903) (1,025,009) (736,487) (46,545) (15,580)
Net Transfers between
Sub-Accounts.................. -- (41,318) 40,842 25,440 --
Adjustments to annuity
reserves...................... (12,668) (88,123) (64,938) (10,400) (4,256)
------------ --------------- --------------- ------------- ------------
Net annuitization activity..... $ 147,599 $ 65,617 $ 606,573 $ 110,881 $ 116,618
------------ --------------- --------------- ------------- ------------
Increase in net assets from
contract owner transactions..... $ 19,161,947 $ 41,052,397 $ 43,044,999 $ 70,851,008 $ 59,291,561
------------ --------------- --------------- ------------- ------------
Increase in net assets......... $ 19,582,088 $ 357,339,336 $ 236,425,597 $ 100,290,654 $ 70,360,445
------------ --------------- --------------- ------------- ------------
NET ASSETS:
Beginning of year................ -- 1,137,110,414 900,684,817 87,069,332 16,708,887
------------ --------------- --------------- ------------- ------------
End of year...................... $ 19,582,088 $ 1,494,449,750 $ 1,137,110,414 $ 187,359,986 $ 87,069,332
------------ --------------- --------------- ------------- ------------
------------ --------------- --------------- ------------- ------------
<CAPTION>
CGS
Sub-Account
--------------------------------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 74,447,584 $ 24,679,106
Net realized gains............... 33,652,751 9,412,903
Net unrealized gains............. 167,450,974 162,512,568
--------------- ---------------
Increase in net assets from
operations.................. $ 275,551,309 $ 196,604,577
--------------- ---------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 265,107,890 $ 211,472,643
Net transfers between
Sub-Accounts and Fixed
Account....................... 206,082,223 176,163,947
Withdrawals, surrenders,
annuitizations and contract
charges....................... (88,307,981) (42,133,444)
--------------- ---------------
Net accumulation activity.... $ 382,882,132 $ 345,503,146
--------------- ---------------
Annuitization Activity:
Annuitizations................. $ 2,012,633 $ 947,612
Annuity payments and contract
charges....................... (713,563) (271,967)
Net Transfers between
Sub-Accounts.................. (116,539) 354,557
Adjustments to annuity
reserves...................... 265,082 52,749
--------------- ---------------
Net annuitization activity..... $ 1,447,613 $ 1,082,951
--------------- ---------------
Increase in net assets from
contract owner transactions..... $ 384,329,745 $ 346,586,097
--------------- ---------------
Increase in net assets......... $ 659,881,054 $ 543,190,674
--------------- ---------------
NET ASSETS:
Beginning of year................ 1,067,010,686 523,820,012
--------------- ---------------
End of year...................... $ 1,726,891,740 $ 1,067,010,686
--------------- ---------------
--------------- ---------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-19-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
EGS EIS FCE
Sub-Account Sub-Account Sub-Account
---------------------------- ------------ --------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998* 1998 1997
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 11,234,121 $ (3,455,859) $ (31,884) $ 467,717 $ (230,489)
Net realized gains (losses)...... 22,519,902 8,307,222 (117,486) (4,423,657) 974,141
Net unrealized gains (losses).... 124,900,453 53,637,553 595,356 (3,684,076) (1,720,809)
------------- ------------- ------------ ------------ ------------
Increase (decrease) in net
assets from operations...... $ 158,654,476 $ 58,488,916 $ 445,986 $ (7,640,016) $ (977,157)
------------- ------------- ------------ ------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 90,838,283 $ 95,095,489 $ 4,758,335 $ 2,734,886 $ 9,918,873
Net transfers between
Sub-Accounts and Fixed
Account....................... 40,488,353 57,336,795 3,493,264 (1,032,098) 12,522,767
Withdrawals, surrenders,
annuitizations and contract
charges....................... (30,769,813) (16,909,470) (205,828) (897,534) (953,005)
------------- ------------- ------------ ------------ ------------
Net accumulation activity.... $ 100,556,823 $ 135,522,814 $ 8,045,771 $ 805,254 $ 21,488,635
------------- ------------- ------------ ------------ ------------
Annuitization Activity:
Annuitizations................. $ 453,478 $ 158,875 $ -- $ 3,586 $ 39,195
Annuity payments and contract
charges....................... (113,219) (58,246) -- (7,084) (5,864)
Net transfers between
Sub-Accounts.................. (5,495) 21,015 -- -- --
Adjustments to annuity
reserves...................... 128,245 7,823 -- 218 (1,465)
------------- ------------- ------------ ------------ ------------
Net annuitization activity... $ 463,009 $ 129,467 $ -- $ (3,280) $ 31,866
------------- ------------- ------------ ------------ ------------
Increase in net assets from
contract owner transactions..... $ 101,019,832 $ 135,652,281 $ 8,045,771 $ 801,974 $ 21,520,501
------------- ------------- ------------ ------------ ------------
Increase (decrease) in net
assets........................ $ 259,674,308 $ 194,141,197 $ 8,491,757 $ (6,838,042) $ 20,543,344
------------- ------------- ------------ ------------ ------------
NET ASSETS:
Beginning of year................ 441,273,185 247,131,988 -- 23,814,780 3,271,436
------------- ------------- ------------ ------------ ------------
End of year...................... $ 700,947,493 $ 441,273,185 $ 8,491,757 $ 16,976,738 $ 23,814,780
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
<CAPTION>
FCI
Sub-Account
--------------------------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ (101,894) $ (193,476)
Net realized gains (losses)...... (134,106) (156,246)
Net unrealized gains (losses).... (101,433) (353,885)
------------ ------------
Increase (decrease) in net
assets from operations...... $ (337,433) $ (703,607)
------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 8,231,578 $ 10,356,882
Net transfers between
Sub-Accounts and Fixed
Account....................... 5,579,377 8,764,120
Withdrawals, surrenders,
annuitizations and contract
charges....................... (1,479,723) (683,649)
------------ ------------
Net accumulation activity.... $ 12,331,232 $ 18,437,353
------------ ------------
Annuitization Activity:
Annuitizations................. $ 1,716 $ 55,177
Annuity payments and contract
charges....................... (5,621) (2,405)
Net transfers between
Sub-Accounts.................. -- --
Adjustments to annuity
reserves...................... 2,415 (416)
------------ ------------
Net annuitization activity... $ (1,490) $ 52,356
------------ ------------
Increase in net assets from
contract owner transactions..... $ 12,329,742 $ 18,489,709
------------ ------------
Increase (decrease) in net
assets........................ $ 11,992,309 $ 17,786,102
------------ ------------
NET ASSETS:
Beginning of year................ 23,314,389 5,528,287
------------ ------------
End of year...................... $ 35,306,698 $ 23,314,389
------------ ------------
------------ ------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-20-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
FCG GSS
Sub-Account Sub-Account
-------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1998 1997 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 1,045,909 $ (87,178) $ 15,055,335 $ 16,257,472
Net realized gains (losses)...... 5,611,522 575,848 7,944,827 (320,218)
Net unrealized gains (losses).... 4,069,821 1,624,106 2,813,782 5,893,925
------------ ------------ ------------- -------------
Increase (decrease) in net
assets from operations...... $ 10,727,252 $ 2,112,776 $ 25,813,944 $ 21,831,179
------------ ------------ ------------- -------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 7,721,923 $ 8,465,356 $ 33,941,912 $ 45,924,248
Net transfers between
Sub-Accounts and Fixed
Account....................... 8,246,837 5,802,185 49,410,266 9,720,766
Withdrawals, surrenders,
annuitizations and contract
charges....................... (4,121,150) (2,204,864) (40,854,521) (58,612,247)
------------ ------------ ------------- -------------
Net accumulation activity.... $ 11,847,610 $ 12,062,677 $ 42,497,657 $ (2,967,233)
------------ ------------ ------------- -------------
Annuitization Activity:
Annuitizations................. $ 34,551 $ 45,941 $ 1,080,791 $ 142,666
Annuity payments and contract
charges....................... (28,601) (6,247) (563,274) (181,979)
Net transfers between
Sub-Accounts.................. (17,030) -- (10,317) (55,523)
Adjustments to annuity
reserves...................... (10,148) 62 17,162 111,855
------------ ------------ ------------- -------------
Net annuitization activity... $ (21,228) $ 39,756 $ 524,362 $ 17,019
------------ ------------ ------------- -------------
Increase (decrease) in net assets
from contract owner
transactions.................... $ 11,826,382 $ 12,102,433 $ 43,022,019 $ (2,950,214)
------------ ------------ ------------- -------------
Increase in net assets......... $ 22,553,634 $ 14,215,209 $ 68,835,963 $ 18,880,965
------------ ------------ ------------- -------------
NET ASSETS:
Beginning of year................ 49,346,218 35,131,009 331,304,242 312,423,277
------------ ------------ ------------- -------------
End of year...................... $ 71,899,852 $ 49,346,218 $ 400,140,205 $ 331,304,242
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
<CAPTION>
HYS
Sub-Account
----------------------------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 13,760,883 $ 9,894,976
Net realized gains (losses)...... 4,744,016 6,191,967
Net unrealized gains (losses).... (20,640,207) 5,472,328
------------- -------------
Increase (decrease) in net
assets from operations...... $ (2,135,308) $ 21,559,271
------------- -------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 54,795,963 $ 56,445,474
Net transfers between
Sub-Accounts and Fixed
Account....................... 20,587,340 35,346,824
Withdrawals, surrenders,
annuitizations and contract
charges....................... (24,841,987) (37,189,764)
------------- -------------
Net accumulation activity.... $ 50,541,316 $ 54,602,534
------------- -------------
Annuitization Activity:
Annuitizations................. $ 514,021 $ 403,156
Annuity payments and contract
charges....................... (301,855) (164,426)
Net transfers between
Sub-Accounts.................. -- --
Adjustments to annuity
reserves...................... 44,449 2,369
------------- -------------
Net annuitization activity... $ 256,615 $ 241,099
------------- -------------
Increase (decrease) in net assets
from contract owner
transactions.................... $ 50,797,931 $ 54,843,633
------------- -------------
Increase in net assets......... $ 48,662,623 $ 76,402,904
------------- -------------
NET ASSETS:
Beginning of year................ 237,675,412 161,272,508
------------- -------------
End of year...................... $ 286,338,035 $ 237,675,412
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements
<PAGE>
-21-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
MSS MIS
Sub-Account Sub-Account
---------------------------- ------------
Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998*
------------- ------------- ------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 45,005,946 $ 25,345,850 $ (277,915)
Net realized gains (losses)...... 11,481,102 19,553,090 290,620
Net unrealized gains (losses).... (23,796,460) 11,613,272 11,412,175
------------- ------------- ------------
Increase in net assets from
operations.................. $ 32,690,588 $ 56,512,212 $ 11,424,880
------------- ------------- ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 22,720,393 $ 56,177,555 $ 42,898,409
Net transfers between
Sub-Accounts and Fixed
Account....................... (5,210,223) 12,554,894 27,944,745
Withdrawals, surrenders,
annuitizations and contract
charges....................... (28,997,564) (57,321,938) (1,223,987)
------------- ------------- ------------
Net accumulation activity.... $ (11,487,394) $ 11,410,511 $ 69,619,167
------------- ------------- ------------
Annuitization Activity:
Annuitizations................. $ 360,666 $ 558,077 $ 158,201
Annuity payments and contract
charges....................... (278,169) (166,248) (10,253)
Net transfers between
Sub-Accounts.................. (6,870) -- --
Adjustments to annuity
reserves...................... (3,336) (43,539) (1,090)
------------- ------------- ------------
Net annuitization activity... $ 72,291 $ 348,290 $ 146,858
------------- ------------- ------------
Increase (decrease) in net assets
from contract owner
transactions.................... $ (11,415,103) $ 11,758,801 $ 69,766,025
------------- ------------- ------------
Increase (decrease) in net
assets........................ $ 21,275,485 $ 68,271,013 $ 81,190,905
------------- ------------- ------------
NET ASSETS:
Beginning of year................ 312,825,526 244,554,513 --
------------- ------------- ------------
End of year...................... $ 334,101,011 $ 312,825,526 $ 81,190,905
------------- ------------- ------------
------------- ------------- ------------
<CAPTION>
MMS NWD
Sub-Account Sub-Account
---------------------------- ------------
Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998*
------------- ------------- ------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 12,464,454 $ 12,238,449 $ (55,628)
Net realized gains (losses)...... -- -- (77,926)
Net unrealized gains (losses).... -- -- 1,504,013
------------- ------------- ------------
Increase in net assets from
operations.................. $ 12,464,454 $ 12,238,449 $ 1,370,459
------------- ------------- ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received..... $ 84,539,955 $ 151,523,026 $ 5,928,260
Net transfers between
Sub-Accounts and Fixed
Account....................... 205,348,459 (1,240,893) 6,269,724
Withdrawals, surrenders,
annuitizations and contract
charges....................... (180,586,976) (229,658,956) (345,722)
------------- ------------- ------------
Net accumulation activity.... $ 109,301,438 $ (79,376,823) $ 11,852,262
------------- ------------- ------------
Annuitization Activity:
Annuitizations................. $ 1,223,366 $ 79,534 $ 59,889
Annuity payments and contract
charges....................... (267,886) (200,563) (3,118)
Net transfers between
Sub-Accounts.................. (4,847) (312,207) --
Adjustments to annuity
reserves...................... (38,667) (31,750) (2,368)
------------- ------------- ------------
Net annuitization activity... $ 911,966 $ (464,986) $ 54,403
------------- ------------- ------------
Increase (decrease) in net assets
from contract owner
transactions.................... $ 110,213,404 $ (79,841,809) $ 11,906,665
------------- ------------- ------------
Increase (decrease) in net
assets........................ $ 122,677,858 $ (67,603,360) $ 13,277,124
------------- ------------- ------------
NET ASSETS:
Beginning of year................ 294,227,489 361,830,849 --
------------- ------------- ------------
End of year...................... $ 416,905,347 $ 294,227,489 $ 13,277,124
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
*For the period May 6, 1998 (commencement of operations of Sub-Account) through
December 31, 1998.
See notes to financial statements
<PAGE>
-22-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
RES RGS
Sub-Account Sub-Account
---------------------------- -------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998 1997**
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).................... $ 22,892,997 $ 5,840,008 $ (196,955) $ (21,782)
Net realized gains (losses)..................... 21,973,914 5,057,991 513,010 8,741
Net unrealized gains............................ 110,904,687 68,490,719 3,223,975 263,416
------------- ------------- ------------ -----------
Increase in net assets from operations...... $ 155,771,598 $ 79,388,718 $ 3,540,030 $ 250,375
------------- ------------- ------------ -----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.................... $ 103,921,694 $ 153,316,348 $ 13,378,132 $ 2,950,897
Net transfers between Sub-Accounts and Fixed
Account...................................... 82,986,033 119,233,197 14,755,314 2,726,224
Withdrawals, surrenders, annuitizations and
contract charges............................. (44,188,615) (24,008,616) (1,413,449) (29,969)
------------- ------------- ------------ -----------
Net accumulation activity................... $ 142,719,112 $ 248,540,929 $ 26,719,997 $ 5,647,152
------------- ------------- ------------ -----------
Annuitization Activity:
Annuitizations................................ $ 452,588 $ 415,748 $ 73,112 $ --
Annuity payments and contract charges......... (211,454) (139,282) (12,398) --
Net transfers between Sub-Accounts............ 34,374 12,992 58,620 --
Adjustments to annuity reserves............... (35,852) (40,528) (2,709) --
------------- ------------- ------------ -----------
Net annuitization activity.................. $ 239,656 $ 248,930 $ 116,625 $ --
------------- ------------- ------------ -----------
Increase in net assets from contract owner
transactions................................... $ 142,958,768 $ 248,789,859 $ 26,836,622 $ 5,647,152
------------- ------------- ------------ -----------
Increase in net assets........................ $ 298,730,366 $ 328,178,577 $ 30,376,652 $ 5,897,527
------------- ------------- ------------ -----------
NET ASSETS:
Beginning of year............................... 649,281,186 321,102,609 5,897,527 --
------------- ------------- ------------ -----------
End of year..................................... $ 948,011,552 $ 649,281,186 $ 36,274,179 $ 5,897,527
------------- ------------- ------------ -----------
------------- ------------- ------------ -----------
<CAPTION>
RSS SIS
Sub-Account Sub-Account
------------ -----------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998* 1998*
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).................... $ (15,398) $ (37,067)
Net realized gains (losses)..................... (94,970) (88,826)
Net unrealized gains............................ 126,682 217,175
------------ -----------
Increase in net assets from operations...... $ 16,314 $ 91,282
------------ -----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.................... $2,275,775 $3,255,808
Net transfers between Sub-Accounts and Fixed
Account...................................... 1,268,571 4,501,699
Withdrawals, surrenders, annuitizations and
contract charges............................. (41,350) (67,691)
------------ -----------
Net accumulation activity................... $3,502,996 $7,689,816
------------ -----------
Annuitization Activity:
Annuitizations................................ $ -- $ --
Annuity payments and contract charges......... -- --
Net transfers between Sub-Accounts............ -- --
Adjustments to annuity reserves............... -- --
------------ -----------
Net annuitization activity.................. $ -- $ --
------------ -----------
Increase in net assets from contract owner
transactions................................... $3,502,996 $7,689,816
------------ -----------
Increase in net assets........................ $3,519,310 $7,781,098
------------ -----------
NET ASSETS:
Beginning of year............................... -- --
------------ -----------
End of year..................................... $3,519,310 $7,781,098
------------ -----------
------------ -----------
</TABLE>
* For the period May 6, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
** For the period July 7, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
See notes to financial statements
<PAGE>
-23-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
TRS UTS
Sub-Account Sub-Account
-------------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998 1997
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income........................... $ 163,419,988 $ 116,769,728 $ 15,309,048 $ 7,729,340
Net realized gains.............................. 51,696,637 66,640,057 3,138,939 2,083,741
Net unrealized gains (losses)................... (49,976,046) 74,650,982 5,912,858 14,781,219
--------------- --------------- ------------- -------------
Increase in net assets from operations...... $ 165,140,579 $ 258,060,767 $ 24,360,845 $ 24,594,300
--------------- --------------- ------------- -------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.................... $ 144,694,740 $ 260,379,742 $ 39,799,198 $ 16,090,619
Net transfers between Sub-Accounts and Fixed
Account...................................... 99,107,901 90,568,461 40,165,423 13,552,388
Withdrawals, surrenders, annuitizations and
contract charges............................. (174,048,588) (276,158,725) (10,679,491) (5,005,318)
--------------- --------------- ------------- -------------
Net accumulation activity................... $ 69,754,053 $ 74,789,478 $ 69,285,130 $ 24,637,689
--------------- --------------- ------------- -------------
Annuitization Activity:
Annuitizations................................ $ 2,556,048 $ 1,271,371 $ 357,771 $ 165,628
Annuity payments and contract charges......... (1,415,164) (935,550) (266,331) (60,528)
Net transfers between Sub-Accounts............ 104,077 87,811 93,575 28,886
Adjustments to annuity reserves............... 157,679 (136,590) 117,915 2,804
--------------- --------------- ------------- -------------
Net annuitization activity.................. $ 1,402,640 $ 287,042 $ 302,930 $ 136,790
--------------- --------------- ------------- -------------
Increase (decrease) in net assets from contract
owner transactions............................. $ 71,156,693 $ 75,076,520 $ 69,588,060 $ 24,774,479
--------------- --------------- ------------- -------------
Increase in net assets........................ $ 236,297,272 $ 333,137,287 $ 93,948,905 $ 49,368,779
--------------- --------------- ------------- -------------
NET ASSETS:
Beginning of year............................... 1,579,783,984 1,246,646,697 117,306,075 67,937,296
--------------- --------------- ------------- -------------
End of year..................................... $ 1,816,081,256 $ 1,579,783,984 $ 211,254,980 $ 117,306,075
--------------- --------------- ------------- -------------
--------------- --------------- ------------- -------------
<CAPTION>
WAA
Sub-Account
----------------------------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 7,482,682 $ 3,255,293
Net realized gains.............................. 3,692,859 2,612,317
Net unrealized gains (losses)................... (6,039,574) 2,483,575
------------- -------------
Increase in net assets from operations...... $ 5,135,967 $ 8,351,185
------------- -------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.................... $ 8,860,816 $ 23,232,543
Net transfers between Sub-Accounts and Fixed
Account...................................... (4,974,353) 17,783,698
Withdrawals, surrenders, annuitizations and
contract charges............................. (6,184,345) (5,742,891)
------------- -------------
Net accumulation activity................... $ (2,297,882) $ 35,273,350
------------- -------------
Annuitization Activity:
Annuitizations................................ $ 196,381 $ 167,170
Annuity payments and contract charges......... (88,583) (51,214)
Net transfers between Sub-Accounts............ 1,087 79,307
Adjustments to annuity reserves............... (39,140) 487
------------- -------------
Net annuitization activity.................. $ 69,745 $ 195,750
------------- -------------
Increase (decrease) in net assets from contract
owner transactions............................. $ (2,228,137) $ 35,469,100
------------- -------------
Increase in net assets........................ $ 2,907,830 $ 43,820,285
------------- -------------
NET ASSETS:
Beginning of year............................... 120,437,782 76,617,497
------------- -------------
End of year..................................... $ 123,345,612 $ 120,437,782
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements
<PAGE>
-24-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
WGS WGR WTR
Sub-Account Sub-Account Sub-Account
---------------------------- ---------------------------- --------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998 1997 1998 1997
------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ (87,913) $ 2,978,724 $ 15,489,141 $ 1,724,285 $ 2,635,441 $ 518,499
Net realized gains (losses)........... (498,522) (5,597,019) 11,591,824 8,571,645 3,803,017 1,518,827
Net unrealized gains (losses)......... 12,271,071 (269,307) 1,458,038 16,669,581 6,391,001 4,352,747
------------- ------------- ------------- ------------- ------------ ------------
Increase (decrease) in net assets
from operations.................. $ 11,684,636 $ (2,887,602) $ 28,539,003 $ 26,965,511 $ 12,829,459 $ 6,390,073
------------- ------------- ------------- ------------- ------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $ 3,786,224 $ 11,552,959 $ 15,688,080 $ 26,811,741 $ 8,845,349 $ 15,459,554
Net transfers between Sub-Accounts
and Fixed Account.................. (12,675,687) (19,473,409) (6,628,067) 3,906,046 8,428,546 13,106,711
Withdrawals, surrenders,
annuitizations and contract
charges............................ (11,908,423) (17,997,612) (14,148,887) (13,503,627) (4,603,063) (2,840,427)
------------- ------------- ------------- ------------- ------------ ------------
Net accumulation activity......... $ (20,797,886) $ (25,918,062) $ (5,088,874) $ 17,214,160 $ 12,670,832 $ 25,725,838
------------- ------------- ------------- ------------- ------------ ------------
Annuitization Activity:
Annuitizations...................... $ 158,700 $ 101,934 $ 107,920 $ 112,909 $ 134,223 $ 215,870
Annuity payments and contract
charges............................ (130,085) (132,080) (104,706) (92,720) (61,120) (28,925)
Net transfers between
Sub-Accounts....................... -- (8,188) (114,522) (249,492) -- --
Adjustments to annuity reserves..... 3,766 (5,055) (5,286) (31,480) 16,790 (3,240)
------------- ------------- ------------- ------------- ------------ ------------
Net annuitization activity........ $ 32,381 $ (43,389) $ (116,594) $ (260,783) $ 89,893 $ 183,705
------------- ------------- ------------- ------------- ------------ ------------
Increase (decrease) in net assets from
contract owner transactions.......... $ (20,765,505) $ (25,961,451) $ (5,205,468) $ 16,953,377 $ 12,760,725 $ 25,909,543
------------- ------------- ------------- ------------- ------------ ------------
Increase (decrease) in net assets... $ (9,080,869) $ (28,849,053) $ 23,333,535 $ 43,918,888 $ 25,590,184 $ 32,299,616
------------- ------------- ------------- ------------- ------------ ------------
NET ASSETS:
Beginning of year..................... 98,894,832 127,743,885 237,145,701 193,226,813 69,684,288 37,384,672
------------- ------------- ------------- ------------- ------------ ------------
End of year........................... $ 89,813,963 $ 98,894,832 $ 260,479,236 $ 237,145,701 $ 95,274,472 $ 69,684,288
------------- ------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------- ------------ ------------
</TABLE>
See notes to financial statements
<PAGE>
-25-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
Total
---------------------------------
Year Ended Year Ended
Dec. 31, Dec. 31,
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 531,677,056 $ 297,237,205
Net realized gains..................................................................... 249,308,839 212,441,467
Net unrealized gains................................................................... 491,301,135 463,550,753
--------------- ---------------
Increase in net assets from operations............................................. 1,272,287,030 $ 973,229,425
--------------- ---------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received........................................................... 1,124,762,687 $ 1,375,970,825
Net transfers between Sub-Accounts and Fixed Account................................. 891,578,137 619,129,055
Withdrawals, surrenders, annuitizations and contract charges......................... (792,649,007) (970,892,363)
--------------- ---------------
Net accumulation activity.......................................................... $ 1,223,691,817 $ 1,024,207,517
--------------- ---------------
Annuitization Activity:
Annuitizations....................................................................... 11,466,264 $ 6,384,473
Annuity payments and contract charges................................................ (5,657,941) (3,250,311)
Net transfers between Sub-Accounts................................................... 235 --
Adjustments to annuity reserves...................................................... 503,934 (185,108)
--------------- ---------------
Net annuitization activity......................................................... $ 6,312,492 $ 2,949,054
--------------- ---------------
Increase in net assets from contract owner transactions................................ $ 1,230,004,309 $ 1,027,156,571
--------------- ---------------
Increase in net assets............................................................... $ 2,502,291,339 $ 2,000,385,996
--------------- ---------------
NET ASSETS:
Beginning of year...................................................................... 6,883,403,048 4,883,017,052
--------------- ---------------
End of year............................................................................ $ 9,385,694,387 $ 6,883,403,048
--------------- ---------------
--------------- ---------------
</TABLE>
See notes to financial statements
<PAGE>
-26-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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"), a
separate account of Sun Life Assurance Company of Canada (U.S.), (the
"Sponsor"), was established on July 13, 1989 as a funding vehicle for the
variable portion of Regatta contracts, Regatta Gold contracts, Regatta Classic
contracts, Regatta Platinum contracts (collectively, the "Contracts") and
certain other 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 attributable to the Contracts is invested in shares of a specific
corresponding series of MFS/Sun Life Series Trust (the "Series Trust"), an
open-end management investment company registered under the Investment Company
Act of 1940. Massachusetts Financial Services Company ("MFS"), an affiliate of
the Sponsor, is the investment adviser to the Series Trust.
(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 Series Trust are recorded at their net asset value.
Realized gains and losses on sales of shares of the Series Trust are determined
on the identified cost basis. Dividend income and capital gain distributions
received by the Sub-Accounts are reinvested in additional Series Trust shares
and are recognized on the ex-dividend date.
Exchanges between Sub-Accounts requested by participants under the Contracts are
recorded in the new Sub-Account upon receipt of the redemption proceeds.
FEDERAL INCOME TAX STATUS
The operations of the Variable Account are part of the operations of the Sponsor
and are not taxed separately. The Variable Account is not taxed as a regulated
investment company. The Sponsor qualifies for the federal income tax treatment
granted to life insurance companies under Subchapter L of the Internal Revenue
Code. Under existing federal income tax law, investment income and capital gains
earned by the Variable Account on contract owner reserves are not taxable and,
therefore, no provision has been made for federal income taxes.
<PAGE>
-27-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(3) CONTRACT CHARGES
A mortality and expense risk charge based on the value of the Variable Account
is deducted from the Variable Account at the end of each valuation period for
the mortality and expense risks assumed by the Sponsor. The deductions are
transferred periodically to the Sponsor. Currently, the deduction is at an
effective annual rate of 1.25% for Regatta, Regatta Gold and Regatta Platinum
contracts and 1.00% for Regatta Classic contracts.
Each year on the account anniversary, an account administration fee ("Account
Fee") equal to the lesser of $30 or 2% of the participant's account value in the
case of Regatta and Regatta Gold contracts, $35 in the case of Regatta Platinum
contracts and $50 in the case of Regatta Classic contracts is deducted from the
participant's account to reimburse the Sponsor for certain administrative
expenses. After the annuity commencement date, the Account Fee will be deducted
pro rata from each variable annuity payment made during the year.
The Sponsor does not deduct a sales charge from purchase payments. However, in
the case of Regatta, Regatta Gold and Regatta Platinum, a withdrawal charge
(contingent deferred sales charge) of up to 6% of certain amounts withdrawn,
when applicable, may be deducted to cover certain expenses relating to the sale
of the contracts and certificates. In the case of Regatta Classic, a withdrawal
charge of 1% is applied to purchase payments withdrawn which have been credited
to a participant's account for less than one year.
For assuming the risk that withdrawal charges may be insufficient to compensate
it for the costs of distributing the Regatta contracts, the Sponsor makes a
deduction from the Variable Account at the end of each valuation period for the
first seven account years at an effective annual rate of 0.15% of the net assets
attributable to such contracts. No deduction for the distribution expense charge
is made after the seventh account anniversary.
As reimbursement for administrative expenses attributable to Regatta Gold,
Regatta Classic and Regatta Platinum contracts, which exceed the revenues
received from the Account Fees described above derived from such contracts, the
Sponsor makes a deduction from the Variable Account at the end of each valuation
period at an effective annual rate of 0.15% of the net assets attributable to
such contracts.
(4) ANNUITY RESERVES
Annuity reserves are calculated using the 1983 Individual Annuitant Mortality
Table and an assumed interest rate of 4% or 3%, as stated in each participant's
contract or certificate, as applicable. Required adjustments to the reserves are
accomplished by transfers to or from the Sponsor.
<PAGE>
-28-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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
and
Units Outstanding Units Fixed Accumulation
Beginning of Year Purchased Account
--------------------- -------------- ----------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1998 1997 1998 1997
--------- ---------- ----- ------- ---------- ----------
MFS REGATTA CONTRACTS:
------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAS -- Level 1................ 2,993,020 6,316,305 -- 860 (2,286,027) (2,421,311)
CAS -- Level 2................ 5,390,680 58,968 -- 624,374 5,658,421 6,542,104
GSS -- Level 1................ 1,462,222 3,362,650 -- -- (932,035) (1,340,875)
GSS -- Level 2................ 1,514,633 55,891 -- 265,628 1,951,275 2,012,610
HYS -- Level 1................ 537,033 1,204,380 -- -- (384,324) (510,706)
HYS -- Level 2*............... 975,126 -- -- 64,893 742,028 1,416,411
MSS -- Level 1................ 941,686 2,202,213 -- 881 (678,909) (924,959)
MSS -- Level 2................ 2,022,757 14,270 -- 240,391 1,359,567 2,378,532
MMS -- Level 1................ 1,518,722 3,859,738 12,315 1,948 1,824,176 3,301,197
MMS -- Level 2................ 1,845,809 59,562 8,252 310,378 6,810,959 6,074,695
TRS -- Level 1................ 5,756,653 12,461,003 4,933 1,598 (4,180,220) (4,580,966)
TRS -- Level 2................ 7,838,741 32,548 2,056 815,196 8,389,482 10,202,663
WGS -- Level 1................ 700,338 1,460,289 -- -- (536,114) (584,950)
WGS -- Level 2................ 483,253 3,325 -- 34,073 702,569 686,256
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
---------------------- --------------------
Year Ended Year Ended
December 31, December 31,
1998 1997 1998 1997
---------- ---------- --------- ---------
MFS REGATTA CONTRACTS:
------------------------------
<S> <C> <C> <C> <C>
CAS -- Level 1................ (242,644) (902,834) 464,349 2,993,020
CAS -- Level 2................ (1,995,108) (1,834,766) 9,053,993 5,390,680
GSS -- Level 1................ (204,946) (559,553) 325,241 1,462,222
GSS -- Level 2................ (808,930) (819,496) 2,656,978 1,514,633
HYS -- Level 1................ (79,077) (156,641) 73,632 537,033
HYS -- Level 2*............... (396,775) (506,178) 1,320,379 975,126
MSS -- Level 1................ (66,314) (336,449) 196,463 941,686
MSS -- Level 2................ (651,427) (610,436) 2,730,897 2,022,757
MMS -- Level 1................ (3,086,766) (5,644,161) 268,447 1,518,722
MMS -- Level 2................ (4,942,262) (4,598,826) 3,722,758 1,845,809
TRS -- Level 1................ (683,229) (2,124,982) 898,137 5,756,653
TRS -- Level 2................ (3,723,849) (3,211,666) 12,506,430 7,838,741
WGS -- Level 1................ (74,896) (175,001) 89,328 700,338
WGS -- Level 2................ (351,812) (240,401) 834,010 483,253
</TABLE>
*For the period January 6, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
<PAGE>
-29-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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
and
Units Outstanding Fixed Accumulation
Beginning of Year Units Purchased Account
---------------------- ----------------------
----------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- -------------------- ----------
MFS REGATTA GOLD
CONTRACTS:
------------
<S> <C> <C> <C> <C> <C> <C>
BDS+.......................... -- -- 437,383 -- 776,227 --
CAS........................... 35,528,897 32,796,793 2,963,417 4,171,857 1,606,290 753,855
COS........................... 6,175,224 1,520,787 2,085,178 2,333,873 2,487,753 2,499,269
CGS........................... 40,709,531 26,199,975 7,531,155 8,951,992 6,682,559 7,405,405
EGS........................... 25,039,986 16,998,044 3,519,560 5,826,649 1,929,406 3,279,517
EIS+.......................... -- -- 235,337 -- 312,512 --
FCE........................... 2,159,228 329,630 203,168 815,491 (114,376) 1,097,883
FCI........................... 2,390,056 564,742 532,412 997,740 520,640 902,857
FCG........................... 4,441,911 3,360,596 449,506 760,057 655,503 531,069
GSS........................... 20,508,844 19,714,114 1,760,124 1,627,923 2,891,419 723,328
HYS........................... 11,699,195 8,424,289 2,333,919 2,340,052 1,143,802 1,768,446
MSS........................... 11,326,719 10,541,726 838,284 1,191,194 (135,303) 289,858
MIS+.......................... -- -- 2,049,150 -- 2,166,812 --
MMS........................... 21,463,139 27,275,583 5,295,611 7,818,118 9,723,034 (8,894,337)
NWD+.......................... -- -- 252,432 -- 573,525 --
RES........................... 35,654,917 19,577,745 1,299,737 10,988,440 3,631,861 6,437,281
RGS........................... 533,928 -- 857,568 276,177 1,134,366 260,605
RSS+.......................... -- -- 83,591 -- 110,312 --
SIS+.......................... -- -- 207,182 -- 423,614 --
TRS........................... 66,303,467 59,508,016 5,585,984 7,069,596 4,374,616 4,111,016
UTS........................... 6,101,638 4,671,192 1,559,584 966,544 1,878,542 773,360
WAA........................... 7,928,833 5,539,010 440,970 1,565,894 (400,015) 1,218,708
WGS........................... 6,127,641 7,510,766 199,740 324,862 (782,796) (1,252,245)
WGR........................... 15,058,757 13,989,946 815,222 1,725,746 (504,727) 242,250
WTR........................... 4,676,853 2,836,079 458,384 1,085,978 506,340 962,291
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
---------------------- ----------------------
Year Ended Year Ended
December 31, December 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
MFS REGATTA GOLD
CONTRACTS:
------------
<S> <C> <C> <C> <C>
BDS+.......................... (31,371) -- 1,182,239 --
CAS........................... (2,598,123) (2,193,608) 37,500,481 35,528,897
COS........................... (485,873) (178,705) 10,262,282 6,175,224
CGS........................... (3,042,480) (1,847,841) 51,880,765 40,709,531
EGS........................... (1,587,995) (1,064,224) 28,900,957 25,039,986
EIS+.......................... (19,611) -- 528,238 --
FCE........................... (100,672) (83,776) 2,147,348 2,159,228
FCI........................... (153,065) (75,283) 3,290,043 2,390,056
FCG........................... (332,362) (209,811) 5,214,558 4,441,911
GSS........................... (1,942,153) (1,556,521) 23,218,234 20,508,844
HYS........................... (986,099) (833,592) 14,190,817 11,699,195
MSS........................... (784,556) (696,059) 11,245,144 11,326,719
MIS+.......................... (94,444) -- 4,121,518 --
MMS........................... (7,094,698) (4,736,225) 29,387,086 21,463,139
NWD+.......................... (31,098) -- 794,859 --
RES........................... (2,032,529) (1,348,549) 38,553,986 35,654,917
RGS........................... (117,186) (2,854) 2,408,676 533,928
RSS+.......................... (3,636) -- 190,267 --
SIS+.......................... (7,882) -- 622,914 --
TRS........................... (5,162,047) (4,385,161) 71,102,020 66,303,467
UTS........................... (516,662) (309,458) 9,023,102 6,101,638
WAA........................... (393,097) (394,779) 7,576,691 7,928,833
WGS........................... (496,366) (455,742) 5,048,219 6,127,641
WGR........................... (847,123) (899,185) 14,522,129 15,058,757
WTR........................... (286,944) (207,494) 5,354,633 4,676,853
</TABLE>
+For the period May 6, 1997 (commencement of operations of Sub-Account) through
December 31, 1998.
<PAGE>
-30-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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
and Fixed
Units Outstanding Accumulation
Beginning of Year Units Purchased Account
----------------- ---------------- ------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1998 1997 1998 1997
--------- ------ ------- ------- -------- --------
MFS REGATTA CLASSIC
CONTRACTS:
------------------------------
<S> <C> <C> <C> <C> <C> <C>
BDS+.......................... -- -- 33,440 -- 1,859 --
CAS........................... 265,497 1,892 170,863 246,247 49,860 23,978
COS........................... 160,778 9,578 98,617 107,548 29,367 46,458
CGS........................... 554,216 3,545 449,788 446,522 267,481 122,228
EGS........................... 318,028 9,744 613,049 289,836 55,590 22,223
EIS+.......................... -- -- 9,590 -- 2,523 --
FCE........................... 40,698 140 16,413 44,896 (12,814) (3,278)
FCI........................... 67,892 2,249 20,502 75,178 (3,210) (7,901)
FCG*.......................... 51,038 -- 34,300 42,039 8,318 9,735
GSS........................... 113,243 6,514 139,510 89,817 51,253 21,240
HYS........................... 155,306 8,219 224,640 120,521 (2,332) 30,370
MSS**......................... 118,243 -- 59,666 92,458 (29,055) 28,860
MIS++......................... -- -- 78,233 -- 156,319 --
MMS........................... 77,105 13,813 733,426 366,163 (366,138) (259,749)
NWD++......................... -- -- 13,601 -- 15,614 --
RES........................... 553,996 25,665 279,626 497,934 85,963 37,701
RGS#.......................... 6,085 -- 9,086 5,777 19,504 320
RSS........................... -- -- 942 -- 1,292 --
SIS+++........................ -- -- 1,726 -- 851 --
TRS........................... 951,205 40,575 681,412 859,444 155,997 66,034
UTS**......................... 77,009 -- 97,613 41,263 15,497 36,412
WAA........................... 50,531 6,448 16,112 44,701 (8,665) (150)
WGS****....................... 19,394 -- 20,516 18,266 639 2,357
WGR........................... 85,526 71 47,642 77,864 (2,579) 7,879
WTR***........................ 45,122 -- 38,335 49,398 8,687 (3,919)
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
---------------- ------------------
Year Ended Year Ended
December 31, December 31,
1998 1997 1998 1997
------- ------- --------- -------
MFS REGATTA CLASSIC
CONTRACTS:
------------------------------
<S> <C> <C> <C> <C>
BDS+.......................... (176) -- 35,123 --
CAS........................... (20,408) (6,620) 465,812 265,497
COS........................... (11,244) (2,806) 277,518 160,778
CGS........................... (58,292) (18,079) 1,213,193 554,216
EGS........................... (26,865) (3,775) 959,802 318,028
EIS+.......................... -- -- 12,113 --
FCE........................... (643) (1,060) 43,654 40,698
FCI........................... (1,364) (1,634) 83,820 67,892
FCG*.......................... (3,074) (736) 90,582 51,038
GSS........................... (6,696) (4,328) 297,310 113,243
HYS........................... (35,251) (3,804) 342,363 155,306
MSS**......................... (8,530) (3,075) 140,324 118,243
MIS++......................... (1,764) -- 232,788 --
MMS........................... (173,976) (43,122) 270,417 77,105
NWD++......................... (33) -- 29,182 --
RES........................... (47,296) (7,305) 872,289 553,996
RGS#.......................... (793) (12) 33,882 6,085
RSS........................... -- -- 2,234 --
SIS+++........................ -- -- 2,577 --
TRS........................... (57,322) (14,848) 1,731,292 951,205
UTS**......................... (11,983) (666) 178,136 77,009
WAA........................... (4,811) (468) 53,167 50,531
WGS****....................... (475) (1,229) 40,074 19,394
WGR........................... (9,292) (288) 121,297 85,526
WTR***........................ (891) (357) 91,253 45,122
</TABLE>
*For the period January 7, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
**For the period January 22, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
***For the period February 11, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
****For the period February 21, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
#For the period July 7, 1997 (commencement of operations of Sub-Account)
through December 31, 1997.
+For the period June 22, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
++For the period May 7, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
+++For the period June 26, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
<PAGE>
-31-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM 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 Units Withdrawn,
Beginning of Fixed Accumulation Surrendered, and Units Outstanding
Period Units Purchased Account Annuitized End of Period
------------------ --------------- -------------------- ---------------- -----------------
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>
MFS REGATTA PLATINUM
CONTRACTS:
------------------------------
BDS+.......................... -- 491,319 143,015 (6,334) 628,000
CAS++......................... -- 1,489,422 215,237 (21,495) 1,683,164
COS*.......................... -- 480,199 80,801 (4,045) 556,955
CGS++......................... -- 4,380,217 1,013,330 (62,529) 5,331,018
EGS++......................... -- 1,412,976 254,376 (15,948) 1,651,404
EIS+++........................ -- 237,608 35,740 (986) 272,362
FCE+++........................ -- 67,723 4,892 (29) 72,586
FCI+++........................ -- 305,695 37,500 (4,257) 338,938
FCG*.......................... -- 167,384 34,931 (2,969) 199,346
GSS*.......................... -- 686,599 142,121 (12,618) 816,102
HYS+++........................ -- 917,703 95,977 (12,975) 1,000,705
MSS**......................... -- 180,220 35,500 (4,676) 211,044
MIS++......................... -- 2,052,872 400,450 (25,188) 2,428,134
MMS+++........................ -- 1,436,884 (492,250) (58,155) 886,479
NWD+++........................ -- 366,459 75,832 (6,113) 436,178
RES**......................... -- 1,463,540 319,544 (31,371) 1,751,713
RGS+.......................... -- 306,364 82,311 (1,595) 387,080
RSS***........................ -- 162,752 19,544 (1,165) 181,131
SIS#.......................... -- 123,410 35,045 (821) 157,634
TRS+++........................ -- 1,926,233 434,196 (41,582) 2,318,847
UTS**......................... -- 647,482 178,704 (6,537) 819,649
WAA*.......................... -- 175,049 56,466 (2,676) 228,839
WGS+++........................ -- 78,588 (2,199) (119) 76,270
WGR*.......................... -- 125,715 37,960 (819) 162,856
WTR##......................... -- 116,666 37,792 (1,601) 152,857
</TABLE>
+For the period June 30, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
++For the period June 5, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
+++For the period June 18, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
*For the period June 23, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
**For the period June 16, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
***For the period June 29, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
#For the period June 26, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
##For the period July 7, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
<PAGE>
-32-
INDEPENDENT AUDITOR'S REPORT
To the Participants in Regatta, Regatta Gold, Regatta Classic and Regatta
Platinum Sub-Accounts and the Board of Directors of Sun Life Assurance Company
of Canada (U.S.):
We have audited the accompanying statement of condition of Sun Life of Canada
(U.S.) Bond Sub-Account, Capital Appreciation Sub-Account, Capital Opportunities
Sub-Account, Conservative Growth Sub-Account, Emerging Growth Sub-Account,
Equity Income Sub-Account, MFS/Foreign & Colonial Emerging Markets Equity
Sub-Account, International Growth Sub-Account, International Growth and Income
Sub-Account, Government Securities Sub-Account, High Yield Sub-Account, Managed
Sectors Sub-Account, Massachusetts Investors Growth Stock Sub-Account, Money
Market Sub-Account, New Discovery Sub-Account, Research Sub-Account, Research
Growth and Income Sub-Account, Research International Sub-Account, Strategic
Income Sub-Account, Total Return Sub-Account, Utilities Sub-Account, World Asset
Allocation Sub-Account, World Governments Sub-Account, World Growth Sub-Account,
and World Total Return 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 for the year then ended and the statements of changes in net assets
for the years ended December 31, 1998 and 1997. 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 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE:
Toll Free (800) 752-7215
In Massachusetts (617) 348-9600
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte Touche LLP
125 Summer Street
Boston, Massachusetts 02110
<PAGE>
May 1, 1999
FUTURITY II
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 II 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 May 1, 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 December 9, 1998. 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 this 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 11.48% 13.20% 14.68% 16.34% May 5, 1993
AIM V.I. Growth Fund 26.08% 19.91% 17.29% 17.04% May 5, 1993
AIM V.I. Growth and Income Fund 19.72% 21.26% -- 19.27% May 2, 1994
AIM V.I. International Equity Fund 7.68% 10.30% 8.68% 10.86% May 5, 1993
Alger American Growth Portfolio 39.85% 25.29% 21.67% 20.23% January 9, 1989
Alger American Income and Growth Portfolio 24.38% 26.28% 19.53% 13.87% November 15, 1988
Alger American Small Capitalization Portfolio 7.72% 7.14% 10.83% 18.10% September 21, 1988
Goldman Sachs CORE Large Cap Fund -- -- -- 9.25% February 13, 1998
Goldman Sachs CORE Small Cap Fund -- -- -- (15.45)% February 13, 1998
Goldman Sachs CORE U.S. Equity Fund -- -- -- 7.01% February 13, 1998
Goldman Sachs Growth and Income Fund -- -- -- (1.09)% January 12, 1998
Goldman Sachs International Equity Fund -- -- -- 12.56% January 12, 1998
J.P. Morgan Equity Portfolio (2) 15.39% 20.97% -- 23.86% January 3, 1995
J.P. Morgan International Opportunities Portfolio (2) (2.51)% 4.68% -- 6.23% January 3, 1995
J.P. Morgan Small Company Portfolio (2) (12.01)% 8.99% -- 14.42% January 3, 1995
Lord Abbett Growth and Income Portfolio 5.12% 15.82% 15.27% 14.40% December 1, 1989
MFS/Sun Life Capital Appreciation Series 20.50% 21.19% 17.64% 18.23% June 12, 1985
MFS/Sun Life Emerging Growth Series 25.80% 21.07% -- 24.59% May 1, 1995
MFS/Sun Life Government Securities Series 1.21% 3.35% 4.52% 6.96% June 12, 1985
MFS/Sun Life High Yield Series (6.21)% 5.53% 5.74% 7.87% June 12, 1985
MFS/Sun Life Utilities Series 9.83% 20.43% 16.51% 16.17% November 16, 1993
OCC Equity Portfolio (3) 4.08% 17.41% 18.99% 16.26% August 1, 1988
OCC Managed Portfolio (3) (0.28)% 14.10% 16.94% 17.60% August 1, 1988
OCC Mid Cap Portfolio -- -- -- (8.26)% February 9, 1998
OCC Small Cap Portfolio (3) (15.28)% 6.60% 6.31% 11.52% August 1, 1988
SunCap Money Market -- -- -- (5.39)% December 7, 1998
SunCap Bond -- -- -- (5.69)% December 7, 1998
SunCap Real Estate -- -- -- (6.43)% December 7, 1998
Warburg Pincus Emerging Markets Portfolio (22.96)% -- -- (23.42)% December 31, 1997
Warburg Pincus International Equity Portfolio (1.90)% 1.34% -- 3.07% June 30, 1995
Warburg Pincus Post-Venture Capital Portfolio (0.86)% -- -- 4.06% September 30, 1996
Warburg Pincus Small Company Growth Portfolio (9.57)% 5.51% -- 11.53% June 30, 1995
</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 II 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 $11,766.00 17.66% 17.66% 1 12/31/97-12/31/98 $13,226.00 32.26% 32.26%
2 12/31/96-12/31/98 $12,996.00 29.96% 14.00% 2 12/31/96-12/31/98 $15,982.02 59.82% 26.42%
3 12/31/95-12/31/98 $15,070.31 50.70% 14.65% 3 12/31/95-12/31/98 $17,812.42 78.12% 21.22%
4 12/31/94-12/31/98 $20,154.69 101.55% 19.15% 4 12/31/94-12/31/98 $23,665.03 136.65% 24.03%
5 12/31/93-12/31/98 $20,368.46 103.68% 15.29% 5 12/31/93-12/31/98 $22,751.83 127.52% 17.87%
Life 05/05/93-12/31/98 $24,131.63 141.32% 16.84% Life 05/05/93-12/31/98 $24,961.47 149.61% 17.54%
<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 $12,591.00 25.91% 25.91% 1 12/31/97-12/31/98 $11,387.00 13.87% 13.87%
2 12/31/96-12/31/98 $15,590.02 55.90% 24.86% 2 12/31/96-12/31/98 $11,811.34 18.11% 8.68%
3 12/31/95-12/31/98 $18,400.67 84.01% 22.54% 3 12/31/95-12/31/98 $13,981.65 39.82% 11.82%
4 12/31/94-12/31/98 $23,527.95 135.28% 23.85% 4 12/31/94-12/31/98 $16,160,92 61.61% 12.75%
5 12/31/93-12/31/98 $15,677.80 56.78% 9.41%
Life 05/02/94-12/31/98 $23,323.71 133.24% 19.89% Life 05/05/93-12/31/98 $18,470.82 84.71% 11.45%
<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 $14,604.00 46.04% 46.04% 1 12/31/97-12/31/98 $13,056.00 30.56% 30.56%
2 12/31/96-12/31/98 $18,111.78 81.12% 34.58% 2 12/31/96-12/31/98 $17,550.95 75.51% 32.48%
3 12/31/95-12/31/98 $20,242.85 102.43% 26.50% 3 12/31/95-12/31/98 $20,712.09 107.12% 27.47%
4 12/31/94-12/31/98 $27,223.03 172.23% 28.45% 4 12/31/94-12/31/98 $27,606.52 176.07% 28.90%
5 12/31/93-12/31/98 $27,238.19 172.38% 22.19% 5 12/31/93-12/31/98 $24,966.25 149.66% 20.08%
10 12/31/88-12/31/98 $37,104.75 271.05% 14.01%
Life 01/09/89-12/31/98 $63,521.12 535.21% 20.35% Life 11/15/88-12/31/98 $37,415.95 274.16% 13.91%
</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 II 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 $11,391.00 13.91% 13.91%
2 12/31/96-12/31/98 $12,512.66 25.13% 11.86%
3 12/31/95-12/31/98 $12,850.75 28.51% 8.72%
4 12/31/94-12/31/98 $18,294.43 82.94% 16.30%
5 12/31/93-12/31/98 $17,249.00 72.49% 11.52%
10 12/31/88-12/31/98 $53,187.22 431.87% 18.19%
Life 09/21/88-12/31/98 $51,225.82 412.26% 17.22% Life 02/13/98-12/31/98 $11,543.00 15.43% 15.43%
<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 $8,949.00 -10.51% -10.51% Life 02/13/98-12/31/98 $11,320.00 13.20% 13.20%
<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 $10,404.00 4.04% 4.04% Life 01/12/98-12/31/98 $11,844.00 18.44% 18.44%
<CAPTION>
J.P. MORGAN 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 $12,157.00 21.57% 21.57% 1 12/31/97-12/31/98 $10,327.00 3.27% 3.27%
2 12/31/96-12/31/98 $15,284.38 52.84% 23.63% 2 12/31/96-12/31/98 $10,735.03 7.35% 3.61%
3 12/31/95-12/31/98 $18,274.82 82.75% 22.26% 3 12/31/95-12/31/98 $11,977.70 19.78% 6.20%
Life 01/03/95-12/31/98 $24,120.37 141.20% 24.66% Life 01/03/95-12/31/98 $13,275.15 32.75% 7.35%
</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 II 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 $9,316.00 -6.84% -6.84% 1 12/31/97-12/31/98 $11,130.00 11.30% 11.30%
2 12/31/96-12/31/98 $11,252.97 12.53% 6.08% 2 12/31/96-12/31/98 $13,679.64 36.80% 16.96%
3 12/31/95-12/31/98 $13,510.65 35.11% 10.55% 3 12/31/95-12/31/98 $16,102.53 61.03% 17.21%
4 12/31/94-12/31/98 $20,611.86 106.12% 19.82%
5 12/31/93-12/31/98 $20,885.99 108.86% 15.87%
Life 01/03/95-12/31/98 $17,714.63 77.15% 15.39% Life 12/11/89-12/31/98 $34,238.26 242.38% 14.55%
<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 $12,690.00 26.90% 26.90% 1 12/31/97-12/31/98 $13,202.00 32.02% 32.02%
2 12/31/96-12/31/98 $15,405.77 54.06% 24.12% 2 12/31/96-12/31/98 $15,870.96 58.71% 25.98%
3 12/31/95-12/31/98 $18,450.27 84.50% 22.65% 3 12/31/95-12/31/98 $18,328.69 83.29% 22.38%
4 12/31/94-12/31/98 $24,460.97 144.61% 25.06%
5 12/31/93-12/31/98 $23,258.15 132.58% 18.39%
10 12/31/88-12/31/98 $54,368.91 443.69% 18.45%
Life 06/12/85-12/31/98 $73,887.09 638.87% 15.89% Life 05/01/95-12/31/98 $23,042.27 130.42% 25.53%
<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 $10,721.00 7.21% 7.21% 1 12/31/97-12/31/98 $9,926.00 -0.74% -0.74%
2 12/31/96-12/31/98 $11,493.98 14.94% 7.21% 2 12/31/96-12/31/98 $11,081.77 10.82% 5.27%
3 12/31/95-12/31/98 $11,516.82 15.17% 4.82% 3 12/31/95-12/31/98 $12,250.43 22.50% 7.00%
4 12/31/94-12/31/98 $13,359.66 33.60% 7.51% 4 12/31/94-12/31/98 $14,126.18 41.26% 9.02%
5 12/31/93-12/31/98 $12,884.83 28.85% 5.20% 5 12/31/93-12/31/98 $13,630.26 36.30% 6.39%
10 12/31/88-12/31/98 $19,837.60 98.38% 7.09% 10 12/31/88-12/31/98 $21,509.42 115.09% 7.96%
Life 06/12/85-12/31/98 $25,479.65 154.80% 7.14% Life 06/12/85-12/31/98 $28,326.33 183.26% 7.98%
</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 II 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 $11,591.00 15.91% 15.91% 1 12/31/97-12/31/98 $11,027.00 10.27% 10.27%
2 12/31/96-12/31/98 $15,168.39 51.68% 23.16% 2 12/31/96-12/31/98 $13,771.02 37.71% 17.35%
3 12/31/95-12/31/98 $17,998.21 79.98% 21.64% 3 12/31/95-12/31/98 $16,754.07 67.54% 18.77%
4 12/31/94-12/31/98 $23,489.98 134.90% 23.80% 4 12/31/94-12/31/98 $23,848.73 138.49% 24.27%
5 12/31/93-12/31/98 $22,018.34 120.18% 17.10% 5 12/31/93-12/31/98 $24,409.91 144.10% 19.54%
10 12/31/88-12/31/98 $45,580.97 355.81% 16.38%
Life 11/16/93-12/31/98 $22,031.49 120.31% 16.66% Life 08/01/88-12/31/98 $46,211.18 362.11% 15.82%
<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 $10,564.00 5.64% 5.64%
2 12/31/96-12/31/98 $12,739.64 27.40% 12.87%
3 12/31/95-12/31/98 $15,424.00 54.24% 15.54%
4 12/31/94-12/31/98 $22,146.08 121.46% 21.99%
5 12/31/93-12/31/98 $22,406.51 124.07% 17.51%
10 12/31/88-12/31/98 $51,022.84 410.23% 17.70%
Life 08/01/88-12/31/98 $52,984.29 429.84% 17.35% Life 02/09/98-12/31/98 $9,714.00 -2.86% -2.86%
<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 $8,968.00 -10.32% -10.32%
2 12/31/96-12/31/98 $10,811.84 8.12% 3.98%
3 12/31/95-12/31/98 $12,656.70 26.57% 8.17%
4 12/31/94-12/31/98 $14,381.86 43.82% 9.51%
5 12/31/93-12/31/98 $14,038.63 40.39% 7.02%
10 12/31/88-12/31/98 $30,074.49 200.74% 11.64%
Life 08/01/88-12/31/98 $30,490.33 204.90% 11.29% Life 12/07/98-12/31/98 $9,988.00 -0.12% -0.12%
</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 II Contract, this many years ago... on December 31, 1998
</TABLE>
<TABLE>
<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 $10,020.00 0.20% 0.20% Life 12/07/98-12/31/98 $9,920.00 -0.80% -0.80%
<CAPTION>
WARBURG PINCUS EMERGING MARKETS PORTFOLIO WARBURG PINCUS INTERNATIONAL EQUITY PORTFOLIO
Number Cumulative Compound Number Cumulative Compound
of Growth Growth of Growth Growth
Years Periods Amount Rate Rate Years Periods Amount Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/97-12/31/98 $8,151.00 -18.49% -18.49% 1 12/31/97-12/31/98 $10,387.00 3.87% 3.87%
2 12/31/96-12/31/98 $10,010.00 0.10% 0.05%
3 12/31/95-12/31/98 $10,854.23 8.54% 2.77%
Life 12/31/97-12/31/98 $8,151.00 -18.49% -18.49% Life 06/30/95-12/31/98 $11,567.72 15.68% 4.24%
<CAPTION>
WARBURG PINCUS POST-VENTURE CAPITAL PORTFOLIO WARBURG PINCUS SMALL COMPANY GROWTH PORTFOLIO
Number Cumulative Compound Number Cumulative Compound
of Growth Growth of Growth Growth
Years Periods Amount Rate Rate Years Periods Amount Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/97-12/31/98 $10,501.00 5.01% 5.01% 1 12/31/97-12/31/98 $9,577.00 -4.23% -4.23%
2 12/31/96-12/31/98 $11,735.39 17.35% 8.33% 2 12/31/96-12/31/98 $10,930.70 9.31% 4.55%
3 12/31/95-12/31/98 $12,267.61 22.68% 7.05%
Life 09/30/96-12/31/98 $11,411.93 14.12% 6.04% Life 06/30/95-12/31/98 $15,246.50 52.46% 12.78%
</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 .00003863 (the daily equivalent of the
current maximum charge of 1.40% on an annual basis) gives a net investment
factor of 1.00323648. 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 14.6117051 (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 12.3846325
(12.3456789 X 1.00323648 (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 3% per year used to establish the Annuity Payment
Rates found in other Contracts is 0.99991902).
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 12.3846325.
The first variable annuity payment would be $865.57 (8,765.4321 X 14.5845672
X 6.78 divided by 1,000). The number of annuity units credited would be
70.1112 ($865.57 divided by 12.3456789) and the second variable annuity
payment would be $868.28 (70.1112 X 12.3846325).
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 7.46% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of the Participant's Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation.
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
125 Summer Street
Boston, Massachusetts 02110
<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:
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.
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 (MFS Regatta
Gold) (Filed as Exhibit 4(a) to Post-Effective
Amendment No. 5 to the Registration Statement of
the Registrant on Form N-4, File No. 33-41628);
(a)(ii) Form of Flexible Payment Combination
Fixed/Variable Group Annuity Contract (MFS
Regatta Platinum (Incorporated by reference to
Exhibit 4(a) to Post-Effective Amendment No. 9 to
the Registration Statement of the Registrant on
Form N-4, File No. 33-41628, filed on March 2,
1998);
(b)(i) Form of Certificate to be issued in connection
with Contract filed as Exhibit 4(a)(i) (Filed as
Exhibit 4(b) to Post-Effective Amendment No. 5 to
the Registration Statement of the Registrant on
Form N-4, File No 33-41628;
(b)(ii) Form of Certificate (MFS Regatta Platinum) to be
issued in connection with Contract filed as
Exhibit 4(a)(ii) (Incorporated by reference to
Exhibit 4(b) to Post-Effective Amendment No. 9 to
the Registration Statement of the Registrant on
Form N-4, File No. 33-41628, filed on March 2,
1998);
(5)(a)(i) Form of Application to be used with the annuity
contract filed as Exhibit 4(a)(i) (Filed as
Exhibit 5(a) to Post-Effective Amendment No. 7 to
the Registration Statement of the Registrant on
Form N-4, File No. 33-41628;
(a)(ii) Form of Application to be used with the annuity
contract filed as Exhibit 4(a) (Incorporated
herein by reference to Exhibit 5(a) to
Post-Effective Amendment No. 9 to the Registration
Statement of the Registrant on Form N-4, File No.
33-41628, filed on March 2, 1998);
(b)(i) Form of Application to be used with the
Certificate filed as Exhibit 4(b)(i) (Filed as
Exhibit 5 (b) to Post-Effective Amendment No. 7
to the Registration Statement of the Registrant on
Form N-4, File No. 33-41628);
(b)(ii) Form of Application to be used with the
Certificate filed as Exhibit 4(b) (Incorporated
herein by reference to Exhibit 5(b) to
Post-Effective Amendment No. 9 to the Registration
Statement of the Registrant on Form N-4, File
33-41628, filed on March 2, 1998);
(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)(a) Form of Participation Agreement by and between
The Alger American Fund, the Depositor, and
Fred Alger and Company, Incorporated.*
(b)(i) Form of Participation Agreement dated February 17,
1998 by and between Goldman Sachs Variable,
Insurance Trust, Goldman Sachs & Co. and the
Depositor.*
(ii) Form of Amendment No. 1 dated December 14, 1998 to
Participation Agreement filed as Exhibit 8(b)(i).*
(iii) Form of Amendment No. 2 dated as of March 15, 1999
to Participation Agreement filed as
Exhibit __(b)(i).*
(c) Form of Fund Participation Agreement between
Depositor and J.P. Morgan Services Trust II.*
(d) Form of Participation Agreement dated February 17,
1998 by and among MFS/Sun Life Services Trust, the
Depositor and Massachusetts Financial Services
Company.*
(e) Form of Participation Agreement dated February 17,
1998 by and among OCC Accumulation Trust, the
Depositor and OCC Distributors.*
(f) Form of Participation Agreement dated February,
1998 by and among the Depositor, Warburg Pincus
Trust, Warburg Pincus Asset Management, Inc. and
Counsellors Securities, Inc.*
(9) Opinion of Counsel and Consent to its use as to
the legality of the securities being registered
(Previously filed).
(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 (Incorporated herein by
reference to Exhibit 15 to Post-Effective
Amendment No. 12 to the Registration Statement
of the Registrant on Form N-4, File No. 33-41628,
filed on February 22, 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
John D. McNeil Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
David D. Horn Director
Strong Road
New Vineyard, ME 04956
John S. Lane Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
Richard B. Bailey Director
63 Atlantic Avenue
Boston, MA 02110
M. Colyer Crum Director
104 Westcliff Road
Weston, MA 02193
Angus A. MacNaughton Director
Metro Tower, Suite 1170
950 Tower Lane
Foster City, CA 94404
S. Caesar Raboy Director
220 Boylston Street
Boston, MA 02110
<PAGE>
Name and Principal Positions and Offices
Business Address with Depositor
---------------- --------------
L. Brock Thomson Vice President and Treasurer
One Sun Life Executive Park
Wellesley Hills, MA 02481
Robert P. Vrolyk Vice President, Finance and Actuary
One Sun Life Executive Park
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 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 following is a list of corporations directly or indirectly controlled
by or under common control with Sun Life Assurance Company of Canada, showing
the state or other sovereign power under the laws of which each is organized
and the percentage ownership of voting securities giving rise to the control
relationship:
<PAGE>
<TABLE>
<CAPTION>
Percent of
State or Country Ownership
or Jurisdiction of Voting
of Incorporation Securities
---------------- ----------
<S> <C> <C>
Sun Life Assurance Company of Canada Canada
- ------------------------------------------------------------------------------------------
Sun Life Assurance Company of Canada -
U.S. Operations Holdings, Inc............. Delaware 100%
Sun Life Assurance Company of Canada
(U.K.) Holdings plc+..................... United Kingdom 100%
Sun Life of Canada Investment Management
Limited .................................. Canada 100%
Sun Life of Canada Benefit Management
Limited .................................. Canada 100%
Spectrum United Holdings, Inc.++.......... Canada 100%
Sun Canada Financial Co................... Delaware 100%
McLean Budden Limited+++.................. Canada 60%
Sun Life of Canada (U.S.) Holdings, Inc. Delaware 0%*
Sun Life of Canada (U.S.) Financial Services
Holdings, Inc......................... Delaware 0%*
Sun Life Canada Reinsurance (Barbados)
Limited............................... Barbados *
Sun Life of Canada (U.S.) Holdings General
Partner............................... Delaware *
Sun Life of Canada (U.S.) Capital Trust I. Delaware *
Sun Life of Canada (U.S.) Limited
Partnership I......................... Delaware *
Sun Life Assurance Company of Canada (U.S.) Delaware 0%**
Sun Life Insurance and Annuity Company of
New York ............................. New York 0%****
Sun Life of Canada (U.S.)
Distributors, Inc..................... Delaware 0%****
Sun Benefit Services Company, Inc. ....... Delaware 0%****
Sun Life of Canada (U.S.) SPE 97-1, Inc..... Delaware 0%****
Sun Life Information Services Ireland Limited Republic of Ireland 0%****
Massachusetts Financial Services Company ... Delaware 0%***
New London Trust, F.S.B..................... Federally Chartered 0%****
Clarendon Insurance Agency, Inc. ........... Massachusetts 0%****
MFS Service Center, Inc..................... Delaware 0%*****
MFS/Sun Life Series Trust .................. Massachusetts 0%******
Sun Capital Advisers, Inc. ................. Delaware 0%****
MFS International, Ltd. .................... Ireland 0%*****
MFS Institutional Advisors, Inc. ........... Delaware 0%*****
MFS Fund Distributors, Inc. ................ Delaware 0%*****
MFS Retirement Services, Inc. .............. Delaware 0%*****
Sun Life Financial Services Limited......... Bermuda 0%****
</TABLE>
- -------------
* 100% of the issued and outstanding voting securities owned directly
or indirectly by Sun Life Assurance Company ofCanada - U.S.
Operations Holdings, Inc.
** 100% of the issued and outstanding voting securities of Sun Life
Assurance Company of Canada (U.S.) is owned by Sun Life of Canada
(U.S.) Holdings, Inc.
*** 85% of the issued and outstanding voting securities of Massachusetts
Financial Services Company is owned by Sun Life of Canada (U.S.)
Financial Services Holdings, Inc.
**** 100% of the issued and outstanding voting securities owned by Sun
Life Assurance Company of Canada (U.S.).
***** 100% of the issued and outstanding voting securities owned by
Massachusetts Financial Services Company.
****** 100% of the issued and outstanding voting securities of MFS/Sun Life
Series Trust is owned by separate accounts of Sun Life Assurance
Company of Canada (U.S.) and Sun Life Insurance and Annuity Company of
New York.
+ Holding company for parent's U.K. insurance, financial services
and other subsidiaries.
++ Holding company for mutual fund investment management and marketing
subsidiaries.
+++ Provides investment management services.
<PAGE>
Omits subsidiaries of Sun Life Assurance Company of Canada which are not
"significant subsidiaries" (as that term is defined in Rule 8b-2 under Section
8 of the Investment Company Act of 1940) of Sun Life Assurance Company of
Canada. None of the companies listed is a subsidiary of the Registrant;
therefore, the only financial statements being filed are those of Sun Life
Assurance Company of Canada (U.S.).
Item 27. NUMBER OF CONTRACT OWNERS:
As of March 31, 1999, there were 54,222 qualified and 99,279
non-qualified Contracts 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 the
Registrant, 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>
Robert P. Vrolyk................... Director
James M.A. Anderson................ Director
S. Caesar Raboy.................... Director
C. James Prieur.................... Director
L. Brock Thompson.................. Vice President and Treasurer
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. Lennox is One Sun Life Executive Park,
Wellesley Hills, Massachusetts 02481. The principal business address of
Ms. Lennox is One Copley Place, Boston, Massachusetts 02116.
(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(b) for effectiveness of this Post-Effective
Amendment No. 13 to the Registration Statement and has caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf, in the Town of Wellesley Hills, and Commonwealth of Massachusetts on
this 23rd day of April, 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 Post-Effective
Amendment to the Registration Statement has been signed below by the
following persons in the capacities with the Depositor, Sun Life Assurance
Company of Canada (U.S.), and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------- --------------
<S> <C> <C>
/s/ C. JAMES PRIEUR President and Director April 23, 1999
- ------------------------------------- (Principal Executive Officer)
C. James Prieur
/s/ ROBERT P. VROLYK Vice President, Finance and Actuary April 23, 1999
- ------------------------------------- (Principal Financial and Accounting
Robert P. Vrolyk Officer)
* /s/ DONALD A. STEWART Chairman and Director April 23, 1999
- -------------------------------------
Donald A. Stewart
* /s/ RICHARD B. BAILEY Director April 23, 1999
- -------------------------------------
Richard B. Bailey
</TABLE>
* By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 15 to
Post-Effective Amendment No. 12 to Registrant's Registration Statement on
Form N-4 (File No. 33-41628).
II-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------- --------------
<S> <C> <C>
* /s/ M. COLYER CRUM Director April 23, 1999
- -------------------------------------
M. Colyer Crum
* /s/ DAVID D. HORN Director April 23, 1999
- -------------------------------------
David D. Horn
* /s/ JOHN S. LANE Director April 23, 1999
- -------------------------------------
John S. Lane
* /s/ ANGUS A. MACNAUGHTON Director April 23, 1999
- -------------------------------------
Angus A. MacNaughton
* /s/ JOHN D. MCNEIL Director April 23, 1999
- -------------------------------------
John D. McNeil
*/s/ S. CAESAR RABOY Director April 23, 1999
- -------------------------------------
S. Caesar Raboy
</TABLE>
* By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 15 to
Post-Effective Amendment No. 12 to Registrant's Registration Statement on
Form N-4 (File No. 33-41628).
II-2
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this _____ day of ______________ , 1998, by and
among The Alger American Fund (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust, Sun Life Assurance Company
of Canada (U.S.), a life insurance company organized as a corporation under the
laws of the State of Delaware, (the "Company"), on its own behalf and on behalf
of each segregated asset account of the Company set forth in Schedule B, as may
be amended from time to time (the "Accounts"), and Fred Alger and Company,
Incorporated, a Delaware corporation, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into the
following series which are available for purchase by the Company for the
Accounts and set forth on Schedule A: Alger American Small Capitalization
Portfolio, Alger American Growth Portfolio, and Alger American Income and
Growth Portfolio.
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised;
1
<PAGE>
WHEREAS, the Company desires to use shares of the Portfolios indicated on
Schedule A as investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio,
provided that the Company notifies the Trust of such purchase orders
and requests for redemption by 9:30 a.m. Eastern time on the next
following Business Day, as defined in Section 1.3. The Trust shall
confirm receipt of the daily purchase orders and requests for
redemption by 11:00 a.m.
1.2. The Trust shall make shares of the Portfolios available to the
Accounts at the net asset value next computed after receipt of a
purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the
Trust describing Portfolio purchase procedures. The Company will
transmit orders from time to time to the Trust for the purchase and
redemption of shares of the Portfolios. The Trustees of the Trust
(the "Trustees") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the
Trustees acting in good faith and in light of their fiduciary duties
under federal and any applicable state laws, such action is deemed in
the best interests of the shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to
the Trust, with the reasonable expectation of receipt by the Trust by
2:00 p.m. Eastern time on the next Business Day after the Trust (or
its agent) receives the purchase order. Upon receipt by the Trust of
the federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of
the Trust for this purpose. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which the
Trust calculates its net asset value pursuant to the rules of the
Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at
the net asset value next computed after receipt by the Trust (or its
agent) of the request for redemption, as established in accordance
with the provisions of the then current prospectus of the Trust
describing Portfolio redemption procedures. The Trust shall make
payment for such shares in the
2
<PAGE>
manner established from time to time by the Trust. Proceeds of
redemption with respect to a Portfolio will normally be paid to the
Company for an Account in federal funds transmitted by wire to the
Company by order of the Trust with the reasonable expectation of
receipt by the Company by 2:00 p.m. Eastern time on the next Business
Day after the receipt by the Trust (or its agent) of the request for
redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market
conditions exist, but in no event shall payment be delayed for a
greater period than is permitted by the 1940 Act. The Trust reserves
the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of
the Trust's Portfolios under Section 1.4 on any Business Day may be
netted against one another for the purpose of determining the amount
of any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or
the Accounts. Portfolio Shares purchased from the Trust will be
recorded in the appropriate title for each Account or the appropriate
subaccount of each Account.
1.7. The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions
payable on the shares of any Portfolio of the Trust. The Company
hereby may elect to either: receive all such income dividends and
capital gain distributions as are payable on a Portfolio's shares in
additional shares of that Portfolio or in cash. Such election will be
provided in sufficient time for the Trust to process income dividends
and capital gains distributions accordingly. The Trust shall notify
the Company of the number of shares so issued as payment of such
dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Trust shall make
the net asset value per share for each Portfolio available to the
Company or its designated agent on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available
to the Company by 6:30 p.m. Eastern time each Business Day.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts,
to the Fund Sponsor or its affiliates and to such other entities as
may be permitted by Section 817(h) of the Code, the regulations
hereunder, or judicial or administrative interpretations thereof. No
shares of any Portfolio will be sold directly to the general public.
The Company agrees that it will use Trust shares only for the purposes
of funding the Contracts through the Accounts listed in Schedule A, as
amended from time to time.
3
<PAGE>
1.10. The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.9 and Article IV of this Agreement.
ARTICLE II.
OBLIGATIONS OF THE PARTIES
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all
shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and
statements of additional information of the Trust. The Trust shall
bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the
issuance and transfer of its shares.
2.2. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state
law.
2.3. The Trust shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Contract owners, and
the Company shall bear the expense of printing copies of the Trust's
prospectus that are used in connection with offering the Contracts
issued by the Company to prospective Contract owners. If the Company
requests, the Trust shall provide such documentation in camera-ready
or diskette format.
2.4. The Trust shall bear the expense of printing copies of its current
statement of additional information ("SAI") and of distributing to any
Contract owner who requests such SAI, and the Company shall bear the
expense of printing and of distributing copies of the Trust's SAI that
are used in connection with offering the Contracts issued by the
Company to any prospective Contract owner. If the Company so
requests, the Trust shall provide such documentation in camera-ready
or diskette format.
2.5. The Trust, at its expense, shall provide the Company with copies of
its proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Company shall
reasonably require for purposes of distributing to Contract owners.
The Trust, at the Company's expense, shall provide the Company with
copies of its periodic reports to shareholders and other
communications to shareholders in such quantity as the Company may, in
its discretion, reasonably request for use in connection with offering
the Contracts issued by the Company. If requested by the Company in
lieu thereof, the Trust shall provide such documentation (including a
final copy of the Trust's proxy materials, periodic reports to
shareholders and other communications to shareholders, as set in type
or in camera-ready copy) and other assistance as reasonably necessary
in order for the Company to print such shareholder communications for
4
<PAGE>
distribution to Contract owners. The proxy statement and perodic
report mailing, printing and soliatation for current Contract owners
shall be at the Trust's expense.
2.6. The Company agrees and acknowledges that the Distributor is the sole
owner of the name and mark "Alger" and that all use of any designation
comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of the Distributor. Except as provided in
Section 2.5, the Company shall not use any such name or mark on its
own behalf or on behalf of the Accounts or Contracts in any
registration statement, advertisement, sales literature or other
materials relating to the Accounts or Contracts without the prior
written consent of the Distributor unless required to do so by law.
Upon termination of this Agreement for any reason, the Company shall
cease all use of any such name or mark as soon as reasonably
practicable.
2.7. The Company shall furnish, or cause to be furnished, to the Trust or
its designee a copy of each Contract prospectus and/or statement of
additional information describing the Contracts, each report to
Contract owners, proxy statement, application for exemption or request
for no-action letter in which the Trust or the Distributor is named
contemporaneously with the filing of such document with the
Commission. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature
or other promotional material in which the Trust or the Distributor is
named, at least five Business Days prior to its use. No such material
shall be used if the Trust or its designee reasonably objects to such
use within three Business Days after receipt of such material.
2.8. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or the
Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived
from the registration statement or prospectus for the Trust shares (as
such registration statement and prospectus may be amended or
supplemented from time to time), annual and semi-annual reports of the
Trust, Trust-sponsored proxy statements, or in sales literature or
other promotional material approved by the Trust or its designee,
except as required by legal process or regulatory authorities or with
the prior written permission of the Trust, the Distributor or their
respective designees. The Trust and the Distributor agree to respond
to any request for approval within five (5) business days. The
Company shall adopt and implement procedures reasonably designed to
ensure that "broker only" materials including information therein
about the Trust or the Distributor are not distributed to existing or
prospective Contract owners.
2.9. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios
and the Distributor, in such form as the Company may reasonably
require, as the Company shall reasonably request in connection with
the preparation of registration statements, prospectuses and annual
and semi-annual
5
<PAGE>
reports pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no
affiliate of either of them shall give, any information or make any
representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the
registration statement or prospectus for the Contracts (as such
registration statement and prospectus may be amended or supplemented
from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional
materials, except as required by legal process or regulatory
authorities or with the prior written permission of the Company. The
Company agrees to respond to any request for approval on a prompt and
timely basis.
2.11. So long as, and to the extent that, the Commission interprets the 1940
Act to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners
whose cash values are invested, through the registered Accounts, in
shares of one or more Portfolios of the Trust. The Trust shall
require all Participating Insurance Companies to calculate voting
privileges in the same manner and the Company shall be responsible for
assuring that the Accounts calculate voting privileges in the manner
established by the Trust. With respect to each registered Account,
the Company will vote shares of each Portfolio of the Trust held by a
registered Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those shares
for which voting instructions are received. The Company and its
agents will assist in processing the solicitation of proxies for
Portfolio shares held to fund the Contacts. The Company reserves the
right, to the extent permitted by law, to vote shares held in any
Account in its sole discretion.
2.12. The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the
Contracts or the Trust, including relevant portions of any "deficiency
letter" and any response thereto, provided, however, that nothing
contained in this Section 2.12 shall be construed to require the
Company to provide any such information to the extent such information
does not relate to the Trust or the Trust to provide any such
information to the extent such information does not relate to the
issuance of Trust shares in connection with the Contracts.
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified
expense reimbursements). However, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust,
the Accounts or both.
6
<PAGE>
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of
Delaware and that it has legally and validly established each Account
as a segregated asset account under such law as of thedate set forth
in Schedule B, and that Clarendon Insurance Agency, Inc. the
principal underwriter for the Contracts, is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a
member in good standing of the National Association of Securities
Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Account
as a unit investment trust in accordance with the provisions of the
1940 Act and cause each Account to remain so registered to serve as a
segregated asset account for the Contracts, unless an exemption from
registration is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is
available prior to any issuance or sale of the Contracts; the
Contracts will be issued and sold in compliance in all material
respects with all applicable federal and state laws; and the sale of
the Contracts shall comply in all material respects with state
insurance law suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the Commonwealth of Massachusetts
and that it does and will comply in all material respects with the
1940 Act and the rules and regulations thereunder.
3.5. The Trust and the Distributor represent and warrant that the Portfolio
shares offered and sold pursuant to this Agreement will be authorized
for issuance, registered under the 1933 Act and sold in accordance
with all applicable federal and state laws, and the Trust shall be
registered under the 1940 Act prior to and at the time of any issuance
or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as
required in order to effect the continuous offering of its shares.
The Trust shall register and qualify its shares for sale in accordance
with the laws of the various states only if and to the extent deemed
advisable by the Trust or required by law or regulation.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for
variable annuity, endowment or life insurance contracts set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the rules and regulations thereunder, including without
limitation Treasury Regulation 1.817-5, and will notify the Company
immediately upon having a reasonable basis for believing any Portfolio
has ceased to comply or might not so comply
7
<PAGE>
and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance within the grace period afforded
by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it
will maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased
to so qualify or might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of
a Portfolio shall at all times be covered by a blanket fidelity bond
or similar coverage for the benefit of the Trust in an amount not less
than the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents that it is duly organized and validly
existing under the laws of the State of Delaware and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the Securities Exchange Act of
1934 and is a member in good standing of the National Association of
Securities Dealers, Inc.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1. The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies.
In such event, the Trustees will monitor the Trust for the existence
of any material irreconcilable conflict between the interests of the
contract owners of all Participating Insurance Companies. A material
irreconcilable conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d)
the manner in which the investments of any Portfolio are being
managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of
contract owners. The Trust shall promptly inform the Company of any
determination by the Trustees that a material irreconcilable conflict
exists and of the implications thereof.
4.2. The Company agrees to report promptly any potential or existing
conflicts of which it is aware to the Trustees. The Company will
assist the Trustees in carrying out their responsibilities under the
Shared Funding Exemptive Order by providing the Trustees with all
information reasonably necessary for and requested by the Trustees to
consider any issues raised including, but not limited to, information
as to a decision by the
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Company to disregard Contract owner voting instructions. All
communications from the Company to the Trustees may be made in care of
the Trust.
4.3. If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict
exists that affects the interests of contract owners, the Company
shall, in cooperation with other Participating Insurance Companies
whose contract owners are also affected, each at its own expense and
to the extent reasonably practicable (as determined by the Trustees)
take whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict, which steps could include: (a) withdrawing
the assets allocable to some or all of the Accounts from the Trust or
any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Trust,
or submitting the question of whether or not such segregation should
be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable
contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (b)
establishing a new registered management investment company or managed
separate account.
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Trust's election, to
withdraw the affected Account's investment in the Trust and terminate
this Agreement with respect to such Account; provided, however that
such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such
withdrawal and termination must take place within six (6) months after
the Trust gives written notice that this provision is being
implemented. Until the end of such six (6) month period, the Trust
shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the
Company will withdraw the affected Account's investment in the Trust
and terminate this Agreement with respect to such Account within six
(6) months after the Trustees inform the Company in writing that the
Trust has determined that such decision has created a material
irreconcilable conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Until the end of such six (6) month period,
the Trust shall continue to accept and implement orders by the Company
for the purchase and redemption of shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a majority
of the disinterested
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Trustees shall determine whether any proposed action adequately
remedies any material irreconcilable conflict, but in no event will
the Trust be required to establish a new funding medium for any
Contract. The Company shall not be required to establish a new
funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely
affected by the material irreconcilable conflict. In the event that
the Trustees determine that any proposed action does not adequately
remedy any material irreconcilable conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this
Agreement within six (6) months after the Trustees inform the Company
in writing of the foregoing determination; provided, however, that
such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by
a majority of the disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so
that the Trustees may fully carry out the duties imposed upon them by
the Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if reasonably deemed
appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Shared Funding Exemptive Order) on
terms and conditions materially different from those contained in the
Shared Funding Exemptive Order, then the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rule 6e-3(T), as amended, or
Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V.
INDEMNIFICATION
5.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Distributor, the Trust and each of its Trustees,
officers, employees and agents and each person, if any, who controls
the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section
5.1) against any and all losses, costs, expenses, claims, damages,
liabilities (including amounts paid in settlement with the written
consent of the Company, which consent shall not be unreasonably
withheld) or expenses (including the reasonable costs of investigating
or defending any alleged loss, costs, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties
may become subject under any statute or regulation, or at common
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law or otherwise, insofar as such Losses are related to the sale or
acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or approved
by the Company on behalf of the Contracts or Accounts (or any
amendment or supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this indemnity shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived
from written information furnished to the Company by or on behalf
of the Trust for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and derived in
comformity withTrust Documents as defined in Section 5.2(a)) or
wrongful conduct of the Company or persons under its control,
with respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents
as defined in Section 5.2(a) or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately
derived from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of
this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(f) arise out of or result from the provision by the Company to the
Trust of insufficient or incorrect information regarding the
purchase or sale of shares of any Portfolio, or the failure of
the Company to provide such information on a timely basis.
5.2. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor agrees to
indemnify and hold
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harmless the Company and each of its directors, officers, employees,
and agents and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for the purposes of this Section 5.2) against
any and all losses, costs, expenses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Distributor, which consent shall not be unreasonably withheld) or
expenses (including the reasonable costs of investigating or defending
any alleged loss, costs, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or
acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Trust (or any
amendment or supplement thereto) (collectively, "Trust Documents"
for the purposes of this Article V), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written
information furnished to the Distributor or the Trust by or on
behalf of the Company for use in Trust Documents or otherwise for
use in connection with the sale of the Contracts or Trust shares
and; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and derived in
conformity with Company Documents) or wrongful conduct of the
Distributor or persons under its control, with respect to the
sale or acquisition of the Contracts or Portfolio shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived from
written information furnished to the Company by or on behalf of
the Trust; or
(d) arise out of or result from any failure by the Distributor or the
Trust to provide the services or furnish the materials required
under the terms of this Agreement, including, without limitation,
any failure by the Trust to inform the Company of the correct net
asset value per share for each Portfolio on a timely basis
sufficient to permit the timely execution of all purchase and
redemption orders at the correct net asset value per share; or
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<PAGE>
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor or the
Trust in this Agreement or arise out of or result from any other
material breach of this Agreement by the Distributor or the
Trust.
5.3. None of the Company, the Trust or the Distributor shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as
applicable, with respect to any Losses incurred or assessed against an
Indemnified Party that arise from such Indemnified Party's willful
misfeasance, bad faith or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as
applicable, with respect to any claim made against an Indemnified
party unless such Indemnified Party shall have notified the other
party in writing within a reasonable time after the summons, or other
first notification, giving information of the nature of the claim
shall have been served upon or otherwise received by such Indemnified
Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of
any such claim shall not relieve that party from any liability which
it may have to the Indemnified Party in the absence of Sections 5.1
and 5.2.
5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also
shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the party named in the action. After
notice from the indemnifying party to the Indemnified Party of an
election to assume such defense, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under
this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
ARTICLE VI.
TERMINATION
6.1. This Agreement shall terminate:
(a) at the option of any party upon one (1) year's advance written
notice to the other parties, unless a shorter time is agreed to
by the parties;
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(b) at the option of any party upon thirty (30) days' advance written
notice due to a material breach of this Agreement by the other party,
unless such breach is cured within such thirty (30) day period; or
(b) at the option of the Trust or the Distributor if the Contracts
issued by the Company cease to qualify as annuity contracts or
life insurance contracts, as applicable, under the Code or if the
Contracts are not registered, issued or sold in accordance with
applicable state and/or federal law; or
(c) at the option of any party upon a determination by a majority of
the Trustees of the Trust, or a majority of its disinterested
Trustees, that a material irreconcilable conflict exists; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body regarding the Trust's or the Distributor's duties
under this Agreement or related to the sale of Trust shares or
the operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio fails to
meet the diversification requirements specified in Section 3.6
hereof; or
(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Contracts
issued by the Company, as determined by the Company, and upon
prompt notice by the Company to the other parties; or
(g) at the option of the Company in the event any of the shares of
the Portfolio are not registered, issued or sold in accordance
with applicable state and/or federal law, or such law precludes
the use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(h) at the option of the Company, if the Portfolio fails to qualify
as a Regulated Investment Company under Subchapter M of the Code;
or
(i) at the option of the Distributor if it shall determine in its
sole judgment exercised in good faith, that the Company and/or
its affiliated companies has suffered a material adverse change
in its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity; or
(j) at the option of the Company if it shall determine in its sole
judgment exercised in good faith, that the Distributor and/or its
affiliated companies has suffered a
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<PAGE>
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the
subject of material adverse publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional
shares of any Portfolio and redeem shares of any Portfolio pursuant to
the terms and conditions of this Agreement for all Contracts in effect
on the effective date of termination of this Agreement.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 shall
survive the termination of this Agreement as long as shares of the
Trust are held on behalf of Contract owners in accordance
with Section 6.2.
ARTICLE VII.
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
Sun Life Assurance Company of Canada (U.S.)
Retirement Products & Services Division
One Copley Place
Suite 100
Boston, MA 02116
Attn: Margaret Hankard
Sr. Associate Counsel
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<PAGE>
ARTICLE VIII.
MISCELLANEOUS
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
8.2. This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one and the same instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New
York without regard to its conflict of laws provisions. It shall also
be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission
granting exemptive relief therefrom and the conditions of such orders.
Copies of any such orders shall be promptly forwarded by the Trust to
the Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Trust and no Trustee, officer, agent
or holder of shares of beneficial interest of the Trust shall be
personally liable for any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission,
the National Association of Securities Dealers, Inc. and state
insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated
hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are
entitled to under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the
other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by both parties.
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8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and
addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by any other party
hereto, and shall not disclose such confidential information without
the written consent of the affected party unless such information has
become publicly available.
8.12 During ordinary business hours, the Trust and Distributor shall afford
the Company, directly or through its authorized representatives,
reasonable access to all files, books, records and other materials of
the Trust or Distributor, as applicable, which relate directly or
indirectly to transactions arising in connection with this Agreement
and to make available appropriate personnel familiar with such items
for the purpose of explaining the form and content of such items.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
Fred Alger and Company, Incorporated
By:
--------------------------------
Name:
Title:
The Alger American Fund
By:
--------------------------------
Name:
Title:
Sun Life Assurance Company of Canada U.S.
By:
--------------------------------
Name:
Title:
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SCHEDULE A
- -----------
The Alger American Fund:
Alger American Growth Portfolio
Alger American Income and Growth Portfolio
Alger American Small Capitalization Portfolio
18
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SCHEDULE B
----------
NAME OF ACCOUNTS:
Sun Life Of Canada ( U.S.) Variable Account F (Inception: July 13, 1989)
NAME OF CONTRACTS:
Futurity Variable and Fixed Annuity Contracts
19
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 17th day of February, 1998 by
and between GOLDMAN SACHS VARIABLE INSURANCE TRUST, an unincorporated business
trust formed under the laws of Delaware (the "Trust"), GOLDMAN, SACHS & CO., a
New York limited partnership (the "Distributor"), and SUN LIFE ASSURANCE COMPANY
OF CANADA (U.S.), a Delaware life insurance company (the "Company"), on its own
behalf and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares, each such Series representing an interest in a
particular investment portfolio of securities and other assets (a "Fund"), and
which Series may be subdivided into various classes ("Classes") with each such
Class supporting a distinct charge and expense arrangement; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for insurance company separate accounts supporting variable
annuity contracts and variable life insurance policies to be offered by
insurance companies and may also be utilized by qualified retirement plans; and
WHEREAS, the Distributor has the exclusive right to distribute Trust shares
to qualifying investors; and
WHEREAS, the Company desires that the Trust serve as an investment vehicle
for a certain separate account(s) of the Company and the Distributor desires to
sell shares of certain Series and/or Class(es) to such separate account(s);
NOW, THEREFORE, in consideration of their mutual promises, the Trust, the
Distributor and the Company agree as follows:
ARTICLE I
ADDITIONAL DEFINITIONS
1.1. "Account" -- the separate account of the Company described more
specifically in Schedule 1 to this Agreement. If more than one separate account
is described on Schedule 1, the term shall refer to each separate account so
described.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust's Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended, and any
successor thereto.
1.4. "Contracts" -- the class or classes of variable annuity contracts
and/or variable life insurance policies issued by the Company and described more
specifically on Schedule 2 to this Agreement.
<PAGE>
1.5. "Contract Owners" -- the owners of the Contracts, as distinguished
from all Product Owners.
1.6. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.7. "Participating Insurance Company" -- any insurance company investing
in the Trust on its behalf or on behalf of a Participating Account, including
the Company.
1.8. "Participating Plan" -- any qualified retirement plan investing in
the Trust.
1.9. "Participating Investor" -- any Participating Account, Participating
Insurance Company or Participating Plan, including the Account and the Company.
1.10. "Products" -- variable annuity contracts and variable life insurance
policies supported by Participating Accounts, including the Contracts.
1.11. "Product Owners" -- owners of Products, including Contract Owners.
1.12. "Trust Board" -- the board of trustees of the Trust.
1.13. "Registration Statement" -- with respect to the Trust shares or a
class of Contracts, the registration statement filed with the SEC to register
such securities under the 1933 Act, or the most recently filed amendment
thereto, in either case in the form in which it was declared or became
effective. The Contracts' Registration Statement for each class of Contracts is
described more specifically on Schedule 2 to this Agreement. The Trust's
Registration Statement is filed on Form N-1A (File No. 333-35883).
1.14. "1940 Act Registration Statement" -- with respect to the Trust or
the Account, the registration statement filed with the SEC to register such
person as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account's 1940 Act Registration Statement is described
more specifically on Schedule 2 to this Agreement. The Trust's 1940 Act
Registration Statement is filed on Form N-1A (File No. 811-08361).
1.15. "Prospectus" -- with respect to shares of a Series (or Class) of the
Trust or a class of Contracts, each version of the definitive prospectus or
supplement thereto filed with the SEC pursuant to Rule 497 under the 1933 Act.
With respect to any provision of this Agreement requiring a party to take action
in accordance with a Prospectus, such reference thereto shall be deemed to be to
the version for the applicable Series, Class or Contracts last so filed prior to
the taking of such action. For purposes of Article IX, the term "Prospectus"
shall include any statement of additional information incorporated therein.
1.16. "Statement of Additional Information" -- with respect to the shares
of the Trust or a class of Contracts, each version of the definitive statement
of additional information or supplement thereto filed with the SEC pursuant to
Rule 497 under the 1933 Act. With respect to any provision of this Agreement
requiring a party to take action in accordance with a Statement of Additional
Information, such reference thereto shall be deemed to be the last version so
filed prior to the taking of such action.
1.17. "SEC" -- the Securities and Exchange Commission.
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<PAGE>
1.18. "NASD" -- The National Association of Securities Dealers, Inc.
1.19. "1933 Act" -- the Securities Exchange Act of 1933, as amended.
1.20. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II
SALE OF TRUST SHARES
2.1. AVAILABILITY OF SHARES
(a) The Trust has granted to the Distributor exclusive authority
to distribute the Trust shares and to select which Series or Classes of
Trust shares shall be made available to Participating Investors. Pursuant
to such authority, and subject to Article X hereof, the Distributor shall
make available to the Company for purchase on behalf of the Account, shares
of the Series and Classes listed on Schedule 3 to this Agreement, such
purchases to be effected at net asset value in accordance with Section 2.3
of this Agreement. Such Series and Classes shall be made available to the
Company in accordance with the terms and provisions of this Agreement until
this Agreement is terminated pursuant to Article X or the Distributor
suspends or terminates the offering of shares of such Series or Classes in
the circumstances described in Article X.
(b) Notwithstanding clause (a) of this Section 2.1, Series or
Classes of Trust shares in existence now or that may be established in the
future will be made available to the Company only as the Distributor may so
provide, subject to the Distributor's rights set forth in Article X to
suspend or terminate the offering of shares of any Series or Class or to
terminate this Agreement.
(c) The parties acknowledge and agree that: (i) the Trust may
revoke the Distributor's authority pursuant to the terms and conditions of
its distribution agreement with the Distributor; and (ii) the Trust
reserves the right in its sole discretion to refuse to accept a request for
the purchase of Trust shares.
2.2. REDEMPTIONS. The Trust shall redeem, at the Company's request, any
full or fractional Trust shares held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Article X of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series or Class to the extent permitted by the
1940 Act, any rules, regulations or orders thereunder, or the Prospectus for
such Series or Class.
2.3. PURCHASE AND REDEMPTION PROCEDURES
(a) The Trust hereby appoints the Company as an agent of the
Trust for the limited purpose of receiving purchase and redemption requests
on behalf of the Account (but not with respect to any Trust shares that may
be held in the general account of the Company) for shares of those Series
or Classes made available hereunder, based on allocations of amounts to the
Account or subaccounts thereof under the Contracts, other transactions
relating to the Contracts or the Account and customary processing of the
Contracts. Receipt of any such requests (or effectuation of such
transaction or processing) on any Business Day by the Company as such
limited agent of the Trust prior to the Trust's close of business as
defined from time to time in the applicable Prospectus
3
<PAGE>
for such Series or Class (which as of the date of execution of this
Agreement is defined as the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York Time)) shall constitute receipt by
the Trust on that same Business Day, provided that the Company uses its
best efforts to provide actual and sufficient notice of such request to the
Trust by 8:00 a.m. New York Time on the next following Business Day and the
Trust receives such notice no later than 9:00 a.m. New York Time on such
Business Day. Such notice may be communicated by telephone to the office
or person designated for such notice by the Trust, and shall be confirmed
by facsimile.
(b) The Company shall pay for shares of each Series or Class on
the same day that it provides actual notice to the Trust of a purchase
request for such shares. Payment for Series or Class shares shall be made
in Federal funds transmitted to the Trust by wire to be received by the
Trust by 12:00 noon New York Time on the day the Trust receives actual
notice of the purchase request for Series or Class shares (unless the Trust
determines and so advises the Company that sufficient proceeds are
available from redemption of shares of other Series or Classes effected
pursuant to redemption requests tendered by the Company on behalf of the
Account). In no event may proceeds from the redemption of shares requested
pursuant to an order received by the Company after the Trust's close of
business on any Business Day be applied to the payment for shares for which
a purchase order was received prior to the Trust's close of business on
such day. If the issuance of shares is canceled because Federal funds are
not timely received, the Company shall indemnify the respective Fund and
Distributor with respect to all costs, expenses and losses relating
thereto. Upon the Trust's receipt of Federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust. If Federal funds are not received on time,
such funds will be invested, and Series or Class shares purchased thereby
will be issued, as soon as practicable after actual receipt of such funds
but in any event not on the same day that the purchase order was received.
(c) Payment for Series or Class shares redeemed by the Account or
the Company shall be made in Federal funds transmitted by wire to the
Company or any other person properly designated in writing by the Company,
such funds normally to be transmitted by 6:00 p.m. New York Time on the
next Business Day after the Trust receives actual notice of the redemption
order for Series or Class shares (unless redemption proceeds are to be
applied to the purchase of Trust shares of other Series or Classes in
accordance with Section 2.3(b) of this Agreement), except that the Trust
reserves the right to redeem Series or Class shares in assets other than
cash and to delay payment of redemption proceeds to the extent permitted by
the 1940 Act, any rules or regulations or orders thereunder, or the
applicable Prospectus. The Trust shall not bear any responsibility
whatsoever for the proper disbursement or crediting of redemption proceeds
by the Company; the Company alone shall be responsible for such action.
(d) Any purchase or redemption request for Series or Class shares
held or to be held in the Company's general account shall be effected at
the net asset value per share next determined after the Trust's actual
receipt of such request, provided that, in the case of a purchase request,
payment for Trust shares so requested is received by the Trust in Federal
funds prior to close of business for determination of such value, as
defined from time to time in the Prospectus for such Series or Class.
(e) Prior to the first purchase of any Trust shares hereunder,
the Company and the Trust shall provide each other with all information
necessary to effect wire transmissions of Federal funds to the other party
and all other designated persons pursuant to such protocols and security
procedures as the parties may agree upon. Should
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such information change thereafter, the Trust and the Company, as
applicable, shall notify the other in writing of such changes, observing
the same protocols and security procedures, at least three Business Days in
advance of when such change is to take effect. The Company and the Trust
shall observe customary procedures to protect the confidentiality and
security of such information, but neither party shall be liable to the
other party for any breach of security.
(f) The procedures set forth herein are subject to any additional
terms set forth in the applicable Prospectus for the Series or Class or by
the requirements of applicable law.
2.4. NET ASSET VALUE. The Trust shall inform the Company of the net
asset value per share for each Series or Class available to the Company as soon
as reasonably practicable after the net asset value per share for such Series or
Class is calculated. The Trust shall calculate such net asset value in
accordance with the Prospectus for such Series or Class.
2.5. DIVIDENDS AND DISTRIBUTIONS. The Trust shall furnish notice to the
Company as soon as reasonably practicable of any income dividends or capital
gain distributions payable on any Series or Class shares. The Company, on its
behalf and on behalf of the Account, hereby elects to receive all such dividends
and distributions as are payable on any Series or Class shares in the form of
additional shares of that Series or Class. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends and capital gain distributions in cash; to be effective, such
revocation must be made in writing and received by the Trust at least ten
Business Days prior to a dividend or distribution date. The Trust shall notify
the Company promptly of the number of Series or Class shares so issued as
payment of such dividends and distributions.
2.6. BOOK ENTRY. Issuance and transfer of Trust shares shall be by book
entry only. Stock certificates will not be issued to the Company or the
Account. Purchase and redemption orders for Trust shares shall be recorded in
an appropriate ledger for the Account or the appropriate subaccount of the
Account.
2.7. PRICING ERRORS. Any material errors in the calculation of net asset
value, dividends or capital gain information shall be reported immediately upon
discovery to the Company. An error shall be deemed "material" based on the
Trust's reasonable interpretation of the SEC's position and policy with regard
to materiality, as it may be modified from time to time. Neither the Trust, any
Fund, the Distributor, nor any of their affiliates shall be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by or on behalf of the Company to the
Trust or the Distributor.
2.8. LIMITS ON PURCHASERS. The Distributor and the Trust shall sell
Trust shares only to insurance companies and their separate accounts and to
persons or plans ("Qualified Persons") that qualify to purchase shares of the
Trust under Section 817(h) of the Code and the regulations thereunder without
impairing the ability of the Account to consider the portfolio investments of
the Trust as constituting investments of the Account for the purpose of
satisfying the diversification requirements of Section 817(h). The Distributor
and the Trust shall not sell Trust shares to any insurance company or separate
account unless an agreement complying with Article VIII of this Agreement is in
effect to govern such sales. The Company hereby represents and warrants that it
and the Account are Qualified Persons.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. COMPANY. The Company represents and warrants that: (i) the Company
is an insurance company duly organized and in good standing under Delaware
insurance law; (ii) the Account is a validly existing separate account, duly
established and maintained in accordance with applicable law; (iii) the
Account's 1940 Act Registration Statement has been or will be filed with the SEC
in accordance with the provisions of the 1940 Act and the Account is duly
registered as a unit investment trust thereunder; (iv) the Contracts'
Registration Statement has been declared effective by the SEC; (v) the Contracts
will be issued in compliance in all material respects with all applicable
Federal and state laws; (vi) the Contracts have been filed, qualified and/or
approved for sale, as applicable, under the insurance laws and regulations of
the states in which the Contracts will be offered; (vii) the Account will
maintain its registration under the 1940 Act and will comply in all material
respects with the 1940 Act; (viii) the Contracts currently are, and at the time
of issuance and for so long as they are outstanding will be, treated as annuity
contracts or life insurance policies, whichever is appropriate, under applicable
provisions of the Code; and (ix) the Company's entering into and performing its
obligations under this Agreement does not and will not violate its charter
documents or by-laws, rules or regulations, or any agreement to which it is a
party. The Company will notify the Trust promptly if for any reason it is
unable to perform its obligations under this Agreement.
3.2. TRUST. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under the
Delaware law; (ii) the Trust's 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder;
(iii) the Trust's Registration Statement has been declared effective by the
SEC; (iv) the Trust shares will be issued in compliance in all material
respects with all applicable federal and state securities laws; (v) the Trust
will remain registered under and will comply in all material respects with
the 1940 Act during the term of this Agreement; (vi) each Fund of the Trust
intends to qualify as a "regulated investment company" under Subchapter M of
the Code and to comply with the diversification standards prescribed in
Section 817(h) of the Code and the regulations thereunder; and (vii) the
investment policies of each Fund comply in all material respects with any
investment restrictions set forth on Schedule 4 to this Agreement. The
Trust, however, makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) otherwise complies with the insurance laws or regulations of any
state.
3.3. DISTRIBUTOR. The Distributor represents and warrants that: (i) the
Distributor is a limited partnership duly organized and in good standing under
New York law; (ii) the Distributor is registered as a broker-dealer under
federal and applicable state securities laws and is a member of the NASD; and
(iii) the Distributor is registered as an investment adviser under federal
securities laws.
3.4. LEGAL AUTHORITY. Each party represents and warrants that the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate, partnership or trust action, as applicable, by such party, and, when
so executed and delivered, this Agreement will be the valid and binding
obligation of such party enforceable in accordance with its terms.
3.5. BONDING REQUIREMENT. Each party represents and warrants that all of
its directors, officers, partners and employees dealing with the money and/or
securities of the Trust are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Trust in an
amount not less than the amount required by the applicable rules of
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the NASD and the federal securities laws. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company. All parties shall make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, shall provide
evidence thereof promptly to any other party upon written request therefor, and
shall notify the other parties promptly in the event that such coverage no
longer applies.
ARTICLE IV
REGULATORY REQUIREMENTS
4.1. TRUST FILINGS. The Trust shall amend the Trust's Registration
Statement and the Trust's 1940 Act Registration Statement from time to time as
required in order to effect the continuous offering of Trust shares in
compliance with applicable law and to maintain the Trust's registration under
the 1940 Act for so long as Trust shares are sold.
4.2. CONTRACTS FILINGS. The Company shall amend the Contracts'
Registration Statement and the Account's 1940 Act Registration Statement from
time to time as required in order to effect the continuous offering of the
Contracts in compliance with applicable law or as may otherwise be required by
applicable law, but in any event shall maintain a current effective Contracts'
Registration Statement and the Account's registration under the 1940 Act for so
long as the Contracts are outstanding unless the Company has supplied the Trust
with an SEC no-action letter or opinion of counsel satisfactory to the Trust's
counsel to the effect that maintaining such Registration Statement on a current
basis is no longer required. The Company shall be responsible for filing all
such Contract forms, applications, marketing materials and other documents
relating to the Contracts and/or the Account with state insurance commissions,
as required or customary, and shall use its best efforts: (i) to obtain any and
all approvals thereof, under applicable state insurance law, of each state or
other jurisdiction in which Contracts are or may be offered for sale; and
(ii) to keep such approvals in effect for so long as the Contracts are
outstanding.
4.3. VOTING OF TRUST SHARES. With respect to any matter put to vote by
the holders of Trust shares ("Voting Shares"), the Company will provide
"pass-through" voting privileges to owners of Contracts registered with the SEC
as long as the 1940 Act requires such privileges in such cases. In cases in
which "pass-through" privileges apply, the Company will (i) solicit voting
instructions from Contract Owners of SEC-registered Contracts; (ii) vote Voting
Shares attributable to Contract Owners in accordance with instructions or
proxies timely received from such Contract Owners; and (iii) vote Voting Shares
held by it that are not attributable to reserves for SEC-registered Contracts or
for which it has not received timely voting instructions in the same proportion
as instructions received in a timely fashion from Owners of SEC-registered
Contracts. The Company shall be responsible for ensuring that it calculates
"pass-through" votes for the Account in a manner consistent with the provisions
set forth above, the Prospectuses for the Contracts and the Trust, and with
other Participating Insurance Companies. The Trust and the Distributor
undertake to require every other Participating Insurance Company to vote Shares
held by it in accordance with this Section 4.3. The Distributor and the Trust
will inform the Company if it learns that any Participating Insurance Company is
calculating votes in a manner different than set forth in this Section 4.3.
Neither the Company nor any of its affiliates will in any way recommend action
in connection with, or oppose or interfere with, the solicitation of proxies for
the Trust shares held for such Contract Owners, except with respect to matters
as to which the Company has the right under Rule 6e-2 or 6e-3(T) under the 1940
Act, to vote Voting Shares without regard to voting instructions from Contract
Owners.
4.4. STATE INSURANCE RESTRICTIONS. The Company acknowledges and agrees
that it is the responsibility of the Company and other Participating Insurance
Companies to determine
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investment restrictions and any other restrictions, limitations or requirements
under state insurance law applicable to any Fund or the Trust or the
Distributor, and that neither the Trust nor the Distributor shall bear any
responsibility to the Company, other Participating Insurance Companies or any
Product Owners for any such determination or the correctness of such
determination. Schedule 4 sets forth the investment restrictions that the
Company and/or other Participating Insurance Companies have determined are
applicable to any Fund and with which the Trust has agreed to comply as of the
date of this Agreement. The Company shall inform the Trust of any investment
restrictions imposed by state insurance law that the Company determines may
become applicable to the Trust or a Fund from time to time as a result of the
Account's investment therein, other than those set forth on Schedule 4 to this
Agreement. Upon receipt of any such information from the Company or any other
Participating Insurance Company, the Trust shall determine whether it is in the
best interests of shareholders to comply with any such restrictions. The Trust
shall inform the Company of any investment restrictions brought to its attention
by any other Participating Insurance Company. If the Trust determines that it
is not in the best interests of shareholders (it being understood that
"shareholders" for this purpose shall mean Product Owners) to comply with a
restriction determined to be applicable by the Company or another Participating
Insurance Company, the Trust shall so inform the Company, and the Trust and the
Company shall discuss alternative accommodations in the circumstances. If the
Trust determines that it is in the best interests of shareholders to comply with
such restrictions, the Trust and the Company shall amend Schedule 4 to this
Agreement to reflect such restrictions, subject to obtaining any required
shareholder approval thereof.
4.5. DRAFTS OF FILINGS. The Trust and the Company shall provide to each
other copies of draft versions of any Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations for voting instructions,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, prepared by or on behalf of either of them
and that mentions the other party by name. Such drafts shall be provided to the
other party at least 5 business days in advance of filing such materials with
regulatory authorities in order to allow such other party a reasonable
opportunity to review the materials.
4.6. COPIES OF FILINGS. The Trust and the Company shall provide to each
other at least one complete copy of all Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations of voting instructions,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, that relate to the Trust, the Contracts or
the Account, as the case may be, promptly after the filing by or on behalf of
each such party of such document with the SEC or other regulatory authorities
(it being understood that this provision is not intended to require the Trust to
provide to the Company copies of any such documents prepared, filed or used by
Participating Investors other than the Company and the Account).
4.7. REGULATORY RESPONSES. Each party shall promptly provide to all
other parties copies of responses to no-action requests, notices, orders and
other rulings received by such party with respect to any filing covered by
Section 4.6 of this Agreement.
4.8. COMPLAINTS AND PROCEEDINGS
(a) The Trust and/or the Distributor shall immediately notify the
Company of: (i) the issuance by any court or regulatory body of any stop
order, cease and desist order, or other similar order (but not including an
order of a regulatory body exempting or approving a proposed transaction or
arrangement) with respect to the Trust's Registration Statement or the
Prospectus of any Series or Class; (ii) any request by the SEC for any
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amendment to the Trust's Registration Statement or the Prospectus of any
Series or Class; (iii) the initiation of any proceedings for that purpose
or for any other purposes relating to the registration or offering of the
Trust shares; or (iv) any other action or circumstances that may prevent
the lawful offer or sale of Trust shares or any Class or Series in any
state or jurisdiction, including, without limitation, any circumstance in
which (A) such shares are not registered and, in all material respects,
issued and sold in accordance with applicable state and federal law or
(B) such law precludes the use of such shares as an underlying investment
medium for the Contracts. The Trust will make every reasonable effort to
prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting
thereof at the earliest possible time.
(b) The Company shall immediately notify the Trust and the
Distributor of: (i) the issuance by any court or regulatory body of any
stop order, cease and desist order, or other similar order (but not
including an order of a regulatory body exempting or approving a proposed
transaction or arrangement) with respect to the Contracts' Registration
Statement or the Contracts' Prospectus; (ii) any request by the SEC for any
amendment to the Contracts' Registration Statement or Prospectus; (iii) the
initiation of any proceedings for that purpose or for any other purposes
relating to the registration or offering of the Contracts; or (iv) any
other action or circumstances that may prevent the lawful offer or sale of
the Contracts or any class of Contracts in any state or jurisdiction,
including, without limitation, any circumstance in which such Contracts are
not registered, qualified and approved, and, in all material respects,
issued and sold in accordance with applicable state and federal laws. The
Company will make every reasonable effort to prevent the issuance of any
such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible
time.
(c) Each party shall immediately notify the other parties when it
receives notice, or otherwise becomes aware of, the commencement of any
litigation or proceeding against such party or a person affiliated
therewith in connection with the issuance or sale of Trust shares or the
Contracts.
(d) The Company shall provide to the Trust and the Distributor
any complaints it has received from Contract Owners pertaining to the Trust
or a Fund, and the Trust and Distributor shall each provide to the Company
any complaints it has received from Contract Owners relating to the
Contracts.
4.9. COOPERATION. Each party hereto shall cooperate with the other
parties and all appropriate government authorities (including without limitation
the SEC, the NASD and state securities and insurance regulators) and shall
permit such authorities reasonable access to its books and records in connection
with any investigation or inquiry by any such authority relating to this
Agreement or the transactions contemplated hereby. However, such access shall
not extend to attorney-client privileged information.
4.10. DISTRIBUTOR. During the term of this agreement, the Distributor
(i) will be duly organized and in good standing under the laws of the state
of its organization; (ii) will be registered as a broker dealer under federal
and applicable state securities laws and will be a member of the NASD, or its
successor; and will be registered as an investment adviser under the federal
securities laws.
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ARTICLE V
SALE, ADMINISTRATION AND SERVICING OF THE CONTRACTS
5.1. SALE OF THE CONTRACTS. The Company shall be fully responsible for
the sale and marketing of the Contracts. The Company shall provide Contracts,
the Contracts' and Trust's Prospectuses, Contracts' and Trust's Statements of
Additional Information, and all amendments or supplements to any of the
foregoing to Contract Owners and prospective Contract Owners, all in accordance
with federal and state laws. The Company shall ensure that all persons offering
the Contracts are duly licensed and registered under applicable insurance and
securities laws. The Company shall use all reasonable efforts to cause each sale
of a Contract to satisfy applicable suitability requirements under insurance and
securities laws and regulations, including without limitation the rules of the
NASD. The Company shall adopt and implement procedures reasonably designed to
ensure that information concerning the Trust and the Distributor that is
intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Contract Owners or
prospective Contract Owners) is so used.
5.2. ADMINISTRATION AND SERVICING OF THE CONTRACTS. The Company shall be
fully responsible for the underwriting, issuance, service and administration of
the Contracts and for the administration of the Account, including, without
limitation, the calculation of performance information for the Contracts, the
timely payment of Contract Owner redemption requests and processing of Contract
transactions, and the servicing of the Contracts, such functions to be performed
in all respects at a level of service commensurate with those standards
prevailing in the variable insurance industry. The Company shall provide to
Contract Owners all Trust reports, solicitations for voting instructions
including any related Trust proxy solicitation materials, and updated Trust
Prospectuses as required under the federal securities laws.
5.3. CUSTOMER COMPLAINTS. The Company, with such assistance as may be
required from the Trust, shall promptly address all customer complaints and
resolve such complaints consistent with high ethical standards and principles of
ethical conduct.
5.4. TRUST PROSPECTUSES AND REPORTS. In order to enable the Company to
fulfill its obligations under this Agreement and the federal securities laws,
the Trust shall provide the Company with a copy, in camera-ready form or form
otherwise suitable for printing or duplication, or printed copies, as the
parties may agree, of: (i) the Trust's Prospectus for the Series and Classes
listed on Schedule 3 and any supplement thereto; (ii) each Statement of
Additional Information and any supplement thereto; (iii) any Trust proxy
solicitation material for such Series or Classes; and (iv) any Trust periodic
shareholder reports. The Trust and the Company may agree upon alternate
arrangements, but in all cases, the Trust reserves the right to approve the
printing of any such material. The Trust shall provide the Company at least 10
days advance written notice when any such material shall become available,
provided, however, that in the case of a supplement, the Trust shall provide the
Company notice reasonable in the circumstances, it being understood that
circumstances surrounding such supplement may not allow for advance notice and,
in such case, the Company will use its best efforts to distribute such
supplement to its Contract Owners, as required by law, as soon as reasonably
practicable after such supplement becomes available. The Company may not alter
any material so provided by the Trust or the Distributor (including without
limitation presenting or delivering such material in a different medium, e.g.,
electronic or Internet) without the prior written consent of the Distributor.
5.5. TRUST ADVERTISING MATERIAL. No piece of advertising or sales
literature or other promotional material in which the Trust or the Distributor
is named (including, without limitation, material for prospective and/or
existing Contract Owners, brokers, rating or ranking agencies, or the press,
whether in print, radio, television, video, Internet, or other electronic
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medium) shall be used by the Company or any person directly or indirectly
authorized by the Company, including without limitation, underwriters,
distributors, and sellers of the Contracts, except with the prior written
consent of the Trust or the Distributor, as applicable, as to the form, content
and medium of such material, which consent may not be unreasonably withheld.
Any such piece shall be furnished to the Trust for such consent at least 10
Business Days prior to its use. The Trust or the Distributor shall respond to
any request for written consent within 7 Business Days after receipt of such
material, but failure to respond shall not relieve the Company of the obligation
to obtain the prior written consent of the Trust or the Distributor. After
receiving the Trust's or Distributor's consent to the use of any such material,
no further material changes or changes relating to information concerning the
Trust may be made without obtaining the Trust's or Distributor's consent to such
changes. The Trust or Distributor may at any time in its sole discretion revoke
such written consent for reasonable cause, and upon notification of such
revocation in writing, the Company shall promptly discontinue its use of the
material subject to such revocation. Until further notice to the Company, the
Trust has delegated its rights and responsibilities under this provision to the
Distributor.
5.6. CONTRACTS ADVERTISING MATERIAL. No piece of advertising or sales
literature or other promotional material in which the Company is named shall be
used by the Trust or the Distributor, except with the prior written consent of
the Company, which consent may not be unreasonably withheld. Any such piece
shall be furnished to the Company for such consent at least 10 Business Days
prior to its use. The Company shall respond to any request for written consent
within 7 Business Days after receipt of such material, but failure to respond
shall not relieve the Trust or the Distributor of the obligation to obtain the
prior written consent of the Company. The Company may at any time in its sole
discretion revoke any written consent for reasonable cause, and upon
notification of such revocation in writing, the Trust and the Distributor shall
promptly discontinue their use of the material subject to such revocation.
5.7. TRADE NAMES. No party shall use any other party's names, logos,
trademarks or service marks, whether registered or unregistered, without the
prior written consent of such other party, or after written consent therefor has
been revoked. The Company shall not use in advertising, publicity or otherwise
the name of the Trust, Distributor, or any of their affiliates nor any trade
name, trademark, trade device, service mark, symbol or any abbreviation,
contraction or simulation thereof of the Trust, Distributor, or their affiliates
without the prior written consent of the Trust or the Distributor in each
instance, unless required to do so by applicable law or regulation.
5.8. REPRESENTATIONS BY COMPANY. Except with the prior written consent
of the Trust, the Company shall not give any information or make any
representations or statements about the Trust or the Funds nor shall it
authorize or allow any other person to do so except information or
representations contained in the Trust's Registration Statement or the Trust's
Prospectuses or in reports or proxy statements for the Trust, or in sales
literature or other promotional material approved in writing by the Trust or its
designee in accordance with this Article V, or in published reports or
statements of the Trust in the public domain.
5.9. REPRESENTATIONS BY TRUST AND DISTRIBUTOR. Except with the prior
written consent of the Company, neither the Trust nor the Distributor shall give
any information or make any representations on behalf of the Company or
concerning the Company, the Account or the Contracts other than the information
or representations contained in the Contracts' Registration Statement or
Contracts' Prospectus or in published reports of the Account which are in the
public domain or in sales literature or other promotional material approved in
writing by the Company in accordance with this Article V.
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5.10. ADVERTISING. For purposes of this Article V, the phrase "sales
literature or other promotional material" includes, but is not limited to, any
material constituting sales literature or advertising under the NASD rules, the
1940 Act or the 1933 Act.
ARTICLE VI
COMPLIANCE WITH CODE
6.1. SECTION 817(h). Each Fund of the Trust shall comply with Section
817(h) of the Code and the regulations issued thereunder to the extent
applicable to the Fund as an investment company underlying the Account, and the
Trust shall notify the Company immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
6.2. SUBCHAPTER M. Each Fund of the Trust shall maintain the
qualification of the Fund as a registered investment company (under Subchapter M
or any successor or similar provision), and the Trust shall notify the Company
immediately upon having a reasonable basis for believing that a Fund has ceased
to so qualify or that it might not so qualify in the future.
6.3. CONTRACTS. The Company shall ensure the continued treatment of the
Contracts as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code and shall notify the Trust
and the Distributor immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
ARTICLE VII
EXPENSES
7.1. EXPENSES. All expenses incident to each party's performance under
this Agreement (including expenses expressly assumed by such party pursuant to
this Agreement) shall be paid by such party to the extent permitted by law.
7.2. TRUST EXPENSES. Expenses incident to the Trust's performance of its
duties and obligations under this Agreement include, but are not limited to, the
costs of:
(a) registration and qualification of the Trust shares under the federal
securities laws;
(b) preparation and filing with the SEC of the Trust's Prospectuses,
Trust's Statement of Additional Information, Trust's Registration
Statement, Trust proxy materials and shareholder reports;
(c) preparation of all statements and notices required by any Federal or
state securities law;
(d) printing, distribution and solicitation of voting instructions with
respect to all proxy materials required to be distributed to
existing Contract Owners to the extent the content is initiated by
the Trust; printing and mailing of all other materials and reports
(other than those specified as being paid for by the Company below)
required to be provided by the Trust to existing Contract Owners;
(e) all taxes on the issuance or transfer of Trust shares;
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(f) payment of all applicable fees relating to the Trust, including,
without limitation, all fees due under Rule 24f-2 in connection with
sales of Trust shares to qualified retirement plans, custodial,
auditing, transfer agent and advisory fees, fees for insurance
coverage and Trustees' fees;
(g) any expenses permitted to be paid or assumed by the Trust pursuant
to a plan, if any, under Rule 12b-1 under the 1940 Act;
(h) printing of the Trust's Prospectuses for distribution by the Company
to existing Contract Owners. If the Trust's Prospectuses are
printed by the Company in one document with the prospectus for the
Contracts and/or the prospectuses for other funds available under
the Contracts, then the expenses of such printing will be
apportioned between the Company and the Trust in proportion to the
number of pages of the Contract's prospectus, other fund
prospectuses and the Trust's Prospectuses, taking account of other
relevant factors affecting the expense of printing, such as covers,
columns, graphs and charts; the Trust to bear the cost of printing
the Trust's portion of such document (relating to the Trust's
Prospectuses) for distribution only to owners of existing Contracts
and the Company to bear the expense of printing the portion of such
documents relating to the Account; provided, however, the Company
shall bear all printing expenses of such combined documents where
used for distribution to prospective purchasers; and
(i) printing of all supplements to the Trust's Prospectuses, the content
of which is initiated by the Trust, and distribution of such
supplements to existing Contract Owners to the extent such
distribution does not coincide with a scheduled mailing and printing
of annual and semi-annual reports of the Trust for distribution by
the Company to existing Contract Owners or of any other required
documents, including, but not limited to, mailing of periodic
account reports or Contract Owner statements.
7.3. COMPANY EXPENSES. Expenses incident to the Company's performance of
its duties and obligations under this Agreement include, but are not limited to,
the costs of:
(a) registration and qualification of the Contracts under the federal
securities laws;
(b) preparation and filing with the SEC of the Contracts' Prospectus and
Contracts' Registration Statement;
(c) the sale, marketing and distribution of the Contracts, including
printing and dissemination of Contract Prospectuses and printing of
the Trust's Prospectuses intended for distribution to prospective
Contract Owners and for other marketing purposes, and compensation
for Contract sales;
(d) printing, distribution and solicitation of voting instructions with
respect to all proxy materials required to be distributed to
existing Contract Owners to the extent the content is initiated by
the Company;
(e) payment of all applicable fees relating to the Contracts, including,
without limitation, all fees due under Rule 24f-2;
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(f) preparation, printing and dissemination of all statements, materials
and notices to Contract Owners required by any Federal or state
insurance law other than those paid for by the Trust; and
(g) preparation, printing and dissemination of all marketing materials
for the Contracts and Trust (to the extent it relates to the
Contracts) except where other arrangements are made in advance.
7.4. 12b-1 PAYMENTS. The Trust shall pay no fee or other compensation to
the Company under this Agreement, except that if the Trust or any Series or
Class adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then payments may be made to the Company in
accordance with such plan. The Trust currently does not intend to make any
payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act or in contravention of such rule, although it may make payments pursuant to
Rule 12b-1 in the future. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1 and such formulation is required by the 1940 Act
or any rules or order thereunder, the Trust undertakes to have a Board of
Trustees, a majority of whom are not interested persons of the Trust, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
ARTICLE VIII
POTENTIAL CONFLICTS
8.1. EXEMPTIVE ORDER. The parties to this Agreement acknowledge that the
Trust has filed an application with the SEC to request an order (the "Exemptive
Order") granting relief from various provisions of the 1940 Act and the rules
thereunder to the extent necessary to permit Trust shares to be sold to and held
by variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and other
Qualified Persons (as defined in Section 2.8 hereof). It is anticipated that
the Exemptive Order, when and if issued, shall require the Trust and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Article VIII. The Trust will not enter into a
participation agreement with any other Participating Insurance Company unless it
imposes the same conditions and undertakings on that company as are imposed on
the Company pursuant to this Article VIII.
8.2. COMPANY MONITORING REQUIREMENTS. To the extent reasonably
practicable, the Company will monitor its operations and those of the Trust for
the purpose of identifying any material irreconcilable conflicts or potential
material irreconcilable conflicts between or among the interests of
Participating Plans, Product Owners of variable life insurance policies and
Product Owners of variable annuity contracts.
8.3. COMPANY REPORTING REQUIREMENTS. The Company shall report any
conflicts or potential conflicts to the Trust Board and will provide the Trust
Board, at least annually, with all information reasonably necessary for the
Trust Board to consider any issues raised by such existing or potential
conflicts or by the conditions and undertakings required by the Exemptive Order.
The Company also shall assist the Trust Board in carrying out its obligations
including, but not limited to: (a) informing the Trust Board whenever it
disregards Contract Owner voting instructions with respect to variable life or
variable annuity insurance policies, and (b) providing such other information
and reports as the Trust Board may reasonably request. The Company will carry
out these obligations with a view only to the interests of Contract Owners.
8.4. TRUST BOARD MONITORING AND DETERMINATION. The Trust Board shall
monitor the Trust for the existence of any material irreconcilable conflicts
between or among the interests
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of Participating Plans, Product Owners of variable life insurance policies and
Product Owners of variable annuity contracts and determine what action, if any,
should be taken in response to those conflicts. A majority vote of Trustees who
are not interested persons of the Trust as defined in the 1940 Act (the
"disinterested trustees") shall represent a conclusive determination as to the
existence of a material irreconcilable conflict between or among the interests
of Product Owners and Participating Plans and as to whether any proposed action
adequately remedies any material irreconcilable conflict. The Trust Board shall
give prompt written notice to the Company and Participating Plan of any such
determination.
8.5. UNDERTAKING TO RESOLVE CONFLICT. In the event that a material
irreconcilable conflict of interest arises between Product Owners of variable
life insurance policies or Product Owners of variable annuity contracts and
Participating Plans, the Company will, at its own expense, take whatever action
is necessary to remedy such conflict as it adversely affects Contract Owners up
to and including (1) establishing a new registered management investment
company, and (2) withdrawing assets from the Trust attributable to reserves for
the Contracts subject to the conflict and reinvesting such assets in a different
investment medium (including another Fund of the Trust) or submitting the
question of whether such withdrawal should be implemented to a vote of all
affected Contract Owners, and, as appropriate, segregating the assets supporting
the Contracts of any group of such owners that votes in favor of such
withdrawal, or offering to such owners the option of making such a change. The
Company will carry out the responsibility to take the foregoing action with a
view only to the interests of Contract Owners.
8.6. WITHDRAWAL. If a material irreconcilable conflict arises because of
the Company's decision to disregard the voting instructions of Contract Owners
of variable life insurance policies and that decision represents a minority
position or would preclude a majority vote at any Fund shareholder meeting,
then, at the request of the Trust Board, the Company will redeem the shares of
the Trust to which the disregarded voting instructions relate. No charge or
penalty, however, will be imposed in connection with such a redemption.
8.7. EXPENSES ASSOCIATED WITH REMEDIAL ACTION. In no event shall the
Trust be required to bear the expense of establishing a new funding medium for
any Contract. The Company shall not be required by this Article to establish a
new funding medium for any Contract if an offer to do so has been declined by
vote of a majority of the Contract Owners materially adversely affected by the
irreconcilable material conflict.
8.8. SUCCESSOR RULES. If and to the extent that Rule 6e-2 and Rule
6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from
any provisions of the 1940 Act or the rules promulgated thereunder with respect
to mixed and shared funding on terms and conditions materially different from
those contained in the Exemptive Order, then (i) the Trust and/or the Company,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, or Rule 6e-3, as adopted, as applicable, to the
extent such rules are applicable, and (ii) Sections 8.2 through 8.5 of this
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE IX
INDEMNIFICATION
9.1. INDEMNIFICATION BY THE COMPANY. The Company hereby agrees to, and
shall, indemnify and hold harmless the Trust, the Distributor and each person
who controls or is affiliated with the Trust or the Distributor within the
meaning of such terms under the 1933 Act or 1940 Act (but not any Participating
Insurance Companies or Qualified Persons) and any officer, trustee, partner,
director, employee or agent of the foregoing, against any and all losses,
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claims, damages, expenses, costs or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they or any of them may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, expenses, costs or liabilities:
(a) arise out of or are based upon any untrue statement of any material
fact contained in the Contracts Registration Statement, Contracts
Prospectus, sales literature or other promotional material for the
Contracts or the Contracts themselves (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission was made in reliance upon and in conformity
with information furnished in writing to the Company by the Trust or
the Distributor for use in the Contracts Registration Statement,
Contracts Prospectus or in the Contracts or sales literature or
promotional material for the Contracts (or any amendment or
supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained in
the Trust Registration Statement, any Prospectus for Series or
Classes or sales literature or other promotional material of the
Trust (or any amendment or supplement to any of the foregoing), or
the omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading
in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in conformity
with information furnished to the Trust or Distributor in writing by
or on behalf of the Company; or
(c) arise out of or are based upon any wrongful conduct of, or violation
of federal or state law by, the Company or persons under its control
or subject to its authorization, including without limitation, any
broker-dealers or agents authorized to sell the Contracts, with
respect to the sale, marketing or distribution of the Contracts or
Trust shares, including, without limitation, any impermissible use
of broker-only material, unsuitable or improper sales of the
Contracts or unauthorized representations about the Contracts or the
Trust; or
(d) arise as a result of any failure by the Company or persons under its
control (or subject to its authorization) to provide services,
furnish materials or make payments as required under this Agreement;
or
(e) arise out of any material breach by the Company or persons under its
control (or subject to its authorization) of this Agreement; or
(f) any breach of any warranties of the Company contained in Article III
hereof, any failure by the Company to transmit a request for
redemption or purchase of Trust shares or payment therefor on a
timely basis in accordance with the procedures set forth in Article
II, or any unauthorized use by the Company of the names or trade
names of the Trust or the Distributor.
This indemnification is in addition to any liability that the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage,
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expense, cost or liability is caused by the wilful misfeasance, bad faith, gross
negligence or reckless disregard of duty by the party seeking indemnification.
9.2. INDEMNIFICATION BY THE TRUST. The Trust hereby agrees to, and
shall, indemnify and hold harmless the Company and each person who controls or
is affiliated with the Company within the meaning of such terms under the 1933
Act or 1940 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages, expenses, costs or liabilities,
joint or several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they or any of
them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any material
fact contained in the Trust Registration Statement, any Prospectus
for Series or Classes or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation
to indemnify shall not apply if such statement or omission was made
in reliance upon and in conformity with information furnished in
writing by the Company to the Trust or the Distributor for use in
the Trust Registration Statement, Trust Prospectus or sales
literature or promotional material for the Trust (or any amendment
or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained in
the Contracts Registration Statement, Contracts Prospectus or sales
literature or other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in writing
by the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust or its
Trustees or officers with respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust to provide services,
furnish materials or make payments as required under the terms of
this Agreement; or
(e) arise out of any material breach by the Trust of this Agreement
(including any breach of Section 6.1 of this Agreement and any
warranties contained in Article III hereof);
it being understood that in no way shall the Trust be liable to the Company with
respect to any violation of insurance law, compliance with which is a
responsibility of the Company under this Agreement or otherwise or as to which
the Company failed to inform the Trust in accordance with Section 4.4 hereof.
This indemnification is in addition to any liability that the Trust may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss,
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claim, damage, expense, cost or liability is caused by the wilful misfeasance,
bad faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
9.3. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor hereby agrees
to, and shall, indemnify and hold harmless the Company and each person who
controls or is affiliated with the Company within the meaning of such terms
under the 1933 Act or 1940 Act and any officer, director, employee or agent of
the foregoing, against any and all losses, claims, expenses, costs, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, expenses,
costs or liabilities:
(a) arise out of or are based upon any untrue statement of any material
fact contained in the Trust Registration Statement, any Prospectus
for Series or Classes or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation
to indemnify shall not apply if such statement or omission was made
in reliance upon and in conformity with information furnished in
writing by the Company to the Trust or Distributor for use in the
Trust Registration Statement, Trust Prospectus or sales literature
or promotional material for the Trust (or any amendment or
supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained in
the Contracts Registration Statement, Contracts Prospectus or sales
literature or other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in writing
by the Distributor or the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of the Distributor
or the Trust or persons under their respective control with respect
to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust, the Distributor or
persons under their respective control to provide services, furnish
materials or make payments as required under the terms of this
Agreement, including, without limitation, any failure of the Trust,
under circumstances within its or its investment adviser's or
custodian's control, to inform the Company of the current net asset
value per share for each Series or Class available to the Company on
a timely basis sufficient to ensure the timely execution of all
purchase and redemption orders at the correct net asset value per
share; or
(e) arise out of any material breach by the Trust, Distributor or
persons under their respective control of this Agreement (including
any breach of Section 6.1 of this Agreement and any warranties
contained in Article III hereof);
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it being understood that in no way shall the Distributor be liable to the
Company with respect to any violation of insurance law, compliance with which is
a responsibility of the Company under this Agreement or otherwise or as to which
the Company failed to inform the Distributor in accordance with Section 4.4
hereof. This indemnification is in addition to any liability that the
Distributor may otherwise have; provided, however, that no party shall be
entitled to indemnification if such loss, claim, damage or liability is caused
by the wilful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
9.4. RULE OF CONSTRUCTION. It is the parties' intention that, in the
event of an occurrence for which the Trust has agreed to indemnify the Company,
the Company shall seek indemnification from the Trust only in circumstances in
which the Trust is entitled to seek indemnification from a third party with
respect to the same event or cause thereof.
9.5. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article IX of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article IX ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article IX, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
indemnification provisions contained in this Article IX shall survive any
termination of this Agreement.
ARTICLE X
RELATIONSHIP OF THE PARTIES; TERMINATION
10.1. RELATIONSHIP OF PARTIES. The Company is to be an independent
contractor vis-a-vis the Trust, the Distributor, or any of their affiliates for
all purposes hereunder and will have no authority to act for or represent any of
them (except to the limited extent the Company acts as agent of the Trust
pursuant to Section 2.3(a) of this Agreement). In addition, no officer or
employee of the Company will be deemed to be an employee or agent of the Trust,
Distributor, or any of their affiliates. The Company will not act as an
"underwriter" or "distributor" of the Trust, as those terms variously are used
in the 1940 Act, the 1933 Act, and rules and regulations promulgated thereunder.
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10.2. NON-EXCLUSIVITY AND NON-INTERFERENCE. The parties hereto
acknowledge that the arrangement contemplated by this Agreement is not
exclusive; the Trust shares may be sold to other insurance companies and
investors (subject to Section 2.8 hereof) and the cash value of the Contracts
may be invested in other investment companies, provided, however, that until
this Agreement is terminated pursuant to this Article X:
(a) the Company shall, for so long as it intends to use the Trust's
shares as underlying investment vehicles under the Contracts,
promote the Trust and the Funds made available hereunder on the same
basis as other funding vehicles available under the Contracts;
(b) the Company shall not, without prior notice to the Distributor
(unless otherwise required by applicable law), take any action to
operate the Account as a management investment company under the
1940 Act;
(c) the Company shall not, without cause, solicit, induce or encourage
Contract Owners to change or modify the Trust to change the Trust's
distributor or investment adviser, to transfer or withdraw Contract
values allocated to a Fund, or to exchange their Contracts for
contracts not allowing for investment in the Trust; except with 30
days prior written notice to the Distributor under circumstances
where the Company has determined, in its sole discretion exercised
in good faith, that such solicitation, inducement or encouragement
may be in the best interests of Contract Owners (unless otherwise
required by applicable law).
(d) the Company shall not, without the consent of the Distributor,
substitute another investment company for one or more Funds without
providing written notice to the Distributor at least 60 days in
advance of effecting any such substitution, unless required to do so
by applicable law or regulation; and
(e) the Company shall not withdraw the Account's investment in the Trust
or a Fund of the Trust except as necessary to facilitate Contract
Owner requests and routine Contract processing.
10.3. TERMINATION OF AGREEMENT. This Agreement shall not terminate until
(i) the Trust is dissolved, liquidated, or merged into another entity, or
(ii) as to any Fund that has been made available hereunder, the Account no
longer invests in that Fund and the Company has confirmed in writing to the
Distributor, if so requested by the Distributor, that it no longer intends to
invest in such Fund. However, certain obligations of, or restrictions on,
the parties to this Agreement may terminate as provided in Sections 10.4
through 10.6 and the Company may be required to redeem Trust shares pursuant
to Section 10.7 or in the circumstances contemplated by Article VIII.
Article IX and Sections 5.7, 10.8 and 10.9 shall survive any termination of
this Agreement.
10.4. TERMINATION OF OFFERING OF TRUST SHARES. The obligation of the
Trust and the Distributor to make Trust shares available to the Company for
purchase pursuant to Article II of this Agreement shall terminate at the option
of the Distributor upon written notice to the Company as provided below:
(a) upon institution of formal proceedings against the Company, or the
Distributor's reasonable determination that institution of such
proceedings is being considered by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related
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to the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of Trust shares,
or an expected or anticipated ruling, judgment or outcome which
would, in the Distributor's reasonable judgment exercised in
good faith, materially impair the Company's or Trust's ability
to meet and perform the Company's or Trust's obligations and
duties hereunder, such termination effective upon 15 days prior
written notice;
(b) in the event any of the Contracts are not registered, issued or sold
in accordance with applicable federal and/or state law, such
termination effective immediately upon receipt of written notice;
(c) if the Distributor shall determine, in its sole judgment exercised
in good faith, that either (1) the Company shall have suffered a
material adverse change in its business or financial condition or
(2) the Company shall have been the subject of material adverse
publicity which is likely to have a material adverse impact upon the
business and operations of either the Trust or the Distributor, such
termination effective upon 30 days prior written notice;
(d) if the Distributor suspends or terminates the offering of Trust
shares of any Series or Class to all Participating Investors or only
designated Participating Investors, if such action is required by
law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Distributor acting in good faith, suspension
or termination is necessary in the best interests of the
shareholders of any Series or Class (it being understood that
"shareholders" for this purpose shall mean Product Owners), such
notice effective immediately upon receipt of written notice, it
being understood that a lack of Participating Investor interest in a
Series or Class may be grounds for a suspension or termination as to
such Series or Class and that a suspension or termination shall
apply only to the specified Series or Class;
(e) upon the Company's assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement)
unless the Trust consents thereto, such termination effective upon
30 days prior written notice;
(f) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction of
the Trust within 15 days after written notice of such breach has
been delivered to the Company, such termination effective upon
expiration of such 15-day period; or
(g) upon the determination of the Trust's Board to dissolve, liquidate
or merge the Trust as contemplated by Section 10.3(i), upon
termination of the Agreement pursuant to Section 10.3(ii), or upon
notice from the Company pursuant to Section 10.5 or 10.6, such
termination pursuant hereto to be effective upon 15 days prior
written notice; or
(h) at any time more than one year after the date of this Agreement,
upon six months prior written notice; provided the foregoing shall
not apply in the event that all or a portion of the Account assets
invested in the Trust are transferred to another investment company
advised or sub-advised by the Trust's investment adviser unless the
parties otherwise agree.
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Except in the case of an option exercised under clause (b), (d) or (g), the
obligations shall terminate only as to new Contracts and the Distributor shall
continue to make Trust shares available to the extent necessary to permit owners
of Contracts in effect on the effective date of such termination (hereinafter
referred to as "Existing Contracts") to reallocate investments in the Trust,
redeem investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Contracts.
10.5. TERMINATION OF INVESTMENT IN A FUND. The Company may elect to cease
investing in a Fund, promoting a Fund as an investment option under the
Contracts, or withdraw its investment or the Account's investment in a Fund,
subject to compliance with applicable law:
(a) immediately at the option of the Company, if the Trust informs the
Company pursuant to Section 4.4 that it will not cause such Fund to
comply with investment restrictions as requested by the Company and
the Trust and the Company are unable to agree upon any reasonable
alternative accommodations;
(b) upon 15 days written notice, if shares in such Fund are not
reasonably available to meet the requirements of the Contracts as
determined by the Company (including any non-availability as a
result of notice given by the Distributor pursuant to Section
10.4(d)), and the Distributor, after receiving written notice from
the Company of such non-availability, fails to make available,
within 10 days after receipt of such notice, a sufficient number of
shares in such Fund or an alternate Fund to meet the requirements of
the Contracts;
(c) immediately at the option of the Company, if such Fund fails to meet
the diversification requirements specified in Section 817(h) of the
Code and any regulations thereunder and the Trust, upon written
request, fails to provide reasonable assurance that it will take
action to cure or correct such failure; or
(d) immediately at the option of the Company, if such Fund ceases to
qualify as a regulated investment company under Subchapter M of the
Code, as defined therein, or any successor or similar provision, or
if the Company reasonably believes that the Fund may fail to so
qualify, and the Fund, upon written request, fails to provide
reasonable assurance that it will take action to cure or correct
such failure within 15 days.
Such termination shall apply only as to the affected Fund and shall not apply to
any other Fund in which the Company or the Account invests.
10.6. TERMINATION OF INVESTMENT BY THE COMPANY. The Company may elect to
cease investing in all Series or Classes of the Trust made available hereunder,
promoting the Trust as an investment option under the Contracts, or withdraw its
investment or the Account's investment in the Trust, subject to compliance with
applicable law, upon written notice to the Trust within 15 days of the
occurrence of any of the following events (unless provided otherwise below):
(a) upon institution of formal proceedings against the Trust or the
Distributor, or the Company's reasonable determination that
institution of such proceedings is being considered by the NASD, the
SEC, the insurance commission of any state or any other regulatory
body regarding the Trust's or the Distributor's duties under this
Agreement, the sale of Trust shares, or an expected or anticipated
ruling,
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judgment or outcome which would, in the Company's reasonable
judgment exercised in good faith, materially impair the
Distributor's or Trust's ability to meet and perform the
Distributor's or Trust's obligations and duties hereunder, such
termination effective upon 15 days prior written notice;
(b) if, with respect to the Trust or a Fund, the Trust or the Fund
ceases to qualify as a regulated investment company under Subchapter
M of the Code, as defined therein, or any successor or similar
provision, or if the Company reasonably believes that the Trust may
fail to so qualify, and the Trust, upon written request, fails to
provide reasonable assurance that it will take action to cure or
correct such failure within 15 days; or
(c) if the Trust or Distributor is in material breach of a provision of
this Agreement, which breach has not been cured to the satisfaction
of the Company within 15 days after written notice of such breach
has been delivered to the Trust or the Distributor, as the case may
be; or
(d) in the event any of the Trust's shares are not registered, issued or
sold in material compliance with applicable federal and/or state
law, such termination effective immediately upon receipt of written
notice; or
(e) at any time more than one year after the date of this Agreement,
upon six months prior written notice; provided the foregoing shall
not apply in the event that all or a portion of the Account assets
invested in the Trust are transferred to another investment company
advised or sub-advised by the Trust's investment adviser unless the
parties otherwise agree; or
(f) if the Company shall determine, in its sole judgment exercised in
good faith, that either (1) the Distributor or the Trust's
investment adviser shall have suffered a material adverse change in
its business or financial condition or (2) the Distributor, the
Trust's investment adviser or the Trust shall have been the subject
of material adverse publicity (excluding with respect to the Trust,
market events impacting the Trust's performance) which is likely to
have a material adverse impact upon the business and operations of
either the Trust, its investment adviser or the Distributor, such
termination effective upon 30 days prior written notice.
(g) upon the assignment of this Agreement by the Distributor unless the
Company consents thereto, such termination effective upon 30 days
prior written notice.
10.7. COMPANY REQUIRED TO REDEEM. The parties understand and acknowledge
that it is essential for compliance with Section 817(h) of the Code that the
Contracts qualify as annuity contracts or life insurance policies, as
applicable, under the Code. Accordingly, if any of the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Trust reasonably believes that any such Contracts may fail
to so qualify, the Trust shall have the right to require the Company to redeem
Trust shares attributable to such Contracts upon notice to the Company and the
Company shall so redeem such Trust shares in order to ensure that the Trust
complies with the provisions of Section 817(h) of the Code applicable to
ownership of Trust shares. Notice to the Company shall specify the period of
time the Company has to redeem the Trust shares or to make other arrangements
satisfactory to the Trust and its counsel, such period of time to be determined
with reference to the requirements of Section 817(h) of the Code. In addition,
the Company may be required to redeem Trust shares pursuant to action taken or
request made by the Trust Board in accordance with the Exemptive Order described
in Article VIII or any conditions or undertakings set forth or referenced
therein, or
23
<PAGE>
other SEC rule, regulation or order that may be adopted after the date hereof.
The Company agrees to redeem shares in the circumstances described herein and to
comply with applicable terms and provisions. Also, in the event that the
Distributor suspends or terminates the offering of a Series or Class pursuant to
Section 10.4(d) of this Agreement, the Company, upon request by the Distributor,
will cooperate in taking appropriate action to withdraw the Account's investment
in the respective Fund.
10.8. CONFIDENTIALITY. The Company will keep confidential any information
acquired as a result of this Agreement regarding the business and affairs of the
Trust, the Distributor, and their affiliates.
ARTICLE XI
APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts, any Series or Class, additions of new classes of Contracts to be
issued by the Company and separate accounts therefor investing in the Trust.
Such amendments may be made effective by executing the form of amendment
included on each schedule attached hereto. The provisions of this Agreement
shall be equally applicable to each such class of Contracts, Series, Class or
separate account, as applicable, effective as of the date of amendment of such
Schedule, unless the context otherwise requires. The parties to this Agreement
may amend this Agreement from time to time by written agreement signed by all of
the parties.
ARTICLE XII
NOTICE, REQUEST OR CONSENT
Any notice, request or consent to be provided pursuant to this Agreement is
to be made in writing and shall be given:
If to the Trust:
Douglas C. Grip
President
Goldman Sachs Variable Insurance Trust
One New York Plaza
New York, NY 10004
If to the Distributor:
Douglas C. Grip
Vice President
Goldman Sachs & Co.
One New York Plaza
New York, NY 10004
If to the Company:
Margaret Hankard
Senior Associate Counsel
Sun Life Assurance Company of Canada (U.S.)
Retirement Products and Services Division
1 Copley Place Suite 100
Boston, MA 02116
24
<PAGE>
or at such other address as such party may from time to time specify in writing
to the other party. Each such notice, request or consent to a party shall be
sent by registered or certified United States mail with return receipt requested
or by overnight delivery with a nationally recognized courier, and shall be
effective upon receipt. Notices pursuant to the provisions of Article II may be
sent by facsimile to the person designated in writing for such notices.
ARTICLE XIII
MISCELLANEOUS
13.1. INTERPRETATION. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the laws of the state
of Delaware, without giving effect to the principles of conflicts of laws,
subject to the following rules:
(a) This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act and Securities Exchange Act of 1934, as amended, and the
rules, regulations and rulings thereunder, including such exemptions
from those statutes, rules, and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in
accordance therewith.
(b) The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
(d) The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are
entitled to under state and federal laws.
13.2. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which together shall constitute one and the same
instrument.
13.3. NO ASSIGNMENT. Neither this Agreement nor any of the rights and
obligations hereunder may be assigned by the Company, the Distributor or the
Trust without the prior written consent of the other parties.
13.4. DECLARATION OF TRUST. A copy of the Declaration of Trust of the
Trust is on file with the Secretary of State of the state of Delaware, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as trustees, and is not binding upon any of the Trustees,
officers or shareholders of the Trust individually, but binding only upon the
assets and property of the Trust. No Series of the Trust shall be liable for
the obligations of any other Series of the Trust.
13.5. ACCESS TO INFORMATION BY COMPANY. During ordinary business hours,
the Trust and the Distributor shall afford the Company, directly or through its
authorized representatives, reasonable access to all files, books, records and
other materials of the Trust or the Distributor, as applicable, which relate,
directly or indirectly, to transactions arising in connection with the Agreement
and to make available appropriate personnel familiar with such items for the
purpose of explaining the form and content of such items. This Section 13.5
shall survive the termination
25
<PAGE>
of this Agreement, but only to the extent necessary to wind up termination of
investment of the Accounts in the Trust pursuant to the terms of this Agreement
or to the extent required by appropriate regulatory agencies.
26
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(Trust)
Date: By:
-------------- ------------------------------------------
Name: Michael J. Richman
Title: Secretary
GOLDMAN, SACHS & CO.
(Distributor)
Date: By:
-------------- ------------------------------------------
Name: Howard Surloff
Title: Vice President
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Company)
Date: By:
------------------------------------------
Name: Robert K. Leach
Title: Vice President, Retirement
Products and Services Division
27
<PAGE>
SCHEDULE 1
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts of the Company are subject to the Agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Date Established
by Board of SEC 1940 Act Type of Product
Name of Account and Directors of the Registration Supported by
Subaccounts Company Number Account
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sun Life of Canada July 13, 1989 811-5846 Combination
U.S. Variable Fixed/Variable
Account F Annuity
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[Form of Amendment to Schedule 1]
Effective as of _____________, the following separate accounts of the Company
are hereby added to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Date Established
by Board of SEC 1940 Act Type of Product
Name of Account Directors of the Registration Supported by
and Subaccounts Company Number Account
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 1 in accordance with Article XI of the Agreement.
- -------------------------------------- -------------------------------------
Goldman Sachs Variable Insurance Trust Sun Life Assurance Company of
Canada (U.S.)
- --------------------------------------
Goldman, Sachs & Co.
28
<PAGE>
SCHEDULE 2
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SEC 1933 Act
Policy Marketing Registration Contract Form
Name Number Number Annuity or Life
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Futurity 333-37907 Annuity
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[Form of Amendment to Schedule 2]
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SEC 1933 Act
Policy Marketing Registration Contract Form
Name Number Number Annuity or Life
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 2 in accordance with Article XI of the Agreement.
- -------------------------------------- -------------------------------------
Goldman Sachs Variable Insurance Trust Sun Life Assurance Company
Canada (U.S.)
- --------------------------------------
Goldman, Sachs & Co.
29
<PAGE>
SCHEDULE 3
Trust Classes and Series
Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Classes
and Series are available under the Contracts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Contracts Marketing Name Trust Classes and Series
- --------------------------------------------------------------------------------
<S> <C>
Futurity Growth and Income Fund
CORE Large Cap Growth Fund
CORE U.S. Equity Fund
CORE Small Cap Equity Fund
International Equity Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[Form of Amendment to Schedule 3]
Effective as of ______________, this Schedule 3 is hereby amended to reflect the
following changes in Trust Classes and Series:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Contracts Marketing Name Trust Classes and Series
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 3 in accordance with Article XI of the Agreement.
- -------------------------------------- -------------------------------------
Goldman Sachs Variable Insurance Trust Sun Life Assurance Company of
Canada (U.S.)
- --------------------------------------
Goldman, Sachs & Co.
30
<PAGE>
SCHEDULE 4
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
- --------------------------------------------------------------------------------
[Form of Amendment to Schedule 4]
Effective as of _____________, this Schedule 4 is hereby amended to reflect the
following changes:
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 4 in accordance with Article XI of the Agreement.
- -------------------------------------- -------------------------------------
Goldman Sachs Variable Insurance Trust Sun Life Assurance Company of
Canada (U.S.)
- --------------------------------------
Goldman, Sachs & Co.
31
<PAGE>
PARTICIPATION AGREEMENT
AMENDMENT NO. 1
This Amendment No 1 to the Participation Agreement and Schedule thereto is made
as of December 14, 1998, by and between GOLDMAN SACHS VARIABLE INSURANCE TRUST,
an unincorporated business trust formed under the laws of Delaware (the
"Trust"), GOLDMAN, SACHS & CO., a New York limited partnership (the
"Distributor"), and SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.), a Delaware life
insurance company (the "Company"), on its own behalf and on behalf of each
separate account of the Company identified in the Participation Agreement.
Capitalized terms used in this Amendment without definition shall have the
respective meanings given to such terms in the Participation Agreement referred
to below.
WHEREAS, the Trust, the Distributor and the Company entered into a Participation
Agreement dated February 17, 1998; and
WHEREAS, the Trust, the Distributor and the Company desire to amend the notice
provisions of the Participation Agreement, correct certain references to the
Contract listed on Schedule 2 and add an additional Contract to Schedule 2.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements hereinafter contained, the parties hereby agree to amend the
Participation Agreement and Schedule, pursuant to the terms of the Participation
Agreement, as follows:
1. Article XII of the Participation Agreement is hereby amended by replacing
the individual listed to which any notice, request or consent to the
Company shall be given with the following:
Maura Murphy
Senior Associate Counsel
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
2. Schedule 2 of the Participation Agreement is hereby amended to correct
information relating to the Futurity Contract and to add the Futurity II
Contract as follows:
- -------------------------------------------------------------------------------
SEC 1933 Act
Policy Marketing Registration Contract Form Annuity or Life
Name Number Number
- -------------------------------------------------------------------------------
Futurity 333-3907 FUT-MVA-CONT-1 Annuity
- -------------------------------------------------------------------------------
Futurity II 33-41628 RP-GR-CONT-98-1
RP-IND-MVA-98-1
- -------------------------------------------------------------------------------
<PAGE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Agreement and Schedule 2 thereto.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(Trust)
By:
-----------------------------------------
Name: Michael J. Richman
Title: Secretary
GOLDMAN, SACHS & CO.
(Distributor)
By:
-----------------------------------------
Name: Valerie A. Zondorak
Title: Vice President
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Company)
By:
-----------------------------------------
Name: Robert K. Leach
Title: Vice President, Retirement Products and
Services Division
<PAGE>
PARTICIPATION AGREEMENT
AMENDMENT NO. 2
This Amendment No 2 to the Participation Agreement and Schedule thereto is made
as of March 15, 1999, by and between GOLDMAN SACHS VARIABLE INSURANCE TRUST, an
unincorporated business trust formed under the laws of Delaware (the "Trust"),
GOLDMAN, SACHS & CO., a New York limited partnership (the "Distributor"), and
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.), a Delaware life insurance company
(the "Company"), on its own behalf and on behalf of each separate account of the
Company identified in the Participation Agreement. Capitalized terms used in
this Amendment without definition shall have the respective meanings given to
such terms in the Participation Agreement referred to below.
WHEREAS, the Trust, the Distributor and the Company entered into a Participation
Agreement dated February 17, 1998; and
WHEREAS, the Trust, the Distributor and the Company desire to add an additional
separate account to schedule 1 and two additional Contracts to Schedule 2.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements hereinafter contained, the parties hereby agree to amend the
Participation Agreement and Schedule, pursuant to the terms of the Participation
Agreement, as follows:
1. Schedule 1 of the Participation Agreement is hereby amended to add Variable
Account I as follows:
<TABLE>
<CAPTION>
Date Established by
Name of Account and Board of Directors of SEC1940 Act Type of Product
Subaccounts the Company Registration Number Supported by Account
----------------------- --------------------- ------------------- --------------------
<S> <C> <C> <C>
Sun Life of Canada U.S. December 1, 1998 811-09137 Combination
Variable Account I Fixed/Variable Life
Insurance
</TABLE>
<PAGE>
2. Schedule 2 of the Participation Agreement is hereby amended add the Futurity
Focus Contract and to add the Futurity Variable Universal Life Insurance
Contract as follows:
<TABLE>
<CAPTION>
SEC 1933 Act
Policy Marketing Name Registration Number Contract Form Number Annuity or Life
- ---------------------- ------------------- -------------------- ---------------
<S> <C> <C> <C>
Futurity Focus 333-0527 RC-MVA-CONT-96 Annuity
RC-MVA-CERT-96
Futurity Variable Universal 333-68601 FPVUL-1999 Life
Life Insurance
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Agreement and Schedules 1 and 2 thereto.
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(Trust)
By:
-----------------------------------------
Name: Michael J. Richman
Title: Secretary
GOLDMAN, SACHS & CO.
(Distributor)
By:
-----------------------------------------
Name: Valerie A. Zondorak
Title: Vice President
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Company)
By:
-----------------------------------------
Name:
Title:
<PAGE>
12//98
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the ___ day of _____, 199_, between
_____________________________________ ("Insurance Company"), a life insurance
company organized under the laws of the State of ________, and J.P. Morgan
Series Trust II ("Fund"), a business trust organized under the laws of Delaware,
with respect to the Fund's portfolio or portfolios set forth on Schedule 1
hereto, as such Schedule may be revised from time to time (the "Series"; if
there are more than one Series to which this Agreement applies, the provisions
herein shall apply severally to each such Series).
ARTICLE I 1.
DEFINITIONS
1.1. "Act" shall mean the Investment Company Act of 1940, as amended.
1.2. "Board" shall mean the Board of Trustees of the Fund having the
responsibility for management and control of the Fund.
1.3. "Business Day" shall mean any day for which the Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4. "Commission" shall mean the Securities and Exchange Commission.
1.5. "Contract" shall mean a variable annuity or variable life insurance
contract that uses the Fund as an underlying investment medium.
Individuals who participate under a group Contract are "Participants".
1.6. "Contractholder" shall mean any entity that is a party to a Contract with
a Participating Company.
1.7. "Disinterested Board Members" shall mean those members of the Board that
are not deemed to be "interested persons" of the Fund, as defined by the
Act.
1.8. "Participating Companies" shall mean any insurance company (including
Insurance Company), which offers variable annuity and/or variable life
insurance contracts to the public and which has entered into an agreement
with the Fund for the purpose of making Fund shares available to serve as
the underlying investment medium for the aforesaid Contracts.
1.9. "Plans" shall mean qualified pension and retirement benefit plans.
1.10. "Prospectus" shall mean the Fund's current prospectus and statement of
additional information, as most recently filed with the Commission, with
respect to the Series.
1.11. "Separate Account" shall mean _____________________ Company Variable
Annuity Separate Account, a separate account established by Insurance
Company in accordance with the laws of the State of __________.
1.12. "Software Program" shall mean the software program used by the Fund for
providing Fund and account balance information including net asset value
per share.
1.13. "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest in the
Fund.
ARTICLE II 2.
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law;
(b) it has legally and validly established the Separate Account pursuant
to the __________ Insurance Code for the purpose of offering to the
public certain individual variable annuity contracts; (c) it has
registered the Separate Account as a unit investment trust under the Act
to serve as the segregated investment account for the Contracts; (d) each
Separate Account is eligible to invest in shares of the Fund without such
investment disqualifying the Fund as an investment medium for
<PAGE>
insurance company separate accounts supporting variable annuity contracts
or variable life insurance contracts; and (e) each Separate Account shall
comply with all applicable legal requirements.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and
state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to inform the Fund promptly of any investment restrictions
imposed by state insurance law and applicable to the Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited
to or charged against such Separate Account without regard to other
income, gains or losses from assets allocated to any other accounts of
Insurance Company. Insurance Company represents and warrants that the
assets of the Separate Account are and will be kept separate from
Insurance Company's General Account and any other separate accounts
Insurance Company may have, and will not be charged with liabilities from
any business that Insurance Company may conduct or the liabilities of any
companies affiliated with Insurance Company.
2.4 Fund represents that the Fund is registered with the Commission under the
Act as an open-end management investment company and possesses, and shall
maintain, all legal and regulatory licenses, approvals, consents and/or
exemptions required for the Fund to operate and offer its shares as an
underlying investment medium for Participating Companies. The Fund has
established five portfolios and may in the future establish other
portfolios.
2.5 Fund represents that it is currently qualified as a Regulated Investment
Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision)
and that it will notify Insurance Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that
it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance policies
or annuity contracts, whichever is appropriate, under applicable
provisions of the Code, and that it will make every effort to maintain
such treatment and that it will notify the Fund and its investment
adviser immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future. Insurance Company agrees that any prospectus
offering a Contract that is a "modified endowment contract," as that term
is defined in Section 7702A of the Code, will identify such Contract as a
modified endowment contract (or policy).
2.7 Fund agrees that the Fund's assets shall be managed and invested in a
manner that complies with the requirements of Section 817(h) of the Code.
2.8 Insurance Company agrees that the Fund shall be permitted (subject to the
other terms of this Agreement) to make Series' shares available to other
Participating Companies and contractholders and to Plans.
2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities who deal
with the money and/or securities of the Fund are and shall continue to be
at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Fund in an amount not less than that required by Rule
17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of the Fund are and
shall continue to be at all times covered by a blanket fidelity bond or
similar coverage in an amount not less than the coverage required to be
maintained by the Fund. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.11 Insurance Company agrees that the Fund's investment adviser shall be
deemed a third party beneficiary under this Agreement and may enforce any
and all rights conferred by virtue of this Agreement.
<PAGE>
ARTICLE III 3.
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in the Series' shares
3.2 Fund agrees to make the shares of its Series available for purchase at
the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, the Fund may refuse to sell
the shares of any Series to any person, or suspend or terminate the
offering of the shares of any Series if such action is required by law or
by regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary
and in the best interests of the shareholders of such Series.
3.3 Fund agrees that shares of the Fund will be sold only to Participating
Companies and their separate accounts and to the general accounts of
those Participating Companies and their affiliates and to Plans. No
shares of any Series will be sold to the general public.
3.4 Fund shall use its best efforts to provide closing net asset value,
dividend and capital gain information for each Series available on a
per-share and Series basis to Insurance Company by 7:00 p.m. Eastern Time
on each Business Day. Any material errors in the calculation of net
asset value, dividend and capital gain information shall be reported
immediately upon discovery to Insurance Company. Non-material errors
will be corrected in the next Business Day's net asset value per share
for the Series in question.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the Separate
Account unit values for the day. Using this unit value, Insurance
Company will process the day's Separate Account transactions received by
it by the close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m. Eastern time) to determine the net dollar amount of
Series shares which will be purchased or redeemed at that day's closing
net asset value per share for such Series. The net purchase or
redemption orders will be transmitted to the Fund by Insurance Company by
8:30 a.m. Eastern Time on the Business Day next following Insurance
Company's receipt of that information. Subject to Sections 3.6 and 3.8,
all purchase and redemption orders for Insurance Company's General
Accounts shall be effected at the net asset value per share of the
relevant Series next calculated after receipt of the order by the Fund or
its Transfer Agent.
3.6 Fund appoints Insurance Company as its agent for the limited purpose of
accepting orders for the purchase and redemption of shares of each Series
for the Separate Account. Fund will execute orders for any Series at the
applicable net asset value per share determined as of the close of
trading on the day of receipt of such orders by Insurance Company acting
as agent ("effective trade date"), provided that the Fund receives notice
of such orders by 8:30 a.m. Eastern Time on the next following Business
Day and, if such orders request the purchase of Series shares, the
conditions specified in Section 3.8, as applicable, are satisfied. A
redemption or purchase request for any Series that does not satisfy the
conditions specified above and in Section 3.8, as applicable, will be
effected at the net asset value computed for such Series on the Business
Day immediately preceding the next following Business Day upon which such
conditions have been satisfied.
3.7 Insurance Company will make its best efforts to notify Fund in advance of
any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Series shares,
Insurance Company will pay for such purchases by wiring Federal Funds to
Fund or its designated custodial account on the day the order is
transmitted. Insurance Company shall make all reasonable efforts to
transmit to the Fund payment in Federal Funds by 12:00 noon Eastern Time
on the Business Day the Fund receives the notice of the order pursuant to
Section 3.5. Fund will execute such orders at the applicable net asset
value per share determined as of the close of trading on the effective
trade date if Fund receives payment in Federal Funds by 12:00 noon
Eastern Time on the Business Day the Fund receives the notice of the
order pursuant to Section 3.5. If payment in Federal Funds for any
purchase is not received or is received by the Fund after 12:00 noon
Eastern Time on such Business Day, Insurance Company shall promptly upon
the Fund's request, reimburse the Fund for any charges, costs, fees,
interest or other expenses incurred by the Fund in connection with any
advances to, or borrowings or overdrafts by, the Fund, or any similar
expenses incurred by the Fund, as a result of portfolio transactions
effected by the Fund based upon such purchase request. If Insurance
Company's order requests the redemption of Series shares valued at or
greater than $1 million dollars, the Fund may wire such amount to
Insurance Company within seven days of the order.
3.9 Fund has the obligation to ensure that Series shares are registered with
applicable federal agencies at all times.
<PAGE>
3.10 Fund will confirm each purchase or redemption order made by Insurance
Company. Transfer of Series shares will be by book entry only. No share
certificates will be issued to Insurance Company. Insurance Company will
record shares ordered from Fund in an appropriate title for the
corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number of
shares.
3.12 On each ex-dividend date of the Fund or, if not a Business Day, on the
first Business Day thereafter, Fund shall communicate to Insurance
Company the amount of dividend and capital gain, if any, per share of
each Series. All dividends and capital gains of any Series shall be
automatically reinvested in additional shares of the relevant Series at
the applicable net asset value per share of such Series on the payable
date. Fund shall, on the day after the payable date or, if not a
Business Day, on the first Business Day thereafter, notify Insurance
Company of the number of shares so issued.
ARTICLE IV 4.
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end of each
month for all of Insurance Company's accounts by the fifteenth (15th)
Business Day of the following month.
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and other
printed materials (which the Fund customarily provides to its
shareholders) in quantities as Insurance Company may reasonably request
for distribution to each Contractholder and Participant.
4.3 Fund will provide to Insurance Company at least one complete copy of all
registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above,
that relate to the Fund or its shares, contemporaneously with the filing
of such document with the Commission or other regulatory authorities.
4.4 Insurance Company will provide to the Fund at least one copy of all
registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above,
that relate to the Contracts or the Separate Account, contemporaneously
with the filing of such document with the Commission.
ARTICLE V 5.
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative expenses and
legal and regulatory costs, will be made in the determination of the
relevant Series' daily net asset value per share so as to accumulate to
an annual charge at the rate set forth in the Fund's Prospectus.
Excluded from the expense limitation described herein shall be brokerage
commissions and transaction fees and extraordinary expenses.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of the Fund or expenses relating to the distribution of its
shares. Insurance Company shall pay the following expenses or costs:
a. Such amount of the production expenses of any Fund
materials, including the cost of printing the Fund's Prospectus,
or marketing materials for prospective Insurance Company
Contractholders and Participants as the Fund's investment adviser
and Insurance Company shall agree from time to time.
b. Distribution expenses of any Fund materials or
marketing materials for prospective Insurance Company
Contractholders and Participants.
c. Distribution expenses of Fund materials or
marketing materials for Insurance Company Contractholders and
Participants.
Except as provided herein, all other Fund expenses shall not be borne by
Insurance Company.
<PAGE>
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December 1996 of
the Securities and Exchange Commission under Section 6(c) of the Act and,
in particular, has reviewed the conditions to the relief set forth in the
related Notice. As set forth therein, Insurance Company agrees to report
any potential or existing conflicts promptly to the Board, and in
particular whenever contract voting instructions are disregarded, and
recognizes that it will be responsible for assisting the Board in
carrying out its responsibilities under such application. Insurance
Company agrees to carry out such responsibilities with a view to the
interests of existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board Members,
determines that a material irreconcilable conflict exists with regard to
Contractholder investments in the Fund, the Board shall give prompt
notice to all Participating Companies. If the Board determines that
Insurance Company is responsible for causing or creating said conflict,
Insurance Company shall at its sole cost and expense, and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Board Members), take such action as is necessary to remedy or eliminate
the irreconcilable material conflict. Such necessary action may include,
but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Series and reinvesting such assets in a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote or all affected Contractholders;
and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision by
Insurance Company to disregard Contractholder voting instructions and
said decision represents a minority position or would preclude a majority
vote by all Contractholders having an interest in the Fund, Insurance
Company may be required, at the Board's election, to withdraw the
Separate Account's investment in the Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will the
Fund be required to bear the expense of establishing a new funding medium
for any Contract. Insurance Company shall not be required by this
Article to establish a new funding medium for any Contract if an offer to
do so has been declined by vote of a majority of the Contractholders
materially adversely affected by the irreconcilable material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or the Fund taken or omitted as a result of any act or
failure to act by Insurance Company pursuant to this Article VI shall
relieve Insurance Company of its obligations under, or otherwise affect
the operation of, Article V.
ARTICLE VII 7.
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to Insurance
Company, of the Fund's proxy material, reports to shareholders and other
communications to shareholders in such quantity as Insurance Company
shall reasonably require for distributing to Contractholders or
Participants.
Insurance Company shall:
<PAGE>
(a) solicit voting instructions from Contractholders
or Participants on a timely basis and in accordance with
applicable law;
(b) vote the Series shares in accordance with
instructions received from Contractholders or Participants; and
(c) vote Series shares for which no instructions have
been received in the same proportion as Series shares for which
instructions have been received.
Insurance Company agrees at all times to votes its General Account shares
in the same proportion as Series shares for which instructions have been
received from Contractholders or Participants. Insurance Company further
agrees to be responsible for assuring that voting Series shares for the
Separate Account is conducted in a manner consistent with other
Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of the Fund and its investment adviser, solicit, induce or
encourage Contractholders to (a) change or supplement the Fund's current
investment adviser or (b) change, modify, substitute, add to or delete
the Fund from the current investment media for the Contracts.
ARTICLE VIII 8.
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance Company
with the following documents, in quantities as Insurance Company may
reasonably request:
a. Current Prospectus and any supplements thereto;
b. other marketing materials.
Expenses for the production of such documents shall be borne by Insurance
Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities which shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to the
Fund, each piece of sales literature or other promotional material in
which the Fund, its investment adviser or the administrator is named, at
least fifteen Business Days prior to its use. No such material shall be
used unless the Fund approves such material. Such approval (if given)
must be in writing and shall be presumed not given if not received within
ten Business Days after receipt of such material. The Fund shall use all
reasonable efforts to respond within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund or any Series in connection with the sale of the Contracts other
than the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance Company,
each piece of the Fund's sales literature or other promotional material
in which Insurance Company or the Separate Account is named, at least
fifteen Business Days prior to its use. No such material shall be used
unless Insurance Company approves such material. Such approval (if
given) must be in writing and shall be presumed not given if not received
within ten Business Days after receipt of such material. Insurance
Company shall use all reasonable efforts to respond within ten days of
receipt.
8.6 Fund shall not, in connection with the sale of Series shares, give any
information or make any representations on behalf of Insurance Company or
concerning Insurance Company, the Separate Account, or the Contracts
other than the information or representations contained in a registration
statement or prospectus for the Contracts, as may be amended or
supplemented from
<PAGE>
time to time, or in published reports for the Separate Account which are
in the public domain or approved by Insurance Company for distribution to
Contractholders or Participants, or in sales literature or other
promotional material approved by Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and any
other material constituting sales literature or advertising under
National Association of Securities Dealers, Inc. rules, the Act or the
1933 Act.
ARTICLE IX 9.
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund, its
investment adviser, any sub-investment adviser of a Series, and their
affiliates, and each of their directors, trustees, officers, employees,
agents and each person, if any, who controls or is associated with any of
the foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any
action, suit or proceeding or any claim asserted) for which the
Indemnified Parties may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect to thereof) (i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
information furnished by Insurance Company for use in the registration
statement or Prospectus or sales literature or advertisements of the Fund
or with respect to the Separate Account or Contracts, or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) arise out of or as a result of
conduct, statements or representations (other than statements or
representations contained in the Prospectus and sales literature or
advertisements of the Fund) of Insurance Company or its agents, with
respect to the sale and distribution of Contracts for which Series shares
are an underlying investment; (iii) arise out of the wrongful conduct of
Insurance Company or persons under its control with respect to the sale
or distribution of the Contracts or Series shares; (iv) arise out of
Insurance Company's incorrect calculation and/or untimely reporting of
net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result of
any failure by Insurance Company to provide the services and furnish the
materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that with respect to clauses (i) and
(ii) above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue statement or omission or alleged omission made in
such registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the Fund specifically for use therein; and provided,
further, that Insurance Company shall not be liable for special,
consequential or incidental damages. This indemnity agreement will be in
addition to any liability which Insurance Company may otherwise have.
9.2 The Fund agrees to indemnify and hold harmless Insurance Company and each
of its directors, officers, employees, agents and each person, if any,
who controls Insurance Company within the meaning of the 1933 Act against
any losses, claims, damages or liabilities to which Insurance Company or
any such director, officer, employee, agent or controlling person may
become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) (1) arise
out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the registration statement or
Prospectus or sales literature or advertisements of the Fund; (2) arise
out of or are based upon the omission to state in the registration
statement or Prospectus or sales literature or advertisements of the Fund
any material fact required to be stated therein or necessary to make the
statements therein not misleading; or (3) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the registration statement or Prospectus or sales literature
or advertisements with respect to the Separate Account or the Contracts
and such statements were based on information provided to Insurance
Company by the Fund; and the Fund will reimburse any legal or other
expenses reasonably incurred by Insurance Company or any such director,
officer, employee, agent or controlling person in connection with
investigating or defending any
<PAGE>
such loss, claim, damage, liability or action; provided, however, that
the Fund will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged omission made in such Registration
Statement, Prospectus, sales literature or advertisements in conformity
with written information furnished to the Fund by Insurance Company
specifically for use therein; and provided, further, that the Fund shall
not be liable for special, consequential or incidental damages. This
indemnity agreement will be in addition to any liability which the Fund
may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company harmless against any
and all liability, loss, damages, costs or expenses which Insurance
Company may incur, suffer or be required to pay due to the Fund's (1)
incorrect calculation of the daily net asset value, dividend rate or
capital gain distribution rate of a Series; (2) incorrect reporting of
the daily net asset value, dividend rate or capital gain distribution
rate; and (3) untimely reporting of the net asset value, dividend rate or
capital gain distribution rate; provided that the Fund shall have no
obligation to indemnify and hold harmless Insurance Company if the
incorrect calculation or incorrect or untimely reporting was the result
of incorrect information furnished by Insurance Company or information
furnished untimely by Insurance Company or otherwise as a result of or
relating to a breach of this Agreement by Insurance Company; and
provided, further, that the Fund shall not be liable for special,
consequential or incidental damages.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party
under this Article, notify the indemnifying party of the commencement
thereof. The omission to so notify the indemnifying party will not
relieve the indemnifying party from any liability under this Article IX,
except to the extent that the omission results in a failure of actual
notice to the indemnifying party and such indemnifying party is damaged
solely as a result of the failure to give such notice. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein and, to the extent that it may
wish, assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and to the extent that the indemnifying party has
given notice to such effect to the indemnified party and is performing
its obligations under this Article, the indemnifying party shall not be
liable for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable costs of investigation. Notwithstanding the foregoing, in any
such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests
between them. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX.
9.5 Insurance Company shall indemnify and hold the Fund, its investment
adviser and any sub-investment adviser of a Series harmless against any
tax liability incurred by the Fund under Section 851 of the Code arising
from purchases or redemptions by Insurance Company's General Accounts or
the account of its affiliates.
ARTICLE X 10.
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty as to one or more Series
at the option of the terminating party:
a. At the option of Insurance Company or the Fund at any time
from the date hereof upon 180 days' notice, unless a shorter time
is agreed to by the parties;
b. At the option of Insurance Company, if shares of any Series are
not reasonably available to meet the requirements of the
Contracts as determined by Insurance Company. Prompt notice of
election to terminate shall be furnished by Insurance Company,
said termination to be effective ten days after receipt of notice
unless the Fund makes available a sufficient number of shares to
meet the requirements of the Contracts within said ten-day
period;
<PAGE>
c. At the option of Insurance Company, upon the institution of
formal proceedings against the Fund by the Commission, National
Association of Securities Dealers or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which
would, in Insurance Company's reasonable judgment, materially
impair the Fund's ability to meet and perform the Fund's
obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by Insurance Company with said
termination to be effective upon receipt of notice;
d. At the option of the Fund, upon the institution of
formal proceedings against Insurance Company by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in the Fund's reasonable judgment,
materially impair Insurance Company's ability to meet and perform
Insurance Company's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by the Fund
with said termination to be effective upon receipt of notice;
e. At the option of the Fund, if the Fund shall determine,
in its sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in its
business or financial condition or is the subject of material
adverse publicity and such material adverse change or material
adverse publicity is likely to have a material adverse impact
upon the business and operation of the Fund or its investment
adviser, the Fund shall notify Insurance Company in writing of
such determination and its intent to terminate this Agreement,
and after considering the actions taken by Insurance Company and
any other changes in circumstances since the giving of such
notice, such determination of the Fund shall continue to apply on
the sixtieth (60th) day following the giving of such notice,
which sixtieth day shall be the effective date of termination;
f. Upon termination of the Investment Advisory Agreement
between the Fund and its investment adviser or its successors
unless Insurance Company specifically approves the selection of a
new Fund investment adviser. The Fund shall promptly furnish
notice of such termination to Insurance Company;
g. In the event the Fund's shares are not registered,
issued or sold in accordance with applicable federal law, or such
law precludes the use of such shares as the underlying investment
medium of Contracts issued or to be issued by Insurance Company.
Termination shall be effective immediately upon such occurrence
without notice;
h. At the option of the Fund upon a determination by the
Board in good faith that it is no longer advisable and in the
best interests of shareholders for the Fund to continue to
operate pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by the Fund to
Insurance Company of such termination;
i. At the option of the Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably believes
that the Contracts may fail to so qualify;
j. At the option of either party to this Agreement, upon
another party's breach of any material provision of this
Agreement;
k. At the option of the Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law; or
l. Upon assignment of this Agreement, unless made with the
written consent of the non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to
Section 10.2 hereof, the Fund and its investment adviser may, at the
option of the Fund, continue to make available additional Series shares
for so long as the Fund desires pursuant to the terms and conditions of
this Agreement as provided below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, if the Fund
so elects to make additional Series shares available, the owners of the
Existing Contracts or Insurance Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in the
Series, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts. In
the event of a termination of this Agreement pursuant to Section 10.2
hereof, the Fund, as promptly as is practicable under the circumstances,
shall notify Insurance Company whether the Fund will continue to make
Series shares available after such termination. If Series shares
continue to be made available after such termination, the provisions of
this Agreement shall remain in effect and thereafter either
<PAGE>
the Fund or Insurance Company may terminate the Agreement, as so
continued pursuant to this Section 10.3, upon prior written notice to the
other party, such notice to be for a period that is reasonable under the
circumstances but, if given by the Fund, need not be for more than six
months.
ARTICLE XI 11.
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be made by
agreement in writing between Insurance Company and Fund.
ARTICLE XII 12.
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:
Insurance Company:
Fund:
J.P. Morgan Series Trust II
c/o Morgan Guaranty Trust Company
522 Fifth Avenue
New York, New York 10036
Attention: Kathleen H. Tripp
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII 13.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the undersigned
officer of the Fund in his capacity as an officer of the Fund. The
obligations of this Agreement shall only be binding upon the assets and
property of the Fund and shall not be binding upon any Trustee, officer
or shareholder of the Fund individually.
ARTICLE XIV 14.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of
laws.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
INSURANCE COMPANY
By:
--------------------------------
Its:
-------------------------------
J.P.MORGAN SERIES TRUST II
By:
--------------------------------
Its:
-------------------------------
SCHEDULE 1
NAME OF SERIES
<PAGE>
PARTICIPATION AGREEMENT
AMONG
MFS/SUN LIFE SERIES TRUST,
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into as of this 17th day of February
1998, by and among MFS/SUN LIFE SERIES TRUST, a Massachusetts business trust
(the "Trust"), SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.), a Delaware
corporation (the "Company"), on its own behalf and on behalf of each of the
segregated asset accounts of the Company set forth in Schedule A hereto, as
may be amended from time to time (the "Accounts"), and MASSACHUSETTS
FINANCIAL SERVICES COMPANY, a Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), and its shares are registered or will be registered under the
Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state
securities law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under
the 1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
Company, to set aside and invest assets attributable to the aforesaid
variable annuity and/or variable life insurance contracts that are allocated
to the Accounts (the Policies and the Accounts covered by this Agreement, and
each corresponding Portfolio covered by this Agreement in which the Accounts
invest, are specified in Schedule A attached hereto as may be modified from
time to time);
WHEREAS, the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, Clarendon Insurance Agency, Inc. ("Clarendon"), the underwriter
for the Policies, is registered as a broker-dealer with the Securities and
Exchange Commission ("SEC") under the 1934 Act and is a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf
of the Accounts to fund the Policies, and the Trust intends to sell such
Shares to the Accounts at net asset value;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
MFS, and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that Business
Day, as defined below) and which are available for purchase by such
Accounts, executing such orders on a daily basis at the net asset value
next computed after receipt by the Trust or its designee of the order for
the Shares. For purposes of this Section 1.1, the Company shall be the
designee of the Trust for receipt of such orders from Policy owners and
receipt by such designee shall constitute receipt by the Trust; PROVIDED
that the Trust receives notice of such orders by 9:00 a.m. New York time on
the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange, Inc. (the "NYSE") is open for trading
and on which the Trust calculates its net asset value pursuant to the rules
of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall calculate such net asset
value on each day which the NYSE is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (the "Board") may refuse to
sell any Shares to the Company and the Accounts, or suspend or terminate
the offering of the Shares if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interest of
the Shareholders of such Portfolio.
1.3. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by
Policy owners on that Business Day), executing such requests on a daily
basis at the net asset value next computed after receipt by the Trust or
its designee of the request for redemption. For purposes of this Section
1.3, the Company shall be the designee of the Trust for receipt of requests
for redemption from Policy owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of
such request for redemption by 9:00 a.m. New York time on the next
following Business Day. The Company will not resell the Shares except to
the Trust or its agents.
1.4. Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted with
respect to any Portfolio. However, with respect to payment of the purchase
price by the Company and of redemption proceeds by the Trust, the Company
and the Trust shall net purchase and redemption orders with respect to each
Portfolio and shall transmit one net payment for all of the Portfolios in
accordance with Section 1.5 hereof.
1.5. In the event of net purchases, the Company shall pay for the Shares by
2:00 p.m. New York time on the next Business Day after an order to purchase
the Shares is made in accordance with the provisions of Section 1.1.
hereof. In the event of net redemptions, the Trust shall pay the
redemption proceeds by 2:00 p.m. New York time on the next Business Day
after an order to redeem the shares is made in accordance with the
provisions of Section 1.3. hereof. All such payments shall be in federal
funds transmitted by wire.
1.6. Issuance and transfer of the Shares will be by book entry only. Stock
certificates will not be issued to the Company or the Accounts. The Shares
ordered from the Trust will be recorded in an appropriate title for the
Accounts or the appropriate subaccounts of the Accounts.
1.7. The Trust shall furnish same day notice (by wire or telephone followed
by written confirmation) to the Company of any dividends or capital gain
distributions payable on the Shares. The Company hereby elects to receive
all such dividends and distributions as are payable on a Portfolio's Shares
in additional Shares of that Portfolio. The Company reserves the right to
revoke this election and to receive all such
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dividends and distributions in cash. The Trust shall notify the Company of
the number of Shares so issued as payment of such dividends and
distributions.
1.8. The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available
by 6:30 p.m. New York time. In the event that the Trust is unable to meet
the 6:30 p.m. time stated herein, it shall provide additional time for the
Company to place orders for the purchase and redemption of Shares. Such
additional time shall be equal to the additional time which the Trust takes
to make the net asset value available to the Company. If the Trust
provides materially incorrect share net asset value information, the Trust
shall make an adjustment to the number of shares purchased or redeemed for
the Accounts to reflect the correct net asset value per share. Any
material error in the calculation or reporting of net asset value per
share, dividend or capital gains information shall be reported promptly
upon discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will be
registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable
state and federal laws, including without limitation the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that
it has legally and validly established the Account as a segregated asset
account under applicable law and has registered or, prior to any issuance
or sale of the Policies, will register the Accounts as unit investment
trusts in accordance with the provisions of the 1940 Act (unless exempt
therefrom) to serve as segregated investment accounts for the Policies, and
that it will maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under the
1933 Act for the Policies and the registration statements under the 1940
Act for the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for
sales in accordance with the securities laws of the various states only if
and to the extent deemed necessary by the Company.
2.2. The Company represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contracts under applicable provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), that it will maintain such treatment and
that it will notify the Trust or MFS immediately upon having a reasonable
basis for believing that the Policies have ceased to be so treated or that
they might not be so treated in the future.
2.3. The Company represents and warrants that Clarendon, the underwriter
for the Policies, is a member in good standing of the NASD and is a
registered broker-dealer with the SEC. The Company represents and warrants
that it will, and will cause Clarendon to, sell and distribute the Policies
in accordance in all material respects with all applicable state and
federal securities laws, including without limitation the 1933 Act, the
1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized
for issuance and sold in compliance with the laws of The Commonwealth of
Massachusetts and all applicable federal and state securities laws and that
the Trust is and shall remain registered under the 1940 Act. The Trust
shall amend the registration statement for its Shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the
continuous offering of its Shares. The Trust shall register and qualify
the Shares for sale in accordance with the laws of the various states only
if and to the extent deemed necessary by the Trust.
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2.5. The Trust and MFS represent that the Trust will sell and distribute
the Shares in accordance in all material respects with all applicable state
and federal securities laws, including without limitation the 1933 Act, the
1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and any
applicable regulations thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material
respects with any applicable federal securities laws and with the
securities laws of The Commonwealth of Massachusetts. MFS represents and
warrants that it is not subject to state securities laws other than the
securities laws of The Commonwealth of Massachusetts and that it is exempt
from registration as an investment adviser under the securities laws of The
Commonwealth of Massachusetts.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. The Trust or its designee shall provide the Company, free of charge,
with as many copies of the current prospectus for the Trust and any
supplements thereto as the Company may reasonably request for distribution
to existing Policy owners.. The Trust or its designee shall provide the
Company, at the Company's expense, with as many copies of the current
prospectus for the Trust and any supplements thereto as the Company may
reasonably request for distribution to prospective purchasers of Policies.
If requested by the Company in lieu thereof, the Trust or its designee
shall provide such documentation (including a "camera ready" copy of the
prospectus as set in type or, at the request of the Company, as a diskette
containing the prospectus) and other assistance as is reasonably necessary
in order for the parties hereto once each year (or more frequently if the
prospectus for the Trust is supplemented or amended) to have the prospectus
for the Policies and the prospectus for the Trust printed together in one
document; the expenses of such printing to be apportioned between (a) the
Company and (b) the Trust or its designee in proportion to the number of
pages of the Policy and Trust prospectuses, taking account of other
relevant factors affecting the expense of printing, such as covers,
columns, graphs and charts; the Trust or its designee to bear the cost of
printing the Trust's prospectus portion of such document for distribution
to owners of existing Policies and the Company to bear the expenses of
printing the portion of such document relating to the Accounts; PROVIDED,
however, that the Company shall bear all printing expenses of such combined
documents where used for distribution to prospective purchasers.
Alternatively, the Company may print the Trust's prospectus in combination
with other fund prospectuses in accordance with the expense allocation
provisions set forth in the immediately preceding sentence (provided that
the applicable fund will bear expenses with respect to its prospectus). In
the event that the Company requests that the Trust or its designee provides
the Trust's prospectus in a "camera ready" or diskette format, the Trust
shall be responsible for providing the prospectus in the format in which it
or MFS is accustomed to formatting prospectuses and shall bear the expense
of providing the prospectus in such format (E.G., typesetting expenses),
and the Company shall bear the expense of adjusting or changing the format
to conform with any of its prospectuses.
3.2. The prospectus for the Trust shall state that the statement of
additional information for the Trust is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and
provide such statement of additional information to the Company (or a
master of such statement suitable for duplication by the Company) for
distribution to any owner of a Policy. The Trust or its designee, at the
Company's expense, shall print and provide such statement to the Company
(or a master of such statement suitable for duplication by the Company) for
distribution to a prospective purchaser who requests such statement.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's proxy
materials, reports to Shareholders and other communications to Shareholders
in such quantity as the Company shall reasonably require for distribution
to Policy owners.
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3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above, or
of Article V below, the Company shall pay the expense of printing or
providing such documents to the extent such cost is considered a
distribution expense. Distribution expenses would include by way of
illustration, but are not limited to, the printing of the Trust's
prospectus or prospectuses for distribution to prospective purchasers.
3.5. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received from
Policy owners; and
(c) vote the Shares for which no instructions have been received in
the same proportion as the Shares of such Portfolio for which
instructions have been received from Policy owners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass through voting privileges for variable contract owners.
The Company will in no way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such
Policy owners. The Company reserves the right to vote shares held in any
segregated asset account in its own right, to the extent permitted by law.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the
Trust, or any affiliate of MFS are named, at least three (3) Business Days
prior to its use. No such material shall be used if the Trust, MFS, or
their respective designees reasonably objects to such use within three (3)
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statement on behalf of the Trust, MFS, any other investment adviser to
the Trust, or any affiliate of MFS or concerning the Trust or any other
such entity in connection with the sale of the Policies other than the
information or representations contained in the registration statement,
prospectus or statement of additional information for the Trust, as such
registration statement, prospectus and statement of additional information
may be amended or supplemented from time to time, or in reports or proxy
statements for the Trust, or in sales literature or other promotional
material approved by the Trust, MFS or their respective designees, except
with the permission of the Trust, MFS or their respective designees. The
Trust, MFS or their respective designees each agrees to respond to any
request for approval on a prompt and timely basis. The Company shall cause
to be adopted and implemented procedures reasonably designed to ensure that
information concerning the Trust, MFS or any of their affiliates which is
intended for use only by brokers or agents selling the Policies (I.E.,
information that is not intended for distribution to Policy owners or
prospective Policy owners) is so used, and neither the Trust, MFS nor any
of their affiliates shall be liable for any losses, damages or expenses
relating to the improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or the Accounts is
named, at least three (3) Business Days prior to its use. No such material
shall be used if the Company or its designee reasonably objects to such use
within three (3) Business Days after receipt of such material.
4.4. The Trust and MFS shall not give any information or make any
representations on behalf of the Company or concerning the Company, the
Accounts, or the Policies in connection with the sale of the Policies other
than the information or representations contained in a registration
statement, prospectus, or statement of additional information for the
Policies, as such registration statement, prospectus and statement
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of additional information may be amended or supplemented from time to time,
or in reports for the Accounts, or in sales literature or other promotional
material approved by the Company or its designee, except with the
permission of the Company. The Company or its designee agrees to respond
to any request for approval on a prompt and timely basis. The parties
hereto agree that this Section 4.4. is neither intended to designate nor
otherwise imply that MFS is an underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company or
the Trust, as appropriate) will each provide to the other at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and
other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to
the Policies, or to the Trust or its Shares, prior to or contemporaneously
with the filing of such document with the SEC or other regulatory
authorities. The Company and the Trust shall also each promptly inform the
other of the results of any examination by the SEC (or other regulatory
authorities) that relates to the Policies, the Trust or its Shares, and the
party that was the subject of the examination shall provide the other party
with a copy of relevant portions of any "deficiency letter" or other
correspondence or written report regarding any such examination.
4.6. The Trust and MFS will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Portfolio, and of
any material change in the Trust's registration statement, particularly any
change resulting in change to the registration statement or prospectus or
statement of additional information for any Account. The Trust and MFS
will cooperate with the Company so as to enable the Company to solicit
proxies from Policy owners or to make changes to its prospectus, statement
of additional information or registration statement, in an orderly manner.
The Trust and MFS will make reasonable efforts to attempt to have changes
affecting Policy prospectuses become effective simultaneously with the
annual updates for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), and sales literature (such as brochures, circulars,
reprints or excerpts or any other advertisement, sales literature, or
published articles), distributed or made generally available to customers
or the public, educational or training materials or communications
distributed or made generally available to some or all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company under
this Agreement, and the Company shall pay no fee or other compensation to
the Trust, except that if the Trust or any Portfolio adopts and implements
a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution
and Shareholder servicing expenses, then, subject to obtaining any required
exemptive orders or regulatory approvals, the Trust may make payments to
the Company or to the underwriter for the Policies if and in amounts agreed
to by the Trust in writing. Each party, however, shall, in accordance with
the allocation of expenses specified in Articles III and V hereof,
reimburse other parties for expenses initially paid by one party but
allocated to another party. In addition, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust and/or
to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal
and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration fees;
preparation and filing of the Trust's proxy materials and reports to
Shareholders; setting in type and printing its prospectus and statement of
additional information (to the extent provided by and as determined in
accordance with Article III above); setting in type and printing the proxy
materials and reports to Shareholders (to the extent provided by and as
determined in accordance with Article III above); the preparation of all
statements and notices required of the
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Trust by any federal or state law with respect to its Shares; all taxes on
the issuance or transfer of the Shares; and the costs of distributing the
Trust's prospectuses, any supplements thereto and proxy materials to owners
of Policies funded by the Shares and any expenses permitted to be paid or
assumed by the Trust pursuant to a plan, if any, under Rule 12b-1 under the
1940 Act. The Trust shall not bear any expenses of marketing the Policies.
5.3. The Company shall bear the expenses of printing and distributing the
Trust's prospectus or prospectuses in connection with new sales of the
Policies and of distributing the Trust's shareholder reports to Policy
owners. The Company shall bear all expenses associated with the
registration, qualification, and filing of the Policies under applicable
federal securities and state insurance laws; the cost of preparing,
printing and distributing the Policy prospectus and statement of additional
information, if any; and the cost of preparing, printing and distributing
annual individual account statements for Policy owners as required by state
insurance laws.
5.4. MFS will monthly reimburse the Company certain of the administrative
costs and expenses incurred by the Company as a result of operations
necessitated by the beneficial ownership by Policy owners of shares of the
Portfolios of the Trust, equal to 0.25% per annum of the aggregate net
assets of the Trust attributable to variable life or variable annuity
contracts offered by the Company or its affiliates. In no event shall such
fee be paid by the Trust, its shareholders or by the Policy holders.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817 (h) (1) of
the Code and Treas. Reg. 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts,
as they may be amended from time to time (and any revenue rulings, revenue
procedures, notices, and other published announcements of the Internal
Revenue Service interpreting these sections), as if those requirements
applied directly to each such Portfolio, and they shall immediately notify
the Company upon having a reasonable basis for believing that a Portfolio
has ceased to qualify or that it might not so qualify in the future.
6.2. The Trust and MFS represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the Code
and that they will maintain such qualification (under Subchapter M or any
successor or similar provision), and they shall immediately notify the
Company upon having a reasonable basis for believing that a Portfolio has
ceased to qualify or that it might not so qualify in the future.
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of
the variable annuity contract owners and the variable life insurance policy
owners of the Company and/or affiliated companies ("contract owners")
investing in the Trust. The Board shall have the sole authority to
determine if a material irreconcilable conflict exists, and such
determination shall be binding on the Company only if approved in the form
of a resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt notice of
any such determination to the Company.
7.2. The Company agrees that it will be responsible for promptly reporting
any potential or existing conflicts of which it is aware to the Board
including, but not limited to, an obligation by the Company to inform the
Board whenever contract owner voting instructions are disregarded. The
Company also agrees that, if a material irreconcilable conflict arises, it
will at its own cost remedy such conflict up to and including (a)
withdrawing the assets allocable to some or all of the Accounts from the
Trust or any Portfolio and
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reinvesting such assets in a different investment medium, including (but
not limited to) another Portfolio of the Trust, or submitting to a vote
of all affected contract owners whether to withdraw assets from the
Trust or any Portfolio and reinvesting such assets in a different
investment medium and, as appropriate, segregating the assets
attributable to any appropriate group of contract owners that votes in
favor of such segregation, or offering to any of the affected contract
owners the option of segregating the assets attributable to their
contracts or policies, and (b) establishing a new registered management
investment company and segregating the assets underlying the Policies,
unless a majority of Policy owners materially adversely affected by the
conflict have voted to decline the offer to establish a new registered
management investment company.
7.3. A majority of the disinterested trustees of the Board shall determine
whether any proposed action by the Company adequately remedies any material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable
conflict, the Company will withdraw from investment in the Trust each of
the Accounts designated by the disinterested trustees and terminate this
Agreement within six (6) months after the Board informs the Company in
writing of the foregoing determination; PROVIDED, HOWEVER, that such
withdrawal and termination shall be limited to the extent required to
remedy any such material irreconcilable conflict as determined by a
majority of the disinterested trustees of the Board.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify and hold harmless the Trust, MFS, any
affiliates of MFS, and each of their respective directors/trustees,
officers and each person, if any, who controls the Trust or MFS within the
meaning of Section 15 of the 1933 Act, and any agents or employees of the
foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company) or expenses (including, without limitation,
reasonable counsel fees) to which any Indemnified Party may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the
Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Policies or contained in the Policies or
sales literature or other promotional material for the Policies
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading PROVIDED that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished to the
Company or its designee by or on behalf of the Trust or MFS for
use in the registration statement, prospectus or statement of
additional information for the Policies or in the Policies or
sales literature or other promotional material (or any amendment
or supplement) or otherwise for use in connection with the sale
of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, statement of additional information or sales
literature or other promotional material of the Trust not supplied by
the Company or its designee, or persons under its control and on which
the Company has reasonably relied) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution
of the Policies or Shares; or
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(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the registration statement,
prospectus, statement of additional information, or sales
literature or other promotional literature of the Trust, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Trust by or on behalf
of the Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.2. INDEMNIFICATION BY THE TRUST
The Trust agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act, and any agents or
employees of the foregoing (each an "Indemnified Party," or collectively,
the "Indemnified Parties" for purposes of this Section 8.2) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust) or expenses (including,
without limitation, reasonable counsel fees) to which any Indemnified Party
may become subject under any statute, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of
the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional material of
the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not
misleading, PROVIDED that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished to the
Trust, MFS or their respective designees by or on behalf of the
Company for use in the registration statement, prospectus or
statement of additional information for the Trust or in sales
literature or other promotional material for the Trust (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional material for
the Policies not supplied by the Trust, MFS or any of their
respective designees or persons under their respective control
and on which any such entity has reasonably relied) or wrongful
conduct of the Trust or persons under its control, with respect
to the sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the registration statement,
prospectus, statement of additional information, or sales
literature or other promotional literature of the Accounts or
relating to the Policies, or any
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amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of the Trust or MFS; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement) or arise
out of or result from any other material breach of this Agreement
by the Trust; or
(e) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share
or dividend or capital gain distribution rate; or
(f) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of the
Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.3. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, willful misconduct, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.4. Promptly after receipt by an Indemnified Party under this Section 8.4.
of notice of commencement of any action, such Indemnified Party will, if a
claim in respect thereof is to be made against the indemnifying party under
this section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any Indemnified Party otherwise
than under this section. In case any such action is brought against any
Indemnified Party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume the defense
thereof, with counsel satisfactory to such Indemnified Party. After notice
from the indemnifying party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional
counsel obtained by it, and the indemnifying party shall not be liable to
such Indemnified Party under this section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation.
8.5. Each of the parties agrees promptly to notify the other parties of the
commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or 1933 Act control
persons in connection with the Agreement, the issuance or sale of the
Policies, the operation of the Accounts, or the sale or acquisition of
Shares.
8.6. A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
-10-
<PAGE>
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance written
notice to the other parties; or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonably available to meet the requirements
of the Policies or are not "appropriate funding vehicles" for the
Policies, as reasonably determined by the Company. Without
limiting the generality of the foregoing, the Shares of a
Portfolio would not be "appropriate funding vehicles" if, for
example, such Shares did not meet the diversification or other
requirements referred to in Article VI hereof; or if the Company
would be permitted to disregard Policy owner voting instructions
pursuant to Rule 6e-2 or 6e-3(T) under the 1940 Act. Prompt
notice of the election to terminate for such cause and an
explanation of such cause shall be furnished to the Trust by the
Company; or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company by the NASD, the SEC, or any
insurance department or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of
the Policies, the operation of the Accounts, or the purchase of
the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body
regarding the Trust's or MFS' duties under this Agreement or
related to the sale of the Shares; or
(e) at the option of the Company, the Trust or MFS upon receipt of
any necessary regulatory approvals and/or the vote of the Policy
owners having an interest in the Accounts (or any subaccounts) to
substitute the shares of another investment company for the
corresponding Portfolio Shares in accordance with the terms of
the Policies for which those Portfolio Shares had been selected
to serve as the underlying investment media. The Company will
give thirty (30) days' prior written notice to the Trust of the
date of any proposed vote or other action taken to replace the
Shares; or
(f) termination by either the Trust or MFS by written notice to the
Company, if either one or both of the Trust or MFS respectively,
shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its
business, operations, financial condition, or prospects since the
date of this Agreement or is the subject of material adverse
publicity; or
-11-
<PAGE>
(g) termination by the Company by written notice to the Trust and
MFS, if the Company shall determine, in its sole judgment
exercised in good faith, that the Trust or MFS has suffered a
material adverse change in this business, operations, financial
condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement after
providing the breaching party thirty (30) days written notice and
an opportunity to cure the breach during the notice period; or
(i) upon assignment of this Agreement, unless made with the written
consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies
and, if applicable, the Accounts as to which the Agreement is to be
terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for
cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem the Shares attributable to the Policies (as
opposed to the Shares attributable to the Company's assets held in the
Accounts), and the Company shall not prevent Policy owners from allocating
payments to a Portfolio that was otherwise available under the Policies,
until thirty (30) days after the Company shall have notified the Trust of
its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and
MFS shall, at the option of the Company, continue to make available
additional shares of the Portfolios pursuant to the terms and conditions of
this Agreement, for all Policies in effect on the effective date of
termination of this Agreement (the "Existing Policies"), except as
otherwise provided under Article VII of this Agreement. Specifically,
without limitation, the owners of the Existing Policies shall be permitted
to transfer or reallocate investment under the Policies, redeem investments
in any Portfolio and/or invest in the Trust upon the making of additional
purchase payments under the Existing Policies and MFS shall continue to
reimburse the Company pursuant to Section 5.4 of this Agreement.
-12-
<PAGE>
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail, overnight courier or facsimile to the other party at the address of such
party set forth below or at such other address as such party may from time to
time specify in writing to the other party.
If to the Trust:
MFS VARIABLE INSURANCE TRUST
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, Secretary
If to the Company:
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
Retirement Products and Services
One Copley Place, Suite 200
Boston, Massachusetts 02116
Facsimile No.:(617) 348-1586
Attn: Margaret Hankard, Esq.
If to MFS:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement or as otherwise required by applicable law
or regulation, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written
consent of the affected party until such time as it may come into the
public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
-13-
<PAGE>
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions contemplated
hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument are
not binding upon any of the Trust's trustees, officers, employees, agents
or shareholders individually, but are binding solely upon the assets and
property of the Trust in accordance with its proportionate interest
hereunder. The Company further acknowledges that the assets and
liabilities of each Portfolio are separate and distinct and that the
obligations of or arising out of this instrument are binding solely upon
the assets or property of the Portfolio on whose behalf the Trust has
executed this instrument. The Company also agrees that the obligations of
each Portfolio hereunder shall be several and not joint, in accordance with
its proportionate interest hereunder, and the Company agrees not to proceed
against any Portfolio for the obligations of another Portfolio.
-14-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
By its authorized officer,
By: _______________________________
Robert K. Leach
Vice President, Financial Products
MFS/SUN LIFE SERIES TRUST, ON BEHALF OF THE PORTFOLIOS
By its authorized officer and not individually,
By: _______________________________
James R. Bordewick, Jr.
Assistant Secretary
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: _______________________________
Jeffrey L. Shames
Chairman and Chief Executive Officer
-15-
<PAGE>
As of February 17, 1998
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
--------------------------------------
<TABLE>
<CAPTION>
NAME OF SEPARATE PORTFOLIOS
ACCOUNT AND DATE POLICIES FUNDED APPLICABLE TO
ESTABLISHED BY BOARD OF DIRECTORS BY SEPARATE ACCOUNT POLICIES
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
SUN LIFE OF CANADA (U.S.) FUTURITY VARIABLE ANNUITY CAPITAL APPRECIATION SERIES
VARIABLE ACCOUNT F EMERGING GROWTH SERIES
(EST. JULY 13, 1989) GOVERNMENT SECURITIES SERIES
HIGH YIELD SERIES
MONEY MARKET SERIES
UTILITIES SERIES
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
And
OCC DISTRIBUTORS
THIS AGREEMENT, made and entered into this 17 day of February 1998 by
and among Sun Life Assurance Company of Canada (U.S.), a Delaware corporation
(hereinafter the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement, as may be amended
from time to time (each account referred to as the "Account"), OCC
ACCUMULATION TRUST, an open-end diversified management investment company
organized under the laws of the State of Massachusetts (hereinafter the "Fund")
and OCC DISTRIBUTORS, a Delaware general partnership (hereinafter the
"Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
<PAGE>
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"), dated
February 22, 1995 (File No. 812-9290), granting Participating Insurance
Companies and variable annuity separate accounts and variable life insurance
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans (hereinafter the "Mixed and Shared Funding
Exemptive Order");and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of Delaware, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
2
<PAGE>
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2, as it may be amended from time to time, on behalf of the Account to
fund the Contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the order for the shares of the Fund.
For purposes of this Section 1.1, the Company shall be the designee of the Fund
for receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following Business Day. The
Underwriter shall confirm to the Company the receipt of such notice by 11:30
a.m. on such next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the SEC.
3
<PAGE>
1.2. The Company shall pay for Fund shares on the next Business Day
after it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the Contracts. No
shares of any Portfolio will be sold to the general public.
1.5. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, and VII of this Agreement are in
effect to govern such sales. The Fund shall make available upon written request
from the Company (i) a list of all other Participating
4
<PAGE>
Insurance Companies and (ii) a copy of the Participation Agreement executed by
any other Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment shall be in federal funds transmitted by wire to the Company's account
as designated by the Company in writing from time to time, on the same Business
Day the Fund receives notice of the redemption order from the Company except
that the Fund reserves the right to delay payment of redemption proceeds, but in
no event may such payment be delayed longer than the period permitted under
Section 22(e) of the 1940 Act. Neither the Fund nor the Underwriter shall bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone shall be responsible for such action. If
notification of redemption is received after 10:00 a.m. Eastern Time, payment
for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders
5
<PAGE>
for Fund shares will be recorded in an appropriate title for each Account or the
appropriate subaccount of each Account.
1.9. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income, dividends or capital gain distributions payable on
the Fund's shares. The Company hereby elects to receive all such dividends and
distributions as are payable on the Portfolio shares in the form of additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and distributions in cash. The Fund
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall
6
<PAGE>
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company shall register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at
the time of issuance will be treated as annuity contracts under applicable
provisions of the Internal Revenue Code and that it will maintain such treatment
and that it will notify the Fund and the Underwriter immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.3. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for as long as the Fund shares are sold. The Fund
shall amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.4. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code,
and that it will maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
7
<PAGE>
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Fund of any insurance
restrictions imposed by state insurance laws which are applicable to the Fund.
To the extent feasible and consistent with market conditions, the Fund will
adjust its investments to comply with the aforementioned state insurance laws
upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Fund shall
be allowed a reasonable period of time under the circumstances after receipt of
such notice to make any such adjustment.
2.6. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.7. The Underwriter represents and warrants that it is, and will
continue to be, a member in good standing of the National Association of
Securities Dealers, Inc., ("NASD") and is, and will continue to be, registered
as a broker-dealer with the SEC. The Underwriter further represents that it
will sell and distribute the Fund shares in accordance with all applicable
federal and state securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
8
<PAGE>
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter represents and warrants that the Fund's Adviser,
OpCap Advisors, is and shall remain duly registered under all applicable federal
and state securities laws and that the Adviser will perform its obligations to
the Fund in accordance with the laws of Massachusetts and any applicable state
and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and will continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company, at the Underwriter's
expense, with as many copies of the Fund's current prospectus as the Company may
reasonably request for use with prospective contractowners and applicants. The
Underwriter shall print, at the Fund's or Underwriter's expense, as many copies
of said prospectus and any supplements thereto, as necessary for distribution to
existing contractowners or participants. If requested by the Company in lieu
thereof, the Fund shall provide such documentation including a final copy
9
<PAGE>
of a current prospectus set in type at the Fund's expense and other assistance
as is reasonably necessary in order for the Company at least annually (or more
frequently if the Fund prospectus is amended more frequently) to have the new
prospectus for the Contracts and the Fund's new prospectus printed together in
one document. In such case the Fund shall bear its share of expenses as
described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any owner of or participant under a Contract who requests such Statement or,
at the Company's expense, to any prospective contractowner and applicant who
requests such statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, if any, reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require and
shall bear the costs of distributing them to existing contractowners or
participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in the Account in accordance
with instructions received from contractowners or
participants; and
(iii) vote Fund shares held in the Account for which no timely
instructions have been received, in the same proportion as
Fund shares of such Portfolio for which instructions have
been received from the Company's contractowners or
participants;
10
<PAGE>
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contractowners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. The Company shall be responsible
for assuring that each of its separate accounts participating in the Fund
calculates voting privileges in a manner consistent with this section.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least fifteen business days prior to its use. No such material shall be used if
the Fund or the Underwriter reasonably objects in writing to such use within ten
business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
11
<PAGE>
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, or in shareholder reports of the Fund except with the
permission of the Fund or the Underwriter. The Fund and the Underwriter agree
to respond to any request for approval within ten Business Days of receipt of
such request.
4.3. The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company reasonably objects in writing to such use within ten
business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of the Company. The Company agrees to respond to any
request for approval within ten Business Days of receipt of such request.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
12
<PAGE>
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements
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a plan pursuant to Rule 12b-1 to finance distribution expenses, then, subject to
obtaining any required exemptive orders or other regulatory approvals, the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing. Currently,
no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement, Fund
proxy materials and reports, setting in type, printing and distributing the
prospectuses, the proxy materials and reports to existing shareholders and
contractowners, the preparation of all statements and notices required by any
federal or state law, all taxes on the issuance or transfer of the Fund's
shares, and any expenses permitted to be paid or assumed by the Fund pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Internal Revenue Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund will comply with Section
817(h) of the Internal Revenue Code and Treasury Regulation 1.817-5, relating to
the diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such Section or
Regulations.
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In the event of a breach of this Article VI by the Fund, it will take all
reasonable steps (a) to notify the Company of such breach and (b) to adequately
diversify the Fund so as to achieve compliance with the grace period afforded by
Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict among
the interests of the contractowners of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding
Exemptive Order, the Company will report any potential or existing conflicts of
which it is aware to the Fund Board. The Company
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agrees to assist the Fund Board in carrying out its responsibilities under the
Mixed and Shared Funding Exemptive Order, by providing the Fund Board with all
information reasonably necessary for the Fund Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Company to
inform the Fund Board whenever contractowner voting instructions are
disregarded. The Fund Board shall record in its minutes or other appropriate
records, all reports received by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies shall,
at their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Directors), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be implemented to a
vote of all affected contractowners and, as appropriate, segregating the assets
of any appropriate group (I.E., variable annuity contractowners or variable life
insurance contractowners, of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected contractowners
the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could conflict
with the majority of contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this
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Agreement with respect to such Account. Any such withdrawal and termination
must take place within 60 days after the Fund gives written notice to the
Company that this provision is being implemented. Until the end of such 60 day
period the Underwriter and Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5. If a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal and
termination must take place within 60 days after the Fund gives written notice
to the Company that this provision is being implemented. Until the end of such
60 day period the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or OpCap Advisors be required to establish a new
funding medium for the Contracts. The Company shall not be required by Section
7.3 to establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of contractowners materially adversely
affected by the irreconcilable material conflict.
7.7. The Company shall at least annually submit to the Fund Board
such reports, materials or data as the Fund Board may reasonably request so that
the Fund Board may fully carry out the duties imposed upon it as delineated in
the Mixed and Shared Funding Exemptive
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Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the
Underwriter, and each of the Fund's or the Underwriter's directors, officers,
employees or agents and each person, if any, who controls or is an "associated
person" of the Fund or the Underwriter within the meaning of such terms under
the federal securities laws (collectively, the "indemnified parties" for
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including reasonable legal and other expenses), to
which the indemnified parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements:
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(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the registration statement, prospectus or statement of
additional information for the Contracts or contained in
the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of
the circumstances in which they were made; provided that
this agreement to indemnify shall not apply as to any
indemnified party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Company by or on behalf of the Fund for use in the
registration statement, prospectus or statement of
additional information for the Contracts or in the
Contracts or sales literature or other promotional
material for the Contracts (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
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(ii) arise out of or as a result of statements or
representations by or on behalf of the Company (other than
statements or representations contained in the Fund
registration statement, Fund prospectus, Fund statement
of additional information or sales literature or other
promotional material of the Fund not supplied by the
Company or persons under its control) or wrongful conduct
of the Company or persons under its control, with respect
to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund
registration statement, Fund prospectus, statement of
additional information or sales literature or other
promotional material of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances in which they
were made, if such a statement or omission was made in
reliance upon and in conformity with information furnished
to the Fund by or on behalf of the Company or persons
under its control; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach by
the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
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8.2. INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each of its directors,
officers, employees or agents and each person, if any, who controls or is an
"associated person" of the Company within the meaning of such terms under the
federal securities laws (collectively, the "indemnified parties" for purposes of
this Section 8.2) against any and all losses, costs, expenses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Underwriter) or litigation (including reasonable legal and other expenses)
to which the indemnified parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, costs, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Fund or sales literature or
other promotional material of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances in which they
were made; provided that this agreement to indemnify shall
not apply as to any indemnified party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished
to the Underwriter or Fund by or on behalf of the Company
for use in the registration statement, prospectus or
statement of additional information for the Fund or in
sales literature or other promotional material of the Fund
(or any amendment or supplement thereto) or otherwise for
use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Contracts or in the Contract registration
statement, the Contract prospectus, statement of
additional information, or sales literature or other
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promotional material for the Contracts or of the Fund not
supplied by the Underwriter or the Fund or persons under
the control of the Underwriter or the Fund respectively)
or wrongful conduct of the Underwriter or the Fund or
persons under the control of the Underwriter or the Fund
respectively, with respect to the sale or distribution of
the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information
or sales literature or other promotional material covering
the Contracts (or any amendment thereof or supplement
thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading in light of the circumstances in which they
were made, if such statement or omission was made in
reliance upon and in conformity with information furnished
to the Company by or on behalf of the Underwriter or the
Fund or persons under the control of the Underwriter or
the Fund; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the
materials under the terms of this Agreement (including a
failure, whether unintentional or in good faith or
otherwise, to (i) comply with the diversification
requirements and procedures related thereto specified in
Article VI of this Agreement except if such failure is a
result of the Company's failure to comply with the
notification procedures specified in Article VI; and (ii)
to inform the Company of the correct net asset value per
share of each Portfolio on a timely basis sufficient to
ensure the timely execution of all purchase and redemption
orders at the correct net asset value per share); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or
the Fund in this Agreement or arise out of or result from
any other material breach of this Agreement by the
Underwriter or the Fund;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
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(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article
VIII ("indemnifying party" for the purpose of this Section 8.3) shall not be
liable under the indemnification provisions of this Article VIII with respect to
any claim made against a party entitled to indemnification under this Article
VIII ("indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the
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<PAGE>
indemnifying party to the indemnified party of the indemnifying party's election
to assume the defense thereof, the indemnified party shall bear the fees and
expenses of any additional counsel retained by it, and the indemnifying party
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation, unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party obligated to indemnify pursuant to the terms of this Article VIII
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims,
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damages, liabilities and litigations in such proportion as is appropriate to
reflect the relative benefits received by the parties to this Agreement in
connection with the offering of Fund shares to the Account and the acquisition,
holding or sale of Fund shares by the Account, or if such allocation is not
permitted by applicable law, in such proportions as are appropriate to reflect
the relative net benefits referred to above but also the relative fault of the
parties to this Agreement in connection with any actions that lead to such
losses, claims, damages, liabilities or litigations, as well as any other
relevant equitable considerations.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
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(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the requirements
of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the administration of
the Contracts, the operation of the Account, or the purchase of the Fund shares,
which would have a material adverse effect on the Company's ability to perform
its obligations under this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Fund's or the Underwriter's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will
give 30 days prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of
(i) all contractowners of variable
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insurance products of all separate accounts or (ii) the interests of the
Participating Insurance Companies investing in the Fund as delineated in Article
VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to qualify as
a Regulated Investment Company under Subchapter M of the Internal Revenue Code,
or under any successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines in
its sole judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse impact
upon the business and operations of the Company; or
(k) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund or Underwriter; or
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(l) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
10.2. NOTICE REQUIREMENT
(a) In the event that any termination of this Agreement is based
upon the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
(b) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written
notice of the election to terminate this Agreement for cause shall be furnished
by the party terminating the Agreement to the non-terminating parties, with said
termination to be effective upon receipt of such notice by the non-terminating
parties.
(c) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(j) or 10.1(k), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating parties. Such prior written
notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, and subject to Section 1.3 of this Agreement,
the Company may require the Fund and the Underwriter to, continue to make
available additional shares of the Fund
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for so long after the termination of this Agreement as the Company desires
pursuant to the terms and conditions of this Agreement as provided in paragraph
(b) below, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Fund, redeem investments in the Fund and/or invest
in the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.4 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and thereafter
the Fund, the Underwriter, or the Company may terminate the Agreement, as so
continued pursuant to this Section 10.4, upon written notice to the other party,
such notice to be for a period that is reasonable under the circumstances but,
if given by the Fund or Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the Account)
and the Company shall not prevent contractowners from allocating payments to a
Portfolio that was otherwise available under the Contracts, in each case until
90 days (or such shorter period of time as the parties hereto may agree upon)
after the Company shall have notified the Fund or Underwriter of its intention
to do so.
ARTICLE XI. NOTICES
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Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Margaret Hankard
Senior Associate Counsel
Sun Life Assurance Company of Canada (U.S.)
Copley Place, Suite 200
Boston, MA 02117
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
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12.2. Subject to law and regulatory authority, each party hereto
shall treat as confidential all information reasonably identified as such in
writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose, disseminate or utilize such confidential
information until such time as it may come into the public domain without the
express prior written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and
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delivered this Agreement will be the valid and binding obligation of such party
enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund.
12.10 During ordinary business hours, the Fund and the Underwriter
shall afford the Company, directly or through its authorized representatives,
reasonable access to all files, books, records and other materials of the Fund
or the Underwriter, as applicable, which relate, directly or indirectly, to
transactions arising in connection with this Agreement and to make available
appropriate personnel familiar with such items for the purpose of explaining the
form and content of such items. This Section 12.10 shall survive the
termination of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative as of the date and year first written above.
COMPANY:
SUN LIFE ASSURANCE COMPANY
OF CANADA (U.S.)
SEAL By:
-------------------------------------
FUND:
OCC ACCUMULATION TRUST
32
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SEAL By:
-------------------------------------
UNDERWRITER:
OCC DISTRIBUTORS
By:
-------------------------------------
33
<PAGE>
SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust, Sun Life Assurance Company of Canada (U.S.)
and
OCC Distributors
The following separate accounts of Sun Life Assurance Company of Canada
(U.S.) are permitted in accordance with the provisions of this Agreement to
invest in Portfolios of the Fund shown in Schedule 2:
Sun Life Assurance Company of Canada (U.S.) Variable Account F
February __, 1998
<PAGE>
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust, Sun Life Assurance Company of Canada (U.S.)
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
Mid Cap Portfolio
Equity Portfolio
Small Cap Portfolio
February __, 1998
<PAGE>
PARTICIPATION AGREEMENT
By and Among
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
And
WARBURG, PINCUS TRUST
And
WARBURG PINCUS ASSET MANAGEMENT, INC.
And
COUNSELLORS SECURITIES INC.
THIS AGREEMENT, made and entered into this ___ day of February, 1998, by
and among Sun Life Assurance Company of Canada (U.S.) organized under the laws
of Delaware (the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement as may be amended
from time to time (each account referred to as the "Account"), Warburg, Pincus
Trust, an open-end management investment company and business trust organized
under the laws of the Commonwealth of Massachusetts (the "Fund"); Warburg Pincus
Asset Management, Inc., a corporation organized under the laws of the State of
Delaware (the "Adviser"); and Counsellors Securities Inc., a corporation
organized under the laws of the State of New York ("CSI").
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies that have
entered into participation agreements similar to this Agreement (the
"Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has received an order from the Securities and Exchange
Commission (the "SEC") granting Participating Insurance Companies and variable
annuity separate accounts and variable life insurance separate accounts relief
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity separate accounts and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and qualified pension and retirement plans outside of the
separate account context (the "Mixed and Shared Funding Exemptive Order"). The
parties to this Agreement agree that the conditions or undertakings specified in
the Mixed and Shared Funding Exemptive Order and that may be imposed on the
Company, the Fund, the Adviser and/or CSI by virtue of the receipt of such order
<PAGE>
by the SEC will be incorporated herein by reference, and such parties agree to
comply with such conditions and undertakings to the extent applicable to each
such party; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company
under the insurance laws of Delaware, to set aside and invest assets
attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment trust
under the 1940 Act; and
WHEREAS, CSI, the Fund's distributor, is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934 (the "1934 Act") and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios named in
Schedule 2, as such schedule may be amended from time to time (the "Designated
Portfolios"), on behalf of the Account to fund the Contracts, and the Fund is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and CSI agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares of the Designated
Portfolios that each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt and acceptance by the Fund or
its designee of the order for the shares of the Fund. For purposes of this
Section 1.1, the Company will be the designee of the Fund for receipt of such
orders from each Account and receipt by such designee will constitute receipt by
the Fund; provided that the Fund receives notice of such order by 9:00 a.m.
Eastern Time on the next following Business Day ("T+1"). "Business Day" will
mean any day on which the New York Stock Exchange, Inc. (the "NYSE") is open for
trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
2
<PAGE>
1.2. The Company will pay for Fund shares on T+1 in each case that an order to
purchase Fund shares is made in accordance with Section 1.1 above. Payment will
be in federal funds transmitted by wire. This wire transfer will be initiated
by 12:00 p.m. Eastern Time.
1.3. The Fund agrees to make shares of the Designated Portfolios available
indefinitely for purchase at the applicable net asset value per share by the
Company and its separate accounts on those days on which the Fund calculates its
Designated Portfolio net asset value pursuant to rules of the SEC and the Fund
shall use its best efforts to calculate such net asset value on each day the
NYSE is open for trading; provided, however, that the Fund, the Adviser or CSI
may refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of shares of any Portfolio if such action is required by
law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Fund or its Board of Directors, acting in good faith,
necessary in the best interests of the shareholders of such Portfolio.
1.4. On each Business Day on which the Fund calculates its net asset value, the
Company will aggregate and calculate the net purchase or redemption orders for
each Account maintained by the Fund in which contract owner assets are invested.
Net orders will only reflect orders that the Company has received prior to the
close of regular trading on the NYSE currently 4:00 p.m., Eastern Time) on that
Business Day. Orders that the Company has received after the close of regular
trading on the NYSE will be treated as though received on the next Business Day.
Each communication of orders by the Company will constitute a representation
that such orders were received by it prior to the close of regular trading on
the NYSE on the Business Day on which the purchase or redemption order is priced
in accordance with Rule 22c-1 under the 1940 Act. Other procedures relating to
the handling of orders will be in accordance with the prospectus and statement
of additional information of the relevant Designated Portfolio or with oral or
written instructions that CSI or the Fund will forward to the Company from time
to time.
1.5. The Fund agrees that shares of the Fund will be sold only to Participating
Insurance Companies and their separate accounts, qualified pension and
retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), and regulations promulgated thereunder, the sale to which will
not impair the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold to the general public except as set forth in this Section
1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any full or
fractional shares of the Fund held by the Company, executing such requests on a
daily basis at the net asset value next computed after receipt and acceptance by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.6, the Company will be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee will
constitute receipt by the Fund, provided the Fund receives notice of request for
redemption by 10:00 a.m.
3
<PAGE>
Eastern Time on the next following Business Day. Payment will be in federal
funds transmitted by wire to the Company's account as designated by the Company
in writing from time to time, on the same Business Day the Fund receives notice
of the redemption order from the Company. The Fund reserves the right to delay
payment of redemption proceeds, but in no event may such payment be delayed
longer than the period permitted by the 1940 Act. The Fund will not bear any
responsibility whatsoever for the proper disbursement or crediting of redemption
proceeds; the Company alone will be responsible for such action. If
notification of redemption is received after 10:00 a.m. Eastern Time, payment
for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in accordance with
the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
1.9. The Fund will furnish same day notice (by telecopier, followed by written
confirmation) to the Company of the declaration of any income dividends or
capital gain distributions payable on each Designated Portfolio's shares. The
Company hereby elects to receive all such dividends and distributions as are
payable on the Designated Portfolio shares in the form of additional shares of
that Designated Portfolio. The Fund will notify the Company of the number of
shares so issued as payment of such dividends and distributions. The Company
reserves the right to revoke this election upon reasonable prior notice to the
Fund and to receive all such dividends and distributions in cash.
1.10. The Fund will make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and will use its
best efforts to make such net asset value per share available by 6:00 p.m.,
Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each Business
Day.
1.11. In the event adjustments are required to correct any error in the
computation of the net asset value of the Fund's shares, the Fund or CSI will
notify the Company as soon as practicable after discovering the need for those
adjustments that result in an aggregate reimbursement of $150 or more to any one
account maintained by a Designated Portfolio unless notified otherwise by the
Company (or, if lesser, results in an adjustment of $10 or more to each
contractowner's account). Any such notice will state for each day for which an
error occurred the incorrect price, the correct price and, to the extent
communicated to the Fund's shareholders, the reason for the price change. The
Company may send this notice or a derivation thereof (so long as such derivation
is approved
4
<PAGE>
in advance by CSI or the Adviser) to contractowners whose accounts are affected
by the price change. The parties will negotiate in good faith to develop a
reasonable method for effecting such adjustments.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws, including applicable
suitability requirements. The Company further represents and warrants that it
is an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account as a separate
account under applicable state law and has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, and that it will maintain such
registration for so long as any Contracts are outstanding. The Company will
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company will register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the time of
issuance will be treated as annuity contracts under applicable provisions of the
Internal Revenue Code, and that it will maintain such treatment and that it will
notify the Fund and the Adviser immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.3. The Company represents and warrants that it will not purchase shares of the
Designated Portfolios with assets derived from tax-qualified retirement plans
except, indirectly, through Contracts purchased in connection with such plans.
2.4. The Fund represents and warrants that Fund shares of the Designated
Portfolios sold pursuant to this Agreement will be registered under the 1933 Act
and duly authorized for issuance in accordance with applicable law and that the
Fund is and will remain registered under the 1940 Act for as long as such shares
of the Designated Portfolios are outstanding. The Fund will amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares or as may otherwise be required by applicable law. The Fund will
register and qualify the shares of the Designated Portfolios for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Fund.
5
<PAGE>
2.5. The Fund and Adviser represent that each Designated Portfolio is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code and that the Fund is compliant with Section 817(h) of the Internal
Revenue Code and Treasury Regulation 1.817-5, as amended from time to time,
relating to certain diversification requirements for variable annuity, endowment
or life insurance contracts, and the Fund and Adviser will maintain such
qualification (under Subchapter M or any successor or similar provision) and
compliant status and that the Fund or Adviser will notify the Company
immediately upon having a reasonable basis for believing that a Designated
Portfolio or the Fund, as applicable, has ceased to so qualify or that it might
not so qualify in the future.
2.6. The Fund and Adviser represent and warrant that in performing the services
described in this Agreement, each will comply with all applicable laws, rules
and regulations. The Fund, Adviser and CSI make no representation as to whether
any aspect of the Fund's operations (including, but not limited to, fees and
expenses and investment policies, objectives and restrictions) complies with the
insurance laws and regulations of any state. The Fund, the Adviser and CSI
agree that upon request they will use their best efforts to furnish the
information required by state insurance laws so that the Company can obtain the
authority needed to issue the Contracts in the various states.
2.7. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
reserves the right to make such payments in the future. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1 the Fund
undertakes to have its Fund Board formulate and approve any plan under Rule
12b-1 to finance distribution expenses in accordance with the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of The Commonwealth of Massachusetts and that it does and will
comply in all material respects with applicable provisions of the 1940 Act.
2.9. CSI represents and warrants that it will distribute the Fund shares of the
Designated Portfolios in accordance with all applicable federal and state
securities laws including, without limitation, the 1933 Act, the 1934 Act and
the 1940 Act.
2.10. CSI and the Adviser each represents and warrants that it is and will
remain duly registered under all applicable federal and state securities laws
and that it will perform its obligations for the Fund in accordance in all
material respects with any applicable state and federal securities laws. CSI
further represents that it will maintain its membership in good standing with
the National Association of Securities Dealers, Inc.
2.11. The Fund represents and warrants that all of its trustees, officers,
employees, and other individuals/entities having access to the funds and/or
securities of the Fund are and continue to be
6
<PAGE>
at all times covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund in an amount not less than the minimal coverage as required
currently by Rule 17g-(1) of the 1940 Act or related provisions as may be
promulgated from time to time. The aforesaid bond includes coverage for larceny
and embezzlement and is issued by a reputable bonding company. CSI and the
Adviser represent and warrant that they are and will continue to be at all times
covered by policies similar to the aforesaid bond.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Fund or CSI will provide the Company, at the Fund's or its affiliate's
expense, with as many copies of the current Fund prospectus for the Designated
Portfolios as the Company may reasonably request for distribution, at the
Company's expense, to prospective contractowners and applicants. The Fund or
CSI will provide, at the Fund's or its affiliate's expense, as many copies of
said prospectus as necessary for distribution, at the Company's expense, to
existing contractowners. The Fund or CSI will provide the copies of said
prospectus to the Company or to its mailing agent. If requested by the Company,
the Fund or CSI will provide such documentation, including a computer diskette
of the Company's specification or a final copy of a current prospectus set in
type at the Fund's or its affiliate's expense, and such other assistance as is
reasonably necessary in order for the Company at least annually (or more
frequently if the Fund prospectus is amended more frequently) to have the Fund's
prospectus, the prospectus for the Contracts and the prospectuses of other
mutual funds in which assets attributable to the Contracts may be invested
printed together in one document (the "Multifund Prospectus"), in which case the
Fund or its affiliate will bear its reasonable share of expenses as described
above, allocated based on the proportionate number of pages of the Fund's and
other fund's respective portions of the document.
3.2. The Fund or CSI will provide the Company, at the Fund's or its affiliate's
expense, with as many copies of the statement of additional information as the
Company may reasonably request for distribution, at the Company's expense, to
prospective contractowners and applicants. The Fund or CSI will provide, at the
Fund's or its affiliate's expense, as many copies of said statement of
additional information as necessary for distribution, at the Company's expense,
to any existing contractowner who requests such statement or whenever state or
federal law otherwise requires that such statement be provided. The Fund or CSI
will provide the copies of said statement of additional information to the
Company or to its mailing agent.
3.3. To the extent that the Fund or CSI desires to change (whether by revision
or supplement) any of the information contained in any form of Fund prospectus
or statement of additional information provided to the Company, the Fund or its
affiliate agrees to prepare and provide to the Company, at the Fund's or its
affiliate's expense, as many copies of such revised prospectus and/or statement
of additional information or supplement as may be legally required for
distribution, at the Fund's or its affiliate's expense, to contractowners. The
Company agrees to distribute copies of
7
<PAGE>
such revised prospectus and/or statement of additional information or supplement
as soon as possible following receipt thereof and will use its best efforts to
make such distribution no later than five days following receipt in the event
such change is legally required. To the extent that the Fund is required by law
to cease selling shares of a Designated Portfolio, the Company agrees to cease
offering shares of the Designated Portfolio until the Fund or CSI notifies the
Company otherwise.
3.4. The Fund or CSI, at the Fund's or its affiliate's expense, will provide the
Company or its mailing agent with copies of its proxy material, if any, reports
to shareholders and other communications to shareholders in such quantity as the
Company will reasonably require. The Company will distribute this proxy
material and tabulate the votes at the Fund's or its affiliate's expense.
3.5. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in the Account
in accordance with instructions received from contractowners; and
(c) vote shares of the Designated Portfolios held in the Account for
which no timely instructions have been received, as well as shares it owns, in
the same proportion as shares of such Designated Portfolio for which
instructions have been received from the Company's contractowners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges for variable contractowners.
Except as set forth above, the Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Company will be responsible for assuring that each of its separate
accounts participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Mixed and Shared Funding
Exemptive Order.
3.6. The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund either will provide for annual
meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not
to require such meetings) or, as the Fund currently intends, will comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees and with whatever rules the SEC may promulgate
with respect thereto.
8
<PAGE>
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. CSI will provide the Company on a timely basis with investment performance
information for each Designated Portfolio in which the Company maintains an
Account, including total return for the preceding calendar month and calendar
quarter, the calendar year to date, and the prior one-year, five-year, and ten
year (or life of the Designated Portfolio) periods. The Company may, based on
the SEC mandated information supplied by CSI, prepare communications for
contractowners ("Contractowner Materials"). The Company will provide copies of
all Contractowner Materials concurrently with their first use for CSI's internal
recordkeeping purposes. It is understood that neither CSI nor any Designated
Portfolio will be responsible for errors or omissions in, or the content of,
Contractowner Materials except to the extent that the error or omission resulted
from information provided by or on behalf of CSI or the Designated Portfolio.
Any printed information that is furnished to the Company pursuant to this
Agreement other than each Designated Portfolio's prospectus or statement of
additional information (or information supplemental thereto), periodic reports
and proxy solicitation materials is CSI's sole responsibility and not the
responsibility of any Designated Portfolio or the Fund. The Company agrees that
the Portfolios, the shareholders of the Portfolios and the officers and
governing Board of the Fund will have no liability or responsibility to the
Company in these respects.
4.2. The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with the
sale of the Contracts other than the information or representations contained in
the registration statement, prospectus or statement of additional information
for Fund shares, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in published reports for the Fund
which are in the public domain or approved by the Fund or CSI for distribution,
or in sales literature or other material provided by the Fund, the Adviser or by
CSI, except with permission of CSI. The Company will furnish, or will cause to
be furnished, to the Fund, the Adviser or CSI, each piece of sales literature or
other promotional material in which the Company or its Account is named, at
least ten (10) business days prior to its use. No such sales literature or
other promotional material which requires the permission of CSI prior to use
will be used if CSI reasonably objects to such use within five (5) business days
after receipt.
4.3. The Fund, the Adviser and CSI will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or statement
of additional information for the Contracts, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for each Account or the
Contracts which are in the public domain or approved by the Company for
distribution to contractowners, or in sales literature or other material
provided by the Company, except with permission of the Company. The Company
agrees to
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<PAGE>
respond to any request for approval on a prompt and timely basis. The Fund, the
Adviser or CSI will furnish, or will cause to be furnished, to the Company or
its designee, each piece of sales literature or other promotional material in
which the Company or its Account is named at least ten (10) business days prior
to its use. No such material will be used if the Company reasonably objects to
such use within five (5) business days after receipt of such material.
4.4. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additions information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC, the NASD or other regulatory
authority.
4.5. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC,
the NASD or other regulatory authority.
4.6. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media (e.g., on-line
networks such as the Internet or other electronic messages)), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisements sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, proxy materials and
any other material constituting sales literature or advertising under the NASD
rules, the 1933 Act or the 1940 Act.
4.7. The Fund and CSI hereby consent to the Company's use of the names of the
Fund, each Designated Portfolio and the Adviser in connection with the marketing
of the Contracts, subject to the terms of Sections 4.1 and 4.2 of this
Agreement. Such consent will continue only as long as any Contracts are
invested or marketed for investment in the relevant Designated Portfolio.
ARTICLE V. FEES AND EXPENSES
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5.1. The Fund, the Adviser and CSI will pay no fee or other compensation to the
Company (other than as set forth in the administrative services letter agreement
between CSI and the Company) except if the Fund or any Designated Portfolio
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then, subject to obtaining any required exemptive
orders or other regulatory approvals, the Fund may make payments to the Company
or to the underwriter for the Contracts if and in such amounts agreed to by the
Fund in writing.
5.2. All expenses incident to performance by the Fund of this Agreement will be
paid by the Fund to the extent permitted by law. The Fund will bear the
expenses for the cost of registration and qualification of the Fund's shares;
preparation and filing of the Fund's prospectus, statement of additional
information and registration statement, proxy materials and reports; setting in
type and printing the Fund's prospectus; setting in type and printing proxy
materials and reports by it to contractowners (including the costs of printing a
Fund prospectus that contains an annual report); the preparation of all
statements and notices required by any federal or state law; all taxes on the
issuance or transfer of the Fund's shares; any expenses permitted to be paid or
assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act; and all other expenses set forth in Article III of this Agreement.
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser will ensure that the Fund will at all times invest money from
the Contracts in such a manner as to ensure that the Contracts will be treated
as variable annuity contracts under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund will comply with Section 817(h) of the Internal Revenue Code and Treasury
Regulation 1.817-5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps: (a) to notify the Company of such breach; and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will monitor the Fund
for the existence of any irreconcilable material conflict among the interests of
the contractowners of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax or securities laws or regulations, or
a public ruling, private letter ruling, no-action or interpretative letter, or
any similar action by insurance, tax or securities regulatory authorities; (c)
an administrative or judicial decision in any relevant proceeding; (d) the
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manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by Participating Insurance Companies or
by variable annuity and variable life insurance contractowners; or (f) a
decision by an insurer to disregard the voting instructions of contractowners.
The Fund Board will promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which it is
aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its responsibilities, as delineated in the Mixed and Shared Funding
Exemptive Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Fund Board
whenever contractowner voting instructions are to be disregarded. The Company's
responsibilities hereunder will be carried out with a view only to the interest
of contractowners.
7.3. If it is determined by a majority of the Fund Board, or a majority of its
disinterested trustees, that an irreconcilable material conflict exists, the
Company will, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (a) withdrawing the assets allocable to some or all of the Accounts
from the Fund or any Designated Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contractowners and, as appropriate,
segregating the assets of any appropriate group (i.e., variable annuity
contractowners or variable life insurance contractowners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contractowners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
subaccount of the Account's investment in the Fund and terminate this Agreement
with respect to such subaccount; provided, however, that such withdrawal and
termination will be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the
disinterested trustees of the Fund Board. No charge or penalty will be imposed
as a result of such withdrawal.
7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state insurance regulators, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement with respect to
such subaccount; provided, however, that such withdrawal and termination will be
limited to the extent required by the foregoing irreconcilable material conflict
as
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<PAGE>
determined by a majority of the disinterested directors of the Fund Board. No
charge or penalty will be imposed as a result of such withdrawal.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund or the Adviser (or any other investment adviser to the Fund) be
required to establish a new funding medium for the Contracts. The Company will
not be required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
contractowners materially affected by the irreconcilable material conflict.
7.7. The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the Fund
Board may fully carry out the duties imposed upon it as delineated in the Mixed
and Shared Funding Exemptive Order, and said reports, materials and data will be
submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then: (a) the Fund and/or the Participating Insurance
Companies, as appropriate, will take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement will continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, CSI, and each person, if any, who controls or is associated with the
Fund, the Adviser or CSI within the meaning of such terms under the federal
securities laws and any director, trustee, officer, partner, employee or agent
of the foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
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<PAGE>
(1) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration statement,
prospectus or statement of additional information for the Contracts or contained
in the Contracts or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the foregoing), including
any prospectuses or statements of additional information of the Fund to which
the Company has made any changes to the information provided to the Company, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated or necessary to make such
statements not misleading in light of the circumstances in which they were made;
provided that this agreement to indemnify will not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with written information furnished to
the Company by the Fund, the Adviser or CSI for use in the registration
statement, prospectus or statement of additional information for the Contracts
or in the Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or
(2) arise out of or as a result of statements or representations by
or on behalf of the Company or wrongful conduct of the Company or persons under
its control, with respect to the sale or distribution of the Contracts or Fund
shares (other than statements or representations contained in the Fund
registration statement, Fund prospectus, Fund statement of additional
information, sales literature or other promotional material of the Fund not
supplied by the Company or persons under its control); or
(3) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Fund registration statement, prospectus,
statement of additional information or sales literature or other promotional
material of the Fund (or amendment or supplement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make such statements not misleading in light of the circumstances
in which they were made, if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by or on behalf of
the Company or persons under its control; or
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(5) arise out of any material breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or result from
any other material breach by the Company of this Agreement, including, but not
limited to, a failure to comply with the provisions of Section 3.3;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Company otherwise
may have.
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<PAGE>
(b) No party will be entitled to indemnification under Section 8.1(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by the party seeking
indemnification.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by regulatory
authorities against them in connection with the issuance or sale of the Fund
shares or the Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE ADVISER AND CSI
(a) The Adviser and CSI, in each case solely to the extent relating to
such party's responsibilities hereunder, agree to indemnify and hold harmless
the Company and each person, if any, who controls or is associated with the
Company within the meaning of such terms under the federal securities laws and
any director, trustee, officer, partner, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Adviser) or
litigation (including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Fund or sales
literature or other promotional material of the Fund (or any amendment or
supplement to any of the foregoing) or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated or necessary to make such statements not misleading in light of the
circumstances in which they were made (in each case substantially as transmitted
to you by the Fund or CSI), provided that this agreement to indemnify will not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Adviser, CSI or the Fund by or on behalf of the
Company for use in the registration statement, prospectus or statement of
additional information for the Fund or in sales literature of the Fund (or any
amendment or supplement thereto) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations
or wrongful conduct of the Adviser, the Fund or CSI or persons under the
control of the Adviser, the Fund or
15
<PAGE>
CSI respectively, with respect to the sale of the Fund shares (other than
statements or representations contained in a registration statement,
prospectus, statement of additional information, sales literature or other
promotional material covering the Contracts not supplied by CSI or persons
under its control); or
(3) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, statement of
additional information or sales literature or other promotional material
covering the Contracts (or any amendment or supplement thereto), or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make such statement or statements not misleading in light of the
circumstances in which they were made, if such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company by the Adviser, the Fund or CSI or persons under the control of the
Adviser, the Fund or CSI; or
(4) arise as a result of any failure by the Fund, the Adviser or CSI
to provide the services and furnish the materials under the terms of this
Agreement (including, without limitation, a failure, whether unintentional or in
good faith or otherwise, to (i) comply with the diversification requirements and
procedures related thereto specified in Article VI of this Agreement) and (ii)
inform the Company of the correct net asset value per share for each Designated
Portfolio by 7:00 p.m., Eastern time, on a Business Day.
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser, the Fund or CSI in this
Agreement, or arise out of or result from any other material breach of this
Agreement by the Adviser the Fund or CSI;
except to the extent provided in Sections 8.2(b) and 8.3 hereof.
These indemnifications will be in addition to any liability that the Fund,
Adviser or CSI otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by the party seeking
indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the Fund and
CSI of the commencement of any litigation, proceedings, complaints or actions by
regulatory authorities against them in connection with the issuance or sale of
the Contracts or the operation of the account.
8.3. INDEMNIFICATION PROCEDURE
16
<PAGE>
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.3) will not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("Indemnified Party" for the purpose of this Section 8.3) unless such
Indemnified Party will have notified the Indemnifying Party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim will have been served upon such
Indemnified Party (or after such party will have received notice of such service
on any designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of the indemnification provision of this Article VIII, except to
the extent that the failure to notify results in the failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a result
of failure to give such notice. In case any such action is brought against the
Indemnified Party, the Indemnifying Party will be entitled to participate, at
its own expense, in the defense thereof. The Indemnifying Party also will be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Indemnifying Party to the
Indemnified Party of the Indemnifying Party's election to assume the defense
thereof, the Indemnified Party will bear the fees and expenses of any additional
counsel retained by it, and the Indemnifying Party will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation, unless: (a) the Indemnifying Party and the
Indemnified Party will have mutually agreed to the retention of such counsel; or
(b) the named parties to any such proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Indemnifying Party will not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there is a final judgment for the
plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from
and against any loss or liability by reason of such settlement or judgment. A
successor by law of the parties to this Agreement will be entitled to the
benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII will survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York, without regard
to conflicts of laws provisions.
9.2. This Agreement will be subject to the provisions of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Mixed
17
<PAGE>
and Shared Funding Exemptive Order) and the terms hereof will be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to
some or all of the Designated Portfolios, upon one year's advance written notice
to the other parties; or
(b) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if shares
of the Designated Portfolio are not reasonably available to meet the
requirements of the Contracts as determined in good faith by the Company; or
(c) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio in the
event any of the Designated Portfolio's shares are not registered, issued or
sold in accordance with applicable state and/or Federal law or such law
precludes the use of such shares as the underlying investment media of the
Contracts issued or to be issued by Company; or
(d) at the option of the Fund, upon receipt of the Fund's written notice
by the other parties, upon institution of formal proceedings against the Company
by the NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the administration of the Contracts, the operation
of the Account, or the purchase of the Fund shares, provided that the Fund
determines in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Company's ability to
perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of the Company's written
notice by the other parties, upon institution of formal proceedings against the
Fund, Adviser or CSI by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, provided that the Company determines in
its sole judgment, exercised in good faith, that any such proceeding would have
a material adverse effect on the Fund's, Adviser's or CSI's ability to perform
its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if the
Designated Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, or under
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<PAGE>
any successor or similar provision, or if the Company reasonably and in good
faith believes that the Designated Portfolio may fail to so qualify; or
(g) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if the
Designated Portfolio fails to meet the diversification requirements specified in
Article VI hereof or if the Company reasonably and in good faith believes the
Designated Portfolio may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice to
the other parties, upon another party's material breach of any provision of this
Agreement which material breach is not cured within thirty (30) days of said
notice; or
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith, that either the Fund, the Adviser or CSI has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Company, such termination to be effective sixty (60) days'
after receipt by the other parties of written notice of the election to
terminate; or
(j) at the option of the Fund or CSI, if the Fund or CSI respectively,
determines in its sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Fund or the Adviser, such termination to be effective
sixty (60) days' after receipt by the other parties of written notice of the
election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any necessary
regulatory approvals and/or the vote of the contractowners having an interest in
the Account (or any subaccount) to substitute the shares of another investment
company for the corresponding Designated Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Designated Portfolio
shares had been selected to serve as the underlying investment media. The
Company will give sixty (60) days' prior written notice to the Fund of the date
of any proposed vote or other action taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of:
(1) all contractowners of variable insurance products of all separate accounts;
or (2) the interests of the Participating Insurance Companies investing in the
Fund as set forth in Article VII of this Agreement; or
19
<PAGE>
(m) at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without notice.
10.2. NOTICE REQUIREMENT
Except as specified in Section 10.1(m), no termination of this Agreement
will be effective unless and until the party terminating this Agreement gives
prior written notice to all other parties of its intent to terminate, which
notice will set forth the basis for the termination.
10.3. EFFECT OF TERMINATION
In the event of any termination of this Agreement other than pursuant to
subsection (d), (j), (k), (l) or (m) of Section 10.1, the Fund and CSI will, at
the option of the Company, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for all Contracts
in effect on the effective date of termination of this Agreement ( hereinafter
referred to as "Existing Contracts.") . Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Designated Portfolios (as in effect on such date), redeem investments in the
Designated Portfolios and/or invest in the Designated Portfolios upon the making
of additional purchase payments under the Existing Contracts.
10.4. SURVIVING PROVISIONS
Notwithstanding any termination of this Agreement, each party's obligations
under Article VIII to indemnify other parties will survive and not be affected
by any termination of this Agreement. In addition, each party's obligations
under Section 12.6 will survive and not be affected by any termination of this
Agreement. Finally, with respect to Existing Contracts, all provisions of this
Agreement also will survive and not be affected by any termination of this
Agreement.
ARTICLE XI. NOTICES
11.1. Any notice will be deemed duly given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other parties.
If to the Company: If to the Fund, the Adviser and/or CSI:
One Copley Place 466 Lexington Avenue
Suite 100 10th Floor
20
<PAGE>
Boston, MA 02116 New York, NY 10017
Attn: Margaret Hankard Attn: Eugene P. Grace
Senior Associate Counsel Senior Vice President
ARTICLE XII. MISCELLANEOUS
12.1. The Fund, the Adviser and CSI acknowledge that the identities of the
customers of the Company or any of its affiliates (collectively the "Company
Protected Parties" for purposes of this Section 12.1), information maintained
regarding those customers, and all computer programs and procedures or other
information developed or used by the Company Protected Parties or any of their
employees or agents in connection with the Company's performance of its duties
under this Agreement are the valuable property of the Company Protected Parties.
The Fund, the Adviser and CSI agree that if they come into possession of any
list or compilation of the identities of or other information about the Company
Protected Parties' customers, or any other information or property of the
Company Protected Parties, other than such information as is publicly available
or as may be independently developed or compiled by the Fund, the Adviser or CSI
from information supplied to them by the Company Protected Parties' customers
who also maintain accounts directly with the Fund, the Adviser or CSI, the Fund,
the Adviser and CSI will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with the Company's prior written consent; (b) as required
by law or judicial process; or (c) as may be necessary in the ordinary course of
business or operations. The Company acknowledges that the identities of the
customers of the Fund, the Adviser, CSI or any of their affiliates (collectively
the "Adviser Protected Parties" for purposes of this Section 12.1), information
maintained regarding those customers, and all computer programs and procedures
or other information developed or used by the Adviser Protected Parties or any
of their employees or agents in connection with the Fund's, the Adviser's or
CSI's performance of their respective duties under this Agreement are the
valuable property of the Adviser Protected Parties. The Company agrees that if
it comes into possession of any list or compilation of the identities of or
other information about the Adviser Protected Parties' customers, or any other
information or property of the Adviser Protected Parties, other than such
information as is publicly available or as may be independently developed or
compiled by the Company from information supplied to them by the Adviser
Protected Parties' customers who also maintain accounts directly with the
Company, the Company will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with the Fund's, the Adviser's or CSI's prior written
consent; (b) as required by law or judicial process; or (c) as may be necessary
in the ordinary course of business or operations.. Each party acknowledges that
any breach of the agreements in this Section 12.1 would result in immediate and
irreparable harm to the other parties for which there would be no adequate
remedy at law and agree that in the event of such a breach, the other parties
will be entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent jurisdiction
deems appropriate.
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12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
12.4. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.5. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties.
12.6. Each party to this Agreement will maintain all records required by
law, including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and in
accordance with the 1940 Act and the rules thereunder. Each party to this
Agreement will cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state insurance
regulators) and will permit each other, directly and through such party's
authorized representatives, and such authorities reasonable access to its books
and records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby. Upon request by the Fund or
CSI, the Company agrees to grant the Fund or CSI reasonable access to all
files, books and records pertaining to the performance of services under this
Agreement. The Fund agrees that the Company will have the right to inspect,
audit and copy all files, books and records pertaining to the performance of
services under this Agreement. Each party also agrees to promptly notify the
other parties if it experiences any difficulty in maintaining the records in an
accurate and complete manner. This provision will survive termination of this
Agreement.
12.7. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.8. The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this agreement,
will be satisfied solely out of the assets of the Fund and that no trustee,
officer, agent or holder of shares of beneficial interest of the Fund will be
personally liable for any such liabilities. No Portfolio or series of the Fund
will be liable for the obligations or liabilities of any other Portfolio or
series.
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12.9. The parties to this Agreement may amend, upon mutual agreement, the
schedules to this Agreement from time to time to reflect changes in or relating
to the Contracts, the Accounts or the Designated Portfolios of the Fund or other
applicable terms of this Agreement.
12.10. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized representative as of
the date specified above.
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
WARBURG, PINCUS TRUST
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
WARBURG PINCUS ASSET MANAGEMENT, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
COUNSELLORS SECURITIES INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
23
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Schedule 1
PARTICIPATION AGREEMENT
By and Among
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
And
WARBURG, PINCUS TRUST
And
WARBURG PINCUS ASSET MANAGEMENT, INC.
And
COUNSELLORS SECURITIES INC.
The following separate accounts of Sun Life Assurance Company of Canada (U.S.)
are permitted in accordance with the provisions of this Agreement to invest in
Designated Portfolios of the Fund shown in Schedule 2:
Sun Life of Canada (U.S.) Variable Account F
24
<PAGE>
Schedule 2
PARTICIPATION AGREEMENT
By and Among
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
And
WARBURG, PINCUS TRUST
And
WARBURG PINCUS ASSET MANAGEMENT, INC.
And
COUNSELLORS SECURITIES INC.
The Separate Account(s) shown on Schedule 1 may invest in the following
Designated Portfolios of the Warburg, Pincus Trust:
International Equity Portfolio
Post-Venture Capital Portfolio
Emerging Markets Portfolio
Small Company Growth Portfolio
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EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 13 to Registration
Statement No. 33-41628 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 headings "Condensed
Financial Information - Accumulation Units Values" and "Accountants" in such
Prospectus and under the heading "Accountants" in such Statement of
Additional Information.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 23, 1999
