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As Filed with the Securities and Exchange Commission on June 9, 2000
REGISTRATION NO. 333-30844
811-05846
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
TO
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 25 /X/
TO
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
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 02481
(Address of Depositor's Principal Executive Offices)
DEPOSITOR'S TELEPHONE NUMBER: (781) 237-6030
EDWARD M. SHEA, ASSISTANT VICE PRESIDENT AND SENIOR COUNSEL
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
ONE COPLEY PLACE
BOSTON, MASSACHUSETTS 02116
(Name and Address of Agent for Service)
COPIES OF COMMUNICATIONS TO:
JOAN E. BOROS, ESQ.
JORDEN BURT BOROS CICCHETTI BERENSON & JOHNSON LLP
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 400 EAST
WASHINGTON, D.C. 20007-0805
Approximate Date of Proposed Public Offering: Upon the date of effectiveness
or as soon thereafter as practicable.
Title and amount of securities being registered: Interests under flexible
payment deferred annuity contracts.
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Attached hereto and made a part hereof is the Profile and Prospectus dated
June 9, 2000 for each of the following:
MFS Regatta Choice Variable and Fixed Annuity
Futurity III Variable and Fixed Annuity
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
JUNE 9, 2000
PROFILE
MFS REGATTA CHOICE
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 CHOICE ANNUITY
The MFS Regatta Choice 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 26 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
"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 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.
Over the life of your Contract, you may allocate amounts among as many as 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 a specified number of
years after your first payment 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, with a cash-out option for variable payments. We may also agree
to other annuity options at our discretion.
Once the Income Phase begins, you cannot change your choice of annuity
payment method.
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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 may waive these limits. We will not
accept a purchase payment if your account value is over $2 million, or if the
purchase payment would cause your account value to exceed $2 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 of the MFS/Sun Life Series Trust:
<TABLE>
<S> <C>
Bond Series International Growth and Income Series
Capital Appreciation Series Managed Sectors Series
Capital Opportunities Series Massachusetts Investors Growth Stock Series
Emerging Growth Series Massachusetts Investors Trust Series
Emerging Markets Equity Series Money Market Series
Equity Income Series New Discovery Series
Global Asset Allocation Series Research Series
Global Governments Series Research Growth and Income Series
Global Growth Series Research International Series
Global Total Return Series Strategic Growth Series
Government Securities Series Strategic Income Series
High Yield Series Total Return Series
International Growth Series Utilities Series
</TABLE>
Market conditions will determine the value of an investment in any Fund.
Each Fund 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, if your account value is less than
$75,000, we impose an annual Account Fee equal to $35. After the fifth year, we
may change this fee annually, but it will never exceed $50. During the Income
Phase, the annual Account Fee is $35. We will not assess an Account Fee if your
Contract is fully invested in the Fixed Account during the entire Account Year.
We will waive the Account Fee if your Contract value was $75,000 or more on your
Account Anniversary, or if your Account was allocated only to the Fixed Account
during the applicable Account Year. In addition, during both the Accumulation
Phase and the Income Phase, we deduct insurance charges equal to 1.15% per year
of the average daily value of the Contract allocated among the Sub-Accounts. If
your initial purchase payment is greater than $1,000,000, we will decrease the
insurance charges to 1.00%. If you annuitize before your seventh Account
Anniversary, we will assess, during the Income Phase, an additional charge equal
to 0.25% of your daily account value.
If you elect one or more optional death benefit riders, we will deduct,
during the Accumulation Phase, an additional charge per year, depending upon the
number of riders you elect, as follows:
<TABLE>
<CAPTION>
NUMBER OF % OF AVERAGE
RIDERS YOU ELECT DAILY VALUE
---------------- ------------
<S> <C>
1 0.15%
2 0.25%
3 0.40%
</TABLE>
2
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No optional death benefit is offered if you are 80 or older at issue. No
charges for optional death benefit riders are assessed during the Income Phase.
There are no sales charges when you purchase your Contract. 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. Each payment begins a new 7-year period and moves down a declining
surrender charge scale at each Account Anniversary. Payments received during the
current Account Year will be charged 7%, if withdrawn. On your next scheduled
Account Anniversary, that payment, along with any other payments made during
that Account Year, will be considered to be in their second Account Year and
will have a 7% withdrawal charge. On the next Account Anniversary, these
payments will move into their third Account Year and will have a withdrawal
charge of 6%, if withdrawn. This withdrawal charge decreases according to the
number of Account Years the purchase payment has been held in your Account. The
declining scale is as follows:
<TABLE>
<CAPTION>
NUMBER OF ACCOUNT YEARS
PAYMENT HAS BEEN IN
YOUR CONTRACT WITHDRAWAL CHARGE
----------------------- -----------------
<S> <C>
0-1 7%
1-2 7%
2-3 6%
3-4 6%
4-5 5%
5-6 4%
6-7 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 Account 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 0.57% to 1.60% of the average net assets of the Fund,
depending upon which Funds you have selected. The investment adviser has agreed
to waive or reimburse a portion of expenses for some of the Funds; without this
agreement, Fund expenses could be higher. Some of these agreements 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 and/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.
During the Accumulation Phase, "Total Annual Insurance Charges" of 1.25%
as shown in the table below include insurance charges of 1.15% of your daily net
assets (1.00% for mortality and expense risks and 0.15% for administrative
expenses) plus an additional 0.10%, which is used to represent the current $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
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Contract. After the fifth Account Anniversary, we may raise the annual Account
Fee, but in no event will it ever exceed $50. The 10-year total expense
examples, below, reflect a $50 annual Account Fee.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL TOTAL EXPENSES
INSURANCE FUND ANNUAL AT END
SUB-ACCOUNT CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
----------- ------------ ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Bond Series 1.25% 0.72% 1.97% $82 $232
Capital Appreciation Series 1.25% 0.76% 2.01% $82 $236
Capital Opportunities Series 1.25% 0.84% 2.09% $83 $245
Emerging Growth Series 1.25% 0.75% 2.00% $82 $235
Emerging Markets Equity Series 1.25% 1.60% 2.85% $90 $320
Equity Income Series 1.25% 1.01% 2.26% $83 $253
Global Asset Allocation Series 1.25% 0.89% 2.14% $83 $250
Global Governments Series 1.25% 0.90% 2.15% $83 $251
Global Growth Series 1.25% 1.01% 2.26% $84 $262
Global Total Return Series 1.25% 0.89% 2.14% $83 $250
Government Securities Series 1.25% 0.61% 1.86% $81 $221
High Yield Series 1.25% 0.83% 2.08% $82 $242
International Growth Series 1.25% 1.23% 2.48% $86 $284
International Growth and Income Series 1.25% 1.16% 2.41% $86 $277
Managed Sectors Series 1.25% 0.79% 2.04% $82 $239
Massachusetts Investors Growth Stock Series 1.25% 0.83% 2.08% $83 $244
Massachusetts Investors Trust Series 1.25% 0.59% 1.84% $80 $218
Money Market Series 1.25% 0.57% 1.82% $80 $216
New Discovery Series 1.25% 1.06% 2.31% $85 $267
Research Series 1.25% 0.75% 2.00% $82 $235
Research Growth and Income Series 1.25% 0.86% 2.11% $83 $247
Research International Series 1.25% 1.50% 2.75% $86 $284
Strategic Growth Series 1.25% 1.08% 2.25% $84 $261
Strategic Income Series 1.25% 1.08% 2.33% $85 $269
Total Return Series 1.25% 0.69% 2.19% $81 $229
Utilities Series 1.25% 0.81% 2.31% $83 $243
</TABLE>
If your initial purchase payment is $1,000,000 or more, we will reduce
your insurance charges, during the Accumulation Phase, by 0.15%.
If you annuitize before your 7th Account Anniversary, we will increase
your insurance charges by 0.25% during the Income Phase.
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
Under current federal tax laws, 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.
Different laws apply if your Contract is issued in Puerto Rico. Under the
tax laws of Puerto Rico, when an annuity payment is made under your Contract,
your annuitant or any other payee is required to include as gross income the
portion of each annuity payment equal to 3% of the aggregate purchase payments
you made under the Contract. The amount if any, in excess of the included amount
is excluded from gross income. After an amount equal to the aggregate amount
excluded from gross income has been received, all of the annuity payments are
considered to be taxable income.
You should consult with your tax adviser for specific tax information.
4
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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. In the first Account
Year, the portion of your Account that is not subject to a withdrawal charge is
equal to 15% of all purchase payments made during that Account Year. After your
first Account Anniversary, the portion of your Account that is not subject to a
withdrawal charge is 100% of all purchase payments made prior to the last 7
Account Years not previously withdrawn PLUS the greater of (1) 15% of all
purchase payments you have made in the last 7 years or (2) all earnings minus
any previous withdrawals. All other purchase payments you withdraw will be
subject to a withdrawal charge ranging from 7% to 3%. You may also be required
to pay income tax and possible tax penalties on any money you withdraw.
We do not assess a withdrawal charge upon annuitization or transfers. In
certain circumstances, we will waive the withdrawal charges for a full or
partial withdrawal when you are confined to an eligible nursing home. In
addition, there may be other circumstances under which we may waive the
withdrawal charge.
In addition to the withdrawal charge, amounts you withdraw, transfer or
annuitize from the Fixed Account before your Guarantee Period has ended may be
subject to a Market Value Adjustment.
8. PERFORMANCE
If you invest in one or more Sub-Accounts, the value of your Contract will
increase or decrease depending upon the investment performance of the Funds you
choose. The Sub-Accounts have not been in operation for a full calendar year;
therefore no performance information is provided in this Profile.
9. DEATH BENEFIT
If you die before the Contract reaches the Income Phase, the beneficiary
will receive a death benefit. To calculate the death benefit, we use a "Death
Benefit Date," which is the earliest date we have both due proof of death and a
written request specifying the manner of payment.
BASIC DEATH BENEFIT
If you were 85 or younger when we issued your Contract, the death benefit
is the greatest of:
(1) the value of the Contract on the Death Benefit Date;
(2) the amount we would pay in the event of a full surrender of the
Contract on the Death Benefit Date; and
(3) your total purchase payments (adjusted for partial withdrawals)
calculated as of the Death Benefit Date.
If you were 86 or older when we issued your Contract, the death benefit is
equal to the amount set forth in (2) above. Because this amount will reflect any
applicable withdrawal charges and Market Value Adjustment, it may be less than
your account value.
OPTIONAL DEATH BENEFIT RIDERS
Subject to availability in your state, if you are 79 or younger when we
issue your Contract, you may enhance this basic death benefit by electing one or
more of the following optional death benefit riders: the Maximum Anniversary
Account Value Rider, the 5% Premium Roll-Up Rider, and the Earnings Enhancement
Rider.
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MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER
If you elect the Maximum Anniversary Account Value Rider, the death benefit
is the greater of:
- any death benefit amounts payable under "Basic Death Benefit" (above), or
- your highest Contract value on any Account Anniversary before your 81st
birthday, adjusted for any subsequent purchase payments, partial
withdrawals, and charges made between that Account Anniversary and the
Death Benefit Date.
5% PREMIUM ROLL-UP RIDER
If you elect the 5% Premium Roll-Up Rider, the death benefit is the greatest
of:
- any death benefit amounts payable under "Basic Death Benefit" (above), or
- the sum of your total purchase payment plus interest accruals, adjusted
for partial withdrawals.
Under this rider, interest accrues at 5% per year on purchase payments and
transfers to the Variable Account while they remain in the Variable Account. The
5% accruals will continue until the earlier of:
- first day of the month following your 80th birthday or
- the day the death benefit amount under this rider equals twice the total
of the purchase payments and transferred amounts adjusted for withdrawals.
Net Purchase Payments under this rider will be adjusted for all partial
withdrawals as described in the Prospectus under the heading "Calculating the
Death Benefit."
EARNINGS ENHANCEMENT RIDER
If you elect the Earnings Enhancement Rider and you are 69 or younger when
we issue your Contract, the death benefit is:
- the greatest of any death benefit amounts payable under the "Basic Death
Benefit" (above), plus
- 40% of the lesser of your net purchase payments or your Account Value
minus net purchase payments, calculated as of the Death Benefit Date.
If you elect the Earnings Enhancement Rider, and you are between the ages
of 70 and 79 when we issue your Contract, the death benefit is:
- the greatest of any death benefit amounts payable under the "Basic Death
Benefit" (above) plus
- 25% of the lesser of your net purchase payment or your Account Value minus
net purchase payments, calculated as of the Death Benefit Date.
SELECTING MULTIPLE DEATH BENEFIT RIDERS
If you elect more than one death benefit rider, the death benefit will be
calculated as follows:
1) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER COMBINED WITH 5% PREMIUM ROLL-UP
RIDER: The death benefit will equal the greater of the death benefit
under the Maximum Anniversary Account Value Rider or the death benefit
under the 5% Premium Roll-Up Rider.
2) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER COMBINED WITH EARNINGS
ENHANCEMENT RIDER: The death benefit will equal the death benefit under
the Maximum Anniversary Account Value Rider, PLUS the amount calculated
under the Earnings Enhancement Rider. The death benefit under the
Earnings Enhancement Rider is calculated using the account value before
the application of the Maximum Anniversary Account Rider.
3) EARNINGS ENHANCEMENT RIDER COMBINED WITH 5% PREMIUM ROLL-UP RIDER: The
death benefit will equal the death benefit under the 5% Premium Roll-Up
Rider, PLUS the amount calculated
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under the Earnings Enhancement Rider. The death benefit under the
Earnings Enhancement Rider is calculated using the account value before
the application of the 5% Premium Roll-Up Rider.
4) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER COMBINED WITH BOTH THE 5%
PREMIUM ROLL-UP RIDER AND THE EARNINGS ENHANCEMENT RIDER: The death
benefit will equal the greater of the death benefit under the Maximum
Anniversary Account Value Rider or the death benefit under the 5% Premium
Roll-Up Rider, PLUS the amount calculated under the Earnings Enhancement
Rider. The death benefit under the Earnings Enhancement Rider is
calculated using the account value before the application of the 5%
Premium Roll-Up Rider and that of the Maximum Anniversary Account Value
Rider.
If your spouse is the sole beneficiary, your spouse may elect to continue
the Contract. The death benefit amount described above will be your new account
value as of the Death Benefit Date. For purposes of calculating future death
benefits, your spouse's age and the original issue date of the Contract will be
used to determine applicable expense and death benefit amounts.
10. OTHER INFORMATION
FREE LOOK. Depending upon applicable state or federal 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, based upon applicable state or federal law, 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 a 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 investment 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 or not the underlying contract is an annuity. You
should not buy a Contract if you are looking for a short-term investment or if
you do not wish to risk a decrease in the value of your investment.
CONFIRMATIONS AND QUARTERLY STATEMENTS. You will receive a confirmation or
an acknowledgment of transactions within your Contract, except for those
transactions which are part of an automated program, such as Dollar-Cost
Averaging, Asset Allocation, Systematic Withdrawal and/or Portfolio Rebalancing.
On a quarterly basis, you will receive a complete statement of your transactions
over the past quarter and a summary of your Account values at the end of that
period.
ADDITIONAL FEATURES. The Contract offers the following additional
convenient features, which you may choose at no extra charge. These features may
be started or discontinued at any time by either you or the Company; however, we
may require up to a 30-day notice.
DOLLAR-COST AVERAGING -- This program lets you invest gradually in up to
12 Sub-Accounts.
ASSET ALLOCATION -- This program rebalances your Account balance based on
the terms of the program. Different asset allocation models may be available
over the lifetime of the Contract; however, only one program can be in effect at
any one time.
SYSTEMATIC WITHDRAWAL PROGRAM -- This program allows you to receive
monthly, 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.
7
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SECURED FUTURE PROGRAM -- This program guarantees the return of your
purchase payment by investing a portion of your investment into a Guarantee
Period, and also allows you to allocate a portion of your investment to one or
more Sub-Accounts.
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.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE: TOLL FREE (800) 752-7215
8
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PROSPECTUS
JUNE 9, 2000
MFS REGATTA CHOICE
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 26 variable investment options and a range of fixed
options. The variable options are Sub-Accounts in the Variable Account, each of
which invests in one of the following series of the MFS/Sun Life Series Trust
(the "Funds"). The MFS/Sun Life Series Trust (the "Series Fund") is a mutual
fund advised by our affiliate, Massachusetts Financial Services Company:
<TABLE>
<S> <C>
Bond Series International Growth and Income Series
Capital Appreciation Series Managed Sectors Series
Capital Opportunities Series Massachusetts Investors Growth Stock Series
Emerging Growth Series Massachusetts Investors Trust Series
Emerging Markets Equity Series Money Market Series
Equity Income Series New Discovery Series
Global Asset Allocation Series Research Series
Global Governments Series Research Growth and Income Series
Global Growth Series Research International Series
Global Total Return Series Strategic Growth Series
Government Securities Series Strategic Income Series
High Yield Series Total Return Series
International Growth Series Utilities 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 CONTRACTS AND THE FUNDS.
We have filed a Statement of Additional Information dated June 9, 2000
(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 105 of this Prospectus. You may obtain a copy without charge by
writing to us at the address shown below (which we sometimes refer to as our
"Annuity Mailing Address") or by telephoning (800) 752-7215. 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:
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms 4
Expense Summary 4
Summary of Contract Expenses 4
Underlying Fund Annual Expenses 5
Examples 6
The Annuity Contract 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 Funds 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; Special Guaranteed
Interest Rates 15
Optional Programs 15
Withdrawals, Withdrawal Charge and Market Value Adjustment 17
Cash Withdrawals 17
Withdrawal Charge 18
Types of Withdrawals Not Subject to Withdrawal Charge 20
Market Value Adjustment 20
Contract Charges 21
Account Fee 21
Administrative Expense Charge 21
Mortality and Expense Risk Charge 22
Charges for Optional Death Benefit Riders 22
Premium Taxes 22
Fund Expenses 22
Modification in the Case of Group Contracts 22
Death Benefit 23
Amount of Death Benefit 23
The Basic Death Benefit 23
Optional Death Benefit Riders 23
Spousal Continuance 25
Calculating the Death Benefit 25
Method of Paying Death Benefit 25
Non-Qualified Contracts 26
Selection and Change of Beneficiary 26
Payment of Death Benefit 26
Due Proof of Death 26
The Income Phase -- Annuity Provisions 26
Selection of the Annuitant or Co-Annuitant 27
Selection of the Annuity Commencement Date 27
Annuity Options 27
Selection of Annuity Option 28
Amount of Annuity Payments 29
Exchange of Variable Annuity Units 30
Account Fee 30
Annuity Payment Rates 30
Annuity Options as Method of Payment for Death Benefit 30
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Other Contract Provisions 30
Exercise of Contract Rights 30
Change of Ownership 31
Voting of Fund Shares 31
Periodic Reports 32
Substitution of Securities 32
Change in Operation of Variable Account 32
Splitting Units 33
Modification 33
Discontinuance of New Participants 33
Reservation of Rights 33
Right to Return 33
Tax Considerations 34
U.S. Federal Tax Considerations 34
DEDUCTIBILITY OF PURCHASE PAYMENTS 34
PRE-DISTRIBUTION TAXATION OF CONTRACTS 34
DISTRIBUTIONS AND WITHDRAWALS FROM NON-QUALIFIED
CONTRACTS 34
DISTRIBUTION AND WITHDRAWALS FROM QUALIFIED
CONTRACTS 35
WITHHOLDING 35
INVESTMENT DIVERSIFICATION AND CONTROL 35
TAX TREATMENT OF THE COMPANY AND THE VARIABLE
ACCOUNT 36
QUALIFIED RETIREMENT PLANS 36
PENSION AND PROFIT-SHARING PLANS 36
TAX-SHELTERED ANNUITIES 36
INDIVIDUAL RETIREMENT ACCOUNTS 37
ROTH IRAS 37
Puerto Rico Tax Considerations 37
Administration of the Contract 38
Distribution of the Contract 38
Performance Information 38
Available Information 39
Incorporation of Certain Documents by Reference 40
Additional Information About the Company 40
General 40
Selected Financial Data 41
Management's Discussion and Analysis of Financial
Condition and Results of Operations 42
Quantitative and Qualitative Disclosures About Market
Risk 49
Reinsurance 56
Reserves 57
Investments 57
Competition 57
Employees 57
Properties 58
State Regulation 58
Legal Proceedings 58
Accountants 58
Financial Statements 59
Table of Contents of Statement of Additional Information 108
Appendix A -- Glossary 110
Appendix B -- Withdrawals, Withdrawal Charges and the Market
Value Adjustment 113
Appendix C -- Calculation of Basic Death Benefit 116
Appendix D -- Calculation of Earnings Enhancement Optional
Death Benefit Rider 117
Appendix E -- Calculation of Death Benefit When All Three
Optional Death Benefit Riders are Selected 118
</TABLE>
3
<PAGE>
SPECIAL TERMS
Your Contract is a legal document that uses a number of specially defined
terms. We explain most of the terms that we use in this Prospectus in the
context where they arise, and some are self-explanatory. In addition, for
convenient reference, we have compiled a list of these terms in the Glossary
included at the back of this Prospectus as Appendix A. If, while you are reading
this Prospectus, you come across a term that you do not understand, please refer
to the Glossary for an explanation.
EXPENSE SUMMARY
The purpose of the following table is to help you understand the costs and
expenses that you will bear directly and indirectly under a Contract WHEN YOU
ALLOCATE MONEY TO THE VARIABLE ACCOUNT. The table reflects expenses of the
Variable Account as well as of each Fund. The table should be considered
together with the narrative provided under the heading "Contract Charges" in
this Prospectus, and with the Funds' prospectus(es). In addition to the expenses
listed below, we may deduct premium taxes, where required by state law.
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
TRANSACTION EXPENSES
Sales Load Imposed on Purchase Payments..................... $ 0
Deferred Sales Load (as a percentage of Purchase Payments
withdrawn) (1)
Number of complete Account Years Purchase Payment in
Account
0-1..................................................... 7%
1-2..................................................... 7%
2-3..................................................... 6%
3-4..................................................... 6%
4-5..................................................... 5%
5-6..................................................... 4%
6-7..................................................... 3%
7 or more............................................... 0%
Transfer Fee (2)............................................ $ 15
ANNUAL ACCOUNT FEE per Contract or Certificate (3) $ 50
VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of average
Variable Account assets)
</TABLE>
<TABLE>
<CAPTION>
FOR CONTRACTS WITH AN INITIAL FOR CONTRACTS WITH AN INITIAL
PURCHASE PAYMENT PURCHASE PAYMENT
LESS THAN $1,000,000 OF $1,000,000 OR MORE
<S> <C> <C> <C>
Mortality and Expense Risks Mortality and Expense Risks
Charge (4)............................ 1.00% Charge (4)............................ 0.85%
Administrative Expenses Charge........ 0.15% Administrative Expenses Charge........ 0.15%
===== =====
Total Variable Annuity Annual Total Variable Annuity Annual
Expenses (5).......................... 1.15% Expenses (5).......................... 1.00%
</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) Currently, we impose no fee upon transfers; however, we reserve the right to
impose up to $15 per transfer. In addition, a Market Value Adjustment may be
imposed on amounts transferred from or within the Fixed Account.
(3) The annual Account Fee is currently $35. After the fifth Account Year, the
fee may be changed annually, but it will never exceed $50.
(4) We will assess an additional 0.25% during the Income Phase on Contracts that
annuitize before their seventh Contract Anniversary.
(5) An additional charge will apply during the Accumulation Phase if you elect
one or more of the optional death benefit riders. For more information, see
"Charges for Optional Death Benefit Riders."
4
<PAGE>
UNDERLYING FUND ANNUAL EXPENSES (1)
(AS A PERCENTAGE OF FUND NET ASSETS)
<TABLE>
<CAPTION>
OTHER TOTAL ANNUAL FUND
MANAGEMENT FUND EXPENSES(2) EXPENSES(2)
FUND FEES (AFTER REIMBURSEMENT) (AFTER REIMBURSEMENT)
---- ----------- --------------------- ---------------------
<S> <C> <C> <C>
Bond Series.............................. 0.60% 0.12% 0.72%
Capital Appreciation Series.............. 0.71% 0.05% 0.76%
Capital Opportunities Series............. 0.75% 0.09% 0.84%
Emerging Growth Series................... 0.70% 0.05% 0.75%
Emerging Markets Equity Series........... 1.25% 0.35% 1.60%
Equity Income Series..................... 0.75% 0.17% 0.92%
Global Asset Allocation Series........... 0.75% 0.14% 0.89%
Global Governments Series................ 0.75% 0.15% 0.90%
Global Growth Series..................... 0.90% 0.11% 1.01%
Global Total Return Series............... 0.75% 0.14% 0.89%
Government Securities Series............. 0.55% 0.06% 0.61%
High Yield Series........................ 0.75% 0.08% 0.83%
International Growth Series.............. 0.97% 0.25% 1.23%
International Growth and Income Series... 0.97% 0.18% 1.16%
Managed Sectors Series................... 0.73% 0.06% 0.79%
Massachusetts Investors Growth Stock
Series.................................. 0.75% 0.08% 0.83%
Massachusetts Investors Trust Series..... 0.55% 0.04% 0.59%
Money Market Series...................... 0.50% 0.07% 0.57%
New Discovery Series..................... 0.90% 0.16% 1.06%
Research Series.......................... 0.70% 0.05% 0.75%
Research Growth and Income Series........ 0.75% 0.11% 0.86%
Research International Series............ 1.00% 0.23% 1.23%
Strategic Growth Series(3)............... 0.75% 0.25% 1.00%
Strategic Income Series.................. 0.75% 0.33% 1.08%
Total Return Series...................... 0.65% 0.04% 0.69%
Utilities Series......................... 0.75% 0.07% 0.82%
</TABLE>
------------------------
(1) The information relating to Fund expenses was provided by the Funds and we
have not independently verified it. You should consult the Fund
prospectus(es) for more information about Fund expenses.
(2) Each Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund 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 Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses" in the table. Had these fees been taken
into account, "Total Fund Expenses" for certain of the Funds would be as
follows:
<TABLE>
<S> <C>
Bond Series................................................. 0.71%
Capital Appreciation Series................................. 0.75%
Capital Opportunities Series................................ 0.83%
Equity Income Series........................................ 0.91%
Global Asset Allocation Series.............................. 0.88%
New Discovery Series........................................ 1.05%
Strategic Income Series..................................... 1.03%
Utilities Series............................................ 0.81%
</TABLE>
(3) MFS has agreed to bear the expenses of the Fund such that "Other Expenses,"
after taking into account the expense offset arrangement described in
Footnote (2) above, will not exceed 0.25% annually. This arrangement will
continue until at least May 1, 2001, unless changed with the consent of the
Series Fund's Board of Directors; provided, however, that this arrangement
will terminate prior to May 1, 2001 in the event that the Fund's "Other
Expenses" equal or fall below 0.25% annually. Without taking into account
this fee waiver and/or expense reimbursement, the Fund's "Other Expenses"
and "Total Fund Expenses" would be estimated to be 3.26% and 4.01%,
respectively.
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 an average
Contract size of $35,000, a 5% annual return and no optional death benefit
riders have been elected:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Bond Series................................................. $82 $118 $156 $232
Capital Appreciation Series................................. $82 $120 $158 $236
Capital Opportunities Series................................ $83 $122 $162 $245
Emerging Growth Series...................................... $82 $119 $158 $235
Emerging Markets Equity Series.............................. $90 $143 $198 $320
Equity Income Series........................................ $83 $124 $166 $253
Global Asset Allocation Series.............................. $83 $123 $165 $250
Global Governments Series................................... $83 $124 $165 $251
Global Growth Series........................................ $84 $127 $171 $262
Global Total Return Series.................................. $83 $123 $165 $250
Government Securities Series................................ $81 $115 $151 $221
High Yield Series........................................... $82 $121 $161 $242
International Growth Series................................. $86 $133 $181 $284
International Growth and Income Series...................... $86 $131 $178 $277
Managed Sectors Series...................................... $82 $120 $160 $239
Massachusetts Investors Growth Stock Series................. $83 $122 $162 $244
Massachusetts Investors Trust Series........................ $80 $115 $150 $218
Money Market Series......................................... $80 $114 $149 $216
New Discovery Series........................................ $85 $128 $173 $267
Research Series............................................. $82 $119 $158 $235
Research Growth and Income Series........................... $83 $122 $163 $247
Research International Series............................... $86 $133 $181 $284
Strategic Growth Series..................................... $84 $126 $170 $261
Strategic Income Series..................................... $85 $129 $174 $269
Total Return Series......................................... $81 $118 $155 $229
Utilities Series............................................ $83 $121 $161 $243
</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 an average Contract size of $35,000, a 5% annual return and
no optional death benefit riders have been elected:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Bond Series................................................. $20 $62 $106 $232
Capital Appreciation Series................................. $20 $63 $108 $236
Capital Opportunities Series................................ $21 $65 $112 $245
Emerging Growth Series...................................... $20 $63 $108 $235
Emerging Markets Equity Series.............................. $29 $88 $150 $320
Equity Income Series........................................ $22 $68 $116 $253
Global Asset Allocation Series.............................. $22 $67 $115 $250
Global Governments Series................................... $22 $67 $115 $251
Global Growth Series........................................ $23 $71 $121 $262
Global Total Return Series.................................. $22 $67 $115 $250
Government Securities Series................................ $19 $58 $101 $221
High Yield Series........................................... $21 $65 $111 $242
International Growth Series................................. $25 $77 $132 $284
International Growth and Income Series...................... $24 $75 $129 $277
Managed Sectors Series...................................... $21 $64 $110 $239
Massachusetts Investors Growth Stock Series................. $21 $65 $112 $244
Massachusetts Investors Trust Series........................ $19 $58 $100 $218
Money Market Series......................................... $18 $57 $ 99 $216
New Discovery Series........................................ $23 $72 $124 $267
Research Series............................................. $20 $63 $108 $235
Research Growth and Income Series........................... $21 $66 $113 $247
Research International Series............................... $25 $77 $132 $284
Strategic Growth Income..................................... $23 $70 $120 $261
Strategic Income Series..................................... $24 $73 $125 $269
Total Return Series......................................... $20 $61 $105 $229
Utilities Series............................................ $21 $65 $111 $243
</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>
THE ANNUITY CONTRACT
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 Contract to groups and individuals for use in connection with their
retirement plans. The Contract is 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 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."
Your 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 annuity payments based on the
amount you have accumulated. Your Contract provides tax deferral, so that you do
not pay taxes on your earnings under your Contract until you withdraw them. It
provides a basic death benefit if you die during the Accumulation Phase. You may
enhance the basic death benefit by electing one or more optional death benefit
riders and paying an additional charge for each optional death benefit rider you
elect. Finally, if you so elect, during the Income Phase we will make annuity
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 Account 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 variable options, you assume all
investment risk under your 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 in the Accumulation Phase, 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 might not exceed our minimum guaranteed rate,
which is 3% per year during the Accumulation Phase and 2.5% per year during the
Income Phase, compounded annually.
The Contract is 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 Contract is also designed so that it may be used in connection with certain
non-tax-qualified retirement plans, such as payroll savings plans and such other
groups (trusteed or nontrusteed) as may be eligible under applicable law. We
refer to Contracts used with plans that receive favorable tax treatment as
"Qualified Contracts," and all other Contracts as "Non-Qualified Contracts."
COMMUNICATING TO US ABOUT YOUR CONTRACT
All materials sent to us, including Purchase Payments, must be sent to our
Annuity Mailing Address as set forth on the first page of this Prospectus. For
all telephone communications, you must call (800) 752-7215.
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 our Annuity Mailing Address. However, we will consider
all financial transactions, including 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, at 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) completed its demutualization
on March 22, 2000. As a result of the demutualization, a new holding company,
Sun Life Financial Services of Canada Inc. ("Sun Life Financial"), is now the
ultimate parent of Sun Life (Canada) and the Company. Sun Life Financial, a
corporation organized in Canada, is a reporting company under the Securities
Exchange Act of 1934 with common shares listed on the Toronto, New York, London,
and Manila stock exchanges.
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.The Variable Account
funds the Contract and various other variable annuity and variable life
insurance product contracts which we offer. These other products may have
features, benefits and charges that are different from those under the Contract.
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 Contract and other variable
annuity and variable life insurance 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 a Contract, 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 Funds with respect to the shares held by the Variable Account will be
reinvested to purchase additional Fund shares at their net asset value.
Deductions will be made from the Variable Account for cash withdrawals, annuity
payments, death benefits, Account Fees, Contract charges against the assets of
the Variable Account for the assumption of mortality and expense risks,
administrative expenses and any applicable taxes. The Variable Account will be
fully invested in Fund shares at all times.
VARIABLE ACCOUNT OPTIONS:
THE FUNDS
The 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 27 independent portfolios of securities,
each of which has separate investment objectives and policies. Shares of the
Series Fund are issued in 27 series (each, a "Fund"), each corresponding to one
of the portfolios. The Contract provides for investment by the Sub-Accounts in
shares of the 26 Funds 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 mainly 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.
EMERGING MARKETS EQUITY SERIES will seek capital appreciation.
EQUITY INCOME SERIES will mainly seek reasonable income by investing mainly
in income producing securities; its secondary objective is to seek capital
appreciation.
GLOBAL 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 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 Fund's 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 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 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 low 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 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.
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 GROWTH 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 mainly 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.
Each Fund pays fees to MFS, as its investment adviser, for services
rendered 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 may serve as the investment adviser to other mutual funds which have
similar investment goals and principal investment policies and risks as the
Funds, and which may be managed by a Fund's portfolio manager(s). While a Fund
may have many similarities to these other funds, its investment performance will
differ from their investment performance. This is due to a number of differences
between the Fund 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
Fund which is involved in the conflict or substitution of shares of other Funds
or other mutual funds.
MORE COMPREHENSIVE INFORMATION ABOUT THE FUNDS AND THE MANAGEMENT,
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS, EXPENSES AND POTENTIAL RISKS OF
EACH FUND MAY BE FOUND IN THE ACCOMPANYING CURRENT FUND PROSPECTUS(ES). YOU
SHOULD READ THE FUND PROSPECTUS(ES) CAREFULLY BEFORE INVESTING. THE STATEMENT OF
ADDITIONAL INFORMATION OF THE FUNDS 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.
10
<PAGE>
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 4 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 at 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 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 at our discretion offer special interest rates
for new Purchase Payments that are higher than the rates we are then offering
for renewals or transfers.
Early withdrawals from your allocation to a Guarantee Period, including
cash withdrawals, transfers and commencement of an annuity option, may be
subject to a Market Value Adjustment, which could decrease or increase the value
of your Account. See "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.
We will credit your initial Purchase Payment to your Account within 2
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 $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 $2 million, or
if the Purchase Payment would cause your Account Value to exceed $2 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, but any allocation to a Guarantee Period must be
at least $1,000. Over the life of your Contract, you may allocate amounts among
as many as 18 of the available investment 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 notice of the change in a form
acceptable to us, as required. 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 taxes 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 2 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 2 components are calculated separately, as described below under "Variable
Account Value" and "Fixed Account Value."
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, at the close of
trading, which is currently 4:00 p.m., Eastern Time. (The close of trading is
determined by the New York Stock Exchange.) We also may determine the value of
Variable Accumulation Units of a Sub-Account on days the Exchange is closed if
there is enough trading in securities held by that Sub-Account to materially
affect the value of the Variable Accumulation Units. Each day we make a
valuation is called a "Business Day." 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.
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To measure these values, we use a factor -- which we call the Net
Investment Factor -- which represents the net return on the Sub-Account's
assets. At the end of any Valuation Period, the value of a Variable Accumulation
Unit for a Sub-Account is equal to the value of that Sub-Account's Variable
Accumulation Units at the end of the previous Valuation Period, multiplied by
the Net Investment Factor. We calculate the Net Investment Factor by dividing
(1) the net asset value of a Fund share held in the Sub-Account at the end of
that Valuation Period, plus the per share amount of any dividend or capital
gains distribution made by that Fund during the Valuation Period, by (2) the net
asset value per share of the Fund share at the end of the previous Valuation
Period; we then deduct a factor representing the mortality and expense risk
charge and administrative expense charge for each day in the Valuation Period.
See "Contract Charges."
For a hypothetical example of how we calculate the value of a Variable
Accumulation Unit, see the Statement of Additional Information.
CREDITING AND CANCELING VARIABLE ACCUMULATION UNITS
When we receive an allocation to a Sub-Account either from a Net Purchase
Payment or a transfer of Account Value, we credit that amount to your Account in
Variable Accumulation Units. Similarly, we cancel Variable Accumulation Units
when you transfer or withdraw amounts from a Sub-Account, or when we deduct
certain charges under the Contract. We determine the number of Units credited or
canceled by dividing the dollar amount by the Variable Accumulation Unit value
for that Sub-Account at the end of the Valuation Period during which the
transaction or charge is effective.
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.
A Guarantee Period begins the day we apply your allocation and ends when
all 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 Renewal Date.
Each additional Purchase Payment, transfer or renewal credited to your
Fixed Account Value will result in a new Guarantee Period with its own Renewal
Date. Amounts allocated at different times to Guarantee Periods of the same
duration may have different Renewal Dates.
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.
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. A
Guarantee Period that will extend beyond your maximum Annuity Commencement Date
will result in an application of a Market Value Adjustment upon annuitization or
withdrawals. Each new allocation to a Guarantee Period must be at least $1,000.
RENEWALS
We will notify you in writing between 45 and 75 days before the Renewal
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
Renewal Date, unless before the Renewal Date we receive:
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(1) written notice from you electing a different Guarantee Period from among
those we then offer, or
(2) instructions to transfer the Guarantee Amount to one or more
Sub-Accounts, in accordance with the transfer privilege provisions of the
Contract (see "Transfer Privilege").
A Guarantee Amount will not renew into a Guarantee Period that will extend
beyond your Maximum Annuity Commencement Date. Unless you notify us otherwise,
we will automatically renew your Guarantee Amount into the next available
Guarantee Period.
EARLY WITHDRAWALS
If you withdraw, transfer, or annuitize an allocation to a Guarantee
Period 30 days prior to the Renewal Date, we will apply a Market Value
Adjustment to the transaction. This could result in an increase or a 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 Funds; 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 the Renewal Date or any time after the
Renewal Date 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 a transfer made by telephone. We will not be liable for following
instructions communicated by telephone that we reasonably believe are genuine.
Your transfer request will be effective as of the close of the Business
Day if we receive your transfer before the earlier of (a) 4:00 p.m. Eastern Time
on a Business Day, or (b)the close of the New York Stock Exchange on days that
the Stock Exchange closes before 4:00 p.m. Otherwise, your transfer request will
be effective on the next Business Day.
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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 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; SPECIAL GUARANTEED INTEREST RATES
We may reduce or waive the withdrawal charge, mortality and expense risk
charges, the administrative service fee or the annual Account Fee, credit
additional amounts, or grant special 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. Previously applied
amounts may not be transferred to a Guarantee Period made available in
connection with this program. At regular time intervals, 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.
No Market Value Adjustment (either positive or negative) will apply to
amounts automatically transferred from the Fixed Account under the dollar-cost
averaging program. However, if you discontinue or alter the program prior to
completion, amounts remaining in the Fixed Account will be transferred to the
Money Market Fund investment option under the Contract, unless you instruct us
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otherwise, and the Market Value Adjustment will be applied. Any new allocation
of a Purchase Payment to the program will be treated as commencing a new
dollar-cost averaging program and is subject to the $1,000 minimum.
The main objective of a dollar-cost averaging program is to minimize the
impact of short-term price fluctuations on Account Value. In general, since you
transfer the same dollar amount to the variable investment options at set
intervals, dollar-cost averaging allows you to purchase more Variable
Accumulation Units (and, indirectly, more Fund shares) when prices are low and
fewer Variable Accumulation Units (and, indirectly, fewer Fund shares) when
prices are high. Therefore, you may achieve a lower average cost per Variable
Accumulation Unit over the long term. A dollar-cost averaging program allows you
to take advantage of market fluctuations. However, it is important to understand
that a dollar-cost averaging program does not assure a profit or protect against
loss in a declining market. We do not allow transfers into any of the Guarantee
Periods.
ASSET ALLOCATION
One or more asset allocation programs may be available in connection with
the Contract, at no extra charge. Asset allocation is the process of investing
in different asset classes -- such as equity funds, fixed income funds, and
money market funds -- depending on your personal investment goals, tolerance for
risk, and investment time horizon. By spreading your money among a variety of
asset classes, you may be able to reduce the risk and volatility of investing,
although there are no guarantees, and asset allocation does not insure a profit
or protect against loss in a declining market.
Currently, you may select one of 3 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 asset allocation model
allocating the lowest percentage to Sub-Accounts investing in the equity asset
class and the aggressive asset allocation model allocating the highest
percentage to the equity asset class. These asset allocation models, as well as
the terms and conditions of the asset allocation program, are fully described in
a separate brochure. We may add or delete such programs 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 electing an asset allocation program, you thereby authorize us to
automatically reallocate your investment options that participate in the asset
allocation program on a quarterly basis, or as determined by the terms of the
Asset Allocation Program, 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 Program.
Under this program, you determine the amount and frequency of regular
withdrawals you would like to receive from your Fixed Account Value and/or
Variable Account Value and we will effect them automatically. The withdrawals
under this program may be subject to surrender charges or a Market Value
Adjustment. They may also be included as income and subject to a 10% federal tax
penalty. You should consult your tax adviser before choosing this option.
You may change or stop this program at any time, by written notice to us.
PORTFOLIO REBALANCING PROGRAM
Under the Portfolio Rebalancing Program, we transfer funds among all
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.
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Portfolio Rebalancing does not permit transfers to or from any Guarantee
Period.
SECURED FUTURE PROGRAM
Under the Secured Future Program, we divide your Purchase Payments between
the Fixed Account and the Variable Account. For the Fixed Account portion, you
choose a Guarantee Period from among those we offer. We then 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 the Sub-Accounts of your
choice. At the end of the Guarantee Period, you will be guaranteed the amount of
your original 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 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 receive.
All withdrawals may be subject to a withdrawal charge (see "Withdrawal
Charge"), and withdrawals from your Fixed Account Value also may be subject to a
Market Value Adjustment (see "Market Value Adjustment"). Withdrawals also may
have adverse income tax consequences, including a 10% penalty tax (see "Tax
Considerations"). 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 adjust 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 Account
Value 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.
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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, and choose, to defer payment under the Investment Company Act of
1940 and applicable state insurance law. Currently, we may defer payment of
amounts you withdraw from the Variable Account only for the following periods:
- When the New York Stock Exchange is closed (except weekends and
holidays) or when trading on the New York Stock Exchange is restricted;
- When it is not reasonably practical to dispose of securities held by a
Fund or to determine the value of the net assets of a Fund, because an
emergency exists; or
- When an SEC order permits us to defer payment for the protection of
Participants.
We also may defer payment of amounts you withdraw from the Fixed Account
for up to 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 your Contract is a Qualified Contract, you should carefully check the
terms of your retirement plan for limitations and restrictions on cash
withdrawals.
Special restrictions apply to withdrawals from Contracts used for
Section 403(b) annuities (see "Tax Considerations -- 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 convenience in discussing free withdrawal amounts, we refer to
Purchase Payments made during the last 7 Account Years, including the current
Account Year, as "New Payments," and we refer to Purchase Payments made before
the last 7 Account Years as "Old Payments."
For the first Account Year, the free withdrawal amount is equal to 15% of
the amount of all Purchase Payments you have made. For all other Account Years,
the free withdrawal amount is equal to the amount of all Old Payments that you
have not previously withdrawn, PLUS the greater of:
(1) your Contract's earnings (defined below) to date, minus any previous
withdrawals (excluding those withdrawn from old payments); and
(2) 15% of the amount of all New Payments.
If your "free withdrawal amount" for any Account Year, was based upon your
Contract earnings, then any portion of that "free withdrawal amount" that you do
not use in an Account Year is cumulative. In other words, it will be carried
forward or available for use in future Account Years. However, any unused "free
withdrawal amount" is not cumulative if it was based upon 15% of all your New
Payments.
Your Contract's earnings as of the date of your present withdrawal request
are equal to:
(a) your Account Value on the day we received your present withdrawal
request, minus
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(b) all Purchase Payments made prior to the day we received your present
withdrawal request, plus
(c) all partial withdrawals and charges taken prior to the day we received
your present withdrawal request.
For an example of how we calculate the "free withdrawal amount," see
Appendix B.
WITHDRAWAL CHARGE ON PURCHASE PAYMENTS
If you withdraw more than the free withdrawal amount in any Account Year,
we consider the excess amount to be withdrawn first from Payments that you have
not previously withdrawn. We impose the withdrawal charge on the amount of these
Payments. Thus, the maximum amount on which we will impose the withdrawal charge
in any year will never be more than the total of all Payments that you have not
previously withdrawn.
The amount of your withdrawal, if any, that exceeds the total of the free
withdrawal amount plus the aggregate amount of all Payments not previously
withdrawn, is not subject to the withdrawal charge.
ORDER OF WITHDRAWAL
When you make a withdrawal, we consider the free withdrawal amount to be
withdrawn first. We consider the oldest Purchase Payment that you have not
already withdrawn to be withdrawn next, then the second oldest Purchase
Payments, and so forth. Once all Purchase Payments are withdrawn, the balance
withdrawn is considered to be accumulated value.
CALCULATION OF WITHDRAWAL CHARGE
We calculate the amount of the withdrawal charge by multiplying the
Purchase Payments you withdraw by a percentage. The percentage varies according
to the number of Account Years the Purchase Payment has been held in your
Account, including the Account Year in which you made the Payment, but not the
Account Year in which you withdraw it. Each Payment begins a new 7-year period
and moves down the declining surrender charge scale as shown below at each
Account Anniversary. Payments received during the current Account Year will be
charged 7%, if withdrawn. On your next scheduled Account Anniversary, that
Payment, along with any other Payments made during that Account Year, will be
considered to be in their second Account Year and will have a 7% withdrawal
charge. On the next Account Anniversary, these Payments will move into their
third Account Year and will have a withdrawal charge of 6%, if withdrawn. This
withdrawal charge decreases according to the number of Account Years the
Purchase Payment has been held in your Account.
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS
PAYMENT HAS BEEN WITHDRAWAL
IN YOUR CONTRACT CHARGE
---------------- ----------
<S> <C>
0-1 7%
1-2 7%
2-3 6%
3-4 6%
4-5 5%
5-6 4%
6-7 3%
7 or more 0%
</TABLE>
For example, the percentage applicable to withdrawals of a Payment that
has been in an Account for more than 2 Account Years but less than 3 will be 6%,
regardless of the issue date of the Contract.
The withdrawal charge will never be greater than 7% of the excess of
Purchase Payments you make under your Contract over the "free withdrawal
amount," as defined above.
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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
apply only to Accounts established after the date of the modification.
For additional examples of how we calculate withdrawal charges, see
Appendix B.
TYPES OF WITHDRAWALS NOT SUBJECT TO WITHDRAWAL CHARGE
If approved by your state, we will waive the withdrawal charge for a full
or partial withdrawal if:
- at least one year has passed since we issued your Contract, and
- 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 waiver of the withdrawal charge
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, except under the Cash Surrender
method, or amounts you transfer among the Sub-Accounts, between the Sub-Accounts
and the Fixed Account, or within the Fixed Account.
MARKET VALUE ADJUSTMENT
If permitted under the laws of your state, 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>
<C> <S> <C> <C> <C>
N/12
1 + I
( -------- ) -1
1 + J + b
</TABLE>
20
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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 B.
CONTRACT CHARGES
ACCOUNT FEE
During the Accumulation Phase of your Contract, we will deduct from your
Account an annual 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. In Account Years 1 through 5, the
annual Account Fee is $35. After Account Year 5, we may change the Account Fee
each year, but the Account Fee will never exceed $50. We deduct the Account Fee
pro rata from each Sub-Account and each Guarantee Period, based on the
allocation of your Account Value on your Account Anniversary.
We will not charge 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 $75,000 or more 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 Account 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 us for expenses
we incur in administering the Contracts, Participant Accounts and the Variable
Account that are not covered by the annual Account Fee.
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MORTALITY AND EXPENSE RISK CHARGE
During both the Accumulation Phase and the Income Phase, we deduct a
mortality and expense risk charge from the assets of the Variable Account at an
effective annual rate equal to 1.00%, if your initial Purchase Payment was less
than $1,000,000, or 0.85% if your initial Purchase Payment was $1,000,000 or
more. However, if you annuitize your Contract prior to your eighth Contract
Anniversary, we will deduct an additional 0.25% during the Income Phase to
offset the increase mortality risk during this 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 mortality risk
also arises from our contractual obligation to pay a death benefit upon the
death of the Participant prior to the Annuity Commencement Date. The expense
risk we assume is the risk that the annual Account Fee and the administrative
expense charge we assess under the Contract 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
Contract.
CHARGES FOR OPTIONAL DEATH BENEFIT RIDERS
If you elect an optional death benefit rider, we will deduct a charge from
the assets of the Variable Account based upon the number of optional death
benefits riders you elect, as follows:
<TABLE>
<CAPTION>
NUMBER OF % OF
RIDERS YOU AVERAGE
ELECT DAILY VALUE
---------- -----------
<S> <C>
1 0.15%
2 0.25%
3 0.40%
</TABLE>
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 prospectus(es) and related Statements of
Additional Information.
MODIFICATION IN THE CASE OF GROUP CONTRACTS
For Group Contracts, we may modify the annual 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.
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DEATH BENEFIT
If the Covered Person 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 the Beneficiary is not living on
the date of death of the Covered Person, we will pay the death benefit in one
sum to your estate. We do not pay a death benefit if the Covered Person dies
during the Income Phase. However, the Beneficiary will receive any annuity
payments provided under an Annuity Option that is in effect. If your Contract
names more than one Covered Person, we will pay the death benefit upon the first
death of such Covered Persons.
AMOUNT OF DEATH BENEFIT
To calculate the amount of the death benefit, we use a "Death Benefit
Date." The Death Benefit Date is the date we receive proof of the death of the
Covered Person in an acceptable form ("Due Proof of Death") if you have elected
a death benefit payment method before the death of the Covered Person and it
remains in effect. 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, we reserve the right to provide a lump sum
to your Beneficiary.
The amount of the death benefit is determined as of the Death Benefit
Date.
THE BASIC DEATH BENEFIT
In general, if you were 85 or younger on your Contract Date (the date we
accepted your first Purchase Payment), the death benefit will be the greatest of
the following amounts:
1. Your Account Value for the Valuation Period during which the Death
Benefit Date occurs;
2. The amount we would pay if you had surrendered your entire Account on
the Death Benefit Date; and
3. Your total Purchase Payments (adjusted for partial withdrawals as
described in "Calculating the Death Benefit") as of the Death Benefit
Date.
For examples of how to calculate this basic death benefit, see
Appendix C.
If you were 86 or older on your Contract Date, the death benefit is equal
to amount (2) above. Because this amount will reflect any applicable withdrawal
charges and Market Value Adjustment, it may be less than your Account Value.
OPTIONAL DEATH BENEFIT RIDERS
Subject to availability in your state, you may enhance the "Basic Death
Benefit" by electing one or more of the following optional death benefit riders.
You must make your election before the date on which your Contract becomes
effective. You will pay a charge for each optional death benefit rider you
elect. (For a description of these charges, see "Charges for Optional Death
Benefit Riders.") The Maximum Anniversary Account Value Rider, the 5% Premium
Roll-Up Rider, and the Earnings Enhancement Rider are available only if you are
younger than 80 on the Contract Date. Any optional death benefit election may
not be changed after the Contract is issued. For a complete description of how
the death benefits under the optional death benefit riders are calculated, see
"Calculating the Death Benefit."
MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER
Under this rider, the death benefit will be the greater of:
- any of the death benefit amounts payable under the "Basic Death
Benefit" (above), or
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<PAGE>
- your highest Account Value on any Account Anniversary before your 81st
birthday, adjusted for any subsequent Purchase Payments, partial
withdrawals and charges made between that Account Anniversary and the
Death Benefit Date.
5% PREMIUM ROLL-UP RIDER
Under this rider, the death benefit will be the greater of:
- any of the death benefit amounts payable under the "Basic Death
Benefit" (above), or
- the sum of your total Purchase Payments plus interest accruals,
adjusted for partial withdrawals.
Under this rider, interest accrues at a rate of 5% per year on Purchase
Payments and transfers to the Variable Account while they remain in the Variable
Account. The 5% interest accruals will continue until the earlier of:
- the first day of the month following your 80th birthday, or
- the day the death benefit amount under this rider equals twice the
total of your Purchase Payments and transferred amounts, adjusted for
withdrawals.
Net Purchase Payments under this rider will be adjusted for all partial
withdrawals, as described in "Calculating the Death Benefit."
EARNINGS ENHANCEMENT RIDER
Under this rider, if you are 69 or younger on your Contract Date, the
death benefit will be:
- the greatest of any of the death benefit amounts payable under the
"Basic Death Benefit" (above), plus
- 40% of the lesser of your net Purchase Payments or your Account Value
minus net Purchase Payments, calculated as of the Death Benefit Date.
If you are between the ages of 70 and 79 on your Contract Date, the death
benefit will be:
- the greatest of any of the death benefit amounts payable under the
"Basic Death Benefit" (above), plus
- 25% of the lesser of your net Purchase Payments or your Account Value
minus net Purchase Payments, calculated as of the Death Benefit Date.
For examples of how the death benefit is calculated under the Earnings
Enhancement Rider, see Appendix D.
SELECTING MULTIPLE DEATH BENEFIT RIDERS
If you elect more than one optional death benefit rider, the death benefit
will be calculated as follows:
1) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER COMBINED WITH 5% PREMIUM ROLL-UP
RIDER: The death benefit will equal the greater of the death benefit
under the Maximum Anniversary Account Value Rider or the death benefit
under the 5% Premium Roll-Up Rider.
2) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER COMBINED WITH EARNINGS
ENHANCEMENT RIDER: The death benefit will equal the death benefit under
the Maximum Anniversary Account Value Rider, PLUS the amount calculated
under the Earnings Enhancement Rider. The death benefit under the
Earnings Enhancement Rider is calculated using the Account Value before
the application of the Maximum Anniversary Account Rider.
3) EARNINGS ENHANCEMENT RIDER COMBINED WITH 5% PREMIUM ROLL-UP RIDER: The
death benefit will equal the death benefit under the 5% Premium Roll-Up
Rider, PLUS the amount calculated under the Earnings Enhancement Rider.
The death benefit under the Earnings Enhancement
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<PAGE>
Rider is calculated using the Account Value before the application of the
5% Premium Roll-Up Rider.
4) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER, THE 5% PREMIUM ROLL-UP RIDER
AND THE EARNINGS ENHANCEMENT RIDER: The death benefit will equal the
GREATER of the death benefit under the Maximum Anniversary Account Value
Rider or the death benefit under the 5% Premium Roll-Up Rider, PLUS the
amount calculated under the Earnings Enhancement Rider. The death benefit
under the Earnings Enhancement Rider is calculated using the Account
Value before the application of the 5% Premium Roll-Up Rider and the
Maximum Anniversary Account Value Rider.
SPOUSAL CONTINUANCE
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 amount. In that case, we will not pay a death benefit, but the
Contract's Account Value will be equal to your Contract's death benefit amount,
as defined under the "Basic Death Benefit" or any optional death benefit rider
you have selected. All Contract provisions, including any optional death benefit
riders you have selected, will continue as if your spouse had purchased the
Contract on the Death Benefit Date with a deposit equal to the death benefit
amount. For purposes of calculating death benefits and expenses from that date
forward, your spouse's age on the original effective date of the Contract will
be used.
CALCULATING THE DEATH BENEFIT
In calculating the death benefit amount payable under option (3) of the
"Basic Death Benefit" or any of the optional death benefit riders, any partial
withdrawals will reduce the death benefit amount to an amount equal to the death
benefit amount immediately before the withdrawal multiplied by the ratio of the
Account Value immediately after the withdrawal to the Account Value immediately
before the withdrawal.
If the death benefit is the amount payable under options (2) or (3) of the
"Basic Death Benefit" or under any of the optional death benefit riders, your
Account Value may be increased by the excess, if any, of that amount over option
(1) of the "Basic Death Benefit." Any such increase will be allocated to the
Sub-Accounts in proportion to your Account Value in those Sub-Accounts on the
Death Benefit Date. Such increase will be made only if the Beneficiary elects to
annuitize, elects to defer annuitization, or elects to continue the Contract.
Also, any portion of this new Account Value attributed to the Fixed Account will
be transferred to the available Money Market Fund investment option (without the
application of a Market Value Adjustment). If your spouse, as the named
Beneficiary, elects to continue the Contract after your death, your spouse may
transfer any such Fixed Account portion back to the Fixed Account and begin a
new Guarantee Period.
METHOD OF PAYING DEATH BENEFIT
The death benefit may be paid in a single cash payment or as an annuity
(either fixed, variable or a combination), under one or more of our Annuity
Options. We describe the Annuity Options in this Prospectus under "The Income
Phase -- Annuity Provisions."
During the Accumulation Phase, you may elect the method of payment for the
death benefit. If no such election is in effect on the date of your death, the
Beneficiary may elect either a single cash payment or an annuity. If the
Beneficiary is your spouse, the Beneficiary may elect to continue the Contract.
These elections are made by sending us a completed election form, which we will
provide. If we do not receive the Beneficiary's election within 60 days after we
receive Due Proof of Death, we will pay the death benefit in a single cash
payment.
If we pay the death benefit in the form of an Annuity Option, the
Beneficiary becomes the Annuitant/Payee under the terms of that Annuity Option.
25
<PAGE>
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 as Beneficiary under your Contract, if any, will
be the "designated beneficiary." If the named Beneficiary is not living and no
contingent beneficiary has been named, 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. The special distribution rules will then apply on
the death of your spouse. To understand what happens when your spouse continues
the Contract, see "Spousal Continuance," above.
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, either the Annuitant or the Co-Annuitant.
Payments made in contravention of these special rules would adversely
affect the treatment of the Contracts as annuity contracts under the Internal
Revenue Code. Neither you nor the Beneficiary may exercise rights that would
have that effect.
SELECTION AND CHANGE OF BENEFICIARY
You select your Beneficiary in your Application. You may change your
Beneficiary at any time by sending us written notice on our required form,
unless you previously made an irrevocable Beneficiary designation. A new
Beneficiary designation is not effective until we record the change.
PAYMENT OF DEATH BENEFIT
Payment of the death benefit in cash will be made within 7 days of the
Death Benefit Date, except if we are permitted to defer payment in accordance
with the Investment Company Act of 1940. If an Annuity Option is elected, the
Annuity Commencement Date will be the first day of the second calendar month
following the Death Benefit Date, and your Account will remain in effect until
the Annuity Commencement Date.
DUE PROOF OF DEATH
We accept any of 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 annuity payments to the
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(s) you have selected, and we make the first annuity
payment.
26
<PAGE>
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 "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 annuity payments during the Income Phase and on whose life these
payments are based. In your Contract, the Annuity Option(s) 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 Payee of the annuity payment.
SELECTION OF THE ANNUITY COMMENCEMENT DATE
You select the Annuity Commencement Date in your Application. The
following restrictions apply to the date you may select:
- The earliest possible Annuity Commencement Date is the first day of the
first month following your first Account Anniversary.
- The latest possible Annuity Commencement Date is the first day of the
month following the Annuitant's 95th birthday or, if there is a
Co-Annuitant, the 95th birthday of the younger of the Annuitant and
Co-Annuitant.
- The Annuity Commencement Date must always be the first day of a month.
You may change the Annuity Commencement Date from time to time by sending
us written notice, with the following additional limitations:
- We must receive your notice at least 30 days before the current Annuity
Commencement Date.
- The new Annuity Commencement Date must be at least 30 days after we
receive the notice.
There may be other restrictions on your selection of the Annuity
Commencement Date imposed by your retirement plan or applicable law. In most
situations, current law requires that for a Qualified Contract, certain minimum
distributions must commence no later than April 1 following the year the
Annuitant reaches age 70 1/2 (or, for Qualified Contracts other than IRAs, no
later than April 1 following the year the Annuitant retires, if later than the
year the Annuitant reaches age 70 1/2).
ANNUITY OPTIONS
We offer the following Annuity Options for payments during the Income
Phase. Each Annuity Option may be selected for a Variable Annuity, a Fixed
Annuity, or a combination of both. We may also agree to other settlement
options, at our discretion.
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<PAGE>
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 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, at any time, some or all of
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. The 5- to 9-year
period certain is not available if your Account has been issued within the past
7 years.
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.
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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.
- We deduct any applicable premium tax or similar tax if not previously
deducted.
- On the Annuity Commencement Date, we will exchange your Account's
Variable Annuity Units for Annuitization Units which have an annual
insurance charge of 1.15% of your average daily net assets (1.00% if
your initial Purchase Payment was $1,000,000 or more). If your Annuity
Commencement Date is within 7 years of the Contract Date, the annual
insurance charges will be increased by 0.25%.
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 2.5% 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.
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EXCHANGE OF VARIABLE ANNUITY UNITS
During the Income Phase, the Annuitant may exchange Annuity Units in one
Sub-Account for Annuity Units in another Sub-Account, up to 12 times each
Account Year. To make an exchange, the Annuitant sends us, at our Annuity
Mailing Address, a written request stating the number of Annuity Units in the
Sub-Account he or she wishes to exchange and the new Sub-Account for which
Annuity Units are requested. The number of new Annuity Units will be calculated
so the dollar amount of an annuity payment on the date of the exchange would not
be affected. To calculate this number, we use Annuity Unit values for the
Valuation Period during which we receive the exchange request.
Before exchanging Annuity Units in one Sub-Account for those in another,
the Annuitant should carefully review the Fund prospectus(es) for the investment
objectives and risk disclosure of the Funds in which the Sub-Accounts invest.
During the Income Phase, 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 annual Account
Fee from Fixed Annuity payments.
ANNUITY PAYMENT RATES
The Contracts contain 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 (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 2.5% 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 Contracts also describe the method of
determining the adjusted age of the Annuitant. The mortality table used in
determining the Annuity Payment Rates for Annuity Options A, B and C is the
Annuity 2000 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 covered person'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
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 Annuitant 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 Annuitant 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
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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 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.
Change of ownership may affect the availability of optional death benefit
riders or the expenses incurred with the optional death benefit riders.
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, in the case of a Group Contract where the Owner has
reserved this right. During the Income Phase, the Payee -- that is the Annuitant
or Beneficiary entitled to receive benefits -- is the person having such voting
rights. We will vote any shares attributable to us and Fund shares for which no
timely voting instructions are received in the same proportion as the shares for
which we receive instructions from Owners, Participants and Payees, as
applicable.
Owners of Qualified Contracts issued on a group basis may be subject to
other voting provisions of the particular plan and of the Investment Company Act
of 1940. Employees who contribute to plans that are funded by the Contracts may
be entitled to instruct the Owners as to how to instruct us to vote the Fund
shares attributable to their contributions. Such plans may also provide the
additional extent, if any, to which the Owners shall follow voting instructions
of persons with rights under the plans. If no voting instructions are received
from any such person with respect to a particular Participant Account, the Owner
may instruct the Company as to how to vote the number of Fund shares for which
instructions may be given.
Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights afforded by the Investment Company
Act of 1940, or any duty to inquire as to the instructions received or the
authority of Owners, Participants or others, as applicable, to instruct the
voting of Fund shares. Except as the Variable Account or the Company has actual
knowledge to the contrary, the instructions given by Owners under Group
Contracts and Payees will be valid as they affect the Variable Account, the
Company and any others having voting instruction rights with respect to the
Variable Account.
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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 your 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 Contract. We may also substitute for the
shares held in any Sub-Account shares of another Fund 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 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.
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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 Fee, 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, 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 our Annuity Mailing Address, as shown 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.
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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.
TAX CONSIDERATIONS
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 and where the site where your Contract was issued. Also,
legislation affecting the current tax treatment of annuity contracts could be
enacted in the future and 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.
U.S. FEDERAL TAX CONSIDERATIONS
The following discussion applies only to those Contracts issued in the
United States. For a discussion of tax considerations effecting Contracts issued
in Puerto Rico, see "Puerto Rico Tax Considerations," below.
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).
You should note that qualified retirement investments generally 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 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 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.
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
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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 available as an investment
option under the Contract 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 reserve the right to modify the Contract and/or the
Variable Account to the extent necessary to comply with any such guidelines, but
cannot assure that such modifications would satisfy 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.
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, as a general rule, may
therefore use Qualified Contracts as a funding vehicle for their retirement
plans.
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
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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. We will
provide the necessary information for Contracts issued in connection with Roth
IRAs.
PUERTO RICO TAX CONSIDERATIONS
Puerto Rico tax laws with respect to qualified retirement plans described
in this Prospectus vary significantly from those discussed above under "U.S.
Federal Tax Considerations." Although we currently offer the Contract in Puerto
Rico in connection with qualified retirement plans, the text of this Prospectus
under the heading "U.S. Federal Tax Considerations" dealing with such qualified
retirement plans is inapplicable to Puerto Rico and should be disregarded.
The following discussion applies if your Contract is issued in Puerto
Rico:
Under Section 1022 of the Puerto Rico Internal Revenue Code of 1994, as
amended (the "1994 Code"), the Contract offered by this Prospectus is considered
an annuity contract. The 1994 Code provides that no income tax is payable on
increases in value of accumulation shares of annuity units credited to a
variable annuity contract until payments are made to the annuitant or other
payee under such contract.
If any annuity distributions are made under an annuity contract, the
annuitant or other payee will be required to include as gross income the portion
of each payment equal to 3% of the aggregate premiums or other consideration
paid for the annuity. The amount, if any, in excess of the included amount is
excluded from gross income. After an amount equal to the aggregate amount
excluded from gross income has been received up to your investment, all of the
annuity payments are considered to be taxable income.
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In the event payment under a Contract is made in a lump sum, the amount of
the payment would be included in the gross income of the Annuitant or other
Payee to the extent of the Annuitant's aggregate premiums or other consideration
paid.
For further information regarding the income tax consequences of owning a
Contract, you should consult a qualified tax adviser.
ADMINISTRATION OF THE CONTRACT
We perform certain administrative functions relating to the Contract,
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 Contract; 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 CONTRACT
We offer the Contract on a continuous basis. Contracts are sold by
licensed insurance agents in those states where the Contract may be lawfully
sold. Such agents will be registered representatives of broker-dealers
registered under the Securities Exchange Act of 1934 who are members of the
National Association of Securities Dealers, Inc. and who have entered into
distribution agreements with the Company and the general distributor, Clarendon
Insurance Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481. Clarendon, a wholly-owned subsidiary of the Company,
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 6.50% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 0.50% of the Participant's Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation. We
reserve the right to offer these additional incentives only to certain
broker-dealers that sell or are expected to sell during specified time periods
certain minimum amounts of Contracts or Certificates or other contracts offered
by the Company. Promotional incentives may change at any time. Commissions may
be waived or reduced in connection with certain transactions described in this
Prospectus under the heading "Waivers; Reduced Charges; Credits; Special
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
standardized and non-standardized "Average Annual Total Return," "Cumulative
Growth Rate" and "Compound Growth Rate." We may also advertise "yield" and
"effective yield" for some variable options.
Average Annual Total Return measures the net income of the 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. Standardized Average Annual Total Return
information 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 Fund, which may predate the Variable Account. Cumulative
Growth Rate represents the cumulative change in the value of an investment
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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 such figures do 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 underlying 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
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 Funds.
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 available Money Market
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 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.
39
<PAGE>
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,
1999 and the Quarterly Report on Form 10-Q for the period ended March 31, 2000,
filed with the SEC, are 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
GENERAL
The Company is engaged in the sale of individual variable life insurance,
group life and disability 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 broker-dealers.
For the year ended December 31, 1999, the Company filed its Annual Report
on Form 10-K using audited statutory 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
Company has changed its basis of accounting to generally accepted accounting
principles ("GAAP") effective January 1, 2000 and has filed its Quarterly Report
on Form 10-Q for the period ended March 31, 2000 in accordance with GAAP.
The Company has restated its financial statements originally filed in its
Annual Report on Form 10-K in accordance with GAAP. These financial statements
are included in this Prospectus and are referred to in Management's Discussion
and Analysis of Financial Condition and Results of Operations. See Note 13 to
Consolidated Financial Statements of the Company for a reconcilation of
statutory surplus to GAAP equity and statutory net income to GAAP net income.
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the audited Consolidated Financial Statements and the Notes
thereto included in this Prospectus beginning
40
<PAGE>
on page and the Unaudited Consolidated Financial Statements and the Notes
thereto included in this Prospectus beginning on page .
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR ENDED DECEMBER 31,
QUARTER ENDED ---------------------------------------
MARCH 31, 2000 1999 1998 1997
--------------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues
Premiums and other revenue $ 81,286 $ 262,603 $ 382,477 $ 406,883
Net investment income and realized
gains 80,013 367,296 464,226 552,380
----------- ----------- ----------- -----------
161,299 629,899 846,703 959,263
----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 80,259 334,890 588,108 672,350
Other expenses 38,471 212,197 233,663 190,105
----------- ----------- ----------- -----------
118,730 547,087 821,771 862,455
----------- ----------- ----------- -----------
Operating gain 42,569 82,812 24,932 96,808
Federal income tax expense 14,899 29,080 10,768 35,338
----------- ----------- ----------- -----------
Net income $ 27,670 $ 53,732 $ 14,164 $ 61,470
=========== =========== =========== ===========
Assets $22,485,834 $21,484,913 $18,248,262 $17,335,515
=========== =========== =========== ===========
Surplus notes $ 565,000 $ 565,000 $ 565,000 $ 565,000
=========== =========== =========== ===========
</TABLE>
The Company has not restated the financial statements for 1996 and 1995;
therefore, the selected financial data on a statutory basis of accounting for
the Company as presented in its Annual Report on Form 10-K for the year ended
December 31, 1999 and for the quarter ended March 31, 2000 are shown below.
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR ENDED DECEMBER 31,
QUARTER ENDED -------------------------------------------------------------------
MARCH 31, 2000 1999 1998 1997 1996 1995
-------------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity
deposits and other
revenue $ 732,607 $ 2,869,250 $ 2,581,463 $ 2,623,629 $ 2,215,322 $ 1,883,901
Net investment income
and realized gains 32,681 190,844 187,208 298,121 310,172 315,966
----------- ----------- ----------- ----------- ----------- -----------
765,288 3,060,094 2,768,671 2,921,750 2,525,494 2,199,867
----------- ----------- ----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 673,927 2,706,121 2,416,950 2,579,104 2,232,528 1,995,208
Other expenses 60,681 239,136 214,607 206,065 175,342 150,937
----------- ----------- ----------- ----------- ----------- -----------
734,608 2,945,257 2,631,557 2,785,169 2,407,870 2,146,145
----------- ----------- ----------- ----------- ----------- -----------
Operating gain 30,680 114,837 137,114 136,581 117,624 53,722
Federal income tax
expense (benefit) 9,275 24,479 11,713 7,339 (5,400) 17,807
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 21,405 $ 90,358 $ 125,401 $ 129,242 $ 123,024 $ 35,915
=========== =========== =========== =========== =========== ===========
Assets $20,898,166 $19,948,155 $16,902,621 $15,925,357 $13,621,952 $12,359,683
=========== =========== =========== =========== =========== ===========
Surplus notes $ 565,000 $ 565,000 $ 565,000 $ 565,000 $ 315,000 $ 650,000
=========== =========== =========== =========== =========== ===========
</TABLE>
See discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
41
<PAGE>
CAUTIONARY STATEMENT
This following discussions include 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, 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:
- 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- YEAR ENDED DECEMBER 31, 1999
RESULTS OF OPERATIONS
The following table provides a summary of income from operations by
segment, which is discussed more fully below.
NET INCOME FROM CONTINUING OPERATIONS BY SEGMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Wealth Management $59.7 $ 60.0 $ 60.7
Individual Protection (0.1) (46.5) (3.2)
Group Protection 0.4 1.3 (0.8)
Corporate (6.2) (0.7) 4.8
----- ------ ------
$53.7 $ 14.1 $ 61.5
===== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO 1998:
NET INCOME
Net income increased by $28.2 million to $42.4 million in 1999, reflecting
an increase of $39.6 million in income from continuing operations, an increase
of $0.9 million in income from discontinued operations, and $12.3 million
after-tax loss from the sales of Massachusetts Casualty Insurance Company
("MCIC") and New London Trust F.S.B. ("NLT") which occurred in 1999.
NET INCOME FROM CONTINUING OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its 4
business segments: the Wealth Management segment, the Individual Protection
segment, the Group Protection segment and the Corporate segment.
WEALTH MANAGEMENT SEGMENT
The Wealth Management segment focuses on the savings and retirement needs
of individuals preparing for retirement or 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 products are managed
by Massachusetts Financial Services Company ("MFS"),
42
<PAGE>
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 its 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 primarily distributed through a dedicated
wholesaler network, including Sun Life of Canada (U.S.) Distributors, Inc., a
subsidiary of the Company.
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.
Net income decreased by $0.3 million to $59.7 million in 1999 as compared
to 1998. The increase in fee and other income, due to increased business, was
partially offset by higher operating expenses, resulting from both increased
business and continued investment in the Futurity distribution network. In
addition, the loss of earnings from the GICs, which block of business is
declining, contributed to the minor decline in earnings. Following are the major
factors affecting the Wealth Management segment's results in 1999 as compared to
1998:
- Fee and other income increased primarily as a result of higher variable
annuity account balances. Fee income was higher by approximately $37
million in 1999 compared to 1998. Market appreciation and net deposit
activity have been key factors in the growth in the account balances. This
growth has generated corresponding increases in fee income, since fees are
determined based on the average assets held in these accounts. Variable
annuity assets have increased by approximately $3.8 billion, or 31%, since
January 1, 1999.
- Net deposits of annuity products increased by $53 million to $290 million
compared with 1998. The increase in net deposits results primarily from
significant increases in new deposits offset by increased variable annuity
surrenders in 1999. Management believes the increase in new deposits is
mainly a result of the success of the Company's introduction, during the
fourth quarter of 1998, of a higher Dollar Cost Averaging ("DCA") rate and
a new six-month DCA program. Under these programs, which were redesigned in
late 1996, deposits are made into the fixed portion of the annuity contract
and receive a bonus rate of interest for the policy year. During the year,
the fixed deposit is systematically transferred to the variable portion of
the contract in equal periodic installments. While fixed annuity account
deposits increased, deposits directly into variable accounts decreased in
1999. The Company believes this decline was a consequence of the heightened
interest in the DCA programs in 1999.
Total new deposits to fixed and variable annuities increased by $479
million to $2,746 million in 1999. Sales of the Futurity line of products
represented $341 million or 12% of total annuity deposits in 1999, an
increase of $219 million from 1998. The Company expects that sales of the
Futurity product will continue to increase in the future, based on
management's 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 continue to respond
favorably to introductions of new Futurity products and product
enhancements.
The surrenders are primarily related to older products which are no longer
actively marketed. The Company expects that as the separate account block
of business continues to grow, from both net deposits and asset
appreciation, and as an increasing number of accounts are no longer subject
to surrender charges, surrenders will tend to increase. The Company is
implementing a conservation program with the aim of improving asset
retention.
- There has been a shift in demand to variable account products from general
account products. Most sales are either DCA or variable deposits. As a
consequence, there has been a decline in
43
<PAGE>
average general account invested assets and, in turn, net investment income
has declined. Net investment income reflects only income earned on invested
assets of the general account. Net investment income and realized gains for
the Wealth Management segment decreased by approximately $26 million in
1999 compared to 1998. This decline in average general account assets
primarily reflects the Company's decision in 1997 to no longer market group
pension and GIC products and as a consequence, a declining block of
in-force business as GICs mature and are surrendered.
- Policyholder benefits (the major elements of which are interest credited to
contractholder deposits and annuity benefits) decreased by approximately
$12.6 million in 1999 as compared to 1998. This is less than the decrease
in investment income as the surrenders of maturing GIC contracts on which
the Company earns a positive spread are being partially replaced by sales
of annuities under the Company's Dollar Cost Averaging ("DCA") programs.
Under these programs, 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.
- Other operating expenses increased by $9.0 million reflecting the increased
volumes of both new business and inforce business and continued investment
in the growth of the Futurity products wholesale distribution network.
- Amortization of deferred policy acquisition costs increased by
$6.8 million primarily reflecting the impact of the increased variable
annuity gross profits due to significant asset appreciation during 1999,
and the resulting increase in fee income.
INDIVIDUAL PROTECTION SEGMENT
The Company currently markets individual variable life insurance products.
These products include a variable universal life product marketed to the
company-owned life insurance ("COLI") market, which product was introduced in
late 1997. In September 1999, the Company introduced a new variable life product
as part of the Futurity product portfolio.
Prior to 1999, the Individual Protection segment consisted of two main
elements, internal reinsurance and other life products.
Internal Reinsurance
In recent years, the Company has had various reinsurance agreements with
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. These agreements, in the aggregate, had an immaterial effect on net
income in the years 1998 and 1999. Under another reinsurance 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). Prior to its termination, this agreement had the effect of increasing
income from operations by approximately $16.5 million in 1998. In addition, the
effect of terminating this agreement was to decrease 1998 net income by
approximately $64.0 million as the termination payment made was greater than the
net reserves (reserves assumed less deferred policy acquisition costs) held
under the agreement. Because this agreement terminated in 1998, it had no effect
on income from operations in 1999.
Other Life Products
Net income associated with the other life products directly issued by the
Company from the Individual Protection segment decreased by approximately
$0.5 million from 1998.
GROUP PROTECTION SEGMENT
The Group Protection segment focuses on providing life and disability
insurance to small and medium size employers as part of those companies'
employee benefit plans. This segment operates only in the state of New York
through a subsidiary. Net income from the Group Protection segment
44
<PAGE>
decreased by $0.9 million from 1998 primarily due to unfavorable claims
experience in the group life product.
CORPORATE SEGMENT
The Corporate segment includes the unallocated capital of the Company, its
debt financing and items not otherwise attributable to the other segments.
Net income for the Corporate segment decreased by $5.5 million to
($6.2) million. This decrease reflected lower net investment income, mainly from
lower assets due to dividend payments in 1999 of $80 million and in 1998 of
$50 million, and increased operational expenses. Income taxes in 1999 reflected
an income tax benefit associated with tax operating losses with subsidiaries not
allocated to the operating segments.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO 1997:
NET INCOME
Net income decreased by $116.3 million to $14.2 million in 1998,
reflecting a decrease of $47.4 million in income from continuing operations and
a decrease of $68.9 million in income from discontinued operations. On
December 24, 1997 the Company transferred through a dividend its investment in
MFS. Net income of MFS in 1997 included in income from discontinued operations
was $61.9 million. Net income from NLT and MCIC, which were both sold during
1999, included in income from discontinued operations was $.1 million in 1998
and $7.1 million in 1997.
NET INCOME FROM CONTINUING OPERATIONS BY SEGMENT
WEALTH MANAGEMENT SEGMENT
Net income decreased by $0.7 million to $60.0 million in 1998 as compared
to 1997. Increased fee and other income was mainly offset by higher operating
expenses. Both fee income and operating expenses increased as a result of the
increased business. In addition the start-up of the Company's own wholesaling
distribution network for the Futurity product line increased operating expenses
during 1998. Also impacting net income was the loss of earnings from GICs, which
block of business declined. Following are the major factors affecting the Wealth
Management segment's results in 1998 as compared to 1997:
- Fee and other income increased primarily as a result of higher variable
annuity account balances. Fee income was higher by approximately
$29 million in 1998 compared to 1997. Market appreciation and net deposit
activity have been key factors in the growth in the account balances. This
growth has generated corresponding increases in fee income, since fees are
determined based on the average assets held in these accounts. Variable
annuity assets increased by approximately $2.8 billion or 30% since
January 1, 1998.
- Net deposits of annuity products decreased by $131 million to
$237 million compared with 1997. The decrease in net deposits resulted
from both a decrease in new deposits and increased variable annuity
surrenders in 1998. Management believes the decrease in new deposits is
mainly a result increased competition in the marketplace. In particular
the competition in the DCA programs has intensified. During the fourth
quarter of 1998, the Company introduced a higher DCA rate and a new
six-month DCA program. While fixed annuity account deposits decreased,
deposits directly into variable accounts increased in 1998. The Company
believes the increase in variable deposits was a consequence of 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.
Total new deposits to fixed and variable annuities decreased by
$53 million to $2,267 million in 1998. Sales of the new Futurity line of
products represented $122 million or 5% of total annuity deposits in 1998.
The Company expects that sales of the Futurity product will continue to
increase in the future, based on management's beliefs that market demand
is growing for multi-manager variable annuity products, such as Futurity;
that the productivity of Futurity's wholesale
45
<PAGE>
distribution network, established in 1998, will continue to grow; and that
the marketplace will continue to respond favorably to introductions of new
Futurity products and product enhancements.
The surrenders are primarily related to older products which are no longer
actively marketed and particularly those for which the surrender charge
period has expired. The Company expects that as the separate account block
of business continues to grow, from both net deposits and asset
appreciation, and as an increasing number of accounts are no longer
subject to surrender charges, surrenders will tend to increase.
- There has been a shift in demand to variable account products from general
account products. As a consequence, there has been a decline in average
general account invested assets and, in turn, net investment income has
declined. Net investment income reflects only income earned on invested
assets of the general account. Net investment income and realized gains
for the Wealth Management segment decreased by approximately $72 million
in 1998 as compared to 1997. This decline in average general account
assets primarily reflects the Company's decision in 1997 to no longer
market group pension and GIC products and as a consequence, a declining
block of in-force business as GICs mature and are surrendered.
- Policyholder benefits (the major elements of which are interest credited
to contractholder deposits and annuity benefits) decreased by
approximately $62 million in 1998 as compared to 1997. This is less than
the decrease in investment income as the surrenders of maturing GIC
contracts on which the Company earns a positive spread were partially
replaced by sales of annuities under the Company's DCA programs.
- Other operating expenses increased by $16.0 million reflecting the
increased volumes of both new business and inforce business and expenses
associated with the startup of the Futurity product line and a new
distribution network dedicated to marketing the Futurity products.
Enhancements were made to the technology infrastructure to support the
growth in business.
- Amortization of deferred policy acquisition costs increased by
$4.0 million primarily reflecting the impact of increased variable annuity
gross profits due to significant asset appreciation during 1998, and the
resulting increase in fee income.
INDIVIDUAL PROTECTION SEGMENT
Prior to 1999, the Individual Protection segment consisted of two main
elements, internal reinsurance and other life products.
Internal Reinsurance
In recent years, the Company has had various reinsurance agreements with
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. These agreements, in the aggregate, had an immaterial effect on net
income in the years 1998 and 1997. Under another reinsurance 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). Prior to its termination, this agreement had the effect of increasing
income from operations by approximately $16.5 million in 1998. In addition, the
effect of terminating this agreement was to decrease 1998 net income by
approximately $64.0 million as the termination payment made was greater than the
net reserves (reserves assumed less deferred policy acquisition costs) held
under the agreement. This resulted in a net loss on the reinsurance in 1998 of
$47.5 million as compared to a loss of $7.6 million in 1997.
Other Life Products
Net income associated with the other life products directly issued by the
Company from the Individual Protection segment decreased by approximately
$3.3 million from 1997. The decrease reflects primarily higher death benefit
payments, increased operating expenses associated with growth of the COLI
business and increased amortization of deferred policy acquisition costs.
46
<PAGE>
GROUP PROTECTION SEGMENT
Net income from the Group Protection segment of $1.3 million in 1998
increased by $2.1 million from 1997 primarily due to favorable claims
experience. The claims experience in the disability products was poor in 1997
due to a greater number of claims. Claims returned to more normal levels in
1998.
CORPORATE SEGMENT
Net income for the Corporate segment decreased by $5.5 million to
($0.7) million. This decrease reflected lower net investment income, from both
lower interest rates and lower assets from dividend payments in 1998 of $50
million, increased interest expense and increased operational expenses.
FINANCIAL CONDITION AND LIQUIDITY
ASSETS
The Company's total assets comprise those held in its general account and
those held in its separate accounts. General account assets support general
account liabilities. Separate accounts are investment vehicles for the Company's
variable life and annuity contracts. Policyholders may choose from among various
investment options offered under these contracts according to their individual
needs and preferences. Policyholders assume the investment risks associated with
these choices. State insurance law provides that separate account asset equal to
reserves and other liabilities are not available to fund the liabilities of the
general account.
The following table summarizes significant changes in asset balances
during 1999. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS ($ IN MILLIONS)
--------------------------------------- % CHANGE
DECEMBER 31, 1999 DECEMBER 31, 1998 1999/1998
------------------ ------------------ ---------
<S> <C> <C> <C>
General account assets......................... $ 5,361.6 $ 5,945.3 (10.9)
Separate account assets........................ 16,123.3 12,302.9 31.1
--------- --------- -----
Total assets................................... $21,484.9 $18,248.2 17.7
========= ========= =====
</TABLE>
General account assets decreased by 10.9% in 1999, but variable separate
account assets increased by 31.1%. This growth in variable separate accounts as
compared to the general account reflects 2 main factors: (1) appreciation of the
funds held in the variable separate accounts exceeded that of the funds held in
the general account; and (2) annuity deposits into variable accounts, including
transfers under the DCA programs, 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, invested assets, and deferred
policy acquisition costs, which represented essentially all of general account
assets at December 31, 1999. Major types of invested asset holdings included
fixed maturity securities, short-term investments, mortgages, real estate and
other invested assets. The Company's fixed maturity securities amounted to
$2,677.3 million, representing 59.0% of the Company's total cash plus invested
assets ("total portfolio") at December 31, 1999, and 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 fixed maturity portfolio is
high. At December 31, 1999, only 6.0% of the fixed maturity portfolio was
invested in below-investment-grade securities. Short-term investments of $177.2
million in fixed maturity securities represented 3.9% of the total portfolio.
The Company's mortgage holdings amounted to $931.4 million at December 31, 1999,
representing 20.5% of the total portfolio. All mortgage holdings at
December 31, 1999 were in good standing. The Company believes that the high
quality of its mortgage portfolio is largely attributable to its stringent
underwriting standards. At December 31, 1999, investment real estate amounted to
$95.1 million, representing about 2.1% of the total portfolio. The Company
invests
47
<PAGE>
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. Other invested assets amounted to $67.9 million,
representing about 1.5% of the portfolio. Cash and cash equivalents of
$550.3 million at December 31, 1999 represented about 12.1% of the total
portfolio.
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.
------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- QUARTERLY PERIOD ENDED MARCH 31, 2000
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO 1999:
NET INCOME
Net income increased by $31.9 million to $27.7 million in the first three
months of 2000, reflecting an increase of $7.1 million in income from continuing
operations, a decrease of $0.8 million in income from discontinued operations,
and $25.6 million of after-tax loss from the sale of Massachusetts Casualty
Insurance Company which occurred in 1999.
NET INCOME FROM OPERATIONS BY SEGMENT
The following table provides a summary of income from operations by
segment, which is discussed more fully below.
NET INCOME FROM OPERATIONS BY SEGMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------
2000 1999 $ CHANGE % CHANGE
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Wealth Management $32.6 $18.1 $14.5 80.1%
Individual Protection (.1) -- (.1) --
Group Protection .6 .4 .2 50.0%
Corporate (5.4) 2.1 (7.5) (357.1%)
----- ----- ----- --------
$27.7 $20.6 $ 7.1 34.5%
===== ===== ===== ========
</TABLE>
WEALTH MANAGEMENT SEGMENT
Net income increased by $14.5 million to $32.6 million in the first three
months of 2000 primarily due to the increased volume of in-force business.
Following are the major factors affecting the Wealth Management segment's
results in the first quarter of 2000 as compared to the same period in 1999.
- Fee income increased primarily as a result of higher variable annuity
account balances. Fee income was higher by approximately $19 million in
the first three months of 2000 compared to the same period in 1999.
Market appreciation and net deposit activity have been key factors in
the growth in the account balances. This growth has generated
corresponding
48
<PAGE>
increases in fee income, since fees are determined based on the average
assets held in these accounts. Variable annuity assets have increased
by almost $5 billion since January 1, 1999.
- Net deposits of annuity products decreased by $99 million compared with
the first quarter of 1999. The decrease in net deposits results
primarily from increases in variable annuity surrenders in 2000. The
surrenders are primarily related to older products which are no longer
actively marketed. The Company expects that as the separate account
block of business continues to grow, from both net deposits and asset
appreciation, and as an increasing number of accounts are no longer
subject to surrender charges, surrenders will tend to increase. The
Company is implementing a conservation program with the aim of
improving asset retention.
- Total new deposits to fixed and variable annuities increased by
$26 million to $669 million in 2000. Sales of the Futurity line of
products represented $155 million of total annuity deposits in 2000, an
increase of $96 million from the same three month period in 1999. The
Company expects that sales of the Futurity product will continue to
increase in the future, based on management's 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 continue to respond favorably to introductions of new
Futurity products and product enhancements.
- There has been a shift in demand to variable account products from
general account products. As a consequence, there has been a decline in
average general account invested assets and, in turn, net investment
income has declined. Net investment income reflects only income earned
on invested assets of the general account. Net investment income and
realized gains for the Wealth Management segment decreased by
$20 million for the first three months of 2000 as compared to the same
period in 1999. This decline in average general account assets
primarily reflects the Company's decision in 1997 to no longer market
group pension and GIC products and as a consequence, a declining block
of in-force business as GICs mature and are surrendered.
- Policyholder benefits (the major elements of which are interest
credited to contractholder deposits and annuity benefits) decreased by
approximately $5.4 million in the three months ended March 31, 2000 as
compared to the same period in 1999. This is less than the decrease in
investment income as the surrenders of maturing GIC contracts on which
the Company earns a positive spread are being partially replaced by
sales of annuities under the Company's Dollar-Cost Averaging ("DCA")
programs. Under these programs, 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.
- Underwriting, acquisition and other operating expenses increased by
$4.0 million reflecting the increased volumes of both new business and
inforce business.
- Amortization of deferred policy acquisition costs decreased by
$21.6 million primarily reflecting the impact of the increased variable
annuity assets, due to significant appreciation during the latter part
of 1999 and through the first quarter of 2000, and the resulting
increase in expected future gross profits from increased fee income.
Since future gross profits are expected to be higher, the current
amortization of deferred policy acquisition costs is lower.
INDIVIDUAL PROTECTION SEGMENT
The Company currently markets individual variable life insurance products.
These products include a variable universal life product marketed to the
company-owned life insurance ("COLI") market, which product was introduced in
late 1997. In September 1999, the Company introduced a new variable life product
as part of the Futurity product portfolio. The Company's management expects that
the Company's variable life business will grow and become more significant in
the future.
49
<PAGE>
Net income from the Individual Protection segment decreased by
$0.1 million from the same period in 1999.
GROUP PROTECTION SEGMENT
The Group Protection segment focuses on providing life and disability
insurance to small and medium size employers as part of those companies'
employee benefit plans. This segment operates only in the state of New York
through a subsidiary. Net income from the Group Protection segment increased by
$0.2 million from the same period in 1999 primarily due to favorable claims
experience.
CORPORATE SEGMENT
The Corporate segment includes the unallocated capital of the Company, its
debt financing, and items not otherwise attributable to the other segments.
In the first three months of 2000, income from operations for the
Corporate segment decreased by $7.5 million to a ($5.4) million net loss. This
decrease reflected lower net investment income, mainly from lower assets due to
dividend payments in 1999 of $75 million, increased operational expenses and
increased income taxes. Income taxes in 1999 reflected an income tax benefit
associated with tax operating losses with subsidiaries not allocated to the
operating segments.
FINANCIAL CONDITION & 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 are 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. Separate account assets
are not available to fund the liabilities of the general account.
The following table summarizes significant changes in asset balances during the
first three months of 2000. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS
(IN MILLIONS) % CHANGE
MARCH 31, 2000 DECEMBER 31, 1999 2000/1999
--------------- ------------------ ---------
<S> <C> <C> <C>
General Account Assets $ 5,187.0 $ 5,361.6 (3.3)
Separate Account Assets 17,298.8 16,123.3 7.3
--------- --------- ----
Total Assets $22,485.8 $21,484.9 4.7
========= ========= ====
</TABLE>
General account assets decreased by 3.3% in the first three months of
2000, but variable separate account assets increased by 7.3%. This growth in
variable separate accounts as compared to the general account reflects two main
factors: appreciation of the funds held in the variable separate accounts has
exceeded that of the funds held in the general account; and annuity deposits
into variable accounts, including transfers under the DCA programs 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, invested assets, and deferred
policy acquisition costs, which represented essentially all of general account
assets at March 31, 2000. Major types of invested asset holdings included fixed
maturity securities, short-term investment mortgages, real estate and other
invested assets. The Company's fixed maturity securities comprised 70.5% of the
Company's portfolio at March 31, 2000, and included both public and private
issues. It is the
50
<PAGE>
Company's policy to acquire only investment-grade securities. As a result, the
overall quality of the fixed maturity portfolio is high. At March 31, 2000, only
5.1% of the fixed maturity portfolio was rated below-investment-grade.
Short-term investments in fixed maturity securities represented 2.1% of the
total portfolio. The Company's mortgage holdings amounted to $898.1 million at
March 31, 2000, representing 22.3% of the total portfolio. All mortgage holdings
at March 31, 2000 were in good standing. The Company believes that the high
quality of its mortgage portfolio is largely attributable to its stringent
underwriting standards. At March 31, 2000, investment real estate amounted to
$94.3 million, representing about 2.3% 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. Other invested assets amounted to
$68.3 million, representing about 1.7% of the portfolio. These holdings
comprised mainly leveraged lease investments.
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.
------------------------
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 applied to statutory surplus. 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 calculates
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 1999.
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 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 through December 31, 1999. Based on its ongoing
liquidity analyses, the Company believes that its available liquidity is more
than sufficient to meet its liquidity needs.
51
<PAGE>
OTHER MATTERS
DEMUTUALIZATION
Sun Life (Canada), the Company's ultimate parent as of December 31, 1999,
completed its demutualization on March 22, 2000. As a result of the
demutualization, a new holding company, Sun Life Financial Services of Canada,
Inc. ("SLF"), is now the ultimate parent of Sun Life (Canada) and the Company.
Sun Life Financial, a corporation organized in Canada, is a reporting company
under the Securities Exchange Act of 1934, as amended, with common shares listed
on the Toronto, New York, London, and Manila stock exchanges.
SALE OF SUBSIDIARIES
On February 5, 1999, the Company sold Massachusetts Casualty Insurance
Company ("MCIC"), a disability insurance company, to Centre Solutions (U.S.)
Limited, a wholly-owned subsidiary of Centre Reinsurance Holdings Limited. The
net proceeds of this sale were $34.0 million and the Company realized a post-tax
loss of $25.5 million.
On October 29, 1999, the Company sold New London Trust F.S.B. ("NLT") to a
subsidiary of Phoenix Home Life Mutual Insurance Company for approximately
$30.3 million and realized a post-tax gain of $13.2 million.
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 management believes that stringent underwriting standards
and practices have resulted in high-quality portfolios and have the effect of
limiting credit risk. It is the Company's policy, for example, not to purchase
below-investment-grade securities. Also, as a matter of investment policy, the
Company assumes no foreign currency or commodity risk, nor does it assume equity
price risk except to the extent that it holds real estate in its portfolios.
(Investment real estate holdings represented approximately 2.1% of the Company's
total general account portfolio at December 31, 1999, and 2.3% of the Company's
total general account portfolio at March 31, 2000.) 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
52
<PAGE>
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 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 had a fair value of $3,634.4 million at December 31, 1999 and a
fair value of $2,913.1 million at March 31, 2000. Fixed income investments
supporting those liabilities had a fair value of $4,308.6 million and $4,065.8
at December 31, 1999 and March 31, 2000, respectively. The Company performed a
sensitivity analysis on these interest-sensitive liabilities and assets on
December 31, 1999 and on March 31, 2000. The December 31, 1999 analysis showed
that if there were an immediate increase of 100 basis points in interest rates,
the fair value of the liabilities would show a net decrease of $118.0 million
and the corresponding assets would show a net decrease of $73.6 million. The
March 31, 2000 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 $66.7 million and the corresponding assets would show a net
decrease of $117.2 million.
By comparison, liabilities categorized as financial instruments and held
in the Company's general account at had a fair value of $4,385.0 million
December 31, 1998, and a fair value of $3,105.2 million at December 31, 1999.
Fixed income investments supporting those liabilities had a fair value of
$5,104.9 million and $4,308.6 million at December 31, 1998 and December 31,
1999, respectively. The Company performed a sensitivity analysis on these
interest-sensitive liabilities and assets at December 31, 1998 and at
December 31, 1999. The December 31, 1998 analysis showed that if there were an
immediate increase of 100 basis points in interest rates, the fair value of the
liabilities would show a net decrease of $185.4 million and the corresponding
assets would show a net decrease of $168.7 million. The December 31, 1999
analysis showed that if there were an immediate increase of 100 basis points in
interest rates, the fair value of the liabilities would show a net decrease of
$63.8 million and the corresponding assets would show a net decrease of
$118.0 million.
53
<PAGE>
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's management believes the Company's 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 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.
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. Such death
benefits are reinsured on a yearly renewable term basis. The life reinsurance
assumed agreement requires the reinsurer to withhold funds in amounts equal to
the reserves assumed. The Company terminated these agreements effective
October 1, 1998.
The Company has also executed reinsurance agreements with unrelated
companies which provide reinsurance of certain individual life insurance
contracts on a modified coinsurance basis under which all deficiency reserves
are ceded.
During 1999, the Company entered into an agreement with an unrelated
company which provides reinsurance on certain fixed group annuity contracts.
Also during 1999, the Company entered into three agreements with two unrelated
companies for the purpose of obtaining stop-loss coverage of guaranteed minimum
death benefit exposure with respect to the Company's variable annuity business.
The Company has agreements with Sun Life (Canada) whereby Sun Life
(Canada) reinsures the mortality and mortality risks of the group life insurance
contracts and group long term disability contracts. Under these agreements,
certain death benefits and long-term disability benefits are reinsured on a
yearly renewable basis.
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 $21.5 billion at December 31, 1999, 75.1%
($16.1 billion) consisted of unitized and non-unitized separate account assets,
13.3% ($2.9 billion) was invested in
54
<PAGE>
bonds and similar securities, 4.3% ($931.4 million) was invested in mortgages,
0.4% ($95.1 million) was invested in real estate, and the remaining 6.9%
($1.5 billion) 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 1999 statistical study published by
A.M. Best, the Company ranked 36th among North American life insurance companies
based upon admitted assets as of December 31, 1998.
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. As of May 31, 2000, the Company had ____ 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 5 years.
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 fire 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, Sun Life (Canada) 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
55
<PAGE>
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, 1999 included in the Statement of Additional Information and the
consolidated financial statements of the Company for the years ended
December 31, 1999, 1998 and 1997 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, 1999 are included in the Statement of Additional Information.
------------------------
56
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums and annuity considerations $ 45.1 $203.3 $257.4
Net investment income 365.0 455.9 539.9
Net realized investment gains 2.3 8.4 12.5
Fee and other income 217.5 179.2 149.5
------ ------ ------
Total revenues 629.9 846.8 959.3
------ ------ ------
BENEFITS AND EXPENSES
Policyowner benefits 334.9 588.2 672.3
Other operating expenses 101.1 100.0 85.4
Amortization of deferred policy acquisition costs 67.8 88.8 62.3
------ ------ ------
Total benefits and expenses 503.8 777.0 820.0
------ ------ ------
Income from operations 126.1 69.8 139.3
Interest expense 43.3 44.9 42.5
------ ------ ------
Income before income tax expense and discontinued
operations 82.8 24.9 96.8
INCOME TAX EXPENSE:
Federal 28.8 10.9 34.0
State .3 (.1) 1.3
------ ------ ------
Income tax expense 29.1 10.8 35.3
------ ------ ------
Net income from continuing operations 53.7 14.1 61.5
Net loss on disposal of subsidiaries, after tax (12.3) -- --
Discontinued operations 1.0 .1 69.0
------ ------ ------
NET INCOME $ 42.4 $ 14.2 $130.5
====== ====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED BALANCE SHEETS (IN MILLIONS)
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Investments
Fixed maturities available-for-sale at fair value
(amortized cost of $2,685.4 and $3,311.9 in 1999 and
1998, respectively) $ 2,677.3 $ 3,488.4
Trading fixed maturities at fair value (amortized cost
of $1.0 and $1.5 in 1999 and 1998, respectively) 1.0 1.5
Short-term investments 177.2 336.0
Mortgage loans 931.4 969.8
Real estate 95.1 99.0
Policy loans 40.7 42.6
Other invested assets 67.9 64.2
--------- ---------
Total investments 3,990.6 5,001.5
Cash and cash equivalents 550.3 264.7
Accrued investment income 50.5 61.9
Deferred policy acquisition costs 686.3 523.9
Outstanding premiums 2.7 .8
Other assets 81.2 .1
Separate account assets 16,123.3 12,302.9
Net assets from discontinued operations -- 92.4
--------- ---------
Total assets $21,484.9 $18,248.2
========= =========
LIABILITIES
Future contract and policy benefits $ 729.3 $ 736.1
Contractholder deposit funds and other policy
liabilities 3,144.8 3,658.2
Unearned revenue 7.1 6.7
Accrued expenses and taxes 98.8 32.8
Deferred federal income taxes 77.7 113.1
Long-term debt payable to affiliates 565.0 565.0
Other liabilities 67.7 55.8
Separate account liabilities 16,123.3 12,302.9
--------- ---------
Total liabilities 20,813.7 17,470.6
--------- ---------
COMMITMENTS AND CONTINGENCIES -- NOTE 15
STOCKHOLDER'S EQUITY
Common stock, $1,000 par value -- 10,000 shares
authorized; 5,900 shares issued and outstanding $ 5.9 $ 5.9
Additional paid-in capital 199.4 199.4
Accumulated other comprehensive income 7.1 75.9
Retained earnings 458.8 496.4
--------- ---------
Total stockholder's equity 671.2 777.6
--------- ---------
Total liabilities and stockholder's equity $21,484.9 $18,248.2
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $ 42.4 $14.2 $130.5
Other comprehensive income
Net unrealized holding gains (losses) on
available-for-sale securities,
net of tax (68.6) (4.3) 26.7
Other (.2) -- --
(68.8) (4.3) 26.7
------ ----- ------
Comprehensive income $(26.4) $ 9.9 $157.2
====== ===== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS EQUITY
----- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $5.9 $199.4 $ 53.5 $ 470.6 $ 729.4
---- ------ ------ ------- -------
Net income 130.5 130.5
Other comprehensive income 26.7 26.7
Dividends to stockholder (68.9) (68.9)
---- ------ ------ ------- -------
Balance at December 31, 1997 5.9 199.4 80.2 532.2 817.7
---- ------ ------ ------- -------
Net income 14.2 14.2
Other comprehensive income (4.3) (4.3)
Dividends to stockholder (50.0) (50.0)
---- ------ ------ ------- -------
Balance at December 31, 1998 5.9 199.4 75.9 496.4 777.6
---- ------ ------ ------- -------
Net income 42.4 42.4
Other comprehensive income (68.8) (68.8)
Dividends to stockholder (80.0) (80.0)
---- ------ ------ ------- -------
Balance at December 31, 1999 $5.9 $199.4 $ 7.1 $ 458.8 $ 671.2
==== ====== ====== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 53.7 $ 14.1 $ 61.5
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of discount and premiums (0.5) 0.2 .6
Depreciation and amortization 3.7 2.2 2.5
Net realized gains on investments (2.3) (8.4) (12.5)
Interest credited to contractholder deposits 216.4 238.7 282.9
Deferred federal income taxes 14.5 (8.6) (1.6)
Cash dividends from subsidiaries 19.3 -- 40.6
Changes in assets and liabilities:
Deferred acquisition costs (88.4) 208.7 (82.9)
Accrued investment income 11.4 31.1 25.8
Other assets (75.3) 78.5 (189.0)
Future contract and policy benefits (7.5) (1,124.0) 182.5
Other, net 72.3 896.6 7.7
------- --------- ---------
Net cash provided by operating activities 217.3 329.1 318.1
------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities and repayments of:
Available-for-sale fixed maturities 1,240.9 1,665.6 1,535.8
Subsidiaries 57.5 0.6 --
Other invested assets -- 0.9 .4
Mortgage loans 385.7 316.9 463.0
Real estate 2.8 6.0 15.1
Purchases of:
Available-for-sale fixed maturities (615.2) (1,346.7) (1,334.1)
Equity securities -- (0.2) (.3)
Other invested assets (7.4) (11.4) (5.5)
Mortgage loans (344.9) (123.0) (159.0)
Real estate (1.6) (1.1) (10.1)
Capital contributions to subsidiaries -- -- (2.0)
Changes in other investing activities, net 3.1 (14.4) (.5)
Net change in policy loans 1.9 (1.6) (.2)
Net change in short-term investments 155.9 (38.2) (152.9)
------- --------- ---------
Net cash provided by investing activities 878.7 453.4 349.7
------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Deposits to contractholder deposit funds 1,536.8 910.8 1,023.6
Withdrawals from contractholder deposit funds (2,267.2) (1,803.2) (1,550.8)
Issuance of long-term debt and borrowed funds -- -- 360.1
Repayment of long-term debt and borrowed funds -- (110.1) (58.0)
Dividends paid to stockholder (80.0) (50.0) --
--------- --------- ---------
Net cash used in financing activities (810.4) (1,052.5) (225.1)
--------- --------- ---------
Net change in cash and cash equivalents 285.6 (270.0) 442.7
Cash and cash equivalents, beginning of year 264.7 534.7 92.0
--------- --------- ---------
Cash and cash equivalents, end of year $ 550.3 $ 264.7 $ 534.7
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 43.3 $ 40.5 $ 42.0
Income taxes paid 5.5 50.6 32.9
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 domiciled in the state of Delaware. The Company and its
subsidiaries are licensed in 49 states and certain other territories and are
engaged in the sale of individual variable life insurance, individual fixed and
variable annuities, group fixed and variable annuities, group pension contracts,
group life and disability insurance, and other asset management services.
The Company is a wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings,
Inc. ("Life Holdco"), which is an indirect wholly-owned subsidiary of Sun Life
Assurance Company of Canada ("SLOC"), the Company's ultimate parent as of
December 31, 1999. SLOC is a life insurance company domiciled in Canada which
reorganized from a mutual life insurance company to a stock life insurance
company on March 22, 2000. As a result of the demutualization, a new holding
company, Sun Life Financial Services of Canada, Inc. ("SLC"), became the
ultimate parent of SLOC and the Company.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in the United States of
America for stockholder-owned life insurance companies and include the accounts
of the Company and its subsidiaries.
For the year ended December 31, 1999, the Company filed its Annual Report on
Form 10-K using audited statutory financial statements. The Company prepared the
statutory 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 GAAP. See Note 13 for a
reconciliation of statutory surplus to GAAP equity and statutory net income to
GAAP net income.
The Company owns all of the outstanding shares of Sun Life Insurance and Annuity
Company of New York ("Sun Life (N.Y.)"), Sun Life of Canada (U.S.)
Distributors, Inc. (formerly Sun Investment Services Company) ("Sundisco"), 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 Limited ("SLIRL"). All significant intercompany transactions
have been eliminated in consolidation.
Sun Life (N.Y.) is engaged in the sale of individual fixed and variable annuity
contracts and group life and disability insurance contracts in its state of
domicile, New York. Sundisco is a registered investment adviser and
broker-dealer. 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. SPE 97-1 was
organized for the purpose of engaging in activities incidental to securitizing
mortgage loans. Clarendon is a registered broker-dealer that acts as the general
distributor of certain annuity and life insurance contracts issued by the
Company and its affiliates. SLIRL provides information systems development
services to the Company and it's affiliates. Sunfinco and Sunbesco are currently
inactive.
During 1999, the Company sold two of its subsidiaries, Massachusetts Casualty
Insurance Company ("MCIC") and New London Trust F.S.B. ("NLT") to separate,
unaffiliated parties. MCIC is a life insurance company, which issues only
individual disability income policies. NLT is a federally chartered savings
bank, which grants commercial, residential real estate and installment loans.
The Company owned a majority of Massachusetts Financial Services Company
("MFS"), an investment adviser and
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
broker-dealer, until December 24, 1997. The results of operations of these
subsidiaries are reported as discontinued operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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 amount of revenues and expenses during the reporting period. The
most significant estimates are those used in determining deferred policy
acquisition costs, investment allowances and the liabilities for future
policyholder benefits. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including cash and cash equivalents,
investments such as fixed maturities, mortgage loans and equity securities, off
balance sheet financial instruments, debt, loan commitments and financial
guarantees. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses. Financial instruments are more
fully described in Note 5.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents primarily include cash, commercial paper, money market
investments, and short-term bank participations. All such investments have
maturities of three months or less and are considered cash equivalents for
purposes of reporting cash flows.
INVESTMENTS
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments of
Debt and Equity Securities". At the time of purchase, fixed maturity securities
are classified based on intent, as held-to-maturity, trading, or available-for
sale or trading. In order for the security to be classified as held-to-maturity,
the Company must have positive intent and ability to hold the securities to
maturity. Securities held-to-maturity are stated at cost, adjusted for
amortization of premiums, and accretion of discounts. Securities that do not
meet this criterion are classified as available-for-sale. Available-for-sale
securities are carried at aggregate fair value with changes in unrealized gains
or losses reported net of policyholder related amounts and of deferred income
taxes in a separate component of other comprehensive income. Trading securities
are carried at aggregate fair value with changes in unrealized gains or losses
reported as a component of net investment income. Fair values are obtained from
external market quotations. For privately placed fixed maturities, fair values
are estimated by taking into account prices for publicly traded securities of
similar credit risk, maturities repayment and liquidity characteristics. All
security transactions are recorded on a trade date basis. The Company's
accounting policy for impairment requires recognition of an other than temporary
impairment charge on a security if it is determined that the Company is unable
to recover all amounts due under the contractual obligations of the security. In
addition, for securities expected to be sold, an other than temporary impairment
charge is recognized if the Company does not expect the fair value of a security
to recover to cost or amortized cost prior to the expected date of sale. Once an
impairment charge has been recorded, the Company then continues to review the
other than temporarily impaired securities for additional impairment, if
necessary.
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
Mortgage loans are stated at unpaid principle balances, net of provisions for
estimated losses. Mortgage loans acquired at a premium or discount are carried
at amortized values net of provisions for estimated losses. Loans, which include
primarily commercial first mortgages, and real estate and are diversified by
property type and geographic area throughout the United States. Mortgage loans
are collateralized by the related properties and generally are no more than 75%
of the properties' value at the time that the original loan is made.
A loan is recognized as impaired when it is probable that the principal or
interest are not collectible in accordance with the contractual terms of the
loan. Measurement of impairment is based on the present value of expected future
cash flows discounted at the loan's effective interest rate, or at the loan's
observable market price. A specific valuation allowance is established if the
fair value of the impaired loan is less than the recorded amount. Loans are also
charged against the allowance when determined to be uncollectible. The allowance
is based on a continuing review of the loan portfolio, past loss experience and
current economic conditions, which may affect the borrower's ability to pay.
While management believes that it uses the best information available to
establish the allowance, future adjustments to the allowance may become
necessary if economic conditions differ from the assumptions used in making the
evaluation.
Real estate investments are held for the production of income or held-for-sale.
Real estate investments held for the production of income are carried at the
lower of cost adjusted for accumulated depreciation or 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. Real estate
investments held-for-sale are primarily acquired through foreclosure of mortgage
loans. The cost of real estate that has been acquired through foreclosure is the
estimated fair value less estimated costs to dispose at the time of foreclosure.
Policy loans are carried at the amount of outstanding principal balance not in
excess of net cash surrender values of the related insurance policies.
Other invested assets consist primarily of leveraged leases and tax credit
partnerships.
The Company uses derivative financial instruments including financial futures
contracts, equity options, interest rate swaps, foreign currency swaps and
forward spread lock contracts as a means of hedging exposure to interest rate,
currency and equity price risk. Hedge accounting is used to account for certain
derivatives. To qualify for hedge accounting, the changes in fair value of the
derivative must be expected to substantially offset the changes in the value of
the hedged item. Hedges are monitored to ensure that there is a correlation
between the derivative instrument and the hedged investment. Derivative
instruments qualifying for hedge accounting treatment are marked to market and
the related changes in fair value are included in a separate component of
stockholder's equity. To the extent that the correlation of the derivative
instrument and hedged item is not established, the derivative instrument is
marked to market and the related change in fair value is recognized on the
statement of operations as a component of net investment income.
Investment income is recognized on an accrual basis. Realized gains and losses
on the sales of investments are recognized in operations at the date of sale and
are determined using the specific cost identification method. When an impairment
of a specific investment or a group of investments is determined to be other
than temporary, a realized investment loss is recorded. Changes in the provision
for estimated losses on mortgage loans and real estate are included in net
realized investment gains and losses.
65
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
Interest income on loans is recorded on the accrual basis. Loans are placed in a
non-accrual status when management believes that the borrower's financial
condition, after giving consideration to economic and business conditions and
collection efforts, is such that collection of principal and interest is
doubtful. When a loan is placed in non-accrual status, all interest previously
accrued is reversed against current period interest income. Interest accruals
are resumed on such loans only when they are brought fully current with respect
to principle and interest, have performed on a sustained basis for a reasonable
period of time, and when, in the judgment of management, the loans are estimated
to be fully collectible as to both principal and interest.
DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting and other costs which
vary with and are primarily related to the production of new business.
Acquisition costs related to investment-type contracts, primarily deferred
annuity and guaranteed investment contracts, and universal and variable life
products are deferred and amortized with interest in proportion to the present
value of estimated gross profits to be realized over the estimated lives of the
contracts. Estimated gross profits are composed of net investment income, net
realized investment gains and losses, life and variable annuity fees, surrender
charges and direct variable administrative expenses. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized; generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods based upon the
same assumptions used in estimating the liability for future policy benefits.
Deferred acquisition costs for each life product are reviewed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, the Company believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
OTHER ASSETS
Property, equipment, leasehold improvements and capitalized software cost which
are included in other assets are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided using the straight-line or
accelerated method over the estimated useful lives of the related assets, which
generally range from 3 to 30 years. Amortization of leasehold improvements is
provided using the straight-line method over the lesser of the term of the
leases or the estimated useful life of the improvements. Reinsurance receivables
from reinsurance ceded are included in other assets.
POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. Future policy benefits for individual
life insurance and annuity policies are computed using interest rates ranging
from
66
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
4.5% to 5.5% for life insurance and 6.0% to 11.3% for annuities. The liabilities
associated with traditional life insurance, annuity and disability insurance
products are computed using the net level premium method based on assumptions
about future investment yields, mortality, morbidity and persistency. The
assumptions used are based upon both the Company and its affiliates' experience
and industry standards. Estimated liabilities are established for group life and
health policies that contain experience rating provisions.
Contractholder deposit funds consist of policy values that accrue to the holders
of universal life-type contracts and investment-related products such as
deferred annuities and guaranteed investment contracts. The liabilities are
determined using the retrospective deposit method and consist of net deposits
and investment earnings less administrative charges. The liability is before the
deduction of any applicable surrender charges.
Other policy liabilities include liabilities for policy and contract claims.
These amounts consist of the estimated amount payable for claims reported but
not yet settled and an estimate of claims incurred but not reported. The amount
reported is based upon historical experience, adjusted for trends and current
circumstances. Management believes that the recorded liability is sufficient to
provide for the associated claims adjustment expenses. Revisions of these
estimates are included in operations in the year such refinements are made.
REVENUE AND EXPENSES
Premiums for traditional individual life and annuity products are considered
revenue when due. Premiums related to group life and group disability insurance
are recognized as revenue pro-rata over the contract period. The unexpired
portion of these premiums is recorded as unearned premiums. Revenue from
universal life-type products and investment-related products includes charges
for cost of insurance (mortality), initiation and administration of the policy
and surrender charges. Revenue is recognized when the charges are assessed
except that any portion of an assessment that relates to services to be provided
in future years is deferred and recognized over the period during which the
services are provided.
Benefits and expenses, other than deferred policy acquisition costs, related to
traditional life, annuity, and disability contracts, including group policies,
are recognized when incurred in a manner designed to match them with related
premium revenue and spread income recognition over expected policy lives. For
universal life-type and investment-type contracts, benefits include interest
credited to policyholders' accounts and death benefits in excess of account
values, which are recognized as incurred.
INCOME TAXES
The Company and its subsidiaries participate in a consolidated federal income
tax return with US Holdco and other affiliates. Deferred income taxes are
generally recognized when assets and liabilities have different values for
financial statement and tax reporting purposes, and for other temporary taxable
and deductible differences as defined by Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". These differences result
primarily from policy reserves, policy acquisition expenses and unrealized gains
or losses on investments, and are generally not chargeable with liabilities that
arise from any other business of the Company. Separate account assets are
subject to general account claims only to the extent the value of such assets
exceeds the separate account liabilities.
67
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
SEPARATE ACCOUNTS
The Company has established 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 and the investment risk of
such securities is retained by the policyholder.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which establishes
accounting and reporting standards for derivative instruments. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges: fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investments in foreign operations.
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137 ("SFAS No. 137"), "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 delays the effective date of SFAS No. 133 for all fiscal quarters until
fiscal years beginning after June 15, 2000. The Company is evaluating SFAS No.
133 and has not determined its effect on the consolidated financial statements.
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants (AICPA) Statement of Position (SOP) 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This
statement provides guidance on when an insurance or other enterprise should
recognize a liability for guaranty fund and other assessments and on how to
measure such liability. The adoption of SOP 97-3 had no material impact on the
financial position or results of operations.
On January 1, 1999, the Company adopted AICPA SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This SOP
provides guidance for determining whether costs of software developed or
obtained for internal use should be capitalized or expensed as incurred. In the
past, the Company has expensed such costs as they were incurred. The adoption of
SOP 98-1, resulted in an increase in pre-tax income of $6,232,000 for the year
ended December 31, 1999.
2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES
Effective October 1, 1998, the Company terminated a reinsurance agreement with
Sun Life Assurance Company of Canada resulting in a decrease in income from
operations to the Company of approximately $64,000,000.
On February 11, 1999, two notes previously issued to the Company by
Massachusetts Financial Services Company ("MFS"), an affiliate, were combined
into a new note with a February 11, 2000 maturity date. The original notes were
each issued for $110,000,000. One note was issued on February 11, 1998 at an
interest rate of 6.0% and a due date of February 11, 1999. The other note was
issued on December 22, 1998 at an interest rate of 5.55% and a due date of
February 11, 1999. These two notes and an additional $10,000,000 were combined
into a new note of $230,000,000 with a floating interest
68
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED):
rate based on the six month LIBOR rate plus 25 basis points. The $230,000,000
note was repaid to the Company on December 21,1999.
On December 31, 1998, the Company had an additional $20,000,000 investment in
notes issued by MFS, scheduled to mature in 2000. These notes were repaid to the
Company on December 21, 1999.
On January 14, 2000, the Company purchased $200,000,000 of notes from MFS.
On February 5, 1999, the Company sold MCIC to an unaffiliated company. The net
proceeds of this sale were $33,965,000. The Company realized a loss of
$25,465,000 net of a $14,482,000 tax benefit.
On October 29, 1999, the Company sold NLT to an unaffiliated company for
$30,254,000. The Company realized a gain of $13,170,000 after taxes of
$10,186,000.
On December 22, 1999, the Company acquired twenty-eight mortgages from SLOC for
a total cost of $118,092,000.
Dividends in the amounts of $80,000,000 and $50,000,000, were declared and paid
by the Company to its parent, Life Holdco during 1999 and 1998, respectively. On
December 24, 1997 the Company transferred as a dividend to Life Holdco all of
its ownership in MFS valued at $68,951,000. These dividends were approved by the
Company's Board of Directors.
The Company has management services agreements 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 these agreements
amounted to approximately $30,745,000 in 1999, $17,381,000 in 1998, and
$17,152,000 in 1997.
As more fully described in Note 7, the Company has been involved in several
reinsurance transactions with its ultimate parent, SLOC.
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 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.
The Company accrued $4,259,000 and $4,259,000 for interest on surplus notes for
the years ended December 31, 1999 and 1998, respectively.
The Company expensed $43,266,000, $44,903,000, and $42,481,000 for interest on
surplus notes and notes payable for the years ended December 31, 1999, 1998 and
1997, respectively.
69
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED):
The Company had $565,000,000 of surplus notes issued to affiliates and
outstanding as of December 31, 1999 and 1998. The following table lists the
details of the surplus notes outstanding (in 000's):
<TABLE>
<CAPTION>
MATURITY PRINCIPAL RATE
-------- --------- ----
<S> <C> <C> <C>
Sun Canada Financial Co. 12/15/07 $150,000 6.625%
Sun Canada Financial Co. 12/15/15 150,000 7.250%
Sun Canada Financial Co. 12/15/07 7,500 6.125%
Sun Canada Financial Co. 12/15/15 7,500 5.750%
Life Holdco 11/06/27 250,000 8.625%
--------
Total $565,000
========
</TABLE>
3. INVESTMENTS
FIXED MATURITIES
The amortized cost and fair value of fixed maturities were as follows (in
000's):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Fixed maturities available-for-sale:
United States treasury securities, U.S.
Government and agency securities $ 107,272 $ 2,104 $ (3,191) $ 106,186
States, provinces and political subdivisions 32,593 15 (161) 32,447
Mortgage-backed securities 98,903 1,225 (541) 99,588
Public utilities 360,672 7,954 (9,780) 358,846
Transportation 327,544 8,585 (4,258) 331,871
Finance 281,303 4,632 (6,935) 279,000
Corporate 1,477,105 22,851 (30,556) 1,469,400
---------- ------- -------- ----------
Total fixed maturities available-for-sale $2,685,392 $47,366 $(55,422) $2,677,338
========== ======= ======== ==========
Trading fixed maturities:
United States treasury securities, U.S.
Government and agency securities $ 1,000 $ 2 $ -- $ 1,002
---------- ------- -------- ----------
Total trading fixed securities $ 1,000 $ 2 $ -- $ 1,002
========== ======= ======== ==========
</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 CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Fixed maturities available-for-sale:
United States treasury securities, U.S.
Government and agency securities $ 221,724 $ 8,356 $ (360) $ 229,720
States, provinces and political subdivisions 25,888 2,825 0 28,713
Mortgage-backed securities 238,539 6,864 (1,501) 243,902
Public utilities 473,243 31,526 (235) 504,534
Transportation 378,393 31,168 (53) 409,508
Finance 369,809 15,927 (1,911) 383,825
Corporate 1,604,323 94,123 (10,224) 1,688,222
---------- -------- -------- ----------
Total fixed maturities available-for-sale $3,311,919 $190,789 $(14,284) $3,488,424
========== ======== ======== ==========
Trading fixed maturities:
United States treasury securities, U.S.
Government and agency securities $ 1,506 $ 35 $ -- $ 1,541
---------- -------- -------- ----------
Total trading fixed securities $ 1,506 $ 35 $ -- $ 1,541
========== ======== ======== ==========
</TABLE>
There were no contractual fixed maturity investment commitments at December 31,
1999 and 1998, respectively.
The amortized cost and estimated fair value by maturity periods for fixed
maturity investments are shown below (in 000's). Actual maturities may differ
from contractual maturities on mortgage-backed securities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties, or the Company may have the right to put or sell the obligations back
to the issuers.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---- ----------
<S> <C> <C>
Maturities of available for sale securities:
Due in one year or less $ 216,235 $ 216,417
Due after one year through five years 933,481 924,198
Due after five years through ten years 600,735 605,804
Due after ten years 934,941 930,919
---------- ----------
$2,685,392 $2,677,338
========== ==========
Maturities of trading securities:
Due in one year or less $ 500 500
Due after one year through five years $ 500 502
---------- ----------
$ 1,000 $ 1,002
========== ==========
</TABLE>
Gross gains of $12,496,128, $25,752,149 and $18,292,309 and gross losses of
$7,646,028, $1,439,129, and $5,284,286 were realized on the voluntary sale of
fixed maturities for the years ended December 31, 1999, 1998, and 1997,
respectively.
71
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
Fixed maturites with an amortized cost of approximately $3,009,000 and
$2,976,000 at December 31, 1999 and 1998 respectively, were on deposit with
Federal and State governmental authorities as required by law.
No fixed maturities have been pledged to collateralize various liabilities at
December 31, 1999 and 1998, respectively.
As of December 31, 1999 and 1998, 94% of the Company's fixed maturities were
investment grade and there were no significant concentrations by issuer or by
industry, other than U.S. Treasury securities. Investment grade securities are
those that are rated "BBB" or better by nationally recognized rating agencies.
The Company believes that unrealized losses are temporary in nature, and
accordingly, no provisions for permanent impairment of value have been recorded.
All of the Company's securities were income producing for the periods ending
December 31, 1999, 1998 and 1997.
MORTGAGE LOANS AND REAL ESTATE
The Company invests in commercial first mortgage loans and real estate
throughout the United States. Investments are diversified by property type and
geographic area. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the properties' value at the time that the
original loan is made. Real estate investments classified as held for sale have
been obtained primarily through foreclosure. The carrying value of mortgage
loans and real estate investments net of applicable reserves were as follows (in
000's):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
---- ----
<S> <C> <C>
Total mortgage loans $931,351 $969,799
======== ========
Real estate:
Held for sale 7,804 4,323
Held for production of income 87,290 94,625
-------- --------
Total real estate $ 95,094 $ 98,948
======== ========
</TABLE>
Accumulated depreciation on real estate was $18,529,000 and $16,829,000 at
December 31, 1999 and 1998, respectively.
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. The Company has restructured mortgage loans totaling
$28,019,000 and $39,804,000 at December 31, 1999 and 1998, respectively, against
which there are allowances for losses of $3,705,000 and $5,700,000,
respectively. In those cases where, in management's judgment, the mortgage
loans' values are impaired, appropriate losses are recorded. The carrying value
of impaired loans was $19,356,000 and $27,500,000 with related reserves of
$2,123,000 and $3,730,000 as of December 31, 1999 and 1998, respectively. All
impaired loans were reserved as of December 31, 1999 and 1998. The average
carrying value of impaired loans was $19,491,000 and $27,313,000 with related
interest income while such loans were impaired of $1,782,000 and $2,181,000 as
of December 31, 1999 and 1998, respectively. During 1999 and 1998, non-cash
investing activities included real estate acquired through foreclosure of
mortgage loans, which had a fair value of $20,433,000 and $22,372,000,
respectively.
72
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
The investment valuation allowances, which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets, were
as follows (in 000's):
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JANUARY 1, ADDITIONS SUBTRACTIONS DECEMBER 31,
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
1999
Mortgage loans $6,600 $4,045 $(2,895) $ 7,750
Real estate 1,250 1,379 (906) 1,723
1998
Mortgage loans $6,671 $1,098 $(1,169) $ 6,600
Real estate 806 569 (125) 1,250
</TABLE>
Mortgage loans and real estate investments comprise the following property types
and geographic regions (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Property Type:
Office building $ 357,466 $ 370,679
Residential 58,546 55,952
Retail 433,970 401,549
Industrial/warehouse 156,204 248,417
Other 29,732 --
Valuation allowances (9,473) (7,850)
---------- ----------
Total $1,026,445 $1,068,747
========== ==========
Geographic region:
California $ 117,355 $ 134,789
Massachusetts 99,661 115,807
Michigan 69,545 71,678
New York 65,107 67,407
Ohio 43,946 56,682
Pennsylvania 159,328 155,216
Washington 68,657 73,555
All other 412,319 401,463
Valuation allowances (9,473) (7,850)
---------- ----------
Total $1,026,445 $1,068,747
========== ==========
</TABLE>
At December 31, 1999, scheduled mortgage loan maturities were as follows
(000's):
<TABLE>
<S> <C>
2000 $113,731
2001 71,648
2002 72,535
2003 41,430
Thereafter 632,007
--------
Total $931,351
========
</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 CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
Actual maturities could differ from contractual maturities because borrowers may
have the right to prepay obligations with or without prepayment penalties and
loans may be refinanced.
The Company has made commitments of mortgage loans on real estate and other
loans into the future. The outstanding commitments for these mortgages amount to
$15,911,000 and $31,563,000 at December 31, 1999 and 1998, respectively.
SECURITIES LENDING
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chase Manhattan of New York. The custodian has
indemnified the Company against losses arising from this program. The total par
value of securities out on loan was $0 and $0 at December 31, 1999 and 1998,
respectively. The Company requires collateral at 102% of the value of securities
loaned. As of December 31, 1999 and 1998, the Company received collateral with a
fair value of $0 and $0 for securities on loan. The income resulting from this
program was $37,000, $135,000 and $230,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
LEVERAGED LEASES
The Company is a lessor in a leverage 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 9.78 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. The Company's net investment in leveraged leases is
composed of the following elements (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
---- ----
<S> <C> <C>
Lease contracts receivable $ 69,766 $ 78,937
Less: non-recourse debt (69,749) (78,920)
-------- --------
Net Receivable 17 17
Estimated residual value of leased assets 41,150 41,150
Less: unearned and deferred income (7,808) (8,932)
-------- --------
Investment in leverage lease 33,359 32,235
Less: fees (113) (138)
-------- --------
Net investment in leverage leases $ 33,246 $ 32,097
======== ========
</TABLE>
DERIVATIVES
The Company uses derivative financial instruments for risk management purposes
to hedge against specific interest rate risk, to alter investment rate exposures
arising from mismatches between assets and liabilities, and to minimize the
Company's exposure to fluctuations in interest rates, foreign currency exchange
rates and general market conditions. The derivative financial instruments used
by the Company include futures, interest rate swap agreements, options, and
interest rate and currency swap agreements structured as forward spread lock
contracts. The Company does not hold or issue any derivative instruments for
trading purposes.
74
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
FUTURES
A futures contract is a contractual agreement to make or take delivery of a
notional principal amount at a specified future date in accordance with terms
specified by a regulated futures exchange. Although futures contracts generally
specify delivery terms for the underlying commodity or financial instrument,
most futures contracts are settled in cash prior to delivery by executing a
futures position opposite to the original position. That is, a contract to take
delivery (a "long" position) is offset by executing a contract to make delivery
(a "short" position), and vice versa.
The Company purchases futures contracts to hedge against interest rate
fluctuations. 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 (losses) to specific hedged assets or liabilities, gains (losses)
are deferred and amortized over the remaining life of the hedged assets. If
instruments being hedged by futures are disposed, any unamortized gains (losses)
are included in the determination of gain or loss from the disposition. Gains
(losses) on hedge contracts that are deemed ineffective are realized
immediately. There were no deferred gains (losses), disposed hedges, or hedges
deemed ineffective in 1999 and 1998. The Company had no futures contracts
outstanding at December 31, 1999 and 1998, respectively.
INTEREST RATE SWAPS
Interest rate swap agreements are contracts with other parties to exchange at
specified intervals, the difference between fixed and floating rate interest
amounts based upon a notional principal amount. No cash is exchanged at the
outset of the contract and no principal payments are made by either party. A
single net payment is usually made by one counterparty at each interest payment
date.
The Company enters into interest rate swap agreements to hedge against exposure
to interest rate fluctuations. Because the underlying principal is not
exchanged, the Company's maximum exposure to counterparty credit risk is the
difference in payments exchanged. The net payable/receivable is recognized over
the life of the swap contract as an adjustment to net investment income. The net
increase (decrease) in net investment income related to interest rate swaps was
($2,512,745), ($1,685,909) and ($2,579,536) for the years ended December 31,
1999, 1998 and 1997 respectively. The company's derivatives did not qualify for
hedge accounting treatment in 1999 and 1998. As a result, the realized gains and
losses were realized immediately in those years and the deferred balances as of
year ended December 31, 1997 were realized during 1998.
PUT OPTIONS
Options are legal contracts that give the contractholder the right to buy or
sell a specific amount of the underlying interest at a strike price upon
exercise of the option. Cash is exchanged to purchase the option and on exercise
date, the holder of the option can elect to exercise or allow it to expire. The
Company utilizes options to hedge against stock market exposure inherent in the
mortality and expense risk charges and guaranteed minimum death benefit features
of the Company's variable annuities.
FORWARD SPREAD LOCK CONTRACTS
Interest rate and currency swap agreements structured as forward spread lock
contracts are swap agreements which are executed in a current period but
effective on a future date. The contracts outline the interest or currency
rates, which each party agrees to at contract date as well as the outset of the
contract. No principal payments are made by either party. A single net payment
is made to close out the contract prior to the effective date in the event that
either party to the contract wishes to terminate
75
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
the agreement. If the contract is not terminated prior to the effective future
date, the contract becomes a swap agreement as described above.
The Company's underlying notional or principal amounts associated with open
derivatives positions were as follows (in 000's):
<TABLE>
<CAPTION>
OUTSTANDING AT
DECEMBER 31, 1999
---------------------
NOTIONAL MARKET
PRINCIPAL VALUE OF
AMOUNTS POSITIONS
------- ---------
<S> <C> <C>
Interest rate swaps $368,000 $ 9,522
Foreign currency swaps 1,700 295
-------- --------
Total $369,700 $ 9,817
======== ========
<CAPTION>
OUTSTANDING AT
DECEMBER 31, 1998
---------------------
NOTIONAL MARKET
PRINCIPAL VALUE OF
AMOUNTS POSITIONS
------- ---------
Interest rate swaps $ 297,000 ) (10,656
<S> <C> <C>
Foreign currency swaps 3,100 689
-------- --------
Total $300,100 $ (9,967)
======== ========
</TABLE>
During 1998, the Company discontinued hedge accounting treatment for certain
derivative instruments for which correlation could not be established. The
Company recognized gross realized gains of $4,734,971 and $6,567,922 in 1999 and
1998, respectively, as well as gross realized losses of $1,789,357 and
$20,538,120 during 1999 and 1998, respectively.
The Company's primary risks associated with these transactions are exposure to
potential credit loss in the event of non-performance by counterparties and
market risk. The Company regularly assesses the strength of the counterparties
and generally enters into transactions with counterparties rated "A" or better
by nationally recognized ratings agencies. Management believes that the risk of
incurring losses related to credit risk is remote. As of December 31, 1999 and
1998, the Company's derivatives had no significant concentration of credit risk.
The Company does not require collateral or other security to support derivative
financial instruments with credit risk.
4. NET REALIZED INVESTMENT GAINS AND LOSSES
Net realized investment gains (losses) consisted of the following (in 000's):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $(1,839) $ 21,811 $ 671
Mortgage and other loans 1,981 36 9,465
Real estate (742) 499 2,393
Derivative instruments 2,945 (13,970) (63)
------- -------- --------
Total $ 2,345 $ 8,376 $ 12,466
======= ======== ========
</TABLE>
5. NET INVESTMENT INCOME
Net investment income consisted of the following (in 000's):
76
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. NET INVESTMENT INCOME (CONTINUED):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $254,390 $295,167 $324,150
Equity securities (33) 37 --
Mortgage and other loans 90,638 103,804 128,214
Real estate 6,829 7,844 7,070
Policy loans 3,172 2,934 3,639
Derivatives 17,671 (11,880) (3,060)
Income on funds withheld under reinsurance -- 67,045 85,840
Other (1,416) (817) 943
-------- -------- --------
Gross investment income 371,251 464,134 546,796
Less: Investment expenses 6,273 8,277 6,882
-------- -------- --------
Net investment income $364,978 $455,857 $539,914
======== ======== ========
</TABLE>
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107 excludes certain insurance liabilities and other non-financial
instruments from its disclosure requirements. The fair value amounts presented
herein do not include the expected interest margin (interest earnings over
interest credited) to be earned in the future on investment-type products or
other intangible items. Accordingly, the aggregate fair value amounts presented
herein do not necessarily represent the underlying value of the Company;
likewise, care should be exercised in deriving conclusions about the Company's
business or financial condition based on the fair value information presented
herein.
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1999 and 1998 (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 550,265 $ 550,265 $ 264,744 $ 264,744
Fixed maturities 2,678,340 2,678,340 3,489,965 3,489,965
Short-term investments 177,213 177,213 336,026 336,026
Mortgages 931,351 933,725 969,800 1,014,189
Derivatives 9,817 9,817 (9,967) (9,967)
Policy loans 40,660 40,660 42,595 42,595
Other invested assets 67,938 67,938 64,177 64,177
Financial liabilities:
Guaranteed investment contracts $ 677,265 $ 665,830 $1,064,357 $1,089,070
Contractholder deposit funds 2,279,413 2,213,896 2,449,585 2,460,530
Fixed annuity contracts 112,794 105,845 113,913 114,661
Interest sensitive life insurance 116,999 119,659 118,076 120,077
Long-term debt 565,000 529,212 565,000 600,625
</TABLE>
The fair values of cash and cash equivalents are estimated to be cost plus
accrued interest which approximates fair value. The fair values of short-term
bonds are estimated to be the amortized cost. The fair values of publicly traded
fixed maturities are based upon market prices or dealer quotes. For privately
placed fixed maturities, fair values are estimated by taking into account prices
for publicly traded securities of similar credit risk, maturity, repayment and
liquidity characteristics. The fair values
77
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
of mortgage and other loans 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.
Policy loans are state at unpaid principal balances which approximate fair
value.
The fair values of the Company's general account insurance reserves and
contractholder deposits 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 based on
interest rates currently being offered for similar contracts with maturities
consistent with those remaining for all contracts being valued. Those contracts
that are deemed to have short-term guarantees have a carrying amount equal to
the estimated market value.
The fair values of other deposits with future maturity dates are estimated using
discounted cash flows.
The fair value of notes payable and other borrowings are estimated using
discounted cash flow analyses based upon the Company's current incremental
borrowing rates for similar types of borrowings. The carrying amount of all
other assets is assumed to approximate fair value. The company's commitments to
extend credit approximate fair value.
7. REINSURANCE
INDIVIDUAL INSURANCE
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.
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. Also effective January 1, 1991, the
Company entered into an agreement with SLOC which provides that SLOC will
reinsure the mortality risks in excess of $500,000 per policy for the individual
life insurance contracts assumed by the Company in the reinsurance agreement
described above. Such death benefits are reinsured on a yearly renewable term
basis. These two agreements were terminated effective October 1, 1998.
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.
GROUP INSURANCE
The Company has agreements with SLOC whereby SLOC reinsures the mortality and
morbidity risks of the group life insurance contracts and group long-term
disability contracts. Under these agreements, certain death benefits and
long-term disability benefits are reinsured on a yearly renewable term basis.
The agreements provide that SLOC will reinsure the mortality risks in excess of
$50,000 per policy for group life contracts and $3,000 per policy per month for
long-term disability contracts ceded by the Company.
The effects of reinsurance were as follows (in 000's):
78
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
7. REINSURANCE (CONTINUED):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Insurance premiums
Direct $ 33,033 $ 39,168 $ 43,312
Assumed -- 159,787 211,657
Ceded 5,814 11,867 13,180
-------- -------- --------
Net Premiums $ 27,219 $187,088 $241,789
======== ======== ========
Insurance and other individual policy benefits and claims
Direct $318,519 $330,592 $411,834
Assumed -- 248,664 241,947
Ceded 3,821 11,170 5,361
-------- -------- --------
Net policy benefits and claims $314,698 $568,086 $648,420
======== ======== ========
</TABLE>
The Company is contingently liable for the portion of the policies reinsured
under each of its existing reinsurance agreements in the event the reinsurance
companies are unable to pay their portion of any reinsured claim. Management
believes that any liability from this contingency is unlikely. However, to limit
the possibility of such losses, the Company evaluates the financial condition of
its reinsurers and monitors concentration of credit risk.
8. RETIREMENT PLANS
PENSION PLAN
The Company and its subsidiaries participate with SLOC in a non-contributory
defined benefit pension plan covering essentially all employees. Benefits under
all plans are based on years of service and employees' average compensation.
The Company's funding policies for the pension plans are to contribute amounts
which at least satisfy the minimum amount required by the Employee Retirement
Income Security Act of 1974 ("ERISA"); currently the plans are fully funded.
Most pension plan assets consist of separate accounts of SLOC or other insurance
company contracts. The following table sets forth the change in the pension
plan's
79
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. RETIREMENT PLANS (CONTINUED):
projected benefit obligations and assets, as well as the plans funded status at
December 31, 1999 and 1998 (in 000's):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year $110,792 $ 79,684
Service cost 5,632 4,506
Interest cost 6,952 6,452
Actuarial loss (gain) (21,480) 21,975
Benefits paid (2,376) (1,825)
-------- --------
Projected benefit obligation at end of year $ 99,520 $110,792
======== ========
Change in fair value of plan assets:
Fair value of plan assets at beginning of year $151,575 $136,610
Actual return on plan assets 9,072 16,790
Benefits paid (2,376) (1,825)
Fair value of plan assets at end of year $158,271 $151,575
Funded status $ 58,752 $ 40,783
Unrecognized net actuarial loss (20,071) (2,113)
Unrecognized transition obligation (22,617) (24,674)
Unrecognized prior service cost 7,081 7,661
-------- --------
Prepaid benefit cost $ 23,145 $ 21,657
======== ========
</TABLE>
The following table sets forth the components of the net periodic pension cost
for the years ended December 31, 1999 and 1998 (in 000's).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Components of net periodic benefit cost:
Service cost $ 5,632 $ 4,506
Interest cost 6,952 6,452
Expected return on plan assets (12,041) (10,172)
Amortization of transition obligation asset (2,056) (2,056)
Amortization of prior service cost 580 580
Recognized net actuarial gain (554) (677)
------- -------
Net periodic benefit cost $(1,487) $(1,367)
======= =======
The Company's share of net periodic benefit cost $ 736 $ 586
======= =======
</TABLE>
The projected benefit obligations were based on calculations that utilize
certain assumptions. The assumed weighted average discount rate was 7.5% and
6.75% for the years ended December 31, 1999 and 1998, respectively. The expected
return on plan assets for 1999 and 1998 was 8.75% and 8.00%, respectively, and
the assumed rate of compensation increase for both 1999 and 1998 was 4.50%.
80
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. RETIREMENT PLANS (CONTINUED):
The Company and certain subsidiaries also participate with SLOC and certain
affiliates in a 401(k) savings plan for which substantially all employees are
eligible. Under the various plans the Company matches, up to specified amounts,
employees' contributions to the plan. The Company's contributions were $284,000
and $231,000 for the years ended December 31, 1999 and 1998, respectively.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to pension benefits, the Company and certain subsidiaries provide
certain health, dental, and life insurance benefits ("postretirement benefits")
for retired employees and dependents. Substantially all employees of the
participating companies 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.
The following table sets forth the change in other postretirement benefit plans'
obligations and assets, as well as the plans' funded status at December 31, 1999
and 1998 (in 000's).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 10,419 $ 9,845
Service cost 413 240
Interest cost 845 673
Actuarial loss 1,048 308
Benefits paid (508) (647)
-------- --------
Benefit obligation at end of year $ 12,217 $ 10,419
======== ========
Change in fair value of plan assets:
Fair value of plan assets at beginning of year $ -- $ --
Employer contributions 508 647
Benefits paid (508) (647)
-------- --------
Fair value of plan assets at end of year $ -- $ --
======== ========
Funded Status $(12,217) $(10,419)
Unrecognized net actuarial loss 1,469 586
Unrecognized transition obligation 140 185
-------- --------
Prepaid (accrued) benefit cost $(10,608) $ (9,648)
======== ========
</TABLE>
81
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. RETIREMENT PLANS (CONTINUED):
The following table sets forth the components of the net periodic postretirement
benefit costs for the years ended December 31, 1999 and 1998 (in 000's).
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Components of net periodic benefit cost
Service cost $ 413 $ 240
Interest cost 845 673
Amortization of transition obligation(asset) 45 45
Recognized net actuarial loss (gain) 164 (20)
------ --------
Net periodic benefit cost $1,467 $ 938
====== ========
The Company's share of net periodic benefit cost $ 185 $ 95
====== ========
</TABLE>
In order to measure the postretirement benefit obligation at December 31, 1999,
the Company assumed a 10.9% annual rate of increase in the per capita cost of
covered health care benefits. These rates were assumed to decrease gradually to
5.0% for 2005 and remain at that level thereafter. Assumed health care cost
trend rates have a significant effect on the amounts reported for the health
care plans. For example, increasing the health care cost trend rate assumptions
by one percentage point in each year would increase the accumulated
postretirement benefit obligation at December 31, 1999 by $2.8 million, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit expense for 1999 by $0.3 million. Conversely, decreasing
assumed rates by one percentage point in each year would decrease the
accumulated postretirement benefit obligation at December 31, 1999 by $2.3
million, and the aggregate of the service and interest cost components of net
periodic postretirement benefit expense for 1999 by $0.5 million. The assumed
weighted average discount rate used in determining the postretirement benefit
obligation was 7.5% and 6.75% for the year ended December 31, 1999 and 1998,
respectively.
9. FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return
with US Holdco as previously described in Note 1. Federal income taxes are
calculated as if the Company was filing a separate federal income tax return. A
summary of the components of federal income tax expense in the consolidated
statements of income for the years ended December 31, 1999, 1998 and 1997 were
as follows (in 000's):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal income tax expense
Current $18,570 $19,476 $35,689
Deferred 10,210 (8,551) (1,674)
------- ------- -------
Total $28,780 $10,925 $34,015
======= ======= =======
</TABLE>
82
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
9. FEDERAL INCOME TAXES (CONTINUED):
Federal income taxes attributable to the consolidated operations are different
from the amounts determined by multiplying income before federal income taxes by
the expected federal income tax rate of 35%. The Company's effective rate
differs from the federal income tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected federal income tax expense $28,969 $ 9,405 $36,925
Low income housing credit (6,348) (4,446) (3,270)
Additional tax provision 6,851 5,423 1,004
Other (692) 543 (644)
------- ------- -------
Federal income tax expense $28,780 $10,925 $34,015
======= ======= =======
</TABLE>
The deferred income tax (asset) liability represents the tax effects of
temporary differences between the carrying amounts of assets and liabilities
used for financial reporting purposes and the amounts used for income tax
purposes. The components of the Company's deferred tax (assets) and liabilities
as of December 31, 1999 and 1998 were as follows (in 000's):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax asset
Actuarial liabilities $ 136,560 $ 118,074
Investments, net $ 943 --
--------- ---------
Total deferred tax asset $ 137,503 $ 118,074
Deferred tax liabilities
Investments, net $ -- $ (65,704)
Deferred policy acquisition costs (193,238) (144,366)
Other (21,940) (21,105)
--------- ---------
Total deferred tax liability $(215,178) $(231,175)
--------- ---------
Net deferred tax liability $ (77,675) $(113,101)
========= =========
</TABLE>
The Company makes payments under the tax sharing agreements as if it were filing
as a separate company.
The Company's federal income tax returns are routinely audited by the Internal
Revenue Service ("IRS"), and provisions are made in the consolidated financial
statements in anticipation of the results of these audits. The Company is
currently under audit by the IRS for the years 1994 and 1995. In the Company's
opinion, adequate tax liabilities have been established for all years and any
adjustments that might be required for the years under audit will not have a
material effect on the Company's financial statements. However, the amounts of
these tax liabilities could be revised in the future if estimates of the
Company's ultimate liability are revised.
83
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES
Activity in the liability for unpaid claims and claims adjustment expenses
related to the group life and group disability products is summarized below (in
000's):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance at January 1 $15,002 $13,016
Less reinsurance recoverables (3,232) (2,777)
------- -------
Net balance at January 1 11,770 10,239
------- -------
Incurred related to:
Current year 12,187 10,212
Prior years (1,487) (1,721)
------- -------
Total incurred 10,700 8,491
------- -------
Paid losses related to:
Current year (6,755) (5,146)
Prior years (1,996) (1,814)
------- -------
Total paid (8,751) (6,960)
------- -------
Net balance at December 31 17,755 15,002
Plus reinsurance recoverables (4,036) (3,232)
------- -------
Balance at December 31 $13,719 $11,770
======= =======
</TABLE>
The Company regularly updates its estimates of liabilities for unpaid claims and
claims adjustments expenses as new information becomes available and further
events occur which may impact the resolution of unsettled claims for its
individual and group disability lines of business. Changes in prior estimates
are recorded in results of operations in the year such changes are determined to
be needed.
11. DEFERRED POLICY ACQUISITION COSTS
The following illustrates the changes to the deferred policy acquisition cost
asset (in 000's):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance at January 1 $523,872 $ 719,819
Acquisition costs deferred 156,228 144,324
Amortized to expense during year (67,815) (88,794)
Adjustment for unrealized investment gains(losses)
during year 73,993 (11,139)
Adjustment for termination of reinsurance agreement -- (240,338)
-------- ---------
Balance at December 31 $686,278 $ 523,872
======== =========
</TABLE>
12. SEGMENT INFORMATION
The Company conducts business principally in five 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. Each
segment was defined consistent with the way results are evaluated by the chief
operating decision-maker.
INDIVIDUAL PROTECTION
The Individual Protection segment markets and administers life insurance
products sold to individuals and corporate owners of individual life insurance.
The products include a variety of whole life, universal life and variable life
products.
84
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
12. SEGMENT INFORMATION (CONTINUED):
GROUP PROTECTION
The Group Protection segment markets and administers group life insurance, long
term disability and short-term disability products. These products are sold to
employers which provide group benefits for their employees.
WEALTH MANAGEMENT
The Wealth Management segment markets and administers both individual and group
fixed and variable annuity products and provides asset management services to
certain of the Company's separate accounts.
CORPORATE SEGMENT
The Corporate segment includes the unallocated capital of the Company, its debt
financing, and items not otherwise attributable to the other segments.
Management evaluates the results of the operating segments on a pre-tax basis.
The Company does not materially depend on one or a few customers, brokers or
agents. The following amounts pertain to the various business segments (in
000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------
TOTAL TOTAL PRETAX NET OPERATING TOTAL
REVENUES EXPENDITURES INCOME INCOME ASSETS
-------- ------------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Individual Protection $17,139 $ 18,001 $ (861) $ (118) $ 291,508
Group Protection 16,095 15,541 554 360 20,038
Wealth Management 543,424 460,788 82,636 59,734 20,534,218
Corporate 53,241 52,758 483 (6,244) 639,149
-------- -------- -------- -------- -----------
Total $629,899 $547,088 $ 82,812 $ 53,732 $21,484,913
======== ======== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------
<S> <C> <C> <C> <C> <C>
Individual Protection $230,219 $300,478 $(70,259) $(46,469) $ 357,042
Group Protection 14,993 13,023 1,970 1,260 18,163
Wealth Management 538,053 457,483 80,570 59,978 17,211,359
Corporate 63,438 50,787 12,651 (705) 661,698
-------- -------- -------- -------- -----------
Total $846,703 $821,771 $ 24,932 $ 14,064 $18,248,262
======== ======== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
<S> <C> <C> <C> <C> <C>
Individual Protection $295,933 $301,216 $ (5,283) $ (3,260) $ 1,554,818
Group Protection 12,425 13,603 (1,178) (764) 13,793
Wealth Management 586,925 499,225 87,700 60,709 15,026,991
Corporate 63,980 48,411 15,569 4,785 739,913
-------- -------- -------- -------- -----------
Total $959,263 $862,455 $ 96,808 $ 61,470 $17,335,515
======== ======== ======== ======== ===========
</TABLE>
13. REGULATORY FINANCIAL INFORMATION
The insurance subsidiaries are required to file annual statements with state
regulatory authorities prepared on an accounting basis prescribed or permitted
by such authorities (statutory basis). Statutory surplus differs from
shareholder's equity reported in accordance with generally accepted accounting
principles for stock life insurance companies primarily because policy
acquisition costs are expensed when incurred, investment reserves are based on
different assumptions, post-retirement benefit costs
85
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
13. REGULATORY FINANCIAL INFORMATION (CONTINUED):
are based on different assumptions and reflect a different method of adoption,
life insurance reserves are based on different assumptions and income tax
expense reflects only taxes paid or currently payable.
For the year ended December 31, 1999, the Company filed its Annual Report on
Form 10-K ("10-K") using audited statutory financial statements. The following
information reconciles statutory net income and statutory surplus with net
income and equity on a GAAP basis (in 000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory net income $ 90,358 $ 125,401 $ 129,242
Adjustments to GAAP for life insurance companies:
Statutory interest maintenance reserve 3,956 2,925 1,867
Investment income and realized gains(losses) 13,803 (4,532) 14,186
Policyowner benefits (154,293) (187,990) (84,895)
Deferred policy acquisition costs 88,413 60,527 88,921
Deferred income taxes (13,615) 8,886 (26,067)
Other, net 13,850 9,017 7,247
--------- --------- ---------
GAAP net income $ 42,472 $ 14,234 $ 130,501
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Statutory capital stock and surplus $ 886,342 $ 909,924
Adjustments to GAAP for life insurance companies:
Valuation of investments 3,697 139,826
Deferred policy acquisition costs 686,278 550,900
Future policy benefits and Contractholder deposit funds (350,181) (240,035)
Deferred income taxes (86,112) (106,343)
Statutory interest maintenance reserve 42,325 44,668
Statutory asset valuation reserve 45,281 46,698
Surplus notes (565,000) (565,000)
Other, net 8,615 (3,038)
--------- ---------
GAAP equity $ 671,245 $ 777,600
========= =========
</TABLE>
The NAIC has codified statutory accounting practices, which are expected to
constitute the only source of prescribed statutory accounting practices and are
effective in 2001. Codification will change prescribed statutory accounting
practices and may result in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial statements. The changes of
codification will not have a material impact on statutory surplus.
14. DIVIDEND RESTRICTIONS
The Company and its insurance subsidiary's ability to pay dividends are subject
to certain restrictions. Delaware and New York have enacted laws governing the
payment of dividends to stockholders by insurers. These laws affect the dividend
paying ability of the Company and Sun Life (N.Y.).
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without prior
approval of the Delaware Commissioner of Insurance, is limited to the greater of
(i) 10% of its statutory surplus as of the preceding December 31st, or (ii) the
individual company's statutory net gain from operations for the preceding
calendar
86
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
14. DIVIDEND RESTRICTIONS (CONTINUED):
year (if such insurer is a life company), or its net income (not including
realized capital gains) for the preceding calendar year (if such insurer is not
a life company). Any dividends to be paid by an insurer, whether or not in
excess of the aforementioned threshold, from a source other than statutory
surplus, would also require the prior approval of the Delaware Commissioner of
Insurance. During 1997, the Company received approval from the Delaware
Commissioner of Insurance and transferred all of its ownership in MFS valued at
$68,951,000 as a dividend to Life Holdco. See Note 2 for additional information.
In 1998, a dividend in the amount of $50,000,000 was declared and paid by the
Company to its parent, Life Holdco. During 1999, a dividend in the amount of
$80,000,000 was declared and paid by the Company to Life Holdco. These dividends
were approved by the Board of Directors, but did not require prior approval of
the Insurance Commissioner. The maximum dividend payable by the Company without
prior approval of the Delaware Commissioner of Insurance at December 31, 1999
was $8,000,000.
Under New York statute, cash dividends may be paid out of that part of the
Company's available and accumulated surplus funds, which was derived from
realized net operating profits of its business and realized capital gains. A
cash dividend otherwise lawful may be paid out of such earned surplus even
though total surplus is at the time less than previously contributed or paid-in
surplus. No cash dividend shall be paid to stockholder unless a notice of the
intention of the Board of Directors to declare such dividend and the amount
thereof shall have been filed with the Superintendent of Insurance of the State
of New York not less than thirty days in advance of such proposed declaration,
nor if the Superintendent within thirty days after such filing gives written
notice to the Company of his disapproval of such payment. During 1999 and 1998,
Sun (N.Y.) declared and paid dividends in the amounts of $6,500,000 and
$3,000,000, respectively, to the Company.
15. COMMITMENTS AND CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments.
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state insurance
guaranty associations for certain obligations of insolvent insurance companies
to policyholders and claimants. Recent regulatory actions against certain large
life insurers encountering financial difficulty have prompted various state
insurance guaranty associations to begin assessing life insurance companies for
the deemed losses. Most of these laws do provide, however, that an assessment
may be excused or deferred if it would threaten an insurer's solvency and
further provide annual limits on such assessments. Part of the assessments paid
by the Company and its subsidiaries pursuant to these laws may be used as
credits for a portion of the associated premium taxes. The Company incurred
guaranty fund assessments of approximately $3,500,000, $3,500,000, and
$3,083,000 in 1999, 1998 and 1997, respectively.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result
87
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
15. COMMITMENTS AND CONTINGENCIES (CONTINUED):
in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. Although the
Company does not believe that there is a material contingency associated with
the Year 2000 project, there can be no assurance that exposure for material
contingencies may not arise.
LITIGATION
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurance, management, at the present
time, does not anticipate that the ultimate liability arising from such pending
and threatened litigation will have a material effect on the financial condition
or operating results of the Company.
LEASE COMMITMENTS
The Company leases various facilities and equipment under operating leases with
terms up to twenty-five years. As of December 31, 1999, minimum future lease
payments under such leases are as follows (in 000's):
<TABLE>
<S> <C>
2000 $ 4,354
2001 4,354
2002 4,407
2003 3,378
Thereafter 2,776
=======
Total $19,269
=======
</TABLE>
Total rental expense for the years ended December 31, 1999, 1998 and 1997 was
$4,656,000, $4,139,000, and $3,875,000 respectively.
16. DISCONTINUED OPERATIONS
During 1999, the Company discontinued its individual disability segment and its
banking and trust segment. These segments were composed of MCIC and NLT which
were both sold during 1999 to separate, unaffiliated parties. Net proceeds on
the sale of MCIC were approximately $33,965,000 and the Company realized a net
loss after taxes of $25,465,000. Net proceeds on the sale of NLT were
approximately $30,000,000; the Company realized a net gain after taxes of
$13,170,000. Immediately before the sale date of NLT, the Company received a $19
million dividend distribution from NLT.
During 1997, the Company discontinued its investment management segment which
was comprised of Massachusetts Financial Services Company, ("MFS"). As part of a
corporate restructuring at the end of 1997, MFS was transferred to Life Holdco
in the form of a dividend valued at $68,951,000. MFS was then transferred to US
Holdco and then to a newly formed holding company, Sun Life of Canada (U.S.)
Financial Services Holdings, Inc.
Income from discontinued operations (in 000's):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue $22,667 $104,225 $691,348
Expenses 21,430 104,593 570,521
Provision for income taxes 203 (445) 51,795
------- -------- --------
Income from discontinued operations $ 1,034 $ 77 $ 69,032
======= ======== ========
</TABLE>
88
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF SUN LIFE ASSURANCE COMPANY OF
CANADA (U.S.):
We have audited the accompanying consolidated balance sheets of Sun Life
Assurance Company of Canada (U.S.) and its subsidiaries (the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of income,
stockholder's equity, comprehensive income and of cash flows for each of the
three years in the period ended December 31, 1999. These consolidated 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sun Life Assurance Company of
Canada (U.S.) and its subsidiaries as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 22, 2000
------------------------
89
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
2000 1999
--------- ---------
<S> <C> <C>
Revenues
Premiums and annuity considerations $14.6 $11.0
Net investment income 79.9 98.4
Net realized investment gains 0.2 4.5
Fee and other income 66.6 49.9
----- -----
Total revenues 161.3 163.8
----- -----
Benefits and expenses
Policyowner benefits 80.3 84.7
Underwriting, acquisition and other operating expenses 27.0 20.0
Amortization of deferred policy acquisition costs 0.6 24.4
----- -----
Total benefits and expenses 107.9 129.1
----- -----
Income from operations 53.4 34.7
Interest expense 10.8 10.8
----- -----
Income before income tax expense and discontinued operations 42.6 23.9
Income tax expense 14.9 3.3
----- -----
Net income from continuing operations 27.7 20.6
Net loss on disposal of subsidiary, after tax -- (25.6)
Net income from discontinued operations -- 0.8
----- -----
Net income (loss) $27.7 $(4.2)
===== =====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
90
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED BALANCE SHEETS (IN MILLIONS)
<TABLE>
<CAPTION>
UNAUDITED
MARCH 31, 2000 DECEMBER 31, 1999
--------------- ------------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities available-for-sale at fair value (amortized
cost of $2,843.5 and $2,685.4 in 2000 and 1999,
respectively) $ 2,833.7 $ 2,677.3
Trading fixed maturities at fair value (amortized cost of
$1.0 and $1.0 in 2000 and 1999, respectively) 1.0 1.0
Short-term investments 85.5 177.2
Mortgage loans 898.1 931.4
Real estate 94.3 95.1
Policy loans 40.4 40.7
Other invested assets 68.3 67.9
--------- ---------
Total investments 4,021.3 3,990.6
--------- ---------
Cash and cash equivalents 321.0 550.3
Accrued investment income 52.4 50.5
Deferred policy acquisition costs 728.1 686.3
Outstanding premiums 2.0 2.7
Other assets 62.2 81.2
Separate account assets 17,298.8 16,123.3
--------- ---------
TOTAL ASSETS $22,485.8 $21,484.9
========= =========
LIABILITIES
Future contract and policy benefits $ 727.4 $ 729.3
Contractholder deposit funds and other policy liabilities 2,945.3 3,144.8
Unearned revenue 7.5 7.1
Accrued expenses and taxes 93.4 98.8
Deferred federal income taxes 90.2 77.7
Long-term debt payable to affiliates 565.0 565.0
Other liabilities 58.7 67.7
Separate account liabilities 17,298.8 16,123.3
--------- ---------
Total liabilities 21,786.3 20,813.7
--------- ---------
STOCKHOLDER'S EQUITY
Common stock, $1,000 par value - 10,000 shares authorized;
5,900 shares issued and outstanding 5.9 5.9
Additional paid-in capital 199.4 199.4
Accumulated other comprehensive income 7.7 7.1
Retained earnings 486.5 458.8
--------- ---------
Total stockholder's equity 699.5 671.2
--------- ---------
Total liabilities and stockholder's equity $22,485.8 $21,484.9
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
91
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN MILLIONS)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
2000 1999
--------- ---------
<S> <C> <C>
Net income (loss) $27.7 $(4.2)
Other comprehensive income:
Net change in unrealized holding gains and losses on
available-for-sale securities, net of tax 0.7 10.7
Currency translation (0.1) --
----- -----
Other comprehensive income: 0.6 10.7
----- -----
Comprehensive income $28.3 $ 6.5
===== =====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
92
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (IN MILLIONS)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS EQUITY
-------- ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $5.9 $199.4 $ 7.1 $458.8 $671.2
Comprehensive income:
Net income -- -- -- 27.7 27.7
Other comprehensive income -- -- 0.6 -- 0.6
---- ------ ----- ------ ------
Balance at March 31, 2000 $5.9 $199.4 $ 7.7 $486.5 $699.5
==== ====== ===== ====== ======
Balance at December 31, 1998 $5.9 $199.4 $75.9 $496.4 $777.6
Comprehensive income:
Net income -- -- -- (4.2) (4.2)
Other comprehensive income -- -- 10.7 -- 10.7
Dividends to stockholder -- -- -- (75.0) (75.0)
---- ------ ----- ------ ------
Balance at March 31, 1999 $5.9 $199.4 $86.6 $417.2 $709.1
==== ====== ===== ====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
93
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations $ 27.7 $ 20.6
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Amortization of discount and premiums (0.3) 0.0
Depreciation and amortization 0.3 0.5
Net realized gains on investments (0.2) (4.5)
Tax benefit on disposal of subsidiary -- 14.8
Interest credited to contractholder deposits 48.7 56.0
Deferred federal income taxes 12.1 (5.9)
Changes in assets and liabilities:
Deferred acquisition costs (39.0) (16.6)
Accrued investment income (1.9) 1.0
Other assets 13.1 (17.9)
Future contract and policy benefits (1.4) (4.1)
Other, net (10.1) 12.7
------- -------
Net cash provided by operating activities 49.0 56.6
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities and repayments of:
Available-for-sale fixed maturities 208.9 413.3
Subsidiary -- 33.6
Mortgage loans 50.1 24.0
Real estate 3.0 --
Purchases of:
Available-for-sale fixed maturities (366.9) (143.8)
Other invested assets -- (1.0)
Mortgage loans (17.6) (97.7)
Real estate (1.9) (0.1)
Changes in other investing activities, net 0.3 --
Net change in policy loans 0.3 (0.7)
Net change in short term investments 94.6 (91.3)
------- -------
Net cash provided by (used in) investing activities (29.2) 136.4
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deposits and interest credited to contractholder deposit
funds 317.0 341.3
Withdrawals from contractholder deposit funds (566.1) (471.8)
------- -------
Net cash used in financing activities (249.1) (130.4)
------- -------
Net change in cash and cash equivalents (229.3) 62.6
Cash and cash equivalents, beginning of period 550.3 264.7
Cash and cash equivalents, end of period $ 321.0 $ 327.3
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid, net of refunds $ (19.5) $ 13.3
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
94
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Sun Life Assurance Company of Canada (U.S.) (the "Company") was incorporated in
1970 as a life insurance company domiciled in the state of Delaware. The Company
and its subsidiaries are licensed in 49 states and certain other territories and
are engaged in the sale of individual variable life insurance, individual fixed
and variable annuities, group fixed and variable annuities, group pension
contracts, group life and disability insurance, and other asset management
services.
The Company is a wholly owned subsidiary of Sun Life of Canada (U.S.) Holdings,
Inc. ("Life Holdco"), which is an indirect wholly owned subsidiary of Sun Life
Assurance Company of Canada ("SLOC"), the Company's ultimate parent as of
December 31, 1999. SLOC is a life insurance company domiciled in Canada which
reorganized from a mutual life insurance company to a stock life insurance
company on March 22, 2000. As a result of the demutualization, a new holding
company, Sun Life Financial Services of Canada Inc. ("SLF"), is now the ultimate
parent of SLOC and the Company.
BASIS OF PRESENTATION
For the year ended December 31, 1999, the Company filed its Annual Report on
Form 10-K using audited statutory 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
Company has changed its basis of accounting for the three months ended
March 31, 2000 to generally accepted accounting principles ("GAAP") and has
restated the financial statements for the prior year ended December 31, 1999
(Consolidated Balance Sheet) and for the period ended March 31, 1999
(Consolidated Statement of Income, Consolidated Statement of Comprehensive
Income, Consolidated Statement of Changes in Stockholder's Equity, and
Consolidated Statement of Cash Flows) to conform with GAAP. See Note 5 for a
reconciliation of statutory surplus to GAAP equity and statutory net income to
GAAP net income.
The Company owns all of the outstanding shares of Sun Life Insurance and Annuity
Company of New York ("Sun Life (N.Y.)"), Sun Life of Canada (U.S.) Distributors,
Inc. ("Sundisco"), 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 Limited ("SLIRL"). All significant
intercompany transactions have been eliminated in consolidation.
Sun Life (N.Y.) is engaged in the sale of individual fixed and variable annuity
contracts and group life and disability insurance contracts in its state of
domicile, New York. Sundisco is a registered investment adviser and
broker-dealer. 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. SPE 97-1 was
organized for the purpose of engaging in activities incidental to securitizing
mortgage loans. Clarendon is a registered broker-dealer that acts as the general
distributor of certain annuity and life insurance contracts issued by the
Company and its affiliates. SLIRL provides information systems development
services to the Company and its affiliates. Sunbesco and Sunfinco are currently
inactive.
During 1999, the Company sold two of its subsidiaries, Massachusetts Casualty
Insurance Company ("MCIC") (sold February, 1999) and New London Trust F.S.B.
("NLT") (sold October, 1999). MCIC is a life insurance company which issues only
individual disability income policies. NLT is a federally chartered savings
bank, which grants commercial, residential real estate and installment loans.
The results of operations of these subsidiaries are reported as discontinued
operations.
95
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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 amount of revenues and expenses during the reporting period. The
most significant estimates are those used in determining deferred policy
acquisition costs, investment allowances, and the liabilities for future
policyholder benefits. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including cash and cash equivalents,
investments such as fixed maturities, mortgage loans and equity securities, off
balance sheet financial instruments, debt, loan commitments and financial
guarantees. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents primarily include cash, commercial paper, money market
investments, and short term bank participations. All such investments have
maturities of three months or less and are considered cash equivalents for
purposes of reporting cash flows.
INVESTMENTS
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments of
Debt and Equity Securities. At the time of purchase, fixed maturity securities
are classified based on intent, as held-to-maturity, available-for-sale, or
trading. In order for the security to be classified as held-to-maturity, the
Company must have positive intent and ability to hold the securities to
maturity. Securities held-to-maturity are stated at cost, adjusted for
amortization of premiums, and accretion of discounts. Trading securities are
carried at estimated fair value with changes in unrealized gains or losses
reported as a component of net investment income. Securities that do not meet
this criterion are classified as available-for-sale. Available-for-sale
securities are carried at estimated fair value with changes in unrealized gains
or losses reported net of taxes in a separate component of stockholder's equity.
Fair values are obtained from external market quotations. All securities
transactions are recorded on a trade date basis.
Mortgage loans are stated at unpaid principle balances, net of provisions for
estimated losses. Mortgage loans acquired at a premium or discount are carried
at amortized values net of provisions for estimated losses. Loans, which include
primarily commercial first mortgages, and real estate are diversified by
property type and geographic area throughout the United States. Mortgage loans
are collateralized by the related properties and generally are no more than 75%
of the properties' value at the time that the original loan is made.
A loan is recognized as impaired when it is probable that the principal or
interest is not collectible in accordance with the contractual terms of the
loan. Measurement of impairment is based on the present value of expected future
cash flows discounted at the loan's effective interest rate, or at the loan's
observable market price. A specific valuation allowance is established if the
fair value of the impaired loan is less than the recorded amount. Loans are also
charged against the allowance when determined to be uncollectible. The allowance
is based on a continuing review of the loan portfolio, past loss experience and
current economic conditions, which may affect the borrower's ability to pay.
While management believes
96
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
that it uses the best information available to establish the allowance, future
adjustments to the allowance may become necessary if economic conditions differ
from the assumptions used in making the evaluation.
Real estate investments are held for the production of income or held-for-sale.
Real estate investments held for the production of income are carried at the
lower of cost adjusted for accumulated depreciation or fair value. Real estate
investments held-for-sale are primarily acquired through foreclosure of mortgage
loans. The cost of real estate that has been acquired through foreclosure is the
estimated fair value at the time of foreclosure. Depreciation of buildings and
improvements is calculated using the straight-line method over the estimated
useful life of the property, generally 40 to 50 years.
Policy loans are carried at the amount of outstanding principal balance not in
excess of net cash surrender values of the related insurance policies.
Other invested assets consist primarily of leveraged leases and tax credit
partnerships.
The Company uses derivative financial instruments including financial futures
contracts, equity options, interest rate swaps, foreign currency swaps and
forward spread lock contracts as a means of hedging exposure to interest rate,
currency and equity price risk. Hedge accounting is used to account for certain
derivatives. To qualify for hedge accounting, the changes in fair value of the
derivative must be expected to substantially offset the changes in the value of
the hedged item. Hedges are monitored to ensure that there is a correlation
between the derivative instrument and the hedged investment. Derivative
instruments qualifying for hedge accounting treatment are marked to market and
the related changes in fair value are included in a separate component of
stockholder's equity. To the extent that the correlation of the derivative
instrument and hedged item is not established, the derivative instrument is
marked to market and the related change in fair value is recognized in the
statement of operations as a component of net investment income.
Investment income is recognized on an accrual basis. Realized gains and losses
on the sales of investments are recognized in operations at the date of sale and
are determined using the specific cost identification method. When an impairment
of a specific investment or a group of investments is determined to be other
than temporary, a realized investment loss is recorded. Changes in the provision
for estimated losses on mortgage loans and real estate are included in net
realized investment gains and losses.
Interest income on loans is recorded on the accrual basis. Loans are placed in a
non-accrual status when management believes that the borrower's financial
condition, after giving consideration to economic and business conditions and
collection efforts, is such that collection of principal and interest is
doubtful. When a loan is placed in non-accrual status, all interest previously
accrued is reversed against current period interest income. Interest accruals
are resumed on such loans only when they are brought fully current with respect
to principal and interest, have performed on a sustained basis for a reasonable
period of time, and when, in the judgment of management, the loans are estimated
to be fully collectible as to both principal and interest.
DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting and other costs which
vary with and are primarily related to the production of revenues. Acquisition
costs related to investment-type contracts, primarily deferred annuity and
guaranteed investment contracts, and universal and variable life products are
deferred and amortized with interest in proportion to the present value of
estimated gross profits to be realized over the estimated lives of the
contracts. Estimated gross profits are composed of net investment income, net
realized investment gains and losses, life and variable annuity fees, surrender
charges and direct variable administrative expenses. This amortization is
reviewed annually and adjusted retrospectively by a cumulative charge or credit
to current operations when the Company revises its estimate of current or future
gross profits to be realized from this group of products, including realized and
unrealized gains and
97
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
losses from investments. Acquisition costs related to fixed annuities and other
life insurance products are deferred and amortized, generally in proportion to
the ratio of annual revenue to the estimated total revenues over the contract
periods based upon the same assumptions used in estimating the liability for
future policy benefits.
Deferred acquisition costs for each life product are reviewed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, the Company believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
OTHER ASSETS
Property, equipment, leasehold improvements, and capitalized software costs,
which are included in other assets, are stated at cost, less accumulated
depreciation and amortization. Depreciation is provided using the straight-line
or accelerated method over the estimated useful lives of the related assets,
which generally range from 3 to 30 years. Amortization of leasehold improvements
is provided using the straight-line method over the lesser of the term of the
leases or the estimated useful life of the improvements. Reinsurance receivables
from reinsurance ceded are also included in other assets.
POLICY LIABILITIES AND ACCRUALS
Future contract and policy benefits are liabilities for life, health and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. Future policy benefits for
individual life insurance and annuity policies are computed using interest rates
ranging from 4.5% to 5.5% for life insurance and 6% to 11.25% for annuities. The
liabilities associated with traditional life insurance, annuity and disability
insurance products are computed using the net level premium method based on
assumptions about future investment yields, mortality, morbidity and
persistency. The assumptions used are based upon both the Company's and its
affiliates' experience and industry standards. Estimated liabilities are
established for group life and health policies that contain experience rating
provisions.
Policyholder contract deposits consist of policy values that accrue to the
holders of universal life-type contracts and investment-related products such as
deferred annuities and guaranteed investment contracts. The liabilities are
determined using the retrospective deposit method and consist of net deposits
and investment earnings less administrative charges. The liability is before the
deduction of any applicable surrender charges.
Other policy liabilities include liabilities for policy and contract claims.
These amounts consist of the estimated amount payable for claims reported but
not yet settled and an estimate of claims incurred but not reported. The amount
reported is based upon historical experience, adjusted for trends and current
circumstances. Management believes that the recorded liability is sufficient to
provide for the associated claims adjustment expenses. Revisions to these
estimates are included in operations in the year such refinements are made.
REVENUE AND EXPENSES
Premiums for traditional individual life and annuity products are considered
revenue when due. Premiums related to group life and group disability insurance
are recognized as revenue pro-rata over the contract period. The unexpired
portion of these premiums is recorded as unearned premiums. Revenue from
98
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
universal life-type products and investment-related products includes charges
for cost of insurance (mortality), initiation and administration of the policy
and surrender charges. Revenue is recognized when the charges are assessed
except that any portion of an assessment that relates to services to be provided
in future years is deferred and recognized over the period during which the
services are provided.
Benefits and expenses, other than deferred policy acquisition costs, related to
traditional life, annuity, and disability contracts, including group policies,
are recognized when incurred in a manner designed to match them with related
premium revenue and spread income recognition over expected policy lives. For
universal life-type and investment-type contracts, benefits include interest
credited to policyholders' accounts and death benefits in excess of account
values, which are recognized as incurred.
INCOME TAXES
The Company and its subsidiaries participate in a consolidated federal income
tax return with Sun Life Assurance Company of Canada - U.S. Operations Holdings,
Inc., direct wholly owned subsidiary of SLOC and parent company of Life Holdco
and other affiliates. Deferred income taxes are generally recognized when assets
and liabilities have different values for financial statement and tax reporting
purposes, and for other temporary taxable and deductible differences as defined
by Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. These differences result primarily from policy reserves, policy
acquisition expenses and unrealized gains or losses on investments.
SEPARATE ACCOUNTS
The Company has established 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 and the investment risk of
such securities is retained by the policyholder.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"), which establishes accounting and
reporting standards for derivative instruments. SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities at fair value
in the balance sheet and establishes special accounting for the following three
types of hedges: fair value hedges, cash flow hedges, and hedges of foreign
currency exposures of net investments in foreign operations.
In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137 ("SFAS No. 137"), "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB SFAS No. 133." SFAS No. 137
delays the effective date of SFAS No. 133 for all fiscal quarters until fiscal
years beginning after June 15, 2000. The Company is evaluating SFAS No. 133 and
has not determined its effect on the consolidated financial statements.
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants (AICPA) Statement of Position (SOP) 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This
statement provides guidance on when an insurance or other enterprise should
recognize a liability for guaranty fund and other assessments and on how to
measure such liability. The adoption of SOP 97-3 had no material impact on the
financial position or results of operations of the Company.
99
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
On January 1, 1999, the Company adopted AICPA SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This SOP
provides guidance for determining whether costs of software developed or
obtained for internal use should be capitalized or expensed as incurred. In the
past, the Company has expensed such costs as they were incurred. The adoption of
SOP 98-1, had no material impact on pre-tax income in either three month period.
(2) 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 $7,374,000 and $6,798,000 for the three month period in 2000 and
1999.
The Company leases office space to SLOC under lease agreements with terms
expiring in September, 2004 and options to extend the terms for each of twelve
successive five-year terms at fair market rental not to exceed 125% of the fixed
rent for the term which is ending. Rent received by the Company under the leases
for the three month period amounted to approximately $1,994,000 in 2000 and
$1,762,000 in 1999.
During January 2000, the Company purchased $200 million of term notes issued by
an affiliate, Massachusetts Financial Services Company, maturing in 2003 and
2004.
(3) SEGMENT INFORMATION
The Company offers financial products and services such as fixed and variable
annuities, retirement plan services, and life insurance on an individual and
group basis, as well as disability insurance on a group basis. Within these
areas, the Company conducts business principally in three operating segments and
maintains a corporate segment to provide for the capital needs of the three
operating segments and to engage in other financing related activities.
The Individual Protection 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 Group Protection segment markets and administers group life and long-term
disability insurance to small and mid-size employers in the State of New York.
The Wealth Management segment markets and administers individual and group
variable annuity products, individual and group fixed annuity products which
include market value adjusted annuities, and other retirement benefit products.
100
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SEGMENT INFORMATION (CONTINUED)
Summarized unaudited financial information by segment is provided in the tables
below:
<TABLE>
<CAPTION>
PERIOD ENDED MARCH 31, 2000 MARCH 31,
--------------------------------------------- 2000
TOTAL TOTAL PRETAX NET ------------
REVENUES EXPENDITURES INCOME INCOME TOTAL ASSETS
-------- ------------ -------- -------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Individual Protection $ 3.1 $ 3.2 $ (.1) $ (.1) $ 325.0
Group Protection 4.2 3.3 .9 .6 27.8
Wealth Management 146.9 99.3 47.6 32.6 21,903.1
Corporate 7.1 12.9 (5.8) (5.4) 229.8
====== ====== ===== ===== =========
Total $161.3 $118.7 $42.6 $27.7 $22,485.7
====== ====== ===== ===== =========
<CAPTION>
DECEMBER 31,
PERIOD ENDED MARCH 31, 1999 1999
--------------------------------------------- -------------
(IN MILLIONS)
Individual Protection $ 4.4 $ 4.4 $ -- $ -- $ 291.5
<S> <C> <C> <C> <C> <C>
Group Protection 4.2 3.6 .6 .4 20.0
Wealth Management 146.3 120.5 25.8 18.1 20,534.2
Corporate 8.9 11.4 (2.5) 2.1 639.2
====== ====== ===== ===== =========
Total $163.8 $139.9 $23.9 $20.6 $21,484.9
====== ====== ===== ===== =========
</TABLE>
(4) DISCONTINUED OPERATIONS
In February 1999, the Company completed the sale of its wholly-owned subsidiary,
MCIC for approximately $34,000,000. The Company realized a loss of $25,600,000
on the sale.
In October 1999, the Company completed the sale of its wholly-owned subsidiary,
NLT. A summary of the results of these discontinued operations follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
(IN MILLIONS)
<S> <C>
Revenue $7.5
Expenses 6.2
Provision for income taxes .5
====
Income from discontinued operations $ .8
====
</TABLE>
(5) STATUTORY FINANCIAL INFORMATION
For the year ended December 31, 1999, the Company filed its Annual Report on
Form 10-K using audited statutory 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
Company has changed its basis of accounting for the three months ended
March 31, 2000 to generally accepted accounting principles ("GAAP") and has
restated the financial statements for the prior year ended December 31, 1999
(Consolidated Balance Sheet) and for the period ended March 31, 1999
(Consolidated Statement of Income, Consolidated Statement of Comprehensive
Income, Consolidated Statement of Changes in Stockholder's Equity, and
Consolidated Statement of Cash Flows) to conform with GAAP. The Statutory
Balance Sheet filed as part of the 1999 10-K is shown below:
101
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) STATUTORY FINANCIAL INFORMATION (CONTINUED)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
(IN MILLIONS)
<S> <C>
ADMITTED ASSETS
Bonds $ 1,221,970
Common stocks 75,283
Mortgage loans on real estate 528,911
Properties acquired in satisfaction of debt 15,641
Investment real estate 79,182
Policy loans 40,095
Cash and short-term investments 316,971
Other invested assets 67,938
Investment income due and accrued 25,303
Other assets 5,807
-----------
General account assets 2,377,101
Separate account assets
Unitized 15,490,328
Non-unitized 2,080,726
-----------
TOTAL ADMITTED ASSETS $19,948,155
===========
LIABILITIES
Aggregate reserve for life policies and contracts $ 1,153,642
Supplementary contracts 3,182
Policy and contract claims 962
Liability for premium and other deposit funds 564,820
Surrender values on cancelled policies 16
Interest maintenance reserve 41,771
Commissions to agents due or accrued 3,253
General expenses due or accrued 14,055
Transfers from Separate Accounts due or accrued (467,619)
Taxes, licenses and fees due or accrued, excluding FIT 379
Federal income taxes due or accrued 89,031
Unearned investment income 22
Amounts withheld or retained by company as agent or trustee (442)
Remittances and items not allocated 1,078
Asset valuation reserve 44,071
Payable to parent, subsidiaries, and affiliates 26,284
Other liabilities 16,674
-----------
General account liabilities 1,491,179 Separate account
liabilities:
Unitized 15,489,908
Non-unitized 2,080,726
-----------
TOTAL LIABILITIES 19,061,813
-----------
</TABLE>
102
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) STATUTORY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
(IN MILLIONS)
<S> <C>
CAPITAL STOCK AND SURPLUS
Common capital stock 5,900
-----------
Surplus notes 565,000
Gross paid in and contributed surplus 199,355
Unassigned funds 116,087
-----------
Surplus 880,442
Total common capital stock and surplus 886,342
-----------
TOTAL LIABILITIES, CAPITAL STOCK AND SURPLUS $19,948,155
===========
</TABLE>
The following information reconciles statutory net income and statutory surplus
with net income and equity on a GAAP basis.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
2000 1999
-------- --------
(IN MILLIONS)
<S> <C> <C>
Statutory net income $ 21.4 $ 37.7
Adjustments to GAAP for life insurance companies:
Statutory interest maintenance reserve (.8) (.9)
Investment income and realized gains (losses) 1.9 (14.5)
Policyowner benefits (24.4) (35.4)
Deferred policy acquisition costs 39.0 16.6
Deferred income taxes (11.1) (9.0)
Other, net 1.7 1.3
------ ------
GAAP net income (loss) $ 27.7 $ (4.2)
====== ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN MILLIONS)
<S> <C> <C>
Statutory surplus $ 915.5 $ 886.3
Adjustments to GAAP for life insurance companies:
Valuation of investments 3.2 3.7
Deferred policy acquisition costs 728.1 686.3
Future policy benefits and Contractholder deposit funds (386.4) (350.2)
Deferred income taxes (89.4) (86.1)
Statutory interest maintenance reserve 41.3 42.3
Statutory asset valuation reserve 42.4 45.3
Surplus notes (565.0) (565.0)
Other, net 9.8 8.6
------- -------
GAAP equity $ 699.5 $ 671.2
======= =======
</TABLE>
The NAIC has codified statutory accounting practices, which are expected to
constitute the only source of prescribed statutory accounting practices and are
effective in 2001. Codification will change prescribed statutory accounting
practices and may result in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial statements. The changes of
codification will not have a material impact on statutory surplus.
103
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, at the present time the
Company does not anticipate that the ultimate liability arising from such
pending or threatened litigation, after consideration of provisions made for
potential losses and costs of defense, will have a material adverse effect on
the financial condition of operating results of the Company.
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state insurance
guaranty associations for certain obligations of insolvent insurance companies
to policyholders and claimants. Recent regulatory actions against certain large
life insurers encountering financial difficulty have prompted various state
insurance guaranty associations to begin assessing life insurance companies for
the deemed losses. Most of these laws do provide, however, that an assessment
may be excused or deferred it would threaten an insurer's solvency and further
provide annual limits on such assessments. Part of the assessments paid by the
Company and its subsidiaries pursuant to these laws may be used as credits for a
portion of the associated premium taxes.
104
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
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
Distribution of the Contracts
Designation and Change of Beneficiary
Custodian
Financial Statements
</TABLE>
105
<PAGE>
This Prospectus sets forth information about the Contract and the Variable
Account that a prospective purchaser should know before investing. Additional
information about the Contract and the Variable Account has been filed with the
Securities and Exchange Commission in a Statement of Additional Information
dated June 9, 2000 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 (800) 752-7215.
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
To: Sun Life Assurance Company of Canada (U.S.)
c/o Retirement Products and Services
P.O. Box 1024
Boston, Massachusetts 02103
Please send me a Statement of Additional Information for
MFS Regatta Choice Variable and Fixed Annuity
Sun Life of Canada (U.S.) Variable Account F.
</TABLE>
<TABLE>
<S> <C>
Name ------------------------------------------------------------
Address ------------------------------------------------------------
------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
City -------------------------- State -------------- Zip -------
</TABLE>
<TABLE>
<S> <C>
Telephone ------------------------------------------------------------
</TABLE>
106
<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 365 days from the date on which we issued your Contract. Your Account
Anniversary is the last day of an Account Year. Each Account Year after the
first is the 365-day period that begins on your Account Anniversary. For
example, if the Contract Date is on March 12, the first Account Year is
determined from the Contract Date and ends on March 12 of the following year.
Your Account Anniversary is March 12 and all Account Years after the first are
measured from March 12. (If the Anniversary Date falls on a non-business day,
the previous business day will be used.)
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
Co-Annuitant will become the sole Annuitant. 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/Payee 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.
Also, any day on which we make a determination of the value of a Variable
Accumulation Unit.
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: Any Individual Contract, Group Contract, or Certificate issued
under a Group Contract.
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 Application, and may change them, as we
describe in this Prospectus.
107
<PAGE>
COVERED PERSON: The person(s) identified as such in the Contract whose
death will trigger the death benefit provisions of the Contract and whose
medically necessary stay in a hospital or nursing facility may allow the
Participant to be eligible for a waiver of the withdrawal charge. Unless
otherwise noted, the the Participant/Owner is the Covered Person.
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 one lump sum.
DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to the
Company.
FIXED ACCOUNT: The 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 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 (NET PAYMENTS): The portion of a Purchase Payment
which remains after the deduction of any applicable premium tax or similar tax.
This is also the term used to describe the total contribution made to the
Contract minus the total withdrawals.
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.
* You specify these items on the Application, and may change them, as we
describe in this Prospectus.
108
<PAGE>
*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. If there are two Participants, the
death benefit is paid upon the death of either Participant.
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, or on the Annuity Commencement Date.
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.
RENEWAL DATE: The last day of a Guarantee Period.
SERIES FUND: MFS/Sun Life Series Trust.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific 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.
109
<PAGE>
APPENDIX B
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: VARIABLE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
VARIABLE ACCOUNT)
WITHDRAWAL CHARGE CALCULATION:
FULL WITHDRAWAL:
Assume a Purchase Payment of $40,000 is made on the Contract Date, no
additional Purchase Payments are made and there are no partial withdrawals. The
table below presents three examples of the withdrawal charge resulting from a
full withdrawal of your Account, based on hypothetical Account Values.
<TABLE>
<CAPTION>
PAYMENT
HYPOTHETICAL CUMULATIVE FREE SUBJECT TO WITHDRAWAL WITHDRAWAL
ACCOUNT ACCOUNT ANNUAL ANNUAL WITHDRAWAL WITHDRAWAL CHARGE CHARGE
YEAR VALUE EARNINGS EARNINGS AMOUNT CHARGE PERCENTAGE AMOUNT
-------- ------------ -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) 1 $41,000 $1,000 $ 1,000 $ 6,000 $35,000 7.00% $2,450
2 $45,100 $4,100 $ 5,100 $ 6,000 $39,100 7.00% $2,737
3 $49,600 $4,500 $ 9,600 $ 9,600 $40,000 6.00% $2,400
(b) 4 $52,100 $2,500 $12,100 $12,100 $40,000 6.00% $2,400
5 $57,300 $5,200 $17,300 $17,300 $40,000 5.00% $2,000
6 $63,000 $5,700 $23,000 $23,000 $40,000 4.00% $1,600
7 $66,200 $3,200 $26,200 $26,200 $40,000 3.00% $1,200
(c) 8 $72,800 $6,600 $32,800 $32,800 $ 0 0.00% $ 0
</TABLE>
(a) The free withdrawal amount in any year is equal to the amount of any
Purchase Payments made prior to the last 7 Account Years ("Old Payments")
that were not previously withdrawn plus the greater of (1) the Contract's
earnings that were not previously withdrawn, and (2) 15% of any Purchase
Payments made in the last 7 Account Years ("New Payments"). In Account
Year 1, the free withdrawal amount is $6,000, which equals 15% of the
Purchase Payment of $40,000. On a full withdrawal of $41,000, the amount
subject to a withdrawal charge is $35,000, which equals the Account Value of
$41,000 minus the free withdrawal amount of $6,000.
(b) In Account Year 4, the free withdrawal amount is $12,100, which equals the
prior Contract's cumulative earnings to date. On a full withdrawal of
$52,100, the amount subject to a withdrawal charge is $40,000.
(c) In Account Year 8, the free withdrawal amount is $32,800, which equals the
Contract's cumulative earnings to date. On a full withdrawal of $72,800, the
amount subject to a withdrawal charge is $0, since equals the New Payments
equal $0.
PARTIAL WITHDRAWAL
Assume a single Purchase Payment of $40,000 is made on the Contract Date,
no additional Purchase Payments are made, no partial withdrawals have been taken
prior to the fourth Account Year,
110
<PAGE>
and there are a series of 4 partial withdrawals made during the fourth Account
Year of $4,000, $9,000, $12,000, and $20,000.
<TABLE>
<CAPTION>
REMAINING
HYPOTHETICAL FREE AMOUNT OF
ACCOUNT WITHDRAWAL WITHDRAWAL
VALUE AMOUNT SUBJECT TO WITHDRAWAL WITHDRAWAL
ACCOUNT BEFORE CUMULATIVE AMOUNT OF BEFORE WITHDRAWAL CHARGE CHARGE
YEAR WITHDRAWAL EARNINGS EARNINGS WITHDRAWAL WITHDRAWAL CHARGE PERCENTAGE AMOUNT
--------------------- ------------ -------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $41,000 $1,000 $ 1,000 $ 0 $6,000 $ 0 7.00% $
2 $45,100 $4,100 $ 5,100 $ 0 $6,000 $ 0 7.00% $
3 $49,600 $4,500 $ 9,600 $ 0 $9,600 $ 0 6.00% $
4 (a) $50,100 $ 500 $10,100 $ 4,000 $6,100 $ 0 6.00% $
4 (b) $46,900 $ 800 $10,900 $ 9,000 $ 0 $ 2,100 6.00% $ 126
4 (c) $38,500 $ 600 $11,500 $12,000 $ 0 $11,400 6.00% $ 684
4 (d) $26,900 $ 400 $11,900 $20,000 $ 0 $19,600 6.00% $1,176
<CAPTION>
HYPOTHETICAL
ACCOUNT
VALUE
ACCOUNT AFTER
YEAR WITHDRAWAL
--------------------- ------------
<S> <C>
1 $41,000
2 $45,100
3 $49,600
4 (a) $46,100
4 (b) $37,900
4 (c) $26,500
4 (d) $ 6,900
</TABLE>
(a) In Account Year 4, the free withdrawal amount is $10,10000, which equals the
Contract's cumulative earnings to date. The partial withdrawal amount of
$4,000 is less than the free withdrawal amount, so there is no withdrawal
charge.
(b) Since a partial withdrawal of $4,000 was taken, the remaining free
withdrawal amount in Account Year 4 is $10,900 - $4,000 = $6,900. Therefore,
$6,900 of the $9,000 withdrawal is not subject to a withdrawal charge, and
$2,100 is subject to a withdrawal charge. Of the $13,000 withdrawn to date,
$10,900 has been from the free withdrawal amount and $13,500 has been from
deposits.
(c) Since $10,900 of the 2 prior Account Year 4 partial withdrawals was taken
from the free withdrawal amount, the remaining free withdrawal amount in
Account year 4 is $11,500 - $10,900 = $400. Therefore, $600 of the $12,000
withdrawal is not subject to a withdrawal charge, and $11,400 is subject to
a withdrawal charge. Of the $25,000 withdrawn to date, $11,500 has been from
the free withdrawal amount and $13,500 has been from deposits.
(d) Since $11,500 of the 3 prior Account Year 4 partial withdrawals was taken
from the free withdrawal amount, the remaining free withdrawal amount in
Account Year 4 is $11,900 - $11,500 = $400. Therefore, $400 of the $20,000
withdrawal is not subject to a withdrawal charge, and $19,600 is subject to
a withdrawal charge. Of the $45,000 withdrawn to date, $11,900 has been from
the free withdrawal amount and $33,100 has been from deposits.
Note that if the $6,900 remaining balance were withdrawn, it would all be
from deposits and subject to a withdrawal charge. The withdrawal charge would be
6% of $6,900, which equals $414. The total Account Year 4 withdrawal charges
would then be $2,400, which is the same amount that was assessed for a full
liquidation in Account Year 4 in the example on the previous page.
PART 2 -- FIXED ACCOUNT -- EXAMPLES OF THE MARKET VALUE ADJUSTMENT ("MVA")
The MVA Factor is:
<TABLE>
<C> <C> <S> <C> <C>
N/12
1 + I
( -------- ) -1
1 + J + b
</TABLE>
These examples assume the following:
(1) The Guarantee Amount was allocated to a 5-year Guarantee Period with
a Guaranteed Interest Rate of 6% or .06.
(2) The date of surrender is 2 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.
111
<PAGE>
(6) Withdrawal charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of surrender, the current rate (J) is 8% or .08
and the b factor is zero.
<TABLE>
<C> <C> <S> <C> <C> <C> <C>
N/12
1 + I
The MVA factor = ( -------- ) -1
1 + J + b
</TABLE>
<TABLE>
<C> <C> <S> <C> <C> <C> <C>
24/12
1 + .06
= ( ------ ) -1
1 + .08
= (.981)TO THE POWER OF (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> <C> <S> <C> <C> <C> <C>
N/12
1 + I
The MVA factor = ( -------- ) -1
1 + J + b
</TABLE>
<TABLE>
<C> <C> <S> <C> <C> <C> <C>
24/12
1 + .06
= ( ------ ) -1
1 + .05
= (1.010)TO THE POWER OF (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.
112
<PAGE>
APPENDIX C
CALCULATION OF BASIC DEATH BENEFIT
EXAMPLE 1:
Assume a Purchase Payment of $60,000.00 is made on the Contract Date and
an additional Purchase Payment of $40,000.00 is made one year later. Assume that
all of the money is invested in the Sub-Accounts, that no Withdrawals are made
and that the Account Value on the Death Benefit Date is $80,000.00. The
calculation of the Death Benefit to be paid is as follows:
<TABLE>
<S> <C> <C> <C>
The Basic Death Benefit is the greatest of:
Account Value = $ 80,000.00
Cash Surrender Value = $ 74,400.00
Purchase Payments = $100,000.00
The Basic Death Benefit would therefore be: $100,000.00
</TABLE>
EXAMPLE 2:
Assume a Purchase Payment of $60,000.00 is made on the Contract Date and
an additional Purchase Payment of $40,000.00 is made one year later. Assume that
all of the money is invested in the Sub-Accounts and that the Account Value is
$80,000.00 just prior to a $20,000.00 withdrawal. The Account Value on the Death
Benefit Date is $60,000.00.
<TABLE>
<S> <C> <C> <C>
The Basic Death Benefit is the greatest of:
Account Value = $ 60,000.00
Cash Surrender Value = $ 55,200.00
Adjusted Purchase Payments* = $ 75,000.00
The Basic Death Benefit would therefore be: $ 75,000.00
*Adjusted Purchase Payments can be calculated as follows:
Payments X (Account Value after withdrawal DIVIDED BY Account Value before
withdrawal)
$100,000.00 X ($60,000.00 DIVIDED BY $80,000.00)
</TABLE>
113
<PAGE>
APPENDIX D
CALCULATION OF EARNINGS ENHANCEMENT OPTIONAL DEATH BENEFIT
EXAMPLE 1:
Assume a Purchase Payment of $60,000.00 is made on the Contract Date and
an additional Purchase Payment of $40,000.00 is made one year later. Assume that
all of the money is invested into the Sub-Accounts, no withdrawals are made and
the Account Value on the Death Benefit Date is $150,000.00. In addition, this
Contract was issued prior to the owner's 70th birthday. The calculation of the
Basic Death Benefit to be paid is as follows:
<TABLE>
<S> <C> <C> <C>
The Basic Death Benefit is the greatest of:
Account Value = $150,000.00
Cash Surrender Value = $ 72,800.00
Adjusted Purchase Payments = $100,000.00
The Basic Death Benefit would therefore = $150,000.00
The benefit under the optional death benefit rider
can be calculated as follows:
The lesser of:
Adjusted Purchase Payments = $100,000.00
Account Value -- adjusted Purchase Payments = $ 50,000.00
Amount to use to determine rider benefit = $ 50,000.00
The amount to be paid on the rider benefit = $ 50,000.00 X 40% = $20,000.00
</TABLE>
The total Death Benefit would be the amount paid on the Basic Death
Benefit plus the amount paid on the Earnings Enhancement Optional Death Benefit
Rider: $150,000.00 + $20,000.00 = $170,000.00
EXAMPLE 2:
Assume a Purchase Payment of $60,000.00 is made on the Contract Date and
an additional Purchase Payment of $40,000.00 is made one year later. Assume that
all of the money is invested in the Sub-Accounts and that the Account Value is
$150,000.00 just prior to a $20,000.00 withdrawal. The Account Value on the
Death Benefit Date is $130,000.00.
<TABLE>
<S> <C> <C> <C>
The Basic Death Benefit is the greatest of:
Account Value = $130,000.00
Cash Surrender Value = $123,600.00
Adjusted Purchase Payments* = $ 86,666.67
The Basic Death Benefit would therefore = $130,000.00
*Adjusted Purchase Payments can be calculated as follows:
Payments X (Account Value after withdrawal DIVIDED BY Account Value before withdrawal)
$100,000.00 X ($130,000.00 DIVIDED BY $150,000.00)
The benefit under the optional death benefit rider
can be calculated as follows:
The lesser of:
Adjusted Purchase Payments = $ 86,666.67
Account Value -- adjusted Purchase Payments = $ 43,333.33
Amount to use to determine rider benefit: = $ 43,333.33
The amount to be paid on the rider benefit = $ 43,333.33 X 40% = $17,333.33
</TABLE>
The total Death Benefit would be the amount paid on the Basic Death
Benefit plus the amount paid on the Earnings Enhancement Optional Death Benefit
Rider: $130,000.00 + $17,333.33 = $147,333.33.
114
<PAGE>
APPENDIX E
CALCULATION OF DEATH BENEFIT WHEN ALL THREE OPTIONAL DEATH BENEFITS RIDERS ARE
SELECTED
Assume a Purchase Payment of $100,000.00 is made on the Contract Date, no
additional Purchase Payments or withdrawals are made and all of the money is
invested in the Sub-Accounts. In addition, on the Death Benefit Date the Account
Value is $150,000.00, the value of the Purchase Payment accumulated at 5% until
the Death Benefit Date is $160,000.00, and the Maximum Account Anniversary Value
is $170,000.00. The calculation of the death benefit to be paid is as follows:
<TABLE>
<S> <C> <C> <C>
The Death Benefit Amount will be the greatest
of:
Account Value = $150,000.00
Cash Surrender Value = $142,800.00
Total of adjusted Purchase Payments = $100,000.00
5% Premium Roll-Up Rider = $160,000.00
Maximum Account Anniversary Value Rider = $170,000.00
The Death Benefit Amount would therefore = $170,000.00
~ PLUS ~
The Earnings Enhancement Rider benefit is calculated as
follows:
The lesser of:
Adjusted Purchase Payments = $100,000.00
Account Value -- adjusted Purchase
Payments = $ 50,000.00
Amount to use to determine this rider
benefit: = $ 50,000.00
The amount to be paid on the rider benefit = $ 50,000.00 X 40% = $20,000.00
</TABLE>
The total Death Benefit would be the amount paid on the Maximum Account
Anniversary Rider plus the amount paid on the Earnings Enhancement Rider:
$170,000.00 + $20,000.00 = $190,000.00
115
<PAGE>
<TABLE>
<S> <C>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE:
Toll Free (800) 752-7215
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
CHOICE- 1 6/00
</TABLE>
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
JUNE 9, 2000
PROFILE
FUTURITY III
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 III ANNUITY
The Futurity III 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 37 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
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.
Over the life of your Contract, you may allocate amounts among as many as 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 a specified number of
years after your first payment 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, with a cash-out option for variable payments. We may also agree
to other annuity options at our discretion.
Once the Income Phase begins, you cannot change your choice of annuity
payment method.
<PAGE>
3. PURCHASING A CONTRACT
You may purchase a Contract for $10,000 or more, under most circumstances.
You may increase the value of your investment by adding $1,000 or more at any
time during the Accumulation Phase. We may waive these limits. We will not
accept a purchase payment if your account value is over $2 million, or if the
purchase payment would cause your account value to exceed $2 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 MFS/SUN LIFE SERIES TRUST
AIM V.I. Capital Appreciation Fund Capital Appreciation Series
AIM V.I. Growth Fund Emerging Growth Series
AIM V.I. Growth and Income Fund Government Securities Series
AIM V.I. International Equity Fund High Yield Series
THE ALGER AMERICAN FUND Massachusetts Investors Growth Stock Series
Growth Portfolio Massachusetts Investors Trust Series
Income and Growth Portfolio New Discovery Series
Small Capitalization Portfolio Total Return Series
GOLDMAN SACHS VARIABLE INSURANCE TRUST Utilities Series
("VIT") SUN CAPITAL ADVISERS TRUST
VIT CORE-SM- Large Cap Growth Fund Sun Capital Blue Chip Mid Cap Fund
VIT CORE-SM- Small Cap Equity Fund Sun Capital Davis Financial Fund
VIT CORE-SM- U.S. Equity Fund Sun Capital Davis Venture Value Fund
VIT Growth and Income Fund Sun Capital Investment Grade Bond Fund
VIT International Equity Fund Sun Capital Investors Foundation Fund
J.P. MORGAN SERIES TRUST II Sun Capital Money Market Fund
J.P. Morgan International Opportunities Sun Capital Real Estate Fund
Portfolio Sun Capital Select Equity Fund
J.P. Morgan Small Company Portfolio Sun Capital Value Equity Fund
J.P. Morgan U.S. Disciplined Equity Sun Capital Value Managed Fund
Portfolio Sun Capital Value Mid Cap Fund
LORD ABBETT SERIES FUND, INC. Sun Capital Value Small Cap Fund
Growth and Income 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, if your account value is less than
$75,000, we impose an annual Account Fee equal to $35. After the fifth year, we
may change this fee annually, but it will never exceed $50. During the Income
Phase, the annual Account Fee is $35. We will not assess an Account Fee if your
Contract is fully invested in the Fixed Account during the entire Account Year.
We will waive the Account Fee if your Contract value was $75,000 or more on your
Account Anniversary, or if your Account was allocated only to the Fixed Account
during the applicable Account Year. In addition, during both the Accumulation
Phase and the Income Phase, we deduct insurance charges equal to 1.15% per year
of the average daily value of the Contract allocated among the Sub-Accounts. If
your initial purchase payment is greater than $1,000,000, we will decrease the
insurance charges to 1.00%. If you annuitize before your seventh Account
Anniversary, we will assess, during the Income Phase, an additional charge equal
to 0.25% of your daily account value.
2
<PAGE>
If you elect one or more optional death benefit riders, we will deduct,
during the Accumulation Phase, an additional charge per year, depending upon the
number of riders you elect, as follows:
<TABLE>
<CAPTION>
NUMBER OF % OF AVERAGE
RIDERS YOU ELECT DAILY VALUE
---------------- ------------
<S> <C>
1 0.15%
2 0.25%
3 0.40%
</TABLE>
No optional death benefit is offered if you are 80 or older at issue. No
charges for optional death benefit riders are assessed during the Income Phase.
There are no sales charges when you purchase your Contract. 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. Each payment begins a new 7-year period and moves down a declining
surrender charge scale at each Account Anniversary. Payments received during the
current Account Year will be charged 7%, if withdrawn. On your next scheduled
Account Anniversary, that payment, along with any other payments made during
that Account Year, will be considered to be in their second Account Year and
will have a 7% withdrawal charge. On the next Account Anniversary, these
payments will move into their third Account Year and will have a withdrawal
charge of 6%, if withdrawn. This withdrawal charge decreases according to the
number of Account Years the purchase payment has been held in your Account. The
declining scale is as follows:
<TABLE>
<CAPTION>
NUMBER OF ACCOUNT YEARS
PAYMENT HAS BEEN IN
YOUR CONTRACT WITHDRAWAL CHARGE
----------------------- -----------------
<S> <C>
0-1 7%
1-2 7%
2-3 6%
3-4 6%
4-5 5%
5-6 4%
6-7 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 Account 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 1.35% of the average net assets of the Fund,
depending upon which Funds you have selected. The investment adviser has agreed
to waive or reimburse a portion of expenses for some of the Funds; without this
agreement, Fund expenses could be higher. Some of these agreements 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 and/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
3
<PAGE>
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.
During the Accumulation Phase, "Total Annual Insurance Charges" of 1.25%
as shown in the table below include insurance charges of 1.15% of your daily net
assets (1.00% for mortality and expense risks and 0.15% for administrative
expenses) plus an additional 0.10%, which is used to represent the current $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. After the fifth Account Anniversary, we may raise the
annual Account Fee, but in no event will it ever exceed $50. The 10-year total
expense examples, below, reflect a $50 annual Account Fee.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL TOTAL EXPENSES
INSURANCE FUND ANNUAL AT END
SUB-ACCOUNT CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
----------- ------------ ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 1.25% 0.73% 1.98% $82 $233
AIM V.I. Growth Fund 1.25% 0.73% 1.98% $82 $233
AIM V.I. Growth and Income Fund 1.25% 0.77% 2.01% $82 $237
AIM V.I. International Equity Fund 1.25% 0.97% 2.22% $84 $258
Alger American Growth Portfolio 1.25% 0.79% 2.04% $82 $239
Alger American Income and Growth Portfolio 1.25% 0.70% 1.95% $81 $230
Alger American Small Capitalization Portfolio 1.25% 0.90% 2.15% $83 $251
Goldman Sachs VIT CORE-SM- Large Cap Growth Fund 1.25% 0.90% 2.15% $83 $251
Goldman Sachs VIT CORE-SM- Small Cap Equity Fund 1.25% 1.00% 2.25% $84 $261
Goldman Sachs VIT CORE-SM- U.S. Equity Fund 1.25% 0.90% 2.15% $83 $251
Goldman Sachs VIT Growth and Income Fund 1.25% 1.00% 2.25% $84 $261
Goldman Sachs VIT International Equity Fund 1.25% 1.35% 2.60% $87 $296
J.P. Morgan International Opportunities Portfolio 1.25% 1.20% 2.45% $86 $281
J.P. Morgan Small Company Portfolio 1.25% 1.15% 2.40% $86 $276
J.P. Morgan U.S. Disciplined Equity Portfolio 1.25% 0.85% 2.10% $83 $246
Lord Abbett Growth & Income Portfolio 1.25% 0.87% 2.12% $83 $248
MFS/Sun Life Capital Appreciation Series 1.25% 0.76% 2.01% $82 $236
MFS/Sun Life Emerging Growth Series 1.25% 0.75% 2.00% $82 $235
MFS/Sun Life Government Securities Series 1.25% 0.61% 1.86% $81 $221
MFS/Sun Life High Yield Series 1.25% 0.83% 2.08% $83 $244
MFS/Sun Life Massachusetts Investors Growth Stock
Series 1.25% 0.83% 2.08% $83 $244
MFS/Sun Life Massachusetts Investors Trust Series 1.25% 0.59% 1.84% $80 $218
MFS/Sun Life New Discovery Series 1.25% 1.06% 2.31% $85 $267
MFS/Sun Life Total Return Series 1.25% 0.69% 1.94% $81 $229
MFS/Sun Life Utilities Series 1.25% 0.82% 2.07% $83 $243
Sun Capital Blue Chip Mid Cap Fund 1.25% 1.00% 2.25% $84 $261
Sun Capital Davis Financial Fund 1.25% 0.90% 2.15% $83 $251
Sun Capital Davis Venture Value Fund 1.25% 0.90% 2.15% $83 $251
Sun Capital Investment Grade Bond Fund 1.25% 0.75% 2.00% $82 $235
Sun Capital Investors Foundation Fund 1.25% 0.90% 2.15% $83 $251
Sun Capital Money Market Fund 1.25% 0.65% 1.90% $81 $225
Sun Capital Real Estate Fund 1.25% 1.25% 2.50% $87 $286
Sun Capital Select Equity Fund 1.25% 0.90% 2.15% $83 $251
Sun Capital Value Equity Fund 1.25% 0.90% 2.15% $83 $251
Sun Capital Value Managed Fund 1.25% 0.90% 2.15% $83 $251
Sun Capital Value Mid Cap Fund 1.25% 1.00% 2.25% $84 $261
Sun Capital Value Small Cap Fund 1.25% 1.00% 2.25% $84 $261
</TABLE>
If your initial purchase payment is $1,000,000 or more, we will reduce
your insurance charges, during the Accumulation Phase, by 0.15%.
If you annuitize before your 7th Account Anniversary, we will increase
your insurance charges by 0.25% during the Income Phase.
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
Under current federal tax laws, 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.
Different laws apply if your Contract is issued in Puerto Rico. Under the
tax laws of Puerto Rico, when an annuity payment is made under your Contract,
your annuitant or any other payee is required to include as gross income the
portion of each annuity payment equal to 3% of the aggregate purchase payments
you made under the Contract. The amount if any, in excess of the included amount
is excluded from gross income. After an amount equal to the aggregate amount
excluded from gross income has been received, all of the annuity payments are
considered to be taxable income.
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. In the first Account
Year, the portion of your Account that is not subject to a withdrawal charge is
equal to 15% of all purchase payments made during that Account Year. After your
first Account Anniversary, the portion of your Account that is not subject to a
withdrawal charge is 100% of all purchase payments made prior to the last 7
Account Years not previously withdrawn PLUS the greater of (1) 15% of all
purchase payments you have made in the last 7 years or (2) all earnings minus
any previous withdrawals. All other purchase payments you withdraw will be
subject to a withdrawal charge ranging from 7% to 3%. You may also be required
to pay income tax and possible tax penalties on any money you withdraw.
We do not assess a withdrawal charge upon annuitization or transfers. In
certain circumstances, we will waive the withdrawal charges for a full or
partial withdrawal when you are confined to an eligible nursing home. In
addition, there may be other circumstances under which we may waive the
withdrawal charge.
In addition to the withdrawal charge, amounts you withdraw, transfer or
annuitize from the Fixed Account before your Guarantee Period has ended may be
subject to a Market Value Adjustment.
8. PERFORMANCE
If you invest in one or more Sub-Accounts, the value of your Contract will
increase or decrease depending upon the investment performance of the Funds you
choose. The Sub-Accounts have not been in operation for a full calendar year;
therefore no performance information is provided in this Profile.
9. DEATH BENEFIT
If you die before the Contract reaches the Income Phase, the beneficiary
will receive a death benefit. To calculate the death benefit, we use a "Death
Benefit Date," which is the earliest date we have both due proof of death and a
written request specifying the manner of payment.
BASIC DEATH BENEFIT
If you were 85 or younger when we issued your Contract, the death benefit
is the greatest of:
(1) the value of the Contract on the Death Benefit Date;
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<PAGE>
(2) the amount we would pay in the event of a full surrender of the
Contract on the Death Benefit Date; and
(3) your total purchase payments (adjusted for partial withdrawals)
calculated as of the Death Benefit Date.
If you were 86 or older when we issued your Contract, the death benefit is
equal to the amount set forth in (2) above. Because this amount will reflect any
applicable withdrawal charges and Market Value Adjustment, it may be less than
your account value.
OPTIONAL DEATH BENEFIT RIDERS
Subject to availability in your state, if you are 79 or younger when we
issue your Contract, you may enhance this basic death benefit by electing one or
more of the following optional death benefit riders: the Maximum Anniversary
Account Value Rider, the 5% Premium Roll-Up Rider, and the Earnings Enhancement
Rider.
MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER
If you elect the Maximum Anniversary Account Value Rider, the death benefit
is the greater of:
- any death benefit amounts payable under "Basic Death Benefit" (above), or
- your highest Contract value on any Account Anniversary before your 81st
birthday, adjusted for any subsequent purchase payments, partial
withdrawals, and charges made between that Account Anniversary and the
Death Benefit Date.
5% PREMIUM ROLL-UP RIDER
If you elect the 5% Premium Roll-Up Rider, the death benefit is the greatest
of:
- any death benefit amounts payable under "Basic Death Benefit" (above), or
- the sum of your total purchase payment plus interest accruals, adjusted
for partial withdrawals.
Under this rider, interest accrues at 5% per year on purchase payments and
transfers to the Variable Account while they remain in the Variable Account. The
5% accruals will continue until the earlier of:
- first day of the month following your 80th birthday or
- the day the death benefit amount under this rider equals twice the total
of the purchase payments and transferred amounts adjusted for withdrawals.
Net Purchase Payments under this rider will be adjusted for all partial
withdrawals as described in the Prospectus under the heading "Calculating the
Death Benefit."
EARNINGS ENHANCEMENT RIDER
If you elect the Earnings Enhancement Rider and you are 69 or younger when
we issue your Contract, the death benefit is:
- the greatest of any death benefit amounts payable under "Basic Death
Benefit" (above), plus
- 40% of the lesser of your net purchase payments or your Account Value
minus net purchase payments, calculated as of the Death Benefit Date.
If you elect the Earnings Enhancement Rider, and you are between the ages
of 70 and 79 when we issue your Contract, the death benefit is:
- the greatest of any death benefit amounts payable under "Basic Death
Benefit" (above), plus
- 25% of the lesser of your net purchase payment or your Account Value minus
net purchase payments, calculated as of the Death Benefit Date.
6
<PAGE>
SELECTING MULTIPLE DEATH BENEFIT RIDERS
If you elect more than one death benefit rider, the death benefit will be
calculated as follows:
1) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER COMBINED WITH 5% PREMIUM ROLL-UP
RIDER: The death benefit will equal the greater of the death benefit
under the Maximum Anniversary Account Value Rider or the death benefit
under the 5% Premium Roll-Up Rider.
2) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER COMBINED WITH EARNINGS
ENHANCEMENT RIDER: The death benefit will equal the death benefit under
the Maximum Anniversary Account Value Rider, PLUS the amount calculated
under the Earnings Enhancement Rider. The death benefit under the
Earnings Enhancement Rider is calculated using the account value before
the application of the Maximum Anniversary Account Rider.
3) EARNINGS ENHANCEMENT RIDER COMBINED WITH 5% PREMIUM ROLL-UP RIDER: The
death benefit will equal the death benefit under the 5% Premium Roll-Up
Rider, PLUS the amount calculated under the Earnings Enhancement Rider.
The death benefit under the Earnings Enhancement Rider is calculated
using the account value before the application of the 5% Premium Roll-Up
Rider.
4) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER COMBINED WITH BOTH THE 5%
PREMIUM ROLL-UP RIDER AND THE EARNINGS ENHANCEMENT RIDER: The death
benefit will equal the greater of the death benefit under the Maximum
Anniversary Account Value Rider or the death benefit under the 5% Premium
Roll-Up Rider, PLUS the amount calculated under the Earnings Enhancement
Rider. The death benefit under the Earnings Enhancement Rider is
calculated using the account value before the application of the 5%
Premium Roll-Up Rider and that of the Maximum Anniversary Account Value
Rider.
If your spouse is the sole beneficiary, your spouse may elect to continue
the Contract. The death benefit amount described above will be your new account
value as of the Death Benefit Date. For purposes of calculating future death
benefits, your spouse's age and the original issue date of the Contract will be
used to determine applicable expense and death benefit amounts.
10. OTHER INFORMATION
FREE LOOK. Depending upon applicable state or federal 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, based upon applicable state or federal law, 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 a 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 investment 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 or not the underlying contract is an annuity. You
should not buy a Contract if you are looking for a short-term investment or if
you do not wish to risk a decrease in the value of your investment.
CONFIRMATIONS AND QUARTERLY STATEMENTS. You will receive a confirmation or
an acknowledgment of transactions within your Contract, except for those
transactions which are part of an automated program, such as Dollar-Cost
Averaging, Asset Allocation, Systematic Withdrawal and/or Portfolio Rebalancing.
On a quarterly basis, you will receive a complete statement of your transactions
over the past quarter and a summary of your Account values at the end of that
period.
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<PAGE>
ADDITIONAL FEATURES. The Contract offers the following additional
convenient features, which you may choose at no extra charge. These features may
be started or discontinued at any time by either you or the Company; however, we
may require up to a 30-day notice.
Dollar-Cost Averaging -- This program lets you invest gradually in up to
12 Sub-Accounts.
Asset Allocation -- This program rebalances your Account balance based on
the terms of the program. Different asset allocation models may be available
over the lifetime of the Contract; however, only one program can be in effect at
any one time.
Systematic Withdrawal Program -- This program allows you to receive
monthly, 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.
Principal Returns Program -- This program guarantees the return of your
purchase payment by investing a portion of your investment into a Guarantee
Period, and also allows you to allocate a portion of your investment to one or
more Sub-Accounts.
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.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117
TELEPHONE: TOLL FREE (888) 786-2435
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<PAGE>
PROSPECTUS
JUNE 9, 2000
FUTURITY III
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 37 variable investment options and a range of fixed
options. The variable options are Sub-Accounts in the Variable Account, each of
which invests in one of the following mutual funds or series thereof (the
"Funds"):
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS MFS/SUN LIFE SERIES TRUST
AIM V.I. Capital Appreciation Fund Capital Appreciation Series
AIM V.I. Growth Fund Emerging Growth Series
AIM V.I. Growth and Income Fund Government Securities Series
AIM V.I. International Equity Fund High Yield Series
THE ALGER AMERICAN FUND Massachusetts Investors Growth Stock Series
Growth Portfolio Massachusetts Investors Trust Series
Income and Growth Portfolio New Discovery Series
Small Capitalization Portfolio Total Return Series
GOLDMAN SACHS VARIABLE INSURANCE TRUST Utilities Series
("VIT") SUN CAPITAL ADVISERS TRUST
VIT CORE-SM- Large Cap Growth Fund Sun Capital Blue Chip Mid Cap Fund
VIT CORE-SM- Small Cap Equity Fund Sun Capital Davis Financial Fund
VIT CORE-SM- U.S. Equity Fund Sun Capital Davis Venture Value Fund
VIT Growth and Income Fund Sun Capital Investment Grade Bond Fund
VIT International Equity Fund Sun Capital Investors Foundation Fund
J.P. MORGAN SERIES TRUST II Sun Capital Money Market Fund
J.P. Morgan International Opportunities Sun Capital Real Estate Fund
Portfolio Sun Capital Select Equity Fund
J.P. Morgan Small Company Portfolio Sun Capital Value Equity Fund
J.P. Morgan U.S. Disciplined Equity Sun Capital Value Managed Fund
Portfolio Sun Capital Value Mid Cap Fund
LORD ABBETT SERIES FUND, INC. Sun Capital Value Small Cap Fund
Growth and Income 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 CONTRACTS AND THE FUNDS.
We have filed a Statement of Additional Information dated June 9, 2000
(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 107 of this Prospectus. You may obtain a copy without charge by
writing to us at the address shown below (which we sometimes refer to as our
"Annuity Mailing Address") or by telephoning (888) 786-2435. 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:
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms 4
Expense Summary 4
Summary of Contract Expenses 4
Underlying Fund Annual Expenses 5
Examples 7
The Annuity Contract 9
Communicating To Us About Your Contract 9
Sun Life Assurance Company of Canada (U.S.) 10
The Variable Account 10
Variable Account Options: The Funds 10
The Fixed Account 14
The Fixed Account Options: The Guarantee Periods 14
The Accumulation Phase 14
Issuing Your Contract 14
Amount and Frequency of Purchase Payments 15
Allocation of Net Purchase Payments 15
Your Account 15
Your Account Value 15
Variable Account Value 16
Fixed Account Value 16
Transfer Privilege 17
Waivers; Reduced Charges; Credits; Special Guaranteed
Interest Rates 18
Optional Programs 19
Withdrawals, Withdrawal Charge and Market Value Adjustment 20
Cash Withdrawals 20
Withdrawal Charge 21
Types of Withdrawals Not Subject to Withdrawal Charge 23
Market Value Adjustment 23
Contract Charges 24
Account Fee 24
Administrative Expense Charge 25
Mortality and Expense Risk Charge 25
Charges for Optional Death Benefit Riders 25
Premium Taxes 25
Fund Expenses 26
Modification in the Case of Group Contracts 26
Death Benefit 26
Amount of Death Benefit 26
The Basic Death Benefit 26
Optional Death Benefit Riders 26
Spousal Continuance 28
Calculating the Death Benefit 28
Method of Paying Death Benefit 28
Non-Qualified Contracts 29
Selection and Change of Beneficiary 29
Payment of Death Benefit 29
Due Proof of Death 29
The Income Phase -- Annuity Provisions 29
Selection of the Annuitant or Co-Annuitant 30
Selection of the Annuity Commencement Date 30
Annuity Options 30
Selection of Annuity Option 31
Amount of Annuity Payments 31
Exchange of Variable Annuity Units 32
Account Fee 33
Annuity Payment Rates 33
Annuity Options as Method of Payment for Death Benefit 33
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Other Contract Provisions 33
Exercise of Contract Rights 33
Change of Ownership 33
Voting of Fund Shares 34
Periodic Reports 35
Substitution of Securities 35
Change in Operation of Variable Account 35
Splitting Units 35
Modification 35
Discontinuance of New Participants 36
Reservation of Rights 36
Right to Return 36
Tax Considerations 37
U.S. Federal Tax Considerations 37
DEDUCTIBILITY OF PURCHASE PAYMENTS 37
PRE-DISTRIBUTION TAXATION OF CONTRACTS 37
DISTRIBUTIONS AND WITHDRAWALS FROM NON-QUALIFIED
CONTRACTS 37
DISTRIBUTION AND WITHDRAWALS FROM QUALIFIED
CONTRACTS 38
WITHHOLDING 38
INVESTMENT DIVERSIFICATION AND CONTROL 38
TAX TREATMENT OF THE COMPANY AND THE VARIABLE
ACCOUNT 38
QUALIFIED RETIREMENT PLANS 39
PENSION AND PROFIT-SHARING PLANS 39
TAX-SHELTERED ANNUITIES 39
INDIVIDUAL RETIREMENT ACCOUNTS 39
ROTH IRAS 40
Puerto Rico Tax Considerations 40
Administration of the Contract 40
Distribution of the Contract 40
Performance Information 41
Available Information 42
Incorporation of Certain Documents by Reference 42
Additional Information About the Company 43
General 43
Selected Financial Data 43
Management's Discussion and Analysis of Financial
Condition and Results of Operations 44
Quantitative and Qualitative Disclosures About Market
Risk 52
Reinsurance 60
Reserves 61
Investments 61
Competition 61
Employees 61
Properties 61
State Regulation 61
Legal Proceedings 62
Accountants 62
Financial Statements 62
Table of Contents of Statement of Additional Information 103
Appendix A -- Glossary 105
Appendix B -- Withdrawals, Withdrawal Charges and the Market
Value Adjustment 108
Appendix C -- Calculation of Basic Death Benefit 111
Appendix D -- Calculation of Earnings Enhancement Optional
Death Benefit Rider 112
Appendix E -- Calculation of Death Benefit When All Three
Optional Death Benefit Riders are Selected 113
</TABLE>
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<PAGE>
SPECIAL TERMS
Your Contract is a legal document that uses a number of specially defined
terms. We explain most of the terms that we use in this Prospectus in the
context where they arise, and some are self-explanatory. In addition, for
convenient reference, we have compiled a list of these terms in the Glossary
included at the back of this Prospectus as Appendix A. If, while you are reading
this Prospectus, you come across a term that you do not understand, please refer
to the Glossary for an explanation.
EXPENSE SUMMARY
The purpose of the following table is to help you understand the costs and
expenses that you will bear directly and indirectly under a Contract WHEN YOU
ALLOCATE MONEY TO THE VARIABLE ACCOUNT. The table reflects expenses of the
Variable Account as well as of each Fund. The table should be considered
together with the narrative provided under the heading "Contract Charges" in
this Prospectus, and with the Funds' prospectus(es). In addition to the expenses
listed below, we may deduct premium taxes, where required by state law.
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
TRANSACTION EXPENSES
Sales Load Imposed on Purchase Payments..................... $ 0
Deferred Sales Load (as a percentage of Purchase Payments
withdrawn) (1)
Number of complete Account Years Purchase Payment in
Account
0-1..................................................... 7%
1-2..................................................... 7%
2-3..................................................... 6%
3-4..................................................... 6%
4-5..................................................... 5%
5-6..................................................... 4%
6-7..................................................... 3%
7 or more............................................... 0%
Transfer Fee (2)............................................ $ 15
ANNUAL ACCOUNT FEE per Contract or Certificate (3) $ 50
VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of average
Variable Account assets)
</TABLE>
<TABLE>
<CAPTION>
FOR CONTRACTS WITH AN INITIAL FOR CONTRACTS WITH AN INITIAL
PURCHASE PAYMENT PURCHASE PAYMENT
LESS THAN $1,000,000 OF $1,000,000 OR MORE
<S> <C> <C> <C>
Mortality and Expense Risks Mortality and Expense Risks
Charge (4)............................ 1.00% Charge (4)............................ 0.85%
Administrative Expenses Charge........ 0.15% Administrative Expenses Charge........ 0.15%
===== =====
Total Variable Annuity Annual Total Variable Annuity Annual
Expenses (5).......................... 1.15% Expenses (5).......................... 1.00%
</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) Currently, we impose no fee upon transfers; however, we reserve the right to
impose up to $15 per transfer. In addition, a Market Value Adjustment may be
imposed on amounts transferred from or within the Fixed Account.
(3) The annual Account Fee is currently $35. After the fifth Account Year, the
fee may be changed annually, but it will never exceed $50.
(4) We will assess an additional 0.25% during the Income Phase on Contracts that
annuitize before their seventh Contract Anniversary.
(5) An additional charge will apply during the Accumulation Phase if you elect
one or more of the optional death benefit riders. For more information, see
"Charges for Optional Death Benefit Riders."
4
<PAGE>
UNDERLYING FUND ANNUAL EXPENSES (1)
(AS A PERCENTAGE OF FUND NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER ANNUAL
FEES (AFTER EXPENSES (AFTER EXPENSES (AFTER
REIMBURSEMENT)(2) REIMBURSEMENT)(2) REIMBURSEMENT)(2)
----------------- ----------------- -----------------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund............ 0.62% 0.11% 0.73%
AIM V.I. Growth Fund.......................... 0.63% 0.10% 0.73%
AIM V.I. Growth and Income Fund............... 0.61% 0.16% 0.77%
AIM V.I. International Equity Fund............ 0.75% 0.22% 0.97%
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% 0.05% 0.90%
Goldman Sachs VIT CORE-SM- Large Cap Growth
Fund (3)..................................... 0.70% 0.20% 0.90%
Goldman Sachs VIT CORE-SM- Small Cap Equity
Fund (3)..................................... 0.75% 0.25% 1.00%
Goldman Sachs VIT CORE-SM- U.S. Equity Fund
(3).......................................... 0.70% 0.20% 0.90%
Goldman Sachs VIT Growth and Income Fund (3).. 0.75% 0.25% 1.00%
Goldman Sachs VIT International Equity Fund
(3).......................................... 1.00% 0.35% 1.35%
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%
J.P. Morgan U.S. Disciplined Equity Portfolio
(4).......................................... 0.35% 0.50% 0.85%
Lord Abbett Growth and Income Portfolio....... 0.50% 0.01% 0.51%
MFS/Sun Life Capital Appreciation Series
(5).......................................... 0.71% 0.05% 0.76%
MFS/Sun Life Emerging Growth Series........... 0.70% 0.05% 0.75%
MFS/Sun Life Government Securities Series..... 0.55% 0.06% 0.61%
MFS/Sun Life High Yield Series (5)............ 0.75% 0.08% 0.83%
MFS/Sun Life Massachusetts Investors Growth
Stock Series................................. 0.75% 0.08% 0.83%
MFS/Sun Life Massachusetts Investors Trust
Series....................................... 0.55% 0.04% 0.59%
MFS/Sun Life New Discovery Series (5)......... 0.90% 0.16% 1.06%
MFS/Sun Life Total Return Series.............. 0.65% 0.04% 0.69%
MFS/Sun Life Utilities Series (5)............. 0.75% 0.06% 0.81%
Sun Capital Blue Chip Mid Cap Fund (6)(7)..... 0.80% 0.20% 1.00%
Sun Capital Davis Financial Fund (8).......... 0.75% 0.15% 0.90%
Sun Capital Davis Venture Value Fund (8)...... 0.75% 0.15% 0.90%
Sun Capital Investment Grade Bond Fund (6).... 0.60% 0.15% 0.75%
Sun Capital Investors Foundation Fund
(6)(8)....................................... 0.75% 0.15% 0.90%
Sun Capital Money Market Fund (6)............. 0.50% 0.15% 0.65%
Sun Capital Real Estate Fund (6).............. 0.95% 0.30% 1.25%
Sun Capital Select Equity Fund (6)(7)......... 0.75% 0.15% 0.90%
Sun Capital Value Equity Fund (9)............. 0.80% 0.10% 0.90%
Sun Capital Value Managed Fund (9)............ 0.80% 0.10% 0.90%
Sun Capital Value Mid Cap Fund (9)............ 0.80% 0.20% 1.00%
Sun Capital Value Small Cap Fund (9).......... 0.80% 0.20% 1.00%
</TABLE>
------------------------
(1) The information relating to Fund expenses was provided by the Funds and we
have not independently verified it. You should consult the Fund prospectuses
for more information about Fund expenses.
(2) For all Funds, "Management Fees," "Other Expenses" and "Total Fund Annual
Expenses" are based on actual expenses for the fiscal year ended December
31, 1999, net of any applicable expense reimbursement or waiver.
(3) The investment advisers for the Goldman Sachs VIT Funds have voluntarily
agreed to waive or reimburse a portion of the management fees and/or
operating expenses, resulting in a reduction of
5
<PAGE>
the total expenses. In particular, the investment advisers to the Goldman
Sachs VIT CORE-SM- Large Capital Growth Fund, the Goldman Sachs VIT CORE-SM-
Small Cap Equity Fund, the Goldman Sachs VIT CORE-SM- U.S. Equity Fund, the
Goldman Sachs VIT Growth and Income Fund and the Goldman Sachs VIT
International Equity Fund have voluntarily agreed to reduce or limit certain
"Other Expenses" of such Funds (excluding management fees, taxes, interest
and brokerage fees, litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.20%, 0.25%, 0.20%, 0.25%, and
0.35% per annum of such Funds' average daily net assets, respectively. The
expenses of the Goldman Sachs VIT Funds are estimated for the fiscal year
ended December 31, 2000. Absent any such waiver or reimbursement, estimated
"Management Fees," estimated "Other Expenses," and estimated "Total Fund
Annual Expenses" for the year ended December 31, 2000 will be: 0.70%, 0.42%,
and 1.12% for the Goldman Sachs VIT CORE-SM- Large Cap Growth Fund; 0.75%,
0.75%, and 1.50% for the Goldman Sachs VIT CORE-SM- Small Cap Equity Fund;
0.70%, 0.20%, and 0.90% for the Goldman Sachs VIT CORE-SM- U.S. Equity Fund;
0.75%, 0.47%, and 1.22% for the Goldman Sachs VIT Growth and Income Fund;
and 1.00%, 0.77%, and 1.77% for the Goldman Sachs VIT International Equity
Fund. Fee waivers and expense reimbursements for the Goldman Sachs VIT Funds
may be discontinued at any time.
(4) An affiliate of the adviser has agreed to reimburse the Fund to the extent
certain expenses exceed the following percentages of the Fund's average
daily net assets through fiscal year 1999: 0.85% for the J.P. Morgan U.S.
Disciplined Equity Portfolio; 1.20% for the J.P. Morgan International
Opportunities Portfolio; and 1.15% for the J.P. Morgan Small Company
Portfolio. Absent this reimbursement, "Total Fund Annual Expenses" would
have been 0.87% for the J.P. Morgan U.S. Disciplined Equity Portfolio, 1.98%
for the J.P. Morgan International Opportunities Portfolio, and 2.57% for the
J.P. Morgan Small Company Portfolio.
(5) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into such other
arrangements and directed brokerage arrangement (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected in the table. Had these fees been taken into account, "Total Fund
Annual Expenses" would have been: 0.75% for the MFS/Sun Life Capital
Appreciation Series; 0.82% for the MFS/Sun Life High Yield Series; 1.05% for
the MFS/Sun Life New Discovery Series; and 0.80% for the MFS/Sun Life
Utilities Series.
(6) The investment adviser for the Sun Capital Funds has voluntarily agreed to
waive or reimburse a portion of the management fees and/or operating
expenses, resulting in a reduction of the total expenses. For the year ended
December 31, 1999, the investment adviser waived all investment advisory
fees. Absent any such waiver or reimbursement, "Management Fees," "Other
Expenses," and "Total Fund Annual Expenses" for the year ended December 31,
1999 were: 0.80%, 3.31%, and 4.11% for the Sun Capital Blue Chip Mid Cap
Fund; 2.70%, 1.38%, and 1.98% for the Sun Capital Investment Grade Bond
Fund; 0.75%, 4.37%, and 5.12% for the Sun Capital Investors Foundation Fund;
0.50%, 2.20%, and 2.70% for the Sun Capital Money Market Fund; 0.95%, 2.44%,
and 3.39% for the Sun Capital Real Estate Fund; and 0.75%, 3.50%, and 4.25%
for the Sun Capital Select Equity Fund. Fee waivers and expense
reimbursements for the Sun Capital Funds may be discontinued at any time
after May 1, 2001. 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.
(7) The management fee for each of the Sun Capital Blue Chip Mid Cap Fund, the
Sun Capital Investors Foundation Fund, and the Sun Capital Select Equity
Fund decreases to 0.75%, 0.70%, and 0.70%, respectively, as the daily net
assets of each Fund exceed $300 million.
(8) The management fee for each of the Sun Capital Davis Financial Fund and the
Sun Capital Davis Venture Value Fund decreases to 0.70% as the daily net
assets of each Fund exceed $500 million.
(9) The management fee for each of the Sun Capital Value Equity Fund, the Sun
Capital Value Managed Fund, the Sun Capital Value Mid Cap Fund, and the Sun
Capital Value Small Cap Fund decreases to 0.75% as the daily net assets of
each Fund reach between $400 million and $800 million, and decreases to
0.70% as the daily net assets of each Fund exceed $800 million.
6
<PAGE>
EXAMPLES
If you surrender your Contract at the end of the applicable time period,
you would pay the following expenses on a $1,000 investment, assuming an average
Contract size of $35,000, a 5% annual return and no optional death benefit
riders have been elected:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund.......................... $82 $119 $157 $233
AIM V.I. Growth Fund........................................ $82 $119 $157 $233
AIM V.I. Growth and Income Fund............................. $82 $120 $159 $237
AIM V.I. International Equity Fund.......................... $84 $126 $169 $258
Alger American Growth Portfolio............................. $82 $120 $160 $239
Alger American Income and Growth Portfolio.................. $81 $118 $155 $230
Alger American Small Capitalization Portfolio............... $83 $124 $165 $251
Goldman Sachs VIT CORE-SM- Large Cap Growth Fund............ $83 $124 $165 $251
Goldman Sachs VIT CORE-SM- Small Cap Equity Fund............ $84 $126 $170 $261
Goldman Sachs VIT CORE-SM- U.S. Equity Fund................. $83 $124 $165 $251
Goldman Sachs VIT Growth and Income Fund.................... $84 $126 $170 $261
Goldman Sachs VIT International Equity Fund................. $87 $136 $187 $296
J.P. Morgan International Opportunities Portfolio........... $86 $132 $180 $281
J.P. Morgan Small Company Portfolio......................... $86 $131 $177 $276
J.P. Morgan U.S. Disciplined Equity Portfolio............... $83 $122 $163 $246
Lord Abbett Growth and Income Portfolio..................... $83 $123 $164 $248
MFS/Sun Life Capital Appreciation Series.................... $82 $120 $158 $236
MFS/Sun Life Emerging Growth Series......................... $82 $119 $158 $235
MFS/Sun Life Government Securities Series................... $81 $115 $151 $221
MFS/Sun Life High Yield Series.............................. $83 $122 $162 $244
MFS/Sun Life Massachusetts Investors Growth Stock Series.... $83 $122 $162 $244
MFS/Sun Life Massachusetts Investors Trust Series........... $80 $115 $150 $218
MFS/Sun Life New Discovery Series........................... $85 $128 $173 $267
MFS/Sun Life Total Return Series............................ $81 $118 $155 $229
MFS/Sun Life Utilities Series............................... $83 $121 $161 $243
Sun Capital Blue Chip Mid Cap Fund.......................... $84 $126 $170 $261
Sun Capital Davis Financial Fund............................ $83 $124 $165 $251
Sun Capital Davis Venture Value Fund........................ $83 $124 $165 $251
Sun Capital Investment Grade Bond Fund...................... $82 $119 $158 $235
Sun Capital Investors Foundation Fund....................... $83 $124 $165 $251
Sun Capital Money Market Fund............................... $81 $116 $153 $225
Sun Capital Real Estate Fund................................ $87 $133 $182 $286
Sun Capital Select Equity Fund.............................. $83 $124 $165 $251
Sun Capital Value Equity Fund............................... $83 $124 $165 $251
Sun Capital Value Managed Fund.............................. $83 $124 $165 $251
Sun Capital Value Mid Cap Fund.............................. $84 $126 $170 $261
Sun Capital Value Small Cap Fund............................ $84 $126 $170 $261
</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 an average Contract size of $35,000, a 5% annual return and
no optional death benefit riders have been elected:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund.......................... $20 $62 $107 $233
AIM V.I. Growth Fund........................................ $20 $62 $107 $233
AIM V.I. Growth and Income Fund............................. $21 $63 $109 $237
AIM V.I. International Equity Fund.......................... $23 $69 $119 $258
Alger American Growth Portfolio............................. $21 $64 $110 $239
Alger American Income and Growth Portfolio.................. $20 $61 $105 $230
Alger American Small Capitalization Portfolio............... $22 $67 $115 $251
Goldman Sachs VIT CORE-SM- Large Cap Growth Fund............ $22 $67 $115 $251
Goldman Sachs VIT CORE-SM- Small Cap Equity Fund............ $23 $70 $120 $261
Goldman Sachs VIT CORE-SM- U.S. Equity Fund................. $22 $67 $115 $251
Goldman Sachs VIT Growth and Income Fund.................... $23 $70 $120 $261
Goldman Sachs VIT International Equity Fund................. $26 $81 $138 $296
J.P. Morgan International Opportunities Portfolio........... $25 $76 $131 $281
J.P. Morgan Small Company Portfolio......................... $24 $75 $128 $276
J.P. Morgan U.S. Disciplined Equity Portfolio............... $21 $66 $113 $246
Lord Abbett Growth and Income Portfolio..................... $22 $66 $114 $248
MFS/Sun Life Capital Appreciation Series.................... $20 $63 $108 $236
MFS/Sun Life Emerging Growth Series......................... $20 $63 $108 $235
MFS/Sun Life Government Securities Series................... $19 $58 $101 $221
MFS/Sun Life High Yield Series.............................. $21 $65 $112 $244
MFS/Sun Life Massachusetts Investors Growth Stock Series.... $21 $65 $112 $244
MFS/Sun Life Massachusetts Investors Trust Series........... $19 $58 $100 $218
MFS/Sun Life New Discovery Series........................... $23 $72 $124 $267
MFS/Sun Life Total Return Series............................ $20 $61 $105 $229
MFS/Sun Life Utilities Series............................... $21 $65 $111 $243
Sun Capital Blue Chip Mid Cap Fund.......................... $23 $70 $120 $261
Sun Capital Davis Financial Fund............................ $22 $67 $115 $261
Sun Capital Davis Venture Value Fund........................ $22 $67 $115 $251
Sun Capital Investment Grade Bond Fund...................... $20 $63 $108 $235
Sun Capital Investors Foundation Fund....................... $22 $67 $115 $251
Sun Capital Money Market Fund............................... $19 $60 $103 $225
Sun Capital Real Estate Fund................................ $25 $78 $133 $286
Sun Capital Select Equity Fund.............................. $22 $67 $115 $251
Sun Capital Value Equity Fund............................... $22 $67 $115 $251
Sun Capital Value Managed Fund.............................. $22 $67 $115 $251
Sun Capital Value Mid Cap Fund.............................. $23 $70 $120 $261
Sun Capital Value Small Cap Fund............................ $23 $70 $120 $261
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED TO BE REPRESENTATIONS OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LOWER THAN THOSE SHOWN.
8
<PAGE>
THE ANNUITY CONTRACT
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 Contract to groups and individuals for use in connection with their
retirement plans. The Contract is 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 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."
Your 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 annuity payments based on the
amount you have accumulated. Your Contract provides tax deferral, so that you do
not pay taxes on your earnings under your Contract until you withdraw them. It
provides a basic death benefit if you die during the Accumulation Phase. You may
enhance the basic death benefit by electing one or more optional death benefit
riders and paying an additional charge for each optional death benefit rider you
elect. Finally, if you so elect, during the Income Phase we will make annuity
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 Account 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 variable options, you assume all
investment risk under your 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 in the Accumulation Phase, 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 might not exceed our minimum guaranteed rate,
which is 3% per year during the Accumulation Phase and 2.5% per year during the
Income Phase, compounded annually.
The Contract is 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 Contract is also designed so that it may be used in connection with certain
non-tax-qualified retirement plans, such as payroll savings plans and such other
groups (trusteed or nontrusteed) as may be eligible under applicable law. We
refer to Contracts used with plans that receive favorable tax treatment as
"Qualified Contracts," and all other Contracts as "Non-Qualified Contracts."
COMMUNICATING TO US ABOUT YOUR CONTRACT
All materials sent to us, including Purchase Payments, must be sent to our
Annuity Mailing Address as set forth on the first page of this Prospectus. For
all telephone communications, you must call (888) 786-2435.
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 our Annuity Mailing Address. However, we will consider
all financial transactions, including 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.
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<PAGE>
When we specify that notice to us must be in writing, we reserve the
right, at 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) completed its demutualization
on March 22, 2000. As a result of the demutualization, a new holding company,
Sun Life Financial Services of Canada Inc. ("Sun Life Financial"), is now the
ultimate parent of Sun Life (Canada) and the Company. Sun Life Financial, a
corporation organized in Canada, is a reporting company under the Securities
Exchange Act of 1934 with common shares listed on the Toronto, New York, London,
and Manila stock exchanges.
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.The Variable Account
funds the Contract and various other variable annuity and variable life
insurance product contracts which we offer. These other products may have
features, benefits and charges that are different from those under the Contract.
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 Contract and other variable
annuity and variable life insurance 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 a Contract, 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 Funds with respect to the shares held by the Variable Account will be
reinvested to purchase additional Fund shares at their net asset value.
Deductions will be made from the Variable Account for cash withdrawals, annuity
payments, death benefits, Account Fees, Contract charges against the assets of
the Variable Account for the assumption of mortality and expense risks,
administrative expenses and any applicable taxes. The Variable Account will be
fully invested in Fund shares at all times.
VARIABLE ACCOUNT OPTIONS:
THE FUNDS
The Contract offers Sub-Accounts that invest in a number of Fund
investment 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 (888) 786-2435 OR BY WRITING TO SUN LIFE ASSURANCE COMPANY OF CANADA
(U.S.), C/O RETIREMENT PRODUCTS AND SERVICES, P.O. BOX 9133, BOSTON
MASSACHUSETTS 02117.
10
<PAGE>
The Funds currently available are:
AIM VARIABLE INSURANCE FUNDS (advised by A I M Advisors, Inc.)
AIM V.I. CAPITAL APPRECIATION FUND seeks growth of capital by investing
principally in common stocks or companies which the Fund's portfolio
managers believe are likely to benefit from new or innovative products,
services or processes, as well as those that have experienced above-
average, long-term growth in earnings and have excellent prospects for
future growth.
AIM V.I. GROWTH FUND seeks to achieve growth of capital by investing in
seasoned and better-capitalized companies considered to have strong
earnings momentum.
AIM V.I. GROWTH AND INCOME FUND seeks to achieve growth of capital with a
secondary objective of current income.
AIM V.I. INTERNATIONAL EQUITY FUND seeks to achieve 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 ("VIT") (advised by Goldman Sachs Asset
Management, a unit of the Investment Management Division of Goldman, Sachs & Co.
("Goldman Sachs"), except for Goldman Sachs International Equity Fund, which is
advised by Goldman Sachs Asset Management International, an affiliate of Goldman
Sachs)
GOLDMAN SACHS VIT CORE-SM- 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-SM- 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-SM- 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.
11
<PAGE>
J.P. MORGAN SERIES TRUST II (advised by J.P. Morgan Investment Management Inc.)
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.
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO seeks to provide a high total
return from a portfolio of selected equity securities.
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 mainly 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.
SUN CAPITAL ADVISERS TRUST (advised by Sun Capital Advisers, Inc., an affiliate
of the Company. Wellington Management Company, LLP serves as investment
subadviser to Sun Capital Blue Chip Mid Cap Fund, Sun Capital Investors
Foundation Fund and Sun Capital Select Equity Fund; Davis Selected Advisers,
L.P. serves as investment subadviser to Sun Capital Davis Financial Fund and Sun
Capital Davis Venture Value Fund; OpCap Advisors serves as investment subadviser
to Sun Capital Value Equity Fund, Sun Capital Value Managed Fund, Sun Capital
Value Mid Cap Fund, and Sun Capital Value Small Cap Fund)
SUN CAPITAL BLUE CHIP MID CAP FUND seeks long-term capital growth by
investing primarily in a diversified portfolio of common stocks and other
equity securities of U.S. companies with
12
<PAGE>
market capitalizations within the range represented by the Standard &
Poor's Mid Cap 400 Index.
SUN CAPITAL DAVIS FINANCIAL FUND seeks growth of capital by investing
primarily in the common stock of financial service companies.
SUN CAPITAL DAVIS VENTURE VALUE FUND seeks growth of capital by investing
primarily in the common stock of U.S. companies with market capitalizations
of at least $5 billion.
SUN CAPITAL INVESTORS FOUNDATION FUND seeks long-term capital growth by
investing primarily in a diversified portfolio of common stocks and other
equity securities of U.S. companies with market capitalizations generally
within the range represented by the Standard & Poor's 500 Index.
Investments are selected using a combination of fundamental analysis and
quantitative tools.
SUN CAPITAL INVESTMENT GRADE BOND FUND seeks high current income consistent
with relative stability of principal by investing at least 80% of its
assets in investment grade bonds. The Fund may invest up to 20% of its
assets in lower rated or unrated bonds (also known as high yield or junk
bonds).
SUN CAPITAL MONEY MARKET FUND seeks to maximize current income, consistent
with maintaining liquidity and preserving capital, by investing exclusively
in high quality U.S. dollar-denominated money market securities.
SUN CAPITAL REAL ESTATE FUND primarily seeks long-term capital growth and,
secondarily, seeks current income and growth of income. The Fund invests at
least 80% of its assets in securities of real estate investment trusts and
other real estate companies.
SUN CAPITAL SELECT EQUITY FUND seeks long-term capital growth by investing
in 20 to 40 common stocks and other equity securities of large
capitalization U.S. companies selected primarily from the Standard & Poor's
500 Index.
SUN CAPITAL VALUE EQUITY FUND 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.
SUN CAPITAL VALUE MANAGED FUND 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.
SUN CAPITAL VALUE MID CAP FUND 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 $8 billion at time of purchase.
SUN CAPITAL VALUE SMALL CAP FUND seeks capital appreciation through
investment in a diversified portfolio of equity securities of companies
with market capitalizations of under $1.5 billion at time of purchase.
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.
13
<PAGE>
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 Funds may reimburse us from their
assets for distribution costs pursuant to the terms of their Rule 12b-1 plans.
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 manager(s). While a Fund may have many
similarities to these other funds, its investment performance will differ from
their investment performance. This is due to a number of differences between a
Fund and these similar products, including differences in sales charges, expense
ratios and cash flows.
THE FIXED ACCOUNT
The Fixed Account is made up of all the general assets of the Company
other than those allocated to any separate account. Amounts you allocate to
Guarantee Periods become part of the Fixed Account, and are available to fund
the claims of all classes of our customers, including claims for benefits under
the Contracts.
We will invest the assets of the Fixed Account in those assets we choose
that are allowed by applicable state insurance laws. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stocks, real estate mortgages, real estate and certain
other investments. We intend to invest primarily in investment-grade fixed
income securities (I.E., rated by a nationally recognized rating service within
the 4 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 at 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 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 at our discretion offer special interest rates
for new Purchase Payments that are higher than the rates we are then offering
for renewals or transfers.
Early withdrawals from your allocation to a Guarantee Period, including
cash withdrawals, transfers and commencement of an annuity option, may be
subject to a Market Value Adjustment, which could decrease or increase the value
of your Account. See "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.
14
<PAGE>
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.
We will credit your initial Purchase Payment to your Account within 2
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 $2 million, or
if the Purchase Payment would cause your Account Value to exceed $2 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, but any allocation to a Guarantee Period must be
at least $1,000. Over the life of your Contract, you may allocate amounts among
as many as 18 of the available investment 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 notice of the change in a form
acceptable to us, as required. 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 taxes 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 2 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 2 components are calculated separately, as described below under "Variable
Account Value" and "Fixed Account Value."
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<PAGE>
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, at the close of
trading, which is currently 4:00 p.m., Eastern Time. (The close of trading is
determined by the New York Stock Exchange.) We also may determine the value of
Variable Accumulation Units of a Sub-Account on days the Exchange is closed if
there is enough trading in securities held by that Sub-Account to materially
affect the value of the Variable Accumulation Units. Each day we make a
valuation is called a "Business Day." The period that begins at the time
Variable Accumulation Units are valued on a Business Day and ends at that time
on the next Business Day is called a Valuation Period. On days other than
Business Days, the value of a Variable Accumulation Unit does not change.
To measure these values, we use a factor -- which we call the Net
Investment Factor -- which represents the net return on the Sub-Account's
assets. At the end of any Valuation Period, the value of a Variable Accumulation
Unit for a Sub-Account is equal to the value of that Sub-Account's Variable
Accumulation Units at the end of the previous Valuation Period, multiplied by
the Net Investment Factor. We calculate the Net Investment Factor by dividing
(1) the net asset value of a Fund share held in the Sub-Account at the end of
that Valuation Period, plus the per share amount of any dividend or capital
gains distribution made by that Fund during the Valuation Period, by (2) the net
asset value per share of the Fund share at the end of the previous Valuation
Period; we then deduct a factor representing the mortality and expense risk
charge and administrative expense charge for each day in the Valuation Period.
See "Contract Charges."
For a hypothetical example of how we calculate the value of a Variable
Accumulation Unit, see the Statement of Additional Information.
CREDITING AND CANCELING VARIABLE ACCUMULATION UNITS
When we receive an allocation to a Sub-Account either from a Net Purchase
Payment or a transfer of Account Value, we credit that amount to your Account in
Variable Accumulation Units. Similarly, we cancel Variable Accumulation Units
when you transfer or withdraw amounts from a Sub-Account, or when we deduct
certain charges under the Contract. We determine the number of Units credited or
canceled by dividing the dollar amount by the Variable Accumulation Unit value
for that Sub-Account at the end of the Valuation Period during which the
transaction or charge is effective.
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.
A Guarantee Period begins the day we apply your allocation and ends when
all 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 Renewal Date.
Each additional Purchase Payment, transfer or renewal credited to your
Fixed Account Value will result in a new Guarantee Period with its own Renewal
Date. Amounts allocated at different times to Guarantee Periods of the same
duration may have different Renewal Dates.
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<PAGE>
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.
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. A
Guarantee Period that will extend beyond your maximum Annuity Commencement Date
will result in an application of a Market Value Adjustment upon annuitization or
withdrawals. Each new allocation to a Guarantee Period must be at least $1,000.
RENEWALS
We will notify you in writing between 45 and 75 days before the Renewal
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
Renewal Date, unless before the Renewal Date we receive:
(1) written notice from you electing a different Guarantee Period from among
those we then offer, or
(2) instructions to transfer the Guarantee Amount to one or more
Sub-Accounts, in accordance with the transfer privilege provisions of the
Contract (see "Transfer Privilege").
A Guarantee Amount will not renew into a Guarantee Period that will extend
beyond your Maximum Annuity Commencement Date. Unless you notify us otherwise,
we will automatically renew your Guarantee Amount into the next available
Guarantee Period.
EARLY WITHDRAWALS
If you withdraw, transfer, or annuitize an allocation to a Guarantee
Period 30 days prior to the Renewal Date, we will apply a Market Value
Adjustment to the transaction. This could result in an increase or a 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 Funds; 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.
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<PAGE>
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 the Renewal Date or any time after the
Renewal Date 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 a transfer made by telephone. We will not be liable for following
instructions communicated by telephone that we reasonably believe are genuine.
Your transfer request will be effective as of the close of the Business
Day if we receive your transfer before the earlier of (a) 4:00 p.m. Eastern Time
on a Business Day or (b) the close of the New York Stock Exchange on days that
the Stock Exchange closes before 4:00 p.m. Otherwise, your transfer request will
be effective on the next Business Day.
MARKET TIMERS
The Contracts are not designed for professional market timing
organizations or other entities using programmed and frequent transfers. If you
wish to employ such strategies, you should not purchase a Contract. Accordingly,
transfers may be subject to restrictions if exercised by a market timing firm or
any other third party authorized to initiate transfer transactions on behalf of
multiple Participants. In imposing such restrictions, we may, among other
things, not accept (1) the transfer instructions of any agent acting under a
power of attorney on behalf of more than one Participant, or (2) the transfer
instructions of individual Participants who have executed preauthorized transfer
forms that are submitted at the same time by market timing firms or other third
parties on behalf of more than one Participant. We will not impose these
restrictions unless our actions are reasonably intended to prevent the use of
such transfers in a manner that will disadvantage or potentially impair the
Contract rights of other Participants.
In addition, some of the Funds have reserved the right to temporarily or
permanently refuse exchange requests from the Variable Account if, in the
judgment of the Fund's investment adviser, the Fund would be unable to invest
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. In particular, a pattern of
exchanges that coincide with a market timing strategy may be disruptive to a
Fund and therefore may be refused. Accordingly, the Variable Account may not be
in a position to effectuate transfers and may refuse transfer requests without
prior notice. We also reserve the right, for similar reasons, to refuse or delay
exchange requests involving transfers to or from the Fixed Account.
WAIVERS; REDUCED CHARGES; CREDITS; SPECIAL GUARANTEED INTEREST RATES
We may reduce or waive the withdrawal charge, mortality and expense risk
charges, the administrative service fee or the annual Account Fee, credit
additional amounts, or grant special Guaranteed Interest Rates in certain
situations. These situations may include sales of Contracts (1) where selling
and/or maintenance costs associated with the Contracts are reduced, such as the
sale of several Contracts to the same Participant, sales of large Contracts, and
certain group sales, and (2) to officers, directors and employees of the Company
or its affiliates, registered representatives and employees of broker-dealers
with a current selling agreement with the Company and affiliates of such
representatives and broker-dealers, employees of affiliated asset management
firms, and persons who have retired from such positions ("Eligible Employees")
and immediate family members of Eligible Employees. Eligible Employees and their
immediate family members may also purchase a Contract without regard to minimum
Purchase Payment requirements. For other situations in which withdrawal charges
may be waived, see "Withdrawals, Withdrawal Charge and Market Value Adjustment."
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<PAGE>
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. Previously applied
amounts may not be transferred to a Guarantee Period made available in
connection with this program. At regular time intervals, 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.
No Market Value Adjustment (either positive or negative) will apply to
amounts automatically transferred from the Fixed Account under the dollar-cost
averaging program. However, if you discontinue or alter the program prior to
completion, amounts remaining in the Fixed Account will be transferred to the
Money Market Fund investment option under the Contract, unless you instruct us
otherwise, and the Market Value Adjustment will be applied. Any new allocation
of a Purchase Payment to the program will be treated as commencing a new
dollar-cost averaging program and is subject to the $1,000 minimum.
The main objective of a dollar-cost averaging program is to minimize the
impact of short-term price fluctuations on Account Value. In general, since you
transfer the same dollar amount to the variable investment options at set
intervals, dollar-cost averaging allows you to purchase more Variable
Accumulation Units (and, indirectly, more Fund shares) when prices are low and
fewer Variable Accumulation Units (and, indirectly, fewer Fund shares) when
prices are high. Therefore, you may achieve a lower average cost per Variable
Accumulation Unit over the long term. A dollar-cost averaging program allows you
to take advantage of market fluctuations. However, it is important to understand
that a dollar-cost averaging program does not assure a profit or protect against
loss in a declining market. We do not allow transfers into any of the Guarantee
Periods.
ASSET ALLOCATION
One or more asset allocation programs may be available in connection with
the Contract, at no extra charge. Asset allocation is the process of investing
in different asset classes -- such as equity funds, fixed income funds, and
money market funds -- depending on your personal investment goals, tolerance for
risk, and investment time horizon. By spreading your money among a variety of
asset classes, you may be able to reduce the risk and volatility of investing,
although there are no guarantees, and asset allocation does not insure a profit
or protect against loss in a declining market.
Currently, you may select one of 3 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 asset allocation model
allocating the lowest percentage to Sub-Accounts investing in the equity asset
class and the aggressive asset allocation model allocating the highest
percentage to the equity asset class. These asset allocation models, as well as
the terms and conditions of the asset allocation program, are fully described in
a separate brochure. We may add or delete such programs 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 electing an asset allocation program, you thereby authorize us to
automatically reallocate your investment options that participate in the asset
allocation program on a quarterly basis, or as determined by the terms of the
Asset Allocation Program, to reflect the current composition of the model you
have selected, without further instruction, until we receive notification that
you wish to terminate the program or choose a different model.
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<PAGE>
SYSTEMATIC WITHDRAWAL PROGRAM
If you have an Account Value of $10,000 or more, you may select our
Systematic Withdrawal Program.
Under this program, you determine the amount and frequency of regular
withdrawals you would like to receive from your Fixed Account Value and/or
Variable Account Value and we will effect them automatically. The withdrawals
under this program may be subject to surrender charges or a Market Value
Adjustment. They may also be included as income and subject to a 10% federal tax
penalty. You should consult your tax adviser before choosing this option.
You may change or stop this program at any time, by written notice to us.
PORTFOLIO REBALANCING PROGRAM
Under the Portfolio Rebalancing Program, we transfer funds among all
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.
PRINCIPAL RETURNS PROGRAM
Under the Principal Returns Program, we divide your Purchase Payments
between the Fixed Account and the Variable Account. For the Fixed Account
portion, you choose a Guarantee Period from among those we offer. We then
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 the
Sub-Accounts of your choice. At the end of the Guarantee Period, you will be
guaranteed the amount of your original 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 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 receive.
All withdrawals may be subject to a withdrawal charge (see "Withdrawal
Charge"), and withdrawals from your Fixed Account Value also may be subject to a
Market Value Adjustment (see "Market Value Adjustment"). Withdrawals also may
have adverse income tax consequences, including a 10% penalty tax (see "Tax
Considerations"). 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.
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<PAGE>
PARTIAL WITHDRAWALS
If you request a partial withdrawal, we will pay you the actual amount
specified in your request and then adjust 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 Account
Value 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, and choose, to defer payment under the Investment Company Act of
1940 and applicable state insurance law. Currently, we may defer payment of
amounts you withdraw from the Variable Account only for the following periods:
- When the New York Stock Exchange is closed (except weekends and
holidays) or when trading on the New York Stock Exchange is restricted;
- When it is not reasonably practical to dispose of securities held by a
Fund or to determine the value of the net assets of a Fund, because an
emergency exists; or
- When an SEC order permits us to defer payment for the protection of
Participants.
We also may defer payment of amounts you withdraw from the Fixed Account
for up to 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 your Contract is a Qualified Contract, you should carefully check the
terms of your retirement plan for limitations and restrictions on cash
withdrawals.
Special restrictions apply to withdrawals from Contracts used for
Section 403(b) annuities (see "Tax Considerations -- 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 convenience in discussing free withdrawal amounts, we refer to
Purchase Payments made during the last 7 Account Years, including the current
Account Year, as "New Payments," and we refer to Purchase Payments made before
the last 7 Account Years as "Old Payments."
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<PAGE>
For the first Account Year, the free withdrawal amount is equal to 15% of
the amount of all Purchase Payments you have made. For all other Account Years,
the free withdrawal amount is equal to the amount of all Old Payments that you
have not previously withdrawn, PLUS the greater of:
(1) your Contract's earnings (defined below) to date, minus any previous
withdrawals (excluding those withdrawn from old payments); and
(2) 15% of the amount of all New Payments.
If your "free withdrawal amount" for any Account Year, was based upon your
Contract earnings, then any portion of that "free withdrawal amount" that you do
not use in an Account Year is cumulative. In other words, it will be carried
forward or available for use in future Account Years. However, any unused "free
withdrawal amount" is not cumulative if it was based upon 15% of all your New
Payments.
Your Contract's earnings as of the date of your present withdrawal request
are equal to:
(a) your Account Value on the day we received your present withdrawal
request, minus
(b) all Purchase Payments made prior to the day we received your present
withdrawal request, plus
(c) all partial withdrawals and charges taken prior to the day we received
your present withdrawal request.
For an example of how we calculate the "free withdrawal amount," see
Appendix B.
WITHDRAWAL CHARGE ON PURCHASE PAYMENTS
If you withdraw more than the free withdrawal amount in any Account Year,
we consider the excess amount to be withdrawn first from Payments that you have
not previously withdrawn. We impose the withdrawal charge on the amount of these
Payments. Thus, the maximum amount on which we will impose the withdrawal charge
in any year will never be more than the total of all Payments that you have not
previously withdrawn.
The amount of your withdrawal, if any, that exceeds the total of the free
withdrawal amount plus the aggregate amount of all Payments not previously
withdrawn, is not subject to the withdrawal charge.
ORDER OF WITHDRAWAL
When you make a withdrawal, we consider the free withdrawal amount to be
withdrawn first. We consider the oldest Purchase Payment that you have not
already withdrawn to be withdrawn next, then the second oldest Purchase
Payments, and so forth. Once all Purchase Payments are withdrawn, the balance
withdrawn is considered to be accumulated value.
CALCULATION OF WITHDRAWAL CHARGE
We calculate the amount of the withdrawal charge by multiplying the
Purchase Payments you withdraw by a percentage. The percentage varies according
to the number of Account Years the Purchase Payment has been held in your
Account, including the Account Year in which you made the Payment, but not the
Account Year in which you withdraw it. Each Payment begins a new 7-year period
and moves down the declining surrender charge scale as shown below at each
Account Anniversary. Payments received during the current Account Year will be
charged 7%, if withdrawn. On your next scheduled Account Anniversary, that
Payment, along with any other Payments made during that Account Year, will be
considered to be in their second Account Year and will have a 7% withdrawal
charge. On the next Account Anniversary, these Payments will move into their
third Account Year and
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will have a withdrawal charge of 6%, if withdrawn. This withdrawal charge
decreases according to the number of Account Years the Purchase Payment has been
held in your Account.
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS
PAYMENT HAS BEEN WITHDRAWAL
IN YOUR CONTRACT CHARGE
---------------- ----------
<S> <C>
0-1 7%
1-2 7%
2-3 6%
3-4 6%
4-5 5%
5-6 4%
6-7 3%
7 or more 0%
</TABLE>
For example, the percentage applicable to withdrawals of a Payment that
has been in an Account for more than 2 Account Years but less than 3 will be 6%,
regardless of the issue date of the Contract.
The withdrawal charge will never be greater than 7% of the excess of
Purchase Payments you make under your Contract over the "free withdrawal
amount," as defined above.
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
apply only to Accounts established after the date of the modification.
For additional examples of how we calculate withdrawal charges, see
Appendix B.
TYPES OF WITHDRAWALS NOT SUBJECT TO WITHDRAWAL CHARGE
If approved by your state, we will waive the withdrawal charge for a full
or partial withdrawal if:
- at least one year has passed since we issued your Contract, and
- 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 waiver of the withdrawal charge
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, except under the Cash Surrender
method, or amounts you transfer among the Sub-Accounts, between the Sub-Accounts
and the Fixed Account, or within the Fixed Account.
MARKET VALUE ADJUSTMENT
If permitted under the laws of your state, 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
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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>
<C> <S> <C> <C> <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 B.
CONTRACT CHARGES
ACCOUNT FEE
During the Accumulation Phase of your Contract, we will deduct from your
Account an annual 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. In Account Years 1 through 5, the
annual Account Fee is $35. After Account Year 5, we may change the Account Fee
each year, but the Account Fee will never exceed $50. We deduct the Account Fee
pro rata from each Sub-Account and each Guarantee Period, based on the
allocation of your Account Value on your Account Anniversary.
We will not charge 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 $75,000 or more on your Account Anniversary.
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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 Account 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 us for expenses
we incur in administering the Contracts, Participant Accounts and the Variable
Account that are not covered by the annual Account Fee.
MORTALITY AND EXPENSE RISK CHARGE
During both the Accumulation Phase and the Income Phase, we deduct a
mortality and expense risk charge from the assets of the Variable Account at an
effective annual rate equal to 1.00%, if your initial Purchase Payment was less
than $1,000,000, or 0.85% if your initial Purchase Payment was $1,000,000 or
more. However, if you annuitize your Contract prior to your eighth Contract
Anniversary, we will deduct an additional 0.25% during the Income Phase to
offset the increase mortality risk during this 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 mortality risk
also arises from our contractual obligation to pay a death benefit upon the
death of the Participant prior to the Annuity Commencement Date. The expense
risk we assume is the risk that the annual Account Fee and the administrative
expense charge we assess under the Contract 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
Contract.
CHARGES FOR OPTIONAL DEATH BENEFIT RIDERS
If you elect an optional death benefit rider, we will deduct a charge from
the assets of the Variable Account based upon the number of optional death
benefits riders you elect, as follows:
<TABLE>
<CAPTION>
NUMBER OF % OF
RIDERS YOU AVERAGE
ELECT DAILY VALUE
---------- -----------
<S> <C>
1 0.15%
2 0.25%
3 0.40%
</TABLE>
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
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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 prospectus(es) and related Statements of
Additional Information.
MODIFICATION IN THE CASE OF GROUP CONTRACTS
For Group Contracts, we may modify the annual 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 Covered Person 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 the Beneficiary is not living on
the date of death of the Covered Person, we will pay the death benefit in one
sum to your estate. We do not pay a death benefit if the Covered Person dies
during the Income Phase. However, the Beneficiary will receive any annuity
payments provided under an Annuity Option that is in effect. If your Contract
names more than one Covered Person, we will pay the death benefit upon the first
death of such Covered Persons.
AMOUNT OF DEATH BENEFIT
To calculate the amount of the death benefit, we use a "Death Benefit
Date." The Death Benefit Date is the date we receive proof of the death of the
Covered Person in an acceptable form ("Due Proof of Death") if you have elected
a death benefit payment method before the death of the Covered Person and it
remains in effect. 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, we reserve the right to provide a lump sum
to your Beneficiary.
The amount of the death benefit is determined as of the Death Benefit
Date.
THE BASIC DEATH BENEFIT
In general, if you were 85 or younger on your Contract Date (the date we
accepted your first Purchase Payment), the death benefit will be the greatest of
the following amounts:
1. Your Account Value for the Valuation Period during which the Death
Benefit Date occurs;
2. The amount we would pay if you had surrendered your entire Account on
the Death Benefit Date; and
3. Your total Purchase Payments (adjusted for partial withdrawals as
described in "Calculating the Death Benefit") as of the Death Benefit
Date.
For examples of how to calculate this basic death benefit, see
Appendix C.
If you were 86 or older on your Contract Date, the death benefit is equal
to amount (2) above. Because this amount will reflect any applicable withdrawal
charges and Market Value Adjustment, it may be less than your Account Value.
OPTIONAL DEATH BENEFIT RIDERS
Subject to availability in your state, you may enhance the "Basic Death
Benefit" by electing one or more of the following optional death benefit riders.
You must make your election before the date on which your Contract becomes
effective. You will pay a charge for each optional death benefit rider you
elect. (For a description of these charges, see "Charges for Optional Death
Benefit Riders.") The
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Maximum Anniversary Account Value Rider, the 5% Premium Roll-Up Rider, and the
Earnings Enhancement Rider are available only if you are younger than 80 on the
Contract Date. Any optional death benefit election may not be changed after the
Contract is issued. For a complete description of how the death benefits under
the optional death benefit riders are calculated, see "Calculating the Death
Benefit."
MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER
Under this rider, the death benefit will be the greater of:
- any of the death benefit amounts payable under the "Basic Death
Benefit" (above), or
- your highest Account Value on any Account Anniversary before your 81st
birthday, adjusted for any subsequent Purchase Payments, partial
withdrawals and charges made between that Account Anniversary and the
Death Benefit Date.
5% PREMIUM ROLL-UP RIDER
Under this rider, the death benefit will be the greater of:
- any of the death benefit amounts payable under the "Basic Death
Benefit" (above), or
- the sum of your total Purchase Payments plus interest accruals,
adjusted for partial withdrawals.
Under this rider, interest accrues at a rate of 5% per year on Purchase
Payments and transfers to the Variable Account while they remain in the Variable
Account. The 5% interest accruals will continue until the earlier of:
- the first day of the month following your 80th birthday, or
- the day the death benefit amount under this rider equals twice the
total of your Purchase Payments and transferred amounts, adjusted for
withdrawals.
Net Purchase Payments under this rider will be adjusted for all partial
withdrawals, as described in "Calculating the Death Benefit."
EARNINGS ENHANCEMENT RIDER
Under this rider, if you are 69 or younger on your Contract Date, the
death benefit will be:
- the greatest of any of the death benefit amounts payable under the
"Basic Death Benefit" (above), plus
- 40% of the lesser of your net Purchase Payments or your Account Value
minus net Purchase Payments, calculated as of the Death Benefit Date.
If you are between the ages of 70 and 79 on your Contract Date, the death
benefit will be:
- the greatest of any of the death benefit amounts payable under the
"Basic Death Benefit" (above), plus
- 25% of the lesser of your net Purchase Payments or your Account Value
minus net Purchase Payments, calculated as of the Death Benefit Date.
For examples of how the death benefit is calculated under the Earnings
Enhancement Rider, see Appendix D.
SELECTING MULTIPLE DEATH BENEFIT RIDERS
If you elect more than one optional death benefit rider, the death benefit
will be calculated as follows:
1) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER COMBINED WITH 5% PREMIUM ROLL-UP
RIDER: The death benefit will equal the greater of the death benefit
under the Maximum Anniversary Account Value Rider or the death benefit
under the 5% Premium Roll-Up Rider.
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2) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER COMBINED WITH EARNINGS
ENHANCEMENT RIDER: The death benefit will equal the death benefit under
the Maximum Anniversary Account Value Rider, PLUS the amount calculated
under the Earnings Enhancement Rider. The death benefit under the
Earnings Enhancement Rider is calculated using the Account Value before
the application of the Maximum Anniversary Account Rider.
3) EARNINGS ENHANCEMENT RIDER COMBINED WITH 5% PREMIUM ROLL-UP RIDER: The
death benefit will equal the death benefit under the 5% Premium Roll-Up
Rider, PLUS the amount calculated under the Earnings Enhancement Rider.
The death benefit under the Earnings Enhancement Rider is calculated
using the Account Value before the application of the 5% Premium Roll-Up
Rider.
4) MAXIMUM ANNIVERSARY ACCOUNT VALUE RIDER, THE 5% PREMIUM ROLL-UP RIDER
AND THE EARNINGS ENHANCEMENT RIDER: The death benefit will equal the
GREATER of the death benefit under the Maximum Anniversary Account Value
Rider or the death benefit under the 5% Premium Roll-Up Rider, PLUS the
amount calculated under the Earnings Enhancement Rider. The death benefit
under the Earnings Enhancement Rider is calculated using the Account
Value before the application of the 5% Premium Roll-Up Rider and the
Maximum Anniversary Account Value Rider.
SPOUSAL CONTINUANCE
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 amount. In that case, we will not pay a death benefit, but the
Contract's Account Value will be equal to your Contract's death benefit amount,
as defined under the "Basic Death Benefit" or any optional death benefit rider
you have selected. All Contract provisions, including any optional death benefit
riders you have selected, will continue as if your spouse had purchased the
Contract on the Death Benefit Date with a deposit equal to the death benefit
amount. For purposes of calculating death benefits and expenses from that date
forward, your spouse's age on the original effective date of the Contract will
be used.
CALCULATING THE DEATH BENEFIT
In calculating the death benefit amount payable under option (3) of the
"Basic Death Benefit" or any of the optional death benefit riders, any partial
withdrawals will reduce the death benefit amount to an amount equal to the death
benefit amount immediately before the withdrawal multiplied by the ratio of the
Account Value immediately after the withdrawal to the Account Value immediately
before the withdrawal.
If the death benefit is the amount payable under options (2) or (3) of the
"Basic Death Benefit" or under any of the optional death benefit riders, your
Account Value may be increased by the excess, if any, of that amount over option
(1) of the "Basic Death Benefit." Any such increase will be allocated to the
Sub-Accounts in proportion to your Account Value in those Sub-Accounts on the
Death Benefit Date. Such increase will be made only if the Beneficiary elects to
annuitize, elects to defer annuitization, or elects to continue the Contract.
Also, any portion of this new Account Value attributed to the Fixed Account will
be transferred to the available Money Market Fund investment option (without the
application of a Market Value Adjustment). If your spouse, as the named
Beneficiary, elects to continue the Contract after your death, your spouse may
transfer any such Fixed Account portion back to the Fixed Account and begin a
new Guarantee Period.
METHOD OF PAYING DEATH BENEFIT
The death benefit may be paid in a single cash payment or as an annuity
(either fixed, variable or a combination), under one or more of our Annuity
Options. We describe the Annuity Options in this Prospectus under "The Income
Phase -- Annuity Provisions."
During the Accumulation Phase, you may elect the method of payment for the
death benefit. If no such election is in effect on the date of your death, the
Beneficiary may elect either a single cash payment or an annuity. If the
Beneficiary is your spouse, the Beneficiary may elect to continue the
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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/Payee 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 as Beneficiary under your Contract, if any, will
be the "designated beneficiary." If the named Beneficiary is not living and no
contingent beneficiary has been named, 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. The special distribution rules will then apply on
the death of your spouse. To understand what happens when your spouse continues
the Contract, see "Spousal Continuance," above.
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, either the Annuitant or the Co-Annuitant.
Payments made in contravention of these special rules would adversely
affect the treatment of the Contracts as annuity contracts under the Internal
Revenue Code. Neither you nor the Beneficiary may exercise rights that would
have that effect.
SELECTION AND CHANGE OF BENEFICIARY
You select your Beneficiary in your Application. You may change your
Beneficiary at any time by sending us written notice on our required form,
unless you previously made an irrevocable Beneficiary designation. A new
Beneficiary designation is not effective until we record the change.
PAYMENT OF DEATH BENEFIT
Payment of the death benefit in cash will be made within 7 days of the
Death Benefit Date, except if we are permitted to defer payment in accordance
with the Investment Company Act of 1940. If an Annuity Option is elected, the
Annuity Commencement Date will be the first day of the second calendar month
following the Death Benefit Date, and your Account will remain in effect until
the Annuity Commencement Date.
DUE PROOF OF DEATH
We accept any of 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 annuity payments to the
Annuitant.
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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(s) you have selected, and we make the first annuity
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 "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 annuity payments during the Income Phase and on whose life these
payments are based. In your Contract, the Annuity Option(s) 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 Payee of the annuity payment.
SELECTION OF THE ANNUITY COMMENCEMENT DATE
You select the Annuity Commencement Date in your Application. The
following restrictions apply to the date you may select:
- The earliest possible Annuity Commencement Date is the first day of the
first month following your first Account Anniversary.
- The latest possible Annuity Commencement Date is the first day of the
month following the Annuitant's 95th birthday or, if there is a
Co-Annuitant, the 95th birthday of the younger of the Annuitant and
Co-Annuitant.
- The Annuity Commencement Date must always be the first day of a month.
You may change the Annuity Commencement Date from time to time by sending
us written notice, with the following additional limitations:
- We must receive your notice at least 30 days before the current Annuity
Commencement Date.
- The new Annuity Commencement Date must be at least 30 days after we
receive the notice.
There may be other restrictions on your selection of the Annuity
Commencement Date imposed by your retirement plan or applicable law. In most
situations, current law requires that for a Qualified Contract, certain minimum
distributions must commence no later than April 1 following the year the
Annuitant reaches age 70 1/2 (or, for Qualified Contracts other than IRAs, no
later than April 1 following the year the Annuitant retires, if later than the
year the Annuitant reaches age 70 1/2).
ANNUITY OPTIONS
We offer the following Annuity Options for payments during the Income
Phase. Each Annuity Option may be selected for a Variable Annuity, a Fixed
Annuity, or a combination of both. We may also agree to other settlement
options, at our discretion.
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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 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, at any time, some or all of
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. The 5- to 9-year
period certain is not available if your Account has been issued within the past
7 years.
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:
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- 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.
- We deduct any applicable premium tax or similar tax if not previously
deducted.
- On the Annuity Commencement Date, we will exchange your Account's
Variable Annuity Units for Annuitization Units which have an annual
insurance charge of 1.15% of your average daily net assets (1.00% if
your initial Purchase Payment was $1,000,000 or more). If your Annuity
Commencement Date is within 7 years of the Contract Date, the annual
insurance charge will be increased by 0.25%.
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 2.5% 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 in one
Sub-Account for Annuity Units in another Sub-Account, up to 12 times each
Account Year. To make an exchange, the Annuitant sends us, at our Annuity
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
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annuity payment on the date of the exchange would not be affected. To calculate
this number, we use Annuity Unit values for the Valuation Period during which we
receive the exchange request.
Before exchanging Annuity Units in one Sub-Account for those in another,
the Annuitant should carefully review the Fund prospectus(es) for the investment
objectives and risk disclosure of the Funds in which the Sub-Accounts invest.
During the Income Phase, 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 annual Account
Fee from Fixed Annuity payments.
ANNUITY PAYMENT RATES
The Contracts contain 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 (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 2.5% 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 Contracts also describe the method of
determining the adjusted age of the Annuitant. The mortality table used in
determining the Annuity Payment Rates for Annuity Options A, B and C is the
Annuity 2000 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 covered person'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
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 Annuitant 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 Annuitant 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
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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 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.
Change of ownership may affect the availability of optional death benefit
riders or the expenses incurred with the optional death benefit riders.
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, in the case of a Group Contract where the Owner has
reserved this right. During the Income Phase, the Payee -- that is the Annuitant
or Beneficiary entitled to receive benefits -- is the person having such voting
rights. We will vote any shares attributable to us and Fund shares for which no
timely voting instructions are received in the same proportion as the shares for
which we receive instructions from Owners, Participants and Payees, as
applicable.
Owners of Qualified Contracts issued on a group basis may be subject to
other voting provisions of the particular plan and of the Investment Company Act
of 1940. Employees who contribute to plans that are funded by the Contracts may
be entitled to instruct the Owners as to how to instruct us to vote the Fund
shares attributable to their contributions. Such plans may also provide the
additional extent, if any, to which the Owners shall follow voting instructions
of persons with rights under the plans. If no voting instructions are received
from any such person with respect to a particular Participant Account, the Owner
may instruct the Company as to how to vote the number of Fund shares for which
instructions may be given.
Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights afforded by the Investment Company
Act of 1940, or any duty to inquire as to the instructions received or the
authority of Owners, Participants or others, as applicable, to instruct the
voting of Fund shares. Except as the Variable Account or the Company has actual
knowledge to the contrary, the instructions given by Owners under Group
Contracts and Payees will be valid as they affect the Variable Account, the
Company and any others having voting instruction rights with respect to the
Variable Account.
All Fund proxy material, together with an appropriate form to be used to
give voting instructions, will be provided to each person having the right to
give voting instructions at least 10 days prior to each meeting of the
shareholders of the Fund. We will determine the number of Fund shares as to
which each such person is entitled to give instructions as of the record date
set by the Fund for such meeting, which is expected to be not more than 90 days
prior to each such meeting. Prior to the Annuity Commencement Date, the number
of Fund shares as to which voting instructions may be given to the Company is
determined by dividing the value of all of the Variable Accumulation Units of
the particular Sub-Account credited to the Participant Account by the net asset
value of one Fund share as of the same date. On or after the Annuity
Commencement Date, the number of Fund shares as to which such instructions may
be given by a Payee is determined by dividing the reserve held by the
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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 your 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 Contract. We may also substitute for the
shares held in any Sub-Account shares of another Fund 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 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
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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 Fee, 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, 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 our Annuity Mailing Address, as shown 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.
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.
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TAX CONSIDERATIONS
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 and where the site where your Contract was issued. Also,
legislation affecting the current tax treatment of annuity contracts could be
enacted in the future and 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.
U.S. FEDERAL TAX CONSIDERATIONS
The following discussion applies only to those Contracts issued in the
United States. For a discussion of tax considerations effecting Contracts issued
in Puerto Rico, see "Puerto Rico Tax Considerations," below.
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).
You should note that qualified retirement investments generally 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.
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Upon the transfer of a Non-Qualified Contract by gift (other than to the
Participant's spouse), the Participant must treat an amount equal to the Account
Value minus the total amount paid for the Contract as income.
A penalty tax of 10% may apply to taxable cash withdrawals and lump-sum
payments from Non-Qualified Contracts. This penalty will not apply in certain
circumstances, such as distributions pursuant to the death of the Participant or
distributions under an immediate annuity (as defined above), or after age
59 1/2.
DISTRIBUTIONS AND WITHDRAWALS FROM QUALIFIED CONTRACTS
Generally, distributions from a Qualified Contract will constitute fully
taxable ordinary income. Also, a 10% penalty tax will, except in certain
circumstances, apply to distributions prior to age 59 1/2.
Distributions from a Qualified Contract are not subject to current
taxation or a 10% penalty, however, if:
- the distribution is a hardship distribution or part of a series of
payments for life or for a specified period of 10 years or more (an
"eligible rollover distribution"), and
- 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 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.
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 available as an investment option under the Contract
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
reserve the right to modify the Contract and/or the Variable Account to the
extent necessary to comply with any such guidelines, but cannot assure that such
modifications would satisfy 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,
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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.
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, as a general rule, may
therefore use Qualified Contracts as a funding vehicle for their retirement
plans.
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
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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. We will
provide the necessary information for Contracts issued in connection with Roth
IRAs.
PUERTO RICO TAX CONSIDERATIONS
Puerto Rico tax laws with respect to qualified retirement plans described
in this Prospectus vary significantly from those discussed above under "U.S.
Federal Tax Considerations." Although we currently offer the Contract in Puerto
Rico in connection with qualified retirement plans, the text of this Prospectus
under the heading "U.S. Federal Tax Considerations" dealing with such qualified
retirement plans is inapplicable to Puerto Rico and should be disregarded.
The following discussion applies if your Contract is issued in Puerto
Rico:
Under Section 1022 of the Puerto Rico Internal Revenue Code of 1994, as
amended (the "1994 Code"), the Contract offered by this Prospectus is considered
an annuity contract. The 1994 Code provides that no income tax is payable on
increases in value of accumulation shares of annuity units credited to a
variable annuity contract until payments are made to the annuitant or other
payee under such contract.
If any annuity distributions are made under an annuity contract, the
annuitant or other payee will be required to include as gross income the portion
of each payment equal to 3% of the aggregate premiums or other consideration
paid for the annuity. The amount, if any, in excess of the included amount is
excluded from gross income. After an amount equal to the aggregate amount
excluded from gross income has been received up to your investment, all of the
annuity payments are considered to be taxable income.
In the event payment under a Contract is made in a lump sum, the amount of
the payment would be included in the gross income of the Annuitant or other
Payee to the extent of the Annuitant's aggregate premiums or other consideration
paid.
For further information regarding the income tax consequences of owning a
Contract, you should consult a qualified tax adviser.
ADMINISTRATION OF THE CONTRACT
We perform certain administrative functions relating to the Contract,
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 Contract; 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 CONTRACT
We offer the Contract on a continuous basis. Contracts are sold by
licensed insurance agents in those states where the Contract may be lawfully
sold. Such agents will be registered representatives of
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broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. and who have
entered into distribution agreements with the Company and the general
distributor, Clarendon Insurance Agency, Inc. ("Clarendon"), One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02481. Clarendon, a wholly-owned
subsidiary of the Company, is registered with the SEC under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 6.50% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 0.50% of the Participant's Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation. We
reserve the right to offer these additional incentives only to certain
broker-dealers that sell or are expected to sell during specified time periods
certain minimum amounts of Contracts or Certificates or other contracts offered
by the Company. Promotional incentives may change at any time. Commissions may
be waived or reduced in connection with certain transactions described in this
Prospectus under the heading "Waivers; Reduced Charges; Credits; Special
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
standardized and non-standardized "Average Annual Total Return," "Cumulative
Growth Rate" and "Compound Growth Rate." We may also advertise "yield" and
"effective yield" for some variable options.
Average Annual Total Return measures the net income of the 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. Standardized Average Annual Total Return
information 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 Fund, 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 such figures do 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 underlying 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
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 Funds.
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 available Money Market
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
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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 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,
1999 and the Quarterly Report on Form 10-Q for the period ended March 31, 2000,
filed with the SEC, are 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.
42
<PAGE>
ADDITIONAL INFORMATION ABOUT THE COMPANY
GENERAL
The Company is engaged in the sale of individual variable life insurance,
group life and disability 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 broker-dealers.
For the year ended December 31, 1999, the Company filed its Annual Report
on Form 10-K using audited statutory 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
Company has changed its basis of accounting to generally accepted accounting
principles ("GAAP") effective January 1, 2000 and has filed its Quarterly Report
on Form 10-Q for the period ended March 31, 2000 in accordance with GAAP.
The Company has restated its financial statements originally filed in its
Annual Report on Form 10-K in accordance with GAAP. These financial statements
are included in this Prospectus and are referred to in Management's Discussion
and Analysis of Financial Condition and Results of Operations. See Note 13 to
Consolidated Financial Statements of the Company for a reconcilation of
statutory surplus to GAAP equity and statutory net income to GAAP net income.
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the audited Consolidated Financial Statements and the Notes
thereto included in this Prospectus beginning on page and the Unaudited
Consolidated Financial Statements and the Notes thereto included in this
Prospectus beginning on page .
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR ENDED DECEMBER 31,
QUARTER ENDED ---------------------------------------
MARCH 31, 2000 1999 1998 1997
--------------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues
Premiums and other revenue $ 81,286 $ 262,603 $ 382,477 $ 406,883
Net investment income and realized
gains 80,013 367,296 464,226 552,380
----------- ----------- ----------- -----------
161,299 629,899 846,703 959,263
----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 80,259 334,890 588,108 672,350
Other expenses 38,471 212,197 233,663 190,105
----------- ----------- ----------- -----------
118,730 547,087 821,771 862,455
----------- ----------- ----------- -----------
Operating gain 42,569 82,812 24,932 96,808
Federal income tax expense 14,899 29,080 10,768 35,338
----------- ----------- ----------- -----------
Net income $ 27,670 $ 53,732 $ 14,164 $ 61,470
=========== =========== =========== ===========
Assets $22,485,834 $21,484,913 $18,248,262 $17,335,515
=========== =========== =========== ===========
Surplus notes $ 565,000 $ 565,000 $ 565,000 $ 565,000
=========== =========== =========== ===========
</TABLE>
The Company has not restated the financial statements for 1996 and 1995;
therefore, the selected financial data on a statutory basis of accounting for
the Company as presented in its Annual
43
<PAGE>
Report on Form 10-K for the year ended December 31, 1999 and for the quarter
ended March 31, 2000 are shown below.
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR ENDED DECEMBER 31,
QUARTER ENDED -------------------------------------------------------------------
MARCH 31, 2000 1999 1998 1997 1996 1995
-------------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity
deposits and other
revenue $ 732,607 $ 2,869,250 $ 2,581,463 $ 2,623,629 $ 2,215,322 $ 1,883,901
Net investment income
and realized gains 32,681 190,844 187,208 298,121 310,172 315,966
----------- ----------- ----------- ----------- ----------- -----------
765,288 3,060,094 2,768,671 2,921,750 2,525,494 2,199,867
----------- ----------- ----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 673,927 2,706,121 2,416,950 2,579,104 2,232,528 1,995,208
Other expenses 60,681 239,136 214,607 206,065 175,342 150,937
----------- ----------- ----------- ----------- ----------- -----------
734,608 2,945,257 2,631,557 2,785,169 2,407,870 2,146,145
----------- ----------- ----------- ----------- ----------- -----------
Operating gain 30,680 114,837 137,114 136,581 117,624 53,722
Federal income tax
expense (benefit) 9,275 24,479 11,713 7,339 (5,400) 17,807
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 21,405 $ 90,358 $ 125,401 $ 129,242 $ 123,024 $ 35,915
=========== =========== =========== =========== =========== ===========
Assets $20,898,166 $19,948,155 $16,902,621 $15,925,357 $13,621,952 $12,359,683
=========== =========== =========== =========== =========== ===========
Surplus notes $ 565,000 $ 565,000 $ 565,000 $ 565,000 $ 315,000 $ 650,000
=========== =========== =========== =========== =========== ===========
</TABLE>
See discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
CAUTIONARY STATEMENT
This following discussions include 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, 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:
- 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.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- YEAR ENDED DECEMBER 31, 1999
RESULTS OF OPERATIONS
The following table provides a summary of income from operations by
segment, which is discussed more fully below.
NET INCOME FROM CONTINUING OPERATIONS BY SEGMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Wealth Management $59.7 $ 60.0 $ 60.7
Individual Protection (0.1) (46.5) (3.2)
Group Protection 0.4 1.3 (0.8)
Corporate (6.2) (0.7) 4.8
----- ------ ------
$53.7 $ 14.1 $ 61.5
===== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO 1998:
NET INCOME
Net income increased by $28.2 million to $42.4 million in 1999, reflecting
an increase of $39.6 million in income from continuing operations, an increase
of $0.9 million in income from discontinued operations, and $12.3 million
after-tax loss from the sales of Massachusetts Casualty Insurance Company
("MCIC") and New London Trust F.S.B. ("NLT") which occurred in 1999.
NET INCOME FROM CONTINUING OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its 4
business segments: the Wealth Management segment, the Individual Protection
segment, the Group Protection segment and the Corporate segment.
WEALTH MANAGEMENT SEGMENT
The Wealth Management segment focuses on the savings and retirement needs
of individuals preparing for retirement or 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 products are managed
by Massachusetts Financial Services Company ("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 its 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 primarily distributed through a dedicated
wholesaler network, including Sun Life of Canada (U.S.) Distributors, Inc., a
subsidiary of the Company.
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.
45
<PAGE>
Net income decreased by $0.3 million to $59.7 million in 1999 as compared
to 1998. The increase in fee and other income, due to increased business, was
partially offset by higher operating expenses, resulting from both increased
business and continued investment in the Futurity distribution network. In
addition, the loss of earnings from the GICs, which block of business is
declining, contributed to the minor decline in earnings. Following are the major
factors affecting the Wealth Management segment's results in 1999 as compared to
1998:
- Fee and other income increased primarily as a result of higher variable
annuity account balances. Fee income was higher by approximately $37
million in 1999 compared to 1998. Market appreciation and net deposit
activity have been key factors in the growth in the account balances. This
growth has generated corresponding increases in fee income, since fees are
determined based on the average assets held in these accounts. Variable
annuity assets have increased by approximately $3.8 billion, or 31%, since
January 1, 1999.
- Net deposits of annuity products increased by $53 million to $290 million
compared with 1998. The increase in net deposits results primarily from
significant increases in new deposits offset by increased variable annuity
surrenders in 1999. Management believes the increase in new deposits is
mainly a result of the success of the Company's introduction, during the
fourth quarter of 1998, of a higher Dollar Cost Averaging ("DCA") rate and
a new six-month DCA program. Under these programs, which were redesigned in
late 1996, deposits are made into the fixed portion of the annuity contract
and receive a bonus rate of interest for the policy year. During the year,
the fixed deposit is systematically transferred to the variable portion of
the contract in equal periodic installments. While fixed annuity account
deposits increased, deposits directly into variable accounts decreased in
1999. The Company believes this decline was a consequence of the heightened
interest in the DCA programs in 1999.
Total new deposits to fixed and variable annuities increased by $479
million to $2,746 million in 1999. Sales of the Futurity line of products
represented $341 million or 12% of total annuity deposits in 1999, an
increase of $219 million from 1998. The Company expects that sales of the
Futurity product will continue to increase in the future, based on
management's 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 continue to respond
favorably to introductions of new Futurity products and product
enhancements.
The surrenders are primarily related to older products which are no longer
actively marketed. The Company expects that as the separate account block
of business continues to grow, from both net deposits and asset
appreciation, and as an increasing number of accounts are no longer subject
to surrender charges, surrenders will tend to increase. The Company is
implementing a conservation program with the aim of improving asset
retention.
- There has been a shift in demand to variable account products from general
account products. Most sales are either DCA or variable deposits. As a
consequence, there has been a decline in average general account invested
assets and, in turn, net investment income has declined. Net investment
income reflects only income earned on invested assets of the general
account. Net investment income and realized gains for the Wealth Management
segment decreased by approximately $26 million in 1999 compared to 1998.
This decline in average general account assets primarily reflects the
Company's decision in 1997 to no longer market group pension and GIC
products and as a consequence, a declining block of in-force business as
GICs mature and are surrendered.
- Policyholder benefits (the major elements of which are interest credited to
contractholder deposits and annuity benefits) decreased by approximately
$12.6 million in 1999 as compared to 1998. This is less than the decrease
in investment income as the surrenders of maturing GIC contracts on which
the Company earns a positive spread are being partially replaced by sales
of annuities under the Company's Dollar Cost Averaging ("DCA") programs.
Under these programs, deposits are made into the fixed portion of the
annuity contract and receive a bonus rate of interest for
46
<PAGE>
the policy year. During the year, the fixed deposit is systematically
transferred to the variable portion of the contract in equal periodic
installments.
- Other operating expenses increased by $9.0 million reflecting the increased
volumes of both new business and inforce business and continued investment
in the growth of the Futurity products wholesale distribution network.
- Amortization of deferred policy acquisition costs increased by
$6.8 million primarily reflecting the impact of the increased variable
annuity gross profits due to significant asset appreciation during 1999,
and the resulting increase in fee income.
INDIVIDUAL PROTECTION SEGMENT
The Company currently markets individual variable life insurance products.
These products include a variable universal life product marketed to the
company-owned life insurance ("COLI") market, which product was introduced in
late 1997. In September 1999, the Company introduced a new variable life product
as part of the Futurity product portfolio.
Prior to 1999, the Individual Protection segment consisted of two main
elements, internal reinsurance and other life products.
Internal Reinsurance
In recent years, the Company has had various reinsurance agreements with
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. These agreements, in the aggregate, had an immaterial effect on net
income in the years 1998 and 1999. Under another reinsurance 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). Prior to its termination, this agreement had the effect of increasing
income from operations by approximately $16.5 million in 1998. In addition, the
effect of terminating this agreement was to decrease 1998 net income by
approximately $64.0 million as the termination payment made was greater than the
net reserves (reserves assumed less deferred policy acquisition costs) held
under the agreement. Because this agreement terminated in 1998, it had no effect
on income from operations in 1999.
Other Life Products
Net income associated with the other life products directly issued by the
Company from the Individual Protection segment decreased by approximately
$0.5 million from 1998.
GROUP PROTECTION SEGMENT
The Group Protection segment focuses on providing life and disability
insurance to small and medium size employers as part of those companies'
employee benefit plans. This segment operates only in the state of New York
through a subsidiary. Net income from the Group Protection segment decreased by
$0.9 million from 1998 primarily due to unfavorable claims experience in the
group life product.
CORPORATE SEGMENT
The Corporate segment includes the unallocated capital of the Company, its
debt financing and items not otherwise attributable to the other segments.
Net income for the Corporate segment decreased by $5.5 million to
($6.2) million. This decrease reflected lower net investment income, mainly from
lower assets due to dividend payments in 1999 of $80 million and in 1998 of
$50 million, and increased operational expenses. Income taxes in 1999 reflected
an income tax benefit associated with tax operating losses with subsidiaries not
allocated to the operating segments.
47
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO 1997:
NET INCOME
Net income decreased by $116.3 million to $14.2 million in 1998,
reflecting a decrease of $47.4 million in income from continuing operations and
a decrease of $68.9 million in income from discontinued operations. On
December 24, 1997 the Company transferred through a dividend its investment in
MFS. Net income of MFS in 1997 included in income from discontinued operations
was $61.9 million. Net income from NLT and MCIC, which were both sold during
1999, included in income from discontinued operations was $.1 million in 1998
and $7.1 million in 1997.
NET INCOME FROM CONTINUING OPERATIONS BY SEGMENT
WEALTH MANAGEMENT SEGMENT
Net income decreased by $0.7 million to $60.0 million in 1998 as compared
to 1997. Increased fee and other income was mainly offset by higher operating
expenses. Both fee income and operating expenses increased as a result of the
increased business. In addition the start-up of the Company's own wholesaling
distribution network for the Futurity product line increased operating expenses
during 1998. Also impacting net income was the loss of earnings from GICs, which
block of business declined. Following are the major factors affecting the Wealth
Management segment's results in 1998 as compared to 1997:
- Fee and other income increased primarily as a result of higher variable
annuity account balances. Fee income was higher by approximately
$29 million in 1998 compared to 1997. Market appreciation and net deposit
activity have been key factors in the growth in the account balances. This
growth has generated corresponding increases in fee income, since fees are
determined based on the average assets held in these accounts. Variable
annuity assets increased by approximately $2.8 billion or 30% since
January 1, 1998.
- Net deposits of annuity products decreased by $131 million to
$237 million compared with 1997. The decrease in net deposits resulted
from both a decrease in new deposits and increased variable annuity
surrenders in 1998. Management believes the decrease in new deposits is
mainly a result increased competition in the marketplace. In particular
the competition in the DCA programs has intensified. During the fourth
quarter of 1998, the Company introduced a higher DCA rate and a new
six-month DCA program. While fixed annuity account deposits decreased,
deposits directly into variable accounts increased in 1998. The Company
believes the increase in variable deposits was a consequence of 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.
Total new deposits to fixed and variable annuities decreased by
$53 million to $2,267 million in 1998. Sales of the new Futurity line of
products represented $122 million or 5% of total annuity deposits in 1998.
The Company expects that sales of the Futurity product will continue to
increase in the future, based on management's 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
continue to respond favorably to introductions of new Futurity products
and product enhancements.
The surrenders are primarily related to older products which are no longer
actively marketed and particularly those for which the surrender charge
period has expired. The Company expects that as the separate account block
of business continues to grow, from both net deposits and asset
appreciation, and as an increasing number of accounts are no longer
subject to surrender charges, surrenders will tend to increase.
- There has been a shift in demand to variable account products from general
account products. As a consequence, there has been a decline in average
general account invested assets and, in turn, net investment income has
declined. Net investment income reflects only income earned on
48
<PAGE>
invested assets of the general account. Net investment income and realized
gains for the Wealth Management segment decreased by approximately
$72 million in 1998 as compared to 1997. This decline in average general
account assets primarily reflects the Company's decision in 1997 to no
longer market group pension and GIC products and as a consequence, a
declining block of in-force business as GICs mature and are surrendered.
- Policyholder benefits (the major elements of which are interest credited
to contractholder deposits and annuity benefits) decreased by
approximately $62 million in 1998 as compared to 1997. This is less than
the decrease in investment income as the surrenders of maturing GIC
contracts on which the Company earns a positive spread were partially
replaced by sales of annuities under the Company's DCA programs.
- Other operating expenses increased by $16.0 million reflecting the
increased volumes of both new business and inforce business and expenses
associated with the startup of the Futurity product line and a new
distribution network dedicated to marketing the Futurity products.
Enhancements were made to the technology infrastructure to support the
growth in business.
- Amortization of deferred policy acquisition costs increased by
$4.0 million primarily reflecting the impact of increased variable annuity
gross profits due to significant asset appreciation during 1998, and the
resulting increase in fee income.
INDIVIDUAL PROTECTION SEGMENT
Prior to 1999, the Individual Protection segment consisted of two main
elements, internal reinsurance and other life products.
Internal Reinsurance
In recent years, the Company has had various reinsurance agreements with
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. These agreements, in the aggregate, had an immaterial effect on net
income in the years 1998 and 1997. Under another reinsurance 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). Prior to its termination, this agreement had the effect of increasing
income from operations by approximately $16.5 million in 1998. In addition, the
effect of terminating this agreement was to decrease 1998 net income by
approximately $64.0 million as the termination payment made was greater than the
net reserves (reserves assumed less deferred policy acquisition costs) held
under the agreement. This resulted in a net loss on the reinsurance in 1998 of
$47.5 million as compared to a loss of $7.6 million in 1997.
Other Life Products
Net income associated with the other life products directly issued by the
Company from the Individual Protection segment decreased by approximately
$3.3 million from 1997. The decrease reflects primarily higher death benefit
payments, increased operating expenses associated with growth of the COLI
business and increased amortization of deferred policy acquisition costs.
GROUP PROTECTION SEGMENT
Net income from the Group Protection segment of $1.3 million in 1998
increased by $2.1 million from 1997 primarily due to favorable claims
experience. The claims experience in the disability products was poor in 1997
due to a greater number of claims. Claims returned to more normal levels in
1998.
CORPORATE SEGMENT
Net income for the Corporate segment decreased by $5.5 million to
($0.7) million. This decrease reflected lower net investment income, from both
lower interest rates and lower assets from dividend payments in 1998 of $50
million, increased interest expense and increased operational expenses.
49
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
ASSETS
The Company's total assets comprise those held in its general account and
those held in its separate accounts. General account assets support general
account liabilities. Separate accounts are investment vehicles for the Company's
variable life and annuity contracts. Policyholders may choose from among various
investment options offered under these contracts according to their individual
needs and preferences. Policyholders assume the investment risks associated with
these choices. State insurance law provides that separate account asset equal to
reserves and other liabilities are not available to fund the liabilities of the
general account.
The following table summarizes significant changes in asset balances
during 1999. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS ($ IN MILLIONS)
--------------------------------------- % CHANGE
DECEMBER 31, 1999 DECEMBER 31, 1998 1999/1998
------------------ ------------------ ---------
<S> <C> <C> <C>
General account assets......................... $ 5,361.6 $ 5,945.3 (10.9)
Separate account assets........................ 16,123.3 12,302.9 31.1
--------- --------- -----
Total assets................................... $21,484.9 $18,248.2 17.7
========= ========= =====
</TABLE>
General account assets decreased by 10.9% in 1999, but variable separate
account assets increased by 31.1%. This growth in variable separate accounts as
compared to the general account reflects 2 main factors: (1) appreciation of the
funds held in the variable separate accounts exceeded that of the funds held in
the general account; and (2) annuity deposits into variable accounts, including
transfers under the DCA programs, 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, invested assets, and deferred
policy acquisition costs, which represented essentially all of general account
assets at December 31, 1999. Major types of invested asset holdings included
fixed maturity securities, short-term investments, mortgages, real estate and
other invested assets. The Company's fixed maturity securities amounted to
$2,677.3 million, representing 59.0% of the Company's total cash plus invested
assets ("total portfolio") at December 31, 1999, and 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 fixed maturity portfolio is
high. At December 31, 1999, only 6.0% of the fixed maturity portfolio was
invested in below-investment-grade securities. Short-term investments of $177.2
million in fixed maturity securities represented 3.9% of the total portfolio.
The Company's mortgage holdings amounted to $931.4 million at December 31, 1999,
representing 20.5% of the total portfolio. All mortgage holdings at
December 31, 1999 were in good standing. The Company believes that the high
quality of its mortgage portfolio is largely attributable to its stringent
underwriting standards. At December 31, 1999, investment real estate amounted to
$95.1 million, representing about 2.1% 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. Other invested assets amounted to
$67.9 million, representing about 1.5% of the portfolio. Cash and cash
equivalents of $550.3 million at December 31, 1999 represented about 12.1% of
the total portfolio.
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
50
<PAGE>
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.
------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- QUARTERLY PERIOD ENDED MARCH 31, 2000
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO 1999:
NET INCOME
Net income increased by $31.9 million to $27.7 million in the first three
months of 2000, reflecting an increase of $7.1 million in income from continuing
operations, a decrease of $0.8 million in income from discontinued operations,
and $25.6 million of after-tax loss from the sale of Massachusetts Casualty
Insurance Company which occurred in 1999.
NET INCOME FROM OPERATIONS BY SEGMENT
The following table provides a summary of income from operations by
segment, which is discussed more fully below.
NET INCOME FROM OPERATIONS BY SEGMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------
2000 1999 $ CHANGE % CHANGE
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Wealth Management $32.6 $18.1 $14.5 80.1%
Individual Protection (.1) -- (.1) --
Group Protection .6 .4 .2 50.0%
Corporate (5.4) 2.1 (7.5) (357.1%)
----- ----- ----- --------
$27.7 $20.6 $ 7.1 34.5%
===== ===== ===== ========
</TABLE>
WEALTH MANAGEMENT SEGMENT
Net income increased by $14.5 million to $32.6 million in the first three
months of 2000 primarily due to the increased volume of in-force business.
Following are the major factors affecting the Wealth Management segment's
results in the first quarter of 2000 as compared to the same period in 1999.
- Fee income increased primarily as a result of higher variable annuity
account balances. Fee income was higher by approximately $19 million in
the first three months of 2000 compared to the same period in 1999.
Market appreciation and net deposit activity have been key factors in
the growth in the account balances. This growth has generated
corresponding increases in fee income, since fees are determined based
on the average assets held in these accounts. Variable annuity assets
have increased by almost $5 billion since January 1, 1999.
- Net deposits of annuity products decreased by $99 million compared with
the first quarter of 1999. The decrease in net deposits results
primarily from increases in variable annuity surrenders in 2000. The
surrenders are primarily related to older products which are no longer
actively marketed. The Company expects that as the separate account
block of business continues to grow, from both net deposits and asset
appreciation, and as an increasing number of accounts are no longer
subject to surrender charges, surrenders will tend to
51
<PAGE>
increase. The Company is implementing a conservation program with the
aim of improving asset retention.
- Total new deposits to fixed and variable annuities increased by
$26 million to $669 million in 2000. Sales of the Futurity line of
products represented $155 million of total annuity deposits in 2000, an
increase of $96 million from the same three month period in 1999. The
Company expects that sales of the Futurity product will continue to
increase in the future, based on management's 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 continue to respond favorably to introductions of new
Futurity products and product enhancements.
- There has been a shift in demand to variable account products from
general account products. As a consequence, there has been a decline in
average general account invested assets and, in turn, net investment
income has declined. Net investment income reflects only income earned
on invested assets of the general account. Net investment income and
realized gains for the Wealth Management segment decreased by
$20 million for the first three months of 2000 as compared to the same
period in 1999. This decline in average general account assets
primarily reflects the Company's decision in 1997 to no longer market
group pension and GIC products and as a consequence, a declining block
of in-force business as GICs mature and are surrendered.
- Policyholder benefits (the major elements of which are interest
credited to contractholder deposits and annuity benefits) decreased by
approximately $5.4 million in the three months ended March 31, 2000 as
compared to the same period in 1999. This is less than the decrease in
investment income as the surrenders of maturing GIC contracts on which
the Company earns a positive spread are being partially replaced by
sales of annuities under the Company's Dollar-Cost Averaging ("DCA")
programs. Under these programs, 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.
- Underwriting, acquisition and other operating expenses increased by
$4.0 million reflecting the increased volumes of both new business and
inforce business.
- Amortization of deferred policy acquisition costs decreased by
$21.6 million primarily reflecting the impact of the increased variable
annuity assets, due to significant appreciation during the latter part
of 1999 and through the first quarter of 2000, and the resulting
increase in expected future gross profits from increased fee income.
Since future gross profits are expected to be higher, the current
amortization of deferred policy acquisition costs is lower.
INDIVIDUAL PROTECTION SEGMENT
The Company currently markets individual variable life insurance products.
These products include a variable universal life product marketed to the
company-owned life insurance ("COLI") market, which product was introduced in
late 1997. In September 1999, the Company introduced a new variable life product
as part of the Futurity product portfolio. The Company's management expects that
the Company's variable life business will grow and become more significant in
the future.
Net income from the Individual Protection segment decreased by
$0.1 million from the same period in 1999.
GROUP PROTECTION SEGMENT
The Group Protection segment focuses on providing life and disability
insurance to small and medium size employers as part of those companies'
employee benefit plans. This segment operates only in the state of New York
through a subsidiary. Net income from the Group Protection segment increased by
$0.2 million from the same period in 1999 primarily due to favorable claims
experience.
52
<PAGE>
CORPORATE SEGMENT
The Corporate segment includes the unallocated capital of the Company, its
debt financing, and items not otherwise attributable to the other segments.
In the first three months of 2000, income from operations for the
Corporate segment decreased by $7.5 million to a ($5.4) million net loss. This
decrease reflected lower net investment income, mainly from lower assets due to
dividend payments in 1999 of $75 million, increased operational expenses and
increased income taxes. Income taxes in 1999 reflected an income tax benefit
associated with tax operating losses with subsidiaries not allocated to the
operating segments.
FINANCIAL CONDITION & 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 are 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. Separate account assets
are not available to fund the liabilities of the general account.
The following table summarizes significant changes in asset balances during the
first three months of 2000. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS
(IN MILLIONS) % CHANGE
MARCH 31, 2000 DECEMBER 31, 1999 2000/1999
--------------- ------------------ ---------
<S> <C> <C> <C>
General Account Assets $ 5,187.0 $ 5,361.6 (3.3)
Separate Account Assets 17,298.8 16,123.3 7.3
--------- --------- ----
Total Assets $22,485.8 $21,484.9 4.7
========= ========= ====
</TABLE>
General account assets decreased by 3.3% in the first three months of
2000, but variable separate account assets increased by 7.3%. This growth in
variable separate accounts as compared to the general account reflects two main
factors: appreciation of the funds held in the variable separate accounts has
exceeded that of the funds held in the general account; and annuity deposits
into variable accounts, including transfers under the DCA programs 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, invested assets, and deferred
policy acquisition costs, which represented essentially all of general account
assets at March 31, 2000. Major types of invested asset holdings included fixed
maturity securities, short-term investment mortgages, real estate and other
invested assets. The Company's fixed maturity securities comprised 70.5% of the
Company's portfolio at March 31, 2000, and 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 fixed maturity portfolio is high. At
March 31, 2000, only 5.1% of the fixed maturity portfolio was rated
below-investment-grade. Short-term investments in fixed maturity securities
represented 2.1% of the total portfolio. The Company's mortgage holdings
amounted to $898.1 million at March 31, 2000, representing 22.3% of the total
portfolio. All mortgage holdings at March 31, 2000 were in good standing. The
Company believes that the high quality of its mortgage portfolio is largely
attributable to its stringent underwriting standards. At March 31, 2000,
investment real estate amounted to $94.3 million, representing about 2.3% of the
total portfolio. The Company invests in real estate to enhance
53
<PAGE>
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. Other invested assets amounted to $68.3 million, representing about
1.7% of the portfolio. These holdings comprised mainly leveraged lease
investments.
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.
------------------------
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 applied to statutory surplus. 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 calculates
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 1999.
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 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 through December 31, 1999. Based on its ongoing
liquidity analyses, the Company believes that its available liquidity is more
than sufficient to meet its liquidity needs.
OTHER MATTERS
DEMUTUALIZATION
Sun Life (Canada), the Company's ultimate parent as of December 31, 1999,
completed its demutualization on March 22, 2000. As a result of the
demutualization, a new holding company, Sun Life Financial Services of Canada,
Inc. ("SLF"), is now the ultimate parent of Sun Life (Canada) and the Company.
Sun Life Financial, a corporation organized in Canada, is a reporting company
under the
54
<PAGE>
Securities Exchange Act of 1934, as amended, with common shares listed on the
Toronto, New York, London, and Manila stock exchanges.
SALE OF SUBSIDIARIES
On February 5, 1999, the Company sold Massachusetts Casualty Insurance
Company ("MCIC"), a disability insurance company, to Centre Solutions (U.S.)
Limited, a wholly-owned subsidiary of Centre Reinsurance Holdings Limited. The
net proceeds of this sale were $34.0 million and the Company realized a post-tax
loss of $25.5 million.
On October 29, 1999, the Company sold New London Trust F.S.B. ("NLT") to a
subsidiary of Phoenix Home Life Mutual Insurance Company for approximately
$30.3 million and realized a post-tax gain of $13.2 million.
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 management believes that stringent underwriting standards
and practices have resulted in high-quality portfolios and have the effect of
limiting credit risk. It is the Company's policy, for example, not to purchase
below-investment-grade securities. Also, as a matter of investment policy, the
Company assumes no foreign currency or commodity risk, nor does it assume equity
price risk except to the extent that it holds real estate in its portfolios.
(Investment real estate holdings represented approximately 2.1% of the Company's
total general account portfolio at December 31, 1999, and 2.3% of the Company's
total general account portfolio at March 31, 2000.) 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.
55
<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; 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 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 had a fair value of $3,634.4 million at December 31, 1999 and a
fair value of $2,913.1 million at March 31, 2000. Fixed income investments
supporting those liabilities had a fair value of $4,308.6 million and $4,065.8
at December 31, 1999 and March 31, 2000, respectively. The Company performed a
sensitivity analysis on these interest-sensitive liabilities and assets on
December 31, 1999 and on March 31, 2000. The December 31, 1999 analysis showed
that if there were an immediate increase of 100 basis points in interest rates,
the fair value of the liabilities would show a net decrease of $118.0 million
and the corresponding assets would show a net decrease of $73.6 million. The
March 31, 2000 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 $66.7 million and the corresponding assets would show a net
decrease of $117.2 million.
By comparison, liabilities categorized as financial instruments and held
in the Company's general account at had a fair value of $4,385.0 million
December 31, 1998, and a fair value of $3,105.2 million at December 31, 1999.
Fixed income investments supporting those liabilities had a fair value of
$5,104.9 million and $4,308.6 million at December 31, 1998 and December 31,
1999, respectively. The Company performed a sensitivity analysis on these
interest-sensitive liabilities and assets at December 31, 1998 and at
December 31, 1999. The December 31, 1998 analysis showed that if there were an
immediate increase of 100 basis points in interest rates, the fair value of the
liabilities would show a net decrease of $185.4 million and the corresponding
assets would show a net decrease of $168.7 million. The December 31, 1999
analysis showed that if there were an immediate increase of 100 basis points in
interest rates, the fair value of the liabilities would show a net decrease of
$63.8 million and the corresponding assets would show a net decrease of
$118.0 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
56
<PAGE>
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's management believes the Company's 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 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.
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. Such death
benefits are reinsured on a yearly renewable term basis. The life reinsurance
assumed agreement requires the reinsurer to withhold funds in amounts equal to
the reserves assumed. The Company terminated these agreements effective
October 1, 1998.
The Company has also executed reinsurance agreements with unrelated
companies which provide reinsurance of certain individual life insurance
contracts on a modified coinsurance basis under which all deficiency reserves
are ceded.
During 1999, the Company entered into an agreement with an unrelated
company which provides reinsurance on certain fixed group annuity contracts.
Also during 1999, the Company entered into three agreements with two unrelated
companies for the purpose of obtaining stop-loss coverage of guaranteed minimum
death benefit exposure with respect to the Company's variable annuity business.
The Company has agreements with Sun Life (Canada) whereby Sun Life
(Canada) reinsures the mortality and mortality risks of the group life insurance
contracts and group long term disability contracts. Under these agreements,
certain death benefits and long-term disability benefits are reinsured on a
yearly renewable basis.
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 $21.5 billion at December 31, 1999, 75.1%
($16.1 billion) consisted of unitized and non-unitized separate account assets,
13.3% ($2.9 billion) was invested in bonds and similar securities, 4.3%
($931.4 million) was invested in mortgages, 0.4% ($95.1 million) was invested in
real estate, and the remaining 6.9% ($1.5 billion) was invested in cash and
other assets.
57
<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 1999 statistical study published by
A.M. Best, the Company ranked 36th among North American life insurance companies
based upon admitted assets as of December 31, 1998.
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. As of May 31, 2000, the Company had ____ 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 5 years.
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 fire 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, Sun Life (Canada) 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.
58
<PAGE>
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, 1999 included in the Statement of Additional Information and the
consolidated financial statements of the Company for the years ended
December 31, 1999, 1998 and 1997 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, 1999 are included in the Statement of Additional Information.
------------------------
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums and annuity considerations $ 45.1 $203.3 $257.4
Net investment income 365.0 455.9 539.9
Net realized investment gains 2.3 8.4 12.5
Fee and other income 217.5 179.2 149.5
------ ------ ------
Total revenues 629.9 846.8 959.3
------ ------ ------
BENEFITS AND EXPENSES
Policyowner benefits 334.9 588.2 672.3
Other operating expenses 101.1 100.0 85.4
Amortization of deferred policy acquisition costs 67.8 88.8 62.3
------ ------ ------
Total benefits and expenses 503.8 777.0 820.0
------ ------ ------
Income from operations 126.1 69.8 139.3
Interest expense 43.3 44.9 42.5
------ ------ ------
Income before income tax expense and discontinued
operations 82.8 24.9 96.8
INCOME TAX EXPENSE:
Federal 28.8 10.9 34.0
State .3 (.1) 1.3
------ ------ ------
Income tax expense 29.1 10.8 35.3
------ ------ ------
Net income from continuing operations 53.7 14.1 61.5
Net loss on disposal of subsidiaries, after tax (12.3) -- --
Discontinued operations 1.0 .1 69.0
------ ------ ------
NET INCOME $ 42.4 $ 14.2 $130.5
====== ====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED BALANCE SHEETS (IN MILLIONS)
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Investments
Fixed maturities available-for-sale at fair value
(amortized cost of $2,685.4 and $3,311.9 in 1999 and
1998, respectively) $ 2,677.3 $ 3,488.4
Trading fixed maturities at fair value (amortized cost
of $1.0 and $1.5 in 1999 and 1998, respectively) 1.0 1.5
Short-term investments 177.2 336.0
Mortgage loans 931.4 969.8
Real estate 95.1 99.0
Policy loans 40.7 42.6
Other invested assets 67.9 64.2
--------- ---------
Total investments 3,990.6 5,001.5
Cash and cash equivalents 550.3 264.7
Accrued investment income 50.5 61.9
Deferred policy acquisition costs 686.3 523.9
Outstanding premiums 2.7 .8
Other assets 81.2 .1
Separate account assets 16,123.3 12,302.9
Net assets from discontinued operations -- 92.4
--------- ---------
Total assets $21,484.9 $18,248.2
========= =========
LIABILITIES
Future contract and policy benefits $ 729.3 $ 736.1
Contractholder deposit funds and other policy
liabilities 3,144.8 3,658.2
Unearned revenue 7.1 6.7
Accrued expenses and taxes 98.8 32.8
Deferred federal income taxes 77.7 113.1
Long-term debt payable to affiliates 565.0 565.0
Other liabilities 67.7 55.8
Separate account liabilities 16,123.3 12,302.9
--------- ---------
Total liabilities 20,813.7 17,470.6
--------- ---------
COMMITMENTS AND CONTINGENCIES -- NOTE 15
STOCKHOLDER'S EQUITY
Common stock, $1,000 par value -- 10,000 shares
authorized; 5,900 shares issued and outstanding $ 5.9 $ 5.9
Additional paid-in capital 199.4 199.4
Accumulated other comprehensive income 7.1 75.9
Retained earnings 458.8 496.4
--------- ---------
Total stockholder's equity 671.2 777.6
--------- ---------
Total liabilities and stockholder's equity $21,484.9 $18,248.2
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $ 42.4 $14.2 $130.5
Other comprehensive income
Net unrealized holding gains (losses) on
available-for-sale securities,
net of tax (68.6) (4.3) 26.7
Other (.2) -- --
(68.8) (4.3) 26.7
------ ----- ------
Comprehensive income $(26.4) $ 9.9 $157.2
====== ===== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS EQUITY
----- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $5.9 $199.4 $ 53.5 $ 470.6 $ 729.4
---- ------ ------ ------- -------
Net income 130.5 130.5
Other comprehensive income 26.7 26.7
Dividends to stockholder (68.9) (68.9)
---- ------ ------ ------- -------
Balance at December 31, 1997 5.9 199.4 80.2 532.2 817.7
---- ------ ------ ------- -------
Net income 14.2 14.2
Other comprehensive income (4.3) (4.3)
Dividends to stockholder (50.0) (50.0)
---- ------ ------ ------- -------
Balance at December 31, 1998 5.9 199.4 75.9 496.4 777.6
---- ------ ------ ------- -------
Net income 42.4 42.4
Other comprehensive income (68.8) (68.8)
Dividends to stockholder (80.0) (80.0)
---- ------ ------ ------- -------
Balance at December 31, 1999 $5.9 $199.4 $ 7.1 $ 458.8 $ 671.2
==== ====== ====== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 53.7 $ 14.1 $ 61.5
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of discount and premiums (0.5) 0.2 .6
Depreciation and amortization 3.7 2.2 2.5
Net realized gains on investments (2.3) (8.4) (12.5)
Interest credited to contractholder deposits 216.4 238.7 282.9
Deferred federal income taxes 14.5 (8.6) (1.6)
Cash dividends from subsidiaries 19.3 -- 40.6
Changes in assets and liabilities:
Deferred acquisition costs (88.4) 208.7 (82.9)
Accrued investment income 11.4 31.1 25.8
Other assets (75.3) 78.5 (189.0)
Future contract and policy benefits (7.5) (1,124.0) 182.5
Other, net 72.3 896.6 7.7
------- --------- ---------
Net cash provided by operating activities 217.3 329.1 318.1
------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities and repayments of:
Available-for-sale fixed maturities 1,240.9 1,665.6 1,535.8
Subsidiaries 57.5 0.6 --
Other invested assets -- 0.9 .4
Mortgage loans 385.7 316.9 463.0
Real estate 2.8 6.0 15.1
Purchases of:
Available-for-sale fixed maturities (615.2) (1,346.7) (1,334.1)
Equity securities -- (0.2) (.3)
Other invested assets (7.4) (11.4) (5.5)
Mortgage loans (344.9) (123.0) (159.0)
Real estate (1.6) (1.1) (10.1)
Capital contributions to subsidiaries -- -- (2.0)
Changes in other investing activities, net 3.1 (14.4) (.5)
Net change in policy loans 1.9 (1.6) (.2)
Net change in short-term investments 155.9 (38.2) (152.9)
------- --------- ---------
Net cash provided by investing activities 878.7 453.4 349.7
------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Deposits to contractholder deposit funds 1,536.8 910.8 1,023.6
Withdrawals from contractholder deposit funds (2,267.2) (1,803.2) (1,550.8)
Issuance of long-term debt and borrowed funds -- -- 360.1
Repayment of long-term debt and borrowed funds -- (110.1) (58.0)
Dividends paid to stockholder (80.0) (50.0) --
--------- --------- ---------
Net cash used in financing activities (810.4) (1,052.5) (225.1)
--------- --------- ---------
Net change in cash and cash equivalents 285.6 (270.0) 442.7
Cash and cash equivalents, beginning of year 264.7 534.7 92.0
--------- --------- ---------
Cash and cash equivalents, end of year $ 550.3 $ 264.7 $ 534.7
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 43.3 $ 40.5 $ 42.0
Income taxes paid 5.5 50.6 32.9
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
65
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 domiciled in the state of Delaware. The Company and its
subsidiaries are licensed in 49 states and certain other territories and are
engaged in the sale of individual variable life insurance, individual fixed and
variable annuities, group fixed and variable annuities, group pension contracts,
group life and disability insurance, and other asset management services.
The Company is a wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings,
Inc. ("Life Holdco"), which is an indirect wholly-owned subsidiary of Sun Life
Assurance Company of Canada ("SLOC"), the Company's ultimate parent as of
December 31, 1999. SLOC is a life insurance company domiciled in Canada which
reorganized from a mutual life insurance company to a stock life insurance
company on March 22, 2000. As a result of the demutualization, a new holding
company, Sun Life Financial Services of Canada, Inc. ("SLC"), became the
ultimate parent of SLOC and the Company.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in the United States of
America for stockholder-owned life insurance companies and include the accounts
of the Company and its subsidiaries.
For the year ended December 31, 1999, the Company filed its Annual Report on
Form 10-K using audited statutory financial statements. The Company prepared the
statutory 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 GAAP. See Note 13 for a
reconciliation of statutory surplus to GAAP equity and statutory net income to
GAAP net income.
The Company owns all of the outstanding shares of Sun Life Insurance and Annuity
Company of New York ("Sun Life (N.Y.)"), Sun Life of Canada (U.S.)
Distributors, Inc. (formerly Sun Investment Services Company) ("Sundisco"), 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 Limited ("SLIRL"). All significant intercompany transactions
have been eliminated in consolidation.
Sun Life (N.Y.) is engaged in the sale of individual fixed and variable annuity
contracts and group life and disability insurance contracts in its state of
domicile, New York. Sundisco is a registered investment adviser and
broker-dealer. 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. SPE 97-1 was
organized for the purpose of engaging in activities incidental to securitizing
mortgage loans. Clarendon is a registered broker-dealer that acts as the general
distributor of certain annuity and life insurance contracts issued by the
Company and its affiliates. SLIRL provides information systems development
services to the Company and it's affiliates. Sunfinco and Sunbesco are currently
inactive.
During 1999, the Company sold two of its subsidiaries, Massachusetts Casualty
Insurance Company ("MCIC") and New London Trust F.S.B. ("NLT") to separate,
unaffiliated parties. MCIC is a life insurance company, which issues only
individual disability income policies. NLT is a federally chartered savings
bank, which grants commercial, residential real estate and installment loans.
The Company owned a majority of Massachusetts Financial Services Company
("MFS"), an investment adviser and
66
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
broker-dealer, until December 24, 1997. The results of operations of these
subsidiaries are reported as discontinued operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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 amount of revenues and expenses during the reporting period. The
most significant estimates are those used in determining deferred policy
acquisition costs, investment allowances and the liabilities for future
policyholder benefits. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including cash and cash equivalents,
investments such as fixed maturities, mortgage loans and equity securities, off
balance sheet financial instruments, debt, loan commitments and financial
guarantees. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses. Financial instruments are more
fully described in Note 5.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents primarily include cash, commercial paper, money market
investments, and short-term bank participations. All such investments have
maturities of three months or less and are considered cash equivalents for
purposes of reporting cash flows.
INVESTMENTS
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments of
Debt and Equity Securities". At the time of purchase, fixed maturity securities
are classified based on intent, as held-to-maturity, trading, or available-for
sale or trading. In order for the security to be classified as held-to-maturity,
the Company must have positive intent and ability to hold the securities to
maturity. Securities held-to-maturity are stated at cost, adjusted for
amortization of premiums, and accretion of discounts. Securities that do not
meet this criterion are classified as available-for-sale. Available-for-sale
securities are carried at aggregate fair value with changes in unrealized gains
or losses reported net of policyholder related amounts and of deferred income
taxes in a separate component of other comprehensive income. Trading securities
are carried at aggregate fair value with changes in unrealized gains or losses
reported as a component of net investment income. Fair values are obtained from
external market quotations. For privately placed fixed maturities, fair values
are estimated by taking into account prices for publicly traded securities of
similar credit risk, maturities repayment and liquidity characteristics. All
security transactions are recorded on a trade date basis. The Company's
accounting policy for impairment requires recognition of an other than temporary
impairment charge on a security if it is determined that the Company is unable
to recover all amounts due under the contractual obligations of the security. In
addition, for securities expected to be sold, an other than temporary impairment
charge is recognized if the Company does not expect the fair value of a security
to recover to cost or amortized cost prior to the expected date of sale. Once an
impairment charge has been recorded, the Company then continues to review the
other than temporarily impaired securities for additional impairment, if
necessary.
67
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
Mortgage loans are stated at unpaid principle balances, net of provisions for
estimated losses. Mortgage loans acquired at a premium or discount are carried
at amortized values net of provisions for estimated losses. Loans, which include
primarily commercial first mortgages, and real estate and are diversified by
property type and geographic area throughout the United States. Mortgage loans
are collateralized by the related properties and generally are no more than 75%
of the properties' value at the time that the original loan is made.
A loan is recognized as impaired when it is probable that the principal or
interest are not collectible in accordance with the contractual terms of the
loan. Measurement of impairment is based on the present value of expected future
cash flows discounted at the loan's effective interest rate, or at the loan's
observable market price. A specific valuation allowance is established if the
fair value of the impaired loan is less than the recorded amount. Loans are also
charged against the allowance when determined to be uncollectible. The allowance
is based on a continuing review of the loan portfolio, past loss experience and
current economic conditions, which may affect the borrower's ability to pay.
While management believes that it uses the best information available to
establish the allowance, future adjustments to the allowance may become
necessary if economic conditions differ from the assumptions used in making the
evaluation.
Real estate investments are held for the production of income or held-for-sale.
Real estate investments held for the production of income are carried at the
lower of cost adjusted for accumulated depreciation or 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. Real estate
investments held-for-sale are primarily acquired through foreclosure of mortgage
loans. The cost of real estate that has been acquired through foreclosure is the
estimated fair value less estimated costs to dispose at the time of foreclosure.
Policy loans are carried at the amount of outstanding principal balance not in
excess of net cash surrender values of the related insurance policies.
Other invested assets consist primarily of leveraged leases and tax credit
partnerships.
The Company uses derivative financial instruments including financial futures
contracts, equity options, interest rate swaps, foreign currency swaps and
forward spread lock contracts as a means of hedging exposure to interest rate,
currency and equity price risk. Hedge accounting is used to account for certain
derivatives. To qualify for hedge accounting, the changes in fair value of the
derivative must be expected to substantially offset the changes in the value of
the hedged item. Hedges are monitored to ensure that there is a correlation
between the derivative instrument and the hedged investment. Derivative
instruments qualifying for hedge accounting treatment are marked to market and
the related changes in fair value are included in a separate component of
stockholder's equity. To the extent that the correlation of the derivative
instrument and hedged item is not established, the derivative instrument is
marked to market and the related change in fair value is recognized on the
statement of operations as a component of net investment income.
Investment income is recognized on an accrual basis. Realized gains and losses
on the sales of investments are recognized in operations at the date of sale and
are determined using the specific cost identification method. When an impairment
of a specific investment or a group of investments is determined to be other
than temporary, a realized investment loss is recorded. Changes in the provision
for estimated losses on mortgage loans and real estate are included in net
realized investment gains and losses.
68
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
Interest income on loans is recorded on the accrual basis. Loans are placed in a
non-accrual status when management believes that the borrower's financial
condition, after giving consideration to economic and business conditions and
collection efforts, is such that collection of principal and interest is
doubtful. When a loan is placed in non-accrual status, all interest previously
accrued is reversed against current period interest income. Interest accruals
are resumed on such loans only when they are brought fully current with respect
to principle and interest, have performed on a sustained basis for a reasonable
period of time, and when, in the judgment of management, the loans are estimated
to be fully collectible as to both principal and interest.
DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting and other costs which
vary with and are primarily related to the production of new business.
Acquisition costs related to investment-type contracts, primarily deferred
annuity and guaranteed investment contracts, and universal and variable life
products are deferred and amortized with interest in proportion to the present
value of estimated gross profits to be realized over the estimated lives of the
contracts. Estimated gross profits are composed of net investment income, net
realized investment gains and losses, life and variable annuity fees, surrender
charges and direct variable administrative expenses. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized; generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods based upon the
same assumptions used in estimating the liability for future policy benefits.
Deferred acquisition costs for each life product are reviewed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, the Company believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
OTHER ASSETS
Property, equipment, leasehold improvements and capitalized software cost which
are included in other assets are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided using the straight-line or
accelerated method over the estimated useful lives of the related assets, which
generally range from 3 to 30 years. Amortization of leasehold improvements is
provided using the straight-line method over the lesser of the term of the
leases or the estimated useful life of the improvements. Reinsurance receivables
from reinsurance ceded are included in other assets.
POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. Future policy benefits for individual
life insurance and annuity policies are computed using interest rates ranging
from
69
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
4.5% to 5.5% for life insurance and 6.0% to 11.3% for annuities. The liabilities
associated with traditional life insurance, annuity and disability insurance
products are computed using the net level premium method based on assumptions
about future investment yields, mortality, morbidity and persistency. The
assumptions used are based upon both the Company and its affiliates' experience
and industry standards. Estimated liabilities are established for group life and
health policies that contain experience rating provisions.
Contractholder deposit funds consist of policy values that accrue to the holders
of universal life-type contracts and investment-related products such as
deferred annuities and guaranteed investment contracts. The liabilities are
determined using the retrospective deposit method and consist of net deposits
and investment earnings less administrative charges. The liability is before the
deduction of any applicable surrender charges.
Other policy liabilities include liabilities for policy and contract claims.
These amounts consist of the estimated amount payable for claims reported but
not yet settled and an estimate of claims incurred but not reported. The amount
reported is based upon historical experience, adjusted for trends and current
circumstances. Management believes that the recorded liability is sufficient to
provide for the associated claims adjustment expenses. Revisions of these
estimates are included in operations in the year such refinements are made.
REVENUE AND EXPENSES
Premiums for traditional individual life and annuity products are considered
revenue when due. Premiums related to group life and group disability insurance
are recognized as revenue pro-rata over the contract period. The unexpired
portion of these premiums is recorded as unearned premiums. Revenue from
universal life-type products and investment-related products includes charges
for cost of insurance (mortality), initiation and administration of the policy
and surrender charges. Revenue is recognized when the charges are assessed
except that any portion of an assessment that relates to services to be provided
in future years is deferred and recognized over the period during which the
services are provided.
Benefits and expenses, other than deferred policy acquisition costs, related to
traditional life, annuity, and disability contracts, including group policies,
are recognized when incurred in a manner designed to match them with related
premium revenue and spread income recognition over expected policy lives. For
universal life-type and investment-type contracts, benefits include interest
credited to policyholders' accounts and death benefits in excess of account
values, which are recognized as incurred.
INCOME TAXES
The Company and its subsidiaries participate in a consolidated federal income
tax return with US Holdco and other affiliates. Deferred income taxes are
generally recognized when assets and liabilities have different values for
financial statement and tax reporting purposes, and for other temporary taxable
and deductible differences as defined by Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". These differences result
primarily from policy reserves, policy acquisition expenses and unrealized gains
or losses on investments, and are generally not chargeable with liabilities that
arise from any other business of the Company. Separate account assets are
subject to general account claims only to the extent the value of such assets
exceeds the separate account liabilities.
70
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
SEPARATE ACCOUNTS
The Company has established 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 and the investment risk of
such securities is retained by the policyholder.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which establishes
accounting and reporting standards for derivative instruments. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges: fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investments in foreign operations.
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137 ("SFAS No. 137"), "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 delays the effective date of SFAS No. 133 for all fiscal quarters until
fiscal years beginning after June 15, 2000. The Company is evaluating SFAS No.
133 and has not determined its effect on the consolidated financial statements.
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants (AICPA) Statement of Position (SOP) 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This
statement provides guidance on when an insurance or other enterprise should
recognize a liability for guaranty fund and other assessments and on how to
measure such liability. The adoption of SOP 97-3 had no material impact on the
financial position or results of operations.
On January 1, 1999, the Company adopted AICPA SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This SOP
provides guidance for determining whether costs of software developed or
obtained for internal use should be capitalized or expensed as incurred. In the
past, the Company has expensed such costs as they were incurred. The adoption of
SOP 98-1, resulted in an increase in pre-tax income of $6,232,000 for the year
ended December 31, 1999.
2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES
Effective October 1, 1998, the Company terminated a reinsurance agreement with
Sun Life Assurance Company of Canada resulting in a decrease in income from
operations to the Company of approximately $64,000,000.
On February 11, 1999, two notes previously issued to the Company by
Massachusetts Financial Services Company ("MFS"), an affiliate, were combined
into a new note with a February 11, 2000 maturity date. The original notes were
each issued for $110,000,000. One note was issued on February 11, 1998 at an
interest rate of 6.0% and a due date of February 11, 1999. The other note was
issued on December 22, 1998 at an interest rate of 5.55% and a due date of
February 11, 1999. These two notes and an additional $10,000,000 were combined
into a new note of $230,000,000 with a floating interest
71
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED):
rate based on the six month LIBOR rate plus 25 basis points. The $230,000,000
note was repaid to the Company on December 21,1999.
On December 31, 1998, the Company had an additional $20,000,000 investment in
notes issued by MFS, scheduled to mature in 2000. These notes were repaid to the
Company on December 21, 1999.
On January 14, 2000, the Company purchased $200,000,000 of notes from MFS.
On February 5, 1999, the Company sold MCIC to an unaffiliated company. The net
proceeds of this sale were $33,965,000. The Company realized a loss of
$25,465,000 net of a $14,482,000 tax benefit.
On October 29, 1999, the Company sold NLT to an unaffiliated company for
$30,254,000. The Company realized a gain of $13,170,000 after taxes of
$10,186,000.
On December 22, 1999, the Company acquired twenty-eight mortgages from SLOC for
a total cost of $118,092,000.
Dividends in the amounts of $80,000,000 and $50,000,000, were declared and paid
by the Company to its parent, Life Holdco during 1999 and 1998, respectively. On
December 24, 1997 the Company transferred as a dividend to Life Holdco all of
its ownership in MFS valued at $68,951,000. These dividends were approved by the
Company's Board of Directors.
The Company has management services agreements 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 these agreements
amounted to approximately $30,745,000 in 1999, $17,381,000 in 1998, and
$17,152,000 in 1997.
As more fully described in Note 7, the Company has been involved in several
reinsurance transactions with its ultimate parent, SLOC.
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 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.
The Company accrued $4,259,000 and $4,259,000 for interest on surplus notes for
the years ended December 31, 1999 and 1998, respectively.
The Company expensed $43,266,000, $44,903,000, and $42,481,000 for interest on
surplus notes and notes payable for the years ended December 31, 1999, 1998 and
1997, respectively.
72
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. SIGNIFICANT TRANSACTIONS WITH AFFILIATES (CONTINUED):
The Company had $565,000,000 of surplus notes issued to affiliates and
outstanding as of December 31, 1999 and 1998. The following table lists the
details of the surplus notes outstanding (in 000's):
<TABLE>
<CAPTION>
MATURITY PRINCIPAL RATE
-------- --------- ----
<S> <C> <C> <C>
Sun Canada Financial Co. 12/15/07 $150,000 6.625%
Sun Canada Financial Co. 12/15/15 150,000 7.250%
Sun Canada Financial Co. 12/15/07 7,500 6.125%
Sun Canada Financial Co. 12/15/15 7,500 5.750%
Life Holdco 11/06/27 250,000 8.625%
--------
Total $565,000
========
</TABLE>
3. INVESTMENTS
FIXED MATURITIES
The amortized cost and fair value of fixed maturities were as follows (in
000's):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Fixed maturities available-for-sale:
United States treasury securities, U.S.
Government and agency securities $ 107,272 $ 2,104 $ (3,191) $ 106,186
States, provinces and political subdivisions 32,593 15 (161) 32,447
Mortgage-backed securities 98,903 1,225 (541) 99,588
Public utilities 360,672 7,954 (9,780) 358,846
Transportation 327,544 8,585 (4,258) 331,871
Finance 281,303 4,632 (6,935) 279,000
Corporate 1,477,105 22,851 (30,556) 1,469,400
---------- ------- -------- ----------
Total fixed maturities available-for-sale $2,685,392 $47,366 $(55,422) $2,677,338
========== ======= ======== ==========
Trading fixed maturities:
United States treasury securities, U.S.
Government and agency securities $ 1,000 $ 2 $ -- $ 1,002
---------- ------- -------- ----------
Total trading fixed securities $ 1,000 $ 2 $ -- $ 1,002
========== ======= ======== ==========
</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 CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Fixed maturities available-for-sale:
United States treasury securities, U.S.
Government and agency securities $ 221,724 $ 8,356 $ (360) $ 229,720
States, provinces and political subdivisions 25,888 2,825 0 28,713
Mortgage-backed securities 238,539 6,864 (1,501) 243,902
Public utilities 473,243 31,526 (235) 504,534
Transportation 378,393 31,168 (53) 409,508
Finance 369,809 15,927 (1,911) 383,825
Corporate 1,604,323 94,123 (10,224) 1,688,222
---------- -------- -------- ----------
Total fixed maturities available-for-sale $3,311,919 $190,789 $(14,284) $3,488,424
========== ======== ======== ==========
Trading fixed maturities:
United States treasury securities, U.S.
Government and agency securities $ 1,506 $ 35 $ -- $ 1,541
---------- -------- -------- ----------
Total trading fixed securities $ 1,506 $ 35 $ -- $ 1,541
========== ======== ======== ==========
</TABLE>
There were no contractual fixed maturity investment commitments at December 31,
1999 and 1998, respectively.
The amortized cost and estimated fair value by maturity periods for fixed
maturity investments are shown below (in 000's). Actual maturities may differ
from contractual maturities on mortgage-backed securities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties, or the Company may have the right to put or sell the obligations back
to the issuers.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---- ----------
<S> <C> <C>
Maturities of available for sale securities:
Due in one year or less $ 216,235 $ 216,417
Due after one year through five years 933,481 924,198
Due after five years through ten years 600,735 605,804
Due after ten years 934,941 930,919
---------- ----------
$2,685,392 $2,677,338
========== ==========
Maturities of trading securities:
Due in one year or less $ 500 500
Due after one year through five years $ 500 502
---------- ----------
$ 1,000 $ 1,002
========== ==========
</TABLE>
Gross gains of $12,496,128, $25,752,149 and $18,292,309 and gross losses of
$7,646,028, $1,439,129, and $5,284,286 were realized on the voluntary sale of
fixed maturities for the years ended December 31, 1999, 1998, and 1997,
respectively.
74
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
Fixed maturites with an amortized cost of approximately $3,009,000 and
$2,976,000 at December 31, 1999 and 1998 respectively, were on deposit with
Federal and State governmental authorities as required by law.
No fixed maturities have been pledged to collateralize various liabilities at
December 31, 1999 and 1998, respectively.
As of December 31, 1999 and 1998, 94% of the Company's fixed maturities were
investment grade and there were no significant concentrations by issuer or by
industry, other than U.S. Treasury securities. Investment grade securities are
those that are rated "BBB" or better by nationally recognized rating agencies.
The Company believes that unrealized losses are temporary in nature, and
accordingly, no provisions for permanent impairment of value have been recorded.
All of the Company's securities were income producing for the periods ending
December 31, 1999, 1998 and 1997.
MORTGAGE LOANS AND REAL ESTATE
The Company invests in commercial first mortgage loans and real estate
throughout the United States. Investments are diversified by property type and
geographic area. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the properties' value at the time that the
original loan is made. Real estate investments classified as held for sale have
been obtained primarily through foreclosure. The carrying value of mortgage
loans and real estate investments net of applicable reserves were as follows (in
000's):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
---- ----
<S> <C> <C>
Total mortgage loans $931,351 $969,799
======== ========
Real estate:
Held for sale 7,804 4,323
Held for production of income 87,290 94,625
-------- --------
Total real estate $ 95,094 $ 98,948
======== ========
</TABLE>
Accumulated depreciation on real estate was $18,529,000 and $16,829,000 at
December 31, 1999 and 1998, respectively.
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. The Company has restructured mortgage loans totaling
$28,019,000 and $39,804,000 at December 31, 1999 and 1998, respectively, against
which there are allowances for losses of $3,705,000 and $5,700,000,
respectively. In those cases where, in management's judgment, the mortgage
loans' values are impaired, appropriate losses are recorded. The carrying value
of impaired loans was $19,356,000 and $27,500,000 with related reserves of
$2,123,000 and $3,730,000 as of December 31, 1999 and 1998, respectively. All
impaired loans were reserved as of December 31, 1999 and 1998. The average
carrying value of impaired loans was $19,491,000 and $27,313,000 with related
interest income while such loans were impaired of $1,782,000 and $2,181,000 as
of December 31, 1999 and 1998, respectively. During 1999 and 1998, non-cash
investing activities included real estate acquired through foreclosure of
mortgage loans, which had a fair value of $20,433,000 and $22,372,000,
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 CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
The investment valuation allowances, which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets, were
as follows (in 000's):
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JANUARY 1, ADDITIONS SUBTRACTIONS DECEMBER 31,
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
1999
Mortgage loans $6,600 $4,045 $(2,895) $ 7,750
Real estate 1,250 1,379 (906) 1,723
1998
Mortgage loans $6,671 $1,098 $(1,169) $ 6,600
Real estate 806 569 (125) 1,250
</TABLE>
Mortgage loans and real estate investments comprise the following property types
and geographic regions (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Property Type:
Office building $ 357,466 $ 370,679
Residential 58,546 55,952
Retail 433,970 401,549
Industrial/warehouse 156,204 248,417
Other 29,732 --
Valuation allowances (9,473) (7,850)
---------- ----------
Total $1,026,445 $1,068,747
========== ==========
Geographic region:
California $ 117,355 $ 134,789
Massachusetts 99,661 115,807
Michigan 69,545 71,678
New York 65,107 67,407
Ohio 43,946 56,682
Pennsylvania 159,328 155,216
Washington 68,657 73,555
All other 412,319 401,463
Valuation allowances (9,473) (7,850)
---------- ----------
Total $1,026,445 $1,068,747
========== ==========
</TABLE>
At December 31, 1999, scheduled mortgage loan maturities were as follows
(000's):
<TABLE>
<S> <C>
2000 $113,731
2001 71,648
2002 72,535
2003 41,430
Thereafter 632,007
--------
Total $931,351
========
</TABLE>
76
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
Actual maturities could differ from contractual maturities because borrowers may
have the right to prepay obligations with or without prepayment penalties and
loans may be refinanced.
The Company has made commitments of mortgage loans on real estate and other
loans into the future. The outstanding commitments for these mortgages amount to
$15,911,000 and $31,563,000 at December 31, 1999 and 1998, respectively.
SECURITIES LENDING
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chase Manhattan of New York. The custodian has
indemnified the Company against losses arising from this program. The total par
value of securities out on loan was $0 and $0 at December 31, 1999 and 1998,
respectively. The Company requires collateral at 102% of the value of securities
loaned. As of December 31, 1999 and 1998, the Company received collateral with a
fair value of $0 and $0 for securities on loan. The income resulting from this
program was $37,000, $135,000 and $230,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
LEVERAGED LEASES
The Company is a lessor in a leverage 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 9.78 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. The Company's net investment in leveraged leases is
composed of the following elements (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
---- ----
<S> <C> <C>
Lease contracts receivable $ 69,766 $ 78,937
Less: non-recourse debt (69,749) (78,920)
-------- --------
Net Receivable 17 17
Estimated residual value of leased assets 41,150 41,150
Less: unearned and deferred income (7,808) (8,932)
-------- --------
Investment in leverage lease 33,359 32,235
Less: fees (113) (138)
-------- --------
Net investment in leverage leases $ 33,246 $ 32,097
======== ========
</TABLE>
DERIVATIVES
The Company uses derivative financial instruments for risk management purposes
to hedge against specific interest rate risk, to alter investment rate exposures
arising from mismatches between assets and liabilities, and to minimize the
Company's exposure to fluctuations in interest rates, foreign currency exchange
rates and general market conditions. The derivative financial instruments used
by the Company include futures, interest rate swap agreements, options, and
interest rate and currency swap agreements structured as forward spread lock
contracts. The Company does not hold or issue any derivative instruments for
trading purposes.
77
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
FUTURES
A futures contract is a contractual agreement to make or take delivery of a
notional principal amount at a specified future date in accordance with terms
specified by a regulated futures exchange. Although futures contracts generally
specify delivery terms for the underlying commodity or financial instrument,
most futures contracts are settled in cash prior to delivery by executing a
futures position opposite to the original position. That is, a contract to take
delivery (a "long" position) is offset by executing a contract to make delivery
(a "short" position), and vice versa.
The Company purchases futures contracts to hedge against interest rate
fluctuations. 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 (losses) to specific hedged assets or liabilities, gains (losses)
are deferred and amortized over the remaining life of the hedged assets. If
instruments being hedged by futures are disposed, any unamortized gains (losses)
are included in the determination of gain or loss from the disposition. Gains
(losses) on hedge contracts that are deemed ineffective are realized
immediately. There were no deferred gains (losses), disposed hedges, or hedges
deemed ineffective in 1999 and 1998. The Company had no futures contracts
outstanding at December 31, 1999 and 1998, respectively.
INTEREST RATE SWAPS
Interest rate swap agreements are contracts with other parties to exchange at
specified intervals, the difference between fixed and floating rate interest
amounts based upon a notional principal amount. No cash is exchanged at the
outset of the contract and no principal payments are made by either party. A
single net payment is usually made by one counterparty at each interest payment
date.
The Company enters into interest rate swap agreements to hedge against exposure
to interest rate fluctuations. Because the underlying principal is not
exchanged, the Company's maximum exposure to counterparty credit risk is the
difference in payments exchanged. The net payable/receivable is recognized over
the life of the swap contract as an adjustment to net investment income. The net
increase (decrease) in net investment income related to interest rate swaps was
($2,512,745), ($1,685,909) and ($2,579,536) for the years ended December 31,
1999, 1998 and 1997 respectively. The company's derivatives did not qualify for
hedge accounting treatment in 1999 and 1998. As a result, the realized gains and
losses were realized immediately in those years and the deferred balances as of
year ended December 31, 1997 were realized during 1998.
PUT OPTIONS
Options are legal contracts that give the contractholder the right to buy or
sell a specific amount of the underlying interest at a strike price upon
exercise of the option. Cash is exchanged to purchase the option and on exercise
date, the holder of the option can elect to exercise or allow it to expire. The
Company utilizes options to hedge against stock market exposure inherent in the
mortality and expense risk charges and guaranteed minimum death benefit features
of the Company's variable annuities.
FORWARD SPREAD LOCK CONTRACTS
Interest rate and currency swap agreements structured as forward spread lock
contracts are swap agreements which are executed in a current period but
effective on a future date. The contracts outline the interest or currency
rates, which each party agrees to at contract date as well as the outset of the
contract. No principal payments are made by either party. A single net payment
is made to close out the contract prior to the effective date in the event that
either party to the contract wishes to terminate
78
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. INVESTMENTS (CONTINUED):
the agreement. If the contract is not terminated prior to the effective future
date, the contract becomes a swap agreement as described above.
The Company's underlying notional or principal amounts associated with open
derivatives positions were as follows (in 000's):
<TABLE>
<CAPTION>
OUTSTANDING AT
DECEMBER 31, 1999
---------------------
NOTIONAL MARKET
PRINCIPAL VALUE OF
AMOUNTS POSITIONS
------- ---------
<S> <C> <C>
Interest rate swaps $368,000 $ 9,522
Foreign currency swaps 1,700 295
-------- --------
Total $369,700 $ 9,817
======== ========
<CAPTION>
OUTSTANDING AT
DECEMBER 31, 1998
---------------------
NOTIONAL MARKET
PRINCIPAL VALUE OF
AMOUNTS POSITIONS
------- ---------
Interest rate swaps $ 297,000 ) (10,656
<S> <C> <C>
Foreign currency swaps 3,100 689
-------- --------
Total $300,100 $ (9,967)
======== ========
</TABLE>
During 1998, the Company discontinued hedge accounting treatment for certain
derivative instruments for which correlation could not be established. The
Company recognized gross realized gains of $4,734,971 and $6,567,922 in 1999 and
1998, respectively, as well as gross realized losses of $1,789,357 and
$20,538,120 during 1999 and 1998, respectively.
The Company's primary risks associated with these transactions are exposure to
potential credit loss in the event of non-performance by counterparties and
market risk. The Company regularly assesses the strength of the counterparties
and generally enters into transactions with counterparties rated "A" or better
by nationally recognized ratings agencies. Management believes that the risk of
incurring losses related to credit risk is remote. As of December 31, 1999 and
1998, the Company's derivatives had no significant concentration of credit risk.
The Company does not require collateral or other security to support derivative
financial instruments with credit risk.
4. NET REALIZED INVESTMENT GAINS AND LOSSES
Net realized investment gains (losses) consisted of the following (in 000's):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $(1,839) $ 21,811 $ 671
Mortgage and other loans 1,981 36 9,465
Real estate (742) 499 2,393
Derivative instruments 2,945 (13,970) (63)
------- -------- --------
Total $ 2,345 $ 8,376 $ 12,466
======= ======== ========
</TABLE>
5. NET INVESTMENT INCOME
Net investment income consisted of the following (in 000's):
79
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. NET INVESTMENT INCOME (CONTINUED):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $254,390 $295,167 $324,150
Equity securities (33) 37 --
Mortgage and other loans 90,638 103,804 128,214
Real estate 6,829 7,844 7,070
Policy loans 3,172 2,934 3,639
Derivatives 17,671 (11,880) (3,060)
Income on funds withheld under reinsurance -- 67,045 85,840
Other (1,416) (817) 943
-------- -------- --------
Gross investment income 371,251 464,134 546,796
Less: Investment expenses 6,273 8,277 6,882
-------- -------- --------
Net investment income $364,978 $455,857 $539,914
======== ======== ========
</TABLE>
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107 excludes certain insurance liabilities and other non-financial
instruments from its disclosure requirements. The fair value amounts presented
herein do not include the expected interest margin (interest earnings over
interest credited) to be earned in the future on investment-type products or
other intangible items. Accordingly, the aggregate fair value amounts presented
herein do not necessarily represent the underlying value of the Company;
likewise, care should be exercised in deriving conclusions about the Company's
business or financial condition based on the fair value information presented
herein.
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1999 and 1998 (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 550,265 $ 550,265 $ 264,744 $ 264,744
Fixed maturities 2,678,340 2,678,340 3,489,965 3,489,965
Short-term investments 177,213 177,213 336,026 336,026
Mortgages 931,351 933,725 969,800 1,014,189
Derivatives 9,817 9,817 (9,967) (9,967)
Policy loans 40,660 40,660 42,595 42,595
Other invested assets 67,938 67,938 64,177 64,177
Financial liabilities:
Guaranteed investment contracts $ 677,265 $ 665,830 $1,064,357 $1,089,070
Contractholder deposit funds 2,279,413 2,213,896 2,449,585 2,460,530
Fixed annuity contracts 112,794 105,845 113,913 114,661
Interest sensitive life insurance 116,999 119,659 118,076 120,077
Long-term debt 565,000 529,212 565,000 600,625
</TABLE>
The fair values of cash and cash equivalents are estimated to be cost plus
accrued interest which approximates fair value. The fair values of short-term
bonds are estimated to be the amortized cost. The fair values of publicly traded
fixed maturities are based upon market prices or dealer quotes. For privately
placed fixed maturities, fair values are estimated by taking into account prices
for publicly traded securities of similar credit risk, maturity, repayment and
liquidity characteristics. The fair values
80
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
of mortgage and other loans 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.
Policy loans are state at unpaid principal balances which approximate fair
value.
The fair values of the Company's general account insurance reserves and
contractholder deposits 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 based on
interest rates currently being offered for similar contracts with maturities
consistent with those remaining for all contracts being valued. Those contracts
that are deemed to have short-term guarantees have a carrying amount equal to
the estimated market value.
The fair values of other deposits with future maturity dates are estimated using
discounted cash flows.
The fair value of notes payable and other borrowings are estimated using
discounted cash flow analyses based upon the Company's current incremental
borrowing rates for similar types of borrowings. The carrying amount of all
other assets is assumed to approximate fair value. The company's commitments to
extend credit approximate fair value.
7. REINSURANCE
INDIVIDUAL INSURANCE
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.
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. Also effective January 1, 1991, the
Company entered into an agreement with SLOC which provides that SLOC will
reinsure the mortality risks in excess of $500,000 per policy for the individual
life insurance contracts assumed by the Company in the reinsurance agreement
described above. Such death benefits are reinsured on a yearly renewable term
basis. These two agreements were terminated effective October 1, 1998.
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.
GROUP INSURANCE
The Company has agreements with SLOC whereby SLOC reinsures the mortality and
morbidity risks of the group life insurance contracts and group long-term
disability contracts. Under these agreements, certain death benefits and
long-term disability benefits are reinsured on a yearly renewable term basis.
The agreements provide that SLOC will reinsure the mortality risks in excess of
$50,000 per policy for group life contracts and $3,000 per policy per month for
long-term disability contracts ceded by the Company.
The effects of reinsurance were as follows (in 000's):
81
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
7. REINSURANCE (CONTINUED):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Insurance premiums
Direct $ 33,033 $ 39,168 $ 43,312
Assumed -- 159,787 211,657
Ceded 5,814 11,867 13,180
-------- -------- --------
Net Premiums $ 27,219 $187,088 $241,789
======== ======== ========
Insurance and other individual policy benefits and claims
Direct $318,519 $330,592 $411,834
Assumed -- 248,664 241,947
Ceded 3,821 11,170 5,361
-------- -------- --------
Net policy benefits and claims $314,698 $568,086 $648,420
======== ======== ========
</TABLE>
The Company is contingently liable for the portion of the policies reinsured
under each of its existing reinsurance agreements in the event the reinsurance
companies are unable to pay their portion of any reinsured claim. Management
believes that any liability from this contingency is unlikely. However, to limit
the possibility of such losses, the Company evaluates the financial condition of
its reinsurers and monitors concentration of credit risk.
8. RETIREMENT PLANS
PENSION PLAN
The Company and its subsidiaries participate with SLOC in a non-contributory
defined benefit pension plan covering essentially all employees. Benefits under
all plans are based on years of service and employees' average compensation.
The Company's funding policies for the pension plans are to contribute amounts
which at least satisfy the minimum amount required by the Employee Retirement
Income Security Act of 1974 ("ERISA"); currently the plans are fully funded.
Most pension plan assets consist of separate accounts of SLOC or other insurance
company contracts. The following table sets forth the change in the pension
plan's
82
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. RETIREMENT PLANS (CONTINUED):
projected benefit obligations and assets, as well as the plans funded status at
December 31, 1999 and 1998 (in 000's):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year $110,792 $ 79,684
Service cost 5,632 4,506
Interest cost 6,952 6,452
Actuarial loss (gain) (21,480) 21,975
Benefits paid (2,376) (1,825)
-------- --------
Projected benefit obligation at end of year $ 99,520 $110,792
======== ========
Change in fair value of plan assets:
Fair value of plan assets at beginning of year $151,575 $136,610
Actual return on plan assets 9,072 16,790
Benefits paid (2,376) (1,825)
Fair value of plan assets at end of year $158,271 $151,575
Funded status $ 58,752 $ 40,783
Unrecognized net actuarial loss (20,071) (2,113)
Unrecognized transition obligation (22,617) (24,674)
Unrecognized prior service cost 7,081 7,661
-------- --------
Prepaid benefit cost $ 23,145 $ 21,657
======== ========
</TABLE>
The following table sets forth the components of the net periodic pension cost
for the years ended December 31, 1999 and 1998 (in 000's).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Components of net periodic benefit cost:
Service cost $ 5,632 $ 4,506
Interest cost 6,952 6,452
Expected return on plan assets (12,041) (10,172)
Amortization of transition obligation asset (2,056) (2,056)
Amortization of prior service cost 580 580
Recognized net actuarial gain (554) (677)
------- -------
Net periodic benefit cost $(1,487) $(1,367)
======= =======
The Company's share of net periodic benefit cost $ 736 $ 586
======= =======
</TABLE>
The projected benefit obligations were based on calculations that utilize
certain assumptions. The assumed weighted average discount rate was 7.5% and
6.75% for the years ended December 31, 1999 and 1998, respectively. The expected
return on plan assets for 1999 and 1998 was 8.75% and 8.00%, respectively, and
the assumed rate of compensation increase for both 1999 and 1998 was 4.50%.
83
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. RETIREMENT PLANS (CONTINUED):
The Company and certain subsidiaries also participate with SLOC and certain
affiliates in a 401(k) savings plan for which substantially all employees are
eligible. Under the various plans the Company matches, up to specified amounts,
employees' contributions to the plan. The Company's contributions were $284,000
and $231,000 for the years ended December 31, 1999 and 1998, respectively.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to pension benefits, the Company and certain subsidiaries provide
certain health, dental, and life insurance benefits ("postretirement benefits")
for retired employees and dependents. Substantially all employees of the
participating companies 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.
The following table sets forth the change in other postretirement benefit plans'
obligations and assets, as well as the plans' funded status at December 31, 1999
and 1998 (in 000's).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 10,419 $ 9,845
Service cost 413 240
Interest cost 845 673
Actuarial loss 1,048 308
Benefits paid (508) (647)
-------- --------
Benefit obligation at end of year $ 12,217 $ 10,419
======== ========
Change in fair value of plan assets:
Fair value of plan assets at beginning of year $ -- $ --
Employer contributions 508 647
Benefits paid (508) (647)
-------- --------
Fair value of plan assets at end of year $ -- $ --
======== ========
Funded Status $(12,217) $(10,419)
Unrecognized net actuarial loss 1,469 586
Unrecognized transition obligation 140 185
-------- --------
Prepaid (accrued) benefit cost $(10,608) $ (9,648)
======== ========
</TABLE>
84
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. RETIREMENT PLANS (CONTINUED):
The following table sets forth the components of the net periodic postretirement
benefit costs for the years ended December 31, 1999 and 1998 (in 000's).
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Components of net periodic benefit cost
Service cost $ 413 $ 240
Interest cost 845 673
Amortization of transition obligation(asset) 45 45
Recognized net actuarial loss (gain) 164 (20)
------ --------
Net periodic benefit cost $1,467 $ 938
====== ========
The Company's share of net periodic benefit cost $ 185 $ 95
====== ========
</TABLE>
In order to measure the postretirement benefit obligation at December 31, 1999,
the Company assumed a 10.9% annual rate of increase in the per capita cost of
covered health care benefits. These rates were assumed to decrease gradually to
5.0% for 2005 and remain at that level thereafter. Assumed health care cost
trend rates have a significant effect on the amounts reported for the health
care plans. For example, increasing the health care cost trend rate assumptions
by one percentage point in each year would increase the accumulated
postretirement benefit obligation at December 31, 1999 by $2.8 million, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit expense for 1999 by $0.3 million. Conversely, decreasing
assumed rates by one percentage point in each year would decrease the
accumulated postretirement benefit obligation at December 31, 1999 by $2.3
million, and the aggregate of the service and interest cost components of net
periodic postretirement benefit expense for 1999 by $0.5 million. The assumed
weighted average discount rate used in determining the postretirement benefit
obligation was 7.5% and 6.75% for the year ended December 31, 1999 and 1998,
respectively.
9. FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return
with US Holdco as previously described in Note 1. Federal income taxes are
calculated as if the Company was filing a separate federal income tax return. A
summary of the components of federal income tax expense in the consolidated
statements of income for the years ended December 31, 1999, 1998 and 1997 were
as follows (in 000's):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal income tax expense
Current $18,570 $19,476 $35,689
Deferred 10,210 (8,551) (1,674)
------- ------- -------
Total $28,780 $10,925 $34,015
======= ======= =======
</TABLE>
85
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
9. FEDERAL INCOME TAXES (CONTINUED):
Federal income taxes attributable to the consolidated operations are different
from the amounts determined by multiplying income before federal income taxes by
the expected federal income tax rate of 35%. The Company's effective rate
differs from the federal income tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected federal income tax expense $28,969 $ 9,405 $36,925
Low income housing credit (6,348) (4,446) (3,270)
Additional tax provision 6,851 5,423 1,004
Other (692) 543 (644)
------- ------- -------
Federal income tax expense $28,780 $10,925 $34,015
======= ======= =======
</TABLE>
The deferred income tax (asset) liability represents the tax effects of
temporary differences between the carrying amounts of assets and liabilities
used for financial reporting purposes and the amounts used for income tax
purposes. The components of the Company's deferred tax (assets) and liabilities
as of December 31, 1999 and 1998 were as follows (in 000's):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax asset
Actuarial liabilities $ 136,560 $ 118,074
Investments, net $ 943 --
--------- ---------
Total deferred tax asset $ 137,503 $ 118,074
Deferred tax liabilities
Investments, net $ -- $ (65,704)
Deferred policy acquisition costs (193,238) (144,366)
Other (21,940) (21,105)
--------- ---------
Total deferred tax liability $(215,178) $(231,175)
--------- ---------
Net deferred tax liability $ (77,675) $(113,101)
========= =========
</TABLE>
The Company makes payments under the tax sharing agreements as if it were filing
as a separate company.
The Company's federal income tax returns are routinely audited by the Internal
Revenue Service ("IRS"), and provisions are made in the consolidated financial
statements in anticipation of the results of these audits. The Company is
currently under audit by the IRS for the years 1994 and 1995. In the Company's
opinion, adequate tax liabilities have been established for all years and any
adjustments that might be required for the years under audit will not have a
material effect on the Company's financial statements. However, the amounts of
these tax liabilities could be revised in the future if estimates of the
Company's ultimate liability are revised.
86
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES
Activity in the liability for unpaid claims and claims adjustment expenses
related to the group life and group disability products is summarized below (in
000's):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance at January 1 $15,002 $13,016
Less reinsurance recoverables (3,232) (2,777)
------- -------
Net balance at January 1 11,770 10,239
------- -------
Incurred related to:
Current year 12,187 10,212
Prior years (1,487) (1,721)
------- -------
Total incurred 10,700 8,491
------- -------
Paid losses related to:
Current year (6,755) (5,146)
Prior years (1,996) (1,814)
------- -------
Total paid (8,751) (6,960)
------- -------
Net balance at December 31 17,755 15,002
Plus reinsurance recoverables (4,036) (3,232)
------- -------
Balance at December 31 $13,719 $11,770
======= =======
</TABLE>
The Company regularly updates its estimates of liabilities for unpaid claims and
claims adjustments expenses as new information becomes available and further
events occur which may impact the resolution of unsettled claims for its
individual and group disability lines of business. Changes in prior estimates
are recorded in results of operations in the year such changes are determined to
be needed.
11. DEFERRED POLICY ACQUISITION COSTS
The following illustrates the changes to the deferred policy acquisition cost
asset (in 000's):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance at January 1 $523,872 $ 719,819
Acquisition costs deferred 156,228 144,324
Amortized to expense during year (67,815) (88,794)
Adjustment for unrealized investment gains(losses)
during year 73,993 (11,139)
Adjustment for termination of reinsurance agreement -- (240,338)
-------- ---------
Balance at December 31 $686,278 $ 523,872
======== =========
</TABLE>
12. SEGMENT INFORMATION
The Company conducts business principally in five 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. Each
segment was defined consistent with the way results are evaluated by the chief
operating decision-maker.
INDIVIDUAL PROTECTION
The Individual Protection segment markets and administers life insurance
products sold to individuals and corporate owners of individual life insurance.
The products include a variety of whole life, universal life and variable life
products.
87
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
12. SEGMENT INFORMATION (CONTINUED):
GROUP PROTECTION
The Group Protection segment markets and administers group life insurance, long
term disability and short-term disability products. These products are sold to
employers which provide group benefits for their employees.
WEALTH MANAGEMENT
The Wealth Management segment markets and administers both individual and group
fixed and variable annuity products and provides asset management services to
certain of the Company's separate accounts.
CORPORATE SEGMENT
The Corporate segment includes the unallocated capital of the Company, its debt
financing, and items not otherwise attributable to the other segments.
Management evaluates the results of the operating segments on a pre-tax basis.
The Company does not materially depend on one or a few customers, brokers or
agents. The following amounts pertain to the various business segments (in
000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------
TOTAL TOTAL PRETAX NET OPERATING TOTAL
REVENUES EXPENDITURES INCOME INCOME ASSETS
-------- ------------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Individual Protection $17,139 $ 18,001 $ (861) $ (118) $ 291,508
Group Protection 16,095 15,541 554 360 20,038
Wealth Management 543,424 460,788 82,636 59,734 20,534,218
Corporate 53,241 52,758 483 (6,244) 639,149
-------- -------- -------- -------- -----------
Total $629,899 $547,088 $ 82,812 $ 53,732 $21,484,913
======== ======== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------
<S> <C> <C> <C> <C> <C>
Individual Protection $230,219 $300,478 $(70,259) $(46,469) $ 357,042
Group Protection 14,993 13,023 1,970 1,260 18,163
Wealth Management 538,053 457,483 80,570 59,978 17,211,359
Corporate 63,438 50,787 12,651 (705) 661,698
-------- -------- -------- -------- -----------
Total $846,703 $821,771 $ 24,932 $ 14,064 $18,248,262
======== ======== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
<S> <C> <C> <C> <C> <C>
Individual Protection $295,933 $301,216 $ (5,283) $ (3,260) $ 1,554,818
Group Protection 12,425 13,603 (1,178) (764) 13,793
Wealth Management 586,925 499,225 87,700 60,709 15,026,991
Corporate 63,980 48,411 15,569 4,785 739,913
-------- -------- -------- -------- -----------
Total $959,263 $862,455 $ 96,808 $ 61,470 $17,335,515
======== ======== ======== ======== ===========
</TABLE>
13. REGULATORY FINANCIAL INFORMATION
The insurance subsidiaries are required to file annual statements with state
regulatory authorities prepared on an accounting basis prescribed or permitted
by such authorities (statutory basis). Statutory surplus differs from
shareholder's equity reported in accordance with generally accepted accounting
principles for stock life insurance companies primarily because policy
acquisition costs are expensed when incurred, investment reserves are based on
different assumptions, post-retirement benefit costs
88
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
13. REGULATORY FINANCIAL INFORMATION (CONTINUED):
are based on different assumptions and reflect a different method of adoption,
life insurance reserves are based on different assumptions and income tax
expense reflects only taxes paid or currently payable.
For the year ended December 31, 1999, the Company filed its Annual Report on
Form 10-K ("10-K") using audited statutory financial statements. The following
information reconciles statutory net income and statutory surplus with net
income and equity on a GAAP basis (in 000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory net income $ 90,358 $ 125,401 $ 129,242
Adjustments to GAAP for life insurance companies:
Statutory interest maintenance reserve 3,956 2,925 1,867
Investment income and realized gains(losses) 13,803 (4,532) 14,186
Policyowner benefits (154,293) (187,990) (84,895)
Deferred policy acquisition costs 88,413 60,527 88,921
Deferred income taxes (13,615) 8,886 (26,067)
Other, net 13,850 9,017 7,247
--------- --------- ---------
GAAP net income $ 42,472 $ 14,234 $ 130,501
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Statutory capital stock and surplus $ 886,342 $ 909,924
Adjustments to GAAP for life insurance companies:
Valuation of investments 3,697 139,826
Deferred policy acquisition costs 686,278 550,900
Future policy benefits and Contractholder deposit funds (350,181) (240,035)
Deferred income taxes (86,112) (106,343)
Statutory interest maintenance reserve 42,325 44,668
Statutory asset valuation reserve 45,281 46,698
Surplus notes (565,000) (565,000)
Other, net 8,615 (3,038)
--------- ---------
GAAP equity $ 671,245 $ 777,600
========= =========
</TABLE>
The NAIC has codified statutory accounting practices, which are expected to
constitute the only source of prescribed statutory accounting practices and are
effective in 2001. Codification will change prescribed statutory accounting
practices and may result in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial statements. The changes of
codification will not have a material impact on statutory surplus.
14. DIVIDEND RESTRICTIONS
The Company and its insurance subsidiary's ability to pay dividends are subject
to certain restrictions. Delaware and New York have enacted laws governing the
payment of dividends to stockholders by insurers. These laws affect the dividend
paying ability of the Company and Sun Life (N.Y.).
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without prior
approval of the Delaware Commissioner of Insurance, is limited to the greater of
(i) 10% of its statutory surplus as of the preceding December 31st, or (ii) the
individual company's statutory net gain from operations for the preceding
calendar
89
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
14. DIVIDEND RESTRICTIONS (CONTINUED):
year (if such insurer is a life company), or its net income (not including
realized capital gains) for the preceding calendar year (if such insurer is not
a life company). Any dividends to be paid by an insurer, whether or not in
excess of the aforementioned threshold, from a source other than statutory
surplus, would also require the prior approval of the Delaware Commissioner of
Insurance. During 1997, the Company received approval from the Delaware
Commissioner of Insurance and transferred all of its ownership in MFS valued at
$68,951,000 as a dividend to Life Holdco. See Note 2 for additional information.
In 1998, a dividend in the amount of $50,000,000 was declared and paid by the
Company to its parent, Life Holdco. During 1999, a dividend in the amount of
$80,000,000 was declared and paid by the Company to Life Holdco. These dividends
were approved by the Board of Directors, but did not require prior approval of
the Insurance Commissioner. The maximum dividend payable by the Company without
prior approval of the Delaware Commissioner of Insurance at December 31, 1999
was $8,000,000.
Under New York statute, cash dividends may be paid out of that part of the
Company's available and accumulated surplus funds, which was derived from
realized net operating profits of its business and realized capital gains. A
cash dividend otherwise lawful may be paid out of such earned surplus even
though total surplus is at the time less than previously contributed or paid-in
surplus. No cash dividend shall be paid to stockholder unless a notice of the
intention of the Board of Directors to declare such dividend and the amount
thereof shall have been filed with the Superintendent of Insurance of the State
of New York not less than thirty days in advance of such proposed declaration,
nor if the Superintendent within thirty days after such filing gives written
notice to the Company of his disapproval of such payment. During 1999 and 1998,
Sun (N.Y.) declared and paid dividends in the amounts of $6,500,000 and
$3,000,000, respectively, to the Company.
15. COMMITMENTS AND CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments.
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state insurance
guaranty associations for certain obligations of insolvent insurance companies
to policyholders and claimants. Recent regulatory actions against certain large
life insurers encountering financial difficulty have prompted various state
insurance guaranty associations to begin assessing life insurance companies for
the deemed losses. Most of these laws do provide, however, that an assessment
may be excused or deferred if it would threaten an insurer's solvency and
further provide annual limits on such assessments. Part of the assessments paid
by the Company and its subsidiaries pursuant to these laws may be used as
credits for a portion of the associated premium taxes. The Company incurred
guaranty fund assessments of approximately $3,500,000, $3,500,000, and
$3,083,000 in 1999, 1998 and 1997, respectively.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result
90
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
15. COMMITMENTS AND CONTINGENCIES (CONTINUED):
in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. Although the
Company does not believe that there is a material contingency associated with
the Year 2000 project, there can be no assurance that exposure for material
contingencies may not arise.
LITIGATION
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurance, management, at the present
time, does not anticipate that the ultimate liability arising from such pending
and threatened litigation will have a material effect on the financial condition
or operating results of the Company.
LEASE COMMITMENTS
The Company leases various facilities and equipment under operating leases with
terms up to twenty-five years. As of December 31, 1999, minimum future lease
payments under such leases are as follows (in 000's):
<TABLE>
<S> <C>
2000 $ 4,354
2001 4,354
2002 4,407
2003 3,378
Thereafter 2,776
=======
Total $19,269
=======
</TABLE>
Total rental expense for the years ended December 31, 1999, 1998 and 1997 was
$4,656,000, $4,139,000, and $3,875,000 respectively.
16. DISCONTINUED OPERATIONS
During 1999, the Company discontinued its individual disability segment and its
banking and trust segment. These segments were composed of MCIC and NLT which
were both sold during 1999 to separate, unaffiliated parties. Net proceeds on
the sale of MCIC were approximately $33,965,000 and the Company realized a net
loss after taxes of $25,465,000. Net proceeds on the sale of NLT were
approximately $30,000,000; the Company realized a net gain after taxes of
$13,170,000. Immediately before the sale date of NLT, the Company received a $19
million dividend distribution from NLT.
During 1997, the Company discontinued its investment management segment which
was comprised of Massachusetts Financial Services Company, ("MFS"). As part of a
corporate restructuring at the end of 1997, MFS was transferred to Life Holdco
in the form of a dividend valued at $68,951,000. MFS was then transferred to US
Holdco and then to a newly formed holding company, Sun Life of Canada (U.S.)
Financial Services Holdings, Inc.
Income from discontinued operations (in 000's):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue $22,667 $104,225 $691,348
Expenses 21,430 104,593 570,521
Provision for income taxes 203 (445) 51,795
------- -------- --------
Income from discontinued operations $ 1,034 $ 77 $ 69,032
======= ======== ========
</TABLE>
91
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF SUN LIFE ASSURANCE COMPANY OF
CANADA (U.S.):
We have audited the accompanying consolidated balance sheets of Sun Life
Assurance Company of Canada (U.S.) and its subsidiaries (the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of income,
stockholder's equity, comprehensive income and of cash flows for each of the
three years in the period ended December 31, 1999. These consolidated 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sun Life Assurance Company of
Canada (U.S.) and its subsidiaries as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 22, 2000
------------------------
92
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
2000 1999
--------- ---------
<S> <C> <C>
Revenues
Premiums and annuity considerations $14.6 $11.0
Net investment income 79.9 98.4
Net realized investment gains 0.2 4.5
Fee and other income 66.6 49.9
----- -----
Total revenues 161.3 163.8
----- -----
Benefits and expenses
Policyowner benefits 80.3 84.7
Underwriting, acquisition and other operating expenses 27.0 20.0
Amortization of deferred policy acquisition costs 0.6 24.4
----- -----
Total benefits and expenses 107.9 129.1
----- -----
Income from operations 53.4 34.7
Interest expense 10.8 10.8
----- -----
Income before income tax expense and discontinued operations 42.6 23.9
Income tax expense 14.9 3.3
----- -----
Net income from continuing operations 27.7 20.6
Net loss on disposal of subsidiary, after tax -- (25.6)
Net income from discontinued operations -- 0.8
----- -----
Net income (loss) $27.7 $(4.2)
===== =====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
93
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED BALANCE SHEETS (IN MILLIONS)
<TABLE>
<CAPTION>
UNAUDITED
MARCH 31, 2000 DECEMBER 31, 1999
--------------- ------------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities available-for-sale at fair value (amortized
cost of $2,843.5 and $2,685.4 in 2000 and 1999,
respectively) $ 2,833.7 $ 2,677.3
Trading fixed maturities at fair value (amortized cost of
$1.0 and $1.0 in 2000 and 1999, respectively) 1.0 1.0
Short-term investments 85.5 177.2
Mortgage loans 898.1 931.4
Real estate 94.3 95.1
Policy loans 40.4 40.7
Other invested assets 68.3 67.9
--------- ---------
Total investments 4,021.3 3,990.6
--------- ---------
Cash and cash equivalents 321.0 550.3
Accrued investment income 52.4 50.5
Deferred policy acquisition costs 728.1 686.3
Outstanding premiums 2.0 2.7
Other assets 62.2 81.2
Separate account assets 17,298.8 16,123.3
--------- ---------
TOTAL ASSETS $22,485.8 $21,484.9
========= =========
LIABILITIES
Future contract and policy benefits $ 727.4 $ 729.3
Contractholder deposit funds and other policy liabilities 2,945.3 3,144.8
Unearned revenue 7.5 7.1
Accrued expenses and taxes 93.4 98.8
Deferred federal income taxes 90.2 77.7
Long-term debt payable to affiliates 565.0 565.0
Other liabilities 58.7 67.7
Separate account liabilities 17,298.8 16,123.3
--------- ---------
Total liabilities 21,786.3 20,813.7
--------- ---------
STOCKHOLDER'S EQUITY
Common stock, $1,000 par value - 10,000 shares authorized;
5,900 shares issued and outstanding 5.9 5.9
Additional paid-in capital 199.4 199.4
Accumulated other comprehensive income 7.7 7.1
Retained earnings 486.5 458.8
--------- ---------
Total stockholder's equity 699.5 671.2
--------- ---------
Total liabilities and stockholder's equity $22,485.8 $21,484.9
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
94
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN MILLIONS)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
2000 1999
--------- ---------
<S> <C> <C>
Net income (loss) $27.7 $(4.2)
Other comprehensive income:
Net change in unrealized holding gains and losses on
available-for-sale securities, net of tax 0.7 10.7
Currency translation (0.1) --
----- -----
Other comprehensive income: 0.6 10.7
----- -----
Comprehensive income $28.3 $ 6.5
===== =====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
95
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (IN MILLIONS)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS EQUITY
-------- ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $5.9 $199.4 $ 7.1 $458.8 $671.2
Comprehensive income:
Net income -- -- -- 27.7 27.7
Other comprehensive income -- -- 0.6 -- 0.6
---- ------ ----- ------ ------
Balance at March 31, 2000 $5.9 $199.4 $ 7.7 $486.5 $699.5
==== ====== ===== ====== ======
Balance at December 31, 1998 $5.9 $199.4 $75.9 $496.4 $777.6
Comprehensive income:
Net income -- -- -- (4.2) (4.2)
Other comprehensive income -- -- 10.7 -- 10.7
Dividends to stockholder -- -- -- (75.0) (75.0)
---- ------ ----- ------ ------
Balance at March 31, 1999 $5.9 $199.4 $86.6 $417.2 $709.1
==== ====== ===== ====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
96
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations $ 27.7 $ 20.6
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Amortization of discount and premiums (0.3) 0.0
Depreciation and amortization 0.3 0.5
Net realized gains on investments (0.2) (4.5)
Tax benefit on disposal of subsidiary -- 14.8
Interest credited to contractholder deposits 48.7 56.0
Deferred federal income taxes 12.1 (5.9)
Changes in assets and liabilities:
Deferred acquisition costs (39.0) (16.6)
Accrued investment income (1.9) 1.0
Other assets 13.1 (17.9)
Future contract and policy benefits (1.4) (4.1)
Other, net (10.1) 12.7
------- -------
Net cash provided by operating activities 49.0 56.6
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities and repayments of:
Available-for-sale fixed maturities 208.9 413.3
Subsidiary -- 33.6
Mortgage loans 50.1 24.0
Real estate 3.0 --
Purchases of:
Available-for-sale fixed maturities (366.9) (143.8)
Other invested assets -- (1.0)
Mortgage loans (17.6) (97.7)
Real estate (1.9) (0.1)
Changes in other investing activities, net 0.3 --
Net change in policy loans 0.3 (0.7)
Net change in short term investments 94.6 (91.3)
------- -------
Net cash provided by (used in) investing activities (29.2) 136.4
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deposits and interest credited to contractholder deposit
funds 317.0 341.3
Withdrawals from contractholder deposit funds (566.1) (471.8)
------- -------
Net cash used in financing activities (249.1) (130.4)
------- -------
Net change in cash and cash equivalents (229.3) 62.6
Cash and cash equivalents, beginning of period 550.3 264.7
Cash and cash equivalents, end of period $ 321.0 $ 327.3
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid, net of refunds $ (19.5) $ 13.3
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
97
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Sun Life Assurance Company of Canada (U.S.) (the "Company") was incorporated in
1970 as a life insurance company domiciled in the state of Delaware. The Company
and its subsidiaries are licensed in 49 states and certain other territories and
are engaged in the sale of individual variable life insurance, individual fixed
and variable annuities, group fixed and variable annuities, group pension
contracts, group life and disability insurance, and other asset management
services.
The Company is a wholly owned subsidiary of Sun Life of Canada (U.S.) Holdings,
Inc. ("Life Holdco"), which is an indirect wholly owned subsidiary of Sun Life
Assurance Company of Canada ("SLOC"), the Company's ultimate parent as of
December 31, 1999. SLOC is a life insurance company domiciled in Canada which
reorganized from a mutual life insurance company to a stock life insurance
company on March 22, 2000. As a result of the demutualization, a new holding
company, Sun Life Financial Services of Canada Inc. ("SLF"), is now the ultimate
parent of SLOC and the Company.
BASIS OF PRESENTATION
For the year ended December 31, 1999, the Company filed its Annual Report on
Form 10-K using audited statutory 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
Company has changed its basis of accounting for the three months ended
March 31, 2000 to generally accepted accounting principles ("GAAP") and has
restated the financial statements for the prior year ended December 31, 1999
(Consolidated Balance Sheet) and for the period ended March 31, 1999
(Consolidated Statement of Income, Consolidated Statement of Comprehensive
Income, Consolidated Statement of Changes in Stockholder's Equity, and
Consolidated Statement of Cash Flows) to conform with GAAP. See Note 5 for a
reconciliation of statutory surplus to GAAP equity and statutory net income to
GAAP net income.
The Company owns all of the outstanding shares of Sun Life Insurance and Annuity
Company of New York ("Sun Life (N.Y.)"), Sun Life of Canada (U.S.) Distributors,
Inc. ("Sundisco"), 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 Limited ("SLIRL"). All significant
intercompany transactions have been eliminated in consolidation.
Sun Life (N.Y.) is engaged in the sale of individual fixed and variable annuity
contracts and group life and disability insurance contracts in its state of
domicile, New York. Sundisco is a registered investment adviser and
broker-dealer. 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. SPE 97-1 was
organized for the purpose of engaging in activities incidental to securitizing
mortgage loans. Clarendon is a registered broker-dealer that acts as the general
distributor of certain annuity and life insurance contracts issued by the
Company and its affiliates. SLIRL provides information systems development
services to the Company and its affiliates. Sunbesco and Sunfinco are currently
inactive.
During 1999, the Company sold two of its subsidiaries, Massachusetts Casualty
Insurance Company ("MCIC") (sold February, 1999) and New London Trust F.S.B.
("NLT") (sold October, 1999). MCIC is a life insurance company which issues only
individual disability income policies. NLT is a federally chartered savings
bank, which grants commercial, residential real estate and installment loans.
The results of operations of these subsidiaries are reported as discontinued
operations.
98
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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 amount of revenues and expenses during the reporting period. The
most significant estimates are those used in determining deferred policy
acquisition costs, investment allowances, and the liabilities for future
policyholder benefits. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including cash and cash equivalents,
investments such as fixed maturities, mortgage loans and equity securities, off
balance sheet financial instruments, debt, loan commitments and financial
guarantees. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents primarily include cash, commercial paper, money market
investments, and short term bank participations. All such investments have
maturities of three months or less and are considered cash equivalents for
purposes of reporting cash flows.
INVESTMENTS
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments of
Debt and Equity Securities. At the time of purchase, fixed maturity securities
are classified based on intent, as held-to-maturity, available-for-sale, or
trading. In order for the security to be classified as held-to-maturity, the
Company must have positive intent and ability to hold the securities to
maturity. Securities held-to-maturity are stated at cost, adjusted for
amortization of premiums, and accretion of discounts. Trading securities are
carried at estimated fair value with changes in unrealized gains or losses
reported as a component of net investment income. Securities that do not meet
this criterion are classified as available-for-sale. Available-for-sale
securities are carried at estimated fair value with changes in unrealized gains
or losses reported net of taxes in a separate component of stockholder's equity.
Fair values are obtained from external market quotations. All securities
transactions are recorded on a trade date basis.
Mortgage loans are stated at unpaid principle balances, net of provisions for
estimated losses. Mortgage loans acquired at a premium or discount are carried
at amortized values net of provisions for estimated losses. Loans, which include
primarily commercial first mortgages, and real estate are diversified by
property type and geographic area throughout the United States. Mortgage loans
are collateralized by the related properties and generally are no more than 75%
of the properties' value at the time that the original loan is made.
A loan is recognized as impaired when it is probable that the principal or
interest is not collectible in accordance with the contractual terms of the
loan. Measurement of impairment is based on the present value of expected future
cash flows discounted at the loan's effective interest rate, or at the loan's
observable market price. A specific valuation allowance is established if the
fair value of the impaired loan is less than the recorded amount. Loans are also
charged against the allowance when determined to be uncollectible. The allowance
is based on a continuing review of the loan portfolio, past loss experience and
current economic conditions, which may affect the borrower's ability to pay.
While management believes
99
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
that it uses the best information available to establish the allowance, future
adjustments to the allowance may become necessary if economic conditions differ
from the assumptions used in making the evaluation.
Real estate investments are held for the production of income or held-for-sale.
Real estate investments held for the production of income are carried at the
lower of cost adjusted for accumulated depreciation or fair value. Real estate
investments held-for-sale are primarily acquired through foreclosure of mortgage
loans. The cost of real estate that has been acquired through foreclosure is the
estimated fair value at the time of foreclosure. Depreciation of buildings and
improvements is calculated using the straight-line method over the estimated
useful life of the property, generally 40 to 50 years.
Policy loans are carried at the amount of outstanding principal balance not in
excess of net cash surrender values of the related insurance policies.
Other invested assets consist primarily of leveraged leases and tax credit
partnerships.
The Company uses derivative financial instruments including financial futures
contracts, equity options, interest rate swaps, foreign currency swaps and
forward spread lock contracts as a means of hedging exposure to interest rate,
currency and equity price risk. Hedge accounting is used to account for certain
derivatives. To qualify for hedge accounting, the changes in fair value of the
derivative must be expected to substantially offset the changes in the value of
the hedged item. Hedges are monitored to ensure that there is a correlation
between the derivative instrument and the hedged investment. Derivative
instruments qualifying for hedge accounting treatment are marked to market and
the related changes in fair value are included in a separate component of
stockholder's equity. To the extent that the correlation of the derivative
instrument and hedged item is not established, the derivative instrument is
marked to market and the related change in fair value is recognized in the
statement of operations as a component of net investment income.
Investment income is recognized on an accrual basis. Realized gains and losses
on the sales of investments are recognized in operations at the date of sale and
are determined using the specific cost identification method. When an impairment
of a specific investment or a group of investments is determined to be other
than temporary, a realized investment loss is recorded. Changes in the provision
for estimated losses on mortgage loans and real estate are included in net
realized investment gains and losses.
Interest income on loans is recorded on the accrual basis. Loans are placed in a
non-accrual status when management believes that the borrower's financial
condition, after giving consideration to economic and business conditions and
collection efforts, is such that collection of principal and interest is
doubtful. When a loan is placed in non-accrual status, all interest previously
accrued is reversed against current period interest income. Interest accruals
are resumed on such loans only when they are brought fully current with respect
to principal and interest, have performed on a sustained basis for a reasonable
period of time, and when, in the judgment of management, the loans are estimated
to be fully collectible as to both principal and interest.
DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting and other costs which
vary with and are primarily related to the production of revenues. Acquisition
costs related to investment-type contracts, primarily deferred annuity and
guaranteed investment contracts, and universal and variable life products are
deferred and amortized with interest in proportion to the present value of
estimated gross profits to be realized over the estimated lives of the
contracts. Estimated gross profits are composed of net investment income, net
realized investment gains and losses, life and variable annuity fees, surrender
charges and direct variable administrative expenses. This amortization is
reviewed annually and adjusted retrospectively by a cumulative charge or credit
to current operations when the Company revises its estimate of current or future
gross profits to be realized from this group of products, including realized and
unrealized gains and
100
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
losses from investments. Acquisition costs related to fixed annuities and other
life insurance products are deferred and amortized, generally in proportion to
the ratio of annual revenue to the estimated total revenues over the contract
periods based upon the same assumptions used in estimating the liability for
future policy benefits.
Deferred acquisition costs for each life product are reviewed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, the Company believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
OTHER ASSETS
Property, equipment, leasehold improvements, and capitalized software costs,
which are included in other assets, are stated at cost, less accumulated
depreciation and amortization. Depreciation is provided using the straight-line
or accelerated method over the estimated useful lives of the related assets,
which generally range from 3 to 30 years. Amortization of leasehold improvements
is provided using the straight-line method over the lesser of the term of the
leases or the estimated useful life of the improvements. Reinsurance receivables
from reinsurance ceded are also included in other assets.
POLICY LIABILITIES AND ACCRUALS
Future contract and policy benefits are liabilities for life, health and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. Future policy benefits for
individual life insurance and annuity policies are computed using interest rates
ranging from 4.5% to 5.5% for life insurance and 6% to 11.25% for annuities. The
liabilities associated with traditional life insurance, annuity and disability
insurance products are computed using the net level premium method based on
assumptions about future investment yields, mortality, morbidity and
persistency. The assumptions used are based upon both the Company's and its
affiliates' experience and industry standards. Estimated liabilities are
established for group life and health policies that contain experience rating
provisions.
Policyholder contract deposits consist of policy values that accrue to the
holders of universal life-type contracts and investment-related products such as
deferred annuities and guaranteed investment contracts. The liabilities are
determined using the retrospective deposit method and consist of net deposits
and investment earnings less administrative charges. The liability is before the
deduction of any applicable surrender charges.
Other policy liabilities include liabilities for policy and contract claims.
These amounts consist of the estimated amount payable for claims reported but
not yet settled and an estimate of claims incurred but not reported. The amount
reported is based upon historical experience, adjusted for trends and current
circumstances. Management believes that the recorded liability is sufficient to
provide for the associated claims adjustment expenses. Revisions to these
estimates are included in operations in the year such refinements are made.
REVENUE AND EXPENSES
Premiums for traditional individual life and annuity products are considered
revenue when due. Premiums related to group life and group disability insurance
are recognized as revenue pro-rata over the contract period. The unexpired
portion of these premiums is recorded as unearned premiums. Revenue from
101
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
universal life-type products and investment-related products includes charges
for cost of insurance (mortality), initiation and administration of the policy
and surrender charges. Revenue is recognized when the charges are assessed
except that any portion of an assessment that relates to services to be provided
in future years is deferred and recognized over the period during which the
services are provided.
Benefits and expenses, other than deferred policy acquisition costs, related to
traditional life, annuity, and disability contracts, including group policies,
are recognized when incurred in a manner designed to match them with related
premium revenue and spread income recognition over expected policy lives. For
universal life-type and investment-type contracts, benefits include interest
credited to policyholders' accounts and death benefits in excess of account
values, which are recognized as incurred.
INCOME TAXES
The Company and its subsidiaries participate in a consolidated federal income
tax return with Sun Life Assurance Company of Canada - U.S. Operations Holdings,
Inc., direct wholly owned subsidiary of SLOC and parent company of Life Holdco
and other affiliates. Deferred income taxes are generally recognized when assets
and liabilities have different values for financial statement and tax reporting
purposes, and for other temporary taxable and deductible differences as defined
by Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. These differences result primarily from policy reserves, policy
acquisition expenses and unrealized gains or losses on investments.
SEPARATE ACCOUNTS
The Company has established 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 and the investment risk of
such securities is retained by the policyholder.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"), which establishes accounting and
reporting standards for derivative instruments. SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities at fair value
in the balance sheet and establishes special accounting for the following three
types of hedges: fair value hedges, cash flow hedges, and hedges of foreign
currency exposures of net investments in foreign operations.
In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137 ("SFAS No. 137"), "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB SFAS No. 133." SFAS No. 137
delays the effective date of SFAS No. 133 for all fiscal quarters until fiscal
years beginning after June 15, 2000. The Company is evaluating SFAS No. 133 and
has not determined its effect on the consolidated financial statements.
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants (AICPA) Statement of Position (SOP) 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This
statement provides guidance on when an insurance or other enterprise should
recognize a liability for guaranty fund and other assessments and on how to
measure such liability. The adoption of SOP 97-3 had no material impact on the
financial position or results of operations of the Company.
102
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
On January 1, 1999, the Company adopted AICPA SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This SOP
provides guidance for determining whether costs of software developed or
obtained for internal use should be capitalized or expensed as incurred. In the
past, the Company has expensed such costs as they were incurred. The adoption of
SOP 98-1, had no material impact on pre-tax income in either three month period.
(2) 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 $7,374,000 and $6,798,000 for the three month period in 2000 and
1999.
The Company leases office space to SLOC under lease agreements with terms
expiring in September, 2004 and options to extend the terms for each of twelve
successive five-year terms at fair market rental not to exceed 125% of the fixed
rent for the term which is ending. Rent received by the Company under the leases
for the three month period amounted to approximately $1,994,000 in 2000 and
$1,762,000 in 1999.
During January 2000, the Company purchased $200 million of term notes issued by
an affiliate, Massachusetts Financial Services Company, maturing in 2003 and
2004.
(3) SEGMENT INFORMATION
The Company offers financial products and services such as fixed and variable
annuities, retirement plan services, and life insurance on an individual and
group basis, as well as disability insurance on a group basis. Within these
areas, the Company conducts business principally in three operating segments and
maintains a corporate segment to provide for the capital needs of the three
operating segments and to engage in other financing related activities.
The Individual Protection 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 Group Protection segment markets and administers group life and long-term
disability insurance to small and mid-size employers in the State of New York.
The Wealth Management segment markets and administers individual and group
variable annuity products, individual and group fixed annuity products which
include market value adjusted annuities, and other retirement benefit products.
103
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SEGMENT INFORMATION (CONTINUED)
Summarized unaudited financial information by segment is provided in the tables
below:
<TABLE>
<CAPTION>
PERIOD ENDED MARCH 31, 2000 MARCH 31,
--------------------------------------------- 2000
TOTAL TOTAL PRETAX NET ------------
REVENUES EXPENDITURES INCOME INCOME TOTAL ASSETS
-------- ------------ -------- -------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Individual Protection $ 3.1 $ 3.2 $ (.1) $ (.1) $ 325.0
Group Protection 4.2 3.3 .9 .6 27.8
Wealth Management 146.9 99.3 47.6 32.6 21,903.1
Corporate 7.1 12.9 (5.8) (5.4) 229.8
====== ====== ===== ===== =========
Total $161.3 $118.7 $42.6 $27.7 $22,485.7
====== ====== ===== ===== =========
<CAPTION>
DECEMBER 31,
PERIOD ENDED MARCH 31, 1999 1999
--------------------------------------------- -------------
(IN MILLIONS)
Individual Protection $ 4.4 $ 4.4 $ -- $ -- $ 291.5
<S> <C> <C> <C> <C> <C>
Group Protection 4.2 3.6 .6 .4 20.0
Wealth Management 146.3 120.5 25.8 18.1 20,534.2
Corporate 8.9 11.4 (2.5) 2.1 639.2
====== ====== ===== ===== =========
Total $163.8 $139.9 $23.9 $20.6 $21,484.9
====== ====== ===== ===== =========
</TABLE>
(4) DISCONTINUED OPERATIONS
In February 1999, the Company completed the sale of its wholly-owned subsidiary,
MCIC for approximately $34,000,000. The Company realized a loss of $25,600,000
on the sale.
In October 1999, the Company completed the sale of its wholly-owned subsidiary,
NLT. A summary of the results of these discontinued operations follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
(IN MILLIONS)
<S> <C>
Revenue $7.5
Expenses 6.2
Provision for income taxes .5
====
Income from discontinued operations $ .8
====
</TABLE>
(5) STATUTORY FINANCIAL INFORMATION
For the year ended December 31, 1999, the Company filed its Annual Report on
Form 10-K using audited statutory 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
Company has changed its basis of accounting for the three months ended
March 31, 2000 to generally accepted accounting principles ("GAAP") and has
restated the financial statements for the prior year ended December 31, 1999
(Consolidated Balance Sheet) and for the period ended March 31, 1999
(Consolidated Statement of Income, Consolidated Statement of Comprehensive
Income, Consolidated Statement of Changes in Stockholder's Equity, and
Consolidated Statement of Cash Flows) to conform with GAAP. The Statutory
Balance Sheet filed as part of the 1999 10-K is shown below:
104
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) STATUTORY FINANCIAL INFORMATION (CONTINUED)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
(IN MILLIONS)
<S> <C>
ADMITTED ASSETS
Bonds $ 1,221,970
Common stocks 75,283
Mortgage loans on real estate 528,911
Properties acquired in satisfaction of debt 15,641
Investment real estate 79,182
Policy loans 40,095
Cash and short-term investments 316,971
Other invested assets 67,938
Investment income due and accrued 25,303
Other assets 5,807
-----------
General account assets 2,377,101
Separate account assets
Unitized 15,490,328
Non-unitized 2,080,726
-----------
TOTAL ADMITTED ASSETS $19,948,155
===========
LIABILITIES
Aggregate reserve for life policies and contracts $ 1,153,642
Supplementary contracts 3,182
Policy and contract claims 962
Liability for premium and other deposit funds 564,820
Surrender values on cancelled policies 16
Interest maintenance reserve 41,771
Commissions to agents due or accrued 3,253
General expenses due or accrued 14,055
Transfers from Separate Accounts due or accrued (467,619)
Taxes, licenses and fees due or accrued, excluding FIT 379
Federal income taxes due or accrued 89,031
Unearned investment income 22
Amounts withheld or retained by company as agent or trustee (442)
Remittances and items not allocated 1,078
Asset valuation reserve 44,071
Payable to parent, subsidiaries, and affiliates 26,284
Other liabilities 16,674
-----------
General account liabilities 1,491,179 Separate account
liabilities:
Unitized 15,489,908
Non-unitized 2,080,726
-----------
TOTAL LIABILITIES 19,061,813
-----------
</TABLE>
105
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) STATUTORY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
(IN MILLIONS)
<S> <C>
CAPITAL STOCK AND SURPLUS
Common capital stock 5,900
-----------
Surplus notes 565,000
Gross paid in and contributed surplus 199,355
Unassigned funds 116,087
-----------
Surplus 880,442
Total common capital stock and surplus 886,342
-----------
TOTAL LIABILITIES, CAPITAL STOCK AND SURPLUS $19,948,155
===========
</TABLE>
The following information reconciles statutory net income and statutory surplus
with net income and equity on a GAAP basis.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
2000 1999
-------- --------
(IN MILLIONS)
<S> <C> <C>
Statutory net income $ 21.4 $ 37.7
Adjustments to GAAP for life insurance companies:
Statutory interest maintenance reserve (.8) (.9)
Investment income and realized gains (losses) 1.9 (14.5)
Policyowner benefits (24.4) (35.4)
Deferred policy acquisition costs 39.0 16.6
Deferred income taxes (11.1) (9.0)
Other, net 1.7 1.3
------ ------
GAAP net income (loss) $ 27.7 $ (4.2)
====== ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN MILLIONS)
<S> <C> <C>
Statutory surplus $ 915.5 $ 886.3
Adjustments to GAAP for life insurance companies:
Valuation of investments 3.2 3.7
Deferred policy acquisition costs 728.1 686.3
Future policy benefits and Contractholder deposit funds (386.4) (350.2)
Deferred income taxes (89.4) (86.1)
Statutory interest maintenance reserve 41.3 42.3
Statutory asset valuation reserve 42.4 45.3
Surplus notes (565.0) (565.0)
Other, net 9.8 8.6
------- -------
GAAP equity $ 699.5 $ 671.2
======= =======
</TABLE>
The NAIC has codified statutory accounting practices, which are expected to
constitute the only source of prescribed statutory accounting practices and are
effective in 2001. Codification will change prescribed statutory accounting
practices and may result in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial statements. The changes of
codification will not have a material impact on statutory surplus.
106
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, at the present time the
Company does not anticipate that the ultimate liability arising from such
pending or threatened litigation, after consideration of provisions made for
potential losses and costs of defense, will have a material adverse effect on
the financial condition of operating results of the Company.
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state insurance
guaranty associations for certain obligations of insolvent insurance companies
to policyholders and claimants. Recent regulatory actions against certain large
life insurers encountering financial difficulty have prompted various state
insurance guaranty associations to begin assessing life insurance companies for
the deemed losses. Most of these laws do provide, however, that an assessment
may be excused or deferred it would threaten an insurer's solvency and further
provide annual limits on such assessments. Part of the assessments paid by the
Company and its subsidiaries pursuant to these laws may be used as credits for a
portion of the associated premium taxes.
107
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
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
Distribution of the Contracts
Designation and Change of Beneficiary
Custodian
Financial Statements
</TABLE>
108
<PAGE>
This Prospectus sets forth information about the Contract and the Variable
Account that a prospective purchaser should know before investing. Additional
information about the Contract and the Variable Account has been filed with the
Securities and Exchange Commission in a Statement of Additional Information
dated June 9, 2000 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 (888) 786-2435.
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
To: Sun Life Assurance Company of Canada (U.S.)
c/o Retirement Products and Services
P.O. Box 9133
Boston, Massachusetts 02117
Please send me a Statement of Additional Information for
Futurity III Variable and Fixed Annuity
Sun Life of Canada (U.S.) Variable Account F.
</TABLE>
<TABLE>
<S> <C>
Name ------------------------------------------------------------
Address ------------------------------------------------------------
------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
City -------------------------------- State -------------- Zip -------
</TABLE>
<TABLE>
<S> <C>
Telephone ------------------------------------------------------------
</TABLE>
109
<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 365 days from the date on which we issued your Contract. Your Account
Anniversary is the last day of an Account Year. Each Account Year after the
first is the 365-day period that begins on your Account Anniversary. For
example, if the Contract Date is on March 12, the first Account Year is
determined from the Contract Date and ends on March 12 of the following year.
Your Account Anniversary is March 12 and all Account Years after the first are
measured from March 12. (If the Anniversary Date falls on a non-business day,
the previous business day will be used.)
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
Co-Annuitant will become the sole Annuitant. 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/Payee 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.
Also, any day on which we make a determination of the value of a Variable
Accumulation Unit.
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: Any Individual Contract, Group Contract, or Certificate issued
under a Group Contract.
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 Application, and may change them, as we
describe in this Prospectus.
110
<PAGE>
COVERED PERSON: The person(s) identified as such in the Contract whose
death will trigger the death benefit provisions of the Contract and whose
medically necessary stay in a hospital or nursing facility may allow the
Participant to be eligible for a waiver of the withdrawal charge. Unless
otherwise noted, the the Participant/Owner is the Covered Person.
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 one lump sum.
DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to the
Company.
FIXED ACCOUNT: The 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 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 (NET PAYMENTS): The portion of a Purchase Payment
which remains after the deduction of any applicable premium tax or similar tax.
This is also the term used to describe the total contribution made to the
Contract minus the total withdrawals.
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.
* You specify these items on the Application, and may change them, as we
describe in this Prospectus.
111
<PAGE>
*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. If there are two Participants, the
death benefit is paid upon the death of either Participant.
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, or on the Annuity Commencement Date.
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.
RENEWAL DATE: The last day of a Guarantee Period.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific 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.
112
<PAGE>
APPENDIX B
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: VARIABLE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
VARIABLE ACCOUNT)
WITHDRAWAL CHARGE CALCULATION:
FULL WITHDRAWAL:
Assume a Purchase Payment of $40,000 is made on the Contract Date, no
additional Purchase Payments are made and there are no partial withdrawals. The
table below presents three examples of the withdrawal charge resulting from a
full withdrawal of your Account, based on hypothetical Account Values.
<TABLE>
<CAPTION>
PAYMENT
HYPOTHETICAL CUMULATIVE FREE SUBJECT TO WITHDRAWAL WITHDRAWAL
ACCOUNT ACCOUNT ANNUAL ANNUAL WITHDRAWAL WITHDRAWAL CHARGE CHARGE
YEAR VALUE EARNINGS EARNINGS AMOUNT CHARGE PERCENTAGE AMOUNT
-------- ------------ -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) 1 $41,000 $1,000 $ 1,000 $ 6,000 $35,000 7.00% $2,450
2 $45,100 $4,100 $ 5,100 $ 6,000 $39,100 7.00% $2,737
3 $49,600 $4,500 $ 9,600 $ 9,600 $40,000 6.00% $2,400
(b) 4 $52,100 $2,500 $12,100 $12,100 $40,000 6.00% $2,400
5 $57,300 $5,200 $17,300 $17,300 $40,000 5.00% $2,000
6 $63,000 $5,700 $23,000 $23,000 $40,000 4.00% $1,600
7 $66,200 $3,200 $26,200 $26,200 $40,000 3.00% $1,200
(c) 8 $72,800 $6,600 $32,800 $32,800 $ 0 0.00% $ 0
</TABLE>
(a) The free withdrawal amount in any year is equal to the amount of any
Purchase Payments made prior to the last 7 Account Years ("Old Payments")
that were not previously withdrawn plus the greater of (1) the Contract's
earnings that were not previously withdrawn, and (2) 15% of any Purchase
Payments made in the last 7 Account Years ("New Payments"). In Account
Year 1, the free withdrawal amount is $6,000, which equals 15% of the
Purchase Payment of $40,000. On a full withdrawal of $41,000, the amount
subject to a withdrawal charge is $35,000, which equals the Account Value of
$41,000 minus the free withdrawal amount of $6,000.
(b) In Account Year 4, the free withdrawal amount is $12,100, which equals the
prior Contract's cumulative earnings to date. On a full withdrawal of
$52,100, the amount subject to a withdrawal charge is $40,000.
(c) In Account Year 8, the free withdrawal amount is $32,800, which equals the
Contract's cumulative earnings to date. On a full withdrawal of $72,800, the
amount subject to a withdrawal charge is $0, since equals the New Payments
equal $0.
PARTIAL WITHDRAWAL
Assume a single Purchase Payment of $40,000 is made on the Contract Date,
no additional Purchase Payments are made, no partial withdrawals have been taken
prior to the fourth Account Year,
113
<PAGE>
and there are a series of 4 partial withdrawals made during the fourth Account
Year of $4,000, $9,000, $12,000, and $20,000.
<TABLE>
<CAPTION>
REMAINING
HYPOTHETICAL FREE AMOUNT OF
ACCOUNT WITHDRAWAL WITHDRAWAL
VALUE AMOUNT SUBJECT TO WITHDRAWAL WITHDRAWAL
ACCOUNT BEFORE CUMULATIVE AMOUNT OF BEFORE WITHDRAWAL CHARGE CHARGE
YEAR WITHDRAWAL EARNINGS EARNINGS WITHDRAWAL WITHDRAWAL CHARGE PERCENTAGE AMOUNT
--------------------- ------------ -------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $41,000 $1,000 $ 1,000 $ 0 $6,000 $ 0 7.00% $
2 $45,100 $4,100 $ 5,100 $ 0 $6,000 $ 0 7.00% $
3 $49,600 $4,500 $ 9,600 $ 0 $9,600 $ 0 6.00% $
4 (a) $50,100 $ 500 $10,100 $ 4,000 $6,100 $ 0 6.00% $
4 (b) $46,900 $ 800 $10,900 $ 9,000 $ 0 $ 2,100 6.00% $ 126
4 (c) $38,500 $ 600 $11,500 $12,000 $ 0 $11,400 6.00% $ 684
4 (d) $26,900 $ 400 $11,900 $20,000 $ 0 $19,600 6.00% $1,176
<CAPTION>
HYPOTHETICAL
ACCOUNT
VALUE
ACCOUNT AFTER
YEAR WITHDRAWAL
--------------------- ------------
<S> <C>
1 $41,000
2 $45,100
3 $49,600
4 (a) $46,100
4 (b) $37,900
4 (c) $26,500
4 (d) $ 6,900
</TABLE>
(a) In Account Year 4, the free withdrawal amount is $10,10000, which equals the
Contract's cumulative earnings to date. The partial withdrawal amount of
$4,000 is less than the free withdrawal amount, so there is no withdrawal
charge.
(b) Since a partial withdrawal of $4,000 was taken, the remaining free
withdrawal amount in Account Year 4 is $10,900 - $4,000 = $6,900. Therefore,
$6,900 of the $9,000 withdrawal is not subject to a withdrawal charge, and
$2,100 is subject to a withdrawal charge. Of the $13,000 withdrawn to date,
$10,900 has been from the free withdrawal amount and $13,500 has been from
deposits.
(c) Since $10,900 of the 2 prior Account Year 4 partial withdrawals was taken
from the free withdrawal amount, the remaining free withdrawal amount in
Account year 4 is $11,500 - $10,900 = $400. Therefore, $600 of the $12,000
withdrawal is not subject to a withdrawal charge, and $11,400 is subject to
a withdrawal charge. Of the $25,000 withdrawn to date, $11,500 has been from
the free withdrawal amount and $13,500 has been from deposits.
(d) Since $11,500 of the 3 prior Account Year 4 partial withdrawals was taken
from the free withdrawal amount, the remaining free withdrawal amount in
Account Year 4 is $11,900 - $11,500 = $400. Therefore, $400 of the $20,000
withdrawal is not subject to a withdrawal charge, and $19,600 is subject to
a withdrawal charge. Of the $45,000 withdrawn to date, $11,900 has been from
the free withdrawal amount and $33,100 has been from deposits.
Note that if the $6,900 remaining balance were withdrawn, it would all be
from deposits and subject to a withdrawal charge. The withdrawal charge would be
6% of $6,900, which equals $414. The total Account Year 4 withdrawal charges
would then be $2,400, which is the same amount that was assessed for a full
liquidation in Account Year 4 in the example on the previous page.
PART 2 -- FIXED ACCOUNT -- EXAMPLES OF THE MARKET VALUE ADJUSTMENT ("MVA")
The MVA Factor is:
<TABLE>
<C> <C> <S> <C> <C>
N/12
1 + I
( -------- ) -1
1 + J + b
</TABLE>
These examples assume the following:
(1) The Guarantee Amount was allocated to a 5-year Guarantee Period with
a Guaranteed Interest Rate of 6% or .06.
(2) The date of surrender is 2 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.
114
<PAGE>
(6) Withdrawal charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of surrender, the current rate (J) is 8% or .08
and the b factor is zero.
<TABLE>
<C> <C> <S> <C> <C> <C> <C>
N/12
1 + I
The MVA factor = ( -------- ) -1
1 + J + b
</TABLE>
<TABLE>
<C> <C> <S> <C> <C> <C> <C>
24/12
1 + .06
= ( ------ ) -1
1 + .08
= (.981)TO THE POWER OF (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> <C> <S> <C> <C> <C> <C>
N/12
1 + I
The MVA factor = ( -------- ) -1
1 + J + b
</TABLE>
<TABLE>
<C> <C> <S> <C> <C> <C> <C>
24/12
1 + .06
= ( ------ ) -1
1 + .05
= (1.010)TO THE POWER OF (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.
115
<PAGE>
APPENDIX C
CALCULATION OF BASIC DEATH BENEFIT
EXAMPLE 1:
Assume a Purchase Payment of $60,000.00 is made on the Contract Date and
an additional Purchase Payment of $40,000.00 is made one year later. Assume that
all of the money is invested in the Sub-Accounts, that no Withdrawals are made
and that the Account Value on the Death Benefit Date is $80,000.00. The
calculation of the Death Benefit to be paid is as follows:
<TABLE>
<S> <C> <C> <C>
The Basic Death Benefit is the greatest of:
Account Value = $ 80,000.00
Cash Surrender Value = $ 74,400.00
Purchase Payments = $100,000.00
The Basic Death Benefit would therefore be: $100,000.00
</TABLE>
EXAMPLE 2:
Assume a Purchase Payment of $60,000.00 is made on the Contract Date and
an additional Purchase Payment of $40,000.00 is made one year later. Assume that
all of the money is invested in the Sub-Accounts and that the Account Value is
$80,000.00 just prior to a $20,000.00 withdrawal. The Account Value on the Death
Benefit Date is $60,000.00.
<TABLE>
<S> <C> <C> <C>
The Basic Death Benefit is the greatest of:
Account Value = $ 60,000.00
Cash Surrender Value = $ 55,200.00
Adjusted Purchase Payments* = $ 75,000.00
The Basic Death Benefit would therefore be: $ 75,000.00
*Adjusted Purchase Payments can be calculated as follows:
Payments X (Account Value after withdrawal DIVIDED BY Account Value before
withdrawal)
$100,000.00 X ($60,000.00 DIVIDED BY $80,000.00)
</TABLE>
116
<PAGE>
APPENDIX D
CALCULATION OF EARNINGS ENHANCEMENT OPTIONAL DEATH BENEFIT
EXAMPLE 1:
Assume a Purchase Payment of $60,000.00 is made on the Contract Date and
an additional Purchase Payment of $40,000.00 is made one year later. Assume that
all of the money is invested into the Sub-Accounts, no withdrawals are made and
the Account Value on the Death Benefit Date is $150,000.00. In addition, this
Contract was issued prior to the owner's 70th birthday. The calculation of the
Basic Death Benefit to be paid is as follows:
<TABLE>
<S> <C> <C> <C>
The Basic Death Benefit is the greatest of:
Account Value = $150,000.00
Cash Surrender Value = $ 72,800.00
Adjusted Purchase Payments = $100,000.00
The Basic Death Benefit would therefore = $150,000.00
The benefit under the optional death benefit rider
can be calculated as follows:
The lesser of:
Adjusted Purchase Payments = $100,000.00
Account Value -- adjusted Purchase Payments = $ 50,000.00
Amount to use to determine rider benefit = $ 50,000.00
The amount to be paid on the rider benefit = $ 50,000.00 X 40% = $20,000.00
</TABLE>
The total Death Benefit would be the amount paid on the Basic Death
Benefit plus the amount paid on the Earnings Enhancement Optional Death Benefit
Rider: $150,000.00 + $20,000.00 = $170,000.00
EXAMPLE 2:
Assume a Purchase Payment of $60,000.00 is made on the Contract Date and
an additional Purchase Payment of $40,000.00 is made one year later. Assume that
all of the money is invested in the Sub-Accounts and that the Account Value is
$150,000.00 just prior to a $20,000.00 withdrawal. The Account Value on the
Death Benefit Date is $130,000.00.
<TABLE>
<S> <C> <C> <C>
The Basic Death Benefit is the greatest of:
Account Value = $130,000.00
Cash Surrender Value = $123,600.00
Adjusted Purchase Payments* = $ 86,666.67
The Basic Death Benefit would therefore = $130,000.00
*Adjusted Purchase Payments can be calculated as follows:
Payments X (Account Value after withdrawal DIVIDED BY Account Value before withdrawal)
$100,000.00 X ($130,000.00 DIVIDED BY $150,000.00)
The benefit under the optional death benefit rider
can be calculated as follows:
The lesser of:
Adjusted Purchase Payments = $ 86,666.67
Account Value -- adjusted Purchase Payments = $ 43,333.33
Amount to use to determine rider benefit: = $ 43,333.33
The amount to be paid on the rider benefit = $ 43,333.33 X 40% = $17,333.33
</TABLE>
The total Death Benefit would be the amount paid on the Basic Death
Benefit plus the amount paid on the Earnings Enhancement Optional Death Benefit
Rider: $130,000.00 + $17,333.33 = $147,333.33.
117
<PAGE>
APPENDIX E
CALCULATION OF DEATH BENEFIT WHEN ALL THREE OPTIONAL DEATH BENEFITS RIDERS ARE
SELECTED
Assume a Purchase Payment of $100,000.00 is made on the Contract Date, no
additional Purchase Payments or withdrawals are made and all of the money is
invested in the Sub-Accounts. In addition, on the Death Benefit Date the Account
Value is $150,000.00, the value of the Purchase Payment accumulated at 5% until
the Death Benefit Date is $160,000.00, and the Maximum Account Anniversary Value
is $170,000.00. The calculation of the death benefit to be paid is as follows:
<TABLE>
<S> <C> <C> <C>
The Death Benefit Amount will be the greatest
of:
Account Value = $150,000.00
Cash Surrender Value = $142,800.00
Total of adjusted Purchase Payments = $100,000.00
5% Premium Roll-Up Rider = $160,000.00
Maximum Account Anniversary Value Rider = $170,000.00
The Death Benefit Amount would therefore = $170,000.00
~ PLUS ~
The Earnings Enhancement Rider benefit is calculated as
follows:
The lesser of:
Adjusted Purchase Payments = $100,000.00
Account Value -- adjusted Purchase
Payments = $ 50,000.00
Amount to use to determine this rider
benefit: = $ 50,000.00
The amount to be paid on the rider benefit = $ 50,000.00 X 40% = $20,000.00
</TABLE>
The total Death Benefit would be the amount paid on the Maximum Account
Anniversary Rider plus the amount paid on the Earnings Enhancement Rider:
$170,000.00 + $20,000.00 = $190,000.00.
118
<PAGE>
<TABLE>
<S> <C>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117
TELEPHONE:
Toll Free (888) 786-2435
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
</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 June 9, 2000 for each of the following:
MFS Regatta Choice Variable and Fixed Annuity
Futurity III Variable and Fixed Annuity
<PAGE>
June 9, 2000
MFS REGATTA CHOICE
VARIABLE AND FIXED ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
TABLE OF CONTENTS
Calculation of Performance Data .............................................. 2
Advertising and Sales Literature ............................................. 5
Calculations ................................................................. 9
Example of Variable Accumulation Unit Value Calculation.................. 9
Example of Variable Annuity Unit Calculation ............................ 9
Example of Variable Annuity Payment Calculation ......................... 9
Distribution of the Contracts ................................................ 9
Designation and Change of Beneficiary ........................................10
Custodian ....................................................................10
Financial Statements .........................................................10
The Statement of Additional Information sets forth information
which may be of interest to prospective purchasers of MFS Regatta Choice
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 June 9, 2000. 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 by writing to Sun
Life Assurance Company of Canada (U.S.), c/o Retirement Products and Services,
P.O. Box 1024, Boston, Massachusetts 02103, or by telephoning (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 Fund is reflected from the date the
Variable Account was established, or such later date that the Fund commenced
operations (the "Commencement Date"), although the Contracts have been
offered only since June 9, 2000. No information is shown for the Funds that
have not commenced operations or that had been in operation for less than one
year as of December 31, 1999.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1999
1.15% M&E:
----------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
PERIOD PERIOD PERIOD LIFE DATE
----------- ----------- ----------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (8.79)% -- -- (2.11)% May 5, 1998
Capital Appreciation Series............. 23.90% 26.01% 17.41% 17.17% November 30, 1989
Capital Opportunities Series............ 38.73% -- -- 28.56% June 3, 1996
Emerging Growth Series.................. 66.59% -- -- 34.39% May 1, 1995
Emerging Markets Equity Series.......... 43.54% -- -- 1.80% June 5, 1996
Equity Income Series.................... (0.73)% -- -- 1.89% May 1, 1998
Global Asset Allocation Series.......... 9.97% 12.52% -- 12.32% November 7, 1994
Global Governments Series............... (11.98)% 3.40% 5.56% 5.78% November 30, 1989
Global Growth Series.................... 58.20% 21.74% -- 19.05% November 16, 1993
Global Total Return Series.............. 0.54% 12.39% -- 12.17% November 7, 1994
Government Securities Series............ (8.98)% 4.54% 5.73% 5.64% November 30, 1989
High Yield Series....................... (0.92)% 7.67% 8.95% 8.72% November 30, 1989
International Growth Series............. 26.56% -- -- 5.51% June 3, 1996
International Growth and Income
Series................................. 8.73% -- -- 9.61% October 2, 1995
Managed Sectors Series.................. 76.28% 30.47% 18.98% 18.64% November 30, 1989
Massachusetts Investors Growth Stock
Series................................. 27.01% -- -- 29.22% May 1, 1998
Massachusetts Investors Trust Series.... (0.59)% 22.75% 14.85% 14.79% November 30, 1989
Money Market Series..................... (2.90)% 2.78% 3.48% 3.49% November 30, 1989
New Discovery Series.................... 51.14% -- -- 32.53% May 5, 1998
Research Series......................... 15.53% 23.87% -- 22.84% November 7, 1994
Research Growth and Income Series....... 0.30% -- -- 11.94% May 12, 1997
Research International Series........... 45.97% -- -- 20.25% May 5, 1998
Strategic Income Series................. (3.05)% -- -- (3.43)% May 5, 1998
Total Return Series..................... (4.61)% 13.11% 10.36% 10.33% November 30, 1989
Utilities Series........................ 22.55% 24.72% -- 18.64% November 16, 1993
</TABLE>
1.30% M&E:
----------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
PERIOD PERIOD PERIOD LIFE DATE
----------- ----------- ----------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (8.93)% -- -- (2.26)% May 5, 1998
Capital Appreciation Series............. 23.71% 25.82% 17.23% 16.99% November 30, 1989
Capital Opportunities Series............ 38.52% -- -- 28.37% June 3, 1996
Emerging Growth Series.................. 66.34% -- -- 34.19% May 1, 1995
Emerging Markets Equity Series.......... 43.32% -- -- 1.64% June 5, 1996
Equity Income Series.................... (0.88)% -- -- 1.73% May 1, 1998
Global Asset Allocation Series.......... 9.81% 12.35% -- 12.15% November 7, 1994
Global Governments Series............... (12.11)% 3.24% 5.40% 5.62% November 30, 1989
Global Growth Series.................... 57.96% 21.55% -- 18.87% November 16, 1993
Global Total Return Series.............. 0.39% 12.22% -- 12.00% November 7, 1994
Government Securities Series............ (9.11)% 4.38% 5.57% 5.48% November 30, 1989
High Yield Series....................... (1.07)% 7.50% 8.78% 8.56% November 30, 1989
International Growth Series............. 26.36% -- -- 5.35% June 3, 1996
International Growth and Income
Series................................. 8.57% -- -- 9.44% October 2, 1995
Managed Sectors Series.................. 76.01% 30.27% 18.79% 18.46% November 30, 1989
Massachusetts Investors Growth Stock
Series................................. 26.82% -- -- 29.02% May 1, 1998
Massachusetts Investors Trust Series.... (0.75)% 22.56% 14.67% 14.62% November 30, 1989
Money Market Series..................... (3.05)% 2.62% 3.33% 3.34% November 30, 1989
New Discovery Series.................... 50.91% -- -- 32.33% May 5, 1998
Research Series......................... 15.35% 23.68% -- 22.65% November 7, 1994
Research Growth and Income Series....... 0.15% -- -- 11.77% May 12, 1997
Research International Series........... 45.75% -- -- 20.07% May 5, 1998
Strategic Income Series................. (3.19)% -- -- (3.58)% May 5, 1998
Total Return Series..................... (4.75)% 12.94% 10.20% 10.17% November 30, 1989
Utilities Series........................ 22.37% 24.53% -- 18.46% November 16, 1993
</TABLE>
1.40% M&E:
----------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
PERIOD PERIOD PERIOD LIFE DATE
----------- ----------- ----------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (9.02)% -- -- (2.36)% May 5, 1998
Capital Appreciation Series............. 23.59% 25.69% 17.11% 16.87% November 30, 1989
Capital Opportunities Series............ 38.37% -- -- 28.24% June 3, 1996
Emerging Growth Series.................. 66.17% -- -- 34.05% May 1, 1995
Emerging Markets Equity Series(1)....... 43.18% -- -- 1.54% June 5, 1996
Equity Income Series.................... (0.98)% -- -- 1.63% May 1, 1998
Global Asset Allocation Series.......... 9.70% 12.23% -- 12.04% November 7, 1994
Global Governments Series............... (12.20)% 3.14% 5.29% 5.52% November 30, 1989
Global Growth Series.................... 57.80% 21.43% -- 18.75% November 16, 1993
Global Total Return Series.............. 0.29% 12.11% -- 11.88% November 7, 1994
Government Securities Series............ (9.21)% 4.28% 5.46% 5.38% November 30, 1989
High Yield Series....................... (1.17)% 7.40% 8.67% 8.45% November 30, 1989
International Growth Series............. 26.24% -- -- 5.24% June 3, 1996
International Growth and Income
Series................................. 8.46% -- -- 9.33% October 2, 1995
Managed Sectors Series.................. 75.83% 30.14% 18.67% 18.34% November 30, 1989
Massachusetts Investors Growth Stock
Series................................. 26.69% -- -- 28.89% May 1, 1998
Massachusetts Investors Trust Series.... (0.85)% 22.44% 14.56% 14.50% November 30, 1989
Money Market Series..................... (3.15)% 2.52% 3.22% 3.23% November 30, 1989
New Discovery Series.................... 50.76% -- -- 32.19% May 5, 1998
Research Series......................... 15.23% 23.55% -- 22.53% November 7, 1994
Research Growth and Income Series....... 0.04% -- -- 11.66% May 12, 1997
Research International Series........... 45.61% -- -- 19.95% May 5, 1998
Strategic Income Series................. (3.29)% -- -- (3.67)% May 5, 1998
Total Return Series..................... (4.85)% 12.83% 10.09% 10.05% November 30, 1989
Utilities Series........................ 22.24% 24.40% -- 18.34% November 16, 1993
</TABLE>
1.55% M&E:
----------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
PERIOD PERIOD PERIOD LIFE DATE
----------- ----------- ----------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (9.16)% -- -- (2.51)% May 5, 1998
Capital Appreciation Series............. 23.40% 25.50% 16.94% 16.69% November 30, 1989
Capital Opportunities Series............ 38.16% -- -- 28.04% June 3, 1996
Emerging Growth Series.................. 65.92% -- -- 33.85% May 1, 1995
Emerging Markets Equity Series(1)....... 42.96% -- -- 1.39% June 5, 1996
Equity Income Series.................... (1.14)% -- -- 1.47% May 1, 1998
Global Asset Allocation Series.......... 9.53% 12.06% -- 11.87% November 7, 1994
Global Governments Series............... (12.33)% 2.98% 5.13% 5.36% November 30, 1989
Global Growth Series.................... 57.56% 21.24% -- 18.57% November 16, 1993
Global Total Return Series.............. 0.14% 11.94% -- 11.71% November 7, 1994
Government Securities Series............ (9.34)% 4.12% 5.30% 5.22% November 30, 1989
High Yield Series....................... (1.32)% 7.23% 8.50% 8.28% November 30, 1989
International Growth Series............. 26.04% -- -- 5.08% June 3, 1996
International Growth and Income
Series................................. 8.29% -- -- 9.17% October 2, 1995
Managed Sectors Series.................. 75.56% 29.94% 18.49% 18.16% November 30, 1989
Massachusetts Investors Growth Stock
Series................................. 26.50% -- -- 28.70% May 1, 1998
Massachusetts Investors Trust Series.... (1.00)% 22.25% 14.38% 14.33% November 30, 1989
Money Market Series..................... (3.30)% 2.36% 3.07% 3.07% November 30, 1989
New Discovery Series.................... 50.53% -- -- 31.99% May 5, 1998
Research Series......................... 15.06% 23.36% -- 22.34% November 7, 1994
Research Growth and Income Series....... (0.11)% -- -- 11.49% May 12, 1997
Research International Series........... 45.38% -- -- 19.77% May 5, 1998
Strategic Income Series................. (3.44)% -- -- (3.82)% May 5, 1998
Total Return Series..................... (4.99)% 12.66% 9.92% 9.89% November 30, 1989
Utilities Series........................ 22.06% 24.21% -- 18.16% November 16, 1993
</TABLE>
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 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 Contracts and Certificates that have amounts
allocated to that Sub-Account. Because the impact of the Account Fee 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 Fund is
reflected from the date such Fund commenced operations ("Inception"),
although the Contracts have been offered only since June 9, 2000. No
information is shown for the Funds that have not commenced operations or that
had been in operation less than one year as of December 31, 1999.
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1999
1.15% M&E
---------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (2.86)% -- -- 1.83% May 5, 1998
Capital Appreciation Series............. 31.10% 26.53% 17.52% 17.38% August 13, 1985
Capital Opportunities Series............ 45.92% -- -- 29.59% June 3, 1996
Emerging Growth Series.................. 73.79% -- -- 34.88% May 1, 1995
Emerging Markets Equity Series(1)....... 50.73% -- -- 3.54% June 5, 1996
Equity Income Series.................... 5.80% -- -- 5.99% May 1, 1998
Global Asset Allocation Series.......... 17.17% 13.29% -- 12.97% November 7, 1994
Global Governments Series............... (6.29)% 4.44% 5.71% 5.96% May 16, 1988
Global Growth Series.................... 65.39% 22.32% -- 19.40% November 16, 1993
Global Total Return Series.............. 7.18% 13.17% -- 12.82% November 7, 1994
Government Securities Series............ (3.06)% 5.54% 5.88% 6.77% August 12, 1985
High Yield Series....................... 5.60% 8.57% 9.08% 8.21% August 13, 1985
International Growth Series............. 33.75% -- -- 7.14% June 3, 1996
International Growth and Income
Series................................. 15.92% -- -- 10.67% October 2, 1995
Managed Sectors Series.................. 83.47% 30.93% 19.08% 20.34% May 27, 1988
Massachusetts Investors Growth Stock
Series................................. 34.21% -- -- 32.93% May 1, 1998
Massachusetts Investors Trust Series.... 5.95% 23.32% 14.96% 14.05% December 5, 1986
Money Market Series..................... 3.47% 3.84% 3.65% 4.26% August 29, 1985
New Discovery Series.................... 58.34% -- -- 36.22% May 5, 1998
Research Series......................... 22.72% 24.42% -- 23.31% November 7, 1994
Research Growth and Income Series....... 6.91% -- -- 14.01% May 12, 1997
Research International Series........... 53.17% -- -- 24.18% May 5, 1998
Strategic Income Series................. 3.32% -- -- 0.45% May 5, 1998
Total Return Series..................... 1.64% 13.87% 10.49% 10.84% May 16, 1988
Utilities Series........................ 29.75% 25.26% -- 18.98% November 16, 1993
</TABLE>
------------------------
*From commencement of investment operations
1.30% M&E
---------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (3.01)% -- -- 1.68% May 5, 1998
Capital Appreciation Series............. 30.90% 26.34% 17.34% 17.21% August 13, 1985
Capital Opportunities Series............ 45.70% -- -- 29.39% June 3, 1996
Emerging Growth Series.................. 73.53% -- -- 34.68% May 1, 1995
Emerging Markets Equity Series(1)....... 50.51% -- -- 3.38% June 5, 1996
Equity Income Series.................... 5.64% -- -- 5.83% May 1, 1998
Global Asset Allocation Series.......... 16.99% 13.12% -- 12.80% November 7, 1994
Global Governments Series............... (6.43)% 4.28% 5.55% 5.80% May 16, 1988
Global Growth Series.................... 65.14% 22.14% -- 19.21% November 16, 1993
Global Total Return Series.............. 7.01% 13.00% -- 12.65% November 7, 1994
Government Securities Series............ (3.21)% 5.38% 5.72% 6.61% August 12, 1985
High Yield Series....................... 5.44% 8.40% 8.92% 8.05% August 13, 1985
International Growth Series............. 33.55% -- -- 6.98% June 3, 1996
International Growth and Income
Series................................. 15.75% -- -- 10.50% October 2, 1995
Managed Sectors Series.................. 83.19% 30.74% 18.90% 20.16% May 27, 1988
Massachusetts Investors Growth Stock
Series................................. 34.01% -- -- 32.73% May 1, 1998
Massachusetts Investors Trust Series.... 5.79% 23.13% 14.79% 13.87% December 5, 1986
Money Market Series..................... 3.31% 3.68% 3.49% 4.10% August 29, 1985
New Discovery Series.................... 58.10% -- -- 36.01% May 5, 1998
Research Series......................... 22.53% 24.23% -- 23.13% November 7, 1994
Research Growth and Income Series....... 6.75% -- -- 13.83% May 12, 1997
Research International Series........... 52.94% -- -- 23.99% May 5, 1998
Strategic Income Series................. 3.16% -- -- 0.29% May 5, 1998
Total Return Series..................... 1.48% 13.70% 10.33% 10.67% May 16, 1988
Utilities Series........................ 29.55% 25.07% -- 18.80% November 16, 1993
</TABLE>
------------------------
*From commencement of investment operations
1.40% M&E
---------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (3.11)% -- -- 1.57% May 5, 1998
Capital Appreciation Series............. 30.77% 26.21% 17.22% 17.09% August 13, 1985
Capital Opportunities Series............ 45.55% -- -- 29.26% June 3, 1996
Emerging Growth Series.................. 73.35% -- -- 34.54% May 1, 1995
Emerging Markets Equity Series(1)....... 50.35% -- -- 3.28% June 5, 1996
Equity Income Series.................... 5.54% -- -- 5.73% May 1, 1998
Global Asset Allocation Series.......... 16.87% 13.00% -- 12.69% November 7, 1994
Global Governments Series............... (6.52)% 4.18% 5.44% 5.69% May 16, 1988
Global Growth Series.................... 64.97% 22.01% -- 19.09% November 16, 1993
Global Total Return Series.............. 6.90% 12.88% -- 12.53% November 7, 1994
Government Securities Series............ (3.30)% 5.28% 5.61% 6.50% August 12, 1985
High Yield Series....................... 5.34% 8.29% 8.81% 7.94% August 13, 1985
International Growth Series............. 33.41% -- -- 6.87% June 3, 1996
International Growth and Income
Series................................. 15.63% -- -- 10.39% October 2, 1995
Managed Sectors Series.................. 83.01% 30.60% 18.77% 20.04% May 27, 1988
Massachusetts Investors Growth Stock
Series................................. 33.87% -- -- 32.60% May 1, 1998
Massachusetts Investors Trust Series.... 5.69% 23.01% 14.67% 13.76% December 5, 1986
Money Market Series..................... 3.21% 3.58% 3.39% 4.00% August 29, 1985
New Discovery Series.................... 57.94% -- -- 35.88% May 5, 1998
Research Series......................... 22.41% 24.10% -- 23.00% November 7, 1994
Research Growth and Income Series....... 6.64% -- -- 13.72% May 12, 1997
Research International Series........... 52.78% -- -- 23.86% May 5, 1998
Strategic Income Series................. 3.06% -- -- 0.19% May 5, 1998
Total Return Series..................... 1.38% 13.58% 10.22% 10.56% May 16, 1988
Utilities Series........................ 29.42% 24.94% -- 18.68% November 16, 1993
</TABLE>
------------------------
*From commencement of investment operations
1.55% M&E
---------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (3.25)% -- -- 1.42% May 5, 1998
Capital Appreciation Series............. 30.57% 26.02% 17.04% 16.91% August 13, 1985
Capital Opportunities Series............ 45.33% -- -- 29.07% June 3, 1996
Emerging Growth Series.................. 73.09% -- -- 34.33% May 1, 1995
Emerging Markets Equity Series(1)....... 50.12% -- -- 3.12% June 5, 1996
Equity Income Series.................... 5.37% -- -- 5.57% May 1, 1998
Global Asset Allocation Series.......... 16.69% 12.83% -- 12.51% November 7, 1994
Global Governments Series............... (6.67)% 4.02% 5.28% 5.53% May 16, 1988
Global Growth Series.................... 64.72% 21.83% -- 18.91% November 16, 1993
Global Total Return Series.............. 6.74% 12.71% -- 12.36% November 7, 1994
Government Securities Series............ (3.45)% 5.12% 5.45% 6.34% August 12, 1985
High Yield Series....................... 5.18% 8.13% 8.64% 7.77% August 13, 1985
International Growth Series............. 33.21% -- -- 6.71% June 3, 1996
International Growth and Income
Series................................. 15.46% -- -- 10.22% October 2, 1995
Managed Sectors Series.................. 82.73% 30.40% 18.59% 19.86% May 27, 1988
Massachusetts Investors Growth Stock
Series................................. 33.67% -- -- 32.40% May 1, 1998
Massachusetts Investors Trust Series.... 5.52% 22.82% 14.50% 13.59% December 5, 1986
Money Market Series..................... 3.05% 3.42% 3.23% 3.84% August 29, 1985
New Discovery Series.................... 57.70% -- -- 35.67% May 5, 1998
Research Series......................... 22.22% 23.92% -- 22.82% November 7, 1994
Research Growth and Income Series....... 6.48% -- -- 13.55% May 12, 1997
Research International Series........... 52.55% -- -- 23.67% May 5, 1998
Strategic Income Series................. 2.90% -- -- 0.04% May 5, 1998
Total Return Series..................... 1.23% 13.41% 10.05% 10.39% May 16, 1988
Utilities Series........................ 29.22% 24.75% -- 18.50% November 16, 1993
</TABLE>
------------------------
*From commencement of investment operations
<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 Fund is reflected
from the date such Fund commenced operations ("Inception"), although the
Contracts have been offered only since June 9, 2000. No information is shown
for the Funds that have not commenced operations or that had been in operation
for less than one year as of December 31, 1999.
NON-STANDARDIZED COMPOUND GROWTH RATE
PERIOD ENDING DECEMBER 31, 1999
1.15% M&E
---------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (8.79)% -- -- (2.11)% May 5, 1998
Capital Appreciation Series............. 23.90% 26.01% 17.41% 17.27% August 13, 1985
Capital Opportunities Series............ 38.73% -- -- 28.56% June 3, 1996
Emerging Growth Series.................. 66.59% -- -- 34.39% May 1, 1995
Emerging Markets Equity Series(1)....... 43.54% -- -- 1.80% June 5, 1996
Equity Income Series.................... (0.73)% -- -- 1.89% May 1, 1998
Global Asset Allocation Series.......... 9.97% 12.52% -- 12.32% November 7, 1994
Global Governments Series............... (11.98)% 3.40% 5.56% 5.86% May 16, 1988
Global Growth Series.................... 58.20% 21.74% -- 19.05% November 16, 1993
Global Total Return Series.............. 0.54% 12.39% -- 12.17% November 7, 1994
Government Securities Series............ (8.98)% 4.54% 5.73% 6.66% August 12, 1985
High Yield Series....................... (0.92)% 7.67% 8.95% 8.09% August 13, 1985
International Growth Series............. 26.56% -- -- 5.51% June 3, 1996
International Growth and Income
Series................................. 8.73% -- -- 9.61% October 2, 1995
Managed Sectors Series.................. 76.28% 30.47% 18.98% 20.25% May 27, 1988
Massachusetts Investors Growth Stock
Series................................. 27.01% -- -- 29.22% May 1, 1998
Massachusetts Investors Trust Series.... (0.59)% 22.75% 14.85% 13.91% December 5, 1986
Money Market Series..................... (2.90)% 2.78% 3.48% 4.14% August 29, 1985
New Discovery Series.................... 51.14% -- -- 32.53% May 5, 1998
Research Series......................... 15.53% 23.87% -- 22.84% November 7, 1994
Research Growth and Income Series....... 0.30% -- -- 11.94% May 12, 1997
Research International Series........... 45.97% -- -- 20.25% May 5, 1998
Strategic Income Series................. (3.05)% -- -- (3.43)% May 5, 1998
Total Return Series..................... (4.61)% 13.11% 10.36% 10.71% May 16, 1988
Utilities Series........................ 22.55% 24.72% -- 18.64% November 16, 1993
</TABLE>
------------------------
*From commencement of investment operations
1.30% M&E
---------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (8.93)% -- -- (2.26)% May 5, 1998
Capital Appreciation Series............. 23.71% 25.82% 17.23% 17.10% August 13, 1985
Capital Opportunities Series............ 38.52% -- -- 28.37% June 3, 1996
Emerging Growth Series.................. 66.34% -- -- 34.19% May 1, 1995
Emerging Markets Equity Series(1)....... 43.32% -- -- 1.64% June 5, 1996
Equity Income Series.................... (0.88)% -- -- 1.73% May 1, 1998
Global Asset Allocation Series.......... 9.81% 12.35% -- 12.15% November 7, 1994
Global Governments Series............... (12.11)% 3.24% 5.40% 5.70% May 16, 1988
Global Growth Series.................... 57.96% 21.55% -- 18.87% November 16, 1993
Global Total Return Series.............. 0.39% 12.22% -- 12.00% November 7, 1994
Government Securities Series............ (9.11)% 4.38% 5.57% 6.50% August 12, 1985
High Yield Series....................... (1.07)% 7.50% 8.78% 7.93% August 13, 1985
International Growth Series............. 26.36% -- -- 5.35% June 3, 1996
International Growth and Income
Series................................. 8.57% -- -- 9.44% October 2, 1995
Managed Sectors Series.................. 76.01% 30.27% 18.79% 20.07% May 27, 1988
Massachusetts Investors Growth Stock
Series................................. 26.82% -- -- 29.02% May 1, 1998
Massachusetts Investors Trust Series.... (0.75)% 22.56% 14.67% 13.73% December 5, 1986
Money Market Series..................... (3.05)% 2.62% 3.33% 3.98% August 29, 1985
New Discovery Series.................... 50.91% -- -- 32.33% May 5, 1998
Research Series......................... 15.35% 23.68% -- 22.65% November 7, 1994
Research Growth and Income Series....... 0.15% -- -- 11.77% May 12, 1997
Research International Series........... 45.75% -- -- 20.07% May 5, 1998
Strategic Income Series................. (3.19)% -- -- (3.58)% May 5, 1998
Total Return Series..................... (4.75)% 12.94% 10.20% 10.54% May 16, 1988
Utilities Series........................ 22.37% 24.53% -- 18.46% November 16, 1993
</TABLE>
------------------------
*From commencement of investment operations
1.40% M&E
---------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (9.02)% -- -- (2.36)% May 5, 1998
Capital Appreciation Series............. 23.59% 25.69% 17.11% 16.98% August 13, 1985
Capital Opportunities Series............ 38.37% -- -- 28.24% June 3, 1996
Emerging Growth Series.................. 66.17% -- -- 34.05% May 1, 1995
Emerging Markets Equity Series(1)....... 43.18% -- -- 1.54% June 5, 1996
Equity Income Series.................... (0.98)% -- -- 1.63% May 1, 1998
Global Asset Allocation Series.......... 9.70% 12.23% -- 12.04% November 7, 1994
Global Governments Series............... (12.20)% 3.14% 5.29% 5.59% May 16, 1988
Global Growth Series.................... 57.80% 21.43% -- 18.75% November 16, 1993
Global Total Return Series.............. 0.29% 12.11% -- 11.88% November 7, 1994
Government Securities Series............ (9.21)% 4.28% 5.46% 6.39% August 12, 1985
High Yield Series....................... (1.17)% 7.40% 8.67% 7.82% August 13, 1985
International Growth Series............. 26.24% -- -- 5.24% June 3, 1996
International Growth and Income
Series................................. 8.46% -- -- 9.33% October 2, 1995
Managed Sectors Series.................. 75.83% 30.14% 18.67% 19.95% May 27, 1988
Massachusetts Investors Growth Stock
Series................................. 26.69% -- -- 28.89% May 1, 1998
Massachusetts Investors Trust Series.... (0.85)% 22.44% 14.56% 13.62% December 5, 1986
Money Market Series..................... (3.15)% 2.52% 3.22% 3.88% August 29, 1985
New Discovery Series.................... 50.76% -- -- 32.19% May 5, 1998
Research Series......................... 15.23% 23.55% -- 22.53% November 7, 1994
Research Growth and Income Series....... 0.04% -- -- 11.66% May 12, 1997
Research International Series........... 45.61% -- -- 19.95% May 5, 1998
Strategic Income Series................. (3.29)% -- -- (3.67)% May 5, 1998
Total Return Series..................... (4.85)% 12.83% 10.09% 10.43% May 16, 1988
Utilities Series........................ 22.24% 24.40% -- 18.34% November 16, 1993
</TABLE>
------------------------
*From commencement of investment operations
1.55% M&E
---------
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR DATE OF
PERIOD PERIOD PERIOD LIFE* INCEPTION
----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C>
FUNDS:
Bond Series............................. (9.16)% -- -- (2.51)% May 5, 1998
Capital Appreciation Series............. 23.40% 25.50% 16.94% 16.80% August 13, 1985
Capital Opportunities Series............ 38.16% -- -- 28.04% June 3, 1996
Emerging Growth Series.................. 65.92% -- -- 33.85% May 1, 1995
Emerging Markets Equity Series(1)....... 42.96% -- -- 1.39% June 5, 1996
Equity Income Series.................... (1.14)% -- -- 1.47% May 1, 1998
Global Asset Allocation Series.......... 9.53% 12.06% -- 11.87% November 7, 1994
Global Governments Series............... (12.33)% 2.98% 5.13% 5.43% May 16, 1988
Global Growth Series.................... 57.56% 21.24% -- 18.57% November 16, 1993
Global Total Return Series.............. 0.14% 11.94% -- 11.71% November 7, 1994
Government Securities Series............ (9.34)% 4.12% 5.30% 6.23% August 12, 1985
High Yield Series....................... (1.32)% 7.23% 8.50% 7.65% August 13, 1985
International Growth Series............. 26.04% -- -- 5.08% June 3, 1996
International Growth and Income
Series................................. 8.29% -- -- 9.17% October 2, 1995
Managed Sectors Series.................. 75.56% 29.94% 18.49% 19.77% May 27, 1988
Massachusetts Investors Growth Stock
Series................................. 26.50% -- -- 28.70% May 1, 1998
Massachusetts Investors Trust Series.... (1.00)% 22.25% 14.38% 13.45% December 5, 1986
Money Market Series..................... (3.30)% 2.36% 3.07% 3.72% August 29, 1985
New Discovery Series.................... 50.53% -- -- 31.99% May 5, 1998
Research Series......................... 15.06% 23.36% -- 22.34% November 7, 1994
Research Growth and Income Series....... (0.11)% -- -- 11.49% May 12, 1997
Research International Series........... 45.38% -- -- 19.77% May 5, 1998
Strategic Income Series................. (3.44)% -- -- (3.82)% May 5, 1998
Total Return Series..................... (4.99)% 12.66% 9.92% 10.26% May 16, 1988
Utilities Series........................ 22.06% 24.21% -- 18.16% November 16, 1993
</TABLE>
------------------------
*From commencement of investment operations
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 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 may 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 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>
-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, 1998 the Company was the 36th largest
U.S. life insurance company based upon overall assets.
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 CONTRACTS OR ANY OF THE INVESTMENT OPTIONS THEREUNDER. 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-
TAX-DEFERRED ACCUMULATION
In general, individuals who own annuity contracts are not taxed on
increases in the value of their annuity contracts until some form of
distribution is made under the contract. As a result, the annuity contract
would benefit from tax deferral during the contract's accumulation phase;
this would have the effect of permitting an investment in an annuity contract
to grow more rapidly that a comparable investment under which increases in
value are taxed on a current basis.
In reports or other communications to you or in advertising or sales
materials, we may also describe the effects of tax-deferred compounding on
the Variable Account's investment returns. We may illustrate these effects
in charts or graphs and from time to time may include comparisons of returns
under the Contracts or in general on a tax deferred basis, with the returns
on a taxable basis. Different tax rates may be assumed. Any such illustrative
chart or graph would show accumulations on an initial investment or Purchase
Payment, assuming a given amount (including the applicable interest credit),
hypothetical gross annual returns compounded annually, and a stated rate of
return. The values shown for the taxable investment would not include any
deduction for management fees or other expenses, but would assume the annual
deduction of federal and state taxes from investment returns. The values
shown for the Contracts in a chart would reflect the deduction of Contract
expenses, such as the mortality and expense risk charge, the 0.15%
administrative charge, and the annual Account Fee. In addition, the
values shown would assume that the Participant has not surrendered his or her
Contract or made any partial surrenders until the end of the period shown.
The chart would assume a full surrender at the end of the period shown and
the payment of federal and state taxes, at a rate of not more than 33%, on
the amount in excess of the Purchase Payments.
In developing illustrative tax deferral charts, we will observe these
general principles:
- The assumed rate of earnings will be realistic.
- The illustrative chart will accurately depict the effect of all
fees and charges or provide a narrative that prominently discloses
all fees and charges under the Contract.
- Charts comparing accumulation values for tax-deferred and non-tax-
deferred investments will depict the implications of any surrender.
- A narrative accompanying the chart will prominently disclose that
there may be a 10% tax penalty on a surrender by a Participant who
has not reached age 59 1/2 at the time of surrender.
The rates of return illustrated in any chart would be hypothetical and
are not an estimate or guaranty of performance. Actual tax returns may vary
for among Participants.
<PAGE>
-9-
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 .00004280 (the daily equivalent of the current maximum
charge of 1.55% on an annual basis) gives a net investment factor of
1.00323231. 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 14.6116444 (14.5645672 X 1.00323231).
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 12.3456789
(12.3456789 X 1.00323648 (the Net Investment Factor (based on the daily
equivalent of maximum annuity phase charge of 1.40% on an annual basis) 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.
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 14.5645672
X 6.78 divided by 1,000). The number of annuity units credited would be
70.1112 ($865.57 divided by 12.3456789) and the second variable annuity
payment would be $868.30 (70.1112 X 12.3846325).
DISTRIBUTION OF THE CONTRACTS
We offer the Contracts on a continuous basis. The Contracts are
sold by licensed insurance agents in those states where the Contracts may be
lawfully sold. Such agents will be registered representatives of
broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. and who have
entered into distribution agreements with the Company and the general
distributor and principal underwriter of the Contracts, Clarendon Insurance
Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02481. Clarendon is a wholly-owned subsidiary of the Company.
Clarendon is registered with the SEC under the Securities Exchange Act of
1934 as broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Clarendon also acts as the general distributor of
certain other annuity contracts issued by the Company and its wholly-owned
subsidiary, Sun Life Insurance and Annuity Company of New York, and variable
life insurance contracts issued by the Company.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 6.50% 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>
-10-
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, 1999 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>
-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, 1999
<TABLE>
<CAPTION>
Assets:
Shares Cost Value
Investment in MFS/Sun Life Series Trust: ----------- -------------- ---------------
<S> <C> <C> <C>
Bond Series ("BDS")..................................... 5,032,859 $ 52,850,279 $ 52,118,351
Capital Appreciation Series ("CAS")..................... 33,928,098 1,362,292,998 1,836,044,559
Capital Opportunities Series ("COS").................... 17,497,220 291,825,538 428,787,357
Massachusetts Investors Trust Series ("MIT")............ 55,246,647 1,765,382,623 2,096,532,982
Emerging Growth Series ("EGS").......................... 33,617,464 657,067,915 1,354,009,677
Equity Income Series ("EIS")............................ 3,651,313 40,120,260 40,936,224
Emerging Markets Equity
Series ("FCE").......................................... 3,316,512 30,303,485 37,877,306
International Growth Series ("FCI")..................... 5,055,030 52,026,378 66,223,206
International Growth and Income Series ("FCG").......... 5,403,493 69,153,828 80,909,710
Government Securities Series ("GSS").................... 35,624,961 457,676,007 444,492,495
High Yield Series ("HYS")............................... 34,025,742 315,462,174 306,781,605
Managed Sectors Series ("MSS").......................... 12,025,505 345,925,544 630,396,157
Massachusetts Investors Growth Stock Series ("MIS")..... 32,967,162 416,945,277 531,800,703
Money Market Series ("MMS")............................. 454,908,455 454,908,455 454,908,455
New Discovery Series ("NWD")............................ 3,710,841 41,511,925 62,699,760
Research Series ("RES")................................. 43,297,368 826,432,303 1,195,623,218
Research Growth and Income Series ("RGS")............... 5,206,053 69,608,597 75,161,248
Research International Series ("RSS")................... 2,045,281 23,798,520 29,839,876
Strategic Income Series ("SIS")......................... 1,895,901 18,979,780 19,443,594
Total Return Series ("TRS")............................. 93,947,109 1,777,124,893 1,762,378,532
Utilities Series ("UTS")................................ 18,760,767 294,942,640 372,198,015
Global Asset Allocation Series ("GAA").................. 7,496,242 107,654,207 121,373,291
Global Governments Series ("GGS")....................... 6,514,585 72,392,490 66,878,866
Global Growth Series ("GGR")............................ 16,712,838 242,007,044 420,505,813
Global Total Return Series ("GTR")...................... 6,153,538 90,512,865 102,431,102
Strategic Growth Series ("SGS")......................... 755,126 8,085,971 9,158,291
-------------- ---------------
$9,884,991,996 $12,599,510,393
==============
Liability:
Payable to Sponsor...................................................................... (788,789)
---------------
Net Assets........................................................................ $12,598,721,604
===============
</TABLE>
<TABLE>
<CAPTION>
Applicable to Owners of
Deferred Variable Annuity Contracts Reserve for
------------------------------------- Variable
Units Unit Value Value Annuities Total
NET ASSETS APPLICABLE TO CONTRACT OWNERS: ---------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
MFS REGATTA CONTRACTS:
CAS -- Level 1......................... 22,958 $49.8052 $ 1,154,572 $ 82,807 $ 1,237,379
CAS -- Level 2......................... 7,847,274 20.1338 157,816,394 969,593 158,785,987
GSS -- Level 1......................... -- 17.3110 13,647 60,353 74,000
GSS -- Level 2......................... 2,795,724 11.1316 31,105,411 89,576 31,194,987
HYS -- Level 1......................... 165 23.0560 13,811 3,624 17,435
HYS -- Level 2......................... 1,075,336 11.7136 12,598,381 70,200 12,668,581
MSS -- Level 1......................... 5,113 55.3202 400,698 -- 400,698
MSS -- Level 2......................... 2,678,028 24.9629 66,652,102 199,948 66,852,050
MMS -- Level 1......................... 16,140 14.0901 423,113 21,042 444,155
MMS -- Level 2......................... 2,672,617 11.1554 29,564,107 218,878 29,782,985
TRS -- Level 1......................... 31,742 26.9360 870,926 26,274 897,200
TRS -- Level 2......................... 9,929,414 13.5253 134,236,171 1,163,409 135,399,580
GGS -- Level 1......................... 495 17.4756 20,251 -- 20,251
GGS -- Level 2......................... 630,136 10.4903 6,597,561 77,362 6,674,923
------------ ---------- ------------
$441,467,145 $2,983,066 $444,450,211
------------ ---------- ------------
</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, 1999 -- continued
<TABLE>
<CAPTION>
Applicable to Owners of
Deferred Variable Annuity Contracts Reserve for
---------------------------------------- Variable
Units Unit Value Value Annuities Total
NET ASSETS APPLICABLE TO CONTRACT OWNERS (CONTINUED): ---------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
MFS REGATTA GOLD CONTRACTS:
BDS............................................. 2,085,322 $10.2650 $ 21,422,675 $ 196,994 $ 21,619,669
CAS............................................. 32,846,090 45.4986 1,494,201,625 8,076,446 1,502,278,071
COS............................................. 12,845,672 25.0521 321,822,832 370,891 322,193,723
MIT............................................. 49,201,899 33.5203 1,649,205,165 5,518,991 1,654,724,156
EGS............................................. 28,061,821 39.9489 1,121,085,030 2,395,699 1,123,480,729
EIS............................................. 1,301,166 10.9848 14,292,791 -- 14,292,791
FCE............................................. 2,761,034 11.2207 30,978,033 86,552 31,064,585
FCI............................................. 3,187,799 12.6829 40,432,352 49,086 40,481,438
FCG............................................. 4,509,596 15.2129 68,611,598 107,072 68,718,670
GSS............................................. 23,230,411 14.5981 339,182,656 1,242,278 340,424,934
HYS............................................. 12,537,119 18.9861 238,076,354 754,623 238,830,977
MSS............................................. 11,032,465 46.5671 513,184,584 1,768,278 514,952,862
MIS............................................. 11,985,320 16.0186 191,981,488 406,236 192,387,724
MMS............................................. 28,447,843 12.6229 359,153,095 1,693,460 360,846,555
NWD............................................. 1,599,416 16.6274 26,593,488 92,786 26,686,274
RES............................................. 35,935,779 29.0316 1,042,604,864 3,075,481 1,045,680,345
RGS............................................. 3,153,242 14.0374 44,265,738 118,955 44,384,693
RSS............................................. 1,114,581 14.2620 15,897,340 -- 15,897,340
SIS............................................. 892,490 12.1979 9,166,122 -- 9,166,122
TRS............................................. 62,923,966 22.4371 1,411,666,379 4,695,525 1,416,361,904
UTS............................................. 9,588,408 28.5407 273,652,266 1,182,207 274,834,473
GAA............................................. 6,188,330 18.4932 114,469,945 607,231 115,077,176
GGS............................................. 3,941,088 14.2506 56,177,676 377,322 56,554,998
GGR............................................. 13,513,835 29.1523 393,951,878 1,153,770 395,105,648
GTR............................................. 4,907,545 18.3636 90,121,960 555,833 90,677,793
SGS............................................. 558,856 12.1979 6,814,708 -- 6,814,708
-------------- ----------- --------------
$9,889,012,642 $34,525,716 $9,923,538,358
-------------- ----------- --------------
</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, 1999 -- continued
<TABLE>
<CAPTION>
Applicable to Owners of
Deferred Variable Annuity Contracts Reserve for
------------------------------------- Variable
Units Unit Value Value Annuities Total
NET ASSETS APPLICABLE TO CONTRACT OWNERS (CONTINUED): --------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
MFS REGATTA CLASSIC CONTRACTS:
BDS................................................. 48,210 $10.1232 $ 487,954 $-- $ 487,954
CAS................................................. 643,838 20.0351 12,896,639 -- 12,896,639
COS................................................. 450,750 23.3171 10,503,243 -- 10,503,243
MIT................................................. 1,467,541 16.6602 24,441,075 572 24,441,647
EGS................................................. 1,130,669 26.4915 29,945,574 -- 29,945,574
EIS................................................. 74,460 11.2502 837,571 -- 837,571
FCE................................................. 72,781 11.8522 862,731 -- 862,731
FCI................................................. 98,698 13.1278 1,294,861 -- 1,294,861
FCG................................................. 89,652 14.7561 1,320,980 -- 1,320,980
GSS................................................. 282,054 11.1508 3,151,398 -- 3,151,398
HYS................................................. 312,392 11.8516 3,700,989 -- 3,700,989
MSS................................................. 305,995 24.2876 7,430,811 -- 7,430,811
MIS................................................. 501,609 16.0843 8,069,796 -- 8,069,796
MMS................................................. 1,078,121 11.1757 12,051,351 -- 12,051,351
NWD................................................. 99,057 16.6956 1,654,206 -- 1,654,206
RES................................................. 963,271 17.5948 16,945,380 -- 16,945,380
RGS................................................. 74,418 13.8731 1,032,103 -- 1,032,103
RSS................................................. 28,986 16.8662 488,903 -- 488,903
SIS................................................. 22,950 11.2108 234,390 -- 234,390
TRS................................................. 1,987,855 13.3948 26,626,717 1,085 26,627,802
UTS................................................. 356,269 19.2810 6,862,785 -- 6,862,785
GAA................................................. 43,343 13.5725 588,958 -- 588,958
GGS................................................. 42,362 10.7398 454,905 -- 454,905
GGR................................................. 135,881 21.3313 2,897,127 -- 2,897,127
GTR................................................. 118,027 14.0077 1,652,891 597 1,653,488
SGS................................................. 5,701 11.2108 63,889 -- 63,889
------------ ------ ------------
$176,497,227 $2,254 $176,499,481
------------ ------ ------------
</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 CONDITION -- December 31, 1999 -- continued
<TABLE>
<CAPTION>
Applicable to Owners of
Deferred Variable Annuity Contracts Reserve for
----------------------------------------- Variable
Units Unit Value Value Annuities Total
NET ASSETS APPLICABLE TO CONTRACT OWNERS (CONTINUED): ---------- ---------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
MFS REGATTA PLATINUM CONTRACTS:
BDS............................................ 2,970,448 $10.0963 $ 29,994,338 $ 6,370 $ 30,000,708
CAS............................................ 10,770,738 14.8295 159,713,722 855,329 160,569,051
COS............................................ 6,088,167 15.7265 95,743,651 288,540 96,032,191
MIT............................................ 36,443,681 11.4075 415,739,367 1,814,868 417,554,235
EGS............................................ 9,952,208 20.0771 199,806,631 871,934 200,678,565
EIS............................................ 2,322,545 11.1059 25,793,127 12,558 25,805,685
FCE............................................ 471,834 12.2711 5,788,888 156,525 5,945,413
FCI............................................ 1,960,439 12.4412 24,389,553 44,137 24,433,690
FCG............................................ 904,331 11.9538 10,809,507 47,556 10,857,063
GSS............................................ 6,917,529 10.0675 69,644,205 151,558 69,795,763
HYS............................................ 5,126,512 10.0101 51,279,436 228,601 51,508,037
MSS............................................ 2,096,399 19.3732 40,613,386 30,902 40,644,288
MIS............................................ 20,741,206 15.9430 330,672,742 615,728 331,288,470
MMS............................................ 4,848,739 10.5145 50,985,070 534,768 51,519,838
NWD............................................ 2,064,540 16.4450 33,951,877 358,408 34,310,285
RES............................................ 9,822,632 13.4883 132,488,128 436,882 132,925,010
RGS............................................ 2,692,647 11.0284 29,696,208 46,181 29,742,389
RSS............................................ 914,188 14.4906 13,247,136 206,497 13,453,633
SIS............................................ 987,192 12.0212 10,043,082 -- 10,043,082
TRS............................................ 17,437,345 10.4327 181,919,827 855,857 182,775,684
UTS............................................ 6,397,913 14.1367 90,458,930 61,616 90,520,546
GAA............................................ 502,791 11.3461 5,704,516 -- 5,704,516
GGS............................................ 301,714 10.5290 3,174,978 20,740 3,195,718
GGR............................................ 1,328,571 16.9623 22,535,111 -- 22,535,111
GTR............................................ 901,334 11.1787 10,076,998 37,891 10,114,889
SGS............................................ 189,701 12.0212 2,279,694 -- 2,279,694
--------------- ----------- ---------------
$ 2,046,550,108 $ 7,683,446 $ 2,054,233,554
--------------- ----------- ---------------
Net Assets................................................................ $12,553,527,122 $45,194,482 $12,598,721,604
=============== =========== ===============
</TABLE>
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, 1999
<TABLE>
<CAPTION>
BDS CAS COS MIT EGS EIS
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.......... $ 456,185 $ 165,042,350 $ 5,266,720 $ 142,902,581 $ 12,001,599 $ 47,820
Mortality and expense risk
charges......................... (464,791) (18,362,496) (3,268,957) (23,586,223) (10,306,327) (282,553)
Distribution expense charges..... -- (5,941) -- -- -- --
Administrative expense charges... (55,942) (2,200,044) (394,335) (2,836,395) (1,242,331) (34,088)
----------- ------------- ------------ ------------- ------------ -----------
Net investment income
(loss)...................... $ (64,548) $ 144,473,869 $ 1,603,428 $ 116,479,963 $ 452,941 $ (268,821)
----------- ------------- ------------ ------------- ------------ -----------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales............ $ 9,550,320 $ 450,572,346 $ 29,745,130 $ 233,601,157 $137,754,613 $ 9,351,165
Cost of investments sold....... (9,570,915) (344,857,604) (19,530,316) (117,395,546) (77,682,913) (8,400,487)
----------- ------------- ------------ ------------- ------------ -----------
Net realized gains
(losses).................... $ (20,595) $ 105,714,742 $ 10,214,814 $ 116,205,611 $ 60,071,700 $ 950,678
----------- ------------- ------------ ------------- ------------ -----------
Net unrealized appreciation
(depreciation) on investments:
End of year.................... $ (731,928) $ 473,751,561 $136,961,819 $ 331,150,359 $696,941,762 $ 815,964
Beginning of year.............. 286,002 287,338,195 32,482,750 452,834,707 194,893,156 595,356
----------- ------------- ------------ ------------- ------------ -----------
Change in unrealized
appreciation
(depreciation).............. $(1,017,930) $ 186,413,366 $104,479,069 $(121,684,348) $502,048,606 $ 220,608
----------- ------------- ------------ ------------- ------------ -----------
Realized and unrealized gains
(losses)...................... $(1,038,525) $ 292,128,108 $114,693,883 $ (5,478,737) $562,120,306 $ 1,171,286
----------- ------------- ------------ ------------- ------------ -----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................... $(1,103,073) $ 436,601,977 $116,297,311 $ 111,001,226 $562,573,247 $ 902,465
=========== ============= ============ ============= ============ ===========
</TABLE>
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, 1999 -- continued
<TABLE>
<CAPTION>
FCE FCI FCG GSS
Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ -- $ 216,260 $ 2,184,611 $ 21,618,169
Mortality and expense risk
charges......................... (298,005) (549,216) (885,975) (5,311,042)
Distribution expense charges..... -- -- -- (1,545)
Administrative expense charges... (35,925) (66,290) (106,818) (636,791)
------------ ------------ ------------- -------------
Net investment income
(loss)...................... $ (333,930) $ (399,246) $ 1,191,818 $ 15,668,791
------------ ------------ ------------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains(losses) on
investment transactions:
Proceeds from sales............ $ 13,945,514 $ 30,960,149 $ 106,011,361 $ 115,563,467
Cost of investments sold....... (15,674,700) (29,356,563) (100,713,204) (118,246,571)
------------ ------------ ------------- -------------
Net realized gains
(losses).................... $ (1,729,186) $ 1,603,586 $ 5,298,157 $ (2,683,104)
------------ ------------ ------------- -------------
Net unrealized appreciation
(depreciation) on investments:
End of year.................... $ 7,573,821 $ 14,196,828 $ 11,755,882 $ (13,183,512)
Beginning of year.............. (5,357,496) (519,445) 6,495,614 14,106,863
------------ ------------ ------------- -------------
Change in unrealized
appreciation
(depreciation).............. $ 12,931,317 $ 14,716,273 $ 5,260,268 $ (27,290,375)
------------ ------------ ------------- -------------
Realized and unrealized gains
(losses)...................... $ 11,202,131 $ 16,319,859 $ 10,558,425 $ (29,973,479)
------------ ------------ ------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................... $ 10,868,201 $ 15,920,613 $ 11,750,243 $ (14,304,688)
============ ============ ============= =============
<CAPTION>
HYS MSS
Sub-Account Sub-Account
------------- --------------
<S> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ 24,714,357 $ --
Mortality and expense risk
charges......................... (3,694,316) (4,726,197)
Distribution expense charges..... (565) (1,871)
Administrative expense charges... (443,843) (566,272)
------------- ------------
Net investment income
(loss)...................... $ 20,575,633 $ (5,294,340)
------------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains(losses) on
investment transactions:
Proceeds from sales............ $ 131,860,091 $ 88,894,001
Cost of investments sold....... (135,709,620) (72,940,290)
------------- ------------
Net realized gains
(losses).................... $ (3,849,529) $ 15,953,711
------------- ------------
Net unrealized appreciation
(depreciation) on investments:
End of year.................... $ (8,680,569) $284,470,613
Beginning of year.............. (7,980,287) 16,729,347
------------- ------------
Change in unrealized
appreciation
(depreciation).............. $ (700,282) $267,741,266
------------- ------------
Realized and unrealized gains
(losses)...................... $ (4,549,811) $283,694,977
------------- ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................... $ 16,025,822 $278,400,637
============= ============
</TABLE>
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, 1999 -- continued
<TABLE>
<CAPTION>
MIS MMS NWD RES
Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital
gain distributions
received.................... $ 3,086,853 $ 20,077,131 $ 133,721 $ 33,877,219
Mortality and expense risk
charges..................... (3,219,139) (5,364,185) (334,655) (12,526,374)
Distribution expense
charges..................... -- (1,353) -- --
Administrative expense
charges..................... (387,637) (644,685) (40,408) (1,507,388)
------------ ------------- ----------- ------------
Net investment income
(loss).................. $ (519,923) $ 14,066,908 $ (241,342) $ 19,843,457
------------ ------------- ----------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales........ $ 28,678,591 $ 681,042,524 $ 7,761,195 $126,485,068
Cost of investments sold... (22,458,189) (681,042,524) (6,405,814) (74,939,328)
------------ ------------- ----------- ------------
Net realized gains
(losses)................ $ 6,220,402 $ -- $ 1,355,381 $ 51,545,740
------------ ------------- ----------- ------------
Net unrealized appreciation
(depreciation) on
investments:
End of year................ $114,855,426 $ -- $21,187,835 $369,190,915
Beginning of year.......... 11,412,175 -- 1,504,013 222,195,462
------------ ------------- ----------- ------------
Change in unrealized
appreciation
(depreciation).......... $103,443,251 $ -- $19,683,822 $146,995,453
------------ ------------- ----------- ------------
Realized and unrealized
gains (losses)............ $109,663,653 $ -- $21,039,203 $198,541,193
------------ ------------- ----------- ------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS........ $109,143,730 $ 14,066,908 $20,797,861 $218,384,650
============ ============= =========== ============
<CAPTION>
RGS RSS SIS
Sub-Account Sub-Account Sub-Account
------------ ------------ -----------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital
gain distributions
received................... $ 184,713 $ 1,911 $ 271,924
Mortality and expense risk
charges.................... (718,747) (128,399) (168,321)
Distribution expense
charges.................... -- -- --
Administrative expense
charges.................... (86,537) (15,455) (20,234)
------------ ------------ -----------
Net investment income
(loss)................. $ (620,571) $ (141,943) $ 83,369
------------ ------------ -----------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales....... $ 13,728,018 $ 13,408,569 $ 2,528,947
Cost of investments sold.. (11,746,493) (11,896,704) (2,439,032)
------------ ------------ -----------
Net realized gains
(losses)............... $ 1,981,525 $ 1,511,865 $ 89,915
------------ ------------ -----------
Net unrealized appreciation
(depreciation) on
investments:
End of year............... $ 5,552,651 $ 6,041,356 $ 463,814
Beginning of year......... 3,487,391 126,682 217,175
------------ ------------ -----------
Change in unrealized
appreciation
(depreciation)......... $ 2,065,260 $ 5,914,674 $ 246,639
------------ ------------ -----------
Realized and unrealized
gains (losses)........... $ 4,046,785 $ 7,426,539 $ 336,554
------------ ------------ -----------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS....... $ 3,426,214 $ 7,284,596 $ 419,923
============ ============ ===========
</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
STATEMENT OF OPERATIONS -- Year Ended December 31, 1999 -- continued
<TABLE>
<CAPTION>
TRS UTS GAA GGS
Sub-Account Sub-Account Sub-Account Sub-Account
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ 269,625,863 $ 28,611,367 $ 6,409,041 $ 9,343,075
Mortality and expense risk
charges......................... (22,286,255) (3,306,043) (1,427,773) (953,326)
Distribution expense charges..... (10,220) -- -- (422)
Administrative expense charges... (2,671,814) (397,938) (171,521) (114,118)
------------- ------------ ------------ ------------
Net investment income
(loss)...................... $ 244,657,574 $ 24,907,386 $ 4,809,747 $ 8,275,209
------------- ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales............ $ 357,231,982 $ 34,366,900 $ 29,474,177 $ 26,696,851
Cost of investments sold....... (313,675,798) (23,665,238) (26,588,874) (28,476,289)
------------- ------------ ------------ ------------
Net realized gains
(losses).................... $ 43,556,184 $ 10,701,662 $ 2,885,303 $ (1,779,438)
------------- ------------ ------------ ------------
Net unrealized appreciation
(depreciation) on investments:
End of year.................... $ (14,746,361) $ 77,255,375 $ 13,719,084 $ (5,513,624)
Beginning of year.............. 247,870,707 34,293,510 3,446,679 6,569,807
------------- ------------ ------------ ------------
Change in unrealized
appreciation
(depreciation).............. $(262,617,068) $ 42,961,865 $ 10,272,405 $(12,083,431)
------------- ------------ ------------ ------------
Realized and unrealized gains
(losses)...................... $(219,060,884) $ 53,663,527 $ 13,157,708 $(13,862,869)
------------- ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................... $ 25,596,690 $ 78,570,913 $ 17,967,455 $ (5,587,660)
============= ============ ============ ============
<CAPTION>
GGR GTR SGS
Sub-Account Sub-Account Sub-Account(b)
------------ -------------- --------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received.......... $ 10,725,752 $ 7,230,240 $ --
Mortality and expense risk
charges......................... (3,549,051) (1,188,320) (7,136)
Distribution expense charges..... -- -- --
Administrative expense charges... (426,441) (143,007) (858)
------------ ------------ ----------
Net investment income
(loss)...................... $ 6,750,260 $ 5,898,913 $ (7,994)
------------ ------------ ----------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales............ $ 44,112,521 $ 16,770,599 $ 151,707
Cost of investments sold....... (31,638,209) (13,273,072) (493,571)
------------ ------------ ----------
Net realized gains
(losses).................... $ 12,474,312 $ 3,497,527 $ (341,864)
------------ ------------ ----------
Net unrealized appreciation
(depreciation) on investments:
End of year.................... $178,498,769 $ 11,918,237 $1,072,320
Beginning of year.............. 33,369,072 14,614,468 --
------------ ------------ ----------
Change in unrealized
appreciation
(depreciation).............. $145,129,697 $ (2,696,231) $1,072,320
------------ ------------ ----------
Realized and unrealized gains
(losses)...................... $157,604,009 $ 801,296 $ 730,456
------------ ------------ ----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS................... $164,354,269 $ 6,700,209 $ 722,462
============ ============ ==========
</TABLE>
(b) For the period November 5, 1999 (commencement of operations of Sub-Account)
through December 31, 1999.
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
<TABLE>
<CAPTION>
BDS CAS COS
Sub-Account Sub-Account Sub-Account
----------------------------- ------------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998(a) 1999 1998 1999 1998
------------- ------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)....................... $ (64,548) $ (82,271) $ 144,473,869 $ 128,215,244 $ 1,603,428 $ 3,637,491
Net realized gains (losses)... (20,595) 216,410 105,714,742 66,702,495 10,214,814 5,170,487
Net unrealized gains
(losses)..................... (1,017,930) 286,002 186,413,366 121,369,200 104,479,069 20,631,668
----------- ----------- -------------- -------------- ------------ ------------
Increase (Decrease) in net
assets from operations... $(1,103,073) $ 420,141 $ 436,601,977 $ 316,286,939 $116,297,311 $ 29,439,646
----------- ----------- -------------- -------------- ------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments
received................... $11,283,792 $ 9,875,456 $ 76,869,793 $ 107,933,141 $ 42,581,763 $ 38,230,487
Net transfers between
Sub-Accounts and Fixed
Account.................... 26,002,672 9,534,568 2,132,992 47,848,492 100,363,903 40,051,430
Withdrawals, surrenders,
annuitizations and contract
charges.................... (3,714,192) (395,676) (174,746,999) (114,794,853) (18,079,962) (7,541,790)
----------- ----------- -------------- -------------- ------------ ------------
Net accumulation
activity................. $33,572,272 $19,014,348 $ (95,744,214) $ 40,986,780 $124,865,704 $ 70,740,127
----------- ----------- -------------- -------------- ------------ ------------
Annuitization Activity:
Annuitizations.............. $ 79,698 $ 164,170 $ 1,893,718 $ 1,220,067 $ 359,014 $ 142,386
Annuity payments and
contract charges........... (25,302) (3,903) (1,271,221) (1,025,009) (143,073) (46,545)
Net Transfers between
Sub-Accounts............... -- -- 109,831 (41,318) 33,759 25,440
Adjustments to annuity
reserves................... 2,648 (12,668) (272,714) (88,123) (43,544) (10,400)
----------- ----------- -------------- -------------- ------------ ------------
Net annuitization
activity................. $ 57,044 $ 147,599 $ 459,614 $ 65,617 $ 206,156 $ 110,881
----------- ----------- -------------- -------------- ------------ ------------
Increase (Decrease) in net
assets from contract owner
transactions................. $33,629,316 $19,161,947 $ (95,284,600) $ 41,052,397 $125,071,860 $ 70,851,008
----------- ----------- -------------- -------------- ------------ ------------
Increase (Decrease) in net
assets..................... $32,526,243 $19,582,088 $ 341,317,377 $ 357,339,336 $241,369,171 $100,290,654
NET ASSETS:
Beginning of year............. 19,582,088 -- 1,494,449,750 1,137,110,414 187,359,986 87,069,332
----------- ----------- -------------- -------------- ------------ ------------
End of year................... $52,108,331 $19,582,088 $1,835,767,127 $1,494,449,750 $428,729,157 $187,359,986
=========== =========== ============== ============== ============ ============
</TABLE>
(a) 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>
MIT EGS EIS
Sub-Account Sub-Account Sub-Account
------------------------------- ----------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998(a)
-------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ 116,479,963 $ 74,447,584 $ 452,941 $ 11,234,121 $ (268,821) $ (31,884)
Net realized gains (losses)..... 116,205,611 33,652,751 60,071,700 22,519,902 950,678 (117,486)
Net unrealized gains (losses)... (121,684,348) 167,450,974 502,048,606 124,900,453 220,608 595,356
-------------- -------------- -------------- ------------ ----------- ----------
Increase (Decrease) in net
assets from operations..... $ 111,001,226 $ 275,551,309 $ 562,573,247 $158,654,476 $ 902,465 $ 445,986
-------------- -------------- -------------- ------------ ----------- ----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.... $ 200,798,865 $ 265,107,890 $ 72,378,390 $ 90,838,283 $11,769,375 $4,758,335
Net transfers between
Sub-Accounts and Fixed
Account...................... 215,949,849 206,082,223 80,609,004 40,488,353 22,083,804 3,493,264
Withdrawals, surrenders,
annuitizations and contract
charges...................... (159,633,917) (88,307,981) (63,348,442) (30,769,813) (2,323,339) (205,828)
-------------- -------------- -------------- ------------ ----------- ----------
Net accumulation activity... $ 257,114,797 $ 382,882,132 $ 89,638,952 $100,556,823 $31,529,840 $8,045,771
-------------- -------------- -------------- ------------ ----------- ----------
Annuitization Activity:
Annuitizations................ $ 2,805,581 $ 2,012,633 $ 1,166,495 $ 453,478 $ 12,343 $ --
Annuity payments and contract
charges...................... (993,419) (713,563) (240,170) (113,219) (181) --
Net Transfers between
Sub-Accounts................. (31,426) (116,539) 24,221 (5,495) -- --
Adjustments to annuity
reserves..................... (68,461) 265,082 (5,370) 128,245 (177) --
-------------- -------------- -------------- ------------ ----------- ----------
Net annuitization
activity................... $ 1,712,275 $ 1,447,613 $ 945,176 $ 463,009 $ 11,985 $ --
-------------- -------------- -------------- ------------ ----------- ----------
Increase (Decrease) in net
assets from contract owner
transactions................... $ 258,827,072 $ 384,329,745 $ 90,584,128 $101,019,832 $31,541,825 $8,045,771
-------------- -------------- -------------- ------------ ----------- ----------
Increase (Decrease) in net
assets......................... $ 369,828,298 $ 659,881,054 $ 653,157,375 $259,674,308 $32,444,290 $8,491,757
NET ASSETS:
Beginning of year............... 1,726,891,740 1,067,010,686 700,947,493 441,273,185 8,491,757 --
-------------- -------------- -------------- ------------ ----------- ----------
End of year..................... $2,096,720,038 $1,726,891,740 $1,354,104,868 $700,947,493 $40,936,047 $8,491,757
============== ============== ============== ============ =========== ==========
</TABLE>
(a) For the period May 6, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
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>
FCE FCI FCG
Sub-Account Sub-Account Sub-Account
--------------------------- --------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ (333,930) $ 467,717 $ (399,246) $ (101,894) $ 1,191,818 $ 1,045,909
Net realized gains (losses)........... (1,729,186) (4,423,657) 1,603,586 (134,106) 5,298,157 5,611,522
Net unrealized gains (losses)......... 12,931,317 (3,684,076) 14,716,273 (101,433) 5,260,268 4,069,821
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in net assets
from operations.................. $10,868,201 $(7,640,016) $15,920,613 $ (337,433) $11,750,243 $10,727,252
----------- ----------- ----------- ----------- ----------- -----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.......... $ 2,257,666 $ 2,734,886 $ 7,721,195 $ 8,231,578 $ 4,415,080 $ 7,721,923
Net transfers between Sub-Accounts
and Fixed Account.................. 10,148,747 (1,032,098) 10,540,394 5,579,377 (1,761,772) 8,246,837
Withdrawals, surrenders,
annuitizations and contract
charges............................ (2,575,449) (897,534) (3,292,901) (1,479,723) (5,447,333) (4,121,150)
----------- ----------- ----------- ----------- ----------- -----------
Net accumulation activity......... $ 9,830,964 $ 805,254 $14,968,688 $12,331,232 $(2,794,025) $11,847,610
----------- ----------- ----------- ----------- ----------- -----------
Annuitization Activity:
Annuitizations...................... $ 154,638 $ 3,586 $ 39,173 $ 1,716 $ 59,613 $ 34,551
Annuity payments and contract
charges............................ (8,635) (7,084) (9,967) (5,621) (14,579) (28,601)
Net transfers between
Sub-Accounts....................... 54,153 -- -- -- -- (17,030)
Adjustments to annuity reserves..... (3,330) 218 (15,216) 2,415 (4,391) (10,148)
----------- ----------- ----------- ----------- ----------- -----------
Net annuitization activity........ $ 196,826 $ (3,280) $ 13,990 $ (1,490) $ 40,643 $ (21,228)
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in net assets from
contract owner transactions.......... $10,027,790 $ 801,974 $14,982,678 $12,329,742 $(2,753,382) $11,826,382
----------- ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in net assets..... $20,895,991 $(6,838,042) $30,903,291 $11,992,309 $ 8,996,861 $22,553,634
NET ASSETS:
Beginning of year..................... 16,976,738 23,814,780 35,306,698 23,314,389 71,899,852 49,346,218
----------- ----------- ----------- ----------- ----------- -----------
End of year........................... $37,872,729 $16,976,738 $66,209,989 $35,306,698 $80,896,713 $71,899,852
=========== =========== =========== =========== =========== ===========
</TABLE>
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>
GSS HYS MSS
Sub-Account Sub-Account Sub-Account
------------------------------- ------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
---------------- ------------ ---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................... $ 15,668,791 $ 15,055,335 $ 20,575,633 $ 13,760,883 $ (5,294,340) $ 45,005,946
Net realized gains
(losses)................. (2,683,104) 7,944,827 (3,849,529) 4,744,016 15,953,711 11,481,102
Net unrealized gains
(losses)................. (27,290,375) 2,813,782 (700,282) (20,640,207) 267,741,266 (23,796,460)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in
net assets from
operations........... $(14,304,688) $ 25,813,944 $ 16,025,822 $ (2,135,308) $278,400,637 $ 32,690,588
------------ ------------ ------------ ------------ ------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments
received............... $ 26,767,871 $ 33,941,912 $ 20,195,648 $ 54,795,963 $ 16,920,035 $ 22,720,393
Net transfers between
Sub-Accounts and Fixed
Account................ 91,170,433 49,410,266 20,734,522 20,587,340 52,096,752 (5,210,223)
Withdrawals, surrenders,
annuitizations and
contract charges....... (59,337,154) (40,854,521) (36,583,190) (24,841,987) (51,120,379) (28,997,564)
------------ ------------ ------------ ------------ ------------ ------------
Net accumulation
activity............. $ 58,601,150 $ 42,497,657 $ 4,346,980 $ 50,541,316 $ 17,896,408 $(11,487,394)
------------ ------------ ------------ ------------ ------------ ------------
Annuitization Activity:
Annuitizations.......... $ 665,654 $ 1,080,791 $ 333,040 $ 514,021 $ 135,661 $ 360,666
Annuity payments and
contract charges....... (452,725) (563,274) (295,312) (301,855) (320,573) (278,169)
Net transfers between
Sub-Accounts........... (3,904) (10,317) -- -- 118,980 (6,870)
Adjustments to annuity
reserves............... (4,610) 17,162 (22,546) 44,449 (51,415) (3,336)
------------ ------------ ------------ ------------ ------------ ------------
Net annuitization
activity............. $ 204,415 $ 524,362 $ 15,182 $ 256,615 $ (117,347) $ 72,291
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in net
assets from contract
owner transactions....... $ 58,805,565 $ 43,022,019 $ 4,362,162 $ 50,797,931 $ 17,779,061 $(11,415,103)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in
net assets............. $ 44,500,877 $ 68,835,963 $ 20,387,984 $ 48,662,623 $296,179,698 $ 21,275,485
NET ASSETS:
Beginning of year......... 400,140,205 331,304,242 286,338,035 237,675,412 334,101,011 312,825,526
------------ ------------ ------------ ------------ ------------ ------------
End of year............... $444,641,082 $400,140,205 $306,726,019 $286,338,035 $630,280,709 $334,101,011
============ ============ ============ ============ ============ ============
</TABLE>
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>
MIS MMS NWD
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998(a) 1999 1998 1999 1998(a)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ (519,923) $ (277,915) $ 14,066,908 $ 12,464,454 $ (241,342) $ (55,628)
Net realized gains (losses)..... 6,220,402 290,620 -- -- 1,355,381 (77,926)
Net unrealized gains (losses)... 103,443,251 11,412,175 -- -- 19,683,822 1,504,013
------------ ----------- ------------- ------------- ----------- -----------
Increase (Decrease) in net
assets from operations..... $109,143,730 $11,424,880 $ 14,066,908 $ 12,464,454 $20,797,861 $ 1,370,459
------------ ----------- ------------- ------------- ----------- -----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.... $137,436,213 $42,898,409 $ 77,465,420 $ 84,539,955 $10,051,271 $ 5,928,260
Net transfers between
Sub-Accounts and Fixed
Account...................... 223,731,514 27,944,745 176,379,832 205,348,459 20,319,479 6,269,724
Withdrawals, surrenders,
annuitizations and contract
charges...................... (20,457,443) (1,223,987) (230,737,769) (180,586,976) (2,113,261) (345,722)
------------ ----------- ------------- ------------- ----------- -----------
Net accumulation activity... $340,710,284 $69,619,167 $ 23,107,483 $ 109,301,438 $28,257,489 $11,852,262
------------ ----------- ------------- ------------- ----------- -----------
Annuitization Activity:
Annuitizations................ $ 755,518 $ 158,201 $ 1,593,879 $ 1,223,366 $ 339,593 $ 59,889
Annuity payments and contract
charges...................... (48,148) (10,253) (347,973) (267,886) (15,934) (3,118)
Net transfers between
Sub-Accounts................. 47,324 -- (646,987) (4,847) 41,259 --
Adjustments to annuity
reserves..................... (53,623) (1,090) (33,773) (38,667) (46,627) (2,368)
------------ ----------- ------------- ------------- ----------- -----------
Net annuitization
activity................... $ 701,071 $ 146,858 $ 565,146 $ 911,966 $ 318,291 $ 54,403
------------ ----------- ------------- ------------- ----------- -----------
Increase (Decrease) in net
assets from contract owner
transactions................... $341,411,355 $69,766,025 $ 23,672,629 $ 110,213,404 $28,575,780 $11,906,665
------------ ----------- ------------- ------------- ----------- -----------
Increase (Decrease) in net
assets....................... $450,555,085 $81,190,905 $ 37,739,537 $ 122,677,858 $49,373,641 $13,277,124
NET ASSETS:
Beginning of year............... 81,190,905 -- 416,905,347 294,227,489 13,277,124 --
------------ ----------- ------------- ------------- ----------- -----------
End of year..................... $531,745,990 $81,190,905 $ 454,644,884 $ 416,905,347 $62,650,765 $13,277,124
============ =========== ============= ============= =========== ===========
</TABLE>
(a) For the period May 6, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
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>
RES RGS RSS
Sub-Account Sub-Account Sub-Account
----------------------------- --------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998(a)
-------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)........ $ 19,843,457 $ 22,892,997 $ (620,571) $ (196,955) $ (141,943) $ (15,398)
Net realized gains (losses)......... 51,545,740 21,973,914 1,981,525 513,010 1,511,865 (94,970)
Net unrealized gains (losses)....... 146,995,453 110,904,687 2,065,260 3,223,975 5,914,674 126,682
-------------- ------------ ----------- ----------- ----------- ----------
Increase (Decrease) in net
assets from operations......... $ 218,384,650 $155,771,598 $ 3,426,214 $ 3,540,030 $ 7,284,596 $ 16,314
-------------- ------------ ----------- ----------- ----------- ----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received........ $ 60,172,716 $103,921,694 $12,282,216 $13,378,132 $ 4,475,044 $2,275,775
Net transfers between Sub-Accounts
and Fixed Account................ 46,692,915 82,986,033 27,754,724 14,755,314 15,355,290 1,268,571
Withdrawals, surrenders,
annuitizations and contract
charges.......................... (78,027,604) (44,188,615) (4,602,039) (1,413,449) (1,000,866) (41,350)
-------------- ------------ ----------- ----------- ----------- ----------
Net accumulation activity....... $ 28,838,027 $142,719,112 $35,434,901 $26,719,997 $18,829,468 $3,502,996
-------------- ------------ ----------- ----------- ----------- ----------
Annuitization Activity:
Annuitizations.................... $ 727,314 $ 452,588 $ 45,656 $ 73,112 $ 206,502 $ --
Annuity payments and contract
charges.......................... (340,066) (211,454) (22,411) (12,398) -- --
Net transfers between
Sub-Accounts..................... 45,500 34,374 -- 58,620 -- --
Adjustments to annuity reserves... (116,242) (35,852) 646 (2,709) -- --
-------------- ------------ ----------- ----------- ----------- ----------
Net annuitization activity...... $ 316,506 $ 239,656 $ 23,891 $ 116,625 $ 206,502 $ --
-------------- ------------ ----------- ----------- ----------- ----------
Increase (Decrease) in net assets
from contract owner transactions... $ 29,154,533 $142,958,768 $35,458,792 $26,836,622 $19,035,970 $3,502,996
-------------- ------------ ----------- ----------- ----------- ----------
Increase (Decrease) in net assets... $ 247,539,183 $298,730,366 $38,885,006 $30,376,652 $26,320,566 $3,519,310
NET ASSETS:
Beginning of year................... 948,011,552 649,281,186 36,274,179 5,897,527 3,519,310 --
-------------- ------------ ----------- ----------- ----------- ----------
End of year......................... $1,195,550,735 $948,011,552 $75,159,185 $36,274,179 $29,839,876 $3,519,310
============== ============ =========== =========== =========== ==========
</TABLE>
(a) For the period May 6, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
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>
SIS TRS UTS
Sub-Account Sub-Account Sub-Account
----------------------------- ------------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998(a) 1999 1998 1999 1998
------------- ------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)....................... $ 83,369 $ (37,067) $ 244,657,574 $ 163,419,988 $ 24,907,386 $ 15,309,048
Net realized gains (losses)... 89,915 (88,826) 43,556,184 51,696,637 10,701,662 3,138,939
Net unrealized gains
(losses)..................... 246,639 217,175 (262,617,068) (49,976,046) 42,961,865 5,912,858
----------- ---------- -------------- -------------- ------------ ------------
Increase (Decrease) in net
assets from operations... $ 419,923 $ 91,282 $ 25,596,690 $ 165,140,579 $ 78,570,913 $ 24,360,845
----------- ---------- -------------- -------------- ------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments
received................... $ 3,507,488 $3,255,808 $ 88,544,205 $ 144,694,740 $ 34,302,650 $ 39,799,198
Net transfers between
Sub-Accounts and Fixed
Account.................... 8,565,548 4,501,699 81,610,921 99,107,901 67,737,731 40,165,423
Withdrawals, surrenders,
annuitizations and contract
charges.................... (830,463) (67,691) (250,384,445) (174,048,588) (19,915,248) (10,679,491)
----------- ---------- -------------- -------------- ------------ ------------
Net accumulation
activity................. $11,242,573 $7,689,816 $ (80,229,319) $ 69,754,053 $ 82,125,133 $ 69,285,130
----------- ---------- -------------- -------------- ------------ ------------
Annuitization Activity:
Annuitizations.............. $ -- $ -- $ 2,259,139 $ 2,556,048 $ 111,619 $ 357,771
Annuity payments and
contract charges........... -- -- (1,437,038) (1,415,164) (154,181) (266,331)
Net transfers between
Sub-Accounts............... -- -- (39,113) 104,077 324,919 93,575
Adjustments to annuity
reserves................... -- -- (169,445) 157,679 (15,579) 117,915
----------- ---------- -------------- -------------- ------------ ------------
Net annuitization
activity................. $ -- $ -- $ 613,543 $ 1,402,640 $ 266,778 $ 302,930
----------- ---------- -------------- -------------- ------------ ------------
Increase (Decrease) in net
assets from contract owner
transactions................. $11,242,573 $7,689,816 $ (79,615,776) $ 71,156,693 $ 82,391,911 $ 69,588,060
----------- ---------- -------------- -------------- ------------ ------------
Increase (Decrease) in net
assets..................... $11,662,496 $7,781,098 $ (54,019,086) $ 236,297,272 $160,962,824 $ 93,948,905
NET ASSETS:
Beginning of year............. 7,781,098 -- 1,816,081,256 1,579,783,984 211,254,980 117,306,075
----------- ---------- -------------- -------------- ------------ ------------
End of year................... $19,443,594 $7,781,098 $1,762,062,170 $1,816,081,256 $372,217,804 $211,254,980
=========== ========== ============== ============== ============ ============
</TABLE>
(a) For the period May 6, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
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
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
GAA GGS GGR
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ 4,809,747 $ 7,482,682 $ 8,275,209 $ (87,913) $ 6,750,260 $ 15,489,141
Net realized gains (losses)..... 2,885,303 3,692,859 (1,779,438) (498,522) 12,474,312 11,591,824
Net unrealized gains (losses)... 10,272,405 (6,039,574) (12,083,431) 12,271,071 145,129,697 1,458,038
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in net
assets from operations..... $ 17,967,455 $ 5,135,967 $ (5,587,660) $ 11,684,636 $164,354,269 $ 28,539,003
------------ ------------ ------------ ------------ ------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.... $ 2,661,148 $ 8,860,816 $ 1,751,874 $ 3,786,224 $ 10,448,847 $ 15,688,080
Net transfers between
Sub-Accounts and Fixed
Account...................... (14,351,525) (4,974,353) (4,727,708) (12,675,687) 11,508,041 (6,628,067)
Withdrawals, surrenders,
annuitizations and contract
charges...................... (8,142,859) (6,184,345) (14,312,841) (11,908,423) (26,312,080) (14,148,887)
------------ ------------ ------------ ------------ ------------ ------------
Net accumulation activity... $(19,833,236) $ (2,297,882) $(17,288,675) $(20,797,886) $ (4,355,192) $ (5,088,874)
------------ ------------ ------------ ------------ ------------ ------------
Annuitization Activity:
Annuitizations................ $ 12,744 $ 196,381 $ 100,118 $ 158,700 $ 166,248 $ 107,920
Annuity payments and contract
charges...................... (102,934) (88,583) (114,238) (130,085) (116,958) (104,706)
Net transfers between
Sub-Accounts................. (33,199) 1,087 -- -- (12,182) (114,522)
Adjustments to annuity
reserves..................... 14,208 (39,140) (22,713) 3,766 22,465 (5,286)
------------ ------------ ------------ ------------ ------------ ------------
Net annuitization
activity................... $ (109,181) $ 69,745 $ (36,833) $ 32,381 $ 59,573 $ (116,594)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in net
assets from contract owner
transactions................. $(19,942,417) $ (2,228,137) $(17,325,508) $(20,765,505) $ (4,295,619) $ (5,205,468)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in net
assets....................... $ (1,974,962) $ 2,907,830 $(22,913,168) $ (9,080,869) $160,058,650 $ 23,333,535
NET ASSETS:
Beginning of year............... 123,345,612 120,437,782 89,813,963 98,894,832 260,479,236 237,145,701
------------ ------------ ------------ ------------ ------------ ------------
End of year..................... $121,370,650 $123,345,612 $ 66,900,795 $ 89,813,963 $420,537,886 $260,479,236
============ ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
-27-
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>
GTR SGS
Sub-Account Sub-Account
----------------------------------- ----------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 1999(b)
---------------- ---------------- ----------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss).............................. $ 5,898,913 $ 2,635,441 $ (7,994)
Net realized gains (losses)............................... 3,497,527 3,803,017 (341,864)
Net unrealized gains (losses)............................. (2,696,231) 6,391,001 1,072,320
------------ ----------- ----------
Increase (Decrease) in net assets from operations..... $ 6,700,209 $12,829,459 $ 722,462
------------ ----------- ----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received.............................. $ 5,485,526 $ 8,845,349 $ 421,107
Net transfers between Sub-Accounts and Fixed Account.... 1,803,965 8,428,546 8,018,971
Withdrawals, surrenders, annuitizations and contract
charges................................................ (6,850,689) (4,603,063) (4,249)
------------ ----------- ----------
Net accumulation activity............................. $ 438,802 $12,670,832 $8,435,829
------------ ----------- ----------
Annuitization Activity:
Annuitizations.......................................... $ 114,644 $ 134,223 $ --
Annuity payments and contract charges................... (78,129) (61,120) --
Net transfers between Sub-Accounts...................... -- -- --
Adjustments to annuity reserves......................... (3,828) 16,790 --
------------ ----------- ----------
Net annuitization activity............................ $ 32,687 $ 89,893 $ --
------------ ----------- ----------
Increase (Decrease) in net assets from contract owner
transactions........................................... $ 471,489 $12,760,725 $8,435,829
------------ ----------- ----------
Increase (Decrease) in net assets....................... $ 7,171,698 $25,590,184 $9,158,291
NET ASSETS:
Beginning of year......................................... 95,274,472 69,684,288 --
------------ ----------- ----------
End of year............................................... $102,446,170 $95,274,472 $9,158,291
============ =========== ==========
</TABLE>
(b) For the period November 5, 1999 (commencement of operations of Sub-Account)
through December 31, 1999.
See notes to financial statements
<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
(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>
-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
(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 (after account year
5, the account fee, for Regatta Gold and Regatta Platinum contracts, 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.
The Sponsor does not deduct a sales charge from purchase payments. However, in
the case of Regatta, Regatta Gold and Regatta Platinum contracts, 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
contracts, 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 at least 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>
-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
<TABLE>
<CAPTION>
Units Transferred
Between Sub-Accounts
and
Units Outstanding Fixed Accumulation
Beginning of Year Units Purchased Account
---------------------------- ---------------------------- ----------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
MFS REGATTA
CONTRACTS:
------------------------------
CAS -- Level 1 464,349 2,993,020 1,694 -- (403,678) (2,286,027)
CAS -- Level 2 9,053,993 5,390,680 6,466 -- 841,337 5,658,421
GSS -- Level 1 325,241 1,462,222 1,870 -- (310,743) (932,035)
GSS -- Level 2 2,656,978 1,514,633 10,259 -- 1,016,504 1,951,275
HYS -- Level 1 73,632 537,033 165 -- (69,249) (384,324)
HYS -- Level 2 1,320,379 975,126 -- -- 160,884 742,028
MSS -- Level 1 196,463 941,686 719 -- (170,145) (678,909)
MSS -- Level 2 2,730,897 2,022,757 8,046 -- 791,231 1,359,567
MMS -- Level 1 268,447 1,518,722 6,604 12,315 (78,142) 1,824,176
MMS -- Level 2 3,722,758 1,845,809 46,627 8,252 4,208,078 6,810,959
TRS -- Level 1 898,137 5,756,653 980 4,933 (753,744) (4,180,220)
TRS -- Level 2 12,506,430 7,838,741 12,834 2,056 1,380,346 8,389,482
GGS -- Level 1 89,328 700,338 762 -- (80,050) (536,114)
GGS -- Level 2 834,010 483,253 -- -- 81,087 702,569
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
---------------------------- ----------------------------
Year Year Year Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
MFS REGATTA
CONTRACTS:
------------------------------
CAS -- Level 1 (39,407) (242,644) 22,958 464,349
CAS -- Level 2 (2,054,522) (1,995,108) 7,847,274 9,053,993
GSS -- Level 1 (16,368) (204,946) -- 325,241
GSS -- Level 2 (888,017) (808,930) 2,795,724 2,656,978
HYS -- Level 1 (4,383) (79,077) 165 73,632
HYS -- Level 2 (405,927) (396,775) 1,075,336 1,320,379
MSS -- Level 1 (21,924) (66,314) 5,113 196,463
MSS -- Level 2 (852,146) (651,427) 2,678,028 2,730,897
MMS -- Level 1 (180,769) (3,086,766) 16,140 268,447
MMS -- Level 2 (5,304,846) (4,942,262) 2,672,617 3,722,758
TRS -- Level 1 (113,631) (683,229) 31,742 898,137
TRS -- Level 2 (3,970,196) (3,723,849) 9,929,414 12,506,430
GGS -- Level 1 (9,545) (74,896) 495 89,328
GGS -- Level 2 (284,961) (351,812) 630,136 834,010
</TABLE>
<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
and
Units Outstanding Fixed Accumulation
Beginning of Year Units Purchased Account
---------------------------- ---------------------------- ----------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
MFS REGATTA GOLD
CONTRACTS:
------------------------------
BDS(a)........................ 1,182,239 -- 128,326 437,383 1,055,550 776,227
CAS........................... 37,500,481 35,528,897 515,449 2,963,417 (1,432,874) 1,606,290
COS........................... 10,262,282 6,175,224 317,640 2,085,178 3,084,055 2,487,753
MIT........................... 51,880,765 40,709,531 1,104,376 7,531,155 814,616 6,682,559
EGS........................... 28,900,957 25,039,986 564,144 3,519,560 856,790 1,929,406
EIS(a)........................ 528,238 -- 96,901 235,337 840,387 312,512
FCE........................... 2,147,348 2,159,228 49,578 203,168 814,122 (114,376)
FCI........................... 3,290,043 2,390,056 103,809 532,412 71,906 520,640
FCG........................... 5,214,558 4,441,911 53,226 449,506 (373,297) 655,503
GSS........................... 23,218,234 20,508,844 381,294 1,760,124 2,812,014 2,891,419
HYS........................... 14,190,817 11,699,195 209,455 2,333,919 (264,388) 1,143,802
MSS........................... 11,245,144 11,326,719 111,495 838,284 874,242 (135,303)
MIS(a)........................ 4,121,518 -- 1,179,064 2,049,150 7,769,109 2,166,812
MMS........................... 29,387,086 21,463,139 1,347,998 5,295,611 10,642,975 9,723,034
NWD(a)........................ 794,859 -- 99,202 252,432 818,140 573,525
RES........................... 38,553,986 35,654,917 602,325 1,299,737 (220,117) 3,631,861
RGS........................... 2,408,676 533,928 120,353 857,568 906,773 1,134,366
RSS(a)........................ 190,267 -- 29,576 83,591 929,786 110,312
SIS(a)........................ 622,914 -- 67,062 207,182 260,781 423,614
TRS........................... 71,102,020 66,303,467 922,198 5,585,984 (771,786) 4,374,616
UTS........................... 9,023,102 6,101,638 323,450 1,559,584 972,853 1,878,542
GAA........................... 7,576,691 7,928,833 61,909 440,970 (972,115) (400,015)
GGS........................... 5,048,219 6,127,641 51,599 199,740 (404,547) (782,796)
GGR........................... 14,522,129 15,058,757 189,567 815,222 82,020 (504,727)
GTR........................... 5,354,633 4,676,853 80,538 458,384 (144,224) 506,340
SGS(b)........................ -- -- 4,006 -- 555,135 --
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
---------------------------- ----------------------------
Year Year Year Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
MFS REGATTA GOLD
CONTRACTS:
------------------------------
BDS(a)........................ (280,793) (31,371) 2,085,322 1,182,239
CAS........................... (3,736,966) (2,598,123) 32,846,090 37,500,481
COS........................... (818,305) (485,873) 12,845,672 10,262,282
MIT........................... (4,597,858) (3,042,480) 49,201,899 51,880,765
EGS........................... (2,260,070) (1,587,995) 28,061,821 28,900,957
EIS(a)........................ (164,360) (19,611) 1,301,166 528,238
FCE........................... (250,014) (100,672) 2,761,034 2,147,348
FCI........................... (277,959) (153,065) 3,187,799 3,290,043
FCG........................... (384,891) (332,362) 4,509,596 5,214,558
GSS........................... (3,181,131) (1,942,153) 23,230,411 23,218,234
HYS........................... (1,598,765) (986,099) 12,537,119 14,190,817
MSS........................... (1,198,416) (784,556) 11,032,465 11,245,144
MIS(a)........................ (1,084,371) (94,444) 11,985,320 4,121,518
MMS........................... (12,930,216) (7,094,698) 28,447,843 29,387,086
NWD(a)........................ (112,785) (31,098) 1,599,416 794,859
RES........................... (3,000,415) (2,032,529) 35,935,779 38,553,986
RGS........................... (282,560) (117,186) 3,153,242 2,408,676
RSS(a)........................ (35,048) (3,636) 1,114,581 190,267
SIS(a)........................ (58,267) (7,882) 892,490 622,914
TRS........................... (8,328,466) (5,162,047) 62,923,966 71,102,020
UTS........................... (730,997) (516,662) 9,588,408 9,023,102
GAA........................... (478,155) (393,097) 6,188,330 7,576,691
GGS........................... (754,183) (496,366) 3,941,088 5,048,219
GGR........................... (1,279,881) (847,123) 13,513,835 14,522,129
GTR........................... (383,402) (286,944) 4,907,545 5,354,633
SGS(b)........................ (285) -- 558,856 --
</TABLE>
(a) For the period May 6, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(b) For the period November 5, 1999 (commencement of operations of Sub-Account)
through December 31, 1999.
<PAGE>
-32-
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 Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
MFS REGATTA CLASSIC
CONTRACTS:
------------------------------
BDS(a)........................ 35,123 -- 38,838 33,440 (23,411) 1,859
CAS........................... 465,812 265,497 98,517 170,863 127,840 49,860
COS........................... 277,518 160,778 98,185 98,617 94,668 29,367
MIT........................... 1,213,193 554,216 343,708 449,788 47,381 267,481
EGS........................... 959,802 318,028 206,621 613,049 (6,847) 55,590
EIS(a)........................ 12,113 -- 36,114 9,590 28,711 2,523
FCE........................... 43,654 40,698 14,933 16,413 17,553 (12,814)
FCI........................... 83,820 67,892 33,705 20,502 (6,058) (3,210)
FCG........................... 90,582 51,038 5,230 34,300 289 8,318
GSS........................... 297,310 113,243 100,923 139,510 (71,777) 51,253
HYS........................... 342,363 155,306 64,265 224,640 (62,579) (2,332)
MSS........................... 140,324 118,243 64,332 59,666 112,516 (29,055)
MIS(b)........................ 232,788 -- 298,311 78,233 (19,461) 156,319
MMS........................... 270,417 77,105 1,348,530 733,426 (15,060) (366,138)
NWD(b)........................ 29,182 -- 55,212 13,601 19,871 15,614
RES........................... 872,289 553,996 161,577 279,626 (26,160) 85,963
RGS........................... 33,882 6,085 40,357 9,086 2,489 19,504
RSS(d)........................ 2,234 -- 11,775 942 15,565 1,292
SIS(c)........................ 2,577 -- 17,748 1,726 2,629 851
TRS........................... 1,731,292 951,205 455,454 681,412 (52,461) 155,997
UTS........................... 178,136 77,009 90,782 97,613 119,327 15,497
GAA........................... 53,167 50,531 1,943 16,112 (7,138) (8,665)
GGS........................... 40,074 19,394 13,692 20,516 (7,500) 639
GGR........................... 121,297 85,526 17,448 47,642 7,909 (2,579)
GTR........................... 91,253 45,122 35,847 38,335 (2,772) 8,687
SGS(e)........................ -- -- -- -- 5,701 --
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
---------------------------- ----------------------------
Year Year Year Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
MFS REGATTA CLASSIC
CONTRACTS:
------------------------------
BDS(a)........................ (2,340) (176) 48,210 35,123
CAS........................... (48,331) (20,408) 643,838 465,812
COS........................... (19,621) (11,244) 450,750 277,518
MIT........................... (136,741) (58,292) 1,467,541 1,213,193
EGS........................... (28,907) (26,865) 1,130,669 959,802
EIS(a)........................ (2,478) -- 74,460 12,113
FCE........................... (3,359) (643) 72,781 43,654
FCI........................... (12,769) (1,364) 98,698 83,820
FCG........................... (6,449) (3,074) 89,652 90,582
GSS........................... (44,402) (6,696) 282,054 297,310
HYS........................... (31,657) (35,251) 312,392 342,363
MSS........................... (11,177) (8,530) 305,995 140,324
MIS(b)........................ (10,029) (1,764) 501,609 232,788
MMS........................... (525,766) (173,976) 1,078,121 270,417
NWD(b)........................ (5,208) (33) 99,057 29,182
RES........................... (44,435) (47,296) 963,271 872,289
RGS........................... (2,310) (793) 74,418 33,882
RSS(d)........................ (588) -- 28,986 2,234
SIS(c)........................ (4) -- 22,950 2,577
TRS........................... (146,430) (57,322) 1,987,855 1,731,292
UTS........................... (31,976) (11,983) 356,269 178,136
GAA........................... (4,629) (4,811) 43,343 53,167
GGS........................... (3,904) (475) 42,362 40,074
GGR........................... (10,773) (9,292) 135,881 121,297
GTR........................... (6,301) (891) 118,027 91,253
SGS(e)........................ -- -- 5,701 --
</TABLE>
(a) For the period June 22, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(b) For the period May 7, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(c) For the period June 26, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(d) For the period August 8, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(e) For the period November 24, 1999 (commencement of operations of Sub-Account)
through December 31, 1999.
<PAGE>
-33-
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 Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
MFS REGATTA PLATINUM
CONTRACTS:
------------------------------
BDS(a)........................ 628,000 -- 941,360 491,319 1,491,043 143,015
CAS(b)........................ 1,683,164 -- 4,849,607 1,489,422 4,545,428 215,237
COS(d)........................ 556,955 -- 2,758,794 480,199 2,891,912 80,801
MIT(b)........................ 5,331,018 -- 14,730,220 4,380,217 17,398,081 1,013,330
EGS(b)........................ 1,651,404 -- 4,181,549 1,412,976 4,397,355 254,376
EIS(c)........................ 272,362 -- 946,919 237,608 1,153,460 35,740
FCE(c)........................ 72,586 -- 171,566 67,723 260,658 4,892
FCI(c)........................ 338,938 -- 649,457 305,695 1,016,982 37,500
FCG(d)........................ 199,346 -- 355,635 167,384 379,426 34,931
GSS(d)........................ 816,102 -- 1,959,697 686,599 4,315,488 142,121
HYS(c)........................ 1,000,705 -- 1,613,791 917,703 2,693,972 95,977
MSS(e)........................ 211,044 -- 948,374 180,220 986,589 35,500
MIS(b)........................ 2,428,134 -- 9,327,754 2,052,872 9,497,539 400,450
MMS(c)........................ 886,479 -- 4,525,979 1,436,884 (51,593) (492,250)
NWD(c)........................ 436,178 -- 750,621 366,459 945,469 75,832
RES(e)........................ 1,751,713 -- 3,783,737 1,463,540 4,553,399 319,544
RGS(a)........................ 387,080 -- 945,769 306,364 1,427,602 82,311
RSS(f)........................ 181,131 -- 366,014 162,752 418,385 19,544
SIS(g)........................ 157,634 -- 270,681 123,410 588,831 35,045
TRS(c)........................ 2,318,847 -- 5,942,946 1,926,233 9,684,842 434,196
UTS(e)........................ 819,649 -- 2,177,718 647,482 3,571,380 178,704
GAA(d)........................ 228,839 -- 168,337 175,049 134,452 56,466
GGS(c)........................ 76,270 -- 79,719 78,588 159,520 (2,199)
GGR(d)........................ 162,856 -- 536,984 125,715 661,623 37,960
GTR(h)........................ 152,857 -- 356,243 116,666 417,027 37,792
SGS(I)........................ -- -- 32,991 -- 156,786 --
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
---------------------------- ----------------------------
Year Year Year Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
MFS REGATTA PLATINUM
CONTRACTS:
------------------------------
BDS(a)........................ (89,955) (6,334) 2,970,448 628,000
CAS(b)........................ (307,461) (21,495) 10,770,738 1,683,164
COS(d)........................ (119,494) (4,045) 6,088,167 556,955
MIT(b)........................ (1,015,638) (62,529) 36,443,681 5,331,018
EGS(b)........................ (278,100) (15,948) 9,952,208 1,651,404
EIS(c)........................ (50,196) (986) 2,322,545 272,362
FCE(c)........................ (32,976) (29) 471,834 72,586
FCI(c)........................ (44,938) (4,257) 1,960,439 338,938
FCG(d)........................ (30,076) (2,969) 904,331 199,346
GSS(d)........................ (173,758) (12,618) 6,917,529 816,102
HYS(c)........................ (181,956) (12,975) 5,126,512 1,000,705
MSS(e)........................ (49,608) (4,676) 2,096,399 211,044
MIS(b)........................ (512,221) (25,188) 20,741,206 2,428,134
MMS(c)........................ (512,126) (58,155) 4,848,739 886,479
NWD(c)........................ (67,728) (6,113) 2,064,540 436,178
RES(e)........................ (266,217) (31,371) 9,822,632 1,751,713
RGS(a)........................ (67,804) (1,595) 2,692,647 387,080
RSS(f)........................ (51,342) (1,165) 914,188 181,131
SIS(g)........................ (29,954) (821) 987,192 157,634
TRS(c)........................ (509,290) (41,582) 17,437,345 2,318,847
UTS(e)........................ (170,834) (6,537) 6,397,913 819,649
GAA(d)........................ (28,837) (2,676) 502,791 228,839
GGS(c)........................ (13,795) (119) 301,714 76,270
GGR(d)........................ (32,892) (819) 1,328,571 162,856
GTR(h)........................ (24,793) (1,601) 901,334 152,857
SGS(I)........................ (76) -- 189,701 --
</TABLE>
(a) For the period June 30, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(b) For the period June 5, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(c) For the period June 18, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(d) For the period June 23, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(e) For the period June 16, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(f) For the period June 29, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(g) For the period June 26, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(h) For the period July 7, 1998 (commencement of operations of Sub-Account)
through December 31, 1998.
(i) For the period November 5, 1999 (commencement of operations of Sub-Account)
through December 31, 1999.
<PAGE>
-34-
INDEPENDENT AUDITORS' 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 Bond Sub-Account,
Capital Appreciation Sub-Account, Capital Opportunities Sub-Account,
Massachusetts Investors Trust Sub-Account, Emerging Growth Sub-Account, Equity
Income Sub-Account, 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, Global Asset Allocation Sub-Account, Global
Governments Sub-Account, Global Growth Sub-Account, Global Total Return
Sub-Account, and Strategic Growth Sub-Account of Sun Life of Canada (U.S.)
Variable Account F (the "Sub-Accounts") as of December 31, 1999, the related
statement of operations for the years then ended and the statements of changes
in net assets for the years ended December 31, 1999 and December 31, 1998. 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, 1999 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, 1999,
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 10, 2000
<PAGE>
-35-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE:
Toll Free (800) 752-7215
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
<PAGE>
JUNE 9, 2000
FUTURITY III
VARIABLE AND FIXED ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
TABLE OF CONTENTS
Calculation of Performance Data ............................................. 2
Advertising and Sales Literature ............................................24
Calculations ................................................................28
Example of Variable Accumulation Unit Value Calculation.................28
Example of Variable Annuity Unit Calculation ...........................28
Example of Variable Annuity Payment Calculation ........................28
Distribution of the Contracts ...............................................28
Designation and Change of Beneficiary .......................................29
Custodian ...................................................................29
Financial Statements ........................................................29
The Statement of Additional Information sets forth information
which may be of interest to prospective purchasers of Futurity III 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 June 9, 2000. 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 by writing to Sun Life
Assurance Company of Canada (U.S.), c/o Retirement Products and Services,
P.O. Box 9133, Boston, Massachusetts 02117, or by telephoning (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 June 9, 2000. No information is shown for the Funds
that have not commenced operations or that have been in operation for less than
one year.
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1999
1.15% M&E:
----------
<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 35.69% - - 25.89% May 5, 1993
AIM V.I. Growth Fund 26.42% - - 28.55% May 5, 1993
AIM V.I. Growth and Income Fund 25.41% - - 22.20% May 2, 1994
AIM V.I. International Equity Fund 46.03% - - 29.12% May 5, 1993
Alger American Growth Portfolio 24.94% - - 30.41% January 1, 1989
Alger American Income and Growth Portfolio 33.54% - - 30.19% November 15, 1988
Alger American Small Capitalization Portfolio 34.50% - - 20.92% September 21, 1988
Goldman Sachs VIT CORE-SM- Large Cap Growth Fund 26.60% - - 20.40% February 13, 1998
Goldman Sachs VIT CORE-SM- Small Cap Equity Fund 8.93% - - (1.41)% February 13, 1998
Goldman Sachs VIT CORE-SM- U.S. Equity Fund 15.61% - - 15.82% February 13, 1998
Goldman Sachs VIT Growth and Income Fund (2.28)% - - (5.28)% January 12, 1998
Goldman Sachs VIT International Equity Fund 23.07% - - 15.51% January 12, 1998
J.P. Morgan International Opportunities Portfolio (2) 27.82% - - 9.53% January 3, 1995
J.P. Morgan Small Company Portfolio (2) 35.46% - - 6.54% January 3, 1995
J.P. Morgan U.S. Disciplined Equity Portfolio (2) 9.93% - - 10.62% January 3, 1995
Lord Abbett Growth and Income Portfolio 8.14% - - 4.98% December 1, 1989
MFS/Sun Life Capital Appreciation Series 23.59% - 25.75% 17.18% June 12, 1985
MFS/Sun Life Emerging Growth Series 66.45% - - 34.25% May 1, 1995
MFS/Sun Life Government Securities Series (9.00)% - 4.49% 5.68% June 12, 1985
MFS/Sun Life High Yield Series (0.82)% - 7.66% 8.94% June 12, 1985
MFS/Sun Life Massachusetts Investors Growth Series 26.94% - - 29.39% May 1, 1998
MFS/Sun Life Massachusetts Investors Trust Series (0.66)% - 22.66% 15.80% December 5, 1986
MFS/Sun Life New Discovery Series 51.07% - - 32.47% May 5, 1998
MFS/Sun Life Total Return Series (4.66)% - 13.03% 10.30% May 16, 1988
MFS/Sun Life Utilities Series 22.64% - 24.71% 18.64% November 16, 1993
OCC Equity Portfolio (3) (4.91)% - - 0.19% August 1, 1988
OCC Managed Portfolio (3) (2.66)% - - 2.38% August 1, 1988
OCC Mid Cap Portfolio 12.98% - - 4.88% February 9, 1998
OCC Small Cap Portfolio (3) (8.93)% - - (14.88)% August 1, 1988
Sun Capital Blue Chip Mid Cap Fund - - - 17.33% September 13, 1999
Sun Capital Investment Grade Bond Fund (7.79)% - - (7.64)% December 7, 1998
Sun Capital Investors Foundation Fund - - - 3.14% September 13, 1999
Sun Capital Money Market Fund (2.98)% - - (2.71)% December 7, 1998
Sun Capital Real Estate Fund (10.83)% - - (9.64)% December 7, 1998
Sun Capital Select Equity Fund - - - 16.92% September 13, 1999
</TABLE>
1.30% M&E:
----------
<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 35.47% - - 25.69% May 5, 1993
AIM V.I. Growth Fund 26.22% - - 28.34% May 5, 1993
AIM V.I. Growth and Income Fund 25.21% - - 22.01% May 2, 1994
AIM V.I. International Equity Fund 45.81% - - 28.92% May 5, 1993
Alger American Growth Portfolio 24.74% - - 30.20% January 1, 1989
Alger American Income and Growth Portfolio 33.33% - - 29.98% November 15, 1988
Alger American Small Capitalization Portfolio 34.29% - - 20.73% September 21, 1988
Goldman Sachs VIT CORE-SM- Large Cap Growth Fund 26.40% - - 20.21% February 13, 1998
Goldman Sachs VIT CORE-SM- Small Cap Equity Fund 8.76% - - (1.56)% February 13, 1998
Goldman Sachs VIT CORE-SM- U.S. Equity Fund 15.43% - - 15.63% February 13, 1998
Goldman Sachs VIT Growth and Income Fund (2.42)% - - (5.42)% January 12, 1998
Goldman Sachs VIT International Equity Fund 22.88% - - 15.33% January 12, 1998
J.P. Morgan International Opportunities Portfolio (2) 27.62% - - 9.36% January 3, 1995
J.P. Morgan Small Company Portfolio (2) 35.25% - - 6.37% January 3, 1995
J.P. Morgan U.S. Disciplined Equity Portfolio (2) 9.75% - - 10.45% January 3, 1995
Lord Abbett Growth and Income Portfolio 7.97% - - 4.81% December 1, 1989
MFS/Sun Life Capital Appreciation Series 23.39% - 25.56% 17.00% June 12, 1985
MFS/Sun Life Emerging Growth Series 66.19% - - 34.05% May 1, 1995
MFS/Sun Life Government Securities Series (9.13)% - 4.33% 5.52% June 12, 1985
MFS/Sun Life High Yield Series (0.97)% - 7.49% 8.78% June 12, 1985
MFS/Sun Life Massachusetts Investors Growth Series 26.74% - - 29.19% May 1, 1998
MFS/Sun Life Massachusetts Investors Trust Series (0.81)% - 22.48% 15.62% December 5, 1986
MFS/Sun Life New Discovery Series 50.83% - - 32.27% May 5, 1998
MFS/Sun Life Total Return Series (4.80)% - 12.86% 10.13% May 16, 1988
MFS/Sun Life Utilities Series 22.45% - 24.52% 18.46% November 16, 1993
OCC Equity Portfolio (3) (5.06)% - - 0.04% August 1, 1988
OCC Managed Portfolio (3) (2.80)% - - 2.23% August 1, 1988
OCC Mid Cap Portfolio 12.80% - - 4.71% February 9, 1998
OCC Small Cap Portfolio (3) (9.07)% - - (15.01)% August 1, 1988
Sun Capital Blue Chip Mid Cap Fund - - - 17.28% September 13, 1999
Sun Capital Investment Grade Bond Fund (7.92)% - - (7.77)% December 7, 1998
Sun Capital Investors Foundation Fund - - - 3.09% September 13, 1999
Sun Capital Money Market Fund (3.13)% - - (2.86)% December 7, 1998
Sun Capital Real Estate Fund (10.97)% - - (9.77)% December 7, 1998
Sun Capital Select Equity Fund - - - 16.87% September 13, 1999
</TABLE>
1.40% M&E:
----------
<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 35.33% - - 25.57% May 5, 1993
AIM V.I. Growth Fund 26.08% - - 28.21% May 5, 1993
AIM V.I. Growth and Income Fund 25.08% - - 21.88% May 2, 1994
AIM V.I. International Equity Fund 45.66% - - 28.79% May 5, 1993
Alger American Growth Portfolio 24.61% - - 30.07% January 1, 1989
Alger American Income and Growth Portfolio 33.19% - - 29.85% November 15, 1988
Alger American Small Capitalization Portfolio 34.15% - - 20.61% September 21, 1988
Goldman Sachs VIT CORE-SM- Large Cap Growth Fund 26.26% - - 20.09% February 13, 1998
Goldman Sachs VIT CORE-SM- Small Cap Equity Fund 8.64% - - (1.66)% February 13, 1998
Goldman Sachs VIT CORE-SM- U.S. Equity Fund 15.31% - - 15.52% February 13, 1998
Goldman Sachs VIT Growth and Income Fund (2.52)% - - (5.52)% January 12, 1998
Goldman Sachs VIT International Equity Fund 22.75% - - 15.21% January 12, 1998
J.P. Morgan International Opportunities Portfolio (2) 27.49% - - 9.25% January 3, 1995
J.P. Morgan Small Company Portfolio (2) 35.11% - - 6.26% January 3, 1995
J.P. Morgan U.S. Disciplined Equity Portfolio (2) 9.63% - - 10.34% January 3, 1995
Lord Abbett Growth and Income Portfolio 7.86% - - 4.70% December 1, 1989
MFS/Sun Life Capital Appreciation Series 23.26% - 25.43% 16.88% June 12, 1985
MFS/Sun Life Emerging Growth Series 66.02% - - 33.91% May 1, 1995
MFS/Sun Life Government Securities Series (9.23)% - 4.22% 5.42% June 12, 1985
MFS/Sun Life High Yield Series (1.06)% - 7.38% 8.66% June 12, 1985
MFS/Sun Life Massachusetts Investors Growth Series 26.61% - - 29.06% May 1, 1998
MFS/Sun Life Massachusetts Investors Trust Series (0.91)% - 22.35% 15.50% December 5, 1986
MFS/Sun Life New Discovery Series 50.68% - - 32.14% May 5, 1998
MFS/Sun Life Total Return Series (4.90)% - 12.74% 10.02% May 16, 1988
MFS/Sun Life Utilities Series 22.32% - 24.39% 18.33% November 16, 1993
OCC Equity Portfolio (3) (5.15)% - - (0.06)% August 1, 1988
OCC Managed Portfolio (3) (2.90)% - - 2.13% August 1, 1988
OCC Mid Cap Portfolio 12.68% - - 4.61% February 9, 1998
OCC Small Cap Portfolio (3) (9.16)% - - (15.09)% August 1, 1988
Sun Capital Blue Chip Mid Cap Fund - - - 17.26% September 13, 1999
Sun Capital Investment Grade Bond Fund (8.02)% - - (7.87)% December 7, 1998
Sun Capital Investors Foundation Fund - - - 3.06% September 13, 1999
Sun Capital Money Market Fund (3.22)% - - (2.95)% December 7, 1998
Sun Capital Real Estate Fund (11.06)% - - (9.86)% December 7, 1998
Sun Capital Select Equity Fund - - - 16.85% September 13, 1999
</TABLE>
1.55% M&E:
----------
<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 35.12% - - 25.36% May 5, 1993
AIM V.I. Growth Fund 25.88% - - 28.01% May 5, 1993
AIM V.I. Growth and Income Fund 24.88% - - 21.68% May 2, 1994
AIM V.I. International Equity Fund 45.43% - - 28.58% May 5, 1993
Alger American Growth Portfolio 24.41% - - 29.86% January 1, 1989
Alger American Income and Growth Portfolio 32.98% - - 29.64% November 15, 1988
Alger American Small Capitalization Portfolio 33.93% - - 20.41% September 21, 1988
Goldman Sachs VIT CORE-SM- Large Cap Growth Fund 26.06% - - 19.90% February 13, 1998
Goldman Sachs VIT CORE-SM- Small Cap Equity Fund 8.47% - - (1.81)% February 13, 1998
Goldman Sachs VIT CORE-SM- U.S. Equity Fund 15.12% - - 15.33% February 13, 1998
Goldman Sachs VIT Growth and Income Fund (2.67)% - - (5.66)% January 12, 1998
Goldman Sachs VIT International Equity Fund 22.55% - - 15.02% January 12, 1998
J.P. Morgan International Opportunities Portfolio (2) 27.28% - - 9.06% January 3, 1995
J.P. Morgan Small Company Portfolio (2) 34.90% - - 6.08% January 3, 1995
J.P. Morgan U.S. Disciplined Equity Portfolio (2) 9.46% - - 10.15% January 3, 1995
Lord Abbett Growth and Income Portfolio 7.70% - - 4.53% December 1, 1989
MFS/Sun Life Capital Appreciation Series 23.07% - 25.23% 16.70% June 12, 1985
MFS/Sun Life Emerging Growth Series 65.77% - - 33.70% May 1, 1995
MFS/Sun Life Government Securities Series (9.36)% - 4.05% 5.25% June 12, 1985
MFS/Sun Life High Yield Series (1.21)% - 7.21% 8.50% June 12, 1985
MFS/Sun Life Massachusetts Investors Growth Series 26.41% - - 28.85% May 1, 1998
MFS/Sun Life Massachusetts Investors Trust Series (1.06)% - 22.16% 15.33% December 5, 1986
MFS/Sun Life New Discovery Series 50.45% - - 31.92% May 5, 1998
MFS/Sun Life Total Return Series (5.04)% - 12.56% 9.85% May 16, 1988
MFS/Sun Life Utilities Series 22.13% - 24.20% 18.15% November 16, 1993
OCC Equity Portfolio (3) (5.29)% - - (0.21)% August 1, 1988
OCC Managed Portfolio (3) (3.05)% - - 1.97% August 1, 1988
OCC Mid Cap Portfolio 12.50% - - 4.43% February 9, 1998
OCC Small Cap Portfolio (3) (9.30)% - - (15.22)% August 1, 1988
Sun Capital Blue Chip Mid Cap Fund - - - 17.19% September 13, 1999
Sun Capital Investment Grade Bond Fund (8.16)% - - (8.01)% December 7, 1998
Sun Capital Investors Foundation Fund - - - 3.02% September 13, 1999
Sun Capital Money Market Fund (3.37)% - - (3.10)% December 7, 1998
Sun Capital Real Estate Fund (11.19)% - - (10.00)% December 7, 1998
Sun Capital Select Equity Fund - - - 16.78% September 13, 1999
</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 Company 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 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.
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 III Contract, this many years ago... on December 31, 1999
</TABLE>
<TABLE>
1.15% M&E:
----------
<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 12/31/98-12/31/99 $14,296.39 42.96% 42.96% 1 12/31/98-12/31/99 $13,368.57 33.69% 33.69%
2 12/31/97-12/31/99 $16,862.19 68.62% 29.85% 2 12/31/97-12/31/99 $17,725.43 77.25% 33.14%
3 12/31/96-12/31/99 $18,913.68 89.14% 23.67% 3 12/31/96-12/31/99 $22,220.70 122.21% 30.49%
4 12/31/95-12/31/99 $21,987.71 119.88% 21.77% 4 12/31/95-12/31/99 $25,950.60 159.51% 26.92%
5 12/31/94-12/31/99 $29,485.72 194.86% 24.14% 5 12/31/94-12/31/99 $34,562.29 245.62% 28.15%
Life 05/05/93-12/31/99 $35,428.72 254.29% 20.93% Life 05/05/93-12/31/99 $36,593.04 265.93% 21.51%
<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 12/31/98-12/31/99 $13,267.26 32.67% 32.67% 1 12/31/98-12/31/99 $15,331.53 53.32% 53.32%
2 12/31/97-12/31/99 $16,750.52 67.51% 29.42% 2 12/31/97-12/31/99 $17,501.07 75.01% 32.29%
3 12/31/96-12/31/99 $20,807.88 108.08% 27.67% 3 12/31/96-12/31/99 $18,497.91 84.98% 22.76%
4 12/31/95-12/31/99 $24,673.16 146.73% 25.33% 4 12/31/95-12/31/99 $21,952.28 119.52% 21.72%
5 12/31/94-12/31/99 $32,653.50 226.54% 26.70% 5 12/31/94-12/31/99 $25,440.71 154.41% 20.53%
Life 05/02/94-12/31/99 $32,401.21 224.01% 23.06% Life 05/05/93-12/31/99 $29,196.88 191.97% 17.46%
<CAPTION>
ALGER AMERICAN GROWTH PORTFOLIO ALGER AMERICAN 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 12/31/98-12/31/99 $13,221.12 32.21% 32.21% 1 12/31/98-12/31/99 $14,081.74 40.82% 40.82%
2 12/31/97-12/31/99 $19,351.28 93.51% 39.11% 2 12/31/97-12/31/99 $18,428.69 84.29% 35.75%
3 12/31/96-12/31/99 $24,054.34 140.54% 33.99% 3 12/31/96-12/31/99 $24,826.35 148.26% 35.41%
4 12/31/95-12/31/99 $26,948.66 169.49% 28.13% 4 12/31/95-12/31/99 $29,366.88 193.67% 30.91%
5 12/31/94-12/31/99 $36,328.94 263.29% 29.43% 5 12/31/94-12/31/99 $39,230.70 292.31% 31.44%
10 12/31/89-12/31/99 $69,982.12 599.82% 21.48% 10 12/31/89-12/31/99 $50,419.45 404.19% 17.56%
Life 01/09/89-12/31/99 $85,880.70 758.81% 21.64% Life 11/15/88-12/31/99 $53,963.41 439.63% 16.36%
</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 III Contract, this many years ago... on December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO GOLDMAN SACHS VIT CORE-SM- 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 12/31/98-12/31/99 $14,177.03 41.77% 41.77% 1 12/31/98-12/31/99 $13,386.63 33.87% 33.87%
2 12/31/97-12/31/99 $16,190.12 61.90% 27.24%
3 12/31/96-12/31/99 $17,827.82 78.28% 21.25%
4 12/31/95-12/31/99 $18,356.83 83.57% 16.40%
5 12/31/94-12/31/99 $26,186.97 161.87% 21.23%
10 12/31/89-12/31/99 $47,479.43 374.79% 16.86%
Life 09/21/88-12/31/99 $74,379.21 643.79% 19.48% Life 02/13/98-12/31/99 $15,486.21 54.86% 26.20%
<CAPTION>
GOLDMAN SACHS VIT CORE-SM- SMALL CAP EQUITY FUND GOLDMAN SACHS VIT CORE-SM- 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>
1 12/31/98-12/31/99 $11,619.26 16.19% 16.19% 1 12/31/98-12/31/99 $12,287.29 22.87% 22.87%
Life 02/13/98-12/31/99 $10,421.36 4.21% 2.22% Life 02/13/98-12/31/99 $13,939.40 39.39% 19.33%
<CAPTION>
GOLDMAN SACHS VIT CORE-SM- GROWTH AND INCOME FUND GOLDMAN SACHS VIT 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 12/31/98-12/31/99 $10,419.62 4.20% 4.20% 1 12/31/98-12/31/99 $13,033.56 30.34% 30.34%
Life 01/12/98-12/31/99 $10,867.79 8.68% 4.32% Life 01/12/98-12/31/99 $15,475.25 54.75% 24.85%
<CAPTION>
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO J.P. MORGAN 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 12/31/98-12/31/99 $11,718.56 17.19% 17.19% 1 12/31/98-12/31/99 $13,509.00 35.09% 35.09%
2 12/31/97-12/31/99 $14,281.55 42.82% 19.51% 2 12/31/97-12/31/99 $13,985.76 39.86% 18.26%
3 12/31/96-12/31/99 $18,000.39 80.00% 21.64% 3 12/31/96-12/31/99 $14,576.31 45.76% 13.38%
4 12/31/95-12/31/99 $21,575.73 115.76% 21.20% 4 12/31/95-12/31/99 $16,302.00 63.02% 13.00%
Life 01/03/95-12/31/99 $28,537.72 185.38% 23.38% Life 01/03/95-12/31/99 $18,110.71 81.11% 12.63%
</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 III Contract, this many years ago... on December 31, 1999
</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 12/31/98-12/31/99 $14,273.32 42.73% 42.73% 1 12/31/98-12/31/99 $11,540.02 15.40% 15.40%
2 12/31/97-12/31/99 $13,331.80 33.32% 15.46% 2 12/31/97-12/31/99 $12,877.04 28.77% 13.48%
3 12/31/96-12/31/99 $16,143.54 61.44% 17.31% 3 12/31/96-12/31/99 $15,868.04 58.68% 16.64%
4 12/31/95-12/31/99 $19,432.84 94.33% 18.07% 4 12/31/95-12/31/99 $18,725.28 87.25% 16.98%
5 12/31/94-12/31/99 $24,030.44 140.30% 19.17%
10 12/31/89-12/31/99 $40,145.88 301.46% 14.91%
Life 01/03/95-12/31/99 $25,529.42 155.29% 20.65% Life 12/11/89-12/31/99 $40,405.17 304.05% 14.90%
<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 12/31/98-12/31/99 $13,109.79 31.10% 31.10% 1 12/31/98-12/31/99 $17,378.74 73.79% 73.79%
2 12/31/97-12/31/99 $16,679.09 66.79% 29.15% 2 12/31/97-12/31/99 $22,999.39 129.99% 51.66%
3 12/31/96-12/31/99 $20,301.28 103.01% 26.62% 3 12/31/96-12/31/99 $27,720.62 177.21% 40.48%
4 12/31/95-12/31/99 $24,375.57 143.76% 24.95% 4 12/31/95-12/31/99 $32,096.87 220.97% 33.85%
5 12/31/94-12/31/99 $32,400.69 224.01% 26.51%
10 12/31/89-12/31/99 $50,309.15 403.09% 17.53%
Life 06/12/85-12/31/99 $100,166.32 901.66% 17.16% Life 05/01/95-12/31/99 $40,389.07 303.89% 34.85%
<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 12/31/98-12/31/99 $9,694.42 (3.06)% (3.06)% 1 12/31/98-12/31/99 $10,569.08 5.69% 5.69%
2 12/31/97-12/31/99 $10,417.13 4.17% 2.06% 2 12/31/97-12/31/99 $10,507.68 5.08% 2.51%
3 12/31/96-12/31/99 $11,195.62 11.96% 3.84% 3 12/31/96-12/31/99 $11,762.77 17.63% 5.58%
4 12/31/95-12/31/99 $11,246.91 12.47% 2.98% 4 12/31/95-12/31/99 $13,034.51 30.35% 6.85%
5 12/31/94-12/31/99 $13,082.32 30.82% 5.52% 5 12/31/94-12/31/99 $15,067.25 50.67% 8.54%
10 12/31/89-12/31/99 $17,685.47 76.85% 5.87% 10 12/31/89-12/31/99 $23,840.74 138.41% 9.08%
Life 06/12/85-12/31/99 $25,557.92 155.58% 6.66% Life 06/12/85-12/31/99 $30,946.08 209.46% 8.07%
</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 III Contract, this many years ago... on December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
MFS/SUN LIFE NEW DISCOVERY SERIES MFS/SUN LIFE TOTAL RETURN 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 12/31/98-12/31/99 $15,835.06 58.35% 58.35% 1 12/31/98-12/31/99 $10,163.85 1.64% 1.64%
2 12/31/97-12/31/99 $11,223.02 12.23% 5.94%
3 12/31/96-12/31/99 $13,531.83 35.32% 10.61%
4 12/31/95-12/31/99 $15,261.43 52.61% 11.15%
5 12/31/94-12/31/99 $19,116.33 91.16% 13.84%
10 12/31/89-12/31/99 $27,119.91 171.20% 10.49%
Life 05/06/98-12/31/99 $16,690.74 66.91% 36.28% Life 05/11/88-12/31/99 $33,070.69 230.71% 10.82%
<CAPTION>
MFS/SUN LIFE MASSACHUSETTS INVESTORS GROWTH STOCK SERIES MFS/SUN LIFE MASSACHUSETTS INVESTORS TRUST SERIES
Number Cumulative Compound Number Cumulative Compound
of Growth Growth of Growth Growth
Years Periods Amount Rate Rate Years Periods Amount Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/98-12/31/99 $13,420.73 34.21% 34.21% 1 12/31/98-12/31/99 $10,594.15 5.94% 5.94%
2 12/31/97-12/31/99 $12,969.60 29.70% 13.88%
3 12/31/96-12/31/99 $16,915.54 69.16% 19.15%
4 12/31/95-12/31/99 $20,967.38 109.67% 20.33%
5 12/31/94-12/31/99 $28,482.59 184.83% 23.29%
10 12/31/89-12/31/99 $40,227.32 302.27% 14.93%
Life 05/06/98-12/31/99 $16,076.66 60.77% 33.23% Life 11/14/86-12/31/99 $55,538.64 455.39% 13.95%
</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 III Contract, this many years ago... on December 31, 1999
</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 12/31/98-12/31/99 $12,978.39 29.78% 29.78% 1 12/31/98-12/31/99 $10,135.76 1.36% 1.36%
2 12/31/97-12/31/99 $15,080.40 50.80% 22.80% 2 12/31/97-12/31/99 $11,207.93 12.08% 5.87%
3 12/31/96-12/31/99 $19,783.58 97.84% 25.54% 3 12/31/96-12/31/99 $14,029.35 40.29% 11.95%
4 12/31/95-12/31/99 $23,537.44 135.37% 23.86% 4 12/31/95-12/31/99 $17,105.71 71.06% 14.36%
5 12/31/94-12/31/99 $30,798.52 207.99% 25.23% 5 12/31/94-12/31/99 $23,481.16 134.81% 18.62%
10 12/31/89-12/31/99 $37,531.62 275.32% 14.14%
Life 11/16/93-12/31/99 $28,952.88 189.53% 18.96% Life 08/01/88-12/31/99 $46,156.17 361.56% 14.34%
<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 12/31/98-12/31/99 $10,378.50 3.76% 3.78% 1 12/31/98-12/31/99 $12,023.49 20.23% 20.23%
2 12/31/97-12/31/99 $10,990.61 9.91% 4.84%
3 12/31/96-12/31/99 $13,285.59 32.86% 9.93%
4 12/31/95-12/31/99 $16,122.84 61.23% 12.68%
5 12/31/94-12/31/99 $23,197.89 131.98% 18.33%
10 12/31/89-12/31/99 $41,359.21 313.59% 15.25%
Life 08/01/88-12/31/99 $58,310.49 463.10% 16.34% Life 02/09/98-12/31/99 $11,707.08 17.07% 8.69%
<CAPTION>
OCC SMALL CAP PORTFOLIO SUN CAPITAL BLUE CHIP MID CAP 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 12/31/98-12/31/99 $ 9,703.45 (2.97)% (2.97)%
2 12/31/97-12/31/99 $ 8,725.88 (12.74)% (6.59)%
3 12/31/96-12/31/99 $10,544.72 5.45% 1.78%
4 12/31/95-12/31/99 $12,373.53 23.74% 5.47%
5 12/31/94-12/31/99 $14,094.58 40.95% 7.11%
10 12/31/89-12/31/99 $25,554.03 155.54% 9.84%
Life 08/01/88-12/31/99 $30,321.11 203.21% 10.20% Life 09/13/99-12/31/99 $12,660.50 26.60% 26.60%
<CAPTION>
SUN CAPITAL INVESTMENT GRADE BOND FUND SUN CAPITAL INVESTORS FOUNDATION 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 12/31/98-12/31/99 $ 9,826.82 (1.73)% (1.73)% Life 09/13/99-12/31/99 $11,169.14 11.69% 11.69%
Life 12/07/98-12/31/99 $ 9,822.77 (1.77)% (1.66)%
<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>
1 12/31/98-12/31/99 $10,344.39 3.44% 3.44% 1 12/31/98-12/31/99 $9,498.83 (5.01)% (5.01)%
Life 12/07/98-12/31/99 $10,366.53 3.67% 3.44% Life 12/07/98-12/31/99 $9,426.49 (5.74)% (5.39)%
<CAPTION>
SUN CAPITAL SELECT EQUITY FUND
Number Cumulative Compound
of Growth Growth
Years Periods Amount Rate Rate*
<S> <C> <C> <C> <C>
Life 09/13/99-12/31/99 $12,594.44 25.94% 25.94%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-9-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</TABLE>
1.30% M&E:
-----------
<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 12/31/98-12/31/99 $14,274.32 42.74% 42.74% 1 12/31/98-12/31/99 $13,348.51 33.49% 33.49%
2 12/31/97-12/31/99 $16,810.88 68.11% 29.66% 2 12/31/97-12/31/99 $17,671.10 76.71% 32.93%
3 12/31/96-12/31/99 $18,826.89 88.27% 23.48% 3 12/31/96-12/31/99 $22,118.77 121.19% 30.29%
4 12/31/95-12/31/99 $21,854.09 118.54% 21.59% 4 12/31/95-12/31/99 $25,792.69 157.93% 26.73%
5 12/31/94-12/31/99 $29,261.34 192.61% 23.95% 5 12/31/94-12/31/99 $34,300.34 243.00% 27.96%
Life 05/05/93-12/31/99 $35,071.56 250.72% 20.74% Life 05/05/93-12/31/99 $36,224.66 262.25% 21.33%
<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 12/31/98-12/31/99 $13,247.20 32.47% 32.47% 1 12/31/98-12/31/99 $15,308.46 53.08% 53.08%
2 12/31/97-12/31/99 $16,699.21 66.99% 29.23% 2 12/31/97-12/31/99 $17,447.74 74.48% 32.09%
3 12/31/96-12/31/99 $20,713.01 107.13% 27.47% 3 12/31/96-12/31/99 $18,414.15 84.14% 22.57%
4 12/31/95-12/31/99 $24,523.35 145.23% 25.14% 4 12/31/95-12/31/99 $21,818.67 118.19% 21.54%
5 12/31/94-12/31/99 $32,405.77 224.06% 26.51% 5 12/31/94-12/31/99 $25,247.80 152.48% 20.35%
Life 05/02/94-12/31/99 $32,123.47 221.23% 22.87% Life 05/05/93-12/31/99 $28,901.97 189.02% 17.28%
<CAPTION>
ALGER AMERICAN GROWTH PORTFOLIO ALGER AMERICAN 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 12/31/98-12/31/99 $13,201.06 32.01% 32.01% 1 12/31/98-12/31/99 $14,059.67 40.60% 40.60%
2 12/31/97-12/31/99 $19,292.93 92.93% 38.90% 2 12/31/97-12/31/99 $18,372.35 83.72% 35.54%
3 12/31/96-12/31/99 $23,944.35 139.44% 33.78% 3 12/31/96-12/31/99 $24,713.33 147.13% 35.20%
4 12/31/95-12/31/99 $26,784.68 167.85% 27.93% 4 12/31/95-12/31/99 $29,188.73 191.89% 30.71%
5 12/31/94-12/31/99 $36,052.77 260.53% 29.24% 5 12/31/94-12/31/99 $38,933.22 289.33% 31.24%
10 12/31/89-12/31/99 $68,923.42 589.23% 21.29% 10 12/31/89-12/31/99 $49,657.64 396.58% 17.38%
Life 01/09/89-12/31/99 $84,456.99 744.57% 21.46% Life 11/15/88-12/31/99 $53,056.24 430.56% 16.18%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-10-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO GOLDMAN SACHS VIT CORE-SM- 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 12/31/98-12/31/99 $14,154.96 41.55% 41.55% 1 12/31/98-12/31/99 $13,365.56 33.66% 33.66%
2 12/31/97-12/31/99 $16,140.62 61.41% 27.05%
3 12/31/96-12/31/99 $17,746.08 77.46% 21.07%
4 12/31/95-12/31/99 $18,245.49 82.45% 16.22%
5 12/31/94-12/31/99 $25,987.97 159.88% 21.05%
10 12/31/89-12/31/99 $46,761.95 367.62% 16.68%
Life 09/21/88-12/31/99 $73,112.53 631.13% 19.29% Life 02/13/98-12/31/99 $15,441.96 54.42% 26.01%
<CAPTION>
GOLDMAN SACHS VIT CORE-SM- SMALL CAP EQUITY FUND GOLDMAN SACHS VIT CORE-SM- 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>
1 12/31/98-12/31/99 $11,601.21 16.01% 16.01% 1 12/31/98-12/31/99 $12,268.23 22.68% 22.68%
Life 02/13/98-12/31/99 $10,391.19 3.91% 2.06% Life 02/13/98-12/31/99 $13,900.18 39.00% 19.15%
<CAPTION>
GOLDMAN SACHS VIT CORE-SM- GROWTH AND INCOME FUND GOLDMAN SACHS VIT 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 12/31/98-12/31/99 $10,404.58 4.05% 4.05% 1 12/31/98-12/31/99 $13,013.49 30.13% 30.13%
Life 01/12/98-12/31/99 $10,835.59 8.36% 4.16% Life 01/12/98-12/31/99 $15,428.98 54.29% 24.66%
<CAPTION>
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO J.P. MORGAN 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 12/31/98-12/31/99 $11,700.51 17.01% 17.01% 1 12/31/98-12/31/99 $13,488.94 34.89% 34.89%
2 12/31/97-12/31/99 $14,238.29 42.38% 19.32% 2 12/31/97-12/31/99 $13,943.51 39.44% 18.08%
3 12/31/96-12/31/99 $17,918.65 79.19% 21.46% 3 12/31/96-12/31/99 $14,509.71 45.10% 13.21%
4 12/31/95-12/31/99 $21,445.15 114.45% 21.01% 4 12/31/95-12/31/99 $16,202.80 62.03% 12.82%
Life 01/03/95-12/31/99 $28,321.47 183.21% 23.19% Life 01/03/95-12/31/99 $17,973.65 79.74% 12.46%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-11-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</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 12/31/98-12/31/99 $14,252.25 42.52% 42.52% 1 12/31/98-12/31/99 $11,521.97 15.22% 15.22%
2 12/31/97-12/31/99 $13,291.55 32.92% 15.29% 2 12/31/97-12/31/99 $12,837.80 28.38% 13.30%
3 12/31/96-12/31/99 $16,069.87 60.70% 17.13% 3 12/31/96-12/31/99 $15,795.38 57.95% 16.46%
4 12/31/95-12/31/99 $19,315.42 93.15% 17.89% 4 12/31/95-12/31/99 $18,610.90 86.11% 16.80%
5 12/31/94-12/31/99 $23,847.69 138.48% 18.98%
10 12/31/89-12/31/99 $39,539.74 295.40% 14.74%
Life 01/03/95-12/31/99 $25,336.52 153.37% 20.47% Life 12/11/89-12/31/99 $39,790.68 297.91% 14.72%
<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 12/31/98-12/31/99 $13,090.73 30.91% 30.91% 1 12/31/98-12/31/99 $17,351.66 73.52% 73.52%
2 12/31/97-12/31/99 $16,627.77 66.28% 28.95% 2 12/31/97-12/31/99 $22,929.97 129.30% 51.43%
3 12/31/96-12/31/99 $20,209.44 102.09% 26.43% 3 12/31/96-12/31/99 $27,594.48 175.94% 40.26%
4 12/31/95-12/31/99 $24,227.78 142.28% 24.76% 4 12/31/95-12/31/99 $31,901.51 219.02% 33.65%
5 12/31/94-12/31/99 $32,154.98 221.55% 26.31%
10 12/31/89-12/31/99 $49,549.40 395.49% 17.36%
Life 06/12/85-12/31/99 $97,970.30 879.70% 16.98% Life 05/01/95-12/31/99 $40,103.04 301.03% 34.65%
<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 12/31/98-12/31/99 $9,680.38 (3.20)% (3.20)% 1 12/31/98-12/31/99 $10,363.45 3.63% 3.63%
2 12/31/97-12/31/99 $10,384.94 3.85% 1.91% 2 12/31/97-12/31/99 $10,956.40 9.56% 4.67%
3 12/31/96-12/31/99 $11,144.16 11.44% 3.68% 3 12/31/96-12/31/99 $13,225.05 32.25% 9.77%
4 12/31/95-12/31/99 $11,179.09 11.79% 2.83% 4 12/31/95-12/31/99 $16,024.65 60.25% 12.51%
5 12/31/94-12/31/99 $12,982.82 29.83% 5.36% 5 12/31/94-12/31/99 $23,022.24 130.22% 18.15%
10 12/31/89-12/31/99 $17,418.47 74.18% 5.71% 10 12/31/89-12/31/99 $40,733.47 307.33% 15.08%
Life 06/12/85-12/31/99 $24,997.68 149.98% 6.50% Life 08/01/88-12/31/99 $55,339.37 453.39% 16.17%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-12-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
MFS/SUN LIFE NEW DISCOVERY SERIES MFS/SUN LIFE TOTAL RETURN 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> <S> <C> <C> <C> <C>
1 12/31/98-12/31/99 $15,810.98 58.11% 58.11% 1 12/31/98-12/31/99 $10,147.80 1.48% 1.48%
2 12/31/97-12/31/99 $11,188.81 11.89% 5.78%
3 12/31/96-12/31/99 $13,470.27 34.70% 10.44%
4 12/31/95-12/31/99 $15,168.30 51.68% 10.98%
5 12/31/94-12/31/99 $18,971.14 89.71% 13.66%
10 12/31/89-12/31/99 $26,709.63 167.10% 10.32%
Life 05/06/98-12/31/99 $16,648.53 66.49% 36.08% Life 05/11/88-12/31/99 $32,489.48 224.89% 10.65%
<CAPTION>
MFS/SUN LIFE MASSACHUSETTS INVESTORS GROWTH SERIES MFS/SUN LIFE MASSACHUSETTS INVESTORS TRUST SERIES
Number Cumulative Compound Number Cumulative Compound
of Growth Growth of Growth Growth
Years Periods Amount Rate Rate Years Periods Amount Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/98-12/31/99 $13,400.67 34.01% 34.01% 1 12/31/98-12/31/99 $10,578.10 5.78% 5.78%
2 12/31/97-12/31/99 $12,930.37 29.30% 13.71%
3 12/31/96-12/31/99 $16,838.85 68.39% 18.97%
4 12/31/95-12/31/99 $20,839.84 108.40% 20.15%
5 12/31/94-12/31/99 $28,266.33 182.66% 23.10%
10 12/31/89-12/31/99 $39,619.11 296.19% 14.76%
Life 05/06/98-12/31/99 $16,036.46 60.36% 33.03% Life 11/14/86-12/31/99 $54,439.64 444.40% 13.78%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-13-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</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 12/31/98-12/31/99 $12,958.33 29.58% 29.58% 1 12/31/98-12/31/99 $10,120.72 1.21% 1.21%
2 12/31/97-12/31/99 $15,034.12 50.34% 22.61% 2 12/31/97-12/31/99 $11,173.72 11.74% 5.71%
3 12/31/96-12/31/99 $19,693.76 96.94% 25.35% 3 12/31/96-12/31/99 $13,965.77 39.66% 11.78%
4 12/31/95-12/31/99 $23,394.71 133.95% 23.67% 4 12/31/95-12/31/99 $17,002.47 70.02% 14.19%
5 12/31/94-12/31/99 $30,563.99 205.64% 25.04% 5 12/31/94-12/31/99 $23,302.46 133.02% 18.44%
10 12/31/89-12/31/99 $36,963.61 269.64% 13.97%
Life 11/16/93-12/31/99 $28,683.92 186.84% 18.78% Life 08/01/88-12/31/99 $45,360.02 353.60% 14.16%
<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 12/31/98-12/31/99 $10,553.03 5.53% 5.53% 1 12/31/98-12/31/99 $12,005.44 20.05% 20.05%
2 12/31/97-12/31/99 $10,475.49 4.75% 2.35%
3 12/31/96-12/31/99 $11,708.28 17.08% 5.40%
4 12/31/95-12/31/99 $12,955.56 29.56% 6.69%
5 12/31/94-12/31/99 $14,953.54 49.54% 8.38%
10 12/31/89-12/31/99 $23,479.94 134.80% 8.91%
Life 06/12/85-12/31/99 $30,267.72 202.68% 7.91% Life 02/09/98-12/31/99 $11,673.89 16.74% 8.53%
<CAPTION>
OCC SMALL CAP PORTFOLIO SUN CAPITAL BLUE CHIP MID CAP 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> <S> <C> <C> <C> <C>
1 12/31/98-12/31/99 $9,689.41 (3.11)% (3.11)%
2 12/31/97-12/31/99 $8,699.73 (13.00)% (6.73)%
3 12/31/96-12/31/99 $10,496.28 4.96% 1.63%
4 12/31/95-12/31/99 $12,298.62 22.99% 5.31%
5 12/31/94-12/31/99 $13,986.96 39.87% 6.94%
10 12/31/89-12/31/99 $25,168.49 151.68% 9.67%
Life 08/01/88-12/31/99 $29,798.28 197.98% 10.04% Life 09/13/99-12/31/99 $12,654.82 26.55% 26.55%
<CAPTION>
SUN CAPITAL INVESTMENT GRADE BOND FUND SUN CAPITAL INVESTORS FOUNDATION 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> <S> <C> <C> <C> <C>
1 12/31/98-12/31/99 $9,811.78 (1.88)% (1.88)%
Life 12/07/98-12/31/99 $9,806.72 (1.93)% (1.81)% Life 09/13/99-12/31/99 $11,164.06 11.64% 11.64%
<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>
1 12/31/98-12/31/99 $10,328.35 3.28% 3.28% 1 12/31/98-12/31/99 $9,484.79 (5.15)% (5.15)%
Life 12/07/98-12/31/99 $10,349.47 3.49% 3.28% Life 12/07/98-12/31/99 $9,411.44 (5.89)% (5.53)%
<CAPTION>
SUN CAPITAL SELECT EQUITY FUND
Number Cumulative Compound
of Growth Growth
Years Periods Amount Rate Rate*
<S> <C> <C> <C> <C>
Life 09/13/99-12/31/99 $12,588.76 25.89% 25.89%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-14-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</TABLE>
1.40% M&E:
----------
<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 12/31/98-12/31/99 $14,259.28 42.59% 42.59% 1 12/31/98-12/31/99 $13,334.47 33.34% 33.34%
2 12/31/97-12/31/99 $16,776.68 67.77% 29.52% 2 12/31/97-12/31/99 $17,634.88 76.35% 32.80%
3 12/31/96-12/31/99 $18,770.38 87.70% 23.36% 3 12/31/96-12/31/99 $22,052.17 120.52% 30.16%
4 12/31/95-12/31/99 $21,765.02 117.65% 21.46% 4 12/31/95-12/31/99 $25,688.43 156.88% 26.60%
5 12/31/94-12/31/99 $29,113.10 191.13% 23.83% 5 12/31/94-12/31/99 $34,126.72 241.27% 27.83%
Life 05/05/93-12/31/99 $34,834.82 248.35% 20.62% Life 05/05/93-12/31/99 $35,979.76 259.80% 21.21%
<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 12/31/98-12/31/99 $13,234.16 32.34% 32.34% 1 12/31/98-12/31/99 $15,292.41 52.92% 52.92%
2 12/31/97-12/31/99 $16,666.01 66.66% 29.10% 2 12/31/97-12/31/99 $17,412.53 74.13% 31.96%
3 12/31/96-12/31/99 $20,650.45 106.50% 27.34% 3 12/31/96-12/31/99 $18,357.63 83.58% 22.44%
4 12/31/95-12/31/99 $24,424.15 144.24% 25.01% 4 12/31/95-12/31/99 $21,729.59 117.30% 21.41%
5 12/31/94-12/31/99 $32,241.28 222.41% 26.38% 5 12/31/94-12/31/99 $25,119.88 151.20% 20.23%
Life 05/02/94-12/31/99 $31,938.31 219.38% 22.75% Life 05/05/93-12/31/99 $28,707.07 187.07% 17.16%
<CAPTION>
ALGER AMERICAN GROWTH PORTFOLIO ALGER AMERICAN 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 12/31/98-12/31/99 $13,187.02 31.87% 31.87% 1 12/31/98-12/31/99 $14,045.63 40.46% 40.46%
2 12/31/97-12/31/99 $19,253.69 92.54% 38.76% 2 12/31/97-12/31/99 $18,335.12 83.35% 35.41%
3 12/31/96-12/31/99 $23,871.69 138.72% 33.65% 3 12/31/96-12/31/99 $24,638.65 146.39% 35.06%
4 12/31/95-12/31/99 $26,676.37 166.76% 27.80% 4 12/31/95-12/31/99 $29,070.30 190.70% 30.58%
5 12/31/94-12/31/99 $35,870.02 258.70% 29.11% 5 12/31/94-12/31/99 $38,735.23 287.35% 31.11%
10 12/31/89-12/31/99 $68,226.56 582.27% 21.17% 10 12/31/89-12/31/99 $49,154.58 391.55% 17.26%
Life 01/09/89-12/31/99 $83,519.22 735.19% 21.34% Life 11/15/88-12/31/99 $52,459.40 424.59% 16.06%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-15-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO GOLDMAN SACHS VIT CORE-SM- 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 12/31/98-12/31/99 $14,140.92 41.41% 41.41% 1 12/31/98-12/31/99 $13,352.52 33.53% 33.53%
2 12/31/97-12/31/99 $16,108.63 61.09% 26.92%
3 12/31/96-12/31/99 $17,692.60 76.93% 20.95%
4 12/31/95-12/31/99 $18,171.59 81.72% 16.10%
5 12/31/94-12/31/99 $25,855.98 158.56% 20.92%
10 12/31/89-12/31/99 $46,288.79 382.89% 16.56%
Life 09/21/88-12/31/99 $72,278.42 622.78% 19.17% Life 02/13/98-12/31/99 $15,412.80 54.13% 25.88%
<CAPTION>
GOLDMAN SACHS VIT CORE-SM- SMALL CAP EQUITY FUND GOLDMAN SACHS VIT CORE-SM- 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>
1 12/31/98-12/31/99 $11,589.17 15.89% 15.89% 1 12/31/98-12/31/99 $12,256.20 22.56% 22.56%
Life 02/13/98-12/31/99 $10,371.08 3.71% 1.96% Life 02/13/98-12/31/99 $13,873.03 38.73% 19.03%
<CAPTION>
GOLDMAN SACHS VIT CORE-SM- GROWTH AND INCOME FUND GOLDMAN SACHS VIT 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 12/31/98-12/31/99 $10,393.54 3.94% 3.94% 1 12/31/98-12/31/99 $13,000.46 30.00% 30.00%
Life 01/12/98-12/31/99 $10,813.46 8.13% 4.06% Life 01/12/98-12/31/99 $15,398.80 53.99% 24.54%
<CAPTION>
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO J.P. MORGAN 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 12/31/98-12/31/99 $11,688.47 16.88% 16.88% 1 12/31/98-12/31/99 $13,474.89 34.75% 34.75%
2 12/31/97-12/31/99 $14,209.12 42.09% 19.20% 2 12/31/97-12/31/99 $13,915.34 39.15% 17.96%
3 12/31/96-12/31/99 $17,864.15 78.64% 21.34% 3 12/31/96-12/31/99 $14,465.30 44.65% 13.09%
4 12/31/95-12/31/99 $21,358.10 113.58% 20.89% 4 12/31/95-12/31/99 $16,137.01 61.37% 12.71%
Life 01/03/95-12/31/99 $28,178.31 181.78% 23.06% Life 01/03/95-12/31/99 $17,882.27 78.82% 12.35%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-16-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</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 12/31/98-12/31/99 $14,237.21 42.37% 42.37% 1 12/31/98-12/31/99 $11,509.93 15.10% 15.10%
2 12/31/97-12/31/99 $13,264.39 32.64% 15.17% 2 12/31/97-12/31/99 $12,811.65 28.12% 13.19%
3 12/31/96-12/31/99 $16,021.43 60.21% 17.01% 3 12/31/96-12/31/99 $15,746.94 57.47% 16.34%
4 12/31/95-12/31/99 $19,236.46 92.36% 17.77% 4 12/31/95-12/31/99 $18,536.00 85.36% 16.68%
5 12/31/94-12/31/99 $23,726.86 137.27% 18.86%
10 12/31/89-12/31/99 $39,139.76 291.40% 14.62%
Life 01/03/95-12/31/99 $25,207.58 152.08% 20.35% Life 12/11/89-12/31/99 $39,386.51 293.87% 14.61%
<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 12/31/98-12/31/99 $13,076.69 30.77% 30.77% 1 12/31/98-12/31/99 $17,334.61 73.35% 73.35%
2 12/31/97-12/31/99 $16,594.57 65.95% 28.82% 2 12/31/97-12/31/99 $22,882.68 128.83% 51.27%
3 12/31/96-12/31/99 $20,147.88 101.48% 26.30% 3 12/31/96-12/31/99 $27,510.72 175.11% 40.12%
4 12/31/95-12/31/99 $24,129.59 141.30% 24.63% 4 12/31/95-12/31/99 $31,772.96 217.73% 33.51%
5 12/31/94-12/31/99 $31,991.52 219.92% 26.18%
10 12/31/89-12/31/99 $49,047.37 390.47% 17.24%
Life 06/12/85-12/31/99 $96,531.02 865.31% 16.86% Life 05/01/95-12/31/99 $39,913.37 299.13% 34.51%
<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 12/31/98-12/31/99 $ 9,670.35 (3.30)% (3.30)% 1 12/31/98-12/31/99 $10,541.99 5.42% 5.42%
2 12/31/97-12/31/99 $10,363.81 3.64% 1.80% 2 12/31/97-12/31/99 $10,454.36 4.54% 2.25%
3 12/31/96-12/31/99 $11,109.85 11.10% 3.57% 3 12/31/96-12/31/99 $11,672.96 16.73% 5.29%
4 12/31/95-12/31/99 $11,133.54 11.34% 2.72% 4 12/31/95-12/31/99 $12,902.92 29.03% 6.58%
5 12/31/94-12/31/99 $12,916.82 29.17% 5.25% 5 12/31/94-12/31/99 $14,877.39 48.77% 8.27%
10 12/31/89-12/31/99 $17,242.19 72.42% 5.60% 10 12/31/89-12/31/99 $23,242.84 132.43% 8.80%
Life 06/12/85-12/31/99 $24,630.81 146.31% 6.39% Life 06/12/85-12/31/99 $29,822.45 198.22% 7.80%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-17-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
MFS/SUN LIFE NEW DISCOVERY SERIES MFS/SUN LIFE TOTAL RETURN 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> <S> <C> <C> <C> <C>
1 12/31/98-12/31/99 $15,794.94 57.95% 57.95% 1 12/31/98-12/31/99 $10,137.77 1.38% 1.38%
2 12/31/97-12/31/99 $11,165.67 11.66% 5.67%
3 12/31/96-12/31/99 $13,429.90 34.30% 10.33%
4 12/31/95-12/31/99 $15,106.55 51.07% 10.86%
5 12/31/94-12/31/99 $18,875.70 88.76% 13.55%
10 12/31/89-12/31/99 $26,439.54 164.40% 10.21%
Life 05/06/98-12/31/99 $16,620.39 66.20% 35.94% Life 05/11/88-12/31/99 $32,107.19 221.07% 10.54%
<CAPTION>
MFS/SUN LIFE MASSACHUSETTS INVESTORS GROWTH STOCK SERIES MFS/SUN LIFE MASSACHUSETTS INVESTORS TRUST SERIES
Number Cumulative Compound Number Cumulative Compound
of Growth Growth of Growth Growth
Years Periods Amount Rate Rate Years Periods Amount Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/98-12/31/99 $13,386.63 33.87% 33.87% 1 12/31/98-12/31/99 $10,567.07 5.67% 5.67%
2 12/31/97-12/31/99 $12,904.21 29.04% 13.60%
3 12/31/96-12/31/99 $16,787.38 67.87% 18.85%
4 12/31/95-12/31/99 $20,755.82 107.56% 20.03%
5 12/31/94-12/31/99 $28,123.17 181.23% 22.97%
10 12/31/89-12/31/99 $39,218.11 292.18% 14.64%
Life 05/06/98-12/31/99 $16,009.32 60.09% 32.89% Life 11/14/86-12/31/99 $53,717.39 437.17% 13.66%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-18-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</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 12/31/98-12/31/99 $12,945.29 29.45% 29.45% 1 12/31/98-12/31/99 $10,110.68 1.11% 1.11%
2 12/31/97-12/31/99 $15,003.93 50.04% 22.49% 2 12/31/97-12/31/99 $11,151.59 11.52% 5.60%
3 12/31/96-12/31/99 $19,633.21 96.33% 25.22% 3 12/31/96-12/31/99 $13,922.37 39.22% 11.66%
4 12/31/95-12/31/99 $23,299.56 133.00% 23.55% 4 12/31/95-12/31/99 $16,933.63 69.34% 14.07%
5 12/31/94-12/31/99 $30,409.66 204.10% 24.91% 5 12/31/94-12/31/99 $23,184.69 131.85% 18.32%
10 12/31/89-12/31/99 $36,589.41 265.89% 13.85%
Life 11/16/93-12/31/99 $28,506.65 185.07% 18.66% Life 08/01/88-12/31/99 $44,837.19 348.37% 14.05%
<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 12/31/98-12/31/99 $10,352.42 3.52% 3.52% 1 12/31/98-12/31/99 $11,993.40 19.93% 19.93%
2 12/31/97-12/31/99 $10,934.27 9.34% 4.57%
3 12/31/96-12/31/99 $13,184.68 31.85% 9.65%
4 12/31/95-12/31/99 $15,959.87 59.60% 12.40%
5 12/31/94-12/31/99 $22,905.48 129.05% 18.03%
10 12/31/89-12/31/99 $40,322.16 303.22% 14.96%
Life 08/01/88-12/31/99 $54,700.58 447.01% 16.05% Life 02/09/98-12/31/99 $11,651.76 16.52% 8.42%
<CAPTION>
OCC SMALL CAP PORTFOLIO SUN CAPITAL BLUE CHIP MID CAP 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> <S> <C> <C> <C> <C>
1 12/31/98-12/31/99 $ 9,679.38 (3.21)% (3.21)%
2 12/31/97-12/31/99 $ 8,682.62 (13.17)% (6.82)%
3 12/31/96-12/31/99 $10,464.99 4.65% 1.53%
4 12/31/95-12/31/99 $12,248.01 22.48% 5.20%
5 12/31/94-12/31/99 $13,916.90 39.17% 6.83%
10 12/31/89-12/31/99 $24,913.87 149.14% 9.56%
Life 08/01/88-12/31/99 $29,453.52 194.54% 9.92% Life 09/13/99-12/31/99 $12,637.60 26.38% 26.38%
<CAPTION>
SUN CAPITAL INVESTMENT GRADE BOND FUND SUN CAPITAL INVESTORS FOUNDATION FUND
Number Cumulative Compound Number Cumulative Compound
of Growth Growth of Growth Growth
Years Periods Amount Rate Rate Years Periods Amount Rate Rate*
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/98-12/31/99 $9,801.75 (1.98)% (1.98)%
Life 12/07/98-12/31/99 $9,795.68 (2.04)% (1.92)% Life 09/13/99-12/31/99 $11,148.84 11.49% 11.49%
<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>
1 12/31/98-12/31/99 $10,317.31 3.17% 3.17% 1 12/31/98-12/31/99 $9,474.75 (5.25)% (5.25)%
Life 12/07/98-12/31/99 $10,338.44 3.38% 3.17% Life 12/07/98-12/31/99 $9,401.41 (5.99)% (5.63)%
<CAPTION>
SUN CAPITAL SELECT EQUITY FUND
Number Cumulative Compound
of Growth Growth
Years Periods Amount Rate Rate*
<S> <C> <C> <C> <C>
Life 09/13/99-12/31/99 $12,584.87 25.85% 25.85%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-19-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</TABLE>
1.55% M&E:
---------
<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 12/31/98-12/31/99 $14,238.21 42.38% 42.38% 1 12/31/98-12/31/99 $13,314.41 33.14% 33.14%
2 12/31/97-12/31/99 $16,725.37 67.25% 29.33% 2 12/31/97-12/31/99 $17,581.55 75.82% 32.60%
3 12/31/96-12/31/99 $18,684.60 86.85% 23.17% 3 12/31/96-12/31/99 $21,951.25 119.51% 29.96%
4 12/31/95-12/31/99 $21,632.42 116.32% 21.28% 4 12/31/95-12/31/99 $25,531.53 155.32% 26.41%
5 12/31/94-12/31/99 $28,891.77 188.92% 23.64% 5 12/31/94-12/31/99 $33,866.80 238.67% 27.63%
Life 05/05/93-12/31/99 $34,481.75 244.82% 20.43% Life 05/05/93-12/31/99 $35,615.46 256.15% 21.02%
<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 12/31/98-12/31/99 $13,214.10 32.14% 32.14% 1 12/31/98-12/31/99 $15,269.34 52.69% 52.69%
2 12/31/97-12/31/99 $16,614.69 66.15% 28.90% 2 12/31/97-12/31/99 $17,359.21 73.59% 31.75%
3 12/31/96-12/31/99 $20,555.59 105.56% 27.15% 3 12/31/96-12/31/99 $18,273.87 82.74% 22.26%
4 12/31/95-12/31/99 $24,275.35 142.75% 24.82% 4 12/31/95-12/31/99 $21,598.00 115.98% 21.23%
5 12/31/94-12/31/99 $31,996.59 219.97% 26.19% 5 12/31/94-12/31/99 $24,929.00 149.29% 20.04%
Life 05/02/94-12/31/99 $31,663.62 216.64% 22.56% Life 05/05/93-12/31/99 $28,417.26 184.17% 16.99%
<CAPTION>
ALGER AMERICAN GROWTH PORTFOLIO ALGER AMERICAN 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 12/31/98-12/31/99 $13,166.96 31.67% 31.67% 1 12/31/98-12/31/99 $14,024.56 40.25% 40.25%
2 12/31/97-12/31/99 $19,194.33 91.94% 38.54% 2 12/31/97-12/31/99 $18,278.78 82.79% 35.20%
3 12/31/96-12/31/99 $23,762.70 137.63% 33.44% 3 12/31/96-12/31/99 $24,525.62 145.26% 34.86%
4 12/31/95-12/31/99 $26,514.41 165.14% 27.61% 4 12/31/95-12/31/99 $28,893.16 188.93% 30.38%
5 12/31/94-12/31/99 $35,596.90 255.97% 28.91% 5 12/31/94-12/31/99 $38,440.79 284.41% 30.91%
10 12/31/89-12/31/99 $67,192.60 571.93% 20.99% 10 12/31/89-12/31/99 $48,410.30 384.10% 17.08%
Life 01/09/89-12/31/99 $82,130.66 721.31% 21.15% Life 11/15/88-12/31/99 $51,576.02 415.76% 15.89%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-20-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO GOLDMAN SACHS VIT CORE-SM- 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 12/31/98-12/31/99 $14,119.85 41.20% 41.20% 1 12/31/98-12/31/99 $13,332.46 33.32% 33.32%
2 12/31/97-12/31/99 $16,059.33 60.59% 26.73%
3 12/31/96-12/31/99 $17,610.86 76.11% 20.76%
4 12/31/95-12/31/99 $18,060.25 80.60% 15.93%
5 12/31/94-12/31/99 $25,660.02 156.60% 20.74%
10 12/31/89-12/31/99 $45,587.80 355.88% 16.38%
Life 09/21/88-12/31/99 $71,044.86 610.45% 18.99% Life 02/13/98-12/31/99 $15,368.54 53.69% 25.69%
<CAPTION>
GOLDMAN SACHS VIT CORE-SM- SMALL CAP EQUITY FUND GOLDMAN SACHS VIT CORE-SM- 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>
1 12/31/98-12/31/99 $11,572.12 15.72% 15.72% 1 12/31/98-12/31/99 $12,237.14 22.37% 22.37%
Life 02/13/98-12/31/99 $10,341.91 3.42% 1.80% Life 02/13/98-12/31/99 $13,833.80 38.34% 18.85%
<CAPTION>
GOLDMAN SACHS VIT CORE-SM- GROWTH AND INCOME FUND GOLDMAN SACHS VIT 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 12/31/98-12/31/99 $10,377.49 3.77% 3.77% 1 12/31/98-12/31/99 $12,980.39 29.80% 29.80%
Life 01/12/98-12/31/99 $10,781.27 7.81% 3.90% Life 01/12/98-12/31/99 $15,352.52 53.53% 24.35%
<CAPTION>
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO J.P. MORGAN 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 12/31/98-12/31/99 $11,670.42 16.70% 16.70% 1 12/31/98-12/31/99 $13,453.83 34.54% 34.54%
2 12/31/97-12/31/99 $14,165.85 41.66% 19.02% 2 12/31/97-12/31/99 $13,872.07 38.72% 17.78%
3 12/31/96-12/31/99 $17,782.41 77.82% 21.15% 3 12/31/96-12/31/99 $14,398.70 43.99% 12.92%
4 12/31/95-12/31/99 $21,228.54 112.29% 20.71% 4 12/31/95-12/31/99 $16,038.82 60.39% 12.54%
Life 01/03/95-12/31/99 $27,964.09 179.64% 22.88% Life 01/03/95-12/31/99 $17,746.22 77.46% 12.18%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-21-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</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 12/31/98-12/31/99 $14,215.14 42.15% 42.15% 1 12/31/98-12/31/99 $11,492.88 14.93% 14.93%
2 12/31/97-12/31/99 $13,224.15 32.24% 15.00% 2 12/31/97-12/31/99 $12,772.41 27.72% 13.02%
3 12/31/96-12/31/99 $15,947.76 59.48% 16.83% 3 12/31/96-12/31/99 $15,675.29 56.75% 16.16%
4 12/31/95-12/31/99 $19,120.06 91.20% 17.59% 4 12/31/95-12/31/99 $18,422.63 84.23% 16.50%
5 12/31/94-12/31/99 $23,546.14 135.46% 18.68%
10 12/31/89-12/31/99 $38,545.98 285.46% 14.45%
Life 01/03/95-12/31/99 $25,016.70 150.17% 20.16% Life 12/11/89-12/31/99 $38,786.45 287.86% 14.43%
<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 12/31/98-12/31/99 $13,056.63 30.57% 30.57% 1 12/31/98-12/31/99 $17,307.53 73.08% 73.08%
2 12/31/97-12/31/99 $16.544.27 65.44% 28.62% 2 12/31/97-12/31/99 $22,813.26 128.13% 51.04%
3 12/31/96-12/31/99 $20,055.04 100.55% 26.11% 3 12/31/96-12/31/99 $27,384.57 173.85% 39.91%
4 12/31/95-12/31/99 $23,982.82 139.83% 24.44% 4 12/31/95-12/31/99 $31,578.61 215.79% 33.31%
5 12/31/94-12/31/99 $31,747.84 217.48% 25.99%
10 12/31/89-12/31/99 $48,304.12 383.04% 17.06%
Life 06/12/85-12/31/99 $94,410.25 844.10% 16.68% Life 05/01/95-12/31/99 $39,629.37 296.29% 34.31%
<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 12/31/98-12/31/99 $9,655.30 (3.45)% (3.45)% 1 12/31/98-12/31/99 $10,525.95 5.26% 5.26%
2 12/31/97-12/31/99 $10,332.62 3.33% 1.65% 2 12/31/97-12/31/99 $10,423.17 4.23% 2.09%
3 12/31/96-12/31/99 $11,059.39 10.59% 3.41% 3 12/31/96-12/31/99 $11.619.47 16.19% 5.13%
4 12/31/95-12/31/99 $11,065.72 10.66% 2.56% 4 12/31/95-12/31/99 $12,824.98 28.25% 6.42%
5 12/31/94-12/31/99 $12,818.33 28.18% 5.09% 5 12/31/94-12/31/99 $14,764.69 47.65% 8.10%
10 12/31/89-12/31/99 $16,981.39 69.81% 5.44% 10 12/31/89-12/31/99 $22,890.29 128.90% 8.63%
Life 06/12/85-12/31/99 $24,089.38 140.89% 6.23% Life 06/12/85-12/31/99 $29,167.10 191.67% 7.63%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-22-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
MFS/SUN LIFE NEW DISCOVERY SERIES MFS/SUN LIFE TOTAL RETURN 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 12/31/98-12/31/99 $15,770.86 57.71% 57.71% 1 12/31/98-12/31/99 $10,121.72 1.22% 1.22%
2 12/31/97-12/31/99 $11,131.46 11.31% 5.51%
3 12/31/96-12/31/99 $13,368.35 33.68% 10.16%
4 12/31/95-12/31/99 $15,014.44 50.14% 10.69%
5 12/31/94-12/31/99 $18,731.52 87.32% 13.37%
10 12/31/89-12/31/99 $26,038.54 160.39% 10.04%
Life 05/06/98-12/31/99 $16,578.18 65.78% 35.73% Life 05/11/88-12/31/99 $31,541.53 215.42% 10.37%
<CAPTION>
MFS/SUN LIFE MASSACHUSETTS INVESTORS GROWTH STOCK SERIES MFS/SUN LIFE MASSACHUSETTS INVESTORS TRUST SERIES
Number Cumulative Compound Number Cumulative Compound
of Growth Growth of Growth Growth
Years Periods Amount Rate Rate Years Periods Amount Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/98-12/31/99 $13,366.57 33.67% 33.67% 1 12/31/98-12/31/99 $10,551.02 5.51% 5.51%
2 12/31/97-12/31/99 $12,864.97 28.65% 13.42%
3 12/31/96-12/31/99 $16,710.68 67.11% 18.67%
4 12/31/95-12/31/99 $20,629.29 106.29% 19.85%
5 12/31/94-12/31/99 $27,908.94 179.09% 22.79%
10 12/31/89-12/31/99 $38,624.33 286.24% 14.47%
Life 05/06/98-12/31/99 $15,969.12 59.69% 32.69% Life 11/14/86-12/31/99 $52,650.66 426.51% 13.49%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-23-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity III Contract, this many years ago... on December 31, 1999
</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 12/31/98-12/31/99 $12,925.23 29.25% 29.25% 1 12/31/98-12/31/99 $10,094.64 0.95% 0.95%
2 12/31/97-12/31/99 $14,957.65 49.58% 22.30% 2 12/31/97-12/31/99 $11,117.38 11.17% 5.44%
3 12/31/96-12/31/99 $19,543.40 95.43% 25.03% 3 12/31/96-12/31/99 $13,858.80 38.59% 11.49%
4 12/31/95-12/31/99 $23,157.85 131.58% 23.36% 4 12/31/95-12/31/99 $16,830.39 68.30% 13.90%
5 12/31/94-12/31/99 $30,178.17 201.78% 24.72% 5 12/31/94-12/31/99 $23,008.02 130.08% 18.13%
10 12/31/89-12/31/99 $36,035.84 260.36% 13.68%
Life 11/16/93-12/31/99 $28,240.75 182.41% 18.48% Life 08/01/88-12/31/99 $44,061.74 340.62% 13.87%
<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 12/31/98-12/31/99 $10,336.37 3.36% 3.36% 1 12/31/98-12/31/99 $11,975.34 19.75% 19.75%
2 12/31/97-12/31/99 $10,901.07 9.01% 4.41%
3 12/31/96-12/31/99 $13,125.14 31.25% 9.49%
4 12/31/95-12/31/99 $15,862.69 58.63% 12.23%
5 12/31/94-12/31/99 $22,730.84 127.31% 17.85%
10 12/31/89-12/31/99 $39,710.86 297.11% 14.79%
Life 08/01/88-12/31/99 $53,755.34 437.55% 15.87% Life 02/09/98-12/31/99 $11,617.56 16.18% 8.25%
<CAPTION>
OCC SMALL CAP PORTFOLIO SUN CAPITAL BLUE CHIP MID CAP 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 12/31/98-12/31/99 $9,664.33 (3.36)% (3.36)%
2 12/31/97-12/31/99 $8,655.46 (13.45)% (6.97)%
3 12/31/96-12/31/99 $10,416.55 4.17% 1.37%
4 12/31/95-12/31/99 $12,174.12 21.74% 5.04%
5 12/31/94-12/31/99 $13,810.30 38.10% 6.67%
10 12/31/89-12/31/99 $24,535.54 145.36% 9.39%
Life 08/01/88-12/31/99 $28,945.18 189.45% 9.76% Life 09/13/99-12/31/99 $12,622.79 26.23% 26.23%
<CAPTION>
SUN CAPITAL INVESTMENT GRADE BOND FUND SUN CAPITAL INVESTORS FOUNDATION 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 12/31/98-12/31/99 $9,786.70 (2.13)% (2.13)%
Life 12/07/98-12/31/99 $9,780.63 (2.19)% (2.06)% Life 09/13/99-12/31/99 $11,136.04 11.36% 11.36%
<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>
1 12/31/98-12/31/99 $10,302.27 3.02% 3.02% 1 12/31/98-12/31/99 $9,460.71 (5.39)% (5.39)%
Life 12/07/98-12/31/99 $10,321.38 3.21% 3.01% Life 12/07/98-12/31/99 $9,386.36 (6.14)% (5.77)%
<CAPTION>
SUN CAPITAL SELECT EQUITY FUND
Number Cumulative Compound
of Growth Growth
Years Periods Amount Rate Rate*
<S> <C> <C> <C> <C>
Life 09/13/99-12/31/99 $12,579.19 25.79% 25.79%
</TABLE>
* For periods of less than one year, the growth rates listed are not annualized.
<PAGE>
-24-
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>
-25-
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>
-26-
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, 1998, the Company was the 36th largest
U.S. life insurance company based upon overall assets.
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 CONTRACTS 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>
-27-
TAX-DEFERRED ACCUMULATION
In general, individuals who own annuity contracts are not taxed on
increases in the value of their annuity contracts until some form of
distribution is made under the contract. As a result, the annuity contract
would benefit from tax deferral during the contract's accumulation phase;
this would have the effect of permitting an investment in an annuity contract
to grow more rapidly that a comparable investment under which increases in
value are taxed on a current basis.
In reports or other communications to you or in advertising or sales
materials, we may also describe the effects of tax-deferred compounding on the
Variable Account's investment returns. We may illustrate these effects in
charts or graphs and from time to time may include comparisons of returns under
the Contracts or in general on a tax-deferred basis, with the returns on a
taxable basis. Different tax rates may be assumed. Any such illustrative chart
or graph would show accumulations on an initial investment or Purchase Payment,
assuming a given amount (including the applicable interest credit),
hypothetical gross annual returns compounded annually, and a stated rate of
return. The values shown for the taxable investment would not include any
deduction for management fees or other expenses, but would assume the annual
deduction of federal and state taxes from investment returns. The values shown
for the Contracts in a chart would reflect the deduction of Contract expenses,
such as the mortality and expense risk charge, the 0.15% administrative charge,
and the annual Account Fee. In addition, the values shown would assume that the
Participant has not surrendered his or her Contract or made any partial
surrenders until the end of the period shown. The chart would assume a full
surrender at the end of the period shown and the payment of federal and state
taxes, at a rate of not more than 33%, on the amount in excess of the Purchase
Payments.
In developing illustrative tax deferral charts, we will observe these
general principles:
- The assumed rate of earnings will be realistic.
- The illustrative chart will accurately depict the effect of all
fees and charges or provide a narrative that prominently discloses
all fees and charges under the Contract.
- Charts comparing accumulation values for tax-deferred and non-tax-
deferred investments will depict the implications of any surrender.
- A narrative accompanying the chart will prominently disclose that
there may be a 10% tax penalty on a surrender by a Participant who
has not reached age 59 1/2 at the time of surrender.
The rates of return illustrated in any chart would be hypothetical and
are not an estimate or guaranty of performance. Actual tax returns may vary
for among Participants.
<PAGE>
-28-
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 .00004280 (the daily equivalent of the current maximum
charge of 1.55% on an annual basis) gives a net investment factor of
1.00323231. 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 14.6116444 (14.5645672 X 1.00323231).
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 12.3456789
(12.3456789 X 1.00323648 (the Net Investment Factor) (based on the daily
equivalent of maximum annuity phase charge of 1.40% on an annual basis) 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.
EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATION
Suppose that a Participant Account is credited with 8,765.4321 variable
accumulation units of a particular Sub-Account but is not credited with any
fixed accumulation units; that the variable accumulation unit value and the
annuity unit value for the particular Sub-Account for the valuation period
which ends immediately preceding the annuity commencement date are 14.5645672
and 12.3456789 respectively; that the annuity payment rate for the age and
option elected is $6.78 per $1,000; and that the annuity unit value on the
day prior to the second variable annuity payment date is 12.3846153. The
first variable annuity payment would be $865.57 (8,765.4321 X 14.5645672 X
6.78 divided by 1,000). The number of annuity units credited would be
70.1112 ($865.57 divided by 12.3456789) and the second variable annuity
payment would be $868.30 (70.1112 X 12.3846153).
DISTRIBUTION OF THE CONTRACTS
We offer the Contracts on a continuous basis. The Contracts are sold
by licensed insurance agents in those states where the Contracts may be lawfully
sold. Such agents will be registered representatives of broker-dealers
registered under the Securities Exchange Act of 1934 who are members of the
National Association of Securities Dealers, Inc. and who have entered into
distribution agreements with the Company and the general distributor and
principal underwriter of the Contracts, Clarendon Insurance Agency, Inc.
("Clarendon"), One Sun Life Executive Park, Wellesley Hills, Massachusetts
02481. Clarendon is a wholly-owned subsidiary of the Company. Clarendon is
registered with the SEC under the Securities Exchange Act of 1934 as
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. Clarendon also acts as the general distributor of certain other annuity
contracts issued by the Company and its wholly-owned subsidiary, Sun Life
Insurance and Annuity Company of New York, and variable life insurance contracts
issued by the Company.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 6.50% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 0.50% of the Participant's Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation.
The Company reserves the right to offer these additional incentives only to
certain
<PAGE>
-29-
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, 1999 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>
-30-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1999
<TABLE>
<CAPTION>
ASSETS: Shares Cost Value
Investments in: ---------- ------------ ------------
<S> <C> <C> <C>
AIM Variable Insurance Fund, Inc.
V.I. Capital Appreciation Fund ("AIM1")............... 255,687 $ 6,981,155 $ 9,097,348
V.I. Growth Fund ("AIM2")............................. 741,254 20,293,321 23,905,448
V.I. Growth and Income Fund ("AIM3").................. 981,255 25,698,056 30,997,847
V.I. International Equity Fund ("AIM4")............... 663,340 14,275,089 19,429,224
The Alger American Fund
Growth Portfolio ("AL1").............................. 591,197 33,048,256 38,061,287
Income and Growth Portfolio ("AL2")................... 1,129,592 15,318,235 19,858,219
Small Capitalization Portfolio ("AL3")................ 119,865 5,181,035 6,610,539
Goldman Sachs Variable Insurance Trust
VIT CORE(SM) Large Cap Growth Fund ("GS1")............ 985,947 12,493,582 15,577,956
VIT CORE(SM) Small Cap Equity Fund ("GS2")............ 169,591 1,540,419 1,797,668
VIT CORE(SM) U.S. Equity Fund ("GS3")................. 1,288,723 16,049,358 18,016,345
VIT Growth and Income Fund ("GS4").................... 498,885 5,372,735 5,432,857
VIT International Equity Fund ("GS5")................. 188,532 2,450,696 2,728,066
J.P. Morgan Series Trust II
U.S. Disciplined Equity Portfolio ("JP1")............. 887,236 14,979,632 15,393,540
International Opportunities Portfolio ("JP2")......... 238,484 2,857,497 3,298,239
Small Company Portfolio ("JP3")....................... 89,517 1,161,883 1,497,621
Lord Abbett Series Fund, Inc.
Growth and Income Portfolio ("LA1")................... 946,232 21,136,754 20,968,509
MFS/Sun Life Series Trust
Capital Appreciation Series ("CAS")................... 277,227 12,143,992 15,002,355
Emerging Growth Series ("EGS")........................ 772,757 19,942,257 31,124,303
High Yield Series ("HYS")............................. 1,387,022 12,467,981 12,505,613
Money Market ("MMS").................................. 7,058,196 7,058,196 7,058,196
Utilities Series ("UTS").............................. 949,600 16,114,520 18,839,274
Government Securities Series ("GSS").................. 1,192,434 15,134,821 14,877,998
Total Return Series ("TRS")........................... 142,102 2,643,887 2,665,736
Massachusetts Investors Trust Series ("MIT").......... 206,245 7,440,462 7,826,694
New Discovery Series ("NWD").......................... 116,796 1,515,491 1,973,431
Massachusetts Investors Growth Stock
Series ("MIS")....................................... 517,193 7,122,612 8,342,950
OCC Accumulation Trust
Equity Portfolio ("OP1").............................. 332,052 12,587,611 12,471,865
Mid Cap Portfolio ("OP2")............................. 360,177 3,599,355 4,188,853
Small Cap Portfolio ("OP3")........................... 125,799 2,848,635 2,832,996
Managed Portfolio ("OP4")............................. 56,761 2,479,633 2,477,620
Salomon Brothers Variable Series Funds, Inc.
Variable Capital Fund ("SB1")......................... 28,306 318,508 386,941
Variable Investors Fund ("SB2")....................... 54,050 608,228 661,035
Variable Strategic Bond Fund ("SB3").................. 701,256 7,086,047 6,774,136
Variable Total Return Fund ("SB4").................... 649,718 6,792,139 6,646,615
Sun Capital Advisers Trust
Sun Capital Money Market Fund ("SCA1")................ 11,347,946 11,347,946 11,347,946
Sun Capital Investment Grade Bond Fund ("SCA2")....... 882,011 8,403,348 8,236,211
Sun Capital Real Estate Fund ("SCA3")................. 146,885 1,384,282 1,313,801
Sun Capital Select Equity Fund ("SCA4")............... 106,584 1,129,237 1,346,991
Sun Capital Blue Chip Mid Cap Fund ("SCA5")........... 241,145 2,528,473 2,966,087
Sun Capital Investors Foundation Fund ("SCA6")........ 44,737 446,889 500,802
Warburg Pincus Trust
Emerging Markets Portolio ("WP1")..................... 156,084 1,879,019 2,213,268
International Equity Portfolio ("WP2")................ 72,377 925,062 1,208,689
Post-Venture Capital Portfolio ("WP3")................ 39,356 555,678 757,995
Small Company Growth Portfolio ("WP4")................ 142,923 2,639,880 3,744,591
------------ ------------
$367,981,892 $422,963,705
============
OTHER ASSETS:
Receivable from sponsor.............................................................. 313
------------
Net assets..................................................................... $422,964,018
============
</TABLE>
See notes to financial statements
<PAGE>
-31-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1999 -- 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 CONTRACT OWNERS:
FUTURITY CONTRACTS:
AIM Variable Insurance Fund, Inc
V.I. Capital Appreciation Fund...................... 227,735 $16.0639 $ 3,658,220 $ 20,442 $ 3,678,662
V.I. Growth Fund.................................... 442,430 16.6782 7,378,831 15,694 7,394,525
V.I. Growth and Income Fund......................... 799,385 14.9550 11,954,650 -- 11,954,650
V.I. International Equity Fund...................... 458,813 16.8153 7,714,633 18,492 7,733,125
The Alger American Fund
Growth Portfolio.................................... 755,329 16.6799 12,598,909 19,591 12,618,500
Income and Growth Portfolio......................... 434,832 16.6354 7,233,458 -- 7,233,458
Small Capitalization Portfolio...................... 182,220 14.6937 2,677,436 -- 2,677,436
Goldman Sachs Variable Insurance Trust
VIT CORE(SM) Large-Cap Growth Fund.................. 423,081 14.6906 6,215,258 30,248 6,245,506
VIT CORE(SM) Small Cap Equity Fund.................. 80,363 10.3704 833,389 21,975 855,364
VIT CORE(SM) U.S. Equity Fund....................... 575,303 13.8599 7,973,615 1,746 7,975,361
VIT Growth and Income Fund.......................... 301,072 9.6158 2,895,047 -- 2,895,047
VIT International Equity Fund....................... 62,975 13.6576 860,104 14,975 875,079
J.P. Morgan Series Trust II
U.S. Disciplined Equity Portfolio................... 568,955 12.6575 7,200,012 16,167 7,216,179
International Opportunities Portfolio............... 105,324 12.4536 1,311,641 14,966 1,326,607
Small Company Portfolio............................. 41,135 11.8980 488,979 -- 488,979
Lord Abbett Series Fund, Inc.
Growth and Income Portfolio......................... 681,170 11.6064 7,905,869 -- 7,905,869
MFS/Sun Life Series Trust
Capital Appreciation Series......................... 490,436 14.8787 7,297,103 18,186 7,315,289
Emerging Growth Series.............................. 644,429 21.1132 13,605,969 24,357 13,630,326
High Yield Series................................... 581,114 10.1846 5,918,296 30,070 5,948,366
Money Market........................................ 663,091 10.6449 7,058,196 -- 7,058,196
Utilities Series.................................... 762,245 13.4418 10,246,498 38,625 10,285,123
Government Securities Series........................ 635,712 10.2352 6,507,038 38,668 6,545,706
OCC Accumulation Trust
Equity Portfolio.................................... 770,005 10.6854 8,228,328 1,399 8,229,727
Mid Cap Portfolio................................... 208,499 11.6402 2,426,934 16,257 2,443,191
Small Cap Portfolio................................. 235,529 7.9927 1,882,593 12,267 1,894,860
Salomon Brothers Variable Series Funds, Inc.
Variable Capital Fund............................... 29,639 13.0553 386,941 -- 386,941
Variable Investors Fund............................. 58,715 11.2585 661,035 -- 661,035
Variable Strategic Bond Fund........................ 649,260 10.3875 6,743,944 29,428 6,773,372
Variable Total Return Fund.......................... 657,323 10.0870 6,630,414 15,568 6,645,982
Warburg Pincus Trust
Emerging Markets Portfolio.......................... 68,070 13.1613 895,490 19,339 914,829
International Equity Portfolio...................... 52,931 13.7221 726,022 -- 726,022
Post-Venture Capital Portfolio...................... 21,318 14.8836 317,283 22,511 339,794
Small Company Growth Portfolio...................... 153,457 14.7515 2,263,671 -- 2,263,671
------------ -------- ------------
$170,695,806 $440,971 $171,136,777
------------ -------- ------------
</TABLE>
See notes to financial statements
<PAGE>
-32-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1999 -- 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 Fund, Inc.
V.I. Capital Appreciation Fund.................... 299,649 $16.1116 $ 4,827,802 $ 8,726 $ 4,836,528
V.I. Growth Fund.................................. 997,502 15.1070 15,069,053 79,067 15,148,120
V.I. Growth and Income Fund....................... 1,213,444 14.6474 17,773,822 7,527 17,781,349
V.I. International Equity Fund.................... 659,564 16.1369 10,643,339 105,296 10,748,635
The Alger American Fund
Growth Portfolio.................................. 1,620,151 14.7688 23,927,733 7,327 23,935,060
Income and Growth Portfolio....................... 755,933 15.4887 11,708,323 129,522 11,837,845
Small Capitalization Portfolio.................... 221,946 16.0647 3,565,453 62,046 3,627,499
Goldman Sachs Variable Insurance Trust..............
VIT CORE(SM) Large Cap Growth Fund................ 610,853 14.6991 8,978,980 81,371 9,060,351
VIT CORE(SM) Small Cap Equity Fund................ 71,821 12.5954 904,609 -- 904,609
VIT CORE(SM) U.S. Equity Fund..................... 714,634 13.2821 9,491,693 37,088 9,528,781
VIT Growth and Income Fund........................ 202,285 10.7721 2,179,037 -- 2,179,037
VIT International Equity Fund..................... 119,879 13.7806 1,651,950 10,048 1,661,998
J.P. Morgan Series Trust II
U.S. Disciplined Equity Portfolio................. 625,004 12.5201 7,825,090 2,878 7,827,968
International Opportunities Portfolio............. 118,543 14.1565 1,678,149 8,055 1,686,204
Small Company Portfolio........................... 57,635 15.4528 890,606 -- 890,606
Lord Abbett Series Fund, Inc.
Growth and Income Portfolio....................... 982,146 12.1973 11,979,747 -- 11,979,747
MFS/Sun Life Series Trust
Capital Appreciation Series....................... 500,296 14.5469 7,277,799 46,064 7,323,863
Emerging Growth Series............................ 804,467 19.5404 15,719,228 66,614 15,785,842
High Yield Series................................. 554,000 10.5249 5,830,887 47,861 5,878,748
Utilities Series.................................. 552,461 13.6365 7,533,885 151,724 7,685,609
Government Securities Series...................... 807,566 9.6303 7,777,300 22,972 7,800,272
Total Return Series............................... 211,045 9.7515 2,058,019 79,388 2,137,407
Massachusetts Investors Trust Series.............. 629,184 10.3311 6,499,923 3,822 6,503,745
New Discovery Series.............................. 99,212 15.7992 1,567,598 -- 1,567,598
Massachusetts Investors Growth Stock Series....... 554,180 12.7880 7,086,871 70,749 7,157,620
OCC Accumulation Trust
Equity Portfolio.................................. 388,617 10.6953 4,156,707 9,385 4,166,092
Mid Cap Portfolio................................. 108,852 12.7334 1,386,020 31,822 1,417,842
Small Cap Portfolio............................... 88,598 10.0200 887,738 6,663 894,401
Managed Portfolio................................. 196,817 10.9043 2,146,181 -- 2,146,181
Sun Capital Advisers Trust
Sun Capital Money Market Fund..................... 699,550 10.3353 7,227,674 -- 7,227,674
Sun Capital Investment Grade Bond Fund............ 768,145 9.7835 7,513,643 272,953 7,786,596
Sun Capital Real Estate Fund...................... 131,848 9.5549 1,260,492 10,151 1,270,643
Sun Capital Select Equity Fund.................... 96,820 12.4016 1,200,685 -- 1,200,685
Sun Capital Blue Chip Mid Cap Fund................ 217,115 12.4368 2,700,610 -- 2,700,610
Sun Capital Investors Foundation Fund............. 43,869 10.9954 482,321 5,356 487,677
Warburg Pincus Trust
Emerging Markets Portfolio........................ 67,177 18.7689 1,260,819 -- 1,260,819
International Equity Portfolio.................... 29,939 15.6899 469,714 -- 469,714
Post-Venture Capital Portfolio.................... 22,526 18.1439 408,703 -- 408,703
Small Company Growth Portfolio.................... 79,878 18.4977 1,477,493 -- 1,477,493
------------ ---------- ------------
$227,025,696 $1,364,475 $228,390,171
------------ ---------- ------------
</TABLE>
See notes to financial statements
<PAGE>
-33-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1999 -- 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 FOCUS CONTRACTS:
AIM Variable Insurance Fund, Inc.
V.I. Capital Appreciation Fund.......................... 13,617 $14.5809 $ 198,546 $ -- $ 198,546
V.I. Growth Fund........................................ 35,873 12.6718 454,575 -- 454,575
V.I. Growth and Income Fund............................. 54,107 12.3530 668,377 72,072 740,449
V.I. International Equity Fund.......................... 25,337 15.4607 391,699 -- 391,699
The Alger American Fund
Growth Portfolio........................................ 38,842 11.9744 465,098 71,015 536,113
Income and Growth Portfolio............................. 32,436 13.3063 431,600 -- 431,600
Small Capitalization Portfolio.......................... 9,175 14.3935 132,059 -- 132,059
Goldman Sachs Variable Insurance Trust
VIT CORE(SM) Large Cap Growth Fund...................... 4,085 12.6110 51,512 -- 51,512
VIT CORE(SM) Small Cap Equity Fund...................... 1,112 12.6115 14,026 -- 14,026
VIT CORE(SM) U.S. Equity Fund........................... 20,598 11.4782 236,356 -- 236,356
VIT Growth and Income Fund.............................. 29,257 10.2122 298,780 -- 298,780
VIT International Equity Fund........................... 8,621 12.8408 110,689 -- 110,689
J.P. Morgan Series Trust II
U.S. Disciplined Equity Portfolio....................... 18,690 11.3541 212,214 62,890 275,104
International Opportunities Portfolio................... 12,234 12.9528 158,454 -- 158,454
Small Company Portfolio................................. 2,709 15.2351 41,270 -- 41,270
Lord Abbett Series Fund, Inc.
Growth and Income Portfolio............................. 40,278 11.1378 448,597 -- 448,597
MFS/Sun Life Series Trust
Capital Appreciation Series............................. 23,051 13.0937 301,818 -- 301,818
Emerging Growth Series.................................. 41,308 16.8156 694,593 98,890 793,483
High Yield Series....................................... 21,929 10.1744 223,107 -- 223,107
Utilities Series........................................ 20,685 12.9391 267,628 -- 267,628
Government Securities Series............................ 42,930 9.8048 420,940 -- 420,940
Total Return Series..................................... 8,841 9.7678 86,296 -- 86,296
Massachusetts Investors Trust Series.................... 74,478 10.3484 770,599 -- 770,599
New Discovery Series.................................... 7,128 15.8255 112,755 -- 112,755
Massachusetts Investors Growth Stock Series............. 29,925 12.8093 383,253 75,517 458,770
OCC Accumulation Trust
Equity Portfolio........................................ 7,388 10.1788 75,201 -- 75,201
Mid Cap Portfolio....................................... 6,976 12.5548 87,586 -- 87,586
Small Cap Portfolio..................................... 3,882 10.7094 41,574 -- 41,574
Managed Portfolio....................................... 5,669 10.3195 58,501 -- 58,501
Sun Capital Advisers Trust
Sun Capital Money Market Fund........................... 41,528 10.2760 426,574 -- 426,574
Sun Capital Investment Grade Bond Fund.................. 34,584 9.8082 339,122 -- 339,122
Sun Capital Real Estate Fund............................ 2,642 10.1759 26,874 -- 26,874
Sun Capital Select Equity Fund.......................... 1,940 12.4115 24,085 -- 24,085
Sun Capital Blue Chip Mid Cap Fund...................... 2,350 12.4467 29,268 -- 29,268
Sun Capital Investors Foundation Fund................... 1,253 11.0042 13,784 -- 13,784
Warburg Pincus Trust
Emerging Markets Portfolio.............................. 1,472 18.4283 27,121 -- 27,121
International Equity Portfolio.......................... 861 15.0418 12,953 -- 12,953
Post-Venture Capital Portfolio.......................... 100 16.0808 1,609 -- 1,609
Small Company Growth Portfolio.......................... 194 17.6963 3,427 -- 3,427
---------- -------- ----------
$8,742,520 $380,384 $9,122,904
---------- -------- ----------
</TABLE>
See notes to financial statements
<PAGE>
-34-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 1999 -- 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 ACCOLADE CONTRACTS:
AIM Variable Insurance Fund, Inc.
V.I. Capital Appreciation Fund...................... 27,793 $13.7461 $ 382,040 $ -- $ 382,040
V.I. Growth Fund.................................... 71,866 12.6219 907,075 -- 907,075
V.I. Growth and Income Fund......................... 41,234 12.7245 524,675 -- 524,675
V.I. International Equity Fund...................... 40,021 13.8416 553,946 -- 553,946
The Alger American Fund
Growth Portfolio.................................... 77,992 12.4941 974,439 -- 974,439
Income and Growth Portfolio......................... 25,358 13.9651 354,123 -- 354,123
Small Capitalization Portfolio...................... 12,969 13.3871 173,611 -- 173,611
Goldman Sachs Variable Insurance Trust
VIT CORE(SM) Large Cap Growth Fund.................. 17,289 12.6147 218,093 -- 218,093
VIT CORE(SM) Small Cap Equity Fund.................. 1,775 12.0375 21,362 -- 21,362
VIT CORE(SM) U.S. Equity Fund....................... 23,427 11.7733 275,804 -- 275,804
VIT Growth and Income Fund.......................... 5,354 11.2057 59,993 -- 59,993
VIT International Equity Fund....................... 6,582 12.0983 79,626 -- 79,626
J.P. Morgan Series Trust II
U.S. Disciplined Equity Portfolio................... 6,455 11.5320 74,439 -- 74,439
International Opportunities Portfolio............... 10,730 11.7681 126,274 -- 126,274
Small Company Portfolio............................. 5,598 13.7122 76,766 -- 76,766
Lord Abbett Series Fund, Inc.
Growth and Income Portfolio......................... 55,559 11.4167 634,296 -- 634,296
MFS/Sun Life Series Trust
Capital Appreciation Series......................... 4,427 13.4436 59,522 -- 59,522
Emerging Growth Series.............................. 58,261 15.8653 924,342 -- 924,342
High Yield Series................................... 44,229 10.2886 455,044 -- 455,044
Utilities Series.................................... 49,859 12.0305 599,829 -- 599,829
Government Securities Series........................ 11,012 9.9962 110,071 -- 110,071
Total Return Series................................. 42,271 10.4572 442,050 -- 442,050
Massachusetts Investors Trust Series................ 48,386 11.4114 552,168 -- 552,168
New Discovery Series................................ 18,482 15.8588 293,078 -- 293,078
Massachusetts Investors Growth Stock Series......... 55,773 13.1026 730,733 -- 730,733
OCC Accumulation Trust
Equity Portfolio.................................... 102 10.7137 1,093 -- 1,093
Mid Cap Portfolio................................... 19,070 12.5624 239,567 -- 239,567
Small Cap Portfolio................................. 102 10.5551 1,076 -- 1,076
Managed Portfolio................................... 25,785 10.5852 272,938 -- 272,938
Sun Capital Advisers Trust
Sun Capital Money Market Fund....................... 366,623 10.0779 3,693,698 -- 3,693,698
Sun Capital Investment Grade Bond Fund.............. 11,553 10.0222 115,768 -- 115,768
Sun Capital Real Estate Fund........................ 2,281 10.3018 23,500 -- 23,500
Sun Capital Select Equity Fund...................... 9,027 13.5393 122,221 -- 122,221
Sun Capital Blue Chip Mid Cap Fund.................. 17,878 13.2132 236,209 -- 236,209
Sun Capital Investors Foundation Fund............... 394 11.9051 4,697 -- 4,697
------------ ---------- ------------
$ 14,314,166 $ -- $ 14,314,166
------------ ---------- ------------
Net Assets...................................................................... $420,778,188 $2,185,830 $422,964,018
============ ========== ============
</TABLE>
See notes to financial statements
<PAGE>
-35-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1999
<TABLE>
<CAPTION>
AIM1 AIM2 AIM3 AIM4 AL1 AL2
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............... $ 218,016 $ 805,064 $ 256,606 $ 629,298 $ 1,046,126 $ 318,108
Mortality and expense risk charges.... (48,238) (126,456) (171,308) (105,490) (209,904) (105,710)
Distribution expense charges.......... (5,788) (15,175) (20,557) (12,659) (25,189) (12,685)
---------- ---------- ----------- ------------ ----------- -----------
Net investment income (loss)...... $ 163,990 $ 663,433 $ 64,741 $ 511,149 $ 811,033 $ 199,713
---------- ---------- ----------- ------------ ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $ 942,663 $ 926,603 $ 2,322,201 $ 15,601,048 $ 3,351,107 $ 1,963,780
Cost of investments sold............ (859,926) (793,451) (1,853,865) (15,068,813) (2,750,587) (1,604,550)
---------- ---------- ----------- ------------ ----------- -----------
Net realized gains (losses)....... $ 82,737 $ 133,152 $ 468,336 $ 532,235 $ 600,520 $ 359,230
---------- ---------- ----------- ------------ ----------- -----------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $2,116,193 $3,612,127 $ 5,299,791 $ 5,154,135 $ 5,013,031 $ 4,539,984
Beginning of year................... 128,463 230,796 401,885 135,808 496,292 271,924
---------- ---------- ----------- ------------ ----------- -----------
Change in unrealized appreciation
(depreciation)................... $1,987,730 $3,381,331 $ 4,897,906 $ 5,018,327 $ 4,516,739 $ 4,268,060
---------- ---------- ----------- ------------ ----------- -----------
Realized and unrealized gains
(losses)........................... $2,070,467 $3,514,483 $ 5,366,242 $ 5,550,562 $ 5,117,259 $ 4,627,290
---------- ---------- ----------- ------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $2,234,457 $4,177,916 $ 5,430,983 $ 6,061,711 $ 5,928,292 $ 4,827,003
========== ========== =========== ============ =========== ===========
<CAPTION>
AL3 GS1 GS2 GS3 GS4 GS5
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------- ------------ ------------ ------------ ------------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C> <C>
Dividend income and capital gain
distributions received............... $ 217,832 $ 15,486 $ 3,930 $ 258,153 $ 57,072 $ 200,160
Mortality and expense risk charges.... (33,658) (91,000) (10,149) (117,224) (42,948) (15,062)
Distribution expense charges.......... (4,039) (10,920) (1,218) (14,067) (5,154) (1,807)
---------- ---------- ----------- ------------ ----------- -----------
Net investment income (loss)...... $ 180,135 $ (86,434) $ (7,437) $ 126,862 $ 8,970 $ 183,291
---------- ---------- ----------- ------------ ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $ 439,108 $ 837,389 $ 78,779 $ 3,216,353 $ 734,160 $ 3,021,499
Cost of investments sold............ (412,110) (718,251) (84,883) (2,852,418) (783,265) (2,936,829)
---------- ---------- ----------- ------------ ----------- -----------
Net realized gains (losses)....... $ 26,998 $ 119,138 $ (6,104) $ 363,935 $ (49,105) $ 84,670
---------- ---------- ----------- ------------ ----------- -----------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $1,429,504 $3,084,374 $ 257,249 $ 1,966,987 $ 60,122 $ 277,370
Beginning of year................... 96,395 229,353 10,059 296,953 (71,917) 16,662
---------- ---------- ----------- ------------ ----------- -----------
Change in unrealized appreciation
(depreciation)................... $1,333,109 $2,855,021 $ 247,190 $ 1,670,034 $ 132,039 $ 260,708
---------- ---------- ----------- ------------ ----------- -----------
Realized and unrealized gains
(losses)........................... $1,360,107 $2,974,159 $ 241,086 $ 2,033,969 $ 82,934 $ 345,378
---------- ---------- ----------- ------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $1,540,242 $2,887,725 $ 233,649 $ 2,160,831 $ 91,904 $ 528,669
========== ========== =========== ============ =========== ===========
</TABLE>
See notes to financial statements
<PAGE>
-36-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1999 -- continued
<TABLE>
<CAPTION>
JP1 JP2 JP3 LA1 CAS EGS
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............... $ 1,037,611 $ 115,004 $ 27,796 $ 1,617,324 $ 810,381 $ 139,054
Mortality and expense risk charges.... (108,647) (19,007) (7,179) (127,444) (105,003) (153,257)
Distribution expense charges.......... (13,038) (2,281) (861) (15,293) (12,600) (18,391)
----------- ------------ ----------- ----------- ----------- -----------
Net investment income (loss)...... $ 915,926 $ 93,716 $ 19,756 $ 1,474,587 $ 692,778 $ (32,594)
----------- ------------ ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $ 2,008,957 $ 8,056,697 $ 236,007 $ 2,008,566 $ 3,044,424 $ 3,055,305
Cost of investments sold............ (1,837,516) (7,969,726) (235,835) (1,834,115) (2,819,552) (2,405,896)
----------- ------------ ----------- ----------- ----------- -----------
Net realized gains (losses)....... $ 171,441 $ 86,971 $ 172 $ 174,451 $ 224,872 $ 649,409
----------- ------------ ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $ 413,908 $ 440,742 $ 335,738 $ (168,245) $ 2,858,363 $11,182,046
Beginning of year................... 73,661 7,372 (1,240) 21,161 629,805 777,281
----------- ------------ ----------- ----------- ----------- -----------
Change in unrealized appreciation
(depreciation)................... $ 340,247 $ 433,370 $ 336,978 $ (189,406) $ 2,228,558 $10,404,765
----------- ------------ ----------- ----------- ----------- -----------
Realized and unrealized gains
(losses)........................... $ 511,688 $ 520,341 $ 337,150 $ (14,955) $ 2,453,430 $11,054,174
----------- ------------ ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 1,427,614 $ 614,057 $ 356,906 $ 1,459,632 $ 3,146,208 $11,021,580
=========== ============ =========== =========== =========== ===========
<CAPTION>
HYS MMS UTS GSS TRS MIT
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account(a) Sub-Account(a)
------------ ------------- ------------ ------------ -------------- --------------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C> <C>
Dividend income and capital gain
distributions received.............. $ 363,601 $ 253,987 $ 752,022 $ 261,157 $ -- $ --
Mortality and expense risk charges... (76,999) (68,431) (113,609) (95,492) (6,958) (18,755)
Distribution expense charges......... (9,240) (8,212) (13,633) (11,459) (833) (2,448)
----------- ------------ ----------- ----------- ----------- -----------
Net investment income (loss)..... $ 277,362 $ 177,344 $ 624,780 $ 154,206 $ (7,791) $ (21,203)
----------- ------------ ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................ $ 1,826,492 $ 10,080,035 $ 1,851,082 $ 1,930,639 $ 222,400 $ 246,755
Cost of investments sold........... (1,925,559) (10,080,035) (1,695,734) (2,001,852) (227,128) (250,495)
----------- ------------ ----------- ----------- ----------- -----------
Net realized gains (losses) $ (99,067) $ -- $ 155,348 $ (71,213) $ (4,728) $ (3,740)
----------- ------------ ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) on investments:
End of year........................ $ 37,632 $ -- $ 2,724,754 $ (256,823) $ 21,849 $ 386,232
Beginning of year.................. (2,792) -- 203,450 13,091 -- --
----------- ------------ ----------- ----------- ----------- -----------
Change in unrealized appreciation
(depreciation).................. $ 40,424 $ -- $ 2,521,304 $ (269,914) $ 21,849 $ 386,232
----------- ------------ ----------- ----------- ----------- -----------
Realized and unrealized gains
(losses).......................... $ (58,643) $ -- $ 2,676,652 $ (341,127) $ 17,121 $ 382,492
----------- ------------ ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................ $ 218,719 $ 177,344 $ 3,301,432 $ (186,921) $ 9,330 $ 361,289
=========== ============ =========== =========== =========== ===========
</TABLE>
(a) For the period May 17, 1999 (commencement of operations) through
December 31, 1999.
See notes to financial statements
<PAGE>
-37-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1999 -- continued
<TABLE>
<CAPTION>
NWD MIS OP1 OP2 OP3 OP4
Sub-Account(a) Sub-Account(a) Sub-Account Sub-Account Sub-Account(a) Sub-Account(a)
-------------- -------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received........... $ -- $ -- $ 269,757 $ 97,793 $ 6,172 $ 7,352
Mortality and expense risk
charges.......................... (5,882) (18,211) (109,530) (30,634) (22,359) (13,016)
Distribution expense charges...... (510) (2,185) (13,144) (3,677) (2,683) (1,562)
--------- ---------- ----------- ----------- ------------ ---------
Net investment income
(loss)....................... $ (6,392) $ (20,396) $ 147,083 $ 63,482 $ (18,870) $ (7,226)
--------- ---------- ----------- ----------- ------------ ---------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales............. $ 167,789 $ 221,950 $ 2,741,376 $ 2,320,501 $ 1,102,903 $ 479,527
Cost of investments sold........ (142,292) (191,232) (2,691,665) (2,304,988) (1,068,470) (477,589)
--------- ---------- ----------- ----------- ------------ ---------
Net realized gains (losses)... $ 25,497 $ 30,718 $ 49,711 $ 15,513 $ 34,433 $ 1,938
--------- ---------- ----------- ----------- ------------ ---------
Net unrealized appreciation
(depreciation) on investments:
End of year..................... $ 457,940 $1,220,338 $ (115,746) $ 589,498 $ (15,639) $ (2,013)
Beginning of year............... -- -- 201,803 41,964 28,952 54
--------- ---------- ----------- ----------- ------------ ---------
Change in unrealized
appreciation (depreciation).. $ 457,940 $1,220,338 $ (317,549) $ 547,534 $ (44,591) $ (2,067)
--------- ---------- ----------- ----------- ------------ ---------
Realized and unrealized gains
(losses)....................... $ 483,437 $1,251,056 $ (267,838) $ 563,047 $ (10,158) $ (129)
--------- ---------- ----------- ----------- ------------ ---------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS.................... $ 477,045 $1,230,660 $ (120,755) $ 626,529 $ (29,028) $ (7,355)
========= ========== =========== =========== ============ =========
<CAPTION>
SB1 SB2 SB3 SB4 SCA1 SCA2
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
-------------- -------------- ------------ ------------ -------------- --------------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C> <C>
Dividend income and capital gain
distributions received........... $ 12,405 $ 3,356 $ 338,324 $ 159,436 $ 168,701 $ 184,000
Mortality and expense risk
charges.......................... (3,905) (7,109) (64,914) (64,618) (42,246) (37,321)
Distribution expense charges...... (468) (853) (7,789) (7,754) (5,069) (4,479)
--------- ---------- ----------- ----------- ------------ ---------
Net investment income
(loss)....................... $ 8,032 $ (4,606) $ 265,621 $ 87,064 $ 121,386 $ 142,200
--------- ---------- ----------- ----------- ------------ ---------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales............. $ 60,590 $ 179,526 $ 1,625,079 $ 1,052,022 $ 37,206,979 $ 767,441
Cost of investments sold........ (52,391) (157,572) (1,668,046) (1,022,206) (37,206,979) (795,277)
--------- ---------- ----------- ----------- ------------ ---------
Net realized gains (losses)... $ 8,199 $ 21,954 $ (42,967) $ 29,816 $ -- $ (27,836)
--------- ---------- ----------- ----------- ------------ ---------
Net unrealized appreciation
(depreciation) on investments:
End of year..................... $ 68,433 $ 52,807 $ (311,911) $ (145,524) $ -- $(167,137)
Beginning of year............... 23,271 19,454 (66,852) 64,469 -- 21
--------- ---------- ----------- ----------- ------------ ---------
Change in unrealized
appreciation (depreciation).. $ 45,162 $ 33,353 $ (245,059) $ (209,993) $ -- $(167,158)
--------- ---------- ----------- ----------- ------------ ---------
Realized and unrealized gains
(losses)....................... $ 53,361 $ 55,307 $ (288,026) $ (180,177) $ -- $(194,994)
--------- ---------- ----------- ----------- ------------ ---------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS.................... $ 61,393 $ 50,701 $ (22,405) $ (93,113) $ 121,386 $ (52,794)
========= ========== =========== =========== ============ =========
</TABLE>
(a) For the period May 17, 1999 (commencement of operations) through
December 31, 1999.
See notes to financial statements
<PAGE>
-38-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 1999 -- continued
<TABLE>
<CAPTION>
SCA3 SCA4 SCA5 SCA6
Sub-Account Sub-Account(b) Sub-Account(b) Sub-Account(b)
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received............... $ 69,130 $ -- $ 85,814 $ 960
Mortality and expense risk charges.... (6,505) (2,734) (6,615) (1,219)
Distribution expense charges.......... (781) (328) (794) (146)
--------- ----------- -------- ----------
Net investment income (loss)...... $ 61,844 $ (3,062) $ 78,405 $ (405)
--------- ----------- -------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $ 208,090 $ 48,920 $ 66,470 $ 16,985
Cost of investments sold............ (210,500) (42,939) (62,839) (16,088)
--------- ----------- -------- ----------
Net realized gains (losses)....... $ (2,410) $ 5,981 $ 3,631 $ 897
--------- ----------- -------- ----------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $ (70,481) $ 217,754 $437,614 $ 53,913
Beginning of year................... 97 -- -- --
--------- ----------- -------- ----------
Change in unrealized appreciation
(depreciation)................... $ (70,578) $ 217,754 $437,614 $ 53,913
--------- ----------- -------- ----------
Realized and unrealized gains
(losses)........................... $ (72,988) $ 223,735 $441,245 $ 54,810
--------- ----------- -------- ----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ (11,144) $ 220,673 $519,650 $ 54,405
========= =========== ======== ==========
<CAPTION>
WP1 WP2 WP3 WP4
Sub-Account Sub-Account Sub-Account Sub-Account
------------ -------------- -------------- --------------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Dividend income and capital gain
distributions received............... $ 82,166 $ 10,813 $ 90 $ 99,138
Mortality and expense risk charges.... (6,943) (7,972) (3,107) (14,040)
Distribution expense charges.......... (833) (956) (372) (1,685)
--------- ----------- -------- ----------
Net investment income (loss)...... $ 74,390 $ 1,885 $ (3,389) $ 83,413
--------- ----------- -------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales................. $ 365,750 $ 8,522,934 $ 85,336 $ 382,926
Cost of investments sold............ (283,628) (8,396,121) (78,855) (325,671)
--------- ----------- -------- ----------
Net realized gains (losses)....... $ 82,122 $ 126,813 $ 6,481 $ 57,255
--------- ----------- -------- ----------
Net unrealized appreciation
(depreciation) on investments:
End of year......................... $ 334,249 $ 283,627 $202,317 $1,104,711
Beginning of year................... (3,352) (1,858) 7,438 29,531
--------- ----------- -------- ----------
Change in unrealized appreciation
(depreciation)................... $ 337,601 $ 285,485 $194,879 $1,075,180
--------- ----------- -------- ----------
Realized and unrealized gains
(losses)........................... $ 419,723 $ 412,298 $201,360 $1,132,435
--------- ----------- -------- ----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS............................. $ 494,113 $ 414,183 $197,971 $1,215,848
========= =========== ======== ==========
</TABLE>
(b) For the period September 13, 1999 (commencement of operations) through
December 31, 1999.
See notes to financial statements
<PAGE>
-39-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AIM1 AIM2 AIM3
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (a) 1999 1998 (b)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)... $ 163,990 $ (159) $ 663,433 $ 144,861 $ 64,741 $ 32,869
Net realized gains (losses).... 82,737 (6,126) 133,152 2,691 468,336 (547)
Net unrealized gains
(losses)...................... 1,987,730 128,463 3,381,331 230,796 4,897,906 401,885
---------- ---------- ----------- ---------- ----------- ----------
Increase (Decrease) in net
assets from operations.... $2,234,457 $ 122,178 $ 4,177,916 $ 378,348 $ 5,430,983 $ 434,207
---------- ---------- ----------- ---------- ----------- ----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received... $3,190,508 $1,229,109 $ 8,313,278 $2,015,774 $ 8,663,899 $2,099,297
Net transfers between
Sub-Accounts and Fixed
Account..................... 2,389,362 212,774 9,156,077 193,750 13,693,105 1,293,608
Withdrawals, surrenders,
annuitizations and contract
charges..................... (291,401) (10,395) (396,819) (18,667) (634,386) (50,636)
---------- ---------- ----------- ---------- ----------- ----------
Net accumulation
activity.................. $5,288,469 $1,431,488 $17,072,536 $2,190,857 $21,722,618 $3,342,269
---------- ---------- ----------- ---------- ----------- ----------
Annuitization activity:
Annuitizations............... $ 21,703 $ -- $ 88,023 $ -- $ 68,415 $ --
Annuity payments............. (947) -- (2,232) -- (645) --
Adjustments to annuity
reserve..................... (1,572) -- (1,153) -- 3,276 --
---------- ---------- ----------- ---------- ----------- ----------
Net annuitization
activity.................. $ 19,184 $ -- $ 84,638 $ -- $ 71,046 $ --
---------- ---------- ----------- ---------- ----------- ----------
Increase (Decrease) in net
assets from participant
transactions.................. $5,307,653 $1,431,488 $17,157,174 $2,190,857 $21,793,664 $3,342,269
---------- ---------- ----------- ---------- ----------- ----------
Increase (Decrease) in net
assets...................... $7,542,110 $1,553,666 $21,335,090 $2,569,205 $27,224,647 $3,776,476
NET ASSETS:
Beginning of year.............. 1,553,666 -- 2,569,205 -- 3,776,476 --
---------- ---------- ----------- ---------- ----------- ----------
End of year.................... $9,095,776 $1,553,666 $23,904,295 $2,569,205 $31,001,123 $3,776,476
========== ========== =========== ========== =========== ==========
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period March 27, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-40-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
AIM4 AL1 AL2
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (b) 1999 1998 (b)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)... $ 511,149 $ 8,211 $ 811,033 $ 6,203 $ 199,713 $ 6,890
Net realized gains (losses).... 532,235 (51,782) 600,520 (18,561) 359,230 (5,236)
Net unrealized gains
(losses)...................... 5,018,327 135,808 4,516,739 496,292 4,268,060 271,924
----------- ---------- ----------- ---------- ----------- ----------
Increase (Decrease) in net
assets from operations.... $ 6,061,711 $ 92,237 $ 5,928,292 $ 483,934 $ 4,827,003 $ 273,578
----------- ---------- ----------- ---------- ----------- ----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received... $ 4,140,973 $1,910,796 $12,748,856 $2,399,047 $ 5,097,716 $1,751,908
Net transfers between
Sub-Accounts and Fixed
Account..................... 7,199,126 416,832 16,707,964 768,779 8,333,556 350,911
Withdrawals, surrenders,
annuitizations and contract
charges..................... (465,245) (8,627) (1,047,363) (12,258) (821,155) (47,719)
----------- ---------- ----------- ---------- ----------- ----------
Net accumulation
activity.................. $10,874,854 $2,319,001 $28,409,457 $3,155,568 $12,610,117 $2,055,100
----------- ---------- ----------- ---------- ----------- ----------
Annuitization activity:
Annuitizations............... $ 87,014 $ -- $ 85,342 $ -- $ 99,349 $ --
Annuity payments............. (5,593) -- (1,306) -- (6,928) --
Adjustments to annuity
reserve..................... (1,819) -- 2,825 -- (1,193) --
----------- ---------- ----------- ---------- ----------- ----------
Net annuitization
activity.................. $ 79,602 $ -- $ 86,861 $ -- $ 91,228 $ --
----------- ---------- ----------- ---------- ----------- ----------
Increase (Decrease) in net
assets from participant
transactions.................. $10,954,456 $2,319,001 $28,496,318 $3,155,568 $12,701,345 $2,055,100
----------- ---------- ----------- ---------- ----------- ----------
Increase (Decrease) in net
assets...................... $17,016,167 $2,411,238 $34,424,610 $3,639,502 $17,528,348 $2,328,678
NET ASSETS:
Beginning of year.............. 2,411,238 -- 3,639,502 -- 2,328,678 --
----------- ---------- ----------- ---------- ----------- ----------
End of year.................... $19,427,405 $2,411,238 $38,064,112 $3,639,502 $19,857,026 $2,328,678
=========== ========== =========== ========== =========== ==========
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period March 27, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-41-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE 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
Sub-Account Sub-Account Sub-Account
---------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (b) 1999 1998 (c) 1999 1998 (a)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ 180,135 $ (1,923) $ (86,434) $ (6,002) $ (7,437) $ (383)
Net realized gains (losses)..... 26,998 (3,015) 119,138 (6,745) (6,104) (5,269)
Net unrealized gains (losses)... 1,333,109 96,395 2,855,021 229,353 247,190 10,059
---------- -------- ----------- ---------- ---------- --------
Increase (Decrease) in net
assets from operations..... $1,540,242 $ 91,457 $ 2,887,725 $ 216,606 $ 233,649 $ 4,407
---------- -------- ----------- ---------- ---------- --------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.... $2,088,417 $437,232 $ 4,819,708 $1,763,717 $ 314,158 $258,204
Net transfers between
Sub-Accounts and Fixed
Account...................... 2,244,048 285,561 5,800,687 357,499 981,739 20,679
Withdrawals, surrenders,
annuitizations and contract
charges...................... (126,620) (8,294) (346,821) (8,712) (33,270) (614)
---------- -------- ----------- ---------- ---------- --------
Net accumulation activity... $4,205,845 $714,499 $10,273,574 $2,112,504 $1,262,627 $278,269
---------- -------- ----------- ---------- ---------- --------
Annuitization activity:
Annuitizations................ $ 59,038 $ -- $ 93,264 $ -- $ 19,466 $ --
Annuity payments.............. (542) -- (5,717) -- (750) --
Adjustments to annuity
reserve...................... 66 -- (2,494) -- (2,307) --
---------- -------- ----------- ---------- ---------- --------
Net annuitization
activity................... $ 58,562 $ -- $ 85,053 $ -- $ 16,409 $ --
---------- -------- ----------- ---------- ---------- --------
Increase (Decrease) in net
assets from participant
transactions................... $4,264,407 $714,499 $10,358,627 $2,112,504 $1,279,036 $278,269
---------- -------- ----------- ---------- ---------- --------
Increase (Decrease) in net
assets....................... $5,804,649 $805,956 $13,246,352 $2,329,110 $1,512,685 $282,676
NET ASSETS:
Beginning of year............... 805,956 -- 2,329,110 -- 282,676 --
---------- -------- ----------- ---------- ---------- --------
End of year..................... $6,610,605 $805,956 $15,575,462 $2,329,110 $1,795,361 $282,676
========== ======== =========== ========== ========== ========
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period March 27, 1998 (commencement of operations) through
December 31, 1998.
(c) For the period March 12, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-42-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
GS3 GS4 GS5
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (a) 1999 1998 (b)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)... $ 126,862 $ (858) $ 8,970 $ 6,362 $ 183,291 $ 866
Net realized gains (losses).... 363,935 (9,820) (49,105) (8,821) 84,670 (2,816)
Net unrealized gains
(losses)...................... 1,670,034 296,953 132,039 (71,917) 260,708 16,662
----------- ---------- ---------- ---------- ---------- --------
Increase (Decrease) in net
assets from operations.... $ 2,160,831 $ 286,275 $ 91,904 $ (74,376) $ 528,669 $ 14,712
----------- ---------- ---------- ---------- ---------- --------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received... $ 4,503,362 $2,581,300 $1,294,500 $1,443,172 $ 840,435 $238,188
Net transfers between
Sub-Accounts and Fixed
Account..................... 8,595,492 407,943 2,400,908 493,897 1,051,801 72,560
Withdrawals, surrenders,
annuitizations and contract
charges..................... (498,099) (56,166) (203,335) (13,813) (37,988) (76)
----------- ---------- ---------- ---------- ---------- --------
Net accumulation
activity.................. $12,600,755 $2,933,077 $3,492,073 $1,923,256 $1,854,248 $310,672
----------- ---------- ---------- ---------- ---------- --------
Annuitization activity:
Annuitizations............... $ 37,472 $ -- $ -- $ -- $ 20,676 $ --
Annuity payments............. (2,065) -- -- -- (911) --
Adjustments to annuity
reserve..................... (43) -- -- -- (674) --
----------- ---------- ---------- ---------- ---------- --------
Net annuitization
activity.................. $ 35,364 $ -- $ -- $ -- $ 19,091 $ --
----------- ---------- ---------- ---------- ---------- --------
Increase (Decrease) in net
assets from participant
transactions.................. $12,636,119 $2,933,077 $3,492,073 $1,923,256 $1,873,339 $310,672
----------- ---------- ---------- ---------- ---------- --------
Increase (Decrease) in net
assets...................... $14,796,950 $3,219,352 $3,583,977 $1,848,880 $2,402,008 $325,384
NET ASSETS:
Beginning of year.............. 3,219,352 -- 1,848,880 -- 325,384 --
----------- ---------- ---------- ---------- ---------- --------
End of year.................... $18,016,302 $3,219,352 $5,432,857 $1,848,880 $2,727,392 $325,384
=========== ========== ========== ========== ========== ========
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period March 17, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-43-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE 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
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)... $ 915,926 $ 232,080 $ 93,716 $ 2,468 $ 19,756 $ 3,318
Net realized gains (losses).... 171,441 (42,054) 86,971 (1,892) 172 (3,060)
Net unrealized gains
(losses)...................... 340,247 73,661 433,370 7,372 336,978 (1,240)
----------- ---------- ---------- -------- ---------- --------
Increase (Decrease) in net
assets from operations.... $ 1,427,614 $ 263,687 $ 614,057 $ 7,948 $ 356,906 $ (982)
----------- ---------- ---------- -------- ---------- --------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received... $ 4,908,483 $1,481,091 $1,032,722 $401,185 $ 556,222 $126,177
Net transfers between
Sub-Accounts and Fixed
Account..................... 6,352,530 1,474,721 1,243,965 78,547 412,896 65,945
Withdrawals, surrenders,
annuitizations and contract
charges..................... (556,977) (33,652) (95,728) (2,264) (18,773) (770)
----------- ---------- ---------- -------- ---------- --------
Net accumulation
activity.................. $10,704,036 $2,922,160 $2,180,959 $477,468 $ 950,345 $191,352
----------- ---------- ---------- -------- ---------- --------
Annuitization activity:
Annuitizations............... $ 77,078 $ -- $ 18,651 $ -- $ -- $ --
Annuity payments............. (1,035) -- (844) -- -- --
Adjustments to annuity
reserve..................... 150 -- (700) -- -- --
----------- ---------- ---------- -------- ---------- --------
Net annuitization
activity.................. $ 76,193 $ -- $ 17,107 $ -- $ -- $ --
----------- ---------- ---------- -------- ---------- --------
Increase (Decrease) in net
assets from participant
transactions.................. $10,780,229 $2,922,160 $2,198,066 $477,468 $ 950,345 $191,352
----------- ---------- ---------- -------- ---------- --------
Increase (Decrease) in net
assets...................... $12,207,843 $3,185,847 $2,812,123 $485,416 $1,307,251 $190,370
NET ASSETS:
Beginning of year.............. 3,185,847 -- 485,416 -- 190,370 --
----------- ---------- ---------- -------- ---------- --------
End of year.................... $15,393,690 $3,185,847 $3,297,539 $485,416 $1,497,621 $190,370
=========== ========== ========== ======== ========== ========
</TABLE>
(a) For the period March 27, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-44-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
LA1 CAS EGS
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (b) 1999 1998 (c) 1999 1998 (a)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)... $ 1,474,587 $ 193,351 $ 692,778 $ (9,437) $ (32,594) $ (9,825)
Net realized gains (losses).... 174,451 (3,464) 224,872 (34,447) 649,409 (43,942)
Net unrealized gains
(losses)...................... (189,406) 21,161 2,228,558 629,805 10,404,765 777,281
----------- ---------- ----------- ---------- ----------- ----------
Increase (Decrease) in net
assets from operations.... $ 1,459,632 $ 211,048 $ 3,146,208 $ 585,921 $11,021,580 $ 723,514
----------- ---------- ----------- ---------- ----------- ----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received... $ 6,119,781 $2,829,156 $ 3,621,357 $1,880,023 $ 7,852,516 $3,011,641
Net transfers between
Sub-Accounts and Fixed
Account..................... 10,627,992 363,979 3,950,702 2,200,342 8,176,327 1,178,725
Withdrawals, surrenders,
annuitizations and contract
charges..................... (621,174) (21,905) (385,338) (47,046) (925,614) (36,641)
----------- ---------- ----------- ---------- ----------- ----------
Net accumulation
activity.................. $16,126,599 $3,171,230 $ 7,186,721 $4,033,319 $15,103,229 $4,153,725
----------- ---------- ----------- ---------- ----------- ----------
Annuitization activity:
Annuitizations............... $ -- $ -- $ 53,269 $ -- $ 126,228 $ --
Annuity payments............. -- -- (3,083) -- (3,973) --
Adjustments to annuity
reserve..................... -- -- (1,863) -- 9,690 --
----------- ---------- ----------- ---------- ----------- ----------
Net annuitization
activity.................. $ -- $ -- $ 48,323 $ -- $ 131,945 $ --
----------- ---------- ----------- ---------- ----------- ----------
Increase (Decrease) in net
assets from participant
transactions.................. $16,126,599 $3,171,230 $ 7,235,044 $4,033,319 $15,235,174 $4,153,725
----------- ---------- ----------- ---------- ----------- ----------
Increase (Decrease) in net
assets...................... $17,586,231 $3,382,278 $10,381,252 $4,619,240 $26,256,754 $4,877,239
NET ASSETS:
Beginning of year.............. 3,382,278 -- 4,619,240 -- 4,877,239 --
----------- ---------- ----------- ---------- ----------- ----------
End of year.................... $20,968,509 $3,382,278 $15,000,492 $4,619,240 $31,133,993 $4,877,239
=========== ========== =========== ========== =========== ==========
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period March 27, 1998 (commencement of operations) through
December 31, 1998.
(c) For the period February 26, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-45-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
HYS MMS UTS
Sub-Account Sub-Account Sub-Account
---------------------------- ---------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (c) 1999 1998 (a) 1999 1998 (b)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)......... $ 277,362 $ (239) $ 177,344 $ 48,895 $ 624,780 $ (7,859)
Net realized gains (losses).......... (99,067) (17,756) -- -- 155,348 (1,131)
Net unrealized gains (losses)........ 40,424 (2,792) -- -- 2,521,304 203,450
----------- ---------- ---------- ---------- ----------- ----------
Increase (Decrease) in net assets
from operations................. $ 218,719 $ (20,787) $ 177,344 $ 48,895 $ 3,301,432 $ 194,460
----------- ---------- ---------- ---------- ----------- ----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received......... $ 3,074,357 $1,355,408 $ 308,389 $5,275,423 $ 4,077,024 $1,634,726
Net transfers between Sub-Accounts
and Fixed Account................. 7,484,053 786,221 4,197,928 (1,482,996) 9,168,485 1,078,739
Withdrawals, surrenders,
annuitizations and contract
charges........................... (462,273) (6,849) (1,455,384) (11,403) (781,083) (10,177)
----------- ---------- ---------- ---------- ----------- ----------
Net accumulation activity........ $10,096,137 $2,134,780 $3,050,933 $3,781,024 $12,464,426 $2,703,288
----------- ---------- ---------- ---------- ----------- ----------
Annuitization activity:
Annuitizations..................... $ 80,858 $ -- $ -- $ -- $ 179,007 $ --
Annuity payments................... (4,094) -- -- -- (3,339) --
Adjustments to annuity reserve..... (348) -- -- -- (1,085) --
----------- ---------- ---------- ---------- ----------- ----------
Net annuitization activity....... $ 76,416 $ -- $ -- $ -- $ 174,583 $ --
----------- ---------- ---------- ---------- ----------- ----------
Increase (Decrease) in net assets
from participant transactions....... $10,172,553 $2,134,780 $3,050,933 $3,781,024 $12,639,009 $2,703,288
----------- ---------- ---------- ---------- ----------- ----------
Increase (Decrease) in net
assets............................ $10,391,272 $2,113,993 $3,228,277 $3,829,919 $15,940,441 $2,897,748
NET ASSETS:
Beginning of year.................... 2,113,993 -- 3,829,919 -- 2,897,748 --
----------- ---------- ---------- ---------- ----------- ----------
End of year.......................... $12,505,265 $2,113,993 $7,058,196 $3,829,919 $18,838,189 $2,897,748
=========== ========== ========== ========== =========== ==========
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period March 27, 1998 (commencement of operations) through December
31, 1998.
(c) For the period February 26, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-46-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
GSS TRS MIT NWD MIS
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
---------------------------- ------------- ------------- ------------- -------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (a) 1999 (b) 1999 (b) 1999 (b) 1999 (b)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)......... $ 154,206 $ (5,092) $ (7,791) $ (21,203) $ (6,392) $ (20,396)
Net realized gains (losses).......... (71,213) 23,326 (4,728) (3,740) 25,497 30,718
Net unrealized gains (losses)........ (269,914) 13,091 21,849 386,232 457,940 1,220,338
----------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in net assets
from operations................. $ (186,921) $ 31,325 $ 9,330 $ 361,289 $ 477,045 $1,230,660
----------- ---------- ---------- ---------- ---------- ----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received......... $ 3,214,716 $1,300,822 $1,944,130 $3,992,136 $ 720,822 $4,452,860
Net transfers between Sub-Accounts
and Fixed Account................. 10,679,042 323,387 749,019 3,540,232 782,394 2,713,276
Withdrawals, surrenders,
annuitizations and contract
charges........................... (493,591) (92,714) (116,117) (70,811) (6,830) (187,257)
----------- ---------- ---------- ---------- ---------- ----------
Net accumulation activity........ $13,400,167 $1,531,495 $2,577,032 $7,461,557 $1,496,386 $6,978,879
----------- ---------- ---------- ---------- ---------- ----------
Annuitization activity:
Annuitizations..................... $ 26,994 $ 40,389 $ 79,374 $ 4,029 $ -- $ 133,744
Annuity payments................... (4,351) (1,490) -- (181) -- (333)
Annuity transfers.................. -- 40,390 -- -- -- --
Adjustments to annuity reserve..... (534) (475) 17 (182) -- 4,173
----------- ---------- ---------- ---------- ---------- ----------
Net annuitization activity....... $ 22,109 $ 78,814 $ 79,391 $ 3,666 $ -- $ 137,584
----------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in net assets
from participant transactions....... $13,422,276 $1,610,309 $2,656,423 $7,465,223 $1,496,386 $7,116,463
----------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in net
assets............................ $13,235,355 $1,641,634 $2,665,753 $7,826,512 $1,973,431 $8,347,123
NET ASSETS:
Beginning of year.................... 1,641,634 -- -- -- -- --
----------- ---------- ---------- ---------- ---------- ----------
End of year.......................... $14,876,989 $1,641,634 $2,665,753 $7,826,512 $1,973,431 $8,347,123
=========== ========== ========== ========== ========== ==========
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period May 17, 1999 (commencement of operations) through December
31, 1999.
See notes to financial statements
<PAGE>
-47
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
OP1 OP2 OP3
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (a) 1999 1998 (b)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ 147,083 $ (13,451) $ 63,482 $ 235 $ (18,870) $ (1,846)
Net realized gains (losses)..... 49,711 (15,929) 15,513 (19,298) 34,433 (7,219)
Net unrealized gains (losses)... (317,549) 201,803 547,534 41,964 (44,591) 28,952
----------- ---------- ---------- -------- ---------- --------
Increase (Decrease) in net
assets from operations..... $ (120,755) $ 172,423 $ 626,529 $ 22,901 $ (29,028) $ 19,887
----------- ---------- ---------- -------- ---------- --------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.... $ 2,729,165 $2,532,266 $1,550,529 $772,014 $ 485,930 $507,596
Net transfers between
Sub-Accounts and Fixed
Account...................... 6,567,188 1,176,486 1,198,601 114,451 1,779,308 197,133
Withdrawals, surrenders,
annuitizations and contract
charges...................... (574,346) (21,619) (132,625) (3,783) (129,696) (8,885)
----------- ---------- ---------- -------- ---------- --------
Net accumulation activity... $ 8,722,007 $3,687,133 $2,616,505 $882,682 $2,135,542 $695,844
----------- ---------- ---------- -------- ---------- --------
Annuitization activity:
Annuitizations................ $ 11,643 $ -- $ 42,401 $-- $ 11,596 $--
Annuity payments.............. (586) -- (2,165) -- (845) --
Adjustments to annuity
reserve...................... 248 -- (667) -- (1,085) --
----------- ---------- ---------- -------- ---------- --------
Net annuitization
activity................... $ 11,305 $ -- $ 39,569 $-- $ 9,666 $--
----------- ---------- ---------- -------- ---------- --------
Increase (Decrease) in net
assets from participant
transactions................... $ 8,733,312 $3,687,133 $2,656,074 $882,682 $2,145,208 $695,844
----------- ---------- ---------- -------- ---------- --------
Increase (Decrease) in net
assets....................... $ 8,612,557 $3,859,556 $3,282,603 $905,583 $2,116,180 $715,731
NET ASSETS:
Beginning of year............... 3,859,556 -- 905,583 -- 715,731 --
----------- ---------- ---------- -------- ---------- --------
End of year..................... $12,472,113 $3,859,556 $4,188,186 $905,583 $2,831,911 $715,731
=========== ========== ========== ======== ========== ========
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period March 27, 1998 (commencement of operations) through December
31, 1998.
See notes to financial statements
<PAGE>
-48-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
OP4 SB1 SB2
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (b) 1999 1998 (a) 1999 1998 (a)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ (7,226) $ (1) $ 8,032 $ 3,553 $ (4,606) $ (252)
Net realized gains (losses)..... 1,938 -- 8,199 (1,757) 21,954 (857)
Net unrealized gains (losses)... (2,067) 54 45,162 23,271 33,353 19,454
---------- ------ -------- -------- -------- --------
Increase (Decrease) in net
assets from operations..... $ (7,355) $ 53 $ 61,393 $ 25,067 $ 50,701 $ 18,345
---------- ------ -------- -------- -------- --------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.... $1,632,027 $1,000 $ 21,563 $200,980 $119,751 $263,704
Net transfers between
Sub-Accounts and Fixed
Account...................... 883,782 -- 101,209 8,030 188,767 49,888
Withdrawals, surrenders,
annuitizations and contract
charges...................... (31,887) -- (28,493) (2,808) (28,268) (1,853)
---------- ------ -------- -------- -------- --------
Net accumulation activity... $2,483,922 $1,000 $ 94,279 $206,202 $280,250 $311,739
---------- ------ -------- -------- -------- --------
Annuitization activity:
Annuitizations................ $ -- $-- $-- $-- $-- $--
Annuity payments.............. -- -- -- -- -- --
Adjustments to annuity
reserve...................... -- -- -- -- -- --
---------- ------ -------- -------- -------- --------
Net annuitization
activity................... $ -- $-- $-- $-- $-- $--
---------- ------ -------- -------- -------- --------
Increase (Decrease) in net
assets from participant
transactions................... $2,483,922 $1,000 $ 94,279 $206,202 $280,250 $311,739
---------- ------ -------- -------- -------- --------
Increase (Decrease) in net
assets....................... $2,476,567 $1,053 $155,672 $231,269 $330,951 $330,084
NET ASSETS:
Beginning of year............... 1,053 -- 231,269 -- 330,084 --
---------- ------ -------- -------- -------- --------
End of year..................... $2,477,620 $1,053 $386,941 $231,269 $661,035 $330,084
========== ====== ======== ======== ======== ========
</TABLE>
(a) For the period March 27, 1998 (commencement of operations) through December
31, 1998.
(b) For the period December 15, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-49-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
SB3 SB4 SCA1
Sub-Account Sub-Account Sub-Account
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (b) 1999 1998 (d)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ 265,621 $ 121,348 $ 87,064 $ 39,286 $ 121,386 $ 3
Net realized gains (losses)..... (42,967) 9,630 29,816 (1,146) -- --
Net unrealized gains (losses)... (245,059) (66,852) (209,993) 64,469 -- --
---------- ---------- ---------- ---------- ----------- ------
Increase (Decrease) in net
assets from operations..... $ (22,405) $ 64,126 $ (93,113) $ 102,609 $ 121,386 $ 3
---------- ---------- ---------- ---------- ----------- ------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.... $ 186,390 $2,139,351 $ 31,408 $1,946,618 $ 9,316,611 $2,000
Net transfers between
Sub-Accounts and Fixed
Account...................... 4,084,937 722,156 4,100,758 945,488 2,207,048 --
Withdrawals, surrenders,
annuitizations and contract
charges...................... (416,075) (13,933) (391,898) (11,783) (299,102) --
---------- ---------- ---------- ---------- ----------- ------
Net accumulation activity... $3,855,252 $2,847,574 $3,740,268 $2,880,323 $11,224,557 $2,000
---------- ---------- ---------- ---------- ----------- ------
Annuitization activity:
Annuitizations................ $ 30,708 $ -- $ 16,929 $ -- $ -- $--
Annuity payments.............. (1,119) -- (401) -- -- --
Adjustments to annuity
reserve...................... (764) -- (633) -- -- --
---------- ---------- ---------- ---------- ----------- ------
Net annuitization
activity................... $ 28,825 $ -- $ 15,895 $ -- $ -- $--
---------- ---------- ---------- ---------- ----------- ------
Increase (Decrease) in net
assets from participant
transactions................... $3,884,077 $2,847,574 $3,756,163 $2,880,323 $11,224,557 $2,000
---------- ---------- ---------- ---------- ----------- ------
Increase (Decrease) in net
assets....................... $3,861,672 $2,911,700 $3,663,050 $2,982,932 $11,345,943 $2,003
NET ASSETS:
Beginning of year............... 2,911,700 -- 2,982,932 -- 2,003 --
---------- ---------- ---------- ---------- ----------- ------
End of year..................... $6,773,372 $2,911,700 $6,645,982 $2,982,932 $11,347,946 $2,003
========== ========== ========== ========== =========== ======
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period March 27, 1998 (commencement of operations) through December
31, 1998.
(d) For the period December 15, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-50-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
SCA2 SCA3 SCA4 SCA5
Sub-Acount Sub-Acount Sub-Acount Sub-Acount
----------------------------- ----------------------------- ------------- -------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (a) 1999 (b) 1999 (b)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ 142,200 $ 13 $ 61,844 $ (1) $ (3,062) $ 78,405
Net realized gains (losses)..... (27,836) (1) (2,410) -- 5,981 3,631
Net unrealized gains (losses)... (167,158) 21 (70,578) 97 217,754 437,614
---------- ------- ---------- ------ ---------- ----------
Increase (Decrease) in net
assets from operations..... $ (52,794) $ 33 $ (11,144) $ 96 $ 220,673 $ 519,650
---------- ------- ---------- ------ ---------- ----------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received.... $2,424,622 $18,000 $ 407,264 $7,000 $ 278,857 $ 398,676
Net transfers between
Sub-Accounts and Fixed
Account...................... 5,953,092 -- 942,992 -- 863,821 2,064,556
Withdrawals, surrenders,
annuitizations and contract
charges...................... (374,597) -- (35,618) -- (16,360) (16,795)
---------- ------- ---------- ------ ---------- ----------
Net accumulation activity... $8,003,117 $18,000 $1,314,638 $7,000 $1,126,318 $2,446,437
---------- ------- ---------- ------ ---------- ----------
Annuitization activity:
Annuitizations................ $ 278,695 $-- $ 3,427 $-- $ -- $ --
Annuity payments.............. (10,840) -- (216) -- -- --
Adjustments to annuity
reserve...................... 5,275 -- 7,216 -- -- --
---------- ------- ---------- ------ ---------- ----------
Net annuitization
activity................... $ 273,130 $-- $ 10,427 $-- $ -- $ --
---------- ------- ---------- ------ ---------- ----------
Increase (Decrease) in net
assets from participant
transactions................... $8,276,247 $18,000 $1,325,065 $7,000 $1,126,318 $2,446,437
---------- ------- ---------- ------ ---------- ----------
Increase (Decrease) in net
assets....................... $8,223,453 $18,033 $1,313,921 $7,096 $1,346,991 $2,966,087
NET ASSETS:
Beginning of year............... 18,033 -- 7,096 -- -- --
---------- ------- ---------- ------ ---------- ----------
End of year..................... $8,241,486 $18,033 $1,321,017 $7,096 $1,346,991 $2,966,087
========== ======= ========== ====== ========== ==========
</TABLE>
(a) For the period December 15, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period May 17, 1999 (commencement of operations) through December
31, 1999.
See notes to financial statements
<PAGE>
-51-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
SCA6 WP1 WP2
Sub-Acount Sub-Acount Sub-Acount
------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1999 (c) 1999 1998 (a) 1999 1998 (b)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).................. $ (405) $ 74,390 $ (679) $ 1,885 $ (1,361)
Net realized gains (losses)................... 897 82,122 (4,817) 126,813 (33,030)
Net unrealized gains (losses)................. 53,913 337,601 (3,352) 285,485 (1,858)
-------- ---------- -------- ---------- --------
Increase (Decrease) in net assets from
operations............................... $ 54,405 $ 494,113 $ (8,848) $ 414,183 $(36,249)
-------- ---------- -------- ---------- --------
Accumulation activity:
Purchase payments received.................. $ 41,486 $ 444,605 $133,941 $ 260,046 $169,921
Net transfers between Sub-Accounts and Fixed
Account.................................... 406,855 1,127,692 40,476 446,267 32,859
Withdrawals, surrenders, annuitizations and
contract charges........................... (1,944) (34,519) (742) (77,459) (879)
-------- ---------- -------- ---------- --------
Net accumulation activity................. $446,397 $1,537,778 $173,675 $ 628,854 $201,901
-------- ---------- -------- ---------- --------
Annuitization activity:
Annuitizations.............................. $-- $ 17,475 $-- $ -- $--
Annuity payments............................ -- (925) -- -- --
Adjustments to annuity reserve.............. 5,356 (10,499) -- -- --
-------- ---------- -------- ---------- --------
Net annuitization activity................ $ 5,356 $ 6,051 $-- $ -- $--
-------- ---------- -------- ---------- --------
Increase (Decrease) in net assets from
participant transactions..................... $451,753 $1,543,829 $173,675 $ 628,854 $201,901
-------- ---------- -------- ---------- --------
Increase (Decrease) in net assets........... $506,158 $2,037,942 $164,827 $1,043,037 $165,652
NET ASSETS:
Beginning of year............................. -- 164,827 -- 165,652 --
-------- ---------- -------- ---------- --------
End of year................................... $506,158 $2,202,769 $164,827 $1,208,689 $165,652
======== ========== ======== ========== ========
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period March 27, 1998 (commencement of operations) through December
31, 1998.
(c) For the period May 17, 1999 (commencement of operations) through December
31, 1999.
See notes to financial statements
<PAGE>
-52-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
WP3 WP4
Sub-Account Sub-Account
----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1999 1998 (a) 1999 1998 (a)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).............................. $ (3,389) $ (535) $ 83,413 $ (2,271)
Net realized gains (losses)............................... 6,481 (239) 57,255 (26,102)
Net unrealized gains (losses)............................. 194,879 7,438 1,075,180 29,531
-------- -------- ---------- --------
Increase (Decrease) in net assets from operations..... $197,971 $ 6,664 $1,215,848 $ 1,158
-------- -------- ---------- --------
PARTICIPATION TRANSACTIONS:
Accumulation activity:
Purchase payments received.............................. $118,924 $113,755 $ 528,621 $378,201
Net transfers between Sub-Accounts and Fixed Account.... 322,835 17,358 1,685,706 (5,371)
Withdrawals, surrenders, annuitizations and contract
charges................................................ (36,788) (830) (56,865) (2,707)
-------- -------- ---------- --------
Net accumulation activity............................. $404,971 $130,283 $2,157,462 $370,123
-------- -------- ---------- --------
Annuitization activity:
Annuitizations.......................................... $ 18,900 $-- $ -- $--
Annuity payments........................................ (794) -- -- --
Annuity transfers....................................... -- -- -- --
-------- -------- ---------- --------
Adjustments to annuity reserve.......................... (7,889) -- -- --
-------- -------- ---------- --------
Net annuitization activity............................ $ 10,217 $-- $ -- $--
-------- -------- ---------- --------
Increase (Decrease) in net assets from participant
transactions............................................. $415,188 $130,283 $2,157,462 $370,123
Increase (Decrease) in net assets....................... $613,159 $136,947 $3,373,310 $371,281
NET ASSETS:
Beginning of year......................................... 136,947 -- 371,281 --
-------- -------- ---------- --------
End of year............................................... $750,106 $136,947 $3,744,591 $371,281
======== ======== ========== ========
</TABLE>
(a) For the period March 27, 1998 (commencement of operations) through
December 31, 1998.
See notes to financial statements
<PAGE>
-53-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE 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, Futurity Focus
contracts and Futurity Accolade 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. With respect to the Futurity Focus 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. With respect to the Futurity Accolade 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 Abbet
Series Fund, Inc., MFS/Sun Life Series Trust, OCC Accumulation Trust and Sun
Capital Advisers Trust (collectively, "the Funds"). Massachusetts Financial
Services Company, an affiliate of the Sponsor, is the investment adviser to
MFS/Sun Life Series Trust. Sun Capital Advisers Inc., an affiliate of the
Sponsor, is the investment adviser to Sun Capital Advisers 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 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.
<PAGE>
-54-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(2) SIGNIFICANT ACCOUNTING POLICIES
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.
(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% for Futurity and Futurity
II contracts, 1.00% for Futurity Focus contracts and 1.30% for Futurity Accolade
contracts.
Each year on the account anniversary, an account administration fee ("Account
Fee") equal to the lesser of $30 in the case of Futurity contracts, $35 in the
case of Futurity II contracts and Futurity Accolade contracts and $50 in the
case of Futurity Focus 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 8% of certain
amounts withdrawn, when applicable, may be deducted to cover certain expenses
relating to the sale of the Futurity, Futurity II, and Futurity Focus 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>
-55-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE 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 Outstanding
Beginning of Year Units Purchased
------------------------------ ------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FUTURITY CONTRACTS:
AIM1 (a) 141,292 -- 37,449 120,297
AIM2 (a) 204,502 -- 28,920 188,055
AIM3 (b) 332,662 -- 43,138 211,522
AIM4 (a) 216,812 -- 22,277 175,562
AL1 (b) 285,990 -- 96,119 220,381
AL2 (b) 194,995 -- 37,009 166,134
AL3 (b) 77,472 -- 12,426 46,464
GS1 (c) 210,952 -- 34,405 174,066
GS2 (a) 31,476 -- 556 28,820
GS3 (a) 282,488 -- 25,986 245,810
GS4 (a) 199,770 -- 10,206 146,654
GS5 (d) 30,394 -- 2,948 22,922
JP1 (b) 293,787 -- 83,392 153,409
JP2 (b) 52,419 -- 9,614 43,568
JP3 (b) 22,655 -- 8,150 14,226
LA1 (b) 333,805 -- 61,424 295,576
CAS (e) 403,733 -- 35,843 182,671
EGS (a) 397,132 -- 60,135 286,458
HYS (e) 217,924 -- 27,858 136,139
MMS (a) 371,404 -- 29,531 520,396
UTS (b) 278,221 -- 49,525 168,365
GSS (a) 150,350 -- 31,435 124,697
OP1 (a) 363,748 -- 45,042 249,514
OP2 (a) 93,160 -- 19,463 80,719
OP3 (b) 86,567 -- 11,061 62,966
SB1 (b) 21,329 -- 1,994 20,954
SB2 (b) 32,282 -- 11,451 27,151
SB3 (a) 277,473 -- 17,918 208,817
SB4 (b) 293,921 -- 4,406 199,267
WP1 (a) 22,480 -- 9,591 17,004
WP2 (b) 18,253 -- 5,461 17,656
WP3 (b) 14,715 -- 4,811 12,602
WP4 (b) 41,843 -- 2,953 42,727
<CAPTION>
Units Transferred
Between Sub-Accounts
and Units Withdrawn,
Fixed Accumulation Surrendered, and Units Outstanding
Account Annuitized End of Year
------------------------------ ------------------------------ ------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FUTURITY CONTRACTS:
AIM1 68,417 21,989 (19,423) (994) 227,735 141,292
AIM2 219,720 18,286 (10,712) (1,839) 442,430 204,502
AIM3 451,578 126,191 (27,993) (5,051) 799,385 332,662
AIM4 238,494 42,064 (18,770) (814) 458,813 216,812
AL1 424,506 66,702 (51,286) (1,093) 755,329 285,990
AL2 249,731 33,387 (46,903) (4,526) 434,832 194,995
AL3 96,080 31,855 (3,758) (847) 182,220 77,472
GS1 194,122 37,773 (16,398) (887) 423,081 210,952
GS2 51,143 2,730 (2,812) (74) 80,363 31,476
GS3 289,621 41,721 (22,792) (5,043) 575,303 282,488
GS4 109,158 54,644 (18,062) (1,528) 301,072 199,770
GS5 31,634 7,479 (2,001) (7) 62,975 30,394
JP1 220,364 143,890 (28,588) (3,512) 568,955 293,787
JP2 50,228 9,107 (6,937) (256) 105,324 52,419
JP3 11,780 8,529 (1,450) (100) 41,135 22,655
LA1 328,125 40,527 (42,184) (2,298) 681,170 333,805
CAS 74,342 225,749 (23,482) (4,687) 490,436 403,733
EGS 231,410 114,747 (44,248) (4,073) 644,429 397,132
HYS 363,603 82,554 (28,271) (769) 581,114 217,924
MMS 399,896 (145,427) (137,740) (3,565) 663,091 371,404
UTS 482,058 110,939 (47,559) (1,083) 762,245 278,221
GSS 482,313 30,755 (28,386) (5,102) 635,712 150,350
OP1 407,891 116,381 (46,676) (2,147) 770,005 363,748
OP2 104,339 12,844 (8,463) (403) 208,499 93,160
OP3 152,550 24,744 (14,649) (1,143) 235,529 86,567
SB1 8,915 660 (2,599) (285) 29,639 21,329
SB2 17,512 5,324 (2,530) (193) 58,715 32,282
SB3 394,310 69,996 (40,441) (1,340) 649,260 277,473
SB4 398,605 95,844 (39,609) (1,190) 657,323 293,921
WP1 37,994 5,576 (1,995) (100) 68,070 22,480
WP2 36,942 697 (7,725) (100) 52,931 18,253
WP3 5,081 2,213 (3,289) (100) 21,318 14,715
WP4 114,098 (84) (5,437) (800) 153,457 41,843
</TABLE>
(a) For the period February 20, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period March 27, 1998 (commencement of operations) through December
31, 1998.
(c) For the period March 12, 1998 (commencement of operations) through December
31, 1998.
(d) For the period March 17, 1998 (commencement of operations) through December
31, 1998.
(e) For the period February 26, 1998 (commencement of operations) through
December 31, 1998.
<PAGE>
-56-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE 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 Outstanding
Beginning of Year Units Purchased
------------------------------ ------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FUTURITY II CONTRACTS:
AIM1 (a) 100 -- 181,039 100
AIM2 (a) 1,049 -- 538,285 1,049
AIM3 (a) 1,704 -- 573,115 1,704
AIM4 (b) 2,553 -- 277,892 2,553
AL1 (a) 2,044 -- 798,097 2,044
AL2 (b) 1,785 -- 330,958 1,785
AL3 (a) 100 -- 134,245 100
GS1 (c) 786 -- 340,043 786
GS2 (a) 100 -- 26,340 100
GS3 (b) 2,341 -- 322,630 2,341
GS4 (a) 100 -- 78,401 100
GS5 (c) 578 -- 58,284 578
JP1 (a) 474 -- 315,983 474
JP2 (a) 100 -- 57,728 100
JP3 (a) 100 -- 39,434 100
LA1 (b) 1,763 -- 389,191 1,763
CAS (a) 2,367 -- 251,500 2,367
EGS (c) 3,662 -- 455,194 3,662
HYS (b) 729 -- 199,927 729
UTS (c) 821 -- 237,960 821
GSS (b) 1,027 -- 236,734 1,027
TRS (d) -- -- 145,867 --
MIT (d) -- -- 274,552 --
NWD (d) -- -- 31,539 --
MIS (d) -- -- 314,530 --
OP1 (b) 1,517 -- 196,083 1,517
OP2 (a) 150 -- 95,779 150
OP3 (a) 100 -- 36,287 100
OP4 (a) 100 -- 120,357 100
SCA1 (a) 200 -- 516,555 200
SCA2 (a) 1,806 -- 212,361 1,806
SCA3 (a) 705 -- 40,953 705
SCA4 (e) -- -- 14,166 --
SCA5 (e) -- -- 17,823 --
SCA6 (e) -- -- 3,004 --
WP1 (a) 100 -- 24,172 100
WP2 (a) 100 -- 17,409 100
WP3 (a) 100 -- 5,483 100
WP4 (a) 100 -- 41,639 100
<CAPTION>
Units Transferred
Between Sub-Accounts
and Units Withdrawn,
Fixed Accumulation Surrendered, and Units Outstanding
Account Annuitized End of Year
------------------------------ ------------------------------ ------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FUTURITY II CONTRACTS:
AIM1 123,465 -- (4,955) -- 299,649 100
AIM2 482,701 -- (24,533) -- 997,502 1,049
AIM3 656,563 -- (17,938) -- 1,213,444 1,704
AIM4 405,813 -- (26,694) -- 659,564 2,553
AL1 841,456 -- (21,446) -- 1,620,151 2,044
AL2 441,029 -- (17,839) -- 755,933 1,785
AL3 93,499 -- (5,898) -- 221,946 100
GS1 282,453 -- (12,429) -- 610,853 786
GS2 46,936 -- (1,555) -- 71,821 100
GS3 417,400 -- (27,737) -- 714,634 2,341
GS4 126,524 -- (2,740) -- 202,285 100
GS5 62,982 -- (1,965) -- 119,879 578
JP1 321,619 -- (13,072) -- 625,004 474
JP2 63,482 -- (2,767) -- 118,543 100
JP3 18,564 -- (463) -- 57,635 100
LA1 607,156 -- (15,964) -- 982,146 1,763
CAS 255,332 -- (8,903) -- 500,296 2,367
EGS 370,763 -- (25,152) -- 804,467 3,662
HYS 365,635 -- (12,291) -- 554,000 729
UTS 334,919 -- (21,239) -- 552,461 821
GSS 591,096 -- (21,291) -- 807,566 1,027
TRS 76,462 -- (11,284) -- 211,045 --
MIT 361,529 -- (6,897) -- 629,184 --
NWD 67,961 -- (288) -- 99,212 --
MIS 250,304 -- (10,654) -- 554,180 --
OP1 198,204 -- (7,187) -- 388,617 1,517
OP2 17,112 -- (4,189) -- 108,852 150
OP3 54,017 -- (1,806) -- 88,598 100
OP4 78,975 -- (2,615) -- 196,817 100
SCA1 220,638 -- (37,843) -- 699,550 200
SCA2 603,561 -- (49,583) -- 768,145 1,806
SCA3 98,307 -- (8,117) -- 131,848 705
SCA4 84,139 -- (1,485) -- 96,820 --
SCA5 202,111 -- (2,819) -- 217,115 --
SCA6 41,050 -- (185) -- 43,869 --
WP1 44,318 -- (1,413) -- 67,177 100
WP2 12,438 -- (8) -- 29,939 100
WP3 17,472 -- (529) -- 22,526 100
WP4 39,443 -- (1,304) -- 79,878 100
</TABLE>
(a) For the period December 15, 1998 (commencement of operations) through
December 31, 1998.
(b) For the period December 17, 1998 (commencement of operations) through
December 31, 1998.
(c) For the period December 29, 1998 (commencement of operations) through
December 31, 1998.
(d) For the period May 17, 1999 (commencement of operations) through December
31, 1999.
(e) For the period September 13, 1999 (commencement of operations) through
December 31, 1999.
<PAGE>
-57-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE 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 Outstanding
Beginning of Year Units Purchased
------------------------------ ------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FUTURITY FOCUS CONTRACTS:
AIM1 (a) -- -- 13,472 --
AIM2 (a) -- -- 34,933 --
AIM3 (a) -- -- 60,253 --
AIM4 (a) -- -- 26,210 --
AL1 (a) -- -- 44,079 --
AL2 (a) -- -- 34,264 --
AL3 (a) -- -- 9,602 --
GS1 (a) -- -- 4,016 --
GS2 (a) -- -- 1,112 --
GS3 (a) -- -- 20,053 --
GS4 (a) -- -- 29,333 --
GS5 (a) -- -- 7,451 --
JP1 (a) -- -- 24,288 --
JP2 (a) -- -- 12,279 --
JP3 (a) -- -- 2,178 --
LA1 (b) -- -- 38,221 --
CAS (a) -- -- 21,046 --
EGS (a) -- -- 46,092 --
HYS (a) -- -- 25,654 --
UTS (a) -- -- 21,976 --
GSS (a) -- -- 48,404 --
TRS (b) -- -- 8,393 --
MIT (b) -- -- 74,974 --
NWD (b) -- -- 7,662 --
MIS (b) -- -- 34,173 --
OP1 (a) -- -- 10,772 --
OP2 (a) -- -- 10,112 --
OP3 (a) -- -- 3,882 --
OP4 (a) -- -- 4,578 --
SCA1 (a) -- -- 252,106 --
SCA2 (a) -- -- 34,864 --
SCA3 (a) -- -- 2,727 --
SCA4 (c) -- -- 319 --
SCA5 (c) -- -- 100 --
SCA6 (c) -- -- 578 --
WP1 (a) -- -- 989 --
WP2 (a) -- -- 100 --
WP3 (a) -- -- 100 --
WP4 (a) -- -- 123 --
<CAPTION>
Units Transferred
Between Sub-Accounts
and Units Withdrawn,
Fixed Accumulation Surrendered, and Units Outstanding
Account Annuitized End of Year
------------------------------ ------------------------------ ------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FUTURITY FOCUS CONTRACTS:
AIM1 181 -- (36) -- 13,617 --
AIM2 1,199 -- (259) -- 35,873 --
AIM3 2,227 -- (8,373) -- 54,107 --
AIM4 (398) -- (475) -- 25,337 --
AL1 2,632 -- (7,869) -- 38,842 --
AL2 (404) -- (1,424) -- 32,436 --
AL3 (382) -- (45) -- 9,175 --
GS1 76 -- (7) -- 4,085 --
GS2 -- -- -- -- 1,112 --
GS3 950 -- (405) -- 20,598 --
GS4 -- -- (76) -- 29,257 --
GS5 1,193 -- (23) -- 8,621 --
JP1 676 -- (6,274) -- 18,690 --
JP2 29 -- (74) -- 12,234 --
JP3 541 -- (10) -- 2,709 --
LA1 3,486 -- (1,429) -- 40,278 --
CAS 2,087 -- (82) -- 23,051 --
EGS 1,755 -- (6,539) -- 41,308 --
HYS 1,092 -- (4,817) -- 21,929 --
UTS 121 -- (1,412) -- 20,685 --
GSS (5,086) -- (388) -- 42,930 --
TRS 489 -- (41) -- 8,841 --
MIT 1,759 -- (2,255) -- 74,478 --
NWD (525) -- (9) -- 7,128 --
MIS 1,363 -- (5,611) -- 29,925 --
OP1 (3,121) -- (263) -- 7,388 --
OP2 (2,840) -- (296) -- 6,976 --
OP3 -- -- -- -- 3,882 --
OP4 1,122 -- (31) -- 5,669 --
SCA1 9,073 -- (219,651) -- 41,528 --
SCA2 796 -- (1,076) -- 34,584 --
SCA3 289 -- (374) -- 2,642 --
SCA4 1,839 -- (218) -- 1,940 --
SCA5 2,630 -- (380) -- 2,350 --
SCA6 675 -- -- -- 1,253 --
WP1 483 -- -- -- 1,472 --
WP2 761 -- -- -- 861 --
WP3 -- -- -- -- 100 --
WP4 71 -- -- -- 194 --
</TABLE>
(a) For the period May 15, 1999 (commencement of operations) through December
31, 1999.
(b) For the period May 17, 1999 (commencement of operations) through December
31, 1999.
(c) For the period September 13, 1999 (commencement of operations) through
December 31, 1999.
<PAGE>
-58-
FUTURITY, FUTURITY II, FUTURITY FOCUS AND FUTURITY ACCOLADE 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 Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FUTURITY ACCOLADE CONTRACTS (A):
AIM1 -- -- 28,060 -- (36) --
AIM2 -- -- 71,949 -- 184 --
AIM3 -- -- 41,491 -- 64 --
AIM4 -- -- 40,241 -- (216) --
AL1 -- -- 78,117 -- 248 --
AL2 -- -- 25,632 -- 82 --
AL3 -- -- 12,969 -- 7 --
GS1 -- -- 17,566 -- (22) --
GS2 -- -- 1,535 -- 244 --
GS3 -- -- 23,176 -- 253 --
GS4 -- -- 5,354 -- -- --
GS5 -- -- 6,485 -- 236 --
JP1 -- -- 6,364 -- 91 --
JP2 -- -- 10,762 -- (25) --
JP3 -- -- 228 -- 5,370 --
LA1 -- -- 55,648 -- 333 --
CAS -- -- 4,427 -- -- --
EGS -- -- 54,055 -- 4,868 --
HYS -- -- 44,529 -- 279 --
UTS -- -- 49,738 -- 573 --
GSS -- -- 10,569 -- 448 --
TRS -- -- 42,576 -- 259 --
MIT -- -- 48,217 -- 174 --
NWD -- -- 18,756 -- (74) --
MIS -- -- 55,995 -- 35 --
OP1 -- -- 102 -- -- --
OP2 -- -- 19,553 -- (99) --
OP3 -- -- 102 -- -- --
OP4 -- -- 25,960 -- 158 --
SCA1 -- -- 380,262 -- (13,639) --
SCA2 -- -- 11,119 -- 434 --
SCA3 -- -- 2,115 -- 166 --
SCA4 -- -- 9,040 -- (13) --
SCA5 -- -- 17,605 -- 277 --
SCA6 -- -- 410 -- (16) --
<CAPTION>
Units Withdrawn,
Surrendered, and Units Outstanding
Annuitized End of Year
----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FUTURITY ACCOLADE CONTRACTS (A
AIM1 (231) -- 27,793 --
AIM2 (267) -- 71,866 --
AIM3 (321) -- 41,234 --
AIM4 (4) -- 40,021 --
AL1 (373) -- 77,992 --
AL2 (356) -- 25,358 --
AL3 (7) -- 12,969 --
GS1 (255) -- 17,289 --
GS2 (4) -- 1,775 --
GS3 (2) -- 23,427 --
GS4 -- -- 5,354 --
GS5 (139) -- 6,582 --
JP1 -- -- 6,455 --
JP2 (7) -- 10,730 --
JP3 -- -- 5,598 --
LA1 (422) -- 55,559 --
CAS -- -- 4,427 --
EGS (662) -- 58,261 --
HYS (579) -- 44,229 --
UTS (452) -- 49,859 --
GSS (5) -- 11,012 --
TRS (564) -- 42,271 --
MIT (5) -- 48,386 --
NWD (200) -- 18,482 --
MIS (257) -- 55,773 --
OP1 -- -- 102 --
OP2 (384) -- 19,070 --
OP3 -- -- 102 --
OP4 (333) -- 25,785 --
SCA1 -- -- 366,623 --
SCA2 -- -- 11,553 --
SCA3 -- -- 2,281 --
SCA4 -- -- 9,027 --
SCA5 (4) -- 17,878 --
SCA6 -- -- 394 --
</TABLE>
(a) For the period October 15, 1999 (commencement of operations) through
December 31, 1999.
<PAGE>
-59-
INDEPENDENT AUDITORS' REPORT
To the Participants in Futurity, Futurity II, Futurity Focus and Futurity
Accolade 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 VIT CORE(SM)
Large Cap Growth Sub-Account, Goldman Sachs VIT CORE(SM) Small Cap Equity
Sub-Account, Goldman Sachs VIT CORE(SM) U.S. Equity Sub-Account, Goldman Sachs
VIT Growth and Income Sub-Account, Goldman Sachs VIT International Equity
Sub-Account, J.P. Morgan U.S. Disciplined 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 High Yield
Sub-Account, MFS/Sun Life Money Market Sub-Account, MFS/Sun Life Utilities
Sub-Account, MFS/Sun Life Government Securities Sub-Account, MFS/Sun Life Total
Return Sub-Account, MFS/Sun Life Massachusetts Investors Trust Sub-Account,
MFS/Sun Life New Discovery Sub-Account, MFS/Sun Life Massachusetts Investors
Growth Stock Sub-Account, OCC Equity Sub-Account, OCC Mid Cap Sub-Account, OCC
Small Cap Sub-Account, OCC Managed 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 Money Market Sub-Account, Sun Capital Investment
Grade Bond Sub-Account, Sun Capital Real Estate Sub-Account, Sun Capital Select
Equity Sub-Account, Sun Capital Blue Chip Mid Cap Sub-Account, Sun Capital
Investors Foundation 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, 1999, the related statement of operations for the year then ended
and the statements of changes in net assets for the years ended December 31,
1999 and 1998. 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, 1999 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, 1999,
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 10, 2000
<PAGE>
-60-
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 9133
BOSTON, MASSACHUSETTS 02117
TELEPHONE:
Toll Free (888) 786-2435
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following Financial Statements are included in the
Registration Statement:
Included in Part A:
A. Condensed Financial Information - Accumulation Unit Values
B. Financial Statements of the Depositor
Audited:
1. Consolidated Statements of Income, Years Ended
December 31, 1999, 1998 and 1997;
2. Consolidated Balance Sheets, December 31, 1999
and 1998,
3. Consolidated Statements of Comprehensive Income,
Years Ended December 31, 1999, 1998 and 1997;
4. Consolidated Statements of Stockholder's Equity,
Years Ended December 31, 1999, 1998 and 1997;
5. Consolidated Statements of Cash Flows, Years
Ended December 31, 1999, 1998 and 1997;
6. Notes to Consolidated Financial Statements; and
7. Independent Auditors' Report.
Unaudited:
1. Consolidated Statements of Income (unaudited) -
Three Months Ended March 31, 2000 and March 31,
1999
2. Consolidated Balance Sheets (unaudited) -
March 31, 2000 and December 31, 1999
3. Consolidated Statements of Comprehensive Income
(unaudited) - Three Months Ended March 31, 2000
and March 31, 1999
4. Consolidated Statements of Changes in
Stockholder's Equity (unaudited)- Three Months
Ended March 31, 2000 and March 31, 1999
5. Consolidated Statements of Cash Flows (unaudited)-
Three Months Ended March 31, 2000 and
March 31,1999
6. Notes to Unaudited Consolidated Financial
Statements
Included in Part B
A. Financial Statements of the Registrant
1. Statement of Condition, December 31, 1999;
2. Statement of Operations, Year Ended December 31,
1999;
3. Statements of Changes in Net Assets, Years Ended
December 31, 1999 and December 31, 1998;
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) Form of Flexible Payment Combination
Fixed/Variable Group Annuity Contract*;
(b) Form of Certificate to be issued in connection
with Contract filed as Exhibit 4(a)*;
(c) Form of Flexible Payment Combination
Fixed/Variable Individual Annuity Contract*;
(5)(a) Form of Application to be used with Contracts
filed as Exhibits 4(a) and 4(c)*;
(b) Form of Application to be used with
Certificate filed as Exhibit 4(b)*;
(6)(a) 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);
(b) By-Laws of the Depositor, as amended effective
as of January 1, 2000*;
(7) Not Applicable;
(8)(a) Form of Participation Agreement by and between
The Alger American Fund, the Depositor, and
Fred Alger and Company, Incorporated (Filed as
Exhibit 8(a) to Post-Effective Amendment No. 13
to the Registration Statement of the Registrant
on Form N-4, File No. 33-41628, filed April 26,
1999);
(b)(i) Form of Participation Agreement dated February 17,
1998 by and between Goldman Sachs Variable,
Insurance Trust, Goldman Sachs & Co. and the
Depositor (Filed as Exhibit 8(b)(i) to
Post-Effective Amendment No. 13 to the
Registration Statement of the Registrant on
Form N-4, File No. 33-41628, filed April 26,
1999);
(ii) Form of Amendment No. 1 dated December 14, 1998 to
Participation Agreement filed as Exhibit 8(b)(i)
(Filed as Exhibit 8(b)(ii) to Post-Effective
Amendment No. 13 to Registrant's Registration
Statement on Form N-4, File No. 33-41628, filed
April 26, 1999);
(iii) Form of Amendment No. 2 dated as of March 15, 1999
to Participation Agreement filed as
Exhibit 8(b)(i) (Filed as Exhibit 8(b)(iii) to
Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-4, File No.
33-41628, filed April 26, 1999);
(c) Form of Fund Participation Agreement between the
Depositor and J.P. Morgan Services Trust II
(Filed as Exhibit 8(c) to Post-Effective
Amendment No. 13 to Registrant's Registration
Statement on Form N-4, File No. 33-41628, filed
April 26, 1999);
(d) Form of Participation Agreement dated February 17,
1998 by and among MFS/Sun Life Services Trust, the
Depositor and Massachusetts Financial Services
Company (Filed as Exhibit 8(d) to Post-Effective
Amendment No. 13 to Registrant's Registration
Statement on Form N-4, File No. 33-41628, filed
April 26, 1999);
(e) Form of Participation Agreement dated February 17,
1998 by and among OCC Accumulation Trust, the
Depositor and OCC Distributors (Filed as Exhibit
8(e) to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-4,
File No. 33-41628, filed April 26, 1999);
(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. (Filed as Exhibit
8(f) to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-4,
File No. 33-41628, filed April 26, 1999);
(g) Form of Participation Agreement dated February 17,
1998 by and among the Depositor, AIM Variable
Insurance Funds, Inc., AIM Distributors, Inc.,
and Clarendon Insurance Agency, Inc. (Filed as
Exhibit 8(g) to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-4,
File No. 333-82957, filed on February 3, 2000);
(h) Form of Participation Agreement dated August 18,
1999 by and among the Depositor, Sun Capital
Advisers Trust and Sun Capital Advisers, Inc.
(Filed as Exhibit 8(h) to Post-Effective Amendment
No. 1 to Registrant's Registration Statement on
Form N-4, File No. 333-82957, filed on February 3,
2000);
(9) Opinion of Counsel as to the legality of the
securities being registered and Consent to its
use (Filed as Exhibit 9 to the Registration
Statement on Form N-4, File No. 333-30844,
filed on February 23, 2000);
(10) Consent of Independent Auditors*;
(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, 1999, filed on
March 22, 2000);
(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;
(15)(a) Powers of Attorney (Filed as Exhibit 15 to the
Registration Statement on Form S-6,
File No. 333-94359, filed on January 10, 2000)
(b) Power of Attorney of David D. Horn (Filed as
Exhibit 15(b) to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-4,
File No. 333-82957, filed on February 3, 2000);
(c) Power of Attorney of Richard B. Bailey (Filed as
Exhibit 15(c) to Post-Effective Amendment No. 6
to the Registration Statement on Form N-4, File
No. 333-05227, filed on April 5, 2000);
(d) Power of Attorney of William W. Stinson (Filed
as Exhibit 15(d) to Post-Effective Amendment
No. 23 to the Registration Statement on Form
N-4, File No. 2-78738, filed on April 20, 2000);
and
(16) Organizational Chart*
* 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 Vice Chairman and Director
One Sun Life Executive Park
Wellesley Hills, MA 02481
James A. McNulty, III President and Director
One Sun Life Executive Park
Wellesley Hills, MA 02481
Richard B. Bailey Director
63 Atlantic Avenue
Boston, MA 02110
Gregory W. Gee Director
150 King Street West
Toronto, Ontario
Canada M5H 1J9
David D. Horn Director
Strong Road
New Vineyard, ME 04956
Angus A. MacNaughton Director
Genstar Investment Corporation
555 California Street, Suite 4850
San Francisco, CA 94104
S. Caesar Raboy Director
220 Boylston Street
Boston, MA 02110
William W. Stinson Director
Canadian Pacific Limited
1800 Bankers Hall, East Tower
855 - 2nd Street S.W.
Calgary, Alberta
Canada T2P 4ZH
<PAGE>
Name and Principal Positions and Offices
Business Address with Depositor
---------------- --------------
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
Ronald J. Fernandes Vice President, Retirement
One Copley Place Products and Services
Boston, MA 02116
Ellen B. King Counsel and Secretary
One Sun Life Executive Park
Wellesley Hills, MA 02481
Davey S. Scoon Vice President, Finance and
One Sun Life Executive Park Treasurer
Wellesley Hills, MA 02481
Robert P. Vrolyk Vice President and
One Sun Life Executive Park Actuary
Wellesley Hills, MA 02481
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
No person is directly or indirectly controlled by the Registrant. The
Registrant is a separate account of Sun Life Assurance Company of Canada
(U.S.), a wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings,
Inc., a wholly-owned subsidiary of Sun Life Assurance Company of Canada -
U.S. Operations Holdings, Inc., which is in turn a wholly-owned subsidiary of
Sun Life Assurance Company of Canada.
The organization chart of Sun Life Assurance Company of Canada is filed
herewith as Exhibit 16.
<PAGE>
None of the companies listed in such Exhibit 16 is a subsidiary of the
Registrant; therefore, the only financial statements being filed are those of
Sun Life Assurance Company of Canada (U.S.).
Item 27. NUMBER OF CONTRACT OWNERS
No Contracts had been issued by the Depositor with respect to the
securities registered pursuant to this Registration Statement.
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.), as amended
effective as of January 1, 2000 (a copy of which is filed herewith), provides
for the indemnification of directors, officers and employees of Sun Life
Assurance Company of Canada (U.S.).
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of Sun Life Assurance Company of Canada (U.S.) pursuant to the certificate of
incorporation, by-laws, or otherwise, Sun Life (U.S.) has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Sun Life (U.S.) of expenses incurred
or paid by a director, officer, controlling person of Sun Life (U.S.) in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, Sun Life (U.S.) will submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against
public policy as expressed in the Act, unless in the opinion of their counsel
the matter has been settled by controlling precedent, and will be governed by
the final adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITERS
(a) Clarendon Insurance Agency, Inc., a wholly-owned subsidiary of Sun
Life Assurance Company of Canada (U.S.), acts as general distributor for the
Registrant, Sun Life of Canada (U.S.) Variable Accounts C, D, E, G, H and I,
Sun Life (N.Y.) Variable Accounts A, B and C, and Money Market Variable
Account, High Yield Variable Account, Capital Appreciation Variable Account,
Government Securities Variable Account, World Governments Variable Account,
Total Return Variable Account, and Managed Sectors Variable Account.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* with Underwriter
---------------- ----------------
<S> <C>
William Franca..................... Managing Principal
Michael M Senning.................. Managing Principal
Davey S. Scoon..................... Treasurer and Director
James M.A. Anderson................ Director
Ronald J. Fernandes................ Director
James A. McNulty, III.............. Director
George E. Maden.................... Secretary
Roy P. Creedon..................... Assistant Secretary
Brian A. Krivitsky................. Vice President
Cynthia M. Orcutt.................. Vice President
Norton A. Goss, II................. Assistant Vice President
</TABLE>
-------------
* The principal business address of all directors and officers of the
principal underwriter except Messrs. Fernandes, Goss and Krivitsky is One
Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. The principal
business address of Messrs. Fernandes, Goss and Krivitsky 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 offices at One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02481, and 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
The Registrant hereby undertakes:
(a) To file a post-effective amendment to this Registration Statement as
frequently as is necessary to ensure that the audited financial statements in
the Registration Statement are never more than 16 months old for so long as
payments under the variable annuity Contracts may be accepted;
(b) To include either (1) as part of any application to purchase a Contract
offered by the prospectus, a space that an Applicant can check to request a
Statement of Additional Information, or (2) a post card or simiilar written
communication affixed to or included in the prospectus that the Applicant can
remove to send for a Statement of Additional Information;
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under SEC Form N-4 promptly upon
written or oral request.
(d) Representation with respect to Section 26(e)of the Investment Company
Act of 1940: Sun Life Assurance Company of Canada (U.S.) represents that the
fees and charges deducted under the Contracts, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the insurance company.
The Registrant is relying on the no-action letter issued by the Division
of Investment Management of the Securities and Exchange Commission to
American Council of Life Insurance, Ref. No. IP-6-88, dated November 28,
1988, the requirements for which have been complied with by the Registrant.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets all of the requirements
of Securities Act Rule 485 for effectiveness of this Registration Statement
and has caused this Registration Statement to be signed on its behalf, in the
Town of Wellesley Hills, and Commonwealth of Massachusetts on this 9th day of
June 2000.
<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/ JAMES A. McNULTY, III
----------------------------
James A. McNulty, III
President
</TABLE>
Attest: /s/ EDWARD M. SHEA
--------------------------
Edward M. Shea
Assistant Vice President and Senior Counsel
As required by the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities with the
Depositor, Sun Life Assurance Company of Canada (U.S.), and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------- ------------------------------------ --------------
<S> <C> <C>
/s/ JAMES A. McNULTY, III President and Director June 9, 2000
------------------------------------- (Principal Executive Officer)
James A. McNulty, III
/s/ DAVEY S. SCOON Vice President, Finance June 9, 2000
------------------------------------- and Treasurer
Davey S. Scoon (Principal Financial and Accounting Officer)
* /s/ DONALD A. STEWART Chairman and Director June 9, 2000
-------------------------------------
Donald A. Stewart
* /s/ C. JAMES PRIEUR Vice Chairman and Director June 9, 2000
-------------------------------------
C. James Prieur
**/s/ RICHARD B. BAILEY Director June 9, 2000
-------------------------------------
Richard B. Bailey
</TABLE>
* By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 8 to the
Registration Statement on Form S-6 (File No. 333-94359), filed January 10,
2000.
** By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 15(c) to
Post-Effective Amendment No. 6 to the Registration Statement on Form N-4,
File No. 333-05227, filed April 5, 2000.
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------- ------------------------------------ --------------
<S> <C> <C>
* /s/ GREGORY W. GEE Director June 9, 2000
-------------------------------------
Gregory W. Gee
*** /s/ DAVID D. HORN Director June 9, 2000
-------------------------------------
David D. Horn
* /s/ ANGUS A. MACNAUGHTON Director June 9, 2000
-------------------------------------
Angus A. MacNaughton
*/s/ S. CAESAR RABOY Director June 9, 2000
-------------------------------------
S. Caesar Raboy
****/s/ WILLIAM W. STINSON Director June 9, 2000
-------------------------------------
William W. Stinson
</TABLE>
* By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 8 to
Registration Statement on Form S-6 (File No. 333-94359), filed January 10,
2000.
*** By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 15(b) to
Post-Effective Amendment No. 1 to Registrant's Registration Statement on
Form N-4 (File No. 333-82957), filed February 3, 2000.
**** By Edward M. Shea pursuant to Power of Attorney filed as Exhibit 15(d) to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-4,
File No. 2-78738, filed April 20, 2000.
<PAGE>
EXHIBIT INDEX
(4)(a) Form of Flexible Payment Combination
Fixed/Variable Group Annuity Contract
(b) Form of Certificate to be
issued in connection with Contract filed as
Exhibit 4(a)
(c) Form of Flexible Payment Combination
Fixed/Variable Individual Annuity Contract
(5)(a) Form of Application to be used with Contracts
filed as Exhibits 4(a) and 4(c)
(b) Form of Application to be used with
Certificate filed as Exhibit 4(b)
(6)(b) By-laws of the Depositor, as amended effective
January 1, 2000
(10)(a) Consent of Independent Auditors
(16) Organizational Chart
