<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Attached hereto and made a part hereof is the Prospectus dated May 1, 2000
for each of the following:
MFS Regatta Gold Variable and Fixed Annuity
MFS Regatta Platinum Variable and Fixed Annuity
Futurity II Variable and Fixed Annuity
<PAGE>
Rule 497(c)
File No. 33-41628
811-05846
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
MAY 1, 2000
PROFILE
MFS REGATTA GOLD
VARIABLE AND FIXED
ANNUITY
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU
SHOULD KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE
FULLY DESCRIBED IN THE FULL PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE
READ THE PROSPECTUS CAREFULLY.
1. THE MFS REGATTA GOLD ANNUITY
The MFS Regatta Gold Annuity is a flexible payment deferred annuity
contract ("Contract") designed for use in connection with retirement and
deferred compensation plans, some of which may qualify for favorable federal
income tax treatment. The Contract is intended to help you achieve your
retirement savings or other long-term investment goals.
The Contract has two phases: an Accumulation Phase and an Income Phase.
During the Accumulation Phase you make payments into the Contract; any
investment earnings under your Contract accumulate on a tax-deferred basis and
are taxed as income only when withdrawn. During the Income Phase, we make
annuity payments in amounts determined in part by the amount of money you have
accumulated under your Contract during the Accumulation Phase. You choose when
the Income Phase begins.
You may choose among 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
"Series") listed in Section 4. The value of any portion of your Contract
allocated to the Sub-Accounts will fluctuate up or down depending on the
performance of the Series you select, and you may experience losses. For a fixed
interest rate, you may choose one or more Guarantee Periods offered in our Fixed
Account, each of which earns its own Guaranteed Interest Rate if you keep your
money in that Guarantee Period for the specified length of time.
The Contract is designed to meet your need for investment flexibility.
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 5, 10, 15 or 20 years if
you die before the end of the period you have selected; (3) monthly payments for
your lifetime and the life of another person (usually your spouse) you have
chosen; and (4) monthly payments for a specified number of years (between 5 and
30), with a cash-out option for variable payments. You can also select a fixed
payment option where we will hold the amount applied to provide fixed annuity
payments, with
<PAGE>
interest accrued at the rate we determine from time to time, which will be at
least 3% per year. We may also agree to other annuity options in our discretion.
Once the Income Phase begins, you cannot change your choice of annuity
payment method.
3. PURCHASING A CONTRACT
You may purchase a Contract for $5,000, or more (if you live in
California, Maryland or Texas, 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 $1 million, or if the purchase payment would cause your account value to
exceed $1 million, unless we have approved the payment in advance.
4. ALLOCATION OPTIONS
You can allocate your money among Sub-Accounts investing in the following
Series of the MFS/ Sun Life Series Trust:
<TABLE>
<S> <C>
Bond Series 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 Series.
Each Series is described in the prospectus of the MFS/Sun Life Series Trust.
In addition to these variable options, you may also allocate your money to
one or more of the Guarantee Periods we make available. For each Guarantee
Period, we offer a Guaranteed Interest Rate for the specified length of time.
5. EXPENSES
The charges under the Contracts are as follows:
During the first 5 years of a Contract, we impose an annual Account Fee
equal to the lesser of $30 or 2% of the value of your Contract. After the fifth
year, we may change this fee annually, but it will never exceed the lesser of
$50 or 2% of the value of your Contract. During the Income Phase, the annual
Account Fee is $30. We also deduct insurance charges (which include an
administrative expense charge) equal to 1.40% per year of the average daily
value of the Contract allocated among the Sub-Accounts.
There are no sales charges when you purchase your 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 seven-year period and moves down a
declining surrender charge scale at each Account Anniversary. Payments received
during the current Account Year will be charged 6% 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
2
<PAGE>
and will have a 5% withdrawal charge. On the next Account Anniversary, these
payments will move into their third Account Year and will have a withdrawal
charge of 5%, if withdrawn. The withdrawal charge decreases according to the
number of Account Years the purchase payment has been in your Account. The
declining scale is as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS
PURCHASE PAYMENT
HAS BEEN IN
YOUR ACCOUNT WITHDRAWAL CHARGE
- ---------------- -----------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
</TABLE>
If you withdraw, transfer, or annuitize money allocated to a Guarantee
Period more than 30 days before the expiration date of the Guarantee Period, the
amount will be subject to a Market Value Adjustment. This adjustment reflects
the relationship between our current Guaranteed Interest Rates and the
Guaranteed Interest Rate applicable to the amount being withdrawn. Generally, if
your Guaranteed Interest Rate is lower than the relevant current rate, then the
adjustment will decrease your Contract value. Conversely, if your Guaranteed
Interest Rate is higher than the relevant current rate, the adjustment will
increase your Contract value. The Market Value Adjustment will not apply to the
withdrawal of interest credited during the current year, or to transfers as part
of our dollar-cost averaging program.
In addition to the charges we impose under the Contracts, there are
charges (which include management fees and operating expenses) imposed by each
Series, which range from 0.57% to 1.60% of the average net assets of the Series,
depending upon which Series you have selected. The investment adviser has agreed
to waive or reimburse a portion of expenses for some of the Series; without this
agreement, Series expenses could be higher. Some of these arrangements may be
terminated 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 Series. The next two columns show two examples of the expenses, in dollars,
you would pay under a Contract. The examples assume that you invested $1,000 in
a Contract which earns 5% annually and that you withdraw your money (1) at the
end of one year or (2) at the end of 10 years. For the first year, the Total
Annual Expenses are deducted, as well as withdrawal charges. For year 10, the
example shows the aggregate of all of the annual expenses deducted for the 10
years, but there is no withdrawal charge.
"Total Annual Insurance Charges" of 1.50% as shown in the table below
include the insurance charges of 1.40% of your Account's daily net assets (1.25%
for mortality and expense risks and 0.15% for administrative expenses), plus an
additional 0.10%, which is used to represent the $30 annual Account Fee based on
an assumed Contract value of $30,000. The actual impact of the Account Fee may
be greater or less than 0.10%, depending upon the value of your Contract.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL TOTAL EXPENSES
INSURANCE SERIES ANNUAL AT END
SUB-ACCOUNT CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- ----------- ---------------- ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Bond Series 1.50% 0.72% 2.22% $78 $255
Capital Appreciation Series 1.50% 0.76% 2.26% $79 $260
Capital Opportunities Series 1.50% 0.84% 2.34% $79 $268
Emerging Growth Series 1.50% 0.75% 2.25% $78 $258
Emerging Markets Equity Series 1.50% 1.60% 3.10% $86 $341
Equity Income Series 1.50% 0.92% 2.42% $80 $276
Global Asset Allocation Series 1.50% 0.89% 2.39% $80 $273
Global Governments Series 1.50% 0.90% 2.40% $80 $274
Global Growth Series 1.50% 1.01% 2.51% $81 $285
</TABLE>
(CONTINUED ON NEXT PAGE)
3
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL TOTAL EXPENSES
INSURANCE SERIES ANNUAL AT END
SUB-ACCOUNT CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- ----------- ---------------- ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Global Total Return Series 1.50% 0.89% 2.39% $80 $273
Government Securities Series 1.50% 0.61% 2.11% $77 $244
High Yield Series 1.50% 0.83% 2.33% $79 $265
International Growth Series 1.50% 1.23% 2.73% $83 $306
International Growth and Income Series 1.50% 1.16% 2.66% $82 $299
Managed Sectors Series 1.50% 0.79% 2.29% $79 $263
Massachusetts Investors Growth Stock Series 1.50% 0.83% 2.33% $79 $267
Massachusetts Investors Trust Series 1.50% 0.59% 2.09% $77 $242
Money Market Series 1.50% 0.57% 2.07% $77 $240
New Discovery Series 1.50% 1.06% 2.56% $81 $290
Research Series 1.50% 0.75% 2.25% $78 $258
Research Growth and Income Series 1.50% 0.86% 2.36% $79 $270
Research International Series 1.50% 1.23% 2.73% $83 $306
Strategic Growth Series 1.50% 1.00% 2.50% $81 $284
Strategic Income Series 1.50% 1.08% 2.58% $82 $291
Total Return Series 1.50% 0.69% 2.19% $78 $252
Utilities Series 1.50% 0.82% 2.32% $79 $266
</TABLE>
For more detailed information about Contract fees and expenses, please
refer to the fee table and discussion of Contract charges contained in the full
Prospectus which accompanies this Profile.
6. TAXES
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
as income except under a Qualified Contract, in which case the entire payment
will be taxable. In all cases, you should consult with your tax adviser for
specific tax information.
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 or transfer money from your Contract at any time during
the Accumulation Phase. You may withdraw a portion of the value of your Contract
in each year without the imposition of the withdrawal charge -- 10% of all
payments you have made in the last 7 years, plus any payment we have held for at
least 7 years. All other purchase payments you withdraw will be subject to a
withdrawal charge ranging from 6% to 0%. (If you purchased your Contract before
November 1994 or your state requires, your withdrawal charge will be calculated
differently, using the alternative method we describe in the Prospectus. You
should check your Contract to see which method applies to you.) You may also be
required to pay income tax and possible tax penalties on any money you withdraw.
We do not assess a withdrawal charge upon annuitization or transfers. In
certain circumstances, we will waive the withdrawal charges for a full
withdrawal when you are confined to an eligible nursing home. In addition, there
may be other circumstances under which we may waive the withdrawal charge.
In addition to the withdrawal charge, amounts you withdraw, transfer or
annuitize from the Fixed Account before your Guarantee Period has ended may be
subject to a Market Value Adjustment.
4
<PAGE>
8. PERFORMANCE
If you invest in one or more Sub-Accounts, the value of your Contract will
increase or decrease depending upon the investment performance of the
Series you choose.
The following chart shows total returns for investment in the Sub-Accounts
where the corresponding Series has at least one full calendar year of
operations. The returns reflect all charges and deductions of the Series and
Sub-Accounts and deduction of the annual Account Fee. They do not reflect
deduction of any withdrawal charges or premium taxes. These charges, if
included, would reduce the performance numbers shown. Past performance is not a
guarantee of future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
-------------------------------------------------------------------------------------
SUB-ACCOUNT 1999 1998 1997 1996 1995 1994 1993 1992
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Series (3.09)% -- -- -- -- -- -- --
Capital Appreciation Series 30.79% 26.83% 21.33% 19.70% 32.51% (5.03)% 16.26% 11.53%
Capital Opportunities
Series 45.58% 21.10% 25.73% -- -- -- -- --
Emerging Growth Series 73.38% 31.91% 20.16% 15.38% -- -- -- --
Emerging Markets Equity
Series 50.38% (31.02)% 8.78% -- -- -- -- --
Equity Income Series 5.56% -- -- -- -- -- -- --
Global Asset Allocation
Series 16.90% 4.97% 9.24% 14.28% 19.85% -- -- --
Global Governments Series (6.51)% 13.77% (2.24)% 3.11% 14.00% (5.91)% 17.16% (1.01)%
Global Growth Series 65.00% 12.87% 13.63% 11.42% 14.29% 1.40% -- --
Global Total Return Series 6.93% 16.61% 11.98% 12.58% 16.19% -- -- --
Government Securities
Series (3.29)% 7.13% 7.15% 0.11% 15.92% (3.61)% 7.07% 5.14%
High Yield Series 5.36% (0.88)% 11.55% 10.46% 15.32% (3.68)% 16.01% 13.34%
International Growth Series 33.44% 0.41% 3.09% -- -- -- -- --
International Growth and
Income Series 15.65% 19.84% 4.95% 3.33% -- -- -- --
Managed Sectors Series 83.04% 10.62% 23.80% 15.86% 30.34% (3.38)% 2.52% 4.91%
Massachusetts Investors
Growth Stock Series 33.90% -- -- -- -- -- -- --
Massachusetts Investors
Trust Series 5.71% 22.03% 30.04% 23.57% 35.44% (2.57)% 6.82% 4.05%
Money Market Series 3.23% 3.48% 3.52% 3.37% 3.90% 2.17% 1.11% 1.81%
New Discovery Series 57.97% -- -- -- -- -- -- --
Research Series 22.43% 21.82% 19.07% 22.00% 35.44% -- -- --
Research Growth and Income
Series 6.66% 20.38% -- -- -- -- -- --
Research International
Series 52.81% -- -- -- -- -- -- --
Strategic Growth Series 21.22% -- -- -- -- -- -- --
Strategic Income Series 22.56% -- -- -- -- -- -- --
Total Return Series 1.40% 10.10% 20.18% 12.38% 24.93% (3.71)% 11.72% 6.77%
Utilities Series 29.44% 15.86% 30.80% 18.57% 30.46% (6.36)% -- --
<CAPTION>
CALENDAR YEAR
-------------------
SUB-ACCOUNT 1991 1990
- ----------- -------- --------
<S> <C> <C>
Bond Series -- --
Capital Appreciation Series 38.89% (11.02)%
Capital Opportunities
Series -- --
Emerging Growth Series -- --
Emerging Markets Equity
Series -- --
Equity Income Series -- --
Global Asset Allocation
Series -- --
Global Governments Series 13.10% 11.67%
Global Growth Series -- --
Global Total Return Series -- --
Government Securities
Series 14.17% 7.27%
High Yield Series 45.49% (15.65)%
International Growth Series -- --
International Growth and
Income Series -- --
Managed Sectors Series 59.67% (11.80)%
Massachusetts Investors
Growth Stock Series -- --
Massachusetts Investors
Trust Series 34.87% (4.86)%
Money Market Series 4.23% 6.26%
New Discovery Series -- --
Research Series -- --
Research Growth and Income
Series -- --
Research International
Series -- --
Strategic Growth Series -- --
Strategic Income Series -- --
Total Return Series 19.87% 1.15%
Utilities Series -- --
</TABLE>
9. DEATH BENEFIT
If the annuitant dies before the Contract reaches the Income Phase, the
beneficiary will receive a death benefit. To calculate the death benefit, we use
a "Death Benefit Date," which is the earliest date we have both due proof of
death and a written request specifying the manner of payment.
If the annuitant was 85 or younger when we issued your Contract, the death
benefit is the greatest of:
(1) The value of the Contract on the Death Benefit Date;
(2) The amount we would pay in the event of a full surrender of the
Contract on the Death Benefit Date;
(3) The value of the Contract on the most recent seven-year anniversary of
the Contract, plus any purchase payments made and adjusted for any
partial withdrawals and charges made after that anniversary;
5
<PAGE>
(4) Your total purchase payments minus the sum of partial withdrawals;
interest will accrue daily on each purchase payment and each partial
withdrawal at a rate equivalent to 5% per year until the first day of
the month following the annuitant's 80th birthday, or until the
purchase payment or partial withdrawal has doubled in amount,
whichever is earlier.
If the annuitant was 86 or older when we issued your Contract, the death
benefit is equal to the amount set forth in (2) above.
10. OTHER INFORMATION
FREE LOOK. Depending upon applicable state law, if you cancel your
Contract within 10 days after receiving it we will send you the value of your
Contract as of the day we received your cancellation request (this may be more
or less than the original purchase payment) and we will not deduct a withdrawal
charge. However, if applicable state or federal law requires, we will refund the
full amount of any purchase payment(s) we receive and the "free look" period may
be greater than 10 days.
NO PROBATE. In most cases, when you die, the beneficiary will receive the
death benefit without going through probate. However, avoiding probate does not
mean that the beneficiary will not have tax liability as a result of receiving
the death benefit.
WHO SHOULD PURCHASE A CONTRACT? The Contract is designed for those seeking
long-term tax deferred accumulation of assets and annuity features, generally
for retirement or other long-term 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 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 of
each transaction 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.
DOLLAR-COST AVERAGING -- This program lets you invest gradually in up to
12 Sub-Accounts.
ASSET ALLOCATION -- One or more asset allocation programs may be available
in connection with the Contract.
SYSTEMATIC WITHDRAWAL AND INTEREST OUT PROGRAMS -- These programs allow
you to receive quarterly, semi-annual or annual payments during the Accumulation
Phase.
PORTFOLIO REBALANCING PROGRAM -- Under this program, we automatically
reallocate your investments in the Sub-Accounts to maintain the proportions you
select. You can elect rebalancing on a quarterly, semi-annual or annual basis.
SECURED FUTURES PROGRAM -- This program guarantees the return of your
purchase payment, and also allows you to allocate a portion of your investment
to one or more variable investment options.
11. INQUIRIES
If you would like more information about buying a Contract, please contact
your broker or registered representative. If you have any other questions,
please contact us at:
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
C/O RETIREMENT PRODUCTS AND SERVICES
P.O. BOX 1024
BOSTON, MASSACHUSETTS 02103
TELEPHONE: TOLL FREE (800) 752-7215
6
<PAGE>
Rule 497(c)
File No. 33-41628
811-05846
PROSPECTUS
MAY 1, 2000
MFS REGATTA GOLD
Sun Life Assurance Company of Canada (U.S.) and Sun Life of Canada (U.S.)
Variable Account F offer the flexible payment deferred annuity contracts and
certificates described in this Prospectus to groups and individuals.
You may choose among 26 variable investment options and a range of fixed
options. The variable options are Sub-Accounts in the Variable Account. Each
Sub-Account invests in one of the following series of the MFS/Sun Life
Series Trust (the "Series Fund"), a mutual fund advised by our affiliate,
Massachusetts Financial Services Company:
<TABLE>
<S> <C>
Bond Series 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 SERIES FUND.
We have filed a Statement of Additional Information dated May 1, 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 77 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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms 4
Expense Summary 4
Summary of Contract Expenses 4
Series Fund Annual Expenses 5
Examples 6
Condensed Financial Information 8
The Annuity Contract 8
Communicating to Us About Your Contract 8
Sun Life Assurance Company of Canada (U.S.) 9
The Variable Account 9
Variable Account Options: The MFS/Sun Life Series Trust 9
The Fixed Account 11
The Fixed Account Options: The Guarantee Periods 12
The Accumulation Phase 12
Issuing Your Contract 12
Amount and Frequency of Purchase Payments 13
Allocation of Net Purchase Payments 13
Your Account 13
Your Account Value 13
Variable Account Value 13
Fixed Account Value 14
Transfer Privilege 15
Waivers; Reduced Charges; Credits; Bonus Guaranteed
Interest Rates 16
Optional Programs 16
Withdrawals, Withdrawal Charge and Market Value Adjustment 18
Cash Withdrawals 18
Withdrawal Charge 19
Alternate Withdrawal Charge 21
Types of Withdrawals Not Subject to Withdrawal Charge 22
Market Value Adjustment 22
Contract Charges 23
Account Fee 23
Administrative Expense Charge 23
Mortality and Expense Risk Charge 23
Premium Taxes 24
Series Fund Expenses 24
Modification in the Case of Group Contracts 24
Death Benefit 24
Amount of Death Benefit 24
Spousal Continuance 25
Method of Paying Death Benefit 25
Selection and Change of Beneficiary 25
Payment of Death Benefit 25
Due Proof of Death 26
The Income Phase -- Annuity Provisions 26
Selection of the Annuitant or Co-Annuitant 26
Selection of the Annuity Commencement Date 26
Annuity Options 27
Selection of Annuity Option 28
Amount of Annuity Payments 28
Exchange of Variable Annuity Units 29
Account Fee 29
Annuity Payment Rates 29
Annuity Options as Method of Payment for Death Benefit 29
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Other Contract Provisions 30
Exercise of Contract Rights 30
Change of Ownership 30
Death of Participant 30
Voting of Series Fund Shares 31
Periodic Reports 32
Substitution of Securities 32
Change in Operation of Variable Account 32
Splitting Units 32
Modification 33
Limitation or 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
DISTRIBUTIONS 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 Contracts 37
Distribution of the Contracts 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 40
Management's Discussion and Analysis of Financial
Condition and Results of Operations 41
Quantitative and Qualitative Disclosures About Market
Risk 48
Reinsurance 50
Reserves 51
Investments 51
Competition 51
Employees 51
Properties 51
State Regulation 51
Legal Proceedings 52
Accountants 52
Financial Statements 52
Table of Contents of Statement of Additional Information 78
Appendix A -- Glossary 79
Appendix B -- Condensed Financial Information --
Accumulation Unit Values 82
Appendix C -- Withdrawals, Withdrawal Charges and the Market
Value Adjustment 84
</TABLE>
3
<PAGE>
SPECIAL TERMS
Your Contract is a legal document that uses a number of specially defined
terms. We explain most of the terms that we use in this Prospectus in the
context where they arise, and some are self-explanatory. In addition, for
convenient reference, we have compiled a list of these terms in the Glossary
included at the back of this Prospectus as Appendix A. If, while you are reading
this Prospectus, you come across a term that you do not understand, please refer
to the Glossary for an explanation.
EXPENSE SUMMARY
The purpose of the following table is to help you understand the costs and
expenses that you will bear directly and indirectly under a Contract WHEN YOU
ALLOCATE MONEY TO THE VARIABLE ACCOUNT. The table reflects expenses of the
Variable Account as well as of each Series of the Series Fund. The table should
be considered together with the narrative provided under the heading "Contract
Charges" in this Prospectus, and with the Series Fund's prospectus. In addition
to the expenses listed below, we may deduct premium taxes.
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
TRANSACTION EXPENSES
Sales Load Imposed on Purchase Payments..................... $ 0
Deferred Sales Load (as a percentage of Purchase Payments
withdrawn) (1)
Number of Account Years Purchase Payment in Account
0-1..................................................... 6%
2-3..................................................... 5%
4-5..................................................... 4%
6....................................................... 3%
7 or more............................................... 0%
Transfer Fee (2)............................................ $ 15
ANNUAL ACCOUNT FEE per Contract or Certificate $ 30
VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of average
Variable Account assets)
Mortality and Expense Risk Charge......................... 1.25%
Administrative Expense Charge............................. 0.15%
Other Fees and Expenses of the Variable Account........... 0.00%
-----
Total Variable Account Annual Expenses...................... 1.40%
</TABLE>
- ------------------------
(1) A portion of your Account may be withdrawn each year without imposition of
any withdrawal charge, and after a Purchase Payment has been in your Account
for 7 Account Years it may be withdrawn free of the withdrawal charge.
(2) Currently, no fee is imposed upon transfers; however, we reseve 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 equal to the lesser of $30 or 2% of your Account
Value in Account Years 1 through 5; thereafter, the Account Fee may be
changed annually, but it will not exceed the lesser of $50 or 2% of your
Account Value.
4
<PAGE>
SERIES FUND ANNUAL EXPENSES (1)
(AS A PERCENTAGE OF SERIES FUND NET ASSETS)
<TABLE>
<CAPTION>
OTHER TOTAL SERIES
MANAGEMENT EXPENSES(2) EXPENSES(2)
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 Series Fund expenses was provided by the Series
Fund and we have not independently verified it. You should consult the
Series Fund prospectus for more information about Series Fund expenses.
(2) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into such other
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected in the table. If these fees had been taken into account, "Total
Fund Expenses" would be as follows for certain of the Series:
<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 Series 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
Series' "Other Expenses" equal or fall below 0.25% annually. Without taking
into account this fee waiver and/or expense reimbursement, the Series'
"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 and a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Bond Series................................................. $ 78 $109 $145 $255
Capital Appreciation Series................................. $ 79 $110 $147 $260
Capital Opportunities Series................................ $ 79 $112 $151 $268
Emerging Growth Series...................................... $ 78 $110 $146 $258
Emerging Markets Equity Series.............................. $ 86 $134 $186 $341
Equity Income Series........................................ $ 80 $114 $154 $276
Global Asset Allocation Series.............................. $ 80 $114 $153 $273
Global Governments Series................................... $ 80 $114 $154 $274
Global Growth Series........................................ $ 81 $117 $159 $285
Global Total Return Series.................................. $ 80 $114 $153 $273
Government Securities Series................................ $ 77 $106 $140 $244
High Yield Series........................................... $ 79 $111 $149 $265
International Growth Series................................. $ 83 $123 $169 $306
International Growth and Income Series...................... $ 82 $121 $166 $299
Managed Sectors Series...................................... $ 79 $111 $148 $263
Massachusetts Investors Growth Stock Series................. $ 79 $112 $150 $267
Massachusetts Investors Trust Series........................ $ 77 $105 $139 $242
Money Market Series......................................... $ 77 $104 $138 $240
New Discovery Series........................................ $ 81 $118 $161 $290
Research Series............................................. $ 78 $110 $146 $258
Research Growth and Income Series........................... $ 79 $113 $152 $270
Research International Series............................... $ 83 $123 $169 $306
Strategic Growth Series..................................... $ 81 $117 $158 $284
Strategic Income Series..................................... $ 82 $119 $162 $291
Total Return Series......................................... $ 78 $108 $143 $252
Utilities Series............................................ $ 79 $112 $150 $266
</TABLE>
6
<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 and a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Bond Series................................................. $ 23 $ 69 $119 $255
Capital Appreciation Series................................. $ 23 $ 71 $121 $260
Capital Opportunities Series................................ $ 24 $ 73 $125 $268
Emerging Growth Series...................................... $ 23 $ 70 $120 $258
Emerging Markets Equity Series.............................. $ 31 $ 96 $163 $341
Equity Income Series........................................ $ 25 $ 75 $129 $276
Global Asset Allocation Series.............................. $ 24 $ 75 $128 $273
Global Governments Series................................... $ 24 $ 75 $128 $274
Global Growth Series........................................ $ 25 $ 78 $134 $285
Global Total Return Series.................................. $ 24 $ 75 $128 $273
Government Securities Series................................ $ 21 $ 66 $113 $244
High Yield Series........................................... $ 23 $ 72 $124 $265
International Growth Series................................. $ 28 $ 85 $144 $306
International Growth and Income Series...................... $ 27 $ 83 $141 $299
Managed Sectors Series...................................... $ 23 $ 72 $123 $263
Massachusetts Investors Growth Stock Series................. $ 24 $ 73 $125 $267
Massachusetts Investors Trust Series........................ $ 21 $ 65 $112 $242
Money Market Series......................................... $ 21 $ 65 $111 $240
New Discovery Series........................................ $ 26 $ 80 $136 $290
Research Series............................................. $ 23 $ 70 $120 $258
Research Growth and Income Series........................... $ 24 $ 74 $126 $270
Research International Series............................... $ 28 $ 85 $144 $306
Strategic Growth Series..................................... $ 25 $ 78 $133 $284
Strategic Income Series..................................... $ 26 $ 80 $137 $291
Total Return Series......................................... $ 22 $ 69 $117 $252
Utilities Series............................................ $ 24 $ 72 $124 $266
</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.
7
<PAGE>
CONDENSED FINANCIAL INFORMATION
Historical information about the value of the units we use to measure the
variable portion of your Contract ("Variable Accumulation Units") is included in
the back of this Prospectus as Appendix B.
THE 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 on a group basis in connection with retirement plans. We issue a
Group Contract to the Owner covering all individuals participating under the
Group Contract. Each individual receives a Certificate that evidences his or her
participation under the Group Contract.
In this Prospectus, unless we state otherwise, we refer to participating
individuals under Group Contracts as "Participants" and we address Participants
as "you"; we use the term "Contracts" to include Group Contracts and
Certificates issued under Group Contracts. For the purpose of determining
benefits under the Contracts, we establish an Account for each Participant,
which we will refer to as "your" Account or a "Participant Account."
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 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 death benefit if the Annuitant dies during the Accumulation Phase.
Finally, if you so elect, during the Income Phase we will make payments to you
or someone else for life or for another period that you choose.
You choose these benefits on a variable or fixed basis or a combination of
both. When you choose Variable 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 options, you assume all investment
risk under the Contract. When you choose a Guarantee Period in our Fixed Account
or a Fixed Annuity option, we assume the investment risk, except in the case of
early withdrawals, where you bear the risk of unfavorable interest rate changes.
You also bear the risk that the interest rates we will offer in the future and
the rates we will use in determining your Fixed Annuity may not exceed our
minimum guaranteed rate, which is 3% per year, compounded annually.
The 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 others as "Non-Qualified Contracts."
COMMUNICATING TO US ABOUT YOUR CONTRACT
All materials sent to us, including Purchase Payments, must be sent to us
at 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
Purchase Payments, withdrawal requests and transfer instructions to be received
on the next Business Day if we receive them (1) on a day that is not a Business
Day or (2) after 4:00 p.m., Eastern Time.
When we specify that notice to us must be in writing, we reserve the
right, at our sole discretion, to accept notice in another form.
8
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
We are a stock life insurance company incorporated under the laws of
Delaware on January 12, 1970. We do business in 48 states, the District of
Columbia, and Puerto Rico, and we have an insurance company subsidiary that does
business in New York. Our Executive Office mailing address is One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02481.
We are an indirect wholly-owned subsidiary of Sun Life Assurance Company
of Canada ("Sun Life (Canada)"). Sun Life (Canada) 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 are offered by the Company and other
affiliated and unaffiliated offerors. 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 Contracts described in this
Prospectus and other variable annuity contracts that provide benefits that vary
in accordance with the investment performance of the Variable Account. Although
the assets maintained in the Variable Account will not be charged with any
liabilities arising out of any other business we conduct, all obligations
arising under the Contracts, including the promise to make annuity payments, are
general corporate obligations of the Company.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of a specific Series of the MFS/Sun
Life Series Trust (the "Series Fund"). All amounts allocated to the Variable
Account will be used to purchase Series Fund shares as designated by you at
their net asset value. Any and all distributions made by the Series Fund with
respect to the shares held by the Variable Account will be reinvested to
purchase additional shares at their net asset value. Deductions from the
Variable Account for cash withdrawals, annuity payments, death benefits, Account
Fees, contract charges against the assets of the Variable Account for the
assumption of mortality and expense risks, administrative expenses and any
applicable taxes will, in effect, be made by redeeming the number of
Series Fund shares at their net asset value equal in total value to the amount
to be deducted. The Variable Account will be fully invested in Series Fund
shares at all times.
VARIABLE ACCOUNT OPTIONS:
THE MFS/SUN LIFE SERIES TRUST
The MFS/Sun Life Series Trust (the "Series Fund") is an open-end
management investment company registered under the Investment Company Act of
1940. Our affiliate, Massachusetts Financial Services Company ("MFS"), serves as
the investment adviser to the Series Fund.
The Series Fund is composed of 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 corresponding to one of the
portfolios. The Contracts provide for investment by the Sub-Accounts in shares
of the 26 Series of the Series Fund described below. Additional portfolios may
be added to the Series Fund which may or may not be available for investment by
the Variable Account.
BOND SERIES will 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.
9
<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 (formerly, the MFS/Foreign & Colonial
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 Series' adviser believes that the higher yields available
from foreign government securities are sufficient to justify the risks of
investing in these securities).
GLOBAL GROWTH SERIES 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 lower rated or unrated securities (possibly
with equity features) of U.S. and foreign issuers (also known as "junk
bonds").
INTERNATIONAL GROWTH SERIES will seek capital appreciation.
INTERNATIONAL GROWTH AND INCOME SERIES will seek capital appreciation and
current income.
MANAGED SECTORS SERIES will seek capital appreciation by varying the
weighting of its portfolio among 13 industry sectors.
MASSACHUSETTS INVESTORS GROWTH STOCK SERIES will seek to provide long-term
growth of capital and future income rather than current income.
MASSACHUSETTS INVESTORS TRUST SERIES 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.
10
<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.
The Series Fund pays fees to MFS for its services pursuant to investment
advisory agreements. MFS also serves as investment adviser to each of the funds
in the MFS Family of Funds, and to certain other investment companies
established by MFS and/or us. MFS Institutional Advisers, Inc., a wholly-owned
subsidiary of MFS, provides investment advice to substantial private clients.
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS operates as an autonomous organization and the obligation of
performance with respect to the investment advisory and underwriting agreements
(including supervision of the sub-advisers noted below) is solely that of MFS.
We undertake no obligation in this regard.
MFS may serve as the investment adviser to other mutual funds which have
similar investment goals and principal investment policies and risks as the
Series, and which may be managed by a Series' portfolio manager(s). While a
Series may have many similarities to these other funds, its investment
performance will differ from their investment performance. This is due to a
number of differences between a Series and these similar products, including
differences in sales charges, expense ratios and cash flows.
The Series Fund also offers its shares to other separate accounts
established by the Company and our New York subsidiary in connection with
variable annuity and variable life insurance contracts. Although we do not
anticipate any disadvantages to this arrangement, there is a possibility that a
material conflict may arise between the interests of the Variable Account and
one or more of the other separate accounts investing in the Series Fund. A
conflict may occur due to differences in tax laws affecting the operations of
variable life and variable annuity separate accounts, or some other reason. We
and the Series Fund's Board of Trustees will monitor events for such conflicts,
and, in the event of a conflict, we will take steps necessary to remedy the
conflict, including withdrawal of the Variable Account from participation in the
Series which is involved in the conflict or substitution of shares of other
Series or other mutual funds.
MORE COMPREHENSIVE INFORMATION ABOUT THE SERIES FUND AND THE MANAGEMENT,
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS, EXPENSES AND POTENTIAL RISKS OF
EACH SERIES MAY BE FOUND IN THE ACCOMPANYING CURRENT PROSPECTUS OF THE
SERIES FUND. YOU SHOULD READ THE SERIES FUND PROSPECTUS CAREFULLY BEFORE
INVESTING. THE SERIES FUND'S STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE BY
CALLING 1-800-752-7215.
THE FIXED ACCOUNT
The Fixed Account is made up of all the general assets of the Company
other than those allocated to any separate account. Amounts you allocate to
Guarantee Periods become part of the
11
<PAGE>
Fixed Account, and are available to fund the claims of all classes of our
customers, including claims for benefits under the Contracts.
We will invest the assets of the Fixed Account in those assets we choose
that are allowed by applicable state insurance laws. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stocks, real estate mortgages, real estate and certain
other investments. We intend to invest primarily in investment-grade fixed
income securities (i.e. rated by a nationally recognized rating service within
the four highest grades) or instruments we believe are of comparable quality. We
are not obligated to invest amounts allocated to the Fixed Account according to
any particular strategy, except as may be required by applicable state insurance
laws. You will not have a direct or indirect interest in the Fixed Account
investments.
THE FIXED ACCOUNT OPTIONS:
THE GUARANTEE PERIODS
You may elect one or more Guarantee Period(s) from those we make available
from time to time. We publish Guaranteed Interest Rates for each Guarantee
Period offered. We may change the Guaranteed Interest Rates we offer from time
to time, but no Guaranteed Interest Rate will ever be less than 3% per year,
compounded annually. Also, once we have accepted your allocation to a particular
Guarantee Period, we promise that the Guaranteed Interest Rate applicable to
that allocation will not change for the duration of the Guarantee Period.
We determine Guaranteed Interest Rates 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 with amounts allocated to the Guarantee
Periods. We will also consider other factors in determining these rates,
including regulatory and tax requirements, sales commissions and administrative
expenses borne by us, general economic trends and competitive factors. We cannot
predict the level of future interest rates.
We may from time to time at our discretion offer interest rate specials
for new Purchase Payments that are higher than the rates we are then offering
for renewals or transfers.
Early withdrawals from your allocation to a Guarantee Period, including
cash withdrawals, transfers, and commencement of an annuity, may be subject to a
Market Value Adjustment, which could decrease or increase the value of your
Account. See "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 the Annuitant dies
before the Annuity Commencement Date.
ISSUING YOUR CONTRACT
When you purchase a Contract, a completed Application and the initial
Purchase Payment are sent to us for acceptance. When we accept a Group Contract,
we issue the Contract to the Owner; we issue a Certificate to you as a
Participant when we accept your Application.
We will credit your initial Purchase Payment to your Account within 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.
12
<PAGE>
AMOUNT AND FREQUENCY OF PURCHASE PAYMENTS
The amount of Purchase Payments may vary; however, we will not accept an
initial Purchase Payment of less than $5,000 ($10,000 if you live in California,
Maryland or Texas), and each additional Purchase Payment must be at least
$1,000, unless we waive these limits. In addition, we will not accept a Purchase
Payment if your Account Value is over $1 million, or if the Purchase Payment
would cause your Account Value to exceed $1 million, unless we have approved the
Payment in advance. Within these limits, you may make Purchase Payments at any
time during the Accumulation Phase.
ALLOCATION OF NET PURCHASE PAYMENTS
You may allocate your Purchase Payments among the different Sub-Accounts
and Guarantee Periods we offer. 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 written notice of the change, 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 the
headings "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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<PAGE>
To measure these values, we use a factor -- which we call the Net
Investment Factor-- which represents the net return on the Sub-Account's assets.
At the end of any Valuation Period, the value of a Variable Accumulation Unit
for a Sub-Account is equal to the value of that Sub-Account's Variable
Accumulation Units at the end of the previous Valuation Period, multiplied by
the Net Investment Factor. We calculate the Net Investment Factor by dividing
(1) the net asset value of a Series share held in the Sub-Account at the end of
that Valuation Period, plus the per share amount of any dividend or capital
gains distribution made by that Series during the Valuation Period, by (2) the
net asset value per share of the Series share at the end of the previous
Valuation Period; we then deduct a factor representing the mortality and expense
risk charge and administrative expense charge 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.
CREDITING INTEREST
We credit interest on amounts allocated to a Guarantee Period at the
applicable Guaranteed Interest Rate for the duration of the Guarantee Period.
The Guarantee Period begins the day we apply your allocation and ends when the
number of calendar years (or months if the Guarantee Period is less than one
year) in the Guarantee Period (measured from the end of the calendar month in
which the amount was allocated to the Guarantee Period) have elapsed. The last
day of the Guarantee Period is its Expiration Date. During the Guarantee Period,
we credit interest daily at a rate that yields the Guaranteed Interest Rate on
an annual effective basis.
GUARANTEE AMOUNTS
Each separate allocation you make to a Guarantee Period, together with
interest credited thereon, is called a Guarantee Amount. Each Guarantee Amount
is treated separately for purposes of determining the Market Value Adjustment. A
Guarantee Period that will extend beyond your maximum Annuity Commencement Date
will result in the application of a Market Value Adjustment upon annuitization
or withdrawal. 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 Expiration
Date for any Guarantee Amount. A new Guarantee Period of the same duration will
begin automatically for that Guarantee Amount on the first day following the
Expiration Date, unless before the Expiration Date we receive:
(1)written notice from you electing a different Guarantee Period from among
those we then offer or
(2)instructions to transfer all or some of the Guarantee Amount to one or more
Sub-Accounts, in accordance with the transfer privilege provisions of the
Contract (see "Transfer Privilege," below).
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<PAGE>
A Guarantee Amount will not renew into a Guarantee Period that will extend
beyond your maximum Annuity commencement Date. 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 more than 30 days prior to the Expiration Date, we will apply a Market
Value Adjustment to the transaction. This could result in an increase or
decrease of your Account Value, depending on interest rates at the time. You
bear the risk that you will receive less than your principal if the Market Value
Adjustment applies.
TRANSFER PRIVILEGE
PERMITTED TRANSFERS
During the Accumulation Phase, you may transfer all or part of your
Account Value to one or more Sub-Accounts or Guarantee Periods then available,
subject to the following restrictions:
- You may not make more than 12 transfers in any Account Year;
- The amount transferred from a Sub-Account must be at least $1,000
unless you are transferring your entire balance in that Sub-Account;
- Your Account Value remaining in a Sub-Account must be at least $1,000;
- The amount transferred from a Guarantee Period must be the entire
Guarantee Amount, except for transfers of interest credited during the
current Account Year;
- At least 30 days must elapse between transfers to or from Guarantee
Periods;
- Transfers to or from Sub-Accounts are subject to terms and conditions
that may be imposed by the Series Fund; and
- We impose additional restrictions on market timers, which are further
described below.
These restrictions do not apply to transfers made under an approved
dollar-cost averaging program.
There is usually no charge imposed on transfers; however, we reserve the
right to impose a transfer charge of $15 for each transfer. Transfers out of a
Guarantee Period occurring more than 30 days before the Expiration Date or any
time after the Expiration 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 transfer made by telephone. We will not be liable for following instructions
communicated by telephone that we reasonably believe are genuine.
If we receive your transfer request before 4:00 p.m. Eastern Time on a
Business Day, it will be effective that day. Otherwise, it will be effective the
next Business Day.
MARKET TIMERS
The Contracts are not designed for professional market timing
organizations or other entities using programmed and frequent transfers. If you
wish to employ such strategies, you should not purchase a Contract. Accordingly,
transfers may be subject to restrictions if exercised by a market timing firm or
any other third party authorized to initiate transfer transactions on behalf of
multiple Participants. In imposing such restrictions, we may, among other
things, not accept (1) the transfer instructions of any agent acting under a
power of attorney on behalf of more than one Participant, or (2) the transfer
instructions of individual Participants who have executed preauthorized transfer
forms that are
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<PAGE>
submitted at the same time by market timing firms or other third parties on
behalf of more than one Participant. We will not impose these restrictions
unless our actions are reasonably intended to prevent the use of such transfers
in a manner that will disadvantage or potentially impair the Contract rights of
other Participants.
In addition, the Series Fund has reserved the right to temporarily or
permanently refuse exchange requests from the Variable Account if, in MFS'
judgment, a Series would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. In particular, a pattern of exchanges that coincide with a market
timing strategy may be disruptive to a Series and therefore may be refused.
Accordingly, the Variable Account may not be in a position to effectuate
transfers and may refuse transfer requests without prior notice. We also reserve
the right, for similar reasons, to refuse or delay exchange requests involving
transfers to or from the Fixed Account.
WAIVERS; REDUCED CHARGES; CREDITS; BONUS GUARANTEED INTEREST RATES
We may reduce or waive the withdrawal charge or annual Account Fee, credit
additional amounts, or grant bonus Guaranteed Interest Rates in certain
situations. These situations may include sales of Contracts (1) where selling
and/or maintenance costs associated with the Contracts are reduced, such as the
sale of several Contracts to the same Participant, sales of large Contracts, and
certain group sales, and (2) to officers, directors and employees of the Company
or its affiliates, registered representatives and employees of broker-dealers
with a current selling agreement with the Company and affiliates of such
representatives and broker-dealers, employees of affiliated asset management
firms, and persons who have retired from such positions ("Eligible Employees")
and immediate family members of Eligible Employees. Eligible Employees and their
immediate family members may also purchase a Contract without regard to minimum
Purchase Payment requirements. For other situations in which withdrawal charges
may be waived, see "Withdrawals, Withdrawal Charge and Market Value Adjustment."
OPTIONAL PROGRAMS
DOLLAR-COST AVERAGING
Dollar-cost averaging allows you to invest gradually, over time, in up to
12 Sub-Accounts. You may select a dollar-cost averaging program at no extra
charge by allocating a minimum of $1,000 to a designated Sub-Account or to a
Guarantee Period we make available in connection with the program. Amounts
allocated to the Fixed Account under the program will earn interest at a rate
declared by the Company for the Guarantee Period you select. Previously applied
amounts may not be transferred to a Guarantee Period made available in
connection with this program. Each month or quarter, as you select, we will
transfer the same amount automatically to one or more Sub-Accounts that you
choose, up to a maximum of 12 Sub-Accounts. The program continues until your
Account Value allocated to the program is depleted or you elect to stop the
program. The final amount transferred from the Fixed Account will include all
interest earned.
No Market Value Adjustment (either positive or negative) will apply to
amounts automatically transferred from the Fixed Account under the dollar-cost
averaging program, except that if you discontinue or alter the program prior to
completion, amounts remaining in the Fixed Account will be transferred to the
Money Market Sub-Account, unless you instruct us otherwise, and the Market Value
Adjustment will be applied. Any new allocation of a Purchase Payment to the
program will be treated as commencing a new dollar-cost averaging program and is
subject to the $1,000 minimum.
The main objective of a dollar cost averaging program is to minimize the
impact of short-term price fluctuations on Account Value. Since you transfer the
same dollar amount to the Sub-Accounts at set intervals, dollar cost averaging
allows you to purchase more Variable Accumulation Units (and, indirectly, more
Series Fund shares) when prices are low and fewer Variable Accumulation Units
(and, indirectly, fewer Series Fund shares) when prices are high. Therefore, you
may achieve a lower average cost per Variable Accumulation Unit over the long
term. A dollar-cost averaging program allows you to
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<PAGE>
take advantage of market fluctuations. However, it is important to understand
that a dollar-cost averaging program does not assure a profit or protect against
loss in a declining market.
ASSET ALLOCATION
One or more asset allocation programs may be available in connection with
the Contracts, at no extra charge. Asset allocation is the process of investing
in different asset classes -- such as equity funds, fixed income funds, and
money market funds -- depending on your personal investment goals, tolerance for
risk, and investment time horizon. By spreading your money among a variety of
asset classes, you may be able to reduce the risk and volatility of investing,
although there are no guarantees, and asset allocation does not insure a profit
or protect against loss in a declining market.
Currently, you may select one of 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 model allocating the lowest
percentage to Sub-Accounts investing in the equity asset class and the
aggressive model allocating the highest percentage to the equity asset class.
These models, as well as the terms and conditions of the asset allocation
program, are fully described in a separate brochure. Additional programs may be
available in the future.
If you elect an asset allocation program, we will automatically allocate
your Purchase Payments among the Sub-Accounts represented in the model you
choose. By electing an asset allocation program, you 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 you choose a different model.
SYSTEMATIC WITHDRAWAL AND INTEREST OUT PROGRAMS
If you have an Account Value of $10,000 or more, you may select our
Systematic Withdrawal Program or our Interest Out Program.
Under the Systematic Withdrawal Program, you determine the amount and
frequency of regular withdrawals you would like to receive from your Fixed
Account Value and/or Variable Account Value and we will effect them
automatically; a Market Value Adjustment may be applicable upon withdrawal.
Under the Interest Out Program, we automatically pay to you, or reinvest,
interest credited for all Guarantee Periods you have chosen. Withdrawals under
these programs are subject to surrender charges. They may also be included as
income and subject to a 10% federal tax penalty. You should consult your tax
adviser before choosing these options.
You may change or stop either program at any time, by written notice to
us.
PORTFOLIO REBALANCING PROGRAM
Under the Portfolio Rebalancing Program, we transfer funds among the
Sub-Accounts to maintain the percentage allocation you have selected among these
Sub-Accounts. At your election, we will make these transfers on a quarterly,
semi-annual or annual basis.
Portfolio Rebalancing does not permit transfers to or from any Guarantee
Period.
SECURED FUTURES PROGRAM
Under this program, we divide your Purchase Payment between the Fixed
Account and the Variable Account. For the Fixed Account portion, you choose a
Guarantee Period from among those we offer, and we allocate to that Guarantee
Period the portion of your Purchase Payment necessary so that at the end of the
Guarantee Period, your Fixed Account allocation, including interest, will equal
the entire amount of your original Purchase Payment. The remainder of the
original Purchase Payment will be invested in Sub-Accounts of your choice. At
the end of the Guarantee Period, you will be
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<PAGE>
guaranteed the amount of your Purchase Payment (assuming no withdrawals), plus
you will have the benefit, if any, of the investment performance of the
Sub-Accounts you have chosen.
WITHDRAWALS, WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
REQUESTING A WITHDRAWAL
At any time during the Accumulation Phase you may withdraw in cash all or
any portion of your Account Value. To make a withdrawal, you must send us a
written request at our Annuity 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" below) and withdrawals from your Fixed Account Value also may be subject
to a Market Value Adjustment (see "Market Value Adjustment" below). Upon request
we will notify you of the amount we would pay in the event of a full or partial
withdrawal. Withdrawals also may have adverse federal income tax consequences,
including a 10% penalty tax. (see "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 reduce the value of your Account by deducting
the amount paid, adding or deducting any Market Value Adjustment applicable to
amounts withdrawn from the Fixed Account, and deducting any applicable
withdrawal charge.
You may specify the amount you want withdrawn from each Sub-Account and/or
Guarantee Period 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 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
the Series Fund or to determine the value of the net assets of the
Series Fund, because an emergency exists; and
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<PAGE>
- 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."
When you make a withdrawal, we consider the oldest Purchase Payment that
you have not already withdrawn to be withdrawn first, then the second oldest
Purchase Payment, and so forth. Once all Purchase Payments are withdrawn, the
balance withdrawn is considered to be accumulated value.
WITHDRAWAL CHARGE
We do not deduct any sales charge from your Purchase Payments when they
are made. However, we may impose a withdrawal charge (known as a "contingent
deferred sales charge") on certain amounts you withdraw. We impose this charge
to defray some of our expenses related to the sale of the Contracts, such as
commissions we pay to agents, the cost of sales literature, and other
promotional costs and transaction expenses.
If you purchased your Contract before November 1994, or if your state does
not permit our current withdrawal charge, we use the Alternate Withdrawal
Charge, described below.
The withdrawal charge will never be greater than 6% of the aggregate
amount of Purchase Payments you make under the Contract.
We may modify the withdrawal charges and limits, upon notice to the Owner
of the Group Contract. However, any modification will only apply to Accounts
established after the date of the modification.
FREE WITHDRAWAL AMOUNT
In each Account Year you may withdraw a portion of your Account Value --
which we will call the "free withdrawal amount" -- before incurring the
withdrawal charge. For any year, the free withdrawal amount is equal to (1) 10%
of the amount of all Purchase Payments you have made during the last 7 Account
Years, including the current Account Year (the "Annual Withdrawal Allowance"),
plus (2) the amount of all Purchase Payments made before the last 7 Account
Years that you have not previously withdrawn. Any portion of the Annual
Withdrawal Allowance that you do not use in an Account Year is cumulative, that
is, it is carried forward and available for use in future years.
For convenience, we refer to Purchase Payments made during the last 7
Account Years (including the current Account Year) as "New Payments," and all
Purchase Payments made before the last 7 Account Years as "Old Payments."
For example, assume you wish to make a withdrawal from your Contract in
Account Year 10. You made an initial Purchase Payment of $10,000 in Account Year
1, you made one additional Purchase Payment of $8,000 in Account Year 8, and you
have made no previous withdrawals. Your Account Value in Account Year 10 is
$35,000. The free withdrawal amount for Account Year 10 is $19,400, calculated
as follows:
- $800, which is the Annual Withdrawal Allowance for Account Year 10 (10%
of the $8,000 Purchase Payment made in Account Year 8, the only New
Payment); plus
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- $8,600, which is the total of the unused Annual Withdrawal Allowances
of $1,000 for each of Account Years 1 through 7 and $800 for each of
Account Years 8 and 9 that are carried forward and available for use in
Account Year 10; plus
- $10,000, which is the amount of all Old Payments that you have not
previously withdrawn.
WITHDRAWAL CHARGE ON PURCHASE PAYMENTS
If you withdraw more than the free withdrawal amount in any Account Year,
we consider the excess amount to be withdrawn first from New Payments that you
have not previously withdrawn. We impose the withdrawal charge on the amount of
these New Payments. Thus, the maximum amount on which we will impose the
withdrawal charge in any year will never be more than the total of all New
Payments that you have not previously withdrawn.
The amount of your withdrawal, if any, that exceeds the total of the free
withdrawal amount plus the aggregate amount of all New Payments not previously
withdrawn, is not subject to the withdrawal charge.
ORDER OF WITHDRAWAL
New Payments are withdrawn on a first-in first-out basis until all New
Payments have been withdrawn. For example, assume the same facts as in the
example above. In Account Year 10 you wish to withdraw $25,000. We attribute the
withdrawal first to the free withdrawal amount of $19,400, which is not subject
to the withdrawal charge. The remaining $5,600 is withdrawn from the Purchase
Payment made in Account Year 8 (the only New Payment) and is subject to the
withdrawal charge. The $2,400 balance of the Account Year 8 Purchase Payment
will remain in your Account. If you make a subsequent $5,000 withdrawal in
Account Year 10, $2,400 of that amount will be withdrawn from the remainder of
the Account Year 8 Purchase Payment and will be subject to the withdrawal
charge. The other $2,600 of your withdrawal (which exceeds the amount of all New
Payments not previously withdrawn) will not be subject to the withdrawal charge.
CALCULATION OF WITHDRAWAL CHARGE
We calculate the amount of the withdrawal charge by multiplying the
Purchase Payments you withdraw by a percentage. The percentage varies according
to the number of Account Years the Purchase Payment has been held in your
Account, including the year in which you made the Payment, but not the year in
which you withdraw it. Each payment begins a new seven-year period and moves
down a declining surrender charge scale at each Account Anniversary. Payments
received during the current Account Year will be charged 6% 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 5% withdrawal charge. On the next Account
Anniversary, these payments will move into their third Account Year and will
have a withdrawal charge of 5%, if withdrawn. The withdrawal charge decreases
according to the number of Account Years the purchase payment has been in your
Account. The declining scale is as follows:
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS
PURCHASE PAYMENT
HAS BEEN IN YOUR
ACCOUNT WITHDRAWAL CHARGE
- ---------------- -----------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
</TABLE>
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<PAGE>
For example, using the same facts as in the example in "Free Withdrawal
Amount" above, the percentage applicable to the withdrawals in Account Year 10
of Purchase Payments made in Account Year 8 would be 5%, because the number of
Account Years the Purchase Payments have been held in your Account would be 2.
For additional examples of how we calculate withdrawal charges, see
Appendix C.
ALTERNATE WITHDRAWAL CHARGE
If you purchased your Contract before November 1994, or if your state does
not permit the withdrawal charge described above, we will impose the withdrawal
charge as follows:
FREE WITHDRAWAL AMOUNT
In each Account Year you may withdraw a portion of your Account Value,
which we will call the "free withdrawal amount," before incurring the withdrawal
charge. For any year, the free withdrawal amount is equal to (1) 10% of the
amount of all Purchase Payments you have made during the last 7 Account Years,
including the current Account Year (the "Annual Withdrawal Allowance"), plus
(2) the amount of all Purchase Payments made before the last 7 Account Years
that you have not previously withdrawn. The Annual Withdrawal Allowance is not
cumulative; any portion of the Annual Withdrawal Allowance that you do not use
in an Account Year will not be carried forward or available for use in future
years.
For convenience, we refer to Purchase Payments made during the last 7
Account Years (including the current Account Year) as "New Payments," and all
Purchase Payments made before the last 7 Account Years as "Old Payments." Your
Account Value minus New Payments and Old Payments is called "accumulated value."
ORDER OF WITHDRAWAL
When you make a withdrawal, we consider the oldest Payment that you have
not already withdrawn to be withdrawn first, then the next oldest, and so forth.
Once all Old Payments and New Payments are withdrawn, the balance withdrawn is
considered to be accumulated value.
CALCULATION OF WITHDRAWAL CHARGE
We calculate the amount of the withdrawal charge by multiplying the
Purchase Payments you withdraw by a percentage. The percentage varies according
to the number of Account Years the Purchase Payment has been held in your
Account, including the year in which you made the Payment, but not the year in
which you withdraw it. Each payment begins a new seven-year period and moves
down a declining surrender charge scale at each Account Anniversary. Payments
received during the current Account Year will be charged 6% 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 5% withdrawal charge. On the next Account
Anniversary, these payments will move into their third Account Year and will
have a withdrawal charge of 5%, if withdrawn. The withdrawal charge decreases
according to the number of Account Years the purchase payment has been in your
Account. The declining scale is as follows:
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS
PURCHASE PAYMENT
HAS BEEN IN YOUR
ACCOUNT WITHDRAWAL CHARGE
- ---------------- -----------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
</TABLE>
For additional examples of how we calculate the Alternate Withdrawal
Charge, see Appendix C.
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<PAGE>
TYPES OF WITHDRAWALS NOT SUBJECT TO WITHDRAWAL CHARGE
We do not impose a withdrawal charge on withdrawals from the Accounts of
(a) our employees, (b) employees of our affiliates, or (c) licensed insurance
agents who sell the Contracts. We also may waive withdrawal charges with respect
to Purchase Payments derived from the surrender of other annuity contracts we
issue.
If approved in your state, we will waive the withdrawal charge for a full
withdrawal if (a) at least one year has passed since we issued your Contract and
(b) you are confined to an eligible nursing home and have been confined there
for at least the preceding 180 days, or any shorter period required by your
state. An "eligible nursing home" means a licensed hospital or licensed skilled
or intermediate care nursing facility at which medical treatment is available on
a daily basis and daily medical records are kept for each patient. You must
provide us evidence of confinement in the form we determine.
We do not impose the withdrawal charge on amounts you apply to provide an
annuity, amounts we pay as a death benefit, or amounts you transfer among the
Sub-Accounts, between the Sub-Accounts and the Fixed Account, or within the
Fixed Account.
MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment if you withdraw or transfer
amounts from your Fixed Account Value more than 30 days before the end of the
applicable Guarantee Period. For this purpose, using Fixed Account Value to
provide an annuity is considered a withdrawal, and the Market Value Adjustment
will apply. However, we will not apply the Market Value Adjustment to automatic
transfers to a Sub-Account from a Guarantee Period as part of our dollar cost
averaging program.
We apply the Market Value Adjustment separately to each Guarantee Amount
in the Fixed Account, that is to each separate allocation you have made to a
Guarantee Period together with interest credited on that allocation. However, we
do not apply the adjustment to the amount of interest credited during your
current Account Year. Any withdrawal from a Guarantee Amount is attributed first
to such interest.
A Market Value Adjustment may decrease, increase or have no effect on your
Account Value. This will depend on changes in interest rates since you made your
allocation to the Guarantee Period and the length of time remaining in the
Guarantee Period. In general, if the Guaranteed Interest Rate we currently
declare for Guarantee Periods equal to the balance of your Guarantee Period (or
your entire Guarantee Period for Guarantee Periods of less than one year) is
higher than your Guaranteed Interest Rate, the Market Value Adjustment is likely
to decrease your Account Value. If our current Guaranteed Interest Rate is
lower, the Market Value Adjustment is likely to increase your Account Value.
We determine the amount of the Market Value Adjustment by multiplying the
amount that is subject to the adjustment by the following formula:
<TABLE>
<C> <S> <C> <C> <C>
N/12
1 + I
( -------- ) -1
1 + J
</TABLE>
where:
I is the Guaranteed Interest Rate applicable to the Guarantee Amount from
which you withdraw, transfer or annuitize;
J is the Guaranteed Interest Rate we declare at the time of your
withdrawal, transfer or annuitization for Guarantee Periods equal to the length
of time remaining in the Guarantee Period applicable to your Guarantee Amount,
rounded to the next higher number of complete years, for Guarantee Periods of
one year or more. For any Guarantee Periods of less than one year, J is the
Guaranteed Interest Rate we declare at the time of your withdrawal, transfer or
annuitization for a Guarantee Period of the same length as your Guarantee
Period. If, at that time, we do not offer the applicable Guarantee Period we
will use an interest rate determined by straight-line interpolation of the
Guaranteed Interest Rates for the Guarantee Periods we do offer; and
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N is the number of complete months remaining in your Guarantee Period.
We will apply the Market Value Adjustment to the amount being withdrawn
after deduction of any Account Fee, if applicable, but before we impose any
withdrawal charge on the amount withdrawn.
For examples of how we calculate the Market Value Adjustment, see Appendix
C.
CONTRACT CHARGES
ACCOUNT FEE
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, which is the anniversary of the
first day of the month after we issue your Contract. In Account Years 1 through
5, the Account Fee is equal to the lesser of (a) $30 and (b) 2% of your Account
Value. After Account Year 5, we may change the Account Fee each year, but the
Account Fee will never exceed the lesser of (a) $50 and (b) 2% of your Account
Value. We deduct the Account Fee pro rata from each Sub-Account and each
Guarantee Period, based on the allocation of your Account Value on your Account
Anniversary.
We will not charge you the annual Account Fee if:
(1) your Account has been allocated only to the Fixed Account during the
applicable Account Year; or
(2) your Account Value is more than $75,000 on your Account Anniversary.
If you make a full withdrawal of your Account, we will deduct the full
amount of the Account Fee at the time of the withdrawal. In addition, on the
Annuity Commencement Date we will deduct a pro rata portion of the Account Fee
to reflect the time elapsed between the last Account Anniversary and the day
before the Annuity Commencement Date.
After the Annuity Commencement Date, we will deduct an annual Account Fee
of $30 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, the 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 1.25%. 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 Annuitant prior to the
Annuity Commencement Date. The expense risk we assume is the risk that the
Account Fee and the administrative expense charge we assess under the Contracts
may be insufficient to cover the actual total administrative expenses we incur.
If the amount of the charge is insufficient to cover the mortality and expense
risks, we will bear the loss. If the amount of the charge is more than
sufficient to cover the risks, we will make a profit on the charge. We may use
this profit for any proper corporate purpose, including the payment of marketing
and distribution expenses for the Contracts.
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PREMIUM TAXES
Some states and local jurisdictions impose a premium tax on us that is
equal to a specified percentage of the Purchase Payments you make. In many
states there is no premium tax. We believe that the amounts of applicable
premium taxes currently range from 0% to 3.5%. You should consult a tax adviser
to find out if your state imposes a premium tax and the amount of any tax.
In order to reimburse us for the premium tax we may pay on Purchase
Payments, our policy is to deduct the amount of such taxes from the amount you
apply to provide an annuity at the time of annuitization. However, we reserve
the right to deduct the amount of any applicable tax from your Account at any
time, including at the time you make a Purchase Payment or make a full or
partial withdrawal. We do not make any profit on the deductions we make to
reimburse premium taxes.
SERIES FUND EXPENSES
There are fees and charges deducted from each Series of the Series Fund.
These fees and expenses are described in the Series Fund's prospectus and
related Statement of Additional Information.
MODIFICATION IN THE CASE OF 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 Annuitant dies during the Accumulation Phase, we will pay a death
benefit to your Beneficiary, using the payment method elected -- a single cash
payment or one of our Annuity Options. (If you have named more than one
Annuitant, the death benefit will be payable after the death of the last
surviving of the Annuitants.) If the Beneficiary is not living on the date of
death, we will pay the death benefit in one sum to you or to your estate. We do
not pay a death benefit if the Annuitant dies during the Income Phase. However,
the Beneficiary will receive any payments provided under an Annuity Option that
is in effect.
AMOUNT OF DEATH BENEFIT
To calculate the amount of your death benefit, we use a "Death Benefit
Date." The Death Benefit Date is the date we receive proof of the Annuitant's
death in an acceptable form ("Due Proof of Death") if you have elected a death
benefit payment method before the Annuitant's death and it remains effective.
Otherwise, the Death Benefit Date is the later of the date we receive Due Proof
of Death or the date we receive either the Beneficiary's election of payment
method, or if the Beneficiary is the Annuitant's spouse, Contract continuation.
If we do not receive the Beneficiary's election within 60 days after we receive
Due Proof of Death, the Death Benefit Date will be the last day of the 60 day
period.
The amount of the death benefit is determined as of the Death Benefit
Date.
If the Annuitant was 85 or younger on your Contract Date (the date we
accepted your first Purchase Payment), the death benefit will be the greatest of
the following amounts:
1. Your Account Value for the Valuation Period during which the Death
Benefit Date occurs;
2. The amount we would pay if you had surrendered your entire Account on
the Death Benefit Date;
3. Your Account Value on the Seven-Year Anniversary immediately before
the Death Benefit Date, adjusted for subsequent Purchase Payments and
partial withdrawals and charges made between the Seven-Year
Anniversary and the Death Benefit Date; and
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4. Your total Purchase Payments minus the sum of partial withdrawals;
interest will accrue daily on each Purchase Payment and each partial
withdrawal at a rate equivalent to a rate of 5% per year until the
first day of the month following the Annuitant's 80th birthday, or
until the Purchase Payment or partial withdrawal has doubled in
amount, whichever is earlier.
If you were 86 or older on your Contract Date, the death benefit is equal
to amount (2) above; because this amount will reflect any applicable withdrawal
charges and Market Value Adjustment, it may be less than your Account Value.
If the death benefit we pay is amount (2), (3) or (4), your Account Value
will be increased by the excess, if any, of that amount over amount (1). Any
such increase will be allocated to the Sub-Accounts in proportion to your
Account Value in those Sub-Accounts on the Death Benefit Date. Also, any portion
of this new Account Value attributed to the Fixed Account will be transferred to
the Money Market Sub-Account (without the application of a Market Value
Adjustment). The Beneficiary may then transfer to the Fixed Account and begin a
new Guarantee Period.
SPOUSAL CONTINUANCE
If your spouse is your Beneficiary, upon your death (if you are the
Annuitant) your spouse may elect to continue the Contract as the Participant,
rather than receive the death benefit. In that case, the death benefit
provisions of the Contract will not apply until the death of your spouse (see
"Other Contract Provisions -- Death of Participant").
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 the Annuitant's
death, the Beneficiary may elect either a single cash payment or an annuity. If
you were the Annuitant and the Beneficiary is your spouse, the Beneficiary may
elect to continue the Contract. These elections are made by sending us at our
Annuity Mailing Address, 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
(see "The Income Phase -- Annuity Provisions").
Neither you nor the Beneficiary may exercise rights that would adversely
affect the treatment of the Contract as an annuity contract under the Internal
Revenue Code (see "Other Contract Provisions -- Death of Participant.")
SELECTION AND CHANGE OF BENEFICIARY
You select your Beneficiary in your Application. You may change your
Beneficiary at any time by sending us written notice on our required form,
unless you previously made an irrevocable Beneficiary designation. A new
Beneficiary designation is not effective until we record the change.
PAYMENT OF DEATH BENEFIT
Payment of the death benefit in cash will be made within 7 days of the
Death Benefit Date, except if we are permitted to defer payment in accordance
with the Investment Company Act of 1940. If an Annuity Option is elected, the
Annuity Commencement Date will be the first day of the second calendar month
following the Death Benefit Date, and your Account will remain in effect until
the Annuity Commencement Date.
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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 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.
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(s) 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."
Under a Non-Qualified Contract, if you name someone other than yourself as
Annuitant, you may also select a Co-Annuitant, who will become the new Annuitant
if the original Annuitant dies before the Income Phase. If you have named both
an Annuitant and a Co-Annuitant, you may designate one of them to become the
sole Annuitant as of the Annuity Commencement Date, if both are living at that
time. If you have not made that designation on the 30th day before the Annuity
Commencement Date, and both the Annuitant and the Co-Annuitant are still living,
the Co-Annuitant will become the Annuitant on the Annuity Commencement Date.
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
second month following your Contract Date.
- The latest possible Annuity Commencement Date is the first day of the
month following the Annuitant's 90th birthday or, if there is a
Co-Annuitant, the 90th 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.
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- 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, except that Option E is available only for a
Fixed Annuity. We may also agree to other settlement options, at our discretion.
ANNUITY OPTION A -- LIFE ANNUITY
We provide monthly payments during the lifetime of the Annuitant. Annuity
payments stop when the Annuitant dies. There is no provision for continuation of
any payments to a Beneficiary.
ANNUITY OPTION B -- LIFE ANNUITY WITH 60, 120, 180 OR 240 MONTHLY PAYMENTS
CERTAIN
We make monthly payments during the lifetime of the Annuitant. In
addition, we guarantee that the Beneficiary will receive monthly payments for
the remainder of the period certain, if the Annuitant dies during that period.
The election of a longer period results in smaller monthly payments. If no
Beneficiary is designated, we pay the discounted value of the remaining payments
in one sum to the Annuitant's estate. The Beneficiary may also elect to receive
the discounted value of the remaining payments in one sum. The discount rate for
a Variable Annuity will be the assumed interest rate in effect; the discount
rate for a Fixed Annuity will be based on the interest rate we used to determine
the amount of each payment.
ANNUITY OPTION C -- JOINT AND SURVIVOR ANNUITY
We make monthly payments during the lifetime of the Annuitant and another
person you designate and during the lifetime of the survivor of the two. We stop
making payments when the 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 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.
ANNUITY OPTION E -- FIXED PAYMENTS
We hold the portion of your Adjusted Account Value selected for this
option at interest, and make fixed payments in such amounts and at such times as
you and we may agree. We continue making payments until the amount we hold is
exhausted. The final payment will be for the remaining balance and may be less
than the previous installments. We will credit interest yearly on the amount
remaining unpaid at a rate we determine from time to time, but never less than
3% per year (or a higher rate if specified in your Contract) compounded
annually. We may change the rate at any time, but will not reduce it more
frequently than once each calendar year. The election of this Annuity Option may
result in the imposition of a penalty tax.
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SELECTION OF ANNUITY OPTION
You select one or more of the Annuity Options, which you may change from
time to time during the Accumulation Phase, as long as we receive your selection
or change in writing at least 30 days before the Annuity Commencement Date. If
we have not received your written selection on the 30th day before the Annuity
Commencement Date, you will receive Annuity Option B, for a life annuity with
120 monthly payments certain.
You may specify the proportion of your Adjusted Account Value you wish to
provide a Variable Annuity or a Fixed Annuity. Under a Variable Annuity, the
dollar amount of payments will vary, while under a Fixed Annuity, the dollar
amount of annuity 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 immediately prior to the Annuity
Commencement Date and making the following adjustments:
- We deduct a proportional amount of the annual 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 to your Account Value.
- We deduct any applicable premium tax or similar tax if not previously
deducted.
VARIABLE ANNUITY PAYMENTS
Variable Annuity payments may vary each month. We determine the dollar
amount of the first payment using the portion of your Adjusted Account Value
applied to a Variable Annuity and the Annuity Payment Rates in your Contract,
which are based on an assumed interest rate of 3% per year, compounded annually.
See "Annuity Payment Rates."
To calculate the remaining payments, we convert the amount of the first
payment into Annuity Units for each Sub-Account; we determine the number of
those Annuity Units by dividing the portion of the first payment attributable to
the Sub-Account by the Annuity Unit Value of that Sub-Account for the Valuation
Period ending just before the Annuity Commencement Date. This number of Annuity
Units for each Sub-Account will remain constant (unless the Annuitant requests
an exchange of Annuity Units). However, the dollar amount of the next Variable
Annuity payment -- which is the sum of the number of Annuity Units for each
Sub-Account times its Annuity Unit Value for the Valuation Period ending just
before the date of the payment -- will increase, decrease, or remain the same,
depending on the net investment return of the Sub-Accounts.
If the net investment return of the Sub-Accounts selected is the same as
the assumed interest rate of 3%, compounded annually, the payments will remain
level. If the net investment return exceeds the assumed interest rate, payments
will increase and, conversely, if it is less than the assumed interest rate,
payments will decrease.
Please refer to the Statement of Additional Information for more
information about calculating Variable Annuity Units and Variable Annuity
payments, including examples of these calculations.
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FIXED ANNUITY PAYMENTS
Fixed Annuity payments are the same each month. We determine the dollar
amount of each Fixed Annuity payment using the fixed portion of your Adjusted
Account Value and the applicable Annuity Payment Rates. These will be either
(1) the rates in your Contract, which are based on a minimum guaranteed interest
rate of 3% per year, compounded annually, or (2) new rates we have published and
are using on the Annuity Commencement Date, if they are more favorable (see
"Annuity Payment Rates").
MINIMUM PAYMENTS
If your Adjusted Account Value is less than $2,000, or the first annuity
payment for any Annuity Option is less than $20, we will pay the Adjusted
Account Value to the Annuitant in one payment.
EXCHANGE OF VARIABLE ANNUITY UNITS
During the Income Phase, the Annuitant may exchange Annuity Units from one
Sub-Account to another, up to 12 times each Account Year. To make an exchange,
the Annuitant sends us, at our Annuity Mailing Address, a written request
stating the number of Annuity Units in the Sub-Account he or she wishes to
exchange and the new Sub-Account for which Annuity Units are requested. The
number of new Annuity Units will be calculated so the dollar amount of an
annuity payment on the date of the exchange would not be affected. To calculate
this number, we use Annuity Unit values for the Valuation Period during which we
receive the exchange request.
Before exchanging Annuity Units from one Sub-Account to another, the
Annuitant should carefully review the Series Fund prospectus for the investment
objectives and risk disclosure of the Series 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 in equal amounts
from each Variable Annuity payment. We do not deduct the annual Account Fee from
Fixed Annuity payments (see "Contract Charges -- Account Fee").
ANNUITY PAYMENT RATES
The Contract contains Annuity Payment Rates for each Annuity Option
described in this Prospectus. The rates show, for each $1,000 applied, the
dollar amount of: (a) the first monthly Variable Annuity payment based on the
assumed interest rate specified in the applicable Contract (at least 3% per
year, compounded annually); and (b) the monthly Fixed Annuity payment, when this
payment is based on the minimum guaranteed interest rate specified in the
Contract (at least 3% per year, compounded annually). We may change these rates
under Group Contracts for Accounts established after the effective date of such
change (see "Other Contract Provisions -- Modification").
The Annuity Payment Rates may vary according to the Annuity Option(s)
elected and the adjusted age of the Annuitant. The Contract also describes the
method of determining the adjusted age of the Annuitant. The mortality table
used in determining the Annuity Payment Rates for Options A, B and C is the 1983
Individual Annuitant Mortality Table.
ANNUITY OPTIONS AS METHOD OF PAYMENT FOR DEATH BENEFIT
You or your Beneficiary may also select one or more Annuity Options to be
used in the event of the Annuitant's death before the Income Phase, as described
under the "Death Benefit" section of this Prospectus. In that case, your
Beneficiary will be the Annuitant/Payee. The Annuity Commencement Date will be
the first day of the second month beginning after the Death Benefit Date.
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OTHER CONTRACT PROVISIONS
EXERCISE OF CONTRACT RIGHTS
A Group Contract belongs to the Owner. In the case of a Group Contract,
the Owner may expressly reserve all Contract rights and privileges; otherwise,
each Participant will be entitled to exercise such rights and privileges. In any
case, such rights and privileges can be exercised without the consent of the
Beneficiary (other than an irrevocably designated Beneficiary) or any other
person. Such rights and privileges may be exercised only during the lifetime of
the 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 Annuitant. Such
Payee may thereafter exercise such rights and privileges, if any, of ownership
which continue.
CHANGE OF OWNERSHIP
Ownership of a Qualified Contract may not be transferred except to:
(1) the Annuitant; (2) a trustee or successor trustee of a pension or profit
sharing trust which is qualified under Section 401 of the Internal Revenue Code;
(3) the employer of the Annuitant, provided that the Qualified Contract after
transfer is maintained under the terms of a retirement plan qualified under
Section 403(a) of the Internal Revenue Code for the benefit of the Annuitant;
(4) the trustee or custodian of an individual retirement account plan qualified
under Section 408 of the Internal Revenue Code for the benefit of the
Participants under a Group Contract; or (5) as otherwise permitted from time to
time by laws and regulations governing the retirement or deferred compensation
plans for which a Qualified Contract may be issued. Subject to the foregoing, a
Qualified Contract may not be sold, assigned, transferred, discounted or pledged
as collateral for a loan or as security for the performance of an obligation or
for any other purpose to any person other than the Company.
The Owner of a Non-Qualified Contract may change the ownership of the
Contract prior to the last Annuity Commencement Date, and each Participant, in
like manner, may change the ownership interest in a Contract.
A change of ownership will not be binding on us until we receive written
notification. When we receive such notification, the change will be effective as
of the date on which the request for change was signed by the Owner or
Participant, as appropriate, but the change will be without prejudice to us on
account of any payment we make or any action we take before receiving the
change. If you change the Owner of a Non-Qualified Contract, you will become
immediately liable for the payment of taxes on any gain realized under the
Contract prior to the change of ownership, including possible liability for a
10% federal excise tax.
DEATH OF PARTICIPANT
If your Contract is a Non-Qualified Contract and you die prior to the
Annuitant and before the Annuity Commencement Date, special distribution rules
apply. In that case, your Account Value, plus or minus any Market Value
Adjustment, must be distributed to your "designated beneficiary" within the
meaning of Section 72(s) of the Internal Revenue Code, either (1) as a lump sum
within 5 years after your death or (2) if in the form of an annuity, over a
period not greater than the life or expected life of the designated beneficiary,
with payments beginning no later than one year after your death.
The person you have named as Beneficiary under your Contract, if any, will
be the "designated beneficiary." If the named Beneficiary is not living, the
Annuitant automatically becomes the designated beneficiary.
If the designated beneficiary is your surviving spouse, your spouse may
elect to continue the Contract in his or her own name as Participant. If you
were the Annuitant as well as the Participant, your surviving spouse (if the
designated beneficiary) may elect to be named as both Participant and Annuitant
and continue the Contract; in that case, we will not pay a death benefit and the
Account Value will not be increased to reflect the death benefit calculation. In
all other cases where you are the
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Annuitant, the death benefit provisions of the Contract control, subject to the
condition that any Annuity Option elected complies with the special distribution
requirements described above.
If your spouse elects to continue the Contract (either in the case where
you are the Annuitant or in the case where you are not the Annuitant), your
spouse must give us written notification within 60 days after we receive Due
Proof of Death, and the special distributioon rules described above will apply
on the death of your spouse.
If you are the Annuitant and you die during the Income Phase, the
remaining value of the Annuity Option in place must be distributed at least as
rapidly as the method of distribution under the option.
If the Participant is not a natural person, these distribution rules apply
on a change in, or the death of, any Annuitant or Co-Annuitant.
Payments made in contravention of these special rules would adversely
affect the treatment of the Contracts as annuity contracts under the Internal
Revenue Code. Neither you nor the Beneficiary may exercise rights that would
have that effect.
If yours is a Qualified Contract, any distributions upon your death will
be subject to the laws and regulations governing the particular retirement or
deferred compensation plan in connection with which the Qualified Contract was
issued.
VOTING OF SERIES FUND SHARES
We will vote Series Fund shares held by the Sub-Accounts at meetings of
shareholders of the Series Fund or in connection with similar solicitations, but
will follow voting instructions received from persons having the right to give
voting instructions. During the Accumulation Phase, you will have the right to
give voting instructions, except where the Owner has reserved this right. During
the Income Phase, the Payee -- that is the Annuitant or Beneficiary entitled to
receive benefits -- is the person having such voting rights. We will vote any
shares attributable to us and Series Fund shares for which no timely voting
instructions are received in the same proportion as the shares for which we
receive instructions from Owners, Participants and Payees, as applicable.
Owners of Qualified Contracts issued on a group basis may be subject to
other voting provisions of the particular plan and of the Investment Company Act
of 1940. Employees who contribute to plans that are funded by the Contracts may
be entitled to instruct the Owners as to how to instruct us to vote the Series
Fund shares attributable to their contributions. Such plans may also provide the
additional extent, if any, to which the Owners shall follow voting instructions
of persons with rights under the plans. If no voting instructions are received
from any such person with respect to a particular Participant Account, the Owner
may instruct the Company as to how to vote the number of Series Fund shares for
which instructions may be given.
Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights afforded by the Investment Company
Act of 1940, or any duty to inquire as to the instructions received or the
authority of Owners, Participants or others, as applicable, to instruct the
voting of Series Fund shares. Except as the Variable Account or the Company has
actual knowledge to the contrary, the instructions given by Owners under Group
Contracts and Payees will be valid as they affect the Variable Account, the
Company and any others having voting instruction rights with respect to the
Variable Account.
All Series Fund proxy material, together with an appropriate form to be
used to give voting instructions, will be provided to each person having the
right to give voting instructions at least 10 days prior to each meeting of the
shareholders of the Series Fund. We will determine the number of Series Fund
shares as to which each such person is entitled to give instructions as of the
record date set by the Series Fund for such meeting, which is expected to be not
more than 90 days prior to each such meeting. Prior to the Annuity Commencement
Date, the number of Series Fund shares as to which voting instructions may be
given to the Company is determined by dividing the value of all of the
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Variable Accumulation Units of the particular Sub-Account credited to the
Participant Account by the net asset value of one Series Fund share as of the
same date. On or after the Annuity Commencement Date, the number of Series Fund
shares as to which such instructions may be given by a Payee is determined by
dividing the reserve held by the Company in the Sub-Account with respect to the
particular Payee by the net asset value of a Series Fund share as of the same
date. After the Annuity Commencement Date, the number of Series Fund shares as
to which a Payee is entitled to give voting instructions will generally decrease
due to the decrease in the reserve.
PERIODIC REPORTS
During the Accumulation Period we will send you, or such other person
having voting rights, at least once during each Account Year, a statement
showing the number, type and value of Accumulation Units credited to your
Account and the Fixed Accumulation Value of your Account, which statement shall
be accurate as of a date not more than 2 months previous to the date of mailing.
These periodic statements contain important information concerning your
transactions with respect to a Contract. It is your obligation to review each
such statement carefully and to report to us, at the address or telephone number
provided on the statement, any errors or discrepancies in the information
presented therein within 60 days of the date of such statement. Unless we
receive notice of any such error or discrepancy from you within such period, we
may not be responsible for correcting the error or discrepancy.
In addition, every person having voting rights will receive such reports
or prospectuses concerning the Variable Account and the Series Fund as may be
required by the Investment Company Act of 1940 and the Securities Act of 1933.
We will also send such statements reflecting transactions in your Account as may
be required by applicable laws, rules and regulations.
Upon request, we will provide you with information regarding fixed and
variable accumulation values.
SUBSTITUTION OF SECURITIES
Shares of any or all Series of the Series Fund may not always be available
for investment under the Contract. We may add or delete Series or other
investment companies as variable investment options under the Contracts. We may
also substitute shares of another Series or shares of another registered
open-end investment company or unit investment trust for the shares held in any
Sub-Account, provided that the substitution has been approved , if required, by
the SEC. In the event of any substitution pursuant to this provision, we may
make appropriate endorsement to the Contract to reflect the substitution.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At our election and subject to any necessary vote by persons having the
right to give instructions with respect to the voting of Series Fund shares held
by the Sub-Accounts, the Variable Account may be operated as a management
company under the Investment Company Act of 1940 or it may be deregistered under
the Investment Company Act of 1940 in the event registration is no longer
required. Deregistration of the Variable Account requires an order by the SEC.
In the event of any change in the operation of the Variable Account pursuant to
this provision, we may make appropriate endorsement to the Contract to reflect
the change and take such other action as we deem 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 Contracts.
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MODIFICATION
Upon notice to the Owner and Participant(s), (or the Payee(s) during the
Income Phase), we may modify the Contract if such modification: (i) is necessary
to make the Contract or the Variable Account comply with any law or regulation
issued by a governmental agency to which the Company or the Variable Account is
subject; (ii) is necessary to assure continued qualification of the Contract
under the Internal Revenue Code or other federal or state laws relating to
retirement annuities or annuity contracts; (iii) is necessary to reflect a
change in the operation of the Variable Account or the Sub-Account(s) (see
"Change in Operation of Variable Account"); (iv) provides additional Variable
Account and/or fixed accumulation options; or (v) as may otherwise be in the
best interests of Owners, Participants, or Payees, as applicable. In the event
of any such modification, we may make appropriate endorsement in the Contract to
reflect such modification.
In addition, upon notice to the Owner, we may modify a Group Contract to
change the withdrawal charges, Account Fees, mortality and expense risk charges,
administrative expense charges, the tables used in determining the amount of the
first monthly variable annuity and fixed annuity payments and the formula used
to calculate the Market Value Adjustment, provided that such modification
applies only to Participant Accounts established after the effective date of
such modification. In order to exercise our modification rights in these
particular instances, we must notify the Owner of such modification in writing.
The notice shall specify the effective date of such modification which must be
at least 60 days following the date we mail notice of modification. All of the
charges and the annuity tables which are provided in the Group Contract prior to
any such modification will remain in effect permanently, unless improved by the
Company, with respect to Participant Accounts established prior to the effective
date of such modification.
LIMITATION OR DISCONTINUANCE OF NEW PARTICIPANTS
We may limit or discontinue the acceptance of new Applications and the
issuance of new Certificates under a Group Contract by giving 30 days prior
written notice to the Owner. This will not affect rights or benefits with
respect to any Participant Accounts established under such Group Contract prior
to the effective date of such limitation or discontinuance.
RESERVATION OF RIGHTS
We reserve the right, to the extent permitted by law, to: (1) combine any
2 or more variable accounts; (2) add or delete Series, sub-series thereof or
other investment companies and corresponding Sub-Accounts; (3) add or remove
Guarantee Periods available at any time for election by a Participant; and
(4) restrict or eliminate any of the voting rights of Participants (or Owners)
or other persons who have voting rights as to the Variable Account. Where
required by law, we will obtain approval of changes from Participants or any
appropriate regulatory authority. In the event of any change pursuant to this
provision, we may make appropriate endorsement to the Contract to reflect the
change.
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. However, if applicable state law requires, we will return the
full amount of any Purchase Payment(s) we received. State law may also require
us to give you a longer "free look" period or allow you to return the Contract
to your sales representative.
If you are establishing an Individual Retirement Account ("IRA"), the
Internal Revenue Code requires that we give you a disclosure statement
containing certain information about the Contract and applicable legal
requirements. We must give you this statement on or before the date the IRA is
established. If we give you the disclosure statement before the seventh day
preceding the date the IRA is established, you will not have any right of
revocation under the Code. If we give you the disclosure statement at a later
date, then you may give us a notice of revocation at any time within 7 days
after your Contract Date. Upon such revocation, we will refund your Purchase
Payment(s). This right of
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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 a Contract and 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
to (i) any immediate annuity, 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 automatically
provide tax deferral regardless of whether the underlying contract is an
annuity.
DISTRIBUTIONS AND WITHDRAWALS FROM NON-QUALIFIED CONTRACTS
The Account Value will include an amount attributable to Purchase
Payments, the return of which is not taxable, and an amount attributable to
investment earnings, the return of which is taxable at ordinary income rates.
The relative portions of a distribution that derive from nontaxable Purchase
Payments and taxable investment earnings depend upon the timing of the
distribution.
If you withdraw less than your entire Account Value under a Non-Qualified
Contract before the Annuity Commencement Date, you must treat the withdrawal
first as a return of investment earnings. You may treat only withdrawals in
excess of the amount of the Account Value attributable to investment earnings as
a return of Purchase Payments. Account Value amounts assigned or pledged as
collateral for a loan will be treated as if withdrawn from the Contract.
If a Payee receives annuity payments under a Non-Qualified Contract after
the Annuity Commencement Date, however, the Payee treats a portion of each
payment as a nontaxable return of Purchase Payments. In general, the nontaxable
portion of such a payment bears the same ratio to the total payment as the
Purchase Payments bear to the Payee's expected return under the Contract. The
remainder of the payment constitutes a taxable return of investment earnings.
Once the Payee has
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received nontaxable payments in an amount equal to total Purchase Payments, all
future distributions constitute fully taxable ordinary income. If the Annuitant
dies before the Payee recovers the full amount of Purchase Payments, the Payee
may deduct an amount equal to unrecovered Purchase Payments.
Upon the transfer of a Non-Qualified Contract by gift (other than to the
Participant's spouse), the Participant must treat an amount equal to the Account
Value minus the total amount paid for the Contract as income.
A penalty tax of 10% may apply to taxable cash withdrawals and lump-sum
payments from Non-Qualified Contracts. This penalty will not apply in certain
circumstances, such as distributions pursuant to the death of the Participant or
distributions under an immediate annuity (as defined above), or after age
59 1/2.
DISTRIBUTIONS AND WITHDRAWALS FROM QUALIFIED CONTRACTS
Generally, distributions from a Qualified Contract will constitute fully
taxable ordinary income. Also, a 10% penalty tax will, except in certain
circumstances, apply to distributions prior to age 59 1/2.
Distributions from a Qualified Contract are not subject to current
taxation or a 10% penalty, however, if:
- the distribution is not a hardship distribution or part of a series of
payments for life or for a specified period of 10 years or more (an
"eligible rollover distribution"), and
- the Participant or Payee rolls over the distribution (with or without
actually receiving the distribution) into a qualified retirement plan
eligible to receive the rollover.
Only you or your spouse may elect to roll over a distribution to an
eligible retirement plan.
WITHHOLDING
In the case of an eligible rollover distribution (as defined above) from a
Qualified Contract (other than from a Contract issued for use with an individual
retirement account), we (or the plan administrator) must withhold and remit to
the U.S. Government 20% of the distribution, unless the Participant or Payee
elects to make a direct rollover of the distribution to another qualified
retirement plan that is eligible to receive the rollover; however, only you or
your spouse may elect a direct rollover. In the case of a distribution from
(i) a Non-Qualified Contract, (ii) a Qualified Contract issued for use with an
individual retirement account, or (iii) a Qualified Contract where the
distribution is not an eligible rollover distribution, we will withhold and
remit to the U.S. Government a part of the taxable portion of each distribution
unless, prior to the distribution, the Participant or Payee provides 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 Series of the Series Fund complies with these regulations. The
preamble to the regulations states that the Internal Revenue Service may
promulgate guidelines under which an owner's excessive control over investments
underlying the contract will preclude the contract from qualifying as an annuity
for federal tax purposes. We cannot predict whether such guidelines, if in fact
promulgated, will be retroactive. We reserve the right to modify the Contract
and/or the Variable Account to the extent necessary to comply with any such
guidelines, but cannot assume that such modifications would satisfy any
retroactive guidelines.
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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 may therefore use Qualified
Contracts as a funding vehicle for their retirement plans, as a general rule.
TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees
of certain types of charitable, educational and scientific organizations
specified in Section 501(c)(3) of the Code to purchase annuity contracts and,
subject to certain limitations, exclude the amount of purchase payments from
gross income for tax purposes. The Code imposes restrictions on cash withdrawals
from Section 403(b) annuities.
If the Contracts are to receive tax deferred treatment, cash withdrawals
of amounts attributable to salary reduction contributions (other than
withdrawals of accumulation account value as of December 31, 1988) may be made
only when the Participant attains age 59 1/2, separates from service with the
employer, dies or becomes disabled (within the meaning of Section 72(m)(7) of
the Code). These restrictions apply to (i) any post-1988 salary reduction
contributions, (ii) any growth or interest on post-1988 salary reduction
contributions, and (iii) any growth or interest on pre-1989 salary reduction
contributions that occurs on or after January 1, 1989. It is permissible,
however, to withdraw post-1988 salary reduction contributions in cases of
financial hardship. While the Internal Revenue Service has not issued specific
rules defining financial hardship, we expect that to qualify for a hardship
distribution, the Participant must have an immediate and heavy bona fide
financial need and lack other resources reasonably available to satisfy the
need. Hardship withdrawals (as well as certain other premature withdrawals) will
be subject to a 10% tax penalty, in addition to any withdrawal charge applicable
under the Contracts. Under certain circumstances the 10% tax penalty will not
apply if the withdrawal is for medical expenses.
Under the terms of a particular Section 403(b) plan, the Participant may
be entitled to transfer all or a portion of the Account Value to one or more
alternative funding options. Participants should consult the documents governing
their plan and the person who administers the plan for information as to such
investment alternatives.
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INDIVIDUAL RETIREMENT ACCOUNTS
Sections 219 and 408 of the Code permit eligible individuals to contribute
to an individual retirement program, including Simplified Employee Pension
Plans, Employer/Association of Employees Established Individual Retirement
Account Trusts, and Simple Retirement Accounts. Such IRAs are subject to
limitations on contribution levels, the persons who may be eligible, and on the
time when distributions may commence. In addition, certain distributions from
some other types of retirement plans may be placed in an IRA on a tax-deferred
basis. If we sell Contracts for use with IRAs, the Internal Revenue Service or
other agency may impose supplementary information requirements. We will provide
purchasers of the Contracts for such purposes with any necessary information.
You will have the right to revoke the Contract under certain circumstances, as
described in the section of this Prospectus entitled "Right to Return."
ROTH IRAS
Section 408A of the Code permits an individual to contribute to an
individual retirement program called a Roth IRA. Unlike contributions to a
traditional IRA under Section 408 of the Code, contributions to a Roth IRA are
not tax-deductible. Provided certain conditions are satisfied, distributions are
generally tax-free. Like traditional IRAs, Roth IRAs are subject to limitations
on contribution amounts and the timing of distributions. If an individual
converts a traditional IRA into a Roth IRA the full amount of the IRA is
included in taxable income. The Internal Revenue Service and other agencies may
impose special information requirements with respect to Roth IRAs. If and when
we make Contracts available for use with Roth IRAs, we will provide any
necessary information.
PUERTO RICO TAX CONSIDERATIONS
The Contract offered by this Prospectus is considered an annuity contract
under Section 1022 of the Puerto Rico Internal Revenue Code of 1994, as amended
(the "1994 Code"). Under the current provisions of the 1994 Code, 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, 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.
The provisions of the 1994 Code with respect to qualified retirement plans
described in this Prospectus vary significantly from those under the Internal
Revenue Code. 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.
For further information regarding the income tax consequences of owning a
Contract, you should consult a qualified tax adviser.
ADMINISTRATION OF THE CONTRACTS
We perform certain administrative functions relating to the Contracts,
Participant Accounts, and the Variable Account. These functions include, but are
not limited to, maintaining the books and records of the Variable Account and
the Sub-Accounts; maintaining records of the name, address, taxpayer
identification number, Contract number, Participant Account number and type, the
status of
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each Participant Account and other pertinent information necessary to the
administration and operation of the Contracts; processing Applications, Purchase
Payments, transfers and full and partial withdrawals; issuing Contracts and
Certificates; administering annuity payments; furnishing accounting and
valuation services; reconciling and depositing cash receipts; providing
confirmations; providing toll-free customer service lines; and furnishing
telephonic transfer services.
DISTRIBUTION OF THE CONTRACTS
We offer the Contracts on a continuous basis. The Contracts are sold by
licensed insurance agents in those states where the Contracts may be lawfully
sold. Such agents will be registered representatives of broker-dealers
registered under the Securities Exchange Act of 1934 who are members of the
National Association of Securities Dealers, Inc. and who have entered into
distribution agreements with the Company and the general distributor, Clarendon
Insurance Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481. Clarendon, a wholly-owned subsidiary of the Company,
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 7.34% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of Participant Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation. We
reserve the right to offer these additional incentives only to certain
broker-dealers that sell or are expected to sell during specified time periods
certain minimum amounts of the Contracts or Certificates or other contracts
offered by the Company. Promotional incentives may change at any time.
Commissions will not be paid with respect to Accounts established for the
personal account of employees of the Company or any of its affiliates, or of
persons engaged in the distribution of the Contracts, or of immediate family
members of such employees or persons. In addition, commissions may be waived or
reduced in connection with certain transactions described in this Prospectus
under the heading "Waivers; Reduced Charges; Credits; Bonus Guaranteed Interest
Rates." During 1997, 1998 and 1999, approximately $16,576,365, $12,076,614 and
$2,705,923, respectively, was paid to and retained by Clarendon in connection
with distribution of the Contracts.
PERFORMANCE INFORMATION
From time to time the Variable Account may publish reports to
shareholders, sales literature and advertisements containing performance
information relating to the variable options. This information may include
standardized and non-standardized "Average Annual Total Return," "Cumulative
Growth Rate" and "Compound Growth Rate." We may also advertise "yield" for the
Government Securities Series and High Yield, and "yield" and "effective yield"
for the Money Market Sub-Accounts.
Average Annual Total Return measures the net income of the variable option
and any realized or unrealized gains or losses of the Series in which it
invests, over the period stated. Average Annual Total Return figures are
annualized and represent the average annual percentage change in the value of an
investment in a variable option 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 Series, which may predate the
Variable Account. Cumulative Growth Rate represents the cumulative change in the
value of an investment in the Sub-Account for the period stated, and is arrived
at by calculating the change in the Accumulation Unit Value of a Sub-Account
between the first and 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. Cumulative Growth Rate
represents the cumulative change in the value of an investment in the variable
option for the period stated, and is arrived at by calculating the change in the
Accumulation Unit Value of a variable option between the first and 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
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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 annual Account Fee, although such figures
reflect all recurring charges. Results calculated without withdrawal and/or
certain Contract charges will be higher. We may also use other types of rates of
return that do not reflect withdrawal and Contract charges.
The performance figures used by the Variable Account are based on the
actual historical performance of the Series Fund for the specified periods, and
the figures are not intended to indicate future performance. For periods before
the date the Contracts became available, we calculate the performance
information for the Sub-Account on a hypothetical basis. To do this, we reflect
deductions of the current Contract fees and charges from the historical
performance of the corresponding Series.
Yield is a measure of the net dividend and interest income earned over a
specific one month or 30-day period (7-day period for the Money Market Series
Sub-Account), expressed as a percentage of the value of the Sub-Account's
Accumulation Units. Yield is an annualized figure, which means that we assume
that the Sub-Account generates the same level of net income over a one-year
period and compound that income on a semi-annual basis. We calculate the
effective yield for the Money Market 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).
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1999 filed with the SEC is incorporated by reference in this Prospectus. Any
statement contained in a document we incorporate by reference is deemed modified
or superceded to the extent that a later filed document, including this
Prospectus, shall modify or supercede that statement. Any statement so modified
or superceded shall not be deemed, except as so modified or superceded, to
constitute part of this Prospectus.
The Company will furnish, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of the document referred to above which has been incorporated by reference
in this Prospectus, other than exhibits to such document (unless such exhibits
are specifically incorporated by reference in this Prospectus). Requests for
such document should be directed to the Secretary, Sun Life Assurance Company of
Canada (U.S.), One Sun Life Executive Park, Wellesley Hills, Massachusetts
02481, telephone (800) 225-3950.
ADDITIONAL INFORMATION ABOUT THE COMPANY
GENERAL
The Company is engaged in the sale of individual variable life insurance
and individual and group fixed and variable annuities. These contracts are sold
in both the tax-qualified and non-tax-qualified markets. These products are
distributed through individual insurance agents, insurance brokers and
broker-dealers.
The following table sets forth premiums and deposits by major product
categories for each of the last 3 years. See the Notes to the Statutory
Financial Statements of the Company included in this Prospectus for industry
segment information.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Protection $ 16,509 $ 155,907 $ 204,671
Wealth Management $2,651,247 $2,194,895 $2,204,693
---------- ---------- ----------
$2,667,756 $2,350,802 $2,409,364
========== ========== ==========
</TABLE>
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the Statutory Financial Statements and the Notes thereto
included in this Prospectus beginning on page 53.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity deposits
and other revenue $ 2,869,250 $ 2,581,463 $ 2,623,629 $ 2,215,322 $ 1,883,901
Net investment income and
realized gains 190,844 187,208 298,121 310,172 315,966
----------- ----------- ----------- ----------- -----------
3,060,094 2,768,671 2,921,750 2,525,494 2,199,867
----------- ----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 2,706,121 2,416,950 2,579,104 2,232,528 1,995,208
Other expenses 239,136 214,607 206,065 175,342 150,937
----------- ----------- ----------- ----------- -----------
2,945,257 2,631,557 2,785,169 2,407,870 2,146,145
----------- ----------- ----------- ----------- -----------
Operating gain 114,837 137,114 136,581 117,624 53,722
Federal income tax expense
(benefit) 24,479 11,713 7,339 (5,400) 17,807
----------- ----------- ----------- ----------- -----------
Net income $ 90,358 $ 125,401 $ 129,242 $ 123,024 $ 35,915
=========== =========== =========== =========== ===========
Assets $19,948,155 $16,902,621 $15,925,357 $13,621,952 $12,359,683
=========== =========== =========== =========== ===========
Surplus notes $ 565,000 $ 565,000 $ 565,000 $ 315,000 $ 650,000
=========== =========== =========== =========== ===========
</TABLE>
See "Reinsurance," below, for the effect of the reinsurance agreements on 1999
net income.
See Note 1 to the Statutory Financial Statements for changes in accounting
principles and reporting.
See discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAUTIONARY STATEMENT
This Prospectus includes forward-looking statements by the Company under
the Private Securities Litigation Reform Act of 1995. These statements are not
matters of historical fact; they relate to such topics as future product sales,
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.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998:
NET INCOME
Net income decreased by $35.0 million to $90.4 million in 1999, reflecting
a decrease of $54.7 million in income from operations and an increase of
$19.7 million in net realized capital gains. (In the following discussion,
"income from operations" refers to the statutory statements of operations line
item, "net gain from operations after dividends to policyholders and federal
income tax and before realized capital gains.")
Income from operations decreased from $125.0 million in 1998 to
$70.3 million in 1999, mainly as a result of the following factors:
- A $32.3 million increase, to $63.7 million in 1999, in the income from
operations from the Company's Wealth Management segment. (See "1999
Compared to 1998 -- Wealth Management Segment," below.)
- The effect of terminating certain reinsurance agreements with the
Company's ultimate parent in 1998. The termination of these agreements was
the predominant factor in the $94.2 million decrease in income from
operations for the Company's Protection segment. (See "1999 Compared to
1998 -- Protection Segment," below.)
- An increase of $7.2 million in income from operations from the Corporate
segment, mainly reflecting dividends from a subsidiary. (See "1999
Compared to 1998 -- Corporate Segment," below.)
INCOME FROM OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its 3
business segments: the Wealth Management segment, the Protection segment and the
Corporate segment.
The following table provides a summary of income from operations by
segment, which is discussed more fully below.
INCOME FROM OPERATIONS BY SEGMENT*
(IN MILLIONS)
<TABLE>
<CAPTION>
% CHANGE
---------------------
1999 1998 1997 1999/1998 1998/1997
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Wealth Management $63.7 $ 31.4 $ 14.7 102.9% 113.6%
Protection (5.1) 89.1 18.0 (105.7)% 395.0%
Corporate 11.7 4.5 69.8 160.0% (93.6)%
----- ------ ------ ------- ------
$70.3 $125.0 $102.5 (43.8)% 22.0%
===== ====== ====== ======= ======
</TABLE>
* Before net realized capital gains
41
<PAGE>
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.
Following are the major factors affecting this segment's results in 1999
as compared to 1998.
- - Deposit-type funds, which primarily comprised annuity deposits, increased
by $457.7 million, or 21%, to $2,598.3 million in 1999. Fixed annuity
account deposits were higher by approximately $625 million in 1999, which
management believes 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 6-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 declined by approximately 13% in 1999. The
Company believes this decline was a consequence of the heightened interest
in the DCA programs in 1999.
- - Sales of the Futurity line of products, introduced in February 1998,
represented approximately 9% of total annuity deposits in 1999. The Company
expects that sales of the Futurity products 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 respond
favorably to introductions of new Futurity products and product
enhancements.
- - Fee income increased as a result of higher variable annuity account
balances. Fee income was higher by approximately $32 million in 1999. The
factors driving this growth in account balances have been market
appreciation and net deposit activity. This growth has generated
corresponding increases in fee income, since fees are determined based on
the average assets held in these accounts. Other income increased by
approximately $5 million in 1999, mainly reflecting a reinsurance agreement
entered into in July 1999 with an unrelated company, which provides
reinsurance on certain fixed group annuity contracts. The net effect of
this agreement was to increase income from operations by approximately
$3.4 million.
42
<PAGE>
- - The net year-over-year change in aggregate reserves on policies and
contracts for the Wealth Management segment had the effect of increasing
income from operations for this segment. This change reflected lower
reserves related to minimum guaranteed death benefit product features as
well as a variety of other factors.
- - 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. In 1999, net investment income for the
Wealth Management segment decreased by $44.0 million, to $114.0 million.
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 surrenders and
withdrawals, changes in the liability for premium and other deposit funds,
and related separate account transfers) were higher by approximately $430
million in 1999, mainly as a result of higher variable annuity surrenders.
The increase in variable annuity surrenders primarily related to a block of
separate account contracts that had been issued seven or more years
previously and for which the surrender charge periods had expired. The
Company expects that as the separate account block of business continues to
grow and as 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.
- - Operational expenses, which include general insurance expenses and
insurance taxes, licenses and fees, excluding federal income taxes,
increased by $5.4 million, or 9%, in 1999. This increase reflected costs
associated with operations and technology improvements to support the
growth of the Company's in-force business. Commissions of $153.6 million
were higher by $17.7 million in 1999, mainly as a result of higher sales.
PROTECTION SEGMENT
The Protection Segment comprises two main elements, internal reinsurance
and variable 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). This agreement had the effect of increasing income from operations by
$24.6 million in 1998. In addition, the effect of terminating this agreement was
to further increase 1998 net income by $65.7 million as the termination payment
was less than the reserves held under the agreement. Because this agreement
terminated in 1998, it had no effect on income from operations in 1999.
Variable Life Products
The Company's primary individual variable life insurance product is its
variable universal life product marketed to the company-owned life insurance
("COLI") market. This product was introduced in late 1997. The Company's
management expects that the Company's variable life business will grow and
become more significant in the future. In September 1999, the Company introduced
a new variable universal life product as part of the Futurity product portfolio.
Costs related to developing this product were primarily responsible for the
decrease of approximately $4 million in income from operations for this portion
of the Protection segment.
43
<PAGE>
CORPORATE SEGMENT
The Corporate segment includes the capital of the Company, its investments
in subsidiaries and items not otherwise attributable to either the Wealth
Management segment or the Protection segment.
In 1999, income from operations for this segment increased by
$7.2 million to $11.7 million. This increase reflected higher net investment
income, mainly from dividends of $19.3 million received during the 4th quarter
from a subsidiary, New London Trust, F.S.B. Partially offsetting this change in
net investment income were higher operational expenses and higher federal income
taxes attributable to this segment.
1998 COMPARED TO 1997:
NET INCOME
Net income decreased by $3.8 million to $125.4 million in 1998, reflecting
an increase of $22.5 million in income from operations and a decrease of
$26.3 million in net realized capital gains.
Income from operations increased from $102.5 million in 1997 to
$125.0 million in 1998, mainly as a result of the following factors:
- - A $16.7 million increase, to $31.4 million in 1998, in the income from
operations from the Company's Wealth Management segment. (See "1998
Compared to 1997 -- Wealth Management Segment," below.)
- - The effect of terminating certain reinsurance agreements with Sun Life
(Canada). The termination of these agreements was the predominant factor in
the $71.1 million increase in income from operations for the Company's
Protection segment.
- - The effects of the Company's December 1997 reorganization (described in
"Corporate Segment," below), as a result of which MFS is no longer a
subsidiary of the Company. As a result of this reorganization, dividends
from subsidiaries were lower in 1998 than in 1997 and certain subsidiary
tax benefits were no longer available to the Company. Also affecting income
from operations for the Corporate segment in 1998 was that income earned on
the proceeds of a December 1997 issuance of a $250 million surplus note was
lower than the related interest expense.
Net realized capital gains decreased from $26.7 million in 1997 to
$0.4 million in 1998. This decrease was also due to the Company's December 1997
reorganization which resulted in a realized capital gain of $21.2 million in
1997.
INCOME FROM OPERATIONS BY SEGMENT
WEALTH MANAGEMENT SEGMENT
Following are the major factors affecting the Wealth Management segment's
results in 1998 as compared to 1997:
- Annuity deposits declined by about $27 million, or 1%, to $2.2 billion in
1998. Fixed annuity account deposits were lower by approximately 7% in
1998, while deposits into variable annuity accounts increased in total and
as a proportion of total annuity deposits. These trends reflected market
conditions and competitive factors.
- Deposits into the DCA programs, a feature of the Company's combination
fixed/variable annuity products, were a significant element of account
deposits. Under these programs, which were redesigned in late 1996,
deposits are made into the fixed portion of the annuity contract and
receive a bonus rate of interest for the policy year. During the year, the
fixed deposit is systematically transferred to the variable portion of the
contract in equal periodic installments. DCA deposits overall were flat in
1998 compared to 1997. This pattern resulted, in part, from heightened
competition, as other companies introduced similar DCA programs within in
1998. During the fourth quarter of 1998, the Company introduced a higher
DCA rate and a new six-month
44
<PAGE>
DCA program. DCA deposits for that quarter were higher, compared to the
preceding 1998 quarters.
- An increase in variable account deposits in 1998 reflected both the
continuing strong growth in equity markets generally and the continuing
strong performance of the investment funds underlying the Company's
variable annuity products. The continuing strong equity markets, low
interest rate environment, and demographic trends, among other factors,
increased the demand and market for wealth accumulation products in the
U.S., particularly for variable annuities. These factors contributed to the
growth in the Company's variable account deposits in 1998, despite
heightened competition.
- The Company introduced its Futurity line of products in February 1998.
Related deposits represented about 6% of the total for the Wealth
Management segment in 1998.
- Fee income increased as a result of higher variable annuity account
balances. The main factors driving this growth in account balances were
market appreciation and net deposit activity. This growth generated
corresponding increases in fee income, since fees are determined based on
the average assets held in these accounts. Fee income increased by
approximately $43 million, or 39%, in 1998.
- Because there was a shift to variable accounts from the general account,
net investment income declined. Net investment income reflects only income
earned on invested assets of the general account. In 1998, net investment
income for the Wealth Management segment decreased by about $40 million,
or 20%, compared to 1997, mainly as a result of the decline in average
invested assets in the Company's general account. This decline in average
general account assets mainly reflected the shift in deposits in recent
years from the fixed account to variable accounts. It also reflected the
Company's decision in 1997 to no longer market group pension and GICs.
- Policyholder benefits were lower, mainly reflecting lower surrender
activity compared to 1997. During 1997 and into the first half of 1998,
surrender and withdrawal activity had been high. This activity primarily
related to a block of separate account contracts that had been issued 7 or
more years previously and for which the surrender charge periods had
expired. While variable account surrenders continued to rise, general
account surrenders declined in 1998. As a result of this pattern of
activity, policyholder benefits (of which surrenders and withdrawals, the
related changes in the liability for premium and other deposit funds, and
related separate account transfers are the major elements) increased in
1997 and were lower in 1998.
- As a result of investments in technology and infrastructure to enhance
annuity operations, operational expenses increased by approximately $12
million, or 25%, in 1998 compared to 1997. These increases reflected 3
main factors:
- Higher volumes of annuity business, requiring greater administrative
support.
- Improvements to the computer systems and technology that support the
annuity business. These improvements involved information systems
supporting the growth of the Company's in-force business, particularly
its combination fixed/variable annuities.
- Costs associated with the product design and implementation of the new
Futurity multi-manager annuity product and the development of a new
product within the Regatta product line.
PROTECTION SEGMENT
The reinsurance arrangements in which Sun Life (Canada) has reinsured the
mortality risks of individual life policies sold in prior years by the Company
had an immaterial effect, in the aggregate, on net income in 1997 and 1998.
Under another agreement, which became effective January 1, 1991 and terminated
October 1, 1998, the Company reinsured certain individual life insurance
contracts issued by Sun Life (Canada). This agreement had the effect of
increasing income from operations by $37.1 million in 1997. Income from
operations decreased to $24.6 million in 1998, because the agreement was in
place only through the first 9 months of 1998. In addition, the effect of
terminating this
45
<PAGE>
agreement was to further increase 1998 net income by $65.7 million. This
termination-related increase in 1998 represented a reasonable approximation of
the value of the stream of future earnings that the agreement would have
generated had it remained in effect.
The Company's primary individual variable life insurance product is its
variable universal life product marketed to the company-owned life insurance
("COLI") market. This product was introduced in late 1997.
CORPORATE SEGMENT
In 1998, income from operations decreased by $65.3 million to
$4.5 million for the Corporate segment. This decrease reflected 2 main factors:
- Dividends from subsidiaries were lower than in 1997 by $37.5 million. This
decrease mainly resulted from a December 1997 reorganization, in which the
Company transferred its ownership of MFS to its parent company, Sun Life
of Canada (U.S.) Holdings, Inc. ("Sun Life (U.S.) Holdings.") As a result
of this reorganization, the Company received no dividends from MFS in
1998. By comparison, it received $33.1 million of MFS dividends in 1997.
- Net investment income, other than dividends from subsidiaries, decreased
by $5.9 million in 1998 over 1997, reflecting the effect of the Company's
December 1997 issuance of a $250 million surplus note to Sun Life (U.S.)
Holdings. Interest expense exceeded investment earnings on the related
funds.
FINANCIAL CONDITION AND LIQUIDITY
ASSETS
The Company's total assets comprise those held in its general account and
those held in its separate accounts. General account assets support general
account liabilities. Separate accounts and their assets are of 2 main types:
- Those assets held in a "fixed" separate account, which the Company
established for amounts that contract holders allocate to the fixed
portion of their combination fixed/variable deferred annuity contracts.
Fixed separate account assets are available to fund general account
liabilities and general account assets are available to fund the
liabilities of this fixed separate account. The Company manages the assets
of this fixed separate account according to general account investment
policy guidelines.
- Those assets held in a number of registered and non-registered "variable"
separate accounts as investment vehicles for the Company's variable life
and annuity contracts. Policyholders may choose from among various
investment options offered under these contracts according to their
individual needs and preferences. Policyholders assume the investment
risks associated with these choices. General account and fixed separate
account assets are not available to fund the liabilities of these variable
accounts.
The following table summarizes significant changes in asset balances
during 1999, 1998 and 1997. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS % CHANGE
1999 1998 1997 1999/1998 1998/1997
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
General account assets.................. $ 2,377.1 $ 2,932.2 $ 4,513.5 (18.9)% (35.0)%
Fixed separate account assets........... 2,080.7 2,195.6 2,343.9 (5.2)% (6.3)%
--------- --------- --------- ------ ------
$ 4,457.8 $ 5,127.8 $ 6,857.4 (13.1)% (25.2)%
Variable separate account assets........ 15,490.3 11,774.8 9,068.0 31.6% 29.9%
--------- --------- --------- ------ ------
Total assets............................ $19,948.1 $16,902.6 $15,925.4 18.0% 6.1%
========= ========= ========= ====== ======
</TABLE>
46
<PAGE>
General account and fixed separate account assets, taken together,
decreased by 13.2% in 1999; but variable separate account assets increased by
31.6%. In 1998, the combined general account and fixed separate account
decreased by 25.2%, while variable separate account assets increased by 29.9%.
This growth in variable accounts relative to the general and fixed accounts
reflects 2 main factors: (1) appreciation of the funds held in the variable
separate accounts has exceeded that of the funds held in the general and fixed
separate accounts; and (2) annuity deposits and exchanges into variable accounts
have increased, while annuity deposits into fixed accounts have slowed. The
Company believes this pattern has reflected a shift in the preferences of
policyholders, which is largely attributable to the strong performance of equity
markets in general and of the Company's variable account funds in particular.
The assets of the general account are available to support general account
liabilities. For management purposes, it is the Company's practice to segment
its general account to facilitate the matching of assets and liabilities.
General account assets primarily comprise cash and invested assets, which
represented essentially all of general account assets at year-end 1999. Major
types of invested asset holdings included bonds, mortgages, real estate and
common stock. The Company's bond holdings comprised 51.5% of the Company's
portfolio at year-end 1999. Bonds included both public and private issues. It is
the Company's policy to acquire only investment-grade securities. As a result,
the overall quality of the bond portfolio is high. At year-end 1999, only 0.5%
were rated below-investment-grade; i.e., they had National Association of
Insurance Commissioners ("NAIC") ratings lower than "1" or "2." The Company's
mortgage holdings amounted to $528.9 million at year-end 1999, representing
22.3% of the total portfolio. All mortgage holdings at year-end 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
year-end 1999, investment real estate amounted to $79.2 million, representing
about 3.3% 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. Common stock holdings amounted to $75.3 million, representing about
3.2% of the portfolio. These holdings comprised the Company's ownership shares
in subsidiaries.
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 MARKETS RISK MANAGEMENT
See "Quantitative and Qualitative Disclosures About Market Risk," below,
for a discussion of the Company's capital markets risk management.
CAPITAL RESOURCES
CAPITAL ADEQUACY
The National Association of Insurance Commissioners ("NAIC") adopted
regulations at the end of 1993 that established minimum capitalization
requirements for insurance companies, based on risk-based capital ("RBC")
formulas. These requirements are intended to identify undercapitalized
companies, so that specific regulatory actions can be taken on a timely basis.
The RBC formula for life insurance companies 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.
47
<PAGE>
LIQUIDITY
The Company's liquidity requirements are generally met by funds from
operations. The Company's main uses of funds are to pay out death benefits and
other maturing insurance and annuity contract obligations; to make pay-outs on
contract terminations; to purchase new investments; to fund new business
ventures; and to pay normal operating expenditures and taxes. The Company's main
sources of funds are premiums and deposits on insurance and annuity products;
proceeds from the sale of investments; income from investments; and repayments
of investment principal.
In managing its general account and fixed separate account assets in
relation to its liabilities, the Company has segmented these assets by product
or by groups of products. The Company manages each segment's assets based on an
investment policy that it has established for that segment. Among other matters,
this investment policy considers liquidity requirements and provides cash flow
estimates. The Company reviews these policies quarterly.
The Company's liquidity targets are intended to enable it to meet its
day-to-day cash requirements. On a quarterly basis, the Company compares its
total "liquifiable" assets to its total demand liabilities. Liquifiable assets
comprise cash and assets that could quickly be converted to cash should the need
arise. These assets include short-term investments and other current assets and
investment-grade bonds. The Company's policy is to maintain a liquidity ratio in
excess of 100%, and it did so throughout 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
On January 27, 1998, Sun Life (Canada) announced that its Board of
Directors had requested that management develop a plan to demutualize.
Demutualization would involve converting from a mutual structure, with ownership
by policyholders, to a shareholder-owned company. It would provide that the
ownership interest currently held by policyholders be distributed to them in the
form of shares, without affecting their interests as policyholders. In
June 1999, the Sun Life (Canada)'s Board of Directors approved the
demutualization timetable recommended by management, and on September 28, 1999,
Sun Life (Canada)'s Board of Directors approved the demutualization plan. On
December 6, 1999, Sun Life (Canada) received approval for its demutualization
plan from the Michigan Commissioner of Insurance. At a Special Meeting on
December 15, 1999, eligible policyholders of Sun Life (Canada) voted in favor of
the Company's plans to demutualize. Sun Life (Canada) completed its
demutualization on March 22, 2000 and its Initial Public Offering ("IPO") on
March 29, 2000. The demutualization of Sun Life (Canada) is not expected to have
any significant impact on the Company.
SALE OF SUBSIDIARIES
On February 5, 1999, the Company sold Massachusetts Casualty Insurance
Company ("MCIC"), a disability insurance company, to an unaffiliated party. The
net proceeds of this sale were $34.0 million and the Company realized a post tax
gain of $4.9 million.
On October 29, 1999, the Company completed the sale of its wholly-owned
subsidiary, New London Trust F.S.B. ("NLT"), for approximately $30.3 million to
an unaffiliated party. The Company realized a post-tax gain of $13.2 million
from this sale. This transaction is not expected to have a significant effect on
the ongoing operations of the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This discussion covers market risks associated with investment portfolios
that support the Company's general account liabilities. This discussion does not
cover market risks associated with those investment portfolios that support
separate account products. For these products, the policyholder, rather than the
Company, assumes these market risks.
48
<PAGE>
GENERAL
The assets of the general account are available to support general account
liabilities. For purposes of managing these assets in relation to these
liabilities, the Company notionally segments these assets by product or by
groups of products. The Company manages each segment's assets based on an
investment policy that it has established for that segment. The policy covers
the segment's liability characteristics and liquidity requirements, provides
cash flow estimates, and sets targets for asset mix, duration, and quality. Each
quarter, investment and business unit managers review these policies to ensure
that the policies remain appropriate, taking into account each segment's
liability characteristics.
TYPES OF MARKET RISKS
The Company's stringent underwriting standards and practices have resulted
in high-quality portfolios and have the effect of limiting credit risk. It is
the Company's policy, for example, not to purchase below-investment-grade
securities. Also, as a matter of investment policy, the Company assumes no
foreign currency or commodity risk; nor does it assume equity price risk except
to the extent that it holds real estate in its portfolios. (At year-end 1999,
investment real estate holdings represented less than 4% of its total general
account portfolio.) The management of interest rate risk exposure is discussed
below.
INTEREST RATE RISK MANAGEMENT
The Company's fixed interest rate liabilities are primarily supported by
well-diversified portfolios of fixed interest investments. They are also
supported by holdings of real estate and floating rate notes. All of these fixed
interest investments are held for other than trading purposes and can include
publicly issued and privately placed bonds and commercial mortgage loans. Public
bonds can include Treasury bonds, corporate bonds, and money market instruments.
The Company's fixed income portfolios also hold securitized assets, including
mortgage-backed securities ("MBS") and asset-backed securities. These securities
are subject to the same standards applied to other portfolio investments,
including relative value criteria and diversification guidelines. In portfolios
backing interest-sensitive liabilities, the Company's policy is to limit MBS
holdings to less than 10% of total portfolio assets. In all portfolios, the
Company restricts MBS investments to pass-through securities issued by U.S.
government agencies and to collateralized mortgage obligations, which are
expected to exhibit relatively low volatility. The Company does not engage in
lever-aged 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;
- 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.
49
<PAGE>
Asset strategies may include the use of Treasury futures or interest rate
swaps to adjust the duration profiles for particular portfolios. All derivative
transactions are conducted under written operating guidelines and are marked to
market. Total positions and exposures are reported to the Board of Directors on
a monthly basis. The counterparties to hedging transactions are major highly
rated financial institutions, with respect to which the risk of the Company's
incurring losses related to credit exposures is considered remote.
Liabilities categorized as financial instruments and held in the Company's
general account at December 31, 1999 had a fair value of $1,024.6 million. Fixed
income investments supporting those liabilities had a fair value of $2,072.1
million at that date. The Company performed a sensitivity analysis on these
interest-sensitive liabilities and assets at December 31, 1999. The analysis
showed that if there were an immediate increase of 100 basis points in interest
rates, the fair value of the liabilities would show a net decrease of $30.6
million and the corresponding assets would show a net decrease of $80.5 million.
By comparison, liabilities categorized as financial instruments and held
in the Company's general account at December 31, 1998 had a fair value of
$1,538.3 million. Fixed income investments supporting those liabilities had a
fair value of $2,710.1 million at that date. The Company performed a sensitivity
analysis on these interest-sensitive liabilities and assets at December 31,
1998. The analysis showed that if there were an immediate increase of 100 basis
points in interest rates, the fair value of the liabilities would show a net
decrease of $46.3 million and the corresponding assets would show a net decrease
of $113.2 million.
The Company produced these estimates using computer models. Since these
models reflect assumptions about the future, they contain an element of
uncertainty. For example, the models contain assumptions about future
policyholder behavior and asset cash flows. Actual policyholder behavior and
asset cash flows could differ from what the models show. As a result, the
models' estimates of duration and market values may not reflect what actually
will occur. The models are further limited by the fact that they do not provide
for the possibility that management action could be taken to mitigate adverse
results. The Company believes that this limitation is one of conservatism; that
is, it will tend to cause the models to produce estimates that are generally
worse than one might actually expect, all other things being equal.
Based on its processes for analyzing and managing interest rate risk, the
Company believes its exposure to interest rate changes will not materially
affect its near-term financial position, results of operations, or cash flows.
REINSURANCE
The Company has agreements with Sun Life (Canada) which provide that Sun
Life (Canada) will reinsure the mortality risks of the individual life insurance
contracts sold by the Company. Under these agreements, basic death benefits and
supplementary benefits are reinsured on a yearly renewable term basis and
coinsurance basis, respectively. Reinsurance transactions under these agreements
in 1999 had the effect of decreasing net income from operations by approximately
$1,527,000.
Effective January 1, 1991, the Company entered into an agreement with Sun
Life (Canada) under which certain individual life insurance contracts issued by
Sun Life (Canada) were reinsured by the Company on a 90% coinsurance basis. Also
effective January 1, 1991 the Company entered into an agreement with Sun Life
(Canada) which provides that Sun Life (Canada) will reinsure the mortality risks
in excess of $500,000 per policy for the individual life insurance contracts
assumed by the Company in the reinsurance agreement described above. 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. These agreements had the effect of increasing income from
operations by approximately $24,579,000 for the year ended December 31, 1998.
The Company terminated these agreements effective October 1, 1998, resulting in
an increase in income from operations in 1998 of $65,679,000 which included a
cash settlement.
50
<PAGE>
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. Reinsurance transactions under this agreement had the effect of
increasing income from operations by $193,000 in 1999.
During 1999, the Company entered into an agreement with an unrelated
company which provides reinsurance on certain fixed group annuity contracts. The
net effect of this agreement was to increase income from operations by
approximately $3,400,000. 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 net effect of these agreements was to
increase income from operations by approximately $157,000.
RESERVES
In accordance with the life insurance laws and regulations under which the
Company operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on its outstanding
contracts. Reserves are based on mortality tables in general use in the United
States and are computed to equal amounts that, with additions from premiums to
be received, and with interest on such reserves compounded annually at certain
assumed rates, will be sufficient to meet the Company's policy obligations at
their maturities or in the event of an insured's death. In the accompanying
Financial Statements, these reserves are determined in accordance with statutory
regulations.
INVESTMENTS
Of the Company's total assets of $19.9 billion at December 31, 1999, 88.1%
($17.6 billion) consisted of unitized and non-unitized separate account assets,
6.1% ($1.2 billion) was invested in bonds and similar securities, 2.7%
($528.9 million) was invested in mortgages, 0.4% ($75.3 million) was invested in
subsidiaries, 0.4% ($94.8 million) was invested in real estate, and the
remaining 2.3% ($456.1 million) was invested in cash and other assets.
COMPETITION
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other entities
marketing insurance products. According to a 1999 statistical study published by
A.M. Best, the Company ranked 36th among North American life insurance companies
based upon total 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 March 31, 2000, the Company had 385 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
51
<PAGE>
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.
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
statutory 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.
------------------------
52
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 1,221,970 $ 1,763,468
Common stocks 75,283 128,445
Mortgage loans on real estate 528,911 535,003
Properties acquired in satisfaction of debt 15,641 17,207
Investment real estate 79,182 78,021
Policy loans 40,095 41,944
Cash and short-term investments 316,971 265,226
Other invested assets 67,938 64,177
Investment income due and accrued 25,303 35,706
Federal income tax recoverable and interest thereon -- 1,110
Other assets 5,807 1,928
----------- -----------
General account assets 2,377,101 2,932,235
Separate account assets
Unitized 15,490,328 11,774,745
Non-unitized 2,080,726 2,195,641
----------- -----------
Total admitted assets $19,948,155 $16,902,621
=========== ===========
LIABILITIES
Aggregate reserve for life policies and contracts $ 1,153,642 $ 1,216,107
Supplementary contracts 3,182 1,885
Policy and contract claims 962 369
Liability for premium and other deposit funds 564,820 1,000,875
Surrender values on cancelled policies 16 5
Interest maintenance reserve 41,771 40,490
Commissions to agents due or accrued 3,253 2,615
General expenses due or accrued 14,055 5,932
Transfers from Separate Accounts due or accrued (467,619) (361,863)
Taxes, licenses and fees due or accrued, excluding FIT 379 401
Federal income taxes due or accrued 89,031 25,019
Unearned investment income 22 23
Amounts withheld or retained by company as agent or
trustee (442) 529
Remittances and items not allocated 1,078 5,176
Asset valuation reserve 44,071 44,392
Payable to parent, subsidiaries, and affiliates 26,284 30,381
Payable for securities -- 428
Other liabilities 16,674 9,770
----------- -----------
General account liabilities 1,491,179 2,022,534
Separate account liabilities:
Unitized 15,489,908 11,774,522
Non-unitized 2,080,726 2,195,641
----------- -----------
Total liabilities 19,061,813 15,992,697
----------- -----------
CAPITAL STOCK AND SURPLUS
Common capital stock 5,900 5,900
----------- -----------
Surplus notes 565,000 565,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 116,087 139,669
----------- -----------
Surplus 880,442 904,024
----------- -----------
Total common capital stock and surplus 886,342 909,924
----------- -----------
Total liabilities, capital stock and surplus $19,948,155 $16,902,621
=========== ===========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
53
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 69,492 $ 210,198 $ 254,066
Deposit-type funds 2,598,265 2,140,604 2,155,297
Considerations for supplementary contracts without
life contingencies and dividend accumulations 3,461 2,086 1,615
Net investment income 167,035 184,532 270,249
Amortization of interest maintenance reserve 3,702 2,282 1,166
Income from fees associated with investment
management and administration and contract
guarantees from Separate Account 173,417 141,211 109,757
Net gain from operations from Separate Account 61 -- 5
Other income 24,554 87,364 102,889
---------- ---------- ----------
Total Income 3,039,987 2,768,277 2,895,044
---------- ---------- ----------
BENEFITS AND EXPENSES:
Death benefits 4,386 15,335 17,284
Annuity benefits 155,387 153,636 148,135
Disability benefits and benefits under accident and
health policies -- 104 132
Surrender benefits and other fund withdrawals 2,313,179 1,933,833 1,854,004
Interest on policy or contract funds 237 (140) 699
Payments on supplementary contracts without life
contingencies and dividend accumulations 2,345 2,528 1,687
Increase (decrease) in aggregate reserves for life
and accident and health policies and contracts (62,465) (972,135) 127,278
Decrease in liability for premium and other deposit
funds (436,055) (449,831) (447,603)
Increase (decrease) in reserve for supplementary
contracts without life contingencies and for
dividend and coupon accumulations 1,296 (362) 42
---------- ---------- ----------
Total Benefits 1,978,310 682,968 1,701,658
---------- ---------- ----------
Commissions on premiums and annuity considerations
(direct business only) 155,381 137,718 132,700
Commissions and expense allowances on reinsurance
assumed -- 13,032 17,951
General insurance expenses 75,046 58,132 46,624
Insurance taxes, licenses and fees, excluding federal
income taxes 8,710 7,388 8,267
Increase (decrease) in loading on and cost of
collection in excess of loading on deferred and
uncollected premiums -- (1,663) 523
Net transfers to Separate Accounts 727,811 722,851 844,130
Reserve and fund adjustments on reinsurance
terminated -- 1,017,112 --
---------- ---------- ----------
Total Benefits and Expenses $2,945,258 $2,637,538 $2,751,853
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
54
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net gain from operations before dividends to
policyholders and federal income tax expense $94,729 $130,739 $143,191
Dividends to policyholders -- (5,981) 33,316
------- -------- --------
Net gain from operations after dividends to
policyholders and before federal income tax
expense 94,729 136,720 109,875
Federal income tax expense, (excluding tax on
capital gains) 24,479 11,713 7,339
------- -------- --------
Net gain from operations after dividends to
policyholders and federal income taxes and
before realized capital gains 70,250 125,007 102,536
Net realized capital gains less capital gains
tax and transferred to the Interest
Maintenance Reserve 20,108 394 26,706
------- -------- --------
NET INCOME $90,358 $125,401 $129,242
======= ======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
55
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- --------
<S> <C> <C> <C>
Capital and Surplus, Beginning of Year $909,924 $832,695 $567,143
-------- -------- --------
Net Income 90,358 125,401 129,242
Change in net unrealized capital gains (losses) (36,111) (384) 1,152
Change in non-admitted assets and related items 1,715 (1,086) (463)
Change in reserve due to change in valuation basis -- 39,016
Change in asset valuation reserve 320 3,213 6,307
Surplus (contributed to) withdrawn from Separate
Accounts during period 136 82 --
Other changes in surplus in Separate Accounts
Statements -- 10 --
Change in surplus notes -- -- 250,000
Dividends to stockholders (80,000) (50,000) (159,722)
Aggregate write-ins for gains and (losses) in surplus -- (7) 20
-------- -------- --------
Net change in capital and surplus for the year (23,582) 77,229 265,552
-------- -------- --------
Capital and Surplus, End of Year $886,342 $909,924 $832,695
======== ======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
56
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Provided by Operations:
Premiums, annuity considerations and deposit
funds received $ 2,667,756 $ 2,361,669 $ 2,410,919
Considerations for supplementary contracts and
dividend accumulations received 3,461 2,086 1,615
Net investment income received 225,038 236,944 345,279
Fees associated with investment management,
administration, and contract guarentees from
Separate Accounts 173,417 141,211 --
Other income received 24,555 111,936 208,223
----------- ----------- -----------
Total receipts 3,094,227 2,853,846 2,966,036
----------- ----------- -----------
Benefits paid (other than dividends) 2,474,693 2,107,736 2,020,747
Insurance expenses and taxes paid (other than
federal income and capital gains taxes) 230,744 217,023 203,650
Net cash transferred to Separate Accounts 833,567 800,636 895,465
Dividends paid to policyholders -- 26,519 28,316
Federal income tax payments
(recoveries),(excluding tax on capital
gains) (40,644) 46,965 1,397
Other--net 237 (138) 698
----------- ----------- -----------
Total payments 3,498,597 3,198,741 3,150,273
----------- ----------- -----------
Net cash used in operations (404,370) (344,895) (184,237)
----------- ----------- -----------
Proceeds from long-term investments sold,
matured or repaid (after deducting taxes on
capital gains (losses) of $(1,768) for 1999,
$2,038 for 1998, and $750 for 1997) 1,065,307 1,261,396 1,343,803
Issuance of surplus notes -- -- 250,000
Other cash provided (used) 13,797 (40,529) 71,095
----------- ----------- -----------
Total cash provided 1,079,104 1,220,867 1,664,898
----------- ----------- -----------
Cash Applied:
Cost of long-term investments acquired (484,417) (967,901) (773,783)
Other cash applied (138,572) (187,263) (310,519)
----------- ----------- -----------
Total cash applied (622,989) (1,155,164) (1,084,302)
Net change in cash and short-term investments 51,745 (279,192) 396,359
Cash and short-term investments:
Beginning of year 265,226 544,418 148,059
----------- ----------- -----------
End of year $ 316,971 $ 265,226 $ 544,418
=========== =========== ===========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY 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 and is currently engaged in the sale of individual
variable life insurance, individual fixed and variable annuities, group fixed
and variable annuities, and group pension contracts.
Effective May 1, 1997, the Company became a wholly-owned subsidiary of the newly
established Sun Life of Canada (U.S.) Holdings, Inc. ("Life Holdco"). On
December 18, 1997, Life Holdco became a wholly-owned subsidiary of Sun Life
Assurance Company of Canada - U.S. Operations Holdings, Inc. ("US Holdco"). US
Holdco is a wholly-owned subsidiary of Sun Life Assurance Company of Canada
("SLOC"), a mutual insurance company.
The Company, which is domiciled in the State of Delaware, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Delaware Insurance Department. Prescribed accounting
practices include practices described in a variety of publications of the
National Association of Insurance Commissioners ("NAIC"), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles for mutual life insurance companies and stock life insurance
companies wholly-owned by mutual life insurance companies. In April 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation"), that became effective in 1996, which changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly-owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with generally accepted accounting principles
("GAAP"). Consequently, these financial statements prepared in conformity with
statutory accounting practices, as described above, vary from and are not
intended to present the Company's financial position, results of operations or
cash flow in conformity with generally accepted accounting principles. (See Note
19 for further discussion relative to the Company's basis of financial statement
presentation.) The effects on the financial statements of the variances between
the statutory basis of accounting and GAAP, although not reasonably
determinable, are presumed to be material.
INVESTED ASSETS
Bonds are carried at cost, adjusted for amortization of premium or accrual of
discount. Investments in mortgage backed securities are generally carried at
amortized cost. Changes in prepayment assumptions and resulting cash flows are
confirmed retrospectively. The adjusted yield is used to calculate investment
income in future periods. If current book value exceeds future undiscounted cash
flows, a realized capital loss is recorded and amortized through the Interest
Maintenance Reserve (IMR). Investments in non-insurance subsidiaries are carried
on the equity basis. Investments in insurance subsidiaries are carried at their
statutory surplus values. Mortgage loans acquired at a premium or discount are
carried at amortized values and other mortgage loans are carried at the amounts
of the unpaid balances. Real estate investments are carried at the lower of
cost, adjusted for accumulated depreciation or appraised value, less
encumbrances. Short-term investments are carried at amortized cost, which
approximates fair value. Depreciation of buildings and improvements is
calculated using the straight-line method over the estimated useful life of the
property, generally 40 to 50 years.
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
POLICY AND CONTRACT RESERVES
The reserves for life insurance and annuity contracts are computed in accordance
with presently accepted actuarial standards, and are based on actuarial
assumptions and methods (including use of published mortality tables and
prescribed interest rates) which produce reserves at least as great as those
required by law and contract provisions.
INCOME AND EXPENSES
For life and annuity contracts, premiums are recognized as revenues over the
premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
SEPARATE ACCOUNTS
The Company has established unitized separate accounts applicable to various
classes of contracts providing for variable benefits. Contracts for which funds
are invested in separate accounts include variable life insurance and individual
and group qualified and non-qualified variable annuity contracts.
The Company has also established a non-unitized separate account for amounts
allocated to the fixed portion of certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities, and general account assets are available to fund
liabilities of this account.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders, are shown as separate captions in the financial statements.
Assets held in the separate accounts are carried at market value as determined
by quoted market prices of the underlying investments.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, and accrued expense
allowances recognized in reserves are receivable from or payable to the general
account. Accumulated amounts that have not been transferred are recorded as a
payable (receivable) to (from) the general account. Amounts payable to the
general account of the Company were $467,619,000 in 1999 and $361,863,000 in
1998.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
As described more fully in Note 10, during 1997 the Company changed certain
assumptions used in determining actuarial reserves.
In March 1998, the National Association of Insurance Commissioners adopted the
Codification of Statutory Accounting Principles ("Codification"). The
Codification, which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be effective January 1,
2001. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices and it is uncertain when, or
if, the state of Delaware will require adoption of Codification for the
preparation of statutory financial statements. The Company has not finalized the
quantification of the effects of Codification on its statutory financial
statements.
OTHER
Preparation of the financial statements requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to amounts as
presented in the current year.
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. INVESTMENTS IN SUBSIDIARIES
The Company owns all of the outstanding shares of the following subsidiaries:
Sun Life Insurance and Annuity Company of New York ("Sun Life (N.Y.)") is
engaged in the sale of individual fixed and variable annuity contracts and group
life and group long term disability insurance contracts in the State of New
York;
Sun Life of Canada (U.S.) Distributors, Inc. (formerly Sun Investment Services
Company) ("Sundisco"), is a registered broker-dealer;
Sun Life Financial Services Limited ("SLFSL"), serves as the marketing
administrator for the distribution of the offshore products of SLOC (Bermuda
branch), an affiliate;
Sun Benefit Services Company, Inc. ("Sunbesco") receives renewal commissions on
a disability product and is currently inactive;
Sun Capital Advisers, Inc. ("Sun Capital") is a registered investment adviser;
Sun Life Finance Corporation ("Sunfinco") is a finance company and currently
inactive;
Sun Life of Canada (U.S.) SPE 97-1, Inc. ("SPE 97-1") is a special purpose
corporation engaging in activities incidental to securitizing mortgage loans;
Clarendon Insurance Agency, Inc. ("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;
Sun Life Information Services Ireland Limited ("SLISL") is an offshore
technology services center for affiliates.
On October 29,1999, the Company sold New London Trust F.S.B. ("NLT") to an
unaffiliated party for $30,254,000. The Company realized a post tax gain of
$13,170,000.
On February 5, 1999, the Company sold Massachusetts Casualty Insurance Company
("MCIC"), a disability insurance company, to an unaffiliated party. The net
proceeds of this sale were $33,965,000. The Company realized a post tax gain of
$4,900,000.
The impact of the sales of NLT and MCIC on continuing operations of the Company
is not expected to be material.
Prior to December 24, 1997, the Company owned 93.6% of the outstanding shares of
Massachusetts Financial Services Company ("MFS"), a registered investment
adviser. On December 24, 1997, the Company transferred all of its shares of MFS
to Life Holdco in the form of a dividend valued at $159,722,000. As a result of
this transaction, the Company realized a gain of $21,195,000 of undistributed
earnings.
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED)
During 1999, 1998, and 1997, the Company contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
MCIC $ -- $ -- $ 2,000
SLFSL 1,000 750 1,000
SPE 97-1 -- -- 20,377
Sundisco 19,000 10,000 --
Sun Capital -- 500 --
Clarendon -- 10 --
SLISL -- 502 --
</TABLE>
During 1999, 1998, and 1997, the Company received dividends from the following
subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SUN Life (N.Y.) $ 6,500 $ 3,000 $ --
NLT 19,319 -- 7,500
MFS -- -- 33,110
SPE 97-1 -- 675 --
SUNDISCO -- -- 571
</TABLE>
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1999, 1998 and 1997 and for the years then ended, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets $ 877,939 $ 1,315,317 $ 1,190,951
Liabilities (802,656) (1,186,872) (1,073,966)
----------- ----------- -----------
Total net assets $ 75,283 $ 128,445 $ 116,985
=========== =========== ===========
Total revenues $ 82,443 $ 222,853 $ 750,364
Operating expenses (90,318) (221,933) (646,896)
Income tax expense 3,249 (1,222) (43,987)
----------- ----------- -----------
Net income (loss) $ (4,626) $ (302) $ 59,481
=========== =========== ===========
</TABLE>
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. BONDS
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
---- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government
agencies and authorities $ 78,161 $ 2,091 $ (2,454) $ 77,798
States, provinces and political subdivisions 20,428 69 (57) 20,440
Public utilities 181,466 6,854 (5,907) 182,413
Transportation 188,285 7,689 (2,709) 193,265
Finance 88,517 4,631 (518) 92,630
All other corporate bonds 665,113 18,353 (17,152) 666,314
---------- -------- -------- ----------
Total long-term bonds 1,221,970 39,687 (28,797) 1,232,860
---------- -------- -------- ----------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 312,585 -- -- 312,585
---------- -------- -------- ----------
Total short-term bonds 312,585 -- -- 312,585
---------- -------- -------- ----------
Total bonds $1,534,555 $ 39,687 $(28,797) $1,545,445
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
---- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government
agencies and authorities $ 140,417 $ 7,635 $ (177) $ 147,875
States, provinces and political subdivisions 16,632 2,219 -- 18,851
Public utilities 397,670 38,740 (238) 436,172
Transportation 197,207 22,481 (18) 219,670
Finance 144,958 12,542 (494) 157,006
All other corporate bonds 866,584 50,814 (6,419) 910,979
---------- -------- ------- ----------
Total long-term bonds 1,763,468 134,431 (7,346) 1,890,553
---------- -------- ------- ----------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 43,400 -- -- 43,400
Affiliates 220,000 -- -- 220,000
---------- -------- ------- ----------
Total short-term bonds 263,400 -- -- 263,400
---------- -------- ------- ----------
Total bonds $2,026,868 $134,431 $(7,346) $2,153,953
========== ======== ======= ==========
</TABLE>
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. BONDS (CONTINUED)
The amortized cost and estimated fair value of bonds at December 31, 1999 are
shown below by contractual maturity. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call and/or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---- ----------
(IN THOUSANDS)
<S> <C> <C>
Maturities:
Due in one year or less $ 376,761 $ 376,823
Due after one year through five years 184,077 182,788
Due after five years through ten years 259,042 263,321
Due after ten years 542,678 543,301
---------- ----------
1,362,558 1,366,233
Mortgage-backed securities 171,997 179,212
---------- ----------
Total bonds $1,534,555 $1,545,445
========== ==========
</TABLE>
Proceeds from sales and maturities of investments in debt securities during
1999, 1998, and 1997 were $740,081,000, $1,016,811,000 and $980,264,000, gross
gains were $7,688,000, $17,025,000, and $10,732,000 and gross losses were
$4,477,000, $866,000, and $2,446,000, respectively.
Bonds included above with an amortized cost of approximately $2,604,000,
$2,572,000, and $2,578,000 at December 31, 1999, 1998 and 1997, respectively,
were on deposit with governmental authorities as required by law.
Excluding investments in U.S. government and agencies securities, the Company is
not exposed to significant concentrations of credit risk in its portfolio.
4. SECURITIES LENDING
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chase Manhattan Bank of New York. The custodian has
indemnified the Company against losses arising from this program. There were no
securities on loan as of December 31, 1999, 1998 or 1997. Income resulting from
this program was $20,000, $94,000, and $200,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
5. MORTGAGE LOANS
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
allowances for losses have been made. In those cases where, in management's
judgment, the mortgage loans' values are impaired, appropriate losses are
recorded.
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. MORTGAGE LOANS (CONTINUED)
The following table shows the geographical distribution of the mortgage loan
portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
California $ 72,693 $ 82,397
Massachusetts 38,083 53,528
Michigan 32,941 34,357
New York 22,912 21,190
Ohio 31,914 36,171
Pennsylvania 92,825 93,587
Washington 30,265 36,548
All other 207,278 177,225
-------- --------
$528,911 $535,003
======== ========
</TABLE>
The Company has restructured mortgage loans totaling $15,644,000 and $30,743,000
and corresponding allowances for losses of $1,043,000 and $2,120,000 at December
31, 1999 and 1998, respectively.
On December 22, 1999, the Company acquired 28 mortgages from SLOC at a cost of
$118,091,637. The Company in turn sold a 90% participation in these 28 plus an
additional 11 existing mortgage loans to a third party as part of two mortgage
participation agreements, for which the Company received proceeds of
$146,974,851.
The Company has outstanding mortgage loan commitments on real estate totaling
$2,384,000 and $18,005,000 at December 31, 1999 and 1998, respectively.
6. INVESTMENT GAINS AND LOSSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net realized gains (losses):
Bonds $ 70 $ 5,659 $ 2,882
Common stock of affiliates 15,290 -- 21,195
Common stocks -- 48 --
Mortgage loans 787 2,374 3,837
Real estate (481) 955 2,912
Other invested assets -- (3,827) (717)
-------- ------- -------
Subtotal 15,666 5,209 30,109
Capital gains tax expense (benefit) (4,442) 4,815 3,403
-------- ------- -------
Total $ 20,108 $ 394 $26,706
======== ======= =======
Changes in unrealized gains (losses):
Bonds $ (6,689) $ -- $ --
Common stock of affiliates (30,966) (302) (2,894)
Mortgage loans 83 (1,312) 1,524
Real estate 1,461 403 3,377
Other invested assets -- 827 (855)
-------- ------- -------
Total $(36,111) $ (384) $ 1,152
======== ======= =======
</TABLE>
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. INVESTMENT GAINS AND LOSSES (CONTINUED)
Realized capital gains and losses on bonds and mortgages and interest rate swaps
which relate to changes in levels of interest rates are charged or credited to
an interest maintenance reserve ("IMR") and amortized into income over the
remaining contractual life of the security sold. The net realized capital gains
credited to the interest maintenance reserve were $4,965,000 in 1999, $8,943,000
in 1998, and $6,321,000 in 1997. All gains and losses are transferred net of
applicable income taxes.
7. NET INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income from bonds $128,992 $167,436 $188,924
Income from investment in common stock of affiliates 25,819 3,675 41,181
Interest income from mortgage loans 50,327 53,269 76,073
Real estate investment income 15,696 15,932 17,161
Interest income from policy loans 3,118 2,881 3,582
Other investment income (loss) (1,700) (641) (193)
-------- -------- --------
Gross investment income 222,252 242,552 326,728
-------- -------- --------
Interest on surplus notes and notes payable (43,266) (44,903) (42,481)
Investment expenses (11,951) (13,117) (13,998)
-------- -------- --------
Net investment income $167,035 $184,532 $270,249
======== ======== ========
</TABLE>
8. DERIVATIVES
The Company uses derivative instruments for interest rate risk management
purposes, including hedges against specific interest rate risk and to minimize
the Company's exposure to fluctuations in interest rates and foreign currency
exchange rates. The Company's use of derivatives has included U.S. Treasury
futures, conventional interest rate swaps, and currency and interest rate swap
agreements structured as forward spread lock interest rate swaps.
In the case of interest rate futures, gains or losses on contracts that qualify
as hedges are deferred until the earliest of the completion of the hedging
transaction, determination that the transaction will no longer take place, or
determination that the hedge is no longer effective. Upon completion of the
hedge, where it is impractical to allocate gains or losses to specific hedged
assets or liabilities, gains or losses are deferred in IMR and amortized over
the remaining life of the hedged assets. At December 31, 1999 and 1998, there
were no futures contracts outstanding.
In the case of interest rate and foreign currency swap agreements and forward
spread lock interest rate swap agreements, gains or losses on terminated swaps
are deferred in IMR and amortized over the shorter of the remaining life of the
hedged asset or the remaining term of the swap contract. The net differential to
be paid or received on interest rate swaps is recorded monthly as interest rates
change.
65
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. DERIVATIVES (CONTINUED)
The Company's open positions are as follows:
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1999
--------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
----------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Conventional interest rate swaps $20,000 $249
Foreign currency swap 648 113
</TABLE>
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1998
--------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
----------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Conventional interest rate swaps $45,000 $508
Foreign currency swap 1,178 263
</TABLE>
The market value of swaps is the estimated amount that the Company would receive
or pay on termination or sale, taking into account current interest rates and
the current creditworthiness of the counterparties. The Company is exposed to
potential credit loss in the event of nonperformance by counterparties. The
counterparties are major financial institutions and management believes that the
risk of incurring losses related to credit risk is remote.
9. LEVERAGED LEASES
The Company is a lessor in a leveraged lease agreement entered into on
October 21, 1994, under which equipment having an estimated economic life of
25-40 years was leased for a term of 9.75 years. The Company's equity investment
represented 22.9% of the purchase price of the equipment. The balance of the
purchase price was furnished by third-party long-term debt financing,
collateralized by the equipment and non-recourse to the Company. At the end of
the lease term, the Master Lessee may exercise a fixed price purchase option to
purchase the equipment.
The Company's net investment in leveraged leases is composed of the following
elements:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---- ----
(IN THOUSANDS)
<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 leveraged leases 33,359 32,235
Less fees (113) (138)
-------- --------
Net investment in leveraged leases $ 33,246 $ 32,097
======== ========
</TABLE>
The net investment is included in "Other invested assets" on the balance sheet.
66
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. REINSURANCE
The Company has agreements with SLOC which provide that SLOC will reinsure the
mortality risks of the individual life insurance contracts sold by the Company.
Under these agreements basic death benefits and supplementary benefits are
reinsured on a yearly renewable term basis and coinsurance basis, respectively.
Reinsurance transactions under these agreements had the effect of decreasing
income from operations by approximately $1,527,000, $2,128,000 and $1,381,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
Effective January 1, 1991, the Company entered into an agreement with SLOC under
which certain individual life insurance contracts issued by SLOC were reinsured
by the Company on a 90% coinsurance basis. During 1997, SLOC changed certain
assumptions used in determining the gross and the ceded reserve balance. The
Company reflected the effect of the changes in assumptions to its assumed
reserves as a direct credit to surplus. The effect of the change was a
$39,016,000 decrease in reserves. Also, the agreement required SLOC to reinsure
the mortality risks in excess of $500,000 per policy for the individual life
insurance contracts assumed by the Company. Such death benefits are reinsured on
a yearly renewable term basis. The life reinsurance assumed agreement required
the reinsurer to withhold funds in amounts equal to the reserves assumed. These
agreements had the effect of increasing income from operations by approximately
$24,579,000, and $37,050,000 for the years ended December 31, 1998 and 1997,
respectively. The Company terminated this agreement effective October 1, 1998,
resulting in an increase in income from operations of $65,679,000 which included
a cash settlement.
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1999, 1998 and 1997 before the effect of
reinsurance transactions with SLOC:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $2,874,513 $2,377,364 $2,340,733
Net investment income and realized gains 190,845 187,208 298,120
---------- ---------- ----------
Subtotal 3,065,358 2,564,572 2,638,853
---------- ---------- ----------
Benefits and Expenses:
Policyholder benefits 2,709,712 2,312,247 2,350,354
Other expenses 239,282 203,238 187,591
---------- ---------- ----------
Subtotal 2,948,994 2,515,485 2,537,945
---------- ---------- ----------
Income from operations $ 116,364 $ 49,087 $ 100,908
========== ========== ==========
</TABLE>
The Company has an agreement with an unrelated company which provides
reinsurance of certain individual life insurance contracts on a modified
coinsurance basis and under which all deficiency reserves related to these
contracts are reinsured. Reinsurance transactions under this agreement had the
effect of increasing income from operations by $193,000 in 1999, $3,008,000 in
1998, and decreasing income from operations by $2,658,000 in 1997.
During 1999 the Company entered into an agreement with an unrelated company
which provides reinsurance on certain fixed group annuity contracts. The net
effect of this agreement was to increase income from operations by approximately
$3,400,000. 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 net effect of these agreements was to increase income from
operations by approximately $157,000.
67
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. REINSURANCE (CONTINUED)
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.
11. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES
The withdrawal characteristics of general account and separate account annuity
reserves and deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
AMOUNT % OF TOTAL
------ ----------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 2,346,853 13
At market value 15,010,696 81
At book value less surrender charges (surrender charge
>5%) 45,722 --
At book value (minimal or no charge or adjustment) 104,539 1
Not subject to discretionary withdrawal provision 1,015,108 5
----------- ---
Total annuity actuarial reserves and deposit liabilities $18,522,918 100
=========== ===
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
AMOUNT % OF TOTAL
------ ----------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 2,896,529 19
At market value 11,368,059 73
At book value less surrender charges (surrender charge
>5%) 62,404 --
At book value (minimal or no charge or adjustment) 111,757 1
Not subject to discretionary withdrawal provision 1,055,642 7
----------- ---
Total annuity actuarial reserves and deposit liabilities $15,494,391 100
=========== ===
</TABLE>
12. SEGMENT INFORMATION
The Company offers financial products and services such as fixed and variable
annuities, retirement plan services and life insurance on an individual basis.
Within these areas, the Company conducts business principally in two operating
segments and maintains a corporate segment to provide for the capital needs of
the various operating segments and to engage in other financing related
activities.
The 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
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.
68
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
12. SEGMENT INFORMATION (CONTINUED)
The following amounts pertain to the various business segments:
<TABLE>
<CAPTION>
FEDERAL
TOTAL TOTAL PRETAX INCOME TOTAL
REVENUES EXPENDITURES* INCOME TAX ASSETS
---------- ------------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999
Protection $ 33,236 $ 41,030 $ (7,794) $ (2,661) $ 136,127
Wealth Management 2,979,450 2,898,158 81,292 18,593 19,015,394
Corporate 27,301 6,070 21,231 8,547 796,634
---------- ---------- -------- -------- -----------
Total $3,039,987 $2,945,258 $ 94,729 $ 24,479 $19,948,155
---------- ---------- -------- -------- -----------
1998
Protection $ 229,710 $ 144,800 $ 84,910 $ (4,148) $ 199,683
Wealth Management 2,527,608 2,483,715 43,893 12,486 16,123,905
Corporate 10,959 3,042 7,917 3,375 579,033
---------- ---------- -------- -------- -----------
Total $2,768,277 $2,631,557 $136,720 $ 11,713 $16,902,621
---------- ---------- -------- -------- -----------
1997
Protection $ 304,141 $ 272,333 $ 31,808 $ 13,825 $ 1,143,697
Wealth Management 2,533,006 2,507,592 25,414 10,667 14,043,221
Corporate 57,897 5,244 52,653 (17,153) 738,439
---------- ---------- -------- -------- -----------
Total $2,895,044 $2,785,169 $109,875 $ 7,339 $15,925,357
---------- ---------- -------- -------- -----------
</TABLE>
- ------------------------
* Total expenditures includes dividends to policyholders of $0 for 1999,
$(5,981) for 1998, and $33,316 for 1997.
13. RETIREMENT PLANS
The Company participates with SLOC in a noncontributory defined benefit pension
plan covering essentially all employees. The benefits are based on years of
service and compensation.
The funding policy for the pension plan is to contribute an amount, which at
least satisfies the minimum amount required by ERISA; currently, the plan is
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of
separate accounts of SLOC.
The Company's share of the group's accrued pension obligation was $1,914,000,
and $1,178,000 at December 31, 1999 and 1998, respectively. The Company's share
of net periodic pension cost was $736,000, $586,000, and $146,000 for 1999, 1998
and 1997, respectively.
The Company also participates with SLOC and certain affiliates in a 401(k)
savings plan for which substantially all employees are eligible. The Company
matches, up to specified amounts, employees' contributions to the plan. Company
contributions were $284,000, $231,000, and $259,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to pension benefits the Company provides certain health, dental, and
life insurance benefits ("post-retirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount.
69
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
13. RETIREMENT PLANS (CONTINUED)
The Company records an accrual of the estimated cost of retiree benefit payments
during the years the employee provides services, and amortizes an obligation of
approximately $400,000 over a period of ten years. The Company's cash flows are
not affected by this method, however the net effect decreased income by
$185,000, $95,000, and $117,000, for the years ended December 31, 1999, 1998,
and 1997, respectively. The Company's post-retirement health, dental and life
insurance benefits currently are not funded.
The following table sets forth the change in the pension and other
post-retirement benefit plans' benefit obligations and assets as well as the
plans' funded status reconciled with the amount shown in the Company's financial
statements at December 31:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $110,792 $ 79,684 $ 10,419 $ 9,845
Service cost 5,632 4,506 413 240
Interest cost 6,952 6,452 845 673
Actuarial loss (gain) (21,480) 21,975 1,048 308
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Benefit obligation at end of year $ 99,520 $110,792 $ 12,217 $ 10,419
======== ======== ======== ========
The Company's share:
Benefit obligation at beginning of year $ 9,125 $ 5,094 $ 416 $ 385
Benefit obligation at end of year $ 8,816 $ 9,125 $ 743 $ 416
Change in plan assets:
Fair value of plan assets at beginning of year $151,575 $136,610 $ -- $ --
Actual return on plan assets 9,072 16,790 -- --
Employer contribution -- -- 508 647
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Fair value of plan assets at end of year $158,271 $151,575 $ -- $ --
======== ======== ======== ========
Funded status $ 58,752 $ 40,783 $(12,217) $(10,419)
Unrecognized net actuarial gain (loss) (20,071) (2,113) 1,469 586
Unrecognized transition obligation (asset) (22,617) (24,674) 140 185
Unrecognized prior service cost 7,081 7,661 -- --
-------- -------- -------- --------
Prepaid (accrued) benefit cost $ 23,145 $ 21,657 $(10,608) $ (9,648)
======== ======== ======== ========
The Company's share of accrued benefit cost $ (1,914) $ (1,178) $ (381) $ (195)
Weighted-average assumptions as of December 31:
Discount rate 7.50% 6.75% 7.50% 6.75%
Expected return on plan assets 8.75% 8.00% N/A N/A
Rate of compensation increase 4.50% 4.50% N/A N/A
</TABLE>
70
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
13. RETIREMENT PLANS (CONTINUED)
For measurement purposes, a 10.9% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999 (5.6% for dental benefits).
The rates were assumed to decrease gradually to 5% for 2005 and remain at that
level thereafter.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 5,632 $ 4,506 $ 413 $ 240
Interest cost 6,952 6,452 845 673
Expected return on plan assets (12,041) (10,172) -- --
Amortization of transition obligation (asset) (2,056) (2,056) 45 45
Amortization of prior service cost 580 580 -- --
Recognized net actuarial (gain) loss (554) (677) 164 (20)
-------- ------- ------ ------
Net periodic benefit cost $ (1,487) $(1,367) $1,467 $ 938
======== ======= ====== ======
The Company's share of net periodic benefit cost $ 736 $ 586 $ 185 $ 95
======== ======= ====== ======
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components $ 288 $ (518)
Effect on postretirement benefit obligation 2,754 (2,279)
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1999
--------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
--------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Bonds (including short-term) $1,534,555 $1,545,445
Mortgages 528,911 526,608
Derivatives -- 362
Other Invested Assets 67,938 67,938
Policy loans 40,095 40,095
LIABILITIES:
Insurance reserves $ 120,536 $ 120,536
Individual annuities 247,619 238,229
Pension products 661,806 665,830
</TABLE>
71
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
1998
--------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
--------------- --------------------
(IN THOUSANDS)
ASSETS:
<S> <C> <C>
Bonds (including short-term) $2,026,868 $2,153,953
Mortgages 535,003 556,143
Derivatives -- 771
Policy loans 41,944 41,944
LIABILITIES:
Insurance reserves $ 121,100 $ 121,100
Individual annuities 274,448 271,849
Pension products 1,104,489 1,145,351
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
by taking into account prices for publicly traded bonds of similar credit risk
and maturity and repayment and liquidity characteristics.
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
The fair values of policy loans approximate carrying amounts.
The fair values of derivative financial instruments are estimated using the
process described in Note 8.
The fair values of the Company's general account insurance reserves and
liabilities under investment-type contracts (insurance, annuity and pension
contracts that do not involve mortality or morbidity risks) are estimated using
discounted cash flow analyses or surrender values. Those contracts that are
deemed to have short-term guarantees have a carrying amount equal to the
estimated fair value.
15. STATUTORY INVESTMENT VALUATION RESERVES
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, stocks, mortgage loans, real estate and other invested
assets with related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve and amortized into income over the remaining contractual life of the
security sold.
The table shown below presents changes in the major elements of the AVR and IMR.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
------------------- -------------------
AVR IMR AVR IMR
--- --- --- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of year $44,392 $40,490 $47,605 $33,830
Net realized investment gains, net of tax 9,950 4,983 256 8,942
Amortization of net investment gains -- (3,702) -- (2,282)
Unrealized investment losses (9,705) -- (6,550) --
Required by formula (566) -- 3,081 --
------- ------- ------- -------
Balance, end of year $44,071 $41,771 $44,392 $40,490
======= ======= ======= =======
</TABLE>
72
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
16. FEDERAL INCOME TAXES
The Company, its subsidiaries and certain other affiliates file a consolidated
federal income tax return. Federal income taxes are calculated for the
consolidated group based upon amounts determined to be payable as a result of
operations within the current year. No provision is recognized for timing
differences which may exist between financial statement and taxable income. Such
timing differences include reserves, depreciation and accrual of market discount
on bonds. Cash payments for federal income taxes were approximately $3,000,000,
$48,144,000, and $31,000,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company is currently undergoing an audit by the Internal Revenue Service.
The Company believes that there will be no material audit adjustments for the
periods under examination.
17. RELATED PARTY TRANSACTIONS
A. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE)
On December 22, 1997, the Company issued a $250,000,000 surplus note to Life
Holdco. This note has an interest rate of 8.625% and is due on or after
November 6, 2027.
On May 9, 1997, the Company issued a short-term note of $600,000,000 to Life
Holdco at an interest rate of 5.10%, which was extended at various interest
rates. This note was repaid on December 22, 1997.
On December 19, 1995, the Company issued surplus notes totaling $315,000,000 to
an affiliate, Sun Canada Financial Co., at interest rates between 5.75% and
7.25%. Of these notes, $157,500,000 will mature in the year 2007 and
$157,500,000 will mature in the year 2015. Interest on these notes is payable
semiannually.
Principal and interest on surplus notes are payable only to the extent that the
Company meets specified requirements regarding free surplus exclusive of the
principal amount and accrued interest, if any, on these notes and with the
consent of the Delaware Insurance Commissioner.
The Company accrued $4,259,000 and $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.
On September 28, 1998 a $500,000 note was issued by SLISL to the Company at a
rate of 6.0%, maturing on September 28, 2002.
A $110,000,000 note was issued to the Company by MFS on February 11, 1998 at an
interest rate of 6.0% due February 11, 1999. Another $110,000,000 note was
issued to the Company on December 22, 1998 at an interest rate of 5.55% due
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 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 January 14, 2000, the Company purchased $200,000,000 of notes from MFS.
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.
73
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
17. RELATED PARTY TRANSACTIONS
A. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE) (CONTINUED)
On December 31, 1998, the Company had an additional $20,000,000 in notes issued
by MFS, scheduled to mature in 2000. These notes were repaid to the Company on
December 21,1999.
B. STOCKHOLDER DIVIDENDS
The maximum amount of dividends which can be paid by the Company without prior
approval of the Insurance Commissioner of the State of Delaware is subject to
restrictions relating to statutory surplus. In 1999, a dividend in the amount of
$80,000,000 was declared and paid by the Company to its parent, Life Holdco.
This dividend was approved by the Board of Directors, but did not require
approval of the Insurance Commissioner. In 1998, a dividend in the amount of
$50,000,000 was declared and paid by the Company to its parent, Life Holdco.
This dividend was approved by the Insurance Commissioner and the Board of
Directors. On December 24, 1997 the Company transferred all of its shares of MFS
to Life Holdco in the form of a dividend valued at $159,722,000. This dividend
was approved by the Insurance Commissioner and the Board of Directors.
C. SERVICE AGREEMENTS
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 $28,700,000 in 1999, $16,344,000 in 1998, and $15,997,000 in 1997.
The Company leases office space to SLOC under lease agreements with terms
expiring in December, 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 1999 amounted to approximately $6,943,000.
18. RISK-BASED CAPITAL
Effective December 31, 1993, the NAIC adopted risk-based capital requirements
for life insurance companies. The risk-based capital requirements provide a
method for measuring the minimum acceptable amount of adjusted capital that a
life insurer should have, as determined under statutory accounting practices,
taking into account the risk characteristics of its investments and products.
The Company has met the minimum risk-based capital requirements at December 31,
1999, 1998 and 1997.
19. 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 or 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 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.
74
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
19. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company incurred guaranty fund assessments of approximately $3,500,000,
$3,500,000, and $3,083,000 in 1999, 1998 and 1997, respectively.
20. ACCOUNTING POLICIES AND PRINCIPLES
The financial statements of the Company have been prepared on the basis of
statutory accounting practices which, prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting practices and GAAP are described as follows. Under statutory
accounting practices, financial statements are not consolidated and investments
in subsidiaries are shown at net equity value. Accordingly, the assets,
liabilities and results of operations of the Company's subsidiaries are not
consolidated with the assets, liabilities and results of operations,
respectively, of the Company. Changes in net equity value of the common stock of
the Company's United States life insurance subsidiaries are directly reflected
in the Company's surplus. Changes in the net equity value of the common stock of
all other subsidiaries are directly reflected in the Company's Asset Valuation
Reserve. Dividends paid by subsidiaries to the Company are included in the
Company's net investment income.
Other differences between statutory accounting practices and GAAP include the
following items. Statutory accounting practices do not recognize the following
assets or liabilities which are reflected under GAAP: deferred policy
acquisition costs, deferred federal income taxes and statutory nonadmitted
assets. Asset Valuation Reserves and Interest Maintenance Reserves are
established under statutory accounting practices but not under GAAP. Methods for
calculating real estate depreciation and investment valuation allowances differ
under statutory accounting practices and GAAP. Actuarial assumptions and
reserving methods differ under statutory accounting practices and GAAP. Premiums
for universal life and investment-type products are recognized as income for
statutory purposes and as deposits to policyholders' accounts for GAAP.
Investments in fixed maturity securities classified as available-for-sale are
carried at aggregate fair value with changes in unrealized gains and losses
reported net of taxes in a separate component of stockholder's equity for GAAP
and generally at amortized cost under statutory accounting practices.
75
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital stock and surplus of Sun Life Assurance Company of
Canada (U.S.) (the "Company") as of December 31, 1999 and 1998, and the related
statutory statements of operations, changes in capital stock and surplus, and
cash flow for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Notes 1 and 20 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware,
which is a comprehensive basis of accounting other than generally accepted
accounting principles. The effects on the financial statements of the
differences between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the statutory financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities, and capital
stock and surplus of Sun Life Assurance Company of Canada (U.S.) as of
December 31, 1999 and 1998, and the results of its operations and its cash flow
for each of the three years in the period ended December 31, 1999 on the basis
of accounting described in Notes 1 and 20.
However, because of the differences between the two bases of accounting referred
to in the second preceding paragraph, in our opinion, the statutory financial
statements referred to above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of Sun Life Assurance
Company of Canada (U.S.) as of December 31, 1999 and 1998 or the results of its
operations or its cash flow for each of the three years in the period ended
December 31, 1999.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 2000
76
<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>
77
<PAGE>
This Prospectus sets forth information about the Contracts and the
Variable Account that a prospective purchaser should know before investing.
Additional information about the Contracts and the Variable Account has been
filed with the Securities and Exchange Commission in a Statement of Additional
Information dated May 1, 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.
- --------------------------------------------------------------------------------
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 Gold Variable and Fixed Annuity
Sun Life of Canada (U.S.) Variable Account F.
Name
- --------------------------------------------------------------
Address
- --------------------------------------------------------------
- --------------------------------------------------------------
City
- ------------------------------------
State
- --------------
Zip
- ------
Telephone
- ----------------------------------------------------------------
78
<PAGE>
APPENDIX A
GLOSSARY
The following terms as used in this Prospectus have the indicated
meanings:
ACCOUNT or PARTICIPANT ACCOUNT: An account established for each
Participant to which Net Purchase Payments are credited.
ACCOUNT VALUE: The Variable Accumulation Value, if any, plus the Fixed
Accumulation Value, if any, of your Account for any Valuation Period.
ACCOUNT YEAR and ACCOUNT ANNIVERSARY: Your first Account Year is the
period of (a) 12 full calendar months plus (b) the part of the calendar month in
which we issue your Contract (if not on the first day of the month), beginning
with the Contract Date. Your Account Anniversary is the first day immediately
after the end of an Account Year. Each Account Year after the first is the 12
calendar month period that begins on your Account Anniversary. If, for example,
the Contract Date is in March, the first Account Year will be determined from
the Contract Date but will end on the last day of March in the following year;
your Account Anniversary is April 1 and all Account Years after the first will
be measured from April 1.
ACCUMULATION PHASE: The period before the Annuity Commencement Date and
during the lifetime of the Annuitant during which you make Purchase Payments
under the Contract. This is called the "Accumulation Period" in the Contract.
ANNUITANT: The person or persons named in the Application and on whose
life the first annuity payment is to be made. In a Non-Qualified Contract, if
you name someone other than yourself as Annuitant, you may also name a
co-annuitant. If you do, all provisions of the Contract based on the death of
the Annuitant will be based on the date of death of the last surviving of the
persons named. By example, if the Annuitant dies prior to the Annuity
Commencement Date, the co-annuitant will become the new annuitant. The death
benefit will become due only on the death before the Annuity Commencement Date
of the last surviving annuitant and co-annuitant named. These persons are
referred to collectively in the Contract as "Annuitants." If you have not named
a sole Annuitant on the 30th day before the Annuity Commencement Date and both
the Annuitant and Co-Annuitant are living, the Co-Annuitant will be the sole
Annuitant during the Income Phase.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
under each Contract is to be made.
*ANNUITY OPTION: The method you choose for making annuity payments.
ANNUITY UNIT: A unit of measure used in the calculation of the amount of
the second and each subsequent Variable Annuity payment from the Variable
Account.
APPLICATION: The document signed by you or other evidence acceptable to us
that serves as your application for participation under a Group Contract.
*BENEFICIARY: The person or entity having the right to receive the death
benefit and, for Non-Qualified Contracts, who is the "designated beneficiary"
for purposes of Section 72(s) of the Internal Revenue Code.
BUSINESS DAY: Any day the New York Stock Exchange is open for trading.
CERTIFICATE: The document for each Participant which evidences the
coverage of the Participant under a Group Contract.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
CONTRACT DATE: The date on which we issue your Contract. This is called
the "Issue Date" in the Contract.
* You specify these items on the Certificate Specifications page, and may change
them, as we describe in this Prospectus.
79
<PAGE>
DEATH BENEFIT DATE: If you have elected a death benefit payment option
before the Annuitant's death that remains in effect, the date on which we
receive Due Proof of Death. If your Beneficiary elects the death benefit payment
option, the later of (a) the date on which we receive the Beneficiary's election
and (b) the date on which we receive Due Proof of Death. If we do not receive
the Beneficiary's election within 60 days after we receive Due Proof of Death,
the Death Benefit Date will be the last day of the 60 day period and we will pay
the death benefit in cash.
DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to the
Company.
EXPIRATION DATE: The last day of a Guarantee Period.
FIXED ACCOUNT: The general account of the Company, consisting of all
assets of the Company other than those allocated to a separate account of the
Company.
FIXED ACCOUNT VALUE: The value of that portion of your Account allocated
to the Fixed Account.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar
amount.
GROUP CONTRACT: A Contract issued by the Company on a group basis.
GUARANTEE AMOUNT: Each separate allocation of Account Value to a
particular Guarantee Period (including interest earned thereon).
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is
credited.
GUARANTEED INTEREST RATE: The rate of interest we credit on a compound
annual basis during any Guarantee Period.
INCOME PHASE: The period on and after the Annuity Commencement Date and
during the lifetime of the Annuitant during which we make annuity payments under
the Contract.
NET INVESTMENT FACTOR: An index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one.
NET PURCHASE PAYMENT: The portion of a Purchase Payment which remains
after the deduction of any applicable premium tax or similar tax.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement
plan that does not receive favorable federal income tax treatment under Sections
401, 403, 408, or 408A of the Internal Revenue Code. The Participant's interest
in the Contract must be owned by a natural person or agent for a natural person
for the Contract to receive income tax treatment as an annuity.
OWNER: The person, persons or entity entitled to the ownership rights
stated in a Group Contract and in whose name or names the Group Contract is
issued. The Owner may designate a trustee or custodian of a retirement plan
which meets the requirements of Section 401, Section 408(c), Section 408(k),
Section 408(p) or Section 408A of the Internal Revenue Code to serve as legal
owner of assets of a retirement plan, but the term "Owner," as used herein,
shall refer to the organization entering into the Group Contract.
PARTICIPANT: The person named in the Certificate who is entitled to
exercise all rights and privileges of ownership under the Certificate, except as
reserved by the Owner.
PAYEE: A recipient of payments under a Contract. The term includes an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Annuitant.
PURCHASE PAYMENT (PAYMENT): An amount paid to the Company as consideration
for the benefits provided by a Contract.
80
<PAGE>
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which may receive favorable federal income tax treatment under Sections 401,
403, 408 or 408A of the Internal Revenue Code of 1986, as amended.
SEVEN-YEAR ANNIVERSARY: The seventh Account Anniversary and each
succeeding Account Anniversary occurring at any seven year interval thereafter;
for example, the 14th, 21st and 28th Account Anniversaries.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific series of the Series Fund.
VALUATION PERIOD: The period of time from one determination of Variable
Accumulation Unit or Annuity Unit values to the next subsequent determination of
these values. Value determinations are made as of the close of the New York
Stock Exchange on each day that the Exchange is open for trading.
VARIABLE ACCOUNT: Variable Account F of the Company, which is a separate
account of the Company consisting of assets set aside by the Company, the
investment performance of which is kept separate from that of the general assets
of the Company.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of
Variable Account Value.
VARIABLE ACCOUNT VALUE: The value of that portion of your Account
allocated to the Variable Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount
in relation to the investment performance of the Variable Account.
81
<PAGE>
APPENDIX B
CONDENSED FINANCIAL INFORMATION--ACCUMULATION UNIT VALUES
The following information should be read in conjunction with the Variable
Account's financial statements appearing elsewhere in the Statement of
Additional Information, all of which has been audited by Deloitte & Touche LLP,
independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------------------------------
1991* 1992 1993 1994 1995 1996
-------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BOND SERIES
Unit Value:
Beginning of Period................. -- -- -- -- -- --
End of Period....................... -- -- -- -- -- --
Units outstanding at end of period.... -- -- -- -- -- --
CAPITAL APPRECIATION SERIES
Unit Value:
Beginning of period................. $10.0000 $ 11.5021 $ 12.8402 $ 14.9429 $ 14.2064 $ 18.8932
End of period....................... $11.5021 $ 12.8402 $ 14.9429 $ 14.2064 $ 18.8392 $ 22.5700
Units outstanding at end of period.... 124,454 5,131,355 13,245,142 19,909,649 27,782,739 32,796,793
CAPITAL OPPORTUNITIES SERIES
Unit Value:
Beginning of period................. -- -- -- -- -- $ 10.0000**
End of period....................... -- -- -- -- -- $ 10.9234
Units outstanding at end of period.... -- -- -- -- -- 1,520,787
EMERGING GROWTH SERIES
Unit Value:
Beginning of period -- -- -- -- $ 10.0000** $ 12.5675
End of period....................... -- -- -- -- $ 12.5675 $ 14.5136
Units outstanding at end of period.... -- -- -- -- 5,346,104 16,998,044
EMERGING MARKETS EQUITY SERIES
Unit Value:
Beginning of period................. -- -- -- -- -- $ 10.0000**
End of period....................... -- -- -- -- -- $ 9.9199
Units outstanding at end of period.... -- -- -- -- -- 329,630
EQUITY INCOME SERIES
Unit Value:
Beginning of Period................. -- -- -- -- -- --
End of Period....................... -- -- -- -- -- --
Units outstanding at end of period.... -- -- -- -- -- --
GLOBAL ASSET ALLOCATION SERIES
Unit Value:
Beginning of period................. -- -- -- $ 10.0000** $ 10.0367 $ 12.0393
End of period....................... -- -- -- $ 10.0367 $ 12.0393 $ 13.7702
Units outstanding at end of period.... -- -- -- 299,210 2,141,041 5,539,010
GLOBAL GOVERNMENTS SERIES
Unit Value:
Beginning of period................. $10.0000 $ 10.6125 $ 10.5161 $ 12.3309 $ 11.6151 $ 13.2523
End of period....................... $10.6125 $ 10.5161 $ 12.3309 $ 11.6151 $ 13.2523 $ 13.6780
Units outstanding at end of period.... 44,190 3,405,280 7,008,613 8,334,019 8,272,858 7,510,766
GLOBAL GROWTH SERIES
Unit Value:
Beginning of period................. -- -- $ 10.0000** $ 10.6200 $ 10.7803 $ 12.3321
End of period....................... -- -- $ 10.6200 $ 10.7803 $ 12.3321 $ 13.7523
Units outstanding at end of period.... -- -- 1,778,644 9,182,555 11,421,691 13,989,946
GLOBAL TOTAL RETURN SERIES
Unit Value:
Beginning of period................. -- -- -- $ 10.0000** $ 10.0195 $ 11.6516
End of period....................... -- -- -- $ 10.0195 $ 11.6516 $ 13.1290
Units outstanding at end of period.... -- -- -- 138,126 1,170,586 2,836,079
GOVERNMENT SECURITIES SERIES
Unit Value:
Beginning of period................. $10.0000 $ 10.3731 $ 10.9166 $ 11.6996 $ 11.2891 $ 13.0981
End of period....................... $10.3731 $ 10.9166 $ 11.6996 $ 11.2891 $ 13.0981 $ 13.1252
Units outstanding at end of period.... 256,848 5,447,047 13,661,303 18,784,262 18,082,586 19,714,114
HIGH YIELD SERIES
Unit Value:
Beginning of period................. $10.0000 $ 10.0378 $ 11.3864 $ 13.2209 $ 12.7475 $ 14.7137
End of period....................... $10.0378 $ 11.3864 $ 13.2209 $ 12.7475 $ 14.7137 $ 16.2674
Units outstanding at end of period.... 6,734 1,380,530 3,599,473 4,605,818 6,880,080 8,424,289
INTERNATIONAL GROWTH SERIES
Unit Value:
Beginning of period................. -- -- -- -- -- $ 10.0000**
End of period....................... -- -- -- -- -- $ 9.7460
Units outstanding at end of period.... -- -- -- -- -- 564,742
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
BOND SERIES
Unit Value:
Beginning of Period................. -- $ 10.0000** $ 10.5921
End of Period....................... -- $ 10.5921 $ 10.2650
Units outstanding at end of period.... -- 1,182,239 2,085,322
CAPITAL APPRECIATION SERIES
Unit Value:
Beginning of period................. $ 22.5700 $ 27,4057 $ 34.7871
End of period....................... $ 27.4057 $ 34.7871 $ 45.4986
Units outstanding at end of period.... 35,528,897 37,500,481 32,846,090
CAPITAL OPPORTUNITIES SERIES
Unit Value:
Beginning of period................. $ 10.9234 $ 13.7450 $ 17.2085
End of period....................... $ 13.7450 $ 17.2085 $ 25.0521
Units outstanding at end of period.... 6,175,224 10,262,282 12,845,672
EMERGING GROWTH SERIES
Unit Value:
Beginning of period $ 14.5136 $ 17.4544 $ 23.0408
End of period....................... $ 17.4544 $ 23.0408 $ 39.9489
Units outstanding at end of period.... 25,039,986 28,900,957 28,061,821
EMERGING MARKETS EQUITY SERIES
Unit Value:
Beginning of period................. $ 9.9199 $ 10.8010 $ 7.4615
End of period....................... $ 10.8010 $ 7.4615 $ 11.2207
Units outstanding at end of period.... 2,159,228 2,147,348 2,761,034
EQUITY INCOME SERIES
Unit Value:
Beginning of Period................. -- $ 10.0000** $ 10.4065
End of Period....................... -- $ 10.4065 $ 10.9848
Units outstanding at end of period.... -- 528,238 1,301,166
GLOBAL ASSET ALLOCATION SERIES
Unit Value:
Beginning of period................. $ 13.7702 $ 15.0565 $ 15.8203
End of period....................... $ 15.0565 $ 15.8203 $ 18.4932
Units outstanding at end of period.... 7,928,833 7,576,691 6,188,330
GLOBAL GOVERNMENTS SERIES
Unit Value:
Beginning of period................. $ 13.6780 $ 13.3854 $ 15.2422
End of period....................... $ 13.3854 $ 15.2422 $ 14.2506
Units outstanding at end of period.... 6,127,641 5,048,219 3,941,088
GLOBAL GROWTH SERIES
Unit Value:
Beginning of period................. $ 13.7523 $ 15.6398 $ 17.6676
End of period....................... $ 15.6398 $ 17.6676 $ 29.1523
Units outstanding at end of period.... 15,058,757 14,522,129 13,513,835
GLOBAL TOTAL RETURN SERIES
Unit Value:
Beginning of period................. $ 13.1290 $ 14.7153 $ 17.1741
End of period....................... $ 14.7153 $ 17.1741 $ 18.3636
Units outstanding at end of period.... 4,676,853 5,354,633 4,907,545
GOVERNMENT SECURITIES SERIES
Unit Value:
Beginning of period................. $ 13.1252 $ 14.0763 $ 15.0941
End of period....................... $ 14.0763 $ 15.0941 $ 14.5981
Units outstanding at end of period.... 20,508,844 23,218,234 23,230,411
HIGH YIELD SERIES
Unit Value:
Beginning of period................. $ 16.2674 $ 18.1622 $ 18.0207
End of period....................... $ 18.1622 $ 18.0207 $ 18.9861
Units outstanding at end of period.... 11,699,195 14,190,817 12,537,119
INTERNATIONAL GROWTH SERIES
Unit Value:
Beginning of period................. $ 9.7480 $ 9.4566 $ 9.5047
End of period....................... $ 9.4566 $ 9.5047 $ 12.6829
Units outstanding at end of period.... 2,390,056 3,290,043 3,187,799
</TABLE>
(CONTINUED ON NEXT PAGE)
82
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------------------------------
1991* 1992 1993 1994 1995 1996
-------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL GROWTH AND INCOME SERIES
Unit Value:
Beginning of period................. -- -- -- -- $ 10.0000** $ 10.0942
End of period....................... -- -- -- -- $ 10.0942 $ 10.4404
Units outstanding at end of period.... -- -- -- -- 711,179 3,360,596
MANAGED SECTORS SERIES
Unit Value:
Beginning of period................. $10.0000 $ 11.7627 $ 12.3521 $ 12.6760 $ 12.2606 $ 15.9925
End of period....................... $11.7627 $ 12.3521 $ 12.6760 $ 12.2606 $ 15.9925 $ 18,5452
Units outstanding at end of period.... 51,219 2,614,510 4,525,423 6,351,641 8,542,869 10,541,726
MASSACHUSETTS INVESTORS GROWTH
STOCK SERIES
Unit Value:
Beginning of Period................. -- -- -- -- -- --
End of Period....................... -- -- -- -- -- --
Units outstanding at end of period.... -- -- -- -- -- --
MASSACHUSETTS INVESTORS TRUST SERIES
Unit Value:
Beginning of period................. $10.0000 $ 10.9605 $ 11.4156 $ 12.2052 $ 11.9036 $ 16.1344
End of period....................... $10.9605 $ 11.4156 $ 12.2052 $ 11.9036 $ 16.1344 $ 19.9527
Units outstanding at end of period.... 85,141 2,557,065 6,412,270 10,979,711 16,712,586 26,199,975
MONEY MARKET SERIES
Unit Value:
Beginning of period................. $10.0000 $ 10.0370 $ 10.2288 $ 10.3527 $ 10.5878 $ 11.0111
End of period....................... $10.0370 $ 10.2288 $ 10.3527 $ 10.5878 $ 11.0111 $ 11.3932
Units outstanding at end of period.... 417,559 4,101,024 6,055,673 14,774,386 17,186,041 27,275,583
NEW DISCOVERY SERIES
Unit Value:
Beginning of Period................. -- -- -- -- -- --
End of Period....................... -- -- -- -- -- --
Units outstanding at end of period.... -- -- -- -- -- --
RESEARCH SERIES
Unit Value:
Beginning of period................. -- -- -- $ 10.0000** $ 9.8615 $ 13.3663
End of period....................... -- -- -- $ 9.8615 $ 13.3663 $ 16.3209
Units outstanding at end of period.... -- -- -- 392,528 5,341,160 19,577,745
RESEARCH GROWTH AND INCOME
Unit Value:
Beginning of period................. -- -- -- -- -- --
End of period....................... -- -- -- -- -- --
Units outstanding at end of period.... -- -- -- -- -- --
RESEARCH INTERNATIONAL SERIES
Unit Value:
Beginning of Period................. -- -- -- -- -- --
End of Period....................... -- -- -- -- -- --
Units outstanding at end of period.... -- -- -- -- -- --
STRATEGIC GROWTH SERIES
Unit Value:
Beginning of Period................. -- -- -- -- -- --
End of Period....................... -- -- -- -- -- --
Units outstanding at end of period.... -- -- -- -- -- --
STRATEGIC INCOME SERIES
Unit Value:
Beginning of Period................. -- -- -- -- -- --
End of Period....................... -- -- -- -- -- --
Units outstanding at end of period.... -- -- -- -- -- --
TOTAL RETURN SERIES
Unit Value:
Beginning of period................. $10.0000 $ 10.3042 $ 11.0125 $ 12.3142 $ 11.8694 $ 14.8406
End of period....................... $10.3042 $ 11.0125 $ 12.3142 $ 11.8694 $ 14.8406 $ 16.6932
Units outstanding at end of period.... 280,202 12,952,314 32,979,812 48,270,556 53,091,748 59,508,016
UTILITIES SERIES
Unit Value:
Beginning of period................. -- -- $ 10.0000** $ 10.0000 $ 9.3739 $ 12.2403
End of period....................... -- -- $ 10.0000 $ 9.3739 $ 12.2403 $ 14.5260
Units outstanding at end of period.... -- -- 279,796 2,273,439 3,410,047 4,671,192
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
INTERNATIONAL GROWTH AND INCOME SERIES
Unit Value:
Beginning of period................. $ 10.4404 $ 10.9674 $ 13.1538
End of period....................... $ 10.9674 $ 13.1538 $ 15.2129
Units outstanding at end of period.... 4,441,911 5,214,558 4,509,596
MANAGED SECTORS SERIES
Unit Value:
Beginning of period................. $ 18.5452 $ 22.9770 $ 25.4406
End of period....................... $ 22.9770 $ 25.4406 $ 46.5671
Units outstanding at end of period.... 11,326,719 11,245,144 11,032,465
MASSACHUSETTS INVESTORS GROWTH
STOCK SERIES
Unit Value:
Beginning of Period................. -- $ 10.0000** $ 11.9635
End of Period....................... -- $ 11.9635 $ 16.0186
Units outstanding at end of period.... -- 4,121,518 11,985,320
MASSACHUSETTS INVESTORS TRUST SERIES
Unit Value:
Beginning of period................. $ 19.9527 $ 25.9656 $ 31.7109
End of period....................... $ 25.9656 $ 31.7109 $ 33.5203
Units outstanding at end of period.... 40,709,531 51,880,765 49,201,899
MONEY MARKET SERIES
Unit Value:
Beginning of period................. $ 11.3932 $ 11.8058 $ 12.2282
End of period....................... $ 11.8058 $ 12.2282 $ 12.6229
Units outstanding at end of period.... 21,463,139 29,387,086 28,447,843
NEW DISCOVERY SERIES
Unit Value:
Beginning of Period................. -- $ 10.0000** $ 10.5258
End of Period....................... -- $ 10.5258 $ 16.6274
Units outstanding at end of period.... -- 794,859 1,599,416
RESEARCH SERIES
Unit Value:
Beginning of period................. $ 16.3209 $ 19.4490 $ 23.7119
End of period....................... $ 19.4490 $ 23.7119 $ 29.0316
Units outstanding at end of period.... 35,654,917 38,553,986 35,935,779
RESEARCH GROWTH AND INCOME
Unit Value:
Beginning of period................. $ 10.0000** $ 10.9235 $ 13.1605
End of period....................... $ 10.9235 $ 13.1605 $ 14.0374
Units outstanding at end of period.... 535,928 2,408,676 3,153,242
RESEARCH INTERNATIONAL SERIES
Unit Value:
Beginning of Period................. -- $ 10.0000** $ 9.3330
End of Period....................... -- $ 9.3330 $ 14.2620
Units outstanding at end of period.... -- 190,267 1,114,581
STRATEGIC GROWTH SERIES
Unit Value:
Beginning of Period................. -- -- $ 10.0625
End of Period....................... -- -- $ 12.1979
Units outstanding at end of period.... -- -- 558,856
STRATEGIC INCOME SERIES
Unit Value:
Beginning of Period................. -- $ 10.0000** $ 9.9530
End of Period....................... -- $ 9.9530 $ 12.1979
Units outstanding at end of period.... -- 622,914 892,490
TOTAL RETURN SERIES
Unit Value:
Beginning of period................. $ 16.6932 $ 20.0793 $ 22.1273
End of period....................... $ 20.0793 $ 22.1273 $ 22.4371
Units outstanding at end of period.... 66,303,467 71,102,020 62,923,966
UTILITIES SERIES
Unit Value:
Beginning of period................. $ 14.5260 $ 19.0140 $ 22.0489
End of period....................... $ 19.0140 $ 22.0489 $ 28.5407
Units outstanding at end of period.... 6,101.638 9,023,102 9,588,408
</TABLE>
- ----------------------------------
* From November 18, 1991 (date of commencement of issuance of the Contracts) to
December 31, 1991.
** Unit value on date of commencement of operations of the respective
Sub-Account.
83
<PAGE>
APPENDIX C
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: VARIABLE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
VARIABLE ACCOUNT)
WITHDRAWAL CHARGE CALCULATION FOR CERTIFICATES WITH DATE OF COVERAGE ON OR AFTER
NOVEMBER 1, 1994 WHICH CONTAIN THE CUMULATIVE WITHDRAWAL PROVISION:
FULL SURRENDER:
Assume a Purchase Payment of $40,000 is made on the Date of Coverage, no
additional Purchase Payments are made and there are no partial withdrawals. The
table below presents four examples of the withdrawal charge resulting from a
full surrender of the Participant's Account, based on hypothetical Account
Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE PURCHASE WITHDRAWAL WITHDRAWAL
ACCOUNT ACCOUNT WITHDRAWAL PAYMENTS CHARGE CHARGE
YEAR VALUE AMOUNT LIQUIDATED PERCENTAGE AMOUNT
- ------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $41,000 $ 4,000(a) $37,000 6.00% $2,220
3 $52,000 $12,000(b) $40,000 5.00% $2,000
7 $80,000 $28,000(c) $40,000 3.00% $1,200
9 $98,000 $68,000(d) $40,000 0.00% $ 0
</TABLE>
- ------------------------
(a) The free withdrawal amount during an Account Year is equal to 10% of new
payments (those payments made in current Account Year or in the 6
immediately preceding Account Years) less any prior partial withdrawals in
that Account Year. Any portion of the free withdrawal amount that is not
used in the current Account Year is carried forward into future years. In
the first Account Year 10% of new payments is $4,000. Therefore, on full
surrender $4,000 is withdrawn free of the withdrawal charge and the Purchase
Payment liquidated is $37,000 (Account Value less free withdrawal amount).
The withdrawal charge amount is determined by applying the withdrawal charge
percentage to the Purchase Payment liquidated.
(b) In the third Account Year, the free withdrawal amount is equal to $12,000
($4,000 for the current Account Year, plus an additional $8,000 for Account
Years 1 and 2 because no partial withdrawals were taken and the unused free
withdrawal amount is carried forward into future Account Years). The
withdrawal charge percentage is applied to the liquidated Purchase Payment
(Account Value less free withdrawal amount).
(c) In the seventh Account Year, the free withdrawal amount is equal to $28,000
($4,000 for the current Account Year, plus an additional $24,000 for Account
Years 1 through 6, $4,000 for each Account Year because no partial
withdrawals were taken and the unused free withdrawal amount is carried
forward into future Account Years). The withdrawal charge percentage is
applied to the liquidated Purchase Payment (Account Value less free
withdrawal amount, but not greater than actual Purchase Payments).
(d) In Account Year 9, the free withdrawal amount is $68,000, calculated as
follows: There are no Annual Withdrawal Allowances for Account Years 8 or 9
because there are no New Payments in those years. The $40,000 Purchase
Payment made in Account Year 1 is now an Old Payment that constitutes a
portion of the free withdrawal amount. In addition, the unused Annual
Withdrawal Allowances of $4,000 for each of Account Years 1 through 7 are
carried forward and available for use in Account Year 9. The $98,000 full
withdrawal is attributed first to the free withdrawal amount. Because the
remaining $30,000 is not withdrawn from New Payments, this part of the
withdrawal also will not be subject to the withdrawal charge.
84
<PAGE>
PARTIAL WITHDRAWAL:
Assume a single Purchase Payment of $40,000 is deposited at issue, no
additional Purchase Payments are made, no partial withdrawals have been taken
prior to the fifth Account Year, and there are a series of 3 partial withdrawals
made during the fifth Account Year of $9,000, $12,000, and $15,000.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL FREE PURCHASE WITHDRAWAL WITHDRAWAL
ACCOUNT WITHDRAWAL WITHDRAWAL PAYMENTS CHARGE CHARGE
VALUE AMOUNT AMOUNT LIQUIDATED PERCENTAGE AMOUNT
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(a) $64,000 $ 9,000 $ 20,000 $ 0 4.00% $ 0
(b) $56,000 $ 12,000 $ 11,000 $ 1,000 4.00% $40
(c) $40,000 $ 15,000 $ 0 $ 15,000 4.00% $600
</TABLE>
- ------------------------
(a) The free withdrawal amount during an Account Year is equal to 10% of New
Payments (those payments made in current account year or in the 6
immediately preceding Account Years) less any prior partial withdrawals in
that Account Year. Any portion of the free withdrawal amount that is not
used in the current account year is carried forward into future years. In
the fifth Account Year, the free withdrawal amount is equal to $20,000
($4,000 for the current Account Year, plus an additional $16,000 for Account
Years 1 through 4, $4,000 for each Account Year because no partial
withdrawals were taken). The partial withdrawal amount ($9,000) is less than
the free withdrawal amount so no Purchase Payments are liquidated and no
withdrawal charge applies.
(b) Since a partial withdrawal of $9,000 was taken, the remaining free
withdrawal amount is equal to $11,000. The $12,000 partial withdrawal will
first be applied against the $11,000 free withdrawal amount, and then will
liquidate Purchase Payments of $1,000, incurring a withdrawal charge of $40.
(c) The free withdrawal amount is zero since the previous partial withdrawals
have already used the free withdrawal amount. The entire partial withdrawal
amount will result in Purchase Payments being liquidated and will incur a
withdrawal charge. At the beginning of the next Account Year, 10% of
Purchase Payments would be available for withdrawal requests during that
Account Year.
WITHDRAWAL CHARGE CALCULATION FOR CERTIFICATES WITH DATE OF COVERAGE BEFORE
NOVEMBER 1, 1994 AND CERTIFICATES ISSUED AFTER THAT DATE WHICH DO NOT CONTAIN
THE CUMULATIVE WITHDRAWAL PROVISION.
This example assumes that the date of the full surrender or partial
withdrawal is during the 9th Account Year.
<TABLE>
<CAPTION>
1 2 3 4 5 6
- --- ------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
1 $ 1,000 $1,000 $ 0 0% $ 0
2 1,200 1,200 0 0 0
3 1,400 1,280 120 3 3.60
4 1,600 0 1,600 4 64.00
5 1,800 0 1,800 4 72.00
6 2,000 0 2,000 5 100.00
7 2,000 0 2,000 5 100.00
8 2,000 0 2,000 6 120.00
9 2,000 0 2,000 6 120.00
------- ------ ------- --- -------
$15,000 $3,480 $11,520 $579.60
======= ====== ======= =======
</TABLE>
EXPLANATION OF COLUMNS IN TABLE
COLUMNS 1 AND 2:
Represent Purchase Payments ("Payments") and amounts of Payments. Each
Payment was made on the first day of each Account Year.
85
<PAGE>
COLUMN 3:
Represents the amounts that may be withdrawn without the imposition of
withdrawal charges, as follows:
a) Payments 1 and 2, $1,000 and $1,200, respectively, have been credited
to the Certificate for more than 7 years.
b) $1,280 of Payment 3 represents 10% of Payments that have been credited
to the Certificate for less than 7 years. The 10% amount is applied to the
oldest unliquidated Payment, then the next oldest and so forth.
COLUMN 4:
Represents the amount of each Payment that is subject to a withdrawal
charge. It is determined by subtracting the amount in Column 3 from the Payment
in Column 2.
COLUMN 5:
Represents the withdrawal charge percentages imposed on the amounts in
Column 4.
COLUMN 6:
Represents the withdrawal charge imposed on each Payment. It is determined
by multiplying the amount in Column 4 by the percentage in Column 5.
For example, the withdrawal charge imposed on Payment 8
= Payment 8, Column 4 X Payment 8, Column 5
= $2,000 X 6%
= $120
FULL SURRENDER:
The total of Column 6, $579.60, represents the total amount of withdrawal
charges imposed on Payments in this example.
PARTIAL WITHDRAWAL:
The sum of amounts in Column 6 for as many Payments as are liquidated
reflects the withdrawal charges imposed in the case of a partial withdrawal.
For example, if $7,000 of Payments (Payments 1, 2, 3, 4 and 5) were
withdrawn, the amount of the withdrawal charges imposed would be the sum of
amounts in Column 6 for Payments 1, 2, 3, 4 and 5, which is $139.60.
PART 2--FIXED ACCOUNT--EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
The MVA factor is:
<TABLE>
<C> <S> <C> <C> <C>
N/12
1 + I
( ----- ) -1
1 + J
</TABLE>
These examples assume the following:
1) The Guarantee Amount was allocated to a five year Guarantee Period
with a Guaranteed Interest Rate of 6% or .06 (l).
2) The date of surrender is 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.
86
<PAGE>
6) Withdrawal charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of surrender, the current rate (J) is 8% or .08.
<TABLE>
<C> <C> <S> <C> <C> <C> <C>
N/12
1 + l
The MVA factor = ( ------ ) -1
1 + J
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.
<TABLE>
<C> <C> <S> <C> <C> <C> <C>
N/12
1 + l
The MVA factor = ( ------ ) -1
1 + J
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 credited to the
Guarantee Amount in the current Account Year is multiplied by the MVA factor to
determine the MVA:
($11,910.16 - $674.16) X .019 = $213.48
$213.48 represents the MVA that would be added to the value of the
Guarantee Amount before the deduction of any withdrawal charge.
For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA
would be ($2,000.00 - $674.16) X .019 = $25.19.
$25.19 represents the MVA that would be added to the value of the partial
withdrawal amount before the deduction of any withdrawal charge.
87
<PAGE>
<TABLE>
<S> <C>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
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
GOLD-1 5/2000
</TABLE>
<PAGE>
GOLD-1-5/00/15M
<PAGE>
Rule 497(c)
File No. 33-41628
811-05846
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
MAY 1, 2000
PROFILE
MFS REGATTA PLATINUM
VARIABLE AND FIXED
ANNUITY
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU
SHOULD KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE
FULLY DESCRIBED IN THE FULL PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE
READ THE PROSPECTUS CAREFULLY.
1. THE MFS REGATTA PLATINUM ANNUITY
The MFS Regatta Platinum Annuity is a flexible payment deferred annuity
contract ("Contract") designed for use in connection with retirement and
deferred compensation plans, some of which may qualify for favorable federal
income tax treatment. The Contract is intended to help you achieve your
retirement savings or other long-term investment goals.
The Contract has two phases: an Accumulation Phase and an Income Phase.
During the Accumulation Phase you make payments into the Contract; any
investment earnings under your Contract accumulate on a tax-deferred basis and
are taxed as income only when withdrawn. During the Income Phase, we make
annuity payments in amounts determined in part by the amount of money you have
accumulated under your Contract during the Accumulation Phase. You choose when
the Income Phase begins.
You may choose among 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
"Series") listed in Section 4. The value of any portion of your Contract
allocated to the Sub-Accounts will fluctuate up or down depending on the
performance of the Series you select, and you may experience losses. For a fixed
interest rate, you may choose one or more Guarantee Periods offered in our Fixed
Account, each of which earns its own Guaranteed Interest Rate if you keep your
money in that Guarantee Period for the specified length of time.
The Contract is designed to meet your need for investment flexibility.
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 5, 10, 15 or 20 years if
you die before the end of the period you have selected; (3) monthly payments for
your lifetime and the life of another person (usually your spouse) you have
chosen; and (4) monthly payments for a specified number of years (between 5 and
30), with a cash-out option for variable payments. We may also agree to other
annuity options in our discretion.
<PAGE>
Once the Income Phase begins, you cannot change your choice of annuity
payment method.
3. PURCHASING A CONTRACT
You may purchase a Contract for $10,000 or more, under most circumstances.
You may increase the value of your investment by adding $1,000 or more at any
time during the Accumulation Phase. We may waive these limits. However, if you
own a Contract issued in the State of Oregon, you may increase the value of your
investment only during the first 3 Account Years, rather than at any time during
the Accumulation Phase. We will not accept a purchase payment if your Account
Value is over $1 million, or if the purchase payment would cause your Account
Value to exceed $1 million, unless we have approved the payment in advance, and
we will not accept any purchase payment as of the fourth Account Anniversary if
you own a Contract issued in Oregon.
4. ALLOCATION OPTIONS
You can allocate your money among Sub-Accounts investing in the following
Series of the MFS/ Sun Life Series Trust:
<TABLE>
<S> <C>
Bond Series 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 Series.
Each Series is described in the prospectus of the MFS/Sun Life Series Trust.
In addition to these variable options, you may also allocate your money to
one or more of the Guarantee Periods we make available. For each Guarantee
Period, we offer a Guaranteed Interest Rate for the specified length of time.
5. EXPENSES
The charges under the Contracts are as follows:
During the first 5 years of a Contract, we impose an annual Account Fee
equal to the lesser of $35 or 2% of the value of your Contract. After the fifth
year, we may change this fee annually, but it will never exceed the lesser of
$50 or 2% of the value of your Contract. During the Income Phase, the annual
Account Fee is $35. We also deduct insurance charges (which include an
administrative expense charge) equal to 1.40% per year of the average daily
value of the Contract allocated among the Sub-Accounts.
There are no sales charges when you purchase your 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 seven-year period and moves down a
declining surrender charge scale at each Account Anniversary. Payments received
during the current Account Year will be charged 6% 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 5% withdrawal charge. On the next Account Anniversary, these
payments will move
2
<PAGE>
into their third Account Year and will have a withdrawal charge of 5%, if
withdrawn. The withdrawal charge decreases according to the number of Account
Years the purchase payment has been in your Account. The declining scale is as
follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS
PURCHASE PAYMENT
HAS BEEN IN
YOUR ACCOUNT WITHDRAWAL CHARGE
- ---------------- -----------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
</TABLE>
If you withdraw, transfer, or annuitize money allocated to a Guarantee
Period more than 30 days before the expiration date of the Guarantee Period, the
amount will be subject to a Market Value Adjustment (except that no Market Value
Adjustment will apply to Contracts issued in California on or after October 8,
1999). This adjustment reflects the relationship between our current Guaranteed
Interest Rates and the Guaranteed Interest Rate applicable to the amount being
withdrawn. Generally, if your Guaranteed Interest Rate is lower than the
relevant current rate, then the adjustment will decrease your Contract value.
Conversely, if your Guaranteed Interest Rate is higher than the relevant current
rate, the adjustment will increase your Contract value. The Market Value
Adjustment will not apply to the withdrawal of interest credited during the
current year, or to transfers as part of our dollar-cost averaging program.
In addition to the charges we impose under the Contracts, there are
charges (which include management fees and operating expenses) imposed by each
Series, which range from 0.57% to 1.60% of the average net assets of the Series,
depending upon which Series you have selected. The investment adviser has agreed
to waive or reimburse a portion of expenses for some of the Series; without this
agreement, Series expenses could be higher. Some of these arrangements may be
terminated 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 Series. The next two columns show two examples of the expenses, in dollars,
you would pay under a Contract. The examples assume that you invested $1,000 in
a Contract which earns 5% annually and that you withdraw your money (1) at the
end of one year or (2) at the end of 10 years. For the first year, the Total
Annual Expenses are deducted, as well as withdrawal charges. For year 10, the
example shows the aggregate of all of the annual expenses deducted for the 10
years, but there is no withdrawal charge.
"Total Annual Insurance Charges" of 1.50% as shown in the table below
include the insurance charges of 1.40% of your Account's daily net assets (1.25%
for mortality and expense risks and 0.15% for administrative expenses), plus an
additional 0.10%, which is used to represent the $35 annual Account Fee based on
an assumed Contract value of $35,000. The actual impact of the Account Fee may
be greater or less than 0.10%, depending upon the value of your Contract.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL TOTAL EXPENSES
INSURANCE SERIES ANNUAL AT END
SUB-ACCOUNT CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- ----------- --------------- --------------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Bond Series 1.50% 0.72% 2.22% $78 $255
Capital Appreciation Series 1.50% 0.76% 2.26% $79 $260
Capital Opportunities Series 1.50% 0.84% 2.34% $79 $268
Emerging Growth Series 1.50% 0.75% 2.25% $78 $258
Emerging Markets Equity Series 1.50% 1.60% 3.10% $86 $341
Equity Income Series 1.50% 0.92% 2.42% $80 $276
Global Asset Allocation Series 1.50% 0.89% 2.39% $80 $273
Global Governments Series 1.50% 0.90% 2.40% $80 $274
Global Growth Series 1.50% 1.01% 2.51% $81 $285
</TABLE>
(CONTINUED ON NEXT PAGE)
3
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL TOTAL EXPENSES
INSURANCE SERIES ANNUAL AT END
SUB-ACCOUNT CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- ----------- --------------- --------------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Global Total Return Series 1.50% 0.89% 2.39% $80 $273
Government Securities Series 1.50% 0.61% 2.11% $77 $244
High Yield Series 1.50% 0.83% 2.33% $79 $265
International Growth Series 1.50% 1.23% 2.73% $83 $306
International Growth and Income Series 1.50% 1.16% 2.66% $82 $299
Managed Sectors Series 1.50% 0.79% 2.29% $79 $263
Massachusetts Investors Growth Stock 1.50% 0.83% 2.33% $79 $267
Series
Massachusetts Investors Trust Series 1.50% 0.59% 2.09% $77 $242
Money Market Series 1.50% 0.57% 2.07% $77 $240
New Discovery Series 1.50% 1.06% 2.56% $81 $290
Research Series 1.50% 0.75% 2.25% $78 $258
Research Growth and Income Series 1.50% 0.86% 2.36% $79 $270
Research International Series 1.50% 1.23% 2.73% $83 $306
Strategic Growth Series 1.50% 1.00% 2.50% $81 $284
Strategic Income Series 1.50% 1.08% 2.58% $82 $291
Total Return Series 1.50% 0.69% 2.19% $78 $252
Utilities Series 1.50% 0.82% 2.32% $79 $266
</TABLE>
For more detailed information about Contract fees and expenses, please
refer to the fee table and discussion of Contract charges contained in the full
Prospectus which accompanies this Profile.
6. TAXES
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.
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 or transfer money from your Contract at any time during
the Accumulation Phase. You may withdraw a portion of the value of your Contract
in each year without the imposition of the withdrawal charge -- 10% of all
payments you have made in the last 7 years, plus any payment we have held for at
least 7 years. All other purchase payments you withdraw will be subject to a
withdrawal charge ranging from 6% to 0%. You may also be required to pay income
tax and possible tax penalties on any money you withdraw.
We do not assess a withdrawal charge upon annuitization or transfers. In
certain circumstances, we will waive the withdrawal charges for a full
withdrawal when you are confined to an eligible nursing home. In addition, there
may be other circumstances under which we may waive the withdrawal charge.
In addition to the withdrawal charge, amounts you withdraw, transfer or
annuitize from the Fixed Account before your Guarantee Period has ended may be
subject to a Market Value Adjustment (except that no Market Value Adjustment
will apply to Contracts issued in California on or after October 8, 1999).
4
<PAGE>
8. PERFORMANCE
If you invest in one or more Sub-Accounts, the value of your Contract will
increase or decrease depending on the investment performance of the Series you
choose.
The following chart shows total returns for investment in the Sub-Accounts
where the corresponding Series has at least one full calendar year of
operations. The returns reflect all charges and deductions of the Series and
Sub-Accounts and deduction of the annual Account Fee. They do not reflect
deduction of any withdrawal charges or premium taxes. These charges, if
included, would reduce the performance numbers shown. Past performance is not a
guarantee of future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
--------------------------------------------------------------------------------------------------
SUB-ACCOUNT 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Series (3.11)% -- -- -- -- -- -- -- -- --
Capital Appreciation Series 30.77% 26.86% 21.33% 19.70% 32.51% (5.03)% 16.28% 11.53% 38.89% (11.02)%
Capital Opportunities Series 45.55% 25.13% 25.73% -- -- -- -- -- -- --
Emerging Growth Series 73.35% 31.94% 20.16% 15.38% -- -- -- -- -- --
Emerging Markets Equity
Series 50.35% (31.00)% 8.78% -- -- -- -- -- -- --
Equity Income Series 5.54% -- -- -- -- -- -- -- -- --
Global Asset Allocation
Series 16.87% 5.00% 9.24% 14.28% 19.85% -- -- -- -- --
Global Governments Series (6.52)% 13.80% (2.24)% 3.11% 14.00% (5.91)% 17.16% (1.01)% 13.10% 11.67%
Global Growth Series 64.97% 12.89% 13.63% 11.42% 14.29% 1.40% -- -- -- --
Global Total Return Series 6.90% 16.64% 11.98% 12.58% 16.19% -- -- -- -- --
Government Securities Series (3.31)% 7.16% 7.15% 0.11% 15.92% (3.61)% 7.07% 5.14% 14.17% 7.26%
High Yield Series 5.34% (0.86)% 11.55% 10.46% 15.32% (3.68)% 16.01% 13.34% 45.49% (15.65)%
International Growth Series 33.41% 0.43% (3.09)% -- -- -- -- -- -- --
International Growth and
Income Series 15.63% 19.86% 4.95% 3.33% -- -- -- -- -- --
Managed Sectors Series 83.01% 10.70% 23.80% 15.86% 30.34% (3.38)% 2.52% 4.91% 59.67% (11.80)%
Massachusetts Investors
Growth Stock Series 33.87% -- -- -- -- -- -- -- -- --
Massachusetts Investors
Trust Series 5.68% 22.05% 30.04% 23.57% 35.44% (2.57)% 6.82% 4.05% 34.87% (4.86)%
Money Market Series 3.21% 3.50% 3.52% 3.37% 3.90% 2.17% 1.11% 1.81% 4.23% 6.26%
New Discovery Series 57.94% -- -- -- -- -- -- -- -- --
Research Series 22.41% 21.85% 19.06% 22.00% 35.44% -- -- -- -- --
Research Growth and Income
Series 6.64% 20.41% -- -- -- -- -- -- -- --
Research International
Series 52.78% -- -- -- -- -- -- -- -- --
Strategic Growth Series 19.68% -- -- -- -- -- -- -- -- --
Strategic Income Series 21.78% -- -- -- -- -- -- -- -- --
Total Return Series 1.38% 10.13% 20.18% 12.38% 24.93% (3.71)% 11.72% 6.77% 19.87% 1.15%
Utilities Series 29.42% 15.89% 30.80% 18.57% 30.48% (6.36)% -- -- -- --
</TABLE>
9. DEATH BENEFIT
If you die before the Contract reaches the Income Phase, the beneficiary
will receive a death benefit. To calculate the death benefit, we use a "Death
Benefit Date," which is the earliest date we have both due proof of death and a
written request specifying the manner of payment.
If you were 85 or younger when we issued your Contract, the death benefit
is the greatest of:
(1) The value of the Contract on the Death Benefit Date;
(2) The amount we would pay in the event of a full surrender of the
Contract on the Death Benefit Date;
(3) The value of the Contract on the most recent seven-year anniversary of
the Contract, plus any purchase payments made and adjusted for any
partial withdrawals and charges made after that anniversary;
5
<PAGE>
(4) Your highest Account Value on any Account Anniversary before your 81st
birthday, adjusted for subsequent purchase payments and partial
withdrawals and charges made between that Account Anniversary and the
Death Benefit Date; and
(5) Your total purchase payments, plus interest on purchase payments
allocated to and transfers to the Variable Account -- while they
remain in the Variable Account -- at 5% per year until the first day
of the month following your 80th birthday, or until the purchase
payment
6
<PAGE>
or amount transferred has doubled in amount, whichever is earlier;
this amount is adjusted for partial withdrawals.
If you were 86 or older when we issued your Contract, the death benefit is
equal to the amount set forth in (2) above.
10. OTHER INFORMATION
FREE LOOK. Depending upon applicable state law, if you cancel your
Contract within 10 days after receiving it we will send you the value of your
Contract as of the day we received your cancellation request (this may be more
or less than the original purchase payment) and we will not deduct a withdrawal
charge. However, if applicable state or federal law requires, we will refund the
full amount of any purchase payment(s) we receive and the "free look" period may
be greater than 10 days.
NO PROBATE. In most cases, when you die, the beneficiary will receive the
death benefit without going through probate. However, avoiding probate does not
mean that the beneficiary will not have tax liability as a result of receiving
the death benefit.
WHO SHOULD PURCHASE A CONTRACT? The Contract is designed for those seeking
long-term tax-deferred accumulation of assets and annuity features, generally
for retirement or other long-term 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 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 of
each transaction 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.
DOLLAR-COST AVERAGING -- This program lets you invest gradually in up to
12 Sub-Accounts.
ASSET ALLOCATION -- This program rebalances your Account 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 AND INTEREST OUT PROGRAMS -- These programs allow
you to receive quarterly, semi-annual or annual payments during the Accumulation
Phase.
PORTFOLIO REBALANCING PROGRAM -- Under this program, we automatically
reallocate your investments in the Sub-Accounts to maintain the proportions you
select. You can elect rebalancing on a quarterly, semi-annual or annual basis.
SECURED FUTURES PROGRAM -- This program guarantees the return of your
purchase payment, and also allows you to allocate a portion of your investment
to one or more variable investment options.
7
<PAGE>
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
<PAGE>
Rule 497(c)
File No. 33-41628
811-05846
PROSPECTUS
MAY 1, 2000
MFS REGATTA PLATINUM
Sun Life Assurance Company of Canada (U.S.) and Sun Life of Canada (U.S.)
Variable Account F offer the flexible payment deferred annuity contracts and
certificates described in this Prospectus to groups and individuals.
You may choose among 26 variable investment options and a range of fixed
options. The variable options are Sub-Accounts in the Variable Account. Each
Sub-Account invests in one of the following series of the MFS/Sun Life
Series Trust (the "Series Fund"), a mutual fund advised by our affiliate,
Massachusetts Financial Services Company:
<TABLE>
<S> <C>
Bond Series 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 CONTRACT AND THE SERIES FUND.
We have filed a Statement of Additional Information dated May 1, 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 76 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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms 4
Expense Summary 4
Summary of Contract Expenses 4
Series Fund Annual Expenses 5
Examples 6
Condensed Financial Information 7
The 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 MFS/Sun Life Series Trust 8
The Fixed Account 11
The Fixed Account Options: The Guarantee Periods 11
The Accumulation Phase 11
Issuing Your Contract 11
Amount and Frequency of Purchase Payments 12
Allocation of Net Purchase Payments 12
Your Account 12
Your Account Value 12
Variable Account Value 12
Fixed Account Value 13
Transfer Privilege 14
Waivers; Reduced Charges; Credits; Bonus Guaranteed
Interest Rates 15
Optional Programs 15
Withdrawals, Withdrawal Charge and Market Value Adjustment 17
Cash Withdrawals 17
Withdrawal Charge 18
Market Value Adjustment 20
Contract Charges 21
Account Fee 21
Administrative Expense Charge 22
Mortality and Expense Risk Charge 22
Premium Taxes 22
Series Fund Expenses 22
Modification in the Case of Group Contracts 22
Death Benefit 22
Amount of Death Benefit 23
Spousal Continuance 23
Calculating of Death Benefit 23
Method of Paying Death Benefit 24
Non-Qualified Contracts 24
Selection and Change of Beneficiary 24
Payment of Death Benefit 24
Due Proof of Death 25
The Income Phase -- Annuity Provisions 25
Selection of the Annuitant or Co-Annuitant 25
Selection of the Annuity Commencement Date 25
Annuity Options 26
Selection of Annuity Option 26
Amount of Annuity Payments 27
Exchange of Variable Annuity Units 28
Account Fee 28
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Annuity Payment Rates 28
Annuity Options as Method of Payment for Death Benefit 28
Other Contract Provisions 28
Exercise of Contract Rights 28
Change of Ownership 29
Voting of Series Fund Shares 29
Periodic Reports 30
Substitution of Securities 30
Change in Operation of Variable Account 30
Splitting Units 31
Modification 31
Limitation or Discontinuance of New Participants 31
Reservation of Rights 31
Right to Return 32
Tax Considerations 32
U.S. Federal Tax Considerations 32
DEDUCTIBILITY OF PURCHASE PAYMENTS 32
PRE-DISTRIBUTION TAXATION OF CONTRACTS 32
DISTRIBUTIONS AND WITHDRAWALS FROM NON-QUALIFIED
CONTRACTS 33
DISTRIBUTIONS AND WITHDRAWALS FROM QUALIFIED
CONTRACTS 33
WITHHOLDING 33
INVESTMENT DIVERSIFICATION AND CONTROL 34
TAX TREATMENT OF THE COMPANY AND THE VARIABLE
ACCOUNT 34
QUALIFIED RETIREMENT PLANS 34
PENSION AND PROFIT-SHARING PLANS 34
TAX-SHELTERED ANNUITIES 34
INDIVIDUAL RETIREMENT ACCOUNTS 35
ROTH IRAS 35
Puerto Rico Tax Considerations 35
Administration of the Contracts 36
Distribution of the Contracts 36
Performance Information 36
Available Information 38
Incorporation of Certain Documents by Reference 38
Additional Information About the Company 38
General 38
Selected Financial Data 39
Management's Discussion and Analysis of Financial
Condition and Results of Operations 39
Quantitative and Qualitative Disclosures About Market
Risk 47
Reinsurance 49
Reserves 50
Investments 50
Competition 50
Employees 50
Properties 50
State Regulation 50
Legal Proceedings 51
Accountants 51
Financial Statements 51
Table of Contents of Statement of Additional Information 76
Appendix A -- Glossary 78
Appendix B -- Condensed Financial Information --
Accumulation Unit Values 81
Appendix C -- Withdrawals, Withdrawal Charges and the Market
Value Adjustment 84
</TABLE>
3
<PAGE>
SPECIAL TERMS
Your Contract is a legal document that uses a number of specially defined
terms. We explain most of the terms that we use in this Prospectus in the
context where they arise, and some are self-explanatory. In addition, for
convenient reference, we have compiled a list of these terms in the Glossary
included at the back of this Prospectus as Appendix A. If, while you are reading
this Prospectus, you come across a term that you do not understand, please refer
to the Glossary for an explanation.
EXPENSE SUMMARY
The purpose of the following table is to help you understand the costs and
expenses that you will bear directly and indirectly under a Contract WHEN YOU
ALLOCATE MONEY TO THE VARIABLE ACCOUNT. The table reflects expenses of the
Variable Account as well as of each Series of the Series Fund. The table should
be considered together with the narrative provided under the heading "Contract
Charges" in this Prospectus, and with the Series Fund prospectus. In addition to
the expenses listed below, we may deduct premium taxes.
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
TRANSACTION EXPENSES
Sales Load Imposed on Purchase Payments..................... $ 0
Deferred Sales Load (as a percentage of Purchase Payments
withdrawn) (1)
Number of Account Years Purchase Payment in Account
0-1..................................................... 6%
2-3..................................................... 5%
4-5..................................................... 4%
6....................................................... 3%
7 or more............................................... 0%
Transfer Fee (2)............................................ $ 15
ANNUAL ACCOUNT FEE per Contract or Certificate (3).......... $ 35
VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of average
Variable Account assets)
Mortality and Expense Risk Charge......................... 1.25%
Administrative Expense Charge............................. 0.15%
Other Fees and Expenses of the Variable Account........... 0.00%
-----
Total Variable Account Annual Expenses...................... 1.40%
</TABLE>
- ------------------------
(1) A portion of your Account may be withdrawn each year without imposition of
any withdrawal charge, and after a Purchase Payment has been in your Account
for 7 Account Years it may be withdrawn free of the withdrawal charge.
(2) Currently, no fee is imposed 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 equal to the lesser of $35 or 2% of your Account
Value in Account Years 1 through 5; thereafter, the fee may be changed
annually, but it will not exceed the lesser of $50 or 2% of your Account
Value.
4
<PAGE>
SERIES FUND ANNUAL EXPENSES (1)
(AS A PERCENTAGE OF SERIES FUND NET ASSETS)
<TABLE>
<CAPTION>
OTHER TOTAL SERIES
MANAGEMENT EXPENSES (2) EXPENSES(2)
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 Series Fund expenses was provided by the Series
Fund and we have not independently verified it. You should consult the
Series Fund prospectus for more information about Series Fund expenses.
(2) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into such other
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected in the table. If these fees had been taken into account, "Total
Fund Expenses" would be as follows for certain of the Series:
<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 Series 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
Series' "Other Expenses" equal or fall below 0.25% annually. Without taking
into account this fee waiver and/or expense reimbursement, the Series'
"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 and a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Bond Series................................................. $ 78 $109 $145 $255
Capital Appreciation Series................................. $ 79 $110 $147 $260
Capital Opportunities Series................................ $ 79 $112 $151 $268
Emerging Growth Series...................................... $ 78 $110 $146 $258
Emerging Markets Equity Series.............................. $ 86 $134 $186 $341
Equity Income Series........................................ $ 80 $114 $159 $276
Global Asset Allocation Series.............................. $ 80 $114 $153 $273
Global Governments Series................................... $ 80 $114 $154 $274
Global Growth Series........................................ $ 81 $117 $159 $285
Global Total Return Series.................................. $ 80 $114 $153 $273
Government Securities Series................................ $ 77 $106 $140 $244
High Yield Series........................................... $ 79 $111 $149 $265
International Growth Series................................. $ 83 $123 $169 $306
International Growth and Income Series...................... $ 82 $121 $166 $299
Managed Sectors Series...................................... $ 79 $111 $148 $263
Massachusetts Investors Growth Stock Series................. $ 79 $112 $150 $267
Massachusetts Investors Trust Series........................ $ 77 $105 $139 $242
Money Market Series......................................... $ 77 $104 $138 $240
New Discovery Series........................................ $ 81 $118 $161 $290
Research Series............................................. $ 78 $110 $146 $258
Research Growth and Income Series........................... $ 79 $113 $152 $270
Research International Series............................... $ 83 $123 $169 $306
Strategic Growth Series..................................... $ 81 $117 $158 $284
Strategic Income Series..................................... $ 82 $119 $162 $291
Total Return Series......................................... $ 78 $108 $143 $252
Utilities Series............................................ $ 79 $112 $150 $266
</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 and a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Bond Series................................................. $ 23 $ 69 $119 $255
Capital Appreciation Series................................. $ 23 $ 71 $121 $260
Capital Opportunities Series................................ $ 24 $ 73 $125 $268
Emerging Growth Series...................................... $ 23 $ 70 $120 $258
Emerging Markets Equity Series.............................. $ 31 $ 96 $163 $341
Equity Income Series........................................ $ 25 $ 75 $129 $276
Global Asset Allocation Series.............................. $ 24 $ 75 $128 $273
Global Governments Series................................... $ 24 $ 75 $128 $274
Global Growth Series........................................ $ 25 $ 78 $134 $285
Global Total Return Series.................................. $ 24 $ 75 $128 $273
Government Securities Series................................ $ 21 $ 66 $113 $244
High Yield Series........................................... $ 23 $ 72 $124 $265
International Growth Series................................. $ 28 $ 85 $144 $306
International Growth and Income Series...................... $ 27 $ 83 $141 $299
Managed Sectors Series...................................... $ 23 $ 72 $123 $263
Massachusetts Investors Growth Stock Series................. $ 24 $ 73 $125 $267
Massachusetts Investors Trust Series........................ $ 21 $ 65 $112 $242
Money Market Series......................................... $ 21 $ 65 $111 $240
New Discovery Series........................................ $ 26 $ 80 $136 $290
Research Series............................................. $ 23 $ 70 $120 $258
Research Growth and Income Series........................... $ 24 $ 74 $126 $270
Research International Series............................... $ 28 $ 85 $144 $306
Strategic Growth Series..................................... $ 25 $ 78 $133 $284
Strategic Income Series..................................... $ 26 $ 80 $137 $291
Total Return Series......................................... $ 22 $ 69 $117 $252
Utilities Series............................................ $ 24 $ 72 $124 $266
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED TO BE REPRESENTATIONS OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LOWER THAN THOSE SHOWN.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
Historical information about the value of the units we use to measure the
variable portion of your Contract ("Variable Accumulation Units") is included in
the back of this Prospectus as Appendix B.
THE 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 those Participants as "you"; we use the term
"Contracts" to include Individual Contracts, Group Contracts and Certificates
issued under Group Contracts. For the purpose of determining benefits under both
Individual Contracts and Group Contracts, we establish an Account for each
Participant, which we will refer to as "your" Account or a "Participant
Account."
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 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 death benefit if you die during the Accumulation Phase. 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 options, you assume all investment
risk under the Contract. When you choose a Guarantee Period in our Fixed Account
or a Fixed Annuity option, we assume the investment risk, except in the case of
early withdrawals, where you bear the risk of unfavorable interest rate changes.
You also bear the risk that the interest rates we will offer in the future and
the rates we will use in determining your Fixed Annuity may not exceed our
minimum guaranteed rate, which is 3% per year, compounded annually.
The 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 others as "Non-Qualified Contracts."
COMMUNICATING TO US ABOUT YOUR CONTRACT
All materials sent to us, including Purchase Payments, must be sent to us
at 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
Purchase Payments, withdrawal requests and transfer instructions to
7
<PAGE>
be received on the next Business Day if we receive them (1) on a day that is not
a Business Day or (2) after 4:00 p.m., Eastern Time.
When we specify that notice to us must be in writing, we reserve the
right, 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 are offered by the Company and other
affiliated and unaffiliated offerors. 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 described in this
Prospectus and other variable annuity contracts that provide benefits that vary
in accordance with the investment performance of the Variable Account. Although
the assets maintained in the Variable Account will not be charged with any
liabilities arising out of any other business we conduct, all obligations
arising under the Contracts, including the promise to make annuity payments, are
general corporate obligations of the Company.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of a specific Series of the MFS/Sun
Life Series Trust (the "Series Fund"). All amounts allocated to the Variable
Account will be used to purchase Series Fund shares as designated by you at
their net asset value. Any and all distributions made by the Series Fund with
respect to the shares held by the Variable Account will be reinvested to
purchase additional shares at their net asset value. Deductions from the
Variable Account for cash withdrawals, annuity payments, death benefits, Account
Fees, Contract charges against the assets of the Variable Account for the
assumption of mortality and expense risks, administrative expenses and any
applicable taxes will, in effect, be made by redeeming the number of
Series Fund shares at their net asset value equal in total value to the amount
to be deducted. The Variable Account will be fully invested in Series Fund
shares at all times.
VARIABLE ACCOUNT OPTIONS:
THE MFS/SUN LIFE SERIES TRUST
The MFS/Sun Life Series Trust (the "Series Fund") is an open-end
management investment company registered under the Investment Company Act of
1940. Our affiliate, Massachusetts Financial Services Company ("MFS"), serves as
the investment adviser to the Series Fund.
The Series Fund is composed of 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 corresponding to one of the
portfolios. The Contracts provide for investment by the Sub-Accounts in
8
<PAGE>
shares of the 26 Series of the Series Fund described below. Additional
portfolios may be added to the Series Fund which may or may not be available for
investment by the Variable Account.
BOND SERIES will 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.
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 (formerly, the MFS/Foreign & Colonial
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 Series' adviser believes that the higher yields available
from foreign government securities are sufficient to justify the risks of
investing in these securities).
GLOBAL GROWTH SERIES 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.
9
<PAGE>
MONEY MARKET SERIES will seek maximum current income to the extent
consistent with stability of principal by investing exclusively in money
market instruments maturing in less than 13 months.
NEW DISCOVERY SERIES will seek capital appreciation.
RESEARCH SERIES will seek to provide long-term growth of capital and future
income.
RESEARCH GROWTH AND INCOME SERIES will seek to provide long-term growth of
capital, current income and growth of income.
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.
The Series Fund pays fees to MFS for its services pursuant to investment
advisory agreements. MFS also serves as investment adviser to each of the funds
in the MFS Family of Funds, and to certain other investment companies
established by MFS and/or us. MFS Institutional Advisers, Inc., a wholly-owned
subsidiary of MFS, provides investment advice to substantial private clients.
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS operates as an autonomous organization and the obligation of
performance with respect to the investment advisory and underwriting agreements
(including supervision of the sub-advisers noted below) is solely that of MFS.
We undertake no obligation in this regard.
MFS may serve as the investment adviser to other mutual funds which have
similar investment goals and principal investment policies and risks as the
Series, and which may be managed by a Series' portfolio manager(s). While a
Series may have many similarities to these other funds, its investment
performance will differ from their investment performance. This is due to a
number of differences between a Series and these similar products, including
differences in sales charges, expense ratios and cash flows.
The Series Fund also offers its shares to other separate accounts
established by the Company and our New York subsidiary in connection with
variable annuity and variable life insurance contracts. Although we do not
anticipate any disadvantages to this arrangement, there is a possibility that a
material conflict may arise between the interests of the Variable Account and
one or more of the other separate accounts investing in the Series Fund. A
conflict may occur due to differences in tax laws affecting the operations of
variable life and variable annuity separate accounts, or some other reason. We
and the Series Fund's Board of Trustees will monitor events for such conflicts,
and, in the event of a conflict, we will take steps necessary to remedy the
conflict, including withdrawal of the Variable Account from participation in the
Series which is involved in the conflict or substitution of shares of other
Series or other mutual funds.
MORE COMPREHENSIVE INFORMATION ABOUT THE SERIES FUND AND THE MANAGEMENT,
INVESTMENT OBJECTIVES, POLICIES, RESTRICTIONS, EXPENSES AND POTENTIAL RISKS OF
EACH SERIES MAY BE FOUND IN THE ACCOMPANYING CURRENT PROSPECTUS OF THE
SERIES FUND. YOU SHOULD READ THE SERIES FUND PROSPECTUS CAREFULLY BEFORE
INVESTING. THE SERIES FUND'S STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE BY
CALLING 1-800-752-7215.
10
<PAGE>
THE FIXED ACCOUNT
The Fixed Account is made up of all the general assets of the Company
other than those allocated to any separate account. Amounts you allocate to
Guarantee Periods become part of the Fixed Account, and are available to fund
the claims of all classes of our customers, including claims for benefits under
the Contracts.
We will invest the assets of the Fixed Account in those assets we choose
that are allowed by applicable state insurance laws. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stocks, real estate mortgages, real estate and certain
other investments. We intend to invest primarily in investment-grade fixed
income securities (i.e., rated by a nationally recognized rating service within
the 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 with amounts allocated to the Guarantee
Periods. We will also consider other factors in determining these rates,
including regulatory and tax requirements, sales commissions and administrative
expenses borne by us, general economic trends and competitive factors. We cannot
predict the level of future interest rates.
We may from time to time at our discretion offer interest rate specials
for new Purchase Payments that are higher than the rates we are then offering
for renewals or transfers.
Early withdrawals from your allocation to a Guarantee Period, including
cash withdrawals, transfers, and commencement of an annuity, may be subject to a
Market Value Adjustment, which could decrease or increase the value of your
Account. See "Withdrawals, Withdrawal Charge and Market Value Adjustment."
THE ACCUMULATION PHASE
During the Accumulation Phase of your Contract, you make Payments into
your Account, and your earnings accumulate on a tax-deferred basis. The
Accumulation Phase begins with our acceptance of your first Purchase Payment and
ends the Business Day before your Annuity Commencement Date. The Accumulation
Phase will end sooner if you surrender your Contract or die before the Annuity
Commencement Date.
ISSUING YOUR CONTRACT
When you purchase a Contract, a completed Application and the initial
Purchase Payment are sent to us for acceptance. When we accept an Individual
Contract, we issue the Contract to you. When we accept a Group Contract, we
issue the Contract to the Owner; we issue a Certificate to you as a Participant
when we accept your Application.
We will credit your initial Purchase Payment to your Account within 2
Business Days of receiving your completed Application. If your Application is
not complete, we will notify you. If we do not
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have the necessary information to complete the Application within 5 Business
Days, we will send your money back to you or ask your permission to retain your
Purchase Payment until the Application is made complete. Then we will apply the
Purchase Payment within 2 Business Days of when the Application is complete.
AMOUNT AND FREQUENCY OF PURCHASE PAYMENTS
The amount of Purchase Payments may vary; however, we will not accept an
initial Purchase Payment of less than $10,000, and each additional Purchase
Payment must be at least $1,000, unless we waive these limits. In addition, we
will not accept a Purchase Payment if your Account Value is over $1 million, or
if the Purchase Payment would cause your Account Value to exceed $1 million,
unless we have approved the Payment in advance. Within these limits, you may
make Purchase Payments at any time during the Accumulation Phase, except that if
you own a Contract issued in the state of Oregon, you may make Purchase Payments
only during the first 3 Account Years, rather than at any time duing the
Accumulation Phase.
ALLOCATION OF NET PURCHASE PAYMENTS
You may allocate your Purchase Payments among the different Sub-Accounts
and Guarantee Periods we offer. 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 written notice of the change, 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 the
headings "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
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close 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 Series share held in the Sub-Account at the end of
that Valuation Period, plus the per share amount of any dividend or capital
gains distribution made by that Series during the Valuation Period, by (2) the
net asset value per share of the Series share at the end of the previous
Valuation Period; we then deduct a factor representing the mortality and expense
risk charge and administrative expense charge 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.
CREDITING INTEREST
We credit interest on amounts allocated to a Guarantee Period at the
applicable Guaranteed Interest Rate for the duration of the Guarantee Period.
The Guarantee Period begins the day we apply your allocation and ends when the
number of calendar years (or months if the Guarantee Period is less than one
year) in the Guarantee Period (measured from the end of the calendar month in
which the amount was allocated to the Guarantee Period) have elapsed. The last
day of the Guarantee Period is its Expiration Date. During the Guarantee Period,
we credit interest daily at a rate that yields the Guaranteed Interest Rate on
an annual effective basis.
GUARANTEE AMOUNTS
Each separate allocation you make to a Guarantee Period, together with
interest credited thereon, is called a Guarantee Amount. Each Guarantee Amount
is treated separately for purposes of determining the Market Value Adjustment. A
Guarantee Period that will extend beyond your maximum Annuity Commencement Date
will result in the application of a Market Value Adjustment upon annuitization
or withdrawal. Each new allocation to a Guarantee Period must be at least
$1,000.
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RENEWALS
We will notify you in writing between 45 and 75 days before the Expiration
Date for any Guarantee Amount. A new Guarantee Period of the same duration will
begin automatically for that Guarantee Amount on the first day following the
Expiration Date, unless before the Expiration Date we receive:
(1) written notice from you electing a different Guarantee Period from among
those we then offer, or
(2) instructions to transfer all or some of the Guarantee Amount to one or
more Sub-Accounts, in accordance with the transfer privilege provisions
of the Contract (see "Transfer Privilege," below).
A Guarantee Amount will not renew into a Guarantee Period that will extend
beyond your maximum Annuity Commencement Date. 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 more than 30 days prior to the Expiration Date, we will apply a Market
Value Adjustment to the transaction. This could result in an increase or
decrease of your Account Value, depending on interest rates at the time. You
bear the risk that you will receive less than your principal if the Market Value
Adjustment applies.
TRANSFER PRIVILEGE
PERMITTED TRANSFERS
During the Accumulation Phase, you may transfer all or part of your
Account Value to one or more Sub-Accounts or Guarantee Periods then available,
subject to the following restrictions:
- You may not make more than 12 transfers in any Account Year;
- The amount transferred from a Sub-Account must be at least $1,000
unless you are transferring your entire balance in that Sub-Account;
- Your Account Value remaining in a Sub-Account must be at least $1,000;
- The amount transferred from a Guarantee Period must be the entire
Guarantee Amount, except for transfers of interest credited during the
current Account Year;
- At least 30 days must elapse between transfers to or from Guarantee
Periods;
- Transfers to or from Sub-Accounts are subject to terms and conditions
that may be imposed by the Series Fund; and
- We impose additional restrictions on market timers, which are further
described below.
These restrictions do not apply to transfers made under an approved
dollar-cost averaging program.
There is usually no charge imposed on transfers; however, we reserve the
right to impose a transfer charge of $15 for each transfer. Transfers out of a
Guarantee Period occurring more than 30 days before the Expiration Date or any
time after the Expiration 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 transfer made by telephone. We will not be liable for following instructions
communicated by telephone that we reasonably believe are genuine.
If we receive your transfer request before 4:00 p.m. Eastern Time on a
Business Day, it will be effective that day. Otherwise, it will be effective the
next Business Day.
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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 Series would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. In particular, a pattern of exchanges that coincide with a market
timing strategy may be disruptive to a Series and therefore may be refused.
Accordingly, the Variable Account may not be in a position to effectuate
transfers and may refuse transfer requests without prior notice. We also reserve
the right, for similar reasons, to refuse or delay exchange requests involving
transfers to or from the Fixed Account.
WAIVERS; REDUCED CHARGES; CREDITS; BONUS GUARANTEED INTEREST RATES
We may reduce or waive the withdrawal charge or annual Account Fee, credit
additional amounts, or grant bonus Guaranteed Interest Rates in certain
situations. These situations may include sales of Contracts (1) where selling
and/or maintenance costs associated with the Contracts are reduced, such as the
sale of several Contracts to the same Participant, sales of large Contracts, and
certain group sales, and (2) to officers, directors and employees of the Company
or its affiliates, registered representatives and employees of broker-dealers
with a current selling agreement with the Company and affiliates of such
representatives and broker-dealers, employees of affiliated asset management
firms, and persons who have retired from such positions ("Eligible Employees")
and immediate family members of Eligible Employees. Eligible Employees and their
immediate family members may also purchase a Contract without regard to minimum
Purchase Payment requirements. For other situations in which withdrawal charges
may be waived, see "Withdrawals, Withdrawal Charge and Market Value Adjustment."
OPTIONAL PROGRAMS
DOLLAR-COST AVERAGING
Dollar-cost averaging allows you to invest gradually, over time, in up to
12 Sub-Accounts. You may select a dollar-cost averaging program at no extra
charge by allocating a minimum of $1,000 to a designated Sub-Account or to a
Guarantee Period we make available in connection with the program. Amounts
allocated to the Fixed Account under the program will earn interest at a rate
declared by the Company for the Guarantee Period you select. Previously applied
amounts may not be transferred to a Guarantee Period made available in
connection with this program. Each month or quarter, as you select, we will
transfer the same amount automatically to one or more Sub-Accounts that you
choose, up to a maximum of 12 Sub-Accounts. The program continues until your
Account Value allocated to the program is depleted or you elect to stop the
program. The final amount transferred from the Fixed Account will include all
interest earned.
No Market Value Adjustment (either positive or negative) will apply to
amounts automatically transferred from the Fixed Account under the dollar-cost
averaging program, except that if you discontinue or alter the program prior to
completion, amounts remaining in the Fixed Account will be transferred to the
Money Market Sub-Account, unless you instruct us otherwise, and the Market Value
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Adjustment will be applied. Any new allocation of a Purchase Payment to the
program will be treated as commencing a new dollar-cost averaging program and is
subject to the $1,000 minimum.
The main objective of a dollar-cost averaging program is to minimize the
impact of short-term price fluctuations on Account Value. Since you transfer the
same dollar amount to the SubAccounts at set intervals, dollar-cost averaging
allows you to purchase more Variable Accumulation Units (and, indirectly, more
Series Fund shares) when prices are low and fewer Variable Accumulation Units
(and, indirectly, fewer Series Fund shares) when prices are high. Therefore, you
may achieve a lower average cost per Variable Accumulation Unit over the long
term. A dollar-cost averaging program allows you to take advantage of market
fluctuations. However, it is important to understand that a dollar-cost
averaging program does not assure a profit or protect against loss in a
declining market.
ASSET ALLOCATION
One or more asset allocation programs may be available in connection with
the Contracts, at no extra charge. Asset allocation is the process of investing
in different asset classes -- such as equity funds, fixed income funds, and
money market funds -- depending on your personal investment goals, tolerance for
risk, and investment time horizon. By spreading your money among a variety of
asset classes, you may be able to reduce the risk and volatility of investing,
although there are no guarantees, and asset allocation does not insure a profit
or protect against loss in 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 model allocating the lowest
percentage to Sub-Accounts investing in the equity asset class and the
aggressive model allocating the highest percentage to the equity asset class.
These models, as well as the terms and conditions of the asset allocation
program, are fully described in a separate brochure. Additional programs may be
available in the future.
If you elect an asset allocation program, we will automatically allocate
your Purchase Payments among the Sub-Accounts represented in the model you
choose. By electing an asset allocation program, you 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 you choose a different model.
SYSTEMATIC WITHDRAWAL AND INTEREST OUT PROGRAMS
If you have an Account Value of $10,000 or more, you may select our
Systematic Withdrawal Program or our Interest Out Program.
Under the Systematic Withdrawal Program, you determine the amount and
frequency of regular withdrawals you would like to receive from your Fixed
Account Value and/or Variable Account Value and we will effect them
automatically; a Market Value Adjustment may be applicable upon withdrawal.
Under the Interest Out Program, we automatically pay to you, or reinvest,
interest credited for all Guarantee Periods you have chosen. Withdrawals under
these programs are subject to surrender charges. They may also be included as
income and subject to a 10% federal tax penalty. You should consult your tax
adviser before choosing these options.
You may change or stop either program at any time, by written notice to
us.
PORTFOLIO REBALANCING PROGRAM
Under the Portfolio Rebalancing Program, we transfer funds among the
Sub-Accounts to maintain the percentage allocation you have selected among these
Sub-Accounts. At your election, we will make these transfers on a quarterly,
semi-annual or annual basis.
Portfolio Rebalancing does not permit transfers to or from any Guarantee
Period.
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SECURED FUTURES PROGRAM
Under the Secured Futures Program, we divide your Purchase Payment between
the Fixed Account and the Variable Account. For the Fixed Account portion, you
choose a Guarantee Period from among those we offer, and we allocate to that
Guarantee Period the portion of your Purchase Payment necessary so that at the
end of the Guarantee Period, your Fixed Account allocation, including interest,
will equal the entire amount of your original Purchase Payment. The remainder of
the original Purchase Payment will be invested in Sub-Accounts of your choice.
At the end of the Guarantee Period, you will be guaranteed the amount of your
Purchase Payment (assuming no withdrawals), plus you will have the benefit, if
any, of the investment performance of the Sub-Accounts you have chosen.
WITHDRAWALS, WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
REQUESTING A WITHDRAWAL
At any time during the Accumulation Phase you may withdraw in cash all or
any portion of your Account Value. To make a withdrawal, you must send us a
written request at our Annuity 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" below) and withdrawals from your Fixed Account Value also may be subject
to a Market Value Adjustment (see "Market Value Adjustment" below). Upon request
we will notify you of the amount we would pay in the event of a full or partial
withdrawal. Withdrawals also may have adverse federal income tax consequences,
including a 10% penalty tax (see "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 reduce the value of your Account by deducting
the amount paid, adding or deducting any Market Value Adjustment applicable to
amounts withdrawn from the Fixed Account, and deducting any applicable
withdrawal charge.
You may specify the amount you want withdrawn from each Sub-Account and/or
Guarantee Period 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 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
the Series Fund or to determine the value of the net assets of the
Series Fund, because an emergency exists; and
- 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").
When you make a withdrawal, we consider the oldest Purchase Payment that
you have not already withdrawn to be withdrawn first, then the second oldest
Purchase Payment, and so forth. Once all Purchase Payments are withdrawn, the
balance withdrawn is considered to be accumulated value.
WITHDRAWAL CHARGE
We do not deduct any sales charge from your Purchase Payments when they
are made. However, we may impose a withdrawal charge (known as a "contingent
deferred sales charge") on certain amounts you withdraw. We impose this charge
to defray some of our expenses related to the sale of the Contracts, such as
commissions we pay to agents, the cost of sales literature, and other
promotional costs and transaction expenses.
FREE WITHDRAWAL AMOUNT
In each Account Year you may withdraw a portion of your Account Value --
which we call the "free withdrawal amount" -- before incurring the withdrawal
charge. For any year, the free withdrawal amount is equal to (1) 10% of the
amount of all Purchase Payments you have made during the last 7 Account Years,
including the current Account Year (the "Annual Withdrawal Allowance"), plus
(2) the amount of all Purchase Payments made before the last 7 Account Years
that you have not previously withdrawn. Any portion of the Annual Withdrawal
Allowance that you do not use in an Account Year is cumulative, that is, it is
carried forward and available for use in future years.
For convenience, we refer to Purchase Payments made during the last 7
Account Years (including the current Account Year) as "New Payments," and all
Purchase Payments made before the last 7 Account Years as "Old Payments."
For example, assume you wish to make a withdrawal from your Contract in
Account Year 10. You made an initial Purchase Payment of $10,000 in Account Year
1, you made one additional Purchase Payment of $8,000 in Account Year 8, and you
made no previous withdrawals. Your Account Value in Account Year 10 is $35,000.
The free withdrawal amount for Account Year 10 is $19,400, calculated as
follows:
- $800, which is the Annual Withdrawal Allowance for Account Year 10 (10%
of the $8,000 Purchase Payment made in Account Year 8, the only New
Payment); plus
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- $8,600, which is the total of the unused Annual Withdrawal Allowances
of $1,000 for each of Account Years 1 through 7 and $800 for each of
Account Years 8 and 9 that are carried forward and available for use in
Account Year 10; plus
- $10,000, which is the amount of all Old Payments that you have not
previously withdrawn.
WITHDRAWAL CHARGE ON PURCHASE PAYMENTS
If you withdraw more than the free withdrawal amount in any Account Year,
we consider the excess amount to be withdrawn first from New Payments that you
have not previously withdrawn. We impose the withdrawal charge on the amount of
these New Payments. Thus, the maximum amount on which we will impose the
withdrawal charge in any year will never be more than the total of all New
Payments that you have not previously withdrawn.
The amount of your withdrawal, if any, that exceeds the total of the free
withdrawal amount plus the aggregate amount of all New Payments not previously
withdrawn, is not subject to the withdrawal charge.
ORDER OF WITHDRAWAL
New Payments are withdrawn on a first-in first-out basis until all New
Payments have been withdrawn. For example, assume the same facts as in the
example above. In Account Year 10 you wish to withdraw $25,000. We attribute the
withdrawal first to the free withdrawal amount of $19,400, which is not subject
to the withdrawal charge. The remaining $5,600 is withdrawn from the Purchase
Payment made in Account Year 8 (the only New Payment) and is subject to the
withdrawal charge. The $2,400 balance of the Account Year 8 Purchase Payment
will remain in your Account. If you make a subsequent $5,000 withdrawal in
Account Year 10, $2,400 of that amount will be withdrawn from the remainder of
the Account Year 8 Purchase Payment and will be subject to the withdrawal
charge. The other $2,600 of your withdrawal (which exceeds the amount of all New
Payments not previously withdrawn) will not be subject to the withdrawal charge.
CALCULATION OF WITHDRAWAL CHARGE
We calculate the amount of the withdrawal charge by multiplying the
Purchase Payments you withdraw by a percentage. The percentage varies according
to the number of Account Years the Purchase Payment has been held in your
Account, including the year in which you made the Payment, but not the year in
which you withdraw it. Each payment begins a new seven-year period and moves
down a declining surrender charge scale at each Account Anniversary. Payments
received during the current Account Year will be charged 6% 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 5% withdrawal charge. On the next Account
Anniversary, these payments will move into their third Account Year and will
have a withdrawal charge of 5%, if withdrawn. The withdrawal charge decreases
according to the number of Account Years the purchase payment has been in your
Account. The declining scale is as follows:
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS
PURCHASE PAYMENT
HAS BEEN IN
YOUR ACCOUNT WITHDRAWAL CHARGE
- ---------------- -----------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
</TABLE>
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For example, using the same facts as in the example in "Free Withdrawal
Amount" above, the percentage applicable to the withdrawals in Account Year 10
of Purchase Payments made in Account Year 8 would be 5%, because the number of
Account Years the Purchase Payments have been held in your Account would be 2.
The withdrawal charge will never be greater than 6% of the aggregate
amount of Purchase Payments you make under the Contract.
For a Group Contract, we may modify the withdrawal charges and limits,
upon notice to the Owner of the Group Contract. However, any modification will
only apply to Accounts established after the date of the modification.
For additional examples of how we calculate withdrawal charges, see
Appendix C.
TYPES OF WITHDRAWALS NOT SUBJECT TO WITHDRAWAL CHARGE
We do not impose a withdrawal charge on withdrawals from the Accounts of
(a) our employees, (b) employees of our affiliates, or (c) licensed insurance
agents who sell the Contracts. We also may waive withdrawal charges with respect
to Purchase Payments derived from the surrender of other annuity contracts we
issue.
If approved in your state, we will waive the withdrawal charge for a full
withdrawal if (a) at least one year has passed since we issued your Contract and
(b) you are confined to an eligible nursing home and have been confined there
for at least the preceding 180 days, or any shorter period required by your
state. An "eligible nursing home" means a licensed hospital or licensed skilled
or intermediate care nursing facility at which medical treatment is available on
a daily basis and daily medical records are kept for each patient. You must
provide us evidence of confinement in the form we determine.
For each Qualified Contract, the free withdrawal amount in any Account
Year will be the greater of the free withdrawal amount described above and any
amounts required to be withdrawn to comply with the minimum distribution
requirement of the Internal Revenue Code. This applies only to the portion of
the required minimum distribution attributable to that Qualified Contract.
We do not impose the withdrawal charge on amounts you apply to provide an
annuity, amounts we pay as a death benefit, or amounts you transfer among the
Sub-Accounts, between the Sub-Accounts and the Fixed Account, or within the
Fixed Account.
MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment if you withdraw or transfer
amounts from your Fixed Account Value more than 30 days before the end of the
applicable Guarantee Period. For this purpose, using Fixed Account Value to
provide an annuity is considered a withdrawal, and the Market Value Adjustment
will apply. However, we will not apply the Market Value Adjustment to automatic
transfers to a Sub-Account from a Guarantee Period as part of our dollar-cost
averaging program.
We apply the Market Value Adjustment separately to each Guarantee Amount
in the Fixed Account, that is, to each separate allocation you have made to a
Guarantee Period together with interest credited on that allocation. However, we
do not apply the adjustment to the amount of interest credited during your
current Account Year. Any withdrawal from a Guarantee Amount is attributed first
to such interest.
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.
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We determine the amount of the Market Value Adjustment by multiplying the
amount that is subject to the adjustment by the following formula:
N/12
1 + I
( -------- ) -1
1 + J + b
where:
I is the Guaranteed Interest Rate applicable to the Guarantee Amount from
which you withdraw, transfer or annuitize;
J is the Guaranteed Interest Rate we declare at the time of your
withdrawal, transfer or annuitization for Guarantee Periods equal to the length
of time remaining in the Guarantee Period applicable to your Guarantee Amount,
rounded to the next higher number of complete years, for Guarantee Periods of
one year or more. For any Guarantee Periods of less than one year, J is the
Guaranteed Interest Rate we declare at the time of your withdrawal, transfer or
annuitization for a Guarantee Period of the same length as your Guarantee
Period. If, at that time, we do not offer the applicable Guarantee Period we
will use an interest rate determined by straight-line interpolation of the
Guaranteed Interest Rates for the Guarantee Periods we do offer;
N is the number of complete months remaining in your Guarantee Period; and
b is a factor that currently is 0% but that in the future we may increase
to up to 0.25%. Any increase would be applicable only to Participants who
purchase their Contracts after the date of that increase.
We will apply the Market Value Adjustment to the amount being withdrawn
after deduction of any Account Fee, if applicable, but before we impose any
withdrawal charge on the amount withdrawn.
For examples of how we calculate the Market Value Adjustment, see Appendix
C.
No Market Value Adjustment will apply to Contracts issued in the states of
Maryland, Texas and Washington, or to one-year Guarantee Periods under Contracts
issued in the State of Oregon.
CONTRACT CHARGES
ACCOUNT FEE
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, which is the anniversary of the
first day of the month after we issue your Contract. In Account Years 1 through
5, the Account Fee is equal to the lesser of $35 or 2% of your Account Value.
After Account Year 5, we may change the Account Fee each year, but the Account
Fee will never exceed the lesser of $50 or 2% of your Account Value. 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 annual Account Fee if:
(1) your Account has been allocated only to the Fixed Account during the
applicable Account Year; or
(2) your Account Value is more than $75,000 on your Account Anniversary.
If you make a full withdrawal of your Account, we 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 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.
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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, the 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 1.25%. 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
Contracts may be insufficient to cover the actual total administrative expenses
we incur. If the amount of the charge is insufficient to cover the mortality and
expense risks, we will bear the loss. If the amount of the charge is more than
sufficient to cover the risks, we will make a profit on the charge. We may use
this profit for any proper corporate purpose, including the payment of marketing
and distribution expenses for the Contracts.
PREMIUM TAXES
Some states and local jurisdictions impose a premium tax on us that is
equal to a specified percentage of the Purchase Payments you make. In many
states there is no premium tax. We believe that the amounts of applicable
premium taxes currently range from 0% to 3.5%. You should consult a tax adviser
to find out if your state imposes a premium tax and the amount of any tax.
In order to reimburse us for the premium tax we may pay on Purchase
Payments, our policy is to deduct the amount of such taxes from the amount you
apply to provide an annuity at the time of annuitization. However, we reserve
the right to deduct the amount of any applicable tax from your Account at any
time, including at the time you make a Purchase Payment or make a full or
partial withdrawal. We do not make any profit on the deductions we make to
reimburse premium taxes.
SERIES FUND EXPENSES
There are fees and charges deducted from each Series of the Series Fund.
These fees and expenses are described in the Series Fund prospectus and related
Statement 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 you die during the Accumulation Phase, we will pay a death benefit to
your Beneficiary, using the payment method elected (a single cash payment or one
of our Annuity Options). If the Beneficiary is not living on the date of your
death, we will pay the death benefit in one sum to your estate. We do not pay a
death benefit if you die during the Income Phase. However, the Beneficiary will
receive any payments provided under an Annuity Option that is in effect.
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AMOUNT OF DEATH BENEFIT
To calculate the amount of your death benefit, we use a "Death Benefit
Date." The Death Benefit Date is the date we receive proof of your death in an
acceptable form ("Due Proof of Death") if you have elected a death benefit
payment method before your death and it remains effective. Otherwise, the Death
Benefit Date is the later of the date we receive Due Proof of Death or the date
we receive the Beneficiary's election of either payment method or, if the
Beneficiary is your spouse, Contract continuation. If we do not receive the
Beneficiary's election within 60 days after we receive Due Proof of Death, the
Death Benefit Date will be the last day of the 60 day period.
The amount of the death benefit is determined as of the Death Benefit
Date.
If you were 85 or younger on your Contract Date (the date we accepted your
first Purchase Payment), the death benefit will be the greatest of the following
amounts:
(1) Your Account Value for the Valuation Period during which the Death
Benefit Date occurs;
(2) The amount we would pay if you had surrendered your entire Account on
the Death Benefit Date;
(3) Your Account Value on the Seven-Year Anniversary immediately before
the Death Benefit Date, adjusted for subsequent Purchase Payments and
partial withdrawals and charges made between the Seven-Year
Anniversary and the Death Benefit Date;
(4) Your highest Account Value on any Account Anniversary before your
81st birthday, adjusted for subsequent Purchase Payments and partial
withdrawals and charges made between that Account Anniversary and the
Death Benefit Date; and
(5) Your total Purchase Payments plus interest accruals thereon, adjusted
for partial withdrawals; interest will accrue on Purchase Payments
allocated to and transfers to the Variable Account while they remain
in the Variable Account at a rate of 5% per year until the first day
of the month following your 80th birthday, or until the Purchase
Payment or amount transferred has doubled in amount, whichever is
earlier.
If you were 86 or older on your Contract Date, the death benefit is equal
to amount (2) above; because this amount will reflect any applicable withdrawal
charges and Market Value Adjustment, it may be less than your Account Value.
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. In that case, the amount of your death benefit, calculated as described
under "Amount of Death Benefit," will become the Contract's Account Value on the
Death Benefit Date. All other provisions of the Contract, including any
withdrawal charges, will continue as if your spouse had purchased the Contract
on the original date of coverage.
CALCULATING THE DEATH BENEFIT
In calculating the death benefit amount payable under (3), (4) and (5)
above, any partial withdrawals will reduce the amount by the ratio of the
Account Value immediately following the withdrawal to the Account Value
immediately before the withdrawal.
If the death benefit is amount (2), (3), (4) or (5) above, your Account
Value will be increased by the excess, if any, of that amount over amount (1).
Any such increase will be allocated to the Sub-Accounts in proportion to your
Account Value in those Sub-Accounts on the Death Benefit Date. Also, any portion
of this new Account Value attributed to the Fixed Account will be transferred to
the Money Market Sub-Account (without the application of a Market Value
Adjustment). The Beneficiary may then transfer to the Fixed Account and begin a
new Guarantee Period.
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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 the Owner's spouse, the Beneficiary may elect to continue the
Contract. These elections are made by sending to us, at our Annuity Mailing
Address, 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.
(See "The Income Phase -- Annuity Provisions").
NON-QUALIFIED CONTRACTS
If your Contract is a Non-Qualified Contract, special distribution
rules apply to the payment of the death benefit. The amount of the death benefit
must be distributed either (1) as a lump sum within 5 years after your death or
(2) if in the form of an annuity, over a period not greater than the life or
expected life of the "designated beneficiary" within the meaning of Section
72(s) of the Internal Revenue Code, with payments beginning no later than one
year after your death.
The person you have named a Beneficiary under your Contract, if any, will
be the "designated beneficiary." If the named Beneficiary is not living 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(s) 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, the special distribution rules
apply on a change in, or the death of, any Annuitant or Co-Annuitant.
Payments made in contravention of these special rules would adversely
affect the treatment of the Contracts as annuity contracts under the Internal
Revenue Code. Neither you nor the Beneficiary may exercise rights that would
have that effect.
SELECTION AND CHANGE OF BENEFICIARY
You select your Beneficiary in your Application. You may change your
Beneficiary at any time by sending us written notice on our required form,
unless you previously made an irrevocable Beneficiary designation. A new
Beneficiary designation is not effective until we record the change.
PAYMENT OF DEATH BENEFIT
Payment of the death benefit in cash will be made within 7 days of the
Death Benefit Date, except if we are permitted to defer payment in accordance
with the Investment Company Act of 1940. If an Annuity Option is elected, the
Annuity Commencement Date will be the first day of the second calendar month
following the Death Benefit Date, and your Account will remain in effect until
the Annuity Commencement Date.
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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 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.
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(s) 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.
Under a Non-Qualified Contract, if you name someone other than yourself as
the 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 on the Annuity Commencement Date.
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
second month following your Contract Date.
- The latest possible Annuity Commencement Date is the first day of the
month following the Annuitant's 95th birthday or, if there is a
Co-Annuitant, the 95th birthday of the younger of the Annuitant and
Co-Annuitant.
- The Annuity Commencement Date must always be the first day of a month.
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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.
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 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.
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.
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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 annuity 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 immediately prior to the Annuity
Commencement Date and making the following adjustments:
- We deduct a proportional amount of the annual 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 to your Account Value.
- We deduct any applicable premium tax or similar tax if not previously
deducted.
VARIABLE ANNUITY PAYMENTS
Variable Annuity payments may vary each month. We determine the dollar
amount of the first payment using the portion of your Adjusted Account Value
applied to a Variable Annuity and the Annuity Payment Rates in your Contract,
which are based on an assumed interest rate of 3% per year, compounded annually.
See "Annuity Payment Rates."
To calculate the remaining payments, we convert the amount of the first
payment into Annuity Units for each Sub-Account; we determine the number of
those Annuity Units by dividing the portion of the first payment attributable to
the Sub-Account by the Annuity Unit Value of that Sub-Account for the Valuation
Period ending just before the Annuity Commencement Date. This number of Annuity
Units for each Sub-Account will remain constant (unless the Annuitant requests
an exchange of Annuity Units). However, the dollar amount of the next Variable
Annuity payment -- which is the sum of the number of Annuity Units for each
Sub-Account times its Annuity Unit Value for the Valuation Period ending just
before the date of the payment -- will increase, decrease, or remain the same,
depending on the net investment return of the Sub-Accounts.
If the net investment return of the Sub-Accounts selected is the same as
the assumed interest rate of 3%, compounded annually, the payments will remain
level. If the net investment return exceeds the assumed interest rate, payments
will increase and, conversely, if it is less than the assumed interest rate,
payments will decrease.
Please refer to the Statement of Additional Information for more
information about calculating Variable Annuity Units and Variable Annuity
payments, including examples of these calculations.
FIXED ANNUITY PAYMENTS
Fixed Annuity payments are the same each month. We determine the dollar
amount of each Fixed Annuity payment using the fixed portion of your Adjusted
Account Value and the applicable Annuity Payment Rates. These will be either
(1) the rates in your Contract, which are based on a minimum guaranteed interest
rate of 3% per year, compounded annually, or (2) new rates we have
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published and are using on the Annuity Commencement Date, if they are more
favorable. See "Annuity Payment Rates."
MINIMUM PAYMENTS
If your Adjusted Account Value is less than $2,000, or the first annuity
payment for any Annuity Option is less than $20, we will pay the Adjusted
Account Value to the Annuitant in one payment.
EXCHANGE OF VARIABLE ANNUITY UNITS
During the Income Phase, the Annuitant may exchange Annuity Units from one
Sub-Account to another, up to 12 times each Account Year. To make an exchange,
the Annuitant sends us, at our Annuity Mailing Address, a written request
stating the number of Annuity Units in the Sub-Account he or she wishes to
exchange and the new Sub-Account for which Annuity Units are requested. The
number of new Annuity Units will be calculated so the dollar amount of an
annuity payment on the date of the exchange would not be affected. To calculate
this number, we use Annuity Unit values for the Valuation Period during which we
receive the exchange request.
Before exchanging Annuity Units from one Sub-Account to another, the
Annuitant should carefully review the Series Fund prospectus for the investment
objectives and risk disclosure of the Series 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 in equal amounts
from each Variable Annuity payment. We do not deduct the annual Account Fee from
Fixed Annuity payments (see "Contract Charges -- Account Fee").
ANNUITY PAYMENT RATES
The Contract contains Annuity Payment Rates for each Annuity Option
described in this Prospectus. The rates show, for each $1,000 applied, the
dollar amount of: (a) the first monthly Variable Annuity payment based on the
assumed interest rate specified in the applicable Contract (at least 3% per
year, compounded annually); and (b) the monthly Fixed Annuity payment, when this
payment is based on the minimum guaranteed interest rate specified in the
Contract (at least 3% per year, compounded annually). We may change these rates
under Group Contracts for Accounts established after the effective date of such
change (see "Other Contract Provisions -- Modification").
The Annuity Payment Rates may vary according to the Annuity Option(s)
elected and the adjusted age of the Annuitant. The Contract also describes the
method of determining the adjusted age of the Annuitant. The mortality table
used in determining the Annuity Payment Rates for Options A, B and C is the 1983
Individual Annuitant Mortality Table.
ANNUITY OPTIONS AS METHOD OF PAYMENT FOR DEATH BENEFIT
You or your Beneficiary may also select one or more Annuity Options to be
used in the event of your death before the Income Phase, as described under the
"Death Benefit" section of this Prospectus. In that case, your Beneficiary will
be the Annuitant/Payee. The Annuity Commencement Date will be the first day of
the second month beginning after the Death Benefit Date.
OTHER CONTRACT PROVISIONS
EXERCISE OF CONTRACT RIGHTS
An Individual Contract belongs to the individual to whom the Contract is
issued. A Group Contract belongs to the Owner. In the case of a Group Contract,
the Owner may expressly reserve all Contract rights and privileges; otherwise,
each Participant will be entitled to exercise such rights and
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privileges. In any case, such rights and privileges can be exercised without the
consent of the Beneficiary (other than an irrevocably designated Beneficiary) or
any other person. Such rights and privileges may be exercised only during the
lifetime of the Participant before the Annuity Commencement Date, except as the
Contract otherwise provides.
The Annuitant becomes the Payee on and after the Annuity Commencement
Date. The Beneficiary becomes the Payee on the death of the Participant prior to
the Annuity Commencement Date, or on the death of the Annuitant after the
Annuity Commencement Date. Such Payee may thereafter exercise such rights and
privileges, if any, of ownership which continue.
CHANGE OF OWNERSHIP
Ownership of a Qualified Contract may not be transferred except to:
(1) the Annuitant; (2) a trustee or successor trustee of a pension or profit
sharing trust which is qualified under Section 401 of the Internal Revenue Code;
(3) the employer of the Annuitant, provided that the Qualified Contract after
transfer is maintained under the terms of a retirement plan qualified under
Section 403(a) of the Internal Revenue Code for the benefit of the Annuitant;
(4) the trustee or custodian of an individual retirement account plan qualified
under Section 408 of the Internal Revenue Code for the benefit of the
Participants under a Group Contract; or (5) as otherwise permitted from time to
time by laws and regulations governing the retirement or deferred compensation
plans for which a Qualified Contract may be issued. Subject to the foregoing, a
Qualified Contract may not be sold, assigned, transferred, discounted or pledged
as collateral for a loan or as security for the performance of an obligation or
for any other purpose to any person other than the Company.
The Owner of a Non-Qualified Contract may change the ownership of the
Contract prior to the last Annuity Commencement Date, and each Participant, in
like manner, may change the ownership interest in a Contract.
A change of ownership will not be binding on us until we receive written
notification. When we receive such notification, the change will be effective as
of the date on which the request for change was signed by the Owner or
Participant, as appropriate, but the change will be without prejudice to us on
account of any payment we make or any action we take before receiving the
change. If you change the Owner of a Non-Qualified Contract, you will become
immediately liable for the payment of taxes on any gain realized under the
Contract prior to the change of ownership, including possible liability for a
10% federal excise tax.
VOTING OF SERIES FUND SHARES
We will vote Series Fund shares held by the Sub-Accounts at meetings of
shareholders of the Series Fund or in connection with similar solicitations, but
will follow voting instructions received from persons having the right to give
voting instructions. During the Accumulation Phase, you will have the right to
give voting instructions, except in the case of a Group Contract where the Owner
has reserved this right. During the Income Phase, the Payee -- that is the
Annuitant or Beneficiary entitled to receive benefits -- is the person having
such voting rights. We will vote any shares attributable to us and Series Fund
shares for which no timely voting instructions are received in the same
proportion as the shares for which we receive instructions from Owners,
Participants and Payees, as applicable.
Owners of Qualified Contracts issued on a group basis may be subject to
other voting provisions of the particular plan and of the Investment Company Act
of 1940. Employees who contribute to plans that are funded by the Contracts may
be entitled to instruct the Owners as to how to instruct us to vote the
Series Fund shares attributable to their contributions. Such plans may also
provide the additional extent, if any, to which the Owners shall follow voting
instructions of persons with rights under the plans. If no voting instructions
are received from any such person with respect to a particular Participant
Account, the Owner may instruct the Company as to how to vote the number of
Series Fund shares for which instructions may be given.
Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights
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afforded by the Investment Company Act of 1940, or any duty to inquire as to the
instructions received or the authority of Owners, Participants or others, as
applicable, to instruct the voting of Series Fund shares. Except as the Variable
Account or the Company has actual knowledge to the contrary, the instructions
given by Owners under Group Contracts and Payees will be valid as they affect
the Variable Account, the Company and any others having voting instruction
rights with respect to the Variable Account.
All Series Fund proxy material, together with an appropriate form to be
used to give voting instructions, will be provided to each person having the
right to give voting instructions at least 10 days prior to each meeting of the
shareholders of the Series Fund. We will determine the number of Series Fund
shares as to which each such person is entitled to give instructions as of the
record date set by the Series Fund for such meeting, which is expected to be not
more than 90 days prior to each such meeting. Prior to the Annuity Commencement
Date, the number of Series Fund shares as to which voting instructions may be
given to the Company is determined by dividing the value of all of the Variable
Accumulation Units of the particular Sub-Account credited to the Participant
Account by the net asset value of one Series Fund share as of the same date. On
or after the Annuity Commencement Date, the number of Series Fund shares as to
which such instructions may be given by a Payee is determined by dividing the
reserve held by the Company in the Sub-Account with respect to the particular
Payee by the net asset value of a Series Fund share as of the same date. After
the Annuity Commencement Date, the number of Series Fund shares as to which a
Payee is entitled to give voting instructions will generally decrease due to the
decrease in the reserve.
PERIODIC REPORTS
During the Accumulation Period, we will send you, or such other person
having voting rights, at least once during each Account Year, a statement
showing the number, type and value of Accumulation Units credited to your
Account and the Fixed Accumulation Value of your Account, which statement shall
be accurate as of a date not more than 2 months previous to the date of mailing.
These periodic statements contain important information concerning your
transactions with respect to a Contract. It is your obligation to review each
such statement carefully and to report to us, at the address or telephone number
provided on the statement, any errors or discrepancies in the information
presented therein within 60 days of the date of such statement. Unless we
receive notice of any such error or discrepancy from you within such period, we
may not be responsible for correcting the error or discrepancy.
In addition, every person having voting rights will receive such reports
or prospectuses concerning the Variable Account and the Series Fund as may be
required by the Investment Company Act of 1940 and the Securities Act of 1933.
We will also send such statements reflecting transactions in your Account as may
be required by applicable laws, rules and regulations.
Upon request, we will provide you with information regarding fixed and
variable accumulation values.
SUBSTITUTION OF SECURITIES
Shares of any or all Series of the Series Fund may not always be available
for investment under the Contract. We may add or delete Series or other
investment companies as variable investment options under the Contracts. We may
also substitute for the shares held in any Sub-Account shares of another
Series or shares of another registered open-end investment company or unit
investment trust for the shares held in any Sub-Account, provided that the
substitution has been approved, if required, by the SEC. In the event of any
substitution pursuant to this provision, we may make appropriate endorsement to
the Contract to reflect the substitution.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At our election and subject to any necessary vote by persons having the
right to give instructions with respect to the voting of Series Fund shares held
by the Sub-Accounts, the Variable Account may be operated as a management
company under the Investment Company Act of 1940 or it may be deregistered under
the Investment Company Act of 1940 in the event registration is no longer
required.
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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 we deem 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 Contracts.
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.
LIMITATION OR DISCONTINUANCE OF NEW PARTICIPANTS
We may limit or discontinue the acceptance of new Applications and the
issuance of new Certificates under a Group Contract by giving 30 days prior
written notice to the Owner. This will not affect rights or benefits with
respect to any Participant Accounts established under such Group Contract prior
to the effective date of such limitation or discontinuance.
RESERVATION OF RIGHTS
We reserve the right, to the extent permitted by law, to: (1) combine any
2 or more variable accounts; (2) add or delete Series, sub-series thereof or
other investment companies and corresponding Sub-Accounts; (3) add or remove
Guarantee Periods available at any time for election by a Participant; and (4)
restrict or eliminate any of the voting rights of Participants (or Owners) or
other persons who have voting rights as to the Variable Account. Where required
by law, we will obtain approval of changes from Participants or any appropriate
regulatory authority. In the event of any change pursuant to this provision, we
may make appropriate endorsement to the Contract to reflect the change.
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RIGHT TO RETURN
If you are not satisfied with your Contract, you may return it by mailing
or delivering it to us at 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. However, if applicable state law requires, we will return the
full amount of any Purchase Payment(s) we received. State law may also require
us to give you a longer "free look" period or allow you to return the Contract
to your sales representative.
If you are establishing an Individual Retirement Account ("IRA"), the
Internal Revenue Code requires that we give you a disclosure statement
containing certain information about the Contract and applicable legal
requirements. We must give you this statement on or before the date the IRA is
established. If we give you the disclosure statement before the seventh day
preceding the date the IRA is established, you will not have any right of
revocation under the Code. If we give you the disclosure statement at a later
date, then you may give us a notice of revocation at any time within 7 days
after your Contract Date. Upon such revocation, we will refund your Purchase
Payment(s). This right of revocation with respect to an IRA is in addition to
the return privilege set forth in the preceding paragraph. We allow a
Participant establishing an IRA a "ten day free-look," notwithstanding the
provisions of the Internal Revenue Code.
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 a Contract and 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
to (i) any immediate annuity, 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 automatically
provide tax deferral regardless of whether the underlying contract is an
annuity.
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DISTRIBUTIONS AND WITHDRAWALS FROM NON-QUALIFIED CONTRACTS
The Account Value will include an amount attributable to Purchase
Payments, the return of which is not taxable, and an amount attributable to
investment earnings, the return of which is taxable at ordinary income rates.
The relative portions of a distribution that derive from nontaxable Purchase
Payments and taxable investment earnings depend upon the timing of the
distribution.
If you withdraw less than your entire Account Value under a Non-Qualified
Contract before the Annuity Commencement Date, you must treat the withdrawal
first as a return of investment earnings. You may treat only withdrawals in
excess of the amount of the Account Value attributable to investment earnings as
a return of Purchase Payments. Account Value amounts assigned or pledged as
collateral for a loan will be treated as if withdrawn from the Contract.
If a Payee receives annuity payments under a Non-Qualified Contract after
the Annuity Commencement Date, however, the Payee treats a portion of each
payment as a nontaxable return of Purchase Payments. In general, the nontaxable
portion of such a payment bears the same ratio to the total payment as the
Purchase Payments bear to the Payee's expected return under the Contract. The
remainder of the payment constitutes a taxable return of investment earnings.
Once the Payee has received nontaxable payments in an amount equal to total
Purchase Payments, all future distributions constitute fully taxable ordinary
income. If the Annuitant dies before the Payee recovers the full amount of
Purchase Payments, the Payee may deduct an amount equal to unrecovered Purchase
Payments.
Upon the transfer of a Non-Qualified Contract by gift (other than to the
Participant's spouse), the Participant must treat an amount equal to the Account
Value minus the total amount paid for the Contract as income.
A penalty tax of 10% may apply to taxable cash withdrawals and lump-sum
payments from Non-Qualified Contracts. This penalty will not apply in certain
circumstances, such as distributions pursuant to the death of the Participant or
distributions under an immediate annuity (as defined above), or after age
59 1/2.
DISTRIBUTIONS AND WITHDRAWALS FROM QUALIFIED CONTRACTS
Generally, distributions from a Qualified Contract will constitute fully
taxable ordinary income. Also, a 10% penalty tax will, except in certain
circumstances, apply to distributions prior to age 59 1/2.
Distributions from a Qualified Contract are not subject to current
taxation or a 10% penalty, however, if:
- the distribution is not a hardship distribution or part of a series of
payments for life or for a specified period of 10 years or more (an
"eligible rollover distribution"), and
- the Participant or Payee rolls over the distribution (with or without
actually receiving the distribution) into a qualified retirement plan
eligible to receive the rollover.
Only you or your spouse may elect to roll over a distribution to an
eligible retirement plan.
WITHHOLDING
In the case of an eligible rollover distribution (as defined above) from a
Qualified Contract (other than from a Contract issued for use with an individual
retirement account), we (or the plan administrator) must withhold and remit to
the U.S. Government 20% of the distribution, unless the Participant or Payee
elects to make a direct rollover of the distribution to another qualified
retirement plan that is eligible to receive the rollover; however, only you or
your spouse may elect a direct rollover. In the case of a distribution from
(i) a Non-Qualified Contract, (ii) a Qualified Contract issued for use with an
individual retirement account, or (iii) a Qualified Contract where the
distribution is not an eligible rollover distribution, we will withhold and
remit to the U.S. Government a part of the taxable portion of each distribution
unless, prior to the distribution, the Participant or Payee provides
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us his or her taxpayer identification number and instructs us (in the manner
prescribed) not to withhold. The Participant or Payee may credit against his or
her federal income tax liability for the year of distribution any amounts that
we (or the plan administrator) withhold.
INVESTMENT DIVERSIFICATION AND CONTROL
The Treasury Department has issued regulations that prescribe investment
diversification requirements for mutual fund series underlying nonqualified
variable contracts. Contracts must comply with these regulations to qualify as
annuities for federal income tax purposes. Contracts that do not meet the
guidelines are subject to current taxation on annual increases in value. We
believe that each series of the Series Fund complies with these regulations. The
preamble to the regulations states that the Internal Revenue Service may
promulgate guidelines under which an owner's excessive control over investments
underlying the contract will preclude the contract from qualifying as an annuity
for federal tax purposes. We cannot predict whether such guidelines, if in fact
promulgated, will be retroactive. We reserve the rights to modify the Contract
and/or the Variable Account to the extent necessary to comply with any such
guidelines, but cannot assume 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 may therefore use Qualified
Contracts as a funding vehicle for their retirement plans, as a general rule.
TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees
of certain types of charitable, educational and scientific organizations
specified in Section 501(c)(3) of the Code to purchase annuity contracts and,
subject to certain limitations, exclude the amount of purchase payments from
gross income for tax purposes. The Code imposes restrictions on cash withdrawals
from Section 403(b) annuities.
If the Contracts are to receive tax deferred treatment, cash withdrawals
of amounts attributable to salary reduction contributions (other than
withdrawals of accumulation account value as of December 31, 1988) may be made
only when the Participant attains age 59 1/2, separates from service with the
employer, dies or becomes disabled (within the meaning of Section 72(m)(7) of
the Code). These
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restrictions apply to (i) any post-1988 salary reduction contributions,
(ii) any growth or interest on post-1988 salary reduction contributions, and
(iii) any growth or interest on pre-1989 salary reduction contributions that
occurs on or after January 1, 1989. It is permissible, however, to withdraw
post-1988 salary reduction contributions in cases of financial hardship. While
the Internal Revenue Service has not issued specific rules defining financial
hardship, we expect that to qualify for a hardship distribution, the Participant
must have an immediate and heavy bona fide financial need and lack other
resources reasonably available to satisfy the need. Hardship withdrawals (as
well as certain other premature withdrawals) will be subject to a 10% tax
penalty, in addition to any withdrawal charge applicable under the Contracts.
Under certain circumstances the 10% tax penalty will not apply if the withdrawal
is for medical expenses.
Under the terms of a particular Section 403(b) plan, the Participant may
be entitled to transfer all or a portion of the Account Value to one or more
alternative funding options. Participants should consult the documents governing
their plan and the person who administers the plan for information as to such
investment alternatives.
INDIVIDUAL RETIREMENT ACCOUNTS
Sections 219 and 408 of the Code permit eligible individuals to contribute
to an individual retirement program, including Simplified Employee Pension
Plans, Employer/Association of Employees Established Individual Retirement
Account Trusts, and Simple Retirement Accounts. Such IRAs are subject to
limitations on contribution levels, the persons who may be eligible, and on the
time when distributions may commence. In addition, certain distributions from
some other types of retirement plans may be placed in an IRA on a tax-deferred
basis. If we sell Contracts for use with IRAs, the Internal Revenue Service or
other agency may impose supplementary information requirements. We will provide
purchasers of the Contracts for such purposes with any necessary information.
You will have the right to revoke the Contract under certain circumstances, as
described in the section of this Prospectus entitled "Right to Return."
ROTH IRAS
Section 408A of the Code permits an individual to contribute to an
individual retirement program called a Roth IRA. Unlike contributions to a
traditional IRA under Section 408 of the Code, contributions to a Roth IRA are
not tax-deductible. Provided certain conditions are satisfied, distributions are
generally tax-free. Like traditional IRAs, Roth IRAs are subject to limitations
on contribution amounts and the timing of distributions. If an individual
converts a traditional IRA into a Roth IRA the full amount of the IRA is
included in taxable income. The Internal Revenue Service and other agencies may
impose special information requirements with respect to Roth IRAs. If and when
we make Contracts available for use with Roth IRAs, we will provide any
necessary information.
PUERTO RICO TAX CONSIDERATIONS
The Contract offered by this Prospectus is considered an annuity contract
under Section 1022 of the Puerto Rico Internal Revenue Code of 1994, as amended
(the "1994 Code"). Under the current provisions of the 1994 Code, 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, 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.
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The provisions of the 1994 Code with respect to qualified retirement plans
described in this Prospectus vary significantly from those under the Internal
Revenue Code. 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.
For further information regarding the income tax consequences of owning a
Contract, you should consult a qualified tax adviser.
ADMINISTRATION OF THE CONTRACTS
We perform certain administrative functions relating to the Contracts,
Participant Accounts, and the Variable Account. These functions include, but are
not limited to, maintaining the books and records of the Variable Account and
the Sub-Accounts; maintaining records of the name, address, taxpayer
identification number, Contract number, Participant Account number and type, the
status of each Participant Account and other pertinent information necessary to
the administration and operation of the Contracts; processing Applications,
Purchase Payments, transfers and full and partial withdrawals; issuing Contracts
and Certificates; administering annuity payments; furnishing accounting and
valuation services; reconciling and depositing cash receipts; providing
confirmations; providing toll-free customer service lines; and furnishing
telephonic transfer services.
DISTRIBUTION OF THE CONTRACTS
We offer the Contracts on a continuous basis. The Contracts are sold by
licensed insurance agents in those states where the Contracts may be lawfully
sold. Such agents will be registered representatives of broker-dealers
registered under the Securities Exchange Act of 1934 who are members of the
National Association of Securities Dealers, Inc. and who have entered into
distribution agreements with the Company and the general distributor, Clarendon
Insurance Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481. Clarendon, a wholly-owned subsidiary of the Company,
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 7.34% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of Participant Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation. We
reserve the right to offer these additional incentives only to certain
broker-dealers that sell or are expected to sell during specified time periods
certain minimum amounts of the Contracts or Certificates or other contracts
offered by the Company. Promotional incentives may change at any time.
Commissions will not be paid with respect to Accounts established for the
personal account of employees of the Company or any of its affiliates, or of
persons engaged in the distribution of the Contracts, or of immediate family
members of such employees or persons. In addition, commissions may be waived or
reduced in connection with certain transactions described in this Prospectus
under the heading "Waivers; Reduced Charges; Credits; Bonus Guaranteed Interest
Rates." The Company began offering the Contracts in 1998. During 1999 and 1998,
approximately $10,865,515 and $3,190,367, respectively, in commissions was paid
to and retained by Clarendon in connection with the distribution of the
Contracts.
PERFORMANCE INFORMATION
From time to time the Variable Account may publish reports to
shareholders, sales literature and advertisements containing performance
information relating to the variable options. This information may include
standardized and non-standardized "Average Annual Total Return," "Cumulative
Growth Rate" and "Compound Growth Rate." We may also advertise "yield" and
"effective yield" for some Sub-Accounts.
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Average Annual Total Return measures the net income of the variable option
and any realized or unrealized gains or losses of the Series in which it
invests, over the period stated. Average Annual Total Return figures are
annualized and represent the average annual percentage change in the value of an
investment in a variable options 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 Series, which may predate the
Variable Account. Cumulative Growth Rate represents the cumulative change in the
value of an investment in the Sub-Account for the period stated, and is arrived
at by calculating the change in the Accumulation Unit Value of a Sub-Account
between the first and the last day of the period being measured. The difference
is expressed as a percentage of the Accumulation Unit Value at the beginning of
the base period. "Compound Growth Rate" is an annualized measure, calculated by
applying a formula that determines the level of return which, if earned over the
entire period, would produce the cumulative return.
Average Annual Total Return figures assume an initial Purchase Payment of
$1,000 and reflect all applicable withdrawal and Contract charges. The
Cumulative Growth Rate and Compound Growth Rate figures that we advertise do not
reflect withdrawal charges or the annual 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 Series Fund for the specified periods, and
the figures are not intended to indicate future performance. For periods before
the date the Contracts became available, we calculate the performance
information for the Sub-Accounts on a hypothetical basis. To do this, we reflect
deductions of the current Contract fees and charges from the historical
performance of the corresponding Series.
Yield is a measure of the net dividend and interest income earned over a
specific one month or 30-day period (7-day period for the Money Market Series
Sub-Account), expressed as a percentage of the value of the Sub-Account's
Accumulation Units. Yield is an annualized figure, which means that we assume
that the Sub-Account generates the same level of net income over a one-year
period and compound that income on a semi-annual basis. We calculate the
effective yield for the Money Market 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.
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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 filed with the SEC is incorporated by reference in this Prospectus. Any
statement contained in a document we incorporate by reference is deemed modified
or superceded to the extent that a later filed document, including this
Prospectus, shall modify or supercede that statement. Any statement so modified
or superceded shall not be deemed, except as so modified or superceded, to
constitute part of this Prospectus.
The Company will furnish, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of the document referred to above which has been incorporated by reference
in this Prospectus, other than exhibits to such document (unless such exhibits
are specifically incorporated by reference in this Prospectus). Requests for
such document should be directed to the Secretary, Sun Life Assurance Company of
Canada (U.S.), One Sun Life Executive Park, Wellesley Hills, Massachusetts
02481, telephone (800) 225-3950.
ADDITIONAL INFORMATION ABOUT THE COMPANY
GENERAL
The Company is engaged in the sale of individual variable life insurance
and individual and group fixed and variable annuities. These contracts are sold
in both the tax-qualified and non-tax-qualified markets. These products are
distributed through individual insurance agents, insurance brokers and
broker-dealers.
The following table sets forth premiums and deposits by major product
categories for each of the last 3 years. See the Notes to the Statutory
Financial Statements of the Company included in this Prospectus for industry
segment information.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Protection $ 16,509 $ 155,907 $ 204,671
Wealth Management $2,651,247 $2,194,895 $2,204,693
---------- ---------- ----------
$2,667,756 $2,350,802 $2,409,364
========== ========== ==========
</TABLE>
38
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the Statutory Financial Statements and the Notes thereto
included in this Prospectus beginning on page 52.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity deposits and other revenue $ 2,869,250 $ 2,581,463 $ 2,623,629 $ 2,215,322 $ 1,883,901
Net investment income and realized gains 190,844 187,208 298,121 310,172 315,966
----------- ----------- ----------- ----------- -----------
3,060,094 2,768,671 2,921,750 2,525,494 2,199,867
----------- ----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 2,706,121 2,416,950 2,579,104 2,232,528 1,995,208
Other expenses 239,136 214,607 206,065 175,342 150,937
----------- ----------- ----------- ----------- -----------
2,945,257 2,631,557 2,785,169 2,407,870 2,146,145
----------- ----------- ----------- ----------- -----------
Operating gain 114,837 137,114 136,581 117,624 53,722
Federal income tax expense (benefit) 24,479 11,713 7,339 (5,400) 17,807
----------- ----------- ----------- ----------- -----------
Net income $ 90,358 $ 125,401 $ 129,242 $ 123,024 $ 35,915
=========== =========== =========== =========== ===========
Assets $19,948,155 $16,902,621 $15,925,357 $13,621,952 $12,359,683
=========== =========== =========== =========== ===========
Surplus notes $ 565,000 $ 565,000 $ 565,000 $ 315,000 $ 650,000
=========== =========== =========== =========== ===========
</TABLE>
See "Reinsurance," below, for the effect of the reinsurance agreements on 1999
net income.
See Note 1 to the Statutory Financial Statements for changes in accounting
principles and reporting.
See discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAUTIONARY STATEMENT
This Prospectus includes forward-looking statements by the Company under
the Private Securities Litigation Reform Act of 1995. These statements are not
matters of historical fact; they relate to such topics as future product sales,
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.
39
<PAGE>
RESULTS OF OPERATIONS
1999 COMPARED TO 1998:
NET INCOME
Net income decreased by $35.0 million to $90.4 million in 1999, reflecting
a decrease of $54.7 million in income from operations and an increase of
$19.7 million in net realized capital gains. (In the following discussion,
"income from operations" refers to the statutory statements of operations line
item, "net gain from operations after dividends to policyholders and federal
income tax and before realized capital gains.")
Income from operations decreased from $125.0 million in 1998 to
$70.3 million in 1999, mainly as a result of the following factors:
- A $32.3 million increase, to $63.7 million in 1999, in the income from
operations from the Company's Wealth Management segment. (See "1999
Compared to 1998 -- Wealth Management Segment," below.)
- The effect of terminating certain reinsurance agreements with the
Company's ultimate parent in 1998. The termination of these agreements was
the predominant factor in the $94.2 million decrease in income from
operations for the Company's Protection segment. (See "1999 Compared to
1998 -- Protection Segment," below.)
- An increase of $7.2 million in income from operations from the Corporate
segment, mainly reflecting dividends from a subsidiary. (See "1999
Compared to 1998 -- Corporate Segment," below.)
INCOME FROM OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its 3
business segments: the Wealth Management segment, the Protection segment and the
Corporate segment.
The following table provides a summary of income from operations by
segment, which is discussed more fully below.
INCOME FROM OPERATIONS BY SEGMENT*
(IN MILLIONS)
<TABLE>
<CAPTION>
% CHANGE
---------------------
1999 1998 1997 1999/1998 1998/1997
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Wealth Management $63.7 $ 31.4 $ 14.7 102.9% 113.6%
Protection (5.1) 89.1 18.0 (105.7)% 395.0%
Corporate 11.7 4.5 69.8 160.0% (93.6)%
----- ------ ------ ------- ------
$70.3 $125.0 $102.5 (43.8)% 22.0%
===== ====== ====== ======= ======
</TABLE>
* Before net realized capital gains
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"),
40
<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.
Following are the major factors affecting this segment's results in 1999
as compared to 1998.
- Deposit-type funds, which primarily comprised annuity deposits,
increased by $457.7 million, or 21%, to $2,598.3 million in 1999. Fixed
annuity account deposits were higher by approximately $625 million in
1999, which management believes 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 6-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 declined by
approximately 13% in 1999. The Company believes this decline was a
consequence of the heightened interest in the DCA programs in 1999.
- Sales of the Futurity line of products, introduced in February 1998,
represented approximately 9% of total annuity deposits in 1999. The
Company expects that sales of the Futurity products 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 respond favorably to introductions of new Futurity
products and product enhancements.
- Fee income increased as a result of higher variable annuity account
balances. Fee income was higher by approximately $32 million in 1999.
The factors driving this growth in account balances have been market
appreciation and net deposit activity. This growth has generated
corresponding increases in fee income, since fees are determined based
on the average assets held in these accounts. Other income increased by
approximately $5 million in 1999, mainly reflecting a reinsurance
agreement entered into in July 1999 with an unrelated company, which
provides reinsurance on certain fixed group annuity contracts. The net
effect of this agreement was to increase income from operations by
approximately $3.4 million.
- The net year-over-year change in aggregate reserves on policies and
contracts for the Wealth Management segment had the effect of increasing
income from operations for this segment. This change reflected lower
reserves related to minimum guaranteed death benefit product features as
well as a variety of other factors.
- 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. In 1999, net investment
income for the Wealth Management segment decreased by $44.0 million, to
$114.0 million. This decline in average general account assets primarily
reflects the Company's decision in 1997 to no longer market
41
<PAGE>
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 surrenders and
withdrawals, changes in the liability for premium and other deposit
funds, and related separate account transfers) were higher by
approximately $430 million in 1999, mainly as a result of higher
variable annuity surrenders. The increase in variable annuity surrenders
primarily related to a block of separate account contracts that had been
issued seven or more years previously and for which the surrender charge
periods had expired. The Company expects that as the separate account
block of business continues to grow and as 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.
- Operational expenses, which include general insurance expenses and
insurance taxes, licenses and fees, excluding federal income taxes,
increased by $5.4 million, or 9%, in 1999. This increase reflected costs
associated with operations and technology improvements to support the
growth of the Company's in-force business. Commissions of
$153.6 million were higher by $17.7 million in 1999, mainly as a result
of higher sales.
PROTECTION SEGMENT
The Protection segment comprises two main elements, internal reinsurance
and variable 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). This agreement had the effect of increasing income from operations by
$24.6 million in 1998. In addition, the effect of terminating this agreement was
to further increase 1998 net income by $65.7 million as the termination payment
was less than the reserves held under the agreement. Because this agreement
terminated in 1998, it had no effect on income from operations in 1999.
Variable Life Products
The Company's primary individual variable life insurance product is its
variable universal life product marketed to the company-owned life insurance
("COLI") market. This product was introduced in late 1997. The Company's
management expects that the Company's variable life business will grow and
become more significant in the future. In September 1999, the Company introduced
a new variable universal life product as part of the Futurity product portfolio.
Costs related to developing this product were primarily responsible for the
decrease of approximately $4 million in income from operations for this portion
of the Protection segment.
CORPORATE SEGMENT
The Corporate segment includes the capital of the Company, its investments
in subsidiaries and items not otherwise attributable to either the Wealth
Management segment or the Protection segment.
In 1999, income from operations for this segment increased by
$7.2 million to $11.7 million. This increase reflected higher net investment
income, mainly from dividends of $19.3 million received during the 4th quarter
from a subsidiary, New London Trust, F.S.B. Partially offsetting this change in
net investment income were higher operational expenses and higher federal income
taxes attributable to this segment.
42
<PAGE>
1998 COMPARED TO 1997:
NET INCOME
Net income decreased by $3.8 million to $125.4 million in 1998, reflecting
an increase of $22.5 million in income from operations and a decrease of
$26.3 million in net realized capital gains.
Income from operations increased from $102.5 million in 1997 to
$125.0 million in 1998, mainly as a result of the following factors:
- A $16.7 million increase, to $31.4 million in 1998, in the income from
operations from the Company's Wealth Management segment. (See "1998
Compared to 1997 -- Wealth Management Segment," below.)
- The effect of terminating certain reinsurance agreements with Sun Life
(Canada). The termination of these agreements was the predominant factor
in the $71.1 million increase in income from operations for the
Company's Protection segment.
- The effects of the Company's December 1997 reorganization (described in
"Corporate Segment," below), as a result of which MFS is no longer a
subsidiary of the Company. As a result of this reorganization, dividends
from subsidiaries were lower in 1998 than in 1997 and certain subsidiary
tax benefits were no longer available to the Company. Also affecting
income from operations for the Corporate segment in 1998 was that income
earned on the proceeds of a December 1997 issuance of a $250 million
surplus note was lower than the related interest expense.
Net realized capital gains decreased from $26.7 million in 1997 to
$0.4 million in 1998. This decrease was also due to the Company's December 1997
reorganization which resulted in a realized capital gain of $21.2 million in
1997.
INCOME FROM OPERATIONS BY SEGMENT
WEALTH MANAGEMENT SEGMENT
Following are the major factors affecting the Wealth Management segment's
results in 1998 as compared to 1997:
- Annuity deposits declined by about $27 million, or 1%, to $2.2 billion
in 1998. Fixed annuity account deposits were lower by approximately 7%
in 1998, while deposits into variable annuity accounts increased in
total and as a proportion of total annuity deposits. These trends
reflected market conditions and competitive factors.
- Deposits into the DCA programs, a feature of the Company's combination
fixed/variable annuity products, were a significant element of account
deposits. Under these programs, which were redesigned in late 1996,
deposits are made into the fixed portion of the annuity contract and
receive a bonus rate of interest for the policy year. During the year,
the fixed deposit is systematically transferred to the variable portion
of the contract in equal periodic installments. DCA deposits overall
were flat in 1998 compared to 1997. This pattern resulted, in part, from
heightened competition, as other companies introduced similar DCA
programs within in 1998. During the fourth quarter of 1998, the Company
introduced a higher DCA rate and a new six-month DCA program. DCA
deposits for that quarter were higher, compared to the preceding 1998
quarters.
- An increase in variable account deposits in 1998 reflected both the
continuing strong growth in equity markets generally and the continuing
strong performance of the investment funds underlying the Company's
variable annuity products. The continuing strong equity markets, low
interest rate environment, and demographic trends, among other factors,
increased the demand and market for wealth accumulation products in the
U.S., particularly for variable annuities. These factors contributed to
the growth in the Company's variable account deposits in 1998, despite
heightened competition.
43
<PAGE>
- The Company introduced its Futurity line of products in February 1998.
Related deposits represented about 6% of the total for the Wealth
Management segment in 1998.
- Fee income increased as a result of higher variable annuity account
balances. The main factors driving this growth in account balances were
market appreciation and net deposit activity. This growth generated
corresponding increases in fee income, since fees are determined based
on the average assets held in these accounts. Fee income increased by
approximately $43 million, or 39%, in 1998.
- Because there was a shift to variable accounts from the general account,
net investment income declined. Net investment income reflects only
income earned on invested assets of the general account. In 1998, net
investment income for the Wealth Management segment decreased by about
$40 million, or 20%, compared to 1997, mainly as a result of the decline
in average invested assets in the Company's general account. This
decline in average general account assets mainly reflected the shift in
deposits in recent years from the fixed account to variable accounts. It
also reflected the Company's decision in 1997 to no longer market group
pension and GICs.
- Policyholder benefits were lower, mainly reflecting lower surrender
activity compared to 1997. During 1997 and into the first half of 1998,
surrender and withdrawal activity had been high. This activity primarily
related to a block of separate account contracts that had been issued 7
or more years previously and for which the surrender charge periods had
expired. While variable account surrenders continued to rise, general
account surrenders declined in 1998. As a result of this pattern of
activity, policyholder benefits (of which surrenders and withdrawals,
the related changes in the liability for premium and other deposit
funds, and related separate account transfers are the major elements)
increased in 1997 and were lower in 1998.
- As a result of investments in technology and infrastructure to enhance
annuity operations, operational expenses increased by approximately $12
million, or 25%, in 1998 compared to 1997. These increases reflected 3
main factors:
- Higher volumes of annuity business, requiring greater administrative
support.
- Improvements to the computer systems and technology that support the
annuity business. These improvements involved information systems
supporting the growth of the Company's in-force business, particularly
its combination fixed/variable annuities.
- Costs associated with the product design and implementation of the new
Futurity multi-manager annuity product and the development of a new
product within the Regatta product line.
PROTECTION SEGMENT
The reinsurance arrangements in which Sun Life (Canada) has reinsured the
mortality risks of individual life policies sold in prior years by the Company
had an immaterial effect, in the aggregate, on net income in 1997 and 1998.
Under another agreement, which became effective January 1, 1991 and terminated
October 1, 1998, the Company reinsured certain individual life insurance
contracts issued by Sun Life (Canada). This agreement had the effect of
increasing income from operations by $37.1 million in 1997. Income from
operations decreased to $24.6 million in 1998, because the agreement was in
place only through the first 9 months of 1998. In addition, the effect of
terminating this agreement was to further increase 1998 net income by $65.7
million. This termination-related increase in 1998 represented a reasonable
approximation of the value of the stream of future earnings that the agreement
would have generated had it remained in effect.
The Company's primary individual variable life insurance product is its
variable universal life product marketed to the company-owned life insurance
("COLI") market. This product was introduced in late 1997.
44
<PAGE>
CORPORATE SEGMENT
In 1998, income from operations decreased by $65.3 million to
$4.5 million for the Corporate segment. This decrease reflected 2 main factors:
- Dividends from subsidiaries were lower than in 1997 by $37.5 million. This
decrease mainly resulted from a December 1997 reorganization, in which the
Company transferred its ownership of MFS to its parent company, Sun Life
of Canada (U.S.) Holdings, Inc. ("Sun Life (U.S.) Holdings.") As a result
of this reorganization, the Company received no dividends from MFS in
1998. By comparison, it received $33.1 million of MFS dividends in 1997.
- Net investment income, other than dividends from subsidiaries, decreased
by $5.9 million in 1998 over 1997, reflecting the effect of the Company's
December 1997 issuance of a $250 million surplus note to Sun Life (U.S.)
Holdings. Interest expense exceeded investment earnings on the related
funds.
FINANCIAL CONDITION AND LIQUIDITY
ASSETS
The Company's total assets comprise those held in its general account and
those held in its separate accounts. General account assets support general
account liabilities. Separate accounts and their assets are of 2 main types:
- Those assets held in a "fixed" separate account, which the Company
established for amounts that contract holders allocate to the fixed
portion of their combination fixed/variable deferred annuity contracts.
Fixed separate account assets are available to fund general account
liabilities and general account assets are available to fund the
liabilities of this fixed separate account. The Company manages the assets
of this fixed separate account according to general account investment
policy guidelines.
- Those assets held in a number of registered and non-registered "variable"
separate accounts as investment vehicles for the Company's variable life
and annuity contracts. Policyholders may choose from among various
investment options offered under these contracts according to their
individual needs and preferences. Policyholders assume the investment
risks associated with these choices. General account and fixed separate
account assets are not available to fund the liabilities of these variable
accounts.
The following table summarizes significant changes in asset balances
during 1999, 1998 and 1997. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS % CHANGE
1999 1998 1997 1999/1998 1998/1997
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
General account assets.................. $ 2,377.1 $ 2,932.2 $ 4,513.5 (18.9)% (35.0)%
Fixed separate account assets........... 2,080.7 2,195.6 2,343.9 (5.2)% (6.3)%
--------- --------- --------- ----- -----
$ 4,457.8 $ 5,127.8 $ 6,857.4 (13.1)% (25.2)%
Variable separate account assets........ 15,490.3 11,774.8 9,068.0 31.6 % 29.9 %
--------- --------- --------- ----- -----
Total assets............................ $19,948.1 $16,902.6 $15,925.4 18.0 % 6.1 %
========= ========= ========= ===== =====
</TABLE>
General account and fixed separate account assets, taken together,
decreased by 13.2% in 1999; but variable separate account assets increased by
31.6%. In 1998, the combined general account and fixed separate account
decreased by 25.2%, while variable separate account assets increased by 29.9%.
This growth in variable accounts relative to the general and fixed accounts
reflects 2 main factors: (1) appreciation of the funds held in the variable
separate accounts has exceeded that of the funds held in the general and fixed
separate accounts; and (2) annuity deposits and exchanges into variable accounts
have increased, while annuity deposits into fixed accounts have slowed. The
Company believes this pattern has reflected a shift in the preferences of
policyholders, which is largely attributable to the
45
<PAGE>
strong performance of equity markets in general and of the Company's variable
account funds in particular.
The assets of the general account are available to support general account
liabilities. For management purposes, it is the Company's practice to segment
its general account to facilitate the matching of assets and liabilities.
General account assets primarily comprise cash and invested assets, which
represented essentially all of general account assets at year-end 1999. Major
types of invested asset holdings included bonds, mortgages, real estate and
common stock. The Company's bond holdings comprised 51.5% of the Company's
portfolio at year-end 1999. Bonds included both public and private issues. It is
the Company's policy to acquire only investment-grade securities. As a result,
the overall quality of the bond portfolio is high. At year-end 1999, only 0.5%
were rated below-investment-grade; i.e., they had National Association of
Insurance Commissioners ("NAIC") ratings lower than "1" or "2." The Company's
mortgage holdings amounted to $528.9 million at year-end 1999, representing
22.3% of the total portfolio. All mortgage holdings at year-end 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
year-end 1999, investment real estate amounted to $79.2 million, representing
about 3.3% 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. Common stock holdings amounted to $75.3 million, representing about
3.2% of the portfolio. These holdings comprised the Company's ownership shares
in subsidiaries.
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 MARKETS RISK MANAGEMENT
See "Quantitative and Qualitative Disclosures About Market Risk," below,
for a discussion of the Company's capital markets risk management.
CAPITAL RESOURCES
CAPITAL ADEQUACY
The National Association of Insurance Commissioners ("NAIC") adopted
regulations at the end of 1993 that established minimum capitalization
requirements for insurance companies, based on risk-based capital ("RBC")
formulas. These requirements are intended to identify undercapitalized
companies, so that specific regulatory actions can be taken on a timely basis.
The RBC formula for life insurance companies 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.
46
<PAGE>
In managing its general account and fixed separate account assets in
relation to its liabilities, the Company has segmented these assets by product
or by groups of products. The Company manages each segment's assets based on an
investment policy that it has established for that segment. Among other matters,
this investment policy considers liquidity requirements and provides cash flow
estimates. The Company reviews these policies quarterly.
The Company's liquidity targets are intended to enable it to meet its
day-to-day cash requirements. On a quarterly basis, the Company compares its
total "liquifiable" assets to its total demand liabilities. Liquifiable assets
comprise cash and assets that could quickly be converted to cash should the need
arise. These assets include short-term investments and other current assets and
investment-grade bonds. The Company's policy is to maintain a liquidity ratio in
excess of 100%, and it did so throughout 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
On January 27, 1998, Sun Life (Canada) announced that its Board of
Directors had requested that management develop a plan to demutualize.
Demutualization would involve converting from a mutual structure, with ownership
by policyholders, to a shareholder-owned company. It would provide that the
ownership interest currently held by policyholders be distributed to them in the
form of shares, without affecting their interests as policyholders. In
June 1999, the Sun Life (Canada)'s Board of Directors approved the
demutualization timetable recommended by management, and on September 28, 1999,
Sun Life (Canada)'s Board of Directors approved the demutualization plan. On
December 6, 1999, Sun Life (Canada) received approval for its demutualization
plan from the Michigan Commissioner of Insurance. At a Special Meeting on
December 15, 1999, eligible policyholders of Sun Life (Canada) voted in favor of
the Company's plans to demutualize. Sun Life (Canada) completed its
demutualization on March 22, 2000 and its Initial Public Offering ("IPO") on
March 29, 2000. The demutualization of Sun Life (Canada) is not expected to have
any significant impact on the Company.
SALE OF SUBSIDIARIES
On February 5, 1999, the Company sold Massachusetts Casualty Insurance
Company ("MCIC"), a disability insurance company, to an unaffiliated party. The
net proceeds of this sale were $34.0 million and the Company realized a post tax
gain of $4.9 million.
On October 29, 1999, the Company completed the sale of its wholly-owned
subsidiary, New London Trust F.S.B. ("NLT"), for approximately $30.3 million to
an unaffiliated party. The Company realized a post-tax gain of $13.2 million
from this sale. This transaction is not expected to have a significant effect on
the ongoing operations of the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This discussion covers market risks associated with investment portfolios
that support the Company's general account liabilities. This discussion does not
cover market risks associated with those investment portfolios that support
separate account products. For these products, the policyholder, rather than the
Company, assumes these market risks.
GENERAL
The assets of the general account are available to support general account
liabilities. For purposes of managing these assets in relation to these
liabilities, the Company notionally segments these assets by product or by
groups of products. The Company manages each segment's assets based on an
investment policy that it has established for that segment. The policy covers
the segment's liability characteristics and liquidity requirements, provides
cash flow estimates, and sets targets for asset mix, duration, and quality. Each
quarter, investment and business unit managers review these policies to ensure
that the policies remain appropriate, taking into account each segment's
liability characteristics.
47
<PAGE>
TYPES OF MARKET RISKS
The Company's stringent underwriting standards and practices have resulted
in high-quality portfolios and have the effect of limiting credit risk. It is
the Company's policy, for example, not to purchase below-investment-grade
securities. Also, as a matter of investment policy, the Company assumes no
foreign currency or commodity risk; nor does it assume equity price risk except
to the extent that it holds real estate in its portfolios. (At year-end 1999,
investment real estate holdings represented less than 4% of its total general
account portfolio.) The management of interest rate risk exposure is discussed
below.
INTEREST RATE RISK MANAGEMENT
The Company's fixed interest rate liabilities are primarily supported by
well-diversified portfolios of fixed interest investments. They are also
supported by holdings of real estate and floating rate notes. All of these fixed
interest investments are held for other than trading purposes and can include
publicly issued and privately placed bonds and commercial mortgage loans. Public
bonds can include Treasury bonds, corporate bonds, and money market instruments.
The Company's fixed income portfolios also hold securitized assets, including
mortgage-backed securities ("MBS") and asset-backed securities. These securities
are subject to the same standards applied to other portfolio investments,
including relative value criteria and diversification guidelines. In portfolios
backing interest-sensitive liabilities, the Company's policy is to limit MBS
holdings to less than 10% of total portfolio assets. In all portfolios, the
Company restricts MBS investments to pass-through securities issued by U.S.
government agencies and to collateralized mortgage obligations, which are
expected to exhibit relatively low volatility. The Company does not engage in
lever-aged 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;
- the use of key rate durations to estimate interest rate exposure at
different parts of the yield curve and to estimate the exposure to
non-parallel shifts in the yield curve.
The Company's Interest Rate Risk Committee meets monthly. After reviewing
duration analyses, market conditions and forecasts, the Committee develops
specific asset management strategies for the interest-sensitive portfolios.
These strategies may involve managing to achieve small intentional mismatches,
either in terms of total effective duration or for certain key rate durations,
between the liabilities and related assets of particular segments. The Company
manages these mismatches to a tolerance range of plus or minus 0.5.
Asset strategies may include the use of Treasury futures or interest rate
swaps to adjust the duration profiles for particular portfolios. All derivative
transactions are conducted under written operating guidelines and are marked to
market. Total positions and exposures are reported to the Board of Directors on
a monthly basis. The counterparties to hedging transactions are major highly
rated financial institutions, with respect to which the risk of the Company's
incurring losses related to credit exposures is considered remote.
Liabilities categorized as financial instruments and held in the Company's
general account at December 31, 1999 had a fair value of $1,024.6 million. Fixed
income investments supporting those
48
<PAGE>
liabilities had a fair value of $2,072.1 million at that date. The Company
performed a sensitivity analysis on these interest-sensitive liabilities and
assets at December 31, 1999. The analysis showed that if there were an immediate
increase of 100 basis points in interest rates, the fair value of the
liabilities would show a net decrease of $30.6 million and the corresponding
assets would show a net decrease of $80.5 million.
By comparison, liabilities categorized as financial instruments and held
in the Company's general account at December 31, 1998 had a fair value of
$1,538.3 million. Fixed income investments supporting those liabilities had a
fair value of $2,710.1 million at that date. The Company performed a sensitivity
analysis on these interest-sensitive liabilities and assets at December 31,
1998. The analysis showed that if there were an immediate increase of 100 basis
points in interest rates, the fair value of the liabilities would show a net
decrease of $46.3 million and the corresponding assets would show a net decrease
of $113.2 million.
The Company produced these estimates using computer models. Since these
models reflect assumptions about the future, they contain an element of
uncertainty. For example, the models contain assumptions about future
policyholder behavior and asset cash flows. Actual policyholder behavior and
asset cash flows could differ from what the models show. As a result, the
models' estimates of duration and market values may not reflect what actually
will occur. The models are further limited by the fact that they do not provide
for the possibility that management action could be taken to mitigate adverse
results. The Company believes that this limitation is one of conservatism; that
is, it will tend to cause the models to produce estimates that are generally
worse than one might actually expect, all other things being equal.
Based on its processes for analyzing and managing interest rate risk, the
Company believes its exposure to interest rate changes will not materially
affect its near-term financial position, results of operations, or cash flows.
REINSURANCE
The Company has agreements with Sun Life (Canada) which provide that Sun
Life (Canada) will reinsure the mortality risks of the individual life insurance
contracts sold by the Company. Under these agreements, basic death benefits and
supplementary benefits are reinsured on a yearly renewable term basis and
coinsurance basis, respectively. Reinsurance transactions under these agreements
in 1999 had the effect of decreasing net income from operations by approximately
$1,527,000.
Effective January 1, 1991, the Company entered into an agreement with Sun
Life (Canada) under which certain individual life insurance contracts issued by
Sun Life (Canada) were reinsured by the Company on a 90% coinsurance basis. Also
effective January 1, 1991 the Company entered into an agreement with Sun Life
(Canada) which provides that Sun Life (Canada) will reinsure the mortality risks
in excess of $500,000 per policy for the individual life insurance contracts
assumed by the Company in the reinsurance agreement described above. 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. These agreements had the effect of increasing income from
operations by approximately $24,579,000 for the year ended December 31, 1998.
The Company terminated these agreements effective October 1, 1998, resulting in
an increase in income from operations in 1998 of $65,679,000 which included a
cash settlement.
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. Reinsurance transactions under this agreement had the effect of
increasing income from operations by $193,000 in 1999.
During 1999, the Company entered into an agreement with an unrelated
company which provides reinsurance on certain fixed group annuity contracts. The
net effect of this agreement was to increase income from operations by
approximately $3,400,000. Also during 1999, the Company entered into three
agreements with two unrelated companies for the purpose of obtaining stop-loss
coverage of
49
<PAGE>
guaranteed minimum death benefit exposure with respect to the Company's variable
annuity business. The net effect of these agreements was to increase income from
operations by approximately $157,000.
RESERVES
In accordance with the life insurance laws and regulations under which the
Company operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on its outstanding
contracts. Reserves are based on mortality tables in general use in the United
States and are computed to equal amounts that, with additions from premiums to
be received, and with interest on such reserves compounded annually at certain
assumed rates, will be sufficient to meet the Company's policy obligations at
their maturities or in the event of an insured's death. In the accompanying
Financial Statements, these reserves are determined in accordance with statutory
regulations.
INVESTMENTS
Of the Company's total assets of $19.9 billion at December 31, 1999, 88.1%
($17.6 billion) consisted of unitized and non-unitized separate account assets,
6.1% ($1.2 billion) was invested in bonds and similar securities, 2.7%
($528.9 million) was invested in mortgages, 0.4% ($75.3 million) was invested in
subsidiaries, 0.4% ($94.8 million) was invested in real estate, and the
remaining 2.3% ($456.1 million) was invested in cash and other assets.
COMPETITION
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other entities
marketing insurance products. According to a 1999 statistical study published by
A.M. Best, the Company ranked 36th among North American life insurance companies
based upon total 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 March 31, 2000, the Company had 385 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
50
<PAGE>
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.
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
statutory 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.
------------------------
51
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 1,221,970 $ 1,763,468
Common stocks 75,283 128,445
Mortgage loans on real estate 528,911 535,003
Properties acquired in satisfaction of debt 15,641 17,207
Investment real estate 79,182 78,021
Policy loans 40,095 41,944
Cash and short-term investments 316,971 265,226
Other invested assets 67,938 64,177
Investment income due and accrued 25,303 35,706
Federal income tax recoverable and interest thereon -- 1,110
Other assets 5,807 1,928
----------- -----------
General account assets 2,377,101 2,932,235
Separate account assets
Unitized 15,490,328 11,774,745
Non-unitized 2,080,726 2,195,641
----------- -----------
Total admitted assets $19,948,155 $16,902,621
=========== ===========
LIABILITIES
Aggregate reserve for life policies and contracts $ 1,153,642 $ 1,216,107
Supplementary contracts 3,182 1,885
Policy and contract claims 962 369
Liability for premium and other deposit funds 564,820 1,000,875
Surrender values on cancelled policies 16 5
Interest maintenance reserve 41,771 40,490
Commissions to agents due or accrued 3,253 2,615
General expenses due or accrued 14,055 5,932
Transfers from Separate Accounts due or accrued (467,619) (361,863)
Taxes, licenses and fees due or accrued, excluding FIT 379 401
Federal income taxes due or accrued 89,031 25,019
Unearned investment income 22 23
Amounts withheld or retained by company as agent or
trustee (442) 529
Remittances and items not allocated 1,078 5,176
Asset valuation reserve 44,071 44,392
Payable to parent, subsidiaries, and affiliates 26,284 30,381
Payable for securities -- 428
Other liabilities 16,674 9,770
----------- -----------
General account liabilities 1,491,179 2,022,534
Separate account liabilities:
Unitized 15,489,908 11,774,522
Non-unitized 2,080,726 2,195,641
----------- -----------
Total liabilities 19,061,813 15,992,697
----------- -----------
CAPITAL STOCK AND SURPLUS
Common capital stock 5,900 5,900
----------- -----------
Surplus notes 565,000 565,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 116,087 139,669
----------- -----------
Surplus 880,442 904,024
----------- -----------
Total common capital stock and surplus 886,342 909,924
----------- -----------
Total liabilities, capital stock and surplus $19,948,155 $16,902,621
=========== ===========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
52
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 69,492 $ 210,198 $ 254,066
Deposit-type funds 2,598,265 2,140,604 2,155,297
Considerations for supplementary
contracts without life
contingencies and dividend
accumulations 3,461 2,086 1,615
Net investment income 167,035 184,532 270,249
Amortization of interest maintenance
reserve 3,702 2,282 1,166
Income from fees associated with
investment management and
administration and contract
guarantees from Separate Account 173,417 141,211 109,757
Net gain from operations from
Separate Account 61 -- 5
Other income 24,554 87,364 102,889
---------- ---------- ----------
Total Income 3,039,987 2,768,277 2,895,044
---------- ---------- ----------
BENEFITS AND EXPENSES:
Death benefits 4,386 15,335 17,284
Annuity benefits 155,387 153,636 148,135
Disability benefits and benefits
under accident and health policies -- 104 132
Surrender benefits and other fund
withdrawals 2,313,179 1,933,833 1,854,004
Interest on policy or contract funds 237 (140) 699
Payments on supplementary contracts
without life contingencies and
dividend accumulations 2,345 2,528 1,687
Increase (decrease) in aggregate
reserves for life and accident and
health policies and contracts (62,465) (972,135) 127,278
Decrease in liability for premium
and other deposit funds (436,055) (449,831) (447,603)
Increase (decrease) in reserve for
supplementary contracts without
life contingencies and for
dividend and coupon accumulations 1,296 (362) 42
---------- ---------- ----------
Total Benefits 1,978,310 682,968 1,701,658
---------- ---------- ----------
Commissions on premiums and annuity
considerations (direct business
only) 155,381 137,718 132,700
Commissions and expense allowances
on reinsurance assumed -- 13,032 17,951
General insurance expenses 75,046 58,132 46,624
Insurance taxes, licenses and fees,
excluding federal income taxes 8,710 7,388 8,267
Increase (decrease) in loading on
and cost of collection in excess
of loading on deferred and
uncollected premiums -- (1,663) 523
Net transfers to Separate Accounts 727,811 722,851 844,130
Reserve and fund adjustments on
reinsurance terminated -- 1,017,112 --
---------- ---------- ----------
Total Benefits and Expenses $2,945,258 $2,637,538 $2,751,853
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
53
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net gain from operations before dividends to
policyholders and federal income tax expense $94,729 $130,739 $143,191
Dividends to policyholders -- (5,981) 33,316
------- -------- --------
Net gain from operations after dividends to
policyholders and before federal income tax
expense 94,729 136,720 109,875
Federal income tax expense, (excluding tax on
capital gains) 24,479 11,713 7,339
------- -------- --------
Net gain from operations after dividends to
policyholders and federal income taxes and
before realized capital gains 70,250 125,007 102,536
Net realized capital gains less capital gains
tax and transferred to the Interest
Maintenance Reserve 20,108 394 26,706
------- -------- --------
NET INCOME $90,358 $125,401 $129,242
======= ======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
54
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----------
<S> <C> <C> <C>
Capital and Surplus, Beginning of Year $909,924 $832,695 $567,143
-------- -------- --------
Net Income 90,358 125,401 129,242
Change in net unrealized capital gains
(losses) (36,111) (384) 1,152
Change in non-admitted assets and
related items 1,715 (1,086) (463)
Change in reserve due to change in
valuation basis -- 39,016
Change in asset valuation reserve 320 3,213 6,307
Surplus (contributed to) withdrawn from
Separate Accounts during period 136 82 --
Other changes in surplus in Separate
Accounts Statements -- 10 --
Change in surplus notes -- -- 250,000
Dividends to stockholders (80,000) (50,000) (159,722)
Aggregate write-ins for gains and
(losses) in surplus -- (7) 20
-------- -------- --------
Net change in capital and surplus for
the year (23,582) 77,229 265,552
-------- -------- --------
Capital and Surplus, End of Year $886,342 $909,924 $832,695
======== ======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
55
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Provided by Operations:
Premiums, annuity considerations and
deposit funds received $ 2,667,756 $ 2,361,669 $ 2,410,919
Considerations for supplementary
contracts and dividend accumulations
received 3,461 2,086 1,615
Net investment income received 225,038 236,944 345,279
Fees associated with investment
management, administration, and
contract guarentees from Separate
Accounts 173,417 141,211 --
Other income received 24,555 111,936 208,223
----------- ----------- -----------
Total receipts 3,094,227 2,853,846 2,966,036
----------- ----------- -----------
Benefits paid (other than dividends) 2,474,693 2,107,736 2,020,747
Insurance expenses and taxes paid
(other than federal income and
capital gains taxes) 230,744 217,023 203,650
Net cash transferred to Separate
Accounts 833,567 800,636 895,465
Dividends paid to policyholders -- 26,519 28,316
Federal income tax payments
(recoveries),(excluding tax on
capital gains) (40,644) 46,965 1,397
Other--net 237 (138) 698
----------- ----------- -----------
Total payments 3,498,597 3,198,741 3,150,273
----------- ----------- -----------
Net cash used in operations (404,370) (344,895) (184,237)
----------- ----------- -----------
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains
(losses) of $(1,768) for 1999, $2,038
for 1998, and $750 for 1997) 1,065,307 1,261,396 1,343,803
Issuance of surplus notes -- -- 250,000
Other cash provided (used) 13,797 (40,529) 71,095
----------- ----------- -----------
Total cash provided 1,079,104 1,220,867 1,664,898
----------- ----------- -----------
Cash Applied:
Cost of long-term investments acquired (484,417) (967,901) (773,783)
Other cash applied (138,572) (187,263) (310,519)
----------- ----------- -----------
Total cash applied (622,989) (1,155,164) (1,084,302)
Net change in cash and short-term
investments 51,745 (279,192) 396,359
Cash and short-term investments:
Beginning of year 265,226 544,418 148,059
----------- ----------- -----------
End of year $ 316,971 $ 265,226 $ 544,418
=========== =========== ===========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
56
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 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 and is currently engaged in the sale of individual
variable life insurance, individual fixed and variable annuities, group fixed
and variable annuities, and group pension contracts.
Effective May 1, 1997, the Company became a wholly-owned subsidiary of the newly
established Sun Life of Canada (U.S.) Holdings, Inc. ("Life Holdco"). On
December 18, 1997, Life Holdco became a wholly-owned subsidiary of Sun Life
Assurance Company of Canada - U.S. Operations Holdings, Inc. ("US Holdco"). US
Holdco is a wholly-owned subsidiary of Sun Life Assurance Company of Canada
("SLOC"), a mutual insurance company.
The Company, which is domiciled in the State of Delaware, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Delaware Insurance Department. Prescribed accounting
practices include practices described in a variety of publications of the
National Association of Insurance Commissioners ("NAIC"), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles for mutual life insurance companies and stock life insurance
companies wholly-owned by mutual life insurance companies. In April 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation"), that became effective in 1996, which changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly-owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with generally accepted accounting principles
("GAAP"). Consequently, these financial statements prepared in conformity with
statutory accounting practices, as described above, vary from and are not
intended to present the Company's financial position, results of operations or
cash flow in conformity with generally accepted accounting principles. (See Note
19 for further discussion relative to the Company's basis of financial statement
presentation.) The effects on the financial statements of the variances between
the statutory basis of accounting and GAAP, although not reasonably
determinable, are presumed to be material.
INVESTED ASSETS
Bonds are carried at cost, adjusted for amortization of premium or accrual of
discount. Investments in mortgage backed securities are generally carried at
amortized cost. Changes in prepayment assumptions and resulting cash flows are
confirmed retrospectively. The adjusted yield is used to calculate investment
income in future periods. If current book value exceeds future undiscounted cash
flows, a realized capital loss is recorded and amortized through the Interest
Maintenance Reserve (IMR). Investments in non-insurance subsidiaries are carried
on the equity basis. Investments in insurance subsidiaries are carried at their
statutory surplus values. Mortgage loans acquired at a premium or discount are
carried at amortized values and other mortgage loans are carried at the amounts
of the unpaid balances. Real estate investments are carried at the lower of
cost, adjusted for accumulated depreciation or appraised value, less
encumbrances. Short-term investments are carried at amortized cost, which
approximates fair value. Depreciation of buildings and improvements is
calculated using the straight-line method over the estimated useful life of the
property, generally 40 to 50 years.
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
POLICY AND CONTRACT RESERVES
The reserves for life insurance and annuity contracts are computed in accordance
with presently accepted actuarial standards, and are based on actuarial
assumptions and methods (including use of published mortality tables and
prescribed interest rates) which produce reserves at least as great as those
required by law and contract provisions.
INCOME AND EXPENSES
For life and annuity contracts, premiums are recognized as revenues over the
premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
SEPARATE ACCOUNTS
The Company has established unitized separate accounts applicable to various
classes of contracts providing for variable benefits. Contracts for which funds
are invested in separate accounts include variable life insurance and individual
and group qualified and non-qualified variable annuity contracts.
The Company has also established a non-unitized separate account for amounts
allocated to the fixed portion of certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities, and general account assets are available to fund
liabilities of this account.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders, are shown as separate captions in the financial statements.
Assets held in the separate accounts are carried at market value as determined
by quoted market prices of the underlying investments.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, and accrued expense
allowances recognized in reserves are receivable from or payable to the general
account. Accumulated amounts that have not been transferred are recorded as a
payable (receivable) to (from) the general account. Amounts payable to the
general account of the Company were $467,619,000 in 1999 and $361,863,000 in
1998.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
As described more fully in Note 10, during 1997 the Company changed certain
assumptions used in determining actuarial reserves.
In March 1998, the National Association of Insurance Commissioners adopted the
Codification of Statutory Accounting Principles ("Codification"). The
Codification, which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be effective January 1,
2001. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices and it is uncertain when, or
if, the state of Delaware will require adoption of Codification for the
preparation of statutory financial statements. The Company has not finalized the
quantification of the effects of Codification on its statutory financial
statements.
OTHER
Preparation of the financial statements requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to amounts as
presented in the current year.
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. INVESTMENTS IN SUBSIDIARIES
The Company owns all of the outstanding shares of the following subsidiaries:
Sun Life Insurance and Annuity Company of New York ("Sun Life (N.Y.)") is
engaged in the sale of individual fixed and variable annuity contracts and group
life and group long term disability insurance contracts in the State of New
York;
Sun Life of Canada (U.S.) Distributors, Inc. (formerly Sun Investment Services
Company) ("Sundisco"), is a registered broker-dealer;
Sun Life Financial Services Limited ("SLFSL"), serves as the marketing
administrator for the distribution of the offshore products of SLOC (Bermuda
branch), an affiliate;
Sun Benefit Services Company, Inc. ("Sunbesco") receives renewal commissions on
a disability product and is currently inactive;
Sun Capital Advisers, Inc. ("Sun Capital") is a registered investment adviser;
Sun Life Finance Corporation ("Sunfinco") is a finance company and currently
inactive;
Sun Life of Canada (U.S.) SPE 97-1, Inc. ("SPE 97-1") is a special purpose
corporation engaging in activities incidental to securitizing mortgage loans;
Clarendon Insurance Agency, Inc. ("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;
Sun Life Information Services Ireland Limited ("SLISL") is an offshore
technology services center for affiliates.
On October 29,1999, the Company sold New London Trust F.S.B. ("NLT") to an
unaffiliated party for $30,254,000. The Company realized a post tax gain of
$13,170,000.
On February 5, 1999, the Company sold Massachusetts Casualty Insurance Company
("MCIC"), a disability insurance company, to an unaffiliated party. The net
proceeds of this sale were $33,965,000. The Company realized a post tax gain of
$4,900,000.
The impact of the sales of NLT and MCIC on continuing operations of the Company
is not expected to be material.
Prior to December 24, 1997, the Company owned 93.6% of the outstanding shares of
Massachusetts Financial Services Company ("MFS"), a registered investment
adviser. On December 24, 1997, the Company transferred all of its shares of MFS
to Life Holdco in the form of a dividend valued at $159,722,000. As a result of
this transaction, the Company realized a gain of $21,195,000 of undistributed
earnings.
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED)
During 1999, 1998, and 1997, the Company contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
MCIC $ -- $ -- $ 2,000
SLFSL 1,000 750 1,000
SPE 97-1 -- -- 20,377
Sundisco 19,000 10,000 --
Sun Capital -- 500 --
Clarendon -- 10 --
SLISL -- 502 --
</TABLE>
During 1999, 1998, and 1997, the Company received dividends from the following
subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SUN Life (N.Y.) $ 6,500 $ 3,000 $ --
NLT 19,319 -- 7,500
MFS -- -- 33,110
SPE 97-1 -- 675 --
SUNDISCO -- -- 571
</TABLE>
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1999, 1998 and 1997 and for the years then ended, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets $ 877,939 $ 1,315,317 $ 1,190,951
Liabilities (802,656) (1,186,872) (1,073,966)
----------- ----------- -----------
Total net assets $ 75,283 $ 128,445 $ 116,985
=========== =========== ===========
Total revenues $ 82,443 $ 222,853 $ 750,364
Operating expenses (90,318) (221,933) (646,896)
Income tax expense 3,249 (1,222) (43,987)
----------- ----------- -----------
Net income (loss) $ (4,626) $ (302) $ 59,481
=========== =========== ===========
</TABLE>
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. BONDS
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
---- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government
agencies and authorities $ 78,161 $ 2,091 $ (2,454) $ 77,798
States, provinces and political subdivisions 20,428 69 (57) 20,440
Public utilities 181,466 6,854 (5,907) 182,413
Transportation 188,285 7,689 (2,709) 193,265
Finance 88,517 4,631 (518) 92,630
All other corporate bonds 665,113 18,353 (17,152) 666,314
---------- -------- -------- ----------
Total long-term bonds 1,221,970 39,687 (28,797) 1,232,860
---------- -------- -------- ----------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 312,585 -- -- 312,585
---------- -------- -------- ----------
Total short-term bonds 312,585 -- -- 312,585
---------- -------- -------- ----------
Total bonds $1,534,555 $ 39,687 $(28,797) $1,545,445
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
---- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government
agencies and authorities $ 140,417 $ 7,635 $ (177) $ 147,875
States, provinces and political subdivisions 16,632 2,219 -- 18,851
Public utilities 397,670 38,740 (238) 436,172
Transportation 197,207 22,481 (18) 219,670
Finance 144,958 12,542 (494) 157,006
All other corporate bonds 866,584 50,814 (6,419) 910,979
---------- -------- ------- ----------
Total long-term bonds 1,763,468 134,431 (7,346) 1,890,553
---------- -------- ------- ----------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 43,400 -- -- 43,400
Affiliates 220,000 -- -- 220,000
---------- -------- ------- ----------
Total short-term bonds 263,400 -- -- 263,400
---------- -------- ------- ----------
Total bonds $2,026,868 $134,431 $(7,346) $2,153,953
========== ======== ======= ==========
</TABLE>
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. BONDS (CONTINUED)
The amortized cost and estimated fair value of bonds at December 31, 1999 are
shown below by contractual maturity. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call and/or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---- ----------
(IN THOUSANDS)
<S> <C> <C>
Maturities:
Due in one year or less $ 376,761 $ 376,823
Due after one year through five years 184,077 182,788
Due after five years through ten years 259,042 263,321
Due after ten years 542,678 543,301
---------- ----------
1,362,558 1,366,233
Mortgage-backed securities 171,997 179,212
---------- ----------
Total bonds $1,534,555 $1,545,445
========== ==========
</TABLE>
Proceeds from sales and maturities of investments in debt securities during
1999, 1998, and 1997 were $740,081,000, $1,016,811,000 and $980,264,000, gross
gains were $7,688,000, $17,025,000, and $10,732,000 and gross losses were
$4,477,000, $866,000, and $2,446,000, respectively.
Bonds included above with an amortized cost of approximately $2,604,000,
$2,572,000, and $2,578,000 at December 31, 1999, 1998 and 1997, respectively,
were on deposit with governmental authorities as required by law.
Excluding investments in U.S. government and agencies securities, the Company is
not exposed to significant concentrations of credit risk in its portfolio.
4. SECURITIES LENDING
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chase Manhattan Bank of New York. The custodian has
indemnified the Company against losses arising from this program. There were no
securities on loan as of December 31, 1999, 1998 or 1997. Income resulting from
this program was $20,000, $94,000, and $200,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
5. MORTGAGE LOANS
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
allowances for losses have been made. In those cases where, in management's
judgment, the mortgage loans' values are impaired, appropriate losses are
recorded.
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. MORTGAGE LOANS (CONTINUED)
The following table shows the geographical distribution of the mortgage loan
portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
California $ 72,693 $ 82,397
Massachusetts 38,083 53,528
Michigan 32,941 34,357
New York 22,912 21,190
Ohio 31,914 36,171
Pennsylvania 92,825 93,587
Washington 30,265 36,548
All other 207,278 177,225
-------- --------
$528,911 $535,003
======== ========
</TABLE>
The Company has restructured mortgage loans totaling $15,644,000 and $30,743,000
and corresponding allowances for losses of $1,043,000 and $2,120,000 at December
31, 1999 and 1998, respectively.
On December 22, 1999, the Company acquired 28 mortgages from SLOC at a cost of
$118,091,637. The Company in turn sold a 90% participation in these 28 plus an
additional 11 existing mortgage loans to a third party as part of two mortgage
participation agreements, for which the Company received proceeds of
$146,974,851.
The Company has outstanding mortgage loan commitments on real estate totaling
$2,384,000 and $18,005,000 at December 31, 1999 and 1998, respectively.
6. INVESTMENT GAINS AND LOSSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net realized gains (losses):
Bonds $ 70 $ 5,659 $ 2,882
Common stock of affiliates 15,290 -- 21,195
Common stocks -- 48 --
Mortgage loans 787 2,374 3,837
Real estate (481) 955 2,912
Other invested assets -- (3,827) (717)
-------- ------- -------
Subtotal 15,666 5,209 30,109
Capital gains tax expense (benefit) (4,442) 4,815 3,403
-------- ------- -------
Total $ 20,108 $ 394 $26,706
======== ======= =======
Changes in unrealized gains (losses):
Bonds $ (6,689) $ -- $ --
Common stock of affiliates (30,966) (302) (2,894)
Mortgage loans 83 (1,312) 1,524
Real estate 1,461 403 3,377
Other invested assets -- 827 (855)
-------- ------- -------
Total $(36,111) $ (384) $ 1,152
======== ======= =======
</TABLE>
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. INVESTMENT GAINS AND LOSSES (CONTINUED)
Realized capital gains and losses on bonds and mortgages and interest rate swaps
which relate to changes in levels of interest rates are charged or credited to
an interest maintenance reserve ("IMR") and amortized into income over the
remaining contractual life of the security sold. The net realized capital gains
credited to the interest maintenance reserve were $4,965,000 in 1999, $8,943,000
in 1998, and $6,321,000 in 1997. All gains and losses are transferred net of
applicable income taxes.
7. NET INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income from bonds $128,992 $167,436 $188,924
Income from investment in common stock of affiliates 25,819 3,675 41,181
Interest income from mortgage loans 50,327 53,269 76,073
Real estate investment income 15,696 15,932 17,161
Interest income from policy loans 3,118 2,881 3,582
Other investment income (loss) (1,700) (641) (193)
-------- -------- --------
Gross investment income 222,252 242,552 326,728
-------- -------- --------
Interest on surplus notes and notes payable (43,266) (44,903) (42,481)
Investment expenses (11,951) (13,117) (13,998)
-------- -------- --------
Net investment income $167,035 $184,532 $270,249
======== ======== ========
</TABLE>
8. DERIVATIVES
The Company uses derivative instruments for interest rate risk management
purposes, including hedges against specific interest rate risk and to minimize
the Company's exposure to fluctuations in interest rates and foreign currency
exchange rates. The Company's use of derivatives has included U.S. Treasury
futures, conventional interest rate swaps, and currency and interest rate swap
agreements structured as forward spread lock interest rate swaps.
In the case of interest rate futures, gains or losses on contracts that qualify
as hedges are deferred until the earliest of the completion of the hedging
transaction, determination that the transaction will no longer take place, or
determination that the hedge is no longer effective. Upon completion of the
hedge, where it is impractical to allocate gains or losses to specific hedged
assets or liabilities, gains or losses are deferred in IMR and amortized over
the remaining life of the hedged assets. At December 31, 1999 and 1998, there
were no futures contracts outstanding.
In the case of interest rate and foreign currency swap agreements and forward
spread lock interest rate swap agreements, gains or losses on terminated swaps
are deferred in IMR and amortized over the shorter of the remaining life of the
hedged asset or the remaining term of the swap contract. The net differential to
be paid or received on interest rate swaps is recorded monthly as interest rates
change.
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. DERIVATIVES (CONTINUED)
The Company's open positions are as follows:
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1999
--------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
----------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Conventional interest rate swaps $20,000 $249
Foreign currency swap 648 113
</TABLE>
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1998
--------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
----------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Conventional interest rate swaps $45,000 $508
Foreign currency swap 1,178 263
</TABLE>
The market value of swaps is the estimated amount that the Company would receive
or pay on termination or sale, taking into account current interest rates and
the current creditworthiness of the counterparties. The Company is exposed to
potential credit loss in the event of nonperformance by counterparties. The
counterparties are major financial institutions and management believes that the
risk of incurring losses related to credit risk is remote.
9. LEVERAGED LEASES
The Company is a lessor in a leveraged lease agreement entered into on
October 21, 1994, under which equipment having an estimated economic life of
25-40 years was leased for a term of 9.75 years. The Company's equity investment
represented 22.9% of the purchase price of the equipment. The balance of the
purchase price was furnished by third-party long-term debt financing,
collateralized by the equipment and non-recourse to the Company. At the end of
the lease term, the Master Lessee may exercise a fixed price purchase option to
purchase the equipment.
The Company's net investment in leveraged leases is composed of the following
elements:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---- ----
(IN THOUSANDS)
<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 leveraged leases 33,359 32,235
Less fees (113) (138)
-------- --------
Net investment in leveraged leases $ 33,246 $ 32,097
======== ========
</TABLE>
The net investment is included in "Other invested assets" on the balance sheet.
65
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. REINSURANCE
The Company has agreements with SLOC which provide that SLOC will reinsure the
mortality risks of the individual life insurance contracts sold by the Company.
Under these agreements basic death benefits and supplementary benefits are
reinsured on a yearly renewable term basis and coinsurance basis, respectively.
Reinsurance transactions under these agreements had the effect of decreasing
income from operations by approximately $1,527,000, $2,128,000 and $1,381,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
Effective January 1, 1991, the Company entered into an agreement with SLOC under
which certain individual life insurance contracts issued by SLOC were reinsured
by the Company on a 90% coinsurance basis. During 1997, SLOC changed certain
assumptions used in determining the gross and the ceded reserve balance. The
Company reflected the effect of the changes in assumptions to its assumed
reserves as a direct credit to surplus. The effect of the change was a
$39,016,000 decrease in reserves. Also, the agreement required SLOC to reinsure
the mortality risks in excess of $500,000 per policy for the individual life
insurance contracts assumed by the Company. Such death benefits are reinsured on
a yearly renewable term basis. The life reinsurance assumed agreement required
the reinsurer to withhold funds in amounts equal to the reserves assumed. These
agreements had the effect of increasing income from operations by approximately
$24,579,000, and $37,050,000 for the years ended December 31, 1998 and 1997,
respectively. The Company terminated this agreement effective October 1, 1998,
resulting in an increase in income from operations of $65,679,000 which included
a cash settlement.
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1999, 1998 and 1997 before the effect of
reinsurance transactions with SLOC:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $2,874,513 $2,377,364 $2,340,733
Net investment income and realized gains 190,845 187,208 298,120
---------- ---------- ----------
Subtotal 3,065,358 2,564,572 2,638,853
---------- ---------- ----------
Benefits and Expenses:
Policyholder benefits 2,709,712 2,312,247 2,350,354
Other expenses 239,282 203,238 187,591
---------- ---------- ----------
Subtotal 2,948,994 2,515,485 2,537,945
---------- ---------- ----------
Income from operations $ 116,364 $ 49,087 $ 100,908
========== ========== ==========
</TABLE>
The Company has an agreement with an unrelated company which provides
reinsurance of certain individual life insurance contracts on a modified
coinsurance basis and under which all deficiency reserves related to these
contracts are reinsured. Reinsurance transactions under this agreement had the
effect of increasing income from operations by $193,000 in 1999, $3,008,000 in
1998, and decreasing income from operations by $2,658,000 in 1997.
During 1999 the Company entered into an agreement with an unrelated company
which provides reinsurance on certain fixed group annuity contracts. The net
effect of this agreement was to increase income from operations by approximately
$3,400,000. 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 net effect of these agreements was to increase income from
operations by approximately $157,000.
66
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. REINSURANCE (CONTINUED)
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.
11. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES
The withdrawal characteristics of general account and separate account annuity
reserves and deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
AMOUNT % OF TOTAL
------ ----------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 2,346,853 13
At market value 15,010,696 81
At book value less surrender charges (surrender charge
>5%) 45,722 --
At book value (minimal or no charge or adjustment) 104,539 1
Not subject to discretionary withdrawal provision 1,015,108 5
----------- ---
Total annuity actuarial reserves and deposit liabilities $18,522,918 100
=========== ===
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
AMOUNT % OF TOTAL
------ ----------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 2,896,529 19
At market value 11,368,059 73
At book value less surrender charges (surrender charge
>5%) 62,404 --
At book value (minimal or no charge or adjustment) 111,757 1
Not subject to discretionary withdrawal provision 1,055,642 7
----------- ---
Total annuity actuarial reserves and deposit liabilities $15,494,391 100
=========== ===
</TABLE>
12. SEGMENT INFORMATION
The Company offers financial products and services such as fixed and variable
annuities, retirement plan services and life insurance on an individual basis.
Within these areas, the Company conducts business principally in two operating
segments and maintains a corporate segment to provide for the capital needs of
the various operating segments and to engage in other financing related
activities.
The 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
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.
67
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
12. SEGMENT INFORMATION (CONTINUED)
The following amounts pertain to the various business segments:
<TABLE>
<CAPTION>
FEDERAL
TOTAL TOTAL PRETAX INCOME TOTAL
REVENUES EXPENDITURES* INCOME TAX ASSETS
---------- ------------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999
Protection $ 33,236 $ 41,030 $ (7,794) $ (2,661) $ 136,127
Wealth Management 2,979,450 2,898,158 81,292 18,593 19,015,394
Corporate 27,301 6,070 21,231 8,547 796,634
---------- ---------- -------- -------- -----------
Total $3,039,987 $2,945,258 $ 94,729 $ 24,479 $19,948,155
---------- ---------- -------- -------- -----------
1998
Protection $ 229,710 $ 144,800 $ 84,910 $ (4,148) $ 199,683
Wealth Management 2,527,608 2,483,715 43,893 12,486 16,123,905
Corporate 10,959 3,042 7,917 3,375 579,033
---------- ---------- -------- -------- -----------
Total $2,768,277 $2,631,557 $136,720 $ 11,713 $16,902,621
---------- ---------- -------- -------- -----------
1997
Protection $ 304,141 $ 272,333 $ 31,808 $ 13,825 $ 1,143,697
Wealth Management 2,533,006 2,507,592 25,414 10,667 14,043,221
Corporate 57,897 5,244 52,653 (17,153) 738,439
---------- ---------- -------- -------- -----------
Total $2,895,044 $2,785,169 $109,875 $ 7,339 $15,925,357
---------- ---------- -------- -------- -----------
</TABLE>
- ------------------------
* Total expenditures includes dividends to policyholders of $0 for 1999,
$(5,981) for 1998, and $33,316 for 1997.
13. RETIREMENT PLANS
The Company participates with SLOC in a noncontributory defined benefit pension
plan covering essentially all employees. The benefits are based on years of
service and compensation.
The funding policy for the pension plan is to contribute an amount, which at
least satisfies the minimum amount required by ERISA; currently, the plan is
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of
separate accounts of SLOC.
The Company's share of the group's accrued pension obligation was $1,914,000,
and $1,178,000 at December 31, 1999 and 1998, respectively. The Company's share
of net periodic pension cost was $736,000, $586,000, and $146,000 for 1999, 1998
and 1997, respectively.
The Company also participates with SLOC and certain affiliates in a 401(k)
savings plan for which substantially all employees are eligible. The Company
matches, up to specified amounts, employees' contributions to the plan. Company
contributions were $284,000, $231,000, and $259,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to pension benefits the Company provides certain health, dental, and
life insurance benefits ("post-retirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount.
68
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
13. RETIREMENT PLANS (CONTINUED)
The Company records an accrual of the estimated cost of retiree benefit payments
during the years the employee provides services, and amortizes an obligation of
approximately $400,000 over a period of ten years. The Company's cash flows are
not affected by this method, however the net effect decreased income by
$185,000, $95,000, and $117,000, for the years ended December 31, 1999, 1998,
and 1997, respectively. The Company's post-retirement health, dental and life
insurance benefits currently are not funded.
The following table sets forth the change in the pension and other
post-retirement benefit plans' benefit obligations and assets as well as the
plans' funded status reconciled with the amount shown in the Company's financial
statements at December 31:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $110,792 $ 79,684 $ 10,419 $ 9,845
Service cost 5,632 4,506 413 240
Interest cost 6,952 6,452 845 673
Actuarial loss (gain) (21,480) 21,975 1,048 308
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Benefit obligation at end of year $ 99,520 $110,792 $ 12,217 $ 10,419
======== ======== ======== ========
The Company's share:
Benefit obligation at beginning of year $ 9,125 $ 5,094 $ 416 $ 385
Benefit obligation at end of year $ 8,816 $ 9,125 $ 743 $ 416
Change in plan assets:
Fair value of plan assets at beginning of year $151,575 $136,610 $ -- $ --
Actual return on plan assets 9,072 16,790 -- --
Employer contribution -- -- 508 647
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Fair value of plan assets at end of year $158,271 $151,575 $ -- $ --
======== ======== ======== ========
Funded status $ 58,752 $ 40,783 $(12,217) $(10,419)
Unrecognized net actuarial gain (loss) (20,071) (2,113) 1,469 586
Unrecognized transition obligation (asset) (22,617) (24,674) 140 185
Unrecognized prior service cost 7,081 7,661 -- --
-------- -------- -------- --------
Prepaid (accrued) benefit cost $ 23,145 $ 21,657 $(10,608) $ (9,648)
======== ======== ======== ========
The Company's share of accrued benefit cost $ (1,914) $ (1,178) $ (381) $ (195)
Weighted-average assumptions as of December 31:
Discount rate 7.50% 6.75% 7.50% 6.75%
Expected return on plan assets 8.75% 8.00% N/A N/A
Rate of compensation increase 4.50% 4.50% N/A N/A
</TABLE>
69
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
13. RETIREMENT PLANS (CONTINUED)
For measurement purposes, a 10.9% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999 (5.6% for dental benefits).
The rates were assumed to decrease gradually to 5% for 2005 and remain at that
level thereafter.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 5,632 $ 4,506 $ 413 $ 240
Interest cost 6,952 6,452 845 673
Expected return on plan assets (12,041) (10,172) -- --
Amortization of transition obligation (asset) (2,056) (2,056) 45 45
Amortization of prior service cost 580 580 -- --
Recognized net actuarial (gain) loss (554) (677) 164 (20)
-------- ------- ------ ------
Net periodic benefit cost $ (1,487) $(1,367) $1,467 $ 938
======== ======= ====== ======
The Company's share of net periodic benefit cost $ 736 $ 586 $ 185 $ 95
======== ======= ====== ======
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components $ 288 $ (518)
Effect on postretirement benefit obligation 2,754 (2,279)
</TABLE>
70
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1999
-------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
--------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Bonds (including short-term) $1,534,555 $1,545,445
Mortgages 528,911 526,608
Derivatives -- 362
Other Invested Assets 67,938 67,938
Policy loans 40,095 40,095
LIABILITIES:
Insurance reserves $ 120,536 $ 120,536
Individual annuities 247,619 238,229
Pension products 661,806 665,830
<CAPTION>
1998
-------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
--------------- --------------------
(IN THOUSANDS)
ASSETS:
<S> <C> <C>
Bonds (including short-term) $2,026,868 $2,153,953
Mortgages 535,003 556,143
Derivatives -- 771
Policy loans 41,944 41,944
LIABILITIES:
Insurance reserves $ 121,100 $ 121,100
Individual annuities 274,448 271,849
Pension products 1,104,489 1,145,351
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
by taking into account prices for publicly traded bonds of similar credit risk
and maturity and repayment and liquidity characteristics.
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
The fair values of policy loans approximate carrying amounts.
The fair values of derivative financial instruments are estimated using the
process described in Note 8.
The fair values of the Company's general account insurance reserves and
liabilities under investment-type contracts (insurance, annuity and pension
contracts that do not involve mortality or morbidity risks) are estimated using
discounted cash flow analyses or surrender values. Those contracts that are
deemed to have short-term guarantees have a carrying amount equal to the
estimated fair value.
71
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
15. STATUTORY INVESTMENT VALUATION RESERVES
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, stocks, mortgage loans, real estate and other invested
assets with related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve and amortized into income over the remaining contractual life of the
security sold.
The table shown below presents changes in the major elements of the AVR and IMR.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
------------------- -------------------
AVR IMR AVR IMR
--- --- --- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of year $44,392 $40,490 $47,605 $33,830
Net realized investment gains, net of tax 9,950 4,983 256 8,942
Amortization of net investment gains -- (3,702) -- (2,282)
Unrealized investment losses (9,705) -- (6,550) --
Required by formula (566) -- 3,081 --
------- ------- ------- -------
Balance, end of year $44,071 $41,771 $44,392 $40,490
======= ======= ======= =======
</TABLE>
16. FEDERAL INCOME TAXES
The Company, its subsidiaries and certain other affiliates file a consolidated
federal income tax return. Federal income taxes are calculated for the
consolidated group based upon amounts determined to be payable as a result of
operations within the current year. No provision is recognized for timing
differences which may exist between financial statement and taxable income. Such
timing differences include reserves, depreciation and accrual of market discount
on bonds. Cash payments for federal income taxes were approximately $3,000,000,
$48,144,000, and $31,000,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company is currently undergoing an audit by the Internal Revenue Service.
The Company believes that there will be no material audit adjustments for the
periods under examination.
17. RELATED PARTY TRANSACTIONS
A. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE)
On December 22, 1997, the Company issued a $250,000,000 surplus note to Life
Holdco. This note has an interest rate of 8.625% and is due on or after
November 6, 2027.
On May 9, 1997, the Company issued a short-term note of $600,000,000 to Life
Holdco at an interest rate of 5.10%, which was extended at various interest
rates. This note was repaid on December 22, 1997.
On December 19, 1995, the Company issued surplus notes totaling $315,000,000 to
an affiliate, Sun Canada Financial Co., at interest rates between 5.75% and
7.25%. Of these notes, $157,500,000 will mature in the year 2007 and
$157,500,000 will mature in the year 2015. Interest on these notes is payable
semiannually.
Principal and interest on surplus notes are payable only to the extent that the
Company meets specified requirements regarding free surplus exclusive of the
principal amount and accrued interest, if any, on these notes and with the
consent of the Delaware Insurance Commissioner.
The Company accrued $4,259,000 and $4,259,000 for interest on surplus notes for
the years ended December 31, 1999 and 1998, 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 STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
17. RELATED PARTY TRANSACTIONS
A. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE) (CONTINUED)
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.
On September 28, 1998 a $500,000 note was issued by SLISL to the Company at a
rate of 6.0%, maturing on September 28, 2002.
A $110,000,000 note was issued to the Company by MFS on February 11, 1998 at an
interest rate of 6.0% due February 11, 1999. Another $110,000,000 note was
issued to the Company on December 22, 1998 at an interest rate of 5.55% due
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 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 January 14, 2000, the Company purchased $200,000,000 of notes from MFS.
On December 23, 1997, the Company issued a $110,000,000 note to US Holdco at an
interest rate of 5.80%, which was repaid on March 1, 1998. A $110,000,000 note
was also issued to the Company by MFS on December 23, 1997 at an interest rate
of 5.85% and was repaid on February 11, 1998.
On December 31, 1996, the Company issued a $58,000,000 note to SLOC at an
interest rate of 5.70% which was repaid on February 10, 1997. Also on December
31, 1996, the Company was issued a $58,000,000 note by MFS at an interest rate
of 5.76%. This note was repaid to the Company on February 10, 1997.
On December 31, 1998, the Company had an additional $20,000,000 in notes issued
by MFS, scheduled to mature in 2000. These notes were repaid to the Company on
December 21,1999.
B. STOCKHOLDER DIVIDENDS
The maximum amount of dividends which can be paid by the Company without prior
approval of the Insurance Commissioner of the State of Delaware is subject to
restrictions relating to statutory surplus. In 1999, a dividend in the amount of
$80,000,000 was declared and paid by the Company to its parent, Life Holdco.
This dividend was approved by the Board of Directors, but did not require
approval of the Insurance Commissioner. In 1998, a dividend in the amount of
$50,000,000 was declared and paid by the Company to its parent, Life Holdco.
This dividend was approved by the Insurance Commissioner and the Board of
Directors. On December 24, 1997 the Company transferred all of its shares of MFS
to Life Holdco in the form of a dividend valued at $159,722,000. This dividend
was approved by the Insurance Commissioner and the Board of Directors.
C. SERVICE AGREEMENTS
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 $28,700,000 in 1999, $16,344,000 in 1998, and $15,997,000 in 1997.
The Company leases office space to SLOC under lease agreements with terms
expiring in December, 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 1999 amounted to approximately $6,943,000.
18. RISK-BASED CAPITAL
Effective December 31, 1993, the NAIC adopted risk-based capital requirements
for life insurance companies. The risk-based capital requirements provide a
method for measuring the minimum acceptable amount of adjusted capital that a
life insurer should have, as determined under statutory accounting
73
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
18. RISK-BASED CAPITAL (CONTINUED)
practices, taking into account the risk characteristics of its investments and
products. The Company has met the minimum risk-based capital requirements at
December 31, 1999, 1998 and 1997.
19. 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 or 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 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.
20. ACCOUNTING POLICIES AND PRINCIPLES
The financial statements of the Company have been prepared on the basis of
statutory accounting practices which, prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting practices and GAAP are described as follows. Under statutory
accounting practices, financial statements are not consolidated and investments
in subsidiaries are shown at net equity value. Accordingly, the assets,
liabilities and results of operations of the Company's subsidiaries are not
consolidated with the assets, liabilities and results of operations,
respectively, of the Company. Changes in net equity value of the common stock of
the Company's United States life insurance subsidiaries are directly reflected
in the Company's surplus. Changes in the net equity value of the common stock of
all other subsidiaries are directly reflected in the Company's Asset Valuation
Reserve. Dividends paid by subsidiaries to the Company are included in the
Company's net investment income.
Other differences between statutory accounting practices and GAAP include the
following items. Statutory accounting practices do not recognize the following
assets or liabilities which are reflected under GAAP: deferred policy
acquisition costs, deferred federal income taxes and statutory nonadmitted
assets. Asset Valuation Reserves and Interest Maintenance Reserves are
established under statutory accounting practices but not under GAAP. Methods for
calculating real estate depreciation and investment valuation allowances differ
under statutory accounting practices and GAAP. Actuarial assumptions and
reserving methods differ under statutory accounting practices and GAAP. Premiums
for universal life and investment-type products are recognized as income for
statutory purposes and as deposits to policyholders' accounts for GAAP.
Investments in fixed maturity securities classified as available-for-sale are
carried at aggregate fair value with changes in unrealized gains and losses
reported net of taxes in a separate component of stockholder's equity for GAAP
and generally at amortized cost under statutory accounting practices.
74
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital stock and surplus of Sun Life Assurance Company of
Canada (U.S.) (the "Company") as of December 31, 1999 and 1998, and the related
statutory statements of operations, changes in capital stock and surplus, and
cash flow for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Notes 1 and 20 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware,
which is a comprehensive basis of accounting other than generally accepted
accounting principles. The effects on the financial statements of the
differences between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the statutory financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities, and capital
stock and surplus of Sun Life Assurance Company of Canada (U.S.) as of
December 31, 1999 and 1998, and the results of its operations and its cash flow
for each of the three years in the period ended December 31, 1999 on the basis
of accounting described in Notes 1 and 20.
However, because of the differences between the two bases of accounting referred
to in the second preceding paragraph, in our opinion, the statutory financial
statements referred to above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of Sun Life Assurance
Company of Canada (U.S.) as of December 31, 1999 and 1998 or the results of its
operations or its cash flow for each of the three years in the period ended
December 31, 1999.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 2000
75
<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>
76
<PAGE>
This Prospectus sets forth information about the Contracts and the
Variable Account that a prospective purchaser should know before investing.
Additional information about the Contracts and the Variable Account has been
filed with the Securities and Exchange Commission in a Statement of Additional
Information dated May 1, 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.
- --------------------------------------------------------------------------------
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 Platinum Variable and Fixed Annuity
Sun Life of Canada (U.S.) Variable Account F.
Name
- --------------------------------------------------------------
Address
- --------------------------------------------------------------
-------------------------------------------------------------------------
City
- ------------------------------------ State
- -------------- Zip
- -------
Telephone
- ----------------------------------------------------------------
77
<PAGE>
APPENDIX A
GLOSSARY
The following terms as used in this Prospectus have the indicated
meanings:
ACCOUNT or PARTICIPANT ACCOUNT: An account established for each
Participant to which Net Purchase Payments are credited.
ACCOUNT VALUE: The Variable Accumulation Value, if any, plus the Fixed
Accumulation Value, if any, of your Account for any Valuation Period.
ACCOUNT YEAR and ACCOUNT ANNIVERSARY: Your first Account Year is the
period of (a) 12 full calendar months plus (b) the part of the calendar month in
which we issue your Contract (if not on the first day of the month), beginning
with the Contract Date. Your Account Anniversary is the first day immediately
after the end of an Account Year. Each Account Year after the first is the 12
calendar month period that begins on your Account Anniversary. If, for example,
the Contract Date is in March, the first Account Year will be determined from
the Contract Date but will end on the last day of March in the following year;
your Account Anniversary is April 1 and all Account Years after the first will
be measured from April 1.
ACCUMULATION PHASE: The period before the Annuity Commencement Date and
during the lifetime of the Participant during which you make Purchase Payments
under the Contract. This is called the "Accumulation Period" in the Contract.
ANNUITANT: The person or persons to whom the first annuity payment is
made. If the Annuitant dies prior to the Annuity Commencement Date, the new
Annuitant will be the Co-Annuitant, if any. If the Co-Annuitant dies or if no
Co-Annuitant is named, the Participant becomes the Annuitant upon the
Annuitant's death prior to the Annuity Commencement Date. If you have not named
a sole Annuitant on the 30th day before the Annuity Commencement Date and both
the Annuitant and Co-Annuitant are living, the Co-Annuitant will be the sole
Annuitant during the Income Phase.
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
under each Contract is to be made.
*ANNUITY OPTION: The method you choose for making annuity payments.
ANNUITY UNIT: A unit of measure used in the calculation of the amount of
the second and each subsequent Variable Annuity payment from the Variable
Account.
APPLICATION: The document signed by you or other evidence acceptable to us
that serves as your application for participation under a Group Contract or
purchase of an Individual Contract.
*BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity
having the right to receive the death benefit and, for Non-Qualified Contracts,
who, in the event of the Participant's death, is the "designated beneficiary"
for purposes of Section 72(s) of the Internal Revenue Code. After the Annuity
Commencement Date, the person or entity having the right to receive any payments
due under the Annuity Option elected, if applicable, upon the death of the
Payee.
BUSINESS DAY: Any day the New York Stock Exchange is open for trading.
CERTIFICATE: The document for each Participant which evidences the
coverage of the Participant under a Group Contract.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
CONTRACT DATE: The date on which we issue your Contract. This is called
the "Date of Coverage" in the Contract.
DEATH BENEFIT DATE: If you have elected a death benefit payment option
before your death that remains in effect, the date on which we receive Due Proof
of Death. If your Beneficiary elects the
* You specify these items on the Contract Specifications page or Certificate
Specifications page, and may change them, as we describe in this Prospectus.
78
<PAGE>
death benefit payment option, the later of (a) the date on which we receive the
Beneficiary's election and (b) the date on which we receive Due Proof of Death.
If we do not receive the Beneficiary's election within 60 days after we receive
Due Proof of Death, the Death Benefit Date will be the last day of the 60 day
period and we will pay the death benefit in cash.
DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to the
Company.
EXPIRATION DATE: The last day of a Guarantee Period.
FIXED ACCOUNT: The general account of the Company, consisting of all
assets of the Company other than those allocated to a separate account of the
Company.
FIXED ACCOUNT VALUE: The value of that portion of your Account allocated
to the Fixed Account.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar
amount.
GROUP CONTRACT: A Contract issued by the Company on a group basis.
GUARANTEE AMOUNT: Each separate allocation of Account Value to a
particular Guarantee Period (including interest earned thereon).
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is
credited.
GUARANTEED INTEREST RATE: The rate of interest we credit on a compound
annual basis during any Guarantee Period.
INCOME PHASE: The period on and after the Annuity Commencement Date and
during the lifetime of the Annuitant during which we make annuity payments under
the Contract.
INDIVIDUAL CONTRACT: A Contract issued by the Company on an individual
basis.
NET INVESTMENT FACTOR: An index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one.
NET PURCHASE PAYMENT: The portion of a Purchase Payment which remains
after the deduction of any applicable premium tax or similar tax.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement
plan that does not receive favorable federal income tax treatment under Sections
401, 403, 408, or 408A of the Internal Revenue Code. The Participant's interest
in the Contract must be owned by a natural person or agent for a natural person
for the Contract to receive income tax treatment as an annuity.
OWNER: The person, persons or entity entitled to the ownership rights
stated in a Group Contract and in whose name or names the Group Contract is
issued. The Owner may designate a trustee or custodian of a retirement plan
which meets the requirements of Section 401, Section 408(c), Section 408(k),
Section 408(p) or Section 408A of the Internal Revenue Code to serve as legal
owner of assets of a retirement plan, but the term "Owner," as used herein,
shall refer to the organization entering into the Group Contract.
PARTICIPANT: In the case of an Individual Contract, the owner of the
Contract. In the case of a Group Contract, the person named in the Contract who
is entitled to exercise all rights and privileges of ownership under the
Contract, except as reserved by the Owner.
PAYEE: A recipient of payments under a Contract. The term includes an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Participant.
PURCHASE PAYMENT (PAYMENT): An amount paid to the Company as consideration
for the benefits provided by a Contract.
79
<PAGE>
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which may receive favorable federal income tax treatment under Sections 401,
403, 408 or 408A of the Internal Revenue Code of 1986, as amended.
SERIES FUND: MFS/Sun Life Series Trust.
SEVEN-YEAR ANNIVERSARY: The seventh Account Anniversary and each
succeeding Account Anniversary occurring at any seven year interval thereafter;
for example, the 14th, 21st and 28th Account Anniversaries.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific series of the Series Fund.
VALUATION PERIOD: The period of time from one determination of Variable
Accumulation Unit or Annuity Unit values to the next subsequent determination of
these values. Value determinations are made as of the close of the New York
Stock Exchange on each day that the Exchange is open for trading.
VARIABLE ACCOUNT: Variable Account F of the Company, which is a separate
account of the Company consisting of assets set aside by the Company, the
investment performance of which is kept separate from that of the general assets
of the Company.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of
Variable Account Value.
VARIABLE ACCOUNT VALUE: The value of that portion of your Account
allocated to the Variable Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount
in relation to the investment performance of the Variable Account.
80
<PAGE>
APPENDIX B
CONDENSED FINANCIAL INFORMATION--ACCUMULATION UNIT VALUES
The following information should be read in conjunction with the Variable
Account's financial statements appearing in the Statement of Additional
Information, all of which has been audited by Deloitte & Touche LLP, independent
auditors.
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998* 1999
------------ ------------
<S> <C> <C>
BOND SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.4201
End of period................................. $ 10.4201 $ 10.0963
Units outstanding at end of period.............. 628,000 2,970,448
CAPITAL APPRECIATION SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 11.3405
End of period................................. $ 11.3405 $ 14.8295
Units outstanding at end of period.............. 1,683,164 10,770,738
CAPITAL OPPORTUNITIES SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.8048
End of period................................. $ 10.8048 $ 15.7265
Units outstanding at end of period.............. 556,955 6,088,167
EMERGING GROWTH SERIES
Unit Value:
Beginning of period $ 10.0000 $ 11.5819
End of period................................. $ 11.5819 $ 20.0771
Units outstanding at end of period.............. 1,651,404 9,952,208
EMERGING MARKETS EQUITY SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 8.1616
End of period................................. $ 8.1616 $ 12.2711
Units outstanding at end of period.............. 72,586 471,834
EQUITY INCOME SERIES
Unit Value:
Beginning of period $ 10.0000 $ 10.5234
End of period................................. $ 10.5234 $ 11.1059
Units outstanding at end of period.............. 272,362 2,322,545
GLOBAL ASSET ALLOCATION SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 9.7081
End of period................................. $ 9.7081 $ 11.3461
Units outstanding at end of period.............. 228,839 502,791
GLOBAL GOVERNMENTS SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 11.2639
End of period................................. $ 11.2639 $ 10.5290
Units outstanding at end of period.............. 76,270 301,714
GLOBAL GROWTH SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.2820
End of period................................. $ 10.2820 $ 16.9623
Units outstanding at end of period.............. 162,856 1,328,571
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998* 1999
------------ ------------
<S> <C> <C>
GLOBAL TOTAL RETURN SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.4567
End of period................................. $ 10.4567 $ 11.1787
Units outstanding at end of period.............. 152,857 901,334
GOVERNMENT SECURITIES SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.4116
End of period................................. $ 10.4116 $ 10.0675
Units outstanding at end of period.............. 816,102 6,917,529
HIGH YIELD SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 9.5030
End of period................................. $ 9.5030 $ 10.0101
Units outstanding at end of period.............. 1,000,705 5,126,512
INTERNATIONAL GROWTH SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 9.3254
End of period................................. $ 9.3254 $ 12.4412
Units outstanding at end of period.............. 338,938 1,960,439
INTERNATIONAL GROWTH AND INCOME SERIES
Unit Value:
Beginning of period........................... $ 10.000 $ 10.3378
End of period................................. $ 10.3378 $ 11.9538
Units outstanding at end of period.............. 199,346 904,331
MANAGED SECTORS SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.5861
End of period................................. $ 10.5861 $ 19.3732
Units outstanding at end of period.............. 211,044 2,096,399
MASSACHUSETTS INVESTORS GROWTH STOCK SERIES
Unit Value:
Beginning of period $ 10.0000 $ 11.9094
End of period................................. $ 11.9094 $ 15.9430
Units outstanding at end of period.............. 2,428,134 20,741,206
MASSACHUSETTS INVESTORS TRUST SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.7939
End of period................................. $ 10.7939 $ 11.4075
Units outstanding at end of period.............. 5,331,018 36,443,681
MONEY MARKET SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.1878
End of period................................. $ 10.1878 $ 10.5145
Units outstanding at end of period.............. 886,479 4,848,739
NEW DISCOVERY SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.4124
End of period................................. $ 10.4124 $ 16.4450
Units outstanding at end of period.............. 436,178 2,064,540
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998* 1999
------------ ------------
<S> <C> <C>
RESEARCH SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 11.0189
End of period................................. $ 11.0189 $ 13.4883
Units outstanding at end of period.............. 1,751,713 9,822,632
RESEARCH GROWTH AND INCOME SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.3415
End of period................................. $ 10.3415 $ 11.0284
Units outstanding at end of period.............. 387,080 2,692,647
RESEARCH INTERNATIONAL SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 9.4845
End of period................................. $ 9.4845 $ 14.4906
Units outstanding at end of period.............. 181,131 914,188
STRATEGIC GROWTH SERIES
Unit Value:
Beginning of period........................... -- $ 10.0448*
End of period................................. -- $ 12.0212
Units outstanding at end of period.............. -- 189,701
STRATEGIC INCOME SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 9.8713
End of period................................. $ 9.8713 $ 12.0212
Units outstanding at end of period.............. 157,634 987,192
TOTAL RETURN SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.2907
End of period................................. $ 10.2907 $ 10.4327
Units outstanding at end of period.............. 2,318,847 17,437,345
UTILITIES SERIES
Unit Value:
Beginning of period........................... $ 10.0000 $ 10.9233
End of period................................. $ 10.9233 $ 14.1367
Units outstanding at end of period.............. 819,649 6,397,913
</TABLE>
- ------------------------
* Unit value on date of commencement of operations of the respective
Sub-Account.
83
<PAGE>
APPENDIX C
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: VARIABLE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
VARIABLE ACCOUNT)
WITHDRAWAL CHARGE CALCULATION:
FULL WITHDRAWAL:
Assume a Purchase Payment of $40,000 is made on the Contract Date, no
additional Purchase Payments are made and there are no partial withdrawals. The
table below presents four examples of the withdrawal charge resulting from a
full withdrawal of your Account, based on hypothetical Account Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE NEW WITHDRAWAL WITHDRAWAL
ACCOUNT ACCOUNT WITHDRAWAL PAYMENTS CHARGE CHARGE
YEAR VALUE AMOUNT WITHDRAWN PERCENTAGE AMOUNT
-------- ------------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(a) 1 $41,000 $ 4,000 $37,000 6.00% $2,220
(b) 3 $52,000 $12,000 $40,000 5.00% $2,000
(c) 7 $80,000 $28,000 $40,000 3.00% $1,200
(d) 9 $98,000 $68,000 0 0.00% 0
</TABLE>
(a) The free withdrawal amount in any Account Year is equal to (1) the Annual
Withdrawal Allowance for that year (i.e., 10% of all Purchase Payments made
in the last 7 Account Years ("New Payments")); plus (2) any unused Annual
Withdrawal Allowances from previous years; plus (3) any Purchase Payments
made before the last 7 Account Years ("Old Payments") not previously
withdrawn. In Account Year 1, the free withdrawal amount is $4,000 (the
Annual Withdrawal Allowance for that year) because there are no unused
Annual Withdrawal Allowances from previous years and no Old Payments. The
$41,000 full withdrawal is attributed first to the $4,000 free withdrawal
amount. The remaining $37,000 is withdrawn from the Purchase Payment made in
Account Year 1 and is subject to the withdrawal charge.
(b) In Account Year 3, the free withdrawal amount is $12,000 (the $4,000 Annual
Withdrawal Allowance for the current year plus the unused $4,000 Annual
Withdrawal Allowances for each of Account Years 1 and 2). The $52,000 full
withdrawal is attributed first to the free withdrawal amount and the
remaining $40,000 is withdrawn from the Purchase Payment made in Account
Year 1.
(c) In Account Year 7, the free withdrawal amount is $28,000 (the $4,000 Annual
Withdrawal Allowance for the current Account Year plus the unused Annual
Withdrawal Allowance of $4,000 for each of Account Years 1 through 6). The
$80,000 full withdrawal is attributed first to the free withdrawal amount.
The next $40,000 is withdrawn from the Purchase Payment made in Account Year
1 and is subject to the withdrawal charge. The remaining $12,000 exceeds the
total of the free withdrawal amount plus all New Payments not previously
withdrawn, so it is not subject to the withdrawal charge.
(d) In Account Year 9, the free withdrawal amount is $68,000, calculated as
follows. There are no Annual Withdrawal Allowances for Account Years 8 or 9
because there are no New Payments in those years. The $40,000 Purchase
Payment made in Account Year 1 is now an Old Payment that constitutes a
portion of the free withdrawal amount. In addition, the unused Annual
Withdrawal Allowances of $4,000 for each of Account Years 1 through 7 are
carried forward and available for use in Account Year 9. The $98,000 full
withdrawal is attributed first to the free withdrawal amount. Because the
remaining $30,000 is not withdrawn from New Payments, this part of the
withdrawal also will not be subject to the withdrawal charge.
84
<PAGE>
PARTIAL WITHDRAWAL:
Assume a single Purchase Payment of $40,000 is made on the Contract Date,
no additional Purchase Payments are made, no partial withdrawals have been taken
prior to the fifth Account Year, and there are a series of 3 partial withdrawals
made during the fifth Account Year of $9,000, $12,000, and $15,000.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL FREE NEW WITHDRAWAL WITHDRAWAL
ACCOUNT WITHDRAWAL WITHDRAWAL PAYMENTS CHARGE CHARGE
VALUE AMOUNT AMOUNT WITHDRAWN PERCENTAGE AMOUNT
------------ ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(a) $64,000 $ 9,000 $20,000 $ 0 4.00% $ 0
(b) $56,000 $12,000 $11,000 $ 1,000 4.00% $ 40
(c) $40,000 $15,000 $ 0 $15,000 4.00% $600
</TABLE>
(a) In the fifth Account Year, the free withdrawal amount is equal to $20,000
(the $4,000 Annual Withdrawal Allowance for the current year, plus the
unused $4,000 for each of the Account Years 1 through 4). The partial
withdrawal amount ($9,000) is less than the free withdrawal amount so no New
Payments are withdrawn and no withdrawal charge applies.
(b) Since a partial withdrawal of $9,000 was taken, the remaining free
withdrawal amount is equal to $11,000. The $12,000 partial withdrawal will
first be applied against the $11,000 free withdrawal amount. The remaining
$1,000 will be withdrawn from the $40,000 New Payment, incurring a
withdrawal charge of $40.
(c) The free withdrawal amount is zero since the previous partial withdrawals
have already used the free withdrawal amount. The entire partial withdrawal
amount will result in New Payments being withdrawn and will incur a
withdrawal charge.
PART 2 -- FIXED ACCOUNT -- EXAMPLES OF THE MARKET VALUE ADJUSTMENT ("MVA")
The MVA Factor is:
N/12
1 + I
( -------- ) -1
1 + J + b
These examples assume the following:
1) The Guarantee Amount was allocated to a five year Guarantee Period
with a Guaranteed Interest Rate of 6% or .06.
2) The date of surrender is 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.
6) Withdrawal charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
85
<PAGE>
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of surrender, the current rate (J) is 8% or .08
and the b factor is zero.
N/12
1 + I
The MVA factor = ( -------- ) -1
1 + J + b
24/12
1 + .06
= ( ------ ) -1
1 + .08
= (.981)2 -1
= .963 -1
= - .037
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.
N/12
1 + I
The MVA factor = ( -------- ) -1
1 + J + b
24/12
1 + .06
= ( ------ ) -1
1 + .05
= (1.010)2 -1
= 1.019 -1
= .019
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.
86
<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
PLAT-1 5/2000
</TABLE>
<PAGE>
Rule 497(c)
File No. 33-41628
811-05846
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
MAY 1, 2000
PROFILE
FUTURITY II
VARIABLE AND FIXED
ANNUITY
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU
SHOULD KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE
FULLY DESCRIBED IN THE FULL PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE
READ THE PROSPECTUS CAREFULLY.
1. THE FUTURITY II ANNUITY
The Futurity II Annuity is a flexible payment deferred annuity contract
("Contract") designed for use in connection with retirement and deferred
compensation plans, some of which may qualify for favorable federal income tax
treatment. The Contract is intended to help you achieve your retirement savings
or other long-term investment goals.
The Contract has two phases: an Accumulation Phase and an Income Phase.
During the Accumulation Phase, you make payments into the Contract; any
investment earnings under your Contract accumulate on a tax-deferred basis and
are taxed as income only when withdrawn. During the Income Phase, we make
annuity payments in amounts determined in part by the amount of money you have
accumulated under your Contract during the Accumulation Phase. You choose when
the Income Phase begins.
You may choose among 39 variable investment options and a range of fixed
interest options. For a variable investment return you choose one or more
Sub-Accounts in our Variable Account, each of which invests in shares of a
corresponding mutual fund or series thereof (collectively, the "Funds") listed
in Section 4. The value of any portion of your Contract allocated to the
Sub-Accounts will fluctuate up or down depending on the performance of the Funds
you select, and you may experience losses. For a fixed interest rate, you may
choose one or more Guarantee Periods offered in our Fixed Account, each of which
earns its own Guaranteed Interest Rate if you keep your money in that Guarantee
Period for the specified length of time.
The Contract is designed to meet your need for investment flexibility.
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 5, 10, 15 or 20 years if
you die before the end of the period you have selected; (3) monthly payments for
your lifetime and the life of another person (usually your spouse) you have
chosen; and (4) monthly payments for a specified number of years (between 5 and
30), with a cash-out option for variable payments. We may also agree to other
annuity options in our discretion.
<PAGE>
Once the Income Phase begins, you cannot change your choice of annuity
payment method.
2
<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. If you own a
Contract issued in the State of Oregon, you may increase the value of your
investment only during the first 3 Account Years, rather than at any time during
the Accumulation Phase. We will not accept a purchase payment if your Account
Value is over $1 million, or if the purchase payment would cause your Account
Value to exceed $1 million, unless we have approved the payment in advance, and
we will not accept any purchase payment as of the fourth Account Anniversary if
you own a Contract issued in Oregon.
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
Alger American Growth Portfolio Series
Alger American Income and Growth Portfolio Massachusetts Investors Trust Series
Alger American Small Capitalization Portfolio New Discovery Series
GOLDMAN SACHS VARIABLE INSURANCE TRUST ("VIT") Total Return Series
VIT CORE-SM- Large Cap Growth Fund Utilities Series
VIT CORE-SM- Small Cap Equity Fund OCC ACCUMULATION TRUST
VIT CORE-SM- U.S. Equity Fund Equity Portfolio
VIT Growth and Income Fund Managed Portfolio
VIT International Equity Fund Mid Cap Portfolio
J.P. MORGAN SERIES TRUST II Small Cap Portfolio
J.P. Morgan International Opportunities SUN CAPITAL ADVISERS TRUST
Portfolio Sun Capital Blue Chip Mid Cap Fund
J.P. Morgan Small Company Portfolio Sun Capital Investment Grade Bond Fund
J.P. Morgan U.S. Disciplined Equity Portfolio Sun Capital Investors Foundation Fund
LORD ABBETT SERIES FUND, INC. Sun Capital Money Market Fund
Growth & Income Portfolio Sun Capital Real Estate Fund
Sun Capital Select Equity Fund
WARBURG PINCUS TRUST
Emerging Markets Portfolio
Global Post-Venture Capital Portfolio
International Equity Portfolio
Small Company Growth Portfolio
</TABLE>
Market conditions will determine the value of an investment in any Fund.
Each Fund is described in the relevant Fund prospectus.
In addition to these variable options, you may also allocate your money to
one or more of the Guarantee Periods we make available. For each Guarantee
Period, we offer a Guaranteed Interest Rate for the specified length of time.
3
<PAGE>
5. EXPENSES
The charges under the Contracts are as follows:
During the first 5 years of a Contract, we impose an annual Account Fee
equal to the lesser of $35 or 2% of the value of your Contract. After the fifth
year, we may change this fee annually, but it will never exceed the lesser of
$50 or 2% of the value of your Contract. During the Income Phase, the annual
Account Fee is $35. We also deduct insurance charges (which include an
administrative expense charge) equal to 1.40% per year of the average daily
value of the Contract allocated among the Sub-Accounts.
There are no sales charges when you purchase your 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 seven-year period and moves down a
declining surrender charge scale at each Account Anniversary. Payments received
during the current Account Year will be charged 6% 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 5% withdrawal charge. On the next Account Anniversary, these
payments will move into their third Account Year and will have a withdrawal
charge of 5%, if withdrawn. The withdrawal charge decreases according to the
number of Account Years the purchase payment has been in your Account. The
declining scale is as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS
PURCHASE PAYMENT
HAS BEEN IN
YOUR ACCOUNT WITHDRAWAL CHARGE
- ---------------- -----------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
</TABLE>
If you withdraw, transfer, or annuitize money allocated to a Guarantee
Period more than 30 days before the expiration date of the Guarantee Period, the
amount will be subject to a Market Value Adjustment (except that no Market Value
Adjustment will apply to Contracts issued in California on or after October 8,
1999). This adjustment reflects the relationship between our current Guaranteed
Interest Rates and the Guaranteed Interest Rate applicable to the amount being
withdrawn. Generally, if your Guaranteed Interest Rate is lower than the
relevant current rate, then the adjustment will decrease your Contract value.
Conversely, if your Guaranteed Interest Rate is higher than the relevant current
rate, the adjustment will increase your Contract value. The Market Value
Adjustment will not apply to the withdrawal of interest credited during the
current year, or to transfers as part of our dollar cost averaging program.
In addition to the charges we impose under the Contracts, there are
charges (which include management fees and operating expenses) imposed by each
Fund, which range from 0.59% to 1.40% of the average net assets of the Fund,
depending upon which Fund you have selected. The investment advisers to some of
the Funds have agreed to waive or reimburse a portion of Fund expenses; without
this agreement, Fund expenses could be higher. Some of these arrangements may be
terminated at any time.
The following chart is designed to help you understand the expenses you
will incur under your Contract, if you invest in one or more of the
Sub-Accounts. The column "Total Annual Expenses" shows the sum of the "Total
Annual Insurance Charges," as defined just above the chart, and the total
expenses (net of any applicable expense reimbursement 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
4
<PAGE>
Expenses are deducted, as well as withdrawal charges. For year 10, the example
shows the aggregate of all of the annual expenses deducted for the 10 years, but
there is no withdrawal charge.
"Total Annual Insurance Charges" of 1.50% as shown in the table below
include the insurance charges of 1.40% of your Account's daily net assets (1.25%
for mortality and expense risks and 0.15% for administrative expenses), plus an
additional 0.10%, which is used to represent the $35 annual Account Fee based on
an assumed Contract value of $35,000. The actual impact of the Account Fee may
be greater or less than 0.10%, depending upon the value of your Contract.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL 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 1.50% 0.73% 2.23% $78 $256
AIM V.I. Growth Fund 1.50% 0.73% 2.23% $78 $256
AIM V.I. Growth and Income Fund 1.50% 0.77% 2.27% $79 $261
AIM V.I. International Equity Fund 1.50% 0.97% 2.47% $81 $281
Alger American Growth Portfolio 1.50% 0.79% 2.29% $79 $263
Alger American Income and Growth Portfolio 1.50% 0.70% 2.20% $78 $253
Alger American Small Capitalization Portfolio 1.50% 0.90% 2.40% $80 $274
Goldman Sachs VIT CORE-SM- Large Cap Growth Fund 1.50% 0.90% 2.40% $80 $274
Goldman Sachs VIT CORE-SM- Small Cap Equity Fund 1.50% 1.00% 2.50% $81 $284
Goldman Sachs VIT CORE-SM- U.S. Equity Fund 1.50% 0.90% 2.40% $80 $274
Goldman Sachs VIT Growth and Income Fund 1.50% 1.00% 2.50% $81 $284
Goldman Sachs VIT International Equity Fund 1.50% 1.35% 2.85% $84 $318
J.P. Morgan International Opportunities Portfolio 1.50% 1.20% 2.70% $83 $303
J.P. Morgan Small Company Portfolio 1.50% 1.15% 2.65% $82 $298
J.P. Morgan U.S. Disciplined Equity Portfolio 1.50% 0.85% 2.35% $79 $269
Lord Abbett Growth & Income Portfolio 1.50% 0.87% 2.37% $80 $271
MFS/Sun Life Capital Appreciation Series 1.50% 0.76% 2.26% $79 $260
MFS/Sun Life Emerging Growth Series 1.50% 0.75% 2.25% $78 $258
MFS/Sun Life Government Securities Series 1.50% 0.61% 2.11% $77 $244
MFS/Sun Life High Yield Series 1.50% 0.83% 2.33% $79 $267
MFS/Sun Life Massachusetts Investors Growth Stock Series 1.50% 0.83% 2.33% $79 $267
MFS/Sun Life Massachusetts Investors Trust Series 1.50% 0.59% 2.09% $77 $242
MFS/Sun Life New Discovery Series 1.50% 1.06% 2.56% $81 $290
MFS/Sun Life Total Return Series 1.50% 0.69% 2.19% $78 $252
MFS/Sun Life Utilities Series 1.50% 0.82% 2.32% $79 $266
OCC Equity Portfolio 1.50% 0.91% 2.41% $80 $275
OCC Managed Portfolio 1.50% 0.83% 2.33% $79 $267
OCC Mid Cap Portfolio 1.50% 1.03% 2.53% $81 $287
OCC Small Cap Portfolio 1.50% 0.89% 2.39% $80 $273
Sun Capital Blue Chip Mid Cap Fund 1.50% 1.00% 2.50% $81 $284
Sun Capital Investment Grade Bond Fund 1.50% 0.75% 2.25% $78 $258
Sun Capital Investors Foundation Fund 1.50% 0.90% 2.40% $80 $274
Sun Capital Money Market Fund 1.50% 0.65% 2.15% $78 $248
Sun Capital Real Estate Fund 1.50% 1.25% 2.25% $83 $308
Sun Capital Select Equity Fund 1.50% 0.90% 2.40% $80 $274
Warburg Pincus Emerging Markets Portfolio 1.50% 1.40% 2.90% $85 $322
Warburg Pincus Global Post-Venture Capital Portfolio 1.50% 1.40% 2.90% $85 $322
Warburg Pincus International Equity Portfolio 1.50% 1.32% 2.83% $84 $315
Warburg Pincus Small Company Growth Portfolio 1.50% 1.14% 2.64% $82 $297
</TABLE>
For more detailed information about Contract fees and expenses, please
refer to the fee table and discussion of Contract charges contained in the full
Prospectus which accompanies this Profile.
6. TAXES
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
5
<PAGE>
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.
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 or transfer money from your Contract at any time during
the Accumulation Phase. You may withdraw a portion of the value of your Contract
in each year without the imposition of the withdrawal charge -- 10% of all
payments you have made in the last 7 years, plus any payment we have held for at
least 7 years. All other purchase payments you withdraw will be subject to a
withdrawal charge ranging from 6% to 0%. You may also be required to pay income
tax and possible tax penalties on any money you withdraw.
We do not assess a withdrawal charge upon annuitization or transfers. In
certain circumstances, we will waive the withdrawal charges for a full
withdrawal when you are confined to an eligible nursing home. In addition, there
may be other circumstances under which we may waive the withdrawal charge.
In addition to the withdrawal charge, amounts you withdraw, transfer or
annuitize from the Fixed Account before your Guarantee Period has ended may be
subject to a Market Value Adjustment (except that no Market Value Adjustment
will apply to Contracts issued in California on or after October 8, 1999).
8. PERFORMANCE
If you invest in the Variable Account, the value of your Contract will
increase or decrease depending upon the investment performance of the Fund you
choose.
<TABLE>
<CAPTION>
CALENDAR YEAR
--------------
SUB-ACCOUNT 1999
- ----------- --------------
<S> <C>
AIM V.I. Capital Appreciation Fund 42.59%
AIM V.I. Growth Fund 33.34%
AIM V.I. Growth and Income Fund 32.37%
AIM V.I. International Equity Fund 52.88%
Alger American Growth Portfolio 31.87%
Alger American Income and Growth Portfolio 40.46%
Alger American Small Capitalization Portfolio 41.41%
Goldman Sachs VIT CORE(SM) Large Cap Growth Fund 33.53%
Goldman Sachs VIT CORE(SM) Small Cap Equity Fund 15.90%
Goldman Sachs VIT CORE(SM) U.S. Equity Fund 22.56%
Goldman Sachs VIT Growth and Income Fund 3.94%
Goldman Sachs VIT International Equity Fund 30.01%
J.P. Morgan International Opportunities Portfolio 34.75%
J.P. Morgan Small Company Portfolio 42.37%
J.P. Morgan U.S. Disciplined Equity Portfolio 16.89%
Lord Abbett Growth & Income Portfolio 15.16%
MFS/Sun Life Capital Appreciation Series 30.77%
MFS/Sun Life Emerging Growth Series 73.35%
MFS/Sun Life Government Securities Series (3.31)%
MFS/Sun Life High Yield Series 5.34%
MFS/Sun Life Massachusetts Investors Growth Stock Series 27.88%
MFS/Sun Life Massachusetts Investors Trust Series 3.31%
MFS/Sun Life New Discovery Series 57.99%
MFS/Sun Life Total Return Series (2.49)%
MFS/Sun Life Utilities Series 29.42%
OCC Equity Portfolio 1.11%
</TABLE>
(CONTINUED ON NEXT PAGE)
6
<PAGE>
<TABLE>
<CAPTION>
CALENDAR YEAR
--------------
SUB-ACCOUNT 1999
- ----------- --------------
<S> <C>
OCC Managed Portfolio 3.53%
OCC Mid Cap Portfolio 19.93%
OCC Small Cap Portfolio (3.21)%
Sun Capital Blue Chip Mid Cap Fund 24.37%
Sun Capital Investment Grade Bond Fund (1.98)%
Sun Capital Investors Foundation Fund 9.95%
Sun Capital Money Market Fund 3.21%
Sun Capital Real Estate Fund (5.24)%
Sun Capital Select Equity Fund 24.02%
Warburg Pincus Emerging Markets Portfolio 78.87%
Warburg Pincus Global Post-Venture Capital Portfolio 61.21%
Warburg Pincus International Equity Portfolio 51.29%
Warburg Pincus Small Company Growth Portfolio 66.72%
</TABLE>
9. DEATH BENEFIT
If you die before the Contract reaches the Income Phase, the beneficiary
will receive a death benefit. To calculate the death benefit, we use a "Death
Benefit Date," which is the earliest date we have both due proof of death and a
written request specifying the manner of payment.
If you were 85 or younger when we issued your Contract, the death benefit
is the greatest of:
(1) The value of the Contract on the Death Benefit Date;
(2) The amount we would pay in the event of a full surrender of the
Contract on the Death Benefit Date;
(3) The value of the Contract on the most recent seven-year anniversary of
the Contract, plus any purchase payments made and adjusted for any
partial withdrawals and charges made after that anniversary;
(4) Your highest Contract Value on any Contract Anniversary before your
81st birthday, adjusted for subsequent purchase payments and partial
withdrawals and charges made between that Contract Anniversary and the
Death Benefit Date; and
(5) Your total purchase payments, plus interest on purchase payments
allocated to and transfers to the Variable Account -- while they
remain in the Variable Account -- at 5% per year until the first day
of the month following your 80th birthday, or until the purchase
payment or amount transferred has doubled in amount, whichever is
earlier; this amount is adjusted for partial withdrawals.
If you were 86 or older when we issued your Contract, the death benefit is
equal to the amount set forth in (2) above.
10. OTHER INFORMATION
FREE LOOK. Depending upon applicable state law, if you cancel your
Contract within 10 days after receiving it we will send you the value of your
Contract as of the day we received your cancellation request (this may be more
or less than the original purchase payment) and we will not deduct a withdrawal
charge. However, if applicable state or federal law requires, we will refund the
full amount of any purchase payment(s) we receive and the "free look" period may
be greater than 10 days.
NO PROBATE. In most cases, when you die, the beneficiary will receive the
death benefit without going through probate. However, avoiding probate does not
mean that the beneficiary will not have tax liability as a result of receiving
the death benefit.
WHO SHOULD PURCHASE A CONTRACT? The Contract is designed for those seeking
long-term tax deferred accumulation of assets and annuity features, generally
for retirement or other long-term 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 the underlying contract is an annuity. You should
not buy a Contract if
7
<PAGE>
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 of
each transaction 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 with at
least 30 days notice.
Dollar-Cost Averaging -- This program lets you invest gradually in up to
12 Sub-Accounts.
Asset Allocation -- This program rebalances your Account 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.
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
8
<PAGE>
Rule 497(c)
File No. 33-41628
811-05846
PROSPECTUS
MAY 1, 2000
FUTURITY II
Sun Life Assurance Company of Canada (U.S.) and Sun Life of Canada (U.S.)
Variable Account F offer the flexible payment deferred annuity contracts and
certificates described in this Prospectus to groups and individuals.
You may choose among 39 variable investment options and a range of fixed
options. The variable options are Sub-Accounts in the Variable Account, each of
which invests in shares of one of the following mutual funds or a series thereof
(the "Funds").
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS 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
Alger American Growth Portfolio Massachusetts Investors Trust Series
Alger American Income and Growth Portfolio New Discovery Series
Alger American Small Capitalization Portfolio Total Return Series
GOLDMAN SACHS VARIABLE INSURANCE TRUST ("VIT") Utilities Series
VIT CORE(SM) Large Cap Growth Fund OCC ACCUMULATION TRUST
VIT CORE(SM) Small Cap Equity Fund Equity Portfolio
VIT CORE(SM) U.S. Equity Fund Managed Portfolio
VIT Growth and Income Fund Mid Cap Portfolio
VIT International Equity Fund Small Cap Portfolio
J.P. MORGAN SERIES TRUST II SUN CAPITAL ADVISERS TRUST
International Opportunities Portfolio Sun Capital Blue Chip Mid Cap Fund
Small Company Portfolio Sun Capital Investment Grade Bond Fund
U.S. Disciplined Equity Portfolio Sun Capital Investors Foundation Fund
LORD ABBETT SERIES FUND, INC. Sun Capital Money Market Fund
Growth & Income Portfolio Sun Capital Real Estate Fund
Sun Capital Select Equity Fund
WARBURG PINCUS TRUST
Emerging Markets Portfolio
Global Post-Venture Capital Portfolio
International Equity Portfolio
Small Company Growth Portfolio
</TABLE>
The fixed account options are available for specified time periods, called
Guarantee Periods, and pay interest at a guaranteed rate for each period.
PLEASE READ THIS PROSPECTUS AND THE FUND PROSPECTUSES CAREFULLY BEFORE
INVESTING AND KEEP THEM FOR FUTURE REFERENCE. THEY CONTAIN IMPORTANT INFORMATION
ABOUT THE CONTRACT AND THE FUNDS.
We have filed a Statement of Additional Information dated May 1, 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 81 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
<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 8
Condensed Financial Information 10
The Annuity Contract 10
Communicating To Us About Your Contract 10
Sun Life Assurance Company of Canada (U.S.) 11
The Variable Account 11
Variable Account Options: The Funds 11
The Fixed Account 15
The Fixed Account Options: The Guarantee Periods 15
The Accumulation Phase 16
Issuing Your Contract 16
Amount and Frequency of Purchase Payments 16
Allocation of Net Purchase Payments 16
Your Account 16
Your Account Value 16
Variable Account Value 17
Fixed Account Value 17
Transfer Privilege 18
Waivers; Reduced Charges; Credits; Bonus Guaranteed
Interest Rates 19
Optional Programs 20
Withdrawals, Withdrawal Charge and Market Value Adjustment 21
Cash Withdrawals 21
Withdrawal Charge 22
Market Value Adjustment 24
Contract Charges 25
Account Fee 25
Administrative Expense Charge 26
Mortality and Expense Risk Charge 26
Premium Taxes 26
Fund Expenses 26
Modification in the Case of Group Contracts 26
Death Benefit 26
Amount of Death Benefit 27
Spousal Continuance 27
Calculating the Death Benefit 27
Method of Paying Death Benefit 28
Non-Qualified Contracts 28
Selection and Change of Beneficiary 28
Payment of Death Benefit 28
Due Proof of Death 29
The Income Phase -- Annuity Provisions 29
Selection of the Annuitant or Co-Annuitant 29
Selection of the Annuity Commencement Date 29
Annuity Options 30
Selection of Annuity Option 30
Amount of Annuity Payments 31
Exchange of Variable Annuity Units 32
Account Fee 32
Annuity Payment Rates 32
Annuity Options as Method of Payment for Death Benefit 32
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Other Contract Provisions 32
Exercise of Contract Rights 32
Change of Ownership 33
Voting of Fund Shares 33
Periodic Reports 34
Substitution of Securities 34
Change in Operation of Variable Account 34
Splitting Units 35
Modification 35
Limitation or Discontinuance of New Participants 35
Reservation of Rights 35
Right to Return 35
Tax Considerations 36
U.S. Federal Tax Considerations 36
DEDUCTIBILITY OF PURCHASE PAYMENTS 36
PRE-DISTRIBUTION TAXATION OF CONTRACTS 36
DISTRIBUTIONS AND WITHDRAWALS FROM NON-QUALIFIED
CONTRACTS 36
DISTRIBUTIONS AND WITHDRAWALS FROM QUALIFIED
CONTRACTS 37
WITHHOLDING 37
INVESTMENT DIVERSIFICATION AND CONTROL 37
TAX TREATMENT OF THE COMPANY AND THE VARIABLE
ACCOUNT 38
QUALIFIED RETIREMENT PLANS 38
PENSION AND PROFIT-SHARING PLANS 38
TAX-SHELTERED ANNUITIES 38
INDIVIDUAL RETIREMENT ACCOUNTS 39
ROTH IRAS 39
Puerto Rico Tax Considerations 39
Administration of the Contracts 40
Distribution of the Contracts 40
Performance Information 40
Available Information 41
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 54
Reserves 54
Investments 54
Competition 55
Employees 55
Properties 55
State Regulation 55
Legal Proceedings 56
Accountants 56
Financial Statements 56
Table of Contents of Statement of Additional Information 81
Appendix A -- Glossary 83
Appendix B -- Condensed Financial Information --
Accumulation Unit Values 86
Appendix C -- Withdrawals, Withdrawal Charges and the Market
Value Adjustment 90
</TABLE>
3
<PAGE>
SPECIAL TERMS
Your Contract is a legal document that uses a number of specially defined
terms. We explain most of the terms that we use in this Prospectus in the
context where they arise, and some are self-explanatory. In addition, for
convenient reference, we have compiled a list of these terms in the Glossary
included at the back of this Prospectus as Appendix A. If, while you are reading
this Prospectus, you come across a term that you do not understand, please refer
to the Glossary for an explanation.
EXPENSE SUMMARY
The purpose of the following table is to help you understand the costs and
expenses that you will bear directly and indirectly under a Contract WHEN YOU
ALLOCATE MONEY TO THE VARIABLE ACCOUNT. The table reflects expenses of the
Variable Account as well as of each Fund. The table should be considered
together with the narrative provided under the heading "Contract Charges" in
this Prospectus, and with the Funds' prospectuses. In addition to the expenses
listed below, we may deduct premium taxes.
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
TRANSACTION EXPENSES
Sales Load Imposed on Purchase Payments..................... $ 0
Deferred Sales Load (as a percentage of Purchase Payments
withdrawn) (1)
Number of Account Years Purchase Payment in Account
0-1..................................................... 6%
2-3..................................................... 5%
4-5..................................................... 4%
6....................................................... 3%
7 or more............................................... 0%
Transfer Fee (2)............................................ $ 15
ANNUAL ACCOUNT FEE per Contract or Certificate (3) $ 35
VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of average
Variable Account assets)
Mortality and Expense Risk Charge......................... 1.25%
Administrative Expense Charge............................. 0.15%
Other Fees and Expenses of the Variable Account........... 0.00%
-----
Total Variable Account Annual Expenses...................... 1.40%
</TABLE>
- ------------------------
(1) A portion of your Account may be withdrawn each year without imposition of
any withdrawal charge, and after a Purchase Payment has been in your Account
for 7 Account Years it may be withdrawn free of the withdrawal charge.
(2) Currently, no fee is imposed on 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 equal to the lesser of $35 or 2% of your Contract
Value in Account Years 1 through 5; thereafter, the Account Fee may be
changed annually, but it will not exceed the lesser of $50 or 2% of your
Contract Value.
4
<PAGE>
UNDERLYING FUND ANNUAL EXPENSES (1)
(AS A PERCENTAGE OF FUND NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER ANNUAL
FEES (AFTER EXPENSES (AFTER EXPENSES (AFTER
REIMBURSEMENT)(2) REIMBURSEMENT)(2) REIMBURSEMENT)(2)
----------------- ----------------- -----------------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund............ 0.62% 0.11% 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 & Income Portfolio......... 0.50% 0.37% 0.87%
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................ 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% 0.07% 0.82%
OCC Equity Portfolio (6)...................... 0.80% 0.11% 0.91%
OCC Managed Portfolio (6)..................... 0.77% 0.06% 0.83%
OCC Mid Cap Portfolio (6)..................... 0.10% 0.93% 1.03%
OCC Small Cap Portfolio (6)................... 0.80% 0.09% 0.89%
Sun Capital Blue Chip Mid Cap Fund (7)(8)..... 0.80% 0.20% 1.00%
Sun Capital Investment Grade Bond Fund (7).... 0.60% 0.15% 0.75%
Sun Capital Investors Foundation
Fund (7)(8).................................. 0.75% 0.15% 0.90%
Sun Capital Money Market Fund (7)............. 0.50% 0.15% 0.65%
Sun Capital Real Estate Fund (7).............. 0.95% 0.30% 1.25%
Sun Capital Select Equity Fund (7)(8)......... 0.75% 0.15% 0.90%
Warburg Pincus Emerging Markets
Portfolio (9)................................ 0.00% 1.40% 1.40%
Warburg Pincus Global Post-Venture Capital
Portfolio (9)................................ 1.07% 0.33% 1.40%
Warburg Pincus International Equity
Portfolio.................................... 1.00% 0.32% 1.32%
Warburg Pincus Small Company Growth
Portfolio.................................... 0.90% 0.24% 1.14%
</TABLE>
5
<PAGE>
(1) The information relating to Fund expenses was provided by the Funds and we
have not independently verified it. You should consult the Fund prospectuses
for more information about Fund expenses.
(2) For all Funds, the "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 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 2000: 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; 1.05% for the MFS/Sun Life New Discovery Series; and
0.81% for the MFS/Sun Life Utilities Series.
(6) "Total Fund Annual Expenses" for the OCC Equity Portfolio, the OCC Small Cap
Portfolio, the OCC Managed Portfolio and the OCC Mid Cap Portfolio are
limited contractually by OpCap Advisers so that the Funds' respective
annualized operating expenses (net of expense offsets) do not exceed 1% of
average daily net assets. Absent this limit, "Management Fees", "Other
Expenses" and "Total Fund Annual Expenses" were 0.80%, 0.93%, and 1.73% for
the OCC Mid Cap Portfolio. "Other Expenses" are shown gross of expense
offsets afforded the portfolio, which effectively lowered custody expenses.
(7) 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; 0.60%, 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
6
<PAGE>
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.
(8) The management fee for each of the Sun Capital Blue Chip Mid Cap Fund, the
Sun Capital Investors Foundation Fund, and the Sun Capital Select Equity
Fund decreases to 0.75%, 0.70%, and 0.70%, respectively, as the daily net
assets of each Fund exceed $300 million.
(9) The investment adviser for the indicated 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. Absent any such
waiver or reimbursement, "Management Fees," "Other Expenses," and "Total
Fund Annual Expenses" were 1.25%, 1.88%, and 3.13% for the Warburg Pincus
Emerging Markets Portfolio; and 1.25%, 0.33%, and 1.58% for the Warburg
Pincus Global Post-Venture Capital Portfolio. Fee waivers and expense
reimbursements for the indicated Funds may be discontinued at any time.
7
<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 and a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund.......................... $ 78 $109 $145 $256
AIM V.I. Growth Fund........................................ $ 78 $109 $145 $256
AIM V.I. Growth and Income Fund............................. $ 79 $110 $147 $261
AIM V.I. International Equity Fund.......................... $ 81 $116 $157 $281
Alger American Growth Portfolio............................. $ 79 $111 $148 $263
Alger American Income and Growth Portfolio.................. $ 78 $108 $144 $253
Alger American Small Capitalization Portfolio............... $ 80 $114 $154 $274
Goldman Sachs VIT CORE-SM- Large Cap Growth Fund............ $ 80 $114 $154 $274
Goldman Sachs VIT CORE-SM- Small Cap Equity Fund............ $ 81 $117 $158 $284
Goldman Sachs VIT CORE-SM- U.S. Equity Fund................. $ 80 $114 $154 $274
Goldman Sachs VIT Growth and Income Fund.................... $ 81 $117 $158 $284
Goldman Sachs VIT International Equity Fund................. $ 84 $127 $175 $318
J.P. Morgan International Opportunities Portfolio........... $ 83 $122 $168 $303
J.P. Morgan Small Company Portfolio......................... $ 82 $121 $165 $298
J.P. Morgan U.S. Disciplined Equity Portfolio............... $ 79 $112 $151 $269
Lord Abbett Growth & Income Portfolio....................... $ 80 $113 $152 $271
MFS/Sun Life Capital Appreciation Series.................... $ 79 $110 $147 $260
MFS/Sun Life Emerging Growth Series......................... $ 78 $110 $146 $258
MFS/Sun Life Government Securities Series................... $ 77 $106 $140 $244
MFS/Sun Life High Yield Series.............................. $ 79 $112 $150 $267
MFS/Sun Life Massachusetts Investors Growth Stock Series.... $ 79 $112 $150 $267
MFS/Sun Life Massachusetts Investors Trust Series........... $ 77 $105 $139 $242
MFS/Sun Life New Discovery Series........................... $ 81 $118 $161 $290
MFS/Sun Life Total Return Series............................ $ 78 $108 $143 $252
MFS/Sun Life Utilities Series............................... $ 79 $112 $150 $266
OCC Equity Portfolio........................................ $ 80 $114 $154 $275
OCC Managed Portfolio....................................... $ 79 $112 $150 $267
OCC Mid Cap Portfolio....................................... $ 81 $118 $160 $287
OCC Small Cap Portfolio..................................... $ 80 $114 $153 $273
Sun Capital Blue Chip Mid Cap Fund.......................... $ 81 $117 $158 $284
Sun Capital Investment Grade Bond Fund...................... $ 78 $110 $146 $258
Sun Capital Investors Foundation Fund....................... $ 80 $114 $154 $274
Sun Capital Money Market Fund............................... $ 78 $107 $141 $248
Sun Capital Real Estate Fund................................ $ 83 $124 $170 $308
Sun Capital Select Equity Fund.............................. $ 80 $114 $154 $274
Warburg Pincus Emerging Markets Portfolio................... $ 85 $128 $117 $322
Warburg Pincus Global Post-Venture Capital Portfolio........ $ 85 $128 $177 $322
Warburg Pincus International Equity Portfolio............... $ 84 $126 $173 $315
Warburg Pincus Small Company Growth Portfolio............... $ 82 $121 $165 $297
</TABLE>
8
<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 and a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund.......................... $ 23 $ 70 $119 $256
AIM V.I. Growth Fund........................................ $ 23 $ 70 $119 $256
AIM V.I. Growth and Income Fund............................. $ 23 $ 71 $122 $261
AIM V.I. International Equity Fund.......................... $ 25 $ 77 $132 $281
Alger American Growth Portfolio............................. $ 23 $ 72 $123 $263
Alger American Income and Growth Portfolio.................. $ 22 $ 69 $118 $253
Alger American Small Capitalization Portfolio............... $ 24 $ 75 $128 $274
Goldman Sachs VIT CORE-SM- Large Cap Growth Fund............ $ 24 $ 75 $128 $274
Goldman Sachs VIT CORE-SM- Small Cap Equity Fund............ $ 25 $ 78 $133 $284
Goldman Sachs VIT CORE-SM- U.S. Equity Fund................. $ 24 $ 75 $128 $274
Goldman Sachs VIT Growth and Income Fund.................... $ 25 $ 78 $133 $284
Goldman Sachs VIT International Equity Fund................. $ 29 $ 88 $150 $318
J.P. Morgan International Opportunities Portfolio........... $ 27 $ 84 $143 $303
J.P. Morgan Small Company Portfolio......................... $ 27 $ 82 $141 $298
J.P. Morgan U.S. Disciplined Equity Portfolio............... $ 24 $ 73 $126 $269
Lord Abbett Growth & Income Portfolio....................... $ 24 $ 74 $127 $271
MFS/Sun Life Capital Appreciation Series.................... $ 23 $ 71 $121 $260
MFS/Sun Life Emerging Growth Series......................... $ 23 $ 70 $120 $258
MFS/Sun Life Government Securities Series................... $ 21 $ 66 $113 $244
MFS/Sun Life High Yield Series.............................. $ 24 $ 73 $125 $267
MFS/Sun Life Massachusetts Investors Growth Stock Series.... $ 24 $ 73 $125 $267
MFS/Sun Life Massachusetts Investors Trust Series........... $ 21 $ 65 $112 $242
MFS/Sun Life New Discovery Series........................... $ 26 $ 80 $136 $290
MFS/Sun Life Total Return Series............................ $ 22 $ 69 $117 $252
MFS/Sun Life Utilities Series............................... $ 24 $ 72 $124 $266
OCC Equity Portfolio........................................ $ 24 $ 75 $129 $275
OCC Managed Portfolio....................................... $ 24 $ 73 $125 $267
OCC Mid Cap Portfolio....................................... $ 26 $ 79 $135 $287
OCC Small Cap Portfolio..................................... $ 24 $ 75 $128 $273
Sun Capital Blue Chip Mid Cap Fund.......................... $ 25 $ 78 $133 $284
Sun Capital Investment Grade Bond Fund...................... $ 23 $ 70 $120 $258
Sun Capital Investors Foundation Fund....................... $ 24 $ 75 $128 $274
Sun Capital Money Market Fund............................... $ 22 $ 67 $115 $248
Sun Capital Real Estate Fund................................ $ 28 $ 85 $145 $308
Sun Capital Select Equity Fund.............................. $ 24 $ 75 $128 $274
Warburg Pincus Emerging Markets Portfolio................... $ 29 $ 90 $153 $322
Warburg Pincus Global Post-Venture Capital Portfolio........ $ 29 $ 90 $153 $322
Warburg Pincus International Equity Portfolio............... $ 29 $ 87 $149 $315
Warburg Pincus Small Company Growth Portfolio............... $ 27 $ 82 $140 $297
</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.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
Historical information about the value of the units we use to measure the
variable portion of your Contract ("Variable Accumulation Units") is included in
the back of this Prospectus as Appendix B.
THE 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 those Participants as "you"; we use the term
"Contracts" to include Individual Contracts, Group Contracts and Certificates
issued under Group Contracts. For the purpose of determining benefits under both
Individual Contracts and Group Contracts, we establish an Account for each
Participant, which we will refer to as "your" Account or a "Participant
Account."
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 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 death benefit if you die during the Accumulation Phase. Finally, if
you so elect, during the Income Phase we will make payments to you or someone
else for life or for another period that you choose.
You choose these benefits on a variable or fixed basis or a combination of
both. When you choose Variable 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 options, you assume all investment
risk under the Contract. When you choose a Guarantee Period in our Fixed Account
or a Fixed Annuity option, we assume the investment risk, except in the case of
early withdrawals, where you bear the risk of unfavorable interest rate changes.
You also bear the risk that the interest rates we will offer in the future and
the rates we will use in determining your Fixed Annuity may not exceed our
minimum guaranteed rate, which is 3% per year, compounded annually.
The 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 others as "Non-Qualified Contracts."
COMMUNICATING TO US ABOUT YOUR CONTRACT
All materials sent to us, including Purchase Payments, must be sent to our
Annuity 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
Purchase Payments, withdrawal requests and transfer instructions to
10
<PAGE>
be received on the next Business Day if we receive them (1) on a day that is not
a Business Day or (2) after 4:00 p.m., Eastern Time.
When we specify that notice to us must be in writing, we reserve the
right, 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 are offered by the Company and other
affiliated and unaffiliated offerors. 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 Contracts described in this
Prospectus and other variable annuity contracts that provide benefits that vary
in accordance with the investment performance of the Variable Account. Although
the assets maintained in the Variable Account will not be charged with any
liabilities arising out of any other business we conduct, all obligations
arising under the Contracts, including the promise to make annuity payments, are
general corporate obligations of the Company.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of a specific Fund. All amounts
allocated to the Variable Account will be used to purchase Fund shares as
designated by you at their net asset value. Any and all distributions made by
the Fund with respect to the shares held by the Variable Account will be
reinvested to purchase additional shares at their net asset value. Deductions
from the Variable Account for cash withdrawals, annuity payments, death
benefits, Account Fees, Contract charges against the assets of the Variable
Account for the assumption of mortality and expense risks, administrative
expenses and any applicable taxes will, in effect, be made by redeeming the
number of Fund shares at their net asset value equal in total value to the
amount to be deducted. The Variable Account will be fully invested in Fund
shares at all times.
VARIABLE ACCOUNT OPTIONS:
THE FUNDS
The Contract offers Sub-Accounts that invest in a number of Fund options,
which are briefly discussed below. Each Fund is a mutual fund registered under
the Investment Company Act of 1940, or a separate series of shares of such a
mutual fund.
MORE COMPREHENSIVE INFORMATION ABOUT THE FUNDS, INCLUDING A DISCUSSION OF
THEIR MANAGEMENT, INVESTMENT OBJECTIVES, EXPENSES, AND POTENTIAL RISKS, IS FOUND
IN THE CURRENT PROSPECTUSES FOR THE FUNDS (THE "FUND PROSPECTUSES"). THE FUND
PROSPECTUSES SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS BEFORE YOU
INVEST. A COPY OF EACH FUND PROSPECTUS, AS WELL AS A STATEMENT OF ADDITIONAL
INFORMATION
11
<PAGE>
FOR EACH FUND, MAY BE OBTAINED WITHOUT CHARGE FROM THE COMPANY BY CALLING
1-888-388-8748 (617-348-9600, IN MASSACHUSETTS) OR WRITING TO SUN LIFE ASSURANCE
COMPANY OF CANADA (U.S.), RETIREMENT PRODUCTS AND SERVICES, P.O. BOX 9133,
BOSTON MASSACHUSETTS 02117.
The Funds currently available are:
AIM VARIABLE INSURANCE FUNDS (advised by A I M Advisors, Inc.)
AIM V.I. CAPITAL APPRECIATION FUND seeks growth of capital by investing
principally in common stocks of 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 are 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 primarily 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-Registered Trademark- 2000 Growth Index or the
S&P-Registered Trademark- SmallCap 600 Index.
GOLDMAN SACHS VARIABLE INSURANCE TRUST (advised by Goldman Sachs Asset
Management, an operating division of Goldman, Sachs & Co. ("Goldman Sachs"),
except for Goldman Sachs International Equity Fund, which is advised by Goldman
Sachs Asset Management International, an operating division of Goldman Sachs)
GOLDMAN SACHS VIT CORE-SM- LARGE CAP GROWTH FUND seeks long-term growth of
capital. The Fund seeks this objective 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. The Fund seeks this objective through a broadly diversified
portfolio of equity securities of U.S. issuers which are included in the
Russell-Registered Trademark- 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. The Fund seeks this objective 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. The Fund invests under normal circumstances at least
65% of its total assets in equity securities that the Fund's investment
adviser considers 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. The Fund intends to invest in companies with public stock
market capitalizations that are larger than $1 billion at the time of
investment.
12
<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 (formerly, the J.P. Morgan
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 & 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.
OCC ACCUMULATION TRUST (advised by OpCap Advisors)
EQUITY PORTFOLIO seeks long-term capital appreciation through investment in
a diversified portfolio of equity securities selected on the basis of a
value oriented approach to investing.
MANAGED PORTFOLIO seeks to achieve growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary based on the portfolio
manager's assessments of the relative outlook for such investments.
MID CAP PORTFOLIO seeks long-term capital appreciation through investment
in a diversified portfolio of equity securities. The portfolio will invest
primarily in companies with market capitalizations of between $500 million
and $5 billion.
13
<PAGE>
SMALL CAP PORTFOLIO seeks capital appreciation through investment in a
diversified portfolio of equity securities of companies with market
capitalizations of under $1 billion.
SUN CAPITAL ADVISERS TRUST (advised by Sun Capital Advisers, Inc., an affiliate
of the Company); Wellington Management Company, LLP serves as investment
subadviser to Sun Capital Blue Chip Mid Cap Fund, Sun Capital Investors
Foundation Fund and Sun Capital Select Equity Fund)
SUN CAPITAL BLUE CHIP MID CAP FUND seeks long-term capital growth by
investing primarily in a diversified portfolio of common stocks and other
equity securities of U.S. companies with market capitalizations within the
range represented by the Standard & Poor's Mid Cap 400 Index.
SUN CAPITAL INVESTORS FOUNDATION FUND seeks long-term capital growth by
investing primarily in a diversified portfolio of common stocks and other
equity securities of U.S. companies with 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.
WARBURG PINCUS TRUST (advised by Credit Suisse Asset Management, L.LP ("CSAM");
CSAM has retained Abbott Capital Management, L.P. regarding investments in
private investment funds for the Global Post-Venture Capital Portfolio.)
WARBURG PINCUS EMERGING MARKETS PORTFOLIO seeks long-term growth of capital
by investing primarily in equity securities of non-United States issuers
consisting of companies in emerging securities markets.
WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL PORTFOLIO (formerly, the Warburg
Pincus Post-Venture Capital Portfolio) seeks long-term growth of capital by
investing primarily in equity securities of U.S. and foreign companies
considered to be in their post-venture capital stage of development and
pursues an aggressive investment strategy.
WARBURG PINCUS INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital
appreciation by investing in equity securities of non-U.S. issuers.
WARBURG PINCUS SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by
investing in equity securities of small-sized domestic companies.
The Funds may also be available to registered separate accounts offering
variable annuity and variable life products of other affiliated and unaffiliated
insurance companies, as well as to the Variable Account and other separate
accounts of the Company. Although we do not anticipate any disadvantages to
this, there is a possibility that a material conflict may arise between the
interests of the Variable Account and one or more of the other separate accounts
participating in the Funds. A conflict may occur due to a change in law
affecting the operations of variable life and variable annuity separate
14
<PAGE>
accounts, differences in the voting instructions of the Participants and Payees
and those of other companies, or some other reason. In the event of conflict, we
will take any steps necessary to protect Participants and Payees, including
withdrawal of the Variable Account from participation in the underlying Funds
which are involved in the conflict or substitution of shares of other Funds.
Certain of the investment advisers to the Funds may reimburse us for
administrative costs in connection with administering the Funds as options under
the Contracts. These amounts are not charged to the Funds or Participants, but
are paid from assets of the advisers, except for the administrative costs of the
Lord Abbett Growth & Income Portfolio, which are paid from Fund assets.
Certain publicly available mutual funds may have similar investment goals
and principal investment policies and risks as one or more of the Funds, and may
be managed by a Fund's portfolio managers(s). While a Fund may have many
similarities to these other funds, its investment performance will differ from
their investment performance. This is due to a number of differences between a
Fund and these similar products, including differences in sales charges, expense
ratios and cash flows.
THE FIXED ACCOUNT
The Fixed Account is made up of all the general assets of the Company
other than those allocated to any separate account. Amounts you allocate to
Guarantee Periods become part of the Fixed Account, and are available to fund
the claims of all classes of our customers, including claims for benefits under
the Contracts.
We will invest the assets of the Fixed Account in those assets we choose
that are allowed by applicable state insurance laws. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stocks, real estate mortgages, real estate and certain
other investments. We intend to invest primarily in investment-grade fixed
income securities (i.e., rated by a nationally recognized rating service within
the 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 with amounts allocated to the Guarantee
Periods. We will also consider other factors in determining these rates,
including regulatory and tax requirements, sales commissions and administrative
expenses borne by us, general economic trends and competitive factors. We cannot
predict the level of future interest rates.
We may from time to time at our discretion offer interest rate specials
for new Purchase Payments that are higher than the rates we are then offering
for renewals or transfers.
Early withdrawals from your allocation to a Guarantee Period, including
cash withdrawals, transfers, and commencement of an annuity, may be subject to a
Market Value Adjustment, which could decrease or increase the value of your
Account. See "Withdrawals, Withdrawal Charge and Market Value Adjustment."
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<PAGE>
THE ACCUMULATION PHASE
During the Accumulation Phase of your Contract, you make payments into
your Account, and your earnings accumulate on a tax-deferred basis. The
Accumulation Phase begins with our acceptance of your first Purchase Payment and
ends the Business Day before your Annuity Commencement Date. The Accumulation
Phase will end sooner if you surrender your Contract or die before the Annuity
Commencement Date.
ISSUING YOUR CONTRACT
When you purchase a Contract, a completed Application and the initial
Purchase Payment are sent to us for acceptance. When we accept an Individual
Contract, we issue the Contract to you. When we accept a Group Contract, we
issue the Contract to the Owner; we issue a Certificate to you as a Participant
when we accept your Application.
We will credit your initial Purchase Payment to your Account within 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 $1 million, or
if the Purchase Payment would cause your Account Value to exceed $1 million,
unless we have approved the Payment in advance. Within these limits, you may
make Purchase Payments at any time during the Accumulation Phase, except that,
if you own a Contract issued in the State of Oregon, you may make Purchase
Payments only during the first 3 Account Years, rather than at any time during
the Accumulation Period.
ALLOCATION OF NET PURCHASE PAYMENTS
You may allocate your Purchase Payments among the different Sub-Accounts
and Guarantee Periods we offer. 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 written notice of the change, 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
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Contract ("Fixed Account Value"). These 2 components are calculated separately,
as described below under the headings "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.
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.
CREDITING INTEREST
We credit interest on amounts allocated to a Guarantee Period at the
applicable Guaranteed Interest Rate for the duration of the Guarantee Period.
The Guarantee Period begins the day we apply
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<PAGE>
your allocation and ends when the number of calendar years (or months if the
Guarantee Period is less than one year) in the Guarantee Period (measured from
the end of the calendar month in which the amount was allocated to the Guarantee
Period) have elapsed. The last day of the Guarantee Period is its Expiration
Date. During the Guarantee Period, we credit interest daily at a rate that
yields the Guaranteed Interest Rate on an annual effective basis.
GUARANTEE AMOUNTS
Each separate allocation you make to a Guarantee Period, together with
interest credited thereon, is called a Guarantee Amount. Each Guarantee Amount
is treated separately for purposes of determining the Market Value Adjustment. A
Guarantee Period that will extend beyond your maximum Annuity Commencement Date
will result in the application of a Market Value Adjustment upon annuitization
or withdrawal. 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 Expiration
Date for any Guarantee Amount. A new Guarantee Period of the same duration will
begin automatically for that Guarantee Amount on the first day following the
Expiration Date, unless before the Expiration Date we receive:
(1) written notice from you electing a different Guarantee Period from among
those we then offer or
(2) instructions to transfer all or some of the Guarantee Amount to one or
more Sub-Accounts, in accordance with the transfer privilege provisions
of the Contract.
A Guarantee Amount will not renew into a Guarantee Period that will extend
beyond your maximum Annuity Commencement Date. 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 more than 30 days prior to the Expiration Date, we will apply a Market
Value Adjustment to the transaction. This could result in an increase or
decrease of your Account Value, depending on interest rates at the time. You
bear the risk that you will receive less than your principal if the Market Value
Adjustment applies.
TRANSFER PRIVILEGE
PERMITTED TRANSFERS
During the Accumulation Phase, you may transfer all or part of your
Account Value to one or more Sub-Accounts or Guarantee Periods then available,
subject to the following restrictions:
- You may not make more than 12 transfers in any Account Year;
- The amount transferred from a Sub-Account must be at least $1,000
unless you are transferring your entire balance in that Sub-Account;
- Your Account Value remaining in a Sub-Account must be at least $1,000;
- The amount transferred from a Guarantee Period must be the entire
Guarantee Amount, except for transfers of interest credited during the
current Account Year;
- At least 30 days must elapse between transfers to or from Guarantee
Periods;
- Transfers to or from Sub-Accounts are subject to terms and conditions
that may be imposed by the Fund; and
- We impose additional restrictions on market timers, which are further
described below.
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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 occuring more than 30 days before the Expiration Date or any
time after the Expiration 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 transfer made by telephone. We will not be liable for following instructions
communicated by telephone that we reasonably believe are genuine.
If we receive your transfer request before 4:00 p.m. Eastern Time on a
Business Day, it will be effective that day. Otherwise, it will be effective the
next Business Day.
MARKET TIMERS
The Contracts are not designed for professional market timing
organizations or other entities using programmed and frequent transfers. If you
wish to employ such strategies, you should not purchase a Contract. Accordingly,
transfers may be subject to restrictions if exercised by a market timing firm or
any other third party authorized to initiate transfer transactions on behalf of
multiple Participants. In imposing such restrictions, we may, among other
things, not accept (1) the transfer instructions of any agent acting under a
power of attorney on behalf of more than one Participant, or (2) the transfer
instructions of individual Participants who have executed preauthorized transfer
forms that are submitted at the same time by market timing firms or other third
parties on behalf of more than one Participant. We will not impose these
restrictions unless our actions are reasonably intended to prevent the use of
such transfers in a manner that will disadvantage or potentially impair the
Contract rights of other Participants.
In addition, some of the Funds have reserved the right to temporarily or
permanently refuse exchange requests from the Variable Account if, in the
judgment of the Fund's investment advisor, the Fund would be unable to invest
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. In particular, a pattern of
exchanges that coincide with a market timing strategy may be disruptive to a
Fund and therefore may be refused. Accordingly, the Variable Account may not be
in a position to effectuate transfers and may refuse transfer requests without
prior notice. We also reserve the right, for similar reasons, to refuse or delay
exchange requests involving transfers to or from the Fixed Account.
WAIVERS; REDUCED CHARGES; CREDITS; BONUS GUARANTEED INTEREST RATES
We may reduce or waive the withdrawal charge or annual Account Fee, credit
additional amounts, or grant bonus Guaranteed Interest Rates in certain
situations. These situations may include sales of Contracts (1) where selling
and/or maintenance costs associated with the Contracts are reduced, such as the
sale of several Contracts to the same Participant, sales of large Contracts, and
certain group sales, and (2) to officers, directors and employees of the Company
or its affiliates, registered representatives and employees of broker-dealers
with a current selling agreement with the Company and affiliates of such
representatives and broker-dealers, employees of affiliated asset management
firms, and persons who have retired from such positions ("Eligible Employees")
and immediate family members of Eligible Employees. Eligible Employees and their
immediate family members may also purchase a Contract without regard to minimum
Purchase Payment requirements. For other situations in which withdrawal charges
may be waived, see "Withdrawals, Withdrawal Charge and Market Value Adjustment."
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OPTIONAL PROGRAMS
DOLLAR-COST AVERAGING
Dollar-cost averaging allows you to invest gradually, over time, in up to
12 Sub-Accounts. You may select a dollar-cost averaging program at no extra
charge by allocating a minimum of $1,000 to a designated Sub-Account or to a
Guarantee Period we make available in connection with the program. Amounts
allocated to the Fixed Account under the program will earn interest at a rate
declared by the Company for the Guarantee Period you select. Previously applied
amounts may not be transferred to a Guarantee Period made available in
connection with this program. Each month or quarter, as you select, we will
transfer the same amount automatically to one or more Sub-Accounts that you
choose, up to a maximum of 12 Sub-Accounts. The program continues until your
Account Value allocated to the program is depleted or you elect to stop the
program. The final amount transferred from the Fixed Account will include all
interest earned.
No Market Value Adjustment (either positive or negative) will apply to
amounts automatically transferred from the Fixed Account under the dollar-cost
averaging program, except that if you discontinue or alter the program prior to
completion, amounts remaining in the Fixed Account will be transferred to the
Sun Capital Money Market Sub-Account, unless you instruct us otherwise, and the
Market Value Adjustment will be applied. Any new allocation of a Purchase
Payment to the program will be treated as commencing a new dollar-cost averaging
program and is subject to the $1,000 minimum.
The main objective of a dollar-cost averaging program is to minimize the
impact of short-term price fluctuations on Account Value. Since you transfer the
same dollar amount to the Sub-Accounts at set intervals, dollar-cost averaging
allows you to purchase more Variable Accumulation Units (and, indirectly, more
Fund shares) when prices are low and fewer Variable Accumulation Units (and,
indirectly, fewer Fund shares) when prices are high. Therefore, you may achieve
a lower average cost per Variable Accumulation Unit over the long term. A
dollar-cost averaging program allows you to take advantage of market
fluctuations. However, it is important to understand that a dollar-cost
averaging program does not assure a profit or protect against loss in a
declining market.
ASSET ALLOCATION
One or more asset allocation programs may be available in connection with
the Contracts, at no extra charge. Asset allocation is the process of investing
in different asset classes -- such as equity funds, fixed income funds, and
money market funds -- depending on your personal investment goals, tolerance for
risk, and investment time horizon. By spreading your money among a variety of
asset classes, you may be able to reduce the risk and volatility of investing,
although there are no guarantees, and asset allocation does not insure a profit
or protect against loss in a declining market.
Currently, you may select one of three asset allocation models, each of
which represents a combination of Sub-Accounts with a different level of risk.
The available models are: the conservative asset allocation model, the moderate
asset allocation model, and the aggressive asset allocation model. Each model
allocates a different percentage of Account Value to Sub-Accounts investing in
the various asset classes, with the conservative model allocating the lowest
percentage to Sub-Accounts investing in the equity asset class and the
aggressive model allocating the highest percentage to the equity asset class.
These models, as well as the terms and conditions of the asset allocation
program, are fully described in a separate brochure. Additional programs may be
available in the future.
If you elect an asset allocation program, we will automatically allocate
your Purchase Payments among the Sub-Accounts represented in the model you
choose. By electing an Asset Allocation program, you 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 you choose a different model.
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SYSTEMATIC WITHDRAWAL PROGRAM
If you have an Account Value of $10,000 or more, you may select our
Systematic Withdrawal Program.
Under the Systematic Withdrawal Program, you determine the amount and
frequency of regular withdrawals you would like to receive from your Fixed
and/or Variable Account Value and we will effect them automatically; a Market
Value Adjustment may be applicable upon withdrawal. Withdrawals under the
Systematic Withdrawal Program are subject to surrender charges. They may also be
included in income and subject to a 10% federal tax penalty. You should consult
your tax adviser before choosing this option.
You may change or stop the Systematic Withdrawal Program at any time, by
written notice to us.
PORTFOLIO REBALANCING PROGRAM
Under the Portfolio Rebalancing Program, we transfer funds among the
Sub-Accounts to maintain the percentage allocation you have selected among these
Sub-Accounts. At your election, we will make these transfers on a quarterly,
semi-annual or annual basis.
Portfolio Rebalancing does not permit transfers to or from any Guarantee
Period.
WITHDRAWALS, WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT
CASH WITHDRAWALS
REQUESTING A WITHDRAWAL
At any time during the Accumulation Phase you may withdraw in cash all or
any portion of your Account Value. To make a withdrawal, you must send us a
written request at our Annuity 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," below) and withdrawals from your Fixed Account Value also may be
subject to a Market Value Adjustment (see "Market Value Adjustment," below).
Upon request we will notify you of the amount we would pay in the event of a
full or partial withdrawal. Withdrawals also may have adverse federal income tax
consequences, including a 10% penalty tax (see "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 reduce the value of your Account by deducting
the amount paid, adding or deducting any Market Value Adjustment applicable to
amounts withdrawn from the Fixed Account, and deducting any applicable
withdrawal charge.
You may specify the amount you want withdrawn from each Sub-Account and/or
Guarantee Period 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.
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If you request a partial withdrawal that would result in your Account
Value being reduced to an amount less than the Account Fee for the Account Year
in which you make the withdrawal, we will treat it as a request for a full
withdrawal.
TIME OF PAYMENT
We will pay you the applicable amount of any full or partial withdrawal
within 7 days after we receive your withdrawal request, except in cases where we
are permitted to defer payment under the Investment Company Act of 1940 and
applicable state insurance law. Currently, we may defer payment of amounts you
withdraw from the Variable Account only for the following periods:
- When the New York Stock Exchange is closed (except weekends and
holidays) or when trading on the New York Stock Exchange is restricted;
- When it is not reasonably practical to dispose of securities held by a
Fund or to determine the value of the net assets of a Fund, because an
emergency exists; and
- When an SEC order permits us to defer payment for the protection of
Participants.
We also may defer payment of amounts you withdraw from the Fixed Account
for up to six months from the date we receive your withdrawal request. We do not
pay interest on the amount of any payments we defer.
WITHDRAWAL RESTRICTIONS FOR QUALIFIED PLANS
If 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."
When you make a withdrawal, we consider the oldest Purchase Payment that
you have not already withdrawn to be withdrawn first, then the second oldest
Purchase Payment, and so forth. Once all Purchase Payments are withdrawn, the
balance withdrawn is considered to be accumulated value.
WITHDRAWAL CHARGE
We do not deduct any sales charge from your Purchase Payments when they
are made. However, we may impose a withdrawal charge (known as a "contingent
deferred sales charge") on certain amounts you withdraw. We impose this charge
to defray some of our expenses related to the sale of the Contracts, such as
commissions we pay to agents, the cost of sales literature, and other
promotional costs and transaction expenses.
FREE WITHDRAWAL AMOUNT
In each Account Year you may withdraw a portion of your Account Value --
which we call the "free withdrawal amount" -- before incurring the withdrawal
charge. For any year, the free withdrawal amount is equal to (1) 10% of the
amount of all Purchase Payments you have made during the last 7 Account Years,
including the current Account Year (the "Annual Withdrawal Allowance"), plus
(2) the amount of all Purchase Payments made before the last 7 Account Years
that you have not previously withdrawn. Any portion of the Annual Withdrawal
Allowance that you do not use in an Account Year is cumulative, that is, it is
carried forward and available for use in future years.
For convenience, we refer to Purchase Payments made during the last 7
Account Years (including the current Account Year) as "New Payments," and all
Purchase Payments made before the last 7 Account Years as "Old Payments."
For example, assume you wish to make a withdrawal from your Contract in
Account Year 10. You made an initial Purchase Payment of $10,000 in Account Year
1, you made one additional Purchase Payment of $8,000 in Account Year 8, and you
have made no previous withdrawals. Your
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Account Value in Account Year 10 is $35,000. The free withdrawal amount for
Account Year 10 is $19,400, calculated as follows:
- $800, which is the Annual Withdrawal Allowance for Account Year 10 (10%
of the $8,000 Purchase Payment made in Account Year 8, the only New
Payment); plus
- $8,600, which is the total of the unused Annual Withdrawal Allowances
of $1,000 for each of Account Years 1 through 7 and $800 for each of
Account Years 8 and 9 that are carried forward and available for use in
Account Year 10; plus
- $10,000, which is the amount of all Old Payments that you have not
previously withdrawn.
WITHDRAWAL CHARGE ON PURCHASE PAYMENTS
If you withdraw more than the free withdrawal amount in any Account Year,
we consider the excess amount to be withdrawn first from New Payments that you
have not previously withdrawn. We impose the withdrawal charge on the amount of
these New Payments. Thus, the maximum amount on which we will impose the
withdrawal charge in any year will never be more than the total of all New
Payments that you have not previously withdrawn.
The amount of your withdrawal, if any, that exceeds the total of the free
withdrawal amount plus the aggregate amount of all New Payments not previously
withdrawn, is not subject to the withdrawal charge.
ORDER OF WITHDRAWAL
New Payments are withdrawn on a first-in first-out basis until all New
Payments have been withdrawn. For example, assume the same facts as in the
example above. In Account Year 10 you wish to withdraw $25,000. We attribute the
withdrawal first to the free withdrawal amount of $19,400, which is not subject
to the withdrawal charge. The remaining $5,600 is withdrawn from the Purchase
Payment made in Account Year 8 (the only New Payment) and is subject to the
withdrawal charge. The $2,400 balance of the Account Year 8 Purchase Payment
will remain in your Account. If you make a subsequent $5,000 withdrawal in
Account Year 10, $2,400 of that amount will be withdrawn from the remainder of
the Account Year 8 Purchase Payment and will be subject to the withdrawal
charge. The other $2,600 of your withdrawal (which exceeds the amount of all New
Payments not previously withdrawn) will not be subject to the withdrawal charge.
CALCULATION OF WITHDRAWAL CHARGE
We calculate the amount of the withdrawal charge by multiplying the
Purchase Payments you withdraw by a percentage. The percentage varies according
to the number of Account Years the Purchase Payment has been held in your
Account, including the year in which you made the Payment, but not the year you
withdraw it. Each payment begins a new seven-year period and moves down a
declining surrender charge scale at each Account Anniversary. Payments received
during the current Account Year will be charged 6% 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 5% withdrawal charge. On the next Account Anniversary, these
payments will move into their third Account Year and will have a withdrawal
charge of 5%, if withdrawn. The withdrawal charge decreases according to the
number of Account Years the purchase payment has been in your Account. The
declining scale is as follows:
<TABLE>
<CAPTION>
NUMBER OF
ACCOUNT YEARS
PURCHASE PAYMENT
HAS BEEN IN
YOUR ACCOUNT WITHDRAWAL CHARGE
- ---------------- -----------------
<S> <C>
0-1 6%
2-3 5%
4-5 4%
6 3%
7 or more 0%
</TABLE>
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For example, using the same facts as in the example in "Free Withdrawal
Amount" above, the percentage applicable to the withdrawals in Account Year 10
of Purchase Payments made in Account Year 8 would be 5%, because the number of
Account Years the Purchase Payments have been held in your Account would be 2.
The withdrawal charge will never be greater than 6% of the aggregate
amount of Purchase Payments you make under the Contract.
For a Group Contract, we may modify the withdrawal charges and limits,
upon notice to the Owner of the Group Contract. However, any modification will
only apply to Accounts established after the date of the modification.
For additional examples of how we calculate withdrawal charges, see
Appendix C.
TYPES OF WITHDRAWALS NOT SUBJECT TO WITHDRAWAL CHARGE
We do not impose a withdrawal charge on withdrawals from the Accounts of
(a) our employees, (b) employees of our affiliates, or (c) licensed insurance
agents who sell the Contracts. We also may waive withdrawal charges with respect
to Purchase Payments derived from the surrender of other annuity contracts we
issue.
If approved in your state, we will waive the withdrawal charge for a full
withdrawal if (a) at least one year has passed since we issued your Contract and
(b) you are confined to an eligible nursing home and have been confined there
for at least the preceding 180 days, or any shorter period required by your
state. An "eligible nursing home" means a licensed hospital or licensed skilled
or intermediate care nursing facility at which medical treatment is available on
a daily basis and daily medical records are kept for each patient. You must
provide us evidence of confinement in the form we determine.
For each Qualified Contract, the free withdrawal amount in any Account
Year will be the greater of the free withdrawal amount described above and any
amounts required to be withdrawn to comply with the minimum distribution
requirement of the Internal Revenue Code. This applies only to the portion of
the required minimum distribution attributable to that Qualified Contract.
We do not impose the withdrawal charge on amounts you apply to provide an
annuity, amounts we pay as a death benefit, or amounts you transfer among the
Sub-Accounts, between the Sub-Accounts and the Fixed Account, or within the
Fixed Account.
MARKET VALUE ADJUSTMENT
Effective October 8, 1999, no Market Value Adjustment applies to Futurity
II Annuity Contracts issued in the state of California on or after that date.
For Contracts issued elsewhere, 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
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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
C.
No Market Value Adjustment will apply to Contracts issued in the states of
Maryland, Texas and Washington, or to one-year Guarantee Periods under Contracts
issued in the state of Oregon.
CONTRACT CHARGES
ACCOUNT FEE
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, which is the anniversary of the
first day of the month after we issue your Contract. In Account Years 1 through
5, the Account Fee is equal to the lesser of $35 or 2% of your Account Value.
After Account Year 5, we may change the Account Fee each year, but the Account
Fee will never exceed the lesser of $50 or 2% of your Account Value. 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 annual Account Fee if:
(1) your Account has been allocated only to the Fixed Account during the
applicable Account Year; or
(2) your Account Value is more than $75,000 on your Account Anniversary.
If you make a full withdrawal of your Account, we will deduct the full
amount of the Account Fee at the time of the withdrawal. In addition, on the
Annuity Commencement Date we will deduct a pro rata portion of the Account Fee
to reflect the time elapsed between the last Account Anniversary and the day
before the Annuity Commencement Date.
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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, the 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 1.25%. 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
Account Fee and the administrative expense charge we assess under the Contracts
may be insufficient to cover the actual total administrative expenses we incur.
If the amount of the charge is insufficient to cover the mortality and expense
risks, we will bear the loss. If the amount of the charge is more than
sufficient to cover the risks, we will make a profit on the charge. We may use
this profit for any proper corporate purpose, including the payment of marketing
and distribution expenses for the Contracts.
PREMIUM TAXES
Some states and local jurisdictions impose a premium tax on us that is
equal to a specified percentage of the Purchase Payments you make. In many
states there is no premium tax. We believe that the amounts of applicable
premium taxes currently range from 0% to 3.5%. You should consult a tax adviser
to find out if your state imposes a premium tax and the amount of any tax.
In order to reimburse us for the premium tax we may pay on Purchase
Payments, our policy is to deduct the amount of such taxes from the amount you
apply to provide an annuity at the time of annuitization. However, we reserve
the right to deduct the amount of any applicable tax from your Account at any
time, including at the time you make a Purchase Payment or make a full or
partial withdrawal. We do not make any profit on the deductions we make to
reimburse premium taxes.
FUND EXPENSES
There are fees and charges deducted from each Fund. These fees and
expenses are described in the Fund's prospectus and related Statement of
Additional Information.
MODIFICATION IN THE CASE OF GROUP CONTRACTS
For Group Contracts, we may modify the Account Fee, the administrative
expense charge and the mortality and expense risk charge upon notice to Owners.
However, such modification will apply only with respect to Participant Accounts
established after the effective date of the modification.
DEATH BENEFIT
If you die during the Accumulation Phase, we will pay a death benefit to
your Beneficiary, using the payment method elected (a single cash payment or one
of our Annuity Options). If the Beneficiary is not living on the date of your
death, we will pay the death benefit in one sum to your estate. We do
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not pay a death benefit if you die during the Income Phase. However, the
Beneficiary will receive any payments provided under an Annuity Option that is
in effect.
AMOUNT OF DEATH BENEFIT
To calculate the amount of your death benefit, we use a "Death Benefit
Date." The Death Benefit Date is the date we receive proof of your death in an
acceptable form ("Due Proof of Death") if you have elected a death benefit
payment method before your death and it remains effective. Otherwise, the Death
Benefit Date is the later of the date we receive Due Proof of Death or, the date
we receive the Beneficiary's election of either payment method or, if the
Beneficiary is your spouse, Contract continuation. If we do not receive the
Beneficiary's election within 60 days after we receive Due Proof of Death, the
Death Benefit Date will be the last day of the 60 day period.
The amount of the death benefit is determined as of the Death Benefit
Date.
If you were 85 or younger on your Contract Date (the date we accepted your
first Purchase Payment), the death benefit will be the greatest of the following
amounts:
1. Your Account Value for the Valuation Period during which the Death
Benefit Date occurs;
2. The amount we would pay if you had surrendered your entire Account on
the Death Benefit Date;
3. Your Account Value on the Seven-Year Anniversary immediately before
the Death Benefit Date, adjusted for subsequent Purchase Payments and
partial withdrawals and charges made between the Seven-Year
Anniversary and the Death Benefit Date;
4. Your highest Account Value on any Account Anniversary before your 81st
birthday, adjusted for subsequent Purchase Payments and partial
withdrawals and charges made between that Account Anniversary and the
Death Benefit Date; and
5. Your total Purchase Payments plus interest accruals thereon, adjusted
for partial withdrawals; interest will accrue on Purchase Payments
allocated to and transfers to the Variable Account while they remain
in the Variable Account at a rate of 5% per year until the first day
of the month following your 80th birthday, or until the Purchase
Payment or amount transferred has doubled in amount, whichever is
earlier.
If you were 86 or older on your Contract Date, the death benefit is equal
to amount (2) above; because this amount will reflect any applicable withdrawal
charges and Market Value Adjustment, it may be less than your Account Value.
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. In that case, the amount of your death benefit, calculated as described
under "Amount of Death Benefit," will become the Contract's Account Value on the
Death Benefit Date. All other provisions of the Contract, including any
withdrawal charges, will continue as if your spouse had purchased the Contract
on the original date of coverage.
CALCULATING THE DEATH BENEFIT
In calculating the death benefit amount payable under (3), (4) and (5),
any partial withdrawals will reduce the amount by the ratio of the Account Value
immediately following the withdrawal to the Account Value immediately before the
withdrawal.
If the death benefit is amount (2), (3), (4) or (5), your Account Value
will be increased by the excess, if any, of that amount over amount (1). Any
such increase will be allocated to the Sub-Accounts in proportion to your
Account Value in those Sub-Accounts on the Death Benefit Date. Also, any portion
of this new Account Value attributed to the Fixed Account will be transferred to
the Sun
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Capital Money Market Sub-Account (without the application of a Market Value
Adjustment). The Beneficiary may then transfer to the Fixed Account and begin a
new Guarantee Period.
METHOD OF PAYING DEATH BENEFIT
The death benefit may be paid in a single cash payment or as an annuity
(either fixed, variable or a combination), under one or more of our Annuity
Options. We describe the Annuity Options in this Prospectus under "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 the Owner's spouse, the Beneficiary may elect to continue the
Contract. These elections are made by sending us, at our Annuity Mailing
Address, 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
(See "The Income Phase -- Annuity Provisions.")
NON-QUALIFIED CONTRACTS
If your Contract is a Non-Qualified Contract, special distribution
rules apply to the payment of the death benefit. The amount of the death benefit
must be distributed either (1) as a lump sum within 5 years after your death or
(2) if in the form of an annuity, over a period not greater than the life or
expected life of the "designated beneficiary" within the meaning of Section
72(s) of the Internal Revenue Code, with payments beginning no later than one
year after your death.
The person you have named a Beneficiary under your Contract, if any, will
be the "designated beneficiary." If the named Beneficiary is not living 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(s) 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, the special distribution rules
apply on a change in, or the death of, any Annuitant or Co-Annuitant.
Payments made in contravention of these special rules would adversely
affect the treatment of the Contracts as annuity contracts under the Internal
Revenue Code. Neither you nor the Beneficiary may exercise rights that would
have that effect.
SELECTION AND CHANGE OF BENEFICIARY
You select your Beneficiary in your Application. You may change your
Beneficiary at any time by sending us written notice on our required form,
unless you previously made an irrevocable Beneficiary designation. A new
Beneficiary designation is not effective until we record the change.
PAYMENT OF DEATH BENEFIT
Payment of the death benefit in cash will be made within 7 days of the
Death Benefit Date, except if we are permitted to defer payment in accordance
with the Investment Company Act of 1940. If an Annuity Option is elected, the
Annuity Commencement Date will be the first day of the second
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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 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.
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(s) 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.
Under a Non-Qualified Contract, if you name someone other than yourself as
the 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 on the Annuity Commencement Date.
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
second month following your Contract Date.
- The latest possible Annuity Commencement Date is the first day of the
month following the Annuitant's 95th birthday or, if there is a
Co-Annuitant, the 95th birthday of the younger of the Annuitant and
Co-Annuitant.
- The Annuity Commencement Date must always be the first day of a month.
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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.
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 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.
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.
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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 annuity payments will vary, while under a Fixed Annuity, the
dollar amount of payments will remain the same. If you do not specify a Variable
Annuity or a Fixed Annuity, your Adjusted Account Value will be divided between
Variable and Fixed Annuities in the same proportions as your Account Value was
divided between the Variable and Fixed Accounts on the Annuity Commencement
Date. You may allocate your Adjusted Account Value applied to a Variable Annuity
among the Sub-Accounts, or we will use your existing allocations.
There may be additional limitations on the options you may elect under
your particular retirement plan or applicable law.
REMEMBER THAT THE ANNUITY OPTIONS MAY NOT BE CHANGED ONCE ANNUITY PAYMENTS
BEGIN.
AMOUNT OF ANNUITY PAYMENTS
ADJUSTED ACCOUNT VALUE
The Adjusted Account Value is the amount we apply to provide a Variable
Annuity and/or a Fixed Annuity. We calculate Adjusted Account Value by taking
your Account Value on the Business Day immediately prior to the Annuity
Commencement Date and making the following adjustments:
- We deduct a proportional amount of the annual 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 to your Account Value.
- We deduct any applicable premium tax or similar tax if not previously
deducted.
VARIABLE ANNUITY PAYMENTS
Variable Annuity payments may vary each month. We determine the dollar
amount of the first payment using the portion of your Adjusted Account Value
applied to a Variable Annuity and the Annuity Payment Rates in your Contract,
which are based on an assumed interest rate of 3% per year, compounded annually.
See "Annuity Payment Rates."
To calculate the remaining payments, we convert the amount of the first
payment into Annuity Units for each Sub-Account; we determine the number of
those Annuity Units by dividing the portion of the first payment attributable to
the Sub-Account by the Annuity Unit Value of that Sub-Account for the Valuation
Period ending just before the Annuity Commencement Date. This number of Annuity
Units for each Sub-Account will remain constant (unless the Annuitant requests
an exchange of Annuity Units). However, the dollar amount of the next Variable
Annuity payment -- which is the sum of the number of Annuity Units for each
Sub-Account times its Annuity Unit Value for the Valuation Period ending just
before the date of the payment -- will increase, decrease, or remain the same,
depending on the net investment return of the Sub-Accounts.
If the net investment return of the Sub-Accounts selected is the same as
the assumed interest rate of 3%, compounded annually, the payments will remain
level. If the net investment return exceeds the assumed interest rate, payments
will increase and, conversely, if it is less than the assumed interest rate,
payments will decrease.
Please refer to the Statement of Additional Information for more
information about calculating Variable Annuity Units and Variable Annuity
payments, including examples of these calculations.
FIXED ANNUITY PAYMENTS
Fixed Annuity payments are the same each month. We determine the dollar
amount of each Fixed Annuity payment using the fixed portion of your Adjusted
Account Value and the applicable Annuity Payment Rates. These will be either
(1) the rates in your Contract, which are based on a minimum guaranteed interest
rate of 3% per year, compounded annually, or (2) new rates we have
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published and are using on the Annuity Commencement Date, if they are more
favorable. See "Annuity Payment Rates."
MINIMUM PAYMENTS
If your Adjusted Account Value is less than $2,000, or the first annuity
payment for any Annuity Option is less than $20, we will pay the Adjusted
Account Value to the Annuitant in one payment.
EXCHANGE OF VARIABLE ANNUITY UNITS
During the Income Phase, the Annuitant may exchange Annuity Units from one
Sub-Account to another, up to 12 times each Account Year. To make an exchange,
the Annuitant sends us, at our Annuity Mailing Address, a written request
stating the number of Annuity Units in the Sub-Account he or she wishes to
exchange and the new Sub-Account for which Annuity Units are requested. The
number of new Annuity Units will be calculated so the dollar amount of an
annuity payment on the date of the exchange would not be affected. To calculate
this number, we use Annuity Unit values for the Valuation Period during which we
receive the exchange request.
Before exchanging Annuity Units from one Sub-Account to another, the
Annuitant should carefully review the Fund prospectuses 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 in equal amounts
from each Variable Annuity payment. We do not deduct the annual Account Fee from
Fixed Annuity payments (see "Contract Charges -- Account Fee").
ANNUITY PAYMENT RATES
The Contract contains Annuity Payment Rates for each Annuity Option
described in this Prospectus. The rates show, for each $1,000 applied, the
dollar amount of: (a) the first monthly Variable Annuity payment based on the
assumed interest rate specified in the applicable Contract (at least 3% per
year, compounded annually); and (b) the monthly Fixed Annuity payment, when this
payment is based on the minimum guaranteed interest rate specified in the
Contract (at least 3% per year, compounded annually). We may change these rates
under Group Contracts for Accounts established after the effective date of such
change (see "Other Contract Provisions -- Modification").
The Annuity Payment Rates may vary according to the Annuity Option(s)
elected and the adjusted age of the Annuitant. The Contract also describes the
method of determining the adjusted age of the Annuitant. The mortality table
used in determining the Annuity Payment Rates for Options A, B and C is the 1983
Individual Annuitant Mortality Table.
ANNUITY OPTIONS AS METHOD OF PAYMENT FOR DEATH BENEFIT
You or your Beneficiary may also select one or more Annuity Options to be
used in the event of your death before the Income Phase, as described under the
"Death Benefit" section of this Prospectus. In that case, your Beneficiary will
be the Annuitant/Payee. The Annuity Commencement Date will be the first day of
the second month beginning after the Death Benefit Date.
OTHER CONTRACT PROVISIONS
EXERCISE OF CONTRACT RIGHTS
An Individual Contract belongs to the individual to whom the Contract is
issued. A Group Contract belongs to the Owner. In the case of a Group Contract,
the Owner may expressly reserve all Contract rights and privileges; otherwise,
each Participant will be entitled to exercise such rights and
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privileges. In any case, such rights and privileges can be exercised without the
consent of the Beneficiary (other than an irrevocably designated Beneficiary) or
any other person. Such rights and privileges may be exercised only during the
lifetime of the Participant before the Annuity Commencement Date, except as the
Contract otherwise provides.
The Annuitant becomes the Payee on and after the Annuity Commencement
Date. The Beneficiary becomes the Payee on the death of the Participant prior to
the Annuity Commencement Date, or on the death of the Annuitant after the
Annuity Commencement Date. Such Payee may thereafter exercise such rights and
privileges, if any, of ownership which continue.
CHANGE OF OWNERSHIP
Ownership of a Qualified Contract may not be transferred except to:
(1) the Annuitant; (2) a trustee or successor trustee of a pension or profit
sharing trust which is qualified under Section 401 of the Internal Revenue Code;
(3) the employer of the Annuitant, provided that the Qualified Contract after
transfer is maintained under the terms of a retirement plan qualified under
Section 403(a) of the Internal Revenue Code for the benefit of the Annuitant;
(4) the trustee or custodian of an individual retirement account plan qualified
under Section 408 of the Internal Revenue Code for the benefit of the
Participants under a Group Contract; or (5) as otherwise permitted from time to
time by laws and regulations governing the retirement or deferred compensation
plans for which a Qualified Contract may be issued. Subject to the foregoing, a
Qualified Contract may not be sold, assigned, transferred, discounted or pledged
as collateral for a loan or as security for the performance of an obligation or
for any other purpose to any person other than the Company.
The Owner of a Non-Qualified Contract may change the ownership of the
Contract prior to the last Annuity Commencement Date and each Participant, in
like manner, may change the ownership interest in a Contract.
A change of ownership will not be binding on us until we receive written
notification. When we receive such notification, the change will be effective as
of the date on which the request for change was signed by the Owner or
Participant, as appropriate, but the change will be without prejudice to us on
account of any payment we make or any action we take before receiving the
change. If you change the Owner of a Non-Qualified Contract, you will become
immediately liable for the payment of taxes on any gain realized under the
Contract prior to the change of ownership, including possible liability for a
10% federal excise tax.
VOTING OF FUND SHARES
We will vote Fund shares held by the Sub-Accounts at meetings of
shareholders of the Funds or in connection with similar solicitations, but will
follow voting instructions received from persons having the right to give voting
instructions. During the Accumulation Phase, you will have the right to give
voting instructions, except in the case of a Group Contract where the Owner has
reserved this right. During the Income Phase, the Payee -- that is the Annuitant
or Beneficiary entitled to receive benefits -- is the person having such voting
rights. We will vote any shares attributable to us and Fund shares for which no
timely voting instructions are received in the same proportion as the shares for
which we receive instructions from Owners, Participants and Payees, as
applicable.
Owners of Qualified Contracts issued on a group basis may be subject to
other voting provisions of the particular plan and of the Investment Company Act
of 1940. Employees who contribute to plans that are funded by the Contracts may
be entitled to instruct the Owners as to how to instruct us to vote the Fund
shares attributable to their contributions. Such plans may also provide the
additional extent, if any, to which the Owners shall follow voting instructions
of persons with rights under the plans. If no voting instructions are received
from any such person with respect to a particular Participant Account, the Owner
may instruct the Company as to how to vote the number of Fund shares for which
instructions may be given.
Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights
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afforded by the Investment Company Act of 1940, or any duty to inquire as to the
instructions received or the authority of Owners, Participants or others, as
applicable, to instruct the voting of Fund shares. Except as the Variable
Account or the Company has actual knowledge to the contrary, the instructions
given by Owners under Group Contracts and Payees will be valid as they affect
the Variable Account, the Company and any others having voting instruction
rights with respect to the Variable Account.
All Fund proxy material, together with an appropriate form to be used to
give voting instructions, will be provided to each person having the right to
give voting instructions at least 10 days prior to each meeting of the
shareholders of the Fund. We will determine the number of Fund shares as to
which each such person is entitled to give instructions as of the record date
set by the Fund for such meeting which is expected to be not more than 90 days
prior to each such meeting. Prior to the Annuity Commencement Date, the number
of Fund shares as to which voting instructions may be given to the Company is
determined by dividing the value of all of the Variable Accumulation Units of
the particular Sub-Account credited to the Participant Account by the net asset
value of one Fund share as of the same date. On or after the Annuity
Commencement Date, the number of Fund shares as to which such instructions may
be given by a Payee is determined by dividing the reserve held by the Company in
the Sub-Account with respect to the particular Payee by the net asset value of a
Fund share as of the same date. After the Annuity Commencement Date, the number
of Fund shares as to which a Payee is entitled to give voting instructions will
generally decrease due to the decrease in the reserve.
PERIODIC REPORTS
During the Accumulation Period we will send you, or such other person
having voting rights, at least once during each Account Year, a statement
showing the number, type and value of Accumulation Units credited to your
Account and the Fixed Accumulation Value of your Account, which statement shall
be accurate as of a date not more than 2 months previous to the date of mailing.
These periodic statements contain important information concerning your
transactions with respect to a Contract. It is your obligation to review each
such statement carefully and to report to us, at the address or telephone number
provided on the statement, any errors or discrepancies in the information
presented therein within 60 days of the date of such statement. Unless we
receive notice of any such error or discrepancy from you within such period, we
may not be responsible for correcting the error or discrepancy.
In addition, every person having voting rights will receive such reports
or prospectuses concerning the Variable Account and the Funds as may be required
by the Investment Company Act of 1940 and the Securities Act of 1933. We will
also send such statements reflecting transactions in your Account as may be
required by applicable laws, rules and regulations.
Upon request, we will provide you with information regarding fixed and
variable accumulation values.
SUBSTITUTION OF SECURITIES
Shares of any or all Funds may not always be available for investment
under the Contract. We may add or delete Funds or other investment companies as
variable investment options under the Contracts. We may also substitute shares
of another registered open-end investment company or unit investment trust for
the shares held in any Sub-Account, provided that the substitution has been
approved, if required, by the SEC. In the event of any substitution pursuant to
this provision, we may make appropriate endorsement to the Contract to reflect
the substitution.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At our election and subject to any necessary vote by persons having the
right to give instructions with respect to the voting of Fund shares held by the
Sub-Accounts, the Variable Account may be operated as a management company under
the Investment Company Act of 1940 or it may be deregistered under the
Investment Company Act of 1940 in the event registration is no longer required.
Deregistration of the Variable Account requires an order by the SEC. In the
event of any change in the operation of the Variable Account pursuant to this
provision, we may make appropriate endorsement to
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the Contract to reflect the change and take such other action as we deem
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 Contracts.
MODIFICATION
Upon notice to the Participant, in the case of an Individual Contract, and
the Owner and Participant(s), in the case of a Group Contract (or the Payee(s)
during the Income Phase), we may modify the Contract if such modification:
(i) is necessary to make the Contract or the Variable Account comply with any
law or regulation issued by a governmental agency to which the Company or the
Variable Account is subject; (ii) is necessary to assure continued qualification
of the Contract under the Internal Revenue Code or other federal or state laws
relating to retirement annuities or annuity contracts; (iii) is necessary to
reflect a change in the operation of the Variable Account or the Sub-Account(s)
(See "Change in Operation of Variable Account"); (iv) provides additional
Variable Account and/or fixed accumulation options; or (v) as may otherwise be
in the best interests of Owners, Participants, or Payees, as applicable. In the
event of any such modification, we may make appropriate endorsement in the
Contract to reflect such modification.
In addition, upon notice to the Owner, we may modify a Group Contract to
change the withdrawal charges, Account Fees, mortality and expense risk charges,
administrative expense charges, the tables used in determining the amount of the
first monthly variable annuity and fixed annuity payments and the formula used
to calculate the Market Value Adjustment, provided that such modification
applies only to Participant Accounts established after the effective date of
such modification. In order to exercise our modification rights in these
particular instances, we must notify the Owner of such modification in writing.
The notice shall specify the effective date of such modification which must be
at least 60 days following the date we mail notice of modification. All of the
charges and the annuity tables which are provided in the Group Contract prior to
any such modification will remain in effect permanently, unless improved by the
Company, with respect to Participant Accounts established prior to the effective
date of such modification.
LIMITATION OR DISCONTINUANCE OF NEW PARTICIPANTS
We may limit or discontinue the acceptance of new Applications and the
issuance of new Certificates under a Group Contract by giving 30 days prior
written notice to the Owner. This will not affect rights or benefits with
respect to any Participant Accounts established under such Group Contract prior
to the effective date of such limitation or discontinuance.
RESERVATION OF RIGHTS
We reserve the right, to the extent permitted by law, to: (1) combine any
2 or more variable accounts; (2) add or delete Funds or other investment
companies and corresponding Sub-Accounts; (3) add or remove Guarantee Periods
available at any time for election by a Participant; and (4) restrict or
eliminate any of the voting rights of Participants (or Owners) or other persons
who have voting rights as to the Variable Account. Where required by law, we
will obtain approval of changes from Participants or any appropriate regulatory
authority. In the event of any change pursuant to this provision, we may make
appropriate endorsement to the Contract to reflect the change.
RIGHT TO RETURN
If you are not satisfied with your Contract, you may return it by mailing
or delivering it to us at 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 at the end of the Valuation Period during which we received it.
However, if
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applicable state law requires we will return the full amount of any Purchase
Payment(s) we received. State law may also require us to give you a longer "free
look" period or allow you to return the Contract to your sales representative.
If you are establishing an Individual Retirement Account ("IRA"), the
Internal Revenue Code requires that we give you a disclosure statement
containing certain information about the Contract and applicable legal
requirements. We must give you this statement on or before the date the IRA is
established. If we give you the disclosure statement before the seventh day
preceding the date the IRA is established, you will not have any right of
revocation under the Code. If we give you the disclosure statement at a later
date, then you may give us a notice of revocation at any time within 7 days
after your Contract Date. Upon such revocation, we will refund your Purchase
Payment(s). This right of revocation with respect to an IRA is in addition to
the return privilege set forth in the preceding paragraph. We allow a
Participant establishing an IRA a "ten day free-look," notwithstanding the
provisions of the Internal Revenue Code.
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 a Contract and 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
to (i) any immediate annuity, 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 automatically
provide tax deferral regardless of whether the underlying contract is an
annuity.
DISTRIBUTIONS AND WITHDRAWALS FROM NON-QUALIFIED CONTRACTS
The Account Value will include an amount attributable to Purchase
Payments, the return of which is not taxable, and an amount attributable to
investment earnings, the return of which is taxable at ordinary income rates.
The relative portions of a distribution that derive from nontaxable Purchase
Payments and taxable investment earnings depend upon the timing of the
distribution.
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If you withdraw less than your entire Account Value under a Non-Qualified
Contract before the Annuity Commencement Date, you must treat the withdrawal
first as a return of investment earnings. You may treat only withdrawals in
excess of the amount of the Account Value attributable to investment earnings as
a return of Purchase Payments. Account Value amounts assigned or pledged as
collateral for a loan will be treated as if withdrawn from the Contract.
If a Payee receives annuity payments under a Non-Qualified Contract after
the Annuity Commencement Date, however, the Payee treats a portion of each
payment as a nontaxable return of Purchase Payments. In general, the nontaxable
portion of such a payment bears the same ratio to the total payment as the
Purchase Payments bear to the Payee's expected return under the Contract. The
remainder of the payment constitutes a taxable return of investment earnings.
Once the Payee has received nontaxable payments in an amount equal to total
Purchase Payments, all future distributions constitute fully taxable ordinary
income. If the Annuitant dies before the Payee recovers the full amount of
Purchase Payments, the Payee may deduct an amount equal to unrecovered Purchase
Payments.
Upon the transfer of a Non-Qualified Contract by gift (other than to the
Participant's spouse), the Participant must treat an amount equal to the Account
Value minus the total amount paid for the Contract as income.
A penalty tax of 10% may apply to taxable cash withdrawals and lump-sum
payments from Non-Qualified Contracts. This penalty will not apply in certain
circumstances, such as distributions pursuant to the death of the Participant or
distributions under an immediate annuity (as defined above), or after age
59 1/2.
DISTRIBUTIONS AND WITHDRAWALS FROM QUALIFIED CONTRACTS
Generally, distributions from a Qualified Contract will constitute fully
taxable ordinary income. Also, a 10% penalty tax will, except in certain
circumstances, apply to distributions prior to age 59 1/2.
Distributions from a Qualified Contract are not subject to current
taxation or a 10% penalty, however, if:
- the distribution is not a hardship distribution or part of a series of
payments for life or for a specified period of 10 years or more (an
"eligible rollover distribution"), and
- the Participant or Payee rolls over the distribution (with or without
actually receiving the distribution) into a qualified retirement plan
eligible to receive the rollover.
Only you or your spouse may elect to roll over a distribution to an
eligible retirement plan.
WITHHOLDING
In the case of an eligible rollover distribution (as defined above) from a
Qualified Contract (other than from a Contract issued for use with an individual
retirement account), we (or the plan administrator) must withhold and remit to
the U.S. Government 20% of the distribution, unless the Participant or Payee
elects to make a direct rollover of the distribution to another qualified
retirement plan that is eligible to receive the rollover; however, only you and
your spouse may elect a direct rollover. In the case of a distribution from
(i) a Non-Qualified Contract, (ii) a Qualified Contract issued for use with an
individual retirement account, or (iii) a Qualified Contract where the
distribution is not an eligible rollover distribution, we will withhold and
remit to the U.S. Government a part of the taxable portion of each distribution
unless, prior to the distribution, the Participant or Payee provides us his or
her taxpayer identification number and instructs us (in the manner prescribed)
not to withhold. The Participant or Payee may credit against his or her federal
income tax liability for the year of distribution any amounts that we (or the
plan administrator) withhold.
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 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 retroactive guidelines, but cannot assume 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 may therefore use Qualified
Contracts as a funding vehicle for their retirement plans, as a general rule.
TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees
of certain types of charitable, educational and scientific organizations
specified in Section 501(c)(3) of the Code to purchase annuity contracts and,
subject to certain limitations, exclude the amount of purchase payments from
gross income for tax purposes. The Code imposes restrictions on cash withdrawals
from Section 403(b) annuities.
If the Contracts are to receive tax deferred treatment, cash withdrawals
of amounts attributable to salary reduction contributions (other than
withdrawals of accumulation account value as of December 31, 1988) may be made
only when the Participant attains age 59 1/2, separates from service with the
employer, dies or becomes disabled (within the meaning of Section 72(m)(7) of
the Code). These restrictions apply to (i) any post-1988 salary reduction
contributions, (ii) any growth or interest on post-1988 salary reduction
contributions, and (iii) any growth or interest on pre-1989 salary reduction
contributions that occurs on or after January 1, 1989. It is permissible,
however, to withdraw post-1988 salary reduction contributions in cases of
financial hardship. While the Internal Revenue Service has not issued specific
rules defining financial hardship, we expect that to qualify for a hardship
distribution, the Participant must have an immediate and heavy bona fide
financial need and lack other
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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. If and when
we make Contracts available for use with Roth IRAs, we will provide any
necessary information.
PUERTO RICO TAX CONSIDERATIONS
The Contract offered by this Prospectus is considered an annuity contract
under Section 1022 of the Puerto Rico Internal Revenue Code of 1994, as amended
(the "1994 Code"). Under the current provisions of the 1994 Code, 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, 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.
The provisions of the 1994 Code with respect to qualified retirement plans
described in this Prospectus vary significantly from those under the Internal
Revenue Code. 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.
For information regarding the income tax consequences of owning a
Contract, you should consult a qualified tax adviser.
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ADMINISTRATION OF THE CONTRACTS
We perform certain administrative functions relating to the Contracts,
Participant Accounts, and the Variable Account. These functions include, but are
not limited to, maintaining the books and records of the Variable Account and
the Sub-Accounts; maintaining records of the name, address, taxpayer
identification number, Contract number, Participant Account number and type, the
status of each Participant Account and other pertinent information necessary to
the administration and operation of the Contracts; processing Applications,
Purchase Payments, transfers and full and partial withdrawals; issuing Contracts
and Certificates; administering annuity payments; furnishing accounting and
valuation services; reconciling and depositing cash receipts; providing
confirmations; providing toll-free customer service lines; and furnishing
telephonic transfer services.
DISTRIBUTION OF THE CONTRACTS
We offer the Contracts on a continuous basis. The Contracts are sold by
licensed insurance agents in those states where the Contracts may be lawfully
sold. Such agents will be registered representatives of broker-dealers
registered under the Securities Exchange Act of 1934 who are members of the
National Association of Securities Dealers, Inc. and who have entered into
distribution agreements with the Company and the general distributor, Clarendon
Insurance Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481. Clarendon, a wholly-owned subsidiary of the Company,
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 7.46% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of Participant Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation. We
reserve the right to offer these additional incentives only to certain
broker-dealers that sell or are expected to sell during specified time periods
certain minimum amounts of the Contracts or Certificates or other contracts
offered by the Company. Promotional incentives may change at any time.
Commissions will not be paid with respect to Accounts established for the
personal account of employees of the Company or any of its affiliates, or of
persons engaged in the distribution of the Contracts, or of immediate family
members of such employees or persons. In addition, commissions may be waived or
reduced in connection with certain transactions described in this Prospectus
under the heading "Waivers; Reduced Charges; Credits; Bonus Guaranteed Interest
Rates." We began offering the Contract in December 1998. During 1999,
approximately $290,937 was paid to and retained by Clarendon in connection with
distribution of the Contracts.
PERFORMANCE INFORMATION
From time to time the Variable Account may publish reports to
shareholders, sales literature and advertisements containing performance
information relating to the variable options. This information may include
standardized and non-standardized "Average Annual Total Return," "Cumulative
Growth Rate" and "Compound Growth Rate." We may also advertise "yield" and
"effective yield" for some Sub-Accounts.
Average Annual Total Return measures the net income of the variable option
and any realized or unrealized gains or losses of the Funds in which it invests,
over the period stated. Average Annual Total Return figures are annualized and
represent the average annual percentage change in the value of an investment in
a variable option over that period. Standardized Average Annual Total Return
information covers the period since we started offering Futurity products or, if
shorter, the life of the Fund. Non-standardized Average Annual Total Return
covers the life of each Fund, which may predate the Futurity products.
Cumulative Growth Rate represents the cumulative change in the value of an
investment in the Fund for the period stated, and is arrived at by calculating
the change in the Accumulation Unit Value of a Fund between the first and last
day of the period being measured. The difference is
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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 annual 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 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-Accounts 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 Sun Capital Money
Market Fund Sub-Account), expressed as a percentage of the value of the variable
options Accumulation Units. Yield is an annualized figure, which means that we
assume that the variable options generates the same level of net income over a
one-year period and compound that income on a semi-annual basis. We calculate
the effective yield for the Sun Capital Money Market Sub-Account similarly, but
include the increase due to assumed compounding. The Sun Capital Money Market
Fund Sub-Account's effective yield will be slightly higher than its yield as a
result of its compounding effect.
The Variable Account may also from time to time compare its investment
performance to various unmanaged indices or other variable annuities and may
refer to certain rating and other organizations in its marketing materials. More
information on performance and our computations is set forth in the Statement of
Additional Information.
The Company may also advertise the ratings and other information assigned
to it by independent industry ratings organizations. Some of these organizations
are A.M. Best, Moody's Investor's Service, Standard and Poor's Insurance Rating
Services, and Duff and Phelps. Each year A.M. Best reviews the financial status
of thousands of insurers, culminating in the assignment of Best's rating. These
ratings reflect A.M. Best's current opinion of the relevant financial strength
and operating performance of an insurance company in comparison to the norms of
the life/health industry. Best's ratings range from A++ to F. Standard and
Poor's and Duff and Phelps' ratings measure the ability of an insurance company
to meet its obligations under insurance policies it issues. These two ratings do
not measure the insurance company's ability to meet non-policy obligations.
Ratings in general do not relate to the performance of the Sub-Accounts.
We may also advertise endorsements from organizations, individuals or
other parties that recommend the Company or the Contracts. We may occasionally
include in advertisements (1) comparisons of currently taxable and tax deferred
investment programs, based on selected tax brackets; or (2) discussions of
alternative investment vehicles and general economic conditions.
AVAILABLE INFORMATION
The Company and the Variable Account have filed with the SEC registration
statements under the Securities Act of 1934 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,
41
<PAGE>
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 filed with the SEC is incorporated by reference in this Prospectus. Any
statement contained in a document we incorporate by reference is deemed modified
or superceded to the extent that a later filed document, including this
Prospectus, shall modify or supercede that statement. Any statement so modified
or superceded shall not be deemed, except as so modified or superceded, to
constitute part of this Prospectus.
The Company will furnish, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of the document referred to above which has been incorporated by reference
in this Prospectus, other than exhibits to such document (unless such exhibits
are specifically incorporated by reference in this Prospectus). Requests for
such document should be directed to the Secretary, Sun Life Assurance Company of
Canada (U.S.), One Sun Life Executive Park, Wellesley Hills, Massachusetts
02481, telephone (800) 225-3950.
42
<PAGE>
ADDITIONAL INFORMATION ABOUT THE COMPANY
GENERAL
The Company is engaged in the sale of individual variable life insurance
and individual and group fixed and variable annuities. These contracts are sold
in both the tax-qualified and non-tax-qualified markets. These products are
distributed through individual insurance agents, insurance brokers and
broker-dealers.
The following table sets forth premiums and deposits by major product
categories for each of the last 3 years. See the Notes to the Statutory
Financial Statements of the Company included in this Prospectus for industry
segment information.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Protection $ 16,509 $ 155,907 $ 204,671
Wealth Management $2,651,247 $2,194,895 $2,204,693
---------- ---------- ----------
$2,667,756 $2,350,802 $2,409,364
========== ========== ==========
</TABLE>
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the Statutory Financial Statements and the Notes thereto
included in this Prospectus beginning on page 57.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity deposits
and other revenue $ 2,869,250 $ 2,581,463 $ 2,623,629 $ 2,215,322 $ 1,883,901
Net investment income and
realized gains 190,844 187,208 298,121 310,172 315,966
----------- ----------- ----------- ----------- -----------
3,060,094 2,768,671 2,921,750 2,525,494 2,199,867
----------- ----------- ----------- ----------- -----------
Benefits and expenses
Policyholder benefits 2,706,121 2,416,950 2,579,104 2,232,528 1,995,208
Other expenses 239,136 214,607 206,065 175,342 150,937
----------- ----------- ----------- ----------- -----------
2,945,257 2,631,557 2,785,169 2,407,870 2,146,145
----------- ----------- ----------- ----------- -----------
Operating gain 114,837 137,114 136,581 117,624 53,722
Federal income tax expense
(benefit) 24,479 11,713 7,339 (5,400) 17,807
----------- ----------- ----------- ----------- -----------
Net income $ 90,358 $ 125,401 $ 129,242 $ 123,024 $ 35,915
=========== =========== =========== =========== ===========
Assets $19,948,155 $16,902,621 $15,925,357 $13,621,952 $12,359,683
=========== =========== =========== =========== ===========
Surplus notes $ 565,000 $ 565,000 $ 565,000 $ 315,000 $ 650,000
=========== =========== =========== =========== ===========
</TABLE>
See "Reinsurance," below, for the effect of the reinsurance agreements on 1999
net income.
See Note 1 to the Statutory Financial Statements for changes in accounting
principles and reporting.
See discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAUTIONARY STATEMENT
This Prospectus includes forward-looking statements by the Company under
the Private Securities Litigation Reform Act of 1995. These statements are not
matters of historical fact; they relate to such topics as future product sales,
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.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998:
NET INCOME
Net income decreased by $35.0 million to $90.4 million in 1999, reflecting
a decrease of $54.7 million in income from operations and an increase of
$19.7 million in net realized capital gains. (In the following discussion,
"income from operations" refers to the statutory statements of operations line
item, "net gain from operations after dividends to policyholders and federal
income tax and before realized capital gains.")
Income from operations decreased from $125.0 million in 1998 to
$70.3 million in 1999, mainly as a result of the following factors:
- A $32.3 million increase, to $63.7 million in 1999, in the income from
operations from the Company's Wealth Management segment. (See "1999
Compared to 1998 -- Wealth Management Segment," below.)
- The effect of terminating certain reinsurance agreements with the
Company's ultimate parent in 1998. The termination of these agreements was
the predominant factor in the $94.2 million decrease in income from
operations for the Company's Protection segment. (See "1999 Compared to
1998 -- Protection Segment," below.)
- An increase of $7.2 million in income from operations from the Corporate
segment, mainly reflecting dividends from a subsidiary. (See "1999
Compared to 1998 -- Corporate Segment," below.)
INCOME FROM OPERATIONS BY SEGMENT
The Company's income from operations reflects the operations of its 3
business segments: the Wealth Management segment, the Protection segment and the
Corporate segment.
44
<PAGE>
The following table provides a summary of income from operations by
segment, which is discussed more fully below.
INCOME FROM OPERATIONS BY SEGMENT*
(IN MILLIONS)
<TABLE>
<CAPTION>
% CHANGE
---------------------
1999 1998 1997 1999/1998 1998/1997
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Wealth Management $63.7 $ 31.4 $ 14.7 102.9 % 113.6 %
Protection (5.1) 89.1 18.0 (105.7)% 395.0 %
Corporate 11.7 4.5 69.8 160.0 % (93.6)%
----- ------ ------ ------ -----
$70.3 $125.0 $102.5 (43.8)% 22.0 %
===== ====== ====== ====== =====
</TABLE>
* Before net realized capital gains
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.
Following are the major factors affecting this segment's results in 1999
as compared to 1998.
- Deposit-type funds, which primarily comprised annuity deposits,
increased by $457.7 million, or 21%, to $2,598.3 million in 1999. Fixed
annuity account deposits were higher by approximately $625 million in
1999, which management believes 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 6-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 declined by
approximately 13% in 1999. The Company believes this decline was a
consequence of the heightened interest in the DCA programs in 1999.
- Sales of the Futurity line of products, introduced in February 1998,
represented approximately 9% of total annuity deposits in 1999. The
Company expects that sales of the Futurity products
45
<PAGE>
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 respond favorably to introductions
of new Futurity products and product enhancements.
- Fee income increased as a result of higher variable annuity account
balances. Fee income was higher by approximately $32 million in 1999.
The factors driving this growth in account balances have been market
appreciation and net deposit activity. This growth has generated
corresponding increases in fee income, since fees are determined based
on the average assets held in these accounts. Other income increased by
approximately $5 million in 1999, mainly reflecting a reinsurance
agreement entered into in July 1999 with an unrelated company, which
provides reinsurance on certain fixed group annuity contracts. The net
effect of this agreement was to increase income from operations by
approximately $3.4 million.
- The net year-over-year change in aggregate reserves on policies and
contracts for the Wealth Management segment had the effect of increasing
income from operations for this segment. This change reflected lower
reserves related to minimum guaranteed death benefit product features as
well as a variety of other factors.
- 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. In 1999, net investment
income for the Wealth Management segment decreased by $44.0 million, to
$114.0 million. 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 surrenders and
withdrawals, changes in the liability for premium and other deposit
funds, and related separate account transfers) were higher by
approximately $430 million in 1999, mainly as a result of higher
variable annuity surrenders. The increase in variable annuity surrenders
primarily related to a block of separate account contracts that had been
issued seven or more years previously and for which the surrender charge
periods had expired. The Company expects that as the separate account
block of business continues to grow and as 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.
- Operational expenses, which include general insurance expenses and
insurance taxes, licenses and fees, excluding federal income taxes,
increased by $5.4 million, or 9%, in 1999. This increase reflected costs
associated with operations and technology improvements to support the
growth of the Company's in-force business. Commissions of
$153.6 million were higher by $17.7 million in 1999, mainly as a result
of higher sales.
PROTECTION SEGMENT
The Protection Segment comprises two main elements, internal reinsurance
and variable 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). This agreement had the effect of increasing income
46
<PAGE>
from operations by $24.6 million in 1998. In addition, the effect of terminating
this agreement was to further increase 1998 net income by $65.7 million as the
termination payment was less than the reserves held under the agreement. Because
this agreement terminated in 1998, it had no effect on income from operations in
1999.
Variable Life Products
The Company's primary individual variable life insurance product is its
variable universal life product marketed to the company-owned life insurance
("COLI") market. This product was introduced in late 1997. The Company's
management expects that the Company's variable life business will grow and
become more significant in the future. In September 1999, the Company introduced
a new variable universal life product as part of the Futurity product portfolio.
Costs related to developing this product were primarily responsible for the
decrease of approximately $4 million in income from operations for this portion
of the Protection segment.
CORPORATE SEGMENT
The Corporate segment includes the capital of the Company, its investments
in subsidiaries and items not otherwise attributable to either the Wealth
Management segment or the Protection segment.
In 1999, income from operations for this segment increased by
$7.2 million to $11.7 million. This increase reflected higher net investment
income, mainly from dividends of $19.3 million received during the 4th quarter
from a subsidiary, New London Trust, F.S.B. Partially offsetting this change in
net investment income were higher operational expenses and higher federal income
taxes attributable to this segment.
1998 COMPARED TO 1997:
NET INCOME
Net income decreased by $3.8 million to $125.4 million in 1998, reflecting
an increase of $22.5 million in income from operations and a decrease of
$26.3 million in net realized capital gains.
Income from operations increased from $102.5 million in 1997 to
$125.0 million in 1998, mainly as a result of the following factors:
- A $16.7 million increase, to $31.4 million in 1998, in the income from
operations from the Company's Wealth Management segment. (See "1998
Compared to 1997 -- Wealth Management Segment," below.)
- The effect of terminating certain reinsurance agreements with Sun Life
(Canada). The termination of these agreements was the predominant factor
in the $71.1 million increase in income from operations for the
Company's Protection segment.
- The effects of the Company's December 1997 reorganization (described in
"Corporate Segment," below), as a result of which MFS is no longer a
subsidiary of the Company. As a result of this reorganization, dividends
from subsidiaries were lower in 1998 than in 1997 and certain subsidiary
tax benefits were no longer available to the Company. Also affecting
income from operations for the Corporate segment in 1998 was that income
earned on the proceeds of a December 1997 issuance of a $250 million
surplus note was lower than the related interest expense.
Net realized capital gains decreased from $26.7 million in 1997 to
$0.4 million in 1998. This decrease was also due to the Company's December 1997
reorganization which resulted in a realized capital gain of $21.2 million in
1997.
47
<PAGE>
INCOME FROM OPERATIONS BY SEGMENT
WEALTH MANAGEMENT SEGMENT
Following are the major factors affecting the Wealth Management segment's
results in 1998 as compared to 1997:
- Annuity deposits declined by about $27 million, or 1%, to $2.2 billion in
1998. Fixed annuity account deposits were lower by approximately 7% in
1998, while deposits into variable annuity accounts increased in total and
as a proportion of total annuity deposits. These trends reflected market
conditions and competitive factors.
- Deposits into the DCA programs, a feature of the Company's combination
fixed/variable annuity products, were a significant element of account
deposits. Under these programs, which were redesigned in late 1996,
deposits are made into the fixed portion of the annuity contract and
receive a bonus rate of interest for the policy year. During the year, the
fixed deposit is systematically transferred to the variable portion of the
contract in equal periodic installments. DCA deposits overall were flat in
1998 compared to 1997. This pattern resulted, in part, from heightened
competition, as other companies introduced similar DCA programs within in
1998. During the fourth quarter of 1998, the Company introduced a higher
DCA rate and a new six-month DCA program. DCA deposits for that quarter
were higher, compared to the preceding 1998 quarters.
- An increase in variable account deposits in 1998 reflected both the
continuing strong growth in equity markets generally and the continuing
strong performance of the investment funds underlying the Company's
variable annuity products. The continuing strong equity markets, low
interest rate environment, and demographic trends, among other factors,
increased the demand and market for wealth accumulation products in the
U.S., particularly for variable annuities. These factors contributed to the
growth in the Company's variable account deposits in 1998, despite
heightened competition.
- The Company introduced its Futurity line of products in February 1998.
Related deposits represented about 6% of the total for the Wealth
Management segment in 1998.
- Fee income increased as a result of higher variable annuity account
balances. The main factors driving this growth in account balances were
market appreciation and net deposit activity. This growth generated
corresponding increases in fee income, since fees are determined based on
the average assets held in these accounts. Fee income increased by
approximately $43 million, or 39%, in 1998.
- Because there was a shift to variable accounts from the general account,
net investment income declined. Net investment income reflects only income
earned on invested assets of the general account. In 1998, net investment
income for the Wealth Management segment decreased by about $40 million,
or 20%, compared to 1997, mainly as a result of the decline in average
invested assets in the Company's general account. This decline in average
general account assets mainly reflected the shift in deposits in recent
years from the fixed account to variable accounts. It also reflected the
Company's decision in 1997 to no longer market group pension and GICs.
- Policyholder benefits were lower, mainly reflecting lower surrender
activity compared to 1997. During 1997 and into the first half of 1998,
surrender and withdrawal activity had been high. This activity primarily
related to a block of separate account contracts that had been issued 7 or
more years previously and for which the surrender charge periods had
expired. While variable account surrenders continued to rise, general
account surrenders declined in 1998. As a result of this pattern of
activity, policyholder benefits (of which surrenders and withdrawals, the
related changes in the liability for premium and other deposit funds, and
related separate account transfers are the major elements) increased in
1997 and were lower in 1998.
48
<PAGE>
- As a result of investments in technology and infrastructure to enhance
annuity operations, operational expenses increased by approximately $12
million, or 25%, in 1998 compared to 1997. These increases reflected 3
main factors:
- Higher volumes of annuity business, requiring greater administrative
support.
- Improvements to the computer systems and technology that support the
annuity business. These improvements involved information systems
supporting the growth of the Company's in-force business, particularly
its combination fixed/variable annuities.
- Costs associated with the product design and implementation of the new
Futurity multi-manager annuity product and the development of a new
product within the Regatta product line.
PROTECTION SEGMENT
The reinsurance arrangements in which Sun Life (Canada) has reinsured the
mortality risks of individual life policies sold in prior years by the Company
had an immaterial effect, in the aggregate, on net income in 1997 and 1998.
Under another agreement, which became effective January 1, 1991 and terminated
October 1, 1998, the Company reinsured certain individual life insurance
contracts issued by Sun Life (Canada). This agreement had the effect of
increasing income from operations by $37.1 million in 1997. Income from
operations decreased to $24.6 million in 1998, because the agreement was in
place only through the first 9 months of 1998. In addition, the effect of
terminating this agreement was to further increase 1998 net income by $65.7
million. This termination-related increase in 1998 represented a reasonable
approximation of the value of the stream of future earnings that the agreement
would have generated had it remained in effect.
The Company's primary individual variable life insurance product is its
variable universal life product marketed to the company-owned life insurance
("COLI") market. This product was introduced in late 1997.
CORPORATE SEGMENT
In 1998, income from operations decreased by $65.3 million to
$4.5 million for the Corporate segment. This decrease reflected 2 main factors:
- Dividends from subsidiaries were lower than in 1997 by $37.5 million. This
decrease mainly resulted from a December 1997 reorganization, in which the
Company transferred its ownership of MFS to its parent company, Sun Life
of Canada (U.S.) Holdings, Inc. ("Sun Life (U.S.) Holdings.") As a result
of this reorganization, the Company received no dividends from MFS in
1998. By comparison, it received $33.1 million of MFS dividends in 1997.
- Net investment income, other than dividends from subsidiaries, decreased
by $5.9 million in 1998 over 1997, reflecting the effect of the Company's
December 1997 issuance of a $250 million surplus note to Sun Life (U.S.)
Holdings. Interest expense exceeded investment earnings on the related
funds.
FINANCIAL CONDITION AND LIQUIDITY
ASSETS
The Company's total assets comprise those held in its general account and
those held in its separate accounts. General account assets support general
account liabilities. Separate accounts and their assets are of 2 main types:
- Those assets held in a "fixed" separate account, which the Company
established for amounts that contract holders allocate to the fixed
portion of their combination fixed/variable deferred annuity contracts.
Fixed separate account assets are available to fund general account
liabilities and general account assets are available to fund the
liabilities of this fixed separate account. The
49
<PAGE>
Company manages the assets of this fixed separate account according to
general account investment policy guidelines.
- Those assets held in a number of registered and non-registered "variable"
separate accounts as investment vehicles for the Company's variable life
and annuity contracts. Policyholders may choose from among various
investment options offered under these contracts according to their
individual needs and preferences. Policyholders assume the investment
risks associated with these choices. General account and fixed separate
account assets are not available to fund the liabilities of these variable
accounts.
The following table summarizes significant changes in asset balances
during 1999, 1998 and 1997. The changes are discussed below.
<TABLE>
<CAPTION>
ASSETS % CHANGE
1999 1998 1997 1999/1998 1998/1997
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
General account assets.................. $ 2,377.1 $ 2,932.2 $ 4,513.5 (18.9)% (35.0)%
Fixed separate account assets........... 2,080.7 2,195.6 2,343.9 (5.2)% (6.3)%
--------- --------- --------- ----- -----
$ 4,457.8 $ 5,127.8 $ 6,857.4 (13.1)% (25.2)%
Variable separate account assets........ 15,490.3 11,774.8 9,068.0 31.6 % 29.9 %
--------- --------- --------- ----- -----
Total assets............................ $19,948.1 $16,902.6 $15,925.4 18.0 % 6.1 %
========= ========= ========= ===== =====
</TABLE>
General account and fixed separate account assets, taken together,
decreased by 13.2% in 1999; but variable separate account assets increased by
31.6%. In 1998, the combined general account and fixed separate account
decreased by 25.2%, while variable separate account assets increased by 29.9%.
This growth in variable accounts relative to the general and fixed accounts
reflects 2 main factors: (1) appreciation of the funds held in the variable
separate accounts has exceeded that of the funds held in the general and fixed
separate accounts; and (2) annuity deposits and exchanges into variable accounts
have increased, while annuity deposits into fixed accounts have slowed. The
Company believes this pattern has reflected a shift in the preferences of
policyholders, which is largely attributable to the strong performance of equity
markets in general and of the Company's variable account funds in particular.
The assets of the general account are available to support general account
liabilities. For management purposes, it is the Company's practice to segment
its general account to facilitate the matching of assets and liabilities.
General account assets primarily comprise cash and invested assets, which
represented essentially all of general account assets at year-end 1999. Major
types of invested asset holdings included bonds, mortgages, real estate and
common stock. The Company's bond holdings comprised 51.5% of the Company's
portfolio at year-end 1999. Bonds included both public and private issues. It is
the Company's policy to acquire only investment-grade securities. As a result,
the overall quality of the bond portfolio is high. At year-end 1999, only 0.5%
were rated below-investment-grade; i.e., they had National Association of
Insurance Commissioners ("NAIC") ratings lower than "1" or "2." The Company's
mortgage holdings amounted to $528.9 million at year-end 1999, representing
22.3% of the total portfolio. All mortgage holdings at year-end 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
year-end 1999, investment real estate amounted to $79.2 million, representing
about 3.3% 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. Common stock holdings amounted to $75.3 million, representing about
3.2% of the portfolio. These holdings comprised the Company's ownership shares
in subsidiaries.
50
<PAGE>
LIABILITIES
As with assets, the proportion of variable separate account liabilities to
total liabilities has been increasing. Most of the Company's liabilities
comprise reserves for life insurance and for annuity contracts and deposit
funds. The Company expects the declining trend in general account liabilities to
continue, because it believes that net maturities will continue to exceed sales
for the fixed contracts associated with these liabilities. This trend stems
mainly from the Company's 1997 decision to discontinue selling group pension and
GIC contracts and to focus its marketing efforts on its combination
fixed/variable annuity products.
CAPITAL MARKETS RISK MANAGEMENT
See "Quantitative and Qualitative Disclosures About Market Risk," below,
for a discussion of the Company's capital markets risk management.
CAPITAL RESOURCES
CAPITAL ADEQUACY
The National Association of Insurance Commissioners ("NAIC") adopted
regulations at the end of 1993 that established minimum capitalization
requirements for insurance companies, based on risk-based capital ("RBC")
formulas. These requirements are intended to identify undercapitalized
companies, so that specific regulatory actions can be taken on a timely basis.
The RBC formula for life insurance companies 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 and fixed separate account assets in
relation to its liabilities, the Company has segmented these assets by product
or by groups of products. The Company manages each segment's assets based on an
investment policy that it has established for that segment. Among other matters,
this investment policy considers liquidity requirements and provides cash flow
estimates. The Company reviews these policies quarterly.
The Company's liquidity targets are intended to enable it to meet its
day-to-day cash requirements. On a quarterly basis, the Company compares its
total "liquifiable" assets to its total demand liabilities. Liquifiable assets
comprise cash and assets that could quickly be converted to cash should the need
arise. These assets include short-term investments and other current assets and
investment-grade bonds. The Company's policy is to maintain a liquidity ratio in
excess of 100%, and it did so throughout 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
On January 27, 1998, Sun Life (Canada) announced that its Board of
Directors had requested that management develop a plan to demutualize.
Demutualization would involve converting from a mutual structure, with ownership
by policyholders, to a shareholder-owned company. It would provide that the
ownership interest currently held by policyholders be distributed to them in the
form of shares, without affecting their interests as policyholders. In
June 1999, the Sun Life (Canada)'s Board of
51
<PAGE>
Directors approved the demutualization timetable recommended by management, and
on September 28, 1999, Sun Life (Canada)'s Board of Directors approved the
demutualization plan. On December 6, 1999, Sun Life (Canada) received approval
for its demutualization plan from the Michigan Commissioner of Insurance. At a
Special Meeting on December 15, 1999, eligible policyholders of Sun Life
(Canada) voted in favor of the Company's plans to demutualize. Sun Life (Canada)
completed its demutualization on March 22, 2000 and its Initial Public Offering
("IPO") on March 29, 2000. The demutualization of Sun Life (Canada) is not
expected to have any significant impact on the Company.
SALE OF SUBSIDIARIES
On February 5, 1999, the Company sold Massachusetts Casualty Insurance
Company ("MCIC"), a disability insurance company, to an unaffiliated party. The
net proceeds of this sale were $34.0 million and the Company realized a post tax
gain of $4.9 million.
On October 29, 1999, the Company completed the sale of its wholly-owned
subsidiary, New London Trust F.S.B. ("NLT"), for approximately $30.3 million to
an unaffiliated party. The Company realized a post-tax gain of $13.2 million
from this sale. This transaction is not expected to have a significant effect on
the ongoing operations of the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This discussion covers market risks associated with investment portfolios
that support the Company's general account liabilities. This discussion does not
cover market risks associated with those investment portfolios that support
separate account products. For these products, the policyholder, rather than the
Company, assumes these market risks.
GENERAL
The assets of the general account are available to support general account
liabilities. For purposes of managing these assets in relation to these
liabilities, the Company notionally segments these assets by product or by
groups of products. The Company manages each segment's assets based on an
investment policy that it has established for that segment. The policy covers
the segment's liability characteristics and liquidity requirements, provides
cash flow estimates, and sets targets for asset mix, duration, and quality. Each
quarter, investment and business unit managers review these policies to ensure
that the policies remain appropriate, taking into account each segment's
liability characteristics.
TYPES OF MARKET RISKS
The Company's stringent underwriting standards and practices have resulted
in high-quality portfolios and have the effect of limiting credit risk. It is
the Company's policy, for example, not to purchase below-investment-grade
securities. Also, as a matter of investment policy, the Company assumes no
foreign currency or commodity risk; nor does it assume equity price risk except
to the extent that it holds real estate in its portfolios. (At year-end 1999,
investment real estate holdings represented less than 4% of its total general
account portfolio.) The management of interest rate risk exposure is discussed
below.
INTEREST RATE RISK MANAGEMENT
The Company's fixed interest rate liabilities are primarily supported by
well-diversified portfolios of fixed interest investments. They are also
supported by holdings of real estate and floating rate notes. All of these fixed
interest investments are held for other than trading purposes and can include
publicly issued and privately placed bonds and commercial mortgage loans. Public
bonds can include Treasury bonds, corporate bonds, and money market instruments.
The Company's fixed income portfolios also hold securitized assets, including
mortgage-backed securities ("MBS") and asset-backed securities. These securities
are subject to the same standards applied to other portfolio investments,
including relative value criteria and diversification guidelines. In portfolios
backing interest-sensitive liabilities, the Company's policy is to limit MBS
holdings to less than 10% of total portfolio assets. In all portfolios, the
Company restricts MBS investments to pass-through securities issued by U.S.
government agencies
52
<PAGE>
and to collateralized mortgage obligations, which are expected to exhibit
relatively low volatility. The Company does not engage in lever-aged
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;
- the use of key rate durations to estimate interest rate exposure at
different parts of the yield curve and to estimate the exposure to
non-parallel shifts in the yield curve.
The Company's Interest Rate Risk Committee meets monthly. After reviewing
duration analyses, market conditions and forecasts, the Committee develops
specific asset management strategies for the interest-sensitive portfolios.
These strategies may involve managing to achieve small intentional mismatches,
either in terms of total effective duration or for certain key rate durations,
between the liabilities and related assets of particular segments. The Company
manages these mismatches to a tolerance range of plus or minus 0.5.
Asset strategies may include the use of Treasury futures or interest rate
swaps to adjust the duration profiles for particular portfolios. All derivative
transactions are conducted under written operating guidelines and are marked to
market. Total positions and exposures are reported to the Board of Directors on
a monthly basis. The counterparties to hedging transactions are major highly
rated financial institutions, with respect to which the risk of the Company's
incurring losses related to credit exposures is considered remote.
Liabilities categorized as financial instruments and held in the Company's
general account at December 31, 1999 had a fair value of $1,024.6 million. Fixed
income investments supporting those liabilities had a fair value of $2,072.1
million at that date. The Company performed a sensitivity analysis on these
interest-sensitive liabilities and assets at December 31, 1999. The analysis
showed that if there were an immediate increase of 100 basis points in interest
rates, the fair value of the liabilities would show a net decrease of $30.6
million and the corresponding assets would show a net decrease of $80.5 million.
By comparison, liabilities categorized as financial instruments and held
in the Company's general account at December 31, 1998 had a fair value of
$1,538.3 million. Fixed income investments supporting those liabilities had a
fair value of $2,710.1 million at that date. The Company performed a sensitivity
analysis on these interest-sensitive liabilities and assets at December 31,
1998. The analysis showed that if there were an immediate increase of 100 basis
points in interest rates, the fair value of the liabilities would show a net
decrease of $46.3 million and the corresponding assets would show a net decrease
of $113.2 million.
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
53
<PAGE>
the models to produce estimates that are generally worse than one might actually
expect, all other things being equal.
Based on its processes for analyzing and managing interest rate risk, the
Company believes its exposure to interest rate changes will not materially
affect its near-term financial position, results of operations, or cash flows.
REINSURANCE
The Company has agreements with Sun Life (Canada) which provide that Sun
Life (Canada) will reinsure the mortality risks of the individual life insurance
contracts sold by the Company. Under these agreements, basic death benefits and
supplementary benefits are reinsured on a yearly renewable term basis and
coinsurance basis, respectively. Reinsurance transactions under these agreements
in 1999 had the effect of decreasing net income from operations by approximately
$1,527,000.
Effective January 1, 1991, the Company entered into an agreement with Sun
Life (Canada) under which certain individual life insurance contracts issued by
Sun Life (Canada) were reinsured by the Company on a 90% coinsurance basis. Also
effective January 1, 1991 the Company entered into an agreement with Sun Life
(Canada) which provides that Sun Life (Canada) will reinsure the mortality risks
in excess of $500,000 per policy for the individual life insurance contracts
assumed by the Company in the reinsurance agreement described above. 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. These agreements had the effect of increasing income from
operations by approximately $24,579,000 for the year ended December 31, 1998.
The Company terminated these agreements effective October 1, 1998, resulting in
an increase in income from operations in 1998 of $65,679,000 which included a
cash settlement.
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. Reinsurance transactions under this agreement had the effect of
increasing income from operations by $193,000 in 1999.
During 1999, the Company entered into an agreement with an unrelated
company which provides reinsurance on certain fixed group annuity contracts. The
net effect of this agreement was to increase income from operations by
approximately $3,400,000. 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 net effect of these agreements was to
increase income from operations by approximately $157,000.
RESERVES
In accordance with the life insurance laws and regulations under which the
Company operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on its outstanding
contracts. Reserves are based on mortality tables in general use in the United
States and are computed to equal amounts that, with additions from premiums to
be received, and with interest on such reserves compounded annually at certain
assumed rates, will be sufficient to meet the Company's policy obligations at
their maturities or in the event of an insured's death. In the accompanying
Financial Statements, these reserves are determined in accordance with statutory
regulations.
INVESTMENTS
Of the Company's total assets of $19.9 billion at December 31, 1999, 88.1%
($17.6 billion) consisted of unitized and non-unitized separate account assets,
6.1% ($1.2 billion) was invested in bonds and similar securities, 2.7%
($528.9 million) was invested in mortgages, 0.4% ($75.3 million) was invested in
subsidiaries, 0.4% ($94.8 million) was invested in real estate, and the
remaining 2.3% ($456.1 million) was invested in cash and other assets.
54
<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 total 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 March 31, 2000, the Company had 385 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.
55
<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
statutory 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.)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 1,221,970 $ 1,763,468
Common stocks 75,283 128,445
Mortgage loans on real estate 528,911 535,003
Properties acquired in satisfaction of debt 15,641 17,207
Investment real estate 79,182 78,021
Policy loans 40,095 41,944
Cash and short-term investments 316,971 265,226
Other invested assets 67,938 64,177
Investment income due and accrued 25,303 35,706
Federal income tax recoverable and interest thereon -- 1,110
Other assets 5,807 1,928
----------- -----------
General account assets 2,377,101 2,932,235
Separate account assets
Unitized 15,490,328 11,774,745
Non-unitized 2,080,726 2,195,641
----------- -----------
Total admitted assets $19,948,155 $16,902,621
=========== ===========
LIABILITIES
Aggregate reserve for life policies and contracts $ 1,153,642 $ 1,216,107
Supplementary contracts 3,182 1,885
Policy and contract claims 962 369
Liability for premium and other deposit funds 564,820 1,000,875
Surrender values on cancelled policies 16 5
Interest maintenance reserve 41,771 40,490
Commissions to agents due or accrued 3,253 2,615
General expenses due or accrued 14,055 5,932
Transfers from Separate Accounts due or accrued (467,619) (361,863)
Taxes, licenses and fees due or accrued, excluding FIT 379 401
Federal income taxes due or accrued 89,031 25,019
Unearned investment income 22 23
Amounts withheld or retained by company as agent or
trustee (442) 529
Remittances and items not allocated 1,078 5,176
Asset valuation reserve 44,071 44,392
Payable to parent, subsidiaries, and affiliates 26,284 30,381
Payable for securities -- 428
Other liabilities 16,674 9,770
----------- -----------
General account liabilities 1,491,179 2,022,534
Separate account liabilities:
Unitized 15,489,908 11,774,522
Non-unitized 2,080,726 2,195,641
----------- -----------
Total liabilities 19,061,813 15,992,697
----------- -----------
CAPITAL STOCK AND SURPLUS
Common capital stock 5,900 5,900
----------- -----------
Surplus notes 565,000 565,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 116,087 139,669
----------- -----------
Surplus 880,442 904,024
----------- -----------
Total common capital stock and surplus 886,342 909,924
----------- -----------
Total liabilities, capital stock and surplus $19,948,155 $16,902,621
=========== ===========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
57
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 69,492 $ 210,198 $ 254,066
Deposit-type funds 2,598,265 2,140,604 2,155,297
Considerations for supplementary contracts without
life contingencies and dividend accumulations 3,461 2,086 1,615
Net investment income 167,035 184,532 270,249
Amortization of interest maintenance reserve 3,702 2,282 1,166
Income from fees associated with investment
management and administration and contract
guarantees from Separate Account 173,417 141,211 109,757
Net gain from operations from Separate Account 61 -- 5
Other income 24,554 87,364 102,889
---------- ---------- ----------
Total Income 3,039,987 2,768,277 2,895,044
---------- ---------- ----------
BENEFITS AND EXPENSES:
Death benefits 4,386 15,335 17,284
Annuity benefits 155,387 153,636 148,135
Disability benefits and benefits under accident and
health policies -- 104 132
Surrender benefits and other fund withdrawals 2,313,179 1,933,833 1,854,004
Interest on policy or contract funds 237 (140) 699
Payments on supplementary contracts without life
contingencies and dividend accumulations 2,345 2,528 1,687
Increase (decrease) in aggregate reserves for life
and accident and health policies and contracts (62,465) (972,135) 127,278
Decrease in liability for premium and other deposit
funds (436,055) (449,831) (447,603)
Increase (decrease) in reserve for supplementary
contracts without life contingencies and for
dividend and coupon accumulations 1,296 (362) 42
---------- ---------- ----------
Total Benefits 1,978,310 682,968 1,701,658
---------- ---------- ----------
Commissions on premiums and annuity considerations
(direct business only) 155,381 137,718 132,700
Commissions and expense allowances on reinsurance
assumed -- 13,032 17,951
General insurance expenses 75,046 58,132 46,624
Insurance taxes, licenses and fees, excluding federal
income taxes 8,710 7,388 8,267
Increase (decrease) in loading on and cost of
collection in excess of loading on deferred and
uncollected premiums -- (1,663) 523
Net transfers to Separate Accounts 727,811 722,851 844,130
Reserve and fund adjustments on reinsurance
terminated -- 1,017,112 --
---------- ---------- ----------
Total Benefits and Expenses $2,945,258 $2,637,538 $2,751,853
---------- ---------- ----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
58
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net gain from operations before dividends to
policyholders and federal income tax expense $94,729 $130,739 $143,191
Dividends to policyholders -- (5,981) 33,316
------- -------- --------
Net gain from operations after dividends to
policyholders and before federal income tax
expense 94,729 136,720 109,875
Federal income tax expense, (excluding tax on
capital gains) 24,479 11,713 7,339
------- -------- --------
Net gain from operations after dividends to
policyholders and federal income taxes and
before realized capital gains 70,250 125,007 102,536
Net realized capital gains less capital gains
tax and transferred to the Interest
Maintenance Reserve 20,108 394 26,706
------- -------- --------
NET INCOME $90,358 $125,401 $129,242
======= ======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
59
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- --------
<S> <C> <C> <C>
Capital and Surplus, Beginning of Year $909,924 $832,695 $567,143
-------- -------- --------
Net Income 90,358 125,401 129,242
Change in net unrealized capital gains (losses) (36,111) (384) 1,152
Change in non-admitted assets and related items 1,715 (1,086) (463)
Change in reserve due to change in valuation basis -- 39,016
Change in asset valuation reserve 320 3,213 6,307
Surplus (contributed to) withdrawn from Separate
Accounts during period 136 82 --
Other changes in surplus in Separate Accounts
Statements -- 10 --
Change in surplus notes -- -- 250,000
Dividends to stockholders (80,000) (50,000) (159,722)
Aggregate write-ins for gains and (losses) in surplus -- (7) 20
-------- -------- --------
Net change in capital and surplus for the year (23,582) 77,229 265,552
-------- -------- --------
Capital and Surplus, End of Year $886,342 $909,924 $832,695
======== ======== ========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
60
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
STATUTORY STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Provided by Operations:
Premiums, annuity considerations and deposit
funds received $ 2,667,756 $ 2,361,669 $ 2,410,919
Considerations for supplementary contracts and
dividend accumulations received 3,461 2,086 1,615
Net investment income received 225,038 236,944 345,279
Fees associated with investment management,
administration, and contract guarentees from
Separate Accounts 173,417 141,211 --
Other income received 24,555 111,936 208,223
----------- ----------- -----------
Total receipts 3,094,227 2,853,846 2,966,036
----------- ----------- -----------
Benefits paid (other than dividends) 2,474,693 2,107,736 2,020,747
Insurance expenses and taxes paid (other than
federal income and capital gains taxes) 230,744 217,023 203,650
Net cash transferred to Separate Accounts 833,567 800,636 895,465
Dividends paid to policyholders -- 26,519 28,316
Federal income tax payments
(recoveries),(excluding tax on capital gains) (40,644) 46,965 1,397
Other--net 237 (138) 698
----------- ----------- -----------
Total payments 3,498,597 3,198,741 3,150,273
----------- ----------- -----------
Net cash used in operations (404,370) (344,895) (184,237)
----------- ----------- -----------
Proceeds from long-term investments sold,
matured or repaid (after deducting taxes on
capital gains (losses) of $(1,768) for 1999,
$2,038 for 1998, and $750 for 1997) 1,065,307 1,261,396 1,343,803
Issuance of surplus notes -- -- 250,000
Other cash provided (used) 13,797 (40,529) 71,095
----------- ----------- -----------
Total cash provided 1,079,104 1,220,867 1,664,898
----------- ----------- -----------
Cash Applied:
Cost of long-term investments acquired (484,417) (967,901) (773,783)
Other cash applied (138,572) (187,263) (310,519)
----------- ----------- -----------
Total cash applied (622,989) (1,155,164) (1,084,302)
Net change in cash and short-term investments 51,745 (279,192) 396,359
Cash and short-term investments:
Beginning of year 265,226 544,418 148,059
----------- ----------- -----------
End of year $ 316,971 $ 265,226 $ 544,418
=========== =========== ===========
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
61
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS
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 and is currently engaged in the sale of individual
variable life insurance, individual fixed and variable annuities, group fixed
and variable annuities, and group pension contracts.
Effective May 1, 1997, the Company became a wholly-owned subsidiary of the newly
established Sun Life of Canada (U.S.) Holdings, Inc. ("Life Holdco"). On
December 18, 1997, Life Holdco became a wholly-owned subsidiary of Sun Life
Assurance Company of Canada - U.S. Operations Holdings, Inc. ("US Holdco"). US
Holdco is a wholly-owned subsidiary of Sun Life Assurance Company of Canada
("SLOC"), a mutual insurance company.
The Company, which is domiciled in the State of Delaware, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Delaware Insurance Department. Prescribed accounting
practices include practices described in a variety of publications of the
National Association of Insurance Commissioners ("NAIC"), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles for mutual life insurance companies and stock life insurance
companies wholly-owned by mutual life insurance companies. In April 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation"), that became effective in 1996, which changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly-owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with generally accepted accounting principles
("GAAP"). Consequently, these financial statements prepared in conformity with
statutory accounting practices, as described above, vary from and are not
intended to present the Company's financial position, results of operations or
cash flow in conformity with generally accepted accounting principles. (See Note
19 for further discussion relative to the Company's basis of financial statement
presentation.) The effects on the financial statements of the variances between
the statutory basis of accounting and GAAP, although not reasonably
determinable, are presumed to be material.
INVESTED ASSETS
Bonds are carried at cost, adjusted for amortization of premium or accrual of
discount. Investments in mortgage backed securities are generally carried at
amortized cost. Changes in prepayment assumptions and resulting cash flows are
confirmed retrospectively. The adjusted yield is used to calculate investment
income in future periods. If current book value exceeds future undiscounted cash
flows, a realized capital loss is recorded and amortized through the Interest
Maintenance Reserve (IMR). Investments in non-insurance subsidiaries are carried
on the equity basis. Investments in insurance subsidiaries are carried at their
statutory surplus values. Mortgage loans acquired at a premium or discount are
carried at amortized values and other mortgage loans are carried at the amounts
of the unpaid balances. Real estate investments are carried at the lower of
cost, adjusted for accumulated depreciation or appraised value, less
encumbrances. Short-term investments are carried at amortized cost, which
approximates fair value. Depreciation of buildings and improvements is
calculated using the straight-line method over the estimated useful life of the
property, generally 40 to 50 years.
62
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
POLICY AND CONTRACT RESERVES
The reserves for life insurance and annuity contracts are computed in accordance
with presently accepted actuarial standards, and are based on actuarial
assumptions and methods (including use of published mortality tables and
prescribed interest rates) which produce reserves at least as great as those
required by law and contract provisions.
INCOME AND EXPENSES
For life and annuity contracts, premiums are recognized as revenues over the
premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
SEPARATE ACCOUNTS
The Company has established unitized separate accounts applicable to various
classes of contracts providing for variable benefits. Contracts for which funds
are invested in separate accounts include variable life insurance and individual
and group qualified and non-qualified variable annuity contracts.
The Company has also established a non-unitized separate account for amounts
allocated to the fixed portion of certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities, and general account assets are available to fund
liabilities of this account.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders, are shown as separate captions in the financial statements.
Assets held in the separate accounts are carried at market value as determined
by quoted market prices of the underlying investments.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, and accrued expense
allowances recognized in reserves are receivable from or payable to the general
account. Accumulated amounts that have not been transferred are recorded as a
payable (receivable) to (from) the general account. Amounts payable to the
general account of the Company were $467,619,000 in 1999 and $361,863,000 in
1998.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
As described more fully in Note 10, during 1997 the Company changed certain
assumptions used in determining actuarial reserves.
In March 1998, the National Association of Insurance Commissioners adopted the
Codification of Statutory Accounting Principles ("Codification"). The
Codification, which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be effective January 1,
2001. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices and it is uncertain when, or
if, the state of Delaware will require adoption of Codification for the
preparation of statutory financial statements. The Company has not finalized the
quantification of the effects of Codification on its statutory financial
statements.
OTHER
Preparation of the financial statements requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to amounts as
presented in the current year.
63
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. INVESTMENTS IN SUBSIDIARIES
The Company owns all of the outstanding shares of the following subsidiaries:
Sun Life Insurance and Annuity Company of New York ("Sun Life (N.Y.)") is
engaged in the sale of individual fixed and variable annuity contracts and group
life and group long term disability insurance contracts in the State of New
York;
Sun Life of Canada (U.S.) Distributors, Inc. (formerly Sun Investment Services
Company) ("Sundisco"), is a registered broker-dealer;
Sun Life Financial Services Limited ("SLFSL"), serves as the marketing
administrator for the distribution of the offshore products of SLOC (Bermuda
branch), an affiliate;
Sun Benefit Services Company, Inc. ("Sunbesco") receives renewal commissions on
a disability product and is currently inactive;
Sun Capital Advisers, Inc. ("Sun Capital") is a registered investment adviser;
Sun Life Finance Corporation ("Sunfinco") is a finance company and currently
inactive;
Sun Life of Canada (U.S.) SPE 97-1, Inc. ("SPE 97-1") is a special purpose
corporation engaging in activities incidental to securitizing mortgage loans;
Clarendon Insurance Agency, Inc. ("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;
Sun Life Information Services Ireland Limited ("SLISL") is an offshore
technology services center for affiliates.
On October 29,1999, the Company sold New London Trust F.S.B. ("NLT") to an
unaffiliated party for $30,254,000. The Company realized a post tax gain of
$13,170,000.
On February 5, 1999, the Company sold Massachusetts Casualty Insurance Company
("MCIC"), a disability insurance company, to an unaffiliated party. The net
proceeds of this sale were $33,965,000. The Company realized a post tax gain of
$4,900,000.
The impact of the sales of NLT and MCIC on continuing operations of the Company
is not expected to be material.
Prior to December 24, 1997, the Company owned 93.6% of the outstanding shares of
Massachusetts Financial Services Company ("MFS"), a registered investment
adviser. On December 24, 1997, the Company transferred all of its shares of MFS
to Life Holdco in the form of a dividend valued at $159,722,000. As a result of
this transaction, the Company realized a gain of $21,195,000 of undistributed
earnings.
64
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. INVESTMENTS IN SUBSIDIARIES (CONTINUED)
During 1999, 1998, and 1997, the Company contributed capital in the following
amounts to its subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
MCIC $ -- $ -- $ 2,000
SLFSL 1,000 750 1,000
SPE 97-1 -- -- 20,377
Sundisco 19,000 10,000 --
Sun Capital -- 500 --
Clarendon -- 10 --
SLISL -- 502 --
</TABLE>
During 1999, 1998, and 1997, the Company received dividends from the following
subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SUN Life (N.Y.) $ 6,500 $ 3,000 $ --
NLT 19,319 -- 7,500
MFS -- -- 33,110
SPE 97-1 -- 675 --
SUNDISCO -- -- 571
</TABLE>
Summarized combined financial information of the Company's subsidiaries as of
December 31, 1999, 1998 and 1997 and for the years then ended, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets $ 877,939 $ 1,315,317 $ 1,190,951
Liabilities (802,656) (1,186,872) (1,073,966)
----------- ----------- -----------
Total net assets $ 75,283 $ 128,445 $ 116,985
=========== =========== ===========
Total revenues $ 82,443 $ 222,853 $ 750,364
Operating expenses (90,318) (221,933) (646,896)
Income tax expense 3,249 (1,222) (43,987)
----------- ----------- -----------
Net income (loss) $ (4,626) $ (302) $ 59,481
=========== =========== ===========
</TABLE>
65
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. BONDS
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
---- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government
agencies and authorities $ 78,161 $ 2,091 $ (2,454) $ 77,798
States, provinces and political subdivisions 20,428 69 (57) 20,440
Public utilities 181,466 6,854 (5,907) 182,413
Transportation 188,285 7,689 (2,709) 193,265
Finance 88,517 4,631 (518) 92,630
All other corporate bonds 665,113 18,353 (17,152) 666,314
---------- -------- -------- ----------
Total long-term bonds 1,221,970 39,687 (28,797) 1,232,860
---------- -------- -------- ----------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 312,585 -- -- 312,585
---------- -------- -------- ----------
Total short-term bonds 312,585 -- -- 312,585
---------- -------- -------- ----------
Total bonds $1,534,555 $ 39,687 $(28,797) $1,545,445
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
---- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term bonds:
United States government and government
agencies and authorities $ 140,417 $ 7,635 $ (177) $ 147,875
States, provinces and political subdivisions 16,632 2,219 -- 18,851
Public utilities 397,670 38,740 (238) 436,172
Transportation 197,207 22,481 (18) 219,670
Finance 144,958 12,542 (494) 157,006
All other corporate bonds 866,584 50,814 (6,419) 910,979
---------- -------- ------- ----------
Total long-term bonds 1,763,468 134,431 (7,346) 1,890,553
---------- -------- ------- ----------
Short-term bonds:
U.S. Treasury Bills, bankers acceptances and
commercial paper 43,400 -- -- 43,400
Affiliates 220,000 -- -- 220,000
---------- -------- ------- ----------
Total short-term bonds 263,400 -- -- 263,400
---------- -------- ------- ----------
Total bonds $2,026,868 $134,431 $(7,346) $2,153,953
========== ======== ======= ==========
</TABLE>
66
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. BONDS (CONTINUED)
The amortized cost and estimated fair value of bonds at December 31, 1999 are
shown below by contractual maturity. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call and/or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---- ----------
(IN THOUSANDS)
<S> <C> <C>
Maturities:
Due in one year or less $ 376,761 $ 376,823
Due after one year through five years 184,077 182,788
Due after five years through ten years 259,042 263,321
Due after ten years 542,678 543,301
---------- ----------
1,362,558 1,366,233
Mortgage-backed securities 171,997 179,212
---------- ----------
Total bonds $1,534,555 $1,545,445
========== ==========
</TABLE>
Proceeds from sales and maturities of investments in debt securities during
1999, 1998, and 1997 were $740,081,000, $1,016,811,000 and $980,264,000, gross
gains were $7,688,000, $17,025,000, and $10,732,000 and gross losses were
$4,477,000, $866,000, and $2,446,000, respectively.
Bonds included above with an amortized cost of approximately $2,604,000,
$2,572,000, and $2,578,000 at December 31, 1999, 1998 and 1997, respectively,
were on deposit with governmental authorities as required by law.
Excluding investments in U.S. government and agencies securities, the Company is
not exposed to significant concentrations of credit risk in its portfolio.
4. SECURITIES LENDING
The Company has a securities lending program operated on its behalf by the
Company's primary custodian, Chase Manhattan Bank of New York. The custodian has
indemnified the Company against losses arising from this program. There were no
securities on loan as of December 31, 1999, 1998 or 1997. Income resulting from
this program was $20,000, $94,000, and $200,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
5. MORTGAGE LOANS
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
allowances for losses have been made. In those cases where, in management's
judgment, the mortgage loans' values are impaired, appropriate losses are
recorded.
67
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. MORTGAGE LOANS (CONTINUED)
The following table shows the geographical distribution of the mortgage loan
portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
California $ 72,693 $ 82,397
Massachusetts 38,083 53,528
Michigan 32,941 34,357
New York 22,912 21,190
Ohio 31,914 36,171
Pennsylvania 92,825 93,587
Washington 30,265 36,548
All other 207,278 177,225
-------- --------
$528,911 $535,003
======== ========
</TABLE>
The Company has restructured mortgage loans totaling $15,644,000 and $30,743,000
and corresponding allowances for losses of $1,043,000 and $2,120,000 at December
31, 1999 and 1998, respectively.
On December 22, 1999, the Company acquired 28 mortgages from SLOC at a cost of
$118,091,637. The Company in turn sold a 90% participation in these 28 plus an
additional 11 existing mortgage loans to a third party as part of two mortgage
participation agreements, for which the Company received proceeds of
$146,974,851.
The Company has outstanding mortgage loan commitments on real estate totaling
$2,384,000 and $18,005,000 at December 31, 1999 and 1998, respectively.
6. INVESTMENT GAINS AND LOSSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net realized gains (losses):
Bonds $ 70 $ 5,659 $ 2,882
Common stock of affiliates 15,290 -- 21,195
Common stocks -- 48 --
Mortgage loans 787 2,374 3,837
Real estate (481) 955 2,912
Other invested assets -- (3,827) (717)
-------- ------- -------
Subtotal 15,666 5,209 30,109
Capital gains tax expense (benefit) (4,442) 4,815 3,403
-------- ------- -------
Total $ 20,108 $ 394 $26,706
======== ======= =======
Changes in unrealized gains (losses):
Bonds $ (6,689) $ -- $ --
Common stock of affiliates (30,966) (302) (2,894)
Mortgage loans 83 (1,312) 1,524
Real estate 1,461 403 3,377
Other invested assets -- 827 (855)
-------- ------- -------
Total $(36,111) $ (384) $ 1,152
======== ======= =======
</TABLE>
68
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. INVESTMENT GAINS AND LOSSES (CONTINUED)
Realized capital gains and losses on bonds and mortgages and interest rate swaps
which relate to changes in levels of interest rates are charged or credited to
an interest maintenance reserve ("IMR") and amortized into income over the
remaining contractual life of the security sold. The net realized capital gains
credited to the interest maintenance reserve were $4,965,000 in 1999, $8,943,000
in 1998, and $6,321,000 in 1997. All gains and losses are transferred net of
applicable income taxes.
7. NET INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income from bonds $128,992 $167,436 $188,924
Income from investment in common stock of affiliates 25,819 3,675 41,181
Interest income from mortgage loans 50,327 53,269 76,073
Real estate investment income 15,696 15,932 17,161
Interest income from policy loans 3,118 2,881 3,582
Other investment income (loss) (1,700) (641) (193)
-------- -------- --------
Gross investment income 222,252 242,552 326,728
-------- -------- --------
Interest on surplus notes and notes payable (43,266) (44,903) (42,481)
Investment expenses (11,951) (13,117) (13,998)
-------- -------- --------
Net investment income $167,035 $184,532 $270,249
======== ======== ========
</TABLE>
8. DERIVATIVES
The Company uses derivative instruments for interest rate risk management
purposes, including hedges against specific interest rate risk and to minimize
the Company's exposure to fluctuations in interest rates and foreign currency
exchange rates. The Company's use of derivatives has included U.S. Treasury
futures, conventional interest rate swaps, and currency and interest rate swap
agreements structured as forward spread lock interest rate swaps.
In the case of interest rate futures, gains or losses on contracts that qualify
as hedges are deferred until the earliest of the completion of the hedging
transaction, determination that the transaction will no longer take place, or
determination that the hedge is no longer effective. Upon completion of the
hedge, where it is impractical to allocate gains or losses to specific hedged
assets or liabilities, gains or losses are deferred in IMR and amortized over
the remaining life of the hedged assets. At December 31, 1999 and 1998, there
were no futures contracts outstanding.
In the case of interest rate and foreign currency swap agreements and forward
spread lock interest rate swap agreements, gains or losses on terminated swaps
are deferred in IMR and amortized over the shorter of the remaining life of the
hedged asset or the remaining term of the swap contract. The net differential to
be paid or received on interest rate swaps is recorded monthly as interest rates
change.
69
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. DERIVATIVES (CONTINUED)
The Company's open positions are as follows:
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1999
--------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
----------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Conventional interest rate swaps $20,000 $249
Foreign currency swap 648 113
</TABLE>
<TABLE>
<CAPTION>
SWAPS OUTSTANDING
AT DECEMBER 31, 1998
--------------------------------
NOTIONAL MARKET VALUE
PRINCIPAL AMOUNTS OF POSITIONS
----------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Conventional interest rate swaps $45,000 $508
Foreign currency swap 1,178 263
</TABLE>
The market value of swaps is the estimated amount that the Company would receive
or pay on termination or sale, taking into account current interest rates and
the current creditworthiness of the counterparties. The Company is exposed to
potential credit loss in the event of nonperformance by counterparties. The
counterparties are major financial institutions and management believes that the
risk of incurring losses related to credit risk is remote.
9. LEVERAGED LEASES
The Company is a lessor in a leveraged lease agreement entered into on
October 21, 1994, under which equipment having an estimated economic life of
25-40 years was leased for a term of 9.75 years. The Company's equity investment
represented 22.9% of the purchase price of the equipment. The balance of the
purchase price was furnished by third-party long-term debt financing,
collateralized by the equipment and non-recourse to the Company. At the end of
the lease term, the Master Lessee may exercise a fixed price purchase option to
purchase the equipment.
The Company's net investment in leveraged leases is composed of the following
elements:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---- ----
(IN THOUSANDS)
<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 leveraged leases 33,359 32,235
Less fees (113) (138)
-------- --------
Net investment in leveraged leases $ 33,246 $ 32,097
======== ========
</TABLE>
The net investment is included in "Other invested assets" on the balance sheet.
70
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. REINSURANCE
The Company has agreements with SLOC which provide that SLOC will reinsure the
mortality risks of the individual life insurance contracts sold by the Company.
Under these agreements basic death benefits and supplementary benefits are
reinsured on a yearly renewable term basis and coinsurance basis, respectively.
Reinsurance transactions under these agreements had the effect of decreasing
income from operations by approximately $1,527,000, $2,128,000 and $1,381,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
Effective January 1, 1991, the Company entered into an agreement with SLOC under
which certain individual life insurance contracts issued by SLOC were reinsured
by the Company on a 90% coinsurance basis. During 1997, SLOC changed certain
assumptions used in determining the gross and the ceded reserve balance. The
Company reflected the effect of the changes in assumptions to its assumed
reserves as a direct credit to surplus. The effect of the change was a
$39,016,000 decrease in reserves. Also, the agreement required SLOC to reinsure
the mortality risks in excess of $500,000 per policy for the individual life
insurance contracts assumed by the Company. Such death benefits are reinsured on
a yearly renewable term basis. The life reinsurance assumed agreement required
the reinsurer to withhold funds in amounts equal to the reserves assumed. These
agreements had the effect of increasing income from operations by approximately
$24,579,000, and $37,050,000 for the years ended December 31, 1998 and 1997,
respectively. The Company terminated this agreement effective October 1, 1998,
resulting in an increase in income from operations of $65,679,000 which included
a cash settlement.
The following are summarized pro-forma results of operations of the Company for
the years ended December 31, 1999, 1998 and 1997 before the effect of
reinsurance transactions with SLOC:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $2,874,513 $2,377,364 $2,340,733
Net investment income and realized gains 190,845 187,208 298,120
---------- ---------- ----------
Subtotal 3,065,358 2,564,572 2,638,853
---------- ---------- ----------
Benefits and Expenses:
Policyholder benefits 2,709,712 2,312,247 2,350,354
Other expenses 239,282 203,238 187,591
---------- ---------- ----------
Subtotal 2,948,994 2,515,485 2,537,945
---------- ---------- ----------
Income from operations $ 116,364 $ 49,087 $ 100,908
========== ========== ==========
</TABLE>
The Company has an agreement with an unrelated company which provides
reinsurance of certain individual life insurance contracts on a modified
coinsurance basis and under which all deficiency reserves related to these
contracts are reinsured. Reinsurance transactions under this agreement had the
effect of increasing income from operations by $193,000 in 1999, $3,008,000 in
1998, and decreasing income from operations by $2,658,000 in 1997.
During 1999 the Company entered into an agreement with an unrelated company
which provides reinsurance on certain fixed group annuity contracts. The net
effect of this agreement was to increase income from operations by approximately
$3,400,000. 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 net effect of these agreements was to increase income from
operations by approximately $157,000.
71
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. REINSURANCE (CONTINUED)
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.
11. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES
The withdrawal characteristics of general account and separate account annuity
reserves and deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
AMOUNT % OF TOTAL
------ ----------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 2,346,853 13
At market value 15,010,696 81
At book value less surrender charges (surrender charge
>5%) 45,722 --
At book value (minimal or no charge or adjustment) 104,539 1
Not subject to discretionary withdrawal provision 1,015,108 5
----------- ---
Total annuity actuarial reserves and deposit liabilities $18,522,918 100
=========== ===
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
AMOUNT % OF TOTAL
------ ----------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal-with adjustment:
With market value adjustment $ 2,896,529 19
At market value 11,368,059 73
At book value less surrender charges (surrender charge
>5%) 62,404 --
At book value (minimal or no charge or adjustment) 111,757 1
Not subject to discretionary withdrawal provision 1,055,642 7
----------- ---
Total annuity actuarial reserves and deposit liabilities $15,494,391 100
=========== ===
</TABLE>
12. SEGMENT INFORMATION
The Company offers financial products and services such as fixed and variable
annuities, retirement plan services and life insurance on an individual basis.
Within these areas, the Company conducts business principally in two operating
segments and maintains a corporate segment to provide for the capital needs of
the various operating segments and to engage in other financing related
activities.
The 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
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.
72
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
12. SEGMENT INFORMATION (CONTINUED)
The following amounts pertain to the various business segments:
<TABLE>
<CAPTION>
FEDERAL
TOTAL TOTAL PRETAX INCOME TOTAL
REVENUES EXPENDITURES* INCOME TAX ASSETS
---------- ------------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999
Protection $ 33,236 $ 41,030 $ (7,794) $ (2,661) $ 136,127
Wealth Management 2,979,450 2,898,158 81,292 18,593 19,015,394
Corporate 27,301 6,070 21,231 8,547 796,634
---------- ---------- -------- -------- -----------
Total $3,039,987 $2,945,258 $ 94,729 $ 24,479 $19,948,155
---------- ---------- -------- -------- -----------
1998
Protection $ 229,710 $ 144,800 $ 84,910 $ (4,148) $ 199,683
Wealth Management 2,527,608 2,483,715 43,893 12,486 16,123,905
Corporate 10,959 3,042 7,917 3,375 579,033
---------- ---------- -------- -------- -----------
Total $2,768,277 $2,631,557 $136,720 $ 11,713 $16,902,621
---------- ---------- -------- -------- -----------
1997
Protection $ 304,141 $ 272,333 $ 31,808 $ 13,825 $ 1,143,697
Wealth Management 2,533,006 2,507,592 25,414 10,667 14,043,221
Corporate 57,897 5,244 52,653 (17,153) 738,439
---------- ---------- -------- -------- -----------
Total $2,895,044 $2,785,169 $109,875 $ 7,339 $15,925,357
---------- ---------- -------- -------- -----------
</TABLE>
- ------------------------
* Total expenditures includes dividends to policyholders of $0 for 1999,
$(5,981) for 1998, and $33,316 for 1997.
13. RETIREMENT PLANS
The Company participates with SLOC in a noncontributory defined benefit pension
plan covering essentially all employees. The benefits are based on years of
service and compensation.
The funding policy for the pension plan is to contribute an amount, which at
least satisfies the minimum amount required by ERISA; currently, the plan is
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of
separate accounts of SLOC.
The Company's share of the group's accrued pension obligation was $1,914,000,
and $1,178,000 at December 31, 1999 and 1998, respectively. The Company's share
of net periodic pension cost was $736,000, $586,000, and $146,000 for 1999, 1998
and 1997, respectively.
The Company also participates with SLOC and certain affiliates in a 401(k)
savings plan for which substantially all employees are eligible. The Company
matches, up to specified amounts, employees' contributions to the plan. Company
contributions were $284,000, $231,000, and $259,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to pension benefits the Company provides certain health, dental, and
life insurance benefits ("post-retirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount.
73
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
13. RETIREMENT PLANS (CONTINUED)
The Company records an accrual of the estimated cost of retiree benefit payments
during the years the employee provides services, and amortizes an obligation of
approximately $400,000 over a period of ten years. The Company's cash flows are
not affected by this method, however the net effect decreased income by
$185,000, $95,000, and $117,000, for the years ended December 31, 1999, 1998,
and 1997, respectively. The Company's post-retirement health, dental and life
insurance benefits currently are not funded.
The following table sets forth the change in the pension and other
post-retirement benefit plans' benefit obligations and assets as well as the
plans' funded status reconciled with the amount shown in the Company's financial
statements at December 31:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $110,792 $ 79,684 $ 10,419 $ 9,845
Service cost 5,632 4,506 413 240
Interest cost 6,952 6,452 845 673
Actuarial loss (gain) (21,480) 21,975 1,048 308
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Benefit obligation at end of year $ 99,520 $110,792 $ 12,217 $ 10,419
======== ======== ======== ========
The Company's share:
Benefit obligation at beginning of year $ 9,125 $ 5,094 $ 416 $ 385
Benefit obligation at end of year $ 8,816 $ 9,125 $ 743 $ 416
Change in plan assets:
Fair value of plan assets at beginning of year $151,575 $136,610 $ -- $ --
Actual return on plan assets 9,072 16,790 -- --
Employer contribution -- -- 508 647
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Fair value of plan assets at end of year $158,271 $151,575 $ -- $ --
======== ======== ======== ========
Funded status $ 58,752 $ 40,783 $(12,217) $(10,419)
Unrecognized net actuarial gain (loss) (20,071) (2,113) 1,469 586
Unrecognized transition obligation (asset) (22,617) (24,674) 140 185
Unrecognized prior service cost 7,081 7,661 -- --
-------- -------- -------- --------
Prepaid (accrued) benefit cost $ 23,145 $ 21,657 $(10,608) $ (9,648)
======== ======== ======== ========
The Company's share of accrued benefit cost $ (1,914) $ (1,178) $ (381) $ (195)
Weighted-average assumptions as of December 31:
Discount rate 7.50% 6.75% 7.50% 6.75%
Expected return on plan assets 8.75% 8.00% N/A N/A
Rate of compensation increase 4.50% 4.50% N/A N/A
</TABLE>
74
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
13. RETIREMENT PLANS (CONTINUED)
For measurement purposes, a 10.9% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999 (5.6% for dental benefits).
The rates were assumed to decrease gradually to 5% for 2005 and remain at that
level thereafter.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 5,632 $ 4,506 $ 413 $ 240
Interest cost 6,952 6,452 845 673
Expected return on plan assets (12,041) (10,172) -- --
Amortization of transition obligation (asset) (2,056) (2,056) 45 45
Amortization of prior service cost 580 580 -- --
Recognized net actuarial (gain) loss (554) (677) 164 (20)
-------- ------- ------ ------
Net periodic benefit cost $ (1,487) $(1,367) $1,467 $ 938
======== ======= ====== ======
The Company's share of net periodic benefit cost $ 736 $ 586 $ 185 $ 95
======== ======= ====== ======
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components $ 288 $ (518)
Effect on postretirement benefit obligation 2,754 (2,279)
</TABLE>
75
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1999
--------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
--------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Bonds (including short-term) $1,534,555 $1,545,445
Mortgages 528,911 526,608
Derivatives -- 362
Other Invested Assets 67,938 67,938
Policy loans 40,095 40,095
LIABILITIES:
Insurance reserves $ 120,536 $ 120,536
Individual annuities 247,619 238,229
Pension products 661,806 665,830
<CAPTION>
1998
--------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
--------------- --------------------
(IN THOUSANDS)
ASSETS:
<S> <C> <C>
Bonds (including short-term) $2,026,868 $2,153,953
Mortgages 535,003 556,143
Derivatives -- 771
Policy loans 41,944 41,944
LIABILITIES:
Insurance reserves $ 121,100 $ 121,100
Individual annuities 274,448 271,849
Pension products 1,104,489 1,145,351
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
by taking into account prices for publicly traded bonds of similar credit risk
and maturity and repayment and liquidity characteristics.
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
The fair values of policy loans approximate carrying amounts.
The fair values of derivative financial instruments are estimated using the
process described in Note 8.
The fair values of the Company's general account insurance reserves and
liabilities under investment-type contracts (insurance, annuity and pension
contracts that do not involve mortality or morbidity risks) are estimated using
discounted cash flow analyses or surrender values. Those contracts that are
deemed to have short-term guarantees have a carrying amount equal to the
estimated fair value.
76
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
15. STATUTORY INVESTMENT VALUATION RESERVES
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, stocks, mortgage loans, real estate and other invested
assets with related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rates are charged or credited to an interest maintenance
reserve and amortized into income over the remaining contractual life of the
security sold.
The table shown below presents changes in the major elements of the AVR and IMR.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
------------------- -------------------
AVR IMR AVR IMR
--- --- --- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of year $44,392 $40,490 $47,605 $33,830
Net realized investment gains, net of tax 9,950 4,983 256 8,942
Amortization of net investment gains -- (3,702) -- (2,282)
Unrealized investment losses (9,705) -- (6,550) --
Required by formula (566) -- 3,081 --
------- ------- ------- -------
Balance, end of year $44,071 $41,771 $44,392 $40,490
======= ======= ======= =======
</TABLE>
16. FEDERAL INCOME TAXES
The Company, its subsidiaries and certain other affiliates file a consolidated
federal income tax return. Federal income taxes are calculated for the
consolidated group based upon amounts determined to be payable as a result of
operations within the current year. No provision is recognized for timing
differences which may exist between financial statement and taxable income. Such
timing differences include reserves, depreciation and accrual of market discount
on bonds. Cash payments for federal income taxes were approximately $3,000,000,
$48,144,000, and $31,000,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company is currently undergoing an audit by the Internal Revenue Service.
The Company believes that there will be no material audit adjustments for the
periods under examination.
17. RELATED PARTY TRANSACTIONS
A. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE)
On December 22, 1997, the Company issued a $250,000,000 surplus note to Life
Holdco. This note has an interest rate of 8.625% and is due on or after
November 6, 2027.
On May 9, 1997, the Company issued a short-term note of $600,000,000 to Life
Holdco at an interest rate of 5.10%, which was extended at various interest
rates. This note was repaid on December 22, 1997.
On December 19, 1995, the Company issued surplus notes totaling $315,000,000 to
an affiliate, Sun Canada Financial Co., at interest rates between 5.75% and
7.25%. Of these notes, $157,500,000 will mature in the year 2007 and
$157,500,000 will mature in the year 2015. Interest on these notes is payable
semiannually.
Principal and interest on surplus notes are payable only to the extent that the
Company meets specified requirements regarding free surplus exclusive of the
principal amount and accrued interest, if any, on these notes and with the
consent of the Delaware Insurance Commissioner.
The Company accrued $4,259,000 and $4,259,000 for interest on surplus notes for
the years ended December 31, 1999 and 1998, respectively.
77
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
17. RELATED PARTY TRANSACTIONS
A. SURPLUS NOTES AND NOTES RECEIVABLE (PAYABLE) (CONTINUED)
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.
On September 28, 1998 a $500,000 note was issued by SLISL to the Company at a
rate of 6.0%, maturing on September 28, 2002.
A $110,000,000 note was issued to the Company by MFS on February 11, 1998 at an
interest rate of 6.0% due February 11, 1999. Another $110,000,000 note was
issued to the Company on December 22, 1998 at an interest rate of 5.55% due
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 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 January 14, 2000, the Company purchased $200,000,000 of notes from MFS.
On December 23, 1997, the Company issued a $110,000,000 note to US Holdco at an
interest rate of 5.80%, which was repaid on March 1, 1998. A $110,000,000 note
was also issued to the Company by MFS on December 23, 1997 at an interest rate
of 5.85% and was repaid on February 11, 1998.
On December 31, 1996, the Company issued a $58,000,000 note to SLOC at an
interest rate of 5.70% which was repaid on February 10, 1997. Also on December
31, 1996, the Company was issued a $58,000,000 note by MFS at an interest rate
of 5.76%. This note was repaid to the Company on February 10, 1997.
On December 31, 1998, the Company had an additional $20,000,000 in notes issued
by MFS, scheduled to mature in 2000. These notes were repaid to the Company on
December 21,1999.
B. STOCKHOLDER DIVIDENDS
The maximum amount of dividends which can be paid by the Company without prior
approval of the Insurance Commissioner of the State of Delaware is subject to
restrictions relating to statutory surplus. In 1999, a dividend in the amount of
$80,000,000 was declared and paid by the Company to its parent, Life Holdco.
This dividend was approved by the Board of Directors, but did not require
approval of the Insurance Commissioner. In 1998, a dividend in the amount of
$50,000,000 was declared and paid by the Company to its parent, Life Holdco.
This dividend was approved by the Insurance Commissioner and the Board of
Directors. On December 24, 1997 the Company transferred all of its shares of MFS
to Life Holdco in the form of a dividend valued at $159,722,000. This dividend
was approved by the Insurance Commissioner and the Board of Directors.
C. SERVICE AGREEMENTS
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 $28,700,000 in 1999, $16,344,000 in 1998, and $15,997,000 in 1997.
The Company leases office space to SLOC under lease agreements with terms
expiring in December, 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 1999 amounted to approximately $6,943,000.
18. RISK-BASED CAPITAL
Effective December 31, 1993, the NAIC adopted risk-based capital requirements
for life insurance companies. The risk-based capital requirements provide a
method for measuring the minimum acceptable amount of adjusted capital that a
life insurer should have, as determined under statutory accounting
78
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
18. RISK-BASED CAPITAL (CONTINUED)
practices, taking into account the risk characteristics of its investments and
products. The Company has met the minimum risk-based capital requirements at
December 31, 1999, 1998 and 1997.
19. 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 or 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 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.
20. ACCOUNTING POLICIES AND PRINCIPLES
The financial statements of the Company have been prepared on the basis of
statutory accounting practices which, prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting practices and GAAP are described as follows. Under statutory
accounting practices, financial statements are not consolidated and investments
in subsidiaries are shown at net equity value. Accordingly, the assets,
liabilities and results of operations of the Company's subsidiaries are not
consolidated with the assets, liabilities and results of operations,
respectively, of the Company. Changes in net equity value of the common stock of
the Company's United States life insurance subsidiaries are directly reflected
in the Company's surplus. Changes in the net equity value of the common stock of
all other subsidiaries are directly reflected in the Company's Asset Valuation
Reserve. Dividends paid by subsidiaries to the Company are included in the
Company's net investment income.
Other differences between statutory accounting practices and GAAP include the
following items. Statutory accounting practices do not recognize the following
assets or liabilities which are reflected under GAAP: deferred policy
acquisition costs, deferred federal income taxes and statutory nonadmitted
assets. Asset Valuation Reserves and Interest Maintenance Reserves are
established under statutory accounting practices but not under GAAP. Methods for
calculating real estate depreciation and investment valuation allowances differ
under statutory accounting practices and GAAP. Actuarial assumptions and
reserving methods differ under statutory accounting practices and GAAP. Premiums
for universal life and investment-type products are recognized as income for
statutory purposes and as deposits to policyholders' accounts for GAAP.
Investments in fixed maturity securities classified as available-for-sale are
carried at aggregate fair value with changes in unrealized gains and losses
reported net of taxes in a separate component of stockholder's equity for GAAP
and generally at amortized cost under statutory accounting practices.
79
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital stock and surplus of Sun Life Assurance Company of
Canada (U.S.) (the "Company") as of December 31, 1999 and 1998, and the related
statutory statements of operations, changes in capital stock and surplus, and
cash flow for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Notes 1 and 20 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware,
which is a comprehensive basis of accounting other than generally accepted
accounting principles. The effects on the financial statements of the
differences between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the statutory financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities, and capital
stock and surplus of Sun Life Assurance Company of Canada (U.S.) as of
December 31, 1999 and 1998, and the results of its operations and its cash flow
for each of the three years in the period ended December 31, 1999 on the basis
of accounting described in Notes 1 and 20.
However, because of the differences between the two bases of accounting referred
to in the second preceding paragraph, in our opinion, the statutory financial
statements referred to above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of Sun Life Assurance
Company of Canada (U.S.) as of December 31, 1999 and 1998 or the results of its
operations or its cash flow for each of the three years in the period ended
December 31, 1999.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 2000
80
<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>
81
<PAGE>
This Prospectus sets forth information about the Contracts and the
Variable Account that a prospective purchaser should know before investing.
Additional information about the Contracts and the Variable Account has been
filed with the Securities and Exchange Commission in a Statement of Additional
Information dated May 1, 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.
- --------------------------------------------------------------------------------
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 II Variable and Fixed Annuity
Sun Life of Canada (U.S.) Variable Account F.
Name
- --------------------------------------------------------------
Address
- --------------------------------------------------------------
- -------------------------------------------------------------------------
City
- ------------------------------------ State
- -------------- Zip
- ------
Telephone
- ----------------------------------------------------------------
82
<PAGE>
APPENDIX A
GLOSSARY
The following terms as used in this Prospectus have the indicated
meanings:
ACCOUNT or PARTICIPANT ACCOUNT: An account established for each
Participant to which Net Purchase Payments are credited.
ACCOUNT VALUE: The Variable Accumulation Value, if any, plus the Fixed
Accumulation Value, if any, of your Account for any Valuation Period.
ACCOUNT YEAR and ACCOUNT ANNIVERSARY: Your first Account Year is the
period of (a) 12 full calendar months plus (b) the part of the calendar month in
which we issue your Contract (if not on the first day of the month), beginning
with the Contract Date. Your Account Anniversary is the first day immediately
after the end of an Account Year. Each Account Year after the first is the 12
calendar month period that begins on your Account Anniversary. If, for example,
the Contract Date is in March, the first Account Year will be determined from
the Contract Date but will end on the last day of March in the following year;
your Account Anniversary is April 1 and all Account Years after the first will
be measured from April 1.
ACCUMULATION PHASE: The period before the Annuity Commencement Date and
during the lifetime of the Annuitant during which you make Purchase Payments
under the Contract. This is called the "Accumulation Period" in the Contract.
ANNUITANT: The person or persons to whom the first annuity payment is
made. If the Annuitant dies prior to the Annuity Commencement Date, the new
Annuitant will be the Co-Annuitant, if any. If the Co-Annuitant dies or if no
Co-Annuitant is named, the Participant becomes the Annuitant upon the
Annuitant's death prior to the Annuity Commencement Date. If you have not named
a sole Annuitant on the 30th day before the Annuity Commencement Date and both
the Annuitant and Co-Annuitant are living, the Co-Annuitant will be the sole
Annuitant during the Income Phase
*ANNUITY COMMENCEMENT DATE: The date on which the first annuity payment
under each Contract is to be made.
*ANNUITY OPTION: The method you choose for making annuity payments.
ANNUITY UNIT: A unit of measure used in the calculation of the amount of
the second and each subsequent Variable Annuity payment from the Variable
Account.
APPLICATION: The document signed by you or other evidence acceptable to us
that serves as your application for participation under a Group Contract or
purchase of an Individual Contract.
*BENEFICIARY: Prior to the Annuity Commencement Date, the person or entity
having the right to receive the death benefit and, for Non-Qualified Contracts,
who, in the event of the Participant's death, is the "designated beneficiary"
for purposes of Section 72(s) of the Internal Revenue Code. After the Annuity
Commencement Date, the person or entity having the right to receive any payments
due under the Annuity Option elected, if applicable, upon the death of the
Payee.
BUSINESS DAY: Any day the New York Stock Exchange is open for trading.
CERTIFICATE: The document for each Participant which evidences the
coverage of the Participant under a Group Contract.
COMPANY: Sun Life Assurance Company of Canada (U.S.).
CONTRACT DATE: The date on which we issue your Contract. This is called
the "Date of Coverage" in the Contract.
DEATH BENEFIT DATE: If you have elected a death benefit payment option
before your death that remains in effect, the date on which we receive Due Proof
of Death. If your Beneficiary elects the
* You specify these items on the Contract Specifications page or Certificate
Specifications page and may change them, as we describe in this Prospectus.
83
<PAGE>
death benefit payment option, the later of (a) the date on which we receive the
Beneficiary's election and (b) the date on which we receive Due Proof of Death.
If we do not receive the Beneficiary's election within 60 days after we receive
Due Proof of Death, the Death Benefit Date will be the last day of the 60 day
period and we will pay the death benefit in cash.
DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to the
Company.
EXPIRATION DATE: The last day of a Guarantee Period.
FIXED ACCOUNT: The general account of the Company, consisting of all
assets of the Company other than those allocated to a separate account of the
Company.
FIXED ACCOUNT VALUE: The value of that portion of your Account allocated
to the Fixed Account.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar
amount.
FUND: A registered management investment company, or series thereof, in
which assets of a Sub-Account may be invested.
GROUP CONTRACT: A Contract issued by the Company on a group basis.
GUARANTEE AMOUNT: Each separate allocation of your Account Value to a
particular Guarantee Period (including interest earned thereon).
GUARANTEE PERIOD: The period for which a Guaranteed Interest Rate is
credited.
GUARANTEED INTEREST RATE: The rate of interest we credit on a compound
annual basis during any Guarantee Period.
INCOME PHASE: The period on and after the Annuity Commencement Date and
during the lifetime of the Annuitant during which we make annuity payments under
the Contract.
INDIVIDUAL CONTRACT: A Contract issued by the Company on an individual
basis.
NET INVESTMENT FACTOR: An index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one.
NET PURCHASE PAYMENT: The portion of a Purchase Payment which remains
after the deduction of any applicable premium tax or similar tax.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement
plan that does not receive favorable federal income tax treatment under Sections
401, 403, 408, or 408A of the Internal Revenue Code. The Participant's interest
in the Contract must be owned by a natural person or agent for a natural person
for the Contract to receive income tax treatment as an annuity.
OWNER: The person, persons or entity entitled to the ownership rights
stated in a Group Contract and in whose name or names the Group Contract is
issued. The Owner may designate a trustee or custodian of a retirement plan
which meets the requirements of Section 401, Section 408(c), Section 408(k),
Section 408(p) or Section 408A of the Internal Revenue Code to serve as legal
owner of assets of a retirement plan, but the term "Owner," as used herein,
shall refer to the organization entering into the Group Contract.
PARTICIPANT: In the case of an Individual Contract, the owner of the
Contract. In the case of a Group Contract, the person named in the Contract who
is entitled to exercise all rights and privileges of ownership under the
Contract, except as reserved by the Owner.
PAYEE: A recipient of payments under a Contract. The term includes an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Participant.
84
<PAGE>
PURCHASE PAYMENT (PAYMENT): An amount paid to the Company as consideration
for the benefits provided by a Contract.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which may receive favorable federal income tax treatment under Sections 401,
403, 408 or 408A of the Internal Revenue Code of 1986, as amended.
SERIES FUND: MFS/Sun Life Series Trust.
SEVEN-YEAR ANNIVERSARY: The seventh Account Anniversary and each
succeeding Account Anniversary occurring at any seven year interval thereafter;
for example, the 14th, 21st and 28th Account Anniversaries.
SUB-ACCOUNT: That portion of the Variable Account which invests in shares
of a specific Fund or series of a Fund.
VALUATION PERIOD: The period of time from one determination of Variable
Accumulation Unit or Annuity Unit values to the next subsequent determination of
these values. Value determinations are made as of the close of the New York
Stock Exchange on each day that the Exchange is open for trading.
VARIABLE ACCOUNT: Variable Account F of the Company, which is a separate
account of the Company consisting of assets set aside by the Company, the
investment performance of which is kept separate from that of the general assets
of the Company.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of
Variable Account Value.
VARIABLE ACCOUNT VALUE: The value of that portion of your Account
allocated to the Variable Account.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount
in relation to the investment performance of the Variable Account.
85
<PAGE>
APPENDIX B
CONDENSED FINANCIAL INFORMATION - ACCUMULATION UNIT VALUES
The following information should be read in conjunction with the Variable
Account's Financial Statements appearing the Statement of Additional
Information. All of the Variable Account's Financial Statements have been
audited by Deloitte & Touche LLP, independent auditors.
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, 1998* DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
AIM V.I. CAPITAL APPRECIATION FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.2991
End of Period........................................ $11.2991 $ 16.1116
Units outstanding at end of period..................... 100 299,649
AIM V.I. GROWTH FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.3293
End of Period........................................ $11.3293 $ 15.1070
Units outstanding at end of period..................... 1,049 997,502
AIM V.I. GROWTH AND INCOME FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.0655
End of Period........................................ $11.0655 $ 14.6474
Units outstanding at end of period..................... 1,704 1,213,444
AIM V.I. INTERNATIONAL EQUITY FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.5553
End of Period........................................ $10.5553 $ 16.1369
Units outstanding at end of period..................... 2,553 659,564
ALGER AMERICAN GROWTH PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.1993
End of Period........................................ $11.1993 $ 14.7688
Units outstanding at end of period..................... 2,044 1,620,151
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.0273
End of Period........................................ $11.0273 $ 15.4887
Units outstanding at end of period..................... 1,785 755,933
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.3603
End of Period........................................ $11.3603 $ 16.0647
Units outstanding at end of period..................... 100 221,946
GOLDMAN SACHS VIT CORE-SM- LARGE CAP GROWTH FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.0085
End of Period........................................ $11.0085 $ 14.6991
Units outstanding at end of period..................... 786 610,853
GOLDMAN SACHS VIT CORE-SM- SMALL CAP EQUITY FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.8679
End of Period........................................ $10.8679 $ 12.5954
Units outstanding at end of period..................... 100 71,821
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, 1998* DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
GOLDMAN SACHS VIT CORE-SM- U.S. EQUITY FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.8370
End of Period........................................ $10.8370 $ 13.2821
Units outstanding at end of period..................... 2,341 714,634
GOLDMAN SACHS VIT GROWTH AND INCOME FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.3642
End of Period........................................ $10.3642 $ 10.7721
Units outstanding at end of period..................... 100 202,285
GOLDMAN SACHS VIT INTERNATIONAL EQUITY FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.5999
End of Period........................................ $10.5999 $ 13.7806
Units outstanding at end of period..................... 578 119,879
J.P. MORGAN SERIES TRUST II INTERNATIONAL OPPORTUNITIES
PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.5058
End of Period........................................ $10.5058 $ 14.1565
Units outstanding at end of period..................... 100 118,543
J.P. MORGAN SERIES TRUST II SMALL COMPANY PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.8537
End of Period........................................ $10.8537 $ 15.4528
Units outstanding at end of period..................... 100 57,635
J.P. MORGAN SERIES TRUST II U.S. DISCIPLINED EQUITY
PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.7114
End of Period........................................ $10.7114 $ 12.5201
Units outstanding at end of period..................... 474 625,004
LORD ABBETT SERIES FUND GROWTH & INCOME PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.5917
End of Period........................................ $10.5917 $ 12.1973
Units outstanding at end of period..................... 1,763 982,146
MFS/SUN LIFE CAPITAL APPRECIATION SERIES
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.1244
End of Period........................................ $11.1244 $ 14.5469
Units outstanding at end of period..................... 2,367 500,296
MFS/SUN LIFE EMERGING GROWTH SERIES
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.2723
End of Period........................................ $11.2723 $ 19.5404
Units outstanding at end of period..................... 3,662 804,467
MFS/SUN LIFE GOVERNMENT SECURITIES SERIES
Unit Value:
Beginning of Period.................................. $10.0000 $ 9.9595
End of Period........................................ $ 9.9595 $ 9.6303
Units outstanding at end of period..................... 1,027 807,566
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, 1998* DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
MFS/SUN LIFE HIGH YIELD SERIES
Unit Value:
Beginning of Period.................................. $10.0000 $ 9.9916
End of Period........................................ $ 9.9916 $ 10.5249
Units outstanding at end of period..................... 729 554,000
MFS/SUN LIFE MASSACHUSETTS INVESTORS GROWTH STOCK SERIES
Unit Value:
Beginning of Period.................................. -- $ 10.0000**
End of Period........................................ -- $ 12.7880
Units outstanding at end of period..................... -- 554,180
MFS/SUN LIFE MASSACHUSETTS INVESTORS TRUST SERIES
Unit Value:
Beginning of Period.................................. -- $ 10.0000**
End of Period........................................ -- $ 10.3311
Units outstanding at end of period..................... -- 629,184
MFS/SUN LIFE NEW DISCOVERY SERIES
Unit Value:
Beginning of Period.................................. -- $ 10.0000**
End of Period........................................ -- $ 15.7992
Units outstanding at end of period..................... -- 99,212
MFS/SUN LIFE TOTAL RETURN SERIES
Unit Value:
Beginning of Period.................................. -- $ 10.0000**
End of Period........................................ -- $ 9.7515
Units outstanding at end of period..................... -- 211,045
MFS/SUN LIFE UTILITIES SERIES
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.5369
End of Period........................................ $10.5369 $ 13.6365
Units outstanding at end of period..................... 821 552,461
OCC ACCUMULATION TRUST EQUITY PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.5784
End of Period........................................ $10.5784 $ 10.6953
Units outstanding at end of period..................... 1,517 388,617
OCC ACCUMULATION TRUST MANAGED PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.5329
End of Period........................................ $10.5329 $ 10.9043
Units outstanding at end of period..................... 100 196,817
OCC ACCUMULATION TRUST MID CAP PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.6171
End of Period........................................ $10.6171 $ 12.7334
Units outstanding at end of period..................... 150 108,852
OCC ACCUMULATION TRUST SMALL CAP PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.3520
End of Period........................................ $10.3520 $ 10.0200
Units outstanding at end of period..................... 100 88,598
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, 1998* DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
SUN CAPITAL BLUE CHIP MID CAP FUND
Unit Value:
Beginning of Period.................................. -- $ 10.0000**
End of Period........................................ -- $ 12.4368
Units outstanding at end of period..................... -- 217,115
SUN CAPITAL INVESTMENT GRADE BOND FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 9.9809
End of Period........................................ $ 9.9809 $ 9.7835
Units outstanding at end of period..................... 1,806 768,145
SUN CAPITAL INVESTORS FOUNDATION FUND
Unit Value:
Beginning of Period.................................. -- $ 10.0000**
End of Period........................................ -- $ 10.9954
Units outstanding at end of period..................... -- 43,869
SUN CAPITAL MONEY MARKET FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.0143
End of Period........................................ $10.0143 $ 10.3353
Units outstanding at end of period..................... 200 699,550
SUN CAPITAL REAL ESTATE FUND
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.0837
End of Period........................................ $10.0837 $ 9.5549
Units outstanding at end of period..................... 705 131,848
SUN CAPITAL SELECT EQUITY FUND
Unit Value:
Beginning of Period.................................. -- $ 10.0000**
End of Period........................................ -- $ 12.4016
Units outstanding at end of period..................... -- 96,820
WARBURG PINCUS TRUST EMERGING MARKETS PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.4931
End of Period........................................ $10.4931 $ 18.7689
Units outstanding at end of period..................... 100 67,177
WARBURG PINCUS TRUST GLOBAL POST-VENTURE CAPITAL
PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.2546
End of Period........................................ $11.2546 $ 18.1439
Units outstanding at end of period..................... 100 22,526
WARBURG PINCUS TRUST INTERNATIONAL EQUITY PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 10.3709
End of Period........................................ $10.3709 $ 15.6899
Units outstanding at end of period..................... 100 29,939
WARBURG PINCUS TRUST SMALL COMPANY GROWTH PORTFOLIO
Unit Value:
Beginning of Period.................................. $10.0000 $ 11.0954
End of Period........................................ $11.0954 $ 18.4977
Units outstanding at end of period..................... 100 79,878
</TABLE>
- ------------------------
* From commencement of operations on December 9, 1998 to December 31, 1998.
** From commencement of operations.
89
<PAGE>
APPENDIX C
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: VARIABLE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
VARIABLE ACCOUNT)
WITHDRAWAL CHARGE CALCULATION:
FULL WITHDRAWAL:
Assume a Purchase Payment of $40,000 is made on the Contract Date, no
additional Purchase Payments are made and there are no partial withdrawals. The
table below presents four examples of the withdrawal charge resulting from a
full withdrawal of your Account, based on hypothetical Account Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE NEW WITHDRAWAL WITHDRAWAL
ACCOUNT ACCOUNT WITHDRAWAL PAYMENTS CHARGE CHARGE
YEAR VALUE AMOUNT WITHDRAWN PERCENTAGE AMOUNT
-------- ------------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(a) 1 $41,000 $ 4,000 $37,000 6.00% $2,220
(b) 3 $52,000 $12,000 $40,000 5.00% $2,000
(c) 7 $80,000 $28,000 $40,000 3.00% $1,200
(d) 9 $98,000 $68,000 0 0.00% 0
</TABLE>
(a) The free withdrawal amount in any Account Year is equal to (1) the Annual
Withdrawal Allowance for that year (i.e., 10% of all Purchase Payments made
in the last seven Account Years ("New Payments")); plus (2) any unused
Annual Withdrawal Allowances from previous years; plus (3) any Purchase
Payments made before the last seven Account Years ("Old Payments") not
previously withdrawn. In Account Year 1, the free withdrawal amount is
$4,000 (the Annual Withdrawal Allowance for that year) because there are no
unused Annual Withdrawal Allowances from previous years and no Old Payments.
The $41,000 full withdrawal is attributed first to the $4,000 free
withdrawal amount. The remaining $37,000 is withdrawn from the Purchase
Payment made in Account Year 1 and is subject to the withdrawal charge.
(b) In Account Year 3, the free withdrawal amount is $12,000 (the $4,000 Annual
Withdrawal Allowance for the current year plus the unused $4,000 Annual
Withdrawal Allowances for each of Account Years 1 and 2). The $52,000 full
withdrawal is attributed first to the free withdrawal amount and the
remaining $40,000 is withdrawn from the Purchase Payment made in Account
Year 1.
(c) In Account Year 7, the free withdrawal amount is $28,000 (the $4,000 Annual
Withdrawal Allowance for the current Account Year plus the unused Annual
Withdrawal Allowance of $4,000 for each of Account Years 1 through 6). The
$80,000 full withdrawal is attributed first to the free withdrawal amount.
The next $40,000 is withdrawn from the Purchase Payment made in Account Year
1 and is subject to the withdrawal charge. The remaining $12,000 exceeds the
total of the free withdrawal amount plus all New Payments not previously
withdrawn, so it is not subject to the withdrawal charge.
(d) In Account Year 9, the free withdrawal amount is $68,000, calculated as
follows. There are no Annual Withdrawal Allowances for Account Years 8 or 9
because there are no New Payments in those years. The $40,000 Purchase
Payment made in Account Year 1 is now an Old Payment that constitutes a
portion of the free withdrawal amount. In addition, the unused Annual
Withdrawal Allowances of $4,000 for each of Account Years 1 through 7 are
carried forward and available for use in Account Year 9. The $98,000 full
withdrawal is attributed first to the free withdrawal amount. Because the
remaining $30,000 is not withdrawn from New Payments, this part of the
withdrawal also will not be subject to the withdrawal charge.
PARTIAL WITHDRAWAL:
Assume a single Purchase Payment of $40,000 is made on the Contract Date,
no additional Purchase Payments are made, no partial withdrawals have been taken
prior to the fifth Account Year,
90
<PAGE>
and there are a series of three partial withdrawals made during the fifth
Account Year of $9,000, $12,000, and $15,000.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL FREE NEW WITHDRAWAL WITHDRAWAL
ACCOUNT WITHDRAWAL WITHDRAWAL PAYMENTS CHARGE CHARGE
VALUE AMOUNT AMOUNT WITHDRAWN PERCENTAGE AMOUNT
------------ ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(a) $64,000 $ 9,000 $20,000 $ 0 4.00% $ 0
(b) $56,000 $12,000 $11,000 $ 1,000 4.00% $ 40
(c) $40,000 $15,000 $ 0 $15,000 4.00% $600
</TABLE>
(a) In the fifth Account Year, the free withdrawal amount is equal to $20,000
(the $4,000 Annual Withdrawal Allowance for the current year, plus the
unused $4,000 for each of the Account Years 1 through 4). The partial
withdrawal amount ($9,000) is less than the free withdrawal amount so no New
Payments are withdrawn and no withdrawal charge applies.
(b) Since a partial withdrawal of $9,000 was taken, the remaining free
withdrawal amount is equal to $11,000. The $12,000 partial withdrawal will
first be applied against the $11,000 free withdrawal amount. The remaining
$1,000 will be withdrawn from the $40,000 New Payment, incurring a
withdrawal charge of $40.
(c) The free withdrawal amount is zero since the previous partial withdrawals
have already used the free withdrawal amount. The entire partial withdrawal
amount will result in New Payments being withdrawn and will incur a
withdrawal charge.
PART 2 -- FIXED ACCOUNT -- EXAMPLES OF THE MARKET VALUE ADJUSTMENT ("MVA")
The MVA Factor is:
<TABLE>
<C> <C> <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 five year Guarantee Period
with a Guaranteed Interest Rate of 6% or .06.
2) The date of surrender is two years from the Expiration Date (N =
24).
3) The value of the Guarantee Amount on the date of surrender is
$11,910.16.
4) The interest earned in the current Account Year is $674.16.
5) No transfers or partial withdrawals affecting this Guarantee Amount
have been made.
6) Withdrawal charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of surrender, the current rate (J) is 8% or .08
and the b factor is zero.
<TABLE>
<C> <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)(2) -1
= .963 -1
= - .037
</TABLE>
91
<PAGE>
The value of the Guarantee Amount less interest credited to the Guarantee
Amount in the current Account Year is multiplied by the MVA factor to determine
the MVA:
($11,910.16 - $674.16) X (-.037) = -$415.73
-$415.73 represents the MVA that will be deducted from the value of the
Guarantee Amount before the deduction of any withdrawal charge.
For a partial withdrawal of $2,000 from this Guarantee Amount, the MVA
would be ($2,000.00 - $674.16) X (-.037) = -$49.06. -$49.06 represents the MVA
that will be deducted from the partial withdrawal amount before the deduction of
any withdrawal charge.
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of surrender, the current rate (J) is 5% or .05
and the b factor is zero.
<TABLE>
<C> <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)(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.
92
<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
FUT 311
</TABLE>
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
Attached hereto and made a part hereof is the Statement of Additional
Information dated May 1, 2000 for each of the following:
MFS Regatta Gold Variable and Fixed Annuity
MFS Regatta Platinum Variable and Fixed Annuity
Futurity II Variable and Fixed Annuity
<PAGE>
Rule No. 497(c)
File No. 33-41628
811-05846
May 1, 2000
MFS REGATTA GOLD
VARIABLE AND FIXED ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
TABLE OF CONTENTS
Calculation of Performance Data .............................................. 2
Advertising and Sales Literature ............................................. 5
Calculations ................................................................. 8
Example of Variable Accumulation Unit Value Calculation.................. 8
Example of Variable Annuity Unit Calculation ............................ 8
Example of Variable Annuity Payment Calculation ......................... 8
Distribution of the Contracts ................................................ 8
Designation and Change of Beneficiary ........................................ 9
Custodian .................................................................... 9
Financial Statements ......................................................... 9
The Statement of Additional Information sets forth information
which may be of interest to prospective purchasers of MFS Regatta Gold
Variable and Fixed Annuity Contracts (the "Contracts") issued by Sun Life
Assurance Company of Canada (U.S.) (the "Company") in connection with Sun
Life of Canada (U.S.) Variable Account F (the "Variable Account") which is
not included in the Prospectus dated May 1, 2000. This Statement of
Additional Information should be read in conjunction with the Prospectus, a
copy of which may be obtained without charge by writing to the Company at 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 Series of MFS/Sun Life Series Trust is
reflected from the date the Variable Account was established, or such later
date that the Series commenced operations (the "Commencement Date"), although
the Contracts have been offered only since November 1, 1991. No information
is shown for the Series that have not commenced operations or that had been
in operations for less than one year as of December 31, 1999.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
SUB-ACCOUNTS: PERIOD PERIOD PERIOD LIFE DATE
- ------------- ------ ------ ------- ---- ------------
<S> <C> <C> <C> <C> <C>
Bond Series (8.31)% -- -- (1.41)% May 5, 1998
Capital Appreciation Series 24.44% 25.63% 16.88% 16.64% November 30, 1989
Capital Opportunities Series 39.50% -- -- 28.49% June 3, 1996
Emerging Growth Series 67.14% -- -- 34.10% May 1, 1995
Emerging Markets Equity Series (1) 44.36% -- -- 2.31% June 5, 1996
Equity Income Series (0.18)% -- -- 2.60% May 1, 1998
Global Asset Allocation Series 10.84% 12.47% -- 12.16% November 7, 1994
Global Governments Series (11.57)% 3.60% 5.31% 5.54% July 13, 1989
Global Growth Series 58.87% 21.52% -- 18.75% November 16, 1993
Global Total Return Series 1.07% 12.36% -- 12.02% November 7, 1994
Government Securities Series (8.61)% 4.61% 5.38% 5.31% November 30, 1989
High Yield Series (0.47)% 7.63% 8.73% 8.50% November 30, 1989
International Growth Series 27.41% -- -- 5.80% June 3, 1996
Intl. Growth & Income Series 9.61% -- -- 9.66% October 2, 1995
Managed Sectors Series 76.92% 30.21% 18.61% 18.28% November 30, 1989
Mass Investors Growth Series 27.86% -- -- 29.58% November 30, 1989
Mass Investors Trust Series (0.43)% 22.47% 14.47% 14.43% May 1, 1998
Money Market Series (2.51)% 2.91% 3.08% 3.09% November 30, 1989
New Discovery Series 51.96% -- -- 32.91% May 5, 1998
Research Series 16.12% 23.64% -- 22.50% November 7, 1994
Research Growth & Income Series 0.85% -- -- 12.15% May 12, 1997
Research International Series 46.81% -- -- 20.71% May 5, 1998
Strategic Income Series (2.51)% -- -- (1.44)% May 5, 1998
Total Return Series (4.45)% 12.78% 9.75% 9.73% November 30, 1989
Utilities Series 23.35% 24.57% -- 18.42% November 16, 1993
</TABLE>
- ------------------------
(1) Formerly, the MFS/Foreign & Colonial Emerging Markets Equity Series.
The length of the period and the last day of each period used in the above table
are set out in the table heading and in the footnotes above. The Average Annual
Total Return for each period was determined by finding the average annual
compounded rate of return over each period that would equate the initial amount
invested to the ending redeemable value for that period, in accordance with the
following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial Purchase Payment
of $1,000
T = average annual total return for the
period
n = number of years
ERV = redeemable value (as of the end of the
period) of a hypothetical $1,000
Purchase Payment made at the beginning
of the 1-year, 5-year, or 10-year period
(or fractional portion thereof)
The formula assumes that: 1) all recurring fees have been deducted from the
Participant's Account; 2) all applicable non-recurring Contract charges are
deducted at the end of the period; and 3) there will be a full surrender at
the end of the period.
The $30 annual Account Fee will be allocated among the Sub-Accounts so that
each Sub-Account's allocated portion of the Account Fee is proportional to the
percentage of the number of Certificates that have amounts allocated to that
Sub-Account. Because the impact of Account Fees on a particular Certificate may
differ from those assumed in the computation due to differences between actual
allocations and the assumed ones, the total return that would have been
experienced by an actual Contract over these same time periods may have been
different from that shown above.
<PAGE>
-3-
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN:
The table below shows, for various Sub-Accounts of the Variable Account,
the Non-Standardized Average Annual Total Return for the stated periods (or
shorter period indicated in the note below), based upon a hypothetical
initial Purchase Payment of $1,000, calculated in accordance with the formula
set out under "Standardized Average Annual Total Return." For purposes of
determining these investment results, the actual investment performance of
each Series of MFS/Sun Life Series Trust is reflected from the date such
Series commenced operations ("Inception"), although the Contracts have been
offered only since November 1, 1991. No information is shown for the Series
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
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
SUB-ACCOUNTS: PERIOD PERIOD PERIOD LIFE DATE
- ------------- ------ ------ ------- ---- ------------
<S> <C> <C> <C> <C> <C>
Bond Series (3.09)% -- -- 1.59% May 5, 1998
Capital Appreciation Series 30.79% 26.21% 17.22% 17.09% August 13, 1985
Capital Opportunities Series 45.58% -- -- 29.26% June 3, 1996
Emerging Growth Series 73.38% -- -- 34.54% May 1, 1995
Emerging Markets Equity Series 50.38% -- -- 3.28% June 5, 1996
Equity Income Series 5.56% -- -- 5.75% May 1, 1998
Global Asset Allocation Series 16.90% 13.00% -- 12.69% November 7, 1994
Global Governments Series (6.51)% 4.17% 5.44% 5.69% May 16, 1988
Global Growth Series 65.00% 22.01% -- 19.09% November 16, 1993
Global Total Return Series 6.93% 12.88% -- 12.53% November 7, 1994
Government Securities Series (3.29)% 5.28% 5.61% 6.50% August 12, 1985
High Yield Series 5.36% 8.29% 8.81% 7.94% August 13, 1985
International Growth Series 33.44% -- -- 6.87% June 3, 1996
Intl. Growth & Income Series 15.65% -- -- 10.38% October 2, 1995
Managed Sectors Series 83.04% 30.59% 18.77% 20.04% May 27, 1988
Mass Investors Growth Series 33.90% -- -- 32.62% May 1, 1998
Mass Investors Trust Series 5.71% 23.01% 14.67% 13.76% December 5, 1986
Money Market Series 3.23% 3.58% 3.39% 4.00% August 29, 1985
New Discovery Series 57.97% -- -- 35.90% May 5, 1998
Research Series 22.43% 24.10% -- 23.00% November 7, 1994
Research Growth & Income Series 6.66% -- -- 13.72% May 12, 1997
Research International Series 52.81% -- -- 23.88% May 5, 1998
Strategic Income Series 3.08% -- -- 1.56% May 5, 1998
Total Return Series 1.40% 13.58% 10.21% 10.56% May 16, 1988
Utilities Series 29.44% 24.94% -- 18.68% 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 initial
Purchase Payment of $1,000, calculated in accordance with the formula set out
under "Standardized Average Annual Return," except that no withdrawal charges
or annual Account Fees have been deducted. If withdrawal charges and Account
Fees were reflected, returns would be lower (see "Standardized Average Annual
Total Return" and "Non-Standardized Average Annual Total Return"). For
purposes of determining these investment results, the actual investment
performance of each Series of MFS/Sun Life Series Trust is reflected from the
date such Series commenced operations ("Inception"), although the Contracts
have been offered only since November 1, 1991. No information is shown for
the Series that have not commenced operations or had been in operation less
than one year as of December 31, 1999.
NON-STANDARDIZED COMPOUND GROWTH RATE
PERIOD ENDING DECEMBER 31, 1999
This set uses the "standardized" method (all product fees & loads), but is
non-standardized because the inception date is the fund start date.
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
SUB-ACCOUNTS: PERIOD PERIOD PERIOD LIFE DATE
- ------------- ------ ------ ------- ---- ------------
<S> <C> <C> <C> <C> <C>
Bond Series (8.31)% -- -- (1.41)% May 5, 1998
Capital Appreciation Series 24.44% 25.63% 16.88% 16.83% August 13, 1985
Capital Opportunities Series 39.50% -- -- 28.49% June 3, 1996
Emerging Growth Series 67.14% -- -- 34.10% May 1, 1995
Emerging Markets Equity Series 44.36% -- -- 2.31% June 5, 1996
Equity Income Series (0.18)% -- -- 2.60% May 1, 1998
Global Asset Allocation Series 10.84% 12.47% -- 12.16% November 7, 1994
Global Governments Series (11.57)% 3.60% 5.31% 5.55% May 16, 1988
Global Growth Series 58.87% 21.52% -- 18.75% November 16, 1993
Global Total Return Series 1.07% 12.36% -- 12.02% November 7, 1994
Government Securities Series (8.61)% 4.61% 5.38% 6.26% August 12, 1985
High Yield Series (0.47)% 7.63% 8.73% 7.87% August 13, 1985
International Growth Series 27.41% -- -- 5.80% June 3, 1996
Intl. Growth & Income Series 9.61% -- -- 9.66% October 2, 1995
Managed Sectors Series 76.92% 30.21% 18.61% 19.91% May 27, 1988
Mass Investors Growth Series 27.86% -- -- 29.58% May 1, 1998
Mass Investors Trust Series (0.43)% 22.47% 14.47% 13.58% December 5, 1986
Money Market Series (2.51)% 2.91% 3.08% 3.64% August 29, 1985
New Discovery Series 51.96% -- -- 32.91% May 5, 1998
Research Series 16.12% 23.64% -- 22.50% November 7, 1994
Research Growth & Income Series 0.85% -- -- 12.15% May 12, 1997
Research International Series 46.81% -- -- 20.71% May 5, 1998
Strategic Income Series (2.51)% -- -- (1.44)% May 5, 1998
Total Return Series (4.45)% 12.78% 9.75% 10.13% May 16, 1988
Utilities Series 23.35% 24.57% -- 18.42% 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
value weighted and was introduced with a base of 100.00 on February 5, 1971.
DOW JONES INDUSTRIAL AVERAGE (DJIA) - price-weighted average of 30
actively traded blue chip stocks, primarily industrials, but including
American Express Company and American Telephone and Telegraph Company.
Prepared and Published by Dow Jones & Company, it is the oldest and most
widely quoted of all the market indicators. The average is quoted in points,
not dollars.
MORNINGSTAR, Inc. is an independent financial publisher offering
comprehensive statistical and analytical coverage of open-end and closed-end
funds and variable annuities. This coverage for mutual funds includes, among
other information, performance analysis rankings, risk rankings (e.g.
aggressive, moderate or conservative), and "style box" matrices. Style box
matrices display, for equity funds, the investment philosophy and size of the
companies in which the fund invests and, for fixed-income funds, interest rate
sensitivity and credit quality of the investment instruments.
IBBOTSON ASSOCIATES, Inc. is a consulting firm that provides a variety
of historical data, including total return, capital appreciation and income, on
the stock market as well as other investment asset classes, and inflation. 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 MFS' CUSTOMERS. Sales literature for the Variable
Account and the Funds may refer to the number of clients which they serve.
THE COMPANY'S OR MFS' ASSETS, SIZE. The Company may discuss its
general financial condition (see, for example, the references to Standard &
Poor's, Duff & Phelps and A.M. Best Company above); it may refer to its assets;
it may also discuss its
<PAGE>
-7-
relative size and/or ranking among companies in the industry or among any
sub-classification of those companies, based upon recognized evaluation
criteria. For example, at December 31, 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 MFS REGATTA GOLD VARIABLE ANNUITY OR ANY OF ITS
INVESTMENT OPTIONS. THE ILLUSTRATION DOES NOT REFLECT THE DEDUCTION OF ANY
CHARGES OR FEES RELATED TO PORTFOLIO MANAGEMENT, MORTALITY AND EXPENSE, OR
ACCOUNT ADMINISTRATION. TAXES ON EARNINGS WITHIN AN ANNUITY ARE DUE UPON
WITHDRAWAL. WITHDRAWALS MAY ALSO BE SUBJECT TO SURRENDER CHARGES AND, IF MADE
PRIOR TO AGE 59 1/2, A 10% FEDERAL PENALTY TAX.
<PAGE>
-8-
CALCULATIONS
EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATION
Suppose the net asset value of a Series Fund share at the end of the
current valuation period is $18.38; at the end of the immediately preceding
valuation period was $18.32; the Valuation Period is one day; and no
dividends or distributions caused Series Fund shares to go "ex-dividend"
during the current Valuation Period. $18.38 divided by $18.32 is 1.00327511.
Subtracting the one day risk factor for mortality and expense risks and the
administrative expense charge of .00003809 (the daily equivalent of the
current maximum charge of 1.40% on an annual basis) gives a net investment
factor of 1.00323702. If the value of the variable accumulation unit for the
immediately preceding valuation period had been 14.5645672, the value for the
current valuation period would be 14.6117130 (14.5645672 X 1.00323702).
EXAMPLE OF VARIABLE ANNUITY UNIT CALCULATION
Suppose the circumstances of the first example exist, and the value of
an annuity unit for the immediately preceding valuation period had been
12.3456789. If the first variable annuity payment is determined by using an
annuity payment based on an assumed interest rate of 4% per year, the value
of the annuity unit for the current valuation period would be 12.3843113
(12.3456789 X 1.00323702 (the Net Investment Factor) X 0.99989255).
0.99989255 is the factor, for a one day Valuation Period, that neutralizes
the assumed interest rate of 3% per year used to establish the Annuity
Payment Rates found in certain Contracts. (The factor that neutralizes the
assumed interest rate of 3% per year used to establish the Annuity Payment
Rates found in other contracts is 0.99991902).
EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATION
Suppose that a Participant Account is credited with 8,765.4321 variable
accumulation units of a particular Sub-Account but is not credited with
any fixed accumulation units; that the variable accumulation unit value and
the annuity unit value for the particular Sub-Account for the valuation
period which ends immediately preceding the annuity commencement date are
14.5645672 and 12.3456789 respectively; that the annuity payment rate for the
age and option elected is $6.78 per $1,000; and that the annuity unit value
on the day prior to the second variable annuity payment date is 12.3843113.
The first variable annuity payment would be $865.57 (8,765.4321 X 14.5645672
X 6.78 divided by 1,000). The number of annuity units credited would be
70.1112 ($865.57 divided by 12.3456789) and the second variable annuity
payment would be $868.28 (70.1112 X 12.3843113).
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 a broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Clarendon also acts as the general distributor of
certain other annuity contracts issued by the Company and its wholly-owned
subsidiary, Sun Life Insurance and Annuity Company of New York, and variable
life insurance contracts issued by the Company.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 7.34% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of Participant Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation.
The Company reserves the right to offer these additional incentives only to
certain
<PAGE>
-9-
broker-dealers that sell or are expected to sell during specified time
periods certain minimum amounts of the Contracts or Certificates or other
contracts offered by the Company. Promotional incentives may change at any
time. Commissions will not be paid with respect to Participant Accounts
established for the personal account of employees of the Company or any of
its affiliates, or of persons engaged in the distribution of the Contracts,
or of immediate family members of such employees or persons. In addition,
commissions may be waived or reduced in connection with certain transactions
described in the Prospectus under the heading "Waivers; Reduced Charges;
Credits; Bonus Guaranteed Interest Rates."
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation in the Application will remain in effect
until changed.
Subject to the rights of an irrevocably designated Beneficiary, you
may change or revoke the designation of Beneficiary by filing the change or
revocation with us in the form we require. The change or revocation will not be
binding on us until we receive it. When we receive it, the change or revocation
will be effective as of the date on which it was signed, but the change or
revocation will be without prejudice to us on account of any payment we make or
any action we take before receiving the change or revocation.
Please refer to the terms of your particular retirement plan and any
applicable legislation for any restrictions on the beneficiary designation.
CUSTODIAN
We are the Custodian of the assets of the Variable Account. We
will purchase Series Fund shares at net asset value in connection with
amounts allocated to the Sub-Accounts in accordance with your instructions,
and we will redeem Series Fund shares at net asset value for the purpose of
meeting the contractual obligations of the Variable Account, paying charges
relative to the Variable Account or making adjustments for annuity reserves
held in the Variable Account.
FINANCIAL STATEMENTS
The Financial Statements of Sun Life of Canada (U.S.) Variable
Account F for the year ended December 31, 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>
-10-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 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>
-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 -- 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>
-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 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>
-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 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>
-14-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 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>
-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 -- 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>
-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>
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>
-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>
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>
-18-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BDS CAS COS
Sub-Account Sub-Account Sub-Account
----------------------------- ------------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended 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>
-19-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
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>
-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>
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>
-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>
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>
-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>
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>
-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>
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>
-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>
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>
-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>
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>
-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>
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>
-27-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS
(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>
-28-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(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>
-29-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS
<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>
-30-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS -- continued
<TABLE>
<CAPTION>
Units Transferred
Between Sub-Accounts
and
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>
-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 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>
-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 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>
-33-
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>
-34-
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>
Rule No. 497(c)
File No. 33-41628
811-05846
May 1, 2000
MFS REGATTA PLATINUM
VARIABLE AND FIXED ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
TABLE OF CONTENTS
Calculation of Performance Data .............................................. 2
Advertising and Sales Literature ............................................. 5
Calculations ................................................................. 8
Example of Variable Accumulation Unit Value Calculation.................. 8
Example of Variable Annuity Unit Calculation ............................ 8
Example of Variable Annuity Payment Calculation ......................... 8
Distribution of the Contracts ................................................ 8
Designation and Change of Beneficiary ........................................ 9
Custodian .................................................................... 9
Financial Statements ......................................................... 9
The Statement of Additional Information sets forth information
which may be of interest to prospective purchasers of MFS Regatta Platinum
Variable and Fixed Annuity Contracts (the "Contracts") issued by Sun Life
Assurance Company of Canada (U.S.) (the "Company") in connection with Sun
Life of Canada (U.S.) Variable Account F (the "Variable Account") which is
not included in the Prospectus dated May 1, 2000. This Statement of
Additional Information should be read in conjunction with the Prospectus, a
copy of which may be obtained without charge by writing to the Company at 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 Series of MFS/Sun Life Series Trust is
reflected from the date the Variable Account was established, or such later
date that the Series commenced operations (the "Commencement Date"), although
the Contracts have been offered only since May 1, 1999. No information is
shown for the Series 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
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
SUB-ACCOUNTS: PERIOD PERIOD PERIOD LIFE DATE
- ------------- ------ ------ ------- ---- ------------
<S> <C> <C> <C> <C> <C>
Bond Series (8.37)% -- -- (1.47)% May 5, 1998
Capital Appreciation Series 24.53% 25.79% 17.11% 16.87% November 30, 1989
Capital Opportunities Series 39.41% -- -- 28.43% June 3, 1996
Emerging Growth Series 67.08% -- -- 34.11% May 1, 1995
Emerging Markets Equity Series (1) 44.33% -- -- 2.29% June 5, 1996
Equity Income Series (0.25)% -- -- 2.53% May 1, 1998
Global Asset Allocation Series 10.86% 12.43% -- 12.13% November 7, 1994
Global Governments Series (11.55)% 3.60% 5.34% 5.58% November 30, 1989
Global Growth Series 58.93% 21.56% -- 18.80% November 16, 1993
Global Total Return Series 1.07% 12.30% -- 11.97% November 7, 1994
Government Securities Series (8.60)% 4.65% 5.50% 5.43% November 30, 1989
High Yield Series (0.50)% 7.60% 8.69% 8.47% November 30, 1989
International Growth Series 27.34% -- -- 5.74% June 3, 1996
Intl. Growth & Income Series 9.61% -- -- 9.61% October 2, 1995
Managed Sectors Series 76.96% 30.25% 18.68% 18.35% November 30, 1989
Mass Investors Growth Series 27.50% -- -- 29.17% May 1, 1998
Mass Investors Trust Series (0.56)% 22.49% 14.53% 14.48% November 30, 1989
Money Market Series (2.42)% 3.00% 3.27% 3.29% November 30, 1989
New Discovery Series 51.86% -- -- 32.79% May 5, 1998
Research Series 16.20% 23.65% -- 22.53% November 7, 1994
Research Growth & Income Series 0.78% -- -- 12.10% May 12, 1997
Research International Series 46.76% -- -- 20.66% May 5, 1998
Strategic Income Series (2.55)% -- -- (1.48)% May 5, 1998
Total Return Series (4.34)% 12.96% 10.09% 10.06% November 30, 1989
Utilities Series 23.25% 24.51% -- 18.34% November 16, 1993
</TABLE>
- ------------------------
(1) Formerly, the MFS/Foreign & Colonial Emerging Markets Equity Series.
The length of the period and the last day of each period used in
the above table are set out in the table heading and in the footnotes above.
The Average Annual Total Return for each period was determined by finding the
average annual compounded rate of return over each period that would equate
the initial amount invested to the ending redeemable value for that period,
in accordance with the following formula:
n
P(l + T) = ERV
Where: P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return for the period
n = number of years
ERV = redeemable value (as of the end of the period) of a
hypothetical $1,000 Purchase Payment made at the beginning
of the 1-year, 5-year, or 10-year period (or fractional
portion thereof)
The formula assumes that: 1) all recurring fees have been deducted from the
Participant's Account; 2) all applicable non-recurring Contract charges are
deducted at the end of the period, and 3) there will be a full surrender at the
end of the period.
The $35 annual Account Fee will be allocated among the Sub-Accounts so
that each Sub-Account's allocated portion of the Account Fee is proportional to
the percentage of the number of Individual Contracts and Certificates that have
amounts allocated to that Sub-Account. Because the impact of Account Fees on a
particular Contract may differ from those assumed in the computation due to
differences between actual allocations and the assumed ones, the total return
that would have been experienced by an actual Contract over these same time
periods may have been different from that shown above.
<PAGE>
-3-
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN:
The table below shows, for various Sub-Accounts of the Variable Account,
the Non-Standardized Average Annual Total Return for the stated periods (or
shorter period indicated in the note below), based upon a hypothetical
initial Purchase Payment of $1,000, calculated in accordance with the formula
set out under "Standardized Average Annual Total Return." For purposes of
determining these investment results, the actual investment performance of
each Series of MFS/Sun Life Series Trust is reflected from the date such
Series commenced operations ("Inception"), although the Contracts have been
offered only since May 1, 1998. No information is shown for the Series 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
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
SUB-ACCOUNTS: PERIOD PERIOD PERIOD LIFE DATE
- ------------- ------ ------ ------- ---- ------------
<S> <C> <C> <C> <C> <C>
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 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
Intl. Growth & Income Series 15.63% -- -- 10.39% October 2, 1995
Managed Sectors Series 83.01% 30.60% 18.77% 20.04% May 27, 1988
Mass Investors Growth Series 33.87% -- -- 32.60% May 1, 1998
Mass 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 & Income Series 6.64% -- -- 13.72% May 12, 1997
Research International Series 52.78% -- -- 23.86% May 5, 1998
Strategic Income Series 3.06% -- -- 1.54% 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
<PAGE>
-4-
NON-STANDARDIZED COMPOUND GROWTH RATE
The table below shows, for various Sub-Accounts of the Variable Account,
the Non-Standardized Compound Growth Rate for the stated periods (or shorter
period indicated in the note below), based upon a hypothetical investment,
calculated in accordance with the formula set out under "Standardized Average
Annual Return," except that no withdrawal charges or annual Account Fees have
been deducted. If withdrawal charges or Account Fees were reflected, returns
would be lower (see "Standardized Average Annual Total Return" and "Non
Standardized Average Annual Return"). For purposes of determining these
investment results, the actual investment performance of each Series of
MFS/Sun Life Series Trust is reflected from the date such Series commenced
operations ("Inception"), although the Contracts have been offered only since
May 1, 1999. No information is shown for the Series 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
This set uses the "standardized" method (all product fees & loads), but is
non-standardized because the inception date is the fund start date.
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR COMMENCEMENT
SUB-ACCOUNTS: PERIOD PERIOD PERIOD LIFE DATE
- ------------- ------ ------ ------- ---- ------------
<S> <C> <C> <C> <C> <C>
Bond Series (8.37)% -- -- (1.47)% May 5, 1998
Capital Appreciation Series 24.53% 25.79% 17.11% 17.00% August 13, 1985
Capital Opportunities Series 39.41% -- -- 28.43% June 3, 1996
Emerging Growth Series 67.08% -- -- 34.11% May 1, 1995
Emerging Markets Equity Series 44.33% -- -- 2.29% June 5, 1996
Equity Income Series (0.25)% -- -- 2.53% May 1, 1998
Global Asset Allocation Series 10.86% 12.43% -- 12.13% November 7, 1994
Global Governments Series (11.55)% 3.60% 5.34% 5.59% May 16, 1988
Global Growth Series 58.93% 21.56% -- 18.80% November 16, 1993
Global Total Return Series 1.07% 12.30% -- 11.97% November 7, 1994
Government Securities Series (8.60)% 4.65% 5.50% 6.39% August 12, 1985
High Yield Series (0.50)% 7.60% 8.69% 7.83% August 13, 1985
International Growth Series 27.34% -- -- 5.74% June 3, 1996
Intl. Growth & Income Series 9.61% -- -- 9.61% October 2, 1995
Managed Sectors Series 76.96% 30.25% 18.68% 19.96% May 27, 1988
Mass Investors Growth Series 27.50% -- -- 29.17% May 1, 1998
Mass Investors Trust Series (0.56)% 22.49% 14.53% 13.64% December 5, 1986
Money Market Series (2.42)% 3.00% 3.27% 3.88% August 29, 1985
New Discovery Series 51.86% -- -- 32.79% May 5, 1998
Research Series 16.20% 23.65% -- 22.53% November 7, 1994
Research Growth & Income Series 0.78% -- -- 12.10% May 12, 1997
Research International Series 46.76% -- -- 20.66% May 5, 1998
Strategic Income Series (2.55)% -- -- (1.48)% May 5, 1998
Total Return Series (4.34)% 12.96% 10.09% 10.44% May 16, 1988
Utilities Series 23.25% 24.51% -- 18.34% 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
value weighted and was introduced with a base of 100.00 on February 5, 1971.
DOW JONES INDUSTRIAL AVERAGE (DJIA) - price-weighted average of 30
actively traded blue chip stocks, primarily industrials, but including
American Express Company and American Telephone and Telegraph Company.
Prepared and Published by Dow Jones & Company, it is the oldest and most
widely quoted of all the market indicators. The average is quoted in points,
not dollars.
MORNINGSTAR, Inc. is an independent financial publisher offering
comprehensive statistical and analytical coverage of open-end and closed-end
funds and variable annuities. This coverage for mutual funds includes, among
other information, performance analysis rankings, risk rankings (e.g.
aggressive, moderate or conservative), and "style box" matrices. Style box
matrices display, for equity funds, the investment philosophy and size of the
companies in which the fund invests and, for fixed-income funds, interest rate
sensitivity and credit quality of the investment instruments.
IBBOTSON ASSOCIATES, Inc. is a consulting firm that provides a variety
of historical data, including total return, capital appreciation and income, on
the stock market as well as other investment asset classes, and inflation. 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 MFS' CUSTOMERS. Sales literature for the Variable
Account and the Funds may refer to the number of clients which they serve.
THE COMPANY'S OR MFS' ASSETS, SIZE. The Company may discuss its
general financial condition (see, for example, the references to Standard &
Poor's, Duff & Phelps and A.M. Best Company above); it may refer to its assets;
it may also discuss its
<PAGE>
-7-
relative size and/or ranking among companies in the industry or among any
sub-classification of those companies, based upon recognized evaluation
criteria. For example, at December 31, 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 MFS REGATTA PLATINUM VARIABLE ANNUITY OR ANY OF ITS
INVESTMENT OPTIONS. THE ILLUSTRATION DOES NOT REFLECT THE DEDUCTION OF ANY
CHARGES OR FEES RELATED TO PORTFOLIO MANAGEMENT, MORTALITY AND EXPENSE, OR
ACCOUNT ADMINISTRATION. TAXES ON EARNINGS WITHIN AN ANNUITY ARE DUE UPON
WITHDRAWAL. WITHDRAWALS MAY ALSO BE SUBJECT TO SURRENDER CHARGES AND, IF MADE
PRIOR TO AGE 59 1/2, A 10% FEDERAL PENALTY TAX.
<PAGE>
-8-
CALCULATIONS
EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATION
Suppose the net asset value of a Series Fund share at the end of the
current valuation period is $18.38; at the end of the immediately preceding
valuation period was $18.32; the Valuation Period is one day; and no
dividends or distributions caused Series Fund shares to go "ex-dividend"
during the current Valuation Period. $18.38 divided by $18.32 is 1.00327511.
Subtracting the one day risk factor for mortality and expense risks and the
administrative expense charge of .00003863 (the daily equivalent of the
current maximum charge of 1.40% on an annual basis) gives a net investment
factor of 1.00323648. If the value of the variable accumulation unit for the
immediately preceding valuation period had been 14.5645672, the value for the
current valuation period would be 14.6117051 (14.5645672 X 1.00323648).
EXAMPLE OF VARIABLE ANNUITY UNIT CALCULATION
Suppose the circumstances of the first example exist, and the value of
an annuity unit for the immediately preceding valuation period had been
12.3456789. If the first variable annuity payment is determined by using an
annuity payment based on an assumed interest rate of 3% per year, the value
of the annuity unit for the current valuation period would be 12.3846325
(12.3456789 X 1.00323648 (the Net Investment Factor) X 0.99991902).
0.99991902 is the factor, for a one day Valuation Period, that neutralizes
the assumed interest rate of 3% per year used to establish the Annuity
Payment Rates found in certain Contracts. (The factor that neutralizes the
assumed interest rate of 3% per year used to establish the Annuity Payment
Rates found in other Contracts is 0.99991902).
EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATION
Suppose that a Participant Account is credited with 8,765.4321 variable
accumulation units of a particular Sub-Account but is not credited with
any fixed accumulation units; that the variable accumulation unit value and
the annuity unit value for the particular Sub-Account for the valuation
period which ends immediately preceding the annuity commencement date are
14.5645672 and 12.3456789 respectively; that the annuity payment rate for the
age and option elected is $6.78 per $1,000; and that the annuity unit value
on the day prior to the second variable annuity payment date is 12.3846325.
The first variable annuity payment would be $865.57 (8,765.4321 X 14.5845672
X 6.78 divided by 1,000). The number of annuity units credited would be
70.1112 ($865.57 divided by 12.3456789) and the second variable annuity
payment would be $868.28 (70.1112 X 12.3846325).
DISTRIBUTION OF THE CONTRACTS
We offer the Contracts on a continuous basis. The Contracts are
sold by licensed insurance agents in those states where the Contracts may be
lawfully sold. Such agents will be registered representatives of
broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. and who have
entered into distribution agreements with the Company and the general
distributor and principal underwriter of the Contracts, Clarendon Insurance
Agency, Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02481. Clarendon is a wholly-owned subsidiary of the Company.
Clarendon is registered with the SEC under the Securities Exchange Act of
1934 as broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Clarendon also acts as the general distributor of
certain other annuity contracts issued by the Company and its wholly-owned
subsidiary, Sun Life Insurance and Annuity Company of New York, and variable
life insurance contracts issued by the Company.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 7.34% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of the Participant's Account Value.
In addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation.
The Company reserves the right to offer these additional incentives only to
certain
<PAGE>
-9-
broker-dealers that sell or are expected to sell during specified time
periods certain minimum amounts of the Contracts or Certificates or other
contracts offered by the Company. Promotional incentives may change at any
time. Commissions will not be paid with respect to Participant Accounts
established for the personal account of employees of the Company or any of
its affiliates, or of persons engaged in the distribution of the Contracts,
or of immediate family members of such employees or persons. In addition,
commissions may be waived or reduced in connection with certain transactions
described in the Prospectus under the heading "Waivers; Reduced Charges;
Credits; Bonus Guaranteed Interest Rates."
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation in the Application will remain in effect
until changed.
Subject to the rights of an irrevocably designated Beneficiary, you
may change or revoke the designation of Beneficiary by filing the change or
revocation with us in the form we require. The change or revocation will not be
binding on us until we receive it. When we receive it, the change or revocation
will be effective as of the date on which it was signed, but the change or
revocation will be without prejudice to us on account of any payment we make or
any action we take before receiving the change or revocation.
Please refer to the terms of your particular retirement plan and any
applicable legislation for any restrictions on the beneficiary designation.
CUSTODIAN
We are the Custodian of the assets of the Variable Account. We
will purchase Series Fund shares at net asset value in connection with
amounts allocated to the Sub-Accounts in accordance with your instructions,
and we will redeem Series Fund shares at net asset value for the purpose of
meeting the contractual obligations of the Variable Account, paying charges
relative to the Variable Account or making adjustments for annuity reserves
held in the Variable Account.
FINANCIAL STATEMENTS
The Financial Statements of Sun Life of Canada (U.S.) Variable
Account F for the year ended December 31, 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>
-10-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF CONDITION -- December 31, 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>
-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 -- 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>
-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 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>
-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 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>
-14-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENT OF OPERATIONS -- Year Ended December 31, 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>
-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 -- 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>
-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>
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>
-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>
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>
-18-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BDS CAS COS
Sub-Account Sub-Account Sub-Account
----------------------------- ------------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended 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>
-19-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
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>
-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>
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>
-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>
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>
-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>
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>
-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>
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>
-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>
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>
-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>
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>
-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>
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>
-27-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS
(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>
-28-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(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>
-29-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS
<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>
-30-
REGATTA, REGATTA GOLD, REGATTA CLASSIC AND REGATTA PLATINUM SUB-ACCOUNTS
INCLUDED IN
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS -- continued
<TABLE>
<CAPTION>
Units Transferred
Between Sub-Accounts
and
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>
-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 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>
-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 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>
-33-
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>
-34-
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>
Rule No. 497(c)
File No. 33-41628
811-05846
May 1, 2000
FUTURITY II
VARIABLE AND FIXED ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT F
TABLE OF CONTENTS
Calculation of Performance Data.............................................. 2
Advertising and Sales Literature ............................................ 9
Calculations ................................................................ 12
Example of Variable Accumulation Unit Value Calculation................. 12
Example of Variable Annuity Unit Calculation ........................... 12
Example of Variable Annuity Payment Calculation ........................ 12
Distribution of the Contracts ............................................... 12
Designation and Change of Beneficiary ....................................... 13
Custodian ................................................................... 13
Financial Statements ........................................................ 13
The Statement of Additional Information sets forth information
which may be of interest to prospective purchasers of Futurity II Variable
and Fixed Annuity Contracts (the "Contracts") issued by Sun Life Assurance
Company of Canada (U.S.) (the "Company") in connection with Sun Life of
Canada (U.S.) Variable Account F (the "Variable Account") which is not
included in the Prospectus dated May 1, 2000. This Statement of Additional
Information should be read in conjunction with the Prospectus, a copy of
which may be obtained without charge by writing to the Company at 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 December 9, 1998.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION> 10 YEAR FUND
1 YEAR 5 YEAR OR INCEPTION
PERIOD PERIOD LIFE(1) DATE
------ ------ ------- -------------------
<S> <C> <C> <C> <C>
SUB-ACCOUNTS:
AIM V.I. Capital Appreciation Fund 36.40% - 26.06% May 18, 1998
AIM V.I. Growth Fund 27.15% - 28.72% February 17, 1998
AIM V.I. Growth and Income Fund 26.17% - 22.44% May 26, 1998
AIM V.I. International Equity Fund 46.69% - 29.26% February 17, 1998
Alger American Growth Portfolio 25.68% - 30.61% March 26, 1998
Alger American Income and Growth Portfolio 34.26% - 30.39% March 26, 1998
Alger American Small Capitalization Portfolio 35.22% - 21.15% March 26, 1998
Goldman Sachs VIT CORE-SM-Large Cap Fund 27.33% - 20.63% March 11, 1998
Goldman Sachs VIT CORE-SM-Small Cap Fund 9.70% - (0.97%) February 18, 1998
Goldman Sachs VIT CORE-SM-U.S. Equity Fund 16.37% - 16.05% February 17, 1998
Goldman Sachs VIT Growth and Income Fund (1.88%) - (4.85%) February 18, 1998
Goldman Sachs VIT International Equity Fund 23.81% - 15.76% March 16, 1998
J.P. Morgan International Opportunities Portfolio (2) 28.55% - 9.83% March 26, 1998
J.P. Morgan Small Company Portfolio (2) 36.18% - 6.90% March 26, 1998
J.P. Morgan U.S. Disciplined Equity Portfolio (2) 10.69% - 10.91% March 26, 1998
Lord Abbett Growth and Income Portfolio 8.97% - 5.47% March 26, 1998
MFS/Sun Life Capital Appreciation Series 24.32% 25.57% 16.94% November 30, 1989
MFS/Sun Life Emerging Growth Series 67.12% - 34.05% May 1, 1995
MFS/Sun Life Government Securities Series (8.67%) 4.59% 5.47% November 30, 1989
MFS/Sun Life High Yield Series (0.49%) 7.60% 8.72% November 30, 1989
MFS/Sun Life Massachusetts Investors Growth Stock Series 27.67% - 29.63% May 6, 1998
MFS/Sun Life Massachusetts Investors Trust Series (0.25%) 22.50% 15.56% October 31, 1991
MFS/Sun Life New Discovery Series 51.77% - 32.71% May 6, 1998
MFS/Sun Life Total Return Series (4.26%) 12.93% 10.08% November 30, 1989
MFS/Sun Life Utilities Series 23.35% 24.53% 18.39% November 16, 1993
OCC Equity Portfolio (3) (4.54%) - 0.64% February 17, 1998
OCC Managed Portfolio (3) (2.27%) - 3.36% December 14, 1998
OCC Mid Cap Portfolio 13.74% - 5.29% February 17, 1998
OCC Small Cap Portfolio (3) (8.60%) - (14.45%) March 26, 1998
Sun Capital Blue Chip Mid Cap Fund - - 18.17% September 13, 1999
Sun Capital Investment Grade Bond Fund (7.44%) - (6.72%) December 14, 1998
Sun Capital Investors Foundation Fund - - 3.77% September 13, 1999
Sun Capital Money Market Fund (2.57%) - (1.75%) December 14, 1998
Sun Capital Real Estate Fund (10.51%) - (8.78%) December 14, 1998
Sun Capital Select Equity Fund - - 17.82% September 13, 1999
Warburg Pincus Emerging Markets Portfolio 72.67% - 12.63% February 17, 1998
Warburg Pincus Global Post-Venture Capital Portfolio* 55.02% - 22.05% March 26, 1998
Warburg Pincus International Equity Portfolio 45.09% - 16.33% March 26, 1998
Warburg Pincus Small Company Growth Portfolio 60.52% - 21.40% March 26, 1998
</TABLE>
* Formerly, the Warburg Pincus Post Venture Capital Portfolio.
(1) From commencement of investment operations.
(2) From January 3, 1995 (commencement of operations) to December 31, 1996,
Chubb Investment Advisory Corporation ("Chubb Investment Advisory"), a
wholly owned subsidiary of Chubb Life Insurance Company of America,
served as each of these Fund's investment manager, and Morgan Guaranty
Trust Comapny of New York, an affiliate of J.P. Morgan Investment
Management Inc. ("J.P. Morgan") served as such Fund's sub-investment
adviser. Effective January 1, 1997, J.P. Morgan began serving as each
Fund's investment adviser.
(3) On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the OCC Accumulation Trust, at which
time the OCC Accumulation Trust commenced operations. The total net
assets for each of the Equity, Managed and Small Cap Portfolios
immediately after the transaction were $86,789,755, $682,601,380, and
$139,812,573, respectively, with respect to the Old Trust, and for each
of the Equity, Managed and Small Cap Portfolios, $3,764,598,
$51,345,102, and $8,129,274, respectively, with respect to the OCC
Accumulation Trust. The Equity, Managed and Small Cap Portfolios
commenced operations on August 1, 1998. For the period prior to September
16, 1994, the performance figures above for each of the Equity, Managed,
and Small Cap Portfolios reflect the performance of the corresponding
Portfolios of the Old Trust.
The length of the period and the last day of each period used in the
above table are set out in the table heading and in the footnotes above. The
Average Annual Total Return for each period was determined by finding the
average annual compounded rate of return over each period that would equate the
initial amount invested to the ending redeemable value for that period, in
accordance with the following formula:
<PAGE>
-3-
n
P(l + T) = ERV
Where: P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return for the period
n = number of years
ERV = redeemable value (as of the end of the period) of a
hypothetical $1,000 Purchase Payment made at the beginning of the 1-year,
5-year, or 10-year period (or fractional portion thereof)
The formula assumes that: 1) all recurring fees have been deducted from the
Participant's Account; 2) all applicable non-recurring Contract charges are
deducted at the end of the period, and 3) there will be a full surrender at the
end of the period.
The $35 annual Account Fee will be allocated among the Sub-Accounts so
that each Sub-Account's allocated portion of the Account Fee is proportional to
the percentage of the number of Individual Contracts and Certificates that have
amounts allocated to that Sub-Account. Because the impact of Account Fees on a
particular Contract may differ from those assumed in the computation due to
differences between actual allocations and the assumed ones, the total return
that would have been experienced by an actual Contract over these same time
periods may have been different from that shown above.
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>
-4-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity II Contract, this many years ago... on December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. GROWTH FUND
Number Cumulative Compound Number Cumulative Compound
of Growth Growth of Growth Growth
Years Periods Amount Rate Rate Years Periods Amount Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/98-12/31/99 $14,259.00 42.59% 42.59% 1 12/31/98-12/31/99 $13,334.00 33.34% 33.34%
2 12/31/97-12/31/99 $16,774.00 67.74% 29.51% 2 12/31/97-12/31/99 $17,634.00 76.34% 32.79%
3 12/31/96-12/31/99 $18,772.00 87.72% 23.36% 3 12/31/96-12/31/99 $22,059.00 120.59% 30.18%
4 12/31/95-12/31/99 $21,761.00 117.61% 21.46% 4 12/31/95-12/31/99 $25,682.00 156.82% 26.59%
5 12/31/94-12/31/99 $29,115.00 191.15% 23.83% 5 12/31/94-12/31/99 $34,128.00 241.28% 27.83%
Life 05/05/93-12/31/99 $34,837.00 248.37% 20.62% Life 05/05/93-12/31/99 $35,981.00 259.81% 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 $13,237.00 32.37% 32.37% 1 12/31/97-12/31/99 $15,288.00 52.88% 52.88%
2 12/31/97-12/31/99 $16,665.00 66.65% 29.09% 2 12/31/96-12/31/99 $17,409.00 74.09% 31.94%
3 12/31/96-12/31/99 $20,658.00 106.58% 27.36% 3 12/31/95-12/31/99 $18,356.00 83.56% 22.44%
4 12/31/95-12/31/99 $24,429.00 144.29% 25.02% 4 12/31/94-12/31/99 $21,725.00 117.25% 21.41%
5 12/31/94-12/31/99 $32,245.00 222.45% 26.38% 5 12/31/93-12/31/99 $25,115.00 151.15% 20.22%
Life 05/02/94-12/31/99 $31,941.00 219.41% 22.75% Life 05/05/93-12/31/99 $28,702.00 187.02% 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 $13,187.00 31.87% 31.87% 1 12/31/98-12/31/99 $14,046.00 40.46% 40.46%
2 12/31/97-12/31/99 $19,259.00 92.59% 38.78% 2 12/31/97-12/31/99 $18,338.00 83.38% 35.42%
3 12/31/96-12/31/99 $23,884.00 138.84% 33.67% 3 12/31/96-12/31/99 $24,651.00 146.51% 35.09%
4 12/31/95-12/31/99 $26,693.00 166.93% 27.82% 4 12/31/95-12/31/99 $29,091.00 190.91% 30.60%
5 12/31/94-12/31/99 $35,904.00 259.04% 29.13% 5 12/31/94-12/31/99 $38,774.00 287.74% 31.13%
10 12/31/89-12/31/99 $68,343.00 583.43% 21.19% 10 12/31/89-12/31/99 $49,220.00 392.20% 17.28%
Life 01/09/89-12/31/99 $83,681.00 736.81% 21.36% Life 11/15/88-12/31/99 $52,533.00 425.33% 16.08%
</TABLE>
* For periods of less than one year, the growth rates listed are not
annualized.
** For purposes of determining these investment results, the actual investment
performance of each Fund is reflected from the date the Fund commenced
operations, although the Contracts have been offered only since March 15,
1999. No information is shown for Funds that have not commenced
operations or that have been in operation for less than one full calendar
year. The charges imposed under the Contract against the assets of the
Variable Account for mortality and expense risks and administrative
expenses have been deducted. However, the annual Account Fee is not
reflected and these examples do not assume surrender at the end of the
period.
<PAGE>
-5-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity II Contract, this many years ago... on December 31, 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 $14,141.00 41.41% 41.41% 1 12/31/98-12/31/99 $13,353.00 33.53% 33.53%
2 12/31/97-12/31/99 $16,108.00 61.08% 26.92% 2 12/31/97-12/31/99
3 12/31/96-12/31/99 $17,694.00 76.94% 20.95% 3 12/31/96-12/31/99
4 12/31/95-12/31/99 $18,173.00 81.73% 16.11% 4 12/31/95-12/31/99
5 12/31/94-12/31/99 $25,869.00 158.69% 20.94% 5 12/31/94-12/31/99
10 12/31/89-12/31/99 $46,344.00 363.44% 16.57% 10 12/31/89-12/31/99
Life 09/21/88-12/31/98 $72,400.00 624.00% 19.19% Life 02/13/98-12/31/98 $15,413.00 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 $11,590.00 15.90% 15.90% 1 12/31/98-12/31/99 $12,256.00 22.56% 22.56%
Life 02/13/98-12/31/98 $10,371.00 3.71% 1.96% Life 02/13/98-12/31/98 $13,875.00 38.75% 19.04%
<CAPTION>
GOLDMAN SACHS VIT 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 $10,394.00 3.94% 3.94% 1 12/31/98-12/31/99 $13,001.00 30.01% 30.01%
Life 01/12/98-12/31/99 $10,814.00 8.14% 4.06% Life 01/12/98-12/31/98 $15,399.00 53.99% 24.54%
<CAPTION>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO*** J.P. MORGAN SMALL COMPANY 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 $13,475.00 34.75% 34.75% 1 12/31/98-12/31/99 $14,237.00 42.37% 42.37%
2 12/31/97-12/31/99 $13,915.00 39.15% 17.96% 2 12/31/97-12/31/99 $13,264.00 32.64% 15.17%
3 12/31/96-12/31/99 $14,465.00 44.65% 13.09% 3 12/31/96-12/31/99 $16,021.00 60.21% 17.01%
4 12/31/95-12/31/99 $16,138.00 61.38% 12.71% 4 12/31/95-12/31/99 $19,237.00 92.37% 17.77%
Life 01/03/95-12/31/99 $17,883.00 78.83% 12.35% Life 01/03/95-12/31/99 $25,208.00 152.08% 20.35%
</TABLE>
* For periods of less than one year, the growth rates listed are not
annualized.
** For purposes of determining these investment results, the actual investment
performance of each Fund is reflected from the date the Fund commenced
operations, although the Contracts have been offered only since March 15,
1999. No information is shown for Funds that have not commenced
operations or that have been in operation for less than one full calendar
year. The charges imposed under the Contract against the assets of the
Variable Account for mortality and expense risks and administrative
expenses have been deducted. However, the annual Account Fee is not
reflected and these examples do not assume surrender at the end of the
period.
*** See footnote 3 on page 2 of the Statement of Additional Information.
<PAGE>
-6-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity II Contract, this many years ago... on December 31, 1999**
</TABLE>
<TABLE>
<CAPTION>
J.P. MORGAN U.S. DISCIPLINED EQUITY 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 $11,689.00 16.89% 16.89% 1 12/31/98-12/31/99 $11,516.00 15.16% 15.16%
2 12/31/97-12/31/99 $14,210.00 42.10% 19.21% 2 12/31/97-12/31/99 $12,817.00 28.17% 13.21%
3 12/31/96-12/31/99 $17,864.00 78.64% 21.34% 3 12/31/96-12/31/99 $15,754.00 57.54% 16.36%
4 12/31/95-12/31/99 $21,358.00 113.58% 20.89% 4 12/31/95-12/31/99 $18,543.00 85.43% 16.69%
5 12/31/94-12/31/99 $23,737.00 137.37% 18.87%
10 12/31/89-12/31/99 $39,156.00 291.56% 14.63%
Life 01/03/95-12/31/99 $28,178.00 181.78% 23.06% Life 12/11/89-12/31/99 $39,403.00 294.03% 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 $13,077.00 30.77% 30.77% 1 12/31/98-12/31/99 $17,335.00 73.35% 73.35%
2 12/31/97-12/31/99 $16,594.00 65.94% 28.82% 2 12/31/97-12/31/99 $22,885.00 128.85% 51.28%
3 12/31/96-12/31/99 $20,146.00 101.46% 26.30% 3 12/31/96-12/31/99 $27,513.00 175.13% 40.12%
4 12/31/95-12/31/99 $24,129.00 141.29% 24.63% 4 12/31/95-12/31/99 $31,775.00 217.75% 33.51%
5 12/31/94-12/31/99 $31,990.00 219.90% 26.18%
10 12/31/89-12/31/99 $49,047.00 390.47% 17.24%
Life 06/12/85-12/31/99 $96,530.00 865.30% 16.86% Life 05/01/95-12/31/98 $39,917.00 299.17% 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 $9,670.00 -3.30% -3.30% 1 12/31/98-12/31/99 $10,534.00 5.34% 5.34%
2 12/31/97-12/31/99 $10,367.00 3.67% 1.82% 2 12/31/97-12/31/99 $10,456.00 4.56% 2.25%
3 12/31/96-12/31/99 $11,113.00 11.13% 3.58% 3 12/31/96-12/31/99 $11,674.00 16.74% 5.29%
4 12/31/95-12/31/99 $11,137.00 11.37% 2.73% 4 12/31/95-12/31/99 $12,905.00 29.05% 6.58%
5 12/31/94-12/31/99 $12,920.00 29.20% 5.26% 5 12/31/94-12/31/99 $14,879.00 48.79% 8.27%
10 12/31/89-12/31/99 $17,247.00 72.47% 5.60% 10 12/31/89-12/31/99 $23,246.00 132.46% 8.80%
Life 06/12/85-12/31/99 $24,638.00 146.38% 6.39% Life 06/12/85-12/31/99 $29,827.00 198.27% 7.80%
</TABLE>
* For periods of less than one year, the growth rates listed are not
annualized.
** For purposes of determining these investment results, the actual investment
performance of each Fund is reflected from the date the Fund commenced
operations, although the Contracts have been offered only since March 15,
1999. No information is shown for Funds that have not commenced
operations or that have been in operation for less than one full calendar
year. The charges imposed under the Contract against the assets of the
Variable Account for mortality and expense risks and administrative
expenses have been deducted. However, the annual Account Fee is not
reflected and these examples do not assume surrender at the end of the
period.
*** See footnote 3 on page 2 of the Statement of Additional Information.
<PAGE>
-7-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity II Contract, this many years ago... on December 31, 1999**
</TABLE>
<TABLE>
<CAPTION>
MFS/SUN LIFE MASSACHUSETTS INVESTORS MFS/SUN LIFE MASSACHUSETTS INVESTORS TRUST SERIES
GROWTH STOCK 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 $13,387.00 33.87% 33.87% 1 12/31/98-12/31/99 $10,568.00 5.68% 5.68%
2 12/31/97-12/31/99 $12,905.00 29.05% 13.60%
3 12/31/96-12/31/99 $16,788.00 67.88% 18.85%
4 12/31/95-12/31/99 $20,758.00 107.58% 20.03%
5 12/31/94-12/31/99 $28,126.00 181.26% 22.98%
10 12/31/89-12/31/99 $39,223.00 292.23% 14.64%
Life 05/06/98-12/31/99 $16,010.00 60.10% 32.90% Life 11/14/86-12/31/99 $53,723.00 437.23% 13.66%
<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 $15,797.00 57.97% 57.97% 1 12/31/98-12/31/99 $10,141.00 1.41% 1.41%
2 12/31/97-12/31/99 $11,169.00 11.69% 5.68%
3 12/31/96-12/31/99 $13,433.00 34.33% 10.34%
4 12/31/95-12/31/99 $15,111.00 51.11% 10.87%
5 12/31/94-12/31/99 $18,881.00 88.81% 13.55%
10 12/31/89-12/31/99 $26,448.00 164.48% 10.21%
Life 05/06/98-12/31/99 $16,622.00 66.22% 35.94% Life 05/11/88-12/31/99 $32,117.00 221.17% 10.54%
<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 $12,942.00 29.42% 29.42% 1 12/31/98-12/31/99 $10,111.00 1.11% 1.11%
2 12/31/97-12/31/99 $15,000.00 50.00% 22.47% 2 12/31/97-12/31/99 $11,151.00 11.51% 5.60%
3 12/31/96-12/31/99 $19,629.00 96.29% 25.21% 3 12/31/96-12/31/99 $13,923.00 39.23% 11.66%
4 12/31/95-12/31/99 $23,294.00 132.94% 23.54% 4 12/31/95-12/31/99 $16,934.00 69.34% 14.07%
5 12/31/94-12/31/99 $30,403.00 204.03% 24.91% 5 12/31/94-12/31/99 $23,185.00 131.85% 18.32%
10 12/31/89-12/31/99 $36,592.00 265.92% 13.85%
Life 11/16/93-12/31/99 $28,500.00 185.00% 18.65% Life 08/01/88-12/31/99 $44,839.00 348.39% 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 $10,353.00 3.53% 3.53% 1 12/31/98-12/31/99 $11,993.00 19.93% 19.93%
2 12/31/97-12/31/99 $10,936.00 9.36% 4.58%
3 12/31/96-12/31/99 $13,190.00 31.90% 9.67%
4 12/31/95-12/31/99 $15,969.00 59.69% 12.41%
5 12/31/94-12/31/99 $22,928.00 129.28% 18.05%
10 12/31/89-12/31/99 $40,390.00 303.90% 14.98%
Life 08/01/88-12/31/99 $54,813.00 448.13% 16.07% Life 02/09/98-12/31/99 $11,650.00 16.50% 8.41%
<CAPTION>
OCC SMALL CAP PORTFOLIO*** SUN CAPITAL INVESTMENT GRADE BOND FUND
Number Cumulative Compound Number Cumulative Compound
of Growth Growth of Growth Growth
Years Periods Amount Rate Rate Years Periods Amount Rate Rate*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/98-12/31/99 $9,679.00 -3.21% -3.21% 1 12/31/98-12/31/99 $9,802.00 -1.98% -1.98%
2 12/31/97-12/31/99 $8,681.00 -13.19% -6.83%
3 12/31/96-12/31/99 $10,465.00 4.65% 1.53%
4 12/31/95-12/31/99 $12,251.00 22.51% 5.21%
5 12/31/94-12/31/99 $13,922.00 39.22% 6.84%
10 12/31/89-12/31/99 $24,934.00 149.34% 9.57%
Life 08/01/88-12/31/99 $29,485.00 194.85% 9.93% Life 12/07/98-12/31/98 $9,799.00 -2.01% -1.89%
</TABLE>
* For periods of less than one year, the growth rates listed are not
annualized.
** For purposes of determining these investment results, the actual investment
performance of each Fund is reflected from the date the Fund commenced
operations, although the Contracts have been offered only since March 15,
1999. No information is shown for Funds that have not commenced
operations or that have been in operation for less than one full calendar
year. The charges imposed under the Contract against the assets of the
Variable Account for mortality and expense risks and administrative
expenses have been deducted. However, the annual Account Fee is not
reflected and these examples do not assume surrender at the end of the
period.
*** See footnote 3 on page 2 of the Statement of Additional Information.
<PAGE>
-8-
<TABLE>
<CAPTION>
NON-STANDARDIZED INVESTMENT PERFORMANCE*
<S> <C>
$10,000 invested in this Fund under a ...would have grown to this amount
Futurity II Contract, this many years ago... on December 31, 1998**
</TABLE>
<TABLE>
<CAPTION>
SUN CAPITAL MONEY MARKET FUND SUN CAPITAL REAL ESTATE FUND
Number Cumulative Compound Number Cumulative Compound
of Growth Growth of Growth Growth
Years Periods Amount Rate Rate* Years Periods Amount Rate Rate*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/98-12/31/99 $10,320.00 3.20% 3.20% 1 12/31/98-12/31/99 $9,476.00 -5.24% -5.24%
Life 12/07/98-12/31/98 $10,341.00 3.41% 3.20% Life 12/07/98-12/31/98 $9,399.00 -6.01% -5.65%
<CAPTION>
SUN CAPITAL ADVISORS BLUE CHIP MID CAP FUND SUN CAPITAL ADVISORS 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>
Life 09/13/99-12/31/99 $12,642.00 26.42% 26.42% Life 09/13/99-12/31/99 $11,166.00 11.66% 11.66%
<CAPTION>
SUN CAPITAL ADVISORS SELECT EQUITY FUND WARBURG PINCUS EMERGING MARKETS 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>
Life 09/13/99-12/31/99 $12,582.00 25.82% 25.82% 1 12/31/98-12/31/99 $17,887.00 78.87% 78.87%
2 12/31/97-12/31/99 $14,580.00 45.80% 20.75%
3 12/31/96-12/31/99 $10,000.00
Life 12/31/97-12/31/99 $14,580.00 45.80% 20.75%
<CAPTION>
WARBURG PINCUS INTERNATIONAL EQUITY PORTFOLIO WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL 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 $15,129.00 51.29% 51.29% 1 12/31/98-12/31/99 $16,121.00 61.21% 61.21%
2 12/31/97-12/31/99 $15,715.00 57.15% 25.36% 2 12/31/97-12/31/99 $16,928.00 69.28% 30.11%
3 12/31/96-12/31/99 $15,144.00 51.44% 14.84% 3 12/31/96-12/31/99 $18,919.00 89.19% 23.68%
4 12/31/95-12/31/99 $16,423.00 64.23% 13.20%
Life 06/30/95-12/31/99 $17,499.00 74.99% 13.23% Life 09/30/96-12/31/99 $18,399.00 83.99% 20.62%
<CAPTION>
WARBURG PINCUS SMALL COMPANY GROWTH PORTFOLIO
Number Cumulative Compound
of Growth Growth
Years Periods Amount Rate Rate
<S> <C> <C> <C> <C>
1 12/31/98-12/31/99 $16,671.00 66.71% 66.71%
2 12/31/97-12/31/99 $15,966.00 59.66% 26.36%
3 12/31/96-12/31/99 $18,222.00 82.22% 22.14%
4 12/31/95-12/31/99 $20,451.00 104.51% 19.59%
Life 06/30/95-12/31/99 $25,411.00 154.11% 23.00%
</TABLE>
* For periods of less than one year, the growth rates listed are not
annualized.
** For purposes of determining these investment results, the actual investment
performance of each Fund is reflected from the date the Fund commenced
operations, although the Contracts have been offered only since March 15,
1999. No information is shown for Funds that have not commenced
operations or that have been in operation for less than one full calendar
year. The charges imposed under the Contract against the assets of the
Variable Account for mortality and expense risks and administrative
expenses have been deducted. However, the annual Account Fee is not
reflected and these examples do not assume surrender at the end of the
period.
<PAGE>
-9-
ADVERTISING AND SALES LITERATURE
As set forth in the Prospectus, the Company may refer to the following
organizations (and others) in its marketing materials:
A.M. BEST'S RATING SYSTEM is designed to evaluate the various factors
affecting the overall performance of an insurance company in order to provide an
opinion as to an insurance company's relative financial strength and ability to
meet its contractual obligations. The procedure includes both a quantitative and
qualitative review of each company.
DUFF & PHELPS CREDIT RATING Company's Insurance Company Claims Paying
Ability Rating is an independent evaluation by a nationally accredited rating
organization of an insurance company's ability to meet its future obligations
under the contracts and products it sells. The rating takes into account both
quantitative and qualitative factors.
LIPPER VARIABLE INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE is a
publisher of statistical data covering the investment company industry in the
United States and overseas. Lipper is recognized as the leading source of data
on open-end and closed-end funds. Lipper currently tracks the performance of
over 5,000 investment companies and publishes numerous specialized reports,
including reports on performance and portfolio analysis, fee and expense
analysis.
STANDARD & POOR's insurance claims-paying ability rating is an opinion
of an operating insurance company's financial capacity to meet obligations of
its insurance policies in accordance with their terms.
VARDS (Variable Annuity Research Data Service) provides a
comprehensive guide to variable annuity contract features and historical fund
performance. The service also provides a readily understandable analysis of the
comparative characteristics and market performance of funds inclusive in
variable contracts.
MOODY'S Investors Services, Inc.'s insurance claims-paying rating is a
system of rating an insurance company's financial strength, market leadership,
and ability to meet financial obligations. The purpose of Moody's ratings is to
provide investors with a simple system of gradation by which the relative
quality of insurance companies may be noted.
STANDARD & POOR'S INDEX - broad-based measurement of changes in
stock-market conditions based on the average performance of 500 widely held
common stocks; commonly known as the Standard & Poor's 500 (S&P 500). The
selection of stocks, their relative weightings to reflect differences in the
number of outstanding shares, and publication of the index itself are services
of Standard & Poor's Corporation, a financial advisory, securities rating, and
publishing firm. The index tracks 400 industrial company stocks, 20
transportation stocks, 40 financial company stocks, and 40 public utilities.
<PAGE>
-10-
NASDAQ-OTC Price Index - this index is based on the National
Association of Securities Dealers Automated Quotations (NASDAQ) and represents
all domestic over-the-counter stocks except those traded on exchanges and those
having only one market maker, a total of some 3,500 stocks. It is market
value weighted and was introduced with a base of 100.00 on February 5, 1971.
DOW JONES INDUSTRIAL AVERAGE (DJIA) - price-weighted average of 30
actively traded blue chip stocks, primarily industrials, but including American
Express Company and American Telephone and Telegraph Company. Prepared and
Published by Dow Jones & Company, it is the oldest and most widely quoted of all
the market indicators. The average is quoted in points, not dollars.
MORNINGSTAR, Inc. is an independent financial publisher offering
comprehensive statistical and analytical coverage of open-end and closed-end
funds and variable annuities. This coverage for mutual funds includes, among
other information, performance analysis rankings, risk rankings (e.g.
aggressive, moderate or conservative), and "style box" matrices. Style box
matrices display, for equity funds, the investment philosophy and size of the
companies in which the fund invests and, for fixed-income funds, interest rate
sensitivity and credit quality of the investment instruments.
IBBOTSON ASSOCIATES, Inc. is a consulting firm that provides a variety
of historical data, including total return, capital appreciation and income, on
the stock market as well as other investment asset classes, and inflation. 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 AND THE FUNDS' CUSTOMERS. Sales literature for the
Variable Account and the Funds may refer to the number of clients which they
serve.
THE COMPANY'S ASSETS, SIZE. The Company may discuss its
general financial condition (see, for example, the references to Standard &
Poor's, Duff & Phelps and A.M. Best Company above); it may refer to its assets;
it may also discuss its
<PAGE>
-11-
relative size and/or ranking among companies in the industry or among any
sub-classification of those companies, based upon recognized evaluation
criteria. For example, at December 31, 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 FUTURRITY II VARIABLE ANNUITY OR ANY OF ITS INVESTMENT
OPTIONS. THE ILLUSTRATION DOES NOT REFLECT THE DEDUCTION OF ANY CHARGES OR
FEES RELATED TO PORTFOLIO MANAGEMENT, MORTALITY AND EXPENSE, OR ACCOUNT
ADMINISTRATION. TAXES ON EARNINGS WITHIN AN ANNUITY ARE DUE UPON WITHDRAWAL.
WITHDRAWALS MAY ALSO BE SUBJECT TO SURRENDER CHARGES AND, IF MADE PRIOR TO
AGE 59 1/2, A 10% FEDERAL PENALTY TAX.
<PAGE>
-12-
CALCULATIONS
EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATION
Suppose the net asset value of a Fund share at the end of the
current valuation period is $18.38; at the end of the immediately preceding
valuation period was $18.32; the Valuation Period is one day; and no
dividends or distributions caused Fund shares to go "ex-dividend"
during the current Valuation Period. $18.38 divided by $18.32 is 1.00327511.
Subtracting the one day risk factor for mortality and expense risks and the
administrative expense charge of .00003863 (the daily equivalent of the
current maximum charge of 1.40% on an annual basis) gives a net investment
factor of 1.00323648. If the value of the variable accumulation unit for the
immediately preceding valuation period had been 14.5645672, the value for the
current valuation period would be 14.6117051 (14.5645672 X 1.00323648).
EXAMPLE OF VARIABLE ANNUITY UNIT CALCULATION
Suppose the circumstances of the first example exist, and the value of
an annuity unit for the immediately preceding valuation period had been
12.3456789. If the first variable annuity payment is determined by using an
annuity payment based on an assumed interest rate of 3% per year, the value
of the annuity unit for the current valuation period would be 12.3846325
(12.3456789 X 1.00323648 (the Net Investment Factor) X 0.99991902).
0.99991902 is the factor, for a one day Valuation Period, that neutralizes
the assumed interest rate of 3% per year used to establish the Annuity
Payment Rates found in certain Contracts. (The factor that neutralizes the
assumed interest rate of 3% per year used to establish the Annuity Payment
Rates found in other Contracts is 0.99991902).
EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATION
Suppose that a Participant Account is credited with 8,765.4321 variable
accumulation units of a particular Sub-Account but is not credited with
any fixed accumulation units; that the variable accumulation unit value and
the annuity unit value for the particular Sub-Account for the valuation
period which ends immediately preceding the annuity commencement date are
14.5645672 and 12.3456789 respectively; that the annuity payment rate for the
age and option elected is $6.78 per $1,000; and that the annuity unit value
on the day prior to the second variable annuity payment date is 12.3846325.
The first variable annuity payment would be $865.57 (8,765.4321 X 14.5845672
X 6.78 divided by 1,000). The number of annuity units credited would be
70.1112 ($865.57 divided by 12.3456789) and the second variable annuity
payment would be $868.28 (70.1112 X 12.3846325).
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 a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. Clarendon also acts as the general distributor of certain other annuity
contracts issued by the Company and its wholly-owned subsidiary, Sun Life
Insurance and Annuity Company of New York, and variable life insurance contracts
issued by the Company.
Commissions and other distribution compensation will be paid by the
Company to the selling agents and will not be more than 7.46% of Purchase
Payments. In addition, after the first Account Year, broker-dealers who have
entered into distribution agreements with the Company may receive an annual
renewal commission of no more than 1.00% of Participant Account Value. In
addition to commissions, the Company may, from time to time, pay or allow
additional promotional incentives, in the form of cash or other compensation.
The Company reserves the right to offer these additional incentives only to
certain
<PAGE>
-13-
broker-dealers that sell or are expected to sell during specified time
periods certain minimum amounts of the Contracts or Certificates or other
contracts offered by the Company. Promotional incentives may change at any
time. Commissions will not be paid with respect to Participant Accounts
established for the personal account of employees of the Company or any of
its affiliates, or of persons engaged in the distribution of the Contracts,
or of immediate family members of such employees or persons. In addition,
commissions may be waived or reduced in connection with certain transactions
described in the Prospectus under the heading "Waivers; Reduced Charges;
Credits; Bonus Guaranteed Interest Rates."
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation in the Application will remain in effect
until changed.
Subject to the rights of an irrevocably designated Beneficiary, you
may change or revoke the designation of Beneficiary by filing the change or
revocation with us in the form we require. The change or revocation will not be
binding on us until we receive it. When we receive it, the change or revocation
will be effective as of the date on which it was signed, but the change or
revocation will be without prejudice to us on account of any payment we make or
any action we take before receiving the change or revocation.
Please refer to the terms of your particular retirement plan and any
applicable legislation for any restrictions on the beneficiary designation.
CUSTODIAN
We are the Custodian of the assets of the Variable Account. We
will purchase Fund shares at net asset value in connection with amounts
allocated to the Sub-Accounts in accordance with your instructions, and we
will redeem Fund shares at net asset value for the purpose of meeting the
contractual obligations of the Variable Account, paying charges relative to
the Variable Account or making adjustments for annuity reserves held in the
Variable Account.
FINANCIAL STATEMENTS
The Financial Statements of Sun Life of Canada (U.S.) Variable
Account F for the year ended December 31, 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>
-14-
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>
-15-
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>
-16-
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>
-17-
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>
-18-
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>
-19-
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>
-20-
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>
-21-
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>
-22-
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>
-23-
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>
-24-
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>
-25-
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>
-26-
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>
-27-
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>
-28-
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>
-29-
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>
-30-
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>
-31-
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>
-32-
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>
-33-
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>
-34-
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>
-35-
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>
-36-
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>
-37-
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>
-38-
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>
-39-
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>
-40-
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>
-41-
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>
-42-
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>
-43-
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>
-44-
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
