<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
2-99959
33-29851
33-31711
33-41858
33-43008
For Quarter Ended March 31, 1997 Commission File Number 33-58853
333-11699
333-13087
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Exact name of registrant as specified in its charter)
Delaware 04-2461439
(State or other jurisdiction of (IRS Employer I. D. No.)
incorporation or organization)
One Sun Life Executive Park, Wellesley Hills, MA. 02181
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (617) 237-6030
NONE
Former name, former address, and former fiscal year,
if changed since last report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes / X / No / /
(2) Yes / X / No / /
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
INDEX
Page
PART I: Financial Information Number
Item 1: Financial Statements:*
Balance Sheets -
March 31, 1997 and December 31, 1996 3
Statements of Operations -
Three Months Ended
March 31, 1997 and March 31, 1996 4
Statements of Capital Stock and Surplus -
Three Months Ended
March 31, 1997 and March 31, 1996 5
Statements of Cash Flows -
Three Months Ended
March 31, 1997 and March 31, 1996 6
Notes to Unaudited Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Part II: Other Information
Item 4: Submission of Matters to a
Vote of Security Holders 10
Item 5: Other Information 10
* The balance sheet at December 31, 1996 has been taken from the
audited financial statements at that date. All other statements
are unaudited.
-2-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA)
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND
CAPITAL STOCK AND SURPLUS
(IN 000'S)
<TABLE>
<CAPTION>
(UNAUDITED) (SEE NOTE BELOW)
MARCH 31, DECEMBER 31,
ADMITTED ASSETS 1997 1996
--------------- ---------------
<S> <C> <C>
Bonds $ 2,064,504 $ 2,170,103
Common stocks 142,935 144,043
Mortgage loans on real estate 906,055 938,932
Properties acquired in satisfaction of debt 23,211 23,391
Investment real estate 76,632 76,995
Policy loans 40,912 40,554
Cash & short-term investments 151,695 90,059
Other invested assets 53,119 51,378
Life insurance premiums and annuity considerations due & uncollected 10,366 11,282
Investment income due and accrued 56,365 68,191
Receivable from parent, subsidiaries and affiliates 46,156 40,829
Other assets 912,416 880,142
--------------- ---------------
General account assets 4,484,366 4,535,899
Separate account assets
Unitized 7,060,248 6,919,219
Non-unitized 2,220,579 2,108,835
--------------- ---------------
TOTAL ADMITTED ASSETS $ 13,765,193 $ 13,563,953
--------------- ---------------
--------------- ---------------
LIABILITIES
Aggregate reserve for life policies and contracts $ 2,129,942 $ 2,099,980
Supplementary contracts 2,395 2,205
Policy and contract claims 3,562 2,108
Provision for policyholders' dividends and coupons payable 27,500 27,500
Liability for premium and other deposit funds 1,808,381 1,898,309
Surrender values on cancelled policies 97 72
Interest maintenance reserve 29,028 28,675
Commissions to agents due and accrued 2,535 3,245
General expenses due or accrued 9,151 4,654
Transfers from Separate Accounts due or accrued (256,058) (232,743)
Taxes, licenses and fees due or accrued, excluding FIT 657 342
Federal income taxes due or accrued 50,532 49,479
Amounts withheld or retained by company as agent or trustee 57 27
Remittances and items not allocated 1,008 1,359
Asset valuation reserve 55,352 53,911
Other liabilities 19,862 29,758
--------------- ---------------
General account liabilities 3,884,001 3,968,881
Separate account liabilities
Unitized 7,060,122 6,919,094
Non-unitized 2,220,579 2,108,835
--------------- ---------------
TOTAL LIABILITIES 13,164,702 12,996,810
--------------- ---------------
Common capital stock 5,900 5,900
Suplus Notes 315,000 315,000
Gross paid in and contributed surplus 199,355 199,355
Unassigned funds 80,236 46,888
Surplus 594,591 561,243
Common capital stock and surplus 600,491 567,143
--------------- ---------------
TOTAL LIABILITIES, CAPITAL STOCK AND SURPLUS $ 13,765,193 $ 13,563,953
--------------- ---------------
--------------- ---------------
</TABLE>
Note: The balance sheet at December 31, 1996 has been taken from the
audited financial statements at that date.
See notes to unaudited statutory financial statements.
-3-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA)
STATUTORY STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN 000'S)
THREE MONTHS ENDED MARCH 31,
INCOME 1997 1996
------------ ------------
<S> <C> <C>
Premiums and annuity considerations $ 62,864 $ 70,512
Deposit-type funds 554,524 428,660
Considerations for supplementary contracts
without life contingencies and dividend accumulations 368 684
Net investment income 71,984 74,173
Amortization of interest maintenance reserve 92 290
Other income 18,967 15,525
------------ ------------
Total 708,799 589,844
------------ ------------
BENEFITS AND EXPENSES
Death benefits 2,512 2,738
Annuity benefits 34,869 33,164
Surrender benefits and other fund withdrawals 404,816 420,470
Interest on policy or contract funds 43 339
Payments on supplementary contracts
without life contingencies and of dividend accumulations 204 847
Increase in aggregate reserves for life and accident and health policies and contracts 29,961 43,113
Decrease in liability for premium and other deposit funds (89,927) (99,919)
Increase (decrease) in reserve for supplementary contracts
without life contingencies and for dividend and coupon accumulations 189 (141)
------------ ------------
Total 382,667 400,611
------------ ------------
Commissions on premiums and annuity considerations (direct business only) 34,008 24,216
Commissions and expense allowances on reinsurance assumed 4,042 4,537
General insurance expenses 9,170 9,747
Insurance taxes, licenses and fees, excluding federal income taxes 1,812 1,540
Increase (decrease) in loading on and cost of collection in excess of loading
on deferred and uncollected premiums (78) 1,080
Net transfers to Separate Accounts 234,726 117,032
------------ ------------
Total 666,347 558,763
------------ ------------
NET GAIN FROM OPERATIONS BEFORE DIVIDENDS TO POLICYHOLDERS AND FIT 42,452 31,081
Dividends to policyholders 6,623 5,627
------------ ------------
NET GAIN FROM OPERATIONS AFTER DIVIDENDS TO POLICYHOLDERS AND BEFORE FIT 35,829 25,454
Federal income tax benefit (excluding tax on capital gains) (405) (1,554)
------------ ------------
NET GAIN FROM OPERATIONS AFTER DIVIDENDS TO POLICYHOLDERS AND FIT
AND BEFORE REALIZED CAPITAL GAINS 36,234 27,008
Net realized capital gains less capital gains tax and transferred to the IMR 240 1,480
------------ ------------
NET INCOME $ 36,474 $ 28,488
------------ ------------
------------ ------------
</TABLE>
See notes to unaudited statutory financial statements.
-4-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA)
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
(IN 000'S)
THREE MONTHS ENDED MARCH 31,
1997 1996
-------- --------
CAPITAL AND SURPLUS, BEGINNING OF PERIOD $567,143 $792,452
Net income 36,474 28,488
Change in net unrealized capital losses (1,641) (819)
Change in non-admitted assets and related items (45) (1,599)
Change in asset valuation reserve (1,441) (1,894)
Other changes in surplus in Separate Accounts Statement 1 0
Increase (decrease) in surplus notes 0 (335,000)
Miscellaneous gains and losses in surplus 0 1
-------- --------
Net change in capital and surplus for the period 33,348 (310,823)
-------- --------
CAPITAL AND SURPLUS, END OF PERIOD $600,491 $481,629
-------- --------
-------- --------
See notes to unaudited statutory financial statements.
-5-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(WHOLLY-OWNED SUBSIDIARY OF
SUN LIFE ASSURANCE COMPANY OF CANADA)
STATUTORY STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
(in 000's) THREE MONTHS ENDED MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
CASH PROVIDED
Premiums, annuity considerations and deposit funds received $ 618,383 $ 157,629
Considerations for supplementary contracts and dividend
accumulations received 368 684
Net investment income received 86,051 62,188
Other income received 18,968 16,354
---------- ----------
Total receipts 723,770 236,855
---------- ----------
Benefits paid (other than dividends) 440,922 306,326
Insurance expenses and taxes paid (other than federal income and
capital gains taxes) 44,931 42,554
Net cash transfers to (from) Separate Accounts 258,041 (42,727)
Dividends paid to policyholders 6,623 5,627
Federal income tax recoveries (excluding tax on capital gains) (1,937) (2,634)
Other - net 44 337
---------- ----------
Total payments 748,624 309,483
---------- ----------
Net cash from operations (24,854) (72,628)
---------- ----------
Proceeds from long-term investments sold, matured or repaid
(after deducting taxes on capital gains of $92 for 1997,
$290 for 1996) 257,351 529,278
Other cash provided 900 9,232
---------- ----------
Total cash provided 258,251 538,510
---------- ----------
CASH APPLIED
Cost of long-term investments acquired 121,423 303,416
Other cash applied 50,338 378,140
---------- ----------
Total cash applied 171,761 681,556
---------- ----------
NET CHANGE IN CASH AND SHORT-TERM INVESTMENTS 61,636 (215,674)
CASH AND SHORT-TERM INVESTMENTS:
BEGINNING OF PERIOD 90,059 317,325
---------- ----------
END OF PERIOD $ 151,695 $ 101,651
---------- ----------
---------- ----------
</TABLE>
See notes to unaudited statutory financial statements.
- 6-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
Notes to Unaudited Financial Statements
(1) General
In management's opinion all adjustments, which include only
normal recurring adjustments, necessary for a fair presentation of the
financial statements have been made.
(2) Management and Service Contracts
Expenses under the agreement with the parent which provides for the parent
to provide certain services amounted to approximately $3,120,000 and
$5,012,000 for the three month periods in 1997 and 1996.
(3) Investments in Subsidiaries
The following is combined unaudited summarized financial information of the
subsidiaries as of March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(000's)
<S> <C> <C>
Intangible assets $ 9,711 $ 11,672
Other assets, net of liabilities 135,601 127,345
--------- ---------
Total net assets $ 145,312 $ 139,017
--------- ---------
--------- ---------
Total income $ 207,550 $ 156,241
Total expenses (186,875) (137,602)
Income tax expense (9,559) (8,459)
--------- ---------
Net income $ 11,116 $ 10,180
--------- ---------
--------- ---------
</TABLE>
In determining the equity in income of subsidiaries for the periods, the
Registrant has excluded expenses of approximately $7,457,000 in 1997 and
$6,648,000 in 1996, representing payables to the Registrant in lieu of
Federal income taxes.
-7-
<PAGE>
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
Notes to Unaudited Financial Statements (continued)
(5) Investment Income
Net investment income consisted of:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1997 1996
-------- --------
(OOO's)
<S> <C> <C>
Interest income from bonds $42,815 $46,025
Interest from investment in common stock of affiliates 11,601 9,468
Interest income from mortgage loans 21,319 24,387
Real estate investment income 2,844 2,555
Interest income from policy loans 625 510
Other 442 618
-------- --------
Gross investment income 79,646 83,563
Interest on surplus notes 5,426 6,700
Investment expenses 2,236 2,690
-------- --------
$71,984 $74,173
-------- --------
-------- --------
</TABLE>
-8-
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NET INCOME
Net income from operations after dividends and before federal income taxes
increased by $10.3 million for the three months ended March 31, 1997 as compared
to the same period in 1996. Net income associated with the reinsurance
agreements with the parent increased by $3.3 million in 1997. Prior to
reinsurance, earnings from the life line of business remained relatively flat.
The remaining earnings of approximately $7 million is attributable to the
Registrant's retirement products and services line of business, which markets
combination fixed/variable annuities and group pension guaranteed investment
contracts. This increase in earnings reflects profits being generated from the
large in-force block of annuity business held in both the general account and
the separate accounts. The profits associated with the growth in this business
line more than offset the additional strain associated with sales of new
business for the three months ended March 31, 1997 as compared to the same
period in 1996.
INCOME
Total income increased by $118.9 million for the period ended March 31, 1997 as
compared to the same period in 1996. Reinsurance had the effect of decreasing
net income by approximately $.5 million. Premiums and annuity considerations
decreased by $3.6 million, reflecting decreased annuitizations. Sales of
combination fixed/variable annuities (net of annuitizations) increased by $125.8
million, reflecting the introduction of a new dollar cost averaging program for
annuities. Sales of fixed annuities under this program are credited with a
bonus rate of interest with the intention of periodically transferring the
monies into the variable separate account during the first policy year. Net
investment income and amortization of the interest maintenance reserve decreased
by $2.4 million reflecting a decrease in the general account invested assets.
Considerations for supplementary contracts decreased by $.3 million for the
three months ended March 31, 1997 as compared to the same period in 1996.
BENEFITS AND EXPENSES
Benefits and expenses after dividends to policyholders increased by $108.6
million for the period ended March 31, 1997 as compared to the same period in
1996. Reinsurance had the effect of decreasing benefits and expenses by $3.9
million. Deaths, annuity payments and surrender benefits and other fund
withdrawals decreased by $16.2 million, reflecting decreased surrenders of group
pension guaranteed interest contracts partially offset by increased surrenders
of fixed annuities due to the introduction of the dollar cost averaging program
described above. Payments on supplementary contracts decreased by $.7 million.
Policy reserves decreased by $8.1 million reflecting fewer annuitizations and
increased surrender activity. The change in the liability for premium and other
deposit funds increased by $9.9 million reflecting the increase in sales of
fixed annuities as part of the dollar cost averaging program. Commissions
increased by $9.7 million reflecting the increase in total sales of combination
fixed/variable annuities. Net transfers to the separate accounts increased by
$117.9 million, reflecting increased exchange activity out of the general
account into the separate accounts.
-9-
<PAGE>
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
(a) The annual meeting of stockholders of the Registrant was held
on February 6, 1997.
(b) The following directors of Registrant were re-elected at the
annual meeting:
Richard B. Bailey David D. Horn
A. Keith Brodkin John S. Lane
M. Colyer Crum Angus A. MacNaughton
John D. McNeil
Donald A. Stewart
S. Caesar Raboy
(c) Not applicable
Item 5: Other Information
The Registrant's parent company, Sun Life Assurance Company of Canada has
established a wholly-owned subsidiary, Sun Life of Canada (U.S.) Holdings,
Inc. ("Holdco"), a Delaware corporation, to serve as the holding company for
the Registrant and its subsidiaries, and for general corporate financing
purposes. As of May 1, 1997, Holdco owns all of the outstanding common stock
of the Registrant. The management and day-to-day operations of the Registrant
have not changed, and the Registrant believes that this transaction does not
constitute a change of control. Holdco was organized in connection with a
financing arrangement under Rule 144A of the Securities Act of 1933 that
raised $600 million on May 6, 1997. The proceeds of this financing
arrangement are to be used for general corporate purposes including (but not
limited to) funding existing corporate operations as well as for possible
future acquisition and business opportunities of Sun Life Assurance Company
of Canada and its subsidiaries, including the Registrant. It is expected that
approximately half of the proceeds will be used by the Registrant for its
business purposes.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sun Life Assurance Company
of Canada (U.S.)
Date May 14, 1997 /s/ Margaret Sears Mead
------------------------ ----------------------------------
Margaret Sears Mead
Assistant Vice President and Secretary
Date May 14, 1997 /s/ Robert P. Vrolyk
------------------------ ----------------------------------
Robert P. Vrolyk
Vice President and Actuary
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and statement of operations found on pages 3 and 5 of the company's Form
10Q for the year-to-date.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 2,064,504
<DEBT-MARKET-VALUE> 2,045,054
<EQUITIES> 142,935
<MORTGAGE> 906,055
<REAL-ESTATE> 99,843
<TOTAL-INVEST> 3,459,063
<CASH> 151,695
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 13,765,193
<POLICY-LOSSES> 2,132,337
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 3,659
<POLICY-HOLDER-FUNDS> 1,808,381
<NOTES-PAYABLE> 0
0
0
<COMMON> 5,900
<OTHER-SE> 594,592
<TOTAL-LIABILITY-AND-EQUITY> 13,759,294
617,756
<INVESTMENT-INCOME> 72,076
<INVESTMENT-GAINS> 240
<OTHER-INCOME> 18,967
<BENEFITS> 624,015
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 48,954
<INCOME-PRETAX> 36,068
<INCOME-TAX> (405)
<INCOME-CONTINUING> 36,473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,473
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
