<PAGE>
PROSPECTUS
MAY 1, 1998
COMPASS I
The individual flexible payment deferred annuity contracts (the "Contracts")
offered by this Prospectus are designed for use in connection with retirement
plans which meet the requirements of Sections 401 or 408 (excluding Section
408(b)) of the Internal Revenue Code. The Contracts are issued by Sun Life
Insurance and Annuity Company of New York (the "Company"). The Company's Annuity
Service Mailing Address is 80 Broad Street, New York, New York 10004.
The Owner of a Contract may elect to have Contract values accumulated on a
fixed basis in the Fixed Account (which is part of the Company's general account
and pays interest at a guaranteed fixed rate) or on a variable basis in Sun Life
(N.Y.) Variable Account A (the "Variable Account"), a separate account of the
Company, or divided among the Fixed Account and Variable Account. The Variable
Account uses its assets to purchase, at their net asset value, Class A shares in
one or more of the following mutual funds selected by the Owner from among a
group of mutual funds advised by Massachusetts Financial Services Company, an
affiliate of Sun Life Assurance Company of Canada (U.S.):
MFS-Registered Trademark- Money Market Fund; MFS-Registered Trademark-
Government Money Market Fund; MFS-Registered Trademark- World Governments Fund;
MFS-Registered Trademark- Bond Fund; MFS-Registered Trademark- High Income Fund;
MFS-Registered Trademark- Total Return Fund; Massachusetts Investors Trust;
MFS-Registered Trademark- Research Fund; Massachusetts Investors Growth Stock
Fund; MFS-Registered Trademark- Growth Opportunities Fund; and
MFS-Registered Trademark- Emerging Growth Fund (the "Mutual Fund(s)" or
"Fund(s)"). If the Owner elects certain forms of an annuity as a retirement
benefit, payments may be funded from either the Fixed Account or the Variable
Account or from both of the Fixed Account and the Variable Account. Contract
values allocated to the Variable Account and annuity payments elected on a
variable basis will vary to reflect the investment performance of the Funds
selected by the Owner.
This Prospectus sets forth information about the Contracts and the Variable
Account that a prospective purchaser of a Contract 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, 1998 (the "Statement of Additional Information"), which
is incorporated herein by reference. The Statement of Additional Information is
available from the Company without charge upon written request to the above
address or by telephoning (212) 943-3855 or (800) 447-7569. The Table of
Contents for the Statement of Additional Information is shown on page 19 of this
Prospectus.
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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE MUTUAL FUNDS.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
<PAGE>
PROSPECTUS ISSUED BY
MAY 1, 1998 SUN LIFE INSURANCE AND ANNUITY COMPANY OF
COMBINATION FIXED/VARIABLE NEW YORK
ANNUITY FOR QUALIFIED Annuity Service Mailing Address:
RETIREMENT PLANS 80 Broad Street
New York, New York 10004
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley, Massachusetts 02181
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
ISSUED IN CONNECTION
WITH SUN LIFE (N.Y.)
VARIABLE ACCOUNT A
CO1NY-1 5/98
<PAGE>
[LOGO]
<PAGE>
MAY 1, 1998
COMPASS I
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information....................................................... 2
Annuity Provisions........................................................ 2
Other Contract Provisions................................................. 3
Federal Tax Status........................................................ 4
Administration of the Contracts........................................... 5
Distribution of the Contracts............................................. 6
Accountants............................................................... 6
Financial Statements...................................................... 7
Appendix A -- The Fixed Account........................................... 31
Appendix B -- Variable Accumulation Unit Value, Variable Annuity Unit
Value and Variable Annuity Payment Calculations.......................... 34
Appendix C -- Withdrawals and Withdrawal Charges.......................... 35
</TABLE>
This Statement of Additional Information sets forth information which may be
of interest to prospective purchasers of Compass I Combination Fixed/Variable
Annuity Contracts (the "Contracts") issued by Sun Life Insurance and Annuity
Company of New York (the "Company") in connection with Sun Life (N.Y.) Variable
Account A (the "Variable Account") which is not necessarily included in the
Prospectus dated May 1, 1998. This Statement of Additional Information should be
read in conjunction with the Prospectus, a copy of which may be obtained without
charge from the Company at its Annuity Service Mailing Address, 80 Broad Street,
New York, New York 10004 or by telephoning (212) 943-3855 or (800) 447-7569.
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>
GENERAL INFORMATION
THE COMPANY
Sun Life Insurance and Annuity Company of New York (the "Company") is a
stock life insurance company incorporated under the laws of New York on May 25,
1983. Its Home Office is located at 80 Broad Street, New York, New York 10004.
The Company is a wholly-owned subsidiary of Sun Life Assurance Company of
Canada (U.S.) ("Sun Life of Canada (U.S.)"), a stock life insurance company
incorporated in Delaware and having its Executive Office at One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02181. Sun Life of Canada (U.S.)
in turn, is an indirect wholly-owned subsidiary of Sun Life Assurance Company of
Canada ("Sun Life (Canada)"), 150 King Street West, Toronto, Ontario, Canada, a
mutual life insurance company incorporated in Canada in 1865. Sun Life of Canada
(U.S.) is a direct wholly-owned subsidiary of Sun Life of Canada (U.S.)
Holdings, Inc., which, on December 18, 1997, became a wholly-owned subsidiary of
Sun Life Assurance Company of Canada-U.S. Operations Holdings, Inc., a direct
wholly-owned subsidiary of Sun Life (Canada).
THE VARIABLE ACCOUNT
Sun Life (N.Y.) Variable Account A (the "Variable Account") is a separate
account of the Company, meets the definition of a separate account under the
federal securities laws and is registered with the Securities and Exchange
Commission as a unit investment trust under the Investment Company Act of 1940.
THE FIXED ACCOUNT
If the Owner elects to have Contract values accumulated on a fixed basis,
Purchase Payments are allocated to the Fixed Account, which is the general
account of the Company. Because of exemptive and exclusionary provisions, that
part of the Contract relating to the Fixed Account is not registered under the
Securities Act of 1933 ("1933 Act") and the Fixed Account is not registered as
an investment company under the Investment Company Act of 1940 ("1940 Act").
Accordingly, neither the Fixed Account, nor any interests therein, are subject
to the provisions or restrictions of the 1933 Act or the 1940 Act, and the staff
of the Securities and Exchange Commission has not reviewed the disclosures in
this Statement of Additional Information with respect to that portion of the
Contract relating to the Fixed Account. Disclosures regarding the fixed portion
of the Contract and the Fixed Account, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made herein (see "Fixed Account" in
Appendix A).
ANNUITY PROVISIONS
DETERMINATION OF ANNUITY PAYMENTS
On the Annuity Commencement Date the Contract's Accumulation Account will be
cancelled and its adjusted value will be applied to provide a Variable Annuity
or a Fixed Annuity or a combination of both. The adjusted value will be equal to
the value of the Accumulation Account for the Valuation Period which ends
immediately preceding the Annuity Commencement Date, reduced by any applicable
premium or similar taxes and a proportionate amount of the contract maintenance
charge to reflect the time elapsed between the last Contract Anniversary and the
day before the Annuity Commencement Date.
The dollar amount of the first variable annuity payment will be determined
in accordance with the annuity payment rates found in the Contract which are
based on an assumed interest rate of 4% per year. All variable annuity payments
other than the first are determined by means of Annuity Units credited to the
Contract. The number of Annuity Units to be credited in respect of a particular
Sub-Account is determined by dividing that portion of the first variable annuity
payment attributable to that Sub-Account by the Annuity Unit value of that
Sub-Account for the Valuation Period which ends immediately preceding the
Annuity Commencement Date. The number of Annuity Units of each particular
Sub-Account credited to the Contract then
2
<PAGE>
remains fixed unless an exchange of Annuity Units is made as described in the
Prospectus. The dollar amount of each variable annuity payment after the first
may increase, decrease or remain constant, and is equal to the sum of the
amounts determined by multiplying the number of Annuity Units of a particular
Sub-Account credited to the Contract by the Annuity Unit value for the
particular Sub-Account for the Valuation Period which ends immediately preceding
the due date of each subsequent payment.
For a description of fixed annuity payments, see Appendix A.
For a hypothetical example of the calculation of a variable annuity payment,
see Appendix B.
ANNUITY UNIT VALUE
The Annuity Unit value for each Sub-Account was established at $10.00 for
the first Valuation Period of the particular Sub-Account. The Annuity Unit value
for the particular Sub-Account for any subsequent Valuation Period is determined
by multiplying the Annuity Unit value for the particular Sub-Account for the
immediately preceding Valuation Period by the Net Investment Factor (see "Net
Investment Factor" in the Prospectus) for the particular Sub-Account for the
current Valuation Period and then multiplying that product by a factor to
neutralize the assumed interest rate of 4% per year used to establish the
annuity payment rates found in the Contract.
For a hypothetical example of the calculation of the value of a Variable
Annuity Unit, see Appendix B.
OTHER CONTRACT PROVISIONS
RIGHT TO RETURN CONTRACT
The Owner should read the Contract carefully as soon as it is received. If
the Owner wishes to return the Contract, it must be returned to the Company at
its Annuity Service Mailing Address within ten days after it was delivered to
the Owner. When the Company receives the returned Contract, it will be cancelled
and the full amount of any Purchase Payment(s) received by the Company will be
refunded.
Under the Internal Revenue Code, an Owner establishing an Individual
Retirement Account ("IRA") must be furnished with a disclosure statement
containing certain information about the Contract and applicable legal
requirements. This statement must be furnished on or before the date the IRA is
established. If the Owner is furnished with such disclosure statement before the
7th day preceding the date the IRA is established, the Owner will not have any
right of revocation. If the disclosure statement is furnished after the 7th day
preceding the establishment of the IRA, the Owner may revoke the Contract any
time within seven days after the issue date. Upon such revocation, the Company
will refund all Purchase Payment(s) made by the Owner. The foregoing right of
revocation with respect to an IRA is in addition to the return privilege set
forth in the preceding paragraph. The Company will allow an Owner establishing
an IRA a "ten day free look," notwithstanding the provisions of the Internal
Revenue Code.
OWNER AND CHANGE OF OWNERSHIP
The Contract shall belong to the Owner or to the successor to the Owner or
the transferee of the Owner. All rights and privileges under the Contract may be
exercised by the Owner, the successor to the Owner or transferee of the Owner
without the consent of the Beneficiary or any other person. Such rights and
privileges may be exercised only during the lifetime of the Annuitant and prior
to the Annuity Commencement Date, except as otherwise provided in the Contract.
The Annuitant becomes the Owner on and after the Annuity Commencement Date. The
Beneficiary becomes the Owner upon the death of the Annuitant. In some qualified
plans the Owner of the Contract is a trustee and the trust authorizes the
Annuitant/participant to exercise certain contract rights and privileges.
Ownership of the 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
trustee of an individual retirement account plan qualified under Section 408 of
the Internal Revenue Code for the benefit of the Owner; or (4) as otherwise
permitted from time to time by laws
3
<PAGE>
and regulations governing the retirement or deferred compensation plans for
which the Contract may be issued. Subject to the foregoing, the 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. A change of Contract ownership will not be
binding upon the Company until written notification of such change is received
by the Company. Once received by the Company, the change will be effective as of
the date on which the request for change was signed by the Owner but the change
will be without prejudice to the Company on account of any payment made or any
action taken by the Company prior to receiving the change. The Company may
require that the signature of the Owner be guaranteed by a member firm of the
New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchange, or
by a commercial bank (not a savings bank) which is a member of the Federal
Deposit Insurance Corporation or, in certain cases, by a member firm of the
National Association of Securities Dealers, Inc. which has entered into an
appropriate agreement with the Company.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in the Contract application will
remain in effect until changed. The interest of any Beneficiary is subject to
the particular Beneficiary surviving the Annuitant.
Subject to the rights of an irrevocably designated Beneficiary, the Owner
(or the Annuitant, as permitted by the Owner) may change or revoke the
designation of a Beneficiary at any time while the Annuitant is living by filing
with the Company a written beneficiary designation or revocation in such form as
the Company may require. The change or revocation will not be binding upon the
Company until it is received by the Company. When it is so received the change
or revocation will be effective as of the date on which the beneficiary
designation or revocation was signed by the Owner or the Annuitant, as
applicable.
Reference should be made to the terms of the particular retirement plan and
any applicable legislation for any restrictions on the beneficiary designation.
CUSTODIAN
The Company is custodian of the assets of the Variable Account. The Company,
as custodian, will purchase Fund shares at net asset value in connection with
amounts allocated to the particular Sub-Account in accordance with the
instructions of the Owner and 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.
FEDERAL TAX STATUS
INTRODUCTION
The Contracts described in this Prospectus are designed for use by
retirement plans under the provisions of Sections 401 or 408 (excluding Section
408(b)) of the Internal Revenue Code (the "Code"). The ultimate effect of
federal income taxes on the value of the Contract's Accumulation Account, on
annuity payments and on the economic benefit to the Owner, the Annuitant, the
Payee or the Beneficiary may depend upon the type of retirement plan for which
the Contract is purchased and upon the tax and employment status of the
individual concerned. The discussion contained herein is general in nature, is
based upon the Company's understanding of federal income tax laws as currently
interpreted and is not intended as tax advice. Congress has the power to enact
legislation affecting the tax treatment of annuity contracts, and such
legislation could be applied retroactively to Contracts purchased before the
date of enactment. Any person contemplating the purchase of a Contract should
consult a qualified tax adviser. THE COMPANY DOES NOT MAKE ANY GUARANTEE
REGARDING THE TAX STATUS OF ANY CONTRACT OR ANY TRANSACTION INVOLVING THE
CONTRACTS.
TAX TREATMENT OF THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under the Code. Although
the operations of the Variable Account are accounted for separately from other
operations of the Company for purposes of
4
<PAGE>
federal income taxation, the Variable Account is not separately taxable as a
regulated investment company or otherwise as a taxable entity separate from the
Company. Under existing federal income tax laws, the income and capital gains of
the Variable Account to the extent applied to increase reserves under the
Contracts are not taxable to the Company.
TAXATION OF ANNUITIES IN GENERAL
A participant in a retirement plan is the individual on whose behalf a
Contract is issued. Certain federal income tax advantages are available to
participants in retirement plans which meet the requirements of Section 401 or
Section 408 (excluding Section 408(b)) of the Code. The Contracts offered by
this Prospectus are designed for use in connection with such retirement plans
and accordingly all or a portion of the contributions to such plans will be used
to make Purchase Payments under the Contracts. Monthly annuity payments made as
retirement distributions under a Contract are generally taxable to the Annuitant
as ordinary income under Section 72 of the Code. Distributions prior to age
59 1/2 generally are subject to a 10% penalty tax, although this tax will not
apply in certain circumstances. Certain distributions, known as "eligible
rollover distributions," if rolled over to certain other qualified retirement
plans (either directly or after being distributed to the Owner or the Payee),
are not taxable until distributed from the plan to which they are rolled over.
In general, an eligible rollover distribution is any taxable distribution other
than a distribution that is part of a series of payments made for life or for a
specified period of ten years or more.
Owners, Annuitants, Payees and Beneficiaries should seek qualified advice
about the tax consequences of distributions, withdrawals, rollovers and payments
under the retirement plans in connection with which the Contracts are purchased.
The Company will withhold and remit to the U.S. Government a part of the
taxable portion of each distribution made under a Contract issued in connection
with an individual retirement account unless the Owner or Payee provides his or
her taxpayer identification number to the Company and notifies the Company (in
the manner prescribed) before the time of the distribution that he or she
chooses not to have any amounts withheld.
In the case of distributions from a Contract (other than a Contract issued
for use with an individual retirement account), the Company or the plan
administrator must withhold and remit to the U.S. Government 20% of each
distribution that is an eligible rollover distribution (as defined above) unless
the Owner or Payee elects to make a direct rollover of the distribution to
another qualified retirement plan that is eligible to receive the rollover. If a
distribution from a Contract is not an eligible rollover distribution, the Owner
or Payee can choose not to have amounts withheld as described above for
individual retirement accounts.
Amounts withheld from any distribution may be credited against the Owner's
or Payee's federal income tax liability for the year of the distribution.
The Tax Reform Act of 1984 authorizes the Internal Revenue Service to
promulgate regulations that prescribe investment diversification requirements
for segregated asset accounts underlying certain variable annuity contracts.
These regulations do not affect the tax treatment of qualified contracts, such
as the Contracts offered by this Prospectus.
Due to the complex nature and frequent revisions of the federal income tax
laws affecting retirement plans, a person contemplating the purchase of a
Contract for use in connection with a retirement plan, the distribution or
surrender of a Contract held under a retirement plan or the election of an
annuity option provided in a Contract should consult a qualified tax adviser.
ADMINISTRATION OF THE CONTRACTS
The Company performs certain administrative functions relating to the
Contracts and the Variable Account. These functions include maintaining the
books and records of the Variable Account and the Sub-Accounts, and maintaining
records of the name, address, taxpayer identification number, Contract number,
type of contract issued to each Owner, the status of the Accumulation Account
under each Contract, and other pertinent information necessary to the
administration and operation of the Contracts. The Company
5
<PAGE>
has entered into service agreements with its parent, Sun Life Assurance Company
of Canada (U.S.) and with Sun Life Assurance Company of Canada under which the
latter have agreed to provide the Company with certain services on a cost
reimbursement basis. These services include, but are not limited to, accounting
and investment services, systems support and development, pricing, product
development, actuarial, legal and compliance functions, marketing services and
staff training.
DISTRIBUTION OF THE CONTRACTS
The offering of the Contracts is continuous. The Contracts will be sold by
licensed insurance agents in the State of New York. 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. The Contracts will be distributed by Clarendon Insurance Agency,
Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley Hills, Massachusetts
02181, a wholly-owned subsidiary of Sun Life of Canada (U.S.). Commissions and
other distribution compensation will be paid by the Company and will not be more
than 5.31% of Purchase Payments. During 1995, 1996 and 1997, approximately
$4,000, $3,000 and $6,400, respectively, was paid to and retained by Clarendon
in connection with the distribution of the Contracts.
ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts 02110, are
the Variable Account's independent certified public accountants providing
auditing and other professional services.
6
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
STATEMENT OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
SHARES COST VALUE
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investments in mutual funds:
Massachusetts Investors Trust ("MIT")
Class A 77,156 $ 1,017,897 $ 1,351,607
Massachusetts Investors Growth Stock
Fund ("MIG") Class A 56,043 609,561 696,146
MFS Total Return Fund ("MTR") Class A 174,737 2,358,548 2,764,376
MFS Growth Opportunities Fund ("MGO")
Class A 18,654 224,567 259,666
MFS Research Fund ("MFR") Class A 20,573 352,661 438,049
MFS Bond Fund ("MFB") Class A 50,195 651,802 683,432
MFS Money Market Fund ("MCM") 280,662 280,662 280,662
MFS Government Money Market Fund
("MCG") 70,666 70,666 70,666
MFS High Income Fund ("MFH") Class A 66,478 339,707 367,643
MFS World Governments Fund ("MWG")
Class A 34,461 403,963 373,678
MFS Emerging Growth Fund ("MEG") Class
A 27,273 652,461 986,812
------------ ------------ ------------
NET ASSETS $ 6,962,495 $ 8,272,737
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
UNITS UNIT VALUE VALUE
--------- ---------- ------------
<S> <C> <C> <C>
NET ASSETS APPLICABLE TO OWNERS OF DEFERRED
VARIABLE ANNUITY CONTRACTS:
MIT 24,219 $ 55.8438 $ 1,351,607
MIG 13,024 53.6803 696,146
MTR 67,638 41.7612 2,764,376
MGO 6,582 39.2762 259,666
MFR 9,945 44.0450 438,049
MFB 25,870 26.0312 683,432
MCM 17,324 16.1968 280,662
MCG 4,440 15.9182 70,666
MFH 13,294 27.8588 367,643
MWG 12,546 29.5139 373,678
MEG 16,548 59.9380 986,812
------------
NET ASSETS $ 8,272,737
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------------
MIT MIG MTR MGO MFR MFB
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 $ 104,180 $ 106,496 $ 271,434 $ 32,149 $ 19,376 $ 54,236
Mortality and expense risk
charges 15,811 7,540 34,992 3,178 4,942 9,999
------------- ------------- ------------- ------------- ------------- -------------
Net investment income 88,369 98,956 236,442 28,971 14,434 44,237
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales 217,199 68,722 439,289 20,303 46,369 625,325
Cost of investments sold 178,678 72,046 336,187 13,929 29,173 660,926
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains
(losses) 38,521 (3,324) 103,102 6,374 17,196 (35,601)
------------- ------------- ------------- ------------- ------------- -------------
Net Unrealized Appreciation
(Depreciation) on Investments:
End of year 333,710 86,585 405,828 35,099 85,388 31,630
Beginning of year 142,622 (32,234) 329,636 22,925 52,320 (26,014)
------------- ------------- ------------- ------------- ------------- -------------
Change in unrealized
appreciation 191,088 118,819 76,192 12,174 33,068 57,644
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains 229,609 115,495 179,294 18,548 50,264 22,043
------------- ------------- ------------- ------------- ------------- -------------
INCREASE IN NET ASSETS FROM
OPERATIONS $ 317,978 $ 214,451 $ 415,736 $ 47,519 $ 64,698 $ 66,280
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------------
MCM MCG MFH MWG MEG
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain
distributions received $ 14,581 $ 3,453 $ 35,579 $ 16,348 $ 9,252 $ 667,084
Mortality and expense risk
charges 3,939 984 5,371 5,435 12,460 104,651
------------- ------------- ------------- ------------- ------------- -------------
Net investment income
(loss) 10,642 2,469 30,208 10,913 (3,208) 562,433
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Realized gains (losses) on
investment transactions:
Proceeds from sales 265,304 27,494 101,755 162,413 314,261 2,288,434
Cost of investments sold 265,304 27,494 100,464 179,549 181,324 2,045,074
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains
(losses) -- -- 1,291 (17,136) 132,937 243,360
------------- ------------- ------------- ------------- ------------- -------------
Net Unrealized Appreciation
(Depreciation) on Investments:
End of year -- -- 27,936 (30,285) 334,351 1,310,242
Beginning of year -- -- 13,479 (31,188) 296,679 768,225
------------- ------------- ------------- ------------- ------------- -------------
Change in unrealized
appreciation -- -- 14,457 903 37,672 542,017
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses) -- -- 15,748 (16,233) 170,609 785,377
------------- ------------- ------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 10,642 $ 2,469 $ 45,956 $ (5,320) $ 167,401 $ 1,347,810
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MIT MIG MTR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------ ----------------------- ------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------- ------------------------
1997 1996 1997 1996 1997 1996
---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (expense) $ 88,369 $ 93,649 $ 98,956 $ 109,259 $ 236,442 $ 244,417
Net realized gains (losses) 38,521 6,420 (3,324) 1,331 103,102 60,205
Net unrealized gains (losses) 191,088 116,255 118,819 (23,684) 76,192 4,956
---------- ---------- --------- ---------- ---------- ----------
Increase (decrease) in net assets
from operations 317,978 216,324 214,451 86,906 415,736 309,578
---------- ---------- --------- ---------- ---------- ----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received 54,860 59,276 26,278 22,225 91,990 61,458
Net transfers between
Sub-Accounts and Fixed Accounts 75,536 (8,441) 20,971 18,419 114,657 (42,651)
Withdrawals, surrenders and account
fees (149,210) (85,209) (44,311) (35,098) (398,900) (200,379)
---------- ---------- --------- ---------- ---------- ----------
Net contract owner activity (18,814) (34,374) 2,938 5,546 (192,253) (181,572)
---------- ---------- --------- ---------- ---------- ----------
Increase (decrease) in net assets 299,164 181,950 217,389 92,452 223,483 128,006
NET ASSETS:
Beginning of year 1,052,443 870,493 478,757 386,305 2,540,893 2,412,887
---------- ---------- --------- ---------- ---------- ----------
End of year $1,351,607 $1,052,443 $ 696,146 $ 478,757 $2,764,376 $2,540,893
---------- ---------- --------- ---------- ---------- ----------
---------- ---------- --------- ---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MGO MFR MFB
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------ ------------------------ ------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------ ------------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (expense) $ 28,971 $ 21,254 $ 14,434 $ 10,751 $ 44,237 $ 58,696
Net realized gains (losses) 6,374 12,751 17,196 10,682 (35,601) (546)
Net unrealized gains (losses) 12,174 10,378 33,068 23,132 57,644 (31,879)
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets
from operations 47,519 44,383 64,698 44,565 66,280 26,271
---------- ---------- ---------- ---------- ---------- ----------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received 4,030 4,745 15,074 7,123 191,747 30,397
Net transfers between
Sub-Accounts and Fixed Accounts (357) 21,023 130,826 61,532 (159,325) (4,412)
Withdrawals, surrenders and account
fees (12,299) (51,946) (42,302) (25,750) (459,087) (21,523)
---------- ---------- ---------- ---------- ---------- ----------
Net contract owner activity (8,626) (26,178) 103,598 42,905 (426,665) 4,462
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets 38,893 18,205 168,296 87,470 (360,385) 30,733
NET ASSETS:
Beginning of year 220,773 202,568 269,753 182,283 1,043,817 1,013,084
---------- ---------- ---------- ---------- ---------- ----------
End of year $ 259,666 $ 220,773 $ 438,049 $ 269,753 $ 683,432 $1,043,817
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MCM MCG MFH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------------- ----------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ----------------------- -----------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (expense) $ 10,642 $ 11,357 $ 2,469 $ 2,862 $ 30,208 $ 30,770
Net realized gains (losses) -- -- -- -- 1,291 (1,897)
Net unrealized gains (losses) -- -- -- -- 14,457 14,638
--------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets
from operations 10,642 11,357 2,469 2,862 45,956 43,511
--------- --------- --------- --------- --------- ---------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received 20,251 17,561 2,302 4,996 1,698 2,296
Net transfers between
Sub-Accounts and Fixed Accounts (82,830) (69,648) (20,869) -- -- (1,081)
Withdrawals, surrenders and
account fees (10,040) (51,178) (5,892) (107) (96,943) (32,317)
--------- --------- --------- --------- --------- ---------
Net contract owner activity (72,619) (103,265) (24,459) 4,889 (95,245) (31,102)
--------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets (61,977) (91,908) (21,990) 7,751 (49,289) 12,409
NET ASSETS:
Beginning of year 342,639 434,547 92,656 84,905 416,932 404,523
--------- --------- --------- --------- --------- ---------
End of year $ 280,662 $ 342,639 $ 70,666 $ 92,656 $ 367,643 $ 416,932
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MWG MEG
SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------------------- ----------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ----------------------- --------------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (expense) $ 10,913 $ 6,496 $ (3,208) $ (807) $ 562,433 $ 588,704
Net realized gains (losses) (17,136) (7,467) 132,937 49,734 243,360 131,213
Net unrealized gains (losses) 903 20,174 37,672 75,648 542,017 209,618
--------- --------- --------- --------- ------------ ------------
Increase (decrease) in net assets
from operations (5,320) 19,203 167,401 124,575 1,347,810 929,535
--------- --------- --------- --------- ------------ ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received 66,047 9,585 27,670 26,289 501,947 245,951
Net transfers between Sub-Accounts
and Fixed Accounts (82,359) (33,415) 43,886 28,955 40,136 (29,719)
Withdrawals, surrenders and account
fees (75,626) (38,748) (229,670) (75,899) (1,524,280) (618,154)
--------- --------- --------- --------- ------------ ------------
Net contract owner activity (91,938) (62,578) (158,114) (20,655) (982,197) (401,922)
--------- --------- --------- --------- ------------ ------------
Increase (decrease) in net assets (97,258) (43,375) 9,287 103,920 365,613 527,613
NET ASSETS:
Beginning of year 470,936 514,311 977,525 873,605 7,907,124 7,379,511
--------- --------- --------- --------- ------------ ------------
End of year $ 373,678 $ 470,936 $ 986,812 $ 977,525 $ 8,272,737 $ 7,907,124
--------- --------- --------- --------- ------------ ------------
--------- --------- --------- --------- ------------ ------------
</TABLE>
See notes to financial statements.
13
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION:
Sun Life (N.Y.) Variable Account A (the "Variable Account"), a separate account
of Sun Life Insurance and Annuity Company of New York (the "Sponsor"), a wholly
owned subsidiary of Sun Life Assurance Company of Canada (U.S.), was established
on December 3, 1984 as a funding vehicle for individual variable annuities. 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 specific mutual fund selected by contract
owners from among available mutual funds (the "Funds") advised by Massachusetts
Financial Services Company ("MFS"), an affiliate of the Sponsor.
(2) SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENT VALUATIONS
Investments in 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 owners 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 subject to
tax.
(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 deduction is at an
effective annual rate of 1.3%.
Each year on the contract anniversary, a contract maintenance charge ("Account
Fee") of $30 is deducted from each contract's accumulation account to cover
administrative expenses relating to the contract. After the annuity commencement
date, the Account Fee is deducted pro rata from each annuity payment made during
the year.
The Sponsor does not deduct a sales charge from purchase payments. However, a
withdrawal charge (contingent deferred sales charge) may be deducted to cover
certain expenses relating to the sale of the contract. In no event shall the
aggregate withdrawal charges exceed 5% of the purchase payments made under the
contract.
14
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) UNIT ACTIVITY FROM CONTRACT OWNER TRANSACTIONS:
<TABLE>
<CAPTION>
MIT MIG MTR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------- -------------------- --------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year 24,506 25,203 13,107 12,814 72,562 77,949
Units purchased 1,081 1,571 531 664 2,518 1,916
Units transferred between
Sub-Accounts and Fixed Accounts 1,654 (220) 446 613 3,183 (1,286)
Units withdrawn and surrendered (3,022) (2,048) (1,060) (984) (10,625) (6,017)
--------- --------- --------- --------- --------- ---------
Units outstanding, end of year 24,219 24,506 13,024 13,107 67,638 72,562
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
MGO MFR MFB
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------- -------------------- --------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year 6,814 7,521 7,286 6,052 43,291 43,111
Units purchased 111 162 341 215 8,049 1,322
Units transferred between
Sub-Accounts and Fixed Accounts (10) 828 3,373 1,743 (6,684) (189)
Units withdrawn and surrendered (333) (1,697) (1,055) (724) (18,786) (953)
--------- --------- --------- --------- --------- ---------
Units outstanding, end of year 6,582 6,814 9,945 7,286 25,870 43,291
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
MCM MCG MFH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------- -------------------- --------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year 21,922 28,742 6,013 5,691 16,765 18,087
Units purchased 1,276 1,141 147 329 65 99
Units transferred between
Sub-Accounts and Fixed Accounts (5,243) (4,598) (1,349) -- -- (46)
Units withdrawn and surrendered (631) (3,363) (371) (7) (3,536) (1,375)
--------- --------- --------- --------- --------- ---------
Units outstanding, end of year 17,324 21,922 4,440 6,013 13,294 16,765
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
MWG MEG
SUB-ACCOUNT SUB-ACCOUNT
-------------------- --------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year 15,694 17,846 19,505 19,750
Units purchased 2,245 334 476 539
Units transferred between
Sub-Accounts and Fixed Accounts (2,790) (1,137) 844 606
Units withdrawn and surrendered (2,603) (1,349) (4,277) (1,390)
--------- --------- --------- ---------
Units outstanding, end of year 12,546 15,694 16,548 19,505
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners participating in Sun Life (N.Y.) Variable Account A and
the Board of Directors of Sun Life Insurance and Annuity Company of New York:
We have audited the accompanying statement of condition of Sun Life (N.Y.)
Variable Account A (the "Variable Account") as of December 31, 1997, the related
statement of operations for the year then ended, and the statements of changes
in net assets for the years ended December 31, 1997 and 1996. 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 as of December 31, 1997 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 Variable Account as of December 31,
1997, the results of its operations and the changes in its net assets for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 6, 1998
16
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.))
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL STOCK AND
SURPLUS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
General Account Assets:
Bonds $ 61,703,336 $ 77,142,619
Mortgage loans on real estate 25,787,001 40,431,773
Properties acquired in satisfaction
of debt -- 1,377,041
Policy loans 636,277 651,332
Cash and short-term investments 10,120,237 4,614,994
Life insurance premiums and annuity
considerations due and uncollected 791,011 421,112
Accident and health premiums due and
unpaid 158,858 69,672
Investment income due and accrued 1,083,939 1,737,199
Other assets 497,790 14,668
------------ ------------
General account assets 100,778,449 126,460,410
Separate Account Assets:
Unitized 406,430,585 303,896,114
Non-unitized 116,889,545 87,676,015
------------ ------------
Total Admitted Assets $624,098,579 $518,032,539
------------ ------------
------------ ------------
LIABILITIES
General Account Liabilities:
Aggregate reserve for life policies
and contracts $ 22,374,626 $ 20,404,586
Aggregate reserve for accident and
health policies 7,414,000 4,185,000
Policy and contract claims 1,912,737 1,107,333
Liability for premium and other
deposit funds 31,341,254 61,747,147
Interest maintenance reserve 885,581 1,173,961
Commissions to agents due or accrued 521,106 217,449
General expenses due or accrued 415,105 218,624
Transfers from Separate Accounts due
or accrued (7,224,058) (1,689,278)
Taxes, licenses and fees due or
accrued 114,986 96,884
Federal income taxes due or accrued 1,000,000 400,000
Asset valuation reserve 1,346,335 1,845,237
Payable to parent, subsidiaries and
affiliates 1,266,475 1,614,355
Other liabilities 810,594 509,201
------------ ------------
General account liabilities 62,178,741 91,830,499
Separate Account Liabilities:
Unitized 406,249,110 303,723,382
Non-unitized 116,889,545 87,676,015
------------ ------------
Total liabilities 585,317,396 483,229,896
------------ ------------
CAPITAL STOCK AND SURPLUS
Capital Stock--Par value $1,000;
authorized issued and outstanding;
2,000 shares 2,000,000 2,000,000
------------ ------------
Gross paid in and contributed
surplus 29,500,000 29,500,000
Group life contingency reserve fund 180,457 118,381
Unassigned funds 7,100,726 3,184,262
------------ ------------
Total Surplus 36,781,183 32,802,643
------------ ------------
Capital Stock and Surplus 38,781,183 34,802,643
------------ ------------
Total liabilities, capital stock and
surplus $624,098,579 $518,032,539
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
17
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
STATUTORY STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 16,670,915 $ 11,581,817 $ 11,731,623
Deposit-type funds 122,789,862 72,121,136 73,714,439
Net investment income 8,824,668 12,313,903 18,450,106
Amortization of interest maintenance
reserve 519,001 704,763 753,351
Net gain from operations from
Separate Accounts 8,743 8,101 --
------------ ------------ ------------
Total Income 148,813,189 96,729,720 104,649,519
------------ ------------ ------------
BENEFITS AND EXPENSES:
Death benefits 4,916,746 2,881,367 2,589,934
Annuity benefits 5,439,091 7,175,995 6,606,801
Disability benefits and benefits
under accident and health policies 939,635 464,615 233,549
Surrender benefits and other fund
withdrawals 111,623,776 118,432,072 118,975,912
Interest on policy or contract funds 75,069 83,323 --
Increase in aggregate reserves for
life and accident and health
policies and contracts 5,199,040 1,550,701 3,022,081
Decrease in liability for premium
and other deposit funds (30,405,893) (67,996,389) (71,733,008)
------------ ------------ ------------
Total Benefits 97,787,464 62,591,684 59,695,269
Commissions on premiums and annuity
considerations (direct business
only) 5,582,738 3,047,358 3,212,849
General insurance expenses 7,687,478 6,093,131 5,716,492
Insurance taxes, licenses and fees,
excluding federal income taxes 788,386 729,244 579,585
Net transfers to Separate Accounts 31,479,097 19,487,747 32,047,554
------------ ------------ ------------
Total Benefits and Expenses 143,325,163 91,949,164 101,251,749
------------ ------------ ------------
Net gain from operations before
dividends to policyholders and
federal income taxes 5,488,026 4,780,556 3,397,770
Federal income taxes incurred
(excluding tax on capital gains) 2,315,259 1,938,734 2,446,706
------------ ------------ ------------
Net gain from operations after
dividends to policyholders and
federal income taxes and before
realized capital gains 3,172,767 2,841,822 951,064
Net realized capital gains (losses)
less capital gains tax and
transferred to the interest
maintenance reserve 183,262 (439,101) (21,536)
------------ ------------ ------------
NET INCOME $ 3,356,029 $ 2,402,721 $ 929,528
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
18
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CAPITAL AND SURPLUS, BEGINNING OF YEAR $34,802,643 $31,964,414 $31,409,069
----------- ----------- -----------
Net income 3,356,029 2,402,721 929,528
Change in net unrealized capital
gains (losses) 138,000 702,000 (672,000)
Change in nonadmitted assets and
related items (14,391) 32,888 71,263
Change in asset valuation reserve 498,902 (299,380) 226,554
----------- ----------- -----------
Net change in capital and surplus
for the year 3,978,540 2,838,229 555,345
----------- ----------- -----------
CAPITAL AND SURPLUS, END OF YEAR $38,781,183 $34,802,643 $31,964,414
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
19
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.))
STATUTORY STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH PROVIDED
Premiums, annuity considerations and
deposit funds received $139,005,632 $ 83,598,181 $ 85,243,958
Net investment income 9,707,801 14,106,521 19,808,090
------------ ------------ ------------
Total receipts 148,713,433 97,704,702 105,052,048
------------ ------------ ------------
Benefits paid 122,170,301 128,975,968 128,129,129
Insurance expenses and taxes paid 13,540,362 9,712,774 9,655,310
Net cash transfers to separate
accounts 37,013,877 22,213,704 29,702,679
Federal income tax payments
(excluding tax on capital gains) 1,715,259 2,909,899 2,125,541
------------ ------------ ------------
Total payments 174,439,799 163,812,345 169,612,659
Net cash from operations (25,726,366) (66,107,643) (64,560,611)
Proceeds from long-term investments
sold, matured or repaid (after
deducting taxes on capital gains of
$222,860 for 1997, $(112,405) for
1996 and $324,248 for 1995) 59,132,310 86,583,714 123,662,512
Other cash provided 325,543 4,654,856 444,240
------------ ------------ ------------
Total cash provided 59,457,853 91,238,570 124,106,752
------------ ------------ ------------
CASH APPLIED
Cost of long-term investments
acquired 27,369,138 28,654,582 51,631,901
Other cash applied 857,106 166,107 2,401,799
------------ ------------ ------------
Total cash applied 28,226,244 28,820,689 54,033,700
------------ ------------ ------------
Net change in cash and short-term
investments 5,505,243 (3,689,762) 5,512,441
CASH AND SHORT-TERM INVESTMENTS:
BEGINNING OF YEAR 4,614,994 8,304,756 2,792,315
------------ ------------ ------------
END OF YEAR $ 10,120,237 $ 4,614,994 $ 8,304,756
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
20
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL--
Sun Life Insurance and Annuity Company of New York (the "Company") is
incorporated as a life insurance company and is currently engaged in the sale of
individual fixed and variable annuities and group life and long-term disability
insurance. The parent company, Sun Life Assurance Company of Canada (U.S.) (Sun
Life of Canada (U.S.)), is ultimately a wholly-owned subsidiary of Sun Life
Assurance Company of Canada (Sun Life (Canada)), a mutual life insurance
company.
The Company, which is domiciled in the State of New York, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the Insurance Department of the State of New York. Prescribed
accounting practices include a variety of publications of the National
Association of Insurance Commissioners ("NAIC"), as well as New York 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 ("GAAP") for mutual life insurance companies and stock life insurance
companies wholly owned by mutual life insurance companies. In April of 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation") which became effective in 1996 that has 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 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 GAAP.
(See Note 16 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. Mortgage loans acquired at a premium or discount are carried at
amortized values and other mortgage loans 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 three to
sixteen years.
POLICY AND CONTRACT RESERVES--
The reserves for group life insurance, group long-term disability insurance and
annuity contracts, developed by accepted actuarial methods, have been
established and maintained on the basis of published mortality and morbidity
tables using assumed interest rates and valuation methods that will provide
reserves at least as great as those required by law and contract provisions.
INCOME AND EXPENSES--
For group life, group long-term disability 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.
21
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
SEPARATE ACCOUNTS--
The Company has established unitized separate accounts applicable to individual
qualified and non-qualified variable annuity contracts.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders, are shown as separate captions in the statutory financial
statements. Assets held in the separate accounts are carried at market values.
The Company has also established a non-unitized separate account for amounts
allocated to the fixed portion of a certain combination fixed/variable deferred
annuity contract. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, are transferred to (from)
the general account. Accumulated gains (losses) that have not been transferred
are recorded as payable (receivable) to (from) the general account. Transfers
from separate accounts due or accrued amounted to $7,224,000 in 1997 and
$1,689,000 in 1996.
OTHER--
Preparation of the financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Certain 1996 and 1995 amounts have been reclassified to conform to amounts as
presented in 1997.
2. BONDS:
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- -------- --------
(IN 000'S)
<S> <C> <C> <C> <C>
Long-term bonds:
United States Government and
government agencies and authorities $15,005 $ 311 -$ $15,316
Foreign governments 523 16 - 539
Public utilities 12,126 341 - 12,467
Finance 4,026 80 - 4,106
All other corporate bonds 30,023 696 16 30,703
-------- ---------- -------- --------
Total long-term bonds 61,703 1,444 16 63,131
-------- ---------- -------- --------
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 9,406 - - 9,406
-------- ---------- -------- --------
$71,109 $1,444 $16 $72,537
-------- ---------- -------- --------
-------- ---------- -------- --------
</TABLE>
22
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2. BONDS (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
(IN 000'S)
<S> <C> <C> <C> <C>
Long-term bonds:
United States Government and
government agencies and authorities $ 9,075 $ 179 $- $ 9,254
Foreign governments 530 14 - 544
Public utilities 19,997 434 8 20,423
Transportation 468 34 - 502
Finance 9,643 182 - 9,825
All other corporate bonds 37,430 1,149 33 38,546
-------- ---------- ----- --------
Total long-term bonds 77,143 1,992 41 79,094
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 4,507 - - 4,507
-------- ---------- ----- --------
$81,650 $1,992 $ 41 $83,601
-------- ---------- ----- --------
-------- ---------- ----- --------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31, 1997 by
contractual maturity are shown below. 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, 1997
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ------------
(IN 000'S)
<S> <C> <C>
Maturities are:
Due in one year or less $21,723 $ 21,825
Due after one year through five
years 33,228 34,015
Due after five years through ten
years 2,386 2,499
Due after ten years 6,162 6,471
--------- ------------
Subtotal 63,499 64,810
--------- ------------
Mortgage-backed securities 7,610 7,727
--------- ------------
$71,109 $ 72,537
--------- ------------
--------- ------------
</TABLE>
Proceeds from sales and maturities of investments in debt securities during
1997, 1996 and 1995 were $42,986,000, $76,431,000 and $111,448,000,
respectively. Gross gains of $395,000, $537,000 and $1,295,000 and gross losses
of $40,000, $183,000 and $335,000 were realized on such sales during 1997, 1996
and 1995, respectively.
A bond, included above, with an amortized cost of approximately $408,000 and
$412,000 at December 31, 1997 and 1996, respectively, was on deposit with the
Superintendent of Insurance of the State of New York as required by law.
23
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. 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.
The following table shows the geographic distribution of the mortgage loan
portfolio at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN 000'S)
<S> <C> <C>
New York $ 4,375 $10,717
California 4,672 4,884
Massachusetts 2,556 6,542
Ohio 1,308 3,445
Florida 3,313 3,795
All other 9,563 11,049
------- -------
$25,787 $40,432
------- -------
------- -------
</TABLE>
As of December 31, 1997, the Company has restructured mortgage loans totaling
$960,000 against which there are allowances for losses of $250,000.
4. INVESTMENT GAINS (LOSSES):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1997 1996 1995
----- ----- -----
(IN 000'S)
<S> <C> <C> <C>
Realized capital gains (losses):
Mortgage loans $ (6) $(676) $ (1)
Real estate 288 - (32)
----- ----- -----
282 (676) (33)
----- ----- -----
----- ----- -----
Changes in unrealized capital gains
(losses) on mortgage loans $ 138 $ 702 $(672)
----- ----- -----
----- ----- -----
</TABLE>
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rate risk are charged or credited to an interest
maintenance reserve ("IMR") and amortized into income over the remaining
contractual life of the security sold. The gross realized capital gains credited
to the interest maintenance reserve were $355,000, $354,000 and $960,000 in
1997, 1996 and 1995, respectively. All gains are transferred net of applicable
income taxes.
24
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5. NET INVESTMENT INCOME:
Net investment income consisted of the following for:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
(IN 000'S)
<S> <C> <C> <C>
Interest income from bonds $ 5,622 $ 8,576 $13,020
Interest income from mortgage loans 3,279 4,252 5,882
Real estate investment income (loss) 483 376 (52)
Other investment income (loss) 170 (93) 170
------- ------- -------
Gross investment income 9,554 13,111 19,020
Investment expenses 729 797 570
------- ------- -------
Net investment income $ 8,825 $12,314 $18,450
------- ------- -------
------- ------- -------
</TABLE>
6. REINSURANCE:
The Company has agreements with Sun Life (Canada) which provide that Sun Life
(Canada) will reinsure the mortality and morbidity risks of the group life
insurance contracts and group long-term disability contracts issued by the
Company. Under these agreements, basic death benefits and long-term disability
benefits are reinsured on a yearly renewable term basis. The agreements provide
that Sun Life (Canada) will reinsure the mortality risks in excess of $50,000
per policy for group life insurance contracts and $3,000 per policy per month
for the group long-term disability contracts ceded by the Company. Reinsurance
transactions under these agreements had the effect of increasing income from
operations by $139,000 for the year ended December 31, 1997, decreasing income
from operations by $500,000 for the year ended December 31, 1996 and increasing
income from operations by $652,000 for the year ended December 31, 1995.
The group life and long-term disability reinsurance agreements require that the
reinsurer provide funds in amounts equal to the reserves ceded.
The following are summarized proforma results of operations of the Company for
the years ended December 31, 1997, 1996 and 1995 before the effect of
reinsurance transactions with Sun Life (Canada).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- ------- --------
(IN 000'S)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other
revenues $142,915 $85,947 $ 86,819
Net investment income 9,343 13,019 19,204
-------- ------- --------
Subtotal 152,258 98,966 106,023
-------- ------- --------
Benefits and expenses:
Policyholder benefits 101,371 64,328 61,720
Other expenses 45,538 29,357 41,557
-------- ------- --------
Subtotal 146,909 93,685 103,277
-------- ------- --------
Income from operations $ 5,349 $ 5,281 $ 2,746
-------- ------- --------
-------- ------- --------
</TABLE>
25
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
7. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES:
Withdrawal characteristics of general account and separate account annuity
reserves and deposits:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------
AMOUNT % OF TOTAL
-------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal:
--with market value adjustment $120,764 21.40%
--at book value less surrender charges
(surrender charge > 5%) 13,811 2.40
--at book value (minimal or no charge
or adjustment) 410,484 72.70
Not subject to discretionary withdrawal
provision 19,972 3.50
-------- ----------
Total annuity actuarial reserves and
deposit liabilities $565,031 100.00%
-------- ----------
-------- ----------
<CAPTION>
DECEMBER 31, 1996
--------------------
AMOUNT % OF TOTAL
-------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal:
--with market value adjustment $ 92,135 19.60%
--at book value less surrender charges
(surrender charge > 5%) 38,668 8.20
--at book value (minimal or no
surrender charge or adjustment) 318,886 67.90
Not subject to discretionary withdrawal
provision 20,326 4.30
-------- ----------
Total annuity actuarial reserves and
deposit liabilities $470,015 100.00%
-------- ----------
-------- ----------
</TABLE>
8. RETIREMENT PLANS:
The Company participates with Sun Life (Canada) and Sun Life of Canada (U.S.) 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; the plan is currently
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of a
variable accumulation fund contract held in a separate account of Sun Life
(Canada).
The Company's share of the group's accrued pension cost at December 31, 1997,
1996 and 1995 was $211,000, $178,000 and $97,000, respectively. The Company's
share of net periodic pension cost was $33,000, $81,000 and $18,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
The Company also participates with Sun Life (Canada), Sun Life of Canada (U.S.)
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. Employer contributions were $28,000, $27,000 and
$21,000 for the years ended December 31, 1997, 1996 and 1995, 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
26
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8. RETIREMENT PLANS (CONTINUED):
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount. The expense recognized in the
financial statements relative to this plan was $16,000 in 1997, $8,000 in 1996
and $7,000 in 1995.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- ------------ -------------- ------------
(IN 000'S)
<S> <C> <C> <C> <C>
ASSETS:
Bonds $ 71,109 $ 72,537 $ 81,650 $ 83,601
Mortgages 25,787 26,557 40,432 41,196
------- ------------ -------------- ------------
Total $ 98,896 $ 99,094 $122,082 $ 124,797
------- ------------ -------------- ------------
------- ------------ -------------- ------------
LIABILITIES:
Individual annuities $ 40,479 $ 38,177 $ 70,166 $ 68,830
------- ------------ -------------- ------------
------- ------------ -------------- ------------
</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
using prices for publicly traded bonds of similar credit risk, maturity,
repayment and liquidity characteristics.
The fair values of the Company's general account reserves and liabilities under
investment-type contracts (insurance and annuity contracts that do not involve
mortality or morbidity risks) are estimated using discounted cash flow analyses
or surrender values. Those contracts that are deemed to have short-term
guarantees have a carrying amount equal to the estimated market value.
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
10. STATUTORY INVESTMENT VALUATION RESERVES:
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, 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 rate risk are charged or credited to an IMR and amortized
into income over the remaining contractual life of the security sold.
27
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
10. STATUTORY INVESTMENT VALUATION RESERVES (CONTINUED):
The table shown below presents changes in the major elements of the AVR and IMR.
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
AVR IMR AVR IMR
------ ------ ------ ------
(IN 000'S) (IN 000'S)
<S> <C> <C> <C> <C>
Balance, beginning of year $1,845 $1,174 $1,546 $1,648
Net realized capital gains (losses), net
of tax 183 231 (439) 230
Amortization of net investment gains - (519) - (704)
Unrealized investment gains 138 - 702 -
Required by formula (820) - 36 -
------ ------ ------ ------
Balance, end of year $1,346 $ 886 $1,845 $1,174
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
11. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES:
Activity in the liability for unpaid claims and claim adjustment expense is
summarized below (in 000's).
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance, January 1 $ 6,129 $ 4,320 $ 2,322
Claims incurred 9,008 5,061 4,789
Claims paid (4,898) (3,252) (2,791)
------- ------- -------
Balance, December 31 $10,239 $ 6,129 $ 4,320
------- ------- -------
------- ------- -------
</TABLE>
The information presented above includes unpaid benefit claims and claim
adjustment expenses for the group life and group long-term disability contracts.
As of December 31, 1997, the unpaid claim and claim adjustment liability for
these contracts is included in Policy Reserves.
12. FEDERAL INCOME TAXES:
The Company files a consolidated federal income tax return with Sun Life of
Canada (U.S.) and other affiliates. Federal income taxes are calculated as if
the Company filed a return as a separate company. No provision is recognized for
timing differences which may exist between financial statement and taxable
income. Such differences include reserves, depreciation and accrual of market
discount on bonds. The Company made cash payments to Sun Life of Canada (U.S.)
of $1,938,000, $2,797,000 and $2,421,000 during 1997, 1996 and 1995,
respectively.
13. LEASE COMMITMENTS:
The Company leases two separate facilities for its annuity operations and group
sales office. Both leases commenced in March 1994.
28
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
13. LEASE COMMITMENTS (CONTINUED):
Future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------ AMOUNT
------
(IN
000'S)
<S> <C>
1998 $ 354
1999 305
2000 237
2001 237
2002 237
Thereafter 275
------
Total $1,645
------
------
</TABLE>
Rent expense under these and prior leases in 1997, 1996 and 1995 amounted to
$348,000, $336,000 and $336,000, respectively.
14. MANAGEMENT AND SERVICE CONTRACTS:
The Company has agreements with Sun Life (Canada) which provide that Sun Life
(Canada) will furnish to the Company, as requested, personnel as well as certain
investment, actuarial and administrative services on a cost reimbursement basis.
Expenses under these agreements amounted to approximately $1,155,000 in 1997,
$1,866,000 in 1996 and $1,741,000 in 1995.
15. 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,
1997 and 1996.
16. 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 and GAAP are described as follows. Statutory accounting practices do
not recognize the following assets or liabilities which are reflected under
GAAP; deferred acquisition costs, deferred federal income taxes and statutory
non admitted assets. AVR and IMR 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. Premiums for investment-type products are recognized as income for
statutory purposes and as deposits to policyholders' accounts for GAAP.
Because the Company's management uses financial information prepared in
conformity with accounting policies generally accepted in Canada in the normal
course of business, the management of the Company has determined that the cost
of complying with Statement No. 120 would exceed the benefits that the Company,
or the users of its financial statements, would experience. Consequently, the
Company has elected not to apply such standards in the preparation of these
financial statements.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital stock and surplus of Sun Life Insurance and Annuity
Company of New York ("the Company") as of December 31, 1997 and 1996, 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, 1997. 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 audits 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 16 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of New York,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles, although not
reasonably determinable, are presumed to be material.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities and capital stock and
surplus of Sun Life Insurance and Annuity Company of New York as of December 31,
1997 and 1996, and the results of its operations and its cash flow for each of
the three years in the period ended December 31, 1997 on the basis of accounting
described in Notes 1 and 16.
However, because of the effects of the matter discussed 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 Insurance and Annuity Company of
New York as of December 31, 1997 and 1996 or the results of its operations or
its cash flow for each of the three years in the period ended December 31, 1997.
As management has stated in Note 16, because the Company's management uses
financial information prepared in accordance with accounting principles
generally accepted in Canada in the normal course of business, the management of
Sun Life Insurance and Annuity Company of New York has determined that the cost
of complying with Statement No. 120, Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts, would exceed the benefits that the Company, or the
users of its financial statements would experience. Consequently, the Company
has elected not to apply such standards in the preparation of these financial
statements.
DELOITTE & TOUCHE LLP
February 5, 1998
30
<PAGE>
APPENDIX A
THE FIXED ACCOUNT
THAT PORTION OF THE CONTRACT RELATING TO THE FIXED ACCOUNT IS NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") AND THE FIXED ACCOUNT IS NOT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940
("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN
ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT,
AND THE DISCLOSURE IN THIS APPENDIX A HAS NOT BEEN REVIEWED BY THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION. HOWEVER, THE FOLLOWING DISCLOSURE ABOUT THE
FIXED ACCOUNT MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE
FEDERAL SECURITIES LAWS REGARDING THE ACCURACY AND COMPLETENESS OF DISCLOSURE.
A WORD ABOUT THE FIXED ACCOUNT
The Fixed Account is made up of all of the general assets of the Company
other than those allocated to any separate account. Any portion of the net
Purchase Payment allocated by the Owner to a Guarantee Period(s) will become
part of the Fixed Account. Any obligations of the Fixed Account will be paid
first from those assets which are allocated to the Fixed Account and the excess,
if any, will be paid from the Company's general account. The Company will invest
the assets of the Fixed Account in those assets chosen by the Company and
allowed by applicable law. Investment income from such Fixed Account assets will
be allocated between the Company and the contracts participating in the Fixed
Account, in accordance with the terms of such contracts.
Annuity payments made to Annuitants under the Contracts will not be affected
by the mortality experience (death rate) of persons receiving such payments or
of the general population. The Company assumes this "mortality risk" by virtue
of annuity rates incorporated in the Contract which cannot be changed. In
addition, the Company guarantees that it will not increase charges for
maintenance of the Contracts regardless of its actual expenses.
Investment income from the Fixed Account allocated to the Company includes
compensation for mortality and expense risks borne by the Company in connection
with Fixed Account Contracts. The Company expects to derive a profit from this
compensation. The amount of such investment income allocated to the Contracts
will vary from year to year in the sole discretion of the Company. However, the
Company guarantees that it will credit interest at a rate of not less than 4%
per year, compounded annually, to amounts allocated to the Fixed Account under
the Contracts. The Company may credit interest at a rate in excess of 4% per
year; however, the Company is not obligated to credit any interest in excess of
4% per year. There is no specific formula for the determination of excess
interest credits. Such credits, if any, will be determined by the Company based
on information as to expected investment yields. Some of the factors that the
Company may consider in determining whether to credit interest to amounts
allocated to the Fixed Account and the amount thereof are general economic
trends, rates of return currently available and anticipated on the Company's
investments, regulatory and tax requirements and competitive factors. ANY
INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 4% PER
YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF THE COMPANY. THE OWNER ASSUMES
THE RISK THAT INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE
MINIMUM GUARANTEE OF 4% FOR ANY GIVEN YEAR.
The Company is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in the Company's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and contract owners and to its sole stockholder.
Excess interest, if any, will be credited on the fixed accumulation value.
The Company guarantees that, at any time, the fixed accumulation value will not
be less than the amount of Purchase Payments allocated to the Fixed Account,
plus interest at the rate of 4% per year, compounded annually, plus any
additional interest
31
<PAGE>
which the Company may, in its discretion, credit to the Fixed Account, less the
sum of all administrative or withdrawal charges, any applicable premium taxes,
and less any amounts surrendered. If the Owner surrenders the Contract, the
amount available from the Fixed Account will be reduced by any applicable
withdrawal charge (see "Withdrawal Charges" in the Prospectus). In no event will
the portion of the contract maintenance charge that is deducted from the Fixed
Account cause the Contract's fixed accumulation value (adjusted for any cash
withdrawals) to increase by less than 4% per year.
If on any Contract Anniversary the rate at which the Company credits
interest to amounts allocated to the Fixed Account under the Contract is less
than 80% of the average discount rate on 52-week United States Treasury Bills
for the most recent auction prior to the Contract Anniversary on which the
declared interest rate becomes applicable, then during the 45-day period after
the Contract Anniversary the Owner may elect to receive the value of the
Contract's Accumulation Account without assessment of a withdrawal charge. Such
withdrawal may, however, result in adverse tax consequences (see "Federal Tax
Status").
The Company reserves the right to defer the payment of amounts withdrawn
from the Fixed Account for a period not to exceed six months from the date
written request for such withdrawal is received by the Company.
FIXED ACCUMULATION VALUE
(1) CREDITING FIXED ACCUMULATION UNITS
Upon receipt of a Purchase Payment by the Company, all or that portion, if
any, of the net Purchase Payment to be allocated to the Fixed Account in
accordance with the allocation factor will be credited to the Accumulation
Account in the form of Fixed Accumulation Units. The number of Fixed
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to the Fixed Account by the Fixed Accumulation Unit value for the
Contract for the Valuation Period during which the Purchase Payment is received
by the Company.
(2) FIXED ACCUMULATION UNIT VALUE
A Fixed Accumulation Unit value is established at $10.00 for the first
Valuation Period of the calendar month in which the Contract is issued and will
increase for each successive Valuation Period as interest is accrued. All
Contracts issued in a particular calendar month and at a particular rate of
interest, as specified in advance by the Company from time to time, will use the
same series of Fixed Accumulation Unit values throughout the first Contract
Year.
At the first Contract Anniversary the Fixed Accumulation Units credited to a
Contract's Accumulation Account will be exchanged for a second type of Fixed
Accumulation Unit with an equal aggregate value. The value of this second type
of Fixed Accumulation Unit will increase for each Valuation Period during each
Contract Year as interest is accrued at a rate which shall have been determined
by the Company prior to the first day of each Contract Year.
The Company will credit interest to the Contract's Fixed Accumulation
Account at a rate of not less than 4% per year, compounded annually. Once the
rate applicable to a specific Contract is established by the Company, it may not
be changed for the balance of the Contract Year. Additional Payments made during
the Contract Year will be credited with interest for the balance of the Contract
Year at the rate applicable at the beginning of that Contract Year. The Fixed
Accumulation Unit value for the Contract for any Valuation Period is the value
determined as of the end of such Valuation Period.
(3) FIXED ACCUMULATION VALUE
The fixed accumulation value of a Contract, if any, for any Valuation Period
is equal to the value of the Fixed Accumulation Units credited to the
Accumulation Account for such Valuation Period.
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LOANS FROM THE FIXED ACCOUNT
Loans will be permitted from the Contract's Fixed Accumulation Account (to
the extent permitted by the retirement plan for which the Contract is
purchased). The maximum loan amount is the amount determined under the Company's
maximum loan formula for qualified plans. The minimum loan amount is $1,000.
Loans will be secured by a security interest in the Contract. Loans are subject
to applicable retirement program legislation and their taxation is determined
under the federal income tax laws. The amount borrowed will be transferred to a
fixed minimum guarantee accumulation account in the Company's general account
where it will accrue interest at a specified rate below the then current loan
interest rate. Generally, loans must be repaid within five years.
The amount of the death benefit, the amount payable on a full surrender and
the amount applied to provide an annuity on the Annuity Commencement Date will
be reduced to reflect any outstanding loan balance (plus accrued interest
thereon). Partial withdrawals may be restricted by the maximum loan limitation.
FIXED ANNUITY PAYMENTS
The dollar amount of each fixed annuity payment will be determined in
accordance with the annuity payment rates found in the Contract which are based
on a minimum guaranteed interest rate of 4% per year, or, if more favorable to
the Payee(s), in accordance with the Single Premium Immediate Settlement Rates
published by the Company and in use on the Annuity Commencement Date.
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APPENDIX B
ILLUSTRATIVE EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATIONS
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 is $18.32; the Valuation Period is one day; 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 of .00003539 (the daily equivalent of the current
charge of 1.3% on an annual basis) gives a net investment factor of 1.00323972.
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 14.6117523 (14.5645672 x 1.00323972).
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY UNIT CALCULATIONS
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 12.3843446 (12.3456789 x 1.00323972 x
0.99989255).
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATIONS
Suppose that the Accumulation Account of a deferred Contract 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 12.3843446. 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 12.3843446).
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APPENDIX C
WITHDRAWALS AND WITHDRAWAL CHARGES
Suppose, for example, that the initial Purchase Payment under a Contract was
$2,000, and that $2,000 Purchase Payments were made on each Contract Anniversary
thereafter. The maximum free withdrawal amount would be $200, $400, $600, $800,
and $1,000 in Contract Years 1, 2, 3, 4, and 5, respectively; these amounts are
determined as 10% of the new Payments (as new Payments are defined in each
Contract Year).
In years after the 5th the maximum free withdrawal amount will be increased
by any old Payments which have not already been liquidated. Continuing the
example, consider a partial withdrawal of $4,500 made during the 7th Contract
Year. Let us consider this withdrawal under two sets of circumstances, first
where there were no previous partial withdrawals, and second where there had
been an $800 cash withdrawal payment made in the 5th Contract Year.
1. In the first instance, there were no previous partial withdrawals.
The maximum free withdrawal amount in the 7th Contract Year is then
$5,000, which consists of $4,000 in old Payments ($2,000 from each of
the first two Contract Years) and $1,000 as 10% of the new Payments
in years 3-7. Because the $4,500 partial withdrawal is less than the
maximum free withdrawal amount of $5,000, no withdrawal charge would
be imposed.
This withdrawal would liquidate the Purchase Payments which were made
in Contract Years 1 and 2, and would liquidate $500 of the Purchase
Payment which was made in Contract Year 3.
2. In the second instance, an $800 cash withdrawal payment had been made
in the 5th Contract Year. Because the cash withdrawal payment was
less than the $1,000 maximum free withdrawal amount in the 5th
Contract year, no surrender charge would have been imposed. The $800
cash withdrawal payment would have liquidated $800 of the Purchase
Payment in the 1st Contract Year.
As a consequence, the maximum free withdrawal amount in the 7th
Contract Year is only $4,200, consisting of $3,200 in old Payments
($1,200 remaining from year 1 and $2,000 from year 2) and $1,000 as
10% of new Payments. A $4,500 partial withdrawal exceeds the maximum
free withdrawal amount by $300. Therefore the amount subject to the
withdrawal charge is $300 and the withdrawal charge is $300 X 0.05,
or $15. The amount of the cash withdrawal payment is the $4,500
partial withdrawal, minus the $15 withdrawal charge, or $4,485. The
$4,500 partial withdrawal would be charged to the Contract's
Accumulation Account in the form of cancelled Accumulation Units.
This withdrawal would liquidate the remaining $1,200 from the
Purchase Payment in Contract Year 1, the full $2,000 Purchase Payment
from Contract Year 2, and $1,300 of the Payment from Contract Year 3.
Suppose that the Owner of the Contract wanted to make a full surrender of
the Contract in year 7 instead of a $4,500 partial withdrawal. The consequences
would be as follows:
1. In the first instance, where there were no previous cash withdrawal
payments, we know from above that the maximum free withdrawal amount
in the 7th Contract Year is $5,000. The sum of the old and new
Payments not previously liquidated is $14,000 ($2,000 from each
Contract Year). The amount subject to the withdrawal charge is thus
$9,000. The withdrawal charge on full surrender would then be $9,000
X 0.05 or $450.
2. In the second instance, where $800 had previously been withdrawn, we
know from above that the maximum free withdrawal amount in the 7th
Contract Year is $4,200. The sum of old and new Payments not
previously liquidated is $14,000 less the $800 which was previously
liquidated, or $13,200. The amount subject to the withdrawal charge
is still $9,000 ($13,200-$4,200). The withdrawal charge on full
surrender would thus be the same as in the first example.
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SUN LIFE INSURANCE AND ANNUITY COMPANY
OF NEW YORK
Annuity Service Mailing Address:
80 Broad Street
New York, New York 10004
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
LEGAL COUNSEL
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, D.C. 20044
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
CO1NY-13 5/98
