<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Attached hereto and made a part hereof is a the Prospectus dated
May 1, 2000.
<PAGE>
Rule 497(c)
File No. 2-95002
811-04184
PROSPECTUS
MAY 1, 2000
COMPASS I
Sun Life Insurance and Annuity Company of New York ("we" or the "Company")
and Sun Life (N.Y.) Variable Account A (the "Variable Account") offer the
individual flexible payment deferred annuity contracts (the "Contracts")
described in this Prospectus. The Contracts are designed for use in connection
with retirement plans that meet the requirements of Sections 401 or 408
(excluding Section 408(b)) of the Internal Revenue Code.
Contract Owners may choose among 11 variable investment options and a fixed
account option. The variable options are sub-accounts in the Variable Account,
each of which invests in shares in one of the following mutual funds (the
"Funds") advised by our affiliate, Massachusetts Financial Services Company:
<TABLE>
<S> <C>
MFS Money Market Fund Massachusetts Investors Trust
MFS Government Money Market Fund MFS Research Fund
MFS Global Governments Fund Massachusetts Investors Growth Stock Fund
MFS Bond Fund MFS Growth Opportunities Fund
MFS High Income Fund MFS Emerging Growth Fund
MFS Total Return Fund
</TABLE>
The fixed account option pays interest at a guaranteed fixed rate.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR EACH OF THE
FUNDS. PLEASE READ THIS PROSPECTUS AND THE FUND PROSPECTUSES CAREFULLY BEFORE
INVESTING AND KEEP THEM FOR FUTURE REFERENCE. THEY CONTAIN IMPORTANT INFORMATION
ABOUT THE CONTRACTS AND THE FUNDS.
We have filed a Statement of Additional Information dated May 1, 2000 (the
"SAI"), which is incorporated by reference in this Prospectus, with the
Securities and Exchange Commission (the "SEC"). The table of contents for the
SAI is on page 20 of this Prospectus. You may obtain a copy without charge by
writing to us at the address shown below (which we sometimes refer to as our
"Service Address") or by telephoning (800) 447-7569. In addition, the SEC
maintains a website (HTTP:// WWW.SEC.GOV) that contains the SAI, materials
incorporated by reference, and other information regarding companies that file
with the SEC.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
ANY REFERENCE IN THIS PROSPECTUS TO RECEIPT BY US MEANS RECEIPT AT THE
FOLLOWING ADDRESS:
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
P.O. BOX 9141
BOSTON, MASSACHUSETTS 02117
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions 2
Synopsis 3
Expense Summary 4
Condensed Financial Information--Accumulation Unit Values 6
Financial Statements 7
A Word About the Company, the Variable Account and the Funds 7
Purchase Payments and Contract Values During Accumulation Phase 9
Cash Withdrawals 11
Death Benefit 12
Contract Charges 13
Annuity Provisions 15
Other Contract Provisions 17
Tax Considerations 18
Distribution of the Contracts 19
Legal Proceedings 20
Owner Inquiries 20
Table of Contents for Statement of Additional Information 20
</TABLE>
DEFINITIONS
The Contract is a legal document that uses a number of specially defined
terms. We explain some of the terms that we use in this Prospectus in the
context where they arise, and others are self-explanatory. In addition, for
convenient reference, we have compiled the following list of terms used in this
Prospectus. If you come across a term that you do not understand, please refer
to this list of definitions for an explanation.
Accumulation Account: An account we establish for the Contract to which we
credit net Purchase Payments in the form of Accumulation Units.
Accumulation Phase: The period before the Annuity Commencement Date and during
the lifetime of the Annuitant. The Accumulation Phase will also terminate when
the Owner surrenders the Contract.
Accumulation Unit: A unit of measure we use in the calculation of the value of
the Accumulation Account. There are two types of Accumulation Units: Variable
Accumulation Units and Fixed Accumulation Units.
Annuitant: The person or persons named in the Contract and on whose life the
first annuity payment is to be made.
Annuity Commencement Date: The date on which we are to make the first annuity
payment.
Annuity Unit: A unit of measure we use in the calculation of the amount of the
second and each subsequent Variable Annuity payment.
Beneficiary: The person who has the right to the death benefit set forth in the
Contract.
Company: Sun Life Insurance and Annuity Company of New York (also referred to in
this Prospectus as "we").
Contract Years and Contract Anniversaries: The first Contract Year is the period
of 12 months plus a part of a month as measured from the date we issue the
Contract to the first day of the calendar month that follows the calendar month
of issue. All Contract Years and Contract Anniversaries thereafter are 12 month
periods based upon the first day of the calendar month that follows the calendar
month of issue.
Due Proof of Death: An original certified copy of an official death certificate,
an original certified copy of a decree of a court of competent jurisdiction as
to the finding of death, or any other proof satisfactory to us.
Fixed Account: The Fixed Account consists of all assets of the Company other
than those allocated to separate accounts of the Company.
2
<PAGE>
Fixed Annuity: An annuity with payments that do not vary as to dollar amount.
Owner: The person, persons or entity entitled to the ownership rights stated in
the Contract and in whose name or names the Contract is issued. The Owner must
be the trustee or custodian of a retirement plan that meets the requirements of
Section 401 or Section 408 (excluding Section 408(b)) of the Internal Revenue
Code.
Payee: The recipient of payments under the Contract. The term may include an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Annuitant.
Purchase Payment (Payment): An amount the Owner pays to us, or that is paid to
us on the Owner's behalf, as consideration for the benefits provided by the
Contract.
Sub-Account: That portion of the Variable Account that invests in shares of a
specific Fund.
Valuation Period: The period of time from one determination of Accumulation Unit
and Annuity Unit values to the next subsequent determination of these values.
Variable Annuity: An annuity with payments that vary as to dollar amount in
relation to the investment performance of specified Sub-Accounts of the Variable
Account.
We: Sun Life Insurance and Annuity Company of New York.
SYNOPSIS
We allocate Purchase Payments to Sub-Accounts of the Variable Account or to
the Fixed Account option or both, as the Owner selects. Purchase Payments must
total at least $300 for the first Contract Year and each Purchase Payment must
be at least $25 (see "Purchase Payments" on page 9). During the Accumulation
Phase, the Owner may, without charge, transfer amounts among the Sub-Accounts
and between the Sub-Accounts and the Fixed Account, subject to certain
conditions (see "Transfers" on page 11).
We do not deduct a sales charge from Purchase Payments; however, if the
Owner makes a cash withdrawal, we will, with certain exceptions, deduct a 5%
withdrawal charge. The Owner may withdraw a portion of the Accumulation Account
each year before we assess the withdrawal charge and after we have held a
Purchase Payment for five years the Owner may withdraw it without charge. We do
not assess a withdrawal charge upon annuitization or upon the transfers
described above (see "Cash Withdrawals" and "Withdrawal Charges" on pages 11 and
14, respectively).
If the Annuitant dies before the Annuity Commencement Date, we will pay a
death benefit to the Beneficiary. If the Annuitant dies on or after the Annuity
Commencement Date, we will not pay a death benefit, except as may be provided
under the annuity option elected (see "Death Benefit" on page 12).
We deduct a contract maintenance charge of $30 on each Contract Anniversary
and on a surrender of the Contract for full value. After the Annuity
Commencement Date, we deduct this charge pro rata from each annuity payment we
make during the year. (See "Contract Maintenance Charge" on page 13.)
We also deduct a mortality and expense risk charge equal to an annual rate
of 1.30% of the daily net assets of the Variable Account (see "Mortality and
Expense Risk Charge" on page 13).
We will deduct a charge for premium taxes payable to any governmental entity
(see "Premium Taxes" on page 14).
Annuity payments will begin on the Annuity Commencement Date. The Owner
selects the Annuity Commencement Date, frequency of payments, and the annuity
option (see "Annuity Provisions" on page 15).
If the Owner is not satisfied with the Contract, the Owner may return it to
us at our Service Address within ten days after we deliver the Contract to the
Owner. When we receive the returned Contract we will cancel it and refund the
full amount of any Purchase Payment(s) we have received.
ANY PERSON CONTEMPLATING THE PURCHASE OF A CONTRACT SHOULD CONSULT A
QUALIFIED TAX ADVISER.
3
<PAGE>
EXPENSE SUMMARY
The purpose of the following table is to help you to understand the costs
and expenses that are borne, directly and indirectly, by Contract Owners. The
table reflects expenses of the Variable Account as well as of the Funds. We have
restated the expense information for certain Funds to reflect current fees. The
information set forth should be considered together with the narrative provided
under the heading "Contract Charges" in this Prospectus, and with the Funds'
prospectuses. In addition to the expenses listed below, premium taxes may be
applicable.
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION
EXPENSES MMM MMG MGG MFB MFH MTR MIT MFR MIG MGO MEG
-------- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases.............. 0 0 0 0 0 0 0 0 0 0 0
Deferred Sales Load (as
a percentage of
Purchase Payments
withdrawn)(1)
Years Payment in Account
0-5.................. 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%
More than 5.......... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee............. 0 0 0 0 0 0 0 0 0 0 0
ANNUAL CONTRACT FEE
------------------------- -------------------- $30 per Contract --------------------
SEPARATE ACCOUNT ANNUAL
EXPENSES
-------------------------
(as a percentage of average separate account
assets)
Mortality and Expense Risk
Fees................... 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
Other Account Fees and
Expenses............... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Separate Account
Annual Expenses........ 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
FUND ANNUAL EXPENSES
-------------------------
(as a percentage of Fund average net assets)
Management Fees.......... 0.45% 0.50% 0.75% 0.38% 0.45% 0.35% 0.33% 0.43% 0.33% 0.42% 0.68%
Rule 12b-1 Fees(2)....... -- -- 0.25%(3) 0.30%(5) 0.30%(5) 0.35% 0.35% 0.35% 0.35% 0.19%(3)(4) 0.25%(3)
Other Expenses(6)........ 0.24% 0.28% 0.34% 0.24% 0.23% 0.19% 0.20% 0.20% 0.19% 0.19% 0.20%
Total Fund Annual
Expenses............... 0.69% 0.78% 1.34% 0.92% 0.98% 0.89% 0.88% 0.98% 0.87% 0.80% 1.13%
</TABLE>
- ------------------------------
(1) A portion of the Accumulation Account value may be withdrawn each year
without imposition of any withdrawal charge, and after we have held a
Purchase Payment for five years it may be withdrawn free of any withdrawal
charge.
(2) Each of the Funds except MMM and MMG has adopted a distribution plan for its
shares in accordance with Rule 12b-1 under the Investment Company Act of
1940, as amended, which provides that the Fund will pay distribution/service
fees aggregating up to (but not necessarily all of) 0.35% per annum of the
average daily net assets attributable to the Class A shares. See
"Information Concerning Shares of the Fund -- Distribution Plan" in the
Fund's Prospectus.
(3) Payment of the 0.10% per annum Class A distribution fee will be imposed on
such date as the Trustees of the Fund may determine.
(4) The 0.35% per annum distribution/service fee is reduced to 0.25% for shares
purchased prior to March 1, 1991.
(5) 0.05% of the Class A distribution fee is currently being paid by the Fund.
Payment of the remaining portion of the Class A distribution fee will become
payable upon such date as the Trustees of the Fund may determine.
(6) Each of the Funds has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such reductions are not
reflected in the table. Had these fees been taken into account, "Total Fund
Annual Expenses" would be as follows: MMM, 0.67%; MMG, 074%; MGG 1.31%; MFB,
0.90%; MFH, 0.96%; MTR, 0.87%; MIT, 0.87%; MFR, 0.97%; MIG, 0.77%; and MEG,
1.12%.
4
<PAGE>
EXAMPLES
If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming an average
Contract size of $35,000 and a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MMM......................................................... $ 66 $110 $157 $242
MMG......................................................... $ 67 $113 $162 $251
MGG......................................................... $ 73 $130 $190 $307
MFB......................................................... $ 69 $117 $169 $266
MFH......................................................... $ 69 $119 $172 $272
MTR......................................................... $ 68 $117 $168 $263
MIT......................................................... $ 68 $116 $167 $262
MFR......................................................... $ 69 $119 $172 $272
MIG......................................................... $ 68 $116 $167 $261
MGO......................................................... $ 67 $114 $163 $253
MEG......................................................... $ 71 $124 $180 $287
</TABLE>
If you do not surrender your Contract, or if you annuitize at the end of the
applicable time period, you would pay the following expenses on a $1,000
investment, assuming an average Contract size of $35,000 and a 5% annual return
on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MMM......................................................... $ 21 $ 65 $112 $242
MMG......................................................... $ 22 $ 68 $117 $251
MGG......................................................... $ 28 $ 85 $145 $307
MFB......................................................... $ 24 $ 72 $124 $266
MFH......................................................... $ 24 $ 74 $127 $272
MTR......................................................... $ 23 $ 72 $123 $263
MIT......................................................... $ 23 $ 71 $122 $262
MFR......................................................... $ 24 $ 74 $127 $272
MIG......................................................... $ 23 $ 71 $122 $261
MGO......................................................... $ 22 $ 69 $118 $258
MEG......................................................... $ 26 $ 79 $135 $287
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LOWER THAN THOSE SHOWN.
5
<PAGE>
CONDENSED FINANCIAL INFORMATION--ACCUMULATION UNIT VALUES
The following information should be read in conjunction with the Variable
Account's financial statements appearing in the Statement of Additional
Information, all of which has been audited by Deloitte & Touche LLP, independent
auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MIT
Unit Value:
Beginning of period $17.9399 $17.7020 $22.3383 $23.6826 $25.7230 $25.1346 $34.5590 $42.9716 $55.8438 $ 67.7826
End of period $17.7020 $22.3383 $28.6826 $25.7230 $25.1346 $34.5590 $42.9716 $55.8438 $67.7826 $ 71.5754
Units outstanding at end
of period 23,308 22,137 21,171 23,251 25,279 25,203 24,506 24,219 23,908 19,051
MIG
Unit Value:
Beginning of period $15.9079 $14.9744 $21.8361 $22.9454 $25.9289 $23.8756 $30.2725 $36.6834 $53.6803 $ 74.1777
End of period $14.9744 $21.8361 $22.9454 $25.9289 $23.8756 $30.2725 $36.6834 $53.6803 $74.1777 $101.6219
Units outstanding at end
of period 14,928 18,959 21,778 20,003 19,021 12,814 13.06 13,024 16,336 11,126
MTR
Unit Value:
Beginning of period $17.9608 $17.3225 $20.8151 $22.6179 $25.7135 $24.7000 $30.9611 $35.0672 $41.7612 $ 46.1511
End of period $17.3225 $20.8151 $22.6179 $25.7135 $24.7000 $30.9611 $35.0672 $41.7612 $46.1511 $ 46.5944
Units outstanding at end
of period 105,351 122,995 105,130 100,003 95,322 77,949 72,563 67,638 51,043 42,572
MGO
Unit Value:
Beginning of period $15.3740 $14.5083 $17.5663 $18.6739 $21.3516 $20.2091 $26.8309 $32.2614 $39.2762 $ 50.0882
End of period $14.5083 $17.5663 $18.6739 $21.3516 $20.2091 $26.8309 $32.2614 $39.2762 $50.0882 $ 65.6784
Units outstanding at end
of period 23,091 7,814 7,596 20,275 6,457 7,521 6,814 6,582 6,850 3,458
MFR
Unit Value:
Beginning of period $13.9068 $12.9030 $16.9193 $18.5632 $22.3111 $22.0234 $30.1208 $37.0227 $44.0450 $ 53.4381
End of period $12.9030 $16.9193 $18.5632 $22.3111 $22.0234 $30.1208 $37.0227 $44.0450 $53.4381 $ 65.3200
Units outstanding at end
of period 2,302 3,637 3,541 3,440 5,906 6,052 7,287 9,945 9,981 5,909
MFB
Unit Value:
Beginning of period $14.2070 $14.9228 $17.5506 $18.4205 $20.7162 $19.4313 $23.2931 $23.8984 $26.0312 $ 26.8571
End of period $14.9228 $17.5506 $18.4205 $20.7162 $19.4313 $23.2931 $23.8984 $26.0312 $26.8571 $ 25.9887
Units outstanding at end
of period 52,660 49,168 59,308 59,624 47,921 43,111 45,293 25,870 21,362 19,507
MCM
Unit Value:
Beginning of period $12.5003 $13.2940 $13.8510 $14.0872 $14.2395 $14.5535 $15.1238 $15.6386 $16.1968 $ 16.7827
End of period $13.2940 $13.8510 $14.0872 $14.2395 $14.5535 $15.1238 $15.6386 $16.1968 $16.7827 $ 17.3427
Units outstanding at end
of period 113,082 80,068 26,714 21,912 38,136 28,742 21,921 17,324 14,005 18,016
MCG
Unit Value:
Beginning of period $12.4222 $13.1982 $13.7487 $13.9727 $14.0931 $14.3669 $14.9190 $15.4092 $15.9182 $ 16.4692
End of period $13.1982 $13.7487 $13.9727 $14.0931 $14.3669 $14.9190 $15.4092 $15.9182 $16.4692 $ 16.9721
Units outstanding at end
of period 6,250 10,342 7,125 5,435 5,367 5,691 6,013 4,440 1,795 1,772
MFH
Unit Value:
Beginning of period $12.2288 $ 9.8993 $14.7896 $17.0996 $20.1025 $19.3115 $22.3502 $24.8670 $27.8588 $ 29.7674
End of period $ 9.8993 $14.7896 $17.0996 $20.1025 $19.3115 $22.3502 $24.8670 $27.8588 $27.7674 $ 29.3372
Units outstanding at end
of period 31,130 26,858 27,382 22,861 22,721 18,087 16,765 13,294 9,605 6,600
MGG
Unit Value:
Beginning of period $17.8619 $20.7841 $23.3014 $23.3104 $27.2305 $25.1262 $28.6388 $29.7910 $29.5139 $ 30.3299
End of period $20.7841 $28.3014 $23.3104 $27.2305 $25.1262 $28.6388 $29.7910 $29.5139 $30.3299 $ 28.9030
Units outstanding at end
of period 11,639 17,538 24,774 28,203 25,643 17,846 15,694 12,546 6,258 3,806
MEG
Unit Value:
Beginning of period $15.7599 $13.7736 $23.1493 $24.5860 $30.7913 $31.8775 $44.4187 $50.3336 $59.9380 $ 73.6526
End of period $13.7736 $23.1493 $24.5860 $30.7913 $31.8775 $44.4187 $50.3336 $59.9380 $73.6526 $109.1210
Units outstanding at end
of period 14,879 9,376 13,562 17,136 18,402 19,750 19,504 16,548 14,523 9,211
</TABLE>
6
<PAGE>
FINANCIAL STATEMENTS
Financial Statements of the Variable Account and the Company are included in
the Statement of Additional Information.
A WORD ABOUT THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS
THE COMPANY
Sun Life Insurance and Annuity Company of New York is a stock life insurance
company incorporated under the laws of New York on May 25, 1983. Our Home Office
is located at 122 East 42nd Street, Suite 1900, New York, New York 10017.
We are 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 02481. Sun Life of Canada (U.S.)
is an indirect wholly-owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life (Canada)"). Sun Life (Canada) completed its demutualization on
March 22, 2000. As a result of the demutualization, a new holding company, Sun
Life Financial Services of Canada Inc. ("Sun Life Financial"), is now the
ultimate parent of Sun Life (Canada) and the Company. Sun Life Financial, a
corporation organized in Canada, is a reporting company under the Securities
Exchange Act of 1934 with common shares listed on the Toronto, New York, London,
and Manila stock exchanges.
THE VARIABLE ACCOUNT
We established the Variable Account as a separate account of the Company on
December 3, 1984, pursuant to a resolution of our Board of Directors. The
Variable Account 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.
Under New York insurance law and the Contract, the income, gains or losses
of the Variable Account are credited to or charged against the assets of the
Variable Account without regard to the other income, gains or losses of the
Company. Although the assets maintained in the Variable Account will not be
charged with any liabilities arising out of any other business conducted by the
Company, all obligations arising under the Contracts, including the promise to
make annuity payments, are general corporate obligations of the Company.
The assets of the Variable Account are divided into Sub-Accounts. Each
Sub-Account invests exclusively in shares of one of the Funds described below.
THE FUNDS
All amounts allocated to the Variable Account will be used to purchase Fund
shares as designated by the Owner at their net asset value. Any and all
distributions made by the Funds with respect to the shares held by the Variable
Account will be reinvested to purchase additional shares at their net asset
value. We will make deductions from the Variable Account for cash withdrawals,
annuity payments, death benefits, administrative charges, Contract charges
against the assets of the Variable Account for the assumption of mortality and
expense risks and any applicable taxes, in effect, by redeeming the number of
Fund shares at their net asset value equal in total value to the amount to be
deducted. The Variable Account will be fully invested in Fund shares at all
times.
A summary of the investment objectives of each Fund is contained in the
description below. More detailed information may be found in the current
prospectuses of the Funds and their Statements of Additional Information. A
prospectus for each Fund must accompany this Prospectus and should be read
together with this Prospectus.
7
<PAGE>
MFS-REGISTERED TRADEMARK- MONEY MARKET FUND ("MCM")
MMM seeks as high a level of current income as is considered consistent with
the preservation of capital and liquidity. MMM is a money market fund, meaning
it tries to maintain a share price of $1.00, while paying income to its
shareholders. MMM invests in money market instruments, which are short-term
notes or other fixed debt securities issued by banks or other corporations or
the U.S. Government or other governmental entities. Money market instruments
purchased by MMM have maturities of 13 months or less and the average remaining
maturity of the securities cannot be greater than 90 days.
MFS-REGISTERED TRADEMARK- GOVERNMENT MONEY MARKET FUND ("MCG")
MMG seeks as high a level of current income as is considered consistent with
the preservation of capital and liquidity. MMG is a money market fund, meaning
it tries to maintain a share price of $1.00, while paying income to its
shareholders. MMG invests its total assets in U.S. Government securities, which
are bonds or other debt obligations issued by, or whose principal and interest
payments are guaranteed by, the U.S. Government or one of its agencies or
instrumentalities, including repurchase agreements collateralized by U.S.
Government securities. U.S. Government securities purchased by MMG must have
maturities of 13 months or less and the average remaining maturity of the
securities cannot be greater than 90 days.
MFS-REGISTERED TRADEMARK- GLOBAL GOVERNMENTS FUND ("MGG")
MWG (formerly MFS-Registered Trademark- World Governments Fund) will seek
income and capital appreciation. MWG invests, under normal conditions, at least
65% of its total assets in U.S. Government securities and foreign government
securities (including emerging market securities). MWG may also invest in
corporate bonds, including investment grade bonds, lower rated bonds (commonly
known as junk bonds), crossover bonds and mortgage-backed and asset-backed
securities.
MFS-REGISTERED TRADEMARK- BOND FUND ("MFB")
MFB will primarily seek to provide as high a level of current income as is
believed to be consistent with prudent risk. Its secondary objective is to
protect shareholders' capital. MFB invests, under normal market conditions, at
least 65% of its total assets in corporate bonds, U.S. Government securities and
mortgage-backed and asset-backed securities.
MFS-REGISTERED TRADEMARK- HIGH INCOME FUND ("MFH")
MFH will seek high current income by investing primarily in a professionally
managed diversified portfolio of fixed income securities, some of which may
involve equity features. MFH invests, under normal market conditions, at least
80% of its total assets in high income fixed income securities. While MFH may
invest in fixed income securities with any credit rating, the securities
offering the high current income sought by MFH generally have speculative
characteristics or are lower rated bonds (commonly known as junk bonds).
MFS-REGISTERED TRADEMARK- TOTAL RETURN FUND ("MTR")
MTR's main objective is to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital. Its secondary objective is to provide reasonable
opportunity for growth of capital and income. MTR is a "balanced fund" and
invests in a combination of equity and fixed income securities. Under normal
market conditions, MTR invests: (i) at least 40%, but not more than 75%, of its
net assets in common stocks and related securities (referred to as equity
securities), such as preferred stock, bonds, warrants or rights convertible into
stock, and depositary receipts for those securities, and (ii) at least 24% of
its net assets in non-convertible fixed income securities.
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MASSACHUSETTS INVESTORS TRUST ("MIT")
MIT will seek reasonable current income and long-term growth of capital and
income. MIT invests, under normal market conditions, at least 65% of its total
assets in common stocks and related securities, such as preferred stock,
convertible securities, and depositary receipts. While it may invest in
companies of any size, MIT generally focuses on companies with larger market
capitalizations that its investment adviser believes have sustainable growth
prospects and attractive valuations based on current and expected earnings or
cash flow. MIT will also seek to provide income equal to approximately 90% of
the dividend yield on the Standard & Poor's 500 Composite Index.
MFS-REGISTERED TRADEMARK- RESEARCH FUND ("MFR")
MFR will seek long-term growth of capital and future income. MFR invests,
under normal market conditions, at least 80% of its total assets in common
stocks and related securities, such as preferred stocks, convertible securities
and depositary receipts. MFR focuses on companies that its investment adviser
believes have favorable prospects for long-term growth, attractive valuations
based on current and expected earnings or cash flow, dominant or growing market
share and superior management.
MASSACHUSETTS INVESTORS GROWTH STOCK FUND ("MIG")
MIG will seek long-term growth of capital and future income rather than
current income. MIG invests its assets, except for working cash balances, in the
common stocks, and securities convertible into common stocks, of companies which
MIG's investment adviser believes offer better-than-average prospects for
long-term growth.
MFS-REGISTERED TRADEMARK- GROWTH OPPORTUNITIES FUND ("MGO")
MGO will seek growth of capital. MGO invests, under normal market
conditions, at least 65% of its total assets in common stock and equity related
securities, such as preferred stock, convertible securities and depositary
receipts, of companies which MGO's investment adviser believes possess above-
average growth opportunities. MGO also invests in fixed income securities when
relative values or other economic conditions make these securities attractive.
MFS-REGISTERED TRADEMARK- EMERGING GROWTH FUND ("MEG")
MEG will seek long-term growth of capital. MEG invests in common stocks and
related securities (such as preferred stock, convertible securities and
depositary receipts) of emerging growth companies. Emerging growth companies are
companies that MEG's adviser believes are either early in their life cycle but
have the potential to become major enterprises or are major enterprises whose
rates of earnings growth are expected to accelerate.
PURCHASE PAYMENTS AND CONTRACT VALUES DURING ACCUMULATION PHASE
PURCHASE PAYMENTS
All Purchase Payments are to be paid to us at our Service Address. Purchase
Payments may be made annually, semi-annually, quarterly, monthly or on any other
frequency acceptable to us. Unless the Owner has surrendered the Contract,
Purchase Payments may be made at any time during the life of the Annuitant and
before the Annuity Commencement Date.
The amount of Purchase Payments may vary; however, Purchase Payments must
total at least $300 for the first Contract Year, and each Purchase Payment must
be at least $25. In addition, our approval is required before we will accept a
Purchase Payment if the value of a Contract's Accumulation Account exceeds
$1,000,000 or if the Purchase Payment would cause the value of a Contract's
Accumulation Account to exceed $1,000,000.
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Completed application forms, together with the initial Purchase Payment, are
forwarded to us. Upon acceptance, we issue the Contract to the Owner and credit
the initial Purchase Payment to the Contract in the form of Accumulation Units.
We will credit the initial Purchase Payment within two business days of our
receipt of a completed application. If an application is incomplete, we may
retain the Purchase Payment for up to five business days while we attempt to
complete the application. If we cannot complete the application within five
business days, we will inform the applicant of the reasons for the delay and
return the Purchase Payment immediately, unless the applicant specifically
consents to our retaining the Purchase Payment until the application is made
complete. Once the application is completed, we will credit the Purchase Payment
within two business days. We will apply all subsequent Purchase Payments using
the Accumulation Unit values for the Valuation Period during which we receive
the Purchase Payment.
We will establish an Accumulation Account for each Contract. The Contract's
Accumulation Account value for any Valuation Period is equal to the variable
accumulation value, if any, plus the fixed accumulation value, if any, for that
Valuation Period. The variable accumulation value is equal to the sum of the
value of all Variable Accumulation Units credited to the Contract's Accumulation
Account.
We will allocate each net Purchase Payment to either the Fixed Account or to
Sub-Accounts of the Variable Account or to both Sub-Accounts and the Fixed
Account, in accordance with the allocation factors that the Owner specifies in
the application or as subsequently changed (see Appendix A to the Statement of
Additional Information for a description of the Fixed Account). Upon receipt of
a Purchase Payment, we will credit all or that portion, if any, of the net
Purchase Payment to be allocated to the Sub-Accounts to the Accumulation Account
in the form of Variable Accumulation Units. The number of Variable Accumulation
Units we credit is determined by dividing the dollar amount allocated to a Sub-
Account by the Variable Accumulation Unit value for that Sub-Account for the
Valuation Period during which we received the Purchase Payment.
We established the Variable Accumulation Unit value for each Sub-Account at
$10.00 for the first Valuation Period of that Sub-Account. We determine the
Variable Accumulation Unit value for the Sub-Account for any subsequent
Valuation Period by multiplying the Variable Accumulation Unit value for the
immediately preceding Valuation Period by the Net Investment Factor for the
subsequent Valuation Period. The Variable Accumulation Unit value for each
Sub-Account for any Valuation Period is determined at the end of the Valuation
Period and may increase, decrease or remain constant from Valuation Period to
Valuation Period, depending upon the investment performance of the Fund in which
the Sub-Account is invested and the expenses and charges deducted from the
Variable Account.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one; therefore the
value of a Variable Accumulation Unit may increase, decrease or remain the same.
The Net Investment Factor for any Sub-Account for any Valuation Period is
determined by dividing (a) by (b) and then subtracting (c) from the result,
where:
(a) is the net result of:
(1) the net asset value of a Fund share held in the Sub-Account
determined as of the end of the Valuation Period, plus
(2) the per share amount of any dividend or other distribution declared
by the Fund issuing the shares held in the Sub-Account if the
"ex-dividend" date occurs during the Valuation Period, plus or minus
(3) a per share credit or charge with respect to any taxes paid, or
reserved for by the Company during the Valuation Period which are
determined to be attributable to the operation of the Sub-Account (no
federal income taxes are applicable under present law);
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(b) is the net asset value of a Fund share held in the Sub-Account,
determined as of the end of the preceding Valuation Period; and
(c) is the risk charge factor determined by the Company for the Valuation
Period to reflect the charge for assuming the mortality and expense
risks.
TRANSFERS
During the Accumulation Phase, the Owner may transfer all or part of the
Contract's Accumulation Account Value to one or more Sub-Accounts then available
or to the Fixed Account, or to any combination of these options. We make these
transfers by converting the value of the Accumulation Units the Owner wishes to
transfer into Variable Accumulation Units of Sub-Accounts and/or Fixed
Accumulation Units of the same aggregate value, as the Owner chooses. These
transfers are subject to the following conditions:
(1) Transfers involving Fixed Accumulation Units may be made only during the
45 day period before and the 45 day period after each Contract
Anniversary;
(2) Not more than 12 transfers may be made in any Contract Year; and
(3) The value of Accumulation Units transferred may not be less than $1,000,
unless all of the Fixed Accumulation Units or all of the Variable
Accumulation Units of a particular Sub-Account credited to the
Accumulation Account are being transferred.
In addition, these transfers will be subject to such terms and conditions as
each Fund may impose. We will make these transfers using the Accumulation Unit
values for the Valuation Period during which we receive the request for
transfer.
You may request transfers in writing or by telephone. The telephone transfer
privilege is available automatically, and does not require your written
election. We will require personal identifying information to process a request
for transfer made by telephone. We will not be liable for following instructions
communicated by telephone that we reasonably believe are genuine.
CASH WITHDRAWALS
At any time during the Accumulation Phase, the Owner may elect to receive a
cash withdrawal payment under the Contract. Withdrawals may be subject to a
withdrawal charge (see "Withdrawal Charges"). Withdrawals also may have adverse
federal income tax consequences, including a 10% penalty tax. (see "Tax
Considerations"). Since the Contracts will be issued only in connection with
retirement plans that meet the requirements of Section 401 or Section 408
(excluding Section 408(b)) of the Internal Revenue Code, you should refer to the
terms of the particular retirement plan for any limitations or restrictions on
cash withdrawals.
A withdrawal request will be effective on the date we receive it. If the
Owner requests a withdrawal of more than $5,000, we may require a signature
guarantee. The request must specify the amount the Owner wishes to withdraw. For
a partial withdrawal, the Owner may specify the amount to be withdrawn from the
Fixed Account and/or each Sub-Account to which the Contract's Accumulation
Account is allocated. If the Owner does not so specify, we will deduct the total
amount requested pro rata, based on the allocations at the end of the Valuation
Period during which we receive the withdrawal request.
If the Owner requests a full withdrawal, we will pay the value of the
Accumulation Account at the end of the Valuation Period during which we receive
the request, minus the contract maintenance charge for the current Contract Year
and any applicable withdrawal charge. If the Owner requests a partial
withdrawal, we will pay the amount requested less any applicable withdrawal
charge and we will reduce the value of the Contract's Accumulation Account by
deducting the amount requested. If the Owner requests a partial withdrawal that
would result in the value of the Accumulation Account being
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reduced to an amount less than the contract maintenance charge for the current
Contract Year, we will treat it as a request for a full withdrawal.
We will pay you the applicable amount of any full or partial withdrawal
within seven days after we receive the Owner's withdrawal request, except in
cases where we are permitted to defer payment under the Investment Company Act
of 1940 and applicable state insurance law. Currently, we may defer payment of
amounts withdrawn only for following periods:
- When the New York Stock Exchange is closed, except weekends and holidays
or when trading on the New York Stock Exchange is restricted;
- When it is not reasonably practical to dispose of securities held by the
Funds or to determine the value of the net assets of the Funds because an
emergency exists; and
- When an SEC order permits us to defer payment for the protection of
securities holders.
DEATH BENEFIT
If the Annuitant dies before the Annuity Commencement Date, we will pay a
death benefit to the Beneficiary. If the Annuitant dies on or after the Annuity
Commencement Date, we will not pay a death benefit, except as may be provided
under Annuity Options B, D, or E, if elected. (Under these options, the
Beneficiary may choose to receive remaining payments as they become due or a
single lump sum payment of their discounted value).
Subject to the rights of an irrevocably designated Beneficiary, the Owner
may change or revoke the designation of a Beneficiary at any time while the
Annuitant is living. Reference should be made to the terms of the particular
retirement plan and any applicable legislation for any restrictions on the
Beneficiary designation. If there is no designated Beneficiary living on the
date of death of the Annuitant, we will pay the death benefit in one lump sum to
the Owner, or if the Owner is the Annuitant, to the estate of the
Owner/Annuitant.
During the lifetime of the Annuitant and before the Annuity Commencement
Date, the Owner may elect to have the death benefit payable under one or more of
our annuity options listed under "Annuity Provisions" in this Prospectus, for
the Beneficiary as Payee. If the Owner has not elected a method of settlement of
the death benefit that is in effect on the date of death of the Annuitant, the
Beneficiary may elect to receive the death benefit in the form of either a cash
payment or one or more of our annuity options. If we do not receive an election
by the Beneficiary within 60 days after the date we receive Due Proof of Death
of the Annuitant and any required release or consent, the Beneficiary will be
deemed to have elected a cash payment as of the last day of the 60 day period.
In all cases, no Owner or Beneficiary will be entitled to exercise any
rights that would adversely affect the treatment of the Contract as an annuity
contract under the Internal Revenue Code.
You should refer to the terms of the particular retirement plan and any
applicable legislation for any limitations or restrictions on the election of a
method of settlement and payment of the death benefit.
PAYMENT OF DEATH BENEFIT
If the death benefit is to be paid in cash to the Beneficiary, we will make
payment within seven days of the date the election becomes effective or is
deemed to become effective, except as we may be permitted to defer such payment
in accordance with the Investment Company Act of 1940 under the circumstances
described under "Cash Withdrawals." If the death benefit is to be paid in one
sum to the Owner or to the estate of the deceased Owner/Annuitant, we will make
payment within seven days of the date we receive Due Proof of Death of the
Annuitant and the Beneficiary.
If the death benefit is to be paid under one or more of our annuity options,
the Annuity Commencement Date will be the first day of the second calendar month
following the effective date or the
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deemed effective date of the election, and we will maintain the Contract's
Accumulation Account in effect until the Annuity Commencement Date. The Owner or
Beneficiary may elect an Annuity Commencement Date later than that described
above, provided that such date is (a) the first day of a calendar month and
(b) not later than the first day of the first month following the 85th birthday
of the Beneficiary or other Payee designated by the Owner, as the case may be,
unless otherwise restricted by the particular retirement plan or by applicable
law (see "Annuity Commencement Date").
AMOUNT OF DEATH BENEFIT
The death benefit is equal to the greatest of:
(1) the value of the Contract's Accumulation Account;
(2) the total Purchase Payments made under the Contract reduced by all
withdrawals; and
(3) the value of the Contract's Accumulation Account on the fifth Contract
Anniversary, adjusted for any Purchase Payments or cash withdrawal
payments made and contract charges assessed after the fifth Contract
Anniversary.
To determine the amount of the death benefit under (1) above, we will use
Accumulation Values for the Valuation Period during which we receive Due Proof
of Death of the Annuitant if the Owner has elected settlement under one or more
of the annuity options; if no election by the Owner is in effect, we will use
either the values for the Valuation Period during which an election by the
Beneficiary becomes or is deemed effective or, if the death benefit is to be
paid in one sum to the Owner or to the Owner/Annuitant's estate, the values for
the Valuation Period during which we receive Due Proof of Death of both the
Annuitant and the designated Beneficiary.
CONTRACT CHARGES
We will assess contract charges under the Contract as follows:
CONTRACT MAINTENANCE CHARGE
We deduct an annual contract maintenance charge of $30 as partial
reimbursement to us for administrative expenses relating to the issuance and
maintenance of the Contract. Prior to the Annuity Commencement Date, we deduct
this charge on each Contract Anniversary. We will also deduct this charge on
surrender of the Contract for full value on a date other than the Contract
Anniversary. We deduct the contract maintenance charge in equal amounts from the
Fixed Account and each Sub-Account in which the Owner has Accumulation Units at
the time of such deduction.
On the Annuity Commencement Date, we will reduce the value of the Contract's
Accumulation Account by 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. After the Annuity Commencement Date,
we will deduct the contract maintenance charge pro rata from each annuity
payment made during the year.
We will not increase the amount of the contract maintenance charge. We
reserve the right to reduce the amount of the contract maintenance charge for
groups of participants with individual Contracts under an employer's retirement
program in situations in which the size of the group and established
administrative efficiencies contribute to a reduction in administrative
expenses. We do not expect to make a profit from the contract maintenance
charge.
MORTALITY AND EXPENSE RISK CHARGE
We assume the risk that Annuitants may live for a longer period of time than
we have estimated in establishing the guaranteed annuity rates incorporated into
the Contract, and the risk that administrative charges assessed under the
Contract may be insufficient to cover our actual administrative expenses
incurred.
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For assuming these risks, we make a deduction from the Variable Account at
the end of each Valuation Period both during the Accumulation Phase and after
the annuity payments begin at an effective annual rate of 1.30%. We may change
the rate of this deduction annually but it will not exceed 1.30% on an annual
basis. If the deduction is insufficient to cover the actual cost of the
mortality and expense risk undertaking, we will bear the loss. Conversely, if
the deduction proves more than sufficient, the excess will be profit to us and
would be available for any proper corporate purpose including, among other
things, payment of distribution expenses. If the withdrawal charges described
below prove insufficient to cover expenses associated with the distribution of
the Contracts, we will meet the deficiency from our general corporate funds,
which may include amounts derived from the mortality and expense risk charges.
For the year ended December 31, 1999, mortality and expense risk charges
were the only expenses of the Variable Account.
WITHDRAWAL CHARGES
We do not deduct a sales charge from Purchase Payments. However, we will
assess a withdrawal charge (contingent deferred sales charge) on certain amounts
you withdraw as reimbursement for certain expenses relating to the distribution
of the Contracts, including commissions, costs of preparation of sales
literature and other promotional costs and acquisition expenses.
The Owner may withdraw a portion of the Accumulation Account value each year
without imposition of any withdrawal charge, and after we have held a Purchase
Payment for five years it may be withdrawn free of any withdrawal charge. In
addition, we do not assess a withdrawal charge upon annuitization or upon the
transfer of Accumulation Account values among the Sub-Accounts or between the
Sub-Accounts and the Fixed Account.
All other full or partial withdrawals are subject to a withdrawal charge
equal to 5% of the amount withdrawn that is subject to the charge. We will apply
the charge as follows:
(1) OLD PAYMENTS, NEW PAYMENTS AND "ACCUMULATED VALUE": In a given Contract
Year, "New Payments" are Payments made in that Contract Year or in the
previous four Contract Years; "Old Payments" are Payments made before the
previous four Contract Years. The remainder of the Accumulation Account
value--that is, the value of the Accumulation Account minus the total of
Old Payments and New Payments--is called the "accumulated value."
(2) ORDER OF WITHDRAWAL: When the Owner makes a full surrender or partial
withdrawal, we consider the oldest Payment not previously withdrawn to be
withdrawn first, then the next oldest, and so forth. Once all Old
Payments and New Payments have been withdrawn, additional amounts
withdrawn will be attributed to accumulated value.
(3) FREE WITHDRAWAL AMOUNT: In any Contract Year, the Owner may withdraw
the following amount before we impose a withdrawal charge: (a) any Old
Payments not previously withdrawn plus (b) 10% of any New Payments,
whether or not these New Payments have been previously withdrawn.
(4) AMOUNT SUBJECT TO WITHDRAWAL CHARGE: We will impose the 5% withdrawal
charge on the excess, if any, of (a) Old Payments and New Payments being
withdrawn over (b) the remaining free withdrawal amount at the time of
the withdrawal. We do not impose the withdrawal charge on amounts
attributed to accumulated value.
Aggregate withdrawal charges assessed against a Contract will never exceed
5% of the total amount of Purchase Payments made under the Contract (see
Appendix C to the Statement of Additional Information for examples of
withdrawals and withdrawal charges).
PREMIUM TAXES
We will make a deduction, when applicable, for premium taxes or similar
state or local taxes. Currently, no premium taxes are applicable in the State of
New York; however, if an Owner or the Payee
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is a resident of a state other than New York, a premium tax ranging from 0% to
3.5% may be assessed, depending on the state of residence. It is currently our
policy to deduct the tax from the amount applied to provide an annuity at the
time annuity payments commence. However, we reserve the right to deduct such
taxes on or after the date they are incurred.
CHARGES OF THE FUNDS
The Variable Account purchases shares of the Funds at net asset value. The
net asset value of these shares reflects investment management fees, Rule 12b-1
(i.e., distribution plan) fees and expenses (including, but not limited to,
compensation of trustees/directors, governmental expenses, interest charges,
taxes, fees of auditors, legal counsel, transfer agent and custodian,
transactional expenses and brokerage commissions) already deducted from the
assets of the Funds. These fees and expenses are more fully described in the
Funds' prospectuses and related statements of additional information.
ANNUITY PROVISIONS
ANNUITY COMMENCEMENT DATE
We begin making annuity payments under a Contract on the Annuity
Commencement Date, which the Owner selects in the Contract application. The
Owner may change this date as provided in the Contract; however, the new Annuity
Commencement Date must be the first day of a month and not later than the first
day of the first month following the Annuitant's 85th birthday, unless otherwise
limited or restricted by the particular retirement plan or by applicable law. In
most situations, current law requires that certain minimum distributions
commence no later than April 1 following the year the Annuitant reaches age
70 1/2. In addition, the particular retirement plan may impose additional
limitations. The Annuity Commencement Date may also be changed by an election of
an annuity option, as described under "Death Benefit." Any new Annuity
Commencement Date must be at least 30 days after we receive notice of the
change.
On the Annuity Commencement Date, we will cancel the Contract's Accumulation
Account and apply its adjusted value to provide an annuity. The adjusted value
will be equal to the value of the Accumulation Account for the Valuation Period
that ends immediately before the Annuity Commencement Date, reduced by any
applicable premium taxes or similar taxes and a proportionate amount of the
contract maintenance charge (see "Contract Maintenance Charge"). NO CASH
WITHDRAWALS WILL BE PERMITTED AFTER THE ANNUITY COMMENCEMENT DATE, EXCEPT AS MAY
BE AVAILABLE UNDER ANNUITY OPTIONS B, D, OR E, IF ELECTED. (Under these options,
if the Annuitant dies on or after the Annuity Commencement Date, the Beneficiary
may choose to receive the remaining annuity payments as they become due or a
single lump sum payment of their discounted value).
ANNUITY OPTIONS
During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Owner may elect one or more of the annuity options described below or
such other settlement option as we may agree to for the Annuitant as Payee,
except as restricted by the particular retirement plan or any applicable
legislation. These annuity options may also be elected by the Owner or the
Beneficiary, as provided under "Death Benefit."
The Owner may not change any election after 30 days before the Annuity
Commencement Date, and no change of annuity option is permitted after the
Annuity Commencement Date. If no election is in effect on the 30th day before
the Annuity Commencement Date, we will deem Annuity Option B, for a Life Annuity
with 120 Monthly Payments Certain, to have been elected.
Any election may specify the proportion of the adjusted value of the
Contract's Accumulation Account to be applied to the Fixed Account and the
Sub-Accounts. If the election does not so specify, the portion of the adjusted
value of the Accumulation Account to be applied to the Fixed Account and
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the Sub-Accounts will be determined on a pro rata basis from the composition of
the Accumulation Account on the Annuity Commencement Date.
Annuity Options A, B and C are available to provide either a Fixed Annuity
or a Variable Annuity. Annuity Options D and E are available only to provide a
Fixed Annuity.
Annuity Option A. Life Annuity: We make monthly payments during the lifetime of
the Payee. This option offers a higher level of monthly payments than Annuity
Options B or C because we do not make further payments after the death of the
Payee and there is no provision for a death benefit payable to a Beneficiary.
Annuity Option B. Life Annuity with 60, 120 or 240 Monthly Payments Certain: We
make monthly payments during the lifetime of the Payee and in any event for 60,
120, 180 or 240 months certain, as elected. The election of a longer period
certain results in smaller monthly payments than would be the case if a shorter
period certain was elected.
Annuity Option C. Joint and Survivor Annuity: We make monthly payments during
the joint lifetime of the Payee and a designated second person and during the
lifetime of the survivor. During the lifetime of the survivor, variable monthly
payments, if any, will be determined using the percentage chosen at the time
this option was elected of the number of each type of Annuity Unit credited to
the Contract and each fixed monthly payment, if any, will be equal to the same
percentage of the fixed monthly payment payable during the joint lifetime of the
Payee and the designated second person.
Annuity Option D. Fixed Payments for a Specified Period Certain: We make fixed
monthly payments for a specified period of time (at least three years but not
exceeding 30 years), as elected.
Annuity Option E. Fixed Payments: We will hold the amount applied to provide
fixed payments in accordance with this option at interest. We will make fixed
payments in such amounts and at such times as we have agreed upon and will
continue until the amount we hold with interest is exhausted. We will credit
interest yearly on the amount remaining unpaid at a rate which we shall
determine from time to time but which shall not be less than 4% per year,
compounded annually. We may change the rate so determined at any time; however,
the rate may not be reduced more frequently than once during each calendar year.
DETERMINATION OF ANNUITY PAYMENTS
We will determine the dollar amount of the first Variable Annuity payment in
accordance with the annuity payment rates found in the Contract, which are based
on an assumed interest rate of 4% per year. We determine all Variable Annuity
payments other than the first 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 that ends immediately before the Annuity
Commencement Date. The number of Annuity Units of each Sub-Account credited to
the Contract then remains fixed, unless an exchange of Annuity Units is made as
described below. The dollar amount of each Variable Annuity payment after the
first may increase, decrease or remain constant, depending on the investment
performance of the Sub-Accounts.
The Statement of Additional Information contains detailed disclosure
regarding the method of determining the amount of each Variable Annuity payment
and calculating the value of a Variable Annuity Unit, as well as hypothetical
examples of these calculations.
EXCHANGE OF VARIABLE ANNUITY UNITS
After the Annuity Commencement Date, the Payee may exchange Variable Annuity
Units from one Sub-Account to another, up to a maximum of 12 such exchanges each
Contract Year. We calculate the number of new Variable Account units so that the
dollar amount of an annuity payment made on the date of the exchange would be
unaffected by the fact of the exchange.
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ANNUITY PAYMENT RATES
The Contract contains annuity payment rates for each annuity option
described above. The rates show, for each $1,000 applied, the dollar amount of
(a) the first monthly Variable Annuity payment based on the assumed interest
rate of 4%, and (b) the monthly Fixed Annuity payment, when this payment is
based on the minimum guaranteed interest rate of 4% per year. The annuity
payment rates may vary according to the annuity option elected and the adjusted
age of the Payee.
If net investment return of the Sub-Accounts was exactly equal to the
assumed interest rate of 4%, the amount of each Variable Annuity payment would
remain level. If a net investment return is greater than 4%, the amount of each
variable annuity payment would increase; conversely, if the net investment
return is less than 4%, the amount of each variable annuity payment would
decrease.
OTHER CONTRACT PROVISIONS
OWNER
The Owner is entitled to exercise all Contract rights and privileges 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 on 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.
Transfer of ownership of a Contract is governed by the laws and regulations
applicable to the retirement plan for which we issue the Contract. Subject to
the foregoing, a 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.
VOTING OF FUND SHARES
We will vote Fund shares held by the Sub-Accounts at meetings of
shareholders of the Funds or in connection with similar solicitations, but will
follow voting instructions received from persons having the right to give voting
instructions. We will vote Fund shares for which no timely voting instructions
are received in the same proportion as the shares for which instructions are
received from persons having such voting rights. The Owner is the person having
the right to give voting instructions prior to the Annuity Commencement Date. On
or after the Annuity Commencement Date, the Payee is the person having such
voting rights.
Owners of Contracts may be subject to other voting provisions of the
particular retirement plan. Employees who contribute to retirement plans which
are funded by the Contracts are entitled to instruct the Owners as to how to
instruct the Company to vote the Fund shares attributable to their
contributions. Such plans may also provide the additional extent, if any, to
which the Owners shall follow voting instructions of persons with rights under
the plans.
We will determine the number of particular Fund shares as to which each such
person is entitled to give instructions on a date not more than 90 days prior to
each such meeting. Prior to the Annuity Commencement Date, we determine the
number of particular Fund shares as to which voting instructions may be given by
dividing the value of all of the Variable Accumulation Units of the particular
Sub-Account credited to the Contract's Accumulation Account by the net asset
value of one particular Fund share as of the same date. On or after the Annuity
Commencement Date, we determine the number of particular Fund shares as to which
such instructions may be given by a Payee by dividing the reserve held by the
Company in the particular Sub-Account for the Contract by the net asset value of
a particular Fund share as of the same date.
17
<PAGE>
SUBSTITUTED SECURITIES
Shares of any of the Funds may not always be available for purchase by the
Variable Account or we may decide that further investment in any such Fund's
shares is no longer appropriate in view of the purposes of the Variable Account.
In either event, we may substitute shares of another registered open-end
investment company both for Fund shares already purchased by the Variable
Account and as the security to be purchased in the future provided that these
substitutions have been approved by the Securities and Exchange Commission and
the Superintendent of Insurance of the State of New York (the "Superintendent of
Insurance"). In the event of any substitution pursuant to this provision, we may
make appropriate endorsement to the Contract to reflect the substitution.
MODIFICATION
Upon notice to the Owner, or to the Payee during the annuity period, we may
modify the Contract, but only if such modification (i) is necessary to make the
Contract or the Variable Account comply with any law or regulation issued by a
governmental agency to which we are subject, (ii) is necessary to assure
continued qualification of the Contract under the Internal Revenue Code or other
federal or state laws relating to retirement annuities or annuity contracts,
(iii) is necessary to reflect a change in the operation of the Variable Account
or the Sub-Accounts, or (iv) provides additional Variable Account and/or fixed
accumulation options. In the event of any such modification, we may make
appropriate endorsement to the Contract to reflect such modification.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At the Company's election and subject to the prior approval of the
Superintendent of Insurance of the State of New York and any necessary vote by
persons having the right to give instructions with respect to the voting of Fund
shares held by the Sub-Accounts, the Variable Account may be operated as a
management company under the Investment Company Act of 1940 or it may be
deregistered under the Investment Company Act of 1940 in the event registration
is no longer required. Deregistration of the Variable Account requires an order
by the Securities and Exchange Commission. In the event of any such change in
the operation of the Variable Account, we, subject to the prior approval of the
Superintendent of Insurance, may make appropriate endorsement to the Contract to
reflect the change and take such action as may be necessary and appropriate to
effect the change.
SPLITTING UNITS
We reserve the right to split or combine the value of Variable Accumulation
Units, Fixed Accumulation Units, Annuity Units or any of them. In effecting any
such change of unit values, strict equity will be preserved and no change will
have a material effect on the benefits or other provisions of the Contract.
TAX CONSIDERATIONS
The Contracts are designed for use by retirement plans under the provisions
of Sections 401 and 408 (excluding Section 408(b)) of the Internal Revenue Code
(the "Code"). The ultimate effect of federal income taxes on the value of a
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 following discussion of the treatment of the Contracts and of the
Company under the federal income tax laws is general in nature, is based upon
the Company's understanding of current federal income tax laws, 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. A more
detailed discussion of the federal tax status of the Contracts is contained in
the Statement of Additional Information. Any person contemplating the purchase
of a Contract should consult a qualified tax adviser. THE COMPANY DOES NOT MAKE
18
<PAGE>
ANY GUARANTEE REGARDING ANY TAX STATUS, FEDERAL, STATE OR LOCAL, OF ANY CONTRACT
OR ANY TRANSACTION INVOLVING THE CONTRACTS.
TAX TREATMENT OF THE COMPANY
Under existing federal income tax laws, the income of the Variable Account,
to the extent that it is applied to increase reserves under the Contracts, is
not taxable to the Company.
TAXATION OF ANNUITIES IN GENERAL
The Contracts are designed for use in connection with retirement plans. All
or a portion of the contributions to such plans will be used to make Purchase
Payments under the Contracts. Generally, no tax is imposed on the increase in
the value of a Contract until a distribution occurs. Monthly annuity payments
made as retirement distributions, and lump-sum payments or cash withdrawals
(when permitted by the applicable retirement plan) under a Contract are
generally taxable to the Annuitant as ordinary income to the extent that such
payments are not deemed to come from the Owner's previously taxed investment in
the Contract. Distributions made prior to age 59 1/2 generally are subject to a
10% penalty tax, although this tax will not apply in certain circumstances.
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.
In certain circumstances, the Company is required to withhold and remit to
the U.S. Government part of the taxable portion of each distribution made under
a Contract.
RETIREMENT PLANS
The Contracts are designed for use with the following types of qualified
retirement plans:
(1) Pension and Profit-Sharing Plans established by business employers and
certain associations, as permitted by Sections 401(a) and 401(k) of the Code,
including those purchasers who would have been covered under the
rules governing old H.R. 10 (Keogh) Plans; and
(2) Individual Retirement Accounts ("IRAs") permitted by Sections 219 and
408 of the Code (excluding IRAs established as "Individual Retirement Annuities"
under Section 408(b), but including Simplified Employee Pensions established by
employers pursuant to Section 408(k)) and Simple Retirement Accounts established
pursuant to Section 408(p)).
The tax rules applicable to participants in such retirement plans vary
according to the type of plan and its terms and conditions. Therefore, no
attempt is made herein to provide more than general information about the use of
the Contracts with the various types of retirement plans. Participants in such
plans as well as Owners, Annuitants, Payees and Beneficiaries are cautioned that
the rights of any person to any benefits under these plans are subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contracts. The Company will provide purchasers of Contracts
used in connection with IRAs with such supplemental information as may be
required by the Internal Revenue Service or other appropriate agency. Any person
contemplating the purchase of a Contract should consult a qualified tax adviser.
DISTRIBUTION OF THE CONTRACTS
The Contracts are 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 are distributed
by Clarendon Insurance Agency, Inc., One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02481, a wholly-owned subsidiary of our parent company Sun
Life Assurance Company of Canada (U.S.). We will pay commissions and other
distribution expense that will not be more than 5.31% of the Purchase Payments.
19
<PAGE>
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Variable Account. We
are engaged in various kinds of routine litigation which, in management's
opinion, is not material with respect to the Variable Account.
OWNER INQUIRIES
All Owner inquiries should be directed to us at our Service Address.
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
General Information
Annuity Provisions
Other Contract Provisions
Tax Considerations
Administration of the Contracts
Distribution of the Contracts
Accountants
Financial Statements
Appendix A -- The Fixed Account
Appendix B -- Illustrative Examples of Calculation of
Variable Accumulation Unit Value, Variable Annuity Unit
Value and Variable Annuity Payment
Appendix C -- Withdrawals and Withdrawal Charges
</TABLE>
20
<PAGE>
This Prospectus sets forth information about the Contracts and the Variable
Account that a prospective purchaser should know before investing. Additional
information about the Contracts and the Variable Account has been filed with the
Securities and Exchange Commission in a Statement of Additional Information
dated May 1, 2000 which is incorporated herein by reference. The Statement of
Additional Information is available upon request and without charge from Sun
Life Insurance and Annuity Company of New York. To receive a copy, return this
request form to the address shown below or telephone (800) 447-7569.
- --------------------------------------------------------------------------------
To: Sun Life Insurance and Annuity Company of New York
P.O. Box 9141
Boston, Massachusetts 02117
Please send me a Statement of Additional Information for
Compass I-Sun Life (N.Y.) Variable Account A.
Name
------------------------------------------
Address
------------------------------------------
------------------------------------------
City State Zip
------------------ ------- -------------
Telephone
--------------------------------------------
21
<PAGE>
PROSPECTUS [LOGO]
MAY 1, 2000
COMBINATION FIXED/VARIABLE
ANNUITY FOR QUALIFIED
RETIREMENT PLANS
ISSUED IN CONNECTION
WITH SUN LIFE (N.Y.)
VARIABLE ACCOUNT A
CO1NY-1 5/2000
ISSUED BY
SUN LIFE INSURANCE AND ANNUITY COMPANY OF
NEW YORK
P.O. Box 9141
Boston, Massachusetts 02117
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley, Massachusetts 02481
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION
Attached hereto and made a part hereof is a Statement of Additional
Information dated May 1, 2000.
<PAGE>
Rule 497(c)
File No. 2-95002
811-04184
MAY 1, 2000
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
Tax Considerations........................................................ 4
Administration of the Contracts........................................... 5
Distribution of the Contracts............................................. 6
Accountants............................................................... 6
Financial Statements...................................................... 7
Appendix A -- The Fixed Account........................................... 34
Appendix B -- Illustrative Examples of Calculation of Variable
Accumulation Unit Value, Variable Annuity Unit Value and Variable Annuity
Payments................................................................. 36
Appendix C -- Withdrawals and Withdrawal Charges.......................... 37
</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, 2000. This Statement of Additional Information should be
read in conjunction with the Prospectus, a copy of which may be obtained without
charge from the Company by writing to Sun Life Insurance and Annuity Company of
New York, P.O. Box 9141, Boston, Massachusetts 02117 or by telephoning
(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 122 East 42nd Street, Suite 1900, New York,
New York 10017.
We are a wholly-owned subsidiary of Sun Life Assurance Company of Canada
(U.S.) ("Sun Life (U.S.)"), a stock life insurance company incorporated in
Delaware. Sun Life (U.S.) is an indirect wholly-owned subsidiary of Sun Life
Assurance Company of Canada ("Sun Life (Canada)"). Sun Life (Canada) completed
its demutualization on March 22, 2000. As a result of the demutualization, a
new holding company, Sun Life Financial Services of Canada Inc. ("Sun Life
Financial"), is now the ultimate parent of Sun Life (Canada) and the
Company. Sun Life Financial, a corporation organized in Canada, is a
reporting company under the Securities Exchange Act of 1934 with common
shares listed on the Toronto, New York, London, and Manila stock exchanges.
THE VARIABLE ACCOUNT
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 consists of all
assets of the Company other than those allocated to separate accounts 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 taxes 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 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
2
<PAGE>
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. The factor is 0.99989255 for a one
day Valuation Period.
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 Service 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 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 Individual
Retirement Account is established. If the Owner is furnished with such
disclosure statement before the seventh day preceding the date the Individual
Retirement Account is established, the Owner will not have any right of
revocation. If the disclosure statement is furnished after the seventh day
preceding the establishment of the Individual Retirement Account, then 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
Individual Retirement Account is in addition to the return privilege set
forth in the preceding paragraph. The Company will allow an Owner
establishing an Individual Retirement Account 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 or custodian 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 and regulations
governing the retirement or deferred compensation plans for which the
Contract may be
3
<PAGE>
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.
TAX CONSIDERATIONS
The Contracts 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. Legislation affecting the tax treatment of
annuity contracts could be enacted in the future, 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 federal income taxation, the Variable
Account is not separately taxable as a regulated investment company
4
<PAGE>
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 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 hardship distribution or distribution that is part
of a series of payments made for life or for a specified period of ten years
or more. Only the plan participant or the participant's spouse may elect to
roll over a distribution to an eligible retirement plan.
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,
then 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.
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 has entered into
service agreements with its parent, Sun Life Assurance Company of Canada (U.S.),
and with
5
<PAGE>
Sun Life Assurance Company of Canada under which the latter has 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 1997,
1998, and 1999, approximately $6,400, $3,104, and $0, respectively, was
paid to and retained by Clarendon in connection with the distribution of the
Contracts.
ACCOUNTANTS
Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts 02116,
are the Variable Account's independent auditors, providing auditing and other
professional services.
6
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
STATEMENT OF CONDITION
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES COST VALUE
---------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments in mutual funds:
Massachusetts Investors Trust ("MIT")* 65,030 $1,051,411 $1,362,427
Massachusetts Investors Growth Stock Fund ("MIG")* 55,322 838,495 1,124,864
MFS Total Return Fund ("MTR")* 138,280 2,107,623 1,919,204
MFS Growth Opportunities Fund ("MGO")* 12,012 182,370 229,109
MFS Research Fund ("MFR")* 13,378 286,137 386,066
MFS Bond Fund ("MFB")* 42,462 556,802 517,204
MFS Money Market Fund ("MCM")* 312,499 312,499 312,499
MFS Government Money Market Fund ("MCG")* 30,075 30,075 30,075
MFS High Income Fund ("MFH")* 38,216 198,733 190,589
MFS Global Governments Fund ("MGG")* 12,047 130,848 113,391
MFS Emerging Growth Fund ("MEG")* 14,953 481,900 995,693
-------------------------------
NET ASSETS $6,176,893 $7,181,121
===============================
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS APPLICABLE TO OWNERS OF DEFERRED UNITS UNIT VALUE VALUE
VARIABLE ANNUITY CONTRACTS: ---------------------------------------------
<S> <C> <C> <C>
MIT 19,051 $ 71.5754 $1,362,427
MIG 11,126 101.6219 1,124,864
MTR 42,572 46.5944 1,919,204
MGO 3,458 65.6784 229,109
MFR 5,909 65.3200 386,066
MFB 19,507 25.9887 517,204
MCM 18,016 17.3427 312,499
MCG 1,772 16.9721 30,075
MFH 6,600 29.3372 190,589
MGG 3,806 28.9030 113,391
MEG 9,211 109.1210 995,693
-------------
NET ASSETS $7,181,121
==============
</TABLE>
* Investments are made in Class A shares of the Fund.
See notes to financial statements.
7
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
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 $ 45,832 $ 84,410 $ 196,716 $ 26,623 $ 27,673 $ 37,036
Mortality and expense risk charges (19,002) (16,210) (28,447) (4,040) (5,926) (6,980)
--------- --------- --------- --------- --------- ---------
Net investment income (loss) 26,830 68,200 168,269 22,583 21,747 30,056
--------- --------- --------- --------- --------- ---------
Realized and unrealized gains
(losses):
Realized gains (losses) on
investment transactions:
Proceeds from sales 444,580 652,691 449,605 201,961 242,962 90,250
Cost of investments sold (242,931) (387,720) (394,819) (149,708) (145,063) (90,775)
--------- --------- --------- --------- --------- ---------
Net realized gains (losses) 201,649 264,971 54,786 52,253 97,899 (525)
--------- --------- --------- --------- --------- ---------
Net unrealized appreciation
(depreciation) on investments:
End of year 311,016 286,369 (188,419) 46,739 99,929 (39,598)
Beginning of year 465,059 271,399 9,139 62,543 139,939 8,313
--------- --------- --------- --------- --------- ---------
Change in unrealized
appreciation (depreciation) (154,043) 14,970 (197,558) (15,804) (40,010) (47,911)
--------- --------- --------- --------- --------- ---------
Realized and unrealized gains
(losses) 47,606 279,941 (142,772) 36,449 57,889 (48,436)
--------- --------- --------- --------- --------- ---------
Increase (Decrease) in net assets
from operations $ 74,436 $ 348,141 $ 25,497 $ 59,032 $ 79,636 $ (18,380)
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
MCM MCG MFH MGG MEG
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income and expenses:
Dividend income and capital gain
distributions received $ 13,520 $ 1,245 $ 21,437 $ 10,794 $ 4,789
Mortality and expense risk charges (3,799) (374) (3,017) (2,099) (12,460)
--------- --------- --------- --------- ---------
Net investment income (loss) 9,721 871 18,420 8,695 (7,671)
--------- --------- --------- --------- ---------
Realized and unrealized gains
(losses):
Realized gains (losses) on
investment transactions:
Proceeds from sales 246,495 2,556 94,437 77,483 496,176
Cost of investments sold (246,495) (2,556) (90,872) (85,483) (212,171)
--------- --------- --------- --------- ---------
Net realized gains (losses) -- -- 3,565 (8,000) 284,005
--------- --------- --------- --------- ---------
Net unrealized appreciation
(depreciation) on investments:
End of year -- -- (8,144) (17,457) 513,793
Beginning of year -- -- (456) (8,819) 436,161
--------- --------- --------- --------- ---------
Change in unrealized
appreciation (depreciation) -- -- (7,688) (8,638) 77,632
--------- --------- --------- --------- ---------
Realized and unrealized gains
(losses) -- -- (4,123) (16,638) 361,637
--------- --------- --------- --------- ---------
Increase (Decrease) in net assets
from operations $ 9,721 $ 871 $ 14,297 $ (7,943) $ 353,966
========= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
8
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
MIT MIG MTR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 26,830 $ 71,748 $ 68,200 $ 82,665 $ 168,269 $ 339,350
Net realized gains (losses) 201,649 75,505 264,971 24,916 54,786 320,975
Net unrealized gains (losses) (154,043) 131,349 14,970 184,814 (197,558) (396,689)
---------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in net assets from
operations 74,436 278,602 348,141 292,395 25,497 263,636
---------- ---------- ---------- ---------- ---------- ----------
Contract Owner Transactions:
Accumulation Activity:
Purchase payments received 31,674 66,096 13,888 22,531 11,466 28,124
Net transfers between Sub-Accounts
and Fixed Accounts (53,038) 58,862 73,789 263,215 (91,840) (8,578)
Withdrawals, surrenders and account fees (310,146) (135,666) (518,546) (66,695) (316,540) (756,937)
---------- ---------- ---------- ---------- ---------- ----------
Net contract owner activity (331,510) (10,708) (430,869) (219,051) (396,914) (737,391)
---------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in net assets (257,074) 267,894 (82,728) 511,446 (371,417) (473,755)
Net Assets:
Beginning of year 1,619,501 1,351,607 1,207,592 696,146 2,290,621 2,764,376
---------- ---------- ---------- ---------- ---------- ----------
End of year $1,362,427 $1,619,501 $1,124,864 $1,207,592 $1,919,204 $2,290,621
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MGO MFR MFB
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 22,583 $ 32,663 $ 21,747 $ 13,193 $ 30,056 $ 34,726
Net realized gains (losses) 52,253 10,930 97,899 25,727 (525) 9,946
Net unrealized gains (losses) (15,804) 27,444 (40,010) 54,551 (47,911) (23,317)
---------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in net assets from
operations 59,032 71,037 79,636 93,471 (18,380) 21,355
---------- ---------- ---------- ---------- ---------- ----------
Contract Owner Transactions:
Accumulation Activity:
Purchase payments received 4,625 4,092 8,668 17,561 17,484 47,843
Net transfers between Sub-Accounts
and Fixed Accounts 18,954 37,874 (60,889) 36,184 (16,575) (125,568)
Withdrawals, surrenders and account fees (198,135) (28,036) (174,779) (51,835) (49,486) (42,901)
---------- ---------- ---------- ---------- ---------- ----------
Net contract owner activity (174,556) 13,930 (227,000) 1,910 (48,577) (120,626)
---------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in net assets (115,524) 84,967 (147,364) 95,381 (66,957) (99,271)
Net Assets:
Beginning of year 344,633 259,666 533,430 438,049 584,161 683,432
---------- ---------- ---------- ---------- ---------- ----------
End of year $ 229,109 $ 344,633 $ 386,066 $ 533,430 $ 517,204 $ 584,161
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS - (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
MCM MCG MFH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (expense) $ 9,721 $ 8,684 $ 871 $ 2,431 $ 18,420 $ 23,288
Net realized gains (losses) -- -- -- -- 3,565 9,871
Net unrealized gains (losses) -- -- -- -- (7,688) (28,392)
---------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in net assets from
operations 9,721 8,684 871 2,431 14,297 4,767
---------- ---------- ---------- ---------- ---------- ----------
Contract Owner Transactions:
Accumulation Activity:
Purchase payments received 3,714 21,471 1,823 12,068 1,417 1,602
Net transfers between Sub-Accounts
and Fixed Accounts 235,544 (17,337) -- (54,219) -- (44,464)
Withdrawals, surrenders and account fees (171,604) (58,356) (2,194) (1,371) (89,058) (65,615)
---------- ---------- ---------- ---------- ---------- ----------
Net contract owner activity 67,654 (54,222) (371) (43,522) (87,641) (108,477)
---------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in net assets 77,375 (45,538) 500 (41,091) (73,344) (103,710)
Net Assets:
Beginning of year 235,124 280,662 29,575 70,666 263,933 367,643
---------- ---------- ---------- ---------- ---------- ----------
End of year $ 312,499 $ 235,124 $ 30,075 $ 29,575 $ 190,589 $ 263,933
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MGG MEG
SUB-ACCOUNT SUB-ACCOUNT
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Net investment income (expense) $ 8,695 $ 8,932 $ (7,671) $ (3,260)
Net realized gains (losses) (8,000) (20,855) 284,005 116,553
Net unrealized gains (losses) (8,638) 21,466 77,632 101,810
---------- ---------- ---------- ----------
Increase (Decrease) in net assets from
operations (7,943) 9,543 353,966 215,103
---------- ---------- ---------- ----------
Contract Owner Transactions:
Accumulation Activity:
Purchase payments received 1,976 5,054 19,249 28,961
Net transfers between Sub-Accounts
and Fixed Accounts (24,901) (112,998) (92,844) (57,971)
Withdrawals, surrenders and account fees (49,021) (81,997) (348,108) (109,475)
---------- ---------- ---------- ----------
Net contract owner activity (71,946) (189,941) (421,703) (138,485)
---------- ---------- ---------- ----------
Increase (Decrease) in net assets (79,889) (180,398) (67,737) 76,618
Net Assets:
Beginning of year 193,280 373,678 1,063,430 986,812
---------- ---------- ---------- ----------
End of year $ 113,391 $ 193,280 $ 995,693 $1,063,430
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
10
<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%.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(4) UNIT ACTIVITY FROM PARTICIPANT TRANSACTIONS
<TABLE>
<CAPTION>
MIT MIG MTR
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year 23,908 24,219 16,336 13,024 51,043 67,638
Units purchased 483 1,019 178 360 261 565
Units transferred between Sub-Accounts
and Fixed Accounts (790) 941 1,062 3,998 (1,973) (214)
Units withdrawn and surrendered (4,550) (2,271) (6,450) (1,046) (6,759) (16,946)
---------- ---------- ---------- ---------- ---------- ----------
Units outstanding, end of year 19,051 23,908 11,126 16,336 42,572 51,043
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MGO MFR MFB
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year 6,850 6,582 9,981 9,945 21,362 25,870
Units purchased 86 93 161 362 682 1,799
Units transferred between Sub-Accounts
and Fixed Accounts 377 793 (1,097) 738 (660) (4,699)
Units withdrawn and surrendered (3,855) (618) (3,136) (1,064) (1,877) (1,608)
---------- ---------- ---------- ---------- ---------- ----------
Units outstanding, end of year 3,458 6,850 5,909 9,981 19,507 21,362
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MCM MCG MFH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of year 14,005 17,324 1,795 4,440 9,605 13,294
Units purchased 219 1,313 109 734 47 58
Units transferred between Sub-Accounts
and Fixed Accounts 13,760 (1,077) -- (3,295) -- (1,518)
Units withdrawn and surrendered (9,968) (3,555) (132) (84) (3,052) (2,229)
---------- ---------- ---------- ---------- ---------- ----------
Units outstanding, end of year 18,016 14,005 1,772 1,795 6,600 9,605
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MGG MEG
SUB-ACCOUNT SUB-ACCOUNT
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Units outstanding, beginning of year 6,258 12,546 14,523 16,548
Units purchased 90 177 273 452
Units transferred between Sub-Accounts
and Fixed Accounts (873) (3,735) (1,235) (815)
Units withdrawn and surrendered (1,669) (2,730) (4,350) (1,662)
---------- ---------- ---------- ----------
Units outstanding, end of year 3,806 6,258 9,211 14,523
========== ========== ========== ==========
</TABLE>
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Participants 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 Massachusetts
Investors Trust Sub-Account, Massachusetts Investors Growth Fund Sub-Account,
MFS Total Return Sub-Account, MFS Growth Opportunities Sub-Account, MFS
Research Sub-Account, MFS Bond Sub-Account, MFS Money Market Sub-Account, MFS
Government Money Market Sub-Account, MFS High Income Sub-Account, MFS Global
Governments Sub-Account, and MFS Emerging Growth Sub-Account of Sun Life of
Canada (N.Y.) Variable Account A (the "Sub-Accounts") as of December 31,
1999, the related statement of operations for the year then ended, and the
statements of changes in net assets for the years ended December 31, 1999 and
1998. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities held as of December 31,
1999 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Sub-Accounts as of December 31, 1999,
the results of 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 10, 2000
14
<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
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
Bonds $ 59,215,128 $ 57,916,869
Mortgage loans on real estate 8,659,610 17,657,672
Properties acquired in satisfaction of debt -- 1,755,854
Policy loans 537,976 625,023
Cash and short-term investments 6,261,102 5,928,556
Life insurance premiums and annuity considerations due
and uncollected 2,168,135 667,087
Accident and health premiums due and unpaid 579,460 156,493
Receivable from parent and affiliates 621,625 --
Investment income due and accrued 795,075 780,020
Federal income tax recoverable 520,467 --
Other assets 235,655 183,602
------------ ------------
General account assets 79,594,233 85,671,176
Separate account assets
Unitized 632,350,720 527,942,310
Non-unitized 94,061,504 100,064,243
------------ ------------
Total admitted assets $806,006,457 $713,677,729
============ ============
LIABILITIES
Aggregate reserve for life policies and contracts $ 21,762,306 $ 22,578,780
Aggregate reserve for accident and health policies 9,251,000 7,830,000
Policy and contract claims 2,182,472 2,174,704
Liability for premium and other deposit funds 18,048,656 20,807,840
Interest maintenance reserve 553,770 830,941
Commissions to agents due or accrued 449,213 374,826
General expenses due or accrued 580,432 369,524
Transfers from Separate Accounts due or accrued (17,043,885) (15,992,081)
Taxes, licenses and fees due or accrued 100,000 64,813
Federal income taxes due or accrued -- 700,000
Asset valuation reserve 1,210,107 1,047,787
Payable to parent, subsidiaries, and affiliates -- 1,218,745
Other liabilities 1,353,930 684,361
------------ ------------
General account liabilities 38,448,001 42,690,240
Separate account liabilities:
Unitized 632,150,968 527,751,720
Non-unitized 94,061,504 100,064,243
------------ ------------
Total liabilities 764,660,473 670,506,203
------------ ------------
CAPITAL STOCK AND SURPLUS
Common capital stock 2,000,000 2,000,000
------------ ------------
Gross paid in and contributed surplus 29,500,000 29,500,000
Group life contingency reserve fund 1,035,323 812,391
Unassigned funds 8,810,661 10,859,135
------------ ------------
Total surplus 39,345,984 41,171,526
------------ ------------
Capital stock and surplus 41,345,984 43,171,526
------------ ------------
Total Liabilities, Capital Stock and Surplus $806,006,457 $713,677,729
============ ============
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
15
<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
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 19,152,409 $ 16,979,974 $ 16,013,160
Deposit-type funds 39,510,208 84,013,114 115,692,429
Net investment income 5,170,881 6,397,852 8,824,668
Amortization of interest maintenance
reserve 254,220 319,812 519,001
Net gain from operations from
Separate Accounts 9,162 9,115 8,743
Income from fees associated with
investment management,
administration and contract
guarantees from Separate Accounts 7,470,958 6,262,374 4,707,296
Other income 938,657 1,179,261 657,755
------------ ------------ ------------
Total Income 72,506,495 115,161,502 146,423,052
------------ ------------ ------------
BENEFITS AND EXPENSES:
Death benefits 7,357,222 6,237,281 4,916,746
Annuity benefits 5,238,282 5,758,805 5,439,091
Disability benefits and benefits
under accident and health policies 1,351,989 1,094,851 939,635
Surrender benefits and other fund
withdrawals 59,018,693 73,863,143 79,016,904
Interest on policy or contract funds 82,760 101,516 75,069
Increase in aggregate reserves for
life and accident and health
policies and contracts 604,526 620,154 5,199,040
Decrease in liability for premium
and other deposit funds (2,759,184) (10,533,414) (30,405,893)
------------ ------------ ------------
Total Benefits 70,894,288 77,142,336 65,180,592
Commissions on premiums and annuity
considerations (direct business
only) 4,712,712 4,850,390 5,582,738
General insurance expenses 6,372,100 7,017,562 7,687,478
Insurance taxes, licenses and fees,
excluding federal income taxes 742,992 709,440 788,386
Net transfers to (from) Separate
Accounts (16,002,095) 16,673,071 61,695,832
------------ ------------ ------------
Total Benefits and Expenses 66,719,997 106,392,799 140,935,026
------------ ------------ ------------
Net gain from operations before
federal income taxes 5,786,498 8,768,703 5,488,026
Federal income taxes incurred
(excluding tax on capital gains) 1,228,004 2,070,545 2,315,259
------------ ------------ ------------
Net gain from operations after
federal income taxes and before
realized capital gains 4,558,494 6,698,158 3,172,767
Net realized capital (losses) gains
less capital gains tax and
transferred to the interest
maintenance reserve 151,678 (13,249) 183,262
------------ ------------ ------------
NET INCOME $ 4,710,172 $ 6,684,909 $ 3,356,029
============ ============ ============
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
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 CHANGES IN CAPITAL STOCK AND SURPLUS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Capital and surplus, Beginning of year $43,171,526 $38,781,183 $34,802,643
----------- ----------- -----------
Net income 4,710,172 6,684,909 3,356,029
Change in net unrealized capital gains -- 359,000 138,000
Change in nonadmitted assets and related
items 126,606 47,886 (14,391)
Change in asset valuation reserve (162,320) 298,548 498,902
Dividend to stockholder (6,500,000) (3,000,000) --
----------- ----------- -----------
Net change in capital and surplus for
the year (1,825,542) 4,390,343 3,978,540
----------- ----------- -----------
Capital and surplus, End of year $41,345,984 $43,171,526 $38,781,183
=========== =========== ===========
</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 CASH FLOW
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Provided:
Premiums, annuity considerations and
deposit funds received $ 57,235,427 $101,168,181 $138,347,877
Net investment income 5,324,547 6,731,025 9,707,801
Fees associated with investment management,
administration and contract guarantees
from Separate Accounts 7,470,958 6,262,374 4,707,296
Fee income 938,659 1,179,261 657,755
------------ ------------ ------------
Total receipts 70,969,591 115,340,841 153,420,729
------------ ------------ ------------
Benefits paid 73,041,178 86,793,629 122,170,301
Insurance expenses and taxes paid 11,229,543 12,819,426 13,540,362
Net cash transfers to (from) Separate
Accounts (14,950,291) 25,441,094 41,721,173
Federal income tax payments (excluding tax
on capital gains) 1,928,000 2,370,545 1,715,259
------------ ------------ ------------
Total payments 71,248,430 127,424,694 179,147,095
------------ ------------ ------------
Net cash used in operations (278,839) (12,083,853) (25,726,366)
------------ ------------ ------------
Proceeds from long-term investments sold,
matured or repaid (after deducting taxes
on capital gains of $81,675 for 1999,
$135,651 for 1998 and $222,860 for 1997) 47,042,986 37,410,774 59,132,310
Other cash provided 717,427 813,054 325,543
------------ ------------ ------------
Total cash provided 47,760,413 38,223,828 59,457,853
------------ ------------ ------------
Cash Applied:
Cost of long-term investments acquired (37,498,243) (26,671,265) (27,369,138)
Other cash applied (9,650,785) (3,660,391) (857,106)
------------ ------------ ------------
Total cash applied (47,149,028) (30,331,656) (28,226,244)
Net change in cash and short-term investments 332,546 (4,191,681) 5,505,243
Cash and short-term investments:
Beginning of year 5,928,556 10,120,237 4,614,994
------------ ------------ ------------
End of year $ 6,261,102 $ 5,928,556 $ 10,120,237
============ ============ ============
</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.))
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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, group life and group long-term
disability insurance. The parent company, Sun Life Assurance Company of Canada
(U.S.) ("Sun Life (U.S.)"), is ultimately a wholly-owned subsidiary of Sun Life
Assurance Company of Canada ("SLOC)"), 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 State of New York Insurance Department. Prescribed accounting
practices include practices described in a variety of publications of the
National Association of Insurance Commissioners ("NAIC"), as well as state laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles ("GAAP") for mutual life insurance companies and stock life insurance
companies wholly owned by mutual life insurance companies. In April 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation") that became effective in 1996, which 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 17 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 forty to fifty
years.
POLICY AND CONTRACT RESERVES
The reserves for life insurance and annuity contracts are computed in accordance
with presently accepted actuarial standards, and are based on actuarial
assumptions and methods (including use of
19
<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, 1999, 1998 AND 1997
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
published mortality tables and prescribed interest rates) which produce reserves
at least as great as those required by law and contract provisions.
INCOME AND EXPENSES
For 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.
SEPARATE ACCOUNTS
The Company has established unitized separate accounts applicable to individual
qualified and nonqualified variable annuity contracts.
The Company has also established a nonunitized separate account for amounts
allocated to the fixed portion of a certain combination fixed/variable deferred
annuity contracts. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders, are shown as separate captions in the financial statements.
Assets held in the separate accounts are carried at market value as determined
by the quoted market prices of the underlying investments.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, and accrued expense
allowances recognized in reserves are receivable from or payable to the general
account. Accumulated amounts that have not been transferred are recorded as
payable (receivable) to (from) the general account. Transfers from separate
accounts due or accrued amounted to $17,044,000 in 1999 and $15,992,000 in 1998.
CHANGES IN ACCOUNTING PRINCIPLES AND REPORTING
In March 1998, the National Association of Insurance Commissioners adopted the
Codification of Statutory Accounting Principles ("Codification"). The
Codification, which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be effective January 1,
2001. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices and it is uncertain when, or
if, the State of New York will require adoption of the Codification for the
preparation of statutory financial statements. The Company has not finalized the
quantification of the effects of Codification on its statutory financial
statements.
OTHER
Preparation of the financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to amounts as
presented in the current year.
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 (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. BONDS
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN 000'S)
<S> <C> <C> <C> <C>
Long-term bonds:
United States Government and government
agencies and authorities $ 6,148 $13 $ (171) $ 5,990
Public utilities 8,765 7 (391) 8,381
Transportation 3,521 -- (16) 3,505
Finance 7,742 -- (183) 7,559
All other corporate bonds 33,039 69 (1,379) 31,729
------- --- ------- -------
Total long-term bonds 59,215 89 (2,140) 57,164
Short-term bonds -- U.S. Treasury Bills, bankers
acceptances and commercial paper 6,958 -- -- 6,958
------- --- ------- -------
Total bonds $66,173 $89 $(2,140) $64,122
======= === ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------
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 $16,153 $ 319 $(31) $16,441
Public utilities 11,353 213 (16) 11,550
Transportation 2,553 19 -- 2,572
Finance 6,260 122 (9) 6,373
All other corporate bonds 21,598 430 (37) 21,991
------- ------ ---- -------
Total long-term bonds 57,917 1,103 (93) 58,927
Short-term bonds -- U.S. Treasury Bills, bankers
acceptances and commercial paper 5,258 -- -- 5,258
------- ------ ---- -------
Total bonds $63,175 $1,103 $(93) $64,185
======= ====== ==== =======
</TABLE>
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, 1999, 1998 AND 1997
2. BONDS (CONTINUED):
The amortized cost and estimated fair value of debt securities at December 31,
1999 are shown below by contractual maturity.Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call and/or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(IN 000'S)
<S> <C> <C>
Maturities are:
Due in one year or less $12,010 $12,001
Due after one year through five years 21,833 21,766
Due after five years through ten years 19,002 17,447
Due after ten years 6,211 5,873
------- -------
Subtotal 59,056 57,087
Mortgage-backed securities 7,117 7,035
------- -------
Total bonds $66,173 $64,122
======= =======
</TABLE>
Proceeds from sales and maturities of investments in debt securities during
1999, 1998 and 1997 were $35,978,000, $29,068,000 and $42,986,000, gross gains
of $192,000, $407,000 and $395,000 and gross losses of $395,000, $2,000 and
$40,000, respectively.
A bond, included above, with an amortized cost of approximately $405,000 and
$404,000 at December 31, 1999 and 1998, respectively, was on deposit with the
Superintendent of Insurance of the State of New York as required by law.
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 geographical distribution of the mortgage loan
portfolio at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN 000'S)
<S> <C> <C>
California $ 582 $ 3,421
Florida 733 777
Massachusetts -- 1,090
New York 1,413 2,868
Ohio 1,271 1,291
All other 4,661 8,211
------ -------
$8,660 $17,658
====== =======
</TABLE>
As of December 31, 1999 and 1998, the Company had no restructured mortgage
loans.
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, 1999, 1998 AND 1997
3. MORTGAGE LOANS (CONTINUED):
The Company has no outstanding mortgage loan commitments on real estate.
4. INVESTMENT GAINS (LOSSES)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(IN 000'S)
<S> <C> <C> <C>
Realized capital gains (losses):
Bonds $ 2 $ 7 $(99)
Mortgage loans (27) (8) (6)
Real estate 177 (12) 288
---- ---- ----
$152 $(13) $183
==== ==== ====
Changes in unrealized capital gains on mortgage loans $-- $359 $138
==== ==== ====
</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 net realized capital gains (losses)
credited to the IMR were $(35,000), $408,000 and $355,000 in 1999, 1998 and
1997, respectively. All gains are transferred net of applicable income taxes.
5. NET INVESTMENT INCOME
Net investment income consisted:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN 000'S)
<S> <C> <C> <C>
Interest income from bonds $4,108 $4,570 $5,622
Interest income from mortgage loans 1,370 1,926 3,279
Real estate investment income -- 22 483
Other investment income 43 125 170
------ ------ ------
Gross investment income 5,521 6,643 9,554
Investment expenses 350 245 729
------ ------ ------
Net investment income $5,171 $6,398 $8,825
====== ====== ======
</TABLE>
6. REINSURANCE
The Company has agreements with SLOC which provide that SLOC 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 SLOC will reinsure the
mortality risks in excess of $50,000 per policy for group life insurance
contracts and $4,000 per policy per month for the group long-term disability
contracts ceded by the Company. For the years ended December 31, 1998 and 1997,
the agreements provided that SLOC would reinsure $3,000 per policy per month for
the group long-
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, 1999, 1998 AND 1997
6. REINSURANCE (CONTINUED):
term disability contracts ceded by the Company. Reinsurance transactions under
these agreements had the effect of increasing (decreasing) income from
operations by $(169,000), $(771,000) and $139,000 for the years ended
December 31, 1999, 1998, and 1997, respectively.
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 pro forma results of operations of the Company for
the years ended December 31, 1999, 1998 and 1997 before the effect of
reinsurance transactions with SLOC:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN 000'S)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other revenues $71,099 $105,728 $142,915
Net investment income and realized gains 5,323 6,718 9,343
------- -------- --------
Subtotal 76,422 112,446 152,258
------- -------- --------
Benefits and expenses:
Policyholder benefits 74,539 79,918 101,371
Other expenses (4,225) 22,988 45,538
------- -------- --------
Subtotal 70,314 102,906 146,909
------- -------- --------
Income from operations $ 6,108 $ 9,540 $ 5,349
======= ======== ========
</TABLE>
The Company is contingently liable for the portion of the policies reinsured
under each of its existing reinsurance agreements in the event SLOC is unable to
pay their portion of any reinsured claim. Management believes that any liability
from this contingency is unlikely.
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, 1999, 1998 AND 1997
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, 1999
---------------------
AMOUNT % OF TOTAL
-------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal with adjustment:
With market value adjustment $ 90,735 12.2
At book value less surrender charges (surrender charge >
5%) 6,221 0.8
At book value (minimal or no charge or adjustment) 626,008 84.1
Not subject to discretionary withdrawal provision 21,252 2.9
-------- -----
Total annuity actuarial reserves and deposit liabilities $744,216 100.0
======== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------
AMOUNT % OF TOTAL
-------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment $ 98,744 15.2
At book value less surrender charges (surrender charge >
5%) 7,108 1.1
At book value (minimal or no charge or adjustment) 523,814 80.5
Not subject to discretionary withdrawal provision 20,709 3.2
-------- -----
Total annuity actuarial reserves and deposit liabilities $650,375 100.0
======== =====
</TABLE>
8. SEGMENT INFORMATION
The Company offers financial products and services such as fixed and variable
annuities, group life insurance and group long-term disability protection.
Within these areas, the Company conducts business principally in two operating
segments and maintains a corporate segment to provide for the capital needs of
the various operating segments and to engage in other financing related
activities.
The Wealth Management segment markets and administers individual variable and
fixed annuity products, including market value adjusted annuities, while the
Protection segment markets and administers group life insurance and group
long-term disability products.
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, 1999, 1998 AND 1997
8. SEGMENT INFORMATION (CONTINUED):
The following amounts pertain to the various business segments:
<TABLE>
<CAPTION>
FEDERAL TOTAL
TOTAL TOTAL PRETAX INCOME GENERAL ACCOUNT
REVENUES EXPENDITURES INCOME TAXES ASSETS
------------ ------------ ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
1999:
Wealth Management $ 53,466,000 $ 50,636,000 $ 2,830,000 $ 155,000 $ 37,356,000
Protection 16,550,000 15,914,000 636,000 237,000 17,025,000
Corporate 2,490,000 170,000 2,320,000 836,000 25,213,000
------------ ------------ ----------- ---------- ------------
Total: $ 72,506,000 $ 66,720,000 $ 5,786,000 $1,228,000 $ 79,594,000
============ ============ =========== ========== ============
1998:
Wealth Management 97,936,000 92,889,000 5,047,000 449,000 36,148,000
Protection 15,155,000 13,251,000 1,904,000 654,000 14,685,000
Corporate 2,071,000 253,000 1,818,000 968,000 34,838,000
------------ ------------ ----------- ---------- ------------
Total: $115,162,000 $106,393,000 $ 8,769,000 $2,071,000 $ 85,671,000
============ ============ =========== ========== ============
1997:
Wealth Management 130,926,000 127,120,000 3,806,000 1,803,000 43,799,000
Protection 12,623,000 13,791,000 (1,168,000) (406,000) 10,706,000
Corporate 2,874,000 24,000 2,850,000 918,000 46,273,000
------------ ------------ ----------- ---------- ------------
Total: $146,423,000 $140,935,000 $ 5,488,000 $2,315,000 $100,778,000
============ ============ =========== ========== ============
</TABLE>
9. RETIREMENT PLANS
The Company participates with SLOC and Sun Life (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; currently the plan is
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of
separate accounts of SLOC.
The Company's share of the group's accrued pension cost at December 31, 1999,
1998 and 1997 was $338,000, $275,000 and $211,000, respectively. The Company's
share of net periodic pension cost was $63,000, $65,000 and $33,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
The Company also participates with SLOC, Sun Life (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.
Company contributions were $26,000, $30,000 and $28,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to pension benefits, the Company provides certain health, dental and
life insurance benefits ("postretirement 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
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, 1999, 1998 AND 1997
9. RETIREMENT PLANS (CONTINUED):
retire early upon satisfying an alternate age plus service condition. Life
insurance benefits are generally set at a fixed amount.
The Company records an accrual of the estimated cost of retiree benefit payments
during the years the employee provides services, and amortizes an obligation of
approximately $50,000 over a period of ten years. The Company's cash flows are
not affected by implementation of this standard, but implementation decreased
net income by $9,000, $6,000 and $16,000 for the years ended December 31, 1999,
1998 and 1997, respectively. The Company's postretirement health, dental and
life insurance benefits currently are not funded.
The following table sets forth the change in the pension and other
postretirement benefit plans' benefit obligations and assets as well as the
plans' funded status reconciled with the amount shown in the Company's statutory
financial statements at December 31:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN 000'S)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $110,792 $ 79,684 $ 10,419 $ 9,845
Service cost 5,632 4,506 413 240
Interest cost 6,952 6,452 845 673
Actuarial (gain) loss (21,480) 21,975 1,048 308
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Benefit obligation at end of year $ 99,520 $110,792 $ 12,217 $ 10,419
======== ======== ======== ========
The Company's share:
Benefit obligation at beginning of year $ 515 $ 269 $ 21 $ 89
Benefit obligation at end of year 577 515 30 21
Change in plan assets:
Fair value of plan assets at beginning of year $151,575 $136,610 $ -- $ --
Actual return on plan assets 9,072 16,790 -- --
Employer contribution -- -- 508 647
Benefits paid (2,376) (1,825) (508) (647)
-------- -------- -------- --------
Fair value of plan assets at end of year $158,271 $151,575 $ -- $ --
======== ======== ======== ========
Funded status $ 58,752 $ 40,783 $(12,217) $(10,419)
Unrecognized net actuarial gain (loss) (20,071) (2,113) 1,469 586
Unrecognized transition obligation (asset) (22,617) (24,674) 140 185
Unrecognized prior service cost 7,081 7,661 -- --
-------- -------- -------- --------
Prepaid (accrued) benefit cost $ 23,145 $ 21,657 $(10,608) $ (9,648)
======== ======== ======== ========
</TABLE>
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, 1999, 1998 AND 1997
9. RETIREMENT PLANS (CONTINUED):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN 000'S)
<S> <C> <C> <C> <C>
The Company's share of accrued
benefit cost $ (338) $ (275) $ (50) $ (41)
======== ======== ======= =======
Weighted-average assumptions as of
December 31:
Discount rate 7.50% 6.75% 7.50% 6.75%
Expected return on plan assets 8.75% 8.00% N/A N/A
Rate of compensation increase 4.50% 4.50% N/A N/A
Components of net periodic benefit cost:
Service cost $ 5,632 $ 4,506 $ 413 $ 239
Interest cost 6,952 6,452 845 673
Expected return on plan assets (12,041) (10,172) -- --
Amortization of transition obligation (asset) (2,056) (2,056) 45 45
Amortization of prior service cost 580 580 -- --
Recognized net actuarial (gain) loss (554) (677) 164 (20)
-------- -------- ------- -------
Net periodic benefit cost $ (1,487) $ (1,367) $ 1,467 $ 937
======== ======== ======= =======
The Company's share of net periodic
benefit cost $ 63 $ 65 $ 9 $ 6
======== ======== ======= =======
</TABLE>
For measurement purposes, a 10.9% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999 (5.6% for dental benefits).
The rates were assumed to decrease gradually to 5% for 2005 and remain at that
level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
(IN 000'S)
<S> <C> <C>
Effect on total of service and interest cost components $ 288 $ (518)
Effect on postretirement benefit obligation $2,754 $(2,279)
</TABLE>
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, 1999, 1998 AND 1997
10. FAIR VALUE OF FINANCIAL STATEMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
(IN 000'S)
<S> <C> <C> <C> <C>
ASSETS:
Bonds (including short-term) $66,173 $64,122 $63,175 $64,185
Mortgages 8,660 8,876 17,658 18,157
Policy loans 538 538 625 625
LIABILITIES:
Individual annuities $26,561 $25,696 $29,724 $29,212
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
by taking into account prices for publicly traded bonds of similar credit risk,
maturity, repayment and liquidity characteristics.
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
The fair values of policy loans approximate carrying amounts.
The fair values of the Company's general account insurance 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 fair value.
11. 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 Interest
Maintenance Reserve and amortized into income over the remaining contractual
life of the security sold.
29
<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, 1999, 1998 AND 1997
11. STATUTORY INVESTMENT VALUATION RESERVES (CONTINUED):
The table shown below presents changes in the major elements of the AVR and IMR:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
AVR IMR AVR IMR
-------- -------- -------- --------
(IN 000'S)
<S> <C> <C> <C> <C>
Balance, beginning of year $1,048 $831 $1,346 $886
Net realized capital (losses) gains, net of tax 152 (21) (13) 265
Amortization of net investment gains -- (256) -- (320)
Unrealized investment gains -- -- 359 --
Required by formula 10 -- (644) --
------ ---- ------ ----
Balance, end of year $1,210 $554 $1,048 $831
====== ==== ====== ====
</TABLE>
12. 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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance, January 1 $11,770 $10,239 $ 6,129
Claims incurred 10,700 8,491 9,008
Claims paid (8,751) (6,960) (4,898)
------- ------- -------
Balance, December 31 $13,719 $11,770 $10,239
======= ======= =======
</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, 1999 and 1998, the unpaid claims and claim adjustment
liability for these contracts is included in aggregate reserves.
13. FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return with Sun Life (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 (U.S.) of $2,521,000,
$2,506,000 and $1,938,000 during 1999, 1998 and 1997, respectively.
14. LEASE COMMITMENTS
Prior to 1999, the Company leased two separate facilities for its annuity
operations and group sales offices. Both leases commenced in March 1994. During
1999, the Company terminated its lease at its annuity operations facility as it
consolidated the functions performed at this facility with its parent company,
Sun Life (U.S.). The group sales office lease expired in July 1999 and was
renewed in August 1999 for a five year term. The total lease obligations are
$1,098,000 through the end of the lease term. Rent expense under these leases in
1999, 1998 and 1997 amounted to $426,000, $344,000, and $348,000, respectively.
30
<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, 1999, 1998 AND 1997
15. TRANSACTIONS WITH AFFILIATES
The Company has agreements with SLOC which provide that SLOC 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 $2,045,000 in 1999, $1,037,000 in 1998 and
$1,155,000 in 1997.
Cash dividends may be paid out of that part of the Company's available and
accumulated surplus funds, which was derived from realized net operating profits
of its business and realized capital gain. A cash dividend otherwise lawful may
be paid out of such earned surplus even though total surplus is at the time less
than previously contributed or paid-in surplus. No cash dividend shall be paid
to stockholder unless a notice of the intention of the Board of Directors to
declare such dividend and the amount thereof shall have been filed with the
Superintendent of Insurance of the State of New York not less than thirty days
in advance of such proposed declaration, nor if the Superintendent within thirty
days after such filing gives written notice to the Company of his disapproval of
such payment. Stock dividends may be paid out of any available surplus funds.
The maximum amount of dividends, which can be paid by the Company without prior
approval of the Insurance Commissioner of the State of New York, is subject to
restrictions relating to statutory surplus. A dividend in the amount of
$3,000,000 was declared and paid during 1998 by the Company to Sun Life (U.S.).
In 1999, a dividend in the amount of $6,500,000 was declared, approved by the
Board of Directors, and paid by the Company to Sun Life (U.S.).
16. RISK-BASED CAPITAL
Effective December 31, 1993, the NAIC adopted risk-based capital requirements
for life insurance companies. The risk-based capital requirements provide a
method for measuring the minimum acceptable amount of adjusted capital that a
life insurer should have, as determined under statutory accounting practices,
taking into account the risk characteristics of its investments and products.
The Company has met the minimum risk-based capital requirements at December 31,
1999 and 1998.
17. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, at the present time the
Company does not anticipate that the ultimate liability arising from such
pending or threatened litigation, after consideration of provisions made for
potential losses and costs of defense, will have a material adverse effect on
the financial condition or operating results of the Company.
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state insurance
guaranty associations for certain obligations of insolvent insurance companies
to policyholders and claimants. Recent regulatory actions against certain large
life insurers encountering financial difficulty have prompted various state
insurance guaranty associations to begin assessing life insurance companies for
the deemed losses. Most of these laws do provide, however, that an assessment
may be excused or deferred if it would threaten an insurer's solvency and
further provide annual limits on such assessments. Part of the assessments paid
by the Company and its subsidiaries pursuant to these laws may be used as
credits for a portion of the associated premium taxes.
31
<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, 1999, 1998 AND 1997
17. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED):
The Company incurred guaranty fund assessments of approximately $26,000,
$114,000, and $99,000 in 1999, 1998 and 1997, respectively.
18. 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.
Investments in fixed maturity securities classified as available-for-sale are
carried at aggregate fair value with changes in unrealized gains and losses
reported net of taxes in a separate component of stockholder's equity for GAAP
and generally at amortized cost under statutory accounting practices.
19. CONSOLIDATION OF CERTAIN OPERATIONS AND ACCOUNTING FUNCTIONS
Effective July 1, 1999, the Company consolidated its customer service and
accounting functions, formerly performed at its office at 80 Broad Street in New
York, New York, with its parent company, Sun Life (U.S.), based in Wellesley
Hills, Massachusetts. In 1999 the Company incurred one-time charges
approximating $800,000, which consisted primarily of: (1) severance and employee
benefit costs for 18 employees; (2) termination fee associated with canceling
its lease at its annuity operations facility; and (3) furniture and equipment
write-offs.
32
<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, 1999 and 1998, and the
related statutory statements of operations, changes in capital stock and
surplus, and cash flow for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 18 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 is a comprehensive basis of accounting other than generally accepted
accounting principles. The effects on the financial statements of the
differences between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be
material.
In our opinion, the 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, 1999 and 1998, and the results of its operations and its cash flow
for each of the three years in the period ended December 31, 1999 on the basis
of accounting described in Notes 1 and 18.
However, because of the differences between the two bases of accounting referred
to in the second preceding paragraph, in our opinion, the statutory financial
statements referred to above do not present fairly, in conformity with generally
accepted accounting principles, the financial position of Sun Life Insurance and
Annuity Company of New York as of December 31, 1999 and 1998 or the results of
its operations or its cash flow for each of the three years in the period ended
December 31, 1999.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 2000
33
<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 consists of those assets of the Company which are
allocated to a non-unitized separate account established in conformance with New
York law. 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
34
<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.
35
<PAGE>
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.
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).
36
<PAGE>
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 Contract 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 Contract Year 1 and $2,000 from Contract
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 Contract 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.
37
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY
OF NEW YORK
P.O. Box 9141
Boston, Massachusetts 02117
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116
CO1NY-1 5/2000
