<PAGE>
PROSPECTUS
MAY 1, 1998
COMPASS 2
The individual flexible payment deferred annuity contracts (the "Contracts")
offered by this Prospectus are designed for use in connection with personal
retirement plans, some of which qualify for federal income tax advantages
available under Sections 401, 403 or 408 of the Internal Revenue Code. The
Contracts are issued by Sun Life Insurance and Annuity Company of New York (the
"Company"). The Company's Annuity Service Mailing Address is 80 Broad Street,
New York, New York 10004.
The Owner of a Contract may elect to have Contract values accumulated on a
fixed basis in the Fixed Account (which is part of the Company's general account
and pays interest at a guaranteed fixed rate) or on a variable basis in Sun Life
(N.Y.) Variable Account B (the "Variable Account"), a separate account of the
Company, or divided among the Fixed Account and the Variable Account. The assets
of the Variable Account are divided into Sub-Accounts. Each Sub-Account uses its
assets to purchase, at net asset value, shares of a specific series of MFS/Sun
Life Series Trust (the "Series Fund"), a mutual fund registered under the
Investment Company Act of 1940. Shares of the Series Fund are issued in
twenty-six series each corresponding to an independent portfolio of securities.
Seven series are available as the investment medium for the Contracts: (1) Money
Market Series; (2) High Yield Series; (3) Capital Appreciation Series; (4)
Government Securities Series; (5) World Governments Series; (6) Total Return
Series; and (7) Managed Sectors Series. If the Owner elects certain forms of an
annuity as a retirement benefit, payments may be funded from either the Fixed
Account or the Variable Account or from both the Fixed Account and the Variable
Account. Contract values allocated to the Variable Account and annuity payments
elected on a variable basis will vary to reflect the investment performance of
the series of the Series Fund selected by the Owner.
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, 1998 which is incorporated herein by reference. The Statement of
Additional Information is available without charge from the Company upon written
request to the above address or by telephoning (212) 943-3855 or (800) 447-7569.
The Table of Contents for the Statement of Additional Information is shown on
page 21 of this Prospectus.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF THE
SERIES FUND.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
PAGE
Definitions 2
Synopsis 3
Expense Summary 4
Condensed Financial Information--Accumulation Unit Values 6
Performance Data 7
Financial Statements 7
A Word About the Company, the Variable Account and the
Series Fund 7
Purchase Payments and Contract Values During Accumulation
Period 9
Cash Withdrawals 10
Death Benefit 11
Contract Charges 13
Annuity Provisions 14
Other Contract Provisions 16
Federal Tax Status 18
Year 2000 Compliance 21
Distribution of the Contracts 21
Legal Proceedings 21
Owner Inquiries 21
Table of Contents for Statement of Additional Information 22
DEFINITIONS
The following terms as used in this Prospectus have the indicated meanings:
Accumulation Account: An account established for the Contract to which net
Purchase Payments are credited in the form of Accumulation Units.
Accumulation Unit: A unit of measure used 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 the first annuity payment is to be
made.
Annuity Unit: A unit of measure used 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.
Contract Years and Contract Anniversaries: The first Contract Year shall be the
period of 12 months plus a part of a month as measured from the date the
Contract is issued to the first day of the calendar month which follows the
calendar month of issue. All Contract Years and Contract Anniversaries
thereafter shall be 12 month periods based upon such first day of the calendar
month which follows the calendar month of issue.
Due Proof of Death: An original certified copy of an official death
certificate, or an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof satisfactory to the
Company.
Fixed Account: The Fixed Account consists of all assets of the Company other
than those allocated to separate accounts of the Company.
Fixed Annuity: An annuity with payments which do not vary as to dollar amount.
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Non-Qualified Contract: A Contract used in connection with a retirement plan
which does not receive favorable federal income tax treatment under Sections
401, 403 or 408 of the Internal Revenue Code of 1986, as amended (the "Code").
Such Contract must be owned by a natural person or agent for a natural person
for the Contract to receive favorable income tax treatment as an annuity.
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.
Payee: The recipient of payments under the Contract. The term may include an
Annuitant, a Beneficiary who becomes entitled to benefits upon the death of the
Annuitant or any person who is designated as the beneficiary of distributions
made as a result of the death of the Owner.
Purchase Payment (Payment): An amount paid to the Company by the Owner or on
the Owner's behalf as consideration for the benefits provided by the Contract.
Qualified Contract: A Contract used in connection with a retirement plan which
receives favorable federal income tax treatment under Sections 401, 403 or 408
of the Code.
Series Fund: MFS/Sun Life Series Trust.
Sub-Account: That portion of the Variable Account which invests in shares of a
particular series or sub-series of the Series 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 which vary as to dollar amount in
relation to the investment performance of specified Sub- Accounts of the
Variable Account.
SYNOPSIS
Purchase Payments are allocated to Sub-Accounts of the Variable Account or
to the Fixed Account or to both Sub-Accounts and the Fixed Account as selected
by the Owner. 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). Subject to certain conditions, during the accumulation period the Owner
may, without charge, transfer amounts among the Sub-Accounts and between the
Sub-Accounts and the Fixed Account (see "Transfers/Conversions of Accumulation
Units" on page 10).
No sales charge is deducted from Purchase Payments; however, if any portion
of a Contract's Accumulation Account is surrendered, the Company will, with
certain exceptions, deduct a 5% withdrawal charge (i.e., a contingent deferred
sales charge) to cover certain expenses relating to the sale of the Contracts. A
portion of the Accumulation Account may be withdrawn each year without the
assessment of a withdrawal charge, and after a Purchase Payment has been held by
the Company for five years it may be withdrawn without charge. Also, no
withdrawal charge is assessed upon annuitization or upon the
transfers/conversions described above (see "Cash Withdrawals" and "Withdrawal
Charges" on pages 10 and 13, respectively).
Special restrictions on withdrawals apply to Contracts used with
Tax-Sheltered Annuities established pursuant to Section 403(b) of the Code (see
"Section 403(b) Annuities" on page 11).
In addition, under certain circumstances withdrawals may result in tax
penalties (see "Federal Tax Status" on page 18).
In the event of the death of the Annuitant prior to the Annuity Commencement
Date, the Company will pay a death benefit to the Beneficiary. If the death of
the Annuitant occurs on or after the Annuity Commencement Date, no death benefit
will be payable under the Contract except as may be provided under the annuity
option elected (see "Death Benefit" on page 11).
On each Contract Anniversary and on surrender of the Contract for full
value, the Company will deduct a contract maintenance charge of $30 from the
Accumulation Account to reimburse it for administrative
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expenses related to the issuance and maintenance of the Contracts. After the
Annuity Commencement Date the charge will be deducted pro rata from each annuity
payment made during the year (see "Contract Maintenance Charge" on page 13).
The Company also deducts a mortality and expense risk charge at the end of
each Valuation Period equal to an annual rate of 1.30% of the daily net assets
of the Variable Account for mortality and expense risks assumed by the Company
(see "Mortality and Expense Risk Charge" on page 13).
Premium taxes payable to any governmental entity will be charged against the
Contracts (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 14).
If the Owner is not satisfied with the Contract it may be returned to the
Company at its Annuity Service Mailing Address within ten days after it was
delivered to the Owner. When the Company receives the returned Contract it will
be cancelled and the full amount of any Purchase Payment(s) received by the
Company will be refunded to the Owner.
EXPENSE SUMMARY
The purpose of the following table and Examples is to help Owners and
prospective purchasers of the Contracts to understand the costs and expenses
that are borne, directly and indirectly, by Owners. The table reflects expenses
of the Variable Account attributable to the Contracts as well as of the Series
Fund. The information set forth should be considered together with the narrative
provided under the heading "Contract Charges" in this Prospectus, and with the
Series Fund's prospectus. In addition to the expenses listed below, premium
taxes may be applicable if the Owner is other than a New York State resident.
<TABLE>
<CAPTION>
MONEY HIGH CAPITAL GOVERNMENT WORLD TOTAL MANAGED
MARKET YIELD APPRECIATION SECURITIES GOVERNMENTS RETURN SECTORS
CONTRACT OWNER TRANSACTION EXPENSES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
- ---------------------------------------- ------ ------ ------------ ---------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases......... $ 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%
Thereafter.......................... 0% 0% 0% 0% 0% 0% 0%
Exchange Fee............................ $ 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%
Other Account Fees and Expenses......... 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%
SERIES FUND ANNUAL EXPENSES
- ----------------------------------------
(as a percentage of Series Fund average net
assets)
Management Fees......................... 0.50% 0.75% 0.73% 0.55% 0.75% 0.66% 0.74%
Other Expenses.......................... 0.07% 0.09% 0.05% 0.08% 0.16% 0.05% 0.08%
Total Series Fund Annual Expenses....... 0.57% 0.84% 0.78% 0.63% 0.91% 0.71% 0.82%
<FN>
- ------------------------------
(1) A portion of the Accumulation Account value may be withdrawn each year
without imposition of any withdrawal charge, and after a Purchase Payment
has been held by the Company for five years it may be withdrawn free of any
withdrawal charge.
</TABLE>
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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 a 5% annual
return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market Series........................................ $ 64 $ 104 $ 146 $ 219
High Yield Series.......................................... $ 67 $ 112 $ 160 $ 247
Capital Appreciation Series................................ $ 66 $ 110 $ 157 $ 241
Government Securities Series............................... $ 65 $ 106 $ 149 $ 225
World Governments Series................................... $ 67 $ 114 $ 163 $ 254
Total Return Series........................................ $ 65 $ 108 $ 153 $ 234
Managed Sectors Series..................................... $ 67 $ 111 $ 159 $ 245
</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 a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market Series........................................ $ 19 $ 59 $ 101 $ 219
High Yield Series.......................................... $ 22 $ 67 $ 115 $ 247
Capital Appreciation Series................................ $ 21 $ 65 $ 112 $ 241
Government Securities Series............................... $ 20 $ 61 $ 104 $ 225
World Governments Series................................... $ 22 $ 69 $ 118 $ 254
Total Return Series........................................ $ 20 $ 63 $ 108 $ 234
Managed Sectors Series..................................... $ 22 $ 66 $ 114 $ 245
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LOWER THAN THOSE SHOWN.
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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
certified public accountants.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION SERIES
Unit Value:
Beginning of period $12.9070 $13.6679 $19.8292 $17.6811 $24.5945 $27.5884 $32.1362 $30.5824 $40.5956 $48.6833
End of period $13.6679 $19.8292 $17.6811 $24.5945 $27.5884 $32.1362 $30.5824 $40.5956 $48.6833 $59.1724
Units outstanding end of
period 1,578,672 1,492,598 1,488,508 1,498,930 1,647,257 1,631,966 1,352,145 1,311,905 1,149,253 1,049,111
HIGH YIELD SERIES
Unit Value:
Beginning of period $11.6824 $13.2514 $12.9242 $10.9543 $15.9592 $18.1105 $21.0484 $20.3148 $23.4173 $25.9755
End of period $13.2514 $12.9242 $10.9543 $15.9592 $18.1105 $21.0484 $20.3148 $23.4173 $25.9755 $29.0298
Units outstanding end of
period 2,397,135 1,789,852 1,031,781 822,234 799,929 815,313 673,380 570,116 489,793 421,472
GOVERNMENT SECURITIES SERIES
Unit Value:
Beginning of period $12.1611 $12.9170 $14.3889 $15.4639 $17.6811 $18.6404 $20.0002 $19.3176 $23.4352 $22.5040
End of period $12.9170 $14.3889 $15.4639 $17.6811 $18.6404 $20.0002 $19.3176 $22.4352 $22.5040 $24.1586
Units outstanding end of
period 3,412,353 2,979,834 3,019,599 2,805,551 2,572,771 2,077,587 1,877,778 1,317,288 1,160,869 897,267
MONEY MARKET SERIES
Unit Value:
Beginning of period $11.1008 $11.7406 $12.6230 $13.4389 $14.0362 $14.3185 $14.5062 $14.8503 $15.4592 $16.0115
End of period $11.7406 $12.6230 $13.4389 $14.0362 $14.3185 $14.5062 $14.8503 $15.4592 $16.0115 $16.6078
Units outstanding end of
period 1,805,049 1,978,834 2,049,178 1,572,794 945,904 822,445 1,074,216 1,084,910 917,551 713,552
WORLD GOVERNMENTS SERIES
Unit Value:
Beginning of period $10.0000* $10.3414 $11.2281 $12.5679 $14.2565 $14.1646 $16.6299 $15.6877 $17.9920 $18.5138
End of period $10.3414 $11.2281 $12.5679 $14.2565 $14.1646 $16.6299 $15.6877 $17.9197 $18.5138 $18.1356
Units outstanding end of
period 156,516 132,954 203,424 447,204 539,885 572,506 530,682 433,736 358,117 256,940
TOTAL RETURN SERIES
Unit Value:
Beginning of period $10.0000* $10.4940 $12.1807 $12.3512 $14.8323 $15.9052 $17.8114 $17.1937 $21.5225 $24.2332
End of period $10.4940 $12.1807 $12.3512 $14.8323 $15.9052 $17.8114 $17.1937 $21.5225 $24.2332 $29.1777
Units outstanding end of
period 131,742 762,845 1,182,806 1,568,328 1,958,326 2,239,181 2,083,366 1,740,564 1,532,369 1,345,153
MANAGED SECTORS SERIES
Unit Value:
Beginning of period $10.0000* $10.4022 $14.9199 $13.1936 $21.1295 $22.2236 $22.8407 $22.1251 $28.8928 $33.5381
End of period $10.4022 $14.9199 $13.1936 $21.1295 $22.2236 $22.8407 $22.1251 $28.8928 $33.5381 $41.5939
Units outstanding end of
period 30,609 100,099 141,628 207,819 343,592 338,757 328,532 331,221 314,243 270,624
<FN>
- ------------------------------
* At May 2, 1988, date of commencement of operations of the Sub-Account
investing in shares of the Series.
</TABLE>
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PERFORMANCE DATA
From time to time the Variable Account may publish reports to shareholders,
sales literature and advertisements containing performance data relating to the
Sub-Accounts. Performance data will consist of total return quotations which
will always include quotations for the period subsequent to the date each Sub-
Account became available for investment under the Contracts, and for recent one
year and, when applicable, five and ten year periods. Such quotations for such
periods will be the average annual rates of return required for an initial
Purchase Payment of $1,000 to equal the actual variable accumulation value
attributable to such Purchase Payment on the last day of the period, after
reflection of all applicable withdrawal and Contract charges. In addition, the
Variable Account may calculate non-standardized rates of return that do not
reflect withdrawal and Contract charges. Results calculated without withdrawal
and/or Contract charges will be higher. Performance figures used by the Variable
Account are based on the actual historical performance of the Series Fund for
specified periods, and the figures are not intended to indicate future
performance. The Variable Account may also from time to time compare its
investment performance to various unmanaged indices or other variable annuities
and may refer to certain rating and other organizations in its marketing
materials. More detailed information on the computations is set forth in the
Statement of Additional Information.
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 SERIES FUND
THE COMPANY
Sun Life Insurance and Annuity Company of New York (the "Company") is a
stock life insurance company incorporated under the laws of New York on May 25,
1983. Its Home Office is located at 80 Broad Street, New York, New York 10004.
The Company is a wholly-owned subsidiary of Sun Life Assurance Company of
Canada (U.S.) ("Sun Life of Canada (U.S.)"), a stock life insurance company
incorporated in Delaware and having its Executive Office at One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02181. Sun Life of Canada (U.S.)
is an indirect wholly-owned subsidiary of Sun Life Assurance Company of Canada,
150 King Street West, Toronto, Ontario, Canada, a mutual life insurance company
incorporated in Canada in 1865.
THE VARIABLE ACCOUNT
Sun Life (N.Y.) Variable Account B (the "Variable Account") was established
as a separate account of the Company on December 3, 1984 pursuant to a
resolution of the Company's 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
under the Contracts, 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 a specific series of the Series
Fund described below.
In addition to the Contracts offered by this Prospectus, the Company issues
other variable annuity contracts participating in the Variable Account.
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THE SERIES FUND
All amounts allocated to the Variable Account will be used to purchase, at
their net asset value, shares of MFS/Sun Life Series Trust (the "Series Fund")
as designated by the Owner. Any and all distributions made by the Series Fund
with respect to the shares held by the Variable Account will be reinvested to
purchase additional shares at their net asset value. Deductions from the
Variable Account for cash withdrawals, annuity payments, death benefits,
administrative charges, Contract charges against the assets of the Variable
Account for the assumption of mortality and expense risks and any applicable
taxes will, in effect, be made by redeeming the number of Series Fund shares, at
their net asset value, equal in total value to the amount to be deducted. The
Variable Account will be fully invested in Series Fund shares at all times.
Shares of the Series Fund are available exclusively to separate accounts
established by the Company and Sun Life of Canada (U.S.) to fund benefits under
variable life insurance and variable annuity products. Certain risks involved in
funding benefits under both life insurance and annuity contracts are discussed
in the Series Fund prospectus under the caption "Management of the Series Fund."
The Series Fund is composed of twenty-six independent portfolios of securities,
each of which has separate investment objectives and policies. Shares of the
Series Fund are issued in twenty-six series, each corresponding to one of the
portfolios; however the Contracts provide for investment only in shares of the
seven series of the Series Fund described below. Massachusetts Financial
Services Company, an affiliate of Sun Life of Canada (U.S.), is the Series
Fund's investment adviser. The investment objectives of each of the seven
available series of the Series Fund are summarized below. More detailed
information may be found in the current prospectus of the Series Fund and the
Series Fund's Statement of Additional Information. A prospectus for the Series
Fund must accompany this Prospectus and should be read in conjunction herewith.
(1) MONEY MARKET SERIES ("MMS") will seek maximum current income to the
extent consistent with stability of principal by investing exclusively in money
market instruments maturing in less than 13 months. An investment in this series
is neither issued nor guaranteed by the U.S. Government. There can be no
assurance that the series will be able to maintain a stable net asset value of
$1.00 per share.
(2) HIGH YIELD SERIES ("HYS") will seek high current income and capital
appreciation by investing primarily in fixed income securities of U.S. and
foreign issuers which may be in the lower rated categories or unrated (commonly
known as "junk bonds") and which may include equity features. The series may
invest up to 100% of its net assets in these securities, which generally involve
greater risks, including volatility of price, risk to principal and income,
default risks, and less liquidity than securities in the higher rated
categories. Any person contemplating allocating Purchase Payments to the
Sub-Account investing in shares of the High Yield Series should review the risk
disclosure in the Series Fund prospectus carefully and consider the investment
risks involved.
(3) CAPITAL APPRECIATION SERIES ("CAS") will seek capital appreciation by
investing in securities of all types, with a major emphasis on common stocks.
(4) GOVERNMENT SECURITIES SERIES ("GSS") will seek current income and
preservation of capital by investing in U.S. Government and U.S.
Government-related Securities.
(5) WORLD GOVERNMENTS SERIES ("WGS") will seek moderate current income and
preservation and growth of capital by investing in a portfolio of U.S. and
Foreign Government Securities.
(6) TOTAL RETURN SERIES ("TRS") will seek primarily to obtain above-average
income (compared to a portfolio entirely invested in equity securities)
consistent with prudent employment of capital; its secondary objective will be
to take advantage of opportunities for growth of capital and income. Assets will
be allocated and reallocated from time to time between money market, fixed
income and equity securities. Under normal market conditions, at least 25% of
the Total Return Series' assets will be invested in fixed income securities and
at least 40% and no more than 75% of its assets will be invested in equity
securities.
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(7) MANAGED SECTORS SERIES ("MSS") will seek capital appreciation by varying
the weighting of its portfolio of common stocks among certain industry sectors.
Dividend income, if any, is incidental to its objective of capital appreciation.
PURCHASE PAYMENTS AND CONTRACT VALUES
DURING ACCUMULATION PERIOD
PURCHASE PAYMENTS
All Purchase Payments are to be paid to the Company at its Annuity Service
Mailing Address. Purchase Payments may be made annually, semi-annually,
quarterly, monthly, or on any other frequency acceptable to the Company. Unless
the Contract has been surrendered, 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, the prior approval of the Company is required before it
will accept a Purchase Payment which would cause the value of a Contract's
Accumulation Account to exceed $1,000,000. If the value of a Contract's
Accumulation Account exceeds $1,000,000, no additional Purchase Payments will be
accepted without prior approval.
An applicant's completed application forms, together with the initial
Purchase Payment, are forwarded to the Company. Upon acceptance, the Contract is
issued to the Owner and the initial Purchase Payment is credited to the Contract
in the form of Accumulation Units. The initial Purchase Payment must be applied
within two business days of receipt of a completed application. The Company may
retain the Purchase Payment for up to five business days while attempting to
complete an incomplete application. If the application cannot be made complete
within five business days, the applicant will be informed of the reasons for the
delay and the Purchase Payment will be returned immediately unless the applicant
specifically consents to the Company's retaining the Purchase Payment until the
application is made complete. Thereafter, the Purchase Payment must be applied
within two business days. All subsequent Purchase Payments will be applied using
the Accumulation Unit values for the Valuation Period during which the Purchase
Payment is received by the Company.
The Company 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.
Each net Purchase Payment will be allocated to either the Fixed Account (see
Appendix A to the Statement of Additional Information for a description of 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
specified by the Owner in the application or as subsequently changed. Upon
receipt of a Purchase Payment, all or that portion, if any, of the net Purchase
Payment to be allocated to the Sub-Accounts will be credited to the Accumulation
Account in the form of Variable Accumulation Units. The number of particular
Variable Accumulation Units to be credited is determined by dividing the dollar
amount allocated to the particular Sub-Account by the Variable Accumulation Unit
value for the particular Sub-Account for the Valuation Period during which the
Purchase Payment is received.
The Variable Accumulation Unit value for each Sub-Account was established at
$10.00 for the first Valuation Period of the particular Sub-Account. The
Variable Accumulation Unit value for any subsequent Valuation Period is
determined by methodology which is the mathematical equivalent of multiplying
the Variable Accumulation Unit value for the immediately preceding Valuation
Period by the appropriate Net Investment Factor for such subsequent Valuation
Period. The Variable Accumulation Unit value for each Sub-Account for any
Valuation Period is determined at the end of the particular Valuation Period and
may increase, decrease or remain constant from Valuation Period to Valuation
Period, depending upon the investment performance of the series of the Series
Fund in which the Sub-Account is invested, and the expenses and charges deducted
from the Variable Account.
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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 Series 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 on the Series Fund 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 by the Company to be attributable to the
operation of the Sub-Account (no federal income taxes are
applicable under present law);
(b) is the net asset value of a Series 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/CONVERSIONS OF ACCUMULATION UNITS
During the accumulation period the Owner may convert the value of a
designated number of Fixed Accumulation Units then credited to a Contract's
Accumulation Account into Variable Accumulation Units of particular Sub-Accounts
having an equal aggregate value, or may convert the value of a designated number
of Variable Accumulation Units into other Variable Accumulation Units and/or
Fixed Accumulation Units having an equal aggregate value. These
transfers/conversions are subject to the following conditions: (1) conversions
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 conversions may be made in any Contract Year; and (3) the value of
Accumulation Units converted 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 converted. In
addition, these transfers/conversions shall be subject to such terms and
conditions as may be imposed by the Series Fund. The conversion will be made
using the Accumulation Unit values for the Valuation Period during which the
request for conversion is received by the Company. Conversions may be made
pursuant to telephoned instructions.
CASH WITHDRAWALS
At any time before the Annuity Commencement Date and during the lifetime of
the Annuitant, the Owner may elect to receive a cash withdrawal payment from the
Company. Any such election shall specify the amount of the withdrawal and will
be effective on the date that it is received by the Company. For withdrawals in
excess of $5,000 the Company may require a signature guarantee. The withdrawal
will result in the cancellation of Accumulation Units with an aggregate value
equal to the dollar amount of the cash withdrawal payment plus, if applicable,
the contract maintenance charge and any withdrawal charge. Unless instructed to
the contrary, the Company will cancel Fixed Accumulation Units and Variable
Accumulation Units of the particular Sub-Accounts on a pro rata basis reflecting
the existing composition of the Contract's Accumulation Account. If a partial
withdrawal is requested which would leave an Accumulation Account value of less
than the contract maintenance charge, then such partial withdrawal will be
treated as a full surrender.
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Under certain conditions, the Company will assess a withdrawal charge if a
cash withdrawal payment is made. The amount of any withdrawal charge and the
conditions under which the charge will apply are discussed under "Withdrawal
Charges".
Any cash withdrawal payment will be paid within seven days from the date the
election becomes effective, except as the Company may be permitted to defer such
payment in accordance with the Investment Company Act of 1940. Deferment is
currently permissible only (1) for any period (a) during which the New York
Stock Exchange is closed other than customary week-end and holiday closings, or
(b) during which trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission, (2) for any period during
which an emergency exists as a result of which (a) disposal of securities held
by the Series Fund is not reasonably practicable, or (b) it is not reasonably
practicable to determine the value of the net assets of the Series Fund, or (3)
for such other periods as the Securities and Exchange Commission may by order
permit for the protection of security holders.
Special restrictions on withdrawals apply to certain Qualified Contracts,
including Contracts used with Tax-Sheltered Annuities established pursuant to
Section 403(b) of the Internal Revenue Code ("Section 403(b) Annuities"), as
discussed below.
Reference should be made to the terms of the particular retirement plan for
which Qualified Contracts are issued for any limitations or restrictions on cash
withdrawals. A cash withdrawal under either a Qualified Contract or a
Non-Qualified Contract also may result in the imposition of a tax penalty (see
"Federal Tax Status").
SECTION 403(b) ANNUITIES
The Internal Revenue Code imposes restrictions on cash withdrawals from
Contracts used with Section 403(b) Annuities. In order for the Contracts to
receive tax deferred treatment, the Contract must provide that cash withdrawals
of amounts attributable to salary reduction contributions (other than
withdrawals of Accumulation Account value as of December 31, 1988 ("Pre-1989
Account Value")) may be made only when the Owner attains age 59 1/2, separates
from service with the employer, dies or becomes disabled (within the meaning of
Section 72(m)(7) of the Code). These restrictions apply to any growth or
interest on or after January 1, 1989 on Pre-1989 Account Value, salary reduction
contributions made on or after January 1, 1989, and any growth or interest on
such contributions ("Restricted Account Value").
Withdrawals of Restricted Account Value are also permitted in cases of
financial hardship, but only to the extent of contributions; earnings on
contributions cannot be withdrawn for hardship reasons. While specific rules
defining hardship have not been issued by the Internal Revenue Service, it is
expected that to qualify for a hardship distribution, the Owner must have an
immediate and heavy bona fide financial need and lack other resources reasonably
available to satisfy the need. Hardship withdrawals (as well as certain other
premature withdrawals) will be subject to a 10% tax penalty, in addition to any
withdrawal charge applicable under the Contract (see "Federal Tax Status").
Under certain circumstances, the 10% tax penalty will not apply to withdrawals
to pay medical expenses.
Under the terms of a particular Section 403(b) plan, the Owner may be
entitled to transfer all or a portion of the Accumulation Account value to one
or more alternative funding options. Owners should consult the documents
governing their plan and the person who administers the plan for information as
to such investment alternatives.
For information on the federal income tax withholding rules that apply to
distributions from Qualified Contracts (including Section 403(b) annuities) see
"Federal Tax Status."
DEATH BENEFIT
In the event of the death of the Annuitant prior to the Annuity Commencement
Date, the Company will pay a death benefit to the Beneficiary. If the death of
the Annuitant occurs on or after the Annuity Commencement Date, no death benefit
will be payable under the Contract except as may be provided under the annuity
option elected.
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During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Owner may elect to have the value of the Accumulation Account applied
under one or more annuity options to effect a Variable Annuity or a Fixed
Annuity or a combination of both for the Beneficiary as Payee after the death of
the Annuitant. If no election of a method of settlement of the death benefit by
the Owner is in effect on the date of death of the Annuitant, the Beneficiary
may elect (a) to receive the death benefit in the form of a cash payment; or (b)
to have the value of the Accumulation Account applied under one or more of the
annuity options (on the Annuity Commencement Date described under "Payment of
Death Benefit") to effect a Variable Annuity or a Fixed Annuity or a combination
of both for the Beneficiary as Payee. If an election by the Beneficiary is not
received by the Company within 60 days following the date Due Proof of Death of
the Annuitant and any required release or consent is received, 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 shall be entitled to exercise any
rights that would adversely affect the treatment of the Contract as an annuity
contract under the Code (see "Other Contractual Provisions-- Death of Owner").
PAYMENT OF DEATH BENEFIT
If the death benefit is to be paid in cash to the Beneficiary, payment will
be made within seven days of the date the election becomes effective or is
deemed to become effective, except as the Company may be permitted to defer such
payment in accordance with the Investment Company Act of 1940 under the
circumstances described in this Prospectus under "Cash Withdrawals." If the
death benefit is to be paid in one lump sum to the Owner, or to the estate of
the deceased Owner/Annuitant, payment will be made within seven days of the date
Due Proof of Death of the Annuitant, the Owner and/or the Beneficiary is
received. If settlement under one or more of the annuity options is elected by
the Owner, the Annuity Commencement Date will be the first day of the second
calendar month following receipt of Due Proof of Death of the Annuitant and the
Beneficiary, if any. In the case of an election by the Beneficiary, the Annuity
Commencement Date will be the first day of the second calendar month following
the effective date of the election. An Annuity Commencement Date later than that
described above may be elected by an Owner or Beneficiary 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 Owner or Beneficiary,
as the case may be, unless otherwise restricted, in the case of a Qualified
Contract, 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; or (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
subsequent to such Contract Anniversary. The Accumulation Unit values used in
determining the amount of the death benefit under (1) above will be the values
for the Valuation Period during which Due Proof of Death of the Annuitant is
received by the Company if settlement is elected by the Owner under one or more
of the annuity options or, if no election by the Owner is in effect, either the
values for the Valuation Period during which an election by the Beneficiary is
effective or the values for the Valuation Period during which Due Proof of Death
of both the Annuitant and the designated Beneficiary is received by the Company
if the amount of the death benefit is to be paid in one sum to the deceased
Owner/Annuitant's estate.
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CONTRACT CHARGES
Contract charges may be assessed under the Contracts as follows:
CONTRACT MAINTENANCE CHARGE
On each Contract Anniversary and on surrender of the Contract for full value
on other than the Contract Anniversary, the Company deducts from the
Accumulation Account a contract maintenance charge of $30 to reimburse it for
administrative expenses relating to the issuance and maintenance of the
Contract. The contract maintenance charge will be deducted 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 the value of the
Contract's Accumulation Account will be reduced 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, the contract maintenance charge will be deducted pro
rata from each annuity payment made during the year.
The amount of the contract maintenance charge may not be increased by the
Company. The Company reserves 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.
MORTALITY AND EXPENSE RISK CHARGE
The mortality and expense risks assumed by the Company are the risks that
Annuitants may live for a longer period of time than estimated by the Company in
establishing the guaranteed annuity rates incorporated into the Contract and the
risk that administrative charges assessed under the Contracts may be
insufficient to cover actual administrative expenses incurred by the Company.
For assuming these risks, the Company makes a deduction from the Variable
Account at the end of each Valuation Period during both the accumulation period
and after annuity payments begin at an effective annual rate of 1.30%. The rate
of this deduction may be changed annually but in no event will it exceed 1.30%
on an annual basis. If the deduction is insufficient to cover the actual cost of
the mortality and expense risk undertaking, the Company will bear the loss.
Conversely, if the deduction proves more than sufficient, the excess would be
profit to the Company 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, the deficiency will be met
from the Company's general corporate funds, which may include amounts derived
from the mortality and expense risk charges.
For the year ended December 31, 1997 mortality and expense risk charges
imposed under the Contracts and mortality and expense risk charges and
distribution expense charges imposed under other contracts participating in the
Variable Account were the only expenses of the Variable Account.
WITHDRAWAL CHARGES
No sales charges are deducted from Purchase Payments. However, a withdrawal
charge (i.e., a contingent deferred sales charge), when applicable, will be
assessed to reimburse the Company 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.
A portion of the Accumulation Account value may be withdrawn each year
without imposition of any withdrawal charge, and after a Purchase Payment has
been held by the Company for five years it may be withdrawn free of any
withdrawal charge. In addition, no withdrawal charge is assessed upon
annuitization or upon the transfer of Accumulation Account values among the
Sub-Accounts or between the Sub-Accounts and the Fixed Account.
The withdrawal charge is not assessed with respect to a Contract established
for the personal account of an employee of the Company or of any of its
affiliates, or of a licensed insurance agent engaged in distributing the
Contracts.
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All other full or partial withdrawals are subject to a withdrawal charge
equal to 5% of the amount withdrawn which is subject to the charge. The charge
will be applied as follows:
(1) Old Payments, new Payments and accumulated value: With respect to a
particular Contract Year, "new Payments" are those Payments made in that
Contract Year or in the four immediately preceding Contract Years; "old
Payments" are those Payments not defined as new Payments; and "accumulated
value" is the value of the Accumulation Account minus the sum of both old and
new Payments.
(2) Order of liquidation: To effect a full surrender or partial withdrawal,
the oldest previously unliquidated Payment will be deemed to have been
liquidated first, then the next oldest, and so forth. Once all old and new
Payments have been withdrawn, additional amounts withdrawn will be attributed to
accumulated value.
(3) Maximum free withdrawal amount: The maximum amount that can be withdrawn
in a Contract Year without a withdrawal charge is equal to the sum of (a) any
old Payments not already liquidated, and (b) 10% of any new Payments,
irrespective of whether these new Payments have been liquidated.
(4) Amount subject to withdrawal charge: The amount subject to the
withdrawal charge will be the excess, if any, of (a) amounts liquidated from old
and new Payments over (b) the remaining maximum free withdrawal amount at the
time of the withdrawal.
In no event shall the aggregate withdrawal charges assessed against a
Contract exceed 5% of the aggregate Purchase Payments made under the Contract.
(See Appendix C in the Statement of Additional Information for examples of
withdrawals and withdrawal charges.)
PREMIUM TAXES
A deduction, when applicable, is made 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 Payee is other than a New York State resident, a
premium tax ranging from 0% to 3.5% may be assessed, depending on the state of
residence. It is currently the Company's policy to deduct the tax from the
amount applied to provide an annuity at the time annuity payments commence.
However, the Company reserves the right to deduct such taxes on or after the
date they are incurred.
CHARGES OF THE SERIES FUND
The Variable Account purchases shares of the Series Fund at net asset value.
The net asset value of these shares reflects investment management fees and
expenses (including, but not limited to, compensation of trustees, 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 Series Fund. These fees and expenses are more
fully described in the Series Fund's prospectus and Statement of Additional
Information.
ANNUITY PROVISIONS
ANNUITY COMMENCEMENT DATE
Annuity payments under a Contract will begin on the Annuity Commencement
Date selected by the Owner at the time the Contract is applied for. This date
may be changed by the Owner 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, in the
case of a Qualified Contract, otherwise limited or restricted by the particular
retirement plan or by applicable law. In most situations, current law requires
that the Annuity Commencement Date under a Qualified Contract be no later than
April 1 following the year the Annuitant reaches age 70 1/2 (or, for Qualified
Contracts other than IRAs, no later than April 1 following the year the
Annuitant retires, if later than the year the Annuitant reaches age 70 1/2), and
the terms of 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."
On the Annuity Commencement Date the Contract's Accumulation Account will be
cancelled and its adjusted value will be applied to provide an annuity. The
adjusted value will be equal to the value of the
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Accumulation Account for the Valuation Period which ends immediately preceding
the Annuity Commencement Date, reduced by any applicable premium or similar
taxes and a proportionate amount of the contract maintenance charge (see
"Contract Maintenance Charge"). NO CASH WITHDRAWALS WILL BE PERMITTED AFTER THE
ANNUITY COMMENCEMENT DATE EXCEPT AS MAY BE AVAILABLE UNDER THE ANNUITY OPTION
ELECTED.
Since the Contracts offered by this Prospectus may be issued in connection
with retirement plans which meet the requirements of Sections 401, 403 or 408 of
the Internal Revenue Code, as well as certain non-qualified plans, reference
should be made to the terms of the particular plan for any limitations or
restrictions on the Annuity Commencement Date.
ANNUITY OPTIONS
Unless restricted by the particular retirement plan or any applicable
legislation, 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 may be agreed to by the
Company for the Annuitant as Payee. 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 prior to 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 prior to the Annuity Commencement Date,
Annuity Option B, for a Life Annuity with 120 monthly payments certain, will be
deemed 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. In the event the election does not so specify, then the portion of
the adjusted value of the Accumulation Account to be applied to the Fixed
Account and 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: Monthly payments during the lifetime of the
Payee. This option offers a higher level of monthly payments than Annuity Option
B or C, because no further payments are payable 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, 180 or 240 Monthly Payments
Certain: 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 were elected.
Annuity Option C. Joint and Survivor Annuity: Monthly payments payable
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 of the election of this option 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: Fixed
monthly payments for a specified period of time (at least five years but not
exceeding 30 years), as elected.
*Annuity Option E. Fixed Payments: The amount applied to provide fixed
payments in accordance with this option will be held by the Company at interest.
Fixed payments will be made in such amounts and at such times (at least over a
period of five years) as may be agreed upon with the Company and will continue
until the amount held by the Company with interest is exhausted. Interest will
be credited yearly on the amount remaining unpaid at a rate which shall be
determined by the Company from time to time but which
- ------------------------
* The election of this Annuity Option may result in the imposition of a penalty
tax.
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shall not be less than 4% per year compounded annually. The rate so determined
may be changed by the Company at any time; however, the rate may not be reduced
more frequently than once during each calendar year.
DETERMINATION OF ANNUITY PAYMENTS
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 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 the value of a
designated number of Variable Annuity Units of particular Sub-Accounts then
credited to the Contract for other Variable Annuity Units, the value of which
would be such that the dollar amount of an annuity payment made on the date of
the exchange would be unaffected by the fact of the exchange. Exchanges may be
made only between Sub-Accounts of the Variable Account. Twelve such exchanges
may be made within each Contract Year.
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. Over a period of time, if the Sub-Accounts achieved a net
investment return exactly equal to the assumed interest rate of 4%, the amount
of each variable annuity payment would remain constant. However, if the
Sub-Accounts achieved a net investment result greater than 4%, the amount of
each Variable Annuity payment would increase; conversely, a net investment
result smaller than 4% would decrease the amount of each variable annuity
payment.
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
Owner of a Non-Qualified Contract may change the ownership of the Contract,
subject to the provisions of the Contract, although such change may result in
the imposition of tax (see "Federal Tax Status--Taxation of Annuities in
General"). Transfer of ownership of a Qualified Contract is governed by the laws
and regulations applicable to the retirement or deferred compensation plan for
which the Contract was issued. Subject to the foregoing, a Qualified Contract
may not be sold, assigned, transferred, discounted or pledged as collateral for
a loan or as security for the performance of an obligation or for any other
purpose to any person other than the Company.
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.
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DEATH OF OWNER
If the Owner of a Non-Qualified Contract dies prior to the Annuitant and
before the Annuity Commencement Date, the entire value of the Contract's
Accumulation Account must be distributed to the Beneficiary, if then alive,
either (1) within five years after the date of death of the Owner, or (2) over
some period not greater than the life or expected life of the Beneficiary, with
annuity payments beginning within one year after the date of death of the Owner.
The person named as Beneficiary shall be considered the designated beneficiary
for the purposes of Section 72(s) of the Internal Revenue Code and if no person
then living has been so named, then the Annuitant shall automatically be the
designated beneficiary for this purpose.
These mandatory distribution requirements will not apply when the designated
beneficiary is the spouse of the Owner, if the spouse elects to continue the
Contract in the spouse's own name as Owner. When the Owner was also the
Annuitant the surviving spouse (if the designated beneficiary) may elect to be
named as both Owner and Annuitant and continue the Contract, but if that
election is not made, the Death Benefit provision of the Contract shall then be
controlling. In all other cases where the Owner and the Annuitant are the same
individual, the Death Benefit provision of the Contract controls.
If the Owner/Annuitant dies on or after the Annuity Commencement Date and
before the entire accumulation under the Contract has been distributed, the
remaining portion of such accumulation, if any, must be distributed at least as
rapidly as the method of distribution then in effect.
No Owner or Beneficiary shall be entitled to exercise any rights that would
adversely affect the treatment of the Contract as an annuity contract under the
Code.
Any distributions upon the death of the Owner of a Qualified Contract will
be subject to the laws and regulations governing the particular retirement or
deferred compensation plan in connection with which the Qualified Contract was
issued.
VOTING OF SERIES FUND SHARES
The Company will vote Series Fund shares held by the Sub-Accounts at
meetings of shareholders of the Series Fund or in connection with similar
solicitations, but will follow voting instructions received from persons having
the right to give voting instructions. Series Fund shares for which no timely
voting instructions are received will be voted by the Company 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 held pursuant to retirement plans 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 Series Fund
shares attributable to their contributions. Such plans may also provide the
additional extent, if any, to which the Owners shall follow voting instructions
of persons with rights under the plans.
The number of particular Series Fund shares as to which each such person is
entitled to give instructions will be determined by the Company on a date not
more than 90 days prior to each such meeting. Prior to the Annuity Commencement
Date, the number of particular Series Fund shares as to which voting
instructions may be given to the Company is determined by dividing the value of
all of the Variable Accumulation Units of the particular Sub-Account credited to
the Contract's Accumulation Account by the net asset value of one particular
Series Fund share as of the same date. On or after the Annuity Commencement
Date, the number of particular Series Fund shares as to which such instructions
may be given by a Payee is determined by dividing the reserve held by the
Company in the particular Sub-Account for the Contract by the net asset value of
a particular Series Fund share as of the same date.
SUBSTITUTED SECURITIES
Shares of a particular series of the Series Fund may not always be available
for purchase by the Variable Account or the Company may decide that further
investment in any such shares is no longer appropriate in view of the purposes
of the Variable Account. In either event, shares of another registered open-end
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investment company may be substituted both for Series 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. In the event of any substitution pursuant to this provision, the Company
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, the
Contract may be modified by the Company, 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 the Company is subject or
(ii) is necessary to assure continued qualification of the Contract under the
Code or other federal or state laws relating to retirement annuities or annuity
contracts or (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, the Company 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 to any necessary vote
by persons having the right to give instructions with respect to the voting of
Series Fund shares held by the Sub-Accounts, the Variable Account may be
operated as a management company under the Investment Company Act of 1940 or it
may be deregistered under the Investment Company Act of 1940 in the event
registration is no longer required. Deregistration of the Variable Account
requires an order by the Securities and Exchange Commission. In the event of any
change in the operation of the Variable Account pursuant to this provision, the
Company, subject to the prior approval of the Superintendent of Insurance of the
State of New York, 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
The Company reserves 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 in unit values, strict equity will be preserved and no
change will have a material effect on the benefits or other provisions of the
Contract.
FEDERAL TAX STATUS
INTRODUCTION
The Contracts described in this Prospectus are designed for use in
connection with retirement plans that may or may not be qualified plans under
Sections 401, 403 or 408 of the Internal Revenue Code (the "Code"). The ultimate
effect of federal income taxes may depend upon the type of retirement plan for
which the Contract is purchased and a number of different factors. This
discussion 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 taxation of annuity contracts, and
such legislation could be applied retroactively to Contracts purchased before
the date of enactment. Any person contemplating the purchase of a Contract
should consult a qualified tax adviser. THE COMPANY DOES NOT MAKE ANY GUARANTEE
REGARDING THE FEDERAL, STATE OR LOCAL TAX STATUS OF ANY CONTRACT OR ANY
TRANSACTION INVOLVING A CONTRACT.
TAX TREATMENT OF THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under the Code. The
operations of the Variable Account are accounted for separately from other
operations of the Company for purposes of federal income taxation, but the
Variable Account is not taxable as a regulated investment company or otherwise
as an
18
<PAGE>
entity separate from the Company. The income of the Variable Account (consisting
primarily of interest, dividends and net capital gains) is not taxable to the
Company to the extent that it is applied to increase reserves under contracts
participating in the Variable Account.
TAXATION OF ANNUITIES IN GENERAL
Purchase Payments made under Non-Qualified Contracts are not deductible from
the Owner's income for federal income tax purposes. Owners of Qualified
Contracts should consult a tax adviser regarding the tax treatment of Purchase
Payments.
Generally, no taxes are imposed on the increase in the value of a Contract
held by an individual Owner until a distribution occurs, either as an annuity
payment or as a cash withdrawal or lump sum payment prior to the Annuity
Commencement Date. However, corporate Owners and other Owners that are not
natural persons are subject to current taxation on the annual increase in the
value of a Non-Qualified Contract, unless the non-natural person holds the
Contract as agent for a natural person (such as where a bank or other entity
holds a Contract as trustee under a trust agreement). This current taxation of
annuities held by non-natural persons does not apply to earnings accumulated
under an immediate annuity, which the Code defines as a single premium contract
with an annuity commencement date within one year of the date of purchase.
A partial cash withdrawal (i.e., a withdrawal of less than the entire value
of the Contract's Accumulation Account) from a Non-Qualified Contract before the
Annuity Commencement Date is treated first as a withdrawal from the increase in
the Accumulation Account's value, rather than as a return of Purchase Payments.
The amount of the withdrawal allocable to this increase will be includible in
the Owner's income and subject to tax at ordinary income rates. If an individual
receives a loan under a Contract or if the Contract is assigned or pledged as
collateral for a loan, the amount borrowed from the Contract or the amount
assigned or pledged must be treated as if it were withdrawn from the Contract.
In the case of annuity payments under a Non-Qualified Contract after the
Annuity Commencement Date, a portion of each payment is treated as a nontaxable
return of Purchase Payments. The nontaxable portion is determined by applying to
each annuity payment an "exclusion ratio," which, in general, is the ratio that
the total amount the Owner paid for the Contract bears to the Payee's expected
return under the Contract. The remainder of the payment is taxable at ordinary
income rates.
The total amount that a Payee may exclude from income through application of
the "exclusion ratio" is limited to the amount the Owner paid for the Contract.
If the Annuitant survives for his full life expectancy, so that the Payee
recovers the entire amount paid for the Contract, any subsequent annuity
payments will be fully taxable as income. Conversely, if the Annuitant dies
before the Payee recovers the entire amount paid, the Payee will be allowed a
deduction for the amount of unrecovered Purchase Payments.
Taxable cash withdrawals and lump-sum payments from Non-Qualified Contracts
may be subject to a penalty tax equal to 10% of the amount treated as taxable
income. This 10% penalty also may apply to certain annuity payments. This
penalty will not apply in certain circumstances (such as where the distribution
is made upon the death of the Owner). The withdrawal penalty also does not apply
to distributions under an immediate annuity (as defined above).
In the case of a Qualified Contract, distributions generally are taxable and
distributions made prior to age 59 1/2 are subject to a 10% penalty tax,
although this penalty 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 Payee), are not taxable until distributed from the
plan to which they are rolled over. In general, an eligible rollover
distribution is any taxable distribution other than a distribution that is part
of a series of payments made for life or for a specified period of ten years or
more. Owners, Annuitants, Payees and Beneficiaries should seek qualified advice
about the tax consequences of distributions, withdrawals, rollovers and payments
under the retirement plans in connection with which the Contracts are purchased.
19
<PAGE>
If the Owner of a Non-Qualified Contract dies, the value of the Contract
generally must be distributed within a specified period (see "Other Contractual
Provisions--Death of Owner"). For Contracts owned by non-natural persons, a
change in the Annuitant is treated as the death of the Owner.
A purchaser of a Qualified Contract should refer to the terms of the
applicable retirement plan and consult a tax adviser regarding distribution
requirements upon the death of the Owner.
A transfer of a Non-Qualified Contract by gift (other than to the Owner's
spouse) is treated as the receipt by the Owner of income in an amount equal to
the value of the Contract's Accumulation Account minus the total amount paid for
the Contract.
The Company will withhold and remit to the U.S. Government a part of the
taxable portion of each distribution made under a Non-Qualified Contract or
under a Qualified Contract issued for use 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 Qualified Contract (other than
distributions from 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 Qualified Contract is
not an eligible rollover distribution, then the Owner or Payee can choose not to
have amounts withheld as described above for Non-Qualified Contracts and
Qualified Contracts issued for use with 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 Internal Revenue Service has issued regulations that prescribe
investment diversification requirements for mutual fund series underlying
nonqualified variable contracts. Contracts that do not comply with these
regulations do not qualify as annuities for federal income tax purposes, and
therefore the annual increase in the value of such contracts is subject to
current taxation. The Company believes that each series of the Series Fund
complies with the regulations.
The preamble to the regulations states that the Internal Revenue Service may
promulgate guidelines under which a variable contract will not be treated as an
annuity for tax purposes if the owner has excessive control over the investments
underlying the contract. It is not known whether such guidelines, if in fact
promulgated, would have retroactive effect. If guidelines are promulgated, the
Company will take any action (including modification of the Contract and/or the
Variable Account) necessary to comply with the guidelines.
THE FOLLOWING INFORMATION SHOULD BE CONSIDERED ONLY WHEN AN IMMEDIATE
ANNUITY CONTRACT AND A DEFERRED ANNUITY CONTRACT ARE PURCHASED TOGETHER: The
Company understands that the Treasury Department is in the process of
reconsidering the tax treatment of annuity payments under an immediate annuity
contract (i.e., a single premium contract with an annuity commencement date
within one year of the date of purchase) purchased together with a deferred
annuity contract. The Company believes that any adverse change in existing tax
treatment of such immediate annuity contracts is likely to be prospective, that
is, it would not apply to Contracts issued before such a change is announced.
However, there can be no assurance that any such change, if adopted, would not
be applied retroactively.
QUALIFIED RETIREMENT PLANS
The Qualified Contracts described in this Prospectus 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), 401(k) and 403(a)
of the Code, including those purchasers who would have been covered under
the rules governing old H.R. 10 (Keogh) Plans;
20
<PAGE>
(2) Tax-Sheltered Annuities established pursuant to the provisions of
Section 403(b) of the Code for public school employees and employees of
certain types of charitable, educational and scientific organizations
specified in Section 501(c)(3) of the Code; and
(3) Individual Retirement Annuities permitted by Sections 219 and 408 of
the Code, including Simplified Employee Pension Plans established by
employers pursuant to Section 408(k).
The tax rules applicable to participants in such 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 Qualified Contracts.
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 Qualified Contracts. These terms
and conditions may include restrictions on, among other things, ownership,
transferability, assignability, contributions and distributions. The Company
will provide purchasers of Qualified Contracts used in connection with
Individual Retirement Annuities with such supplemental information as may be
required by the Internal Revenue Service or other appropriate agency. Any person
contemplating the purchase of a Qualified Contract should consult a qualified
tax adviser.
YEAR 2000 COMPLIANCE
The Company's business, financial condition, and results of operations could
be materially and adversely affected by the failure of its systems and
applications (or those either provided or operated by third-parties) to properly
operate or manage dates beyond the year 1999. However, the Company has
investigated the nature and extent of the work necessary to render its computer
systems capable of processing beyond the turn of the century ("Year 2000
compliant"), and has made substantial progress toward achieving this goal,
including upgrading and/or replacing existing systems. The Company expects that
its principal systems will be Year 2000 compliant by the end of 1998, leaving
1999 for extensive testing. While it is believed that these efforts do involve
substantial costs, the Company closely monitors associated costs and continues
to evaluate associated risks based on actual testing. Based on available
information, the Company believes that it will be able to manage its total Year
2000 transition without a material adverse effect on its business operations,
financial condition, or results of operations.
DISTRIBUTION OF THE CONTRACTS
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., One Sun Life Executive Park,
Wellesley Hills, Massachusetts 02181, a wholly-owned subsidiary of Sun Life
Assurance Company of Canada (U.S.), the Company's parent company. Commissions
and other distribution expenses will be paid by the Company and will not be more
than 6.31% of Purchase Payments. Commissions will not be paid with respect to
Contracts established for the personal account of employees of the Company or
any of its affiliates, or of persons engaged in the distribution of the
Contracts.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Variable Account. The
Company is engaged in various kinds of routine litigation which, in management's
judgment, is not of material importance to the Company's total assets or
material with respect to the Variable Account.
OWNER INQUIRIES
All Owner inquiries should be directed to the Company at the Annuity Service
Mailing Address shown on the cover of this Prospectus.
21
<PAGE>
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
General Information....................................................... 2
Annuity Provisions........................................................ 2
Other Contract Provisions................................................. 3
Administration of the Contracts........................................... 4
Distribution of the Contracts............................................. 4
Accountants............................................................... 4
Calculation of Performance Data........................................... 5
Advertising and Sales Literature.......................................... 7
Financial Statements...................................................... 8
Appendix A -- The Fixed Account........................................... 31
Appendix B -- Variable Accumulation Unit Value, Variable Annuity Unit
Value and Variable Annuity Payment Calculations......................... 34
Appendix C -- Withdrawals and Withdrawal Charges.......................... 35
</TABLE>
22
<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, 1998 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 the Company at (212)
943-3855 or (800) 447-7549.
-------------------------------------------------------------------------------
To: Sun Life Insurance and Annuity Company of New York
80 Broad Street
New York, New York 10004
Please send me a Statement of Additional Information for
Compass 2 Sun Life (N.Y.) Variable Account B.
Name --------------------------------------
Address --------------------------------------
--------------------------------------
City --------------------- State ------------ Zip ---------
Telephone --------------------------------------
23
<PAGE>
[LOGO]
PROSPECTUS
MAY 1, 1998
COMBINATION FIXED/VARIABLE
ANNUITY FOR PERSONAL AND
QUALIFIED RETIREMENT PLANS
ISSUED IN CONNECTION
WITH SUN LIFE (N.Y.)
VARIABLE ACCOUNT B
CO2NY-1 5/98
ISSUED BY
SUN LIFE INSURANCE AND ANNUITY COMPANY
OF NEW YORK
Annuity Service Mailing Address:
80 Broad Street
New York, New York 10004
LEGAL COUNSEL
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, D.C. 20044
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
<PAGE>
MAY 1, 1998
COMPASS 2
STATEMENT OF ADDITIONAL INFORMATION
SUN LIFE (N.Y.) VARIABLE ACCOUNT B
TABLE OF CONTENTS
General Information......................................... 2
Annuity Provisions.......................................... 2
Other Contract Provisions................................... 3
Administration of the Contracts............................. 4
Distribution of the Contracts............................... 4
Accountants................................................. 4
Calculation of Performance Data............................. 5
Advertising and Sales Literature............................ 7
Financial Statements........................................ 8
Appendix A -- The Fixed Account............................. 31
Appendix B -- Variable Accumulation Unit Value, Variable
Annuity Unit Value and Variable Annuity Payment
Calculations.............................................. 34
Appendix C -- Withdrawals and Withdrawal Charges............ 35
This Statement of Additional Information sets forth information which may be
of interest to prospective purchasers of Compass 2 Combination Fixed/Variable
Annuity Contracts (the "Contracts") for personal and qualified retirement plans
issued by Sun Life Insurance and Annuity Company of New York (the "Company") in
connection with Sun Life (N.Y.) Variable Account B (the "Variable Account")
which is not necessarily included in the Prospectus dated May 1, 1998 (the
"Prospectus") regarding the Contracts. This Statement of Additional Information
should be read in conjunction with the Prospectus, a copy of which may be
obtained without charge from the Company at its Annuity Service Mailing Address,
80 Broad Street, New York, New York 10004, or by telephoning (212) 943-3855 or
(800) 447-7549.
The terms used in this Statement of Additional Information have the same
meanings as in the Prospectus.
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE PURCHASERS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
<PAGE>
GENERAL INFORMATION
THE COMPANY
Sun Life Insurance and Annuity Company of New York (the "Company") is a
stock life insurance company incorporated under the laws of New York on May 25,
1983. Its Home Office is located at 80 Broad Street, New York, New York 10004.
The Company is a wholly-owned subsidiary of Sun Life Assurance Company of
Canada (U.S.) ("Sun Life of Canada (U.S.)"), a stock life insurance company
incorporated in Delaware and having its Executive Office at One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02181. Sun Life of Canada (U.S.),
is an indirect wholly-owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life (Canada)"), 150 King Street West, Toronto, Ontario, Canada, a mutual
life insurance company incorporated in Canada in 1865. Sun Life of Canada (U.S.)
is a direct wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.,
which on December 18, 1997 became a wholly-owned subsidiary of Sun Life
Assurance Company of Canada -- U.S. Operations Holdings, Inc., a direct
wholly-owned subsidiary of Sun Life (Canada).
THE VARIABLE ACCOUNT
Sun Life (N.Y.) Variable Account B (the "Variable Account") is a separate
account of the Company which meets the definition of a "separate account" under
the federal securities laws and which 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. Because of exemptive and
exclusionary provisions, that part of the Contracts 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. However,
disclosures regarding the fixed portion of the Contracts and the Fixed Account
may be subject to certain generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made
herein (see Appendix A).
ANNUITY PROVISIONS
DETERMINATION OF ANNUITY PAYMENTS
On the Annuity Commencement Date the Contract's Accumulation Account will be
cancelled and its adjusted value will be applied to provide a Variable Annuity
or a Fixed Annuity or a combination of both. The adjusted value will be equal to
the value of the Accumulation Account for the Valuation Period which ends
immediately preceding the Annuity Commencement Date, reduced by any applicable
premium or similar taxes and a proportionate amount of the contract maintenance
charge to reflect the time elapsed between the last Contract Anniversary and the
day before the Annuity Commencement Date.
The dollar amount of the first variable annuity payment will be determined
in accordance with the annuity payment rates found in the Contract, which are
based on an assumed interest rate of 4% per year. All variable annuity payments
other than the first are determined by means of Annuity Units credited to the
Contract. The number of Annuity Units to be credited in respect of a particular
Sub-Account is determined by dividing that portion of the first variable annuity
payment attributable to that Sub-Account by the Annuity Unit value of that
Sub-Account for the Valuation Period which ends immediately preceding the
Annuity Commencement Date. The number of Annuity Units of each particular
Sub-Account credited to the Contract 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 such payment may increase, decrease or
remain
2
<PAGE>
constant, and is equal to the sum of the amounts determined by multiplying the
number of Annuity Units of a particular Sub-Account credited to the Contract by
the Annuity Unit value for the particular Sub-Account for the Valuation Period
which ends immediately preceding the due date of each subsequent payment.
For a description of fixed annuity payments, see Appendix A.
For a hypothetical example of the calculation of a variable annuity payment,
see Appendix B.
ANNUITY UNIT VALUE
The Annuity Unit value for each Sub-Account was established at $10.00 for
the first Valuation Period of the particular Sub-Account. The Annuity Unit value
for any subsequent Valuation Period is determined by multiplying the Annuity
Unit value for the immediately preceding Valuation Period by the appropriate Net
Investment Factor (See "Net Investment Factor" in the Prospectus) for the
current Valuation Period, then multiplying that product by a factor to
neutralize the assumed interest rate of 4% per year used to establish the
annuity payment rates found in the Contract.
For a hypothetical example of the calculation of the value of a Variable
Annuity Unit, see Appendix B.
OTHER CONTRACT PROVISIONS
OWNER AND CHANGE OF OWNERSHIP
A Contract belongs to the Owner. All Contract rights and privileges may be
exercised by the Owner without the consent of the Beneficiary (other than an
irrevocably designated beneficiary) or any other person. Such rights and
privileges may be exercised only during the lifetime of the Annuitant 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 a Qualified Contract may not be transferred except to: (1) the
Annuitant; (2) a trustee or successor trustee of a pension or profit sharing
trust which is qualified under Section 401 of the Internal Revenue Code; (3) the
employer of the Annuitant, provided that after transfer the Qualified Contract
is maintained under the terms of a retirement plan qualified under Section
403(a) of the Internal Revenue Code for the benefit of the Annuitant; (4) the
trustee of an individual retirement account plan qualified under Section 408 of
the Internal Revenue Code for the benefit of the Owner; or (5) as otherwise
permitted from time to time by laws and regulations governing the retirement or
deferred compensation plans for which a Qualified Contract may be issued.
Subject to the foregoing, a Qualified Contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as security for
the performance of an obligation or for any other purpose to any person other
than the Company.
The Owner of a Non-Qualified Contract may change the ownership of the
Contract during the lifetime of the Annuitant and prior to the Annuity
Commencement Date, although such change may result in the imposition of tax (see
"Federal Tax Status--Taxation of Annuities in General" in the Prospectus). A
change of ownership will not be binding upon the Company until written
notification 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.
3
<PAGE>
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 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.
CUSTODIAN
The Company is Custodian of the assets of the Variable Account. The Company,
as Custodian, will purchase shares of a particular series of the Series Fund 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
Series Fund shares at net asset value for the purpose of meeting the contractual
obligations of the Variable Account, paying charges relative to the Variable
Account or making adjustments for annuity reserves held in the Variable Account.
ADMINISTRATION OF THE CONTRACTS
The Company performs certain administrative functions relating to the
Contracts and the Variable Account. These functions include, among other things,
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 Sun Life Assurance Company of Canada under which the latter
have agreed to provide the Company with certain services on a cost reimbursement
basis. These services include, but are not limited to accounting and investment
services, systems support and development, pricing, product development,
actuarial, legal and compliance functions, marketing services and staff
training.
DISTRIBUTION OF THE CONTRACTS
The offering of the Contracts is continuous. The Contracts will be sold by
licensed insurance agents in the State of New York. Such agents will be
registered representatives of broker-dealers registered under the Securities
Exchange Act of 1934 who are members of the National Association of Securities
Dealers, Inc. The Contracts will be distributed by Clarendon Insurance Agency,
Inc. ("Clarendon"), One Sun Life Executive Park, Wellesley Hills, Massachusetts
02181, a wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.),
the Company's parent company. Commissions and other distribution compensation
will be paid by the Company and will not be more than 6.31% of Purchase
Payments. Commissions will not be paid with respect to Contracts established for
the personal account of employees of the Company or any of its affiliates, or of
persons engaged in the distribution of the Contracts. During 1995, 1996 and
1997, approximately $70,000, $56,000 and $40,000, respectively, was paid to and
retained by Clarendon in connection with the distribution of the Contracts.
ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts 02110, are
the Variable Account's independent certified public accountants providing
auditing and other professional services.
4
<PAGE>
CALCULATION OF PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN:
The table below shows, for various Sub-Accounts of the Variable Account, the
Average Annual Total Return for the stated periods (or shorter period indicated
in the note below), based upon a hypothetical initial Purchase Payment of
$1,000, calculated in accordance with the formula set out below the table.
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDING DECEMBER 31, 1996
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
PERIOD PERIOD PERIOD LIFE* DATE OF INCEPTION
----------- ----------- ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation Series.......... 16.38% 15.46% 16.03% -- August 13, 1985
Government Securities Series......... 2.33% 4.07% 6.62% -- August 12, 1985
High Yield Series.................... 6.86% 8.91% 9.10% -- August 13, 1985
Managed Sectors Series............... 19.28% 12.62% -- 15.93% May 27, 1988
Money Market Series.................. (1.14)% 1.81% 3.76% -- August 29, 1985
Total Return Series.................. 15.42% 11.93% -- 11.51% May 16, 1988
World Governments Series............. (6.72)% 4.17% -- 6.28% May 16, 1988
</TABLE>
- ---------
*From Date of Inception, as the lifetimes of these series are less than ten
years.
The length of the period and the last day of each period used in the above table
are set out in the table heading and in the footnotes above. The Average Annual
Total Return for each period was determined by finding the average annual
compounded rate of return over each period that would equate the initial amount
invested to the ending redeemable value for that period, in accordance with the
following formula:
n
P(1 + T) = ERV
<TABLE>
<C> <C> <S>
Where: P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return for the period
n = number of years
ERV = redeemable value (as of the end of the period) of a
hypothetical $1,000 Purchase Payment made at the beginning of
the 1-year, 5-year, or 10-year period (or fractional portion
thereof)
</TABLE>
The formula assumes that: 1) all recurring fees have been deducted from the
Contract's Accumulation Account; 2) all applicable non-recurring Contract
charges are deducted at the end of the period; and 3) there will be a full
surrender at the end of the period.
The $30 annual contract maintenance charge will be allocated among the
Sub-Accounts so that each Sub-Account's allocated portion of the charge is
proportionate to the percentage of the number of Contracts that have amounts
allocated to that Sub-Account.
NON-STANDARDIZED INVESTMENT PERFORMANCE:
The Variable Account may illustrate its results over various periods and
compare its results to indices and other variable annuities in sales materials
including advertisements, brochures and reports. Such results may be computed on
a "cumulative" and/or "annualized" basis.
"Cumulative" quotations are arrived at by calculating the change in the
Accumulation Unit value of a Sub-Account between the first and last day of the
base period being measured, and expressing the difference as a percentage of the
Accumulation Unit value at the beginning of the base period.
"Annualized" quotations (described in the following table as "Compound
Growth Rate") are calculated by applying a formula which determines the level
rate of return which, if earned over the entire base period, would produce the
cumulative return.
5
<PAGE>
NON-STANDARDIZED INVESTMENT PERFORMANCE:
<TABLE>
<S> <C>
$10,000 INVESTED IN ...WOULD HAVE GROWN TO THIS AMOUNT ON
THIS SUB-ACCOUNT UNDER A DECEMBER 31, 1997*
COMPASS 2 CONTRACT
THIS MANY YEARS AGO...
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION SERIES GOVERNMENT SECURITIES SERIES
--------------------------------------------------- ---------------------------------------------------
NUMBER CUMULATIVE COMPOUND CUMULATIVE COMPOUND
OF GROWTH GROWTH GROWTH GROWTH
YEARS PERIODS AMOUNT RATE RATE PERIODS AMOUNT RATE RATE
- ---------- ---------------- ---------- ---------- -------- ---------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/96-12/31/97 $12,154.55 21.55% 21.55% 12/31/96-12/31/97 $10,735,23 7.35% 7.35%
2 12/31/95-12/31/97 $14,576.06 45.76% 20.73% 12/31/95-12/31/97 $10,768.15 7.68% 3.77%
3 12/31/94-12/31/97 $19,348.51 93.49% 24.61% 12/31/94-12/31/97 $12,505.97 25.06% 7.74%
4 12/31/93-12/31/97 $18,412.98 84.13% 16.49% 12/31/93-12/31/97 $12,079.16 20.79% 4.84%
5 12/31/92-12/31/97 $21,448.25 114.48% 16.49% 12/31/92-12/31/97 $12,960.32 29.60% 5.32%
10 12/31/87-12/31/97 $45,845.24 358.45% 16.45% 12/31/87-12/31/97 $19,865.45 98.65% 7.11%
Life 8/13/85-12/31/97 $59,172.36 491.72% 15.43% 8/12/85-12/31/97 $24,158.59 141.59% 7.38%
<CAPTION>
MANAGED SECTORS SERIES TOTAL RETURN SERIES
--------------------------------------------------- ---------------------------------------------------
NUMBER CUMULATIVE COMPOUND CUMULATIVE COMPOUND
OF GROWTH GROWTH GROWTH GROWTH
YEARS PERIODS AMOUNT RATE RATE PERIODS AMOUNT RATE RATE
- ---------- ---------------- ---------- ---------- -------- ---------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/31/96-12/31/97 $12,401.97 24.02% 24.02% 12/31/96-12/31/97 $12,040.36 20.40% 20.40%
2 12/31/95-12/31/97 $14,395.92 43.96% 19.98% 12/31/95-12/31/97 $13,556.84 35.57% 16.43%
3 12/31/94-12/31/97 $18,799.37 87.99% 23.42% 12/31/94-12/31/97 $16,970.00 69.70% 19.28%
4 12/31/94-12/31/97 $18,210.45 82.10% 16.17% 12/31/93-12/31/97 $16,381.45 63.81% 13.13%
5 12/31/92-12/31/97 $18,716.11 87.16% 13.36% 12/31/92-12/31/97 $18,344.71 83.45% 12.90%
Life 5/27/88-12/31/97 $41,593.87 315.94% 16.00% 5/16/88-12/31/97 $29,177.70 191.78% 11.76%
<CAPTION>
HIGH YIELD SERIES
---------------------------------------------------
NUMBER CUMULATIVE COMPOUND
OF GROWTH GROWTH
YEARS PERIODS AMOUNT RATE RATE
- ---------- ---------------- ---------- ---------- --------
<S> <C> <C> <C> <C>
1 12/31/96-12/31/97 $11,175.86 11.76% 11.76%
2 12/31/95-12/31/97 $12,368.25 23.68% 11.21%
3 12/31/94-12/31/97 $14,290.01 42.90% 12.64%
4 12/31/93-12/31/97 $13,791.96 37.92% 8.37%
5 12/31/92-12/31/97 $16,029.26 60.29% 9.90%
10 12/31/87-12/31/76 $24,849.11 148.49% 9.53%
Life 8/13/85-12/31/97 $29,029.85 190.30% 8.98%
WORLD GOVERNMENTS SERIES
---------------------------------------------------
NUMBER CUMULATIVE COMPOUND
OF GROWTH GROWTH
YEARS PERIODS AMOUNT RATE RATE
- ---------- ---------------- ---------- ---------- --------
<S> <C> <C> <C> <C>
1 12/31/96-12/31/97 $ 9,795.74 (2.04)% (2.04)%
2 12/31/95-12/31/97 $10,120.48 1.20% 0.60%
3 12/31/94-12/31/97 $11,560.36 15.60% 4.95%
4 12/31/93-12/31/97 $10,905.45 9.05% 2.19%
5 12/31/92-12/31/97 $12,803.44 28.03% 5.07%
Life 5/16/88-12/31/97 $18,135.60 81.36% 6.37%
</TABLE>
- ------------------------
*For purposes of determining these investment results, the actual investment
performance of each series of the MFS/Sun Life Series Trust illustrated, from
the date such Series commenced operations, has been recognized. The charges
imposed under the Contract against the assets of the Variable Account for
mortality and expense risks have been taken into account. However, the annual
Account Fee of $30 is not reflected and these examples do not assume surrender
at the end of the period.
6
<PAGE>
ADVERTISING AND SALES LITERATURE
As set forth in the Prospectus, the Company may refer to the following
organizations (and others) in its marketing materials:
A.M. BEST'S RATING SYSTEM is designed to evaluate the various factors
affecting the overall performance of an insurance company in order to provide an
opinion as to an insurance company's relative financial strength and ability to
meet its contractual obligations. The procedure includes both a quantitative and
qualitative review of each company.
DUFF & PHELPS CREDIT RATING COMPANY's Insurance Company Claims Paying
Ability Rating is an independent evaluation by a nationally accredited rating
organization of an insurance company's ability to meet its future obligations
under the contracts and products it sells. The rating takes into account both
quantitative and qualitative factors.
LIPPER VARIABLE INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE is a
publisher of statistical data covering the investment company industry in the
United States and overseas. Lipper is recognized as the leading source of data
on open-end and closed-end funds. Lipper currently tracks the performance of
over 5,000 investment companies and publishes numerous specialized reports,
including reports on performance and portfolio analysis, fee and expense
analysis.
STANDARD & POOR's insurance claims-paying ability rating is an opinion of an
operating insurance company's financial capacity to meet obligations of its
insurance policies in accordance with their terms.
VARDS (Variable Annuity Research Data Service) provides a comprehensive
guide to variable annuity contract features and historical fund performance. The
service also provides a readily understandable analysis of the comparative
characteristics and market performance of funds included in variable contracts.
STANDARD & POOR'S INDEX--Broad-based measurement of changes in stock-market
conditions based on the average performance of 500 widely held common stocks;
commonly known as the Standard & Poor's 500 (S&P 500). The selection of stocks,
their relative weightings to reflect differences in the number of outstanding
shares, and publication of the index itself are services of Standard & Poor's
Corporation, a financial advisory, securities rating, and publishing firm. The
index tracks 400 industrial company stocks, 20 transportation stocks, 40
financial company stocks, and 40 public utilities.
NASDAQ-OTC Price Index--This index is based on the National Association of
Securities Dealers Automated Quotations (NASDAQ) and represents all domestic
over-the-counter stocks except those traded on exchanges and those having only
one market maker, a total of some 3,500 stocks. It is market value-weighted and
was introduced with a base of 100.00 on February 5, 1971.
DOW JONES INDUSTRIAL AVERAGE (DJIA)--Price-weighted average of 30 actively
traded blue chip stocks, primarily industrials, but including American Express
Company and American Telephone and Telegraph Company. Prepared and published by
Dow Jones & Company, it is the oldest and most widely quoted of all the market
indicators. The average is quoted in points, not dollars.
In its advertisements and other sales literature for the Variable Account
and the Series Fund, the Company intends to illustrate the advantages of the
Contracts in a number of ways:
COMPOUND INTEREST ILLUSTRATIONS. These will emphasize several advantages of
the variable annuity contract. For example, but not by way of limitation, the
literature may emphasize the potential savings through tax deferral; the
potential advantage of the Variable Account over the fixed account; and the
compounding effect when an Owner makes regular deposits to his or her Account.
DOLLAR COST AVERAGING ILLUSTRATIONS. These illustrations will generally
discuss the price-leveling effect of making regular investments in the same
Sub-Accounts over a period of time, to take advantage of the trends in market
prices of the portfolio securities purchased by those Sub-Accounts.
THE COMPANY'S ASSETS, SIZE. The Company may discuss its general financial
condition (see, for example, the references to Standard & Poor's, A.M. Best
Company and Duff & Phelps above). It may refer to its assets; it may also
discuss its relative size and/or ranking among companies in the industry or
among any sub-classification of those companies, based upon recognized
evaluation criteria.
7
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT B
STATEMENT OF CONDITION-- December 31, 1997
<TABLE>
<CAPTION>
ASSETS:
Investment in MFS/Sun Life Series Trust Shares Cost Value
---------- ------------ ------------
<S> <C> <C> <C>
Capital Appreciation Series ("CAS")...... 1,690,865 $ 51,349,789 $ 67,868,674
Government Securities Series ("GSS")..... 1,720,075 21,379,490 22,430,830
High Yield Series ("HYS")................ 1,353,848 11,994,948 13,146,857
Managed Sectors Series ("MSS")........... 446,837 11,030,212 13,029,464
Money Market Series ("MMS").............. 12,406,672 12,406,672 12,406,672
Total Return Series ("TRS").............. 2,090,778 34,857,281 44,569,654
World Governments Series ("WGS")......... 478,903 5,498,072 5,137,026
------------ ------------
$148,516,464 $178,589,177
------------
------------
LIABILITY:
Payable to sponsor................................................... 70,619
------------
Net Assets..................................................... $178,518,558
------------
------------
</TABLE>
<TABLE>
<CAPTION>
Applicable to Owners of
Deferred Variable Annuity Contracts Reserve for
NET ASSETS: ----------------------------------- Variable
COMPASS 2 CONTRACTS: Units Unit Value Value Annuities Total
--------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
CAS................................................ 1,049,111 $ 59.1724 $ 62,072,312 $ 241,312 $ 62,313,624
GSS................................................ 897,267 24.1586 21,672,617 94,840 21,767,457
HYS................................................ 421,472 29.0298 12,237,445 43,066 12,280,511
MSS................................................ 270,624 41.5939 11,272,473 -- 11,272,473
MMS................................................ 713,552 16.6078 11,843,273 10,976 11,854,249
TRS................................................ 1,345,153 29.1777 39,309,920 609,566 39,919,486
WGS................................................ 256,940 18.1356 4,669,373 -- 4,669,373
------------ ----------- ------------
$163,077,413 $ 999,760 $164,077,173
------------ ----------- ------------
<CAPTION>
COMPASS 3 CONTRACTS:
<S> <C> <C> <C> <C> <C>
CAS................................................ 291,968 $ 19.0541 $ 5,562,736 $ 109 $ 5,562,845
GSS................................................ 55,194 12.0343 663,723 -- 663,723
HYS................................................ 60,217 14.3002 861,335 -- 861,335
MSS................................................ 100,687 17.4931 1,755,888 227 1,756,115
MMS................................................ 47,433 11.4533 543,064 -- 543,064
TRS................................................ 281,915 16.2726 4,586,550 100 4,586,650
WGS................................................ 42,551 11.0071 467,653 -- 467,653
------------ ----------- ------------
$ 14,440,949 $ 436 $ 14,441,385
------------ ----------- ------------
Net Assets............................................................ $177,518,362 $1,000,196 $178,518,558
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
See notes to financial statements
8
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT B
STATEMENTS OF OPERATIONS-- Year Ended December 31, 1997
<TABLE>
<CAPTION>
CAS GSS HYS MSS
Sub-Account Sub-Account Sub-Account Sub-Account
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain distributions
received....................................... $ 5,671,221 $ 1,773,033 $ 888,949 $ 1,371,268
Mortality and expense risk charges.............. 842,418 321,292 169,971 157,979
Distribution expense charges.................... 7,164 992 1,194 2,203
------------ ------------ ----------- ------------
Net investment income....................... $ 4,821,639 $ 1,450,749 $ 717,784 $ 1,211,086
------------ ------------ ----------- ------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales........................... $ 14,132,590 $ 9,865,167 $5,608,186 $ 4,092,808
Cost of investments sold...................... 9,867,505 9,941,116 5,133,558 3,008,351
------------ ------------ ----------- ------------
Net realized gains (losses)................. $ 4,265,085 $ (75,949) $ 474,628 $ 1,084,457
------------ ------------ ----------- ------------
Net unrealized appreciation on investments:
End of year................................... $ 16,518,885 $ 1,051,340 $1,151,909 $ 1,999,252
Beginning of year............................. 13,093,275 670,954 861,574 1,586,190
------------ ------------ ----------- ------------
Change in unrealized appreciation........... $ 3,425,610 $ 380,386 $ 290,335 $ 413,062
------------ ------------ ----------- ------------
Realized and unrealized gains................. $ 7,690,695 $ 304,437 $ 764,963 $ 1,497,519
------------ ------------ ----------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS............ $ 12,512,334 $ 1,755,186 $1,482,747 $ 2,708,605
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
MMS TRS WGS
Sub-Account Sub-Account Sub-Account Total
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Dividend income and capital gain distributions
received....................................... $ 675,167 $4,275,683 $ 252,673 $14,907,994
Mortality and expense risk charges.............. 176,350 528,904 74,258 2,271,172
Distribution expense charges.................... 1,117 6,104 775 19,549
---------- ---------- ---------- -----------
Net investment income....................... $ 497,700 $3,740,675 $ 177,640 $12,617,273
---------- ---------- ---------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Realized gains (losses) on investment
transactions:
Proceeds from sales........................... $14,314,584 $8,762,067 $2,194,887 $58,970,289
Cost of investments sold...................... 14,314,584 6,102,334 2,416,005 50,783,453
---------- ---------- ---------- -----------
Net realized gains (losses)................. $ -- $2,659,733 $(221,118 ) $ 8,186,836
---------- ---------- ---------- -----------
Net unrealized appreciation (depreciation) on
investments
End of Year................................... $ -- $9,712,373 $(361,046 ) $30,072,713
Beginning of Year............................. -- 8,090,640 (245,952 ) 24,056,681
---------- ---------- ---------- -----------
Change in unrealized appreciation
(depreciation)............................. $ -- $1,621,733 $(115,094 ) $ 6,016,032
---------- ---------- ---------- -----------
Realized and unrealized gains (losses)........ $ -- $4,281,466 $(336,212 ) $14,202,868
---------- ---------- ---------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS....................................... $ 497,700 $8,022,141 $(158,572 ) $26,820,141
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
See notes to financial statements
9
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT B
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CAS GSS
Sub-Account Sub-Account
------------------------------ -------------------------------
Year Ended December 31, Year Ended December 31,
------------------------------ -------------------------------
1997 1996 1997 1996
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income....................................... $ 4,821,639 $ 3,981,524 $ 1,450,749 $ 1,241,066
Net realized gains (losses)................................. 4,265,085 4,576,791 (75,949) (27,070)
Net unrealized gains (losses)............................... 3,425,610 2,015,008 380,386 (1,124,217)
-------------- ------------- -------------- --------------
Increase in net assets from operations.................. $12,512,334 $10,573,323 $ 1,755,186 $ 89,779
-------------- ------------- -------------- --------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received................................ $ 2,627,696 $ 2,717,881 $ 593,679 $ 894,639
Net transfers between Sub-Accounts and Fixed Account...... 668,389 (1,800,976) (1,912,328) 493,206
Withdrawals, surrenders, annuitizations and contract
charges.................................................. (7,704,458) (7,564,122) (4,863,706) (4,694,596)
-------------- ------------- -------------- --------------
Net accumulation activity............................... $(4,408,373) $(6,647,217) $(6,182,355) $ (3,306,751)
-------------- ------------- -------------- --------------
Annuitization Activity:
Annuitizations............................................ $ 67,112 $ 7,453 $ -- $ 10,761
Annuity payments and contract charges..................... (26,334) (21,172) (22,850) (43,569)
Adjustments to annuity reserve............................ (3,618) 775 3,140 1,408
-------------- ------------- -------------- --------------
Net annuitization activity.............................. $ 37,160 $ (12,944) $ (19,710) $ (31,400)
-------------- ------------- -------------- --------------
Decrease in net assets from contract owner transactions..... $(4,371,213) $(6,660,161) $(6,202,065) $ (3,338,151)
-------------- ------------- -------------- --------------
Increase (decrease) in net assets......................... $ 8,141,121 $ 3,913,162 $(4,446,879) $ (3,248,372)
NET ASSETS:
Beginning of year........................................... 59,735,348 55,822,186 26,878,059 30,126,431
-------------- ------------- -------------- --------------
End of year................................................. $67,876,469 $59,735,348 $22,431,180 $ 26,878,059
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
<CAPTION>
HYS MSS
Sub-Account Sub-Account
------------------------------ -------------------------------
Year Ended December 31, Year Ended December 31,
------------------------------ -------------------------------
1997 1996 1997 1996
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income....................................... $ 717,784 $ 942,056 $ 1,211,086 $ 1,252,707
Net realized gains.......................................... 474,628 281,243 1,084,457 346,321
Net unrealized gains........................................ 290,335 168,726 413,062 27,275
-------------- ------------- -------------- --------------
Increase in net assets from operations.................. $ 1,482,747 $ 1,392,025 $ 2,708,605 $ 1,626,303
-------------- ------------- -------------- --------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received................................ $ 212,184 $ 373,887 $ 641,130 $ 728,572
Net transfers between Sub-Accounts and Fixed Account...... 199,334 (133,634) 83,029 455,068
Withdrawals, surrenders, annuitizations and contract
charges.................................................. (2,269,739) (2,039,017) (2,113,363) (1,326,391)
-------------- ------------- -------------- --------------
Net accumulation activity............................... $(1,858,221) $(1,798,764) $(1,389,204) $ (142,751)
-------------- ------------- -------------- --------------
Annuitization Activity:
Annuitizations............................................ $ -- $ -- $ -- $ --
Annuity payments and contract charges..................... (5,630) (6,135) (164) (135)
Adjustments to annuity reserves........................... (427) (255) (11,371) 11,582
-------------- ------------- -------------- --------------
Net annuitization activity.............................. $ (6,057) $ (6,390) $ (11,535) $ 11,447
-------------- ------------- -------------- --------------
Decrease in net assets from contract owner transactions..... $(1,864,278) $(1,805,154) $(1,400,739) $ (131,304)
-------------- ------------- -------------- --------------
Increase (decrease) in net assets....................... $ (381,531) $ (413,129) $ 1,307,866 $ 1,494,999
NET ASSETS:
Beginning of year........................................... 13,523,377 13,936,506 11,720,722 10,225,723
-------------- ------------- -------------- --------------
End of year................................................. $13,141,846 $13,523,377 $13,028,588 $ 11,720,722
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
</TABLE>
See notes to financial statements
10
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT B
STATEMENTS OF CHANGES IN NET ASSETS -- continued
<TABLE>
<CAPTION>
MMS TRS
Sub-Account Sub-Account
------------------------------ -----------------------------
Year Ended December 31, Year Ended December 31,
------------------------------ -----------------------------
1997 1996 1997 1996
--------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income................................ $ 497,700 $ 524,831 $ 3,740,675 $ 2,404,032
Net realized gains................................... -- -- 2,659,733 1,937,824
Net unrealized gains................................. -- -- 1,621,733 489,044
--------------- ------------ -------------- ------------
Increase (decrease) in net assets from
operations...................................... $ 497,700 $ 524,831 $ 8,022,141 $ 4,830,900
--------------- ------------ -------------- ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received......................... $ 361,788 $ 506,719 $ 1,583,065 $ 1,903,724
Net transfers between Sub-Accounts and Fixed
Account........................................... 457,557 1,225,167 101,838 (23,251)
Withdrawals, surrenders, annuitizations and
contract charges.................................. (4,535,913) (3,891,615) (6,305,584) (5,723,230)
--------------- ------------ -------------- ------------
Net accumulation activity........................ $(3,716,568) $(2,159,729) $ (4,620,681) $ (3,842,757)
--------------- ------------ -------------- ------------
Annuitization Activity:
Annuitizations..................................... $ -- $ -- $ 56,378 $ 19,728
Annuity payments and contract charges.............. (1,179) (4,273) (82,242) (68,505)
Adjustments to annuity reserves.................... 10,821 (11,568) (19,810) (13,885)
--------------- ------------ -------------- ------------
Net annuitization activity....................... $ 9,642 $ (15,841) $ (45,674) $ (62,662)
--------------- ------------ -------------- ------------
Decrease in net assets from contract owner
transactions........................................ $(3,706,926) $(2,175,570) $ (4,666,355) $ (3,905,419)
--------------- ------------ -------------- ------------
Increase (decrease) in net assets.................. $(3,209,226) $(1,650,739) $ 3,355,786 $ 925,481
NET ASSETS:
Beginning of year.................................... 15,606,539 17,257,278 41,150,350 40,224,869
--------------- ------------ -------------- ------------
End of year.......................................... $12,397,313 $15,606,539 $ 44,506,136 $ 41,150,350
--------------- ------------ -------------- ------------
--------------- ------------ -------------- ------------
<CAPTION>
WGS
Sub-Account Total
------------------------------ -----------------------------
Year Ended December 31, Year Ended December 31,
------------------------------ -----------------------------
1997 1996 1997 1996
--------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income................................ $ 177,640 $ 951,977 $ 12,617,273 $ 11,298,193
Net realized gains (losses).......................... (221,118) (130,309) 8,186,836 6,984,800
Net unrealized gains (losses)........................ (115,094) (582,106) 6,016,032 993,730
--------------- ------------ -------------- ------------
Increase (decrease) in net assets from
operations...................................... $ (158,572) $ 239,562 $ 26,820,141 $ 19,276,723
--------------- ------------ -------------- ------------
CONTRACT OWNER TRANSACTIONS:
Accumulation Activity:
Purchase payments received......................... $ 200,405 $ 408,414 $ 6,219,947 $ 7,533,836
Net transfers between Sub-Accounts and Fixed
Account........................................... (327,982) (463,423) (730,163) (247,843)
Withdrawals, surrenders, annuitizations and
contract charges.................................. (1,751,969) (1,295,854) (29,544,732) (26,534,825)
--------------- ------------ -------------- ------------
Net accumulation activity........................ $(1,879,546) $(1,350,863) $(24,054,948) $(19,248,832)
--------------- ------------ -------------- ------------
Annuitization Activity:
Annuitizations..................................... $ -- $ -- $ 123,490 $ 37,942
Annuity payments and contract charges.............. -- -- (138,399) (143,789)
Adjustments to annuity reserves.................... -- -- (21,265) (11,943)
--------------- ------------ -------------- ------------
Net annuitization activity $ -- $ -- $ (36,174) $ (117,790)
--------------- ------------ -------------- ------------
Decrease in net assets from contract owner
transactions........................................ $(1,879,546) $(1,350,863) $(24,091,122) $(19,366,622)
--------------- ------------ -------------- ------------
Increase (decrease) in net assets.................. $(2,038,118) $(1,111,301) $ 2,729,019 $ (89,899)
NET ASSETS:
Beginning of year.................................... 7,175,144 8,286,445 175,789,539 175,879,438
--------------- ------------ -------------- ------------
End of year.......................................... $ 5,137,026 $ 7,175,144 $178,518,558 $175,789,539
--------------- ------------ -------------- ------------
--------------- ------------ -------------- ------------
</TABLE>
See notes to financial statements
11
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Sun Life (N.Y.) Variable Account B (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 series of MFS/Sun Life Series
Trust (the "Series Trust") as selected by contract owners. The Series Trust is
an open-end management investment company registered under the Investment
Company Act of 1940. Massachusetts Financial Services Company, an affiliate of
Sun Life Assurance Company of Canada (U.S.), is investment adviser to the Series
Trust.
(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 shares of the Series Trust are recorded at their net asset value.
Realized gains and losses on sales of shares of the Series Trust are determined
on the identified cost basis. Dividend income and capital gain distributions
received by the Sub-Accounts are reinvested in additional Series Trust shares
and are recognized on the ex-dividend date.
Exchanges between Sub-Accounts requested by 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. These deductions are
transferred periodically to the Sponsor. Currently, the deduction is at an
effective annual rate of 1.3% of the assets of the Variable Account attributable
to Compass 2 contracts and 1.25% of the assets of the Variable Account
attributable to Compass 3 contracts.
Each year on the contract anniversary, a contract maintenance charge of $30 is
deducted from each contract's accumulation account to cover administrative
expenses relating to the contract. After the annuity commencement date the
charge 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 (including the distribution expense charge
described below applicable to Compass 3 contracts) exceed 5% of the purchase
payments made under a Compass 2 contract or 9% of the purchase payments made
under a Compass 3 contract.
12
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS -- continued
For assuming the risk that withdrawal charges may be insufficient to compensate
it for the costs of distributing the Compass 3 contracts, the Sponsor makes a
deduction from the Variable Account at the end of each valuation period for the
first seven contract years (during both the accumulation period and, if
applicable, after annuity payments begin) at an effective annual rate of 0.15%
of the assets of the Variable Account attributable to such contracts. No
deduction is made after the seventh contract anniversary. No such deduction is
made with respect to assets attributable to Compass 2 contracts.
(4) ANNUITY RESERVES
Annuity reserves for contracts with annuity commencement dates prior to February
1, 1987 have been calculated using the 1971 Individual Annuitant Mortality
Table. Annuity reserves for contracts with annuity commencement dates on or
after February 1, 1987 are calculated using the 1983 Individual Annuitant
Mortality Table. All annuity reserves are calculated using an assumed interest
rate of 4%. Required adjustments to the reserve are accomplished by transfers to
or from the Sponsor.
13
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS -- continued
(5) UNIT ACTIVITY FROM CONTRACT OWNER TRANSACTIONS
<TABLE>
<CAPTION>
CAS GSS HYS
Sub-Account Sub-Account Sub-Account
----------------------- ----------------------- -------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
----------------------- ----------------------- -------------------
COMPASS 2 CONTRACTS 1997 1996 1997 1996 1997 1996
- ----------------------------------------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Units Outstanding Beginning of Year 1,149,253 1,311,905 1,160,869 1,317,288 489,793 570,116
Units purchased 25,636 34,513 22,468 29,010 3,272 5,193
Units transferred between
Sub-Accounts and Fixed Account 7,308 (32,094) (79,806) 25,659 6,890 (6,162)
Units withdrawn, surrendered, and
annuitized (133,086) (165,071) (206,264) (211,088) (78,483) (79,354)
---------- ---------- ---------- ---------- -------- --------
Units Outstanding End of Year 1,049,111 1,149,253 897,267 1,160,869 421,472 489,793
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
<CAPTION>
MSS
Sub-Account
-----------------------
Year Ended
December 31,
-----------------------
COMPASS 2 CONTRACTS 1997 1996
- ----------------------------------------- ---------- ----------
<S> <C> <C>
Units Outstanding Beginning of Year 314,243 331,221
Units purchased 8,716 11,544
Units transferred between
Sub-Accounts and Fixed Account (1,885) 12,613
Units withdrawn, surrendered, and
annuitized (50,450) (41,135)
---------- ----------
Units Outstanding End of Year 270,624 314,243
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
MMS TRS WGS
Sub-Account Sub-Account Sub-Account
---------------------- ---------------------- ------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
---------------------- ---------------------- ------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Units Outstanding Beginning of Year 917,551 1,084,910 1,532,369 1,740,564 358,117 433,736
Units purchased 14,540 20,814 34,725 40,026 6,591 10,747
Units transferred between
Sub-Accounts and Fixed Account 50,095 58,322 146 (6,258) (15,604) (20,115)
Units withdrawn, surrendered, and
annuitized (268,634) (246,495) (222,087) (241,963) (92,164) (66,251)
---------- ---------- ---------- ---------- -------- --------
Units Outstanding End of Year 713,552 917,551 1,345,153 1,532,369 256,940 358,117
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
</TABLE>
14
<PAGE>
SUN LIFE (N.Y.) VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
CAS GSS HYS
Sub-Account Sub-Account Sub-Account
----------------------- ----------------------- -------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
----------------------- ----------------------- -------------------
COMPASS 3 CONTRACTS 1997 1996 1997 1996 1997 1996
- ----------------------------------------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Units Outstanding Beginning of Year 231,231 184,876 58,052 39,286 58,945 43,963
Units purchased 72,122 82,988 6,833 23,535 9,036 20,780
Units transferred between
Sub-Accounts and Fixed Account 6,347 (23,851) (373) (1,004) 291 1,055
Units withdrawn, surrendered, and
annuitized (17,732) (12,782) (9,318) (3,765) (8,055) (6,853)
---------- ---------- ---------- ---------- -------- --------
Units Outstanding End of Year 291,968 231,231 55,194 58,052 60,217 58,945
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
<CAPTION>
MSS
Sub-Account
-----------------------
Year Ended
December 31,
-----------------------
COMPASS 3 CONTRACTS 1997 1996
- ----------------------------------------- ---------- ----------
<S> <C> <C>
Units Outstanding Beginning of Year 82,578 53,846
Units purchased 18,777 29,174
Units transferred between
Sub-Accounts and Fixed Account 10,378 4,546
Units withdrawn, surrendered, and
annuitized (11,046) (4,988)
---------- ----------
Units Outstanding End of Year 100,687 82,578
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
MMS TRS WGS
Sub-Account Sub-Account Sub-Account
---------------------- ---------------------- ------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
---------------------- ---------------------- ------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Units Outstanding Beginning of Year 83,267 44,348 255,284 185,716 47,922 46,895
Units purchased 11,190 16,424 44,905 80,349 7,395 20,202
Units transferred between
Sub-Accounts and Fixed Account (32,545) 25,043 4,923 10,544 (4,116) (9,737)
Units withdrawn, surrendered, and
annuitized (14,479) (2,548) (23,197) (21,325) (8,650) (9,438)
---------- ---------- ---------- ---------- -------- --------
Units Outstanding End of Year 47,433 83,267 281,915 255,284 42,551 47,922
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
</TABLE>
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners participating in Sun Life (N.Y.) Variable Account B
and the Board of Directors of Sun Life Insurance and Annuity Company of New
York:
We have audited the accompanying statement of condition of Sun Life (N.Y.)
Variable Account B (the "Variable Account") as of December 31, 1997, the related
statements of operations for the year then ended and the statements of changes
in net assets for the years ended December 31, 1997 and 1996. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities held at December 31, 1997 by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Variable Account as of December 31,
1997, the results of its operations and the changes in its net assets for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 6, 1998
16
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.))
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL STOCK AND
SURPLUS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
GENERAL ACCOUNT ASSETS:
Bonds $ 61,703,336 $ 77,142,619
Mortgage loans on real estate 25,787,001 40,431,773
Properties acquired in satisfaction of debt -- 1,377,041
Policy loans 636,277 651,332
Cash and short-term investments 10,120,237 4,614,994
Life insurance premiums and annuity considerations due
and uncollected 791,011 421,112
Accident and health premiums due and unpaid 158,858 69,672
Investment income due and accrued 1,083,939 1,737,199
Other assets 497,790 14,668
------------ ------------
General account assets 100,778,449 126,460,410
SEPARATE ACCOUNT ASSETS:
Unitized 406,430,585 303,896,114
Non-unitized 116,889,545 87,676,015
------------ ------------
Total Admitted Assets $624,098,579 $518,032,539
------------ ------------
------------ ------------
LIABILITIES
GENERAL ACCOUNT LIABILITIES:
Aggregate reserve for life policies and contracts $ 22,374,626 $ 20,404,586
Aggregate reserve for accident and health policies 7,414,000 4,185,000
Policy and contract claims 1,912,737 1,107,333
Liability for premium and other deposit funds 31,341,254 61,747,147
Interest maintenance reserve 885,581 1,173,961
Commissions to agents due or accrued 521,106 217,449
General expenses due or accrued 415,105 218,624
Transfers from Separate Accounts due or accrued (7,224,058) (1,689,278)
Taxes, licenses and fees due or accrued 114,986 96,884
Federal income taxes due or accrued 1,000,000 400,000
Asset valuation reserve 1,346,335 1,845,237
Payable to parent, subsidiaries and affiliates 1,266,475 1,614,355
Other liabilities 810,594 509,201
------------ ------------
General account liabilities 62,178,741 91,830,499
SEPARATE ACCOUNT LIABILITIES:
Unitized 406,249,110 303,723,382
Non-unitized 116,889,545 87,676,015
------------ ------------
Total liabilities 585,317,396 483,229,896
------------ ------------
CAPITAL STOCK AND SURPLUS
Capital Stock--Par value $1,000; authorized issued and
outstanding; 2,000 shares 2,000,000 2,000,000
------------ ------------
Gross paid in and contributed surplus 29,500,000 29,500,000
Group life contingency reserve fund 180,457 118,381
Unassigned funds 7,100,726 3,184,262
------------ ------------
Total Surplus 36,781,183 32,802,643
------------ ------------
CAPITAL STOCK AND SURPLUS 38,781,183 34,802,643
------------ ------------
Total liabilities, capital stock and surplus $624,098,579 $518,032,539
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
17
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
STATUTORY STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
INCOME:
Premiums and annuity considerations $ 16,670,915 $ 11,581,817 $ 11,731,623
Deposit-type funds 122,789,862 72,121,136 73,714,439
Net investment income 8,824,668 12,313,903 18,450,106
Amortization of interest maintenance reserve 519,001 704,763 753,351
Net gain from operations from Separate Accounts 8,743 8,101 --
------------ ------------ ------------
Total Income 148,813,189 96,729,720 104,649,519
------------ ------------ ------------
BENEFITS AND EXPENSES:
Death benefits 4,916,746 2,881,367 2,589,934
Annuity benefits 5,439,091 7,175,995 6,606,801
Disability benefits and benefits under accident and
health policies 939,635 464,615 233,549
Surrender benefits and other fund withdrawals 111,623,776 118,432,072 118,975,912
Interest on policy or contract funds 75,069 83,323 --
Increase in aggregate reserves for life and accident and
health policies and contracts 5,199,040 1,550,701 3,022,081
Decrease in liability for premium and other deposit
funds (30,405,893) (67,996,389) (71,733,008)
------------ ------------ ------------
Total Benefits 97,787,464 62,591,684 59,695,269
Commissions on premiums and annuity considerations
(direct business only) 5,582,738 3,047,358 3,212,849
General insurance expenses 7,687,478 6,093,131 5,716,492
Insurance taxes, licenses and fees, excluding federal
income taxes 788,386 729,244 579,585
Net transfers to Separate Accounts 31,479,097 19,487,747 32,047,554
------------ ------------ ------------
Total Benefits and Expenses 143,325,163 91,949,164 101,251,749
------------ ------------ ------------
Net gain from operations before dividends to
policyholders and federal income taxes 5,488,026 4,780,556 3,397,770
Federal income taxes incurred (excluding tax on capital
gains) 2,315,259 1,938,734 2,446,706
------------ ------------ ------------
Net gain from operations after dividends to
policyholders and federal income taxes and before
realized capital gains 3,172,767 2,841,822 951,064
Net realized capital gains (losses) less capital gains
tax and transferred to the interest maintenance
reserve 183,262 (439,101) (21,536)
------------ ------------ ------------
NET INCOME $ 3,356,029 $ 2,402,721 $ 929,528
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
18
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CAPITAL AND SURPLUS, BEGINNING OF YEAR $34,802,643 $31,964,414 $31,409,069
----------- ----------- -----------
Net income 3,356,029 2,402,721 929,528
Change in net unrealized capital gains (losses) 138,000 702,000 (672,000)
Change in nonadmitted assets and related items (14,391) 32,888 71,263
Change in asset valuation reserve 498,902 (299,380) 226,554
----------- ----------- -----------
Net change in capital and surplus for the year 3,978,540 2,838,229 555,345
----------- ----------- -----------
CAPITAL AND SURPLUS, END OF YEAR $38,781,183 $34,802,643 $31,964,414
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
19
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.))
STATUTORY STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH PROVIDED
Premiums, annuity considerations and deposit funds
received $139,005,632 $ 83,598,181 $ 85,243,958
Net investment income 9,707,801 14,106,521 19,808,090
------------ ------------ ------------
Total receipts 148,713,433 97,704,702 105,052,048
------------ ------------ ------------
Benefits paid 122,170,301 128,975,968 128,129,129
Insurance expenses and taxes paid 13,540,362 9,712,774 9,655,310
Net cash transfers to separate accounts 37,013,877 22,213,704 29,702,679
Federal income tax payments (excluding tax on capital
gains) 1,715,259 2,909,899 2,125,541
------------ ------------ ------------
Total payments 174,439,799 163,812,345 169,612,659
Net cash from operations (25,726,366) (66,107,643) (64,560,611)
Proceeds from long-term investments sold, matured or
repaid (after deducting taxes on capital gains of
$222,860 for 1997, $(112,405) for 1996 and $324,248
for 1995) 59,132,310 86,583,714 123,662,512
Other cash provided 325,543 4,654,856 444,240
------------ ------------ ------------
Total cash provided 59,457,853 91,238,570 124,106,752
------------ ------------ ------------
CASH APPLIED
Cost of long-term investments acquired 27,369,138 28,654,582 51,631,901
Other cash applied 857,106 166,107 2,401,799
------------ ------------ ------------
Total cash applied 28,226,244 28,820,689 54,033,700
------------ ------------ ------------
Net change in cash and short-term investments 5,505,243 (3,689,762) 5,512,441
CASH AND SHORT-TERM INVESTMENTS:
BEGINNING OF YEAR 4,614,994 8,304,756 2,792,315
------------ ------------ ------------
END OF YEAR $ 10,120,237 $ 4,614,994 $ 8,304,756
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE NOTES TO STATUTORY FINANCIAL STATEMENTS.
20
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL--
Sun Life Insurance and Annuity Company of New York (the "Company") is
incorporated as a life insurance company and is currently engaged in the sale of
individual fixed and variable annuities and group life and long-term disability
insurance. The parent company, Sun Life Assurance Company of Canada (U.S.) (Sun
Life of Canada (U.S.)), is ultimately a wholly-owned subsidiary of Sun Life
Assurance Company of Canada (Sun Life (Canada)), a mutual life insurance
company.
The Company, which is domiciled in the State of New York, prepares its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the Insurance Department of the State of New York. Prescribed
accounting practices include a variety of publications of the National
Association of Insurance Commissioners ("NAIC"), as well as New York State laws,
regulations and general administrative rules. Permitted accounting practices
encompass all accounting practices not so prescribed. The permitted accounting
practices adopted by the Company are not material to the financial statements.
Prior to 1996, statutory accounting practices were recognized by the insurance
industry and the accounting profession as generally accepted accounting
principles ("GAAP") for mutual life insurance companies and stock life insurance
companies wholly owned by mutual life insurance companies. In April of 1993, the
Financial Accounting Standards Board ("FASB") issued an interpretation (the
"Interpretation") which became effective in 1996 that has changed the previous
practice of mutual life insurance companies (and stock life insurance companies
that are wholly owned subsidiaries of mutual life insurance companies) with
respect to utilizing statutory basis financial statements for general purposes,
in that it will no longer allow such financial statements to be described as
having been prepared in conformity with GAAP. Consequently, these financial
statements prepared in conformity with statutory accounting practices as
described above, vary from and are not intended to present the Company's
financial position, results of operations or cash flow in conformity with GAAP.
(See Note 16 for further discussion relative to the Company's basis of financial
statement presentation.) The effects on the financial statements of the
variances between the statutory basis of accounting and GAAP, although not
reasonably determinable, are presumed to be material.
INVESTED ASSETS--
Bonds are carried at cost adjusted for amortization of premium or accrual of
discount. Mortgage loans acquired at a premium or discount are carried at
amortized values and other mortgage loans at the amounts of the unpaid balances.
Real estate investments are carried at the lower of cost, adjusted for
accumulated depreciation, or appraised value less encumbrances. Short-term
investments are carried at amortized cost which approximates fair value.
Depreciation of buildings and improvements is calculated using the straight-line
method over the estimated useful life of the property, generally three to
sixteen years.
POLICY AND CONTRACT RESERVES--
The reserves for group life insurance, group long-term disability insurance and
annuity contracts, developed by accepted actuarial methods, have been
established and maintained on the basis of published mortality and morbidity
tables using assumed interest rates and valuation methods that will provide
reserves at least as great as those required by law and contract provisions.
INCOME AND EXPENSES--
For group life, group long-term disability and annuity contracts, premiums are
recognized as revenues over the premium paying period, whereas commissions and
other costs applicable to the acquisition of new business are charged to
operations as incurred.
21
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
SEPARATE ACCOUNTS--
The Company has established unitized separate accounts applicable to individual
qualified and non-qualified variable annuity contracts.
Assets and liabilities of the separate accounts, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contract holders, are shown as separate captions in the statutory financial
statements. Assets held in the separate accounts are carried at market values.
The Company has also established a non-unitized separate account for amounts
allocated to the fixed portion of a certain combination fixed/variable deferred
annuity contract. The assets of this account are available to fund general
account liabilities and general account assets are available to fund liabilities
of this account.
Gains (losses) from mortality experience and investment experience of the
separate accounts, not applicable to contract owners, are transferred to (from)
the general account. Accumulated gains (losses) that have not been transferred
are recorded as payable (receivable) to (from) the general account. Transfers
from separate accounts due or accrued amounted to $7,224,000 in 1997 and
$1,689,000 in 1996.
OTHER--
Preparation of the financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Certain 1996 and 1995 amounts have been reclassified to conform to amounts as
presented in 1997.
2. BONDS:
Investments in debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- -------- --------
(IN 000'S)
<S> <C> <C> <C> <C>
Long-term bonds:
United States Government and
government agencies and authorities $15,005 $ 311 $-- $15,316
Foreign governments 523 16 -- 539
Public utilities 12,126 341 -- 12,467
Finance 4,026 80 -- 4,106
All other corporate bonds 30,023 696 16 30,703
-------- ---------- --- --------
Total long-term bonds 61,703 1,444 16 63,131
-------- ---------- --- --------
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 9,406 -- -- 9,406
-------- ---------- --- --------
$71,109 $1,444 $16 $72,537
-------- ---------- --- --------
-------- ---------- --- --------
</TABLE>
22
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2. BONDS (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
(IN 000'S)
<S> <C> <C> <C> <C>
Long-term bonds:
United States Government and
government agencies and authorities $ 9,075 $ 179 $ -- $ 9,254
Foreign governments 530 14 -- 544
Public utilities 19,997 434 8 20,423
Transportation 468 34 -- 502
Finance 9,643 182 -- 9,825
All other corporate bonds 37,430 1,149 33 38,546
-------- ---------- --- --------
Total long-term bonds 77,143 1,992 41 79,094
Short-term bonds:
U.S. Treasury Bills, bankers
acceptances and commercial paper 4,507 -- -- 4,507
-------- ---------- --- --------
$81,650 $1,992 $ 41 $83,601
-------- ---------- --- --------
-------- ---------- --- --------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31, 1997 by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call and/or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ------------
(IN 000'S)
<S> <C> <C>
Maturities are:
Due in one year or less $21,723 $ 21,825
Due after one year through five
years 33,228 34,015
Due after five years through ten
years 2,386 2,499
Due after ten years 6,162 6,471
--------- ------------
Subtotal 63,499 64,810
--------- ------------
Mortgage-backed securities 7,610 7,727
--------- ------------
$71,109 $ 72,537
--------- ------------
--------- ------------
</TABLE>
Proceeds from sales and maturities of investments in debt securities during
1997, 1996 and 1995 were $42,986,000, $76,431,000 and $111,448,000,
respectively. Gross gains of $395,000, $537,000 and $1,295,000 and gross losses
of $40,000, $183,000 and $335,000 were realized on such sales during 1997, 1996
and 1995, respectively.
A bond, included above, with an amortized cost of approximately $408,000 and
$412,000 at December 31, 1997 and 1996, respectively, was on deposit with the
Superintendent of Insurance of the State of New York as required by law.
23
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. MORTGAGE LOANS:
The Company invests in commercial first mortgage loans throughout the United
States. The Company monitors the condition of the mortgage loans in its
portfolio. In those cases where mortgages have been restructured, appropriate
allowances for losses have been made. In those cases where, in management's
judgment, the mortgage loans' values are impaired, appropriate losses are
recorded.
The following table shows the geographic distribution of the mortgage loan
portfolio at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN 000'S)
<S> <C> <C>
New York $ 4,375 $10,717
California 4,672 4,884
Massachusetts 2,556 6,542
Ohio 1,308 3,445
Florida 3,313 3,795
All other 9,563 11,049
------- -------
$25,787 $40,432
------- -------
------- -------
</TABLE>
As of December 31, 1997, the Company has restructured mortgage loans totaling
$960,000 against which there are allowances for losses of $250,000.
4. INVESTMENT GAINS (LOSSES):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1997 1996 1995
----- ----- -----
(IN 000'S)
<S> <C> <C> <C>
Realized capital gains (losses):
Mortgage loans $ (6) $(676) $ (1)
Real estate 288 -- (32)
----- ----- -----
282 (676) (33)
----- ----- -----
----- ----- -----
Changes in unrealized capital gains
(losses) on mortgage loans $ 138 $ 702 $(672)
----- ----- -----
----- ----- -----
</TABLE>
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rate risk are charged or credited to an interest
maintenance reserve ("IMR") and amortized into income over the remaining
contractual life of the security sold. The gross realized capital gains credited
to the interest maintenance reserve were $355,000, $354,000 and $960,000 in
1997, 1996 and 1995, respectively. All gains are transferred net of applicable
income taxes.
24
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5. NET INVESTMENT INCOME:
Net investment income consisted of the following for:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
(IN 000'S)
<S> <C> <C> <C>
Interest income from bonds $ 5,622 $ 8,576 $13,020
Interest income from mortgage loans 3,279 4,252 5,882
Real estate investment income (loss) 483 376 (52)
Other investment income (loss) 170 (93) 170
------- ------- -------
Gross investment income 9,554 13,111 19,020
Investment expenses 729 797 570
------- ------- -------
Net investment income $ 8,825 $12,314 $18,450
------- ------- -------
------- ------- -------
</TABLE>
6. REINSURANCE:
The Company has agreements with Sun Life (Canada) which provide that Sun Life
(Canada) will reinsure the mortality and morbidity risks of the group life
insurance contracts and group long-term disability contracts issued by the
Company. Under these agreements, basic death benefits and long-term disability
benefits are reinsured on a yearly renewable term basis. The agreements provide
that Sun Life (Canada) will reinsure the mortality risks in excess of $50,000
per policy for group life insurance contracts and $3,000 per policy per month
for the group long-term disability contracts ceded by the Company. Reinsurance
transactions under these agreements had the effect of increasing income from
operations by $139,000 for the year ended December 31, 1997, decreasing income
from operations by $500,000 for the year ended December 31, 1996 and increasing
income from operations by $652,000 for the year ended December 31, 1995.
The group life and long-term disability reinsurance agreements require that the
reinsurer provide funds in amounts equal to the reserves ceded.
The following are summarized proforma results of operations of the Company for
the years ended December 31, 1997, 1996 and 1995 before the effect of
reinsurance transactions with Sun Life (Canada).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- ------- --------
(IN 000'S)
<S> <C> <C> <C>
Income:
Premiums, annuity deposits and other
revenues $142,915 $85,947 $ 86,819
Net investment income 9,343 13,019 19,204
-------- ------- --------
Subtotal 152,258 98,966 106,023
-------- ------- --------
Benefits and expenses:
Policyholder benefits 101,371 64,328 61,720
Other expenses 45,538 29,357 41,557
-------- ------- --------
Subtotal 146,909 93,685 103,277
-------- ------- --------
Income from operations $ 5,349 $ 5,281 $ 2,746
-------- ------- --------
-------- ------- --------
</TABLE>
25
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
7. WITHDRAWAL CHARACTERISTICS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT
LIABILITIES:
Withdrawal characteristics of general account and separate account annuity
reserves and deposits:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------
AMOUNT % OF TOTAL
-------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal:
--with market value adjustment $120,764 21.40%
--at book value less surrender charges (surrender charge > 5%) 13,811 2.40
--at book value (minimal or no charge or adjustment) 410,484 72.70
Not subject to discretionary withdrawal provision 19,972 3.50
-------- ----------
Total annuity actuarial reserves and deposit liabilities $565,031 100.00%
-------- ----------
-------- ----------
<CAPTION>
DECEMBER 31, 1996
--------------------
AMOUNT % OF TOTAL
-------- ----------
(IN 000'S)
<S> <C> <C>
Subject to discretionary withdrawal:
--with market value adjustment $ 92,135 19.60%
--at book value less surrender charges (surrender charge > 5%) 38,668 8.20
--at book value (minimal or no surrender charge or adjustment) 318,886 67.90
Not subject to discretionary withdrawal provision 20,326 4.30
-------- ----------
Total annuity actuarial reserves and deposit liabilities $470,015 100.00%
-------- ----------
-------- ----------
</TABLE>
8. RETIREMENT PLANS:
The Company participates with Sun Life (Canada) and Sun Life of Canada (U.S.) in
a noncontributory defined benefit pension plan covering essentially all
employees. The benefits are based on years of service and compensation.
The funding policy for the pension plan is to contribute an amount which at
least satisfies the minimum amount required by ERISA; the plan is currently
fully funded. The Company is charged for its share of the pension cost based
upon its covered participants. Pension plan assets consist principally of a
variable accumulation fund contract held in a separate account of Sun Life
(Canada).
The Company's share of the group's accrued pension cost at December 31, 1997,
1996 and 1995 was $211,000, $178,000 and $97,000, respectively. The Company's
share of net periodic pension cost was $33,000, $81,000 and $18,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
The Company also participates with Sun Life (Canada), Sun Life of Canada (U.S.)
and certain affiliates in a 401(k) savings plan for which substantially all
employees are eligible. The Company matches, up to specified amounts, employees'
contributions to the plan. Employer contributions were $28,000, $27,000 and
$21,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to pension benefits, the Company provides certain health, dental and
life insurance benefits ("post-retirement benefits") for retired employees and
dependents. Substantially all employees may become eligible for these benefits
if they reach normal retirement age while working for the Company, or retire
26
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8. RETIREMENT PLANS (CONTINUED):
early upon satisfying an alternate age plus service condition. Life insurance
benefits are generally set at a fixed amount. The expense recognized in the
financial statements relative to this plan was $16,000 in 1997, $8,000 in 1996
and $7,000 in 1995.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- ------------ -------------- ------------
(IN 000'S)
<S> <C> <C> <C> <C>
ASSETS:
Bonds $ 71,109 $ 72,537 $ 81,650 $ 83,601
Mortgages 25,787 26,557 40,432 41,196
------- ------------ -------------- ------------
Total $ 98,896 $ 99,094 $122,082 $ 124,797
------- ------------ -------------- ------------
------- ------------ -------------- ------------
LIABILITIES:
Individual annuities $ 40,479 $ 38,177 $ 70,166 $ 68,830
------- ------------ -------------- ------------
------- ------------ -------------- ------------
</TABLE>
The major methods and assumptions used in estimating the fair values of
financial instruments are as follows:
The fair values of short-term bonds are estimated to be the amortized cost. The
fair values of long-term bonds which are publicly traded are based upon market
prices or dealer quotes. For privately placed bonds, fair values are estimated
using prices for publicly traded bonds of similar credit risk, maturity,
repayment and liquidity characteristics.
The fair values of the Company's general account reserves and liabilities under
investment-type contracts (insurance and annuity contracts that do not involve
mortality or morbidity risks) are estimated using discounted cash flow analyses
or surrender values. Those contracts that are deemed to have short-term
guarantees have a carrying amount equal to the estimated market value.
The fair values of mortgages are estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
10. STATUTORY INVESTMENT VALUATION RESERVES:
The asset valuation reserve ("AVR") provides a reserve for losses from
investments in bonds, mortgage loans, real-estate and other invested assets with
related increases or decreases being recorded directly to surplus.
Realized capital gains and losses on bonds and mortgages which relate to changes
in levels of interest rate risk are charged or credited to an IMR and amortized
into income over the remaining contractual life of the security sold.
27
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
10. STATUTORY INVESTMENT VALUATION RESERVES (CONTINUED):
The table shown below presents changes in the major elements of the AVR and IMR.
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
AVR IMR AVR IMR
------ ------ ------ ------
(IN 000'S) (IN 000'S)
<S> <C> <C> <C> <C>
Balance, beginning of year $1,845 $1,174 $1,546 $1,648
Net realized capital gains (losses), net of tax 183 231 (439) 230
Amortization of net investment gains -- (519) -- (704)
Unrealized investment gains 138 -- 702 --
Required by formula (820) -- 36 --
------ ------ ------ ------
Balance, end of year $1,346 $ 886 $1,845 $1,174
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
11. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES:
Activity in the liability for unpaid claims and claim adjustment expense is
summarized below (in 000's).
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance, January 1 $ 6,129 $ 4,320 $ 2,322
Claims incurred 9,008 5,061 4,789
Claims paid (4,898) (3,252) (2,791)
------- ------- -------
Balance, December 31 $10,239 $ 6,129 $ 4,320
------- ------- -------
------- ------- -------
</TABLE>
The information presented above includes unpaid benefit claims and claim
adjustment expenses for the group life and group long-term disability contracts.
As of December 31, 1997, the unpaid claim and claim adjustment liability for
these contracts is included in Policy Reserves.
12. FEDERAL INCOME TAXES:
The Company files a consolidated federal income tax return with Sun Life of
Canada (U.S.) and other affiliates. Federal income taxes are calculated as if
the Company filed a return as a separate company. No provision is recognized for
timing differences which may exist between financial statement and taxable
income. Such differences include reserves, depreciation and accrual of market
discount on bonds. The Company made cash payments to Sun Life of Canada (U.S.)
of $1,938,000, $2,797,000 and $2,421,000 during 1997, 1996 and 1995,
respectively.
13. LEASE COMMITMENTS:
The Company leases two separate facilities for its annuity operations and group
sales office. Both leases commenced in March 1994.
28
<PAGE>
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
(Wholly-Owned Subsidiary of Sun Life Assurance Company Of Canada (U.S.))
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
13. LEASE COMMITMENTS (CONTINUED):
Future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------ AMOUNT
------
(IN
000'S)
<S> <C>
1998 $ 354
1999 305
2000 237
2001 237
2002 237
Thereafter 275
------
Total $1,645
------
------
</TABLE>
Rent expense under these and prior leases in 1997, 1996 and 1995 amounted to
$348,000, $336,000 and $336,000, respectively.
14. MANAGEMENT AND SERVICE CONTRACTS:
The Company has agreements with Sun Life (Canada) which provide that Sun Life
(Canada) will furnish to the Company, as requested, personnel as well as certain
investment, actuarial and administrative services on a cost reimbursement basis.
Expenses under these agreements amounted to approximately $1,155,000 in 1997,
$1,866,000 in 1996 and $1,741,000 in 1995.
15. RISK-BASED CAPITAL:
Effective December 31, 1993, the NAIC adopted risk-based capital requirements
for life insurance companies. The risk-based capital requirements provide a
method for measuring the minimum acceptable amount of adjusted capital that a
life insurer should have, as determined under statutory accounting practices,
taking into account the risk characteristics of its investments and products.
The Company has met the minimum risk-based capital requirements at December 31,
1997 and 1996.
16. ACCOUNTING POLICIES AND PRINCIPLES:
The financial statements of the Company have been prepared on the basis of
statutory accounting practices which, prior to 1996, were considered by the
insurance industry and the accounting profession to be in accordance with GAAP
for mutual life insurance companies. The primary differences between statutory
accounting and GAAP are described as follows. Statutory accounting practices do
not recognize the following assets or liabilities which are reflected under
GAAP; deferred acquisition costs, deferred federal income taxes and statutory
non admitted assets. AVR and IMR are established under statutory accounting
practices but not under GAAP. Methods for calculating real estate depreciation
and investment valuation allowances differ under statutory accounting practices
and GAAP. Premiums for investment-type products are recognized as income for
statutory purposes and as deposits to policyholders' accounts for GAAP.
Because the Company's management uses financial information prepared in
conformity with accounting policies generally accepted in Canada in the normal
course of business, the management of the Company has determined that the cost
of complying with Statement No. 120 would exceed the benefits that the Company,
or the users of its financial statements, would experience. Consequently, the
Company has elected not to apply such standards in the preparation of these
financial statements.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
SUN LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital stock and surplus of Sun Life Insurance and Annuity
Company of New York ("the Company") as of December 31, 1997 and 1996, and the
related statutory statements of operations, changes in capital stock and
surplus, and cash flow for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Notes 1 and 16 to the financial statements, the
Company prepared these financial statements using accounting practices
prescribed or permitted by the Insurance Department of the State of New York,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles, although not
reasonably determinable, are presumed to be material.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities and capital stock and
surplus of Sun Life Insurance and Annuity Company of New York as of December 31,
1997 and 1996, and the results of its operations and its cash flow for each of
the three years in the period ended December 31, 1997 on the basis of accounting
described in Notes 1 and 16.
However, because of the effects of the matter discussed in the second preceding
paragraph, in our opinion, the statutory financial statements referred to above
do not present fairly, in conformity with generally accepted accounting
principles, the financial position of Sun Life Insurance and Annuity Company of
New York as of December 31, 1997 and 1996 or the results of its operations or
its cash flow for each of the three years in the period ended December 31, 1997.
As management has stated in Note 16, because the Company's management uses
financial information prepared in accordance with accounting principles
generally accepted in Canada in the normal course of business, the management of
Sun Life Insurance and Annuity Company of New York has determined that the cost
of complying with Statement No. 120, Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts, would exceed the benefits that the Company, or the
users of its financial statements would experience. Consequently, the Company
has elected not to apply such standards in the preparation of these financial
statements.
DELOITTE & TOUCHE LLP
February 5, 1998
30
<PAGE>
APPENDIX A
THE FIXED ACCOUNT
THAT PORTION OF THE CONTRACT RELATING TO THE FIXED ACCOUNT IS NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") AND THE FIXED ACCOUNT IS NOT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940
("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN
ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT,
AND THE DISCLOSURE IN THIS APPENDIX A HAS NOT BEEN REVIEWED BY THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION. HOWEVER, THE FOLLOWING DISCLOSURE ABOUT THE
FIXED ACCOUNT MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE
FEDERAL SECURITIES LAWS REGARDING THE ACCURACY AND COMPLETENESS OF DISCLOSURE.
A WORD ABOUT THE FIXED ACCOUNT
The Fixed Account is made up of all of the general assets of the Company
other than those allocated to any separate account. Purchase Payments will be
allocated to the Fixed Account as elected by the Owner at the time of purchase
or as subsequently changed. 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 GUARANTEED 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 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
31
<PAGE>
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.
LOANS FROM THE FIXED ACCOUNT (QUALIFIED CONTRACTS ONLY)
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)
UNDER QUALIFIED CONTRACTS ONLY. 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
32
<PAGE>
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.
33
<PAGE>
APPENDIX B
ILLUSTRATIVE EXAMPLE OF VARIABLE ACCUMULATION UNIT VALUE CALCULATIONS
Suppose the net asset value of a particular Series 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 the particular Series Fund shares to go "ex-dividend"
during the current Valuation Period. $18.38 divided by $18.32 is 1.00327511.
Subtracting the one day risk factor for mortality and expense risks 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 VALUE 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 1.0032372 X
0.99989255).
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY PAYMENT CALCULATIONS
Suppose that the Accumulation Account of a deferred Contract is credited
with 8,765.4321 Variable Accumulation Units of a particular Sub-Account but is
not credited with any Fixed Accumulation Units; that the Variable Accumulation
Unit value and the Annuity Unit value for the particular Sub-Account for the
Valuation Period which ends immediately preceding the Annuity Commencement Date
are 14.5645672 and 12.3456789, respectively; that the annuity payment rate for
the age and option elected is $6.78 per $1,000; and that the Annuity Unit value
on the day prior to the second variable annuity payment date is 12.3843446. The
first variable annuity payment would be $865.57 (8,765.4321 X 14.5645672 X 6.78
divided by 1,000). The number of Annuity Units credited would be 70.1112
($865.57 divided by 12.3456789) and the second variable annuity payment would be
$868.28 (70.1112 X 12.3843446).
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APPENDIX C
WITHDRAWALS AND WITHDRAWAL CHARGES
Suppose, for example, that the initial Purchase Payment under a Contract was
$2,000, and that $2,000 Purchase Payments were made on each Contract Anniversary
thereafter. The maximum free withdrawal amount would be $200, $400, $600, $800,
and $1,000 in Contract Years 1, 2, 3, 4, and 5, respectively; these amounts are
determined as 10% of the new Payments (as new Payments are defined in each
Contract Year).
In years after the 5th, the maximum free withdrawal amount will be increased
by any old Payments which have not already been liquidated. Continuing the
example, consider a partial withdrawal of $4,500 made during the 7th Contract
Year. Let us consider this withdrawal under two sets of circumstances, first
where there were no previous partial withdrawals, and second where there had
been an $800 cash withdrawal payment made in the 5th Contract Year.
1. In the first instance, there were no previous partial withdrawals. The
maximum free withdrawal amount in the 7th Contract Year is then $5,000,
which consists of $4,000 in old Payments ($2,000 from each of the first
two Contract Years) and $1,000 as 10% of the new Payments in years 3-7.
Because the $4,500 partial withdrawal is less than the maximum free
withdrawal amount of $5,000, no withdrawal charge would be imposed.
This withdrawal would liquidate the Purchase Payments which were made in
Contract Years 1 and 2, and would liquidate $500 of the Purchase Payment
which was made in Contract Year 3.
2. In the second instance, an $800 cash withdrawal payment had been made in
the 5th Contract Year. Because the cash withdrawal payment was less than
the $1,000 maximum free withdrawal amount in the 5th Contract Year, no
surrender charge would have been imposed. The $800 cash withdrawal
payment would have liquidated $800 of the Purchase Payment in the 1st
Contract Year.
As a consequence, the maximum free withdrawal amount in the 7th Contract
Year is only $4,200, consisting of $3,200 in old Payments ($1,200
remaining from year 1 and $2,000 from year 2) and $1,000 as 10% of new
Payments. A $4,500 partial withdrawal exceeds the maximum free withdrawal
amount by $300. Therefore the amount subject to the withdrawal charge is
$300 and the withdrawal charge is $300 X 0.05, or $15. The amount of the
cash withdrawal payment is the $4,500 partial withdrawal, minus the $15
withdrawal charge, or $4,485. The $4,500 partial withdrawal would be
charged to the Contract's Accumulation Account in the form of cancelled
Accumulation Units.
This withdrawal would liquidate the remaining $1,200 from the Purchase
Payment in Contract Year 1, the full $2,000 Purchase Payment from
Contract Year 2, and $1,300 of the Payment from Contract Year 3.
Suppose that the Owner of the Contract wanted to make a full surrender of
the Contract in year 7 instead of a $4,500 partial withdrawal. The consequences
would be as follows:
1. In the first instance, where there were no previous cash withdrawal
payments, we know from above that the maximum free withdrawal amount in
the 7th Contract Year is $5,000. The sum of the old and new Payments not
previously liquidated is $14,000 ($2,000 from each Contract Year). The
amount subject to the withdrawal charge is thus $9,000. The withdrawal
charge on full surrender would then be $9,000 X 0.05 or $450.
2. In the second instance, where $800 had previously been withdrawn, we
know from above that the maximum free withdrawal amount in the 7th
Contract Year is $4,200. The sum of old and new Payments not previously
liquidated is $14,000 less the $800 which was previously liquidated, or
$13,200. The amount subject to the withdrawal charge is still $9,000
($13,200 - $4,200). The withdrawal charge on full surrender would thus be
the same as in the first example.
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SUN LIFE INSURANCE AND ANNUITY COMPANY OF
NEW YORK
Annuity Service Mailing Address:
80 Broad Street
New York, New York 10004
GENERAL DISTRIBUTOR
Clarendon Insurance Agency, Inc.
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
LEGAL COUNSEL
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, D.C. 20044
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
CO2NY-13 5/98
