AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 1, 1997
File No. 33-58502
811-4865
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment
No.
[ ]
Post - Effective Amendment No. 8 [X]
-
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. _23____
[X]
(Check appropriate box or boxes.)
VARIABLE ACCOUNT A
(Exact Name of Registrant)
American International Life Assurance Company of New York
(Name of Depositor)
80 Pine Street, New York, New York 10005
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number,including Area Code (212) 770-7000
Robert Liguori, Esq.
AIG Life Insurance Company
One Alico Plaza
Wilmington, Delaware 19899
(Name and Address of Agent for Service)
Copies to:
Michael Berenson, Esq. and Florence Davis, Esq.
Jorden Burt Berenson & Johnson American International
Suite 400 East Group, Inc.
1025 Thomas Jefferson Street, N.W. 70 Pine Street
Washington, D.C. 20007-0805 New York, New York 10270
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this filing.
It is proposed that this filing will become effective
(check appropriate box)
_X_ immediately upon filing pursuant to paragraph (b) of Rule 485
on __________ pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(i) of Rule 485
on pursuant to paragraph (a)(i) of Rule 485
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has declared that it registered an indefinite number or amount of
securities in accordance with Rule 24f-2 under the Investment Company Act of
1940. Registrant filed a Rule 24f-2 notice for its most recent fiscal year on
February 28, 1997
<PAGE>
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
PART A
Item 1. Cover Page..................................... Cover Page
Item 2. Definitions.................................... Definitions
Item 3. Synopsis....................................... Highlights
Item 4. Condensed Financial Information................ Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies............. The Variable
Account; The
Company; The Fund
Item 6. Deductions and Expenses........................ Charges andDeductions
Item 7. General Description of Variable
Annuity Contracts.............................. Purchasing a
Contract;Rights
under the
Contracts
Item 8. Annuity Period................................. Annuity
Period
Item 9. Death Benefit.................................. DeathBenefit
Item 10 Purchases and Contract Value................... Rights under the
Contracts; Purchasing
a Contract
Item 11. Redemptions................................ Withdrawals
Item 12. Taxes...................................... Taxes
Item 13. Legal Proceedings.......................... Not
Applicable
Item 14. Table of Contents of the Statement of
Additional Information..................... Table of
Contents of the
Statement of
Additional
Information
<PAGE>
PART B
Item 15. Cover Page.................................... Cover Page
Item 16. Table of Contents............................. Table of
Contents
Item 17. General Information and History............... General
Information
Item 18. Services...................................... Services
Item 19. Purchase of Securities Being Offered.......... Purchasing
a Contract;
Charges and
Deductions
(Part A)
Item 20. Underwriters.................................. General
Information/
Distributor
Item 21. Calculation of Performance Data............... Calculation
of
Performance
Related
Information
Item 22. Annuity Payments.............................. Annuity
Provisions
Item 23. Financial Statements.......................... Financial
Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK
80 Pine Street
New York, New York 10005
INDIVIDUAL SINGLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
The Individual Single Purchase Payment Deferred Variable Annuity Contracts
(the "Contracts") described in this Prospectus provide for accumulation of
Contract Values and payment of monthly annuity payments. The Contracts may be
used by individuals in retirement plans which do not qualify for federal tax
advantages ("Non-Qualified Contracts") or in connection with retirement plans
which may qualify as Individual Retirement Annuities ("IRA") under Section 408
of the Internal Revenue Code of 1986, as amended (the "Code") or Section 403(b)
of the Code ("403(b) Plan"). The Contracts will not be available in connection
with retirement plans designed by American International Life Assurance Company
of New York (the "Company") which qualify for the federal tax advantages
available under Sections 401 and 457 of the Code. Purchasers intending to use
the Contracts in connection with an IRA or a 403(b) Plan should seek competent
tax advice.
Purchase payments for the Contracts will be allocated to a segregated
investment account of the Company which account has been designated Variable
Account A (the "Variable Account"). The assets of each subaccount with in the
Variable Account are invested in a corresponding portfolio as selected by the
Owner from the following choices: the Conservative Investors Portfolio, Growth
Investors Portfolio, Growth Portfolio, Quasar Portfolio, Technology Portfolio or
Growth and Income Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.;
the VIP High Income Portfolio, VIP Growth Portfolio, VIP Money Market Portfolio,
VIP Overseas Portfolio, VIP II Asset Manager Portfolio, or VIP II Investment
Grade Bond Portfolio of the FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS
FUNDS; the Zero Coupon Portfolio of the DREYFUS VARIABLE INVESTMENT FUND; the
Worldwide Hard Assets Portfolio or Worldwide Balanced Portfolio, of the VAN ECK
WORLDWIDE INSURANCE TRUST; the DREYFUS STOCK INDEX FUND; or the Short-Term
Retirement Portfolio, Medium-Term Retirement Portfolio or the Long-Term
Retirement Portfolio of the TOMORROW FUNDS RETIREMENT TRUST.
This Prospectus concisely sets forth the information a prospective investor
ought to know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information" which is available at no
charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference. The
Table of Contents of the Statement of Additional Information can be found on
page of this Prospectus. For the Statement of Additional Information dated May
1, 1997, call or write American International Life Assurance Company of New
York; Attention: Variable Products, 80 Pine Street, New York, New York, 10005,
1-800-340-2765.
INQUIRIES: Contract Owner inquiries can be made by calling the service
office at 1-800-255-8402.
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.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
Date of Prospectus: May 1, 1997
1
<PAGE>
TABLE CONTENTS
PAGE
Definitions..............................................
Highlights...............................................
Summary of Expenses......................................
Condensed Financial Information..........................
The Company..................................................
The VariableAccount..................................................
The Funds.....................................................
Charges and Deductions..............................................
Administration of the Contracts.....................................
Rights under the Contracts..........................................
Annuity Period......................................................
Death Benefit.......................................................
Purchasing a Contract...............................................
Contract Value......................................................
Withdrawals.........................................................
Taxes...............................................................
Appendix - General Account Option...................................
Table of Contents of the Statement of Additional Information........
2
<PAGE>
DEFINITIONS
Accumulation Period - The period prior to the Annuity Date.
Accumulation Unit - Accounting unit of measure used to calculate the Contract
Value prior to the Annuity Date.
Age - Age means age last birthday.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant is named in the application.
Annuity Date - The date at which annuity payments are to begin.
Annuity Unit - Accounting unit of measure used to calculate variable annuity
payments.
Beneficiary - The person or persons named in the application who will receive
any benefit upon the death of the Contract Owner (or Annuitant as applicable)
prior to the Annuity Date.
Contingent Owner - The Contingent Owner, if any, must be the spouse of the
Contract Owner as named in the application, unless changed.
Contract Anniversary - The same month and date as the Date of Issue in each
subsequent year of the Contract.
Contract Owner - The person designated as Contract Owner in the application,
unless changed.
Contract Value - The value of all amounts accumulated under the Contract.
Contract Year - Any period of twelve (12) months commencing with the Date of
Issue and each Contract Anniversary thereafter.
Date of Issue - The date when the purchase payment was invested.
Deferred Sales Charge - The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within six years of the
Date of Issue.
General Account - All of the Company's assets other than the assets of the
Variable Account and any other separate accounts of the Company.
3
<PAGE>
Office - The Annuity Service Office of the Company: c/o Delaware Valley
Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn,
Pennsylvania 19312-0031.
Valuation Date - Each day that the New York Stock Exchange is open for trading.
Valuation Period - The period commencing as of the close of the New York Stock
Exchange (presently 4 P.M., New York time) on each Valuation Date and ending as
of the close of the New York Stock Exchange on the next succeeding Valuation
Date.
Variable Account - A separate investment account of the Company, designated
Variable Account A, into which purchase payments will be allocated.
4
<PAGE>
HIGHLIGHTS
Purchase payments for the Contracts will be allocated to a segregated investment
account of the Companywhich account has been designated Variable Account A (the
"Variable Account"). The Variable Account invests in shares of the Fund Fundon
page .)
The Contracts provide that in the event that a Contract Owner withdraws all or a
portion of the Contract Value within six Contract Years there will be assessed a
Deferred Sales Charge. The Deferred Sales Charge is based on a table of charges,
of which the maximum charge is currently 6% of the Contract Value subject to a
maximum of 8.5% of the purchase payment. (See "Charges and Deductions -
Deduction for Deferred Sales Charge" on page
.)
Any premium or other taxes levied by any governmental entity with respect to the
Contracts will be charged against the purchase payment or the Contract Value.
Premium taxes currently imposed by certain states on the Contracts range from 0%
to 3.5%. (See "Charges and Deductions - Deduction for State Premium Taxes" on
page .)
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any income taxes. (See "Charges
and Deductions - Deduction for Income Taxes" on page .)
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. (See "Charges and Deductions - Deduction for
Mortality and Expense Risk Charge" on page .)
The Company deducts an annual Administrative Charge, which is currently $30 per
year, from the Contract Value to reimburse it for administrative expenses
relating to maintenance of the Contract and the Variable Account. The Company
may increase this charge to an amount not to exceed $100 per year. (See "Charges
and Deductions - Deduction for Administrative Charge" on page .)
There are deductions and expenses paid out of the assets of the Fund which are
described in the accompanying Prospectus for the Fund.
Surrenders and withdrawals may be taxable and subject to a penalty tax. (See
"Taxes" beginning on page____.)
The Contract Owner may return the Contract within ten (10) days (the "Free Look
Period") after it is received by delivering or mailing it to the Company's
Office. If the Contract is purchased in Kansas or South Carolina and replaces
any existing life insurance policy or annuity, the Contract Owner will be given
a twenty (20) day Free Look Period. The return of the Contract by mail will be
effective when the postmark is affixed to a properly addressed and postage
prepaid envelope. The Company will refund the Contract Value. However, if the
laws of a state require that the Company refund, during the Free Look Period, an
amount equal to the purchase payment paid less any withdrawals, the Company will
refund such an amount. In the case of Contracts issued in connection with an IRA
the Company will refund the greater of the purchase payment, less any
withdrawals, or the Contract Value.
5
<PAGE>
<TABLE>
<CAPTION>
FEE TABLE
Owner Transaction Expenses
All Sub-Accounts
<S> <C>
Sales Load Imposed on Purchases.......................... None
</TABLE>
Surrender Charge (as a percentage of amount surrendered):
<TABLE>
<CAPTION>
Single Premium Contracts
<S> <C>
Contract Year 1 6%
Contract Year 2 5%
Contract Year 3 4%
Contract Year 4 3%
Contract Year 5 2%
Contract Year 6 1%
Contract Year 7 None
and thereafter
</TABLE>
Sales Loan Imposed on Purchases: None
Deferred Sales Load (as a percentage of amount
surrendered):
Exchange Fee Currently:
First 12 Per Contract Year None
Thereafter $ 10
Annual Contract Fee $ 30
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Account Fees and Expenses 0.15%
Total Separate Account Annual Expenses 1.40%
6
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Portfolio Fee Expenses Expenses
<S> <C> <C> <C>
Alliance Conservative Investors 0.30% 0.65% 0.95(1)
Alliance Growth Investors 0.00% 0.95% 0.95%(1)
Alliance Growth 0.74% 0.19% 0.93%(1)
Alliance Growth and Income 0.63% 0.19% 0.82%(1)
+Alliance Quasar 0.00% 0.95% 0.95%(1)
+Alliance Technology 0.33% 0.62% 0.95%(1)
Fidelity VIP High Income 0.59% 0.12% 0.71%(4)
Fidelity VIP Growth 0.61% 0.08% 0.69%(4)
Fidelity VIP Money Market 0.21% 0.09% 0.30%(4)
Fidelity VIP Overseas 0.76% 0.17% 0.93%(4)
Fidelity VIP II Asset Manager 0.64% 0.10% 0.74%(4)
Fidelity VIP II
Investment Grade Bond 0.45% 0.13% 0.58%(4)
+Van Eck Worldwide Hard Assets 1.00% 0.23% 1.23%(5)
Van Eck Worldwide Balanced 0.00% 0.00% 0.00%(5)
Dreyfus Zero Coupon 2000 0.45% 0.21% 0.66%(3)
Dreyfus Stock Index 0.245% 0.055% 0.30%(3)
Tomorrow Short-Term Retirement 0.00% 1.50% 1.50%(2)
Tomorrow Medium-Term Retirement 0.00% 1.50% 1.50%(2)
Tomorrow Long-Term Retirement 0.00% 1.50% 1.50%(2)
The purpose of the table set forth above is to assist the Contract Owner
in understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The table reflects expenses of the Variable Account as
well as the Fund. The Annual Contract fee for purposes of the Expense Table,
above, was based upon the assessment of a $30 charge on a Contract Value of
$5,000. (See "Charges and Deductions" on page
of this Prospectus and each Fund's Prospectus for further information.)
Any premium or other taxes levied by any governmental entity with respect
to the Contracts will be charged against the purchase payment or the Contract
Value based on a percentage of premiums paid. Premium taxes currently imposed by
certain states on the Contracts range from 0% to 3.5% of premiums paid. (See
"Charges and Deductions - Deduction for Premium and Other Taxes" on page .)
"Other Expenses" are estimated based upon the expenses outlined under the
section discussing the management of the Fund in each Fund's Prospectus.
<FN>
+The Operating Expenses for the Quasar, Technology and Hard Assets Portfolio set
forth above have been annualized for those portfolios have not been in effect
for a full year.
++ As of May 1, 1997 the Van Eck Gold and Natural Resources Portfolio will no
longer be offered. The Portfolio has been replaced by the Van Eck Worldwide Hard
Assets Fund described in the prospectus.
*Operating Expenses for the following Portfolios before reimbursement by the
relevant Fund's investment adviser, for the period ending December 31, 1996,
were as follows:
(1) Alliance Variable Product Series Funds: 1.40% for Conservative
Investors; 1.85% for Growth Investors; 0.93%for Growth; 4.44% for Quasar;
and 1.62% for Technology, of average daily net assets;
(2) Tomorrow Retirement Funds- 19.10% for the Short-Term Retirement,
20.86% for the Medium Term Retirement and 40.49% for the Long-Term Retirement,
of average daily net assets;
(3) Regarding the Dreyfus Fund, the expenses set forth above are the actual
total expenses without any expense reimbusement;
(4) With respect to the Fidelity VIP and VIP II funds, the expenses set forth
above are actual total expenses. However a portion of the brokerage commission
that certain funds pay was used to reduce fund expenses. In addition, certain
funds have entered into arrangements with their custodian and transfer agent
wheby interest earned on univested cash balances was used to reduce custodian
and transfer agent expenses. Including thesereductions, the total operating
expenses presented in the table would have been .67% for the Growth Portfolio,
.92% for the Overseas Portfolio, and .73% for the Asset Manager Portfolio;
(5) The Van Eck Funds: 2.49% for the Worldwide Balance Fund and 1.24% for the
Hard Assets Fund. The fee respecting In addition Van Eck has disclosed that with
respect to the Hard Assets Fund, the Fund directs certain portfolio trades to a
broker that, in turn pays a portion of the Fund's operating expenses. For the
year ended December 31, 1996, the Fund's expenses were redueced by $7,290 under
this arrangement. The Fund could have invested the assets used in connection
with the directed brokerage arrangement in an income producing asset if it had
not entered in to such an arrangement.
</FN>
</TABLE>
In the event that a Contract Owner withdraws all or a portion of the Contract
Value in excess of the Free Withdrawal Amount for the first withdrawal in a
Contract Year, or makes subsequent withdrawals in a Contract Year, a Deferred
Sales Charge may be imposed. The Free Withdrawal Amount is equal to 10% of the
Contract Value at the time of withdrawal. (See "Charges and Deductions -
Deduction for Deferred Sales Charge" on page
.)
7
<PAGE>
Expenses on a hypothetical $1,000 Single Premuim policy, assuming 5% growth:
<TABLE>
<CAPTION>
If you surrender
----------------------------------------------
Portfolios 1 Year 3 Years 5 Years 10 Years
- ----------- ---------------------------------------------
<S> <C> <C> <C> <C>
Alliance Conservative Investors 80 114 149 275
Alliance Growth Investors 80 114 149 275
Alliance Growth 80 113 148 273
Alliance Growth and Income 79 110 143 262
Alliance Quasar 80 114 149 275
Alliance Technology 80 114 149 275
Fidelity VIP High Income 78 107 137 250
Fidelity VIP Growth 77 106 136 248
Fidelity VIP Money Market 74 95 117 207
Fidelity VIP Overseas 80 113 148 272
Fidelity VIP II Asset Manager 78 108 139 253
Fidelity VIP II
Investment Grade Bond 76 103 131 237
Dreyfus Zero Coupon 2000 77 106 135 245
Dreyfus Stock Index 74 95 117 207
Van Eck Worldwide Hard Assets 82 122 163 302
Van Eck Worldwide Balanced 71 86 101 175
Tomorrow Short-Term Retirement 85 130 176 328
Tomorrow Medium-Term Retiremenet 85 130 176 328
Tomorrow Long-Term Retirement 85 130 176 328
</TABLE>
Expenses on a hypothetical $1,000 Single Premuim policy, assuming 5% growth:
<TABLE>
<CAPTION>
If you annuitize or
if you do not surrender
Portfolio 1 Year 3 Years 5 Years 10 Years
- --------
<S> <C> <C> <C> <C>
Alliance Conservative Investors 24 75 129 275
Alliance Growth Investors 24 75 129 275
Alliance Growth 24 75 128 275
Alliance Growth and Income 23 71 122 258
Alliance Quasar 24 75 129 275
Alliace Technology 24 75 129 275
Fidelity VIP High Income 22 68 116 250
Fidelity VIP Growth 22 67 115 248
Fidelity VIP Money Market 18 55 95 207
Fidelity VIP Overseas 24 74 127 272
Fidelity VIP II Asset Manager 22 69 118 253
Fidelity VIP II
Investment Grade Bond 21 64 110 237
Dreyfus Zero Coupon 2000 22 66 114 245
Dreyfus Stock Index 18 55 95 207
Van Eck Worldwide Hard Assets 27 84 142 302
Van Eck Worldwide Balanced 15 46 80 175
Tomorrow Short-Term Retirement 30 92 156 328
Tomorrow Medium-Term Retiremenet 30 92 156 328
Tomorrow Long-Term Retirement 30 92 156 328
</TABLE>
The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
8
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1996
--------------------
9
<PAGE>
<S> <C>
Alliance Growth & Income
Accumulation Unit Value
Beginning of Period 10.00
End of Period 12.00
Accum Units o/s @ end of period 20,637.99
Alliance Growth Investor
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.52
Accum Units o/s @ end of period 4,469.09
Alliance Growth
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.32
Accum Units o/s @ end of period 13,718.81
Alliance Technology
Accumulation UnitValue
Beginning of Period 10.00
End of Period 9.80
Accum Units o/s @ end of period 3,209.81
Alliance Quasar
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.31
Accum Units o/s @ end of period 674.25
Fidelity Money Market
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.25
Accum Units o/s @ end of period 113,781.59
Fidelity Asset Manager
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.87
Accum Units o/s @ end of period 8,370.63
Fidelity Growth
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.07
Accum Units o/s @ end of period 23,774.76
Fidelity High Income
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.67
Accum Units o/s @ end of period 8,506.22
Fidelity Inv. Grade Bond
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.48
Accum Units o/s @ end of period 2,615.29
Fidelity Overseas
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.71
Accum Units o/s @ end of period 10,640.99
*Van Eck Gold and Nat. Res.
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.78
Accum Units o/s @ end of period 4,646.11
Van Eck World Wide Bal.
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.73
Accum Units o/s @ end of period 5,572.84
Dreyfus StockIndex
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.21
Accum Units o/s @ end of period 17,836.33
Dreyfus Zero Coupon
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.32
Accum Units o/s @ end of period 6,176.80
Tomorrow Short Term
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.70
Accum Units o/s @ end of period 15,744.76
Tomorrow Medium Term
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.78
Accum Units o/s @ end of period 6,084.92
Tomorrow Long-Term
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.84
Accum Units o/s @ end of period 1,852.96
- -------------------------------
<FN>
*Effective May 1, 1997 the Van Eck Gold and Natural Resources Portfolio
will no longer be offered as an investment option. The Portfolio will
be replaced by the Van Eck Worldwide Hard Assets Portfolio, which is described
in this Prospectus.
</FN>
</TABLE>
10
<PAGE>
Funds were first invested in the Portfolios as listed below:
<TABLE>
<S> <C>
Alliance Growth and Income January 14, 1991
Alliance Growth Investors October 28, 1994
Alliance Growth September 15, 1994
Alliance Conservative
Investors October 28, 1994
Alliance Quasar August 15,1996
Alliance Technology January 22,1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Overseas January 28, 1987
Fidelity Asset Manager September 9, 1989
Fidelity Investment
Grade Bond December 5, 1988
Dreyfus Zero Coupon 2000 September 29, 1989
Dreyfus Stock Index August 31, 1990
Van Eck Gold and Natural Res. September 1, 1989
Van Eck Worldwide Balance December 23, 1994
Tomorrow Short-Term Retirement April 1, 1996
Tomorrow Medium-Term Retirement April 1, 1996
Tomorrow Long-Term Retirement April 1, 1996
</TABLE>
11
<PAGE>
Calculation Of Performance Data
The Company may, from time to time, advertise certain performance
related information concerning one or more of the Sub-accounts, including
information as to total return and yield. Performance information about a
Sub-account is based on the Sub-account's past performance only and is not
intended as an indication of future performance.
When the Company advertises the average annual total return of a
Sub-account, it will usually be calculated for one, five, and ten year
periods or, where a Sub-account has been in existence for a period less
than one, five or ten years, for such lesser period. Average annual total
return is measured by comparing the value of the investment in a
Sub-account at the beginning of the relevant period to the value of the
investment at the end of the period (assuming the deduction of any
Deferred Sales Charge which would be payable if the account were redeemed
at the end of the period) and calculating the average annual compounded
rate of return necessary to produce the value of the investment at the end
of the period.
The Company may simultaneously present returns that do not assume a
surrender and, therefore, do not deduct the Deferred Sales Charge.
When the Company advertises the yield of a Sub-account it will be
calculated based upon a 30-day period ended on the date of the most recent
balance sheet of the Company included in its registration statement. The
yield is determined by dividing the net investment income per Accumulation
Unit earned during the period by the maximum offering price per unit on
the last day of the period.
When the Company advertises the performance of the Money Market
Sub-account it may advertise in addition to the total return either the
yield or the effective yield. The yield of the Money Market Sub-account
refers to the income generated by an investment in that Sub-account over a
7-day period. The income is then annualized (i.e., the amount of income
generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the
investment). The effective yield is calculated similarly but when
annualized the income earned by an investment in the Money Market
Sub-account is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all
contract charges: sales charges, mortality and expense risk charges, and
the administrative charge, and is therefore lower than the total return at
the Fund level, which has no comparable charges. Likewise, yield and
effective yield at the Variable Account level take into account all
recurring charges (except sales charges), and are therefore lower than the
yield and effective yield at the Fund level, which has no comparable
charges.
Performance information for a Sub-account may be compared to: (i)
the Standard & Poor's 500 Stock Index, Dow Jones Industrial Average,
Donoghue Money Market Institutional Averages, indices measuring corporate
bond and government security prices as prepared by Shearson Lehman Hutton
and Salomon Brothers or other indices measuring performance of a pertinent
group of securities so that investors may compare a Sub-account's results
with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks
mutual funds and other investment companies by overall performance,
investment objectives, and assets, or tracked by other ratings services,
companies, publications, or persons who rank separate accounts or other
investment products on overall performance or other criteria; (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in the Contract; and (iv) indices or averages of
alternative financial products available to prospective investors,
including the Bank Rate Monitor which monitors average returns of various
bank instruments.
12
<PAGE>
Financial Data
Financial Statements of the Company and the Variable Account may be
found in the Statement of Additional Information.
THE COMPANY
The Company") is a stock life insurance company organized under the
laws of the State of New York in 1962. The Company provides a full range
of life insurance and annuity plans. The Company is a subsidiary of
American International Group, Inc., which serves as the holding company
for a number of companies engaged in the international insurance business,
both life and general, in over 130 countries and jurisdictions around the
world.
THE VARIABLE ACCOUNT
The Board of Directors of the Company adopted a resolution to
establish a segregated asset account pursuant to New York insurance law on
June 5, 1986. The Company has caused the Variable Account to be registered
with the Securities and Exchange Commission as a unit investment trust
pursuant to the provisions of the Investment Company Act of 1940.
The assets of the Variable Account are the property of the Company.
However, the assets of the Variable Account, equal to the reserves and
other contract liabilities with respect to the Variable Account, are not
chargeable with liabilities arising out of any other business the Company
may conduct. Income, gains and losses, whether or not realized, are, in
accordance with the Contracts, credited to or charged against the Variable
Account without regard to other income, gains or losses of the Company.
The Company's obligations arising under the Contracts are general
corporate obligations of the Company. The Variable Account may be subject
to liabilities arising from Sub-accounts whose assets are attributable to
other variable annuity contracts offered by Variable Account A which are
not described in this Prospectus.
The Variable Account is divided into Sub-accounts, with the assets
of each Sub-account invested shares of a corresponding portfolio of the
available Funds. The Company may, from time to time, add additional
portfolios of a Fund, and, when appropriate, additional Funds to act as
the funding vehicles for the Contracts.
13
<PAGE>
THE FUNDS
Alliance Funds, Fidelity Funds, Dreyfus Funds, Van Eck Funds, and
Tomorrow Funds (collectively, the "Funds") are each registered with the
SEC as a diversified open-end management investment company under the 1940
Act. Each includes different series funds or Portfolios ("Portfolios").
The Dreyfus Stock Index Fund (also a "Fund" herein) is an open-end,
non-diversified management investment company, intended to be a funding
vehicle for separate accounts of life insurance companies. Shares of the
Funds are sold to separate accounts of life insurance companies and may
also be sold to qualified plans. The investment objectives of each of the
Portfolios in which Subaccounts invest are set forth below. There is, of
course, no assurance that these objectives will be met. The Fund
Prospectuses may include series or Portfolios which are not available
under this Contract.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Conservative Investors Portfolio
This Portfolio seeks the highest total return without undue risk to
principal by investing in a diversified mix of publicly traded equity and
fixed-income securities.
Growth Investors Portfolio
This Portfolio seeks the highest total return available with
reasonable risk by investing in a diversified mix of publicly traded
equity and fixed-income securities.
Growth Portfolio
This Portfolio seeks the long term growth of capital by investing
primarily in common stocks and other equity securities.
Growth and Income Portfolio
This Portfolio seeks to balance the objectives of reasonable current
income and opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
Technology Portfolio
This portfolio seeks growth of capital through investment in
companies expected to benefit from advances in technology. The Technology
portfolio invests principally in a diversified portfolio of securities of
companies which use technology extensively in the development of new or
improved products or processes.
Quasar Portfolio
This portfolio seeks growth of capital by pursuing
aggressive investment policies. The Portfolio invests principally in a
diversified portfolio of equity securities of any company and industry
and in any type of security which is believed to offer possibilities for
capital appreciation.
Alliance Variable Products Series Fund, Inc., is managed by Alliance
Capital Management L.P., ("Alliance"). The fund also includes other
portfolios which are not available for use by the Separate Account. More
detailed information regarding management of the funds, investment
objectives, investment advisory fees and other charges, may be found in
the current Alliance Funds Prospectus which contains a discussion of the
risks involved in investing. The Alliance Funds Prospectus is included
with this Prospectus.
14
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 Portfolio
This Portfolio seeks to provide as high an investment return as is
consistent with the preservation of capital. This portfolio invests
primarily in debt obligations of the U.S. Treasury that have been stripped
of their unmatured interest coupons, interest coupons that have been
stripped from debt obligations issued by the U.S. Treasury, receipts and
certificates for such stripped debt obligations, and stripped coupons and
zero coupon securities issued by domestic corporations. This portfolio's
assets will consist primarily of portfolio securities which will mature on
or about December 31, 2000, at which time the portfolio will be
liquidated. Prior to December 31, 2000, you will be offered the
opportunity to exchange your investment to another Subaccount.
DREYFUS STOCK INDEX FUND
This Fund seeks to provide investment results that correspond to the
price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. In anticipation of taking a market position, the fund is
permitted to purchase and sell stock index futures. The Fund is neither
sponsored by nor affiliated with Standard & Poor's Corporation.
The Dreyfus Corporation serves as the investment advisor for the
Zero Coupon 2000 Portfolio which is the available portfolio of the Dreyfus
Variable Investment Fund. The fund also includes other portfolios which
are not available under this prospectus as funding vehicles for the
Contract. Wells Fargo Nikko Investment Advisers ("WFNIA") serves as the
index fund manager of the Dreyfus Stock Index Fund. More detailed
information regarding management of the funds, investment objectives,
investment advisory fees and other charges assessed by the funds, are
contained in the prospectuses of the Dreyfus Variable Investment Fund and
of the Dreyfus Stock Index Fund, each of which is included with this
Prospectus.
FIDELITY INVESTMENT VARIABLE INSURANCE PRODUCTS FUNDS
VIP Growth Portfolio
This Portfolio seeks to aggressively achieve capital appreciation
through investments primarily in common stock.
VIP High Income Portfolio
This Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, high-risk, lower-rated, fixed-income
securities (commonly referred to as "junk bonds"), while also considering
the potential for growth of capital. The potential for high yield is
accompanied by a higher risk. For a more detailed discussion of the
investment risks associated with such securities, please refer to the
relevant Fund's attached prospectus.
15
<PAGE>
VIP Overseas Portfolio
This Portfolio seeks the long-term growth of capital primarily
through investments in securities of companies and economies outside the
United States.
VIP Money Market Portfolio
This Portfolio seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. The fund
will invest only in high quality U.S. dollar-denominated money market
securities of domestic and foreign issuers. An investment in Money Market
Portfolio is neither insured nor guaranteed by the U.S. government, and
there can be no assurance that the fund will maintain a stable $1.00 share
price.
VIP II Asset Manager Portfolio
This Portfolio seeks to provide a high total return with reduced
risk over the long term by allocating its assets among stocks, bonds and
short-term income instruments.
VIP II Investment Grade Bond Portfolio
This Portfolio seeks as high a level of current income as is
consistent with the preservation of capital by investing in a broad range
of investment-grade fixed-income securities. The Portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less.
Fidelity Management & Research Company ("FMR") is the investment
advisor for the Variable Insurance Products Funds. FMR has entered into a
sub-advisory agreement with FMR Texas, Inc., on behalf of the Money Market
Portfolio. On behalf of the Overseas Portfolio, FMR has entered into
sub-advisory agreements with Fidelity Management & Research (U.K.) Inc.,
(FMR U.K.), Fidelity Management & Research (Far East) Inc. (FMR Far East),
and Fidelity International Investment Advisors (FIIA). FMR U.K. and FMR
Far East also are sub-advisors to the Asset Manager Portfolio. Fidelity
Funds include other portfolios which are not available under this
prospectus as funding vehicles for the Contracts. More detailed
information regarding management of the funds, investment objectives,
investment advisory fees and other charges assessed by the Fidelity Funds,
are contained in the prospectuses of the funds, included with this
Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Balanced Fund
This Portfolio seeks long term capital appreciation together with
current income by investing its assets in the United States and other
countries throughout the world, and by allocating its assets among equity
securities, fixed-income securities and short-term instruments.
*Worldwide Hard Assets Fund
This Portfolio seeks long-term capital appreciation by investing in
equity and debt securities of companies engaged to a significant extent in
the exploration, development, production,and distribution of (1) precious
metals; (2) ferrous and non-ferrous metals;(3) oil and gas; (4) forest
products; (5) real estate; and (6) other basic non-agricultual commodities
(collectively, " Hard Assets").
* As of May 1, 1997 the Van Eck Gold and Natural Resources Portfolio
is no longer being offered. The Portfolio will be replaced by the Van Eck
Worldwide Hard Assets Fund described above.
Van Eck Associates Corporation is the investment advisor and manager
of The Van Eck Worldwide Insurance Trust ("Van Eck Funds"). Van Eck
Associates Corporation serves as investment advisor to the Worldwide Hard
Assets Fund, and has entered into sub-advisory agreements to provide
investment advice for certain portfolios. Fiduciary International Inc.
("FII") serves as a sub-advisor to the Worldwide Balanced Fund. Van Eck
Funds include other portfolios which are not available under this
prospectus as funding vehicles for the Contracts. More detailed
information regarding management of the funds, investment objectives,
investment advisory fees and other charges assessed by the Van Eck Funds,
are contained in the prospectus for the funds included with this
Prospectus.
TOMORROW FUNDS RETIREMENT TRUST
Short-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors
who are currently between 51 and 65 years of age and with an average
remaining life expectancy in the range of 20-30 years.
Medium-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors
who are currently between 36 and 50 years of age and with an average
remaining life expectancy in the range of 35-50 years.
Long-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors
who are currently between 22 and 35 years of age and with an average
remaining life expectancy in the range of 50 years or more.
Each Tomorrow Funds portfolio invests its assets, in varying amonts,
in equity and fixed-income securities of all types. The amount of assets
allocated to equity securities is currently invested, in varying amounts,
among large capitalization stocks, medium capitalization stocks, small
capitalization stocks and, indirectly through other investment companies,
foreign securities. Typically, the longer the average life expectancy of
the target class of investors in a Tomorrow Funds portfolio, the greater
the allocation of assets of that portfolio to securities with higher
growth potential and, correspondingly, more risk, such as small
capitalization stocks. Conversely, the shorter the average life expectancy
of the target class of investors in a Tomorrow Funds portfolio, the
greater the emphasis on current income and capital preservation of assets
and, therefore, the greater the allocation of assets of that portfolio to
fixed-income securities. Each Tomorrow Funds portfolio will be managed
more conservatively as the average age of its target class of investors
increases.
Weiss, Peck & Greer, L.L.C. is the investment adviser for the
Tomorrow Funds portfolios. Tomorrow Funds include other portfolios which
are not available under this Prospectus as funding vehicles for the
Contracts. More detailed information regarding management of the funds,
investment objectives, investment advisory fees and other charges assesed
by the Tomorrow Funds, are contained in the prospectuses of the Tomorrow
Funds, included with this Prospectus.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF THE PORTFOLIOS WILL
BE MET.
16
<PAGE>
The shares of Alliance Funds, Fidelity Funds, Dreyfus Fund, the
Dreyfus Stock Index Fund, the Tomorrow Funds, and Van Eck Funds are sold
not only to the Variable Account, but may be sold to other separate
accounts of the Company that fund benefits under variable annuity and
variable life policies. The shares of the Funds are also sold to separate
accounts of other insurance companies. It is conceivable that in the
future it may become disadvantageous for variable life and variable
annuity separate accounts to invest in the same underlying fund. Although
neither we nor Alliance Funds, Fidelity Funds, Dreyfus Fund, the Dreyfus
Stock Index Fund, the Tomorrow Funds, and Van Eck Funds currently perceive
or anticipate any such disadvantage, the Funds will monitor events to
determine whether any material conflict exists between variable annuity
Owners and variable life Owners.
Material conflicts could result from such occurrences as: (1)
changes in state insurance laws; (2) changes in federal income tax law;
(3) changes in the investment management of any Fund; or (4) differences
between voting instructions given by variable annuity Owners and those
given by variable life Owners. In the event of a material irreconcilable
conflict, we will take the steps necessary to protect our variable annuity
and variable life Owners. This could include discontinuance of investment
in a Fund.
Each Fund sells and redeems its shares at Net Asset Value without
any sales charge. Any dividends or distributions from security
transactions of a Fund are reinvested at Net Asset Value in shares of the
same Portfolio; however, there are sales and additional charges associated
with the purchase of the Contracts.
Further information about the Funds and the managers is contained in
the accompanying prospectuses, which you should read in conjunction with
this Prospectus.
Voting Rights
The Fund does not hold regular meetings of shareholders. The
Directors of a Fund may call Special Meetings of Shareholders for action
by shareholder vote as may be required by the Investment Company Act of
1940 or the Articles of Incorporation of a Fund. In accordance with its
view of present applicable law, the Company will vote the shares of a Fund
held in the Variable Account at special meetings of the shareholders of
the Fund in accordance with instructions received from persons having the
voting interest in the Variable Account. The Company will vote shares for
which it has not received instructions from Contract Owners and those
shares which it owns in the same proportion as it votes shares for which
it has received instructions from Contract Owners.
17
<PAGE>
The number of shares which a person has a right to vote will be
determined as of a date to be chosen by the Company not more than sixty
(60) days prior to the meeting of the Fund. Voting instructions will be
solicited by written communication at least fourteen (14) days prior to
such meeting. The person having such voting rights will be the Contract
Owner before the Annuity Date or the death of the Annuitant (or Contract
Owner, as applicable), and thereafter, the payee entitled to receive
payments under the Contract. During the Annuity Period, voting rights
attributable to a Contract will generally decrease as the Contract Value
attributable to an Annuitant decreases.
The voting rights relate only to amounts invested in the Variable
Account. There are no voting rights with respect to funds invested in the
General Account.
Shares of the Funds are sold only to separate accounts of life
insurance companies. The shares of the Funds will be sold to separate
accounts of the Company, its affiliate, AIG Life Insurance Company and
unaffiliated life insurance companies to fund variable annuity contracts
and/or variable life insurance policies. It is conceivable that, in the
future, it may be disadvantageous for variable life insurance separate
accounts and variable annuity separate accounts to invest in the Fund
simultaneously. Although neither the Company nor the Fund currently
foresees any such disadvantages, either to variable life insurance
policyowners or to variable annuity Contract Owners, the Fund's Board of
Directors will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what
action, if any, should be taken in response thereto. If a material
irreconcilable conflict were to occur, the relevant participating life
insurance companies will under their agreements governing participation in
the Funds take whatever steps are necessary, at their expense, to remedy
or eliminate the irreconcilable material conflict. If such a conflict were
to occur, one or more insurance company separate accounts might withdraw
its investments in a Fund. This might force the Fund to sell securities at
disadvantageous prices.
Substitution Of Shares
If the shares of the Fund (or any Portfolio within the Fund) should
no longer be available for investment by the Variable Account or if, in
the judgment of the Company, further investment in such shares should
become inappropriate in view of the purpose of the Contracts, the Company
may substitute shares of another mutual fund (or Portfolio within the
Fund) for Fund shares already purchased or to be purchased in the future
by purchase payments under the Contracts. No substitution of securities
may take place without any required prior approval of the Securities and
Exchange Commission and under such requirements as it may impose.
Allocation Of Purchase Payment to Sub-accounts
The purchase payment is allocated to the Sub-account(s) selected by
the Contract Owner in the application except that in those states which
require the Company to pay a premium tax upon receipt of a purchase
payment the Company will deduct the premium tax prior to allocating the
purchase payment to such Sub-account(s). The selection must specify a
percentage for each Sub-account that is a whole number, and must be either
0% or a number equal to or greater than 10%. At the time of the allocation
the purchase payment is divided by the value of the Accumulation Unit for
the particular Sub-account for the Valuation Period during which such
allocation occurs to determine the number of Accumulation Units
attributable to the purchase payment.
The purchase payment under an IRA plan will be allocated to the
Money Market Sub-account until the expiration of fifteen (15) days from
the day the Contract is mailed from the Company's office. Thereafter, the
Contract Value shall be reallocated in accordance with instructions
specified in the application.
18
<PAGE>
Transfer Of Contract Values
Before the Annuity Date, the Contract Owner may transfer, by written
request or telephone authorization, Contract Values from one Sub-account
to another Sub-account, subject to the following conditions:
(a) the amount transferred from any Sub-account must be at
least $1,000 (or the entire Sub-account value, if less);
(b) if less than $1,000 would remain in the Sub-account after
the transfer, the Company will transfer the entire amount in the
Sub-account;
(c) the Company may reject any more than twelve (12) transfer
requests per Contract Year; and
(d) the Company will deduct any transfer charge assessed on the
transaction. The Company is currently not assessing a transfer fee
for the first twelve (12) transfers per Contract Year. The Company
is assessing a transfer fee of $10 per transfer thereafter.
The Company may increase the transfer fee to an amount not to exceed
$30 per transfer. The transfer fee will be deducted from either the
Sub-account which is the source of the transfer or from the amount
transferred if the entire value in the Sub-account is transferred.
Transfer by telephone authorization is available to a Contract Owner
only by prior election. A Contract Owner must complete, sign, and file
with the Company a Telephone Transfer Authorization Form for each Contract
owned. The Company will undertake reasonable procedures to confirm that
instructions communicated by telephone are genuine. All calls will be
recorded. All transfers performed by telephone authorization will be
confirmed in writing to the Contract Owner. The Company is not liable for
any loss, cost, or expense for action on telephone instructions which are
believed to be genuine in accordance with these procedures.
Transfer privileges are further explained in the Statement of
Additional Information.
After the Annuity Date, the payee of the annuity payments may
transfer the Contract Value allocated to the Variable Account from one
Sub-account to another Sub-account. However, the Company reserves the
right to refuse any more than one transfer per month. The transfer fee is
the same as before the Annuity Date. This transfer fee will be deducted
from the next annuity payment after the transfer. If following the
transfer, the units remaining in the Sub-account would generate a monthly
payment of less than $100, then the Company may transfer the entire amount
in the Sub-account.
Once the transfer is effected, the Company will recompute the number
of Annuity Units for each Sub-account. The number of Annuity Units for
each Sub-account will remain the same for the remainder of the payment
period unless the payee requests another change.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the
Variable Account. These charges and deductions are:
Deduction for State Premium Taxes
Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged against the purchase payment or
the Contract Value . Premium taxes currently imposed by certain states on
the Contracts range from 0% to 3.5% of premiums paid. Some states assess
premium taxes at the time purchase payments are made; others assess
premium taxes at the time of annuitization. The Company currently intends
to advance any premium taxes due at the time purchase payments are made
and then deduct premium taxes from the Contract Value at the time annuity
payments begin or upon surrender if the Company is unable to obtain refund
of or otherwise obtain a credit for any excess premium taxes paid. The
Company reserves the right to deduct premium taxes when incurred. Premium
taxes are subject to being changed or amended by state legislatures,
administrative interpretations or judicial acts.
19
<PAGE>
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and
Expense Risk Charge which is equal on an annual basis to 1.25% of the
average daily net asset value of the Variable Account (consisting of
approximately .90% for mortality risks and approximately .35% for expense
risks). The mortality risks assumed by the Company arise from its
contractual obligation to make annuity payments after the Annuity Date for
the life of the Annuitant, to waive the Deferred Sales Charge in the event
of the death of the Annuitant and to provide the death benefit prior to
the Annuity Date. The expense risk assumed by the Company is that the
costs of administering the Contracts and the Variable Account will exceed
the amount received from the Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover
the actual costs, the loss will be borne by the Company. Conversely, if
the amount deducted proves more than sufficient, the excess will be profit
to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company
and cannot be increased.
The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based
on a life contingency. (See "Annuity Period - Annuity Options" on page )
It is possible that in the future the Company may offer additional payment
options which are not based on a life contingency. If this should occur
and if a Contract Owner should elect a payment option not based on a life
contingency, the Mortality and Expense Risk Charge is still deducted but
the Contract Owner receives no benefit from it.
DEDUCTION FOR DEFERRED SALES CHARGE
In the event that a Contract Owner withdraws all or a portion of the
Contract Value in excess of the Free Withdrawal Amount for the first
withdrawal in a Contract Year other than by way of the Systematic
Withdrawal Program, or makes subsequent withdrawals in a Contract Year, a
Deferred Sales Charge may be imposed. The Free Withdrawal Amount is equal
to 10% of the Contract Value at the time of withdrawal.
The Deferred Sales Charge is deducted based upon a percentage of the
Contract Value which includes the purchase payment and earnings. Since
earnings are included it is possible that the actual amount of the
Deferred Sales Charge may increase even though the percentage may go down.
The Deferred Sales Charge will vary in amount depending upon the time
which has elapsed since the Date of Issue. The amount of any withdrawal
which exceeds the Free Withdrawal Amount will be subject to the following
charge:
<TABLE>
<CAPTION>
APPLICABLE DEFERRED
CONTRACT YEAR SALES CHARGE PERCENTAGE
<S> <C>
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and thereafter 0%
</TABLE>
The aggregate Deferred Sales Charges paid with respect to a Contract
shall not exceed 8.5% of the purchase payment for such Contract.
The Deferred Sales Charge is intended to reimburse the Company for
expenses incurred which are related to Contract sales. The Company does
not expect the proceeds from the Deferred Sales Charge to cover all
distribution costs. To the extent such charge is insufficient to cover all
distribution costs, the Company may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense
Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts
issued in connection with retirement plans which qualifyas a 403 (b)
Plan or IRA. (See "Taxes - 403(b) Plans" on page .)
20
<PAGE>
DEDUCTION FOR ADMINISTRATIVE CHARGE
The Company deducts an annual Administrative Charge, which is currently
$30 per year, from the Contract Value to reimburse it for the costs it
incurs relating to maintenance of the Contract and the Variable Account.
The Company may increase this charge to an amount not to exceed $100 per
year. The Administrative Charge is designed to reimburse the Company for
the costs it incurs relating to the maintenance of the Contract and the
Variable Account.
Prior to the Annuity Date, the Administrative Charge is deducted from
the Contract Value on each Contract Anniversary. If the Annuity Date is a
date other than a Contract Anniversary, the Company will also deduct a
pro-rata portion of the Administrative Charge from the Contract Value for
the fraction of the Contract Year preceding the Annuity Date.
This charge is also deducted in full on the date of any total
withdrawal. The charge will be deducted from each Sub-account of the
Variable Account in the proportion that the value of each Sub-account
attributable to the Contract bears to the total Contract Value.
After the Annuity Date, this charge is deducted on a pro-rata basis
from each annuity payment and is guaranteed to remain at the same amount
as at the Annuity Date.
DEDUCTION FOR INCOME TAXES
The Company deducts from the Contract Value and/or the Variable Account
any Federal income taxes resulting from the operation of the Variable
Account. The Company does not currently anticipate incurring any income
taxes. Surrenders and withdrawals may be taxable and subject to a penalty
tax. (See "Taxes" beginning on page ____.)
OTHER EXPENSES
There are deductions from and expenses paid out of the assets of the
Fund which are described in the accompanying Prospectus for the Fund.
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of
the Contracts and the Variable Account, it has retained the services of
Delaware Valley Financial Services, Inc. ("DVFS") pursuant to an
administrative agreement. Such administrative services include issuance of
the Contracts and maintenance of Contract Owner's records. DVFS serves as
the administrator to various insurance companies offering variable
contracts .
RIGHTS UNDER THE CONTRACTS
The Contract Owner has all rights and may receive all benefits under
the Contract. The Contract Owner is named in the application. Ownership
may be changed prior to the Annuity Date through the submission of written
notification of the change to the Company on a form acceptable to the
Company. On and after the Annuity Date, the Annuitant and Contract Owner
shall be one in the same person unless otherwise provided for. In the case
of Contracts issued in connection with an IRA, the Contract Owner must be
the Annuitant.
The Contract Owner's spouse is the only person eligible to be the
Contingent Owner. (See "Death Benefit - Death of Contract Owner" on page
____) Any new choice of Contingent Owner will automatically revoke any
prior choices.
The Contract Owner may, except in the case of a Contract issued in
connection with either an IRA or a 403(b) Plan, assign a Contract at any
time before the Annuity Date and while the Annuitant is alive. A copy of
any assignment must be filed with the Company. The Company is not
responsible for the validity of any assignment. If the Contract is
assigned, the rights of the Contract Owner and those of any revocable
Beneficiary will be subject to the assignment. An assignment will not
affect any payments the Company may make or action it may take before it
is recorded. In as much as an assignment or change of ownership may be a
taxable event, Contract Owners should consult competent tax advisers
should they wish to assign their Contracts.
The Contract may be modified only with the consent of the Contract
Owner, except as may be required by applicable law.
21
<PAGE>
ANNUITY PERIOD
Annuity Benefits
If the Annuitant and Contract Owner are alive on the Annuity Date, the
Company will begin making payments to the Annuitant under the annuity
option or options the Contract Owner has chosen.
The Contract Owner may choose or change an annuity payment option by
making a written request at least thirty (30) days prior to the Annuity
Date.
The amount of the payments will be determined by applying the Contract
Value on the Annuity Date. The amount of the annuity payments will depend
on the age or sex of the payee at the time the settlement contract is
issued. At the Annuity Date the Contract Value in each Sub-account will be
applied to the applicable annuity tables contained in the Contract. The
amount of the Sub-account annuity payments are determined through a
calculation described in the Section captioned "Annuity Provisions" in the
Statement of Additional Information.
Annuity Date
The Annuity Date for the Annuitant is:
(a)the first day of the calendar month following the later of the
Annuitant's 85th birthday or the 10th Contract Anniversary; or
(b)such earlier date as may be set by applicable law.
The Contract Owner may designate an earlier date in the application or
may change the Annuity Date by making a written request at least thirty
(30) days prior to the Annuity Date being changed. However, any Annuity
Date must be:
(a) no later than the date defined in (a) above; and
(b) the first day of a calendar month.
In addition, for IRA and 403(b) Plan Contracts, certain provisions
of your retirement plan or the Code may further restrict your choice of
an Annuity Date. (See "Taxes - 403(b) Plans" on page , and
"Taxes Individual Retirement Annuities" on page .)
Annuity Options
The Contract Owner may choose to receive annuity payments which are
fixed, or which are based on the Variable Account, or a combination of the
two. If the Contract Owner elects annuity payments which are based on the
Variable Account, the amount of the payments will be variable. The
Contract Owner may not transfer Contract Values between the General
Account and the Variable Account after the Annuity Date, but may, subject
to certain conditions, transfer Contract Values from one Sub-account to
another Sub-account. (See The Funds - Transfer of Contract Values" on page
.)
If the Contract Owner has not made any annuity payment option selection
at the Annuity Date, the Contract Value will be applied to purchase Option
2 fixed basis annuity payments and Option 2 variable basis annuity
payments, in proportion to the amount of Contract Value in the General
Account and the Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will pay an annuity during
thelifetime of the payee.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will pay an annuity during the lifetime of the payee. If, at the death of
the payee, payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to
the successor payee;
(b) the successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate
used to create the annuity factor for this Option; or
(c) the guaranteed period will not in the case of Contracts issued in
connection with an IRA exceed the life expectancy of the Annuitant
at the time the first payment is due.
Option 3: Joint and Last Survivor Income. The Company will pay an
annuity for as long as either the payee or a designated second person is
alive. In the event that the Contract is issued in connection with an IRA,
the payments in this Option will be made only to the Annuitant and the
Annuitant's spouse.
The annuity payment options are more fully explained in the Statement
of Additional Information. The Company may also offer additional options
at its own discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company has the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company has the right to make payments semi-annually or annually.
If fixed annuity payments are selected, the amount of each fixed
payment is determined by multiplying the Contract Value allocated to
purchase fixed annuity payments by the factor shown in the annuity table
specified in the Contract for the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the
value of a fixed number of Annuity Units each month. The actual dollar
amount of variable annuity payments is dependent upon: (i) the Contract
Value at the time of annuitization; (ii) the annuity table specified in
the Contract; (iii) the Annuity Option selected; (iv) the investment
performance of the Sub-account selected; and (v) the pro-rata portion of
the Administrative Charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments
will increase. Conversely, if the actual rate is less than 5%, annuity
payments will decrease.
22
<PAGE>
DEATH BENEFIT
Death Benefit
If the Annuitant (or Contract Owner, if applicable) dies before the
Annuity Date, the Company will pay a death benefit equal to the greater of
the purchase payment paid less partial withdrawals or the Contract Value.
Before the Company will pay any death benefit, the Company will require
due proof of death. The Company will determine the value of the death
benefit as of the Valuation Period following receipt of due proof of
death. The Company will pay the death benefit to the Beneficiary in
accordance with any applicable laws governing the payment of death
proceeds.
Payment of the death benefit may be made in one lump sum or applied
under one of the annuity payment options. (See "Annuity Period - Annuity
Options" on page .) The Contract Owner may by written request elect that
any death benefit of at least $2,000 be received by the Beneficiary under
an annuity payment option. (See "Annuity Period - Annuity Options" on page
.) The Contract Owner may choose or change a payment option at any time
prior to the Annuitant's death. If at the time the Annuitant dies, the
Contract Owner has made no request for a payment option, the Beneficiary
has sixty (60) days in which to make a written request to elect either a
lump sum payment or any annuity payment option. Any lump sum payment will
be made within seven (7) days after the Company has received due proof of
death and the written election of the Beneficiary, unless a delay of
payments provision is in effect. (See Statement of Additional Information
- "General Information Delay of Payments.")
In the event that the Annuitant and the Contract Owner are the same
individual, the death of that individual will be treated by the Company as
the death of the Annuitant.
Death of Contract Owner
If a Contract Owner dies before the Annuity Date, the entire Contract
Value must be distributed within five (5) years of the date of death,
unless:
(a) it is payable over the lifetime of a designated Beneficiary
with distributions beginning within one (1) year of the date of
death; or
(b) the Contingent Owner, if any, continues the Contract in his or
her own name.
In the case of Contracts issued in connection with an IRA, the
Beneficiary or may elect to accelerate these payments. Any method of
acceleration chosen must be approved by the Company.
If the Contract Owner dies after the Annuity Date, distribution will be
as provided in the annuity payment option selected.
PURCHASING A CONTRACT
Application
In order to acquire a Contract, an application provided by the Company
must be completed and submitted to the Company for acceptance. The Company
must also receive the purchase payment. Upon acceptance, the Contract is
issued to the Contract Owner and the Purchase Payment is then credited to
the Variable Account and converted into Accumulation Units, except in
those states where the applicable premium tax is deducted from the
purchase payment. (See "Alliance Variable Products Series Fund, Inc. -
Allocation of Purchase Payment to Sub-accounts" on page .) If the
application for a Contract is in good order, the Company will apply the
purchase payment to the Variable Account and credit the Contract with
Accumulation Units within two (2) business days of receipt. In addition to
the underwriting requirements of the Company, good order means that the
Company has received federal funds (monies credited to a bank's account
with its regional Federal Reserve Bank). If the application for a Contract
is not in good order, the Company will attempt to get it in good order
within five (5) business days or the Company will return the application
and the purchase payment, unless the prospective purchaser specifically
consents to the Company's retaining them until the application is made
complete.
Purchase Payment
The Contracts are offered on a single purchase payment basis. The
minimum purchase payment the Company will accept is $5,000.
Distributor
AIG Equity Sales Corp. ("AESC"), formerly known as American
International Fund Distributors, Inc., 80 Pine Street, New York,
New York, acts as the distributor of the Contracts. AESC is a
wholly-owned subsidiary of American International Group, Inc. and
an affiliate of the Company.
Commissions not to exceed 3.5% of purchase payments will be paid to
entities which sell the Contracts. In addition, expense reimbursement
allowances may be paid. Additional payments may be made for other services
not directly related to the sale of the Contracts.
Under the Glass-Steagall Act and other laws, certain banking
institutions may be prohibited from distributing variable annuity
contracts. If a bank were prohibited from performing certain agency or
administrative services and receiving fees from AESC, Contract Owners who
purchased Contracts through the bank would be permitted to retain their
Contracts and alternate means for servicing those Contract Owners would be
sought. It is not expected, however, that Contract Owners would suffer any
loss of services or adverse financial consequences as a result of any of
these occurrences.
24
<PAGE>
CONTRACT VALUE
The Contract Value is the sum of the value of all Sub-account
Accumulation Units attributable to the Contract. The value of an
Accumulation Unit will vary from Valuation Period to Valuation Period. The
value of an Accumulation Unit is determined at the end of the Valuation
Period and reflects the investment earnings, or loss, and the deductions
for the Valuation Period.
WITHDRAWALS
Partial Withdrawal
The Contract Owner may partially withdraw Contract Values from the
Contract prior to the Annuity Date. Any partial withdrawal is subject to
the following conditions:
(a) the Company must receive a written request; (b) the amount
requested must be at least $500; (c) any applicable Deferred Sales
Charge will be deducted;
(d) the amount withdrawn will be the sum of the amount requested and
the amount of any applicable Deferred Sales Charge; and
(e) the Company will deduct the amount requested plus any Deferred
Sales Charge from each Sub-account of the Variable Account either
as specified or in the proportion that the Sub-account bears to
the total Contract Value.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on
Page .)
Systematic Withdrawal Program
During the Accumulation Period a Contract Owner may at any time elect
in writing, to take systematic withdrawals from one or more of the
Sub-accounts for a period of time not to exceed 12 months. In order to
initiate this program, the amount to be systematically withdrawn must be
equal to or greater than $200 provided that the Contract Value is equal to
or greater than $24,000 and the amount to be withdrawn does not exceed the
Free Withdrawal Amount. Systematic withdrawals will be made without the
imposition of the Deferred Sales Charge.
Systematic withdrawals may occur monthly or quarterly.
The systematic withdrawal program may be cancelled at any time by
written request or automatically should the Contract Value fall below
$1,000. In the event the systematic withdrawal program is cancelled, the
Contract Owner may not elect to participate in such program until the next
Contract Anniversary.
A Contract Owner may change once per calendar year the amount or
frequency subject to be withdrawn on a systematic basis.
The program is annually renewable, although the limitations set forth
above shall continue to apply.
The Free Withdrawal Amount (See "Charges and Deductions - Deduction for
Deferred Sales Charge" on page ____) and Dollar Cost Averaging (See
Statement of Additional Information - "General Information - Transfers")
are not available while a Contract Owner is receiving systematic
withdrawals. A Contract Owner will be entitled to the Free Withdrawal
Amount and Dollar Cost Averaging on and after the Contract Anniversary
next following the termination of the systematic withdrawal program.
Implementation of the systematic withdrawal program may subject a
Contract Owner to adverse tax consequences, including a 10% tax penalty.
(See "Taxes - Taxation of Annuities in General" on page ____ for a
discussion of the tax consequences of withdrawals.)
Total Withdrawal
The Contract Owner may withdraw the entire Contract Value prior to the
Annuity Date. A total withdrawal will cancel the Contract. The total
withdrawal value is equal to the Contract Value next calculated after
receipt of the written withdrawal request, less any applicable Deferred
Sales Charge, less the Administrative Charge and less any applicable
premium taxes, and less any applicable charges assessed to amounts in the
General Account.(See "Charges and Deductions" on page and Appendix-
"General Account Option".)
Payment of Withdrawals
Any Contract Values withdrawn will be sent to the Contract Owners
within seven (7) days of receipt of the written request, unless the Delay
of Payments provision is in effect. (See Statement of Additional
Information "General Information - Delay of Payments.") (See "Taxes -
Taxation of Annuities in General" on page for a discussion of the tax
consequences of withdrawals.)
The Company reserves the right to ensure that a Contract Owner's check
or other form of purchase payment has been cleared for payment prior to
processing any withdrawal or redemption request occurring shortly after a
purchase payment.
Certain restrictions on withdrawals are imposed on Contracts issued in
connection with 403(b) Plans. (See "Taxes - 403(b) Plans" on page .)
25
<PAGE>
TAXES
Introduction
The Contracts are designed for use by individuals to accumulate
Contract Values with retirement plans which, except for IRAs and 403(b)
Plans, are generally not tax-qualified plans. The ultimate effect of
Federal income taxes on the amounts held under a Contract, on annuity
payments, and on the economic benefits to the Contract Owner, Annuitant or
Beneficiary depend on the Company's tax status and upon the tax and
employment status of the individual concerned. Accordingly, each person
should consult a competent tax adviser regarding the tax consequences of
purchasing a Contract.
The following discussion is general in nature and is not intended as
tax advice. No attempt is made to consider any applicable state or other
tax laws. Moreover, the discussion is based upon the Company's
understanding of the Federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of
continuation of the Federal income tax laws, the Treasury Regulations, or
the current interpretations by the Internal Revenue Service (the
"Service"). For a discussion of Federal income taxes as they relate to the
Fund, please see the accompanying Prospectus for the Fund.
Company Tax Status
The Company is taxed as a life insurance company under Part I of
Subchapter L of the Internal Revenue Code of 1986, as amended (the
"Code"). Since the Variable Account is not a separate entity from the
Company and its operations form a part of the Company, it will not be
taxed separately as a "regulated investment company" under Subchapter M of
the Code. Investment income and realized capital gains on the assets of
the Variable Account are reinvested and taken into account in determining
the Contract Value. Under existing Federal income tax law, the Variable
Account's investment income, including realized net capital gains, is not
taxed to the Company. The Company reserves the right to make a deduction
for taxes from the assets of the Variable Account should they be imposed
with respect to such items in the future.
Taxation of Annuities in General - Non-Qualified Plans
Code Section 72 governs the taxation of annuities. In general, a
Contract Owner is not taxed on increases in value under a Contract until
some form of withdrawal or distribution is made under the Contract.
However, under certain circumstances, the increase in value may be subject
to tax currently. (See "Taxes - Contracts Owned by Non-Natural Persons,"
on page _______ and "Taxes - Diversification Standards" on .)
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a
Contract prior to the Annuity Date will be treated as taxable income to
the extent the amounts held under the Contract exceed the "investment
in the contract," as that term is defined under the Code. The
"investment in the contract" can generally be described as the cost of
the Contract. It generally constitutes the sum of all purchase payments
made for the contract less any amounts received under the Contract that
are excluded from gross income. The taxable portion is taxed as
ordinary income. For purposes of this rule, a pledge or assignment of a
Contract is treated as a payment received on account of a partial
withdrawal of a Contract.
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the
Contract, the recipient is taxed on the portion of the payment that
exceeds the investment in the contract. The taxable portion is taxed as
ordinary income.
If the recipient receives annuity payments rather than a lump sum
payment, a portion of the payment is included in taxable income when
received. For fixed annuity payments, the taxable portion of each
payment is generally determined by using a formula known as the
"exclusion ratio," which establishes the ratio that the investment in
the Contract bears to the total expected amount of annuity payments for
the term of the Contract. That ratio is then applied to each payment to
determine the nontaxable portion of the payment. The remaining portion
of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined
by a formula which establishes a specific dollar amount of each payment
that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic
payments. The remaining portion of each payment is taxed as ordinary
income.
The recipient is able to exclude a portion of the payments received
from taxable income until the investment in the Contract is fully
recovered. Annuity payments are fully taxable after the investment in
the Contract is recovered. If the recipient dies before the investment
in the Contract is recovered, the recipient's estate is allowed a
deduction for the remainder.
26
<PAGE>
Penalty Tax on Certain Withdrawals
With respect to amounts withdrawn or distributed before the
taxpayer reaches age 59 1/2, a 10% penalty tax is imposed upon the
portion of such amount which is includable in gross income. However,
the penalty tax will not apply to withdrawals: (i) made on or after the
death of the Contract Owner (or where the Contract Owner is not an
individual, the death of the "primary annuitant", who is defined as the
individual, the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the Contract); (ii)
attributable to the taxpayer's becoming totally disabled within the
meaning of Code Section 72(m)(7); (iii) which are part of a series of
substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the taxpayer, or
the joint lives (or joint life expectancies) of the taxpayer and his
beneficiary; (iv) allocable to investment in the Contract before August
14, 1982; (v) under a qualified funding asset (as defined in Code
Section 130(d)); (vi) under an immediate annuity contract; or (vii)
that are purchased by an employer on termination of certain types of
qualified plans and which are held by the employer until the employee
separates from service.
If the penalty tax does not apply to a withdrawal as a result of
the application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability),
the tax for the first year in which the modification occurs will be
increased by an amount equal to the tax that would have been imposed
but for item (iii) above as determined under Treasury Regulations, plus
interest for the deferral period. The foregoing rule applies if the
modification takes place: (a) before the close of the period which is
five years from the date of the first payment and after the taxpayer
attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan
may result in a taxable event and the excess of the Contract Value over
purchase payments will be taxed to the assignor as ordinary income.
Please consult your tax adviser prior to making an assignment of the
Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who is
either 37 1/2 years younger than the Contract Owner or a grandchild
of the Contract Owner may have Generation Skipping Transfer Tax
consequences.
Distribution-at-Death Rules
In order to be treated as an annuity contract for Federal income
tax purposes, a Contract must generally provide for the following two
distribution rules: (i) if the Contract Owner dies on or after the
Annuity Date, and before the entire interest in the Contract has been
distributed, the remaining portion of such interest will be distributed
at least as quickly as the method in effect on the Contract Owner's
death; and (ii) if a Contract Owner dies before the Annuity Date, the
entire interest must generally be distributed within five years after
the date of death. To the extent such interest is payable to a
designated Beneficiary, however, such interest may be annuitized over
the life of that Beneficiary or over a period not extending beyond the
life expectancy of that Beneficiary, so long as distributions commence
within one year after the date of death. The designated beneficiary is
the person to whom ownership of the contract passes by reason of death,
and must be a natural person. If the Beneficiary is the spouse of the
Contract Owner, the Contract may be continued unchanged in the name of
the spouse as Contract Owner.
If the Contract Owner is not an individual, the "primary
annuitant" (as defined under the Code) is considered the Contract
Owner. In addition, when the Contract Owner is not an individual, a
change in the primary annuitant is treated as the death of the Contract
Owner.
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than
full and adequate consideration will generally trigger tax on the gain
in the Contract. The transferee will receive a step-up in basis for the
amount included in the transferor's income. This provision, however,
does not apply to those transfers between spouses or incident to a
divorce which are governed by Code Section 1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a
corporation or trust) the Contract is generally not treated as an
annuity contract for Federal income tax purposes, and the income on the
Contract (generally the excess of the Contract Value over the purchase
payments) is includable in income each year. The rule does not apply
where the non-natural person is only the nominal owner such as a trust
or other entity acting as an agent for a natural person. The rule also
does not apply when the Contract is acquired by the estate of a
decedent, when the Contract is held under certain qualified plans, when
the Contract is a qualified funding asset for structured settlements,
when the Contract is purchased on behalf of an employee upon
termination of a qualified Plan, and in the case of an immediate
annuity.
27
<PAGE>
Section 1035 Exchanges
Code Section 1035 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity
contract unless money is distributed as part of the exchange. A
replacement contract obtained in a tax-free exchange of contracts
succeeds to the status of the surrendered contract. Special rules and
procedures apply to Code Section 1035 transactions. Prospective
purchasers wishing to take advantage of Code Section 1035 should
consult their tax advisers.
Multiple Contracts
Annuity contracts that are issued by the same company (or
affiliate) to the same policy owner during any calendar year will be
treated as one annuity contract in determining the amount includable in
the taxpayer's gross income. Thus, any amount received under any such
contract prior to the contract's annuity starting date will be taxable
(and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts. The Treasury has broad
regulatory authority to prevent avoidance of the purposes of this
aggregation rule. It is possible that, under this authority, Treasury
may apply this rule to amounts that are paid as annuities (on or after
the starting date) under annuity contracts issued by the same company
to the same policy owner during any calendar year period. In this case,
annuity payments could be fully taxable (and possibly subject to the
10% penalty tax) to the extent of the combined income in all such
contracts and regardless of whether any amount would otherwise have
been excluded from income. Contract Owners should consult a tax adviser
before purchasing more than one Contract or other annuity contracts.
Withholding
The Company is required to withhold Federal income taxes on
withdrawals, lump sum distributions, and annuity payments that include
taxable income unless the payee elects to not have any withholding or
in certain other circumstances. Special withholding rules apply to
payments made to non-resident aliens.
Lump-Sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of
any withdrawal or lump sum distribution unless you elect out of
withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity
payments based on a withholding certificate you file with the
Company. If you do not file a certificate, you will be treated,
for purposes of determining your withholding rates, as a married
person with three exemptions.
You are liable for payment of Federal income taxes on the
taxable portion of any withdrawal, distribution, or annuity
payment. You may be subject to penalties under the estimated tax
rules if your withholding and estimated tax payments are not
sufficient.
28
<PAGE>
Diversification Standards
To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up
period, each Sub-account is required to diversify its investments. The
Diversification Regulations generally require that on the last day of each
quarter of a calendar year no more than 55% of the value of the assets of
a Sub-account is represented by any one investment, no more than 70% is
represented by any two investments, no more than 80% is represented by any
three investments, and no more than 90% is represented by any four
investments. A "look-through" rule applies so that an investment in the
Fund is not treated as one investment but is treated as an investment in a
pro-rata portion of each underlying asset of the Fund. All securities of
the same issuer are treated as a single investment. In the case of
government securities, each Government agency or instrumentality is
treated as a separate issuer.
In connection with the issuance of the proposed and temporary version
of the Diversification Regulations, Treasury announced that such
regulations do not provide guidance concerning the extent to which
Contract Owners may direct their investments to particular divisions of a
separate account. It is possible that if and when additional regulations
or IRS pronouncements are issued, the Contract may need to be modified to
comply with such rules. For these reasons, the Company reserves the right
to modify the Contract, as necessary, to prevent the Contract Owner from
being considered the owner of the assets of the Variable Account.
The Company intends to comply with the Diversification Regulations to
assure that the Contracts continue to be treated as annuity contracts for
Federal income tax purposes.
The Contracts may be used to create an IRA. The Contracts are also
available for use in connection with a previously established 403(b) Plan.
No attempt is made herein to provide more than general information about
the use of the Contracts with IRAs or 403(b) Plans. The information herein
is not intended as tax advice. A prospective Contract Owner considering
use of the Contract to create an IRA or in connection with a 403(b) Plan
should first consult a competent tax adviser with regard to the
suitability of the Contract as an investment vehicle for their qualified
plan.
While the Contract will not be available in connection with
retirement plans designed by the Company which qualify for the
federal tax advantages available under Sections 401 and 457 of the Code,
a Contract can be used as the investment medium for an individual Contract
Owner's separately qualified 401 retirement plan. Distributions from a 401
qualified plan or 403(b) Plan (other than non-taxable distributions
representing a return of capital, distributions meeting the minimum
distribution requirement, distributions for the life or life expectancy
of the recipient(s)or distributions that are made over a period of more
than 10 years) are eligible for tax-free rollover within 60 days of the
date of distribution, but are also subject to federal income tax
withholding at a 20% rate unless paid directly to another qualified plan,
403(b) Plan or an IRA.
If the recipient is unable to take full advantage of the tax-free rollover
provisions, there may be taxable income, and the imposition of a 10%
penalty tax if the recipient is under age 59 1/2(unless another exception
applies under Code Section 72(t)). A prospective Contract Owner
considering use of the Contract in this manner should consult a competent
tax advisor with regard to the suitability of the Contract of this purpose
and for information concerning the provisions of the Code
applicable to qualified plans, 403(b) Plans, and IRAs.
29
<PAGE>
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to
an IRA. Contracts issued in connection with an IRA are subject to
limitations on eligibility, maximum contributions, and time of
distribution. Distributions from certain retirement plans qualifying for
federal tax advantages may be rolled over into an IRA. In addition,
distributions from an IRA may rolled over to another IRA, provided certain
conditions are met. Sales of the Contracts for use with IRAs are subject
to special requirements imposed by the Service, including the requirement
that informational disclosure be given to each person desiring to
establish an IRA. Contracts offered by this Prospectus in connection with
an IRA offered by this Prospectus are not available in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on a Contract
Owner's ability to make partial withdrawals from Code Section 403(b)
Contracts, if attributable to purchase payments made under a salary
reduction agreement. Specifically, Code Section 403(b)(11) allows a
Contract Owner to make a surrender or partial withdrawal only (a) when the
employee attains age 59 1/2, separates from service, dies, or becomes
disabled (as defined in the Code), or (b) in the case of hardship. In the
case of hardship, only an amount equal to the purchase payments may be
withdrawn. In addition, 403(b) Plans are subject to additional
requirements, including: eligibility, limits on contributions, minimum
distributions, and nondiscrimination requirements applicable to the
employer. Owners and their employers are responsible for compliance with
these rules. Contracts offered in connection with a 403(b) Plan offered by
this Prospectus are not available in all states.
LEGAL PROCCEDINGS
The Company knows of no legal proceeding pending to which the
Variable Account is a party or which would materially affect the Variable
Account.
Legal matters relating to the federal securities laws in connection with
the Contracts described herein are being passed upon by the law firm of
Jorden, Burt, Berenson & Johnson LLP, Washington D.C. .
A-1
<PAGE>
APPENDIX
GENERAL ACCOUNT OPTION
Under the General Account option, Contract Values are held in the
Company's General Account. Because of exemptive and exclusionary
provisions, interests in the General Account have not been registered
under the Securities Act of 1933 nor is the General Account registered as
an investment company under the Investment Company Act of 1940. The
Company understands that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this Prospectus relating to
the General Account portion of the Contract. Disclosures regarding the
General Account may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses. The General Account
option is not available in all states.
Contract Owners may elect to allocate amounts to the General Account
provided that the Contract Owner specifies a percentage that is a whole
number and is equal to 0 or equal to or greater than 10%. Contract Owners
may also transfer amounts to the General Account. Amounts allocated or
transferred to the General Account are credited with interest on a daily
basis at the then applicable effective guarantee rate. The effective
guarantee rate is that rate declared for the calendar month in which
amounts are allocated or transferred to the General Account. Therefore, if
the Contract Owner has allocated or transferred amounts at different times
to the General Account, each allocation or transfer may have a unique
effective guarantee rate and guarantee period associated with that amount.
The Company guarantees that the effective guarantee rate will not be
changed more than once per year and will not be less than 4% per annum.
The Contract Owner may transfer amounts to the General Account prior to
the Annuity Date by written request or telephone authorization. However,
no more than four transfers may be made to the General Account per
Contract Year and the amount transferred to the General Account must be at
least 25% of the Contract Value, or the entire amount in the Variable
Account, if less. (See Fund. - Transfer of Contract Values" on page .)
The Contract Owner may transfer amounts out of the General Account only
at the end of the guarantee period associated with that amount. Prior to
the end of the guarantee period the Contract Owner may specify the
Sub-accounts of the Variable Account to which the Contract Owner wants
amounts transferred. If the Contract Owner does not notify the Company
prior to the end of the guarantee period, the Company will apply that
amount to a new guarantee period in the General Account, which is then
subject to the same conditions as the original guarantee period. The
guarantee rate associated with the new guarantee period may be different
from the effective guarantee rate applicable to the previous guarantee
period. These transfers will be handled at no charge to the Contract
Owner. All other provisions which apply to transfers among the
Sub-accounts (Fund. - Transfer of Contract Values" on page ) and which do
not conflict with the provisions set forth above will continue to apply.
Contract Owners may not make a partial withdrawal from the General
Account prior to the Annuity Date unless:
(a) all of the Contract Owner's funds are in the General Account; or
(b) the Contract Owner does not specify from which funds the partial
withdrawal is to be deducted. In that event, the Company will
deduct the amount from each Sub-account of the Variable Account
and each amount allocated to each guarantee period of the General
Account in the proportion that each bears to the Contract Value.
The Deferred Sales Charge (See "Charges and Deductions - Deduction for
Deferred Sales Charge" on page ) will be deducted from the Sub-accounts of
the Variable Account and from each amount allocated to each guarantee
period of the General Account in the proportion that the withdrawal was
made from these accounts.
A-2
<PAGE>
The Administrative Charge (See "Charges and Deductions - Deductions for
Administrative Charge" on page ) and Premium Taxes, if applicable, (See
"Charges and Deductions - Deduction for Premium and Other Taxes" on page )
will be deducted proportionately from each Sub-account of the Variable
Account and from each amount in each guarantee period of the General
Account.
If the Contract Owner has not made any annuity option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2
fixed basis annuity payments and Option 2 variable basis annuity payments,
in proportion to the amount of Contract Value in the General Account and
the Variable Account, respectively. (See "Annuity Period - Annuity
Options" on page .)
A-3
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
General Information................................................
The Company....................................................
Independent Accountants........................................
Legal Counsel..................................................
Distributor....................................................
Calculation of Performance Related Information.................
Delay of Payments..............................................
Transfers......................................................
Method of Determining Contract Values..............................
Annuity Provisions.................................................
Annuity Benefits...............................................
Annuity Options................................................
Variable Annuity Payment Values................................
Annuity Unit...................................................
Net Investment Factor..........................................
Additional Provisions..........................................
Financial Statements...............................................
</TABLE>
<PAGE>
- ------------------------------------------------------------------------------
PART B
- ------------------------------------------------------------------------------
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL SINGLE PURCHASE
PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE VARIABLE ANNUITY
CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE
INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED
May 1, 1997 CALL OR WRITE: American International Life Assurance Company of
New York; Attention: Variable Products, 80 Pine Street, New York, New York,
10005, 1-800-340-2765.
DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1, 1997
B-2
<PAGE>
TABLE OF CONTENTS
PAGE
General Information.........................................
The Company.............................................
Independent Accountants.................................
Legal Counsel...........................................
Distributor.............................................
Calculation of Performance Related Information..........
Delay of Payments.......................................
Transfers...............................................
Method of Determining Contract Values.......................
Annuity Provisions..........................................
Annuity Benefits........................................
Annuity Options.........................................
Variable Annuity Payment Values.........................
Annuity Unit............................................
Net Investment Factor...................................
Additional Provisions...................................
Financial Statements.........................................
B-3
<PAGE>
GENERAL INFORMATION
The Company
A description of American International Life Assurance Company of New
York (the "Company"), and its ownership is contained in the Prospectus. The
Company will provide for the safekeeping of the assets of the Variable Account.
Independent Accountants
The audited financial statements of the Company and Variable Account A
have been audited by Coopers and Lybrand, independent certified public
accountants, whose offices are located in Philadelphia, Pennsylvania.
Legal Counsel
Legal matters relating to the Federal securities laws in connection with
the Contracts described herein and in the Prospectus are being passed upon by
the law firm of Jorden Burt Berenson & Johnson, Washington,D.C.
Distributor
AIG Equity Sales Corp. ("AESC"), formerly known as American International
Fund Distributors, Inc., a wholly owned subsidiary of American International
Group, Inc. and an affiliate of the Company, acts as the distributor. The
offering is on a continuous basis. Commissions in the amount ofwere retained
by the Distributor in the amount of $20,363.
Calculation Of Performance Related Information
A. Yield and Effective Yield Quotations
for the Money Market Sub-account
The yield quotation for the Money Market Sub-account will be for the
seven days ended on the date of the most recent balance sheet of the Variable
Account included in the registration statement, and will be computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical preexisting account having a balance of one Accumulation Unit in
the Money Market Sub-account at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Contract Owner accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and multiplying the base period return
by (365/7) with the resulting figure carried to at least the nearest hundredth
of one percent.
Any effective yield quotation for the Money Market Sub-account will be
for the seven days ended on the date of the mostrecent balance sheet
of the Variable Account included in the registration statement
and will be carried at least to the nearest hundredth of one percent,
and will be computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical preexisting account having a balance of
one Accumulation Unit in the Money Market Sub-account at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
Owner accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7 and subtracting 1 from the result, according to the
following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1.
For purposes of the yield and effective yield computations, the hypothetical
charge reflects all deductions that are charged to all Contract Owner accounts
in proportion to the length of the base period. For any fees that vary with the
size of the account, the account size is assumed to be the Money Market
Sub-account's mean account size. The yield and effective yield quotations do not
reflect the Deferred Sales Charge that may be assessed at the time of withdrawal
in an amount ranging up to 6% of the requested withdrawal amount, with the
specific percentage applicable to a particular withdrawal depending on the
length of time the purchase payment was held under the Contract and whether
withdrawals had been previously made during that Contract Year. (See "Charges
and Deductions - Deduction for Deferred Sales Charge" on page of the Prospectus)
No deductions or sales loads are assessed upon annuitization under the
Contracts. Realized gains and losses from the sale of securities and unrealized
appreciation and depreciation of the Money Market Sub-account and the Fund are
excluded from the calculation of yield.
B. Total Return Quotations
The total return quotations for all the Sub-accounts will be average annual
total return quotations for the one, five, and ten year periods (or, where a
Sub-account has been in existence for a period of less than one, five or ten
years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Sub-accounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the particular
period at the end of the
particular period.
For the purposes of the total return quotations , the calculations take
into effect all fees that are charged to all Contract Owner accounts. For any
fees that vary with the size of the account, the account size is assumed to be
the respective Sub-account's mean account size. The calculations also assume a
total withdrawal as of the end of the particular period.
Annualized total return for certain Sub-accounts as of December 31,1996 were as
follows:
<TABLE>
<CAPTION>
One Year Three Years Inception to Date
<S> <C> <C> <C>
ALLIANCE
Conservative Investors -4.26% N/A 5.99%
Growth Investors 1.20% N/A 9.09%
Growth 21.23% N/A 27.09%
Growth and Income 16.88% 16.25% 11.50%
Quasar N/A N/A -2.50%
Technology N/A N/A -1.69%
DREYFUS
Stock Index 15.36% 16.04% 11.86%
Zero Coupon 2000 -4.75% 3.67% 9.37%
FIDELITY
Asset Manager 7.49% 5.33% 10.10%
Growth 6.74% 12.88% 13.11%
Overseas 6.12% 5.45% 6.35%
Investment Grade Bond -3.76% 2.56% 6.64%
High Income 6.06% 7.71% 10.34%
Money Market -1.21% 3.79% 5.73%
TOMORROW FUNDS
Long-Term N/A N/A 2.67%
Medium-Term N/A N/A 1.95%
Short-Term N/A N/A 1.63%
VAN ECK
(1)Gold & Natural Resources 10.94% 5.02% 6.70%
Worldwide Balanced 4.61% N/A 2.26%
<FN>
(1) Effective May 1, 1997 the Gold and Natural Resources portfolios will no
longer be offered. The Portfolio is being replaced with the Van Eck Worldwide
Hard Assets Fund.
</FN>
</TABLE>
*Funds were first invested in the Portfolios as listed below:
<TABLE>
<CAPTION>
<S> <C>
Alliance Growth and Income January 14, 1991
Alliance Growth Investors October 28, 1994
Alliance Growth September 15, 1994
Alliance Conservative
Investors October 28, 1994
Alliance Quasar August 15,1996
Alliance Technology January 22,1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Overseas January 28, 1987
Fidelity Asset Manager September 9, 1989
Fidelity Investment
Grade Bond December 5, 1988
Dreyfus Zero Coupon 2000 September 29, 1989
Dreyfus Stock Index August 31, 1990
Van Eck Gold and Natural Res. September 1, 1989
Van Eck Worldwide Balance December 23, 1994
Tomorrow Short-Term Retirement April 1, 1996
Tomorrow Medium-Term Retirement April 1, 1996
Tomorrow Long-Term Retirement April 1, 1996
</TABLE>
C. Yield Quotations for the Short-Term Multi-Market, U.S. Government/High
Grade Securities and Global Bond Sub-accounts
The yield quotations for the Short-Term Multi-Market, U.S. Government/High
Grade Securities and Global Bond Sub-accounts will be based on the thirty-day
period ended on the date of the most recent balance sheet of the Variable
Account included in the registration statement, and are computed by dividing the
net investment income per Accumulation Unit earned during the period bythe
maximum offering price per unit on the last day of the period, according to the
following formula:
Yield = 2[(a - b + 1)6 - 1]
cd
Where: a = net investment income earned during the period by the
corresponding Portfolio of the Fund attributable to shares
owned by the Sub-account.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Accumulation Units
outstanding during the period.
d = the maximum offering price per Accumulation Unit on
the last day of the period.
For the purposes of the yield quotations for the Short-Term
Multi-Market, U.S. Government/High Grade Securities and Global Bond
Sub-accounts, the calculations take into effect all fees that are charged to all
Contract Owner accounts. For any fees that vary with the size of the account,
the account size is assumed to be the respective Sub-account's mean account
size. The calculations do not take into account the Deferred Sales Charge or any
transfer charges.
A Deferred Sales Charge may be assessed at the time of withdrawal in an
amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract, and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Deferred Sales Charge" on page of the Prospectus) There is
currently a transfer charge of $10 per transfer after a specified number of
transfers in each Contract Year. (See "Alliance Variable Products Series Fund,
Inc. - Transfer of Contract Values" on page of the Prospectus)
D. Non- Standardized Performance Data
1. Total Return Quotations
The total return quotations for all the Sub-accounts will be average
annual total return quotations for the one, five, and ten year periods (or,
where a Sub-account has been in existence for a period of less than one, five or
ten years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Sub-accounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the particular period
at the end of the particular period.
For the purposes of the total return quotations, the calculations take into
effect all fees that are charged to all Contract Owner accounts. For any fees
that vary with the size of the account, the account size is assumed to be the
respective Sub-account's mean account size. The calculations do not, however,
assume a total withdrawal as of the end of the particular period.
Annualized total return quotations for certain Sub-accounts as of
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
One Year Three Years Inception to
Date
<S> <C> <C> <C>
Conservative Investors 1.20% N/A 7.60%
Growth Investors 6.66% N/A 10.64%
Growth 26.69% N/A 28.29%
Growth and Income 22.34% 17.17% 11.62%
Quasar N/A N/A 2.96%
Technology N/A N/A 3.77%
DREYFUS
Stock Index 20.82% 16.96% 11.89%
Zero Coupon 2000 0.71% 4.83% 9.41%
FIDELITY
Asset Manager 12.95% 6.45% 10.14%
Growth 12.20% 13.86% 13.13%
Overseas 11.58% 6.57% 6.38%
Investment Grade Bond 1.70% 3.75% 6.69%
High Income 11.52% 8.78% 10.36%
Money Market 4.25% 4.94% 5.76%
TOMORROW FUNDS
Long-Term N/A N/A 8.13%
Medium-Term N/A N/A 7.41%
Short-Term N/A N/A 7.09%
VAN ECK
Gold & Natural Resources 16.40% 6.15% 6.74%
Worldwide Balanced 10.07% N/A 4.07%
<FN>
(1) Effective May 1, 1997 the Gold and Natural Resources portfolios will no
longer be offered. The Portfolio is being replaced with the Van Eck Worldwide
Hard Assets Fund.
</FN>
</TABLE>
2. Tax Deferred Accumulation
In reports or other communications to You or in advertising or sales
materials, the Company may also describe the effects of tax-deferred compounding
on the separate account's investment returns or upon returns in general. These
effects may be illustrated in charts or graphs and may include comparisons at
various points in time of returns under the Contract or in general on a
tax-deferred basis with the returns on a taxable basis.
Different tax rates may be assumed.
In general, individuals who own annuity contracts are not taxed on inreases
in the value under the annuity contract until some form of distribution is made
from the contract. Thus, the annuity contract will benefit from tax deferral
during the accumulation period, which generally will have the effect of
permitting an investment in an annuity contract to grow more rapidly than a
comparable investment under which increases in value are taxed on a current
basis. The chart shows accumulations on an initial investment or Purchase
Payment of $25,000, assuming hypothetical gross annual return of 0%, 4% and 8%,
compounded annually, and a tax rate of 31%. The values shown for the taxable
investment do not include any deduction for management fees or other expenses
but assume that taxes are deducted annually from investment returns. The values
shown for the variable annuity reflect the deduction of contractual expenses
such as the mortality and expense risk charge, the Administrative Fee and the
Annual Fee, but not the expenses of an underlying investment vehicle, such as
the Fund. In addition, these values assume that the Owner does not surrender the
Contract or make any withdrawals until the end of the period shown. The chart
assumes a full withdrawal, at the end of the period shown, of all contract value
and the payment of taxes at the 31% rate on the amount in excess of the Purchase
Payment.
The rates of return illustrated are hypothetical and are not an estimate or
guaranty of performance. Actual tax rates may vary for different taxpayers from
that illustrated and withdrawals by Owners who have not reached age 59 1/2 may
be subject to a tax penalty of 10%.
[INSERT CHART]
<PAGE>
Delay of Payments
Any payments due under the Contracts will generally be sent to the
Contract Owner within seven (7) days of a completed request for payment.
However, the Company has reserved the right to postpone any type of payment from
the Variable Account for any period when:
(a) the New York Stock Exchange is closed for
other than customary weekends and holidays;
(b) trading on the Exchange is restricted;
(c) an emergency exists as a result of which it
is not reasonably practicable to dispose of securities held in
the Variable Account or determine their value; or
(d) an order of the Securities and Exchange
Commission permits delay for the protection of security holders.
The applicable rules of the Securities and Exchange Commission shall
govern as to whether the conditions in (b) and (c) exists.
Transfers
A Contract Owner may deposit prior to the Annuity Date, all or part of his
Contract Value into either the Money Market or Short-Term Multi-Market
Sub-account (the "Sending Sub-account"), and then automatically transfer those
assets into one or more of the other Sub-accounts on a systematic basis. The
amount transferred to the Sending Sub-account must be at least $12,000 in order
to initiate this option. This process is called Automatic Dollar Cost Averaging.
The Automatic Dollar Cost Averaging option is available for use with any of
the investment options, other than the General Account.
Automatic Dollar Cost Averaging transfers may occur monthly or quarterly. The
Contract Owner may designate the dollar amount to be transferred each month or
elect to have a percentage transferred each month, up to a maximum of 60 months.
The Company will make all Automatic Dollar Cost Averaging transfers on the
15th calendar day of each month, or the next day the New York Stock Exchange is
open for business if the 15th calendar day of the month should fall on a day the
New York Stock Exchange is closed. In order to process an Automatic Dollar Cost
Averaging transfer, the Company must have received a request in writing by no
later than the 6th calendar day of the month.
The Automatic Dollar Cost Averaging option may be cancelled at any time by
written request or automatically if the value of the Sending Sub-account subject
to the Automatic Dollar Cost Averaging option is less than $1,000.
A Contract Owner may change his Automatic Dollar Cost Averaging investment
allocation only once during any 12 month period.
Any transfers made under this section are subject to the conditions of the
section entitled "Alliance Variable Products Series Fund, Inc. - Transfer of
Contract Values" on page 12 of the Prospectus, except that the Company will not
deem the election of the Automatic Dollar Cost Averaging option to count towards
a Contract Owner's twelve (12) free transfers.
<PAGE>
METHOD OF DETERMINING CONTRACT VALUES The Contract Value will
fluctuate in accordance with the
investment results of the underlying Portfolios of the Fund held within the
Sub-account. In order to determine how these fluctuations affect Contract
Values, Accumulation Units are utilized. The value of an Accumulation Unit
applicable during any Valuation Period is determined at the end of that period.
When the first shares of the respective Portfolios of the Fund were
purchased for the Sub-accounts, the Accumulation Units for the Sub-accounts were
valued at $10. The value of an Accumulation Unit for a Sub-account on any
Valuation Date thereafter is determined by dividing (a) by (b), where:
(a) is equal to:
(i) the total value of the net assets
attributable to Accumulation Units in the Sub-account, minus
(ii) the daily charge for assuming the risk of guaranteeing
mortality factors and expense charges, which is equal on an annual basis
to 1.25% multiplied by the daily net asset value of the Sub-account;
minus
(iii) in California and New York only, the daily charge for
providing certain administrative functions which is equal on an annual
basis to 0.15% multiplied by the daily net asset value of the
Sub-Account, minus or plus
(iv) a charge or credit for any tax provision
established for the Sub-account. The Company is not
currently making any provision for taxes.
(b) is the total number of Accumulation Units
applicable to that Sub-account at the end of the Valuation Period.
The resulting value of each Sub-account Accumulation Unit is multiplied
by the respective number of Sub-account Accumulation Units for a Contract. The
Contract Value is the sum of all Sub-account values for the Contract.
An Accumulation Unit may increase or decrease in value from Valuation
Date to Valuation Date.
ANNUITY PROVISIONS
Annuity Benefits
If the Annuitant is alive on the Annuity Date the Company will begin
making payments to the Annuitant under the payment option or options selected.
The amount of the annuity payments will depend on the age or sex of the payee at
the time the settlement contract is issued.
Annuity Options
The annuity options are as follows:
Option 1: Life Income. The Company will pay an annuity
during the lifetime of the payee.
Option 2: Income with 10 Years of Payments Guaranteed. The Company will
pay an annuity during the lifetime of the payee. If, at the death of the
payee, payments have been made for less than 10 years:
(a) payments will be continued during
the remainder of the period to the successor payee; or
(b) the successor payee may elect to receive in a lump sum
the present value of the remaining payments, commuted at the interest
rate used to create the annuity factor for this Option.
Option 3: Joint and Last Survivor Income. The Company will
pay an annuity for as long as either payee or a designated second
person is alive.
Annuity options are available on a fixed and/or a variable basis. The
Contract Owner may allocate Contract Values to purchase only fixed annuity
payments, or to purchase only variable annuity payments, or to purchase a
combination of the two. Contract Values which purchase fixed annuity payments
will be invested in the General Account. Contract Values which purchase variable
annuity payments will be invested in the Variable Account. The Contract Owner
may make no transfers between the General Account and the Variable Account after
the Annuity Date. The Company also may offer additional options at its
discretion.
Variable Annuity Payment Values
A Variable Annuity is an annuity with payments which (1) are not
predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable Sub-account(s) of the Variable Account. At
the Annuity Date the Contract Value in each Sub-account will be applied to the
applicable Annuity Tables contained in the Contract. The Annuity Table used will
depend upon the payment option chosen. The same Contract Value amount applied to
each payment option may produce a different initial annuity payment. If, as of
the Annuity Date, the then current annuity rates applicable to this class of
contracts will provide a larger income than that guaranteed for the same form of
annuity under the Contracts described herein, the larger amount will be paid.
The first annuity payment for each Sub-account is determined by
multiplying the amount of the Contract Value allocated to that Sub-account by
the factor shown in the table for the option selected, divided by 1000.
The dollar amount of Sub-account annuity payments after the first is
determined as follows:
(a) The dollar amount of the first annuity payment is divided
by the value for the Sub-account Annuity Unit as of the Annuity Date.
This establishes the number of Annuity Units for each monthly payment.
The number of Annuity Units remains fixed during the Annuity payment
period, subject to any transfers.
(b) The fixed number of Annuity Units is multiplied by the
Annuity Unit value for the Valuation Period 14 days prior to the date of
payment.
The total dollar amount of each Variable Annuity payment is the sum of
all Sub-account variable annuity payments less the pro-rata amount of the
Administrative Charge.
Annuity Unit
The value of an Annuity Unit for each Sub-account was arbitrarily set
initially at $10. This was done when the first Fund shares were purchased. The
Sub-account Annuity Unit value at the end of any subsequent Valuation Period is
determined by multiplying the Sub-account Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (a) and (b) where:
(a) is the net investment factor for the
Valuation Period for which the Sub-account Annuity Unit
value is being determined; and
(b) is the assumed investment factor for such Valuation
Period. The assumed investment factor adjusts for the interest assumed
in determining the first variable annuity payment. Such factor for any
Valuation Period shall be the accumulated value, at the end of such
period, of $1.00 deposited at the beginning of such period at the
assumed investment rate of 5%.
Net Investment Factor
The net investment factor is used to determine how investment results of
the Fund affect Variable Account Values within the Sub-accounts from one
Valuation Period to the next. The net investment factor for each Sub-account for
any Valuation Period is determined by dividing (a) by (b) and subtracting (c)
from the result, where:
(a) is equal to:
(i) the net asset value per share of the Fund
held in the Sub-account determined at the end of that Valuation
Period; plus
(ii) the per share amount of any dividend or capital gain
distribution made by the Fund held in the Sub-account if the "ex-dividend"
date occurs during that same Valuation Period; plus or minus
(iii) a per share charge or credit, which is determined by
the Company, for changes in tax reserves resulting from investment operations
of the Sub-account.
(b) is equal to:
(i) the net asset value per share of the Fund
held in the Sub-account determined as of the end of the prior
Valuation Period; plus or minus
(ii) the per share charge or credit for any
change in tax reserves for the prior Valuation Period.
(c) is the percentage factor representing the
Mortality and Expense Risk Charge.
The net investment factor may be greater or less than the assumed investment
factor; therefore, the Annuity Unit value may increase or decrease from
Valuation Period to Valuation Period.
Additional Provisions
The Company may require proof of the age or sex of the Annuitant before
making any life annuity payment provided for by the Contract. If the age or sex
of the Annuitant has been misstated the Company will compute the amount payable
based on the correct age or sex. If annuity payments have begun, any
underpayments that may have been made will be paid in full with the next annuity
payment. Any overpayments, unless repaid to the Company in one sum, will be
deducted from future annuity payments until the Company is repaid in full.
If a Contract provision requires that a person be alive, the Company may
require proof that the person is alive before the Company acts under that
provision.
The Company will give the payee under an annuity payment option a
settlement contract for the payment option.
FINANCIAL STATEMENTS
The financial statements of the Company and the Variable Account
included herein should be considered only as bearing upon the ability of the
Company to meet its obligations under the Contracts.
<PAGE>
F-1
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE
COMPANY OF NEW YORK
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
American International Life Assurance Company of New York:
We have audited the accompanying balance sheets of American International Life
Assurance Company of New York (a wholly-owned subsidiary of American
International Group, Inc.) as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American International Life
Assurance Company of New York as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 22, 1997
F-3
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
-------------
1996 1995
------------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 4,636,022$ 4,434,329
(cost: 1996-$4,456,608: 1995 - $4,139,170)
Equity securities:
Common stock
(cost: 1996-$19,800: 1995 - $16,613) 33,099 24,365
Non-redeemable preferred stocks
(cost: 1996-$649; 1995 - $4,564) 590 4,570
Mortgage loans on real estate, net 513,470 448,700
Real estate, net of accumulated
depreciation of $6,046 in 1996; and $5,269 in 1995 26,227 27,000
Policy loans 11,063 10,991
Other invested assets 65,744 69,360
Short -term investments 60,333 104,048
Cash 1,726 1,105
------------- --------------
Total investments and cash 5,348,274 5,124,468
Amounts due from related parties 4,277 973
Investment income due and accrued 77,433 74,355
Premium and insurance balances receivable-net 13,617 13,289
Reinsurance assets 25,211 22,552
Deferred policy acquisition cost 35,754 31,225
Separate and variable accounts 153,678 68,151
Other assets 2,591 16,814
-----------------------------
Total assets $ 5,660,835 $ 5,351,827
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------- ----------
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 3,308,208 $ 3,060,581
Future policy benefits 1,588,563 1,561,760
Reserve for unearned premiums 8,167 10,808
Policy and contract claims 44,173 37,201
Reserve for commissions, expenses and taxes 4,905 4,433
Insurance balances payable 7,981 7,771
Federal income tax payable 3,758 3,477
Deferred income taxes 43,445 62,325
Amounts due to related parties 5,227 5,260
Separate and variable accounts 153,678 68,151
Other liabilities 22,588 23,553
------------- -------------
Total liabilities 5,190,693 4,845,320
------------ -----------
Commitments and contingencies (See Note 6)
Stockholders' Equity
Common stock, $200 par value; 16,125 shares
authorized, issued and outstanding 3,225 3,225
Additional paid-in capital 197,025 197,025
Unrealized appreciation (depreciation) of
investments, net of future policy benefits
and taxes of $72,979 in 1996 and
$82,352 in 1995; 135,524 153,086
Retained earnings 134,368 153,171
------------ -------------
Total stockholders' equity 470,142 506,507
----------- ------------
Total liabilities and stockholders' equity $ 5,660,835 $ 5,351,827
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Revenues:
Premiums $ 149,472 $ 84,357 $ 71,826
Net investment income 401,647 386,680 335,510
Realized capital gains 610 1,436 1,932
------------ ------------- -----------
Total revenues 551,729 472,473 409,268
--------- ----------- ---------
Benefits and expenses:
Benefits to policyholders 163,377 167,319 163,585
Increase in future policy benefits
and policyholders' funds on deposit 284,936 209,512 165,291
Acquisition and insurance expenses 54,875 54,808 62,759
---------- ------------ ----------
Total benefits and expenses 503,188 431,639 391,635
--------- ----------- ---------
Income before income taxes 48,541 40,834 17,633
---------- ---------- -----------
Income taxes (benefits):
Current 26,85322,070 18,939
Deferred (9,509) (7,572) (12,262)
------------ ------------- -----------
Total income taxes 17,344 14,498 6,677
---------- ----------- -----------
Net income $ 31,197 $ 26,336 $ 10,956
========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 3,225 $ 3,225 $ 3,225
------------ ------------ ------------
Balance at end of year 3,225 3,225 3,225
------------ ----------- ------------
Additional paid-in capital
Balance at beginning of year: 197,025 197,025 197,025
---------- ---------- ----------
Balance at end of year 197,025 197,025 197,025
---------- ---------- ----------
Unrealized appreciation (depreciation)
of investments, net
Balance at beginning of year 153,086 (60,149) 58,102
Change during year (102,936) 404,059 (182,008)
Changes due to deferred income
tax benefit expense) and
future policy benefits 85,374 (190,824) 63,757
----------- ----------- ------------
Retained earnings
Balance at beginning of year 153,171 126,835 115,879
Net income 31,197 26,336 10,956
Dividends to Stockholders (50,000) - -
----------------------------------------------
Balance at end of year 134,368 153,171 126,835
----------- ---------- -----------
Total stockholders' equity$ 470,142 $ 506,507 $ 266,936
========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 31,197 $ 26,336 $ 10,956
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains and losses
included in income:
Change in insurance reserves 107,134 37,251 45,554
Change in premiums and insurance balances
receivable and payable -net (117) (110) (138)
Change in reinsurance assets (2,658) 3,761 5,570
Change in deferred policy acquisition costs (4,530) (1,599) (213)
Change in investment income due and accrued (3,078) (6,732) (8,153)
Realized capital gains (610) (1,436) (1,932)
Change in current and deferred income taxes -net (9,227) (5,417) (6,927)
Change in reserves for commissions, expenses
and taxes 472 1,356 149
Change in other assets and liabilities - net (17,396) (18,394) 7,597
----------- ----------- ------------
Total adjustments 69,990 8,680 41,507
----------- ------------ -----------
Net cash provided by operating activities 101,187 35,016 52,463
---------- ----------- -----------
Cash flows from investing activities:
Cost of fixed maturities, at market sold ....... 136,829 65,623 63,695
Cost of fixed maturities, at market
matured or redeemed ........................... 424,317 247,551 255,229
Cost of equity securities sold ................. 4,877 1,310 958
Realized capital gains ........................ 610 3,436 4,715
Purchase of fixed maturities.................. (858,793) (627,188) (837,973)
Purchase of equity securities ................... (4,149) (1,005) (137)
Mortgage loans granted ........................ (124,280) (111,402) (77,824)
Repayments of mortgage loans..................... 59,577 60,476 9,621
Change in policy loans........................... (71) (674) 601
Change in short-term investments ................ 43,715 26,372 (7,485)
Change in other invested assets ................. 10,475 (4,083) (6,479)
Other - net ................................... 8,701 (17,713) (1,020)
-------------- ---------------------------
Net cash used in investing activities (298,192) (357,297) (596,099)
------------ ------------------------
Cash flows from financing activities:
Change in policyholders' funds on deposit 247,626 318,169 542,729
Dividends to stockholders (50,000) - -
---------------------------------------------
Net cash provided by financing activities 197,626 318,169 542,729
------------- ---------- ----------
Change in cash ..................................... 621 (4,112) (907)
Cash at beginning of year ........................ 1,105 5,217 6,124
------------- ---------------------------
Cash at end of year $ 1,726 $ 1,105 $ 5,217
============= ============= ==============
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a)Basis of Presentation: American International Life Assurance Company of
New York (the Company) is a wholly-owned subsidiary of American
International Group, Inc. (the Parent). The financial statements of the
Company have been prepared on the basis of generally accepted accounting
principles (GAAP). The preparation of financial statements in conformity
with GAAP 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
periods. Actual results could differ from those estimates. The Company is
licensed to sell life and accident & health insurance in the District of
Columbia and all states except Arizona, Connecticut and Maryland. The
Company is also licensed in America Samoa, Virgin Islands and Guam.
The Company also files financial statements prepared in accordance with
statutory practices prescribed or permitted by the Insurance Department of
the State of New York. Financial statements prepared in accordance with
generally accepted accounting principles differ in certain respects from
the practices prescribed or permitted by regulatory authorities. The
significant differences are: (1) statutory financial statements do not
reflect fixed maturities available for sale at market value; (2) policy
acquisition costs, charged against operations as incurred for regulatory
purposes, have been deferred and are being amortized over the anticipated
life of the contracts; (3) individual life and annuity policy reserves
based on statutory requirements have been adjusted based upon mortality,
lapse and interest assumptions applicable to these coverages, including
provisions for reasonable adverse deviations; these assumptions reflect
the Company's experience and industry standards; (4) deferred income taxes
not recognized for regulatory purposes have been provided for temporary
differences between the bases of assets and liabilities for financial
reporting purposes and tax purposes; (5) for regulatory purposes, future
policy benefits, policyholders' funds on deposit, policy and contract
claims and reserve for unearned premiums are presented net of ceded
reinsurance; and (6) an asset valuation reserve and interest maintenance
reserve using National Association of Insurance Commissioners (NAIC)
formulas are set up for regulatory purposes.
(b)Investments: Fixed maturities available for sale, where the company may
not have the ability or positive intent to hold these securities until
maturity, are carried at market value. Included in fixed maturities
available for sale are collateralized mortgage obligations (CMO's).
Premiums and discounts arising from the purchase of CMO'S are treated as
yield adjustments over the estimated life. Common and non-redeemable
preferred stocks are carried at market value. Short-term investments are
carried at cost, which approximates market.
Unrealized gains and losses from investment in equity securities and fixed
maturities available for sale are reflected in stockholders' equity, net
of amounts recorded as future policy benefits and any related deferred
income taxes.
Realized capital gains and losses are determined principally by specific
identification. Where declines in values of securities below cost or
amortized cost are considered to be other than temporary, a charge is
reflected in income for the difference between cost or amortized cost and
estimated net realizable value.
Mortgage loans on real estate are carried at unpaid principal balance less
unamortized loan origination fees and costs less an allowance for
uncollectible loans.
F-10
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments
are capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity,
net of any related taxes. Also included in this category is an interest
rate cap agreement, which is carried at its amortized cost. The cost of
the cap is being amortized against investment income on a straight line
basis over the life of the cap.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the
Parent have a written tax allocation agreement whereby the Parent agrees
not to charge the Company a greater portion of the consolidated tax
liability than would have been paid by the Company if it had filed a
separate return. Additionally, the Parent agrees to reimburse the Company
for any tax benefits arising out of its net losses within ninety days
after the filing of that consolidated tax return for the year in which
these losses are utilized. Deferred federal income taxes are provided for
temporary differences related to the expected future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns.
(d)Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident and
health insurance are reported as earned over the contract term. The
portion of accident and health premiums which is not earned at the end of
a reporting period is recorded as unearned premiums. Estimates of premiums
due but not yet collected are accrued. Policy benefits and expenses are
associated with earned premiums on long-duration contracts resulting in a
level recognition of profits over the anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized in
relation to expected gross profits over the life of the policies (see Note
3).
The liability for future policy benefits and policyholders' contract
deposits is established using assumptions described in Note 4.
(e)Policy and Contract Claims: Policy and contract claims include amounts
representing: (1) the actual in-force amounts for reported life claims and
an estimate of incurred but unreported claims; and (2) an estimate, based
upon prior experience, for accident and health reported and incurred but
unreported losses. The methods of making such estimates and establishing
the resulting reserves are continually reviewed and updated and any
adjustments resulting therefrom are reflected in income currently.
(f)Separate and Variable Accounts: These accounts represent funds for which
investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the
assets are carried at market value. The assets of each account are legally
segregated and are not subject to claims which arise out of any other
business of the Company.
F-11
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(g)Reinsurance Assets: Reinsurance assets include the balances due from both
reinsurance and insurance companies under the terms of the Company's
reinsurance arrangements for ceded unearned premiums, future policy
benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It also
includes funds held under reinsurance treaties.
(h) Accounting Standards:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of" (FASB 121). This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and an impairment loss must be recognized.
FASB 121 was effective for the Company commencing January 1, 1996. The
adoption of this statement in 1996 had no significant effect on the
Company's results of operations, financial condition and liquidity.
In December 1995, FASB issued "Special Report, a Guide to the
Implementation of Statement No. 115 on Accounting for Certain Investments
in Debt and Equity Securities". Among other things, this guide provided
for a transition provision permitting a one-time transfer of debt
securities from the held to maturity classification to the available for
sale classification. The Company did not transfer any securities from the
held to maturity classification to available for sale classification.
(i)The financial statements for 1994 and 1995 have been reclassified to
conform to the 1996 presentation.
2. Investment Information
(a) Statutory Deposits: Securities with a carrying value of $9,369,000 and
$9,381,000 were deposited by the Company under requirements of regulatory
authorities as of December 31, 1996 and 1995, respectively.
F-12
<PAGE>
2. Investment Information - (continued)
b)Net Investment Income: An analysis of net investment income
is as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $351,702 $334,828 $289,374
Equity securities 999 1,006 1,156
Mortgage loans 41,865 40,383 33,251
Real estate 2,835 2,760 2,947
Policy loans 794 733 764
Cash and short-term investments 4,699 4,124 6,839
Other invested assets 2,662 6,381 4,465
--------- --------- ---------
Total investment income 405,556 390,215 338,796
Investment expenses 3,909 3,535 3,286
--------- --------- ---------
Net investment income $401,647 $386,680 $335,510
======== ======== ========
</TABLE>
(c)Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for 1996,
1995 and 1994 are summarized below (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net realized gains (losses)
on investments:
Fixed maturities $ (104) $ (115)$ (75)
Equity securities 714 3,515 2,046
Mortgage loans - (2,000) (2,783)
Other invested assets - 36 2,744
------------ --------------------
Net realized gains $ 610 $ 1,436 $ 1,932
========= ======== ========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities $(115,746) $ 402,020 $(186,892)
Equity securities 5,913 666 (697)
Other invested assets 6,897 1,373 5,581
----------- ------------------------
Change in unrealized appreciation
(depreciation) of investments $ (102,936) $ 404,059 $(182,008)
=========== ========= ==========
Proceeds from the sale of investments in fixed maturities during 1996,
1995 and 1994 were $136,829,000, $65,623,000 and $79,504,000,
respectively.
During 1996, 1995 and 1994, gross gains of $636,000, $624,000 and
$4,861,000, respectively, and gross losses of $740,000, $739,000 and
$4,936,000, respectively, were realized on dispositions of fixed
maturities.
During 1996, 1995 and 1994, gross gains of $714,000, $3,516,000 and
$2,047,000, respectively, and gross losses of $0, $1,000 and $1,000,
respectively, were realized on dispositions of equity securities.
</TABLE>
F-13
<PAGE>
2. Investment Information - (continued)
(d)Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1996 and 1995, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $15,648,000 and $9,650,000 and gross losses of $398,000 and
$480,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross
1996 Amortized Unrealized Gross Market
Cost Gains Unrealized Value
Losses
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 79,195 $ 14,104 $ 420 $ 92,879
States, municipalities and
political subdivisions 854,402 36,479 4,574 886,307
Foreign governments 39,549 3,579 283 42,845
All other corporate 3,483,462 148,570 18,041 3,613,991
---------- --------- ------- ---------
Total fixed maturities $ 4,456,608 $ 202,732 $ 23,318 $4,636,022
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
1995 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 84,063 $ 19,982 $ 39 $ 104,006
States, municipalities and
political subdivisions 883,646 56,568 89 940,125
Foreign governments 33,927 5,291 75 39,143
All other corporate 3,137,534 224,452 10,931 3,351,055
--------- -------- -------- ---------
Total fixed maturities $4,139,170 $ 306,293 $ 11,134 $ 4,434,329
========== ======== ======= ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities
available for sale at December 31, 1996, by contractual maturity, are
shown below (in thousands). Actual maturities could differ from
contractual maturities because certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<S> <C> <C>
Estimated
Amortized Market
Cost Value
Due in one year or less $ 280,178 $ 287,023
Due after one year through five years 1,293,766 1,338,015
Due after five years through ten years 1,758,183 1,834,170
Due after ten years 1,124,481 1,176,814
----------- ------------
$4,456,608 $ 4,636,022
---------- -----------
---------- -----------
</TABLE>
F-14
<PAGE>
2. Investment Information - (continued)
(e) CMO's: CMOs are U.S. Government and Government agency backed and triple
A-rated securities. In the preceding table, CMO's are included in other
corporate fixed maturities. At December 31, 1996 and 1995, the market
value of the CMO portfolio was $1,031,431,000 and $1,114,196,000,
respectively; the estimated amortized cost was approximately $991,305,000
in 1996 and $1,049,450,000 in 1995. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities contained
in the portfolio at December 31, 1996.
(f)Fixed Maturities Below Investment Grade: At December 31, 1996 and 1995,
the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $270,068,000 and $204,254,000,
respectively, and an aggregate market value of $267,331,000 and
$206,442,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h)Investments Greater than 10% Equity: The market value of investments in
the following companies and institutions exceeded 10% of the Company's
total stockholders' equity at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fixed Maturities:
General Motors Acceptance Corporation $ 72,009
Morgan Stanley Mortgage Trust $ 71,790
Transamerica Finance $ 55,300
Chrysler Finance Corporation $ 49,132
</TABLE>
3. Deferred Policy Acquisition Costs
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against future
income and the related current amortization charged to income, excluding
certain amounts deferred and amortized in the same period (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $31,225 $29,626 $29,413
Acquisition costs deferred 8,482 5,933 3,286
Amortization charged to income (3,953) (4,334) (3,073)
------ ------- -------
Balance at end of year $35,754 $31,225 $29,626
======= ======= =======
</TABLE>
F-15
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a)The analysis of the future policy benefits and policyholders' funds on
deposit liabilities as at December 31, 1996 and 1995 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Future policy benefits:
Long duration contracts $1,565,362 $1,537,901
Short duration contracts 23,201 23,859
----------- -----------
$1,588,563 $1,561,760
Policyholder funds on deposit:
Annuities $2,458,340 $2,216,319
Guaranteed investment contracts (GICs) 744,284 739,947
Universal life 98,466 98,214
Other investment contracts 7,118 6,101
$3,308,208 $3,060,581
</TABLE>
(b)Long duration contract liabilities included in future policy benefits, as
presented in the table above, result from traditional life products. Short
duration contract liabilities are primarily accident and health products.
The liability for future policy benefits has been established based upon
the following assumptions:
(i) Interest rates for traditional life insurance products are 9.5 percent
graded to 7.0 percent over 30 years. The liability for future policy
benefits for universal life insurance has been established using FASB 97
and assumes a 1.0 percent investment margin. Interest rates (exclusive of
immediate/terminal funding annuities), which vary by year of issuance and
products, range from 3.0 percent to 10.0 percent. Interest rates on
immediate/terminal funding annuities are at a maximum of 12.2 percent and
grade to not greater than 7.5 percent.
(ii) Mortality and withdrawal rates are based upon actual experience
modified to allow for variations in policy form. The weighted average
lapse rate, including surrenders, for individual life approximated 15.0
percent.
(c)The liability for policyholders' fund on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of issuance
and range from 3.0 percent to 8.0 percent. Credited interest rate
guarantees are generally for a period of one year. Withdrawal charges
generally range from 6.0 percent to 10.0 percent grading to zero over a
period of 6 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited generally
range from 4.7 percent to 8.1 percent and maturities range from 2 to 7
years.
(iii) The universal life funds have credited interest rates of 5.9 percent
to 7.5 percent and guarantees ranging from 3.5 percent to 5.5 percent
depending on the year of issue. Additionally, universal life funds are
subject to surrender charges that amount to 10.0 percent of the fund
balance and grade to zero over a period not longer than 20 years.
F-16
<PAGE>
5. Income Taxes
(a)The Federal income tax rate applicable to ordinary income is 35% for
1996, 1995 and 1994. Actual tax expense on income from operations differs
from the "expected" amount computed by applying the Federal income tax
rate because of the following (in thousands except percentages):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---------------- -------------- -----------
PERCENT PERCENT PERCENT
OF OF OF
PRE-TAX PRE-TAX PRE-TAX
OPERATING OPERATING OPERATING
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $16,989 35.0% $14,287 35.0% $6,172 35.0%
Prior year federal
income tax benefit - - - - - -
State income tax 578 1.2 609 1.5 667 3.8
Other (223) (0.5) (398) (1.0) (162) (0.9)
-------- ----- -------- ---- --------- ----
Actual income
tax expense $17,344 35.7% $14,498 35.5% $ 6,677 37.9%
======= ==== ======= ==== ======= ====
</TABLE>
(b) The components of the net deferred tax liability were as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Adjustments to mortgage loans
and investment income $ 5,321 $ 5,420
Adjustment to life reserves 35,370 23,835
Other 363 1,571
----------- ---------
41,054 30,826
Deferred tax liabilities:
Deferred policy acquisition costs $ 1,437 $ 1,637
Fixed maturities discount 9,816 8,745
Unrealized appreciation on investments 72,979 82,352
Other 267 417
----------- ----------
84,499 93,151
--------- --------
Net deferred tax liability $ 43,445 $ 62,325
======== ========
</TABLE>
(c)At December 31, 1996, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,879,000 of "Policyholders'
Surplus" as defined under the Code. Under provisions of the Code,
"Policyholders' Surplus" has not been currently taxed but would be taxed
at current rates if distributed to the Parent. There is no present
intention to make cash distributions from "Policyholders' Surplus" and
accordingly, no provision has been made for taxes on this amount.
(d)Income taxes paid in 1996, 1995, and 1994 amounted to $25,353,000,
$19,056,000, and $13,537,000, respectively.
F-17
<PAGE>
6. Commitments and Contingent Liabilities
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
7. Fair Value of Financial Instruments
(a)Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments may
or may not be recognized in the balance sheet. In the measurement of the
fair value of certain of the financial instruments, quoted market prices
were not available and other valuation techniques were utilized. These
derived fair value estimates are significantly affected by the assumptions
used. FASB 107 excludes certain financial instruments, including those
related to insurance contracts.
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair value.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair values of policy loans were not calculated as the Company
believes it would have to expend excessive costs for the benefits derived.
Therefore, the fair value of policy loans was estimated at carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair values of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
F-18
<PAGE>
7. Fair Value of Financial Instruments - (continued)
(b) The fair value and carrying amounts of financial instruments
is as follows (in thousands):
<TABLE>
<CAPTION>
1996
FAIR CARRYING
VALUE AMOUNT
-------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments $ 62,059 $ 62,059
Fixed maturities 4,636,022 4,636,022
Equity securities 33,689 33,689
Mortgage and policy loans 533,981 524,533
Interest rate cap 226 283
Policyholders' funds on deposit $3,366,450 $3,308,208
</TABLE>
<TABLE>
<CAPTION>
1995
FAIR CARRYING
VALUE AMOUNT
-------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments $ 105,153 $ 105,153
Fixed maturities 4,434,329 4,434,329
Equity securities 28,935 28,935
Mortgage and policy loans 489,768 459,691
Interest rate cap 433 510
Policyholders' funds on deposit $3,125,730 $3,060,581
</TABLE>
8. Stockholders' Equity
(a)The Company may not distribute dividends to the Parent without prior
approval of regulatory agencies. Generally, this limits the payment of
such dividends to an amount which, in the opinion of the regulatory
agencies, is warranted by the financial condition of the Company. During
1996, the Company paid a $50,000,000 dividend to American International
Group, Inc., the parent.
(b)The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $254,169,000 at December 31, 1996 and
$257,910,000 at December 31, 1995. Statutory net income amounted to
$48,474,000, $49,059,000, and $21,226,000 for 1996, 1995 and 1994,
respectively.
F-19
<PAGE>
9. Employee Benefits
(a)The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and completed
twelve months of continuous service are eligible to participate in this
plan. An employee with 5 or more years of service is entitled to pension
benefits beginning at normal retirement age 65. Benefits are based upon a
percentage of average final compensation multiplied by years of credited
service limited to 44 years of credited service. Prior to January 1, 1996
the average final compensation is subject to certain limitations. Annual
funding requirements are determined based on the "projected unit credit"
cost method which attributes a pro rata portion of the total projected
benefit payable at normal retirement to each year of credited service.
Pension expense for current service costs, retirement and termination
benefits for the years ended December 31, 1996, 1995 and 1994 were
approximately $241,000, $225,000 and $190,000, respectively. The Parent's
plans do not separately identify projected benefit obligations and plan
assets attributable to employees of participating affiliates. The
projected benefit obligations exceeded the plan assets at December 31,
1996 by $42,149,000.
(b)The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which during the two years ended December 31, 1994,
provided for salary reduction contributions by employees and matching
contributions by the Parent up to 2 percent of annual salary. Commencing
January 1, 1995, the 401(k) plan provided for matching contributions by
the Parent of up to 6 percent of annual salary depending on the employee's
years of service.
(c)On April 1, 1985, the Parent terminated and replaced its then existing
U.S. pension plan, a contributory qualified defined benefit plan, with the
current non-contributory qualified defined benefit plan. Settlement of the
obligations of the prior plan was accomplished through the purchase of
annuities from the Company for accrued benefits as of the date of
termination. Future policy benefits reserves in the accompanying balance
sheet that relate to these annuity contracts are $73,866,000 at December
31, 1996 and $73,171,000 at December 31, 1995.
(d)In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
(e)The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provide for eligible employees
to receive privileges to purchase AIG common stock at a price equal to 85%
of the fair market value on the date of grant of the purchase privilege.
The Parent has not recognized compensation costs for either plan. The
effect of the compensation costs, as determined consistent with
FASB 123, was not computed on a subsidiary basis, but rather on a
consolidated basis for all subsidiaries of the Parent and therefore are
not presented herein.
F-20
<PAGE>
10. Leases
(a)The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1996, the
future minimum lease payments under operating leases were as follows:
<TABLE>
<CAPTION>
Year Payments
<S> <C>
1997 $ 1,035
1998 894
1999 396
2000 220
2001 139
Remaining years after 2001 -
---------
Total $2,684
------
------
</TABLE>
Rent expense approximated $866,000, $661,000 and $801,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
(b)Sublease Income - The Company does not participate in sublease agreements.
11. Reinsurance
(a)The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term treaties.
Accident and health insurance risks are reinsured primarily under
coinsurance, excess of loss and quota share treaties. Amounts recoverable
from reinsurers are estimated in a manner consistent with the assumptions
used for the underlying policy benefits and are presented as a component
of reinsurance assets. A contingent liability exists with respect to
reinsurance ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements. The Company also
reinsures portions of its life and accident and health insurance risks
with affiliated companies (see Note 12).
The effect of all reinsurance contracts, including reinsurance assumed, is
as follows (in thousands, except percentages):
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1996 ASSUMED
GROSS CEDED ASSUMED NET TO NET
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,776,324 $638,583 $ 3,282 $4,141,023 0.1%
========== ======== ========== ==========
Premiums:
Life 25,625 3,788 82 21,919 0.4%
Accident and Health 20,553 6,729 22,009 35,833 61.4%
Annuity 92,441 721 - 91,720 -
------------ --------- ---------- ---------- -------
Total Premiums $ 138,619 $11,238 $ 22,091 $149,472 14.8%
=========== ========= ========= ==========
</TABLE>
F-21
<PAGE>
11. Reinsurance - (continued)
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1995 ASSUMED
GROSS CEDED ASSUMED NET TO NET
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,415,460 $711,025 $ 3,574 $3,708,009 0.2%
========== ======== ========== ==========
Premiums:
Life 25,938 3,368 6 22,576 -
Accident and Health 22,136 8,034 20,822 34,924 59.6%
Annuity 27,496 639 - 26,857 -
------------ ----------- -------- --------
Total Premiums $ 75,570 $ 12,041 $ 20,828 $ 84,357 24.7%
============ ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1994 ASSUMED
GROSS CEDED ASSUMED NET TO NET
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,241,039 $512,028 $ 3,980 $3,732,991 0.1%
===============================================
Premiums:
Life 26,345 3,677 13 22,681 0.1%
Accident and Health 23,622 9,520 20,612 34,714 59.4%
Annuity 14,892 461 - 14,431 -
--------- ---------- --------------------------
Total Premiums $ 64,859 $ 13,658 $ 20,625 $ 71,826 28.7%
=========== ====================== ============
</TABLE>
(b) The maximum amount retained on any one life by the Company is $1,000,000.
(c)Reinsurance recoveries, which reduced death and other benefits,
approximated $7,176,000, $7,667,000 and $6,720,000 respectively, for each
of the years ended December 31, 1996, 1995 and 1994.
The Company's reinsurance arrangements do not relieve it from its direct
obligation to its insureds.
12. Transactions with Related Parties
(a)The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance risks.
Premium income and commission ceded to affiliates amounted to $857,000 and
$(2,000), respectively, for the year ended December 31, 1996. Premium
income and commission ceded for 1995 amounted to $800,000 and $(3,000),
respectively. Premium income and commission ceded for 1994 amounted to
$574,000 and $(3,000), respectively. Premium income and ceding commission
expense assumed from affiliates aggregated $20,764,000 and $(120,000),
respectively, for 1996, compared to $19,679,000 and $(141,000),
respectively, for 1995, and $19,331,000 and $98,000, respectively, for
1994.
(b)The Company provides life insurance coverage to employees of the Parent
and its domestic subsidiaries in connection with the Parent's employee
benefit plans. The statement of income includes $5,142,000 in premiums
relating to this business for 1996, $4,080,000 for 1995, and $3,952,000
for 1994.
F-22
<PAGE>
12. Transactions with Related Parties - (continued)
(c)The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional cost
allocation basis which management believes to be reasonable. For the years
ended December 31, 1996, 1995 and 1994, the Company was charged
$24,204,000, $19,148,000, and $17,401,000, respectively, for expenses
attributed to the Company but incurred by affiliates. During the same
period, the Company received reimbursements from affiliates aggregating
$21,198,000, $20,920,000 and $19,505,000, respectively, for costs incurred
by the Company but attributable to affiliates.
(d)During 1995, the Company sold a mortgage loan to AIG Real Estate
Investment and Management Company for the aggregate unpaid principal
balance of $5,000,000.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31,1996
<TABLE>
<CAPTION>
Shares Cost Market Value
<S> <C> <C> <C>
ASSETS:
Investments at Market Value:
Profile Variable Products Series Fund, Inc.:
Fidelity
Money Market Portfolio ............................ 1,165,858.730 $ 1,165,859 $ 1,165,859
Asset Manager Portfolio ........................... 5,375.128 84,575 91,001
Growth Portfolio .................................. 7,686.157 233,737 239,347
High Income Portfolio ............................. 7,250.310 87,849 90,774
Investment Grade Bond Portfolio ................... 2,238.774 26,387 27,403
Overseas Portfolio ................................ 6,051.664 108,454 114,013
Alliance
Conservative Investors Portfolio .................. 871.979 9,941 10,525
Growth & Income Portfolio ......................... 15,099.545 231,276 247,633
Growth Investors Portfolio ........................ 3,690.200 44,292 47,013
Growth Portfolio .................................. 8,666.330 144,517 155,301
Technology Portfolio .............................. 2,849.786 31,625 31,462
Quasar Portfolio .................................. 653.186 6,889 6,950
Dreyfus
Stock Index Portfolio ............................. 9,858.752 197,015 199,935
Zero Coupon 2000 Portfolio ........................ 5,185.240 63,616 63,727
Van Eck
Gold & Natural Resources Portfolio ................ 2,996.033 48,738 50,094
Worldwide Balanced Portfolio ...................... 5,368.709 57,136 59,807
Weiss,Peck & Greer
Tomorrow Short Term Portfolio ..................... 18,296.789 160,422 168,513
Tomorrow Medium Term Portfolio .................... 8,343.203 66,830 65,578
Tomorrow Long Term Portfolio ...................... 2,849.424 19,091 20,088
------------ --------------
Total Investments ..................................................... $ 2,788,249 2,855,023
--------------
Total Assets .................................................................. $ 2,855,023
==============
EQUITY:
Contract Owners' Equity .................................................................. $ 2,855,023
--------------
Total Equity .................................................................. $ 2,855,023
==============
</TABLE>
See Notes to Financial Statements
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset Fidelity
Market Manager Growth
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends .................................. $ 15,905 $ 9,278 $ 0 $ 0
Expenses:
Mortality & Expense Risk Fees ............... 6,573 2,234 399 482
Daily Administrative Charges ................ 796 267 48 59
------------- ------------- -------------- --------------
Net Investment Income (Loss) .................... 8,536 6,777 (447) (541)
------------- ------------- -------------- --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 847 0 26 9
Change in Unrealized Appreciation
(Depreciation) .......................... 66,772 0 6,426 5,609
------------- ------------- -------------- --------------
Net Gain (Loss) on Investments .................. 67,619 0 6,452 5,618
------------- ------------- -------------- --------------
Increase (Decrease) in Net Assets
Resulting From Operations ................... $ 76,155 $ 6,777 $ 6,005 $ 5,077
============= ============= ============== ==============
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Fidelity
Fidelity Investment Alliance
High Grade Fidelity Conservative
Income Bond Overseas Investors
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends .................................. $ 0 $ 0 $ 0 $ 0
Expenses:
Mortality & Expense Risk Fees ............... 265 141 342 55
Daily Administrative Charges ................ 32 17 41 7
------------- ------------- -------------- --------------
Net Investment Income (Loss) .................... (297) (158) (383) (62)
------------- ------------- -------------- --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 15 6 18 3
Change in Unrealized Appreciation
(Depreciation) .......................... 2,925 1,016 5,558 584
------------- ------------- -------------- --------------
Net Gain (Loss) on Investments .................. 2,940 1,022 5,576 587
------------- ------------- -------------- --------------
Increase (Decrease) in Net Assets
Resulting From Operations ................... $ 2,643 $ 864 $ 5,193 $ 525
============= ============= ============== ==============
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Alliance
Growth Alliance
& Growth Alliance Alliance
Income Investors Growth Technology
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends .................................. $ 0 $ 42 $ 151 $ 0
Expenses:
Mortality & Expense Risk Fees ............... 554 221 436 14
Daily Administrative Charges ................ 67 26 49 2
------------- ------------- -------------- --------------
Net Investment Income (Loss) .................... (621) (205) (334) (16)
------------- ------------- -------------- --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 78 1,029 (438) 0
Change in Unrealized Appreciation
(Depreciation) .......................... 16,358 2,721 10,784 (163)
------------- ------------- -------------- --------------
Net Gain (Loss) on Investments .................. 16,436 3,750 10,346 (163)
------------- ------------- -------------- --------------
Increase (Decrease) in Net Assets
Resulting From Operations ................... $ 15,815 $ 3,545 $ 10,012 $ (179)
============= ============= ============== ==============
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Dreyfus Van Eck
Dreyfus Zero Gold &
Alliance Stock Coupon Natural
Quasar Index 2000 Resources
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends .................................. $ 45 $ 2,974 $ 1,105 $ 0
Expenses:
Mortality & Expense Risk Fees ............... 6 334 141 100
Daily Administrative Charges ................ 1 40 26 12
------------- ------------- -------------- --------------
Net Investment Income (Loss) .................... 38 2,600 938 (112)
------------- ------------- -------------- --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 0 41 7 7
Change in Unrealized Appreciation
(Depreciation) .......................... 61 2,920 111 1,356
------------- ------------- -------------- --------------
Net Gain (Loss) on Investments .................. 61 2,961 118 1,363
------------- ------------- -------------- --------------
Increase (Decrease) in Net Assets
Resulting From Operations ................... $ 99 $ 5,561 $ 1,056 $ 1,251
============= ============= ============== ==============
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Van Eck Tomorrow Tomorrow Tomorrow
Worldwide Short Medium Long
Balanced Term Term Term
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends .................................. $ 0 $ 0 $ 2,174 $ 136
Expenses:
Mortality & Expense Risk Fees ............... 165 540 80 64
Daily Administrative Charges ................ 20 64 10 8
------------- ------------- -------------- --------------
Net Investment Income (Loss) .................... (185) (604) 2,084 64
------------- ------------- -------------- --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 8 29 4 5
Change in Unrealized Appreciation
(Depreciation) .......................... 2,671 8,091 (1,253) 997
------------- ------------- -------------- --------------
Net Gain (Loss) on Investments .................. 2,679 8,120 (1,249) 1,002
------------- ------------- -------------- --------------
Increase (Decrease) in Net Assets
Resulting From Operations ................... $ 2,494 $ 7,516 $ 835 $ 1,066
============= ============= ============== ==============
</TABLE>
See Notes to Financial Statements
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset Fidelity
Market Manager Growth
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 8,536 $ 6,777 $ (447) $ (541)
Realized Gain (Loss) on Investment Activity . 847 0 26 9
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 66,772 0 6,426 5,609
Increase (Decrease) in Net Assets Resulting --------------- -------------- ------------ --------------
From Operations ............................. 76,155 6,777 6,005 5,077
--------------- -------------- ------------ --------------
Capital Transactions:
Contract Deposits ........................... 2,779,202 2,121,484 19,500 82,027
Transfers Between Funds ..................... 18 (962,402) 65,496 152,331
Contract Withdrawals ........................ (352) 0 0 (88)
Increase (Decrease) in Net Assets Resulting --------------- -------------- ------------ --------------
From Capital Transactions ................... 2,778,868 1,159,082 84,996 234,270
--------------- -------------- ------------ --------------
Total Increase (Decrease) in Net Assets ......... 2,855,023 1,165,859 91,001 239,347
Net Assets, at Beginning of Year ................ 0 0 0 0
--------------- -------------- ------------ --------------
Net Assets, at End of Year ......................$ 2,855,023 $ 1,165,859 $ 91,001 $ 239,347
=============== ============== ============ ==============
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Fidelity
Fidelity Investment Alliance
High Grade Fidelity Conservative
Income Bond Overseas Investors
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (297) $ (158) $ (383) $ (62)
Realized Gain (Loss) on Investment Activity . 15 6 18 3
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 2,925 1,016 5,558 584
Increase (Decrease) in Net Assets Resulting --------------- -------------- ------------ --------------
From Operations ............................. 2,643 864 5,193 525
--------------- -------------- ------------ --------------
Capital Transactions:
Contract Deposits ........................... 27,676 11,000 61,194 10,000
Transfers Between Funds ..................... 60,455 15,539 47,626 0
Contract Withdrawals ........................ 0 0 0 0
Increase (Decrease) in Net Assets Resulting --------------- -------------- ------------ --------------
From Capital Transactions ................... 88,131 26,539 108,820 10,000
--------------- -------------- ------------ --------------
Total Increase (Decrease) in Net Assets ......... 90,774 27,403 114,013 10,525
Net Assets, at Beginning of Year ................ 0 0 0 0
--------------- -------------- ------------ --------------
Net Assets, at End of Year ......................$ 90,774 $ 27,403 $ 114,013 $ 10,525
=============== ============== ============ ==============
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Alliance
Growth Alliance
& Growth Alliance Alliance
Income Investors Growth Technology
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (621) $ (205) $ (334) $ (16)
Realized Gain (Loss) on Investment Activity . 78 1,029 (438) 0
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 16,358 2,721 10,784 (163)
Increase (Decrease) in Net Assets Resulting --------------- -------------- ------------ --------------
From Operations ............................. 15,815 3,545 10,012 (179)
--------------- -------------- ------------ --------------
Capital Transactions:
Contract Deposits ........................... 82,366 32,719 70,872 16,220
Transfers Between Funds ..................... 149,452 10,749 74,505 15,421
Contract Withdrawals ........................ 0 0 (88) 0
Increase (Decrease) in Net Assets Resulting --------------- -------------- ------------ --------------
From Capital Transactions ................... 231,818 43,468 145,289 31,641
--------------- -------------- ------------ --------------
Total Increase (Decrease) in Net Assets ......... 247,633 47,013 155,301 31,462
Net Assets, at Beginning of Year ................ 0 0 0 0
--------------- -------------- ------------ --------------
Net Assets, at End of Year ......................$ 247,633 $ 47,013 $ 155,301 $ 31,462
=============== ============== ============ ==============
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Dreyfus Van Eck
Dreyfus Zero Gold &
Alliance Stock Coupon Natural
Quasar Index 2000 Resources
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 38 $ 2,600 $ 938 $ (112)
Realized Gain (Loss) on Investment Activity . 0 41 7 7
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 61 2,920 111 1,356
Increase (Decrease) in Net Assets Resulting --------------- -------------- ------------ --------------
From Operations ............................. 99 5,561 1,056 1,251
--------------- -------------- ------------ --------------
Capital Transactions:
Contract Deposits ........................... 5,250 67,847 54,456 22,500
Transfers Between Funds ..................... 1,601 126,615 8,303 26,343
Contract Withdrawals ........................ 0 (88) (88) 0
Increase (Decrease) in Net Assets Resulting --------------- -------------- ------------ --------------
From Capital Transactions ................... 6,851 194,374 62,671 48,843
--------------- -------------- ------------ --------------
Total Increase (Decrease) in Net Assets ......... 6,950 199,935 63,727 50,094
Net Assets, at Beginning of Year ................ 0 0 0 0
--------------- -------------- ------------ --------------
Net Assets, at End of Year ......................$ 6,950 $ 199,935 $ 63,727 $ 50,094
=============== ============== ============ ==============
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Van Eck Tomorrow Tomorrow Tomorrow
Worldwide Short Medium Long
Balanced Term Term Term
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (185) $ (604) $ 2,084 $ 64
Realized Gain (Loss) on Investment Activity . 8 29 4 5
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 2,671 8,091 (1,253) 997
Increase (Decrease) in Net Assets Resulting --------------- -------------- ------------ --------------
From Operations ............................. 2,494 7,516 835 1,066
--------------- -------------- ------------ --------------
Capital Transactions:
Contract Deposits ........................... 18,775 63,116 9,200 3,000
Transfers Between Funds ..................... 38,538 97,881 55,543 16,022
Contract Withdrawals ........................ 0 0 0 0
Increase (Decrease) in Net Assets Resulting --------------- -------------- ------------ --------------
From Capital Transactions ................... 57,313 160,997 64,743 19,022
--------------- -------------- ------------ --------------
Total Increase (Decrease) in Net Assets ......... 59,807 168,513 65,578 20,088
Net Assets, at Beginning of Year ................ 0 0 0 0
--------------- -------------- ------------ --------------
Net Assets, at End of Year ......................$ 59,807 $ 168,513 $ 65,578 $ 20,088
=============== ============== ============ ==============
</TABLE>
See Notes to Financial Statements
<PAGE>
word doc
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
4. Purchases of Investments
For the period ended April 1 to December 31, 1996, investment activity
in the Fund was as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
Fidelity Trust Funds:
Money Market Portfolio ................... $ 2,106,490 $ 940,631
Asset Manager Portfolio .................. 84,996 447
Growth Portfolio ......................... 234,357 629
High Income Portfolio..................... 88,134 300
Investment Grade Bond Portfolio........... 26,543 163
Overseas Portfolio........................ 108,820 383
Alliance Funds:
Conservative Investors Portfolio.......... 10,000 62
Growth & Income Portfolio ................ 231,821 625
Growth Investors Portfolio................ 57,111 13,848
Growth Portfolio.......................... 149,720 4,766
Technology Portfolio...................... 31,641 15
Quasar Portfolio.......................... 6,896 7
Dreyfus:
Stock Index Portfolio..................... 197,428 454
Zero Coupon 2000 Portfolio................ 63,988 379
Van Eck:
Gold & Natural Resources Portfolio........ 48,843 113
Worldwide Balanced Portfolio.............. 57,313 184
Weiss, Peck, & Greer:
Tomorrow Short Term Portfolio............. 160,998 605
Tomorrow Medium Term Portfolio............ 66,915 88
Tomorrow Long Term Portfolio.............. 19,157 71
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
5. Net Increase (Decrease) in Accumulation Units
For the period ended April 1 to December 31, 1996, transactions in
accumulation units of the account were as follows:
<TABLE>
<CAPTION>
Fidelity
Fidelity Fidelity Fidelity Investment
Money Asset Fidelity High Grade
Market Manager Growth Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY
Units Purchased ............................. 208,331.82 1,932.65 8,384.26 2,696.43 1,086.19
Units Withdrawn ............................. 0.00 0.00 (8.46) 0.00 0.00
Units Transferred Between Funds ............. (94,550.23) 6,437.98 15,398.96 5,809.79 1,529.10
Units Transferred From (To) AI Life ......... 0.00 0.00 0.00 0.00 0.00
------------ --------------- ------------ ------------ -------------
Net Increase (Decrease) ..................... 113,781.59 8,370.63 23,774.76 8,506.22 2,615.29
Units, at Beginning of the Year ............. 0.00 0.00 0.00 0.00 0.00
------------ --------------- ------------ ------------ -------------
Units, at End of the Year ................... 113,781.59 8,370.63 23,774.76 8,506.22 2,615.29
============ =============== ============ ============ =============
Unit Value at December 31, 1996 ............. $ 10.25 $ 10.87 $ 10.07 $ 10.67 $ 10.48
============= =============== ============ ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Alliance
Alliance Growth Alliance
Fidelity Conservative & Growth Alliance
Overseas Investors Income Investors Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Units Purchased ............................. 6,033.32 990.92 7,837.96 3,275.63 6,705.72
Units Withdrawn ............................. 0.00 0.00 0.00 0.00 (7.71)
Units Transferred Between Funds ............. 4,607.67 0.00 12,800.03 1,193.46 7,020.80
Units Transferred From (To) AI Life ......... 0.00 0.00 0.00 0.00 0.00
------------ --------------- ------------ ------------ -------------
Net Increase (Decrease) ..................... 10,640.99 990.92 20,637.99 4,469.09 13,718.81
Units, at Beginning of the Year ............. 0.00 0.00 0.00 0.00 0.00
------------ --------------- ------------ ------------ -------------
Units, at End of the Year ................... 10,640.99 990.92 20,637.99 4,469.09 13,718.81
============ =============== ============ ============ =============
Unit Value at December 31, 1996 ............. $ 10.71 $ 10.62 $ 12.00 $ 10.52 $ 11.32
============ =============== ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
Dreyfus Van Eck
Dreyfus Zero Gold &
Alliance Alliance Stock Coupon Natural
Technology Quasar Index 2,000.00 Resources
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Units Purchased ............................. 1,649.06 514.16 6,302.02 5,357.16 2,118.50
Units Withdrawn ............................. 0.00 (7.73) (8.43) 0.00
Units Transferred Between Funds ............. 1,560.75 160.09 11,542.04 828.07 2,527.61
Units Transferred From (To) AI Life ......... 0.00 0.00 0.00 0.00 0.00
------------ --------------- ------------ ------------ -------------
Net Increase (Decrease) ..................... 3,209.81 674.25 17,836.33 6,176.80 4,646.11
Units, at Beginning of the Year ............. 0.00 0.00 0.00 0.00 0.00
------------ --------------- ------------ ------------ -------------
Units, at End of the Year ................... 3,209.81 674.25 17,836.33 6,176.80 4,646.11
============ =============== ============ ============ =============
Unit Value at December 31, 1996 ............. $ 9.80 $ 10.31 $ 11.21 $ 10.32 $ 10.78
============ =============== ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
Van Eck Tomorrow Tomorrow Tomorrow
Worldwide Short Medium Long
Balanced Term Term Term
Portfolio Portfolio Portfolio Portfolio
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Units Purchased ............................. 1,864.57 6,337.04 853.66 286.80
Units Withdrawn ............................. 0.00 0.00 0.00 0.00
Units Transferred Between Funds ............. 3,708.27 9,407.72 5,231.26 1,566.16
Units Transferred From (To) AI Life ......... 0.00 0.00 0.00 0.00
------------ --------------- ------------ ------------
Net Increase (Decrease) ..................... 5,572.84 15,744.76 6,084.92 1,852.96
Units, at Beginning of the Year ............. 0.00 0.00 0.00 0.00
------------ --------------- ------------ ------------
Units, at End of the Year ................... 5,572.84 15,744.76 6,084.92 1,852.96
============ =============== ============ ============
Unit Value at December 31, 1996 ............. $ 10.73 $ 10.70 $ 10.78 $ 10.84
============ =============== ============ ============
</TABLE>
<PAGE>
PROSPECTUS
for
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
80 Pine Street
New York, New York 10005
This Prospectus sets forth the information a prospective investor ought to
know before investing.
The Individual Deferred Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide for accumulation of Contract Values and
payment of monthly annuity payments. The Contracts may be used in retirement
plans which do not qualify for federal tax advantages ("Non-Qualified
Contracts") or in connection with retirement plans which may qualify as
Individual Retirement Annuities ("IRA") under Section 408 of the Internal
Revenue Code of 1986, as amended (the "Code") or Section 403(b) of the Code
("403(b) Plans"). The Contracts will not be available in connection with
retirement plans designed by American International Life Assurance Company of
New York (the "Company") which qualify for the federal tax advantages available
under Sections 401 and 457 of the Code. Purchasers intending to use the
Contracts in connection with an IRA or 403(b) Plan should seek competent tax
advice.
Premiums allocated among the Subaccounts of Variable Account A (the
"Variable Account") will be invested in shares of corresponding portfolios as
selected by the Owner from the following choices: the Conservative Investors
Portfolio, Growth Investors Portfolio, Growth Portfolio, Quasar Portfolio,
Technology Portfolio or Growth and Income Portfolio of the ALLIANCE VARIABLE
PRODUCTS SERIES FUND, INC.; the VIP High Income Portfolio, VIP Growth Portfolio,
VIP Money Market Portfolio, VIP Overseas Portfolio, VIP II Asset Manager
Portfolio, or VIP II Investment Grade Bond Portfolio of the FIDELITY INVESTMENTS
VARIABLE INSURANCE PRODUCTS FUNDS; the Zero Coupon Portfolio of the DREYFUS
VARIABLE INVESTMENT FUND; the Worldwide Hard Assets Portfolio or Worldwide
Balanced Portfolio, of the VAN ECK WORLDWIDE INSURANCE TRUST; the DREYFUS STOCK
INDEX FUND; or the Short-Term Retirement Portfolio, Medium-Term Retirement
Portfolio or the Long-Term Retirement Portfolio of the Tomorrow Funds Retirement
Trust.
Additional information about the Contracts and the Variable Account is
contained in the "Statement of Additional Information" which is available upon
request at no charge by calling or writing American International Life Assurance
Company of New York; Attention Variable Products, One Alico Plaza, Wilmington,
Delaware 19801, 1-800-340-2765 or call the service office at 1-800-255-8402. The
Statement of Additional Information dated May 1, 1997, has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference. The
Table of Contents for the Statement of Additional Information can be found on
page ___ of this Prospectus.
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.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE
NOT GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL
STATES.
Date of Prospectus: May 1, 1997
<PAGE>
TABLE CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions.............................................................
Highlights..............................................................
Summary of Expenses.....................................................
Condensed Financial Information.........................................
The Company.............................................................
The Variable Account....................................................
The Funds...............................................................
The Contract
Charges and Deductions..................................................
Annuity Benefits........................................................
Death Benefit...........................................................
Distributions Under the Contract........................................
Taxes...................................................................
Appendix - General Account Option.......................................
Table of Contents of the Statement of Additional Information............
</TABLE>
2
<PAGE>
DEFINITIONS
Accumulation Unit - An accounting unit of measure used to calculate the Contract
Value prior to the Annuity Date.
Administrative Office - The Annuity Service Office of the Company: c/o
Delaware Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031,
Berwyn, PA 19312-0031.
Annuitant - The person designated by the Owner upon whose continuation of life
any annuity payment involving life contingencies depends.
Annuity Date - The date on which annuity payments are to commence.
Annuity Option - An arrangement under which annuity payments are made under this
Contract.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
Contract Year - Each period of twelve (12) months commencing with the Effective
Date.
Effective Date - The date on which the first Contract Year begins.
Guaranteed Account - A part of our General Account, which earns a Guaranteed
Rate of interest.
Owner - The person named in the Contract Schedule, unless changed, and who has
all rights under the Contract.
Premium - Purchase payments for the Contract are referred to as Premium.
Premium Year - Any period of twelve (12) months commencing with the date a
Premium payment is made and ending on the same date in each succeeding twelve
(12) month period thereafter.
Surrender Charge - Contingent deferred sales charges are referred to as
Surrender Charges.
Valuation Date - Each day that We and the New York Stock Exchange are open for
trading.
Valuation Period - The period between the close of business on any Valuation
Date and the close of business for the next succeeding Valuation Date.
We, Our, Us - American International Life Assurance Company of New York.
You, Your - The Owner of this Contract.
3
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contracts ") and a segregated investment account
of American International Life Assurance Company of New York (the "Company")
which account has been designated Variable Account A (the "Variable Account").
The Contracts are designed to assist in financial planning by providing for the
accumulation of capital on a tax-deferred basis for retirement and other
long-term purposes, and providing for the payment of monthly annuity income.
Contracts may be purchased in connection with a retirement plan which may
qualify as a 403(b) Plan or as an Individual Retirement Annuity ("IRA"). The
Contract may also be purchased for retirement plans, deferred compensation plans
and other purposes which do not qualify for such special Federal income tax
treatment ("Non-Qualified Contracts"). (See "Taxes" on page ___.)
A Contract is purchased with a minimum initial premium of $2,000 Additional
premium is permitted at any time, subject to certain limitations. (See "Premium
and Allocation to Your Investment Options" on page ___.) You, as the Owner of
the Contract, may allocate your premium so that it accumulates on a variable
basis, a fixed basis or a combination of both.
Premium allocated among the Subaccounts of the Variable Account will accumulate
on a variable basis and will be invested in shares of one or more of the
following underlying portfolios: the Conservative Investors Portfolio, Growth
Investors Portfolio, Growth Portfolio Quasar Portfolio, Technology Portfolio, or
Growth and Income Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
("Alliance Funds"); the VIP High Income Portfolio, VIP Growth Portfolio, VIP
Money Market Portfolio, VIP Overseas Portfolio, VIP II Asset Manager Portfolio,
or VIP II Investment Grade Bond Portfolio of the FIDELITY INVESTMENTS VARIABLE
INSURANCE PRODUCTS FUNDS ("Fidelity Funds"); the Zero Coupon Portfolio of the
DREYFUS VARIABLE INVESTMENT FUND ("Dreyfus Fund"); the Hard Assets Portfolio or
Worldwide Balanced Portfolio, of the VAN ECK WORLDWIDE INSURANCE TRUST ("Van Eck
Funds"); the DREYFUS STOCK INDEX FUND; or the Short-Term Retirement Portfolio,
Medium-Term Retirement Portfolio or the Long-Term Retirement Portfolio of the
TOMORROW FUNDS RETIREMENT TRUST ("Tomorrow Funds"). Your value in any one of
these Subaccounts will vary according to the investment performance of the
underlying portfolio chosen by you. You bear the entire investment risk for all
premium allocated to the Separate Account.
The Company does not deduct Sales Charges from any premium received. However,
the Contracts provide for a Surrender Charge (contingent deferred sales charge)
that may be assessed in the event that an Owner surrenders all or a portion of
the Contract Value within seven contract years following payment of any premium.
The maximum Surrender Charge is 6% of premium to which the charge is applicable
(See "Summary of Expenses" on page ____, and "Charges and Deductions - Deduction
for Surrender Charge" on page .)
A penalty free withdrawal is available. Generally, there is no Surrender Charge
imposed on the greater of the Contract Value less premiums paid or the portion
of the withdrawal that does not exceed 10% of premium otherwise subject to the
Surrender Charge. (See "Withdrawals" on page ___.)
Surrenders and Withdrawals may be taxable and subject to a penalty tax. (See
"Taxes" beginning on page ___.)
The Company deducts daily a Mortality and Expense Risk Charge which is equal on
an annual basis to 1.25% of the average daily net asset value of the Variable
Account. There are no Mortality and Expense Risk Charges deducted for amounts in
the Guaranteed Account. (See "Charges and Deductions Deduction for Mortality and
Expense Risk Charge" on page .)
The Company deducts daily an Administrative Charge which is equal on an annual
basis to 0.15% of the average daily net asset value of the Variable Account. The
Administrative Charge is not assessed to the Guaranteed Account. In addition,
the Company deducts, from the Contract Value, an annual Contract Maintenance Fee
which is $30 per year. The Contract Maintenance Fee is waived if the Contract
Value is greater than $50,000 on the date of the charge. These Charges are
designed to reimburse the Company for administrative expenses relating to
maintenance of the Contract and the Variable Account. (See "Charges and
Deductions - Deduction for Administrative Charge and Contract Maintenance Fee"
on page .)
There are deductions and expenses paid out of the assets of each of the Funds
which are described in the accompanying Prospectuses for the Funds.
The Owner may return the Contract within ten (10) days (the "Right to Examine
Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA the Company will refund the greater of the Premium less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the premium paid less any withdrawals, the Company will refund such an
amount.
4
<PAGE>
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ALL
SUBACCOUNTS
<S> <C>
Sales Load Imposed on Purchases................................... None
Surrender Charge (as a percentage of amount surrendered):
Premium Year 1 6%
Premium Year 2 6%
Premium Year 3 5%
Premium Year 4 5%
Premium Year 5 4%
Premium Year 6 3%
Premium Year 7 2%
Premium Year 8 and thereafter None
Exchange Fee:
First 12 Per Contract Year.............................................None
Thereafter............................................................$ 10
Annual Contract Fee...................................................$ 30
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees....................................1.25%
Account Fees and Expenses..........................................0.15%
Total Separate Account Annual Expenses.................................1.40%
</TABLE>
5
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements*
<TABLE>
<CAPTION>
Management Other Total
Fee Portfolio Portfolio
Expenses Expenses
<S> <C> <C> <C>
Alliance Conservative Investors 0.30% 0.65% 0.95%(1)
Alliance Growth Investors 0.00% 0.95% 0.95%(1)
Alliance Growth 0.74% 0.19% 0.93%(1)
Alliance Growth and Income 0.63% 0.19% 0.82%(1)
+Alliance Quasar 0.00% 0.95% 0.95%(1)
+Alliance Technology 0.33% 0.62% 0.95%(1)
Fidelity VIP High Income 0.59% 0.12% 0.71%(4)
Fidelity VIP Growth 0.61% 0.08% 0.69%(4)
Fidelity VIP Money Market 0.21% 0.09% 0.30%(4)
Fidelity VIP Overseas 0.76% 0.17% 0.93%(4)
Fidelity VIP II Asset Manager 0.64% 0.10% 0.74%(4)
Fidelity VIP II Investment Grade Bond 0.45% 0.13% 0.58%(4)
+++Van Eck Worldwide Hard Assets 1.00% 0.23% 1.23%(5)
Van Eck Worldwide Balanced 0.00% 0.00% 0.00%(5)
Dreyfus Zero Coupon 2000 0.45% 0.21% 0.66%(3)
Dreyfus Stock Index 0.245% 0.055% 0.30%(3)
Tomorrow Short-Term Retirement 0.00% 1.50% 1.50%(2)
Tomorrow Medium-Term Retirement 0.00% 1.50% 1.50%(2)
Tomorrow Long-Term Retirement 0.00% 1.50% 1.50%(2)
The purpose of the table set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The table reflects expenses of the Variable Account as
well as the Funds. The Annual Administrative Charge for purposes of the Expense
Table, above, was based upon the assessment of a $30 charge on a Contract Value
of $5,000. (See "Charges and Deductions" on page ___ of this Prospectus and each
Fund's Prospectus for further information.)
No deduction will be made for any premium or other taxes levied by any
State unless imposed by the State where you reside. Premium taxes currently
imposed by certain states on the Contracts range from 0% to 3.5% of premiums
paid. (See "Charges and Deductions - Deduction for State Premium Taxes" on page
___.)
"Other Expenses" are based upon the expenses outlined under the section
discussing the management of the Fund in each Fund's attached Prospectus.
<FN>
- ------------------------
+ Expenses have been annualized as Portfolios have not been in effect for a
full year.
++ As of May 1, 1997 the Van Eck Gold and Natural Resources Portfolio will no
longer be offered. The Portfolio has been replaced by the Van Eck Worldwide
Hard Assets Fund, which is described within this Prospectus.
*Operating Expenses for the following Portfolios before reimbursement by the
relevant Fund's investment adviser, for the period ending December 31, 1996,
were as follows:
(1) Alliance Variable Product Series Funds: 1.40% for Conservative Investors;
1.85%for Growth Investors; 0.93%for Growth; 4.44% for Quasar; and 1.62% for
Technology, of average daily net assets;
(2) Tomorrow Retirement Funds- 19.10% for the Short-Term Retirement 20.86% for
the Medium Term Retirement and 40.49% for the Long-Term Retirement, of average
daily net assets;
(3) Regarding the Dreyfus Fund, the expenses set forth above are actual total
expenses without any expense reimbusement;
(4) Withrespect to the Fidelity VIP and VIP II funds, the expenses set forth
above are actual total expenses. However a portion of the brokerahge commission
that certain funds pay was used to reduce fund expenses. In addition, certain
funds have entered into arrangements with their custodian and transfer agent
wheby interest earned on univested cash balances was used to reduce custodian
and transfer agent expenses. Including thesereductions, the total operating
expenses presented in the table would have been.67% for the VIP Growth
Portfolio, .92% for the VIP Overseas Portfolio, and .73% for the VIP II Asset
Manager Portfolio.
(5) The Van Eck Funds: 2.49% for the Worldwide Balance Fund and 1.24% for the
Hard Assets Fund. The fee respecting In addition Van Eck has disclosed that with
respect to the Hard Assets Fund, the Fund directs certain portfolio trades to a
broker that, in turn pays a portion of the Fund's operating expenses. For the
year ended December 31, 1996, the Fund's expenses were redueced by $7,290 under
this arrangement. The Fund could have invested the assets used in connection
with the directed brokerage arrangement in an income producing asset if it had
not entered in to such an arrangement.
</FN>
</TABLE>
6
<PAGE>
EXPENSES ON A HYPOTHETICAL $1,000 POLICY, ASSUMING 5% GROWTH:
<TABLE>
<CAPTION>
IF YOU SURRENDER
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Conservative Investors 78 120 165 275
Alliance Growth Investors 78 120 165 275
Alliance Growth 78 120 164 273
Alliance Growth and Income 77 116 158 262
Alliance Quasar 78 120 165 275
Alliance Technology 78 120 165 275
Fidelity VIP High Income 76 113 152 250
Fidelity VIP Growth 76 112 152 248
Fidelity VIP Money Market 72 100 151 207
Fidelity VIP Overseas 78 119 183 272
Fidelity VIP II Asset Manager 76 114 154 253
Fidelity VIP II Investment Grade Bond 75 109 146 237
Dreyfus Zero Coupon 76 111 150 145
Van Eck Hard Assets 81 129 178 302
Van Eck Worldwide Balanced 69 91 116 175
Dreyfus Stock Index 72 100 131 207
Tomorrow Short-Term Retirement 84 137 192 328
Tomorrow Medium-Term Retiremenet 84 137 192 328
Tomorrow Long-Term Retirement 84 137 192 328
</TABLE>
<TABLE>
<CAPTION>
IF YOU ANNUITIZE OR
IF YOU DO NOT SURRENDER
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Conservative Investors 24 75 129 275
Alliance Growth Investors 24 75 129 275
Alliance Growth 24 75 128 273
Alliance Growth and Income 23 71 122 262
Alliance Quasar 24 75 129 275
Alliace Technology 24 75 129 275
Fidelity VIP High Income 22 68 116 250
Fidelity VIP Growth 22 67 115 248
Fidelity VIP Money Market 18 55 95 207
Fidelity VIP Overseas 24 74 127 272
Fidelity VIP II Asset Manager 22 69 118 253
Fidelity VIP II Investment Grade Bond 21 64 110 237
Dreyfus Zero Coupon 2000 22 66 114 245
Dreyfus Stock Index 18 55 95 207
Van Eck Worldwide Hard Assets 27 84 142 302
Van Eck Worldwide Balanced 15 46 80 175
Tomorrow Short-Term Retirement 30 92 158 328
Tomorrow Medium-Term Retiremenet 30 92 158 328
Tomorrow Long-Term Retirement 30 92 158 328
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
7
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1996
--------------------
<S> <C>
Alliance Growth & Income
Accumulation Unit Value
Beginning of Period 10.00
End of Period 12.00
Accum Units o/s @ end of period 20,637.99
Alliance Growth Investor
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.52
Accum Units o/s @ end of period 4,469.09
Alliance Growth
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.32
Accum Units o/s @ end of period 13,718.81
Alliance Technology
Accumulation Unit Value
Beginning of Period 10.00
End of Period 9.80
Accum Units o/s @ end of period 3,209.81
Alliance Quasar
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.31
Accum Units o/s @ end of period 674.25
Fidelity VIP Money Market
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.25
Accum Units o/s @ end of period 113,781.59
Fidelity VIP II Asset Manager
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.87
Accum Units o/s @ end of period 8,370.63
Fidelity VIP Growth
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.07
Accum Units o/s @ end of period 23,774.76
</TABLE>
8
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1996
--------------------
<S> <C>
Fidelity VIP High Income
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.67
Accum Units o/s @ end of period 8,506.22
Fidelity VIP II Inv. Grade Bond
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.48
Accum Units o/s @ end of period 2,615.29
Fidelity VIP Overseas
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.71
Accum Units o/s @ end of period 10,640.99
Van Eck Hard Assets
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.78
Accum Units o/s @ end of period 4,646.11
Van Eck World Wide Balance
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.73
Accum Units o/s @ end of period 5,572.84
Dreyfus Stock Index
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.21
Accum Units o/s @ end of period 17,836.33
Dreyfus Zero Coupon
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.32
Accum Units o/s @ end of period 6,176.80
</TABLE>
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1996
--------------------
<S> <C>
Tomorrow Short-Term
Accumulation Unit Value
Beginning ofPeriod 10.00
End of Period 10.70
Accum Units o/s @ end of period 15,744.76
Tomorrow Medium-Term
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.78
Accum Units o/s @ end of period 6,084.92
Tomorrow Long-Term
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.84
Accum Units o/s @ end of period 1,852.96
</TABLE>
10
<PAGE>
Funds were first invested in the Portfolios as listed below:
<TABLE>
<S> <C>
Alliance Growth and Income January 14, 1991
Alliance Growth Investors October 28, 1994
Alliance Growth September 15, 1994
Alliance Conservative Investors October 28, 1994
Alliance Quasar August 15, 1996
Alliance Technology January 22, 1996
Fidelity VIP High Income September 19, 1985
Fidelity VIP Growth October 9, 1986
Fidelity VIP Money Market April 1, 1982
Fidelity VIP Overseas January 28, 1987
Fidelity VIP II Asset Manager September 9, 1989
Fidelity VIP II Investment
Grade Bond December 5, 1988
Dreyfus Zero Coupon 2000 September 29, 1989
Dreyfus Stock Index August 31, 1990
Van Eck Worldwide Hard Assets September 1, 1989
Van Eck Worldwide Balanced December 23, 1994
Tomorrow Short-Term Retirement April 1, 1996
Tomorrow Medium-Term Retirement April 1, 1996
Tomorrow Long-Term Retirement April 1, 1996
</TABLE>
11
<PAGE>
Calculation of Performance Data
The Company may, from time to time, advertise certain performance related
information concerning one or more of the Subaccounts, including information as
to total return and yield. Performance information about a Subaccount is based
on the Subaccount's past performance only and is not intended as an indication
of future performance.
When the Company advertises the average annual total return of a
Subaccount, it will usually be calculated for one, five, and ten year periods
or, where a Subaccount has been in existence for a period less than one, five or
ten years, for such lesser period. Average annual total return is measured by
comparing the value of the investment in a Subaccount at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming the deduction of any Surrender Charge which would be payable if the
account were redeemed at the end of the period) and calculating the average
annual compounded rate of return necessary to produce the value of the
investment at the end of the period. The Company may simultaneously present
returns that do not assume a surrender and, therefore, do not deduct the
Surrender Charge.
When the Company advertises the yield of a Subaccount it will be
calculated based upon a given 30-day period. The yield is determined by dividing
the net investment income earned per Accumulation Unit during the period by the
value of an Accumulation Unit on the last day of the period.
When the Company advertises the performance of the VIP Money Market
Subaccount it may advertise in addition to the total return either the yield or
the effective yield. The yield of the VIP Money Market Subaccount refers to the
income generated by an investment in that Subaccount over a seven-day period.
The income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized the income earned by an investment in
the VIP Money Market Subaccount is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all contract
charges: sales charges, mortality and expense risk charges, and the
administrative charges, and is therefore lower than the total return at a Fund
level, which has no comparable charges. Likewise, yield and effective yield at
the Variable Account level take into account all recurring charges (except sales
charges), and are therefore lower than the yield and effective yield at a Fund
level, which has no comparable charges. Performance information for a Subaccount
may be compared to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, Donoghue VIP Money Market Institutional Averages, indices
measuring corporate bond and government security prices as prepared by Lehman
Brothers, Inc. and Salomon Brothers or other indices measuring performance of a
pertinent group of securities so that investors may compare a Subaccount's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract;
and (iv) indices or averages of alternative financial products available to
prospective investors, including the Bank Rate Monitor which monitors average
returns of various bank instruments.
Financial Data
Financial Statements of the Company may be found
in the Statement of Additional Information. No financial statements for the
Variable Account have been provided in the Statement of Additional Information
because as of the date of this Prospectus, Subaccounts were not yet in
operation and consequently had no assets invested in the underlying portfolios.
THE COMPANY
American International Life Assurance Company of New York is a stock life
insurance company which was organized under the laws of the State of New York in
1962. The Company provides a full range of life insurance and annuity plans. The
Company is a subsidiary of American International Group, Inc., which serves as
the holding company for a number of companies engaged in the international
insurance business, both life and general, in over 130 countries and
jurisdictions around the world.
THE VARIABLE ACCOUNT
The Company authorized the organization of the Variable Account in 1986.
The Variable Account is maintained pursuant to Delaware insurance law. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940. The Variable Account meets the definition of a
"Separate Account" under Federal securities laws. The SEC does not supervise the
management or the investment practices of the Variable Account.
The Company owns the assets in the Variable Account and obligations under
the Contract are general corporate obligations. The Variable Account and each
Subaccount, however, are separate from the Company's other assets including
those of the General Account and from any other separate accounts. The assets of
the Variable Account, equal to the reserves and other contract liabilities with
respect to the Variable Account, are not chargeable with liabilities arising out
of any other business the Company may conduct. Investment income, as well as
both realized and unrealized gains and losses are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
income, gains or losses arising out of any other business of the Company. As a
result, the investment performance of each Subaccount and the Variable Account
is entirely independent of the investment performance of the General Account and
of any other separate account maintained by the Company.
The Variable Account is divided into Subaccounts, with the assets of each
Subaccount invested in shares of a corresponding portfolio of the available
Funds. The Company may, from time to time, add additional portfolios of a Fund,
and, when appropriate, additional funds to act as the funding vehicles for the
Contracts. If deemed to be in the best interests of persons having voting rights
under the Contract, the Variable Account may be operated as a management company
under the Investment Company Act of 1940, may be deregistered under such Act in
the event such registration is no longer required, or may be combined with one
or more other separate accounts. The Company may offer other variable annuity
contracts which also invest in Variable Account A, and are described in other
prospectuses.
12
<PAGE>
THE FUNDS
Alliance Funds, Fidelity Funds, Dreyfus Funds, Van Eck Funds and Tomorrow
Funds (collectively, the "Funds") are each registered with the SEC as a
diversified open-end management investment company under the 1940 Act. Each is
made up of different series funds or Portfolios ("Portfolios"). The Dreyfus
Stock Index Fund (also a "Fund" herein) is an open-end, non-diversified
management investment company. A summary of the investment objectives for each
portfolio is contained in the description of the Funds below. More detailed
information, including the advisory fee of each portfolio and other charges
assessed by each Fund, may be found in the relevant Fund prospectus, which
contains a discussion of the risks involved in investing in such Fund. The
prospectuses for each Fund are included with this Prospectus. The investment
objectives of the portfolios are as follows:
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Conservative Investors Portfolio
This portfolio seeks the highest total return without undue risk to
principal by investing in a diversified mix of publicly traded equity and
fixed-income securities.
Growth Investors Portfolio
This portfolio seeks the highest total reaturn available with reasonable
risk by investing in a diversified mix of publicly traded equity and
fixed-income securities.
Growth Portfolio
This portfolio seeks the long term growth of capital by investing
primarily in comon stocks and other equity securities.
Growth and Income Portfolio
This portfolio seeks to balance the objectives of reasonable current
income and opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
Technology Portfolio
This portfolio seeks growth of capital through investment in
companies expected to benefit from advances in technology. The Technology
portfolio invests principally in a diversified portfolio of securities of
companies which use technology extensively in the development of new or
improved products or processes.
Quasar Portfolio
This portfolio seeks growth of capital by pursuing
aggressiveinvestment policies. The Portfolio invests principally in a
diversified portfolio of equity securities of any company and industry
and in any type of security which isbelieved to offer possibilities for capital
appreciation.
Alliance Variable Products Series Fund, Inc., is managed by Alliance
Capital Management L.P., ("Alliance"). The fund also includes other portfolios
which are not available for use by the Separate Account. More detailed
information regarding management of the funds, investment objectives, investment
advisory fees and other charges, may be found in the current Alliance Fund
prospectus which contains a discussion of the risks involved in investing. The
Alliance Fund prospectus is included with this Prospectus.
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 Portfolio
This portfolio seeks to provide as high an investment return as is
consistent with the preservation of capital. This portfolio invests primarily in
debt obligations of the U.S. Treasury that have been stripped of their unmatured
interest coupons, interest coupons that have been stripped from debt obligations
issued by the U.S. Treasury, receipts and certificates for such stripped debt
obligations, and stripped coupons and zero coupon securities issued by domestic
corporations. This portfolio's assets will consist primarily of portfolio
securities which will mature on or about December 31, 2000, at which time the
portfolio will be liquidated. Prior to December 31, 2000, you will be offered
the opportunity to exchange your investment to another Subaccount. The Dreyfus
Corporation serves as this portfolio's investment adviser.
14
<PAGE>
DREYFUS STOCK INDEX FUND
This Fund seeks to provide investment results that correspond to the price
and yield performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index. In
anticipation of taking a market position, the Fund is permitted to purchase and
sell stock index futures. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation. Wells Fargo Nikko Investment Advisers ("WFNIA")
serves as the index fund manager of the Dreyfus Stock Index Fund.
FIDELITY INVESTMENT VARIABLE INSURANCE PRODUCTS FUNDS
VIP Growth Portfolio
This portfolio seeks to aggressively achieve capital appreciation through
investments primarily in common stock.
VIP High Income Portfolio
This portfolio seeks to obtain a high level of current income by investing
primarily in high-yielding, high-risk, lower-rated, fixed-income securities
(commonly referred to as "junk bonds"), while also considering growth of
capital. The potential for high yield is accompanied by higher risk. For a more
detailed discussion of the investment risks associated with such securities,
please refer to the Fidelity Fund's attached prospectus.
VIP Overseas Portfolio
This portfolio seeks the long-term growth of capital primarily through
investments in securities of companies and economies outside the United States.
VIP Money Market Portfolio
This portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The portfolio will
invest only in high quality U.S. dollar-denominated money market securities of
domestic and foreign issuers. An investment in the VIP Money Market Portfolio is
neither insured nor guaranteed by the U.S. government, and there can be no
assurance that the portfolio will maintain a stable $1.00 share price.
VIP II Asset Manager Portfolio
This portfolio seeks to provide a high total return with reduced risk over
the long term by allocating its assets among stocks, bonds and short-term income
instruments.
VIP II Investment Grade Bond Portfolio
This portfolio seeks as high a level of current income as is consistent
with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities. The portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less.
Fidelity Management & Research Company ("FMR") is the investment advisor
for the Variable Insurance Products Funds. FMR has entered into a sub-advisory
agreement with FRM Texas, Inc., on behalf of the VIP Money Market Portfolio. On
behalf of the VIP Overseas Portfolio, FMR has entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., (FMR U.K.), Fidelity
Management & Research (Far East) Inc. (FMR Far East), and Fidelity International
Investment Advisors (FIIA). FMR U.K. and FMR Far East also are sub-advisors to
the VIP II Asset Manager Portfolio. Fidelity Funds include other portfolios
which are not available under this Prospectus as funding vehicles for the
Contracts. More detailed information regarding management of the funds,
investment objectives, investment advisory fees and other charges assesed by the
Fidelity Funds, are contained in the prospectuses of the Fidelity Funds,
included with this Prospectus.
15
<PAGE>
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Balanced Fund
This portfolio seeks long term capital appreciation together with current
income by investing its assets in the United States and other countries
throughout the world, and by allocating its assets among equity securities,
fixed-income securities and short-term instruments.
Van Eck Worldwide Hard Assets Fund
This portfolio seeks long-term capital appreciation by investing globally,
primarily in equity and debt securities of companies engaged to a significant
extent in the exploration, development, production and distribution of(1)
precious metals; (2) ferrous and non-ferrous metals;(3) oil and gas; (4) forest
products; (5) realestate; and (6) other basic non-agricultual commodities
(collectively, " Hard Assets"). * As of May 1, 1997 the Van Eck Gold and Natural
Resources Portfolio is no longer being offered. The Portfolio will be replaced
by the Van Eck Worldwide Hard Assets Fund described above.
Van Eck Associates Corporation is the investment advisor and manager of Van
Eck Funds. Van Eck Associates Corporation has entered into sub-advisory
agreements to provide investment advice forcertain portfolios of the
Van Eck Funds. Fiduciary International Inc. ("FII")serves as a sub-advisor to
the Worldwide Balanced Fund. Van Eck Funds include other portfolios
which are not available under this prospectus as funding
vehicles for the Contracts. More detailed information regarding management of
the funds, investment objectives, investment advisory fees and other charges
assessed by the Van Eck Funds, are contained in the relevant Fund prospectus
included with this Prospectus.
TOMORROW FUNDS RETIREMENT TRUST
Short-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors who are
currently between 51 and 65 years of age and with an average remaining life
expectancy in the range of 20-30 years.
Medium-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors who are
currently between 36 and 50 years of age and with an average remaining life
expectancy in the range of 35-50 years.
Long-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors who are
currently between 22 and 35 years of age and with an average remaining life
expectancy in the range of 50 years or more.
Each Tomorrow Funds portfolio invests its assets, in varying amonts, in
equity and fixed-income securities of all types. The amount of assets allocated
to equity securities is currently invested, in varying amounts, among large
capitalization stocks, medium capitalization stocks, small capitalization stocks
and, indirectly through other investment companies, foreign securities.
Typically, the longer the average life expectancy of the target class of
investors in a Tomorrow Funds portfolio, the greater the allocation of assets of
that portfolio to securities with higher growth potential and, correspondingly,
more risk, such as small capitalization stocks. Conversely, the shorter the
average life expectancy of the target class of investors in a Tomorrow Funds
portfolio, the greater the emphasis on current income and capital preservation
of assets and, therefore, the greater the allocation of assets of that portfolio
to fixed-income securities. Each Tomorrow Funds portfolio will be managed more
conservatively as the average age of its target class of investors increases.
Weiss, Peck & Greer, L.L.C. is the investment adviser for the Tomorrow
Funds portfolios. Tomorrow Funds include other portfolios which are not
available under this Prospectus as funding vehicles for the Contracts. More
detailed information regarding management of the funds, investment objectives,
investment advisory fees and other charges assesed by the Tomorrow Funds, are
contained in the prospectuses of the Tomorrow Funds, included with this
Prospectus.
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE THEIR STATED
OBJECTIVES.
16
<PAGE>
Voting Rights
As previously stated, all of the assets held in the Subaccounts of the
Variable Account will be invested in shares of a corresponding portfolio of the
relevant Fund. Based on the Company's view of present applicable law, we will
vote the portfolio shares held in the Variable Account at meetings of
shareholders in accordance with instructions received from Owners having a
voting interest in the portfolio. However, if the 1940 Act or its regulations
are amended, or if our interpretation of present law changes to permit us to
vote the portfolio shares in our own right, we may elect to do so.
Prior to the Annuity Date, the Owner holds a voting interest in each
portfolio in which there is value in the corresponding Subaccount. The number of
portfolio shares which are attributable to the Owner is determined by dividing
the corresponding value in a particular Subaccount by the net asset value of one
portfolio share. The number of votes which an Owner will have a right to cast
will be determined as of the record date established by each portfolio.
We will solicit voting instructions by mail prior to the shareholder
meetings. An Owner having a voting interest in a Subaccount will be sent proxy
material, reports and other materials as provided by the relevant Fund, relating
to the appropriate portfolios. The Company will vote shares in accordance with
instructions received from the Owner having a voting interest. At the meeting,
the Company will vote shares for which it has received no instructions and any
shares not attributable to Owners in the same proportion as it votes shares for
which it has received instructions from Owners.
The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds allocated to the Guaranteed
Account.
Shares of the Funds may be sold to separate accounts of life insurance
companies. The shares of the Funds will be sold to separate accounts of the
Company and its affiliate, American International Life Assurance Company of New
York, as well as to separate accounts of other affiliated or unaffiliated life
insurance companies to fund variable annuity contracts and variable life
insurance policies. It is conceivable that, in the future, it may be
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Funds simultaneously. Although
neither the Company nor the Funds currently foresee any such disadvantages,
either to variable life insurance policyowners or to variable annuity Owners,
each Fund's Board of Directors will monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and to determine what
action, if any, should be taken in response thereto. If a material
irreconcilable conflict were to occur, each Fund will take whatever steps it
deems necessary, at its expense, to remedy or eliminate the irreconcilable
material conflict. If such a conflict were to occur, one or more insurance
company separate accounts might withdraw its investments in such Fund. This
might force such Fund to sell securities at disadvantageous prices.
Substitution of Shares
If the shares of a Fund (or any portfolio within a Fund) should no longer
be available for investment by the Variable Account or if, in the judgment of
the Company, further investment in such shares should become inappropriate in
view of the purpose of the Contracts, the Company may substitute shares of
another mutual fund (or portfolio within the fund) for Fund shares already
purchased or to be purchased in the future under the Contracts. No substitution
of securities may take place without any required prior approval of the
Securities and Exchange Commission and under such requirements as it may impose.
17
<PAGE>
THE CONTRACT
The Contract described in this Prospectus is a deferred variable annuity.
Parties to the Contract
Owner
As the purchaser of the Contract, You may exercise all rights and
privileges provided in the Contract, subject to any rights that You, as
Owner, may convey to an irrevocable beneficiary. As Owner, You will also be
the Annuitant, unless You name in writing some other person as Annuitant.
Annuitant
The Annuitant is the person who receives annuity payments and upon the
continuance of whose life these payments are based. You may designate someone
other than yourself as Annuitant. If the Annuitant is a person other than the
Owner, and the Annuitant dies before the Annuity Date, You will become the
Annuitant unless you designate someone else as the new Annuitant.
Beneficiary
The Beneficiary You designate will receive the death proceeds if You die
prior to the Annuity Date. If no Beneficiary is living at that time, the
death proceeds are payable to Your estate. If the Annuitant dies after the
Annuity Date, the Beneficiary will receive any remaining guaranteed payments
under an Annuity Option. If no Beneficiary is living at that time, the
remaining guaranteed payments are payable to Your estate.
Change of Annuitant and Beneficiary
Prior to the Annuity Date, You may change the Annuitant and Beneficiary by
making a written request to Our Administrative Office. After the Annuity Date
only a change of Beneficiary may be made. Once We have accepted Your written
request, any change will become effective on the date You signed it. However,
any change will be subject to any payment or other action taken by Us before
We record the change. If the Owner is not a natural person, under current
Federal tax law, the Contract may be subject to unintended and adverse tax
consequences. For possible tax considerations of these changes, see Taxes,
page .
How to Purchase a Contract
At the time of application, the Purchaser must pay at least the minimum
Premium required and provide instructions regarding the allocation of the
Premium among the Subaccounts. Acceptance of the Premium and form of application
is subject to Our requirements and We reserve the right to reject any Premium.
If the application and Premium are accepted in the form received, the Premium
will be credited and allocated to the Subaccounts within two business days of
its receipt. The date the Premium is credited to the Contract is the Effective
Date.
If within five days of the receipt of the initial Premium We have not
received sufficient information to issue a Contract, You will be contacted. The
reason for the delay will be explained to You. If You consent We will retain the
Premium until the necessary requirements are fulfilled. Otherwise, the Premium
will be immediately refunded to You.
Discount Purchase Programs
Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families may not be subject to the Surrender Charge. Such purchases
include retirement accounts and must be for accounts in the name of the
individual or qualifying family member.
18
<PAGE>
Distributor
AIG Equity Sales Corp. ("AESC"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AESC is a wholly-owned subsidiary of AIG,
and an affiliate of the Company. Commissions not to exceed 6.5% of Premiums will
be paid to entities which sell the Contract. Additional payments may be made for
other services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature and
similar services.
Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
to be prohibited from performing certain agency or administrative services and
receiving fees from AESC, Owners who purchased Contracts through the bank would
be permitted to retain their Contracts and alternate means for servicing those
Owners would be sought. It is not expected, however, that Owners would suffer
any loss of services or adverse financial consequences as a result of any of
these occurrences.
Administration of the Contracts
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Owner's records. DVFS serves as the administrator to various
insurance companies offering variable contracts.
Premium and Allocation to Your Investment Options
The initial Premium must be at least $2,000.You may make additional
payments of Premium prior to the Annuity Date, in amounts of at least $1000 or
$100 as part of an automatic investment plan. There is no maximum limit on the
additional Premiums You may pay or on the numbers of payments; however, the
Company reserves the right to reject any Premium on any Contract. You specify at
the time of issue or subsequently how the remaining amount, known as Additional
Premium will be allocated.
The initial Premium is allocated among the Subaccounts and Guaranteed
Account on the Effective Date.Your allocation instructions will specify what
percentage of Your initial Premium is to be credited to each Subaccount and to
the Guaranteed Account. Allocation instructions must be expressed in whole
percentages. Allocations for additional Premium will be made on the same basis
as the initial Premium unless We receive a written notice with new instructions.
Additional Premium will be credited to the Contract Value and allocated at the
close of the first Valuation Date on or after which the Additional Premium is
received at Our Administrative Office.
All Premiums to IRA or 403(b) Plan Contracts must comply with the
applicable provisions in the Code and the applicable provisions of Your
retirement plan. Additional Premium commingled in an IRA with a rollover
contribution from other retirement plans may result in unfavorable tax
consequences. You should seek legal counsel and tax advice regarding the
suitability of the Contract for Your situation. (See " Taxes " on page .)
Right to Examine Contract Period
The Contract provides a 10 day Right to Examine Contract Period giving You
the opportunity to cancel the Contract. You must return the Contract with
written notice to Us. If We receive the Contract and Your written notice within
10 days after it is received by You, the Contract will be voided. With the
exception of Contracts issued in connection with an IRA, in those states whose
laws do not require that We assume the risk of market loss during the Right to
Examine Contract Period, should You decide to cancel Your Contract, the amount
to be returned to You will be the Contract Value (on the day We receive the
Contract) plus any charges deducted for State Taxes, without imposition of the
Surrender Charge. The amount returned to you may be more or less than the
initial Premium. (See "Charges and Deductions" on page .) For Contracts issued
in those states that require we return the premium, we will do so. In the case
of Contracts issued in connection with an IRA, the Company will refund the
greater of the Premium, less any withdrawals, or the Contract Value.
19
<PAGE>
State laws governing the duration of the Right to Examine Contract Period
may vary from state to state. We will comply with the laws of the state in which
the Owner resides at the time the Contract is applied for. Federal laws
governing IRAs require a minimum seven day right of revocation. We provide 10
days from the date the Contract was mailed or otherwise delivered to you. (See
"Individual Retirement Annuities" on page .)
Unit Value and Contract Value
After the deduction of certain charges and expenses, amounts which You
allocate to a Subaccount of the Variable Account are used to purchase
Accumulation Units in that Subaccount, not shares of the Portfolio in which that
Subaccount invests. The number of Accumulation Units you purchase will be
determined by dividing the amount allocated to each Subaccount by the Unit Value
of the Subaccount for the Valuation Period during which the amount was
allocated.
The Unit Value for each Subaccount will vary from one Valuation Period to
the next, based on the investment experience of the Portfolio in which the
Subaccount invests and the deduction of certain charges and expenses. The
Statement of Additional Information contains a detailed explanation of how
Accumulation Units are valued.
Your value in any given Subaccount is determined by multiplying the Unit
Value for the Subaccount by the number of Units You own. Your value within the
Variable Account is the sum of your values in all the Subaccounts. The total
value of your Contract, known as the Contract Value, equals your Value in the
Variable Account plus Your value in the Guaranteed Account.
Transfers
Prior to the Annuity Date, You may make Transfers among the Subaccounts
and into and out of the Guaranteed Account subject to certain rules.
At the present time there is no limit on the number of transfers which can
be made among the Subaccounts and the Guaranteed Account in any one Contract
Year. We reserve the right to limit the number of transfers to 12 per Contract
Year. There are no fees for the first 12 transfers in any one Contract Year. For
each transfer in excess of 12 within one Contract Year, We impose a transfer fee
of $10. A transfer fee, if any, is deducted from the amount transferred. (See
Appendix , "Guaranteed Account Transfers," page___.)
Transfers may be made by written request or by telephone as described in
the Contract or specifically authorized in writing. The Company will undertake
reasonable procedures to confirm that instructions communicated by telephone are
genuine. All calls will be recorded. All transfers will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
After the Annuity Date, the Owner may transfer the Contract Value
allocated to the Variable Account among the Subaccounts. However, the Company
reserves the right to refuse any more than one transfer per month. The transfer
fee is the same as before the Annuity Date. This transfer fee, if any, will be
deducted from the next annuity payment after the transfer. If following the
transfer, the Annuity Units remaining in the Subaccount would generate a monthly
annuity payment of less than $100, the Company will transfer the entire amount
in the Subaccount.
Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Subaccount. The number of Annuity Units for each
Subaccount will remain the same for the remainder of the payment period unless
the Owner requests another change.
The minimum amount which may be transferred at any one time is the lesser
of $1,000 or the value of the Subaccount or Guarantee Period from which the
transfer is made. However, the minimum amount for transfers under our Dollar
Cost Averaging program is $100 per Subaccount. (See "Dollar Cost Averaging") For
additional limitations regarding transfers out of the Guaranteed Account, see
"The Guaranteed Account" in the Appendix, page ____.)
20
<PAGE>
Dollar Cost Averaging
The Company currently offers an option under which Owners may dollar cost
average their allocations in the Subaccounts under the contract by authorizing
the Company to make periodic allocations of Contract Value from any one
Subaccount to one or more of the other Subaccounts. Dollar cost averaging is a
systematic method of investing in which securities are purchased at regular
intervals in fixed dollar amounts so that the cost of the securities gets
averaged over time and possibly over various market cycles. The option will
result in the allocation of Contract Value to one or more Subaccounts, and these
amounts will be credited at the Accumulation Unit value as of the end of the
Valuation Dates on which the exchanges are effected. Amounts periodically
transferred under this option are not included in the 12 transfers per Contract
Year discussed under "Transfers" on page ___. Since the value of Accumulation
Units will vary, the amounts allocated to a Subaccount will result in the
crediting of a greater number of units when the Accumulation Unit value is low
and a lesser number of units when the Accumulation Unit value is high.
Similarly, the amounts exchanged from a Subaccount will result in a debiting of
a greater number of units when the Subaccount's Accumulation Unit value is low
and a lesser number of units when the Accumulation Unit value is high. Dollar
cost averaging does not guarantee profits, nor does it assure that an Owner will
not have losses. A Dollar Cost Averaging Request form is available from the
Administrative Office upon request.
To elect the Dollar Cost Averaging Option, the Owner's Contract Value must
be at least $12,000 and a Dollar Cost Averaging Request in proper form must be
received by the Company. The Dollar Cost Averaging Request form will not be
considered complete until the Contract Value is at least the required amount. An
Owner may not have in effect at the same time Dollar Cost Averaging and Asset
Rebalancing Options.
21
<PAGE>
Asset Rebalancing Option
The Company currently offers an option under which Owners may authorize
the Company to automatically exchange Contract Valueperiodically to maintain a
particular percentage allocation among the Subaccounts as selected by the Owner.
The Contract Value allocated to each Subaccount will grow or decline in value at
different rates during the quarter, and Asset Rebalancing automatically
reallocates the Contract Value in the Subaccounts to the allocation selected by
the Owner. Asset Rebalancing is intended to exchange Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help an Owner buy low and sell
high, although there can be no assurance of this. This investment method does
not guarantee profits, nor does it assure that an Owner will not have losses.
To elect the Asset Rebalancing Option, the Contract Value in the Contract
must be at least $12,000 and an Asset Rebalancing Request in proper form must be
received by the Company. An Owner may not have in effect at the same time Dollar
Cost Averaging and Asset Rebalancing Options.
The amounts transferred will be credited to the Accumulation Unit Value as
of the end of the Valuation Dates on which the transfers are effected. Amounts
periodically transferred under this option are not included in the 12 transfers
per Contract Year discussed under "Transfers" on page ____.
An Owner may instruct the Company at any time to terminate this option by
written request. Once terminated, this option may not be reselected during the
same Contract Year.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Premium, the Contract Value
and the Variable Account. These charges and deductions are as follows:
Deduction State Premium Taxes
We do not deduct premium taxes unless assessed by the state of residence
of the Owner. Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged at Our discretion against either
Premium or Contract Value. Premium taxes currently imposed by certain states on
the Contracts range typically from 0% to 3.5% of premiums paid. Some states
assess premium taxes at the time Premium is received; others assess premium
taxes at the time of annuitization. Premium taxes are subject to being changed
or amended by state legislatures, administrative interpretations or judicial
acts.
22
<PAGE>
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. The mortality risks assumed by the Company arise
from its contractual obligation to make annuity payments after the Annuity Date
for the life of the Annuitant, to waive the Surrender Charge in the event of the
death of the Owner prior to the Annuity Date and to provide the death benefit.
The expense risk assumed by the Company is that the costs of administering the
Contracts and the Variable Account will exceed the amount received from
Administrative and Contract Maintenance Charges.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased. The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period - Annuity Options" on page .) The Company
in its discretion may offer additional payment options which are not based on a
life contingency. If this should occur and if a Owner should elect a payment
option not based on a life contingency, the Mortality and Expense Risk Charge is
still deducted but the Owner receives no benefit from that portion of the charge
attributable to mortality risk.
Deduction for Accidental Death Benefit
If the Owner has elected the Accidental Death Benefit, the Company deducts
for each Valuation Period, an Accidental Death Benefit Charge equal on an annual
basis to 0.10% of the average daily net asset value in the Variable Account.
Deduction for Surrender (Deferred Sales) Charges
In the event that an Owner makes a withdrawal from or surrenders Contract
Value in excess of the Free Withdrawal Amount, a Surrender Charge may be
imposed.. The Free Withdrawal Amount is equal to the greater of the Contract
Value less premiums paid or the portion of the withdrawal that does not exceed
10% of the total Premium otherwise subject to the Surrender Charge paid to the
time of withdrawal, less any prior withdrawals; however, the Surrender Charge
applies only to Premium received by the Company within seven (7) years of the
date of the withdrawal.
23
<PAGE>
The Surrender Charge will vary in amount depending upon the time which has
elapsed since the date Premium was received. In calculating the Surrender
Charge, Premium is allocated to the amount surrendered on a first-in, first out
basis. The amount of any withdrawal which exceeds the Free Withdrawal Amount
will be subject to the following charges:
<TABLE>
<CAPTION>
Applicable Deferred
Sales Charge Percentage
<S> <C>
Premium Year 1 6%
Premium Year 2 6%
Premium Year 3 5%
Premium Year 4 5%
Premium Year 5 4%
Premium Year 6 4%
Premium Year 7 2%
Premium Year 8 and thereafter None
</TABLE>
No Surrender Charge is imposed against: (1) Transfers of Contract Value
under Dollar Cost Averaging, Asset Rebalancing, or Systematic Withdrawal
options; (2) Contract Value upon Annuitization; (3) a Death Benefit.
The Surrender Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Surrender Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued
in connection with retirement plans which qualify as a 403 (b) Plan or
IRAs. (See "Taxes - 403(b) Plans" on page .)
Deduction for Administrative Charges
The Company deducts for each Valuation Period a daily Administrative
Charge which is equal on an annual basis to .15% of the average daily net asset
value of the Variable Account. This charge is intended to reimburse Us for
administrative expenses, both during the accumulation period and following the
Annuity Date.
Deduction for Contract Maintenance Charge
The Company also deducts an annual Contract Maintenance Charge of $30 per
year, from the Contract Value on each Contract Anniversary. The Contract
Maintenance Fee is waived if the Contract Value is greater than $50,000 on the
date of deduction of the charge. These charges are designed to reimburse the
Company for the costs it incurs relating to maintenance of the Contract, the
Variable Account, and the Guaranteed Account. If the Contract is surrendered, we
will deduct the Contract Maintenance Charge at the time of surrender, pro-rata,
for the current Contract Year. The deduction will be made proportionally based
on your value in each Subaccount and the Guaranteed Account. After the Annuity
Date, the Contract Maintenance Charge is deducted on a pro-rata basis from each
annuity income payment
24
<PAGE>
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account
any Federal income taxes resulting from the operation of the Variable Account.
The Company does not currently anticipate incurring any Federal income taxes.
(See also "Taxes" beginning on page .)
Other Expenses
There are deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying Prospectuses for each Fund.
Group and Sponsored Arrangements
In certain instances, we may reduce the Surrender Charge and the
Administrative Charge or change the minimum premium requirements for the sale of
Contracts to certain groups, including those in which a trustee or an employer,
for example, purchases Contracts covering a group of individuals on a group
basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
similar arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or group sponsored arrangements
that have been set up solely to buy Contracts or that have been in existence
less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Contract is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or Administrative
Charge will reflect differences in costs or services and will not be unfairly
discriminatory.
ANNUITY BENEFITS
Annuitization
Annuitization is an election you make to apply the Contract Value to an
Annuity Option in order to provide a series of annuity payments. The date the
Annuity Option becomes effective is the Annuity Date.
Annuity Date
The latest Annuity Date is: the later of (a) the first day of the calendar
month following the later of the Annuitant's 90th birthday; or
(b) such earlier date as may be set by applicable law.
The Owner may designate an earlier date or may change the Annuity Date by
making a written request at least thirty (30) days prior to the Annuity Date
being changed. However, any Annuity Date must be no later than the date defined
above; and, the first day of a calendar month.
Without the approval of the Company, the new Annuity Date cannot be
earlier than one year after the Effective Date. In addition, forIRA or 403(b)
Plan Contracts, certain provisions of your retirement plan or the Code may
further restrict your choice of an Annuity Date. (See " Taxes," page ____).
25
<PAGE>
Annuity Options
The Owner may choose annuity payments which are fixed, or which are based
on the Variable Account, or a combination of the two. The Owner may, upon at
least 30 days prior written notice to us, at any time prior to the Annuity Date,
select or change an Annuity Option. If the Owner elects annuity payments which
are based on the Variable Account, the amount of the payments will be variable.
The amount of the annuity payment based on the value of a Subaccount is
determined through a calculation described in the Statement of Additional
Information, under the caption "Annuity Provisions". The Owner may not transfer
Contract Values between the Guaranteed Account and the Variable Account after
the Annuity Date, but may, subject to certain conditions, transfer Contract
Values from one Subaccount to another Subaccount. (See " Transfer of Contract
Values" on page .)
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the Guaranteed Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will make annuity payments during
the lifetime of the Annuitant.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company will
make monthly annuity payments during the lifetime of the Annuitant. If, at the
death of the Annuitant, payments have been made for less than 10 years, payments
will be continued during the remainder of the period to the Beneficiary.
Option 3: Joint and Last Survivor Income. The Company will make annuity
payments for as long as either the Annuitant or a Contingent Annuitant is alive.
In the event that the Contract is issued in connection with an IRA, the payments
in this Option will be made only to the Owner as Annuitant and the Owner's
spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than $2,000,
the Company reserves the right to pay the amount in a lump sum in lieu of
annuity payments. The Company makes all other annuity payments monthly. However,
if the total monthly annuity payment would be less than $100 the Company
reserves the right to make payments semi-annually or annually.
If fixed annuity payments are selected, the amount of each fixed payment is
determined by multiplying the Contract Value allocated to purchase fixed annuity
payments by the factor shown in the annuity table specified in the Contract for
the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the value
of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Subaccount
selected; and (v) the pro-rata portion of the Contract Maintenance charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, variable annuity
payments will decrease.
26
<PAGE>
DEATH BENEFIT
Prior to the Annuity Date
In the event of Your death prior to the Annuity Date, a death benefit is
payable to the Beneficiary. The value of the death benefit will be determined as
of the date We receive proof of death in a form acceptable to Us. If there has
been a change of Owner, the death benefit will equal the Contract Value.
Otherwise, We will pay the death benefit equal to the greatest of: (a) the total
of all Premium, reduced proportionately by withdrawals and surrenders; (b) the
Contract Value; (c) the greatest of the Contract Value at the seventh Contract
Anniversary if attained prior to Owner's attained age 76 or at the Contract
Anniversary every seven years thereafter, plus any Premium paid and less any
surrenders subsequent to that Contract Anniversary.
The Beneficiary may elect the death benefit to be paid as follows: (a)
payment of the entire death benefit within 5 years of the date of the Owner's
death; or (b) payment over the lifetime of the designated Beneficiary with
distribution beginning within 1 year of the date of death of the Owner; or (c)
if the designated Beneficiary is Your spouse, he/she can continue the contract
in his/her own name.
If no payment option is elected, a single sum settlement will be made at the
end of the sixty (60) day period following receipt of proof of death.
After the Annuity Date
If the Owner is a person other than the Annuitant, and if the Owner's death
occurs on or after the Annuity Date, no death benefit will be payable under this
contract, except that any guaranteed payments remaining unpaid will continue to
be paid to the Annuitant pursuant to the Annuity Option in force at the date of
the Owner's death.
Accidental Death Benefit
If an Accidental Death Benefit has been elected, the cost of this benefit
will be equal on an annual basis to 0.10% of the average daily net assets in the
Variable Account.
The Accidental Death Benefit, if any, is equal to the lesser of the Contract
Value as of the date the death benefit is determined or $250,000. The Accidental
Death Benefit is payable if the death of the primary Owner occurs prior to the
Contract Anniversary next following his 75th birthday as a result of an Injury.
The death must also occur before the Annuity Date and within 365 days of the
date of the accident which caused the Injury. The Accidental Death Benefit is
paid to the Beneficiary.
The Accidental Death Benefit will not be paid for any death caused by or
resulting (in whole or in part) from the following:
(a) suicide or attempted suicide while sane or insane; intentionally
self-inflicted injuries;
(b) sickness, disease or bacterial infection of any kind, except
pyogenic infections which occur as a result of an injury or
bacterial infections which result from the accidental ingestion of
contaminated substances;
(c) injury sustained as a consequence of riding in, including boarding
or alighting from, any vehicle or device used for aerial navigation
except if the Owner is a passenger on any aircraft licensed for the
transportation of passengers;
(d) declared or undeclared war or any act thereof; or
(e) service in the military, naval or air service of any country.
Death of the Annuitant
If the Annuitant is a person other than the Owner, and if the Annuitant dies
before the Annuity Date, a new Annuitant may be named by the Owner. If no new
Annuitant is named within sixty (60) days of Our receipt of proof of the
Annuitant's death, the Owner will be deemed the new Annuitant. If an Annuitant
dies after the Annuity Date, the remaining payments, if any, will be as
specified in the Annuity Option elected. We will require proof of the
Annuitant's death. Death benefits, if any, will be paid to the designated
Beneficiary at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
27
<PAGE>
DISTRIBUTIONS UNDER THE CONTRACT
Withdrawals
The Owner may withdraw Contract Values prior to the Annuity Date.
Any withdrawal is subject to the following conditions:
(a) the Company must receive a written request;
(b) the amount requested must be at least $500;
(c) any applicable Surrender Charge will be deducted;
(d) the Contract Value will be reduced by the sum of the amount requested
plus the amount of any applicable Surrender Charge;
(e) the Company will deduct the amount requested plus any Surrender
Charge from each Subaccount of the Variable Account and from the
Guaranteed Account either as specified or in the proportion that
each Subaccount and the Guaranteed Account bears to the Contract
Value; and
We reserve the right to consider any withdrawal request that would reduce the
Value of the Accumulation Account to less than $2,000 to be a request for
Surrender. In this event, the Surrender Value will be paid to You and the
Contract will terminate.
Withdrawals (Including systematic withdrawals discussed below) may be taxable
and subject to a penalty tax. (See "Taxes" beginning on page .).
Systematic Withdrawal
The systematic withdrawal program involves making regularly scheduled
withdrawals from Your value in the Contract. In order to initiate the program,
your total Contract Value must be at least $24,000. The program allows You to
prearrange the withdrawal of a specified dollar amount of at least $200 per
withdrawal, on a monthly or quarterly payment basis. A maximum of 10% of the
Contract Value may be withdrawn in a Contract Year. Surrender Charges are not
imposed on withdrawals under this program. If you elect this program Surrender
Charges will be imposed on any withdrawal, other than withdrawals made under
Your systematic withdrawal program, when the withdrawal is from Premium paid in
the last seven years. You may not elect this program if you have taken a prior
withdrawal during the same Contract Year. (See "Withdrawals" on page , and
"Surrender Charges" on page .)
Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. In the event that
Your value in a specified Subaccount or the Guaranteed Account is not sufficient
to deduct a withdrawal or if Your request for systematic withdrawal does not
specify the Guaranteed Account or from which Subaccounts withdrawals are to be
deducted, withdrawals will be deducted proportionally based on Your value in
each Subaccount and the Guaranteed Account.
All parties to the Contract are cautioned that the rights of any person to
implement the systematic withdrawal program under Contracts issued in connection
with IRAs or 403 (b) Plans may be subject to the terms and conditions of the
retirement plan, regardless of the terms and conditions of the Contract . (See "
Taxes " on page .)
The systematic withdrawal program may be canceled at any time by written
request or automatically by Us should the Contract Value fall below $1,000. In
the event the systematic withdrawal program is canceled, the Owner may not elect
to participate in such program until the next Contract Anniversary.
An Owner may change once per Contract Year the amount or frequency of
withdrawals on a systematic basis.
28
<PAGE>
The Free Withdrawal Amount (see "Charges and Deductions - Deduction for
Surrender Charge" on page ) is not available while an Owner is receiving
systematic withdrawals. An Owner will be entitled to the free withdrawal amount
on and after the Contract Anniversary next following the termination of the
systematic withdrawal program.
Implementation of the systematic withdrawal program may subject an Owner to
adverse tax consequences, including a 10% tax penalty. (See "Taxes - Taxation of
Annuities in General" on page for a discussion of the tax consequences of
withdrawals.)
The Company reserves the right to discontinue this program at any time.
Surrender
Prior to the Annuity Date you may Surrender the Contract for the Surrender
Value by withdrawing the entire Contract Value. You must submit a written
request for Surrender and return the Contract to Us. The Surrender Value will be
based on the Contract Value at the end of the Valuation Period during which the
Surrender request is received as described below. The Contract may not be
surrendered after the Annuity Date. A Surrender may be taxable and subject to a
tax penalty. (See "Taxes" discussed on page .)
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value, subject to any applicable as of the date the Company
receives Your surrender request, reduced by the following: (1) any applicable
taxes not previously deducted; (2) any applicable portion of the Contract
Maintenance Charge; and (3) any applicable Surrender Charge.
Payment of Withdrawals and Surrender Values
Payments of Withdrawals and Surrender Values will ordinarily be sent to
the Owner within seven (7) days of receipt of the written request, but see the
Deferment of Payment discussion below. (Also see Statement of Additional
Information - "Delay of Payments.")
The Company reserves the right to ensure that an Owner's check or other form
of Premium has been cleared for payment prior to processing any withdrawal or
redemption request occurring shortly after a Premium payment.
If, at the time You make a request for a Withdrawal or a Surrender, You have
not provided Us with a written election not to have Federal income taxes
withheld, We must by law withhold such taxes from the taxable portion of Your
payment and remit that amount to the IRS. Mandatory withholding rules apply to
certain distributions from 403(b) Plan Contracts.. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See " Withholding" on page , and " Tax-Favored Plans" on page .)
Deferral of Payment
Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Variable Account will usually occur within seven days. We may be permitted to
defer such payment if: (1) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise restricted;
(2) an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; (3) the SEC permits a delay for protection of Owners; or (4) the
check used to pay any Premium has not cleared through the banking system (this
may take up to 15 days).
We may defer payment of any Withdrawal or Surrender from the Guaranteed
Account for up to six months from the date we receive Your written request.
29
<PAGE>
TAXES
Introduction
The Contracts are designed to accumulate Contract Values for retirement plans
which, except for IRAs and 403(b) Plans, are generally not tax-qualified plans
(""). The ultimate effect of Federal income taxes on the amounts held under a
Contract, on annuity payments, and on the economic benefits to the Owner,
Annuitant or Beneficiary depend on the Company's tax status and upon the tax
status of the individual concerned. Accordingly, each potential Owner should
consult a competent tax adviser regarding the tax consequences of purchasing a
Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Funds, please see the accompanying relevant Fund Prospectus.
Company Tax Status
The Company is taxed as a life insurance company under the Internal Revenue
Code of 1986, as amended (the "Code"). Since the Variable Account is not a
separate entity from the Company and its operations form a part of the Company,
it will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized capital gains on the
assets of the Variable Account are reinvested and taken into account in
determining the Contract Value. Under existing Federal income tax law, the
Variable Account's investment income, including realized net capital gains, is
not taxed to the Company. The Company reserves the right to make a deduction for
taxes from the assets of the Variable Account should they be imposed with
respect to such items in the future.
Taxation of Annuities in General - Non-Qualified Plans
Code Section 72 governs the taxation of annuities. In general, an Owner is
not taxed on increases in value under a Contract until some form of withdrawal
or distribution is made under the Contract. However, under certain
circumstances, the increase in value may be subject to tax currently. (See
"Contracts Owned by Non-Natural Persons," and "Diversification Standards".)
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a Contract
prior to the Annuity Date will be treated as taxable income to the extent
the amounts held under the Contract on the date of withdrawal exceed the
"investment in the contract," as that term is defined under the Code. The
"investment in the contract" can generally be described as the cost of the
Contract. It generally constitutes the sum of all purchase payments made
for the contract less any amounts received under the Contract that are
excluded from gross income. The taxable portion is taxed as ordinary
income. For purposes of this rule, a pledge or assignment of a Contract is
treated as a payment received on account of a partial withdrawal of a
Contract.
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the
Contract, the recipient is taxed on the portion of the payment that
exceeds the investment in the Contract. The taxable portion is taxed as
ordinary income.
If the recipient receives annuity payments rather than a lump sum
payment, a portion of the payment is included in taxable income when
received. For fixed annuity payments, the taxable portion of each payment
is generally determined by using a formula known as the "exclusion
ratio," which establishes the ratio that the investment in the Contract
bears to the total expected amount of annuity payments for the term of
the Contract. That ratio is then applied to each payment to determine the
nontaxable portion of the payment. The remaining portion of each payment
is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by
a formula which establishes a specific dollar amount of each payment that
is not taxed. The dollar amount is determined by dividing the investment
in the Contract by the total number of expected periodic payments. The
remaining portion of each payment is taxed as ordinary income.
The recipient is able to exclude a portion of the payments received
from taxable income until the investment in the Contract is fully
recovered. Annuity payments are fully taxable after the investment in the
Contract is recovered. If the recipient dies before the investment in the
Contract is recovered, the recipient's estate is allowed a deduction for
the remainder.
30
<PAGE>
Penalty Tax on Certain Withdrawals
With respect to amounts withdrawn or distributed before the taxpayer
reaches age 59 1/2, a 10% penalty tax is imposed upon the portion of such
amount which is includible in gross income. However, the penalty tax will
not apply to withdrawals: (i) made on or after the death of the Owner (or
where the Owner is not an individual, the death of the "primary annuitant",
who is defined as the individual, the events in the life of whom are of
primary importance in affecting the timing or amount of the payout under
the Contract); (ii) attributable to the taxpayer's becoming totally
disabled within the meaning of Code Section 72(m)(7); (iii) which are part
of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the taxpayer, or
the joint lives (or joint life expectancies) of the taxpayer and his
beneficiary; (iv) allocable to investment in the Contract before August 14,
1982; (v) under a qualified funding asset (as defined in Code Section
130(d)); (vi) under an immediate annuity contract; or (vii) that are
purchased by an employer on termination of certain types of qualified plans
and which are held by the employer until the employee separates from
service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability), the
tax for the first year in which the modification occurs will be increased
by an amount equal to the tax that would have been imposed but for item
(iii) above as determined under Treasury Regulations, plus interest for the
deferral period. The foregoing rule applies if the modification takes
place: (a) before the close of the period which is five years from the date
of the first payment and after the taxpayer attains age 59 1/2; or (b)
before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan may
result in a taxable event and the excess of the Contract Value over total
Premium will be taxed to the assignor as ordinary income. Please consult
your tax adviser prior to making an assignment of the Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who
is either 37 1/2 years younger than the Owner or a grandchild of the Owner
may have Generation Skipping Transfer Tax consequences.
31
<PAGE>
Distribution-at-Death Rules
In order to be treated as an annuity contract for Federal income tax
purposes, a Contract must generally provide for the following two
distribution rules: (i) if the Owner dies on or after the Annuity Date, and
before the entire interest in the Contract has been distributed, the
remaining portion of such interest will be distributed at least as quickly
as the method in effect on the Owner's death; and (ii) if a Owner dies
before the Annuity Date, the entire interest must generally be distributed
within five years after the date of death. To the extent such interest is
payable to a designated Beneficiary, however, such interest may be
annuitized over the life of that Beneficiary or over a period not extending
beyond the life expectancy of that Beneficiary, so long as distributions
commence within one year after the date of death. The designated
beneficiary is the person to whom ownership of the contract passes by
reason of death and must be a natural person. If the Beneficiary is the
spouse of the Owner, the Contract may be continued unchanged in the name of
the spouse as Owner.
If the Owner is not an individual, the "primary annuitant" (as defined
under the Code) is considered the Owner. In addition, when the Owner is not
an individual, a change in the primary annuitant is treated as the death of
the Owner.
32
<PAGE>
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than full and
adequate consideration will generally trigger tax on the gain in the
Contract. The transferee will receive a step-up in basis for the amount
included in the transferor's income. This provision, however, does not
apply to those transfers between spouses or incident to a divorce which are
governed by Code Section 1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a corporation
or trust) the Contract is generally not treated as an annuity contract for
Federal income tax purposes, and the income on the Contract (generally the
excess of the Contract Value over the purchase payments) is includable in
income each year. The rule does not apply where the non-natural person is
only the nominal owner such as a trust or other entity acting as an agent
for a natural person. The rule also does not apply when the Contract is
acquired by the estate of a decedent, when the Contract is held under
certain qualified plans, when the Contract is a qualified funding asset for
structured settlements, when the Contract is purchased on behalf of an
employee upon termination of a qualified plan, and in the case of an
immediate annuity.
Section 1035 Exchanges
Code Section 1035 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity
contract unless money is distributed as part of the exchange . A
replacement contract obtained in a tax-free exchange of contracts succeeds
to the status of the surrendered contract. Special rules and procedures
apply to Code Section 1035 transactions. Prospective owners wishing to take
advantage of Code Section 1035 should consult their tax advisers.
Multiple Contracts
Annuity contracts that are issued by the Company (or affiliate) to the same
Owner during any calendar year will be treated as one annuity contract in
determining the amount includable in the taxpayer's gross income. Thus, any
amount received under any such contract prior to the contract's annuity
starting date will be taxable (and possibly subject to the 10% penalty tax)
to the extent of the combined income in all such contracts. The Treasury
has broad regulatory authority to prevent avoidance of the purposes of this
aggregation rule. It is possible that, under this authority, Treasury may
apply this rule to amounts that are paid as annuities (on or after the
starting date) under annuity contracts issued by the same company to the
same Owner during any calendar year period. In this case, annuity payments
could be fully taxable (and possibly subject to the 10% penalty tax) to the
extent of the combined income in all such contracts and regardless of
whether any amount would otherwise have been excluded from income. Owners
should consult a tax adviser before purchasing more than one Contract or
other annuity contracts.
33
<PAGE>
Withholding
The Company is required to withhold Federal income taxes on
withdrawals, lump sum distributions, and annuity payments that include
taxable income unless the payee elects to not have any withholding or in
certain other circumstances. Special withholding rules apply to payments
made to non-resident aliens.
Lump-sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion
of any withdrawal or lump sum distribution unless You elect out of
withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments based
on a withholding certificate You file with the Company. If you do not file
a certificate, You will be treated, for purposes of determining your
withholding rates, as a married person with three exemptions.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated
tax payments are not sufficient.
Diversification Standards
To comply with the diversification regulations promulgated under Code Section
817(h) (the "Diversification Regulations"), after a start-up period, each
Subaccount is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Subaccount is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-through" rule applies so that an
investment in a Fund is not treated as one investment but is treated as an
investment in a pro-rata portion of each underlying asset of such Fund. All
securities of the same issuer are treated as a single investment. In the case of
government securities, each Government agency or instrumentality is treated as a
separate issuer.
In connection with the issuance of the Diversification Regulations, Treasury
announced that such regulations do not provide guidance concerning the extent to
which Owners may direct their investments to particular divisions of a separate
account. It is possible that if and when additional regulations or IRS
pronouncements are issued, the Contract may need to be modified to comply with
such rules. For these reasons, the Company reserves the right to modify the
Contract, as necessary, to prevent the Owner from being considered the owner of
the assets of the Variable Account.
The Company intends to comply with the Diversification Regulations to assure
that the Contracts continue to be treated as annuity contracts for Federal
income tax purposes.
Tax-Favored Plans
The Contracts may be used to create an IRA. The Contracts are also available
for use in connection with a previously established 403(b) Plan. No attempt is
made herein to provide more than general information about the use of the
Contracts with IRAs or 403(b) Plans. The information herein is not intended as
tax advice. A prospective Owner considering use of the Contract to create an IRA
or in connection with a 403(b) Plan should first consult a competent tax adviser
with regard to the suitability of the Contract as an investment vehicle for
their qualified plan.
While the Contract will not be available in connection with retirement plans
designed by the Company which qualify for the federal tax advantages available
under Sections 401 and 457 of the Code, a Contract can be used as the investment
medium for an individual Owner's separately qualified 401 retirement plan.
Distributions from a 401 qualified plan or 403(b) Plan (other than non-taxable
distributions representing a return of capital, distributions meeting the
minimum distribution requirement, distributions for the life or life expectancy
of the recipient(s) or distributions that are made over a period of more than 10
years) are eligible for tax-free rollover within 60 days of the date of
distribution, but are also subject to federal income tax withholding at a 20%
rate unless paid directly to another qualified plan, 403(b) Plan or an IRA. If
the recipient is unable to take full advantage of the tax-free rollover
provisions, there may be taxable income, and the imposition of a 10% penalty tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Owner considering use of the Contract in this
manner should consult a competent tax advisor with regard to the suitability of
the Contract of this purpose and for information concerning the provisions of
the Code applicable to qualified plans, 403(b) Plans, and IRAs
34
<PAGE>
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an IRA.
Contracts issued in connection with an IRA are subject to limitations on
eligibility, maximum contributions, and time of distribution. Distributions from
certain retirement plans qualifying for federal tax advantages may be rolled
over into an IRA. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. Sales of the Contracts for use
with IRAs are subject to special requirements imposed by the Service, including
the requirement that informational disclosure be given to each person desiring
to establish an IRA. Contracts offered in connection with an IRA by this
Prospectus are not available in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on an Owner's ability to
make partial withdrawals from Code Section 403(b) Contracts, if attributable to
Premium paid under a salary reduction agreement. Specifically, Code Section
403(b)(11) allows an Owner to make a surrender or partial withdrawal only (a)
when the employee attains age 59 1/2, separates from service, dies, or becomes
disabled (as defined in the Code), or (b) in the case of hardship. In the case
of hardship, only an amount equal to the purchase payments may be withdrawn. In
addition, 403(b) Plans are subject to additional requirements, including:
eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403(b) Plan by this Prospectus are not available in all
states.
A-1
<PAGE>
APPENDIX
GUARANTEED ACCOUNT OPTION
Under this Guaranteed Account option, Contract Values are held in the
Company's General Account. The General Account includes all of Our assets,
except those assets segregated in Our separate accounts. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 nor is the General Account
registered as an investment company under the Investment Company Act of 1940.
The Company understands that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus relating to the Guaranteed
Account portion of the Contract. Disclosures regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses.
During the Accumulation Period the Owner may allocate amounts to the
Guaranteed Account. The initial Premium will be invested in the Guaranteed
Account if selected by the Owner at the time of application. Additional Premium
will be allocated in accordance with the selection made in the application or
the most recent instruction received at the Company Office. If the Owner elects
to withdraw amounts from the Guaranteed Account, such withdrawal, except as
otherwise provided in this Appendix, will be subject to the same conditions as
imposed on withdrawals from the Variable Account. The Company reserves the right
to delay any payment from the Guaranteed Account for up to six (6) months from
the date it receives such request at its Office.
GUARANTEE PERIODS
The period(s) for which a guaranteed interest rate is credited is called a
Guarantee Period. Guarantee Periods may be offered or withdrawn at the Company's
discretion. The initial guarantee period(s) and the guaranteed interest rate(s)
applicable to the initial Premium are as shown in the Contract. At least 15 days
but no more than 75 days prior to the expiration of a Guarantee Period, the
Owner will be mailed a notice of the guaranteed interest rate applicable to a
renewal of the Guarantee Period. At the expiration of any Guarantee Period
applicable to any portion of the Contract Value, that portion of the Contract
Value will be automatically renewed for another Guarantee Period for the same
duration as the expired Guarantee Period and will receive the guaranteed
interest rate then in effect for that Guarantee Period, unless other Guarantee
Periods or one or more Subaccounts are requested in writing by the Owner. All
requests to change a Guarantee Period at the end of an existing Guarantee Period
must be received in writing at the Company's Office within 30 days prior to the
end of that Guarantee Period.
ALLOCATIONS TO THE GUARANTEED ACCOUNT
The minimum amount that may be allocated to a Guarantee Period, either from
the initial or a subsequent Premium, is $3,000. Amounts invested in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guarantee rate. The effective guarantee rate is that rate
in effect when the Owner allocates or transfers amounts to the Guaranteed
Account. If the Owner has allocated or transferred amounts at different times to
the Guaranteed Account, each allocation or transfer may have a unique effective
guarantee rate and Guarantee Period associated with that amount. The effective
guarantee rate will not be changed more than once per year and the minimum rate
will not be less than 3%.
GUARANTEED ACCOUNT TRANSFERS
During the accumulation period the Owner may transfer, by written request or
telephone authorization, Contract Values to or from a subaccount of the Variable
Account to or from a Guarantee Period of the Guaranteed Account at any time,
subject to the conditions set out under Transfer of Contract Values Section.
A-2
<PAGE>
Prior to the end of a Guarantee Period the Owner may specify the
Subaccount(s) of the Variable Account or the applicable Guarantee Period of the
Guaranteed Account to which the Owner wants the amounts from the Guaranteed
Account transferred at the end of the Guarantee Period. If the Owner does not
notify us prior to the end of the Guarantee Period, we will reapply that amount
to a new Guarantee Period of the same duration, provided it is available. If a
new Guarantee Period of the same duration is not available, that portion of Your
Contract Value shall be transferred to the Guarantee Period next shortest in
duration. The amount so applied is then subject to the same conditions as the
original Guarantee Period, including the condition that the amount may not be
transferred until the end of that Guarantee Period. In the event of a
non-specified renewal, there is a grace period of 30 days within which the Owner
can have transferred amounts reapplied. The effective guarantee rate applicable
to the new Guarantee Period may be different from the effective guaranteed rate
applicable to the original Guarantee Period. These transfers will be handled at
no charge to the Owner.
MINIMUM SURRENDER VALUE
The minimum Surrender Value for amounts allocated to the Guaranteed Account
equals the amounts so allocated less withdrawals, with interest compounded
annually at the rate of 3%, reduced by any applicable Surrender Charge.
B-2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
General Information.............................................
The Company...............................................
Independent Accountants...................................
Legal Counsel.............................................
Distributor...............................................
Calculation of Performance Related Information............
Delay of Payments.........................................
Transfers..................................................
Method of Determining Contract Values...........................
Annuity Provisions..............................................
Annuity Benefits.....................................
Annuity Options......................................
Variable Annuity Payment Values......................
Annuity Unit.........................................
Net Investment Factor................................
Additional Provisions................................
Financial Statements...........................................
</TABLE>
<PAGE>
PART B
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
DEFERRED VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE DEFERRED VARIABLE
ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE
INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED
May 1, 1997 CALL OR WRITE: American International Life Assurance Company of
New York; Attention: Variable Products, One Alico Plaza, Wilmington, Delaware
19801, 1-800-340-2765.
DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1,1997
<PAGE>
MULTIMANAGER NEW
B-3
<PAGE>
GENERAL INFORMATION
The Company
A description of American International Life Assurance Company of New York
(the "Company"), and its ownership is contained in the Prospectus. The Company
will provide for the safekeeping of the assets of Variable Account A (the
"Variable Account").
Independent Accountants
The audited financial statements of the Company have been audited by Coopers
and Lybrand, L.L.P., independent certified public accountants, whose offices are
located in Philadelphia, Pennsylvania.
Legal Counsel
Legal matters relating to the Federal securities laws in connection with the
Contracts described herein and in the Prospectus are being passed upon by the
law firm of Jorden Burt Berenson & Johnson LLP, Washington, D.C..
Distributor
AIG Equity Sales Corp. ("AESC"), a wholly owned subsidiary of American
International Group, Inc. and an affiliate of the Company, acts as the
distributor. The offering is on a continuous basis. Commissions in the
amount of $20,363 were retained by the Distributor in 1996.
Calculation Of Performance Related Information
A. Yield and Effective Yield Quotations for the VIP Money Market
Subaccount
The yield quotation for the VIP Money Market Subaccount will be for the seven
days ended on the date of the most recent balance sheet of the Variable Account
included in the registration statement, and will be computed by determining the
net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one Accumulation Unit in the VIP Money
Market Subaccount at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from Owner accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and multiplying the base period return by (365/7) with the
resulting figure carried to at least the nearest hundredth of one percent.
Any effective yield quotation for the VIP Money Market Subaccount
will be for the seven days ended on the date of the most
recent balance sheet of the Variable Account included in the registration
statement, and will be carried at least to the nearest hundredth of one percent,
and will be computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one Accumulation Unit in the VIP Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7 and subtracting 1 from the result, according to the
following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1.
B-4
<PAGE>
For purposes of the yield and effective yield computations, the hypothetical
charge reflects all deductions that are charged to all Owner accounts in
proportion to the length of the base period. For any fees that vary with the
size of the account, the account size is assumed to be the VIP Money Market
Subaccount's mean account size. The yield and effective yield quotations do not
reflect the Surrender Charge that may be assessed at the time of withdrawal in
an amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Surrender Charge" on page of the Prospectus) No deductions or
sales loads are assessed upon annuitization under the Contracts. Realized gains
and losses from the sale of securities and unrealized appreciation and
depreciation of the VIP Money Market Subaccount and the Fund are excluded from
the calculation of yield.
B. Total Return Quotations
The total return quotations for all of the Subaccounts will be average annual
total return quotations for the one, five, and ten year periods (or, where a
Subaccount has been in existence for a period of less than one, five or ten
years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Subaccounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the particular period at the end of
the particular period.
For the purposes of the total return quotations for all of the Subaccounts,
the calculations take into effect all fees that are charged to all Owner
accounts. For any fees that vary with the size of the account, the account size
is assumed to be the respective Subaccount's mean account size. The calculations
also assume a total withdrawal as of the end of the particular period.
Subaccount performance information has not been provided, because, for the
fiscal year ending December 31, 1996, no such contracts were issued.
B-5
<PAGE>
*Funds were first invested in the Portfolios as listed below:
<TABLE>
<S> <C>
Alliance Growth and Income January 14, 1991
Alliance Growth Investors October 28, 1994
Alliance Growth September 15, 1994
Alliance Conservative
Investors October 28, 1994
Alliance Quasar August 15,1996
Alliance Technology January 22,1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Overseas January 28, 1987
Fidelity Asset Manager September 9, 1989
Fidelity Investment
Grade Bond December 5, 1988
Dreyfus Zero Coupon 2000 September 29, 1989
Dreyfus Stock Index August 31, 1990
Van Eck Gold and Natural Res. September 1, 1989
Van Eck Worldwide Balance December 23, 1994
Tomorrow Short-Term Retirement April 1, 1996
Tomorrow Medium-Term Retirement April 1, 1996
Tomorrow Long-Term Retirement April 1, 1996
</TABLE>
B-6
<PAGE>
C. Yield Quotations for each Subaccount other than the
VIP Money Market Subaccount
The yield quotations for each Subaccount other than the VIP Money Market
Subaccount will be based on a thirty-day period. The computation is made by
dividing the net investment income per Accumulation Unit earned during the
period by the Unit Value on the last day of the period, according to the
following formula:
Yield = 2[(a - b + 1)6 - 1]
cd
Where: a = net investment income earned during the period by the
corresponding portfolios of the Funds attributable to
shares owned by the Subaccount.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Accumulation Units outstanding
during the period.
d = the maximum offering price per Accumulation
Unit on the last day of the period.
For the purposes of the yield quotations for the Subaccounts, the
calculations take into effect all fees that are charged to all Owner accounts.
For any fees that vary with the size of the account, the account size is assumed
to be the respective Subaccount's mean account size. The calculations do not
take into account the Deferred Sales Charge or any transfer charges.
A Surrender Charge may be assessed at the time of withdrawal in an
amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract, and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Surrender Charge" on page ___ of the Prospectus) There is
currently a transfer charge of $10 per transfer after a specified number of
transfers in each Contract Year. (See Transfer of Contract Values" on page 15 of
the Prospectus)
D. Non - Standardized Performance Data
1. Total Return Quotations
The total return quotations for all of the Subaccounts will be
average annual total return quotations for the one, five, and ten year periods
(or, where a Subaccount has been in existence for a period of less than one,
five or ten years, for such lesser period) ended on the date of the most recent
balance sheet of the Variable Account and for the period from the date monies
were first placed into the Subaccounts until the aforesaid date. The quotations
are computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
particular period at the end of the particular
period.
For the purposes of the total return quotations, the calculations take
into effect all fees that are charged to all Owner accounts. For any fees that
vary with the size of the account, the account size is assumed to be the
respective Subaccount's mean account size. The calculations do not, however,
assume a total withdrawal as of the end of the particular period and, therefore,
no Surrender Charge is reflected. No Subaccount performance information
information has been provided for no contracts were issued as of December 31,
1996.
2. Tax Deferred Accumulation
In reports or other communications to You or in advertising or sales
materials, the Company may also describe the effects of tax-deferred compounding
on the separate account's investment returns or upon returns in general. These
effects may be illustrated in charts or graphs and may include comparisons at
various points in time of returns under the Contract or in general on a
tax-deferred basis with the returns on a taxable basdis. Different tax rates may
be assumed.
In general, individuals who own annuity contracts are not taxed on inreases
in the value under the annuity contract until some form of distribution is made
from the contract. Thus, the annuity contract will benefit from tax deferral
during the accumulation period, which generally will have the effect of
permitting an investment in an annuity contract to grow more rapidly than a
comparable investment under which increases in value are taxed on a current
basis. The chart shows accumulations on an initial investment or Purchase
Payment of $25,000, assuming hypothetical gross annual return of 0%, 4% and 8%,
compounded annually, and a tax rate of 31%. The values shown for the taxable
investment do not include any deduction for management fees or other expenses
but assume that taxes are deducted annually from investment returns. The values
shown for the variable annuity reflect the deduction of contractual expenses
such as the mortality and expense risk charge, the Administrative Fee and the
Annual Fee, but not the expenses of an underlying investment vehicle, such as
the Fund. In addition, these values assume that the Owner does not surrender the
Contract or make any withdrawals until the end of the period shown. The chart
assumes a full withdrawal, at the end of the period shown, of all contract value
and the payment of taxes at the 31% rate on the amount in excess of the Purchase
Payment.
B-7
<PAGE>
The rates of return illustrated are hypothetical and are not an estimate or
guaranty of performance. Actual tax rates may vary for different taxpayers from
that illustrated and withdrawals by Owners who have not reached age 59 1/2 may
be subject to a tax penalty of 10%.
[INSERT CHART]
B-8
<PAGE>
Delay of Payments
Any payments due under the Contracts will generally be sent to the
Owner within seven (7) days of a completed request for payment. However, the
Company has reserved the right to postpone any type of payment from the Variable
Account for any period when:
(a) the New York Stock Exchange is closed for other than
customary weekends and holidays, or trading on the
Exchange is otherwise restricted;
(b) an emergency exists as a result of which it is not
reasonably practicable to dispose of securities held in
the Variable Account or determine their value;
(c) an order of the Securities and Exchange Commission permits
delay for the protection of security holders; or
(d) the check used to pay any Premium has not cleared
through the banking system (this may take up to 15
days).
The applicable rules of the Securities and Exchange Commission shall
govern as to whether the conditions in (a) and (b) exist.
METHOD OF DETERMINING CONTRACT VALUES
The Contract Value will fluctuate in accordance with the investment
results of the underlying Portfolio of the Fund held within the Subaccount. In
order to determine how these fluctuations affect Contract Values, Accumulation
Units are utilized. The value of an Accumulation Unit applicable during any
Valuation Period is determined at the end of that period.
When the first shares of the respective Portfolios of the Funds were
purchased for the Subaccounts, the Accumulation Units for the Subaccounts were
valued at $10. The value of an Accumulation Unit for a Subaccount on any
Valuation Date thereafter is determined by dividing (a) by (b), where:
(a) is equal to:
(i) the total value of the net assets attributable to
Accumulation Units in the Subaccount, minus
(ii) the daily charge for assuming the risk of guaranteeing
mortality factors and expense charges which is equal on
an annual basis to 1.25% multiplied by the daily net
asset value of the Subaccount; minus
(iii) the daily charge for providing certain administrative
functions which is equal on an annual basis to 0.15%
multiplied by the daily net asset value of the
Subaccount; minus or plus
(iv) a charge or credit for any tax provision
established for the Subaccount. The Company is not
currently making any provision for taxes.
(b) is the total number of Accumulation Units applicable to
that Subaccount at the end of the Valuation Period.
The resulting value of each Subaccount Accumulation Unit is multiplied
by the respective number of Subaccount Accumulation Units for a Contract. The
Contract Value of the Variable Account is the sum of all Subaccount values for
the Contract.
An Accumulation Unit may increase or decrease in value from Valuation
Date to Valuation Date.
ANNUITY PROVISIONS
Annuity Benefits
A description of the Annuity Benefits and Annuity Options
is provided in the prospectus.
Variable Annuity Payment Values
A Variable Annuity is an annuity with payments which (1) are not
predetermined as to dollar amount and (2) will vary in amount with the net
investment results of the applicable Subaccount(s) of the Variable Account. At
the Annuity Date the Contract Value in each Subaccount will be applied to the
applicable Annuity Tables contained in the Contract. The Annuity Table used will
depend upon the payment option chosen. The same Contract Value amount applied to
each payment option may produce a different initial annuity payment. If, as of
the Annuity Date, the then current annuity rates applicable to this class of
contracts will provide a larger income than that guaranteed for the same form of
annuity under the Contracts described herein, the larger amount will be paid.
The first annuity payment for each Subaccount is determined by
multiplying the amount of the Contract Value allocated to that Subaccount by the
factor shown in the table for the option selected, divided by 1000.
The dollar amount of Subaccount annuity payments after the first is
determined as follows:
(a) The dollar amount of the first annuity payment is
divided by the value for the Subaccount Annuity Unit as
of the Annuity Date. This establishes the number of
Annuity Units for each monthly payment. The number of
Annuity Units remains fixed during the Annuity payment
period, subject to any transfers.
(b) The fixed number of Annuity Units is multiplied by the
Annuity Unit value for the Valuation Period 14 days
prior to the date of payment.
The total dollar amount of each Variable Annuity payment is the sum of
all Subaccount variable annuity payments less the pro-rata amount of the annual
Administrative Charge.
Annuity Unit
The value of an Annuity Unit for each Subaccount was arbitrarily set
initially at $10. This was done when the first Fund shares were purchased. The
Subaccount Annuity Unit value at the end of any subsequent Valuation Period is
determined by multiplying the Subaccount Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (a) and (b) where:
(a) is the net investment factor for the Valuation Period for
which the Subaccount Annuity Unit value is being determined; and
(b) is the assumed investment factor for such Valuation Period.
The assumed investment factor adjusts for the interest assumed
in determining the first variable annuity payment. Such factor
for any Valuation Period shall be the accumulated value, at
the end of such period, of $1.00 deposited at the beginning of
such period at the assumed investment rate of 5%.
Net Investment Factor
The net investment factor is used to determine how investment results
of a Fund affect the Subaccount Annuity Unit value from one Valuation Period to
the next. The net investment factor for each Subaccount for any Valuation Period
is determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is equal to:
(i) the net asset value per share of the relevant Fund
held in the Subaccount determined at the end of that
Valuation Period; plus
(ii) the per share amount of any dividend or capital gain
distribution made by such Fund held in the Subaccount
if the "ex-dividend" date occurs during that same
Valuation Period; plus or minus
(iii) a per share charge or credit, which is determined by
the Company, for changes in tax reserves resulting
from investment operations of the Subaccount.
(b) is equal to:
(i) the net asset value per share of the relevant Fund held in the
Subaccount determined as of the end of the prior Valuation
Period; plus or minus
(ii) the per share charge or credit for any change in tax reserves for
the prior Valuation Period.
(c)is equal to:
(i) the percentage factor representing the Mortality and
Expense Risk Charge, plus
(ii) the percentage factor representing the daily Administrative
Charge.
The net investment factor may be greater or less than the assumed investment
factor; therefore, the Subaccount Annuity Unit value may increase or decrease
from Valuation Period to Valuation Period.
B-9
<PAGE>
Additional Provisions
The Company may require proof of the age of the Annuitant before making
any life annuity payment provided for by the Contract. If the age of the
Annuitant has been misstated the Company will compute the amount payable based
on the correct age. If annuity payments have begun, any underpayments that may
have been made will be paid in full with the next annuity payment, including
interest at the annual rate of 5%. Any overpayments, including interest at the
annual rate of 5%, unless repaid to the Company in one sum, will be deducted
from future annuity payments until the Company is repaid in full.
If a Contract provision requires that a person be alive, the Company
may require due proof that the person is alive before the Company acts under
that provision.
The Company will give the payee under an annuity payment option a
settlement contract for the payment option.
You may assign this Contract prior to the Annuity Date. A written
request, dated and signed by you must be sent to our Administrative Office. A
duly executed copy of any assignment must be filed with our Administrative
Office. We are not responsible for the validity of any assignment.
FINANCIAL STATEMENTS
The financial statements of the Company and the Variable Account
included herein shall be considered only as bearing upon the ability of the
Company to meet its obligations under the Contracts. Financial Statements of the
Separate Account have not been provided as no contracts had been issued during
the reporting period.
F-1
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE
COMPANY OF NEW YORK
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
American International Life Assurance Company of New York:
We have audited the accompanying balance sheets of American International Life
Assurance Company of New York (a wholly-owned subsidiary of American
International Group, Inc.) as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American International Life
Assurance Company of New York as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 22, 1997
F-3
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
-------------
1996 1995
------------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 4,636,022$ 4,434,329
(cost: 1996-$4,456,608: 1995 - $4,139,170)
Equity securities:
Common stock
(cost: 1996-$19,800: 1995 - $16,613) 33,099 24,365
Non-redeemable preferred stocks
(cost: 1996-$649; 1995 - $4,564) 590 4,570
Mortgage loans on real estate, net 513,470 448,700
Real estate, net of accumulated
depreciation of $6,046 in 1996; and $5,269 in 1995 26,227 27,000
Policy loans 11,063 10,991
Other invested assets 65,744 69,360
Short -term investments 60,333 104,048
Cash 1,726 1,105
------------- --------------
Total investments and cash 5,348,274 5,124,468
Amounts due from related parties 4,277 973
Investment income due and accrued 77,433 74,355
Premium and insurance balances receivable-net 13,617 13,289
Reinsurance assets 25,211 22,552
Deferred policy acquisition cost 35,754 31,225
Separate and variable accounts 153,678 68,151
Other assets 2,591 16,814
-----------------------------
Total assets $ 5,660,835 $ 5,351,827
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------- ----------
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 3,308,208 $ 3,060,581
Future policy benefits 1,588,563 1,561,760
Reserve for unearned premiums 8,167 10,808
Policy and contract claims 44,173 37,201
Reserve for commissions, expenses and taxes 4,905 4,433
Insurance balances payable 7,981 7,771
Federal income tax payable 3,758 3,477
Deferred income taxes 43,445 62,325
Amounts due to related parties 5,227 5,260
Separate and variable accounts 153,678 68,151
Other liabilities 22,588 23,553
------------- -------------
Total liabilities 5,190,693 4,845,320
------------ -----------
Commitments and contingencies (See Note 6)
Stockholders' Equity
Common stock, $200 par value; 16,125 shares
authorized, issued and outstanding 3,225 3,225
Additional paid-in capital 197,025 197,025
Unrealized appreciation (depreciation) of
investments, net of future policy benefits
and taxes of $72,979 in 1996 and
$82,352 in 1995; 135,524 153,086
Retained earnings 134,368 153,171
------------ -------------
Total stockholders' equity 470,142 506,507
----------- ------------
Total liabilities and stockholders' equity $ 5,660,835 $ 5,351,827
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Revenues:
Premiums $ 149,472 $ 84,357 $ 71,826
Net investment income 401,647 386,680 335,510
Realized capital gains 610 1,436 1,932
------------ ------------- -----------
Total revenues 551,729 472,473 409,268
--------- ----------- ---------
Benefits and expenses:
Benefits to policyholders 163,377 167,319 163,585
Increase in future policy benefits
and policyholders' funds on deposit 284,936 209,512 165,291
Acquisition and insurance expenses 54,875 54,808 62,759
---------- ------------ ----------
Total benefits and expenses 503,188 431,639 391,635
--------- ----------- ---------
Income before income taxes 48,541 40,834 17,633
---------- ---------- -----------
Income taxes (benefits):
Current 26,85322,070 18,939
Deferred (9,509) (7,572) (12,262)
------------ ------------- -----------
Total income taxes 17,344 14,498 6,677
---------- ----------- -----------
Net income $ 31,197 $ 26,336 $ 10,956
========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 3,225 $ 3,225 $ 3,225
------------ ------------ ------------
Balance at end of year 3,225 3,225 3,225
------------ ----------- ------------
Additional paid-in capital
Balance at beginning of year: 197,025 197,025 197,025
---------- ---------- ----------
Balance at end of year 197,025 197,025 197,025
---------- ---------- ----------
Unrealized appreciation (depreciation)
of investments, net
Balance at beginning of year 153,086 (60,149) 58,102
Change during year (102,936) 404,059 (182,008)
Changes due to deferred income
tax benefit expense) and
future policy benefits 85,374 (190,824) 63,757
Balance at end of year 135,524 153,086 (60,149)
----------- ----------- ------------
Retained earnings
Balance at beginning of year 153,171 126,835 115,879
Net income 31,197 26,336 10,956
Dividends to Stockholders (50,000) - -
----------------------------------------------
Balance at end of year 134,368 153,171 126,835
----------- ---------- -----------
Total stockholders' equity$ 470,142 $ 506,507 $ 266,936
========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 31,197 $ 26,336 $ 10,956
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains and losses
included in income:
Change in insurance reserves 107,134 37,251 45,554
Change in premiums and insurance balances
receivable and payable -net (117) (110) (138)
Change in reinsurance assets (2,658) 3,761 5,570
Change in deferred policy acquisition costs (4,530) (1,599) (213)
Change in investment income due and accrued (3,078) (6,732) (8,153)
Realized capital gains (610) (1,436) (1,932)
Change in current and deferred income taxes -net (9,227) (5,417) (6,927)
Change in reserves for commissions, expenses
and taxes 472 1,356 149
Change in other assets and liabilities - net (17,396) (18,394) 7,597
----------- ----------- ------------
Total adjustments 69,990 8,680 41,507
----------- ------------ -----------
Net cash provided by operating activities 101,187 35,016 52,463
---------- ----------- -----------
Cash flows from investing activities:
Cost of fixed maturities, at market sold ....... 136,829 65,623 63,695
Cost of fixed maturities, at market
matured or redeemed ........................... 424,317 247,551 255,229
Cost of equity securities sold ................. 4,877 1,310 958
Realized capital gains ........................ 610 3,436 4,715
Purchase of fixed maturities.................. (858,793) (627,188) (837,973)
Purchase of equity securities ................... (4,149) (1,005) (137)
Mortgage loans granted ........................ (124,280) (111,402) (77,824)
Repayments of mortgage loans..................... 59,577 60,476 9,621
Change in policy loans........................... (71) (674) 601
Change in short-term investments ................ 43,715 26,372 (7,485)
Change in other invested assets ................. 10,475 (4,083) (6,479)
Other - net ................................... 8,701 (17,713) (1,020)
-------------- ---------------------------
Net cash used in investing activities (298,192) (357,297) (596,099)
------------ ------------------------
Cash flows from financing activities:
Change in policyholders' funds on deposit 247,626 318,169 542,729
Dividends to stockholders (50,000) - -
---------------------------------------------
Net cash provided by financing activities 197,626 318,169 542,729
------------- ---------- ----------
Change in cash ..................................... 621 (4,112) (907)
Cash at beginning of year ........................ 1,105 5,217 6,124
------------- ---------------------------
Cash at end of year $ 1,726 $ 1,105 $ 5,217
============= ============= ==============
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a)Basis of Presentation: American International Life Assurance Company of
New York (the Company) is a wholly-owned subsidiary of American
International Group, Inc. (the Parent). The financial statements of the
Company have been prepared on the basis of generally accepted accounting
principles (GAAP). The preparation of financial statements in conformity
with GAAP 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
periods. Actual results could differ from those estimates. The Company is
licensed to sell life and accident & health insurance in the District of
Columbia and all states except Arizona, Connecticut and Maryland. The
Company is also licensed in America Samoa, Virgin Islands and Guam.
The Company also files financial statements prepared in accordance with
statutory practices prescribed or permitted by the Insurance Department of
the State of New York. Financial statements prepared in accordance with
generally accepted accounting principles differ in certain respects from
the practices prescribed or permitted by regulatory authorities. The
significant differences are: (1) statutory financial statements do not
reflect fixed maturities available for sale at market value; (2) policy
acquisition costs, charged against operations as incurred for regulatory
purposes, have been deferred and are being amortized over the anticipated
life of the contracts; (3) individual life and annuity policy reserves
based on statutory requirements have been adjusted based upon mortality,
lapse and interest assumptions applicable to these coverages, including
provisions for reasonable adverse deviations; these assumptions reflect
the Company's experience and industry standards; (4) deferred income taxes
not recognized for regulatory purposes have been provided for temporary
differences between the bases of assets and liabilities for financial
reporting purposes and tax purposes; (5) for regulatory purposes, future
policy benefits, policyholders' funds on deposit, policy and contract
claims and reserve for unearned premiums are presented net of ceded
reinsurance; and (6) an asset valuation reserve and interest maintenance
reserve using National Association of Insurance Commissioners (NAIC)
formulas are set up for regulatory purposes.
(b)Investments: Fixed maturities available for sale, where the company may
not have the ability or positive intent to hold these securities until
maturity, are carried at market value. Included in fixed maturities
available for sale are collateralized mortgage obligations (CMO's).
Premiums and discounts arising from the purchase of CMO'S are treated as
yield adjustments over the estimated life. Common and non-redeemable
preferred stocks are carried at market value. Short-term investments are
carried at cost, which approximates market.
Unrealized gains and losses from investment in equity securities and fixed
maturities available for sale are reflected in stockholders' equity, net
of amounts recorded as future policy benefits and any related deferred
income taxes.
Realized capital gains and losses are determined principally by specific
identification. Where declines in values of securities below cost or
amortized cost are considered to be other than temporary, a charge is
reflected in income for the difference between cost or amortized cost and
estimated net realizable value.
Mortgage loans on real estate are carried at unpaid principal balance less
unamortized loan origination fees and costs less an allowance for
uncollectible loans.
F-10
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments
are capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity,
net of any related taxes. Also included in this category is an interest
rate cap agreement, which is carried at its amortized cost. The cost of
the cap is being amortized against investment income on a straight line
basis over the life of the cap.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the
Parent have a written tax allocation agreement whereby the Parent agrees
not to charge the Company a greater portion of the consolidated tax
liability than would have been paid by the Company if it had filed a
separate return. Additionally, the Parent agrees to reimburse the Company
for any tax benefits arising out of its net losses within ninety days
after the filing of that consolidated tax return for the year in which
these losses are utilized. Deferred federal income taxes are provided for
temporary differences related to the expected future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns.
(d)Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident and
health insurance are reported as earned over the contract term. The
portion of accident and health premiums which is not earned at the end of
a reporting period is recorded as unearned premiums. Estimates of premiums
due but not yet collected are accrued. Policy benefits and expenses are
associated with earned premiums on long-duration contracts resulting in a
level recognition of profits over the anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized in
relation to expected gross profits over the life of the policies (see Note
3).
The liability for future policy benefits and policyholders' contract
deposits is established using assumptions described in Note 4.
(e)Policy and Contract Claims: Policy and contract claims include amounts
representing: (1) the actual in-force amounts for reported life claims and
an estimate of incurred but unreported claims; and (2) an estimate, based
upon prior experience, for accident and health reported and incurred but
unreported losses. The methods of making such estimates and establishing
the resulting reserves are continually reviewed and updated and any
adjustments resulting therefrom are reflected in income currently.
(f)Separate and Variable Accounts: These accounts represent funds for which
investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the
assets are carried at market value. The assets of each account are legally
segregated and are not subject to claims which arise out of any other
business of the Company.
F-11
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(g)Reinsurance Assets: Reinsurance assets include the balances due from both
reinsurance and insurance companies under the terms of the Company's
reinsurance arrangements for ceded unearned premiums, future policy
benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It also
includes funds held under reinsurance treaties.
(h) Accounting Standards:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of" (FASB 121). This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and an impairment loss must be recognized.
FASB 121 was effective for the Company commencing January 1, 1996. The
adoption of this statement in 1996 had no significant effect on the
Company's results of operations, financial condition and liquidity.
In December 1995, FASB issued "Special Report, a Guide to the
Implementation of Statement No. 115 on Accounting for Certain Investments
in Debt and Equity Securities". Among other things, this guide provided
for a transition provision permitting a one-time transfer of debt
securities from the held to maturity classification to the available for
sale classification. The Company did not transfer any securities from the
held to maturity classification to available for sale classification.
(i)The financial statements for 1994 and 1995 have been reclassified to
conform to the 1996 presentation.
2. Investment Information
(a) Statutory Deposits: Securities with a carrying value of $9,369,000 and
$9,381,000 were deposited by the Company under requirements of regulatory
authorities as of December 31, 1996 and 1995, respectively.
F-12
<PAGE>
2. Investment Information - (continued)
b)Net Investment Income: An analysis of net investment income
is as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $351,702 $334,828 $289,374
Equity securities 999 1,006 1,156
Mortgage loans 41,865 40,383 33,251
Real estate 2,835 2,760 2,947
Policy loans 794 733 764
Cash and short-term investments 4,699 4,124 6,839
Other invested assets 2,662 6,381 4,465
--------- --------- ---------
Total investment income 405,556 390,215 338,796
Investment expenses 3,909 3,535 3,286
--------- --------- ---------
Net investment income $401,647 $386,680 $335,510
======== ======== ========
</TABLE>
(c)Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for 1996,
1995 and 1994 are summarized below (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net realized gains (losses)
on investments:
Fixed maturities $ (104) $ (115)$ (75)
Equity securities 714 3,515 2,046
Mortgage loans - (2,000) (2,783)
Other invested assets - 36 2,744
------------ --------------------
Net realized gains $ 610 $ 1,436 $ 1,932
========= ======== ========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities $(115,746) $ 402,020 $(186,892)
Equity securities 5,913 666 (697)
Other invested assets 6,897 1,373 5,581
----------- ------------------------
Change in unrealized appreciation
(depreciation) of investments $ (102,936) $ 404,059 $(182,008)
=========== ========= ==========
Proceeds from the sale of investments in fixed maturities during 1996,
1995 and 1994 were $136,829,000, $65,623,000 and $79,504,000,
respectively.
During 1996, 1995 and 1994, gross gains of $636,000, $624,000 and
$4,861,000, respectively, and gross losses of $740,000, $739,000 and
$4,936,000, respectively, were realized on dispositions of fixed
maturities.
During 1996, 1995 and 1994, gross gains of $714,000, $3,516,000 and
$2,047,000, respectively, and gross losses of $0, $1,000 and $1,000,
respectively, were realized on dispositions of equity securities.
</TABLE>
F-13
<PAGE>
2. Investment Information - (continued)
(d)Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1996 and 1995, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $15,648,000 and $9,650,000 and gross losses of $398,000 and
$480,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross
1996 Amortized Unrealized Gross Market
Cost Gains Unrealized Value
Losses
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 79,195 $ 14,104 $ 420 $ 92,879
States, municipalities and
political subdivisions 854,402 36,479 4,574 886,307
Foreign governments 39,549 3,579 283 42,845
All other corporate 3,483,462 148,570 18,041 3,613,991
---------- --------- ------- ---------
Total fixed maturities $ 4,456,608 $ 202,732 $ 23,318 $4,636,022
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
1995 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 84,063 $ 19,982 $ 39 $ 104,006
States, municipalities and
political subdivisions 883,646 56,568 89 940,125
Foreign governments 33,927 5,291 75 39,143
All other corporate 3,137,534 224,452 10,931 3,351,055
--------- -------- -------- ---------
Total fixed maturities $4,139,170 $ 306,293 $ 11,134 $ 4,434,329
========== ======== ======= ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities
available for sale at December 31, 1996, by contractual maturity, are
shown below (in thousands). Actual maturities could differ from
contractual maturities because certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<S> <C> <C>
Estimated
Amortized Market
Cost Value
Due in one year or less $ 280,178 $ 287,023
Due after one year through five years 1,293,766 1,338,015
Due after five years through ten years 1,758,183 1,834,170
Due after ten years 1,124,481 1,176,814
----------- ------------
$4,456,608 $ 4,636,022
---------- -----------
---------- -----------
</TABLE>
F-14
<PAGE>
2. Investment Information - (continued)
(e) CMO's: CMOs are U.S. Government and Government agency backed and triple
A-rated securities. In the preceding table, CMO's are included in other
corporate fixed maturities. At December 31, 1996 and 1995, the market
value of the CMO portfolio was $1,031,431,000 and $1,114,196,000,
respectively; the estimated amortized cost was approximately $991,305,000
in 1996 and $1,049,450,000 in 1995. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities contained
in the portfolio at December 31, 1996.
(f)Fixed Maturities Below Investment Grade: At December 31, 1996 and 1995,
the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $270,068,000 and $204,254,000,
respectively, and an aggregate market value of $267,331,000 and
$206,442,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h)Investments Greater than 10% Equity: The market value of investments in
the following companies and institutions exceeded 10% of the Company's
total stockholders' equity at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fixed Maturities:
General Motors Acceptance Corporation $ 72,009
Morgan Stanley Mortgage Trust $ 71,790
Transamerica Finance $ 55,300
Chrysler Finance Corporation $ 49,132
</TABLE>
3. Deferred Policy Acquisition Costs
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against future
income and the related current amortization charged to income, excluding
certain amounts deferred and amortized in the same period (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $31,225 $29,626 $29,413
Acquisition costs deferred 8,482 5,933 3,286
Amortization charged to income (3,953) (4,334) (3,073)
------ ------- -------
Balance at end of year $35,754 $31,225 $29,626
======= ======= =======
</TABLE>
F-15
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a)The analysis of the future policy benefits and policyholders' funds on
deposit liabilities as at December 31, 1996 and 1995 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Future policy benefits:
Long duration contracts $1,565,362 $1,537,901
Short duration contracts 23,201 23,859
----------- -----------
$1,588,563 $1,561,760
Policyholder funds on deposit:
Annuities $2,458,340 $2,216,319
Guaranteed investment contracts (GICs) 744,284 739,947
Universal life 98,466 98,214
Other investment contracts 7,118 6,101
$3,308,208 $3,060,581
</TABLE>
(b)Long duration contract liabilities included in future policy benefits, as
presented in the table above, result from traditional life products. Short
duration contract liabilities are primarily accident and health products.
The liability for future policy benefits has been established based upon
the following assumptions:
(i) Interest rates for traditional life insurance products are 9.5 percent
graded to 7.0 percent over 30 years. The liability for future policy
benefits for universal life insurance has been established using FASB 97
and assumes a 1.0 percent investment margin. Interest rates (exclusive of
immediate/terminal funding annuities), which vary by year of issuance and
products, range from 3.0 percent to 10.0 percent. Interest rates on
immediate/terminal funding annuities are at a maximum of 12.2 percent and
grade to not greater than 7.5 percent.
(ii) Mortality and withdrawal rates are based upon actual experience
modified to allow for variations in policy form. The weighted average
lapse rate, including surrenders, for individual life approximated 15.0
percent.
(c)The liability for policyholders' fund on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of issuance
and range from 3.0 percent to 8.0 percent. Credited interest rate
guarantees are generally for a period of one year. Withdrawal charges
generally range from 6.0 percent to 10.0 percent grading to zero over a
period of 6 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited generally
range from 4.7 percent to 8.1 percent and maturities range from 2 to 7
years.
(iii) The universal life funds have credited interest rates of 5.9 percent
to 7.5 percent and guarantees ranging from 3.5 percent to 5.5 percent
depending on the year of issue. Additionally, universal life funds are
subject to surrender charges that amount to 10.0 percent of the fund
balance and grade to zero over a period not longer than 20 years.
F-16
<PAGE>
5. Income Taxes
(a)The Federal income tax rate applicable to ordinary income is 35% for
1996, 1995 and 1994. Actual tax expense on income from operations differs
from the "expected" amount computed by applying the Federal income tax
rate because of the following (in thousands except percentages):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---------------- -------------- -----------
PERCENT PERCENT PERCENT
OF OF OF
PRE-TAX PRE-TAX PRE-TAX
OPERATING OPERATING OPERATING
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $16,989 35.0% $14,287 35.0% $6,172 35.0%
Prior year federal
income tax benefit - - - - - -
State income tax 578 1.2 609 1.5 667 3.8
Other (223) (0.5) (398) (1.0) (162) (0.9)
-------- ----- -------- ---- --------- ----
Actual income
tax expense $17,344 35.7% $14,498 35.5% $ 6,677 37.9%
======= ==== ======= ==== ======= ====
</TABLE>
(b) The components of the net deferred tax liability were as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Adjustments to mortgage loans
and investment income $ 5,321 $ 5,420
Adjustment to life reserves 35,370 23,835
Other 363 1,571
----------- ---------
41,054 30,826
Deferred tax liabilities:
Deferred policy acquisition costs $ 1,437 $ 1,637
Fixed maturities discount 9,816 8,745
Unrealized appreciation on investments 72,979 82,352
Other 267 417
----------- ----------
84,499 93,151
--------- --------
Net deferred tax liability $ 43,445 $ 62,325
======== ========
</TABLE>
(c)At December 31, 1996, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,879,000 of "Policyholders'
Surplus" as defined under the Code. Under provisions of the Code,
"Policyholders' Surplus" has not been currently taxed but would be taxed
at current rates if distributed to the Parent. There is no present
intention to make cash distributions from "Policyholders' Surplus" and
accordingly, no provision has been made for taxes on this amount.
(d)Income taxes paid in 1996, 1995, and 1994 amounted to $25,353,000,
$19,056,000, and $13,537,000, respectively.
F-17
<PAGE>
6. Commitments and Contingent Liabilities
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
7. Fair Value of Financial Instruments
(a)Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments may
or may not be recognized in the balance sheet. In the measurement of the
fair value of certain of the financial instruments, quoted market prices
were not available and other valuation techniques were utilized. These
derived fair value estimates are significantly affected by the assumptions
used. FASB 107 excludes certain financial instruments, including those
related to insurance contracts.
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair value.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair values of policy loans were not calculated as the Company
believes it would have to expend excessive costs for the benefits derived.
Therefore, the fair value of policy loans was estimated at carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair values of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
F-18
<PAGE>
7. Fair Value of Financial Instruments - (continued)
(b) The fair value and carrying amounts of financial instruments
is as follows (in thousands):
<TABLE>
<CAPTION>
1996
FAIR CARRYING
VALUE AMOUNT
-------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments $ 62,059 $ 62,059
Fixed maturities 4,636,022 4,636,022
Equity securities 33,689 33,689
Mortgage and policy loans 533,981 524,533
Interest rate cap 226 283
Policyholders' funds on deposit $3,366,450 $3,308,208
</TABLE>
<TABLE>
<CAPTION>
1995
FAIR CARRYING
VALUE AMOUNT
-------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments $ 105,153 $ 105,153
Fixed maturities 4,434,329 4,434,329
Equity securities 28,935 28,935
Mortgage and policy loans 489,768 459,691
Interest rate cap 433 510
Policyholders' funds on deposit $3,125,730 $3,060,581
</TABLE>
8. Stockholders' Equity
(a)The Company may not distribute dividends to the Parent without prior
approval of regulatory agencies. Generally, this limits the payment of
such dividends to an amount which, in the opinion of the regulatory
agencies, is warranted by the financial condition of the Company. During
1996, the Company paid a $50,000,000 dividend to American International
Group, Inc., the parent.
(b)The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $254,169,000 at December 31, 1996 and
$257,910,000 at December 31, 1995. Statutory net income amounted to
$48,474,000, $49,059,000, and $21,226,000 for 1996, 1995 and 1994,
respectively.
F-19
<PAGE>
9. Employee Benefits
(a)The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and completed
twelve months of continuous service are eligible to participate in this
plan. An employee with 5 or more years of service is entitled to pension
benefits beginning at normal retirement age 65. Benefits are based upon a
percentage of average final compensation multiplied by years of credited
service limited to 44 years of credited service. Prior to January 1, 1996
the average final compensation is subject to certain limitations. Annual
funding requirements are determined based on the "projected unit credit"
cost method which attributes a pro rata portion of the total projected
benefit payable at normal retirement to each year of credited service.
Pension expense for current service costs, retirement and termination
benefits for the years ended December 31, 1996, 1995 and 1994 were
approximately $241,000, $225,000 and $190,000, respectively. The Parent's
plans do not separately identify projected benefit obligations and plan
assets attributable to employees of participating affiliates. The
projected benefit obligations exceeded the plan assets at December 31,
1996 by $42,149,000.
(b)The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which during the two years ended December 31, 1994,
provided for salary reduction contributions by employees and matching
contributions by the Parent up to 2 percent of annual salary. Commencing
January 1, 1995, the 401(k) plan provided for matching contributions by
the Parent of up to 6 percent of annual salary depending on the employee's
years of service.
(c)On April 1, 1985, the Parent terminated and replaced its then existing
U.S. pension plan, a contributory qualified defined benefit plan, with the
current non-contributory qualified defined benefit plan. Settlement of the
obligations of the prior plan was accomplished through the purchase of
annuities from the Company for accrued benefits as of the date of
termination. Future policy benefits reserves in the accompanying balance
sheet that relate to these annuity contracts are $73,866,000 at December
31, 1996 and $73,171,000 at December 31, 1995.
(d)In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
(e)The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provide for eligible employees
to receive privileges to purchase AIG common stock at a price equal to 85%
of the fair market value on the date of grant of the purchase privilege.
The Parent has not recognized compensation costs for either plan. The
effect of the compensation costs, as determined consistent with
FASB 123, was not computed on a subsidiary basis, but rather on a
consolidated basis for all subsidiaries of the Parent and therefore are
not presented herein.
F-20
<PAGE>
10. Leases
(a)The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1996, the
future minimum lease payments under operating leases were as follows:
<TABLE>
<CAPTION>
Year Payments
<S> <C>
1997 $ 1,035
1998 894
1999 396
2000 220
2001 139
Remaining years after 2001 -
---------
Total $2,684
------
------
</TABLE>
Rent expense approximated $866,000, $661,000 and $801,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
(b)Sublease Income - The Company does not participate in sublease agreements.
11. Reinsurance
(a)The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term treaties.
Accident and health insurance risks are reinsured primarily under
coinsurance, excess of loss and quota share treaties. Amounts recoverable
from reinsurers are estimated in a manner consistent with the assumptions
used for the underlying policy benefits and are presented as a component
of reinsurance assets. A contingent liability exists with respect to
reinsurance ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements. The Company also
reinsures portions of its life and accident and health insurance risks
with affiliated companies (see Note 12).
The effect of all reinsurance contracts, including reinsurance assumed, is
as follows (in thousands, except percentages):
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1996 ASSUMED
GROSS CEDED ASSUMED NET TO NET
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,776,324 $638,583 $ 3,282 $4,141,023 0.1%
========== ======== ========== ==========
Premiums:
Life 25,625 3,788 82 21,919 0.4%
Accident and Health 20,553 6,729 22,009 35,833 61.4%
Annuity 92,441 721 - 91,720 -
------------ --------- ---------- ---------- -------
Total Premiums $ 138,619 $11,238 $ 22,091 $149,472 14.8%
=========== ========= ========= ==========
</TABLE>
F-21
<PAGE>
11. Reinsurance - (continued)
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1995 ASSUMED
GROSS CEDED ASSUMED NET TO NET
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,415,460 $711,025 $ 3,574 $3,708,009 0.2%
========== ======== ========== ==========
Premiums:
Life 25,938 3,368 6 22,576 -
Accident and Health 22,136 8,034 20,822 34,924 59.6%
Annuity 27,496 639 - 26,857 -
------------ ----------- -------- --------
Total Premiums $ 75,570 $ 12,041 $ 20,828 $ 84,357 24.7%
============ ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1994 ASSUMED
GROSS CEDED ASSUMED NET TO NET
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,241,039 $512,028 $ 3,980 $3,732,991 0.1%
===============================================
Premiums:
Life 26,345 3,677 13 22,681 0.1%
Accident and Health 23,622 9,520 20,612 34,714 59.4%
Annuity 14,892 461 - 14,431 -
--------- ---------- --------------------------
Total Premiums $ 64,859 $ 13,658 $ 20,625 $ 71,826 28.7%
=========== ====================== ============
</TABLE>
(b) The maximum amount retained on any one life by the Company is $1,000,000.
(c)Reinsurance recoveries, which reduced death and other benefits,
approximated $7,176,000, $7,667,000 and $6,720,000 respectively, for each
of the years ended December 31, 1996, 1995 and 1994.
The Company's reinsurance arrangements do not relieve it from its direct
obligation to its insureds.
12. Transactions with Related Parties
(a)The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance risks.
Premium income and commission ceded to affiliates amounted to $857,000 and
$(2,000), respectively, for the year ended December 31, 1996. Premium
income and commission ceded for 1995 amounted to $800,000 and $(3,000),
respectively. Premium income and commission ceded for 1994 amounted to
$574,000 and $(3,000), respectively. Premium income and ceding commission
expense assumed from affiliates aggregated $20,764,000 and $(120,000),
respectively, for 1996, compared to $19,679,000 and $(141,000),
respectively, for 1995, and $19,331,000 and $98,000, respectively, for
1994.
(b)The Company provides life insurance coverage to employees of the Parent
and its domestic subsidiaries in connection with the Parent's employee
benefit plans. The statement of income includes $5,142,000 in premiums
relating to this business for 1996, $4,080,000 for 1995, and $3,952,000
for 1994.
F-22
<PAGE>
12. Transactions with Related Parties - (continued)
(c)The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional cost
allocation basis which management believes to be reasonable. For the years
ended December 31, 1996, 1995 and 1994, the Company was charged
$24,204,000, $19,148,000, and $17,401,000, respectively, for expenses
attributed to the Company but incurred by affiliates. During the same
period, the Company received reimbursements from affiliates aggregating
$21,198,000, $20,920,000 and $19,505,000, respectively, for costs incurred
by the Company but attributable to affiliates.
(d)During 1995, the Company sold a mortgage loan to AIG Real Estate
Investment and Management Company for the aggregate unpaid principal
balance of $5,000,000.
<PAGE>
PART A
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK
80 Pine Street
New York, New York 10005
INDIVIDUAL SINGLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
The Individual Single Purchase Payment Deferred Variable Annuity Contracts
(the "Contracts") described in this Prospectus provide for accumulation of
Contract Values and payment of monthly annuity payments. The Contracts may be
used by individuals in retirement plans which do not qualify for federal tax
advantages ("Non-Qualified Contracts") or in connection with retirement plans
which may qualify as Individual Retirement Annuities ("IRA") under Section 408
of the Internal Revenue Code of 1986, as amended (the "Code") or Section 403(b)
of the Code ("403(b) Plan"). The Contracts will not be available in connection
with retirement plans designed by American International Life Assurance Company
of New York (the "Company") which qualify for the federal tax advantages
available under Sections 401and 457 of the Code. Purchasers intending to use the
Contracts in connection with an IRA or a 403(b) Plan should seek competent tax
advice.
Purchase payments for the Contracts will be allocated to a segregated
investment account of the Company which account has been designated Variable
Account A (the "Variable Account"). The Variable Account invests in shares of
Alliance Variable Products Series Fund, Inc. (the "Fund"). The Fund has made
available the following portfolios: Money Market Portfolio; Short-Term
Multi-Market Portfolio; Growth Portfolio; Growth and Income Portfolio;
International Portfolio; U.S. Government/High Grade Securities Portfolio; North
American Government Income Portfolio; Global Dollar Government Portfolio;
Utility Income Portfolio; Global Bond Portfolio; Premier Growth Portfolio; Total
Return Portfolio; Conservative Investors Portfolio; Growth Investors Portfolio;
Technology Portfolio; Quasar Portfolio ; Real Estate Investment Portfolio and
Worldwide Privatization Portfolio. (See "Alliance Variable Products Series Fund,
Inc." on Page __.) The Fund consists of other Portfolios which are not currently
available for use by Variable Account A
This Prospectus concisely sets forth the information a prospective investor
ought to know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information" which is available at no
charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference. The
Table of Contents of the Statement of Additional Information can be found on
page of this Prospectus. For the Statement of Additional Information dated May
1, 1997, call or write American International Life Assurance Company of New
York; Attention: Variable Products, 80 Pine Street, New York, New York, 10005,
1-800-340-2765.
INQUIRIES: Contract Owner inquiries can be made by calling the service
office at 1-800-255-8402.
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.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
Date of Prospectus: May 1, 1997
2
<PAGE>
<TABLE>
<CAPTION>
TABLE CONTENTS
PAGE
<S> <C>
Definitions..................................................
Highlights...................................................
Summary of Expenses..........................................
Condensed Financial Information..............................
Calculation of Performance
Financial Data...................
The Company.......................................
The Variable Account..........................................
The Fund .........................
Charges and Deductions
Administration of the Contracts
Rights under the Contracts.....................................
Annuity Period................
Death Benefit.....................................
Purchasing Contract.........................................
Withdrawals.................................................
Taxes..........................................................
Table of Contents of the Statement of Additional Information
</TABLE>
3
<PAGE>
DEFINITIONS
Accumulation Period - The period prior to the Annuity Date.
Accumulation Unit - Accounting unit of measure used to calculate the Contract
Value prior to the Annuity Date.
Age - Age means age on last birthday.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant is named in the application.
Annuity Date - The date at which annuity payments are to begin.
Annuity Unit - Accounting unit of measure used to calculate variable annuity
payments.
Beneficiary - The person or persons named in the application who will receive
any benefit upon the death of the Contract Owner (or Annuitant as applicable)
prior to the Annuity Date.
Contingent Owner - The Contingent Owner, if any, must be the spouse of the
Contract Owner as named in the application, unless changed.
Contract Anniversary - The same month and date as the Date of Issue in each
subsequent year of the Contract.
Contract Owner - The person designated as Contract Owner in the application,
unless changed.
Contract Value - The value of all amounts accumulated under the Contract.
Contract Year - Any period of twelve (12) months commencing with the Date of
Issue and each Contract Anniversary thereafter.
Date of Issue - The date when the purchase payment was invested.
Deferred Sales Charge - The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within six years of the
Date of Issue.
General Account - All of the Company's assets other than the assets of the
Variable Account and any other separate accounts of the Company.
4
<PAGE>
Office - The Annuity Service Office of the Company: c/o Delaware Valley
Financial Services,Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn,
Pennsylvania 19312-0031.
Premium Year - Any period of 12 months commencing with the date a Purchase
Payment is made and ending on the same date in each succedding 12 month period
thereafter.
Valuation Date - Each day that the New York Stock Exchange is open for trading.
Valuation Period - The period commencing as of the close of the New York Stock
Exchange (presently 4 P.M., Eastern Standard Time EST ) on each Valuation Date
and ending as of the close of the New York Stock Exchange on the next succeeding
Valuation Date.
Variable Account - A separate investment account of the Company, designated
Variable Account A, into which purchase payments will be allocated.
5
<PAGE>
HIGHLIGHTS
Purchase payments for the Contracts will be allocated to a segregated investment
account of Companywhich account has been designated Variable Account A (the
"Variable Account"). The Variable Account invests in shares of Alliance Variable
Product Series Fund, Inc. the Fund. (See The Fund, on page .)
The Contracts provide that in the event that a Contract Owner withdraws all or a
portion of the Contract Value within six Contract Years there will be assessed a
Deferred Sales Charge. The Deferred Sales Charge is based on a table of charges,
of which the maximum charge is currently 6% of the Contract Value subject to a
maximum of 8.5% of the purchase payment. (See "Charges and Deductions -
Deduction for Deferred Sales Charge" on page
.)
Any premium or other taxes levied by any governmental entity with respect to the
Contracts will be charged against the purchase payment or the Contract Value.
Premium taxes currently imposed by certain states on the Contracts range from 0%
to 3.5%. (See "Charges and Deductions - Deduction for State Premium Taxes" on
page .)
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any income taxes. (See "Charges
and Deductions - Deduction for Income Taxes" on page .)
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. (See "Charges and Deductions - Deduction for
Mortality and Expense Risk Charge" on page .)
The Company deducts an annual Administrative Charge, which is currently $30 per
year, from the Contract Value to reimburse it for administrative expenses
relating to maintenance of the Contract and the Variable Account. The Company
may increase this charge to an amount not to exceed $100 per year. (See "Charges
and Deductions - Deduction for Administrative Charge" on page .)
There are deductions and expenses paid out of the assets of the Fund which are
described in the accompanying Prospectus for the Fund. Surrenders and
withdrawals may be taxable and subject to a penalty tax. (See "Taxes" beginning
on page .)
The Contract Owner may return the Contract within ten (10) days (the "Free Look
Period") after it is received by delivering or mailing it to the Company's
Office. If the Contract is purchased in Kansas or South Carolina and replaces
any existing life insurance policy or annuity, the Contract Owner will be given
a twenty (20) day Free Look Period. The return of the Contract by mail will be
effective when the postmark is affixed to a properly addressed and postage
prepaid envelope. The Company will refund the Contract Value. However, if the
laws of a state require that the Company refund, during the Free Look Period, an
amount equal to the purchase payment paid less any withdrawals, the Company will
refund such an amount. In the case of Contracts issued in connection with an IRA
the Company will refund the greater of the purchase payment, less any
withdrawals, or the Contract Value.
6
<PAGE>
SUMMARY OF EXPENSES
Owner Transaction Expenses
<TABLE>
<CAPTION>
All Sub-Accounts
<S> <C>
Sales Load Imposed on Purchases None
</TABLE>
Deferred Sales Charge (as a percentage of amount surrendered):
<TABLE>
<CAPTION>
Single Premium Contract
<S> <C>
Contract Year 1 6%
Contract Year 2 5%
Contract Year 3 4%
Contract Year 4 3%
Contract Year 5 2%
Contract Year 6 1%
Contract Year 7 and thereafter
None
Exchange Fee Currently:
First 12 Per Contract Year None
Thereafter $ 10
Annual Contract Fee $ 30
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Account Fees and Expenses 0.15%
Total Separate Account Annual Expenses 1.40%
</TABLE>
7
<PAGE>
Annual Fund Expenses Net of Any Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Fee Expenses Expenses
<S> <C> <C> <C>
Alliance Portfolios
Alliance Money Market 0.50% 0.19% 0.69%
Alliance Short-Term Multi-Market 0.00% 0.95% 0.95%
Alliance Growth 0.74% 0.19% 0.95%
Alliance Growth and Income 0.63% 0.19% 0.82
Alliance International 0.04% 0.91% 0.95%
Alliance U.S. Government
/High Grade Securities 0.54% 0.36% 0.92%
Alliance North American Government Income 0.19% 0.95% 0.95%
Alliance Global Dollar Government 0.00% 0.95% 0.95%
Alliance Utility Income 0.19% 0.76% 0.95%
Alliance Global Bond 0.44% 0.50% 0.94%
Alliance Premier Growth 0.72% 0.23% 0.95%
Alliance Total Return 0.46% 0.49% 0.95%
Alliance Conservative Investors 0.30% 0.65% 0.95%
Alliance Growth Investors 0.74% 0.19% 0.93%
Alliance Worldwide Privatization 0.10% 0.85% 0.95%
Alliance Technology* 0.33% 0.52% 0.95%
Alliance Quasar 0.00% 0.95% 0.95%
Alliance Real Estate Investment** 0.00% 0.95% 0.95%
</TABLE>
* The expense percentages for the Technology and Quasar Portfolio have been
annualized for both portfolios have not been in existence for a full year.
** Expense percentages for the Real Estate Investment Portfolio has been
estimated.
"Other Expenses" are based upon the expenses outlined under the section
entitled "Management of the Fund" in the Fund Prospectus.
*Fund operating expenses for each Series before reimbursement by the
Fund's investment adviser were estimated to be .69% for the Money Market; 2.09 %
for the Short-Term Multi-Market; .93% for the Growth; 1.91% for International;
.98% for the U.S. Government/High Grade Securities; 1.15% for the Global Bond;
1.41% for the North American Government Income; 1.97% for the Global Dollar
Government; 1.51% for the Utility Income; 1.23% for the Premier Growth; 1.12%
for the Total Return;1.40 % for the Conservative Investors; 1.85% for the Growth
Investors; 1.85% for the Worldwide Privatization; 4.44% for the Quasar ; 6.00%
for the Real Estate Investment ; and 1.62 % for the Technology Portfolio, of
the average daily net assets.
In the event that an Owner withdraws all or a portion of the Contract
Value in excess of the Free Withdrawal Amount for the first withdrawal in a
Contract Year, or makes subsequent withdrawals in a Contract Year, a Deferred
Sales Charge may be imposed. The Free Withdrawal Amount is equal to 10% of the
Purchase Payment paid, less any prior withdrawals at the time of withdrawal.
(See "Charges and Deductions - Deduction for Deferred Sales Charge" on page .)
8
<PAGE>
Expenses on a hypothetical $1,000 policy, assuming 5% growth :
<TABLE>
<CAPTION>
If you surrender
Portfolio 1 Year 3 Years 5 Years 10 Years
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market 77 106 136 248
Short Term Multi-Market 80 114 149 275
Growth 80 113 148 273
Growth and Income 79 110 143 262
International 80 114 149 275
A U.S. Gov't/High Grade Securities 80 113 148 272
North American Gov't Income 80 114 149 275
Global Dollar Government 80 114 149 275
Utility Income 80 114 149 275
Global Bond 80 114 149 274
Premier Growth 80 114 149 275
Total Return 80 114 149 275
Conservative Investors 80 114 149 275
Growth Investors 80 114 149 275
Worldwide Privatization 80 114 149 275
Technology 80 114 149 275
Quasar 80 114 149 275
Real Estate Investment 80 114 149 275
</TABLE>
9
<PAGE>
Expenses on a hypothetical $1,000 policy, assuming 5% growth :
<TABLE>
<CAPTION>
If you annuitize or
if you do not surrender
Portfolio 1 Year 3 Years 5 Years 10 Years
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market 22 67 115 248
Short Term Multi-Market 24 75 129 275
Growth 24 75 129 275
Growth and Income 23 71 122 262
International 24 75 129 275
U.S. Gov't/High Grade Securities 24 75 129 275
North American Gov't Income 24 75 129 275
Global Dollar Government 24 75 129 275
Utility Income 24 75 129 275
Global Bond 24 75 129 275
Premier Growth 24 75 129 275
Total Return 24 75 129 275
Conservative Investors 24 75 129 275
Growth Investors 24 75 129 275
Worldwide Privatization 24 75 129 275
Technology 24 75 129 275
Quasar 24 75 129 275
Real Estate Investment 24 75 129 275
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
10
<PAGE>
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
ALLIANCE PORTFOLIOS 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
MONEY MARKET
Accumulation Unit Value
Beginning of Period 10.64 10.27 10.07 10.00 N/A
End of Period 10.99 10.64 10.27 10.07 N/A
Accum Units o/s @ end of period 890,464.95 551,555.84 206,034.73 1,590.74 N/A
SHORT-TERM MULTI-MARKET
Accumulation Unit Value
Beginning of Period 10.03 9.51 10.31 9.79 10.00
End of Period 10.83 10.03 9.51 10.31 9.79
Accum Units o/s @ end of period 99,089.93 81,425.05 15,915.04 6,843.27 8,369.93
GROWTH
Accumulation Unit Value
Beginning of Period 13.99 10.48 11.13 10.00 10.00
End of Period 17.73 13.99 10.48 11.13 10.00
Accum Units o/s @ end of period 1,541,465.58 777,108.88 56,104.84 35,271.53 2,081.43
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE PORTFOLIOS 1996 1995 1994 1993 1992
---- ------ ---- ------- ------
<S> <C> <C> <C> <C> <C>
GROWTH & INCOME
Accumulation Unit Value
Beginning of Period 15.52 11.57 11.76 10.66 10.00
End of Period 18.99 15.52 11.57 11.76 10.66
Accum Units o/s @ end of period 1,324,216.31 502,667.80 179,245.69 37,573.04 7,731.36
INTERNATIONAL
Accumulation Unit Value
Beginning of Period 12.22 11.27 10.69 10.00 N/A
End of Period 12.92 12.22 11.27 10.69 N/A
Accum Units o/s @ end of period 525,023.12 228,254.81 122,616.95 22,441.08 N/A
U.S. GOVERNMENT HIGH GRADE
Accumulation Unit Value
Beginning of Period 11.38 9.66 10.17 10.00 N/A
End of Period 11.50 11.38 9.66 10.17 N/A
Accum Units o/s @ end of period 552,183.99 390,483.21 75,881.31 7,608.84 N/A
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE PORTFOLIOS 1996 1995 1994 1993 1992
---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
NORTH AMERICAN
GOVERNMENT INCOME
Accumulation Unit Value
Beginning of Period 10.55 8.71 10.00 N/A N/A
End of Period 12.35 10.55 8.71 N/A N/A
Accum Units o/s @ end of period 279,368.63 95,031.46 89,164.68 N/A N/A
GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period 11.81 9.73 10.00 N/A N/A
End of Period 14.55 11.81 9.73 N/A N/A
Accum Units o/s @ end of period 76,451.58 16,171.63 5,958.1 N/A N/A
UTILITY INCOME
Accumulation Unit Value
Beginning of Period 11.64 9.71 10.00 N/A N/A
End of Period 12.38 11.64 9.71 N/A N/A
Accum Units o/s @ end of period 305,608.09 103,042.86 13,690.19 N/A N/A
GLOBAL BOND
Accumulation Unit Value
Beginning of Period 12.24 9.94 10.61 10.00 N/A
End of Period 12.82 12.24 9.94 10.61 N/A
Accum Units o/s @ end of period 145,722.74 76,604.28 27,806.30 5,589.55 N/A
PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 15.25 10.66 10.00 N/A N/A
End of Period 18.45 15.25 10.66 N/A N/A
Accum Units o/s @ end of period 1,026,432.81 420,662.68 108,111.20 N/A N/A
TOTAL RETURN
Accumulation Unit Value
Beginning of Period 11.90 9.75 10.00 N/A N/A
End of Period 13.52 11.90 9.75 N/A N/A
Accum Units o/s @ end of period 455,709.19 121,094.82 4,871.12 N/A N/A
CONSERVATIVE INVESTORS
Accumulation Unit Value
Beginning of Period 11.59 10.03 10.00 N/A N/A
End of Period 11.86 11.59 10.03 N/A N/A
Accum Units o/s @ end of period 620,774.71 164,400.64 6,977.55 N/A N/A
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE PORTFOLIOS 1996 1995 1994 1993 1992
------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GROWTH INVESTORS
Accumulation Unit Value
Beginning of Period 11.70 9.83 10.00 N/A N/A
End of Period 12.48 11.70 9.83 N/A N/A
Accum Units o/s @ end of period 141,797.07 62,762.43 3,185.25 N/A N/A
WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period 11.01 10.05 10.00 N/A N/A
End of Period 12.86 11.01 10.05 N/A N/A
Accum Units o/s @ end of period 224,339.58 62,769.30 6,357.69 N/A N/A
TECHNOLOGY
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A N/A N/A
End of Period 10.90 N/A N/A N/A N/A
Accum Units o/s @ end of period 431,529.41 N/A N/A N/A N/A
QUASAR
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A N/A N/A
End of Period 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period 179,808.73 N/A N/A N/A N/A
REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period N/A N/A N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A N/A N/A
</TABLE>
14
<PAGE>
*Funds were first invested in the Portfolios as listed below:
<TABLE>
<CAPTION>
<S> <C>
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 1992
Short-Term Multi-Market Portfolio June 25, 1992
Global Bond Portfolio May 10, 1993
Money Market Portfolio May 13,1993
International Portfolio June 1, 1993
U.S. Government/High Yield
Securities Portfolio June 14, 1993
North American Government
Income Portfolio April 8, 1994
Global Dollar
Government Portfolio May 26 , 1994
Utility Income Portfolio June 15, 1994
Conservative Investors Portfolio September 8,1994
Growth Investors Portfolio August 16, 1994
Growth Portfolio August 12, 1994
Total Return Portfolio September 12,1994
Worldwide Privatization Portfolio October 17,1994
Technology Portfolio January22,1996
Quasar Portfolio August 15,1996
Real Estate Investment Portfolio January 7,1997
</TABLE>
15
<PAGE>
Calculation Of Performance Data
The Company may, from time to time, advertise certain performance
related information concerning one or more of the Sub-accounts, including
information as to total return and yield. Performance information about a
Sub-account is based on the Sub-account's past performance only and is not
intended as an indication of future performance.
When the Company advertises the average annual total return of a
Sub-account, it will usually be calculated for one, five, and ten year
periods or, where a Sub-account has been in existence for a period less
than one, five or ten years, for such lesser period. Average annual total
return is measured by comparing the value of the investment in a
Sub-account at the beginning of the relevant period to the value of the
investment at the end of the period (assuming the deduction of any
Deferred Sales Charge which would be payable if the account were redeemed
at the end of the period) and calculating the average annual compounded
rate of return necessary to produce the value of the investment at the end
of the period. The Company may simultaneously present returns that do not
assume a surrender and, therefore, do not deduct the Deferred Sales
Charge.
When the Company advertises the yield of a Sub-account it will be
calculated based upon a 30-day period ended on the date of the most recent
balance sheet of the Company included in its registration statement. The
yield is determined by dividing the net investment income per Accumulation
Unit earned during the period by the maximum offering price per unit on
the last day of the period.
When the Company advertises the performance of the Money Market
Sub-account it may advertise in addition to the total return either the
yield or the effective yield. The yield of the Money Market Sub-account
refers to the income generated by an investment in that Sub-account over a
7-day period. The income is then annualized (i.e., the amount of income
generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the
investment). The effective yield is calculated similarly but when
annualized the income earned by an investment in the Money Market
Sub-account is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all
contract charges: sales charges, mortality and expense risk charges, and
the administrative charge, and is therefore lower than the total return at
the Fund level, which has no comparable charges. Likewise, yield and
effective yield at the Variable Account level take into account all
recurring charges (except sales charges), and are therefore lower than the
yield and effective yield at the Fund level, which has no comparable
charges.
Performance information for a Sub-account may be compared to: (i)
the Standard & Poor's 500 Stock Index, Dow Jones Industrial Average,
Donoghue Money Market Institutional Averages, indices measuring corporate
bond and government security prices as prepared by Shearson Lehman Hutton
and Salomon Brothers or other indices measuring performance of a pertinent
group of securities so that investors may compare a Sub-account's results
with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks
mutual funds and other investment companies by overall performance,
investment objectives, and assets, or tracked by other ratings services,
companies, publications, or persons who rank separate accounts or other
investment products on overall performance or other criteria; (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in the Contract; and (iv) indices or averages of
alternative financial products available to prospective investors,
including the Bank Rate Monitor which monitors average returns of various
bank instruments.
16
<PAGE>
Financial Data
Financial Statements of the Company may be found in the
Statement of Additional Information. No financial statements for the
Variable Account have been provided in the Statement of Additional
Information because, as of the date of this Prospectus, the Subaccounts
had not yet commenced operations with respect to the underlying portfolios
of the Funds and consequently had no assets invested in such portfolios.
The Company
Rating Information
The Company is a stock life insurance company which was organized
under the laws of the State of New York in 1962. The Company provides a
full range of life insurance and annuity plans. The Company is a
subsidiary of American International Group, Inc., which serves as the
holding company for a number of companies engaged in the international
insurance business, both life and general, in over 130 countries and
jurisdictions around the world.
THE VARIABLE ACCOUNT
The Board of Directors of the Company adopted a resolution to
establish a segregated asset account pursuant to New York insurance law on
June 5, 1986. The Company has caused the Variable Account to be registered
with the Securities and Exchange Commission as a unit investment trust
pursuant to the provisions of the Investment Company Act of 1940.
The assets of the Variable Account are the property of the Company.
However, the assets of the Variable Account, equal to the reserves and
other contract liabilities with respect to the Variable Account, are not
chargeable with liabilities arising out of any other business the Company
may conduct. Income, gains and losses, whether or not realized, are, in
accordance with the Contracts, credited to or charged against the Variable
Account without regard to other income, gains or losses of the Company.
The Company's obligations arising under the Contracts are general
corporate obligations of the Company. The Variable Account may be subject
to liabilities arising from Sub-accounts whose assets are attributable to
other variable annuity contracts offered by Variable Account A which are
not described in this Prospectus.
The Variable Account is divided into Sub-accounts, with the assets
of each Sub-account invested in one Portfolio of the Fund. The Company
may, from time to time, add additional portfolios to the Fund, and, when
appropriate, additional mutual funds to act as the funding vehicles for
the Contracts.
17
<PAGE>
THE FUND
Alliance Variable Products Series Fund, Inc., will act as the
funding vehicle for the Contracts offered hereby. The Fund is managed by
Alliance Capital Management L.P., (the "Investment Manager"). The Fund is
an open-end, diversified management investment company, which is intended
to meet differing investment objectives. The Fund has made available the
following Portfolios: Money Market Portfolio; Short-Term Multi-Market
Portfolio; Growth Portfolio; Growth and Income Portfolio; International
Portfolio; U.S. Government/High Grade Securities Portfolio; Global Bond
Portfolio; North American Government Income Portfolio; Global Dollar
Government Portfolio; Utility Income Portfolio; Premier Growth Portfolio;
Total Return Portfolio; Conservative Investors Portfolio; Growth Investors
Portfolio; Worldwide Privatization Portfolio; Quasar Portfolio; Real
Estate Investment Portfolio; and Technology Portfolio. The fund includes
other portfolios which are not available for use by the Variable Account.
The Investment Manager has entered into a sub-advisory agreement with AIG
Global Investors, Inc. (the "Sub-Adviser"), a subsidiary of American
International Group, Inc. and an affiliate of the Company, to provide
investment advice for the Global Bond Portfolio. A summary of investment
objectives is contained in the description of the Fund below. More
detailed information including the investment advisory fee and other
charges assessed by the Fund, may be found in the current Prospectus for
the Fund which contains a discussion of the risks involved in investing in
the Fund. The Prospectus for the Fund is included with this Prospectus.
Additional Prospectuses and the Statement of Additional Information can be
obtained by calling the number on the cover page of this Prospectus.
Please read both Prospectuses carefully before investing.
18
<PAGE>
The investment objectives of the are as follows:
Money Market Portfolio
This Portfolio seeks safety of principal, maintenance of liquidity
and maximum current income by investing in the broadly diversified portfolio
of money market securities.
Short-Term Multi-Market Portfolio
This Portfolio seeks the highest level of current income, consistent
with what the Investment Manager considers to be prudent investment risk
that is available from a portfolio of high-quality debt securities having
remaining maturities of not more than three years.
Growth Portfolio
This Portfolio seeks growth of capital rather than current income.
In pursuing its investment objective, the Growth Portfolio will employ
aggressive investment policies. Since investments will be made based upon
their potential for capital appreciation, current income will be
incidental to the objective of capital growth. Because of the risks
involved in any investment, the selection of securities on the basis of
their appreciation possibilities cannot ensure against possible loss in
value. Moreover, to the extent the Portfolio seeks to achieve its
objective through such aggressive investment policies, the risk of loss
increases. The Portfolio is therefore not intended for investors whose
principal objective is assured income or preservation of capital.
Growth and Income Portfolio
This Portfolio seeks to balance the objectives of reasonable current
income and reasonable opportunities for appreciation through investments
primarily in dividend-paying common stocks of good quality.
International Portfolio
This Portfolio seeks to obtain a total return on its assets from
long-term growth of capital and from income principally through a broad
portfolio of marketable securities of established non-United States
companies (or United States companies having their principal activities
and interests outside the United States), companies participating in
foreign economies with prospects for growth, and foreign government
securities.
North American Government Income Portfolio
This Portfolio seeks the highest level of current income, consistent
with what the adviser considers to be prudent investment risk, that is
available from a portfolio of debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico, their political
subdivisions (including Canadian Provinces but excluding the States of the
United States), agencies, instrumentalities or authorities. The Portfolio
seeks high current yields by investing in government securities
denominated in local currency and U.S. Dollars. Normally, the Portfolio
expects to maintain at least 25% of its assets in securities denominated
in the U.S.
Dollar.
Global Dollar Government Portfolio
This portfolio seeks a high level of current income through
investing substantially all of its assets in U.S. and non-U.S. fixed
income securities denominated only in U.S. Dollars. As a secondary
objective, the Portfolio seeks capital appreciation. Substantially all of
the Portfolio's assets will be invested in high yield, high risk
securities that are low-rated (i.e., below investment grade), or of
comparable quality and unrated, and that are considered to be
predominately speculative as regards the issuer's capacity to pay interest
and repay principal.
Utility Income Portfolio
This Portfolio seeks current income and capital appreciation by
investing primarily in the equity and fixed-income securities of companies
int he "utilities industry." The Portfolio's investment objective and
policies are designed to take advantage of the characteristics and
historical performance of securities of utilities companies. The utilities
industry consists of companies engaged in the manufacture, production,
generation, provision, transmission, sale and distribution of gas,
electric energy, and communications equipment and services, and in the
provision of other utility or utility-related goods and services.
19
<PAGE>
U.S. Government/High Grade Securities Portfolio
This Portfolio seeks a high level of current income consistent with
preservation of capital by investing principally in a portfolio of U.S.
Government Securities, and other high grade debt securities.
Global Bond Portfolio
This Portfolio seeks to provide the highest level of current income
consistent with what the Fund's Adviser and Sub-Adviser consider to be
prudent investment risk that is available from a multi-currency portfolio
of high quality debt securities of varying maturities.
Premier Growth Portfolio
This Portfolio seeks growth of capital rather than current income.
In pursuing its investment objective, the Premier Growth Portfolio will
employ aggressive investment policies. Since investments will be made
based on their potential for capital appreciation, current income will be
incidental to the objective of capital growth. The Portfolio is not
intended for investors whose principal objective is assured income or
preservation of capital.
Total Return Portfolio
This Portfolio seeks to achieve a high return through a combination
of current income and capital appreciation by investing in a diversified
portfolio of common and preferred stocks, senior corporate debt
securities, and U.S. Government and Agency obligations, bonds and senior
debt securities.
Conservative Investors Portfolio
This Portfolio seeks the highest total return without, in the view
of the Fund's Adviser, undue risk to principal by investing in a
diversified mix of publicly traded equity and fixed-income securities.
Growth Investors Portfolio
This Portfolio seeks the highest total return consistent with what
the Fund's Adviser considers to be reasonable risk by investing in a
diversified mix of publicly traded equity and fixed-income securities.
Worldwide Privatization Portfolio
This Portfolio seeks long-term capital appreciation by investing
principally in equity securities issued by enterprises that are
undergoing, or have undergone, privatization. The balance of the
Portfolio's investment portfolio will include equity securities of
companies that are believed by the Fund's Adviser to be beneficiaries of
the privatization process.
Technology Portfolio
This Portfolio seeks growth of capital through investment in
companies expected to benefit from advances in technology. The Technology
Portfolio invests principally in a diversified portfolio of securities of
companies which use technology extensively in the development of new or
improved products or processes.
Quasar Portfolio
This Portfolio seeks growth of capital by pursuiing aggressibe
investment policies. The Portfolio invests principally in a diversified
portfolio of equity securities of any company and industry and in any type
of security which is believed to offer possibilities for capital
appreciation.
Real Estate Investment Portfolio
This Portfolio seeks a total return on its assets from long-term
growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVES OF THE
PORTFOLIOS WILL BE MET.
20
<PAGE>
Voting Rights
The Fund does not hold regular meetings of shareholders. The
Directors of the Fund may call Special Meetings of Shareholders for action
by shareholder vote as may be required by the Investment Company Act of
1940 or the Articles of Incorporation of the Fund. In accordance with its
view of present applicable law, the Company will vote the shares of the
Fund held in the Variable Account at special meetings of the shareholders
of the Fund in accordance with instructions received from persons having
the voting interest in the Variable Account. The Company will vote shares
for which it has not received instructions from Contract Owners and those
shares which it owns in the same proportion as it votes shares for which
it has received instructions from Contract Owners.
The number of shares which a person has a right to vote will be
determined as of a date to be chosen by the Company not more than sixty
(60) days prior to the meeting of the Fund. Voting instructions will be
solicited by written communication at least fourteen (14) days prior to
such meeting. The person having such voting rights will be the Contract
Owner before the Annuity Date or the death of the Annuitant (or Contract
Owner, as applicable), and thereafter, the payee entitled to receive
payments under the Contract. During the Annuity Period, voting rights
attributable to a Contract will generally decrease as the Contract Value
attributable to an Annuitant decreases.
The voting rights relate only to amounts invested in the Variable
Account. There are no voting rights with respect to funds invested in the
General Account.
Shares of the Fund are sold only to separate accounts of life
insurance companies. The shares of the Fund will be sold to separate
accounts of the Company, its affiliate, AIG Life Insurance Company and
unaffiliated life insurance companies to fund variable annuity contracts
and/or variable life insurance policies. It is conceivable that, in the
future, it may be disadvantageous for variable life insurance separate
accounts and variable annuity separate accounts to invest in the Fund
simultaneously. Although neither the Company nor the Fund currently
foresees any such disadvantages, either to variable life insurance
policyowners or to variable annuity Contract Owners, the Fund's Board of
Directors will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what
action, if any, should be taken in response thereto. If a material
irreconcilable conflict were to occur, the relevant participating life
insurance companies will under their agreements governing participation in
the Fund take whatever steps are necessary, at their expense, to remedy or
eliminate the irreconcilable material conflict. If such a conflict were to
occur, one or more insurance company separate accounts might withdraw its
investments in the Fund. This might force the Fund to sell securities at
disadvantageous prices.
Substitution Of Shares
If the shares of the Fund (or any Portfolio within the Fund) should
no longer be available for investment by the Variable Account or if, in
the judgment of the Company, further investment in such shares should
become inappropriate in view of the purpose of the Contracts, the Company
may substitute shares of another mutual fund (or Portfolio within the
Fund) for Fund shares already purchased or to be purchased in the future
by purchase payments under the Contracts. No substitution of securities
may take place without any required prior approval of the Securities and
Exchange Commission and under such requirements as it may impose.
21
<PAGE>
Allocation Of Purchase Payment to Sub-accounts
The purchase payment is allocated to the Sub-account(s) selected by
the Contract Owner in the application except that in those states which
require the Company to pay a premium tax upon receipt of a purchase
payment the Company will deduct the premium tax prior to allocating the
purchase payment to such Sub-account(s). The selection must specify a
percentage for each Sub-account that is a whole number, and must be either
0% or a number equal to or greater than 10%. At the time of the allocation
the purchase payment is divided by the value of the Accumulation Unit for
the particular Sub-account for the Valuation Period during which such
allocation occurs to determine the number of Accumulation Units
attributable to the purchase payment.
The purchase payment under an IRA plan will be allocated to the
Money Market Sub-account until the expiration of fifteen (15) days from
the day the Contract is mailed from the Company's office. Thereafter, the
Contract Value shall be reallocated in accordance with instructions
specified in the application.
22
<PAGE>
Transfer Of Contract Values
Before the Annuity Date, the Contract Owner may transfer, by written
request or telephone authorization, Contract Values from one Sub-account
to another Sub-account, subject to the following conditions:
(a) the amount transferred from any Sub-account must be at least
$1,000 (or the entire Sub-account value, if less);
(b) if less than $1,000 would remain in the Sub-account after the
transfer, the Company will transfer the entire amount in the
Sub-account;
(c) the Company may reject any more than twelve (12) transfer
requests per Contract Year; and
(d) the Company will deduct any transfer charge assessed on the
transaction. The Company is currently not assessing a transfer
fee for the first twelve (12) transfers per Contract Year. The
Company is assessing a transfer fee of $10 per transfer
thereafter. The Company may increase the transfer fee to an
amount not to exceed $30 per transfer. The transfer fee will be
deducted from either the Sub-account which is the source of the
transfer or from the amount transferred if the entire value in
the Sub-account is transferred.
Transfer by telephone authorization is available to a Contract Owner
only by prior election. A Contract Owner must complete, sign, and file
with the Company a Telephone Transfer Authorization Form for each Contract
owned. The Company will undertake reasonable procedures to confirm that
instructions communicated by telephone are genuine. All calls will be
recorded. All transfers performed by telephone authorization will be
confirmed in writing to the Contract Owner. The Company is not liable for
any loss, cost, or expense for action on telephone instructions which are
believed to be genuine in accordance with these procedures.
Transfer privileges are further explained in the Statement of
Additional Information.
After the Annuity Date, the payee of the annuity payments may
transfer the Contract Value allocated to the Variable Account from one
Sub-account to another Sub-account. However, the Company reserves the
right to refuse any more than one transfer per month. The transfer fee is
the same as before the Annuity Date. This transfer fee will be deducted
from the next annuity payment after the transfer. If following the
transfer, the units remaining in the Sub-account would generate a monthly
payment of less than $100, then the Company may transfer the entire amount
in the Sub-account.
Once the transfer is effected, the Company will recompute the number
of Annuity Units for each Sub-account. The number of Annuity Units for
each Sub-account will remain the same for the remainder of the payment
period unless the payee requests another change.
23
<PAGE>
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the
Variable Account. These charges and deductions are:
Deduction for State Premium Taxes
Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged against the purchase payment or
the Contract Value . Premium taxes currently imposed by certain states on
the Contracts range from 0% to 3.5% of premiums paid. Some states assess
premium taxes at the time purchase payments are made; others assess
premium taxes at the time of annuitization. The Company currently intends
to advance any premium taxes due at the time purchase payments are made
and then deduct premium taxes from the Contract Value at the time annuity
payments begin or upon surrender if the Company is unable to obtain refund
of or otherwise obtain a credit for any excess premium taxes paid. The
Company reserves the right to deduct premium taxes when incurred. Premium
taxes are subject to being changed or amended by state legislatures,
administrative interpretations or judicial acts.
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and
Expense Risk Charge which is equal on an annual basis to 1.25% of the
average daily net asset value of the Variable Account (consisting of
approximately .90% for mortality risks and approximately .35% for expense
risks). The mortality risks assumed by the Company arise from its
contractual obligation to make annuity payments after the Annuity Date for
the life of the Annuitant, to waive the Deferred Sales Charge in the event
of the death of the Annuitant and to provide the death benefit prior to
the Annuity Date. The expense risk assumed by the Company is that the
costs of administering the Contracts and the Variable Account will exceed
the amount received from the Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover
the actual costs, the loss will be borne by the Company. Conversely, if
the amount deducted proves more than sufficient, the excess will be profit
to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company
and cannot be increased.
The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based
on a life contingency. (See "Annuity Period - Annuity Options" on page )
It is possible that in the future the Company may offer additional payment
options which are not based on a life contingency. If this should occur
and if a Contract Owner should elect a payment option not based on a life
contingency, the Mortality and Expense Risk Charge is still deducted but
the Contract Owner receives no benefit from it.
Deduction for Deferred Sales Charge
In the event that a Contract Owner withdraws all or a portion of the
Contract Value in excess of the Free Withdrawal Amount for the first
withdrawal in a Contract Year other than by way of the Systematic
Withdrawal Program, or makes subsequent withdrawals in a Contract Year, a
Deferred Sales Charge may be imposed. The Free Withdrawal Amount is equal
to 10% of the Contract Value at the time of withdrawal.
The Deferred Sales Charge is deducted based upon a percentage of the
Contract Value which includes the purchase payment and earnings. Since
earnings are included it is possible that the actual amount of the
Deferred Sales Charge may increase even though the percentage may go down.
24
<PAGE>
The Deferred Sales Charge will vary in amount depending upon the time
which has elapsed since the Date of Issue. The amount of any withdrawal
which exceeds the Free Withdrawal Amount will be subject to the following
charge:
Applicable Deferred
Contract Year Sales Charge Percentage
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and thereafter 0%
The aggregate Deferred Sales Charges paid with respect to a Contract
shall not exceed 8.5% of the purchase payment for such Contract.
The Deferred Sales Charge is intended to reimburse the Company for
expenses incurred which are related to Contract sales. The Company does
not expect the proceeds from the Deferred Sales Charge to cover all
distribution costs. To the extent such charge is insufficient to cover all
distribution costs, the Company may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense
Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403(b) Plan or IRA. (See
"Taxes - 403(b) Plans" on page .)
Deduction for Administrative Charge
The Company deducts an annual Administrative Charge, which is currently
$30 per year, from the Contract Value to reimburse it for the costs it
incurs relating to maintenance of the Contract and the Variable Account.
The Company may increase this charge to an amount not to exceed $100 per
year. The Administrative Charge is designed to reimburse the Company for
the costs it incurs relating to the maintenance of the Contract and the
Variable Account.
Prior to the Annuity Date, the Administrative Charge is deducted from
the Contract Value on each Contract Anniversary. If the Annuity Date is a
date other than a Contract Anniversary, the Company will also deduct a
pro-rata portion of the Administrative Charge from the Contract Value for
the fraction of the Contract Year preceding the Annuity Date.
This charge is also deducted in full on the date of any total
withdrawal. The charge will be deducted from each Sub-account of the
Variable Account in the proportion that the value of each Sub-account
attributable to the Contract bears to the total Contract Value.
After the Annuity Date, this charge is deducted on a pro-rata basis
from each annuity payment and is guaranteed to remain at the same amount
as at the Annuity Date.
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account
any Federal income taxes resulting from the operation of the Variable
Account. The Company does not currently anticipate incurring any income
taxes. Surrenders and withdrawals may be taxable and subject to a penalty
tax. (See "Taxes" beginning on page .)
Other Expenses
There are deductions from and expenses paid out of the assets of the
Fund which are described in the accompanying Prospectus for the Fund.
25
<PAGE>
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of
the Contracts and the Variable Account, it has retained the services of
Delaware Valley Financial Services, Inc. ("DVFS") pursuant to an
administrative agreement. Such administrative services include issuance of
the Contracts and maintenance of Contract Owner's records. DVFS serves as
the administrator to various insurance companies offering variable
contracts .
RIGHTS UNDER THE CONTRACTS
The Contract Owner has all rights and may receive all benefits under
the Contract. The Contract Owner is named in the application. Ownership
may be changed prior to the Annuity Date through the submission of written
notification of the change to the Company on a form acceptable to the
Company. On and after the Annuity Date, the Annuitant and Contract Owner
shall be one in the same person unless otherwise provided for. In the case
of Contracts issued in connection with an IRA, the Contract Owner must be
the Annuitant.
The Contract Owner's spouse is the only person eligible to be the
Contingent Owner. (See "Death Benefit - Death of Contract Owner" on page
____) Any new choice of Contingent Owner will automatically revoke any
prior choices.
The Contract Owner may, except in the case of a Contract issued in
connection with either an IRA or a 403(b) Plan, assign a Contract at any
time before the Annuity Date and while the Annuitant is alive. A copy of
any assignment must be filed with the Company. The Company is not
responsible for the validity of any assignment. If the Contract is
assigned, the rights of the Contract Owner and those of any revocable
Beneficiary will be subject to the assignment. An assignment will not
affect any payments the Company may make or action it may take before it
is recorded. In as much as an assignment or change of ownership may be a
taxable event, Contract Owners should consult competent tax advisers
should they wish to assign their Contracts.
The Contract may be modified only with the consent of the Contract
Owner, except as may be required by applicable law.
ANNUITY PERIOD
Annuity Benefits
If the Annuitant and Contract Owner are alive on the Annuity Date, the
Company will begin making payments to the Annuitant under the annuity
option or options the Contract Owner has chosen.
The Contract Owner may choose or change an annuity payment option by
making a written request at least thirty (30) days prior to the Annuity
Date.
The amount of the payments will be determined by applying the Contract
Value on the Annuity Date. The amount of the annuity payments will depend
on the age or sex of the payee at the time the settlement contract is
issued. At the Annuity Date the Contract Value in each Sub-account will be
applied to the applicable annuity tables contained in the Contract. The
amount of the Sub-account annuity payments are determined through a
calculation described in the Section captioned "Annuity Provisions" in the
Statement of Additional Information.
Annuity Date
The Annuity Date for the Annuitant is:
(a) the first day of the calendar
month following the later of the
Annuitant's 85th birthday or the
10th Contract Anniversary; or
(b) such earlier date as may be set by
applicable law.
The Contract Owner may designate an earlier date in the application or
may change the Annuity Date by making a written request at least thirty
(30) days prior to the Annuity Date being changed. However, any Annuity
Date must be:
(a) no later than the date defined in (a) above; and
(b) the first day of a calendar month.
In addition, for IRA and 403(b) Plan Contracts, certain provisions
of your retirement plan or the Code may further restrict your choice of an
Annuity Date. (See "Taxes - 403(b) Plans" on page , and "Taxes -
Individual Retirement Annuities" on page .)
Annuity Options
The Contract Owner may choose to receive annuity payments which are
fixed, or which are based on the Variable Account, or a combination of the
two. If the Contract Owner elects annuity payments which are based on the
Variable Account, the amount of the payments will be variable. The
Contract Owner may not transfer Contract Values between the General
Account and the Variable Account after the Annuity Date, but may, subject
to certain conditions, transfer Contract Values from one Sub-account to
another Sub-account. (See "Alliance Variable Products Series Fund, Inc. -
Transfer of Contract Values" on page .)
If the Contract Owner has not made any annuity payment option selection
at the Annuity Date, the Contract Value will be applied to purchase Option
2 fixed basis annuity payments and Option 2 variable basis annuity
payments, in proportion to the amount of Contract Value in the General
Account and the Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will pay an annuity during the
lifetime of the payee.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will pay an annuity during the lifetime of the payee. If, at the death of
the payee, payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee;
(b) the successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate
used to create the annuity factor for this Option; or
(c) the guaranteed period will not in the case of Contracts issued in
connection with an IRA exceed the life expectancy of the Annuitant
at the time the first payment is due.
Option 3: Joint and Last Survivor Income. The Company will pay an
annuity for as long as either the payee or a designated second person is
alive. In the event that the Contract is issued in connection with an IRA,
the payments in this Option will be made only to the Annuitant and the
Annuitant's spouse.
The annuity payment options are more fully explained in the Statement
of Additional Information. The Company may also offer additional options
at its own discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company has the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company has the right to make payments semi-annually or annually.
If fixed annuity payments are selected, the amount of each fixed
payment is determined by multiplying the Contract Value allocated to
purchase fixed annuity payments by the factor shown in the annuity table
specified in the Contract for the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the
value of a fixed number of Annuity Units each month. The actual dollar
amount of variable annuity payments is dependent upon: (i) the Contract
Value at the time of annuitization; (ii) the annuity table specified in
the Contract; (iii) the Annuity Option selected; (iv) the investment
performance of the Sub-account selected; and (v) the pro-rata portion of
the Administrative Charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments
will increase. Conversely, if the actual rate is less than 5%, annuity
payments will decrease.
26
<PAGE>
DEATH BENEFIT
Death Benefit
If the Annuitant (or Contract Owner, if applicable) dies before the
Annuity Date, the Company will pay a death benefit equal to the greater of
the purchase payment paid less partial withdrawals or the Contract Value.
Before the Company will pay any death benefit, the Company will require
due proof of death. The Company will determine the value of the death
benefit as of the Valuation Period following receipt of due proof of
death. The Company will pay the death benefit to the Beneficiary in
accordance with any applicable laws governing the payment of death
proceeds.
Payment of the death benefit may be made in one lump sum or applied
under one of the annuity payment options. (See "Annuity Period - Annuity
Options" on page .) The Contract Owner may by written request elect that
any death benefit of at least $2,000 be received by the Beneficiary under
an annuity payment option. (See "Annuity Period - Annuity Options" on page
.) The Contract Owner may choose or change a payment option at any time
prior to the Annuitant's death. If at the time the Annuitant dies, the
Contract Owner has made no request for a payment option, the Beneficiary
has sixty (60) days in which to make a written request to elect either a
lump sum payment or any annuity payment option. Any lump sum payment will
be made within seven (7) days after the Company has received due proof of
death and the written election of the Beneficiary, unless a delay of
payments provision is in effect. (See Statement of Additional Information
- "General Information Delay of Payments.")
In the event that the Annuitant and the Contract Owner are the same
individual, the death of that individual will be treated by the Company as
the death of the Annuitant.
Death of the Contract Owner
If a Contract Owner dies before the Annuity Date, the entire Contract
Value must be distributed within five (5) years of the date of death,
unless:
(a) it is payable over the lifetime of a designated Beneficiary with
distributions beginning within one (1) year of the date of death; or
(b) the Contingent Owner, if any, continues the Contract in his or her
own name.
In the case of Contracts issued in connection with an IRA, the
Beneficiary may elect to accelerate these payments. Any method of
acceleration chosen must be approved by the Company.
If the Contract Owner dies after the Annuity Date, distribution will be
as provided in the annuity payment option selected.
PURCHASING A CONTRACT
Application
In order to acquire a Contract, an application provided by the Company
must be completed and submitted to the Company for acceptance. The Company
must also receive the purchase payment. Upon acceptance, the Contract is
issued to the Contract Owner and the Purchase Payment is then credited to
the Variable Account and converted into Accumulation Units, except in
those states where the applicable premium tax is deducted from the
purchase payment. (See "Alliance Variable Products Series Fund, Inc. -
Allocation of Purchase Payment to Sub-accounts" on page .) If the
application for a Contract is in good order, the Company will apply the
purchase payment to the Variable Account and credit the Contract with
Accumulation Units within two (2) business days of receipt. In addition to
the underwriting requirements of the Company, good order means that the
Company has received federal funds (monies credited to a bank's account
with its regional Federal Reserve Bank). If the application for a Contract
is not in good order, the Company will attempt to get it in good order
within five (5) business days or the Company will return the application
and the purchase payment, unless the prospective purchaser specifically
consents to the Company's retaining them until the application is made
complete.
27
<PAGE>
Minimum Purchase Payment
The Contracts are offered on a single purchase payment basis. The
minimum purchase payment the Company will accept is $5,000 and $2,000 for
a Contract purchased in connection with an IRA or 403(b) Plan.
Distributor
AIG Equity Sales Corp. ("AESC"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AESC is a wholly-owned subsidiary of
American International Group, Inc. and an affiliate of the Company.
Commissions not to exceed 3.5% of purchase payments will be paid to
entities which sell the Contracts. In addition, expense reimbursement
allowances may be paid. Additional payments may be made for other services
not directly related to the sale of the Contracts.
Under the Glass-Steagall Act and other laws, certain banking
institutions may be prohibited from distributing variable annuity
contracts. If a bank were prohibited from performing certain agency or
administrative services and receiving fees from AESC, Contract Owners who
purchased Contracts through the bank would be permitted to retain their
Contracts and alternate means for servicing those Contract Owners would be
sought. It is not expected, however, that Contract Owners would suffer any
loss of services or adverse financial consequences as a result of any of
these occurrences.
CONTRACT VALUE
The Contract Value is the sum of the value of all Sub-account
Accumulation Units attributable to the Contract. The value of an
Accumulation Unit will vary from Valuation Period to Valuation Period. The
value of an Accumulation Unit is determined at the end of the Valuation
Period and reflects the investment earnings, or loss, and the deductions
for the Valuation Period.
WITHDRAWALS
Partial Withdrawal
The Contract Owner may partially withdraw Contract Values from the
Contract prior to the Annuity Date. Any partial withdrawal is subject to
the following conditions:
(a) the Company must receive a written request; (b) the amount
requested must be at least $500; (c) any applicable Deferred Sales
Charge will be deducted;
(d) the amount withdrawn will be the sum of the amount requested and the
amount of any applicable Deferred Sales Charge; and
(e) the Company will deduct the amount requested plus any Deferred
Sales Charge from each Sub-account of the Variable Account either
as specified or in the proportion that the Sub-account bears to
the total Contract Value.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page
.)
28
<PAGE>
Systematic Withdrawal Program
During the Accumulation Period a Contract Owner may at any time elect,
in writing, to take systematic withdrawals from one or more of the
Sub-accounts for a period of time not to exceed 12 months. In order to
initiate this program, the amount to be systematically withdrawn must be
equal to or greater than $200 provided that the Contract Value is equal to
or greater than $24,000 and the amount to be withdrawn does not exceed the
Free Withdrawal Amount. Systematic withdrawals will be made without the
imposition of the Deferred Sales Charge.
Systematic withdrawals may occur monthly or quarterly.
The systematic withdrawal program may be cancelled at any time by
written request or automatically should the Contract Value fall below
$1,000. In the event the systematic withdrawal program is cancelled, the
Contract Owner may not elect to participate in such program until the next
Contract Anniversary.
A Contract Owner may change once per Contract Year the amount or
frequency subject to be withdrawn on a systematic basis.
The program is annually renewable, although the limitations set forth
above shall continue to apply.
The Free Withdrawal Amount (See "Charges and Deductions - Deduction for
Deferred Sales Charge" on page ____) and Dollar Cost Averaging (See
Statement of Additional Information - "General Information - Transfers")
are not available while a Contract Owner is receiving systematic
withdrawals. A Contract Owner will be entitled to the Free Withdrawal
Amount and Dollar Cost Averaging on and after the Contract Anniversary
next following the termination of the systematic withdrawal program.
Implementation of the systematic withdrawal program may subject a
Contract Owner to adverse tax consequences, including a 10% tax penalty.
(See "Taxes - Taxation of Annuities in General" on page ____ for a
discussion of the tax consequences of withdrawals.)
Total Withdrawal
The Contract Owner may withdraw the entire Contract Value prior to the
Annuity Date. A total withdrawal will cancel the Contract. The total
withdrawal value is equal to the Contract Value next calculated after
receipt of the written withdrawal request, less any applicable Deferred
Sales Charge, less the Administrative Charge and less any applicable
premium taxes. (See "Charges and Deductions" on page .)
Payment of Withdrawals
Any Contract Values withdrawn will be sent to the Contract Owners
within seven (7) days of receipt of the written request, unless the Delay
of Payments provision is in effect. (See Statement of Additional
Information "General Information - Delay of Payments.") (See "Taxes -
Taxation of Annuities in General" on page for a discussion of the tax
consequences of withdrawals.)
The Company reserves the right to ensure that a Contract Owner's check
or other form of purchase payment has been cleared for payment prior to
processing any withdrawal or redemption request occurring shortly after a
purchase payment.
Certain restrictions on withdrawals are imposed on Contracts issued in
connection with 403(b) Plans. (See "Taxes - 403(b) Plans" on page .)
29
<PAGE>
TAXES
Introduction
The Contracts are designed for use by individuals to accumulate
Contract Values with retirement plans which, except for IRAs and 403(b)
Plans, are generally not tax-qualified plans (The ultimate effect of
Federal income taxes on the amounts held under a Contract, on annuity
payments, and on the economic benefits to the Contract Owner, Annuitant or
Beneficiary depend on the Company's tax status and upon the tax and
employment status of the individual concerned. Accordingly, each person
should consult a competent tax adviser regarding the tax consequences of
purchasing a Contract.
The following discussion is general in nature and is not intended as
tax advice. No attempt is made to consider any applicable state or other
tax laws. Moreover, the discussion is based upon the Company's
understanding of the Federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of
continuation of the Federal income tax laws, the Treasury Regulations, or
the current interpretations by the Internal Revenue Service (the
"Service"). For a discussion of Federal income taxes as they relate to the
Fund, please see the accompanying Prospectus for the Fund.
Company Tax Status
The Company is taxed as a life insurance company under Part I of
Subchapter L of the Internal Revenue Code of 1986, as amended (the
"Code"). Since the Variable Account is not a separate entity from the
Company and its operations form a part of the Company, it will not be
taxed separately as a "regulated investment company" under Subchapter M of
the Code. Investment income and realized capital gains on the assets of
the Variable Account are reinvested and taken into account in determining
the Contract Value. Under existing Federal income tax law, the Variable
Account's investment income, including realized net capital gains, is not
taxed to the Company. The Company reserves the right to make a deduction
for taxes from the assets of the Variable Account should they be imposed
with respect to such items in the future.
Taxation of Annuities in General - Non-Qualified Plans
Code Section 72 governs the taxation of annuities. In general, a
Contract Owner is not taxed on increases in value under a Contract until
some form of withdrawal or distribution is made under the Contract.
However, under certain circumstances, the increase in value may be subject
to tax currently. (See "Taxes - Contracts Owned by Non-Natural Persons,"
on page _______ and "Taxes - Diversification Standards" on .)
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a
Contract prior to the Annuity Date will be treated as taxable income to
the extent the amounts held under the Contract exceed the "investment
in the contract," as that term is defined under the Code. The
"investment in the contract" can generally be described as the cost of
the Contract. It generally constitutes the sum of all purchase payments
made for the contract less any amounts received under the Contract that
are excluded from gross income. The taxable portion is taxed as
ordinary income. For purposes of this rule, a pledge or assignment of a
Contract is treated as a payment received on account of a partial
withdrawal of a Contract.
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the
Contract, the recipient is taxed on the portion of the payment that
exceeds the investment in the contract. The taxable portion is taxed as
ordinary income.
If the recipient receives annuity payments rather than a lump sum
payment, a portion of the payment is included in taxable income when
received. For fixed annuity payments, the taxable portion of each
payment is generally determined by using a formula known as the
"exclusion ratio," which establishes the ratio that the investment in
the Contract bears to the total expected amount of annuity payments for
the term of the Contract. That ratio is then applied to each payment to
determine the nontaxable portion of the payment. The remaining portion
of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined
by a formula which establishes a specific dollar amount of each payment
that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic
payments. The remaining portion of each payment is taxed as ordinary
income.
The recipient is able to exclude a portion of the payments
received from taxable income until the investment in the Contract is
fully recovered. Annuity payments are fully taxable after the
investment in the Contract is recovered. If the recipient dies before
the investment in the Contract is recovered, the recipient's estate is
allowed a deduction for the remainder.
30
<PAGE>
Penalty Tax on Certain Withdrawals
With respect to amounts withdrawn or distributed before the
taxpayer reaches age 59 1/2, a 10% penalty tax is imposed upon the
portion of such amount which is includable in gross income. However,
the penalty tax will not apply to withdrawals: (i) made on or after the
death of the Contract Owner (or where the Contract Owner is not an
individual, the death of the "primary annuitant", who is defined as the
individual, the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the Contract); (ii)
attributable to the taxpayer's becoming totally disabled within the
meaning of Code Section 72(m)(7); (iii) which are part of a series of
substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the taxpayer, or
the joint lives (or joint life expectancies) of the taxpayer and his
beneficiary; (iv) allocable to investment in the Contract before August
14, 1982; (v) under a qualified funding asset (as defined in Code
Section 130(d)); (vi) under an immediate annuity contract; or (vii)
that are purchased by an employer on termination of certain types of
qualified plans and which are held by the employer until the employee
separates from service.
If the penalty tax does not apply to a withdrawal as a result of
the application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability),
the tax for the first year in which the modification occurs will be
increased by an amount equal to the tax that would have been imposed
but for item (iii) above as determined under Treasury Regulations, plus
interest for the deferral period. The foregoing rule applies if the
modification takes place: (a) before the close of the period which is
five years from the date of the first payment and after the taxpayer
attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan
may result in a taxable event and the excess of the Contract Value over
purchase payments will be taxed to the assignor as ordinary income.
Please consult your tax adviser prior to making an assignment of the
Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who is
either 37 1/2 years younger than the Owner or a grandchild of the
Owner may have Generation Skipping Transfer Tax consequences.
Distribution-at-Death Rules
In order to be treated as an annuity contract for Federal income
tax purposes, a Contract must generally provide for the following two
distribution rules: (i) if the Contract Owner dies on or after the
Annuity Date, and before the entire interest in the Contract has been
distributed, the remaining portion of such interest will be distributed
at least as quickly as the method in effect on the Contract Owner's
death; and (ii) if a Contract Owner dies before the Annuity Date, the
entire interest must generally be distributed within five years after
the date of death. To the extent such interest is payable to a
designated Beneficiary, however, such interest may be annuitized over
the life of that Beneficiary or over a period not extending beyond the
life expectancy of that Beneficiary, so long as distributions commence
within one year after the date of death. The designated Beneficiary is
the person to whom ownership of the Contract passes by reason of death,
and must be a natural person. If the Beneficiary is the spouse of the
Contract Owner, the Contract may be continued unchanged in the name of
the spouse as Contract Owner.
31
<PAGE>
If the Contract Owner is not an individual, the "primary
annuitant" (as defined under the Code) is considered the Contract
Owner. In addition, when the Contract Owner is not an individual, a
change in the primary annuitant is treated as the death of the Contract
Owner.
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than
full and adequate consideration will generally trigger tax on the gain
in the Contract. The transferee will receive a step-up in basis for the
amount included in the transferor's income. This provision, however,
does not apply to those transfers between spouses or incident to a
divorce which are governed by Code Section 1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a
corporation or trust) the Contract is generally not treated as an
annuity contract for Federal income tax purposes, and the income on the
Contract (generally the excess of the Contract Value over the purchase
payments) is includable in income each year. The rule does not apply
where the non-natural person is only the nominal owner such as a trust
or other entity acting as an agent for a natural person. The rule also
does not apply when the Contract is acquired by the estate of a
decedent, when the Contract is held under certain qualified plans, when
the Contract is a qualified funding asset for structured settlements,
when the Contract is purchased on behalf of an employee upon
termination of a qualified Plan, and in the case of an immediate
annuity.
Section 1035 Exchanges
Code Section 1035 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity
contract, unless money is distributed as part of the exchange. A
replacement contract obtained in a tax-free exchange of contracts
succeeds to the status of the surrendered contract. Special rules and
procedures apply to Code Section 1035 transactions. Prospective
purchasers wishing to take advantage of Code Section 1035 should
consult their tax advisers.
Multiple Contracts
Annuity contracts that are issued by the same company (or
affiliate) to the same policy owner during any calendar year will be
treated as one annuity contract in determining the amount includable in
the taxpayer's gross income. Thus, any amount received under any such
contract prior to the contract's annuity starting date will be taxable
(and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts. The Treasury has broad
regulatory authority to prevent avoidance of the purposes of this
aggregation rule. It is possible that, under this authority, Treasury
may apply this rule to amounts that are paid as annuities (on or after
the starting date) under annuity contracts issued by the same company
to the same policy owner during any calendar year period. In this case,
annuity payments could be fully taxable (and possibly subject to the
10% penalty tax) to the extent of the combined income in all such
contracts and regardless of whether any amount would otherwise have
been excluded from income. Contract Owners should consult a tax adviser
before purchasing more than one Contract or other annuity contracts.
Withholding
The Company is required to withhold Federal income taxes on
withdrawals, lump sum distributions, and annuity payments that
include taxable income unless the payee elects to not have any
withholding or in certain other circumstances. Special withholding
rules apply to payments made to non-resident aliens.
Lump-sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of
any withdrawal or lump sum distribution unless You elect out of
withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity
payments based on a withholding certificate You file with the
Company. If you do not file a certificate, You will be treated,
for purposes of determining your withholding rates, as a married
person with three exemptions.
You are liable for payment of Federal income taxes on the
taxable portion of any withdrawal, distribution, or annuity
payment. You may be subject to penalties under the estimated tax
rules if your withholding and estimated tax payments are not
sufficient.
32
<PAGE>
Diversification Standards
To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up
period, each Sub-account is required to diversify its investments. The
Diversification Regulations generally require that on the last day of each
quarter of a calendar year no more than 55% of the value of the assets of
a Sub-account is represented by any one investment, no more than 70% is
represented by any two investments, no more than 80% is represented by any
three investments, and no more than 90% is represented by any four
investments. A "look-through" rule applies so that an investment in the
Fund is not treated as one investment but is treated as an investment in a
pro-rata portion of each underlying asset of the Fund. All securities of
the same issuer are treated as a single investment. In the case of
government securities, each Government agency or instrumentality is
treated as a separate issuer.
In connection with the issuance of the proposed and temporary version
of the Diversification Regulations, Treasury announced that such
regulations do not provide guidance concerning the extent to which
Contract Owners may direct their investments to particular divisions of a
separate account. It is possible that if and when additional regulations
or IRS pronouncements are issued, the Contract may need to be modified to
comply with such rules. For these reasons, the Company reserves the right
to modify the Contract, as necessary, to prevent the Contract Owner from
being considered the owner of the assets of the Variable Account.
The Company intends to comply with the Diversification Regulations to
assure that the Contracts continue to be treated as annuity contracts for
Federal income tax purposes.
Tax-Favored Plans
The Contracts may be used to create an IRA. The Contracts are also
available for use in connection with a previously established 403(b) Plan.
No attempt is made herein to provide more than general information about
the use of the Contracts with IRAs or 403(b) Plans. The information herein
is not intended as tax advice. A prospective Contract Owner considering
use of the Contract to create an IRA or in connection with a 403(b) Plan
should first consult a competent tax adviser with regard to the
suitability of the Contract as an investment vehicle for their qualified
plan.
While the Contract will not be available in connection with
retirement plans designed by the Company which qualify for the federal tax
advantages available under Sections 401 and 457 of the Code, a Contract
can be used as the investment medium for an individual Owner's separately
qualified 401 retirement plan. Distributions from a 401 qualified plan or
403(b) Plan (other than non-taxable distributions representing a return of
capital, distributions meeting the minimum distribution requirement,
distributions for the life or life expectancy of the recipient(s) or
distributions that are made over a period of more than 10 years) are
eligible for tax-free rollover within 60 days of the date of distribution,
but are also subject to federal income tax withholding at a 20% rate
unless paid directly to another qualified plan, 403(b) Plan or an IRA. If
the recipient is unable to take full advantage of the tax-free rollover
provisions, there may be taxable income, and the imposition of a 10%
penalty tax if the recipient is under age 59 1/2 (unless another exception
applies under Code Section 72(t)). A prospective Owner considering use of
the Contract in this manner should consult a competent tax advisor with
regard to the suitability of the Contract of this purpose and for
information concerning the provisions of the Code applicable to qualified
plans, 403(b) Plans, and IRAs.
33
<PAGE>
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to
an IRA. Contracts issued in connection with an IRA are subject to
limitations on eligibility, maximum contributions, and time of
distribution. Distributions from certain retirement plans qualifying for
federal tax advantages may be rolled over into an IRA. In addition,
distributions from an IRA may be rolled over to another IRA, provided
certain conditions are met. Sales of the Contracts for use with IRAs are
subject to special requirements imposed by the Service, including the
requirement that informational disclosure be given to each person desiring
to establish an IRA. Contracts offered in connection with an IRA by this
Prospectus are not available in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on a Contract
Owner's ability to make partial withdrawals from Code Section 403(b)
Contracts, if attributable to purchase payments made under a salary
reduction agreement. Specifically, Code Section 403(b)(11) allows a
Contract Owner to make a surrender or partial withdrawal only (a) when the
employee attains age 59 1/2, separates from service, dies, or becomes
disabled (as defined in the Code), or (b) in the case of hardship. In the
case of hardship, only an amount equal to the purchase payments may be
withdrawn. In addition, 403(b) Plans are subject to additional
requirements, including: eligibility, limits on contributions, minimum
distributions, and nondiscrimination requirements applicable to the
employer. Owners and their employers are responsible for compliance with
these rules. Contracts offered in connection with a 403(b) Plan by this
Prospectusare not available in all states.
A-1
<PAGE>
APPENDIX
GENERAL ACCOUNT OPTION
Under the General Account option, Contract Values are held in the
Company's General Account. Because of exemptive and exclusionary
provisions, interests in the General Account have not been registered
under the Securities Act of 1933 nor is the General Account registered as
an investment company under the Investment Company Act of 1940. The
Company understands that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this Prospectus relating to
the General Account portion of the Contracts. Disclosures regarding the
General Account may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses. The General Account
option is not available in all states.
Contract Owners may elect to allocate amounts to the General Account
provided that the Contract Owner specifies a percentage that is a whole
number and is equal to 0 or equal to or greater than 10%. Contract Owners
may also transfer amounts to the General Account. Amounts allocated or
transferred to the General Account are credited with interest on a daily
basis at the then applicable effective guarantee rate. The effective
guarantee rate is that rate declared for the calendar month in which
amounts are allocated or transferred to the General Account. Therefore, if
the Contract Owner has allocated or transferred amounts at different times
to the General Account, each allocation or transfer may have a unique
effective guarantee rate and guarantee period associated with that amount.
The Company guarantees that the effective guarantee rate will not be
changed more than once per year and will not be less than 4% per annum.
The Contract Owner may transfer amounts to the General Account prior to
the Annuity Date by written request or telephone authorization. However,
no more than four transfers may be made to the General Account per
Contract Year and the amount transferred to the General Account must be at
least 25% of the Contract Value, or the entire amount in the Variable
Account, if less. (See "Alliance Variable Products Series Fund, Inc. -
Transfer of Contract Values" on page .)
The Contract Owner may transfer amounts out of the General Account only
at the end of the guarantee period associated with that amount. Prior to
the end of the guarantee period the Contract Owner may specify the
Sub-accounts of the Variable Account to which the Contract Owner wants
amounts transferred. If the Contract Owner does not notify the Company
prior to the end of the guarantee period, the Company will apply that
amount to a new guarantee period in the General Account, which is then
subject to the same conditions as the original guarantee period. The
guarantee rate associated with the new guarantee period may be different
from the effective guarantee rate applicable to the previous guarantee
period. These transfers will be handled at no charge to the Contract
Owner. All other provisions which apply to transfers among the
Sub-accounts (See "Alliance Variable Products Series Fund, Inc. - Transfer
of Contract Values" on page ) and which do not conflict with the
provisions set forth above will continue to apply.
Contract Owners may not make a partial withdrawal from the General
Account prior to the Annuity Date unless:
(a) all of the Contract Owner's funds are in the General Account; or
(b) the Contract Owner does not specify from which funds the partial
withdrawal is to be deducted. In that event, the Company will
deduct the amount from each Sub-account of the Variable Account
and each amount allocated to each guarantee period of the General
Account in the proportion that each bears to the Contract Value.
The Deferred Sales Charge (See "Charges and Deductions - Deduction for
Deferred Sales Charge" on page ) will be deducted from the Sub-accounts of
the Variable Account and from each amount allocated to each guarantee
period of the General Account in the proportion that the withdrawal was
made from these accounts.
A-2
<PAGE>
The Administrative Charge (See "Charges and Deductions - Deductions for
Administrative Charge" on page ) and Premium Taxes, if applicable, (See
"Charges and Deductions - Deduction for Premium and Other Taxes" on page )
will be deducted proportionately from each Sub-account of the Variable
Account and from each amount in each guarantee period of the General
Account.
If the Contract Owner has not made any annuity option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2
fixed basis annuity payments and Option 2 variable basis annuity payments,
in proportion to the amount of Contract Value in the General Account and
the Variable Account, respectively. (See "Annuity Period - Annuity
Options" on page .)
LEGAL PROCCEDINGS
The Company knows of no legal proceeding pending to which the
Variable Account is a party or which would materially affect the Variable
Account.
Legal matters relating to the federal securities laws in connection with
the Contracts described herein are being passed upon by the law firm of
Jorden, Burt, Berenson & Johnson LLP, Washington D.C. .
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Page
General Information................................................
The Company....................................................
Independent Accountants........................................
Legal Counsel..................................................
Distributor....................................................
Calculation of Performance Related Information.................
Delay of Payments..............................................
Transfers......................................................
Method of Determining Contract Values..............................
Annuity Provisions.................................................
Annuity Benefits...............................................
Annuity Options................................................
Variable Annuity Payment Values................................
Annuity Unit...................................................
Net Investment Factor..........................................
Additional Provisions..........................................
Financial Statements...............................................
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL SINGLE PURCHASE
PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE VARIABLE ANNUITY
CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE
INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED
May 1, 1997 CALL OR WRITE: American International Life Assurance Company of
New York; Attention: Variable Products, 80 Pine Street, New York, New York,
10005, 1-800-340-2765.
DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1, 1997
ALLIANCE
B-2
<PAGE>
TABLE OF CONTENTS
PAGE
General Information.........................................
The Company.............................................
Independent Accountants.................................
Legal Counsel...........................................
Distributor.............................................
Calculation of Performance Related Information..........
Delay of Payments.......................................
Transfers...............................................
Method of Determining Contract Values.......................
Annuity Provisions..........................................
Annuity Benefits........................................
Annuity Options.........................................
Variable Annuity Payment Values.........................
Annuity Unit............................................
Net Investment Factor...................................
Additional Provisions...................................
Financial Statements.........................................
B-3
<PAGE>
GENERAL INFORMATION
The Company
A description of American International Life Assurance Company of New
York (the "Company"), and its ownership is contained in the Prospectus. The
Company will provide for the safekeeping of the assets of the Variable Account.
Independent Accountants
The audited financial statements of the Company and Variable Account A
have been audited by Coopers and Lybrand, independent certified public
accountants, whose offices are located in Philadelphia, Pennsylvania.
Legal Counsel
Legal matters relating to the Federal securities laws in connection
with the Contracts described herein and in the Prospectus are being passed upon
by the law firm of Jorden Burt & Berenson, Washington,D.C.
Distributor
AIG Equity Sales Corp. ("AESC"), a wholly owned subsidiary of
American International Group, Inc. and an affiliate of the Company,
acts as the distributor. The offering is on a continuous basis.
Commissions in the amount of $20,363 were retained by the Distributor
in 1996.
Calculation Of Performance Related Information
A. Yield and Effective Yield Quotations for the Money Market Sub-account
The yield quotation for the Money Market Sub-account will be for the seven
days ended on the date of the most recent balance sheet of the Variable Account
included in the registration statement, and will be computed by determining the
net change, exclusive of capital changes, in the value of a hypothetical
preexisting account having a balance of one Accumulation Unit in the Money
Market Sub-account at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from Contract Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by (365/7)
with the resulting figure carried to at least the nearest hundredth of one
percent.
Any effective yield quotation for the Money Market Sub-account
will be for the seven days ended on the date of the
most recent balance sheet of the Variable Account included in the registration
statement, and will be carried at least to the nearest hundredth of one percent,
and will be computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical preexisting account having a balance of
one Accumulation Unit in the Money Market Sub-account at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
Owner accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7 and subtracting 1 from the result, according to the
following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1.
For purposes of the yield and effective yield computations, the hypothetical
charge reflects all deductions that are charged to all Contract Owner accounts
in proportion to the length of the base period. For any fees that vary with the
size of the account, the account size is assumed to be the Money Market
Sub-account's mean account size. The yield and effective yield quotations do not
reflect the Deferred Sales Charge that may be assessed at the time of withdrawal
in an amount ranging up to 6% of the requested withdrawal amount, with the
specific percentage applicable to a particular withdrawal depending on the
length of time the purchase payment was held under the Contract and whether
withdrawals had been previously made during that Contract Year. (See "Charges
and Deductions - Deduction for Deferred Sales Charge" on page 17 of the
Prospectus) No deductions or sales loads are assessed upon annuitization under
the Contracts. Realized gains and losses from the sale of securities and
unrealized appreciation and depreciation of the Money Market Sub-account and the
Fund are excluded from the calculation of yield.
B. Total Return Quotations
The total return quotations for all the Sub-accounts will be average annual
total return quotations for the one, five, and ten year periods (or, where a
Sub-account has been in existence for a period of less than one, five or ten
years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Sub-accounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the particular period at the end
of the particular period.
For the purposes of the total return quotations , the calculations take
into effect all fees that are charged to all Contract Owner accounts. For any
fees that vary with the size of the account, the account size is assumed to be
the respective Sub-account's mean account size. The calculations also assume a
total withdrawal as of the end of the particular period.
B-4
<PAGE>
Annualized total return quotations for certain Sub-accounts were as follows:
Annualized total return quotations for certain Sub-accounts as of
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1 Year 3 Years Inception to Date
<S> <C> <C> <C>
Money Market -2.44% 1.65% -1.66%
Premier Growth 14.40% 16.87% 15.68%
Growth & Income 15.69% 15.82% 14.09%
International -0.02% 5.17% 6.54%
Short Term Multi 2.15% 0.37% 1.32%
Global Bond -0.99% 5.15% 6.54%
Us Gov't High Grade -4.41% 2.87% 3.16%
Global Dollar Gov't 16.45% N/A 13.82%
North American Gov't 10.66% N/A 6.53%
Utility Income 0.56% N/A 7.13%
Conservative Investor -3.25% N/A 5.87%
Growth Investors 0.85% N/A 8.59%
Growth 19.80% N/A 25.09%
Total Return 7.37% N/A 12.10%
Worldwide Privatization 10.49% N/A 10.15%
Technology N/A N/A 3.01%
Quasar N/A N/A 0.06%
Real Estate Investment N/A N/A N/A
</TABLE>
B-5
<PAGE>
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 1992
Short-Term Multi-Market Portfolio June 25, 1992
Global Bond Portfolio May 10, 1993
Money Market Portfolio May 13,1993
International Portfolio June 1, 1993
U.S. Government/High Yield
Securities Portfolio June 14, 1993
North American Government
Income Portfolio April 8, 1994
Global Dollar
Government Portfolio May 26 , 1994
Utility Income Portfolio June 15, 1994
Conservative Investors Portfolio September 8,1994
Growth Investors Portfolio August 16, 1994
Growth Portfolio August 12, 1994
Total Return Portfolio September 12,1994
Worldwide Privatization Portfolio October 17,1994
Technology Portfolio January22,1996
Quasar Portfolio August 15,1996
Real Estate Investment Portfolio January 7,1997
B-6
<PAGE>
C. Yield Quotations for the Short-Term Multi-Market, U.S.
Government/High Grade Securities and Global Bond Sub-accounts
The yield quotations for the Short-Term Multi-Market, U.S.
Government/High Grade Securities and Global Bond Sub-accounts will be based on
the thirty-day period ended on the date of the most recent balance sheet of the
Variable Account included in the registration statement, and are computed by
dividing the net investment income per Accumulation Unit earned during the
period bythe maximum offering price per unit on the last day of the period,
according to the following formula:
Yield = 2[(a - b + 1)6 - 1]
cd
Where: a = net investment income earned during the period by the
corresponding Portfolio of the Fund attributable to shares
owned by the Sub-account.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Accumulation Units outstanding
during the period.
d = the maximum offering price per Accumulation Unit on the
last day of the period.
For the purposes of the yield quotations for the Short-Term
Multi-Market, U.S. Government/High Grade Securities and Global Bond
Sub-accounts, the calculations take into effect all fees that are charged to all
Contract Owner accounts. For any fees that vary with the size of the account,
the account size is assumed to be the respective Sub-account's mean account
size. The calculations do not take into account the Deferred Sales Charge or any
transfer charges.
A Deferred Sales Charge may be assessed at the time of withdrawal in an
amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract, and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Deferred Sales Charge" on page 17 of the Prospectus) There is
currently a transfer charge of $10 per transfer after a specified number of
transfers in each Contract Year. (See "Alliance Variable Products Series Fund,
Inc. - Transfer of Contract Values" on page 15 of the Prospectus)
D. Non- Standardized Performance Data
1. Total Return Quotations
The total return quotations for all the Sub-accounts will be average
annual total return quotations for the one, five, and ten year periods (or,
where a Sub-account has been in existence for a period of less than one, five or
ten years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Sub-accounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the particular period
at the end of the particular period.
For the purposes of the total return quotations, the calculations take into
effect all fees that are charged to all Contract Owner accounts. For any fees
that vary with the size of the account, the account size is assumed to be the
respective Sub-account's mean account size. The calculations do not, however,
assume a total withdrawal as of the end of the particular period.
B-7
<PAGE>
<TABLE>
<CAPTION>
Annualized total return quotations for certain Sub-accounts as of
December 31, 1996 were as follows:
1 Year 3 Years Inception to Date
<S> <C> <C> <C>
Money Market 3.23% 2.96% 2.44%
Premier Growth 20.99% 18.35% 16.25%
Growth & Income 22.36% 17.29% 14.57%
International 5.75% 6.51% 7.41%
Short Term Multi 8.04% 1.66% 1.79%
Global Bond 4.73% 6.50% 7.41%
US Gov't/High Grade 1.11% 4.19 4.03%
Global Dollar Gov't 23.16% N/A 15.49%
North American Gov't 17.04% N/A 8.03%
Utility Income 6.37% N/A 8.75%
Conservative Investor 2.33% N/A 7.64%
Growth Investors 6.67% N/A 10.47%
Growth 26.70% N/A 27.08%
Total Return 13.56% N/A 13.97%
Worldwide Privatization16.86% N/A 12.07%
Technology N/A N/A 8.96%
Quasar N/A N/A 5.84%
Real Estate Investment N/A N/A N/A
</TABLE>
2. Tax Deferred Accumulation
In reports or other communications to You or in advertising or sales
materials, the Company may also describe the effects of tax-deferred compounding
on the separate account's investment returns or upon returns in general. These
effects may be illustrated in charts or graphs and may include comparisons at
various points in time of returns under the Contract or in general on a
tax-deferred basis with the returns on a taxable basdis. Different tax rates may
be assumed.
In general, individuals who own annuity contracts are not taxed on inreases
in the value under the annuity contract until some form of distribution is made
from the contract. Thus, the annuity contract will benefit from tax deferral
during the accumulation period, which generally will have the effect of
permitting an investment in an annuity contract to grow more rapidly than a
comparable investment under which increases in value are taxed on a current
basis. The chart shows accumulations on an initial investment or Purchase
Payment of $25,000, assuming hypothetical gross annual return of 0%, 4% and 8%,
compounded annually, and a tax rate of 31%. The values shown for the taxable
investment do not include any deduction for management fees or other expenses
but assume that taxes are deducted annually from investment returns. The values
shown for the variable annuity reflect the deduction of contractual expenses
such as the mortality and expense risk charge, the Administrative Fee and the
Annual Fee, but not the expenses of an underlying investment vehicle. In
addition, these values assume that the Owner does not surrender the Contract or
make any withdrawals until the end of the period shown. The chart assumes a full
withdrawal, at the end of the period shown, of all contract value and the
payment of taxes at the 31% rate on the amount in excess of the Purchase
Payment.
The rates of return illustrated are hypothetical and are not an estimate or
guaranty of performance. Actual tax rates may vary for different taxpayers from
that illustrated and withdrawals by Owners who have not reached age 59 1/2 may
be subject to a tax penalty of 10%.
[INSERT CHART]
B-8
<PAGE>
Delay of Payments
Any payments due under the Contracts will generally be sent to the
Contract Owner within seven (7) days of a completed request for payment.
However, the Company has reserved the right to postpone any type of payment from
the Variable Account for any period when:
(a) the New York Stock Exchange is closed for other than
customary weekends and holidays;
(b) trading on the Exchange is restricted;
(c) an emergency exists as a result of which it is not
reasonably practicable to dispose of securities held in the
Variable Account or determine their value; or
(d) an order of the Securities and Exchange Commission
permits delay for the protection of security holders.
The applicable rules of the Securities and Exchange Commission shall
govern as to whether the conditions in (b) and (c) exists.
Transfers
A Contract Owner may deposit prior to the Annuity Date, all or part of his
Contract Value into either the Money Market or Short-Term Multi-Market
Sub-account (the "Sending Sub-account"), and then automatically transfer those
assets into one or more of the other Sub-accounts on a systematic basis. The
amount transferred to the Sending Sub-account must be at least $12,000 in order
to initiate this option. This process is called Automatic Dollar Cost Averaging.
The Automatic Dollar Cost Averaging option is available for use with any of
the investment options, other than the General Account.
Automatic Dollar Cost Averaging transfers may occur monthly or quarterly.
The Contract Owner may designate the dollar amount to be transferred each month
or elect to have a percentage transferred each month, up to a maximum of 60
months.
The Company will make all Automatic Dollar Cost Averaging transfers on the
15th calendar day of each month, or the next day the New York Stock Exchange is
open for business if the 15th calendar day of the month should fall on a day the
New York Stock Exchange is closed. In order to process an Automatic Dollar Cost
Averaging transfer, the Company must have received a request in writing by no
later than the 6th calendar day of the month.
The Automatic Dollar Cost Averaging option may be cancelled at any time by
written request or automatically if the value of the Sending Sub-account subject
to the Automatic Dollar Cost Averaging option is less than $1,000.
A Contract Owner may change his Automatic Dollar Cost Averaging investment
allocation only once during any 12 month period.
Any transfers made under this section are subject to the conditions of the
section entitled "Alliance Variable Products Series Fund, Inc. Transfer of
Contract Values" on page 12 of the Prospectus, except that the Company will not
deem the election of the Automatic Dollar Cost Averaging option to count towards
a Contract Owner's twelve (12) free transfers.
B-9
<PAGE>
METHOD OF DETERMINING CONTRACT VALUES
The Contract Value will fluctuate in accordance with the
investment results of the underlying Portfolios of the Fund held within the
Sub-account. In order to determine how these fluctuations affect Contract
Values, Accumulation Units are utilized. The value of an Accumulation Unit
applicable during any Valuation Period is determined at the end of that period.
When the first shares of the respective Portfolios of the Fund were
purchased for the Sub-accounts, the Accumulation Units for the Sub-accounts were
valued at $10. The value of an Accumulation Unit for a Sub-account on any
Valuation Date thereafter is determined by dividing (a) by (b), where:
(a) is equal to:
(i) the total value of the net assets attributable to
Accumulation Units in the Sub-account, minus (ii) the daily charge
for assuming the risk of guaranteeing mortality factors and
expense charges, which is equal on an annual basis to 1.25%
multiplied by the daily net asset value of the Sub-account; minus
(iii) in California and New York only, the daily charge for
providing certain administrative functions which is equal on an
annual basis to 0.15% multiplied by the daily net asset value of
the Sub-Account, minus or plus (iv) a charge or credit for any tax
provision established for the Sub-account. The Company is not
currently making any provision for taxes.
(b) is the total number of Accumulation Units applicable to that
Sub-account at the end of the Valuation Period.
The resulting value of each Sub-account Accumulation Unit is multiplied
by the respective number of Sub-account Accumulation Units for a Contract. The
Contract Value is the sum of all Sub-account values for the Contract.
An Accumulation Unit may increase or decrease in value from Valuation
Date to Valuation Date.
ANNUITY PROVISIONS
Annuity Benefits
If the Annuitant is alive on the Annuity Date the Company will begin
making payments to the Annuitant under the payment option or options selected.
The amount of the annuity payments will depend on the age or sex of the payee at
the time the settlement contract is issued.
Annuity Options
The annuity options are as follows:
Option 1: Life Income. The Company will pay an annuity during
the lifetime of the payee.
Option 2: Income with 10 Years of Payments Guaranteed. The Company will
pay an annuity during the lifetime of the payee. If, at the death of
the payee, payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period
to the successor payee; or (b) the successor payee may elect to
receive in a lump sum the present value of the remaining payments,
commuted at the interest rate used to create the annuity factor
for this Option.
Option 3: Joint and Last Survivor Income. The Company will pay
an annuity for as long as either payee or a designated second
person is alive.
Annuity options are available on a fixed and/or a variable basis. The
Contract Owner may allocate Contract Values to purchase only fixed annuity
payments, or to purchase only variable annuity payments, or to purchase a
combination of the two. Contract Values which purchase fixed annuity payments
will be invested in the General Account. Contract Values which purchase variable
annuity payments will be invested in the Variable Account. The Contract Owner
may make no transfers between the General Account and the Variable Account after
the Annuity Date. The Company also may offer additional options at its
discretion.
B-10
<PAGE>
Variable Annuity Payment Values
A Variable Annuity is an annuity with payments which (1) are not
predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable Sub-account(s) of the Variable Account. At
the Annuity Date the Contract Value in each Sub-account will be applied to the
applicable Annuity Tables contained in the Contract. The Annuity Table used will
depend upon the payment option chosen. The same Contract Value amount applied to
each payment option may produce a different initial annuity payment. If, as of
the Annuity Date, the then current annuity rates applicable to this class of
contracts will provide a larger income than that guaranteed for the same form of
annuity under the Contracts described herein, the larger amount will be paid.
The first annuity payment for each Sub-account is determined by
multiplying the amount of the Contract Value allocated to that Sub-account by
the factor shown in the table for the option selected, divided by 1000.
The dollar amount of Sub-account annuity payments after the first is
determined as follows:
(a) The dollar amount of the first annuity payment is divided by
the value for the Sub-account Annuity Unit as of the Annuity Date.
This establishes the number of Annuity Units for each monthly
payment. The number of Annuity Units remains fixed during the
Annuity payment period, subject to any transfers. (b) The fixed
number of Annuity Units is multiplied by the Annuity Unit value
for the Valuation Period 14 days prior to the date of payment.
The total dollar amount of each Variable Annuity payment is the sum of
all Sub-account variable annuity payments less the pro-rata amount of the
Administrative Charge.
Annuity Unit
The value of an Annuity Unit for each Sub-account was arbitrarily set
initially at $10. This was done when the first Fund shares were purchased. The
Sub-account Annuity Unit value at the end of any subsequent Valuation Period is
determined by multiplying the Sub-account Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (a) and (b) where:
(a) is the net investment factor for the Valuation Period for
which the Sub-account Annuity Unit value is being determined; and
(b) is the assumed investment factor for such Valuation Period.
The assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for
any Valuation Period shall be the accumulated value, at the end of
such period, of $1.00 deposited at the beginning of such period at
the assumed investment rate of 5%.
Net Investment Factor
The net investment factor is used to determine how investment results
of the Fund affect Variable Account Values within the Sub-accounts from one
Valuation Period to the next. The net investment factor for each Sub-account for
any Valuation Period is determined by dividing (a) by (b) and subtracting (c)
from the result, where:
(a) is equal to:
(i) the net asset value per share of the Fund held in the
Sub-account determined at the end of that Valuation Period; plus
(ii) the per share amount of any dividend or capital gain
distribution made by the Fund held in the Sub-account if the
"ex-dividend" date occurs during that same Valuation Period; plus or
minus
(iii) a per share charge or credit, which is determined by the
Company, for changes in tax reserves resulting from investment
operations of the Sub-account.
(b) is equal to:
(i) the net asset value per share of the Fund held in the
Sub-account determined as of the end of the prior Valuation
Period; plus or minus
(ii) the per share charge or credit for any change in tax
reserves for the prior Valuation Period.
(c) is the percentage factor representing the Mortality and
Expense Risk Charge.
The net investment factor may be greater or less than the assumed investment
factor; therefore, the Annuity Unit value may increase or decrease from
Valuation Period to Valuation Period.
B-11
<PAGE>
Additional Provisions
The Company may require proof of the age or sex of the Annuitant before
making any life annuity payment provided for by the Contract. If the age or sex
of the Annuitant has been misstated the Company will compute the amount payable
based on the correct age or sex. If annuity payments have begun, any
underpayments that may have been made will be paid in full with the next annuity
payment. Any overpayments, unless repaid to the Company in one sum, will be
deducted from future annuity payments until the Company is repaid in full.
If a Contract provision requires that a person be alive, the Company
may require proof that the person is alive before the Company acts under that
provision.
The Company will give the payee under an annuity payment option a
settlement contract for the payment option.
FINANCIAL STATEMENTS
The financial statements of the Company and the Variable Account
included herein should be considered only as bearing upon the ability of the
Company to meet its obligations under the Contracts.
<PAGE>
F-1
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE
COMPANY OF NEW YORK
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
American International Life Assurance Company of New York:
We have audited the accompanying balance sheets of American International Life
Assurance Company of New York (a wholly-owned subsidiary of American
International Group, Inc.) as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American International Life
Assurance Company of New York as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 22, 1997
F-3
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
-------------
1996 1995
------------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 4,636,022$ 4,434,329
(cost: 1996-$4,456,608: 1995 - $4,139,170)
Equity securities:
Common stock
(cost: 1996-$19,800: 1995 - $16,613) 33,099 24,365
Non-redeemable preferred stocks
(cost: 1996-$649; 1995 - $4,564) 590 4,570
Mortgage loans on real estate, net 513,470 448,700
Real estate, net of accumulated
depreciation of $6,046 in 1996; and $5,269 in 1995 26,227 27,000
Policy loans 11,063 10,991
Other invested assets 65,744 69,360
Short -term investments 60,333 104,048
Cash 1,726 1,105
------------- --------------
Total investments and cash 5,348,274 5,124,468
Amounts due from related parties 4,277 973
Investment income due and accrued 77,433 74,355
Premium and insurance balances receivable-net 13,617 13,289
Reinsurance assets 25,211 22,552
Deferred policy acquisition cost 35,754 31,225
Separate and variable accounts 153,678 68,151
Other assets 2,591 16,814
-----------------------------
Total assets $ 5,660,835 $ 5,351,827
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------- ----------
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 3,308,208 $ 3,060,581
Future policy benefits 1,588,563 1,561,760
Reserve for unearned premiums 8,167 10,808
Policy and contract claims 44,173 37,201
Reserve for commissions, expenses and taxes 4,905 4,433
Insurance balances payable 7,981 7,771
Federal income tax payable 3,758 3,477
Deferred income taxes 43,445 62,325
Amounts due to related parties 5,227 5,260
Separate and variable accounts 153,678 68,151
Other liabilities 22,588 23,553
------------- -------------
Total liabilities 5,190,693 4,845,320
------------ -----------
Commitments and contingencies (See Note 6)
Stockholders' Equity
Common stock, $200 par value; 16,125 shares
authorized, issued and outstanding 3,225 3,225
Additional paid-in capital 197,025 197,025
Unrealized appreciation (depreciation) of
investments, net of future policy benefits
and taxes of $72,979 in 1996 and
$82,352 in 1995; 135,524 153,086
Retained earnings 134,368 153,171
------------ -------------
Total stockholders' equity 470,142 506,507
----------- ------------
Total liabilities and stockholders' equity $ 5,660,835 $ 5,351,827
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Revenues:
Premiums $ 149,472 $ 84,357 $ 71,826
Net investment income 401,647 386,680 335,510
Realized capital gains 610 1,436 1,932
------------ ------------- -----------
Total revenues 551,729 472,473 409,268
--------- ----------- ---------
Benefits and expenses:
Benefits to policyholders 163,377 167,319 163,585
Increase in future policy benefits
and policyholders' funds on deposit 284,936 209,512 165,291
Acquisition and insurance expenses 54,875 54,808 62,759
---------- ------------ ----------
Total benefits and expenses 503,188 431,639 391,635
--------- ----------- ---------
Income before income taxes 48,541 40,834 17,633
---------- ---------- -----------
Income taxes (benefits):
Current 26,85322,070 18,939
Deferred (9,509) (7,572) (12,262)
------------ ------------- -----------
Total income taxes 17,344 14,498 6,677
---------- ----------- -----------
Net income $ 31,197 $ 26,336 $ 10,956
========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 3,225 $ 3,225 $ 3,225
------------ ------------ ------------
Balance at end of year 3,225 3,225 3,225
------------ ----------- ------------
Additional paid-in capital
Balance at beginning of year: 197,025 197,025 197,025
---------- ---------- ----------
Balance at end of year 197,025 197,025 197,025
---------- ---------- ----------
Unrealized appreciation (depreciation)
of investments, net
Balance at beginning of year 153,086 (60,149) 58,102
Change during year (102,936) 404,059 (182,008)
Changes due to deferred income
tax benefit expense) and
future policy benefits 85,374 (190,824) 63,757
Balance at end of year 135,524 153,086 (60,149)
----------- ----------- ------------
Retained earnings
Balance at beginning of year 153,171 126,835 115,879
Net income 31,197 26,336 10,956
Dividends to Stockholders (50,000) - -
----------------------------------------------
Balance at end of year 134,368 153,171 126,835
----------- ---------- -----------
Total stockholders' equity$ 470,142 $ 506,507 $ 266,936
========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 31,197 $ 26,336 $ 10,956
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains and losses
included in income:
Change in insurance reserves 107,134 37,251 45,554
Change in premiums and insurance balances
receivable and payable -net (117) (110) (138)
Change in reinsurance assets (2,658) 3,761 5,570
Change in deferred policy acquisition costs (4,530) (1,599) (213)
Change in investment income due and accrued (3,078) (6,732) (8,153)
Realized capital gains (610) (1,436) (1,932)
Change in current and deferred income taxes -net (9,227) (5,417) (6,927)
Change in reserves for commissions, expenses
and taxes 472 1,356 149
Change in other assets and liabilities - net (17,396) (18,394) 7,597
----------- ----------- ------------
Total adjustments 69,990 8,680 41,507
----------- ------------ -----------
Net cash provided by operating activities 101,187 35,016 52,463
---------- ----------- -----------
Cash flows from investing activities:
Cost of fixed maturities, at market sold ....... 136,829 65,623 63,695
Cost of fixed maturities, at market
matured or redeemed ........................... 424,317 247,551 255,229
Cost of equity securities sold ................. 4,877 1,310 958
Realized capital gains ........................ 610 3,436 4,715
Purchase of fixed maturities.................. (858,793) (627,188) (837,973)
Purchase of equity securities ................... (4,149) (1,005) (137)
Mortgage loans granted ........................ (124,280) (111,402) (77,824)
Repayments of mortgage loans..................... 59,577 60,476 9,621
Change in policy loans........................... (71) (674) 601
Change in short-term investments ................ 43,715 26,372 (7,485)
Change in other invested assets ................. 10,475 (4,083) (6,479)
Other - net ................................... 8,701 (17,713) (1,020)
-------------- ---------------------------
Net cash used in investing activities (298,192) (357,297) (596,099)
------------ ------------------------
Cash flows from financing activities:
Change in policyholders' funds on deposit 247,626 318,169 542,729
Dividends to stockholders (50,000) - -
---------------------------------------------
Net cash provided by financing activities 197,626 318,169 542,729
------------- ---------- ----------
Change in cash ..................................... 621 (4,112) (907)
Cash at beginning of year ........................ 1,105 5,217 6,124
------------- ---------------------------
Cash at end of year $ 1,726 $ 1,105 $ 5,217
============= ============= ==============
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a)Basis of Presentation: American International Life Assurance Company of
New York (the Company) is a wholly-owned subsidiary of American
International Group, Inc. (the Parent). The financial statements of the
Company have been prepared on the basis of generally accepted accounting
principles (GAAP). The preparation of financial statements in conformity
with GAAP 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
periods. Actual results could differ from those estimates. The Company is
licensed to sell life and accident & health insurance in the District of
Columbia and all states except Arizona, Connecticut and Maryland. The
Company is also licensed in America Samoa, Virgin Islands and Guam.
The Company also files financial statements prepared in accordance with
statutory practices prescribed or permitted by the Insurance Department of
the State of New York. Financial statements prepared in accordance with
generally accepted accounting principles differ in certain respects from
the practices prescribed or permitted by regulatory authorities. The
significant differences are: (1) statutory financial statements do not
reflect fixed maturities available for sale at market value; (2) policy
acquisition costs, charged against operations as incurred for regulatory
purposes, have been deferred and are being amortized over the anticipated
life of the contracts; (3) individual life and annuity policy reserves
based on statutory requirements have been adjusted based upon mortality,
lapse and interest assumptions applicable to these coverages, including
provisions for reasonable adverse deviations; these assumptions reflect
the Company's experience and industry standards; (4) deferred income taxes
not recognized for regulatory purposes have been provided for temporary
differences between the bases of assets and liabilities for financial
reporting purposes and tax purposes; (5) for regulatory purposes, future
policy benefits, policyholders' funds on deposit, policy and contract
claims and reserve for unearned premiums are presented net of ceded
reinsurance; and (6) an asset valuation reserve and interest maintenance
reserve using National Association of Insurance Commissioners (NAIC)
formulas are set up for regulatory purposes.
(b)Investments: Fixed maturities available for sale, where the company may
not have the ability or positive intent to hold these securities until
maturity, are carried at market value. Included in fixed maturities
available for sale are collateralized mortgage obligations (CMO's).
Premiums and discounts arising from the purchase of CMO'S are treated as
yield adjustments over the estimated life. Common and non-redeemable
preferred stocks are carried at market value. Short-term investments are
carried at cost, which approximates market.
Unrealized gains and losses from investment in equity securities and fixed
maturities available for sale are reflected in stockholders' equity, net
of amounts recorded as future policy benefits and any related deferred
income taxes.
Realized capital gains and losses are determined principally by specific
identification. Where declines in values of securities below cost or
amortized cost are considered to be other than temporary, a charge is
reflected in income for the difference between cost or amortized cost and
estimated net realizable value.
Mortgage loans on real estate are carried at unpaid principal balance less
unamortized loan origination fees and costs less an allowance for
uncollectible loans.
F-10
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments
are capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity,
net of any related taxes. Also included in this category is an interest
rate cap agreement, which is carried at its amortized cost. The cost of
the cap is being amortized against investment income on a straight line
basis over the life of the cap.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the
Parent have a written tax allocation agreement whereby the Parent agrees
not to charge the Company a greater portion of the consolidated tax
liability than would have been paid by the Company if it had filed a
separate return. Additionally, the Parent agrees to reimburse the Company
for any tax benefits arising out of its net losses within ninety days
after the filing of that consolidated tax return for the year in which
these losses are utilized. Deferred federal income taxes are provided for
temporary differences related to the expected future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns.
(d)Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident and
health insurance are reported as earned over the contract term. The
portion of accident and health premiums which is not earned at the end of
a reporting period is recorded as unearned premiums. Estimates of premiums
due but not yet collected are accrued. Policy benefits and expenses are
associated with earned premiums on long-duration contracts resulting in a
level recognition of profits over the anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized in
relation to expected gross profits over the life of the policies (see Note
3).
The liability for future policy benefits and policyholders' contract
deposits is established using assumptions described in Note 4.
(e)Policy and Contract Claims: Policy and contract claims include amounts
representing: (1) the actual in-force amounts for reported life claims and
an estimate of incurred but unreported claims; and (2) an estimate, based
upon prior experience, for accident and health reported and incurred but
unreported losses. The methods of making such estimates and establishing
the resulting reserves are continually reviewed and updated and any
adjustments resulting therefrom are reflected in income currently.
(f)Separate and Variable Accounts: These accounts represent funds for which
investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the
assets are carried at market value. The assets of each account are legally
segregated and are not subject to claims which arise out of any other
business of the Company.
F-11
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(g)Reinsurance Assets: Reinsurance assets include the balances due from both
reinsurance and insurance companies under the terms of the Company's
reinsurance arrangements for ceded unearned premiums, future policy
benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It also
includes funds held under reinsurance treaties.
(h) Accounting Standards:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of" (FASB 121). This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and an impairment loss must be recognized.
FASB 121 was effective for the Company commencing January 1, 1996. The
adoption of this statement in 1996 had no significant effect on the
Company's results of operations, financial condition and liquidity.
In December 1995, FASB issued "Special Report, a Guide to the
Implementation of Statement No. 115 on Accounting for Certain Investments
in Debt and Equity Securities". Among other things, this guide provided
for a transition provision permitting a one-time transfer of debt
securities from the held to maturity classification to the available for
sale classification. The Company did not transfer any securities from the
held to maturity classification to available for sale classification.
(i)The financial statements for 1994 and 1995 have been reclassified to
conform to the 1996 presentation.
2. Investment Information
(a) Statutory Deposits: Securities with a carrying value of $9,369,000 and
$9,381,000 were deposited by the Company under requirements
of regulatory authorities as of December 31, 1996 and 1995, respectively.
F-12
<PAGE>
2. Investment Information - (continued)
b)Net Investment Income: An analysis of net investment income
is as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $351,702 $334,828 $289,374
Equity securities 999 1,006 1,156
Mortgage loans 41,865 40,383 33,251
Real estate 2,835 2,760 2,947
Policy loans 794 733 764
Cash and short-term investments 4,699 4,124 6,839
Other invested assets 2,662 6,381 4,465
--------- --------- ---------
Total investment income 405,556 390,215 338,796
Investment expenses 3,909 3,535 3,286
--------- --------- ---------
Net investment income $401,647 $386,680 $335,510
======== ======== ========
</TABLE>
(c)Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for 1996,
1995 and 1994 are summarized below (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net realized gains (losses)
on investments:
Fixed maturities $ (104) $ (115)$ (75)
Equity securities 714 3,515 2,046
Mortgage loans - (2,000) (2,783)
Other invested assets - 36 2,744
------------ --------------------
Net realized gains $ 610 $ 1,436 $ 1,932
========= ======== ========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities $(115,746) $ 402,020 $(186,892)
Equity securities 5,913 666 (697)
Other invested assets 6,897 1,373 5,581
----------- ------------------------
Change in unrealized appreciation
(depreciation) of investments $ (102,936) $ 404,059 $(182,008)
=========== ========= ==========
Proceeds from the sale of investments in fixed maturities during 1996,
1995 and 1994 were $136,829,000, $65,623,000 and $79,504,000,
respectively.
During 1996, 1995 and 1994, gross gains of $636,000, $624,000 and
$4,861,000, respectively, and gross losses of $740,000, $739,000 and
$4,936,000, respectively, were realized on dispositions of fixed
maturities.
During 1996, 1995 and 1994, gross gains of $714,000, $3,516,000 and
$2,047,000, respectively, and gross losses of $0, $1,000 and $1,000,
respectively, were realized on dispositions of equity securities.
</TABLE>
F-13
<PAGE>
2. Investment Information - (continued)
(d)Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1996 and 1995, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $15,648,000 and $9,650,000 and gross losses of $398,000 and
$480,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross
1996 Amortized Unrealized Gross Market
Cost Gains Unrealized Value
Losses
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 79,195 $ 14,104 $ 420 $ 92,879
States, municipalities and
political subdivisions 854,402 36,479 4,574 886,307
Foreign governments 39,549 3,579 283 42,845
All other corporate 3,483,462 148,570 18,041 3,613,991
---------- --------- ------- ---------
Total fixed maturities $ 4,456,608 $ 202,732 $ 23,318 $4,636,022
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
1995 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 84,063 $ 19,982 $ 39 $ 104,006
States, municipalities and
political subdivisions 883,646 56,568 89 940,125
Foreign governments 33,927 5,291 75 39,143
All other corporate 3,137,534 224,452 10,931 3,351,055
--------- -------- -------- ---------
Total fixed maturities $4,139,170 $ 306,293 $ 11,134 $ 4,434,329
========== ======== ======= ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities
available for sale at December 31, 1996, by contractual maturity, are
shown below (in thousands). Actual maturities could differ from
contractual maturities because certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<S> <C> <C>
Estimated
Amortized Market
Cost Value
Due in one year or less $ 280,178 $ 287,023
Due after one year through five years 1,293,766 1,338,015
Due after five years through ten years 1,758,183 1,834,170
Due after ten years 1,124,481 1,176,814
----------- ------------
$4,456,608 $ 4,636,022
---------- -----------
---------- -----------
</TABLE>
F-14
<PAGE>
2. Investment Information - (continued)
(e) CMO's: CMOs are U.S. Government and Government agency backed and triple
A-rated securities. In the preceding table, CMO's are included in other
corporate fixed maturities. At December 31, 1996 and 1995, the market
value of the CMO portfolio was $1,031,431,000 and $1,114,196,000,
respectively; the estimated amortized cost was approximately $991,305,000
in 1996 and $1,049,450,000 in 1995. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities contained
in the portfolio at December 31, 1996.
(f)Fixed Maturities Below Investment Grade: At December 31, 1996 and 1995,
the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $270,068,000 and $204,254,000,
respectively, and an aggregate market value of $267,331,000 and
$206,442,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h)Investments Greater than 10% Equity: The market value of investments in
the following companies and institutions exceeded 10% of the Company's
total stockholders' equity at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fixed Maturities:
General Motors Acceptance Corporation $ 72,009
Morgan Stanley Mortgage Trust $ 71,790
Transamerica Finance $ 55,300
Chrysler Finance Corporation $ 49,132
</TABLE>
3. Deferred Policy Acquisition Costs
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against future
income and the related current amortization charged to income, excluding
certain amounts deferred and amortized in the same period (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $31,225 $29,626 $29,413
Acquisition costs deferred 8,482 5,933 3,286
Amortization charged to income (3,953) (4,334) (3,073)
------ ------- -------
Balance at end of year $35,754 $31,225 $29,626
======= ======= =======
</TABLE>
F-15
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a)The analysis of the future policy benefits and policyholders' funds on
deposit liabilities as at December 31, 1996 and 1995 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Future policy benefits:
Long duration contracts $1,565,362 $1,537,901
Short duration contracts 23,201 23,859
----------- -----------
$1,588,563 $1,561,760
Policyholder funds on deposit:
Annuities $2,458,340 $2,216,319
Guaranteed investment contracts (GICs) 744,284 739,947
Universal life 98,466 98,214
Other investment contracts 7,118 6,101
$3,308,208 $3,060,581
</TABLE>
(b)Long duration contract liabilities included in future policy benefits, as
presented in the table above, result from traditional life products. Short
duration contract liabilities are primarily accident and health products.
The liability for future policy benefits has been established based upon
the following assumptions:
(i) Interest rates for traditional life insurance products are 9.5 percent
graded to 7.0 percent over 30 years. The liability for future policy
benefits for universal life insurance has been established using FASB 97
and assumes a 1.0 percent investment margin. Interest rates (exclusive of
immediate/terminal funding annuities), which vary by year of issuance and
products, range from 3.0 percent to 10.0 percent. Interest rates on
immediate/terminal funding annuities are at a maximum of 12.2 percent and
grade to not greater than 7.5 percent.
(ii) Mortality and withdrawal rates are based upon actual experience
modified to allow for variations in policy form. The weighted average
lapse rate, including surrenders, for individual life approximated 15.0
percent.
(c)The liability for policyholders' fund on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of issuance
and range from 3.0 percent to 8.0 percent. Credited interest rate
guarantees are generally for a period of one year. Withdrawal charges
generally range from 6.0 percent to 10.0 percent grading to zero over a
period of 6 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited generally
range from 4.7 percent to 8.1 percent and maturities range from 2 to 7
years.
(iii) The universal life funds have credited interest rates of 5.9 percent
to 7.5 percent and guarantees ranging from 3.5 percent to 5.5 percent
depending on the year of issue. Additionally, universal life funds are
subject to surrender charges that amount to 10.0 percent of the fund
balance and grade to zero over a period not longer than 20 years.
F-16
<PAGE>
5. Income Taxes
(a)The Federal income tax rate applicable to ordinary income is 35% for
1996, 1995 and 1994. Actual tax expense on income from operations differs
from the "expected" amount computed by applying the Federal income tax
rate because of the following (in thousands except percentages):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---------------- -------------- -----------
PERCENT PERCENT PERCENT
OF OF OF
PRE-TAX PRE-TAX PRE-TAX
OPERATING OPERATING OPERATING
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $16,989 35.0% $14,287 35.0% $6,172 35.0%
Prior year federal
income tax benefit - - - - - -
State income tax 578 1.2 609 1.5 667 3.8
Other (223) (0.5) (398) (1.0) (162) (0.9)
-------- ----- -------- ---- --------- ----
Actual income
tax expense $17,344 35.7% $14,498 35.5% $ 6,677 37.9%
======= ==== ======= ==== ======= ====
</TABLE>
(b) The components of the net deferred tax liability were as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Adjustments to mortgage loans
and investment income $ 5,321 $ 5,420
Adjustment to life reserves 35,370 23,835
Other 363 1,571
----------- ---------
41,054 30,826
Deferred tax liabilities:
Deferred policy acquisition costs $ 1,437 $ 1,637
Fixed maturities discount 9,816 8,745
Unrealized appreciation on investments 72,979 82,352
Other 267 417
----------- ----------
84,499 93,151
--------- --------
Net deferred tax liability $ 43,445 $ 62,325
======== ========
</TABLE>
(c)At December 31, 1996, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,879,000 of "Policyholders'
Surplus" as defined under the Code. Under provisions of the Code,
"Policyholders' Surplus" has not been currently taxed but would be taxed
at current rates if distributed to the Parent. There is no present
intention to make cash distributions from "Policyholders' Surplus" and
accordingly, no provision has been made for taxes on this amount.
(d)Income taxes paid in 1996, 1995, and 1994 amounted to $25,353,000,
$19,056,000, and $13,537,000, respectively.
F-17
<PAGE>
6. Commitments and Contingent Liabilities
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
7. Fair Value of Financial Instruments
(a)Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments may
or may not be recognized in the balance sheet. In the measurement of the
fair value of certain of the financial instruments, quoted market prices
were not available and other valuation techniques were utilized. These
derived fair value estimates are significantly affected by the assumptions
used. FASB 107 excludes certain financial instruments, including those
related to insurance contracts.
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair value.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair values of policy loans were not calculated as the Company
believes it would have to expend excessive costs for the benefits derived.
Therefore, the fair value of policy loans was estimated at carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair values of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
F-18
<PAGE>
7. Fair Value of Financial Instruments - (continued)
(b) The fair value and carrying amounts of financial instruments
is as follows (in thousands):
<TABLE>
<CAPTION>
1996
FAIR CARRYING
VALUE AMOUNT
-------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments $ 62,059 $ 62,059
Fixed maturities 4,636,022 4,636,022
Equity securities 33,689 33,689
Mortgage and policy loans 533,981 524,533
Interest rate cap 226 283
Policyholders' funds on deposit $3,366,450 $3,308,208
</TABLE>
<TABLE>
<CAPTION>
1995
FAIR CARRYING
VALUE AMOUNT
-------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments $ 105,153 $ 105,153
Fixed maturities 4,434,329 4,434,329
Equity securities 28,935 28,935
Mortgage and policy loans 489,768 459,691
Interest rate cap 433 510
Policyholders' funds on deposit $3,125,730 $3,060,581
</TABLE>
8. Stockholders' Equity
(a)The Company may not distribute dividends to the Parent without prior
approval of regulatory agencies. Generally, this limits the payment of
such dividends to an amount which, in the opinion of the regulatory
agencies, is warranted by the financial condition of the Company. During
1996, the Company paid a $50,000,000 dividend to American International
Group, Inc., the parent.
(b)The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $254,169,000 at December 31, 1996 and
$257,910,000 at December 31, 1995. Statutory net income amounted to
$48,474,000, $49,059,000, and $21,226,000 for 1996, 1995 and 1994,
respectively.
F-19
<PAGE>
9. Employee Benefits
(a)The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and completed
twelve months of continuous service are eligible to participate in this
plan. An employee with 5 or more years of service is entitled to pension
benefits beginning at normal retirement age 65. Benefits are based upon a
percentage of average final compensation multiplied by years of credited
service limited to 44 years of credited service. Prior to January 1, 1996
the average final compensation is subject to certain limitations. Annual
funding requirements are determined based on the "projected unit credit"
cost method which attributes a pro rata portion of the total projected
benefit payable at normal retirement to each year of credited service.
Pension expense for current service costs, retirement and termination
benefits for the years ended December 31, 1996, 1995 and 1994 were
approximately $241,000, $225,000 and $190,000, respectively. The Parent's
plans do not separately identify projected benefit obligations and plan
assets attributable to employees of participating affiliates. The
projected benefit obligations exceeded the plan assets at December 31,
1996 by $42,149,000.
(b)The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which during the two years ended December 31, 1994,
provided for salary reduction contributions by employees and matching
contributions by the Parent up to 2 percent of annual salary. Commencing
January 1, 1995, the 401(k) plan provided for matching contributions by
the Parent of up to 6 percent of annual salary depending on the employee's
years of service.
(c)On April 1, 1985, the Parent terminated and replaced its then existing
U.S. pension plan, a contributory qualified defined benefit plan, with the
current non-contributory qualified defined benefit plan. Settlement of the
obligations of the prior plan was accomplished through the purchase of
annuities from the Company for accrued benefits as of the date of
termination. Future policy benefits reserves in the accompanying balance
sheet that relate to these annuity contracts are $73,866,000 at December
31, 1996 and $73,171,000 at December 31, 1995.
(d)In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
(e)The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provide for eligible employees
to receive privileges to purchase AIG common stock at a price equal to 85%
of the fair market value on the date of grant of the purchase privilege.
The Parent has not recognized compensation costs for either plan. The
effect of the compensation costs, as determined consistent with
FASB 123, was not computed on a subsidiary basis, but rather on a
consolidated basis for all subsidiaries of the Parent and therefore are
not presented herein.
F-20
<PAGE>
10. Leases
(a)The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1996, the
future minimum lease payments under operating leases were as follows:
<TABLE>
<CAPTION>
Year Payments
<S> <C>
1997 $ 1,035
1998 894
1999 396
2000 220
2001 139
Remaining years after 2001 -
---------
Total $2,684
------
------
</TABLE>
Rent expense approximated $866,000, $661,000 and $801,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
(b)Sublease Income - The Company does not participate in sublease agreements.
11. Reinsurance
(a)The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term treaties.
Accident and health insurance risks are reinsured primarily under
coinsurance, excess of loss and quota share treaties. Amounts recoverable
from reinsurers are estimated in a manner consistent with the assumptions
used for the underlying policy benefits and are presented as a component
of reinsurance assets. A contingent liability exists with respect to
reinsurance ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements. The Company also
reinsures portions of its life and accident and health insurance risks
with affiliated companies (see Note 12).
The effect of all reinsurance contracts, including reinsurance assumed, is
as follows (in thousands, except percentages):
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1996 ASSUMED
GROSS CEDED ASSUMED NET TO NET
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,776,324 $638,583 $ 3,282 $4,141,023 0.1%
========== ======== ========== ==========
Premiums:
Life 25,625 3,788 82 21,919 0.4%
Accident and Health 20,553 6,729 22,009 35,833 61.4%
Annuity 92,441 721 - 91,720 -
------------ --------- ---------- ---------- -------
Total Premiums $ 138,619 $11,238 $ 22,091 $149,472 14.8%
=========== ========= ========= ==========
</TABLE>
F-21
<PAGE>
11. Reinsurance - (continued)
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1995 ASSUMED
GROSS CEDED ASSUMED NET TO NET
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,415,460 $711,025 $ 3,574 $3,708,009 0.2%
========== ======== ========== ==========
Premiums:
Life 25,938 3,368 6 22,576 -
Accident and Health 22,136 8,034 20,822 34,924 59.6%
Annuity 27,496 639 - 26,857 -
------------ ----------- -------- --------
Total Premiums $ 75,570 $ 12,041 $ 20,828 $ 84,357 24.7%
============ ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1994 ASSUMED
GROSS CEDED ASSUMED NET TO NET
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,241,039 $512,028 $ 3,980 $3,732,991 0.1%
===============================================
Premiums:
Life 26,345 3,677 13 22,681 0.1%
Accident and Health 23,622 9,520 20,612 34,714 59.4%
Annuity 14,892 461 - 14,431 -
--------- ---------- --------------------------
Total Premiums $ 64,859 $ 13,658 $ 20,625 $ 71,826 28.7%
=========== ====================== ============
</TABLE>
(b) The maximum amount retained on any one life by the Company is $1,000,000.
(c)Reinsurance recoveries, which reduced death and other benefits,
approximated $7,176,000, $7,667,000 and $6,720,000 respectively, for each
of the years ended December 31, 1996, 1995 and 1994.
The Company's reinsurance arrangements do not relieve it from its direct
obligation to its insureds.
12. Transactions with Related Parties
(a)The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance risks.
Premium income and commission ceded to affiliates amounted to $857,000 and
$(2,000), respectively, for the year ended December 31, 1996. Premium
income and commission ceded for 1995 amounted to $800,000 and $(3,000),
respectively. Premium income and commission ceded for 1994 amounted to
$574,000 and $(3,000), respectively. Premium income and ceding commission
expense assumed from affiliates aggregated $20,764,000 and $(120,000),
respectively, for 1996, compared to $19,679,000 and $(141,000),
respectively, for 1995, and $19,331,000 and $98,000, respectively, for
1994.
(b)The Company provides life insurance coverage to employees of the Parent
and its domestic subsidiaries in connection with the Parent's employee
benefit plans. The statement of income includes $5,142,000 in premiums
relating to this business for 1996, $4,080,000 for 1995, and $3,952,000
for 1994.
F-22
<PAGE>
12. Transactions with Related Parties - (continued)
(c)The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional cost
allocation basis which management believes to be reasonable. For the years
ended December 31, 1996, 1995 and 1994, the Company was charged
$24,204,000, $19,148,000, and $17,401,000, respectively, for expenses
attributed to the Company but incurred by affiliates. During the same
period, the Company received reimbursements from affiliates aggregating
$21,198,000, $20,920,000 and $19,505,000, respectively, for costs incurred
by the Company but attributable to affiliates.
(d)During 1995, the Company sold a mortgage loan to AIG Real Estate
Investment and Management Company for the aggregate unpaid principal
balance of $5,000,000.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31,1996
<TABLE>
<CAPTION>
Shares Cost Market Value
<S> <C> <C> <C>
ASSETS:
Investments at Market Value:
Alliance Variable Products Series Fund, Inc.:
Money Market Portfolio ............................. 9,919,014.200 $ 9,919,013 $ 9,919,013
Premier Growth Portfolio ........................... 1,240,910.393 19,846,272 19,482,293
Growth & Income Portfolio .......................... 1,569,924.834 23,774,361 25,746,769
International Portfolio ............................ 468,216.739 6,568,229 6,971,746
Short-Term Multi-Market Portfolio .................. 100,737.097 1,078,598 1,080,910
Global Bond Portfolio .............................. 160,960.409 1,847,386 1,889,666
U.S. Government/High Grade
Securities Portfolio .......................... 553,268.130 6,104,274 6,373,650
Global Dollar Government Portfolio ................. 77,669.860 999,843 1,112,233
North American Government Portfolio ................ 278,703.919 3,174,917 3,450,354
Utility Income Portfolio ........................... 298,191.580 3,511,682 3,784,052
Conservative Investors Portfolio ................... 609,855.522 6,988,153 7,360,960
Growth Investors Portfolio ......................... 138,864.474 1,671,785 1,769,133
Growth Portfolio ................................... 1,527,818.097 22,381,740 27,378,501
Total Return Portfolio ............................. 422,941.964 5,464,771 6,187,640
Worldwide Privatization Portfolio .................. 219,736.446 2,669,747 2,885,143
Technology Portfolio ............................... 425,889.733 4,519,129 4,701,823
Quasar Portfolio ................................... 178,857.613 1,878,569 1,903,045
-------------- --------------
Total Investments ................................................. $ 122,398,469 131,996,931
--------------
Total Assets ................................................................ $ 131,996,931
==============
EQUITY:
Contract Owners' Equity ................................................................ $ 131,996,931
--------------
Total Equity ................................................................ $ 131,996,931
==============
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Growth
Money Premier &
Market Growth Income
Total Portfolio Portfolio Portfolio
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ................................... $ 8,181,959 $ 380,043 $ 3,863,242 $ 2,846,915
Expenses:
Mortality & Expense Risk Fees ............... 1,156,419 106,791 170,402 217,739
Daily Administrative Charges ................ 136,663 12,278 19,549 25,299
--------------- -------------- -------------- ----------------
Net Investment Income (Loss) .................... 6,888,877 260,974 3,673,291 2,603,877
--------------- -------------- -------------- ----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 1,957,749 0 146,908 219,661
Change in Unrealized Appreciation
(Depreciation) .......................... 5,694,413 (2) (987,553) 957,177
--------------- -------------- -------------- ----------------
Net Gain (Loss) on Investments .................. 7,652,162 (2) (840,645) 1,176,838
--------------- -------------- -------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations ................... $ 14,541,039 $ 260,972 $ 2,832,646 $ 3,780,715
=============== ============== ============== ================
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
US
Gov't/
Short-term Global High
International Multi-Market Bond Grade
Portfolio Portfolio Portfolio Portfolio
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ................................... $ 62,807 $ 87,827 $ 142,711 $ 194,079
Expenses:
Mortality & Expense Risk Fees ............... 63,551 12,375 11,616 69,403
Daily Administrative Charges ................ 7,247 1,474 2,299 8,239
--------------- -------------- -------------- ----------------
Net Investment Income (Loss) .................... (7,991) 73,978 128,796 116,437
--------------- -------------- -------------- ----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 47,574 13,582 26,560 75,786
Change in Unrealized Appreciation
(Depreciation) .......................... 224,262 (14,638) (67,713) (81,240)
--------------- -------------- -------------- ----------------
Net Gain (Loss) on Investments .................. 271,836 (1,056) (41,153) (5,454)
--------------- -------------- -------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations ................... $ 263,845 $ 72,922 $ 87,643 $ 110,983
=============== ============== ============== ================
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Global N.
Dollar Amer. Utility Conservative
Gov't Gov't Income Investors
Portfolio Portfolio Portfolio Portfolio
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ................................... $ 12,920 $ 9,055 $ 62,898 $ 72,624
Expenses:
Mortality & Expense Risk Fees ............... 6,611 25,203 35,215 71,329
Daily Administrative Charges ................ 787 3,017 4,200 8,540
--------------- -------------- -------------- ----------------
Net Investment Income (Loss) .................... 5,522 (19,165) 23,483 (7,245)
--------------- -------------- -------------- ----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 44,263 153,100 53,941 73,744
Change in Unrealized Appreciation
(Depreciation) .......................... 84,322 185,915 176,605 279,016
--------------- -------------- -------------- ----------------
Net Gain (Loss) on Investments .................. 128,585 339,015 230,546 352,760
--------------- -------------- -------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations ................... $ 134,107 $ 319,850 $ 254,029 $ 345,515
=============== ============== ============== ================
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Growth Total Worldwide
Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ................................... $ 19,132 $ 383,660 $ 33,324 $ 10,722
Expenses:
Mortality & Expense Risk Fees ............... 24,957 241,229 51,996 19,833
Daily Administrative Charges ................ 2,988 28,786 6,210 2,372
--------------- -------------- -------------- ----------------
Net Investment Income (Loss) .................... (8,813) 113,645 (24,882) (11,483)
--------------- -------------- -------------- ----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 134,363 737,513 50,865 61,800
Change in Unrealized Appreciation
(Depreciation) .......................... 56,638 3,861,809 622,785 189,862
--------------- -------------- -------------- ----------------
Net Gain (Loss) on Investments .................. 191,001 4,599,322 673,650 251,662
--------------- -------------- -------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations ................... $ 182,188 $ 4,712,967 $ 648,768 $ 240,179
=============== ============== ============== ================
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Technology Quasar
Portfolio Portfolio
--------- ---------
<S> <C> <C>
Investment Income (Loss):
Dividends ................................... $ 0 $ 0
Expenses:
Mortality & Expense Risk Fees ............... 25,714 2,455
Daily Administrative Charges ................ 3,085 293
--------------- --------------
Net Investment Income (Loss) .................... (28,799) (2,748)
--------------- --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 117,905 184
Change in Unrealized Appreciation
(Depreciation) .......................... 182,694 24,474
--------------- --------------
Net Gain (Loss) on Investments .................. 300,599 24,658
--------------- --------------
Increase (Decrease) in Net Assets
Resulting From Operations ................... $ 271,800 $ 21,910
=============== ==============
</TABLE>
See Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31,1995
1996
<TABLE>
<CAPTION>
Growth
Money Premier &
Market Growth Income
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 6,888,877 $ 260,974 $ 3,673,291 $ 2,603,877
Realized Gain (Loss) on Investment Activity . 1,957,749 0 146,908 219,661
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 5,694,413 (2) (987,553) 957,177
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Operations ............................. 14,541,039 260,972 2,832,646 3,780,715
----------------- ----------------- --------------- ----------------
Capital Transactions:
Contract Deposits ........................... 71,962,107 26,676,166 6,354,843 9,296,869
Administrative Charges ...................... (23,635) (1,270) (3,314) (4,460)
Transfers Between Funds ..................... 2,682,801 (22,285,986) 3,936,089 5,347,859
Contract Withdrawals ........................ (4,363,405) (525,634) (439,663) (773,457)
Deferred Sales Charges ...................... (138,921) (18,228) (10,496) (20,065)
Death Benefits .............................. (1,217,191) (94,836) (148,549) (147,666)
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Capital Transactions ................... 68,901,756 3,750,212 9,688,910 13,699,080
----------------- ----------------- --------------- ----------------
Total Increase (Decrease) in Net Assets ......... 83,442,795 4,011,184 12,521,556 17,479,795
Net Assets, at Beginning of Year ................ 48,554,136 5,907,829 6,960,737 8,266,974
----------------- ----------------- --------------- ----------------
Net Assets, at End of Year ......................$ 131,996,931 $ 9,919,013 $ 19,482,293 $ 25,746,769
================= ================= =============== ================
</TABLE>
<TABLE>
<CAPTION>
1995
Growth
Money Premier &
Market Growth Income
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 52,300 $ 143,493 $ (26,769) $ 25,849
Realized Gain (Loss) on Investment Activity . 438,752 0 206,646 179,555
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 4,059,714 0 631,962 1,035,975
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Operations ............................. 4,550,766 143,493 811,839 1,241,379
----------------- ----------------- --------------- ----------------
Capital Transactions:
Contract Deposits ........................... 37,156,227 15,453,447 3,643,200 3,834,979
Transfers Between Funds ..................... 0 (9,732,102) 1,447,409 1,285,496
Transfers From (To) AI Life ................. (1,437,541) (1,444,946) 0 0
Administrative Charges ...................... (9,296) (1,236) (977) (1,208)
Contract Withdrawals ........................ (1,174,004) (602,457) (49,333) (128,790)
Deferred Sales Charges ...................... (39,979) (23,450) (1,553) (2,412)
Death Benefits .............................. (145,741) (336) (42,673) (37,226)
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Capital Transactions ................... 34,349,666 3,648,920 4,996,073 4,950,839
----------------- ----------------- --------------- ----------------
Total Increase (Decrease) in Net Assets ......... 38,900,432 3,792,413 5,807,912 6,192,218
Net Assets, at Beginning of Year ................ 9,653,704 2,115,416 1,152,825 2,074,756
----------------- ----------------- --------------- ----------------
Net Assets, at End of Year ......................$ 48,554,136 $ 5,907,829 $ 6,960,737 $ 8,266,974
================= ================= =============== ================
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 US
Gov't/
Short-term Global High
International Multi-Market Bond Grade
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (7,991) $ 73,978 $ 128,796 $ 116,437
Realized Gain (Loss) on Investment Activity . 47,574 13,582 26,560 75,786
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 224,262 (14,638) (67,713) (81,240)
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Operations ............................. 263,845 72,922 87,643 110,983
----------------- ----------------- --------------- ----------------
Capital Transactions:
Contract Deposits ........................... 1,619,246 541,695 526,163 1,706,170
Administrative Charges ...................... (1,631) (166) (407) (2,035)
Transfers Between Funds ..................... 2,399,936 (292,015) 343,345 322,519
Contract Withdrawals ........................ (170,258) (7,245) (26,346) (215,735)
Deferred Sales Charges ...................... (2,573) 0 (275) (5,297)
Death Benefits .............................. (134,958) (57,584) (14,015) (42,513)
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Capital Transactions ................... 3,709,762 184,685 828,465 1,763,109
----------------- ----------------- --------------- ----------------
Total Increase (Decrease) in Net Assets ......... 3,973,607 257,607 916,108 1,874,092
Net Assets, at Beginning of Year ................ 2,998,139 823,303 973,558 4,499,558
----------------- ----------------- --------------- ----------------
Net Assets, at End of Year ......................$ 6,971,746 $ 1,080,910 $ 1,889,666 $ 6,373,650
================= ================= =============== ================
</TABLE>
<TABLE>
<CAPTION>
1995 US
Gov't/
Short-term Global High
International Multi-Market Bond Grade
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (16,456) $ (4,215) $ (2,996) $ 4,710
Realized Gain (Loss) on Investment Activity . 26,266 (3,483) (247) 18,645
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 194,742 30,769 114,189 362,005
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Operations ............................. 204,552 23,071 110,946 385,360
----------------- ----------------- --------------- ----------------
Capital Transactions:
Contract Deposits ........................... 1,225,656 784,239 290,274 2,199,892
Transfers Between Funds ..................... 304,156 (135,351) 326,218 1,240,474
Transfers From (To) AI Life ................. 0 0 0 0
Administrative Charges ...................... (1,683) (63) (162) (484)
Contract Withdrawals ........................ (112,438) 0 (29,399) (25,751)
Deferred Sales Charges ...................... (3,737) 0 (692) (63)
Death Benefits .............................. 0 0 0 (33,092)
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Capital Transactions ................... 1,411,954 648,825 586,239 3,380,976
----------------- ----------------- --------------- ----------------
Total Increase (Decrease) in Net Assets ......... 1,616,506 671,896 697,185 3,766,336
Net Assets, at Beginning of Year ................ 1,381,633 151,407 276,373 733,222
----------------- ----------------- --------------- ----------------
Net Assets, at End of Year ......................$ 2,998,139 $ 823,303 $ 973,558 $ 4,499,558
================= ================= =============== ================
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31, 1995
<TABLE>
<CAPTION>
1996
Global N.
Dollar Amer. Utility Conservative
Gov't Gov't Income Investors
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 5,522 $ (19,165) $ 23,483 $ (7,245)
Realized Gain (Loss) on Investment Activity . 44,263 153,100 53,941 73,744
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 84,322 185,915 176,605 279,016
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Operations ............................. 134,107 319,850 254,029 345,515
----------------- ----------------- --------------- ----------------
Capital Transactions:
Contract Deposits ........................... 441,487 2,381,640 1,891,458 4,704,752
Administrative Charges ...................... (136) (614) (513) (778)
Transfers Between Funds ..................... 355,456 41,162 475,955 928,879
Contract Withdrawals ........................ (9,570) (240,914) (93,660) (252,945)
Deferred Sales Charges ...................... (137) (14,198) (1,123) (10,524)
Death Benefits .............................. 0 (39,347) 0 (258,912)
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Capital Transactions ................... 787,100 2,127,729 2,272,117 5,110,472
----------------- ----------------- --------------- ----------------
Total Increase (Decrease) in Net Assets ......... 921,207 2,447,579 2,526,146 5,455,987
Net Assets, at Beginning of Year ................ 191,026 1,002,775 1,257,906 1,904,973
----------------- ----------------- --------------- ----------------
Net Assets, at End of Year ......................$ 1,112,233 $ 3,450,354 $ 3,784,052 $ 7,360,960
================= ================= =============== ================
</TABLE>
<TABLE>
<CAPTION>
1995
Global N.
Dollar Amer. Utility Conservative
Gov't Gov't Income Investors
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 36 $ 11,653 $ (3,400) $ (7,632)
Realized Gain (Loss) on Investment Activity . 1,659 (33,120) 8,865 7,540
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 28,993 183,345 97,317 93,187
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Operations ............................. 30,688 161,878 102,782 93,095
----------------- ----------------- --------------- ----------------
Capital Transactions:
Contract Deposits ........................... 114,973 498,520 735,782 1,295,707
Transfers Between Funds ..................... (7,100) (353,701) 298,196 464,257
Transfers From (To) AI Life ................. 0 0 0 0
Administrative Charges ...................... (29) (1,048) (117) (102)
Contract Withdrawals ........................ (5,466) (45,276) (11,410) (17,859)
Deferred Sales Charges ...................... 0 (1,770) (232) (119)
Death Benefits .............................. 0 (32,414) 0 0
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Capital Transactions ................... 102,378 64,311 1,022,219 1,741,884
----------------- ----------------- --------------- ----------------
Total Increase (Decrease) in Net Assets ......... 133,066 226,189 1,125,001 1,834,979
Net Assets, at Beginning of Year ................ 57,960 776,586 132,905 69,994
----------------- ----------------- --------------- ----------------
Net Assets, at End of Year ......................$ 191,026 $ 1,002,775 $ 1,257,906 $ 1,904,973
================= ================= =============== ================
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31, 1995
<TABLE>
<CAPTION>
1996
Growth Total Worldwide
Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (8,813) $ 113,645 $ (24,882) $ (11,483)
Realized Gain (Loss) on Investment Activity . 134,363 737,513 50,865 61,800
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 56,638 3,861,809 622,785 189,862
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Operations ............................. 182,188 4,712,967 648,768 240,179
----------------- ----------------- --------------- ----------------
Capital Transactions:
Contract Deposits ........................... 1,706,418 7,547,011 2,931,098 1,154,022
Administrative Charges ...................... (351) (6,711) (733) (413)
Transfers Between Funds ..................... (793,530) 5,676,961 1,350,794 899,896
Contract Withdrawals ........................ (58,019) (1,235,945) (179,584) (96,953)
Deferred Sales Charges ...................... (1,694) (42,508) (3,937) (2,393)
Death Benefits .............................. 0 (174,472) 0 0
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Capital Transactions ................... 852,824 11,764,336 4,097,638 1,954,159
----------------- ----------------- --------------- ----------------
Total Increase (Decrease) in Net Assets ......... 1,035,012 16,477,303 4,746,406 2,194,338
Net Assets, at Beginning of Year ................ 734,121 10,901,198 1,441,234 690,805
----------------- ----------------- --------------- ----------------
Net Assets, at End of Year ......................$ 1,769,133 $ 27,378,501 $ 6,187,640 $ 2,885,143
================= ================= =============== ================
</TABLE>
<TABLE>
<CAPTION>
1995
Growth Total Worldwide
Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (3,310) $ (59,891) $ (4,995) $ (3,777)
Realized Gain (Loss) on Investment Activity . 3,354 19,182 1,861 2,029
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 40,929 1,120,763 100,209 25,329
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Operations ............................. 40,973 1,080,054 97,075 23,581
----------------- ----------------- --------------- ----------------
Capital Transactions:
Contract Deposits ........................... 268,883 5,741,124 793,257 276,294
Transfers Between Funds ..................... 397,035 3,625,601 509,809 329,603
Transfers From (To) AI Life ................. 7,405 0 0 0
Administrative Charges ...................... (40) (1,999) (68) (80)
Contract Withdrawals ........................ (11,434) (125,673) (6,235) (2,483)
Deferred Sales Charges ...................... (22) (5,814) (84) (31)
Death Benefits .............................. 0 0 0 0
Increase (Decrease) in Net Assets Resulting ----------------- ----------------- --------------- ----------------
From Capital Transactions ................... 661,827 9,233,239 1,296,679 603,303
----------------- ----------------- --------------- ----------------
Total Increase (Decrease) in Net Assets ......... 702,800 10,313,293 1,393,754 626,884
Net Assets, at Beginning of Year ................ 31,321 587,905 47,480 63,921
----------------- ----------------- --------------- ----------------
Net Assets, at End of Year ......................$ 734,121 $ 10,901,198 $ 1,441,234 $ 690,805
================= ================= =============== ================
</TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31, 1995
1996
<TABLE>
<CAPTION>
Technology Quasar
Portfolio Portfolio
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (28,799) $ (2,748)
Realized Gain (Loss) on Investment Activity . 117,905 184
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 182,694 24,474
Increase (Decrease) in Net Assets Resulting ----------------- -----------------
From Operations ............................. 271,800 21,910
----------------- -----------------
Capital Transactions:
Contract Deposits ........................... 1,995,004 488,065
Administrative Charges ...................... (98) (5)
Transfers Between Funds ..................... 2,577,326 1,398,155
Contract Withdrawals ........................ (32,453) (5,024)
Deferred Sales Charges ...................... (5,417) (56)
Death Benefits .............................. (104,339) 0
Increase (Decrease) in Net Assets Resulting ----------------- -----------------
From Capital Transactions ................... 4,430,023 1,881,135
----------------- -----------------
Total Increase (Decrease) in Net Assets ......... 4,701,823 1,903,045
Net Assets, at Beginning of Year ................ 0 0
----------------- -----------------
Net Assets, at End of Year ......................$ 4,701,823 $ 1,903,045
================= =================
</TABLE>
1995
<TABLE>
<CAPTION>
Technology Quasar
Portfolio Portfolio
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 0 $ 0
Realized Gain (Loss) on Investment Activity . 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 0 0
Increase (Decrease) in Net Assets Resulting ----------------- -----------------
From Operations ............................. 0 0
----------------- -----------------
Capital Transactions:
Contract Deposits ........................... 0 0
Transfers Between Funds ..................... 0 0
Transfers From (To) AI Life ................. 0 0
Administrative Charges ...................... 0 0
Contract Withdrawals ........................ 0 0
Deferred Sales Charges ...................... 0 0
Death Benefits .............................. 0 0
Increase (Decrease) in Net Assets Resulting ----------------- -----------------
From Capital Transactions ................... 0 0
----------------- -----------------
Total Increase (Decrease) in Net Assets ......... 0 0
Net Assets, at Beginning of Year ................ 0 0
----------------- -----------------
Net Assets, at End of Year ......................$ 0 $ 0
================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
1. History
Variable Account A (the "Account") is a separate investment account under the
provisions of New York Insurance Law by American International Life Assurance
Company of New York (the "Company"), a subsidiary of American International
Group, Inc. The Account operates as a unit investment trust registered under the
Investment Company Act of 1940, as amended, and supports the operations of the
Company's individual single purchase payment deferred variable annuity contracts
(the "contracts"). The Account invests in shares of Alliance Variable Products
Series Fund, Inc. (the "Fund"). The Fund consists of seventeen series: Money
Market Portfolio; Short-Term Multi-Market Portfolio; Premier Growth Portfolio
(formerly the Growth Portfolio); Growth and Income Portfolio; International
Portfolio; Global Bond Portfolio; U.S. Government/High Grade Securities
Portfolio; Global Dollar Government Portfolio; North American Government
Portfolio; Utility Income Portfolio; Conservative Investors Portfolio; Growth
Investors Portfolio; Growth Portfolio; Total Return Portfolio; World
Privatization Portfolio; Quasar Portfolio and Technology Portfolio. The Account
invests in shares of other funds which are not available to these contracts.
The assets of the Account are the property of the Company. The portion of the
Account's assets applicable to the contracts are not chargeable with liabilities
arising out of any other business conducted by the Company.
In addition to the Account, a contract owner may also allocate funds to the
Guaranteed Account, which is part of the Company's general account. Amounts
allocated to the Guaranteed Account are credited with a guaranteed rate for one
year. Because of exemptive and exclusionary provisions, interests in the
Guaranteed Account have not been registered under the Securities Act of 1933 and
the Guaranteed Account has not been registered as an investment company under
the Investment Company Act of 1940.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Account in preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation -The investments in the Funds are stated at market value
which is the net asset value of each of the respective series as determined at
the close of business on the last business day of the period by the Fund.
B. Accounting for Investments - Investment transactions are accounted
for on the date the investments are purchased or sold. Dividend income is
recorded on the ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations and
is not taxed separately. Under existing federal law, no taxes are
payable on investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required
management to make estimates and
assumptions that affect the reported values of assets and liabilities and
the reported amounts from operations and policy transactions. Actual
results could differ from those estimates.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
3. Contract Charges
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are equivalent on an
annual basis to 1.25% of the value of the contracts.
Daily charges for administrative expenses are assessed through the daily unit
value calculation on all contracts issued subsequent to April 1, 1994 (i.e.
Variable Annuity II contracts) and are equivalent on an annual basis to 0.15% of
the value of the contracts. In addition, an annual administrative expense charge
of $30 is assessed against each contract on its anniversary date by surrendering
units.
The contracts provide that in the event that a contract owner withdraws all or a
portion of the contract value within six contract years they will be assessed a
deferred sales charge. The deferred sales charge is based on a table of charges,
of which the maximum charge is 6% of the contract value subject to a maximum of
8.5% of purchase payments.
Certain states impose premium taxes upon contracts. The Company intends to
advance premium taxes due until the contract is surrendered or annuitized.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
4. Purchases of Investments
For the year ended December 31, 1996, investment activity
in the Fund was as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
Alliance Variable Product Series Fund, Inc.:
Money Market Portfolio ................... $ 23,696,345 $ 19,691,318
Premier Growth Portfolio ................. 14,941,643 1,578,929
Growth & Income Portfolio ................ 17,421,921 1,118,931
International Portfolio .................. 4,248,758 546,966
Short-Term Multi-Market Portfolio ........ 1,249,009 990,346
Global Bond Portfolio .................... 1,146,187 188,953
U.S. Government/High Grade
Securities Portfolio ................. 2,604,204 723,827
Global Dollar Government Portfolio ....... 934,460 141,838
North American Government Portfolio ...... 2,923,068 814,526
Utility Income Portfolio ................. 2,766,476 470,916
Conservative Investors Portfolio.......... 6,415,134 1,311,899
Growth Investors Portfolio................ 2,225,359 1,381,347
Growth Portfolio.......................... 14,133,282 2,255,264
Total Return Portfolio.................... 4,318,012 245,253
Worldwide Privatization Portfolio......... 2,340,438 397,762
Technology Portfolio...................... 6,295,942 1,894,718
Quasar Portfolio.......................... 1,883,017 4,631
</TABLE>
For the year ended December 31, 1995, investment activity
in the Fund was as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sale
<S> <C> <C>
Shares of
Alliance Variable Product Series Fund, Inc.:
Money Market Portfolio ................... $ 12,870,122 $ 9,111,196
Premier Growth Portfolio ................. 5,767,441 808,729
Growth & Income Portfolio ................ 5,995,161 1,028,929
International Portfolio .................. 1,917,772 532,939
Short-Term Multi-Market Portfolio ........ 883,446 239,035
Global Bond Portfolio .................... 609,386 26,318
U.S. Government/High Grade
Securities Portfolio ................. 3,715,608 331,256
Global Dollar Government Portfolio ....... 144,679 42,307
North American Government Portfolio ...... 662,338 587,096
Utility Income Portfolio ................. 1,085,769 67,034
Conservative Investors Portfolio.......... 1,902,672 168,602
Growth Investors Portfolio................ 681,600 23,110
Growth Portfolio.......................... 9,261,087 88,309
Total Return Portfolio.................... 1,309,428 17,782
Worldwide Privatization Portfolio......... 623,657 24,175
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1996, transactions in accumulation
units of the account were as follows:
<TABLE>
<CAPTION>
Growth
Money Premier & Inter- Short-Term
Market Growth Income national Multi-Market
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------- ------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY
Units Purchased ............................. 2,468,420.33 392,966.71 559,710.53 126,885.32 51,826.98
Units Withdrawn ............................. (58,136.62) (34,799.42) (54,646.96) (23,632.29) (6,243.60)
Units Transferred Between Funds ............. (2,093,033.53) 236,722.17 268,725.71 190,525.15 (33,467.46)
Units Transferred From (To) AI Life ......... 21,658.93 10,880.67 47,759.23 2,990.13 5,548.96
--------------- ------------- ------------- ------------ ---------------
Net Increase (Decrease) ..................... 338,909.11 605,770.13 821,548.51 296,768.31 17,664.88
Units, at Beginning of the Year ............. 551,555.84 420,662.68 502,667.80 228,254.81 81,425.05
--------------- ------------- ------------- ------------ ---------------
Units, at End of the Year ................... 890,464.95 1,026,432.81 1,324,216.31 525,023.12 99,089.93
=============== ============= ============= ============ ===============
Unit Value at December 31, 1996 ............. $ 10.99 $ 18.45 $ 18.99 $ 12.92 $ 10.83
=============== ============= ============= ============ ===============
</TABLE>
<TABLE>
<CAPTION>
U.S.
Gov't/ Global N.
Global High Dollar Amer. Utility
Bond Grade Gov't Gov't Income
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------- ------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Units Purchased ............................. 42,900.97 153,364.56 33,063.25 206,453.12 164,494.54
Units Withdrawn ............................. (2,894.53) (23,083.12) (741.78) (25,137.21) (7,974.86)
Units Transferred Between Funds ............. 24,347.38 28,567.47 27,958.48 3,021.26 30,021.47
Units Transferred From (To) AI Life ......... 4,764.64 2,851.87 0.00 0.00 16,024.08
--------------- ------------- ------------- ------------ ---------------
Net Increase (Decrease) ..................... 69,118.46 161,700.78 60,279.95 184,337.17 202,565.23
Units, at Beginning of the Year ............. 76,604.28 390,483.21 16,171.63 95,031.46 103,042.86
--------------- ------------- ------------- ------------ ---------------
Units, at End of the Year ................... 145,722.74 552,183.99 76,451.58 279,368.63 305,608.09
=============== ============= ============= ============ ===============
Unit Value at December 31, 1996 ............. $ 12.82 $ 11.50 $ 14.55 $ 12.35 $ 12.38
=============== ============= ============= ============ ===============
</TABLE>
<TABLE>
<CAPTION>
Conservative Growth Total Worldwide
Investors Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio Portfolio
---------------- -------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Units Purchased ............................. 417,582.25 144,725.19 491,189.41 241,480.36 94,947.69
Units Withdrawn ............................. (45,872.15) (4,891.14) (93,905.63) (14,225.68) (8,156.60)
Units Transferred Between Funds ............. 84,308.13 (65,599.85) 304,834.37 101,339.19 72,327.52
Units Transferred From (To) AI Life ......... 355.84 4,800.44 62,238.55 6,020.50 2,451.67
---------------- -------------- -------------- ------------- ----------------
Net Increase (Decrease) ..................... 456,374.07 79,034.64 764,356.70 334,614.37 161,570.28
Units, at Beginning of the Year ............. 164,400.64 62,762.43 777,108.88 121,094.82 62,769.30
---------------- -------------- -------------- ------------- ----------------
Units, at End of the Year ................... 620,774.71 141,797.07 1,541,465.58 455,709.19 224,339.58
================ ============== ============== ============= ================
Unit Value at December 31, 1996 ............. 11.86 12.48 $ 17.73 $ 13.52 $ 12.86
================ ============== ============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
Technology Quasar
Portfolio Portfolio
--------------- -------------
<S> <C> <C>
Units Purchased ............................. 194,743.94 46,732.08
Units Withdrawn ............................. (14,161.68) (491.50)
Units Transferred Between Funds ............. 250,722.70 133,568.15
Units Transferred From (To) AI Life ......... 224.45 0.00
--------------- -------------
Net Increase (Decrease) ..................... 431,529.41 179,808.73
Units, at Beginning of the Year ............. 0.00 0.00
--------------- -------------
Units, at End of the Year ................... 431,529.41 179,808.73
=============== =============
Unit Value at December 31, 1996 ............. $ 10.90 $ 10.58
=============== =============
</TABLE>
<TABLE>
<CAPTION>
Growth
Money Premier & Inter- Short-Term
Market Growth Income national Multi-Market
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY II
Units Purchased ............................. 0.00 0.00 0.00 0.00 0.00
Units Withdrawn ............................. (1,155.02) (786.22) (1,568.62) (797.79) (0.99)
Units Transferred Between Funds ............. 9,947.34 (5,609.74) 3,322.29 (1,865.97) 0.00
Units Transferred From (To) AI Life ......... 0.00 0.00 0.00 0.00 0.00
--------------- ------------- ------------ ----------- -------------
Net Increase (Decrease) ..................... 8,792.32 (6,395.96) 1,753.67 (2,663.76) (0.99)
Units, at Beginning of the Year ............. 3,518.68 35,734.27 30,128.93 17,060.48 679.80
--------------- ------------- ------------ ----------- -------------
Units, at End of the Year ................... 12,311.00 29,338.31 31,882.60 14,396.72 678.81
=============== ============= ============ =========== =============
Unit Value at December 31, 1996 ............. $ 11.01 $ 18.49 $ 19.02 $ 12.95 $ 10.85
=============== ============= ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
U.S.
Gov't/
Global High Utility Total
Bond Grade Income Growth Return
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Units Purchased ............................. 0.00 0.00 0.00 0.00 0.00
Units Withdrawn ............................. (474.07) (720.42) 0.00 (0.47) (18.95)
Units Transferred Between Funds ............. (774.23) (2,433.99) (5,016.41) 985.74 2,702.11
Units Transferred From (To) AI Life ......... 0.00 0.00 0.00 0.00 0.00
--------------- ------------- ------------ ----------- -------------
Net Increase (Decrease) ..................... (1,248.30) (3,154.41) (5,016.41) 985.27 2,683.16
Units, at Beginning of the Year ............. 2,930.03 4,995.61 5,016.41 2,064.78 0.00
--------------- ------------- ------------ ----------- -------------
Units, at End of the Year ................... 1,681.73 1,841.20 0.00 3,050.05 2,683.16
=============== ============= ============ =========== =============
Unit Value at December 31, 1996 ............. $ 12.84 $ 11.53 $ 11.90 $ 17.76 $ 10.54
=============== ============= ============ =========== =============
</TABLE>
<PAGE>
<PAGE>
PROSPECTUS
for
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK
80 Pine Street
New York, New York 10005
This Prospectus sets forth the information a prospective investor ought to
know before investing.
The Individual Deferred Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide for accumulation of Contract Values and
payment of monthly annuity payments. The Contracts may be used in retirement
plans which do not qualify for federal tax advantages ("Non-Qualified
Contracts") or in connection with retirement plans which may qualify as
Individual Retirement Annuities ("IRA") under Section 408 of the Internal
Revenue Code of 1986, as amended (the "Code") or Section 403(b) of the Code
("403(b) Plans"). The Contracts will not be available in connection with
retirement plans designed by American International Life Assurance Company of
New York (the "Company") which qualify for the federal tax advantages available
under Sections 401 and 457 of the Code. Purchasers intending to use the
Contracts in connection with an IRA or 403(b) Plan should seek competent tax
advice.
Premiums allocated among the Subaccounts of Variable Account A (the
"Variable Account") will be invested in shares of corresponding portfolios of
the Alliance Variable Products Series Fund, Inc. (the "Fund"). The following
Portfolios are available: Money Market Portfolio; Short-Term Multi-Market
Portfolio; Growth Portfolio; Growth and Income Portfolio; International
Portfolio; U.S. Government/High Grade Securities Portfolio; North American
Government Income Portfolio; Global Dollar Government Portfolio; Utility Income
Portfolio; Global Bond Portfolio; Premier Growth Portfolio; Total Return
Portfolio; Conservative Investors Portfolio; Growth Investors Portfolio; Quasar
Portfolio; Real Estate Investment Portfolio; Worldwide Privatization Portfolio;
and Technology Portfolio. (See "The Fund" __.)
Additional information about the Contracts and the Variable Account is
contained in the "Statement of Additional Information" which is available upon
request at no charge by calling or writing American International Life Assurance
Company of New York; Attention: Variable Products, One Alico Plaza, Wilmington,
Delaware 19801, 1-800-340-2765 or call the service office at 1-800-255-8402. The
Statement of Additional Information dated May 1, 1997, has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference. The
Table of Contents for the Statement of Additional Information can be found on
page ___ of this Prospectus.
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.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE
NOT GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, FEDERAL RESERVE BOARD, OR ANY OTHER GOVRNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY
INCLUDE THE POSSIBLE LOSS OF PRINCIPAL.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
Date of Prospectus: May 1, 1997
1
<PAGE>
TABLE CONTENTS
PAGE
Definitions....................................................
Highlights.....................................................
Summary of Expenses............................................
Condensed Financial Information................................
The Company....................................................
The Variable Account...........................................
Alliance Variable Products Series Fund, Inc....................
The Contract
Charges and Deductions.........................................
Annuity Benefits...............................................
Death Benefit..................................................
Distributions Under the Contract...............................
Taxes..........................................................
Appendix ......................................................
Table of Contents of the Statement of Additional Information.
2
<PAGE>
DEFINITIONS
Accumulation Unit - An accounting unit of measure used to calculate the Contract
Value prior to the Annuity Date.
Administrative Office - The Annuity Service Office of the Company:
c/o Delaware Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031,
Berwyn, PA 19312-0031.
Annuitant - The person designated by the Owner upon whose continuation of life
any annuity payment involving life contingencies depends.
Annuity Date - The date on which annuity payments are to commence.
Annuity Option - An arrangement under which annuity payments are made under this
Contract.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
Contract Year - Each period of twelve (12) months commencing with the Effective
Date.
Effective Date - The date on which the first Contract Year begins.
Guaranteed Account - A part of our General Account, which earns a guaranteed
rate of interest.
Owner - The person named in the Contract Schedule, unless changed, and who has
all rights under the Contract.
Premium - A purchase payment for the Contract isreferred to as a Premium.
Premium Year - Any period of twelve (12) months commencing with the date a
Premium payment is made and ending on the same date in each succeeding twelve
(12) month period thereafter.
Surrender Charge - A contingent deferred sales charge isreferred to as a
Surrender Charge.
Valuation Date - Each day that We and the New York Stock Exchange are open for
trading.
Valuation Period - The period between the close of business on any Valuation
Date and the close of business for the next succeeding Valuation Date.
We, Our, Us - American International Life Assurance Company of New York.
You, Your - The Owner of this Contract.
3
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contracts and a segregated investment account
ofthe Company which account has been designated Variable Account A . The
Contracts are designed to assist in financial planning by providing for the
accumulation of capital on a tax-deferred basis for retirement and other
long-term purposes, and providing for the payment of monthly annuity income.
Contracts may be purchased in connection with a retirement plan which may
qualify as a 403 (b) Plan or as an Individual Retirement Annuity ("IRA"). The
Contract may also be purchased for retirement plans, deferred compensation plans
and other purposes which do not qualify for such special Federal income tax
treatment ("Non-Qualified Contracts"). (See "Taxes" on page ___.)
A Contract is purchased with a minimum initial premium of $2,000. Additional
Premium is permitted at any time, subject to certain limitations. (See "Premium
and Allocation to Your Investment Options" on page ___.) You, as the Owner of
the Contract, may allocate your Premium so that it accumulates on a variable
basis, a fixed basis or a combination of both.
Premium allocated among the Subaccounts of the Variable Account will be invested
in shares of one or more of the underlying portfolios of the Fund, and will
accumulate on a variable basis. Each Subaccount invests exclusively in one of
the following Portfolios: Money Market; Short-Term Multi-Market; Growth; Growth
and Income; International; U.S. Government/High Grade Securities; North American
Government Income; Global Dollar Government; Utility Income; Global Bond;
Premier Growth; Total Return; Conservative Investors; Growth Investors;
Worldwide Privatization; Quasar; Real Estate Investment and Technology. (See
"The Fund" on Page ___.) Your value in any one of these Subaccounts will vary
according to the investment performance of the underlying portfolio chosen by
you. You bear the entire investment risk for all premium allocated to the
Separate Account.
The Company does not deduct Sales Charges from any Premium received. However,
the Contracts provide for a Surrender Charge that may be assessed in the event
that an Owner surrenders all or a portion of the Contract Value within seven
contract years following payment of any Premium. The maximum Surrender Charge is
6% of Premium to which the charge is applicable. (See "Summary of Expenses" on
page ____, and "Charges and Deductions - Deduction for Surrender Charge" on page
.)
A penalty free withdrawal is available. Generally, there is no Surrender Charge
imposed on the greater of the Contract Value less Premiums paid or the portion
of the Withdrawal that does not exceed 10% of Premium otherwise subject to the
Surrender Charge. (See "Withdrawals" on page ___.)
Surrenders and Withdrawals may be taxable and subject to a penalty tax. (See
"Taxes" beginning on page ___.)
The Company deducts daily a Mortality and Expense Risk Charge which is equal on
an annual basis to 1.25% of the average daily net asset value of the Variable
Account. There are no Mortality and Expense Risk Charges deducted for amounts in
the Guaranteed Account. (See "Charges and Deductions - Deduction for Mortality
and Expense Risk Charge" on page
.)
The Company deducts daily an Administrative Charge which is equal on an annual
basis to 0.15% of the average daily net asset value of the Variable Account. The
Administrative Charge is not assessed to the Guaranteed Account. In addition,
the Company deducts from the Contract Value, an annual Contract Maintenance Fee
which is $30 per year. The Contract Maintenance Fee is waived if the Contract
Value is greater than $50,000 on the date of the charge. (See "Charges and
Deductions - Deduction for Administrative Charge and Contract Maintenance Fee"
on page .)
There are deductions and expenses paid out of the assets of the Fund which are
described in the accompanying Prospectus for the Fund.
The Owner may return the Contract within ten (10) days (the "Right to Examine
Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA, the Company will refund the greater of the Premium less
any Withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the Premium paid less any Withdrawals, the Company will refund such an
amount.
4
<PAGE>
<TABLE>
<CAPTION>
FEE TABLE
OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
<S> <C>
Sales Load Imposed on Purchases....................... None
Surrender Charge (as a percentage of amount surrendered):
Premium Year 1 6%
Premium Year 2 6%
Premium Year 3 5%
Premium Year 4 5%
Premium Year 5 4%
Premium Year 6 3%
Premium Year 7 2%
Premium Year 8 and thereafter None
Exchange Fee:
First 12 Per Contract Year..................................None
Thereafter..................................................$ 10
Annual Contract Maintenance Fee...................................$ 30
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees..............................1.25%
Account Fees and Expenses....................................0.15%
Total Separate Account Annual Expenses...........................1.40%
</TABLE>
5
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses Net of Any Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Fee Expenses Expenses
----------------------------------
<S> <C> <C> <C>
Alliance Portfolios
Alliance Money Market 0.50% 0.19% 0.69%
Alliance Short-Term Multi-Market 0.00% 0.95% 0.95%
Alliance Growth 0.74% 0.19% 0.95%
Alliance Growth and Income 0.63% 0.19% 0.82
Alliance International 0.04% 0.91% 0.95%
Alliance U.S. Government
/High Grade Securities 0.54% 0.36% 0.92%
Alliance North American Government Income 0.19% 0.95% 0.95%
Alliance Global Dollar Government 0.00% 0.95% 0.95%
Alliance Utility Income 0.19% 0.76% 0.95%
Alliance Global Bond 0.44% 0.50% 0.94%
Alliance Premier Growth 0.72% 0.23% 0.95%
Alliance Total Return 0.46% 0.49% 0.95%
Alliance Conservative Investors 0.30% 0.65% 0.95%
Alliance Growth Investors 0.74% 0.19% 0.93%
Alliance Worldwide Privatization 0.10% 0.85% 0.95%
Alliance Technology* 0.33% 0.52% 0.95%
Alliance Quasar 0.00% 0.95% 0.95%
Alliance Real Estate Investment** 0.00% 0.95% 0.95%
</TABLE>
* The expense percentages for the Technology and Quasar Portfolio have been
annualized for both portfolios have not been in existence for a full year.
** Expense percentages for the Real Estate Investment Portfolio has been
estimated.
The purpose of the table set forth above is to assist the Purchaser in
understanding the various costs and expenses that an Owner will bear directly or
indirectly. The table reflects expenses of the Variable Account as well as the
Fund. (See "Charges and Deductions" on page of this Prospectus and "Management
of the Fund" in the Fund Prospectus.)
No deduction will be made for any Premium or other taxes levied by any
State unless imposed by the State where you reside. Premium taxes currently
imposed on the Contracts by various states range from 0% to 3.5% of Premiums
paid. (See "Charges and Deductions Deduction for StatePremium Taxes" on page .)
"Other Expenses" are based upon the expenses outlined under the section
entitled "Management of the Fund" in the Fund Prospectus.
Fund operating expenses for each Series before reimbursement by the
Fund's investment adviser were estimated to be .69% for the Money Market; 2.09 %
for the Short-Term Multi-Market; .93% for the Growth; 1.91% for International;
.98% for the U.S. Government/High Grade Securities; 1.15% for the Global Bond;
1.41% for the North American Government Income; 1.97% for the Global Dollar
Government; 1.51% for the Utility Income; 1.23% for the Premier Growth; 1.12%
for the Total Return;1.40 % for the Conservative Investors; 1.85% for the Growth
Investors; 1.85% for the Worldwide Privatization; 4.44% for the Quasar ; 6.00%
for the Real Estate Investment ; and 1.62 % for the Technology Portfolio, of
the average daily net assets.
In the event that an Owner withdraws all or a portion of the Contract
Value in excess of the Free Withdrawal Amount for the first withdrawal in a
Contract Year, or makes subsequent withdrawals in a Contract Year, a Deferred
Sales Charge may be imposed. The Free Withdrawal Amount is equal to 10% of the
Purchase Payment paid, less any prior withdrawals at the time of withdrawal.
(See "Charges and Deductions - Deduction for Deferred Sales Charge" on page .)
6
<PAGE>
Expenses on a hypothetical $1,000 policy, assuming 5% growth:
<TABLE>
<CAPTION>
If you surrender
Portfolio 1 Year 3 Years 5 Years 10 Years
Years
<S> <C> <C> <C> <C>
Money Market 76 112 151 248
Short Term Multi-Market 78 120 165 275
Growth 78 120 164 273
Growth and Income 77 116 158 262
International 78 120 165 275
A U.S. Gov't/High Grade Securities 78 119 163 272
North American Gov't Income 78 120 165 275
Global Dollar Government 78 120 165 275
Utility Income 78 120 165 275
Global Bond 78 120 164 274
Premier Growth 78 120 165 275
Total Return 78 120 165 275
Conservative Investors 78 120 165 275
Growth Investors 78 120 165 275
Worldwide Privatization 78 120 165 275
Technology 78 120 165 275
Quasar 78 120 165 275
Real Estate Investment 78 120 165 275
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
If you annuitize or
if you do not surrender
Portfolio 1 Year 3 Years 5 Years 10 Years
- --------- ------------------------------ --------
<S> <C> <C> <C> <C>
Money Market 22 67 115 274
Short Term Multi-Market 24 75 129275
Growth 24 75 128 273
Growth and Income 23 71 122 262
International 24 75 129 275
U.S. Gov't/High Grade Securities 24 74 127 272
North American Gov't Income 24 75 129 275
Global Dollar Government 24 75 129 275
Utility Income 24 75 129 275
Global Bond 24 75 128 274
Premier Growth 24 75 129 275
Total Return 24 75 129 275
Conservative Investors 24 75 129 275
Growth Investors 24 75 129 275
Worldwide Privatization 24 75 129 275
Technology 24 75 129 275
Quasar 24 75 129 275
Real Estate Investment 24 75 129 275
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ----- ----------- ------- ----
<S> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET
Accumulation Unit Value
Beginning of Period 10.64 10.27 10.07 10.00 N/A
End of Period 10.99 10.64 10.27 10.07 N/A
Accum Units o/s @ end of period 890,464.95 551,555.84 206,034.73 1,590.74 N/A
ALLIANCE SHORT-TERM MULTI-MARKET
Accumulation Unit Value
Beginning of Period 10.03 9.51 10.31 9.79 10.00
End of Period 10.83 10.03 9.51 10.31 9.79
Accum Units o/s @ end of period 99,089.93 81,425.05 15,915.04 6,843.27 8369.93
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period 13.99 10.48 11.13 10.00 10.00
End of Period 17.73 13.99 10.48 11.13 10.00
Accum Units o/s @ end of period 1,541,465.58 777,108.88 56,104.84 35,271.53 2,081.43
ALLIANCE GROWTH & INCOME
Accumulation Unit Value
Beginning of Period 15.52 11.57 11.76 10.66 10.00
End of Period 18.99 15.52 11.57 11.76 10.66
Accum Units o/s @ end of period 1,324,216.31 502,667.80 179,245.69 37,573.04 7,731.36
ALLIANCE INTERNATIONAL
Accumulation Unit Value
Beginning of Period 12.22 11.27 10.69 10.00 N/A
End of Period 12.92 12.22 11.27 10.69 N/A
Accum Units o/s @ end of period 525,023.12 228,254.81 122,616.95 22,441.08 N/A
ALLIANCE U.S. GOVERNMENT HIGH GRADE
Accumulation Unit Value
Beginning of Period 11.38 9.66 10.17 10.00 N/A
End of Period 11.50 11.38 9.66 10.17 N/A
Accum Units o/s @ end of period 552,183.99 390,483.21 75,881.31 7,608.84 N/A
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME
Accumulation Unit Value
Beginning of Period 10.55 8.71 10.00 N/A N/A
End of Period 12.35 10.55 8.71 N/A N/A
Accum Units o/s @ end of period 279,368.63 95,031.46 89,164.68 N/A N/A
ALLIANCE GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period 11.81 9.73 10.00 N/A N/A
End of Period 14.55 11.81 9.73 N/A N/A
Accum Units o/s @ end of period 76,451.58 16,171.63 5,958.1 N/A N/A
ALLIANCE UTILITY INCOME
Accumulation Unit Value
Beginning of Period 11.64 9.71 10.00 N/A N/A
End of Period 12.38 11.64 9.71 N/A N/A
Accum Units o/s @ end of period 305,608.09 103,042.86 13,690.19 N/A N/A
ALLIANCE GLOBAL BOND
Accumulation Unit Value
Beginning of Period 12.24 9.94 10.61 10.00 N/A
End of Period 12.82 12.24 9.94 10.61 N/A
Accum Units o/s @ end of period 145,722.74 76,604.28 27,806.30 5,589.55 N/A
ALLIANCE PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 15.25 10.66 10.00 N/A N/A
End of Period 18.45 15.25 10.66 N/A N/A
Accum Units o/s @ end of period 1,026,432.81 420,662.68 108,111.20 N/A N/A
ALLIANCE TOTAL RETURN
Accumulation Unit Value
Beginning of Period 11.90 9.75 10.00 N/A N/A
End of Period 13.52 11.90 9.75 N/A N/A
Accum Units o/s @ end of period 455,709.19 121,094.82 4,871.12 N/A N/A
ALLIANCE CONSERVATIVE INVESTORS
Accumulation Unit Value
Beginning of Period 11.59 10.03 10.00 N/A N/A
End of Period 11.86 11.59 10.03 N/A N/A
Accum Units o/s @ end of period 620,774.71 164,400.64 6,977.55 N/A N/A
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ALLIANCE GROWTH INVESTORS
Accumulation Unit Value
Beginning of Period 11.70 9.83 10.00 N/A N/A
End of Period 12.48 11.70 9.83 N/A N/A
Accum Units o/s @ end of period 141,797.07 62,762.43 3,185.25 N/A N/A
ALLIANCE WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period 11.01 10.05 10.00 N/A N/A
End of Period 12.86 11.01 10.05 N/A N/A
Accum Units o/s @ end of period 224,339.58 62,769.30 6,357.69 N/A N/A
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A N/A N/A
End of Period 10.90 N/A N/A N/A N/A
Accum Units o/s @ end of period 431,529.41 N/A N/A N/A N/A
ALLIANCE QUASAR
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A N/A N/A
End of Period 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period 179,808.73 N/A N/A N/A N/A
ALLIANCE REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period N/A N/A N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A N/A N/A
</TABLE>
12
<PAGE>
*Funds were first invested in the Portfolios as listed below:
<TABLE>
<CAPTION>
<S> <C>
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 1992
Short-Term Multi-Market Portfolio June 25, 1992
Global Bond Portfolio May 10, 1993
Money Market Portfolio May 13,1993
International Portfolio June 1, 1993
U.S. Government/High Yield
Securities Portfolio June 14, 1993
North American Government
Income Portfolio April 8, 1994
Global Dollar
Government Portfolio May 26 , 1994
Utility Income Portfolio June 15, 1994
Conservative Investors Portfolio September 8,1994
Growth Investors Portfolio August 16, 1994
Growth Portfolio August 12, 1994
Total Return Portfolio September 12,1994
Worldwide Privatization Portfolio October 17,1994
Technology Portfolio January22,1996
Quasar Portfolio August 15,1996
Real Estate Investment Portfolio January 7,1997
</TABLE>
13
<PAGE>
Calculation of Performance Data
The Company may, from time to time, advertise certain performance
related information concerning one or more of the Subaccounts, including
information as to total return and yield. Performance information about a
Subaccount is based on the Subaccount's past performance only and is not
intended as an indication of future performance.
When the Company advertises the average annual total return of a
Subaccount, it will usually be calculated for one, five, and ten year
periods or, where a Subaccount has been in existence for a period less
than one, five or ten years, for such lesser period. Average annual total
return is measured by comparing the value of the investment in a
Subaccount at the beginning of the relevant period to the value of the
investment at the end of the period (assuming the deduction of any
Surrender Charge which would be payable if the account were redeemed at
the end of the period) and calculating the average annual compounded rate
of return necessary to produce the value of the investment at the end of
the period. The Company may simultaneously present returns that do not
assume a surrender and, therefore, do not deduct the Surrender Charge.
When the Company advertises the yield of a Subaccount it will be
calculated based upon a given 30-day period. The yield is determined by
dividing the net investment income earned per Accumulation Unit during the
period by the value of an Accumulation Unit on the last day of the period.
When the Company advertises the performance of the Money Market
Subaccount it may advertise in addition to the total return either the
yield or the effective yield. The yield of the Money Market Subaccount
refers to the income generated by an investment in that Subaccount over a
seven-day period. The income is then annualized (i.e., the amount of
income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of
the investment). The effective yield is calculated similarly but when
annualized the income earned by an investment in the Money Market
Subaccount is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all
contract charges: sales charges, mortality and expense risk charges, and
the administrative charges, and is therefore lower than the total return
at a Fund level, which has no comparable charges. Likewise, yield and
effective yield at the Variable Account level take into account all
recurring charges (except sales charges), and are therefore lower than the
yield and effective yield at a Fund level, which has no comparable
charges. Performance information for a Subaccount may be compared to: (i)
the Standard & Poor's 500 Stock Index, Dow Jones Industrial Average,
Donoghue Money Market Institutional Averages, indices measuring corporate
bond and government security prices as prepared by Lehman Brothers, Inc.
and Salomon Brothers or other indices measuring performance of a pertinent
group of securities so that investors may compare a Subaccount's results
with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks
mutual funds and other investment companies by overall performance,
investment objectives, and assets, or tracked by other ratings services,
companies, publications, or persons who rank separate accounts or other
investment products on overall performance or other criteria; (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in the Contract; and (iv) indices or averages of
alternative financial products available to prospective investors,
including the Bank Rate Monitor which monitors average returns of various
bank instruments.
Financial Data
Financial Statements of the Company may be found in the
Statement of Additional Information. No financial statements for the
Variable Account have been provided in the Statement of Additional
Information because as of the date of the reporting period no
contracts had been issued.
14
<PAGE>
THE COMPANY
The Company) is a stock life insurance company which was organized under
the laws of the State of New York in 1962. The Company provides a full range of
life insurance and annuity plans. The Company is a subsidiary of American
International Group, Inc., which serves as the holding company for a number of
companies engaged in the international insurance business, both life and
general, in approximately 130 countries and jurisdictions around the world.
THE VARIABLE ACCOUNT
The Company owns the assets in the Variable Account and obligations under
the Contract are general corporate obligations. The Variable Account and each
Subaccount, however, are separate from the Company's other assets including
those of the General Account and from any other separate accounts and
subaccounts. The assets of the Variable Account, equal to the reserves and other
contract liabilities with respect to the Variable Account and Subaccount, are
not chargeable with liabilities arising out of any other business the Company
may conduct. Investment income, as well as both realized and unrealized gains
and losses are, in accordance with the Contracts, credited to or charged against
the Variable Account and each Subaccount without regard to income, gains or
losses arising out of any other business of the Company. As a result, the
investment performance of each Subaccount and the Variable Account is entirely
independent of the investment performance of the General Account and of any
other separate account and subaccount maintained by the Company.
The Variable Account is divided into Subaccounts, with the assets of each
Subaccount invested in shares of one portfolio of the Fund. The Company may,
from time to time, add additional portfolios of the Fund, and, when appropriate,
additional mutual funds to act as the funding vehicles for the Contracts. If
deemed to be in the best interests of persons having voting rights under the
Contract, the Variable Account may be operated as a management company under the
Investment Company Act of 1940, may be deregistered under such Act in the event
such registration is no longer required, or may be combined with one or more
other separate accounts. The Company may offer other variable annuity contracts
which also invest in Variable Account A, and are described in other
prospectuses.
15
<PAGE>
THE FUND
Alliance Variable Products Series Fund, Inc., will act as the funding
vehicle for the Contracts offered hereby. The Fund is managed by Alliance
Capital Management L.P., (the "Advisor"). The Fund is an open-end, diversified
management investment company, which is intended to meet differing investment
objectives. The Fund has made available the following portfolios: Money Market;
Short-Term Multi-Market; Growth; Growth and Income; International; U.S.
Government/High Grade Securities; Global Bond; North American Government Income;
Global Dollar Government; Utility Income; Premier Growth, Conservative
Investors; Growth Investors; Total Return; Worldwide Privatization; Quasar; Real
Estate Investment ; and Technology. The Investment Manager has entered into a
sub-advisory agreement with AIG Global Investors, Inc. (the "Sub-Adviser"), a
subsidiary of American International Group, Inc. and an affiliate of the
Company, to provide investment advice for the Global Bond Portfolio. A summary
of investment objectives for each portfolio is contained in the description of
the Fund below. More detailed information including the investment advisory fee
of each portfolio and other charges assessed by the Fund, may be found in the
current Prospectus for the Fund which contains a discussion of the risks
involved in investing in the Fund. The Prospectus for the Fund is included with
this Prospectus. Please read both Prospectuses carefully before investing.
THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS ARE AS FOLLOWS:
Money Market Portfolio
This portfolio seeks safety of principal, maintenance of liquidity and
maximum current income by investing in a broadly diversified portfolio of money
market securities.
Short-Term Multi-Market Portfolio
This portfolio seeks the highest level of current income, consistent with
what the Investment Manager considers to be prudent investment risk that is
available from a portfolio of high-quality debt securities having remaining
maturities of not more than three years.
Growth Portfolio
This portfolio seeks growth of capital rather than current income. In
pursuing its investment objective, the Growth Portfolio will employ aggressive
investment policies. Since investments will be made based upon their potential
for capital appreciation, current income will be incidental to the objective of
capital growth. Because of the risks involved in any investment, the selection
of securities on the basis of their appreciation possibilities cannot ensure
against possible loss in value. Moreover, to the extent the portfolio seeks to
achieve its objective through such aggressive investment policies, the risk of
loss increases. The portfolio is therefore not intended for investors whose
principal objective is assured income or preservation of capital.
Growth and Income Portfolio
This portfolio seeks to balance the objectives of reasonable current
income and reasonable opportunities for appreciation through investments
primarily in dividend-paying common stocks of good quality.
International Portfolio
This portfolio seeks to obtain a total return on its assets from long-term
growth of capital and from income principally through a broad portfolio of
marketable securities of established non-United States companies (or United
States companies having their principal activities and interests outside the
United States), companies participating in foreign economies with prospects for
growth, and foreign government securities.
North American Government Income Portfolio
This portfolio seeks the highest level of current income, consistent with
what the adviser considers to be prudent investment risk, that is available from
a portfolio of debt securities issued or guaranteed by the governments of the
United States, Canada and Mexico, their political subdivisions (including
Canadian Provinces but excluding the States of the United States), agencies,
instrumentalities or authorities. The portfolio seeks high current yields by
investing in government securities denominated in local currency and U.S.
Dollars. Normally, the portfolio expects to maintain at least 25% of its assets
in securities denominated in U.S. Dollars.
Global Dollar Government Portfolio
This portfolio seeks a high level of current income through investing
substantially all of its assets in U.S. and non-U.S. fixed income securities
denominated only in U.S. Dollars. As a secondary objective, the portfolio seeks
capital appreciation. Substantially all of the portfolio's assets will be
invested in high yield, high risk securities that are low-rated (i.e., below
investment grade), or of comparable quality and unrated, and that are considered
to be predominately speculative as regards the issuer's capacity to pay interest
and repay principal.
Utility Income Portfolio
This portfolio seeks current income and capital appreciation by investing
primarily in the equity and fixed-income securities of companies in the
"utilities industry." The portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical performance of
securities of utilities companies. The utilities industry consists of companies
engaged in the manufacture, production, generation, provision, transmission,
sale and distribution of gas, electric energy, and communications equipment and
services, and in the provision of other utility or utility-related goods and
services.
U.S. Government/High Grade Securities Portfolio
This portfolio seeks a high level of current income consistent with
preservation of capital by investing principally in a portfolio of U.S.
Government Securities, and other high grade debt securities.
Global Bond Portfolio
This portfolio seeks to provide the highest level of current income
consistent with what the Fund's Advisor and Sub-Advisor consider to be prudent
investment risk that is available from a multi-currency portfolio of high
quality debt securities of varying maturities.
Premier Growth Portfolio
This portfolio seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based on their
potential for capital appreciation, current income will be incidental to the
objective of capital growth. The portfolio is not intended for investors whose
principal objective is assured income or preservation of capital.
Total Return Portfolio
This portfolio seeks to achieve a high return through a combination of
current income and capital appreciation by investing in a diversified portfolio
of common and preferred stocks, senior corporate debt securities, and U.S.
Government and Agency obligations, bonds and senior debt securities.
Conservative Investors Portfolio
This portfolio seeks the highest total return without, in the view of the
Fund's Advisor, undue risk to principal by investing in a diversified mix of
publicly traded equity and fixed-income securities.
Growth Investors Portfolio
This portfolio seeks the highest total return consistent with what the
Fund's Advisor considers to be reasonable risk by investing in a diversified mix
of publicly traded equity and fixed-income securities.
Worldwide Privatization Portfolio
This portfolio seeks long-term capital appreciation by investing
principally in equity securities issued by enterprises that are undergoing, or
have undergone, privatization. The balance of the investment portfolio will
include equity securities of companies that are believed by the Fund's Advisor
to be beneficiaries of the privatization process.
Technology Portfolio
This portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. The Technology portfolio
invests principally in a diversified portfolio of securities of companies
which use technology extensively in the development of new or improved
products or processes.
Quasar Portfolio
This portfolio seeks growth of capital by pursuing aggressive
investment policies. The portfolio invests principally in a diversified
portfolio of equity securities of any company and industry and in any type
of security which is believed to offer possibilities for capital
appreciation.
Real Estate Investment Portfolio
This portfolio seeks a total return on its assets from long-term
growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
THERE IS NO ASSURANCE THAT ANY OF THESE PORTFOLIOS WILL ACHIEVE THEIR
STATED OBJECTIVES.
16
<PAGE>
Voting Rights
As previously stated, all of the assets held in the Subaccounts of the
Variable Account will be invested in shares of a corresponding portfolio of the
Fund. The Fund does not hold regular meetings of shareholders. Based on the
Company's view of present applicable law, we will vote the portfolio shares held
in the Variable Account at meetings of shareholders in accordance with
instructions received from persons having a voting interest in the portfolio.
However, if the 1940 Act or its regulations are amended, or if our
interpretation of present law changes to permit us to vote the portfolio shares
in our own right, we may elect to do so.
Prior to the Annuity Date, the Owner holds a voting interest in each
portfolio in which there is value in the corresponding Subaccount. The number of
portfolio shares which are attributable to the Owner is determined by dividing
the corresponding value in a particular Subaccount by the net asset value of one
portfolio share. The number of votes which an Owner will have a right to cast
will be determined as of the record date established by each portfolio.
We will solicit voting instructions by mail prior to the shareholder
meetings. An Owner having a voting interest in a Subaccount will be sent proxy
material, reports and other materials as provided by the Fund, relating to the
appropriate portfolios. The Company will vote shares in accordance with
instructions received from the Owner having a voting interest. At the meeting,
the Company will vote shares for which it has received no instructions and any
shares not attributable to Owners in the same proportion as it votes shares for
which it has received instructions from Owners.
The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds allocated to the Guaranteed
Account.
Shares of the Fund may be sold only to separate accounts of life insurance
companies. The shares of the Fund will be sold to separate accounts of the
Company and its affiliates, as well as to separate accounts of other affiliated
or unaffiliated life insurance companies to fund variable annuity contracts and
variable life insurance policies. It is conceivable that, in the future, it may
be disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
the Company nor the Fund currently foresees any such disadvantages, either to
variable life insurance policyowners or to variable annuity Owners, the Fund's
Board of Directors will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response thereto. If a material irreconcilable
conflict were to occur, the Fund will take whatever steps it deems necessary, at
its expense, to remedy or eliminate the irreconcilable material conflict. If
such a conflict were to occur, one or more insurance company separate accounts
might withdraw its investments in the Fund. This might force the Fund to sell
securities at disadvantageous prices.
17
<PAGE>
Substitution Of Shares
If the shares of the Fund (or any portfolio within the Fund) should no
longer be available for investment by the Variable Account or if, in the
judgment of the Company, further investment in such shares should become
inappropriate in view of the purpose of the Contracts, the Company may
substitute shares of another mutual fund (or portfolio within the fund) for Fund
shares already purchased or to be purchased in the future under the Contracts.
No substitution of securities may take place without any required prior approval
of the Securities and Exchange Commission and under such requirements as it may
impose.
THE CONTRACT
The Contract described in this Prospectus is a flexible premium deferred
variable annuity.
Parties to the Contract
Owner
As the purchaser of the Contract, You may exercise all rights and
privileges provided in the Contract, subject to any rights that You, as
Owner, may convey to an irrevocable beneficiary. As Owner, You will also
be the Annuitant, unless You name in writing some other person as
Annuitant.
Annuitant
The Annuitant is the person who receives annuity payments and upon
the continuance of whose life these payments are based. You may designate
someone other than yourself as Annuitant. If the Annuitant is a person
other than the Owner, and the Annuitant dies before the Annuity Date, You
will become the Annuitant unless you designate someone else as the new
Annuitant.
Beneficiary
The Beneficiary You designate will receive the death proceeds if You
die prior to the Annuity Date. If no Beneficiary is living at that time,
the death proceeds are payable to Your estate. If the Annuitant dies after
the Annuity Date, the Beneficiary will receive any remaining guaranteed
payments under an Annuity Option. If no Beneficiary is living at that
time, the remaining guaranteed payments are payable to Your estate.
Change of Annuitant and Beneficiary
Prior to the Annuity Date, You may change the Annuitant and
Beneficiary by making a written request to Our Administrative Office.
After the Annuity Date only a change of Beneficiary may be made. Once We
have accepted Your written request, any change will become effective on
the date You signed it. However, any change will be subject to any payment
or other action taken by Us before We record the change. If the Owner is
not a natural person, under current Federal tax law, the Contract may be
subject to unintended and adverse tax consequences. For possible tax
considerations of these changes, seeTaxes, page____.
How to Purchase a Contract
At the time of application, the Purchaser must pay at least the minimum
Premium required and provide instructions regarding the allocation of the
Premium among the Subaccounts. Acceptance of the Premium and form of application
is subject to Our requirements and We reserve the right to reject any Premium.
If the application and Premium are accepted in the form received, the Premium
will be credited and allocated to the Subaccounts within two business days of
its receipt. The date the Premium is credited to the Contract is the Effective
Date.
If within five days of the receipt of the initial Premium We have not
received sufficient information to issue a Contract, You will be contacted. The
reason for the delay will be explained to You. If You consent We will retain the
Premium until the necessary requirements are fulfilled. Otherwise, the Premium
will be immediately refunded to You.
Discount Purchase Programs
Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families may not be subject to the Surrender Charge. Such purchases
include retirement accounts and must be for accounts in the name of the
individual or qualifying family member.
18
<PAGE>
Distributor
AIG Equity Sales Corp. ("AESC"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AESC is a wholly-owned subsidiary of AIG,
and an affiliate of the Company. Commissions not to exceed 6.5% of Premiums will
be paid to entities which sell the Contract. Additional payments may be made for
other services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature and
similar services.
Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
to be prohibited from performing certain agency or administrative services and
receiving fees from AESC, Owners who purchased Contracts through the bank would
be permitted to retain their Contracts and alternate means for servicing those
Owners would be sought. It is not expected, however, that Owners would suffer
any loss of services or adverse financial consequences as a result of any of
these occurrences.
Administration of the Contracts
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Owner's records. DVFS serves as the administrator to various
insurance companies offering variable contracts.
Premium and Allocation to Your Investment Options
The initial Premium must be at least $2,000. You may make additional
payments of Premium, prior to the Annuity Date, in amounts of at least $1,000 or
as little as $100 if You are a participant in the automatic investment plan.
There is no maximum limit on the additional Premium You may pay or on the
numbers of payments; however, the Company reserves the right to reject any
Premium on any Contract. You specify at the time of issue or subsequently how
the remaining amount, known as Additional Premium will be allocated.
The initial Premium is allocated among the Subaccounts and Guaranteed
Account on the Effective Date. Your allocation instructions will specify what
percentage of Your initial Premium is to be credited to each Subaccount and to
the Guaranteed Account. Allocation instructions must be expressed in whole
percentages of not less than 10%. Allocations for additional Premium will be
made on the same basis as the initial Premium unless We receive a written notice
with new instructions. Additional Premium will be credited to the Contract Value
and allocated at the close of the first Valuation Date on or after which the
Additional Premium is received at Our Administrative Office.
ALL PREMIUM TO IRA OR 403 (B) PLAN CONTRACTS MUST COMPLY WITH THE
APPLICABLE PROVISIONS IN THE CODE AND THE APPLICABLE PROVISIONS OF YOUR
RETIREMENT PLAN. ADDITIONAL PREMIUM COMMINGLED IN AN IRA WITH A ROLLOVER
CONTRIBUTION FROM OTHER RETIREMENT PLANS MAY RESULT IN UNFAVORABLE TAX
CONSEQUENCES. YOU SHOULD SEEK LEGAL COUNSEL AND TAX ADVICE REGARDING THE
SUITABILITY OF THE CONTRACT FOR YOUR SITUATION. (SEE " TAXES " ON PAGE___ .)
19
<PAGE>
Right to Examine Contract Period
The Contract provides a 10 day Right to Examine Contract Period giving You
the opportunity to cancel the Contract. You must return the Contract with
written notice to Us. If We receive the Contract and Your written notice within
10 days after it is received by You, the Contract will be voided. With the
exception of Contracts issued in connection with an IRA, in those states whose
laws do not require that We assume the risk of market loss during the Right to
Examine Contract Period, should You decide to cancel Your Contract, the amount
to be returned to You will be the Contract Value (on the day We receive the
Contract) plus any charges deducted for State Taxes, without imposition of the
Surrender Charge. The amount returned to you may be more or less than the
initial Premium. (See "Charges and Deductions" on page___ .) For Contracts
issued in those states that require we return the premium, we will do so. In the
case of Contracts issued in connection with an IRA, the Company will refund the
greater of the Premium, less any withdrawals, or the Contract Value.
State laws governing the duration of the Right to Examine Contract Period
may vary from state to state. We will comply with the laws of the state in which
the Owner resides at the time the Contract is applied for. Federal laws
governing IRAs require a minimum seven day right of revocation. We provide 10
days from the date the Contract is received by you. (See "Individual Retirement
Annuities" on page___.)
Unit Value and Contract Value
After the deduction of certain charges and expenses, amounts which You
allocate to a Subaccount of the Variable Account are used to purchase
Accumulation Units in that Subaccount, not shares of the Portfolio in which that
Subaccount invest: The number of Accumulation Units you purchase will be
determined by dividing the amount allocated to each Subaccount by the Unit Value
of the Subaccount for the Valuation Period during which the amount was
allocated.
The Unit Value for each Subaccount will vary from one Valuation Period to
the next, based on the investment experience of the Portfolio in which the
Subaccount invests and the deduction of certain charges and expenses. The
Statement of Additional Information contains a detailed explanation of how
Accumulation Units are valued.
Your value in any given Subaccount is determined by multiplying the Unit
Value for the Subaccount by the number of Units You own. Your value within the
Variable Account is the sum of your values in all the Subaccounts. The total
value of your Contract, known as the Contract Value, equals your Value in the
Variable Account plus Your value in the Guaranteed Account.
Transfers
Prior to the Annuity Date, You may make Transfers among the Subaccounts
and into and out of the Guaranteed Account subject to certain rules.
At the present time there is no limit on the number of transfers which can
be made among the Subaccounts and the Guaranteed Account in any one Contract
Year. We reserve the right to limit the number of transfers to 12 per Contract
Year. There are no fees for the first 12 transfers in any one Contract Year. For
each transfer in excess of 12 within one Contract Year, We impose a transfer fee
of $10. A transfer fee, if any, is deducted from the amount transferred. (See
Appendix, "Guaranteed Account," page___.)
20
<PAGE>
Transfers may be made by written request or by telephone as described in
the Contract or specifically authorized in writing. The Company will undertake
reasonable procedures to confirm that instructions communicated by telephone are
genuine. All calls will be recorded. All transfers will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
After the Annuity Date, the Owner may transfer the Contract Value
allocated to the Variable Account among the Subaccounts. However, the Company
reserves the right to refuse any more than one transfer per month. The transfer
fee is the same as before the Annuity Date. This transfer fee, if any, will be
deducted from the next annuity payment after the transfer. If following the
transfer, the Annuity Units remaining in the Subaccount would generate a monthly
annuity payment of less than $100, the Company will transfer the entire amount
in the Subaccount.
Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Subaccount. The number of Annuity Units for each
Subaccount will remain the same for the remainder of the payment period unless
the Owner requests another change.
The minimum amount which may be transferred at any one time is the lesser
of $1,000 or the value of the Subaccount or Guarantee Period from which the
transfer is made. However, the minimum amount for transfers under our Dollar
Cost Averaging program is $100 per Subaccount. (See "Dollar Cost Averaging") For
additional limitations regarding transfers out of the Guaranteed Account, see
"The Guaranteed Account" in the Appendix, page ____.)
Dollar Cost Averaging
The Company currently offers an option under which Owners may dollar cost
average their allocations in the Subaccounts under the contract by authorizing
the Company to make periodic allocations of Contract Value from any one
Subaccount to one or more of the other Subaccounts. Dollar cost averaging is a
systematic method of investing in which securities are purchased at regular
intervals in fixed dollar amounts so that the cost of the securities gets
averaged over time and possibly over various market cycles. The option will
result in the allocation of Contract Value to one or more Subaccounts, and these
amounts will be credited at the Accumulation Unit value as of the end of the
Valuation Dates on which the exchanges are effected. Amounts periodically
transferred under this option are not included in the 12 transfers per Contract
Year discussed under "Transfers" on page ___. Since the value of Accumulation
Units will vary, the amounts allocated to a Subaccount will result in the
crediting of a greater number of units when the Accumulation Unit value is low
and a lesser number of units when the Accumulation Unit value is high.
Similarly, the amounts exchanged from a Subaccount will result in a debiting of
a greater number of units when the Subaccount's Accumulation Unit value is low
and a lesser number of units when the Accumulation Unit value is high. Dollar
cost averaging does not guarantee profits, nor does it assure that an Owner will
not have losses.
To elect the Dollar Cost Averaging Option, the Owner's Contract Value must
be at least $12,000 and a Dollar Cost Averaging Request in proper form must be
received by the Company. A Dollar Cost Averaging Request form is available from
the Administrative Office upon request. The Dollar Cost Averaging Request form
will not be considered complete until the Contract Value is at least the
required amount. An Owner may not have in effect at the same time Dollar Cost
Averaging and Asset Rebalancing Options. A Dollar Cost Averaging Request form is
available from the Administrative Office upon request.
Asset Rebalancing Option
The Company currently offers an option under which Owners may authorize
the Company to automatically exchange Contract Value periodically to maintain a
particular percentage allocation among the Subaccounts as selected by the Owner.
The Contract Value allocated to each Subaccount will grow or decline in value at
different rates during the selected period, and Asset Rebalancing automatically
reallocates the Contract Value in the Subaccounts to the allocation selected by
the Owner. Asset Rebalancing is intended to exchange Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help an Owner buy low and sell
high, although there can be no assurance of this. This investment method does
not guarantee profits, nor does it assure that an Owner will not have losses.
To elect the Asset Rebalancing Option, the Contract Value in the Contract
must be at least $12,000 and an Asset Rebalancing Request in proper form must be
received by the Company. An Owner may not have in effect at the same time Dollar
Cost Averaging and Asset Rebalancing Options. An Asset Rebalancing Request form
is available upon request. If the Asset Rebalancing Option is elected, all
Contract Value allocated to the Subaccounts must be included in the Asset
Rebalancing Option.
The amounts transferred will be credited to the Accumulation Unit Value
as of the end of the Valuation Dates on which the transfers are effected.
Amounts periodically transferred under this option are not included in the 12
transfers per Contract Year discussed under "Transfers" on page ____.
An Owner may instruct the Company at any time to terminate this option by
written request. Once terminated, this Option may not be reselected during the
same Contract Year.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Premium, the Contract Value
and the Variable Account. These charges and deductions are as follows:
Deduction for State Premium Taxes
We do not deduct premium taxes unless assessed by the state of residence
of the Owner. Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged at Our discretion against either
Premium or Contract Value. Premium taxes currently imposed by certain states on
the Contracts range typically from 0% to 3.5% of premiums paid. Some states
assess premium taxes at the time Premium is received; others assess premium
taxes at the time of annuitization. Premium taxes are subject to being changed
or amended by state legislatures, administrative interpretations or judicial
acts.
21
<PAGE>
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. The mortality risks assumed by the Company arise
from its contractual obligation to make annuity payments after the Annuity Date
for the life of the Annuitant, to waive the Surrender Charge in the event of the
death of the Owner prior to the Annuity Date and to provide the death benefit.
The expense risk assumed by the Company is that the costs of administering the
Contracts and the Variable Account will exceed the amount received from
Administrative and Contract Maintenance Charges.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased. The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period - Annuity Options" on page .) The Company
in its discretion may offer additional payment options which are not based on a
life contingency. If this should occur and if a Owner should elect a payment
option not based on a life contingency, the Mortality and Expense Risk Charge is
still deducted but the Owner receives no benefit from that portion of the charge
attributable to mortality risk.
Deduction for Accidental Death Benefit
If the Owner has elected the Accidental Death Benefit, the Company deducts
for each Valuation Period, an Accidental Death Benefit Charge equal on an annual
basis to 0.10% of the average daily net asset value in the Variable Account.
Deduction for Surrender Charge
In the event that an Owner makes a withdrawal from or surrenders Contract
Value in excess of the Free Withdrawal Amount, a Surrender Charge may be
imposed. The Free Withdrawal Amount is equal to the greater of the Contract
Value less premiums paid or the portion of the withdrawal that does not exceed
10% of the total Premium otherwise subject to the Surrender Charge paid to the
time of withdrawal, less any prior withdrawals; however, the Surrender Charge
applies only to Premium received by the Company within seven (7) years of the
date of the withdrawal.
The Surrender Charge will vary in amount depending upon the time which has
elapsed since the date Premium was received. In calculating the Surrender
Charge, Premium is allocated to the amount surrendered on a first-in, first out
basis. The amount of any withdrawal which exceeds the Free Withdrawal Amount
will be subject to the following charges:
22
<PAGE>
<TABLE>
<CAPTION>
Applicable Surrender
<S> <C>
Premium Year 1 6%
Premium Year 2 6%
Premium Year 3 5%
Premium Year 4 5%
Premium Year 5 4%
Premium Year 6 3%
Premium Year 7 2%
Premium Year 8 and thereafter None
</TABLE>
The Surrender Charge is a deferred sales charge, intended to reimburse the
Company for expenses incurred which are related to Contract sales. The Company
does not expect the proceeds from the Surrender Charge to cover all distribution
costs. To the extent such charge is insufficient to cover all distribution
costs, the Company may use any of its corporate assets, including potential
profit which may arise from the Mortality and Expense Risk Charge, to make up
any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403(b) Plan..(See "Taxes -
403(b) Plans" on page .)
Deduction for Administrative Charges
The Company deducts for each Valuation Period a daily Administrative
Charge which is equal on an annual basis to .15% of the average daily net asset
value of the Variable Account. This charge is intended to compensate Us for
administrative expenses, both during the accumulation period and following the
Annuity Date.
Deduction for Contract Maintenance Charge
The Company also deducts an annual Contract Maintenance Charge of $30 per
year, from the Contract Value on each Contract Anniversary. The Contract
Maintenance Fee is waived if the Contract Value is greater than $50,000 on the
date of deduction of the charge. These charges are paid to the Company for the
costs it incurs relating to maintenance of the Contract, the Variable Account,
and the Guaranteed Account. If the Contract is surrendered, we will deduct the
Contract Maintenance Charge at the time of surrenderfor the then current
Contract Year. The deduction will be made proportionally based on Your value in
each Subaccount and the Guaranteed Account. After the Annuity Date, the Contract
Maintenance Charge is deducted on a pro-rata basis from each annuity income
payment.
23
<PAGE>
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account
any Federal income taxes resulting from the operation of the Variable Account.
The Company does not currently anticipate incurring any Federal income taxes.
(See also "Taxes" beginning on page____.)
Other Expenses
There are deductions from and expenses paid out of the assets of the Fund
which are described in the accompanying Prospectus for the Fund.
Group and Sponsored Arrangements
In certain instances, we may reduce the Surrender Charge and the
Administrative Charge or change the minimum premium requirements for the sale of
Contracts to certain groups, or other sponsored arrangements, including those in
which a single owner, including a trustee or an employer, for example, purchases
Contracts covering several individuals.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
similar arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or group sponsored arrangements
that have been set up solely to buy Contracts or that have been in existence
less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Contract is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or Administrative
Charge will reflect differences in costs or services and will not be unfairly
discriminatory.
ANNUITY BENEFITS
Annuitization
Annuitization is an election you make to apply the Contract Value to an
Annuity Option in order to provide a series of annuity payments. The date the
Annuity Option becomes effective is the Annuity Date.
Annuity Date
The latest Annuity Date is: (a) the first day of the calendar month
following the later of the Annuitant's 90th birthday; or (b) such earlier
date as may be set by applicable law.
The Owner may designate an earlier date or may change the Annuity Date by
making a written request at least thirty (30) days prior to the Annuity Date
being changed. However, any Annuity Date must be no later than the date defined
above; and, the first day of a calendar month.
Without the approval of the Company, the new Annuity Date cannot be
earlier thanone year after the Effective Date. In addition, forIRA or 403 (b)
Plan, certain provisions of your retirement plan or the Code may further
restrict your choice of an Annuity Date. (See " Taxes," page ____).
24
<PAGE>
Annuity Options
The Owner may choose annuity payments which are fixed, or which are based
on the Variable Account, or a combination of the two. The Owner may, upon at
least 30 days prior written notice to us, at any time prior to the Annuity Date,
select or change an Annuity Option. If the Owner elects annuity payments which
are based on the Variable Account, the amount of the payments will be variable.
The amount of the annuity payment based on the value of a Subaccount is
determined through a calculation described in the Statement of Additional
Information, under the caption "Annuity Provisions". The Owner may not transfer
Contract Values between the Guaranteed Account and the Variable Account after
the Annuity Date, but may, subject to certain conditions, transfer Contract
Values from one Subaccount to another Subaccount. (See "Transfer of Contract
Values" on page .)
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the Guaranteed Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will make annuity payments during
the lifetime of the Annuitant.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will make monthly annuity payments during the lifetime of the Annuitant. If, at
the death of the Annuitant, payments have been made for less than 10 years,
payments will be continued during the remainder of the period to the
Beneficiary.
Option 3: Joint and Last Survivor Income. The Company will make annuity
payments for as long as either the Annuitant or a Contingent Annuitant is alive.
In the event that the Contract is issued in connection with an IRA, the payments
in this Option will be made only to the Owner as Annuitant and the Owner's
spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company reserves the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company reserves the right to make payments semi-annually or annually.
If fixed annuity payments are selected, theamount of each fixed payment is
determined by multiplying the Contract Value allocated to purchase fixed annuity
payments by the factor shown in the annuity table specified in the Contract for
the option selected, divided by 1,000. If at the time of annuitization, the
Company is using annuity tables or factors that result in a larger annuity
payment, the Company will pay the larger annuity payment.
If variable annuity payments are selected, the Annuitant receives the
value of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Subaccount
selected; and (v) the pro-rata portion of the Contract Maintenance charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, variable annuity
payments will decrease.
DEATH BENEFIT
Prior to the Annuity Date
In the event of Your death prior to the Annuity Date, a death benefit is
payable to the Beneficiary. The value of the death benefit will be determined as
of the date We receive proof of death in a form acceptable to Us. If there has
been a change of Owner, the death benefit will equal the Contract Value.
Otherwise, We will pay the death benefit equal to the greatest of: (a) the total
of all Premium, reduced proportionately by withdrawals and surrenders; (b) the
Contract Value; (c) the greatest of the Contract Value at the seventh Contract
Anniversary if attained prior to Owner's attained age 76 or at the Contract
Anniversary every seven years thereafter, plus any Premium paid and less any
surrenders subsequent to that Contract Anniversary.
The Beneficiary may elect the death benefit to be paid as follows: (a)
payment of the entire death benefit within 5 years of the date of the Owner's
death; or (b) payment over the lifetime of the designated Beneficiary with
distribution beginning within 1 year of the date of death of the Owner; or (c)
if the designated Beneficiary is Your spouse, he/she can continue the contract
in his/her own name.
If no payment option is elected, a single sum settlement will be made at
the end of the sixty (60) day period following receipt of proof of death.
After the Annuity Date
If the Owner is a person other than the Annuitant, and if the Owner's
death occurs on or after the Annuity Date, no death benefit will be payable
under this contract, except that any guaranteed payments remaining unpaid will
continue to be paid to the Annuitant pursuant to the Annuity Option in force at
the date of the Owner's death.
Accidental Death Benefit
If an Accidental Death Benefit has been elected, the cost of this benefit
will be equal on an annual basis to 0.10% of the average daily net assets in the
Variable Account.
25
<PAGE>
The Accidental Death Benefit, if any, is equal to the lesser of the
Contract Value as of the date the death benefit is determined or $250,000. The
Accidental Death Benefit is payable if the death of the primary Owner occurs
prior to the Contract Anniversary next following his 75th birthday as a result
of an Injury. The death must also occur before the Annuity Date and within 365
days of the date of the accident which caused the Injury. The Accidental Death
Benefit is paid to the Beneficiary.
The Accidental Death Benefit will not be paid for any death caused by or
resulting (in whole or in part) from the following:
(a) suicide or attempted suicide while sane or insane; intentionally
self-inflicted injuries;
(b) sickness, disease or bacterial infection of any kind, except
pyogenic infections which occur as a result of an injury or
bacterial infections which result from the accidental ingestion of
contaminated substances;
(c) injury sustained as a consequence of riding in, including boarding
or alighting from, any vehicle or device used for aerial navigation
except if the Owner is a passenger on any aircraft licensed for the
transportation of passengers;
(d) declared or undeclared war or any act thereof; or
(e) service in the military, naval or air service of any country.
Death of the Annuitant
If the Annuitant is a person other than the Owner, and if the Annuitant
dies before the Annuity Date, a new Annuitant may be named by the Owner. If no
new Annuitant is named within sixty (60) days of Our receipt of proof of the
Annuitant's death, the Owner will be deemed the new Annuitant. If an Annuitant
dies after the Annuity Date, the remaining payments, if any, will be as
specified in the Annuity Option elected. We will require proof of the
Annuitant's death. Death benefits, if any, will be paid to the designated
Beneficiary at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
DISTRIBUTIONS UNDER THE CONTRACT
Withdrawals
The Owner may withdraw Contract Values prior to the Annuity Date. Any
withdrawal is subject to the following conditions:
(a) the Company must receive a written request;
(b) the amount requested must be at least $500;
(c) any applicable Surrender Charge will be deducted;
(d) the Contract Value will be reduced by the sum of the amount
requested plus the amount of any applicable Surrender Charge;
(e) the Company will deduct the amount requested plus any Surrender
Charge from each Subaccount of the Variable Account and from the
Guaranteed Account either as specified or in the proportion that
each Subaccount and the Guaranteed Account bears to the Contract
Value; and
We reserve the right to consider any withdrawal request that would reduce
the Value of the Accumulation Account to less than $2,000 to be a request for
Surrender. In this event, the Surrender Value will be paid to You and the
Contract will terminate.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a pernalty tax. (See "Taxes" beginning on page .)
Systematic Withdrawal
The systematic withdrawal program involves making regularly scheduled
withdrawals from Your value in the Contract. In order to initiate the program,
your total Contract Value must be at least $24,000. The program allows You to
prearrange the withdrawal of a specified dollar amount of at least $200 per
withdrawal, on a monthly or quarterly payment basis. A maximum of 10% of the
Contract Value may be withdrawn in a Contract Year. Surrender Charges are not
imposed on withdrawals under this program. If you elect this program Surrender
Charges will be imposed on any withdrawal, other than withdrawals made under
Your systematic withdrawal program, when the withdrawal is from Premium paid in
the last seven years. You may not elect this program if you have taken a prior
withdrawal during the same Contract Year. (See "Withdrawals" on page , and
"Surrender Charges" on page___.)
Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. Withdrawals will be
deducted proportionally based on Your value in each Subaccount and the
Guaranteed Account.
All parties to the Contract are cautioned that the rights of any person to
implement the systematic withdrawal program under Contracts issued in connection
with IRAs or 403(b) Plans may be subject to the terms and conditions of the
retirement plan, regardless of the terms and conditions of the Contract. (See "
Taxes " on page ___.)
The systematic withdrawal program may be canceled at any time by written
request or automatically by Us should the Contract Value fall below $1,000. In
the event the systematic withdrawal program is canceled, the Owner may not elect
to participate in such program until the next Contract Anniversary.
An Owner may change once per Contract Year the amount or frequency of
withdrawals on a systematic basis.
The Free Withdrawal Amount (see "Charges and Deductions - Deduction for
Surrender Charge" on page___) is not available while an Owner is receiving
systematic withdrawals. An Owner will be entitled to the free withdrawal amount
on and after the Contract Anniversary next following the termination of the
systematic withdrawal program.
Implementation of the systematic withdrawal program may subject an Owner
to adverse tax consequences, including a 10% tax penalty. (See "Taxes - Taxation
of Annuities in General" on page___ for a discussion of the tax consequences of
withdrawals.)
THE COMPANY RESERVES THE RIGHT TO DISCONTINUE THIS PROGRAM AT ANY TIME.
26
<PAGE>
Surrender
Prior to the Annuity Date you may Surrender the Contract for the Surrender
Value by withdrawing the entire Contract Value. You must submit a written
request for Surrender and return the Contract to Us. The Surrender Value will be
based on the Contract Value at the end of the Valuation Period during which the
Surrender request is received as described below. The Contract may not be
surrendered after the Annuity Date. A surrender may be taxable and subject to a
tax penalty. (See "Taxes" discussed on page___.)
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value, as of the date the Company receives Your surrender
request, reduced by the following: (1) any applicable taxes not previously
deducted; (2) any applicable portion of the Contract Maintenance Charge; and (3)
any applicable Surrender Charge.
Payment of Withdrawals and Surrender Values
Payments of Withdrawals and Surrender Values will ordinarily be sent to
the Owner within seven (7) days of receipt of the written request, but see
the Deferment of Payment discussion below. (Also see Statement of Additional
Information - "Delay of Payments.")
The Company reserves the right to ensure that an Owner's check or other
form of Premium has been cleared for payment prior to processing any withdrawal
or redemption request occurring shortly after a Premium payment.
If, at the time You make a request for a Withdrawal or a Surrender, You
have not provided Us with a written election not to have Federal income taxes
withheld, We must by law withhold such taxes from the taxable portion of Your
payment and remit that amount to the IRS. Mandatory withholding rules apply to
certain distributions from 403(b) Plan Contracts. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See " Taxes " on page , and " Tax-Favored Plans" on page___.)
Deferral of Payment
Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Variable Account will usually occur within seven days. We may be permitted to
defer such payment if: (1) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise restricted;
(2) an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; (3) the SEC permits a delay for protection of Owners; or (4) the
check used to pay any Premium has not cleared through the banking system (this
may take up to 15 days).
We may defer payment of any Withdrawal or Surrender from the Guaranteed
Account for up to six months from the date we receive Your written request.
27
<PAGE>
TAXES
Introduction
The Contracts are designed to accumulate Contract Values for retirement
plans which, except for IRAs and 403(b) Plans, are generally not tax-qualified
plans (""). The ultimate effect of Federal income taxes on the amounts held
under a Contract, on annuity payments, and on the economic benefits to the
Owner, Annuitant or Beneficiary depend on the Company's tax status and upon the
tax status of the individual concerned. Accordingly, each potential Owner should
consult a competent tax adviser regarding the tax consequences of purchasing a
Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Fund, please see the accompanying Prospectus for the Fund.
Company Tax Status
The Company is taxed as a life insurance company under the Code. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Subchapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the Contract Value. Under existing Federal
income tax law, the Variable Account's investment income, including realized net
capital gains, is not taxed to the Company. The Company reserves the right to
make a deduction for taxes from the assets of the Variable Account should they
be imposed with respect to such items in the future.
Taxation of Annuities in General - Non-Qualified Plans
Code Section 72 governs the taxation of annuities. In general, an Owner is
not taxed on increases in value under a Contract until some form of withdrawal
or distribution is made under the Contract. However, under certain
circumstances, the increase in value may be subject to tax currently. (See
"Contracts Owned by Non-Natural Persons" and " Diversification Standards" on
page____.)
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a
Contract prior to the Annuity Date will be treated as taxable income to
the extent the amounts held under the Contract on the date of the
withdrawal exceed the "investment in the contract," as that term is
defined under the Code. The "investment in the contract" can generally be
described as the cost of the Contract. It generally constitutes the sum of
all purchase payments made for the contract less any amounts received
under the Contract that are excluded from gross income. The taxable
portion is taxed as ordinary income. For purposes of this rule, a pledge
or assignment of a Contract is treated as a payment received on account of
a partial withdrawal of a Contract.
28
<PAGE>
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the
Contract, the recipient is taxed on the portion of the payment that
exceeds the investment in the Contract. The taxable portion is taxed as
ordinary income.
If the recipient receives annuity payments rather than a lump sum
payment, a portion of the payment is included in taxable income when
received. For fixed annuity payments, the taxable portion of each payment
is generally determined by using a formula known as the "exclusion
ratio," which establishes the ratio that the investment in the Contract
bears to the total expected amount of annuity payments for the term of
the Contract. That ratio is then applied to each payment to determine the
nontaxable portion of the payment. The remaining portion of each payment
is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by
a formula which establishes a specific dollar amount of each payment that
is not taxed. The dollar amount is determined by dividing the investment
in the Contract by the total number of expected periodic payments. The
remaining portion of each payment is taxed as ordinary income.
The recipient is able to exclude a portion of the payments received
from taxable income until the investment in the Contract is fully
recovered. Annuity payments are fully taxable after the investment in the
Contract is recovered. If the recipient dies before the investment in the
Contract is recovered, the recipient's estate is allowed a deduction for
the remainder.
Penalty Tax on Certain Withdrawals
With respect to amounts withdrawn or distributed before the taxpayer
reaches age 59 1/2, a 10% penalty tax is imposed upon the portion of such
amount which is includable in gross income. However, the penalty tax will
not apply to withdrawals: (i) made on or after the death of the Owner (or
where the Owner is not an individual, the death of the "primary
annuitant", who is defined as the individual, the events in the life of
whom are of primary importance in affecting the timing or amount of the
payout under the Contract); (ii) attributable to the taxpayer's becoming
totally disabled within the meaning of Code Section 72(m)(7); (iii) which
are part of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
taxpayer, or the joint lives (or joint life expectancies) of the taxpayer
and his beneficiary; (iv) allocable to investment in the Contract before
August 14, 1982; (v) under a qualified funding asset (as defined in Code
Section 130(d)); (vi) under an immediate annuity contract; or (vii) that
are purchased by an employer on termination of certain types of qualified
plans and which are held by the employer until the employee separates from
service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability), the
tax for the first year in which the modification occurs will be increased
by an amount equal to the tax that would have been imposed but for item
(iii) above as determined under Treasury Regulations, plus interest for
the deferral period. The foregoing rule applies if the modification takes
place: (a) before the close of the period which is five years from the
date of the first payment and after the taxpayer attains age 59 1/2; or
(b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan
may result in a taxable event and the excess of the Contract Value over
total Premium will be taxed to the assignor as ordinary income. Please
consult your tax adviser prior to making an assignment of the Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who
is either 37 1/2 years younger than the Owner or a grandchild of the Owner
may have Generation Skipping Transfer Tax consequences.
Distribution-at-Death Rules
In order to be treated as an annuity contract for Federal income tax
purposes, a Contract must generally provide for the following two
distribution rules: (i) if the Owner dies on or after the Annuity Date,
and before the entire interest in the Contract has been distributed, the
remaining portion of such interest will be distributed at least as quickly
as the method in effect on the Owner's death; and (ii) if a Owner dies
before the Annuity Date, the entire interest must generally be distributed
within five years after the date of death. To the extent such interest is
payable to a designated Beneficiary, however, such interest may be
annuitized over the life of that Beneficiary or over a period not
extending beyond the life expectancy of that Beneficiary, so long as
distributions commence within one year after the date of death. The
designated beneficiary is the person to whom ownership of the Contract
passes by reason of death and must be a natural person. If the Beneficiary
is the spouse of the Owner, the Contract may be continued unchanged in the
name of the spouse as Owner.
If the Owner is not an individual, the "primary annuitant" (as
defined under the Code) is considered the Owner. In addition, when the
Owner is not an individual, a change in the primary annuitant is treated
as the death of the Owner.
29
<PAGE>
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than
full and adequate consideration will generally trigger tax on the gain in
the Contract. The transferee will receive a step-up in basis for the
amount included in the transferor's income. This provision, however, does
not apply to those transfers between spouses or incident to a divorce
which are governed by Code Section 1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a
corporation or trust) the Contract is generally not treated as an annuity
contract for Federal income tax purposes, and the income on the Contract
(generally the excess of the Contract Value over the purchase payments) is
includable in income each year. The rule does not apply where the
non-natural person is only the nominal owner such as a trust or other
entity acting as an agent for a natural person. The rule also does not
apply when the Contract is acquired by the estate of a decedent, when the
Contract is held under certain qualified plans, when the Contract is a
qualified funding asset for structured settlements, when the Contract is
purchased on behalf of an employee upon termination of a qualified plan,
and in the case of an immediate annuity.
Section 1035 Exchanges
Code Section 1035 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity
contract, unless money is distributed as part of the exchange. A
replacement contract obtained in a tax-free exchange of contracts succeeds
to the status of the surrendered contract. Special rules and procedures
apply to Code Section 1035 transactions. Prospective owners wishing to
take advantage of Code Section 1035 should consult their tax advisers.
Multiple Contracts
Annuity contracts that are issued by the Company (or affiliate) to
the same Owner during any calendar year will be treated as one annuity
contract in determining the amount includable in the taxpayer's gross
income. Thus, any amount received under any such contract prior to the
contract's annuity starting date will be taxable (and possibly subject to
the 10% penalty tax) to the extent of the combined income in all such
contracts. The Treasury has broad regulatory authority to prevent
avoidance of the purposes of this aggregation rule. It is possible that,
under this authority, Treasury may apply this rule to amounts that are
paid as annuities (on or after the starting date) under annuity contracts
issued by the same company to the same Owner during any calendar year
period. In this case, annuity payments could be fully taxable (and
possibly subject to the 10% penalty tax) to the extent of the combined
income in all such contracts and regardless of whether any amount would
otherwise have been excluded from income. Owners should consult a tax
adviser before purchasing more than one Contract or other annuity
contracts.
30
<PAGE>
Withholding
The Company is required to withhold Federal income taxes on
withdrawals, lump sum distributions, and annuity payments that include
taxable income unless the payee elects to not have any withholding or in
certain other circumstances. Special withholding rules apply to payments
made to non-resident aliens.
Lump-Sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of any
withdrawal or lump sum distribution unless You elect out of withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments based
on a withholding certificate You file with the Company. If you do not file
a certificate, You will be treated, for purposes of determining your
withholding rates, as a married person with three exemptions.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated
tax payments are not sufficient.
Diversification Standards
To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up period,
each Subaccount is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Subaccount is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-through" rule applies so that an
investment in the Fund is not treated as one investment but is treated as an
investment in a pro-rata portion of each underlying asset of the Fund. All
securities of the same issuer are treated as a single investment. In the case of
government securities, each Government agency or instrumentality is treated as a
separate issuer.
In connection with the issuance of the Diversification Regulations,
Treasury announced that such regulations do not provide guidance concerning the
extent to which Owners may direct their investments to particular divisions of a
separate account. It is possible that if and when additional regulations or IRS
pronouncements are issued, the Contract may need to be modified to comply with
such rules. For these reasons, the Company reserves the right to modify the
Contract, as necessary, to prevent the Owner from being considered the owner of
the assets of the Variable Account.
The Company intends to comply with the Diversification Regulations to
assure that the Contracts continue to be treated as annuity contracts for
Federal income tax purposes.
Tax-Favored Plans
The Contracts may be used to create an IRA. The Contracts are also
available for use in connection with a previously established 403(b) Plan. No
attempt is made herein to provide more than general information about the use of
the Contracts with IRAs or 403(b) Plans. The information herein is not intended
as tax advice. A prospective Owner considering use of the Contract to create an
IRA or in connection with a 403(b) Plan should first consult a competent tax
adviser with regard to the suitability of the Contract as an investment vehicle
for their qualified plan.
While the Contract will not be available in connection with retirement
plans designed by the Company which qualify for the federal tax advantages
available under Sections 401 and 457 of the Code, a Contract can be used as the
investment medium for an individual Owner's separately qualified 401 retirement
plan. Distributions from a 401 qualified plan or 403(b) Plan (other than
non-taxable distributions representing a return of capital, distributions
meeting the minimum distribution requirement, distributions for the life or life
expectancy of the recipient(s) or distributions that are made over a period of
more than 10 years) are eligible for tax-free rollover within 60 days of the
date of distribution, but are also subject to federal income tax withholding at
a 20% rate unless paid directly to another qualified plan, 403(b) Plan or an
IRA. If the recipient is unable to take full advantage of the tax-free rollover
provisions, there may be taxable income, and the imposition of a 10% penalty tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Owner considering use of the Contract in this
manner should consult a competent tax advisor with regard to the suitability of
the Contract of this purpose and for information concerning the provisions of
the Code applicable to qualified plans, 403(b) Plans, and IRAs.
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
IRA. Contracts issued in connection with an IRA are subject to limitations on
eligibility, maximum contributions, and time of distribution. Distributions from
certain retirement plans qualifying for federal tax advantages may be rolled
over into an IRA. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. Sales of the Contracts for use
with IRAs are subject to special requirements imposed by the Service, including
the requirement that informational disclosure be given to each person desiring
to establish an IRA. Contracts offered in connection with an IRA by this
Prospectus are not available in all states.
31
<PAGE>
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on an Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to Premium paid under a salary reduction agreement. Specifically, Code Section
403(b)(11) allows an Owner to make a surrender or partial withdrawal only (a)
when the employee attains age 59 1/2, separates from service, dies, or becomes
disabled (as defined in the Code), or (b) in the case of hardship. In the case
of hardship, only an amount equal to the purchase payments may be withdrawn. In
addition, 403(b) Plans are subject to additional requirements, including:
eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403 (b) Plan by this Prospectus are not available in all
states.
LEGAL PROCCEDINGS
The Company knows of no legal proceeding pending to which the
Variable Account is a party or which would materially affect the Variable
Account.
Legal matters relating to the federal securities laws in connection with
the Contracts described herein are being passed upon by the law firm of
Jorden, Burt, Berenson & Johnson LLP, Washington D.C. .
32
<PAGE>
TABLE OF CONTENTS OF THE SAI
PAGE
General Information.................................................
The Company..............................................
Independent Accountants..................................
Legal Counsel............................................
Distributor..............................................
Calculation of Performance Related Information...........
Delay of Payments........................................
Transfers................................................
Method of Determining Contract Values...............................
Annuity Provisions..................................................
Annuity Benefits.........................................
Annuity Options..........................................
Variable Annuity Payment Values..........................
Annuity Unit.............................................
Net Investment Factor....................................
Additional Provisions....................................
Financial Statements................................................
A-1
<PAGE>
APPENDIX
GUARANTEED ACCOUNT OPTION
Under this Guaranteed Account option, Contract Values are held in the
Company's General Account. The General Account includes all of Our assets,
except those assets segregated in Our separate accounts. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 nor is the General Account
registered as an investment company under the Investment Company Act of 1940.
The Company understands that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus relating to the Guaranteed
Account portion of the Contract. Disclosures regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses.
During the Accumulation Period the Owner may allocate amounts to the
Guaranteed Account. The initial Premium will be invested in the Guaranteed
Account if selected by the Owner at the time of application. Additional Premium
will be allocated in accordance with the selection made in the application or
the most recent instruction received at the Company Office. If the Owner elects
to withdraw amounts from the Guaranteed Account, such withdrawal, except as
otherwise provided in this Appendix, will be subject to the same conditions as
imposed on withdrawals from the Variable Account. The Company reserves the right
to delay any payment from the Guaranteed Account for up to six (6) months from
the date it receives such request at its Office.
GUARANTEE PERIODS
The period(s) for which a guaranteed interest rate is credited is called a
Guarantee Period. Guarantee Periods may be offered or withdrawn at the Company's
discretion. The initial guarantee period(s) and the guaranteed interest rate(s)
applicable to the initial Premium are as shown in the Contract. At least 15 days
but no more than 75 days prior to the expiration of a Guarantee Period, the
Owner will be mailed a notice of the guaranteed interest rate applicable to a
renewal of the Guarantee Period. At the expiration of any Guarantee Period
applicable to any portion of the Contract Value, that portion of the Contract
Value will be automatically renewed for another Guarantee Period for the same
duration as the expired Guarantee Period and will receive the guaranteed
interest rate then in effect for that Guarantee Period, unless other Guarantee
Periods or one or more Subaccounts are requested in writing by the Owner. All
requests to change a Guarantee Period at the end of an existing Guarantee Period
must be received in writing at the Company's Office within 30 days prior to the
end of that Guarantee Period.
ALLOCATIONS TO THE GUARANTEED ACCOUNT
The minimum amount that may be allocated to a Guarantee Period, either
from the initial or a subsequent Premium, is $3,000. Amounts invested in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guarantee rate. The effective guarantee rate is that rate
in effect when the Owner allocates or transfers amounts to the Guaranteed
Account. If the Owner has allocated or transferred amounts at different times to
the Guaranteed Account, each allocation or transfer may have a unique effective
guarantee rate and Guarantee Period associated with that amount. The effective
guarantee rate will not be changed more than once per year and the minimum rate
will not be less than 3%.
GUARANTEED ACCOUNT TRANSFERS
During the accumulation period the Owner may transfer, by written request
or telephone authorization, Contract Values to or from a subaccount of the
Variable Account to or from a Guarantee Period of the Guaranteed Account at any
time, subject to the conditions set out under Transfer of Contract Values
Section.
Prior to the end of a Guarantee Period the Owner may specify the
subaccount(s) of the Variable Account or the applicable Guarantee Period of the
Guaranteed Account to which the Owner wants the amounts from the Guaranteed
Account transferred at the end of the Guarantee Period. If the Owner does not
notify us prior to the end of the Guarantee Period, we will reapply that amount
to a new Guarantee Period of the same duration, provided it is available. If a
new Guarantee Period of the same duration is not available, that portion of Your
Contract Value shall be transferred to the Guarantee Period next shortest in
duration. The amount so applied is then subject to the same conditions as the
original Guarantee Period, including the condition that the amount may not be
transferred until the end of that Guarantee Period. In the event of a
non-specified renewal, there is a grace period of 30 days within which the Owner
can have transferred amounts reapplied. The effective guarantee rate applicable
to the new Guarantee Period may be different from the effective guaranteed rate
applicable to the original Guarantee Period. These transfers will be handled at
no charge to the Owner.
MINIMUM SURRENDER VALUE
The minimum Surrender Value for amounts allocated to the Guaranteed
Account equals the amounts so allocated less withdrawals, with interest
compounded annually at the rate of 3%, reduced by any applicable Surrender
Charge.
<PAGE>
PART B
>
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
DEFERRED VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE DEFERRED VARIABLE
ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A
PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE
PROSPECTUS DATED May 1, 1997, CALL OR WRITE: American International Life
Assurance Company of New York; Attention: Variable Products, One Alico Plaza,
Wilmington, Delaware 19801, 1-800-340-2765.
DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1, 1997
ALLIANCE.NEW
B-1
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Page
General Information.........................................................
The Company......................................................
Independent Accountants..........................................
Legal Counsel....................................................
Distributor......................................................
Calculation of Performance Related Information...................
Delay of Payments................................................
Transfers........................................................
Method of Determining Contract Values.......................................
Annuity Provisions..........................................................
Annuity Benefits............................................................
Annuity Options..................................................
Variable Annuity Payment Values..................................
Annuity Unit.....................................................
Net Investment Factor............................................
Additional Provisions............................................
Financial Statements.........................................................
B-2
<PAGE>
GENERAL INFORMATION
The Company
A description of Amerian International Life Assurance Company of New
York (the "Company"), and its ownership is contained in the Prospectus. The
Company will provide for the safekeeping of the assets of Variable Account A
(the "Variable Account").
Independent Accountants
The audited financial statements of the Company have been audited by
Coopers and Lybrand, L.L.P., independent certified public accountants, whose
offices are located in Philadelphia, Pennsylvania.
Legal Counsel
Legal matters relating to the Federal securities laws in connection
with the Contracts described herein and in the Prospectus are being passed upon
by the law firm of Jorden Burt Berenson & Johnson LLP, Washington, D.C..
Distributor
AIG Equity Sales Corp. ("AESC"), a wholly owned subsidiary of American
International Group, Inc. and an affiliate of the Company, acts as the
distributor. Commissions are paid by the Registrant directly to selling
dealers and representatives on behalf of the Distributor. Commissions
retained by the Distributor in 1996 were $20,363
Calculation Of Performance Related Information
A. Yield and Effective Yield Quotations for the Money Market
Subaccount
The yield quotation for the Money Market Subaccount will be for the
seven days ended on the date of the most recent balance sheet of the Variable
Account included in the registration statement, and will be computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one Accumulation Unit in
the Money Market Subaccount at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by (365/7)
with the resulting figure carried to at least the nearest hundredth of one
percent.
Any effective yield quotation for the Money Market Subaccount
will be for the seven days ended on the date of the
most recent balance sheet of the Variable Account included in the registration
statement, and will be carried at least to the nearest hundredth of one percent,
and will be computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one Accumulation Unit in the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7 and subtracting 1 from the result, according to the
following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1.
For purposes of the yield and effective yield computations, the
hypothetical charge reflects all deductions that are charged to all Owner
accounts in proportion to the length of the base period. For any fees that vary
with the size of the account, the account size is assumed to be the Money Market
Subaccount's mean account size. The yield and effective yield quotations do not
reflect the Surrender Charge that may be assessed at the time of withdrawal in
an amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Surrender Charge" on page of the Prospectus) No deductions or
sales loads are assessed upon annuitization under the Contracts. Realized gains
and losses from the sale of securities and unrealized appreciation and
depreciation of the Money Market Subaccount and the Fund are excluded from the
calculation of yield.
B. Total Return Quotations
The total return quotations for all of the Subaccounts will be
average annual total return quotations for the one, five, and ten year periods
(or, where a Subaccount has been in existence for a period of less than one,
five or ten years, for such lesser period) ended on the date of the most recent
balance sheet of the Variable Account and for the period from the date monies
were first placed into the Subaccounts until the aforesaid date. The quotations
are computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the particular period
at the end of the particular period.
For the purposes of the total return quotations for all of the
Subaccounts, the calculations take into effect all fees that are charged to all
Owner accounts. For any fees that vary with the size of the account, the account
size is assumed to be the respective Subaccount's mean account size. The
calculations also assume a total withdrawal as of the end of the particular
period. Subaccount performance information has not been provided, because,
for the fiscal year ending December 31, 1996, no such contracts were issued.
Funds were first invested in the portfolios on the following
dates:
<TABLE>
<CAPTION>
<S> <C>
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 1992
Short-Term Multi-Market Portfolio June 25, 1992
Global Bond Portfolio May 10, 1993
Money Market Portfolio May 13,1993
International Portfolio June 1, 1993
U.S. Government/High Yield
Securities Portfolio June 14, 1993
North American Government
Income Portfolio April 8, 1994
Global Dollar
Government Portfolio May 26 , 1994
Utility Income Portfolio June 15, 1994
Conservative Investors Portfolio September 8,1994
Growth Investors Portfolio August 16, 1994
Growth Portfolio August 12, 1994
Total Return Portfolio September 12,1994
Worldwide Privatization Portfolio October 17,1994
Technology Portfolio January 22,1996
Quasar Portfolio August 15,1996
Real Estate Investment Portfolio January 7,1997
</TABLE>
B-3
<PAGE>
C. Yield Quotations for the Short-Term Multi-Market, U.S.
Government/High Grade Securities and Global Bond Subaccounts
The yield quotations for the Short-Term Multi-Market, U.S. Government/High
Grade Securities and Global Bond Subaccounts will be based on the thirty-day
period ended on the date of the most recent balance sheet of the Variable
Account included in the registration statement, and are computed by dividing the
net investment income per Accumulation Unit earned during the period by the
maximum offering price per unit on the last day of the period, according to the
following formula:
Yield = 2[(a - b + 1)6 - 1]
cd
Where: a = net investment income earned during the period by
the corresponding portfolios of the Fund
attributable to shares owned by the Subaccount.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Accumulation Units
outstanding during the period.
d = the maximum offering price per Accumulation Unit on
the last day of the period.
For the purposes of the yield quotations for the Short-Term
Multi-Market, U.S. Government/High Grade Securities and Global Bond Subaccounts,
the calculations take into effect all fees that are charged to all Owner
accounts. For any fees that vary with the size of the account, the account size
is assumed to be the respective Subaccount's mean account size. The calculations
do not take into account the Surrender Charge or any transfer charges.
A Surrender Charge may be assessed at the time of withdrawal in an
amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract, and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Surrender Charge" on page 17 of the Prospectus) There is currently
a transfer charge of $10 per transfer after a specified number of transfers in
each Contract Year. (See "Alliance Variable Products Series Fund, Inc., -
Transfer of Contract Values" on page 15 of the Prospectus)
D. Non - Standardized Performance Data
1. Total Return Quotations
The total return quotations for all of the Subaccounts will be average
annual total return quotations for the one, five, and ten year periods (or,
where a Subaccount has been in existence for a period of less than one, five or
ten years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Subaccounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000payment made at
the beginning of the particular period at the end of the particular period.
For the purposes of the total return quotations, the calculations take
into effect all fees that are charged to all Owner accounts. For any fees that
vary with the size of the account, the account size is assumed to be the
respective Subaccount's mean account size. The calculations do not, however,
assume a total withdrawal as of the end of the particular period and, therefore,
no Surrender Charge is reflected. No Subaccount information has been reflected
for as of the date of this Prospectus, Subaccounts were not yet in
operation and consequently had no assets invested in the underlying
portfolio.
2. Tax Deferred Accumulation
In reports or other communications to You or in advertising or sales
materials, the Company may also describe the effects of tax-deferred compounding
on the separate account's investment returns or upon returns in general. These
effects may be illustrated in charts or graphs and may include comparisons at
various points in time of returns under the Contract or in general on a
tax-deferred basis with the returns on a taxable basdis.
Different tax rates may be assumed.
In general, individuals who own annuity contracts are not taxed on inreases
in the value under the annuity contract until some form of distribution is made
from the contract. Thus, the annuity contract will benefit from tax deferral
during the accumulation period, which generally will have the effect of
permitting an investment in an annuity contract to grow more rapidly than a
comparable investment under which increases in value are taxed on a current
basis. The chart shows accumulations on an initial investment or Purchase
Payment of $25,000, assuming hypothetical gross annual return of 0%, 4% and 8%,
compounded annually, and a tax rate of 31%. The values shown for the taxable
investment do not include any deduction for management fees or other expenses
but assume that taxes are deducted annually from investment returns. The values
shown for the variable annuity reflect the deduction of contractual expenses
such as the mortality and expense risk charge, the Administrative Fee and the
Annual Fee, but not the expenses of an underlying investment vehicle. In
addition, these values assume that the Owner does not surrender the Contract or
make any withdrawals until the end of the period shown. The chart assumes a full
withdrawal, at the end of the period shown, of all contract value and the
payment of taxes at the 31% rate on the amount in excess of the Purchase
Payment.
The rates of return illustrated are hypothetical and are not an estimate or
guaranty of performance. Actual tax rates may vary for different taxpayers from
that illustrated and withdrawals by Owners who have not reached age 59 1/2 may
be subject to a tax penalty of 10%.
[INSERT CHART]
B-4
<PAGE>
Delay of Payments
Any payments due under the Contracts will generally be sent to the Owner
within seven (7) days of a completed request for payment. However, the Company
has reserved the right to postpone any type of payment from the Variable Account
for any period when:
a) the New York Stock Exchange is closed for other than customary
weekends and holidays, or trading on the Exchange is otherwise
restricted;
(b) an emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the Variable Account or
determine their value;
(c) an order of the Securities and Exchange Commission permits delay
for the protection of security holders; or
(d) the check used to pay any Premium has not cleared through the
banking system (this may take up to 15 days).
The applicable rules of the Securities and Exchange Commission shall
govern as to whether the conditions in (a) and (b) exist.
METHOD OF DETERMINING CONTRACT VALUES
The Contract Value will fluctuate in accordance with the investment
results of the underlying Portfolio of the Fund held within the Subaccount. In
order to determine how these fluctuations affect Contract Values, Accumulation
Units are utilized. The value of an Accumulation Unit applicable during any
Valuation Period is determined at the end of that period.
When the first shares of the respective Portfolios of the Fund were
purchased for the Subaccounts, the Accumulation Units for the Subaccounts were
valued at $10. The value of an Accumulation Unit for a Subaccount on any
Valuation Date thereafter is determined by dividing (a) by (b), where:
(a) is equal to:
(i) the total value of the net assets attributable to
Accumulation Units in the Subaccount, minus
(ii) the daily charge for assuming the risk of guaranteeing
mortality factors and expense charges which is equal on an
annual basis to 1.25% multiplied by the daily net asset value
of the Subaccount; minus
(iii)the daily charge for providing certain administrative
functions which is equal on an annual basis to 0.15% multiplied
by the daily net asset value of the Subaccount; minus or plus
(iv) a charge or credit for any tax provision established for the
Subaccount. The Company is not currently making any
provision for taxes.
(b) is the total number of Accumulation Units applicable to that
Subaccount at the end of the Valuation Period.
The resulting value of each Subaccount Accumulation Unit is multiplied
by the respective number of Subaccount Accumulation Units for a Contract. The
Contract Value of the Variable Account is the sum of all Subaccount values for
the Contract.
An Accumulation Unit may increase or decrease in value from Valuation
Date to Valuation Date.
ANNUITY PROVISIONS
Annuity Benefits
A description of the Annuity Benefits and Annuity Options is provided
in the prospectus
Variable Annuity Payment Values
A Variable Annuity is an annuity with payments which (1) are not
predetermined as to dollar amount and (2) will vary in amount with the net
investment results of the applicable Subaccount(s) of the Variable Account. At
the Annuity Date the Contract Value in each Subaccount will be applied to the
applicable Annuity Tables contained in the Contract. The Annuity Table used will
depend upon the payment option chosen. The same Contract Value amount applied to
each payment option may produce a different initial annuity payment. If, as of
the Annuity Date, the then current annuity rates applicable to this class of
contracts will provide a larger income than that guaranteed for the same form of
annuity under the Contracts described herein, the larger amount will be paid.
The first annuity payment for each Subaccount is determined by
multiplying the amount of the Contract Value allocated to that Subaccount by the
factor shown in the table for the option selected, divided by 1000.
The dollar amount of Subaccount annuity payments after the first is
determined as follows:
(a)The dollar amount of the first annuity payment is divided by the
value for the Subaccount Annuity Unit as of the Annuity Date. This
establishes the number of Annuity Units for each monthly payment.
The number of Annuity Units remains fixed during the Annuity payment
period, subject to any transfers.
(b) The fixed number of Annuity Units is multiplied by the Annuity Unit
value for the Valuation Period 14 days prior to the date of payment.
The total dollar amount of each Variable Annuity payment is the sum of
all Subaccount variable annuity payments less the pro-rata amount of the annual
Administrative Charge.
Annuity Unit
The value of an Annuity Unit for each Subaccount was arbitrarily set
initially at $10. This was done when the first Fund shares were purchased. The
Subaccount Annuity Unit value at the end of any subsequent Valuation Period is
determined by multiplying the Subaccount Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (a) and (b) where:
(a) is the net investment factor for the Valuation Period for which
the Subaccount Annuity Unit value is being determined; and
(b) is the assumed investment factor for such Valuation Period. The
assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for any
Valuation Period shall be the accumulated value, at the end of such
period, of $1.00 deposited at the beginning of such period at the
assumed investment rate of 5%.
Net Investment Factor
The net investment factor is used to determine how investment results of
the Fund affect the Subaccount Annuity Unit value from one Valuation Period to
the next. The net investment factor for each Subaccount for any Valuation Period
is determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is equal to:
(i) the net asset value per share of the Fund held in the
Subaccount determined at the end of that Valuation Period; plus
(ii) the per share amount of any dividend or capital gain
distribution made by the Fund held in the Subaccount if the
"ex-dividend" date occurs during that same Valuation Period; plus or
minus
(iii)a per share charge or credit, which is determined by the
Company, for changes in tax reserves resulting from investment
operations of the Subaccount.
(b) is equal to:
(i) the net asset value per share of the Fund held in the
Subaccount determined as of the end of the prior Valuation
Period; plus or minus
(ii) the per share charge or credit for any change in tax
reserves for the prior Valuation Period.
(c) is equal to:
(i) the percentage factor representing the Mortality and Expense
Risk Charge, plus
(ii) the percentage factor representing the daily Administrative
Charge.
The net investment factor may be greater or less than the assumed investment
factor; therefore, the Subaccount Annuity Unit value may increase or decrease
from Valuation Period to Valuation Period.
Additional Provisions
The Company may require proof of the age of the Annuitant before making
any life annuity payment provided for by the Contract. If the age of the
Annuitant has been misstated the Company will compute the amount payable based
on the correct age. If annuity payments have begun, any underpayments that may
have been made will be paid in full with the next annuity payment, including
interest at the annual rate of 5%. Any overpayments, including interest at the
annual rate of 5%, unless repaid to the Company in one sum, will be deducted
from future annuity payments until the Company is repaid in full.
If a Contract provision requires that a person be alive, the Company may
require due proof that the person is alive before the Company acts under that
provision.
The Company will give the payee under an annuity payment option a
settlement contract for the payment option.
You may assign this Contract prior to the Annuity Date. A written
request, dated and signed by you must be sent to our Administrative Office. A
duly executed copy of any assignment must be filed with our Administrative
Office. We are not responsible for the validity of any assignment.
FINANCIAL STATEMENTS
The financial statements of the Company and the Variable Account
included herein shall be considered only as bearing upon the ability of the
Company to meet its obligations under the Contracts.
F-1
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE
COMPANY OF NEW YORK
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
American International Life Assurance Company of New York:
We have audited the accompanying balance sheets of American International Life
Assurance Company of New York (a wholly-owned subsidiary of American
International Group, Inc.) as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American International Life
Assurance Company of New York as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 22, 1997
F-3
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
-------------
1996 1995
------------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 4,636,022$ 4,434,329
(cost: 1996-$4,456,608: 1995 - $4,139,170)
Equity securities:
Common stock
(cost: 1996-$19,800: 1995 - $16,613) 33,099 24,365
Non-redeemable preferred stocks
(cost: 1996-$649; 1995 - $4,564) 590 4,570
Mortgage loans on real estate, net 513,470 448,700
Real estate, net of accumulated
depreciation of $6,046 in 1996; and $5,269 in 1995 26,227 27,000
Policy loans 11,063 10,991
Other invested assets 65,744 69,360
Short -term investments 60,333 104,048
Cash 1,726 1,105
------------- --------------
Total investments and cash 5,348,274 5,124,468
Amounts due from related parties 4,277 973
Investment income due and accrued 77,433 74,355
Premium and insurance balances receivable-net 13,617 13,289
Reinsurance assets 25,211 22,552
Deferred policy acquisition cost 35,754 31,225
Separate and variable accounts 153,678 68,151
Other assets 2,591 16,814
-----------------------------
Total assets $ 5,660,835 $ 5,351,827
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------- ----------
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 3,308,208 $ 3,060,581
Future policy benefits 1,588,563 1,561,760
Reserve for unearned premiums 8,167 10,808
Policy and contract claims 44,173 37,201
Reserve for commissions, expenses and taxes 4,905 4,433
Insurance balances payable 7,981 7,771
Federal income tax payable 3,758 3,477
Deferred income taxes 43,445 62,325
Amounts due to related parties 5,227 5,260
Separate and variable accounts 153,678 68,151
Other liabilities 22,588 23,553
------------- -------------
Total liabilities 5,190,693 4,845,320
------------ -----------
Commitments and contingencies (See Note 6)
Stockholders' Equity
Common stock, $200 par value; 16,125 shares
authorized, issued and outstanding 3,225 3,225
Additional paid-in capital 197,025 197,025
Unrealized appreciation (depreciation) of
investments, net of future policy benefits
and taxes of $72,979 in 1996 and
$82,352 in 1995; 135,524 153,086
Retained earnings 134,368 153,171
------------ -------------
Total stockholders' equity 470,142 506,507
----------- ------------
Total liabilities and stockholders' equity $ 5,660,835 $ 5,351,827
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Revenues:
Premiums $ 149,472 $ 84,357 $ 71,826
Net investment income 401,647 386,680 335,510
Realized capital gains 610 1,436 1,932
------------ ------------- -----------
Total revenues 551,729 472,473 409,268
--------- ----------- ---------
Benefits and expenses:
Benefits to policyholders 163,377 167,319 163,585
Increase in future policy benefits
and policyholders' funds on deposit 284,936 209,512 165,291
Acquisition and insurance expenses 54,875 54,808 62,759
---------- ------------ ----------
Total benefits and expenses 503,188 431,639 391,635
--------- ----------- ---------
Income before income taxes 48,541 40,834 17,633
---------- ---------- -----------
Income taxes (benefits):
Current 26,85322,070 18,939
Deferred (9,509) (7,572) (12,262)
------------ ------------- -----------
Total income taxes 17,344 14,498 6,677
---------- ----------- -----------
Net income $ 31,197 $ 26,336 $ 10,956
========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 3,225 $ 3,225 $ 3,225
------------ ------------ ------------
Balance at end of year 3,225 3,225 3,225
------------ ----------- ------------
Additional paid-in capital
Balance at beginning of year: 197,025 197,025 197,025
---------- ---------- ----------
Balance at end of year 197,025 197,025 197,025
---------- ---------- ----------
Unrealized appreciation (depreciation)
of investments, net
Balance at beginning of year 153,086 (60,149) 58,102
Change during year (102,936) 404,059 (182,008)
Changes due to deferred income
tax benefit expense) and
future policy benefits 85,374 (190,824) 63,757
Balance at end of year 135,524 153,086 (60,149)
----------- ----------- ------------
Retained earnings
Balance at beginning of year 153,171 126,835 115,879
Net income 31,197 26,336 10,956
Dividends to Stockholders (50,000) - -
----------------------------------------------
Balance at end of year 134,368 153,171 126,835
----------- ---------- -----------
Total stockholders' equity$ 470,142 $ 506,507 $ 266,936
========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 31,197 $ 26,336 $ 10,956
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains and losses
included in income:
Change in insurance reserves 107,134 37,251 45,554
Change in premiums and insurance balances
receivable and payable -net (117) (110) (138)
Change in reinsurance assets (2,658) 3,761 5,570
Change in deferred policy acquisition costs (4,530) (1,599) (213)
Change in investment income due and accrued (3,078) (6,732) (8,153)
Realized capital gains (610) (1,436) (1,932)
Change in current and deferred income taxes -net (9,227) (5,417) (6,927)
Change in reserves for commissions, expenses
and taxes 472 1,356 149
Change in other assets and liabilities - net (17,396) (18,394) 7,597
----------- ----------- ------------
Total adjustments 69,990 8,680 41,507
----------- ------------ -----------
Net cash provided by operating activities 101,187 35,016 52,463
---------- ----------- -----------
Cash flows from investing activities:
Cost of fixed maturities, at market sold ....... 136,829 65,623 63,695
Cost of fixed maturities, at market
matured or redeemed ........................... 424,317 247,551 255,229
Cost of equity securities sold ................. 4,877 1,310 958
Realized capital gains ........................ 610 3,436 4,715
Purchase of fixed maturities.................. (858,793) (627,188) (837,973)
Purchase of equity securities ................... (4,149) (1,005) (137)
Mortgage loans granted ........................ (124,280) (111,402) (77,824)
Repayments of mortgage loans..................... 59,577 60,476 9,621
Change in policy loans........................... (71) (674) 601
Change in short-term investments ................ 43,715 26,372 (7,485)
Change in other invested assets ................. 10,475 (4,083) (6,479)
Other - net ................................... 8,701 (17,713) (1,020)
-------------- ---------------------------
Net cash used in investing activities (298,192) (357,297) (596,099)
------------ ------------------------
Cash flows from financing activities:
Change in policyholders' funds on deposit 247,626 318,169 542,729
Dividends to stockholders (50,000) - -
---------------------------------------------
Net cash provided by financing activities 197,626 318,169 542,729
------------- ---------- ----------
Change in cash ..................................... 621 (4,112) (907)
Cash at beginning of year ........................ 1,105 5,217 6,124
------------- ---------------------------
Cash at end of year $ 1,726 $ 1,105 $ 5,217
============= ============= ==============
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a)Basis of Presentation: American International Life Assurance Company of
New York (the Company) is a wholly-owned subsidiary of American
International Group, Inc. (the Parent). The financial statements of the
Company have been prepared on the basis of generally accepted accounting
principles (GAAP). The preparation of financial statements in conformity
with GAAP 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
periods. Actual results could differ from those estimates. The Company is
licensed to sell life and accident & health insurance in the District of
Columbia and all states except Arizona, Connecticut and Maryland. The
Company is also licensed in America Samoa, Virgin Islands and Guam.
The Company also files financial statements prepared in accordance with
statutory practices prescribed or permitted by the Insurance Department of
the State of New York. Financial statements prepared in accordance with
generally accepted accounting principles differ in certain respects from
the practices prescribed or permitted by regulatory authorities. The
significant differences are: (1) statutory financial statements do not
reflect fixed maturities available for sale at market value; (2) policy
acquisition costs, charged against operations as incurred for regulatory
purposes, have been deferred and are being amortized over the anticipated
life of the contracts; (3) individual life and annuity policy reserves
based on statutory requirements have been adjusted based upon mortality,
lapse and interest assumptions applicable to these coverages, including
provisions for reasonable adverse deviations; these assumptions reflect
the Company's experience and industry standards; (4) deferred income taxes
not recognized for regulatory purposes have been provided for temporary
differences between the bases of assets and liabilities for financial
reporting purposes and tax purposes; (5) for regulatory purposes, future
policy benefits, policyholders' funds on deposit, policy and contract
claims and reserve for unearned premiums are presented net of ceded
reinsurance; and (6) an asset valuation reserve and interest maintenance
reserve using National Association of Insurance Commissioners (NAIC)
formulas are set up for regulatory purposes.
(b)Investments: Fixed maturities available for sale, where the company may
not have the ability or positive intent to hold these securities until
maturity, are carried at market value. Included in fixed maturities
available for sale are collateralized mortgage obligations (CMO's).
Premiums and discounts arising from the purchase of CMO'S are treated as
yield adjustments over the estimated life. Common and non-redeemable
preferred stocks are carried at market value. Short-term investments are
carried at cost, which approximates market.
Unrealized gains and losses from investment in equity securities and fixed
maturities available for sale are reflected in stockholders' equity, net
of amounts recorded as future policy benefits and any related deferred
income taxes.
Realized capital gains and losses are determined principally by specific
identification. Where declines in values of securities below cost or
amortized cost are considered to be other than temporary, a charge is
reflected in income for the difference between cost or amortized cost and
estimated net realizable value.
Mortgage loans on real estate are carried at unpaid principal balance less
unamortized loan origination fees and costs less an allowance for
uncollectible loans.
F-10
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments
are capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity,
net of any related taxes. Also included in this category is an interest
rate cap agreement, which is carried at its amortized cost. The cost of
the cap is being amortized against investment income on a straight line
basis over the life of the cap.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the
Parent have a written tax allocation agreement whereby the Parent agrees
not to charge the Company a greater portion of the consolidated tax
liability than would have been paid by the Company if it had filed a
separate return. Additionally, the Parent agrees to reimburse the Company
for any tax benefits arising out of its net losses within ninety days
after the filing of that consolidated tax return for the year in which
these losses are utilized. Deferred federal income taxes are provided for
temporary differences related to the expected future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns.
(d)Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident and
health insurance are reported as earned over the contract term. The
portion of accident and health premiums which is not earned at the end of
a reporting period is recorded as unearned premiums. Estimates of premiums
due but not yet collected are accrued. Policy benefits and expenses are
associated with earned premiums on long-duration contracts resulting in a
level recognition of profits over the anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized in
relation to expected gross profits over the life of the policies (see Note
3).
The liability for future policy benefits and policyholders' contract
deposits is established using assumptions described in Note 4.
(e)Policy and Contract Claims: Policy and contract claims include amounts
representing: (1) the actual in-force amounts for reported life claims and
an estimate of incurred but unreported claims; and (2) an estimate, based
upon prior experience, for accident and health reported and incurred but
unreported losses. The methods of making such estimates and establishing
the resulting reserves are continually reviewed and updated and any
adjustments resulting therefrom are reflected in income currently.
(f)Separate and Variable Accounts: These accounts represent funds for which
investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the
assets are carried at market value. The assets of each account are legally
segregated and are not subject to claims which arise out of any other
business of the Company.
F-11
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(g)Reinsurance Assets: Reinsurance assets include the balances due from both
reinsurance and insurance companies under the terms of the Company's
reinsurance arrangements for ceded unearned premiums, future policy
benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It also
includes funds held under reinsurance treaties.
(h) Accounting Standards:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of" (FASB 121). This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and an impairment loss must be recognized.
FASB 121 was effective for the Company commencing January 1, 1996. The
adoption of this statement in 1996 had no significant effect on the
Company's results of operations, financial condition and liquidity.
In December 1995, FASB issued "Special Report, a Guide to the
Implementation of Statement No. 115 on Accounting for Certain Investments
in Debt and Equity Securities". Among other things, this guide provided
for a transition provision permitting a one-time transfer of debt
securities from the held to maturity classification to the available for
sale classification. The Company did not transfer any securities from the
held to maturity classification to available for sale classification.
(i)The financial statements for 1994 and 1995 have been reclassified to
conform to the 1996 presentation.
2. Investment Information
(a) Statutory Deposits: Securities with a carrying value of $9,369,000 and
$9,381,000 were deposited by the Company under requirements of regulatory
authorities as of December 31, 1996 and 1995, respectively.
F-12
<PAGE>
2. Investment Information - (continued)
b)Net Investment Income: An analysis of net investment income
is as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $351,702 $334,828 $289,374
Equity securities 999 1,006 1,156
Mortgage loans 41,865 40,383 33,251
Real estate 2,835 2,760 2,947
Policy loans 794 733 764
Cash and short-term investments 4,699 4,124 6,839
Other invested assets 2,662 6,381 4,465
--------- --------- ---------
Total investment income 405,556 390,215 338,796
Investment expenses 3,909 3,535 3,286
--------- --------- ---------
Net investment income $401,647 $386,680 $335,510
======== ======== ========
</TABLE>
(c)Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for 1996,
1995 and 1994 are summarized below (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net realized gains (losses)
on investments:
Fixed maturities $ (104) $ (115)$ (75)
Equity securities 714 3,515 2,046
Mortgage loans - (2,000) (2,783)
Other invested assets - 36 2,744
------------ --------------------
Net realized gains $ 610 $ 1,436 $ 1,932
========= ======== ========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities $(115,746) $ 402,020 $(186,892)
Equity securities 5,913 666 (697)
Other invested assets 6,897 1,373 5,581
----------- ------------------------
Change in unrealized appreciation
(depreciation) of investments $ (102,936) $ 404,059 $(182,008)
=========== ========= ==========
Proceeds from the sale of investments in fixed maturities during 1996,
1995 and 1994 were $136,829,000, $65,623,000 and $79,504,000,
respectively.
During 1996, 1995 and 1994, gross gains of $636,000, $624,000 and
$4,861,000, respectively, and gross losses of $740,000, $739,000 and
$4,936,000, respectively, were realized on dispositions of fixed
maturities.
During 1996, 1995 and 1994, gross gains of $714,000, $3,516,000 and
$2,047,000, respectively, and gross losses of $0, $1,000 and $1,000,
respectively, were realized on dispositions of equity securities.
</TABLE>
F-13
<PAGE>
2. Investment Information - (continued)
(d)Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1996 and 1995, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $15,648,000 and $9,650,000 and gross losses of $398,000 and
$480,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross
1996 Amortized Unrealized Gross Market
Cost Gains Unrealized Value
Losses
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 79,195 $ 14,104 $ 420 $ 92,879
States, municipalities and
political subdivisions 854,402 36,479 4,574 886,307
Foreign governments 39,549 3,579 283 42,845
All other corporate 3,483,462 148,570 18,041 3,613,991
---------- --------- ------- ---------
Total fixed maturities $ 4,456,608 $ 202,732 $ 23,318 $4,636,022
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
1995 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 84,063 $ 19,982 $ 39 $ 104,006
States, municipalities and
political subdivisions 883,646 56,568 89 940,125
Foreign governments 33,927 5,291 75 39,143
All other corporate 3,137,534 224,452 10,931 3,351,055
--------- -------- -------- ---------
Total fixed maturities $4,139,170 $ 306,293 $ 11,134 $ 4,434,329
========== ======== ======= ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities
available for sale at December 31, 1996, by contractual maturity, are
shown below (in thousands). Actual maturities could differ from
contractual maturities because certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<S> <C> <C>
Estimated
Amortized Market
Cost Value
Due in one year or less $ 280,178 $ 287,023
Due after one year through five years 1,293,766 1,338,015
Due after five years through ten years 1,758,183 1,834,170
Due after ten years 1,124,481 1,176,814
----------- ------------
$4,456,608 $ 4,636,022
---------- -----------
---------- -----------
</TABLE>
F-14
<PAGE>
2. Investment Information - (continued)
(e) CMO's: CMOs are U.S. Government and Government agency backed and triple
A-rated securities. In the preceding table, CMO's are included in other
corporate fixed maturities. At December 31, 1996 and 1995, the market
value of the CMO portfolio was $1,031,431,000 and $1,114,196,000,
respectively; the estimated amortized cost was approximately $991,305,000
in 1996 and $1,049,450,000 in 1995. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities contained
in the portfolio at December 31, 1996.
(f)Fixed Maturities Below Investment Grade: At December 31, 1996 and 1995,
the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $270,068,000 and $204,254,000,
respectively, and an aggregate market value of $267,331,000 and
$206,442,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h)Investments Greater than 10% Equity: The market value of investments in
the following companies and institutions exceeded 10% of the Company's
total stockholders' equity at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fixed Maturities:
General Motors Acceptance Corporation $ 72,009
Morgan Stanley Mortgage Trust $ 71,790
Transamerica Finance $ 55,300
Chrysler Finance Corporation $ 49,132
</TABLE>
3. Deferred Policy Acquisition Costs
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against future
income and the related current amortization charged to income, excluding
certain amounts deferred and amortized in the same period (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $31,225 $29,626 $29,413
Acquisition costs deferred 8,482 5,933 3,286
Amortization charged to income (3,953) (4,334) (3,073)
------ ------- -------
Balance at end of year $35,754 $31,225 $29,626
======= ======= =======
</TABLE>
F-15
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a)The analysis of the future policy benefits and policyholders' funds on
deposit liabilities as at December 31, 1996 and 1995 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Future policy benefits:
Long duration contracts $1,565,362 $1,537,901
Short duration contracts 23,201 23,859
----------- -----------
$1,588,563 $1,561,760
Policyholder funds on deposit:
Annuities $2,458,340 $2,216,319
Guaranteed investment contracts (GICs) 744,284 739,947
Universal life 98,466 98,214
Other investment contracts 7,118 6,101
$3,308,208 $3,060,581
</TABLE>
(b)Long duration contract liabilities included in future policy benefits, as
presented in the table above, result from traditional life products. Short
duration contract liabilities are primarily accident and health products.
The liability for future policy benefits has been established based upon
the following assumptions:
(i) Interest rates for traditional life insurance products are 9.5 percent
graded to 7.0 percent over 30 years. The liability for future policy
benefits for universal life insurance has been established using FASB 97
and assumes a 1.0 percent investment margin. Interest rates (exclusive of
immediate/terminal funding annuities), which vary by year of issuance and
products, range from 3.0 percent to 10.0 percent. Interest rates on
immediate/terminal funding annuities are at a maximum of 12.2 percent and
grade to not greater than 7.5 percent.
(ii) Mortality and withdrawal rates are based upon actual experience
modified to allow for variations in policy form. The weighted average
lapse rate, including surrenders, for individual life approximated 15.0
percent.
(c)The liability for policyholders' fund on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of issuance
and range from 3.0 percent to 8.0 percent. Credited interest rate
guarantees are generally for a period of one year. Withdrawal charges
generally range from 6.0 percent to 10.0 percent grading to zero over a
period of 6 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited generally
range from 4.7 percent to 8.1 percent and maturities range from 2 to 7
years.
(iii) The universal life funds have credited interest rates of 5.9 percent
to 7.5 percent and guarantees ranging from 3.5 percent to 5.5 percent
depending on the year of issue. Additionally, universal life funds are
subject to surrender charges that amount to 10.0 percent of the fund
balance and grade to zero over a period not longer than 20 years.
F-16
<PAGE>
5. Income Taxes
(a)The Federal income tax rate applicable to ordinary income is 35% for
1996, 1995 and 1994. Actual tax expense on income from operations differs
from the "expected" amount computed by applying the Federal income tax
rate because of the following (in thousands except percentages):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---------------- -------------- -----------
PERCENT PERCENT PERCENT
OF OF OF
PRE-TAX PRE-TAX PRE-TAX
OPERATING OPERATING OPERATING
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $16,989 35.0% $14,287 35.0% $6,172 35.0%
Prior year federal
income tax benefit - - - - - -
State income tax 578 1.2 609 1.5 667 3.8
Other (223) (0.5) (398) (1.0) (162) (0.9)
-------- ----- -------- ---- --------- ----
Actual income
tax expense $17,344 35.7% $14,498 35.5% $ 6,677 37.9%
======= ==== ======= ==== ======= ====
</TABLE>
(b) The components of the net deferred tax liability were as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Adjustments to mortgage loans
and investment income $ 5,321 $ 5,420
Adjustment to life reserves 35,370 23,835
Other 363 1,571
----------- ---------
41,054 30,826
Deferred tax liabilities:
Deferred policy acquisition costs $ 1,437 $ 1,637
Fixed maturities discount 9,816 8,745
Unrealized appreciation on investments 72,979 82,352
Other 267 417
----------- ----------
84,499 93,151
--------- --------
Net deferred tax liability $ 43,445 $ 62,325
======== ========
</TABLE>
(c)At December 31, 1996, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,879,000 of "Policyholders'
Surplus" as defined under the Code. Under provisions of the Code,
"Policyholders' Surplus" has not been currently taxed but would be taxed
at current rates if distributed to the Parent. There is no present
intention to make cash distributions from "Policyholders' Surplus" and
accordingly, no provision has been made for taxes on this amount.
(d)Income taxes paid in 1996, 1995, and 1994 amounted to $25,353,000,
$19,056,000, and $13,537,000, respectively.
F-17
<PAGE>
6. Commitments and Contingent Liabilities
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
7. Fair Value of Financial Instruments
(a)Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments may
or may not be recognized in the balance sheet. In the measurement of the
fair value of certain of the financial instruments, quoted market prices
were not available and other valuation techniques were utilized. These
derived fair value estimates are significantly affected by the assumptions
used. FASB 107 excludes certain financial instruments, including those
related to insurance contracts.
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair value.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair values of policy loans were not calculated as the Company
believes it would have to expend excessive costs for the benefits derived.
Therefore, the fair value of policy loans was estimated at carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair values of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
F-18
<PAGE>
7. Fair Value of Financial Instruments - (continued)
(b) The fair value and carrying amounts of financial instruments
is as follows (in thousands):
<TABLE>
<CAPTION>
1996
FAIR CARRYING
VALUE AMOUNT
-------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments $ 62,059 $ 62,059
Fixed maturities 4,636,022 4,636,022
Equity securities 33,689 33,689
Mortgage and policy loans 533,981 524,533
Interest rate cap 226 283
Policyholders' funds on deposit $3,366,450 $3,308,208
</TABLE>
<TABLE>
<CAPTION>
1995
FAIR CARRYING
VALUE AMOUNT
-------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments $ 105,153 $ 105,153
Fixed maturities 4,434,329 4,434,329
Equity securities 28,935 28,935
Mortgage and policy loans 489,768 459,691
Interest rate cap 433 510
Policyholders' funds on deposit $3,125,730 $3,060,581
</TABLE>
8. Stockholders' Equity
(a)The Company may not distribute dividends to the Parent without prior
approval of regulatory agencies. Generally, this limits the payment of
such dividends to an amount which, in the opinion of the regulatory
agencies, is warranted by the financial condition of the Company. During
1996, the Company paid a $50,000,000 dividend to American International
Group, Inc., the parent.
(b)The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $254,169,000 at December 31, 1996 and
$257,910,000 at December 31, 1995. Statutory net income amounted to
$48,474,000, $49,059,000, and $21,226,000 for 1996, 1995 and 1994,
respectively.
F-19
<PAGE>
9. Employee Benefits
(a)The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and completed
twelve months of continuous service are eligible to participate in this
plan. An employee with 5 or more years of service is entitled to pension
benefits beginning at normal retirement age 65. Benefits are based upon a
percentage of average final compensation multiplied by years of credited
service limited to 44 years of credited service. Prior to January 1, 1996
the average final compensation is subject to certain limitations. Annual
funding requirements are determined based on the "projected unit credit"
cost method which attributes a pro rata portion of the total projected
benefit payable at normal retirement to each year of credited service.
Pension expense for current service costs, retirement and termination
benefits for the years ended December 31, 1996, 1995 and 1994 were
approximately $241,000, $225,000 and $190,000, respectively. The Parent's
plans do not separately identify projected benefit obligations and plan
assets attributable to employees of participating affiliates. The
projected benefit obligations exceeded the plan assets at December 31,
1996 by $42,149,000.
(b)The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which during the two years ended December 31, 1994,
provided for salary reduction contributions by employees and matching
contributions by the Parent up to 2 percent of annual salary. Commencing
January 1, 1995, the 401(k) plan provided for matching contributions by
the Parent of up to 6 percent of annual salary depending on the employee's
years of service.
(c)On April 1, 1985, the Parent terminated and replaced its then existing
U.S. pension plan, a contributory qualified defined benefit plan, with the
current non-contributory qualified defined benefit plan. Settlement of the
obligations of the prior plan was accomplished through the purchase of
annuities from the Company for accrued benefits as of the date of
termination. Future policy benefits reserves in the accompanying balance
sheet that relate to these annuity contracts are $73,866,000 at December
31, 1996 and $73,171,000 at December 31, 1995.
(d)In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
(e)The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provide for eligible employees
to receive privileges to purchase AIG common stock at a price equal to 85%
of the fair market value on the date of grant of the purchase privilege.
The Parent has not recognized compensation costs for either plan. The
effect of the compensation costs, as determined consistent with
FASB 123, was not computed on a subsidiary basis, but rather on a
consolidated basis for all subsidiaries of the Parent and therefore are
not presented herein.
F-20
<PAGE>
10. Leases
(a)The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1996, the
future minimum lease payments under operating leases were as follows:
<TABLE>
<CAPTION>
Year Payments
<S> <C>
1997 $ 1,035
1998 894
1999 396
2000 220
2001 139
Remaining years after 2001 -
---------
Total $2,684
------
------
</TABLE>
Rent expense approximated $866,000, $661,000 and $801,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
(b)Sublease Income - The Company does not participate in sublease agreements.
11. Reinsurance
(a)The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term treaties.
Accident and health insurance risks are reinsured primarily under
coinsurance, excess of loss and quota share treaties. Amounts recoverable
from reinsurers are estimated in a manner consistent with the assumptions
used for the underlying policy benefits and are presented as a component
of reinsurance assets. A contingent liability exists with respect to
reinsurance ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements. The Company also
reinsures portions of its life and accident and health insurance risks
with affiliated companies (see Note 12).
The effect of all reinsurance contracts, including reinsurance assumed, is
as follows (in thousands, except percentages):
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1996 ASSUMED
GROSS CEDED ASSUMED NET TO NET
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,776,324 $638,583 $ 3,282 $4,141,023 0.1%
========== ======== ========== ==========
Premiums:
Life 25,625 3,788 82 21,919 0.4%
Accident and Health 20,553 6,729 22,009 35,833 61.4%
Annuity 92,441 721 - 91,720 -
------------ --------- ---------- ---------- -------
Total Premiums $ 138,619 $11,238 $ 22,091 $149,472 14.8%
=========== ========= ========= ==========
</TABLE>
F-21
<PAGE>
11. Reinsurance - (continued)
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1995 ASSUMED
GROSS CEDED ASSUMED NET TO NET
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,415,460 $711,025 $ 3,574 $3,708,009 0.2%
========== ======== ========== ==========
Premiums:
Life 25,938 3,368 6 22,576 -
Accident and Health 22,136 8,034 20,822 34,924 59.6%
Annuity 27,496 639 - 26,857 -
------------ ----------- -------- --------
Total Premiums $ 75,570 $ 12,041 $ 20,828 $ 84,357 24.7%
============ ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
December 31, 1994 ASSUMED
GROSS CEDED ASSUMED NET TO NET
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,241,039 $512,028 $ 3,980 $3,732,991 0.1%
===============================================
Premiums:
Life 26,345 3,677 13 22,681 0.1%
Accident and Health 23,622 9,520 20,612 34,714 59.4%
Annuity 14,892 461 - 14,431 -
--------- ---------- --------------------------
Total Premiums $ 64,859 $ 13,658 $ 20,625 $ 71,826 28.7%
=========== ====================== ============
</TABLE>
(b) The maximum amount retained on any one life by the Company is $1,000,000.
(c)Reinsurance recoveries, which reduced death and other benefits,
approximated $7,176,000, $7,667,000 and $6,720,000 respectively, for each
of the years ended December 31, 1996, 1995 and 1994.
The Company's reinsurance arrangements do not relieve it from its direct
obligation to its insureds.
12. Transactions with Related Parties
(a)The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance risks.
Premium income and commission ceded to affiliates amounted to $857,000 and
$(2,000), respectively, for the year ended December 31, 1996. Premium
income and commission ceded for 1995 amounted to $800,000 and $(3,000),
respectively. Premium income and commission ceded for 1994 amounted to
$574,000 and $(3,000), respectively. Premium income and ceding commission
expense assumed from affiliates aggregated $20,764,000 and $(120,000),
respectively, for 1996, compared to $19,679,000 and $(141,000),
respectively, for 1995, and $19,331,000 and $98,000, respectively, for
1994.
(b)The Company provides life insurance coverage to employees of the Parent
and its domestic subsidiaries in connection with the Parent's employee
benefit plans. The statement of income includes $5,142,000 in premiums
relating to this business for 1996, $4,080,000 for 1995, and $3,952,000
for 1994.
F-22
<PAGE>
12. Transactions with Related Parties - (continued)
(c)The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional cost
allocation basis which management believes to be reasonable. For the years
ended December 31, 1996, 1995 and 1994, the Company was charged
$24,204,000, $19,148,000, and $17,401,000, respectively, for expenses
attributed to the Company but incurred by affiliates. During the same
period, the Company received reimbursements from affiliates aggregating
$21,198,000, $20,920,000 and $19,505,000, respectively, for costs incurred
by the Company but attributable to affiliates.
(d)During 1995, the Company sold a mortgage loan to AIG Real Estate
Investment and Management Company for the aggregate unpaid principal
balance of $5,000,000.
<PAGE>
PART C
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
a. Financial Statements
The financial statements of American International Life Assurance
Company of New York and Variable Account A are included in Part B
hereof.
b. Exhibits
1. Resolution of Board of Directors of the Company
authorizing the establishment of the Variable Account*
2. Not Applicable
3. (i) Principal Underwriter's Agreement**
(ii) Broker-Dealer Agreement**
(iii) General Agency Agreement***
(iv) Distribution Agreement***
4. (i) Individual Single Purchase Payment Deferred Variable
Annuity Contracts#
(ii) Individual Single and Flexible Premium (New Contract)##
5. Application for Annuity Contract#
6. (i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company*
7. Not Applicable
8. Administrative Agreement* (filed confidentially)
9. Opinion and Consent of Counsel (filed electronically
herewith)
10. (i) Consent of Counsel (filed electronically herewith)
(ii) Consent of Independent Accountants
(filed electronically herewith)
11. Not Applicable
12. Agreement Governing Contribution*
13. Performance Data***
14. Powers of Attorney(filed electronically herewith)
* Incorporated by reference to Registrant's initial filing on Form
N-4, (File No. 33-9144) filed on October 7, 1986.
** Incorporated by reference to Registrants Post-Effective Amendment
No.3 to Form N-4 (File No. 33-9144), filed on May 1, 1989.
*** Incorporated by reference to Registrants Post-Effective Amendmen
No. 4 to Form N-4 (File No. 33-9144), filed on May 1, 1990.
**** Incorporated by reference to Registrants
Post-Effective Amendment No. 5 (File No. 33-9144), filed on
May 1, 1991.
# Incorporated by reference to Registrants Post-Effective
Amendment No. 11 (File No. 33-39170), Filed May 1, 1992.
## Incorporated by reference to Registrants Post-Effective Amendment
No.7 (File No. 33-39170), Filed May 1, 1996.
Item 25. Directors and Officers of the Depositor.
The following are the Officers and Directors of the Company:
Officers:
Name and Principal Position and Offices
Business Address with the Company
Ernest E. Stempel(1) Chairman of the Board
Robert J. O'Connell(2) President
Michele L. Abruzzo(2) Senior VicePresident
James A. Bambrick(2) Senior VicePresident
Howard Gunton(3) Vice President & Comptroller
Jeffrey M. Kestenbaum(2) Senior VicePresident
Robert Liguori(3) Vice President and Counsel
Edward E. Matthews(1) Senior VicePresident - Finance
Jerome T. Muldowney(4) Vice President
Michael Mullin(3) Vice President
Nicholas A. O'Kulich(1) Vice President &Treasurer
John R. Skar(3) Vice President & Chief Actuary
Gerald W. Wyndorf(2) Senior VicePresident
Elizabeth M. Tuck(1) Secretary Corporate
David J. Walsh(1) Vice President
Patrick J. Foley (1) Director
(1) Business address is: 70 Pine Street, New York, New York 10270
(2) Business address is: 80 Pine Street, New York, New York 10005
(3) Business address is: One Alico Plaza, Wilmington, Delaware 19801
(4) Business address is: One Chase Plaza, New York, New York 10005
<PAGE>
Directors Address
Peter J. Dalia 20281 East Country Club Drive
Apt. #2212
Aventura, FL 33180
Marion E. Fajen 5608 North Waterbury Road
Des Moines, Iowa 50312
Cecil C. Gamwell III American International Group, Inc.
80 Pine Street, 13th Floor
New York, New York 10270
M.R. Greenberg American International Group, Inc.
70 Pine Street,18th Floor
New York, New York 10270
Jacob E. Hansen AIG Marketing, Inc.
505 Carr Road
Wilmington, Delaware
Jack R. Harnes American International Group, Inc.
72 Wall Street , 1st Floor
New York, New York 10270
John I. Howell Indian Rock Corporation
P.O. Box 2606
Greenwick, Connecticut, 06831
Jeffrey M. Kestenbaum American
International Group, Inc.
80 Pine Street, 13th Floor
New York, New York 10270
Edwin A. G. Manton American International Group, Inc.
70 Pine Street, 18th Floor
New York, New York 10270
Jerome T.Muldowney American International Group, Inc.
One Chase Manhattan Plaza, 57th Floor
New York, New York 10005
Win J. Neuger American International Group, Inc.
70 Pine Street, 17th Floor
New York, New York 10270
Robert J. O'Connell American International Life Assurance
Company of New York
80 Pine Street, 13th Floor
Directors Address
Nicholas A. O'Kulich American International Group, Inc.
70 Pine Street, 17th Floor
New York, New York 10270
John R. Skar American International Life
Assurance Company of New York
P.O. Box 667Wilmington, DE 19899
Ernest E. Stempel American International Companies
70 Pine Street, 17th Floor
New York, New York 10270
David J. Walsh Amaerican International Companies
70 Pine Street, 22nd Floor
New York, New York 10005
Gerald W. Wyndorf American International Companies
80 Pine Street, 13th Floor
New York, New York 10005
Patrick J. Foley American International Life
Assurance Company of New York
70 Pine Street, 38th Floor
New York, New York 10270
Item 26. Persons Controlled by or Under Common Control
with the Depositor or Registrant.
See Chart of Ownership, Exhibit C26
Item 27. Number of Contract Owners.
There were approximately 2,449 contractholders as of March 31, 1997.
Item 28. Indemnification
Incorporated by reference to Registrant's initial Form N-4
(File No.33-9144) filed on October 7, 1986.
Item 29. Principal Underwriter
a. AIG Equity Sales Corp., the principal underwriter for
Variable Account A, also acts as the principal underwriter
for other separate accounts of the Depositor, and for the
separate accounts of AIG Life Insurance Company, an
affiliated company.
b. The following information is provided for each director and
officer of the Principal Underwriter:
Name and Principal Positions and Offices
Business Address with Underwriter
Michele L. Abruzzo(1) Director and President
Kevin Clowe(2) Director and VicePresident
Edward E. Matthews(1) Director and Chairman of the Board
Jerome T. Muldowney(3) Director
Robert J. O'Connell(1) Director
Ernest E. Stempel(2) Director
Kenneth F. Judkowitz(1) Treasurer,Comptroller, Vice President
Philomena Scamardella(1) Vice President and Senior
Compliance Officer
Florence Davis(2) Director and General Counsel
Elizabeth M. Tuck(2) Secretary
Daniel Keith Kingsbury(2) Vice President
(1) Business address is: 80 Pine Street, New York, N Y 10270.
(2) Business address is: 70 Pine Street, New York, NY 10270
(3) Business address is: One Chase Manhattan Plaza, 57th Flr,
New York, NY 10005
<PAGE>
c. Net
Name of Underwriting Compensation
Principal Discounts and on Brokerage
Underwriter Commissions Redemption Commissions
Compensation
American International $ 20,363 $0 $0
Fund Distributors,
Inc.
Item 30. Location of Accounts and Records.
Kenneth F. Judkowitz, Assistant Vice President of the Company, whose
address is 80 Pine Street, New York, New York 10005, maintains physical
possession of the accounts, books or documents of the Variable Account
required to be maintained by Section 31(a) of Investment Act of 1940 and the
rules promulgated thereunder.
Item 31. Management Services.
Not Applicable
Item 32. Undertakings.
a. Registrant hereby undertakes to file a post-effective
amendment to this registration statement as frequently as is
necessary to ensure that the audited financial statements in
the registration statement are never more than sixteen (16)
months old for so long as payments under the variable annuity
contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of
any application to purchase a Contract offered by the
Prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a postcard or
similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a
Statement of Additional Information.
c. Registrant hereby undertakes to deliver any Statement of
Additional Information and any financial statements required
to be made available under this Form promptly upon written or
oral request.
d. Registrant represents that in connection with 403(b) Plans,
it is relying on the November 28, 1988 no-action letter
issued by the SEC to the American Council of Life Insurance.
e. Registrant represents that Variable Account A meets the
definition of a separate account under the federal securities
laws.
f. Registrant represents that the fees and charges
deducted under the contracts covered by this registration
statement, in the aggregate are reasonable in relation
to the services rendered, the expenses expected to be
incurred, and the risks assumed by the company.
II-11
<PAGE>
SIGNATURES
As required by the (Securities Act of 1933 and) the Investment Company Act
of 1940, the Registrant certifies that it meets the requirements of Securities
Act Rule 485 for effectiveness of this Registration Statement and has caused
this Registration Statement to be signed on its behalf, in the City of
Wilmington, and State of Delaware on this 26th day of April, 1997
Variable Account A
Registrant
By: /s/ Kenneth D. Walma
--------------------
Kenneth D Walma, Assistant
Secretary and Associate Counsel
By: American International Life Assurance
Company of New York
Depositor
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
Nicholas A. O'Kulich* Director April 24,1997
----------------------------
Nicholas A. O'Kulich
Maurice R. Greenberg* Director April 14, 1997
----------------------------
Maurice R.Greenberg
Peter J. Dalia * Director April 16, 1997
---------------------------
Peter J. Dalia
Marion E. Fajen* Director April 21, 1997
--------------------------
Marion E. Fajen
Cecil C. Gamwell, III* Director April 17, 1997
----------------------------
Cecil C. Gamwell, III
Jacob E. Hansen* Director April 18, 1997
-------------------
Jacob E. Hansen
Jack R. Harnes* Director April 16, 1997
-------------------
Jack R. Harnes
John I. Howell* Director April 16, 1997
-------------------
John I. Howell
Jeffrey M. Kestenbaum* Director April 16, 1997
-----------------------------
Jeffrey M. Kestenbaum
Edwin A. G. Manton* Director April 12, 1997
-------------------------
Edwin A. G. Manton
Jerome T. Muldowney* Director April 15, 1997
------------------------
Jerome T. Muldowney
Win J. Neuger* Director April 15, 1997
-----------------------
Win J. Neuger
John R. Skar* Director April 14, 1997
----------------------
John R. Skar
Ernest E. Stempel* Director April 15, 1997
----------------------
Ernest E. Stempel
<PAGE>
Signature Title Date
David J. Walsh*
-------------------- Director April 15, 1997
David J. Walsh
Gerald W. Wyndorf* Director April 15, 1997
----------------------
Gerald W. Wyndorf
Robert J. O'Connell* Director April 16, 1997
-----------------------
Robert J. O'Connell
Patrick J. Foley* Director April 14, 1997
---------------------
Patrick J. Foley
Howard E. Gunton, Jr. Director April 15, 1997
--------------------
Howard E. Gunton, Jr.
By: /s/ Kenneth D. Walma
----------------------------
Kenneth D. Walma,
Attorney in Fact
<PAGE>
EXHIBITS TO
AMENDMENT NUMBER __ TO
FORM N-4
FOR
VARIABLE ACCOUNT A
EXHIBIT PAGE
9 Opinion of Counsel
10 (i) Consent of Counsel
(ii) Consent of Independent Accountants
14 Powers of Attorney
<PAGE>
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, MARION E. FAJEN, a Director of
American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 21th day of April, 1997
WITNESS:
/s/ Catherine L. Fajen /s/ Marion E. Fajen
- ------------------ ------------------
Catherine L. Fajen Marion E. Fajen
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, NICHOLAS A. O'KULICH, a Director of
American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 24th day of April, 1997
WITNESS:
/s/ Carolyn Grossi /s/ Nicholas A. O'Kulich
- ------------------ ------------------
Carolyn Grossi Nicholas A. O'Kulich
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, JACK R. HARNES, a Director of
American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 16th day of April, 1997
WITNESS:
/s/ Carolyn Grossi /s/ Jack R. Harnes
- ------------------ ------------------
Carolyn Grossi Jack R. Harnes
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, PETER J. DALIA, a Director of
American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 16th day of April, 1997
WITNESS:
/s/June M Romia /s/ Peter J. Dalia
- ------------------ ------------------
June M. Romia Peter J. Dalia
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, C.C. GAMWELL, III a
Director of American International Life Assurance Company of New York, a
corporation duly organized under the laws of the State of New York, do hereby
appoint Kenneth D.Walma as my attorney and agent, for me, and in my name as a
Director of this Company on behalf of the company or otherwise, with full power
to execute, delivery and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 17th day of April, 1997.
WITNESS:
/s/Henry C.T. Hsiang /s/ C.C. Gamwell, III
- --------------------- ----------------------
Henry C.T. Hsiang C.C. Gamwell, III
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, PATRICK J. FOLEY a
Director of American International Life Assurance Company of New York, a
corporation duly organized under the laws of the State of New York, do hereby
appoint Kenneth D.Walma as my attorney and agent, for me, and in my name as a
Director of this Company on behalf of the company or otherwise, with full power
to execute, delivery and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 14th day of April, 1997.
WITNESS:
/s/Judy Pirouz /s/ Patrick J. Foley
- -------------- --------------------
Judy Pirouz Patrick J. Foley
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, MAURICE R. GREENBERG, a
Director of American International Life Assurance Company of New York, a
corporation duly organized under the laws of the State of New York, do hereby
appoint Kenneth D.Walma as my attorney and agent, for me, and in my name as a
Director of this Company on behalf of the company or otherwise, with full power
to execute, delivery and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 14th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Maurice R. Greenberg
- ------------------ ------------------------
Carolyn Grossi Maurice R. Greenberg
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, HOWARD E.GUNTON, JR.,
Chief Accounting Officer of American International Life Assurance Company of New
York,a corporation duly organized under the laws of the State of New York, do
hereby appoint Kenneth D. Walma as my attorney and agent, for me, and in my
name as a Director of this Company on behalf of the company or otherwise, with
full power to execute, delivery and file with the Securities and Exchange
Commission all documents required for registration of a security under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, and to do and perform each and every act that said attorney may
deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997.
WITNESS:
/s/ Kathleen E. Baker /s/ Howard E. Gunton, Jr.
- --------------------- ---------------------
Kathleen E. Baker Howard E. Gunton, Jr.
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, JEFFREY M. KESTENBAUM, a Director
of American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 16th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Jeffrey M. Kestenbaum
- ------------------ ----------------------
Carolyn Grossi Jeffrey M. Kestenbaum
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, JACOB E. HANSEN, a Director
of American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 16th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Jacob E. Hansen
- ------------------ ----------------------
Carolyn Grossi Jacob E. Hansen
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, EDWIN A. G. MANTON, a Director
of American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 12th day of April, 1997.
WITNESS:
/s/ Judith Caruso /s/ Edwin A. G. Manton
- ----------------- ----------------------
Judith Caruso Edwin A. G. Manton
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, JEROME T. MULDOWNEY, a
Director of American International Life Assurance Company of New York, a
corporation duly organized under the laws of the State of New York, do hereby
appoint Kenneth D. Walma as my attorney and agent, for me, and in my name as a
Director of this Company on behalf of the company or otherwise, with full power
to execute, delivery and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Jerome T. Muldowney
- ------------------ -----------------------
Carolyn Grossi Jerome T. Muldowney
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, WIN J. NEUGER, a Director of
American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Win J. Neuger
- ------------------ -----------------
Carolyn Grossi Win J. Neuger
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, ROBERT J. O'CONNELL, Director,
Chief Executive Officer and President of American International Life Assurance
Company of New York, a corporation duly organized under the laws of the State
of New York, do hereby appoint Kenneth D. Walma as my attorney and agent, for
me, and in my name as a Director of this Company on behalf of the company or
otherwise, with full power to execute, delivery and file with the Securities
and Exchange Commission alldocuments required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said
attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 16th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Robert J. O'Connell
- ------------------ -----------------------
Carolyn Grossi Robert J. O'Connell
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, JOHN R. SKAR, a Director,
of American International Life Assurance Company of New York, a corporation
duly organized under the laws of the State of New York, do hereby appoint
Kenneth D. Walma as my attorney and agent, for me, and in my name as a Director
of this Company on behalf of the company or otherwise, with full power to
execute, delivery and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended,
and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 14th day of April 1997.
WITNESS:
/s/Carol L. Norris /s/ John R. Skar
- ----------------- ----------------
Carol L. Norris John R. Skar
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, ERNEST E. STEMPEL, a Director
of American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Ernest E. Stempel
- ------------------ ---------------------
Carolyn Grossi Ernest E. Stempel
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, GERALD W. WYNDORF, a Director
of American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Gerald W. Wyndorf
- ------------------ ---------------------
Carolyn Grossi Gerald W. Wyndorf
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, DAVID J. WALSH, a Director of
American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ David J. Walsh
- --------------------- ------------------
Carolyn Grossi David J. Walsh
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, JOHN I. HOWELL, a Director of
American International Life Assurance Company of New York, a corporation duly
organized under the laws of the State of New York, do hereby appoint Kenneth
D. Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 16th day of April, 1997.
WITNESS:
/s/ Joan H. Nixon /s/ John I. Howell
- --------------------- ------------------
Joan H. Nixon John I.Howell
OPINION OF COUNSEL
I have made such examination of the law and have examined such records and
documents as, in my judgment, are necessary or appropriate to enable me to
render the opinions expressed below.
I am of the following opinions:
1. American International Life Assurance Company of New York is a
valid and existing stock life insurance company domiciled in the
State of New York.
2. Variable Account A is a separate investment account of American
International Life Assurance Company of New York created and
validly existing pursuant to the New York Insurance Laws and the
Regulations thereunder.
3. All of the prescribed corporate procedures for the issuance of the
Individual Single Purchase Payment Deferred Variable Annuity
Contracts (the "Contracts") have been followed, and, when such
Contracts are issued in accordance with the Prospectus contained in
the Registration Statement, all state requirements relating to such
Contracts will have been complied with.
4. Upon the acceptance of purchase payments made by Contract Owners
pursuant to a Contract issued in accordance with the Prospectus
contained in the Registration Statement and upon compliance with
applicable law, such Contract Owner will have a legally-issued,
fully paid, nonassessable contractual interest in such Contract.
This opinion, or a copy hereof, may be used as an exhibit to or in
connection with the filing with the Securities and Exchange Commission of the
Post-Effective Amendment No.4 to the Registration Statement on Form N-4 for the
Contracts to be issued by American International Life Assurance Company of New
York and its separate account, Variable Account A.
/s/ Kenneth D. Walma
Kenneth D. Walma
Assistant Secretary and
Associate Counsel
EXHIBIT 10(i)
Consent of Counsel
<PAGE>
[LETTERHEAD]
American International Life Assurance
Company of New York
80 Pine Street
New York, New York 10005
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Counsel in the Statement of Additional Information Contained in Post Effective
Amendment No. 4 to the Registration Statement on Form N-4(File No. 33-58502)
filed byAmerican International Life Assurance Company of New York and Variable
Account A with the Securities and Exchange Commission under the Securities
Act of 1933 and the Investment Company Act of 1940.
Very Truly Yours,
/s/ Jorden Burt Berenson & Johnson LLP
Jorden Burt Berenson & Johnson
<PAGE>
EXHIBIT 10(ii)
Consent of Independent Accountants
<PAGE>
Exhibit 10 (ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect of Post-effective Amendment No.
4 to the Registration Statement (No. 33-58502) on Form N-4 under the Securities
Act of 1933 of Variable Account A of American International Life Assurance
Company of New York.
1. The inclusion of our report dated February 20, 1997 relating to our
audits of the financial statements of American International Life
Assurance Company of New York in the Statement of Additional Information.
2. The inclusion of our report dated February 20, 1997 relating to our
audits of the financial statements of Variable Account A in the Statement
of Additional Information.
3. The incorporation by reference into the Prospectus of our report
dated February 20, 1997 relating to our audits of
the financial statements of American International Life Assurance
Company and Variable Account A.
4. The reference to our firm under the heading "General Information
Independent Accountants" in the Statement of Additional Information.
/s/Coopers & Lybrand L.L.P
- ---------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 22, 1997
