Rule 497(e)
File No. 33-39170
GROUP FLEXIBLE PREMIUM DEFERRED 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 describes a group flexible premium deferred variable
annuity contract (the "Contract") offered by American International Life
Assurance Company of New York (the "Company"). The Contract provides for the
accumulation of Contract Value and payment of monthly annuity payments for
individuals within groups under sponsored arrangements. Sponsored arrangements
may include, for example, those instances where an employer, a financial
institution, an association, or group otherwise permitted by state insurance
law, allows the Company to sell contracts to, respectively, its employees,
depositors, or members. An Owner may be issued a certificate as evidence of
individual participation under a group arrangement. The description of the
Contract in this Prospectus is fully applicable to any certificate that may be
issued under the Contract. As used herein the word "Contract" includes any such
certificate.
The Contract described in this Prospectus 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 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. Purchasers
intending to use the Contract 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
Alliance Variable Products Series Fund, Inc. (the "Fund"). The following
portfolios are available: Money 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; Worldwide Privatization Portfolio; Technology
Portfolio; Quasar Portfolio; Real Estate Investment Portfolio; and the High
Yield Portfolio. (See "The Fund" on page ___ .)
Additional information about the Contract 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 calling the service office at 1-800-255-8402.
The Statement of Additional Information dated May 1, 1997, as supplemented
January 9, 1998, 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.
<PAGE>
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 ADVISOR OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, 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, as supplemented January 9, 1998.
Distributor:
AIG Equity Sales Corp.
Attention: Variable Products
80 Pine Street
New York, New York 10270
1-800-888-7485
2
<PAGE>
TABLE OF CONTENTS
Page
Definitions..........................................................
Highlights...........................................................
Fee Table............................................................
Summary of Expenses .................................................
Condensed Financial Information .....................................
The Company .........................................................
The Variable Account ................................................
The Fund ............................................................
The Contract ........................................................
Charges and Deductions ..............................................
Annuity Benefits ....................................................
Death Benefit .......................................................
Distributions under the Contract ....................................
Taxes ...............................................................
Legal Proceedings....................................................
Legal Matters........................................................
Table of Contents of the Statement of Additional Information.........
Appendix ............................................................
3
<PAGE>
DEFINITIONS
Accumulation Period -- The period prior to the Annuity Date.
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 is referred 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 -- The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within 7 years of purchase.
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.
4
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contract and a segregated investment account
of the Company which account has been designated Variable Account A. The
Contract is 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. The
Contract may be purchased in connection with a retirement plan which may qualify
as a 403 (b) Plan or as an 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 available portfolios. (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 Variable Account.
The Company does not deduct sales charges from any Premium received.
However, the Contract provides 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 (the "Free Withdrawal Amount"). (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 is no Mortality and Expense Risk Charge 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 Charge which is $30 per year. The Contract Maintenance Charge 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; Deduction
for Contract Maintenance 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.
5
<PAGE>
The Owner may return the Contract within ten (10) days (the "Right to
Examine 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 Period, an amount equal to
the Premium paid less any withdrawals, the Company will refund such an amount.
<TABLE>
<CAPTION>
FEE TABLE
<S> <C>
Owner Transaction Expenses
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 (waived for Owners with Contract Values of $50,000 or greater) $30
Variable Account Expenses (as a percentage of average account value):
Mortality and Expense Risk Fees.............................................. 1.25%
Account Fees and Expenses.................................................... 0.15%
Total Variable Account Annual Expenses......................................... 1.40%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements
<S> <C> <C> <C>
Total
Management Other Operating
Portfolio Fee Expenses Expenses4
Money Market.................................................. 0.50% 0.19% 0.69%
Growth ....................................................... 0.74 0.19 0.93
Growth and Income ............................................ 0.63 0.19 0.82
International................................................. 0.04 0.91 0.95
U.S. Government/High Grade Securities......................... 0.54 0.38 0.92
North American Government Income.............................. 0.19 0.76 0.95
Global Dollar Government...................................... 0.00 0.95 0.95
Utility Income................................................ 0.19 0.76 0.95
Global Bond................................................... 0.44 0.50 0.94
Premier Growth................................................ 0.72 0.23 0.95
Total Return.................................................. 0.46 0.49 0.95
Worldwide Privatization....................................... 0.10 0.85 0.95
Technology1................................................... 0.33 0.62 0.95
Quasar1....................................................... 0.00 0.95 0.95
Real Estate Investment2....................................... 0.00 0.95 0.95
High Yield 3.................................................. 0.00 0.95 0.95
</TABLE>
- -----------------------
[FN]
1 The expense percentages for the Technology and Quasar Portfolios have been
annualized because as of December 31, 1996, the portfolios had not been in
existence for a full year.
2 Computed for the period January 1, 1997 (inception), through March 31,
1997, annualized.
3 Estimated.
4 Annual operating expenses as a percentage of the average daily net assets
of each portfolio before reimbursement by the Fund's investment adviser
were estimated to be .69% for Money Market, .93% for Growth, .82% for
Growth and Income, 1.91% for International, .98% for U.S. Government/High
Grade Securities, 1.41% for North American Government Income, 1.97% for
Global Dollar Government, 1.51% for Utility Income, 1.15% for Global Bond,
1.23% for Premier Growth, 1.12% for Total Return, 1.85% for Worldwide
Privatization, 1.62% for Technology, 4.44% for Quasar, 6.00% for Real
Estate Investment, and 1.75% for High Yield Portfolio.
</FN>
The purpose of the table set forth above is to assist the Owner 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 ____ and "Management of the Fund" in
the Fund's Prospectus.) The table does not reflect the charges applicable to
certain death benefit options offered under the Contract. (See "Charges and
Deductions -- Deduction for Equity Assurance Plan" on page ___; "Charges and
Deductions -- Deduction for Annual Ratchet Plan" on page ___; "Charges and
Deductions --Deduction for Enhanced Equity Assurance Plan" on page ___; "Charges
and Deductions -- Deduction for Accidental Death Benefit" on page ___.)
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 Contract by various states range from 0% to 3.5% of Premiums
paid. (See "Charges and Deductions -- Deduction for State Premium Taxes" on page
- ----.)
7
<PAGE>
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 Surrender Charge may
be imposed. The Free Withdrawal Amount is equal to 10% of the Premium paid, less
any prior withdrawals at the time of withdrawal. (See "Charges and Deductions
- --Deduction for Surrender Charge" on page ___.)
<TABLE>
<CAPTION>
Example
Expenses on a hypothetical $1,000 Contract, assuming 5% growth:
If you surrender
Portfolio 1 Year 3 Years 5 Years 10 Years
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market ...................................... $76 $112 $151 $248
Growth ............................................ 78 120 164 273
Growth and Income ................................. 77 116 158 262
International ..................................... 78 120 165 275
U.S. Government/High Grade Securities ............. 78 119 163 272
North American Government 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
Worldwide Privatization ........................... 78 120 165 275
Technology ........................................ 78 120 165 275
Quasar ............................................ 78 120 165 275
Real Estate Investment ............................ 78 120 165 275
High Yield ........................................ 78 120 165 275
</TABLE>
8
<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
Growth ............................................ 24 75 128 273
Growth and Income ................................. 23 71 122 262
International ..................................... 24 75 129 275
U.S. Government/High Grade Securities ............. 24 74 127 272
North American Government 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
Worldwide Privatization ........................... 24 75 129 275
Technology ........................................ 24 75 129 275
Quasar ............................................ 24 75 129 275
Real Estate Investment ............................ 24 75 129 275
High Yield......................................... 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.
9
<PAGE>
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
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 ..... 890,464.95 551,555.84 206,34.73 1,590.74 N/A
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
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 SECURITIES
Accumulation Unit Value
Beginning of Period ................ 11.38 .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
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 5,958.18 N/A N/A
10
<PAGE>
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
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
</TABLE>
No financial information has been reported for the High Yield and Real
Estate Investment Portfolios of the Fund because for the fiscal year ended
December 31, 1996, the Variable Account had not commenced operations with
respect to those portfolios.
Funds were first invested in the portfolios on the following dates:
<TABLE>
<CAPTION>
<S> <C>
Money Market Portfolio May 13, 1993
Growth Portfolio August 12, 1994
11
<PAGE>
Growth & Income Portfolio April 16, 1992
International Portfolio June 1, 1993
U.S. Government/High Grade 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
Global Bond Portfolio May 10, 1993
Premier Growth Portfolio December 7, 1992
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
High Yield Portfolio September 9, 1997
</TABLE>
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.
12
<PAGE>
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 as no Contracts had
been issued during the reporting period.
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.
Ratings
The Company may from time-to-time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A. M. Best Company,
Moody's, and Standard & Poor's. The purpose of the ratings is to reflect the
financial strength and/or claims-paying ability of the Company and should not be
considered as bearing on the investment performance of assets held in the
separate account. Each year the A.M. Best Company reviews the financial status
of thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect A.M. Best's current opinion of the relative financial strength
and operating performance of an insurance company in comparison to the norms of
the life/health insurance industry. In addition, the claims-paying ability of
the Company as measured by Standard & Poor's Insurance Ratings Services, and the
financial strength of the Company as measured by Moody's Investors Services, may
be referred to in advertisements, sales literature or in reports to Owners.
These ratings are their opinion of an operating insurance company's financial
capacity to meet the obligations of its life insurance policies and annuity
contracts in accordance with their terms. In regard to their ratings of the
Company, these ratings are explicitly based on the existence of a Support
Agreement, dated as of December 31, 1991, between the Company and its parent
American International Group, Inc. ("AIG"), pursuant to which AIG has agreed to
cause the Company to maintain a positive net worth and to provide the Company
with funds on a timely basis sufficient to meet the Company's obligations to its
policyholders. The Support Agreement is not, however, a direct or indirect
guarantee by AIG to any person of the payment of any of the Company's
indebtedness, liabilities or other obligations (including obligations to the
Owners).
13
<PAGE>
The ratings are not recommendations to purchase the Company's life
insurance or annuity products, or to hold or sell these products, and the
ratings do not comment on the suitability of such products for a particular
investor. There can be no assurance that any rating will remain in effect for
any given period of time or that any rating will not be lowered or withdrawn
entirely by a rating organization if, in such organization's judgment, future
circumstances relating to the Support Agreement, such as a lowering of AIG's
long-term debt rating, so warrant. The ratings do not reflect the investment
performance of the Variable Account or the degree of risk associated with an
investment in the Variable Account.
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 Contract, 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 funding vehicles for the Contract. 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 (the "1940 Act"), may be deregistered under the
1940 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 the Variable Account and are
described in other prospectuses.
THE FUND
Alliance Variable Products Series Fund, Inc. will act as the funding
vehicle for the Contract offered by this Prospectus. The Fund is a diversified
open-end management investment company, which is intended to meet differing
investment objectives. The Fund is managed by Alliance Capital Management L.P.
(the "Advisor"). The Advisor has entered into a sub-advisory agreement with AIG
Global Investment Corp. (the "Sub-Advisor"), a wholly-owned subsidiary of AIG
and an affiliate of the Company, to provide investment advice for the Global
Bond Portfolio. A summary of investment objectives for each portfolio is set
forth below. More detailed information regarding investment objectives,
management of the portfolios, and investment advisory fees and other charges may
be found in the current Prospectus for the Fund, which also 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.
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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.
The portfolios available under the Fund and their investment objectives 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. An investment in the money market portfolio is neither
insured nor guaranteed by the U.S. Government. There can be no assurance that
the Portfolio will be able to maintain a stable net asset value of $1.00 per
share, although it expects to do so.
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.
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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.
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.
Global Bond Portfolio
This portfolio seeks to provide the highest level of current income
consistent with what the 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.
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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.
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 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 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.
High Yield Portfolio
This portfolio seeks the highest level of current income available without
assuming undue risk by investing principally in high-yielding fixed income
securities. As a secondary objective, this portfolio seeks capital appreciation
where consistent with its primary objective. Many of the high-yielding
securities in which the High Yield Portfolio invests are rated in the lower
rating categories (i.e., below investment grade) by nationally recognized rating
services. These securities, which are often referred to as "junk bonds," are
subject to greater risk of loss of principal and interest than higher rated
securities and are considered to be predominately speculative with respect to
the issuer's capacity to pay interest and repay principal.
There is no assurance that any of these portfolios will achieve their
stated objectives.
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Voting Rights
As previously stated, all of the assets held in each of 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.
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 Contract, 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 Contract. 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 group flexible premium
deferred variable annuity contract.
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.
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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" on 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 Contract 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.
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Distributor
AIG Equity Sales Corp. ("AESC"), 80 Pine Street, New York, New York, acts
as the distributor of the Contract. 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 Contract
While the Company has primary responsibility for all administration of the
Contract 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 Contract and
maintenance of Owner 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 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 to Your
situation. (See "Taxes" on page ____.)
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Right to Examine Period
The Contract provides a 10-day period giving You the opportunity to cancel
the Contract (the "Right to Examine Period"). 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 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.
Laws governing the duration of the Right to Examine 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 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 twelve (12) per
Contract Year. There are no fees for the first twelve (12) transfers in any one
Contract Year. For each transfer in excess of twelve (12) within one Contract
Year, We impose a transfer fee of $10. The transfer fee, if any, is deducted
from the amount transferred. (See "Guaranteed Account Transfers" in the
Appendix, page ____.)
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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, depending upon the Annuity Option selected, 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"
below.) For additional limitations regarding transfers out of the Guaranteed
Account, see "Guaranteed Account Transfers" 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 both the
Dollar Cost Averaging and Asset Rebalancing Options.
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Asset Rebalancing
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 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.
An Owner may not have in effect at the same time both the 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 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 Contract will be charged at Our discretion against either Premium
or Contract Value. Premium taxes currently imposed by certain states on the
Contract 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.
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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
Contract 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 Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Company deducts for
each Valuation Period an Equity Assurance Plan Charge equal on an annual basis
to .07% of the average daily net asset value of the Variable Account for Owners
attained age 0-59 and .20% of the average daily net asset value of the Variable
Account for Owners attained age 60-85.
Deduction for Annual Ratchet Plan
If the Owner has elected the Annual Ratchet Plan, the Company deducts for
each Valuation Period an Annual Ratchet Plan Charge equal on an annual basis to
.10% of the average daily net asset value of the Variable Account.
Deduction for Enhanced Equity Assurance Plan
If the Owner has elected the Enhanced Equity Assurance Plan, the Company
deducts for each Valuation Period an Enhanced Equity Assurance Plan Charge equal
on an annual basis to .17% of the average daily net asset value of the Variable
Account for Owners attained age 0-59 and .30% of the average daily net asset
value of the Variable Account for Owners attained age 60-85.
Deduction for Accidental Death Benefit
If the Owner has elected the Accident Death Benefit, the Company deducts
for each Valuation Period an Accidental Death Benefit Charge equal on an annual
basis to .05% of the average daily net asset value of the Variable Account.
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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:
Premium Year Applicable Surrender Charge
1.......................................6%
2.......................................6%
3.......................................5%
4.......................................5%
5.......................................4%
6.......................................3%
7.......................................2%
8 and thereafter......................None
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 Charge
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 Charge 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 surrender for 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.
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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" on page ____.)
Other Expenses
There are other deductions from and expenses paid out of the assets of each
of the Funds which are described in the accompanying Prospectuses for the Funds.
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
the Contract to certain groups, or other sponsored arrangements, including those
in which a single owner, including a trustee or an employer, for example,
purchases a Contract 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 the Contract 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.
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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 must be 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, for IRA or 403 (b) Plan,
certain provisions of your retirement plan or the Code may further restrict your
choice of an Annuity Date. (See "Taxes" on 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 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 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 Company may also offer additional options at its own discretion.
Annuity Payments
If the Contract Value applied to Annuity 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. 27
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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 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 an Owner's 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. The death
benefit will be calculated in accordance with the terms of one of the options
described below, as designated by the Owner at the time of application. If no
optional death benefit is elected by the Owner at the time of application, the
Traditional Death Benefit will be paid. However, if there has been a change of
Owner, the death benefit will equal the Contract Value.
Traditional Death Benefit
Under the Traditional Death Benefit, We will pay a death benefit equal to
the greatest of:
1. the total of all Premium, reduced proportionately by withdrawals
and surrenders;
2. the Contract Value; or
3. the greatest of the Contract Value at the seventh Contract
Anniversary reduced proportionally by any surrenders subsequent
to that Contract Anniversary in the same proportion that the
Contract Value was reduced on the date of a surrender, plus any
Premium paid subsequent to that Contract Anniversary.
The Traditional Death Benefit will be in effect if no optional death
benefit has been selected by the Owner.
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Option I - Equity Assurance Plan
If at the time of application the Owner has selected a death benefit under
the terms of the Equity Assurance Plan, We will pay a death benefit equal to the
greatest of:
1. the Contract Value;
2. the greatest Contract Value on any seventh contract Anniversary
plus any Premiums subsequent to the Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was
reduced on the date of a surrender; or
3. an amount equal to (a) plus (b) where:
(a) is equal to the total of all Premiums paid on or before the
first Contract Anniversary following Your 85th birthday, adjusted
for surrenders as described below and then accumulated at the
compound interest rates shown below for the number of complete
years, not to exceed 10, from the date of receipt of each Premium
to the earlier of the date of death or the first Contract
Anniversary following Your 85th birthday:
(1) 0% per annum if death occurs during the 1st through 24th
month from the date of Premium payment;
(2) 2% per annum if death occurs during the 25th through
48th month from the date of Premium payment;
(3) 4% per annum if death occurs during the 49th through
72nd month from the date of Premium payment;
(4) 6% per annum if death occurs during the 73rd through
96th month from the date of Premium payment;
(5) 8% per annum if death occurs during the 97th through
120th month from the date of Premium payment;
(6) 10% per annum (for a maximum of 10 years) if death
occurs more than 120 months from the date of Premium
payment; and
(b) is equal to all Premiums paid after the first Contract
Anniversary following Your 85th birthday, adjusted for surrenders
as described below.
The Company deducts for each Valuation Period an Equity Assurance Plan
Charge equal on an annual basis to .07% of the average daily net asset value of
the Variable Account for Owners attained age 0-59 and .20% of the average daily
net asset value of the Variable Account for Owners attained age 60-85.
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Adjustments for surrenders. In the determination of the death benefit, for
each surrender a proportionate reduction will be made to each Premium paid prior
to the surrender. The proportion is determined by dividing the amount of the
Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application; and
2. the charge for the Equity Assurance Plan is shown on the Contract
Schedule.
The Equity Assurance Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it.
Option II - Annual Ratchet Plan
If at any time of application, the Owner has selected a death benefit under
the terms of the Annual Ratchet Plan, We will pay a death benefit equal to the
greatest of:
1. the total of all Premiums paid, less surrenders;
2. the Contract Value; or
3. the greatest Contract Value at any Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a surrender, plus any Premium paid subsequent to that
Contract Anniversary.
The Company deducts for each Valuation Period a daily charge for the Annual
Ratchet Plan which is equal on an annual basis to .10% of the average daily net
asset value of the Variable Account.
The Annual Ratchet Plan will be in effect if:
1. the Owner designates this option on the Application; and
2. the Annual Ratchet Plan charge is shown on the Contract Schedule.
The Annual Ratchet Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it.
Option III - Enhanced Equity Assurance Plan
If at the time of application the Owner has selected a death benefit under
the terms of the Enhanced Equity Assurance Plan, We will pay a death benefit
equal to the greatest of:
1. the Contract Value; or
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2. the greatest Contract Value on any Contract Anniversary plus any
Premiums subsequent to the Contract Anniversary reduced proportionally
by any surrenders subsequent to that Contract Anniversary in the same
proportion that the Contract Value was reduced on the date of a
surrender; or
3. an amount equal to (a) plus (b) where:
(a) is equal to the total of all Premiums paid on or before the first
Contract Anniversary following Your 85th birthday, adjusted for
surrenders as described below and then accumulated at the compound
interest rates shown below for the number of complete years, not to
exceed 10, from the date of receipt of each Premium to the earlier of
the date of death or the first Contract Anniversary following Your
85th birthday:
(1) 0% per annum if death occurs during the first through 24th
month from the date of Premium payment;
(2) 2% per annum if death occurs during the 25th through 48th
month from the date of Premium payment;
(3) 4% per annum if death occurs during the 49th through 72nd
month from the date of Premium payment;
(4) 6% per annum if death occurs during the 73rd through 96th
month from the date of Premium payment;
(5) 8% per annum if death occurs during the 97th through 120th
month from the date of Premium payment;
(6) 10% per annum (for a maximum of 10 years) if death occurs
more than 120 months from the date of Premium payment; and
(b) is equal to all Premiums paid after the first Contract
Anniversary following Your 85th birthday, adjusted for surrenders
as described below.
The Company deducts for each Valuation Period an Enhanced Equity Assurance
Plan Charge equal on an annual basis to .17% of the average daily net asset
value of the Variable Account for Owners attained age 0-59 and .30% of the
average daily net asset value of the Variable Account for Owners attained age
60- 85.
Adjustment for surrenders. In the determination of the death benefit, for
each surrender a proportionate reduction will be made to each Premium paid prior
to the surrender. The proportion is determined by dividing the amount of the
Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Enhanced Equity Assurance Plan will be in effect if:
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1. the Owner elected it on the Application; and
2. the charge for this Rider is shown on the Contract Schedule.
The Enhanced Equity Assurance Plan will cease to be in effect upon receipt
by the Company of the Owner's written request to discontinue it.
Accidental Death Benefit
The Owner may select the Accidental Death Benefit in addition to any of the
death benefit options. If at the time of application the Owner selected the
Accidental Death Benefit, the death benefit payable under this option will be
equal to the lesser of:
1. the Contract Value as of the date the death benefit is determined; or
2. $250,000.
The Company deducts for each Valuation Period a daily charge for the
Accidental Death Benefit which is equal on an annual basis to .05% of the
average daily net asset value of the Variable Account.
The Accidental Death Benefit is payable if the death of the primary Owner
occurs prior to the Contract Anniversary next following his/her 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 Accident Death Benefit will not be paid for any death caused by or
resulting in whole or in part from the following:
1. suicide or attempted suicide while sane or insane;
2. intentionally self-inflicted injuries;
3. 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;
4. 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;
5. declared or undeclared war or any act thereof; or
6. service in the military, naval or air service of any country.
The Accidental Death Benefit will be in effect if the Accidental Death
Benefit Charge is shown on the Contract Schedule.
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The Accidental Death Benefit will cease to be in effect upon receipt by the
Company of the Owner's request to discontinue it.
Payment to Beneficiary
Upon the death of the Owner prior to the Annuity Date, the Beneficiaries
may elect the death benefit to be paid as follows:
1. payment of the entire death benefit within 5 years of the date of the
Owner's death; or
2. payment over the lifetime of the designated Beneficiary with
distribution beginning within 1 year of the date of death of the Owner
(see "Annuity Options" on page ____); or
3. if the designated Beneficiary if Your spouse, he/she can continue the
contract in his/her own name.
If no payment option is elected within 60 days of Our receipt of proof of
the Owner's death, a single sum settlement will be made at the end of the sixty
(60) day period following such receipt. Upon payment to the death benefit, the
Contract will end.
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 the
Contract. 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. If the Owner is not an individual, the Annuitant shall be treated as the
Owner and any change of such first named Annuitant, will be treated as if the
Owner died.
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 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 Value 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;
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(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" 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" above and
"Deduction for Surrender Charge" 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.
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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" 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 "Deferral
of Payment" discussion below. (Also see "Delay of Payments" in the Statement of
Additional Information.)
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 -- Withholding" on page ____ and "Taxes -- 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 Securities and Exchange Commission or
the Securities and Exchange Commission requires that trading be restricted; (3)
the Securities and Exchange Commission 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).
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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.
TAXES
Introduction
The Contract is designed to accumulate Contract Value 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" on page 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.
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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.
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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.
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.
38
<PAGE>
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.
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.
39
<PAGE>
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 Contract continues to be treated as annuity contracts for
Federal income tax purposes.
Tax-Favored Plans
The Contract may be used to create an IRA. The Contract is 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
Contract 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
40
<PAGE>
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. Contract 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 Contract 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.
LEGAL PROCEEDINGS
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
Legal matters relating to the Federal securities laws in connection with
the Contract described herein are being passed upon by the law firm of Jorden
Burt Berenson & Johnson LLP of Washington D.C.
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<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.................................................
Method of Determining Contract Value................................
Annuity Provisions..................................................
Variable Annuity Payment Values...................................
Annuity Unit......................................................
Net Investment Factor.............................................
Additional Provisions.............................................
Financial Statements................................................
42
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APPENDIX
Guaranteed Account Option
Under this Guaranteed Account option, Contract Value is 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 Administrative
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 Administrative Office.
Allocations To The Guaranteed Account
The minimum amount that may be allocated to the Guaranteed Account,
either from the initial or a subsequent Premium, is $3,000. Amounts allocated
in the Guaranteed Account are credited with interest on a daily basis at the
then applicable effective guaranteed rate. The effective guaranteed 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 guaranteed rate associated with that amount. The
effective guaranteed 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 Value to or from a Subaccount of
the Variable Account to or from the Guaranteed Account at any time, subject to
the conditions set out under "Transfers" on page .
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.
A-1
<PAGE>
Rule 497(e)
File No. 33-39170
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS DESCRIBING THE FLEXIBLE PREMIUM
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, AS
SUPPLEMENTED JANUARY 9, 1998, 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,
as supplemented January 9, 1998.
B-1
<PAGE>
TABLE OF CONTENTS
Page
General Information..................................................
The Company.......................................................
Independent Accountants...........................................
Legal Counsel.....................................................
Distributor.......................................................
Calculation of Performance Related Information....................
Delay of Payments.................................................
Method of Determining Contract Values................................
Annuity Provisions...................................................
Variable Annuity Payment Values...................................
Annuity Unit......................................................
Net Investment Factor.............................................
Additional Provisions.............................................
Financial Statements.................................................
B-2
<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 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 Contract 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:
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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" in the
Prospectus). No deductions or sales loads are assessed upon annuitization
under the Contract. 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
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<PAGE>
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 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
ended December 31, 1996, no Contracts were issued.
Funds were first invested in the portfolios on the following dates:
<TABLE>
<CAPTION>
<S> <C>
Money Market Portfolio May 13, 1993
Growth Portfolio August 12, 1994
Growth & Income Portfolio April 16, 1992
International Portfolio June 1, 1993
U.S. Government/High Yield Securities Portfolio June 14, 1993
North American Government Income Portfolio April 8, 1994
Utility Income Portfolio June 15, 1994
Global Bond Portfolio May 10, 1993
Global Dollar Government Portfolio May 26, 1994
Premier Growth Portfolio December 7, 1992
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
High Yield Portfolio September 9, 1997
</TABLE>
C. Yield Quotations for the U.S. Government/High Grade Securities and
Global Bond Subaccounts
The yield quotations for the 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 portfolio of the Fund attributable to
shares owned by the Subaccount.
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<PAGE>
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 U.S. Government/High
Grade Securities and the 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 premium was held under the Contract, and whether withdrawals had been
previously made during that Contract Year. (See "Charges and Deductions
Deduction for Surrender Charge" in the Prospectus.) There is currently a
transfer charge of $10 per transfer after a specified number of transfers in
each Contract Year. (See "Transfers" in 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
B-6
<PAGE>
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. Subaccount performance
information has not been provided because for the fiscal year ended December
31, 1996, no Contracts were issued.
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
increases 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 Premium of a given amount, assuming hypothetical gross annual
returns compounded annually, and a stated assumed rate. 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 in a chart reflect the
deduction of contractual expenses such as the 1.25% Mortality and Expense Risk
Charge, the 0.15% Administrative Fee, and the $30 Contract Maintenance Charge,
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 Premium.
In developing tax-deferral charts, the Company will follow general
principles: (1) the assumed rate of earnings will be realistic; (2) the chart
will (a) depict accurately the effect of all fees and charges, or (b) provide
a narrative that prominently discloses all fees and charges; (3) comparative
charts for accumulation values for tax-deferred and non-tax-deferred
investments will depict the implications of withdrawals and surrenders; and
(4) a narrative accompanying the chart will disclose prominently that there
may be a 10% tax penalty on withdrawals by Owners who have not reached age 59
1/2.
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<PAGE>
The rates of return illustrated in a chart will be hypothetical and are
not an estimate or guaranty of performance. Actual tax rates may vary for
different taxpayers from that illustrated and, as noted above, withdrawals by
Owners who have not reached age 59 1/2 may be subject to a tax penalty of 10%.
Delay of Payments
Any payments due under the Contract 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 VALUE
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 Value, 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:
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(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
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 Contract 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.
B-9
<PAGE>
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:
B-10
<PAGE>
(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.
B-11
<PAGE>
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 are incorporated by reference
herein and shall be considered only as bearing upon the ability of the Company
to meet its obligations under the Contract. No financial statements for the
Variable Account have been provided as no Contracts had been issued during the
reporting period.
B-12
<PAGE>
Rule 497(e)
File No. 33-39170
GROUP FLEXIBLE PREMIUM DEFERRED 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 describes a group flexible premium deferred variable
annuity contract (the "Contract") offered by American International Life
Assurance Company of New York (the "Company"). The Contract provides for the
accumulation of Contract Value and payment of monthly annuity payments for
individuals within groups under sponsored arrangements. Sponsored arrangements
may include, for example, those instances where an employer, a financial
institution, an association, or group otherwise permitted by state insurance
law, allows the Company to sell contracts to, respectively, its employees,
depositors, or members. An Owner may be issued a certificate as evidence of
individual participation under a group arrangement. The description of the
Contract in this Prospectus is fully applicable to any certificate that may be
issued under the Contract. As used herein the word "Contract" includes any
such certificate.
The Contract described in this Prospectus 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 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. Purchasers
intending to use the Contract 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
Alliance Variable Products Series Fund, Inc. (the "Alliance Fund") and Merrill
Lynch Variable Series Funds, Inc. (the "Merrill Lynch Fund," together with the
Alliance Fund, the "Funds"). The following portfolios of the Alliance Fund are
available: Growth Portfolio; Growth and Income Portfolio; U.S. Government/High
Grade Securities Portfolio; Global Dollar Government Portfolio; Premier Growth
Portfolio; Total Return Portfolio; Worldwide Privatization Portfolio;
Technology Portfolio; Quasar Portfolio; Real Estate Investment Portfolio; and
High Yield Portfolio. The following portfolios of the Merrill Lynch Fund are
available: Domestic Money Market Fund; Prime Bond Fund; High Current Income
Fund; Quality Equity Fund; Special Value Focus Fund; Natural Resources Focus
Fund; Global Strategy Focus Fund; Basic Value Focus Fund; Global Utility Focus
Fund; International Equity Focus Fund; and Developing Capital Markets Fund.
(See "The Funds" on page ___ .)
Additional information about the Contract 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 calling the service office at
1-800-255-8402. The Statement of Additional Information dated May 1, 1997, as
supplemented January 9, 1998, 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.
1
<PAGE>
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 ADVISOR OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, 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, as supplemented January 9, 1998.
Distributor:
AIG Equity Sales Corp.
Attention: Variable Products
80 Pine Street
New York, New York 10270
1-800-888-7485
2
<PAGE>
TABLE OF CONTENTS
Page
Definitions.........................................................
Highlights..........................................................
Fee Table...........................................................
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 ..............................................................
Legal Proceedings...................................................
Legal Matters.......................................................
Table of Contents of the Statement of Additional Information........
Appendix ...........................................................
3
<PAGE>
DEFINITIONS
Accumulation Period -- The period prior to the Annuity Date.
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 is referred 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 -- The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within 7 years of
purchase.
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.
4
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contract and a segregated investment
account of the Company which account has been designated Variable Account A.
The Contract is 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.
The Contract may be purchased in connection with a retirement plan which may
qualify as a 403 (b) Plan or as an 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 Funds
and will accumulate on a variable basis. Each Subaccount invests exclusively
in one of the available portfolios. (See "The Funds" 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 Variable Account.
The Company does not deduct sales charges from any Premium received.
However, the Contract provides 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 (the "Free Withdrawal Amount"). (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 is no Mortality and Expense Risk Charge 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 Charge which is $30 per year. The Contract Maintenance Charge 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;
Deduction for Contract Maintenance Charge" on page ___.)
5
<PAGE>
There are deductions and expenses paid out of the assets 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 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 Period, an
amount equal to the Premium paid less any withdrawals, the Company will refund
such an amount.
<TABLE>
<CAPTION>
FEE TABLE
<S> <C>
Owner Transaction Expenses
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 (waived for Owners with Contract Values of $50,000 or greater) $30
Variable Account Expenses (as a percentage of average account value):
Mortality and Expense Risk Fees.............................................. 1.25%
Account Fees and Expenses.................................................... 0.15%
Total Variable Account Annual Expenses......................................... 1.40%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements
Total
Management Other Operating
Alliance Fund1 Fee Expenses Expenses
<S> <C> <C> <C>
Growth ..................................................... 0.74% 0.19% 0.93%
Growth and Income .......................................... 0.63 0.19 0.82
U.S. Government/High Grade Securities....................... 0.54 0.38 0.92
Global Dollar Government.................................... 0.00 0.95 0.95
Premier Growth.............................................. 0.72 0.23 0.95
Total Return................................................ 0.46 0.49 0.95
Worldwide Privatization..................................... 0.10 0.85 0.95
Technology2................................................. 0.33 0.62 0.95
Quasar2..................................................... 0.00 0.95 0.95
Real Estate Investment3..................................... 0.00 0.95 0.95
High Yield4................................................. 0.00 0.95 0.95
Merrill Lynch Fund5
Domestic Money Market....................................... 0.50 0.04 0.54
Prime Bond.................................................. 0.44 0.05 0.49
High Current Income......................................... 0.49 0.05 0.54
Quality Equity.............................................. 0.44 0.05 0.49
Special Value Focus......................................... 0.75 0.06 0.81
Natural Resources Focus..................................... 0.65 0.13 0.78
Global Strategy Focus....................................... 0.65 0.06 0.71
Basic Value Focus........................................... 0.60 0.06 0.66
Global Utility Focus........................................ 0.60 0.06 0.66
International Equity Focus.................................. 0.75 0.14 0.89
Developing Capital Markets Focus6........................... 1.00 0.25 1.25
</TABLE>
-----------------------
[FN]
1 Annual operating expenses as a percentage of the average daily net assets
of each portfolio of the Alliance Fund before reimbursement by the Fund's
investment adviser were estimated to be .93% for Growth Portfolio, .82% for
Growth and Income Portfolio, .98% for U.S. Government/High Grade Securities
Portfolio, 1.97% for Global Dollar Government Portfolio, 1.23% for Premier
Growth Portfolio, 1.12% for Total Return Portfolio, 1.85% for Worldwide
Privatization Portfolio, 1.62% for Technology Portfolio, 4.44% for Quasar
Portfolio, 6.00% for Real Estate Investment Portfolio, and 1.75% for High
Yield Portfolio.
2 The expense percentages for the Technology Portfolio and Quasar Portfolio
have been annualized because as of December 31, 1996, the portfolios had
not been in existence for a full year.
3 Computed for the period January 1,1997 (inception), through March 31, 1997,
annualized.
4 Estimated.
5 With the exception of the Developing Capital Markets Focus Fund, the
expenses of the portfolios of the Merrill Lynch Fund are actual operating
expenses without expense reimbursement.
6 Pursuant to a voluntary agreement, fees and expenses were reimbursed to the
extent expenses exceeded 1.25%. Without such reimbursements, total
operating expenses for Developing Capital Markets Focus Fund would have
been 1.31%.
</FN>
7
<PAGE>
The purpose of the table set forth above is to assist the Owner 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 Funds. (See "Charges and Deductions" on page ____ and each Fund's
Prospectus.) The table does not reflect the charges applicable to certain
death benefit options offered under the Contract. (See "Charges and Deductions
-- Deduction for Equity Assurance Plan" on page ___; "Charges and Deductions
-- Deduction for Annual Ratchet Plan" on page ___; "Charges and Deductions --
Deduction for Enhanced Equity Assurance Plan" on page ___; "Charges and
Deductions -- Deduction for Accidental Death Benefit" on page ___.)
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 Contract by various states range from 0% to 3.5% of Premiums
paid. (See "Charges and Deductions -- Deduction for State Premium Taxes" on
page ____.)
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 Surrender
Charge may be imposed. The Free Withdrawal Amount is equal to 10% of the
Premium paid, less any prior withdrawals at the time of withdrawal. (See
"Charges and Deductions --Deduction for Surrender Charge" on page ___.)
Example
Expenses on a hypothetical $1,000 Contract, assuming 5% growth:
<TABLE>
<CAPTION>
If you surrender
Alliance Fund 1 Year 3 Years 5 Years 10 Years
------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth .......................................... $78 $120 $164 $273
Growth and Income ............................... 77 116 158 262
U.S. Government/High Grade Securities ........... 78 119 163 272
Global Dollar Government ........................ 78 120 165 275
Premier Growth .................................. 78 120 165 275
Total Return .................................... 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
High Yield ...................................... 78 120 165 275
8
<PAGE>
Merrill Lynch Fund
Domestic Money Market............................ 74 108 144 233
Prime Bond....................................... 74 106 141 227
High Current Income.............................. 74 108 144 233
Quality Equity................................... 74 106 141 227
Special Value Focus.............................. 77 116 158 261
Natural Resources Focus.......................... 77 115 156 257
Global Strategy Focus............................ 76 113 152 250
Basic Value Focus................................ 76 111 150 245
Global Utility Focus............................. 76 111 150 245
International Equity Focus....................... 78 118 162 269
Developing Capital Markets Focus................. 81 129 179 304
</TABLE>
<TABLE>
<CAPTION>
If you annuitize or if you do not surrender
Alliance Fund 1 Year 3 Years 5 Years 10 Years
------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth .......................................... $24 $75 $128 $273
Growth and Income ............................... 23 71 122 262
U.S. Government/High Grade Securities ........... 24 74 127 272
Global Dollar Government ........................ 24 75 129 275
Premier Growth .................................. 24 75 129 275
Total Return .................................... 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
High Yield....................................... 24 75 129 275
Merrill Lynch Fund
Domestic Money Market............................ 20 63 108 233
Prime Bond....................................... 20 61 105 227
High Current Income.............................. 20 63 108 233
Quality Equity................................... 20 61 105 227
Special Value Focus.............................. 23 71 122 261
Natural Resources Focus.......................... 23 70 120 257
Global Strategy Focus............................ 22 68 116 250
Basic Value Focus................................ 22 66 114 245
Global Utility Focus............................. 22 60 114 245
International Equity Focus....................... 24 73 126 269
Developing Capital Markets Focus................. 27 84 143 304
</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.
9
<PAGE>
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
GROWTH AND 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
U.S. GOVERNMENT/HIGH GRADE SECURITIES
Accumulation Unit Value
Beginning of Period ............... 11.38 .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
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 5,958.18 N/A 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
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
10
<PAGE>
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
</TABLE>
No financial information has been reported for the High Yield Portfolio
and Real Estate Investment Portfolio of the Alliance Fund or for any of the
portfolios of the Merrill Lynch Fund because for the fiscal year ended
December 31, 1996, the Variable Account had not commenced operations with
respect to those portfolios.
<TABLE>
<CAPTION>
Funds were first invested in the portfolios on the following dates:
<S> <C>
Growth Portfolio August 12, 1994
Growth and Income Portfolio April 16, 1992
U.S. Government/High Grade Securities Portfolio June 14, 1993
Global Dollar Government Portfolio May 26 , 1994
Premier Growth Portfolio December 7, 1992
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
High Yield Portfolio September 9, 1997
</TABLE>
No dates have been provided with respect to the portfolios of the
Merrill Lynch Fund because as of the date of this Prospectus no funds had been
invested therein.
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.
11
<PAGE>
When the Company advertises the performance of the Domestic Money
Market Subaccount, it may advertise in addition to the total return either the
yield or the effective yield. The yield of the Domestic 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 Domestic 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 as no Contracts had
been issued during the reporting period.
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.
Ratings
The Company may from time-to-time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned
to it by one or more independent rating organizations such as A. M. Best
Company, Moody's, and Standard & Poor's. The purpose of the ratings is to
reflect the financial strength and/or claims-paying ability of the Company and
should not be considered as bearing on the investment performance of assets
held in the separate account. Each year the A.M. Best Company reviews the
financial status of thousands of insurers, culminating in the assignment of
Best's Ratings. These ratings reflect A.M. Best's current opinion of the
relative financial strength and operating performance of an insurance company
in comparison to the norms of the life/health insurance industry. In addition,
the claims-paying ability of the Company as measured by Standard & Poor's
Insurance Ratings Services, and the financial strength of the Company as
measured by Moody's Investors Services, may be referred to in advertisements,
sales literature or in reports to Owners. These ratings are their opinion of
an operating insurance company's financial capacity to meet the obligations of
its life insurance policies and annuity contracts in accordance with their
terms. In regard to their ratings of the Company, these ratings are explicitly
based on the existence of a Support Agreement, dated as of December 31, 1991,
between the Company and its parent American International Group, Inc. ("AIG"),
pursuant to which AIG has agreed to cause the Company to maintain a positive
net worth and to provide the Company with funds on a timely basis sufficient
to meet the Company's obligations to its policyholders. The Support Agreement
is not, however, a direct or indirect guarantee by AIG to any person of the
payment of any of the Company's indebtedness, liabilities or other obligations
(including obligations to the Owners).
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The ratings are not recommendations to purchase the Company's life
insurance or annuity products, or to hold or sell these products, and the
ratings do not comment on the suitability of such products for a particular
investor. There can be no assurance that any rating will remain in effect for
any given period of time or that any rating will not be lowered or withdrawn
entirely by a rating organization if, in such organization's judgment, future
circumstances relating to the Support Agreement, such as a lowering of AIG's
long-term debt rating, so warrant. The ratings do not reflect the investment
performance of the Variable Account or the degree of risk associated with an
investment in the Variable Account.
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 Contract, 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 Funds. The Company
may, from time to time, add additional portfolios of the Funds, and, when
appropriate, additional mutual funds to act as funding vehicles for the
Contract. 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 (the "1940 Act"),
may be deregistered under the 1940 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
the Variable Account and are described in other prospectuses.
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THE FUNDS
The Alliance Fund and Merrill Lynch Fund are each registered with the
Securities and Exchange Commission as a diversified open-end management
investment company under the 1940 Act. Each is made up of different series or
portfolios and the Prospectus for each Fund may include series or portfolios
which are not available under this Contract. A summary of investment
objectives for each available portfolio is set forth below. More detailed
information regarding investment objectives, management of the portfolios, and
investment advisory fees and other charges may be found in the relevant Fund
Prospectus, which contains a discussion of the risks involved in investing in
the Fund. The Prospectus for each Fund is included with this Prospectus.
Please read all Prospectuses carefully before investing.
Shares of the Funds may be sold only to separate accounts of life
insurance companies. The shares of the Funds 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 Funds
simultaneously. Although neither the Company nor the Funds currently foresees
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, 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.
Alliance Variable Products Series Fund, Inc.
The Alliance Fund will act as a funding vehicle for the Contract. The
Alliance Fund is managed by Alliance Capital Management L.P. ("Alliance
Capital"). Alliance Capital is a leading international investment manager
supervising client accounts with assets totaling more than $182 billion, of
which approximately $63 billion represents the assets of investment companies.
Its principal business address is 1345 Avenue of the Americas, New York, New
York 10105.
The portfolios available under the Alliance Fund and their investment
objectives are as follows:
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.
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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.
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 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.
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.
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 Alliance Capital
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 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.
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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.
High Yield Portfolio
This portfolio seeks the highest level of current income available
without assuming undue risk by investing principally in high-yielding fixed
income securities. As a secondary objective, this portfolio seeks capital
appreciation where consistent with its primary objective. Many of the
high-yielding securities in which the High Yield Portfolio invests are rated
in the lower rating categories (i.e., below investment grade) by nationally
recognized rating services. These securities, which are often referred to as
"junk bonds," are subject to greater risk of loss of principal and interest
than higher rated securities and are considered to be predominately
speculative with respect to the issuer's capacity to pay interest and repay
principal.
Merrill Lynch Variable Series Funds, Inc.
The Merrill Lynch Fund will act as a funding vehicle for the Contract.
Merrill Lynch Asset Management, L.P. ("MLAM"), an indirect subsidiary of
Merrill Lynch & Co., Inc., is the investment adviser to the Merrill Lynch
Fund. MLAM is a worldwide mutual fund leader with more than $145.7 billion in
assets under management. Its principal business address is 800 Scudder Mill
Road, Plainsboro, New Jersey 08536.
The portfolios available under the Merrill Lynch Fund and their
investment objectives are as follows:
Domestic Money Market Fund
This portfolio seeks preservation of capital, liquidity, and the
highest possible current income consistent with the foregoing objectives by
investing in short-term domestic money market securities.
Prime Bond Fund
This portfolio seeks to obtain as high a level of current income as is
consistent with the investment policies of the portfolio and with prudent
investment management, and capital appreciation to the extent consistent with
the foregoing objective. The portfolio invests primarily in long-term
corporate bonds rated in the top three ratings categories by established
rating services.
High Current Income Fund
This portfolio seeks to obtain as high a level of current income as is
consistent with the investment policies of the portfolio and with prudent
investment management, and capital appreciation to the extent consistent with
the foregoing objective. The portfolio invests principally in fixed-income
securities that are rated in the lower categories of established rating
services or in unrated securities of comparable quality (commonly known as
"junk bonds").
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Quality Equity Fund
This portfolio seeks to attain the highest total investment return
consistent with prudent risk. The portfolio employs a fully managed investment
policy utilizing equity securities, primarily common stocks of large
capitalization companies, as well as investment grade debt and convertible
securities.
Special Value Focus Fund
This portfolio seeks to attain long-term growth of capital by investing
in a diversified portfolio of securities, primarily common stocks, of
relatively small companies that MLAM believes have special investment value,
and of emerging growth companies regardless of size.
Natural Resources Focus Fund
This portfolio seeks to attain long-term growth of capital and
protection of the purchasing power of capital by investing primarily in equity
securities of domestic and foreign companies with substantial natural
resources assets.
Global Strategy Focus Fund
This portfolio seeks high total investment return by investing
primarily in a portfolio of equity and fixed income securities, including
securities, of U.S. and foreign issuers. The portfolio seeks to achieve its
objective by investing primarily in securities of issuers located in the
United States, Canada, Western Europe, the Far East and Latin America.
Basic Value Focus Fund
This portfolio seeks to attain capital appreciation, and secondarily,
income by investing in securities, primarily equities, that management of the
portfolio believes are undervalued and therefore represent basic investment
value. Particular emphasis is placed on securities which provide and
above-average dividend return and sell at a below-average price/earnings
ratio.
Global Utility Focus Fund
This portfolio seeks to obtain capital appreciation and current income
through investment of at least 65% of its total assets in equity and debt
securities issued by domestic and foreign companies which are, in the opinion
of management of the portfolio, primarily engaged in the ownership or
operation of facilities used to generate, transmit or distribute electricity,
telecommunications, gas or water.
International Equity Focus Fund
This portfolio seeks to obtain capital appreciation and, secondary
income by investing in a diversified portfolio of equity securities, of
issuers located in countries other than the United States. Under normal
conditions, at least 65% of the portfolio's net assets will be invested in
such equity securities.
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Developing Capital Markets Focus Fund
This portfolio seeks long-term capital appreciation by investing in
securities, principally equities, of issuers in countries having smaller
capital markets. For purposes of its investment objective, the portfolio
considers countries having smaller capital markets to be all countries other
than the four countries having the largest equity market capitalizations.
There is no assurance that any of these portfolios will achieve their
stated objectives.
Voting Rights
As previously stated, all of the assets held in each of the Subaccounts
of the Variable Account will be invested in shares of a corresponding
portfolio of a Fund. The Funds do 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 Funds, 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.
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 Contract, 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
Contract. 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 group flexible premium
deferred variable annuity contract.
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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" on 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.
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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 Contract 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.
Distributor
AIG Equity Sales Corp. ("AESC"), 80 Pine Street, New York, New York,
acts as the distributor of the Contract. 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 Contract
While the Company has primary responsibility for all administration of
the Contract 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 Contract 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 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.
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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 to Your situation. (See "Taxes" on page ____.)
Right to Examine Period
The Contract provides a 10-day period giving You the opportunity to
cancel the Contract (the "Right to Examine Period"). 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 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.
Laws governing the duration of the Right to Examine 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 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.
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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 twelve (12) per
Contract Year. There are no fees for the first twelve (12) transfers in any one
Contract Year. For each transfer in excess of twelve (12) within one Contract
Year, We impose a transfer fee of $10. The transfer fee, if any, is deducted
from the amount transferred. (See "Guaranteed Account Transfers" in the
Appendix, 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, depending upon the Annuity Option selected, 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"
below.) For additional limitations regarding transfers out of the Guaranteed
Account, see "Guaranteed Account Transfers" 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.
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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 both the
Dollar Cost Averaging and Asset Rebalancing Options.
Asset Rebalancing
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 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. An Owner may not have in effect at the same time both the 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 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 Contract will be charged at Our discretion against
either Premium or Contract Value. Premium taxes currently imposed by certain
states on the Contract 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.
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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 Contract 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 Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Company deducts
for each Valuation Period an Equity Assurance Plan Charge equal on an annual
basis to .07% of the average daily net asset value of the Variable Account for
Owners attained age 0-59 and .20% of the average daily net asset value of the
Variable Account for Owners attained age 60-85.
Deduction for Annual Ratchet Plan
If the Owner has elected the Annual Ratchet Plan, the Company deducts
for each Valuation Period an Annual Ratchet Plan Charge equal on an annual basis
to .10% of the average daily net asset value of the Variable Account.
Deduction for Enhanced Equity Assurance Plan
If the Owner has elected the Enhanced Equity Assurance Plan, the
Company deducts for each Valuation Period an Enhanced Equity Assurance Plan
Charge equal on an annual basis to .17% of the average daily net asset value of
the Variable Account for Owners attained age 0-59 and .30% of the average daily
net asset value of the Variable Account for Owners attained age 60-85.
Deduction for Accidental Death Benefit
If the Owner has elected the Accident Death Benefit, the Company
deducts for each Valuation Period an Accidental Death Benefit Charge equal on an
annual basis to .05% of the average daily net asset value of the Variable
Account.
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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:
<TABLE>
<CAPTION>
Premium Year Applicable Surrender Charge
<S> <C>
1...............................................6%
2 ..............................................6%
3 ..............................................5%
4 ..............................................5%
5 ..............................................4%
6 ..............................................3%
7 ..............................................2%
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 Charge
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 Charge 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 surrender for the then
current Contract Year. The deduction will be made proportionally based
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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.
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" 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 the Contract to certain groups, or other sponsored arrangements, including
those in which a single owner, including a trustee or an employer, for
example, purchases a Contract 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 a Contract 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 must be the first day of a calendar month.
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Without the approval of the Company, the new Annuity Date cannot be
earlier than one year after the Effective Date. In addition, for IRA or 403
(b) Plan, certain provisions of your retirement plan or the Code may further
restrict your choice of an Annuity Date. (See "Taxes" on 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 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 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 Company may also offer additional options at its own discretion.
Annuity Payments
If the Contract Value applied to Annuity 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
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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 an Owner's 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. The death benefit will be calculated in accordance with the terms of one
of the options described below, as designated by the Owner at the time of
application. If no optional death benefit is elected by the Owner at the time
of application, the Traditional Death Benefit will be paid. However, if there
has been a change of Owner, the death benefit will equal the Contract Value.
Traditional Death Benefit
Under the Traditional Death Benefit, We will pay a death benefit equal
to the greatest of:
1. the total of all Premium, reduced proportionately by
withdrawals and surrenders;
2. the Contract Value; or
3. the greatest of the Contract Value at the seventh Contract
Anniversary reduced proportionally by any surrenders
subsequent to that Contract Anniversary in the same
proportion that the Contract Value was reduced on the date
of a surrender, plus any Premium paid subsequent to that
Contract Anniversary.
The Traditional Death Benefit will be in effect if no optional death
benefit has been selected by the Owner.
Option I - Equity Assurance Plan
If at the time of application the Owner has selected a death benefit
under the terms of the Equity Assurance Plan, We will pay a death benefit
equal to the greatest of:
1. the Contract Value;
2. the greatest Contract Value on any seventh contract
Anniversary plus any Premiums subsequent to the Contract
Anniversary reduced proportionally by any surrenders
subsequent to that Contract Anniversary in the same
proportion that the Contract Value was reduced on the date
of a surrender; or
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3. an amount equal to (a) plus (b) where:
(a) is equal to the total of all Premiums paid on or
before the first Contract Anniversary following Your
85th birthday, adjusted for surrenders as described
below and then accumulated at the compound interest
rates shown below for the number of complete years, not
to exceed 10, from the date of receipt of each Premium
to the earlier of the date of death or the first
Contract Anniversary following Your 85th birthday:
(1) 0% per annum if death occurs during the 1st
through 24th month from the date of Premium
payment;
(2) 2% per annum if death occurs during the
25th through 48th month from the date of
Premium payment;
(3) 4% per annum if death occurs during the
49th through 72nd month from the date of
Premium payment;
(4) 6% per annum if death occurs during the
73rd through 96th month from the date of
Premium payment;
(5) 8% per annum if death occurs during the
97th through 120th month from the date of
Premium payment;
(6) 10% per annum (for a maximum of 10 years)
if death occurs more than 120 months from the
date of Premium payment; and
(b) is equal to all Premiums paid after the first
Contract Anniversary following Your 85th birthday,
adjusted for surrenders as described below.
The Company deducts for each Valuation Period an Equity Assurance Plan
Charge equal on an annual basis to .07% of the average daily net asset value
of the Variable Account for Owners attained age 0-59 and .20% of the average
daily net asset value of the Variable Account for Owners attained age 60-85.
Adjustments for surrenders. In the determination of the death benefit,
for each surrender a proportionate reduction will be made to each Premium paid
prior to the surrender. The proportion is determined by dividing the amount of
the Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application; and
2. the charge for the Equity Assurance Plan is shown on the
Contract Schedule.
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<PAGE>
The Equity Assurance Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it.
Option II - Annual Ratchet Plan
If at any time of application, the Owner has selected a death benefit
under the terms of the Annual Ratchet Plan, We will pay a death benefit equal
to the greatest of:
1. the total of all Premiums paid, less surrenders;
2. the Contract Value; or
3. the greatest Contract Value at any Contract Anniversary
reduced proportionally by any surrenders subsequent to that
Contract Anniversary in the same proportion that the
Contract Value was reduced on the date of a surrender, plus
any Premium paid subsequent to that Contract Anniversary.
The Company deducts for each Valuation Period a daily charge for the
Annual Ratchet Plan which is equal on an annual basis to .10% of the average
daily net asset value of the Variable Account.
The Annual Ratchet Plan will be in effect if:
1. the Owner designates this option on the Application; and
2. the Annual Ratchet Plan charge is shown on the Contract
Schedule.
The Annual Ratchet Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it.
Option III - Enhanced Equity Assurance Plan
If at the time of application the Owner has selected a death benefit
under the terms of the Enhanced Equity Assurance Plan, We will pay a death
benefit equal to the greatest of:
1. the Contract Value; or
2. the greatest Contract Value on any Contract Anniversary plus
any Premiums subsequent to the Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value
was reduced on the date of a surrender; or
3. an amount equal to (a) plus (b) where:
(a) is equal to the total of all Premiums paid on or
before the first Contract Anniversary following Your
85th birthday, adjusted for surrenders as described
below and then accumulated at the compound interest
rates shown below for the number of complete years, not
to exceed 10, from the date of receipt of each Premium
to the earlier of the date of death or the first
Contract Anniversary following Your 85th birthday:
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<PAGE>
(1) 0% per annum if death occurs during the
first through 24th month from the date of
Premium payment;
(2) 2% per annum if death occurs during the
25th through 48th month from the date of
Premium payment;
(3) 4% per annum if death occurs during the
49th through 72nd month from the date of
Premium payment;
(4) 6% per annum if death occurs during the
73rd through 96th month from the date of
Premium payment;
(5) 8% per annum if death occurs during the
97th through 120th month from the date of
Premium payment;
(6) 10% per annum (for a maximum of 10 years)
if death occurs more than 120 months from the
date of Premium payment; and
(b) is equal to all Premiums paid after the first
Contract Anniversary following Your 85th birthday,
adjusted for surrenders as described below.
The Company deducts for each Valuation Period an Enhanced Equity
Assurance Plan Charge equal on an annual basis to .17% of the average daily
net asset value of the Variable Account for Owners attained age 0-59 and .30%
of the average daily net asset value of the Variable Account for Owners
attained age 60- 85.
Adjustment for surrenders. In the determination of the death benefit,
for each surrender a proportionate reduction will be made to each Premium paid
prior to the surrender. The proportion is determined by dividing the amount of
the Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Enhanced Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application; and
2. the charge for this Rider is shown on the Contract Schedule.
The Enhanced Equity Assurance Plan will cease to be in effect upon
receipt by the Company of the Owner's written request to discontinue it.
Accidental Death Benefit
The Owner may select the Accidental Death Benefit in addition to any of
the death benefit options. If at the time of application the Owner selected
the Accidental Death Benefit, the death benefit payable under this option will
be equal to the lesser of:
1. the Contract Value as of the date the death benefit is
determined; or
2. $250,000.
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The Company deducts for each Valuation Period a daily charge for the
Accidental Death Benefit which is equal on an annual basis to .05% of the
average daily net asset value of the Variable Account.
The Accidental Death Benefit is payable if the death of the primary
Owner occurs prior to the Contract Anniversary next following his/her 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 Accident Death Benefit will not be paid for any death caused by or
resulting in whole or in part from the following:
1. suicide or attempted suicide while sane or insane;
2. intentionally self-inflicted injuries;
3. 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;
4. 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;
5. declared or undeclared war or any act thereof; or
6. service in the military, naval or air service of any country.
The Accidental Death Benefit will be in effect if the Accidental Death
Benefit Charge is shown on the Contract Schedule.
The Accidental Death Benefit will cease to be in effect upon receipt by
the Company of the Owner's request to discontinue it.
Payment to Beneficiary
Upon the death of the Owner prior to the Annuity Date, the Beneficiaries
may elect the death benefit to be paid as follows:
1. payment of the entire death benefit within 5 years of the date of
the Owner's death; or
2. payment over the lifetime of the designated Beneficiary with
distribution beginning within 1 year of the date of death of the
Owner (see "Annuity Options" on page ____); or
3. if the designated Beneficiary if Your spouse, he/she can continue
the contract in his/her own name.
If no payment option is elected within 60 days of Our receipt of proof
of the Owner's death, a single sum settlement will be made at the end of the
sixty (60) day period following such receipt. Upon payment to the death
benefit, the Contract will end.
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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 the Contract. 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. If the Owner is not an individual, the Annuitant shall
be treated as the Owner and any change of such first named Annuitant, will be
treated as if the Owner died.
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 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 Value 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" on page ____.)
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<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" above and
"Deduction for Surrender Charge" 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.
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" on page ____.)
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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
"Deferral of Payment" discussion below. (Also see "Delay of Payments" in the
Statement of Additional Information.)
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 -- Withholding" on page ____ and "Taxes --
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 Securities and Exchange
Commission or the Securities and Exchange Commission requires that trading be
restricted; (3) the Securities and Exchange Commission 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.
TAXES
Introduction
The Contract is designed to accumulate Contract Value 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.
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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 Prospectuses for the
Funds.
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" on page 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.
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.
36
<PAGE>
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.
37
<PAGE>
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.
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.
38
<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
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 Contract continues to be treated as an annuity contract for
Federal income tax purposes.
39
<PAGE>
Tax-Favored Plans
The Contract may be used to create an IRA. The Contract is 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
Contract 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.
40
<PAGE>
LEGAL PROCEEDINGS
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
Legal matters relating to the Federal securities laws in connection with
the Contract described herein are being passed upon by the law firm of Jorden
Burt Berenson & Johnson LLP of Washington D.C.
41
<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.................................................
Method of Determining Contract Value................................
Annuity Provisions..................................................
Variable Annuity Payment Values...................................
Annuity Unit......................................................
Net Investment Factor.............................................
Additional Provisions.............................................
Financial Statements................................................
42
<PAGE>
APPENDIX
Guaranteed Account Option
Under this Guaranteed Account option, Contract Value is 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 Administrative 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 Administrative Office.
Allocations To The Guaranteed Account
The minimum amount that may be allocated to the Guaranteed Account, either
from the initial or a subsequent Premium, is $3,000. Amounts allocated in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guaranteed rate. The effective guaranteed 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
guaranteed rate associated with that amount. The effective guaranteed 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 Value to or from a Subaccount of the
Variable Account to or from the Guaranteed Account at any time, subject to the
conditions set out under "Transfers" on page .
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.
A-1
<PAGE>
Rule 497(e)
File No. 33-39170
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS DESCRIBING THE FLEXIBLE PREMIUM
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, AS
SUPPLEMENTED JANUARY 9, 1998, 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,
as supplemented January 9, 1998.
<PAGE>
TABLE OF CONTENTS
Page
General Information.................................................
The Company......................................................
Independent Accountants..........................................
Legal Counsel....................................................
Distributor......................................................
Calculation of Performance Related Information...................
Delay of Payments................................................
Method of Determining Contract Values...............................
Annuity Provisions..................................................
Variable Annuity Payment Values..................................
Annuity Unit.....................................................
Net Investment Factor............................................
Additional Provisions............................................
Financial Statements................................................
B-2
<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 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 Contract 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 Domestic Money
Market Subaccount
The yield quotation for the Domestic 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 Domestic 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 Domestic 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 Domestic 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:
B-3
<PAGE>
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
Domestic 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"
in the Prospectus). No deductions or sales loads are assessed upon
annuitization under the Contract. Realized gains and losses from the sale of
securities and unrealized appreciation and depreciation of the Domestic Money
Market Subaccount and the Funds 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
B-4
<PAGE>
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 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
ended December 31, 1996, no Contracts were issued.
Funds were first invested in the portfolios on the following dates:
<TABLE>
<CAPTION>
<S> <C>
Growth & Income Portfolio April 16, 1992
Premier Growth Portfolio December 7, 1992
U.S. Government/High Yield Securities Portfolio June 14, 1993
Global Dollar Government Portfolio May 26 , 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
High Yield Portfolio September 9, 1997
</TABLE>
No dates have been provided above with respect to the portfolios of the
Merrill Lynch Fund because as of the date of the Prospectus and this Statement
of Additional Information no funds had been invested therein.
C. Yield Quotations for the U.S. Government/High Grade Securities Subaccount
The yield quotations for the U.S. Government/High Grade Securities
Subaccount 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 portfolio of the Fund attributable
to shares owned by the Subaccount.
B-5
<PAGE>
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 U.S. Government/High
Grade Securities Subaccount, 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 premium was held under the Contract, and whether withdrawals had been
previously made during that Contract Year. (See "Charges and Deductions
Deduction for Surrender Charge" in the Prospectus.) There is currently a
transfer charge of $10 per transfer after a specified number of transfers in
each Contract Year. (See "Transfers" in 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
B-6
<PAGE>
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. Subaccount performance
information has not been provided because for the fiscal year ended December
31, 1996, no Contracts were issued.
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
increases 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 Premium of a given amount, assuming hypothetical gross annual
returns compounded annually, and a stated assumed rate. 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 in a chart reflect the
deduction of contractual expenses such as the 1.25% Mortality and Expense Risk
Charge, the 0.15% Administrative Fee, and the $30 Contract Maintenance Charge,
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 Premium.
In developing tax-deferral charts, the Company will follow general
principles: (1) the assumed rate of earnings will be realistic; (2) the chart
will (a) depict accurately the effect of all fees and charges, or (b) provide
a narrative that prominently discloses all fees and charges; (3) comparative
charts for accumulation values for tax-deferred and non-tax-deferred
investments will depict the implications of withdrawals and surrenders; and
(4) a narrative accompanying the chart will disclose prominently that there
may be a 10% tax penalty on withdrawals by Owners who have not reached age 59
1/2.
B-7
<PAGE>
The rates of return illustrated in a chart will be hypothetical and are
not an estimate or guaranty of performance. Actual tax rates may vary for
different taxpayers from that illustrated and, as noted above, withdrawals by
Owners who have not reached age 59 1/2 may be subject to a tax penalty of 10%.
Delay of Payments
Any payments due under the Contract 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 VALUE
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 Value, 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
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(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
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 Contract 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.
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(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 Funds 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
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(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.
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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 are incorporated by reference
herein and shall be considered only as bearing upon the ability of the Company
to meet its obligations under the Contract. No financial statements for the
Variable Account have been provided as no Contracts had been issued during the
reporting period.
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