AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 1, 1998
File No. 33-39170
811-4865
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 9 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 24 [X]
--
(Check appropriate box or boxes.)
VARIABLE ACCOUNT A
(Exact Name of Registrant)
American International Life Assurance Company of New York
(Name of Depositor)
80 Pine Street, New York, New York 10005
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 770-7000
Robert Liguori, Esq.
AIG Life Insurance Company
One Alico Plaza
Wilmington, Delaware 19899
(Name and Address of Agent for Service)
Copies to:
Michael Berenson, Esq. and Florence Davis, Esq.
Jorden Burt Boros Cicchetti American International
Berenson & Johnson Group, Inc.
Suite 400 East 70 Pine Street
1025 Thomas Jefferson Street, N.W. New York, New York 10270
Washington, D.C. 20007-0805
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this filing.
It is proposed that this filing will become effective
(check appropriate box)
X immediately upon filing pursuant to paragraph (b) of Rule 485
on __________ pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(i) of Rule 485
on _________ pursuant to paragraph (a)(i) of Rule 485
75 days after filing pursuant to paragraph (a)(ii) on pursuant to
paragraph (a)(ii) of rule 485.
If appropriate, check the following box: this post-effective amendment
designates a new effective date for a previously filed post-effective
amendment.
<PAGE>
<TABLE>
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
PART A
<S> <C> <C>
Item 1. Cover Page..................................... Cover Page
Item 2. Definitions.................................... Definitions
Item 3. Synopsis....................................... Highlights
Item 4. Condensed Financial Information................ Condensed Financial Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies............. The Variable
Account; The
Company; The Fund
Item 6. Deductions and Expenses........................ Charges and Deductions
Item 7. General Description of Variable
Annuity Contracts.............................. Purchasing a
Contract; Rights
under the
Contracts
Item 8. Annuity Period................................. Annuity
Period
Item 9. Death Benefit.................................. Death Benefit
Item 10 Purchases and Contract Value................... Rights under the
Contracts; Purchasing
a Contract
Item 11. Redemptions................................ Withdrawals
Item 12. Taxes...................................... Taxes
Item 13. Legal Proceedings.......................... Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information..................... Table of
Contents of the
Statement of
Additional
Information
</TABLE>
<PAGE>
PART B
<TABLE>
<S> <C> <C>
Item 15. Cover Page.................................... Cover Page
Item 16. Table of Contents............................. Table of
Contents
Item 17. General Information and History............... General
Information
Item 18. Services...................................... Services
Item 19. Purchase of Securities Being Offered.......... Purchasing
a Contract;
Charges and
Deductions
(Part A)
Item 20. Underwriters.................................. General
Information/
Distributor
Item 21. Calculation of Performance Data............... Calculation
of
Performance
Related
Information
Item 22. Annuity Payments.............................. Annuity
Provisions
Item 23. Financial Statements.......................... Financial
Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
<PAGE>
PROSPECTUS
for
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE
COMPANY OF NEW YORK
80 Pine Street
New York, NY 10270
This Prospectus sets forth the information a prospective investor ought to
know before investing.
The individual deferred variable annuity contracts and group flexible
premium deferred variable annuity contracts (together "The Contracts") described
in this Prospectus provide for accumulation of Contract Value and payment of
monthly annuity payments. The Contracts may be used in retirement plans which do
not qualify for federal tax advantages ("Non-Qualified Contracts") or in
connection with retirement plans which may qualify as Individual Retirement
Annuities ("IRA") under Section 408 of the Internal Revenue Code of 1986, as
amended (the "Code") or Section 403(b) of the Code ("403(b) Plans"). The
Contracts will not be available in connection with retirement plans designed by
American International Life Assurance Company of New York (the "Company") which
qualify for the federal tax advantages available under Sections 401 and 457 of
the Code. Purchasers intending to use the Contracts in connection with an IRA or
403(b) Plan should seek competent tax advice. 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 group contract.
Premiums allocated among the Subaccounts of Variable Account A (the
"Variable Account") will be invested in shares of corresponding portfolios of
the Alliance Variable Products Series Fund, Inc. (the "Fund"). The Fund has made
available the following portfolios: Growth & Income Portfolio; Growth Portfolio;
Technology Portfolio; Premier Growth Portfolio; Real Estate Investment
Portfolio; International Portfolio; Worldwide Privatization Portfolio; Total
Return Portfolio; Quasar Portfolio; North American Government Income Portfolio;
U.S. Government/High Grade Securities Portfolio; Global Bond Portfolio; Utility
Income Portfolio; Money Market Portfolio; Global Dollar Government Portfolio and
High Yield Portfolio. (See "The Fund" on page ____.)
Additional information about the Contracts and the Variable Account is
contained in the Statement of Additional Information which is available upon
request at no charge by calling or writing American International Life Assurance
Company of New York, Attention: Variable Products, One Alico Plaza, Wilmington,
Delaware 19801, 1-800-340-2765 or calling the service office at 1-800-255-8402.
The Statement of Additional Information dated May 1, 1998, has been filed with
the Securities and Exchange Commission and is hereby incorporated by reference.
The Table of Contents of the Statement of Additional Information can be found on
page ___ of this Prospectus.
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 ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE CONTRACT
INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF
PRINCIPAL.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
REPLACEMENT OF AN EXISTING LIFE INSURANCE POLICY OR ANNUITY CONTRACT MAY
NOT BE TO YOUR ADVANTAGE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
Date of Prospectus: May 1, 1998
<PAGE>
TABLE CONTENTS
Page
----
Definitions................................................................
Highlights.................................................................
Summary of Expenses........................................................
Condensed Financial Information............................................
The Company................................................................
The Variable Account.......................................................
The Funds..................................................................
The Contract...............................................................
Charges and Deductions.....................................................
Annuity Benefits...........................................................
Death Benefit..............................................................
Distributions Under the Contract...........................................
Taxes......................................................................
Legal Proceedings..........................................................
Legal Matters.............................................................
Table of Contents of the Statement of Additional Information...............
Appendix-- General Account Option..........................................
<PAGE>
DEFINITIONS
Accumulation Unit -- An accounting unit of measure used to calculate the
Contract Value prior to the Annuity Date.
Administrative Office -- The Annuity Service Office of the Company: c/o Delaware
Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, PA
19312-0031.
Annuitant -- The person designated by the Owner upon whose continuation of life
any annuity payment involving life contingencies depends.
Annuity Date -- The date on which annuity payments are to commence.
Annuity Option -- An arrangement under which annuity payments are made under
this Contract.
Annuity Unit -- An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary -- An anniversary of the Effective Date of the Contract.
Contract Value -- The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
Contract Year -- Each period of twelve (12) months commencing with the Effective
Date.
Effective Date -- The date on which the first Contract Year begins.
Guaranteed Account -- A part of our General Account, which earns a Guaranteed
Rate of interest.
Owner -- The person named in the Contract Schedule, unless changed, and who has
all rights under the Contract.
Premium -- Purchase payments for the Contract are referred to as Premium.
Premium Year -- Any period of twelve (12) months commencing with the date a
Premium payment is made and ending on the same date in each succeeding twelve
(12) month period thereafter.
Surrender Charge -- The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within 7 years of purchase
payments.
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.
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contracts and a segregated investment account
of American International Life Assurance Company of New York (the "Company")
which account has been designated Variable Account A (the "Variable Account").
The Contracts are designed to assist in financial planning by providing for the
accumulation of capital on a tax-deferred basis for retirement and other
long-term purposes, and providing for the payment of monthly annuity income.
Contracts may be purchased in connection with a retirement plan which may
qualify as 403 (b) Plan or as an Individual Retirement Annuity ("IRA"). The
Contract may also be purchased for retirement plans, deferred compensation plans
and other purposes which do not qualify for such special Federal income tax
treatment ("Non-Qualified Contracts"). (See "Taxes" on page ____.)
A Contract is purchased with a minimum initial Premium of $2,000.
Additional Premium is permitted at any time, subject to certain limitations.
(See "Premium and Allocation to Your Investment Options" on page ___.) You, as
the Owner of the Contract, may allocate your Premium so that it accumulates on a
variable basis, a fixed basis or a combination of both.
Premium allocated among the Subaccounts of the Variable Account will
accumulate on a variable basis and will be invested in shares of one or more of
the following underlying portfolios of the Fund. Each Subaccount invests
exclusively in one of the following portfolios: Money Market; Growth; Growth &
Income; International; U.S. Government/High Grade Securities; North American
Government Income; Global Dollar Government; Utility Income; Global Bond;
Premier Growth; Total Return; Worldwide Privatization; Technology; Quasar; Real
Estate Investment and High Yield. (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 Contracts provide for a Surrender Charge (contingent deferred sales
charge) that may be assessed in the event that an Owner surrenders all or a
portion of the Contract Value within seven contract years following payment of
any Premium. The maximum Surrender Charge is 6% of Premium to which the charge
is applicable. (See "Summary of Expenses" on page ___, and "Charges and
Deductions - -- Deduction for Surrender Charge" on page ____.)
A penalty free withdrawal is available. Generally, there is no Surrender
Charge imposed on the greater of the Contract Value less Premium paid or the
portion of the withdrawal that does not exceed 10% of Premium otherwise subject
to the Surrender Charge. (See "Withdrawals" on page _____.)
Surrenders and withdrawals may be taxable and subject to a penalty tax.
(See "Taxes" beginning on page ____.)
The Company deducts daily a Mortality and Expense Risk Charge which is
equal on an annual basis to 1.25% of the average daily net asset value of the
Variable Account. There is no Mortality and Expense Risk Charges deducted for
amounts in the Guaranteed Account. (See "Charges and Deductions --Deduction for
Mortality and Expense Risk Charge" on page ____.)
<PAGE>
The Company deducts daily an Administrative Charge which is equal on an
annual basis to 0.15% of the average daily net asset value of the Variable
Account. The Administrative Charge is not assessed to the Guaranteed Account. In
addition, the Company deducts, from the Contract Value, an annual Contract
Maintenance Fee which is $30 per year. The Contract Maintenance Fee is waived if
the Contract Value is greater than $50,000 on the date of the charge. These
Charges are designed to reimburse the Company for administrative expenses
relating to maintenance of the Contract and the Variable Account. (See "Charges
and Deductions -- Deduction for Administrative Charge and Contract Maintenance
Fee" on page ____.)
There are deductions and expenses paid out of the assets of the Fund which
are described in the accompanying Prospectuses for the Funds.
The Owner may return the Contract within ten (10) days (the "Right to
Examine Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA the Company will refund the greater of the Premium less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the Premium paid less any withdrawals, the Company will refund such an
amount.
FEE TABLE
Contract Owner Transaction Expenses
All Subaccounts
---------------
Sales Load Imposed on Purchases.......................... None
Surrender Charge
(as a percentage of amount surrendered):
Premium Year 1 ........................................ 6%
Premium Year 2 ........................................ 6%
Premium Year 3 ........................................ 5%
Premium Year 4 ........................................ 5%
Premium Year 5 ........................................ 4%
Premium Year 6 ........................................ 3%
Premium Year 7 ........................................ 2%
Premium Year 8 and thereafter.......................... None
Exchange Fee:
First 12 Per Contract Year ............................ None
Thereafter ............................................ $10
Annual Contract Fee ..................................... $30
(waived for contracts with account value
of $50,000 or greater)
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees........................ 1.25%
Account Fees and Expenses.............................. 0.15%
Total Separate Account Annual Expenses .................. 1.40%
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Portfolio Fee Expenses* Expenses**
- - --------- --------- --------- ---------
<S> <C> <C> <C>
Money Market 0.50% 0.14% 0.64%
Growth 0.75 0.09 0.84
Growth and Income 0.63 0.09 0.72
International 0.53 0.42 0.95
U.S. Government/High Grade 0.60 0.24 0.84
North American Government Investors 0.56 0.39 0.95
Global Dollar Government 0.41 0.54 0.95
Utility Income 0.62 0.33 0.95
Global Bond 0.56 0.38 0.94
Premier Growth 1.00 0.08 1.08
Total Return 0.63 0.25 0.88
Worldwide Privatization 0.40 0.55 0.95
Technology 0.76 0.19 0.95
Quasar 0.58 0.37 0.95
Real Estate Investment(1) 0.00 0.95 0.95
High Yield(1) 0.00 0.95 0.95
</TABLE>
The purpose of the table set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The table reflects expenses of the Variable Account as
well as the Funds. The Annual Administrative Charge for purposes of the Expense
Table, above, was based upon the assessment of a $30 charge on a Contract Value
of $5,000. (See "Charges and Deductions" on page ____ of this Prospectus and
each Fund's Prospectus for further information.) The table does not reflect the
charges applicable to certain death benefit options offered under the Contracts.
(See "Charges and Deductions -- Deduction for Equity Assurance Plan" on page
____; "Charges and Deductions -- Deductions for the Enhanced Equity Assurance
Plan" on page ___; Charges and Deductions -- Deductions for the Annual Rachet
Plan" on page ____; "Charges and Deductions -- Deductions for the 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 by certain states on the Contracts range from 0% to 3.5% of Premiums
paid. (See "Charges and Deductions -- Deduction for State Premium Taxes" on page
____.)
- - ----------
(1) The expense percentages for the High-Yield and Real Estate Investment
Portfolios have been annualized because as of December 31, 1997, the
portfolios had not been in existence for a full year.
* "Other Expenses" are based upon the expenses outlined under the section
entitled "Management of the Fund" in the Fund's Prospectus.
** "Total Portfolio Expenses" for the following Portfolios before
reimbursement by the relevant Fund's investment advisor, for the period
ended December 31, 1997, were as follows:
1.10% for Premier Growth; 1.03% for Global Bond; 1.55% for Worldwide
Privatization; 2.31% for Real Estate Investment; 8.26% for High Yield;
1.42% for International; 1.04% for North American Government Income; 1.29%
for Global Dollar Government; 1.08% for Utility Income; 1.37% for Quasar;
and 1.19% for Technology, of average daily net assets. For the year ended
December 31, 1997 expenses of the Premier Growth Portfolio were capped at
.95%. Effective May 1, 199, the investment adviser discontinued expense
reimbursement with respect to the Premier Growth Portfolio.
<PAGE>
Expenses on a hypothetical $1,000 policy, assuming 5% growth:
<TABLE>
<CAPTION>
If you surrender
---------------------------------------------------
Portfolio 1 Year 3 Years 5 Years 10 Years
- - --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market....................................... $75 $111 $149 $243
Growth............................................. 77 117 159 264
Growth and Income.................................. 76 113 153 251
International...................................... 78 120 165 275
U.S. Government/High Grade Securities.............. 77 117 159 264
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..................................... 80 124 171 288
Total Return....................................... 78 118 161 268
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>
<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....................................... $21 $66 $113 $243
Growth............................................. 23 72 123 264
Growth and Income.................................. 22 68 117 251
International...................................... 24 75 129 275
U.S. Government/High Grade Securities.............. 23 72 123 264
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..................................... 26 79 135 288
Total Return....................................... 24 73 125 268
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.
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET
Accumulation Unit Value
Beginning of Period ................. 10.99 10.64 10.27 10.07 10.00 N/A
End of Period ....................... 11.39 10.99 10.64 10.27 10.07 N/A
Accum Units o/s @ end of period ....... 919,968.32 890,464.95 551,555.84 206,034.73 1,590.74 N/A
GROWTH
Accumulation Unit Value
Beginning of Period ................. 17.73 13.99 10.48 11.13 10.00 10.00
End of Period ....................... 22.73 17.73 13.99 10.48 11.13 10.00
Accum Units o/s @ end of period ....... 1,695,515.74 1,541,465.58 777,108.88 56,104.84 35,271.53 2,081.43
GROWTH & INCOME
Accumulation Unit Value
Beginning of Period ................. 18.99 15.52 11.57 11.76 10.66 10.00
End of Period ....................... 24.11 18.99 15.52 11.57 11.76 10.66
Accum Units o/s @ end of period ....... 1,868,628.86 1,324,216.31 502,667.80 179,245.69 37,573.04 7,731.36
INTERNATIONAL
Accumulation Unit Value
Beginning of Period ................. 12.92 12.22 11.27 10.69 10.00 N/A
End of Period ....................... 13.17 12.92 12.22 11.27 10.69 N/A
Accum Units o/s @ end of period ....... 612,030.95 525,023.12 228,254.81 122,616.95 22,441.08 N/A
U.S. GOVERNMENT/HIGH GRADE SECURITIES
Accumulation Unit Value
Beginning of Period ................. 11.50 11.38 9.66 10.17 10.00 N/A
End of Period ....................... 12.33 11.50 11.38 9.66 10.17 N/A
Accum Units o/s @ end of period ....... 601,935.75 552,183.99 390,483.21 75,881.31 7,608.84 N/A
NORTH AMERICAN GOVERNMENT INCOME
Accumulation Unit Value
Beginning of Period ................. 12.35 10.55 8.71 10.00 N/A N/A
End of Period ....................... 13.35 12.35 10.55 8.71 N/A N/A
Accum Units o/s @ end of period ....... 469,970.73 279,368.63 95,031.46 89,164.68 N/A N/A
GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period ................. 14.55 11.81 9.73 10.00 N/A N/A
End of Period ....................... 16.24 14.55 11.81 9.73 N/A N/A
Accum Units o/s @ end of period ....... 179,585.93 76,451.58 16,171.63 5,958.18 N/A N/A
UTILITY INCOME
Accumulation Unit Value
Beginning of Period ................. 12.38 11.64 9.71 10.00 N/A N/A
End of Period ....................... 15.35 12.38 11.64 9.71 N/A N/A
Accum Units o/s @ end of period ....... 341,317.44 305,608.09 103,042.86 13,690.19 N/A N/A
GLOBAL BOND
Accumulation Unit Value
Beginning of Period ................. 12.82 12.24 9.94 10.61 10.00 N/A
End of Period ....................... 12.73 12.82 12.24 9.94 10.61 N/A
Accum Units o/s @ end of period ....... 161,242.31 145,722.74 76,604.28 27,806.30 5,589.55 N/A
PREMIER GROWTH
Accumulation Unit Value
Beginning of Period ................. 18.45 15.25 10.66 10.00 N/A N/A
End of Period ....................... 24.36 18.45 15.25 10.66 N/A N/A
Accum Units o/s @ end of period ....... 1,441,993.79 1,026,432.81 420,662.68 108,111.20 N/A N/A
TOTAL RETURN
Accumulation Unit Value
Beginning of Period ................. 13.52 11.90 9.75 10.00 N/A N/A
End of Period ....................... 16.14 13.52 11.90 9.75 N/A N/A
Accum Units o/s @ end of period ....... 568,896.78 455,709.19 121,094.82 4,871.12 N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period ................. 12.86 11.01 10.05 10.00 N/A N/A
End of Period ....................... 14.04 12.86 11.01 10.05 N/A N/A
Accum Units o/s @ end of period ....... 495,269.51 224,339.58 62,769.30 6,357.69 N/A N/A
TECHNOLOGY
Accumulation Unit Value
Beginning of Period ................. 10.90 10.00 N/A N/A N/A N/A
End of Period ....................... 11.44 10.90 N/A N/A N/A N/A
Accum Units o/s @ end of period ....... 1,033,596.21 431,529.41 N/A N/A N/A N/A
QUASAR
Accumulation Unit Value
Beginning of Period ................. 10.58 10.00 N/A N/A N/A N/A
End of Period ....................... 12.38 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period ....... 629,523.13 179,808.73 N/A N/A N/A N/A
REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period ................. N/A N/A N/A N/A N/A N/A
End of Period ....................... N.A N.A N/A N/A N/A N/A
Accum Units o/s @ end of period ....... N/A N/A N/A N/A N/A N/A
HIGH YIELD
Accumulation Unit Value
Beginning of Period ................. N/A N/A N/A N/A N/A N/A
End of Period ....................... N.A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period ....... N/A N/A N/A N/A N/A N/A
</TABLE>
*Funds were first invested in the Portfolios as listed below:
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 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
<PAGE>
Calculation of Performance Data
The Company may, from time to time, advertise certain performance related
information concerning one or more of the Subaccounts, including information as
to total return and yield. Performance information about a Subaccount is based
on the Subaccount's past performance only and is not intended as an indication
of future performance.
When the Company advertises the average annual total return of a
Subaccount, it will usually be calculated for one, five, and ten year periods
or, where a Subaccount has been in existence for a period less than one, five or
ten years, for such lesser period. Average annual total return is measured by
comparing the value of the investment in a Subaccount at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming the deduction of any Surrender Charge which would be payable if the
account were redeemed at the end of the period) and calculating the average
annual compounded rate of return necessary to produce the value of the
investment at the end of the period. The Company may simultaneously present
returns that do not assume a surrender and, therefore, do not deduct the
Surrender Charge.
When the Company advertises the yield of a Subaccount it will be calculated
based upon a given 30-day period. The yield is determined by dividing the net
investment income earned per Accumulation Unit during the period by the value of
an Accumulation Unit on the last day of the period.
When the Company advertises the performance of the Money Market Subaccount
it may advertise in addition to the total return either the yield or the
effective yield. The yield of the Money Market Subaccount refers to the income
generated by an investment in that Subaccount over a seven-day period. The
income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized the income earned by an investment in
the Money Market Subaccount is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all contract
charges (sales charges) mortality and expense risk charges, and the
administrative charges, and is therefore lower than the total return at the Fund
level, which has no comparable charges. Likewise, yield and effective yield at
the Variable Account level take into account all recurring charges (except sales
charges), and are therefore lower than the yield and effective yield at a Fund
level, which has no comparable charges. Performance information for a Subaccount
may be compared to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, Donoghue Money Market Institutional Averages, indices
measuring corporate bond and government security prices as prepared by Lehman
Brothers, Inc. and Salomon Brothers or other indices measuring performance of a
pertinent group of securities so that investors may compare a Subaccount's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract;
and (iv) indices or averages of alternative financial products available to
prospective investors, including the Bank Rate Monitor which monitors average
returns of various bank instruments.
Financial Data
Financial statements of the Company may be found in the Statement of
Additional Information. No financial statements for the Variable Account have
been provided in the Statement of Additional Information because as of the date
of the reporting period no Contracts had been issued.
<PAGE>
THE COMPANY
American International Life Assurance Company of New York is a stock life
insurance company which was organized under the laws 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. ("AIG"), 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 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,
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 Company's policyholders).
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 authorized the organization of the Variable Account in 1986.
The Variable Account is maintained pursuant to New York insurance law. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"). The Variable
Account meets the definition of a "Separate Account" under Federal securities
laws. The SEC does not supervise the management or the investment practices of
the Variable Account.
The Company owns the assets in the Variable Account and obligations under
the Contract are general corporate obligations. The Variable Account and each
Subaccount, however, are separate from the Company's other assets including
those of the General Account and from any other separate accounts. The assets of
the Variable Account, equal to the reserves and other contract liabilities with
respect to the Variable Account, are not chargeable with liabilities arising out
of any other business the Company may conduct. Investment income, as well as
both realized and unrealized gains and losses are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
income, gains
<PAGE>
or losses arising out of any other business of the Company. As a result, the
investment performance of each Subaccount and the Variable Account is entirely
independent of the investment performance of the General Account and of any
other separate account maintained by the Company.
The Variable Account is divided into Subaccounts, with the assets of each
Subaccount invested in shares of a corresponding portfolio of the Fund. The
Company may, from time to time, add additional portfolios of the Fund, and, when
appropriate, additional funds to act as the funding vehicles for the Contracts.
If deemed to be in the best interests of persons having voting rights under the
Contract, the Variable Account may be operated as a management company under the
1940 Act, may be deregistered under such Act in the event such registration is
no longer required, or may be combined with one or more other separate accounts.
The Company may offer other variable annuity contracts which also invest in the
Variable Account, and are described in other prospectuses.
<PAGE>
THE FUND
Alliance Variable Products Series Fund, Inc. will act as the funding
vehicle for the Contracts offered hereby. The Fund is managed by Alliance
Capital Management, L.P., (the "Advisor"). The Fund is an open-end, diversified
management investment company, which is intended to meet differing investment
objectives. The Fund has made available the following portfolios: Money Market;
Growth; Growth and Income; International; U.S. Government/High Grade Securities;
North American Government Income; Global Dollar Government; Utility Income;
Global Bond; Premier Growth; Total Return; Worldwide Privatization; Technology;
Quasar; Real Estate Investment; and High Yield. The Advisor has entered into a
sub-advisory agreement with AIGAM International Limited (the "Sub-Advisor"), a
wholly-owned subsidiary of AIG and an affiliate of the Company, to provide
investment advice for the Global Bond Portfolio.
Shares of the Fund may be sold to separate accounts of life insurance
companies. The shares of the Fund will be sold to separate accounts of the
Company and its affiliate, AIG Life Insurance Company, 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 policy owners
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, we 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.
A summary of investment objectives for each portfolio is contained in the
description of the Fund below. More detailed information, including the
investment advisory fee of each portfolio and other charges assessed by the
Fund, may be found in the current Fund Prospectus which contains a discussion of
the risks involved in investing in the Fund. The Prospectus for the Fund is
included with this Prospectus. Please read both Prospectuses carefully before
investing.
The investment objectives of the portfolios are as follows:
Money Market Portfolio
This portfolio seeks safety of principal, maintenance of liquidity and
maximum current income by investing in a broadly diversified portfolio of money
market securities. 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 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 Fund's Advisor and Sub-Advisor consider to be prudent
investment risk that is available from a multi-currency portfolio of high
quality debt securities of varying maturities.
Premier Growth Portfolio
This portfolio seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based on their
potential for capital appreciation, current income will be incidental to the
objective of capital growth. The portfolio is not intended for investors whose
principal objective is assured income or preservation of capital.
Total Return Portfolio
This portfolio seeks to achieve a high return through a combination of
current income and capital appreciation by investing in a diversified portfolio
of common and preferred stocks, senior corporate debt securities, and U.S.
Government and Agency obligations, bonds and senior debt securities.
<PAGE>
Worldwide Privatization Portfolio
This portfolio seeks long-term capital appreciation by investing
principally in equity securities issued by enterprises that are undergoing, or
have undergone, privatization. The balance of the investment portfolio will
include equity securities of companies that are believed by the Fund's Advisor
to be beneficiaries of the privatization process.
Technology Portfolio
This portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. The 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.
Voting Rights
As previously stated, all of the assets held in the Subaccounts of the
Variable Account will be invested in shares of a corresponding portfolio of the
Fund. Based on the Company's view of present applicable law, we will vote the
portfolio shares held in the Variable Account at meetings of shareholders in
accordance with instructions received from Owners having a voting interest in
the portfolio. However, if the 1940 Act or its regulations are amended, or if
our interpretation of present law changes to permit us to vote the portfolio
shares in our own right, we may elect to do so.
Prior to the Annuity Date, the Owner holds a voting interest in each
portfolio in which there is value in the corresponding Subaccount. The number of
portfolio shares which are attributable to the Owner is determined by dividing
the corresponding value in a particular Subaccount by the net asset value of one
portfolio share. The number of votes which an Owner will have a right to cast
will be determined as of the record date established by each portfolio.
We will solicit voting instructions by mail prior to the shareholder
meetings. An Owner having a voting interest in a Subaccount will be sent proxy
material, reports and other materials as provided by the Fund, relating to the
appropriate portfolios. The Company will vote
<PAGE>
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 Contracts, the Company may
substitute shares of another fund (or portfolio within the fund) for Fund shares
already purchased or to be purchased in the future under the Contracts. No
substitution of securities may take place without any required prior approval of
the Securities and Exchange Commission and under such requirements as it may
impose.
<PAGE>
THE CONTRACT
The Contract described in this Prospectus is a deferred variable annuity.
Parties to the Contract
Owner
As the purchaser of the Contract, You may exercise all rights and
privileges provided in the Contract, subject to any rights that You, as Owner,
may convey to an irrevocable beneficiary. As Owner, You will also be the
Annuitant, unless You name in writing some other person as Annuitant.
Annuitant
The Annuitant is the person who receives annuity payments and upon the
continuance of whose life these payments are based. You may designate someone
other than yourself as Annuitant. If the Annuitant is a person other than the
Owner, and the Annuitant dies before the Annuity Date, You will become the
Annuitant unless you designate someone else as the new Annuitant.
Beneficiary
The Beneficiary You designate will receive the death proceeds if You die
prior to the Annuity Date. If no Beneficiary is living at that time, the death
proceeds are payable to Your estate. If the Annuitant dies after the Annuity
Date, the Beneficiary will receive any remaining guaranteed payments under an
Annuity Option. If no Beneficiary is living at that time, the remaining
guaranteed payments are payable to Your estate.
Change of Annuitant and Beneficiary
Prior to the Annuity Date, You may change the Annuitant and Beneficiary by
making a written request to Our Administrative Office. After the Annuity Date
only a change of Beneficiary may be made. Once We have accepted Your written
request, any change will become effective on the date You signed it. However,
any change will be subject to any payment or other action taken by Us before We
record the change. If the Owner is not a natural person, under current Federal
tax law, the Contract may be subject to unintended and adverse tax consequences.
For possible tax considerations of these changes, see "Taxes", page ____.
How to Purchase a Contract
At the time of application, the Purchaser must pay at least the minimum
Premium required and provide instructions regarding the allocation of the
Premium among the Subaccounts. Acceptance of the Premium and form of application
is subject to Our requirements and We reserve the right to reject any Premium.
If the application and Premium are accepted in the form received, the Premium
will be credited and allocated to the Subaccounts within two business days of
its receipt. The date the Premium is credited to the Contract is the Effective
Date.
If within five days of the receipt of the initial Premium We have not
received sufficient information to issue a Contract, You will be contacted. The
reason for the delay will be explained to You. If You consent We will retain the
Premium until the necessary requirements are fulfilled. Otherwise, the Premium
will be immediately refunded to You.
Discount Purchase Programs
Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families may not be subject to the Surrender Charge.
<PAGE>
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. ("AIGESC"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AIGESC 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 AIGESC, Owners who purchased Contracts through the bank
would be permitted to retain their Contracts and alternate means for servicing
those Owners would be sought. It is not expected, however, that Owners would
suffer any loss of services or adverse financial consequences as a result of any
of these occurrences.
Administration of the Contracts
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Owner's records. DVFS serves as the administrator to various
insurance companies offering variable contracts.
Premium and Allocation to Your Investment Options
The initial Premium must be at least $2,000. You may make additional
payments of Premium prior to the Annuity Date, in amounts of at least $1,000 or
$100 as part of an automatic investment plan. There is no maximum limit on the
additional Premiums You may pay or on the numbers of payments; however, the
Company reserves the right to reject any Premium on any Contract. You specify at
the time of issue or subsequently how the remaining amount, known as Additional
Premium will be allocated.
The initial Premium is allocated among the Subaccounts and Guaranteed
Account on the Effective Date. Your allocation instructions will specify what
percentage of Your initial Premium is to be credited to each Subaccount and to
the Guaranteed Account. Allocation instructions must be expressed in whole
percentages. Allocations for additional Premium will be made on the same basis
as the initial Premium unless We receive a written notice with new instructions.
Additional Premium will be credited to the Contract Value and allocated at the
close of the first Valuation Date on or after which the Additional Premium is
received at Our Administrative Office.
All premiums to IRA or 403 (b) Plan Contracts must comply with the
applicable provisions in the Code and the applicable provisions of your
retirement plan. Additional premium commingled in an IRA with a rollover
contribution from other retirement plans may result in unfavorable tax
consequences. You should seek legal counsel and tax advice regarding the
suitability of the contract for your situation. (See "Taxes" on page ____.)
Right to Examine Contract Period
The Contract provides a 10 day Right to Examine Contract Period giving You
the opportunity to cancel the Contract. You must return the Contract with
written notice to Us. If We receive the Contract and Your written notice within
10 days after it is received by You, the Contract will be voided. With the
exception of Contracts issued in connection with an IRA, in those states whose
laws do not require that We assume the risk of market loss during the Right to
Examine Contract Period, should You decide
<PAGE>
to cancel Your Contract, the amount to be returned to You will be the
Contract Value (on the day We receive the Contract) plus any charges deducted
for state taxes, without imposition of the Surrender Charge. The amount returned
to you may be more or less than the initial Premium. (See "Charges and
Deductions" on page ____.) For Contracts issued in those states that require we
return the premium, we will do so. In the case of Contracts issued in connection
with an IRA, the Company will refund the greater of the Premium, less any
withdrawals, or the Contract Value.
State laws governing the duration of the Right to Examine Contract Period
may vary from state to state. We will comply with the laws of the state in which
the Owner resides at the time the Contract is applied for. Federal laws
governing IRAs require a minimum seven day right of revocation. We provide 10
days from the date the Contract was mailed or otherwise delivered to you. (See
"Individual Retirement Annuities" on page _____.)
Unit Value and Contract Value
After the deduction of certain charges and expenses, amounts which You
allocate to a Subaccount of the Variable Account are used to purchase
Accumulation Units in that Subaccount, not shares of the Portfolio in which that
Subaccount invests. The number of Accumulation Units you purchase will be
determined by dividing the amount allocated to each Subaccount by the Unit Value
of the Subaccount for the Valuation Period during which the amount was
allocated.
The Unit Value for each Subaccount will vary from one Valuation Period to
the next, based on the investment experience of the Portfolio in which the
Subaccount invests and the deduction of certain charges and expenses. The
Statement of Additional Information contains a detailed explanation of how
Accumulation Units are valued.
Your value in any given Subaccount is determined by multiplying the Unit
Value for the Subaccount by the number of Units You own. Your value within the
Variable Account is the sum of your values in all the Subaccounts. The total
value of your Contract, known as the Contract Value, equals your Value in the
Variable Account plus Your value in the Guaranteed Account.
Transfers
Prior to the Annuity Date, You may make Transfers among the Subaccounts and
into and out of the Guaranteed Account subject to certain rules.
At the present time there is no limit on the number of transfers which can
be made among the Subaccounts and the Guaranteed Account in any one Contract
Year. We reserve the right to limit the number of transfers to 12 per Contract
Year. There are no fees for the first 12 transfers in any one Contract Year. For
each transfer in excess of 12 within one Contract Year, We impose a transfer fee
of $10. A transfer fee, if any, is deducted from the amount transferred. (See
Appendix, "Guaranteed Account Transfers," page A-1.)
Transfers may be made by written request or by telephone as described in
the Contract or specifically authorized in writing. The Company will undertake
reasonable procedures to confirm that instructions communicated by telephone are
genuine. All calls will be recorded. All transfers will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
After the Annuity Date, the Owner may transfer the Contract Value allocated
to the Variable Account among the Subaccounts. However, the Company reserves the
right to refuse any more than one transfer per month. The transfer fee is the
same as before the Annuity Date. This transfer fee, if any, will be deducted
from the next annuity payment after the transfer. If following the transfer, the
Annuity Units remaining in the Subaccount would generate a monthly annuity
payment of less than $100, the Company will transfer the entire amount in the
Subaccount.
<PAGE>
Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Subaccount. The number of Annuity Units for each
Subaccount will remain the same for the remainder of the payment period unless
the Owner requests another change.
The minimum amount which may be transferred at any one time is the lesser
of $1,000 or the value of the Subaccount or Guarantee Period from which the
transfer is made. However, the minimum amount for transfers under our Dollar
Cost Averaging program is $100 per Subaccount. (See "Dollar Cost Averaging.")
For additional limitations regarding transfers out of the Guaranteed Account,
see "The Guaranteed Account" in the Appendix, page A-1.)
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 either the Money
Market Subaccount or the Guaranteed Account 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 Dollar Cost Averaging, the Owner's Contract Value must be at least
$12,000 and a Dollar Cost Averaging Request in proper form must be received by
the Company. The Dollar Cost Averaging Request form will not be considered
complete until the Contract Value is at least the required amount. A Dollar Cost
Averaging Request form is available from the Administrative Office upon
request.An Owner may not have in effect at the same time Dollar Cost Averaging
and Asset Rebalancing.
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 quarter, and Asset Rebalancing automatically
reallocates the Contract Value in the Subaccounts to the allocation selected by
the Owner. Asset Rebalancing is intended to exchange Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help an Owner buy low and sell
high, although there can be no assurance of this. This investment method does
not guarantee profits, nor does it assure that an Owner will not have losses.
To elect Asset Rebalancing, the Contract Value in the Contract must be at
least $12,000 and an Asset Rebalancing Request in proper form must be received
by the Company. An Owner may not have in effect at the same time Dollar Cost
Averaging and Asset Rebalancing. If the Asset Rebalancing is elected, all
Contract Value allocated to the Subaccounts must be included in the Asset
Rebalancing.
<PAGE>
The amounts transferred will be credited to the Accumulation Unit Value as
of the end of the Valuation Dates on which the transfers are effected. Amounts
periodically transferred under this option are not included in the 12 transfers
per Contract Year discussed under "Transfers" on page ______.
An Owner may instruct the Company at any time to terminate this option by
written request. Once terminated, this option may not be reselected during the
same Contract Year.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Premium, the Contract Value
and the Variable Account. These charges and deductions are as follows:
Deduction for State Premium Taxes
We do not deduct premium taxes unless assessed by the state of residence of
the Owner. Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged at Our discretion against either
Premium or Contract Value. Premium taxes currently imposed by certain states on
the Contracts range typically from 0% to 3.5% of premiums paid. Some states
assess premium taxes at the time Premium is received; others assess premium
taxes at the time of annuitization. Premium taxes are subject to being changed
or amended by state legislatures, administrative interpretations or judicial
acts.
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. The mortality risks assumed by the Company arise
from its contractual obligation to make annuity payments after the Annuity Date
for the life of the Annuitant, to waive the Surrender Charge in the event of the
death of the Owner prior to the Annuity Date and to provide the death benefit.
The expense risk assumed by the Company is that the costs of administering the
Contracts and the Variable Account will exceed the amount received from
Administrative and Contract Maintenance Charges.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased. The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period --Annuity Options" on page ____.) The
Company in its discretion may offer additional payment options which are not
based on a life contingency. If this should occur and if an 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 Equity Assurance
Plan charge for each Valuation Period will 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 and above.
Deduction for Enhanced Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Enhanced Equity
Assurance Plan charge for each Valuation Period will 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 and above.
<PAGE>
Deduction for Annual Ratchet Plan
If the Owner has elected the Annual Ratchet Plan, the Annual Ratchet Plan
charge for each Valuation Period will equal on an annual basis to .10% of the
average daily net asset value of the Variable Account.
Deduction for Accidental Death Benefit
If the Owner has elected the Accidental Death Benefit, the Company deducts
for each Valuation Period an Accidental Death Benefit Charge equal on an annual
basis to .05% of the average daily net asset value in the Variable Account.
Deduction for Surrender Charge
In the event that an Owner makes a withdrawal from or surrenders Contract
Value in excess of the Free Withdrawal Amount, a Surrender Charge may be
imposed. The Free Withdrawal Amount is equal to the greater of the Contract
Value less premiums paid or the portion of the withdrawal that does not exceed
10% of the total Premium otherwise subject to the Surrender Charge paid to the
time of withdrawal, less any prior withdrawals and less any accured charges for
option death benefits; 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:
Surrender
Charge Percentage
-----------------
Premium Year 1 ................................... 6%
Premium Year 2 ................................... 6%
Premium Year 3 ................................... 5%
Premium Year 4 ................................... 5%
Premium Year 5 ................................... 4%
Premium Year 6 ................................... 4%
Premium Year 7 ................................... 2%
Premium Year 8 and thereafter..................... None
No Surrender Charge is imposed against: (1) Systematic Withdrawal options;
(2) Contract Value upon Annuitization; (3) a Death Benefit.
The Surrender Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Surrender Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403 (b) Plan or IRA. (See
"Taxes -- 403(b) Plans" on page _____.)
<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 reimburse Us for
administrative expenses, both during the accumulation period and following the
Annuity Date.
Deduction for Contract Maintenance Charge
The Company also deducts an annual Contract Maintenance Charge of $30 per
year, from the Contract Value on each Contract Anniversary. The Contract
Maintenance Fee is waived if the Contract Value is greater than $50,000 on the
date of deduction of the charge. These charges are designed to reimburse the
Company for the costs it incurs relating to maintenance of the Contract, the
Variable Account, and the Guaranteed Account. If the Contract is surrendered, we
will deduct the Contract Maintenance Charge at the time of surrender for the
current Contract Year. The deduction will be made proportionally based on Your
value in each Subaccount and the Guaranteed Account. After the Annuity Date, the
Contract Maintenance Charge is deducted on a pro-rata basis from each annuity
income payment.
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any Federal income taxes. (See
also "Taxes" beginning on page ____.)
Other Expenses
There are deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying Prospectuses for each Fund.
Group and Sponsored Arrangements
In certain instances, we may reduce the Surrender Charge and the
Administrative Charge or change the minimum premium requirements for the sale of
Contracts to certain groups, including those in which a trustee or an employer,
for example, purchases Contracts covering a group of individuals on a group
basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
similar arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or group sponsored arrangements
that have been set up solely to buy Contracts or that have been in existence
less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Contract is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or Administrative
Charge will reflect differences in costs or services and will not be unfairly
discriminatory.
ANNUITY BENEFITS
Annuitization
Annuitization is an election you make to apply the Contract Value to an
Annuity Option in order to provide a series of annuity payments. The date the
Annuity Option becomes effective is the Annuity Date.
<PAGE>
Annuity Date
The latest Annuity Date is: the later of (a) the first day of the calendar
month following the later of the Annuitant's 90th birthday; or (b) such earlier
date as may be set by applicable law.
The Owner may designate an earlier date or may change the Annuity Date by
making a written request at least thirty (30) days prior to the Annuity Date
being changed. However, any Annuity Date must be no later than the date defined
above; and, the first day of a calendar month.
Without the approval of the Company, the new Annuity Date cannot be earlier
than one year after the Effective Date. In addition, for IRA or 403 (b) Plan
Contracts, certain provisions of your retirement plan or the Code may further
restrict your choice of an Annuity Date. (See "Taxes," page _____.)
Annuity Options
The Owner may choose annuity payments which are fixed or which are based on
the Variable Account or a combination of the two. The Owner may, upon at least
30 days prior written notice to us, at any time prior to the Annuity Date,
select or change an Annuity Option. If the Owner elects annuity payments which
are based on the Variable Account, the amount of the payments will be variable.
The amount of the annuity payment based on the value of a Subaccount is
determined through a calculation described in the Statement of Additional
Information, under the caption "Annuity Provisions". The Owner may not transfer
Contract Values between the Guaranteed Account and the Variable Account after
the Annuity Date, but may, subject to certain conditions, transfer Contract
Values from one Subaccount to another Subaccount. (See "Transfer of Contract
Values" on page _____.)
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the Guaranteed Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will make annuity payments during the
lifetime of the Annuitant.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will make monthly annuity payments during the lifetime of the Annuitant. If, at
the death of the Annuitant, payments have been made for less than 10 years,
payments will be continued during the remainder of the period to the
Beneficiary.
Option 3: Joint and Last Survivor Income. The Company will make annuity
payments for as long as either the Annuitant or a Contingent Annuitant is alive.
In the event that the Contract is issued in connection with an IRA, the payments
in this Option will be made only to the Owner as Annuitant and the Owner's
spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company reserves the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company reserves the right to make payments semi-annually or annually.
<PAGE>
If fixed annuity payments are selected, the amount of each fixed payment
is determined by multiplying the Contract Value allocated to purchase fixed
annuity payments by the factor shown in the annuity table specified in the
Contract for the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the
value of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Subaccount
selected; and (v) the pro-rata portion of the Contract Maintenance charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, variable annuity
payments will decrease.
DEATH BENEFIT
Prior to the Annuity Date
In the event of an Owner's death (or the death of the first joint Owner to
die) prior to the Annuity Date, a death benefit is payable to the Beneficiary.
The value of the death benefit will be determined as of the date We receive
proof of death in a form acceptable to Us. If there has been a change of Owner
from one natural person to another natural person, the death benefit will equal
the Contract Value, unless the change in ownership results from the election,
made by a surviving spouse as designated beneficiary, to continue the contract.
Otherwise, 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. All death benefit options may not be available in all states.
Traditional Death Benefit
Under the Traditional Death Benefit, We will pay a death benefit equal to
the greatest of:
1. the total of all Premiums paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was reduced
on the date of a surrender; or
2. the Contract Value; or
3. the greatest of the Contract Value at any seventh Contract Anniversary
reduced proportionally by any surrender 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 other Death Benefit
is in effect.
Optional Death Benefit
Prior to determining the amount of any of the following Optional Death
Benefits the Contract Value will be reduced by the accrued charges for the
optional death benefit, if as of the date of death, the accured charges had not
yet been deducted from the Variable Account.
Annual Ratchet Plan
If at the 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 Premium paid, reduced proportionally by withdrawals
and surrender;
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 charge for the Annual Ratchet Plan 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.
<PAGE>
The Annual Ratchet Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it.
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 of the 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 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:
0% per annum if death occurs during the 1st through 24th month from
the date of Premium payment;
2% per annum if death occurs during the 25th through 48th month from
the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd month from
the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th month from
the date of Premium payment;
8% per annum if death occurs during the 97th through 120th month from
the date of Premium payment;
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 charge for the Equity Assurance Plan is equal on an annual basis to
.07% of the average daily net asset value of the Variable Account for Owners
attained ages 0-59 and .20% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
Adjustment for surrender. 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 or upon the allocation of Contract Values to either the Money Market
Subaccount or Guaranteed Account unless such allocation is made, part if Dollar
Cost Averaging.
The Equity Assurance Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it or upon the allocation
of Contract Values to either the Money Market Subaccount or Guaranteed Account,
unless such allocation is made as part of Dollar Cost Averaging.
<PAGE>
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:
0% per annum if death occurs during the 1st through 24th month
from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th month
from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd month
from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th month
from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th month
from the date of Premium payment;
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 charge for the Enhanced Equity Assurance Plan is equal on an annual
basis to .17% of the average daily net asset value of the Variable Account for
Owners attained ages 0-59 and .30% of the average daily net asset value of the
Varialbe Account for Owners attained age 60 and above.
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 or upon the
allocation of Contract Values to either the Money Market Subaccount or
Guaranteed Account, unless such allocation is made as part of Dollar Cost
Averaging.
<PAGE>
Accidental Death Benefit
The Owner may select the Accidental Death Benefit in addition to any of the
death benefit options. The Accidental Death Benefit is not available if the
Contract is used as an IRA. 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 Accidental 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 the Owner's written request to discontinue it.
Payment to Beneficiary
Upon the death of the Owner prior to the Annuity Date, the Beneficiary 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 section of this contract); or
3. if the designated Beneficiary is 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 of the death benefit, this
Contract will end.
<PAGE>
After the Annuity Date
If the Owner is a person other than the Annuitant, and if the Owner's death
occurs on or after the Annuity Date, no death benefit will be payable under this
contract. 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 (60) days of Our receipt of proof of the
Annuitant's death, the Owner will be deemed the new Annuitant. If an Annuitant
dies after the Annuity Date, the remaining payments, if any will be as specified
in the Annuity Option elected. We will require proof of the Annuitant's death.
Death benefits, if any, will be paid to the designated Beneficiary at least as
rapidly as under the method of distribution in effect at the Annuitant's death.
DISTRIBUTIONS UNDER THE CONTRACT
Withdrawals
The Owner may withdraw Contract Valu 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 accured charges
for optional death benefits and any Surrender Charge from each
Subaccount of the Variable Account and from the Guaranteed Account
either as specified or in the proportion that each Subaccount and the
Guaranteed Account bears to the Contract Value; and
We reserve the right to consider any withdrawal request that would reduce
the Value of the Accumulation Account to less than $2,000 to be a request for
surrender. In this event, the Surrender Value will be paid to You and the
Contract will terminate.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on Page _____.)
Systematic Withdrawal
The systematic withdrawal program involves making regularly scheduled
withdrawals from Your value in the Contract. In order to initiate the program,
your total Contract Value must be at least $24,000. The program allows You to
prearrange the withdrawal of a specified dollar amount of at least $200 per
withdrawal, on a monthly or quarterly payment basis. A maximum of 10% of the
Contract Value may be withdrawn in a Contract Year. Surrender Charges are not
imposed on withdrawals under this program. If you elect this program Surrender
Charges will be imposed on any withdrawal, other than withdrawals made under
Your systematic withdrawal program, when the withdrawal is from Premium paid in
the last seven years. You may not elect this program if you have taken a prior
withdrawal during the same Contract Year. (See "Withdrawals" on page ___, and
"Surrender Charges" on page _____.)
<PAGE>
Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. In the event that
Your value in a specified Subaccount or the Guaranteed Account is not sufficient
to deduct a withdrawal or if Your request for systematic withdrawal does not
specify the Guaranteed Account or from which Subaccounts withdrawals are to be
deducted, withdrawals will be deducted proportionally based on Your value in
each Subaccount and the Guaranteed Account.
All parties to the Contract are cautioned that the rights of any person to
implement the systematic withdrawal program under Contracts may be subject to
the terms and conditions of the retirement plan, regardless of the terms and
conditions of the Qualified issued in connection with IRAs or 403(b) Plans
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" discussed on page _____.)
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value as of the date the Company receives Your surrender
request, reduced by the following: (1) any applicable taxes not previously
deducted; (2) any applicable accrued charges for optional death benefits; (3)
the Contract Maintenance Charge; and (4) any applicable Surrender Charge.
Payment of Withdrawals and Surrender Values
Payments of withdrawals and Surrender Values will ordinarily be sent to the
Owner within seven (7) days of receipt of the written request, but see the
Deferment of Payment discussion below. (Also see Statement of Additional
Information -- "Delay of Payments.")
The Company reserves the right to ensure that an Owner's check or other
form of Premium has been cleared for payment prior to processing any withdrawal
or redemption request occurring shortly after a Premium payment.
If, at the time You make a request for a withdrawal or a surrender, You
have not provided Us with a written election not to have Federal income taxes
withheld, We must by law withhold such taxes from the taxable portion of Your
payment and remit that amount to the IRS. Mandatory withholding rules apply to
certain distributions from 403(b) Plans Contracts. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See "Withholding" on page ____, and "Tax-Favored Plans" on page
- -----.)
<PAGE>
Deferral of Payment
Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Variable Account will usually occur within seven days. We may be permitted to
defer such payment if: (1) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise restricted;
(2) an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; (3) the SEC permits a delay for protection of Owners; or (4) the
check used to pay any Premium has not cleared through the banking system (this
may take up to 15 days).
We may defer payment of any withdrawal or surrender from the Guaranteed
Account for up to six months from the date we receive Your written request.
TAXES
Introduction
The Contracts are designed to accumulate Contract Values for retirement
plans which, except for IRAs and 403(b) Plans, are generally not tax-qualified
plans. The ultimate effect of Federal income taxes on the amounts held under a
Contract, on annuity payments, and on the economic benefits to the Owner,
Annuitant or Beneficiary depend on the Company's tax status and upon the tax
status of the individual concerned. Accordingly, each potential Owner should
consult a competent tax adviser regarding the tax consequences of purchasing a
Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Funds, please see the accompanying relevant Fund Prospectus.
Company Tax Status
The Company is taxed as a life insurance company under the 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 Person," and "Diversification Standards".)
<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 withdrawal exceed the "investment
in the contract," as that term is defined under the Code. The "investment in the
contract" can generally be described as the cost of the Contract. It generally
constitutes the sum of all purchase payments made for the contract less any
amounts received under the Contract that are excluded from gross income. The
taxable portion is taxed as ordinary income. For purposes of this rule, a pledge
or assignment of a Contract is treated as a payment received on account of a
partial withdrawal of a Contract.
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the Contract, the
recipient is taxed on the portion of the payment that exceeds the investment in
the contract. The taxable portion is taxed as ordinary income.
If the recipient receives annuity payments rather than a lump sum payment,
a portion of the payment is included in taxable income when received. For fixed
annuity payments, the taxable portion of each payment is generally determined by
using a formula known as the "exclusion ratio," which establishes the ratio that
the investment in the Contract bears to the total expected amount of annuity
payments for the term of the Contract. That ratio is then applied to each
payment to determine the nontaxable portion of the payment. The remaining
portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula which establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the investment in the
Contract by the total number of expected periodic payments. The remaining
portion of each payment is taxed as ordinary income.
The recipient is able to exclude a portion of the payments received from
taxable income until the investment in the Contract is fully recovered. Annuity
payments are fully taxable after the investment in the Contract is recovered. If
the recipient dies before the investment in the Contract is recovered, the
recipient's estate is allowed a deduction for the remainder.
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
<PAGE>
period which is five years from the date of the first payment and after the
taxpayer attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan may
result in a taxable event and the excess of the Contract Value over total
Premium will be taxed to the assignor as ordinary income. Please consult your
tax adviser prior to making an assignment of the Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who is
either 37 1/2 years younger than the Owner or a grandchild of the Owner may have
Generation Skipping Transfer Tax consequences.
Distribution-at-Death Rules
In order to be treated as an annuity contract for Federal income tax
purposes, a Contract must generally provide for the following two distribution
rules: (i) if the Owner dies on or after the Annuity Date, and before the entire
interest in the Contract has been distributed, the remaining portion of such
interest will be distributed at least as quickly as the method in effect on the
Owner's death; and (ii) if a Owner dies before the Annuity Date, the entire
interest must generally be distributed within five years after the date of
death. To the extent such interest is payable to a designated Beneficiary,
however, such interest may be annuitized over the life of that Beneficiary or
over a period not extending beyond the life expectancy of that Beneficiary, so
long as distributions commence within one year after the date of death. The
designated Beneficiary is the person to whom ownership of the contract passes by
reason of death, and must be a natural person. If the Beneficiary is the spouse
of the Owner, the Contract may be continued unchanged in the name of the spouse
as Owner.
If the Owner is not an individual, the "primary annuitant" (as defined
under the Code) is considered the Owner. In addition, when the Owner is not an
individual, a change in the primary annuitant is treated as the death of the
Owner.
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
<PAGE>
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.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
Diversification Standards
To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up period,
each Subaccount is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Subaccount is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-through" rule applies so that an
investment in a Fund is not treated as one investment but is treated as an
investment in a pro-rata portion of each underlying asset of such Fund. All
securities of the same issuer are treated as a single investment. In the case of
government securities, each Government agency or instrumentality is treated as a
separate issuer.
In connection with the issuance of the Diversification Regulations,
Treasury announced that such regulations do not provide guidance concerning the
extent to which Owners may direct their investments to particular divisions of a
separate account. It is possible that if and when additional regulations or IRS
pronouncements are issued, the Contract may need to be modified to comply with
such rules. For these
<PAGE>
reasons, the Company reserves the right to modify the Contract, as necessary, to
prevent the Owner from being considered the owner of the assets of the Variable
Account.
The Company intends to comply with the Diversification Regulations to
assure that the Contracts continue to be treated as annuity contracts for
Federal income tax purposes.
Tax-Favored Plans
By attachment of an endorsement that reflects the limits of Code section
408(b), the Contracts may be used as an IRA. The Contracts are also available
for use in connection with a previously established 403(b) Plan. No attempt is
made herein to provide more than general information about the use of the
Contracts with IRAs or 403(b) Plans. The information herein is not intended as
tax advice. A prospective Owner considering use of the Contract to create an IRA
or in connection with a 403(b) Plan should first consult a competent tax adviser
with regard to the suitability of the Contract as an investment vehicle for
their qualified plan.
While the Contract will not be available in connection with retirement
plans designed by the Company which qualify for the federal tax advantages
available under Sections 401 and 457 of the Code, a Contract can be used as the
investment medium for an individual Owner's separately qualified 401 retirement
plan. Distributions from a 401 qualified plan or 403(b) Plan (other than
non-taxable distributions representing a return of capital, distributions
meeting the minimum distribution requirement, distributions for the life or life
expectancy of the recipient(s) or distributions that are made over a period of
more than 10 years) are eligible for tax-free rollover within 60 days of the
date of distribution, but are also subject to federal income tax withholding at
a 20% rate unless paid directly to another qualified plan, 403(b) Plan or an
IRA. If the recipient is unable to take full advantage of the tax-free rollover
provisions, there may be taxable income, and the imposition of a 10% penalty tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Owner considering use of the Contract in this
manner should consult a competent tax advisor with regard to the suitability of
the Contract of this purpose and for information concerning the provisions of
the Code applicable to qualified plans, 403(b) Plans, and IRAs.
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
IRA. Contracts issued in connection with an IRA are subject to limitations on
eligibility, maximum contributions, and time of distribution. Distributions from
certain retirement plans qualifying for federal tax advantages may be rolled
over into an IRA. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. Section 408A of the Code
provides special rules for "Roth IRAs." The basic distinction between a Roth IRA
and a regular IRA is that contributions to a Roth IRA are not deductible and
"qualified distributions" from a Roth IRA are not includible in gross income for
federal income tax purposes. Other differences include the ability to make
contributions to a Roth IRA after age 70 1/2 and to defer distributions beyond
age 70 1/2. Taxpayers whose adjusted gross incomes exceed certain levels are not
eligible for Roth IRAs. Sales of the Contracts for use with IRAs are subject to
special requirements imposed by the Service, including the requirement that
informational disclosure be given to each person desiring to establish an IRA.
Contracts offered in connection with an IRA by this Prospectus are not available
in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on an Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to Premium paid under a salary reduction agreement. Specifically, Code Section
403(b)(11) allows an Owner to make a surrender or partial withdrawal only (a)
when the employee attains age 59 1/2, separates from service, dies, or becomes
disabled (as defined in the Code), or (b) in the case of hardship. In the case
of hardship, only an amount equal to the purchase payments may be withdrawn. In
addition, 403(b) Plans are subject to additional requirements, including:
eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403 (b) Plan by this Prospectus are not available in all
states.
<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 Contracts described herein are being passed upon by the law firm of Jorden
Burt Boros Cicchetti Berenson & Johnson LLP, Washington, D.C.
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
General Information
The Company
Independent Accountants
Legal Counsel
Distributor
Calculation of Performance Related Information
Delay of Payments
Transfers
Method of Determining Contract Values
Annuity Provisions
Annuity Benefits
Annuity Options
Variable Annuity Payment Values
Annuity Unit
Net Investment Factor
Additional Provisions
Financial Statements
<PAGE>
Guaranteed Account Option
Under this Guaranteed Account option, Contract Values are held in the
Company's General Account. The General Account includes all of Our assets,
except those assets segregated in Our separate accounts. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 nor is the General Account
registered as an investment company under the Investment Company Act of 1940.
The Company understands that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus relating to the Guaranteed
Account portion of the Contract. Disclosures regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses. The Guaranteed Account option may not be available in all
states.
During the Accumulation Period the Owner may allocate amounts to the
Guaranteed Account. The initial Premium will be invested in the Guaranteed
Account if selected by the Owner at the time of application. Additional Premium
will be allocated in accordance with the selection made in the application or
the most recent instruction received at the Company Office. If the Owner elects
to withdraw amounts from the Guaranteed Account, such withdrawal, except as
otherwise provided in this Appendix, will be subject to the same conditions as
imposed on withdrawals from the Variable Account. The Company reserves the right
to delay any payment from the Guaranteed Account for up to six (6) months from
the date it receives such request at its Office.
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 invested in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guarantee rate. The effective guarantee rate is that rate
in effect when the Owner allocates or transfers amounts to the Guaranteed
Account. If the Owner has allocated or transferred amounts at different times to
the Guaranteed Account, each allocation or transfer may have a unique effective
guarantee rate associated with that amount. The effective guarantee rate will
not be changed more than once per year and the minimum rate will not be less
than 3%.
Guaranteed Account Transfers
During the accumulation period the Owner may transfer, by written request
or telephone authorization, Contract Values to or from a subaccount of the
Variable Account to or from the Guaranteed Account at any time, subject to the
conditions set out under Transfer of Contract Values Section.
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
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE
COMPANY OF NEW YORK
80 Pine Street
New York, NY 10270
This Prospectus sets forth the information a prospective investor ought to
know before investing. The individual deferred variable annuity contracts and
group flexible premium deferred variable annuity contracts (together "the
Contracts") described in this Prospectus provide for accumulation of Contract
Values and payment of monthly annuity payments. The Contracts may be used in
retirement plans which do not qualify for federal tax advantages ("Non-Qualified
Contracts") or in connection with retirement plans which may qualify as
Individual Retirement Annuities ("IRA") under Section 408 of the Internal
Revenue Code of 1986, as amended (the "Code") or Section 403(b) of the Code
("403(b) Plans"). The Contracts will not be available in connection with
retirement plans designed by American International Life Assurance Company of
New York (the "Company") which qualify for the federal tax advantages available
under Sections 401 and 457 of the Code. Purchasers intending to use the
Contracts in connection with an IRA or 403(b) Plan should seek competent tax
advice. 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
group contract.
Premiums allocated among the Subaccounts of Variable Account A (the
"Variable Account") will be invested in shares of corresponding portfolios as
selected by the Owner from the following choices: Growth Portfolio, Quasar
Portfolio, Technology Portfolio, Growth and Income Portfolio, Global Bond
Portfolio or Premier Growth Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES
FUND, INC.; the VIP High Income Portfolio, VIP Growth Portfolio, VIP Money
Market Portfolio, of the FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS;
VIP II Asset Manager Portfolio, VIP II Contrafund Portfolio or VIP II Investment
Grade Bond Portfolio of the FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS
FUNDS II; the Small Company Stock Portfolio of the DREYFUS VARIABLE INVESTMENT
FUND; the Worldwide Hard Assets Fund or Worldwide Emerging Markets Fund, of the
VAN ECK WORLDWIDE INSURANCE TRUST; the DREYFUS STOCK INDEX FUND; or the Capital
Appreciation Fund and International Equity Fund of the AIM VARIABLE INSURANCE
FUNDS, INC.
Additional information about the Contracts and the Variable Account is
contained in the Statement of Additional Information which is available upon
request at no charge by calling or writing American International Life Assurance
Company of New York, Attention: Variable Products, One Alico Plaza, Wilmington,
Delaware 19801, 1-800-340-2765 or calling the service office at 1-800-255-8402.
The Statement of Additional Information dated May 1, 1998, has been filed with
the Securities and Exchange Commission and is hereby incorporated by reference.
The Table of Contents of the Statement of Additional Information can be found on
page ___ of this Prospectus.
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 ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE CONTRACT
INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF
PRINCIPAL.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
REPLACEMENT OF AN EXISTING LIFE INSURANCE POLICY OR ANNUITY CONTRACT MAY
NOT BE TO YOUR ADVANTAGE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
Date of Prospectus: May 1, 1998
<PAGE>
TABLE CONTENTS
Page
---
Definitions............................................................
Highlights.............................................................
Summary of Expenses....................................................
Condensed Financial Information........................................
The Company............................................................
The Variable Account...................................................
The Funds..............................................................
The Contract...........................................................
Charges and Deductions.................................................
Annuity Benefits.......................................................
Death Benefit..........................................................
Distributions Under the Contract.......................................
Taxes..................................................................
Legal Proceedings......................................................
Legal Matters..........................................................
Table of Contents of the Statement of Additional Information...........
Appendix-- General Account Option......................................
<PAGE>
DEFINITIONS
Accumulation Unit -- An accounting unit of measure used to calculate the
Contract Value prior to the Annuity Date.
Administrative Office -- The Annuity Service Office of the Company: c/o Delaware
Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, PA
19312-0031.
Annuitant -- The person designated by the Owner upon whose continuation of life
any annuity payment involving life contingencies depends.
Annuity Date -- The date on which annuity payments are to commence.
Annuity Option -- An arrangement under which annuity payments are made under
this Contract.
Annuity Unit -- An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary -- An anniversary of the Effective Date of the Contract.
Contract Value -- The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
Contract Year -- Each period of twelve (12) months commencing with the Effective
Date.
Effective Date -- The date on which the first Contract Year begins.
Guaranteed Account -- A part of our General Account, which earns a Guaranteed
Rate of interest.
Owner -- The person named in the Contract Schedule, unless changed, and who has
all rights under the Contract.
Premium -- Purchase payments for the Contract are referred to as Premium.
Premium Year -- Any period of twelve (12) months commencing with the date a
Premium payment is made and ending on the same date in each succeeding twelve
(12) month period thereafter.
Surrender Charge -- The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within 7 years of purchase
payments.
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.
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contracts and a segregated investment account
of American International Life Assurance Company of New York (the "Company")
which account has been designated Variable Account A (the "Variable Account").
The Contracts are designed to assist in financial planning by providing for the
accumulation of capital on a tax-deferred basis for retirement and other
long-term purposes, and providing for the payment of monthly annuity income.
Contracts may be purchased in connection with a retirement plan which may
qualify as 403 (b) Plan or as an Individual Retirement Annuity ("IRA"). The
Contract may also be purchased for retirement plans, deferred compensation plans
and other purposes which do not qualify for such special Federal income tax
treatment ("Non-Qualified Contracts"). (See "Taxes" on page _____.)
A Contract is purchased with a minimum initial Premium of $2,000.
Additional Premium is permitted at any time, subject to certain limitations.
(See "Premium and Allocation to Your Investment Options" on page ____.) You, as
the Owner of the Contract, may allocate your Premium so that it accumulates on a
variable basis, a fixed basis or a combination of both.
Premium allocated among the Subaccounts of the Variable Account will
accumulate on a variable basis and will be invested in shares of one or more of
the following underlying portfolios: the Global Bond Portfolio, Premier Growth
Portfolio, Growth Portfolio, Quasar Portfolio, Technology Portfolio, or Growth
and Income Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
("Alliance Funds"); the VIP High Income Portfolio, VIP Growth Portfolio, VIP
Money Market Portfolio, VIP II Contrafund Portfolio, VIP II Asset Manager
Portfolio, or VIP II Investment Grade Bond Portfolio of the FIDELITY INVESTMENTS
VARIABLE INSURANCE PRODUCTS FUNDS ("Fidelity Funds"); the Small Company Stock
Portfolio of the DREYFUS VARIABLE INVESTMENT FUND ("Dreyfus Fund"); the
Worldwide Hard Assets Portfolio or Worldwide Emerging Markets Portfolio, of the
VAN ECK WORLDWIDE INSURANCE TRUST ("Van Eck Funds"); the DREYFUS STOCK INDEX
FUND; or the Capital Appreciation Fund or the International Equity Fund of AIM
VARIABLE INSURANCE FUNDS, INC. ("AIM Funds"). Your value in any one of these
Subaccounts will vary according to the investment performance of the underlying
portfolio chosen by you. You bear the entire investment risk for all Premium
allocated to the Variable Account.
The Company does not deduct sales charges from any Premium received.
However, the Contracts provide for a Surrender Charge (contingent deferred sales
charge) that may be assessed in the event that an Owner surrenders all or a
portion of the Contract Value within seven contract years following payment of
any Premium. The maximum Surrender Charge is 6% of Premium to which the charge
is applicable. (See "Summary of Expenses" on page ____, and "Charges and
Deductions - -- Deduction for Surrender Charge" on page _____.)
A penalty free withdrawal is available. Generally, there is no Surrender
Charge imposed on the greater of the Contract Value less Premium paid or the
portion of the withdrawal that does not exceed 10% of premium otherwise subject
to the Surrender Charge. (See "Withdrawals" on page ____.)
Surrenders and withdrawals may be taxable and subject to a penalty tax.
(See "Taxes" beginning on page ____.)
The Company deducts daily a Mortality and Expense Risk Charge which is
equal on an annual basis to 1.25% of the average daily net asset value of the
Variable Account. There 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 Fee which is $30 per year. The Contract Maintenance Fee is waived if
the Contract Value
<PAGE>
is greater than $50,000 on the date of the charge. These Charges are designed to
reimburse the Company for administrative expenses relating to maintenance of the
Contract and the Variable Account. (See "Charges and Deductions -- Deduction for
Administrative Charge and Contract Maintenance Fee" on page ____.)
There are deductions and expenses paid out of the assets of the Fund which
are described in the accompanying Prospectuses for the Fund.
The Owner may return the Contract within ten (10) days (the "Right to
Examine Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA the Company will refund the greater of the Premium less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the Premium paid less any withdrawals, the Company will refund such an
amount.
FEE TABLE
Contract Owner Transaction Expenses
All Subaccounts
-----------
Sales Load Imposed on Purchases........................ None
Surrender Charge
(as a percentage of amount surrendered):
Premium Year 1 ...................................... 6%
Premium Year 2 ...................................... 6%
Premium Year 3 ...................................... 5%
Premium Year 4 ...................................... 5%
Premium Year 5 ...................................... 4%
Premium Year 6 ...................................... 3%
Premium Year 7 ...................................... 2%
Premium Year 8 and thereafter........................ None
Exchange Fee:
First 12 Per Contract Year .......................... None
Thereafter .......................................... $10
Annual Contract Fee ................................... $30
(waived for contracts with account value
of $50,000 or greater)
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees...................... 1.25%
Account Fees and Expenses............................ 0.15%
Total Separate Account Annual Expenses................. 1.40%
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Portfolio Fee Expenses Expenses**
- - --------- --------- -------- ---------
<S> <C> <C> <C>
Alliance Global Bond................................................ 0.56% 0.38% 0.94%(1)
Alliance Premier Growth............................................. 1.00 0.08 1.08(1)
Alliance Growth..................................................... 0.75 0.09 0.84(1)
Alliance Growth and Income.......................................... 0.63 0.09 0.72(1)
Alliance Quasar..................................................... 0.58 0.37 0.95(1)
Alliance Technology................................................. 0.76 0.19 0.95(1)
AIM V.I. Capital Appreciation Fund.................................. 0.63 0.05 0.68(2)
AIM V.I. International Equity Fund.................................. 0.75 0.18 0.93(2)
Fidelity VIP High Income............................................ 0.59 0.12 0.71(4)
Fidelity VIP Growth................................................. 0.60 0.09 0.69(4)
Fidelity VIP Money Market........................................... 0.21 0.10 0.31(4)
Fidelity VIP II Contrafund.......................................... 0.60 0.11 0.71(4)
Fidelity VIP II Asset Manager....................................... 0.55 0.10 0.65(4)
Fidelity VIP II Investment Grade Bond............................... 0.44 0.14 0.58(4)
Van Eck Worldwide Hard Assets....................................... 1.00 0.17 1.17(5)
Van Eck Worldwide Emerging Markets.................................. 1.00 (0.20) 0.80(5)
Dreyfus Small Company Stock......................................... 0.75 0.37 1.12(3)
Dreyfus Stock Index................................................. 0.25 0.03 0.28(3)
</TABLE>
The purpose of the table set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The table reflects expenses of the Variable Account as
well as the Funds. The Annual Administrative Charge for purposes of the Expense
Table, above, was based upon the assessment of a $30 charge on a Contract Value
of $5,000. (See "Charges and Deductions" on page ____ of this Prospectus and
each Fund's Prospectus for further information.) The table does not reflect the
charges applicable to certain death benefit options offered under the Contracts.
(See "Charges and Deductions -- Deduction for Equity Assurance Plan" on page
___; "Charges and Deductions -- Deductions for the Enhanced Equity Assurance
Plan" on page _____; Charges and Deductions -- Deductions for the Annual Rachet
Plan" on page _____; "Charges and Deductions -- Deductions for the 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 by certain states on the Contracts range from 0% to 3.5% of Premiums
paid. (See "Charges and Deductions -- Deduction for State Premium Taxes" on page
- ------.)
* "Other Expenses" are based upon the expenses outlined under the section
discussing the management of the Funds in each Fund's Prospectus attached.
** "Total Portfolio Expenses" for the following Portfolios before
reimbursement by the relevant Fund's investment advisor, for the period
ended December 31, 1997, were as follows:
(1) Alliance Variable Product Series Funds: 1.10% for Premier Growth; 1.03% for
Global Bond; 1.37% for Quasar; and 1.19% for Technology, of average daily
net assets. For the year ended December 31, 1997 expenses of the Premier
Growth Portfolio were capped at .95%. Effective May 1, 1998, the investment
adviser discontinued expense reimbursement with respect to the Premier
Growth Portfolio;
<PAGE>
(2) Regarding the AIM Funds, A I M Advisors, Inc. ("AIM") May from time to time
voluntarily waive or reduce its respective fees. Effective May 1, 1998, the
Funds reimburse AIM in an amount up to 0.25% of the average net asset value
of each Fund, for expenses incurred in providing, or assuring that
participating insurance companies provide, certain administrative services.
Currently, the fee only applies to the average net asset value of each Fund
in excess of the net asset value of each Fund as calculated on April 30,
1998;
(3) Regarding the Dreyfus Fund, the expenses set forth above are the actual
total expenses without any expense reimbursement;
(4) With respect to the Fidelity VIP and VIP II Funds, the expenses set forth
above are actual total expenses. However a portion of the brokerage
commission that certain funds pay was used to reduce fund expenses. In
addition, certain funds have entered into arrangements with their custodian
and transfer agent whereby interest earned on uninvested cash balances was
used to reduce custodian and transfer agent expenses. Including these
reductions, the total operating expenses presented in the table would have
been .69% for the VIP Growth Portfolio, and .65% for the VIP II Asset
Manager Portfolio;
(5) The Van Eck Funds: For the Worldwide Hard Assets Fund, Other expenses are
net of soft dollor credits. Without such credits, Other Expenses would have
been 0.18% and Total Fund Operating Expenses would have been 1.18%. For
Worldwide Emerging Markets, Other Expenses are net of the reduction of the
Fund's operating fees in connection with a fee arrangement, based on cash
balances left on deposit with the custodian, and net of the waiver or
assumption by Van Eck Associates Corporation of certain fees and expenses.
Without such fee arrangement and, to a lesser extent, the
waiver/assumption, Other Expenses would have been 0.34% and Total Fund
Operation Expenses would have been 1.34%. Van Eck Associates Corporation is
no longer waiving or assuming fees and expenses.
Expenses on a hypothetical $1,000 policy, assuming 5% growth:
<TABLE>
<CAPTION>
If you surrender
---------------------------------------------------
Portfolio 1 Year 3 Years 5 Years 10 Years
- - --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Global Bond............................... 78 120 164 274
Alliance Premier Growth............................ 80 124 171 288
Alliance Growth ................................... 77 117 159 264
Alliance Growth and Income ........................ 76 113 153 251
Alliance Quasar ................................... 78 120 165 275
Alliance Technology ............................... 78 120 165 275
Fidelity VIP High Income .......................... 76 113 152 250
Fidelity VIP Growth ............................... 76 112 151 248
Fidelity VIP Money Market ......................... 72 101 132 208
Fidelity VIP II Contrafund......................... 76 113 152 250
Fidelity VIP II Asset Manager ..................... 75 111 149 244
Fidelity VIP II Investment Grade Bond ............. 75 109 146 237
Dreyfus Small Company Stock........................ 80 125 173 291
Dreyfus Stock Index ............................... 72 100 130 205
Van Eck Worldwide Hard Assets ..................... 81 127 176 296
Van Eck Worldwide Emerging Markets................. 77 116 157 260
AIM V.I. Capital Appreciation Fund................. 76 112 151 247
AIM V.I. International Equity Fund................. 78 120 164 273
</TABLE>
<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>
Alliance Global Bond............................... 24 75 128 274
Alliance Premier Growth............................ 26 79 135 288
Alliance Growth ................................... 23 72 123 264
Alliance Growth and Income ........................ 22 68 117 251
Alliance Quasar ................................... 24 75 129 275
Alliance Technology ............................... 24 75 129 275
Fidelity VIP High Income .......................... 22 68 116 250
Fidelity VIP Growth ............................... 22 67 115 248
Fidelity VIP Money Market ......................... 18 56 96 208
Fidelity VIP II Contrafund......................... 22 68 116 250
Fidelity VIP II Asset Manager ..................... 21 66 113 244
Fidelity VIP II Investment Grade Bond.............. 21 64 110 237
Dreyfus Small Company Stock........................ 26 80 137 291
Dreyfus Stock Index ............................... 18 55 94 205
Van Eck Worldwide Hard Assets ..................... 27 82 140 296
Van Eck Worldwide Emerging Markets................. 23 71 121 260
AIM V.I. Capital Appreciation Fund................. 22 67 115 247
AIM V.I. International Equity Fund................. 24 74 127 272
</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.
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Alliance Growth & Income
Accumulation Unit Value
Beginning of Period 12.00 10.00
End of Period 15.64 12.00
Accum Units o/s @ end of period 89,076.46 20,637.99
Alliance Growth
Accumulation Unit Value
Beginning of Period 11.32 10.00
End of Period 14.51 11.32
Accum Units o/s @ end of period 90,206.81 13,718.81
Alliance Technology
Accumulation Unit Value
Beginning of Period 9.80 10.00
End of Period 10.29 9.80
Accum Units o/s @ end of period 41,252.11 3,209.81
Alliance Quasar
Accumulation Unit Value
Beginning of Period 10.31 10.00
End of Period 12.05 10.31
Accum Units o/s @ end of period 37,619.77 674.25
Fidelity Money Market
Accumulation Unit Value
Beginning of Period 10.25 10.00
End of Period 10.66 10.25
Accum Units o/s @ end of period 76,784.02 113,781.59
Fidelity Asset Manager
Accumulation Unit Value
Beginning of Period 10.87 10.00
End of Period 12.93 10.87
Accum Units o/s @ end of period 49,297.42 8,370.63
Fidelity Growth
Accumulation Unit Value
Beginning of Period 10.07 10.00
End of Period 12.93 10.07
Accum Units o/s @ end of period 114,594.66 23,774.76
Fidelity High Income
Accumulation Unit Value
Beginning of Period 10.67 10.00
End of Period 12.38 10.67
Accum Units o/s @ end of period 28,042.38 8,506.22
Fidelity Inv. Grade Bond
Accumulation Unit Value
Beginning of Period 10.48 10.00
End of Period 11.27 10.48
Accum Units o/s @ end of period 18,202.66 2,615.29
Dreyfus Stock Index
Accumulation Unit Value
Beginning of Period 11.21 10.00
End of Period 14.70 11.21
Accum Units o/s @ end of period 75,214.94 17,836.33
Van Eck Worldwide Assets
Accumulation Unit Value
Beginning of Period 10.78 10.00
End of Period 10.45 10.78
Accum Units o/s @ end of period 9,786.43 4,646.11
</TABLE>
*Funds were first invested in the Portfolios as listed below:
Alliance Growth and Income January 14, 1991
Alliance Global Bond May 10, 1993
Alliance Growth September 15, 1994
Alliance Premier Growth December 7, 1992
Alliance Quasar August 15, 1996
Alliance Technology January 22, 1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Contrafund* January 3, 1995
Fidelity Asset Manager September 9, 1989
Fidelity Investment Grade Bond December 5, 1988
Dreyfus Small Company Stock* May 1, 1996
Dreyfus Stock Index August 31, 1990
Van Eck Worldwide Hard Assets September 1, 1989
Van Eck Worldwide Emerging Markets* December 21, 1995
AIM Capital Appreciation* May 5, 1993
AIM International Equity* May 5, 1993
* These Funds were not invested in Our Separate Account before the date of
Amendment to Prospectus.
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.
<PAGE>
When the Company advertises the performance of the Money Market Subaccount
it may advertise in addition to the total return either the yield or the
effective yield. The yield of the Money Market Subaccount refers to the income
generated by an investment in that Subaccount over a seven-day period. The
income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized the income earned by an investment in
the Money Market Subaccount is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all contract
charges (sales charges, mortality and expense risk charges, and the
administrative charges) and is therefore lower than the total return at the Fund
level, which has no comparable charges. Likewise, yield and effective yield at
the Variable Account level take into account all recurring charges (except sales
charges), and are therefore lower than the yield and effective yield at a Fund
level, which has no comparable charges. Performance information for a Subaccount
may be compared to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, Donoghue Money Market Institutional Averages, indices
measuring corporate bond and government security prices as prepared by Lehman
Brothers, Inc. and Salomon Brothers or other indices measuring performance of a
pertinent group of securities so that investors may compare a Subaccount's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract;
and (iv) indices or averages of alternative financial products available to
prospective investors, including the Bank Rate Monitor which monitors average
returns of various bank instruments.
Financial Data
Financial statements of the Company may be found in the Statement of
Additional Information. No financial statements for the Variable Account have
been provided in the Statement of Additional Information because as of the date
of the reporting period no Contracts had been issued.
THE COMPANY
American International Life Assurance Company of New York is a stock life
insurance company which was organized under the laws 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. ("AIG"), 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 insurance industry. In
<PAGE>
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, 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 Company's policyholders).
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 authorized the organization of the Variable Account in 1986.
The Variable Account is maintained pursuant to New York insurance law. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"). The Variable
Account meets the definition of a "Separate Account" under Federal securities
laws. The SEC does not supervise the management or the investment practices of
the Variable Account.
The Company owns the assets in the Variable Account and obligations under
the Contract are general corporate obligations. The Variable Account and each
Subaccount, however, are separate from the Company's other assets including
those of the General Account and from any other separate accounts. The assets of
the Variable Account, equal to the reserves and other contract liabilities with
respect to the Variable Account, are not chargeable with liabilities arising out
of any other business the Company may conduct. Investment income, as well as
both realized and unrealized gains and losses are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
income, gains or losses arising out of any other business of the Company. As a
result, the investment performance of each Subaccount and the Variable Account
is entirely independent of the investment performance of the General Account and
of any other separate account maintained by the Company.
The Variable Account is divided into Subaccounts, with the assets of each
Subaccount invested in shares of a corresponding portfolio of the Fund. The
Company may, from time to time, add additional portfolios of the Fund, and, when
appropriate, additional funds to act as the funding vehicles for the Contracts.
If deemed to be in the best interests of persons having voting rights under the
Contract, the Variable Account may be operated as a management company under the
1940 Act, may be deregistered under such Act in the event such registration is
no longer required, or may be combined with one or more other separate accounts.
The Company may offer other variable annuity contracts which also invest in the
Variable Account, and are described in other prospectuses.
<PAGE>
THE FUND
Alliance Funds, Fidelity Funds, Dreyfus Funds, Van Eck Funds and AIM Funds
(collectively, the "Funds") are each registered with the SEC as a diversified
open-end management investment company under the 1940 Act. Each is made up of
different series funds or Portfolios ("Portfolios"). The Dreyfus Stock Index
Fund (also a "Fund" herein) is an open-end, non-diversified management
investment company.
Shares of the Fund may be sold to separate accounts of life insurance
companies. The shares of the Fund will be sold to separate accounts of the
Company and its affiliate, AIG Life Insurance Company, 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 policy owners
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, we 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.
A summary of the investment objectives for each portfolio is contained in
the description of the Fund below. More detailed information, including the
investment advisory fee of each portfolio and other charges assessed by the
Fund, may be found in the current Fund prospectus, which contains a discussion
of the risks involved in investing in the Fund. The prospectuses for the Fund
are included with this Prospectus. Please read the Prospectus carefully before
investing.
The investment objectives of the portfolios are as follows:
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Global Bond Portfolio
This portfolio seeks a high level of return from a combination of current
income and capital appreciation by investing in a globally diversified portfolio
of high quality debt securities denominated in the U.S. Dollar and a range of
foreign currencies.
Premier Growth Portfolio
This portfolio seeks growth of capital rather than current income. In
pursuing its investment objectives, the Premier Growth Portfolio will employ
aggressive investment policies. Since investment will be made based upon 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.
Growth Portfolio
This portfolio seeks the long term growth of capital by investing primarily
in common stocks and other equity securities.
Growth and Income Portfolio
This portfolio seeks to balance the objectives of reasonable current income
and opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
Technology Portfolio
This portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. This portfolio invests
principally in diversified portfolio of securities of companies which use
technology extensively in the development of new or improved products or
processes
Quasar Portfolio
This portfolio seeks growth of capital by pursuing aggressive investment
policies. The portfolio invests principally in a diversified portfolio of equity
securities of any company and industry and in any type of security which is
believed to offer possibilities for capital appreciation.
Alliance Variable Products Series Fund, Inc., is managed by Alliance
Capital Management L.P., ("Alliance"). The fund also includes other portfolios
which are not available for use by the Separate Account. More detailed
information regarding management of the funds, investment objectives, investment
advisory fees and other charges, may be found in the current Alliance Fund
prospectus which contains a discussion of the risks involved in investing. The
Alliance Fund prospectus is included with this Prospectus.
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND
Small Company Stock Portfolio
This portfolio seeks investment results that are greater than the total
return performance of publicly-traded common stock in the aggregate, as
represented by Russel 2500 TM Index.
DREYFUS STOCK INDEX FUND
This Fund seeks to provide investment results that correspond to the price
and yield performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index. In
anticipation of taking a market position, the Fund is permitted to purchase and
sell stock index futures. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation. Dreyfus has engaged Mellon Equity, located at 500
Grant Street, Pittsburgh, Pennsylvania 15258, to serve as the Fund's index fund
manager. Mellon Equity, a registered investment adviser formed in 1957, is an
indirect wholly-owned subsidiary of Mellon and, thus, an affiliate of Dreyfus.
As of March 31, 1998, Mellon Equity and its employees managed approximately
$19.9 billion in assets and served as the investment adviser of 2 other
investment companies
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS (VIP)
VIP Growth Portfolio
This portfolio seeks capital appreciation through investments primarily in
common stock.
VIP High Income Portfolio
This portfolio seeks high current income by investing primarily in
high-yielding, lower-rated, fixed-income securities (commonly referred to as
"junk bonds"), while also considering growth of capital. The potential for high
yield is accompanied by higher risk. For a more detailed discussion of the
investment risks associated with such securities, please refer to the Fidelity
Fund's attached prospectus.
VIP Money Market Portfolio
This portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The portfolio will
invest only in high quality U.S. dollar-denominated money market securities of
domestic and foreign issuers. An investment in the VIP Money Market Portfolio is
neither insured nor guaranteed by the U.S. government, and there can be no
assurance that the portfolio will maintain a stable $1.00 share price.
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
VIP II Asset Manager Portfolio
This portfolio seeks to provide a high total return with reduced risk over
the long term by allocating its assets among stocks, bonds and short-term money
market instruments.
VIP II Contrafund Portfolio
This portfolio seeks capital appreciation by investing in securities of
companies whose value the manager believes is not fully recognized by the
public.
VIP II Investment Grade Bond Portfolio
This portfolio seeks as high a level of current income as is consistent
with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities. The portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less.
<PAGE>
Fidelity Management & Research Company ("FMR") is the investment advisor
for the Variable Insurance Products Funds. FMR has entered into a sub-advisory
agreement with Fidelity Investments Money Management, Inc. ("FIMM"), on behalf
of the VIP Money Market Portfolio. On behalf of the VIP Overseas Portfolio, FMR
has entered into sub-advisory agreements with Fidelity Management & Research
(U.K.) Inc., (FMR U.K.), Fidelity Management & Research (Far East) Inc. (FMR Far
East), and Fidelity International Investment Advisors (FIIA). FMR U.K. and FMR
Far East also are sub-advisors to the VIP II Asset Manager Portfolio. Fidelity
Funds include other portfolios which are not available under this Prospectus as
funding vehicles for the Contracts. More detailed information regarding
management of the funds, investment objectives, investment advisory fees and
other charges assessed by the Fidelity Funds, are contained in the prospectuses
of the Fidelity Funds, included with this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Emerging Markets Fund
This portfolio seeks long-term capital appreciation by investing primarily
in equity securities in emerging markets around the world.
Worldwide Hard Assets Fund
This portfolio seeks long-term capital appreciation by investing in equity
and debt securities of companies engaged to a significant extent in the
exploration, development, production, or distribution of (1) precious metals;
(2) ferrous and non-ferrous metals; (3) oil and gas; (4) forest products; (5)
real estate; and (6) other basic non-agricultural commodities (collectively,
"Hard Assets"), and in securities whose value is linked to the price of a Hard
Asset commodity or a commodity index. Income is a secondary consideration.
Van Eck Associates Corporation is the investment advisor and manager of
Worldwide Hard Assets Fund. Van Eck Global Asset Management (Asia) Limited, a
wholly-owned investment adviser subsidiary of Van Eck Associates Corporation, is
the investment adviser to Worldwide Emerging Markets Fund. Van Eck Worldwide
Insurance Trust includes other portfolios which are not available under this
prospectus as funding vehicles for the Contracts. More detailed information
regarding management of the funds, investment objectives, investment advisory
fees and other charges assessed by the Van Eck Worldwide Insurance Trust, are
contained in the relevant Fund prospectus included with this Prospectus.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
This Fund seeks capital appreciation through investments in common stock,
with emphasis on medium-sized and smaller emerging growth companies.
AIM V.I. International Equity Fund
This Fund seeks to provide long-term growth of capital by investing in a
diversified portfolio of international equity securities, the issuers of which
are considered by AIM to have strong earnings momentum.
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, TX 77046-1173,
serves as the investment advisor to each Fund, pursuant to a master investment
advisory agreement. More detailed information regarding management of the Funds,
investment objectives, investment advisory fees and other charges assessed by
the AIM Funds are contained in the prospectus for the Funds included with this
Prospectus.
There is no assurance that any of the Portfolios will achieve their stated
objectives.
<PAGE>
Voting Rights
As previously stated, all of the assets held in the Subaccounts of the
Variable Account will be invested in shares of a corresponding portfolio of the
Fund. Based on the Company's view of present applicable law, we will vote the
portfolio shares held in the Variable Account at meetings of shareholders in
accordance with instructions received from Owners having a voting interest in
the portfolio. However, if the 1940 Act or its regulations are amended, or if
our interpretation of present law changes to permit us to vote the portfolio
shares in our own right, we may elect to do so.
Prior to the Annuity Date, the Owner holds a voting interest in each
portfolio in which there is value in the corresponding Subaccount. The number of
portfolio shares which are attributable to the Owner is determined by dividing
the corresponding value in a particular Subaccount by the net asset value of one
portfolio share. The number of votes which an Owner will have a right to cast
will be determined as of the record date established by each portfolio.
We will solicit voting instructions by mail prior to the shareholder
meetings. An Owner having a voting interest in a Subaccount will be sent proxy
material, reports and other materials as provided by the 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 Contracts, the Company may
substitute shares of another fund (or portfolio within the fund) for Fund shares
already purchased or to be purchased in the future under the Contracts. No
substitution of securities may take place without any required prior approval of
the Securities and Exchange Commission and under such requirements as it may
impose.
<PAGE>
THE CONTRACT
The Contract described in this Prospectus is a deferred variable annuity.
Parties to the Contract
Owner
As the purchaser of the Contract, You may exercise all rights and
privileges provided in the Contract, subject to any rights that You, as Owner,
may convey to an irrevocable beneficiary. As Owner, You will also be the
Annuitant, unless You name in writing some other person as Annuitant.
Annuitant
The Annuitant is the person who receives annuity payments and upon the
continuance of whose life these payments are based. You may designate someone
other than yourself as Annuitant. If the Annuitant is a person other than the
Owner, and the Annuitant dies before the Annuity Date, You will become the
Annuitant unless you designate someone else as the new Annuitant.
Beneficiary
The Beneficiary You designate will receive the death proceeds if You die
prior to the Annuity Date. If no Beneficiary is living at that time, the death
proceeds are payable to Your estate. If the Annuitant dies after the Annuity
Date, the Beneficiary will receive any remaining guaranteed payments under an
Annuity Option. If no Beneficiary is living at that time, the remaining
guaranteed payments are payable to Your estate.
Change of Annuitant and Beneficiary
Prior to the Annuity Date, You may change the Annuitant and Beneficiary by
making a written request to Our Administrative Office. After the Annuity Date
only a change of Beneficiary may be made. Once We have accepted Your written
request, any change will become effective on the date You signed it. However,
any change will be subject to any payment or other action taken by Us before We
record the change. If the Owner is not a natural person, under current Federal
tax law, the Contract may be subject to unintended and adverse tax consequences.
For possible tax considerations of these changes, see "Taxes", page _____.
How to Purchase a Contract
At the time of application, the Purchaser must pay at least the minimum
Premium required and provide instructions regarding the allocation of the
Premium among the Subaccounts. Acceptance of the Premium and form of application
is subject to Our requirements and We reserve the right to reject any Premium.
If the application and Premium are accepted in the form received, the Premium
will be credited and allocated to the Subaccounts within two business days of
its receipt. The date the Premium is credited to the Contract is the Effective
Date.
If within five days of the receipt of the initial Premium We have not
received sufficient information to issue a Contract, You will be contacted. The
reason for the delay will be explained to You. If You consent We will retain the
Premium until the necessary requirements are fulfilled. Otherwise, the Premium
will be immediately refunded to You.
Discount Purchase Programs
Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families may not be subject to the Surrender Charge. Such purchases
include retirement accounts and must be for accounts in the name of the
individual or qualifying family member. <PAGE>
Distributor
AIG Equity Sales Corp. ("AIGESC"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AIGESC 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 AIGESC, Owners who purchased Contracts through the bank
would be permitted to retain their Contracts and alternate means for servicing
those Owners would be sought. It is not expected, however, that Owners would
suffer any loss of services or adverse financial consequences as a result of any
of these occurrences.
Administration of the Contracts
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Owner's records. DVFS serves as the administrator to various
insurance companies offering variable contracts.
Premium and Allocation to Your Investment Options
The initial Premium must be at least $2,000. You may make additional
payments of Premium prior to the Annuity Date, in amounts of at least $1,000 or
$100 as part of an automatic investment plan. There is no maximum limit on the
additional Premiums You may pay or on the numbers of payments; however, the
Company reserves the right to reject any Premium on any Contract. You specify at
the time of issue or subsequently how the remaining amount, known as Additional
Premium will be allocated.
The initial Premium is allocated among the Subaccounts and Guaranteed
Account on the Effective Date. Your allocation instructions will specify what
percentage of Your initial Premium is to be credited to each Subaccount and to
the Guaranteed Account. Allocation instructions must be expressed in whole
percentages. Allocations for additional Premium will be made on the same basis
as the initial Premium unless We receive a written notice with new instructions.
Additional Premium will be credited to the Contract Value and allocated at the
close of the first Valuation Date on or after which the Additional Premium is
received at Our Administrative Office.
All premiums to IRA or 403 (b) Plan Contracts must comply with the
applicable provisions in the Code and the applicable provisions of your
retirement plan. Additional premium commingled in an IRA with a rollover
contribution from other retirement plans may result in unfavorable tax
consequences. You should seek legal counsel and tax advice regarding the
suitability of the contract for your situation. (See "Taxes" on page ____.)
Right to Examine Contract Period
The Contract provides a 10 day Right to Examine Contract Period giving You
the opportunity to cancel the Contract. You must return the Contract with
written notice to Us. If We receive the Contract and Your written notice within
10 days after it is received by You, the Contract will be voided. With the
exception of Contracts issued in connection with an IRA, in those states whose
laws do not require that We assume the risk of market loss during the Right to
Examine Contract Period, should You decide to
<PAGE>
cancel Your Contract, the amount to be returned to You will be the Contract
Value (on the day We receive the Contract) plus any charges deducted for state
taxes, without imposition of the Surrender Charge. The amount returned to you
may be more or less than the initial Premium. (See "Charges and Deductions" on
page ___.) For Contracts issued in those states that require we return the
premium, we will do so. In the case of Contracts issued in connection with an
IRA, the Company will refund the greater of the Premium, less any withdrawals,
or the Contract Value.
State laws governing the duration of the Right to Examine Contract Period
may vary from state to state. We will comply with the laws of the state in which
the Owner resides at the time the Contract is applied for. Federal laws
governing IRAs require a minimum seven day right of revocation. We provide 10
days from the date the Contract was mailed or otherwise delivered to you. (See
"Individual Retirement Annuities" on page ____.)
Unit Value and Contract Value
After the deduction of certain charges and expenses, amounts which You
allocate to a Subaccount of the Variable Account are used to purchase
Accumulation Units in that Subaccount, not shares of the Portfolio in which that
Subaccount invests. The number of Accumulation Units you purchase will be
determined by dividing the amount allocated to each Subaccount by the Unit Value
of the Subaccount for the Valuation Period during which the amount was
allocated.
The Unit Value for each Subaccount will vary from one Valuation Period to
the next, based on the investment experience of the Portfolio in which the
Subaccount invests and the deduction of certain charges and expenses. The
Statement of Additional Information contains a detailed explanation of how
Accumulation Units are valued.
Your value in any given Subaccount is determined by multiplying the Unit
Value for the Subaccount by the number of Units You own. Your value within the
Variable Account is the sum of your values in all the Subaccounts. The total
value of your Contract, known as the Contract Value, equals your Value in the
Variable Account plus Your value in the Guaranteed Account.
Transfers
Prior to the Annuity Date, You may make Transfers among the Subaccounts and
into and out of the Guaranteed Account subject to certain rules.
At the present time there is no limit on the number of transfers which can
be made among the Subaccounts and the Guaranteed Account in any one Contract
Year. We reserve the right to limit the number of transfers to 12 per Contract
Year. There are no fees for the first 12 transfers in any one Contract Year. For
each transfer in excess of 12 within one Contract Year, We impose a transfer fee
of $10. A transfer fee, if any, is deducted from the amount transferred. (See
Appendix, "Guaranteed Account Transfers," page A-1.)
Transfers may be made by written request or by telephone as described in
the Contract or specifically authorized in writing. The Company will undertake
reasonable procedures to confirm that instructions communicated by telephone are
genuine. All calls will be recorded. All transfers will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
After the Annuity Date, the Owner may transfer the Contract Value allocated
to the Variable Account among the Subaccounts. However, the Company reserves the
right to refuse any more than one transfer per month. The transfer fee is the
same as before the Annuity Date. This transfer fee, if any, will be deducted
from the next annuity payment after the transfer. If following the transfer, the
Annuity Units remaining in the Subaccount would generate a monthly annuity
payment of less than $100, the Company will transfer the entire amount in the
Subaccount.
<PAGE>
Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Subaccount. The number of Annuity Units for each
Subaccount will remain the same for the remainder of the payment period unless
the Owner requests another change.
The minimum amount which may be transferred at any one time is the lesser
of $1,000 or the value of the Subaccount or Guarantee Period from which the
transfer is made. However, the minimum amount for transfers under our Dollar
Cost Averaging program is $100 per Subaccount. (See "Dollar Cost Averaging.")
For additional limitations regarding transfers out of the Guaranteed Account,
see "The Guaranteed Account" in the Appendix, page A-1.)
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 either the Money
Market Subaccount or the Guaranteed Account 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 Dollar Cost Averaging, the Owner's Contract Value must be at least
$12,000 and a Dollar Cost Averaging Request in proper form must be received by
the Company. The Dollar Cost Averaging Request form will not be considered
complete until the Contract Value is at least the required amount. A Dollar Cost
Averaging Request form is available from the Administrative Office upon
request.An Owner may not have in effect at the same time Dollar Cost Averaging
and Asset Rebalancing.
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 quarter, and Asset Rebalancing automatically
reallocates the Contract Value in the Subaccounts to the allocation selected by
the Owner. Asset Rebalancing is intended to exchange Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help an Owner buy low and sell
high, although there can be no assurance of this. This investment method does
not guarantee profits, nor does it assure that an Owner will not have losses.
To elect Asset Rebalancing, the Contract Value in the Contract must be at
least $12,000 and an Asset Rebalancing Request in proper form must be received
by the Company. An Owner may not have in effect at the same time Dollar Cost
Averaging and Asset Rebalancing. If the Asset Rebalancing is elected, all
Contract Value allocated to the Subaccounts must be included in the Asset
Rebalancing.
<PAGE>
The amounts transferred will be credited to the Accumulation Unit Value as
of the end of the Valuation Dates on which the transfers are effected. Amounts
periodically transferred under this option are not included in the 12 transfers
per Contract Year discussed under "Transfers" on page _____.
An Owner may instruct the Company at any time to terminate this option by
written request. Once terminated, this option may not be reselected during the
same Contract Year.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Premium, the Contract Value
and the Variable Account. These charges and deductions are as follows:
Deduction for State Premium Taxes
We do not deduct premium taxes unless assessed by the state of residence of
the Owner. Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged at Our discretion against either
Premium or Contract Value. Premium taxes currently imposed by certain states on
the Contracts range typically from 0% to 3.5% of premiums paid. Some states
assess premium taxes at the time Premium is received; others assess premium
taxes at the time of annuitization. Premium taxes are subject to being changed
or amended by state legislatures, administrative interpretations or judicial
acts.
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. The mortality risks assumed by the Company arise
from its contractual obligation to make annuity payments after the Annuity Date
for the life of the Annuitant, to waive the Surrender Charge in the event of the
death of the Owner prior to the Annuity Date and to provide the death benefit.
The expense risk assumed by the Company is that the costs of administering the
Contracts and the Variable Account will exceed the amount received from
Administrative and Contract Maintenance Charges.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased. The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period -- Annuity Options" on page ____.) The
Company in its discretion may offer additional payment options which are not
based on a life contingency. If this should occur and if an 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 Equity Assurance
Plan charge for each Valuation Period will 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 and above.
Deduction for Enhanced Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Enhanced Equity
Assurance Plan charge for each Valuation Period will 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 and above.
<PAGE>
Deduction for Annual Ratchet Plan
If the Owner has elected the Annual Ratchet Plan, the Annual Ratchet Plan
charge for each Valuation Period will equal on an annual basis to .10% of the
average daily net asset value of the Variable Account.
Deduction for Accidental Death Benefit
If the Owner has elected the Accidental Death Benefit, the Company deducts
for each Valuation Period an Accidental Death Benefit Charge equal on an annual
basis to .05% of the average daily net asset value in the Variable Account.
Deduction for Surrender Charge
In the event that an Owner makes a withdrawal from or surrenders Contract
Value in excess of the Free Withdrawal Amount, a Surrender Charge may be
imposed. The Free Withdrawal Amount is equal to the greater of the Contract
Value less premiums paid or the portion of the withdrawal that does not exceed
10% of the total Premium otherwise subject to the Surrender Charge paid to the
time of withdrawal, less any prior withdrawals and less any accrued charges for
option death benefits; 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:
Surrender
Charge Percentage
-----------------
Premium Year 1 .......................... 6%
Premium Year 2 .......................... 6%
Premium Year 3 .......................... 5%
Premium Year 4 .......................... 5%
Premium Year 5 .......................... 4%
Premium Year 6 .......................... 4%
Premium Year 7 .......................... 2%
Premium Year 8 and thereafter............ None
No Surrender Charge is imposed against: (1) Systematic Withdrawal options;
(2) Contract Value upon Annuitization; (3) a Death Benefit.
The Surrender Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Surrender Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403 (b) Plan or IRA. (See
"Taxes -- 403(b) Plans" on page _____.)
<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 reimburse Us for
administrative expenses, both during the accumulation period and following the
Annuity Date.
Deduction for Contract Maintenance Charge
The Company also deducts an annual Contract Maintenance Charge of $30 per
year, from the Contract Value on each Contract Anniversary. The Contract
Maintenance Fee is waived if the Contract Value is greater than $50,000 on the
date of deduction of the charge. These charges are designed to reimburse the
Company for the costs it incurs relating to maintenance of the Contract, the
Variable Account, and the Guaranteed Account. If the Contract is surrendered, we
will deduct the Contract Maintenance Charge at the time of surrender for the
current Contract Year. The deduction will be made proportionally based on Your
value in each Subaccount and the Guaranteed Account. After the Annuity Date, the
Contract Maintenance Charge is deducted on a pro-rata basis from each annuity
income payment.
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any Federal income taxes. (See
also "Taxes" beginning on page _____.)
Other Expenses
There are deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying Prospectuses for each Fund.
Group and Sponsored Arrangements
In certain instances, we may reduce the Surrender Charge and the
Administrative Charge or change the minimum premium requirements for the sale of
Contracts to certain groups, including those in which a trustee or an employer,
for example, purchases Contracts covering a group of individuals on a group
basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
similar arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or group sponsored arrangements
that have been set up solely to buy Contracts or that have been in existence
less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Contract is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or Administrative
Charge will reflect differences in costs or services and will not be unfairly
discriminatory.
ANNUITY BENEFITS
Annuitization
Annuitization is an election you make to apply the Contract Value to an
Annuity Option in order to provide a series of annuity payments. The date the
Annuity Option becomes effective is the Annuity Date.
<PAGE>
Annuity Date
The latest Annuity Date is: the later of (a) the first day of the calendar
month following the later of the Annuitant's 90th birthday; or (b) such earlier
date as may be set by applicable law.
The Owner may designate an earlier date or may change the Annuity Date by
making a written request at least thirty (30) days prior to the Annuity Date
being changed. However, any Annuity Date must be no later than the date defined
above; and, the first day of a calendar month.
Without the approval of the Company, the new Annuity Date cannot be earlier
than one year after the Effective Date. In addition, for IRA or 403 (b) Plan
Contracts, certain provisions of your retirement plan or the Code may further
restrict your choice of an Annuity Date. (See "Taxes," page ____.)
Annuity Options
The Owner may choose annuity payments which are fixed or which are based on
the Variable Account or a combination of the two. The Owner may, upon at least
30 days prior written notice to us, at any time prior to the Annuity Date,
select or change an Annuity Option. If the Owner elects annuity payments which
are based on the Variable Account, the amount of the payments will be variable.
The amount of the annuity payment based on the value of a Subaccount is
determined through a calculation described in the Statement of Additional
Information, under the caption "Annuity Provisions". The Owner may not transfer
Contract Values between the Guaranteed Account and the Variable Account after
the Annuity Date, but may, subject to certain conditions, transfer Contract
Values from one Subaccount to another Subaccount. (See "Transfer of Contract
Values" on page _____.)
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the Guaranteed Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will make annuity payments during the
lifetime of the Annuitant.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will make monthly annuity payments during the lifetime of the Annuitant. If, at
the death of the Annuitant, payments have been made for less than 10 years,
payments will be continued during the remainder of the period to the
Beneficiary.
Option 3: Joint and Last Survivor Income. The Company will make annuity
payments for as long as either the Annuitant or a Contingent Annuitant is alive.
In the event that the Contract is issued in connection with an IRA, the payments
in this Option will be made only to the Owner as Annuitant and the Owner's
spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company reserves the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company reserves the right to make payments semi-annually or annually.
<PAGE>
If fixed annuity payments are selected, the amount of each fixed payment
is determined by multiplying the Contract Value allocated to purchase fixed
annuity payments by the factor shown in the annuity table specified in the
Contract for the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the
value of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Subaccount
selected; and (v) the pro-rata portion of the Contract Maintenance charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, variable annuity
payments will decrease.
DEATH BENEFIT
Prior to the Annuity Date
In the event of an Owner's death (or the death of the first joint Owner to
die) prior to the Annuity Date, a death benefit is payable to the Beneficiary.
The value of the death benefit will be determined as of the date We receive
proof of death in a form acceptable to Us. If there has been a change of Owner
from one natural person to another natural person, the death benefit will equal
the Contract Value, unless the change in ownership results from the election,
made by a surviving spouse as designated beneficiary, to continue the contract.
Otherwise, 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. All death benefit options may not be available in all states.
Traditional Death Benefit
Under the Traditional Death Benefit, We will pay a death benefit equal to
the greatest of:
1. the total of all Premiums paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was reduced
on the date of a surrender; or
2. the Contract Value; or
3. the greatest of the Contract Value at any seventh Contract Anniversary
reduced proportionally by any surrender 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 other Death Benefit
is in effect.
Optional Death Benefit
Prior to determining the amount of any of the following Optional Death
Benefits the Contract Value will be reduced by the accrued charges for the
optional death benefit, if as of the date of death, the accured charges had not
yet been deducted from the Variable Account.
Annual Ratchet Plan
If at the 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 Premium paid, reduced proportionally with withdrawals
and 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 charge for the Annual Ratchet Plan 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.
<PAGE>
The Annual Ratchet Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it.
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 of the 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 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:
0% per annum if death occurs during the 1st through 24th month
from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th month
from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd month
from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th month
from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th month
from the date of Premium payment;
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 charge for the Equity Assurance Plan is equal on an annual basis to
.07% of the average daily net asset value of the Variable Account for Owners
attained ages 0-59 and .20% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
Adjustment for surrender. 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 or upon the allocation
of Contract Values to either the Money Market Subaccount or Guaranteed Account
unless such allocation is made as part of Dollar Cost Averaging.
<PAGE>
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:
0% per annum if death occurs during the 1st through 24th month
from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th month
from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd month
from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th month
from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th month
from the date of Premium payment;
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 charge for the Enhanced Equity Assurance Plan is equal on an annual
basis to .17% of the average daily net asset value of the Variable Account for
Owners attained ages 0-59 and .30% of the average daily net asset value of the
Varialbe Account for Owners attained age 60 and above.
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 or upon the
allocation of Contract Values to either the Money Market Subaccount or
Guaranteed Account unless such allocation is made as part of Dollar Cost
Averaging.
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Accidental Death Benefit
The Owner may select the Accidental Death Benefit in addition to any of the
death benefit options. The Accidental Death Benefit is not available if the
Contract is used as an IRA. 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 Accidental 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 the Owner's written request to discontinue it.
Payment to Beneficiary
Upon the death of the Owner prior to the Annuity Date, the Beneficiary 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 section of this contract); or
3. if the designated Beneficiary is 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 of the death benefit, this
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 this
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
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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 (60) days of Our receipt of proof of the
Annuitant's death, the Owner will be deemed the new Annuitant. If an Annuitant
dies after the Annuity Date, the remaining payments, if any will be as specified
in the Annuity Option elected. We will require proof of the Annuitant's death.
Death benefits, if any, will be paid to the designated Beneficiary at least as
rapidly as under the method of distribution in effect at the Annuitant's death.
DISTRIBUTIONS UNDER THE CONTRACT
Withdrawals
The Owner may withdraw Contract 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 accured charges
for optional death benefits and any Surrender Charge from each
Subaccount of the Variable Account and from the Guaranteed Account
either as specified or in the proportion that each Subaccount and the
Guaranteed Account bears to the Contract Value; and
We reserve the right to consider any withdrawal request that would reduce
the Value of the Accumulation Account to less than $2,000 to be a request for
surrender. In this event, the Surrender Value will be paid to You and the
Contract will terminate.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page _____.)
<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 "Surrender Charges" on page ___.)
Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. In the event that
Your value in a specified Subaccount or the Guaranteed Account is not sufficient
to deduct a withdrawal or if Your request for systematic withdrawal does not
specify the Guaranteed Account or from which Subaccounts withdrawals are to be
deducted, withdrawals will be deducted proportionally based on Your value in
each Subaccount and the Guaranteed Account.
All parties to the Contract are cautioned that the rights of any person to
implement the systematic withdrawal program under Contracts issued in connection
with IRAs or 403(b) Plans may be subject to the terms and conditions of the
retirement plan, regardless of the terms and conditions of the Qualified
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" discussed on page _____.)
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value as of the date the Company receives Your surrender
request, reduced by the following: (1) any applicable taxes not previously
deducted; (2) any applicable accrued charges for optional death benefits; (3)
the Contract Maintenance Charge; and (4) any applicable Surrender Charge.
<PAGE>
Payment of Withdrawals and Surrender Values
Payments of withdrawals and Surrender Values will ordinarily be sent to the
Owner within seven (7) days of receipt of the written request, but see the
Deferment of Payment discussion below. (Also see Statement of Additional
Information -- "Delay of Payments.")
The Company reserves the right to ensure that an Owner's check or other
form of Premium has been cleared for payment prior to processing any withdrawal
or redemption request occurring shortly after a Premium payment.
If, at the time You make a request for a withdrawal or a surrender, You
have not provided Us with a written election not to have Federal income taxes
withheld, We must by law withhold such taxes from the taxable portion of Your
payment and remit that amount to the IRS. Mandatory withholding rules apply to
certain distributions from 403(b) Plan Contracts. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See "Taxes" on page ____, and "Tax-Favored Plans" on page ____.)
Deferral of Payment
Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Variable Account will usually occur within seven days. We may be permitted to
defer such payment if: (1) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise restricted;
(2) an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; (3) the SEC permits a delay for protection of Owners; or (4) the
check used to pay any Premium has not cleared through the banking system (this
may take up to 15 days).
We may defer payment of any withdrawal or surrender from the Guaranteed
Account for up to six months from the date we receive Your written request.
TAXES
Introduction
The Contracts are designed to accumulate Contract Values for retirement
plans which, except for IRAs and 403(b) Plans, are generally not tax-qualified
plans. The ultimate effect of Federal income taxes on the amounts held under a
Contract, on annuity payments, and on the economic benefits to the Owner,
Annuitant or Beneficiary depend on the Company's tax status and upon the tax
status of the individual concerned. Accordingly, each potential Owner should
consult a competent tax adviser regarding the tax consequences of purchasing a
Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Fund, please see the accompanying Prospectus for the Fund.
Company Tax Status
The Company is taxed as a life insurance company under the Code. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Subchapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the Contract Value. Under existing Federal
income tax law, the Variable Account's investment income, including realized net
capital gains,
<PAGE>
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 Person," 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.
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
<PAGE>
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 any 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 any Owner dies before the Annuity Date, the entire
interest must generally be distributed within five years 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. 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. 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. 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
<PAGE>
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.
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-
<PAGE>
through" rule applies so that an investment in the Fund is not treated as one
investment but is treated as an investment in a pro-rata portion of each
underlying asset of the Fund. All securities of the same issuer are treated as a
single investment. In the case of government securities, each Government agency
or instrumentality is treated as a separate issuer.
In connection with the issuance of the Diversification Regulations,
Treasury announced that such regulations do not provide guidance concerning the
extent to which Owners may direct their investments to particular divisions of a
separate account. It is possible that if and when additional regulations or IRS
pronouncements are issued, the Contract may need to be modified to comply with
such rules. For these reasons, the Company reserves the right to modify the
Contract, as necessary, to prevent the Owner from being considered the owner of
the assets of the Variable Account.
The Company intends to comply with the Diversification Regulations to
assure that the Contracts continue to be treated as annuity contracts for
Federal income tax purposes.
Tax-Favored Plans
By attachment of an endorsement that reflects the limits of Code section
408(b), the Contracts may be used as an IRA. The Contracts are also available
for use in connection with a previously established 403(b) Plan. No attempt is
made herein to provide more than general information about the use of the
Contracts with IRAs or 403(b) Plans. The information herein is not intended as
tax advice. A prospective Owner considering use of the Contract to create an IRA
or in connection with a 403(b) Plan should first consult a competent tax adviser
with regard to the suitability of the Contract as an investment vehicle for
their qualified plan.
While the Contract will not be available in connection with retirement
plans designed by the Company which qualify for the federal tax advantages
available under Sections 401 and 457 of the Code, a Contract can be used as the
investment medium for an individual Owner's separately qualified 401 retirement
plan. Distributions from a 401 qualified plan or 403(b) Plan (other than
non-taxable distributions representing a return of capital, distributions
meeting the minimum distribution requirement, distributions for the life or life
expectancy of the recipient(s) or distributions that are made over a period of
more than 10 years) are eligible for tax-free rollover within 60 days of the
date of distribution, but are also subject to federal income tax withholding at
a 20% rate unless paid directly to another qualified plan, 403(b) Plan or an
IRA. If the recipient is unable to take full advantage of the tax-free rollover
provisions, there may be taxable income, and the imposition of a 10% penalty tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Owner considering use of the Contract in this
manner should consult a competent tax advisor with regard to the suitability of
the Contract of this purpose and for information concerning the provisions of
the Code applicable to qualified plans, 403(b) Plans, and IRAs.
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
IRA. Contracts issued in connection with an IRA are subject to limitations on
eligibility, maximum contributions, and time of distribution. Distributions from
certain retirement plans qualifying for federal tax advantages may be rolled
over into an IRA. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. Section 408A of the Code
provides special rules for "Roth IRAs." The basic distinction between a Roth IRA
and a regular IRA is that contributions to a Roth IRA are not deductible and
"qualified distributions" from a Roth IRA are not includible in gross income for
federal income tax purposes. Other differences include the ability to make
contributions to a Roth IRA after age 70 1/2 and to defer distributions beyond
age 70 1/2. Taxpayers whose adjusted gross incomes exceed certain levels are not
eligible for Roth IRAs. Sales of the Contracts for use with IRAs are subject to
special requirements imposed by the Service, including the requirement that
informational disclosure be given to each person desiring to establish an IRA.
Contracts offered in connection with an IRA by this Prospectus are not available
in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on an Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to Premium paid under a salary reduction agreement. Specifically, Code Section
403(b)(11) allows an Owner to make a surrender or partial withdrawal only
<PAGE>
(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.
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 Contracts described herein are being passed upon by the law firm of Jorden
Burt Boros Cicchetti Berenson & Johnson LLP, Washington, D.C.
<PAGE>
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
General Information
The Company
Independent Accountants
Legal Counsel
Distributor
Calculation of Performance Related Information
Delay of Payments
Transfers
Method of Determining Contract Values
Annuity Provisions
Annuity Benefits
Annuity Options
Variable Annuity Payment Values
Annuity Unit
Net Investment Factor
Additional Provisions
Financial Statements
<PAGE>
APPENDIX
Guaranteed Account Option
Under this Guaranteed Account option, Contract Values are held in the
Company's General Account. The General Account includes all of Our assets,
except those assets segregated in Our separate accounts. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 nor is the General Account
registered as an investment company under the Investment Company Act of 1940.
The Company understands that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus relating to the Guaranteed
Account portion of the Contract. Disclosures regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses. The Guaranteed Account option may not be available in all
states.
During the Accumulation Period the Owner may allocate amounts to the
Guaranteed Account. The initial Premium will be invested in the Guaranteed
Account if selected by the Owner at the time of application. Additional Premium
will be allocated in accordance with the selection made in the application or
the most recent instruction received at the Company Office. If the Owner elects
to withdraw amounts from the Guaranteed Account, such withdrawal, except as
otherwise provided in this Appendix, will be subject to the same conditions as
imposed on withdrawals from the Variable Account. The Company reserves the right
to delay any payment from the Guaranteed Account for up to six (6) months from
the date it receives such request at its Office.
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 invested in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guarantee rate. The effective guarantee rate is that rate
in effect when the Owner allocates or transfers amounts to the Guaranteed
Account. If the Owner has allocated or transferred amounts at different times to
the Guaranteed Account, each allocation or transfer may have a unique effective
guarantee rate associated with that amount. The effective guarantee rate will
not be changed more than once per year and the minimum rate will not be less
than 3%.
Guaranteed Account Transfers
During the accumulation period the Owner may transfer, by written request
or telephone authorization, Contract Values to or from a subaccount of the
Variable Account to or from the Guaranteed Account at any time, subject to the
conditions set out under Transfer of Contract Values Section.
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
PROSPECTUS
for
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE
COMPANY OF NEW YORK
80 Pine Street
New York, NY 10270
This Prospectus sets forth the information a prospective investor ought to
know before investing.
The individual deferred variable annuity contracts and group flexible
premium deferred Variable Annuity Contracts (together "the Contracts") described
in this Prospectus provide for accumulation of Contract Values and payment of
monthly annuity payments. The Contracts may be used in retirement plans which do
not qualify for federal tax advantages ("Non-Qualified Contracts") or in
connection with retirement plans which may qualify as Individual Retirement
Annuities ("IRA") under Section 408 of the Internal Revenue Code of 1986, as
amended (the "Code") or Section 403(b) of the Code ("403(b) Plans"). The
Contracts will not be available in connection with retirement plans designed by
American International Life Assurance Company of New York (the "Company") which
qualify for the federal tax advantages available under Sections 401 and 457 of
the Code. Purchasers intending to use the Contracts in connection with an IRA or
403(b) Plan should seek competent tax advice. 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 group contract.
Premiums allocated among the Subaccounts of Variable Account A (the
"Variable Account") will be invested in shares of Alliance Variable Products
Series Fund, Inc. (the "Alliance Fund") and Merrill Lynch Variable Series Funds,
Inc. (the "Merrill Lynch Fund"). The Alliance Fund has made available the
following Portfolios: Growth; Growth and Income; U.S. Government/High Grade
Securities; Global Dollar Government; Premier Growth; Total Return; Quasar; Real
Estate Investment; Worldwide Privatization; High Yield and Technology. The
Merrill Lynch Fund has made available the following portfolios: Domestic Money
Market; Prime Bond; High Current Income; Quality Equity; Special Value Focus;
Global Strategy Focus; Basic Value Focus; International Equity Focus; Developing
Capital Markets Focus; Natural Resources Focus; and Global Utility Focus.
Additional information about the Contracts and the Variable Account is
contained in the Statement of Additional Information which is available upon
request at no charge by calling or writing American International Life Assurance
Company of New York, Attention: Variable Products, One Alico Plaza, Wilmington,
Delaware 19801, 1-800-340-2765 or calling the service office at 1-800-255-8402.
The Statement of Additional Information dated May 1, 1998, has been filed with
the Securities and Exchange Commission and is hereby incorporated by reference.
The Table of Contents of the Statement of Additional Information can be found on
page ___ of this Prospectus.
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 NOR OBLIGATIONS OF, AND ARE
NOT GUARANTEED NOR ENDORSED BY ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE CONTRACT
INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF
PRINCIPAL.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
REPLACEMENT OF AN EXISTING LIFE INSURANCE POLICY OR ANNUITY CONTRACT MAY
NOT BE TO YOUR ADVANTAGE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
Date of Prospectus: May 1, 1998
<PAGE>
TABLE 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 -- General Account Option ..................................
<PAGE>
DEFINITIONS
Accumulation Unit -- An accounting unit of measure used to calculate the
Contract Value prior to the Annuity Date.
Administrative Office -- The Annuity Service Office of the Company: c/o Delaware
Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, PA
19312-0031.
Annuitant -- The person designated by the Owner upon whose continuation of life
any annuity payment involving life contingencies depends.
Annuity Date -- The date on which annuity payments are to commence.
Annuity Option -- An arrangement under which annuity payments are made under
this Contract.
Annuity Unit -- An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary -- An anniversary of the Effective Date of the Contract.
Contract Value -- The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
Contract Year -- Each period of twelve (12) months commencing with the Effective
Date.
Effective Date -- The date on which the first Contract Year begins.
Guaranteed Account -- A part of our General Account, which earns a guaranteed
rate of interest.
Owner -- The person named in the Contract Schedule, unless changed, and who has
all rights under the Contract.
Premium -- Purchase payments for the Contract are referred to as Premium.
Premium Year -- Any period of twelve (12) months commencing with the date a
Premium payment is made and ending on the same date in each succeeding twelve
(12) month period thereafter.
Surrender Charge -- The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within 7 years of a premium
payment.
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.
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contracts and a segregated investment account
of American International Life Assurance Company of New York (the "Company")
which account has been designated Variable Account A (the "Variable Account").
The Contracts are designed to assist in financial planning by providing for the
accumulation of capital on a tax-deferred basis for retirement and other
long-term purposes, and providing for the payment of monthly annuity income.
Contracts may be purchased in connection with a retirement plan which may
qualify as a 403 (b) Plan or as an Individual Retirement Annuity ("IRA"). The
Contract may also be purchased for retirement plans, deferred compensation plans
and other purposes which do not qualify for such special Federal income tax
treatment ("Non-Qualified Contracts"). (See "Taxes" on page ____.)
A Contract is purchased with a minimum initial Premium of $2,000.
Additional Premium is permitted at any time, subject to certain limitations.
(See "Premium and Allocation to Your Investment Options" on page ____.) You, as
the Owner of the Contract, may allocate your Premium so that it accumulates on a
variable basis, a fixed basis or a combination of both.
Premium allocated among the Subaccounts of the Variable Account will
accumulate on a variable basis and will be invested in shares of one or more of
the following underlying portfolios: the Global Bond Portfolio, Premier Growth
Portfolio, Growth Portfolio, Quasar Portfolio, Technology Portfolio, or Growth
and Income Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
("Alliance Funds"); the VIP High Income Portfolio, VIP Growth Portfolio, VIP
Money Market Portfolio, VIP II Contrafund Portfolio, VIP II Asset Manager
Portfolio, or VIP II Investment Grade Bond Portfolio of the FIDELITY INVESTMENTS
VARIABLE INSURANCE PRODUCTS FUNDS ("Fidelity Funds"); the Small Company Stock
Portfolio of the DREYFUS VARIABLE INVESTMENT FUND ("Dreyfus Fund"); the
Worldwide Hard Assets Portfolio or Worldwide Emerging Markets Portfolio, of the
VAN ECK WORLDWIDE INSURANCE TRUST ("Van Eck Funds"); the DREYFUS STOCK INDEX
FUND; or the Capital Appreciation Fund or the International Equity Fund of AIM
VARIABLE INSURANCE FUNDS, INC. ("AIM Funds"). Your value in any one of these
Subaccounts will vary according to the investment performance of the underlying
portfolio chosen by you. You bear the entire investment risk for all Premium
allocated to the Variable Account.
The Company does not deduct sales charges from any Premium received.
However, the Contracts provide for a Surrender Charge (contingent deferred sales
charge) that may be assessed in the event that an Owner surrenders all or a
portion of the Contract Value within seven contract years following payment of
any Premium. The maximum Surrender Charge is 6% of Premium to which the charge
is applicable. (See "Summary of Expenses" on page ____, and "Charges and
Deductions - -- Deduction for Surrender Charge" on page _____.)
A penalty free withdrawal is available. Generally, there is no Surrender
Charge imposed on the greater of the Contract Value less Premium paid or the
portion of the withdrawal that does not exceed 10% of premium otherwise subject
to the Surrender Charge. (See "Withdrawals" on page ____.)
Surrenders and withdrawals may be taxable and subject to a penalty tax.
(See "Taxes" beginning on page ____.)
The Company deducts daily a Mortality and Expense Risk Charge which is
equal on an annual basis to 1.25% of the average daily net asset value of the
Variable Account. There 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 Fee which is $30 per year. The Contract Maintenance Fee is waived if
the Contract Value is greater than $50,000 on the date of the charge. These
Charges are designed to reimburse the Company
<PAGE>
for administrative expenses relating to maintenance of the Contract and the
Variable Account. (See "Charges and Deductions -- Deduction for Administrative
Charge and Contract Maintenance Fee" on page _____.)
There are deductions and expenses paid out of the assets of the Fund which
are described in the accompanying Prospectuses for the Fund.
The Owner may return the Contract within ten (10) days (the "Right to
Examine Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA the Company will refund the greater of the Premium less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the Premium paid less any withdrawals, the Company will refund such an
amount.
FEE TABLE
Contract Owner Transaction Expenses
All Subaccounts
-----------
Sales Load Imposed on Purchases........................ None
Surrender Charge
(as a percentage of amount surrendered):
Premium Year 1 ...................................... 6%
Premium Year 2 ...................................... 6%
Premium Year 3 ...................................... 5%
Premium Year 4 ...................................... 5%
Premium Year 5 ...................................... 4%
Premium Year 6 ...................................... 3%
Premium Year 7 ...................................... 2%
Premium Year 8 and thereafter........................ None
Exchange Fee:
First 12 Per Contract Year .......................... None
Thereafter .......................................... $10
Annual Contract Fee ................................... $30
(waived for contracts with account value
of $50,000 or greater)
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees...................... 1.25%
Account Fees and Expenses............................ 0.15%
Total Separate Account Annual Expenses................. 1.40%
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Fee Expenses* Expenses**
---------- --------- ---------
<S> <C> <C> <C>
Alliance Fund
Growth ............................................................. 0.75 0.09 0.84
Growth and Income .................................................. 0.63 0.09 0.72
High Yield.......................................................... 0.00 0.95 0.95
Global Dollar Government............................................ 0.41 0.54 0.95
U.S. Government/High Grade Securities .............................. 0.60 0.24 0.84
Premier Growth ..................................................... 1.00 0.08 1.08
Total Return........................................................ 0.63 0.25 0.88
Worldwide Privatization ............................................ 0.40 0.55 0.95
Technology(1) ...................................................... 0.76 0.19 0.95
Quasar (1) ......................................................... 0.58 0.37 0.95
Real Estate Investment ............................................. 0.00 0.95 0.95
Merrill Lynch Fund
Prime Bond.......................................................... 0.42 0.05 0.47
High Current Income................................................. 0.47 0.07 0.54
Quality Equity...................................................... 0.44 0.04 0.48
Special Value....................................................... 0.75 0.05 0.80
Global Strategy Focus............................................... 0.65 0.08 0.73
Domestic Money Market............................................... 0.50 0.04 0.54
Basic Value Focus................................................... 0.60 0.05 0.65
International Equity Focus.......................................... 0.75 0.15 0.90
Developing Capital Markets Focus.................................... 1.00 0.25 1.25
Natural Resources Focus............................................. 0.65 0.16 0.81
Global Utility Focus................................................ 0.60 0.07 0.67
</TABLE>
- -----------
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 ____of this Prospectus and the
respective Fund Prospectuses for further information.) The table does not
reflect the charges applicable to certain death benefit options offered under
the Contracts. (See "Charges and Deductions -- Deduction for Equity Assurance
Plan" on page ____; "Charges and Deductions -- Deductions for Enhanced Equity
Assurance Plan" on page ____; "Charges and Deductions -- Deductions for the
Annual Rachet Plan" on page ____; "Charges and Deductions -- Deductions for the
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 Contracts by various states range from 0% to 3.5% of Premiums
paid. (See "Charges and Deductions Deduction for State Premium Taxes" on page
- -----.)
(1) The expense percentages for the High-Yield and Real Estate Investment
Portfolios have been annualized because as of December 31, 1997, the
portfolios had not been in existence for a full year.
* "Other Expenses" are based upon the expenses outlined under the section
entitled "Management of the Fund" in the Fund's Prospectus.
** "Total Portfolio Expenses" for the following Portfolios before
reimbursement by the relevant Fund's investment advisor, for the period
ended December 31, 1997, were as follows:
1.10% for Premier Growth; 1.03% for Global Bond; 1.55% for Worldwide
Privatization; 2.31% for Real Estate Investment; 8.26% for High Yield;
1.42% for International; 1.04% for North American Government Income; 1.29%
for Global Dollar Government; 1.08% for Utility Income; 1.37% for Quasar;
and 1.19% for Technology, of average daily net assets. For the year ended
December 31, 1997 expenses of the Premier Growth Portfolio were capped at
.95%. Effective May 1, 1998, the investment adviser discontinued expense
reimbursement with respect to the Premier Growth Portfolio.
<PAGE>
Expenses on a Hypothetical $1,000 Policy, Assuming 5% Growth:
<TABLE>
<CAPTION>
If you surrender
---------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Funds
Growth ............................................ $77 $117 $159 $264
Growth and Income ................................. 76 113 153 251
High Yield ........................................ 78 120 165 275
Global Dollar Government .......................... 78 120 165 275
U.S. Government/High Grade Securities ............. 77 117 159 264
Premier Growth .................................... 80 124 171 288
Total Return ...................................... 78 118 161 268
Worldwide Privatization ........................... 78 120 165 275
Technology ........................................ 78 120 165 275
Quasar ............................................ 78 120 165 275
Real Estate Investment ............................ 78 120 165 275
Merrill Lynch Fund
Prime Bond......................................... 74 106 140 225
High Current Income................................ 74 108 144 233
Quality Equity..................................... 74 106 141 226
Special Value...................................... 77 116 157 260
Global Strategy Focus.............................. 76 114 153 252
Domestic Money Market.............................. 74 108 144 233
Basic Value Focus.................................. 75 111 149 244
International Equity Focus......................... 78 119 162 270
Developing Capital Markets Focus................... 81 129 179 304
Natural Resources Focus............................ 77 116 158 261
Global Utility Focus............................... 76 112 150 246
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
If you Annuitize or if you do not surrender
---------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Funds
Growth ............................................ $23 $72 $123 $264
Growth and Income ................................. 22 68 117 251
U.S. Government/High Grade Securities ............. 24 75 129 275
Global Dollar Government .......................... 24 75 129 275
High Yield ........................................ 23 72 123 264
Premier Growth .................................... 26 79 135 288
Total Return ...................................... 24 73 125 268
Worldwide Privatization ........................... 24 75 129 275
Technology ........................................ 24 75 129 275
Quasar ............................................ 24 75 129 275
Real Estate Investment ............................ 24 75 129 275
Merrill Lynch Fund
Prime Bond......................................... 20 61 104 225
High Current Income................................ 20 63 108 233
Quality Equity..................................... 20 61 105 226
Special Value...................................... 23 71 121 260
Global Strategy Focus.............................. 22 69 117 252
Domestic Money Market.............................. 20 63 108 233
Basic Value Focus.................................. 21 66 113 244
International Equity Focus......................... 24 74 126 270
Developing Capital Markets Focus................... 27 84 143 304
Natural Resources Focus............................ 23 71 122 261
Global Utility Focus............................... 22 67 114 246
</TABLE>
The Example should not be considered representations of past or future
expenses and actual expenses may be greater or less than those shown.
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GROWTH
Accumulation Unit Value
Beginning of Period ................. 17.73 13.99 10.48 11.13 10.00 10.00
End of Period ....................... 22.73 17.73 13.99 10.48 11.13 10.00
Accum Units o/s @ end of period ....... 1,695,515.74 1,541,465.58 777,108.88 56,104.84 35,271.53 2,081.43
GROWTH & INCOME
Accumulation Unit Value
Beginning of Period ................. 18.99 15.52 11.57 11.76 10.66 10.00
End of Period ....................... 24.11 18.99 15.52 11.57 11.76 10.66
Accum Units o/s @ end of period ....... 1,868,628.86 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 ................. 11.50 11.38 9.66 10.17 10.00 N/A
End of Period ....................... 12.33 11.50 11.38 9.66 10.17 N/A
Accum Units o/s @ end of period ....... 601,935.75 552,183.99 390,483.21 75,881.31 7,608.84 N/A
GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period ................. 14.55 11.81 9.73 10.00 N/A N/A
End of Period ....................... 16.24 14.55 11.81 9.73 N/A N/A
Accum Units o/s @ end of period ....... 179,585.93 76,451.58 16,171.63 5,958.18 N/A N/A
PREMIER GROWTH
Accumulation Unit Value
Beginning of Period ................. 18.45 15.25 10.66 10.00 N/A N/A
End of Period ....................... 24.36 18.45 15.25 10.66 N/A N/A
Accum Units o/s @ end of period ....... 1,441,993.79 1,026,432.81 420,662.68 108,111.20 N/A N/A
TOTAL RETURN
Accumulation Unit Value
Beginning of Period ................. 13.52 11.90 9.75 10.00 N/A N/A
End of Period ....................... 16.14 13.52 11.90 9.75 N/A N/A
Accum Units o/s @ end of period ....... 568,896.78 455,709.19 121,094.82 4,871.12 N/A N/A
Accumulation Unit Value
Beginning of Period ................. 12.86 11.01 10.05 10.00 N/A N/A
End of Period ....................... 14.04 12.86 11.01 10.05 N/A N/A
Accum Units o/s @ end of period ....... 495,269.51 224,339.58 62,769.30 6,357.69 N/A N/A
TECHNOLOGY
Accumulation Unit Value
Beginning of Period ................. 10.90 10.00 N/A N/A N/A N/A
End of Period ....................... 11.44 10.90 N/A N/A N/A N/A
Accum Units o/s @ end of period ....... 1,033,596.21 431,529.41 N/A N/A N/A N/A
QUASAR
Accumulation Unit Value
Beginning of Period ................. 10.58 10.00 N/A N/A N/A N/A
End of Period ....................... 12.38 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period ....... 629,523.13 179,808.73 N/A N/A N/A N/A
REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period ................. N/A N/A N/A N/A N/A N/A
End of Period ....................... N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period ....... N/A N/A N/A N/A N/A N/A
HIGH YIELD
Accumulation Unit Value
Beginning of Period ................. N/A N/A N/A N/A N/A N/A
End of Period ....................... N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period ....... N/A N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<PAGE>
*Funds were first invested in the Portfolios as listed below:
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 1992
U.S. Government/High Grade 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
Domestic Money Market February 1998
Prime Bond February 1998
High Current Income February 1998
Quality Equity February 1998
Special Value Focus February 1998
Global Strategy Focus February 1998
Basic Value Focus February 1998
International Equity Focus February 1998
Developing Capital Markets February 1998
Natural Resources February 1998
Global Utility Focus February 1998
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.
<PAGE>
Total return at the Variable Account level is reduced by all contract
charge (sales charges, mortality and expense risk charges, and the
administrative charges) and is therefore lower than the total return at the Fund
level, which has no comparable charges. Likewise, yield and effective yield at
the Variable Account level take into account all recurring charges (except sales
charges), and are therefore lower than the yield and effective yield at 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 Accounts have
been provided in the Statement of Additional Information because as of the date
of the reporting periods no Contracts had been issued.
THE COMPANY
American International Life Assurance Company of New York is a stock life
insurance company which was organized under the laws of the state of New York in
1962. The Company provides a full range of life insurance and annuity plans. The
Company is a subsidiary of American International Group, Inc. ("AIG"), 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 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,
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
<PAGE>
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 Company's policyholders).
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 authorized the organization of the Variable Account in 1986.
The Variable Account is maintained pursuant to New York insurance law. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"). The Variable
Account meets the definition of a "Separate Account" under Federal securities
laws. The SEC does not supervise the management or the investment practices of
the Variable Account.
The Company owns the assets in the Variable Account and obligations under
the Contract are general corporate obligations. The Variable Account and each
Subaccount, however, are separate from the Company's other assets including
those of the General Account and from any other separate accounts. The assets of
the Variable Account, equal to the reserves and other contract liabilities with
respect to the Variable Account, are not chargeable with liabilities arising out
of any other business the Company may conduct. Investment income, as well as
both realized and unrealized gains and losses are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
income, gains or losses arising out of any other business of the Company. As a
result, the investment performance of each Subaccount and the Variable Account
is entirely independent of the investment performance of the General Account and
of any other separate account maintained by the Company.
The Variable Account is divided into Subaccounts, with the assets of each
Subaccount invested in shares of one portfolio of either the Alliance Fund or
the Merrill Lynch Fund. The Company may, from time to time, add additional
portfolios of the Fund, and, when appropriate, additional mutual funds to act as
the funding vehicles for the Contracts. If deemed to be in the best interests of
persons having voting rights under the Contract, the Variable Account may be
operated as a management company under the 1940 Act, may be deregistered under
such Act in the event such registration is no longer required, or may be
combined with one or more other separate accounts. The Company may offer other
variable annuity contracts which also invest in the Variable Account, and are
described in other prospectuses.
THE FUND
Alliance Funds and Merrill Lynch Funds are each registered with the SEC as
a diversified open-end management investment company under the 1940 Act. Each is
made up of different series funds or portfolios.
The shares of the Fund will be sold to separate accounts of the Company and
its affiliate, AIG Life Insurance Company, 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 policy owners 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, we 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.
A summary of the investment objectives for each portfolio is contained in
the description of the Fund below. More detailed information, including the
investment advisory fee of each portfolio and other charges assessed by the
Fund, may be found in the current Fund prospectus, which contains a discussion
of the risks involved in investing in the Fund. The prospectuses for the Fund
are included with this Prospectus. Please read the Prospectus carefully before
investing. <PAGE>
The investment objectives of the portfolios are as follows:
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
The following portfolios are available under the Alliance Fund:
Growth Portfolio
This portfolio seeks long term growth of capital by investing primarily in
common stock and other equity securities.
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.
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.
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 loss of principal and interest than higher rated
securities and are considered to be predominantly speculative with respect to
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.
<PAGE>
Worldwide Privatization Portfolio
This portfolio seeks long-term capital appreciation by investing
principally in equity securities issued by enterprises that are undergoing, or
have undergone, privatization. The balance of the investment portfolio will
include equity securities of companies that are believed by the Fund's Advisor
to be beneficiaries of the privatization process.
Technology Portfolio
This portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. The Technology portfolio
invests principally in a diversified portfolio of securities of companies which
use technology extensively in the development of new or improved products or
processes.
Quasar Portfolio
This portfolio seeks growth of capital by pursuing aggressive investment
policies. The Portfolio invests principally in a diversified portfolio of equity
securities of any company and industry and in any type of security which is
believed to offer possibilities for capital appreciation.
Real Estate Investment Portfolio
This portfolio seeks a total return on its assets from long-term growth of
capital and from income principally through investing in a portfolio of equity
securities of issuers that are primarily engaged in or related to the real
estate industry.
Alliance Variable Products Series Find, Inc., is managed by Alliance
Capital Management L.P. ("Alliance"). The fund also includes other Portfolios
which are not available for use by the Variable Account. More detailed
information regarding management of the portfolios, investment objectives,
invest advisory fees and other charges, may be found in the current Alliance
Fund Prospectus which contains a discussion of the risks involved in investing.
The Alliance Fund Prospectus is included with this Prospectus.
MERRILL LYNCH VARIABLE SERIES FUND, INC.
The following portfolios are available under the Merrill Lynch Fund:
Domestic Money Market Fund
This Fund 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. The Fund invests in short-term
United States government securities; government agency securities; bank
certificates of deposit and banker's acceptances; short-term corporate debt
securities such as commercial paper and variable amount master demand notes;
repurchase agreements and other domestic money market instruments.
Prime Bond Fund
This Fund seeks to obtain as high a level of current income as is
consistent with the investment policies of the Fund and with prudent investment
management, and capital appreciation to the extent consistent with the foregoing
objective. The Fund invests primarily in long-term corporate bonds rated in the
top three ratings categories by established rating services.
<PAGE>
High Current Income Fund
This fund seeks to obtain as high a level of current income as is
consistent with the investment policies of the Fund and with prudent investment
management, and capital appreciation to the extent consistent with the foregoing
objective. The Fund invests principally in fixed-income securities that are
rated in the lower rating categories of the established rating services or in
unrated securities of comparable quality (commonly known as "junk bonds").
Because investment in such securities entails relatively greater risk of loss of
income or principal, an investment in the High Current Income Fund may not be
appropriate as the exclusive investment to fund a Contract. In an effort to
minimize risk, the Fund will diversify its holdings among many issuers. However,
there can be no assurance that diversification will protect the Fund from
widespread defaults during periods of sustained economic downturn.
Quality Equity Fund
This Fund seeks to attain the highest total investment return consistent
with prudent risk. The Fund 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. Management of the Fund
will shift the emphasis among investment alternatives for capital growth,
capital stability, and income as market trends change.
Special Value Focus Fund
This Fund seeks to attain long-term growth of capital by investing in a
diversified portfolio of securities, primarily common stocks, of relatively
small companies that management of the Fund believes have special investment
value, and of emerging growth companies regardless of size. Such companies are
selected by management on the basis of their long-term potential for expanding
their size and profitability or for gaining increased market recognition for
their securities. Current income is not a factor in such selection.
Global Strategy Focus Fund
This Fund 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 Fund 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 Fund seeks to attain capital appreciation, and secondarily, income by
investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price/earnings ratio.
International Equity Focus Fund
This Fund seeks to obtain capital appreciation and, secondarily, 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 Fund's net assets will be invested in such equity securities.
Developing Capital Markets Focus Fund
<PAGE>
This Fund 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 Fund considers countries having
smaller capital markets to be all countries other than the four countries having
the largest equity market capitalizations. The Developing Capital Markets Focus
Fund has established no rating criteria for the debt securities in which it may
invest, and will rely on the investment adviser's judgment in evaluating the
creditworthiness of an issuer of such securities. In an effort to minimize the
risk, the Fund will diversify its holdings among many issuers. However, there
can be no assurance that diversification will protect the Fund from widespread
defaults during periods of sustained economic downturn. Because investment in
the Developing Capital Markets Focus Fund entails relatively greater risk of
loss of income or principal, an investment in the Fund may not be appropriate as
the exclusive investment to fund a Contract.
Natural Resources Focus Fund
This Fund 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 resource assets.
Global Utility Focus Fund
This Fund 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 Fund, primarily engaged in the ownership or operation of facilities used
to generate, transmit or distribute electricity, telecommunications, gas or
water.
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 the Subaccounts of the
Variable Account will be invested in shares of a corresponding portfolio of the
Fund. Based on the Company's view of present applicable law, we will vote the
portfolio shares held in the Variable Account at meetings of shareholders in
accordance with instructions received from Owners having a voting interest in
the portfolio. However, if the 1940 Act or its regulations are amended, or if
our interpretation of present law changes to permit us to vote the portfolio
shares in our own right, we may elect to do so.
Prior to the Annuity Date, the Owner holds a voting interest in each
portfolio in which there is value in the corresponding Subaccount. The number of
portfolio shares which are attributable to the Owner is determined by dividing
the corresponding value in a particular Subaccount by the net asset value of one
portfolio share. The number of votes which an Owner will have a right to cast
will be determined as of the record date established by each portfolio.
We will solicit voting instructions by mail prior to the shareholder
meetings. An Owner having a voting interest in a Subaccount will be sent proxy
material, reports and other materials as provided by the 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 Contracts, the Company may
substitute shares of another mutual fund (or portfolio within the fund) for Fund
shares already purchased or to be purchased in the future under the Contracts.
No substitution of securities may take place without any required prior approval
of the Securities and Exchange Commission and under such requirements as it may
impose.
<PAGE>
THE CONTRACT
The Contract described in this Prospectus is a deferred variable annuity.
Parties to the Contract
Owner
As the purchaser of the Contract, You may exercise all rights and
privileges provided in the Contract, subject to any rights that You, as Owner,
may convey to an irrevocable beneficiary. As Owner, You will also be the
Annuitant, unless You name in writing some other person as Annuitant.
Annuitant
The Annuitant is the person who receives annuity payments and upon the
continuance of whose life these payments are based. You may designate someone
other than yourself as Annuitant. If the Annuitant is a person other than the
Owner, and the Annuitant dies before the Annuity Date, You will become the
Annuitant unless you designate someone else as the new Annuitant.
Beneficiary
The Beneficiary You designate will receive the death proceeds if You die
prior to the Annuity Date. If no Beneficiary is living at that time, the death
proceeds are payable to Your estate. If the Annuitant dies after the Annuity
Date, the Beneficiary will receive any remaining guaranteed payments under an
Annuity Option. If no Beneficiary is living at that time, the remaining
guaranteed payments are payable to Your estate.
Change of Annuitant and Beneficiary
Prior to the Annuity Date, You may change the Annuitant and Beneficiary by
making a written request to Our Administrative Office. After the Annuity Date
only a change of Beneficiary may be made. Once We have accepted Your written
request, any change will become effective on the date You signed it. However,
any change will be subject to any payment or other action taken by Us before We
record the change. If the Owner is not a natural person, under current Federal
tax law, the Contract may be subject to unintended and adverse tax consequences.
For possible tax considerations of these changes, see TAXES, page ____.
How to Purchase a Contract
At the time of application, the Purchaser must pay at least the minimum
Premium required and provide instructions regarding the allocation of the
Premium among the Subaccounts. Acceptance of the Premium and form of application
is subject to Our requirements and We reserve the right to reject any Premium.
If the application and Premium are accepted in the form received, the Premium
will be credited and allocated to the Subaccounts within two business days of
its receipt. The date the Premium is credited to the Contract is the Effective
Date.
If within five days of the receipt of the initial Premium We have not
received sufficient information to issue a Contract, You will be contacted. The
reason for the delay will be explained to You. If You consent We will retain the
Premium until the necessary requirements are fulfilled. Otherwise, the Premium
will be immediately refunded to You.
Discount Purchase Programs
Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families may not be subject to the Surrender Charge.
<PAGE>
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. ("AIGESC"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AIGESC is a wholly-owned subsidiary of AIG,
and an affiliate of the Company. Commissions not to exceed 6 1/2% 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 AIGESC, Owners who purchased Contracts through the bank
would be permitted to retain their Contracts and alternate means for servicing
those Owners would be sought. It is not expected, however, that Owners would
suffer any loss of services or adverse financial consequences as a result of any
of these occurrences.
Administration of the Contracts
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Owner's records. DVFS serves as the administrator to various
insurance companies offering variable contracts.
Premium and Allocation to Your Investment Options
The initial Premium must be at least $2,000. You may make additional
payments of Premium prior to the Annuity Date, in amounts of at least $1000 or
$100 as part of an automatic investment plan. There is no maximum limit on the
additional Premiums You may pay or on the numbers of payments; however, the
Company reserves the right to reject any Premium on any Contract. You specify at
the time of issue or subsequently how the remaining amount, known as Additional
Premium will be allocated.
The initial Premium is allocated among the Subaccounts and Guaranteed
Account on the Effective Date. Your allocation instructions will specify what
percentage of Your initial Premium is to be credited to each Subaccount and to
the Guaranteed Account. Allocation instructions must be expressed in whole
percentages. Allocations for additional Premium will be made on the same basis
as the initial Premium unless We receive a written notice with new instructions.
Additional Premium will be credited to the Contract Value and allocated at the
close of the first Valuation Date on or after which the Additional Premium is
received at Our Administrative Office.
All premiums to IRA or 403(b) plan contracts must comply with the
applicable provisions in the Code and the applicable provisions of your
retirement plan. Additional premium commingled in an IRA with a rollover
contribution from other retirement plans may result in unfavorable tax
consequences. You should seek legal counsel and tax advice regarding the
suitability of the contract for your situation. (See "Taxes" on page ____.)
Right to Examine Contract Period
The Contract provides a 10 day Right to Examine Contract Period giving You
the opportunity to cancel the Contract. You must return the Contract with
written notice to Us. If We receive the Contract and Your written notice within
10 days after it is received by You, the Contract will be voided. With the
exception of Contracts issued in connection with an IRA, in those states whose
laws do not require that We assume the risk of market loss during the Right to
Examine Contract Period, should You decide to
<PAGE>
cancel Your Contract, the amount to be returned to You will be the Contract
Value (on the day We receive the Contract) plus any charges deducted for state
taxes, without imposition of the Surrender Charge. The amount returned to you
may be more or less than the initial Premium. (See "Charges and Deductions" on
page ____.) For Contracts issued in those states that require we return the
premium, we will do so. In the case of Contracts issued in connection with an
IRA, the Company will refund the greater of the Premium, less any withdrawals,
or the Contract Value.
State laws governing the duration of the Right to Examine Contract Period
may vary from state to state. We will comply with the laws of the state in which
the Owner resides at the time the Contract is applied for. Federal laws
governing IRAs require a minimum seven day right of revocation. We provide 10
days from the date the Contract is received by you. (See "Individual Retirement
Annuities" on page ____.)
Unit Value and Contract Value
After the deduction of certain charges and expenses, amounts which You
allocate to a Subaccount of the Variable Account are used to purchase
Accumulation Units in that Subaccount, not shares of the Portfolio in which that
Subaccount invest. The number of Accumulation Units you purchase will be
determined by dividing the amount allocated to each Subaccount by the Unit Value
of the Subaccount for the Valuation Period during which the amount was
allocated.
The Unit Value for each Subaccount will vary from one Valuation Period to
the next based on the investment experience of the Portfolio in which the
Subaccount invests and the deduction of certain charges and expenses. The
Statement of Additional Information contains a detailed explanation of how
Accumulation Units are valued.
Your value in any given Subaccount is determined by multiplying the Unit
Value for the Subaccount by the number of Units You own. Your value within the
Variable Account is the sum of your values in all the Subaccounts. The total
value of your Contract, known as the Contract Value, equals your Value in the
Variable Account plus Your value in the Guaranteed Account.
Transfers
Prior to the Annuity Date, You may make Transfers among the Subaccounts and
into and out of the Guaranteed Account subject to certain rules.
At the present time there is no limit on the number of transfers which can
be made among the Subaccounts and the Guaranteed Account in any one Contract
Year. We reserve the right to limit the number of transfers to 12 per Contract
Year. There are no fees for the first 12 transfers in any one Contract Year. For
each transfer in excess of 12 within one Contract Year, We impose a transfer fee
of $10. A transfer fee, if any, is deducted from the amount transferred. (See
Appendix -- "Guaranteed Account Transfers," page A-1.)
Transfers may be made by written request or by telephone as described in
the Contract or specifically authorized in writing. The Company will undertake
reasonable procedures to confirm that instructions communicated by telephone are
genuine. All calls will be recorded. All transfers will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
After the Annuity Date, the Owner may transfer the Contract Value allocated
to the Variable Account among the Subaccounts. However, the Company reserves the
right to refuse any more than one transfer per month. The transfer fee is the
same as before the Annuity Date. This transfer fee, if any, will be deducted
from the next annuity payment after the transfer. If following the transfer, the
Annuity Units remaining in the Subaccount would generate a monthly annuity
payment of less than $100, the Company will transfer the entire amount in the
Subaccount.
<PAGE>
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. (See "Dollar Cost Averaging") For additional limitations
regarding transfers out of the Guaranteed Account, see "Guaranteed Account
Transfers" in the Appendix, page A-1.)
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 either the Money
Market Subaccount or the Guaranteed Account 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 Dollar Cost Averaging, the Owner's Contract Value must be at least
$12,000 and a Dollar Cost Averaging Request in proper form must be received by
the Company. The Dollar Cost Averaging Request form will not be considered
complete until the Contract Value is at least the required amount. A Dollar Cost
Averaging Request form is available from the Administrative Office upon
request.An Owner may not have in effect at the same time Dollar Cost Averaging
and Asset Rebalancing.
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 quarter, and Asset Rebalancing automatically
reallocates the Contract Value in the Subaccounts to the allocation selected by
the Owner. Asset Rebalancing is intended to exchange Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help an Owner buy low and sell
high, although there can be no assurance of this. This investment method does
not guarantee profits, nor does it assure that an Owner will not have losses.
To elect Asset Rebalancing, the Contract Value in the Contract must be at
least $12,000 and an Asset Rebalancing Request in proper form must be received
by the Company. An Owner may not have in effect at the same time Dollar Cost
Averaging and Asset Rebalancing. If the Asset Rebalancing is elected, all
Contract Value allocated to the Subaccounts must be included in the Asset
Rebalancing.
<PAGE>
The amounts transferred will be credited to the Accumulation Unit Value as
of the end of the Valuation Dates on which the transfers are effected. Amounts
periodically transferred under this option are not included in the 12 transfers
per Contract Year discussed under "Transfers" on page _____.
An Owner may instruct the Company at any time to terminate this option by
written request. Once terminated, this Option may not be reselected during the
same Contract Year.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Premium, the Contract Value
and the Variable Account. These charges and deductions are as follows:
Deduction for State Premium Taxes
We do not deduct premium taxes unless assessed by the state of residence of
the Owner. Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged at Our discretion against either
Premium or Contract Value. Premium taxes currently imposed by certain states on
the Contracts range typically from 0% to 3.5% of premiums paid. Some states
assess premium taxes at the time Premium is received; others assess premium
taxes at the time of annuitization. Premium taxes are subject to being changed
or amended by state legislatures, administrative interpretations or judicial
acts.
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. The mortality risks assumed by the Company arise
from its contractual obligation to make annuity payments after the Annuity Date
for the life of the Annuitant, to waive the Surrender Charge in the event of the
death of the Owner prior to the Annuity Date and to provide the death benefit.
The expense risk assumed by the Company is that the costs of administering the
Contracts and the Variable Account will exceed the amount received from
Administrative and Contract Maintenance Charges.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased. The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period -- Annuity Options" on page ___.) The
Company in its discretion may offer additional payment options which are not
based on a life contingency. If this should occur and if a Owner should elect a
payment option not based on a life contingency, the Mortality and Expense Risk
Charge is still deducted but the Owner receives no benefit from that portion of
the charge attributable to mortality risk.
Deduction for Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Equity Assurance
Plan charge for each Valuation Period will 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 and above.
Deduction for Enhanced Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Enhanced Equity
Assurance Plan charge for each Valuation Period will 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 and above.
<PAGE>
Deduction for Annual Ratchet Plan
If the Owner has elected the Annual Ratchet Plan, the Annual Ratchet Plan
charge for each Valuation Period will equal on an annual basis to .10% of the
average daily net asset value of the Variable Account.
Deduction for Accidental Death Benefit
If the Owner has elected the Accidental Death Benefit, the Company deducts
for each Valuation Period an Accidental Death Benefit Charge equal on an annual
basis to .05% of the average daily net asset value of the Variable Account.
Deduction for Surrender Charge
In the event that an Owner makes a withdrawal from or surrenders Contract
Value in excess of the Free Withdrawal Amount, a Surrender Charge may be
imposed. The Free Withdrawal Amount is equal to the greater of the Contract
Value less premiums paid or the portion of the withdrawal that does not exceed
10% of the total Premium otherwise subject to the Surrender Charge paid to the
time of withdrawal, less any prior withdrawals and less any accrued charges for
option death benefits; 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:
Surrender
Charge Percentage
---------------
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
No Surrender Charge is imposed against: (1) Systematic Withdrawal options;
(2) Contract Value upon Annuitization; (3) a Death Benefit.
The Surrender Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Surrender Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403 (b) Plan or IRA (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 reimburse Us for
administrative expenses, both during the accumulation period and following the
Annuity Date. <PAGE>
Deduction for Contract Maintenance Charge
The Company also deducts an annual Contract Maintenance Charge of $30 per
year from the Contract Value on each Contract Anniversary. The Contract
Maintenance Fee is waived if the Contract Value is greater than $50,000 on the
date of deduction of the charge. These charges are designed to reimburse the
Company for the costs it incurs relating to maintenance of the Contract, the
Variable Account, and the Guaranteed Account. If the Contract is surrendered, we
will deduct the Contract Maintenance Charge at the time of surrender for the
current Contract Year. The deduction will be made proportionally based on Your
value in each Subaccount and the Guaranteed Account. After the Annuity Date, the
Contract Maintenance Charge is deducted on a pro-rata basis from each annuity
income payment.
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any Federal income taxes. (See
also "Taxes" beginning on page _____.)
Other Expenses
There are deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying Prospectus for the Fund.
Group and Sponsored Arrangements
In certain instances, we may reduce the Surrender Charge and the
Administrative Charge or change the minimum premium requirements for the sale of
Contracts to certain groups, including those in which a trustee or an employer,
for example, purchases Contracts covering a group of individuals on a group
basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
similar arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or group sponsored arrangements
that have been set up solely to buy Contracts or that have been in existence
less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Contract is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or Administrative
Charge will reflect differences in costs or services and will not be unfairly
discriminatory.
ANNUITY BENEFITS
Annuitization
Annuitization is an election you make to apply the Contract Value to an
Annuity Option in order to provide a series of annuity payments. The date the
Annuity Option becomes effective is the Annuity Date.
Annuity Date
The latest Annuity Date is: (a) the first day of the calendar month
following the later of the Annuitant's 90th birthday; or (b) such earlier date
as may be set by applicable law.
The Owner may designate an earlier date or may change the Annuity Date by
making a written request at least thirty (30) days prior to the Annuity Date
being changed. However, any Annuity Date must be no later than the date defined
above; and, the first day of a calendar month.
Without the approval of the Company, the new Annuity Date cannot be earlier
than one year after the Effective Date. In addition, for IRA or 403 (b) Plan
Contracts, certain provisions of your retirement plan or the Code may further
restrict your choice of an Annuity Date. (See "Taxes ," page ____).
<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 "Transfers" on page
- -----.)
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the Guaranteed Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will make annuity payments during the
lifetime of the Annuitant.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will make monthly annuity payments during the lifetime of the Annuitant. If, at
the death of the Annuitant, payments have been made for less than 10 years,
payments will be continued during the remainder of the period to the
Beneficiary.
Option 3: Joint and Last Survivor Income. The Company will make annuity
payments for as long as either the Annuitant or a Contingent Annuitant is alive.
In the event that the Contract is issued in connection with an IRA, the payments
in this Option will be made only to the Owner as Annuitant and the Owner's
spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company reserves the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company reserves the right to make payments semi-annually or annually.
If fixed annuity payments are selected, the amount of each fixed payment is
determined by multiplying the Contract Value allocated to purchase fixed annuity
payments by the factor shown in the annuity table specified in the Contract for
the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the value
of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Subaccount
selected; and (v) the pro-rata portion of the Contract Maintenance charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, variable annuity
payments will decrease.
<PAGE>
DEATH BENEFIT
Prior to the Annuity Date
In the event of an Owner's death (or the death of the first joint Owner to
die) prior to the Annuity Date, a death benefit is payable to the Beneficiary.
The value of the death benefit will be determined as of the date We receive
proof of death in a form acceptable to Us. If there has been a change of Owner
from one natural person to another natural person, the death benefit will equal
the Contract Value unless the change in ownership results from the election,
made by a surviving spouse as designated beneficiary to continue the Contract.
Otherwise, the death benefit will be calculated in accordance with the terms of
one or more of the options described below, as designated by the Owner at the
time of application. All death benefit options may not be available in all
states.
Traditional Death Benefit
Under the Traditional Death Benefit, We will pay the death benefit equal to
the greatest of:
1. the total of all Premiums paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was reduced
on the date of a surrender; or
2. the Contract Value; or
3. the greatest of the Contract Value at any 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 Premiums paid subsequent to that
Contract Anniversary.
The Traditional Death Benefit will be in effect if no other death benefit
is in effect.
Optional Death Benefit
Prior to determining the amount of any of the following Optional Death
Benefits the Contract Value will be reduced by the accrued charges for the
optional death benefit, if as of the date of death, the accured charges had not
yet been deducted from the Variable Account.
Annual Ratchet Plan
If at the time of application, the Owner has elected a death benefit under
the terms of the Annual Ratchet Plan, We will pay the death benefit equal to the
greatest of:
1. the total of all Premium paid, reduced proportionally by withdrawals and
surrenders;
2. the Contract Value; or
3. the greatest of the 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 Premiums paid subsequent to that
Contract Anniversary.
The charge for the Annual Ratchet Plan 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 Owner's written request to discontinue it.
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;
<PAGE>
2. the greatest Contract Value at 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 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:
0% per annum if death occurs during the 1st through 24th
month from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th
month from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd
month from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th
month from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th
month from the date of Premium payment;
10% per annum (for a maximum of 10 years) if death occurs
more than 120 months from the date of Premium Payments; and
(b) is equal to all Premiums paid after the first Contract
Anniversary following Your 85th birthday, adjusted for surrenders
as described below.
The charge for the Equity Assurance Plan is equal on an annual basis to
.07% of the average daily net asset value of the Variable Account for Owners
attained ages 0-59 and .20% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
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 Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application;
2. all premiums are initially allocated to investment options that are
designated for the Equity Assurance Plan on the Application; and
3. 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 or upon the allocation
of Contract Values to either the Money Market Subaccount or Guaranteed Account
unless such allocation is made as part of Dollar Cost Averaging.
<PAGE>
Enhanced Equity Assurance Plan
If at the time of the 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 that 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:
0% per annum if death occurs during the 1st through 24th
month from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th
month from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd
month from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th
month from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th
month from the date of Premium payment;
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 charge for the Enhanced Equity Assurance Plan is equal on an annual
basis to .17% of the average daily net asset value of the Variable Account for
Owners attained ages 0-59 and .30% of the average daily net asset value of the
Varialbe Account for Owners attained age 60 and above.
Adjustment for surrender. 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;
2. the charge for this Rider is shown on the Contract Schedule.
<PAGE>
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 or upon the
allocation of Contract Values to either the Money Market Subaccount or
Guaranteed Account, unless such allocation is made part of Dollar Cost
Averaging.
Accidental Death Benefit
The Owner may select the Accidental Death Benefit in addition to any of the
forms of death benefit options. The Accidental Death Benefit is not available if
the Contract is used as an IRA. If at the time of application the Owner has
selected the Accidental Death Benefit, the accidental 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 as a result of injury prior to the Contract Anniversary following his/her
75th birthday. The death must also occur before the Annuity Date and within 365
days of the date of the accident which caused the injury.
The Accidental Death Benefit will not be paid for any death caused by or
resulting (in whole or in part) from the following:
(a) suicide or attempted suicide while sane or insane; intentionally
self-inflicted injuries;
(b) sickness, disease or bacterial infection of any kind, except pyogenic
infections which occur as a result of an injury or bacterial
infections which result from the accidental ingestion of contaminated
substances;
(c) injury sustained as a consequence of riding in, including boarding or
alighting from, any vehicle or device used for aerial navigation
except if the Owner is a passenger on any aircraft licensed for the
transportation of passengers;
(d) declared or undeclared war or any act thereof; or
(e) service in the military, naval or air service of any country.
The Accidental Death Benefit will be in effect if:
1. the Owner designates this option on the Application; and
2. 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 written request to discontinue.
<PAGE>
Payment to Beneficiary
Upon the death of the Owner prior to the Annuity Date, the Beneficiary 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 section of this contract); or
3. if the designated Beneficiary is 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 of a 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 this
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 Annuitant
If the Annuitant is a person other than the Owner, and if the Annuitant
dies before the Annuity Date, a new Annuitant may be named by the Owner. If no
new Annuitant is named within sixty (60) days of Our receipt of proof of the
Annuitant's death, the Owner will be deemed the new Annuitant. If an Annuitant
dies after the Annuity Date, the remaining payments, if any, will be as
specified in the Annuity Option elected. We will require proof of the
Annuitant's death. Death benefits, if any, will be paid to the designated
Beneficiary at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
DISTRIBUTIONS UNDER THE CONTRACT
Withdrawals
The Owner may withdraw Contract 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 accrued charges
for optional death benefits and 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, Surrender Value will be paid to You and the Contract
will terminate.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page ____.)
<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 "Surrender Charges" on page
____.)
Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. In the event that
Your value in a specified Subaccount or the Guaranteed Account is not sufficient
to deduct a withdrawal or if Your request for systematic withdrawal does not
specify the Guaranteed Account or from which Subaccounts withdrawals are to be
deducted, withdrawals will be deducted proportionally based on Your value in
each Subaccount and the Guaranteed Account.
All parties to the Contract are cautioned that the rights of any person to
implement the systematic withdrawal program under Contracts issued in connection
with IRAs or 403(b) Plans may be subject to the terms and conditions of the
retirement plan, regardless of the terms and conditions of the Qualified
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" discussed on page _____.)
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value as of the date the Company receives Your surrender
request, reduced by the following: (1) any applicable taxes not previously
deducted; (2) any applicable accrued charges for optional death benefits; (3)
the Contract Maintenance Charge; and (4) any applicable Surrender Charge.
<PAGE>
Payment of Withdrawals and Surrender Values
Payments of withdrawals and Surrender Values will ordinarily be sent to the
Owner within seven (7) days of receipt of the written request, but see the
Deferment of Payment discussion below. (Also see Statement of Additional
Information -- "Delay of Payments.")
The Company reserves the right to ensure that an Owner's check or other
form of Premium has been cleared for payment prior to processing any withdrawal
or redemption request occurring shortly after a Premium payment.
If, at the time You make a request for a withdrawal or a surrender, You
have not provided Us with a written election not to have Federal income taxes
withheld, We must by law withhold such taxes from the taxable portion of Your
payment and remit that amount to the IRS. Mandatory withholding rules apply to
certain distributions from 403(b) Plan Contracts. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See "Taxes" on page ____, and "Tax-Favored Plans" on page ____.)
Deferral of Payment
Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Variable Account will usually occur within seven days. We may be permitted to
defer such payment if: (1) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise restricted;
(2) an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; (3) the SEC permits a delay for protection of Owners; or (4) the
check used to pay any Premium has not cleared through the banking system (this
may take up to 15 days).
We may defer payment of any withdrawal or surrender from the Guaranteed
Account for up to six months from the date we receive Your written request.
TAXES
Introduction
The Contracts are designed to accumulate Contract Values for retirement
plans which, except for IRAs and 403(b) Plans, are generally not tax-qualified
plans. The ultimate effect of Federal income taxes on the amounts held under a
Contract, on annuity payments, and on the economic benefits to the Owner,
Annuitant or Beneficiary depend on the Company's tax status and upon the tax
status of the individual concerned. Accordingly, each potential Owner should
consult a competent tax adviser regarding the tax consequences of purchasing a
Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Fund, please see the accompanying Prospectus for the Fund.
Company Tax Status
The Company is taxed as a life insurance company under the Code. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Subchapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the Contract Value. Under existing Federal
income tax law, the Variable Account's investment income, including realized net
capital gains,
<PAGE>
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 Person," 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.
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
<PAGE>
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 any 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 any Owner dies before the Annuity Date, the entire
interest must generally be distributed within five years 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. 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. 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. 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
<PAGE>
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.
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-
<PAGE>
through" rule applies so that an investment in the Fund is not treated as one
investment but is treated as an investment in a pro-rata portion of each
underlying asset of the Fund. All securities of the same issuer are treated as a
single investment. In the case of government securities, each Government agency
or instrumentality is treated as a separate issuer.
In connection with the issuance of the Diversification Regulations,
Treasury announced that such regulations do not provide guidance concerning the
extent to which Owners may direct their investments to particular divisions of a
separate account. It is possible that if and when additional regulations or IRS
pronouncements are issued, the Contract may need to be modified to comply with
such rules. For these reasons, the Company reserves the right to modify the
Contract, as necessary, to prevent the Owner from being considered the owner of
the assets of the Variable Account.
The Company intends to comply with the Diversification Regulations to
assure that the Contracts continue to be treated as annuity contracts for
Federal income tax purposes.
Tax-Favored Plans
By attachment of an endorsement that reflects the limits of Code section
408(b), the Contracts may be used as an IRA. The Contracts are also available
for use in connection with a previously established 403(b) Plan. No attempt is
made herein to provide more than general information about the use of the
Contracts with IRAs or 403(b) Plans. The information herein is not intended as
tax advice. A prospective Owner considering use of the Contract to create an IRA
or in connection with a 403(b) Plan should first consult a competent tax adviser
with regard to the suitability of the Contract as an investment vehicle for
their qualified plan.
While the Contract will not be available in connection with retirement
plans designed by the Company which qualify for the federal tax advantages
available under Sections 401 and 457 of the Code, a Contract can be used as the
investment medium for an individual Owner's separately qualified 401 retirement
plan. Distributions from a 401 qualified plan or 403(b) Plan (other than
non-taxable distributions representing a return of capital, distributions
meeting the minimum distribution requirement, distributions for the life or life
expectancy of the recipient(s) or distributions that are made over a period of
more than 10 years) are eligible for tax-free rollover within 60 days of the
date of distribution, but are also subject to federal income tax withholding at
a 20% rate unless paid directly to another qualified plan, 403(b) Plan or an
IRA. If the recipient is unable to take full advantage of the tax-free rollover
provisions, there may be taxable income, and the imposition of a 10% penalty tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Owner considering use of the Contract in this
manner should consult a competent tax advisor with regard to the suitability of
the Contract of this purpose and for information concerning the provisions of
the Code applicable to qualified plans, 403(b) Plans, and IRAs.
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
IRA. Contracts issued in connection with an IRA are subject to limitations on
eligibility, maximum contributions, and time of distribution. Distributions from
certain retirement plans qualifying for federal tax advantages may be rolled
over into an IRA. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. Section 408A of the Code
provides special rules for "Roth IRAs." The basic distinction between a Roth IRA
and a regular IRA is that contributions to a Roth IRA are not deductible and
"qualified distributions" from a Roth IRA are not includible in gross income for
federal income tax purposes. Other differences include the ability to make
contributions to a Roth IRA after age 70 1/2 and to defer distributions beyond
age 70 1/2. Taxpayers whose adjusted gross incomes exceed certain levels are not
eligible for Roth IRAs. Sales of the Contracts for use with IRAs are subject to
special requirements imposed by the Service, including the requirement that
informational disclosure be given to each person desiring to establish an IRA.
Contracts offered in connection with an IRA by this Prospectus are not available
in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on an Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to Premium paid under a salary reduction agreement. Specifically, Code Section
403(b)(11) allows an Owner to make a surrender or partial withdrawal only
<PAGE>
(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 Contracts described herein are being passed upon by the law firm of Jorden
Burt Boros Cicchetti Berenson & Johnson LLP, Washington, D.C.
<PAGE>
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
General Information
The Company
Independent Accountants
Legal Counsel
Distributor
Calculation of Performance Related Information
Delay of Payments
Transfers
Method of Determining Contract Values
Annuity Provisions
Annuity Benefits
Annuity Options
Variable Annuity Payment Values
Annuity Unit
Net Investment Factor
Additional Provisions
Financial Statements
<PAGE>
APPENDIX
Guaranteed Account Option
Under this Guaranteed Account option, Contract Values are held in the
Company's General Account. The General Account includes all of Our assets,
except those assets segregated in Our separate accounts. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 nor is the General Account
registered as an investment company under the Investment Company Act of 1940.
The Company understands that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus relating to the Guaranteed
Account portion of the Contract. Disclosures regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses. The Guaranteed Account may not be available in all states.
During the Accumulation Period the Owner may allocate amounts to the
Guaranteed Account. The initial Premium will be invested in the Guaranteed
Account if selected by the Owner at the time of application. Additional Premium
will be allocated in accordance with the selection made in the application or
the most recent instruction received at the Company Office. If the Owner elects
to withdraw amounts from the Guaranteed Account, such withdrawal, except as
otherwise provided in this Appendix, will be subject to the same conditions as
imposed on withdrawals from the Variable Account. The Company reserves the right
to delay any payment from the Guaranteed Account for up to six (6) months from
the date it receives such request at its Office.
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 invested in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guarantee rate. The effective guarantee rate is that rate
in effect when the Owner allocates or transfers amounts to the Guaranteed
Account. If the Owner has allocated or transferred amounts at different times to
the Guaranteed Account, each allocation or transfer may have a unique effective
guarantee rate associated with that amount. The effective guarantee rate will
not be changed more than once per year and the minimum rate will not be less
than 3%.
Guaranteed Account Transfers
During the accumulation period the Owner may transfer, by written request
or telephone authorization, Contract Values to or from a subaccount of the
Variable Account to or from the Guaranteed Account at any time, subject to the
conditions set out under Transfer of Contract Values Section.
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
80 Pine Street
New York, New York 10005
INDIVIDUAL SINGLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
The Individual Single Purchase Payment Deferred Variable Annuity Contracts
(the "Contracts") described in this Prospectus provide for accumulation of
Contract Values and payment of monthly annuity payments. The Contracts may be
used by individuals in retirement plans which do not qualify for federal tax
advantages ("Non-Qualified Contracts") or in connection with retirement plans
which may qualify as Individual Retirement Annuities ("IRA") under Section 408
of the Internal Revenue Code of 1986, as amended (the "Code") or Section 403(b)
of the Code ("403(b) Plan"). The Contracts will not be available in connection
with retirement plans designed by American International Life Assurance Company
of New York (the "Company") which qualify for the federal tax advantages
available under Sections 401and 457 of the Code. Purchasers intending to use the
Contracts in connection with an IRA or a 403(b) Plan should seek competent tax
advice.
Purchase payments for the Contracts will be allocated to a segregated
investment account of the Company which account has been designated Variable
Account A (the "Variable Account"). The Variable Account invests in shares of
Alliance Variable Products Series Fund, Inc. (the "Fund"). The Fund has made
available the following Portfolios: Money Market Portfolio; Growth Portfolio;
Growth and Income Portfolio; High-Yield 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; Quasar Portfolio; Real Estate Investment Portfolio; and
Technology Portfolio. (See "Alliance Variable Products Series Fund, Inc." on
Page __.) The Fund consists of other portfolios which are not currently
available as investment options under the Contracts.
This Prospectus concisely sets forth the information a prospective investor
ought to know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information" which is available at no
charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference. The
Table of Contents of the Statement of Additional Information can be found on
page ____of this Prospectus. For the Statement of Additional Information dated
May 1, 1998, call or write American International Life Assurance Company of New
York; Attention: Variable Products, 80 Pine Street, New York, New York, 10005,
1-800-340-2765.
INQUIRIES: Contract Owner inquiries can be made by calling the service
office at 1-800-255-8402.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE
NOT GUARANTEED OR ENDORSED BY ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE CONTRACT
INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF
PRINCIPAL.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
REPLACEMENT OF AN EXISTING LIFE INSURANCE POLICY OR ANNUITY CONTRACT MAY
NOT BE TO YOUR ADVANTAGE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
Date of Prospectus: May 1, 1998
2
<PAGE>
<TABLE>
<CAPTION>
TABLE CONTENTS
PAGE
<S> <C>
Definitions..................................................
Highlights...................................................
Summary of Expenses..........................................
Condensed Financial Information..............................
Calculation of Performance
Financial Data...................
The Company.......................................
The Variable Account..........................................
The Fund .........................
Charges and Deductions
Administration of the Contracts
Rights under the Contracts.....................................
Annuity Period................
Death Benefit.....................................
Purchasing Contract.........................................
Withdrawals.................................................
Taxes..........................................................
Legal Proccedings..............................................
Legal Matters..................................................
Table of Contents of the Statement of Additional Information.
Appendix - General Account Option..............................
</TABLE>
3
<PAGE>
DEFINITIONS
Accumulation Period - The period prior to the Annuity Date.
Accumulation Unit - Accounting unit of measure used to calculate the Contract
Value prior to the Annuity Date.
Age - Age means age on last birthday.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant is named in the application.
Annuity Date - The date at which annuity payments are to begin.
Annuity Unit - Accounting unit of measure used to calculate variable annuity
payments.
Beneficiary - The person or persons named in the application who will receive
any benefit upon the death of the Contract Owner (or Annuitant as applicable)
prior to the Annuity Date.
Contingent Owner - The Contingent Owner, if any, must be the spouse of the
Contract Owner as named in the application, unless changed.
Contract Anniversary - The same month and date as the Date of Issue in each
subsequent year of the Contract.
Contract Owner - The person designated as Contract Owner in the application,
unless changed.
Contract Value - The value of all amounts accumulated under the Contract.
Contract Year - Any period of twelve (12) months commencing with the Date of
Issue and each Contract Anniversary thereafter.
Date of Issue - The date when the purchase payment was invested.
Deferred Sales Charge - The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within six years of the
Date of Issue.
General Account - All of the Company's assets other than the assets of the
Variable Account and any other separate accounts of the Company.
4
<PAGE>
Office - The Annuity Service Office of the Company: c/o Delaware Valley
Financial Services,Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn,
Pennsylvania 19312-0031.
Premium Year - Any period of 12 months commencing with the date a Purchase
Payment is made and ending on the same date in each succedding 12 month period
thereafter.
Valuation Date - Each day that the New York Stock Exchange is open for trading.
Valuation Period - The period commencing as of the close of the New York Stock
Exchange (presently 4 P.M., Eastern Standard Time EST ) on each Valuation Date
and ending as of the close of the New York Stock Exchange on the next succeeding
Valuation Date.
Variable Account - A separate investment account of the Company, designated
Variable Account A, into which purchase payments will be allocated.
5
<PAGE>
HIGHLIGHTS
Purchase payments for the Contracts will be allocated to a segregated investment
account of Companywhich account has been designated Variable Account A (the
"Variable Account"). The Variable Account invests in shares of Alliance Variable
Product Series Fund, Inc. the Fund. (See The Fund, on page .)
The Contracts provide that in the event that a Contract Owner withdraws all or a
portion of the Contract Value within six Contract Years there will be assessed a
Deferred Sales Charge. The Deferred Sales Charge is based on a table of charges,
of which the maximum charge is currently 6% of the Contract Value subject to a
maximum of 8.5% of the purchase payment. (See "Charges and Deductions Deduction
for Deferred Sales Charge" on page
.)
Any premium or other taxes levied by any governmental entity with respect to the
Contracts will be charged against the purchase payment or the Contract Value.
Premium taxes currently imposed by certain states on the Contracts range from 0%
to 3.5%. (See "Charges and Deductions - Deduction for State Premium Taxes" on
page .)
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any income taxes. (See "Charges
and Deductions - Deduction for Income Taxes" on page .)
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. (See "Charges and Deductions - Deduction for
Mortality and Expense Risk Charge" on page .)
The Company deducts an annual Administrative Charge, which is currently $30 per
year, from the Contract Value to reimburse it for administrative expenses
relating to maintenance of the Contract and the Variable Account. The Company
may increase this charge to an amount not to exceed $100 per year. (See "Charges
and Deductions - Deduction for Administrative Charge" on page .)
There are deductions and expenses paid out of the assets of the Fund which are
described in the accompanying Prospectus for the Fund. Surrenders and
withdrawals may be taxable and subject to a penalty tax. (See "Taxes" beginning
on page .)
The Contract Owner may return the Contract within ten (10) days (the "Free Look
Period") after it is received by delivering or mailing it to the Company's
Office. If the Contract is purchased in Kansas or South Carolina and replaces
any existing life insurance policy or annuity, the Contract Owner will be given
a twenty (20) day Free Look Period. The return of the Contract by mail will be
effective when the postmark is affixed to a properly addressed and postage
prepaid envelope. The Company will refund the Contract Value. However, if the
laws of a state require that the Company refund, during the Free Look Period, an
amount equal to the purchase payment paid less any withdrawals, the Company will
refund such an amount. In the case of Contracts issued in connection with an IRA
the Company will refund the greater of the purchase payment, less any
withdrawals, or the Contract Value.
6
<PAGE>
SUMMARY OF EXPENSES
Owner Transaction Expenses
<TABLE>
<CAPTION>
All Sub-Accounts
<S> <C>
Sales Load Imposed on Purchases None
</TABLE>
Deferred Sales Charge (as a percentage of amount surrendered):
<TABLE>
<CAPTION>
Single Premium Contract
<S> <C>
Contract Year 1 6%
Contract Year 2 5%
Contract Year 3 4%
Contract Year 4 3%
Contract Year 5 2%
Contract Year 6 1%
Contract Year 7 and thereafter
None
Exchange Fee Currently:
First 12 Per Contract Year None
Thereafter $ 10
Annual Contract Fee $ 30
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Account Fees and Expenses 0.15%
Total Separate Account Annual Expenses 1.40%
</TABLE>
7
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Portfolio Fee Expenses* Expenses**
- - --------- --------- --------- ---------
<S> <C> <C> <C>
Money Market 0.50% 0.14% 0.64%
Growth 0.75 0.09 0.84
Growth and Income 0.63 0.09 0.72
International 0.53 0.42 0.95
U.S. Government/High Grad Securities 0.60 0.24 0.84
North American Government Investors 0.56 0.39 0.95
Global Dollar Government 0.41 0.54 0.95
Utility Income 0.62 0.33 0.95
Global Bond 0.56 0.38 0.94
Premier Growth 1.00 0.08 1.08
Total Return 0.63 0.25 0.88
Worldwide Privatization 0.40 0.55 0.95
Technology 0.76 0.19 0.95
Quasar 0.58 0.37 0.95
Real Estate Investment(1) 0.00 0.95 0.95
High Yield(1) 0.00 0.95 0.95
</TABLE>
The purpose of the table set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The table reflects expenses of the Variable Account as
well as the Funds. The Annual Administrative Charge for purposes of the Expense
Table, above, was based upon the assessment of a $30 charge on a Contract Value
of $5,000. (See "Charges and Deductions" on page ____ of this Prospectus and
each Fund's Prospectus for further information.) The table does not reflect the
charges applicable to certain death benefit options offered under the Contracts.
(See "Charges and Deductions -- Deduction for Equity Assurance Plan" on page
____; "Charges and Deductions -- Deductions for the Enhanced Equity Assurance
Plan" on page ___; Charges and Deductions -- Deductions for the Annual Rachet
Plan" on page ____; "Charges and Deductions -- Deductions for the 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 by certain states on the Contracts range from 0% to 3.5% of premiums
paid. (See "Charges and Deductions -- Deduction for State Premium Taxes" on page
____.)
- -----------
(1) The expense percentages for the High-Yield and Real Estate Investment
Portfolios have been annualized because as of December 31, 1997, the
Portfolios had not been in existence for a full year.
* "Other Expenses" are based upon the expenses outlined under the section
entitled "Management of the Fund" in the Fund's Prospectus.
** Total Portfolio Expenses for the following Portfolios before reimbursement
by the relevant Fund's investment advisor, for the period ended December
31, 1997, were as follows:
1.10% for Premier Growth; 1.03% for Global Bond; 1.55% for Worldwide
Privatization; 2.31% for Real Estate Investment; 8.26% for High Yield;
1.42% for International; 1.04% for North American Government Income; 1.29%
for Global Dollar Government; 1.08% for Utility Income; 1.37% for Quasar;
and 1.19% for Technology, of average daily net assets. For the year ended
December 31, 1997 expenses of the Premier Growth Portfolio were capped at
.95%. Effective May 1, 1998 Alliance discontinued expense reimbursement
with respect to the Premier Growth Portfolio.
6
<PAGE>
Expenses on a hypothetical $1,000 Single Premium policy, assuming 5% growth:
If you surrender
<TABLE>
<CAPTION>
Portfolio 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Money Market 77 105 134 243
Growth 79 111 144 264
Growth and Income 78 107 138 251
High Yield 80 114 149 275
International 80 114 149 275
U.S. Gov't/High Grade Securities 79 111 144 264
North American Gov't Income 80 114 149 275
Global Dollar Government 80 114 149 275
Utility Income 80 114 149 275
Global Bond 80 114 149 274
Premier Growth 81 115 155 288
Total Return 79 112 146 268
Worldwide Privatization 80 114 149 275
Technology 80 114 149 275
Quasar 80 114 149 275
Real Estate Investment 80 114 149 275
</TABLE>
7
<PAGE>
Expenses on a hypothetical $1,000 Single Premium policy, assuming 5%
growth:
<TABLE>
<CAPTION>
If you annuitize or
if you do not surrender
Portfolio 1 Year 3 Years 5 Years 10 Years
- - --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market 21 66 113 243
Growth 23 72 123 264
Growth and Income 22 68 117 251
High Yield 24 75 129 275
International 24 75 129 275
U.S. Gov't/High Grade Securities 23 72 123 264
North American Gov't Income 24 75 129 275
Global Dollar Government 24 75 129 275
Utility Income 24 75 129 275
Global Bond 24 75 128 274
Premier Growth 26 79 135 288
Total Return 24 73 125 268
Worldwide Privatization 24 75 129 275
Technology 24 75 129 275
Quasar 24 75 129 275
Real Estate Investment 24 75 129 275
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET
Accumulation Unit Value
Beginning of Period ................. 10.99 10.64 10.27 10.07 10.00 N/A
End of Period ....................... 11.39 10.99 10.64 10.27 10.07 N/A
Accum Units o/s @ end of period ....... 919,968.32 890,464.95 551,555.84 206,034.73 1,590.74 N/A
GROWTH
Accumulation Unit Value
Beginning of Period ................. 17.73 13.99 10.48 11.13 10.00 10.00
End of Period ....................... 22.73 17.73 13.99 10.48 11.13 10.00
Accum Units o/s @ end of period ....... 1,695,515.74 1,541,465.58 777,108.88 56,104.84 35,271.53 2,081.43
GROWTH & INCOME
Accumulation Unit Value
Beginning of Period ................. 18.99 15.52 11.57 11.76 10.66 10.00
End of Period ....................... 24.11 18.99 15.52 11.57 11.76 10.66
Accum Units o/s @ end of period ....... 1,868,628.86 1,324,216.31 502,667.80 179,245.69 37,573.04 7,731.36
INTERNATIONAL
Accumulation Unit Value
Beginning of Period ................. 12.92 12.22 11.27 10.69 10.00 N/A
End of Period ....................... 13.17 12.92 12.22 11.27 10.69 N/A
Accum Units o/s @ end of period ....... 612,030.95 525,023.12 228,254.81 122,616.95 22,441.08 N/A
U.S. GOVERNMENT/HIGH GRADE SECURITIES
Accumulation Unit Value
Beginning of Period ................. 11.50 11.38 9.66 10.17 10.00 N/A
End of Period ....................... 12.33 11.50 11.38 9.66 10.17 N/A
Accum Units o/s @ end of period ....... 601,935.75 552,183.99 390,483.21 75,881.31 7,608.84 N/A
NORTH AMERICAN GOVERNMENT INCOME
Accumulation Unit Value
Beginning of Period ................. 12.35 10.55 8.71 10.00 N/A N/A
End of Period ....................... 13.35 12.35 10.55 8.71 N/A N/A
Accum Units o/s @ end of period ....... 469,970.73 279,368.63 95,031.46 89,164.68 N/A N/A
GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period ................. 14.55 11.81 9.73 10.00 N/A N/A
End of Period ....................... 16.24 14.55 11.81 9.73 N/A N/A
Accum Units o/s @ end of period ....... 179,585.93 76,451.58 16,171.63 5,958.18 N/A N/A
UTILITY INCOME
Accumulation Unit Value
Beginning of Period ................. 12.38 11.64 9.71 10.00 N/A N/A
End of Period ....................... 15.35 12.38 11.64 9.71 N/A N/A
Accum Units o/s @ end of period ....... 341,317.44 305,608.09 103,042.86 13,690.19 N/A N/A
GLOBAL BOND
Accumulation Unit Value
Beginning of Period ................. 12.82 12.24 9.94 10.61 10.00 N/A
End of Period ....................... 12.73 12.82 12.24 9.94 10.61 N/A
Accum Units o/s @ end of period ....... 161,242.31 145,722.74 76,604.28 27,806.30 5,589.55 N/A
PREMIER GROWTH
Accumulation Unit Value
Beginning of Period ................. 18.45 15.25 10.66 10.00 N/A N/A
End of Period ....................... 24.36 18.45 15.25 10.66 N/A N/A
Accum Units o/s @ end of period ....... 1,441,993.79 1,026,432.81 420,662.68 108,111.20 N/A N/A
TOTAL RETURN
Accumulation Unit Value
Beginning of Period ................. 13.52 11.90 9.75 10.00 N/A N/A
End of Period ....................... 16.14 13.52 11.90 9.75 N/A N/A
Accum Units o/s @ end of period ....... 568,896.78 455,709.19 121,094.82 4,871.12 N/A N/A
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period ................. 12.86 11.01 10.05 10.00 N/A N/A
End of Period ....................... 14.04 12.86 11.01 10.05 N/A N/A
Accum Units o/s @ end of period ....... 495,269.51 224,339.58 62,769.30 6,357.69 N/A N/A
TECHNOLOGY
Accumulation Unit Value
Beginning of Period ................. 10.90 10.00 N/A N/A N/A N/A
End of Period ....................... 11.44 10.90 N/A N/A N/A N/A
Accum Units o/s @ end of period ....... 1,033,596.21 431,529.41 N/A N/A N/A N/A
QUASAR
Accumulation Unit Value
Beginning of Period ................. 10.58 10.00 N/A N/A N/A N/A
End of Period ....................... 12.38 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period ....... 629,523.13 179,808.73 N/A N/A N/A N/A
REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period ................. N/A N/A N/A N/A N/A N/A
End of Period ....................... N.A N.A N/A N/A N/A N/A
Accum Units o/s @ end of period ....... N/A N/A N/A N/A N/A N/A
HIGH YIELD
Accumulation Unit Value
Beginning of Period ................. N/A N/A N/A N/A N/A N/A
End of Period ....................... N.A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period ....... N/A N/A N/A N/A N/A N/A
</TABLE>
*Funds were first invested in the Portfolios as listed below:
<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 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>
15
<PAGE>
Calculation Of Performance Data
The Company may, from time to time, advertise certain performance related
information concerning one or more of the Sub-accounts, including information as
to total return and yield. Performance information about a Sub-account is based
on the Sub-account's past performance only and is not intended as an indication
of future performance.
When the Company advertises the average annual total return of a
Sub-account, it will usually be calculated for one, five, and ten year periods
or, where a Sub-account has been in existence for a period less than one, five
or ten years, for such lesser period. Average annual total return is measured by
comparing the value of the investment in a Sub-account at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming the deduction of any Deferred Sales Charge which would be payable if
the account were redeemed at the end of the period) and calculating the average
annual compounded rate of return necessary to produce the value of the
investment at the end of the period. The Company may simultaneously present
returns that do not assume a surrender and, therefore, do not deduct the
Deferred Sales Charge.
When the Company advertises the yield of a Sub-account it will be
calculated based upon a 30-day period ended on the date of the most recent
balance sheet of the Company included in its registration statement. The yield
is determined by dividing the net investment income per Accumulation Unit earned
during the period by the maximum offering price per unit on the last day of the
period.
When the Company advertises the performance of the Money Market Sub-account
it may advertise in addition to the total return either the yield or the
effective yield. The yield of the Money Market Sub-account refers to the income
generated by an investment in that Sub-account over a 7-day period. The income
is then annualized (i.e., the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment). The effective yield is calculated
similarly but when annualized the income earned by an investment in the Money
Market Sub-account is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all contract
charge (sales charges, mortality and expense risk charges, and the
administrative charge) and is therefore lower than the total return at the Fund
level, which has no comparable charges. Likewise, yield and effective yield at
the Variable Account level take into account all recurring charges (except sales
charges), and are therefore lower than the yield and effective yield at the Fund
level, which has no comparable charges.
Performance information for a Sub-account may be compared to: (i) the
Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue Money
Market Institutional Averages, indices measuring corporate bond and government
security prices as prepared by Shearson Lehman Hutton and Salomon Brothers or
other indices measuring performance of a pertinent group of securities so that
investors may compare a Sub-account's results with those of a group of
securities widely regarded by investors as representative of the securities
markets in general; (ii) other variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by other ratings services, companies, publications, or persons who rank separate
accounts or other investment products on overall performance or other criteria;
(iii) the Consumer Price Index (measure for inflation) to assess the real rate
of return from an investment in the Contract; and (iv) indices or averages of
alternative financial products available to prospective investors, including the
Bank Rate Monitor which monitors average returns of various bank instruments.
16
<PAGE>
Financial Data
Financial statements of the Company may be found in the Statement of
Additional Information. No financial statements for the Variable Account have
been provided in the Statement of Additional Information because, as of the date
of this Prospectus, the Subaccounts had not yet commenced operations with
respect to the underlying portfolios of the Funds and consequently had no assets
invested in such portfolios.
The Company
Rating Information
The Company is a stock life insurance company which was organized under the
laws of the State of New York in 1962. The Company provides a full range of life
insurance and annuity plans. The Company is a subsidiary of American
International Group, Inc., which serves as the holding company for a number of
companies engaged in the international insurance business, both life and
general, in over 130 countries and jurisdictions around the world.
THE VARIABLE ACCOUNT
The Board of Directors of the Company adopted a resolution to establish a
segregated asset account pursuant to New York insurance law on June 5, 1986. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940.
The assets of the Variable Account are the property of the Company.
However, the assets of the Variable Account, equal to the reserves and other
contract liabilities with respect to the Variable Account, are not chargeable
with liabilities arising out of any other business the Company may conduct.
Income, gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. The Company's obligations arising
under the Contracts are general corporate obligations of the Company. The
Variable Account may be subject to liabilities arising from Sub-accounts whose
assets are attributable to other variable annuity contracts offered by Variable
Account A which are not described in this Prospectus.
The Variable Account is divided into Sub-accounts, with the assets of each
Sub-account invested in one Portfolio of the Fund. The Company may, from time to
time, add additional portfolios to the Fund, and, when appropriate, additional
mutual funds to act as the funding vehicles for the Contracts.
17
<PAGE>
THE FUND
Alliance Variable Products Series Fund, Inc. will act as the funding
vehicle for the Contracts offered hereby. The Fund is managed by Alliance
Capital Management, L.P., (the "Advisor"). The Fund is an open-end, diversified
management investment company, which is intended to meet differing investment
objectives. The Fund has made available the following portfolios: Money Market;
Growth; Growth and Income; International; U.S. Government/High Grade Securities;
North American Government Income; Global Dollar Government; Utility Income;
Global Bond; Premier Growth; Total Return; Worldwide Privatization; Technology;
Quasar; Real Estate Investment; and High Yield. The Advisor has entered into a
sub-advisory agreement with AIGAM International Limited (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 contained in the description of the Fund below.
More detailed information including the investment advisory fee of each
portfolio and other charges assessed by the Fund, may be found in the current
Prospectus for the Fund which contains a discussion of the risks involved in
investing in the Fund. The Prospectus for the Fund, which contains a discussion
of the risks involved in investing in the Fund is included with this Prospectus.
Please read both Prospectuses carefully before investing.
The investment objectives of the Portfolios are as follows:
Money Market Portfolio
This Portfolio seeks safety of principal, maintenance of liquidity and
maximum current income by investing in a broadly diversified portfolio of money
market securities.
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.
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 garde) by nationally recognized rating
services. These securities, which are often referred to as "junk bonds", are
subject to greater risk loss of principal and interest than higher rated
securities and are considered to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal.
International Portfolio
This Portfolio seeks to obtain a total return on its assets from long-term
growth of capital and from income principally through a broad portfolio of
marketable securities of established non-United States companies (or United
States companies having their principal activities and interests outside the
United States), companies participating in foreign economies with prospects for
growth, and foreign government securities.
North American Government Income Portfolio
This Portfolio seeks the highest level of current income, consistent with
what the adviser considers to be prudent investment risk, that is available from
a portfolio of debt securities issued or guaranteed by the governments of the
United States, Canada and Mexico, their political subdivisions (including
Canadian Provinces but excluding the States of the United States), agencies,
instrumentalities or authorities. The Portfolio seeks high current yields by
investing in government securities denominated in local currency and U.S.
Dollars. Normally, the Portfolio expects to maintain at least 25% of its assets
in securities denominated in the U.S. Dollar.
Global Dollar Government Portfolio
This portfolio seeks a high level of current income through investing
substantially all of its assets in U.S. and non-U.S. fixed income securities
denominated only in U.S. Dollars. As a secondary objective, the Portfolio seeks
capital appreciation. Substantially all of the Portfolio's assets will be
invested in high yield, high risk securities that are low-rated (i.e., below
investment grade), or of comparable quality and unrated, and that are considered
to be predominately speculative as regards the issuer's capacity to pay interest
and repay principal.
Utility Income Portfolio
This Portfolio seeks current income and capital appreciation by investing
primarily in the equity and fixed-income securities of companies int he
"utilities industry." The Portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical performance of
securities of utilities companies. The utilities industry consists of companies
engaged in the manufacture, production, generation, provision, transmission,
sale and distribution of gas, electric energy, and communications equipment and
services, and in the provision of other utility or utility-related goods and
services.
U.S. Government/High Grade Securities Portfolio
This Portfolio seeks a high level of current income consistent with
preservation of capital by investing principally in a portfolio of U.S.
Government Securities, and other high grade debt securities.
Global Bond Portfolio
This Portfolio seeks to provide the highest level of current income
consistent with what the Fund's Adviser and Sub-Adviser consider to be prudent
investment risk that is available from a multi-currency portfolio of high
quality debt securities of varying maturities.
Premier Growth Portfolio
This Portfolio seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based on their
potential for capital appreciation, current income will be incidental to the
objective of capital growth. The Portfolio is not intended for investors whose
principal objective is assured income or preservation of capital.
Total Return Portfolio
This Portfolio seeks to achieve a high return through a combination of
current income and capital appreciation by investing in a diversified portfolio
of common and preferred stocks, senior corporate debt securities, and U.S.
Government and Agency obligations, bonds and senior debt securities.
Worldwide Privatization Portfolio
This Portfolio seeks long-term capital appreciation by investing
principally in equity securities issued by enterprises that are undergoing, or
have undergone, privatization. The balance of the Portfolio's investment
portfolio will include equity securities of companies that are believed by the
Fund's Adviser to be beneficiaries of the privatization process.
Technology Portfolio
This Portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. The Technology Portfolio
invests principally in a diversified portfolio of securities of companies which
use technology extensively in the development of new or improved products or
processes.
Quasar Portfolio
This portfolio seeks growth of capital by pursuing aggressive investment
policies. The Portfolio invests principally in a diversified portfolio of equity
securities of any company and industry and in any type of security which is
believed to offer possibilities for capital appreciation.
Real Estate Investment Portfolio
This portfolio seeks a total return on its assets from long-term growth of
capital and from income principally through investing in a portfolio of equity
securities of issuers that are primarily engaged in or related to the real
estate industry.
There is no assurance that the investment objectives of the Portfolios will
be met.
20
<PAGE>
Voting Rights
The Fund does not hold regular meetings of shareholders. The Directors of
the Fund may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Investment Company Act of 1940 or the Articles of
Incorporation of the Fund. In accordance with its view of present applicable
law, the Company will vote the shares of the Fund held in the Variable Account
at special meetings of the shareholders of the Fund in accordance with
instructions received from persons having the voting interest in the Variable
Account. The Company will vote shares for which it has not received instructions
from Contract Owners and those shares which it owns in the same proportion as it
votes shares for which it has received instructions from Contract Owners.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Company not more than sixty (60) days prior to
the meeting of the Fund. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to such meeting. The person
having such voting rights will be the Contract Owner before the Annuity Date or
the death of the Annuitant (or Contract Owner, as applicable), and thereafter,
the payee entitled to receive payments under the Contract. During the Annuity
Period, voting rights attributable to a Contract will generally decrease as the
Contract Value attributable to an Annuitant decreases.
The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds invested in the General
Account.
Shares of the Fund are sold only to separate accounts of life insurance
companies. The shares of the Fund will be sold to separate accounts of the
Company, its affiliate, AIG Life Insurance Company and unaffiliated life
insurance companies to fund variable annuity contracts and/or variable life
insurance policies. It is conceivable that, in the future, it may be
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
the Company nor the Fund currently foresees any such disadvantages, either to
variable life insurance policyowners or to variable annuity Contract Owners, the
Fund's Board of Directors will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response thereto. If a material irreconcilable
conflict were to occur, the relevant participating life insurance companies will
under their agreements governing participation in the Fund take whatever steps
are necessary, at their expense, to remedy or eliminate the irreconcilable
material conflict. If such a conflict were to occur, one or more insurance
company separate accounts might withdraw its investments in the Fund. This might
force the Fund to sell securities at disadvantageous prices.
Substitution Of Shares
If the shares of the Fund (or any Portfolio within the Fund) should no
longer be available for investment by the Variable Account or if, in the
judgment of the Company, further investment in such shares should become
inappropriate in view of the purpose of the Contracts, the Company may
substitute shares of another mutual fund (or Portfolio within the Fund) for Fund
shares already purchased or to be purchased in the future by purchase payments
under the Contracts. No substitution of securities may take place without any
required prior approval of the Securities and Exchange Commission and under such
requirements as it may impose.
21
<PAGE>
Allocation Of Purchase Payment to Sub-accounts
The purchase payment is allocated to the Sub-account(s) selected by the
Contract Owner in the application except that in those states which require the
Company to pay a premium tax upon receipt of a purchase payment the Company will
deduct the premium tax prior to allocating the purchase payment to such
Sub-account(s). The selection must specify a percentage for each Sub-account
that is a whole number, and must be either 0% or a number equal to or greater
than 10%. At the time of the allocation the purchase payment is divided by the
value of the Accumulation Unit for the particular Sub-account for the Valuation
Period during which such allocation occurs to determine the number of
Accumulation Units attributable to the purchase payment.
The purchase payment under an IRA plan will be allocated to the Money
Market Sub-account until the expiration of fifteen (15) days from the day the
Contract is mailed from the Company's office. Thereafter, the Contract Value
shall be reallocated in accordance with instructions specified in the
application.
22
<PAGE>
Transfer Of Contract Values
Before the Annuity Date, the Contract Owner may transfer, by written
request or telephone authorization, Contract Values from one Sub-account to
another Sub-account, subject to the following conditions:
(a) the amount transferred from any Sub-account must be at least $1,000
(or the entire Sub-account value, if less);
(b) if less than $1,000 would remain in the Sub-account after the
transfer, the Company will transfer the entire amount in the
Sub-account;
(c) the Company may reject any more than twelve (12) transfer requests per
Contract Year; and
(d) the Company will deduct any transfer charge assessed on the
transaction. The Company is currently not assessing a transfer
fee for the first twelve (12) transfers per Contract Year. The
Company is assessing a transfer fee of $10 per transfer
thereafter. The Company may increase the transfer fee to an
amount not to exceed $30 per transfer. The transfer fee will be
deducted from either the Sub-account which is the source of the
transfer or from the amount transferred if the entire value in
the Sub-account is transferred.
Transfer by telephone authorization is available to a Contract Owner only
by prior election. A Contract Owner must complete, sign, and file with the
Company a Telephone Transfer Authorization Form for each Contract owned. The
Company will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. All calls will be recorded. All transfers
performed by telephone authorization will be confirmed in writing to the
Contract Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
Transfer privileges are further explained in the Statement of Additional
Information.
After the Annuity Date, the payee of the annuity payments may transfer the
Contract Value allocated to the Variable Account from one Sub-account to another
Sub-account. However, the Company reserves the right to refuse any more than one
transfer per month. The transfer fee is the same as before the Annuity Date.
This transfer fee will be deducted from the next annuity payment after the
transfer. If following the transfer, the units remaining in the Sub-account
would generate a monthly payment of less than $100, then the Company may
transfer the entire amount in the Sub-account.
Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Sub-account. The number of Annuity Units for each
Sub-account will remain the same for the remainder of the payment period unless
the payee requests another change.
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CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the
Variable Account. These charges and deductions are:
Deduction for State Premium Taxes
Any premium or other taxes levied by any governmental entity with respect
to the Contracts will be charged against the purchase payment or the Contract
Value . Premium taxes currently imposed by certain states on the Contracts range
from 0% to 3.5% of premiums paid. Some states assess premium taxes at the time
purchase payments are made; others assess premium taxes at the time of
annuitization. The Company currently intends to advance any premium taxes due at
the time purchase payments are made and then deduct premium taxes from the
Contract Value at the time annuity payments begin or upon surrender if the
Company is unable to obtain refund of or otherwise obtain a credit for any
excess premium taxes paid. The Company reserves the right to deduct premium
taxes when incurred. Premium taxes are subject to being changed or amended by
state legislatures, administrative interpretations or judicial acts.
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account (consisting of approximately .90% for mortality
risks and approximately .35% for expense risks). The mortality risks assumed by
the Company arise from its contractual obligation to make annuity payments after
the Annuity Date for the life of the Annuitant, to waive the Deferred Sales
Charge in the event of the death of the Annuitant and to provide the death
benefit prior to the Annuity Date. The expense risk assumed by the Company is
that the costs of administering the Contracts and the Variable Account will
exceed the amount received from the Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and
cannot be increased.
The Mortality and Expense Risk Charge is deducted during the Accumulation
Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period - Annuity Options" on page ) It is
possible that in the future the Company may offer additional payment options
which are not based on a life contingency. If this should occur and if a
Contract Owner should elect a payment option not based on a life contingency,
the Mortality and Expense Risk Charge is still deducted but the Contract Owner
receives no benefit from it.
Deduction for Deferred Sales Charge
In the event that a Contract Owner withdraws all or a portion of the
Contract Value in excess of the Free Withdrawal Amount for the first withdrawal
in a Contract Year other than by way of the Systematic Withdrawal Program, or
makes subsequent withdrawals in a Contract Year, a Deferred Sales Charge may be
imposed. The Free Withdrawal Amount is equal to 10% of the Contract Value at the
time of withdrawal.
The Deferred Sales Charge is deducted based upon a percentage of the
Contract Value which includes the purchase payment and earnings. Since earnings
are included it is possible that the actual amount of the Deferred Sales Charge
may increase even though the percentage may go down.
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The Deferred Sales Charge will vary in amount depending upon the time which
has elapsed since the Date of Issue. The amount of any withdrawal which exceeds
the Free Withdrawal Amount will be subject to the following charge:
Applicable Deferred Contract Year Sales Charge Percentage
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and thereafter 0%
The aggregate Deferred Sales Charges paid with respect to a Contract shall
not exceed 8.5% of the purchase payment for such Contract.
The Deferred Sales Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Deferred Sales Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403(b) Plan or IRA. (See
"Taxes - 403(b) Plans" on page .)
Deduction for Administrative Charge
The Company deducts an annual Administrative Charge, which is currently $30
per year, from the Contract Value to reimburse it for the costs it incurs
relating to maintenance of the Contract and the Variable Account. The Company
may increase this charge to an amount not to exceed $100 per year. The
Administrative Charge is designed to reimburse the Company for the costs it
incurs relating to the maintenance of the Contract and the Variable Account.
Prior to the Annuity Date, the Administrative Charge is deducted from the
Contract Value on each Contract Anniversary. If the Annuity Date is a date other
than a Contract Anniversary, the Company will also deduct a pro-rata portion of
the Administrative Charge from the Contract Value for the fraction of the
Contract Year preceding the Annuity Date.
This charge is also deducted in full on the date of any total withdrawal.
The charge will be deducted from each Sub-account of the Variable Account in the
proportion that the value of each Sub-account attributable to the Contract bears
to the total Contract Value.
After the Annuity Date, this charge is deducted on a pro-rata basis from
each annuity payment and is guaranteed to remain at the same amount as at the
Annuity Date.
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any income taxes. Surrenders and
withdrawals may be taxable and subject to a penalty tax. (See "Taxes" beginning
on page .)
Other Expenses
There are deductions from and expenses paid out of the assets of the Fund
which are described in the accompanying Prospectus for the Fund.
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ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Contract Owner's records. DVFS serves as the administrator to
various insurance companies offering variable contracts .
RIGHTS UNDER THE CONTRACTS
The Contract Owner has all rights and may receive all benefits under the
Contract. The Contract Owner is named in the application. Ownership may be
changed prior to the Annuity Date through the submission of written notification
of the change to the Company on a form acceptable to the Company. On and after
the Annuity Date, the Annuitant and Contract Owner shall be one in the same
person unless otherwise provided for. In the case of Contracts issued in
connection with an IRA, the Contract Owner must be the Annuitant.
The Contract Owner's spouse is the only person eligible to be the
Contingent Owner. (See "Death Benefit - Death of Contract Owner" on page ____)
Any new choice of Contingent Owner will automatically revoke any prior choices.
The Contract Owner may, except in the case of a Contract issued in
connection with either an IRA or a 403(b) Plan, assign a Contract at any time
before the Annuity Date and while the Annuitant is alive. A copy of any
assignment must be filed with the Company. The Company is not responsible for
the validity of any assignment. If the Contract is assigned, the rights of the
Contract Owner and those of any revocable Beneficiary will be subject to the
assignment. An assignment will not affect any payments the Company may make or
action it may take before it is recorded. In as much as an assignment or change
of ownership may be a taxable event, Contract Owners should consult competent
tax advisers should they wish to assign their Contracts.
The Contract may be modified only with the consent of the Contract Owner,
except as may be required by applicable law.
ANNUITY PERIOD
Annuity Benefits
If the Annuitant and Contract Owner are alive on the Annuity Date, the
Company will begin making payments to the Annuitant under the annuity option or
options the Contract Owner has chosen.
The Contract Owner may choose or change an annuity payment option by making
a written request at least thirty (30) days prior to the Annuity Date.
The amount of the payments will be determined by applying the Contract
Value on the Annuity Date. The amount of the annuity payments will depend on the
age or sex of the payee at the time the settlement contract is issued. At the
Annuity Date the Contract Value in each Sub-account will be applied to the
applicable annuity tables contained in the Contract. The amount of the
Sub-account annuity payments are determined through a calculation described in
the Section captioned "Annuity Provisions" in the Statement of Additional
Information.
Annuity Date
The Annuity Date for the Annuitant is:
(a) the first day of the calendar month following the later of
the Annuitant's 85th birthday or the 10th Contract
Anniversary; or
(b) such earlier date as may be set by applicable law.
The Contract Owner may designate an earlier date in the application or may
change the Annuity Date by making a written request at least thirty (30) days
prior to the Annuity Date being changed. However, any Annuity Date must be:
(a) no later than the date defined in (a) above; and (b) the
first day of a calendar month.
In addition, for IRA and 403(b) Plan Contracts, certain provisions of your
retirement plan or the Code may further restrict your choice of an Annuity Date.
(See "Taxes - 403(b) Plans" on page , and "Taxes Individual Retirement
Annuities" on page .)
Annuity Options
The Contract Owner may choose to receive annuity payments which are fixed,
or which are based on the Variable Account, or a combination of the two. If the
Contract Owner elects annuity payments which are based on the Variable Account,
the amount of the payments will be variable. The Contract Owner may not transfer
Contract Values between the General Account and the Variable Account after the
Annuity Date, but may, subject to certain conditions, transfer Contract Values
from one Sub-account to another Sub-account. (See "Alliance Variable Products
Series Fund, Inc. Transfer of Contract Values" on page .)
If the Contract Owner has not made any annuity payment option selection at
the Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the General Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will pay an annuity during the
lifetime of the payee.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company will
pay an annuity during the lifetime of the payee. If, at the death of the payee,
payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee;
(b) the successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate used to
create the annuity factor for this Option; or
(c) the guaranteed period will not in the case of Contracts issued in
connection with an IRA exceed the life expectancy of the Annuitant at
the time the first payment is due.
Option 3: Joint and Last Survivor Income. The Company will pay an annuity
for as long as either the payee or a designated second person is alive. In the
event that the Contract is issued in connection with an IRA, the payments in
this Option will be made only to the Annuitant and the Annuitant's spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company has the right to pay the amount in a lump sum in lieu of
annuity payments. The Company makes all other annuity payments monthly. However,
if the total monthly annuity payment would be less than $100 the Company has the
right to make payments semi-annually or annually.
If fixed annuity payments are selected, the amount of each fixed payment is
determined by multiplying the Contract Value allocated to purchase fixed annuity
payments by the factor shown in the annuity table specified in the Contract for
the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the value
of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Sub-account
selected; and (v) the pro-rata portion of the Administrative Charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, annuity payments will
decrease.
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DEATH BENEFIT
Death Benefit
If the Annuitant (or Contract Owner, if applicable) dies before the Annuity
Date, the Company will pay a death benefit equal to the greater of the purchase
payment paid less partial withdrawals or the Contract Value.
Before the Company will pay any death benefit, the Company will require due
proof of death. The Company will determine the value of the death benefit as of
the Valuation Period following receipt of due proof of death. The Company will
pay the death benefit to the Beneficiary in accordance with any applicable laws
governing the payment of death proceeds.
Payment of the death benefit may be made in one lump sum or applied under
one of the annuity payment options. (See "Annuity Period - Annuity Options" on
page .) The Contract Owner may by written request elect that any death benefit
of at least $2,000 be received by the Beneficiary under an annuity payment
option. (See "Annuity Period - Annuity Options" on page .) The Contract Owner
may choose or change a payment option at any time prior to the Annuitant's
death. If at the time the Annuitant dies, the Contract Owner has made no request
for a payment option, the Beneficiary has sixty (60) days in which to make a
written request to elect either a lump sum payment or any annuity payment
option. Any lump sum payment will be made within seven (7) days after the
Company has received due proof of death and the written election of the
Beneficiary, unless a delay of payments provision is in effect. (See Statement
of Additional Information - "General Information Delay of Payments.")
In the event that the Annuitant and the Contract Owner are the same
individual, the death of that individual will be treated by the Company as the
death of the Annuitant.
Death of the Contract Owner
If a Contract Owner dies before the Annuity Date, the entire Contract Value
must be distributed within five (5) years of the date of death, unless:
(a) it is payable over the lifetime of a designated Beneficiary with
distributions beginning within one (1) year of the date of death; or
(b) the Contingent Owner, if any, continues the Contract in his or her own
name.
In the case of Contracts issued in connection with an IRA, the Beneficiary
may elect to accelerate these payments. Any method of acceleration chosen must
be approved by the Company.
If the Contract Owner dies after the Annuity Date, distribution will be as
provided in the annuity payment option selected.
PURCHASING A CONTRACT
Application
In order to acquire a Contract, an application provided by the Company must
be completed and submitted to the Company for acceptance. The Company must also
receive the purchase payment. Upon acceptance, the Contract is issued to the
Contract Owner and the Purchase Payment is then credited to the Variable Account
and converted into Accumulation Units, except in those states where the
applicable premium tax is deducted from the purchase payment. (See "Alliance
Variable Products Series Fund, Inc. Allocation of Purchase Payment to
Sub-accounts" on page .) If the application for a Contract is in good order, the
Company will apply the purchase payment to the Variable Account and credit the
Contract with Accumulation Units within two (2) business days of receipt. In
addition to the underwriting requirements of the Company, good order means that
the Company has received federal funds (monies credited to a bank's account with
its regional Federal Reserve Bank). If the application for a Contract is not in
good order, the Company will attempt to get it in good order within five (5)
business days or the Company will return the application and the purchase
payment, unless the prospective purchaser specifically consents to the Company's
retaining them until the application is made complete.
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Minimum Purchase Payment
The Contracts are offered on a single purchase payment basis. The minimum
purchase payment the Company will accept is $5,000 and $2,000 for a Contract
purchased in connection with an IRA or 403(b) Plan.
Distributor
AIG Equity Sales Corp. ("AESC"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AESC is a wholly-owned subsidiary of
American International Group, Inc. and an affiliate of the Company.
Commissions not to exceed 3.5% of purchase payments will be paid to
entities which sell the Contracts. In addition, expense reimbursement allowances
may be paid. Additional payments may be made for other services not directly
related to the sale of the Contracts.
Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
prohibited from performing certain agency or administrative services and
receiving fees from AESC, Contract Owners who purchased Contracts through the
bank would be permitted to retain their Contracts and alternate means for
servicing those Contract Owners would be sought. It is not expected, however,
that Contract Owners would suffer any loss of services or adverse financial
consequences as a result of any of these occurrences.
CONTRACT VALUE
The Contract Value is the sum of the value of all Sub-account Accumulation
Units attributable to the Contract. The value of an Accumulation Unit will vary
from Valuation Period to Valuation Period. The value of an Accumulation Unit is
determined at the end of the Valuation Period and reflects the investment
earnings, or loss, and the deductions for the Valuation Period.
WITHDRAWALS
Partial Withdrawal
The Contract Owner may partially withdraw Contract Values from the Contract
prior to the Annuity Date. Any partial withdrawal is subject to the following
conditions:
(a) the Company must receive a written request;
(b) the amount requested must be at least $500;
(c) any applicable Deferred Sales Charge will be deducted;
(d) the amount withdrawn will be the sum of the amount requested and the
amount of any applicable Deferred Sales Charge; and
(e) the Company will deduct the amount requested plus any Deferred Sales
Charge from each Sub-account of the Variable Account either as
specified or in the proportion that the Sub-account bears to the total
Contract Value.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page
.)
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Systematic Withdrawal Program
During the Accumulation Period a Contract Owner may at any time elect, in
writing, to take systematic withdrawals from one or more of the Sub-accounts for
a period of time not to exceed 12 months. In order to initiate this program, the
amount to be systematically withdrawn must be equal to or greater than $200
provided that the Contract Value is equal to or greater than $24,000 and the
amount to be withdrawn does not exceed the Free Withdrawal Amount. Systematic
withdrawals will be made without the imposition of the Deferred Sales Charge.
Systematic withdrawals may occur monthly or quarterly.
The systematic withdrawal program may be cancelled at any time by written
request or automatically should the Contract Value fall below $1,000. In the
event the systematic withdrawal program is cancelled, the Contract Owner may not
elect to participate in such program until the next Contract Anniversary.
A Contract Owner may change once per Contract Year the amount or frequency
subject to be withdrawn on a systematic basis.
The program is annually renewable, although the limitations set forth above
shall continue to apply.
The Free Withdrawal Amount (See "Charges and Deductions - Deduction for
Deferred Sales Charge" on page ____) and Dollar Cost Averaging (See Statement of
Additional Information - "General Information - Transfers") are not available
while a Contract Owner is receiving systematic withdrawals. A Contract Owner
will be entitled to the Free Withdrawal Amount and Dollar Cost Averaging on and
after the Contract Anniversary next following the termination of the systematic
withdrawal program.
Implementation of the systematic withdrawal program may subject a Contract
Owner to adverse tax consequences, including a 10% tax penalty. (See "Taxes
Taxation of Annuities in General" on page ____ for a discussion of the tax
consequences of withdrawals.)
Total Withdrawal
The Contract Owner may withdraw the entire Contract Value prior to the
Annuity Date. A total withdrawal will cancel the Contract. The total withdrawal
value is equal to the Contract Value next calculated after receipt of the
written withdrawal request, less any applicable Deferred Sales Charge, less the
Administrative Charge and less any applicable premium taxes. (See "Charges and
Deductions" on page .)
Payment of Withdrawals
Any Contract Values withdrawn will be sent to the Contract Owners within
seven (7) days of receipt of the written request, unless the Delay of Payments
provision is in effect. (See Statement of Additional Information "General
Information - Delay of Payments.") (See "Taxes Taxation of Annuities in General"
on page for a discussion of the tax consequences of withdrawals.)
The Company reserves the right to ensure that a Contract Owner's check or
other form of purchase payment has been cleared for payment prior to processing
any withdrawal or redemption request occurring shortly after a purchase payment.
Certain restrictions on withdrawals are imposed on Contracts issued in
connection with 403(b) Plans. (See "Taxes - 403(b) Plans" on page .)
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TAXES
Introduction
The Contracts are designed for use by individuals to accumulate Contract
Values with retirement plans which, except for IRAs and 403(b) Plans, are
generally not tax-qualified plans (The ultimate effect of Federal income taxes
on the amounts held under a Contract, on annuity payments, and on the economic
benefits to the Contract Owner, Annuitant or Beneficiary depend on the Company's
tax status and upon the tax and employment status of the individual concerned.
Accordingly, each person should consult a competent tax adviser regarding the
tax consequences of purchasing a Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Fund, please see the accompanying Prospectus for the Fund.
Company Tax Status
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code of 1986, as amended (the "Code"). Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Subchapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the Contract Value. Under existing Federal
income tax law, the Variable Account's investment income, including realized net
capital gains, is not taxed to the Company. The Company reserves the right to
make a deduction for taxes from the assets of the Variable Account should they
be imposed with respect to such items in the future.
Taxation of Annuities in General - Non-Qualified Plans
Code Section 72 governs the taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under the Contract. However, under certain
circumstances, the increase in value may be subject to tax currently. (See
"Taxes - Contracts Owned by Non-Natural Persons," on page _______ and "Taxes
Diversification Standards" on .)
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a Contract
prior to the Annuity Date will be treated as taxable income to the extent the
amounts held under the Contract exceed the "investment in the contract," as that
term is defined under the Code. The "investment in the contract" can generally
be described as the cost of the Contract. It generally constitutes the sum of
all purchase payments made for the contract less any amounts received under the
Contract that are excluded from gross income. The taxable portion is taxed as
ordinary income. For purposes of this rule, a pledge or assignment of a Contract
is treated as a payment received on account of a partial withdrawal of a
Contract.
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the Contract, the
recipient is taxed on the portion of the payment that exceeds the investment in
the contract. The taxable portion is taxed as ordinary income.
If the recipient receives annuity payments rather than a lump sum payment,
a portion of the payment is included in taxable income when received. For fixed
annuity payments, the taxable portion of each payment is generally determined by
using a formula known as the "exclusion ratio," which establishes the ratio that
the investment in the Contract bears to the total expected amount of annuity
payments for the term of the Contract. That ratio is then applied to each
payment to determine the nontaxable portion of the payment. The remaining
portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula which establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the investment in the
Contract by the total number of expected periodic payments. The remaining
portion of each payment is taxed as ordinary income.
The recipient is able to exclude a portion of the payments received from
taxable income until the investment in the Contract is fully recovered. Annuity
payments are fully taxable after the investment in the Contract is recovered. If
the recipient dies before the investment in the Contract is recovered, the
recipient's estate is allowed a deduction for the remainder.
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Penalty Tax on Certain Withdrawals
With respect to amounts withdrawn or distributed before the taxpayer
reaches age 59 1/2, a 10% penalty tax is imposed upon the portion of such amount
which is includable in gross income. However, the penalty tax will not apply to
withdrawals: (i) made on or after the death of the Contract Owner (or where the
Contract Owner is not an individual, the death of the "primary annuitant", who
is defined as the individual, the events in the life of whom are of primary
importance in affecting the timing or amount of the payout under the Contract);
(ii) attributable to the taxpayer's becoming totally disabled within the meaning
of Code Section 72(m)(7); (iii) which are part of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the taxpayer, or the joint lives (or joint life
expectancies) of the taxpayer and his beneficiary; (iv) allocable to investment
in the Contract before August 14, 1982; (v) under a qualified funding asset (as
defined in Code Section 130(d)); (vi) under an immediate annuity contract; or
(vii) that are purchased by an employer on termination of certain types of
qualified plans and which are held by the employer until the employee separates
from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount equal to
the tax that would have been imposed but for item (iii) above as determined
under Treasury Regulations, plus interest for the deferral period. The foregoing
rule applies if the modification takes place: (a) before the close of the period
which is five years from the date of the first payment and after the taxpayer
attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan may
result in a taxable event and the excess of the Contract Value over purchase
payments will be taxed to the assignor as ordinary income. Please consult your
tax adviser prior to making an assignment of the Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who is
either 37 1/2 years younger than the Owner or a grandchild of the Owner may have
Generation Skipping Transfer Tax consequences.
Distribution-at-Death Rules
In order to be treated as an annuity contract for Federal income tax
purposes, a Contract must generally provide for the following two distribution
rules: (i) if the Contract Owner dies on or after the Annuity Date, and before
the entire interest in the Contract has been distributed, the remaining portion
of such interest will be distributed at least as quickly as the method in effect
on the Contract Owner's death; and (ii) if a Contract Owner dies before the
Annuity Date, the entire interest must generally be distributed within five
years after the date of death. To the extent such interest is payable to a
designated Beneficiary, however, such interest may be annuitized over the life
of that Beneficiary or over a period not extending beyond the life expectancy of
that Beneficiary, so long as distributions commence within one year after the
date of death. The designated Beneficiary is the person to whom ownership of the
Contract passes by reason of death, and must be a natural person. If the
Beneficiary is the spouse of the Contract Owner, the Contract may be continued
unchanged in the name of the spouse as Contract Owner.
31
<PAGE>
If the Contract Owner is not an individual, the "primary annuitant" (as
defined under the Code) is considered the Contract Owner. In addition, when the
Contract Owner is not an individual, a change in the primary annuitant is
treated as the death of the Contract Owner.
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than full and
adequate consideration will generally trigger tax on the gain in the Contract.
The transferee will receive a step-up in basis for the amount included in the
transferor's income. This provision, however, does not apply to those transfers
between spouses or incident to a divorce which are governed by Code Section
1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a corporation
or trust) the Contract is generally not treated as an annuity contract for
Federal income tax purposes, and the income on the Contract (generally the
excess of the Contract Value over the purchase payments) is includable in income
each year. The rule does not apply where the non-natural person is only the
nominal owner such as a trust or other entity acting as an agent for a natural
person. The rule also does not apply when the Contract is acquired by the estate
of a decedent, when the Contract is held under certain qualified plans, when the
Contract is a qualified funding asset for structured settlements, when the
Contract is purchased on behalf of an employee upon termination of a qualified
Plan, and in the case of an immediate annuity.
Section 1035 Exchanges
Code Section 1035 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity contract,
unless money is distributed as part of the exchange. A replacement contract
obtained in a tax-free exchange of contracts succeeds to the status of the
surrendered contract. Special rules and procedures apply to Code Section 1035
transactions. Prospective purchasers wishing to take advantage of Code Section
1035 should consult their tax advisers.
Multiple Contracts
Annuity contracts that are issued by the same company (or affiliate) to the
same policy owner during any calendar year will be treated as one annuity
contract in determining the amount includable in the taxpayer's gross income.
Thus, any amount received under any such contract prior to the contract's
annuity starting date will be taxable (and possibly subject to the 10% penalty
tax) to the extent of the combined income in all such contracts. The Treasury
has broad regulatory authority to prevent avoidance of the purposes of this
aggregation rule. It is possible that, under this authority, Treasury may apply
this rule to amounts that are paid as annuities (on or after the starting date)
under annuity contracts issued by the same company to the same policy owner
during any calendar year period. In this case, annuity payments could be fully
taxable (and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts and regardless of whether any amount would
otherwise have been excluded from income. Contract Owners should consult a tax
adviser before purchasing more than one Contract or other annuity contracts.
Withholding
The Company is required to withhold Federal income taxes on withdrawals,
lump sum distributions, and annuity payments that include taxable income unless
the payee elects to not have any withholding or in certain other circumstances.
Special withholding rules apply to payments made to non-resident aliens.
Lump-sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of any
withdrawal or lump sum distribution unless You elect out of withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments based
on a withholding certificate You file with the Company. If you do not file a
certificate, You will be treated, for purposes of determining your withholding
rates, as a married person with three exemptions.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
32
<PAGE>
Diversification Standards
To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up period,
each Sub-account is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Sub-account is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-through" rule applies so that an
investment in the Fund is not treated as one investment but is treated as an
investment in a pro-rata portion of each underlying asset of the Fund. All
securities of the same issuer are treated as a single investment. In the case of
government securities, each Government agency or instrumentality is treated as a
separate issuer.
In connection with the issuance of the proposed and temporary version of
the Diversification Regulations, Treasury announced that such regulations do not
provide guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
if and when additional regulations or IRS pronouncements are issued, the
Contract may need to be modified to comply with such rules. For these reasons,
the Company reserves the right to modify the Contract, as necessary, to prevent
the Contract Owner from being considered the owner of the assets of the Variable
Account.
The Company intends to comply with the Diversification Regulations to
assure that the Contracts continue to be treated as annuity contracts for
Federal income tax purposes.
Tax-Favored Plans
By attachment of an endorsement that reflects the limits of Code section
408(b), the Contracts may be used as an IRA. The Contracts are also available
for use in connection with a previously established 403(b) Plan. No attempt is
made herein to provide more than general information about the use of the
Contracts with IRAs or 403(b) Plans. The information herein is not intended as
tax advice. A prospective Owner considering use of the Contract to create an IRA
or in connection with a 403(b) Plan should first consult a competent tax adviser
with regard to the suitability of the Contract as an investment vehicle for
their qualified plan.
While the Contract will not be available in connection with retirement
plans designed by the Company which qualify for the federal tax advantages
available under Sections 401 and 457 of the Code, a Contract can be used as the
investment medium for an individual Owner's separately qualified 401 retirement
plan. Distributions from a 401 qualified plan or 403(b) Plan (other than
non-taxable distributions representing a return of capital, distributions
meeting the minimum distribution requirement, distributions for the life or life
expectancy of the recipient(s) or distributions that are made over a period of
more than 10 years) are eligible for tax-free rollover within 60 days of the
date of distribution, but are also subject to federal income tax withholding at
a 20% rate unless paid directly to another qualified plan, 403(b) Plan or an
IRA. If the recipient is unable to take full advantage of the tax-free rollover
provisions, there may be taxable income, and the imposition of a 10% penalty tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Owner considering use of the Contract in this
manner should consult a competent tax advisor with regard to the suitability of
the Contract of this purpose and for information concerning the provisions of
the Code applicable to qualified plans, 403(b) Plans, and IRAs.
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
IRA. Contracts issued in connection with an IRA are subject to limitations on
eligibility, maximum contributions, and time of distribution. Distributions from
certain retirement plans qualifying for federal tax advantages may be rolled
over into an IRA. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. Section 408A of the Code
provides special rules for "Roth IRAs." The basic distinction between a Roth IRA
and a regular IRA is that contributions to a Roth IRA are not deductible and
"qualified distributions" from a Roth IRA are not includible in gross income for
federal income tax purposes. Other differences include the ability to make
contributions to a Roth IRA after age 70 1/2 and to defer distributions beyond
age 70 1/2. Taxpayers whose adjusted gross incomes exceed certain levels are not
eligible for Roth IRAs. Sales of the Contracts for use with IRAs are subject to
special requirements imposed by the Service, including the requirement that
informational disclosure be given to each person desiring to establish an IRA.
Contracts offered in connection with an IRA by this Prospectus are not available
in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on a Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to purchase payments made under a salary reduction agreement. Specifically, Code
Section 403(b)(11) allows a Owner to make a surrender or partial withdrawal only
(a) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled (as defined in the Code), or (b) in the case of hardship. In
the case of hardship, only an amount equal to the purchase payments may be
withdrawn. In addition, 403(b) Plans are subject to additional requirements,
including: eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403(b) Plan offered by this Prospectus, are not available in
all states.
LEGAL PROCCEDINGS
The Company knows of no legal proceeding pending to which the Variable
Account is a party or which would materially affect the Variable Account.
LEGAL MATTERS
Legal matters relating to the federal securities laws in connection with the
Contracts described herein are being passed upon by the law firm of Jorden,
Burt, Boros, Cicchetti, Berenson & Johnson LLP, Washington D.C.
32
<PAGE>
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
PAGE
General Information.................................
The Company......................................
Independent Accountants..........................
Legal Counsel....................................
Distributor......................................
Calculation of Performance Related Information...
Delay of Payments................................
Transfers........................................
Method of Determining Contract Values...............
Annuity Provisions..................................
Annuity Benefits....................................
Annuity Options..................................
Variable Annuity Payment Values..................
Annuity Unit.....................................
Net Investment Factor............................
Additional Provisions............................
Financial Statements................................
<PAGE>
APPENDIX
GENERAL ACCOUNT OPTION
Under the General Account option, Contract Values are held in the
Company's General Account. Because of exemptive and exclusionary provisions,
interests in the General Account have not been registered under the Securities
Act of 1933 nor is the General Account registered as an investment company under
the Investment Company Act of 1940. The Company understands that the staff of
the Securities and Exchange Commission has not reviewed the disclosures in this
Prospectus relating to the General Account portion of the Contract. Disclosures
regarding the General Account may, however, be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in prospectuses. The General Account option
is not available in all states.
During the Accumulation Period the Owner may allocate amounts to the
General Account. The General Account is an account maintained by us into which
all of our assets have been allocated other than the assets of the Variable
Account and any other separate accounts we maintain. The initial Purchase
Payment will be invested in the General Account in accordance with the selection
made by the Owner in the application. In the case of flexible premium Contracts,
additional Purchase Payments will be allocated to General Account in accordance
with the selection made by the Owner in the application or the most recent
selection received at the Company Office, unless otherwise specified by the
Owner. If the Owner elects to withdrawal amounts from the General 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 General Account for up
to six (6) months from the date it receives such request at its Office.
INVESTMENTS IN THE GENERAL ACCOUNT
An allocation of the initial Purchase Payment to the General Account Option
must equal the greater of (a) or (b) where: (a) is a percentage that is a whole
number, equal to or greater than 10% and (b) is a dollar amount which is equal
to or greater than $3,000. Subsequent Purchase Payments under flexible premium
Contracts allocated to the General Account Option must be equal to or greater
than $3,000. Amounts invested in the General Account are credited with interest
on a daily basis at the then applicable effective guarantee rate. The effective
guarantee rate is that rate in effect when the Owner allocates or transfers
amounts to the General Account. If the Owner has allocated or transferred
amounts at different times to the General Account, each allocation or transfer
may have a unique effective guarantee rate and the General Account Option
associated with that amount. We guarantee that the effective guarantee rate will
not be changed more than once per year and will not be less than 3%.
GENERAL ACCOUNT TRANSFERS
During the Accumulation Period the Owner may transfer, by written request
or telephone authorization, Contract Values to or from a sub-account of the
Variable Account to or from a guarantee period of the General Account at any
time, subject to the conditions set out under Transfer of Contract Values
Section.
MINIMUM SURRENDER VALUE
The Minimum Surrender Value for amounts allocated to the General Account
equals the amounts allocated (less withdrawals) with interest compounded
annually at the rate of 3%, reduced by any applicable Deferred Sales Charge.
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK
80 Pine Street
New York, New York 10005
INDIVIDUAL SINGLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT A
and
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
The Individual Single Purchase Payment Deferred Variable Annuity Contracts
(the "Contracts") described in this Prospectus provide for accumulation of
Contract Values and payment of monthly annuity payments. The Contracts may be
used by individuals in retirement plans which do not qualify for federal tax
advantages ("Non-Qualified Contracts") or in connection with retirement plans
which may qualify as Individual Retirement Annuities ("IRA") under Section 408
of the Internal Revenue Code of 1986, as amended (the "Code") or Section 403(b)
of the Code ("403(b) Plan"). The Contracts will not be available in connection
with retirement plans designed by American International Life Assurance Company
of New York (the "Company") which qualify for the federal tax advantages
available under Sections 401 and 457 of the Code. Purchasers intending to use
the Contracts in connection with an IRA or a 403(b) Plan should seek competent
tax advice.
Purchase payments allocated among the Subaccounts of Variable Account A
(the "Variable Account") will be invested in shares of corresponding portfolios
as selected by the Owner from the following choices: Growth Portfolio, Quasar
Portfolio, Technology Portfolio, Growth and Income Portfolio, Global Bond
Portfolio or Premier Growth Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES
FUND, INC.; the VIP High Income Portfolio, VIP Growth Portfolio, VIP Money
Market Portfolio, of the FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS;
VIP II Asset Manager Portfolio, VIP II Contrafund Portfolio or VIP II Investment
Grade Bond Portfolio of the FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS
FUNDS II; the Small Company Stock Portfolio of the DREYFUS VARIABLE INVESTMENT
FUND; the Worldwide Hard Assets Fund or Worldwide Emerging Markets Fund, of the
VAN ECK WORLDWIDE INSURANCE TRUST; the DREYFUS STOCK INDEX FUND; or the Capital
Appreciation Fund and International Equity Fund of the AIM VARIABLE INSURANCE
FUNDS, INC.
This Prospectus concisely sets forth the information a prospective investor
ought to know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information" which is available at no
charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference. The
Table of Contents of the Statement of Additional Information can be found on
page of this Prospectus. For the Statement of Additional Information dated May
1, 1997, call or write American International Life Assurance Company of New
York; Attention: Variable Products, 80 Pine Street, New York, New York, 10005,
1-800-340-2765.
INQUIRIES: Contract Owner inquiries can be made by calling the service
office at 1-800-255-8402.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE
NOT GUARANTEED OR ENDORSED BY ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE CONTRACT
INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF
PRINCIPAL.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
REPLACEMENTS OF ANY EXISTING LIFE INSURANCE POLICY OR ANNUITY CONTRACT MAY
NOT BE TO YOUR ADVANTAGE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL
STATES.
Date of Prospectus: May 1, 1998
1
<PAGE>
TABLE CONTENTS
PAGE
Definitions..............................................
Highlights...............................................
Summary of Expenses......................................
Condensed Financial Information..........................
The Company..................................................
The Variable Account..................................................
The Funds.....................................................
Charges and Deductions..............................................
Administration of the Contracts.....................................
Rights under the Contracts..........................................
Annuity Period......................................................
Death Benefit.......................................................
Purchasing a Contract...............................................
Contract Value......................................................
Withdrawals.........................................................
Taxes...............................................................
Legal Proceedings...................................................
Legal Matters.......................................................
Table of Contents of the Statement of Additional Information........
Appendix - General Account Option...................................
2
<PAGE>
DEFINITIONS
Accumulation Period - The period prior to the Annuity Date.
Accumulation Unit - Accounting unit of measure used to calculate the Contract
Value prior to the Annuity Date.
Age - Age means age last birthday.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant is named in the application.
Annuity Date - The date at which annuity payments are to begin.
Annuity Unit - Accounting unit of measure used to calculate variable annuity
payments.
Beneficiary - The person or persons named in the application who will receive
any benefit upon the death of the Contract Owner (or Annuitant as applicable)
prior to the Annuity Date.
Contingent Owner - The Contingent Owner, if any, must be the spouse of the
Contract Owner as named in the application, unless changed.
Contract Anniversary - The same month and date as the Date of Issue in each
subsequent year of the Contract.
Contract Owner - The person designated as Contract Owner in the application,
unless changed.
Contract Value - The value of all amounts accumulated under the Contract.
Contract Year - Any period of twelve (12) months commencing with the Date of
Issue and each Contract Anniversary thereafter.
Date of Issue - The date when the purchase payment was invested.
Deferred Sales Charge - The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within six years of the
Date of Issue.
General Account - All of the Company's assets other than the assets of the
Variable Account and any other separate accounts of the Company.
3
<PAGE>
Office - The Annuity Service Office of the Company: c/o Delaware Valley
Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn,
Pennsylvania 19312-0031.
Valuation Date - Each day that the New York Stock Exchange is open for trading.
Valuation Period - The period commencing as of the close of the New York Stock
Exchange (presently 4 P.M., New York time) on each Valuation Date and ending as
of the close of the New York Stock Exchange on the next succeeding Valuation
Date.
Variable Account - A separate investment account of the Company, designated
Variable Account A, into which purchase payments will be allocated.
4
<PAGE>
HIGHLIGHTS Purchase payments for the Contracts will be allocated to a segregated
investment account of the Company which account has been designated Variable
Account A (the "Variable Account"). The Variable Account invests in shares of
the Fund Fundon page .)
The Contracts provide that in the event that a Contract Owner withdraws all or a
portion of the Contract Value within six Contract Years there will be assessed a
Deferred Sales Charge. The Deferred Sales Charge is based on a table of charges,
of which the maximum charge is currently 6% of the Contract Value subject to a
maximum of 8.5% of the purchase payment. (See "Charges and Deductions Deduction
for Deferred Sales Charge" on page
.)
Any premium or other taxes levied by any governmental entity with respect to the
Contracts will be charged against the purchase payment or the Contract Value.
Premium taxes currently imposed by certain states on the Contracts range from 0%
to 3.5%. (See "Charges and Deductions - Deduction for State Premium Taxes" on
page .)
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any income taxes. (See "Charges
and Deductions - Deduction for Income Taxes" on page .)
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. (See "Charges and Deductions - Deduction for
Mortality and Expense Risk Charge" on page .)
The Company deducts an annual Administrative Charge, which is currently $30 per
year, from the Contract Value to reimburse it for administrative expenses
relating to maintenance of the Contract and the Variable Account. The Company
may increase this charge to an amount not to exceed $100 per year. (See "Charges
and Deductions - Deduction for Administrative Charge" on page .)
There are deductions and expenses paid out of the assets of the Fund which are
described in the accompanying Prospectus for the Fund.
Surrenders and withdrawals may be taxable and subject to a penalty tax. (See
"Taxes" beginning on page____.)
The Contract Owner may return the Contract within ten (10) days (the "Free Look
Period") after it is received by delivering or mailing it to the Company's
Office. If the Contract is purchased in Kansas or South Carolina and replaces
any existing life insurance policy or annuity, the Contract Owner will be given
a twenty (20) day Free Look Period. The return of the Contract by mail will be
effective when the postmark is affixed to a properly addressed and postage
prepaid envelope. The Company will refund the Contract Value. However, if the
laws of a state require that the Company refund, during the Free Look Period, an
amount equal to the purchase payment paid less any withdrawals, the Company will
refund such an amount. In the case of Contracts issued in connection with an IRA
the Company will refund the greater of the purchase payment, less any
withdrawals, or the Contract Value.
5
<PAGE>
<TABLE>
<CAPTION>
FEE TABLE
Owner Transaction Expenses
All Sub-Accounts
<S> <C>
Sales Load Imposed on Purchases.......................... None
</TABLE>
Surrender Charge (as a percentage of amount surrendered):
<TABLE>
<CAPTION>
Single Premium Contracts
<S> <C>
Contract Year 1 6%
Contract Year 2 5%
Contract Year 3 4%
Contract Year 4 3%
Contract Year 5 2%
Contract Year 6 1%
Contract Year 7 None
and thereafter
</TABLE>
Sales Loan Imposed on Purchases: None
Deferred Sales Load (as a percentage of amount
surrendered):
Exchange Fee Currently:
First 12 Per Contract Year None
Thereafter $ 10
Annual Contract Fee $ 30
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Account Fees and Expenses 0.15%
Total Separate Account Annual Expenses 1.40%
6
6
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Portfolio Fee Expenses* Expenses**
- - --------- --------- -------- ---------
<S> <C> <C> <C>
Alliance Global Bond................................................ 0.56% 0.38% 0.94%(1)
Alliance Premier Growth............................................. 1.00 0.08 1.08(1)
Alliance Growth..................................................... 0.75 0.09 0.84(1)
Alliance Growth and Income.......................................... 0.63 0.09 0.72(1)
Alliance Quasar..................................................... 0.58 0.37 0.95(1)
Alliance Technology................................................. 0.76 0.19 0.95(1)
AIM V.I. Capital Appreciation Fund.................................. 0.63 0.05 0.68(2)
AIM V.I. International Equity Fund.................................. 0.75 0.18 0.93(2)
Fidelity VIP High Income............................................ 0.59 0.12 0.71(4)
Fidelity VIP Growth................................................. 0.60 0.09 0.69(4)
Fidelity VIP Money Market........................................... 0.21 0.10 0.31(4)
Fidelity VIP II Contrafund.......................................... 0.60 0.11 0.71(4)
Fidelity VIP II Asset Manager....................................... 0.55 0.10 0.65(4)
Fidelity VIP II Investment Grade Bond............................... 0.44 0.14 0.58(4)
Van Eck Worldwide Hard Assets....................................... 1.00 0.17 1.17(5)
Van Eck Worldwide Emerging Markets.................................. 1.00 (0.20) 0.80(5)
Dreyfus Small Company Stock......................................... 0.75 0.37 1.12(3)
Dreyfus Stock Index................................................. 0.25 0.03 0.28(3)
</TABLE>
The purpose of the table set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The table reflects expenses of the Variable Account as
well as the Funds. The Annual Administrative Charge for purposes of the Expense
Table, above, was based upon the assessment of a $30 charge on a Contract Value
of $5,000. (See "Charges and Deductions" on page ____ of this Prospectus and
each Fund's Prospectus for further information.) The table does not reflect the
charges applicable to certain death benefit options offered under the Contracts.
(See "Charges and Deductions -- Deduction for Equity Assurance Plan" on page
___; "Charges and Deductions -- Deductions for the Enhanced Equity Assurance
Plan" on page _____; Charges and Deductions -- Deductions for the Annual Rachet
Plan" on page _____; "Charges and Deductions -- Deductions for the 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 by certain states on the Contracts range from 0% to 3.5% of premiums
paid. (See "Charges and Deductions -- Deduction for State Premium Taxes" on page
- ------.)
* "Other Expenses" are based upon the expenses outlined under the section
discussing the management of the Funds in each Fund's Prospectus attached.
- - ----------
** "Total Portfolio Expenses" for the following Portfolios before
reimbursement by the relevant Fund's investment advisor, for the period
ended December 31, 1997, were as follows:
(1) Alliance Variable Product Series Funds: 1.10% for Premier Growth; 1.03% for
Global Bond; 1.37% for Quasar; and 1.19% for Technology, of average daily
net assets. For the year ended December31, 1997 expenses of the Premier
Growth Portfolio were capped at .95%. Effective May 1, 1998 Alliance
discontinued expense reimbursement with respect to the Premier Growth
Portfolio;
6
<PAGE>
(2) Regarding the AIM Funds, A I M Advisors, Inc. ("AIM") May from time to time
voluntarily waive or reduce its respective fees. Effective may 1, 1998, the
Funds reimburse AIM in an amount up to 0.25% of the average net asset value
of each Fund, for expenses incurred in providing, or assuring that
participating insurance companies provide, certain administrative services.
Currently, the fee only applies to the average net asset value of each Fund
in excess of the net asset value of each Fund as calculated on April 30,
1998;
(3) Regarding the Dreyfus Fund, the expenses set forth above are the actual
total expenses without any expense reimbursement;
(4) With respect to the Fidelity VIP and VIP II Funds, the expenses set forth
above are actual total expenses. However a portion of the brokerage
commission that certain funds pay was used to reduce fund expenses. In
addition, certain funds have entered into arrangements with their custodian
and transfer agent whereby interest earned on uninvested cash balances was
used to reduce custodian and transfer agent expenses. Including these
reductions, the total operating expenses presented in the table would have
been .69% for the VIP Growth Portfolio, and .65% for the VIP II Asset
Manager Portfolio;
(5) The Van Eck Funds: For the Worldwide Hard Assets Fund, Other expenses are
net of soft dollor credits. Without such credits, Other Expenses would have
been 0.18% and Total Fund Operating Expenses would have been 1.18%. For
Worldwide Emerging Markets, Other Expenses are net of the reduction of the
Fund's operating fees in connection with a fee arrangement, based on cash
balances left on deposit with the custodian, and net of the waiver or
assumption by Van Eck Associates Corporation of certain fees and expenses.
Without such fee arrangement and, to a lesser extent, the
waiver/assumption, Other Expenses would have been 0.34% and Total Fund
Operation Expenses would have been 1.34%. Van Eck Associates Corporation is
no longer waiving or assuming fees and expenses.
7
<PAGE>
Expenses on a hypothetical $1,000 Single Premium policy, assuming 5% growth:
<TABLE>
<CAPTION>
If you surrender
Portfolios 1 Year 3 Years 5 Years 10 Years
- - ---------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 77 106 136 247
AIM V.I. International Equity Fund 80 113 148 273
Alliance Global Bond 80 114 149 274
Alliance Growth 79 111 144 264
Alliance Growth and Income 78 107 138 251
Alliance Premier Growth 81 118 155 288
Alliance Quasar 80 114 149 275
Alliance Real Estate 80 114 149 275
Alliance Technology 80 114 149 275
Fidelity VIP High Income 78 107 137 250
Fidelity VIP Growth 77 106 136 248
Fidelity VIP Money Market 74 95 117 208
Fidelity VIP II Asset Manager 77 105 134 244
Fidelity VIP II Contrafund 78 107 137 250
Fidelity VIP II Investment Grade Bond 76 103 131 237
Dreyfus Small Company Stock 81 119 157 291
Dreyfus Stock Index 73 94 116 205
Van Eck Worldwide Hard Assets 82 120 160 296
Van Eck Worldwide Emerging Markets 83 125 168 313
</TABLE>
Expenses on a hypothetical $1,000 Single Premium policy, assuming 5%
growth:
<TABLE>
<CAPTION>
If you annuitize or
if you do not surrender
Portfolio 1 Year 3 Years 5 Years 10 Years
- - --------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 22 67 115 247
AIM V.I. International Equity Fund 24 75 128 273
Alliance Global Bond 24 75 128 274
Alliance Growth 23 72 123 264
Alliance Growth and Income 22 68 117 251
Alliance Premium Growth 26 79 135 288
Alliance Quasar 24 75 129 275
Alliance Real Estate 24 75 129 275
Alliance Technology 24 75 129 275
Fidelity VIP High Income 22 68 116 250
Fidelity VIP Growth 22 67 115 248
Fidelity VIP Money Market 18 56 96 208
Fidelity VIP II Asset Manager 21 66 113 244
Fidelity VIP II Contrafund 22 68 116 250
Fidelity VIP II Investment Grade Bond 21 64 110 237
Dreyfus Stock Index 18 55 94 205
Dreyfus Small Company Stock 26 80 137 291
Van Eck Worldwide Hard Assets 27 82 140 296
Van Eck Worldwide Emerging Markets 28 87 148 313
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
10
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Alliance Growth & Income
Accumulation Unit Value
Beginning of Period 12.00 10.00
End of Period 15.64 12.00
Accum Units o/s @ end of period 89,076.46 20,637.99
Alliance Growth
Accumulation Unit Value
Beginning of Period 11.32 10.00
End of Period 14.51 11.32
Accum Units o/s @ end of period 90,206.81 13,718.81
Alliance Technology
Accumulation Unit Value
Beginning of Period 9.80 10.00
End of Period 10.29 9.80
Accum Units o/s @ end of period 41,252.11 3,209.81
Alliance Quasar
Accumulation Unit Value
Beginning of Period 10.31 10.00
End of Period 12.05 10.31
Accum Units o/s @ end of period 37,619.77 674.25
Fidelity Money Market
Accumulation Unit Value
Beginning of Period 10.25 10.00
End of Period 10.66 10.25
Accum Units o/s @ end of period 76,784.02 113,781.59
Fidelity Asset Manager
Accumulation Unit Value
Beginning of Period 10.87 10.00
End of Period 12.93 10.87
Accum Units o/s @ end of period 49,297.42 8,370.63
Fidelity Growth
Accumulation Unit Value
Beginning of Period 10.07 10.00
End of Period 12.93 10.07
Accum Units o/s @ end of period 114,594.66 23,774.76
Fidelity High Income
Accumulation Unit Value
Beginning of Period 10.67 10.00
End of Period 12.38 10.67
Accum Units o/s @ end of period 28,042.38 8,506.22
Fidelity Inv. Grade Bond
Accumulation Unit Value
Beginning of Period 10.48 10.00
End of Period 11.27 10.48
Accum Units o/s @ end of period 18,202.66 2,615.29
Dreyfus Stock Index
Accumulation Unit Value
Beginning of Period 11.21 10.00
End of Period 14.70 11.21
Accum Units o/s @ end of period 75,214.94 17,836.33
Van Eck Worldwide Assets
Accumulation Unit Value
Beginning of Period 10.78 10.00
End of Period 10.45 10.78
Accum Units o/s @ end of period 9,786.43 4,646.11
10
<PAGE>
*Funds were first invested in the Portfolios as listed below:
<S> <C>
Alliance Growth and Income January 14, 1991
Alliance Global Bond May 10, 1993
Alliance Growth September 15, 1994
Alliance Premier Growth December 7, 1992
Alliance Quasar August 15, 1996
Alliance Technology January 22, 1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Contrafund* January 3, 1995
Fidelity Asset Manager September 9, 1989
Fidelity Investment Grade Bond December 5, 1988
Dreyfus Small Company Stock* May 1, 1996
Dreyfus Stock Index August 31, 1990
Van Eck Worldwide Hard Assets September 1, 1989
Van Eck Worldwide Emerging Markets* December 21, 1995
AIM Capital Appreciation* May 5, 1993
AIM International Equity* May 5, 1993
11
<PAGE>
Calculation Of Performance Data
The Company may, from time to time, advertise certain performance related
information concerning one or more of the Sub-accounts, including information as
to total return and yield. Performance information about a Sub-account is based
on the Sub-account's past performance only and is not intended as an indication
of future performance.
When the Company advertises the average annual total return of a
Sub-account, it will usually be calculated for one, five, and ten year periods
or, where a Sub-account has been in existence for a period less than one, five
or ten years, for such lesser period. Average annual total return is measured by
comparing the value of the investment in a Sub-account at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming the deduction of any Deferred Sales Charge which would be payable if
the account were redeemed at the end of the period) and calculating the average
annual compounded rate of return necessary to produce the value of the
investment at the end of the period.
The Company may simultaneously present returns that do not assume a
surrender and, therefore, do not deduct the Deferred Sales Charge.
When the Company advertises the yield of a Sub-account it will be
calculated based upon a 30-day period ended on the date of the most recent
balance sheet of the Company included in its registration statement. The yield
is determined by dividing the net investment income per Accumulation Unit earned
during the period by the maximum offering price per unit on the last day of the
period.
When the Company advertises the performance of the Money Market Sub-account
it may advertise in addition to the total return either the yield or the
effective yield. The yield of the Money Market Sub-account refers to the income
generated by an investment in that Sub-account over a 7-day period. The income
is then annualized (i.e., the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment). The effective yield is calculated
similarly but when annualized the income earned by an investment in the Money
Market Sub-account is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all contract
charge (sales charges, mortality and expense risk charges, and the
administrative charge) and is therefore lower than the total return at the Fund
level, which has no comparable charges. Likewise, yield and effective yield at
the Variable Account level take into account all recurring charges (except sales
charges), and are therefore lower than the yield and effective yield at the Fund
level, which has no comparable charges.
Performance information for a Sub-account may be compared to: (i) the
Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue Money
Market Institutional Averages, indices measuring corporate bond and government
security prices as prepared by Shearson Lehman Hutton and Salomon Brothers or
other indices measuring performance of a pertinent group of securities so that
investors may compare a Sub-account's results with those of a group of
securities widely regarded by investors as representative of the securities
markets in general; (ii) other variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by other ratings services, companies, publications, or persons who rank separate
accounts or other investment products on overall performance or other criteria;
(iii) the Consumer Price Index (measure for inflation) to assess the real rate
of return from an investment in the Contract; and (iv) indices or averages of
alternative financial products available to prospective investors, including the
Bank Rate Monitor which monitors average returns of various bank instruments.
12
<PAGE>
Financial Data
Financial statements of the Company and the Variable Account may be found
in the Statement of Additional Information.
THE COMPANY
The Company") is a stock life insurance company organized under the laws of
the State of New York in 1962. The Company provides a full range of life
insurance and annuity plans. The Company is a subsidiary of American
International Group, Inc., which serves as the holding company for a number of
companies engaged in the international insurance business, both life and
general, in over 130 countries and jurisdictions around the world.
THE VARIABLE ACCOUNT
The Board of Directors of the Company adopted a resolution to establish a
segregated asset account pursuant to New York insurance law on June 5, 1986. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940.
The assets of the Variable Account are the property of the Company.
However, the assets of the Variable Account, equal to the reserves and other
contract liabilities with respect to the Variable Account, are not chargeable
with liabilities arising out of any other business the Company may conduct.
Income, gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. The Company's obligations arising
under the Contracts are general corporate obligations of the Company. The
Variable Account may be subject to liabilities arising from Sub-accounts whose
assets are attributable to other variable annuity contracts offered by Variable
Account A which are not described in this Prospectus.
The Variable Account is divided into Sub-accounts, with the assets of each
Sub-account invested shares of a corresponding portfolio of the available Funds.
The Company may, from time to time, add additional portfolios of a Fund, and,
when appropriate, additional Funds to act as the funding vehicles for the
Contracts.
13
<PAGE>
THE FUNDS
Alliance Funds, Fidelity Funds, Dreyfus Funds, Van Eck Funds and AIM Funds
(collectively, the "Funds") are each registered with the SEC as a diversified
open-end management investment company under the 1940 Act. Each is made up of
different series funds or Portfolios ("Portfolios"). The Dreyfus Stock Index
Fund (also a "Fund" herein) is an open-end, non-diversified management
investment company. A summary of the investment objectives for each portfolio is
contained in the description of the Funds below. More detailed information,
including the advisory fee of each portfolio and other charges assessed by each
Fund, may be found in the relevant Fund prospectus, which contains a discussion
of the risks involved in investing in such Fund. The prospectuses for each Fund
is included with this Prospectus.
The investment objectives of the Portfolios are as follows:
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Global Bond Portfolio
This portfolio seeks a high level of return from a combination of current
income and capital appreciation by investing in a globally diversified portfolio
of high quality debt securities denominated in the U.S. Dollar and a range of
foreign currencies.
Premier Growth Portfolio
This portfolio seeks growth of capital rather than current income. In
pursuing its investment objectives, the Premier Growth Portfolio will employ
aggressive investment policies. Since investment will be made based upon 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.
Growth Portfolio
This portfolio seeks the long term growth of capital by investing primarily
in common stocks and other equity securities.
Growth and Income Portfolio
This portfolio seeks to balance the objectives of reasonable current income
and opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
Technology Portfolio
This portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. This portfolio invests
principally in diversified portfolio of securities of companies which use
technology extensively in the development of new or improved products or
processes
Quasar Portfolio
This portfolio seeks growth of capital by pursuing aggressive investment
policies. The portfolio invests principally in a diversified portfolio of equity
securities of any company and industry and in any type of security which is
believed to offer possibilities for capital appreciation.
Alliance Variable Products Series Fund, Inc., is managed by Alliance
Capital Management L.P., ("Alliance"). The fund also includes other portfolios
which are not available for use by the Separate Account. More detailed
information regarding management of the funds, investment objectives, investment
advisory fees and other charges, may be found in the current Alliance Fund
prospectus which contains a discussion of the risks involved in investing. The
Alliance Fund prospectus is included with this Prospectus.
13
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND
Small Company Stock Portfolio
This portfolio seeks investment results that are greater than the total
return performance of publicly-traded common stock in the aggregate, as
represented by Russel 2500 TM Index.
DREYFUS STOCK INDEX FUND
This Fund seeks to provide investment results that correspond to the price
and yield performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index. In
anticipation of taking a market position, the Fund is permitted to purchase and
sell stock index futures. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation. Dreyfus has engaged Mellon Equity, located at 500
Grant Street, Pittsburgh, Pennsylvania 15258, to serve as the Fund's index fund
manager. Mellon Equity, a registered investment adviser formed in 1957, is an
indirect wholly-owned subsidiary of Mellon and, thus, an affiliate of Dreyfus.
As of March 31, 1998, Mellon Equity and its employees managed approximately
$19.9 billion in assets and served as the investment adviser of 2 other
investment companies
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS (VIP)
VIP Growth Portfolio
This portfolio seeks capital appreciation through investments primarily in
common stock.
VIP High Income Portfolio
This portfolio seeks high current income by investing primarily in
high-yielding, lower-rated, fixed-income securities (commonly referred to as
"junk bonds"), while also considering growth of capital. The potential for high
yield is accompanied by higher risk. For a more detailed discussion of the
investment risks associated with such securities, please refer to the Fidelity
Fund's attached prospectus.
VIP Money Market Portfolio
This portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The portfolio will
invest only in high quality U.S. dollar-denominated money market securities of
domestic and foreign issuers. An investment in the VIP Money Market Portfolio is
neither insured nor guaranteed by the U.S. government, and there can be no
assurance that the portfolio will maintain a stable $1.00 share price.
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
VIP II Asset Manager Portfolio
This portfolio seeks to provide a high total return with reduced risk over
the long term by allocating its assets among stocks, bonds and short-term money
market instruments.
VIP II Contrafund Portfolio
This portfolio seeks capital appreciation by investing in securities of
companies whose value the manager believes is not fully recognized by the
public.
VIP II Investment Grade Bond Portfolio
This portfolio seeks as high a level of current income as is consistent
with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities. The portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less.
14
<PAGE>
Fidelity Management & Research Company ("FMR") is the investment advisor
for the Variable Insurance Products Funds. FMR has entered into a sub-advisory
agreement with Fidelity Investments Money Management, Inc. ("FIMM"), on behalf
of the VIP Money Market Portfolio. On behalf of the VIP Overseas Portfolio, FMR
has entered into sub-advisory agreements with Fidelity Management & Research
(U.K.) Inc., (FMR U.K.), Fidelity Management & Research (Far East) Inc. (FMR Far
East), and Fidelity International Investment Advisors (FIIA). FMR U.K. and FMR
Far East also are sub-advisors to the VIP II Asset Manager Portfolio. Fidelity
Funds include other portfolios which are not available under this Prospectus as
funding vehicles for the Contracts. More detailed information regarding
management of the funds, investment objectives, investment advisory fees and
other charges assessed by the Fidelity Funds, are contained in the prospectuses
of the Fidelity Funds, included with this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Emerging Markets Fund
This portfolio seeks long-term capital appreciation by investing primarily
in equity securities in emerging markets around the world.
Worldwide Hard Assets Fund
This portfolio seeks long-term capital appreciation by investing in equity
and debt securities of companies engaged to a significant extent in the
exploration, development, production, or distribution of (1) precious metals;
(2) ferrous and non-ferrous metals; (3) oil and gas; (4) forest products; (5)
real estate; and (6) other basic non-agricultural commodities (collectively,
"Hard Assets"), and in securities whose value is linked to the price of a Hard
Asset commodity or a commodity index. Income is a secondary consideration.
Van Eck Associates Corporation is the investment advisor and manager of
Worldwide Hard Assets Fund. Van Eck Global Asset Management (Asia) Limited, a
wholly-owned investment adviser subsidiary of Van Eck Associates Corporation, is
the investment adviser to Worldwide Emerging Markets Fund. Van Eck Worldwide
Insurance Trust includes other portfolios which are not available under this
prospectus as funding vehicles for the Contracts. More detailed information
regarding management of the funds, investment objectives, investment advisory
fees and other charges assessed by the Van Eck Worldwide Insurance Trust, are
contained in the relevant Fund prospectus included with this Prospectus.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
This Fund seeks capital appreciation through investments in common stock,
with emphasis on medium-sized and smaller emerging growth companies.
AIM V.I. International Equity Fund
This Fund seeks to provide long-term growth of capital by investing in a
diversified portfolio of international equity securities, the issuers of which
are considered by AIM to have strong earnings momentum.
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, TX 77046-1173,
serves as the investment advisor to each Fund, pursuant to a master investment
advisory agreement. More detailed information regarding management of the Funds,
investment objectives, investment advisory fees and other charges assessed by
the AIM Funds are contained in the prospectus for the Funds included with this
Prospectus.
There is no assurance that any of the Portfolios will achieve their stated
objectives.
15
<PAGE>
The shares of Alliance Funds, Fidelity Funds, Dreyfus Fund, the Dreyfus
Stock Index Fund, the Tomorrow Funds, and Van Eck Funds are sold not only to the
Variable Account, but may be sold to other separate accounts of the Company that
fund benefits under variable annuity and variable life policies. The shares of
the Funds are also sold to separate accounts of other insurance companies. It is
conceivable that in the future it may become disadvantageous for variable life
and variable annuity separate accounts to invest in the same underlying mutual
fund. Although neither we nor Alliance Funds, Fidelity Funds, Dreyfus Fund, the
Dreyfus Stock Index Fund, the Tomorrow Funds, and Van Eck Funds currently
perceive or anticipate any such disadvantage, the Funds will monitor events to
determine whether any material conflict exists between variable annuity Owners
and variable life Owners.
Material conflicts could result from such occurrences as: (1) changes in
state insurance laws; (2) changes in federal income tax law; (3) changes in the
investment management of any Fund; or (4) differences between voting
instructions given by variable annuity Owners and those given by variable life
Owners. In the event of a material irreconcilable conflict, we will take the
steps necessary to protect our variable annuity and variable life Owners. This
could include discontinuance of investment in a Fund.
Each Fund sells and redeems its shares at Net Asset Value without any
sales charge. Any dividends or distributions from security transactions of a
Fund are reinvested at Net Asset Value in shares of the same Portfolio; however,
there are sales and additional charges associated with the purchase of the
Contracts.
Further information about the Funds and the managers is contained in the
accompanying prospectuses, which You should read in conjunction with this
prospectus.
16
<PAGE>
Voting Rights
The Fund does not hold regular meetings of shareholders. The Directors of a
Fund may call Special Meetings of Shareholders for action by shareholder vote as
may be required by the Investment Company Act of 1940 or the Articles of
Incorporation of a Fund. In accordance with its view of present applicable law,
the Company will vote the shares of a Fund held in the Variable Account at
special meetings of the shareholders of the Fund in accordance with instructions
received from persons having the voting interest in the Variable Account. The
Company will vote shares for which it has not received instructions from
Contract Owners and those shares which it owns in the same proportion as it
votes shares for which it has received instructions from Contract Owners.
17
<PAGE>
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Company not more than sixty (60) days prior to
the meeting of the Fund. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to such meeting. The person
having such voting rights will be the Contract Owner before the Annuity Date or
the death of the Annuitant (or Contract Owner, as applicable), and thereafter,
the payee entitled to receive payments under the Contract. During the Annuity
Period, voting rights attributable to a Contract will generally decrease as the
Contract Value attributable to an Annuitant decreases.
The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds invested in the General
Account.
Shares of the Funds are sold only to separate accounts of life insurance
companies. The shares of the Funds will be sold to separate accounts of the
Company, its affiliate, AIG Life Insurance Company and unaffiliated life
insurance companies to fund variable annuity contracts and/or variable life
insurance policies. It is conceivable that, in the future, it may be
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
the Company nor the Fund currently foresees any such disadvantages, either to
variable life insurance policy owners or to variable annuity Contract Owners,
the Fund's Board of Directors will monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and to determine what
action, if any, should be taken in response thereto. If a material
irreconcilable conflict were to occur, the relevant participating life insurance
companies will under their agreements governing participation in the Funds take
whatever steps are necessary, at their expense, to remedy or eliminate the
irreconcilable material conflict. If such a conflict were to occur, one or more
insurance company separate accounts might withdraw its investments in a Fund.
This might force the Fund to sell securities at disadvantageous prices.
Substitution Of Shares
If the shares of the Fund (or any Portfolio within the Fund) should no
longer be available for investment by the Variable Account or if, in the
judgment of the Company, further investment in such shares should become
inappropriate in view of the purpose of the Contracts, the Company may
substitute shares of another mutual fund (or Portfolio within the Fund) for Fund
shares already purchased or to be purchased in the future by purchase payments
under the Contracts. No substitution of securities may take place without any
required prior approval of the Securities and Exchange Commission and under such
requirements as it may impose.
Allocation Of Purchase Payment to Sub-accounts
The purchase payment is allocated to the Sub-account(s) selected by the
Contract Owner in the application except that in those states which require the
Company to pay a premium tax upon receipt of a purchase payment the Company will
deduct the premium tax prior to allocating the purchase payment to such
Sub-account(s). The selection must specify a percentage for each Sub-account
that is a whole number, and must be either 0% or a number equal to or greater
than 10%. At the time of the allocation the purchase payment is divided by the
value of the Accumulation Unit for the particular Sub-account for the Valuation
Period during which such allocation occurs to determine the number of
Accumulation Units attributable to the purchase payment.
The purchase payment under an IRA plan will be allocated to the Money
Market Sub-account until the expiration of fifteen (15) days from the day the
Contract is mailed from the Company's office. Thereafter, the Contract Value
shall be reallocated in accordance with instructions specified in the
application.
18
<PAGE>
Transfer Of Contract Values
Before the Annuity Date, the Contract Owner may transfer, by written
request or telephone authorization, Contract Values from one Sub-account to
another Sub-account, subject to the following conditions:
(a) the amount transferred from any Sub-account must be at least $1,000
(or the entire Sub-account value, if less);
(b) if less than $1,000 would remain in the Sub-account after the
transfer, the Company will transfer the entire amount in the
Sub-account;
(c) the Company may reject any more than twelve (12) transfer requests per
Contract Year; and
(d) the Company will deduct any transfer charge assessed on the
transaction.
The Company is currently not assessing a transfer fee for the first twelve
(12) transfers per Contract Year. The Company is assessing a transfer fee of $10
per transfer thereafter.
The Company may increase the transfer fee to an amount not to exceed $30
per transfer. The transfer fee will be deducted from either the Sub-account
which is the source of the transfer or from the amount transferred if the entire
value in the Sub-account is transferred.
Transfer by telephone authorization is available to a Contract Owner only
by prior election. A Contract Owner must complete, sign, and file with the
Company a Telephone Transfer Authorization Form for each Contract owned. The
Company will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. All calls will be recorded. All transfers
performed by telephone authorization will be confirmed in writing to the
Contract Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
Transfer privileges are further explained in the Statement of Additional
Information.
After the Annuity Date, the payee of the annuity payments may transfer the
Contract Value allocated to the Variable Account from one Sub-account to another
Sub-account. However, the Company reserves the right to refuse any more than one
transfer per month. The transfer fee is the same as before the Annuity Date.
This transfer fee will be deducted from the next annuity payment after the
transfer. If following the transfer, the units remaining in the Sub-account
would generate a monthly payment of less than $100, then the Company may
transfer the entire amount in the Sub-account.
Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Sub-account. The number of Annuity Units for each
Sub-account will remain the same for the remainder of the payment period unless
the payee requests another change.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the
Variable Account. These charges and deductions are:
Deduction for State Premium Taxes
Any premium or other taxes levied by any governmental entity with respect
to the Contracts will be charged against the purchase payment or the Contract
Value. Premium taxes currently imposed by certain states on the Contracts range
from 0% to 3.5% of premiums paid. Some states assess premium taxes at the time
purchase payments are made; others assess premium taxes at the time of
annuitization. The Company currently intends to advance any premium taxes due at
the time purchase payments are made and then deduct premium taxes from the
Contract Value at the time annuity payments begin or upon surrender if the
Company is unable to obtain refund of or otherwise obtain a credit for any
excess premium taxes paid. The Company reserves the right to deduct premium
taxes when incurred. Premium taxes are subject to being changed or amended by
state legislatures, administrative interpretations or judicial acts.
19
<PAGE>
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account (consisting of approximately .90% for mortality
risks and approximately .35% for expense risks). The mortality risks assumed by
the Company arise from its contractual obligation to make annuity payments after
the Annuity Date for the life of the Annuitant, to waive the Deferred Sales
Charge in the event of the death of the Annuitant and to provide the death
benefit prior to the Annuity Date. The expense risk assumed by the Company is
that the costs of administering the Contracts and the Variable Account will
exceed the amount received from the Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and
cannot be increased.
The Mortality and Expense Risk Charge is deducted during the Accumulation
Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period - Annuity Options" on page ) It is
possible that in the future the Company may offer additional payment options
which are not based on a life contingency. If this should occur and if a
Contract Owner should elect a payment option not based on a life contingency,
the Mortality and Expense Risk Charge is still deducted but the Contract Owner
receives no benefit from it.
DEDUCTION FOR DEFERRED SALES CHARGE
In the event that a Contract Owner withdraws all or a portion of the
Contract Value in excess of the Free Withdrawal Amount for the first withdrawal
in a Contract Year other than by way of the Systematic Withdrawal Program, or
makes subsequent withdrawals in a Contract Year, a Deferred Sales Charge may be
imposed. The Free Withdrawal Amount is equal to 10% of the Contract Value at the
time of withdrawal.
The Deferred Sales Charge is deducted based upon a percentage of the
Contract Value which includes the purchase payment and earnings. Since earnings
are included it is possible that the actual amount of the Deferred Sales Charge
may increase even though the percentage may go down.
The Deferred Sales Charge will vary in amount depending upon the time which
has elapsed since the Date of Issue. The amount of any withdrawal which exceeds
the Free Withdrawal Amount will be subject to the following charge:
<CAPTION>
APPLICABLE DEFERRED
CONTRACT YEAR SALES CHARGE PERCENTAGE
<S> <C>
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and thereafter 0%
</TABLE>
The aggregate Deferred Sales Charges paid with respect to a Contract shall
not exceed 8.5% of the purchase payment for such Contract.
The Deferred Sales Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Deferred Sales Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403 (b) Plan or IRA. (See
"Taxes - 403(b) Plans" on page .)
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DEDUCTION FOR ADMINISTRATIVE CHARGE
The Company deducts an annual Administrative Charge, which is currently $30
per year, from the Contract Value to reimburse it for the costs it incurs
relating to maintenance of the Contract and the Variable Account. The Company
may increase this charge to an amount not to exceed $100 per year. The
Administrative Charge is designed to reimburse the Company for the costs it
incurs relating to the maintenance of the Contract and the Variable Account.
Prior to the Annuity Date, the Administrative Charge is deducted from the
Contract Value on each Contract Anniversary. If the Annuity Date is a date other
than a Contract Anniversary, the Company will also deduct a pro-rata portion of
the Administrative Charge from the Contract Value for the fraction of the
Contract Year preceding the Annuity Date.
This charge is also deducted in full on the date of any total withdrawal.
The charge will be deducted from each Sub-account of the Variable Account in the
proportion that the value of each Sub-account attributable to the Contract bears
to the total Contract Value.
After the Annuity Date, this charge is deducted on a pro-rata basis from
each annuity payment and is guaranteed to remain at the same amount as at the
Annuity Date.
DEDUCTION FOR INCOME TAXES
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any income taxes. Surrenders and
withdrawals may be taxable and subject to a penalty tax. (See "Taxes" beginning
on page ____.)
OTHER EXPENSES
There are deductions from and expenses paid out of the assets of the Fund
which are described in the accompanying Prospectus for the Fund.
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Contract Owner's records. DVFS serves as the administrator to
various insurance companies offering variable contracts.
RIGHTS UNDER THE CONTRACTS
The Contract Owner has all rights and may receive all benefits under the
Contract. The Contract Owner is named in the application. Ownership may be
changed prior to the Annuity Date through the submission of written notification
of the change to the Company on a form acceptable to the Company. On and after
the Annuity Date, the Annuitant and Contract Owner shall be one in the same
person unless otherwise provided for. In the case of Contracts issued in
connection with an IRA, the Contract Owner must be the Annuitant.
The Contract Owner's spouse is the only person eligible to be the
Contingent Owner. (See "Death Benefit - Death of Contract Owner" on page ____)
Any new choice of Contingent Owner will automatically revoke any prior choices.
The Contract Owner may, except in the case of a Contract issued in
connection with either an IRA or a 403(b) Plan, assign a Contract at any time
before the Annuity Date and while the Annuitant is alive. A copy of any
assignment must be filed with the Company. The Company is not responsible for
the validity of any assignment. If the Contract is assigned, the rights of the
Contract Owner and those of any revocable Beneficiary will be subject to the
assignment. An assignment will not affect any payments the Company may make or
action it may take before it is recorded. In as much as an assignment or change
of ownership may be a taxable event, Contract Owners should consult competent
tax advisers should they wish to assign their Contracts.
The Contract may be modified only with the consent of the Contract Owner,
except as may be required by applicable law.
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ANNUITY PERIOD
Annuity Benefits
If the Annuitant and Contract Owner are alive on the Annuity Date, the
Company will begin making payments to the Annuitant under the annuity option or
options the Contract Owner has chosen.
The Contract Owner may choose or change an annuity payment option by making
a written request at least thirty (30) days prior to the Annuity Date.
The amount of the payments will be determined by applying the Contract
Value on the Annuity Date. The amount of the annuity payments will depend on the
age or sex of the payee at the time the settlement contract is issued. At the
Annuity Date the Contract Value in each Sub-account will be applied to the
applicable annuity tables contained in the Contract. The amount of the
Sub-account annuity payments are determined through a calculation described in
the Section captioned "Annuity Provisions" in the Statement of Additional
Information.
Annuity Date
The Annuity Date for the Annuitant is:
(a) the first day of the calendar month following the later of the
Annuitant's 85th birthday or the 10th Contract Anniversary; or
(b) such earlier date as may be set by applicable law.
The Contract Owner may designate an earlier date in the application or may
change the Annuity Date by making a written request at least thirty (30) days
prior to the Annuity Date being changed. However, any Annuity Date must be:
(a) no later than the date defined in (a) above; and (b) the first day of
a calendar month.
In addition, for IRA and 403(b) Plan Contracts, certain provisions of your
retirement plan or the Code may further restrict your choice of an Annuity Date.
(See "Taxes - 403(b) Plans" on page, and "Taxes Individual Retirement Annuities"
on page .)
Annuity Options
The Contract Owner may choose to receive annuity payments which are fixed,
or which are based on the Variable Account, or a combination of the two. If the
Contract Owner elects annuity payments which are based on the Variable Account,
the amount of the payments will be variable. The Contract Owner may not transfer
Contract Values between the General Account and the Variable Account after the
Annuity Date, but may, subject to certain conditions, transfer Contract Values
from one Sub-account to another Sub-account. (See The Funds - Transfer of
Contract Values" on page .)
If the Contract Owner has not made any annuity payment option selection at
the Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the General Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will pay an annuity during the lifetime
of the payee.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will pay an annuity during the lifetime of the payee. If, at the death of the
payee, payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee;
(b) the successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate used to
create the annuity factor for this Option; or
(c) the guaranteed period will not in the case of Contracts issued in
connection with an IRA exceed the life expectancy of the Annuitant at
the time the first payment is due.
Option 3: Joint and Last Survivor Income. The Company will pay an annuity
for as long as either the payee or a designated second person is alive. In the
event that the Contract is issued in connection with an IRA, the payments in
this Option will be made only to the Annuitant and the Annuitant's spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company has the right to pay the amount in a lump sum in lieu of
annuity payments. The Company makes all other annuity payments monthly. However,
if the total monthly annuity payment would be less than $100 the Company has the
right to make payments semi-annually or annually.
If fixed annuity payments are selected, the amount of each fixed payment is
determined by multiplying the Contract Value allocated to purchase fixed annuity
payments by the factor shown in the annuity table specified in the Contract for
the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the value
of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Sub-account
selected; and (v) the pro-rata portion of the Administrative Charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, annuity payments will
decrease.
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DEATH BENEFIT
Death Benefit
If the Annuitant (or Contract Owner, if applicable) dies before the Annuity
Date, the Company will pay a death benefit equal to the greater of the purchase
payment paid less partial withdrawals or the Contract Value.
Before the Company will pay any death benefit, the Company will require due
proof of death. The Company will determine the value of the death benefit as of
the Valuation Period following receipt of due proof of death. The Company will
pay the death benefit to the Beneficiary in accordance with any applicable laws
governing the payment of death proceeds.
Payment of the death benefit may be made in one lump sum or applied under
one of the annuity payment options. (See "Annuity Period - Annuity Options" on
page .) The Contract Owner may by written request elect that any death benefit
of at least $2,000 be received by the Beneficiary under an annuity payment
option. (See "Annuity Period - Annuity Options" on page .) The Contract Owner
may choose or change a payment option at any time prior to the Annuitant's
death. If at the time the Annuitant dies, the Contract Owner has made no request
for a payment option, the Beneficiary has sixty (60) days in which to make a
written request to elect either a lump sum payment or any annuity payment
option. Any lump sum payment will be made within seven (7) days after the
Company has received due proof of death and the written election of the
Beneficiary, unless a delay of payments provision is in effect. (See Statement
of Additional Information - "General Information Delay of Payments.")
In the event that the Annuitant and the Contract Owner are the same
individual, the death of that individual will be treated by the Company as the
death of the Annuitant.
Death of Contract Owner
If a Contract Owner dies before the Annuity Date, the entire Contract Value
must be distributed within five (5) years of the date of death, unless:
(a) it is payable over the lifetime of a designated Beneficiary with
distributions beginning within one (1) year of the date of death; or
(b) the Contingent Owner, if any, continues the Contract in his or her own
name.
In the case of Contracts issued in connection with an IRA, the Beneficiary
or may elect to accelerate these payments. Any method of acceleration chosen
must be approved by the Company.
If the Contract Owner dies after the Annuity Date, distribution will be as
provided in the annuity payment option selected.
PURCHASING A CONTRACT
Application
In order to acquire a Contract, an application provided by the Company must
be completed and submitted to the Company for acceptance. The Company must also
receive the purchase payment. Upon acceptance, the Contract is issued to the
Contract Owner and the Purchase Payment is then credited to the Variable Account
and converted into Accumulation Units, except in those states where the
applicable premium tax is deducted from the purchase payment. (See "Alliance
Variable Products Series Fund, Inc. Allocation of Purchase Payment to
Sub-accounts" on page .) If the application for a Contract is in good order, the
Company will apply the purchase payment to the Variable Account and credit the
Contract with Accumulation Units within two (2) business days of receipt. In
addition to the underwriting requirements of the Company, good order means that
the Company has received federal funds (monies credited to a bank's account with
its regional Federal Reserve Bank). If the application for a Contract is not in
good order, the Company will attempt to get it in good order within five (5)
business days or the Company will return the application and the purchase
payment, unless the prospective purchaser specifically consents to the Company's
retaining them until the application is made complete.
Purchase Payment
The Contracts are offered on a single purchase payment basis. The minimum
purchase payment the Company will accept is $5,000.
Distributor
AIG Equity Sales Corp. ("AIGESC"), formerly known as American International
Fund Distributors, Inc., 80 Pine Street, New York, New York, acts as the
distributor of the Contracts. AIGESC is a wholly-owned subsidiary of American
International Group, Inc. and an affiliate of the Company.
Commissions not to exceed 3.5% of purchase payments will be paid to
entities which sell the Contracts. In addition, expense reimbursement allowances
may be paid. Additional payments may be made for other services not directly
related to the sale of the Contracts.
Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
prohibited from performing certain agency or administrative services and
receiving fees from AIGESC, Contract Owners who purchased Contracts through the
bank would be permitted to retain their Contracts and alternate means for
servicing those Contract Owners would be sought. It is not expected, however,
that Contract Owners would suffer any loss of services or adverse financial
consequences as a result of any of these occurrences.
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CONTRACT VALUE
The Contract Value is the sum of the value of all Sub-account Accumulation
Units attributable to the Contract. The value of an Accumulation Unit will vary
from Valuation Period to Valuation Period. The value of an Accumulation Unit is
determined at the end of the Valuation Period and reflects the investment
earnings, or loss, and the deductions for the Valuation Period.
WITHDRAWALS
Partial Withdrawal
The Contract Owner may partially withdraw Contract Values from the Contract
prior to the Annuity Date. Any partial withdrawal is subject to the following
conditions:
(a) the Company must receive a written request;
(b) the amount requested must be at least $500;
(c) any applicable Deferred Sales Charge will be deducted;
(d) the amount withdrawn will be the sum of the amount requested and the
amount of any applicable Deferred Sales Charge; and (e) the Company
will deduct the amount requested plus any Deferred Sales Charge from
each Sub-account of the Variable Account either as specified or in the
proportion that the Sub-account bears to the total Contract Value.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on Page .)
Systematic Withdrawal Program
During the Accumulation Period a Contract Owner may at any time elect in
writing, to take systematic withdrawals from one or more of the Sub-accounts for
a period of time not to exceed 12 months. In order to initiate this program, the
amount to be systematically withdrawn must be equal to or greater than $200
provided that the Contract Value is equal to or greater than $24,000 and the
amount to be withdrawn does not exceed the Free Withdrawal Amount. Systematic
withdrawals will be made without the imposition of the Deferred Sales Charge.
Systematic withdrawals may occur monthly or quarterly.
The systematic withdrawal program may be cancelled at any time by written
request or automatically should the Contract Value fall below $1,000. In the
event the systematic withdrawal program is cancelled, the Contract Owner may not
elect to participate in such program until the next Contract Anniversary.
A Contract Owner may change once per calendar year the amount or frequency
subject to be withdrawn on a systematic basis.
The program is annually renewable, although the limitations set forth above
shall continue to apply.
The Free Withdrawal Amount (See "Charges and Deductions - Deduction for
Deferred Sales Charge" on page ____) and Dollar Cost Averaging (See Statement of
Additional Information - "General Information - Transfers") are not available
while a Contract Owner is receiving systematic withdrawals. A Contract Owner
will be entitled to the Free Withdrawal Amount and Dollar Cost Averaging on and
after the Contract Anniversary next following the termination of the systematic
withdrawal program.
Implementation of the systematic withdrawal program may subject a Contract
Owner to adverse tax consequences, including a 10% tax penalty. (See "Taxes
Taxation of Annuities in General" on page ____ for a discussion of the tax
consequences of withdrawals.)
Total Withdrawal
The Contract Owner may withdraw the entire Contract Value prior to the
Annuity Date. A total withdrawal will cancel the Contract. The total withdrawal
value is equal to the Contract Value next calculated after receipt of the
written withdrawal request, less any applicable Deferred Sales Charge, less the
Administrative Charge and less any applicable premium taxes, and less any
applicable charges assessed to amounts in the General Account. See "Charges and
Deductions" on page and Appendix- "General Account Option".)
Payment of Withdrawals
Any Contract Values withdrawn will be sent to the Contract Owners within
seven (7) days of receipt of the written request, unless the Delay of Payments
provision is in effect. (See Statement of Additional Information "General
Information - Delay of Payments.") (See "Taxes Taxation of Annuities in General"
on page for a discussion of the tax consequences of withdrawals.)
The Company reserves the right to ensure that a Contract Owner's check or
other form of purchase payment has been cleared for payment prior to processing
any withdrawal or redemption request occurring shortly after a purchase payment.
Certain restrictions on withdrawals are imposed on Contracts issued in
connection with 403(b) Plans. (See "Taxes - 403(b) Plans" on page .)
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TAXES
Introduction
The Contracts are designed for use by individuals to accumulate Contract
Values with retirement plans which, except for IRAs and 403(b) Plans, are
generally not tax-qualified plans. The ultimate effect of Federal income taxes
on the amounts held under a Contract, on annuity payments, and on the economic
benefits to the Contract Owner, Annuitant or Beneficiary depend on the Company's
tax status and upon the tax and employment status of the individual concerned.
Accordingly, each person should consult a competent tax adviser regarding the
tax consequences of purchasing a Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Fund, please see the accompanying Prospectus for the Fund.
Company Tax Status
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code of 1986, as amended (the "Code"). Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Subchapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the Contract Value. Under existing Federal
income tax law, the Variable Account's investment income, including realized net
capital gains, is not taxed to the Company. The Company reserves the right to
make a deduction for taxes from the assets of the Variable Account should they
be imposed with respect to such items in the future.
Taxation of Annuities in General - Non-Qualified Plans
Code Section 72 governs the taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under the Contract. However, under certain
circumstances, the increase in value may be subject to tax currently. (See
"Taxes - Contracts Owned by Non-Natural Persons," on page _______ and "Taxes
Diversification Standards" on .)
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a Contract
prior to the Annuity Date will be treated as taxable income to the extent the
amounts held under the Contract exceed the "investment in the contract," as that
term is defined under the Code. The "investment in the contract" can generally
be described as the cost of the Contract. It generally constitutes the sum of
all purchase payments made for the contract less any amounts received under the
Contract that are excluded from gross income. The taxable portion is taxed as
ordinary income. For purposes of this rule, a pledge or assignment of a Contract
is treated as a payment received on account of a partial withdrawal of a
Contract.
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the Contract, the
recipient is taxed on the portion of the payment that exceeds the investment in
the contract. The taxable portion is taxed as ordinary income.
If the recipient receives annuity payments rather than a lump sum payment,
a portion of the payment is included in taxable income when received. For fixed
annuity payments, the taxable portion of each payment is generally determined by
using a formula known as the "exclusion ratio," which establishes the ratio that
the investment in the Contract bears to the total expected amount of annuity
payments for the term of the Contract. That ratio is then applied to each
payment to determine the nontaxable portion of the payment. The remaining
portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula which establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the investment in the
Contract by the total number of expected periodic payments. The remaining
portion of each payment is taxed as ordinary income.
The recipient is able to exclude a portion of the payments received from
taxable income until the investment in the Contract is fully recovered. Annuity
payments are fully taxable after the investment in the Contract is recovered. If
the recipient dies before the investment in the Contract is recovered, the
recipient's estate is allowed a deduction for the remainder.
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Penalty Tax on Certain Withdrawals
With respect to amounts withdrawn or distributed before the taxpayer
reaches age 59 1/2, a 10% penalty tax is imposed upon the portion of such amount
which is includable in gross income. However, the penalty tax will not apply to
withdrawals: (i) made on or after the death of the Contract Owner (or where the
Contract Owner is not an individual, the death of the "primary annuitant", who
is defined as the individual, the events in the life of whom are of primary
importance in affecting the timing or amount of the payout under the Contract);
(ii) attributable to the taxpayer's becoming totally disabled within the meaning
of Code Section 72(m)(7); (iii) which are part of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the taxpayer, or the joint lives (or joint life
expectancies) of the taxpayer and his beneficiary; (iv) allocable to investment
in the Contract before August 14, 1982; (v) under a qualified funding asset (as
defined in Code Section 130(d)); (vi) under an immediate annuity contract; or
(vii) that are purchased by an employer on termination of certain types of
qualified plans and which are held by the employer until the employee separates
from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount equal to
the tax that would have been imposed but for item (iii) above as determined
under Treasury Regulations, plus interest for the deferral period. The foregoing
rule applies if the modification takes place: (a) before the close of the period
which is five years from the date of the first payment and after the taxpayer
attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan may
result in a taxable event and the excess of the Contract Value over purchase
payments will be taxed to the assignor as ordinary income. Please consult your
tax adviser prior to making an assignment of the Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who is
either 37 1/2 years younger than the Contract Owner or a grandchild of the
Contract Owner may have Generation Skipping Transfer Tax consequences.
Distribution-at-Death Rules
In order to be treated as an annuity contract for Federal income tax
purposes, a Contract must generally provide for the following two distribution
rules: (i) if the Contract Owner dies on or after the Annuity Date, and before
the entire interest in the Contract has been distributed, the remaining portion
of such interest will be distributed at least as quickly as the method in effect
on the Contract Owner's death; and (ii) if a Contract Owner dies before the
Annuity Date, the entire interest must generally be distributed within five
years after the date of death. To the extent such interest is payable to a
designated Beneficiary, however, such interest may be annuitized over the life
of that Beneficiary or over a period not extending beyond the life expectancy of
that Beneficiary, so long as distributions commence within one year after the
date of death. The designated beneficiary is the person to whom ownership of the
contract passes by reason of death, and must be a natural person. If the
Beneficiary is the spouse of the Contract Owner, the Contract may be continued
unchanged in the name of the spouse as Contract Owner.
If the Contract Owner is not an individual, the "primary annuitant" (as
defined under the Code) is considered the Contract Owner. In addition, when the
Contract Owner is not an individual, a change in the primary annuitant is
treated as the death of the Contract Owner.
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than full and
adequate consideration will generally trigger tax on the gain in the Contract.
The transferee will receive a step-up in basis for the amount included in the
transferor's income. This provision, however, does not apply to those transfers
between spouses or incident to a divorce which are governed by Code Section
1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a corporation
or trust) the Contract is generally not treated as an annuity contract for
Federal income tax purposes, and the income on the Contract (generally the
excess of the Contract Value over the purchase payments) is includable in income
each year. The rule does not apply where the non-natural person is only the
nominal owner such as a trust or other entity acting as an agent for a natural
person. The rule also does not apply when the Contract is acquired by the estate
of a decedent, when the Contract is held under certain qualified plans, when the
Contract is a qualified funding asset for structured settlements, when the
Contract is purchased on behalf of an employee upon termination of a qualified
Plan, and in the case of an immediate annuity.
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Section 1035 Exchanges
Code Section 1035 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity contract
unless money is distributed as part of the exchange. A replacement contract
obtained in a tax-free exchange of contracts succeeds to the status of the
surrendered contract. Special rules and procedures apply to Code Section 1035
transactions. Prospective purchasers wishing to take advantage of Code Section
1035 should consult their tax advisers.
Multiple Contracts
Annuity contracts that are issued by the same company (or affiliate) to the
same policy owner during any calendar year will be treated as one annuity
contract in determining the amount includable in the taxpayer's gross income.
Thus, any amount received under any such contract prior to the contract's
annuity starting date will be taxable (and possibly subject to the 10% penalty
tax) to the extent of the combined income in all such contracts. The Treasury
has broad regulatory authority to prevent avoidance of the purposes of this
aggregation rule. It is possible that, under this authority, Treasury may apply
this rule to amounts that are paid as annuities (on or after the starting date)
under annuity contracts issued by the same company to the same policy owner
during any calendar year period. In this case, annuity payments could be fully
taxable (and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts and regardless of whether any amount would
otherwise have been excluded from income. Contract Owners should consult a tax
adviser before purchasing more than one Contract or other annuity contracts.
Withholding
The Company is required to withhold Federal income taxes on withdrawals,
lump sum distributions, and annuity payments that include taxable income unless
the payee elects to not have any withholding or in certain other circumstances.
Special withholding rules apply to payments made to non-resident aliens.
Lump-Sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of any
withdrawal or lump sum distribution unless you elect out of withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments based
on a withholding certificate you file with the Company. If you do not file a
certificate, you will be treated, for purposes of determining your withholding
rates, as a married person with three exemptions.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
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Diversification Standards
To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up period,
each Sub-account is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Sub-account is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-through" rule applies so that an
investment in the Fund is not treated as one investment but is treated as an
investment in a pro-rata portion of each underlying asset of the Fund. All
securities of the same issuer are treated as a single investment. In the case of
government securities, each Government agency or instrumentality is treated as a
separate issuer.
In connection with the issuance of the proposed and temporary version of
the Diversification Regulations, Treasury announced that such regulations do not
provide guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
if and when additional regulations or IRS pronouncements are issued, the
Contract may need to be modified to comply with such rules. For these reasons,
the Company reserves the right to modify the Contract, as necessary, to prevent
the Contract Owner from being considered the owner of the assets of the Variable
Account.
The Company intends to comply with the Diversification Regulations to
assure that the Contracts continue to be treated as annuity contracts for
Federal income tax purposes.
Tax-Favored Plans
By attachment of an endorsement that reflects the limits of Code section
408(b), the Contracts may be used as an IRA. The Contracts are also available
for use in connection with a previously established 403(b) Plan. No attempt is
made herein to provide more than general information about the use of the
Contracts with IRAs or 403(b) Plans. The information herein is not intended as
tax advice. A prospective Owner considering use of the Contract to create an IRA
or in connection with a 403(b) Plan should first consult a competent tax adviser
with regard to the suitability of the Contract as an investment vehicle for
their qualified plan.
While the Contract will not be available in connection with retirement
plans designed by the Company which qualify for the federal tax advantages
available under Sections 401 and 457 of the Code, a Contract can be used as the
investment medium for an individual Owner's separately qualified 401 retirement
plan. Distributions from a 401 qualified plan or 403(b) Plan (other than
non-taxable distributions representing a return of capital, distributions
meeting the minimum distribution requirement, distributions for the life or life
expectancy of the recipient(s) or distributions that are made over a period of
more than 10 years) are eligible for tax-free rollover within 60 days of the
date of distribution, but are also subject to federal income tax withholding at
a 20% rate unless paid directly to another qualified plan, 403(b) Plan or an
IRA. If the recipient is unable to take full advantage of the tax-free rollover
provisions, there may be taxable income, and the imposition of a 10% penalty tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Owner considering use of the Contract in this
manner should consult a competent tax advisor with regard to the suitability of
the Contract of this purpose and for information concerning the provisions of
the Code applicable to qualified plans, 403(b) Plans, and IRAs.
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
IRA. Contracts issued in connection with an IRA are subject to limitations on
eligibility, maximum contributions, and time of distribution. Distributions from
certain retirement plans qualifying for federal tax advantages may be rolled
over into an IRA. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. Section 408A of the Code
provides special rules for "Roth IRAs." The basic distinction between a Roth IRA
and a regular IRA is that contributions to a Roth IRA are not deductible and
"qualified distributions" from a Roth IRA are not includible in gross income for
federal income tax purposes. Other differences include the ability to make
contributions to a Roth IRA after age 70 1/2 and to defer distributions beyond
age 70 1/2. Taxpayers whose adjusted gross incomes exceed certain levels are not
eligible for Roth IRAs. Sales of the Contracts for use with IRAs are subject to
special requirements imposed by the Service, including the requirement that
informational disclosure be given to each person desiring to establish an IRA.
Contracts offered in connection with an IRA by this Prospectus are not available
in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on a Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to purchase payments made under a salary reduction agreement. Specifically, Code
Section 403(b)(11) allows a Owner to make a surrender or partial withdrawal only
(a) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled (as defined in the Code), or (b) in the case of hardship. In
the case of hardship, only an amount equal to the purchase payments may be
withdrawn. In addition, 403(b) Plans are subject to additional requirements,
including: eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403(b) Plan offered by this Prospectus, are not available in
all states.
LEGAL PROCCEDINGS
The Company knows of no legal proceeding pending to which the Variable
Account is a party or which would materially affect the Variable Account.
LEGAL MATTERS
Legal matters relating to the federal securities laws in connection with
the Contracts described herein are being passed upon by the law firm of Jorden,
Burt, Bors, Cicchetti, Berenson & Johnson LLP, Washington D.C.
32
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
PAGE
General Information.................................
The Company......................................
Independent Accountants..........................
Legal Counsel....................................
Distributor......................................
Calculation of Performance Related Information...
Delay of Payments................................
Transfers........................................
Method of Determining Contract Values...............
Annuity Provisions..................................
Annuity Benefits....................................
Annuity Options..................................
Variable Annuity Payment Values..................
Annuity Unit.....................................
Net Investment Factor............................
Additional Provisions............................
Financial Statements................................
<PAGE>
APPENDIX
GENERAL ACCOUNT OPTION
Under the General Account option, Contract Values are held in the
Company's General Account. Because of exemptive and exclusionary provisions,
interests in the General Account have not been registered under the Securities
Act of 1933 nor is the General Account registered as an investment company under
the Investment Company Act of 1940. The Company understands that the staff of
the Securities and Exchange Commission has not reviewed the disclosures in this
Prospectus relating to the General Account portion of the Contract. Disclosures
regarding the General Account may, however, be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in prospectuses. The General Account option
is not available in all states.
During the Accumulation Period the Owner may allocate amounts to the
General Account. The General Account is an account maintained by us into which
all of our assets have been allocated other than the assets of the Variable
Account and any other separate accounts we maintain. The initial Purchase
Payment will be invested in the General Account in accordance with the selection
made by the Owner in the application. In the case of flexible premium Contracts,
additional Purchase Payments will be allocated to General Account in accordance
with the selection made by the Owner in the application or the most recent
selection received at the Company Office, unless otherwise specified by the
Owner. If the Owner elects to withdrawal amounts from the General 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 General Account for up
to six (6) months from the date it receives such request at its Office.
INVESTMENTS IN THE GENERAL ACCOUNT
An allocation of the initial Purchase Payment to the General Account Option
must equal the greater of (a) or (b) where: (a) is a percentage that is a whole
number, equal to or greater than 10% and (b) is a dollar amount which is equal
to or greater than $3,000. Subsequent Purchase Payments under flexible premium
Contracts allocated to the General Account Option must be equal to or greater
than $3,000. Amounts invested in the General Account are credited with interest
on a daily basis at the then applicable effective guarantee rate. The effective
guarantee rate is that rate in effect when the Owner allocates or transfers
amounts to the General Account. If the Owner has allocated or transferred
amounts at different times to the General Account, each allocation or transfer
may have a unique effective guarantee rate and the General Account Option
associated with that amount. We guarantee that the effective guarantee rate will
not be changed more than once per year and will not be less than 3%.
GENERAL ACCOUNT TRANSFERS
During the Accumulation Period the Owner may transfer, by written request
or telephone authorization, Contract Values to or from a sub-account of the
Variable Account to or from a guarantee period of the General Account at any
time, subject to the conditions set out under Transfer of Contract Values
Section.
MINIMUM SURRENDER VALUE
The Minimum Surrender Value for amounts allocated to the General Account
equals the amounts allocated (less withdrawals) with interest compounded
annually at the rate of 3%, reduced by any applicable Deferred Sales Charge.
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
General Information.......................................................................................
The Company..........................................................................................
Independent Accountants..............................................................................
Legal Counsel........................................................................................
Distributor..........................................................................................
Calculation of Performance Related Information.......................................................
Annuity Provisions........................................................................................
Variable Annuity Payment Values......................................................................
Annuity Unit.........................................................................................
Net Investment Factor................................................................................
Additional Provisions................................................................................
Financial Statements......................................................................................
</TABLE>
<PAGE>
GENERAL INFORMATION
The Company
A description of American International Life Assurance Company of New York
(the "Company"), and its ownership is contained in the Prospectus. The Company
will provide for the safekeeping of the assets of the Variable Account.
Independent Accountants
The financial statements of the Company have been audited by Coopers
and Lybrand, L.L.P., independent certified public accountants, whose offices are
located in Philadelphia, Pennsylvania.
Legal Counsel
Legal matters relating to the Federal securities laws in connection
with the Contracts described herein and in the Prospectus are being passed upon
by the law firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP,
Washington, D.C..
Distributor
AIG Equity Sales Corp., a wholly owned subsidiary of American
International Group, Inc. and an affiliate of the Company, acts as the
distributor. Commissions are paid by the Variable Account directly to selling
dealers and representatives on behalf of the Distributor. Commissions retained
by the Distributor in 1997 were $37,267.60.
Calculation of Performance Related Information
A. Yield and Effective Yield Quotations for the Money Market Subaccount
The yield quotation for the Money Market Subaccount will be for the
seven days ended on the date of the most recent balance sheet of the Variable
Account included in the registration statement, and will be computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one Accumulation Unit in
the Money Market Subaccount at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by (365/7)
with the resulting figure carried to at least the nearest hundredth of one
percent.
Any effective yield quotation for the Money Market Subaccount will be
for the seven days ended on the date of the most recent balance sheet of the
Variable Account included in the registration statement, and will be carried at
least to the nearest hundredth of one percent, and will be computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one Accumulation Unit in
the Money Market Subaccount at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7 and subtracting 1
from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1
For purposes of the yield and effective yield computations, the
hypothetical charge reflects all deductions that are charged to all Owner
accounts in proportion to the length of the base period. For any fees that vary
with the size of the account, the account size is assumed to be the Money Market
Subaccount's mean account size. The yield and effective yield quotations do not
reflect the Surrender Charge that may be assessed at the time of withdrawal in
an amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contracts 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 Contracts. Realized gains and losses
from the sale of securities and unrealized appreciation and depreciation of the
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
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.
C. Yield Quotations
Yield quotations 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 = 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 yield quotations for a 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 Contracts, 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 other than a
Money Market Subaccount, will be average annual total return quotations for the
one, five, and ten year periods (or, where a Subaccount has been in existence
for a period of less than one, five or ten years, for such lesser period) ended
on the date of the most recent balance sheet of the Variable Account and for the
period from the date monies were first placed into the Subaccounts until the
aforesaid date. The quotations are computed by finding the average annual
compounded rates of return over the relevant periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the particular
period at the end of the particular
period.
For the purposes of the total return quotations, the calculations take
into effect all fees that are charged to all Owner accounts. For any fees that
vary with the size of the account, the account size is assumed to be the
respective Subaccount's mean account size. The calculations do not, however,
assume a total withdrawal as of the end of the particular period and, therefore,
no Surrender Charge is reflected.
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 Contracts 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.
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%.
Variable Annuity Payments
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 Contracts. The Annuity Table used
will depend upon the payment option chosen. The same Contract Value amount
applied to each payment option may produce a different initial annuity payment.
If, as of the Annuity Date, the then current annuity rates applicable to this
class of contracts will provide a larger income than that guaranteed for the
same form of annuity under the Contracts described herein, the larger amount
will be paid.
The first annuity payment for each Subaccount is determined by
multiplying the amount of the Contract Value allocated to that Subaccount by the
factor shown in the table for the option selected, divided by 1000.
The dollar amount of Subaccount annuity payments after the first is
determined as follows:
(a) The dollar amount of the first annuity payment is
divided by the value for the Subaccount Annuity Unit
as of the Annuity Date. This establishes the number
of Annuity Units for each monthly payment. The number
of Annuity Units remains fixed during the Annuity
payment period, subject to any transfers.
(b) The fixed number of Annuity Units is multiplied by
the Annuity Unit value for the Valuation Period 14
days prior to the date of payment.
The total dollar amount of each variable annuity payment is the sum of
all Subaccount variable annuity payments less the pro-rata amount of the annual
Administrative Charge.
Annuity Unit
The value of an Annuity Unit for each Subaccount was arbitrarily set
initially at $10. This was done when the first Fund shares were purchased. The
Subaccount Annuity Unit value at the end of any subsequent Valuation Period is
determined by multiplying the Subaccount Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (a) and (b) where:
(a) is the net investment factor for the Valuation Period
for which the Subaccount Annuity Unit value is being
determined; and
(b) is the assumed investment factor for such Valuation
Period. The assumed investment factor adjusts for the
interest assumed in determining the first variable
annuity payment. Such factor for any Valuation Period
shall be the accumulated value, at the end of such
period, of $1.00 deposited at the beginning of such
period at the assumed investment rate of 5%.
Net Investment Factor
The net investment factor is used to determine how investment results
of the 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
(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 Contracts. If the age of the
Annuitant has been misstated, the Company will compute the amount payable based
on the correct age. If annuity payments have begun, any underpayments that may
have been made will be paid in full with the next annuity payment, including
interest at the annual rate of 5%. Any overpayments, including interest at the
annual rate of 5%, unless repaid to the Company in one sum, will be deducted
from future annuity payments until the Company is repaid in full.
If a Contract provision requires that a person be alive, the Company
may require due proof that the person is alive before the Company acts under
that provision.
The Company will give the payee under an annuity payment option a
settlement contract for the payment option.
You may assign a Contract prior to the Annuity Date. A written request,
dated and signed by you must be sent to our Administrative Office. A duly
executed copy of any assignment must be filed with our Administrative Office. We
are not responsible for the validity of any assignment.
FINANCIAL STATEMENTS
The financial statements of the Company and the Variable Account are
incorporated by reference herein and shall be considered only as bearing upon
the ability of the Company to meet its obligations under the Contracts.
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL SINGLE PURCHASE
PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT I
and
AIG LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE VARIABLE ANNUITY CONTRACTS
WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED May 1, 1998
CALL OR WRITE: AIG Life Insurance Company, Attention: Variable Products, One
Alico Plaza, Wilmington, Delaware 19801, 10005, 1-800-340-2765.
DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
General Information.........................................
The Company.............................................
Independent Accountants.................................
Legal Counsel...........................................
Distributor.............................................
Calculation of Performance Related Information..........
Delay of Payments.......................................
Transfers...............................................
Method of Determining Contract Values.......................
Annuity Provisions..........................................
Annuity Benefits........................................
Annuity Options.........................................
Variable Annuity Payment Values.........................
Annuity Unit............................................
Net Investment Factor...................................
Additional Provisions...................................
Financial Statements.........................................
<PAGE>
GENERAL INFORMATION
The Company
A description of AIG Life Insurance Company (the "Company"), and its
ownership is contained in the Prospectus. The Company will provide for the
safekeeping of the assets of the Variable Account.
Independent Accountants
The audited financial statements of the Company and Variable Account A have
been audited by Coopers and Lybrand, independent certified public accountants,
whose offices are located in Philadelphia, Pennsylvania.
Legal Counsel
Legal matters relating to the Federal securities laws in connection with
the Contracts described herein and in the Prospectus are being passed upon by
the law firm of Jorden Burt Boros Cicchetti Berenson & Johnson, Washington, D.C.
Distributor
AIG Equity Sales Corp. ("AIGESC"), a wholly owned subsidiary of American
International Group, Inc. and an affiliate of the Company, acts as the
distributor. The offering is on a continuous basis. Commissions in the amount of
$193,263.91 were retained by the Distributor in 1997.
Calculation Of Performance Related Information
A. Yield and Effective Yield Quotations for the Money Market Sub-account
The yield quotation for the Money Market Sub-account will be for the seven
days ended on the date of the most recent balance sheet of the Variable Account
included in the registration statement, and will be computed by determining the
net change, exclusive of capital changes, in the value of a hypothetical
preexisting account having a balance of one Accumulation Unit in the Money
Market Sub-account at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from Contract Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by (365/7)
with the resulting figure carried to at least the nearest hundredth of one
percent.
Any effective yield quotation for the Money Market Sub-account will be for
the seven days ended on the date of the most recent balance sheet of the
Variable Account included in the registration statement, and will be carried at
least to the nearest hundredth of one percent, and will be computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical preexisting account having a balance of one Accumulation Unit in
the Money Market Sub-account at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Contract Owner accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7 and
subtracting 1 from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1.
For purposes of the yield and effective yield computations, the
hypothetical charge reflects all deductions that are charged to all Contract
Owner accounts in proportion to the length of the base period. For any fees that
vary with the size of the account, the account size is assumed to be the Money
Market Sub-account's mean account size. The yield and effective yield quotations
do not reflect the Deferred Sales Charge that may be assessed at the time of
withdrawal in an amount ranging up to 6% of the requested withdrawal amount,
with the specific percentage applicable to a particular withdrawal depending on
the length of time the purchase payment was held under the Contract and whether
withdrawals had been previously made during that Contract Year. (See "Charges
and Deductions - Deduction for Deferred Sales Charge" on page 17 of the
Prospectus) No deductions or sales loads are assessed upon annuitization under
the Contracts. Realized gains and losses from the sale of securities and
unrealized appreciation and depreciation of the Money Market Sub-account and the
Fund are excluded from the calculation of yield.
<PAGE>
B. Total Return Quotations
The total return quotations for all the Sub-accounts will be average annual
total return quotations for the one, five, and ten year periods (or, where a
Sub-account has been in existence for a period of less than one, five or ten
years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Sub-accounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T) to the power of n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the particular period at the end
of the particular period.
For the purposes of the total return quotations , the calculations take
into effect all fees that are charged to all Contract Owner accounts. For any
fees that vary with the size of the account, the account size is assumed to be
the respective Sub-account's mean account size. The calculations also assume a
total withdrawal as of the end of the particular period.
C. Yield Quotations
The yield quotations for the Short-Term Multi-Market, U.S. Government/High
Grade Securities and Global Bond Sub-accounts will be based on the thirty-day
period ended on the date of the most recent balance sheet of the Variable
Account included in the registration statement, and are computed by dividing the
net investment income per Accumulation Unit earned during the period by the
maximum offering price per unit on the last day of the period, according to the
following formula:
Yield = 2[(a - b + 1) to the power of 6 - 1]
----------
cd
Where: a = net investment income earned during the period by the
corresponding Portfolio of the Fund attributable to shares
owned by the Sub-account.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Accumulation Units outstanding
during the period.
d = the maximum offering price per Accumulation Unit on the last
day of the period.
For the purposes of the yield quotations for a Sub-accounts, the
calculations take into effect all fees that are charged to all Contract Owner
accounts. For any fees that vary with the size of the account, the account size
is assumed to be the respective Sub-account's mean account size. The
calculations do not take into account the Deferred Sales Charge or any transfer
charges.
A Deferred Sales Charge may be assessed at the time of withdrawal in an
amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract, and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions
Deduction for Deferred Sales Charge" on page 17 of the Prospectus) There is
currently a transfer charge of $10 per transfer after a specified number of
transfers in each Contract Year. (See "The Fund, - Transfer of Contract Values"
on page 15 of the Prospectus)
D. Non- Standardized Performance Data
1. Total Return Quotations
The total return quotations for all the Sub-accounts will be average annual
total return quotations for the one, five, and ten year periods (or, where a
Sub-account has been in existence for a period of less than one, five or ten
years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Sub-accounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula: P(1+T)to the powere of n =
ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the particular period
at the end of the particular period.
For the purposes of the total return quotations, the calculations take into
effect all fees that are charged to all Contract Owner accounts. For any fees
that vary with the size of the account, the account size is assumed to be the
respective Sub-account's mean account size. The calculations do not, however,
assume a total withdrawal as of the end of the particular period.
<PAGE>
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 charts may show accumulations on an initial investment or
Purchase Payment of a given amount, assuming hypothetical gross annual returns
compounded annually, and a stated assumed rate. The values shown for the taxable
investment will 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, such as the Fund. In addition,
these values assume that the Owner does not surrender the Contract or make any
withdrawals until the end of the period shown. The chart assumes a full
withdrawal, at the end of the period shown, of all contract value and the
payment of taxes at the stated assumed rate on the amount in excess of the
Purchase Payment.
In developing tax-deferral charts, the Company will follow these 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.
The rates of return illustrated in a chart will be hypothetical and not an
estimate or guaranty of performance. Actual tax rates may vary for different
taxpayers from those illustrated in a chart.
<PAGE>
Delay of Payments
Any payments due under the Contracts will generally be sent to the Contract
Owner within seven (7) days of a completed request for payment. However, the
Company has reserved the right to postpone any type of payment from the Variable
Account for any period when:
(a) the New York Stock Exchange is closed for other than customary
weekends and holidays;
(b) trading on the Exchange is restricted;
(c) an emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the Variable Account or
determine their value; or
(d) an order of the Securities and Exchange Commission permits delay for
the protection of security holders.
The applicable rules of the Securities and Exchange Commission shall govern
as to whether the conditions in (b) and (c) exists.
Transfers
A Contract Owner may deposit prior to the Annuity Date, all or part of his
Contract Value into either the Money Market or Short-Term Multi-Market
Sub-account (the "Sending Sub-account"), and then automatically transfer those
assets into one or more of the other Sub-accounts on a systematic basis. The
amount transferred to the Sending Sub-account must be at least $12,000 in order
to initiate this option. This process is called Automatic Dollar Cost Averaging.
The Automatic Dollar Cost Averaging option is available for use with any of
the investment options, other than the General Account.
Automatic Dollar Cost Averaging transfers may occur monthly or quarterly.
The Contract Owner may designate the dollar amount to be transferred each month
or elect to have a percentage transferred each month, up to a maximum of 60
months.
The Company will make all Automatic Dollar Cost Averaging transfers on the
15th calendar day of each month, or the next day the New York Stock Exchange is
open for business if the 15th calendar day of the month should fall on a day the
New York Stock Exchange is closed. In order to process an Automatic Dollar Cost
Averaging transfer, the Company must have received a request in writing by no
later than the 6th calendar day of the month.
The Automatic Dollar Cost Averaging option may be cancelled at any time by
written request or automatically if the value of the Sending Sub-account subject
to the Automatic Dollar Cost Averaging option is less than $1,000.
A Contract Owner may change his Automatic Dollar Cost Averaging investment
allocation only once during any 12 month period.
Any transfers made under this section are subject to the conditions of the
section entitled " The Fund- Transfer of Contract Values" on page 15 of the
Prospectus, except that the Company will not deem the election of the Automatic
Dollar Cost Averaging option to count towards a Contract Owner's twelve (12)
free transfers.
<PAGE>
METHOD OF DETERMINING CONTRACT VALUES
The Contract Value will fluctuate in accordance with the investment results
of the underlying Portfolios of the Fund held within the Sub-account. In order
to determine how these fluctuations affect Contract Values, Accumulation Units
are utilized. The value of an Accumulation Unit applicable during any Valuation
Period is determined at the end of that period.
When the first shares of the respective Portfolios of the Fund were
purchased for the Sub-accounts, the Accumulation Units for the Sub-accounts were
valued at $10. The value of an Accumulation Unit for a Sub-account on any
Valuation Date thereafter is determined by dividing (a) by (b), where:
(a) is equal to:
(i) the total value of the net assets attributable to Accumulation
Units in the Sub-account, minus (ii) the daily charge for
assuming the risk of guaranteeing mortality factors and expense
charges, which is equal on an annual basis to 1.25% multiplied by
the daily net asset value of the Sub-account; minus (iii) the
daily charge for providing certain administrative functions which
is equal on an annual basis to 0.15% multiplied by the daily net
asset value of the Sub-Account, minus or plus (iv) a charge or
credit for any tax provision established for the Sub-account. The
Company is not currently making any provision for taxes.
(b) is the total number of Accumulation Units applicable to that
Sub-account at the end of the Valuation Period.
The resulting value of each Sub-account Accumulation Unit is multiplied by
the respective number of Sub-account Accumulation Units for a Contract. The
Contract Value is the sum of all Sub-account values for the Contract.
An Accumulation Unit may increase or decrease in value from Valuation Date
to Valuation Date.
ANNUITY PROVISIONS
Annuity Benefits
If the Annuitant is alive on the Annuity Date the Company will begin making
payments to the Annuitant under the payment option or options selected. The
amount of the annuity payments will depend on the age or sex of the payee at the
time the settlement contract is issued.
Annuity Options
The an
nuity options are as follows:
Option 1: Life Income. The Company will pay an annuity during
the lifetime of the payee.
Option 2: Income with 10 Years of Payments Guaranteed. The Company will
pay an annuity during the lifetime of the payee. If, at the death of
the payee, payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to
the successor payee; or
(b) the successor payee may elect to receive in a lump sum the
present value of the remaining payments, commuted at the interest
rate used to create the annuity factor for this Option.
Option 3: Joint and Last Survivor Income. The Company will pay
an annuity for as long as either payee or a designated second
person is alive.
Annuity options are available on a fixed and/or a variable basis. The
Contract Owner may allocate Contract Values to purchase only fixed annuity
payments, or to purchase only variable annuity payments, or to purchase a
combination of the two. Contract Values which purchase fixed annuity payments
will be invested in the General Account. Contract Values which purchase variable
annuity payments will be invested in the Variable Account. The Contract Owner
may make no transfers between the General Account and the Variable Account after
the Annuity Date. The Company also may offer additional options at its
discretion. <PAGE>
Variable Annuity Payment Values
A Variable Annuity is an annuity with payments which (1) are not
predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable Sub-account(s) of the Variable Account. At
the Annuity Date the Contract Value in each Sub-account will be applied to the
applicable Annuity Tables contained in the Contract. The Annuity Table used will
depend upon the payment option chosen. The same Contract Value amount applied to
each payment option may produce a different initial annuity payment. If, as of
the Annuity Date, the then current annuity rates applicable to this class of
contracts will provide a larger income than that guaranteed for the same form of
annuity under the Contracts described herein, the larger amount will be paid.
The first annuity payment for each Sub-account is determined by multiplying
the amount of the Contract Value allocated to that Sub-account by the factor
shown in the table for the option selected, divided by 1000.
The dollar amount of Sub-account annuity payments after the first is
determined as follows:
(a) The dollar amount of the first annuity payment is divided by the
value for the Sub-account Annuity Unit as of the Annuity Date.
This establishes the number of Annuity Units for each monthly
payment. The number of Annuity Units remains fixed during the
Annuity payment period, subject to any transfers.
(b) The fixed number of Annuity Units is multiplied by the Annuity
Unit value for the Valuation Period 14 days prior to the date of
payment.
The total dollar amount of each Variable Annuity payment is the sum of all
Sub-account variable annuity payments less the pro-rata amount of the
Administrative Charge.
Annuity Unit
The value of an Annuity Unit for each Sub-account was arbitrarily set
initially at $10. This was done when the first Fund shares were purchased. The
Sub-account Annuity Unit value at the end of any subsequent Valuation Period is
determined by multiplying the Sub-account Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (a) and (b) where:
(a) is the net investment factor for the Valuation Period for which
the Sub-account Annuity Unit value is being determined; and
(b) is the assumed investment factor for such Valuation Period. The
assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for
any Valuation Period shall be the accumulated value, at the end
of such period, of $1.00 deposited at the beginning of such
period at the assumed investment rate of 5%.
<PAGE>
Net Investment Factor
The net investment factor is used to determine how investment results of
the Fund affect Variable Account Values within the Sub-accounts from one
Valuation Period to the next. The net investment factor for each Sub-account for
any Valuation Period is determined by dividing (a) by (b) and subtracting (c)
from the result, where:
(a) is equal to:
(i) the net asset value per share of the Fund held in the
Sub-account determined at the end of that Valuation Period;
plus
(ii) the per share amount of any dividend or capital gain
distribution made by the Fund held in the Sub-account if the
"ex-dividend" date occurs during that same Valuation Period;
plus or minus (iii) a per share charge or credit, which is
determined by the Company, for changes in tax reserves
resulting from investment operations of the Sub-account.
(b) is equal to:
(i) the net asset value per share of the Fund held in the
Sub-account determined as of the end of the prior Valuation
Period; plus or minus
(ii) the per share charge or credit for any change in tax
reserves for the prior Valuation Period.
(c) is equal to:
(i) is 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 Annuity Unit value may increase or decrease
from Valuation Period to Valuation Period. <PAGE>
Additional Provisions
The Company may require proof of the age or sex of the Annuitant before
making any life annuity payment provided for by the Contract. If the age or sex
of the Annuitant has been misstated the Company will compute the amount payable
based on the correct age or sex. If annuity payments have begun, any
underpayments that may have been made will be paid in full with the next annuity
payment,including interest at an 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 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 validiy of any assignment.
FINANCIAL STATEMENTS
The financial statements of the Company and the Variable Account included
herein should be considered only as bearing upon the ability of the Company to
meet its obligations under the Contracts.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments at Market Value:
Alliance Variable Products Series Fund, Inc.:
Shares Cost Market Value
----------------------------------------------------------
<S> <C> <C> <C>
Money Market Portfolio $10,485,503.650 $ 10,485,504 $ 10,485,504
Premier Growth Portfolio 1,705,702.964 29,342,384 35,802,706
Growth & Income Portfolio 2,298,316.243 37,836,959 45,805,443
International Portfolio 547,179.798 8,056,600 8,218,640
Short-Term Multi-Market Portfolio 83,504.629 883,600 882,644
Global Bond Portfolio 185,701.387 2,138,655 2,061,275
U.S. Government/High Grade
Securities Portfolio 623,968.955 7,043,605 7,443,951
Global Dollar Government Portfolio 199,126.863 2,950,582 2,917,208
North American Government Portfolio 483,756.392 6,034,805 6,274,321
Utility Income Portfolio 334,334.446 4,182,088 5,239,021
Conservative Investors Portfolio 552,161.979 6,439,216 7,233,326
Growth Investors Portfolio 164,957.812 2,076,348 2,372,093
Growth Portfolio 1,722,995.569 27,698,680 38,629,564
Total Return Portfolio 544,578.481 7,784,995 9,214,264
Worldwide Privatization Portfolio 489,862.015 6,725,020 6,956,046
Technology Portfolio 1,008,874.316 12,109,598 11,824,006
Quasar Portfolio 617,928.736 7,154,254 7,792,082
Real Estate Investment Portfolio 182,985.035 2,059,185 2,256,206
High Yield Portfolio 4,104.495 42,068 42,400
----------------- ----------------
Total Investments $181,044,146 211,450,700
---------------
Total Assets $211,450,700
===============
EQUITY:
Contract Owners' Equity $211,450,700
------------------
Total Equity $211,450,700
==================
</TABLE>
See Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1997
<TABLE>
<CAPTION>
Alliance Alliance
Money Premier
Market Growth
Total Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $5,626,254 $528,195 $31,027
Expenses:
Mortality & Expense Risk Fees 2,142,070 132,379 339,391
Daily Administrative Charges 253,418 15,722 39,523
----------------- ----------------- -----------------
Net Investment Income (Loss) 3,230,766 380,094 (347,887)
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 4,516,762 0 220,392
Change in Unrealized Appreciation
(Depreciation) 20,808,095 0 6,824,300
----------------- ----------------- -----------------
Net Gain (Loss) on Investments 25,324,857 0 7,044,692
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $28,555,623 $380,094 $6,696,805
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
& Alliance Short-Term
Income International Multi-Market
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,980,682 $206,688 $49,597
Expenses:
Mortality & Expense Risk Fees 450,130 100,606 11,079
Daily Administrative Charges 52,668 11,860 1,316
----------------- ----------------- -----------------
Net Investment Income (Loss) 1,477,884 94,222 37,202
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 724,307 288,488 (5,842)
Change in Unrealized Appreciation
(Depreciation) 5,996,078 (241,477) (3,267)
----------------- ----------------- -----------------
Net Gain (Loss) on Investments 6,720,385 47,011 (9,109)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $8,198,269 $141,233 $28,093
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
U.S. Alliance
Alliance Government Global
Global High Dollar
Bond Grade Government
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $113,036 $312,206 $205,700
Expenses:
Mortality & Expense Risk Fees 23,622 84,369 28,352
Daily Administrative Charges 2,818 10,059 3,421
----------------- ----------------- -----------------
Net Investment Income (Loss) 86,596 217,778 173,927
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 24,828 122,749 98,499
Change in Unrealized Appreciation
(Depreciation) (119,659) 130,970 (145,762)
----------------- ----------------- -----------------
Net Gain (Loss) on Investments (94,831) 253,719 (47,263)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations ($8,235) $471,497 $126,664
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
North Alliance Alliance
American Utility Conservative
Government Income Investors
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $223,902 $78,166 $200,021
Expenses:
Mortality & Expense Risk Fees 64,608 53,455 96,336
Daily Administrative Charges 7,740 6,360 11,523
----------------- ----------------- -----------------
Net Investment Income (Loss) 151,554 18,351 92,162
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 251,006 134,320 256,624
Change in Unrealized Appreciation
(Depreciation) (35,923) 784,564 421,303
----------------- ----------------- -----------------
Net Gain (Loss) on Investments 215,083 918,884 677,927
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $366,637 $937,235 $770,089
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Growth Alliance Total
Investors Growth Return
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $57,801 $1,174,149 $323,847
Expenses:
Mortality & Expense Risk Fees 25,536 408,536 91,228
Daily Administrative Charges 3,056 48,613 10,845
----------------- ----------------- -----------------
Net Investment Income (Loss) 29,209 717,000 221,774
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 33,388 1,429,025 341,274
Change in Unrealized Appreciation
(Depreciation) 198,397 5,934,120 706,404
----------------- ----------------- -----------------
Net Gain (Loss) on Investments 231,785 7,363,145 1,047,678
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $260,994 $8,080,145 $1,269,452
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Worldwide Alliance Alliance
Privatization Technology Quasar
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $121,301 $17,108 $2,828
Expenses:
Mortality & Expense Risk Fees 64,562 99,570 58,150
Daily Administrative Charges 7,774 12,012 6,924
----------------- ----------------- -----------------
Net Investment Income (Loss) 48,965 (94,474) (62,246)
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 190,693 330,295 67,074
Change in Unrealized Appreciation
(Depreciation) 15,628 (468,285) 613,351
----------------- ----------------- -----------------
Net Gain (Loss) on Investments 206,321 (137,990) 680,425
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $255,286 ($232,464) $618,179
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Real High
Estate Yield
Portfolio Portfolio
----------------- -----------------
<S> <C> <C>
Investment Income (Loss):
Dividends $0 $0
Expenses:
Mortality & Expense Risk Fees 10,129 32
Daily Administrative Charges 1,180 4
----------------- -----------------
Net Investment Income (Loss) (11,309) (36)
----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 9,641 1
Change in Unrealized Appreciation
(Depreciation) 197,021 332
----------------- -----------------
Net Gain (Loss) on Investments 206,662 333
----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $195,353 $297
================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1997 and
December 31, 1996
<TABLE>
<CAPTION>
1997
Alliance Alliance
Money Premier
Market Growth
Total Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $3,230,766 $380,094 ($347,887)
Realized Gain (Loss) on Investment Activity 4,516,762 0 220,392
Change in Unrealized Appreciation
(Depreciation) of Investments 20,808,095 0 6,824,300
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 28,555,623 380,094 6,696,805
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 61,474,919 23,803,008 5,628,309
Administrative Charges (56,510) (2,803) (9,241)
Transfers Between Funds 172,251 (21,820,460) 5,485,953
Contract Withdrawals (9,618,300) (1,672,237) (1,359,666)
Deferred Sales Charges (220,546) (65,191) (24,018)
Death Benefits (853,668) (55,920) (97,729)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 50,898,146 186,397 9,623,608
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 79,453,769 566,491 16,320,413
Net Assets, at Beginning of Year 131,996,931 9,919,013 19,482,293
----------------- ----------------- -----------------
Net Assets, at End of Year $211,450,700 $10,485,504 $35,802,706
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
& Alliance Short-Term
Income International Multi-Market
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,477,884 $94,222 $37,202
Realized Gain (Loss) on Investment Activity 724,307 288,488 (5,842)
Change in Unrealized Appreciation
(Depreciation) of Investments 5,996,078 (241,477) (3,267)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 8,198,269 141,233 28,093
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 8,591,668 1,460,480 531,987
Administrative Charges (11,183) (3,038) (209)
Transfers Between Funds 5,044,963 135,463 (736,845)
Contract Withdrawals (1,548,697) (421,700) (21,135)
Deferred Sales Charges (23,521) (10,229) (157)
Death Benefits (192,825) (55,315) 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 11,860,405 1,105,661 (226,359)
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 20,058,674 1,246,894 (198,266)
Net Assets, at Beginning of Year 25,746,769 6,971,746 1,080,910
----------------- ----------------- -----------------
Net Assets, at End of Year $45,805,443 $8,218,640 $882,644
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
U.S. Alliance
Alliance Government Global
Global High Dollar
Bond Grade Government
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $86,596 $217,778 $173,927
Realized Gain (Loss) on Investment Activity 24,828 122,749 98,499
Change in Unrealized Appreciation
(Depreciation) of Investments (119,659) 130,970 (145,762)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations (8,235) 471,497 126,664
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 306,455 1,098,080 1,033,795
Administrative Charges (637) (2,600) (577)
Transfers Between Funds 81,466 (39,816) 684,885
Contract Withdrawals (201,649) (315,830) (39,766)
Deferred Sales Charges (5,791) (7,245) (26)
Death Benefits 0 (133,785) 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 179,844 598,804 1,678,311
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 171,609 1,070,301 1,804,975
Net Assets, at Beginning of Year 1,889,666 6,373,650 1,112,233
----------------- ----------------- -----------------
Net Assets, at End of Year $2,061,275 $7,443,951 $2,917,208
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
North Alliance
American Alliance Conservative
Government Utility Investors
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $151,554 $18,351 $92,162
Realized Gain (Loss) on Investment Activity 251,006 134,320 256,624
Change in Unrealized Appreciation
(Depreciation) of Investments (35,923) 784,564 421,303
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 366,637 937,235 770,089
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 2,559,916 410,428 870,542
Administrative Charges (1,678) (1,142) (2,409)
Transfers Between Funds 291,510 291,766 (972,055)
Contract Withdrawals (339,979) (176,198) (748,879)
Deferred Sales Charges (9,028) (2,259) (20,572)
Death Benefits (43,411) (4,861) (24,350)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 2,457,330 517,734 (897,723)
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 2,823,967 1,454,969 (127,634)
Net Assets, at Beginning of Year 3,450,354 3,784,052 7,360,960
----------------- ----------------- -----------------
Net Assets, at End of Year $6,274,321 $5,239,021 $7,233,326
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Growth Alliance Total
Investors Growth Return
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $29,209 $717,000 $221,774
Realized Gain (Loss) on Investment Activity 33,388 1,429,025 341,274
Change in Unrealized Appreciation
(Depreciation) of Investments 198,397 5,934,120 706,404
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 260,994 8,080,145 1,269,452
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 214,085 3,541,839 1,682,345
Administrative Charges (990) (13,661) (1,789)
Transfers Between Funds 251,332 1,772,349 350,402
Contract Withdrawals (103,458) (2,003,195) (258,955)
Deferred Sales Charges (2,657) (41,142) (4,513)
Death Benefits (16,346) (85,272) (10,318)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 341,966 3,170,918 1,757,172
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 602,960 11,251,063 3,026,624
Net Assets, at Beginning of Year 1,769,133 27,378,501 6,187,640
----------------- ----------------- -----------------
Net Assets, at End of Year $2,372,093 $38,629,564 $9,214,264
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Worldwide Alliance Alliance
Privatization Technology Quasar
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $48,965 ($94,474) ($62,246)
Realized Gain (Loss) on Investment Activity 190,693 330,295 67,074
Change in Unrealized Appreciation
(Depreciation) of Investments 15,628 (468,285) 613,351
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 255,286 (232,464) 618,179
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 2,555,245 3,160,687 2,890,835
Administrative Charges (1,524) (2,489) (427)
Transfers Between Funds 1,442,426 4,390,569 2,514,912
Contract Withdrawals (159,191) (152,097) (79,962)
Deferred Sales Charges (2,040) (1,487) (615)
Death Benefits (19,299) (40,536) (53,885)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 3,815,617 7,354,647 5,270,858
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 4,070,903 7,122,183 5,889,037
Net Assets, at Beginning of Year 2,885,143 4,701,823 1,903,045
----------------- ----------------- -----------------
Net Assets, at End of Year $6,956,046 $11,824,006 $7,792,082
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Real High
Estate Yield
Portfolio Portfolio
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($11,309) ($36)
Realized Gain (Loss) on Investment Activity 9,641 1
Change in Unrealized Appreciation
(Depreciation) of Investments 197,021 332
----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 195,353 297
----------------- -----------------
Capital Transactions:
Contract Deposits 1,119,140 16,075
Administrative Charges (113) 0
Transfers Between Funds 977,403 26,028
Contract Withdrawals (15,706) 0
Deferred Sales Charges (55) 0
Death Benefits (19,816) 0
----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 2,060,853 42,103
----------------- -----------------
Total Increase (Decrease) in Net Assets 2,256,206 42,400
Net Assets, at Beginning of Year 0 0
----------------- -----------------
Net Assets, at End of Year $2,256,206 $42,400
================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
1996
<TABLE>
<CAPTION>
Alliance Alliance
Money Premier
Market Growth
Total Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $6,888,877 $260,974 $3,673,291
Realized Gain (Loss) on Investment Activity 1,957,749 0 146,908
Change in Unrealized Appreciation
(Depreciation) of Investments 5,694,413 (2) (987,553)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 14,541,039 260,972 2,832,646
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 71,962,107 26,676,166 6,354,843
Administrative Charges (23,635) (1,270) (3,314)
Transfers Between Funds 2,682,801 (22,285,986) 3,936,089
Contract Withdrawals (4,363,405) (525,634) (439,663)
Deferred Sales Charges (138,921) (18,228) (10,496)
Death Benefits (1,217,191) (94,836) (148,549)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 68,901,756 3,750,212 9,688,910
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 83,442,795 4,011,184 12,521,556
Net Assets, at Beginning of Year 48,554,136 5,907,829 6,960,737
----------------- ----------------- -----------------
Net Assets, at End of Year $131,996,931 $9,919,013 $19,482,293
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
& Alliance Short-Term
Income International Multi-Market
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,603,877 ($7,991) $73,978
Realized Gain (Loss) on Investment Activity 219,661 47,574 13,582
Change in Unrealized Appreciation
(Depreciation) of Investments 957,177 224,262 (14,638)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 3,780,715 263,845 72,922
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 9,296,869 1,619,246 541,695
Administrative Charges (4,460) (1,631) (166)
Transfers Between Funds 5,347,859 2,399,936 (292,015)
Contract Withdrawals (773,457) (170,258) (7,245)
Deferred Sales Charges (20,065) (2,573) 0
Death Benefits (147,666) (134,958) (57,584)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 13,699,080 3,709,762 184,685
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 17,479,795 3,973,607 257,607
Net Assets, at Beginning of Year 8,266,974 2,998,139 823,303
----------------- ----------------- -----------------
Net Assets, at End of Year $25,746,769 $6,971,746 $1,080,910
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
U.S. Alliance
Alliance Government Global
Global High Dollar
Bond Grade Government
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $128,796 $116,437 $5,522
Realized Gain (Loss) on Investment Activity 26,560 75,786 44,263
Change in Unrealized Appreciation
(Depreciation) of Investments (67,713) (81,240) 84,322
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 87,643 110,983 134,107
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 526,163 1,706,170 441,487
Administrative Charges (407) (2,035) (136)
Transfers Between Funds 343,345 322,519 355,456
Contract Withdrawals (26,346) (215,735) (9,570)
Deferred Sales Charges (275) (5,297) (137)
Death Benefits (14,015) (42,513) 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 828,465 1,763,109 787,100
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 916,108 1,874,092 921,207
Net Assets, at Beginning of Year 973,558 4,499,558 191,026
----------------- ----------------- -----------------
Net Assets, at End of Year $1,889,666 $6,373,650 $1,112,233
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
North Alliance
American Alliance Conservative
Government Utility Investors
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($19,165) $23,483 ($7,245)
Realized Gain (Loss) on Investment Activity 153,100 53,941 73,744
Change in Unrealized Appreciation
(Depreciation) of Investments 185,915 176,605 279,016
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 319,850 254,029 345,515
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 2,381,640 1,891,458 4,704,752
Administrative Charges (614) (513) (778)
Transfers Between Funds 41,162 475,955 928,879
Contract Withdrawals (240,914) (93,660) (252,945)
Deferred Sales Charges (14,198) (1,123) (10,524)
Death Benefits (39,347) 0 (258,912)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 2,127,729 2,272,117 5,110,472
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 2,447,579 2,526,146 5,455,987
Net Assets, at Beginning of Year 1,002,775 1,257,906 1,904,973
----------------- ----------------- -----------------
Net Assets, at End of Year $3,450,354 $3,784,052 $7,360,960
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Growth Alliance Total
Investors Growth Return
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($8,813) $113,645 ($24,882)
Realized Gain (Loss) on Investment Activity 134,363 737,513 50,865
Change in Unrealized Appreciation
(Depreciation) of Investments 56,638 3,861,809 622,785
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 182,188 4,712,967 648,768
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 1,706,418 7,547,011 2,931,098
Administrative Charges (351) (6,711) (733)
Transfers Between Funds (793,530) 5,676,961 1,350,794
Contract Withdrawals (58,019) (1,235,945) (179,584)
Deferred Sales Charges (1,694) (42,508) (3,937)
Death Benefits 0 (174,472) 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 852,824 11,764,336 4,097,638
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 1,035,012 16,477,303 4,746,406
Net Assets, at Beginning of Year 734,121 10,901,198 1,441,234
----------------- ----------------- -----------------
Net Assets, at End of Year $1,769,133 $27,378,501 $6,187,640
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Worldwide Alliance Alliance
Privatization Technology Quasar
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($11,483) ($28,799) ($2,748)
Realized Gain (Loss) on Investment Activity 61,800 117,905 184
Change in Unrealized Appreciation
(Depreciation) of Investments 189,862 182,694 24,474
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 240,179 271,800 21,910
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 1,154,022 1,995,004 488,065
Administrative Charges (413) (98) (5)
Transfers Between Funds 899,896 2,577,326 1,398,155
Contract Withdrawals (96,953) (32,453) (5,024)
Deferred Sales Charges (2,393) (5,417) (56)
Death Benefits 0 (104,339) 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,954,159 4,430,023 1,881,135
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 2,194,338 4,701,823 1,903,045
Net Assets, at Beginning of Year 690,805 0 0
----------------- ----------------- -----------------
Net Assets, at End of Year $2,885,143 $4,701,823 $1,903,045
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Real High
Estate Yield
Portfolio Portfolio
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0
Realized Gain (Loss) on Investment Activity 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0
----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0
----------------- -----------------
Capital Transactions:
Contract Deposits 0 0
Administrative Charges 0 0
Transfers Between Funds 0 0
Contract Withdrawals 0 0
Deferred Sales Charges 0 0
Death Benefits 0 0
----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0
----------------- -----------------
Total Increase (Decrease) in Net Assets 0 0
Net Assets, at Beginning of Year 0 0
----------------- -----------------
Net Assets, at End of Year $0 $0
================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
1. History
Variable Account A (the "Account") is a separate investment account
established under the provisions of New York Insurance Law by American
International Life Assurance Company of New York (the "Company"), a wholly-owned
subsidiary of American International Group, Inc. The Account operates as a unit
investment trust registered under the Investment Company Act of 1940, as
amended, and supports the operations of the Company's individual single purchase
payment deferred variable annuity contracts (the "contracts"). The Account
invests in shares of Alliance Variable Products Series Fund, Inc. (the "Fund").
The Fund consists of nineteen series: Money Market Portfolio; Short-Term
Multi-Market Portfolio; Premier Growth Portfolio; Growth and Income Portfolio;
International Portfolio; Global Bond Portfolio; U.S. Government/High Grade
Securities Portfolio; Global Dollar Government Portfolio; North American
Government Portfolio; Utility Income Portfolio; Conservative Investors
Portfolio; Growth Investors Portfolio; Growth Portfolio; Total Return Portfolio;
World Privatization Portfolio; Quasar Portfolio; Technology Portfolio; High
Yield Portfolio and Real Estate Investors Portfolio. The Account invests in
shares of other funds which are not available to these contracts.
The assets of the Account are the property of the Company. The portion of
the Account's assets applicable to the contracts are not chargeable with
liabilities arising out of any other business conducted by the Company.
In addition to the Account, a contract owner may also allocate funds to the
Guaranteed Account, which is part of the Company's general account. Amounts
allocated to the Guaranteed Account are credited with a guaranteed rate for one
year. Because of exemptive and exclusionary provisions, interests in the
Guaranteed Account have not been registered under the Securities Act of 1933 and
the Guaranteed Account has not been registered as an investment company under
the Investment Company Act of 1940.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Account in preparation of the financial statements in conformity with
generally accepted accounting principles.
A. Investment Valuation -The investments in the Funds are stated at market
value which is the net asset value of each of the respective series as
determined at the close of business on the last business day of the period by
the Fund.
B. Accounting for Investments - Investment transactions are accounted for
on the date the investments are purchased or sold. Dividend income is recorded
on the ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations and is
not taxed separately. Under existing federal law, no taxes are payable on
investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities and the reported amounts from operations and policy
transactions. Actual results could differ from those estimates.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
3. Contract Charges
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are equivalent on an
annual basis to 1.25% of the value of the contracts.
Daily charges for administrative expenses are assessed through the daily
unit value calculation on all contracts issued subsequent to April 1, 1994 and
are equivalent on an annual basis to 0.15% of the value of the contracts. In
addition, an annual administrative expense charge of $30 is assessed against
each contract on its anniversary date by surrendering units.
The contracts provide that in the event that a contract owner withdraws all
or a portion of the contract value within six contract years they will be
assessed a deferred sales charge. The deferred sales charge is based on a table
of charges, of which the maximum charge is 6% of the contract value subject to a
maximum of 8.5% of purchase payments.
Certain states impose premium taxes upon contracts. The Company intends to
advance premium taxes due until the contract is surrendered or annuitized.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
4. Purchases of Investments
For the year ended December 31, 1997, investment activity in the Fund was as
follows:
Cost of Proceeds
Purchases From Sales
---------- ----------
<S> <C> <C>
Shares of
Alliance Variable Product Series Fund, Inc.:
Money Market Portfolio $ 25,962,981 $ 25,396,492
Premier Growth Portfolio 12,125,527 2,849,807
Growth & Income Portfolio 15,649,836 2,311,544
International Portfolio 2,981,780 1,781,898
Short-Term Multi-Market Portfolio 703,887 893,043
Global Bond Portfolio 591,439 324,998
U.S. Government/High Grade
Securities Portfolio 2,088,683 1,272,103
Global Dollar Government Portfolio 2,916,314 1,064,074
North American Government Portfolio 4,156,245 1,547,363
Utility Income Portfolio 1,665,411 1,129,325
Conservative Investors Portfolio 1,882,631 2,688,193
Growth Investors Portfolio 665,651 294,476
Growth Portfolio 7,975,905 4,087,990
Total Return Portfolio 3,455,855 1,476,907
Worldwide Privatization Portfolio 4,860,375 995,794
Technology Portfolio 10,099,837 2,839,662
Quasar Portfolio 5,719,793 511,182
Real Estate Investment Portfolio 2,289,115 239,572
High Yield Portfolio 42,103 36
For the year ended December 31, 1996, investment activity in the Fund was as
follows:
Cost of Proceeds
Purchases From Sales
--------- ----------
Shares of
Alliance Variable Product Series Fund, Inc.:
Money Market Portfolio $ 23,696,345 $ 19,691,318
Premier Growth Portfolio 14,941,643 1,578,929
Growth & Income Portfolio 17,421,921 1,118,931
International Portfolio 4,248,758 546,966
Short-Term Multi-Market Portfolio 1,249,009 990,346
Global Bond Portfolio 1,146,187 188,953
U.S. Government/High Grade
Securities Portfolio 2,604,204 723,827
Global Dollar Government Portfolio 934,460 141,838
North American Government Portfolio 2,923,068 814,526
Utility Income Portfolio 2,766,476 470,916
Conservative Investors Portfolio 6,415,134 1,311,899
Growth Investors Portfolio 2,225,359 1,381,347
Growth Portfolio 14,133,282 2,255,264
Total Return Portfolio 4,318,012 245,253
Worldwide Privatization Portfolio 2,340,438 397,762
Technology Portfolio 6,295,942 1,894,718
Quasar Portfolio 1,883,017 4,631
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1997, transactions in accumulation units
of the account were as follows:
Alliance
Alliance Alliance Growth Alliance
Money Premier & Alliance Short-Term
Market Growth Income International Multi-Market
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ---------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY
Units Purchased 2,182,944.42 247,488.28 390,676.45 107,294.05 48,302.59
Units Withdrawn (206,077.14) (64,974.22) (78,112.91) (35,865.21) (1,958.38)
Units Transferred Between Funds (1,952,684.92) 232,891.78 231,060.31 14,876.97 (67,124.65)
Units Transferred From (To) AI Life 5,339.01 155.14 788.70 702.02 -
---------------- ------------ ------------ ---------- ----------
Net Increase (Decrease) 29,521.37 415,560.98 544,412.55 87,007.83 (20,780.44)
Units, at Beginning of the Year 890,464.95 1,026,432.81 1,324,216.31 525,023.12 99,089.93
---------------- ------------ ------------ ---------- ----------
Units, at End of the Year 919,986.32 1,441,993.79 1,868,628.86 612,030.95 78,309.49
================ ============ ============ ========== ==========
Unit Value at December 31, 1997 $ 11.39 $ 24.36 $ 24.11 $ 13.17 $ 11.17
================ ============ ============ ========== ==========
</TABLE>
<TABLE>
Alliance
U.S. Alliance Alliance
Alliance Government Global North Alliance
Global High Dollar American Utility
Bond Grade Government Government Income
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Units Purchased 24,371.60 92,875.31 65,110.91 198,128.34 29,921.46
Units Withdrawn (16,219.34) (39,167.39) (2,500.87) (30,327.38) (14,053.74)
Units Transferred Between Funds 7,367.31 (6,225.73) 40,524.31 22,801.14 19,841.63
Units Transferred From (To) AI Life - 2,269.57 - - -
--------- ---------------- ----------- --------------- ------------
Net Increase (Decrease) 15,519.57 49,751.76 103,134.35 190,602.10 35,709.35
Units, at Beginning of the Year 145,722.74 552,183.99 76,451.58 279,368.63 305,608.09
---------- ------------ ------------ ---------- ----------
Units, at End of the Year 161,242.31 601,935.75 179,585.93 469,970.73 341,317.44
========= =============== ============== ============== =============
Unit Value at December 31, 1997 $ 12.73 $ 12.33 $ 16.24 $ 13.35 $ 15.35
========= ========== ======== ============ ========
</TABLE>
<PAGE>
<TABLE>
Alliance Alliance Alliance Alliance
Conservative Growth Alliance Total Worldwide
Investors Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio Portfolio
---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Units Purchased 71,583.72 15,790.48 182,299.26 109,817.14 179,929.85
Units Withdrawn (62,898.45) (9,337.15) (106,801.82) (18,535.72) (12,786.34)
Units Transferred Between Funds (73,238.49) 17,478.90 77,861.48 21,906.17 103,786.42
Units Transferred From (To) AI Life - - 691.24 - -
----------- ---------- ------------ ------------ -----------
Net Increase (Decrease) (64,553.22) 23,932.23 154,050.16 113,187.59 270,929.93
Units, at Beginning of the Year 620,774.71 141,797.07 1,541,465.58 455,709.19 224,339.58
----------- ------------ ------------ ---------- ----------
Units, at End of the Year 556,221.49 165,729.30 1,695,515.74 568,896.78 495,269.51
=========== ========== ============== ========== ==========
Unit Value at December 31, 1997 $ 13.00 $ 14.31 $ 22.73 $ 16.14 $ 14.04
============ ========= ============ ========== ==========
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1997, transactions in accumulation units
of the account were as follows:
Alliance
Real Alliance
Alliance Alliance Estate High
Technology Quasar Investment Yield
Portfolio Portfolio Portfolio Portfolio
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
VARIABLE ANNUITY
Units Purchased 264,403.12 248,581.87 98,664.33 1,581.10
Units Withdrawn (16,102.75) (10,905.48) (3,081.73) -
Units Transferred Between Funds 349,891.09 212,038.01 88,853.81 2,535.37
Units Transferred From (To) AI Life 3,875.34 - - -
------------ ------------ ----------- -------------
Net Increase (Decrease) 602,066.80 449,714.40 184,436.41 4,116.47
Units, at Beginning of the Year 431,529.41 179,808.73 - -
------------ ------------ ----------- -------------
Units, at End of the Year 1,033,596.21 629,523.13 184,436.41 4,116.47
============ ============ =========== ============
Unit Value at December 31, 1997 $ 11.44 $ 12.38 $ 12.16 $ 10.30
============ ============ =========== =============
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1997, transactions in accumulation units of
the account were as follows:
Alliance
Alliance Alliance Growth Alliance Alliance
Money Premier & Inter- Short-Term
Market Growth Income national Multi-Market
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY II
Units Purchased - - - - -
Units Withdrawn (11,894.14) (1,778.32) (1,225.38) (1,000.70) (0.85)
Units Transferred Between Funds 326.40 279.96 280.14 (1,346.66) -
Units Transferred From (To) AI Life - - - - -
------------- -------------- ------------ ------------ ---------------
Net Increase (Decrease) (11,567.74) (1,498.36) (945.24) (2,347.36) (0.85)
Units, at Beginning of the Year 12,311.00 29,338.31 31,882.60 14,396.72 678.81
------------ ---------- ----------- ------------- ---------------
Units, at End of the Year 743.26 27,839.95 30,937.36 12,049.36 677.96
============= ============== ============ ============ ===============
Unit Value at December 31, 1997 $ 11.43 $ 24.44 $ 24.19 $ 13.21 $ 11.21
============= ============== ============ ============ ===============
</TABLE>
<TABLE>
Alliance
U.S.
Alliance Government Alliance Alliance
Global High Utility Alliance Total
Bond Grade Income Growth Return
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Units Purchased - - - - -
Units Withdrawn (0.86) (17.22) - (1.56) (198.05)
Units Transferred Between Funds (947.98) - - 1,110.59 -
Units Transferred From (To) AI Life - - - - -
------------- -------------- ------------ ------------ ---------------
Net Increase (Decrease) (948.84) (17.22) - 1,109.03 (198.05)
Units, at Beginning of the Year 1,681.73 1,841.20 - 3,050.05 2,683.16
------------- -------------- ------------ ------------ ---------------
Units, at End of the Year 732.89 1,823.98 - 4,159.08 2,485.11
============= ============== ============ ============ ===============
Unit Value at December 31, 1997 $ 12.77 $ 12.37 $ 14.77 $ 22.80 $ 12.61
============= ============== ============ ============ ===============
</TABLE>
<TABLE>
Alliance
Real
Estate
Investment
Portfolio
---------
<S> <C>
Units Purchased (0.36)
Units Withdrawn 1,125.71
Units Transferred Between Funds -
Units Transferred From (To) AI Life -
-------------
Net Increase (Decrease) 1,125.35
Units, at Beginning of the Year -
-------------
Units, at End of the Year 1,125.35
=============
Unit Value at December 31, 1997 $ 12.18
=============
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
American International Life Assurance Company of New York
Variable Account A
We have audited the accompanying statement of assets and liabilities of
American International Life Assurance Company of New York Variable Account A
(the "Account") comprising the Money Market, Premier Growth, Growth and Income,
International, Short-Term Multi-Market, Global Bond, U.S. Government/High Grade
Securities, Global Dollar Government, North American Government, Utility Income,
Conservative Investors, Growth Investors, Growth, Total Return, Worldwide
Privatization, Technology, Quasar, Real Estate Investment and High Yield
Subaccounts as of December 31, 1997, and the related statement of operations for
the year then ended, and the statement of changes in net assets for each of the
two years then ended. These financial statements are the responsibility of the
management of Variable Account A. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments held at December 31, 1997 by correspondence with the
transfer agent. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American International Life
Assurance Company of New York Variable Account A as of December 31, 1997, and
the results of its operations for the year then ended, and the changes in its
net assets for each of the two years then ended, in conformity with generally
accepted accounting principles.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1998
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments at Market Value:
Shares Cost Market Value
----------------------------------------------------------
<S> <C> <C> <C>
Fidelity
Money Market Portfolio 818,331.070 $ 818,331 $ 818,331
Asset Manager Portfolio 35,403.965 580,609 637,625
Growth Portfolio 37,863.872 1,272,353 1,404,753
High Income Portfolio 25,569.020 322,095 347,231
Investment Grade Bond Portfolio 16,330.803 200,349 205,115
Overseas Portfolio 21,076.308 395,300 404,663
Alliance
Conservative Investors Portfolio 9,910.804 122,206 129,832
Growth & Income Portfolio 68,111.805 1,198,820 1,357,469
Growth Investors Portfolio 6,120.984 78,437 88,018
Growth Portfolio 58,397.627 1,110,113 1,309,275
Technology Portfolio 36,222.504 439,762 424,525
Quasar Portfolio 35,963.349 433,616 453,499
Dreyfus
Stock Index Portfolio 42,928.911 1,000,364 1,105,421
Zero Coupon 2000 Portfolio 4,232.807 52,155 52,066
Small Company Stock Portfolio 1,369.266 22,721 22,085
Van Eck
Worldwide Hard Assets Portfolio 6,507.777 105,056 102,236
Worldwide Balanced Portfolio 51,430.375 588,702 618,707
Weiss, Peck & Greer
Tomorrow Short Term Portfolio 32,510.613 309,990 319,252
Tomorrow Medium Term Portfolio 13,311.909 111,608 114,881
Tomorrow Long Term Portfolio 3,948.553 27,974 31,864
------------------ -----------------
Total Investments $ 9,190,561 9,946,848
-----------------
Total Assets $ 9,946,848
=================
EQUITY:
Contract Owners' Equity $ 9,946,848
-----------------
Total Equity $ 9,946,848
=================
</TABLE>
See Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1997
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset
Market Manager
Total Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $289,025 $51,216 $13,350
Expenses:
Mortality & Expense Risk Fees 83,931 12,043 4,591
Daily Administrative Charges 10,038 1,439 548
-------------- --------------- -----------------
Net Investment Income (Loss) 195,056 37,734 8,211
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 102,048 0 609
Change in Unrealized Appreciation
(Depreciation) 689,515 0 50,591
-------------- --------------- -----------------
Net Gain (Loss) on Investments 791,563 0 51,200
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $986,619 $37,734 $59,411
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $17,059 $8,130 $1,143
Expenses:
Mortality & Expense Risk Fees 10,495 2,546 668
Daily Administrative Charges 1,254 304 80
-------------- --------------- -----------------
Net Investment Income (Loss) 5,310 5,280 395
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 11,112 4,845 557
Change in Unrealized Appreciation
(Depreciation) 126,787 22,207 3,751
-------------- --------------- -----------------
Net Gain (Loss) on Investments 137,899 27,052 4,308
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $143,209 $32,332 $4,703
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Growth
Fidelity Conservative &
Overseas Investors Income
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $12,445 $2,065 $56,411
Expenses:
Mortality & Expense Risk Fees 3,729 991 12,058
Daily Administrative Charges 448 118 1,440
-------------- --------------- -----------------
Net Investment Income (Loss) 8,268 956 42,913
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 5,543 (7) 24,096
Change in Unrealized Appreciation
(Depreciation) 3,806 7,042 142,291
-------------- --------------- -----------------
Net Gain (Loss) on Investments 9,349 7,035 166,387
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $17,617 $7,991 $209,300
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance Alliance
Investors Growth Technology
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,755 $30,986 $639
Expenses:
Mortality & Expense Risk Fees 805 10,392 3,062
Daily Administrative Charges 96 1,239 370
-------------- --------------- -----------------
Net Investment Income (Loss) 854 19,355 (2,793)
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 130 15,826 3,379
Change in Unrealized Appreciation
(Depreciation) 6,862 188,378 (15,071)
-------------- --------------- -----------------
Net Gain (Loss) on Investments 6,992 204,204 (11,692)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $7,846 $223,559 ($14,485)
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero
Alliance Stock Coupon
Quasar Index 2000
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $125 $40,467 $4,435
Expenses:
Mortality & Expense Risk Fees 2,667 8,120 774
Daily Administrative Charges 318 970 99
-------------- --------------- -----------------
Net Investment Income (Loss) (2,860) 31,377 3,562
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,890 16,409 206
Change in Unrealized Appreciation
(Depreciation) 19,821 102,135 (202)
-------------- --------------- -----------------
Net Gain (Loss) on Investments 21,711 118,544 4
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $18,851 $149,921 $3,566
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus VanEck
Small Worldwide VanEck
Company Hard Worldwide
Stock Assets Balanced
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $412 $2,631 $1,342
Expenses:
Mortality & Expense Risk Fees 59 1,139 5,335
Daily Administrative Charges 7 136 640
-------------- --------------- -----------------
Net Investment Income (Loss) 346 1,356 (4,633)
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1 1,465 6,759
Change in Unrealized Appreciation
(Depreciation) (635) (4,175) 27,334
-------------- --------------- -----------------
Net Gain (Loss) on Investments (634) (2,710) 34,093
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations ($288) ($1,354) $29,460
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Short Medium Long
Term Term Term
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $32,459 $9,309 $2,646
Expenses:
Mortality & Expense Risk Fees 3,066 1,063 328
Daily Administrative Charges 366 127 39
-------------- --------------- -----------------
Net Investment Income (Loss) 29,027 8,119 2,279
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 8,348 411 469
Change in Unrealized Appreciation
(Depreciation) 1,174 4,526 2,893
-------------- --------------- -----------------
Net Gain (Loss) on Investments 9,522 4,937 3,362
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $38,549 $13,056 $5,641
============== =============== =================
</TABLE>
See Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS For The Years Ended December 31,
1997 and December 31, 1996
<TABLE>
<CAPTION>
1997
Fidelity Fidelity
Money Asset
Market Manager
Total Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $195,056 $37,734 $8,211
Realized Gain (Loss) on Investment Activity 102,048 0 609
Change in Unrealized Appreciation
(Depreciation) of Investments 689,515 0 50,591
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 986,619 37,734 59,411
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 6,292,231 4,071,641 3,319
Administrative Charges (1,469) (46) (153)
Transfers Between Funds 26,076 (4,380,998) 488,776
Contract Withdrawals (211,201) (75,859) (4,650)
Deferred Sales Charges (431) 0 (79)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 6,105,206 (385,262) 487,213
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 7,091,825 (347,528) 546,624
Net Assets, at Beginning of Year 2,855,023 1,165,859 91,001
-------------- --------------- -----------------
Net Assets, at End of Year $9,946,848 $818,331 $637,625
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $5,310 $5,280 $395
Realized Gain (Loss) on Investment Activity 11,112 4,845 557
Change in Unrealized Appreciation
(Depreciation) of Investments 126,787 22,207 3,751
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 143,209 32,332 4,703
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 337,777 40,863 6,000
Administrative Charges (209) (80) (40)
Transfers Between Funds 708,973 184,596 169,412
Contract Withdrawals (24,333) (1,254) (2,290)
Deferred Sales Charges (11) 0 (73)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,022,197 224,125 173,009
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 1,165,406 256,457 177,712
Net Assets, at Beginning of Year 239,347 90,774 27,403
-------------- --------------- -----------------
Net Assets, at End of Year $1,404,753 $347,231 $205,115
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Growth
Fidelity Conservative &
Overseas Investors Income
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $8,268 $956 $42,913
Realized Gain (Loss) on Investment Activity 5,543 (7) 24,096
Change in Unrealized Appreciation
(Depreciation) of Investments 3,806 7,042 142,291
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 17,617 7,991 209,300
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 103,098 (39,106) 156,149
Administrative Charges (102) (11) (167)
Transfers Between Funds 171,542 151,505 755,274
Contract Withdrawals (1,505) (1,072) (10,720)
Deferred Sales Charges 0 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 273,033 111,316 900,536
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 290,650 119,307 1,109,836
Net Assets, at Beginning of Year 114,013 10,525 247,633
-------------- --------------- -----------------
Net Assets, at End of Year $404,663 $129,832 $1,357,469
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance Alliance
Investors Growth Technology
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $854 $19,355 ($2,793)
Realized Gain (Loss) on Investment Activity 130 15,826 3,379
Change in Unrealized Appreciation
(Depreciation) of Investments 6,862 188,378 (15,071)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 7,846 223,559 (14,485)
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 11,000 415,585 228,391
Administrative Charges (28) (154) (44)
Transfers Between Funds 22,187 534,988 183,260
Contract Withdrawals 0 (19,989) (4,053)
Deferred Sales Charges 0 (15) (6)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 33,159 930,415 407,548
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 41,005 1,153,974 393,063
Net Assets, at Beginning of Year 47,013 155,301 31,462
-------------- --------------- -----------------
Net Assets, at End of Year $88,018 $1,309,275 $424,525
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero
Alliance Stock Coupon
Quasar Index 2000
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($2,860) $31,377 $3,562
Realized Gain (Loss) on Investment Activity 1,890 16,409 206
Change in Unrealized Appreciation
(Depreciation) of Investments 19,821 102,135 (202)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 18,851 149,921 3,566
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 194,941 275,515 2,514
Administrative Charges (54) (168) (17)
Transfers Between Funds 235,385 501,556 (16,915)
Contract Withdrawals (2,493) (21,249) (809)
Deferred Sales Charges (81) (89) 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 427,698 755,565 (15,227)
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 446,549 905,486 (11,661)
Net Assets, at Beginning of Year 6,950 199,935 63,727
-------------- --------------- -----------------
Net Assets, at End of Year $453,499 $1,105,421 $52,066
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus VanEck
Small Worldwide VanEck
Company Hard Worldwide
Stock Assets Balanced
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $346 $1,356 ($4,633)
Realized Gain (Loss) on Investment Activity 1 1,465 6,759
Change in Unrealized Appreciation
(Depreciation) of Investments (635) (4,175) 27,334
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations (288) (1,354) 29,460
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 13,161 31,792 346,000
Administrative Charges 0 (32) (45)
Transfers Between Funds 9,212 22,568 216,180
Contract Withdrawals 0 (832) (32,618)
Deferred Sales Charges 0 0 (77)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 22,373 53,496 529,440
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 22,085 52,142 558,900
Net Assets, at Beginning of Year 0 50,094 59,807
-------------- --------------- -----------------
Net Assets, at End of Year $22,085 $102,236 $618,707
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Short Medium Long
Term Term Term
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $29,027 $8,119 $2,279
Realized Gain (Loss) on Investment Activity 8,348 411 469
Change in Unrealized Appreciation
(Depreciation) of Investments 1,174 4,526 2,893
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 38,549 13,056 5,641
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 67,027 23,947 2,617
Administrative Charges (74) (27) (18)
Transfers Between Funds 51,907 12,327 4,341
Contract Withdrawals (6,670) 0 (805)
Deferred Sales Charges 0 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 112,190 36,247 6,135
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 150,739 49,303 11,776
Net Assets, at Beginning of Year 168,513 65,578 20,088
-------------- --------------- -----------------
Net Assets, at End of Year $319,252 $114,881 $31,864
============== =============== =================
</TABLE>
See Notes to Financial Statements
<PAGE>
1996
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset
Market Manager
Total Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $8,536 $6,777 ($447)
Realized Gain (Loss) on Investment Activity 847 0 26
Change in Unrealized Appreciation
(Depreciation) of Investments 66,772 0 6,426
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 76,155 6,777 6,005
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 2,779,202 2,121,484 19,500
Administrative Charges 0 0 0
Transfers Between Funds 18 (962,402) 65,496
Contract Withdrawals (352) 0 0
Deferred Sales Charges 0 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 2,778,868 1,159,082 84,996
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 2,855,023 1,165,859 91,001
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $2,855,023 $1,165,859 $91,001
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fidelity Fidelity
Fidelity High Investment
Growth Income Grade
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($541) ($297) ($158)
Realized Gain (Loss) on Investment Activity 9 15 6
Change in Unrealized Appreciation
(Depreciation) of Investments 5,609 2,925 1,016
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 5,077 2,643 864
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 82,027 27,676 11,000
Administrative Charges 0 0 0
Transfers Between Funds 152,331 60,455 15,539
Contract Withdrawals (88) 0 0
Deferred Sales Charges 0 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 234,270 88,131 26,539
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 239,347 90,774 27,403
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $239,347 $90,774 $27,403
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Alliance Growth
Fidelity Conservative &
Overseas Ivestors Income
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($383) ($62) ($621)
Realized Gain (Loss) on Investment Activity 18 3 78
Change in Unrealized Appreciation
(Depreciation) of Investments 5,558 584 16,358
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 5,193 525 15,815
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 61,194 10,000 82,366
Administrative Charges 0 0 0
Transfers Between Funds 47,626 0 149,452
Contract Withdrawals 0 0 0
Deferred Sales Charges 0 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 108,820 10,000 231,818
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 114,013 10,525 247,633
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $114,013 $10,525 $247,633
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance Alliance
Investors Growth Technology
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($205) ($334) ($16)
Realized Gain (Loss) on Investment Activity 1,029 (438) 0
Change in Unrealized Appreciation
(Depreciation) of Investments 2,721 10,784 (163)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 3,545 10,012 (179)
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 32,719 70,872 16,220
Administrative Charges 0 0 0
Transfers Between Funds 10,749 74,505 15,421
Contract Withdrawals 0 (88) 0
Deferred Sales Charges 0 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 43,468 145,289 31,641
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 47,013 155,301 31,462
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $47,013 $155,301 $31,462
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero
Alliance Stock Coupon
Quasar Index 2000
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $38 $2,600 $938
Realized Gain (Loss) on Investment Activity 0 41 7
Change in Unrealized Appreciation
(Depreciation) of Investments 61 2,920 111
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 99 5,561 1,056
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 5,250 67,847 54,456
Administrative Charges 0 0 0
Transfers Between Funds 1,601 126,615 8,303
Contract Withdrawals 0 (88) (88)
Deferred Sales Charges 0 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 6,851 194,374 62,671
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 6,950 199,935 63,727
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $6,950 $199,935 $63,727
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus VanEck
Small Worldwide VanEck
Company Hard Worldwide
Stock Assets Balance
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 ($112) ($185)
Realized Gain (Loss) on Investment Activity 0 7 8
Change in Unrealized Appreciation
(Depreciation) of Investments 0 1,356 2,671
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 1,251 2,494
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 0 22,500 18,775
Administrative Charges 0 0 0
Transfers Between Funds 0 26,343 38,538
Contract Withdrawals 0 0 0
Deferred Sales Charges 0 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 48,843 57,313
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 0 50,094 59,807
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $0 $50,094 $59,807
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Short Medium Long
Term Term Term
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($604) $2,084 $64
Realized Gain (Loss) on Investment Activity 29 4 5
Change in Unrealized Appreciation
(Depreciation) of Investments 8,091 (1,253) 997
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 7,516 835 1,066
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 63,116 9,200 3,000
Administrative Charges 0 0 0
Transfers Between Funds 97,881 55,543 16,022
Contract Withdrawals 0 0 0
Deferred Sales Charges 0 0 0
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 160,997 64,743 19,022
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 168,513 65,578 20,088
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $168,513 $65,578 $20,088
============== =============== =================
</TABLE>
See Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
1. History
Variable Account A (the "Account") is a separate investment account
established under the provisions of New York Insurance Law by American
International Life Assurance Company of New York (the "Company"), a wholly-owned
subsidiary of American International Group, Inc. The Account operates as a unit
investment trust registered under the Investment Company Act of 1940, as
amended, and supports the operations of the Company's individual single purchase
payment deferred variable annuity contracts (the "contracts"). The Account
invests in shares of Alliance Variable Products Series Fund, Inc. ("Alliance
Fund"), AIM Variable Insurance Fund ("AIM Fund"), Dreyfus Variable Investment
Fund ("Dreyfus Fund"), Van Eck Investment Trust ("Van Eck Trust"), Fidelity
Investments Variable Insurance Products Fund ("Fidelity Trust"), Fidelity
Variable Insurance Products Fund II ("Fidelity Trust II") and Weiss, Peck &
Greer ("Tomorrow Funds"). The assets in the policies may be invested in the
following subaccounts:
Alliance Fund: Fidelity Trust:
Growth & Income Portfolio Money Market Portfolio
Conservative Investors Portfolio High Income Portfolio
Growth Portfolio Growth Portfolio
Growth Investors Portfolio Overseas Portfolio
Quasar Portfolio
Technology Portfolio
AIM Fund: Fidelity Trust II:
International Equity Portfolio Investment Grade Bond Portfolio
Capital Appreciation Portfolio Asset Manager Portfolio
Contrafund Portfolio
Dreyfus Fund: Weiss, Peck & Greer Tomorrow Funds:
Zero Coupon 2000 Portfolio Tomorrow Long Term Portfolio
Stock Index Portfolio Tomorrow Medium Term Portfolio
Small Company Stock Portfolio Tomorrow Short Term Portfolio
Van Eck Trust:
Worldwide Hard Asset Portfolio (formerly Gold & Natural Resources Portfolio)
Worldwide Balanced Portfolio
Worldwide Emerging Markets Portfolio
The assets of the Account are the property of the Company. The portion of
the Account's assets applicable to the contracts are not chargeable with
liabilities arising out of any other business conducted by the Company.
In addition to the Account, a contract owner may also allocate funds to the
Guaranteed Account, which is part of the Company's general account. Amounts
allocated to the Guaranteed Account are credited with a guaranteed rate for one
year. Because of exemptive and exclusionary provisions, interests in the
Guaranteed Account have not been registered under the Securities Act of 1933,
and the Guaranteed Account has not been registered as an investment company
under the Investment Company Act of 1940.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Account in preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation -The investments in the respective funds and trusts are
stated at market value which is the net asset value of each of the respective
series as determined at the close of business on the last business day of the
period by the Fund.
B. Accounting for Investments - Investment transactions are accounted for on the
date the investments are purchased or sold. Dividend income is recorded on the
ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations and is
not taxed separately. Under existing federal law, no taxes are payable on
investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required management
to make estimates and assumptions that affect the reported values of assets and
liabilities and the reported amounts from operations and policy transactions.
Actual results could differ from those estimates.
3. Contract Charges
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are equivalent on an
annual basis to 1.25% of the value of the contracts.
Daily charges for administrative expenses are assessed through the daily unit
value calculation on all contracts issued and are equivalent on an annual basis
to 0.15% of the value of the contracts. In addition, an annual administrative
expense charge of $30 is assessed against each contract on its anniversary date
by surrendering units.
The contracts provide that in the event that a contract owner withdraws all or a
portion of the contract value within six years they will be assessed a deferred
sales charge. The deferred sales charge is based on a table of charges, of which
the maximum charge is 6% of the contract value for single premium contracts
subject to a maximum of 8.5% of premiums and 6% of premiums, paid for flexible
premium contracts.
Certain states impose premium taxes upon contracts. The Company intends to
advance premium taxes due until the contract is surrendered or annuitized.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
4. Purchases of Investments
For the year ended December 31, 1997, investment activity in the Fund was as
follows:
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
Fidelity Trust Funds:
Money Market Portfolio $ 4,119,152 $ 4,466,680
Asset Manager Portfolio 618,250 122,826
Growth Portfolio 1,115,649 88,145
High Income Portfolio 274,392 44,990
Investment Grade Bond Portfolio 184,461 11,056
Overseas Portfolio 347,877 66,575
Alliance Funds:
Conservative Investors Portfolio 167,164 54,893
Growth & Income Portfolio 1,114,684 171,235
Growth Investors Portfolio 34,935 920
Growth Portfolio 1,056,852 107,082
Technology Portfolio 464,546 59,788
Quasar Portfolio 450,225 25,388
Dreyfus:
Stock Index Portfolio 895,855 108,914
Zero Coupon 2000 Portfolio 23,084 34,750
Small Company Stock Portfolio 22,785 66
Van Eck:
Worldwide Hard Assets Portfolio 86,806 31,953
Worldwide Balanced Portfolio 588,513 63,706
Weiss, Peck, & Greer:
Tomorrow Short Term Portfolio 212,642 71,422
Tomorrow Medium Term Portfolio 59,082 14,715
Tomorrow Long Term Portfolio 12,712 4,299
For the period April 1 through December 31, 1996, investment activity in the
Fund was as follows:
Cost of Proceeds
Purchases From Sales
Shares of
Fidelity Trust Funds:
Money Market Portfolio $ 2,106,490 $ 940,631
Asset Manager Portfolio 84,996 447
Growth Portfolio 234,357 629
High Income Portfolio 88,134 300
Investment Grade Bond Portfolio 26,543 163
Overseas Portfolio 108,820 383
Alliance Funds:
Conservative Investors Portfolio 10,000 62
Growth & Income Portfolio 231,821 625
Growth Investors Portfolio 57,111 13,848
Growth Portfolio 149,720 4,766
Technology Portfolio 31,641 15
Quasar Portfolio 6,896 7
Dreyfus:
Stock Index Portfolio 197,428 454
Zero Coupon 2000 Portfolio 63,988 379
Van Eck:
Worldwide Hard Assets Portfolio 48,843 113
Worldwide Balanced Portfolio 57,313 184
Weiss, Peck, & Greer:
Tomorrow Short Term Portfolio 160,998 605
Tomorrow Medium Term Portfolio 66,915 88
Tomorrow Long Term Portfolio 19,157 71
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1997, transactions in accumulation units
of the account were as follows:
Fidelity
Fidelity Fidelity Fidelity Investment
Money Asset Fidelity High Grade
Market Manager Growth Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY
Units Purchased 390,412.48 183.21 29,749.28 3,529.77 556.15
Units Withdrawn (7,168.64) (385.92) (1,837.86) (68.08) (219.45)
Units Transferred Between Funds 427,915.61) 41,129.50 62,908.48 16,074.47 15,250.67
Units Transferred From (To) AI Life 7,674.20 - - - -
-------------- --------------- ----------- ------------ -------------
Net Increase (Decrease) (36,997.57) 40,926.79 90,819.90 19,536.16 15,587.37
Units, at Beginning of the Year 113,781.59 8,370.63 23,774.76 8,506.22 2,615.29
-------------- ---------------- ------------ ------------ -------------
Units, at End of the Year 76,784.02 49,297.42 114,594.66 28,042.38 18,202.66
============== ================ ============ ============ =============
Unit Value at December 31, 1997 $ 10.66 $ 12.93 $ 12.26 $ 12.38 $ 11.27
=============== ================ ============ ============ =============
</TABLE>
<TABLE>
Alliance
Alliance Growth Alliance
Fidelity Conservative & Growth Alliance
Overseas Investors Income Investors Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
Units Purchased 8,873.35 (3,779.25) 10,384.40 910.11 34,561.08
Units Withdrawn (131.80) (93.08) (757.02) (2.36) (1,558.05)
Units Transferred Between Funds 14,950.49 14,027.34 58,777.40 1,916.75 43,484.97
Units Transferred From (To) AI Life - - 33.69 - -
-------------- ---------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net Increase (Decrease) 23,692.04 10,155.01 68,438.47 2,824.50 76,488.00
Units, at Beginning of the Year 10,640.99 990.92 20,637.99 4,469.09 13,718.81
-------------- ---------------- ------------ ------------ -------------
Units, at End of the Year 34,333.03 11,145.93 89,076.46 7,293.59 90,206.81
============== ================ ============ ============ =============
Unit Value at December 31, 1997 $ 11.79 $ 11.65 $ 15.24 $ 12.07 $ 14.51
============== ================ ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
Dreyfus Dreyfus
Dreyfus Zero Small
Alliance Alliance Stock Coupon Company
Technology Quasar Index 2000 Stock
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Units Purchased 20,812.16 17,959.09 21,321.06 240.92 1,207.14
Units Withdrawn (391.94) (221.82) (1,564.27) (79.19) -
Units Transferred Between Funds 17,622.08 19,208.25 37,588.38 (1,560.17) 885.64
Units Transferred From (To) AI Life - - 33.44 - -
--------- ---------------- ------------ ------------ -------------
Net Increase (Decrease) 38,042.30 36,945.52 57,378.61 (1,398.44) 2,092.78
Units, at Beginning of the Year 3,209.81 674.25 17,836.33 6,176.80 -
--------- ---------------- ------------ ------------ -------------
Units, at End of the Year 41,252.11 37,619.77 75,214.94 4,778.36 2,092.78
========= ================ ============ ============ =============
Unit Value at December 31, 1997 $ 10.29 $ 12.05 $ 14.70 $ 10.90 $ 10.55
========= ================ ============ ============ =============
</TABLE>
<TABLE>
VanEck WP&G WP&G WP&G
Worldwide VanEck Tomorrow Tomorrow Tomorrow
Hard Worldwide Short Medium Long
Assets Balanced Term Term Term
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Units Purchased 2,982.33 31,175.44 6,272.60 2,219.25 215.28
Units Withdrawn (76.69) (2,802.03) (570.75) (2.19) (63.53)
Units Transferred Between Funds 2,234.68 18,998.48 4,039.82 745.77 382.92
Units Transferred From (To) AI Life - - - - -
--------- ---------------- ------------ ------------ -------------
Net Increase (Decrease) 5,140.32 47,371.89 9,741.67 2,962.83 534.67
Units, at Beginning of the Year 4,646.11 5,572.84 15,744.76 6,084.92 1,852.96
--------- ---------------- ------------ ------------ -------------
Units, at End of the Year 9,786.43 52,944.73 25,486.43 9,047.75 2,387.63
========= ================ ============ ============ =============
Unit Value at December 31, 1997 $ 10.45 $ 11.69 $ 12.53 $ 12.70 $ 13.35
========= ================ ============ ============ =============
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
American International Life Assurance Company of New York
Variable Account A
We have audited the accompanying statement of assets and liabilities of
American International Life Assurance Company of New York Variable Account A
comprising the Fidelity Money Market, Asset Manager, Contrafund, Growth, High
Income, Investment Grade Bond, Overseas; the Alliance Conservative Investors,
Growth and Income, Growth Investors, Growth, Technology, Quasar; the Dreyfus
Stock Index, Zero Coupon 2000, Small Company Stock; the Van Eck Worldwide Hard
Assets, Worldwide Balanced, Worldwide Emerging Markets; the Weiss, Peck and
Greer Tomorrow Short-Term, Tomorrow Medium-Term, Tomorrow Long-Term; and the AIM
International Equity and Capital Appreciation Subaccounts as of December 31,
1997, and the related statement of operations for the year then ended, and the
statement of changes in net assets for each of the two years then ended. These
financial statements are the responsibility of the management of the Variable
Account A. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments held at December 31, 1997 by correspondence with the
transfer agents. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American International Life
Assurance Company of New York Variable Account A as of December 31, 1997, and
the results of its operations for the year then ended, and the changes in its
net assets for each of the two years then ended, in conformity with generally
accepted accounting principles.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1998
AMERICAN INTERNATIONAL LIFE ASSURANCE
COMPANY OF NEW YORK
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
American International Life Assurance Company of New York:
We have audited the accompanying balance sheets of American International Life
Assurance Company of New York (a wholly-owned subsidiary of American
International Group, Inc.) as of December 31, 1997 and 1996, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American International Life
Assurance Company of New York as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1998
<PAGE>
<TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands)
December 31, December 31,
1997 1996
------------ ----------
Assets
- ------
<S> <C> <C>
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $4,995,019 $4,636,022
(cost: 1997 - $4,712,085: 1996 - $4,456,608)
Equity securities:
Common stock
(cost: 1997 - $13,568: 1996 - $17,906) 27,254 33,099
Non-redeemable preferred stocks
(cost: 1997 - $565: 1996 - $649) 567 590
Mortgage loans on real estate, net 554,521 513,470
Real estate, net of accumulated
depreciation of $6,823 in 1997 and $6,046 in 1996 25,450 26,227
Policy loans 10,682 11,063
Other invested assets 58,048 65,744
Short-term investments 79,893 60,333
Cash 299 1,726
---------- ----------
Total investments and cash 5,751,733 5,348,274
Amounts due from related parties 4,802 4,277
Investment income due and accrued 82,331 77,433
Premium and insurance balances receivable-net 13,459 13,617
Reinsurance assets 20,609 25,211
Deferred policy acquisition costs 39,748 35,754
Separate and variable accounts 241,541 153,678
Other assets 2,020 2,591
---------- ----------
Total assets $6,156,243 $5,660,835
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands, except share amounts)
December 31, December 31,
1997 1996
----------- ------------
Liabilities
- -----------
<S> <C> <C>
Policyholders' funds on deposit $3,513,621 $3,308,208
Future policy benefits 1,662,751 1,588,162
Reserve for unearned premiums 6,021 8,568
Policy and contract claims 45,195 44,173
Reserve for commissions, expenses and taxes 4,568 4,905
Insurance balances payable 4,624 7,981
Federal income tax payable 3,071 3,758
Deferred income taxes 70,900 43,445
Amounts due to related parties 4,491 5,227
Separate and variable accounts 241,541 153,678
Other liabilities 24,277 22,588
---------- ----------
Total liabilities 5,581,060 5,190,693
---------- ----------
</TABLE>
<TABLE>
Stockholders' Equity
- --------------------
December 31, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Common stock, $200 par value; 16,125 shares
authorized, issued and outstanding 3,225 3,225
Additional paid-in capital 197,025 197,025
Unrealized appreciation (depreciation) of investments, net
of future policy benefits and taxes of
$128,504 in 1997 and $72,979 in 1996 184,681 135,431
Retained earnings 190,252 134,461
---------- ----------
Total stockholders' equity 575,183 470,142
---------- ----------
Total liabilities and stockholders' equity $6,156,243 $5,660,835
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Premiums $ 96,429 $ 149,472 $ 84,357
Net investment income 435,098 402,078 386,680
Realized capital gains (losses) (226) 610 1,436
--------- --------- ---------
Total revenues 531,301 552,160 472,473
--------- --------- ---------
Benefits and expenses:
Benefits to policyholders 165,157 163,377 167,319
Increase in future policy benefits
and policyholders' funds on deposit 221,192 284,936 209,512
Acquisition and insurance expenses 58,231 54,875 54,808
--------- --------- ---------
Total benefits and expenses 444,580 503,188 431,639
--------- ---------
Income before income taxes 86,721 48,972 40,834
--------- ---------
Income taxes (benefits):
Current 30,000 26,853 22,070
Deferred 930 (9,509) (7,572)
--------- --------- ---------
Total income taxes 30,930 17,344 14,498
--------- --------- ---------
Net income $ 55,791 $ 31,628 $ 26,336
========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Years ended December 31,
------------------------
1997 1996 1995
------------ ------------ ---------
Common Stock
- ------------
<S> <C> <C> <C>
Balance at beginning of year $ 3,225 $ 3,225 $ 3,225
--------- --------- ---------
Balance at end of year 3,225 3,225 3,225
--------- --------- ---------
Additional paid-in capital
- --------------------------
Balance at beginning of year: 197,025 197,025 197,025
--------- --------- ---------
Balance at end of year 197,025 197,025 197,025
--------- --------- ---------
Unrealized appreciation (depreciation)
- --------------------------------------
of investments, net
-------------------
Balance at beginning of year 135,431 153,424 (59,811)
Change during year 104,775 (103,367) 404,059
Changes due to deferred income tax benefit
(expense) and future policy benefits (55,525) 85,374 (190,824)
--------- --------- ---------
Balance at end of year 184,681 135,431 153,424
--------- --------- ---------
Retained earnings
- -----------------
Balance at beginning of year 134,461 152,833 126,497
Net income 55,791 31,628 26,336
Dividends to Stockholders -- (50,000) --
--------- --------- ---------
Balance at end of year 190,252 134,461 152,833
--------- --------- ---------
Total stockholders' equity $ 575,183 $ 470,142 $ 506,507
========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 55,791 $ 31,628 $ 26,336
---------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains and losses included in income:
Change in insurance reserves 44,065 107,134 37,251
Change in premiums and insurance balances
receivable and payable -net (3,201) (117) (110)
Change in reinsurance assets 4,601 (2,658) 3,761
Change in deferred policy acquisition costs (3,992) (4,530) (1,599)
Change in investment income due and accrued (4,898) (3,078) (6,732)
Realized capital gains (losses) 226 (610) (1,436)
Change in current and deferred income taxes -net 243 (9,227) (5,417)
Change in reserves for commissions, expenses and taxes (337) 472 1,356
Change in other assets and liabilities - net (11,055) (17,396) (18,394)
---------- --------- -------
Total adjustments 25,652 69,990 8,680
---------- --------- -------
Net cash provided by operating activities 81,443 101,618 35,016
---------- --------- --------
Cash flows from investing activities:
Cost of fixed maturities at market, sold 255,408 136,829 65,623
Cost of fixed maturities at market, matured or redeemed 435,831 424,317 247,551
Cost of equity securities sold 7,422 4,877 1,310
Realized capital gains 3,774 610 3,436
Purchase of fixed maturities (922,293) (858,793) (627,188)
Purchase of equity securities (3,000) (4,149) (1,005)
Mortgage loans granted (89,717) (124,280) (111,402)
Repayments of mortgage loans 44,733 59,577 60,476
Change in policy loans 380 (71) (674)
Change in short-term investments (19,560) 43,715 26,372
Change in other invested assets 6,100 10,475 (4,083)
Other - net (7,361) 8,270 (17,713)
------------- ------------ ------------
Net cash used in investing activities (288,283) (298,623) (357,297)
------------- ------------ -------------
Cash flows from financing activities:
Change in policyholders' funds on deposit 205,413 247,626 318,169
Dividends to stockholders - (50,000) -
------------- ------------ ------------
Net cash provided by financing activities 205,413 197,626 318,169
------------- ------------ ------------
Change in cash (1,427) 621 (4,112)
Cash at beginning of year 1,726 1,105 5,217
------------- ------------ ------------
Cash at end of year $ 299 $ 1,726 $ 1,105
============= ============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
(a) Basis of Presentation: American International Life Assurance Company
of New York (the Company) is a wholly-owned subsidiary of American
International Group, Inc. (the Parent). The financial statements of
the Company have been prepared on the basis of generally accepted
accounting principles (GAAP). The preparation of financial statements
in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates. The Company is licensed to sell life and accident & health
insurance in the District of Columbia and all states except Arizona,
Connecticut and Maryland. The Company is also licensed in America
Samoa, Virgin Islands and Guam.
The Company also files financial statements prepared in accordance
with statutory practices prescribed or permitted by the Insurance
Department of the State of New York. Financial statements prepared in
accordance with generally accepted accounting principles differ in
certain respects from the practices prescribed or permitted by
regulatory authorities. The significant differences are: (1) statutory
financial statements do not reflect fixed maturities available for
sale at market value; (2) policy acquisition costs, charged against
operations as incurred for regulatory purposes, have been deferred and
are being amortized over the anticipated life of the contracts; (3)
individual life and annuity policy reserves based on statutory
requirements have been adjusted based upon mortality, lapse and
interest assumptions applicable to these coverages, including
provisions for reasonable adverse deviations; these assumptions
reflect the Company's experience and industry standards; (4) deferred
income taxes not recognized for regulatory purposes have been provided
for temporary differences between the bases of assets and liabilities
for financial reporting purposes and tax purposes; (5) for regulatory
purposes, future policy benefits, policyholders' funds on deposit,
policy and contract claims and reserve for unearned premiums are
presented net of ceded reinsurance; and (6) an asset valuation reserve
and interest maintenance reserve using National Association of
Insurance Commissioners (NAIC) formulas are set up for regulatory
purposes.
(b) Investments: Fixed maturities available for sale, where the company
may not have the ability or positive intent to hold these securities
until maturity, are carried at market value. Interest income with
respect to fixed maturity securities is accrued currently. Included in
fixed maturities available for sale are collateralized mortgage
obligations (CMOs). Premiums and discounts arising from the purchase
of CMOs are treated as yield adjustments over the estimated life.
Common and non-redeemable preferred stocks are carried at market
value. Dividend income is generally recognized when payable.
Short-term investments are carried at cost, which approximates market.
Unrealized gains and losses from investment in equity securities and
fixed maturities available for sale are reflected in stockholders'
equity, net of amounts recorded as future policy benefits and any
related deferred income taxes.
Realized capital gains and losses are determined principally by
specific identification. Where declines in values of securities below
cost or amortized cost are considered to be other than temporary, a
charge is reflected in income for the difference between cost or
amortized cost and estimated net realizable value.
Mortgage loans on real estate are carried at unpaid principal balance
less unamortized loan origination fees and costs less an allowance for
uncollectible loans. Interest income on such loans is accrued
currently.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
--------------------------------------------------------
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments are
capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity, net
of any related taxes. Also included in this category is an interest rate
cap agreement, which is carried at its amortized cost. The cost of the cap
is being amortized against investment income on a straight line basis over
the life of the cap.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and
the Parent have a written tax allocation agreement whereby the Parent
agrees not to charge the Company a greater portion of the consolidated
tax liability than would have been paid by the Company if it had filed
a separate return. Additionally, the Parent agrees to reimburse the
Company for any tax benefits arising out of its net losses within
ninety days after the filing of that consolidated tax return for the
year in which these losses are utilized. Deferred federal income taxes
are provided for temporary differences related to the expected future
tax consequences of events that have been recognized in the Company's
financial statements or tax returns.
(d) Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident
and health insurance are reported as earned over the contract term.
The portion of accident and health premiums which is not earned at the
end of a reporting period is recorded as unearned premiums. Estimates
of premiums due but not yet collected are accrued. Policy benefits and
expenses are associated with earned premiums on long-duration
contracts resulting in a level recognition of profits over the
anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized
in relation to expected gross profits over the life of the policies
(see Note 3).
The liability for future policy benefits and policyholders' contract
deposits is established using assumptions described in Note 4.
(e) Policy and Contract Claims: Policy and contract claims include amounts
representing: (1) the actual in-force amounts for reported life claims
and an estimate of incurred but unreported claims; and (2) an
estimate, based upon prior experience, for accident and health
reported and incurred but unreported losses. The methods of making
such estimates and establishing the resulting reserves are continually
reviewed and updated and any adjustments resulting therefrom are
reflected in income currently.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
---------------------------------------------------------
(f) Separate and Variable Accounts: These accounts represent funds for
which investment income and investment gains and losses accrue
directly to the policyholders. Each account has specific investment
objectives, and the assets are carried at market value. The assets of
each account are legally segregated and are not subject to claims
which arise out of any other business of the Company.
(g) Reinsurance Assets: Reinsurance assets include the balances due from
both reinsurance and insurance companies under the terms of the
Company's reinsurance arrangements for ceded unearned premiums, future
policy benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It
also includes funds held under reinsurance treaties.
(h) The financial statements for 1996 and 1995 have been reclassified to
conform to the 1997 presentation.
2. Investment Information
----------------------
(a) Statutory Deposits: Securities with a carrying value of $17,850,000
and $9,369,000 were deposited by the Company under requirements of
regulatory authorities as of December 31, 1997 and 1996, respectively.
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
Years ended December 31,
------------------------
1997 1996 1995
-------- ---------- ---------
<S> <C> <C> <C>
Fixed maturities $378,724 $351,702 $334,828
Equity securities 1,010 1,430 1,006
Mortgage loans 48,488 41,865 40,383
Real estate 3,097 2,835 2,760
Policy loans 832 794 733
Cash and short-term investments 4,257 4,699 4,124
Other invested assets 2,878 2,662 6,381
-------- -------- --------
Total investment income 439,286 405,987 390,215
Investment expenses 4,188 3,909 3,535
-------- -------- --------
Net investment income $435,098 $402,078 $386,680
======== ======== ========
</TABLE>
<PAGE>
2. Investment Information - (continued)
------------------------------------
(c) Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for
1997, 1996 and 1995 are summarized below (in thousands):
<TABLE>
Years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net realized gains (losses) on investments:
Fixed maturities $ -- $ (104) $ (115)
Equity securities 3,774 714 3,515
Mortgage loans (4,000) -- (2,000)
Other invested assets -- -- 36
--------- --------- ---------
Net realized gains $ (226) $ 610 $ 1,436
========= ========= =========
Change in unrealized appreciation (depreciation) of investments:
Fixed maturities $ 103,520 $(115,746) $ 402,020
Equity securities (1,446) 5,482 666
Other invested assets 2,701 6,897 1,373
--------- --------- ---------
Change in unrealized appreciation
(depreciation) of investments $ 104,775 $(103,367) $ 404,059
========= ========= =========
</TABLE>
Proceeds from the sale of investments in fixed maturities during 1997, 1996 and
1995 were $255,408,000, $136,829,000 and $65,623,000, respectively.
During 1997, 1996 and 1995, gross gains of $0, $636,000 and $624,000,
respectively, and gross losses of $0, $740,000 and $739,000, respectively, were
realized on dispositions of fixed maturities.
During 1997, 1996 and 1995, gross gains of $3,774,000, $714,000 and $3,516,000,
respectively, and gross losses of $0, $0 and $1,000, respectively, were realized
on dispositions of equity securities.
(d) Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1997 and 1996, unrealized appreciation of
investments in equity securities (before applicable taxes) included
gross gains of $14,017,000 and $15,648,000 and gross losses of
$329,000 and $514,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1997 and 1996 are as follows (in
thousands):
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Market
1997 Cost Gains Losses Value
----
--------- ------------- ---------- -------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 68,005 $ 19,308 $ 13 $ 87,300
States, municipalities and
political subdivisions 837,054 49,827 538 886,343
Foreign governments 28,581 4,887 -- 33,468
All other corporate 3,778,445 217,162 7,699 3,987,908
---------- ---------- ---------- ----------
Total fixed maturities $4,712,085 $ 291,184 $ 8,250 $4,995,019
========== ========== ========== ==========
</TABLE>
<PAGE>
2. Investment Information - (continued)
------------------------------------
<TABLE>
Gross Gross
1996 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 79,195 $ 14,104 $ 420 $ 92,879
States, municipalities and
political subdivisions 854,402 36,479 4,574 886,307
Foreign governments 39,549 3,579 283 42,845
All other corporate 3,483,462 148,570 18,041 3,613,991
---------- ---------- ---------- ----------
Total fixed maturities $4,456,608 $ 202,732 $ 23,318 $4,636,022
========== ========== ========== ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities available for
sale at December 31, 1997, by contractual maturity, are shown below (in
thousands). Actual maturities could differ from contractual maturities because
certain borrowers have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
Estimated
Amortized Market
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 249,935 $ 262,758
Due after one year through five years 1,617,708 1,706,424
Due after five years through ten years 1,686,216 1,784,745
Due after ten years 1,158,226 1,241,092
---------- ----------
$4,712,085 $4,995,019
========== ==========
</TABLE>
(e) CMOs: CMOs are U.S. Government and Government agency backed and triple
A-rated securities. CMOs are included in other corporate fixed
maturities. At December 31, 1997 and 1996, the market value of the CMO
portfolio was $966,144,000 and $1,031,431,000, respectively; the
estimated amortized cost was approximately $917,919,000 in 1997 and
$991,305,000 in 1996. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities
contained in the portfolio at December 31, 1997.
(f) Fixed Maturities Below Investment Grade: At December 31, 1997 and
1996, the fixed maturities held by the Company that were below
investment grade had an aggregate amortized cost of $384,067,000 and
$270,068,000, respectively, and an aggregate market value of
$391,862,000 and $267,331,000, respectively.
<PAGE>
2. Investment Information - (continued)
------------------------------------
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h) Investments Greater than 10% Equity: The market value of investments
in the following company exceeded 10% of the Company's total
stockholders' equity at December 31, 1997 (in thousands):
Fixed Maturities:
Morgan Stanley Mortgage Trust $ 60,673
3. Deferred Policy Acquisition Costs
---------------------------------
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against future
income and the related current amortization charged to income, excluding
certain amounts deferred and amortized in the same period (in thousands):
<TABLE>
Years ended December 31,
------------------------
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $ 35,754 $ 31,225 $ 29,626
Acquisition costs deferred 9,109 8,482 5,933
Amortization charged to income (5,115) (3,953) (4,334)
-------- -------- --------
Balance at end of year $ 39,748 $ 35,754 $ 31,225
======== ======== ========
</TABLE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
----------------------------------------------------------
(a) The analysis of the future policy benefits and policyholders' funds on
deposit liabilities as at December 31, 1997 and 1996 follows (in
thousands):
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Future policy benefits:
Long duration contracts $1,643,141 $1,565,362
Short duration contracts 19,610 22,800
---------- -----------
$1,662,751 $1,588,162
========= =========
Policyholder funds on deposit:
Annuities $2,703,407 $2,458,340
Guaranteed investment contracts (GICs) 704,064 744,284
Universal life 100,801 98,466
Other investment contracts 5,349 7,118
---------- ------------
$3,513,621 $3,308,208
========= =========
</TABLE>
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit - (continued)
------------------------------------------------------------------------
(b) Long duration contract liabilities included in future policy benefits,
as presented in the table above, result from traditional life
products. Short duration contract liabilities are primarily accident
and health products. The liability for future policy benefits has been
established based upon the following assumptions:
(i) Interest rates (exclusive of immediate/terminal funding annuities),
which vary by year of issuance and products, range from 3.0 percent to
10.0 percent. Interest rates on immediate/terminal funding annuities
are at a maximum of 12.2 percent and grade to not greater than 7.5
percent.
(ii) Mortality and withdrawal rates are based upon actual experience
modified to allow for variations in policy form. The weighted average
lapse rate, including surrenders, for individual life approximated
13.7 percent.
(c) The liability for policyholders' fund on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of issuance
and range from 3.0 percent to 7.5 percent. Credited interest rate
guarantees are generally for a period of one year. Withdrawal charges
generally range from 3.0 percent to 10.0 percent grading to zero over
a period of 5 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited
generally range from 4.7 percent to 8.1 percent and maturities range
from 3 to 20 years.
(iii)The universal life funds have credited interest rates of 5.9 percent
to 7.5 percent and guarantees ranging from 3.5 percent to 5.5 percent
depending on the year of issue. Additionally, universal life funds are
subject to surrender charges that amount to 11.0 percent of the fund
balance and grade to zero over a period not longer than 20 years.
5. Income Taxes
------------
(a) The Federal income tax rate applicable to ordinary income is 35% for
1997, 1996 and 1995. Actual tax expense on income from operations
differs from the "expected" amount computed by applying the Federal
income tax rate because of the following (in thousands except
percentages):
<TABLE>
Years ended December 31,
------------------------
1997 1996 1995
--------------------------- ------------------------- ----------------------
Percent Percent Percent
of of of
pre-tax pre-tax pre-tax
operating operating operating
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $ 30,352 35.0% $ 17,140 35.0% $ 14,287 35.0%
State income tax 487 0.6 578 1.2 609 1.5
Other 91 0.1 (374) (0.8) (398) (1.0)
-------- ---- -------- ---- -------- ----
Actual income
tax expense $ 30,930 35.7% $ 17,344 35.4% $ 14,498 35.5%
======== ==== ======== ==== ======== ====
</TABLE>
<PAGE>
5. Income Taxes - (continued)
--------------------------
(b) The components of the net deferred tax liability were as follows (in
thousands):
<TABLE>
Years ended December 31,
1997 1996
----- -----
<S> <C> <C>
Deferred tax assets:
Adjustments to mortgage loans and
investment income due and accrued $ 6,619 $ 5,321
Adjustment to life reserves 34,996 35,370
Other 2,065 363
-------- --------
43,680 41,054
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $ 1,647 $ 1,437
Fixed maturities discount 11,710 9,816
Unrealized appreciation on investments 99,504 72,979
Other 1,719 267
-------- --------
114,580 84,499
-------- --------
Net deferred tax liability $ 70,900 $ 43,445
======== ========
</TABLE>
(c) At December 31, 1997, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,879,000 of
"Policyholders' Surplus" as defined under the Code. Under provisions
of the Code, "Policyholders' Surplus" has not been currently taxed but
would be taxed at current rates if distributed to the Parent. There is
no present intention to make cash distributions from "Policyholders'
Surplus" and accordingly, no provision has been made for taxes on this
amount.
(d) Income taxes paid in 1997, 1996, and 1995 amounted to $30,269,000,
$25,353,000, and $19,056,000, respectively.
6. Commitments and Contingent Liabilities
--------------------------------------
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
During 1997, the Company entered into a partnership agreement with Private
Equity Investors III, L.P. The agreement requires the Company to make
capital contributions totaling $50,000,000. The total contribution for 1997
was $2,900,000.
7. Fair Value of Financial Instruments
-----------------------------------
(a) Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments
may or may not be recognized in the balance sheet. In the measurement
of the fair value of certain of the financial instruments, quoted
market prices were not available and other valuation techniques were
utilized. These derived fair value estimates are significantly
affected by the assumptions used. FASB 107 excludes certain financial
instruments, including those related to insurance contracts.
<PAGE>
7. Fair Value of Financial Instruments - (continued)
-------------------------------------------------
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair value.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon quoted
market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair values of policy loans were not calculated as the Company
believes it would have to expend excessive costs for the benefits derived.
Therefore, the fair value of policy loans was estimated at carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair values of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
(b) The fair value and carrying amounts of financial instruments is as
follows (in thousands):
<TABLE>
1997
----
Fair Carrying
Value Amount
<S> <C> <C>
Cash and short-term investments $ 80,192 $ 80,192
Fixed maturities 4,995,019 4,995,019
Equity securities 27,821 27,821
Mortgage and policy loans 599,353 565,203
Interest rate cap - 57
Policyholders' funds on deposit $3,586,022 $3,513,621
1996
----
Fair Carrying
Value Amount
Cash and short-term investments $ 62,059 $ 62,059
Fixed maturities 4,636,022 4,636,022
Equity securities 33,689 33,689
Mortgage and policy loans 533,981 524,533
Interest rate cap 226 283
Policyholders' funds on deposit $3,366,450 $3,308,208
</TABLE>
<PAGE>
8. Stockholders' Equity
--------------------
(a) The Company may not distribute dividends to the Parent without prior
approval of regulatory agencies. Generally, this limits the payment of
such dividends to an amount which, in the opinion of the regulatory
agencies, is warranted by the financial condition of the Company. During
1997, no dividends were paid.
(b) The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $321,546,000 at December 31, 1997 and
$254,169,000 at December 31, 1996. Statutory net income amounted to
$58,205,000, $48,474,000 and $49,059,000 for 1997, 1996 and 1995,
respectively.
9. Employee Benefits
-----------------
(a) The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and
completed twelve months of continuous service are eligible to
participate in this plan. An employee with 5 or more years of service is
entitled to pension benefits beginning at normal retirement age 65.
Benefits are based upon a percentage of average final compensation
multiplied by years of credited service limited to 44 years of credited
service. The average final compensation is subject to certain
limitations. Annual funding requirements are determined based on the
"projected unit credit" cost method which attributes a pro rata portion
of the total projected benefit payable at normal retirement to each year
of credited service. Pension expense for current service costs,
retirement and termination benefits for the years ended December 31,
1997, 1996 and 1995 were approximately $306,000, $241,000 and $225,000,
respectively. The Parent's plans do not separately identify projected
benefit obligations and plan assets attributable to employees of
participating affiliates. The projected benefit obligations exceeded the
plan assets at December 31, 1997 by $65,924,000.
The Parent has adopted a Supplemental Executive Retirement Program
(Supplemental Plan) to provide additional retirement benefits to
designated executives and key employees. Under the Supplemental Plan,
the annual benefit, not to exceed 60 percent of average final
compensation, accrues at a percentage of average final pay multiplied
for each year of credited service reduced by any benefits from the
current and any predecessor retirement plans, Social Security, if any,
and from any qualified pension plan of prior employers. The Supplemental
Plan also provides a benefit equal to the reduction in benefits payable
under the AIG retirement plan as a result of Federal limitations on
benefits payable thereunder. Currently, the Supplemental Plan is not
funded.
(b) The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which during the two years ended December 31, 1997,
provided for salary reduction contributions by employees and matching
contributions by the Parent of up to 6 percent of annual salary
depending on the employees' years of service.
(c) On April 1, 1985, the Parent terminated and replaced its then existing
U.S. pension plan, a contributory qualified defined benefit plan, with
the current non-contributory qualified defined benefit plan. Settlement
of the obligations of the prior plan was accomplished through the
purchase of annuities from the Company for accrued benefits as of the
date of termination. Future policy benefits reserves in the accompanying
balance sheet that relate to these annuity contracts are $70,377,000 at
December 31, 1997 and $73,866,000 at December 31, 1996.
<PAGE>
9. Employee Benefits - (continued)
-------------------------------
(d) In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
(e) The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provides for eligible
employees to receive privileges to purchase AIG common stock at a price
equal to 85% of the fair market value on the date of grant of the
purchase privilege. The Parent has not recognized compensation costs for
either plan. The effect of the compensation costs, as determined
consistent with FASB 123, was not computed on a subsidiary basis, but
rather on a consolidated basis for all subsidiaries of the Parent and
therefore are not presented herein.
10. Leases
-------
(a) The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1997, the
future minimum lease payments under operating leases were as follows:
<TABLE>
Year Payments
---- --------
<S> <C>
1998 $1,451
1999 978
2000 451
2001 293
2002 --
Remaining years after 2002 --
------
Total $3,173
======
</TABLE>
Rent expense approximated $1,398,000, $866,000 and $661,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
(b) Sublease Income - The Company does not participate in sublease
agreements.
11. Reinsurance
-----------
(a) The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term
treaties. Accident and health insurance risks are reinsured primarily
under coinsurance, excess of loss and quota share treaties. Amounts
recoverable from reinsurers are estimated in a manner consistent with
the assumptions used for the underlying policy benefits and are
presented as a component of reinsurance assets. A contingent liability
exists with respect to reinsurance ceded to the extent that any
reinsurer is unable to meet the obligations assumed under the
reinsurance agreements. The Company also reinsures portions of its
life and accident and health insurance risks with affiliated companies
(see Note 12).
<PAGE>
11. Reinsurance - (continued)
-------------------------
The effect of all reinsurance contracts, including reinsurance assumed,
is as follows (in thousands, except percentages):
<TABLE>
Percentage
December 31, 1997 of Amount
----------------- Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,900,999 $ 408,340 $ 3,061 $4,495,720 0.1%
========== ========== ========== ==========
Premiums:
Life 25,690 2,805 83 22,968 0.4%
Accident and Health 16,266 6,470 22,449 32,245 69.6%
Annuity 41,216 -- -- 41,216 --
Total Premiums $ 83,172 $ 9,275 $ 22,532 $ 96,429 23.4%
========== ========== ========== ==========
</TABLE>
<TABLE>
Percentage
December 31, 1996 of Amount
----------------- Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,776,324 $ 638,583 $ 3,282 $4,141,023 0.1%
========== ========== ========== ==========
Premiums:
Life 25,625 3,788 82 21,919 0.4%
Accident and Health 20,553 6,729 22,009 35,833 61.4%
Annuity 92,441 721 -- 91,720 --
---------- ---------- ---------- ===========
Total Premiums $ 138,619 $ 11,238 $ 22,091 $ 149,472 14.8%
========== ========== ========== ===========
</TABLE>
<TABLE>
Percentage
December 31, 1995 of Amount
----------------- Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,415,460 $ 711,025 $ 3,574 $3,708,009 0.2%
========== ========== ========== ==========
Premiums:
Life 25,938 3,368 6 22,576 --
Accident and Health 22,136 8,034 20,822 34,924 59.6%
Annuity 27,496 639 -- 26,857 --
---------- ---------- ---------- ----------
Total Premiums $ 75,570 $ 12,041 $ 20,828 $ 84,357 24.7%
========== ========== ========== ==========
</TABLE>
(b) The maximum amount retained on any one life by the Company is
$1,000,000.
(c) Reinsurance recoveries, which reduced death and other benefits,
approximated $6,110,000, $7,176,000 and $7,667,000 respectively, for
each of the years ended December 31, 1997, 1996 and 1995.
The Company's reinsurance arrangements do not relieve it from its
direct obligation to its insureds.
<PAGE>
12. Transactions with Related Parties
---------------------------------
(a) The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance
risks. Premium income and commission ceded to affiliates amounted to
$144,000 and $2,000, respectively, for the year ended December 31, 1997.
Premium income and commission ceded for 1996 amounted to $857,000 and
$(2,000), respectively. Premium income and commission ceded for 1995
amounted to $800,000 and $(3,000), respectively. Premium income and
ceding commission expense assumed from affiliates aggregated $20,661,000
and $(602,000), respectively, for 1997, compared to $20,764,000 and
$(120,000), respectively, for 1996, and $19,679,000 and $(141,000),
respectively, for 1995.
(b) The Company provides life insurance coverage to employees of the Parent
and its domestic subsidiaries in connection with the Parent's employee
benefit plans. The statement of income includes $5,769,000 in premiums
relating to this business for 1997, $5,142,000 for 1996, and $4,080,000
for 1995.
(c) The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional
cost allocation basis which management believes to be reasonable. For
the years ended December 31, 1997, 1996 and 1995, the Company was
charged $22,079,000, $24,204,000 and $19,148,000, respectively, for
expenses attributed to the Company but incurred by affiliates. During
the same period, the Company received reimbursements from affiliates
aggregating $26,941,000, $21,198,000 and $20,920,000, respectively, for
costs incurred by the Company but attributable to affiliates.
(d) During 1997, a reinsurance treaty between the Company and Delaware
American Life Insurance Company (Delam) covering certain annuity
policies was terminated. Upon cancellation of this agreement, assets
totaling $24,030,000 were transferred from Delam to the Company.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
a. Financial Statements#####
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account*
2. Not Applicable
3. (i) Principal Underwriter's Agreement** (ii) Broker-Dealer
Agreement** (iii)General Agency Agreement*** (iv) Distribution
Agreement*** (v) Buy-Sell Agreement #
4. Form of Annuity Contract
(i) Old Contract #
(ii) New Contract ####
5. Application for Annuity Contract#
6. (i) Copy of Articles of Incorporation of the Company* (ii) Copy
of the Bylaws of the Company*
7. Not Applicable
8. Administrative Agreement* (filed confidentially)
9. Opinion of Counsel (filed herewith electronically)
10. (i) Consent of Counsel (filed herewith electronically)
(ii)Consent of Independent Accountants (filed herewith
electronically)
11. Not Applicable
12. Agreement Governing Contribution*
13. Performance Data##
14. Financial Data Schedule (not applicable)
15. Powers of Attorney(filed herewith electronically)
* Incorporated by reference to Registrant's initial filing on Form
N-4, (File No. 33-9144) filed on October 7, 1986.
** Incorporated by reference to Registrants Post-Effective Amendment
No.3 to Form N-4 (File No. 33-9144), filed on May 1, 1989.
*** Incorporated by reference to Registrants Post-Effective Amendmen
No. 4 to Form N-4 (File No. 33-9144), filed on May 1, 1990.
**** Incorporated by reference to Registrants
Post-Effective Amendment No. 5 (File No. 33-9144), filed on
May 1, 1991.
# Incorporated by reference to Registrants Post-Effective
Amendment No. 11 (File No. 33-39170), Filed May 1, 1992.
## Incorporated by reference to Registrants Post-Effective Amendment
No.7 (File No. 33-39170), Filed May 1, 1996.
<PAGE>
Item 25. Directors and Officers of the Depositor.
The following are the Officers and Directors of the Company:
Officers:
Name and Principal Position and Offices
Business Address with the Company
Ernest E. Stempel(1) Chairman of the Board
Robert J. O'Connell(2) President
Michele L. Abruzzo(2) Senior VicePresident
James A. Bambrick(2) Senior VicePresident
Howard Gunton(3) Vice President & Comptroller
Jeffrey M. Kestenbaum(2) Senior VicePresident
Robert Liguori(3) Vice President and Counsel
Edward E. Matthews(1) Senior VicePresident - Finance
Jerome T. Muldowney(4) Vice President
Michael Mullin(3) Vice President
Nicholas A. O'Kulich(1) Vice President & Treasurer
John R. Skar(3) Vice President & Chief Actuary
Edmund Sze-Wing Tse(1) Director, Vice Chairman
Gerald W. Wyndorf(2) Senior VicePresident
Elizabeth M. Tuck(1) Secretary Corporate
David J. Walsh(1) Vice President
Patrick J. Foley (1) Director
(1) Business address is: 70 Pine Street, New York, New York 10270
(2) Business address is: 80 Pine Street, New York, New York 10005
(3) Business address is: One Alico Plaza, Wilmington, Delaware 19801
(4) Business address is: One Chase Plaza, New York, New York 10005
<PAGE>
Directors Address
Peter J. Dalia 20281 East Country Club Drive
Apt. #2212
Aventura, FL 33180
Marion E. Fajen 5608 North Waterbury Road
Des Moines, Iowa 50312
Cecil C. Gamwell III American International Group, Inc.
80 Pine Street, 13th Floor
New York, New York 10270
M.R. Greenberg American International Group, Inc.
70 Pine Street,18th Floor
New York, New York 10270
Jacob E. Hansen AIG Marketing, Inc.
505 Carr Road
Wilmington, Delaware
Jack R. Harnes American International Group, Inc.
72 Wall Street , 1st Floor
New York, New York 10270
John I. Howell Indian Rock Corporation
P.O. Box 2606
Greenwick, Connecticut, 06831
Jeffrey M. Kestenbaum American International Group, Inc.
80 Pine Street, 13th Floor
New York, New York 10270
Edwin A. G. Manton American International Group, Inc.
70 Pine Street, 18th Floor
New York, New York 10270
Jerome T.Muldowney American International Group, Inc.
One Chase Manhattan Plaza, 57th Fl.
New York, New York 10005
Win J. Neuger American International Group, Inc.
70 Pine Street, 17th Floor
New York, New York 10270
Robert J. O'Connell American International Life Assurance
Company of New York
80 Pine Street, 13th Floor
Nicholas A. O'Kulich American International Group, Inc.
70 Pine Street, 17th Floor
New York, New York 10270
John R. Skar American International Life
Assurance Company of New York
P.O. Box 667Wilmington, DE 19899
Ernest E. Stempel American International Companies
70 Pine Street, 17th Floor
New York, New York 10270
Edmund Sze-Wing Tse American International Companies
70 Pine Street
New York, New York 10005
David J. Walsh American International Companies
70 Pine Street, 22nd Floor
New York, New York 10005
Gerald W. Wyndorf American International Companies
80 Pine Street, 13th Floor
New York, New York 10005
Patrick J. Foley American International Life
Assurance Company of New York
70 Pine Street, 38th Floor
New York, New York 10270
<PAGE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated by reference to the Form 10K, Exhibit 21 filed by
American International Assurance Company of New York. parent of
registrant for year end December 31, 1997.
Item 27. Number of Contract Owners.
There were approximately $3,396 contractholders as of March 31, 1998.
Item 28. Indemnification
Incorporated by reference to initial Form N-4 (File No. 33-9144) filed on
October 7, 1986, by American International Life Assurance Company of New York,
an affiliate of Registrant.
Item 29. Principal Underwriter
a. AIG Equity Sales Corp., the principal underwriter for Variable
Account A, also acts as the principal underwriter for other
separate accounts of the Depositor, and for the separate accounts
of AIG Life Insurance Company, an affiliated company.
b. The following information is provided for each director and
officer of the Principal Underwriter:
Name and Principal Positions and Offices
Business Address with Underwriter
Michele L. Abruzzo(1) Director and President
Kevin Clowe(2) Director and VicePresident
Edward E. Matthews(1) Director and Chairman of the Board
Jerome T. Muldowney(3) Director
Robert J. O'Connell(1) Director
Ernest E. Stempel(2) Director
Kenneth F. Judkowitz(1) Treasurer,Comptroller, Vice President
Philomena Scamardella(1) Vice President and Senior
Compliance Officer
Florence Davis(2) Director and General Counsel
Elizabeth M. Tuck(2) Secretary
Daniel Keith Kingsbury(2) Vice President
(1) Business address is: 80 Pine Street, New York, N Y 10270.
(2) Business address is: 70 Pine Street, New York, NY 10270
(3) Business address is: One Chase Manhattan Plaza, 57th Flr,
New York, NY 10005
<PAGE>
c.
Net
Name of Underwriting Compensation
Principal Discounts and on Brokerage
Underwriter Commissions Redemption Commissions
Compensation
American International $ 37,267.60 $0 $0
Fund Distributors, Inc.
Item 30. Location of Accounts and Records.
Kenneth F. Judkowitz, Assistant Vice President of the Company, whose
address is 80 Pine Street, New York, New York 10005, maintains physical
possession of the accounts, books or documents of the Variable Account
required to be maintained by Section 31(a) of Investment Act of 1940 and the
rules promulgated thereunder.
Item 31. Management Services.
Not Applicable
Item 32. Undertakings.
a. Registrant hereby undertakes to file a post-effective
amendment to this registration statement as frequently as is
necessary to ensure that the audited financial statements in
the registration statement are never more than sixteen (16)
months old for so long as payments under the variable
annuity contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part
of any application to purchase a Contract offered by the
Prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a postcard or
similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a
Statement of Additional Information.
c. Registrant hereby undertakes to deliver any Statement of
Additional Information and any financial statements required
to be made available under this Form promptly upon written
or oral request.
d. Registrant represents that in connection with 403(b) Plans,
it is relying on the November 28, 1988 no-action letter
issued by the SEC to the American Council of Life Insurance.
e. Registrant represents that Variable Account A meets the
definition of a separate account under the federal
securities laws.
f. Registrant represents that the fees and charges deducted
under the contracts covered by this registration statement,
in the aggregate are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the
risks assumed by the company.
<PAGE>
SIGNATURES
As required by the (Securities Act of 1933 and) the Investment Company Act
of 1940, the Registrant certifies that it meets the requirements of Securities
Act Rule 485 for effectiveness of this Registration Statement and has caused
this Registration Statement to be signed on its behalf, in the City of
Wilmington, and State of Delaware on this 28th day of April, 1998
Variable Account A
Registrant
By: /s/ Kenneth D. Walma
--------------------
Kenneth D Walma, Assistant
Assistant Secretary and Associate General Counsel
By: American International Life Assurance
Company of New York
Depositor
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
Nicholas A. O'Kulich* Director April 28, 1998
----------------------------
Nicholas A. O'Kulich
Maurice R. Greenberg* Director April 28, 1997
----------------------------
Maurice R.Greenberg
Peter J. Dalia * Director April 28, 1998
---------------------------
Peter J. Dalia
Marion E. Fajen* Director April 28, 1998
--------------------------
Marion E. Fajen
Cecil C. Gamwell, III* Director April 28, 1998
----------------------------
Cecil C. Gamwell, III
Jacob E. Hansen* Director April 28, 1998
-------------------
Jacob E. Hansen
Jack R. Harnes* Director April 28, 1998
-------------------
Jack R. Harnes
John I. Howell* Director April 28, 1998
-------------------
John I. Howell
Jeffrey M. Kestenbaum* Director April 28, 1998
-----------------------------
Jeffrey M. Kestenbaum
Edwin A. G. Manton* Director April 28, 1998
-------------------------
Edwin A. G. Manton
Jerome T. Muldowney* Director April 28, 1998
------------------------
Jerome T. Muldowney
Win J. Neuger* Director April 28, 1998
-----------------------
Win J. Neuger
John R. Skar* Director April 28, 1998
----------------------
John R. Skar
Ernest E. Stempel* Director April 28, 1998
----------------------
Ernest E. Stempel
--------------------- Director
Edmund Sze-Wing Tse*
David J. Walsh*
-------------------- Director April 28, 1998
David J. Walsh
Gerald W. Wyndorf* Director April 28, 1998
----------------------
Gerald W. Wyndorf
Robert J. O'Connell* Director April 28, 1998
-----------------------
Robert J. O'Connell
Patrick J. Foley* Director April 28, 1998
---------------------
Patrick J. Foley
Howard E. Gunton, Jr. Director April 28, 1998
--------------------
Howard E. Gunton, Jr.
By: /s/ Kenneth D. Walma
----------------------------
Kenneth D. Walma,
Attorney in Fact
<PAGE>
EXHIBITS TO
AMENDMENT NUMBER __ TO
FORM N-4
FOR
VARIABLE ACCOUNT A
<PAGE>
EXHIBIT PAGE
9 Opinion of Counsel
10 (i) Consent of Counsel
(ii) Consent of Independent Accountants
<PAGE>
OPINION OF COUNSEL
I have made such examination of the law and have examined such records and
documents as, in my judgment, are necessary or appropriate to enable me to
render the opinions expressed below.
I am of the following opinions:
1. American International Life Assurance Company of New York is a
valid and existing stock life insurance company domiciled in the
State of New York.
2. Variable Account A is a separate investment account of American
International Life Assurance Company of New York created and
validly existing pursuant to the New York Insurance Laws and the
Regulations thereunder.
3. All of the prescribed corporate procedures for the issuance of the
Individual Single Purchase Payment Deferred Variable Annuity
Contracts (the "Contracts") have been followed, and, when such
Contracts are issued in accordance with the Prospectus contained in
the Registration Statement, all state requirements relating to such
Contracts will have been complied with.
4. Upon the acceptance of purchase payments made by Contract Owners
pursuant to a Contract issued in accordance with the Prospectus
contained in the Registration Statement and upon compliance with
applicable law, such Contract Owner will have a legally-issued,
fully paid, nonassessable contractual interest in such Contract.
This opinion, or a copy hereof, may be used as an exhibit to or in
connection with the filing with the Securities and Exchange Commission of the
Post-Effective Amendment No.9 to the Registration Statement on Form N-4 for the
Contracts to be issued by American International Life Assurance Company of New
York and its separate account, Variable Account A.
/s/ Kenneth D. Walma
Kenneth D. Walma
Assistant Secretary and
Associate General Counsel
Dated: April 28, 1998
EXHIBIT 10(i)
Consent of Counsel
<PAGE>
April 28, 1998
[LETTERHEAD]
American International Life Assurance
Company of New York
80 Pine Street
New York, New York 10005
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus and in the caption "Legal Counsel" in the Statement
of Additional Information Contained in Post Effective Amendment No. 9 to the
Registration Statement on Form N-4 (File No. 33-39170) filed by American
International Life Assurance Company of New York and Variable Account A with the
Securities and Exchange Commission under the Securities Act of 1933 and the
Investment Company Act of 1940.
Very Truly Yours,
/s/ Jorden Burt Boros Cicchetti Berenson & Johnson LLP
Jorden Burt Boros Cicchetti Berenson & Johnson
<PAGE>
EXHIBIT 10(ii)
Consent of Independent Accountants
<PAGE>
Exhibit 10 (ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect of Post-effective Amendment No.
9 to the Registration Statement (No. 33-39170) on Form N-4 under the Securities
Act of 1933 of Variable Account A of American International Life Assurance
Company of New York.
1. The inclusion of our report dated February 4, 1998 relating to our
audits of the financial statements of American International Life
Assurance Company of New York in the Statement of Additional Information.
2. The inclusion of our report dated February 4, 1998 relating to our
audits of the financial statements of Variable Account A in the Statement
of Additional Information.
3. The incorporation by reference into the Prospectus of our report dated
February 4, 1998 relating to our audits of the financial statements of
American International Life Assurance Company and Variable Account A.
4. The reference to our firm under the heading "General Information
Independent Accountants" in the Statement of Additional Information.
/s/Coopers & Lybrand L.L.P
- ----------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 28, 1998
