Filed with the Securities and Exchange Commission on March 5, 1999
Registration No. 333-34199
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Post-Effective Amendment No. 4
Form S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact name of trust: Variable Account II
B. Name of depositor: AIG Life Insurance Company
C. Complete address of depositor's principal executive offices:
One Alico Plaza, 600 King Street, Wilmington, DE 19801
D. Name and address of agent for service:
Robert Liguori, Vice President and General Counsel
One Alico Plaza
600 King Street
Wilmington, DE 19801
COPIES TO:
Michael Berenson, Esq. and Florence Davis, Esq.
Jorden Burt Boros Cicchetti American International Group, Inc.
Berenson & Johnson, LLP 70 Pine Street
Suite 400 East New York, NY 10270
1025 Thomas Jefferson Street, NW
Washington, DC 20007-0805
It is proposed that this filing will become effective:
____ 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)(1) of Rule 485
X on May 1, 1999 pursuant to paragraph (a)(1) of Rule 485
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If appropriate, check the following box:
_____this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
E. Title and amount of securities being registered: Individual and Group
Flexible Premium Variable Universal Life Insurance Policies.
F. Proposed maximum aggregate offering price to the public of the securities
being registered: N/A
G. Amount of Filing Fee: N/A
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
1 About Us and the Accounts, The Separate Account
2 About Us and the Accounts
3 Not Applicable
4 Distribution of the Policy
5 The Separate Account
6(a) Not Applicable
6(b) Not Applicable
9 Legal Proceedings
10 Purchasing a VUL Policy
11 The Separate Account, The Investment Options
12 The Separate Account, The Investment Options
13 Expenses of the Policy
14 Purchasing a VUL Policy
15 The Separate Account
16 The Separate Account, The Investment Options
17 Purchasing a VUL Policy, Investing Your
18 Account Value
19 Purchasing a VUL Policy, Investing Your
20 Account Value
19 Not Applicable
20 Not Applicable
21 Cash Benefits During the Insured's Lifetime
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 About Us and the Accounts
26 Not Applicable
27 About Us and the Accounts
28 About Us and the Accounts
29 About Us and the Accounts
30 About Us and the Accounts
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Distribution of the Policy
35 About Us and the Accounts
37 Not Applicable
38 Distribution of the Policy
39 Distribution of the Policy
40 Not Applicable
41(a) Distribution of the Policy
42 Not Applicable
43 Not Applicable
44 Purchasing a VUL Policy
45 Not Applicable
46 Purchasing a VUL Policy
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Purchasing a VUL Policy,
About Us and the Accounts
52 The Investment Options
53 Federal Income Tax Considerations
54 Financial Statements
55 Not Applicable
<PAGE>
Part I
<PAGE>
AIG Life Insurance Company
Variable Account II
One Alico Plaza
600 King Street
Wilmington, Delaware 19801
1-800-340-2765
Flexible Premium Variable Universal Life Group Policy
AIG Life Insurance Company ("we," "our" or "us"), is offering life insurance
coverage under the policy (the "Policy") described in this prospectus. The
Policy is a group flexible premium variable universal life ("VUL") policy. You
may be issued a certificate as evidence of your coverage under a group
arrangement. The description of the policy in this prospectus is fully
applicable to your certificate. The policy allows you, the owner, within limits,
to:
o Select the Face Amount of life insurance. You may within limits change your
initial selection as your insurance needs change.
o Select the amount and timing of premiums payments. You may make more
premium payments than scheduled or stop making premium payments.
o Allocate premium payments and your Policy's Account Value among the
variable investment options and the guaranteed account.
o Receive payments from your Policy while the Insured is alive through loans,
partial surrenders or a total surrender.
This document contains information about the Policy. You should read this
document carefully before you decide to purchase the Policy. You should also
keep this document for future reference.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of the Policy or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
Prospectus _________, 1999
<PAGE>
Investment Options
[Variable Investment Options]
The Separate Account is divided into Subaccounts. Each Subaccount invests in
shares of one portfolio of the AIM Variable Insurance Funds, Inc. ("AIM Funds"),
Alliance Variable Products Series Fund, Inc. ("Alliance Funds"), Variable
Insurance Products Funds ("Fidelity VIP"), Variable Insurance Products II
("Fidelity VIP II"), Dreyfus Stock Index Fund ("Dreyfus Funds") and the Van Eck
Worldwide Insurance Trust ("Van Eck Funds") Each portfolio is named below. The
prospectuses for each Fund contain information about each portfolio. You should
read these prospectuses carefully.
AIM Funds
Managed by A I M Advisors, Inc.
o V.I. Capital Appreciation Fund
o V.I. International Equity Fund
Alliance Variable Products Series Fund
Managed by Alliance Capital Management L.P.
o Global Bond Portfolio
o Growth Portfolio
o Growth and Income Portfolio
o Premier Growth
o Quasar Portfolio
o Technology Portfolio
Dreyfus Variable Investment Fund
Managed by the Dreyfus Corporation
o Stock Index Fund
o Small Company Stock Portfolio
Fidelity Variable Insurance Products Funds I
Managed by Fidelity Management & Research Company
o VIP High Income Portfolio
o VIP Growth Portfolio
o VIP Money Market Portfolio
Fidelity Variable Insurance Products Funds II
Managed by Fidelity Management & Research Company
o VIP II Asset Manager Portfolio
o VIP II Contrafund Portfolio
o VIP II Investment Grade Bond Portfolio
Van Eck Funds
Managed by Van Eck Associates Corporation and Van Eck Global Asset
Management (Asia) Limited
o World Wide Emerging Markets Portfolio
o World Wide Hard Assets Portfolio
[Guaranteed Investment Option]
The Guaranteed Account is part of our general account. We will credit interest
equal to at least 4% per year, compounded annually on that portion of Policy
Account Value that you allocate to the Guaranteed Account. We may, in our
discretion, elect to credit a higher rate of interest. This document generally
describes only that portion of the Account Value allocated to the Separate
Account.
<PAGE>
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Table of Contents
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Special Terms used in this Document
Summary of the Policy
Overview
Applying for a Policy
Premium Payments
Policy Account Value
Death Benefit
Cash Benefits During the Life of the Insured
4
Expenses of the Policy
Federal Tax Considerations
Purchasing a VUL Policy
Applying for a Policy
Your Right to Cancel the Policy
Premiums
Restrictions on Premiums
Minimum Initial Premium
Planned Periodic Premiums
Additional Premiums
Effect of Premium Payments
No Lapse Provision
Grace Period
Premium Allocations
Crediting Premiums
The Investment Options
Investing Your Policy Account Value
Determining the Policy Account Value
Transfers
Dollar Cost Averaging
Automatic Rebalancing
Death Benefit
Cash Benefits During the Insured's Life
Payment Options for Benefits
Expenses of the Policy
Supplemental Benefits and Riders
Other Policy Provisions
Performance Information
Federal Income Tax Considerations
Distribution of the Policy
About Us and the Accounts
Our Directors and Executive Officers
Other Information
Appendices
<PAGE>
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Special Terms used in this Document
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We have capitalized some special terms we use in this document. We have defined
these terms here.
Accounts. The Separate Account and the Guaranteed Account of the Company.
[If you have a request, please write to us at this address.]
Administrative Office. One Alico Plaza, P.O. Box 8718, Wilmington, DE 19801.
Age. The Insured's age as of his or her last birthday.
Attained Age. The Insured's Age as of the Policy Date plus the number of full
years since the Policy Date.
Beneficiary. The person(s) entitled to the Death Benefit under the Policy.
Code. The Internal Revenue Code of 1986, as amended.
Company, we, our, us. AIG Life Insurance Company.
[You will specify the initial Face Amount in your Policy application. The Policy
will also show the initial Face Amount.]
Death Benefit. The amount payable to a Beneficiary if the Insured dies while
coverage under the Policy is in force.
Face Amount. The amount of insurance specified by the Owner and from which the
Death Benefit Amount will be determined.
Grace Period. The period of time that the Policy continues to be in force while
the Net Cash Surrender Value is less than the total monthly deductions then due.
It begins on a monthly anniversary when the Net Cash Surrender Value is less
than the total monthly deduction then due.
Guaranteed Account. An account within the general account which consists of all
of our assets other than the assets of the Separate Account and any of our other
separate accounts.
Insured. A person whose life is covered under the Policy.
[We measure contestability periods from the Issue Date.]
Issue Date. The date the Policy is actually issued. It may be later than the
Policy Date.
Loan Account. The portion of the Policy Account Value held in the Guaranteed
Account as collateral for Policy loans.
Monthly Anniversary. The same day as the Policy Date for each succeeding month.
If the day of the monthly anniversary is the 29th, 30th or 31st and a month has
no such day, the monthly anniversary is deemed to be the last day of that month.
[We use this value to determine if your Policy is in force.]
Net Cash Surrender Value. The Cash Surrender Value less any outstanding Loans.
Net Premium. Any premium paid less any expense charges deducted from the premium
payment.
Outstanding Loan. The total amount of Policy loans, including both principal,
past due unpaid interest and accrued interest.
[You may be an Owner even if you are not the Insured.]
Owner, you, your. The person who purchased the Policy as shown in the
application, unless later changed.
Policy. The flexible premium variable universal life insurance coverage we
issue. We may issue coverage on the Insured under a certificate issued under a
group contract. The term Policy includes the certificate and group contract.
[We use Policy Account Value to determine your Policy benefits. How we determine
Policy Account Value is described on page __. ]
Policy Account Value. The total amount in the Accounts credited to your Policy.
[We use the Policy Date as the date coverage begins and to determine all
anniversary dates.]
Policy Date. The date as of which we have received the initial premium and an
application in good order. Coverage will begin on the policy date.
Separate Account. Variable Account II, a separate investment account of ours.
Subaccount. A division of the Separate Account established to invest in shares
of a corresponding portfolio of a fund that is available for investment under
the Policy.
Valuation Date. Each day the New York Stock Exchange is open for trading.
Valuation Period. A period commencing with the close of trading on the New York
Stock Exchange (currently 4 P.M., Eastern Time) on any Valuation Date and ending
as of the close of the New York Stock Exchange on the next succeeding Valuation
Date.
<PAGE>
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Summary of the Policy
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Because this is a summary, it does not contain all the information that may be
important to you. You should read this entire document carefully before you
decide to purchase a Policy.
[If you select any variable investment options, your Policy benefits will vary
based upon the returns earned by those variable investment options. The returns
may be zero or negative and you bear this risk.]
Overview
The Policy is a flexible premium variable universal life policy. Like
traditional life insurance, the Policy provides an initial minimum death benefit
and cash benefits that you can access through loans, partial surrenders or a
surrender. Unlike traditional life insurance, you may choose how to invest your
Policy Account Value.
The Policy allows you to make certain choices that will tailor the Policy to
your needs. When you apply for the Policy, we will ask you to make some of these
choices. You may also change your choices to meet your changing insurance needs.
In addition, we are offering several riders to the Policy. These riders provide
you with the flexibility to design an insurance product that meets your specific
needs.
Applying for a Policy
You may apply for a Policy to cover a person, the "Insured," who is age 75 or
younger.
[Amount of life insurance benefits.]
When you apply for a Policy, you must select the Face Amount. The Face Amount is
the initial amount of life insurance coverage on the Insured. It must be at
least $50,000 when you apply.
[When your coverage will become effective.]
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment, in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your right to cancel the Policy
Once you receive your Policy, you should read the Policy. You have the right to
cancel the Policy for any reason within the later of:
o 45 days after you sign Part I of the Policy application.
o 10 days after you received the Policy. If required by the state where you
live, we will extend the 10 days to the number required by law.
Premium Payments
[Minimum initial premium.]
Before your Policy is effective, you must pay the minimum initial premium. We
will calculate the initial minimum premium based on a number of factors, such as
the age, sex and underwriting rate class of the proposed Insured, the desired
Face Amount, and any supplemental benefits or riders applied for and whether
premiums will be paid by pre-authorized checking. A table is provided in
Appendix A.
[Planned periodic premium. ]
When you apply for a Policy you will select the amount of premium payments you
plan to pay during the term of the Policy. We will establish a minimum for this
amount. You will also select intervals when you plan to pay this pay this
premium amount. This may be monthly, quarterly, semiannually, or annually.
Pre-authorized checking may be required for monthly payments.
[Flexibility in premium payments.]
During the term of the Policy, you may pay premiums at any time and in any
amount, within limits. Thus, you are not required to pay the planned periodic
premium and you may make payments in addition to the planned periodic premium.
Policy Account Value
We will measure your benefits under the Policy by your Policy Account Value.
Your Policy Account Value will reflect:
o the premiums you pay;
o the returns earned by the Subaccounts you select;
o the interest earned on the amount allocated to the Guaranteed Account;
o any loans or partial surrenders; an
o the Policy charges and expenses we deduct.
[Death Benefit Selections.]
Death Benefit
When you apply for a Policy, you must select:
o The Face Amount.
o The death benefit option, which determines the manner in which we calculate
the death benefit for your Policy.
Death Benefit Options.
You may select from two death benefit options. They are:
[Option I: Level Death Benefit Option.]
o Option I: Level Death Benefit Option
The basic death benefit will be the greater of:
1. The Face Amount; or
2. Policy Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
[Option II: Increasing Death Benefit Option.]
o Option II: Increasing Death Benefit Option
The basic death benefit will be the greater of:
1. The Face Amount plus the Policy Account Value; or
2. Policy Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
[Changes You May Make.]
Within limits, you may change the death benefit option and, after the first
Policy year, may make changes to the Face Amount.
Cash Benefits During the Life of the Insured
During the life of the Insured, your Policy has cash benefits that you can
access within limits through loans, partial surrenders or a full surrender.
o Loans -- You may borrow against your Net Cash Surrender Value at any time.
If your Policy is a modified endowment contract, the Internal Revenue Code
may treat the loan as a taxable distribution of income.
o Partial Surrender -- You may withdraw part of your Policy Account Value
after the first Policy year. We may deduct an administrative charge. If you
make a partial surrender during the surrender charge period, we will deduct
a surrender charge. A partial surrender may result in a decrease in the
Face Amount of your Policy, depending upon your death benefit option.
o Full Surrender -- You may surrender your Policy for its Net Cash Surrender
Value. If you surrender your Policy during the surrender charge period, we
will deduct a surrender charge. A surrender will terminate your Policy.
[Expenses reduce your returns under the Policy ]
Expenses of the Policy
We deduct expenses related to your Policy. These deductions are made:
o from premiums, your Policy Account Value and the assets of the Subaccount;
and
o upon certain Policy transactions.
Deduction from premiums -- we will deduct 5% from your premium payments plus a
state specific percent of premium equal to the state and local premium tax rate
applicable to the Policy. These deductions are for state premium taxes, federal
taxes, sales and other acquisition related expenses.
Monthly Deductions from Policy Account Value -- we will deduct on each monthly
anniversary charges for:
o The administration of your Policy.
o The cost of insurance for your Policy
o The costs associated with acquiring and underwriting your Policy
o The cost of any supplemental benefits or riders.
The monthly deduction is deducted from your Accounts on a pro rata basis in the
same proportion of Policy Account Value in each Account.
Deductions from Subaccount Net Assets -- we will deduct daily a charge for the
mortality and expense risks we assume, at an annual rate not to exceed 0.90% of
your Policy Account Value in the Subaccounts.
Deductions Upon Certain Policy Transactions -- If you make a Policy transaction,
a charge may apply. They are:
o Transfers -- You may make twelve transfers from your Subaccounts each
Policy year free of charge. Thereafter, we will deduct a fee of $25 per
transfer from the transferred amount.
Administrative Charges for Partial Surrenders.
o Partial Surrenders - We charge the lesser of $25 or 2% of the amount
surrendered for processing each surrender.
Surrender Charges for Partial Surrenders.
o A partial surrender may also be subject to a surrender charge. A surrender
charge for partial surrenders is equal to a pro rata portion of the
surrender charge that would apply to a full surrender. This applies during
the first 14 Policy years and for the first 14 years immediately following
an increase in Face Amount.
o Surrender -- If you request a surrender during the first 14 Policy years,
we may deduct a surrender charge based on the initial Face Amount. If you
request a surrender within 14 years immediately following an increase in
Face Amount, we will deduct a surrender charge based on the increase in
Face Amount. The surrender charge will be deducted before any surrender
proceeds are paid.
Surrender Charges for Face Amount Decreases.
o Decrease in Face Amount -- We may also deduct a surrender charge from the
Policy Account Value upon a decrease in Face Amount. If you request a
decrease in Face Amount during the first 14 Policy years, we will deduct a
surrender charge based on the initial Face Amount. If you request a
decrease within 14 years immediately following an increase in Face Amount,
we will deduct a surrender charge based on the increase in Face Amount.
Expenses of the variable investment options also reduce your returns.
In addition, you will indirectly bear the costs of the investment management
fees and expenses paid from the assets of the portfolios you select. The
expenses of the variable investment options for the year ended December 31, 1998
are set forth in Appendix C.
Federal Tax Considerations
You should consider the impact of the Code.
Your purchase of, and transactions under, your Policy may have tax consequences
that you should consider before purchasing the Policy. You may wish to consult a
tax adviser. In general, the Life Insurance Proceeds will not be taxable income
to the Beneficiary. You will not be taxed as your Policy Account Value
increases. Upon a distribution from your Policy, however, you may be taxed on
your Policy Account Value increases.
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Purchasing a VUL Policy
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Applying for a Policy
To purchase a Policy, you must complete an application and submit it to us. You
must specify certain information in the application, including the Face Amount,
the death benefit option and supplemental benefit riders, if any. We may also
require information to determine if the Insured is an acceptable risk to us. We
may require a medical examination of the Insured and ask for additional
information.
[Our age requirement for the Insured.]
You may apply for a Policy to cover a person who is younger than Age 76. A
newborn may be an Insured. The minimum Face Amount is $50,000
We require a minimum initial premium. We require that you pay a minimum initial
premium before we will issue the Policy. You may pay the minimum initial premium
when you submit the application or at a later date.
We will not issue a Policy until we have accepted the application. We will
accept an application if it meets our underwriting rules. We reserve the right
to reject an application for any reason or "rate" an Insured as a substandard
risk.
[When your coverage will be effective.]
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment, in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your Right to Cancel the Policy
[Period to Examine and Cancel.]
Once you receive your Policy, you should read the Policy. You have the right to
cancel the Policy for years within the later of:
o 45 days after you sign Part I of the Policy application; or
o 10 days after you received the Policy. If required by the state where you
live, we will extend the 10 days to the number required by law.
This is your "Period to Examine and Cancel."
Your right to cancel also applies to the amount of any increase in Face Amount.
[How to cancel your policy.]
You may cancel the Policy by returning it to our Administrative Office or to our
agent within the applicable time with a written request for cancellation. We
will refund you the premium paid on the Policy. Thus, the amount we return will
not reflect the returns of the Subaccounts you selected in your application.
Premiums
The Policy allows you to select the timing and amount of premium payments within
limits. Send premium payments to our Administrative Office.
[All your premium payments must comply with our requirements.]
Restrictions on Premiums. We may not accept any premium payment:
o If it is less than $50.
o If the premium would cause the Policy to fail to qualify as a life
insurance contract as defined in Section 7702 of the Code. We will refund
any portion of any premium that causes the Policy to fail. In addition, we
will monitor the Policy and will attempt to notify the Owner on a timely
basis if a Policy is in jeopardy of becoming a modified endowment contract
under the Code.
o If the premium would increase the amount of our risk under your Policy by
an amount greater than that premium amount. In such cases, we may require
satisfactory evidence of insurability before accepting that premium.
[Types of premium payment.]
Minimum Initial Premium We will calculate the minimum initial premium. The
amount is based on a number of factors, including the age, sex and rating class
of the proposed Insured, the desired Face Amount and any supplemental benefits
or riders applied for and whether premiums will be paid by pre-authorized
checking.
Planned Periodic Premium. When you apply for a Policy, you select a plan for
paying level premiums at specified intervals. The intervals may be monthly,
quarterly, semi-annually or annually, for the life of the Policy. Pre-authorized
checking may be required for monthly payments. We will establish a minimum
amount that may be used as the planned periodic premium.
You are not required to pay premiums in accordance with this plan. Rather, you
can pay more or less than the planned periodic premium or skip a planned
periodic premium entirely. At any time you can change the amount and frequency
of planned periodic premium by sending a written notice to our Administrative
Office.
Additional Premiums. Additional premiums are premiums other than planned
premiums. Additional premiums may be paid in any amount and at any time subject
to Code.
Depending on the Policy Account Value at the time of an increase in the Face
Amount and the amount of the increase requested, an additional premium may be
needed to prevent your Policy from terminating.
[Paying premiums may not ensure that your Policy remains in force.]
Effect of Premium Payments. In general, paying all planned periodic premiums may
not prevent your Policy from lapsing. In addition, if you fail to pay any
planned periodic premiums, your Policy will not necessarily lapse.
Your Policy will lapse only when the Net Cash Surrender Value on a monthly
anniversary is less than the amount of that date's monthly deduction. This could
happen if the Net Cash Surrender Value has decreased because:
o of the negative return or insufficient return earned by one or more of the
Subaccounts you selected; or
o of any combination of the following -- you have Outstanding Loans, you have
taken partial surrenders, we have deducted Policy expenses, or your have
made insufficient premium payments to offset the monthly deduction.
[Your Policy will not terminate immediately after your Policy Account Value is
insufficient.]
Grace Period. In order for insurance coverage to remain in force, the Net Cash
Surrender Value on each monthly anniversary must be equal to or greater than the
total monthly deductions for that monthly anniversary. If it is not, you have a
Grace Period of 61 days during which the Policy will continue in force. The
Grace Period begins on the monthly anniversary that the Net Cash Surrender Value
is less than the total monthly deductions then due. If we do not receive a
sufficient premium before the end of the Grace Period, the Policy will terminate
without value.
We will send you a written notice within 30 days of the beginning of any Grace
Period. The notice will state:
o A Grace Period of 61 days has begun.
o The amount of premium required to prevent your Policy from terminating.
This amount is equal to the amount needed to increase the Net Cash
Surrender Value sufficiently to cover total monthly deductions for the next
three (3) monthly anniversaries.
If the Insured dies during the Grace Period, we will still pay the Life
Insurance Proceeds to the Beneficiary. The amount we pay will reflect a
reduction for the unpaid monthly deductions due on or before the date of the
Insured's death.
If your Policy lapses with an Outstanding Loan you may have taxable income.
Premium Allocations. In the application, you specify the percentage of Net
Premiums to be allocated to each Subaccount or to the Guaranteed Account.
However, until the Period to Examine and Cancel expires, we invest this amount
in the Money Market Subaccount. The first business day after the period expires,
we will reallocate your Policy Account Value in the Money Market Subaccount
based on the premium allocation percentages in your application.
For all subsequent premiums, we will use the allocation percentages you
specified in the application until you change them. You can change the
allocation percentages at any time, by sending written notice to our
Administrative Office. The change will apply to all Premiums received with or
after your notice.
Allocation Rules: Your allocation instructions must meet the following
requirements:
o Each allocation percentage must be a whole number; and
o Any allocation to a Subaccount must be at least 5%; and the sum of your
allocations must equal 100%.
Crediting Premiums. Your initial Net Premium, will be credited to your Policy
Account Value as of the Policy Date. We will credit and invest subsequent Net
Premiums on the date we receive the premium or notice of deposit at our
Administrative Office.
If any Premium requires us to accept additional risk, we will allocate this
amount to the Money Market Subaccount until we complete our underwriting. When
accepted, and at the end of the Period to Examine and Cancel the Policy, we will
allocate it in accordance with your allocation percentages.
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The Investment Options
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You may allocate your Policy Account Value to:
o the Subaccounts which invest in the variable investment options; or
o the Guaranteed Account.
Variable Investment Options
Under the Policy, you may currently allocate your Policy Account Value into any
of the available Subaccounts. Each Subaccount invests in a distinct portfolio of
the AIM Variable Insurance Funds, Alliance Variable Products Series Fund,
Dreyfus Variable Investment Fund, Fidelity Investments Variable Insurance
Products Fund, Fidelity Investments Variable Insurance Products Fund II, or Van
Eck Worldwide Insurance Trust. These portfolios operate similarly to a mutual
fund but are only available through the purchase of certain insurance contracts.
AIM Advisors, Inc. serves as the investment advisor to each AIM Fund, pursuant
to a master investment advisory agreement.
Alliance Capital Management L.P., manages the Alliance Variable Products Series
Fund, Inc. The fund also includes other portfolios which are not available for
use by the Separate Account.
Mellon Equity, a registered investment adviser formed in 1957, is an indirect
wholly-owned subsidiary of Mellon, and thus, an affiliate of Dreyfus. Mellon
serves as the fund manager for the Dreyfus Standard & Poor's 500 Composite Stock
Price Index.
Fidelity Management & Research Company ("FMR") is the investment advisor for the
Variable Insurance Products Fund and Variable Insurance Products Fund II. 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 II Asset Manager Portfolio, FMR has entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., (FMR U.K.), Fidelity
Management & Research (Far East) Inc. (RMR Far East). Fidelity Funds include
other portfolios which are not available under this Prospectus as funding
vehicles for the Contracts.
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.
[Portfolios Managed by AIM Advisors, Inc.]
AIM V.I. Capital Appreciation Fund
This fund seeks growth of capital through investments in common stock, with
emphasis on medium-and small-sized 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 whose issuers are
considered to have strong earnings momentum.
[Portfolios Managed by Alliance Capital Management L.P.]
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.
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.
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.
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.
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.
[Portfolios Managed by The Dreyfus Corporation]
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
Russell 2500 TM Index.
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 15248, 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.
[Portfolios Managed by Fidelity Management & Research Company (FMR)]
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.
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. Ann investment in the VIP Money Market Portfolio
is neither insured nor guaranteed by the U.S. government, and there can be no
assurance that the portfolio will maintain a stable $1.00 share price.
VIP II Asset Manager Portfolio
This portfolio seeks to provide a high total return with reduced risk over the
long term by allocating its assets among stocks, bonds and short-term 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.
[Portfolios Managed by Van Eck Associates Corporation]
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.
Guaranteed Investment Option
Under the Policy, you may currently allocate your Policy Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part of
your Policy Account Value to the Loan Account which is part of the Guaranteed
Account.
We treat each allocation and transfer separately for purposes of crediting
interest and making deductions from the Guaranteed Account.
[You assume the risk that interest credited may not exceed the guaranteed
minimum rate of 4% per year.]
Interest Credited On the Guaranteed Account. All of your Policy Account Value
held in the Guaranteed Account will earn interest at a rate we determine, in our
sole discretion. This rate will never be less than 4% per year compounded
annually. The Loan Account portion of your Policy Account Value may earn a
different interest rate than the remaining portion of your Policy Account Value
in the Guaranteed Account.
Deductions from the Guaranteed Account. We will deduct any transfers, partial
surrenders or any Policy expenses from the Guaranteed Account and your variable
investment options on a pro rata basis, unless you provide other directions. No
portion of the Loan Account may be used for this purpose.
The Loan Account will only increase or decrease in value when Policy loans are
taken or repayments are made. If an amount is transferred from the Loan Account
to the remaining portion of the Guaranteed Policy Account Value, it will be
treated as a new allocation to the Guaranteed Account and will be credited with
interest at the rate then in effect for Guaranteed Account allocations.
Payments from the Guaranteed Account. If we must pay any part of the proceeds
for a loan or partial surrender or surrender from the Guaranteed Account, we may
defer the payment for up to six months from the date we receive the written
request. If we defer payment from the Guaranteed Account for 30 days or more, we
will pay interest on the amount we deferred at a rate of 4% per year, compounded
annually, until we make payment.
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Investing Your Policy Account Value
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The Policy allows you to choose how to invest your Policy Account Value. Your
Policy Account Value will increase or decrease based on:
o The returns earned by the Subaccounts you select.
o Interest credited on amounts allocated to the Guaranteed Account.
We will determine your Policy benefits based upon your Policy Account Value. If
your Policy Account Value is insufficient, your Policy may terminate. If the Net
Cash Surrender Value on a monthly anniversary is less than the amount of that
date's monthly deduction, the Policy will be in default and a Grace Period will
begin.
Determining the Policy Account Value
On the Policy Date, your Policy Account Value is equal to your initial Net
Premium. If the Policy Date and the Issue Date are the same day, the Policy
Account Value is equal to your initial premium, less the premium expenses and
monthly deduction we deduct.
On each Valuation Date thereafter, your Policy Account Value is equal to:
o Your Policy Account Value held in the Subaccounts; and
o Your Policy Account Value held in Guaranteed Account.
Your Policy Account Value will reflect:
o the premiums you pay;
o the returns earned by the Subaccounts you select;
o the interest credited on amounts allocated to the Guaranteed Account;
o any loans or partial surrenders; and
o the Policy expenses we deduct.
Policy Account Value in the Subaccounts. We measure your Policy Account Value in
the Subaccounts by the value of the Subaccounts' accumulation units we credit to
your Policy. When you allocate premiums or transfer part of your Policy Account
Value to a Subaccount, we credit your Policy with accumulation units in that
Subaccount. The number of accumulation units equals the amount allocated to the
Subaccount divided by that Subaccount's accumulation unit value for the
Valuation Date when the allocation is effected.
The number of Subaccount accumulation units we credit to your Policy will:
o increase -- when Net Premium is allocated to the Subaccount, amounts are
transferred to the Subaccount and loan repayments are credited to the
Subaccount.
o decrease -- when the allocated portion of the monthly deduction is taken
from the Subaccount, a Policy loan is taken from the Subaccount, an amount
is transferred from the Subaccount, or a partial surrender, including the
partial surrender charges, is taken from the Subaccount.
Accumulation Unit Values. A Subaccount's accumulation unit value varies to
reflect the return of the portfolio, and may increase or decrease from one
Valuation Date to the next. We arbitrarily set the accumulation unit value for
each Subaccount at $10 when the Subaccount was established. Thereafter, the
accumulation unit value equals the accumulation unit value for the prior
Valuation Period multiplied by the net investment factor for the current
Valuation Period.
Net Investment Factor. The net investment factor is an index we use to measure
the investment return earned by a Subaccount during a Valuation Period. It is
based on the change in net asset value of the portfolio shares held by the
Subaccount, and reflects any dividend or capital gain distributions on the
portfolio shares and the deduction of the daily mortality and expense risk
charge.
Guaranteed Policy Account Value. On any Valuation Date, the Guaranteed Account
portion of your Policy's Account Value equals:
o the total of all Net Premium, allocated to the Guaranteed Account, plus
o any amounts transferred to the Guaranteed Account, plus
o interest credited on the amounts allocated and transferred to the
Guaranteed Account, less
o the amount of any transfers from the Guaranteed Account, less
o the amount of any partial surrenders, including the partial surrender
charges, taken from the Guaranteed Account, and less
o the allocated portion of the monthly deduction deducted from the Guaranteed
Account, plus
o the amount of the Loan Account If you take a Policy loan, we transfer the
amount of the loan to the Loan Account held in the Guaranteed Account. The
value of your Loan Account includes transfers to and from the Loan Account
as you take and repay loans, and interest credited on the Loan Account.
Net Policy Account Value. The Net Policy Account Value on a Valuation Date is
the Policy Account Value less Outstanding Loans on that date.
Cash Surrender Value. The Cash Surrender Value on a Valuation Date is the Policy
Account Value reduced by any surrender charge that would assessed if the Policy
were surrendered on that date.
[The amount you would receive on a Surrender of your Policy.]
Net Cash Surrender Value. The Net Cash Surrender Value on a Valuation Date is
equal to:
o the Cash Surrender Value, less
o the Outstanding Loan on that date.
Transfers
You may transfer Policy Account Value among the Subaccounts and to the
Guaranteed Account after the Period to Examine and Cancel. All transfer requests
must satisfy the following requirements:
o Minimum amount of transfer -- You must transfer at least $250 or, the
balance in the Subaccount or the Guaranteed Account, if less;
o Form of transfer request - Transfer requests must be in writing;
o Transfers from the Guaranteed Account -- The maximum you may transfer in a
Policy year is equal to 25% of your Guaranteed Policy Account Value that is
not in the Loan Account. Transfers may be made only during the 60-day
period within 30 days before and following the end of each Policy Year. The
amount transferred must be at least $250, or the Policy Account Value held
in the Guaranteed Account.
Date We Process Your Transfer Request. We must receive your transfer request at
our Administrative Office. We process transfers on the same date we receive your
transfer request. We may, however, defer transfers under the same conditions as
described in "When Proceeds Are Paid," page ___.
Number of Allowable Transfers/Transfer Fee. We do not currently limit the number
of transfers you may make. We will currently assess a $25 transfer fee, however,
for each transfer in excess of 12 during a Policy year. All transfers processed
on the same business day will count as one transfer for purposes of determining
the number of transfers you have made in a Policy year. Transfers in connection
with the Dollar Cost Averaging feature will not count against the 12 free
transfers in a Policy year. We reserve the right to increase or decrease the
number of "free" transfers allowed in any Policy year.
We will confirm transfer requests received by fax before processing them. You
should review all confirmations to determine if there have been any unauthorized
transfers.
Dollar Cost Averaging
Dollar Cost Averaging is a systematic method of investing at regular intervals.
By investing at regular intervals, the cost of the securities is averaged over
time and perhaps over various market cycles.
You may request Dollar Cost Averaging. Under this program we will automatically
transfer monthly a portion of your Money Market Subaccount Value into other
Subaccounts or the Guaranteed Account for a period not in excess of 24 months.
We will allocate the transfers based on your current Premium allocation
instructions. However, no less than 5% may be allocated to any one Subaccount or
to the Guaranteed Account. This option can be elected at any time provided there
is a minimum balance of $2000 in the Money Market Subaccount.
Dollar Cost Averaging From a Subaccount. If you instruct us to make the
transfers from the Money Market Subaccount, you may request that we transfer:
o A specified dollar amount -- we will automatically transfer this amount in
accordance with your most current premium allocation instructions for a
specified period until your Policy Account Value in the transferring Money
Market Subaccount is depleted.
o A specified number of months-- we will automatically transfer over a
specific number of months an amount equal to one divided by the number of
months remaining in the period. For example, if you elect to transfer over
a 12 month period, the first transfer will be 1/12 of your Money Market
Subaccount value, the second transfer will be for 1/11, the third transfer
will be for 1/10 and so on until the end of the requested period.
When we will Process your Automatic Transfers.
We will begin to process your automatic transfers:
o If you requested the automatic transfers when you applied for your Policy
-- on the first monthly anniversary following the end of the Period to
Examine and Cancel.
o If you elect the option after you applied for the Policy - on the second
monthly anniversary following the receipt of your request at our
Administrative Office.
We will stop processing automatic transfers if:
o The funds in the Money Market Subaccount are depleted;
o We receive you written request at our Administrative Office to cancel
future transfers;
o We receive notification of death of the Insured; or
o Your Policy goes into the Grace Period.
Dollar Cost Averaging may lessen the impact of market fluctuations on your
investment. Using Dollar Cost Averaging does not guarantee investment gains or
protect against loss in a declining market.
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Death Benefits
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Death Benefits
During the Policy term, we will pay the Death Benefits to the Beneficiary after
the Insured death. To make payment, we must receive at our Administrative
Office:
o Satisfactory proof of the Insured's death; and
o return of the Policy.
[The Beneficiary may receive the Death Beneftis in one lump sum or under any
other payment option.]
Payment of Death Benefit. We will pay the Death Benefit generally within seven
days after we receive the information we require. We will pay the Death Benefit
to the Beneficiary in one lump sum or, if elected, under a payment option.
Payment of the Death Benefit may also be affected by other provisions of the
Policy.
We will pay interest on the Life Insurance Proceeds from the date of the
Insured's death to the date of payment as required by applicable state law.
Amount of Death Benefit. We will determine the Death Benefit as of the date of
the Insured's death. The Death Benefit will equal:
o the death benefit amount determined according to the death benefit option
selected; plus
o any other benefits then due from riders to the Policy; minus
o the Outstanding Loan, if any, and accrued loan interest; minus
o any overdue monthly deductions if the Insured dies during a Grace Period.
Death Benefit Options
You may select from two death benefit options.
[Option I: Level Death Benefit Option]
They are: Option I - Level Death Benefit Option.
The basic death benefit will be the greater of:
(1) The Face Amount; or
(2) Policy Account Value at date of death multiplied by the appropriate
minimum death benefit factor
[Option II: Increasing Death Benefit Option]
Option II - Increasing Death Benefit Option
The basic death benefit will be the greater of:
(1) The Face Amount plus the Policy Account Value; or
(2) Policy Account Value at date of death multiplied by the appropriate
minimum death benefit factor.
Changes in Death Benefit Options
If you have selected Option I you may change to Option II. You may also change
from Option II to Option I.
[How to request a change.]
You may change your Death Benefit Option by providing your Agent with a written
request or by writing us at our Administrative Office. We may require that you
submit satisfactory evidence of insurability to us.
If you request a change from Option I to Option II, we will decrease the Face
Amount by an amount equal to Your Policy Account Value on the date the change
takes effect. However, we reserve the right to decline to make such a change if
it would reduce the Face Amount below the minimum Face Amount.
If you request a change from the Option II to Option I, we will increase the
Face Amount by an amount equal to your Policy Account Value on the date the
change takes effect. Such decreases and increases in the Face Amount are made so
that the Life Insurance Proceeds remain the same on the date the change takes
effect.
Once approved, we will issue new Policy information pages and attach a copy of
your Application for Change. The change will take effect at the beginning of the
Policy Month that coincides with or next follows the date we approve your
request. We reserve the right to decline to make any changes that we determine
would cause the Policy to fail to qualify as life insurance under our
interpretation of the Code.
The change will take effect on the next monthly anniversary that coincides with
or next follows the date we approve your request.
Changes in Face Amount
At any time after the first Policy anniversary while the Policy is in force you
may request a change in the Face Amount. We will not make a change in Face
Amount that causes your Policy to fail to qualify as life insurance under of the
Code.
Increases in Face Amount: Any request for an increase:
o Must be for at least $10,000.
o May not be requested in the same Policy year as another request for an
increase.
o May not be requested after the Insured is Attained Age 75.
A written application must be submitted to our Administration Office along with
satisfactory evidence of insurability. You must return the Policy so we can
amend the Policy to reflect the increase. The increase in Face Amount will
become effective on the monthly anniversary on or next following the date the
increase is approved, and the Policy Account Value will be adjusted to the
extent necessary to reflect a monthly deduction as of the effective date based
on the increase in Face Amount.
Decreases in Face Amount. Any request for a decrease:
o Must be at least $5,000.
o Must not cause the Face Amount after the decrease to be less than the
minimum Face Amount at which we would issue a Policy.
o During the first 5 Policy years, the Face Amount may not be decreased by
more than 10% of the initial Face Amount in any one Policy Year.
o No decrease may be made during the first 12 months following an increase in
Face Amount.
o If the Face Amount is decreased during the first 14 Policy years or within
14 Policy years of an increase in Face Amount, a surrender charge may be
applicable.
Consequences of a Change in Face Amount. Both increases and decreases in Face
Amount may impact the surrender charge. In addition, an increase or decrease in
Face Amount may impact the status of the Policy as a modified endowment
contract.
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Cash Benefits During the Insured's Life
- --------------------------------------------------------------------------------
During the life of the Insured, your Policy has cash benefits which you may
access within limits by taking loans, partial surrenders or a full surrender.
Policy Loans
You may request a loan against your Policy at any time after the first policy
year or after the first 12 months following an increase in Face Amount while the
Policy has a Net Cash Surrender Value. We limit the minimum and maximum amount
of loan you may take.
o Maximum Loan Amount
- After First Policy year -- The maximum loan amount is:
o 90% of Your Net Cash Surrender Value, less
o Any outstanding loans
o Minimum Loan Amount -- $500
[How to request a loan.]
You must submit a written request for a loan to the Administrative Office.
Policy loans will be processed as of the date we receive the request at our
Administrative Office. Loan proceeds generally will be sent to you within seven
days.
Interest. We charge interest daily on any Outstanding Loan at a declared annual
rate not in excess of 8%. The maximum net cost (the difference between the rate
of interest we charge on Policy loans and the amount we credit on the equivalent
amount held in the Loan Account) of a loan is 2% per year. Interest is due and
payable at the end of each Policy year while a Policy loan is outstanding. If
interest is not paid when due, the amount of the interest is added to the loan
and becomes part of the Outstanding Loan.
For Policy Years 11 and later, a portion of the loanable amount may be available
on a preferred loan basis. The amount available on a preferred basis is the
excess, if any, of the Policy Account Value over the sum of the Premiums paid.
For a preferred loan, the interest rate charged and credited to the preferred
portion of the loan value will be the same.
Loan Account. You may direct us to take an amount equal to the loan proceeds and
any amount attributed to unpaid interest from any Subaccount or from the
Guaranteed Account. Otherwise, we will withdraw this amount from each Account on
a pro rata basis. We transfer this amount to the Loan Account in the Guaranteed
Account.
When a loan is repaid, an amount equal to the repayment will be transferred from
the Loan Account to the Subaccounts and Guaranteed Account in accordance with
your allocation percentages in effect at the time of repayment.
Effect of Policy Loan. A Policy loan, whether or not repaid, will have a
permanent effect on the Life Insurance Proceeds and Policy Account Value because
the investment results of the Subaccounts and current interest rates credited in
the Guaranteed Account will apply only to the non-loaned portion of the Policy
Account Value. The longer the loan is outstanding, the greater this effect is
likely to be. Depending on the investment results of the Subaccounts or credited
interest rates for the Guaranteed Account while the Policy loan is outstanding,
the effect could be favorable or unfavorable.
In addition, loans from modified endowment contracts may be treated for tax
purposes as distributions of income.
If the Life Insurance Proceeds become payable while a Policy loan is
outstanding, the Outstanding Loan will be deducted in calculating the Life
Insurance Proceeds.
If the Outstanding Loan exceeds the Net Cash Surrender Value on any monthly
anniversary, the Policy will be in default. We will send you, and any assignee
of record, notice of the default. You will have a 61-day Grace Period to submit
a sufficient payment to avoid termination. The notice will specify the amount
that must be repaid to prevent termination.
Outstanding Loan. The Outstanding Loan on a Valuation Date equals:
o All Policy loans that have not been repaid (including past due unpaid
interest added to the loan), plus
o accrued interest not yet due.
Loan Repayment. You may repay all or part of your Outstanding Loan at any time
while the Insured is living an the Policy is in force. Loan repayments must be
sent to our Administrative Office and will be credited as of the date received.
[Requirements for Partial Surrenders.]
Partial Surrenders
You may request a partial surrender at any time after the first Policy
anniversary. No more than two partial surrenders may be made during a Policy
Year.
We may limit the minimum and maximum amount of Withdrawals.
o Maximum Partial Surrender Amount - 90% of our Policy's Net Cash Surrender
Value except that the withdrawal may not cause the Policy Face Amount to be
less than the required minimum Face Amount.
o Minimum Partial Surrender Amount -- $500
[How to request a partial surrender.]
You must submit a written request to our Administrative Office. We will reduce
your Policy Account Value by the partial surrender amount plus any applicable
charges. When you request a partial surrender, you may direct us to take the
requested amount from any Subaccount or from the Guaranteed Account. If the
Guaranteed Account or Subaccount value is insufficient to withdraw the amount
requested, we will withdraw the difference from the remaining Accounts on a pro
rata basis unless you have provided specific instructions to withdraw the amount
from one or several Accounts.
We will process partial surrender requests as of the date we receive your
written request at our Administrative Office. We will generally pay partial
surrenders within seven days.
Expenses for Partial Surrenders. We will deduct the applicable surrender charge
on a partial surrender. This charge will be deducted from your Policy Account
Value along with the amount requested to be surrendered and will be considered
part of the partial surrender (together, the "partial surrender amount").
Currently, we assess an administrative charge equal to the lesser of $25 or 2%
of the amount surrendered.
Effect of Partial surrender on your Face Amount. The Face Amount of your Policy
will also be reduced by the partial surrender amount if you selected Death
Benefit Option I.
We will reduce the Face Amount by the amount of the partial surrender in the
following order:
1. The most recent increase in the Face Amount, if any, will be reduced first.
2. The next most recent increases in the Face Amount, if any, will then be
successively decreased.
3. The initial Face Amount will then be decreased.
No partial surrender may be made that would reduce the Face Amount below the
minimum Face Amount.
Partial surrenders from your Policy may have tax consequences.
Surrendering the Policy for Net Cash Surrender Value
You may surrender your Policy at any time for its Net Cash Surrender Value by
submitting a written request to our Administrative Office. We will require
return of the Policy. A surrender charge may apply. We will process a surrender
request as of the date we receive your written request and all required
documents. Your surrender request generally will be paid within seven days. The
Net Cash Surrender Value may be taken in one sum or it may be applied to a
payment option. Your Policy will terminate and cease to be in force if it is
surrendered for one sum. It cannot later be reinstated.
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Payment Options for Benefits
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The Company offers a wide variety of optional ways of receiving proceeds payable
under the Policy, such as on a surrender or death, other than in a lump sum. Any
agent authorized to sell this Policy can explain these options upon request.
None of these options vary with the investment performance of a separate account
because they are all forms of guaranteed benefit payments.
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Expenses of the Policy
- --------------------------------------------------------------------------------
Periodically, we will deduct expenses related to your Policy. We will deduct
these:
o from premiums, Policy Account Value and from Subaccount assets; and
o upon certain transactions.
The amount of these expenses are described in your Policy as either guaranteed
or current. We will never charge more than the guaranteed amount. We may in our
discretion deduct on a current basis less than the guaranteed amount.
Deductions From Premiums
We will deduct 5% plus a state specific percent of premium from each premium
payment. This charge is intended to provide for state premium taxes, DAC taxes
and for other expenses associated with acquiring and servicing a Policy.
Monthly Deductions From Policy Account Value
On the Policy Date and each monthly anniversary thereafter, we make a deduction
from the Policy Account Value. On the Issue Date the amount deducted is for the
Policy Date and any monthly anniversaries that have elapsed since the Policy
Date. For this purpose, the Policy Date is treated as a monthly anniversary. We
will deduct on each monthly anniversary charges for:
o The administration of your Policy.
o The acquisition and underwriting costs of your Policy.
o The cost of insurance for your Policy.
o The cost of any supplemental benefits or riders.
We will take the monthly deductions from your Policy Account Value and from each
Subaccount on a pro rata basis.
Administrative Charge.
This charge compensates us for administrative expenses associated with the
Policy and the Separate Account. The Policy refers to these expenses as the
Monthly Expense Charge and the Additional First Year Administrative Charge.
Monthly Expense Charge. We will make a deduction from your Policy Account Value
for expenses such premium billing and collection, record keeping, processing
claims, Policy loans, Policy changes, reporting and overhead costs, processing
applications and establishing Policy records associated with the administration
of your Policy. This charge will vary based on the Policy Face Amount.
The chart below reflects the current and guaranteed monthly expense charges:
Current Guaranteed
Monthly Expense Charge Per Policy Charge Charge
If the Face Amount is between $50,000 and $199,999 $ 7.50 $ 15.00
If the Face Amount is between $200,000 and $499,999 $ 5.00 $ 10.00
If the Face Amount is $500,000 or greater $ 4.00 $ 10.00
First Year Additional Charge $ 20.00 $ 25.00
First Year Administrative Charge. There is an additional monthly expense charge
during the first Policy Year and following an increase in Face Amount for our
expenses associated with the acquisition and underwriting of your Policy. We
deduct a monthly charge, not to exceed $25, during the first 12 months after the
Policy Date and the 12 months immediately following a Face Amount increase.
Cost of Insurance Charge. This charge compensates us for providing insurance
coverage. The charge depends on a number of factors, such as Attained Age, sex
and rate class of the Insured, and therefore will vary from Policy to Policy and
from month to month. For any Policy the cost of insurance on a monthly
anniversary is calculated by multiplying the cost of insurance rate for the
Insured by the Net Amount at Risk under the Policy on that monthly anniversary.
[Net Amount at Risk.]
The Net Amount at Risk is calculated as (a) minus (b) where:
(a) is the current Life Insurance Proceeds at the beginning of the Policy month
divided by 1.0032737; and (b) is the current total Policy Account Value.
Rate Classes for Insureds. We currently rate Insureds in one of following basic
rate classifications, based on our underwriting:
o non-smoker standard
o smoker
o substandard for those involving a higher mortality risk
We place the Insured in a rate class when we issue the Policy based on our
underwriting determination. This original rate class applies to the initial Face
Amount. When an increase in Face Amount is requested, we conduct underwriting
before approving the increase (except as noted below) to determine whether a
different rate class will apply to the increase. If the rate class for the
increase has a lower guaranteed cost of insurance rates than the original rate
class, the rate class for the increase also will be applied to the initial Face
Amount. If the rate class for the increase has a higher guaranteed cost of
insurance rates than the original rate class, the rate class for the increase
will apply only to the increase in Face Amount, and the original rate class will
continue to apply to the initial Face Amount.
If there have been increases in the Face Amount, we may use different cost of
insurance rates for the increased portions of the Face Amount. For purposes of
calculating the cost of insurance charge after the Face Amount has been
increased, the Policy Account Value will be applied to the initial Face Amount
first and then to any subsequent increases in Face Amount. If at the time an
increase is requested, the Policy Account Value exceeds the initial Face Amount
(or any subsequently increased Face Amount) divided by 1.0032737, the excess
will then be applied to the subsequent increase in Face Amount in the sequence
of the increases.
In order to maintain the Policy in compliance with Section 7702 of the Code,
under certain circumstances an increase in Policy Account Value will cause an
automatic increase in the Life Insurance Proceeds. The Attained Age and rate
class for such increase will be the same as that used for the most recent
increase in Face Amount (that has not been eliminated through a subsequent
decrease in Face Amount).
The guaranteed cost of insurance charges at any given time for a substandard
policy with flat extra charges will be based on the guaranteed maximum cost of
insurance rate for the policy (including table rating multiples, if applicable),
the current Net Amount at Risk at the time the deduction is made, plus the
actual dollar amount of the flat extra charge. Our current cost of insurance
rates may be less than the guaranteed rates. Our current cost of insurance rates
will be determined based on our expectations as to future mortality, investment,
expense and persistency experience. These rates may change from time to time. In
our discretion, the current charge may be increased in any amount up to the
maximum guaranteed charge shown in the table.
Cost of insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker risk class are generally lower than rates for an Insured of the same
age and sex in a smoker risk class. Cost of insurance rates (whether guaranteed
or current) for an Insured in a nonsmoker or smoker risk class are generally
lower than rates for an Insured of the same age and sex and smoking status in a
substandard risk class.
Legal Considerations Relating to Sex-Distinct Premiums and Benefits. Mortality
tables for the Policy generally distinguish between males and females. Thus,
premiums and benefits under the Policy covering males and females of the same
age will generally differ. We do, however, also offer the Policy based on unisex
mortality tables if required by state law. Employers and employee organizations
considering purchase of a Policy should consult their legal advisers to
determine whether purchase of a Policy based on sex-distinct actuarial tables is
consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Upon request, we may offer the Policy with unisex mortality tables to such
prospective purchasers.
Deduction From Subaccount Assets
Mortality and Expense Risk Charge. We deduct a daily charge from your Policy
Account Value in the Subaccounts for assuming certain mortality and expense
risks under the Policy. This charge does not apply to the amounts you allocate
to the Guaranteed Account. The guaranteed and current charge is at an annual
rate of 0.90% of the Subaccount assets. Although, the charge may be decreased to
not less than 0.50% in Policy Years 11 and later, it is guaranteed not to exceed
an annual rate of 0.90% of your Policy Account Value in the Subaccounts for the
duration of a Policy.
The mortality risk we assume is that the Insureds under a Policy may die sooner
than anticipated, and therefore we will pay an aggregate amount of Life
Insurance Proceeds greater than anticipated. The expense risk we assume is that
expenses incurred in issuing and administering all Policies and the Separate
Account will exceed the amounts realized from the administrative charges
assessed against all Policies.
Deductions Upon Policy Transactions
Transfer Charge. We currently impose a $25 transfer charge on any transfer of
Policy Account Value among the Subaccounts and the Guaranteed Account in excess
of the 12 free transfers permitted each Policy year. When we impose the charge,
we deduct it from the amount requested to be transferred before allocation to
the new Subaccount(s). We will show the transfer charge in the confirmation of
the transaction.
Surrender Charge. If the Policy is surrendered or there is a decrease in Face
Amount during the first 14 Policy years, we will deduct a surrender charge based
on the initial Face Amount. If a Policy is surrendered or there is a decrease in
Face Amount within 14 years after an increase in Face Amount, we will deduct a
surrender charge based on the amount by which the Face Amount had been
increased. The surrender charge will be deducted before any surrender proceeds
are paid.
Surrender Charge Calculation. In general, the surrender charge is based on the
premiums you pay. The Surrender Charge will be no greater than the product of
(1) times (2) times (3) where:
(1) is equal to 25% of the first year paid premium up to the surrender charge
premium (see Appendix B); and (2) is equal to 4% of the first year paid premium
in excess of the surrender charge premium; and (3) is equal to the Policy
duration factor as described in the following table:
<PAGE>
Policy Policy Duration
Duration Factor
1 100%
2 100%
3 100%
4 100%
5 100%
6 90%
7 80%
8 70%
9 60%
10 50%
11 40%
12 30%
13 20%
14 10%
15+ 0%
Surrender Charge Based On An Increase Or Decrease In Face Amount. If you
increase the Face Amount of the Policy, we will impose an additional surrender
charge during the 14 Policy years immediately following the increase. The
additional surrender charge period will begin on the effective date of the
increase. If you reduce the Face Amount of the Policy before the end of the 14th
Policy year or within 14 years immediately following a Face Amount increase, we
may also deduct a pro rata share of any applicable surrender charge from your
Policy Account Value. Reductions will first be applied against the most recent
increase in the Face Amount of the Policy. If you have made several increases in
Face Amount, we will apply the surrender charge to prior increases in Face
Amount of the Policy in the reverse order in which such increases took place,
before applying the additional surrender charges to the initial Face Amount of
the Policy.
Partial Surrender Charges. We may deduct a partial surrender charge:
o upon a partial surrender; and
o If you decreased your Policy Face Amount.
The amount of the partial surrender charge is equal to a pro rata portion of the
surrender charge that would apply to a full surrender. We deduct the partial
surrender charge, proportionately, from the Subaccounts or the Guaranteed
Account affected by your partial surrender.
Partial Surrender Charge Due to A Decrease in Face Amount. We will deduct an
amount equal to the applicable surrender charge multiplied by a fraction (equal
to the decrease in Face Amount divided by the Face Amount of the Policy prior to
the decrease).
Partial Surrender Administrative Charge. We currently deduct an administrative
charge of $25 upon a partial surrender. In certain states the charge may be the
lesser of $25 or 2% of the amount surrendered.
Discount Purchase Programs
The amount of the surrender charge and other charges under the Policy may be
reduced or eliminated when sales of the Policy are made to groups of individuals
in a manner that in our opinion results in expense savings. For purchases made
by officers, directors and employees of the Company, an affiliate, or any
individual, firm, or a company that has executed the necessary agreements to
sell the Policy, and members of the immediate families of such officers,
directors, and employees, we may reduce or eliminate the surrender charge. Any
variation in charges under the Policy, including the surrender charge,
administrative charge or mortality and expense risk charge, will reflect
differences in costs or services and will not be unfairly discriminatory.
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Supplemental Benefits and Riders
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We intend to make available certain supplemental benefits and riders which may
be issued with the Policy. Any monthly charges for these supplemental benefits
and riders, as listed below, will be deducted from the Policy Account Value.
Accelerated Benefit Rider (ABR)
Accidental Death Benefit Rider (ADB)
Guaranteed Minimum Death Benefit (GMDB)
Child's Term Rider (CTR)
Other Insured Term Rider (OIR)
Primary Insured Term Rider (PIR)
Waiver of Monthly Deductions (WMD)
Waiver of Specified Premium (WSP)
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Other Policy Provisions
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Right to Exchange or Convert
You may exchange or convert this Policy to a flexible premium fixed benefit life
insurance policy on the life of the Insured, without evidence of insurability.
This exchange may be made:
(a) within 24 months after the Issue Date while the Policy is in force;
(b) within 24 months of any increase in Face Amount of the Policy; or
(c) within 60 days of the effective date of a material change in the investment
policy of a Subaccount, or within 60 days of the notification of such
change, if later. In the event of such a change, we will notify you and
give you information on the options available.
When an exchange or conversion is requested, we accomplish the exchange by
transferring all of the Policy Account Value to the Guaranteed Account. There is
no charge for this transfer. Once this option is exercised, the entire Policy
Account Value must remain in the Guaranteed Account for the remaining life of
the new policy. The Face Amount in effect at the time of the exchange will
remain unchanged. The Effective Date, Issue Date and Issue Age of the Insured
will remain unchanged. The Owner and Beneficiary are the same as were recorded
immediately before the exchange.
Limits on our Rights to Contest the Policy
Incontestability. We will not contest the Policy after it has been in force
during the Insured's lifetime for two years from the Issue Date. Any increase in
the Face Amount will be incontestable with respect to statements made in the
evidence of insurability for that increase after the increase has been in force
during the life of the Insured for two years after the effective date of the
increase.
Suicide Exclusion. If the Insured commits suicide (while sane or insane) within
two years (unless otherwise specified by state law) after the Issue Date, our
liability will be limited to the payment of a single sum. This sum will be equal
to the premiums paid, minus any loan and accrued loan interest and minus any
partial surrender and minus the cost of any riders attached to the Policy. If
the Insured commits suicide (while sane or insane) within two years (unless
otherwise specified by state law) after the effective date of an increase in the
Face Amount, then our liability as to the increase in amount will be limited to
the payment of a single sum equal to the monthly cost of insurance deductions
made for such increase plus the expense charge deducted for the increase.
Changes in the Policy or Benefits
Misstatement of Age or Sex.
If an Insured's age or sex has been misstated in the Policy, the Life Insurance
Proceeds and any benefits provided by riders shall be those which would be
purchased at the then current cost of insurance charge for the correct age and
sex.
Other Changes. At any time we may make such changes in the Policy as are
necessary to assure compliance at all times with the definition of life
insurance prescribed by the Code or to make the Policy conform with any law or
regulation issued by any government agency to which it is subject.
When Proceeds Are Paid
We will ordinarily pay any Life Insurance Proceeds, loan proceeds or partial or
full surrender proceeds within seven days after receipt at our Administrative
Office of all the required documents. Other than the Life Insurance Proceeds,
which are determined as of the date of death, the amount will be determined as
of the date we receive the required documents. However, we may delay making a
payment or processing a transfer request if:
(1) the New York Stock Exchange is closed for other than a regular holiday or
weekend, trading is restricted by the SEC, or the SEC declares that an
emergency exists; or
(2) the SEC by order permits postponement of payment for your protection.
In addition we may delay making deductions from the Guaranteed Account.
Reports to Owners
You will receive a confirmation within seven days of the transaction of:
o the receipt of any unplanned premium (and any premium received before the
Issue Date);
o any change of allocation of premiums;
o any transfer among Subaccounts;
o any loan, interest repayment, or loan repayment;
o any partial surrender;
o any return of premium necessary to comply with applicable maximum receipt
of any premium payment;
o any exercise of your right to cancel;
o an exchange of the Policy;
o full surrender of the Policy; or
o payment of the Life Insurance Proceeds under the Policy.
Within 30 days after each Policy anniversary we will send you a statement. The
statement will show the Life Insurance Proceeds currently payable, and the
current Policy Account Value, Cash Surrender Value, and the Outstanding Loan.
The statement will also show premiums paid, all charges deducted during the last
Policy year, and all transactions. We will also send to you reports of the
investments within the Separate Account at least annually.
Assignment
You may assign the Policy in accordance with its terms on a form provided by us.
We will not be deemed to know of an assignment unless we receive a copy of this
assignment form at our Administrative Office. We assume no responsibility for
the validity or sufficiency of any assignment. Any assignment or pledge of a
modified endowment contract as collateral for a loan may result in a taxable
event.
Reinstatement
If the Policy has ended without value, you may reinstate Policy benefits while
the Insured is alive if you:
1. Request reinstatement of Policy benefits within three (3) years (unless
otherwise specified by state law) from the end of the Grace Period;
2. Provide evidence of insurability satisfactory to us;
3. Make a payment of an amount sufficient to cover (i) the total monthly
administrative charges from the beginning of the Grace Period to the
effective date of reinstatement; (ii) total monthly deductions for three
(3) months, calculated from the effective date of reinstatement; and (iii)
the premium expense charge and any increase in surrender charges associated
with this payment. We will determine the amount of this required payment as
if no interest or investment performance were credited to or charged
against your Policy Account Value; and
4. Repay or reinstate any Policy loan which existed on the date the Policy
ended.
The effective date of the reinstatement of Policy benefits will be the next
monthly anniversary which coincides with or next follows the date we approve
your request. From the required payment we will deduct the premium expenses. The
Policy Account Value, Policy loan and surrender charges that will apply upon
reinstatement will be those that were in effect on the date the Policy lapsed.
We will start to make monthly deductions again as of the effective date of
reinstatement. The monthly expense charge from the beginning of the Grace Period
to the effective date of reinstatement will be deducted from the Policy Account
Value as of the effective date of reinstatement. No other charges will accrue
for this period.
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Performance Information
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From time to time we may advertise the "total return" and the "average annual
total return" of the Subaccounts and the Funds. Both total return and average
total return figures are based on historical earnings and are not intended to
indicate future performance.
"Total Return" for a portfolio refers to the total of the income generated by
the portfolio net of total portfolio operating expenses plus capital gains and
losses, realized or unrealized. "Total Return" for the Subaccounts refers to the
total of the income generated by the portfolio net of total portfolio operating
expenses plus capital gains and losses, realized or unrealized, and the
mortality and expense risk charge. "Average Annual Total Return" reflects the
hypothetical annually compounded return that would have produced the same
cumulative return if a Fund's portfolio or Subaccount's performance had been
constant over the entire period. Because average annual total returns tend to
smooth out variations in the return of the portfolio, they are not the same as
actual year-by-year results.
The performance information set forth in Appendix D reflects the total of the
income generated by the portfolio net of the total portfolio operating expenses,
plus capital gains and losses, realized or unrealized. The performance results
do not reflect: monthly deductions; cost of insurance; surrender charges; sales
loads; DAC taxes; and any state or local premium taxes. If these charges were
included, the total return figures would be lower.
Performance information may be compared, in reports and promotional literature,
to: (i) the Standard & Poor's 500 Stock Index ("S & P 500"), Dow Jones
Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other
unmanaged indices so that investors may compare the Subaccount results with
those of a group of unmanaged securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
variable life separate accounts or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds and other investment products by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons, such as Morningstar, Inc., who rank such investment products on
overall performance or other criteria; or (iii) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Subaccount. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses. We may provide in advertising, sales literature, periodic publications
or other materials information on various topics of interest to Owners and
prospective Owners. These topics may include the relationship between sectors of
the economy and the economy as a whole and its effect on various securities
markets, investment strategies and techniques (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer and
account rebalancing), the advantages and disadvantages of investing in
tax-deferred and taxable investments, customer profiles and hypothetical
purchase and investment scenarios, financial management and tax and retirement
planning, and investment alternatives to certificates of deposit and other
financial instruments, including comparisons between the Policy and the
characteristics of and market for such financial instruments.
Total return data may be advertised based on the period of time that the
portfolios have been in existence. The results for any period prior to the
Policy being offered will be calculated as if the Policy had been offered during
that period of time, with all charges assumed to be those applicable to the
Policy. Performance information for any Subaccount in any advertising will
reflect only the performance of a hypothetical investment in the Subaccount
during the particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio in which
the Subaccount invests and the market conditions during the given time period,
and should not be considered as a representation of what may be achieved in the
future. Actual returns may be more or less than those shown in any advertising
and will depend on a number of factors, including the investment allocations by
an Owner and the different investment rates of return for the portfolios.
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Federal Income Tax Considerations
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The following summarizes the current federal income tax law that applies to life
insurance in general. This summary does not cover all situations. This summary
is based upon our understanding of the current federal income tax laws and
current interpretations by the Internal Revenue Service. We cannot predict
whether the Code will change. You should speak to a competent tax adviser to
discuss how the purchase of a Policy and the transactions you make under the
Policy will impact your federal tax liability.
Tax Status of the Policy
A Policy has certain tax advantages when it is treated as a "life insurance
contract" under the Code. We believe that the Policy meets the definition of a
life insurance contract under Section 7702 of the Code. You bear the risk that
the Policy may not meet the definition of a life insurance contract. You should
consult your own tax advisers to discuss these risks.
The Company
We are taxed as a life insurance company under the Code. For federal tax
purposes, the Separate Account and its operations are considered to be part of
our operations and are not taxed separately.
Diversification and Investor Control
The Code requires that we diversify the investments underlying variable
insurance contracts. If the investments are not properly diversified and any
remedial period has passed, Section 817(h) of the Code provides in general the
contract is immediately disqualified from treatment as a life insurance contract
for federal income tax purposes. Disqualification of the Policy as a life
insurance contract would result in taxable income to you at the time that we
allocate any earnings to your Policy. You would have taxable income even though
you have not received any payments under the Policy. To the extent that any
segregated asset account with respect to a variable life insurance contract
invests exclusively in securities issued by the U.S. Treasury, the
diversification standard is satisfied. A segregated asset account underlying
life insurance contracts such as the Policy will also meet the diversification
requirements if, as of the close of each quarter:
o the regulated investment companies in which the segregated asset account
invest satisfy the diversification requirements described below; and
o not more than 55 percent of the value of the assets of the account are
attributable to cash and cash items (including receivables), Government
securities and securities of other regulated investment Companies.
Alternatively, the diversification requirements may be met for each if:
o no more than 55% of the value of the total assets of the portfolio is
represented by any one investment;
o no more than 70% of the value of the total assets of the portfolio is
represented by any two investments;
o no more than 80% of the value of the total assets of the portfolio is
represented by any three investments; and
o no more than 90% of the value of the total assets of the portfolio is
represented by any four investments.
There are several ways for investments to meet the diversification requirements.
Generally, each United States government agency or instrumentality is treated as
a separate issuer under these rules.
All securities of the same issuer are generally treated as a single investment.
We intend that each portfolio in which the Subaccounts invest will be managed by
its investment adviser in compliance with these diversification requirements. A
variable life insurance policy could fail to be treated as a life insurance
contract for tax purposes if the owner of the policy has such control over the
investments underlying the policy (e.g., by being able to transfer values among
subaccounts with only limited restrictions) so as to be considered the owner of
the underlying investments. There is some uncertainty on this point because no
guidelines have been issued by the Treasury Department. If and when guidelines
are issued, we may be required to impose limitations on you're rights to control
investment designations under the Policy. We do not know whether any such
guidelines will be issued or whether any such guidelines would have retroactive
effect. We, therefore, reserve the right to make changes that we deem necessary
to insure that the Policy qualifies as a life insurance contract.
Tax Treatment of the Policy
Section 7702 of the Code sets forth a detailed definition of a life insurance
contract for federal tax purposes. The Treasury Department has not issued final
regulations so that the extent of the official guidance as to how Section 7702
is to be applied is quite limited. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, that Policy would not qualify
for the favorable tax treatment normally provided to a life insurance contract.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes that such a Policy should meet the Section 7702 definition of a
life insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a premium
class involving higher than standard mortality risk), there is less certainty,
in particular as to how the mortality and other expense requirements of Section
7702 are to be applied in determining whether such a Policy meets the definition
of a life insurance contract set forth in section 7702. Thus, it is not clear
that such a Policy would satisfy Section 7702, particularly if the you pay the
full amount of premiums permitted under the Policy.
If subsequent guidance issued under Section 7702 leads us to conclude that a
Policy does not (or may not) satisfy Section 7702, we will take appropriate and
necessary steps for the purpose of bringing the policy into compliance, but we
can give no assurance that it will be possible to achieve that result. We
expressly reserve the right to restrict Policy transactions if we determine such
action to be necessary to qualify the Policy as a life insurance contracts under
Section 7702.
Tax Treatment of Policy Benefits In General
This discussion assumes that each Policy will qualify as a life insurance
contract for federal income tax purposes under Section 7702. The Life Insurance
Proceeds under the Policy should be excluded from the taxable gross income of
the Beneficiary. In addition, the increases in a Policy's Policy Account Value
should not be taxed until there has been a distribution from the Policy such as
a surrender, partial surrender or lapse with loan. Pre-Death Distribution
The tax treatment of any distribution you receive before the Insured's death
depends on whether the Policy is classified as a modified endowment contract.
Policies Not Classified as Modified Endowment Contracts
o If you surrender the Policy or allow it to lapse, you will not be taxed
except to the extent the amount you receive is in excess of the premiums
you paid less the untaxed portion of any prior withdrawals. For this
purpose, you will be treated as receiving any portion of the cash surrender
value Policy debt. The tax consequences of a surrender may differ if you
take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premiums you paid for the Policy less the untaxed
portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Policy years, all or a portion of a
withdrawal may be taxed if the cash value exceeds the total premiums paid
less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums
o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the Policy for the purposes of determining
whether a withdrawal is taxable.
o Loans you take against the Policy are ordinarily treated as debt and are
not considered distributions subject to tax.
Modified Endowment Contracts
o The rules change if the Policy is classified as a modified endowment
contract (or "MEC"). The Policy could be classified as a MEC if premiums
substantially in excess of scheduled premiums are paid or a decrease in the
face amount of insurance is made (or a rider removed). The addition of a
rider or an increase in the face amount of insurance may also cause the
Policy to be classified as a MEC. The rules on whether a Policy will be
treated as a MEC are very complex and cannot be fully described in this
summary. You should consult a qualified tax adviser to determine whether a
Policy transaction will cause the Policy to be classified as a MEC. We will
monitor your Policy and will take steps reasonably necessary to notify you
on a timely basis if your Policy is in jeopardy of becoming a MEC.
o If the Policy is classified as a MEC, then amounts you receive under the
Policy before the Insured's death, including loans and withdrawals, are
included in income to the extent that the cash value before surrender
charges exceeds the premiums paid for the Policy increased by the amount of
any loans previously included in income and reduced by any untaxed amounts
previously received other than the amount of any loans excludable from
income. An assignment of a MEC is taxable in the same way. These rules also
apply to pre-death distributions, including loans, made during the two-year
period before the time that the Policy became a MEC.
o Any taxable income on pre-death distributions (including full surrenders)
is subject to a penalty of 10% unless the amount is received on or after
age 59 1/2, on account of your becoming disabled or as a life annuity. It
is presently unclear how the penalty tax provisions apply to the Policies
owned by businesses.
o All MECs issued by us to you during the same calendar year are treated as a
single Policy for purposes of applying these rules.
Interest on Policy Loans. Except in special circumstances, interest paid on a
loan under a Policy which is owned by an individual is treated as personal
interest under the Code and thus will not be tax deductible. In addition, the
deduction of interest that is incurred on any loan under a Policy owned by a
taxpayer and covering the life of any individual who is an officer or employee
of or who is financially interested in the business carried on by that taxpayer
may also be subject to certain restrictions set forth in Section 264 of the
Code. Before taking a Policy loan, you should consult a tax adviser as to the
tax consequences of such a loan.
(Also Section 264 of the Code may preclude business Owners from deducting
premium payments.)
Policy Exchanges and Modifications. Depending on the circumstances, the exchange
of a Policy, a change in the Policy death benefit option, a Policy loan, a
partial surrender, a surrender, a change in owners or an assignment of the
Policy may have federal income tax consequences. In addition, the federal, state
and local transfer, and other tax consequences of ownership or receipt of Policy
proceeds will depend on the circumstances of each Owner or Beneficiary.
Withholding. We are required to withhold federal income taxes on the taxable
portion of any amounts received under the Policy unless you elect to not have
any withholding or in certain other circumstances. You are not permitted to
elect out of withholding if you do not provide a social security number or other
taxpayer identification number. Special withholding rules apply to payments made
to non-resident aliens.
You are liable for payment of federal income taxes on the taxable portion of any
amounts received under the Policy. You may be subject to penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
Generation Skipping Transfer Tax. A transfer of the Policy 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.
Contracts Issued in Connection With Tax Qualified Pension Plans. Prior to
purchase of a Policy in connection with a qualified plan, you should examine the
applicable tax rules relating to such plans and life insurance thereunder in
consultation with a qualified tax adviser.
Possible Charge for the Company's Taxes
At the present time, we do not deduct any charges for any federal state or local
income taxes. However, we do currently deduct charges for state and federal
premium based taxes and the federal DAC tax. We reserve the right in the future
to deduct a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to the
Separate Account or to the Policy.
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Distribution of the Policy
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The Policy is sold by licensed insurance agents, where the Policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The Policy will be distributed through the principal underwriter for the
Separate Account, AIG Equity Sales Corp. (AIGESC) 70 Pine Street, New York, New
York, an affiliate of ours. AIGESC may also enter into selling agreements with
other broker dealers that will offer the policy.
Commissions may be paid to registered representatives based on premiums paid for
Policies sold. Other expense reimbursements, allowances, and overrides may also
be paid. Registered representatives who meet certain productivity and
profitability standards may be eligible for additional compensation. Additional
payments may be made for administrative or other services not directly related
to the sale of the Policies.
Other Policies Issued by the Company
The Company may offer other policies similar to those offered herein.
<PAGE>
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About Us and the Accounts
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The Company
[We are a member of the American International Group, Inc].
AIG Life Insurance Company is a stock life insurance company operating under the
laws of the State of Delaware. It was incorporated in 1962. We provide a full
range of individual and group life, disability, accidental death and
dismemberment policies and annuities. We are a subsidiary of American
International Group, Inc., which is a 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.
[Year 2000.]
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the year 2000, causing
disruption of our operations and of our lessees, vendors, or business partners.
We have developed a plan to address the Year 2000 issue as it affects our
internal IT and non-IT systems, and to assess Year 2000 issues relating to third
parties with whom we have critical relationships.
Our plan for addressing internal systems includes:
o an assessment of internal IT and non-IT systems and equipment affected by
the Year 2000 issue;
o definition of strategies to address affected systems and equipment;
o remediation of identified affected systems and equipment; and
o internal certification that each internal system is Year 2000 compliant.
We have remediated, tested and returned to production substantially all of our
internal IT systems. We continue to remediate and test internal non-IT systems
and expect to complete our remediation by mid-1999.
We have also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with us. Currently, we
are unable to ascertain whether all such third parties will successfully address
the Year 2000 issue, particularly those third parties outside the United States
where it is believed that remediation efforts relating to the Year 2000 issue
may be less advanced. While we expect to have no interruption of operations as a
result of internal IT and non-IT systems, significant uncertainties remain about
the effect on us of third parties who are not Year 2000 compliant. We will
continue to monitor third party Year 2000 issue readiness to determine whether
additional or alternative measures may be necessary. Such measures may include
selecting alternate third parties or other actions designed to mitigate the
effects of a third party's lack of preparedness. There can be no assurance that
unresolved Year 2000 issues of third parties will not have a material adverse
impact on our results of operations, financial condition or liquidity. We are
considering the effects of Year 2000 related failures on our business and, as
the most reasonably likely worst case scenarios become more clearly identified,
we will develop appropriate contingency plans.
The funds, like other third parties, may not have resolved their Year 2000
issues that may have a material adverse impact on your contract values as well
as our operations and we cannot assure that they will. Please refer to Year 2000
discussions in each fund's prospectus.
The Separate Account
We established the Separate Account as a separate investment account on June 5,
1986. It may be used to support the Policy and other variable life insurance
policies, and used for other permitted purposes. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the federal securities laws and qualifies as a "separate account"
within the meaning of these laws.
[Although you may have allocated your Policy Account Values to the Subaccounts,
you do not own these assets. You only own your Policy.]
We own the assets in the Separate Account. The Separate Account is divided into
Subaccounts. The Subaccounts available under the Policy invest in shares of a
specific portfolio of the AIM Variable Insurance Funds, Alliance Variable
Products Series, Dreyfus Stock Index Fund, Dreyfus Variable Investment Funds,
Fidelity Variable Insurance Products I, Fidelity Variable Insurance Products II,
and Van Eck Worldwide Insurance Trust. The Separate Account may include other
Subaccounts which are not available under the Policy.
Income, gains and losses, realized or unrealized, of a Subaccount are credited
to or charged against the Subaccount without regard to any of our other income,
gains or losses. Assets equal to the reserves and other contract liabilities
with respect to each Subaccount are not chargeable with liabilities arising out
of any of our other businesses or separate accounts. If the assets exceed the
required reserves and other liabilities, we may transfer the excess to our
general account. We are obligated to pay all benefits provided under the Policy.
[Rights we have reserved.]
We have reserved certain rights regarding the Separate Account. We will exercise
these rights only in compliance with all applicable regulatory requirements. We
have the right to:
o Change, add or delete designated investment options.
o Add or remove Subaccounts.
o Withdraw assets of a class of policies to which the Policy belongs from a
Subaccount and put them in another Subaccount.
o Combine any two or more Subaccounts.
o Register other separate accounts or deregister the Separate Account with
the Securities and Exchange Commission.
o Run the Separate Account under the direction of a committee, and discharge
such committee at any time.
o Restrict or eliminate any voting rights of Owners, or other persons who
have voting rights as to the Separate Account.
o Operate the Separate Account or one or more of the Subaccount making direct
investments or in any other form. If we do so, we may invest the assets of
the Separate Account or one or more of the Subaccounts in any investments
that are legal, as determined by our own or outside counsel.
We will not change an investment adviser or any investment of a Subaccount of
our Separate Account unless approved by the Commissioner of Insurance of the
State of Delaware or deemed approved in accordance with such law or regulation.
Any approval process is on file with the insurance supervisory official of the
jurisdiction in which this Policy is delivered.
If any change we make results in a material change in the underlying investments
of a Subaccount, we will notify you of such a change. If you have value in that
Subaccount:
o We will transfer it at your written direction from that Subaccount (without
charge) to another Subaccount or to the Guaranteed Account, and
o You may then change your premium allocation percentages
Voting Rights
We are the legal owner of shares held by the Subaccounts and as such have the
right to vote on all matters submitted to shareholders of the portfolios.
However, as required by law, we will vote shares held in the Subaccounts at
regular and special meetings of shareholders of the portfolios in accordance
with instructions we receive from Owners with Policy Account Value in the
Subaccounts. If allowed by law or required by law we may vote shares of the
portfolios without obtaining instructions or in disregard to instructions we
have received. If we ever disregard voting instructions, we will advise you of
that action and our reasons for such action in the next semiannual report.
The Guaranteed Account
The Guaranteed Account is an account within the general account of the Company.
Our general account assets are used to support our insurance and annuity
obligations other than those funded by separate accounts. Subject to applicable
law, we have sole discretion over the investment of the assets of the general
account.
We have not registered:
o Interests in the Guaranteed Account under the Securities Act of 1933, and
o the Guaranteed Account as an investment company.
The staff of the Securities and Exchange Commission has not reviewed our
disclosure on the Guaranteed Account. Our disclosure regarding the Guaranteed
Account must comply with generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
- --------------------------------------------------------------------------------
Our Directors and Executive Officers
- --------------------------------------------------------------------------------
The directors and principal officers of the Company are listed below with their
current principal business affiliation and their principal occupations during
the past five (5) years. All officers have been affiliated with the Company
during the past five (5) years unless otherwise indicated.
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
Michele L. Abruzzo Director, Sr. Exec. Senior Vice President
80 Pine Street Vice President
New York, NY 10005
Maurice R. Greenberg Director Director, Chairman and Chief
70 Pine Street Executive Officer AIG, Inc.
New York, NY 10270
Howard E. Gunton, Jr. Chief Financial Officer, Sr. Vice President and
One Alico Plaza Senior Vice President Comptroller AIG Domestic
600 King Street Life Companies
Wilmington, DE 19801
Edward Easton Matthews Director, Senior Vice Vice Chairman Investments
70 Pine Street President and Financial Services, AIG,
New York, NY 10270 Inc.
Jerome T. Muldowney Director, Senior Vice Managing Director AIG
175 Water Street President Investments Corp.
New York, NY 10038 Senior Vice President of AIG
Domestic Life Companies
Michael Mullin Chief Operating Officer, Vice President
One Alico Plaza Senior Vice President
600 King Street
Wilmington, DE 19801
Robinson K. Nottingham Director, Chairman of the Chairman of the Board and
70 Pine Street Board Chief Executive Officer of
New York, NY 10270 American International Life
Insurance Company (ALICO)
Nicholas A. O'Kulich Director, Vice Chairman, Vice President, Senior Vice
70 Pine Street Treasurer President, Life Insurance
New York, NY 10270 AIG, Inc.
<PAGE>
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
John Robert Skar Director, Sr. Vice Pres. Sr. Vice President, Actuary,
One Alico Plaza Chief Actuary AIG Domestic Life Companies
600 King Street
Wilmington, DE 19801
Howard Ian Smith Director Director, Executive Vice
70 Pine Street President, Chief Financial
New York, NY 10270 Officer and Comptroller,
AIG, Inc.
Edmund Sze-Wing Tse Director Vice Chairman, Life
AIA Building Insurance, AIG, Inc.
70 Pine Street
New York, NY 10270
Elizabeth M. Tuck Secretary Secretary and Assistant
70 Pine Street Secretary of AIG, Inc., and
New York, NY 10270 certain affiliates
Gerald Walter Wyndorf Director, Chief Executive Executive Vice President -
80 Pine Street Officer and President AIG Domestic Life
New York, NY 10038 Companies
<PAGE>
- --------------------------------------------------------------------------------
Other Information
- --------------------------------------------------------------------------------
State Regulation
We are subject to the laws of Delaware governing insurance companies and to
regulation by the Delaware Insurance Department. We file an annual statement in
a prescribed form with the Insurance Department each year covering our operation
for the preceding year and our final condition as of the end of such year.
Regulation by the Insurance Department includes periodic examinations to
determine our Policy liabilities and reserves so that the Insurance Department
may certify the items are correct. Our books and accounts are subject to review
by the Insurance Department at all times and a full examination of its
operations is conducted periodically by the staff of the Insurance Department
pursuant to the National Association of Insurance Commissioners. Such regulation
does not, however, involve any supervision of management or investment practices
or policies. In addition, we are subject to regulation under the insurance laws
of other jurisdictions in which we may operate.
Legal Proceedings
There are no legal proceedings to which the Separate Account or the principal
underwriter is a party. We are engaged in various kinds of routine litigation
which, in our opinion, are not of material importance in relation to our total
capital and surplus.
Experts
Our financial statements which appear in this Prospectus have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants, as stated
in their reports, and have been included in reliance upon the authority of such
firm as experts in accounting and auditing.
Legal Matters
Legal matters relating to the federal securities laws are being passed upon by
the firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP of Washington,
D.C.
Published Ratings
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to us 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 rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the Separate Account.
The ratings are not recommendations to purchase our 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 so
warrant. The ratings do not reflect the investment performance of the Separate
Account or the degree of risk associated with an investment in the Separate
Account.
<PAGE>
ATTACH FINANCIAL STATEMENTS HERE
<PAGE>
APPENDIX A
Minimum Premiums
The following table shows for Insureds of varying ages, the current minimum
initial Premium for a Policy with the Face Amount indicated. This table assumes
that the insured will be placed in a nonsmoker class and that no supplemental
benefits will be added to the base policy.
<TABLE>
Issue Policy Minimum Minimum Planned Periodic Premium
Age of Sex of Face Initial By Premium Payment Mode
Insured Insured Amount Premium Annual Semiannual Quarterly Monthly
<S> <C> <C> <C> <C> <C> <C> <C>
25 Male $75,000 $102.08 $612.50 $306.25 $153.13 $51.04
30 Female $100,000 $107.33 $644.00 $322.00 $161.00 $53.67
35 Male $250,000 $175.42 $1,052.50 $526.25 $263.13 $87.71
40 Female $300,000 $227.83 $1,367.00 $683.50 $341.75 $113.92
45 Male $500,000 $476.67 $2,860.00 $1,430.00 $715.00 $238.33
50 Female $350,000 $427.50 $2,565.00 $1,282.50 $641.25 $213.75
55 Male $300,000 $686.33 $4,118.00 $2,059.00 $1,029.50 $343.17
60 Female $250,000 $620.83 $3,725.00 $1,862.50 $931.25 $310.42
65 Male $200,000 $1,185.67 $7,114.00 $3,557.00 $1,778.50 $592.83
70 Female $100,000 $670.50 $4,023.00 $2,011.50 $1,005.75 $335.25
75 Male $75,000 $1,210.71 $7,264.25 $3,632.13 $1,816.06 $605.35
</TABLE>
A-1
<PAGE>
APPENDIX B
Surrender Charge Premium
The surrender charge premium is an amount used to determine the sales charge
deducted on surrender of the policy. The surrender charge premium is calculated
for each Policy based on the issue age, sex, and smoker status of the Insured
and the Face Amount of the Policy.
The following table shows for Insureds of varying ages, the surrender charge
premium for a policy with the Face Amount indicated. This table assumes that the
Insured will be placed in a nonsmoker class.
<TABLE>
Issue Policy Surrender
Age of Sex of Face Charge
Insured Insured Amount Premium
<S> <C> <C> <C>
25 Male $75,000 $483.75
30 Female $100,000 $690.00
35 Male $250,000 $2,562.50
40 Female $300,000 $3,327.00
45 Male $500,000 $8,530.00
50 Female $350,000 $6,373.50
55 Male $300,000 $8,880.00
60 Female $250,000 $7,800.00
65 Male $200,000 $10,762.00
70 Female $100,000 $5,781.00
75 Male $75,000 $7,689.75
</TABLE>
B-1
<PAGE>
APPENDIX C
PORTFOLIO EXPENSES
As of December 31, 1998
The purpose of this table is to assist the Owner in understanding the various
costs and expenses that will be incurred, directly or indirectly. It is based on
historical expenses as a percentage of net assets after waivers and/or
reimbursements, if applicable, for the year ended December 31, 1998, except as
indicated below. Expenses of the portfolios of the Funds are not fixed or
specified under the terms of the Policy. Actual expenses may vary.
Total
Management Other Operating
Fees Expenses(1) 12b-1 Fees Expenses
AIM Funds(2)
V.I. Capital Appreciation Fund
V.I. International Equity Fund
Alliance Variable Products Series Fund(3)
Global Bond Portfolio
Growth Portfolio
Growth and Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Technology Portfolio
Dreyfus Variable Investment Fund(4)
Stock Index Fund
Small Company Stock Portfolio
Fidelity Variable Insurance Products Funds I(5)
VIP High Income Portfolio
VIP Growth Portfolio
VIP Money Market Portfolio
Fidelity Variable Insurance Products Funds II(5)
VIP II Asset Manager Portfolio
VIP II Contrafund Portfolio
VIP II Investment Grade Bond Portfolio
Van Eck Funds(6)
World Wide Emerging Markets Portfolio
World Wide Hard Assets Portfolio
(1) Other expenses are based on the expenses outlined in the prospectuses for
the AIM, Alliance, Fidelity, Dreyfus and VanEck Funds.
(2) Total expenses for the following portfolios before reimbursement by AIM's
investment adviser for the period ended December 31, 1998, were as follows:
[To be provided by a subsequent amendment to this filing.]
C-1
<PAGE>
(3) Total expenses for the following portfolios before reimbursement by the
Alliance Fund's investment adviser for the period ended December 31, 1998,
were as follows:
[To be provided by a subsequent amendment to this filing.]
(4) Total expenses for the following portfolios before reimbursement by
Fidelity's investment adviser for the period ended December 31, 1998, were
as follows:
[To be provided by a subsequent amendment to this filing.]
(5) Total expenses for the following portfolios before reimbursement by the
Dreyfus Fund's investment adviser for the period ended December 31, 1998,
were as follows:
[To be provided by a subsequent amendment to this filing.]
(6) Total expenses for the following portfolios before reimbursement by Van
Eck's investment adviser for the period ended December 31, 1998, were as
follows:
[To be provided by a subsequent amendment to this filing.]
C-2
<PAGE>
APPENDIX D
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1998
Inception Since
Date 1 Yr 3Yrs 5Yrs 10 Yrs Inception
--------- ---- ---- ---- ----- ---------
AIM Funds
V.I. Capital Appreciation Portfolio
V.I. International Equity Portfolio
Alliance Variable Products Series Fund
Global Bond Portfolio
Growth Portfolio
Growth and Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Technology Portfolio
Dreyfus Variable Investment Fund
Stock Index Fund
Small Company Stock Portfolio
Fidelity Variable Insurance Products Funds I
VIP High Income Portfolio
VIP Growth Portfolio
VIP Money Market Portfolio
Fidelity Variable Insurance Products Funds II
VIP II Asset Manager Portfolio
VIP II Contrafund Portfolio
VIP II Investment Grade Bond Portfolio
Van Eck Funds
World Wide Emerging Markets Portfolio
World Wide Hard Assets Portfolio
D-1
<PAGE>
[Back cover]
The Securities and Exchange Commission maintains an Internet Web site
(http://www.sec.gov.) That contains additional information about AIG Life
Insurance Company, the Policy and the Separate Account which may be of interest
to you. The Web site also contains additional information about the Policy's
variable investment options.
<PAGE>
AIG Life Insurance Company
Variable Account II
One Alico Plaza
600 King Street
Wilmington, Delaware 19801
1-800-340-2765
Flexible Premium Variable Universal Life Group Policy
AIG Life Insurance Company ("we," "our" or "us"), is offering life insurance
coverage under the policy (the "Policy") described in this prospectus. The
Policy is a group flexible premium variable universal life ("VUL") policy. You
may be issued a certificate as evidence of your coverage under a group
arrangement. The description of the policy in this prospectus is fully
applicable to your certificate. The policy allows you, the owner, within limits,
to:
o Select the Face Amount of life insurance. You may within limits change your
initial selection as your insurance needs change.
o Select the amount and timing of premiums payments. You may make more
premium payments than scheduled or stop making premium payments.
o Allocate premium payments and your Policy's Account Value among the
variable investment options and the guaranteed account.
o Receive payments from your Policy while the Insured is alive through loans,
partial surrenders or a total surrender.
This document contains information about the Policy. You should read this
document carefully before you decide to purchase the Policy. You should also
keep this document for future reference.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of the Policy or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
Prospectus _________, 1999
<PAGE>
Investment Options
[Variable Investment Options]
The Separate Account is divided into Subaccounts. Each Subaccount invests in
shares of the Alliance Variable Products Series Fund, Inc. ("Alliance Funds)
Each portfolio is named below. The prospectuses for each Fund contain
information about each portfolio. You should read these prospectuses carefully.
Alliance Variable Products Series Fund
Managed by Alliance Capital Management L.P.
o Conservative Investors Portfolio
o Global Bond Portfolio
o Global Dollar Government Portfolio
o Growth Portfolio
o Growth and Income Portfolio
o Growth Investors Portfolio
o High Yield Portfolio
o Money Market Portfolio
o North American Government Portfolio
o International Portfolio
o Premier Growth Portfolio
o Quasar Portfolio
o Real Estate Investors Portfolio
o Short-Term Multi-Market Portfolio
o Technology Portfolio
o Total Return Portfolio
o U.S. Gov-t High Grade Portfolio
o Utility Income Portfolio
o Worldwide Privatization Portfolio
[Guaranteed Investment Option]
The Guaranteed Account is part of our general account. We will credit interest
equal to at least 4% per year, compounded annually on that portion of Policy
Account Value that you allocate to the Guaranteed Account. We may, in our
discretion, elect to credit a higher rate of interest. This document generally
describes only that portion of the Account Value allocated to the Separate
Account.
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Special Terms used in this Document
Summary of the Policy
Overview
Applying for a Policy
Premium Payments
Policy Account Value
Death Benefit
Cash Benefits During the Life of the Insured
4
Expenses of the Policy
Federal Tax Considerations
Purchasing a VUL Policy
Applying for a Policy
Your Right to Cancel the Policy
Premiums
Restrictions on Premiums
Minimum Initial Premium
Planned Periodic Premiums
Additional Premiums
Effect of Premium Payments
No Lapse Provision
Grace Period
Premium Allocations
Crediting Premiums
The Investment Options
Investing Your Policy Account Value
Determining the Policy Account Value
Transfers
Dollar Cost Averaging
Automatic Rebalancing
Death Benefit
Cash Benefits During the Insured's Life
Payment Options for Benefits
Expenses of the Policy
Supplemental Benefits and Riders
Other Policy Provisions
Performance Information
Federal Income Tax Considerations
Distribution of the Policy
About Us and the Accounts
Our Directors and Executive Officers
Other Information
Appendices
<PAGE>
- -------------------------------------------------------------------------------
Special Terms used in this Document
- --------------------------------------------------------------------------------
We have capitalized some special terms we use in this document. We have defined
these terms here.
Accounts. The Separate Account and the Guaranteed Account of the Company.
[If you have a request, please write to us at this address.]
Administrative Office. One Alico Plaza, P.O. Box 8718, Wilmington, DE 19801.
Age. The Insured's age as of his or her last birthday.
Attained Age. The Insured's Age as of the Policy Date plus the number of full
years since the Policy Date.
Beneficiary. The person(s) entitled to the Death Benefit under the Policy.
Code. The Internal Revenue Code of 1986, as amended.
Company, we, our, us. AIG Life Insurance Company.
[You will specify the initial Face Amount in your Policy application. The Policy
will also show the initial Face Amount.]
Death Benefit. The amount payable to a Beneficiary if the Insured dies while
coverage under the Policy is in force.
Face Amount. The amount of insurance specified by the Owner and from which the
Death Benefit Amount will be determined.
Grace Period. The period of time that the Policy continues to be in force while
the Net Cash Surrender Value is less than the total monthly deductions then due.
It begins on a monthly anniversary when the Net Cash Surrender Value is less
than the total monthly deduction then due.
Guaranteed Account. An account within the general account which consists of all
of our assets other than the assets of the Separate Account and any of our other
separate accounts.
Insured. A person whose life is covered under the Policy.
[We measure contestability periods from the Issue Date.]
Issue Date. The date the Policy is actually issued. It may be later than the
Policy Date.
Loan Account. The portion of the Policy Account Value held in the Guaranteed
Account as collateral for Policy loans.
Monthly Anniversary. The same day as the Policy Date for each succeeding month.
If the day of the monthly anniversary is the 29th, 30th or 31st and a month has
no such day, the monthly anniversary is deemed to be the last day of that month.
[We use this value to determine if your Policy is in force.]
Net Cash Surrender Value. The Cash Surrender Value less any outstanding Loans.
Net Premium. Any premium paid less any expense charges deducted from the premium
payment.
Outstanding Loan. The total amount of Policy loans, including both principal,
past due unpaid interest and accrued interest.
[You may be an Owner even if you are not the Insured.]
Owner, you, your. The person who purchased the Policy as shown in the
application, unless later changed.
Policy. The flexible premium variable universal life insurance coverage we
issue. We may issue coverage on the Insured under a certificate issued under a
group contract. The term Policy includes the certificate and group contract.
[We use Policy Account Value to determine your Policy benefits. How we determine
Policy Account Value is described on page __. ]
Policy Account Value. The total amount in the Accounts credited to your Policy.
[We use the Policy Date as the date coverage begins and to determine all
anniversary dates.]
Policy Date. The date as of which we have received the initial premium and an
application in good order. Coverage will begin on the policy date.
Separate Account. Variable Account II, a separate investment account of ours.
Subaccount. A division of the Separate Account established to invest in shares
of a corresponding portfolio of a fund that is available for investment under
the Policy.
Valuation Date. Each day the New York Stock Exchange is open for trading.
Valuation Period. A period commencing with the close of trading on the New York
Stock Exchange (currently 4 P.M., Eastern Time) on any Valuation Date and ending
as of the close of the New York Stock Exchange on the next succeeding Valuation
Date.
- --------------------------------------------------------------------------------
Summary of the Policy
- --------------------------------------------------------------------------------
Because this is a summary, it does not contain all the information that may be
important to you. You should read this entire document carefully before you
decide to purchase a Policy.
[If you select any variable investment options, your Policy benefits will vary
based upon the returns earned by those variable investment options. The returns
may be zero or negative and you bear this risk.]
Overview
The Policy is a flexible premium variable universal life policy. Like
traditional life insurance, the Policy provides an initial minimum death benefit
and cash benefits that you can access through loans, partial surrenders or a
surrender. Unlike traditional life insurance, you may choose how to invest your
Policy Account Value.
The Policy allows you to make certain choices that will tailor the Policy to
your needs. When you apply for the Policy, we will ask you to make some of these
choices. You may also change your choices to meet your changing insurance needs.
In addition, we are offering several riders to the Policy. These riders provide
you with the flexibility to design an insurance product that meets your specific
needs.
Applying for a Policy
You may apply for a Policy to cover a person, the "Insured," who is age 75 or
younger.
[Amount of life insurance benefits.]
When you apply for a Policy, you must select the Face Amount. The Face Amount is
the initial amount of life insurance coverage on the Insured. It must be at
least $50,000 when you apply.
[When your coverage will become effective.]
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment, in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your right to cancel the Policy
Once you receive your Policy, you should read the Policy. You have the right to
cancel the Policy for any reason within the later of:
o 45 days after you sign Part I of the Policy application.
o 10 days after you received the Policy. If required by the state where you
live, we will extend the 10 days to the number
required by law.
Premium Payments
[Minimum initial premium.]
Before your Policy is effective, you must pay the minimum initial premium. We
will calculate the initial minimum premium based on a number of factors, such as
the age, sex and underwriting rate class of the proposed Insured, the desired
Face Amount, and any supplemental benefits or riders applied for and whether
premiums will be paid by pre-authorized checking. A table is provided in
Appendix A.
[Planned periodic premium. ]
When you apply for a Policy you will select the amount of premium payments you
plan to pay during the term of the Policy. We will establish a minimum for this
amount. You will also select intervals when you plan to pay this pay this
premium amount. This may be monthly, quarterly, semiannually, or annually.
Pre-authorized checking may be required for monthly payments.
[Flexibility in premium payments.]
During the term of the Policy, you may pay premiums at any time and in any
amount, within limits. Thus, you are not required to pay the planned periodic
premium and you may make payments in addition to the planned periodic premium.
Policy Account Value
We will measure your benefits under the Policy by your Policy Account Value.
Your Policy Account Value will reflect:
o the premiums you pay;
o the returns earned by the Subaccounts you select;
o the interest earned on the amount allocated to the Guaranteed Account;
o any loans or partial surrenders; and
o the Policy charges and expenses we deduct.
[Death Benefit Selections.]
Death Benefit
When you apply for a Policy, you must select:
o The Face Amount.
o The death benefit option, which determines the manner in which we calculate
the death benefit for your Policy.
Death Benefit Options.
You may select from two death benefit options. They are:
[Option I: Level Death Benefit Option.]
o Option I: Level Death Benefit Option
The basic death benefit will be the greater of:
1. The Face Amount; or
2. Policy Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
[Option II: Increasing Death Benefit Option.]
o Option II: Increasing Death Benefit Option
The basic death benefit will be the greater of:
1. The Face Amount plus the Policy Account Value; or 2. Policy Account
Value on the date of death multiplied by the appropriate minimum death
benefit factor.
[Changes You May Make.]
Within limits, you may change the death benefit option and, after the first
Policy year, may make changes to the Face Amount.
Cash Benefits During the Life of the Insured
During the life of the Insured, your Policy has cash benefits that you can
access within limits through loans, partial surrenders or a full surrender.
o Loans -- You may borrow against your Net Cash Surrender Value at any time.
If your Policy is a modified endowment contract, the Internal Revenue Code
may treat the loan as a taxable distribution of income.
o Partial Surrender -- You may withdraw part of your Policy Account Value
after the first Policy year. We may deduct an administrative charge. If you
make a partial surrender during the surrender charge period, we will deduct
a surrender charge. A partial surrender may result in a decrease in the
Face Amount of your Policy, depending upon your death benefit option.
o Full Surrender -- You may surrender your Policy for its Net Cash Surrender
Value. If you surrender your Policy during the surrender charge period, we
will deduct a surrender charge. A surrender will terminate your Policy.
[Expenses reduce your returns under the Policy ]
Expenses of the Policy
We deduct expenses related to your Policy. These deductions are made:
o from premiums, your Policy Account Value and the assets of the Subaccount;
and
o upon certain Policy transactions.
Deduction from premiums -- we will deduct 5% from your premium payments plus a
state specific percent of premium equal to the state and local premium tax rate
applicable to the Policy. These deductions are for state premium taxes, federal
taxes, sales and other acquisition related expenses.
Monthly Deductions from Policy Account Value -- we will deduct on each monthly
anniversary charges for:
o The administration of your Policy.
o The cost of insurance for your Policy
o The costs associated with acquiring and underwriting your Policy
o The cost of any supplemental benefits or riders.
The monthly deduction is deducted from your Accounts on a pro rata basis in the
same proportion of Policy Account Value in each Account.
Deductions from Subaccount Net Assets -- we will deduct daily a charge for the
mortality and expense risks we assume, at an annual rate not to exceed 0.90% of
your Policy Account Value in the Subaccounts.
Deductions Upon Certain Policy Transactions -- If you make a Policy transaction,
a charge may apply. They are:
o Transfers -- You may make twelve transfers from your Subaccounts each
Policy year free of charge. Thereafter, we will deduct a fee of $25 per
transfer from the transferred amount.
Administrative Charges for Partial Surrenders.
o Partial Surrenders - We charge the lesser of $25 or 2% of the amount
surrendered for processing each surrender.
Surrender Charges for Partial Surrenders.
o A partial surrender may also be subject to a surrender charge. A surrender
charge for partial surrenders is equal to a pro rata portion of the
surrender charge that would apply to a full surrender. This applies during
the first 14 Policy years and for the first 14 years immediately following
an increase in Face Amount.
o Surrender -- If you request a surrender during the first 14 Policy years,
we may deduct a surrender charge based on the initial Face Amount. If you
request a surrender within 14 years immediately following an increase in
Face Amount, we will deduct a surrender charge based on the increase in
Face Amount. The surrender charge will be deducted before any surrender
proceeds are paid.
Surrender Charges for Face Amount Decreases.
o Decrease in Face Amount -- We may also deduct a surrender charge from the
Policy Account Value upon a decrease in Face Amount. If you request a
decrease in Face Amount during the first 14 Policy years, we will deduct a
surrender charge based on the initial Face Amount. If you request a
decrease within 14 years immediately following an increase in Face Amount,
we will deduct a surrender charge based on the increase in Face Amount.
Expenses of the variable investment options also reduce your returns.
In addition, you will indirectly bear the costs of the investment management
fees and expenses paid from the assets of the portfolios you select. The
expenses of the variable investment options for the year ended December 31, 1998
are set forth in Appendix C.
Federal Tax Considerations
You should consider the impact of the Code.
Your purchase of, and transactions under, your Policy may have tax consequences
that you should consider before purchasing the Policy. You may wish to consult a
tax adviser. In general, the Life Insurance Proceeds will not be taxable income
to the Beneficiary. You will not be taxed as your Policy Account Value
increases. Upon a distribution from your Policy, however, you may be taxed on
your Policy Account Value increases.
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Purchasing a VUL Policy
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Applying for a Policy
To purchase a Policy, you must complete an application and submit it to us. You
must specify certain information in the application, including the Face Amount,
the death benefit option and supplemental benefit riders, if any. We may also
require information to determine if the Insured is an acceptable risk to us. We
may require a medical examination of the Insured and ask for additional
information.
[Our age requirement for the Insured.]
You may apply for a Policy to cover a person who is younger than Age 76. A
newborn may be an Insured. The minimum Face Amount is $50,000
We require a minimum initial premium. We require that you pay a minimum initial
premium before we will issue the Policy. You may pay the minimum initial premium
when you submit the application or at a later date.
We will not issue a Policy until we have accepted the application. We will
accept an application if it meets our underwriting rules. We reserve the right
to reject an application for any reason or "rate" an Insured as a substandard
risk.
[When your coverage will be effective.]
Your policy will become effective after:
o We accept your application
o We receive an initial premium payment, in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your Right to Cancel the Policy
[Period to Examine and Cancel.]
Once you receive your Policy, you should read the Policy. You have the right to
cancel the Policy for years within the later of:
o 45 days after you sign Part I of the Policy application; or
o 10 days after you received the Policy. If required by the state where you
live, we will extend the 10 days to the number required by law.
This is your "Period to Examine and Cancel."
Your right to cancel also applies to the amount of any increase in Face Amount.
[How to cancel your policy.]
You may cancel the Policy by returning it to our Administrative Office or to our
agent within the applicable time with a written request for cancellation. We
will refund you the premium paid on the Policy. Thus, the amount we return will
not reflect the returns of the Subaccounts you selected in your application.
Premiums
The Policy allows you to select the timing and amount of premium payments within
limits. Send premium payments to our Administrative Office.
[All your premium payments must comply with our requirements.]
Restrictions on Premiums. We may not accept any premium payment:
o If it is less than $50.
o If the premium would cause the Policy to fail to qualify as a life
insurance contract as defined in Section 7702 of the Code. We will refund
any portion of any premium that causes the Policy to fail. In addition, we
will monitor the Policy and will attempt to notify the Owner on a timely
basis if a Policy is in jeopardy of becoming a modified endowment contract
under the Code.
o If the premium would increase the amount of our risk under your Policy by
an amount greater than that premium amount. In such cases, we may require
satisfactory evidence of insurability before accepting that premium.
[Types of premium payment.]
Minimum Initial Premium We will calculate the minimum initial premium. The
amount is based on a number of factors, including the age, sex and rating class
of the proposed Insured, the desired Face Amount and any supplemental benefits
or riders applied for and whether premiums will be paid by pre-authorized
checking.
Planned Periodic Premium. When you apply for a Policy, you select a plan for
paying level premiums at specified intervals. The intervals may be monthly,
quarterly, semi-annually or annually, for the life of the Policy. Pre-authorized
checking may be required for monthly payments. We will establish a minimum
amount that may be used as the planned periodic premium.
You are not required to pay premiums in accordance with this plan. Rather, you
can pay more or less than the planned periodic premium or skip a planned
periodic premium entirely. At any time you can change the amount and frequency
of planned periodic premium by sending a written notice to our Administrative
Office.
Additional Premiums. Additional premiums are premiums other than planned
premiums. Additional premiums may be paid in any amount and at any time subject
to Code.
Depending on the Policy Account Value at the time of an increase in the Face
Amount and the amount of the increase requested, an additional premium may be
needed to prevent your Policy from terminating.
[Paying premiums may not ensure that your Policy remains in force.]
Effect of Premium Payments. In general, paying all planned periodic premiums may
not prevent your Policy from lapsing. In addition, if you fail to pay any
planned periodic premiums, your Policy will not necessarily lapse.
Your Policy will lapse only when the Net Cash Surrender Value on a monthly
anniversary is less than the amount of that date's monthly deduction. This could
happen if the Net Cash Surrender Value has decreased because:
o of the negative return or insufficient return earned by one or more of the
Subaccounts you selected; or o of any combination of the following -- you have
Outstanding Loans, you have taken partial surrenders, we have deducted
Policy expenses, or your have made insufficient premium payments to offset
the monthly deduction.
[Your Policy will not terminate immediately after your Policy Account Value is
insufficient.]
Grace Period. In order for insurance coverage to remain in force, the Net Cash
Surrender Value on each monthly anniversary must be equal to or greater than the
total monthly deductions for that monthly anniversary. If it is not, you have a
Grace Period of 61 days during which the Policy will continue in force. The
Grace Period begins on the monthly anniversary that the Net Cash Surrender Value
is less than the total monthly deductions then due. If we do not receive a
sufficient premium before the end of the Grace Period, the Policy will terminate
without value.
We will send you a written notice within 30 days of the beginning of any Grace
Period. The notice will state:
o A Grace Period of 61 days has begun
o The amount of premium required to prevent your Policy from terminating.
This amount is equal to the amount needed to increase the Net Cash
Surrender Value sufficiently to cover total monthly deductions for the next
three (3) monthly anniversaries.
If the Insured dies during the Grace Period, we will still pay the Life
Insurance Proceeds to the Beneficiary. The amount we pay will reflect a
reduction for the unpaid monthly deductions due on or before the date of the
Insured's death.
If your Policy lapses with an Outstanding Loan you may have taxable income.
Premium Allocations. In the application, you specify the percentage of Net
Premiums to be allocated to each Subaccount or to the Guaranteed Account.
However, until the Period to Examine and Cancel expires, we invest this amount
in the Money Market Subaccount. The first business day after the period expires,
we will reallocate your Policy Account Value in the Money Market Subaccount
based on the premium allocation percentages in your application.
For all subsequent premiums, we will use the allocation percentages you
specified in the application until you change them. You can change the
allocation percentages at any time, by sending written notice to our
Administrative Office. The change will apply to all Premiums received with or
after your notice.
Allocation Rules: Your allocation instructions must meet the following
requirements:
o Each allocation percentage must be a whole number; and
o Any allocation to a Subaccount must be at least 5%; and the sum of your
allocations must equal 100%. Crediting Premiums. Your initial Net Premium,
will be credited to your Policy Account Value as of the Policy Date. We
will credit and invest subsequent Net Premiums on the date we receive the
premium or notice of deposit at our Administrative Office.
If any Premium requires us to accept additional risk, we will allocate this
amount to the Money Market Subaccount until we complete our underwriting. When
accepted, and at the end of the Period to Examine and Cancel the Policy, we will
allocate it in accordance with your allocation percentages.
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The Investment Options
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You may allocate your Policy Account Value to:
o the Subaccounts which invest in the variable investment options; or
o the Guaranteed Account.
Variable Investment Options
Under the Policy, you may currently allocate your Policy Account Value into any
of the available Subaccounts. Each Subaccount invests in a distinct portfolio of
the Alliance Variable Products Series Fund. These portfolios operate similarly
to a mutual fund but are only available through the purchase of certain
insurance contracts.
Alliance Capital Management L.P., manages the Alliance Variable Products Series
Fund, Inc. The fund also includes other portfolios which are not available for
use by the Separate Account.
[Portfolios Managed by Alliance Capital Management L.P.]
Conservative Investors Portfolio
This portfolio seeks the highest total return without, in the view of the Fund's
Adviser, undue risk to the principal by investing in a diversified mix of
publicly traded equity and fixed-income securities.
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.
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.
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.
Growth Investors Portfolio
This portfolio seeks the highest total return consistent with what the Fund's
Adviser considers to be reasonable risk by investing in a diversified mix of
publicly traded equity and fixed-income securities.
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.
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.
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.
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.
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.
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.
Short-Term Multi Market Portfolio
This portfolio seeks the highest level of current income, consistent with what
the Fund's Adviser considers to be prudent investment risk, that is available
from a portfolio of high-quality debt securities denominated in U.S. dollars and
selected foreign currencies and having remaining maturities of not more than
three years.
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.
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.
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.
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.
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.
Guaranteed Investment Option
Under the Policy, you may currently allocate your Policy Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part of
your Policy Account Value to the Loan Account which is part of the Guaranteed
Account.
We treat each allocation and transfer separately for purposes of crediting
interest and making deductions from the Guaranteed Account.
[You assume the risk that interest credited may not exceed the guaranteed
minimum rate of 4% per year.]
Interest Credited On the Guaranteed Account. All of your Policy Account Value
held in the Guaranteed Account will earn interest at a rate we determine, in our
sole discretion. This rate will never be less than 4% per year compounded
annually. The Loan Account portion of your Policy Account Value may earn a
different interest rate than the remaining portion of your Policy Account Value
in the Guaranteed Account.
Deductions from the Guaranteed Account. We will deduct any transfers, partial
surrenders or any Policy expenses from the Guaranteed Account and your variable
investment options on a pro rata basis, unless you provide other directions. No
portion of the Loan Account may be used for this purpose.
The Loan Account will only increase or decrease in value when Policy loans are
taken or repayments are made. If an amount is transferred from the Loan Account
to the remaining portion of the Guaranteed Policy Account Value, it will be
treated as a new allocation to the Guaranteed Account and will be credited with
interest at the rate then in effect for Guaranteed Account allocations.
Payments from the Guaranteed Account. If we must pay any part of the proceeds
for a loan or partial surrender or surrender from the Guaranteed Account, we may
defer the payment for up to six months from the date we receive the written
request. If we defer payment from the Guaranteed Account for 30 days or more, we
will pay interest on the amount we deferred at a rate of 4% per year, compounded
annually, until we make payment.
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Investing Your Policy Account Value
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The Policy allows you to choose how to invest your Policy Account Value. Your
Policy Account Value will increase or decrease based on:
o The returns earned by the Subaccounts you select.
o Interest credited on amounts allocated to the Guaranteed Account.
We will determine your Policy benefits based upon your Policy Account Value. If
your Policy Account Value is insufficient, your Policy may terminate. If the Net
Cash Surrender Value on a monthly anniversary is less than the amount of that
date's monthly deduction, the Policy will be in default and a Grace Period will
begin.
Determining the Policy Account Value
On the Policy Date, your Policy Account Value is equal to your initial Net
Premium. If the Policy Date and the Issue Date are the same day, the Policy
Account Value is equal to your initial premium, less the premium expenses and
monthly deduction we deduct.
On each Valuation Date thereafter, your Policy Account Value is equal to:
o Your Policy Account Value held in the Subaccounts; and
o Your Policy Account Value held in Guaranteed Account.
Your Policy Account Value will reflect:
o the premiums you pay;
o the returns earned by the Subaccounts you select;
o the interest credited on amounts allocated to the Guaranteed Account;
o any loans or partial surrenders; and
o the Policy expenses we deduct.
Policy Account Value in the Subaccounts. We measure your Policy Account Value in
the Subaccounts by the value of the Subaccounts' accumulation units we credit to
your Policy. When you allocate premiums or transfer part of your Policy Account
Value to a Subaccount, we credit your Policy with accumulation units in that
Subaccount. The number of accumulation units equals the amount allocated to the
Subaccount divided by that Subaccount's accumulation unit value for the
Valuation Date when the allocation is effected.
The number of Subaccount accumulation units we credit to your Policy will:
o increase -- when Net Premium is allocated to the Subaccount, amounts are
transferred to the Subaccount and loan repayments are credited to the
Subaccount.
o decrease -- when the allocated portion of the monthly deduction is taken
from the Subaccount, a Policy loan is taken from the Subaccount, an amount
is transferred from the Subaccount, or a partial surrender, including the
partial surrender charges, is taken from the Subaccount.
Accumulation Unit Values. A Subaccount's accumulation unit value varies to
reflect the return of the portfolio, and may increase or decrease from one
Valuation Date to the next. We arbitrarily set the accumulation unit value for
each Subaccount at $10 when the Subaccount was established. Thereafter, the
accumulation unit value equals the accumulation unit value for the prior
Valuation Period multiplied by the net investment factor for the current
Valuation Period.
Net Investment Factor. The net investment factor is an index we use to measure
the investment return earned by a Subaccount during a Valuation Period. It is
based on the change in net asset value of the portfolio shares held by the
Subaccount, and reflects any dividend or capital gain distributions on the
portfolio shares and the deduction of the daily mortality and expense risk
charge.
Guaranteed Policy Account Value. On any Valuation Date, the Guaranteed Account
portion of your Policy's Account Value equals:
o the total of all Net Premium, allocated to the Guaranteed Account, plus
o any amounts transferred to the Guaranteed Account, plus
o interest credited on the amounts allocated and transferred to the
Guaranteed Account, less
o the amount of any transfers from the Guaranteed Account, less
o the amount of any partial surrenders, including the partial surrender
charges, taken from the Guaranteed Account, and less
o the allocated portion of the monthly deduction deducted from the Guaranteed
Account, plus
o the amount of the Loan Account If you take a Policy loan, we transfer the
amount of the loan to the Loan Account held in the Guaranteed Account. The
value of your Loan Account includes transfers to and from the Loan Account
as you take and repay loans, and interest credited on the Loan Account.
Net Policy Account Value. The Net Policy Account Value on a Valuation Date is
the Policy Account Value less Outstanding Loans on that date.
Cash Surrender Value. The Cash Surrender Value on a Valuation Date is the Policy
Account Value reduced by any surrender charge that would assessed if the Policy
were surrendered on that date.
[The amount you would receive on a Surrender of your Policy.]
Net Cash Surrender Value. The Net Cash Surrender Value on a Valuation Date is
equal to:
o the Cash Surrender Value, less
o the Outstanding Loan on that date.
Transfers
You may transfer Policy Account Value among the Subaccounts and to the
Guaranteed Account after the Period to Examine and Cancel. All transfer requests
must satisfy the following requirements:
o Minimum amount of transfer -- You must transfer at least $250 or, the
balance in the Subaccount or the Guaranteed Account, if less;
o Form of transfer request - Transfer requests must be in writing;
o Transfers from the Guaranteed Account -- The maximum you may transfer in a
Policy year is equal to 25% of your Guaranteed Policy Account Value that is
not in the Loan Account. Transfers may be made only during the 60-day
period within 30 days before and following the end of each Policy Year. The
amount transferred must be at least $250, or the Policy Account Value held
in the Guaranteed Account.
Date We Process Your Transfer Request. We must receive your transfer request at
our Administrative Office. We process transfers on the same date we receive your
transfer request. We may, however, defer transfers under the same conditions as
described in "When Proceeds Are Paid," page ___.
Number of Allowable Transfers/Transfer Fee. We do not currently limit the number
of transfers you may make. We will currently assess a $25 transfer fee, however,
for each transfer in excess of 12 during a Policy year. All transfers processed
on the same business day will count as one transfer for purposes of determining
the number of transfers you have made in a Policy year. Transfers in connection
with the Dollar Cost Averaging feature will not count against the 12 free
transfers in a Policy year. We reserve the right to increase or decrease the
number of "free" transfers allowed in any Policy year.
We will confirm transfer requests received by fax before processing them. You
should review all confirmations to determine if there have been any unauthorized
transfers.
Dollar Cost Averaging
Dollar Cost Averaging is a systematic method of investing at regular intervals.
By investing at regular intervals, the cost of the securities is averaged over
time and perhaps over various market cycles.
You may request Dollar Cost Averaging. Under this program we will automatically
transfer monthly a portion of your Money Market Subaccount Value into other
Subaccounts or the Guaranteed Account for a period not in excess of 24 months.
We will allocate the transfers based on your current Premium allocation
instructions. However, no less than 5% may be allocated to any one Subaccount or
to the Guaranteed Account. This option can be elected at any time provided there
is a minimum balance of $2000 in the Money Market Subaccount.
Dollar Cost Averaging From a Subaccount. If you instruct us to make the
transfers from the Money Market Subaccount, you may request
that we transfer:
o A specified dollar amount -- we will automatically transfer this amount in
accordance with your most current premium allocation instructions for a
specified period until your Policy Account Value in the transferring Money
Market Subaccount is depleted.
o A specified number of months-- we will automatically transfer over a
specific number of months an amount equal to one divided by the number of
months remaining in the period. For example, if you elect to transfer over
a 12 month period, the first transfer will be 1/12 of your Money Market
Subaccount value, the second transfer will be for 1/11, the third transfer
will be for 1/10 and so on until the end of the requested period.
When we will Process your Automatic Transfers.
We will begin to process your automatic transfers:
o If you requested the automatic transfers when you applied for your Policy
-- on the first monthly anniversary following the
end of the Period to Examine and Cancel.
o If you elect the option after you applied for the Policy - on the second
monthly anniversary following the receipt of your request at our
Administrative Office.
We will stop processing automatic transfers if:
o The funds in the Money Market Subaccount are depleted;
o We receive you written request at our Administrative Office to cancel
future transfers;
o We receive notification of death of the Insured; or
o Your Policy goes into the Grace Period.
Dollar Cost Averaging may lessen the impact of market fluctuations on your
investment. Using Dollar Cost Averaging does not guarantee investment gains or
protect against loss in a declining market.
<PAGE>
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Death Benefits
- --------------------------------------------------------------------------------
Death Benefits
During the Policy term, we will pay the Death Benefits to the Beneficiary after
the Insured death. To make payment, we must receive at our Administrative
Office:
o Satisfactory proof of the Insured's death; and
o return of the Policy.
[The Beneficiary may receive the Death Beneftis in one lump sum or under any
other payment option.]
Payment of Death Benefit. We will pay the Death Benefit generally within seven
days after we receive the information we require. We will pay the Death Benefit
to the Beneficiary in one lump sum or, if elected, under a payment option.
Payment of the Death Benefit may also be affected by other provisions of the
Policy.
We will pay interest on the Life Insurance Proceeds from the date of the
Insured's death to the date of payment as required by applicable state law.
Amount of Death Benefit. We will determine the Death Benefit as of the date of
the Insured's death. The Death Benefit will equal:
o the death benefit amount determined according to the death benefit option
selected; plus
o any other benefits then due from riders to the Policy; minus
o the Outstanding Loan, if any, and accrued loan interest; minus
o any overdue monthly deductions if the Insured dies during a Grace Period.
Death Benefit Options
You may select from two death benefit options.
[Option I: Level Death Benefit Option]
They are: Option I - Level Death Benefit Option.
The basic death benefit will be the greater of:
(1) The Face Amount; or
(2) Policy Account Value at date of death multiplied by the appropriate
minimum death benefit factor
[Option II: Increasing Death Benefit Option]
Option II - Increasing Death Benefit Option
The basic death benefit will be the greater of:
(1) The Face Amount plus the Policy Account Value; o
(2) Policy Account Value at date of death multiplied by the appropriate
minimum death benefit factor.
Changes in Death Benefit Options
If you have selected Option I you may change to Option II. You may also change
from Option II to Option I.
[How to request a change.]
You may change your Death Benefit Option by providing your Agent with a written
request or by writing us at our Administrative Office. We may require that you
submit satisfactory evidence of insurability to us.
If you request a change from Option I to Option II, we will decrease the Face
Amount by an amount equal to Your Policy Account Value on the date the change
takes effect. However, we reserve the right to decline to make such a change if
it would reduce the Face Amount below the minimum Face Amount.
If you request a change from the Option II to Option I, we will increase the
Face Amount by an amount equal to your Policy Account Value on the date the
change takes effect. Such decreases and increases in the Face Amount are made so
that the Life Insurance Proceeds remain the same on the date the change takes
effect.
Once approved, we will issue new Policy information pages and attach a copy of
your Application for Change. The change will take effect at the beginning of the
Policy Month that coincides with or next follows the date we approve your
request. We reserve the right to decline to make any changes that we determine
would cause the Policy to fail to qualify as life insurance under our
interpretation of the Code.
The change will take effect on the next monthly anniversary that coincides with
or next follows the date we approve your request.
Changes in Face Amount
At any time after the first Policy anniversary while the Policy is in force you
may request a change in the Face Amount. We will not make a change in Face
Amount that causes your Policy to fail to qualify as life insurance under of the
Code.
Increases in Face Amount: Any request for an increase:
o Must be for at least $10,000.
o May not be requested in the same Policy year as another request for an
increase.
o May not be requested after the Insured is Attained Age 75.
A written application must be submitted to our Administration Office along with
satisfactory evidence of insurability. You must return the Policy so we can
amend the Policy to reflect the increase. The increase in Face Amount will
become effective on the monthly anniversary on or next following the date the
increase is approved, and the Policy Account Value will be adjusted to the
extent necessary to reflect a monthly deduction as of the effective date based
on the increase in Face Amount.
Decreases in Face Amount. Any request for a decrease:
o Must be at least $5,000.
o Must not cause the Face Amount after the decrease to be less than the
minimum Face Amount at which we would issue a Policy.
o During the first 5 Policy years, the Face Amount may not be decreased by
more than 10% of the initial Face Amount in any one Policy Year.
o No decrease may be made during the first 12 months following an increase in
Face Amount.
o If the Face Amount is decreased during the first 14 Policy years or within
14 Policy years of an increase in Face Amount, a surrender charge may be
applicable.
Consequences of a Change in Face Amount. Both increases and decreases in Face
Amount may impact the surrender charge. In addition, an increase or decrease in
Face Amount may impact the status of the Policy as a modified endowment
contract.
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Cash Benefits During the Insured's Life
- --------------------------------------------------------------------------------
During the life of the Insured, your Policy has cash benefits which you may
access within limits by taking loans, partial surrenders or a full surrender.
Policy Loans
You may request a loan against your Policy at any time after the first policy
year or after the first 12 months following an increase in Face Amount while the
Policy has a Net Cash Surrender Value. We limit the minimum and maximum amount
of loan you may take.
o Maximum Loan Amount
- After First Policy year -- The maximum loan amount is:
o 90% of Your Net Cash Surrender Value, less o Any outstanding loans
o Minimum Loan Amount -- $500
[How to request a loan.]
You must submit a written request for a loan to the Administrative Office.
Policy loans will be processed as of the date we receive the request at our
Administrative Office. Loan proceeds generally will be sent to you within seven
days.
Interest. We charge interest daily on any Outstanding Loan at a declared annual
rate not in excess of 8%. The maximum net cost (the difference between the rate
of interest we charge on Policy loans and the amount we credit on the equivalent
amount held in the Loan Account) of a loan is 2% per year. Interest is due and
payable at the end of each Policy year while a Policy loan is outstanding. If
interest is not paid when due, the amount of the interest is added to the loan
and becomes part of the Outstanding Loan.
For Policy Years 11 and later, a portion of the loanable amount may be available
on a preferred loan basis. The amount available on a preferred basis is the
excess, if any, of the Policy Account Value over the sum of the Premiums paid.
For a preferred loan, the interest rate charged and credited to the preferred
portion of the loan value will be the same.
Loan Account. You may direct us to take an amount equal to the loan proceeds and
any amount attributed to unpaid interest from any Subaccount or from the
Guaranteed Account. Otherwise, we will withdraw this amount from each Account on
a pro rata basis. We transfer this amount to the Loan Account in the Guaranteed
Account.
When a loan is repaid, an amount equal to the repayment will be transferred from
the Loan Account to the Subaccounts and Guaranteed Account in accordance with
your allocation percentages in effect at the time of repayment.
Effect of Policy Loan. A Policy loan, whether or not repaid, will have a
permanent effect on the Life Insurance Proceeds and Policy Account Value because
the investment results of the Subaccounts and current interest rates credited in
the Guaranteed Account will apply only to the non-loaned portion of the Policy
Account Value. The longer the loan is outstanding, the greater this effect is
likely to be. Depending on the investment results of the Subaccounts or credited
interest rates for the Guaranteed Account while the Policy loan is outstanding,
the effect could be favorable or unfavorable.
In addition, loans from modified endowment contracts may be treated for tax
purposes as distributions of income.
If the Life Insurance Proceeds become payable while a Policy loan is
outstanding, the Outstanding Loan will be deducted in calculating the Life
Insurance Proceeds.
If the Outstanding Loan exceeds the Net Cash Surrender Value on any monthly
anniversary, the Policy will be in default. We will send you, and any assignee
of record, notice of the default. You will have a 61-day Grace Period to submit
a sufficient payment to avoid termination. The notice will specify the amount
that must be repaid to prevent termination.
Outstanding Loan. The Outstanding Loan on a Valuation Date equals:
o All Policy loans that have not been repaid (including past due unpaid
interest added to the loan), plus
o accrued interest not yet due.
Loan Repayment. You may repay all or part of your Outstanding Loan at any time
while the Insured is living an the Policy is in force. Loan repayments must be
sent to our Administrative Office and will be credited as of the date received.
[Requirements for Partial Surrenders.]
Partial Surrenders
You may request a partial surrender at any time after the first Policy
anniversary. No more than two partial surrenders may be made during a Policy
Year.
We may limit the minimum and maximum amount of Withdrawals.
o Maximum Partial Surrender Amount - 90% of our Policy's Net Cash Surrender
Value except that the withdrawal may not cause the Policy Face Amount to be
less than the required minimum Face Amount.
o Minimum Partial Surrender Amount -- $500
[How to request a partial surrender.]
You must submit a written request to our Administrative Office. We will reduce
your Policy Account Value by the partial surrender amount plus any applicable
charges. When you request a partial surrender, you may direct us to take the
requested amount from any Subaccount or from the Guaranteed Account. If the
Guaranteed Account or Subaccount value is insufficient to withdraw the amount
requested, we will withdraw the difference from the remaining Accounts on a pro
rata basis unless you have provided specific instructions to withdraw the amount
from one or several Accounts.
We will process partial surrender requests as of the date we receive your
written request at our Administrative Office. We will generally pay partial
surrenders within seven days.
Expenses for Partial Surrenders. We will deduct the applicable surrender charge
on a partial surrender. This charge will be deducted from your Policy Account
Value along with the amount requested to be surrendered and will be considered
part of the partial surrender (together, the "partial surrender amount").
Currently, we assess an administrative charge equal to the lesser of $25 or 2%
of the amount surrendered.
Effect of Partial surrender on your Face Amount. The Face Amount of your Policy
will also be reduced by the partial surrender amount if you selected Death
Benefit Option I.
We will reduce the Face Amount by the amount of the partial surrender in the
following order:
1. The most recent increase in the Face Amount, if any, will be reduced first.
2. The next most recent increases in the Face Amount, if any, will then be
successively decreased.
3. The initial Face Amount will then be decreased.
No partial surrender may be made that would reduce the Face Amount below the
minimum Face Amount.
Partial surrenders from your Policy may have tax consequences.
Surrendering the Policy for Net Cash Surrender Value
You may surrender your Policy at any time for its Net Cash Surrender Value by
submitting a written request to our Administrative Office. We will require
return of the Policy. A surrender charge may apply. We will process a surrender
request as of the date we receive your written request and all required
documents. Your surrender request generally will be paid within seven days. The
Net Cash Surrender Value may be taken in one sum or it may be applied to a
payment option. Your Policy will terminate and cease to be in force if it is
surrendered for one sum. It cannot later be reinstated.
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Payment Options for Benefits
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The Company offers a wide variety of optional ways of receiving proceeds payable
under the Policy, such as on a surrender or death, other than in a lump sum. Any
agent authorized to sell this Policy can explain these options upon request.
None of these options vary with the investment performance of a separate account
because they are all forms of guaranteed benefit payments.
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Expenses of the Policy
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Periodically, we will deduct expenses related to your Policy. We will deduct
these:
o from premiums, Policy Account Value and from Subaccount assets; and
o upon certain transactions.
The amount of these expenses are described in your Policy as either guaranteed
or current. We will never charge more than the guaranteed amount. We may in our
discretion deduct on a current basis less than the guaranteed amount.
Deductions From Premiums
We will deduct 5% plus a state specific percent of premium from each premium
payment. This charge is intended to provide for state premium taxes, DAC taxes
and for other expenses associated with acquiring and servicing a Policy.
Monthly Deductions From Policy Account Value
On the Policy Date and each monthly anniversary thereafter, we make a deduction
from the Policy Account Value. On the Issue Date the amount deducted is for the
Policy Date and any monthly anniversaries that have elapsed since the Policy
Date. For this purpose, the Policy Date is treated as a monthly anniversary. We
will deduct on each monthly anniversary charges for:
o The administration of your Policy.
o The acquisition and underwriting costs of your Policy.
o The cost of insurance for your Policy.
o The cost of any supplemental benefits or riders.
We will take the monthly deductions from your Policy Account Value and from each
Subaccount on a pro rata basis.
Administrative Charge.
This charge compensates us for administrative expenses associated with the
Policy and the Separate Account. The Policy refers to these expenses as the
Monthly Expense Charge and the Additional First Year Administrative Charge.
Monthly Expense Charge. We will make a deduction from your Policy Account Value
for expenses such premium billing and collection, record keeping, processing
claims, Policy loans, Policy changes, reporting and overhead costs, processing
applications and establishing Policy records associated with the administration
of your Policy. This charge will vary based on the Policy Face Amount.
The chart below reflects the current and guaranteed monthly expense charges:
Current Guaranteed
Monthly Expense Charge Per Policy Charge Charge
If the Face Amount is between $50,000 and $199,999 $ 7.50 $ 15.00
If the Face Amount is between $200,000 and $499,999 $ 5.00 $ 10.00
If the Face Amount is $500,000 or greater $ 4.00 $ 10.00
First Year Additional Charge $ 20.00 $ 25.00
First Year Administrative Charge. There is an additional monthly expense charge
during the first Policy Year and following an increase in Face Amount for our
expenses associated with the acquisition and underwriting of your Policy. We
deduct a monthly charge, not to exceed $25, during the first 12 months after the
Policy Date and the 12 months immediately following a Face Amount increase.
Cost of Insurance Charge. This charge compensates us for providing insurance
coverage. The charge depends on a number of factors, such as Attained Age, sex
and rate class of the Insured, and therefore will vary from Policy to Policy and
from month to month. For any Policy the cost of insurance on a monthly
anniversary is calculated by multiplying the cost of insurance rate for the
Insured by the Net Amount at Risk under the Policy on that monthly anniversary.
[Net Amount at Risk.]
The Net Amount at Risk is calculated as (a) minus (b) where:
(a) is the current Life Insurance Proceeds at the beginning of the Policy month
divided by 1.0032737; and (b) is the current total Policy Account Value.
Rate Classes for Insureds. We currently rate Insureds in one of following basic
rate classifications, based on our underwriting:
o non-smoker standard
o smoker
o substandard for those involving a higher mortality risk
We place the Insured in a rate class when we issue the Policy based on our
underwriting determination. This original rate class applies to the initial Face
Amount. When an increase in Face Amount is requested, we conduct underwriting
before approving the increase (except as noted below) to determine whether a
different rate class will apply to the increase. If the rate class for the
increase has a lower guaranteed cost of insurance rates than the original rate
class, the rate class for the increase also will be applied to the initial Face
Amount. If the rate class for the increase has a higher guaranteed cost of
insurance rates than the original rate class, the rate class for the increase
will apply only to the increase in Face Amount, and the original rate class will
continue to apply to the initial Face Amount.
If there have been increases in the Face Amount, we may use different cost of
insurance rates for the increased portions of the Face Amount. For purposes of
calculating the cost of insurance charge after the Face Amount has been
increased, the Policy Account Value will be applied to the initial Face Amount
first and then to any subsequent increases in Face Amount. If at the time an
increase is requested, the Policy Account Value exceeds the initial Face Amount
(or any subsequently increased Face Amount) divided by 1.0032737, the excess
will then be applied to the subsequent increase in Face Amount in the sequence
of the increases.
In order to maintain the Policy in compliance with Section 7702 of the Code,
under certain circumstances an increase in Policy Account Value will cause an
automatic increase in the Life Insurance Proceeds. The Attained Age and rate
class for such increase will be the same as that used for the most recent
increase in Face Amount (that has not been eliminated through a subsequent
decrease in Face Amount).
The guaranteed cost of insurance charges at any given time for a substandard
policy with flat extra charges will be based on the guaranteed maximum cost of
insurance rate for the policy (including table rating multiples, if applicable),
the current Net Amount at Risk at the time the deduction is made, plus the
actual dollar amount of the flat extra charge. Our current cost of insurance
rates may be less than the guaranteed rates. Our current cost of insurance rates
will be determined based on our expectations as to future mortality, investment,
expense and persistency experience. These rates may change from time to time. In
our discretion, the current charge may be increased in any amount up to the
maximum guaranteed charge shown in the table.
Cost of insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker risk class are generally lower than rates for an Insured of the same
age and sex in a smoker risk class. Cost of insurance rates (whether guaranteed
or current) for an Insured in a nonsmoker or smoker risk class are generally
lower than rates for an Insured of the same age and sex and smoking status in a
substandard risk class.
Legal Considerations Relating to Sex-Distinct Premiums and Benefits. Mortality
tables for the Policy generally distinguish between males and females. Thus,
premiums and benefits under the Policy covering males and females of the same
age will generally differ. We do, however, also offer the Policy based on unisex
mortality tables if required by state law. Employers and employee organizations
considering purchase of a Policy should consult their legal advisers to
determine whether purchase of a Policy based on sex-distinct actuarial tables is
consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Upon request, we may offer the Policy with unisex mortality tables to such
prospective purchasers.
Deduction From Subaccount Assets
Mortality and Expense Risk Charge. We deduct a daily charge from your Policy
Account Value in the Subaccounts for assuming certain mortality and expense
risks under the Policy. This charge does not apply to the amounts you allocate
to the Guaranteed Account. The guaranteed and current charge is at an annual
rate of 0.90% of the Subaccount assets. Although, the charge may be decreased to
not less than 0.50% in Policy Years 11 and later, it is guaranteed not to exceed
an annual rate of 0.90% of your Policy Account Value in the Subaccounts for the
duration of a Policy.
The mortality risk we assume is that the Insureds under a Policy may die sooner
than anticipated, and therefore we will pay an aggregate amount of Life
Insurance Proceeds greater than anticipated. The expense risk we assume is that
expenses incurred in issuing and administering all Policies and the Separate
Account will exceed the amounts realized from the administrative charges
assessed against all Policies.
Deductions Upon Policy Transactions
Transfer Charge. We currently impose a $25 transfer charge on any transfer of
Policy Account Value among the Subaccounts and the Guaranteed Account in excess
of the 12 free transfers permitted each Policy year. When we impose the charge,
we deduct it from the amount requested to be transferred before allocation to
the new Subaccount(s). We will show the transfer charge in the confirmation of
the transaction.
Surrender Charge. If the Policy is surrendered or there is a decrease in Face
Amount during the first 14 Policy years, we will deduct a surrender charge based
on the initial Face Amount. If a Policy is surrendered or there is a decrease in
Face Amount within 14 years after an increase in Face Amount, we will deduct a
surrender charge based on the amount by which the Face Amount had been
increased. The surrender charge will be deducted before any surrender proceeds
are paid.
Surrender Charge Calculation. In general, the surrender charge is based on the
premiums you pay. The Surrender Charge will be no greater than the product of
(1) times (2) times (3) where:
(1) is equal to 25% of the first year paid premium up to the surrender charge
premium (see Appendix B); and (2) is equal to 4% of the first year paid premium
in excess of the surrender charge premium; and (3) is equal to the Policy
duration factor as described in the following table:
<PAGE>
Policy Policy Duration
Duration Factor
1 100%
2 100%
3 100%
4 100%
5 100%
6 90%
7 80%
8 70%
9 60%
10 50%
11 40%
12 30%
13 20%
14 10%
15+ 0%
Surrender Charge Based On An Increase Or Decrease In Face Amount. If you
increase the Face Amount of the Policy, we will impose an additional surrender
charge during the 14 Policy years immediately following the increase. The
additional surrender charge period will begin on the effective date of the
increase. If you reduce the Face Amount of the Policy before the end of the 14th
Policy year or within 14 years immediately following a Face Amount increase, we
may also deduct a pro rata share of any applicable surrender charge from your
Policy Account Value. Reductions will first be applied against the most recent
increase in the Face Amount of the Policy. If you have made several increases in
Face Amount, we will apply the surrender charge to prior increases in Face
Amount of the Policy in the reverse order in which such increases took place,
before applying the additional surrender charges to the initial Face Amount of
the Policy.
Partial Surrender Charges. We may deduct a partial surrender charge:
o upon a partial surrender; and
o If you decreased your Policy Face Amount.
The amount of the partial surrender charge is equal to a pro rata portion of the
surrender charge that would apply to a full surrender. We deduct the partial
surrender charge, proportionately, from the Subaccounts or the Guaranteed
Account affected by your partial surrender.
Partial Surrender Charge Due to A Decrease in Face Amount. We will deduct an
amount equal to the applicable surrender charge multiplied by a fraction (equal
to the decrease in Face Amount divided by the Face Amount of the Policy prior to
the decrease).
Partial Surrender Administrative Charge. We currently deduct an administrative
charge of $25 upon a partial surrender. In certain states the charge may be the
lesser of $25 or 2% of the amount surrendered.
Discount Purchase Programs
The amount of the surrender charge and other charges under the Policy may be
reduced or eliminated when sales of the Policy are made to groups of individuals
in a manner that in our opinion results in expense savings. For purchases made
by officers, directors and employees of the Company, an affiliate, or any
individual, firm, or a company that has executed the necessary agreements to
sell the Policy, and members of the immediate families of such officers,
directors, and employees, we may reduce or eliminate the surrender charge. Any
variation in charges under the Policy, including the surrender charge,
administrative charge or mortality and expense risk charge, will reflect
differences in costs or services and will not be unfairly discriminatory.
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Supplemental Benefits and Riders
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We intend to make available certain supplemental benefits and riders which may
be issued with the Policy. Any monthly charges for these supplemental benefits
and riders, as listed below, will be deducted from the Policy Account Value.
Accelerated Benefit Rider (ABR)
Accidental Death Benefit Rider (ADB)
Guaranteed Minimum Death Benefit (GMDB)
Child's Term Rider (CTR)
Other Insured Term Rider (OIR)
Primary Insured Term Rider (PIR)
Waiver of Monthly Deductions (WMD)
Waiver of Specified Premium (WSP)
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Other Policy Provisions
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Right to Exchange or Convert
You may exchange or convert this Policy to a flexible premium fixed benefit life
insurance policy on the life of the Insured, without evidence of insurability.
This exchange may be made:
(a) within 24 months after the Issue Date while the Policy is in force;
(b) within 24 months of any increase in Face Amount of the Policy; or
(c) within 60 days of the effective date of a material change in the
investment policy of a Subaccount, or within 60 days of the
notification of such change, if later. In the event of such a change,
we will notify you and give you information on the options available.
When an exchange or conversion is requested, we accomplish the exchange by
transferring all of the Policy Account Value to the Guaranteed Account. There is
no charge for this transfer. Once this option is exercised, the entire Policy
Account Value must remain in the Guaranteed Account for the remaining life of
the new policy. The Face Amount in effect at the time of the exchange will
remain unchanged. The Effective Date, Issue Date and Issue Age of the Insured
will remain unchanged. The Owner and Beneficiary are the same as were recorded
immediately before the exchange.
Limits on our Rights to Contest the Policy
Incontestability. We will not contest the Policy after it has been in force
during the Insured's lifetime for two years from the Issue Date. Any increase in
the Face Amount will be incontestable with respect to statements made in the
evidence of insurability for that increase after the increase has been in force
during the life of the Insured for two years after the effective date of the
increase.
Suicide Exclusion. If the Insured commits suicide (while sane or insane) within
two years (unless otherwise specified by state law) after the Issue Date, our
liability will be limited to the payment of a single sum. This sum will be equal
to the premiums paid, minus any loan and accrued loan interest and minus any
partial surrender and minus the cost of any riders attached to the Policy. If
the Insured commits suicide (while sane or insane) within two years (unless
otherwise specified by state law) after the effective date of an increase in the
Face Amount, then our liability as to the increase in amount will be limited to
the payment of a single sum equal to the monthly cost of insurance deductions
made for such increase plus the expense charge deducted for the increase.
Changes in the Policy or Benefits
Misstatement of Age or Sex.
If an Insured's age or sex has been misstated in the Policy, the Life Insurance
Proceeds and any benefits provided by riders shall be those which would be
purchased at the then current cost of insurance charge for the correct age and
sex.
Other Changes. At any time we may make such changes in the Policy as are
necessary to assure compliance at all times with the definition of life
insurance prescribed by the Code or to make the Policy conform with any law or
regulation issued by any government agency to which it is subject.
When Proceeds Are Paid
We will ordinarily pay any Life Insurance Proceeds, loan proceeds or partial or
full surrender proceeds within seven days after receipt at our Administrative
Office of all the required documents. Other than the Life Insurance Proceeds,
which are determined as of the date of death, the amount will be determined as
of the date we receive the required documents. However, we may delay making a
payment or processing a transfer request if:
(1) the New York Stock Exchange is closed for other than a regular holiday or
weekend, trading is restricted by the SEC, or the SEC declares that an
emergency exists; or
(2) the SEC by order permits postponement of payment for your protection.
In addition we may delay making deductions from the Guaranteed Account.
Reports to Owners
You will receive a confirmation within seven days of the transaction of:
o the receipt of any unplanned premium (and any premium received before the
Issue Date);
o any change of allocation of premiums;
o any transfer among Subaccounts;
o any loan, interest repayment, or loan repayment;
o any partial surrender;
o any return of premium necessary to comply with applicable maximum receipt
of any premium payment;
o any exercise of your right to cancel;
o an exchange of the Policy;
o full surrender of the Policy; or
o payment of the Life Insurance Proceeds under the Policy.
Within 30 days after each Policy anniversary we will send you a statement. The
statement will show the Life Insurance Proceeds currently payable, and the
current Policy Account Value, Cash Surrender Value, and the Outstanding Loan.
The statement will also show premiums paid, all charges deducted during the last
Policy year, and all transactions. We will also send to you reports of the
investments within the Separate Account at least annually.
Assignment
You may assign the Policy in accordance with its terms on a form provided by us.
We will not be deemed to know of an assignment unless we receive a copy of this
assignment form at our Administrative Office. We assume no responsibility for
the validity or sufficiency of any assignment. Any assignment or pledge of a
modified endowment contract as collateral for a loan may result in a taxable
event.
Reinstatement
If the Policy has ended without value, you may reinstate Policy benefits while
the Insured is alive if you:
1. Request reinstatement of Policy benefits within three (3) years (unless
otherwise specified by state law) from the end of the Grace Period;
2. Provide evidence of insurability satisfactory to us;
3. Make a payment of an amount sufficient to cover (i) the total monthly
administrative charges from the beginning of the Grace Period to the
effective date of reinstatement; (ii) total monthly deductions for three
(3) months, calculated from the effective date of reinstatement; and (iii)
the premium expense charge and any increase in surrender charges associated
with this payment. We will determine the amount of this required payment as
if no interest or investment performance were credited to or charged
against your Policy Account Value; and
4. Repay or reinstate any Policy loan which existed on the date the Policy
ended.
The effective date of the reinstatement of Policy benefits will be the next
monthly anniversary which coincides with or next follows the date we approve
your request. From the required payment we will deduct the premium expenses. The
Policy Account Value, Policy loan and surrender charges that will apply upon
reinstatement will be those that were in effect on the date the Policy lapsed.
We will start to make monthly deductions again as of the effective date of
reinstatement. The monthly expense charge from the beginning of the Grace Period
to the effective date of reinstatement will be deducted from the Policy Account
Value as of the effective date of reinstatement. No other charges will accrue
for this period.
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Performance Information
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From time to time we may advertise the "total return" and the "average annual
total return" of the Subaccounts and the Funds. Both total return and average
total return figures are based on historical earnings and are not intended to
indicate future performance.
"Total Return" for a portfolio refers to the total of the income generated by
the portfolio net of total portfolio operating expenses plus capital gains and
losses, realized or unrealized. "Total Return" for the Subaccounts refers to the
total of the income generated by the portfolio net of total portfolio operating
expenses plus capital gains and losses, realized or unrealized, and the
mortality and expense risk charge. "Average Annual Total Return" reflects the
hypothetical annually compounded return that would have produced the same
cumulative return if a Fund's portfolio or Subaccount's performance had been
constant over the entire period. Because average annual total returns tend to
smooth out variations in the return of the portfolio, they are not the same as
actual year-by-year results.
The performance information set forth in Appendix D reflects the total of the
income generated by the portfolio net of the total portfolio operating expenses,
plus capital gains and losses, realized or unrealized. The performance results
do not reflect: monthly deductions; cost of insurance; surrender charges; sales
loads; DAC taxes; and any state or local premium taxes. If these charges were
included, the total return figures would be lower.
Performance information may be compared, in reports and promotional literature,
to: (i) the Standard & Poor's 500 Stock Index ("S & P 500"), Dow Jones
Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other
unmanaged indices so that investors may compare the Subaccount results with
those of a group of unmanaged securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
variable life separate accounts or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds and other investment products by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons, such as Morningstar, Inc., who rank such investment products on
overall performance or other criteria; or (iii) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Subaccount. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses. We may provide in advertising, sales literature, periodic publications
or other materials information on various topics of interest to Owners and
prospective Owners. These topics may include the relationship between sectors of
the economy and the economy as a whole and its effect on various securities
markets, investment strategies and techniques (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer and
account rebalancing), the advantages and disadvantages of investing in
tax-deferred and taxable investments, customer profiles and hypothetical
purchase and investment scenarios, financial management and tax and retirement
planning, and investment alternatives to certificates of deposit and other
financial instruments, including comparisons between the Policy and the
characteristics of and market for such financial instruments.
Total return data may be advertised based on the period of time that the
portfolios have been in existence. The results for any period prior to the
Policy being offered will be calculated as if the Policy had been offered during
that period of time, with all charges assumed to be those applicable to the
Policy. Performance information for any Subaccount in any advertising will
reflect only the performance of a hypothetical investment in the Subaccount
during the particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio in which
the Subaccount invests and the market conditions during the given time period,
and should not be considered as a representation of what may be achieved in the
future. Actual returns may be more or less than those shown in any advertising
and will depend on a number of factors, including the investment allocations by
an Owner and the different investment rates of return for the portfolios.
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Federal Income Tax Considerations
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The following summarizes the current federal income tax law that applies to life
insurance in general. This summary does not cover all situations. This summary
is based upon our understanding of the current federal income tax laws and
current interpretations by the Internal Revenue Service. We cannot predict
whether the Code will change. You should speak to a competent tax adviser to
discuss how the purchase of a Policy and the transactions you make under the
Policy will impact your federal tax liability.
Tax Status of the Policy
A Policy has certain tax advantages when it is treated as a "life insurance
contract" under the Code. We believe that the Policy meets the definition of a
life insurance contract under Section 7702 of the Code. You bear the risk that
the Policy may not meet the definition of a life insurance contract. You should
consult your own tax advisers to discuss these risks.
The Company
We are taxed as a life insurance company under the Code. For federal tax
purposes, the Separate Account and its operations are considered to be part of
our operations and are not taxed separately.
Diversification and Investor Control
The Code requires that we diversify the investments underlying variable
insurance contracts. If the investments are not properly diversified and any
remedial period has passed, Section 817(h) of the Code provides in general the
contract is immediately disqualified from treatment as a life insurance contract
for federal income tax purposes. Disqualification of the Policy as a life
insurance contract would result in taxable income to you at the time that we
allocate any earnings to your Policy. You would have taxable income even though
you have not received any payments under the Policy. To the extent that any
segregated asset account with respect to a variable life insurance contract
invests exclusively in securities issued by the U.S. Treasury, the
diversification standard is satisfied. A segregated asset account underlying
life insurance contracts such as the Policy will also meet the diversification
requirements if, as of the close of each quarter:
o the regulated investment companies in which the segregated asset account
invest satisfy the diversification requirements described below; and
o not more than 55 percent of the value of the assets of the account are
attributable to cash and cash items (including receivables), Government
securities and securities of other regulated investment Companies.
Alternatively, the diversification requirements may be met for each if:
o no more than 55% of the value of the total assets of the portfolio is
represented by any one investment;
o no more than 70% of the value of the total assets of the portfolio is
represented by any two investments;
o no more than 80% of the value of the total assets of the portfolio is
represented by any three investments; and
o no more than 90% of the value of the total assets of the portfolio is
represented by any four investments.
There are several ways for investments to meet the diversification requirements.
Generally, each United States government agency or instrumentality is treated as
a separate issuer under these rules.
All securities of the same issuer are generally treated as a single investment.
We intend that each portfolio in which the Subaccounts invest will be managed by
its investment adviser in compliance with these diversification requirements. A
variable life insurance policy could fail to be treated as a life insurance
contract for tax purposes if the owner of the policy has such control over the
investments underlying the policy (e.g., by being able to transfer values among
subaccounts with only limited restrictions) so as to be considered the owner of
the underlying investments. There is some uncertainty on this point because no
guidelines have been issued by the Treasury Department. If and when guidelines
are issued, we may be required to impose limitations on you're rights to control
investment designations under the Policy. We do not know whether any such
guidelines will be issued or whether any such guidelines would have retroactive
effect. We, therefore, reserve the right to make changes that we deem necessary
to insure that the Policy qualifies as a life insurance contract.
Tax Treatment of the Policy
Section 7702 of the Code sets forth a detailed definition of a life insurance
contract for federal tax purposes. The Treasury Department has not issued final
regulations so that the extent of the official guidance as to how Section 7702
is to be applied is quite limited. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, that Policy would not qualify
for the favorable tax treatment normally provided to a life insurance contract.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes that such a Policy should meet the Section 7702 definition of a
life insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a premium
class involving higher than standard mortality risk), there is less certainty,
in particular as to how the mortality and other expense requirements of Section
7702 are to be applied in determining whether such a Policy meets the definition
of a life insurance contract set forth in section 7702. Thus, it is not clear
that such a Policy would satisfy Section 7702, particularly if the you pay the
full amount of premiums permitted under the Policy.
If subsequent guidance issued under Section 7702 leads us to conclude that a
Policy does not (or may not) satisfy Section 7702, we will take appropriate and
necessary steps for the purpose of bringing the policy into compliance, but we
can give no assurance that it will be possible to achieve that result. We
expressly reserve the right to restrict Policy transactions if we determine such
action to be necessary to qualify the Policy as a life insurance contracts under
Section 7702.
Tax Treatment of Policy Benefits In General
This discussion assumes that each Policy will qualify as a life insurance
contract for federal income tax purposes under Section 7702. The Life Insurance
Proceeds under the Policy should be excluded from the taxable gross income of
the Beneficiary. In addition, the increases in a Policy's Policy Account Value
should not be taxed until there has been a distribution from the Policy such as
a surrender, partial surrender or lapse with loan. Pre-Death Distribution
The tax treatment of any distribution you receive before the Insured's death
depends on whether the Policy is classified as a modified endowment contract.
Policies Not Classified as Modified Endowment Contracts
o If you surrender the Policy or allow it to lapse, you will not be taxed
except to the extent the amount you receive is in excess of the premiums
you paid less the untaxed portion of any prior withdrawals. For this
purpose, you will be treated as receiving any portion of the cash surrender
value Policy debt. The tax consequences of a surrender may differ if you
take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premiums you paid for the Policy less the untaxed
portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Policy years, all or a portion of a
withdrawal may be taxed if the cash value exceeds the total premiums paid
less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums
o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the Policy for the purposes of determining
whether a withdrawal is taxable.
o Loans you take against the Policy are ordinarily treated as debt and are
not considered distributions subject to tax.
Modified Endowment Contracts
o The rules change if the Policy is classified as a modified endowment
contract (or "MEC"). The Policy could be classified as a MEC if premiums
substantially in excess of scheduled premiums are paid or a decrease in the
face amount of insurance is made (or a rider removed). The addition of a
rider or an increase in the face amount of insurance may also cause the
Policy to be classified as a MEC. The rules on whether a Policy will be
treated as a MEC are very complex and cannot be fully described in this
summary. You should consult a qualified tax adviser to determine whether a
Policy transaction will cause the Policy to be classified as a MEC. We will
monitor your Policy and will take steps reasonably necessary to notify you
on a timely basis if your Policy is in jeopardy of becoming a MEC.
o If the Policy is classified as a MEC, then amounts you receive under the
Policy before the Insured's death, including loans and withdrawals, are
included in income to the extent that the cash value before surrender
charges exceeds the premiums paid for the Policy increased by the amount of
any loans previously included in income and reduced by any untaxed amounts
previously received other than the amount of any loans excludable from
income. An assignment of a MEC is taxable in the same way. These rules also
apply to pre-death distributions, including loans, made during the two-year
period before the time that the Policy became a MEC.
o Any taxable income on pre-death distributions (including full surrenders)
is subject to a penalty of 10% unless the amount is received on or after
age 59 1/2, on account of your becoming disabled or as a life annuity. It
is presently unclear how the penalty tax provisions apply to the Policies
owned by businesses.
o All MECs issued by us to you during the same calendar year are treated as a
single Policy for purposes of applying these rules.
Interest on Policy Loans. Except in special circumstances, interest paid on a
loan under a Policy which is owned by an individual is treated as personal
interest under the Code and thus will not be tax deductible. In addition, the
deduction of interest that is incurred on any loan under a Policy owned by a
taxpayer and covering the life of any individual who is an officer or employee
of or who is financially interested in the business carried on by that taxpayer
may also be subject to certain restrictions set forth in Section 264 of the
Code. Before taking a Policy loan, you should consult a tax adviser as to the
tax consequences of such a loan. (Also Section 264 of the Code may preclude
business Owners from deducting premium payments.)
Policy Exchanges and Modifications. Depending on the circumstances, the exchange
of a Policy, a change in the Policy death benefit option, a Policy loan, a
partial surrender, a surrender, a change in owners or an assignment of the
Policy may have federal income tax consequences. In addition, the federal, state
and local transfer, and other tax consequences of ownership or receipt of Policy
proceeds will depend on the circumstances of each Owner or Beneficiary.
Withholding. We are required to withhold federal income taxes on the taxable
portion of any amounts received under the Policy unless you elect to not have
any withholding or in certain other circumstances. You are not permitted to
elect out of withholding if you do not provide a social security number or other
taxpayer identification number. Special withholding rules apply to payments made
to non-resident aliens.
You are liable for payment of federal income taxes on the taxable portion of any
amounts received under the Policy. You may be subject to penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
Generation Skipping Transfer Tax. A transfer of the Policy 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.
Contracts Issued in Connection With Tax Qualified Pension Plans. Prior to
purchase of a Policy in connection with a qualified plan, you should examine the
applicable tax rules relating to such plans and life insurance thereunder in
consultation with a qualified tax adviser.
Possible Charge for the Company's Taxes
At the present time, we do not deduct any charges for any federal state or local
income taxes. However, we do currently deduct charges for state and federal
premium based taxes and the federal DAC tax. We reserve the right in the future
to deduct a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to the
Separate Account or to the Policy.
- --------------------------------------------------------------------------------
Distribution of the Policy
- --------------------------------------------------------------------------------
The Policy is sold by licensed insurance agents, where the Policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The Policy will be distributed through the principal underwriter for the
Separate Account, AIG Equity Sales Corp. (AIGESC) 70 Pine Street, New York, New
York, an affiliate of ours. AIGESC may also enter into selling agreements with
other broker dealers that will offer the policy.
Commissions may be paid to registered representatives based on premiums paid for
Policies sold. Other expense reimbursements, allowances, and overrides may also
be paid. Registered representatives who meet certain productivity and
profitability standards may be eligible for additional compensation. Additional
payments may be made for administrative or other services not directly related
to the sale of the Policies.
Other Policies Issued by the Company
The Company may offer other policies similar to those offered herein.
- --------------------------------------------------------------------------------
About Us and the Accounts
- --------------------------------------------------------------------------------
The Company
[We are a member of the American International Group, Inc].
AIG Life Insurance Company is a stock life insurance company operating under the
laws of the State of Delaware. It was incorporated in 1962. We provide a full
range of individual and group life, disability, accidental death and
dismemberment policies and annuities. We are a subsidiary of American
International Group, Inc., which is a 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.
[Year 2000.]
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the year 2000, causing
disruption of our operations and of our lessees, vendors, or business partners.
We have developed a plan to address the Year 2000 issue as it affects our
internal IT and non-IT systems, and to assess Year 2000 issues relating to third
parties with whom we have critical relationships.
Our plan for addressing internal systems includes:
o an assessment of internal IT and non-IT systems and equipment affected by
the Year 2000 issue;
o definition of strategies to address affected systems and equipment;
o remediation of identified affected systems and equipment; and
o internal certification that each internal system is Year 2000 compliant.
We have remediated, tested and returned to production substantially all of our
internal IT systems. We continue to remediate and test internal non-IT systems
and expect to complete our remediation by mid-1999.
We have also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with us. Currently, we
are unable to ascertain whether all such third parties will successfully address
the Year 2000 issue, particularly those third parties outside the United States
where it is believed that remediation efforts relating to the Year 2000 issue
may be less advanced. While we expect to have no interruption of operations as a
result of internal IT and non-IT systems, significant uncertainties remain about
the effect on us of third parties who are not Year 2000 compliant. We will
continue to monitor third party Year 2000 issue readiness to determine whether
additional or alternative measures may be necessary. Such measures may include
selecting alternate third parties or other actions designed to mitigate the
effects of a third party's lack of preparedness. There can be no assurance that
unresolved Year 2000 issues of third parties will not have a material adverse
impact on our results of operations, financial condition or liquidity. We are
considering the effects of Year 2000 related failures on our business and, as
the most reasonably likely worst case scenarios become more clearly identified,
we will develop appropriate contingency plans.
The funds, like other third parties, may not have resolved their Year 2000
issues that may have a material adverse impact on your contract values as well
as our operations and we cannot assure that they will. Please refer to Year 2000
discussions in each fund's prospectus.
The Separate Account
We established the Separate Account as a separate investment account on June 5,
1986. It may be used to support the Policy and other variable life insurance
policies, and used for other permitted purposes. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the federal securities laws and qualifies as a "separate account"
within the meaning of these laws.
[Although you may have allocated your Policy Account Values to the Subaccounts,
you do not own these assets. You only own your Policy.]
We own the assets in the Separate Account. The Separate Account is divided into
Subaccounts. The Subaccounts available under the Policy invest in shares of a
specific portfolio of the Alliance Variable Products Series Fund, Inc. The
Separate Account may include other Subaccounts which are not available under the
Policy.
Income, gains and losses, realized or unrealized, of a Subaccount are credited
to or charged against the Subaccount without regard to any of our other income,
gains or losses. Assets equal to the reserves and other contract liabilities
with respect to each Subaccount are not chargeable with liabilities arising out
of any of our other businesses or separate accounts. If the assets exceed the
required reserves and other liabilities, we may transfer the excess to our
general account. We are obligated to pay all benefits provided under the Policy.
[Rights we have reserved.]
We have reserved certain rights regarding the Separate Account. We will exercise
these rights only in compliance with all applicable regulatory requirements. We
have the right to:
o Change, add or delete designated investment options.
o Add or remove Subaccounts.
o Withdraw assets of a class of policies to which the Policy belongs from a
Subaccount and put them in another Subaccount.
o Combine any two or more Subaccounts.
o Register other separate accounts or deregister the Separate Account with
the Securities and Exchange Commission.
o Run the Separate Account under the direction of a committee, and discharge
such committee at any time.
o Restrict or eliminate any voting rights of Owners, or other persons who
have voting rights as to the Separate Account.
o Operate the Separate Account or one or more of the Subaccount making direct
investments or in any other form. If we do so, we may invest the assets of
the Separate Account or one or more of the Subaccounts in any investments
that are legal, as determined by our own or outside counsel.
We will not change an investment adviser or any investment of a Subaccount of
our Separate Account unless approved by the Commissioner of Insurance of the
State of Delaware or deemed approved in accordance with such law or regulation.
Any approval process is on file with the insurance supervisory official of the
jurisdiction in which this Policy is delivered.
If any change we make results in a material change in the underlying investments
of a Subaccount, we will notify you of such a change. If you have value in that
Subaccount:
o We will transfer it at your written direction from that Subaccount (without
charge) to another Subaccount or to the Guaranteed Account, and
o You may then change your premium allocation percentages
Voting Rights
We are the legal owner of shares held by the Subaccounts and as such have the
right to vote on all matters submitted to shareholders of the portfolios.
However, as required by law, we will vote shares held in the Subaccounts at
regular and special meetings of shareholders of the portfolios in accordance
with instructions we receive from Owners with Policy Account Value in the
Subaccounts. If allowed by law or required by law we may vote shares of the
portfolios without obtaining instructions or in disregard to instructions we
have received. If we ever disregard voting instructions, we will advise you of
that action and our reasons for such action in the next semiannual report.
The Guaranteed Account
The Guaranteed Account is an account within the general account of the Company.
Our general account assets are used to support our insurance and annuity
obligations other than those funded by separate accounts. Subject to applicable
law, we have sole discretion over the investment of the assets of the general
account.
We have not registered:
o Interests in the Guaranteed Account under the Securities Act of 1933, and
o the Guaranteed Account as an investment company.
The staff of the Securities and Exchange Commission has not reviewed our
disclosure on the Guaranteed Account. Our disclosure regarding the Guaranteed
Account must comply with generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
<PAGE>
- --------------------------------------------------------------------------------
Our Directors and Executive Officers
- --------------------------------------------------------------------------------
The directors and principal officers of the Company are listed below with their
current principal business affiliation and their principal occupations during
the past five (5) years. All officers have been affiliated with the Company
during the past five (5) years unless otherwise indicated.
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
Michele L. Abruzzo Director, Sr. Exec. Senior Vice President
80 Pine Street Vice President
New York, NY 10005
Maurice R. Greenberg Director Director, Chairman and Chief
70 Pine Street Executive Officer AIG, Inc.
New York, NY 10270
Howard E. Gunton, Jr. Chief Financial Officer, Sr. Vice President and
One Alico Plaza Senior Vice President Comptroller AIG Domestic
600 King Street Life Companies
Wilmington, DE 19801
Edward Easton Matthews Director, Senior Vice Vice Chairman Investments
70 Pine Street President and Financial Services, AIG,
New York, NY 10270 Inc.
Jerome T. Muldowney Director, Senior Vice Managing Director AIG
175 Water Street President Investments Corp.
New York, NY 10038 Senior Vice President of AIG
Domestic Life Companies
Michael Mullin Chief Operating Officer, Vice President
One Alico Plaza Senior Vice President
600 King Street
Wilmington, DE 19801
Robinson K. Nottingham Director, Chairman of the Chairman of the Board and
70 Pine Street Board Chief Executive Officer of
New York, NY 10270 American International Life
Insurance Company (ALICO)
Nicholas A. O'Kulich Director, Vice Chairman, Vice President, Senior Vice
70 Pine Street Treasurer President, Life Insurance
New York, NY 10270 AIG, Inc.
<PAGE>
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
John Robert Skar Director, Sr. Vice Pres. Sr. Vice President, Actuary,
One Alico Plaza Chief Actuary AIG Domestic Life Companies
600 King Street
Wilmington, DE 19801
Howard Ian Smith Director Director, Executive Vice
70 Pine Street President, Chief Financial
New York, NY 10270 Officer and Comptroller,
AIG, Inc.
Edmund Sze-Wing Tse Director Vice Chairman, Life
AIA Building Insurance, AIG, Inc.
70 Pine Street
New York, NY 10270
Elizabeth M. Tuck Secretary Secretary and Assistant
70 Pine Street Secretary of AIG, Inc., and
New York, NY 10270 certain affiliates
Gerald Walter Wyndorf Director, Chief Executive Executive Vice President -
80 Pine Street Officer and President AIG Domestic Life
New York, NY 10038 Companies
- --------------------------------------------------------------------------------
Other Information
- --------------------------------------------------------------------------------
State Regulation
We are subject to the laws of Delaware governing insurance companies and to
regulation by the Delaware Insurance Department. We file an annual statement in
a prescribed form with the Insurance Department each year covering our operation
for the preceding year and our final condition as of the end of such year.
Regulation by the Insurance Department includes periodic examinations to
determine our Policy liabilities and reserves so that the Insurance Department
may certify the items are correct. Our books and accounts are subject to review
by the Insurance Department at all times and a full examination of its
operations is conducted periodically by the staff of the Insurance Department
pursuant to the National Association of Insurance Commissioners. Such regulation
does not, however, involve any supervision of management or investment practices
or policies. In addition, we are subject to regulation under the insurance laws
of other jurisdictions in which we may operate.
Legal Proceedings
There are no legal proceedings to which the Separate Account or the principal
underwriter is a party. We are engaged in various kinds of routine litigation
which, in our opinion, are not of material importance in relation to our total
capital and surplus.
Experts
Our financial statements which appear in this Prospectus have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants, as stated
in their reports, and have been included in reliance upon the authority of such
firm as experts in accounting and auditing.
Legal Matters
Legal matters relating to the federal securities laws are being passed upon by
the firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP of Washington,
D.C.
Published Ratings
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to us 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 rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the Separate Account.
The ratings are not recommendations to purchase our 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 so
warrant. The ratings do not reflect the investment performance of the Separate
Account or the degree of risk associated with an investment in the Separate
Account.
<PAGE>
ATTACH FINANCIAL STATEMENTS HERE
<PAGE>
APPENDIX A
Minimum Premiums
The following table shows for Insureds of varying ages, the current minimum
initial Premium for a Policy with the Face Amount indicated. This table assumes
that the insured will be placed in a nonsmoker class and that no supplemental
benefits will be added to the base policy.
<TABLE>
Issue Policy Minimum Minimum Planned Periodic Premium
Age of Sex of Face Initial By Premium Payment Mode
Insured Insured Amount Premium Annual Semiannual Quarterly Monthly
<S> <C> <C> <C> <C> <C> <C> <C>
25 Male $75,000 $102.08 $612.50 $306.25 $153.13 $51.04
30 Female $100,000 $107.33 $644.00 $322.00 $161.00 $53.67
35 Male $250,000 $175.42 $1,052.50 $526.25 $263.13 $87.71
40 Female $300,000 $227.83 $1,367.00 $683.50 $341.75 $113.92
45 Male $500,000 $476.67 $2,860.00 $1,430.00 $715.00 $238.33
50 Female $350,000 $427.50 $2,565.00 $1,282.50 $641.25 $213.75
55 Male $300,000 $686.33 $4,118.00 $2,059.00 $1,029.50 $343.17
60 Female $250,000 $620.83 $3,725.00 $1,862.50 $931.25 $310.42
65 Male $200,000 $1,185.67 $7,114.00 $3,557.00 $1,778.50 $592.83
70 Female $100,000 $670.50 $4,023.00 $2,011.50 $1,005.75 $335.25
75 Male $75,000 $1,210.71 $7,264.25 $3,632.13 $1,816.06 $605.35
</TABLE>
A-1
<PAGE>
APPENDIX B
Surrender Charge Premium
The surrender charge premium is an amount used to determine the sales charge
deducted on surrender of the policy. The surrender charge premium is calculated
for each Policy based on the issue age, sex, and smoker status of the Insured
and the Face Amount of the Policy.
The following table shows for Insureds of varying ages, the surrender charge
premium for a policy with the Face Amount indicated. This table assumes that the
Insured will be placed in a nonsmoker class.
Issue Policy Surrender
Age of Sex of Face Charge
Insured Insured Amount Premium
25 Male $75,000 $483.75
30 Female $100,000 $690.00
35 Male $250,000 $2,562.50
40 Female $300,000 $3,327.00
45 Male $500,000 $8,530.00
50 Female $350,000 $6,373.50
55 Male $300,000 $8,880.00
60 Female $250,000 $7,800.00
65 Male $200,000 $10,762.00
70 Female $100,000 $5,781.00
75 Male $75,000 $7,689.75
B-1
<PAGE>
APPENDIX C
PORTFOLIO EXPENSES
As of December 31, 1998
The purpose of this table is to assist the Owner in understanding the various
costs and expenses that will be incurred, directly or indirectly. It is based on
historical expenses as a percentage of net assets after waivers and/or
reimbursements, if applicable, for the year ended December 31, 1998, except as
indicated below. Expenses of the portfolios of the Funds are not fixed or
specified under the terms of the Policy. Actual expenses may vary.
Total
Management Other Operating
Fees Expenses(1) 12b-1 Fees Expenses
ALLIANCE(2)
Conservative Investors Portfolio
Global Bond Portfolio
Global Dollar Government Portfolio
Growth Portfolio
Growth and Income Portfolio
Growth Investors Portfolio
High Yield Portfolio
Money Market Portfolio
North American Government Portfolio
International Portfolio
Premier Growth Portfolio
Quasar Portfolio
Real Estate Investors Portfolio
Short-Term Multi-Market Portfolio
Technology Portfolio
Total Return Portfolio
U.S. Gov-t High Grade Portfolio
Utility Income Portfolio
Worldwide Privatization Portfolio
(1) Other expenses are based on the expenses outlined in the prospectuses for
the Alliance Funds.
(2) Total expenses for the following portfolios before reimbursement by Alliance
Fund=s investment adviser for the period ended December 31, 1998, were as
follows:
[To be provided by a subsequent amendment to this filing.]
C-1
<PAGE>
APPENDIX D
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1998
Inception Since
Date 1 Yr 3Yrs 5Yrs 10 Yrs Inception
--------- ---- ---- ----- ------ ---------
ALLIANCE
Conservative Investors Portfolio
Global Bond Portfolio
Global Dollar Government
Portfolio Growth Portfolio
Growth and Income Portfolio
Growth Investors Portfolio
High Yield Portfolio
Money Market Portfolio
North American Government Portfolio
International Portfolio
Premier Growth Portfolio
Quasar Portfolio
Real Estate Investors Portfolio
Short-Term Multi-Market Portfolio
Technology Portfolio
Total Return Portfolio
U.S. Gov-t High Grade Portfolio
Utility Income Portfolio
Worldwide Privatization Portfolio
D-1
<PAGE>
[Back cover]
The Securities and Exchange Commission maintains an Internet Web site
(http://www.sec.gov.) That contains additional information about AIG Life
Insurance Company, the Policy and the Separate Account which may be of interest
to you. The Web site also contains additional information about the Policy's
variable investment options.
<PAGE>
AIG Life Insurance Company
Variable Account II
One Alico Plaza
600 King Street
Wilmington, Delaware 19801
1-302-594-2622
Flexible Premium Variable Universal Life Group and Individual Policies
AIG Life Insurance Company ("we," "our" or "us"), is offering life insurance
coverage under the group flexible premium variable universal (GVUL) policy (the
"Policy"). The Policy provides insurance protection for individuals within
groups under corporate owned or sponsored arrangements. Corporate owned
arrangements are when an employer (or trust established by an employer)
purchases life insurance coverage on their employees. The employer or trust is
the beneficiary. Sponsored arrangements are those instances where an employer, a
financial institution or association allows us to sell insurance policies to its
employees, depositors or members.
The policy allows "you," the owner of the Policy, within limits, to:
o Select the face amount of life insurance. You may, within limits,
change your initial selection as your insurance needs change.
o Select the amount and timing of premiums payments. You may make more
premium payments than scheduled or stop making premium payments.
o Allocate premium payments and your Policy's Account Value among the 21
variable investment options and the guaranteed investment option.
o Receive payments from your Policy while the Insured is alive through
loans, partial surrenders or total surrenders.
This document contains information about the Policy. You should read this
document carefully before you decide to purchase the Policy. You should also
keep this document for future reference.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of the Policy or determined that this document is
accurate or complete. Any representation to the contrary is a criminal offense.
INVESTMENTS IN THESE CONTRACTS ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY GOVERNMENT AGENCY. ANY INVESTMENT
IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISKS WHICH MAY INCLUDE THE POSSIBLE
LOSS OF PRINCIPAL.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
Prospectus _________, 1999
<PAGE>
Investment Options
Variable Investment Options
The Separate Account is divided into Subaccounts. Each Subaccount invests in
shares of a portfolio of the funds named below. The prospectuses for the funds
contain information about each portfolio. You should read these prospectuses
carefully.
Alliance Variable Product Series Fund Morgan Stanley Dean Witter Universal
Funds, Inc.
o Growth and Income Portfolio
o Premier Growth Portfolio o Fixed Income Portfolio
o Quasar Portfolio o Global Equity Portfolio
o High Yield Portfolio
Fidelity Variable Insurance Products o Money Market Portfolio
Fund II o U.S. Real Estate Portfolio
o VIP II Contrafund Portfolio
o VIP II Index 500 Portfolio Neuberger Berman Advisers Management
Trust
Goldman Sachs Variable Insurance Trust
o AMT Partners Portfolio
o Capital Growth Fund
o CORE U.S. Equity Fund Templeton Variable Products Series
o CORE Large Cap Growth Fund Fund
o CORE Small Cap Equity Fund o Templeton International-Class 2
o Global Income Fund Fund
o Growth and Income Fund o Templeton Developing Markets
o International Equity Fund -Class 2 Fund
o Mid Cap Equity Fund
<PAGE>
Guaranteed Investment Option
The Guaranteed Account is part of our general account. We will credit interest
equal to at least 4% per year, compounded annually on that portion of Account
Value that you allocate to the Guaranteed Account. We may, in our discretion,
elect to credit a higher rate of interest. This document generally describes
only that portion of the Account Value allocated to the Separate Account.
<PAGE>
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Table of Contents
- --------------------------------------------------------------------------------
Special Terms used in this Document..........................................I
Summary of the Policy........................................................1
Overview................................................................1
Applying for a Policy...................................................1
Premium Payments........................................................2
Account Value...........................................................2
Death Benefit...........................................................3
Cash Benefits During the Life of the Insured............................4
Expenses of the Policy..................................................4
Federal Tax Considerations..............................................7
Purchasing a GVUL Policy.....................................................8
Applying for a Policy...................................................8
Your Right to Cancel the Policy.........................................9
Premiums................................................................9
Restrictions on Premiums............................................9
Minimum Initial Premium............................................10
Planned Periodic Premiums..........................................10
Additional Premiums................................................10
Effect of Premium Payments.........................................11
Grace Period.......................................................11
Premium Allocations................................................12
Crediting Premiums.................................................12
The Investment Options......................................................13
Variable Investment Options............................................14
Guaranteed Investment Option...........................................18
Investing Your Account Value................................................20
Determining the Account Value..........................................20
Transfers..............................................................23
Dollar Cost Averaging..................................................24
Death Benefits..............................................................28
Life Insurance Proceeds................................................28
Death Benefit Options..................................................29
Changes in Death Benefit Options.......................................30
Changes in Face Amount.................................................31
Cash Benefits During the Insured's Life ....................................33
Policy Loans...........................................................33
Partial Surrenders.....................................................35
Surrendering the Policy for Net Cash Surrender Value...................38
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Payment Options for Benefits................................................39
Expenses of the Policy......................................................40
Deductions From Premiums...............................................40
Monthly Deductions From Account Value..................................40
Deduction From Subaccount Assets.......................................44
Deductions Upon Policy Transactions ...................................44
Other Policy Provisions.....................................................49
Performance Information.....................................................54
Federal Income Tax Considerations...........................................57
Distribution of the Policy..................................................64
About Us and the Accounts...................................................65
The Company............................................................65
The Separate Account...................................................66
The Guaranteed Account.................................................68
Our Directors and Executive Officers........................................70
Other Information...........................................................72
State Regulation.......................................................72
Legal Proceedings......................................................72
Experts................................................................72
Legal Matters..........................................................72
Published Ratings......................................................73
Appendices.................................................................A-1
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Special Terms used in this Document
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We have capitalized some special terms we use in this document. We have defined
these terms here.
Accounts. The Separate Account and the Guaranteed Account of
the Company
We use Account Value to determine your Policy benefits. How we determine Account
Value is described on page __.
Account Value. The total amount in the Accounts credited to your Policy.
If you have a request, please write to us at this address.
Administrative Office. One Alico Plaza, P.O. Box 8718, Wilmington, DE 19899.
Age. The Insured's age as of his or her last birthday.
Allocation Date. The first business date after the Period to Examine and Cancel
expires.
Attained Age. The Insured's Age as of the Policy Date plus the number of
completed Policy years since the Policy Date.
Beneficiary. The person(s) who is entitled to the Life Insurance Proceeds under
the Policy.
How we determine the Cash Surrender Value is shown on page _.
Cash Surrender Value. Account Value less any applicable surrender charge.
Code. The Internal Revenue Code of 1986, as amended.
Company, we, our, us. AIG Life Insurance Company.
Death Benefit Amount. The amount determined to be the Life Insurance Proceeds
based on the Face Amount, Death Benefit Qualification Option and the Life
Insurance Proceeds Option which you selected.
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You will specify the initial Face Amount in your Policy application. The Policy
will also show the initial Face
Amount.
Face Amount. The amount of insurance specified by the Owner and from which we
determine the Death Benefit Amount.
Grace Period. The period of time following a monthly anniversary during which
this Policy will continue in force even though your Net Cash Surrender Value is
less than the total monthly deduction then due.
Guaranteed Account. An account within the general account which consists of all
of our assets other than the assets of the Separate Account and any of our other
separate accounts.
Insured. A person whose life is covered under the Policy. We measure
contestability periods from the Issue Date. Issue Date. The date the Policy is
actually issued. It may be later than the Policy Date.
Life Insurance Proceeds. The amount payable to a Beneficiary if the Insured dies
while coverage under the Policy is in force.
Loan Account. The portion of the Account Value held in the Guaranteed Account as
collateral for Policy loans.
Maturity Date. The first policy anniversary following the Insured's 100th
birthday.
Monthly Anniversary. The same day as the Policy Date for each succeeding month.
If the day of the monthly anniversary is the 29th, 30th or 31st and a month has
no such day, the monthly anniversary is deemed to be the last day of that month.
We use this value to determine if your Policy is in force. Net Cash Surrender
Value. The Cash Surrender Value less any Outstanding Loans.
Net Premium. Any premium paid less any expense charges deducted from the premium
payment.
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Outstanding Loan. The total amount of Policy loans, including principal, past
due unpaid interest and accrued interest.
You may be an Owner even if you are not the Insured.
Owner, you, your. The person who purchased the Policy as shown in the
application, unless later changed.
Planned Periodic Premium. The amount and frequency of premium to be paid until
the Maturity Date. You select this at the time of application
Policy. The group flexible premium variable universal life insurance coverage we
issue. We may issue coverage on the Insured under an individual contract or
under a certificate issued under a group contract. The term Policy includes the
individual contract and the certificate and group contract.
We use the Policy Date as the date coverage begins and to determine all
anniversary dates.
Policy Date. The date as of which we have received the initial premium and an
application in good order. Coverage will not begin unless your Policy is issued.
Separate Account. Variable Account II, a separate investment account of ours.
Subaccount. A division of the Separate Account established to invest in shares
of a corresponding portfolio of a fund that is available for investment under
the Policy.
Valuation Date. Each day the New York Stock Exchange is open for trading.
Valuation Period. A period commencing with the close of trading on the New York
Stock Exchange (currently 4 P.M., Eastern Time) on any Valuation Date and ending
as of the close of the New York Stock Exchange on the next succeeding Valuation
Date.
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Summary of the Policy
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Because this is a summary, it does not contain all the information that may
be important to you. You should read this entire document carefully before you
decide to purchase a Policy.
If you select any variable investment options, your Policy benefits will vary
based upon the returns earned by those variable investment options. The returns
may be zero or negative and you bear this risk.
Overview
The Policy is a flexible premium variable universal life policy. Like
traditional life insurance, the Policy provides an initial minimum death benefit
and cash benefits that you can access through loans, partial surrenders or a
surrender. Unlike traditional life insurance, you may choose how to invest your
Account Value.
The Policy allows you to make certain choices that will tailor the Policy to
your needs. When you apply for the Policy, we will ask you to make some of these
choices. You may also change your choices to meet your changing insurance needs.
Applying for a Policy
You may apply for a Policy to cover a person, the "Insured," who is 75 or
younger.
Amount of life insurance benefits.
When you apply for a Policy, you must select the Face Amount. The Face Amount
must be at least $50,000, for all Insureds.
When your coverage will become effective.
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment, in an amount we determine.
o We have completed our review to our satisfaction.
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Your right to cancel the Policy.
Once you receive your Policy, you should read the Policy. You have the right to
cancel the Policy for any reason within the later of:
o 45 days after you sign Part I of the Policy application.
o 10 days after you received the Policy. If required by the state where you
live, we will extend the 10 days to the number required by law.
Premium Payments
Minimum initial premium.
Before your Policy is effective, you must pay the minimum initial premium. We
will calculate the initial minimum premium based on a number of factors, such as
the age, sex and underwriting rate class of the proposed Insured, the desired
Face Amount, and any supplemental benefits or riders applied for and whether
premiums will be paid by pre-authorized checking.
Planned periodic premium.
When you apply for a Policy you will select the amount of premium payments you
plan to pay during the term of the Policy. We will establish a minimum for this
amount. You will also select intervals when you plan to pay this premium amount,
such as quarterly, semiannually, or annually.
Flexibility in premium payments.
During the term of the Policy, you may pay premiums at any time and in any
amount, within limits. Thus, you are not required to pay the planned periodic
premium and you may make payments in addition to the planned periodic premium.
Account Value
We will measure your benefits under the Policy by your Account Value. Your
Account Value will reflect:
o the premiums you pay;
o the returns earned by the Subaccounts you select;
o the interest credited on amounts allocated to the Guaranteed Account;
o any loans or partial surrenders; and
o the Policy charges and expenses we deduct.
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Death Benefit
Death Benefit Selections.
When you apply for a Policy, you must select:
o The Face Amount.
o The death benefit option, which will be manner in which we calculate the
death benefit for your Policy.
o The tax qualification option, which will be the manner in which we test
your Policy under the Code for meeting the definition of life insurance.
Death Benefit Options.
You may select from two death benefit options. They are:
Level Death Benefit Option.
o Level Death Benefit Option
The basic death benefit will be the greater of:
(1) The Face Amount; or
(2) Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
Increasing Death Benefit Option.
o Increasing Death Benefit Option
The basic death benefit will be the greater of:
(1) The Face Amount plus the Account Value; or
(2) Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
The minimum death benefit factors we use are based upon the tax qualification
option you select and the Attained Age, sex and smoker status of the Insured.
Tax Qualification Options.
You may select from two tax qualification options. They are:
o Guideline Premium/Cash Value Corridor Test. The minimum death benefit
factors are based upon the Code.
o Cash Value Accumulation Test. The minimum death benefit factors are based
upon the 1980 Commissioners Standard Ordinary Tables and a 4% effective
annual interest rate.
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Changes You May Make.
Within limits, you may change the death benefit option and, after the first
Policy year, may make changes to the Face Amount. You may not change the tax
qualification option.
Cash Benefits During the Life of the Insured
During the life of the Insured, your Policy has cash benefits that you can
access within limits through loans, partial surrenders or a surrender.
o Loans -- You may borrow against your Net Cash Surrender Value at any time.
If your Policy is a modified endowment contract, the Code may treat the
loan as a taxable distribution of income.
o Partial Surrenders -- You may withdraw part of your Account Value after the
first Policy year. We may deduct an administrative charge. If you make a
partial surrender during the surrender charge period, we will deduct a
surrender charge. A partial surrender may result in a decrease in the Face
Amount of your Policy, depending upon your death benefit option.
o Surrender -- You may surrender your Policy for its Net Cash Surrender
Value. If you surrender your Policy during the surrender charge period, we
will deduct a surrender charge. A surrender will terminate your Policy.
Expenses of the Policy
Expenses reduce your returns under the Policy
We deduct expenses related to your Policy. These deductions are made:
o from premiums, your Account Value and the assets of the Subaccounts, and
o upon certain Policy transactions.
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Deduction from Premiums -- we will deduct state premium taxes, federal taxes and
sales charges from your premium payments. Premium taxes are charges at a percent
or premium equal to state and local tax rates based on the Insured's place of
residence. DAC taxes will be deducted from Account Value at a rate imposed by
federal tax law, currently 1.25% of Premium. Total sales charges will not exceed
9% of premium.
Monthly Deductions from Account Value -- we will deduct on each monthly
anniversary charges for:
o The administration of your Policy up to a maximum of $10 per month per
insured. There is an additional charge of up to $25 a month for the first
policy year and the first 12 months following an increase in Face Amount.
o The cost of insurance for your Policy
o The costs associated with mortality and expense risk charges. We will
deduct a daily charge from your Policy Account Value in the Subaccounts for
assuming certain mortality and expense risks under the policy. This charge
does not apply to the amounts you allocate in the Guaranteed Account. The
current charge is at an annual rate of 0.75% of net assets in the
Subaccounts. Although, we reserve the right to increase or decrease this
charge, it is guaranteed not to exceed 1.00% for the duration of your
policy. If your policy is issued at a charge of less than 1.00%, we will
notify you before we increase this charge. We may realize a profit from
this charge.
o The cost of any supplemental benefits and riders.
If you elect, we will take the monthly deductions from your Account Value
allocated to the Money Market Subaccount or Guaranteed Account. Otherwise, we
will take the monthly deductions from each Subaccount on a pro rata basis.
Deductions Upon Certain Policy Transactions -- If you make a Policy transaction,
a charge may apply. They are:
o Transfers -- You may make twelve transfers each Policy year free of charge.
Thereafter, we will deduct a fee of $25 per transfer from the transferred
amount.
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Administrative Charges for Partial Surrenders.
o Partial Surrenders -- We charge the lesser of $25 or 2% of the amount
surrendered for processing each withdrawal in excess of four or for
processing any withdrawal.
Surrender Charges for Partial surrenders.
A partial surrender may also be subject to a surrender charge. A surrender
charge for partial surrenders is equal to a pro rata portion of the
surrender charge that would apply to a full surrender. This applies during
the first 14 Policy years and for the first 14 years immediately following
an increase in Face Amount.
o Surrender -- If you request a surrender during the first 14 Policy years,
we may deduct a surrender charge based on the initial Face Amount. If you
request a surrender within 14 years immediately following an increase in
Face Amount, we will deduct a surrender charge based on the increase in
Face Amount. The surrender charge will be deducted before any surrender
proceeds are paid.
Surrender Charges for Face Amount Decreases.
o Decrease in Face Amount -- We may also deduct a surrender
charge from the Account Value upon a decrease in Face
Amount. If you request a decrease in Face Amount during the
first 14 Policy years, we will deduct a surrender charge based
on the initial Face Amount. If you request a decrease within 14
years immediately following an increase in Face Amount, we
will deduct a surrender charge based on the increase in Face
Amount.
Expenses of the variable investment options also reduce your returns.
In addition, you will indirectly bear the costs of the investment management
fees and expenses paid from the assets of the portfolios you select. The
expenses of the variable investment options for the year ended December 31, 1998
are set forth in Appendix B.
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You should consider the impact of the Code.
Federal Tax Considerations
Your purchase of, and transactions under, your Policy may have tax consequences
that you should consider before purchasing the Policy. You may wish to consult a
tax adviser. In general, the Life Insurance Proceeds will not be taxable income
to the Beneficiary. You will not be taxed as your Account Value increases. Upon
a distribution from your Policy, however, you may be taxed on your Account Value
increases.
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Purchasing a GVUL Policy
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Applying for a Policy
To purchase a Policy, you must complete an application and submit it to us. You
must specify certain information in the application, including the Face Amount,
the death benefit option and supplemental benefit riders, if any. We may also
require information to determine if the Insured is an acceptable risk to us. We
may require a medical examination of the Insured and ask for additional
information.
Our age requirement for the Insured.
You may apply for a Policy to cover a person who is at least 21 but 75 or
younger.
The minimum Face Amount.
The Face Amount must be at least $50,000, for each Insured.
We require a minimum initial premium.
We require that you pay a minimum initial premium before we will issue the
Policy. You may pay the minimum initial premium when you submit the application
or at a later date.
We will not issue a Policy until we have accepted the application. We reserve
the right to reject an application for any reason or "rate" an Insured as a
substandard risk.
When your coverage will be effective.
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment, in an amount we determine.
o We have completed our review of your application to our satisfaction.
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Your Right to Cancel the Policy
Period to Examine and Cancel.
Once you receive your Policy, you should read the Policy. You have the right to
cancel the Policy for any reason within the later of:
o 45 days after you sign Part I of the Policy application; or
o 10 days after you received the Policy. If required by the state where you
live, we will extend the 10 days to the number required by law.
This is your "Period to Examine and Cancel."
Your right to cancel also applies to the amount of any increase in Face Amount.
How to cancel your policy.
You may cancel the Policy by returning it to our Administrative Office or to our
agent within the applicable time with a written request for cancellation. We
will refund you the premium paid on the Policy. Thus, the amount we return will
not reflect the returns of the Subaccounts you selected in your application.
Premiums
The Policy allows you to select the timing and amount of premium payments within
limits. Send premium payments to our Administrative Office.
All your premium payments must comply with our requirements.
Restrictions on Premiums. We may not accept any premium payment:
o If it is less than $50.
o If the premium would cause the Policy to fail to qualify as a life
insurance contract as defined in Section 7702 of the Code, we will refund
any portion of any premium that causes the Policy to fail. In addition, we
will monitor the Policy and will attempt to notify the Owner on a timely
basis if a Policy is in jeopardy of becoming a modified endowment contract
under the Code.
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o If the premium would increase the amount of our risk under your Policy by
an amount greater than that premium amount. In such cases, we may require
satisfactory evidence of insurability before accepting that premium.
Types of premium payments.
Minimum Initial Premium. We will calculate the minimum initial premium. The
amount is based on a number of factors, including the Age, sex and underwriting
class of the proposed Insured, the desired Face Amount and any supplemental
benefits or riders applied for and whether premiums will be paid by
pre-authorized checking.
We establish a minimum planned periodic premium.
Planned Periodic Premiums. When you apply for a Policy, you select a plan for
paying level premiums at specified intervals. The intervals may be monthly,
quarterly, semi-annually or annually, for the life of the Policy. Pre-authorized
checking may be required for monthly payments. We will establish a minimum
amount that may be used as the planned periodic premium. We may recalculate this
minimum amount if the Face Amount of the Policy is increased or decreased.
You are not required to pay premiums in accordance with this plan. Rather, you
can pay more or less than the planned periodic premium or skip a planned
periodic premium entirely.
At any time you can change the amount and frequency of planned periodic premium
by sending a written notice to our Administrative Office.
Additional Premiums. Additional premiums are premiums other than planned
premiums. Additional premiums may be paid in any amount and at any time subject
to Code.
Depending on the Account Value at the time of an increase in the Face Amount and
the amount of the increase requested, an additional premium may be needed to
prevent your Policy from terminating.
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Paying premiums may not ensure that your Policy remains in force.
Effect of Premium Payments. In general, paying all planned periodic premiums may
not prevent your Policy from lapsing. In addition, if you fail to pay any
planned periodic premiums, your Policy will not necessarily lapse.
Your Policy will lapse only when the Net Cash Surrender Value on a monthly
anniversary is less than the amount of that date's monthly deduction. This could
happen if the Net Cash Surrender Value has decreased because:
o of the negative return or insufficient return earned by one or more of the
Subaccounts you selected; or
o of any combination of the following -- you have Outstanding Loans, you have
taken partial surrenders, we have deducted Policy expenses, or your have
made insufficient premium payments to offset the monthly deduction.
Your Policy will not terminate immediately after your Account Value is
insufficient.
Grace Period. In order for insurance coverage to remain in force, the Net Cash
Surrender Value on each monthly anniversary must be equal to or greater than the
total monthly deductions for that monthly anniversary. If it is not, you have a
Grace Period of 61 days during which the Policy will continue in force. The
Grace Period begins on the monthly anniversary that the Net Cash Surrender Value
is less than the total monthly deductions then due. If we do not receive a
sufficient premium before the end of the Grace Period, the Policy will terminate
without value.
We will send you a written notice within 30 days of the beginning of any Grace
Period. The notice will state:
o A Grace Period of 61 days has begun.
How much you must pay to prevent your policy from terminating.
o The amount of premium required to prevent your Policy from terminating.
This amount is equal to the amount needed to increase the Net Cash
Surrender Value sufficiently to cover total monthly deductions for the next
three (3) monthly anniversaries.
If the Insured dies during the Grace Period, we will still pay the Life
Insurance Proceeds to the Beneficiary. The amount we pay will reflect a
reduction for the unpaid monthly deductions due on or before the date of the
Insured's death.
If your Policy lapses with an Outstanding Loan you may have taxable income.
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Premium Allocations. In the application, you specify the percentage of Net
Premiums to be allocated to each Subaccount and Guaranteed Account. However,
until the Period to Examine and Cancel expires, we invest this amount in the
Money Market Subaccount. The first business day after the period expires, we
will reallocate your Account Value in the Money Market Subaccount based on the
premium allocation percentages in your application.
For all subsequent premiums, we will use the allocation percentages you
specified in the application until you change them. You can change the
allocation percentages at any time, by sending written notice to our
Administrative Office. The change will apply to all Premiums received with or
after your notice.
Allocation Rules. Your allocation instructions must meet the following
requirements:
o Each allocation percentage must be a whole number; and
o Any allocation to a Subaccount must be at least 5%; and the sum of your
allocations must equal 100%.
Crediting Premiums. Your initial Net Premium, will be credited to your Account
Value as of the Policy Date. We will credit and invest subsequent Net Premiums
on the date we receive the premium or notice of deposit at our Administrative
Office.
If any Premium requires us to accept additional risk, we will allocate this
amount to the Money Market Subaccount until we complete our underwriting. When
accepted, and at the end of the Period to Examine and Cancel the Policy, we will
allocate it in accordance with your allocation percentages.
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The Investment Options
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You may allocate your Account Value to:
o the Subaccounts which invest in the variable investment options; or
o the Guaranteed Account.
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Variable Investment Options
Under the Policy, you may currently allocate your Account Value into any of the
available Subaccounts. Each Subaccount invests in shares of a corresponding
portfolio of a fund. These portfolios operate similarly to a mutual fund but are
only available through the purchase of certain insurance contracts.
ALLIANCE VARIABLE PRODUCTS SERIES FUND
Growth and Income 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.
Premier Growth Portfolio -- seeks growth of capital by employing aggressive
investment policies. Investments will be made based upon their potential for
capital appreciation, with current income incidental to the objective of capital
growth.
Quasar 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.
The Alliance Fund is managed by Alliance Capital Management
L.P.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Contrafund Portfolio -- seeks long term capital appreciation.
VIP II Index 500 Portfolio -- seeks investment results that correspond to the
total return of common stocks publicly traded in the United States, as
represented by the S&P 500.
Fidelity Management & Research Company ("FMR") is the investment adviser for the
Fidelity Funds. Bankers Trust Company, a wholly-owned subsidiary of Bankers
Trust Corporation (formerly Bankers Trust of New York Corporation), currently
serves as the sub-adviser to VIP II Index 500 Portfolio.
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GOLDMAN SACHS VARIABLE INSURANCE TRUST
Capital Growth Fund -- seeks long-term growth of capital through diversified
investments in equity securities of companies that are considered to have
long-term capital appreciation potential.
CORE U.S. Equity Fund -- seeks long-term growth of capital and dividend income
through a broadly diversified portfolio of large capitalization and blue chip
equity securities representing all major sectors of the U.S. economy.
CORE Large Cap Growth Fund -- seeks long-term growth of capital through a
broadly diversified portfolio of equity securities of large capitalization U.S.
issuers that are expected to have better prospects for earnings growth than the
growth rate of the general domestic economy. Dividend income is a secondary
consideration.
CORE Small Cap Equity Fund -- seeks long-term growth of capital through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.
Growth and Income Fund -- seeks long-term growth of capital and growth of income
through investments in equity securities that are considered to have favorable
prospects for capital appreciation and/or dividend paying ability.
International Equity Fund -- seeks long-term capital appreciation through
investments in equity securities of companies that are organized outside the
U.S. or whose securities are principally traded outside the U.S.
Mid Cap Equity Fund -- seeks long-term capital appreciation primarily through
investments in equity securities of companies with public stock market
capitalizations within the range of the market capitalization of companies
constituting the Russell Midcap Index at the time of investment (currently
between $400 million and $16 billion).
Global Income Fund -- seeks high total return, emphasizing current income and,
to a lesser extent, providing opportunities for capital appreciation, by
investing primarily in a portfolio of high quality fixed income securities of
U.S. and foreign issuers and foreign currencies.
Goldman Sachs Asset Management serves as investment adviser to the Growth and
Income, CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity, Capital
Growth, and Mid Cap Equity Funds. Goldman Sachs Asset Management International
serves as investment adviser to the International Equity and Global Income
Funds.
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MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
Fixed Income Portfolio -- seeks above average total return over a market cycle
of three to five years by investing primarily in a diversified portfolio of U.S.
government and agency securities, corporate bonds, foreign bonds,
mortgage-backed securities and other fixed income securities and derivatives.
Under normal circumstances, the portfolio generally invests at least 65% of its
total assets in investment grade fixed income securities, but may invest up to
20% of its assets in investment grade securities (commonly referred to as "high
yield securities" or "junk bonds").
Global Equity Portfolio -- seeks long-term capital appreciation by investing
primarily in growth-oriented common and preferred stocks, convertible
securities, rights and warrants to purchase common stocks, depositary receipts
and other equity securities of issuers throughout the world, including issuers
in the U.S. and emerging markets countries.
High Yield Portfolio -- seeks total return over a market cycle of three to five
years by investing primarily in a diversified portfolio of high yield securities
of U.S. and foreign issuers including corporate bonds and other fixed income
securities.
Money Market Portfolio -- maximize current income and preserve capital while
maintaining high levels of liquidity through investing in high quality money
market instruments while maintaining maturities of one year or less. While the
portfolio is managed with the goal of keeping its share price stable at $1.00,
there can be no assurance this goal will be achieved. The rate of income will
vary from day to day, generally reflecting short-term interest rates.
U.S. Real Estate Portfolio -- seeks above-average current income and long-term
capital appreciation by investing primarily in equity securities of companies in
the U.S. real estate industry, including real estate investment trust and real
estate operating companies.
The investment adviser for Global Equity Portfolio and U.S. Real Estate
Portfolio is Morgan Stanley Dean Witter Investment Management Inc., a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., which is a publicly
owned global financial services corporation. The investment adviser for Fixed
Income Portfolio and High Yield Portfolio is Miller Anderson & Sherrerd, LLP,
which is indirectly wholly-owned by Morgan Stanley Dean Witter & Co.
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NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
AMT Partners Portfolio -- seeks to achieve capital growth by investing mainly in
stocks of medium to large capitalization companies. The managers look for
well-managed companies whose stock prices are undervalued.
Each portfolio of Neuberger Berman Trust invests its assets in a corresponding
series of the Neuberger Berman Advisers Managers Trust ("Managers Trust"), which
is also an open-end management investment company registered under the 1940 Act
and is organized as a New York common law trust. The investment performance of
the Partners Portfolio will directly correspond with the investment performance
of the corresponding series of Managers Trust. This "Master/Feeder Fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities.
The investments for the Portfolios are managed by the same portfolio manager(s)
who manage one or more other mutual funds that have similar names, investment
objectives and investment styles as the Portfolio. You should be aware that the
portfolio is likely to differ from the other mutual funds in size, cash flow
pattern and tax matters. Accordingly, the holdings and the performance of the
Portfolio can be expected to vary from those of the other mutual funds.
Shares of the separate Portfolios of Neuberger Berman Advisers Management Trust
are sold only through the currently effective prospectus and are not available
to the general public. Shares of the AMT Portfolios may be purchased only by
life insurance companies to be used with their separate accounts, which fund
variable annuity and variable life insurance policies.
Neuberger Berman Management Incorporated serves as the investment manager of
each series of Managers Trust and as distributor of the shares of and
administrator of each portfolio of Neuberger Berman Trust. Neuberger Berman, LLC
serves as the sub-adviser for each series of Managers Trust.
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TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund -- seeks long-term capital appreciation. The
fund seeks to achieve this objective by investing primarily at least 65% of its
assets in equity securities of issuers in countries having developing markets.
Templeton International Fund -- seeks long-term capital growth through a
flexible policy of investing in stocks and debt obligations of companies and
governments outside the United States. Any income realized will be incidental.
In pursuit of its investment objective, the International Fund will invest at
least 65% of its assets in securities of issuers in at least three countries
outside the United States.
Templeton Asset Management Ltd. serves as the investment manager to the
Templeton Developing Markets Fund and Templeton Investment Counsel, Inc. serves
as the investment manager to the Templeton International Fund. Only Class 2
shares of Templeton Developing Markets Fund and Templeton International Fund are
available under the Policy.
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There is no assurance that any of the portfolios will achieve their stated
objective. Owners are advised to read the Fund prospectuses accompanying this
Prospectus for more detailed information regarding management of the portfolios,
investment objectives, investment advisory fees, and other charges assessed by
the Funds.
Guaranteed Investment Option
Under the Policy, you may currently allocate your Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part of
your Account Value to the Loan Account which is part of the Guaranteed Account.
We may treat each allocation and transfer separately for purposes of crediting
interest and making deductions from the Guaranteed Account.
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Interest Credited On the Guaranteed Account. All of your Account Value held in
the Guaranteed Account will earn interest at a rate we determine, in our sole
discretion. This rate will never be less than 4% per year compounded annually.
The Loan Account portion of your Account Value may earn a different interest
rate than the remaining portion of your Account Value in the Guaranteed Account.
Deductions from the Guaranteed Account. We will deduct any transfers, partial
surrenders or any Policy expenses from the Guaranteed Account and your variable
investment options on a pro rata basis, unless you provide other directions. No
portion of the Loan Account may be used for this purpose.
Payments from the Guaranteed Account. If we must pay any part of the proceeds
for a loan or partial surrender or surrender from the Guaranteed Account, we may
defer the payment for up to six months from the date we receive the written
request. If we defer payment from the Guaranteed Account for 30 days or more, we
will pay interest on the amount we deferred at a rate of 4% per year, compounded
annually, until we make payment.
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Investing Your Account Value
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The Policy allows you to choose how to invest your Account Value. Your Account
Value will increase or decrease based on:
o The returns earned by the Subaccounts you select.
o Interest credited on amounts allocated to the Guaranteed Account.
We will determine your Policy benefits based upon your Account Value. If your
Account Value is insufficient, your Policy may terminate. If the Net Cash
Surrender Value on a monthly anniversary is less than the amount of that date's
monthly deduction, the Policy will be in default and a Grace Period will begin.
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Determining the Account Value
On the Policy Date, your Account Value is equal to your initial Net Premium. If
the Policy Date and the Issue Date are the same day, the Account Value is equal
to your initial premium, less the premium expenses and monthly deduction we
deduct.
On each Valuation Date thereafter, your Account Value is equal to:
o Your Account Value held in the Subaccounts; and
o Your Account Value held in the Guaranteed Account.
Your Account Value will reflect:
o the premiums you pay;
o the returns earned by the Subaccounts you select;
o the interest credited on amounts allocated to the Guaranteed Account;
o any loans or partial surrender; and
o the Policy expenses we deduct.
Account Value in the Subaccounts. We measure your Account Value in the
Subaccounts by the value of the Subaccounts' accumulation units we credit to
your Policy. When you allocate premiums or transfer part of your Account Value
to a Subaccount, we credit your Policy with accumulation units in that
Subaccount. The number of accumulation units equals the amount allocated to the
Subaccount divided by that Subaccount's accumulation unit value for the
Valuation Date when the allocation is effected.
The number of Subaccount accumulation units we credit to your Policy will:
o increase -- when Net Premium is allocated to the Subaccount, amounts are
transferred to the Subaccount and loan repayments are credited to the
Subaccount.
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o decrease -- when the allocated portion of the monthly deduction is taken
from the Subaccount, a Policy loan is taken from the Subaccount, an amount
is transferred from the Subaccount, or a partial surrender, including the
partial surrender charges, is taken from the Subaccount.
Accumulation Unit Values. A Subaccount's accumulation unit value varies to
reflect the return of the portfolio, and may increase or decrease from one
Valuation Date to the next. We arbitrarily set the accumulation unit value for
each Subaccount at $10 when the Subaccount was established. Thereafter, the
accumulation unit value equals the accumulation unit value for the prior
Valuation Period multiplied by the Net Investment Factor for the current
Valuation Period.
Net Investment Factor. The net investment factor is an index we use to measure
the investment return earned by a Subaccount during a Valuation Period. It is
based on the change in net asset value of the portfolio shares held by the
Subaccount, and reflects any dividend or capital gain distributions on the
portfolio shares and the deduction of the daily mortality and expense risk
charge.
Guaranteed Account Value. On any Valuation Date, the Guaranteed Account portion
of your Policy's Account Value equals:
o the total of all Net Premium, allocated to the Guaranteed Account, plus
o any amounts transferred to the Guaranteed Account, plus
o interest credited on the amounts allocated and transferred to the
Guaranteed Account, less
o the amount of any transfers from the Guaranteed Account, less
o the amount of any partial surrender, including the partial surrender
charges, taken from the Guaranteed Account, and less
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o the allocated portion of the monthly deduction deducted from the Guaranteed
Account, plus
o the amount of the Loan Account. If you take a Policy loan, we transfer the
amount of the loan to the Loan Account held in the Guaranteed Account. The
value of your Loan Account includes transfers to and from the Loan Account
as you take and repay loans, and interest credited on the Loan Account.
Net Account Value. The Net Account Value on a Valuation Date is the Account
Value less Outstanding Loans on that date.
Cash Surrender Value. The Cash Surrender Value on a Valuation Date is the
Account Value reduced by any surrender charge that would be assessed you
surrendered the Policy on that date.
The amount you would receive on a Surrender of your Policy.
Net Cash Surrender Value. The Net Cash Surrender Value on a
Valuation Date is equal to:
o the Cash Surrender Value, less
o the Outstanding Loan on that date.
Transfers
You may transfer Account Value among the Subaccounts and to the Guaranteed
Account after the Period to Examine and Cancel. All transfer requests, except
for those made under the Dollar Cost Averaging or Automatic Rebalancing
programs, must satisfy the following requirements:
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o Minimum amount of transfer -- You must transfer at least $250 or, the
balance in the Subaccount or the Guaranteed Account, if less;
o Form of transfer request -- You must make a written request unless you have
established prior authorization to make telephone transfers or other means
we make available;
o Transfers from the Guaranteed Account -- The maximum you may transfer in a
Policy year is equal to 25% of your Guaranteed Account value that is not in
the Loan Account on the most recent Policy anniversary reduced by all
partial surrenders and transfers taken from the Guaranteed Account during
that Policy year.
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Date We Process Your Transfer Request. We must receive your transfer request at
our Administrative Office. We process transfers on the same date we receive your
transfer request. We may, however, defer transfers under the same conditions as
described in "When Proceeds Are Paid," page ___.
Number of Allowable Transfers/Transfer Fee. We do not currently limit the number
of transfers you may make. We will currently assess a $25 transfer fee, however,
for each transfer in excess of 12 during a Policy year. All transfers processed
on the same business day will count as one transfer for purposes of determining
the number of transfers you have made in a Policy year. Transfers in connection
with the Dollar Cost Averaging and Automatic Rebalancing features will not count
against the 12 free transfers in a Policy year. We reserve the right to increase
or decrease the number of "free" transfers allowed in any Policy year.
Telephone Transfers. If you have completed an authorization form allowing
telephone transfers, you may request transfers by telephone. Upon receipt of a
telephone transfer authorization form, we will issue you a personal
identification number. We confirm all telephone transfers in writing. We will
confirm transfer requests received by fax before processing them. You should
review all confirmations to determine if there have been any unauthorized
transfers.
We will use reasonable procedures to confirm that telephone transfers requests
are genuine. We will not be liable for any losses due to unauthorized or
fraudulent instructions.
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We reserve the right to suspend telephone transfer privileges at any time, for
some or all Policies.
Dollar Cost Averaging
Dollar Cost Averaging is a systematic method of investing at regular intervals.
By investing at regular intervals, the cost of the securities is averaged over
time and perhaps over various market cycles.
You may request Dollar Cost Averaging. Under this program we will automatically
transfer monthly a portion of your Account Value. Unless you give us other
instructions, we will allocate the transfer as you have specified in your most
current premium allocation instructions. However, no less than 5% may be
allocated to any one Subaccount or to the Guaranteed Account. We will make the
transfers from the Money Market Subaccount so long the Account value is at least
$2,000.
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Dollar Cost Averaging. If you instruct us to make the transfers from Money
Market Subaccount, you may request that we transfer:
o A specified dollar amount -- we will automatically transfer this amount in
accordance with your most current premium allocation instructions for a
specified period until your Account Value in the transferring Subaccount is
depleted.
o A specified percentage-- we will automatically transfer a specified
percentage of the amount in the transferring Subaccount in accordance with
your most current premium allocation instructions for a specified period
until your Account Value in the transferring Subaccount is depleted.
You may allocate additional amounts into the transferring Subaccount at any
time.
We reserve the right to establish transfer limits and to restrict the
Subaccounts from which transfers may be made.
When we will Process your Automatic Transfers. We will begin
to process your automatic transfers:
o If you requested the automatic transfers when you applied for your Policy
-- on the first monthly anniversary following the end of the Period to
Examine and Cancel.
o If you elect the option after you applied for the Policy -- on the second
monthly anniversary following the receipt of your request at our
Administrative Office.
We will stop processing automatic transfers if:
o The funds in the transferring Subaccount or the Guaranteed Account have
been depleted;
o We receive your written request at our Administrative Office to cancel
future transfers;
o We receive notification of death of the Insured; or
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o Your Policy goes into the Grace Period.
Dollar Cost Averaging may lessen the impact of market fluctuations on your
investment. Using Dollar Cost Averaging does not guarantee investment gains or
protect against loss in a declining market.
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Death Benefits
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Life Insurance Proceeds
During the Policy term, we will pay the Life Insurance Proceeds to the
Beneficiary after the Insured's death. To make payment, we must receive at our
Administrative Office:
o satisfactory proof of the Insured's death; and
o return of the Policy.
The Beneficiary may receive the Life Insurance Proceeds in one lump sum or under
any other payment option.
Payment of Life Insurance Proceeds. We will pay the Life Insurance Proceeds
generally within seven days after we receive the information we require. We will
pay the Life Insurance Proceeds to the Beneficiary in one lump sum or, if
elected, under a payment option. Payment of the Life Insurance Proceeds may also
be affected by other provisions of the Policy.
We will pay interest on the Life Insurance Proceeds from the date of the
Insured's death to the date of payment as required by applicable state law.
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Amount of Life Insurance Proceeds. We will determine the Life Insurance Proceeds
as of the date of the Insured's death. The Life Insurance Proceeds will equal:
o the death benefit amount determined according to the death benefit option
selected; plus
o any other benefits then due from riders to the Policy; minus
o the Outstanding Loan, if any, and accrued loan interest; minus
o any overdue monthly deductions if the Insured dies during a Grace Period.
Death Benefit Options
You may select from two death benefit options. They are:
Level Death Benefit Option I.
o Option I
The basic death benefit will be the greater of:
(1) The Face Amount; or
(2) Account Value at date of death multiplied by the appropriate minimum
death benefit factor
This death benefit option should be considered if you want to minimize your
cost of insurance.
Variable Death Benefit Option II.
o Option II.
The basic death benefit will be the greater of:
(1) The Face Amount plus the Account Value; or
(2) Account Value at date of death multiplied by the appropriate minimum
death benefit factor.
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This death benefit option should be considered if you want your death
benefit to increase with your Policy's Account Value.
Tax Qualification Options.
Section 7702 of the Code provides alternative testing procedures for meeting the
definition of life insurance. Each Policy must qualify under one of these two
tests and you may select the test we use for ensuring your Policy meets the
definition of life insurance.
Under both tests under Section 7702, there is a minimum death benefit required
at all times. This is equal to the Account Value multiplied by the appropriate
minimum death benefit factor. These factors depend on the tax qualification
option and may be based on the Attained Ages, sex and rate class of the Insured.
A table of the applicable factors is located in the Policy.
The two tax qualification options are:
Guideline Premium/Cash Value Corridor Test.
o Guideline Premium/Cash Value Corridor Test.
Cash Value Accumulation Test.
o Cash Value Accumulation Test. This tax qualification option should be
considered if you want to maximize the premiums permitted for your Policy.
Once you have selected the tax qualification option for your Policy, it may not
be changed.
Changes in Death Benefit Options
If you have selected the Level Death Benefit Option you may change to the
Increasing Death Benefit Option. You may also change from the Increasing Death
Benefit Option to the Level Death Benefit Option.
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How to request a change.
You may change your Death Benefit Option by providing your Agent with a written
request or by writing us at our Administrative Office. We may require that you
submit satisfactory evidence of insurability to us.
If you request a change from the Level Death Benefit Option to the Increasing
Death Benefit Option, we will decrease the Face Amount by an amount equal to
Your Account Value on the date the change takes effect. However, we reserve the
right to decline to make such a change if it would reduce the Face Amount below
the minimum Face Amount.
If you request a change from the Increasing Death Benefit Option to the Level
Death Benefit Option, we will increase the Face Amount by an amount equal to
your Account Value on the date the change takes effect. Such decreases and
increases in the Face Amount are made so that the Life Insurance Proceeds remain
the same on the date the change takes effect.
Once approved, we will issue new Policy information pages and attach a copy of
your Application for Change. The change will take effect at the beginning of the
Policy Month that coincides with or next follows the date we approve your
request. We reserve the right to decline to make any changes that we determine
would cause the Policy to fail to qualify as life insurance under our
interpretation of the Code.
The change will take effect on the next monthly anniversary that coincides with
or next follows the date we approve your request.
Changes in Face Amount
At any time after the first Policy anniversary while the Policy is in force you
may request a change in the Face Amount. We will not make a change in Face
Amount that causes your Policy to fail to qualify as life insurance under of the
Code.
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Increases in Face Amount. Any request for an increase:
o Must be for at least $10,000.
o May not be requested in the same Policy year as another request for an
increase.
o May not be requested after the Insured is Attained Age 85.
A written application must be submitted to our Administration Office along with
satisfactory evidence of insurability. You must return the Policy so we can
amend the Policy to reflect the increase. The increase in Face Amount will
become effective on the monthly anniversary on or next following the date the
increase is approved, and the Account Value will be adjusted to the extent
necessary to reflect a monthly deduction as of the effective date based on the
increase in Face Amount.
Decreases in Face Amount. Any request for a decrease:
o Must be at least $5,000.
o Must not cause the Face Amount after the decrease to be less than the
minimum Face Amount at which we would issue a Policy.
o And, during any one of the first five (5) Policy years, the Face Amount may
not be decreased by more than 10% of the initial Face Amount. If the Face
Amount is decreased during the first 14 Policy years or within 14 Policy
years of an increase in Face Amount, a surrender charge may be applicable.
Consequences of a Change in Face Amount. Both increases and decreases in Face
Amount may impact the surrender charge. In addition, an increase or decrease in
Face Amount may impact the status of the Policy as a modified endowment
contract.
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Cash Benefits During the Insured's Life
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During the life of the Insured, your Policy has cash benefits which you may
access within limits by taking loans, partial surrenders or a surrender.
Policy Loans
You may request a loan against your Policy at any time while the Policy has a
Net Cash Surrender Value. We limit the minimum and maximum amount of loan you
may take.
o Maximum Loan Amount
- After the First Policy year -- The maximum loan amount is 90% of your
Net Cash Surrender Value.
How to request a loan.
You must submit a written request for a loan to the Administrative Office.
Policy loans will be processed as of the date we receive the request at our
Administrative Office. Loan proceeds generally will be sent to you within seven
days.
Interest. We charge interest daily on any Outstanding Loan at a declared annual
rate not in excess of 8%. The maximum net cost (the difference between the rate
of interest we charge on Policy loans and the amount we credit on the equivalent
amount held in the Loan Account) of a loan is 2% per year. Interest is due and
payable at the end of each Policy year while a Policy loan is outstanding. If
interest is not paid when due, the amount of the interest is added to the loan
and becomes part of the Outstanding Loan.
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Loan Account. You may direct us to take an amount equal to the loan proceeds and
any amount attributed to unpaid interest from any Subaccount or from the
Guaranteed Account. Otherwise, we will withdraw this amount from each Subaccount
on a pro rata basis. We transfer this amount to the Loan Account in the
Guaranteed Account.
When a loan is repaid, an amount equal to the repayment will be transferred from
the Loan Account to the Subaccounts and Guaranteed Account in accordance with
your allocation percentages in effect at the time of repayment.
Effect of Policy Loan. A Policy loan, whether or not repaid, will have a
permanent effect on the Life Insurance Proceeds and Account Value because the
investment results of the Subaccounts and current interest rates credited in the
Guaranteed Account will apply only to the non-loaned portion of the Account
Value. The longer the loan is outstanding, the greater this effect is likely to
be. Depending on the investment results of the Subaccounts or credited interest
rates for the Guaranteed Account while the Policy loan is outstanding, the
effect could be favorable or unfavorable.
In addition, loans from modified endowment contracts may be treated for tax
purposes as distributions of income.
If the Life Insurance Proceeds become payable while a Policy loan is
outstanding, the Outstanding Loan will be deducted in calculating the Life
Insurance Proceeds.
If the Outstanding Loan exceeds the Net Cash Surrender Value on any monthly
anniversary, the Policy will be in default. We will send you, and any assignee
of record, notice of the default. You will have a 61-day Grace Period to submit
a sufficient payment to avoid termination. The notice will specify the amount
that must be repaid to prevent termination.
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Outstanding Loan. The Outstanding Loan on a Valuation Date equals:
o All Policy loans that have not been repaid (including past due unpaid
interest added to the loan), plus
o accrued interest not yet due.
Loan Repayment. You may repay all or part of your Outstanding Loan at any time
while the Insured is living and the Policy is in force. Loan repayments must be
sent to our Administrative Office and will be credited as of the date received.
Requirements for Partial Surrender.
Partial Surrender
We will not allow a partial surrender during the first Policy year or during the
first 12 months following an increase in Face Amount.. We limit the number of
partial surrenders you may make to two per year. We may limit the minimum amount
of withdrawals.
o Maximum Partial Surrender Amount -- Up to a maximum of 90% of your policy's
Net Cash Surrender Value except that the withdrawal must be $500 and at
least may not cause the Policy Face Amount to be less than the required
minimum Face Amount.
o Minimum Partial Surrender Amount -- $500.
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How to request a partial surrender.
You must submit a written request to our Administrative Office. We will reduce
your Account Value by the partial surrender amount plus any applicable charges.
When you request a partial surrender, you may direct us to take the requested
amount from any Subaccount or from the Guaranteed Account. If the Guaranteed
Account or Subaccount value is insufficient to withdraw the amount requested, we
will withdraw the difference from the remaining Subaccounts on a pro rata basis
unless you have provided specific instructions to withdraw the amount from one
or several Subaccounts.
We will process partial surrender requests as of the date we receive your
written request at our Administrative Office. We will generally pay partial
surrenders within seven days.
Expenses for Partial Surrender. We will deduct the applicable surrender charge
on a partial surrender. This charge will be deducted from your Account Value
along with the amount requested to be surrendered and will be considered part of
the partial surrender (together, the "partial surrender amount"). Currently, we
assess a processing charge for each withdrawal of the lesser of $25 or 2% of the
amount surrendered.
Effect of Partial Surrender on your Face Amount. The Face Amount of your Policy
will also be reduced by the partial surrender amount if you selected the Death
Benefit Option I.
We will reduce the Face Amount by the amount of the partial surrender in the
following order:
1. The most recent increase in the Face Amount, if any, will be reduced first.
2. The next most recent increases in the Face Amount, if any, will then be
successively decreased.
3. The initial Face Amount will then be decreased.
No partial surrender may be made that would reduce the Face Amount below the
minimum Face Amount.
If we issued the policy under a corporate owned arrangement, a partial surrender
will be applied prorata over all Insureds under the policy.
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Partial surrenders from your Policy may have tax consequences.
Surrendering the Policy for Net Cash Surrender Value
You may surrender your Policy in full at any time for its Net Cash Surrender
Value by submitting a written request to our Administrative Office. We will
require return of the Policy. A surrender charge may apply. We will process a
surrender request as of the date we receive your written request and all
required documents. Your surrender request generally will be paid within seven
days. The Net Cash Surrender Value may be taken in one sum or it may be applied
to a payment option. Your Policy will terminate and cease to be in force if it
is surrendered for one sum.
It cannot later be reinstated.
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Payment Options for Benefits
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The Policy offers a wide variety of optional ways of receiving proceeds payable
under the Policy, such as on a surrender or death, other than in a lump sum. Any
agent authorized to sell this Policy can explain these options upon request.
None of these options vary with the investment performance of a separate account
because they are all forms of guaranteed benefit payments.
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Expenses of the Policy
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Periodically, we will deduct expenses related to your Policy. We will deduct
these:
o from premiums, Account Value and from Subaccount assets; and
o upon certain transactions.
The amount of these expenses are described in your Policy as either guaranteed
or current. We will never charge more than the guaranteed amount. We may in our
discretion deduct on a current basis less than the guaranteed amount.
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Deductions From Premiums
Deduction from Premium -- From each premium we will deduct state premium taxes,
federal deferred acquisition cost ("DAC") taxes, and sales charges, if any.
We deduct for premium taxes at an explicit percent of premium equal to state and
local tax rates based on the Insured's place of residence. A typical state
premium tax is in the range of 2% to 2.5% of premium.
DAC taxes are also based on premium. We will deduct DAC taxes from your Account
Value at the time premium is received at a rate equal to 1.25% of premium.
In place of the lump sum deduction described above for premium and DAC taxes, we
may offer optional methods of payment at the time you apply for a Policy.
We may deduct a sales charge from each premium and we may also deduct a sales
charge from Account Value. A deduction from Account Value may be either in place
of a deduction from premium or in combination with a deduction from premium. We
will not deduct a sales charge from your Account Value without your agreement to
do so. The total sales charge will never exceed 9% of premium.
The sales change partially compensates Us for the expense of selling and
distributing the Policy, printing prospectuses, preparing sales literature and
paying for other promotional activities. Some of these expenses or other
administrative expenses may be assumed by an employer or group sponsor under
some employer- owned, trust-owned, or sponsored arrangements. If so, in our sole
discretion, we may offer the policy with no sales charge or a reduced sales
charge.
We will deduct up to a maximum of 8% from each premium payment. This charge is
intended to provide for state premium taxes, DAC taxes and for other expenses
associated with acquiring and servicing a Policy.
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Monthly Deductions From Account Value
On the Policy Date and each monthly anniversary thereafter, we make a deduction
from the Account Value. The amount deducted on the Issue Date is for the Policy
Date and any monthly anniversaries that have elapsed since the Policy Date. For
this purpose, the Policy Date is treated as a monthly anniversary.
We will deduct on each monthly anniversary charges for:
o The administration of your Policy.
o The cost of insurance for your Policy.
o The acquisition and underwriting costs of your Policy.
Administrative Charge. This charge compensates us for administrative expenses
associated with the Policy. These expenses relate to premium billing and
collection, record keeping, processing claims, Policy loans, Policy changes,
reporting and overhead costs, processing applications and establishing Policy
records. This charge will be no more than $10 per month for all Policy years. We
may reduce this charge but it will not be less than $7.50 per month. There is an
additional monthly administrative charge during the first policy year and the 12
months after an increase in Face Amount per Insured. This charge will not exceed
$25 a month per Insured.
Cost of Insurance Charge. This charge compensates us for providing insurance
coverage. The charge depends on a number of factors, such as Attained Age, sex
and rate class of the Insured, and therefore will vary from Policy to Policy and
from month to month. For any Policy the cost of insurance on a monthly
anniversary is calculated by multiplying the cost of insurance rate for the
Insured by the Net Amount at Risk under the Policy on that monthly anniversary.
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Net Amount at Risk.
The Net Amount at Risk is calculated as (a) minus (b) where:
(a) is the current Life Insurance Proceeds at the beginning of the Policy
month divided by 1.0032737; and
(b) is the current total Account Value.
Rate Classes for Insureds. We currently rate Insureds in one of following basic
rate classifications, based on our underwriting:
o nonsmoker;
o smoker;
o substandard for those involving a higher mortality risk.
At our discretion we may offer this policy on a guaranteed issue basis. If we
do, it will be on a uni-sex and uni-smoker basis.
We place the Insured in a rate class when we issue the Policy based on our
underwriting determination. This original rate class applies to the initial Face
Amount. When an increase in Face Amount is requested, we conduct underwriting
before approving the increase (except as noted below) to determine whether a
different rate class will apply to the increase. If the rate class for the
increase has a lower guaranteed cost of insurance rates than the original rate
class, the rate class for the increase also will be applied to the initial Face
Amount. If the rate class for the increase has a higher guaranteed cost of
insurance rates than the original rate class, the rate class for the increase
will apply only to the increase in Face Amount, and the original rate class will
continue to apply to the initial Face Amount.
If there have been increases in the Face Amount, we may use different cost of
insurance rates for the increased portions of the Face Amount. For purposes of
calculating the cost of insurance charge after the Face Amount has been
increased, the Account Value will be applied to the initial Face Amount first
and then to any subsequent increases in Face Amount. If at the time an increase
is requested, the Account Value exceeds the initial Face Amount (or any
subsequently increased Face Amount) divided by 1.0032737, the excess will then
be applied to the subsequent increase in Face Amount in the sequence of the
increases.
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In order to maintain the Policy in compliance with Section 7702 of the Code,
under certain circumstances an increase in Account Value will cause an automatic
increase in the Life Insurance Proceeds. The Attained Age and rate class for
such increase will be the same as that used for the most recent increase in Face
Amount (that has not been eliminated through a subsequent decrease in Face
Amount).
The guaranteed cost of insurance charges at any given time for a substandard
policy with flat extra charges will be based on the guaranteed maximum cost of
insurance rate for the policy (including table rating multiples, if applicable),
the current Net Amount at Risk at the time the deduction is made, plus the
actual dollar amount of the flat extra charge.
Our current cost of insurance rates may be less than the guaranteed rates. Our
current cost of insurance rates will be determined based on our expectations as
to future mortality, investment, expense and persistency experience. These rates
may change from time to time. In our discretion, the current charge may be
increased in any amount up to the maximum guaranteed charge shown in the table.
Cost of insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker risk class are generally lower than rates for an Insured of the same
age and sex in a smoker risk class. Cost of insurance rates (whether guaranteed
or current) for an Insured in a nonsmoker or smoker risk class are generally
lower than rates for an Insured of the same age and sex and smoking status in a
substandard risk class.
Legal Considerations Relating to Sex-Distinct Premiums and Benefits. Mortality
tables for the Policy generally distinguish between males and females. Thus,
premiums and benefits under the Policy covering males and females of the same
age will generally differ.
We do, however, also offer the Policy based on unisex mortality tables if
required by state law. Employers and employee organizations considering purchase
of a Policy should consult their legal advisers to determine whether purchase of
a Policy based on sex-distinct actuarial tables is consistent with Title VII of
the Civil Rights Act of 1964 or other applicable law. Upon request, we may offer
the Policy with unisex mortality tables to such prospective purchasers.
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Acquisition Expense. We will make a deduction from your Policy Account Value for
expenses associated with the acquisition and underwriting costs to issue your
Policy. This charge will vary based on the Insured's Age, sex, rate class.
Deduction From Subaccount Assets
Mortality and Expense Risk Charge. We deduct a daily charge from your Account
Value in the Subaccounts for assuming certain mortality and expense risks under
the Policy. This charge does not apply to the amounts you allocate to the
Guaranteed Account. The current charge is at an annual rate of 0.75% of net
assets. The guaranteed charge is at an annual rate of 1.00% of the subaccount
assets. Although, the charge may be increased or decreased at the sole
discretion of the Company, it is guaranteed not to exceed an annual rate of
1.00% of your Account Value in the Subaccounts for the duration of a Policy.
The mortality risk we assume is that the Insureds under a Policy may die sooner
than anticipated, and therefore we will pay an aggregate amount of Life
Insurance Proceeds greater than anticipated. The expense risk we assume is that
expenses incurred in issuing and administering all Policies and the Separate
Account will exceed the amounts realized from the administrative charges
assessed against all Policies.
Deductions Upon Policy Transactions
Transfer Charge. We currently impose a $25 transfer charge on any transfer of
Account Value among the Subaccounts and the Guaranteed Account in excess of the
12 free transfers permitted each Policy year. If the charge is imposed, we will
deduct it from the amount requested to be transferred before allocation to the
new Subaccount(s) and shown in the confirmation of the transaction.
Surrender Charge. If the Policy is surrendered or there is a decrease in Face
Amount during the first 14 Policy years, we will deduct a surrender charge based
on the initial Face Amount. If a Policy is surrendered or there is a decrease in
Face Amount within 14 years after an increase in Face Amount, we will deduct a
surrender charge based on the increase in Face Amount. The surrender charge will
be deducted before any surrender proceeds are paid.
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Surrender Charge Calculation. In general, the surrender charge is based on the
premiums you pay. The Surrender Charge will be no greater than the product of
(1) times (2) times (3) where:
(1) is equal to the Face Amount divided by $1,000;
(2) is equal to a surrender charge factor per $1,000 based on the Insured's
Age, sex and underwriting class; and
(3) is equal to the Policy duration factor as described in the following table:
Policy Policy Duration
Duration Factor
1...................... 100%
2...................... 100%
3...................... 100%
4...................... 100%
5...................... 100%
6...................... 90%
7...................... 80%
8...................... 70%
9...................... 60%
10...................... 50%
11...................... 40%
12...................... 30%
13...................... 20%
14...................... 10%
15+..................... 0%
The sum of (1) and (2) will be capped at a level not to exceed a maximum
surrender charge based on a rate per $1,000 of Face Amount. A table of surrender
charge factors per $1,000 of Face Amount is shown in Appendix A.
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Surrender Charge Based On An Increase Or Decrease In Face Amount. An increase in
Face Amount of the Policy may result in an additional surrender charge during
the 14 Policy years immediately following the increase. The additional surrender
charge period will begin on the effective date of the increase. If the Face
Amount of the Policy is reduced before the end of the 14th Policy year or within
14 years immediately following a Face Amount increase, we may also deduct a pro
rata share of any applicable surrender charge from your Account Value.
Reductions will first be applied against the most recent increase in the Face
Amount of the Policy. They will then be applied to prior increases in Face
Amount of the Policy in the reverse order in which such increases took place,
and then to the initial Face Amount of the Policy.
Partial Surrender Charges. We may deduct a partial surrender charge:
o upon a partial surrender; and
o If you decreased your Policy Face Amount.
We deduct the partial surrender charge from the Subaccounts or the Guaranteed
Account in the same proportion as we deduct the amounts for your partial
surrender.
Partial Surrender Charge Due to A Decrease in Face Amount. We deduct an amount
equal to the applicable surrender charge multiplied by a fraction (equal to the
decrease in Face Amount divided by the Face Amount of the Policy prior to the
decrease).
Partial Surrender Administrative Charge. We reserve the right to deduct an
administrative charge upon a partial surrender of up to $25 per partial
surrender.
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Discount Purchase Programs
The amount of the surrender charge and other charges under the Policy may be
reduced or eliminated when sales of the Policy are made to individuals or to
groups of individuals in a manner that in our opinion results in expense
savings. For purchases made by officers, directors and employees of the Company,
an affiliate, or any individual, firm, or a company that has executed the
necessary agreements to sell the Policy, and members of the immediate families
of such officers, directors, and employees, we may reduce or eliminate the
surrender charge. Any variation in charges under the Policy, including the
surrender charge, administrative charge or mortality and expense risk charge,
will reflect differences in costs or services and will not be unfairly
discriminatory.
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Other Policy Provisions
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Right to Exchange
You may exchange this Policy to a flexible premium fixed benefit life insurance
policy on the life of the Insured, without evidence of insurability. This
exchange may be made:
(a) within 24 months after the Issue Date while the Policy is in force;
(b) within 24 months of any increase in Face Amount of the Policy; or
(C) within 60 days of the effective date of a material change in the investment
policy of a Subaccount, or within 60 days of the notification of such
change, if later. In the event of such a change, we will notify you and
give you information on the options available.
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When an exchange is requested, we accomplish the exchange by transferring all of
the Account Value to the Guaranteed Account. There is no charge for this
transfer. Once this option is exercised, the entire Account Value must remain in
the Guaranteed Account for the remaining life of the new policy. The Face Amount
in effect at the time of the exchange will remain unchanged. The Effective Date,
Issue Date and Issue Age of the Insured will remain unchanged. The Owner and
Beneficiary are the same as were recorded immediately before the exchange.
Limits on our Rights to Contest the Policy
Incontestability. We will not contest the Policy after it has been in force
during the Insured's lifetime for two years from the Issue Date. Any increase in
the Face Amount will be incontestable with respect to statements made in the
evidence of insurability for that increase after the increase has been in force
during the life of the Insured for two years after the effective date of the
increase.
Suicide Exclusion. If the Insured commits suicide (while sane or insane) within
two years (unless otherwise specified by state law) after the Issue Date, our
liability will be limited to the payment of a single sum. This sum will be equal
to the premiums paid, minus any loan and accrued loan interest and minus any
partial surrender and minus the cost of any riders attached to the Policy. If
the Insured commits suicide (while sane or insane) within two years (unless
otherwise specified by state law) after the effective date of an increase in the
Face Amount, then our liability as to the increase in amount will be limited to
the payment of a single sum equal to the monthly cost of insurance deductions
made for such increase plus the expense charge deducted for the increase.
Changes in the Policy or Benefits
Misstatement of Age or Sex. If an Insured's age or sex has been misstated in the
Policy, the Life Insurance Proceeds and any benefits provided by riders shall be
those which would be purchased at the then current cost of insurance charge for
the correct age and sex.
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Other Changes. At any time we may make such changes in the Policy as are
necessary to assure compliance at all times with the definition of life
insurance prescribed by the Code or to make the Policy conform with any law or
regulation issued by any government agency to which it is subject.
When Proceeds Are Paid
We will ordinarily pay any Life Insurance Proceeds, loan proceeds or partial or
full surrender proceeds within seven days after receipt at our Administrative
Office of all the required documents. Other than the Life Insurance Proceeds,
which is determined as of the date of death, the amount will be determined as of
the date of receipt of required documents. However, we may delay making a
payment or processing a transfer request if:
(1) the disposal or valuation of the Separate Account's assets is not
reasonably practicable because the New York Stock Exchange is closed for
other than a regular holiday or weekend, trading is restricted by the SEC,
or the SEC declares that an emergency exists; or
(2) the SEC by order permits postponement of payment for your protection.
In addition we may delay making deductions from the Guaranteed Account.
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Reports to Owners
You will receive a confirmation within seven days of the transaction of:
o the receipt of any premium;
o any change of allocation of premiums;
o any transfer between Subaccounts;
o any loan, interest repayment, or loan repayment;
o any partial surrender;
o any return of premium necessary to comply with applicable maximum receipt
of any premium payment;
o any exercise of your right to cancel;
o an exchange of the Policy;
o full surrender of the Policy.
Within 30 days after each Policy anniversary we will send you an annual
statement. The statement will show the Life Insurance Proceeds currently
payable, and the current Account Value, Cash Surrender Value, and the
Outstanding Loan. The statement will also show premiums paid, all charges
deducted during the Policy year, and all transactions. We will also send to you
annual and semi-annual reports of the Separate Account.
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Assignment
You may assign the Policy in accordance with its terms on a form provided by us.
We will not be deemed to know of an assignment unless we receive a copy of this
assignment form at our Administrative Office. We assume no responsibility for
the validity or sufficiency of any assignment. Any assignment or pledge of a
modified endowment contract as collateral for a loan may result in a taxable
event.
Reinstatement
If the Policy has ended without value, you may reinstate Policy benefits while
the Insured is alive if you:
1. Request reinstatement of Policy benefits within three (3) years (unless
otherwise specified by state law) from the end of the Grace Period;
2. Provide evidence of insurability satisfactory to Us;
3. Make a payment of an amount sufficient to cover (I) the total monthly
administrative charges from the beginning of the Grace Period to the
effective date of reinstatement; (ii) total monthly deductions for three
(3) months, calculated from the effective date of reinstatement; and (iii)
the premium expense charge and any increase in surrender charges associated
with this payment. We will determine the amount of this required payment as
if no interest or investment performance were credited to or charged
against your Account Value; and
4. Repay or reinstate any Policy loan which existed on the date the Policy
ended.
The effective date of the reinstatement of Policy benefits will be the next
monthly anniversary which coincides with or next follows the date we approve
your request. From the required payment we will deduct the premium expenses. The
Account Value, Policy loan and surrender charges that will apply upon
reinstatement will be those that were in effect on the date the Policy lapsed.
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We will start to make monthly deductions again as of the effective date of
reinstatement. The monthly expense charge from the beginning of the Grace Period
to the effective date of reinstatement will be deducted from the Account Value
as of the effective date of reinstatement. No other charges will accrue for this
period.
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Performance Information
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From time to time we may advertise the "total return" and the "average annual
total return" of the Subaccounts and the Funds. Both total return and average
total return figures are based on historical earnings and are not intended to
indicate future
performance.
"Total Return" for a portfolio refers to the total of the income generated by
the portfolio net of total portfolio operating expenses plus capital gains and
losses, realized or unrealized. "Total Return" for the Subaccounts refers to the
total of the income generated by the portfolio net of total portfolio operating
expenses plus capital gains and losses, realized or unrealized, and the
mortality and expense risk charge. "Average Annual Total Return" reflects the
hypothetical annually compounded return that would have produced the same
cumulative return if a Fund's portfolio's or Subaccount's performance had been
constant over the entire period. Because average annual total returns tend to
smooth out variations in the return of the portfolio, they are not the same as
actual year-by-year results.
The performance information set forth in Appendix C reflects the total of the
income generated by the portfolio net of the total portfolio operating expenses,
plus capital gains and losses, realized or unrealized. The performance results
do not reflect: monthly deductions; cost of insurance; surrender charges; sales
loads; DAC taxes; and any state or local premium taxes. If these charges were
included, the total return figures would be lower.
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Performance information may be compared, in reports and promotional literature,
to: (I) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other unmanaged
indices so that investors may compare the Subaccount results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities markets in general; (ii) other groups of variable life separate
accounts or other investment products tracked by Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds and other
investment products by overall performance, investment objectives, and assets,
or tracked by other services, companies, publications, or persons, such as
Morningstar, Inc., who rank such investment products on overall performance or
other criteria; or (iii) the Consumer Price Index (a measure for inflation) to
assess the real rate of return from an investment in the Subaccount. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
We may provide in advertising, sales literature, periodic publications or other
materials information on various topics of interest to Owners and prospective
Owners. These topics may include the relationship between sectors of the economy
and the economy as a whole and its effect on various securities markets,
investment strategies and techniques (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer and account
rebalancing), the advantages and disadvantages of investing in tax-deferred and
taxable investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and investment
alternatives to certificates of deposit and other financial instruments,
including comparisons between the Policy and the characteristics of and market
for such financial instruments.
Total return data may be advertised based on the period of time that the
portfolios have been in existence. The results for any period prior to the
Policy being offered will be calculated as if the Policy had been offered during
that period of time, with all charges assumed to be those applicable to the
Policy. Performance information for any Subaccount in any advertising will
reflect only the performance of a hypothetical investment in the Subaccount
during the particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality
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of the portfolio in which the Subaccount invests and the market conditions
during the given time period, and should not be considered as a representation
of what may be achieved in the future. Actual returns may be more or less than
those shown in any advertising and will depend on a number of factors, including
the investment allocations by an Owner and the different investment rates of
return for the portfolios.
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Federal Income Tax Considerations
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The following summarizes the current federal income tax law that applies to life
insurance in general. This summary does not cover all situations. This summary
is based upon our understanding of the current federal income tax laws and
current interpretations by the Internal Revenue Service. We cannot predict
whether the Code will change. You should speak to a competent tax adviser to
discuss how the purchase of a Policy and the transactions you make under the
Policy will impact your federal tax liability.
Tax Status of the Policy
A Policy has certain tax advantages when it is treated as a "life insurance
contract" under the Code. We believe that the Policy meets the definition of a
life insurance contract under Section 7702 of the Code. You bear the risk that
the Policy may not meet the definition of a life insurance contract. You should
consult your own tax advisers to discuss these risks.
The Company
We are taxed as a life insurance company under the Code. For federal tax
purposes, the Separate Account and its operations are considered to be part of
our operations and are not taxed separately.
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Diversification and Investor Control
The Code requires that we diversify the investments underlying variable
insurance contracts. If the investments are not properly diversified and any
remedial period has passed, Section 817(h) of the Code provides in general the
contract is immediately disqualified from treatment as a life insurance contract
for federal income tax purposes. Disqualification of the Policy as a life
insurance contract would result in taxable income to you at the time that we
allocate any earnings to your Policy. You would have taxable income even though
you have not received any payments under the Policy.
To the extent that any segregated asset account with respect to a variable life
insurance contract invests exclusively in securities issued by the U.S.
Treasury, the diversification standard is satisfied. A segregated asset account
underlying life insurance contracts such as the Policy will also meet the
diversification requirements if, as of the close of each quarter:
o the regulated investment companies in which the segregated asset
account invest satisfy the diversification requirements described
below; and
o not more than 55 percent of the value of the assets of the account are
attributable to cash and cash items (including receivables),
Government securities and securities of other regulated investment
companies.
Alternatively, the diversification requirements may be met for each if:
o no more than 55% of the value of the total assets of the portfolio is
represented by any one investment;
o no more than 70% of the value of the total assets of the portfolio is
represented by any two investments;
o no more than 80% of the value of the total assets of the portfolio is
represented by any three investments; and
o no more than 90% of the value of the total assets of the portfolio is
represented by any four investments.
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There are several ways for investments to meet the diversification requirements.
Generally, each United States government agency or instrumentality is treated as
a separate issuer under these rules.
All securities of the same issuer are generally treated as a single investment.
We intend that each portfolio in which the Subaccounts invest will be managed by
its investment adviser in compliance with these diversification requirements.
A variable life insurance policy could fail to be treated as a life insurance
contract for tax purposes if the owner of the policy has such control over the
investments underlying the policy (e.g., by being able to transfer values among
subaccounts with only limited restrictions) so as to be considered the owner of
the underlying investments. There is some uncertaintly on this point because no
guidelines have been issued by the Treasury Department. If and when guidelines
are issued, we may be required to impose limitations on you're rights to control
investment designations under the Policy. We do not know whether any such
guidelines will be issued or whether any such guidelines would have retroactive
effect. We, therefore, reserve the right to make changes that we deem necessary
to insure that the Policy qualifies as a life insurance contract.
Tax Treatment of the Policy
Section 7702 of the Code sets forth a detailed definition of a life insurance
contract for federal tax purposes. The Treasury Department has not issued final
regulations so that the extent of the official guidance as to how Section 7702
is to be applied is quite limited. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, that Policy would not qualify
for the favorable tax treatment normally provided to a life insurance contract.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes that such a Policy should meet the Section 7702 definition of a
life insurance contract.
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With respect to a Policy that is issued on a substandard basis (i.e., a premium
class involving higher than standard mortality risk), there is less certainty,
in particular as to how the mortality and other expense requirements of Section
7702 are to be applied in determining whether such a Policy meets the definition
of a life insurance contract set forth in section 7702. Thus, it is not clear
that such a Policy would satisfy Section 7702, particularly if the you pay the
full amount of premiums permitted under the Policy.
If subsequent guidance issued under Section 7702 leads us to conclude that a
Policy does not (or may not) satisfy Section 7702, we will take appropriate and
necessary steps for the purpose of bringing the policy into compliance, but we
can give no assurance that it will be possible to achieve that result. We
expressly reserve the right to restrict Policy transactions if we determine such
action to be necessary to qualify the Policy as a life insurance contracts under
Section 7702.
Tax Treatment of Policy Benefits In General
This discussion assumes that each Policy will qualify as a life insurance
contract for federal income tax purposes under Section 7702. The Life Insurance
Proceeds under the Policy should be excluded from the taxable gross income of
the Beneficiary. In addition, the increases in a Policy's Account Value should
not be taxed until there has been a distribution from the Policy such as a
surrender, partial surrender or lapse with loan.
Pre-Death Distribution
The tax treatment of any distribution you receive before the insured's death
depends on whether the Policy is classified as a modified endowment contract.
Policies Not Classified as Modified Endowment Contracts
o If you surrender the Policy or allow it to lapse, you will not be
taxed except to the extent the amount you receive is in excess of the
premiums you paid less the untaxed portion of any prior withdrawals.
For this purpose, you will be treated as receiving any portion of the
cash surrender value used to repay Policy debt. The tax consequences
of a surrender may differ if you take the proceeds under an income
payment settlement option.
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o Generally, you will be taxed on a withdrawal to the extent the amount
you receive exceeds the premiums you paid for the Policy less the
untaxed portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Policy years, all or a portion of a
withdrawal may be taxed if the cash value exceeds the total premiums
paid less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid.
o Extra premiums for optional benefits and riders generally do not count
in computing the premiums paid for the Policy for the purposes of
determining whether a withdrawal is taxable.
o Loans you take against the Policy are ordinarily treated as debt and
are not considered distributions subject to tax.
Modified Endowment Contracts
o The rules change if the Policy is classified as a modified endowment
contract (or "MEC"). The Policy could be classified as a MEC if
premiums substantially in excess of scheduled premiums are paid or a
decrease in the face amount of insurance is made (or a rider removed).
The addition of a rider or an increase in the face amount of insurance
may also cause the Policy to be classified as a MEC. The rules on
whether a Policy will be treated as a MEC are very complex and cannot
be fully described in this summary. You should consult a qualified tax
adviser to determine whether a Policy transaction will cause the
Policy to be classified as a MEC. [We will monitor your Policy and
will take steps reasonably necessary to notify you on a timely basis
if your Policy is in jeopardy of becoming a MEC.]
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o If the Policy is classified as a MEC, then amounts you receive under
the Policy before the insured's death, including loans and
withdrawals, are included in income to the extent that the cash value
before surrender charges exceeds the premiums paid for the Policy
increased by the amount of any loans previously included in income and
reduced by any untaxed amounts previously received other than the
amount of any loans excludible from income. An assignment of a MEC is
taxable in the same way. These rules also apply to pre-death
distributions, including loans, made during the two-year period before
the time that the Policy became a MEC.
o Any taxable income on pre-death distributions (including full
surrenders) is subject to a penalty of 10% unless the amount is
received on or after age 59 1/2, on account of your becoming disabled
or as a life annuity. It is presently unclear how the penalty tax
provisions apply to the Policies owned by businesses.
o All MECs issued by us to you during the same calendar year are treated
as a single Policy for purposes of applying these rules.
Interest on Policy Loans. Except in special circumstances, interest paid on a
loan under a Policy which is owned by an individual is treated as personal
interest under the Code and thus will not be tax deductible. In addition, the
deduction of interest that is incurred on any loan under a Policy owned by a
taxpayer and covering the life of any individual who is an officer or employee
of or who is financially interested in the business carried on by that taxpayer
may also be subject to certain restrictions set forth in Section 264 of the
Code. Before taking a Policy loan, you should consult a tax adviser as to the
tax consequences of such a loan. (Also Section 264 of the Code may preclude
business Owners from deducting premium payments.)
Policy Exchanges and Modifications. Depending on the circumstances, the exchange
of a Policy, a change in the Policy's death benefit option, a Policy loan, a
partial surrender, a surrender, a change in ownership, or an assignment of the
Policy may have federal income tax consequences. In addition, the federal, state
and local transfer, and other tax consequences of ownership or receipt of Policy
proceeds will depend on the circumstances of each Owner or Beneficiary.
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Withholding. We are required to withhold federal income taxes on the taxable
portion of any amounts received under the Policy unless you elect to not have
any withholding or in certain other circumstances. You are not permitted to
elect out of withholding if you do not provide a social security number or other
taxpayer identification number. Special withholding rules apply to payments made
to non-resident aliens.
You are liable for payment of federal income taxes on the taxable portion of any
amounts received under the Policy. You may be subject to penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
Generation Skipping Transfer Tax. A transfer of the Policy 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.
Contracts Issued in Connection With Tax Qualified Pension Plans. Prior to
purchase of a Policy in connection with a qualified plan, you should examine the
applicable tax rules relating to such plans and life insurance thereunder in
consultation with a qualified tax adviser.
Possible Charge for the Company's Taxes
At the present time, we do not deduct any charges for any federal, state or
local income taxes. However, we do currently deduct charges for state and
federal premium based taxes and the federal DAC tax. We reserve the right in the
future to deduct a charge for any such tax or other economic burden resulting
from the application of the tax laws that we determine to be properly
attributable to the Separate Account or to the Policy.
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Distribution of the Policy
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The Policy is sold by licensed insurance agents, where the Policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The Policy will be distributed through the principal underwriter for the
Separate Account, AIG Equity Sales Corp. (AIGESC) 80 Pine Street, New York, New
York, an affiliate of ours. AIGESC may also enter into selling agreements with
other broker dealers that
will offer the policy.
Commissions may be paid to registered representatives based on premiums paid for
Policies sold. Other expense reimbursements, allowances, and overrides may also
be paid. Registered representatives who meet certain productivity and
profitability standards may be eligible for additional compensation. Additional
payments may be made for administrative or other services not directly related
to the sale of the Policies.
Other Policies Issued by the Company
The Company may offer other policies similar to those offered herein.
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About Us and the Accounts
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The Company
We are a member of the American International Group, Inc.
AIG Life Insurance Company is a stock life insurance company operating under the
laws of the State of Delaware. It was incorporated in 1962. We provide a full
range of individual and group life, disability, accidental death and
dismemberment policies and annuities. We are a subsidiary of American
International Group, Inc., which is a 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.
Year 2000.
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the year 2000, causing
disruption of our operations and of our lessees, vendors, or business partners.
We have developed a plan to address the Year 2000 issue as it affects our
internal IT and non-IT systems, and to assess Year 2000 issues relating to third
parties with whom we have critical relationships.
Our plan for addressing internal systems includes:
o an assessment of internal IT and non-IT systems and equipment affected
by the Year 2000 issue;
o definition of strategies to address affected systems and equipment;
o remediation of identified affected systems and equipment; and
o internal certification that each internal system is Year 2000
compliant.
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We have remediated, tested and returned to production substantially all of our
internal IT systems. We continue to remediate and test internal non-IT systems
and expect to complete our remediation by mid-1999.
We have also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with us. Currently, we
are unable to ascertain whether all such third parties will successfully address
the Year 2000 issue, particularly those third parties outside the United States
where it is believed that remediation efforts relating to the Year 2000 issue
may be less advanced. While we expect to have no interruption of operations as a
result of internal IT and non-IT systems, significant uncertainties remain about
the effect on us of third parties who are not Year 2000 compliant. We will
continue to monitor third party Year 2000 issue readiness to determine whether
additional or alternative measures may be necessary. Such measures may include
selecting alternate third parties or other actions designed to mitigate the
effects of a third party's lack of preparedness. There can be no assurance that
unresolved Year 2000 issues of third parties will not have a material adverse
impact on our results of operations, financial condition or liquidity. We are
considering the effects of Year 2000 related failures on our business and, as
the most reasonably likely worst case scenarios become more clearly identified,
we will develop appropriate contingency plans.
The funds, like other third parties, may not have resolved their Year 2000
issues that may have a material adverse impact on your contract values as well
as our operations and we cannot assure that they will. Please refer to Year 2000
discussions in each fund's prospectus.
The Separate Account
We established the Separate Account as a separate investment account on June 5,
1986. It may be used to support the Policy and other variable life insurance
policies, and used for other permitted purposes. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the federal securities laws and qualifies as a "separate account"
within the meaning of these laws.
Although you may have allocated your Account Values to the Subaccounts, you do
not own these assets. You only own your Policy.
We own the assets in the Separate Account. The Separate Account is divided into
Subaccounts. The Subaccounts available under the Policy invest in shares of a
specific portfolio of the funds. The Separate Account may include other
Subaccounts which are not available under the Policy.
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Income, gains and losses, realized or unrealized, of a Subaccount are credited
to or charged against the Subaccount without regard to any of our other income,
gains or losses. Assets equal to the reserves and other contract liabilities
with respect to each Subaccount are not chargeable with liabilities arising out
of any of our other businesses or separate accounts. If the assets exceed the
required reserves and other liabilities, we may transfer the excess to our
general account. We are obligated to pay all benefits provided under the Policy.
Rights we have reserved.
We have reserved certain rights regarding the Separate Account. We will exercise
these rights only in compliance with all applicable regulatory requirements. We
have the right to:
o Change, add or delete designated investment options.
o Add or remove Subaccounts.
o Withdraw assets of a class of policies to which the Policy belongs from a
Subaccount and put them in another Subaccount.
o Combine any two or more Subaccounts.
o Register other separate accounts or deregister the Separate Account with
the Securities and Exchange Commission.
o Run the Separate Account under the direction of a committee, and discharge
such committee at any time.
o Restrict or eliminate any voting rights of Owners, or other persons who
have voting rights as to the Separate Account.
o Operate the Separate Account or one or more of the Subaccounts by making
direct investments or in any other form. If we do so, we may invest the
assets of the Separate Account or one or more of the Subaccounts in any
investments that are legal, as determined by our own or outside counsel.
65
<PAGE>
We will not change an investment adviser or any investment of a Subaccount of
our Separate Account unless approved by the Commissioner of Insurance of the
State of Delaware or deemed approved in accordance with such law or regulation.
Any approval process is on file with the insurance supervisory official of the
jurisdiction in which this Policy is delivered.
If any change we make results in a material change in the underlying investments
of a Subaccount, we will notify you of such change. If you have value in that
Subaccount:
o We will transfer it at your written direction from that Subaccount (without
charge) to another Subaccount or to the Guaranteed Account, and
o You may then change your premium allocation percentages.
Voting Rights
We are the legal owner of shares held by the Subaccounts and as such have the
right to vote on all matters submitted to shareholders of the portfolios.
However, as required by law, we will vote shares held in the Subaccounts at
regular and special meetings of shareholders of the portfolios in accordance
with instructions we receive from Owners with Account Value in the Subaccounts.
If allowed by law or required by law we may vote shares of the portfolios
without obtaining instructions or in disregard to instructions we have received.
If we ever disregard voting instructions, we will advise you of that action and
our reasons for such action in the next semiannual report.
The Guaranteed Account
The Guaranteed Account is an account within the general account of the Company.
Our general account assets are used to support our insurance and annuity
obligations other than those funded by separate accounts. Subject to applicable
law, we have sole discretion over the investment of the assets of the general
account.
66
<PAGE>
We have not registered:
o Interests in the Guaranteed Account under the Securities Act of 1933, and
o the Guaranteed Account as an investment company.
The staff of the Securities and Exchange Commission has not reviewed our
disclosure on the Guaranteed Account. Our disclosure regarding the Guaranteed
Account must comply with generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
67
<PAGE>
- --------------------------------------------------------------------------------
Our Directors and Executive Officers
- --------------------------------------------------------------------------------
The directors and principal officers of the Company are listed below with their
current principal business affiliation and their principal occupations during
the past five (5) years. All officers have been affiliated with the Company
during the past five (5) years unless otherwise indicated.
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
Michele L. Abruzzo Director, Sr. Exec. Senior Vice President
80 Pine Street Vice President
New York, NY 10005
Maurice R. Greenberg Director Director, Chairman and Chief
70 Pine Street Executive Officer AIG, Inc.
New York, NY 10270
Howard E. Gunton, Jr. Chief Financial Officer, Sr. Vice President and
One Alico Plaza Senior Vice President Comptroller AIG Domestic
600 King Street Life Companies
Wilmington, DE 19801
Edward Easton Matthews Director, Senior Vice Vice Chairman Investments
70 Pine Street President and Financial Services, AIG,
New York, NY 10270 Inc.
Jerome T. Muldowney Director, Senior Vice Managing Director AIG
175 Water Street President Investments Corp.
New York, NY 10038 Senior Vice President of AIG
Domestic Life Companies
Michael Mullin Chief Operating Officer, Vice President
One Alico Plaza Senior Vice President
600 King Street
Wilmington, DE 19801
Robinson K. Nottingham Director, Chairman of the Chairman of the Board and
70 Pine Street Board Chief Executive Officer of
New York, NY 10270 American International Life
Insurance Company
(ALICO)
Nicholas A. O'Kulich Director, Vice Chairman, Vice President, Senior Vice
70 Pine Street Treasurer President, Life Insurance
New York, NY 10270 AIG, Inc.
68
<PAGE>
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
John Robert Skar Director, Sr. Vice Pres. Sr. Vice President Actuary
One Alico Plaza Chief Actuary AIG Domestic Life
600 King Street Companies
Wilimington, DE 19801
Howard Ian Smith Director Director, Executive Vice
70 Pine Street President, Chief Financial
New York, NY 10270 Officer and Comptroller,
AIG, Inc.
Edmund Sze-Wing Tse Director Vice Chairman, Life
AIA Building Insurance, AIG, Inc.
70 Pine Street
New York, NY 10270
Elizabeth M. Tuck Secretary Secretary and Assistant
70 Pine Street Secretary of AIG, Inc., and
New York, NY 10270 certain affiliates
Gerald Walter Wyndorf Director, Chief Executive Executive Vice President -
80 Pine Street Officer and President AIG Domestic Life
New York, NY 10038 Companies
69
<PAGE>
- --------------------------------------------------------------------------------
Other Information
- --------------------------------------------------------------------------------
State Regulation
We are subject to the laws of Delaware governing insurance companies and to
regulation by the Delaware Insurance Department. We file an annual statement in
a prescribed form with the Insurance Department each year covering our operation
for the preceding year and our final condition as of the end of such year.
Regulation by the Insurance Department includes periodic examinations to
determine our Policy liabilities and reserves so that the Insurance Department
may certify the items are correct. Our books and accounts are subject to review
by the Insurance Department at all times and a full examination of its
operations is conducted periodically by the staff of the Insurance Department
pursuant to the National Association of Insurance Commissioners. Such regulation
does not, however, involve any supervision of management or investment practices
or policies. In addition, we are subject to regulation under the insurance laws
of other jurisdictions in which we may operate.
Legal Proceedings
There are no legal proceedings to which the Separate Account or the principal
underwriter is a party. We are engaged in various kinds of routine litigation
which, in our opinion, are not of material importance in relation to our total
capital and surplus.
Experts
Our financial statements which appear in this Prospectus have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants, as stated
in their reports, and have been included in reliance upon the authority of such
firm as experts in accounting and auditing.
70
<PAGE>
Legal Matters
Legal matters relating to the federal securities laws are being passed upon by
the firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP of Washington,
D.C.
Published Ratings
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to us 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 rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the Separate Account.
The ratings are not recommendations to purchase our 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 so
warrant. The ratings do not reflect the investment performance of the Separate
Account or the degree of risk associated with an investment in the Separate
Account.
71
<PAGE>
INSERT FINANCIAL STATEMENTS HERE
72
<PAGE>
APPENDIX A
Maximum Initial Surrender Charge Per $1,000
of Initial Specified Face Amount
Issue Age Sex Smoker Status Surrender Charge
- --------- --- ------------- ----------------
25 Male Nonsmoker $16.00
35 Male Nonsmoker 19.00
45 Male Nonsmoker 26.00
55 Male Nonsmoker 38.00
65 Male Nonsmoker 46.00
75 Male Nonsmoker 46.00
25 Male Smoker 18.00
35 Male Smoker 23.00
45 Male Smoker 32.00
55 Male Smoker 48.00
65 Male Smoker 48.00
75 Male Smoker 48.00
25 Female Nonsmoker 15.00
35 Female Nonsmoker 18.00
45 Female Nonsmoker 23.00
55 Female Nonsmoker 33.00
65 Female Nonsmoker 45.00
75 Female Nonsmoker 45.00
25 Female Smoker 16.00
35 Female Smoker 20.00
45 Female Smoker 26.00
55 Female Smoker 37.00
65 Female Smoker 46.00
75 Female Smoker 46.00
A-1
<PAGE>
APPENDIX B
PORTFOLIO EXPENSES
As of December 31, 1998
The purpose of this table is to assist the Owner in understanding the
various costs and expenses that will be incurred, directly or indirectly. It is
based on historical expenses as a percentage of net assets after waivers and/or
reimbursements, if applicable, for the year ended December 31, 1998, except as
indicated below. Expenses of the portfolios of the Funds are not fixed or
specified under the terms of the Policy. Actual expenses may vary.
Total
Management Other Operating
Fees Expenses 12b-1 Fees Expenses
Alliance
Growth and Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Goldman Sachs
Capital Growth Fund
CORE U.S. Equity Fund
CORE Large Cap Growth Fund
CORE Small Cap Equity Fund
Global Income Fund
Growth and Income Fund
International Equity Fund
Mid Cap Equity Fund
Fidelity VIP II
Contrafund Portfolio
VIP II Index 500 Portfolio
Morgan Stanley Dean Witter
Fixed Income Portfolio
Global Equity Portfolio
High Yield Portfolio
Money Market Portfolio
U.S. Real Estate Portfolio
Neuberger Berman
AMT Partners Portfolio
Templeton
Templeton Developing Markets - Class 2 Fund
Templeton International-Class 2 Fund
[To be provided by a subsequent amendment to this filing.]
B-1
<PAGE>
APPENDIX C
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1998
Inception Since
Date 1 Year 3Years 5Years 10 Years Inception
----- ------ ------ ------ -------- ---------
Alliance
Growth and Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Goldman Sachs
Capital Growth Fund
CORE U.S. Equity Fund
CORE Large Cap Growth Fund
CORE Small Cap Equity Fund
Global Income Fund
Growth and Income Fund
International Equity Fund
Mid Cap Equity Fund
Fidelity VIP II
Contrafund Portfolio
VIP II Index 500 Portfolio
Morgan Stanley Dean Witter
Fixed Income Portfolio
Global Equity Portfolio
High Yield Portfolio
Money Market Portfolio
U.S. Real Estate Portfolio
Neuberger Berman
AMT Partners Portfolio
Templeton
Templeton Developing Markets - Class 2 Fund
Templeton International-Class 2 Fund
[To be provided by a subsequent amendment to this filing.]
C-1
<PAGE>
[Back cover]
The Securities and Exchange Commission maintains an Internet Web site
(http://www.sec.gov.) That contains additional information about AIG Life
Insurance Company, the Policy and the Separate Account which may be of interest
to you. The Web site also contains additional information about the Policy's
variable investment options.
<PAGE>
Part II - Other Information
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission theretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION
AIG Life Insurance Company represents that the fees and charges deducted
under the Policy 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.
INDEMNIFICATION
Under its Bylaws, the Company, to the full extent permitted by Delaware law
shall indemnify any person who was or is a party to any proceeding (whether
brought by or in right of the Company or otherwise) by reason of the fact that
he or she is or was a Director of the Company, or while a Director of the
Company, is or was serving at the request of the Company as a Director, Officer,
partner, Trustee, Employee, or Agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by him or her in connection with such proceeding.
The company shall extend such indemnification, as is provided to directors
above, to any person, not a director of the Company, who is or was an officer of
the Company or is or was serving at the request of the Company as a director,
officer, partner, trustee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan. In
addition, the Board of Directors of the Company may, by resolution, extend such
further indemnification to an officer or such other person as may to it seem
fair and reasonable in view of all relevant circumstances.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to such provision of the bylaws or statutes or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any such action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Policies issued by Variable Account II, the Company will
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in said Act and
will be governed by the final adjudication of such issue.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of ___ pages.
The undertaking to file reports.
Representation.
The signatures.
Written consents of the following persons:
Kenneth D. Walma
Michael Burns
Jorden Burt Cicchetti Berenson & Johnson LLP
PriceWaterhouseCoopers LLP
Powers of Attorney
[To be filed by a subsequent amendment to this filing.]
The following exhibits:
A. Copies of all exhibits required by paragraph A of instructions for Exhibits
in Form N-8B-2, unless indicated otherwise.
1. Certificate of Resolution for AIG Life Insurance Company dated June 5,
1986, authorizing the issuance and sale of variable life contracts.*
2. N/A
3. Principal Underwriter's Agreement between AIG Life Insurance Company
and American International Fund Distributors, dated August 15, 1989;*
4. N/A
5. (a) Form of Flexible Premium Variable Universal Life Insurance Policy
(1VUL1294)*
(b) Form of Group Flexible Variable Universal Life Policy
(11GVUL0597)*
(c) Form of Certificate of Group Flexible Variable Universal Life
(16GVUL0597*
(d) Form of Group Flexible Variable Life Insurance Policy
(11GVULD997)**
(e) Form of Certificate of Group Flexible Variable Universal Life
(16GVULD997)**
6. (a) By-Laws of AIG Life Insurance Company as amended through December
31, 1991;*
(b) Certificate of Incorporation of AIG Life Insurance Company, dated
December 31, 1991*
(c) Restated Certificate of Incorporation, of AIG Life Insurance
Company, dated December 31, 1991. The original Certificate of
Incorporation was filed in Pennsylvania on June 18, 1962*
7. N/A.
8. N/A.
9. N/A.
10. (a) Form of Life Insurance Application (14APP0396)*
(b) Form of Supplemental Application (14SGVUL0597NJ)*
(c) Form of Group Life Insurance Application (14GAPP0397NJ)*
(d) Form of Group Life Insurance Application (14GVAPP997)**
11. Powers of Attorney (filed electronically herein)
B. Opinion and Consent of Counsel
[To be filed by a subsequent amendment to this filing.]
C. Opinion and Consent of Actuary
[To be filed by a subsequent amendment to this filing.]
D. Consent of Independent Certified Public Accountants
[To be filed by a subsequent amendment to this filing.]
E. Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP
[To be filed by a subsequent amendment to this filing.]
F. Memorandum Regarding Administrative Procedures*
* Incorporated by reference to Registrant's Post-Effective Amendment, No. 4
filed on Form S-6 (File No. 33-90684), dated October 27, 1998.
** Incorporated by reference to Registrant's Post-Effective Amendment, No. 1
filed on Form S-6 (File No. 333-34199), dated March 13, 1998.
<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(a) 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 5th day of March, 1999.
VARIABLE ACCOUNT II
-------------------------------
(Registrant)
By: AIG LIFE INSURANCE COMPANY
-------------------------------
(Sponsor)
By: /s/ Kenneth D. Walma
-------------------------------
Kenneth D. Walma, Assistant Secretary and
Associate General Counsel
Attest: /s/ Robert Liguori
Robert Liguori Vice President and General Counsel
<PAGE>
Pursuant to the requirements of the Securities and 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
Michele L. Abruzzo Director March 5, 1999
- ----------------------
/s/ Michele L. Abruzzo
Maurice R. Greenberg Director March 5, 1999
- ------------------------
/s/ Maurice R. Greenberg
Howard E. Gunton, Jr. Chief Financial March 5, 1999
_________________________ Officer
/s/ Howard E. Gunton, Jr
Edward Easton Matthews Director March 5, 1999
- --------------------------
/s/ Edward Easton Matthews
Jerome T. Muldowney Director March 5, 1999
- -----------------------
/s/ Jerome T. Muldowney
Michael Mullin Chief Operating March 5, 1999
_______________________ Officer
/s/ Michael Mullin
Robinson K. Nottingham Director March 5, 1999
- --------------------------
/s/ Robinson K. Nottingham
Nicholas A. O'Kulich Director March 5, 1999
- ------------------------
/s/ Nicholas A. O'Kulich
John Robert Skar Director March 5, 1999
- --------------------
/s/ John Robert Skar
Howard Ian Smith Director March 5, 1999
- --------------------
/s/ Howard Ian Smith
Edmund Sze-Wing Tse Director March 5, 1999
- -----------------------
/s/ Edmund Sze-Wing Tse
Elizabeth M. Tuck Secretary March 5, 1999
- ---------------------
/s/ Elizabeth M. Tuck
Gerald Walter Wyndorf Director March 5, 1999
- -------------------------
/s/ Gerald Walter Wyndorf
