Filed with the Securities and Exchange Commission on November 8, 2000
Registration No. 333-45172
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-6
PRE-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT 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 B
B. Name of depositor: American International Life Assurance Company
of New York
C. Complete address of depositor's principal executive offices:
80 Pine Street, New York, NY 10005
D. Name and address of agent for service:
Kenneth D. Walma, Vice President and General Counsel
One Alico Plaza
600 King Street
Wilmington, DE 19801
COPIES TO:
Michael Berenson, Esq. and Ernest T. Patrikis, Esq.
Jorden Burt Boros Cicchetti Senior Vice President and General Counsel
Berenson & Johnson, LLP American International Group, Inc.
Suite 400 East 70 Pine Street
1025 Thomas Jefferson Street, NW New York, NY 10270
Washington, DC 20007-0805
<PAGE>
E. Title and amount of securities being registered:
Flexible Premium Variable Universal Life Group Insurance Policies and
Certificates and Individual Insurance Policies.
F. Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration
Statement.
The Registrant hereby amends this Registration Statement on such date as
may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section
8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
Part I
<PAGE>
[Polaris VUL Logo] American International Life
Assurance Company of New York
Variable Account B
80 Pine Street
New York, NY 10005
1-800-340-2765
Flexible Premium Variable Universal Life Group and Individual Policies
American International Life Assurance Company of New York is offering life
insurance coverage under Polaris VUL to individuals and to groups. The
description of the policy applies equally to an individual policy, a group
policy, and a certificate issued under a group policy. The policy is a flexible
premium variable universal life insurance policy that 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 premium 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
investment option.
o Receive payments from your policy while the Insured is alive
through loans, partial withdrawals 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 policy nor shares of the portfolios are deposits or obligations of,
or guaranteed or endorsed by, a bank and they are not federally insured by the
Federal Deposit Insurance Corporation or any other government agency.
The Securities and Exchange Commission has not approved or disapproved the
policy or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
_______________, 2000
<PAGE>
Investment Options
----------------
The Variable Account is divided into subaccounts. Each
Variable subaccount invests in shares of a portfolio of the Anchor
Investment Series Trust or SunAmerica Series Trust. Each portfolio is
Options named below. The prospectuses for Anchor Series Trust and
SunAmerica Series Trust contain information about each
---------------- portfolio. You should read these prospectuses carefully.
Anchor Series Trust
Managed by Wellington Management Company, LLP
o Capital Appreciation Portfolio
o Government and Quality Bond Portfolio
o Growth Portfolio
o Natural Resources Portfolio
SunAmerica Series Trust
Managed by Alliance Capital Management L.P.
o Global Equities Portfolio
o Alliance Growth Portfolio
o Growth-Income Portfolio
Managed by Davis Selected Advisers, L.P.
o Real Estate Portfolio
o Davis Venture Value Portfolio
Managed by Federated Investors, Inc.
o Corporate Bond Portfolio
o Federated Value Portfolio
o Telecom Utility Portfolio
Managed by Goldman Sachs Asset
Management/Goldman Sachs Asset
Management International
o Asset Allocation Portfolio
o Global Bond Portfolio
Managed by MFS Investment Management
o MFS Growth and Income Portfolio
o MFS Mid-Cap Growth Portfolio
o MFS Total Return Portfolio
Managed by Morgan Stanley Asset
Management
o International Diversified Equities Portfolio
o Worldwide High Income Portfolio
Managed by Putnam Investments
o Emerging Markets Portfolio
o Putnam Growth Portfolio
o International Growth and Income Portfolio
Managed by SunAmerica Asset
Management Corp.
o Aggressive Growth Portfolio
o SunAmerica Balanced Portfolio
o Cash Management Portfolio
o "Dogs" of Wall Street Portfolio
o High-Yield Bond Portfolio
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------------------
Guaranteed You may allocate your Account Value to the Guaranteed
Investment Option Account. The Guaranteed Account is part of our general
account. We will credit interest equal to at least an
------------------- effective rate of 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 Variable Account.
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================================================================================
Table of Contents
================================================================================
Special Terms.....................................................
Summary of the Policy.............................................
Overview.......................................................
Applying for a Policy..........................................
Premium Payments...............................................
Account Value..................................................
Death Benefit..................................................
Cash Benefits During the Life of the Insured...................
Expenses of the Policy.........................................
Federal Tax Considerations.....................................
Purchasing a Polaris VUL Policy...................................
Applying for a Policy..........................................
Your Right to Cancel the Policy................................
Premium........................................................
Restrictions on Premium......................................
Minimum Initial Premium......................................
Planned Periodic Premium.....................................
Additional Premium...........................................
Effect of Premium Payments...................................
No Lapse Provision...........................................
Grace Period.................................................
Premium Allocations..........................................
Crediting Premium............................................
The Investment Options............................................
Variable Investment Options....................................
Guaranteed Investment Option...................................
Investing Your Account Value......................................
Determining the Account Value..................................
Transfers......................................................
Dollar Cost Averaging (DCA)....................................
Automatic Rebalancing..........................................
Death Benefit.....................................................
Life Insurance Proceeds........................................
Death Benefit Options..........................................
Changes in Death Benefit Options...............................
Changes in Face Amount.........................................
Changes in Owner or Beneficiary................................
Cash Benefits During the Insured's Life ..........................
Policy Loans...................................................
Partial Withdrawals............................................
Systematic Withdrawal Program..................................
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Surrendering the Policy for Net Cash Surrender Value...........
Payment Options for Benefits......................................
Expenses of the Policy............................................
Deductions From Premium........................................
Monthly Deductions From Account Value..........................
Deduction From Variable Account Assets.........................
Deductions Upon Policy Transactions ...........................
Supplemental Benefits and Riders..................................
Other Policy Provisions...........................................
Right to Exchange or Convert...................................
Paid-Up Insurance Benefit......................................
Incontestability...............................................
Suicide Exclusion..............................................
Misstatement of Age or Sex.....................................
Changes in the Policy or Benefits..............................
When Proceeds Are Paid.........................................
Reports to Owners..............................................
Assignment.....................................................
Reinstatement..................................................
Performance Information...........................................
Federal Income Tax Considerations.................................
Distribution of the Policy........................................
About Us and the Accounts.........................................
The Company....................................................
The Variable Account...........................................
The Guaranteed Account.........................................
Our Directors and Executive Officers..............................
Other Information.................................................
State Regulation...............................................
Legal Proceedings..............................................
Legal Matters..................................................
Published Ratings..............................................
Financial Statements..............................................
Appendix A........................................................
Appendix B........................................................
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================================================================================
Special Terms
================================================================================
We have capitalized some special terms we use in this document. We have defined
these terms here.
We use Account Value to
determine your policy benefits.
Account Value. The total amount in the Variable Account and the Guaranteed
Account attributable 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, Delaware
19801.
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 (are) entitled to the Life Insurance Proceeds
under the policy.
Cash Surrender Value. The Account Value less any applicable surrender charge
that would be deducted upon surrender.
Code. The Internal Revenue Code of 1986, as amended.
Death Benefit. The amount of life insurance coverage. Before the Insured reaches
Attained Age 100, it is based upon the death benefit option you select and the
Face Amount. After the Insured reaches Attained Age 100, it is equal to the
Account Value.
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 the base for
calculating the Death Benefit before the Insured reaches Attained Age 100.
Grace Period. The period of time beginning on a Monthly Anniversary during which
the 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 that consists of all
of our assets other than the assets of the Variable Account and any of our other
separate investment accounts.
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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 life insurance 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.
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 Loan.
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 and
accrued interest.
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. If a policy is issued, life insurance coverage is
effective as of the Policy Date.
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.
2
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Variable Account. Variable Account B, a separate investment account of ours.
================================================================================
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.
Overview
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.
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 withdrawals 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.
In addition, we may in the future offer 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 younger than
age 81.
Amount of life insurance
benefits.
When you apply for a policy, you must select the Face Amount. The Face Amount
must be at least:
o $25,000 for Insureds age 17 and younger.
o $50,000 for Insureds older than age 17.
3
<PAGE>
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 it carefully. 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 receive 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
premium 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.
This may be monthly, quarterly, semiannually, or annually. Pre-authorized
checking may be required for monthly payments.
Flexibility in premium payments.
Before the Insured reaches Attained Age 100, you may pay premium at any time and
in any amount, within limits, while the policy is in force. Thus, you are not
required to pay the planned periodic premium and you may make payments in
addition to the planned periodic premium. After the Insured reaches Attained Age
100, we will no longer accept premium payments.
4
<PAGE>
Account Value
We will measure your benefits under the policy by your Account Value. Your
Account Value will reflect:
o the premium 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 withdrawals; and
o the policy charges and expenses we deduct.
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 determine the manner in which we
calculate the death benefit for your policy if the Insured dies before
Attained Age 100.
o The tax qualification option, which will determine 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:
Level Death Benefit Option.
o Level Death Benefit Option
The Death Benefit will be the greater of:
(1) Face Amount; or
(2) Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
Variable Death Benefit
Option.
o Variable Death Benefit Option
The Death Benefit will be the greater of:
(1) Face Amount plus Account Value; or
(2) Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
5
<PAGE>
The minimum death benefit factors we use are based upon the tax qualification
option you select and the Attained Age, sex and rate class of the Insured.
If the Insured dies after Attained Age 100, the Death Benefit will equal the
Account Value.
Tax Qualification Options.
You may select from two tax qualification options:
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 Mortality Tables and a 4%
effective annual interest rate.
Changes You May Make.
Within limits, after the first policy anniversary and before the Insured reaches
Attained Age 100, you may change the death benefit option and 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 withdrawals 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 Withdrawal -- You may withdraw part of your Net Cash Surrender
Value after the first policy year. We may deduct an administrative charge.
If you make a partial withdrawal during the surrender charge period, we
may deduct a surrender charge. A partial withdrawal may result in a
decrease in the Face Amount of your policy, depending upon your death
benefit option.
6
<PAGE>
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 reduce your returns
under the policy.
Expenses of the Policy
Deductions from Premium
For state premium taxes, DAC taxes and other sales expenses, we currently charge
7% of each premium payment. The maximum we will charge is 8%.
Account Value Charges
(deducted monthly)
Cost of Insurance Charge(1)
Current Guaranteed
------- ----------
Ranges from 0.01609 per Ranges from 0.05667 per
$1,000 of net amount at risk $1,000 of net amount risk
to 71.15029 per $1,000 of net to 83.33333 per $1,000 of
amount at risk(2) net amount at risk(2)
Administrative Charge
Current Guaranteed
------- ----------
$ 7.50 $7.50
Acquisition Charge
During the first 5 policy years, and the first 5 policy years after a Face
Amount increase, there will be a charge for each $1,000 in Face Amount based on
the Insured's age, sex and rate class.
Variable Account Charges
(deducted daily and shown as an annualized percentage of average net assets)
Mortality and Expense
Risk Charge
Current Guaranteed
------- ----------
Policy Years 1-10 0.75% 0.90%
Policy Years 11+(3) 0.25% 0.40%
Transaction Charges
Transfer Charge
$25 for each transfer in excess of 12 each policy year.
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Surrender Charge
During the first 10 policy years, and for 10 policy years following a Face
Amount increase, there will be a surrender charge based on the initial Face
Amount or the increase in Face Amount. The lowest and highest surrender charges
are $11.02 and $34.34 per $1,000 of the Face Amount, respectively. (4)
Surrender Charge on
Partial Withdrawal
The surrender charge on a partial withdrawal is equal to the applicable
surrender charge multiplied by a fraction (equal to the amount of partial
withdrawal plus any administrative charge, if applicable, for the partial
withdrawal, divided by the Net Cash Surrender Value immediately prior to the
partial withdrawal).
Surrender Charge on
Decrease in Face Amount
The surrender charge on a decrease in Face Amount is 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 Withdrawal
Administrative
Charge
Currently, 4 partial withdrawals are allowed per year. We may charge a $25
administrative charge per partial withdrawal. In certain states the charge may
be the lesser of $25 or 2% of the amount withdrawn.
(1) The current cost of insurance charge will never exceed the guaranteed cost
of insurance charge shown in the policy. If the Death Benefit is equal to
the Face Amount or the Face Amount plus Account Value, the net amount at
risk is the difference between the Death Benefit divided by 1.0032737 and
the current Account Value. Otherwise, the net amount at risk is the
difference between the Death Benefit and the Account Value. (See "Expenses
of the Policy - Monthly Deductions From Account Value.") The cost of
insurance will be determined at least every three years.
(2) Current and guaranteed cost of insurance rates are based on the age (or
Attained Age in the case of increase in Face Amount), sex, rate class of
the Insured, and policy year.
(3) As of policy year 11, the mortality and expense risk charge will be 0.50%
less than the current rate in effect immediately before policy year 11
begins.
(4) A policy's surrender charge is based on the age, sex and smoker status of
the Insured and the Face Amount. For a 45 year old non-smoking male
purchasing a policy with a $500,000 Face Amount the initial surrender
charge would be $11,560.00. For a 65 year old non-smoking male purchasing
a policy with a $200,000 Face Amount, the initial surrender charge would
be $6,868.00. (See Appendix A for the Table of Initial Surrender Charges.)
8
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Expenses of the variable
investment options also reduce
your returns.
In addition, you will indirectly bear the costs of the management fees and other
expenses paid from the assets of the portfolios you select. The annual portfolio
expenses of the variable investment options are set forth below.
PORTFOLIO EXPENSES BEFORE WAIVERS AND/OR REIMBURSEMENTS
The purpose of this table is to assist the you 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 before waivers and/or
reimbursements, if applicable. Portfolio expenses are not fixed or specified
under the terms of the policy. Actual expenses may vary.
Anchor Series Trust
(for the twelve-month period ended December 31, 1999)
Annual
Management Other Operating
Fees Expenses(1) Expenses
---------- ----------- ---------
Wellington Management Company, LLP
Capital Appreciation Portfolio(2) .70% .04% .74%
Government and Quality Bond Portfolio .60% .06% .66%
Growth Portfolio .68% .05% .73%
Natural Resources Portfolio .75% .25% 1.00%
SunAmerica Series Trust
(for the twelve-month period ended January 31, 2000)
Alliance Capital Management L.P.
Global Equities Portfolio .72% .12% .84%
Alliance Growth Portfolio .60% .03% .63%
Growth-Income Portfolio .53% .03% .56%
Davis Selected Advisers, L.P.
Real Estate Portfolio .80% .12% .92%
Davis Venture Value Portfolio .71% .03% .74%
Federated Investors, Inc.
Corporate Bond Portfolio .62% .09% .71%
Federated Value Portfolio .71% .06% .77%
Telecom Utility Portfolio(3) .75% .09% .84%
Goldman Sachs Asset Management/
Goldman Sachs Asset Management International
Asset Allocation Portfolio .58% .05% .63%
Global Bond Portfolio .69% .15% .84%
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MFS Investment Management
MFS Growth and Income Portfolio .70% .05% .75%
MFS Mid-Cap Growth Portfolio(4) .75% .42% 1.17%
MFS Total Return Portfolio .66% .09% .75%
Morgan Stanley Asset Management
International Diversified Equities Portfolio 1.00% .22% 1.22%
Worldwide High Income Portfolio 1.00% .12% 1.12%
Putnam Investments
Emerging Markets Portfolio(5) 1.25% .65% 1.90%
Putnam Growth Portfolio .76% .04% .80%
International Growth and Income Portfolio .98% .23% 1.21%
SunAmerica Asset Management Corp.
Aggressive Growth Portfolio .70% .05% .75%
SunAmerica Balanced Portfolio .62% .04% .66%
Cash Management Portfolio .49% .04% .53%
"Dogs" of Wall Street Portfolio(5) .60% .07% .67%
High-Yield Bond Portfolio .62% .05% .67%
--------------------
(1) Other expenses are based on the expenses outlined in the funds'
prospectuses.
(2) The management fees for this portfolio are restated to reflect current
expenses.
(3) Effective July 5, 2000, the name of this portfolio was changed from
Utility Portfolio to Telecom Utility Portfolio.
(4) The expenses for this portfolio are annualized. The investment adviser has
voluntarily agreed to waive fees or reimburse expenses, if necessary, to
keep annual operating expenses of MFS Mid-Cap Growth Portfolio at or below
1.15% of its average net assets. For the fiscal year ended January 31,
2000, the amount voluntarily waived or reimbursed was $4,045.
(5) During the fiscal year ended January 31, 2000, the investment adviser
recouped $75,700 in expenses from the Emerging Markets Portfolio and
$1,193 in expenses from the "Dogs" of Wall Street Portfolio. If there had
been no recoupment of expenses, the annual operating expenses would have
been 1.77% for the Emerging Markets Portfolio. Because the amount of the
recoupment from "Dogs" of Wall Street Portfolio was small, its annual
operating expenses continued to be .67% after recoupment of expenses.
10
<PAGE>
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 Polaris VUL Policy
================================================================================
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, tax qualification option and supplemental benefits and
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 81. A
newborn may be an Insured.
The minimum Face Amount.
The Face Amount must be at least:
o $25,000 for Insureds age 17 and younger.
o $50,000 for Insureds older than age 17.
We require a minimum initial
premium.
You must pay a minimum initial premium in order for the policy to become
effective or for us to 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 to "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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<PAGE>
Your Right to Cancel the Policy
Period to examine and cancel.
Once you receive your policy, you should read it carefully. 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 receive 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 requested increase in
Face Amount. This does not apply to any increase in Face Amount under the
Automatic Face Amount Increase Option.
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 your premium payments. Thus, the amount we return will not reflect
the returns of the subaccounts or the Guaranteed Account that you selected in
your application.
Premium
The policy allows you to select the timing and amount of premium payments within
limits. You should send premium payments to our Administrative Office.
All your premium payments
must comply with our
requirements.
Restrictions on Premium. We will not accept a premium payment:
o If it is less than $25, subject to our discretion.
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 you on a timely basis
if a policy is in jeopardy of becoming a modified endowment contract under
the Code.
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<PAGE>
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.
o If the Insured has reached Attained Age 100.
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 rate class of
the proposed Insured, the desired Face Amount and any supplemental benefits or
riders applied for, and whether premium will be paid by pre-authorized checking.
We establish a minimum
planned periodic premium.
Planned Periodic Premium. When you apply for a policy, you select a plan for
paying level premium 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 premium 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 may request a change in the amount
and frequency of planned periodic premium by sending a written notice to our
Administrative Office.
Additional Premium. Additional premium is premium other than planned premium.
Additional premium may be paid in any amount and at any time subject to the Code
and our restrictions on premium.
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.
Paying premium may not
ensure that your policy
remains in force.
Effect of Premium Payments. In general, unless the no lapse provision is in
effect, paying all planned periodic premium may not prevent your policy from
lapsing. In addition, if you fail to pay any planned periodic premium, your
policy will not necessarily lapse.
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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 or the Guaranteed Account you selected; or
o of any combination of the following -- you have Outstanding Loans, you
have made partial withdrawals, we have deducted policy expenses, or you
have made insufficient premium payments to offset the monthly deduction.
No lapse premium guarantee.
No Lapse Provision. In general, during the first five policy years, if you pay a
sufficient amount of premium, your policy will not lapse even if your Net Cash
Surrender Value is insufficient to pay the monthly deductions then due. You will
be eligible for the no lapse premium guarantee if:
o You have not increased the Face Amount, except under the Automatic Face
Amount Increase Option.
o You have not added any riders to your policy since it was issued.
o Your policy has not been reinstated.
o All your premium paid to date, reduced by any partial withdrawal and
Outstanding Loan, are at least equal to the product of the minimum premium
shown in your policy information section multiplied by the number of
months that have elapsed since the Policy Date.
If you have requested a decrease in the Face Amount, we may not be able to
accept any subsequent premium if such premium would cause the policy to fail to
qualify as a life insurance contract under the Code. In this event, the no lapse
provision will end.
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<PAGE>
Your policy will not
terminate immediately upon
your Account Value
becoming insufficient.
Grace Period. Unless the no lapse provision is in effect, 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 to be
charged on that Monthly Anniversary. If it is not, you have a Grace Period of 61
days during which the policy will continue in force. The policy will lapse 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 and no Life
Insurance Proceeds will be payable.
We will send you a written notice within 30 days of your policy lapsing. The
notice will state:
o A Grace Period of 61 days has begun as of the date we mailed the notice.
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 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.
Please consult with your tax adviser before taking a loan.
Premium Allocations. In the application, you specify the percentage of Net
Premium to be allocated to each subaccount and 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 this period
expires, we will reallocate your Account Value in the Money Market Subaccount
based on the premium allocation percentages in your application.
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<PAGE>
For subsequent premium, 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 premium 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 or to the Guaranteed Account must be at
least 5% and the sum of your allocations must equal 100%.
Crediting Premium. Your initial Net Premium will be credited to your Account
Value as of the Policy Date. On the first business day after the period to
examine and cancel expires, we will allocate it in accordance with your
allocation percentages. We will credit and invest subsequent Net Premium 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 may allocate this
amount to the Money Market Subaccount until we complete our underwriting.
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================================================================================
The Investment Options
================================================================================
You may allocate your Account Value to:
o the subaccounts (which invest in the variable investment options offered
under the policy); or
o the Guaranteed Account.
Variable Investment Options
Under the policy, you may currently allocate your Account Value to any of the
available subaccounts. Each subaccount invests in a distinct portfolio of the
Anchor Series Trust or the SunAmerica Series Trust. SunAmerica Asset Management
Corp., an affiliate of ours, is the investment adviser to the Anchor Series
Trust and SunAmerica Series Trust. These portfolios operate similarly to a
mutual fund but are only available through the purchase of certain insurance
contracts.
These portfolios may serve as the underlying investment vehicles for other
variable insurance contracts issued by us and other affiliated/unaffiliated
insurance companies. We do not believe that offering these portfolios in this
manner is disadvantageous to you. The Trusts' management monitors the portfolios
for any conflicts among contract owners.
Anchor Series Trust
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust. Anchor Series Trust has additional portfolios that are not available for
allocations under your policy. The investment objectives of the available
portfolios are set forth below.
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<PAGE>
Portfolios managed by
Wellington Management
Company, LLP
The Capital Appreciation Portfolio seeks long-term capital appreciation. This
portfolio invests primarily in growth equity securities that are widely
diversified by industry and company.
The Government and Quality Bond Portfolio seeks relatively high current income,
liquidity and security of principal. This portfolio invests in obligations
issued, guaranteed or insured by the U.S. Government, its agencies or
instrumentalities and in investment grade corporate debt securities.
The Growth Portfolio seeks capital appreciation primarily through investments in
core equity securities that are widely diversified by industry and company.
The Natural Resources Portfolio seeks a total return in excess of the U.S. rate
of inflation as represented by the Consumer Price Index. This portfolio invests
primarily in equity securities of U.S. or foreign companies that are expected to
provide favorable returns in periods of rising inflation.
SunAmerica Series Trust
Various subadvisers provide investment advice to the SunAmerica Series Trust.
SunAmerica Series Trust has additional portfolios that are not available for
allocations under your policy. The investment objectives and subadvisers of the
available portfolios are set forth below.
Portfolios managed by
Alliance Capital Management
L.P.
The Global Equities Portfolio seeks long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics of
U.S. and foreign issuers that demonstrate the potential for appreciation and by
engaging in transactions in foreign currencies.
The Alliance Growth Portfolio seeks long-term growth of capital by investing
primarily in equity securities of a limited number of large, carefully selected
high quality U.S. companies that are judged likely to achieve superior earnings.
The Growth-Income Portfolio seeks growth of capital and income by investing
primarily in common stocks or securities that demonstrate the potential for
appreciation and/or dividends.
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<PAGE>
Portfolios managed by Davis
Selected Advisers, L.P.
The Davis Venture Value Portfolio seeks growth of capital by investing primarily
in common stocks of companies with market capitalizations of at least $5
billion.
The Real Estate Portfolio seeks total return through a combination of growth and
income by investment primarily in securities of companies principally engaged in
or related to the real estate industry or that own significant real estate
assets or primarily invest in real estate instruments.
Portfolios managed by
Federated Investors, Inc.
The Corporate Bond Portfolio seeks high total return with only moderate price
risk by investing primarily in investment grade fixed income securities.
The Telecom Utility Portfolio seeks high current income and moderate capital
appreciation by investing primarily in the equity and debt securities of utility
companies.
The Federated Value Portfolio seeks growth of capital and income by investing
primarily in the securities of high quality companies.
Portfolios managed by
Goldman Sachs Asset
Management/Goldman Sachs
Asset Management
International
The Asset Allocation Portfolio seeks high total return (including income and
capital gains) consistent with preservation of capital over the long-term by
investing in a diversified portfolio that may include common stocks and other
securities having common stock characteristics, bonds and other intermediate and
long-term fixed income securities and money market instruments.
The Global Bond Portfolio seeks high total return, emphasizing current income
and, to a lesser extent, providing opportunities for capital appreciation, by
investing in high quality fixed income securities of U.S. and foreign issuers
and transactions in foreign currencies.
Portfolios managed by MFS
Investment Management
The MFS Growth and Income Portfolio seeks reasonable current income and
long-term growth of capital and income by investing primarily in equity
securities.
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<PAGE>
The MFS Total Return Portfolio seeks reasonable current income, long-term
capital growth and conservation of capital by investing primarily in common
stocks and fixed income securities with an emphasis on income-producing
securities that appear to have some potential for capital enhancement.
The MFS Mid-Cap Growth Portfolio seeks long term growth of capital by investing
primarily in equity securities of medium-sized companies, generally with market
capitalizations between $1 billion and $5 billion, that its subadviser believes
have above-average growth potential.
Portfolios managed by
Morgan Stanley Asset
Management
The International Diversified Equities Portfolio seeks long-term capital
appreciation by investing (in accordance with country and sector weightings
determined by its subadviser) in common stocks of foreign issuers that, in the
aggregate, replicate broad country and sector indices.
The Worldwide High Income Portfolio seeks high current income and, secondarily,
capital appreciation, by investing primarily in a portfolio of high-yielding
fixed income securities of issuers located throughout the world.
Portfolios managed by
Putnam Investments
The Emerging Markets Portfolio seeks long-term capital appreciation by investing
primarily in the common stocks and other equity securities of companies that its
subadviser believes have above-average growth prospects primarily in emerging
markets outside the United States.
The Putnam Growth Portfolio seeks long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics that
its subadviser believes have above-average growth prospects.
The International Growth and Income Portfolio seeks growth of capital with
current income as a secondary objective by investing primarily in common stocks
traded on markets outside the United States.
Portfolios managed by
SunAmerica Asset
Management Corp.
The Aggressive Growth Portfolio seeks capital appreciation by investing
primarily in equity securities of high growth companies including small and mid
growth companies with market capitalizations of $1.5 billion to $10 billion.
21
<PAGE>
The SunAmerica Balanced Portfolio seeks to conserve principal by maintaining, at
all times, a balanced portfolio of stocks and bonds with at least 25% invested
in fixed income securities.
The Cash Management Portfolio seeks high current yield while preserving capital
by investing in a diversified selection of money market instruments. The
portfolio does not seek to maintain a stable net asset value of $1.00.
The "Dogs" of Wall Street Portfolio seeks total return (including capital
appreciation and current income) by investing in thirty high dividend yielding
common stocks from the Dow Jones Industrial Average and the broader market.
The High-Yield Bond Portfolio seeks high current income and, secondarily seeks
capital appreciation, by investing primarily in intermediate and long-term
corporate obligations, with emphasis on higher-yielding, higher-risk,
lower-rated or unrated securities with a primary focus on "B" rated high-yield
bonds.
The various advisers may compensate us for providing administrative services in
connection with the portfolios that are available under the policy. Such
compensation is paid from the advisers' assets.
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 treat each allocation and transfer separately for purposes of crediting
interest and making deductions from the Guaranteed Account.
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<PAGE>
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 an effective rate of 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
withdrawals and policy expenses from the Guaranteed Account and the subaccounts
on a pro rata basis, unless you tell us otherwise. No portion of the Loan
Account may be used for this purpose.
We treat amounts transferred from the Loan Account to the remaining portion of
the Guaranteed Account as a new allocation to the Guaranteed Account. We will
credit this transfer 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, partial withdrawal or surrender from the Guaranteed Account, we may
defer payment for up to six months from the date we receive the written request.
If we defer payment from the Guaranteed Account for 10 days or more, we will pay
interest on the amount we deferred at an effective rate of 4% per year,
compounded annually, until we make payment.
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<PAGE>
================================================================================
Investing Your Account Value
================================================================================
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 lapse and a Grace Period will begin.
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 that portion of your Account Value held in the subaccounts, plus
o that portion of your Account Value held in the Guaranteed Account.
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<PAGE>
Your Account Value will reflect:
o the premium 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 withdrawals; and
o the policy charges and 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 premium 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.
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 withdrawal, including the
partial withdrawal charge, 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.
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<PAGE>
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 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 withdrawals, including the partial withdrawal
charge, taken from the Guaranteed Account, less
o the allocated portion of the monthly deductions, if any, 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. The value of your Loan Account includes transfers to and from the Loan
Account as you take and repay loans and interest charged and credited on the
Loan Account.
Transfers
You may transfer Account Value among the subaccounts and to and from the
Guaranteed Account after the period to examine and cancel. All transfer
requests, except for those made under the dollar cost averaging, automatic
rebalancing and systematic withdrawal programs, must satisfy the following
requirements:
26
<PAGE>
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 by
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 Account Value in the Guaranteed
Account (not including the Loan Account) on the most recent policy
anniversary reduced by all prior partial withdrawals and transfers taken
from the Guaranteed Account during that policy year.
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 assuming the New York Stock Exchange is open for trading. The
transfer will be made at the price next computed after we receive your transfer
request. We may, however, defer transfers under the same conditions as described
under "Other Policy Provisions - When Proceeds Are Paid."
Number of Permitted Transfers/Transfer Charge. We do not currently limit the
number of transfers you may make. However, for each transfer in excess of 12
during a policy year, we will assess a $25 transfer charge. 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 programs
will not count against the 12 free transfers in a policy year. We reserve the
right to increase 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. We confirm all
telephone transfers in writing. You should review all confirmations to determine
if there have been any unauthorized transfers.
We will use reasonable procedures to confirm that telephone transfer requests
are genuine. We will not be liable for any loss due to unauthorized or
fraudulent instructions.
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<PAGE>
We reserve the right to suspend telephone transfer privileges at any time.
Dollar Cost Averaging (DCA)
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.
If you select this program, we will automatically transfer a portion of your
Account Value at the frequency you select (monthly, quarterly, semi-annually, or
annually). Unless you tell us otherwise, we will allocate the transfer as you
have specified in your most current premium allocation instructions. However,
not less than 5% may be allocated to any subaccount or to the Guaranteed
Account. You may instruct us to make the transfers from any subaccount or the
Guaranteed Account so long as the Account Value in that investment option is
initially at least $2,000.
There is no charge for this program. We will not count transfers resulting from
dollar cost averaging against your free transfers.
We reserve the right to establish dollar cost averaging transfer limits, to
restrict subaccounts from which dollar cost averaging transfers may be made, or
to modify or eliminate this program.
Processing Your Automatic DCA Transfers. We will begin to process your automatic
transfers:
o On the first Monthly Anniversary following the end of the period to
examine and cancel if you request the automatic DCA transfers when you
apply for your policy.
o On the second Monthly Anniversary following the receipt of your request at
our Administrative Office if you elect the option after you applied for
the policy.
We will stop processing automatic DCA transfers if:
28
<PAGE>
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
o Your policy goes into a 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.
Automatic Rebalancing
We offer an automatic rebalancing program that rebalances your Account Value to
match your allocation instructions. To participate in this program your Account
Value must be at least $2,000 at the time of your election.
This program is offered because the Account Value in the Guaranteed Account and
the subaccounts will accumulate at different rates as a result of different
investment returns. Automatic rebalancing will reset your Account Value in the
Guaranteed Account and the subaccounts to your most recent allocation
instructions. You may elect the frequency (monthly, quarterly, semi-annually, or
annually) as measured from the policy anniversary. On the appropriate day, we
will rebalance your Account Value by reallocating it according to your most
recent allocation instructions.
There is no charge for this program. We will not count transfers resulting from
automatic rebalancing against your free transfers.
We will stop processing automatic rebalancing transfers if:
o We receive your 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 a Grace Period.
We reserve the right to suspend or modify automatic rebalancing or to charge an
administrative fee for excessive election or allocation changes.
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================================================================================
Death Benefit
================================================================================
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 the policy.
The Beneficiary will receive
the Life Insurance Proceeds
in one lump sum.
Payment of Life Insurance Proceeds. We will pay the Life Insurance Proceeds
generally within seven days after we receive the required information. We will
pay the Life Insurance Proceeds to the Beneficiary in one lump sum. 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.
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 depend
on the tax qualification option that you select and will equal:
o the amount of the Death Benefit determined according to the Attained Age
of the Insured as described below; plus
o any other benefits then due from riders to the policy; minus
o the Outstanding Loan, if any, minus
o any overdue monthly deductions if the Insured dies during a Grace Period.
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<PAGE>
Death Benefit Options
Before Attained Age 100.
Before the Insured reaches Attained Age 100, we will determine the Death Benefit
according to the death benefit option you select. You may select from two death
benefit options.
Level Death Benefit
Option.
o Level Death Benefit Option
The Death Benefit will be the greater of:
(1) 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.
o Variable Death Benefit Option
The Death Benefit will be the greater of:
(1) Face Amount plus Account Value; 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 your Death
Benefit to vary with your Account Value.
After Attained Age 100.
After the Insured reaches Attained Age 100, the Death Benefit will equal your
Account Value. As of that time, any rider to the policy will end without value,
we will not accept any additional premium, and we will not deduct the mortality
and expense risk charge or charge the monthly deduction. However, while the
policy is in force you may continue to request policy loans, partial
withdrawals, surrenders, and transfers as described in this prospectus.
31
<PAGE>
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.
For 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 will be based on the Attained Age and sex of the Insured. A table of
the applicable factors is located in your 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 premium 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
While your policy is in force, you may request a change in death benefit option
at any time after the first policy anniversary and before the Insured reaches
Attained Age 100.
How to request a change.
You may change your death benefit option by providing your agent with a written
request or by writing to us at our Administrative Office. We may require that
you submit satisfactory evidence of insurability to us if changing from the
Level Death Benefit Option to the Variable Death Benefit Option.
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<PAGE>
If you request a change from the Level Death Benefit Option to the Variable
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 will not
allow such a change if it would reduce the Face Amount below the minimum Face
Amount. This change will also cancel all future Face Amount increases under the
Automatic Face Amount Increase Option.
If you request a change from the Variable 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 Death Benefit remains the same
on the date the change takes effect.
Once a change is 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.
Changes in Face Amount
When you apply for a policy, you may select the Automatic Face Amount Increase
Option. In addition, while the policy is in force you may request a change in
the Face Amount at any time after the first policy anniversary and before the
Insured reaches Attained Age 100, subject to any evidence of insurability
requirements. We will not make a change in Face Amount that causes your policy
to fail to qualify as life insurance under the Code.
33
<PAGE>
Automatic Face Amount Increase Option. Under the Automatic Face Amount Increase
Option, the Face Amount will be automatically increased on specified policy
anniversaries up to a maximum total for all increases that is twice the initial
Face Amount. You may select the Automatic Face Amount Increase Option only if
you also select the Level Death Benefit Option. When you select this option, you
must specify:
o the policy anniversaries on which the Face Amount increase will begin. The
increase must begin no later than the tenth policy anniversary.
o the amount of increase, which may be no less than 1% and no more than 6%
of the initial Face Amount.
You may elect to cancel the automatic increase. If you do so, we will cancel all
future increases. We require at least 30 days written notice before the
effective date of an increase. In addition, any request to decrease the Face
Amount or change from the Level Death Benefit Option to the Variable Death
Benefit Option will cancel all future automatic increases.
Increases in Face Amount. Any request for an increase:
o Must be made after the first policy anniversary.
o Must be for at least $10,000.
o May not be requested more than once each policy year.
o May not be requested after the Insured's Attained Age 85.
A written application must be submitted to our Administrative Office along with
satisfactory evidence of insurability. You must return the policy so we can
amend it to reflect the increase. The requested 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 of the
increase in Face Amount.
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<PAGE>
Decreases in Face Amount. Any request for a decrease:
o Must be made after the first policy anniversary.
o Must be for 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.
During the second through the fifth policy years, you may decrease the Face
Amount by up to 25% of the initial Face Amount each policy year. The decreases
may be cumulative. If the Face Amount is decreased during the first 10 policy
years or within 10 policy years of an increase in Face Amount, a surrender
charge will be applicable.
Consequences of a Change in Face Amount. Both requested increases and decreases
in Face Amount may impact the surrender charge. In addition, a requested
increase or decrease in Face Amount may impact the status of the policy as a
modified endowment contract. An increase in Face Amount, other than as a result
of a scheduled automatic increase, and a decrease in Face Amount, will cause the
termination of the policy's no lapse provision. A decrease in the Face Amount
will also cancel the Automatic Face Amount Increase Option.
Changes in Owner or Beneficiary
While the Insured is living, you may request a change in the owner or
Beneficiary. The change will take effect on the date you sign the notice, but
will not apply to any payment we make or other action we take before we receive
the notice.
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================================================================================
Cash Benefits During the Insured's Life
================================================================================
During the life of the Insured, your policy has cash benefits that you may
access within limits by taking loans or making a partial withdrawal or
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 a loan you
may take as follows:
o Maximum Loan Amount
(l) During the first policy year, you may take a loan so long as the
Outstanding Loan (including the loan at issue) does not exceed 50% of the
Cash Surrender Value.
(2) After the first policy year, the maximum loan amount you may take is:
(a) Your Net Cash Surrender Value, less
(b) Loan interest to the next policy anniversary on the loan amount you
are currently requesting , less
(c) The amount we calculate for the monthly deductions for each Monthly
Anniversary up to the next policy anniversary.
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. We reserve the right to defer any loan payment for up to six months.
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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 until the tenth policy
anniversary. After the tenth policy anniversary, the net cost is 0.25%. 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.
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
and Guaranteed 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 premium 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 to 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. You should consult with your tax adviser
before taking a loan.
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.
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If the Outstanding Loan exceeds the Net Cash Surrender Value on any Monthly
Anniversary, the policy will lapse. We will send you, and any assignee of
record, notice of the lapse. The notice will specify the amount that must be
repaid to prevent termination. You will have the opportunity during the Grace
Period to submit sufficient payment to avoid 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 and the policy is in force. Loan repayments must be
sent to our Administrative Office and will be credited as of the date received.
You must indicate that the amount paid is for a loan repayment.
Partial Withdrawals
Requirements for Partial
Withdrawals.
You may request a partial withdrawal at any time after the first policy
anniversary. Currently, we limit the number of partial withdrawals to four each
policy year. This does not include withdrawals made as part of the systematic
withdrawal program. We may limit the minimum and maximum amount of withdrawals.
o Maximum Partial Withdrawal Amount - your policy's Net Cash Surrender Value
except that the withdrawal may not cause the Face Amount to be less than
the required minimum Face Amount.
o Minimum Partial Withdrawal Amount - $250. This limit does not apply to
withdrawals under the systematic withdrawal program.
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o Maximum Partial Withdrawal From the Guaranteed Account - during any policy
year you may only withdraw from the Guaranteed Account 25% of your Account
Value in the Guaranteed Account (not including the Loan Account) on the
most recent policy anniversary reduced by all prior partial withdrawals
and transfers from the Guaranteed Account during that policy year.
o Maximum Partial Withdrawal From the Guaranteed Account If You Are a
Participant in the Systematic Withdrawal Program - under this circumstance
during any policy year you may only withdraw the greater of:
(1) 25% of your Account Value in the Guaranteed Account (not including
the Loan Account) on the most recent policy anniversary reduced by
all prior partial withdrawals and transfers from the Guaranteed
Account during that policy year; or
(2) The maximum amount you may have withdrawn from the Guaranteed
Account in any of the prior policy years.
How to request a partial
withdrawal.
You must submit a written request to our Administrative Office. We will reduce
your Account Value by the partial withdrawal amount plus any applicable charges.
When you request a partial withdrawal, you may direct us to take the requested
amount from any subaccount or from the Guaranteed Account. If you do not direct
us or if the Account Value in the subaccount or Guaranteed Account is
insufficient to withdraw the amount requested, we will withdraw all or the
difference from the remaining subaccounts on a pro rata basis.
We will process partial withdrawal requests at the price next computed after we
receive your written request at our Administrative Office. We will generally pay
partial withdrawals within seven days.
Expenses for Partial Withdrawal. During the first ten policy years or for the
ten policy years following a requested increase in Face Amount, we will deduct
the applicable surrender charge on a partial withdrawal. This charge will be
deducted from your Account Value along with the amount requested to be withdrawn
and will be considered part of the partial withdrawal (together, the "partial
withdrawal amount"). Currently, we do not assess a processing fee for partial
withdrawals. However, we reserve the right to assess a $25 processing charge for
each withdrawal.
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Effect of Partial Withdrawal on your Face Amount. The Face Amount of your policy
will also be reduced by the partial withdrawal amount if you selected the Level
Death Benefit Option.
We will reduce the Face Amount by the amount of the partial withdrawal 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 withdrawal may be made that would reduce the Face Amount below the
minimum Face Amount.
Partial withdrawals from your policy may have tax consequences.
Systematic Withdrawal Program
You may access your Account Value by electing the systematic withdrawal program.
This program allows you to automatically receive payments on a monthly,
quarterly, semi-annual or annual basis. You may request to participate in the
systematic withdrawal program at any time after the first policy anniversary.
You have the option to switch to borrowing from your Account Value once a
specified amount of withdrawals has been reached. You may also elect to borrow
the interest due on your outstanding loan balance in order to continue to
receive a consistent payment amount. Loans taken under this program are not
subject to the minimum loan amount.
Some withdrawals or loans may be taxable. Please consult with your tax adviser
before requesting a withdrawal or a loan.
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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 the
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 must be taken in one lump sum. Your policy will
terminate and cease to be in force if it is surrendered and no Life Insurance
Proceeds will be payable. Your policy cannot later be reinstated.
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Payment Options for Benefits
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Currently, we only offer a lump sum payment option for receiving proceeds
payable under the policy, such as upon surrender or death.
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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 premium, 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 expenses on a current basis that is less than the guaranteed
amount.
Deductions From Premium
We will deduct up to a maximum of 8% from each premium payment to provide for
state premium taxes, DAC taxes and for other expenses associated with acquiring
and servicing a policy. Currently, the deduction is 7%.
Monthly Deductions From Account Value
On the Policy Date and each Monthly Anniversary thereafter until the Insured
reaches Attained Age 100, we make a deduction from your Account Value. If the
Issue Date is later than the Policy Date, we will make a deduction on the Issue
Date 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.
On each Monthly Anniversary we will deduct charges for:
o The administration of your policy.
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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.
Subject to our approval, you may request us to take the monthly deductions from
your Account Value allocated to the Guaranteed Account (not including the Loan
Account) or specified subaccounts. Otherwise, we will take the monthly
deductions from each subaccount and the Guaranteed Account on a pro rata basis.
Administrative Charge. This charge compensates us for administrative expenses
associated with the policy and the Variable Account. 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 $7.50 per month.
Currently, the charge is $7.50 per month.
Acquisition Charge. We will make a deduction from your 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 and rate class. We
deduct an amount per $1,000 of Face Amount as shown in Appendix A. The charge is
assessed for the first five policy years and, if you request an increase in the
Face Amount, for the first five years following that increased Face Amount.
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.
If the Death Benefit is equal to the Face Amount, or the Face Amount plus
Account Value, then the net amount at risk is calculated as (a) minus (b) where:
(a) is the current Death Benefit at the beginning of the policy month divided by
1.0032737; and
(b) is the current total Account Value.
If the Death Benefit is equal to the Account Value multiplied by the appropriate
minimum death benefit factor, then the net amount at risk is calculated as (a)
minus (b) where:
(a) is the current Death Benefit at the beginning of the policy month; and
(b) is the current total Account Value
Rate Classes for Insureds. We currently rate Insureds in one of the following
basic rate classifications based on our underwriting:
o preferred nonsmoker;
o standard plus nonsmoker;
o standard nonsmoker;
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, as well as subsequent automatic increases in Face Amount under the
Automatic Face Amount Increase Option under the policy. 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 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 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 and to automatic increases in the Face Amount.
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If there have been requested increases in the Face Amount, we may use different
cost of insurance rates for the requested 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 requested 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.
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 Death Benefit. The Attained Age and rate class for
such requested 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 then current net amount at risk, 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 rate class are generally lower than rates for an Insured of the same
age and sex in a smoker rate class. Cost of insurance rates (whether guaranteed
or current) for an Insured in a nonsmoker or smoker rate class are generally
lower than rates for an Insured of the same age and sex and smoking status in a
substandard rate class.
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Legal Considerations Relating to Sex-Distinct Premium and Benefits. Mortality
tables for the policy generally distinguish between males and females. Thus,
premium and benefits under the policy covering males and females of the same age
will generally differ.
We may also offer the policy based on unisex mortality tables if required by
state law. Employers and employee organizations considering the 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 Variable Account Assets
Mortality and Expense Risk Charge. We deduct a daily charge from the net assets
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. Currently, we charge an annual rate of 0.75% of the subaccount assets
for the first 10 policy years and 0.25% thereafter. As of policy year 11, the
mortality and expense risk charge will be 0.50% less than the current rate in
effect immediately before policy year 11 begins. The guaranteed charge is at an
annual rate of 0.90% in policy years 1 through 10 and 0.40% thereafter. Although
the charge may be increased or decreased in our sole discretion, it will not
exceed the guaranteed annual rate of 0.90% or 0.40%, as applicable, of your
Account Value in the subaccounts.
The mortality risk we assume is that the Insured 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 Variable
Account will exceed the amounts realized from the administrative charges
assessed against all policies.
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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 applicable, we will deduct the
charge from the amount you transfer before allocation to the new subaccount(s)
or to the Guaranteed Account. The confirmation of the transaction will show the
transfer charge, if any.
Surrender Charge. If the policy is surrendered or there is a decrease in Face
Amount during the first 10 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 10 years after a requested 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 Charge Calculation. In general, the surrender charge is based on the
Face Amount. 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 rate class; and
(3) is equal to the factor based upon the number of years that have
elapsed since the Policy Date or requested increase in Face Amount,
as described in the following table:
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Year Factor
---- ------
1.................. 100%
2.................. 90%
3.................. 80%
4.................. 70%
5.................. 60%
6.................. 50%
7.................. 40%
8.................. 30%
9.................. 20%
10.................. 10%
11+.................. 0%
The product 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.
Surrender Charge Based On An Increase Or Decrease In Face Amount. A requested
increase in Face Amount of the policy will result in an additional surrender
charge during the 10 policy years immediately following the requested increase.
The additional surrender charge period will begin on the effective date of the
requested increase. If the Face Amount of the policy is reduced before the end
of the 10th policy year or within 10 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 requested increase in the Face Amount of the policy. They will then be
applied to prior requested 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.
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Surrender Charge Upon Partial Withdrawal. During the surrender charge period we
will deduct a surrender charge:
o Upon a partial withdrawal; and
o If you decrease your Face Amount.
We deduct the surrender charge from the subaccounts and the Guaranteed Account
in the same proportion as we deduct the amounts for your partial withdrawal.
Surrender Charge Due to Partial Withdrawal. We deduct an amount equal to the
applicable surrender charge multiplied by a fraction (equal to the amount of
partial withdrawal plus any administrative charge, if applicable, for the
partial withdrawal, divided by the Net Cash Surrender Value immediately prior to
the partial withdrawal).
Surrender Charge Due to 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 Withdrawal Administrative Charge. We reserve the right to deduct an
administrative charge upon a partial withdrawal of up to $25 per partial
withdrawal. Currently, we do not assess an administrative charge for partial
withdrawals. In certain states the charge may be the lesser of $25 or 2% of the
amount withdrawn.
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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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Supplemental Benefits and Riders
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We intend to make available certain supplemental benefits and riders which may
in the future be issued with the policy. Any monthly charges for these
supplemental benefits and riders, as listed below, will be deducted from the
Account Value. The addition of riders may affect the cost of insurance.
Accelerated Benefit Rider (ABR)
Accidental Death Benefit Rider (ADB)
Child's Term Rider (CTR)
Primary Insured Rider (PIR)
Waiver of Monthly Deductions Rider (WMD)
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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, other than
under the Automatic Face Amount Increase Option; 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 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
policy. The Face Amount in effect at the time of the exchange will remain
unchanged. The Policy 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.
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Paid-Up Insurance Benefit
At any time while the policy is in force and the Insured is alive, you may
request conversion of the policy to guaranteed paid-up life insurance payable on
the death of the Insured. Upon such conversion, we will not accept additional
premium and we will transfer all of your Account Value to the Guaranteed
Account. The fixed, guaranteed amount of insurance will be the lesser of (a) and
(b) where:
(a) is the amount of insurance that can be purchased by using the Net Cash
Surrender Value on the date of conversion, if any, as a net single premium. The
calculation will be based on the guaranteed mortality table and interest rates
specified in the policy, as well as the rate class of the Insured; and
(b) is the life insurance benefit under the policy before conversion.
The balance of the Net Cash Surrender Value, in excess of the net single
premium, if any, will be refunded.
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 within two years after the Issue Date, our
liability will be limited to the payment of a single sum. This sum will be equal
to the premium paid, minus any loan and accrued loan interest, any partial
withdrawal, and the cost of any riders attached to the policy. If the Insured
commits suicide within two years after the effective date of a requested
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.
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Misstatement of Age or Sex
If an Insured's age or sex has been misstated in the policy, the Death Benefit
and any benefits provided by riders shall be those which would be purchased at
the most recent monthly deduction for the cost of insurance charge for the
correct age and sex.
Changes in the Policy or Benefits
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 Life Insurance Proceeds, loan proceeds, and partial
withdrawal or 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:
(2) the disposal or valuation of the Variable 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
Securities and Exchange Commission, or the Securities and Exchange
Commission declares that an emergency exists; or
(3) the Securities and Exchange Commission by order permits postponement of
payment for your protection.
In addition we may delay making deductions from the Guaranteed Account for up to
6 months after we receive your request.
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Reports to Owners
We will send you a confirmation within seven days of the following transactions:
o the receipt of any unplanned premium (and any premium received before the
Issue Date);
o any change of allocation of premium;
o any transfer among subaccounts;
o any loan, interest repayment, or loan repayment;
o any partial withdrawal;
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 an annual
statement. The statement will show the Death Benefit currently payable, and the
current Account Value, Cash Surrender Value, and the Outstanding Loan. The
statement will also show premium paid, all charges deducted during the policy
year, and all transactions. We will also send to you annual and semi-annual
reports for the Variable Account.
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Assignment
You may assign the policy, if we agree, in accordance with its terms by using 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 in writing a reinstatement of policy benefits within three years
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) total monthly
deductions for three months, calculated from the effective date of
reinstatement; and (ii) the premium expense charge. 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 Outstanding 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. We will deduct the premium expenses from the required payment. The
monthly expense charges, Account Value, Outstanding Loan and surrender charge
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.
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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 portfolios. 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 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 B reflects the total of the
income generated by the portfolio net of the total portfolio operating expenses
(i.e., management fees and other portfolio expenses), plus capital gains and
losses, realized or unrealized. The performance results do not reflect charges
deducted from premium, Account Value, or Variable Account assets (for example,
mortality and expense risk charge, monthly deductions, cost of insurance,
surrender charge, sales load, 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.
59
<PAGE>
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.
60
<PAGE>
================================================================================
Federal Income Tax Considerations
================================================================================
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 Variable 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.
61
<PAGE>
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% 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.
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.
Generally, each U.S. 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.
62
<PAGE>
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 your 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, we
believe 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 premium 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.
63
<PAGE>
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 Account Value should not be taxed
until there has been a distribution from the policy such as a surrender, partial
surrender or lapse with outstanding 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 premium
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.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premium 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 premium paid
less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premium paid.
o Extra premium for optional benefits and riders generally do not count in
computing the premium 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.
64
<PAGE>
Modified Endowment Contracts
o The rules change if the policy is classified as a modified endowment
contract ("MEC"). The policy could be classified as a MEC if premium
substantially in excess of scheduled premium is 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 premium 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.
65
<PAGE>
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.
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.
66
<PAGE>
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 Variable Account or to the policy.
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<PAGE>
================================================================================
Distribution of the Policy
================================================================================
Where the policy may be lawfully sold, it is sold by licensed insurance agents
who are registered representatives of broker-dealers registered under the
Securities Exchange Act of 1934. The broker-dealers are also members of the
National Association of Securities Dealers, Inc.
The policy will be distributed through the principal underwriter for the
Variable 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 premium 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
We may offer other policies similar to those offered herein.
68
<PAGE>
================================================================================
About Us and the Accounts
================================================================================
The Company
We are a member of the
American International
Group, Inc.
American International Life Assurance Company of New York is a stock life
insurance company operating under the laws of the State of New York. 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.
The Variable Account
We established the Variable 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 Variable Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the federal securities laws.
Although you may have
allocated your Account Value
to the subaccounts, you do
not own these assets. You
only own your policy.
We own the assets in the Variable Account. The Variable Account is divided into
subaccounts. The subaccounts available under the policy invest in shares of a
specific portfolio of the Anchor Series Trust or SunAmerica Trust. The Variable
Account may include other subaccounts that 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.
69
<PAGE>
Rights we have reserved.
We have reserved certain rights regarding the Variable 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 Variable Account with
the Securities and Exchange Commission.
o run the Variable 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 Variable Account.
o operate the Variable 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 Variable 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 Variable Account unless approved by the Commissioner of Insurance of the
State of New York 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
70
<PAGE>
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
corresponding 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 our general account. Our general
account assets are used to support our insurance and annuity obligations other
than those funded by separate investment accounts. Subject to applicable law, we
have sole discretion over the investment of the assets of the general account.
We have not registered interests in the Guaranteed Account under the Securities
Act of 1933 or the Guaranteed Account as an investment company under the
Investment Company Act of 1940.
The staff of the Securities and Exchange Commission has not reviewed our
disclosure regarding 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.
71
<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.
<TABLE>
<CAPTION>
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
---------------- ------ ----------------------
<S> <C> <C>
Michele L. Abruzzo Director, Senior Executive Senior Vice President
80 Pine Street Vice President
New York, NY 10005
James A. Bambrick Senior Vice President, Senior Vice President, A&H
One Alico Plaza Chief Operations Officer Division
600 King Street
Wilmington, DE 19801
Paul S. Bell Director, Sr. Vice Senior Vice President and
One Alico Plaza President and Chief Actuary
600 King Street Actuary
Wilmington, DE 19801
Marion Elizabeth Fajen Director
5608 N. Waterbury Road Retired; formerly Vice President
Des Moines, IA 50312 and Secretary of AIG, Inc.
Patrick Joseph Foley Director
Donovan, Perry, Carbon Retired; formerly Vice President
McDermit & Radzil and General Counsel
Wall Street Plaza
88 Pine Street
New York, NY 10005
Cecil Calvert Gamwell, III Director Director - Life Division AIG,
419 West Beach Road Inc., Director - Seguros,
Charleston, RI 02813 Venezuela and Director (ALT)
Seguros Interamericanos (of New
York)
Maurice R. Greenberg Director Director, Chairman and Chief
70 Pine Street Executive Officer AIG, Inc.
New York, NY 10270
</TABLE>
72
<PAGE>
<TABLE>
<S> <C> <C>
Jack Russell Harnes Director Retired; formerly Medical
70 Pine Street Director
New York, NY 10270
John Iniss Howell Director
Indian Rock Corporation Retired; formerly Director of
263 Glenville Road, 2nd Fl. AIG, Inc. Director of Schroder
Greenwich, CT 06831 Capital Management
Jerome T. Muldowney Director, Senior Vice President
175 Water Street Senior Managing Director of AIG
New York, NY 10038 Global Investment Corp.
Robinson K. Nottingham Director, Chairman of the Chairman of the Board and Chief
70 Pine Street Board Executive Officer of American
New York, NY 10270 International Life Insurance
Company (ALICO)
John Oehmke Chief Financial Officer, Regional Vice President,
One Alico Plaza Vice President Controller American International
600 King Street Companies, Japan and Korea
Wilmington, DE 19801
Nicholas A. O'Kulich Director, Vice Chairman, Vice President, Senior Vice
70 Pine Street Treasurer President of AIG, Inc.
New York, NY 10270
Edmund Sze-Wing Tse Director Vice Chairman of AIG, Inc.
70 Pine Street
New York, NY 10270
Elizabeth M. Tuck Secretary Secretary and Assistant Secretary
70 Pine Street of AIG, Inc., and certain affiliates
New York, NY 10270
Kenneth D. Walma Vice President, General Assistant Secretary, Associate
One Alico Plaza Counsel General Counsel
600 King Street
Wilmington, DE 19801
Gerald Walter Wyndorf Director, Chief Executive Executive Vice President of AIG
80 Pine Street Officer and President Life Insurance Company
New York, NY 10038
</TABLE>
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<PAGE>
================================================================================
Other Information
================================================================================
State Regulation
We are subject to the laws of New York governing insurance companies and to
regulation by the New York 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 Variable 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 (American International Life Assurance Company of New
York for the years ended December 31, 1999, 1998 and 1997) have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants, as stated
in their report and have been included in this prospectus in reliance upon the
authority of such firm as experts in accounting and auditing. Financial
statements of the Variable Account are not included because no policies have
been issued using the subaccounts described in this prospectus.
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<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 Variable 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 Variable
Account or the degree of risk associated with an investment in the Variable
Account.
75
<PAGE>
================================================================================
Financial Statements
================================================================================
76
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE
COMPANY OF NEW YORK
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
F-1
<PAGE>
[LETTERHEAD OF PRICEWATERHOUSECOOPERS]
Report of Independent Accountants
To the Stockholders and Board of Directors
American International Life Assurance Company of New York
In our opinion, the accompanying balance sheets and the related statements of
income, capital funds, cash flows, and comprehensive income present fairly, in
all material respects, the financial position of American International Life
Assurance Company of New York (a wholly-owned subsidiary of American
International Group, Inc.) at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 3, 2000
F-2
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities
Bonds available for sale, at market value
(cost: 1999 -- $5,076,750; 1998 -- $4,798,349) .......................... $4,973,736 $5,065,014
Equity securities:
Common stock (cost: 1999 -- $12,837; 1998 -- $12,848) .................... 24,428 26,659
Non-redeemable preferred stocks (cost: 1999 -- $27,047; 1998 -- $13,544) 26,602 14,691
Mortgage loans on real estate, net .............................................. 460,455 544,401
Real estate, net of accumulated
depreciation of $6,976 in 1999 and $6,325 in 1998 ............................. 18,937 19,587
Policy loans .................................................................... 9,986 10,281
Other invested assets ........................................................... 79,381 84,156
Short-term investments .......................................................... 143,766 252,565
Cash ............................................................................ 245 157,187
---------- ----------
Total investments and cash ............................................ 5,737,536 6,174,541
Amounts due from related parties ................................................ 9,470 5,433
Investment income due and accrued ............................................... 82,501 81,703
Premium and insurance balances receivable ....................................... 17,345 16,172
Reinsurance assets .............................................................. 306,663 27,234
Deferred policy acquisition costs ............................................... 46,655 41,421
Federal income tax receivable ................................................... 6,598 --
Deferred income taxes ........................................................... 55,056 --
Separate and variable accounts .................................................. 423,534 319,632
Other assets .................................................................... 1,170 1,377
---------- ----------
Total assets .......................................................... $6,686,528 $6,667,513
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Liabilities
Policyholders' funds on deposit ................... $ 3,741,873 $ 3,607,190
Future policy benefits ............................ 1,713,163 1,694,572
Reserve for unearned premiums ..................... 5,948 4,751
Policy and contract claims ........................ 335,557 318,614
Reserve for commissions, expenses and taxes ....... 5,183 5,048
Insurance balances payable ........................ 7,565 12,088
Federal income tax payable ........................ -- 7,623
Deferred income taxes ............................. -- 65,683
Amounts due to related parties .................... 3,320 15,231
Separate and variable accounts .................... 423,534 319,632
Other liabilities ................................. 32,137 964
----------- -----------
Total liabilities ....................... 6,268,280 6,051,396
----------- -----------
Capital funds
Common stock, $200 par value; 16,125 shares
authorized, issued and outstanding .............. 3,225 3,225
Additional paid-in capital ........................ 197,025 197,025
Retained earnings ................................. 277,829 220,949
Accumulated other comprehensive income ............ (59,831) 194,918
----------- -----------
Total capital funds ..................... 418,248 616,117
----------- -----------
Total liabilities and capital funds ............... $ 6,686,528 $ 6,667,513
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Revenues:
Premiums .............................. $ 189,448 $ 100,339 $ 96,429
Net investment income ................. 462,215 455,176 435,098
Realized capital losses ............... (13,103) (1,694) (226)
--------- --------- ---------
Total revenues ................ 638,560 553,821 531,301
--------- --------- ---------
Benefits and expenses:
Benefits to policyholders ............. 244,895 178,401 165,157
Increase in future policy benefits
and policyholders' funds on deposit . 239,635 252,476 221,192
Acquisition and insurance expenses .... 65,533 59,662 58,231
--------- --------- ---------
Total benefits and expenses ... 550,063 490,539 444,580
--------- --------- ---------
Income before income taxes .............. 88,497 63,282 86,721
--------- --------- ---------
Income taxes (benefits):
Current ............................... 15,263 33,357 30,000
Deferred .............................. 16,354 (10,772) 930
--------- --------- ---------
Total income taxes ............ 31,617 22,585 30,930
--------- --------- ---------
Net income .............................. $ 56,880 $ 40,697 $ 55,791
========= ========= =========
See accompanying notes to financial statements.
F-5
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CAPITAL FUNDS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Common stock
Balance at beginning of year ...................... $ 3,225 $ 3,225 $ 3,225
--------- --------- ---------
Balance at end of year ............................ 3,225 3,225 3,225
--------- --------- ---------
Additional paid-in capital
Balance at beginning of year: ..................... 197,025 197,025 197,025
--------- --------- ---------
Balance at end of year ............................ 197,025 197,025 197,025
--------- --------- ---------
Retained earnings
Balance at beginning of year ...................... 220,949 190,252 134,461
Net income ........................................ 56,880 40,697 55,791
Dividends to Stockholders ......................... -- (10,000) --
--------- --------- ---------
Balance at end of year ............................ 277,829 220,949 190,252
--------- --------- ---------
Accumulated other comprehensive income
Balance at beginning of year ...................... 194,918 184,681 135,431
Unrealized appreciation (depreciation) of
investments - net of reclassification adjustments (400,842) (4,208) 104,775
Deferred income tax benefit (expense) on
changes and future policy benefits .............. 146,093 14,445 (55,525)
--------- --------- ---------
Balance at end of year ............................ (59,831) 194,918 184,681
--------- --------- ---------
Total capital funds ............................... $ 418,248 $ 616,117 $ 575,183
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 56,880 $ 40,697 $ 55,791
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Non-cash revenues, expenses, gains
and losses included in income:
Change in insurance reserves ......................... 45,730 323,971 44,065
Change in premiums and insurance balances
receivable and payable -- net ...................... (5,697) 4,753 (3,201)
Change in reinsurance assets ......................... (279,429) (6,624) 4,601
Change in deferred policy acquisition costs .......... (5,234) (1,674) (3,992)
Change in investment income due and accrued .......... (799) 628 (4,898)
Realized capital losses .............................. 13,103 1,694 226
Change in current and deferred income taxes -- net ... 2,133 (6,220) 243
Change in reserves for commissions, expenses and taxes 135 480 (337)
Change in other assets and liabilities -- net ........ 2,969 (24,194) (11,055)
----------- ----------- -----------
Total adjustments ................................ (227,089) 292,814 25,652
----------- ----------- -----------
Net cash (used in) provided by operating activities .. (170,209) 333,511 81,443
----------- ----------- -----------
Cash flows from investing activities:
Cost of fixed maturities at market, sold ............... 913,262 317,042 255,408
Cost of fixed maturities at market, matured or redeemed 641,409 824,480 435,831
Cost of equity securities sold ......................... 1,149 1,413 7,422
Cost of real estate sold ............................... -- 5,107 --
Realized capital (losses) gains ........................ (13,103) (1,694) 3,774
Purchase of fixed maturities ........................... (1,815,447) (1,202,023) (922,293)
Purchase of equity securities .......................... (14,641) (13,671) (3,000)
Mortgage loans granted ................................. (64,782) (140,623) (89,717)
Repayments of mortgage loans ........................... 148,799 150,803 44,733
Change in policy loans ................................. 296 401 380
Change in short-term investments ....................... 108,799 (172,672) (19,560)
Change in other invested assets ........................ (22,632) (12,118) 6,100
Other -- net ........................................... (4,525) (16,637) (7,361)
----------- ----------- -----------
Net cash used in investing activities ................ (121,416) (260,192) (288,283)
----------- ----------- -----------
Cash flows from financing activities:
Change in policyholders' funds on deposit .............. 134,683 93,569 205,413
Dividends to stockholders .............................. -- (10,000) --
----------- ----------- -----------
Net cash provided by financing activities ............ 134,683 83,569 205,413
----------- ----------- -----------
Change in cash ........................................... (156,942) 156,888 (1,427)
Cash at beginning of year ................................ 157,187 299 1,726
----------- ----------- -----------
Cash at end of year ...................................... $ 245 $ 157,187 $ 299
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Comprehensive income
Net income ............................................ $ 56,880 $ 40,697 $ 55,791
--------- --------- ---------
Other comprehensive income
Unrealized appreciation (depreciation) of investments--
net of reclassification adjustments ................. (400,842) (4,208) 104,775
Changes due to deferred income tax benefit (expense) on
changes and future policy benefits .................. 146,093 14,445 (55,525)
--------- --------- ---------
Other comprehensive income ............................ (254,749) 10,237 49,250
--------- --------- ---------
Comprehensive income .................................. $(197,869) $ 50,934 $ 105,041
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Basis of Presentation: American International Life Assurance Company
of New York (the Company) is a wholly owned subsidiary of American International
Group, Inc. (the Parent). The financial statements of the Company have been
prepared on the basis of generally accepted accounting principles (GAAP). The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
The Company is licensed to sell life and accident & health insurance in the
District of Columbia and all states except Arizona, Connecticut and Maryland.
The Company is also licensed in America Samoa, Virgin Islands and Guam.
The Company also files financial statements prepared in accordance with
statutory practices prescribed or permitted by the Insurance Department of the
State of New York. Financial statements prepared in accordance with GAAP differ
in certain respects from the practices prescribed or permitted by regulatory
authorities. The significant differences are: (1) statutory financial statements
do not reflect fixed maturities available for sale at market value; (2) policy
acquisition costs, charged against operations as incurred for regulatory
purposes, have been deferred and are being amortized over the anticipated life
of the contracts; (3) individual life and annuity policy reserves based on
statutory requirements have been adjusted based upon mortality, lapse and
interest assumptions applicable to these coverages, including provisions for
reasonable adverse deviations; these assumptions reflect the Company's
experience and industry standards; (4) deferred income taxes not recognized for
regulatory purposes have been provided for temporary differences between the
bases of assets and liabilities for financial reporting purposes and tax
purposes; (5) for regulatory purposes, future policy benefits, policyholders'
funds on deposit, policy and contract claims and reserve for unearned premiums
are presented net of ceded reinsurance; and (6) an asset valuation reserve and
interest maintenance reserve using National Association of Insurance
Commissioners (NAIC) formulas are set up for regulatory purposes.
(b) Investments: Fixed maturities available for sale, where the company
may not have the ability or positive intent to hold these securities until
maturity, are carried at current market value. Interest income with respect to
fixed maturity securities is accrued currently. Included in fixed maturities
available for sale are collateralized mortgage obligations (CMOs). Premiums and
discounts arising from the purchase of CMOs are treated as yield adjustments
over their estimated lives. Common and non-redeemable preferred stocks are
carried at current market values. Dividend income is generally recognized when
receivable. Short-term investments are carried at cost, which approximates
market.
Unrealized gains and losses from investments in equity securities and
fixed maturities available for sale are reflected as a separate component of
comprehensive income, net of deferred income taxes and future policy benefits in
capital funds currently.
Realized capital gains and losses are determined principally by specific
identification. Where declines in values of securities below cost or amortized
cost are considered to be other than temporary, a charge is reflected in income
for the difference between cost or amortized cost and estimated net realizable
value.
Mortgage loans on real estate are carried at unpaid principal balance less
unamortized loan origination fees and costs less an allowance for uncollectible
loans. Interest income on such loans is accrued currently.
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and repairs
are charged to income as incurred; expenditures for betterments are capitalized
and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnerships, which are
recorded using either the cost or the equity method depending on the type of
partnership and the Company's related ownership percentage.
F-9
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (continued)
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the Parent
have a written tax allocation agreement whereby the Parent agrees not to charge
the Company a greater portion of the consolidated tax liability than would have
been paid by the Company if it had filed a separate return. Additionally, the
Parent agrees to reimburse the Company for any tax benefits arising out of its
net losses within ninety days after the filing of that consolidated tax return
for the year in which these losses are utilized. Deferred federal income taxes
are provided for temporary differences related to the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns.
(d) Premium Recognition and Related Benefits and Expenses: Premiums for
traditional life insurance and life contingent annuity contracts are recognized
when due. Revenues for universal life and investment-type products consist of
policy charges for the cost of insurance, administration, and surrenders during
the period. Premiums on accident and health insurance are reported as earned
over the contract term. The portion of accident and health premiums which is not
earned at the end of a reporting period is recorded as unearned premiums.
Estimates of premiums due but not yet collected are accrued. Policy benefits and
expenses are associated with earned premiums on long-duration contracts
resulting in a level recognition of profits over the anticipated life of the
contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the policy.
Deferred policy acquisition costs and policy initiation costs related to
universal life and investment-type products are amortized in relation to
expected gross profits over the life of the policies (see Note 3).
The liability for future policy benefits and policyholders' contract
deposits is established using assumptions described in Note 4.
(e) Policy and Contract Claims: Policy and contract claims include amounts
representing: (1) the actual in-force amounts for reported life claims and an
estimate of incurred but unreported claims; and (2) an estimate, based upon
prior experience, for accident and health reported and incurred but unreported
losses. The methods of making such estimates and establishing the resulting
reserves are continually reviewed and updated and any adjustments resulting
therefrom are reflected in income currently.
(f) Separate and Variable Accounts: These accounts represent funds for
which investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the assets
are carried at market value. The assets of each account are legally segregated
and are not subject to claims which arise out of any other business of the
Company.
(g) Reinsurance Assets: Reinsurance assets include the balances due from
both reinsurance and insurance companies under the terms of the Company's
reinsurance arrangements for ceded unearned premiums, future policy benefits for
life and accident and health insurance contracts, policyholders' funds on
deposit and policy and contract claims. It also includes funds held under
reinsurance treaties.
(h) Accounting Standards:
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" (FASB 130) and Statement of Financial Accounting Standards No. 131
"Disclosure about Segments of an Enterprise and Related Information" (FASB 131).
FASB 130 establishes standards for reporting comprehensive income and its
components in a full set of general purpose financial statements. FASB 130 was
effective for the Company as of January 1, 1998.
FASB 131 establishes standards for the way the Company is required to
disclose information about its operating segments in its annual financial
statements and selected information in its interim financial statements. FASB
131 establishes, where practicable, standards with respect to geographic areas,
among other things. Certain descriptive information is also required. FASB 131
was effective for the year ended December 31, 1998 by the
F-10
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (continued)
Parent, whose operations are conducted principally through three business
segments: General Insurance, Life Insurance and Financial Services. All
operations of the Company fall within the Life Insurance segment.
In February 1998, FASB issued Statement of Financial Accounting Standards
No. 132 "Employers' Disclosures about Pensions and Other Postretirement
Benefits" (FASB 132). This statement requires the Company to revise its
disclosures about pension and other postretirement benefit plans and does not
change the measurement or recognition of these plans. Also, FASB 132 requires
additional information on changes in the benefit obligations and fair values of
plan assets. FASB 132 was effective for the year ended December 31, 1998 and has
been adopted by the Parent. Information regarding the pension and other
postretirement benefit plans is not computed on a subsidiary basis, but rather
on a consolidated basis for all subsidiaries of the Parent and, accordingly, is
not presented herein.
In June 1998, FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" (FASB 133).
This statement requires the Company to recognize all derivatives in the
consolidated balance sheet measuring these derivatives at fair value. The
recognition of the change in the fair value of a derivative depends on a number
of factors, including the intended use of the derivative. The Company believes
that the impact of FASB 133 on its results of operations, financial condition or
liquidity will not be significant. FASB 133 is effective for the year commencing
January 1, 2001.
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AcSEC) issued Statement of
Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments." This statement provides guidance for the
recording of a liability for insurance-related assessments. The statement
requires that a liability be recognized in certain defined circumstances. This
statement was effective for the year commencing January 1, 1999 and has been
adopted herein. SOP 97-3 did not have a material impact on the Company's results
of operations, financial condition or liquidity.
In October 1998, AcSEC issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk."
This statement identifies several methods of deposit accounting and provides
guidance on the application of each method. This statement classifies insurance
and reinsurance contracts for which the deposit method is appropriate as
contracts that (i) transfer only significant timing risk, (ii) transfer only
significant underwriting risk, (iii) transfer neither significant timing nor
underwriting risk, and (iv) have an indeterminate risk. The Company believes
that the impact of this statement on its results of operations, financial
condition or liquidity will not be significant. This statement is effective for
the year commencing January 1, 2000. Restatement of previously issued financial
statements is not permitted.
2. Investment Information
(a) Statutory Deposits: Securities with a carrying value of $17,560,000
and $17,889,000 were deposited by the Company under requirements of regulatory
authorities as of December 31, 1999 and 1998, respectively.
F-11
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Investment Information (continued)
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities .......................... $392,878 $386,353 $378,724
Equity securities ......................... 2,309 1,702 1,010
Mortgage loans ............................ 45,173 52,443 48,488
Real estate ............................... 2,113 2,782 3,097
Policy loans............................... 750 713 832
Cash and short-term investments............ 7,507 4,334 4,257
Other invested assets...................... 16,026 11,209 2,878
-------- -------- --------
Total investment income................ 466,756 459,536 439,286
Investment expenses ....................... 4,541 4,360 4,188
-------- -------- --------
Net investment income.................. $462,215 $455,176 $435,098
======== ======== ========
</TABLE>
(c) Investment Gains and Losses: The net realized capital gains (losses)
and change in unrealized appreciation (depreciation) of investments for 1999,
1998 and 1997 are summarized below (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Realized gains (losses) on investments:
Fixed maturities .................... $ (15,407) $ (3,908) $ --
Equity securities ................... 1,702 124 3,774
Mortgage loans ...................... -- -- (4,000)
Real Estate ......................... -- 2,079 --
Other ............................... 602 11 --
--------- --------- ---------
Realized gains (losses) ............. $ (13,103) $ (1,694) $ (226)
========= ========= =========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities .................... $(369,679) $ (16,268) $ 103,520
Equity securities ................... (3,812) 1,272 (1,446)
Other invested assets ............... (27,351) 10,788 2,701
--------- --------- ---------
Change in unrealized appreciation
(depreciation) of investments ..... $(400,842) $ (4,208) $ 104,775
========= ========= =========
</TABLE>
Proceeds from the sale of investments in fixed maturities during 1999,
1998 and 1997 were $913,263,000, $317,042,000 and $255,408,000, respectively.
During 1999, 1998 and 1997, gross gains of $8,369,000, $0 and $0,
respectively, and gross losses of $23,776,000, $3,908,000 and $0, respectively,
were realized on dispositions of fixed maturities.
During 1999, 1998 and 1997, gross gains of $1,712,000, $126,000 and
$3,774,000, respectively, and gross losses of $10,000, $2,000 and $0,
respectively, were realized on dispositions of equity securities.
(d) Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1999 and 1998, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross gains
of $15,424,000 and $15,424,000 and gross losses of $4,278,000 and $465,000,
respectively.
F-12
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Investment Information (continued)
The amortized cost and estimated market values of investments in
fixed maturities at December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1999
Fixed maturities:
U.S. Government and government
agencies and authorities ... $ 68,605 $ 13,612 $ 407 $ 81,810
States, municipalities and
political subdivisions ..... 665,514 16,609 4,317 677,806
Foreign governments .......... 9,307 108 247 9,168
All other corporate .......... 4,333,324 57,006 185,378 4,204,952
---------- ---------- ---------- ----------
Total fixed maturities ....... $5,076,750 $ 87,335 $ 190,349 $4,973,736
========== ========== ========== ==========
<CAPTION>
<S> <C> <C> <C> <C>
1998
Fixed maturities:
U.S. Government and government
agencies and authorities ... $ 68,248 $ 24,760 $ 10 $ 92,998
States, municipalities and
political subdivisions ..... 778,621 51,462 1,252 828,831
Foreign governments .......... 28,144 6,049 -- 34,193
All other corporate .......... 3,923,336 229,566 43,910 4,108,992
---------- ---------- ---------- ----------
Total fixed maturities ....... $4,798,349 $ 311,837 $ 45,172 $5,065,014
========== ========== ========== ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities
available for sale at December 31, 1999, by contractual maturity, are shown
below (in thousands). Actual maturities could differ from contractual maturities
because certain borrowers have the right to call or prepay obligations with or
without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
---------- ----------
Due in one year or less ....................... $ 394,356 $ 385,902
Due after one year through five years ......... 1,967,313 1,940,109
Due after five years through ten years ........ 1,596,471 1,544,741
Due after ten years ........................... 1,118,610 1,102,984
---------- ----------
$5,076,750 $4,973,736
========== ==========
(e) CMOs: CMOs are U.S. Government and Government agency backed and triple
A-rated securities. CMOs are included in other corporate fixed maturities. At
December 31, 1999 and 1998, the market value of the CMO portfolio was
$883,693,000 and $986,103,000, respectively; the estimated amortized cost was
approximately $883,419,000 in 1999 and $944,790,000 in 1998. The Company's CMO
portfolio is readily marketable. There were no derivative (high risk) CMO
securities contained in the portfolio at December 31, 1999.
(f) Fixed Maturities Below Investment Grade: At December 31, 1999 and
1998, the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $526,765,000 and $528,461,000, respectively,
and an aggregate market value of $467,170,000 and $510,316,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
F-13
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Investment Information (continued)
(h) Investments Greater than 10% Equity: The market value of investments
in the following companies exceeded 10% of the Company's total capital funds at
December 31, 1999 (in thousands):
Fixed Maturities:
Chase Manhattan Corp ........................................ $ 46,918
Tower Funding................................................ 49,489
3. Deferred Policy Acquisition Costs
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against future
income and the related current amortization charged to income, excluding certain
amounts deferred and amortized in the same period (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year............... $41,421 $39,748 $35,754
Acquisition costs deferred................. 9,166 7,323 9,109
Amortization charged to income............. (3,932) (5,650) (5,115)
------- ------- -------
Balance at end of year..................... $46,655 $41,421 $39,748
======= ======= =======
</TABLE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a) The analysis of the future policy benefits and policyholders' funds on
deposit liabilities as at December 31, 1999 and 1998 follows (in thousands):
1999 1998
---------- ----------
Future policy benefits:
Long duration contracts .............. $1,691,028 $1,673,267
Short duration contracts ............. 22,135 21,305
---------- ----------
$1,713,163 $1,694,572
========== ==========
Policyholder funds on deposit:
Annuities ............................ $2,924,027 $2,813,969
Guaranteed investment contracts (GICs) 678,240 685,336
Universal life ....................... 105,223 101,919
Other investment contracts ........... 34,383 5,966
---------- ----------
$3,741,873 $3,607,190
========== ==========
(b) Long duration contract liabilities included in future policy benefits,
as presented in the table above, result from traditional life and annuity
products. Short duration contract liabilities are primarily accident and health
products. The liability for future policy benefits has been established based
upon the following assumptions:
(i) Interest rates (exclusive of immediate/terminal funding
annuities), which vary by year of issuance and products, range from 3.0
percent to 10.0 percent. Interest rates on immediate/terminal funding
annuities are at a maximum of 7.6 percent and grade to not greater than
7.5 percent.
(ii) Mortality and withdrawal rates are based upon actual experience
modified to allow for variations in policy form. The weighted average
lapse rate, including surrenders, for individual life approximated 10.7
percent.
(c) The liability for policyholders' fund on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of
issuance and range from 3.0 percent to 7.5 percent. Credited interest rate
guarantees are generally for a period of one year. Withdrawal charges
generally range from 3.0 percent to 10.0 percent grading to zero over a
period of 5 to 10 years.
F-14
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Future Policy Benefits and Policyholders' Funds on Deposit (continued)
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited generally range
from 4.9 percent to 8.1 percent and maturities range from 3 to 7 years.
(iii) Interest rates on corporate-owned life insurance business are
guaranteed at 4.0 percent and the weighted average rate credited in 1999 was 6.7
percent.
(iv) The universal life funds, exclusive of corporate-owned life insurance
business, have credited interest rates of 5.4 percent to 7.1 percent and
guarantees ranging from 3.5 percent to 5.5 percent depending on the year of
issue. Additionally, universal life funds are subject to surrender charges that
amount to 11.0 percent of the fund balance and grade to zero over a period not
longer than 20 years.
5. Income Taxes
(a) The Federal income tax rate applicable to ordinary income is 35% for
1999, 1998 and 1997. Actual tax expense on income from operations differs from
the "expected" amount computed by applying the Federal income tax rate because
of the following (in thousands except percentages):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- -------------------
Percent Percent Percent
of pre-tax of pre-tax of pre-tax
operating operating operating
Amount Income Amount Income Amount Income
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax expense $30,974 35.0% $22,149 35.0% $30,352 35.0%
State income tax ............ 418 0.5 194 0.3 487 0.6
Other ....................... 225 0.3 242 0.4 91 0.1
------- ---- ------- ---- ------- ----
Actual income tax
expense ................... $31,617 35.8% $22,585 35.7% $30,930 35.7%
======= ==== ======= ==== ======= ====
</TABLE>
(b) The components of the net deferred tax liability were as follows (in
thousands):
Years ended December 31,
-----------------------
1999 1998
--------- ---------
Deferred tax assets:
Adjustments to mortgage loans and
investment income due and accrued ... $ 6,876 $ 6,576
Adjustment to life policy reserves .... 39,467 42,482
Deferred policy acquisition costs ..... -- 5,558
Unrealized depreciation of investments 32,034 --
Other ................................. 168 937
--------- ---------
78,545 55,553
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs .... $ 2,875 $ --
Fixed maturities discount ............ 16,199 12,376
Unrealized appreciation on investments -- 105,059
Other ................................ 4,415 3,801
--------- ---------
23,489 121,236
--------- ---------
Net deferred tax (asset) liability ..... $ (55,056) $ 65,683
========= =========
(c) At December 31, 1999, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,879,000 of "Policyholders' Surplus"
as defined under the Code. Under provisions of the Code,
F-15
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Income Taxes (continued)
"Policyholders' Surplus" has not been currently taxed but would be taxed at
current rates if distributed to the Parent. There is no present intention to
make cash distributions from "Policyholders' Surplus" and accordingly, no
provision has been made for taxes on this amount.
(d) Income taxes paid in 1999, 1998, and 1997 amounted to $28,174,000,
$26,796,000, and $30,269,000, respectively.
6. Commitments and Contingent Liabilities
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course of
their business. The Company does not believe that such litigation will have a
material effect on its operating results and financial condition.
The Company is a limited partner in Chardon/Hato Rey Partnership (Puerto
Rico). The partnership agreement requires the Company to make an additional
capital contribution of up to $3,000,000 to cover construction cost overruns or
operating deficits. Construction was completed in 1992, the building is fully
leased and profitable; therefore, no demands are foreseen.
During 1997, the Company entered into a partnership agreement with Private
Equity Investors III, L.P. As of December 31, 1999, the Company's unused capital
commitment was $5,086,000. Contributions totaling $19,872,000 have been made
through December 31, 1999.
During 1998, the Company entered into a partnership agreement with Sankaty
High Yield Asset Partners, L.P. The agreement requires the Company to make
capital contributions totaling $2,500,000. Contributions totaling $2,250,000
have been made through December 31, 1999.
During 1999, the Company entered into a partnership agreement with G2
Opportunity Fund, LP. The agreement requires the Company to make capital
contributions totaling $12,500,000. Contributions totaling $11,515,000 have been
made through December 31, 1999.
During 1999, the Company entered into a partnership agreement with CVC
Capital Funding LLC. The agreement requires the Company to make capital
contributions totaling $10,000,000. No contributions have been made as of
December 31, 1999.
During 1999, the Company entered into a partnership agreement with Private
Equity Investors IV, L.P. The agreement requires the Company to make capital
contributions totaling $73,000,000. No contributions have been made as of
December 31, 1999
7. Fair Value of Financial Instruments
(a) Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of fair
value information about financial instruments for which it is practicable to
estimate such fair value. These financial instruments may or may not be
recognized in the balance sheet. In the measurement of the fair value of certain
of the financial instruments, quoted market prices were not available and other
valuation techniques were utilized. These derived fair value estimates are
significantly affected by the assumptions used. FASB 107 excludes certain
financial instruments, including those related to insurance contracts.
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair value.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain fixed
maturities for which market prices were not readily available, fair values were
estimated using values obtained from independent pricing services.
F-16
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Fair Value of Financial Instruments (continued)
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based upon
the Company's current incremental lending rates for similar type loans. The fair
values of policy loans were not calculated as the Company believes it would have
to expend excessive costs for the benefits derived. Therefore, the fair value of
policy loans was estimated at carrying value.
Policyholders' funds on deposit: Fair values of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent with
those remaining for the contracts being valued.
(b) The fair value and carrying amounts of financial instruments is as
follows (in thousands):
Fair Carrying
Value Amount
---------- ----------
1999
Cash and short-term investments .............. $ 144,011 $ 144,011
Fixed maturities ............................. 4,973,736 4,973,736
Equity securities ............................ 51,030 51,030
Mortgage and policy loans .................... 476,653 470,441
Policyholders' funds on deposit .............. $3,807,329 $3,741,873
Fair Carrying
Value Amount
---------- ----------
1998
Cash and short-term investments .............. $ 409,752 $ 409,752
Fixed maturities ............................. 5,065,014 5,065,014
Equity securities ............................ 41,350 41,350
Mortgage and policy loans .................... 586,819 554,682
Policyholders' funds on deposit .............. $3,748,401 $3,607,190
8. Capital Funds
(a) The Company may not distribute dividends to the Parent without prior
approval of regulatory agencies. Generally, this limits the payment of such
dividends to an amount which, in the opinion of the regulatory agencies, is
warranted by the financial condition of the Company. There were no dividends
paid in 1999. During 1998, the Company paid a $10,000,000 dividend to its
stockholders.
(b) The Company's capital funds as determined in accordance with statutory
accounting practices were $387,814,000 at December 31, 1999 and $337,170,000 at
December 31, 1998. Statutory net income amounted to $66,418,000, $35,386,000 and
$58,205,000 for 1999, 1998 and 1997, respectively.
(c) Statement of Accounting Standards No. 130 "Comprehensive Income" (FASB
130) was adopted by the Company effective January 1, 1998. FASB 130 establishes
standards for reporting comprehensive income and its components as part of
capital funds. The reclassification adjustments with respect to available for
sale securities were $(13,103,000), $(1,694,000), and $(226,000) for December
31, 1999, 1998 and 1997, respectively.
9. Employee Benefits
(a) The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by the
Parent. All qualified employees who have attained age 21 and completed twelve
months of continuous service are eligible to participate in this plan. An
employee with 5 or more years of service is entitled to pension benefits
beginning at normal retirement age 65. Benefits are based upon a percentage of
average final compensation multiplied by years of credited service limited to 44
years of credited service. The average final compensation is subject to certain
limitations. Annual funding requirements are determined based
F-17
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
9. Employee Benefits (continued)
on the "projected unit credit" cost method which attributes a pro rata portion
of the total projected benefit payable at normal retirement to each year of
credited service. Pension expense for current service costs, retirement and
termination benefits for the years ended December 31, 1999, 1998 and 1997 were
approximately $153,000, $238,000 and $306,000, respectively. The Parent's plans
do not separately identify projected benefit obligations and plan assets
attributable to employees of participating affiliates. The projected benefit
obligations exceeded the plan assets at December 31, 1999 by $36,000,000.
The Parent has adopted a Supplemental Executive Retirement Program
(Supplemental Plan) to provide additional retirement benefits to designated
executives and key employees. Under the Supplemental Plan, the annual benefit,
not to exceed 60 percent of average final compensation, accrues at a percentage
of average final pay multiplied for each year of credited service reduced by any
benefits from the current and any predecessor retirement plans, Social Security,
if any, and from any qualified pension plan of prior employers. The Supplemental
Plan also provides a benefit equal to the reduction in benefits payable under
the AIG retirement plan as a result of Federal limitations on benefits payable
thereunder. Currently, the Supplemental Plan is unfunded.
(b) The Parent also sponsors a voluntary savings plan for domestic
employees (a 401(k) plan), which during the three years ended December 31, 1999,
provided for salary reduction contributions by employees and matching
contributions by the Parent of up to 6 percent of annual salary depending on the
employees' years of service.
(c) On April 1, 1985, the Parent terminated and replaced its then existing
U.S. pension plan, a contributory qualified defined benefit plan, with the
current non-contributory qualified defined benefit plan. Settlement of the
obligations of the prior plan was accomplished through the purchase of annuities
from the Company for accrued benefits as of the date of termination. Future
policy benefits reserves in the accompanying balance sheet that relate to these
annuity contracts are $69,129,000 at December 31, 1999 and $70,733,000 at
December 31, 1998.
(d) In addition to the Parent's defined benefit pension plan, the Parent
and its subsidiaries provide a post-retirement benefit program for medical care
and life insurance. Eligibility in the various plans is generally based upon
completion of a specified period of eligible service and reaching a specified
age.
(e) The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its stock-based
compensation plans. Employees of the Company participate in certain stock option
and stock purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG common
stock at a price not less than fair market value at the date of grant. In
general, the stock purchase plan provides for eligible employees to receive
privileges to purchase AIG common stock at a price equal to 85% of the fair
market value on the date of grant of the purchase privilege. The Parent has not
recognized compensation costs for either plan. The effect of the compensation
costs, as determined consistent with FASB 123, was not computed on a subsidiary
basis, but rather on a consolidated basis for all subsidiaries of the Parent and
therefore are not presented herein.
10. Leases
(a) The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the long-term use
of data processing equipment. At December 31, 1999, the future minimum lease
payments under operating leases were as follows:
Year Payments
---- --------
2000....................................................... $1,421
2001........................................................ 1,126
2002........................................................ 774
2003........................................................ 345
2004........................................................ 277
Remaining years after 2004.................................. 230
------
Total....................................................... $4,173
======
F-18
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
10. Leases (continued)
Rent expense approximated $1,667,000, $1,604,000 and $1,398,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
11. Reinsurance
(a) The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are reinsured
primarily under coinsurance and yearly renewable term treaties. Accident and
health insurance risks are reinsured primarily under coinsurance, excess of loss
and quota share treaties. Amounts recoverable from reinsurers are estimated in a
manner consistent with the assumptions used for the underlying policy benefits
and are presented as a component of reinsurance assets. A contingent liability
exists with respect to reinsurance ceded to the extent that any reinsurer is
unable to meet the obligations assumed under the reinsurance agreements. The
Company also reinsures portions of its life and accident and health insurance
risks with affiliated companies (see Note 12).
The effect of all reinsurance contracts, including reinsurance assumed, is
as follows (in thousands, except percentages):
<TABLE>
<CAPTION>
Percentage
of Amount
Assumed
Gross Ceded Assumed Net to Net
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1999
Life Insurance in Force $32,831,967 $ 604,100 $ 2,573 $32,230,440 --
=========== =========== =========== ===========
Premiums:
Life .............. 98,471 2,925 64 95,610 0.7%
Accident and Health 18,940 8,431 31,393 41,902 74.9%
Annuity ........... 51,936 -- -- 51,936 --
----------- ----------- ----------- -----------
Total Premiums ........ $ 169,347 $ 11,356 $ 31,457 $ 189,448 16.6%
=========== =========== =========== ===========
December 31, 1998
Life Insurance in Force $ 5,157,694 $ 579,949 $ 446 $ 4,578,191 --
=========== =========== =========== ===========
Premiums:
Life .............. 55,199 3,320 75 51,954 0.1%
Accident and Health 16,144 6,470 23,215 32,889 70.6%
Annuity ........... 15,496 -- -- 15,496 --
----------- ----------- ----------- -----------
Total Premiums ........ $ 86,839 $ 9,790 $ 23,290 $ 100,339 23.2%
=========== =========== =========== ===========
December 31, 1997
Life Insurance in Force $ 4,900,999 $ 408,340 $ 3,061 $ 4,495,720 0.1%
=========== =========== =========== ===========
Premiums:
Life .............. 25,690 2,805 83 22,968 0.4%
Accident and Health 16,266 6,470 22,449 32,245 69.6%
Annuity ........... 41,216 -- -- 41,216 --
----------- ----------- ----------- -----------
Total Premiums ........ $ 83,172 $ 9,275 $ 22,532 $ 96,429 23.4%
=========== =========== =========== ===========
</TABLE>
(b) The maximum amount retained on any one life by the Company is
$1,000,000.
(c) Reinsurance recoveries, which reduced death and other benefits,
approximated $287,073,000, $12,396,000 and $6,110,000 respectively, for the
years ended December 31, 1999, 1998 and 1997.
The Company's reinsurance arrangements do not relieve it from its direct
obligation to its insureds.
F-19
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
12. Transactions with Related Parties
(a) The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance risks.
Premium income and commission ceded to affiliates amounted to $277,000 and $0,
respectively, for the year ended December 31, 1999. Premium income and
commission ceded for 1998 amounted to $89,000 and $2,000, respectively. Premium
income and commission ceded for 1997 amounted to $144,000 and $2,000,
respectively. Premium income and ceding commission expense assumed from
affiliates aggregated $25,496,000 and $88,000, respectively, for 1999, compared
to $19,536,000 and $(545,000), respectively, for 1998, and $20,661,000 and
$(602,000), respectively, for 1997.
(b) The Company provides life insurance coverage to employees of the
Parent and its domestic subsidiaries in connection with the Parent's employee
benefit plans. The statement of income includes $5,366,000 in premiums relating
to this business for 1999, $5,124,000 for 1998, and $5,769,000 for 1997.
(c) The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of costs upon
either the specific identification basis or a proportional cost allocation basis
which management believes to be reasonable. For the years ended December 31,
1999, 1998 and 1997, the Company was charged $27,700,000, $23,757,000 and
$22,079,000, respectively, for expenses attributed to the Company but incurred
by affiliates. During the same period, the Company received reimbursements from
affiliates aggregating $32,219,000, $28,405,000 and $26,941,000, respectively,
for costs incurred by the Company but attributable to affiliates.
(d) During 1997, a reinsurance treaty between the Company and Delaware
American Life Insurance Company (Delam) covering certain annuity policies was
terminated. Upon cancellation of this agreement, assets totaling $24,030,000
were transferred from Delam to the Company.
(d) During 1999, the Company entered into a reinsurance treaty with
Lexington Insurance Company whereby the Company ceded a block of Ordinary Life
business and transferred cash and securities valued at $276,917,000.
F-20
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands)
June 30, December 31,
2000 1999
---------- ----------
(unaudited)
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $5,050,813 $4,973,736
(cost: 2000 - $5,180,300; 1999 - $5,076,750)
Equity securities:
Common stock
(cost: 2000 - $12,837; 1999 - $12,837) 27,573 24,428
Non-redeemable preferred stocks
(cost: 2000 - $24,535; 1999 - $27,047) 24,042 26,602
Mortgage loans on real estate, net 462,235 460,455
Real estate, net of accumulated
depreciation of $7,247 in 2000 and $6,976 in 1999 18,612 18,937
Policy loans 10,063 9,986
Other invested assets 92,014 79,381
Short-term investments 63,050 143,766
Cash 94 245
---------- ----------
Total investments and cash 5,748,496 5,737,536
Amounts due from related parties 9,844 9,470
Investment income due and accrued 86,052 82,501
Premium and insurance balances receivable 10,692 17,345
Reinsurance assets 321,456 306,663
Deferred policy acquisition costs 48,428 46,655
Federal income tax receivable -- 6,598
Deferred income taxes 60,439 55,056
Separate and variable accounts 450,349 423,534
Other assets 1,704 1,170
---------- ----------
Total assets $6,737,460 $6,686,528
========== ==========
See accompanying notes to financial statements.
1
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands, except share amounts)
June 30, December 31,
2000 1999
----------- -----------
(unaudited)
Liabilities
Policyholders' funds on deposit $ 3,720,521 $ 3,741,873
Future policy benefits 1,756,335 1,713,163
Reserve for unearned premiums 8,222 5,948
Policy and contract claims 347,941 335,557
Reserve for commissions, expenses and taxes 3,111 5,183
Insurance balances payable 9,373 7,565
Federal income tax payable 38 --
Amounts due to related parties 617 3,320
Separate and variable accounts 450,349 423,534
Other liabilities 29,600 32,137
----------- -----------
Total liabilities 6,326,107 6,268,280
----------- -----------
Capital funds
Common stock, $200 par value; 16,125 shares
authorized, issued and outstanding 3,225 3,225
Additional paid-in capital 197,025 197,025
Retained earnings 286,097 277,829
Accumulated other comprehensive income (74,994) (59,831)
----------- -----------
Total capital funds 411,353 418,248
----------- -----------
Total liabilities and capital funds $ 6,737,460 $ 6,686,528
=========== ===========
See accompanying notes to financial statements.
2
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(in thousands)
(unaudited)
For Six Months ended June 30,
-----------------------------
2000 1999
--------- ---------
Revenues:
Premiums $ 125,553 $ 103,366
Net investment income 229,142 235,279
Realized capital losses (23,392) (8,606)
--------- ---------
Total revenues 331,303 330,039
--------- ---------
Benefits and expenses:
Benefits to policyholders 132,649 118,822
Increase in future policy benefits
and policyholders' funds on deposit 147,286 139,654
Acquisition and insurance expenses 37,707 32,267
--------- ---------
Total benefits and expenses 317,642 290,743
--------- ---------
Income before income taxes 13,661 39,296
--------- ---------
Income taxes (benefits):
Current 2,562 1,649
Deferred 2,831 12,348
--------- ---------
Total income taxes 5,393 13,997
--------- ---------
Net income $ 8,268 $ 25,299
========= =========
See accompanying notes to financial statements.
3
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CAPITAL FUNDS
(in thousands)
June 30, December 31,
2000 1999
--------- -----------
(unaudited)
Common stock
Balance at beginning of year $ 3,225 $ 3,225
--------- ---------
Balance at end of year 3,225 3,225
--------- ---------
Additional paid-in capital
Balance at beginning of year: 197,025 197,025
--------- ---------
Balance at end of year 197,025 197,025
--------- ---------
Retained earnings
Balance at beginning of year 277,829 220,949
Net income 8,268 56,880
--------- ---------
Balance at end of year 286,097 277,829
--------- ---------
Accumulated other comprehensive income
Balance at beginning of year (59,831) 194,918
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments (23,377) (400,842)
Deferred income tax benefit (expense) on
changes and future policy benefits 8,214 146,093
--------- ---------
Balance at end of year (74,994) (59,831)
--------- ---------
Total capital funds $ 411,353 $ 418,248
========= =========
See accompanying notes to financial statements.
4
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,268 $ 25,299
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains
and losses included in income:
Change in insurance reserves 57,829 23,788
Change in premiums and insurance balances
receivable and payable -net 8,461 (3,793)
Change in reinsurance assets (14,793) (278,726)
Change in deferred policy acquisition costs (1,773) (2,464)
Change in investment income due and accrued (3,550) (3,164)
Realized capital losses 23,392 8,606
Change in current and deferred income taxes -net 9,467 5,581
Change in reserves for commissions, expenses and taxes (2,072) 1,334
Change in other assets and liabilities - net (12,227) 3,872
----------- -----------
Total adjustments 64,734 (244,966)
----------- -----------
Net cash (used in) provided by operating activities 73,002 (219,667)
----------- -----------
Cash flows from investing activities:
Cost of fixed maturities at market, sold 144,501 478,322
Cost of fixed maturities at market, matured or redeemed 270,970 352,210
Cost of equity securities sold 2,511 1,135
Realized capital (losses) gains (23,392) (8,606)
Purchase of fixed maturities (510,021) (1,123,435)
Purchase of equity securities -- (3,539)
Mortgage loans granted (52,250) (42,000)
Repayments of mortgage loans 50,474 83,499
Change in policy loans (78) (271)
Change in short-term investments 80,716 167,067
Change in other invested assets (12,641) (14,012)
Other - net (2,590) 30,819
----------- -----------
Net cash used in investing activities (51,800) (78,811)
----------- -----------
Cash flows from financing activities:
Change in policyholders' funds on deposit (21,353) 141,551
----------- -----------
Net cash provided by financing activities (21,353) 141,551
----------- -----------
Change in cash (151) (156,927)
Cash at beginning of year 245 157,187
----------- -----------
Cash at end of year $ 94 $ 260
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
June 30, December 31,
2000 1999
--------- -----------
(unaudited)
Comprehensive income
Net income $ 8,268 $ 56,880
--------- ---------
Other comprehensive income
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments (23,377) (400,842)
Changes due to deferred income tax benefit
(expense) on changes in
future policy benefits 8,214 146,093
--------- ---------
Other comprehensive income (15,163) (254,749)
--------- ---------
Comprehensive income $ (6,895) $(197,869)
========= =========
See accompanying notes to financial statements.
6
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation: The year-end balance sheet data was derived from
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
7
<PAGE>
APPENDIX A
Polaris VUL
Guaranteed Monthly Cost Insurance Rates
Per $1,000 of Net Amount at Risk
Male (Age Nearest Birthday)
<TABLE>
<CAPTION>
Attained Monthly COI Rate Attained Monthly COI Rate
Age ----------------------- Age -------------------------
Nonsmoker* Smoker Nonsmoker* Smoker
=====================================================================================
<S> <C> <C> <C> <C> <C>
0 N/A 0.34845 50 0.40933 0.79730
1 N/A 0.08917 51 0.44603 0.87076
2 N/A 0.08251 52 0.48857 0.95257
3 N/A 0.08167 53 0.53612 1.04609
4 N/A 0.07917 54 0.59118 1.15132
5 N/A 0.07501 55 0.65209 1.26326
6 N/A 0.07167 56 0.71968 1.38441
7 N/A 0.06667 57 0.79146 1.50978
8 N/A 0.06334 58 0.86909 1.64353
9 N/A 0.06167 59 0.95675 1.78234
10 N/A 0.06084 60 1.05444 1.93624
11 N/A 0.06417 61 1.16302 2.10944
12 N/A 0.07084 62 1.28665 2.30447
13 N/A 0.08251 63 1.42787 2.52553
14 N/A 0.09584 64 1.58752 2.76931
15 0.10751 0.13752 65 1.76394 3.03334
16 0.11918 0.15586 66 1.95381 3.30841
17 0.12835 0.17086 67 2.15965 3.59706
18 0.13335 0.18003 68 2.38065 3.89427
19 0.13835 0.18837 69 2.62186 4.21099
20 0.14002 0.19254 70 2.89419 4.56071
21 0.13919 0.19420 71 3.25305 4.94853
22 0.13669 0.19170 72 3.55929 5.38973
23 0.13418 0.18837 73 3.96902 5.88695
24 0.13085 0.18420 74 4.42953 6.42941
25 0.12668 0.17837 75 4.92413 7.02991
26 0.12335 0.17336 76 5.45122 7.64974
27 0.12168 0.17170 77 6.00585 8.27796
28 0.12001 0.17003 78 6.58221 8.90442
29 0.12001 0.17170 79 7.19473 9.54780
30 0.12001 0.17503 80 7.86724 10.23622
31 0.12252 0.18087 81 8.61695 10.98690
32 0.12502 0.18670 82 9.46542 11.82145
33 0.12918 0.19587 83 10.42336 12.74626
34 0.13418 0.20671 84 11.47263 13.72670
35 0.14085 0.21921 85 12.58987 14.73050
36 0.14752 0.23422 86 13.75325 15.72512
37 0.15669 0.25340 87 14.95279 16.69584
38 0.16669 0.27508 88 16.16464 17.75732
39 0.17837 0.30009 89 17.40526 18.80718
40 0.19087 0.32844 90 18.69215 19.86094
41 0.20588 0.36180 91 20.04733 20.93947
42 0.22088 0.39599 92 21.51567 22.08818
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Attained Monthly COI Rate Attained Monthly COI Rate
Age ----------------------- Age ------------------------
Nonsmoker* Smoker Nonsmoker* Smoker
====================================================================================
<S> <C> <C> <C> <C> <C>
43 0.23839 0.43519 93 23.16008 23.56765
44 0.25590 0.47606 94 25.25984 25.47888
45 0.27674 0.52277 95 28.27411 28.27411
------------------------------------------------------------------------------------
46 0.29926 0.56949 96 33.10677 33.10677
47 0.32344 0.62038 97 41.68475 41.68475
48 0.34929 0.67379 98 58.01259 58.01259
49 0.37848 0.73387 99 83.33333 83.33333
------------------------------------------------------------------------------------
</TABLE>
* Applicable to Preferred and Standard Nonsmoker Risks.
A-2
<PAGE>
Polaris VUL
Guaranteed Monthly Cost Insurance Rates
Per $1,000 of Net Amount at Risk
Female (Age Nearest Birthday)
<TABLE>
<CAPTION>
Attained Monthly COI Rate Attained Monthly COI Rate
Age ----------------------- Age ------------------------
Nonsmoker* Smoker Nonsmoker* Smoker
====================================================================================
<S> <C> <C> <C> <C> <C>
0 N/A 0.24089 50 0.34929 0.54530
1 N/A 0.07251 51 0.37514 0.58367
2 N/A 0.06750 52 0.40433 0.62706
3 N/A 0.06584 53 0.43853 0.67796
4 N/A 0.06417 54 0.47356 0.72970
5 N/A 0.06334 55 0.51109 0.78395
6 N/A 0.06084 56 0.54947 0.83820
7 N/A 0.06000 57 0.58785 0.88996
8 N/A 0.05834 58 0.62456 0.93838
9 N/A 0.05750 59 0.66377 0.98848
10 N/A 0.05667 60 0.70967 1.04359
11 N/A 0.05750 61 0.76392 1.11457
12 N/A 0.06000 62 0.83236 1.20061
13 N/A 0.06250 63 0.91834 1.31673
14 N/A 0.06667 64 1.02021 1.44626
15 0.07000 0.07834 65 1.13044 1.59170
16 0.07334 0.08251 66 1.24906 1.73551
17 0.07667 0.08667 67 1.36937 1.88521
18 0.07917 0.09084 68 1.49055 2.02074
19 0.08167 0.09418 69 1.62012 2.17305
20 0.08417 0.09668 70 1.76979 2.33460
21 0.08501 0.09834 71 1.94879 2.54396
22 0.08667 0.10084 72 2.17053 2.80367
23 0.08751 0.10251 73 2.44094 3.12054
24 0.09001 0.10584 74 2.75926 3.49047
25 0.09084 0.10751 75 3.11970 3.90183
26 0.09334 0.11168 76 3.51565 4.34547
27 0.09501 0.11501 77 3.94131 4.81137
28 0.09751 0.11835 78 4.39675 5.29708
29 0.10001 0.12335 79 4.89467 5.81782
30 0.10334 0.12918 80 5.45628 6.39564
31 0.10584 0.13418 81 6.10032 7.04935
32 0.10918 0.14002 82 6.84571 7.79699
33 0.11251 0.14585 83 7.70559 8.64662
34 0.11835 0.15502 84 8.66019 9.64633
35 0.12252 0.16169 85 9.70835 10.64717
36 0.13002 0.17420 86 10.83105 11.78647
37 0.13919 0.19004 87 12.03563 12.88645
38 0.14919 0.20754 88 13.30897 14.13279
39 0.16086 0.22755 89 14.67130 15.32034
40 0.17336 0.25006 90 16.12162 16.69153
41 0.18837 0.27758 91 17.68913 18.15714
42 0.20337 0.30343 92 19.41995 19.76127
43 0.21838 0.33011 93 21.39829 21.58524
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
Attained Monthly COI Rate Attained Monthly COI Rate
Age ----------------------- Age ------------------------
Nonsmoker* Smoker Nonsmoker* Smoker
====================================================================================
<S> <C> <C> <C> <C> <C>
44 0.23339 0.35679 94 23.83051 23.83051
------------------------------------------------------------------------------------
45 0.24923 0.38431 95 27.16158 27.16158
46 0.25690 0.41267 96 32.32378 32.32378
47 0.28425 0.44270 97 41.21204 41.21204
48 0.30426 0.47356 98 57.81394 57.81394
49 0.32511 0.50692 99 83.33333 83.33333
------------------------------------------------------------------------------------
</TABLE>
* Applicable to Preferred and Standard Nonsmoker Risks.
A-4
<PAGE>
Polaris VUL
Table of Acquisition Expenses Per $1,000 of Face Amount
(Applicable During First 5 Policy Years*)
<TABLE>
<CAPTION>
--------------------------------------------------- ----------------------------------------------
Issue Age Female Male Issue Female Male
Age
=================================================== ==============================================
<S> <C> <C> <C> <C> <C>
0 0.18 0.21 33 0.38 0.45
1 0.18 0.21 34 0.39 0.47
2 0.19 0.21 35 0.40 0.49
3 0.19 0.21 36 0.41 0.50
4 0.19 0.22 37 0.43 0.52
5 0.19 0.22 38 0.44 0.54
6 0.20 0.22 39 0.46 0.56
7 0.20 0.23 40 0.47 0.59
8 0.20 0.23 41 0.49 0.61
9 0.21 0.24 42 0.51 0.64
10 0.21 0.25 43 0.52 0.66
11 0.22 0.25 44 0.54 0.69
12 0.22 0.26 45 0.56 0.72
13 0.23 0.26 46 0.58 0.75
14 0.23 0.27 47 0.61 0.78
15 0.24 0.28 48 0.63 0.82
16 0.24 0.28 49 0.65 0.85
17 0.25 0.29 50 0.68 0.89
18 0.25 0.30 51 0.71 0.93
19 0.26 0.30 52 0.73 0.97
20 0.26 0.31 53 0.76 1.02
21 0.27 0.32 54 0.80 1.07
22 0.28 0.33 55 0.83 1.12
23 0.28 0.33 56 0.86 1.17
24 0.29 0.34 57 0.90 1.23
25 0.30 0.35 58 0.94 1.25
26 0.31 0.36 59 0.98 1.25
27 0.32 0.37 60 1.03 1.25
28 0.32 0.38 61 1.08 1.25
29 0.33 0.40 62 1.13 1.25
30 0.34 0.41 63 1.19 1.25
31 0.35 0.42 64 - 85 1.25 1.25
32 0.36 0.44
--------------------------------------------------- ----------------------------------------------
</TABLE>
*Also applicable on the Increase Amount during the first 5 years following an
applied for increase in Face Amount.
A-5
<PAGE>
Polaris VUL
Table of Initial Surrender Charges
Per $1,000 of Face Amount
Male
<TABLE>
<CAPTION>
----------------------------------------------------- ----------------------------------------------------
Issue Age Nonsmoker* Smoker Issue Nonsmoker* Smoker
Age
===================================================== ====================================================
<S> <C> <C> <C> <C> <C>
0 N/A 11.76 29 15.53 18.42
1 N/A 11.76 30 15.86 18.90
2 N/A 11.91 31 16.22 19.40
3 N/A 12.07 32 16.51 19.86
4 N/A 12.16 33 16.92 20.44
5 N/A 12.34 34 17.26 20.96
6 N/A 12.52 35 17.64 21.53
7 N/A 12.65 36 18.13 22.22
8 N/A 12.86 37 18.57 22.88
9 N/A 13.00 38 19.04 23.57
10 N/A 13.16 39 19.54 24.32
11 N/A 13.41 40 20.01 25.04
12 N/A 13.60 41 20.59 25.88
13 N/A 13.87 42 21.13 26.70
14 N/A 14.06 43 21.80 27.66
15 12.61 14.26 44 22.44 28.60
16 12.82 14.54 45 23.12 29.60
17 12.94 14.74 46 23.86 30.67
18 13.08 14.95 47 24.67 31.82
19 13.31 15.24 48 25.44 32.95
20 13.46 15.46 49 26.39 34.26
21 13.62 15.70 50 27.30 34.34
22 13.80 15.96 51 28.31 34.34
23 14.08 16.31 52 29.41 34.34
24 14.28 16.61 53 30.51 34.34
25 14.51 16.93 54 31.71 34.34
26 14.75 17.29 55 33.01 34.34
27 15.02 17.66 56-85 34.34 34.34
28 15.31 18.07
----------------------------------------------------- ----------------------------------------------------
</TABLE>
* Applicable to Preferred and Standard Nonsmoker Risks.
A-6
<PAGE>
Polaris VUL
Table of Initial Surrender Charges
Per $1,000 of Face Amount
Female
<TABLE>
<CAPTION>
----------------------------------------------------- ----------------------------------------------------
Issue Age Nonsmoker* Smoker Issue Nonsmoker* Smoker
Age
===================================================== ====================================================
<S> <C> <C> <C> <C> <C>
0 N/A 11.02 31 15.38 16.99
1 N/A 11.04 32 15.70 17.36
2 N/A 11.07 33 15.94 17.69
3 N/A 11.20 34 16.29 18.12
4 N/A 11.32 35 16.66 18.58
5 N/A 11.46 36 17.05 19.07
6 N/A 11.52 37 17.38 19.49
7 N/A 11.67 38 17.83 20.04
8 N/A 11.83 39 18.22 20.52
9 N/A 11.91 40 18.72 21.13
10 N/A 12.09 41 19.16 21.68
11 N/A 12.18 42 19.63 22.26
12 N/A 12.38 43 20.22 22.95
13 N/A 12.49 44 20.76 23.60
14 N/A 12.71 45 21.33 24.29
15 12.05 12.84 46 21.95 25.02
16 12.24 13.06 47 22.52 25.70
17 12.35 13.20 48 23.23 26.52
18 12.55 13.45 49 23.99 27.40
19 12.68 13.61 50 24.70 28.25
20 12.89 13.88 51 25.49 29.15
21 13.04 14.06 52 26.42 30.21
22 13.20 14.26 53 27.32 31.25
23 13.45 14.57 54 28.22 32.27
24 13.63 14.80 55 29.27 33.46
25 13.82 15.04 56 30.40 34.34
26 14.03 15.30 57 31.53 34.34
27 14.25 15.59 58 32.76 34.34
28 14.58 15.96 59 34.12 34.34
29 14.83 16.28 60-85 34.34 34.34
30 15.10 16.62
----------------------------------------------------- ----------------------------------------------------
</TABLE>
* Applicable to Preferred and Standard Nonsmoker Risks.
A-7
<PAGE>
APPENDIX B
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1999
<TABLE>
<CAPTION>
Inception Since
Date 1 Year 3 Years 5 Years 10 Years Inception
---- ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Anchor Series Trust
Wellington Management Company, LLP
Capital Appreciation Portfolio 3/23/87 67.58 36.95 34.03 23.57 20.08
Growth Portfolio 9/5/84 26.94 28.76 27.52 17.60 16.80
Government and Quality Bond Portfolio 9/5/84 -1.65 5.56 7.64 7.44 9.04
Natural Resources Portfolio 1/4/88 41.51 2.26 7.46 6.06 7.50
SunAmerica Series Trust
Alliance Capital Management L.P.
Global Equities Portfolio 2/9/93 30.94 22.78 20.29 n/a 16.99
Alliance Growth Portfolio 2/9/93 33.07 38.60 37.66 n/a 27.69
Growth-Income Portfolio 2/9/93 30.04 31.55 30.52 n/a 22.22
Davis Selected Advisers, L.P.
Davis Venture Value Portfolio 10/28/94 16.11 21.05 24.92 n/a 23.75
Real Estate Portfolio 6/2/97 -7.42 n/a n/a n/a -2.92
Federated Investors, Inc.
Corporate Bond Portfolio 7/1/93 -1.85 4.90 5.11 n/a 4.57
Federated Value Portfolio 6/3/96 6.19 18.08 n/a n/a 17.52
Utility Portfolio 6/3/96 1.78 13.43 n/a n/a 13.93
Goldman Sachs Asset Management/
Goldman Sachs Asset Management International
Asset Allocation Portfolio 7/1/93 9.44 11.26 15.65 n/a 12.77
Global Bond Portfolio 7/1/93 8.09 6.48 9.20 n/a 6.99
MFS Investment Management
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
MFS Growth and Income Portfolio 2/9/93 5.93 19.05 20.92 n/a 15.05
MFS Total Return Portfolio 10/28/94 2.88 12.86 15.07 n/a 14.46
MFS Mid-Cap Growth Portfolio 4/1/99 n/a n/a n/a n/a 64.96
Morgan Stanley Asset Management
International Diversified Equities Portfolio 10/28/94 24.59 16.25 13.63 n/a 12.38
Worldwide High Income Portfolio 10/28/94 19.31 4.56 11.62 n/a 10.74
Putnam Investments
Emerging Markets Portfolio 6/2/97 77.45 n/a n/a n/a 4.52
Putnam Growth Portfolio 2/9/93 29.71 32.30 28.31 n/a 20.01
International Growth and Income Portfolio 6/2/97 24.18 n/a n/a n/a 15.87
SunAmerica Asset Management Corp.
Aggressive Growth Portfolio 6/3/96 84.66 34.56 n/a n/a 30.10
SunAmerica Balanced Portfolio 6/3/96 21.40 23.48 n/a n/a 22.67
Cash Management Portfolio 2/9/93 4.87 5.05 5.11 n/a 4.57
"Dogs" of Wall Street Portfolio 4/1/98 -7.08 n/a n/a n/a -4.64
High-Yield Bond Portfolio 2/9/93 6.50 5.75 9.13 n/a 7.55
</TABLE>
This portfolio performance information is for illustrative purposes only and is
not intended to indicate or predict future performance.
The performance information reflects the total of the income generated by the
portfolio net of the total portfolio operating expenses (i.e., management fees
and other expenses), plus capital gains and losses, realized or unrealized. The
performance results do not reflect charges deducted from premium, Account Value,
or Variable Account assets (for example, the mortality and expense risk charge,
monthly deductions, cost of insurance, surrender charge, sales load, DAC taxes,
and any state or local premium taxes). If these charges were included, the total
return figures would be lower.
B-2
<PAGE>
[Back cover]
The Securities and Exchange Commission maintains a web site at
http://www.sec.gov that contains additional information about American
International Life Assurance Company of New York, Variable Account B, and the
policy, which may be of interest to you. The web site also contains additional
information about the policy's variable investment options.
Investment Company Act File Number 811-4685-1
B-3
<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
American International Life Assurance Company of New York 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 New York 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 B, 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
Consent of Actuary
Jorden Burt Cicchetti Berenson & Johnson LLP
PricewaterhouseCoopers LLP
The following exhibits:
1. 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 American International Life Assurance
Company of New York, dated June 5, 1986, authorizing the issuance
and sale of variable life contracts.*
(2) N/A
(3) Principal Underwriter's Agreement between American International
Life Assurance Company of New York and American International Fund
Distributors, dated August 15, 1989.*
(4) N/A
(5) (a) Form of Flexible Premium Variable Universal Life Insurance
<PAGE>
Policy (2VUL1294NY).*
(b) Form of Group Variable Universal Life Policy (2VUL1294NY-G).*
(c) Form of Certificate of Group Variable Universal Life
(2VUL1294NY-C).*
(d) Form of Group Flexible Variable Life Insurance Policy
(21GVULD997).**
(e) Form of Certificate of Group Flexible Variable Universal Life
(26GVULD997).**
(f) Form of Premium Variable Life Insurance Policy (21VUL399)*****
(g) Form of Premium Variable Life Insurance Policy
(21VUL399-NY)******
(6) (a) By-Laws of American International Life Assurance Company of
New York, (as amended on 3/25/75);*
(b) Charter of American International Life Assurance Company of
New York, dated March 5, 1962;*
(c) Certificate of Amendment of the Certificate of Incorporation
of American International Life Assurance Company of New York,
dated February 4, 1972;*
(d) Certificate of Amendment of the Certificate of Incorporation
of American International Life Assurance Company of New York,
dated January 18, 1985;*
(e) Certificate of Amendment of the Certificate of Incorporation
of American International Life Assurance Company of New York,
dated June 1, 1987;*
(f) Certificate of Amendment of the Certificate of Incorporation
of American International Life Assurance Company of New York,
dated March 22, 1989;*
(g) Certificate of Amendment of the Certificate of Incorporation
of American International Life Assurance Company of New York,
dated June 27, 1991.*
<PAGE>
(7) N/A
(8) (a) Powers of Attorney;***
(b) Power of Attorney ****
(9) N/A
(10) (a) Form of Life Insurance Application (24APP0396NY).*
(b) Form of Supplemental Application (2VULSUP1294NY).*
(c) Form of Group Life Insurance Application (24GVAPP997).**
(d) Form of Supplemental Application (24GVSUP997).**
(11) Code of Ethics.
2. Opinion and Consent of Counsel as to legality of securities being
registered (filed electronically herewith).
3. Consent of Actuary (filed electronically herewith).
4. N/A
5. Consent of Independent Accountants (filed electronically herewith).
6. Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP (filed
electronically herewith).
7. Memorandum Regarding Administrative Procedures.*
* Incorporated by reference to Registrant's Post-Effective Amendment, No. 4
filed on Form S-6 (File No. 33-90686), dated October 27, 1998.
** Incorporated by reference to Registrant's filing filed on Form S-6 (File
No. 333-48457), dated March 23, 1998.
*** Incorporated by reference to Registrant's Post-Effective Amendment, No 2
filed on Form S-6 (File No. 33-90686), dated May 1, 1997.
**** Incorporated by reference to Registrant's Post-Effective Amendment, No. 12
filed on N-4 (File No. 33-39170), dated April 28, 2000.
<PAGE>
***** Incorporated by reference to Registrant's filing filed on Form S-6 (File
No. 333-38324), dated June 1, 2000.
****** Incorporated by reference to Registrant's filing filed on Form S-6 (File
No. 333-49128), dated September 5, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Wilmington and State of
Delaware on this 10th day of November, 2000.
VARIABLE ACOUNT B
-----------------
(Registrant)
By: AMERICAN INTERNATIONAL LIFE
ASSURANCE COMPANY OF NEW YORK
----------------------------------------
(Sponsor)
By: /s/ Kenneth D. Walma
----------------------------------------
Kenneth D. Walma, Vice President and
General Counsel
Attest: /s/ James A. Bambrick
-----------------------------
(Name)
Chief Operating Officer
-----------------------------
(Title)
<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 November 10, 2000
--------------------------
/s/ Michele L. Abruzzo
Paul S. Bell* Director November 10, 2000
--------------------------
/s/ Paul Bell
Marion E. Fajen* Director November 10, 2000
--------------------------
/s/ Marion E. Fajen
Patrick J. Foley* Director November 10, 2000
--------------------------
/s/ Patrick J. Foley
Cecil C. Gamwell, III* Director November 10, 2000
--------------------------
/s/ Cecil C. Gamwell, III
Maurice R. Greenberg* Director November 10, 2000
--------------------------
/s/ Maurice R. Greenberg
Jack R. Harnes* Director November 10, 2000
--------------------------
/s/ Jack R. Harnes
John I. Howell* Director November 10, 2000
--------------------------
/s/ John I. Howell
Jerome T. Muldowney* Director November 10, 2000
--------------------------
/s/ Jerome T. Muldowney
<PAGE>
Robinson K. Nottingham* Director November 10, 2000
--------------------------
/s/ Robinson K. Nottingham
John Oehmke* Chief Financial November 10, 2000
-------------------------- Officer
/s/ John Oehmke
Nicholas A. O'Kulich* Director November 10, 2000
--------------------------
/s/ Nicholas A. O'Kulich
Edmund Sze-Wing Tse* Director November 10, 2000
--------------------------
/s/ Edmund Sze-Wing Tse
Elizabeth M. Tuck* Secretary November 10, 2000
--------------------------
/s/ Elizabeth M. Tuck
Gerald Walter Wyndorf* Director November 10, 2000
--------------------------
/s/ Gerald Walter Wyndorf
By: /s/ Kenneth D. Walma
----------------------
Kenneth D. Walma
Attorney in Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
2. Opinion and Consent of Counsel
3. Opinion and Consent of Actuary
5. Consent of Independent Accountants
6. Consent of JordenBurt
