American International Life Assurance
Company of New York
Variable Account B
80 Pine Street
New York, NY 10005
1-302-594-2622
Group Flexible Premium Variable Universal Life Policy
American International Life Assurance Company of New York is offering life
insurance coverage under the group flexible premium variable universal life
policy. The policy provides insurance protection for individuals within groups
under corporate owned or sponsored arrangements. Corporate owned arrangements
are when an employer (or trust established by an employer) purchases life
insurance coverage on their employees. The employer or trust is the beneficiary.
Sponsored arrangements are those instances where an employer, a financial
institution or association allows us to sell insurance policies to its
employees, depositors or members.
The description of the policy in this prospectus is fully applicable to your
certificate and the word "policy" includes any such certificate.
The policy allows you as the Owner of the policy, within limits, to:
o Select the face amount of life insurance. You may, within
limits, change your initial selection as your insurance
needs change.
o Select the amount and timing of premiums payments. You may
make more premium payments than scheduled or stop making
premium payments.
o Allocate premium payments and your 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 surrenders or full surrender.
This document contains information about the policy. You should read this
document carefully before you decide to purchase the policy. You should also
keep this document for future reference.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the policy or determined that this
document is accurate or complete. Any representation to the contrary is a
criminal offense.
INVESTMENTS IN THESE CONTRACTS ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY GOVERNMENT AGENCY. ANY INVESTMENT
IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISKS WHICH MAY INCLUDE THE POSSIBLE
LOSS OF PRINCIPAL.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
Prospectus May 1, 2000
<PAGE>
Investment Options
Variable Investment Options
The Separate Account is divided into subaccounts. Each subaccount invests in
shares of a specific portfolio of the funds which are named below. The
prospectuses for the funds contain information about each portfolio. You should
read these prospectuses carefully.
<TABLE>
<S> <C>
Alliance Variable Product Series Fund The Universal Institutional Funds, Inc.
o Growth and Income Portfolio (Class A) o Fixed Income Portfolio
o Premier Growth Portfolio (Class A) o High Yield Portfolio
o Quasar Portfolio (Class A) o Mid Cap Growth Portfolio
o Growth (Class A) o Money Market Portfolio
o North American Government Income (Class A) o Technology Portfolio
o Emerging Markets Equity Portfolio
o Mid Cap Value Portfolio
Fidelity Variable Insurance Products Fund II and III
o VIP II Contrafund Portfolio Neuberger Berman Advisers Management Trust
o VIP II Index 500 Portfolio
o VIP III Balanced Portfolio o AMT Partners Portfolio
Goldman Sachs Variable Insurance Trust
o CORE SM Large Cap Growth Fund Franklin Templeton Variable Insurance Products Trust
o CORE SM U.S. Equity Fund (VIP)
o Global Income Fund
o International Equity Fund o Templeton Developing Markets Securities Fund-Class 2
(previously Templeton Developing Markets Fund)
o Templeton International Securities Fund -Class 2
(previously Templeton International Fund)
Berger Institutional Products Trust o Templeton Growth Securities Fund - Class 2
(previously Templeton Global Growth Fund)
o IPT Small Company Growth American Century Variable Portfolios, Inc.
o IPT New Generation
o VP International
PIMCO Variable Insurance Trust o VP Income and Growth
o Long Term U.S. Government
o Total Return Bond
</TABLE>
Guaranteed Investment Option
The Guaranteed Account is part of our general account. We will credit interest
equal to at least 4% per year, compounded annually on that portion of Account
Value that you allocate to the Guaranteed Account. We may, in our discretion,
elect to credit a higher rate of interest. This document generally describes
only that portion of the Account Value allocated to the Variable Account.
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 Policy
Applying for a Policy
Your Right to Cancel the Policy
Premiums
Restrictions on Premiums
Minimum Initial Premium
Planned Periodic Premiums
Additional Premiums
Effect of Premium Payments
Grace Period
Premium Allocations
Crediting Premiums
The Investment Options
Variable Investment Options
Guaranteed Investment Option
Investing Your Account Value
Determining the Account Value
Transfers
Dollar Cost Averaging
Death Benefits
Life Insurance Proceeds
Death Benefit Options
Changes in Death Benefit Options
Changes in Face Amount
Cash Benefits During the Insured's Life
Loans
Partial Surrender
Surrendering the Policy for Net Cash Surrender Value
Payment Options for Benefits
<PAGE>
Expenses of the Policy
Deductions From Premium
Monthly Deductions From Account Value
Deduction From Subaccount Assets
Deductions Upon Policy Transactions
Other Policy Provisions
Performance Information
Federal Income Tax Considerations
Distribution of the Policy
About Us and the Accounts
The Company
The Separate Account
The Guaranteed Account
Our Directors and Executive Officers
Other Information
State Regulation
Legal Proceedings
Experts
Legal Matters
Published Ratings
Financial Statements
Appendices
<PAGE>
Special Terms
We have capitalized some special terms we use in this document. We have defined
these terms here.
Accounts. The Separate Account and the Guaranteed Account.
We use Account Value to determine your policy benefits. How we determine Account
Value is described on page 21.
Account Value. The total amount in the Accounts credited to your policy.
If you have a request, please write to us at this address.
Administrative Office. One Alico Plaza, P.O. Box 8718, Wilmington, DE 19899.
Age. The Insured's age as of his or her last birthday.
Allocation Date. The first business day after the period to examine and cancel
expires.
Attained Age. The Insured's Age as of the Policy Date plus the number of
completed Policy Years since the Policy Date.
Beneficiary. The person(s) who is entitled to the Life Insurance Proceeds under
the policy.
How we determine the Cash Surrender Value is shown on page 24.
Cash Surrender Value. Account Value less any applicable surrender charge, that
would be assessed if the policy were surrendered.
Code. The Internal Revenue Code of 1986, as amended.
Death Benefit Amount. The amount determined to be the Life Insurance Proceeds
based on the Face Amount, Death Benefit Qualification Option and the Life
Insurance Proceeds Option which you selected.
You will specify the initial Face Face Amount. The amount of insurance specified
by the Owner and from Amount in your policy application. which we determine the
Death Benefit Amount. The policy will also show the initial Face Amount.
Grace Period. The period of time following a monthly anniversary during which
this policy will continue in force even though your Net Cash Surrender Value is
less than the total monthly deduction then due.
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Guaranteed Account. An account within the general account which consists of all
of our assets other than the assets of the Separate Account and any of our other
separate accounts.
Insured. A person whose life is covered under the policy. At the time of
application, the insured must be 80 years of age or younger. Unless otherwise
agreed to by Us.
We measure contestability periods from the Issue Date.
Issue Date. The date the policy is actually issued and from which we measure
contestability periods. It may be later than the Policy Date.
Life Insurance Proceeds. The amount payable to a Beneficiary if the Insured dies
while coverage under the policy is in force.
Loan Account. The portion of the Account Value held in the Guaranteed Account as
collateral for loans.
Maturity Date. The first policy anniversary following the Insured's 100th
birthday.
Monthly Anniversary. The same day as the Policy Date for each succeeding month.
If the day of the Monthly Anniversary is the 29th, 30th or 31st and a month has
no such day, the monthly anniversary is deemed to be the last day of that month.
We use this value to determine if your policy is in force.
Net Cash Surrender Value. The Cash Surrender Value less any Outstanding Loans
Net Premium. Any premium paid less any expense charges deducted from the premium
payment
You may be an Owner even if you are not the Insured.
Owner. The person who purchased the policy as shown in the application, unless
later changed.
Planned Periodic Premium. The amount and frequency of premium to be paid until
the Maturity Date. You select this at the time of application.
We use the Policy Date as the date coverage begins and to determine all
anniversary dates.
Policy Date. The date as of which we have received the initial premium and an
application in good order. Coverage will not begin unless your policy is issued.
Policy Year. Each period of twelve months commencing with the Policy Date.
Separate Account. Variable Account B, a separate investment account of ours.
Valuation Date. Each day the New York Stock Exchange is open for trading.
Valuation Period. A period commencing with the close of trading on the New York
Stock Exchange (currently 4 P.M., Eastern Time) on any Valuation Date and ending
as of the close of the New York Stock Exchange on the next succeeding Valuation
Date.
<PAGE>
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 The policy is a flexible premium variable universal
life policy. Like investment options, your policy traditional life insurance,
the policy provides an initial minimum death benefits will vary based upon the
benefit and cash benefits that you can access through loans, partial returns
earned by those variable surrenders or a full surrender. Unlike traditional life
insurance, you investment options. The returns may may choose how to invest your
Account Value. be zero or negative and you bear this risk.
The policy allows you to make certain choices that will tailor the policy to
your needs. When you apply for the policy, we will ask you to make some of these
choices. You may also change your choices to meet your changing insurance needs.
Applying for a Policy
You may apply for a policy to cover a person, the "Insured," who is between
18-80 years of age. Unless otherwise agreed to by Us.
Amount of life insurance benefits
When you apply for a policy, you must select the Face Amount. The Face Amount
must be at least $50,000, for all Insureds.
When your coverage will become effective. Your policy will become effective
after:
o We accept your application.
o We receive an initial premium payment in an amount we determine.
o We have completed our review to our satisfaction
Your right to cancel the policy
Once you receive your policy, you should read the policy. You have the right to
cancel the policy for any reason within the later of:
o 45 days after you sign Part I of the application; or,
o 10 days after you receive the policy. If required by the state where you
live, we will extend the time period to the number of days required by law.
<PAGE>
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.
Planned periodic premium.
When you apply for a policy, you will select the amount of premium payments you
plan to pay during the term of the policy. We will establish a minimum for this
amount. You will also select intervals when you plan to pay this premium amount,
such as monthly, quarterly, semiannually, or annually.
Flexibility in premium payments.
During the term of the policy, you may pay premiums at any time, and in any
amount, within limits. Thus, you are not required to pay the planned periodic
premium and you may make payments in addition to the planned periodic premium.
Account Value
We will measure your benefits under the policy by your Account Value. Your
Account Value will reflect:
o the premiums you pay; and
o the returns earned by the subaccounts you select; and
o the interest credited on amounts allocated to the Guaranteed Account; and
o any loans or partial surrenders; and
o the policy charges and expenses we deduct.
o Surrender charges
Death Benefit
Death Benefit Selections.
When you apply for a policy, you must select:
o The Face Amount.
o The death benefit option, which will be the manner in which we calculate
the death benefit for your policy.
o The tax qualification option, which will be the manner in which we test
your policy under the Code for meeting the definition of life insurance.
<PAGE>
Death Benefit Options.
You may select from two death benefit options. They are:
Level Death Benefit Option.
o Level Death Benefit Option
The basic death benefit will be the greater of:
(1) The Face Amount; or,
(2) Account Value on the date of death multiplied by the appropriate minimum
death benefit factor.
Increasing Death Benefit Option.
o Increasing Death Benefit Option
The basic death benefit will be the greater of:
(1) The Face Amount plus the Account Value; or,
(2) Account Value on the date of death multiplied by the appropriate minimum
death benefit factor.
The minimum death benefit factors we use are based upon the tax qualification
option you select and the Attained Age, sex and smoker status of the Insured.
Tax Qualification Options.
You may select from two tax qualification options. They are:
o Guideline Premium/Cash Value Corridor Test. The minimum death benefit
factors are based upon the Code.
o Cash Value Accumulation Test. The minimum death benefit factors are based
upon the 1980 Commissioners Standard Ordinary Mortality Tables and a 4%
effective annual interest rate.
Changes You May Make.
Within limits, you may change the death benefit option and, after the first
Policy Year, may change the Face Amount. You may not change the tax
qualification option.
Cash Benefits During the Life of the Insured
During the life of the Insured, your policy has cash benefits that you can
access within limits through loans, partial surrenders or a surrender.
o Loans -- You may borrow against your Net Cash Surrender Value at any time.
If your policy is a modified endowment contract, the Code may treat the
loan as a taxable distribution of income.
o Partial Surrenders -- You may withdraw part of your Account Value after the
first Policy Year. We may deduct an administrative charge. If you make a
partial surrender during the surrender charge period, we will deduct a
surrender charge. A partial surrender may result in a decrease in the Face
Amount of your policy depending upon your death benefit option.
o Surrender -- You may surrender your policy for its Net Cash Surrender
Value. If you surrender your policy during the surrender charge period, we
will deduct a surrender charge. A surrender will terminate your policy.
Expenses reduce your returns under the policy
Expenses of the Policy
We deduct expenses related to your policy. These deductions are made:
o from premium, your Account Value and the assets of the subaccounts; and
o upon certain transactions.
Deduction From Premium -- we will deduct state premium taxes, federal taxes and
sales charges from your premium payments. Premium taxes are charges at a percent
of premium equal to state and local tax rates based on the Insured's place of
residence. DAC taxes will be deducted from Account Value at a rate imposed by
federal tax law, currently equivalent to 1.00%of Premium. In place of these lump
sum deductions for premium and DAC taxes, we may offer optional methods of
payment at the time you apply for a policy. Total sales charges will not exceed
9% of premium.
Monthly Deductions From Account Value -- we will deduct on each Monthly
Anniversary charges for:
o The administration of your policy up to a maximum of $10 per month per
insured. For fully underwritten business, there is an additional charge of
up to $25 per month per insured for the first Policy Year and the first 12
months following an increase in Face Amount.
o The cost of insurance for your policy.
o The costs associated with mortality and expense risk charges. We will
deduct a daily charge from your Policy Account Value in the subaccounts for
assuming certain mortality and expense risks under the policy. This charge
does not apply to the amounts you allocate in the Guaranteed Account. The
current charge is at an annual rate of 0.50% of net assets in the
subaccounts. Although, we reserve the right to increase or decrease this
charge, it is guaranteed not to exceed 1.00% for the duration of your
policy. If your policy is issued at a charge of less than 1.00%, we will
notify you before we increase this charge. We may realize a profit from
this charge.
o The cost of any supplemental benefits and riders.
o The Acquisition and Underwriting costs of your Policy Subject to our
approval, you may request us to take the monthly deductions from your
unloaned Account Value allocated to the Money Market Subaccount, Guaranteed
Account or specified subaccounts. Otherwise we will take the monthly
deductions from each Subaccount and the Guaranteed Account on a pro rata
basis.
Deductions Upon Certain Policy Transactions-- If you make a transaction, a
charge may apply. They are:
o Transfer Charge -- You may make twelve transfers each Policy Year free of
charge. Thereafter, we will deduct a fee of $25 per transfer from the
transferred amount.
Administrative Charges for Partial Surrenders.
o Partial Surrenders -- We charge the lesser of $25 or 2% of the amount
surrendered for processing any withdrawal. In certain states the charge may
be the lesser of $25 or 2% of the amount surrendered.
Surrender Charges for Partial Surrenders.
A partial surrender may also be subject to a surrender charge. A surrender
charge for partial surrenders is equal to a pro rata portion of the surrender
charge that would apply to a full surrender. This applies during the first 14
Policy Years and for the first 14 years immediately following an increase in
Face Amount.
o Surrender -- If you request a full surrender during the first 14 Policy
Years, we may deduct a surrender charge based on the initial Face Amount.
If you request a surrender within 14 Policy Years immediately following an
increase in Face Amount, we will deduct a surrender charge based on the
increase in Face Amount. The surrender charge will be deducted before any
surrender proceeds are paid.
Surrender Charge for Face Amount Decreases.
o Decrease in Face Amount -- We may also deduct a surrender charge from the
Account Value upon a decrease in Face Amount. If you request a decrease in
Face Amount during the first 14 Policy Years, we will deduct a surrender
charge based on the initial Face Amount. If you request a decrease within
14 years immediately following an increase in Face Amount, we will deduct a
surrender charge based on the increase in Face Amount.
Policy Charges and Deductions
Transaction Charges
Sales Charge -- not to exceed 9% of each premium payment
DAC Tax Charge--1.00% of each premium payment.
Premium Tax Charge (1)-- depends on the state of residence.
Transfer Charge -- $25 for each transfer in excess of 12 each Policy Year.
Surrender Charge -- during the first 14 Policy Years and the first 14 years
immediately following an increase in Face Amount, there may be a surrender
charge. (2)
<PAGE>
Partial Surrender Administrative Charge
Lesser of $25 or 2% of the amount surrendered.
Account Value Charges (deducted monthly)
Cost of Insurance Charge (3) Current COI rates will never exceed the 1980
Commissioners Standard Ordinary Mortality Tables.
Monthly Expense Charge Per Policy
Current Charge - $6.00 Guaranteed Charge - $10.00
For fully underwritten business, there is an additional monthly administrative
charge during the first Policy Year and during the first 12 policy months
following an increase in Face Amount currently at a monthly rate of $20 per
insured, guaranteed not to exceed $25 per insured per policy month
Annual Separate Account Charges (deducted daily and shown as an annualized
percentage of average net assets)
Mortality and Expense Risk Charge: Current Charge - 0.50%
Guaranteed Charge - 1.00%
1. We deduct a premium tax charge equal to the actual state and local tax rate
from each premium payment. Typical State and local premium tax rates
currently range from 2% to 3.5%.
2. A policy's surrender charge is based on the Policy Year, issue age, sex and
smoker status of the Insured and the policy's Face Amount. If a policy were
surrendered in the ninth Policy Year, a 45-year old nonsmoking male with
$500,000 Face Amount policy, the surrender charge would be $7,800.00. For a
65-year-old nonsmoking male purchasing a $200,000 Face Amount policy, the
surrender charge premium would be $5,520.00. The lowest and highest maximum
surrender charge will range from $12.00 to $40.00 per $1,000 of Face
Amount. (See Appendix A for additional examples of surrender charges).
3. Current and guaranteed cost of insurance charges are based on the issue age
(or attained age in the case of increase in Specified Amount), sex, rate
class of the Insured, and Policy Year. The current cost of insurance charge
will never exceed the guaranteed cost of insurance charge shown in the
policy. (See "Charges and Deductions - Cost of Insurance Charge.")
<PAGE>
Annual Portfolio Expenses
Before Waiver/Reimbursement
As of December 31, 1999
The purpose of this table is to assist the Owner in understanding the various
costs and expenses that will be incurred, directly or indirectly. It is based on
historical expenses as a percentage of net assets before waivers and/or
reimbursements, if applicable, for the year ended December 31, 1999, except as
indicated below. Expenses of the portfolios of the Funds are not fixed or
specified under the terms of the policy. Actual expenses may vary.
<TABLE>
Management Other 12b-1 Total
Fees Expenses(1) Fees Expenses
<S> <C> <C> <C> <C>
Alliance Variable Product Series Fund
Growth and Income Portfolio 0.63% 0.08% 0.00% 0.71%
Premier Growth Portfolio 1.00% 0.05% 0.00% 1.05%
Quasar Portfolio 1.00% 0.19% 0.00% 1.19%
Growth Portfolio 0.75% 0.09% 0.00% 0.84%
North American Government Income Portfolio(2) 0.65% 0.55% 0.00% 1.20%
American Century Variable Portfolios, Inc.
VP Income and Growth Portfolio 0.70% 0.00% 0.00% 0.70%
VP International Portfolio(3) 1.34% 0.00% 0.00% 1.34%
Berger Institutional Products Trust (4)
IPT New Generation 0.85% 2.10% 0.00% 2.95%
IPT Small Company Growth 0.85% 0.64% 0.00% 1.49%
Fidelity Variable Insurance Products Fund II & III - Initial Class(5)
VIP II Contrafund Portfolio 0.58% 0.09% 0.00% 0.67%
VIP II Index 500 Portfolio 0.24% 0.10% 0.00% 0.34%
VIP III Balanced Portfolio 0.43% 0.14% 0.00% 0.57%
Goldman Sachs Variable Insurance Trust(6)
CORE SM U.S. Equity Fund 0.70% 0.20% 0.00% 0.90%
CORE SM Large Cap Growth Fund 0.70% 0.42% 0.00% 1.12%
Global Income Fund 0.90% 1.78% 0.00% 2.68%
International Equity Fund 1.00% 0.77% 0.00% 1.77%
Morgan Stanley Universal Institutional Funds (7)
Emerging Markets Equity Portfolio 1.25% 1.37% 0.00% 2.62%
Fixed Income Portfolio 0.40% 0.56% 0.00% 0.96%
High Yield Portfolio 0.50% 0.61% 0.00% 1.11%
Mid Cap Growth Portfolio 0.75% 7.31% 0.00% 8.06%
Mid Cap Value Portfolio 0.75% 0.62% 0.00% 1.37%
Money Market Portfolio 0.30% 0.47% 0.00% 0.77%
Technology Portfolio 0.80% 11.77% 0.00% 12.57%
Neuberger Berman Advisers Management Trust
AMT Partners Portfolio 0.80% 0.07% 0.00% 0.87%
PIMCO Variable Insurance Trust (8)
Long-Term U.S. Government Portfolio 0.65% 0.06% 0.00% 0.71%
Total Return Bond Portfolio 0.65% 0.04% 0.00% 0.69%
Franklin Templeton Variable Insurance Products Trust (VIP) (9)
Templeton Developing Markets Securities Fund - Class 2 1.25% 0.31% 0.25% 1.81%
Templeton International Securities Fund - Class 2 0.69% 0.19% 0.25% 1.13%
Templeton Growth Securities Fund - Class 2 0.83% 0.05% 0.25% 1.13%
</TABLE>
<PAGE>
Other Expenses After Waivers/Reimbursement
1. Other expenses are based on the expenses outlined in the funds'
prospectuses.
2. As a percentage of average daily net assets, "Total Operating Expenses"
after reimbursement by Alliance Capital Management L.P. for the period
ended December 31, 1999, were 0.95% for North American Government Income.
3. The Fund has a stepped fee schedule. As a result, the fund's management fee
rate generally decreases as fund assets increase.
4. Under a written contract, the Fund's investment advisor waives its fees and
reimburses the fund to the extent that at any time during the life of the
Fund, the Fund's annual operating expenses exceed 1.15%. The contract may
not be terminated or amended except by a vote of the Fund's Board of
Trustees. The expenses shown for the Berger IPT - New Generation Fund are
based on estimates for the Fund's first full year of operations.
5. Fidelity Management & Research Company agreed to reimburse a portion of VIP
II Index 500 and Contrafund and VIP III Balanced Portfolio's expenses
during the period. With this reimbursement, "Management Fee," "Other
Expenses" and "Total Operating Expenses" are 0.24%, 0.04% and 0.28% for
Index 500 and 0.58%, 0.07% and 0.65% for Contrafund, and 0.43%, 0.12% and
0.55% for Balanced, respectively.
6. Each Fund's expenses are based on estimated expenses for fiscal year ended
December 31, 2000. Goldman Sachs Asset Management and Goldman Sachs Asset
Management International have voluntarily agreed to reduce or limit certain
expenses (excluding management fees, taxes, interest and brokerage fees,
and litigation, indemnification and other extraordinary expenses) to the
extent such expenses exceed the percentage stated below (as calculated per
annum) of each Fund's respective average daily net assets. With these
limitations described above, "Other Expenses" and "Total Operating
Expenses" are: CORESM U.S. Equity Fund, 0.20% and 0.90%; CORESM Large Cap
Growth Fund, 0.20% and 0.90%; International Equity Fund, 0.35% and 1.35%;
and Global Income Fund, 0.25% and 1.15%. The investment advisers may
discontinue or modify any limitations in the future at its discretion.
7. The investment adviser assigned to a portfolio is entitled to receive from
such portfolio a management fee, payable quarterly, at an annual rate as a
percentage of average daily net assets as set forth in the prospectus. With
respect to the Money Market, Fixed Income, High Yield, Mid Cap Growth, Mid
Cap Value, Emerging Markets Equity and Technology Portfolios, each
portfolio's investment adviser has voluntarily agreed to waive its
investment advisory fees to reimburse the portfolios so such fees would not
cause their respective "Total Operating Expenses" to exceed the following:
Emerging Markets Equity 1.79%; Fixed Income 0.70%; High Yield 0.80%; Mid
Cap Growth 1.05%; Mid Cap Value 1.05%; Technology 1.15% and Money Market
0.55%.
8. "Other Expenses" reflect each Portfolio's organizational expenses and pro
rata Trustees' fees. PIMCO has contractually agreed to reduce total annual
portfolio operating expenses to the extent they would exceed, due to the
payment of organizational expenses and Trustees' feed, 0.65% and 0.65%
respectively of average daily net assets for the PIMCO Long-Term U.S.
Government and Total Return Portfolios.
9. On 2/8/00 shareholders approved a merger and reorganization that combined
the funds effective 5/1/00 The shareholders of the fund had approved new
management fees which apply to the combined fund effective 5/1/00. The
table shows restated total expenses based on the new fees and the assets of
the funds as of 12/31/99 and not the assets of the combined funds. Class 2
shares of the portfolio have a distribution plan or "Rule 12B-1 Plan" which
is described in the Funds' prospectus.
Expenses of the variable investment options also reduce your returns.
In addition, you will indirectly bear the costs of the investment management
fees and expenses paid from the assets of the portfolios you select.
<PAGE>
Federal Tax Considerations
You should consider the impact of the Code.
Your purchase of, and transactions under, your policy may have tax consequences
that you should consider before purchasing the policy. You may wish to consult a
tax adviser. In general, the Life Insurance Proceeds will not be taxable income
to the Beneficiary. You will not be taxed as your Account Value increases. Upon
a distribution from your policy, however, you may be taxed on any increase in
policy Account Value.
<PAGE>
Purchasing a 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 and supplemental benefit riders, if any. We may also
require information to determine if the Insured is an acceptable risk to us. We
may require a medical examination of the Insured and ask for additional
information.
Our age requirement for the Insured.
You may apply for a policy to cover a person who is at least 18 but 80 or
younger.
The minimum Face Amount.
The Face Amount must be at least $50,000, for each Insured.
We require a minimum initial premium.
We require that you pay a minimum initial premium before we will issue the
policy. You may pay the minimum initial premium when you submit the application
or at a later date.
We will not issue a policy until we have accepted the application. We reserve
the right to reject an application for any reason or "rate" an Insured as a
substandard risk.
When your coverage will be effective.
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your Right to Cancel the Policy
Period to Examine and Cancel.
Once you receive your policy, you should read the policy. You have the right to
cancel the policy for any reason within the later of:
o 45 days after you sign Part I of the application; or,
o 10 days after you receive the policy. If required by the state where you
live, we will extend the time period to the number of days required by law.
This is your "Period to Examine and Cancel."
Your right to cancel also applies to the amount of any increase in Face Amount.
How to cancel your policy.
You may cancel the policy by returning it to our Administrative Office or to
your agent within the applicable time with a written request for cancellation.
Unless otherwise required by law, we will refund you the premium paid on the
policy. Thus, the amount we return will not reflect the returns of the
subaccounts you selected in your application.
Premiums
The policy allows you to select the timing and amount of premium payments within
limits. Send premium payments to our Administrative Office.
All your premium payments must comply with our requirements.
Restrictions on Premiums. We may not accept any premium payment:
o If it is less than $50.
o If the premium would cause the policy to fail to qualify as a life
insurance contract as defined in Section 7702 of the Code, we will refund
any portion of any premium that causes the policy to fail. In addition, we
will monitor the policy and will attempt to notify you on a timely basis if
your policy is in jeopardy of becoming a modified endowment contract under
the Code.
o If the premium would increase the amount of our risk under your policy by
an amount greater than that premium amount. In such cases, we may require
satisfactory evidence of insurability before accepting that premium.
Types of premium payments
Minimum Initial Premium. We will calculate the minimum initial premium. The
amount is based on a number of factors, including the Age, sex and underwriting
class of the proposed Insured, the desired Face Amount and any supplemental
benefits or riders applied for.
We establish a minimum planned periodic premium.
Planned Periodic Premiums. When you apply for a policy, you select a plan for
paying level premiums at specified intervals. The intervals may be monthly,
quarterly, semi-annually or annually, for the life of the policy. We will
establish a minimum amount that may be used as the planned periodic premium. We
may recalculate this minimum amount if the Face Amount of the policy is
increased or decreased.
You are not required to pay premiums in accordance with this plan. Rather, you
can pay more or less than the planned periodic premium or skip a planned
periodic premium entirely.
At any time you can change the amount and frequency of planned periodic premium
by sending a written notice to our Administrative Office.
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Additional Premiums. Additional premiums are premiums other than planned
premiums. Additional premiums may be paid in any amount and at any time subject
to the Code.
Depending on the Account Value at the time of an increase in the Face Amount and
the amount of the increase requested, an additional premium may be needed to
prevent your policy from terminating.
Paying premiums may not ensure that your policy remains in force.
Effect of Premium Payments. In general, paying all planned periodic premiums may
not prevent your policy from lapsing. In addition, if you fail to pay any
planned periodic premiums, your policy will not necessarily lapse.
Your policy will lapse only when the Net Cash Surrender Value on a Monthly
Anniversary is less than the amount of that date's monthly deduction. This could
happen if the Net Cash Surrender Value has decreased because:
o of the negative return or insufficient return earned by one or more of the
subaccounts you selected; or,
o of any combination of the following -- you have outstanding loans, you have
taken partial surrenders, we have deducted policy expenses, or you have
made insufficient premium payments to offset the monthly deduction.
Your policy will not terminate immediately after your Account is insufficient.
Grace Period. In order for insurance coverage to remain in force, the Value Net
Cash Surrender Value on each Monthly Anniversary must be equal to or greater
than the total monthly deductions for that Monthly Anniversary.
If it is not, you have a Grace Period of 61 days during which the policy will
continue in force. The Grace Period begins on the Monthly Anniversary that the
Net Cash Surrender Value is less than the total monthly deductions then due. If
we do not receive a sufficient premium before the end of the Grace Period, the
policy will terminate without value.
We will send you a written notice within 30 days of the beginning of any Grace
Period. The notice will state:
A Grace Period of 61 days has begun.
How much you must pay to prevent your policy from terminating.
The amount of premium required to prevent your policy from terminating. This
amount is equal to the amount needed to increase the Net Cash Surrender Value
sufficiently to cover total monthly deductions for the next three (3) Monthly
Anniversaries.
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If the Insured dies during the Grace Period, we will still pay the Life
Insurance Proceeds to the Beneficiary. The amount we pay will reflect a
reduction for the unpaid monthly deductions due on or before the date of the
Insured's death.
If your policy lapses with an outstanding loan you may have taxable income.
Premium Allocations. In the application, you specify the percentage of Net
Premiums to be allocated to each subaccount and Guaranteed Account. However,
until the period to examine and cancel expires, we invest this amount in the
Money Market Subaccount. On the first business day after the period expires, we
will reallocate your Account Value based on the premium allocation percentages
in your application.
For all subsequent premiums, we will use the allocation percentages you
specified in the application until you change them. You can change the
allocation percentages at any time by sending written notice to our
Administrative Office. The change will apply to all Premiums received with or
after your notice.
Allocation Rules. Your allocation instructions must meet the following
requirements:
o Each allocation percentage must be a whole number; and,
o Any allocation to a subaccount must be at least 5%; and the sum of your
allocations must equal 100%.
Crediting Premiums. Your initial Net Premium will be credited to your Account
Value as of the Policy Date. We will credit and invest subsequent Net Premiums
on the date we receive the premium or notice of deposit at our Administrative
Office.
If any premium requires us to accept additional risk, we will allocate this
amount to the Money Market Subaccount until we complete our underwriting. When
accepted, and at the end of the period to examine and cancel the policy, we will
allocate it in accordance with your allocation percentages.
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The Investment Options
You may allocate your Account Value to:
o the subaccounts which invest in the variable investment options; or
o the Guaranteed Account.
Variable Investment Options
Under the policy, you may currently allocate your Account Value into any of the
available subaccounts. Each subaccount invests in shares of a corresponding
portfolio of a fund. These portfolios operate similarly to a mutual fund but are
only available through the purchase of certain insurance contracts. The funds
may also include other portfolios which are not available under the policy.
Alliance Variable Products Series Fund
Growth and Income Portfolio -- seeks to balance the objectives of reasonable
current income and reasonable opportunities for appreciation through investments
primarily in dividend-paying common stocks of good quality. Investments may also
be made in fixed income securities and convertible securities.
Growth Portfolio - provides long term growth of capital. Current income is only
an incidental consideration. The portfolio seeks to achieve its objective by
investing primarily in equity securities of companies with favorable earnings
outlooks, which have long-term growth rates that are expected to exceed that of
the U.S. economy over time.
North American Government Income Portfolio- seeks the highest level of current
income that is available from portfolios of debt securities issued or guaranteed
by the governments of the United States, Canada, Mexico, their political
subdivisions, (including Canadian provinces, but excluding states of the United
States) agencies, instrumentalities, or authorities.
Premier Growth Portfolio -- seeks growth of capital by pursuing aggressive
investment policies. The portfolio invests primarily in equity securities of
U.S. companies that are judged likely to achieve superior earnings growth.
Quasar Portfolio -- seeks growth of capital by pursuing aggressive investment
policies. The portfolio invests for capital appreciation and only incidentally
for current income. The portfolio generally invests in a diversified portfolio
of equity securities of any company and industry and in any type of security
which is believed to offer possibilities for capital appreciation.
The Alliance Variable Products Series Fund is managed by Alliance Capital
Management L.P.
American Century Variable Portfolios, Inc.
American Century VP International is for long-term equity investors who want to
diversify their domestic portfolio by adding broad exposure to developed foreign
markets through the stocks of larger, fast growing companies.
American Century VP Income and Growth - seeks dividend growth, current income
and capital appreciation by investing in diversified portfolio of U.S. stocks.
The management team strives to outperform the S&P 500 over time while matching
the risk characteristics of the index.
The funds' investment advisor is American Century Investment Management, Inc.
The advisor is responsible for managing the investment portfolios of the funds
and directing the purchases and sales of its investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the funds to operate.
Berger Institutional Products Trust Berger IPT - Small Company Growth Fund -
seeks capital appreciation by (IPT) investing primarily in a diversified group
of stocks of small growth companies that have dominant positions in emerging
industries or growing market shares in larger, fragmented industries.
Berger IPT New Generation Fund - seeks capital appreciation by investing in
innovative companies that are focused on tomorrow.
Berger LLC is the investment advisor to these Funds. Berger LLC is responsible
for managing the investment operations of the Funds and the composition of their
investment portfolios. Berger LLC also acts as each Funds' administrator and is
responsible for such functions as monitoring compliance with all applicable
federal and state laws.
Fidelity Variable Insurance Products Fund II and III
VIP II Contrafund Portfolio-- seeks long term capital appreciation.
VIP II Index 500 Portfolio -- seeks investment results that correspond to the
total return of common stocks publicly traded in the United States, as
represented by the S&P 500.
VIP III Balanced Portfolio - seeks both income and growth of capital.
Fidelity Management & Research Company is the investment adviser for the
Fidelity Variable Insurance Products Fund II and III. Bankers Trust Company, a
wholly-owned subsidiary of Bankers Trust Corporation (formerly Bankers Trust of
New York Corporation), currently serves as the sub-adviser to VIP II Index 500
Portfolio.
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Goldman Sachs Variable Insurance Trust
CORE SM U.S. Equity Fund-- seeks long-term growth of capital and dividend income
through a broadly diversified portfolio of large capitalization and blue chip
equity securities representing all major sectors of the U.S. economy.
CORE SM Large Cap Growth Fund -- seeks long-term growth of capital through a
broadly diversified portfolio of equity securities of large capitalization U.S.
issuers that are expected to have better prospects for earnings growth than the
growth rate of the general domestic economy. Dividend income is a secondary
consideration.
Global Income Fund -- seeks high total return, emphasizing current income and,
to a lesser extent, providing opportunities for capital appreciation, by
investing primarily in a portfolio of high quality fixed income securities of
U.S. and foreign issuers and foreign currencies.
International Equity Fund -- seeks long-term capital appreciation through
investments in equity securities of companies that are organized outside the
U.S. or whose securities are principally traded outside the U.S. The Fund
intends to invest in companies with public stock market capitalizations that are
larger than $1 billion at the time of investment.
Goldman Sachs Asset Management ("GSAM") - unit of the Investment Management
Division of Goldman Sachs and Co., serves as investment adviser to, CORE U.S.
Equity, CORE Large Cap Growth, GSAM International serves as investment adviser
to the International Equity and Global Income Funds.
The investment objective and policies of the Funds are similar to the investment
objectives and policies of other mutual funds that the Investment Adviser
manages. Although the objectives and policies may be similar, the investment
results of the Funds may be higher or lower than the results of such other
mutual funds. The Investment Adviser cannot guarantee, and makes no
representation, that the investment results of similar funds will be comparable
even though the funds have the same Investment Adviser.
<PAGE>
The Universal Institutional Funds, Inc.
Fixed Income Portfolio-- seeks above average total return over a market cycle of
three to five years by investing primarily in a diversified mix of dollar
denominated investment grade fixed income securities, particularly U.S.
government corporate and mortgage securities. The Portfolio ordinarily will
maintain an average weighted maturity in excess of five years. The Portfolio may
invest opportunistically in non-dollar denominated securities and in below
investment grade securities.
High Yield Portfolio -- seeks total return over a market cycle of three to five
years by investing primarily in high yield securities (commonly referred to as
"junk bonds") The Portfolio may also invest in investment grade fixed income
securities, including U.S. Government securities, corporate bonds and mortgage
securities. The Portfolio may invest to a limited extent in foreign fixed income
securities including emerging markets securities.
Emerging Markets Equity Portfolio - seeks long-term capital appreciation by
investing primarily in growth-oriented equity securities of issuers in emerging
market countries.
Mid Cap Value Portfolio - seeks total return over a market cycle of three to
five years by investing in common stocks and other equity securities.
Mid Cap Growth Portfolio - seeks long term capital by investing primarily in
common stocks of companies with capitalizations in the range of companies
included in the S&P MidCap 400 Index (currently $500 million to $6 billion). The
investment adviser focuses on companies that demonstrate one or more of the
following characteristics: high earnings growth rates, growth stability, rising
profitability and the ability to product earnings that consistently beat market
expectations.
Money Market Portfolio -- seeks to maximize current income and preserve capital
while maintaining liquidity by investing in money market instruments with
effective maturities of 397 days or less. In selecting investments, the
investment adviser seeks to maintain a share price of $1.00 per share
Technology Portfolio- seeks long term capital appreciation by investing
primarily in equity securities of companies that the investment adviser expects
to benefit from their involvement in technology and technology-related
securities.
The investment adviser for Money Market Portfolio and Technology Portfolio is
Morgan Stanley Dean Witter Investment Management Inc., a wholly owned subsidiary
of Morgan Stanley Dean Witter & Co., which is a publicly owned global financial
services corporation. The Subadviser for the Money Market Portfolio is Morgan
Stanley Dean Witter Advisors, Inc., a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co. The investment adviser for the Emerging Markets Equity
Portfolio is Morgan Stanley Asset Management. The investment adviser for Fixed
Income Portfolio, Mid Cap Growth Portfolio, Mid Cap Value Portfolio and High
Yield Portfolio is Miller Anderson & Sherrerd, LLP, which is indirectly
wholly-owned by Morgan Stanley Dean Witter & Co.
Neuberger Berman Advisers Management Trust ("AMT")
AMT Partners Portfolio-- seeks to achieve capital growth by investing mainly in
common stocks of mid- to large- capitalization companies. The managers look for
well-managed companies whose stock prices are believed to be undervalued.
The investments for the Portfolio is managed by the same portfolio manager(s)
who manage one or more other mutual funds that have similar names, investment
objectives and investment styles as the Portfolio. You should be aware that the
Portfolio is likely to differ from the other mutual funds in size, cash flow
pattern and tax matters. Accordingly, the holdings and the performance of the
Portfolio can be expected to vary from those of the other mutual funds.
Shares of the separate Portfolios of Neuberger Berman Advisers Management Trust
are sold only through the currently effective prospectus and are not available
to the general public. Shares of the AMT Portfolios may be purchased only by
life insurance companies to be used with their separate accounts, which fund
variable annuity and variable life insurance policies.
Neuberger Berman Management Inc. serves as the investment manager of the
Portfolio. Neuberger Berman, LLC serves as the sub-adviser.
PIMCO Variable Insurance Trust
Total Return Bond Portfolio: seeks maximum total return, consistent with
preservation of capital and prudent investment management. The Portfolio invests
under normal circumstances at least 65% of its assets in a diversified portfolio
of fixed income instruments of varying maturities. The average portfolio
duration of this Portfolio will normally vary within a three- to six-year
timeframe based on PIMCO's forecast for interest rates.
Long-Term U.S. Government Portfolio: seeks maximum total return, consistent with
preservation of capital and prudent investment management. The Portfolio invests
under normal circumstances at least 65% of its assets in a diversified portfolio
of fixed income securities that are issued or guaranteed by the U.S. government,
its agencies or government-sponsored enterprises. This Portfolio will normally
have a minimum average portfolio duration of eight years.
Pacific Investment Management Company ("PIMCO") serves as investment adviser to
each Portfolio of the PIMCO Variable Insurance Trust. PIMCO is responsible for
managing the investment activities of the Portfolios and the Portfolios'
business affairs and other administrative matters.
<PAGE>
Franklin Templeton Variable Insurance Products Trust (VIP)
Templeton Developing Markets Securities Fund - Class 2 -- seeks long-term
capital appreciation. The fund invests primarily in equity securities that trade
in emerging markets or are issued by companies that derive revenue from goods or
services produced, or have their principal activities or assets in emerging
market countries.
Templeton Growth Securities Fund - seeks long term capital growth. The Fund will
primarily invest in equity securities of companies located anywhere in the world
including those in the U.S. and emerging countries.
Templeton International Securities Fund - Class 2 -- seeks long term capital
growth. The Fund invests primarily in stocks of companies and governments
located outside the United States, including emerging markets.
Templeton Asset Management Ltd. serves as the investment manager to the
Templeton Developing Markets Securities Fund. Templeton Investment Counsel, Inc.
serves as the investment manager to the Templeton International Securities Fund.
Templeton Global Advisors Limited (TGAL) serves as the investment manager to
Templeton Growth Securities Fund. Only Class 2 shares of Templeton Developing
Markets Securities Fund, Templeton Growth Securities Fund and Templeton
International Securities Fund are available under the policy.
There is no assurance that any of the portfolios will achieve their stated
objective. Owners are advised to read the Fund prospectuses accompanying this
Prospectus for more detailed information regarding management of the portfolios,
investment objectives, investment advisory fees, and other charges assessed by
the Funds.
<PAGE>
Guaranteed Investment Option
Under the policy, you may currently allocate your Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part of
your Account Value to the Loan Account which is part of the Guaranteed Account.
We may treat each allocation and transfer separately for purposes of crediting
interest and making deductions from the Guaranteed Account.
Interest Credited On the Guaranteed Account. All of your Account Value held in
the Guaranteed Account will earn interest at a rate we determine in our sole
discretion. This rate will never be less than 4% per year compounded annually.
The Loan Account portion of your Account Value may earn a different interest
rate than the remaining portion of your Account Value in the Guaranteed Account.
Deductions from the Guaranteed Account. We will deduct any transfers, partial
surrenders or any policy expenses from the Guaranteed Account and your variable
investment options on a pro rata basis, unless you provide other directions. No
portion of the Loan Account may be used for this purpose.
Payments from the Guaranteed Account. If we must pay any part of the proceeds
for a loan, partial surrender or full surrender from the Guaranteed Account, we
may defer the payment for up to six months from the date we receive the written
request. If we defer payment from the Guaranteed Account for 30 days or more, we
will pay interest on the amount we deferred at a rate of 4% per year, compounded
annually, until we make payment.
<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 be in default 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.
On each Valuation Date thereafter, your Account Value is equal to:
o Your Account Value held in the subaccounts; and
o Your Account Value held in the Guaranteed Account.
Your Account Value will reflect:
o the premiums you pay; and,
o the returns earned by the subaccounts you select; and,
o the interest credited on amounts allocated to the Guaranteed Account; and,
o any loans or partial surrender; and,
o the policy expenses we deduct.
<PAGE>
Account Value in the Subaccounts. We measure your Account Value in the
subaccounts by the value of the subaccounts' accumulation units we credit to
your policy. When you allocate premiums or transfer part of your Account Value
to a subaccount, we credit your policy with accumulation units in that
subaccount. The number of accumulation units equals the amount allocated to the
subaccount divided by that subaccount's accumulation unit value for the
Valuation Date when the allocation is effected.
The number of subaccount accumulation units we credit to your policy will:
o increase when Net Premium is allocated to the subaccount, amounts are
transferred to the subaccount and loan repayments are credited to the
subaccount.
o decrease when the allocated portion of the monthly deduction is taken from
the subaccount, a loan is taken from the subaccount, an amount is
transferred from the subaccount, or a partial surrender, including the
partial surrender charges, is taken from the subaccount.
Accumulation Unit Values. A subaccount's accumulation unit value varies to
reflect the return of the portfolio and may increase or decrease from one
Valuation Date to the next. We arbitrarily set the accumulation unit value for
each subaccount at $10 when the subaccount was established. Thereafter, the
accumulation unit value equals the accumulation unit value for the prior
Valuation Period multiplied by the Net Investment Factor for the current
Valuation Period.
Net Investment Factor. The net investment factor is an index we use to measure
the investment return earned by a subaccount during a Valuation Period. It is
based on the change in net asset value of the portfolio shares held by the
subaccount, and reflects any dividend or capital gain distributions on the
portfolio shares and may include the deduction of the daily mortality and
expense risk charge.
Guaranteed Account Value. On any Valuation Date, the Guaranteed Account portion
of your policy Account Value equals: o the total of all Net Premium, allocated
to the Guaranteed Account, plus
o any amounts transferred to the Guaranteed Account, plus
o interest credited on the amounts allocated and transferred to the
Guaranteed Account, less
o the amount of any transfers from the Guaranteed Account, less
o the amount of any partial surrender, including the partial surrender
charges, taken from the Guaranteed Account, and less
o the allocated portion of the monthly deduction deducted from the Guaranteed
Account, plus
o the amount of the Loan Account.
If you take a loan, we transfer the amount of the loan to the Loan Account held
in the Guaranteed Account. The value of your Loan Account includes transfers to
and from the Loan Account as you take and repay loans and interest credited on
the Loan Account.
Net Account Value. The net Account Value on a Valuation Date is the Account
Value less outstanding loans on that date.
Cash Surrender Value. The Cash Surrender Value on a Valuation Date is the
Account Value reduced by any surrender charge that would be assessed if you
surrendered the policy on that date.
The amount you would receive on a Surrender of your policy.
Net Cash Surrender Value. The Net Cash Surrender Value on a Valuation Date is
the amount you would receive on a surrender of your policy and is equal to:
o the Cash Surrender Value, less
o the outstanding loan on that date.
Transfers
You may transfer Account Value among the subaccounts and to the Guaranteed
Account after the period to examine and cancel. All transfer requests, except
for those made under the Dollar Cost Averaging or Automatic Rebalancing
programs, must satisfy the following requirements:
o Minimum amount of transfer -- You must transfer at least $250 or, the
balance in the subaccount or the Guaranteed Account, if less;
o Form of transfer request -- You must make a written request unless you have
established prior authorization to make telephone transfers or other means
we make available;
o Transfers from the Guaranteed Account -- The maximum you may transfer in a
Policy Year is equal to 25% of your guaranteed Account value that is not in
the Loan Account on the most recent policy anniversary reduced by all
partial surrenders and transfers taken from the Guaranteed Account during
that Policy Year.
Date We Process Your Transfer Request. We must receive your transfer request at
our Administrative Office. We process transfers at the next price next computed
after date we receive your transfer request. We may, however, defer transfers
under the same conditions as described under Other Policy Provision -- When
Proceeds Are Paid.
<PAGE>
Number of Allowable Transfers/Transfer Fee. We do not currently limit the number
of transfers you may make. We will currently assess a $25 transfer charge,
however, for each transfer in excess of 12 during a Policy Year. All transfers
processed on the same business day will count as one transfer for purposes of
determining the number of transfers you have made in a Policy Year. We reserve
the right to increase or decrease the number of "free" transfers allowed in any
Policy Year.
Telephone Transfers. If you have completed an authorization form allowing
telephone transfers, you may request transfers by telephone. Upon receipt of a
telephone transfer authorization form, we will issue you a personal
identification number. We confirm all telephone transfers in writing. We will
confirm transfer requests received by fax before processing them. You should
review all confirmations to determine if there have been any unauthorized
transfers.
We will use reasonable procedures to confirm that telephone transfers requests
are genuine. We will not be liable for any losses due to unauthorized or
fraudulent instructions.
We reserve the right to suspend telephone transfer privileges at any time, for
some or all policies.
Dollar Cost Averaging
Dollar cost averaging is a systematic method of investing at regular intervals.
By investing at regular intervals, the cost of the securities is averaged over
time and perhaps over various market cycles.
Under this program we will automatically transfer monthly a portion of your
Account Value. Unless you give us other instructions, we will allocate the
transfer as you have specified in your most current premium allocation
instructions. However, no less than 5% may be allocated to any one subaccount or
to the Guaranteed Account. We will make the transfers from the Money Market
Subaccount as long as the Account value is at least $2,000. There is no charge
for this option. Transfers in connection with the dollar cost averaging and
Automatic Rebalancing features will not count against the 12 free transfers in a
Policy Year.
<PAGE>
Dollar Cost Averaging From a Subaccount. If you instruct us to make the
transfers from the Money Market Subaccount, you may request that we transfer:
o A specified dollar amount -- we will automatically transfer this amount in
accordance with your most current premium allocation instructions for a
specified period until your Account Value in the transferring subaccount is
depleted.
o A specified percentage-- we will automatically transfer a specified
percentage of the amount in the transferring subaccount in accordance with
your most current premium allocation instructions for a specified period
until your Account Value in the transferring subaccount is depleted.
You may allocate additional amounts into the transferring subaccount at any
time.
We reserve the right to establish transfer limits and to restrict the
subaccounts from which transfers may be made.
Automatic Rebalancing
We may offer an Automatic Rebalancing program to rebalance your Account Value to
match your allocation instructions.
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 restate the Account Value of the
Subaccounts to your most recent allocation instructions. You may elect the
frequency (monthly, quarterly, semi-annually, annually) as measured from the
policy anniversary. On each date elected, we will rebalance the Account Value by
generating transfers to reallocate the Account Values according to your most
recent allocation instructions.
Transfers resulting from Automatic Rebalancing will not be counted against the
total number of transfers allowed before a charge is applied.
We reserve the right to suspend or modify Automatic Rebalancing or to charge an
administrative fee for excessive election or allocation changes. Automatic
Rebalancing is not available if the grace period has commenced.
When we will Process your Automatic 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 requested the automatic transfers when you applied 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 transfers if:
o The funds in the transferring subaccount have been depleted; or
o We receive your written request at our Administrative Office to cancel
future transfers; or
o We receive notification of death of the Insured; or o Your policy goes into
the Grace Period.
Dollar cost averaging may lessen the impact of market fluctuations on your
investment. Using dollar cost averaging does not guarantee investment gains or
protect against loss in a declining market.
<PAGE>
Death Benefits
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 may receive the Life Insurance Proceeds in one lump sum or under
any other payment option.
Payment of Life Insurance Proceeds. We will pay the Life Insurance Proceeds
generally within seven days after we receive the information we require. We will
pay the Life Insurance Proceeds to the Beneficiary in one lump sum or, if
elected, under a payment option. Payment of the Life Insurance Proceeds may also
be affected by other provisions of the policy.
We will pay interest on the Life Insurance Proceeds from the date of the
Insured's death to the date of payment as required by applicable state law.
Amount of Life Insurance Proceeds. We will determine the Life Insurance Proceeds
as of the date of the Insured's death. The Life Insurance Proceeds will equal:
o the death benefit amount determined according to the death benefit option
selected; plus
o any other benefits then due from riders to the policy; minus o the
outstanding loan, if any, and accrued loan interest; minus
o any overdue monthly deductions if the Insured dies during a Grace Period.
Death Benefit Options
You may select from two death benefit
options. They are:
Level Death Benefit Option I.
o Option I
The basic death benefit will be the greater of:
1. the Face Amount; or
2. Account Value at date of death multiplied by the appropriate minimum death
benefit factor
This death benefit option should be considered if you want to minimize your cost
of insurance.
<PAGE>
Increasing Death Benefit Option II.
o Option II. The basic death benefit will be the greater of:
1. the Face Amount plus the Account Value; or
2. Account Value at date of death multiplied by the appropriate minimum death
benefit factor.
This death benefit option should be considered if you want your death benefit to
increase with your policy's Account Value.
Tax Qualification Options.
Section 7702 of the Code provides alternative testing procedures for meeting the
definition of life insurance. Each policy must qualify under one of these two
tests and you may select the test we use for ensuring your policy meets the
definition of life insurance.
Under both tests under Section 7702, there is a minimum death benefit required
at all times. This is equal to the Account Value multiplied by the appropriate
minimum death benefit factor. These factors depend on the tax qualification
option and may be based on the Attained Ages, sex and rate class of the Insured.
A table of the applicable factors is located in the policy.
The two tax qualification options are:
o Guideline Premium/Cash Value Corridor Test.
o Cash Value Accumulation Test.
Once you have selected the tax qualification option for your policy, it may not
be changed
Changes in Death Benefit Options
If you have selected the Level Death Benefit Option you may change to the
Increasing Death Benefit Option. You may also change from the Increasing Death
Benefit Option to the Level Death Benefit Option.
How to request a change. You may change your Death Benefit Option by providing
your agent with a written request or by writing us at our Administrative Office.
We may require that you submit satisfactory evidence of insurability to us.
If you request a change from the Level Death Benefit Option to the Increasing
Death Benefit Option, we will decrease the Face Amount by an amount equal to
your Account Value on the date the change takes effect. However, we reserve the
right to decline to make such a change if it would reduce the Face Amount below
the minimum Face Amount.
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If you request a change from the Increasing Death Benefit Option to the Level
Death Benefit Option, we will increase the Face Amount by an amount equal to
your Account Value on the date the change takes effect. Such decreases and
increases in the Face Amount are made so that the Life Insurance Proceeds remain
the same on the date the change takes effect.
Once approved, we will issue new policy information pages and attach a copy of
your application for change. We reserve the right to decline to make any changes
that we determine would cause the policy to fail to qualify as life insurance
under our interpretation of the Code.
The change will take effect on the next Monthly Anniversary that coincides with
or next follows the date we approve your request.
Changes in Face Amount
At any time after the first policy anniversary while the policy is in force you
may request a change in the Face Amount. We will not make a change in Face
Amount that causes your policy to fail to qualify as life insurance under the
Code
Increases in Face Amount. Any request for an increase:
o Must be for at least $10,000.
o May not be requested in the same Policy Year as another request for an
increase.
o May not be requested after the Insured is Attained Age 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 increase in Face Amount will become
effective on the Monthly Anniversary on or next following the date the increase
is approved, and the Account Value will be adjusted to the extent necessary to
reflect a monthly deduction as of the effective date based on the increase in
Face Amount.
Decreases in Face Amount. Any request for a decrease:
o Must be at least $5,000.
o Must not cause the Face Amount after the decrease to be less than the
minimum Face Amount at which we would issue a policy.
o And, during any one of the first five (5) Policy Years, the Face Amount may
not be decreased by more than 10% of the initial Face Amount. If the Face
Amount is decreased during the first 14 Policy Years or within 14 Policy
Years of an increase in Face Amount, a surrender charge may be applicable.
Consequences of a Change in Face Amount. Both increases and decreases in Face
Amount may impact the surrender charge. In addition, an increase or decrease in
Face Amount may impact the status of the policy as a modified endowment
contract.
Cash Benefits During the Insured's Life
During the life of the Insured, your policy has cash benefits which you may
access within limits by taking loans, partial surrenders or a surrender.
Loans
You may request a loan against your policy at any time while the policy has a
Net Cash Surrender Value. We limit the minimum and maximum amount of loan you
may take.
o Maximum Loan Amount
After the First Policy Year -- The maximum loan amount is 90% of your Net Cash
Surrender Value.
How to request a loan. You must submit a written request for a loan to the
Administrative Office. Loans will be processed as of the date we receive the
request at our Administrative Office. Loan proceeds generally will be sent to
you within seven days.
Interest. We charge interest daily on any outstanding loan at a declared annual
rate not in excess of 8%. The maximum net cost (the difference between the rate
of interest we charge on loans and the amount we credit on the equivalent amount
held in the Loan Account) of a loan is 2% per year. Interest is due and payable
at the end of each Policy Year while a 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
on a pro rata basis. We transfer this amount to the Loan Account in the
Guaranteed Account.
When a loan is repaid, an amount equal to the repayment will be transferred from
the Loan Account to the subaccounts and Guaranteed Account in accordance with
your allocation percentages in effect at the time of repayment.
<PAGE>
Effect of a Loan. A loan, whether or not repaid, will have a permanent effect on
the Life Insurance Proceeds and Account Value because the investment results of
the subaccounts and current interest rates credited in the Guaranteed Account
will apply only to the non-loaned portion of the Account Value. The longer the
loan is outstanding, the greater this effect is likely to be. Depending on the
investment results of the subaccounts or credited interest rates for the
Guaranteed Account while the loan is outstanding, the effect could be favorable
or unfavorable.
In addition, loans from modified endowment contracts may be treated for tax
purposes as distributions of income.
If the Life Insurance Proceeds become payable while a loan is outstanding, the
outstanding loan will be deducted in calculating the Life Insurance Proceeds.
If the outstanding loan exceeds the Cash Surrender Value on any Monthly
Anniversary, the policy will be in default. We will send you, and any assignee
of record, notice of the default. You will have a 61-day Grace Period to submit
a sufficient payment to avoid termination. The notice will specify the amount
that must be repaid to prevent termination
Outstanding Loan. The outstanding loan on a Valuation Date equals:
o All 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.
Partial Surrender
Requirements for Partial Surrender.
We will not allow a partial surrender during the first Policy Year or during the
first 12 months following an increase in Face Amount. We limit the number of
partial surrenders you may make to two per year. We may limit the minimum amount
of partial surrenders.
o Maximum Partial Surrender Amount -- Up to a maximum of 90% of your policy's
Net Cash Surrender Value except that the partial surrender must be at least
$500 and may not cause the Face Amount to be less than the required minimum
Face Amount.
<PAGE>
How to request a partial surrender.
In order to make a partial surrender you must submit a written request to our
Administrative Office. We will reduce your Account Value by the partial
surrender amount plus any applicable charges. When you request a partial
surrender, you may direct us to take the requested amount from any subaccount or
from the Guaranteed Account. If the Guaranteed Account or subaccount value is
insufficient to withdraw the amount requested, we will withdraw the difference
from the remaining subaccounts on a pro rata basis unless you have provided
specific instructions to withdraw the amount from one or several subaccounts.
We will process partial surrender requests at the price next computed after we
receive your written request at our Administrative Office. We will generally pay
partial surrenders within seven days.
Expenses for Partial Surrender. We will deduct the applicable surrender charge
on a partial surrender. This charge will be deducted from your Account Value
along with the amount requested to be surrendered and will be considered part of
the partial surrender (together, the "partial surrender amount"). Currently, we
assess a processing charge for each withdrawal of the lesser of $25 or 2% of the
amount surrendered.
Effect of Partial Surrender on Your Face Amount. The Face Amount of your policy
will also be reduced by the partial surrender amount if the current death
benefit option at the time of surrender is Option I.
We will reduce the Face Amount by the amount of the partial surrender in the
following order:
1. The most recent increase in the Face Amount, if any, will be reduced first.
2. The next most recent increases in the Face Amount, if any, will then be
successively decreased.
3. The initial Face Amount will then be decreased.
No partial surrender may be made that would reduce the Face Amount below the
minimum Face Amount.
If we issued the policy under a corporate owned arrangement, a partial surrender
will be applied pro rata over all Insureds under the policy.
Partial surrenders from your policy may have tax consequences.
Surrendering the Policy for Net Cash Surrender Value
You may surrender your policy in full at any time for its Net Cash Surrender
Value by submitting a written request to our Administrative Office. We will
require return of the policy. A surrender charge may apply. We will process a
surrender request as of the date we receive your written request and all
required documents. Your surrender request generally will be paid within seven
days. The Net Cash Surrender Value may be taken in one sum or it may be applied
to a payment option. Your policy will terminate and cease to be in force if it
is surrendered for one sum. It cannot later be reinstated.
Payment Options for Benefits
The policy offers a wide variety of optional ways of receiving proceeds payable
under the policy, such as on a surrender or death, other than in a lump sum. Any
agent authorized to sell this policy can explain these options upon request.
None of these options vary with the investment performance of a separate account
because they are all forms of guaranteed benefit payments.
Expenses of the Policy
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 on a current basis less than the guaranteed amount.
Deduction From Premium
Deduction from Premium -- From each premium we will deduct state premium taxes,
federal deferred acquisition cost ("DAC") taxes, and sales charges, if any.
We deduct for premium taxes at an explicit percent of premium equal to state and
local tax rates based on the Insured's place of residence. A typical state
premium tax is in the range of 2% to 3.5% of premium.
DAC taxes are also based on premium. We will deduct DAC taxes from your Account
Value at the time premium is received at a rate equal to 1.00% of premium.
In place of the lump sum deduction described above for premium and DAC taxes, we
may offer optional methods of payment at the time you apply for a policy.
<PAGE>
We may deduct a sales charge from each premium and we may also deduct a sales
charge from Account Value. A deduction from Account Value may be either in place
of a deduction from premium or in combination with a deduction from premium. The
total sales charge will never exceed 9% of premium.
The sales charge partially compensates Us for the expense of selling and
distributing the policy, printing prospectuses, preparing sales literature and
paying for other promotional activities. Some of these expenses or other
administrative expenses may be assumed by an employer or group sponsor under
some employer-owned, trust-owned, or sponsored arrangements. If so, in our sole
discretion, we may offer the policy with no sales charge or a reduced sales
charge.
<PAGE>
Monthly Deductions From Account Value
On the Policy Date and each Monthly Anniversary thereafter, we make a deduction
from the Account Value. The amount deducted on the Issue Date is for the Policy
Date and any Monthly Anniversaries that have elapsed since the Policy Date. For
this purpose, the Policy Date is treated as a Monthly Anniversary.
We will deduct charges on each Monthly Anniversary for:
o The administration of your policy.
o The cost of insurance for your policy.
o The acquisition and underwriting costs of your policy.
o The cost associated with Mortality and Expense risk charges.
o The cost of supplemental benefits and riders.
Administrative Charge. This charge compensates us for administrative expenses
associated with the policy. These expenses relate to premium billing and
collection, record keeping, processing claims, loans, policy changes, reporting
and overhead costs, processing applications and establishing policy records.
This charge will be no more than $10 per month for all Policy Years. We may
reduce this charge. There may be an additional monthly administrative charge
during the first Policy Year and the 12 months after an increase in Face Amount
per Insured. This charge will not exceed $25 a month per Insured.
Cost of Insurance Charge. This charge compensates us for providing insurance
coverage. The charge depends on a number of factors, such as Attained Age, sex
and rate class of the Insured, and therefore will vary from policy to policy and
from month to month. For any policy the cost of insurance on a Monthly
Anniversary is calculated by multiplying the cost of insurance rate for the
Insured by the Net Amount at Risk under the policy on that Monthly Anniversary.
Net Amount at Risk
The Net Amount at Risk is calculated as (a) minus (b) where:
a. is the current Death Benefit Amount at the beginning of the policy month
divided by 1.0032737; and
b. is the current total Account Value.
<PAGE>
However, if the Death Benefit Amount is a percentage of the Account Value of the
Policy, then the Net Amount at Risk is the Death Benefit Amount minus the amount
in the Account Value of the Policy at that time.
Rate Classes for Insureds. We currently rate Insureds in one of following basic
rate classifications based on our underwriting:
o nonsmoker;
o smoker;
o substandard for those involving a higher mortality risk
o Unismoke/Unisex
At our discretion we may offer this policy on a guaranteed issue basis.
We place the Insured in a rate class when we issue the policy based on our
underwriting determination. This original rate class applies to the initial Face
Amount. When an increase in Face Amount is requested, we conduct underwriting
before approving the increase (except as noted below) to determine whether a
different rate class will apply to the increase. If the rate class for the
increase has a lower guaranteed cost of insurance rates than the original rate
class, the rate class for the increase also will be applied to the initial Face
Amount. If the rate class for the increase has a higher guaranteed cost of
insurance rates than the original rate class, the rate class for the increase
will apply only to the increase in Face Amount, and the original rate class will
continue to apply to the initial Face Amount.
If there have been increases in the Face Amount, we may use different cost of
insurance rates for the increased portions of the Face Amount. For purposes of
calculating the cost of insurance charge after the Face Amount has been
increased, the Account Value will be applied to the initial Face Amount first
and then to any subsequent increases in Face Amount. If at the time an increase
is requested, the Account Value exceeds the initial Face Amount (or any
subsequently increased Face Amount) divided by 1.0032737, the excess will then
be applied to the subsequent increase in Face Amount in the sequence of the
increases.
In order to maintain the policy in compliance with Section 7702 of the Code,
under certain circumstances an increase in Account Value will cause an automatic
increase in the Life Insurance Proceeds. The Attained Age and rate class for
such increase will be the same as that used for the most recent increase in Face
Amount (that has not been eliminated through a subsequent decrease in Face
Amount).
The guaranteed cost of insurance charges at any given time for a substandard
policy with flat extra charges will be based on the guaranteed maximum cost of
insurance rate for the policy (including table rating multiples, if applicable),
the current Net Amount at Risk at the time the deduction is made, plus the
actual dollar amount of the flat extra charge.
<PAGE>
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 and persistency experience. These rates may change from time
to time. In our discretion, the current charge may be increased in any amount up
to the maximum guaranteed charge shown in the table.
Cost of insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker risk class are generally lower than rates for an Insured of the same
age and sex in a smoker risk class. Cost of insurance rates (whether guaranteed
or current) for an Insured in a nonsmoker or smoker risk class are generally
lower than rates for an Insured of the same age and sex and smoking status in a
substandard risk class.
Legal Considerations Relating to Sex-Distinct Premiums and Benefits. Mortality
tables for the policy generally distinguish between males and females. Thus,
premiums and benefits under the policy covering males and females of the same
age will generally differ.
We do, however, also offer the policy based on unisex mortality tables if
required by state law. Employers and employee organizations considering purchase
of a policy should consult their legal advisers to determine whether purchase of
a policy based on sex-distinct actuarial tables is consistent with Title VII of
the Civil Rights Act of 1964 or other applicable law. Upon request, we may offer
the policy with unisex mortality tables to such prospective purchasers.
Acquisition Expense. We will make a deduction from your policy Account Value for
expenses associated with the acquisition and underwriting costs to issue your
policy. This charge will vary based on the Insured's Age, sex and rate class.
Deduction From Subaccount Assets
Mortality and Expense Risk Charge. We deduct a daily charge from your Account
Value in the subaccounts for assuming certain mortality and expense risks under
the policy. This charge does not apply to the amounts you allocate to the
Guaranteed Account. The current charge is at an annual rate of 0.50% of net
assets. The guaranteed charge is at an annual rate of 1.00% of the subaccount
assets. Although, the charge may be increased or decreased at the sole
discretion of the Company, it is guaranteed not to exceed an annual rate of
1.00% of your Account Value in the subaccounts for the duration of a policy.
The mortality risk we assume is that the 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 Separate
Account will exceed the amounts realized from the administrative charges
assessed against all Policies.
Deductions Upon Policy Transactions
Transfer Charge. We currently impose a $25 transfer charge on any transfer of
Account Value among the subaccounts and the Guaranteed Account in excess of the
12 free transfers permitted each Policy Year. If the charge is imposed, we will
deduct it from the amount requested to be transferred before allocation to the
new subaccount(s) and shown in the confirmation of the transaction.
Surrender Charge. If the policy is surrendered or there is a decrease in Face
Amount during the first 14 Policy Years, we may deduct a surrender charge based
on the initial Face Amount. If a policy is surrendered or there is a decrease in
Face Amount within 14 years after an increase in Face Amount, we will deduct a
surrender charge based on the increase in Face Amount. The surrender charge will
be deducted before any surrender proceeds are paid.
Surrender Charge Calculation. In general, the surrender charge is based on the
premiums you pay. The Surrender Charge will be no greater than the product of
(1) times (2) times (3) where:
1. is equal to the Face Amount divided by $1,000;
2. is equal to a surrender charge factor per $1,000 based on the Insured's
Age, sex and underwriting class; and
3. is a factor based on the Policy Year when the surrender occurs as described
in the following table:
Policy
Year Factor
1 100%
2 100%
3 100%
4 100%
5 100%
6 90%
7 80%
8 70%
9 60%
10 50%
11 40%
12 30%
13 20%
14 10%
15+ 0%
<PAGE>
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. An increase in
Face Amount of the policy may result in an additional surrender charge during
the 14 Policy Years immediately following the increase. The additional surrender
charge period will begin on the effective date of the increase. If the Face
Amount of the policy is reduced before the end of the 14th Policy Year or within
14 years immediately following a Face Amount increase, we may also deduct a pro
rata share of any applicable surrender charge from your Account Value.
Reductions will first be applied against the most recent increase in the Face
Amount of the policy. They will then be applied to prior increases in Face
Amount of the policy in the reverse order in which such increases took place,
and then to the initial Face Amount of the policy.
Partial Surrender Charge. We may deduct a partial surrender charge:
o upon a partial surrender; and
o if you decrease your policy's Face Amount.
We deduct the partial surrender charge from the subaccounts or the Guaranteed
Account in the same proportion as we deduct the amounts for your partial
surrender.
Partial Surrender Charge Due to Decrease in Face Amount. We deduct an amount
equal to the applicable surrender charge multiplied by a fraction (equal to the
decrease in Face Amount divided by the Face Amount of the policy prior to the
decrease).
Partial Surrender Administrative Charge. We reserve the right to deduct an
administrative charge upon a partial surrender of up to $25 or 2% of amount
surrendered, whichever is less.
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 our officers, directors and employees, those of
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.
<PAGE>
Other Policy Provisions
Right to Exchange
You may exchange this policy to a flexible premium fixed benefit life insurance
policy on the life of the Insured without evidence of insurability. This
exchange may be made:
a. within 24 months after the Issue Date while the policy is in force; or
b. within 24 months of any increase in Face Amount of the policy; or
c. within 60 days of the effective date of a material change in the investment
policy of a subaccount, or within 60 days of the notification of such
change, if later. In the event of such a change, we will notify you and
give you information on the options available.
When an exchange is requested, we accomplish the exchange by transferring all of
the Account Value to the Guaranteed Account. There is no charge for this
transfer. Once this option is exercised, the entire Account Value must remain in
the Guaranteed Account for the remaining life of the new policy. The Face Amount
in effect at the time of the exchange will remain unchanged. The effective date,
Issue Date and issue age of the Insured will remain unchanged. The Owner and
Beneficiary are the same as were recorded immediately before the exchange.
Limits on our Rights to Contest the Policy
Incontestability. We will not contest the policy after it has been in force
during the Insured's lifetime for two years from the Issue Date. Any increase in
the Face Amount will be incontestable with respect to statements made in the
evidence of insurability for that increase after the increase has been in force
during the life of the Insured for two years after the effective date of the
increase.
Suicide Exclusion. If the Insured commits suicide (while sane or insane) within
two years (unless otherwise specified by state law) after the Issue Date, our
liability will be limited to the payment of a single sum. This sum will be equal
to the premiums paid, minus any loan and accrued loan interest, minus any
partial surrender, and minus the cost of any riders attached to the policy. If
the Insured commits suicide (while sane or insane) within two years (unless
otherwise specified by state law) after the effective date of an increase in the
Face Amount, then our liability as to the increase in amount will be limited to
the payment of a single sum equal to the monthly cost of insurance deductions
made for such increase plus the expense charge deducted for the increase.
Changes in the Policy or Benefits
Misstatement of Age or Sex. If an Insured's age or sex has been misstated in the
policy, the Life Insurance Proceeds and any benefits provided by riders shall be
those which would be purchased at the then current cost of insurance charge for
the correct age and sex.
Other Changes. At any time we may make such changes in the policy as are
necessary to assure compliance at all times with the definition of life
insurance prescribed by the Code or to make the policy conform with any law or
regulation issued by any government agency to which it is subject.
When Proceeds Are Paid
We will ordinarily pay any Life Insurance Proceeds, loan proceeds or partial or
full surrender proceeds within seven days after receipt at our Administrative
Office of all the required documents. Other than the Life Insurance Proceeds,
which are determined as of the date of death, the amount will be determined as
of the date of receipt of required documents. However, we may delay making a
payment or processing a transfer request if:
1. the disposal or valuation of the 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
2. 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.
As to amounts allocated to Our Guaranteed Account, We may defer payment of any
surrender or loan amount for up to six months after We receive a request for it.
We will allow interest, at a rate of at least 4% a year, on any Net Cash
Surrender Value payment derived from Our Guaranteed Account that We defer for 10
days or more after We receive a request for it.
<PAGE>
Reports to Owners
You will receive a confirmation within seven days of the transaction of:
o the receipt of any premium;
o any change of allocation of premiums;
o any transfer between subaccounts;
o any loan, interest repayment, or loan repayment;
o any partial surrender;
o any return of premium necessary to comply with applicable maximum
receipt of any premium payment;
o any exercise of your right to cancel;
o an exchange of the policy;
o full surrender of the policy.
Within 30 days after each policy anniversary we will send you an annual
statement. The statement will show the Life Insurance Proceeds currently
payable, and the current Account Value, Cash Surrender Value, and the
Outstanding Loan. The statement will also show premiums paid, all charges
deducted during the Policy Year, and all transactions. We will also send to you
annual and semi-annual reports of the Separate Account.
Assignment
You may assign the policy in accordance with its terms on a form provided by us.
We will not be deemed to know of an assignment unless we receive a copy of this
assignment form at our Administrative Office. We assume no responsibility for
the validity or sufficiency of any assignment. Any assignment or pledge of a
modified endowment contract as collateral for a loan may result in a taxable
event.
<PAGE>
Reinstatement
If the policy has ended without value, you may reinstate policy benefits while
the Insured is alive if you:
1. Request reinstatement of policy benefits within three years (unless
otherwise specified by state law) from the end of the Grace Period;
2. Provide evidence of insurability satisfactory to Us;
3. Make a payment of an amount sufficient to cover (i) the total monthly
administrative charges from the beginning of the Grace Period to the
effective date of reinstatement; (ii) total monthly deductions for
three months, calculated from the effective date of reinstatement; and
(iii) the premium expense charge and any increase in surrender charges
associated with this payment. We will determine the amount of this
required payment as if no interest or investment performance were
credited to or charged against your Account Value; and
4. Repay or reinstate any loan which existed on the date the policy
ended.
The effective date of the reinstatement of policy benefits will be the next
Monthly Anniversary which coincides with or next follows the date we
approve your request. From the required payment we will deduct the premium
expenses. The Account Value, loan and surrender charges that will apply
upon reinstatement will be those that were in effect on the date the policy
lapsed.
We will start to make monthly deductions again as of the effective date of
reinstatement. The monthly expense charge from the beginning of the Grace
Period to the effective date of reinstatement will be deducted from the
Account Value as of the effective date of reinstatement. No other charges
will accrue for this period.
<PAGE>
Performance Information
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 and assumes reinvestment of dividends and
distributions. The performance results do not reflect: monthly deductions; cost
of insurance; surrender charges; sales loads; mortality and expense risk
charges; DAC taxes; and any state or local premium taxes. If these charges were
included, the total return figures would be lower.
Performance information may be compared, in reports and promotional literature,
to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other unmanaged
indices so that investors may compare the subaccount results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities markets in general; (ii) other groups of variable life separate
accounts or other investment products tracked by Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds and other
investment products by overall performance, investment objectives, and assets,
or tracked by other services, companies, publications, or persons, such as
Morningstar, Inc., who rank such investment products on overall performance or
other criteria; or (iii) the Consumer Price Index (a measure for inflation) to
assess the real rate of return from an investment in the subaccount. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
We may provide in advertising, sales literature, periodic publications or other
materials information on various topics of interest to Owners and prospective
Owners. These topics may include the relationship between sectors of the economy
and the economy as a whole and its effect on various securities markets,
investment strategies and techniques (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer and account
rebalancing), the advantages and disadvantages of investing in tax-deferred and
taxable investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and investment
alternatives to certificates of deposit and other financial instruments,
including comparisons between the policy and the characteristics of and market
for such financial instruments.
Total return data may be advertised based on the period of time that the
portfolios have been in existence. The results for any period prior to the
policy being offered will be calculated as if the policy had been offered during
that period of time, with all charges assumed to be those applicable to the
policy. Performance information for any subaccount in any advertising will
reflect only the performance of a hypothetical investment in the subaccount
during the particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio in which
the subaccount invests and the market conditions during the given time period,
and should not be considered as a representation of what may be achieved in the
future. Actual returns may be more or less than those shown in any advertising
and will depend on a number of factors, including the investment allocations by
an Owner and the different investment rates of return for the portfolios.
<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 adviser to discuss these risks.
The Company
We are taxed as a life insurance company under the Code. For federal tax
purposes, the Separate Account and its operations are considered to be part of
our operations and are not taxed separately.
Diversification and Investor Control
The Code requires that we diversify the investments underlying variable
insurance contracts. If the investments are not properly diversified and any
remedial period has passed, Section 817(h) of the Code provides in general the
contract is immediately disqualified from treatment as a life insurance contract
for federal income tax purposes. Disqualification of the policy as a life
insurance contract would result in taxable income to you at the time that we
allocate any earnings to your policy. You would have taxable income even though
you have not received any payments under the policy.
<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 percent of the value of the assets of the account are
attributable to cash and cash items (including receivables), government
securities and securities of other regulated investment companies.
Alternatively, the diversification requirements may be met for each if:
o no more than 55% of the value of the total assets of the portfolio is
represented by any one investment; and,
o no more than 70% of the value of the total assets of the portfolio is
represented by any two investments; and,
o no more than 80% of the value of the total assets of the portfolio is
represented by any three investments; and,
o no more than 90% of the value of the total assets of the portfolio is
represented by any four investments.
There are several ways for investments to meet the diversification requirements.
Generally, each United States government agency or instrumentality is treated as
a separate issuer under these rules.
All securities of the same issuer are generally treated as a single investment.
We intend that each portfolio in which the subaccounts invest will be managed by
its investment adviser in compliance with these diversification requirements.
A variable life insurance policy could fail to be treated as a life insurance
contract for tax purposes if the owner of the policy has such control over the
investments underlying the policy (e.g., by being able to transfer values among
subaccounts with only limited restrictions) so as to be considered the owner of
the underlying investments. There is some uncertainty on this point because no
guidelines have been issued by the Treasury Department. If and when guidelines
are issued, we may be required to impose limitations on 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 you pay the full
amount of premiums permitted under the policy.
If subsequent guidance issued under Section 7702 leads us to conclude that a
policy does not (or may not) satisfy Section 7702, we will take appropriate and
necessary steps for the purpose of bringing the policy into compliance, but we
can give no assurance that it will be possible to achieve that result. We
expressly reserve the right to restrict policy transactions if we determine such
action to be necessary to qualify the policy as a life insurance contract under
Section 7702.
Tax Treatment of Policy Benefits In General
This discussion assumes that each policy will qualify as a life insurance
contract for federal income tax purposes under Section 7702. The Life Insurance
Proceeds under the policy should be excluded from the taxable gross income of
the Beneficiary. In addition, the increases in a policy's Account Value should
not be taxed until there has been a distribution from the policy such as a
surrender, partial surrender or lapse with loan.
Pre-Death Distribution
The tax treatment of any distribution you receive before the Insured's death
depends on whether the policy is classified as a modified endowment contract.
<PAGE>
Policies Not Classified as Modified Endowment Contracts
o If you surrender the policy or allow it to lapse, you will not be taxed
except to the extent the amount you receive is in excess of the premiums
you paid less the untaxed portion of any prior withdrawals. For this
purpose, you will be treated as receiving any portion of the cash surrender
value used to repay policy debt. The tax consequences of a surrender may
differ if you take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premiums you paid for the policy less the untaxed
portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Policy Years, all or a portion of a
withdrawal may be taxed if the cash value exceeds the total premiums paid
less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid.
o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the policy for the purposes of determining
whether a withdrawal is taxable.
o Loans you take against the policy are ordinarily treated as debt and are
not considered distributions subject to tax.
<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 premiums
substantially in excess of scheduled premiums are paid or a decrease in the
face amount of insurance is made (or a rider removed). The addition of a
rider or an increase in the face amount of insurance may also cause the
policy to be classified as a MEC. The rules on whether a policy will be
treated as a MEC are very complex and cannot be fully described in this
summary. You should consult a qualified tax adviser to determine whether a
policy transaction will cause the policy to be classified as a MEC. We will
monitor your policy and will take steps reasonably necessary to notify you
on a timely basis if your policy is in jeopardy of becoming a MEC.
o If the policy is classified as a MEC, then amounts you receive under the
policy before the insured's death, including loans and withdrawals, are
included in income to the extent that the cash value before surrender
charges exceeds the premiums paid for the policy, increased by the amount
of any loans previously included in income, and reduced by any untaxed
amounts previously received other than the amount of any loans excludable
from income. An assignment of a MEC is taxable in the same way. These rules
also apply to pre-death distributions, including loans, made during the
two-year period before the time that the policy became a MEC.
o Any taxable income on pre-death distributions (including full surrenders)
is subject to a penalty of 10% unless the amount is received on or after
age 59 1/2, on account of your becoming disabled or as a life annuity. It
is presently unclear how the penalty tax provisions apply to the Policies
owned by businesses.
o All MECs issued by us to you during the same calendar year are treated as a
single policy for purposes of applying these rules.
<PAGE>
Interest on 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 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 death benefit option, a 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.
Possible Charge for the Company's Taxes
At the present time, we do not deduct any charges for any federal, state, or
local income taxes. However, we do currently deduct charges for state and
federal premium based taxes and the federal DAC tax. We reserve the right in the
future to deduct a charge for any such tax or other economic burden resulting
from the application of the tax laws that we determine to be properly
attributable to the Separate Account or to the policy.
Distribution of the Policy
The policy is sold by licensed insurance agents, where the policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The policy will be distributed through the principal underwriter for the
Separate Account, AIG Equity Sales Corp. ("AIGESC") 70 Pine Street, New York,
New York, an affiliate of ours. AIGESC may also enter into selling agreements
with other broker dealers that will offer the policy.
Commissions may be paid to registered representatives based on premiums paid for
Policies sold. Other expense reimbursements, allowances, and overrides may also
be paid. Registered representatives who meet certain productivity and
profitability standards may be eligible for additional compensation. Additional
payments may be made for administrative or other services not directly related
to the sale of the Policies.
Other Policies Issued by the Company
The Company may offer other policies similar to those offered herein.
<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 organized under the laws of New York. We were 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.
<PAGE>
The Separate Account
We established the Separate Account as a separate investment account on June 5,
1986. It is used to support the policy and other variable life insurance
policies, and used for other permitted purposes. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the federal securities laws and qualifies as a "separate account"
within the meaning of these laws.
Although you may have allocated your Account Values to the subaccounts, you do
not own these assets. You only own your policy.
We own the assets in the Separate Account. The Separate Account is divided into
subaccounts. The Separate Account may include other subaccounts which are not
available under the policy.
Income, gains and losses, realized or unrealized, of a subaccount are credited
to or charged against the subaccount without regard to any of our other income,
gains or losses. Assets equal to the reserves and other contract liabilities
with respect to each subaccount are not chargeable with liabilities arising out
of any of our other businesses or separate accounts. If the assets exceed the
required reserves and other liabilities, we may transfer the excess to our
general account. We are obligated to pay all benefits provided under the policy.
Rights we have reserved.
We have reserved certain rights regarding the Separate Account. We will exercise
these rights only in compliance with all applicable regulatory requirements. We
have the right to:
o Change, add or delete designated investment options.
o Add or remove subaccounts.
o Withdraw assets of a class of policies to which the policy belongs from a
subaccount and put them in another subaccount.
o Combine any two or more subaccounts.
o Register other separate accounts or deregister the Separate Account with
the Securities and Exchange Commission.
o Run the Separate Account under the direction of a committee, and discharge
such committee at any time.
o Restrict or eliminate any voting rights of Owners, or other persons who
have voting rights as to the Separate Account.
o Operate the Separate Account or one or more of the subaccounts by making
direct investments or in any other form. If we do so, we may invest the
assets of the Separate Account or one or more of the subaccounts in any
investments that are legal, as determined by our counsel.
<PAGE>
We will not change an investment adviser or any investment of a subaccount of
our Separate Account unless approved by the Commissioner of Insurance of
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
o You may then change your premium allocation percentages.
Voting Rights
We are the legal owner of shares held by the subaccounts and as such have the
right to vote on all matters submitted to shareholders of the portfolios.
However, as required by law, we will vote shares held in the subaccounts at
regular and special meetings of shareholders of the portfolios in accordance
with instructions we receive from Owners with Account Value in the subaccounts.
If allowed by law or required by law we may vote shares of the portfolios
without obtaining instructions or in disregard to instructions we have received.
If we ever disregard voting instructions, we will advise you of that action and
our reasons for such action in the next semiannual report.
The Guaranteed Account
The Guaranteed Account is an account within the general account of the company.
Our general account assets are used to support our insurance and annuity
obligations other than those funded by separate accounts. Subject to applicable
law, we have sole discretion over the investment of the assets of the general
account.
We have not registered:
o interests in the Guaranteed Account under the Securities Act of 1933, and
o the Guaranteed Account as an investment company.
The staff of the Securities and Exchange Commission has not reviewed our
disclosure on the Guaranteed Account. Our disclosure regarding the Guaranteed
Account must comply with generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
<PAGE>
Our Directors and Executive Officers
The directors and principal officers of the Company are listed below with their
current principal business affiliation and their principal occupations during
the past five (5) years. All officers have been affiliated with the Company
during the past five (5) years unless otherwise indicated.
<TABLE>
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 Division
One Alico Plaza Chief Operations Officer
600 King Street
Wimington, DE 19801
Senior Vice President and Actuary
Paul S. Bell Director, Sr. Vice
One Alico Plaza President and Chief
600 King Street Actuary
Wilmington, DE 19801
Retired; formerly Vice President and
Marion Elizabeth Fajen Director General Counsel
5608 N. Waterbury Road
Des Moines, IA 50312
Retired; formerly Vice President and
Patrick Joseph Foley Director General Counsel
Donovan, Perry, Carbon
McDermit & Radzil
Wall Street Plaza
88 Pine Street
New York, NY 10005 Director - Life Division AIG, Inc.,
Director - Seguros, Venezuela and
Cecil Calvert Gamwell, III Director Director (ALT) Seguros Interamericanos
419 West Beach Road (of New York)
Charleston, RI 02813
Maurice R. Greenberg Director Director, Chairman and Chief Executive
70 Pine Street Officer AIG, Inc.
New York, NY 10270
<PAGE>
Jack Russell Harnes Director Retired; formerly Medical Director
70 Pine Street
New York, NY 10270
John Iniss Howell Director Retired; formerly Director of AIG, Inc.
Indian Rock Corporation Director of Schroder Capital Management
263 Glenville Road, 2nd Fl.
Greenwich, CT 06831
Senior Managing Director of AIG Global
Jerome T. Muldowney Director, Senior Vice President Investment Corp.
175 Water Street
New York, NY 10038
Robinson K. Nottingham Director, Chairman of the Board Chairman of the Board and Chief
70 Pine Street Executive Officer of American
New York, NY 10270 International Life Insurance Company
(ALICO)
John Oehmke Chief Financial Officer, Regional Vice President, Controller
One Alico Plaza Vice President American International Companies, Japan
600 King Street and Korea
Wilmington, DE 19801
Nicholas A. O'Kulich Director, Vice Chairman, Treasurer Vice President, Senior Vice President
70 Pine Street 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 of
70 Pine Street AIG, Inc., and certain affiliates
New York, NY 10270
Kenneth D. Walma Vice President, General Counsel Assistant Secretary, Associate
One Alico Plaza General Counsel
600 King Street
Wilmington, DE 19801
Gerald Walter Wyndorf Director, Chief Executive Officer Executive Vice President of AIG Life
80 Pine Street and President Insurance Company
New York, NY 10038
</TABLE>
<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 Separate Account or the principal
underwriter is a party. We are engaged in various kinds of routine litigation
which, in our opinion, are not of material importance in relation to our total
capital and surplus.
Experts
The financial statements which appear in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants, as stated
in its reports, and have been included in reliance upon the authority of such
firm as experts in accounting and auditing.
Legal Matters
Legal matters relating to the federal securities laws are being passed upon by
the firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP of Washington,
D.C.
<PAGE>
Published Ratings
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to us by one or more independent rating
organizations such as A.M. Best Company, Moody's and Standard & Poor's . The
purpose of the ratings is to reflect the rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the Separate Account.
The ratings are not recommendations to purchase our life insurance or annuity
products or to hold or sell these products, and the ratings do not comment on
the suitability of such products for a particular investor. There can be no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn entirely by a rating
organization if, in such organization's judgment, future circumstances so
warrant. The ratings do not reflect the investment performance of the Separate
Account or the degree of risk associated with an investment in the Separate
Account.
<PAGE>
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.
February 3, 2000
<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
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands)
<TABLE>
December 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 4,973,736 $ 5,065,014
(cost: 1999 - $5,076,750; 1998 - $4,798,349)
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.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
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.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(in thousands)
<TABLE>
Years ended December 31,
---------------------------------------------
1999 1998 1997
------------ ------------ --------
<S> <C> <C> <C>
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
========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CAPITAL FUNDS
(in thousands)
<TABLE>
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.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
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.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
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 in
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.
<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.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(b) Investments: (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for
betterments are capitalized and depreciated over their estimated
lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited 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.
(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.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(f) Separate and Variable Accounts: These accounts represent funds for
which investment income and investment gains and losses accrue
directly to the policyholders. Each account has specific investment
objectives, and the assets are carried at market value. The assets of
each account are legally segregated and are not subject to claims
which arise out of any other business of the Company.
(g) Reinsurance Assets: Reinsurance assets include the balances due from
both reinsurance and insurance companies under the terms of the
Company's reinsurance arrangements for ceded unearned premiums, future
policy benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It
also includes funds held under reinsurance treaties.
(h) 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 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.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(h) Accounting Standards: (continued)
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.
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
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>
<PAGE>
2. Investment Information - continued
(c) Investment Gains and Losses: The net realized capital gains (losses)
and change in unrealized appreciation (depreciation) of investments
for 1999, 1998 and 1997 are summarized below (in thousands):
<TABLE>
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.
<PAGE>
2. Investment Information - (continued)
(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.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1999 and 1998 are as follows (in
thousands):
<TABLE>
Gross Gross Estimated
1999 Amortized Unrealized Unrealized Market
---- Cost Gains Losses Value
<S> <C> <C> <C> <C>
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
========== ========= ======== ==========
</TABLE>
<TABLE>
Gross Gross Estimated
1998 Amortized Unrealized Unrealized Market
---- Cost Gains Losses Value
<S> <C> <C> <C> <C>
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>
<PAGE>
2. Investment Information - (continued)
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.
<TABLE>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
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
========= =========
</TABLE>
(e) CMOs: CMOs are U.S. Government and Government agency backed and triple
A-rated securities. CMOs are included in other corporate fixed
maturities. At December 31, 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.
(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):
Years ended December 31,
----------------------------------
1999 1998 1997
---- ---- ----
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
======= ======= =======
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a) The analysis of the future policy benefits and policyholders' funds on
deposit liabilities as at December 31, 1999 and 1998 follows (in
thousands):
<TABLE>
1999 1998
---- ----
<S> <C> <C>
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
========= =========
</TABLE>
(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.
(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.
<PAGE>
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>
Years ended December 31,
1999 1998 1997
------------------------- ----------------------- --------------
Percent Percent Percent
of of of
pre-tax pre-tax pre-tax
operating operating operating
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $30,974 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):
<TABLE>
Years ended December 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
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
========= =======
</TABLE>
(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, "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.
<PAGE>
6. Commitments and Contingent Liabilities
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
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.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
<PAGE>
7. Fair Value of Financial Instruments - (continued)
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):
1999
<TABLE>
Fair Carrying
Value Amount
<S> <C> <C>
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
1998
Fair Carrying
Value Amount
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
</TABLE>
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.
<PAGE>
9. Employee Benefits
(a) The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered
by the Parent. All qualified employees who have attained age 21 and
completed twelve months of continuous service are eligible to
participate in this plan. An employee with 5 or more years of service
is entitled to pension benefits beginning at normal retirement age 65.
Benefits are based upon a percentage of average final compensation
multiplied by years of credited service limited to 44 years of
credited service. The average final compensation is subject to certain
limitations. Annual funding requirements are determined based on the
"projected unit credit" cost method which attributes a pro rata
portion of the total projected benefit payable at normal retirement to
each year of credited service. Pension expense for current service
costs, retirement and termination benefits for the years ended
December 31, 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.
<PAGE>
10. Leases
(a) The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 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
======
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>
Percentage
December 31, 1999 of Amount
----------------- Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
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%
============= ======== =========== =============
</TABLE>
<PAGE>
11. Reinsurance - (continued)
-------------------------
<TABLE>
Percentage
December 31, 1998 of Amount
----------------- Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
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%
============ ========= =========== ===========
</TABLE>
<TABLE>
Percentage
December 31, 1997 of Amount
----------------- Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $4,900,999 $408,340 $ 3,061 $4,495,720 0.1%
========== ======== ========== ==========
Premiums:
Life 25,690 2,805 83 22,968 0.4%
Accident and Health 16,266 6,470 22,449 32,245 69.6%
Annuity 41,216 - - 41,216 -
------------ ---------- ------------- -----------
Total Premiums $ 83,172 $ 9,275 $ 22,532 $ 96,429 23.4%
============ ========= ========= ============
</TABLE>
(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.
<PAGE>
12. Transactions with Related Parties
(a) The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance
risks. Premium income and commission ceded to affiliates amounted to
$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.
(e) 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners of
American International Life Assurance Company of New York
Variable Account B
In our opinion, the accompanying statements of assets and liabilities of
American International Life Assurance Company of New York Variable Account B
(comprising twenty-seven subaccounts, hereafter collectively referred to as
"Variable Account B") and the related statements of operations and changes in
net assets present fairly, in all material respects, the financial position of
Variable Account B at December 31, 1999, and the results of its operations and
the changes in its net assets for each of the three years in the period then
ended, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the management of
Variable Account B; 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.
March 10, 2000
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
ASSETS:
Investments at Market Value:
Shares Cost Market Value
-----------------------------------------------------------------
<S> <C> <C> <C>
AIM
Capital Appreciation Fund 2,019.847 $ 49,829 $ 71,864
International Equity Fund 2,554.374 52,018 74,818
Alliance
Conservative Investors Portfolio 1,379.867 18,346 18,532
Growth Portfolio 33,202.185 848,513 1,115,263
Growth & Income Portfolio 28,181.163 599,072 614,065
Growth Investors Portfolio 5,990.011 88,040 102,611
Premier Growth Portfolio 7,820.255 237,152 316,329
Quasar Portfolio 9,597.837 115,947 124,773
Technology Portfolio 10,611.825 206,841 356,663
Dreyfus
Small Company Stock Portfolio 2,213.877 31,735 36,950
Stock Index Portfolio 26,984.587 877,660 1,037,558
Zero Coupon 2000 Portfolio 1,411.684 17,468 17,181
Fidelity
Asset Manager Portfolio 18,674.276 323,524 348,646
Contrafund Portfolio 5,204.911 119,899 151,722
Growth Portfolio 28,724.498 1,128,143 1,577,835
High Income Portfolio 11,092.852 132,123 125,463
Investment Grade Bond Portfolio 2,517.613 30,867 30,613
Money Market Portfolio 192,566.850 192,567 192,567
Overseas Portfolio 8,331.407 165,220 228,610
Van Eck
Worldwide Emerging Markets Portfolio 1,922.157 16,351 27,409
Worldwide Hard Assets Portfolio 2,506.832 24,132 27,474
Weiss,Peck & Greer
Tomorrow Long Term Portfolio 183.251 1,593 1,669
Tomorrow Short Term Portfolio 31.404 331 314
--------------------- --------------------
Total Investments $ 5,277,371 $ 6,598,929
Total Assets $ 6,598,929
====================
EQUITY:
Policy Owners' Equity $ 6,598,929
--------------------
Total Equity $ 6,598,929
====================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
STATEMENT OF OPERATIONS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1999
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $322,363 $1,452 $2,428
Expenses:
Mortality & Expense Risk Fees 47,758 432 401
-------------- ------------- ---------------
Net Investment Income (Loss) 274,605 1,020 2,027
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 202,624 499 195
Change in Unrealized Appreciation
(Depreciation) 827,271 19,039 22,644
-------------- ------------- ---------------
Net Gain (Loss) on Investments 1,029,895 19,538 22,839
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,304,500 $20,558 $24,866
============== ============= ===============
</TABLE>
<TABLE>
Alliance
Alliance Growth
Conservative Alliance &
Investors Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $3,017 $56,561 $57,584
Expenses:
Mortality & Expense Risk Fees 270 6,985 4,985
-------------- ------------- ---------------
Net Investment Income (Loss) 2,747 49,576 52,599
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (366) 31,353 18,790
Change in Unrealized Appreciation
(Depreciation) (1,338) 170,572 (21,362)
-------------- ------------- ---------------
Net Gain (Loss) on Investments (1,704) 201,925 (2,572)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,043 $251,501 $50,027
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance Alliance
Growth Premier Alliance
Investors Growth Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $9,436 $2,471 $394
Expenses:
Mortality & Expense Risk Fees 915 1,781 1,084
-------------- ------------- ---------------
Net Investment Income (Loss) 8,521 690 (690)
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 4,825 4,172 (3,624)
Change in Unrealized Appreciation
(Depreciation) 1,728 61,668 21,926
-------------- ------------- ---------------
Net Gain (Loss) on Investments 6,553 65,840 18,302
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $15,074 $66,530 $17,612
============== ============= ===============
</TABLE>
<TABLE>
Dreyfus
Small Dreyfus
Alliance Company Stock
Technology Stock Index
Portfolio Portfolio Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $462 $0 $16,580
Expenses:
Mortality & Expense Risk Fees 2,155 344 7,017
-------------- ------------- ---------------
Net Investment Income (Loss) (1,693) (344) 9,563
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 50,141 (1,279) 49,652
Change in Unrealized Appreciation
(Depreciation) 104,477 5,143 86,954
-------------- ------------- ---------------
Net Gain (Loss) on Investments 154,618 3,864 136,606
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $152,925 $3,520 $146,169
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Contrafund
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $920 $17,963 $3,565
Expenses:
Mortality & Expense Risk Fees 155 2,561 929
-------------- ------------- ---------------
Net Investment Income (Loss) 765 15,402 2,636
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 0 (1,857) 2,502
Change in Unrealized Appreciation
(Depreciation) (455) 14,961 18,927
-------------- ------------- ---------------
Net Gain (Loss) on Investments (455) 13,104 21,429
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $310 $28,506 $24,065
============== ============= ===============
</TABLE>
<TABLE>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $112,948 $8,084 $1,312
Expenses:
Mortality & Expense Risk Fees 10,907 902 274
-------------- ------------- ---------------
Net Investment Income (Loss) 102,041 7,182 1,038
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 48,554 (3,919) 68
Change in Unrealized Appreciation
(Depreciation) 245,218 2,337 (1,621)
-------------- ------------- ---------------
Net Gain (Loss) on Investments 293,772 (1,582) (1,553)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $395,813 $5,600 ($515)
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
VanEck
Fidelity Worldwide
Money Fidelity Emerging
Market Overseas Markets
Portfolio Portfolio Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $20,098 $6,610 $0
Expenses:
Mortality & Expense Risk Fees 3,628 1,602 148
-------------- ------------- ---------------
Net Investment Income (Loss) 16,470 5,008 (148)
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 0 4,108 201
Change in Unrealized Appreciation
(Depreciation) 0 57,758 12,835
-------------- ------------- ---------------
Net Gain (Loss) on Investments 0 61,866 13,036
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $16,470 $66,874 $12,888
============== ============= ===============
</TABLE>
<TABLE>
VanEck WP&G WP&G
Worldwide Tomorrow Tomorrow
Hard Long Short
Assets Term Term
Fund Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $293 $162 $23
Expenses:
Mortality & Expense Risk Fees 224 14 45
-------------- ------------- ---------------
Net Investment Income (Loss) 69 148 (22)
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (1,640) 54 195
Change in Unrealized Appreciation
(Depreciation) 6,112 (57) (195)
-------------- ------------- ---------------
Net Gain (Loss) on Investments 4,472 (3) 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $4,541 $145 ($22)
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
STATEMENT OF OPERATIONS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1998
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $307,163 $973 $270
Expenses:
Mortality & Expense Risk Fees 30,404 127 143
-------------- ------------- ---------------
Net Investment Income (Loss) 276,759 846 127
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 38,246 (550) (405)
Change in Unrealized Appreciation
(Depreciation) 374,331 2,999 156
-------------- ------------- ---------------
Net Gain (Loss) on Investments 412,577 2,449 (249)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $689,336 $3,295 ($122)
============== ============= ===============
</TABLE>
<TABLE>
Alliance
Alliance Growth
Conservative Alliance &
Investors Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,554 $24,012 $31,176
Expenses:
Mortality & Expense Risk Fees 192 3,626 3,081
-------------- ------------- ---------------
Net Investment Income (Loss) 1,362 20,386 28,095
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 250 13,968 11,897
Change in Unrealized Appreciation
(Depreciation) 797 73,288 23,891
-------------- ------------- ---------------
Net Gain (Loss) on Investments 1,047 87,256 35,788
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $2,409 $107,642 $63,883
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance Alliance
Growth Premier Alliance
Investors Growth Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $9,576 $8 $9,960
Expenses:
Mortality & Expense Risk Fees 975 420 1,060
-------------- ------------- ---------------
Net Investment Income (Loss) 8,601 (412) 8,900
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,027 406 685
Change in Unrealized Appreciation
(Depreciation) 11,665 17,510 (15,889)
-------------- ------------- ---------------
Net Gain (Loss) on Investments 12,692 17,916 (15,204)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $21,293 $17,504 ($6,304)
============== ============= ===============
</TABLE>
<TABLE>
Dreyfus
Small Dreyfus
Alliance Company Stock
Technology Stock Index
Portfolio Portfolio Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $102 $116 $6,640
Expenses:
Mortality & Expense Risk Fees 823 177 3,570
-------------- ------------- ---------------
Net Investment Income (Loss) (721) (61) 3,070
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,010 (790) 31,559
Change in Unrealized Appreciation
(Depreciation) 50,048 129 62,625
-------------- ------------- ---------------
Net Gain (Loss) on Investments 51,058 (661) 94,184
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $50,337 ($722) $97,254
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Contrafund
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $945 $20,860 $0
Expenses:
Mortality & Expense Risk Fees 158 1,807 215
-------------- ------------- ---------------
Net Investment Income (Loss) 787 19,053 (215)
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 2 3,126 15
Change in Unrealized Appreciation
(Depreciation) 271 4,287 12,896
-------------- ------------- ---------------
Net Gain (Loss) on Investments 273 7,413 12,911
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,060 $26,466 $12,696
============== ============= ===============
</TABLE>
<TABLE>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $76,496 $7,025 $510
Expenses:
Mortality & Expense Risk Fees 6,340 686 174
-------------- ------------- ---------------
Net Investment Income (Loss) 70,156 6,339 336
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 31,739 (408) 112
Change in Unrealized Appreciation
(Depreciation) 138,573 (11,405) 1,082
-------------- ------------- ---------------
Net Gain (Loss) on Investments 170,312 (11,813) 1,194
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $240,468 ($5,474) $1,530
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity VanEck
Money Fidelity Worldwide
Market Overseas Balanced
Portfolio Portfolio Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $20,408 $9,490 $84,310
Expenses:
Mortality & Expense Risk Fees 3,454 1,376 1,724
-------------- ------------- ---------------
Net Investment Income (Loss) 16,954 8,114 82,586
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 0 1,283 (49,886)
Change in Unrealized Appreciation
(Depreciation) 0 5,423 (614)
-------------- ------------- ---------------
Net Gain (Loss) on Investments 0 6,706 (50,500)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $16,954 $14,820 $32,086
============== ============= ===============
</TABLE>
<TABLE>
VanEck VanEck WP&G
Worldwide Worldwide Tomorrow
Emerging Hard Long
Markets Assets Term
Fund Fund Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $2,327 $21
Expenses:
Mortality & Expense Risk Fees 48 140 12
-------------- ------------- ---------------
Net Investment Income (Loss) (48) 2,187 9
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (775) (6,194) 134
Change in Unrealized Appreciation
(Depreciation) (1,775) (2,222) 24
-------------- ------------- ---------------
Net Gain (Loss) on Investments (2,550) (8,416) 158
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations ($2,598) ($6,229) $167
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G
Tomorrow
Short
Term
Portfolio
<S> <C>
Investment Income (Loss):
Dividends $384
Expenses:
Mortality & Expense Risk Fees 76
--------------
Net Investment Income (Loss) 308
--------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 41
Change in Unrealized Appreciation
(Depreciation) 572
--------------
Net Gain (Loss) on Investments 613
--------------
Increase (Decrease) in Net Assets
Resulting From Operations $921
==============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
STATEMENT OF OPERATIONS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1997
Alliance
Conservative Alliance
Investors Growth
Total Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $45,998 $251 $4,861
Expenses:
Mortality & Expense Risk Fees 11,692 86 1,083
-------------- ------------- ---------------
Net Investment Income (Loss) 34,306 165 3,778
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 39,889 82 8,313
Change in Unrealized Appreciation
(Depreciation) 110,827 716 21,956
-------------- ------------- ---------------
Net Gain (Loss) on Investments 150,716 798 30,269
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $185,022 $963 $34,047
============== ============= ===============
</TABLE>
<TABLE>
Alliance
Growth Alliance
& Growth Alliance
Income Investors Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $5,217 $553 $24
Expenses:
Mortality & Expense Risk Fees 865 279 421
-------------- ------------- ---------------
Net Investment Income (Loss) 4,352 274 (397)
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 5,064 771 3,669
Change in Unrealized Appreciation
(Depreciation) 10,957 1,169 2,787
-------------- ------------- ---------------
Net Gain (Loss) on Investments 16,021 1,940 6,456
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $20,373 $2,214 $6,059
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Small Dreyfus
Alliance Company Stock
Technology Stock Index
Portfolio Portfolio Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $83 $42 $6,063
Expenses:
Mortality & Expense Risk Fees 208 3 752
-------------- ------------- ---------------
Net Investment Income (Loss) (125) 39 5,311
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 4,378 (8) 5,451
Change in Unrealized Appreciation
(Depreciation) (4,702) (57) 9,964
-------------- ------------- ---------------
Net Gain (Loss) on Investments (324) (65) 15,415
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations ($449) ($26) $20,726
============== ============= ===============
</TABLE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,067 $3,743 $8,491
Expenses:
Mortality & Expense Risk Fees 144 570 3,367
-------------- ------------- ---------------
Net Investment Income (Loss) 923 3,173 5,124
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (7) 1,667 3,512
Change in Unrealized Appreciation
(Depreciation) 37 4,615 63,333
-------------- ------------- ---------------
Net Gain (Loss) on Investments 30 6,282 66,845
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $953 $9,455 $71,969
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,172 $309 $8,541
Expenses:
Mortality & Expense Risk Fees 226 74 1,429
-------------- ------------- ---------------
Net Investment Income (Loss) 946 235 7,112
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 788 265 0
Change in Unrealized Appreciation
(Depreciation) 2,222 170 0
-------------- ------------- ---------------
Net Gain (Loss) on Investments 3,010 435 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $3,956 $670 $7,112
============== ============= ===============
</TABLE>
<TABLE>
VanEck
VanEck Worldwide
Fidelity Worldwide Hard
Overseas Balanced Assets
Portfolio Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $4,372 $157 $183
Expenses:
Mortality & Expense Risk Fees 706 1,361 84
-------------- ------------- ---------------
Net Investment Income (Loss) 3,666 (1,204) 99
-------------- ------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 603 5,206 19
Change in Unrealized Appreciation
(Depreciation) (1,457) 132 (732)
-------------- ------------- ---------------
Net Gain (Loss) on Investments (854) 5,338 (713)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $2,812 $4,134 ($614)
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G
Tomorrow Tomorrow
Long Short
Term Term
Portfolio Portfolio
<S> <C> <C>
Investment Income (Loss):
Dividends $87 $782
Expenses:
Mortality & Expense Risk Fees 8 26
-------------- -------------
Net Investment Income (Loss) 79 756
-------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 113 3
Change in Unrealized Appreciation
(Depreciation) 111 (394)
-------------- -------------
Net Gain (Loss) on Investments 224 (391)
-------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $303 $365
============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1999
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $274,605 $1,020 $2,027
Realized Gain (Loss) on Investment Activity 202,624 499 195
Change in Unrealized Appreciation
(Depreciation) of Investments 827,271 19,039 22,644
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,304,500 20,558 24,866
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 1,888,781 22,819 23,357
Cost Of Insurance Charge (521,651) (8,463) (5,883)
Policy Loans (272,063) (252) (58)
Contract Withdrawals (235,528) (638) (1,422)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 859,539 13,466 15,994
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 2,164,039 34,024 40,860
Net Assets, at Beginning of Year 4,434,890 37,840 33,958
-------------- ------------- ---------------
Net Assets, at End of Year $6,598,929 $71,864 $74,818
============== ============= ===============
</TABLE>
<TABLE>
Alliance
Alliance Growth
Conservative Alliance &
Investors Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,747 $49,576 $52,599
Realized Gain (Loss) on Investment Activity (366) 31,353 18,790
Change in Unrealized Appreciation
(Depreciation) of Investments (1,338) 170,572 (21,362)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,043 251,501 50,027
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers (5,799) 412,239 196,071
Cost Of Insurance Charge (2,957) (78,781) (47,727)
Policy Loans 0 (32,198) (20,887)
Contract Withdrawals (59) (33,103) (22,562)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (8,815) 268,157 104,895
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets (7,772) 519,658 154,922
Net Assets, at Beginning of Year 26,304 595,605 459,143
-------------- ------------- ---------------
Net Assets, at End of Year $18,532 $1,115,263 $614,065
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance Alliance
Growth Premier Alliance
Investors Growth Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $8,521 $690 ($690)
Realized Gain (Loss) on Investment Activity 4,825 4,172 (3,624)
Change in Unrealized Appreciation
(Depreciation) of Investments 1,728 61,668 21,926
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 15,074 66,530 17,612
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers (23,090) 137,261 41,790
Cost Of Insurance Charge (4,703) (19,747) (8,658)
Policy Loans (29) (2,959) (35,268)
Contract Withdrawals 0 (1,585) (2,524)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (27,822) 112,970 (4,660)
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets (12,748) 179,500 12,952
Net Assets, at Beginning of Year 115,359 136,829 111,821
-------------- ------------- ---------------
Net Assets, at End of Year $102,611 $316,329 $124,773
============== ============= ===============
</TABLE>
<TABLE>
Dreyfus
Small Dreyfus
Alliance Company Stock
Technology Stock Index
Portfolio Portfolio Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($1,693) ($344) $9,563
Realized Gain (Loss) on Investment Activity 50,141 (1,279) 49,652
Change in Unrealized Appreciation
(Depreciation) of Investments 104,477 5,143 86,954
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 152,925 3,520 146,169
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 130,053 8,073 476,798
Cost Of Insurance Charge (29,050) (6,632) (78,564)
Policy Loans (61,448) (258) (72,361)
Contract Withdrawals (2,953) (7,435) (26,263)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 36,602 (6,252) 299,610
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 189,527 (2,732) 445,779
Net Assets, at Beginning of Year 167,136 39,682 591,779
-------------- ------------- ---------------
Net Assets, at End of Year $356,663 $36,950 $1,037,558
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Contrafund
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $765 $15,402 $2,636
Realized Gain (Loss) on Investment Activity 0 (1,857) 2,502
Change in Unrealized Appreciation
(Depreciation) of Investments (455) 14,961 18,927
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 310 28,506 24,065
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers (119) 171,792 65,244
Cost Of Insurance Charge (105) (33,524) (16,925)
Policy Loans 0 (5,379) (489)
Contract Withdrawals (786) (48,288) (1,728)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (1,010) 84,601 46,102
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets (700) 113,107 70,167
Net Assets, at Beginning of Year 17,881 235,539 81,555
-------------- ------------- ---------------
Net Assets, at End of Year $17,181 $348,646 $151,722
============== ============= ===============
</TABLE>
<TABLE>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $102,041 $7,182 $1,038
Realized Gain (Loss) on Investment Activity 48,554 (3,919) 68
Change in Unrealized Appreciation
(Depreciation) of Investments 245,218 2,337 (1,621)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 395,813 5,600 (515)
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 383,796 53,180 13,174
Cost Of Insurance Charge (96,262) (9,567) (3,776)
Policy Loans (30,086) (3,900) (213)
Contract Withdrawals (52,027) (6,288) (5,416)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 205,421 33,425 3,769
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 601,234 39,025 3,254
Net Assets, at Beginning of Year 976,601 86,438 27,359
-------------- ------------- ---------------
Net Assets, at End of Year $1,577,835 $125,463 $30,613
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity VanEck
Money Fidelity Worldwide
Market Overseas Balanced
Portfolio Portfolio Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $16,470 $5,008 $0
Realized Gain (Loss) on Investment Activity 0 4,108 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 57,758 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 16,470 66,874 0
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers (247,879) 14,062 0
Cost Of Insurance Charge (54,882) (11,227) 0
Policy Loans (3,952) (1,458) 0
Contract Withdrawals (7,252) (2,821) 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (313,965) (1,444) 0
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets (297,495) 65,430 0
Net Assets, at Beginning of Year 490,062 163,180 0
-------------- ------------- ---------------
Net Assets, at End of Year $192,567 $228,610 $0
============== ============= ===============
</TABLE>
<TABLE>
VanEck VanEck WP&G
Worldwide Worldwide Tomorrow
Emerging Hard Long
Markets Assets Term
Fund Fund Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($148) $69 $148
Realized Gain (Loss) on Investment Activity 201 (1,640) 54
Change in Unrealized Appreciation
(Depreciation) of Investments 12,835 6,112 (57)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 12,888 4,541 145
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 3,967 10,809 841
Cost Of Insurance Charge (1,314) (2,405) (298)
Policy Loans 0 (856) 0
Contract Withdrawals (429) (3,605) (380)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 2,224 3,943 163
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 15,112 8,484 308
Net Assets, at Beginning of Year 12,297 18,990 1,361
-------------- ------------- ---------------
Net Assets, at End of Year $27,409 $27,474 $1,669
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G
Tomorrow
Short
Term
Portfolio
<S> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($22)
Realized Gain (Loss) on Investment Activity 195
Change in Unrealized Appreciation
(Depreciation) of Investments (195)
--------------
Increase (Decrease) in Net Assets Resulting
From Operations (22)
--------------
Capital Transactions:
Contract Deposits and Transfers 342
Cost Of Insurance Charge (201)
Policy Loans (12)
Contract Withdrawals (7,964)
--------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (7,835)
--------------
Total Increase (Decrease) in Net Assets (7,857)
Net Assets, at Beginning of Year 8,171
--------------
Net Assets, at End of Year $314
==============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1998
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $276,759 $846 $127
Realized Gain (Loss) on Investment Activity 38,246 (550) (405)
Change in Unrealized Appreciation
(Depreciation) of Investments 374,331 2,999 156
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 689,336 3,295 (122)
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 1,935,929 38,072 46,598
Cost Of Insurance Charge (439,044) (3,527) (2,896)
Policy Loans (78,540) 0 (9,622)
Contract Withdrawals (17,083) 0 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,401,262 34,545 34,080
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 2,090,598 37,840 33,958
Net Assets, at Beginning of Year 2,344,292 0 0
-------------- ------------- ---------------
Net Assets, at End of Year $4,434,890 $37,840 $33,958
============== ============= ===============
</TABLE>
<TABLE>
Alliance
Alliance Growth
Conservative Alliance &
Investors Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,362 $20,386 $28,095
Realized Gain (Loss) on Investment Activity 250 13,968 11,897
Change in Unrealized Appreciation
(Depreciation) of Investments 797 73,288 23,891
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,409 107,642 63,883
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 16,193 340,780 267,448
Cost Of Insurance Charge (3,382) (61,636) (49,686)
Policy Loans 0 (27,803) (3,765)
Contract Withdrawals (16) (981) (711)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 12,795 250,360 213,286
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 15,204 358,002 277,169
Net Assets, at Beginning of Year 11,100 237,603 181,974
-------------- ------------- ---------------
Net Assets, at End of Year $26,304 $595,605 $459,143
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance Alliance
Growth Premier Alliance
Investors Growth Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $8,601 ($412) $8,900
Realized Gain (Loss) on Investment Activity 1,027 406 685
Change in Unrealized Appreciation
(Depreciation) of Investments 11,665 17,510 (15,889)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 21,293 17,504 (6,304)
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 32,757 136,361 27,825
Cost Of Insurance Charge (7,001) (6,319) (12,255)
Policy Loans (1,265) (10,717) 0
Contract Withdrawals (21) 0 (97)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 24,470 119,325 15,473
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 45,763 136,829 9,169
Net Assets, at Beginning of Year 69,596 0 102,652
-------------- ------------- ---------------
Net Assets, at End of Year $115,359 $136,829 $111,821
============== ============= ===============
</TABLE>
<TABLE>
Dreyfus
Small Dreyfus
Alliance Company Stock
Technology Stock Index
Portfolio Portfolio Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($721) ($61) $3,070
Realized Gain (Loss) on Investment Activity 1,010 (790) 31,559
Change in Unrealized Appreciation
(Depreciation) of Investments 50,048 129 62,625
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 50,337 (722) 97,254
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 83,902 43,396 354,587
Cost Of Insurance Charge (14,811) (5,197) (61,439)
Policy Loans (636) (498) (3,714)
Contract Withdrawals (277) 0 (4,651)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 68,178 37,701 284,783
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 118,515 36,979 382,037
Net Assets, at Beginning of Year 48,621 2,703 209,742
-------------- ------------- ---------------
Net Assets, at End of Year $167,136 $39,682 $591,779
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Contrafund
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $787 $19,053 ($215)
Realized Gain (Loss) on Investment Activity 2 3,126 15
Change in Unrealized Appreciation
(Depreciation) of Investments 271 4,287 12,896
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,060 26,466 12,696
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 37 122,139 74,384
Cost Of Insurance Charge (290) (28,844) (5,525)
Policy Loans 0 (4,507) 0
Contract Withdrawals 0 (271) 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (253) 88,517 68,859
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 807 114,983 81,555
Net Assets, at Beginning of Year 17,074 120,556 0
-------------- ------------- ---------------
Net Assets, at End of Year $17,881 $235,539 $81,555
============== ============= ===============
</TABLE>
<TABLE>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $70,156 $6,339 $336
Realized Gain (Loss) on Investment Activity 31,739 (408) 112
Change in Unrealized Appreciation
(Depreciation) of Investments 138,573 (11,405) 1,082
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 240,468 (5,474) 1,530
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 304,706 68,538 20,094
Cost Of Insurance Charge (70,948) (11,695) (3,420)
Policy Loans (7,887) (1,312) (97)
Contract Withdrawals (659) 0 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 225,212 55,531 16,577
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 465,680 50,057 18,107
Net Assets, at Beginning of Year 510,921 36,381 9,252
-------------- ------------- ---------------
Net Assets, at End of Year $976,601 $86,438 $27,359
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity VanEck
Money Fidelity Worldwide
Market Overseas Balanced
Portfolio Portfolio Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $16,954 $8,114 $82,586
Realized Gain (Loss) on Investment Activity 0 1,283 (49,886)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 5,423 (614)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 16,954 14,820 32,086
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 187,473 58,273 (320,133)
Cost Of Insurance Charge (53,147) (14,747) (16,925)
Policy Loans (2,635) (1,423) (366)
Contract Withdrawals (5,924) (3,261) (128)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 125,767 38,842 (337,552)
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 142,721 53,662 (305,466)
Net Assets, at Beginning of Year 347,341 109,518 305,466
-------------- ------------- ---------------
Net Assets, at End of Year $490,062 $163,180 $0
============== ============= ===============
</TABLE>
<TABLE>
VanEck VanEck WP&G
Worldwide Worldwide Tomorrow
Emerging Hard Long
Markets Assets Term
Fund Fund Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($48) $2,187 $9
Realized Gain (Loss) on Investment Activity (775) (6,194) 134
Change in Unrealized Appreciation
(Depreciation) of Investments (1,775) (2,222) 24
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations (2,598) (6,229) 167
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 15,744 14,697 1,242
Cost Of Insurance Charge (849) (3,058) (1,095)
Policy Loans 0 (1,447) 0
Contract Withdrawals 0 (19) 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 14,895 10,173 147
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 12,297 3,944 314
Net Assets, at Beginning of Year 0 15,046 1,047
-------------- ------------- ---------------
Net Assets, at End of Year $12,297 $18,990 $1,361
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G
Tomorrow
Short
Term
Portfolio
<S> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $308
Realized Gain (Loss) on Investment Activity 41
Change in Unrealized Appreciation
(Depreciation) of Investments 572
--------------
Increase (Decrease) in Net Assets Resulting
From Operations 921
--------------
Capital Transactions:
Contract Deposits and Transfers 816
Cost Of Insurance Charge (352)
Policy Loans (846)
Contract Withdrawals (67)
--------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (449)
--------------
Total Increase (Decrease) in Net Assets 472
Net Assets, at Beginning of Year 7,699
--------------
Net Assets, at End of Year $8,171
==============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1997
Alliance
Conservative Alliance
Investors Growth
Total Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $34,306 $165 $3,778
Realized Gain (Loss) on Investment Activity 39,889 82 8,313
Change in Unrealized Appreciation
(Depreciation) of Investments 110,827 716 21,956
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 185,022 963 34,047
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 1,986,852 11,777 221,737
Cost Of Insurance Charge (226,161) (2,325) (28,090)
Policy Loans (77,556) 0 (4,108)
Contract Withdrawals (5,229) 0 (995)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,677,906 9,452 188,544
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 1,862,928 10,415 222,591
Net Assets, at Beginning of Year 481,364 685 15,012
-------------- ------------- ---------------
Net Assets, at End of Year $2,344,292 $11,100 $237,603
============== ============= ===============
</TABLE>
<TABLE>
Alliance
Growth Alliance
& Growth Alliance
Income Investors Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $4,352 $274 ($397)
Realized Gain (Loss) on Investment Activity 5,064 771 3,669
Change in Unrealized Appreciation
(Depreciation) of Investments 10,957 1,169 2,787
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 20,373 2,214 6,059
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 156,792 66,847 103,348
Cost Of Insurance Charge (18,272) (3,029) (6,790)
Policy Loans (5,312) 0 0
Contract Withdrawals (16) 0 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 133,192 63,818 96,558
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 153,565 66,032 102,617
Net Assets, at Beginning of Year 28,409 3,564 35
-------------- ------------- ---------------
Net Assets, at End of Year $181,974 $69,596 $102,652
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Small Dreyfus
Alliance Company Stock
Technology Stock Index
Portfolio Portfolio Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($125) $39 $5,311
Realized Gain (Loss) on Investment Activity 4,378 (8) 5,451
Change in Unrealized Appreciation
(Depreciation) of Investments (4,702) (57) 9,964
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations (449) (26) 20,726
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 54,243 2,929 171,840
Cost Of Insurance Charge (5,173) (200) (18,820)
Policy Loans 0 0 (422)
Contract Withdrawals 0 0 (160)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 49,070 2,729 152,438
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 48,621 2,703 173,164
Net Assets, at Beginning of Year 0 0 36,578
-------------- ------------- ---------------
Net Assets, at End of Year $48,621 $2,703 $209,742
============== ============= ===============
</TABLE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $923 $3,173 $5,124
Realized Gain (Loss) on Investment Activity (7) 1,667 3,512
Change in Unrealized Appreciation
(Depreciation) of Investments 37 4,615 63,333
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 953 9,455 71,969
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 1,073 114,948 287,086
Cost Of Insurance Charge (423) (14,287) (41,435)
Policy Loans 0 (7,298) (15,118)
Contract Withdrawals 0 (116) (2,785)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 650 93,247 227,748
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 1,603 102,702 299,717
Net Assets, at Beginning of Year 15,471 17,854 211,204
-------------- ------------- ---------------
Net Assets, at End of Year $17,074 $120,556 $510,921
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $946 $235 $7,112
Realized Gain (Loss) on Investment Activity 788 265 0
Change in Unrealized Appreciation
(Depreciation) of Investments 2,222 170 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 3,956 670 7,112
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 39,615 14,040 327,009
Cost Of Insurance Charge (5,194) (2,375) (51,240)
Policy Loans (12,730) (7,099) (14,774)
Contract Withdrawals (57) 0 (198)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 21,634 4,566 260,797
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 25,590 5,236 267,909
Net Assets, at Beginning of Year 10,791 4,016 79,432
-------------- ------------- ---------------
Net Assets, at End of Year $36,381 $9,252 $347,341
============== ============= ===============
</TABLE>
<TABLE>
VanEck
VanEck Worldwide
Fidelity Worldwide Hard
Overseas Balanced Assets
Portfolio Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $3,666 ($1,204) $99
Realized Gain (Loss) on Investment Activity 603 5,206 19
Change in Unrealized Appreciation
(Depreciation) of Investments (1,457) 132 (732)
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,812 4,134 (614)
-------------- ------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 76,973 314,530 13,116
Cost Of Insurance Charge (9,851) (15,171) (2,615)
Policy Loans (5,182) (5,513) 0
Contract Withdrawals (902) 0 0
-------------- ------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 61,038 293,846 10,501
-------------- ------------- ---------------
Total Increase (Decrease) in Net Assets 63,850 297,980 9,887
Net Assets, at Beginning of Year 45,668 7,486 5,159
-------------- ------------- ---------------
Net Assets, at End of Year $109,518 $305,466 $15,046
============== ============= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G
Tomorrow Tomorrow
Long Short
Term Term
Portfolio Portfolio
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $79 $756
Realized Gain (Loss) on Investment Activity 113 3
Change in Unrealized Appreciation
(Depreciation) of Investments 111 (394)
-------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 303 365
-------------- -------------
Capital Transactions:
Contract Deposits and Transfers 1,448 7,501
Cost Of Insurance Charge (704) (167)
Policy Loans 0 0
Contract Withdrawals 0 0
-------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 744 7,334
-------------- -------------
Total Increase (Decrease) in Net Assets 1,047 7,699
Net Assets, at Beginning of Year 0 0
-------------- -------------
Net Assets, at End of Year $1,047 $7,699
============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
1. History
Variable Account B (the "Account") is a separate investment account established
under the provisions of New York Insurance Law by American International Life
Assurance Company of New York (the "Company"), a wholly-owned subsidiary of
American International Group, Inc. The Account operates as a unit investment
trust registered under the Investment Company Act of 1940, as amended, and
supports the operations of the Company's individual flexible premium variable
universal life insurance policies (the "policies"). The following products are
offered by the Account: Vision and Gallery Life.
The Account invests in shares of AIM Variable Insurance Fund ("AIM Fund"),
Alliance Variable Products Series Fund, Inc. ("Alliance Fund"), Dreyfus Variable
Investment Fund ("Dreyfus Fund"), Fidelity Investments Variable Insurance
Products Fund ("Fidelity Trust"), Fidelity Variable Insurance Products Fund II
("Fidelity Trust II"), Van Eck Investment Trust ("Van Eck Trust") and Weiss,
Peck & Greer ("WP&G Tomorrow Fund"). The assets in the policies may be invested
in the following subaccounts:
<TABLE>
<S> <C>
AIM Fund: Fidelity Trust:
Capital Appreciation Fund Growth Portfolio
International Equity Fund High Income Portfolio
Money Market Portfolio
Overseas Portfolio
Alliance Fund:
Conservative Investors Portfolio
Global Bond Portfolio Fidelity Trust II:
Growth Portfolio Asset Manager Portfolio
Growth & Income Portfolio Contrafund Portfolio
Growth Investors Portfolio Investment Grade Bond Portfolio
Money Market Portfolio
Premier Growth Portfolio Van Eck Trust:
Quasar Portfolio Worldwide Balanced Fund (Fund Closed 06/29/98)
Technology Portfolio Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund
Dreyfus Fund: WP&G Tomorrow Fund:
Small Company Stock Portfolio Tomorrow Long Term Portfolio
Stock Index Fund Tomorrow Medium Term Portfolio
Zero Coupon 2000 Portfolio Tomorrow Short Term Portfolio
</TABLE>
The Account commenced operations on May 4, 1995.
The assets of the Account are the property of the Company. The portion of the
Account's assets applicable to the policies are not chargeable with the
liabilities arising out of any other business conducted by the Company.
In addition to the Account, policy owners may also allocate assets of the
policies to the Guaranteed Account, which is part of the Company's general
account. Amounts allocated to the Guaranteed Account are credited with a
guaranteed rate of interest. Because of exemptive and exclusionary provisions,
interests in the Guaranteed Account have not been registered under the
Securities Act of 1933, and the Guaranteed Account has not been registered as an
investment company under the Investment Company Act of 1940.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Account in preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation - The investments in the Funds are stated at market
value which is the net asset value of each of the respective series as
determined at the close of business on the last business day of the period by
the Fund.
B. Accounting for Investments - Investment transactions are accounted for on the
date the investments are purchased or sold. Dividend income is recorded on the
ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations and is
not taxed separately. Under existing federal law, no taxes are payable on
investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required management
to make estimates and assumptions that affect the reported values of assets and
liabilities and the reported amounts from operations and policy transactions.
Actual results could differ from those estimates.
E. The financial statements for 1998 and 1997 have been reclassified to conform
to the 1999 presentation.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (continued)
3. Contract Charges
There are charges and deductions which the Company will deduct from each policy.
The deductions from each premium payment are a sales charge of 5% plus the state
specific premium taxes.
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are equivalent on an
annual basis to .90% of the account value of the policies. This charge may be
decreased to not less than .50% in policy years eleven and greater.
On the policies' issue date and each monthly anniversary, the following
deductions are made from the policies' account value:
(a) administrative charges
(b) insurance charges
(c) supplemental benefit charges
(d) acquisition and underwriting charges
A transfer charge of $25.00 will be assessed for each transfer in excess of 12
each Policy year.
If the policy is surrendered during the first fourteen policy years, the Company
will deduct a surrender charge based on a percentage of first year premium. A
pro rata surrender charge will be deducted for any partial surrender. An
administrative charge upon partial surrender will be equal to the lessor of
$25.00 or 2% of the amount surrendered.
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
4. Purchases of Investments
For the year ended December 31, 1999, investment activity in the Fund was as
follows:
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
AIM Fund:
Capital Appreciation Fund $ 21,929 $ 7,442
International Equity Fund 23,113 5,092
Alliance Fund:
Conservative Investors Portfolio 30,338 36,406
Global Bond Portfolio 0 0
Growth Portfolio 414,352 96,631
Growth & Income Portfolio 276,136 118,641
Growth Investors Portfolio 17,060 36,363
Premier Growth Portfolio 137,095 23,436
Quasar Portfolio 43,545 48,895
Technology Portfolio 137,461 102,574
Dreyfus Fund:
Small Company Portfolio 16,142 22,736
Stock Index Fund 486,591 177,453
Zero Coupon 2000 Portfolio 1,358 1,604
Fidelity Trust:
Asset Manager Portfolio 212,368 112,369
Contrafund Portfolio 67,230 18,493
Growth Portfolio 472,135 164,703
High Income Portfolio 62,996 22,389
Investment Grade Bond Portfolio 24,522 19,714
Money Market Portfolio 403,133 700,628
Overseas Portfolio 33,811 30,247
Van Eck Trust:
Worldwide Emerging Markets Fund 8,115 6,039
Worldwide Hard Assets Fund 14,262 10,250
Worldwide Balanced Fund 0 0
WP&G Tomorrow Fund:
Tomorrow Long Term Portfolio 966 654
Tomorrow Short Term Portfolio 291 8,149
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (continued)
4. Purchases of Investments (continued)
For the year ended December 31, 1998, investment activity in the Fund was as
follows:
<TABLE>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
AIM Fund:
Capital Appreciation Fund $ 41,090 $ 5,698
International Equity Fund 48,023 13,817
Alliance Fund:
Conservative Investors Portfolio 16,659 2,503
Global Bond Portfolio 25 25
Growth Portfolio 335,018 64,273
Growth & Income Portfolio 321,401 80,021
Growth Investors Portfolio 61,367 28,296
Premier Growth Portfolio 134,550 15,636
Quasar Portfolio 42,436 18,065
Technology Portfolio 76,713 9,256
Dreyfus Fund:
Small Company Portfolio 44,897 7,257
Stock Index Fund 479,371 191,520
Zero Coupon 2000 Portfolio 1,430 902
Fidelity Trust:
Asset Manager Portfolio 178,285 70,713
Contrafund Portfolio 75,745 7,100
Growth Portfolio 450,845 155,477
High Income Portfolio 73,064 11,194
Investment Grade Bond Portfolio 21,374 4,462
Money Market Portfolio 1,010,895 868,182
Overseas Portfolio 67,338 20,383
Van Eck Trust:
Worldwide Emerging Markets Fund 17,116 2,269
Worldwide Hard Assets Fund 25,534 13,176
Worldwide Balanced Fund 184,339 438,993
WP&G Tomorrow Fund:
Tomorrow Long Term Portfolio 1,223 1,068
Tomorrow Short Term Portfolio 1,148 1,289
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY
OF NEW YORK (AI LIFE)
VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (continued)
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1999, transactions in accumulation units of the
account were as follows:
<TABLE>
AIM AIM Alliance
Capital International Conservative
Appreciation Equity Investors
1 Fund 1 Fund 1 Portfolio
----------------- ---------------- -----------------
<S> <C> <C> <C>
Units Purchased 1,815.88 1,518.69 837.47
Units Withdrawn (768.83) (597.31) (230.29)
Units Transferred Between Funds 34.44 351.75 (1,264.27)
Units Transferred From (To) AI Life 0.00 0.00 0.00
----------------- ---------------- -----------------
Net Increase (Decrease) 1,081.49 1,273.13 (657.09)
Units, at Beginning of the Year 3,326.20 2,934.43 2,033.26
----------------- ---------------- -----------------
Units, at End of the Year 4,407.69 4,207.56 1,376.17
================= ================ =================
Unit Value at December 31, 1999 $ 16.30 $ 17.78 $ 13.47
================= ================ =================
</TABLE>
<TABLE>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
1 Portfolio 1 Portfolio 1 Portfolio
----------------- ----------------- ----------------
<S> <C> <C> <C>
Units Purchased 10,603.38 10,168.74 235.79
Units Withdrawn (6,163.30) (4,414.12) (296.12)
Units Transferred Between Funds 6,748.91 (693.70) (1,668.63)
Units Transferred From (To) AI Life 0.00 0.00 0.00
----------------- ----------------- ----------------
Net Increase (Decrease) 11,188.99 5,060.92 (1,728.96)
Units, at Beginning of the Year 27,622.72 23,900.60 7,579.30
----------------- ----------------- ----------------
Units, at End of the Year 38,811.71 28,961.52 5,850.34
================= ================= ================
Unit Value at December 31, 1999 $ 28.74 $ 21.20 $ 17.54
================= ================= ================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
<PAGE>
<TABLE>
Alliance Alliance
Premier Premier Alliance
Growth Growth Quasar
1 Portfolio 2 Portfolio 1 Portfolio
----------------- ----------------- ----------------
<S> <C> <C> <C>
Units Purchased 4,266.78 0.00 2,128.54
Units Withdrawn (1,445.24) 0.00 (3,979.84)
Units Transferred Between Funds 4,110.34 0.00 1,477.91
Units Transferred From (To) AI Life 0.00 0.00 0.00
----------------- ----------------- ----------------
Net Increase (Decrease) 6,931.88 0.00 (373.39)
Units, at Beginning of the Year 9,084.83 0.00 9,743.20
----------------- ----------------- ----------------
Units, at End of the Year 16,016.71 0.00 9,369.81
================= ================= ================
Unit Value at December 31, 1999 $ 19.75 $ 20.26 $ 13.32
================= ================= ================
</TABLE>
<TABLE>
Dreyfus
Small
Alliance Alliance Company
Quasar Technology Stock
2 Portfolio 1 Portfolio 1 Portfolio
----------------- ----------------- ----------------
<S> <C> <C> <C>
Units Purchased 0.00 4,121.07 1,483.93
Units Withdrawn 0.00 (4,043.52) (1,494.67)
Units Transferred Between Funds 0.00 2,047.47 (607.64)
Units Transferred From (To) AI Life 0.00 0.00 0.00
----------------- ----------------- ----------------
Net Increase (Decrease) 0.00 2,125.02 (618.38)
Units, at Beginning of the Year 0.00 9,426.69 4,108.77
----------------- ----------------- ----------------
Units, at End of the Year 0.00 11,551.71 3,490.39
================= ================= ================
Unit Value at December 31, 1999 $ 10.61 $ 30.88 $ 10.59
================= ================= ================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
<PAGE>
<TABLE>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
1 Fund 1 Portfolio 1 Portfolio
----------------- ----------------- ----------------
<S> <C> <C> <C>
Units Purchased 12,398.07 (4.45) 9,017.71
Units Withdrawn (8,191.82) (76.30) (5,407.11)
Units Transferred Between Funds 9,569.02 (6.29) 1,574.45
Units Transferred From (To) AI Life 0.00 0.00 0.00
----------------- ----------------- ----------------
Net Increase (Decrease) 13,775.27 (87.04) 5,185.05
Units, at Beginning of the Year 29,504.15 1,548.03 15,052.98
----------------- ----------------- ----------------
Units, at End of the Year 43,279.42 1,460.99 20,238.03
================= ================= ================
Unit Value at December 31, 1999 $ 23.97 $ 11.76 $ 17.23
================= ================= ================
Fidelity Fidelity High
Contrafund Growth Income
1 Portfolio 1 Portfolio 1 Portfolio
----------------- ----------------- ----------------
Units Purchased 3,848.68 12,848.81 4,594.61
Units Withdrawn (1,367.45) (8,534.23) (1,517.80)
Units Transferred Between Funds 733.96 5,481.12 (640.89)
Units Transferred From (To) AI Life 0.00 0.00 0.00
----------------- ----------------- -----------------
Net Increase (Decrease) 3,215.19 9,795.70 2,435.92
Units, at Beginning of the Year 6,295.21 52,617.34 6,877.72
----------------- ----------------- ----------------
Units, at End of the Year 9,510.40 62,413.04 9,313.64
================= ================= ================
Unit Value at December 31, 1999 $ 15.95 $ 25.28 $ 13.47
================= ================= ================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
<PAGE>
<TABLE>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
1 Portfolio 1 Portfolio 1 Portfolio
----------------- ---------------- -----------------
<S> <C> <C> <C>
Units Purchased 1,218.50 26,873.79 1,931.15
Units Withdrawn (797.33) (5,677.73) (980.78)
Units Transferred Between Funds (100.44) (47,794.33) (1,053.11)
Units Transferred From (To) AI Life 0.00 0.00 0.00
----------------- ---------------- -----------------
Net Increase (Decrease) 320.73 (26,598.27) (102.74)
Units, at Beginning of the Year 2,273.54 42,722.57 11,591.32
----------------- ---------------- -----------------
Units, at End of the Year 2,594.27 16,124.30 11,488.58
================= ================ =================
Unit Value at December 31, 1999 $ 11.80 $ 11.94 $ 19.90
================= ================ =================
</TABLE>
<TABLE>
Van Eck Van Eck WP&G
Worldwide Worldwide Tomorrow
Emerging Hard Long
Markets Assets Term
1 Fund 1 Fund 1 Portfolio
----------------- ----------------- ----------------
<S> <C> <C> <C>
Units Purchased 610.30 1,312.26 57.41
Units Withdrawn (217.14) (780.12) (45.94)
Units Transferred Between Funds (144.00) (26.99) 0.00
Units Transferred From (To) AI Life 0.00 0.00 0.00
----------------- ----------------- ----------------
Net Increase (Decrease) 249.16 505.15 11.47
Units, at Beginning of the Year 2,026.96 2,447.21 92.04
----------------- ----------------- ----------------
Units, at End of the Year 2,276.12 2,952.36 103.51
================= ================= ================
Unit Value at December 31, 1999 $ 12.04 $ 9.31 $ 16.15
================= ================= ================
</TABLE>
<TABLE>
WP&G
Tomorrow
Short
Term
1 Portfolio
-----------------
<S> <C>
Units Purchased 25.19
Units Withdrawn (606.37)
Units Transferred Between Funds 0.00
Units Transferred From (To) AI Life 0.00
-----------------
Net Increase (Decrease) (581.18)
Units, at Beginning of the Year 604.08
-----------------
Units, at End of the Year 22.90
=================
Unit Value at December 31, 1999 $ 13.73
=================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
<PAGE>
APPENDIX A
Maximum Initial Surrender Charge Per $1,000
of Initial Specified Face Amount
Issue Age Sex Smoker Status Surrender Charge
--------- --- ------------- ----------------
25 Male Nonsmoker $14.00
35 Male Nonsmoker 17.00
45 Male Nonsmoker 24.00
55 Male Nonsmoker 35.00
65 Male Nonsmoker 36.00
75 Male Nonsmoker 37.00
25 Male Smoker 16.00
35 Male Smoker 21.00
45 Male Smoker 29.00
55 Male Smoker 37.00
65 Male Smoker 37.00
75 Male Smoker 38.00
25 Female Nonsmoker 13.00
35 Female Nonsmoker 16.00
45 Female Nonsmoker 21.00
55 Female Nonsmoker 30.00
65 Female Nonsmoker 36.00
75 Female Nonsmoker 36.00
25 Female Smoker 14.00
35 Female Smoker 18.00
45 Female Smoker 24.00
55 Female Smoker 33.00
65 Female Smoker 36.00
75 Female Smoker 37.00
<PAGE>
APPENDIX B
AVERAGE ANNUAL TOTAL RETURNS
(As of 12/31/99)
<TABLE>
LIFE OF
FUND NAME (INCEPTION DATE) 1 YEAR 3 YEAR 5 YEAR 10 YEAR FUND
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Premier Growth (6/26/92) 32.32% 37.87% 36.03% N/A 26.31%
Quasar (8/5/96) 17.08% 9.87% N/A N/A 10.63%
Growth and Income (1/14/91) 11.37% 20.14% 23.91% N/A 15.48%
Growth (9/15/94) 34.47% 31.05% 31.35% N/A 30.61%
North American Government Income (5/3/94) 8.90% 7.50% 12.59% N/A 8.54%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income & Growth Fund (10/30/97) 18.02% N/A N/A N/A 24.69%
VP International (5/1/94) 64.04% 32.21% 24.28% N/A 20.07%
BERGER INSTITUTIONAL PRODUCTS TRUST
IPT New Generation (5/1/00) (1) 144.20 55.10 N/A N/A 47.50%
IPT Small Company Growth (5/1/96) (2) 91.45% 33.21% N/A N/A 26.24%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II AND III
VIP II Index 500 (8/27/92) 20.52% 27.11% 28.16% N/A 21.07%
VIP II Contrafund (1/3/95) 24.25% 26.10% N/A N/A 27.73%
VIP III Balanced (1/3/95) 4.55% 14.54% N/A N/A 13.50%
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Global Income (1/12/98) (3) -1.01% N/A N/A N/A 3.59%
CORESM Large Cap Growth (2/13/98) 35.42% N/A N/A N/A 27.69%
CORESM U.S. Equity (2/13/98) 24.30% N/A N/A N/A 20.75%
International Equity (1/12/98) (4) 31.85% N/A N/A N/A 26.26%
MORGAN STANLEY UNIVERSAL INSTITUTIONAL FUNDS
Emerging Markets Equity (10/1/96) 94.70% 13.98% N/A N/A 12.13%
Fixed Income (1/2/97) -1.63% N/A N/A N/A 5.29%
High Yield (1/2/97) 7.10% N/A N/A N/A 8.43%
Mid Cap Growth (10/18/99) N/A N/A N/A N/A 38.40%*
Mid Cap Value (1/2/97) 20.11% N/A N/A N/A 25.25%
Technology (11/30/99) N/A N/A N/A N/A 24.16%*
Money Market (1/4/99) (5) 4.65% N/A N/A N/A 4.65%
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST(6)
AMT Partners Portfolio (3/22/94) 7.37% 13.67% 21.04% N/A 17.47%
PIMCO VARIABLE INSURANCE TRUST
Long -Term U.S. Government (4/30/99) N/A N/A N/A N/A N/A
Total Return Bond (12/31/97) (7) -0.58% N/A N/A N/A 3.91%
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (VIP)
(8)
Templeton International Securities- Class 2 (5/1/92) 23.23% 15.21% 17.03% N/A 15.25%
Templeton Developing Markets Securities- Class 2 53.27% -5.08% N/A N/A -5.45%
(3/1/96)
Templeton Growth Securities - Class 2 (3/15/94) 20.84% 14.34% 15.36% N/A 13.73%
--------------------------------------------------------------------------------------------------------------------
* Period less than one year, return is cumulative not annualized.
</TABLE>
<PAGE>
This performance information reflects the total income generated by the Fund net
of total fund operating expenses, plus capital gains and losses, realized or
unrealized and assumes reinvestment of dividends and distributions. The data
assumes the relevant subaccount was in existence on the Fund's inception date.
The performance results do not reflect: monthly deductions; cost of insurance;
surrender charges; sales loads; mortality and expense risk charges; DAC taxes;
and any state or local premium taxes. If these charges were included, the total
return figures would be lower. These charges and deductions can have a
significant effect on policy, account, insurance benefits and cash surrender
values, as illustrated in the prospectus. Past performance cannot predict or
guarantee future results. The investment return and principal value will
fluctuate, so that units, when redeemed may be worth more or less than their
original cost. For more information, please refer to the Funds Prospectus.
(1) The performance information shown is for the Berger New Generation Fund, a
corresponding retail Berger Fund that has the same investment objectives
and substantially the same investment strategies as the Berger IPT-New
Generation Fund, which commences operations on May 1, 2000. This
information is not a substitute for the performance of the Berger IPT-New
Generation Fund, and is not an indication of its past or future
performance. Differences in asset size and in cash flows are likely to
cause the performance of the Funds to differ. In addition, the performance
information shown does not reflect the deduction of charges or expenses
attributable to the variable insurance contract through which the Berger
IPT-New Generation Fund's shares purchased, which would lower returns.
Given the Fund's focus on leading edge companies and those in rapidly
changing industries, its investment may involve greater risks and price
volatility than those in companies in more stable industries. IPO's have
made a significant contribution to the Fund's recent performance. There can
be no assurance that such contribution will continue.
(2) Investments in small companies may involve greater risks, including price
volatility, and rewards than investments in larger companies.
(3) A fund's foreign investments and active management techniques entail risks
in addition to those customarily associated with investing in
dollar-denominated securities of U.S. issuers. Compared with U.S.
securities markets, foreign markets may be less liquid, more volatile and
less subject to governmental regulation, and may make available less public
information about issuers. The fund may incur losses because of changes in
securities prices expressed in local currencies, movements in exchange
rates, or both. These risks are more fully described in the prospectus.
(4) In particular, the securities markets of emerging countries in which
certain funds may invest without limit are less liquid, subject to greater
price volatility, have smaller market capitalizations, have problems with
share registration and custody, have less government regulation and are not
subject to as extensive and frequent accounting, financial and other
reporting requirements as the securities markets of more developed
countries. At times, the Fund may be unable to sell certain of its
portfolio securities without a substantial drop in price, if at all.
(5) Investment in the Money Market Portfolio is neither insured nor guaranteed
by the FDIC or the U.S. Government. There can be no assurance that the
portfolio will be able to maintain a stable net asset value.
(6) Shares of the separate AMT Portfolios of Neuberger Berman Advisers
Management Trust are sold only through the currently effective prospectus
and are not available to the general public. Shares of the AMT Portfolios
may be purchased only by life insurance companies, to be used with their
separate accounts which fund variable annuity and variable life insurance
policies. Neuberger Berman Management may absorb certain expenses of the
AMT Portfolios. Without this arrangement which is subject to change, the
total returns of the portfolios could have been less. Total return includes
reinvestment of dividends and capital gains distributions. Performance data
quoted represents past performance and the investment return and principal
value of an investment will fluctuate so that the shares, when redeemed,
may be worth more or less than the original cost. Please read the
prospectus carefully before you invest or send money.
The investments for the AMT Portfolios are managed by the same portfolio
manager(s) who manage one or more other mutual funds that have similar
names, investment objectives and investment styles as the AMT Portfolios.
You should be aware that the AMT Portfolios are likely to differ from the
other mutual funds in size, cash flow pattern and tax matters. Accordingly,
the holdings and performance of the AMT Portfolios can be expected to vary
from those of the other mutual funds.
(7) The Total Return Bond Portfolio may invest a portion of its assets in
foreign securities. Investments in foreign securities and markets pose
different and possibly greater risk than those customarily associated with
domestic securities, including currency fluctuations, foreign taxes and
political instability.
(8) Standardized performance for Class 2 shares represents a `blended' figure
containing (a) for periods prior to Class 2's inception on 5/1/97,
historical results of Class 1 shares; and (b) for periods after 5/1/97,
Class 2 results reflecting an additional 12b-1 fee expense which also
affects all future performance. Blended figures assume reinvestment of
dividends and capital gains.
[Back cover]
The Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains additional information about American International Life Assurance
Company of New York, the policy and the Separate Account which may be of
interest to you. The Web site also contains additional information about the
policy's variable investment options.
