Filed with the Securities and Exchange Commission on January 5, 2001
Registration No. 333-45172
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-6
POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: Variable Account B
B. Name of depositor: American International Life Assurance Company of
New York
C. Complete address of depositor's principal executive offices:
80 Pine Street, New York, NY 10005
D. Name and address of agent for service:
Kenneth D. Walma, Vice President and General Counsel
One Alico Plaza
600 King Street
Wilmington, DE 19801
COPIES TO:
Michael Berenson, Esq. and Ernest T. Patrikis, Esq.
Jorden Burt Boros Cicchetti Senior Vice President and General Counsel
Berenson & Johnson, LLP American International Group, Inc.
Suite 400 East 70 Pine Street
1025 Thomas Jefferson Street, NW New York, NY 10270
Washington, DC 20007-0805
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on January 5, 2001 pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(i) of Rule 485
|_| on ______ pursuant to paragraph (a)(i) of Rule 485
|_| on _____ pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
E. Title and amount of securities being registered:
Flexible Premium Variable Life Insurance Policies.
F. Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration
Statement.
This post-effective amendment no. 1 to the registration statement on Form
S-6 (File No. 333-45172) is being filed pursuant to Rule 485(b) under the
Securities Act of 1933, as amended, to supplement the registration
statement with an additional prospectus and related documents. This
amendment relates only to the prospectus and documents included herein and
does not otherwise delete, amend, or supersede any information contained
in the registration statement.
<PAGE>
Part I
<PAGE>
[Gemstone VUL Logo] American International Life
Assurance Company of New York
Variable Account B
80 Pine Street
New York, New York 10005
1-800-340-2765
Flexible Premium Variable Universal Life Group and Individual Policies
American International Life Assurance Company of New York is offering life
insurance coverage under Gemstone VUL to individuals and to groups. The
description of the policy applies equally to an individual policy, a group
policy, and a certificate issued under a group policy. The policy is a flexible
premium variable universal life insurance policy that allows you, the owner of
the policy, within limits, to:
o Select the face amount of life insurance. You may within limits
change your initial selection as your insurance needs change.
o Select the amount and timing of premium payments. You may make more
premium payments than scheduled or stop making premium payments.
o Allocate premium payments and your policy's Account Value among the
variable investment options and the guaranteed investment option.
o Receive payments from your policy while the Insured is alive through
loans, partial withdrawals, or a total surrender.
This document contains information about the policy. You should read this
document carefully before you decide to purchase the policy. You should also
keep this document for future reference.
Neither the policy nor shares of the portfolios are deposits or obligations of,
or guaranteed or endorsed by, a bank and they are not federally insured by the
Federal Deposit Insurance Corporation or any other government agency.
The Securities and Exchange Commission has not approved or disapproved the
policy or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
January 5, 2001
<PAGE>
Investment Options
------------------ The Variable Account is divided into 33 subaccounts. Each
subaccount invests in shares of a portfolio of the AIM
Variable Insurance Funds, Alliance Variable Products Series
Fund, Inc., American Century Portfolios, Inc., Anchor Series
Trust, Dreyfus Stock Index Fund, Dreyfus Variable Investment
Fund, Fidelity Variable Insurance Products Fund, Fidelity
Variable Variable Insurance Products Fund II, Franklin Templeton
Investment Variable Insurance Products Trust (VIP), J.P. Morgan Series
Options Trust II, Neuberger Berman Advisers Management Trust,
Oppenheimer Variable Account Funds, or SunAmerica Series
Trust. Each portfolio is named below. The prospectuses for
these mutual funds contain information about their
respective portfolios. You should read these prospectuses
------------------ carefully.
AIM Variable Insurance Funds
Managed by AIM Advisors, Inc.
o V.I. Capital Appreciation Fund
o V.I. International Equity Fund
Alliance Variable Products Series Fund, Inc.
Managed by Alliance Capital Management L.P.
o Premier Growth Portfolio
o Real Estate Investment Portfolio
o Technology Portfolio
o Utility Income Portfolio
American Century Variable Portfolios, Inc.
Managed by American Century Investment Management, Inc.
o VP Capital Appreciation Fund
o VP Income & Growth Fund
Anchor Series Trust
Managed by Wellington Management Company, LLP
o Capital Appreciation Portfolio
o Growth Portfolio
o Natural Resources Portfolio
Dreyfus Stock Index Fund
Managed by The Dreyfus Corporation and Mellon Equity Associates
Dreyfus Variable Investment Fund
Managed by The Dreyfus Corporation
o Small Company Stock Portfolio
Fidelity Variable Insurance Products Fund
Managed by Fidelity Management & Research Company
o VIP Growth Portfolio: Initial Class
o VIP High Income Portfolio: Initial Class
o VIP Money Market Portfolio: Initial Class
<PAGE>
Fidelity Variable Insurance Products Fund II
Managed by Fidelity Management & Research Company
o VIP II Asset Manager Portfolio: Initial Class
o VIP II Contrafund(R) Portfolio: Initial Class
o VIP II Investment Grade Bond Portfolio: Initial Class
Franklin Templeton Variable Insurance Products Trust
Managed by Templeton Investment Counsel, LLC
o Templeton Asset Strategy Fund - Class 1
J.P. Morgan Series Trust II
Managed by J.P. Morgan Investment Management Inc.
o Bond Portfolio
o Disciplined Equity Portfolio
Neuberger Berman Advisers Management Trust
Managed by Neuberger Berman Management Inc.
o AMT Partners Portfolio
o AMT Limited Maturity Bond Portfolio
Oppenheimer Variable Account Funds
Managed by OppenheimerFunds, Inc.
o Oppenheimer Global Securities Fund/VA
o Oppenheimer Main Street Growth & Income Fund/VA
SunAmerica Series Trust
Managed by SunAmerica Asset Management Corp.
o Alliance Growth Portfolio
o Growth-Income Portfolio
o Global Bond Portfolio
o MFS Mid-Cap Growth Portfolio
o Aggressive Growth Portfolio
o SunAmerica Balanced Portfolio
o Marsico Growth Portfolio
----------------- You may allocate your Account Value to the Guaranteed
Account. The Guaranteed Account is part of our general
account. We will credit interest equal to at least an
Guaranteed effective rate of 4% per year, compounded annually on that
Investment Option 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.
<PAGE>
================================================================================
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 Gemstone VUL Policy................................................
Applying for a Policy.......................................................
Your Right to Cancel the Policy.............................................
Premium.....................................................................
Restrictions on Premium.................................................
Minimum Initial Premium.................................................
Planned Periodic Premium................................................
Additional Premium......................................................
Effect of Premium Payments..............................................
No Lapse Provision......................................................
Grace Period............................................................
Premium Allocations.....................................................
Crediting Premium.......................................................
The Investment Options..........................................................
Variable Investment Options.................................................
Guaranteed Investment Option................................................
Investing Your Account Value....................................................
Determining the Account Value...............................................
Transfers...................................................................
Dollar Cost Averaging (DCA).................................................
Automatic Rebalancing.......................................................
Death Benefit...................................................................
Life Insurance Proceeds.....................................................
Death Benefit Options.......................................................
Changes in Death Benefit Options............................................
Changes in Face Amount......................................................
Changes in Owner or Beneficiary.............................................
Cash Benefits During the Insured's Life ........................................
Policy Loans................................................................
Partial Withdrawals.........................................................
Systematic Withdrawal Program...............................................
Surrendering the Policy for Net Cash Surrender Value........................
<PAGE>
Payment Options for Benefits....................................................
Expenses of the Policy..........................................................
Deductions From Premium.....................................................
Monthly Deductions From Account Value.......................................
Deduction From Variable Account Assets......................................
Deductions Upon Policy Transactions ........................................
Supplemental Benefits and Riders................................................
Other Policy Provisions.........................................................
Right to Exchange or Convert................................................
Paid-Up Insurance Benefit...................................................
Incontestability............................................................
Suicide Exclusion...........................................................
Misstatement of Age or Sex..................................................
Changes in the Policy or Benefits...........................................
When Proceeds Are Paid......................................................
Reports to Owners...........................................................
Assignment..................................................................
Reinstatement...............................................................
Performance Information.........................................................
Federal Income Tax Considerations...............................................
Distribution of the Policy......................................................
About Us and the Accounts.......................................................
The Company.................................................................
The Variable Account........................................................
The Guaranteed Account......................................................
Our Directors and Executive Officers............................................
Other Information...............................................................
State Regulation............................................................
Legal Proceedings...........................................................
Legal Matters...............................................................
Published Ratings...........................................................
Financial Statements............................................................
Appendix A......................................................................
Appendix B......................................................................
<PAGE>
================================================================================
Special Terms
================================================================================
We have capitalized some special terms we use in this document. We have defined
these terms here.
We use Account Value to Account Value. The total amount in the
determine your policy benefits. Variable Account and the Guaranteed Account
attributable to your policy.
If you have a request, please Administrative Office. One Alico Plaza, P.O.
write to us at this address. Box 8718, Wilmington, Delaware 19801.
Attained Age. The Insured's age as of the
Policy Date plus the number of completed
policy years since the Policy Date.
Beneficiary. The person(s) who is (are)
entitled to the Life Insurance Proceeds
under the policy.
Cash Surrender Value. The Account Value less
any applicable surrender charge that would
be deducted upon surrender.
Code. The Internal Revenue Code of 1986, as
amended.
Death Benefit. The amount of life insurance
coverage. Before the Insured reaches
Attained Age 100, it is based on the death
benefit option you select. After the Insured
reaches Attained Age 100, it is equal to the
Account Value
You will specify the initial Face Face Amount. The amount of insurance
Amount in your policy specified by the owner and the base for
application. The policy will calculating the Death Benefit before the
also show the initial Face Insured reaches Attained Age 100.
Amount.
Grace Period. The period of time beginning
on a Monthly Anniversary during which the
policy will continue in force even though
your Net Cash Surrender Value is less than
the total monthly deduction then due.
Guaranteed Account. An account within the
general account that consists of all of our
assets other than the assets of the Variable
Account and any of our other separate
investment accounts.
1
<PAGE>
Insured. A person whose life is covered
under the policy.
We measure contestability Issue Date. The date the policy is actually
periods from the Issue Date. issued. It may be later than the Policy
Date.
Life Insurance Proceeds. The amount payable
to a Beneficiary if the Insured dies while
life insurance coverage under the policy is
in force.
Loan Account. The portion of the Account
Value held in the Guaranteed Account as
collateral for policy loans.
Monthly Anniversary. The same day as the
Policy Date for each succeeding month. If
the day of the Monthly Anniversary is the
29th, 30th or 31st and a month has no such
day, the Monthly Anniversary is deemed to be
the last day of that month.
We use this value to determine Net Cash Surrender Value. The Cash Surrender
if your policy is in force. Value less any Outstanding Loan.
Net Premium. Any premium paid less any
expense charges deducted from the premium
payment.
Outstanding Loan. The total amount of policy
loans, including both principal and accrued
interest.
We use the Policy Date as the Policy Date. The date as of which we have
date coverage begins and to received the initial premium and an
determine all anniversary dates. application in good order. If a policy is
issued, life insurance coverage is effective
as of the Policy Date.
Valuation Date. Each day the New York Stock
Exchange is open for trading.
Valuation Period. A period commencing with
the close of trading on the New York Stock
Exchange (currently 4 p.m., Eastern Time) on
any Valuation Date and ending as of the
close of the New York Stock Exchange on the
next succeeding Valuation Date.
Variable Account. Variable Account B, a
separate investment account of ours.
2
<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
investment options, your policy universal life policy. Like traditional life
benefits will vary based upon insurance, the policy provides an initial
the returns earned by those minimum death benefit and cash benefits that
variable investment options. you can access through loans, partial
The returns may be zero or withdrawals or a surrender. Unlike
negative and you bear this risk. traditional life insurance, you may choose
how to invest your Account Value.
The policy allows you to make certain
choices that will tailor the policy to your
needs. When you apply for the policy, we
will ask you to make some of these choices.
You may also change your choices to meet
your changing insurance needs.
In addition, we may in the future offer
several riders to the policy. These riders
provide you with the flexibility to design
an insurance product that meets your
specific needs.
Applying for a Policy
You may apply for a policy to cover a
person, the Insured, who is age 85 or
younger.
Amount of life insurance When you apply for a policy, you must select
benefits. the Face Amount. The Face Amount must be at
least:
o $25,000 for Insureds age 17 and
younger.
o $50,000 for Insureds older than age
17.
When your coverage will Your policy will become effective after:
become effective.
o We accept your application.
o We receive an initial premium payment
in an amount we determine.
3
<PAGE>
o We have completed our review of your
application to our satisfaction.
Your right to cancel the policy. Once you receive your policy, you should
read it carefully. You have the right to
cancel the policy for any reason within 10
days after you receive it. If required by
the state where you live, we will extend the
10 days to the number required by law. If
you indicate on your application that this
policy will replace other insurance, you may
cancel it within 60 days after you receive
it.
Premium Payments
Minimum initial premium. Before your policy is effective, you must
pay the minimum initial premium. We will
calculate the initial minimum premium based
on a number of factors, such as the age, sex
and underwriting rate class of the proposed
Insured, the desired Face Amount, and any
supplemental benefits or riders applied for
and whether premium will be paid by
pre-authorized checking.
Planned periodic premium. When you apply for a policy you will select
the amount of premium payments you plan to
pay during the term of the policy. We will
establish a minimum for this amount. You
will also select intervals when you plan to
pay this premium amount. This may be
monthly, quarterly, semiannually, or
annually. Pre-authorized checking may be
required for monthly payments.
Flexibility in premium During the term of the policy, you may pay
payments. premium 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.
4
<PAGE>
Account Value
We will measure your benefits under the
policy by your Account Value. Your Account
Value will reflect:
o the premium you pay;
o the returns earned by the subaccounts
you select;
o the interest credited on amounts
allocated to the Guaranteed Account;
o any loans or partial withdrawals; and
o the policy charges and expenses we
deduct.
Death Benefit
Death Benefit Selections. When you apply for a policy, you must
select:
o The Face Amount.
o The death benefit option, which will
determine the manner in which we
calculate the death benefit for your
policy if the Insured dies before
Attained Age 100.
o The tax qualification option, which
will determine the manner in which we
test your policy under the Code for
meeting the definition of life
insurance.
Death Benefit Options. You may select from three death benefit
options:
Level Death Benefit o Level Death Benefit Option
Option.
The Death Benefit will be the greater
of:
(1) Face Amount; or
(2) Account Value on the date of
death multiplied by the
appropriate minimum death
benefit factor.
Variable Death Benefit o Variable Death Benefit Option
Option.
The Death Benefit will be the greater
of:
(1) Face Amount plus Account Value;
or
(2) Account Value on the date of
death multiplied by the
appropriate minimum death
benefit factor.
5
<PAGE>
Premium Recovery Death o Premium Recovery Death Benefit Option
Benefit Option.
The Death Benefit will be the greater
of:
(1) Face Amount plus premium paid
until the policy anniversary
prior to the date of death minus
partial withdrawals; 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 rate
class of the Insured.
If the Insured dies after Attained Age 100,
the Death Benefit will equal the Account
Value.
Tax Qualification Options. You may select from two tax qualification
options:
o Guideline Premium/Cash Value Corridor
Test - The minimum death benefit
factors are based upon the Code.
o Cash Value Accumulation Test - The
minimum death benefit factors are
based upon the 1980 Commissioners
Standard Ordinary Mortality Tables and
a 4% effective annual interest rate.
Changes You May Make. Within limits, after the first policy
anniversary and before the Insured reaches
Attained Age 100, you may change the Level
Death Benefit Option, the Variable Death
Benefit Option, and the Face Amount. You may
not change the Premium Recovery Death
Benefit Option or the tax qualification
option.
Cash Benefits During the Life of the Insured
During the life of the Insured, your policy
has cash benefits that you can access within
limits through loans, partial withdrawals or
a surrender.
o Loans -- You may borrow against your
Net Cash Surrender Value at any time.
If your policy is a modified endowment
contract, the Code may treat the loan
as a taxable distribution of income.
6
<PAGE>
o Partial Withdrawal -- You may withdraw
part of your Net Cash Surrender Value
after the first policy year. We may
deduct an administrative charge. If
you make a partial withdrawal during
the surrender charge period, we may
deduct a surrender charge. A partial
withdrawal may result in a decrease in
the Face Amount of your policy,
depending upon your death benefit
option.
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 Expenses of the Policy
returns under the policy.
Deductions from Premium For state premium taxes and other sales
expenses, we currently charge 5% of each
premium payment up to the target premium
amount and 2% of any premium paid in excess
of the target premium amount for policy
years 1-10.(1) Beginning in policy year 11,
we currently charge 3% of each premium
payment up to the target premium amount and
2% of any premium paid in excess of the
target premium amount. The maximum we will
charge in any policy year is 8%.
Account Value Charges (deducted monthly)
Cost of Insurance Charge(2) Current Guaranteed
------- ----------
Ranges from 0.00542 Ranges from 0.05667
per $1,000 of net per $1,000 of net
amount at risk to amount risk to
83.33333 per $1,000 83.33333 per $1,000
of net amount at of net amount at
risk(3) risk(3)
Administrative Charge Current Guaranteed
------- ----------
$7.50 $7.50
Acquisition Charge During the first 5 policy years, and the
first 5 policy years after a Face Amount
increase, there will be a charge for each
$1,000 in Face Amount based on the Insured's
age, sex and rate class.
7
<PAGE>
Variable Account Charges (deducted daily and shown as an annualized
percentage of average net assets)
Mortality and Expense
Risk Charge Current Guaranteed
------- ----------
Policy Years 1-10 0.75% 0.90%
Policy Years 11-20 0.25% 0.40%
Policy Years 21+ 0.10% 0.40%
Transaction Charges
Transfer Charge $25 for each transfer in excess of 12 each
policy year.
Surrender Charge During the first 10 policy years, and for 10
policy years following a Face Amount
increase, there will be a surrender charge
based on the initial Face Amount or the
increase in Face Amount. The lowest and
highest initial surrender charges are $3.59
and $34.34 per $1,000 of the Face Amount,
respectively.(4)
Surrender Charge on The surrender charge on a partial withdrawal
Partial Withdrawal is equal to the applicable surrender charge
multiplied by a fraction (equal to the
surrender charge applicable to the policy
immediately prior to the partial withdrawal,
multiplied by the ratio of (1) the reduction
in Face Amount, if any, associated with the
partial withdrawal to (2) the Face Amount
prior to the partial withdrawal).
Surrender Charge on The surrender charge on a decrease in Face
Decrease in Face Amount is equal to the applicable surrender
Amount charge multiplied by a fraction (equal to
the decrease in Face Amount divided by the
Face Amount of the policy prior to the
decrease).
Partial Withdrawal Currently, 4 partial withdrawals are allowed
Administrative per year. We may charge a $25 administrative
Charge charge per partial withdrawal. In certain
states the charge may be the lesser of $25
or 2% of the amount withdrawn.
----------
(1) A policy's target premium is based on the issue age, sex, and smoker
status of the Insured and the Face Amount.
(2) The current cost of insurance charge will never exceed the guaranteed cost
of insurance charge shown in the policy. If the Death Benefit is equal to
the Face Amount, the Face Amount plus Account Value, or the Face Amount
plus premium paid until the most recent policy anniversary minus partial
withdrawals, the net amount at
8
<PAGE>
risk is the difference between the Death Benefit divided by 1.0032737 and
the current Account Value. Otherwise, the net amount at risk is the
difference between the Death Benefit and the Account Value. (See "Expenses
of the Policy - Monthly Deductions From Account Value.")
(3) Current and guaranteed cost of insurance rates are based on the age (or
Attained Age in the case of increase in Face Amount), sex, rate class of
the Insured, and policy year.
(4) A policy's surrender charge is based on the age, sex and smoker status of
the Insured and the Face Amount. For a 45 year old non-smoking male
purchasing a policy with a $500,000 Face Amount the initial surrender
charge would be $4,960.00. For a 65 year old non-smoking male purchasing a
policy with a $200,000 Face Amount, the initial surrender charge would be
$4,482.00. (See Appendix A for the Table of Initial Surrender Charges.)
9
<PAGE>
Expenses of the variable In addition, you will indirectly bear the
investment options also reduce costs of the management fees and other
your returns. expenses paid from the assets of the
portfolios you select. The annual portfolio
expenses of the variable investment options
are set forth below.
PORTFOLIO EXPENSES BEFORE WAIVERS AND/OR REIMBURSEMENTS
The purpose of this table is to assist you in understanding the various costs
and expenses that you will incur indirectly as an owner of the policy. It is
based on historical portfolio expenses as a percentage of net assets before
waivers and/or reimbursements, if applicable, for the fiscal year ended December
31, 1999, unless stated otherwise. Portfolio expenses are not fixed or specified
under the terms of the policy. Actual expenses may vary.
<TABLE>
<CAPTION>
Annual
Management Other Operating
Fees Expenses Expenses
---------- -------- ---------
<S> <C> <C> <C>
AIM Variable Insurance Funds
AIM Advisors, Inc.
V.I. Capital Appreciation Fund .62% .11% .73%
V.I. International Equity Fund .75% .22% .97%
Alliance Variable Products Series Fund, Inc.
Alliance Capital Management L.P.
Premier Growth Portfolio 1.00% .05% 1.05%
Real Estate Investment Portfolio(1) .90% .82% 1.72%
Technology Portfolio(1) 1.00% .12% 1.12%
Utility Income Portfolio(1) .75% .39% 1.14%
American Century Variable Portfolios, Inc.
American Century Investment Management, Inc.
VP Capital Appreciation Fund 1.00% .00% 1.00%
VP Income & Growth Fund .70% .00% .70%
Anchor Series Trust
Wellington Management Company, LLP
Capital Appreciation Portfolio(2) .70% .04% .74%
Growth Portfolio .68% .05% .73%
Natural Resources Portfolio .75% .25% 1.00%
Dreyfus Stock Index Fund .25% .01% .26%
The Dreyfus Corporation
Dreyfus Variable Investment Fund
The Dreyfus Corporation
Small Company Stock Portfolio .75% .22% .97%
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C>
Fidelity Variable Insurance Products Fund
Fidelity Management & Research Company
VIP Growth Portfolio: Initial Class(3) .58% .08% .66%
VIP High Income Portfolio: Initial Class .58% .11% .69%
VIP Money Market Portfolio: Initial Class .18% .09% .27%
Fidelity Variable Insurance Products Fund II
Fidelity Management & Research Company
VIP II Asset Manager Portfolio: Initial Class(4) .53% .10% .63%
VIP II Contrafund(R) Portfolio: Initial Class(4) .58% .09% .67%
VIP II Investment Grade Bond Portfolio: Initial Class .43% .11% .54%
Franklin Templeton Variable Insurance Products Trust
Templeton Investment Counsel, LLC
Templeton Asset Strategy Fund - Class 1(5) .60% .18% .78%
J.P. Morgan Series Trust II
J.P. Morgan Investment Management, Inc.
Bond Portfolio .30% .45% .75%
Disciplined Equity Portfolio(6) .35% .52% .87%
Neuberger Berman Advisers Management Trust(7)
Neuberger Berman Management Inc.
AMT Partners Portfolio .80% .07% .87%
AMT Limited Maturity Bond Portfolio .65% .11% .76%
Oppenheimer Variable Account Funds
OppenheimerFunds, Inc.
Oppenheimer Global Securities Fund/VA .67% .02% .69%
Oppenheimer Main Street Growth & Income Fund/VA .73% .05% .78%
SunAmerica Series Trust(8)
SunAmerica Asset Management Corp.
Alliance Growth Portfolio .60% .03% .63%
Growth-Income Portfolio .53% .03% .56%
Global Bond Portfolio .69% .15% .84%
MFS Mid-Cap Growth Portfolio(9) .75% .42% 1.17%
Aggressive Growth Portfolio .70% .05% .75%
SunAmerica Balanced Portfolio .62% .04% .66%
Marsico Growth Portfolio(10) .85% .15% 1.00%
</TABLE>
----------
(1) After waivers and reimbursements by Alliance Capital Management L.P.,
expenses for the following portfolios for the year ended December 31,
1999, were as follows:
Annual
Management Other Operating
Fees Expenses Expenses
---- -------- --------
Real Estate Investment Portfolio .49% .46% .95%
Technology Portfolio .86% .09% .95%
Utility Income Portfolio .72% .23% .95%
11
<PAGE>
(2) Expenses for this portfolio are restated to reflect current expenses. On
July 19, 2000, the portfolio's shareholders approved a fee increase
effective August 1, 2000. Management fees, other expenses, and annual
operating expenses for the Capital Appreciation Portfolio for the year
ended December 31, 1999, were .62%, .05%, and .67%, respectively.
(3) After waivers and reimbursements by Fidelity Management & Research
Company, management fees, other expenses, and annual operating expenses
for the VIP Growth Portfolio: Initial Class for the year ended December
31, 1999, were .58%, .07%, and .65%, respectively.
(4) After waivers and reimbursements by Fidelity Management & Research
Company, expenses for the following portfolios for the year ended December
31, 1999, were as follows:
<TABLE>
<CAPTION>
Annual
Management Other Operating
Fees Expenses Expenses
---- -------- --------
<S> <C> <C> <C>
VIP II Asset Manager Portfolio: Initial Class .53% .09% .62%
VIP II Contrafund(R)Portfolio: Initial Class .58% .07% .65%
</TABLE>
(5) On 2/8/00, shareholders approved a merger and reorganization that combined
the fund with the Templeton Global Asset Allocation Fund, effective
5/1/00. The shareholders of that fund approved new management fees, which
apply to the combined fund effective 5/1/00. These figures show restated
total expenses based on the new fund fees and the assets of the fund as of
12/31/99 and not the assets of the combined fund. However, if the figures
reflected both the new fees and the combined assets, the fund's expenses
after 5/1/00 would be estimated as: Mangement fees 0.60%; other expenses
0.14%; and total annual fund operating expenses 0.74%.
(6) After waivers and reimbursements by J.P. Morgan Investment Management
Inc., management fees, other expenses, and annual operating expenses for
the Disciplined Equity Portfolio for the year ended December 31, 1999,
were .35%, .50%, and .85%, respectively.
(7) Neuberger Berman Advisers Management Trust is divided into portfolios,
each of which invests all of its net investable assets in a corresponding
series of Advisors Managements Trust. The figures reported under
"Management Fees" include the aggregate of the administration fees paid by
the portfolio and the management fees paid by its corresponding series.
Similarly, "Other Expenses" includes all other expenses of the portfolio
and its corresponding series.
(8) The expense information for the SunAmerica Series Trust is provided as of
the twelve-month period ended January 31, 2000, in accordance with its
fiscal year.
(9) The expenses for this portfolio are annualized. The investment adviser has
voluntarily agreed to waive fees or reimburse expenses, if necessary, to
keep annual operating expenses of MFS Mid-Cap Growth Portfolio at or below
1.15% of its average net assets. For the fiscal year ended January 31,
2000, the amount voluntarily waived or reimbursed was $4,045.
(10) This portfolio's inception date is December 29, 2000. The figure reported
under "Other Expenses" is based on estimated amounts for the current
fiscal year. The investment adviser has voluntarily agreed to waive fees
or reimburse expenses, if necessary, to keep annual operating expenses of
Marsico Growth Portfolio at or below 1.00% of its average net assets.
12
<PAGE>
Federal Tax Considerations
You should consider the impact Your purchase of, and transactions under,
of the Code. your policy may have tax consequences that
you should consider before purchasing the
policy. You may wish to consult a tax
adviser. In general, the Life Insurance
Proceeds will not be taxable income to the
Beneficiary. You will not be taxed as your
Account Value increases. Upon a distribution
from your policy, however, you may be taxed
on your Account Value increases.
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================================================================================
Purchasing a Gemstone VUL Policy
================================================================================
Applying for a Policy
To purchase a policy, you must complete an
application and submit it to us. You must
specify certain information in the
application, including the Face Amount, the
death benefit option, tax qualification
option and supplemental benefits and riders,
if any. We may also require information to
determine if the Insured is an acceptable
risk to us. We may require a medical
examination of the Insured and ask for
additional information.
Our age requirement for the You may apply for a policy to cover a person
Insured. who is age 85 or younger. A newborn may be
an Insured.
The minimum Face Amount. The Face Amount must be at least:
o $25,000 for Insureds age 17 and
younger.
o $50,000 for Insureds older than age
17.
We require a minimum initial You must pay a minimum initial premium in
premium. order for the policy to become effective or
for us to issue the policy. You may pay the
minimum initial premium when you submit the
application or at a later date.
We will not issue a policy until we have
accepted the application. We will accept an
application if it meets our underwriting
rules. We reserve the right to reject an
application for any reason or to "rate" an
Insured as a substandard risk.
When your coverage will be Your policy will become effective after:
effective.
o We accept your application.
o We receive an initial premium payment
in an amount we determine.
o We have completed our review of your
application to our satisfaction.
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<PAGE>
Your Right to Cancel the Policy
Period to Examine and Cancel. Once you receive your policy, you should
read it carefully. You have the right to
cancel the policy for any reason within 10
days after you receive it. If required by
the state where you live, we will extend the
10 days to the number required by law. If
you indicate on your application that this
policy will replace other insurance, you may
cancel it within 60 days after you receive
it.
This is your "period to examine and cancel."
Your right to cancel also applies to the
amount of any requested increase in Face
Amount. This does not apply to any increase
in Face Amount under the Automatic Face
Amount Increase Option.
How to cancel your policy. You may cancel the policy by returning it to
our Administrative Office or to our agent
within the applicable time with a written
request for cancellation. We will refund
your premium payments. Thus, the amount we
return will not reflect the returns of the
subaccounts or the Guaranteed Account that
you selected in your application.
Premium
The policy allows you to select the timing
and amount of premium payments within
limits. You should send premium payments to
our Administrative Office.
All your premium payments Restrictions on Premium. We will not accept
must comply with our a premium payment:
requirements.
o If it is less than $25, subject to our
discretion.
o If the premium would cause the policy
to fail to qualify as a life insurance
contract as defined in Section 7702 of
the Code. We will refund any portion
of any premium that causes the policy
to fail. In addition, we will monitor
the policy and will attempt to notify
you on a timely basis if a policy is
in jeopardy of becoming a modified
endowment contract under the Code.
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.
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<PAGE>
o If the Insured has reached Attained
Age 100.
Types of premium payments. Minimum Initial Premium. We will calculate
the minimum initial premium. The amount is
based on a number of factors, including the
age, sex and rate class of the proposed
Insured, the desired Face Amount and any
supplemental benefits or riders applied for,
and whether premium will be paid by
pre-authorized checking.
We establish a minimum Planned Periodic Premium. When you apply for
planned periodic premium. a policy, you select a plan for paying level
premium at specified intervals. The
intervals may be monthly, quarterly,
semi-annually or annually, for the life of
the policy. Pre-authorized checking may be
required for monthly payments. We will
establish a minimum amount that may be used
as the planned periodic premium.
You are not required to pay premium in
accordance with this plan. Rather, you can
pay more or less than the planned periodic
premium or skip a planned periodic premium
entirely. At any time you may request a
change in the amount and frequency of
planned periodic premium by sending a
written notice to our Administrative Office.
Additional Premium. Additional premium is
premium other than planned premium.
Additional premium may be paid in any amount
and at any time subject to the Code and our
restrictions on premium.
Depending on the Account Value at the time
of an increase in the Face Amount and the
amount of the increase requested, an
additional premium may be needed to prevent
your policy from terminating.
Paying premium may not ensure Effect of Premium Payments. In general,
that your policy remains in unless the no lapse provision is in effect,
force. paying all planned periodic premium may not
prevent your policy from lapsing. In
addition, if you fail to pay any planned
periodic premium, your policy will not
necessarily lapse.
16
<PAGE>
Your policy will lapse only when the Net
Cash Surrender Value on a Monthly
Anniversary is less than the amount of that
date's monthly deduction. This could happen
if the Net Cash Surrender Value has
decreased because:
o of the negative return or insufficient
return earned by one or more of the
subaccounts or the Guaranteed Account
you selected; or
o of any combination of the following --
you have Outstanding Loans, you have
made partial withdrawals, we have
deducted policy expenses, or you have
made insufficient premium payments to
offset the monthly deduction.
No lapse premium guarantee. No Lapse Provision. In general, during the
first five policy years, if you pay a
sufficient amount of premium, your policy
will not lapse even if your Net Cash
Surrender Value is insufficient to pay the
monthly deductions then due. You will be
eligible for the no lapse premium guarantee
if:
o You have not increased the Face
Amount, except under the Automatic
Face Amount Increase Option.
o You have not added any riders to your
policy since it was issued.
o Your policy has not been reinstated.
o All your premium paid to date, reduced
by any partial withdrawal and
Outstanding Loan, are at least equal
to the product of the minimum premium
shown in your policy information
section multiplied by the number of
months that have elapsed since the
Policy Date.
If you have requested a decrease in the Face
Amount, we may not be able to accept any
subsequent premium if such premium would
cause the policy to fail to qualify as a
life insurance contract under the Code. In
this event, the no lapse provision will end.
Your policy will not terminate Grace Period. Unless the no lapse provision
immediately upon your Account is in effect, in order for insurance
Value becoming insufficient. coverage to remain in force, the Net Cash
Surrender Value on each Monthly Anniversary
must be equal to or greater than the total
monthly deductions to be charged on that
Monthly Anniversary. If it is not, you have
a Grace Period of 61 days during which the
policy will continue in force. The policy
will lapse on the Monthly Anniversary that
the Net Cash Surrender Value is less than
the total monthly deductions then due. If we
do not receive a sufficient premium before
the end of the Grace Period, the policy will
terminate without value and no Life
Insurance Proceeds will be payable.
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<PAGE>
We will send you a written notice within 30
days of your policy lapsing. The notice will
state:
o A Grace Period of 61 days has begun as
of the date we mailed the notice.
How much you must pay to o The amount of premium required to
prevent your policy from prevent your policy from terminating.
terminating. This amount is equal to the amount
needed to increase the Net Cash
Surrender Value sufficiently to cover
total monthly deductions for the next
three Monthly Anniversaries.
If the Insured dies during the Grace Period,
we will still pay the Life Insurance
Proceeds to the Beneficiary. The amount we
pay will reflect a reduction for the unpaid
monthly deductions due on or before the date
of the Insured's death.
If your policy lapses with an Outstanding
Loan, you may have taxable income. Please
consult your tax adviser before taking a
loan.
Premium Allocations. In the application, you
specify the percentage of Net Premium to be
allocated to each subaccount and to the
Guaranteed Account. However, until the
period to examine and cancel expires, we
invest this amount in the Money Market
Subaccount. The first business day after
this period expires, we will reallocate your
Account Value in the Money Market Subaccount
based on the premium allocation percentages
in your application.
For subsequent premium, we will use the
allocation percentages you specified in the
application until you change them. You can
change the allocation percentages at any
time, by sending written notice to our
Administrative Office. The change will apply
to all premium received with or after your
notice.
Allocation Rules. Your allocation
instructions must meet the following
requirements:
o Each allocation percentage must be a
whole number; and
o Any allocation to a subaccount or to
the Guaranteed Account must be at
least 1% and the sum of your
allocations must equal 100%.
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<PAGE>
Crediting Premium. Your initial Net Premium
will be credited to your Account Value as of
the Policy Date. On the first business day
after the period to examine and cancel
expires, we will allocate it in accordance
with your allocation percentages. We will
credit and invest subsequent Net Premium on
the date we receive the premium or notice of
deposit at our Administrative Office.
If any premium requires us to accept
additional risk, we may allocate this amount
to the Money Market Subaccount until we
complete our underwriting.
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<PAGE>
================================================================================
The Investment Options
================================================================================
You may allocate your Account Value to:
o the subaccounts (which invest in the
variable investment options offered
under the policy); or
o the Guaranteed Account.
Variable Investment Options
Under the policy, you may currently allocate
your Account Value to any of the available
subaccounts. Each subaccount invests in a
specified portfolio of the AIM Variable
Insurance Funds, Alliance Variable Products
Series Fund, Inc., American Century
Portfolios, Inc., Anchor Series Trust,
Dreyfus Index Funds, Inc., Dreyfus Variable
Investment Fund, Fidelity Variable Insurance
Products Fund, Fidelity Variable Insurance
Products Fund II, Franklin Templeton
Variable Insurance Products Trust (VIP),
J.P. Morgan Series Trust II, Neuberger
Berman Advisers Management Trust,
Oppenheimer Variable Account Funds, or
SunAmerica Series Trust. These portfolios
operate similarly to a publicly-available
mutual fund but are only available through
the purchase of certain insurance contracts.
These portfolios may serve as the underlying
investment vehicles for other variable
insurance contracts issued by us and other
affiliated/unaffiliated insurance companies.
We do not believe that offering these
portfolios in this manner is disadvantageous
to you. The portfolios' management monitors
the portfolios for any conflicts among
contract owners.
Managed by AIM Advisors, AIM Variable Insurance Funds
Inc.
The V.I. Capital Appreciation Fund seeks
growth of capital through investment in
common stocks, with emphasis on medium- and
small-sized growth companies.
20
<PAGE>
The V.I. International Equity Fund seeks to
provide long-term growth of capital by
investing in a diversified portfolio of
international equity securities whose
issuers are considered to have strong
earnings momentum.
Managed by Alliance Capital Alliance Variable Products Series Fund, Inc.
Management L.P.
The Premier Growth Portfolio seeks growth of
capital. In pursuing its investment
objective, the Premier Growth Portfolio will
employ aggressive investment policies. Since
investments will be made based on their
potential for capital appreciation, current
income will be incidental to the objective
of capital growth. The portfolio is not
intended for investors whose principal
objective is assured income or preservation
of capital.
The Real Estate Investment Portfolio seeks a
total return on its assets from long-term
growth of capital and income primarily by
investing in the equity securities of
companies primarily engaged in, or related
to, the real estate industry.
The Technology Portfolio seeks growth of
capital through investments in companies
expected to benefit from advances in
technology. The portfolio invests
principally in a diversified portfolio of
securities of companies that use technology
extensively in the development of new or
improved products or processes.
The Utility Income Portfolio seeks current
income and capital appreciation by investing
primarily in the equity and fixed-income
securities of companies in the utilities
industry. The portfolio's investment
objective and policies are designed to take
advantage of the characteristics and
historical performance of securities of
utilities companies. The utilities industry
consists of companies engaged in the
manufacture, production, generation,
provision, transmission, sale and
distribution of gas, electric energy, and
communications equipment and services, and
the provision of other utility or
utility-related goods and services.
21
<PAGE>
Managed by American Century American Century Variable Portfolios, Inc.
Investment Management, Inc.
The VP Capital Appreciation Fund seeks
capital growth through the use of a growth
investment strategy developed by America
Century to invest in stocks of companies
that it believes will increase in value over
time. The strategy uses a bottom-up approach
to selecting stocks. That means American
Century first looks for strong, growing
companies to invest in, rather than simply
buying any company in a growing industry
sector.
The VP Income & Growth Fund seeks long-term
capital growth by investing in common
stocks. Income is a secondary objective.
American Century selects primarily from the
largest 1,500 publicly traded U.S. companies
and uses quantitative, computer-driven
models to construct the portfolio of stocks.
Managed by Wellington Anchor Series Trust
Management Company, LLP
The Capital Appreciation Portfolio seeks
long-term capital appreciation. The
portfolio invests in growth equity
securities, which are widely diversified by
industry and company.
The Growth Portfolio seeks capital
appreciation primarily through investments
in core equity securities that are widely
diversified by industry and company.
The Natural Resources Portfolio seeks a
total return in excess of the U.S. rate of
inflation as represented by the Consumer
Price Index. This portfolio invests
primarily in equity securities of U.S. or
foreign companies that are expected to
provide favorable returns in periods of
rising inflation.
22
<PAGE>
Managed by The Dreyfus Dreyfus Stock Index Fund
Corporation and Mellon Equity
Associates The Dreyfus Stock Index Fund seeks to match
the total return of the Standard & Poor's
500 Composite Stock Price Index. To pursue
this goal, the fund generally invests in all
500 stocks in the S&P 500(R) in proportion
to their weighting in the index.
The S&P 500 is an unmanaged index of 500
common stocks chosen to reflect the
industries of the U.S. economy and is often
considered a proxy for the stock market in
general. Each stock is weighted by its
market capitalization, which means larger
companies have greater representation in the
index than smaller ones. For example, as of
March 31, 2000, the fund's 10 largest
holdings represented more than 25% of its
total assets, consistent with the
composition of the index.
Managed by The Dreyfus Dreyfus Variable Investment Fund
Corporation
The Small Company Stock Portfolio seeks
investment returns (consisting of capital
appreciation and income) that are greater
than the total return performance of stocks
represented by the Russell 2500(TM) Stock
Index ("Russell 2500"). To pursue this goal,
the portfolio normally invests in a blended
portfolio of growth and value stocks of
small and midsize domestic companies, whose
market values generally range between $500
million and $5 billion. Stocks are chosen
through a disciplined process combining
computer modeling techniques, fundamental
analysis and risk management. Consistency of
returns and stability of the portfolio's
share price compared to the Russell 2500 are
primary goals of the investment process.
Managed by Fidelity Fidelity Variable Insurance Products Fund
Management & Research
Company The VIP Growth Portfolio seeks capital
appreciation through investment primarily in
common stock.
Subadvised by Fidelity The VIP High Income Portfolio seeks a high
Management & Research Far level of current income by investing
East Inc. and Fidelity primarily in income-producing debt
Management & Research securities, preferred stocks and convertible
(U.K.), Inc. securities, with emphasis on lower-quality
debt securities (commonly referred to as
"junk-bonds"), while also considering growth
of capital. The potential for high yield is
accompanied by higher risk.
23
<PAGE>
Subadvised by Fidelity The VIP Money Market Portfolio seeks to
Investments Money obtain as high a level of current income as
Management, Inc. is consistent with preserving capital and
providing liquidity. The portfolio will
invest only in high quality U.S. dollar
denominated money market securities of
domestic and foreign issuers. An investment
in the VIP Money Market Portfolio is neither
insured nor guaranteed by the U.S.
Government and there can be no assurance
that the portfolio will maintain a stable
$1.00 share price.
Managed by Fidelity Fidelity Variable Insurance Products Fund II
Management & Research
Company
Subadvised by Fidelity The VIP II Asset Manager Portfolio seeks to
Management & Research Far provide a high total return with reduced
East, Inc. and Fidelity risk over the long term by allocating its
Management & Research assets among stocks, bonds and short-term
(U.K.) Inc. money market instruments.
Subadvised by Fidelity The VIP II Contrafund(R) Portfolio seeks
Management & Research Far long-term capital appreciation by investing
East, Inc. and Fidelity in securities of companies whose value the
Management & Research manager believes is not fully recognized by
(U.K.) Inc. the public.
Subadvised by Fidelity The VIP II Investment Grade Bond Portfolio
Investments Money seeks as high a level of current income as
Management, Inc. is consistent with the preservation of
capital by investing in U.S. dollar
denominated investment-grade bonds.
Managed by Templeton Franklin Templeton Variable Insurance
Investment Counsel, Inc. Products Trust (VIP)
The Templeton Asset Allocation Fund seeks
high total return by investing in equity
securities of companies in any nation, debt
securities of companies and governments of
any nation, including emerging markets, and
money market instruments.
Managed by J.P. Morgan J.P. Morgan Series Trust II
Investment Management, Inc.
The Bond Portfolio seeks to provide high
total return consistent with moderate risk
of capital and maintenance of liquidity. The
portfolio invests primarily in fixed income
securities, including U.S. government and
agency securities, corporate bonds, private
placements, asset-backed and mortgage-backed
securities, that J.P Morgan believes have
the potential to provide a high total return
over time.
24
<PAGE>
The Disciplined Equity Portfolio seeks to
provide high total return from a portfolio
of selected equity securities. The portfolio
invests primarily in large- and
medium-capitalization U.S. companies.
Managed by Neuberger Berman Neuberger Berman Advisers Management Trust
Management Inc.
The AMT Partners Portfolio seeks to achieve
growth of capital by investing mainly in
stocks of mid- to large-capitalization
companies. Neuberger Berman looks for
well-managed companies whose stock prices
are undervalued.
The AMT Limited Maturity Bond Portfolio
seeks the highest available current income
consistent with liquidity and low risk to
principal; total return is a secondary goal.
Neuberger Berman looks for securities that
appear underpriced compared to securities of
similar structure and credit quality and
securities that appear likely to have their
credit ratings raised.
Managed by Oppenheimer Variable Account Funds
OppenheimerFunds, Inc.
The Oppenheimer Global Securities Fund/VA
seeks long-term capital appreciation by
investing a substantial portion of assets in
securities of foreign issuers, "growth-type"
companies, cyclical industries and special
situations that are considered to have
appreciation possibilities.
The Oppenheimer Main Street Growth & Income
Fund/VA seeks high total return, which
includes growth in the value of its shares
as well as current income, from equity and
debt securities.
Managed by SunAmerica Asset SunAmerica Series Trust
Management Corp.
The Aggressive Growth Portfolio seeks
capital appreciation by investing primarily
in equity securities of high growth
companies including small and mid growth
companies with market capitalization of $1.5
billion to $10 billion.
The SunAmerica Balanced Portfolio seeks
conservation of principal and capital
appreciation by maintaining, at all times, a
balanced portfolio of stocks and bonds with
at least 25% invested in fixed income
securities.
25
<PAGE>
Subadvised by Alliance The Alliance Growth Portfolio seeks
Capital Management L.P. long-term growth of capital by investing
primarily in common stocks and other equity
securities.
Subadvised by Alliance The Growth-Income Portfolio seeks growth of
Capital Management L.P. capital and income through investment
primarily in dividend-paying common stocks
of good quality.
Subadvised by Goldman The Global Bond Portfolio seeks high total
Sachs Asset Management return, emphasizing current income and, to a
International lesser extent, capital appreciation, by
investing in high fixed income securities of
U.S. and foreign issuers and transactions in
foreign currencies.
Subadvised by Massachusetts The MFS Mid-Cap Growth Portfolio seeks
Financial Services Company long-term growth of capital by investing
primarily in equity securities of
medium-sized companies, generally with
market capitalization between $1 billion and
$5 billion, that its subadviser believes
have above-average growth potential.
Subadvised by Marsico The Marsico Growth Portfolio seeks long-term
Capital Management, LLC growth of capital by investing under normal
circumstances at least 65% in equity
securities of large companies with a general
core position of 20 to 30 common stocks.
Guaranteed Investment Option
Under the policy, you may currently allocate
your Account Value to the Guaranteed
Account. In addition, if you request a loan,
we will allocate part of your Account Value
to the Loan Account, which is part of the
Guaranteed Account.
We treat each allocation and transfer
separately for purposes of crediting
interest and making deductions from the
Guaranteed Account.
Interest Credited On the Guaranteed Account.
All of your Account Value held in the
Guaranteed Account will earn interest at a
rate we determine in our sole discretion.
This rate will never be less than an
effective rate of 4% per year compounded
annually. The Loan Account portion of your
Account Value may earn a different interest
rate than the remaining portion of your
Account Value in the Guaranteed Account.
26
<PAGE>
Deductions from the Guaranteed Account. We
will deduct any transfers, partial
withdrawals and policy expenses from the
Guaranteed Account and the subaccounts on a
pro rata basis, unless you tell us
otherwise. No portion of the Loan Account
may be used for this purpose.
We treat amounts transferred from the Loan
Account to the remaining portion of the
Guaranteed Account as a new allocation to
the Guaranteed Account. We will credit this
transfer with interest at the rate then in
effect for Guaranteed Account allocations.
Payments from the Guaranteed Account. If we
must pay any part of the proceeds for a
loan, partial withdrawal or surrender from
the Guaranteed Account, we may defer payment
for up to six months from the date we
receive the written request. If we defer
payment from the Guaranteed Account for 10
days or more, we will pay interest on the
amount we deferred at an effective rate of
4% per year, compounded annually, until we
make payment.
27
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================================================================================
Investing Your Account Value
================================================================================
The policy allows you to choose how to
invest your Account Value. Your Account
Value will increase or decrease based on:
o The returns earned by the subaccounts
you select.
o Interest credited on amounts allocated
to the Guaranteed Account.
We will determine your policy benefits based
upon your Account Value. If your Account
Value is insufficient, your policy may
terminate. If the Net Cash Surrender Value
on a Monthly Anniversary is less than the
amount of that date's monthly deduction, the
policy will lapse and a Grace Period will
begin.
Determining the Account Value
On the Policy Date, your Account Value is
equal to your initial Net Premium. If the
Policy Date and the Issue Date are the same
day, the Account Value is equal to your
initial premium, less the premium expenses
and monthly deduction we deduct.
On each Valuation Date thereafter, your
Account Value is equal to:
o that portion of your Account Value
held in the subaccounts, plus
o that portion of your Account Value
held in the Guaranteed Account.
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<PAGE>
Your Account Value will reflect:
o the premium you pay;
o the returns earned by the subaccounts
you select;
o the interest credited on amounts
allocated to the Guaranteed Account;
o any loans or partial withdrawals; and
o the policy charges and expenses we
deduct.
Account Value in the Subaccounts. We measure
your Account Value in the subaccounts by the
value of the subaccounts' accumulation units
we credit to your policy. When you allocate
premium or transfer part of your Account
Value to a subaccount, we credit your policy
with accumulation units in that subaccount.
The number of accumulation units equals the
amount allocated to the subaccount divided
by that subaccount's accumulation unit value
for the Valuation Date when the allocation
is effected.
The number of subaccount accumulation units
we credit to your policy will:
o increase when Net Premium is allocated
to the subaccount, amounts are
transferred to the subaccount, and
loan repayments are credited to the
subaccount.
o decrease when the allocated portion of
the monthly deduction is taken from
the subaccount, a policy loan is taken
from the subaccount, an amount is
transferred from the subaccount, or a
partial withdrawal, including the
partial withdrawal charge, is taken
from the subaccount.
Accumulation Unit Values. A subaccount's
accumulation unit value varies to reflect
the return of the portfolio and may increase
or decrease from one Valuation Date to the
next. We arbitrarily set the accumulation
unit value for each subaccount at $10 when
the subaccount was established. Thereafter,
the accumulation unit value equals the
accumulation unit value for the prior
Valuation Period multiplied by the net
investment factor for the current Valuation
Period.
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<PAGE>
Net Investment Factor. The net investment
factor is an index we use to measure the
investment return earned by a subaccount
during a Valuation Period. It is based on
the change in net asset value of the
portfolio shares held by the subaccount and
reflects any dividend or capital gain
distributions on the portfolio shares and
the deduction of the daily mortality and
expense risk charge.
Guaranteed Account Value. On any Valuation
Date, the Guaranteed Account portion of your
Account Value equals:
o the total of all Net Premium,
allocated to the Guaranteed Account,
plus
o any amounts transferred to the
Guaranteed Account, plus
o interest credited on the amounts
allocated and transferred to the
Guaranteed Account, less
o the amount of any transfers from the
Guaranteed Account, less
o the amount of any partial withdrawals,
including the partial withdrawal
charge, taken from the Guaranteed
Account, less
o the allocated portion of the monthly
deductions, if any, deducted from the
Guaranteed Account, plus
o the amount of the Loan Account.
If you take a policy loan, we transfer the
amount of the loan to the Loan Account. The
value of your Loan Account includes
transfers to and from the Loan Account as
you take and repay loans and interest
charged and credited on the Loan Account.
Transfers
You may transfer Account Value among the
subaccounts and to and from the Guaranteed
Account after the period to examine and
cancel. All transfer requests, except for
those made under the dollar cost averaging,
automatic rebalancing and systematic
withdrawal programs, must satisfy the
following requirements:
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<PAGE>
o Minimum amount of transfer -- You must
transfer at least $250 or the balance
in the subaccount or the Guaranteed
Account, if less;
o Form of transfer request -- You must
make a written request unless you have
established prior authorization to
make telephone transfers or by other
means we make available;
o Transfers from the Guaranteed Account
-- The maximum you may transfer in a
policy year is equal to 25% of your
Account Value in the Guaranteed
Account (not including the Loan
Account) on the most recent policy
anniversary reduced by all prior
partial withdrawals and transfers
taken from the Guaranteed Account
during that policy year.
Date We Process Your Transfer Request. We
must receive your transfer request at our
Administrative Office. We process transfers
on the same date we receive your transfer
request assuming the New York Stock Exchange
is open for trading. The transfer will be
made at the price next computed after we
receive your transfer request. We may,
however, defer transfers under the same
conditions as described under "Other Policy
Provisions - When Proceeds Are Paid."
Number of Permitted Transfers/Transfer
Charge. We do not currently limit the number
of transfers you may make. However, for each
transfer in excess of 12 during a policy
year, we will assess a $25 transfer charge.
All transfers processed on the same business
day will count as one transfer for purposes
of determining the number of transfers you
have made in a policy year. Transfers in
connection with the dollar cost averaging
and automatic rebalancing programs will not
count against the 12 free transfers in a
policy year. We reserve the right to
increase the number of free transfers
allowed in any policy year.
Telephone Transfers. If you have completed
an authorization form allowing telephone
transfers, you may request transfers by
telephone. We confirm all telephone
transfers in writing. You should review all
confirmations to determine if there have
been any unauthorized transfers.
We will use reasonable procedures to confirm
that telephone transfer requests are
genuine. We will not be liable for any loss
due to unauthorized or fraudulent
instructions.
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We reserve the right to suspend telephone
transfer privileges at any time.
Dollar Cost Averaging (DCA)
Dollar cost averaging is a systematic method
of investing at regular intervals. By
investing at regular intervals, the cost of
the securities is averaged over time and
perhaps over various market cycles.
If you select this program, we will
automatically transfer monthly a portion of
your Account Value. Unless you tell us
otherwise, we will allocate the transfer as
you have specified in your most current
premium allocation instructions. However,
not less than 1% may be allocated to any
subaccount or to the Guaranteed Account. You
may instruct us to make the transfers from
any subaccount or the Guaranteed Account.
There is no charge for this program.
Dollar Cost Averaging From the Guaranteed
Account with Six Month Bonus Rate (DCA Plus
Program). We may make available a six-month
bonus interest rate if you use the dollar
cost averaging feature from the Guaranteed
Account. We will credit the Net Premium to
the DCA Plus Guaranteed Account. This dollar
cost averaging option must be elected at the
time of application and only applies to
premium received during the initial six
months following the Policy Date. We will
transfer monthly one-sixth of your Account
Value in the DCA Plus Guaranteed Account
over a period of six months.
During this period, we may credit an
interest rate in addition to the interest
rate that we are crediting on allocations or
transfers to the Guaranteed Account at that
time. Additional amounts may not be
allocated to the DCA Plus Guaranteed Account
after the six-month period.
If you terminate dollar cost averaging while
your Account Value includes amounts in the
DCA Plus Guaranteed Account, we will
transfer that amount to the Guaranteed
Account. It will earn interest at the
current rate we are crediting on allocations
or transfers to the Guaranteed Account.
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We reserve the right to establish dollar
cost averaging transfer limits, to restrict
the subaccounts from which dollar cost
averaging transfers may be made, and to
eliminate this option all together.
Processing Your Automatic DCA Transfers. We
will begin to process your automatic
transfers:
o On the first Monthly Anniversary
following the end of the period to
examine and cancel if you request the
automatic DCA transfers when you apply
for your policy.
o On the second Monthly Anniversary
following the receipt of your request
at our Administrative Office if you
elect the option after you applied for
the policy.
We will stop processing automatic DCA
transfers if:
o The funds in the transferring
subaccount or the Guaranteed Account
have been depleted;
o We receive your written request at our
Administrative Office to cancel future
transfers;
o We receive notification of death of
the Insured; or
o Your policy goes into a Grace Period.
Dollar cost averaging may lessen the impact
of market fluctuations on your investment.
Using dollar cost averaging does not
guarantee investment gains or protect
against loss in a declining market.
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Automatic Rebalancing
We may offer an automatic rebalancing
program that rebalances 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 reset
your Account Value in the Guaranteed Account
and the subaccounts to your most recent
allocation instructions. You may elect the
frequency (monthly, quarterly,
semi-annually, or annually) as measured from
the policy anniversary. On the appropriate
day, we will rebalance your Account Value by
reallocating it according to your most
recent allocation instructions.
There is no charge for this program. We will
not count transfers resulting from automatic
rebalancing against your free transfers.
We will stop processing automatic
rebalancing transfers if:
o we receive your written request at our
Administrative Office to cancel future
transfers;
o we receive notification of death of
the Insured; or
o your policy goes into a Grace Period.
We reserve the right to suspend or modify
automatic rebalancing or to charge an
administrative fee for excessive election or
allocation changes. Automatic rebalancing is
not available if the Grace Period has
commenced.
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Death Benefit
================================================================================
Life Insurance Proceeds
During the policy term, we will pay the Life
Insurance Proceeds to the Beneficiary after
the Insured's death. To make payment, we
must receive at our Administrative Office:
o satisfactory proof of the Insured's
death; and
o the policy.
The Beneficiary will receive the Payment of Life Insurance Proceeds. We will
Life Insurance Proceeds in one pay the Life Insurance Proceeds generally
lump sum. within seven days after we receive the
required information. We will pay the Life
Insurance Proceeds to the Beneficiary in one
lump sum. Payment of the Life Insurance
Proceeds may also be affected by other
provisions of the policy.
We will pay interest on the Life Insurance
Proceeds from the date of the Insured's
death to the date of payment as required by
applicable state law.
Amount of Life Insurance Proceeds. We will
determine the Life Insurance Proceeds as of
the date of the Insured's death. The Life
Insurance Proceeds will depend on the tax
qualification option that you select and
will equal:
o the amount of the Death Benefit
determined according to the Attained
Age of the Insured as described below;
plus
o any other benefits then due from
riders to the policy; minus
o the Outstanding Loan, if any, minus
o any overdue monthly deductions if the
Insured dies during a Grace Period.
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Death Benefit Options
Before Attained Age 100. Before the Insured reaches Attained Age 100,
we will determine the Death Benefit
according to the death benefit option you
select. You may select from three death
benefit options.
Level Death Benefit Option. o Level Death Benefit Option
The Death Benefit will be the greater
of:
(1) Face Amount; or
(2) Account Value on the date of
death multiplied by the
appropriate minimum death
benefit factor
You should consider this death benefit
option if you want to minimize your
cost of insurance.
Variable Death Benefit o Variable Death Benefit Option
Option.
The Death Benefit will be the greater
of:
(1) Face Amount plus Account Value
on the date of death; or
(2) Account Value on the date of
death multiplied by the
appropriate minimum death
benefit factor.
You should consider this death benefit
option if you want your Death Benefit
to vary with your Account Value.
Premium Recovery Death o Premium Recovery Death Benefit Option
Benefit Option.
The Death Benefit will be the greater
of:
(1) Face Amount plus premium paid
until the policy anniversary
prior to the date of death minus
partial withdrawals; or
(2) Account Value on the date of
death multiplied by the
appropriate minimum death
benefit factor.
You should consider this death benefit
if you want your Death Benefit to
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<PAGE>
After Attained Age 100. After the Insured reaches Attained Age 100,
the Death Benefit will equal your Account
Value. As of that time, any rider to the
policy will end without value, we will not
accept any additional premium, and we will
not deduct the mortality and expense risk
charge or charge the monthly deduction.
However, while the policy is in force you
may continue to request policy loans,
partial withdrawals, surrenders, and
transfers as described in this prospectus.
Tax Qualification Options. Section 7702 of the Code provides
alternative testing procedures for meeting
the definition of life insurance. Each
policy must qualify under one of these two
tests and you may select the test we use for
ensuring your policy meets the definition of
life insurance.
For both tests under Section 7702, there is
a minimum Death Benefit required at all
times. This is equal to the Account Value
multiplied by the appropriate minimum death
benefit factor. These factors depend on the
tax qualification option and will be based
on the Attained Age and sex of the Insured.
A table of the applicable factors is located
in your policy.
The two tax qualification options are:
Guideline Premium/Cash o Guideline Premium/Cash Value Corridor
Value Corridor Test. Test.
Cash Value Accumulation o Cash Value Accumulation Test. This tax
Test. qualification option should be
considered if you want to maximize the
premium permitted for your policy.
Once you have selected the tax qualification
option for your policy, it may not be
changed.
Changes in Death Benefit Options
Unless you select the Premium Recovery Death
Benefit Option, you may request a change in
death benefit option at any time after the
first policy anniversary while your policy
is in force and before the Insured reaches
Attained Age 100.
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<PAGE>
How to request a change. You may change your death benefit option by
providing your agent with a written request
or by writing to us at our Administrative
Office. We may require that you submit
satisfactory evidence of insurability to us.
If you request a change from the Level Death
Benefit Option to the Variable Death Benefit
Option, we will decrease the Face Amount by
an amount equal to your Account Value on the
date the change takes effect. However, we
will not allow such a change if it would
reduce the Face Amount below the minimum
Face Amount. This change will also cancel
all future Face Amount increases under the
Automatic Face Amount Increase Option.
If you request a change from the Variable
Death Benefit Option to the Level Death
Benefit Option, we will increase the Face
Amount by an amount equal to your Account
Value on the date the change takes effect.
Such decreases and increases in the Face
Amount are made so that the Death Benefit
remains the same on the date the change
takes effect.
Once a change is approved, we will issue new
policy information pages and attach a copy
of your application for change. The change
will take effect at the beginning of the
policy month that coincides with or next
follows the date we approve your request. We
reserve the right to decline to make any
changes that we determine would cause the
policy to fail to qualify as life insurance
under our interpretation of the Code.
Changes in Face Amount
When you apply for a policy, you may select
the Automatic Face Amount Increase Option.
In addition, you may request a change in the
Face Amount at any time after the first
policy anniversary while the policy is in
force and before the Insured reaches
Attained Age 100, subject to any evidence of
insurability requirements. We will not make
a change in Face Amount that causes your
policy to fail to qualify as life insurance
under the Code.
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<PAGE>
Automatic Face Amount Increase Option. Under
the Automatic Face Amount Increase Option,
the Face Amount will be automatically
increased on specified policy anniversaries
up to a maximum total for all increases that
is twice the initial Face Amount. You may
select the Automatic Face Amount Increase
Option only if you also select the Level
Death Benefit Option. When you select this
option, you must specify:
o the policy anniversaries on which the
Face Amount increase will begin. The
increase must begin no later than the
tenth policy anniversary.
o the amount of increase, which may be
no less than 1% and no more than 6% of
the initial Face Amount.
You may elect to cancel the automatic
increase. If you do so, we will cancel all
future increases. We require at least 30
days written notice before the effective
date of an increase. In addition, any
request to decrease the Face Amount or
change from the Level Death Benefit Option
to the Variable Death Benefit Option will
cancel all future automatic increases.
Increases in Face Amount. Any request for an
increase:
o Must be made after the first policy
anniversary.
o Must be for at least $10,000.
o May not be requested more than once
each policy year.
o May not be requested after the
Insured's Attained Age 85.
A written application must be submitted to
our Administrative Office along with
satisfactory evidence of insurability. You
must return the policy so we can amend it to
reflect the increase. The requested increase
in Face Amount will become effective on the
Monthly Anniversary on or next following the
date the increase is approved and the
Account Value will be adjusted to the extent
necessary to reflect a monthly deduction as
of the effective date of the increase in
Face Amount.
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<PAGE>
Decreases in Face Amount. Any request for a
decrease:
o Must be made after the first policy
anniversary.
o Must be for at least $5,000.
o Must not cause the Face Amount after
the decrease to be less than the
minimum Face Amount at which we would
issue a policy.
During the second through the fifth policy
years, you may decrease the Face Amount by
up to 25% of the initial Face Amount each
policy year. The decreases may be
cumulative. If the Face Amount is decreased
during the first 10 policy years or within
10 policy years of an increase in Face
Amount, a surrender charge will be
applicable.
Consequences of a Change in Face Amount.
Both requested increases and decreases in
Face Amount may impact the surrender charge.
In addition, a requested increase or
decrease in Face Amount may impact the
status of the policy as a modified endowment
contract. An increase in Face Amount, other
than as a result of a scheduled automatic
increase, will cause the termination of the
policy's no lapse provision. A decrease in
the Face Amount will cancel the Automatic
Face Amount Increase Option.
Changes in Owner or Beneficiary
While the Insured is living, you may request
a change in the owner or Beneficiary. The
change will take effect on the date you sign
the notice, but will not apply to any
payment we make or other action we take
before we receive the notice.
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<PAGE>
================================================================================
Cash Benefits During the Insured's Life
================================================================================
During the life of the Insured, your policy
has cash benefits that you may access within
limits by taking loans or making a partial
withdrawal or surrender.
Policy Loans
You may request a loan against your policy
at any time while the policy has a Net Cash
Surrender Value. We limit the minimum and
maximum amount of a loan you may take as
follows:
o Maximum Loan Amount
(l) During the first policy year, you may
take a loan so long as the Outstanding
Loan (including the loan at issue)
does not exceed 50% of the Cash
Surrender Value.
(2) After the first policy year, the
maximum loan amount you may take is:
(a) Your Net Cash Surrender Value,
less
(b) Loan interest to the next policy
anniversary on the loan amount
you are currently requesting,
less
(c) The amount we calculate for the
monthly deductions for each
Monthly Anniversary up to the
next policy anniversary.
o Minimum Loan Amount -- $500.
How to request a loan. You must submit a written request for a loan
to the Administrative Office. Policy loans
will be processed as of the date we receive
the request at our Administrative Office.
Loan proceeds generally will be sent to you
within seven days. We reserve the right to
defer any loan payment for up to six months.
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<PAGE>
Interest. We charge interest daily on any
Outstanding Loan at a declared annual rate
not to exceed 6%. The maximum net cost (the
difference between the rate of interest we
charge on policy loans and the amount we
credit on the equivalent amount held in the
Loan Account) of a loan is 2% per year until
the tenth policy anniversary. After the
tenth policy anniversary, the net cost is
0%. Interest is due and payable at the end
of each policy year while a policy loan is
outstanding. If interest is not paid when
due, the amount of the interest is added to
the loan and becomes part of the Outstanding
Loan.
Loan Account. You may direct us to take an
amount equal to the loan proceeds and any
amount attributed to unpaid interest from
any subaccount or from the Guaranteed
Account. Otherwise, we will withdraw this
amount from each subaccount and Guaranteed
Account on a pro rata basis. We transfer
this amount to the Loan Account in the
Guaranteed Account.
When a loan is repaid, an amount equal to
the repayment will be transferred from the
Loan Account to the subaccounts and
Guaranteed Account in accordance with your
premium allocation percentages in effect at
the time of repayment.
Effect of Policy Loan. A policy loan,
whether or not repaid, will have a permanent
effect on the Life Insurance Proceeds and
Account Value because the investment results
of the subaccounts and current interest
rates credited to the Guaranteed Account
will apply only to the non-loaned portion of
the Account Value. The longer the loan is
outstanding, the greater this effect is
likely to be. Depending on the investment
results of the subaccounts or credited
interest rates for the Guaranteed Account
while the policy loan is outstanding, the
effect could be favorable or unfavorable.
In addition, loans from modified endowment
contracts may be treated for tax purposes as
distributions of income. You should consult
your tax adviser before taking a loan.
If the Life Insurance Proceeds become
payable while a policy loan is outstanding,
the Outstanding Loan will be deducted in
calculating the Life Insurance Proceeds.
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<PAGE>
If the Outstanding Loan exceeds the Net Cash
Surrender Value on any Monthly Anniversary,
the policy will lapse. We will send you, and
any assignee of record, notice of the lapse.
The notice will specify the amount that must
be repaid to prevent termination. You will
have the opportunity during the Grace Period
to submit sufficient payment to avoid
termination.
Outstanding Loan. The Outstanding Loan on a
Valuation Date equals:
o All policy loans that have not been
repaid (including past due unpaid
interest added to the loan), plus
o accrued interest not yet due.
Loan Repayment. You may repay all or part of
your Outstanding Loan at any time while the
Insured is living and the policy is in
force. Loan repayments must be sent to our
Administrative Office and will be credited
as of the date received. You must indicate
that the amount paid is for a loan
repayment.
Partial Withdrawals
Requirements for Partial You may request a partial withdrawal at any
Withdrawals. time after the first policy anniversary.
Currently, we limit the number of partial
withdrawals to four each policy year. This
does not include withdrawals made as part of
the systematic withdrawal program. We may
limit the minimum and maximum amount of
withdrawals.
o Maximum Partial Withdrawal Amount -
your policy's Net Cash Surrender Value
except that the withdrawal may not
cause the Face Amount to be less than
the required minimum Face Amount.
o Minimum Partial Withdrawal Amount -
$250. This limit does not apply to
withdrawals under the systematic
withdrawal program.
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<PAGE>
o Maximum Partial Withdrawal From the
Guaranteed Account - during any policy
year you may only withdraw from the
Guaranteed Account 25% of your Account
Value in the Guaranteed Account (not
including the Loan Account) on the
most recent policy anniversary reduced
by all prior partial withdrawals and
transfers from the Guaranteed Account
during that policy year.
o Maximum Partial Withdrawal From the
Guaranteed Account If You Are a
Participant in the Systematic
Withdrawal Program - under this
circumstance during any policy year
you may only withdraw the greater of:
(1) 25% of your Account Value in the
Guaranteed Account (not
including the Loan Account) on
the most recent policy
anniversary reduced by all prior
partial withdrawals and
transfers from the Guaranteed
Account during that policy year;
or
(2) The maximum amount you may have
withdrawn from the Guaranteed
Account in any of the prior
policy years.
How to request a partial You must submit a written request to our
withdrawal. Administrative Office. We will reduce your
Account Value by the partial withdrawal
amount plus any applicable charges. When you
request a partial withdrawal, you may direct
us to take the requested amount from any
subaccount or from the Guaranteed Account.
If you do not direct us or if the Account
Value in the subaccount or Guaranteed
Account is insufficient to withdraw the
amount requested, we will withdraw all or
the difference from the remaining
subaccounts on a pro rata basis.
We will process partial withdrawal requests
at the price next computed after we receive
your written request at our Administrative
Office. We will generally pay partial
withdrawals within seven days.
Expenses for Partial Withdrawal. During the
first ten policy years or for the ten policy
years following a requested increase in Face
Amount, we will deduct the applicable
surrender charge on a partial withdrawal.
This charge will be deducted from your
Account Value along with the amount
requested to be withdrawn and will be
considered part of the partial withdrawal
(together, the "partial withdrawal amount").
Currently, we do not assess a processing fee
for partial withdrawals. However, we reserve
the right to assess a $25 processing charge
for each withdrawal.
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<PAGE>
Effect of Partial Withdrawal on your Face
Amount. The Face Amount of your policy will
also be reduced by the partial withdrawal
amount if you selected the Level Death
Benefit Option.
We will reduce the Face Amount by the amount
of the partial withdrawal in the following
order:
(1) The most recent increase in the Face
Amount, if any, will be reduced first.
(2) The next most recent increases in the
Face Amount, if any, will then be
successively decreased.
(3) The initial Face Amount will then be
decreased.
No partial withdrawal may be made that would
reduce the Face Amount below the minimum
Face Amount.
Partial withdrawals from your policy may
have tax consequences.
Systematic Withdrawal Program
You may access your Account Value by
electing the systematic withdrawal program.
This program allows you to automatically
receive payments on a monthly, quarterly,
semi-annual or annual basis. You may request
to participate in the systematic withdrawal
program at any time after the first policy
anniversary.
You have the option to switch to borrowing
from your Account Value once a specified
amount of withdrawals has been reached or at
any time after the first policy anniversary.
You may also elect to borrow the interest
due on your outstanding loan balance in
order to continue to receive a steady stream
of income. Loans taken under this program
are not subject to the minimum loan amount.
Some withdrawals or loans may be taxable.
Please consult your tax adviser before
requesting a withdrawal or a loan.
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<PAGE>
Surrendering the Policy for Net Cash
Surrender Value
You may surrender your policy at any time
for its Net Cash Surrender Value by
submitting a written request to our
Administrative Office. We will require the
return of the policy. A surrender charge may
apply. We will process a surrender request
as of the date we receive your written
request and all required documents. Your
surrender request generally will be paid
within seven days. The Net Cash Surrender
Value must be taken in one lump sum. Your
policy will terminate and cease to be in
force if it is surrendered and no Life
Insurance Proceeds will be payable. Your
policy cannot later be reinstated.
46
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================================================================================
Payment Options for Benefits
================================================================================
Currently, we only offer a lump sum payment
option for receiving proceeds payable under
the policy, such as upon surrender or death.
47
<PAGE>
================================================================================
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 expenses on a current basis that is
less than the guaranteed amount.
Deductions From Premium
We will deduct up to a maximum of 8% from
each premium payment to provide for state
premium taxes, DAC taxes and for other
expenses associated with acquiring and
servicing a policy. Currently, the deduction
is 5% of each premium payment up to the
target premium amount and 2% of any premium
paid in excess of the target premium amount
for policy years 1-10. Beginning in policy
year 11, we currently charge 3% of each
premium payment up to the target premium
amount and 2% of any premium paid in excess
of the target premium amount.
Monthly Deductions From Account Value
On the Policy Date and each Monthly
Anniversary thereafter until the Insured
reaches Attained Age 100, we make a
deduction from your Account Value. If the
Issue Date is later than the Policy Date, we
will make a deduction on the Issue Date for
the Policy Date and any Monthly
Anniversaries that have elapsed since the
Policy Date. For this purpose, the Policy
Date is treated as a Monthly Anniversary.
On each Monthly Anniversary we will deduct
charges for:
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<PAGE>
o The administration of your policy.
o The acquisition and underwriting costs
of your policy.
o The cost of insurance for your policy.
o The cost of any supplemental benefits
or riders.
Subject to our approval, you may request us
to take the monthly deductions from your
Account Value allocated to the Guaranteed
Account (not including the Loan Account) or
specified subaccounts. Otherwise, we will
take the monthly deductions from each
subaccount and the Guaranteed Account on a
pro rata basis.
Administrative Charge. This charge
compensates us for administrative expenses
associated with the policy and the Variable
Account. These expenses relate to premium
billing and collection, record keeping,
processing claims, policy loans, policy
changes, reporting and overhead costs,
processing applications and establishing
policy records. This charge will be no more
than $7.50 per month. Currently, the charge
is $7.50 per month.
Acquisition Charge. We will make a deduction
from your Account Value for expenses
associated with the acquisition and
underwriting costs to issue your policy.
This charge will vary based on the Insured's
age, sex and rate class. We deduct an amount
per $1,000 of Face Amount as shown in
Appendix A. The charge is assessed for the
first five policy years and, if you request
an increase in the Face Amount, for the
first five years following that increased
Face Amount.
Cost of Insurance Charge. This charge
compensates us for providing insurance
coverage. The charge depends on a number of
factors, such as Attained Age, sex and rate
class of the Insured, and therefore will
vary from policy to policy and from month to
month. For any policy the cost of insurance
on a Monthly Anniversary is calculated by
multiplying the cost of insurance rate for
the Insured by the net amount at risk under
the policy on that Monthly Anniversary.
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<PAGE>
Net Amount at Risk. If the Death Benefit is equal to the Face
Amount, the Face Amount plus Account Value,
or the Face Amount plus premium paid until
the policy anniversary prior to the date of
death minus partial withdrawals, then the
net amount at risk is calculated as (a)
minus (b) where:
(a) is the current Death Benefit at the
beginning of the policy month divided
by 1.0032737; and
(b) is the current total Account Value.
If the Death Benefit is equal to the Account
Value multiplied by the appropriate minimum
death benefit factor, then the net amount at
risk is calculated as (a) minus (b) where:
(a) is the current Death Benefit at the
beginning of the policy month; and
(b) is the current total Account Value
Rate Classes for Insureds. We currently rate
Insureds in one of the following basic rate
classifications based on our underwriting:
o preferred plus nonsmoker;
o preferred nonsmoker;
o standard plus nonsmoker;
o standard nonsmoker;
o smoker;
o substandard for those involving a
higher mortality risk.
We place the Insured in a rate class when we
issue the policy based on our underwriting
determination. This original rate class
applies to the initial Face Amount, as well
as subsequent automatic increases in Face
Amount under the Automatic Face Amount
Increase Option under the policy. When an
increase in Face Amount is requested, we
conduct underwriting before approving the
increase (except as noted below) to
determine whether a different rate class
will apply to the increase. If the rate
class for the increase has lower guaranteed
cost of insurance rates than the original
rate class, the rate class for the increase
also will be applied to the initial Face
Amount. If the rate class for the increase
has higher guaranteed cost of insurance
rates than the original rate class, the rate
class for the increase will apply only to
the increase in Face Amount and the original
rate class will continue to apply to the
initial Face Amount and to automatic
increases in the Face Amount.
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If there have been requested increases in
the Face Amount, we may use different cost
of insurance rates for the requested
increased portions of the Face Amount. For
purposes of calculating the cost of
insurance charge after the Face Amount has
been increased, the Account Value will be
applied to the initial Face Amount first and
then to any subsequent requested increases
in Face Amount. If at the time an increase
is requested, the Account Value exceeds the
initial Face Amount (or any subsequently
increased Face Amount) divided by 1.0032737,
the excess will then be applied to the
subsequent increase in Face Amount in the
sequence of the increases.
In order to maintain the policy in
compliance with Section 7702 of the Code,
under certain circumstances, an increase in
Account Value will cause an automatic
increase in the Death Benefit. The Attained
Age and rate class for such requested
increase will be the same as that used for
the most recent increase in Face Amount
(that has not been eliminated through a
subsequent decrease in Face Amount).
The guaranteed cost of insurance charges at
any given time for a substandard policy with
flat extra charges will be based on the
guaranteed maximum cost of insurance rate
for the policy (including table rating
multiples, if applicable), the then current
net amount at risk, plus the actual dollar
amount of the flat extra charge.
Our current cost of insurance rates may be
less than the guaranteed rates. Our current
cost of insurance rates will be determined
based on our expectations as to future
mortality, investment, expense and
persistency experience. These rates may
change from time to time. In our discretion,
the current charge may be increased in any
amount up to the maximum guaranteed charge
shown in the table.
Cost of insurance rates (whether guaranteed
or current) for an Insured in a nonsmoker
rate class are generally lower than rates
for an Insured of the same age and sex in a
smoker rate class. Cost of insurance rates
(whether guaranteed or current) for an
Insured in a nonsmoker or smoker rate class
are generally lower than rates for an
Insured of the same age and sex and smoking
status in a substandard rate class.
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<PAGE>
Legal Considerations Relating to
Sex-Distinct Premium and Benefits. Mortality
tables for the policy generally distinguish
between males and females. Thus, premium and
benefits under the policy covering males and
females of the same age will generally
differ.
We may also offer the policy based on unisex
mortality tables if required by state law.
Employers and employee organizations
considering the purchase of a policy should
consult their legal advisers to determine
whether purchase of a policy based on sex-
distinct actuarial tables is consistent with
Title VII of the Civil Rights Act of 1964 or
other applicable law. Upon request, we may
offer the policy with unisex mortality
tables to such prospective purchasers.
Deduction From Variable Account Assets
Mortality and Expense Risk Charge. We deduct
a daily charge from the net assets in the
subaccounts for assuming certain mortality
and expense risks under the policy. This
charge does not apply to the amounts you
allocate to the Guaranteed Account.
Currently, we charge an annual rate of 0.75%
of the subaccount assets for the first 10
policy years, 0.25% for policy years 11
through 20, and 0.10% thereafter. The
guaranteed charge is at an annual rate of
0.90%. Although the charge may be increased
or decreased in our sole discretion, it is
guaranteed not to exceed an annual rate of
0.90% 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 Variable Account will exceed the amounts
realized from the administrative charges
assessed against all policies.
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<PAGE>
Deductions Upon Policy Transactions
Transfer Charge. We currently impose a $25
transfer charge on any transfer of Account
Value among the subaccounts and the
Guaranteed Account in excess of the 12 free
transfers permitted each policy year. If
applicable, we will deduct the charge from
the amount you transfer before allocation to
the new subaccount(s) or to the Guaranteed
Account. The confirmation of the transaction
will show the transfer charge, if any.
Surrender Charge. If the policy is
surrendered or there is a decrease in Face
Amount during the first 10 policy years, we
will deduct a surrender charge based on the
initial Face Amount. If a policy is
surrendered or there is a decrease in Face
Amount within 10 years after a requested
increase in Face Amount, we will deduct a
surrender charge based on the increase in
Face Amount. The surrender charge will be
deducted before any surrender proceeds are
paid.
Surrender Charge Calculation. In general,
the surrender charge is based on the Face
Amount. The surrender charge will be no
greater than the product of (1) times (2)
times (3) where:
(1) is equal to the Face Amount divided by
$1,000;
(2) is equal to a surrender charge factor
per $1,000 based on the Insured's age,
sex and rate class; and
(3) is equal to the factor based upon the
number of years that have elapsed
since the Policy Date or requested
increase in Face Amount, as described
in the following table:
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Year Factor
---- ------
1............... 100%
2............... 90%
3............... 80%
4............... 70%
5............... 60%
6............... 50%
7............... 40%
8............... 30%
9............... 20%
10............... 10%
11+............... 0%
The product of (1) and (2) will be capped at
a level not to exceed a maximum surrender
charge based on a rate per $1,000 of Face
Amount. A table of surrender charge factors
per $1,000 of Face Amount is shown in
Appendix A.
Surrender Charge Based On An Increase Or
Decrease In Face Amount. A requested
increase in Face Amount of the policy will
result in an additional surrender charge
during the 10 policy years immediately
following the requested increase. The
additional surrender charge period will
begin on the effective date of the requested
increase. If the Face Amount of the policy
is reduced before the end of the 10th policy
year or within 10 years immediately
following a Face Amount increase, we may
also deduct a pro rata share of any
applicable surrender charge from your
Account Value. Reductions will first be
applied against the most recent requested
increase in the Face Amount of the policy.
They will then be applied to prior requested
increases in Face Amount of the policy in
the reverse order in which such increases
took place, and then to the initial Face
Amount of the policy.
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<PAGE>
Surrender Charge Upon Partial Withdrawal.
During the surrender charge period we will
deduct a surrender charge:
o Upon a partial withdrawal; and
o If you decrease your Face Amount.
We deduct the surrender charge from the
subaccounts and the Guaranteed Account in
the same proportion as we deduct the amounts
for your partial withdrawal.
Surrender Charge Due to Partial Withdrawal.
We deduct an amount equal to the applicable
surrender charge multiplied by a fraction
(equal to the surrender charge applicable to
the policy immediately prior to the partial
withdrawal, multiplied by the ratio of (1)
the reduction in Face Amount, if any,
associated with the partial withdrawal to
(2) the Face Amount prior to the partial
withdrawal).
Surrender Charge Due to Decrease in Face
Amount. We deduct an amount equal to the
applicable surrender charge multiplied by a
fraction (equal to the decrease in Face
Amount divided by the Face Amount of the
policy prior to the decrease).
Partial Withdrawal Administrative Charge. We
reserve the right to deduct an
administrative charge upon a partial
withdrawal of up to $25 per partial
withdrawal. Currently, we do not assess an
administrative charge for partial
withdrawals. In certain states the charge
may be the lesser of $25 or 2% of the amount
withdrawn.
Discount Purchase Programs
The amount of the surrender charge and other
charges under the policy may be reduced or
eliminated when sales of the policy are made
to individuals or to groups of individuals
in a manner that in our opinion results in
expense savings. For purchases made by
officers, directors and employees of the
company, an affiliate, or any individual,
firm, or a company that has executed the
necessary agreements to sell the policy, and
members of the immediate families of such
officers, directors, and employees, we may
reduce or eliminate the surrender charge.
Any variation in charges under the policy,
including the surrender charge,
administrative charge or mortality and
expense risk charge, will reflect
differences in costs or services and will
not be unfairly discriminatory.
55
<PAGE>
================================================================================
Supplemental Benefits and Riders
================================================================================
We intend to make available certain
supplemental benefits and riders which may
in the future be issued with the policy. Any
monthly charges for these supplemental
benefits and riders, as listed below, will
be deducted from the Account Value. The
addition of riders may affect the cost of
insurance.
Accelerated Benefit Rider (ABR)
Accidental Death Benefit Rider (ADB)
Child's Term Rider (CTR)
Other Insured Term Rider (OIR)
Primary Insured Rider (PIR)
Waiver of Monthly Deductions Rider (WMD)
Waiver of Specified Premium Rider (WSP)
56
<PAGE>
================================================================================
Other Policy Provisions
================================================================================
Right to Exchange or Convert
You may exchange or convert this policy to a
flexible premium fixed benefit life
insurance policy on the life of the Insured,
without evidence of insurability. This
exchange may be made:
(a) within 24 months after the Issue Date
while the policy is in force;
(b) within 24 months of any increase in
Face Amount of the policy, other than
under the Automatic Face Amount
Increase Option; or
(c) within 60 days of the effective date
of a material change in the investment
policy of a subaccount, or within 60
days of the notification of such
change, if later. In the event of such
a change, we will notify you and give
you information on the options
available.
When an exchange or conversion is requested,
we accomplish the exchange by transferring
all of the Account Value to the Guaranteed
Account. There is no charge for this
transfer. Once this option is exercised, the
entire Account Value must remain in the
Guaranteed Account for the remaining life of
the policy. The Face Amount in effect at the
time of the exchange will remain unchanged.
The Policy Date, Issue Date, and issue age
of the Insured will remain unchanged. The
owner and Beneficiary are the same as were
recorded immediately before the exchange.
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.
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<PAGE>
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 premium paid, minus any loan
and accrued loan interest, any partial
withdrawal, and the cost of any riders
attached to the policy. If the Insured
commits suicide (while sane or insane)
within two years (unless otherwise specified
by state law) after the effective date of a
requested increase in the Face Amount, then
our liability as to the increase in amount
will be limited to the payment of a single
sum equal to the monthly cost of insurance
deductions made for such increase plus the
expense charge deducted for the increase.
Misstatement of Age or Sex
If an Insured's age or sex has been
misstated in the policy, the Death Benefit
and any benefits provided by riders shall be
those which would be purchased at the most
recent monthly deduction for the cost of
insurance charge for the correct age and
sex.
Changes in the Policy or Benefits
At any time we may make such changes in the
policy as are necessary to assure compliance
at all times with the definition of life
insurance prescribed by the Code or to make
the policy conform with any law or
regulation issued by any government agency
to which it is subject.
When Proceeds Are Paid
We will ordinarily pay Life Insurance
Proceeds, loan proceeds, and partial
withdrawal or surrender proceeds within
seven days after receipt at our
Administrative Office of all the required
documents. Other than the Life Insurance
Proceeds, which is determined as of the date
of death, the amount will be determined as
of the date of receipt of required
documents. However, we may delay making a
payment or processing a transfer request if:
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<PAGE>
(2) the disposal or valuation of the
Variable Account's assets is not
reasonably practicable because the New
York Stock Exchange is closed for
other than a regular holiday or
weekend, trading is restricted by the
Securities and Exchange Commission, or
the Securities and Exchange Commission
declares that an emergency exists; or
(3) the Securities and Exchange Commission
by order permits postponement of
payment for your protection.
In addition we may delay making deductions
from the Guaranteed Account for up to 6
months after we receive your request.
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<PAGE>
Reports to Owners
We will send you a confirmation within seven
days of the following transactions:
o the receipt of any unplanned premium
(and any premium received before the
Issue Date);
o any change of allocation of premium;
o any transfer among subaccounts;
o any loan, interest repayment, or loan
repayment;
o any partial withdrawal;
o any return of premium necessary to
comply with applicable maximum receipt
of any premium payment;
o any exercise of your right to cancel;
o an exchange of the policy;
o full surrender of the policy; or
o payment of the Life Insurance Proceeds
under the policy.
Within 30 days after each policy anniversary
we will send you an annual statement. The
statement will show the Death Benefit
currently payable, and the current Account
Value, Cash Surrender Value, and the
Outstanding Loan. The statement will also
show premium paid, all charges deducted
during the policy year, and all
transactions. We will also send to you
annual and semi-annual reports for the
Variable Account.
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<PAGE>
Assignment
You may assign the policy, if we agree, in
accordance with its terms by using a form
provided by us. We will not be deemed to
know of an assignment unless we receive a
copy of this assignment form at our
Administrative Office. We assume no
responsibility for the validity or
sufficiency of any assignment. Any
assignment or pledge of a modified endowment
contract as collateral for a loan may result
in a taxable event.
Reinstatement
If the policy has ended without value, you
may reinstate Policy benefits while the
Insured is alive if you:
1. Request in writing a reinstatement of
policy benefits within three years
(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) total monthly deductions
for three months, calculated from the
effective date of reinstatement; and
(ii) the premium expense charge. We
will determine the amount of this
required payment as if no interest or
investment performance were credited
to or charged against your Account
Value; and
4. Repay or reinstate any Outstanding
Loan which existed on the date the
policy ended.
The effective date of the reinstatement of
policy benefits will be the next Monthly
Anniversary which coincides with or next
follows the date we approve your request. We
will deduct the premium expenses from the
required payment. The monthly expense
charges, Account Value, Outstanding Loan and
surrender charge that will apply upon
reinstatement will be those that were in
effect on the date the policy lapsed. We
will start to make monthly deductions again
as of the effective date of reinstatement.
61
<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. The performance
results do not reflect charges deducted from
premium, Account Value, or Variable Account
assets (for example, mortality and expense
risk charge, monthly deductions, cost of
insurance, surrender charge, sales load, DAC
taxes, and any state or local premium
taxes). If these charges were included, the
total return figures would be lower.
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<PAGE>
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.
63
<PAGE>
Total return data may be advertised based on
the period of time that the portfolios have
been in existence. The results for any
period prior to the policy being offered
will be calculated as if the policy had been
offered during that period of time, with all
charges assumed to be those applicable to
the policy.
Performance information for any subaccount
in any advertising will reflect only the
performance of a hypothetical investment in
the subaccount during the particular time
period on which the calculations are based.
Performance information should be considered
in light of the investment objectives and
policies, characteristics and quality of the
portfolio in which the subaccount invests
and the market conditions during the given
time period, and should not be considered as
a representation of what may be achieved in
the future. Actual returns may be more or
less than those shown in any advertising and
will depend on a number of factors,
including the investment allocations by an
owner and the different investment rates of
return for the portfolios.
64
<PAGE>
================================================================================
Federal Income Tax Considerations
================================================================================
The following summarizes the current federal
income tax law that applies to life
insurance in general. This summary does not
cover all situations. This summary is based
upon our understanding of the current
federal income tax laws and current
interpretations by the Internal Revenue
Service. We cannot predict whether the Code
will change. You should speak to a competent
tax adviser to discuss how the purchase of a
policy and the transactions you make under
the policy will impact your federal tax
liability.
Tax Status of the Policy
A policy has certain tax advantages when it
is treated as a "life insurance contract"
under the Code. We believe that the policy
meets the definition of a life insurance
contract under Section 7702 of the Code. You
bear the risk that the policy may not meet
the definition of a life insurance contract.
You should consult your own tax advisers to
discuss these risks.
The Company
We are taxed as a life insurance company
under the Code. For federal tax purposes,
the Variable Account and its operations are
considered to be part of our operations and
are not taxed separately.
Diversification and Investor Control
The Code requires that we diversify the
investments underlying variable insurance
contracts. If the investments are not
properly diversified and any remedial period
has passed, Section 817(h) of the Code
provides in general the contract is
immediately disqualified from treatment as a
life insurance contract for federal income
tax purposes. Disqualification of the policy
as a life insurance contract would result in
taxable income to you at the time that we
allocate any earnings to your policy. You
would have taxable income even though you
have not received any payments under the
policy.
65
<PAGE>
To the extent that any segregated asset
account with respect to a variable life
insurance contract invests exclusively in
securities issued by the U.S. Treasury, the
diversification standard is satisfied. A
segregated asset account underlying life
insurance contracts such as the policy will
also meet the diversification requirements
if, as of the close of each quarter:
o the regulated investment companies in
which the segregated asset account
invest satisfy the diversification
requirements described below; and
o not more than 55% of the value of the
assets of the account are attributable
to cash and cash items (including
receivables), government securities
and securities of other regulated
investment companies.
The diversification requirements may be met
for each if:
o no more than 55% of the value of the
total assets of the portfolio is
represented by any one investment;
o no more than 70% of the value of the
total assets of the portfolio is
represented by any two investments;
o no more than 80% of the value of the
total assets of the portfolio is
represented by any three investments;
and
o no more than 90% of the value of the
total assets of the portfolio is
represented by any four investments.
Generally, each U.S. government agency or
instrumentality is treated as a separate
issuer under these rules.
All securities of the same issuer are
generally treated as a single investment.
We intend that each portfolio in which the
subaccounts invest will be managed by its
investment adviser in compliance with these
diversification requirements.
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<PAGE>
A variable life insurance policy could fail
to be treated as a life insurance contract
for tax purposes if the owner of the policy
has such control over the investments
underlying the policy (e.g., by being able
to transfer values among subaccounts with
only limited restrictions) so as to be
considered the owner of the underlying
investments. There is some uncertainty on
this point because no guidelines have been
issued by the Treasury Department. If and
when guidelines are issued, we may be
required to impose limitations on your
rights to control investment designations
under the policy. We do not know whether any
such guidelines will be issued or whether
any such guidelines would have retroactive
effect. We, therefore, reserve the right to
make changes that we deem necessary to
insure that the policy qualifies as a life
insurance contract.
Tax Treatment of the Policy
Section 7702 of the Code sets forth a
detailed definition of a life insurance
contract for federal tax purposes. The
Treasury Department has not issued final
regulations so that the extent of the
official guidance as to how Section 7702 is
to be applied is quite limited. If a policy
were determined not to be a life insurance
contract for purposes of Section 7702, that
policy would not qualify for the favorable
tax treatment normally provided to a life
insurance contract.
With respect to a policy issued on the basis
of a standard rate class, we believe that
such a policy should meet the Section 7702
definition of a life insurance contract.
With respect to a policy that is issued on a
substandard basis (i.e., a premium class
involving higher than standard mortality
risk), there is less certainty, in
particular as to how the mortality and other
expense requirements of Section 7702 are to
be applied in determining whether such a
policy meets the definition of a life
insurance contract set forth in Section
7702. Thus, it is not clear that such a
policy would satisfy Section 7702,
particularly if the you pay the full amount
of premium permitted under the policy.
If subsequent guidance issued under Section
7702 leads us to conclude that a policy does
not (or may not) satisfy Section 7702, we
will take appropriate and necessary steps
for the purpose of bringing the policy into
compliance, but we can give no assurance
that it will be possible to achieve that
result. We expressly reserve the right to
restrict policy transactions if we determine
such action to be necessary to qualify the
policy as a life insurance contracts under
Section 7702.
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<PAGE>
Tax Treatment of Policy Benefits In General
This discussion assumes that each policy
will qualify as a life insurance contract
for federal income tax purposes under
Section 7702. The Life Insurance Proceeds
under the policy should be excluded from the
taxable gross income of the Beneficiary. In
addition, the increases in Account Value
should not be taxed until there has been a
distribution from the policy such as a
surrender, partial surrender or lapse with
outstanding loan.
Pre-Death Distribution
The tax treatment of any distribution you
receive before the insured's death depends
on whether the policy is classified as a
modified endowment contract.
Policies Not Classified as Modified
Endowment Contracts
o If you surrender the policy or allow
it to lapse, you will not be taxed
except to the extent the amount you
receive is in excess of the premium
you paid less the untaxed portion of
any prior withdrawals. For this
purpose, you will be treated as
receiving any portion of the cash
surrender value used to repay policy
debt. The tax consequences of a
surrender may differ if you take the
proceeds under an income payment
settlement option.
o Generally, you will be taxed on a
withdrawal to the extent the amount
you receive exceeds the premium you
paid for the policy less the untaxed
portion of any prior withdrawals.
However, under some limited
circumstances, in the first 15 policy
years, all or a portion of a
withdrawal may be taxed if the cash
value exceeds the total premium paid
less the untaxed portions of any prior
withdrawals, even if total withdrawals
do not exceed total premium paid.
o Extra premium for optional benefits
and riders generally do not count in
computing the premium paid for the
policy for the purposes of determining
whether a withdrawal is taxable.
o Loans you take against the policy are
ordinarily treated as debt and are not
considered distributions subject to
tax.
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Modified Endowment Contracts
o The rules change if the policy is
classified as a modified endowment
contract ("MEC"). The policy could be
classified as a MEC if premium
substantially in excess of scheduled
premium is paid or a decrease in the
face amount of insurance is made (or a
rider removed). The addition of a
rider or an increase in the face
amount of insurance may also cause the
policy to be classified as a MEC. The
rules on whether a policy will be
treated as a MEC are very complex and
cannot be fully described in this
summary. You should consult a
qualified tax adviser to determine
whether a policy transaction will
cause the policy to be classified as a
MEC. We will monitor your policy and
will take steps reasonably necessary
to notify you on a timely basis if
your policy is in jeopardy of becoming
a MEC.
o If the policy is classified as a MEC,
then amounts you receive under the
policy before the insured's death,
including loans and withdrawals, are
included in income to the extent that
the cash value before surrender
charges exceeds the premium paid for
the policy increased by the amount of
any loans previously included in
income and reduced by any untaxed
amounts previously received other than
the amount of any loans excludible
from income. An assignment of a MEC is
taxable in the same way. These rules
also apply to pre-death distributions,
including loans, made during the
two-year period before the time that
the policy became a MEC.
o Any taxable income on pre-death
distributions (including full
surrenders) is subject to a penalty of
10% unless the amount is received on
or after age 59 1/2, on account of
your becoming disabled or as a life
annuity. It is presently unclear how
the penalty tax provisions apply to
the policies owned by businesses.
o All MECs issued by us to you during
the same calendar year are treated as
a single policy for purposes of
applying these rules.
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Interest on Policy Loans. Except in special
circumstances, interest paid on a loan under
a policy which is owned by an individual is
treated as personal interest under the Code
and thus will not be tax deductible. In
addition, the deduction of interest that is
incurred on any loan under a policy owned by
a taxpayer and covering the life of any
individual who is an officer or employee of
or who is financially interested in the
business carried on by that taxpayer may
also be subject to certain restrictions set
forth in Section 264 of the Code. Before
taking a policy loan, you should consult a
tax adviser as to the tax consequences of
such a loan. (Also Section 264 of the Code
may preclude business owners from deducting
premium payments.)
Policy Exchanges and Modifications.
Depending on the circumstances, the exchange
of a policy, a change in the policy's death
benefit option, a policy loan, a partial
surrender, a surrender, a change in
ownership, or an assignment of the policy
may have federal income tax consequences. In
addition, the federal, state and local
transfer, and other tax consequences of
ownership or receipt of policy proceeds will
depend on the circumstances of each owner or
Beneficiary.
Withholding. We are required to withhold
federal income taxes on the taxable portion
of any amounts received under the policy
unless you elect to not have any withholding
or in certain other circumstances. You are
not permitted to elect out of withholding if
you do not provide a social security number
or other taxpayer identification number.
Special withholding rules apply to payments
made to non-resident aliens.
You are liable for payment of federal income
taxes on the taxable portion of any amounts
received under the policy. You may be
subject to penalties under the estimated tax
rules if your withholding and estimated tax
payments are not sufficient.
Generation Skipping Transfer Tax. A transfer
of the policy or the designation of a
beneficiary who is either 37 1/2 years
younger than the owner or a grandchild of
the owner may have generation skipping
transfer tax consequences.
Contracts Issued in Connection With Tax
Qualified Pension Plans. Prior to purchase
of a policy in connection with a qualified
plan, you should examine the applicable tax
rules relating to such plans and life
insurance thereunder in consultation with a
qualified tax adviser.
70
<PAGE>
Possible Charge for the Company's Taxes
At the present time, we do not deduct any
charges for any federal, state or local
income taxes. However, we do currently
deduct charges for state and federal premium
based taxes and the federal DAC tax. We
reserve the right in the future to deduct a
charge for any such tax or other economic
burden resulting from the application of the
tax laws that we determine to be properly
attributable to the Variable Account or to
the policy.
71
<PAGE>
================================================================================
Distribution of the Policy
================================================================================
Where the policy may be lawfully sold, it is
sold by licensed insurance agents who are
registered representatives of
broker-dealers registered under the
Securities Exchange Act of 1934. The
broker-dealers are also members of the
National Association of Securities Dealers,
Inc.
The policy will be distributed through the
principal underwriter for the Variable
Account, AIG Equity Sales Corp. ("AIGESC"),
70 Pine Street, New York, New York, an
affiliate of ours. AIGESC may also enter
into selling agreements with other broker
dealers that will offer the policy.
Commissions may be paid to registered
representatives based on premium paid for
policies sold. Other expense reimbursements,
allowances, and overrides may also be paid.
Registered representatives who meet certain
productivity and profitability standards may
be eligible for additional compensation.
Additional payments may be made for
administrative or other services not
directly related to the sale of the
policies.
Other Policies Issued by the Company
We may offer other policies similar to those
offered herein.
72
<PAGE>
================================================================================
About Us and the Accounts
================================================================================
The Company
We are a member of the American International Life Assurance
American International Group, Company of New York is a stock life
Inc. insurance company operating under the laws
of the State of New York. It was
incorporated in 1962. We provide a full
range of individual and group life,
disability, accidental death and
dismemberment policies and annuities. We are
a subsidiary of American International
Group, Inc., which is a holding company for
a number of companies engaged in the
international insurance business, both life
and general, in approximately 130 countries
and jurisdictions around the world.
The Variable Account
We established the Variable Account as a
separate investment account on June 5, 1986.
It may be used to support the policy and
other variable life insurance policies, and
used for other permitted purposes. The
Variable Account is registered with the
Securities and Exchange Commission as a unit
investment trust under the federal
securities laws.
Although you may have We own the assets in the Variable Account.
allocated your Account Value The Variable Account is divided into
to the subaccounts, you do not subaccounts. The subaccounts available under
own these assets. You only the policy invest in shares of a specific
own your policy. portfolio of a mutual fund. The Variable
Account may include other subaccounts that
are not available under the policy.
Income, gains and losses, realized or
unrealized, of a subaccount are credited to
or charged against the subaccount without
regard to any of our other income, gains or
losses. Assets equal to the reserves and
other contract liabilities with respect to
each subaccount are not chargeable with
liabilities arising out of any of our other
businesses or separate accounts. If the
assets exceed the required reserves and
other liabilities, we may transfer the
excess to our general account. We are
obligated to pay all benefits provided under
the policy.
Rights we have reserved. We have reserved certain rights regarding
the Variable Account. We will exercise these
rights only in compliance with all
applicable regulatory requirements. We have
the right to:
73
<PAGE>
o change, add or delete designated
investment options.
o add or remove subaccounts.
o withdraw assets of a class of policies
to which the policy belongs from a
subaccount and put them in another
subaccount.
o combine any two or more subaccounts.
o register other separate accounts or
deregister the Variable Account with
the Securities and Exchange
Commission.
o run the Variable Account under the
direction of a committee and discharge
such committee at any time.
o restrict or eliminate any voting
rights of owners, or other persons who
have voting rights as to the Variable
Account.
o operate the Variable Account or one or
more of the subaccounts by making
direct investments or in any other
form. If we do so, we may invest the
assets of the Variable Account or one
or more of the subaccounts in any
investments that are legal, as
determined by our own or outside
counsel.
We will not change an investment adviser or
any investment of a subaccount of our
Variable Account unless approved by the
Commissioner of Insurance of the State of
New York or deemed approved in accordance
with such law or regulation. Any approval
process is on file with the insurance
supervisory official of the jurisdiction in
which this policy is delivered.
If any change we make results in a material
change in the underlying investments of a
subaccount, we will notify you of such
change. If you have value in that
subaccount:
o We will transfer it at your written
direction from that subaccount without
charge to another subaccount or to the
Guaranteed Account, and
o You may then change your premium
allocation percentages.
74
<PAGE>
Voting Rights. We are the legal owner of
shares held by the subaccounts and as such
have the right to vote on all matters
submitted to shareholders of the portfolios.
However, as required by law, we will vote
shares held in the subaccounts at regular
and special meetings of shareholders of the
portfolios in accordance with instructions
we receive from owners with Account Value in
the corresponding subaccounts. If allowed by
law or required by law, we may vote shares
of the portfolios without obtaining
instructions or in disregard to instructions
we have received. If we ever disregard
voting instructions, we will advise you of
that action and our reasons for such action
in the next semiannual report.
The Guaranteed Account
The Guaranteed Account is an account within
our general account. Our general account
assets are used to support our insurance and
annuity obligations other than those funded
by separate investment accounts. Subject to
applicable law, we have sole discretion over
the investment of the assets of the general
account.
We have not registered interests in the
Guaranteed Account under the Securities Act
of 1933 or the Guaranteed Account as an
investment company under the Investment
Company Act of 1940.
The staff of the Securities and Exchange
Commission has not reviewed our disclosure
regarding the Guaranteed Account. Our
disclosure regarding the Guaranteed Account
must comply with generally applicable
provisions of the federal securities laws
relating to the accuracy and completeness of
statements made in a prospectus.
75
<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 years. All officers have been affiliated with the company during
the past five years unless otherwise indicated.
<TABLE>
<CAPTION>
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
---------------- ------ ----------------------
<S> <C> <C>
Michele L. Abruzzo Director, Senior Executive Senior Vice President
80 Pine Street Vice President
New York, NY 10005
James A. Bambrick Senior Vice President, Senior Vice President, A&H
One Alico Plaza Chief Operations Officer Division
600 King Street
Wilmington, DE 19801
Paul S. Bell Director, Senior Vice Senior Vice President and Actuary
One Alico Plaza President, and Chief
600 King Street Actuary
Wilmington, DE 19801
Marion Elizabeth Fajen Director Retired; formerly Vice President
5608 N. Waterbury Road and Secretary of AIG, Inc.
Des Moines, IA 50312
Patrick Joseph Foley Director Retired; formerly Vice President
Donovan, Perry, Carbon and General Counsel
McDermit & Radzil
Wall Street Plaza
88 Pine Street
New York, NY 10005
Cecil Calvert Gamwell, II Director Director - Life Division AIG, Inc.,
419 West Beach Road Director - Seguros, Venezuela and
Charleston, RI 02813 Director (ALT) Seguros
Interamericanos (of New York)
Maurice R. Greenberg Director Director, Chairman and Chief
70 Pine Street Executive Officer AIG, Inc.
New York, NY 10270
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
---------------- ------ ----------------------
<S> <C> <C>
Jack Russell Harnes Director Retired; formerly Medical Director
70 Pine Street
New York, NY 10270
John Iniss Howell Director Retired; formerly Director of AIG,
Indian Rock Corporation Inc. Director of Schroder Capital
263 Glenville Road, 2nd Fl. Management
Greenwich, CT 06831
Jerome T. Muldowney Director, Senior Vice Senior Managing Director of AIG
175 Water Street President Global Investment Corp.
New York, NY 10038
Robinson K. Nottingham Director, Chairman of the Chairman of the Board and Chief
70 Pine Street Board Executive Officer of American
New York, NY 10270 International Life Insurance
Company (ALICO)
John Oehmke Chief Financial Officer, Regional Vice President, Controller
One Alico Plaza Vice President American International Companies,
600 King Street Japan and Korea
Wilmington, DE 19801
Nicholas A. O'Kulich Director, Vice Chairman, Vice President, Senior Vice
70 Pine Street Treasurer President of AIG, Inc.
New York, NY 10270
Edmund Sze-Wing Tse Director Vice Chairman of AIG, Inc.
70 Pine Street
New York, NY 10270
Elizabeth M. Tuck Secretary Secretary and Assistant Secretary of
70 Pine Street AIG, Inc., and certain affiliates
New York, NY 10270
Kenneth D. Walma Vice President, General Assistant Secretary, Associate
One Alico Plaza Counsel General Counsel
600 King Street
Wilmington, DE 19801
Gerald Walter Wyndorf Director, Chief Executive Executive Vice President of AIG
80 Pine Street Officer and President Life Insurance Company
New York, NY 10038
</TABLE>
77
<PAGE>
================================================================================
Other Information
================================================================================
State Regulation
We are subject to the laws of New York
governing insurance companies and to
regulation by the New York Insurance
Department. We file an annual statement in a
prescribed form with the Insurance
Department each year covering our operation
for the preceding year and our final
condition as of the end of such year.
Regulation by the Insurance Department
includes periodic examinations to determine
our policy liabilities and reserves so that
the Insurance Department may certify the
items are correct. Our books and accounts
are subject to review by the Insurance
Department at all times and a full
examination of its operations is conducted
periodically by the staff of the Insurance
Department pursuant to the National
Association of Insurance Commissioners. Such
regulation does not, however, involve any
supervision of management or investment
practices or policies. In addition, we are
subject to regulation under the insurance
laws of other jurisdictions in which we may
operate.
Legal Proceedings
There are no legal proceedings to which the
Variable Account or the principal
underwriter is a party. We are engaged in
various kinds of routine litigation which,
in our opinion, are not of material
importance in relation to our total capital
and surplus.
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.
78
<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 Variable Account.
The ratings are not recommendations to
purchase our life insurance or annuity
products or to hold or sell these products,
and the ratings do not comment on the
suitability of such products for a
particular investor. There can be no
assurance that any rating will remain in
effect for any given period of time or that
any rating will not be lowered or withdrawn
entirely by a rating organization if, in
such organization's judgment, future
circumstances so warrant. The ratings do not
reflect the investment performance of the
Variable Account or the degree of risk
associated with an investment in the
Variable Account.
79
<PAGE>
================================================================================
Financial Statements
================================================================================
Our financial statements (American
International Life Assurance Company of New
York for the years ended December 31, 1999,
1998 and 1997) have been audited by
PricewaterhouseCoopers LLP, independent
certified public accountants, as stated in
their report, and have been included in this
prospectus in reliance upon the authority of
such firm as experts in accounting and
auditing. Financial statements of the
Variable Account are not included because no
policies have been issued using the
subaccounts described in this prospectus.
80
<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>
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
3
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value
(cost: 1999 - $5,076,750; 1998 - $4,798,349) $4,973,736 $5,065,014
Equity securities:
Common stock
(cost: 1999 - $12,837; 1998 - $12,848) 24,428 26,659
Non-redeemable preferred stocks
(cost: 1999 - $27,047; 1998 - $13,544) 26,602 14,691
Mortgage loans on real estate, net 460,455 544,401
Real estate, net of accumulated
depreciation of $6,976 in 1999 and $6,325 in 1998 18,937 19,587
Policy loans 9,986 10,281
Other invested assets 79,381 84,156
Short-term investments 143,766 252,565
Cash 245 157,187
---------- ----------
Total investments and cash 5,737,536 6,174,541
Amounts due from related parties 9,470 5,433
Investment income due and accrued 82,501 81,703
Premium and insurance balances receivable 17,345 16,172
Reinsurance assets 306,663 27,234
Deferred policy acquisition costs 46,655 41,421
Federal income tax receivable 6,598 --
Deferred income taxes 55,056 --
Separate and variable accounts 423,534 319,632
Other assets 1,170 1,377
---------- ----------
Total assets $6,686,528 $6,667,513
========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 3,741,873 $ 3,607,190
Future policy benefits 1,713,163 1,694,572
Reserve for unearned premiums 5,948 4,751
Policy and contract claims 335,557 318,614
Reserve for commissions, expenses and taxes 5,183 5,048
Insurance balances payable 7,565 12,088
Federal income tax payable -- 7,623
Deferred income taxes -- 65,683
Amounts due to related parties 3,320 15,231
Separate and variable accounts 423,534 319,632
Other liabilities 32,137 964
----------- -----------
Total liabilities 6,268,280 6,051,396
----------- -----------
Capital funds
Common stock, $200 par value; 16,125 shares
authorized, issued and outstanding 3,225 3,225
Additional paid-in capital 197,025 197,025
Retained earnings 277,829 220,949
Accumulated other comprehensive income (59,831) 194,918
----------- -----------
Total capital funds 418,248 616,117
----------- -----------
Total liabilities and capital funds $ 6,686,528 $ 6,667,513
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
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.
6
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CAPITAL FUNDS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Common stock
Balance at beginning of year $ 3,225 $ 3,225 $ 3,225
--------- --------- ---------
Balance at end of year 3,225 3,225 3,225
--------- --------- ---------
Additional paid-in capital
Balance at beginning of year: 197,025 197,025 197,025
--------- --------- ---------
Balance at end of year 197,025 197,025 197,025
--------- --------- ---------
Retained earnings
Balance at beginning of year 220,949 190,252 134,461
Net income 56,880 40,697 55,791
Dividends to Stockholders -- (10,000) --
--------- --------- ---------
Balance at end of year 277,829 220,949 190,252
--------- --------- ---------
Accumulated other comprehensive income
Balance at beginning of year 194,918 184,681 135,431
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments (400,842) (4,208) 104,775
Deferred income tax benefit (expense) on
changes and future policy benefits 146,093 14,445 (55,525)
--------- --------- ---------
Balance at end of year (59,831) 194,918 184,681
--------- --------- ---------
Total capital funds $ 418,248 $ 616,117 $ 575,183
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 56,880 $ 40,697 $ 55,791
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Non-cash revenues, expenses, gains
and losses included in income:
Change in insurance reserves 45,730 323,971 44,065
Change in premiums and insurance balances
receivable and payable -net (5,697) 4,753 (3,201)
Change in reinsurance assets (279,429) (6,624) 4,601
Change in deferred policy acquisition costs (5,234) (1,674) (3,992)
Change in investment income due and accrued (799) 628 (4,898)
Realized capital losses 13,103 1,694 226
Change in current and deferred income taxes -net 2,133 (6,220) 243
Change in reserves for commissions, expenses and taxes 135 480 (337)
Change in other assets and liabilities - net 2,969 (24,194) (11,055)
----------- ----------- -----------
Total adjustments (227,089) 292,814 25,652
----------- ----------- -----------
Net cash (used in) provided by operating activities (170,209) 333,511 81,443
----------- ----------- -----------
Cash flows from investing activities:
Cost of fixed maturities at market, sold 913,262 317,042 255,408
Cost of fixed maturities at market, matured or redeemed 641,409 824,480 435,831
Cost of equity securities sold 1,149 1,413 7,422
Cost of real estate sold -- 5,107 --
Realized capital (losses) gains (13,103) (1,694) 3,774
Purchase of fixed maturities (1,815,447) (1,202,023) (922,293)
Purchase of equity securities (14,641) (13,671) (3,000)
Mortgage loans granted (64,782) (140,623) (89,717)
Repayments of mortgage loans 148,799 150,803 44,733
Change in policy loans 296 401 380
Change in short-term investments 108,799 (172,672) (19,560)
Change in other invested assets (22,632) (12,118) 6,100
Other - net (4,525) (16,637) (7,361)
----------- ----------- -----------
Net cash used in investing activities (121,416) (260,192) (288,283)
----------- ----------- -----------
Cash flows from financing activities:
Change in policyholders' funds on deposit 134,683 93,569 205,413
Dividends to stockholders -- (10,000) --
----------- ----------- -----------
Net cash provided by financing activities 134,683 83,569 205,413
----------- ----------- -----------
Change in cash (156,942) 156,888 (1,427)
Cash at beginning of year 157,187 299 1,726
----------- ----------- -----------
Cash at end of year $ 245 $ 157,187 $ 299
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Comprehensive income
Net income $ 56,880 $ 40,697 $ 55,791
--------- --------- ---------
Other comprehensive income
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments (400,842) (4,208) 104,775
Changes due to deferred income tax benefit
(expense) on changes 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.
9
<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.
10
<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.
11
<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.
12
<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>
<CAPTION>
Years ended December 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities $392,878 $386,353 $378,724
Equity securities 2,309 1,702 1,010
Mortgage loans 45,173 52,443 48,488
Real estate 2,113 2,782 3,097
Policy loans 750 713 832
Cash and short-term investments 7,507 4,334 4,257
Other invested assets 16,026 11,209 2,878
-------- -------- --------
Total investment income 466,756 459,536 439,286
Investment expenses 4,541 4,360 4,188
-------- -------- --------
Net investment income $462,215 $455,176 $435,098
======== ======== ========
</TABLE>
13
<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>
<CAPTION>
Years ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Realized gains (losses) on investments:
Fixed maturities $ (15,407) $ (3,908) $ --
Equity securities 1,702 124 3,774
Mortgage loans -- -- (4,000)
Real Estate -- 2,079 --
Other 602 11 --
--------- --------- ---------
Realized gains (losses) $ (13,103) $ (1,694) $ (226)
========= ========= =========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities $(369,679) $ (16,268) $ 103,520
Equity securities (3,812) 1,272 (1,446)
Other invested assets (27,351) 10,788 2,701
--------- --------- ---------
Change in unrealized appreciation
(depreciation) of investments $(400,842) $ (4,208) $ 104,775
========= ========= =========
</TABLE>
Proceeds from the sale of investments in fixed maturities during
1999, 1998 and 1997 were $913,263,000, $317,042,000 and
$255,408,000, respectively.
During 1999, 1998 and 1997, gross gains of $8,369,000, $0 and $0,
respectively, and gross losses of $23,776,000, $3,908,000 and $0,
respectively, were realized on dispositions of fixed maturities.
During 1999, 1998 and 1997, gross gains of $1,712,000, $126,000 and
$3,774,000, respectively, and gross losses of $10,000, $2,000 and
$0, respectively, were realized on dispositions of equity
securities.
14
<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>
<CAPTION>
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
========== ========== ========== ==========
<CAPTION>
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>
15
<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>
<CAPTION>
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):
16
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 41,421 $ 39,748 $ 35,754
Acquisition costs deferred 9,166 7,323 9,109
Amortization charged to income (3,932) (5,650) (5,115)
-------- -------- --------
Balance at end of year $ 46,655 $ 41,421 $ 39,748
======== ======== ========
</TABLE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a) The analysis of the future policy benefits and policyholders' funds
on deposit liabilities as at December 31, 1999 and 1998 follows (in
thousands):
<TABLE>
<CAPTION>
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
17
<PAGE>
percent depending on the year of issue. Additionally,
universal life funds are subject to surrender charges that
amount to 11.0 percent of the fund balance and grade to zero
over a period not longer than 20 years.
5. Income Taxes
(a) The Federal income tax rate applicable to ordinary income is 35% for
1999, 1998 and 1997. Actual tax expense on income from operations
differs from the "expected" amount computed by applying the Federal
income tax rate because of the following (in thousands except
percentages):
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1999 1998 1997
------------------- -------------------- -------------------
Percent Percent Percent
of 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>
<CAPTION>
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.
18
<PAGE>
(d) Income taxes paid in 1999, 1998, and 1997 amounted to $28,174,000,
$26,796,000, and $30,269,000, respectively.
6. Commitments and Contingent Liabilities
The Company, in common with the insurance industry in general, is
subject to litigation, including claims for punitive damages, in the
normal course of their business. The Company does not believe that
such litigation will have a material effect on its operating results
and financial condition.
The Company is a limited partner in Chardon/Hato Rey Partnership
(Puerto Rico). The partnership agreement requires the Company to
make an additional capital contribution of up to $3,000,000 to cover
construction cost overruns or operating deficits. Construction was
completed in 1992, the building is fully leased and profitable;
therefore, no demands are foreseen.
During 1997, the Company entered into a partnership agreement with
Private Equity Investors III, L.P. As of December 31, 1999, the
Company's unused capital commitment was $5,086,000. Contributions
totaling $19,872,000 have been made through December 31, 1999.
During 1998, the Company entered into a partnership agreement with
Sankaty High Yield Asset Partners, L.P. The agreement requires the
Company to make capital contributions totaling $2,500,000.
Contributions totaling $2,250,000 have been made through December
31, 1999.
During 1999, the Company entered into a partnership agreement with
G2 Opportunity Fund, LP. The agreement requires the Company to make
capital contributions totaling $12,500,000. Contributions totaling
$11,515,000 have been made through December 31, 1999.
During 1999, the Company entered into a partnership agreement with
CVC Capital Funding LLC. The agreement requires the Company to make
capital contributions totaling $10,000,000. No contributions have
been made as of December 31, 1999.
During 1999, the Company entered into a partnership agreement with
Private Equity Investors IV, L.P. The agreement requires the Company
to make capital contributions totaling $73,000,000. No contributions
have been made as of December 31, 1999
7. Fair Value of Financial Instruments
(a) Statement of Financial Accounting Standards No. 107 "Disclosures
about Fair Value of Financial Instruments" (FASB 107) requires
disclosure of fair value information about financial instruments for
which it is practicable to estimate such fair value. These financial
instruments may or may not be recognized in the balance sheet. In
the measurement of the fair value of certain of the financial
instruments, quoted market prices were not available and other
valuation techniques were utilized. These derived fair value
estimates are significantly affected by the assumptions used. FASB
107 excludes certain financial instruments, including those related
to insurance contracts.
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short-term investments: The carrying amounts reported in
the balance sheet for these instruments approximate fair value.
Fixed maturities: Fair values for fixed maturity securities carried
at market value are generally based upon quoted market prices. For
certain fixed maturities for which market prices were not readily
available, fair values were estimated using values obtained from
independent pricing services.
19
<PAGE>
Equity securities: Fair values for equity securities were based upon
quoted market prices.
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
----
Fair Carrying
Value Amount
---------- ----------
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
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
20
<PAGE>
adjustments with respect to available for sale securities were
$(13,103,000), $(1,694,000), and $(226,000) for December 31, 1999,
1998 and 1997, respectively.
9. Employee Benefits
(a) The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered
by the Parent. All qualified employees who have attained age 21 and
completed twelve months of continuous service are eligible to
participate in this plan. An employee with 5 or more years of
service is entitled to pension benefits beginning at normal
retirement age 65. Benefits are based upon a percentage of average
final compensation multiplied by years of credited service limited
to 44 years of credited service. The average final compensation is
subject to certain limitations. Annual funding requirements are
determined based 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
21
<PAGE>
plan provides for eligible employees to receive privileges to
purchase AIG common stock at a price equal to 85% of the fair market
value on the date of grant of the purchase privilege. The Parent has
not recognized compensation costs for either plan. The effect of the
compensation costs, as determined consistent with FASB 123, was not
computed on a subsidiary basis, but rather on a consolidated basis
for all subsidiaries of the Parent and therefore are not presented
herein.
10. Leases
(a) The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1999,
the future minimum lease payments under operating leases were as
follows:
Year Payments
---- --------
2000 $1,421
2001 1,126
2002 774
2003 345
2004 277
Remaining years after 2004 230
------
Total $4,173
======
Rent expense approximated $1,667,000, $1,604,000 and $1,398,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
11. Reinsurance
(a) The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks
are reinsured primarily under coinsurance and yearly renewable term
treaties. Accident and health insurance risks are reinsured
primarily under coinsurance, excess of loss and quota share
treaties. Amounts recoverable from reinsurers are estimated in a
manner consistent with the assumptions used for the underlying
policy benefits and are presented as a component of reinsurance
assets. A contingent liability exists with respect to reinsurance
ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements. The Company
also reinsures portions of its life and accident and health
insurance risks with affiliated companies (see Note 12).
The effect of all reinsurance contracts, including reinsurance
assumed, is as follows (in thousands, except percentages):
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1999 Assumed
----------------- Gross Ceded Assumed Net to Net
----- ----- ------- --- ------
<S> <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>
22
<PAGE>
11. Reinsurance - (continued)
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1998 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%
========== ========== ========== ==========
<CAPTION>
Percentage
of Amount
December 31, 1997 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.
23
<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.
(d) During 1999, the Company entered into a reinsurance treaty with
Lexington Insurance Company whereby the Company ceded a block of
Ordinary Life business and transferred cash and securities valued at
$276,917,000.
24
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE
COMPANY OF NEW YORK
(a wholly-owned subsidiary of
American International Group, Inc.)
UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1999 - SEPTEMBER 30, 2000
1
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $5,050,285 $4,973,736
(cost: 2000 - $5,130,961; 1999 - $5,076,750)
Equity securities:
Common stock
(cost: 2000 - $13,649; 1999 - $12,837) 28,568 24,428
Non-redeemable preferred stocks
(cost: 2000 - $24,610; 1999 - $27,047) 24,789 26,602
Mortgage loans on real estate, net 463,152 460,455
Real estate, net of accumulated
depreciation of $7,464 in 2000 and $6,976 in 1999 18,449 18,937
Policy loans 10,423 9,986
Other invested assets 102,831 79,381
Short-term investments 95,959 143,766
Cash 33 245
---------- ----------
Total investments and cash 5,794,489 5,737,536
Amounts due from related parties 8,695 9,470
Investment income due and accrued 89,774 82,501
Premium and insurance balances receivable 13,836 17,345
Reinsurance assets 322,388 306,663
Deferred policy acquisition costs 48,415 46,655
Federal income tax receivable 2,182 6,598
Deferred income taxes 43,818 55,056
Separate and variable accounts 436,993 423,534
Other assets 1,602 1,170
---------- ----------
Total assets $6,762,192 $6,686,528
========== ==========
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 3,719,905 $ 3,741,873
Future policy benefits 1,772,065 1,713,163
Reserve for unearned premiums 8,200 5,948
Policy and contract claims 351,914 335,557
Reserve for commissions, expenses and taxes 3,256 5,183
Insurance balances payable 13,457 7,565
Federal income tax payable -- --
Amounts due to related parties 8,601 3,320
Separate and variable accounts 436,993 423,534
Other liabilities 25,467 32,137
----------- -----------
Total liabilities 6,339,858 6,268,280
----------- -----------
Capital funds
Common stock, $200 par value; 16,125 shares
authorized, issued and outstanding 3,225 3,225
Additional paid-in capital 197,025 197,025
Retained earnings 264,877 277,829
Accumulated other comprehensive income (42,793) (59,831)
----------- -----------
Total capital funds 422,334 418,248
----------- -----------
Total liabilities and capital funds $ 6,762,192 $ 6,686,528
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For Nine Months ended September 30,
-----------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Revenues:
Premiums $ 182,572 $ 146,528
Net investment income 342,646 350,375
Realized capital losses (41,236) (9,014)
--------- ---------
Total revenues 483,982 487,889
--------- ---------
Benefits and expenses:
Benefits to policyholders 197,530 180,959
Increase in future policy benefits
and policyholders' funds on deposit 218,607 191,240
Acquisition and insurance expenses 55,975 51,671
--------- ---------
Total benefits and expenses 472,112 423,870
--------- ---------
Income before income taxes 11,870 64,019
--------- ---------
Income taxes (benefits):
Current 2,836 12,022
Deferred 1,986 10,807
--------- ---------
Total income taxes 4,822 22,829
--------- ---------
Net income $ 7,048 $ 41,190
========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CAPITAL FUNDS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------- ---------
(unaudited)
<S> <C> <C>
Common stock
Balance at beginning of year $ 3,225 $ 3,225
--------- ---------
Balance at end of year 3,225 3,225
--------- ---------
Additional paid-in capital
Balance at beginning of year: 197,025 197,025
--------- ---------
Balance at end of year 197,025 197,025
--------- ---------
Retained earnings
Balance at beginning of year 277,829 220,949
Net income 7,048 56,880
Dividends (20,000) --
--------- ---------
Balance at end of year 264,877 277,829
--------- ---------
Accumulated other comprehensive income
Balance at beginning of year (59,831) 194,918
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments 26,290 (400,842)
Deferred income tax benefit (expense) on
changes and future policy benefits (9,252) 146,093
--------- ---------
Balance at end of year (42,793) (59,831)
--------- ---------
Total capital funds $ 422,334 $ 418,248
========= =========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended September 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,048 $ 41,190
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 77,511 38,185
Change in premiums and insurance balances
receivable and payable -net 9,401 (8,173)
Change in reinsurance assets (15,798) (278,305)
Change in deferred policy acquisition costs (1,760) (3,395)
Change in investment income due and accrued (7,272) (5,781)
Realized capital losses 41,237 9,014
Change in current and deferred income taxes -net 6,402 9,207
Change in reserves for commissions, expenses and taxes (1,927) 1,411
Change in other assets and liabilities - net (2,037) 1,681
----------- -----------
Total adjustments 105,757 (236,156)
----------- -----------
Net cash (used in) provided by operating activities 112,805 (194,966)
----------- -----------
Cash flows from investing activities:
Cost of fixed maturities at market, sold 217,390 461,449
Cost of fixed maturities at market, matured or redeemed 370,120 766,271
Cost of equity securities sold 2,708 1,232
Realized capital (losses) gains (41,237) (9,014)
Purchase of fixed maturities (627,803) (1,485,643)
Purchase of equity securities (1,009) (3,539)
Mortgage loans granted (67,550) (44,782)
Repayments of mortgage loans 64,858 109,799
Change in policy loans (438) (98)
Change in short-term investments 47,807 124,783
Change in other invested assets (23,462) (20,644)
Other - net (12,432) (5,477)
----------- -----------
Net cash used in investing activities (71,048) (105,663)
----------- -----------
Cash flows from financing activities:
Change in policyholders' funds on deposit (21,969) 143,788
Dividend (20,000) --
----------- -----------
Net cash provided by financing activities (41,969) 143,788
----------- -----------
Change in cash (212) (156,841)
Cash at beginning of year 245 157,187
----------- -----------
Cash at end of year $ 33 $ 346
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended September 30,
2000 1999
--------- ---------
<S> <C> <C>
Comprehensive income
Net income $ 7,048 $ 41,190
--------- ---------
Other comprehensive income
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments 26,290 (269,384)
Changes due to deferred income tax benefit
(expense) on changes in
future policy benefits (9,252) 100,186
--------- ---------
Other comprehensive income 17,038 (169,198)
--------- ---------
Comprehensive income $ 24,086 $(128,008)
========= =========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation: The year-end balance sheet data was derived from
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. All other data has
been derived from the books and records of the Company and has not been
subject to audit.
7
<PAGE>
APPENDIX A
Gemstone VUL
Guaranteed Monthly Cost of Insurance Rates
Per $1,000 of Net Amount at Risk
Male (Age Nearest Birthday)
<TABLE>
<CAPTION>
------------------------------------------------------- ------------------------------------------------------
Attained Monthly COI Rate Attained Monthly COI Rate
Age ------------------------------------- Age -------------------------------------
Nonsmoker* Smoker Nonsmoker* Smoker
======================================================= ======================================================
<S> <C> <C> <C> <C> <C>
0 N/A 0.34845 50 0.40933 0.79730
1 N/A 0.08917 51 0.44603 0.87076
2 N/A 0.08251 52 0.48857 0.95257
3 N/A 0.08167 53 0.53612 1.04609
4 N/A 0.07917 54 0.59118 1.15132
5 N/A 0.07501 55 0.65209 1.26326
6 N/A 0.07167 56 0.71968 1.38441
7 N/A 0.06667 57 0.79146 1.50978
8 N/A 0.06334 58 0.86909 1.64353
9 N/A 0.06167 59 0.95675 1.78234
10 N/A 0.06084 60 1.05444 1.93624
11 N/A 0.06417 61 1.16302 2.10944
12 N/A 0.07084 62 1.28665 2.30447
13 N/A 0.08251 63 1.42787 2.52553
14 N/A 0.09584 64 1.58752 2.76931
15 0.10751 0.13752 65 1.76394 3.03334
16 0.11918 0.15586 66 1.95381 3.30841
17 0.12835 0.17086 67 2.15965 3.59706
18 0.13335 0.18003 68 2.38065 3.89427
19 0.13835 0.18837 69 2.62186 4.21099
20 0.14002 0.19254 70 2.89419 4.56071
21 0.13919 0.19420 71 3.25305 4.94853
22 0.13669 0.19170 72 3.55929 5.38973
23 0.13418 0.18837 73 3.96902 5.88695
24 0.13085 0.18420 74 4.42953 6.42941
25 0.12668 0.17837 75 4.92413 7.02991
26 0.12335 0.17336 76 5.45122 7.64974
27 0.12168 0.17170 77 6.00585 8.27796
28 0.12001 0.17003 78 6.58221 8.90442
29 0.12001 0.17170 79 7.19473 9.54780
30 0.12001 0.17503 80 7.86724 10.23622
31 0.12252 0.18087 81 8.61695 10.98690
32 0.12502 0.18670 82 9.46542 11.82145
33 0.12918 0.19587 83 10.42336 12.74626
34 0.13418 0.20671 84 11.47263 13.72670
35 0.14085 0.21921 85 12.58987 14.73050
36 0.14752 0.23422 86 13.75325 15.72512
37 0.15669 0.25340 87 14.95279 16.69584
38 0.16669 0.27508 88 16.16464 17.75732
39 0.17837 0.30009 89 17.40526 18.80718
40 0.19087 0.32844 90 18.69215 19.86094
41 0.20588 0.36180 91 20.04733 20.93947
42 0.22088 0.39599 92 21.51567 22.08818
43 0.23839 0.43519 93 23.16008 23.56765
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------- ------------------------------------------------------
Attained Monthly COI Rate Attained Monthly COI Rate
Age ------------------------------------- Age -------------------------------------
Nonsmoker* Smoker Nonsmoker* Smoker
======================================================= ======================================================
<S> <C> <C> <C> <C> <C>
44 0.25590 0.47606 94 25.25984 25.47888
45 0.27674 0.52277 95 28.27411 28.27411
------------------------------------------------------- ------------------------------------------------------
46 0.29926 0.56949 96 33.10677 33.10677
47 0.32344 0.62038 97 41.68475 41.68475
48 0.34929 0.67379 98 58.01259 58.01259
49 0.37848 0.73387 99 83.33333 83.33333
------------------------------------------------------- ------------------------------------------------------
</TABLE>
* Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
Nonsmoker Risks.
A-2
<PAGE>
Gemstone VUL
Guaranteed Monthly Cost of Insurance Rates
Per $1,000 of Net Amount at Risk
Female (Age Nearest Birthday)
<TABLE>
<CAPTION>
------------------------------------------------------- -------------------------------------------------------
Attained Monthly COI Rate Attained Monthly COI Rate
Age ------------------------------------- Age --------------------------------------
Nonsmoker* Smoker Nonsmoker* Smoker
======================================================= =======================================================
<S> <C> <C> <C> <C> <C>
0 N/A 0.24089 50 0.34929 0.54530
1 N/A 0.07251 51 0.37514 0.58367
2 N/A 0.06750 52 0.40433 0.62706
3 N/A 0.06584 53 0.43853 0.67796
4 N/A 0.06417 54 0.47356 0.72970
5 N/A 0.06334 55 0.51109 0.78395
6 N/A 0.06084 56 0.54947 0.83820
7 N/A 0.06000 57 0.58785 0.88996
8 N/A 0.05834 58 0.62456 0.93838
9 N/A 0.05750 59 0.66377 0.98848
10 N/A 0.05667 60 0.70967 1.04359
11 N/A 0.05750 61 0.76392 1.11457
12 N/A 0.06000 62 0.83236 1.20061
13 N/A 0.06250 63 0.91834 1.31673
14 N/A 0.06667 64 1.02021 1.44626
15 0.07000 0.07834 65 1.13044 1.59170
16 0.07334 0.08251 66 1.24906 1.73551
17 0.07667 0.08667 67 1.36937 1.88521
18 0.07917 0.09084 68 1.49055 2.02074
19 0.08167 0.09418 69 1.62012 2.17305
20 0.08417 0.09668 70 1.76979 2.33460
21 0.08501 0.09834 71 1.94879 2.54396
22 0.08667 0.10084 72 2.17053 2.80367
23 0.08751 0.10251 73 2.44094 3.12054
24 0.09001 0.10584 74 2.75926 3.49047
25 0.09084 0.10751 75 3.11970 3.90183
26 0.09334 0.11168 76 3.51565 4.34547
27 0.09501 0.11501 77 3.94131 4.81137
28 0.09751 0.11835 78 4.39675 5.29708
29 0.10001 0.12335 79 4.89467 5.81782
30 0.10334 0.12918 80 5.45628 6.39564
31 0.10584 0.13418 81 6.10032 7.04935
32 0.10918 0.14002 82 6.84571 7.79699
33 0.11251 0.14585 83 7.70559 8.64662
34 0.11835 0.15502 84 8.66019 9.64633
35 0.12252 0.16169 85 9.70835 10.64717
36 0.13002 0.17420 86 10.83105 11.78647
37 0.13919 0.19004 87 12.03563 12.88645
38 0.14919 0.20754 88 13.30897 14.13279
39 0.16086 0.22755 89 14.67130 15.32034
40 0.17336 0.25006 90 16.12162 16.69153
41 0.18837 0.27758 91 17.68913 18.15714
42 0.20337 0.30343 92 19.41995 19.76127
43 0.21838 0.33011 93 21.39829 21.58524
44 0.23339 0.35679 94 23.83051 23.83051
------------------------------------------------------- -------------------------------------------------------
45 0.24923 0.38431 95 27.16158 27.16158
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------- --------------------------------------------------------
Attained Monthly COI Rate Attained Monthly COI Rate
Age ------------------------------------- Age ---------------------------------------
Nonsmoker* Smoker Nonsmoker* Smoker
======================================================= ========================================================
<S> <C> <C> <C> <C> <C>
46 0.25690 0.41267 96 32.32378 32.32378
47 0.28425 0.44270 97 41.21204 41.21204
48 0.30426 0.47356 98 57.81394 57.81394
49 0.32511 0.50692 99 83.33333 83.33333
------------------------------------------------------- --------------------------------------------------------
</TABLE>
* Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
Nonsmoker Risks.
A-4
<PAGE>
Gemstone VUL
Table of Monthly Charges Per $1,000 of Face Amount
(Applicable During First 5 Policy Years*)
Male
<TABLE>
<CAPTION>
------------------------------------------------- ----------------------------------------------------
Per Unit Charge Per Unit Charge
------------------------------------------------- ----------------------------------------------------
Issue Age Nonsmoker** Smoker Issue Age Nonsmoker** Smoker
================================================= ====================================================
<S> <C> <C> <C> <C> <C>
0 N/A 0.12 41 0.25 0.37
1 N/A 0.12 42 0.27 0.39
2 N/A 0.13 43 0.28 0.41
3 N/A 0.13 44 0.30 0.42
4 N/A 0.13 45 0.31 0.44
5 N/A 0.13 46 0.33 0.46
6 N/A 0.14 47 0.35 0.48
7 N/A 0.14 48 0.37 0.50
8 N/A 0.14 49 0.39 0.50
9 N/A 0.15 50 0.41 0.50
10 N/A 0.15 51 0.43 0.50
11 N/A 0.15 52 0.45 0.50
12 N/A 0.15 53 0.47 0.50
13 N/A 0.16 54 0.47 0.50
14 N/A 0.16 55 0.47 0.50
15 0.10 0.16 56 0.47 0.50
16 0.10 0.16 57 0.47 0.50
17 0.11 0.17 58 0.47 0.50
18 0.11 0.17 59 0.47 0.50
19 0.11 0.17 60 0.47 0.50
20 0.12 0.18 61 0.47 0.50
21 0.12 0.18 62 0.47 0.50
22 0.12 0.18 63 0.47 0.50
23 0.12 0.18 64 0.47 0.50
24 0.13 0.19 65 0.47 0.50
25 0.13 0.19 66 0.47 0.50
26 0.13 0.20 67 0.47 0.50
27 0.14 0.21 68 0.47 0.50
28 0.14 0.21 69 0.47 0.50
29 0.15 0.22 70 0.47 0.50
30 0.15 0.23 71 0.47 0.50
31 0.15 0.24 72 0.47 0.50
32 0.16 0.25 73 0.47 0.50
33 0.16 0.25 74 0.47 0.50
34 0.17 0.26 75 0.47 0.50
35 0.17 0.27 76 0.47 0.50
36 0.18 0.29 77 0.47 0.50
37 0.20 0.30 78 0.47 0.50
38 0.21 0.32 79 0.47 0.50
39 0.23 0.34 80 0.47 0.50
40 0.24 0.36 81 - 85 0.47 0.50
------------------------------------------------- ----------------------------------------------------
</TABLE>
* Also applicable on the Increase Amount during the first 5 years following
an applied for increase in Face Amount.
** Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
Nonsmoker Risks.
A-5
<PAGE>
Gemstone VUL
Table of Monthly Charges Per $1,000 of Face Amount
(Applicable During First 5 Policy Years*)
Female
<TABLE>
<CAPTION>
------------------------------------------------- ----------------------------------------------------
Per Unit Charge Per Unit Charge
------------------------------------------------- ----------------------------------------------------
Issue Age Nonsmoker** Smoker Issue Age Nonsmoker** Smoker
================================================= ====================================================
<S> <C> <C> <C> <C> <C>
0 N/A 0.10 41 0.19 0.27
1 N/A 0.10 42 0.20 0.28
2 N/A 0.10 43 0.21 0.29
3 N/A 0.11 44 0.22 0.30
4 N/A 0.11 45 0.23 0.31
5 N/A 0.11 46 0.25 0.33
6 N/A 0.11 47 0.27 0.34
7 N/A 0.12 48 0.28 0.36
8 N/A 0.12 49 0.30 0.37
9 N/A 0.12 50 0.32 0.39
10 N/A 0.12 51 0.34 0.41
11 N/A 0.13 52 0.36 0.42
12 N/A 0.13 53 0.37 0.44
13 N/A 0.13 54 0.39 0.45
14 N/A 0.13 55 0.41 0.47
15 0.09 0.14 56 0.44 0.50
16 0.09 0.14 57 0.46 0.50
17 0.09 0.14 58 0.49 0.50
18 0.10 0.14 59 0.49 0.50
19 0.10 0.15 60 0.49 0.50
20 0.10 0.15 61 0.49 0.50
21 0.10 0.15 62 0.49 0.50
22 0.10 0.15 63 0.49 0.50
23 0.11 0.16 64 0.49 0.50
24 0.11 0.16 65 0.49 0.50
25 0.11 0.16 66 0.49 0.50
26 0.11 0.17 67 0.49 0.50
27 0.11 0.17 68 0.49 0.50
28 0.11 0.18 69 0.49 0.50
29 0.11 0.18 70 0.49 0.50
30 0.12 0.19 71 0.49 0.50
31 0.12 0.20 72 0.49 0.50
32 0.12 0.20 73 0.49 0.50
33 0.12 0.21 74 0.49 0.50
34 0.12 0.21 75 0.49 0.50
35 0.12 0.22 76 0.49 0.50
36 0.13 0.23 77 0.49 0.50
37 0.14 0.24 78 0.49 0.50
38 0.15 0.25 79 0.49 0.50
39 0.16 0.26 80 0.49 0.50
40 0.18 0.27 81 - 85 0.49 0.50
------------------------------------------------- ----------------------------------------------------
</TABLE>
* Also applicable on the Increase Amount during the first 5 years following
an applied for increase in Face Amount.
** Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
Nonsmoker Risks.
A-6
<PAGE>
Gemstone VUL
Table of Initial Surrender Charges
Per $1,000 of Face Amount
Male
<TABLE>
<CAPTION>
------------------------------------------------------------ ------------------------------------------------------------
Issue Age Nonsmoker* Smoker Issue Age Nonsmoker* Smoker
============================================================ ============================================================
<S> <C> <C> <C> <C> <C>
0 N/A 5.64 45 9.92 17.23
1 N/A 5.64 46 10.37 17.40
2 N/A 5.65 47 10.82 17.56
3 N/A 5.72 48 11.26 17.73
4 N/A 5.80 49 11.71 17.89
5 N/A 5.87 50 12.16 18.06
6 N/A 5.92 51 12.61 18.22
7 N/A 6.01 52 13.06 18.39
8 N/A 6.11 53 13.50 18.55
9 N/A 6.17 54 13.95 18.72
10 N/A 6.27 55 14.40 18.88
11 N/A 6.39 56 15.20 19.85
12 N/A 6.51 57 16.00 20.83
13 N/A 6.59 58 16.80 21.80
14 N/A 6.71 59 17.60 22.78
15 3.76 6.84 60 18.41 23.75
16 3.82 6.97 61 19.21 24.72
17 3.85 7.06 62 20.01 25.70
18 3.91 7.19 63 20.81 26.67
19 3.97 7.32 64 21.61 27.65
20 4.01 7.41 65 22.41 28.62
21 4.07 7.56 66 23.60 29.35
22 4.14 7.70 67 24.80 30.10
23 4.22 7.86 68 25.99 30.86
24 4.27 7.99 69 27.18 31.64
25 4.35 8.17 70 28.38 32.44
26 4.36 8.46 71 29.57 33.26
27 4.36 8.74 72 30.76 34.11
28 4.37 9.03 73 31.95 34.34
29 4.37 9.31 74 33.15 34.34
30 4.38 9.60 75 34.34 34.34
31 4.39 9.88 76 34.34 34.34
32 4.39 10.17 77 34.34 34.34
33 4.40 10.45 78 34.34 34.34
34 4.40 10.74 79 34.34 34.34
35 4.41 11.02 80 34.34 34.34
36 4.96 11.64 81 34.34 34.34
37 5.51 12.26 82 34.34 34.34
38 6.06 12.88 83 34.34 34.34
39 6.61 13.50 84 34.34 34.34
40 7.17 14.13 85 34.34 34.34
41 7.72 14.75
42 8.27 15.37
43 8.82 15.99
44 9.37 16.61
------------------------------------------------------------ ------------------------------------------------------------
</TABLE>
* Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
Nonsmoker Risks.
A-7
<PAGE>
Gemstone VUL
Table of Initial Surrender Charges
Per $1,000 of Face Amount
Female
<TABLE>
<CAPTION>
------------------------------------------------------------ ------------------------------------------------------------
Issue Age Nonsmoker* Smoker Issue Age Nonsmoker* Smoker
============================================================ ============================================================
<S> <C> <C> <C> <C> <C>
0 N/A 5.06 45 8.11 12.65
1 N/A 5.06 46 8.67 13.19
2 N/A 5.11 47 9.23 13.73
3 N/A 5.13 48 9.79 14.27
4 N/A 5.18 49 10.35 14.81
5 N/A 5.24 50 10.91 15.35
6 N/A 5.30 51 11.47 15.88
7 N/A 5.33 52 12.03 16.42
8 N/A 5.40 53 12.59 16.96
9 N/A 5.47 54 13.15 17.50
10 N/A 5.54 55 13.71 18.04
11 N/A 5.58 56 14.10 18.24
12 N/A 5.67 57 14.48 18.45
13 N/A 5.75 58 14.87 18.65
14 N/A 5.85 59 15.25 18.85
15 3.59 5.90 60 15.64 19.06
16 3.64 6.00 61 16.02 19.26
17 3.69 6.09 62 16.41 19.46
18 3.72 6.20 63 16.79 19.66
19 3.78 6.27 64 17.18 19.87
20 3.84 6.38 65 17.56 20.07
21 3.90 6.49 66 19.18 21.50
22 3.96 6.62 67 20.79 22.92
23 4.01 6.71 68 22.41 24.35
24 4.08 6.84 69 24.02 25.78
25 4.15 6.98 70 25.64 27.21
26 4.15 7.20 71 27.26 28.63
27 4.15 7.43 72 28.87 30.06
28 4.16 7.65 73 30.49 31.49
29 4.16 7.88 74 32.10 32.91
30 4.16 8.10 75 33.72 34.34
31 4.16 8.32 76 34.34 34.34
32 4.16 8.55 77 34.34 34.34
33 4.17 8.77 78 34.34 34.34
34 4.17 9.00 79 34.34 34.34
35 4.17 9.22 80 34.34 34.34
36 4.56 9.56 81 34.34 34.34
37 4.96 9.91 82 34.34 34.34
38 5.35 10.25 83 34.34 34.34
39 5.75 10.59 84 34.34 34.34
40 6.14 10.94 85 34.34 34.34
41 6.53 11.28
42 6.93 11.62
43 7.32 11.96
44 7.72 12.31
------------------------------------------------------------ ------------------------------------------------------------
</TABLE>
* Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
Nonsmoker Risks.
A-8
<PAGE>
APPENDIX B
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1999
<TABLE>
<CAPTION>
Inception 10 Years or
Date 1 Year 5 Years Since Inception(1)
---- ------ ------- ------------------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds
AIM Advisors, Inc.
V.I. Capital Appreciation Fund 5/5/93 44.61% 25.59% 22.33%
V.I. International Equity Fund 5/7/93 55.04% 21.93% 18.82%
Alliance Variable Products Series Fund, Inc.
Alliance Capital Management L.P.
Premier Growth Portfolio 6/26/92 32.32% 36.03% 26.31%
Real Estate Investment Portfolio 1/9/97 -5.11% n/a -1.79%
Technology Portfolio 1/11/96 75.71% n/a 35.93%
Utility Income Portfolio 5/10/94 19.40% 19.50% 16.99%
American Century Variable Portfolios, Inc.
American Century Investment Management, Inc.
VP Capital Appreciation Fund 11/20/87 64.52% 14.32% 12.06%
VP Income & Growth Fund 10/30/97 18.02% n/a 24.69%
Anchor Series Trust
Wellington Management Company, LLP
Capital Appreciation Portfolio 3/23/87 67.58% 34.03% 20.08%
Growth Portfolio 9/5/84 26.94% 27.52% 16.80%
Natural Resources Portfolio 1/4/88 41.51% 7.46% 7.50%
Dreyfus Stock Index Fund 9/29/89 20.60% 28.07% 17.70%
The Dreyfus Corporation
Dreyfus Variable Investment Fund
The Dreyfus Corporation
Small Company Stock Portfolio 5/1/96 10.60% n/a 9.11%
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Fidelity Variable Insurance Products Fund
Fidelity Management & Research Company
VIP Growth Portfolio: Initial Class 10/9/86 37.44% 29.74% 19.94%
VIP High Income Portfolio: Initial Class 9/19/85 8.25% 10.90% 12.49%
VIP Money Market Portfolio: Initial Class 4/1/82 5.17% 5.48% 5.28%
Fidelity Variable Insurance Products Fund II
Fidelity Management & Research Company
VIP II Asset Manager Portfolio: Initial Class 9/6/89 11.09% 15.63% 13.14%
VIP II Contrafund(R) Portfolio: Initial Class 1/3/95 24.25% n/a 27.73%
VIP II Investment Grade Bond Portfolio: 12/5/88 -1.05% 7.30% 7.19%
Initial Class
Franklin Templeton Variable Products Series Fund
Templeton Investment Counsel, LLC
Asset Strategy Fund - Class 1(2) 8/24/88 22.86% 17.08% 13.08%
J.P. Morgan Series Trust II
J.P. Morgan Investment Management Inc.
Bond Portfolio 12/31/94 -1.13% 6.86% 6.86%
Disciplined Equity Portfolio 12/31/94 18.54% 24.76% 24.76%
Neuberger Berman Advisers Management Trust
Neuberger Berman Management Inc.
AMT Partners Portfolio 3/22/94 7.37% 21.03% 17.47%
AMT Limited Maturity Bond Portfolio 9/10/84 1.48% 5.52% 5.86%
Oppenheimer Variable Account Funds
OppenheimerFunds, Inc.
Oppenheimer Global Securities Fund/VA 11/12/90 58.48% 21.67% 16.79%
Oppenheimer Main Street Growth & Income 7/5/95 21.71% n/a 25.80%
Fund/VA
SunAmerica Series Trust
SunAmerica Asset Management Corp.
Alliance Growth Portfolio 2/9/93 33.07% 37.66% 27.69%
Growth-Income Portfolio 2/9/93 30.04% 30.52% 22.22%
Global Bond Portfolio 7/1/93 8.09% 9.20% 6.99%
MFS Mid-Cap Growth Portfolio 4/1/99 n/a n/a 64.96%
Aggressive Growth Portfolio 6/3/96 84.66% n/a 30.10%
SunAmerica Balanced Portfolio 6/3/96 21.40% n/a 22.67%
Marsico Growth Portfolio 12/29/00 n/a n/a n/a
</TABLE>
B-2
<PAGE>
----------
(1) This column shows performance data for a 10-year period or since
inception, whichever is earlier.
(2) On 5/1/00 a merger and reorganization combined the fund with the Templeton
Global Asset Allocation Fund. Performance prior to 5/1/00 reflects the
historical performance of the Templeton Global Asset Allocation Fund.
This portfolio performance information is for illustrative purposes only and is
not intended to indicate or predict future performance. The performance
information reflects the total of the income generated by the portfolio net of
the total portfolio operating expenses (i.e., management fees and other
expenses), plus capital gains and losses, realized or unrealized. The
performance results do not reflect charges deducted from premium, Account Value,
or Variable Account assets (for example, the mortality and expense risk charge,
monthly deductions, cost of insurance, surrender charge, sales load, DAC taxes,
and any state or local premium taxes). If these charges were included, the total
return figures would be lower.
B-3
<PAGE>
[Back cover]
The Securities and Exchange Commission maintains a web site at
http://www.sec.gov that contains additional information about American
International Life Assurance Company of New York, Variable Account B, and the
policy, which may be of interest to you. The web site also contains additional
information about the policy's variable investment options.
Investment Company Act File Number 811-4685
<PAGE>
Part II - Other Information
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission theretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION
American International Life Assurance Company of New York represents that the
fees and charges deducted under the Policy covered by this registration
statement, in the aggregate are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the Company.
INDEMNIFICATION
Under its Bylaws, the Company, to the full extent permitted by New York law
shall indemnify any person who was or is a party to any proceeding (whether
brought by or in right of the Company or otherwise) by reason of the fact that
he or she is or was a Director of the Company, or while a Director of the
Company, is or was serving at the request of the Company as a Director, Officer,
partner, Trustee, Employee, or Agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by him or her in connection with such proceeding.
The company shall extend such indemnification, as is provided to directors
above, to any person, not a director of the Company, who is or was an officer of
the Company or is or was serving at the request of the Company as a director,
officer, partner, trustee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan. In
addition, the Board of Directors of the Company may, by resolution, extend such
further indemnification to an officer or such other person as may to it seem
fair and reasonable in view of all relevant circumstances.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to such provision of the bylaws or statutes or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any such action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Policies issued by Variable Account B, the Company will
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in said Act and
will be governed by the final adjudication of such issue.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of ___ pages.
The undertaking to file reports.
Representation.
The signatures.
Written consents of the following persons:
Kenneth D. Walma
Christine E. Dugan
PricewaterhouseCoopers LLP
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
The following exhibits:
1. Copies of all exhibits required by paragraph A of instructions for
Exhibits in Form N-8B-2, unless indicated otherwise.
(1) Certificate of Resolution for American International Life Assurance
Company of New York, dated June 5, 1986, authorizing the issuance
and sale of variable life contracts.*
(2) N/A
(3) Principal Underwriter's Agreement between American International
Life Assurance Company of New York and American International Fund
Distributors, dated August 15, 1989.*
(4) N/A
<PAGE>
(5) (a) Form of Flexible Premium Variable Universal Life Insurance
Policy (2VUL1294NY).*
(b) Form of Group Variable Universal Life Policy (2VUL1294NY-G).*
(c) Form of Certificate of Group Variable Universal Life
(2VUL1294NY-C).*
(d) Form of Group Flexible Variable Life Insurance Policy
(21GVULD997).**
(e) Form of Certificate of Group Flexible Variable Universal Life
(26GVULD997).**
(f) Form of Premium Variable Life Insurance Policy (21VUL399)*****
(g) Form of Flexible Premium Variable Life Insurance Policy
(21VUL800) (filed electronically herewith)
(6) (a) By-Laws of American International Life Assurance Company of
New York, (as amended on 3/25/75);*
(b) Charter of American International Life Assurance Company of
New York, dated March 5, 1962;*
(c) Certificate of Amendment of the Certificate of Incorporation
of American International Life Assurance Company of New York,
dated February 4, 1972;*
(d) Certificate of Amendment of the Certificate of Incorporation
of American International Life Assurance Company of New York,
dated January 18, 1985;*
(e) Certificate of Amendment of the Certificate of Incorporation
of American International Life Assurance Company of New York,
dated June 1, 1987;*
(f) Certificate of Amendment of the Certificate of Incorporation
of American International Life Assurance Company of New York,
dated March 22, 1989;*
<PAGE>
(g) Certificate of Amendment of the Certificate of Incorporation
of American International Life Assurance Company of New York,
dated June 27, 1991.*
(7) N/A
(8) (a) Powers of Attorney;***
(b) Power of Attorney ****
(9) N/A
(10) (a) Form of Life Insurance Application (24APP0396NY).*
(b) Form of Supplemental Application (2VULSUP1294NY).*
(c) Form of Group Life Insurance Application (24GVAPP997).**
(d) Form of Supplemental Application (24GVSUP997).**
(11) Code of Ethics.
2. Opinion and Consent of Counsel as to legality of securities being
registered (filed electronically herewith).
3. Opinion and Consent of Actuary (filed electronically herewith).
4. N/A
5. Consent of Independent Accountants (filed electronically herewith).
6. Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP (filed
electronically herewith).
7. Memorandum Regarding Administrative Procedures.*
* Incorporated by reference to Registrant's Post-Effective Amendment, No. 4
filed on Form S-6 (File No. 33-90686), dated October 27, 1998.
** Incorporated by reference to Registrant's filing filed on Form S-6 (File
No. 333-48457), dated March 23, 1998.
*** Incorporated by reference to Registrant's Post-Effective Amendment, No 2
filed on Form S-6 (File No. 33-90686), dated May 1, 1997.
**** Incorporated by reference to Registrant's Post-Effective Amendment, No. 12
filed on N-4 (File No. 33-39170), dated April 28, 2000.
***** Incorporated by reference to Registrant's filing filed on Form S-6 (File
No. 333-38324), dated June 1, 2000.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant certifies that
it meets the requirements of Securities Act Rule 485(b) for effectiveness of
this Registration Statement and has caused this Registration Statement to be
signed on its behalf in the City of Wilmington and State of Delaware on this 5th
day of January 2001.
VARIABLE ACOUNT B
-------------------------------
(Registrant)
By: AMERICAN INTERNATIONAL LIFE
ASSURANCE COMPANY OF NEW YORK
------------------------------------
(Sponsor)
By: /s/ Kenneth D. Walma
------------------------------------
Kenneth D. Walma, Vice President and
General Counsel
Attest: /s/ James A. Bambrick
-----------------------
(Name)
Chief Operating Officer
-----------------------
(Title)
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Signature Title Date
Michele L. Abruzzo* Director January 5, 2001
--------------------------
/s/ Michele L. Abruzzo
Paul S. Bell* Director January 5, 2001
--------------------------
/s/ Paul Bell
Marion E. Fajen* Director January 5, 2001
--------------------------
/s/ Marion E. Fajen
Patrick J. Foley* Director January 5, 2001
--------------------------
/s/ Patrick J. Foley
Cecil C. Gamwell, III* Director January 5, 2001
--------------------------
/s/ Cecil C. Gamwell, III
Maurice R. Greenberg* Director January 5, 2001
--------------------------
/s/ Maurice R. Greenberg
Jack R. Harnes* Director January 5, 2001
--------------------------
/s/ Jack R. Harnes
John I. Howell* Director January 5, 2001
--------------------------
/s/ John I. Howell
Jerome T. Muldowney* Director January 5, 2001
--------------------------
/s/ Jerome T. Muldowney
Robinson K. Nottingham* Director January 5, 2001
--------------------------
/s/ Robinson K. Nottingham
<PAGE>
John Oehmke* Chief Financial January 5, 2001
-------------------------- Officer
/s/ John Oehmke
Nicholas A. O'Kulich* Director January 5, 2001
--------------------------
/s/ Nicholas A. O'Kulich
Edmund Sze-Wing Tse* Director January 5, 2001
--------------------------
/s/ Edmund Sze-Wing Tse
Elizabeth M. Tuck* Secretary January 5, 2001
--------------------------
/s/ Elizabeth M. Tuck
Gerald Walter Wyndorf* Director January 5, 2001
--------------------------
/s/ Gerald Walter Wyndorf
By: /s/ Kenneth D. Walma
--------------------
Kenneth D. Walma
Attorney in Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
1. (5)(g) Form of Flexible Premium Variable Life Insurance Policy
2. Opinion and Consent of Counsel
3. Opinion and Consent of Actuary
5. Consent of Independent Accountants
6. Consent of JordenBurt
