<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
OF
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
ONE ALLSTATE DRIVE
P.O. BOX 9095
FARMINGVILLE, NEW YORK 11738
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
DISTRIBUTED BY
DEAN WITTER REYNOLDS INC.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
-------------------
This Prospectus describes the individual Flexible Premium Deferred Variable
Annuity Contract ("Contract") offered by Allstate Life Insurance Company of New
York ("Company"), a wholly owned subsidiary of Allstate Insurance Company. Dean
Witter Reynolds Inc. ("Dean Witter") is the principal underwriter and
distributor of the Contracts.
The Contract has the flexibility to allow you to shape an annuity to fit your
particular needs. It is primarily designed to aid you in long-term financial
planning and can be used for retirement planning regardless of whether the plan
qualifies for special federal income tax treatment.
This Prospectus is a concise statement of the relevant information about the
Allstate Life of New York Variable Annuity Account II ("Variable Account") which
you should know before making a decision to purchase the Contract. This
Prospectus generally describes only the variable portion of the Contract. For a
brief summary of the fixed portion of the Contract, see "The Fixed Account" on
page 18.
The Variable Account invests exclusively in shares of the Dean Witter Variable
Investment Series (the "Fund"), a mutual fund managed by Dean Witter
InterCapital Inc., a wholly owned subsidiary of Dean Witter, Discover & Co.
The Company has prepared and filed a Statement of Additional Information dated
May 1, 1997 with the U.S. Securities and Exchange Commission. If you wish to
receive the Statement of Additional Information, you may obtain a free copy by
calling or writing the Company at the address below. For your convenience, an
order form for the Statement of Additional Information may be found on page 24
of this Prospectus. Before ordering, you may wish to review the Table of
Contents of the Statement of Additional Information on page 23 of this
Prospectus. The Statement of Additional Information has been incorporated by
reference into this Prospectus.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
ONE ALLSTATE DRIVE
P.O. BOX 9095
FARMINGVILLE, NEW YORK 11738
(516) 451-5170
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED
OR PRECEDED BY A CURRENT PROSPECTUS FOR THE
DEAN WITTER VARIABLE INVESTMENT SERIES
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
<PAGE>
THE CONTRACTS ARE AVAILABLE ONLY IN NEW YORK
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
TABLE OF CONTENTS
Glossary.................................................... 3
Introduction................................................ 5
Summary of Separate Account Expenses........................ 7
Condensed Financial Information............................. 9
Performance Data............................................ 10
Financial Statements........................................ 10
Allstate Life Insurance Company of New York and the Variable
Account.................................................... 10
Allstate Life Insurance Company of New York............... 10
Dean Witter Reynolds Inc.................................. 10
The Variable Account...................................... 11
The Dean Witter Variable Investment Series................ 11
The Contracts............................................... 12
Purchase of the Contracts................................. 12
Crediting of Initial Purchase Payments.................... 12
Allocation of Purchase Payments........................... 13
Value of Variable Account Accumulation Units.............. 13
Transfers................................................. 13
Surrender and Withdrawals................................. 14
Default................................................... 14
Charges and Other Deductions................................ 14
Deductions from Purchase Payments......................... 14
Early Withdrawal Charge................................... 14
Contract Maintenance Charge............................... 15
Administrative Expense Charge............................. 15
Mortality and Expense Risk Charge......................... 15
Taxes..................................................... 16
Dean Witter Variable Investment Series Expenses........... 16
Benefits Under the Contract................................. 16
Death Benefits Prior to the Payout Start Date............. 16
Death Benefits After the Payout Start Date................ 17
Income Payments............................................. 17
Payout Start Date......................................... 17
Amount of Variable Annuity Income Payments................ 17
Income Plans.............................................. 18
The Fixed Account........................................... 18
General Description....................................... 18
Transfers, Surrenders, and Withdrawals.................... 19
General Matters............................................. 19
Owner..................................................... 19
Beneficiary............................................... 19
Delay of Payments......................................... 20
Assignments............................................... 20
Modification.............................................. 20
Customer Inquiries........................................ 20
Federal Tax Matters......................................... 20
Introduction.............................................. 20
Taxation of Annuities in General.......................... 20
Tax Deferral............................................ 20
Non-Natural Owners...................................... 20
Diversification Requirements............................ 20
Ownership Treatment..................................... 20
Delayed Maturity Date................................... 21
Taxation of Partial and Full Withdrawals................ 21
Taxation of Annuity Payments............................ 21
Taxation of Annuity Death Benefits...................... 21
Penalty Tax on Premature Distributions.................. 21
Aggregation of Annuity Contracts........................ 21
Tax Qualified Contracts................................... 21
Restrictions Under Section 403(b) Plans................. 21
Income Tax Withholding.................................... 22
Voting Rights............................................... 22
Sales Commission............................................ 22
Statement of Additional Information: Table of Contents...... 23
Order Form.................................................. 24
2
<PAGE>
GLOSSARY
- -----------------------------------------------------------
ACCUMULATION UNIT--An accounting unit used to calculate the Cash Value in
the Variable Account prior to the Payout Start Date. Each Sub-Account of the
Variable Account has its own distinct Accumulation Unit value.
AGE--Age on last birthday.
ANNUITANT--Includes Annuitant and any Joint Annuitant. A natural person(s)
whose life determines the duration of annuity payments involving life
contingencies.
ANNUITY UNIT--An accounting unit used to calculate Variable Annuity
payments. Each Sub-Account has a distinct Annuity Unit value.
AUTOMATIC ADDITIONS--Additional Purchase Payments of $25 or more which are
made automatically from the Owner's bank account or Dean Witter Active
Assets-TM- Account.
BENEFICIARY--The person(s) designated in the Contract who, after the death
of any Owner, or last surviving Annuitant may elect to receive the Death Benefit
or continue the Contract as described in "Benefits Under the Contract" on page
16.
CASH VALUE--The sum of the value of all Accumulation Units for the Fixed
Account.
COMPANY--The issuer of the Contract, Allstate Life Insurance Company of New
York, which is an indirect wholly owned subsidiary of Allstate Insurance
Company.
CONTRACT--The Flexible Premium Deferred Variable Annuity Contract known as
the "Allstate Life of New York Variable Annuity Account II" that is described in
this prospectus.
CONTRACT ANNIVERSARY--An anniversary of the date that the Contract was
issued to the Owner.
CONTRACT YEAR--The year commencing on either the Issue Date or a Contract
Anniversary.
DATE OF DEATH--The Date that an Owner and/or Annuitant dies causing a Death
Benefit to be due.
DEATH BENEFIT--Prior to the Payout Start Date, the amount payable on the
death of the Owner or Annuitant.
DEATH BENEFIT ANNIVERSARY--Every sixth Contract Anniversary. For example,
the 6th, 12th and 18th Contract Anniversaries are the first three Death Benefit
Anniversaries.
DOLLAR COST AVERAGING--A method to transfer $100 or more of the Cash Value
in the Money Market Sub-Account automatically to the other Sub-Accounts on a
monthly basis or other frequencies that may be offered by the Company.
DUE PROOF OF DEATH--One of the following:
(a) A copy of a certified death certificate.
(b) A copy of a certified decree of a court of competent jurisdiction as
to the finding of death.
(c) Any other proof satisfactory to the Company.
EARLY WITHDRAWAL CHARGE--The charge that may be assessed by the Company on
full or partial withdrawals of the Purchase Payments in excess of the Withdrawal
Amount Without Early Withdrawal Charge.
FIXED ACCOUNT--All of the assets of the Company that are not in separate
accounts. Contributions made to the Fixed Account are invested in the general
account of the Company.
FIXED ANNUITY--An annuity with payments having a guaranteed amount.
FUND--The Dean Witter Variable Investment Series.
GUARANTEE PERIOD--The period of time for which a credited rate on an
allocation or transfer to the Fixed Account is guaranteed.
INCOME PAYMENTS--A series of periodic annuity payments made by the Company
to the Owner or Beneficiary.
INVESTMENT ALTERNATIVE--The Fixed Account and the thirteen Sub-Accounts of
the Variable Account constitute the fourteen Investment Alternatives.
JOINT ANNUITANT--The person, along with the Annuitant, whose life determines
the duration of annuity payments under a joint and last survivor annuity.
3
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NET INVESTMENT FACTOR--The factor for a particular Sub-Account used to
determine the value of an Accumulation Unit and Annuity Unit in any Valuation
Period.
NON-QUALIFIED CONTRACTS--Contracts that do not qualify for special federal
income tax treatment.
OWNER--The person or persons designated as the Owner(s) in the Contract.
PAYOUT START DATE--The date Income Payments are to begin under the Contract.
PORTFOLIOS--The mutual fund portfolios of The Dean Witter Variable
Investment Series. The Dean Witter Variable Investment Series has thirteen
separate portfolios: the Money Market Portfolio, the Quality Income Plus
Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Income Builder
Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio, the
Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio, the Capital Appreciation Portfolio, the Equity Portfolio and
the Strategist Portfolio.
PURCHASE PAYMENTS--The premiums paid by the Owner to the Company.
QUALIFIED CONTRACTS--Contracts issued under plans that qualify for special
federal income tax treatment.
REQUIRED MINIMUM DISTRIBUTION--For Qualified Contracts, partial withdrawals
equal to the IRS Required Minimum Distribution may be taken from the Cash Value
and sent to the Owner or deposited in the Owner's bank account or Dean Witter
Active Assets-TM- Account.
SETTLEMENT VALUE--The Cash Value less any applicable Early Withdrawal
Charges and premium tax. The Settlement Value will be calculated at the end of
the valuation period coinciding with a request for payment.
SUB-ACCOUNT--A sub-division of the Variable Account. Each Sub-Account
invests exclusively in shares of a specified Portfolio.
SYSTEMATIC WITHDRAWALS--Partial withdrawals of $100 or more may be taken
from the Cash Value and sent to the Owner or deposited in the Owner's bank
account or Dean Witter Active Assets-TM- Account or sent directly to the Owner.
VALUATION DATE--Each day that the New York Stock Exchange is open for
business, except for days in which there is an insufficient degree of trading in
the Variable Account's portfolio securities that the value of Accumulation or
Annuity Units might not be materially affected by changes in the value of the
portfolio securities. The Valuation Date does not include such Federal and
non-Federal holidays as are observed by the New York Stock Exchange.
VALUATION PERIOD--The period between successive Valuation Dates, commencing
at the close of business of each Valuation Date and ending at the close of
business of the next succeeding Valuation Date.
VARIABLE ACCOUNT--Allstate Life of New York Variable Annuity Account II, a
separate investment account established by the Company to receive and invest the
Purchase Payments paid under the Contracts.
VARIABLE ANNUITY--An annuity with payments that have no predetermined or
guaranteed dollar amounts. The payments will vary in amounts depending upon the
investment experience of one or more of the Portfolios.
WITHDRAWAL AMOUNT WITHOUT EARLY WITHDRAWAL CHARGE--A portion of the Cash
Value which may be withdrawn during the course of the Contract year without
incurring an Early Withdrawal Charge, i.e., 15% of all Purchase Payments made.
4
<PAGE>
INTRODUCTION
- -----------------------------------------------------------
1. WHAT IS THE PURPOSE OF THE CONTRACT?
The Contracts described in this Prospectus seek to allow you to accumulate
funds and to receive annuity payments ("Income Payments"), when desired, at
rates which depend upon the return achieved from the types of investment chosen.
THERE IS NO ASSURANCE THAT THIS GOAL WILL BE ACHIEVED. In attempting to achieve
this goal, the Owner can allocate Purchase Payments to one or more of the
Variable Account Portfolios.
Because Income Payments and Cash Values invested in the Variable Account depend
on the investment experience of the selected Portfolios, the Owner bears the
entire investment risk for amounts allocated to the Variable Account. See "Value
of Variable Account Accumulation Units," page 13 and "Amount of Variable Annuity
Income Payments," page 17.
2. HOW DO I PURCHASE A CONTRACT?
You may purchase the Contract from Dean Witter, the Company's authorized
sales representative. The first Purchase Payment must be at least $4,000 (for
Qualified Contracts, $1,000). Presently, the Company will accept an initial
Purchase Payment of at least $1,000, but reserves the right to increase the
minimum initial Purchase Payment amount to $4,000. See "Purchase of the
Contracts," page 12.
On your application, you will allocate your Purchase Payment among the
Investment Alternatives. All allocations must be in whole percents from 0% to
100% and must total 100%. Purchase payments may be allocated in amounts of no
less than $100. Allocations may be changed by notifying the Company in writing.
See "Allocation of Purchase Payments," page 13.
3. WHAT TYPES OF INVESTMENTS UNDERLIE THE VARIABLE ACCOUNT?
The Variable Account invests exclusively in shares of the Dean Witter
Variable Investment Series (the "Fund"), a mutual fund managed by Dean Witter
InterCapital Inc. a wholly owned subsidiary of Dean Witter, Discover & Co. The
Fund has thirteen Portfolios: the Money Market Portfolio, the Quality Income
Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Income
Builder Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio,
the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio, the Capital Appreciation Portfolio, the Equity Portfolio and
the Strategists Portfolio. The assets of each Portfolio are held separately from
the other Portfolios and each has distinct investment objectives and policies
which are described in the accompanying Prospectus for the Fund. In addition to
the Variable Account, Owners can also allocate all or part of their Purchase
Payments to the Fixed Account. See "The Fixed Account," page 18.
4. CAN I TRANSFER AMOUNTS AMONG THE INVESTMENT ALTERNATIVES?
Transfers must be at least $100 or the entire amount in the Investment
Alternative, whichever is less. Transfers to any Guarantee Period of the Fixed
Account must be at least $500. Dollar Cost Averaging automatically moves funds
on a monthly basis (or other frequencies that may be offered by the Company)
from the Money Market Sub-Account to other Sub-Accounts of your choice. Certain
transfers may be restricted. See "Transfers," page 13.
5. CAN I GET MY MONEY IF I NEED IT?
All or part of the Cash Value can be withdrawn before the earliest of the
Payout Start Date, the death of any Owner, or the death of the last surviving
Annuitant. No Early Withdrawal Charges will be deducted on amounts up to the
annual Withdrawal Amount Without Early Withdrawal Charge, i.e., 15% of all
Purchase Payments made. Amounts withdrawn in excess of the Withdrawal Amount
Without Early Withdrawal Charge may be subject to an Early Withdrawal Charge of
0% to 6% depending on how long the withdrawn Purchase Payments have been
invested in the Contract. THE COMPANY GUARANTEES THAT THE AGGREGATE EARLY
WITHDRAWAL CHARGES WILL NEVER EXCEED 6% OF THE PURCHASE PAYMENTS. Withdrawals
and surrenders may be subject to income tax and a 10% tax penalty. In addition,
federal and state income tax may be withheld from withdrawal and surrender
amounts. Additional restrictions may apply to Qualified Contracts. See
"Surrender and Withdrawals," page 14, and "Taxation of Annuities in General,"
page 20.
6. WHAT ARE THE CHARGES AND DEDUCTIONS UNDER THE CONTRACT?
To meet its Death Benefit obligations and to pay expenses not covered by the
Contract Maintenance Charge, the Company deducts a Mortality and Expense Risk
Charge of 1.25% and an Administrative Expense Charge of .10%. See "Mortality and
Expense Risk Charge,"
5
<PAGE>
page 15 and "Administrative Expense Charge," page 15. Annually, the Company
deducts $30 for maintaining the Contract. See "Contract Maintenance Charge,"
page 15. The Company may also deduct Early Withdrawal Charges. See "Early
Withdrawal Charge," page 14. Additional deductions may be made for certain
taxes. See "Taxes," page 16.
7. DOES THE CONTRACT PAY ANY GUARANTEED DEATH BENEFITS?
The Contracts provide that if the Owner(s) or the last surviving Annuitant
dies prior to the Payout Start Date, a Death Benefit may be paid to the new
Owner or Beneficiary. If requested to be paid in a lump sum within 180 days from
the Date of Death, the Death Benefit will be the greatest of (1) the sum of all
Purchase Payments less any amounts deducted in connection with partial
withdrawals including any Early Withdrawal Charges and premium tax; or (2) the
Cash Value on the date we receive Due Proof of Death; or (3) the Cash Value on
the most recent Death Benefit Anniversary less any amounts deducted in
connection with partial withdrawals, including any Early Withdrawal Charges and
premium tax deducted from the Cash Value, since that anniversary. See "Death
Benefits Prior to the Payout Start Date," page 16, for a full description of
Death Benefit options.
Prior to the Payout Start Date the Beneficiary has 180 days from the Date of
Death of the Owner(s) or Annuitant(s) to either elect an income plan or to take
a lump sum payment. Death Benefits after the Payout Start Date, if any, will
depend on the income plan chosen. See "Benefits Under the Contract," page 16.
8. IS THERE A FREE-LOOK PROVISION?
The Owner(s) may cancel the Contract anytime within 10 days after receipt of
the Contract and receive a full refund of Purchase Payments allocated to the
Fixed Account. Unless a refund of Purchase Payments is required by State or
Federal law, Purchase Payments allocated to the Variable Account will be
returned after an adjustment to reflect investment gain or loss, less any
applicable Contract expenses, that occurred from the date of allocation through
the date of cancellation.
6
<PAGE>
SUMMARY OF SEPARATE ACCOUNT EXPENSES
- -----------------------------------------------------------
The following fee table illustrates all expenses and fees that the Owner will
incur. The expenses and fees set forth in the table are based on charges under
the Contracts and on the expenses of the separate account and the underlying
fund for the fiscal year ended December 31, 1996.
OWNER TRANSACTION EXPENSES (ALL SUB-ACCOUNTS)
<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of Purchase Payments).............................. None
Early Withdrawal Charge (as a percentage of Purchase Payments)*
</TABLE>
<TABLE>
<CAPTION>
APPLICABLE SALES
CHARGE
NUMBER OF COMPLETE CONTRACT YEARS SINCE PURCHASE PAYMENT BEING WITHDRAWN WAS MADE PERCENTAGE
- -------------------------------------------------------------------------------------------------------------- ----------------
<S> <C>
0 years....................................................................................................... 6%
1 year........................................................................................................ 5%
2 years....................................................................................................... 4%
3 years....................................................................................................... 3%
4 years....................................................................................................... 2%
5 years....................................................................................................... 1%
6 years or more............................................................................................... 0%
</TABLE>
<TABLE>
<S> <C>
Exchange Fee........................................................................................ None
Annual Contract Fee................................................................................. $ 30
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge................................................................... 1.25%
Administrative Expense Charge....................................................................... .10%
Total Separate Account Annual Expenses.............................................................. 1.35%
</TABLE>
- ------------------------
* There are no Early Withdrawal Charges on amounts up to the Withdrawal Amount
Without Early Withdrawal Charge.
DEAN WITTER VARIABLE INVESTMENT SERIES ("FUND") EXPENSES
(AS A PERCENTAGE OF FUND AVERAGE ASSETS)
<TABLE>
<CAPTION>
MANAGEMENT OTHER
PORTFOLIO FEES EXPENSES
- ----------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Money Market............................................................................. .50% .02%
Quality Income Plus...................................................................... .50%(1) .03%
High Yield............................................................................... .50% .01%
Utilities................................................................................ .65%(2) .02%
Income Builder........................................................................... .75%(3) .07%
Dividend Growth.......................................................................... .56%(4) .01%
Capital Growth........................................................................... .65% .08%
Global Dividend Growth................................................................... .75% .10%
European Growth.......................................................................... 1.00% .11%
Pacific Growth........................................................................... 1.00% .37%
Capital Appreciation..................................................................... .75%(3) .07%
Equity................................................................................... .50%(5) .04%
Strategist............................................................................... .50% .02%
<CAPTION>
TOTAL FUND
PORTFOLIO ANNUAL EXPENSES
- ----------------------------------------------------------------------------------------- ---------------
<S> <C>
Money Market............................................................................. .52%
Quality Income Plus...................................................................... .53%
High Yield............................................................................... .51%
Utilities................................................................................ .67%
Income Builder........................................................................... .82%
Dividend Growth.......................................................................... .57%
Capital Growth........................................................................... .73%
Global Dividend Growth................................................................... .85%
European Growth.......................................................................... 1.11%
Pacific Growth........................................................................... 1.37%
Capital Appreciation..................................................................... .82%
Equity................................................................................... .54%
Strategist............................................................................... .52%
</TABLE>
- ------------------------
(1) This percentage is applicable to Portfolio net assets of up to $500 million.
For net assets which exceed $500 million, the management fee will be 0.45%.
(2) This percentage is applicable to Portfolio net asets of up to $500 million.
For net assets which exceed $500 million, the management fee will be 0.55%.
(3) Dean Witter InterCapital Inc. has undertaken to assume all expenses for both
the Income Builder Portfolio and the Capital Appreciation Portfolio until
such time as the pertinent Portfolio has $50 million of net assets or until
six months from the date of the Portfolio's commencement of operations,
whichever occurs first.
(4) The management fee will be 0.625% for net assets of up to $500 million. For
net assets which exceed $500 million, but do not exceed $1 billion, the
management fee will be 0.50% and for net assets that exceed $1 billion, the
management fee will be 0.475%.
(5) This percentage is applicable to Portfolio net assets of up to $1 billion.
For net assets which exceed $1 billion, the management fee will be 0.475%.
7
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EXAMPLE
You (the Owner) would pay the following expenses on a $1,000 investment,
assuming a 5% annual return under the following circumstances:
If you surrender your Contract at the end of the applicable time period (or if
you annuitize for a specified period of less than 120 months):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market Sub-Account............................................ $ 62 $ 87 $ 113 $ 226
Quality Income Plus Sub-Account..................................... $ 62 $ 87 $ 114 $ 227
High Yield Sub-Account.............................................. $ 62 $ 86 $ 113 $ 225
Utilities Sub-Account............................................... $ 64 $ 91 $ 121 $ 242
Income Builder Sub-Account.......................................... $ 65 $ 96 $ 130 $ 259
Dividend Growth Sub-Account......................................... $ 63 $ 88 $ 116 $ 232
Capital Growth Sub-Account.......................................... $ 64 $ 93 $ 124 $ 249
Global Dividend Growth Sub-Account.................................. $ 66 $ 97 $ 131 $ 261
European Growth Sub-Account......................................... $ 68 $ 105 $ 144 $ 288
Pacific Growth Sub-Account.......................................... $ 71 $ 113 $ 157 $ 314
Capital Appreciation Sub-Account.................................... $ 65 $ 96 $ 130 $ 259
Equity Sub-Account.................................................. $ 63 $ 88 $ 115 $ 229
Strategist Sub-Account.............................................. $ 62 $ 87 $ 114 $ 227
</TABLE>
If you do not surrender your Contract or if you annuitize* for a specified
period of 120 months or more, at the end of the applicable time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market Sub-Account............................................ $ 20 $ 61 $ 105 $ 226
Quality Income Plus Sub-Account..................................... $ 20 $ 61 $ 105 $ 227
High Yield Sub-Account.............................................. $ 20 $ 61 $ 104 $ 225
Utilities Sub-Account............................................... $ 21 $ 66 $ 113 $ 242
Income Builder Sub-Account.......................................... $ 23 $ 71 $ 121 $ 259
Dividend Growth Sub-Account......................................... $ 20 $ 63 $ 108 $ 232
Capital Growth Sub-Account.......................................... $ 22 $ 68 $ 116 $ 249
Global Dividend Growth Sub-Account.................................. $ 23 $ 71 $ 122 $ 261
European Growth Sub-Account......................................... $ 26 $ 79 $ 135 $ 288
Pacific Growth Sub-Account.......................................... $ 29 $ 87 $ 149 $ 314
Capital Appreciation Sub-Account.................................... $ 23 $ 71 $ 121 $ 259
Equity Sub-Account.................................................. $ 20 $ 62 $ 106 $ 229
Strategist Sub-Account.............................................. $ 20 $ 61 $ 105 $ 227
</TABLE>
The above example should not be considered a representation of past or future
expense or performance. Actual expenses of a Sub-Account may be greater or
lesser than those shown. The purpose of this summary is to assist the Owner in
understanding the various costs and expenses that Owners will bear directly or
indirectly.
- ------------------------
* Early Withdrawal Charges may be deducted from the Cash Value before it is
applied to an income plan with a specified period of less than 120 months.
8
<PAGE>
CONDENSED FINANCIAL INFORMATION
- -----------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES AND NUMBER
OF ACCUMULATION UNITS OUTSTANDING FOR
EACH SUB-ACCOUNT SINCE INCEPTION*
FOR THE YEARS BEGINNING
JANUARY 1 AND ENDING DECEMBER 31,
----------------------------------------------------------------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... $10.452 $10.549 $10.765 $10.913 $11.178 $11.653
Accumulation Unit Value, End of Period......................... $10.549 $10.765 $10.913 $11.178 $11.653 $12.084
Number of Units Outstanding, End of Period..................... 70,118 402,184 396,727 1,084,005 975,338 1,246,476
QUALITY INCOME PLUS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... $11.509 $12.163 $12.993 $14.487 $13.344 $16.373
Accumulation Unit Value, End of Period......................... $12.163 $12.993 $14.487 $13.344 $16.373 $16.404
Number of Units Outstanding, End of Period..................... 64,174 524,450 2,173,013 2,144,417 2,100,915 1,859,637
HIGH YIELD SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... $13.028 $13.982 $16.336 $20.022 $19.264 $21.859
Accumulation Unit Value, End of Period......................... $13.982 $16.336 $20.022 $19.264 $21.859 $24.148
Number of Units Outstanding, End of Period..................... 1,622 15,225 159,150 239,258 323,251 404,887
UTILITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... $11.382 $12.454 $13.840 $15.798 $14.180 $17.999
Accumulation Unit Value, End of Period......................... $12.454 $13.840 $15.798 $14.180 $17.999 $19.298
Number of Units Outstanding, End of Period..................... 36,552 404,297 1,563,593 1,409,729 1,361,709 1,230,293
INCOME BUILDER SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... -- -- -- -- -- --
Accumulation Unit Value, End of Period......................... -- -- -- -- -- --
Number of Units Outstanding, End of Period..................... -- -- -- -- -- --
DIVIDEND GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... $13.135 $13.911 $14.844 $16.746 $15.981 $21.505
Accumulation Unit Value, End of Period......................... $13.911 $14.844 $16.746 $15.981 $21.505 $26.298
Number of Units Outstanding, End of Period..................... 78,758 512,298 1,676,673 2,186,642 2,355,001 2,615,339
CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... $10.930 $12.697 $12.731 $11.682 $11.379 $14.923
Accumulation Unit Value, End of Period......................... $12.697 $12.731 $11.682 $11.379 $14.923 $16.421
Number of Units Outstanding, End of Period..................... 26,084 143,626 231,320 227,347 218,192 251,179
GLOBAL DIVIDEND GROWTH SUB-ACCOUNT -- -- --
Accumulation Unit Value, Beginning of Period................... -- -- -- $10.000 $9.912 $11.935
Accumulation Unit Value, End of Period......................... -- -- -- $9.912 $11.935 $13.845
Number of Units Outstanding, End of Period..................... -- -- -- 676,049 839,928 1,174,153
EUROPEAN GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... $9.805 $10.020 $10.280 $14.290 $15.278 $18.976
Accumulation Unit Value, End of Period......................... $10.020 $10.280 $14.290 $15.278 $18.976 $24.335
Number of Units Outstanding, End of Period..................... 3,234 54,287 291,085 549,696 576,522 693,859
PACIFIC GROWTH SUB-ACCOUNT -- -- --
Accumulation Unit Value, Beginning of Period................... -- -- -- $10.000 $9.221 $9.619
Accumulation Unit Value, End of Period......................... -- -- -- $9.221 $9.619 $9.858
Number of Units Outstanding, End of Period..................... -- -- -- 426,544 578,970 830,820
CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... -- -- -- -- -- --
Accumulation Unit Value, End of Period......................... -- -- -- -- -- --
Number of Units Outstanding, End of Period..................... -- -- -- -- -- --
EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... $14.658 $16.799 $16.599 $19.604 $18.392 $25.864
Accumulation Unit Value, End of Period......................... $16.799 $16.599 $19.604 $18.392 $25.864 $28.669
Number of Units Outstanding, End of Period..................... 9,016 63,933 346,339 515,289 593,398 766,587
STRATEGIST SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................... $12.437 $13.266 $14.035 $15.286 $15.675 $16.919
Accumulation Unit Value, End of Period......................... $13.266 $14.035 $15.286 $15.675 $16.919 $19.199
Number of Units Outstanding, End of Period..................... 14,159 547,208 1,529,877 1,862,227 1,739,991 1,559,143
</TABLE>
- ------------------------------
* All Sub-Accounts commenced operations on September 24, 1991, except for the
Global Dividend Growth, Pacific Growth, Income Builder and Capital
Appreciation Sub-Accounts. The Global Dividend Growth and Pacific Growth
Sub-Accounts commenced operations on February 23, 1994. The Income Builder
and the Capital Appreciation Sub-Accounts commenced operations on January 21,
1997. The Accumulation Unit Value for each of these Sub-Accounts was
initially set at $10.000. The Accumulation Unit Values in the this table
reflect a Mortality and Expense Risk Charge of 1.25% and an Administrative
Expense Charge of .10%.
9
<PAGE>
PERFORMANCE DATA
- -----------------------------------------------------------
From time to time the Variable Account may publish advertisements containing
performance data relating to its Sub-Accounts. The performance data for the
Sub-Accounts (other than for the Money Market Sub-Account) will always be
accompanied by total return quotations for the most recent one, five and ten
year periods, or for a period from inception to date if the Sub-Account has not
been available for one of the prescribed periods. The total return quotations
for each period will be the average annual rates of return required for an
initial Purchase Payment of $1,000 to equal the amount Owners would receive on a
withdrawal of the Purchase Payment, after reflection of all recurring and
nonrecurring charges.
In addition, the Variable Account may advertise the total return over different
periods of time by means of aggregate, average, year-by-year or other types of
total return figures. Such calculations may or may not reflect the deduction of
some or all of the charges which may be imposed on the Contracts by the Variable
Account which, if reflected, would reduce the performance quoted. The Variable
Account from time to time may also advertise Accounts relative to indexes
compiled by independent organizations.
Performance figures used by the Variable Account are based on actual historical
performance of its Sub-Accounts for specified periods, and the figures are not
intended to indicate future performance. More detailed information on the
computation is set forth in the Statement of Additional Information.
FINANCIAL STATEMENTS
- -----------------------------------------------------------
The financial statements of Allstate Life Insurance Company of New York and the
Allstate Life of New York Variable Annuity Account II may be found in the
Statement of Additional Information, which is incorporated by reference into
this Prospectus and which is available upon request. (See Order Form on page
24.)
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
AND THE VARIABLE ACCOUNT
- -----------------------------------------------------------
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
The Company is the issuer of the Contract. Incorporated in 1967 as a stock life
insurance company under the laws of New York, the Allstate Life Insurance
Company of New York ("Company") has done business since 1984 as "Allstate Life
Insurance Company of New York." From 1967 to 1978 the Company was known as
"Financial Insurance Company" and from 1978 to 1984 the Company was known as "PM
Life Insurance Company." The Company sells annuities and individual life
insurance. The Company is currently licensed to operate in New York. The
Company's home office is located in Farmingville, New York.
The Company is an indirect wholly owned subsidiary of Allstate Insurance Company
("Allstate") which is a stock insurance company incorporated under the laws of
Illinois. With the exception of directors' qualifying shares, all of the
outstanding capital stock of Allstate is owned by The Allstate Corporation
("Corporation"). On June 30, 1996, Sears, Roebuck and Co. ("Sears") distributed
its 80.3% ownership in the Corporation to Sears common shareholders through a
tax-free dividend.
DEAN WITTER REYNOLDS INC.
Dean Witter Reynolds Inc. ("Dean Witter") is the principal underwriter of the
Contract. Dean Witter is a wholly owned subsidiary of Dean Witter, Discover &
Co. ("Dean Witter Discover"). Dean Witter is located at Two World Trade Center,
New York, New York, 10048. Dean Witter is a member of the New York Stock
Exchange and the National Association of Securities Dealers, Inc.
Dean Witter Discover's subsidiary, Dean Witter InterCapital Inc.
("InterCapital"), is the investment manager of the Dean Witter
10
<PAGE>
Variable Investment Series. InterCapital is registered with the Securities and
Exchange Commission as an investment adviser. As compensation for investment
management, the Fund pays InterCapital a monthly advisory fee. These expenses
are more fully described in the Fund's Prospectus attached to this Prospectus.
On February 5, 1997, Dean Witter Discover and Morgan Stanley Group Inc.
announced that they had entered into an Agreement and Plan of Merger, with the
combined company to be named Morgan Stanley, Dean Witter, Discover & Co. The
business of Morgan Stanley Group Inc. and its affiliated companies is providing
a wide range of financial services for sovereign governments, corporations,
institutions and individuals throughout the world. Dean Witter Discover is the
direct parent of InterCapital and Dean Witter Distributors Inc., the Fund's
distributor. It is currently anticipated that the transaction will close in
mid-1997. Thereafter, InterCapital and Dean Witter Distributors Inc. will be
direct subsidiaries of Morgan Stanley, Dean Witter, Discover & Co.
THE VARIABLE ACCOUNT
Established on May 18, 1990, the Variable Account is a unit investment trust
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, but such registration does not signify that the Commission
supervises the management or investment practices or policies of the Variable
Account. The investment performance of the Variable Account is entirely
independent of both the investment performance of the Company's general account
and the performance of any other separate account.
The assets of the Variable Account are held separately from the other assets of
the Company. They are not chargeable with liabilities incurred in the Company's
other business operations. Accordingly, the income, capital gains and capital
losses, realized or unrealized, incurred on the assets of the Variable Account
are credited to or charged against the assets of the Variable Account, without
regard to the income, capital gains or capital losses arising out of any other
business the Company may conduct.
The Variable Account has been divided into thirteen Sub-Accounts, each of which
invests solely in its corresponding Portfolio of the Dean Witter Variable
Investment Series. Additional Sub-Accounts may be added at the discretion of the
Company.
THE DEAN WITTER VARIABLE INVESTMENT SERIES
The Variable Account will invest exclusively in the Dean Witter Variable
Investment Series (the "Fund"). Shares of the Fund are also offered to separate
accounts of the Company which fund other variable annuity and variable life
contracts. Shares of the Fund are also offered to separate accounts of a life
insurance company affiliated with the Company which fund variable annuity and
variable life contracts. Shares of the Fund may also be offered to separate
accounts of certain non-affiliated life insurance companies which fund variable
life insurance contracts. It is conceivable that in the future it may become
disadvantageous for both variable life and variable annuity contract separate
accounts to invest in the same underlying Fund. Although neither the Company nor
the Fund currently foresees any such disadvantage, the Fund's Board of Trustees
intends to monitor events in order to identify any material irreconcilable
conflict between the interests of variable annuity contract owners and variable
life contract owners and to determine what action, if any, should be taken in
response thereto.
Investors in the High Yield Portfolio should carefully consider the relative
risks of investing in high yield securities, which are commonly known as junk
bonds. Bonds of this type are considered to be speculative with regard to the
payment of interest and return of principal. Investors in the High Yield
Portfolio should also be cognizant of the fact that such securities are not
generally meant for short-term investing and should assess the risks associated
with an investment in the High Yield Portfolio.
Shares of the Portfolios of the Fund are not deposits, or obligations of, or
guaranteed or endorsed by any bank and the shares are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency.
The Fund has thirteen portfolios: the Money Market Portfolio, the Quality Income
Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Income
Builder Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio,
the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific
Growth Portfolio, the Capital Appreciation Portfolio, the Equity Portfolio and
the Strategist Portfolio. Each Portfolio has different investment objectives and
policies and operates as a separate investment fund.
The Money Market Portfolio seeks high current income, preservation of capital,
and liquidity by investing in certain money market instruments, principally U.S.
government securities, bank obligations, and high grade commercial paper.
The Quality Income Plus Portfolio seeks, as its primary objective, to earn a
high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective, by investing
primarily in debt securities issued by the U.S. Government, its agencies and
instrumentalities, including zero coupon securities and in fixed-income
securities rated A or higher by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("Standard & Poor's") or non-rated securities of
comparable quality, and by writing covered call and put options against such
securities.
The High Yield Portfolio seeks as its objective, to earn a high level of current
income by investing in a professionally managed diversified portfolio consisting
principally of fixed-income securities rated Baa or lower by Moody's or BBB or
lower by Standard & Poor's or
11
<PAGE>
non-rated securities of comparable quality, which are commonly known as junk
bonds, and, as a secondary objective, capital appreciation when consistent with
its primary objective.
The Utilities Portfolio seeks to provide current income and long-term growth of
income and capital by investing primarily in equity and fixed-income securities
of companies engaged in the public utilities industry.
The Income Builder Portfolio seeks, as its primary objective, reasonable income
by investing primarily in common stock of large-cap companies which have a
record of paying dividends and the potential for maintaining dividends, in
preferred stock and in securities convertible into common stocks of small and
mid-cap companies and, as its secondary objective, growth of capital.
The Dividend Growth Portfolio seeks to provide reasonable current income and
long-term growth of income and capital by investing primarily in common stock of
companies with a record of paying dividends and the potential for increasing
dividends.
The Capital Growth Portfolio seeks to provide long-term capital growth by
investing principally in common stocks.
The Global Dividend Growth Portfolio seeks to provide reasonable current income
and long-term growth of income and capital by investing primarily in common
stock of companies, issued by issuers worldwide, with a record of paying
dividends and the potential for increasing dividends.
The European Growth Portfolio seeks to maximize the capital appreciation on its
investments by investing primarily in securities issued by issuers located in
Europe.
The Pacific Growth Portfolio seeks to maximize the capital appreciation of its
investments by investing primarily in securities issued by issuers located in
Asia, Australia and New Zealand.
The Capital Appreciation Portfolio seeks long-term capital appreciation by
investing primarily in common stocks of U.S. companies that offer the potential
for either superior earnings growth and/or appear to be undervalued.
The Equity Portfolio seeks, as its primary objective, growth of capital through
investments in common stock of companies believed by the Investment Manager to
have potential for superior growth and, as a secondary objective, income when
consistent with its primary objective.
The Strategist Portfolio seeks a high total investment return through a fully
managed investment policy utilizing equity securities, fixed-income securities
rated Baa or higher by Moody's or BBB or higher by Standard & Poor's (or
non-rated securities of comparable quality), and money market securities, and
the writing of covered options on such securities and the collateralized sale of
stock index options.
All dividends and capital gains distributions from the Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value.
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ATTAIN THEIR RESPECTIVE
STATED OBJECTIVES. Additional information concerning the investment objectives
and policies of the Portfolios can be found in the current prospectus for the
Fund accompanying this Prospectus.
THE PROSPECTUS OF THE FUND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR PORTFOLIO.
THE CONTRACTS
- -----------------------------------------------------------
PURCHASE OF THE CONTRACTS
The Contracts may be purchased through sales representatives of Dean Witter. The
first Purchase Payment must be at least $4,000 unless the Contract is a
Qualified Contract, in which case the first Purchase Payment must be at least
$1,000. Presently, the Company will accept an initial Purchase Payment of at
least $1,000, but reserves the right to increase the minimum initial Purchase
Payment amount to $4,000. All subsequent Purchase Payments must be $25 or more
and may be made at any time prior to the Payout Start Date. Additional Purchase
Payments may also be made from your bank account or your Dean Witter Active
Assets-TM- Account through Automatic Additions. Please consult with your Dean
Witter Account Executive for detailed information about Automatic Additions. The
Automatic Additions program is not available for Qualified Contracts issued
pursuant to a Dean Witter Custodial Account.
The Company reserves the right to underwrite or reject future additions.
CREDITING OF INITIAL PURCHASE PAYMENTS
A Purchase Payment accompanied by complete information will be credited to the
Contract within two business days of receipt by the Company at its home office.
If the information is not complete, the Company will credit the Purchase
Payments to the Contract within five business days or return it at that time
unless
12
<PAGE>
the applicant specifically consents to the Company holding the Purchase Payment
until the information is complete. The Company reserves the right to reject any
proposed purchase of the Contract. Subsequent Purchase Payments will be credited
to the Contract at the close of the Valuation Period in which the Purchase
Payment is received.
ALLOCATION OF PURCHASE PAYMENTS
On the application the Owner instructs the Company how to allocate the Purchase
Payment among the fourteen Investment Alternatives. Purchase Payments may be
allocated in whole percents, from 0% to 100%, to any Investment Alternative so
long as the total allocation equals 100%. Purchase Payments may also be
allocated in amounts of no less than $100. Unless the Owner notifies the Company
otherwise, subsequent Purchase Payments are allocated according to the original
instructions.
Each Purchase Payment will be credited to the Contract as Variable Account
Accumulation Units equal to the amount of the Purchase Payment allocated to each
Sub-Account divided by the Accumulation Unit value for that Sub-Account next
computed after the Purchase Payment is credited to the Contract. For example, if
a $10,000 Purchase Payment is credited to the Contract when the Accumulation
Unit value equals $10, then 1,000 Accumulation Units would be credited to the
Contract. The Variable Account, in turn, purchases shares of the corresponding
Portfolio (see "Value of Variable Account Accumulation Units," page 13).
For a brief summary of how Purchase Payments allocated to the Fixed Account are
credited to the Contract, see "The Fixed Account" on page 18.
VALUE OF VARIABLE ACCOUNT ACCUMULATION UNITS
The Accumulation Units in each Sub-Account of the Variable Account are valued
separately. The value of Accumulation Units may change each Valuation Period
according to the investment performance of the shares purchased by each
Sub-Account and the deduction of certain expenses and charges.
A Valuation Period is the period between successive Valuation Dates. It begins
at the close of business of each Valuation Date and ends at the close of
business of the next succeeding Valuation Date. A Valuation Date is each day
that the New York Stock Exchange is open for business except for any day in
which there is an insufficient degree of trading in the Variable Account's
portfolio securities that the value of Accumulation or Annuity Units might not
be materially affected by changes in the value of the portfolio securities.
Valuation Dates do not include such Federal and non-Federal holidays as are
observed by the New York Stock Exchange. The New York Stock Exchange currently
observes the following holidays: New Year's Day (January 1); President's Day
(the third Monday in February); Good Friday (the Friday before Easter); Memorial
Day (the last Monday in May); Independence Day (July 4); Labor Day (the first
Monday in September); Thanksgiving Day (the fourth Thursday in November); and
Christmas Day (December 25).
The value of an Accumulation Unit in a Sub-Account for any Valuation Period
equals the value of the Accumulation Unit as of the immediately preceding
Valuation Period, multiplied by the Net Investment Factor for that Sub-Account
for the current Valuation Period. The Net Investment Factor is a number
representing the change on successive Valuation Dates in value of Sub-Account
assets due to investment income, realized or unrealized capital gains or loss,
deductions for taxes, if any, and deductions for the Mortality and Expense Risk
Charge and Administrative Expense Charge.
TRANSFERS
Transfers must be at least $100 or the total amount in the Investment
Alternative, whichever is less. Transfers to any Guarantee Period of the Fixed
Account must be at least $500. Currently, there is no charge for transfers among
the fourteen Investment Alternatives. The Company, however, reserves the right
to assess a $25 charge on all transfers in excess of 12 per Contract Year. The
Company will notify Owners at least 30 days prior to imposing the transfer
charge.
Transfers out of any Sub-Account before the Payout Start Date may be made at any
time.
After the Payout Start Date, transfers among Sub-Accounts of the Variable
Account, or from the Variable Account to the Fixed Account may be made only once
every six months and may not be made during the first six months following the
Payout Start Date.
Transfers may be made pursuant to telephone instructions if the Owner authorizes
telephone transfers at the time of purchase, or subsequently on a form provided
by the Company. Telephone transfer requests will be accepted by the Company if
received at 516/451-5170 by 4:00 p.m., Eastern Time. Telephone transfer requests
received at any other telephone number or after 4:00 p.m., Eastern Time will not
be accepted by the Company. Telephone transfer requests received before 4:00
p.m., Eastern Time are effected at the next computed value. Otherwise, transfer
requests must be in writing, on a form provided by the Company.
Transfers may also be made automatically through Dollar Cost Averaging prior to
the Payout Start Date. Dollar Cost Averaging permits the Owner to transfer a
specified amount every month (or other frequencies that may be offered by the
Company) from the Money Market Sub-Account to any other Sub-Account. Transfers
made through Dollar Cost Averaging must be $100 or more. Dollar Cost Averaging
cannot be used to transfer amounts to the Fixed Account. Please consult with
your Dean Witter Account Executive for detailed information about Dollar Cost
Averaging.
13
<PAGE>
Transfers from Sub-Accounts of the Variable Account will be made based on the
Accumulation Unit values next computed after the Company receives the transfer
request at its home office.
For transfers involving the Fixed Account, see page 18.
SURRENDER AND WITHDRAWALS
The Owner may withdraw all or part of the Cash Value at anytime prior to the
earlier of the death of the last surviving Annuitant, death of any Owner or the
Payout Start Date. The amount available for withdrawal is the Cash Value next
computed after the Company receives the request for a withdrawal at its home
office, less any Early Withdrawal Charges, Contract Maintenance Charges or any
remaining charge for premium taxes. Withdrawals from the Variable Account will
be paid within seven days of receipt of the request, subject to postponement in
certain circumstances. See "Delay of Payments," page 20. For withdrawals from
the Fixed Account, see page 18.
The minimum partial withdrawal is $100. If the Cash Value after a partial
withdrawal would be less than $500, then the Company will treat the request as
one for a total surrender of the Contract and the entire Cash Value, less any
charges and premium taxes, will be paid out.
Partial withdrawals may also be taken automatically through monthly Systematic
Withdrawals. Systematic Withdrawals of $100 or more may be requested at any time
prior to the Payout Start Date. Please consult with your Dean Witter Account
Executive for detailed information about Systematic Withdrawals.
For Qualified Contracts, the Company will, at the request of the Owner,
automatically calculate and withdraw the IRS Required Minimum Distribution.
Withdrawals taken to satisfy IRS Required Minimum Distribution rules will have
any applicable withdrawal charges waived. This waiver is permitted only for
withdrawals which satisfy distributions resulting from this Contract. Please
consult with your Dean Witter Account Executive for detailed information about
the Required Minimum Distribution program.
Withdrawals and surrenders may be subject to income tax and a 10% tax penalty.
This tax and penalty is explained in "Federal Tax Matters" on page 20.
The full Contract Maintenance Charge will be deducted at the time of total
surrender. The total amount paid at surrender may be more or less than the total
Purchase Payments due to prior withdrawals, any deductions, and investment
performance.
To complete the partial withdrawals, the Company will cancel Accumulation Units
in an amount equal to the withdrawal and any applicable Early Withdrawal Charge
and premium taxes. The Owner must name the Investment Alternative from which the
withdrawal is to be made. If none is named, then the withdrawal request is
incomplete and cannot be honored.
DEFAULT
So long as the Cash Value is not reduced to zero or a withdrawal does not reduce
it to less than $500, the Contract will stay in force until the Payout Start
Date even if no Purchase Payments are made after the first Purchase Payment.
CHARGES AND OTHER DEDUCTIONS
- -----------------------------------------------------------
DEDUCTIONS FROM PURCHASE PAYMENTS
No deductions are currently made from Purchase Payments. Therefore the full
amount of every Purchase Payment is invested in the Investment Alternative(s) to
increase the potential for investment gain.
EARLY WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE)
The Owner may withdraw the Cash Value at any time before the earliest of the
Payout Start Date, the death of any Owner or the last surviving Annuitant's
death.
There are no Early Withdrawal Charges on amounts up to the Withdrawal Amount
Without Early Withdrawal Charge. A Withdrawal Amount Without Early Withdrawal
Charge will be available in each Contract Year. The annual Withdrawal Amount
Without Early Withdrawal Charge is 15% of all Purchase Payments. Amounts
withdrawn in excess of the Withdrawal Amount Without Early Withdrawal Charge,
may be subject to an Early Withdrawal Charge. Any Withdrawal Amount Without
Early
14
<PAGE>
Withdrawal Charge not withdrawn in a Contract Year does not increase the
Withdrawal Amount Without Early Withdrawal Charge in later Contract Years. Early
Withdrawal Charges, if applicable, will be deducted from the amount paid.
In certain cases, distributions required by federal tax law (see the Statement
of Additional Information for "IRS Required Distribution at Death Rules") may be
subject to an Early Withdrawal Charge. Early Withdrawal Charges may be deducted
from the Cash Value before it is applied to an Income Plan with a specified
period of less than 120 months.
Withdrawal Amounts Without Early Withdrawal Charge and other partial withdrawals
will be allocated on a first in, first out basis to Purchase Payments. For
purposes of calculating the amount of the Early Withdrawal Charge, withdrawals
are assumed to come from Purchase Payments first, beginning with the oldest
payment. Unless the Company is instructed otherwise, for partial withdrawals,
the Early Withdrawal Charge will be deducted from the amount paid, rather than
from the remaining Cash Value. Once all Purchase Payments have been withdrawn,
additional withdrawals will not be assessed an Early Withdrawal Charge.
Early Withdrawal Charges will be applied to amounts withdrawn in excess of a
Withdrawal Amount Without Early Withdrawal Charge as set forth below:
<TABLE>
<CAPTION>
COMPLETE CONTRACT APPLICABLE
YEARS SINCE PURCHASE WITHDRAWAL
PAYMENT BEING CHARGE
WITHDRAWN WAS MADE PERCENTAGE
- --------------------------------------------------- ------------
<S> <C>
0 years............................................ 6%
1 year............................................. 5%
2 years............................................ 4%
3 years............................................ 3%
4 years............................................ 2%
5 years............................................ 1%
6 years or more.................................... 0%
</TABLE>
THE CUMULATIVE TOTAL OF ALL EARLY WITHDRAWAL CHARGES IS GUARANTEED NEVER TO
EXCEED 6% OF AN OWNER'S PURCHASE PAYMENTS.
Early Withdrawal Charges will be used to pay sales commissions and other
promotional or distribution expenses associated with the marketing of the
Contracts. The Company does not anticipate that the Early Withdrawal Charges
will cover all distribution expenses in connection with the Contract.
In addition, federal and state income tax may be withheld from withdrawal and
surrender amounts. Certain surrenders may also be subject to a federal tax
penalty. See "Federal Tax Matters," page 20.
CONTRACT MAINTENANCE CHARGE
A Contract Maintenance Charge is deducted annually from the Cash Value to
reimburse the Company for its actual costs in maintaining each Contract and the
Variable Account. THE COMPANY GUARANTEES THAT THE AMOUNT OF THIS CHARGE WILL NOT
EXCEED $30 PER CONTRACT YEAR OVER THE LIFE OF THE CONTRACT. Maintenance costs
include but are not limited to expenses incurred in billing and collecting
Purchase Payments; keeping records; processing death claims and cash surrenders;
policy changes and proxy statements; calculating Accumulation Unit and Annuity
Unit values; and issuing reports to Owners and regulatory agencies. The Company
does not expect to realize a profit from this charge.
On each Contract Anniversary, the Contract Maintenance Charge will be deducted
from the Investment Alternatives in the same proportion that the Owner's
interest in each bears to the total Cash Value. After the Payout Start Date, a
pro rata share of the annual Contract Maintenance Charge will be deducted from
each Income Payment. For example, 1/12 of the $30 or $2.50 will be deducted if
there are twelve Income Payments during the Contract Year. The Contract
Maintenance Charge will be deducted from the amount paid on a total surrender.
Prior to October 4, 1993, Vantage Computer Systems, Inc. was under contract with
the Company to provide Contract recordkeeping services. As of October 4, 1993,
the Company provides all Contract recordkeeping services.
ADMINISTRATIVE EXPENSE CHARGE
The Company will deduct an Administrative Expense Charge which is equal, on an
annual basis to .10% of the daily net assets in the Variable Account. This
charge is designed to cover actual administrative expenses which exceed the
revenues from the Contract Maintenance Charge. The Company does not intend to
profit from this charge. The Company reserves the right to increase this charge
in the future. The Company believes that the Administrative Expense Charge and
Contract Maintenance Charge have been set at a level that will recover no more
than the actual costs associated with administering the Contract. There is no
necessary relationship between the amount of administrative charge imposed on a
given Contract and the amount of expenses that may be attributable to that
Contract.
MORTALITY AND EXPENSE RISK CHARGE
A Mortality and Expense Risk Charge will be deducted daily at a rate equal on an
annual basis of 1.25% of the daily net assets in the Variable Account. The
Company estimates that .85% is attributed to the assumption of mortality risks
and .40% is attributed to the assumption of expense risks. THE COMPANY
GUARANTEES THAT THE AMOUNT OF THIS CHARGE WILL NOT INCREASE OVER THE LIFE OF THE
CONTRACT.
If the Mortality and Expense Risk Charge is insufficient to cover the Company's
mortality costs and excess expenses, the Company will bear the loss. If the
Charge is more than sufficient, the
15
<PAGE>
Company will retain the balance as profit. The Company currently expects a
profit from this charge. Any such profit, as well as any other profit realized
by the Company and held in its general account, (which supports insurance and
annuity obligations), would be available for any proper corporate purpose,
including, but not limited to, payment of distribution expenses.
The mortality risk arises from the Company's guarantee to cover all death
benefits and to make Income Payments in accordance with the Income Payment
Tables, thus, relieving the Annuitants of the risk of outliving funds
accumulated for retirement.
The expense risk arises from the possibility that the Contract Maintenance and
Early Withdrawal Charges, both of which are guaranteed not to increase, will be
insufficient to cover actual administrative expenses.
TAXES
The Company will deduct state premium taxes or other taxes relative to the
Contract (collectively referred to as "premium taxes") either at the Payout
Start Date, or when a total withdrawal occurs. The Company reserves the right to
deduct premium taxes from the Purchase Payments. Currently, no deductions are
made because New York does not charge premium taxes on annuities.
At the Payout Start Date, the charge for premium taxes will be deducted from
each Investment Alternative in the proportion that the Owner's interest in the
Investment Alternative bears to the total Cash Value.
DEAN WITTER VARIABLE
INVESTMENT SERIES ("FUND")
EXPENSES
A complete description of the expenses and deductions from the Portfolios is
found in the Fund's prospectus which is attached to this prospectus.
BENEFITS UNDER THE CONTRACT
- -----------------------------------------------------------
DEATH BENEFITS PRIOR TO THE PAYOUT START DATE
If any Owner or the last surviving Annuitant dies prior to the Payout Start
Date, and a Death Benefit is elected, it will be paid to the new Owner or
Beneficiary. If requested to be paid in a lump sum within 180 days from the Date
of Death, the Death Benefit will be the greatest of: (a) the sum of all Purchase
Payments less any amounts deducted in connection with partial withdrawals
including any applicable Early Withdrawal Charges or premium taxes; or (b) the
Cash Value on the date we receive Due Proof of Death, or (c) the Cash Value on
the most recent Death Benefit Anniversary less any amounts deducted in
connection with partial withdrawals, including any applicable Early Withdrawal
Charges and premium taxes deducted from the Cash Value, since that anniversary.
The Death Benefit Anniversary is every sixth Contract Anniversary. For example,
the 6th, 12th and 18th Contract Anniversaries are the first three Death Benefit
Anniversaries.
The Company will not settle any death claim until it receives Due Proof of
Death. If an Owner dies prior to the Payout Start Date the new Owner will be the
surviving Owner, if any, otherwise the new Owner will be the Beneficiary.
Generally, this new Owner has the following options:
1. The new Owner may elect, within 180 days of the date of death, to
receive the Death Benefit in a lump sum;
2. The new Owner may elect, within 180 days of the date of death, to
receive the Settlement Value (the Settlement Value is the Cash Value less any
applicable Early Withdrawal Charges and premium tax on the date payment is
requested) payable within five years of the date of death.
3. The new Owner may elect to apply an amount equal to the Death Benefit to
one of the income plans. Payments must begin within one year of the date of
death and must be over the life of the new Owner, or a period not to exceed the
life expectancy of the new Owner.
4. If the new Owner is the spouse of the deceased Owner, the new Owner may
elect one of the above options or may continue the Contract.
If the new Owner who is not the spouse of the deceased Owner does not make one
of these elections, the Settlement Value will be paid in a lump sum to the new
Owner five years after the date of death.
If the new Owner is a non-natural person, then the new Owner must receive the
Death Benefit in a lump sum, and the options listed above are not available.
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If any Annuitant dies who is not also an Owner, the Owner must elect an
applicable option listed below. If the option selected is 1(a) or 1(b)(ii)
below, the new Annuitant will be the youngest Owner, unless the Owner names a
different Annuitant.
1. If the Owner is a natural person:
a. The Owner may choose to continue the Contract as if the death had
not occurred; or
b. If the Company receives due proof of death within 180 days of the
date of the Annuitant's death, then the Owner may alternatively choose to:
i. Receive the Death Benefit in a lump sum; or
ii. Apply the Death Benefit to an income plan which must begin
within one year of the date of death and must be for a period equal to
or less than the life expectancy of the Owner.
2. If the Owner is a non-natural person: The Owner must receive the Death
Benefit in a lump sum.
The value of the Death Benefit will be determined at the end of the Valuation
Period during which the Company receives a complete request for payment of the
Death Benefit, which includes Due Proof of Death.
DEATH BENEFITS AFTER THE PAYOUT START DATE
If the Annuitant and Joint Annuitant, if applicable, die after the Payout Start
Date, the Company will pay the Death Benefit, if any, contained in the
particular income plan.
If an Owner, who is not the Annuitant, dies after the Payout Start Date,
payments will continue to be made under the particular income plan. The
Beneficiary will be the recipient of such payments.
INCOME PAYMENTS
- -----------------------------------------------------------
PAYOUT START DATE
The Payout Start Date is the day that Income Payments will start under the
Contract. The Owner may change the Payout Start Date at any time by notifying
the Company in writing of the change at least 30 days before the current Payout
Start Date. The Payout Start Date must be (a) at least a month after the Issue
Date; (b) the first day of a calendar month; and (c) no later than the first day
of the calendar month after the Annuitant reaches age 85, or the 10th
anniversary date, if later.
Unless the Owner notifies the Company in writing otherwise, the Payout Start
Date will be the later of the first day of the calendar month after the
Annuitant reaches age 85 or the 10th anniversary date.
AMOUNT OF VARIABLE ANNUITY INCOME PAYMENTS
The amount of Variable Annuity Income Payments depends upon the investment
experience of the Portfolios selected by the Owner, any premium taxes, the age
and sex of the Annuitant(s), and the income plan chosen. The Company guarantees
that the Income Payments will not be affected by (1) actual mortality experience
and (2) the amount of the Company's administration expenses.
The Contracts offered by this Prospectus contain life annuity tables that
provide for different benefit payments to men and women of the same age.
Nevertheless, in accordance with the U.S. Supreme Court's decision in ARIZONA
GOVERNING COMMITTEE V. NORRIS, in certain employment-related situations, annuity
tables that do not vary on the basis of sex may be used. Accordingly, if the
Contract is to be used in connection with an employment-related retirement or
benefit plan, consideration should be given, in consultation with legal counsel,
to the impact of NORRIS on any such plan before making any contributions under
these Contracts. For qualified plans, where it is appropriate, a unisex
endorsement is available.
The sum of Income Payments made may be more or less than the total Purchase
Payments made because (a) Variable Annuity Income Payments vary with the
investment results of the underlying Portfolios; (b) the Owner bears the
investment risk with respect to all amounts allocated to the Variable Account;
(c) Annuitants may die before the actuarially expected Date of Death, and (d)
Early Withdrawal Charges may be applicable. As such, the total amount of Income
Payments cannot be predicted.
The duration of the income plan may affect the dollar amounts of each Income
Payment. For example, if an income plan guaranteed for life is chosen, the
Income Payments may be greater or lesser than Income Payments under an income
plan for a specified period depending on the life expectancy of the Annuitant.
If the actual net investment experience is less than the assumed investment
rate, then the dollar amount of the Income Payments will decrease. The dollar
amount of the Income Payments will stay level if the net investment experience
equals the assumed investment rate and the dollar amount of the Income Payments
will
17
<PAGE>
increase if the net investment experience exceeds the assumed investment rate.
For purposes of the Variable Annuity Income Payments, the assumed investment
rate is found in the Contract.
If no payments have been received for three full years and if the Cash Value to
be applied to an income plan is less than $2,000, or if the monthly payments
determined under the Income Plan are less than $20, the Company may pay the Cash
Value in a lump sum or change the payment frequency to an interval which results
in Income Payments of at least $20.
INCOME PLANS
The Owner may elect a completely Fixed Annuity, a completely Variable Annuity or
a combination Fixed and Variable Annuity. Up to 30 days before the Payout Start
Date, the Owner may change the income plan or request any other form of income
plan agreeable to both the Company and the Owner. Subsequent changes will not be
permitted. If an income plan is chosen which depends on the Annuitant or Joint
Annuitant's life, proof of age will be required before Income Payments begin.
Premium taxes may be assessed. The income plans include:
INCOME PLAN 1--LIFE WITH PAYMENTS GUARANTEED FOR 120 MONTHS
Monthly payments will be made for as long as the Annuitant lives. If the
Annuitant dies before 120 monthly payments have been made, the remainder of the
120 guaranteed monthly payments will be paid to the Owner, or if deceased, to
the surviving Beneficiary.
INCOME PLAN 2--JOINT AND LAST SURVIVOR
Monthly payments beginning on the Payout Start Date will be made for as long as
either the Annuitant or Joint Annuitant is living. It is possible under this
option that only one monthly payment will be made if the Annuitant and Joint
Annuitant both die before the second payment is made, or only two monthly
payments will be made if they both die before the third payment, and so forth.
INCOME PLAN 3--PAYMENTS FOR A SPECIFIED PERIOD
Monthly payments beginning on the Payout Start Date will be made for a specified
period. An Early Withdrawal Charge may apply if the specified period is less
than 120 months. Payments under this option do not depend on the continuation of
the Annuitant's life. If the Owner dies before the end of the specified period,
the remaining payments will be paid to the surviving Beneficiary. The Mortality
and Expense Risk Charge is deducted from the Variable Account even though the
Company does not bear any mortality risk. If Income Plan 3 is chosen and the
proceeds are derived from the Variable Account, the Owner or Beneficiary may
surrender the Contract at any time by notifying the Company in writing.
In the event that an income plan is not selected, the Company will make Income
Payments in accordance with Income Plan 1. At the Company's discretion, other
income plans may be available upon request. The Company uses sex-distinct
annuity tables. However, the Company reserves the right to use Income Payment
tables which do not distinguish on the basis of sex.
THE FIXED ACCOUNT
- -----------------------------------------------------------
CONTRIBUTIONS UNDER THE FIXED PORTION OF THE ANNUITY CONTRACT AND TRANSFERS TO
THE FIXED PORTION BECOME PART OF THE GENERAL ACCOUNT OF THE COMPANY, WHICH
SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. BECAUSE OF EXEMPTIVE AND
EXCLUSIONARY PROVISIONS, INTERESTS IN THE GENERAL ACCOUNT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933 ACT"), NOR IS THE GENERAL
ACCOUNT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940 ("1940 ACT"). ACCORDINGLY, NEITHER THE GENERAL ACCOUNT NOR ANY INTERESTS
THEREIN ARE GENERALLY SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940 ACTS AND THE
COMPANY HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO
THE FIXED PORTION. DISCLOSURES REGARDING THE FIXED PORTION OF THE ANNUITY
CONTRACT AND THE GENERAL ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN GENERALLY
APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY
AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
GENERAL DESCRIPTION
Contributions made to the Fixed Account are invested in the general account of
the Company. The general account is made up of all of the general assets of the
Company, other than those in the Variable Account and any other segregated asset
account. Instead of the Owner bearing the investment risk as is the case for
amounts in the Variable Account, the Company bears the full investment risk for
all amounts contributed to the general account. The Company has sole discretion
to invest the assets of the general account, subject to applicable law. The
Company guarantees that the amounts allocated to the Fixed Account will be
credited interest at a net effective interest rate of at least the minimum
guaranteed rate found in the Contract. (This interest rate is net of separate
account asset based charges of 1.35%). Currently the amount of interest credited
in excess of the guaranteed rate will vary periodically in the sole discretion
of the Company. Any interest held in the general account does not entitle an
Owner to share in the investment experience of the general account.
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Money deposited in the Fixed Account earns interest at the current rate in
effect at the time of allocation or transfer for the Guarantee Period. After the
Guarantee Period, a renewal rate will be declared. Subsequent renewal dates will
be on anniversaries of the first renewal date. On or about each renewal date,
the Company will notify the Owner of the interest rate(s) for the Contract Year
then starting. This interest rate will be guaranteed by the Company for a full
year and will not be less than the guaranteed rate found in the Contract. The
Company may declare more than one interest rate for different monies based upon
the date of allocation or transfer to the Fixed Account and based upon the
Guarantee Period.
The Company will offer a one year Guarantee Period. Additional Guarantee Periods
are offered at the sole discretion of the Company. The Company currently offers
a 1 year and a 6 year Guarantee Period.
ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF THE
GUARANTEED RATE FOUND IN THE CONTRACT WILL BE DETERMINED IN THE SOLE DISCRETION
OF THE COMPANY.
TRANSFERS, SURRENDERS, AND WITHDRAWALS
Amounts may be transferred from the Sub-Accounts of the Variable Account to the
Fixed Account, and prior to the Payout Start Date amounts may also be
transferred from the Fixed Account to Sub-Accounts of the Variable Account.
The maximum amount in any Contract Year which may be transferred from the Fixed
Account to the Variable Account or between Guarantee Periods of the Fixed
Account is limited to the greater of (1) 25% of the value in the Fixed Account
as of the most recent Contract Anniversary; if 25% of the value as of the most
recent Contract Anniversary is greater than zero but less than $1,000, then up
to $1,000 may be transferred; or (2) 25% of the sum of all Purchase Payments and
transfers to the Fixed Account as of the most recent Contract Anniversary.
If the first renewal interest rate is less than the current rate that was in
effect at the time money was allocated or transferred to the Fixed Account, the
transfer restriction for that money and the accumulated interest thereon will be
waived during the 60-day period following the first renewal date.
After the Payout Start Date no transfers may be made from the Fixed Account.
Transfers from the Variable Account to the Fixed Account may not be made for six
months after the Payout Start Date and may be made thereafter only once every
six months.
Surrenders and withdrawals from the Fixed Account may be delayed for up to six
months. After the Payout Start Date no surrenders or withdrawals may be made
from the Fixed Account.
GENERAL MATTERS
- -----------------------------------------------------------
OWNER
The Owner has the sole right to exercise all rights and privileges under the
Contract, except as otherwise provided in the Contract. These rights include the
right to name and change the Owner, Beneficiary and Annuitant. The Annuitant can
be changed only if the Owner is a natural person. At time of designation, the
age of the Annuitant may not exceed 80 years of age.
Generally, an Owner who is not a natural person is required to include in income
each year any increase in the Cash Value to the extent the increase is
attributable to contributions made after February 28, 1986.
BENEFICIARY
Subject to the terms of any irrevocable Beneficiary, the Owner may change the
Beneficiary while the Annuitant is living by notifying the Company in writing.
Any change will be effective at the time it is signed by the Owner, whether or
not the Annuitant is living when the change is received by the Company. The
Company will not, however, be liable as to any payment or settlements made prior
to receiving the written notice.
Unless otherwise provided in the Beneficiary designation, the rights of any
Beneficiary predeceasing the Annuitant will revert to the Owner or the Owner's
estate. Multiple Beneficiaries may be named. Unless otherwise provided in the
Beneficiary designation, if more than one Beneficiary survives the Annuitant,
the surviving Beneficiaries will share equally in any amounts due.
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DELAY OF PAYMENTS
Payment of any amounts due from the Variable Account under the Contract will
occur within seven days, unless:
1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the Securities and Exchange
Commission; or
3. The Securities and Exchange Commission permits delay for the protection
of the Owners.
For payment or transfers from the Fixed Account, see page 18.
ASSIGNMENTS
The Owner may not assign an interest in a Contract as collateral or security for
a loan. Otherwise, the Owner may assign benefits under the Contract prior to the
Payout Start Date. No Beneficiary may assign benefits under the Contract until
they are due. No assignment will bind the Company unless it is signed by the
Owner and filed with the Company. The Company is not responsible for the
validity of an assignment.
MODIFICATION
The Company may not modify the Contract without the consent of the Owner except
to make the Contract meet the requirements of the Investment Company Act of
1940, or to make the Contract comply with any changes in the Internal Revenue
Code or required by the Code or by any other applicable law.
CUSTOMER INQUIRIES
The Owners or any persons interested in the Contract may make inquiries
regarding the Contract by calling or writing their Dean Witter Account
Executive.
FEDERAL TAX MATTERS
- -----------------------------------------------------------
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or receipt of distributions under an annuity contract
depend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL. Generally, an annuity contract owner is not taxed on increases in
the Contract Value until a distribution occurs. This rule applies only where (1)
the Owner is a natural person, (2) the investments of the Variable Account are
"adequately diversified" in accordance with Treasury Department ("Treasury")
regulations and (3) the Company, instead of the annuity owner, is considered the
owner of the Variable Account assets for federal income tax purposes.
NON-NATURAL OWNERS. As a general rule, annuity contracts owned by non-natural
persons are not treated as annuity contracts for federal income tax purposes and
the income on such contracts is taxed as ordinary income received or accrued by
the Owner during the taxable year. There are several exceptions to the general
rule for Contracts owned by non-natural persons which are discussed in the
Statement of Additional Information.
DIVERSIFICATION REQUIREMENTS. For a contract to be treated as an annuity for
federal income tax purposes, the investments in the Variable Account must be
"adequately diversified" in accordance with the standards provided in the
Treasury regulations. If the investments in the Variable Account are not
adequately diversified, then the Contract will not be treated as an annuity
contract for federal income tax purposes and the Contract Owner will be taxed on
the excess of the Contract Value over the investment in the Contract. Although
the Company does not have control over the Fund or its investments, the Company
expects the Fund to meet the diversification requirements.
OWNERSHIP TREATMENT. In connection with the issuance of the regulations on the
adequate diversification standards, the Department of the Treasury announced
that the regulations do not provide guidance concerning the extent to which
contract owners may direct their investments among sub-accounts of a Variable
Account. The Internal Revenue Service has previously stated in published rulings
that a variable contract owner possesses incidents of ownership in those assets
such as the ability to exercise investment control over the assets. At the time
the diversification regulations were issued, the Treasury Department announced
that guidance would be issued in the future regarding
20
<PAGE>
the extent that owners could direct their investments among sub-accounts without
being treated as owners of the underlying assets of the Variable Account. As of
the date of this prospectus, no such guidance has been issued.
The ownership rights under this contract are similar to, but different in
certain respects from, those described by the Service in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of this contract has the choice of more investment options to
which to allocate premiums and contract values, and may be able to transfer
among investment options more frequently than in such rulings. These differences
could result in the contract owner being treated as the owner of the Variable
Account. In those circumstances, income and gain from the Variable Account
assets would be includible in the Contract Owner's gross income. In addition,
the Company does not know what standards will be set forth in the regulations or
rulings which the Treasury Department has stated it expects to issue. It is
possible that Treasury Department's position, when announced, may adversely
affect the tax treatment of existing contracts. The Company, therefore, reserves
the right to modify the contract as necessary to attempt to prevent the contract
owner from being considered the federal tax owner of the assets of the Variable
Account. However, the Company makes no guarantee that such modification to the
contract will be successful.
DELAYED MATURITY DATE. If the contract's scheduled maturity date is at a time
when the annuitant has reached an advanced age, e.g., past age 85, it is
possible that the contract would not be treated as an annuity. In that event,
the income and gains under the contract would be currently includible in the
owner's income.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. In the case of a partial withdrawal
under a Non-Qualified Contract, amounts received are taxable to the extent the
Contract Value, without regard to surrender charges, exceeds the investment in
the Contract. In the case of a partial withdrawal under a Qualified Contract,
the portion of the payment that bears the same ratio to the total payment that
the investment in the Contract bears to the Contract Value, can be excluded from
income. In the case of a full withdrawal under a Non-Qualified Contract or a
Qualified Contract, the amount received will be taxable only to the extent it
exceeds the investment in the Contract. If an individual transfers an annuity
contract without full and adequate consideration to a person other than the
individual's spouse (or to a former spouse incident to a divorce), the Owner
will be taxed on the difference between the Contract Value and the investment in
the Contract at the time of transfer. Other than in the case of certain
Qualified Contracts, any amount received as a loan under a Contract, and any
assignment or pledge (or agreement to assign or pledge) of the Contract Value is
treated as a withdrawal of such amount or portion.
TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of
payments received from an annuity contract provides for the return of the
Owner's investment in the Contract in equal tax-free amounts over the payment
period. The balance of each payment received is taxable. In the case of variable
annuity payments, the amount excluded from taxable income is determined by
dividing the investment in the Contract by the total number of expected
payments. In the case of fixed annuity payments, the amount excluded from income
is determined by multiplying the payment by the ratio of the investment in the
Contract (adjusted for any refund feature or period certain) to the total
expected value of annuity payments for the term of the Contract.
TAXATION OF ANNUITY DEATH BENEFITS. Amounts may be distributed from an annuity
contract because of the death of an Owner or Annuitant. Generally, such amounts
are includible in income as follows: (1) if distributed in a lump sum, the
amounts are taxed in the same manner as a full withdrawal or (2) if distributed
under an annuity option, the amounts are taxed in the same manner as an annuity
payment.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. There is a 10% penalty tax on the
taxable amount of any premature distribution from a non-qualified annuity
contract. The penalty tax generally applies to any distribution made prior to
the Owner attaining age 59 1/2. However, there should be no penalty tax on
distributions to Owners (1) made on or after the Owner attains age 59 1/2; (2)
made as a result of the Owner's death or disability; (3) made in substantially
equal periodic payments over life or life expectancy; or (4) made under an
immediate annuity. Similar rules apply for distributions under certain Qualified
Contracts. Please see the Statement of Additional Information for a discussion
of other situations in which the penalty tax may not apply.
AGGREGATION OF ANNUITY CONTRACTS. All non-qualified annuity contracts issued by
the Company (or its affiliates) to the same Owner during any calendar year will
be aggregated and treated as one annuity Contract for purposes of determining
the taxable amount of a distribution.
TAX QUALIFIED CONTRACTS
Annuity contracts may be used as investments with certain tax qualified plans
such as: (1) Individual Retirement Annuities under Section 408(b) of the Code;
(2) Simplified Employee Pension Plans under Section 408(k) of the Code; (3)
Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section 408(p)
of the Code; (4) Tax Sheltered Annuities under Section 403(b) of the Code; (5)
Corporate and Self Employed Pension and Profit Sharing Plans; and (6) State and
Local Government and Tax-Exempt Organization Deferred Compensation Plans. In the
case of certain tax qualified plans, the terms of the plans may govern the right
to benefits, regardless of the terms of the contract.
RESTRICTIONS UNDER SECTION 403(b) PLANS. Section 403(b) of the Code provides for
tax-deferred retirement savings plans for employees of certain non-profit and
educational organizations. In accordance with the requirements of Section
403(b), any annuity contract used for a 403(b) plan must provide that
distributions
21
<PAGE>
attributable to salary reduction contributions made after 12/31/88, and all
earnings on salary reduction contributions, may be made only after the employee
attains age 59 1/2, separates from service, dies, becomes disabled or on the
account of hardship (earnings on salary reduction contributions may not be
distributed on the account of hardship).
INCOME TAX WITHHOLDING
The Company is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless an individual elects to make a "direct
rollover" of such amounts to another qualified plan or Individual Retirement
Account or Annuity ("IRA"). Eligible rollover distributions generally include
all distributions from Qualified Contracts, excluding IRAs, with the exception
of (1) required minimum distributions, or (2) a series of substantially equal
periodic payments made over a period of at least 10 years, or the life (joint
lives) of the participant (and beneficiary). For any distributions from
non-qualified annuity contracts, or distributions from Qualified Contracts which
are not considered eligible rollover distributions, the Company may be required
to withhold federal and state income taxes unless the recipient elects not to
have taxes withheld and properly notifies the Company of such election.
VOTING RIGHTS
- -----------------------------------------------------------
The Owner or anyone with a voting interest in the Sub-Account of the Variable
Account may instruct the Company on how to vote at shareholder meetings of the
Fund. The Company will solicit and cast each vote according to the procedures
set up by the Fund and to the extent required by law. The Company reserves the
right to vote the eligible shares in its own right, if subsequently permitted by
the Investment Company Act of 1940, its regulations or interpretations thereof.
Before the Payout Start Date, the Owner holds the voting interest in the
Sub-Account. (The number of votes for the Owner will be determined by dividing
the Cash Value attributable to a Sub-Account by the net asset value per share of
the applicable eligible Portfolio.)
After the Payout Start Date, the person receiving Income Payments has the voting
interest. After the Payout Start Date, the votes decrease as Income Payments are
made and as the reserves for the Contract decrease. That person's number of
votes will be determined by dividing the reserve for such Contract allocated to
the applicable Sub-Account by the net asset value per share of the corresponding
eligible Portfolio.
SALES COMMISSION
- -----------------------------------------------------------
From its profits the Company may pay a maximum sales commission of 6.0% of
Purchase Payments and an annual sales administration expense allowance of up to
0.125% of the average net assets of the Fixed Account to Dean Witter Reynolds
Inc., the principal underwriter of the Contracts.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
The Contract................................................ 3
Purchase of Contracts..................................... 3
Value of Variable Account Accumulation Units.............. 3
Performance Data.......................................... 3
Standardized Total Return................................... 4
Other Total Returns....................................... 5
Transfers................................................. 6
Tax-free Exchanges (1035 Exchanges, Rollovers and
Transfers)............................................... 7
Income Payments............................................. 7
Amount of Variable Annuity Income Payments................ 7
General Matters............................................. 7
Recordkeeping Services.................................. 7
Additions, Deletions or Substitutions of Investments.... 8
Reinvestment............................................ 8
Incontestability.......................................... 8
Settlements............................................... 8
Safekeeping of the Variable Account's Assets.............. 8
Experts................................................... 9
Legal Matters............................................. 9
Federal Tax Matters......................................... 9
Introduction.............................................. 9
Taxation of Allstate Life Insurance Company of New York... 9
Exceptions to the Non-Natural Owner Rule.................. 9
Penalty Tax on Premature Distributions.................... 10
IRS Requried Distribution at Death Rules.................. 10
Qualified Plans........................................... 10
Types of Qualified Plans.................................... 11
Individual Retirement Annuities........................... 11
Simplified Employee Pension Plans......................... 11
Tax Sheltered Annuities................................... 11
Corporate and Self-Employed Pension and Profit Sharing
Plans.................................................... 11
State and Local Government and Tax-Exempt Organization
Deferred Compensation Plans.............................. 11
Voting Rights............................................... 12
Sales Commissions........................................... 12
Financial Statements........................................ F-1
23
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ORDER FORM
- -----------------------------------------------------------
/ / Please send me a copy of the most recent Statement of Additional Information
for the Allstate Life of New York Variable Annuity II.
<TABLE>
<S> <C>
- ------------------------ ---------------------------------------------
(Date) (Name)
---------------------------------------------
(Street Address)
---------------------------------------------
(City) (State) (Zip Code)
</TABLE>
Send to: Allstate Life Insurance Company of New York
Post Office Box 9095
Farmingville, New York 11738
Attention: Annuity Services
24
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
of
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
P.O. Box 9095
Farmingville, New York 11738
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
Distributed By
Dean Witter Reynolds Inc.
Two World Trade Center
New York, New York 10048
-------------------
This Statement of Additional Information supplements the information in the
Prospectus for the individual Flexible Premium Deferred Variable Annuity
Contract ("Contract") offered by Allstate Life Insurance Company of New York
("Company"), an indirect wholly owned subsidiary of Allstate Insurance Company.
The Contract is primarily designed to aid individuals in long-term financial
planning and it can be used for retirement planning regardless of whether the
plan qualifies for special federal income tax treatment.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
YOU MAY OBTAIN A COPY OF THE PROSPECTUS FROM DEAN WITTER REYNOLDS INC. ("DEAN
WITTER"), THE PRINCIPAL UNDERWRITER AND DISTRIBUTOR OF THE CONTRACT, BY
CALLING OR WRITING DEAN WITTER AT THE ADDRESS LISTED ABOVE.
The Prospectus, dated May 1, 1997, has been filed with the United States
Securities and Exchange Commission.
Dated May 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
The Contract...................................................................................................... 3
Purchase of Contracts........................................................................................... 3
Value of Variable Account Accumulation Units.................................................................... 3
Performance Data................................................................................................ 3
Standardized Total Return......................................................................................... 4
Other Total Returns............................................................................................. 5
Transfers....................................................................................................... 6
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers).................................................... 7
Income Payments................................................................................................... 7
Amount of Variable Annuity Income Payments...................................................................... 7
General Matters................................................................................................... 7
Recordkeeping Services........................................................................................ 7
Additions, Deletions or Substitutions of Investments.......................................................... 8
Reinvestment.................................................................................................. 8
Incontestability................................................................................................ 8
Settlements..................................................................................................... 8
Safekeeping of the Variable Account's Assets.................................................................... 8
Experts......................................................................................................... 9
Legal Matters................................................................................................... 9
Federal Tax Matters............................................................................................... 9
Introduction.................................................................................................... 9
Taxation of Allstate Life Insurance Company of New York......................................................... 9
Exceptions to the Non-Natural Owner Rule........................................................................ 9
Penalty Tax on Premature Distributions.......................................................................... 10
IRS Required Distribution at Death Rules........................................................................ 10
Qualified Plans................................................................................................. 10
Types of Qualified Plans.......................................................................................... 11
Individual Retirement Annuities................................................................................. 11
Simplified Employee Pension Plans............................................................................... 11
Tax Sheltered Annuities......................................................................................... 11
Corporate and Self-Employed Pension and Profit Sharing Plans.................................................... 11
State and Local Government and Tax-Exempt Organization Deferred Compensation Plans.............................. 11
Voting Rights..................................................................................................... 11
Sales Commissions................................................................................................. 12
Financial Statements.............................................................................................. F-1
</TABLE>
2
<PAGE>
THE CONTRACT
Purchase of Contracts
The Contracts are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the Contracts
is continuous and the Company does not anticipate discontinuing the offering of
the Contracts. However, the Company reserves the right to discontinue the
offering of the Contracts.
Value of Variable Account Accumulation Units
The value of Variable Account Accumulation Units will vary in accordance
with investment experience of the Portfolio in which the Sub-Account invests.
The number of such Accumulation Units credited to a Contract will not, however,
change as a result of any fluctuations in the Accumulation Unit value.
The Accumulation Units in each Sub-Account of the Variable Account are
valued separately. The value of Accumulation Units in any Valuation Period will
depend upon the investment performance of the shares purchased by each Sub-
Account in a particular Portfolio.
The value of an Accumulation Unit in a Sub-Account for any Valuation Period
equals the value of such unit as of the immediately preceding Valuation Period,
multiplied by the "Net Investment Factor" for that Sub-Account for the current
Valuation Period. The Net Investment Factor for each Sub-Account for any
Valuation Period is determined by dividing (A) by (B) and subtracting (C),
where:
(A) is the sum of:
(1) the net asset value per share of the Portfolio(s) underlying the
Sub-Account determined at the end of the current valuation period; plus,
(2) the per share amount of any dividend or capital gain
distributions made by the Portfolio(s) underlying the Sub-Account during
the current Valuation Period.
(B) is the net asset value per share of the Portfolio(s) underlying the
Sub-Account determined as of the end of the immediately preceding valuation
period.
(C) is the annualized Mortality and Expense Risk and Administrative
Expense Charges divided by 365 and then multiplied by the number of calendar
days in the current valuation period.
Performance Data
From time to time the Variable Account may publish advertisements containing
performance data relating to its Sub-Accounts. The performance data for the
Sub-Accounts (other than for the Money Market Sub-Account) will always be
accompanied by total return quotations.
A Sub-Account's "average annual total return" represents an annualization of
the Sub-Account's total return over a particular period and is computed by
finding the annual percentage rate which will result in the ending redeemable
value of a hypothetical $1,000 Purchase Payment made at the beginning of a one,
five or ten year period, or for a period from the date of commencement of the
Sub-Account's operations, if shorter than any of the foregoing. The formula for
computing the average annual total return involves a percentage obtained by
dividing the ending redeemable value, including deductions for any Early
Withdrawal Charges or Contract Maintenance Charges imposed on the Contracts by
the Variable Account, by the initial hypothetical $1,000 Purchase Payment,
taking the "n"th root of the quotient (where "n" is the number of years in the
period) and subtracting 1 from the result.
3
<PAGE>
The Early Withdrawal Charges assessed upon redemption are computed as
follows: The Withdrawal Amount Without Early Withdrawal Charge is not assessed
an Early Withdrawal Charge. Early Withdrawal Charges are charged on the amount
of redemption equal to the Purchase Payment, reduced by the Withdrawal Amount
Without Early Withdrawal Charge, if any. The remaining amount of the redemption,
if any, is not assessed an Early Withdrawal Charge. The Early Withdrawal Charge
Schedule specifies rates based on the Contract Year in which the Purchase
Payment was made. One rate is specified for Purchase Payments made in the
current Contract Year, another rate for Purchase Payments made in the prior
Contract Year, another rate for Purchase Payments made in the second prior
Contract Year, and so on until a rate for Purchase Payments made in the sixth
prior Contract Year or prior to it is reached. For a one year total return
calculation the second rate, (i.e., the rate for Purchase Payments made in the
prior Contract Year), is assessed. The Contract Maintenance Charge ($30 per
contract) used in the total return calculation is prorated using the following
method: The total amount of annual Contract fees collected during the year is
divided by the total average net assets of all the Sub-Accounts. The resulting
percentage is then multiplied by the ending Cash Value.
In addition, the Variable Account may advertise the total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. Such calculations would not reflect deductions
for Early Withdrawal Charges or Contract Maintenance charges which may be
imposed on the Contracts by the Variable Account which, if reflected, would
reduce the performance quoted. The formula for computing such total return
quotations involves a percent unit change calculation. This calculation is the
Accumulation Unit value at the end of the defined period divided by the
Accumulation Unit value at the beginning of such period minus 1. The periods
included in such advertisements are "year-to-date" (prior calendar year end to
the day of the advertisement); "year to most recent quarter" (prior calendar
year end to the end of the most recent quarter); "the prior calendar year"; and
inception (commencement of the Sub-Account's operation) to date (day of the
advertisement).
STANDARDIZED TOTAL RETURN
The standardized average annual total returns for the Sub-Accounts for the
one-year and since inception periods ending December 31, 1996 are presented
below:
<TABLE>
<CAPTION>
Since
Sub-Account One-Year Five-Year Inception
- ------------------------------------------------------------------------------- ---------- ---------- --------------
<S> <C> <C> <C>
Capital Growth................................................................. 5.72% 5.06% 7.84%
Dividend Growth................................................................ 17.97% 13.42% 13.92%
Equity......................................................................... 6.52% 11.10% 13.41%
European Growth................................................................ 23.92% 19.27% 18.68%
Global Dividend Growth......................................................... 11.68% N/A 11.02%
High Yield..................................................................... 6.15% 11.38% 12.26%
Money Market................................................................... N/A N/A N/A
Pacific Growth................................................................. -1.84% N/A -1.80%
Quality Income Plus............................................................ -4.14% 5.96% 6.76%
Strategist..................................................................... 9.15% 7.48% 8.40%
Utilities...................................................................... 2.89% 8.97% 10.36%
</TABLE>
- ------------------------
* All Sub-Accounts commenced operation on September 24, 1991 except for the
Global Dividend Growth, Pacific Growth, Income Builder and Capital
Appreciation Sub-Accounts. The Global Dividend Growth and Pacific Growth
Sub-Accounts commenced operation on February 23, 1994. The Income Builder and
Capital Appreciation Sub-Accounts commenced operation on January 21, 1997.
4
<PAGE>
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the Variable Account
commenced operations. Such performance information for the Sub-Accounts will be
calculated based on the performance of the Portfolios and the assumption that
the Sub-Accounts were in existence for the same periods as those indicated for
the Portfolios, with the level of Contract charges currently in effect.
Such average annual total return information for the Sub-Accounts (including
deduction of the Surrender Charge) is as follows:
<TABLE>
<CAPTION>
Ten-Years or
Since Inception
Sub-Account and Date of Inception of Corresponding Portfolio One-Year Five- Years (if less)
- -------------------------------------------------------------------------------- ---------- ----------- ---------------
<S> <C> <C> <C>
Capital Growth****.............................................................. 5.72% 5.06% 8.71%
Dividend Growth***.............................................................. 17.97% 13.42% 11.83%
Equity*......................................................................... 6.52% 11.10% 11.39%
European Growth****............................................................. 23.92% 19.27% 16.32%
Global Dividend Growth*****..................................................... 11.68% N/A 11.03%
High Yield*..................................................................... 6.15% 11.38% 5.64%
Money Market*................................................................... N/A N/A N/A
Pacific Growth*****............................................................. -1.84% N/A -1.80%
Quality Income Plus**........................................................... -4.14% 5.96% 7.07%
Strategist**.................................................................... 9.15% 7.48% 8.32%
Utilities***.................................................................... 2.89% 8.97% 9.71%
</TABLE>
- ------------------------
* Portfolio inception date of March 9, 1984
** Portfolio inception date of March 1, 1987
*** Portfolio inception date of March 1, 1990
**** Portfolio inception date of March 1, 1991
***** Portfolio inception date of February 23, 1994
Other Total Returns
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as the average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account any charges on amounts surrendered. Sales literature or
advertisements may also quote such average annual total returns for periods
prior to the date the Variable Account commenced operations, calculated based on
the performance of the Portfolios and the assumption that the Sub-Accounts were
in existence for the same periods as those indicated for the Portfolios, with
the level of Contract charges currently in effect except for the Surrender
Charge.
5
<PAGE>
Such average annual total return information for the Sub-Accounts (not
including deduction of the Surrender Charge) is as follows:
<TABLE>
<CAPTION>
Ten-Years or
Since Inception
Sub-Account and Date of Inception of Corresponding Portfolio One-Year Five- Years (if less)
- ---------------------------------------------------------------------------------- ------------ ----------- ---------------
<S> <C> <C> <C>
Capital Growth****................................................................ 10.04% 5.28% 8.86%
Dividend Growth***................................................................ 22.29% 13.58% 11.89%
Equity*........................................................................... 10.85% 11.28% 11.44%
European Growth****............................................................... 28.24% 19.42% 16.45%
Global Dividend Growth*****....................................................... 16.00% N/A 12.07%
High Yield*....................................................................... 10.47% 11.55% 5.71%
Money Market*..................................................................... N/A N/A N/A
Pacific Growth*****............................................................... 2.49% N/A -0.50%
Quality Income Plus**............................................................. 0.19% 6.16% 7.12%
Strategist**...................................................................... 13.47% 7.67% 8.37%
Utilities***...................................................................... 7.22% 9.15% 9.76%
</TABLE>
- ------------------------
* Portfolio inception date of March 9, 1984
** Portfolio inception date of March 1, 1987
*** Portfolio inception date of March 1, 1990
**** Portfolio inception date of March 1, 1991
***** Portfolio inception date of February 23, 1994
The Variable Account may also advertise the performance of the Sub-Accounts
relative to certain performance rankings and indexes compiled by independent
organizations, such as: (a) Lipper Analytical Services, Inc.; (b) the Standard &
Poor's 500 Composite Stock Price Index ("S & P 500"); and, (c) A.M. Best
Company.
Transfers
The Owner may transfer amounts from one investment alternative to another
prior to the Payout Start Date. Transfers are subject to the following
restrictions:
1. The minimum amount that may be transferred from an investment
alternative is $100; if the total amount in an investment alternative is
less than $100, the entire amount may be transferred.
2. The minimum transfer to any Guarantee Period of the Fixed Account is
$500.
3. The maximum amount in any Contract Year which may be transferred from
the Fixed Account to the Variable Account or between Guarantee Periods is
limited to the greater of (1) 25% of the value in the Fixed Account as of
the most recent Contract Anniversary; if 25% of the value as of the most
recent Contract Anniversary is greater than zero but less than $1,000,
then up to $1,000 may be transferred; or (2) 25% of the sum of all
Purchase Payments and transfers to the Fixed Account as of the most
recent Contract Anniversary.
4. If the first renewal interest rate is less than the current rate that
was in effect at the time money was allocated or transferred to the Fixed
Account, the 25% transfer restriction for that money will be waived
during the 60 day period following the first renewal date.
6
<PAGE>
Tax-Free Exchanges (1035 Exchanges, Rollovers and Transfers)
The Company accepts Purchase Payments which are the proceeds of a Contract
in a transaction qualifying for a tax-free exchange under Section 1035 of the
Internal Revenue Code. Except as required by federal law in calculating the
basis of the Contract, the Company does not differentiate between Section 1035
Purchase Payments and non-Section 1035 Purchase Payments.
The Company also accepts "rollovers" from Contracts qualifying as
tax-sheltered annuities (TSAs), individual retirement annuities or accounts,
(IRAs), or any other Qualified Contract which is eligible to "rollover" into an
IRA. The Company differentiates between Non-Qualified Contracts and TSAs and
IRAs to the extent necessary to comply with federal tax laws. For example, the
Company restricts the assignment, transfer or pledge of TSAs and IRAs so the
Contracts will continue to qualify for special tax treatment. An Owner
contemplating any such exchange, rollover or transfer of a Contract should
contact a competent tax adviser with respect to the potential effects of such a
transaction.
INCOME PAYMENTS
Amount of Variable Annuity Income Payments
The amount of the first Income Payment is calculated by applying the
Contract Value allocated to each Sub-Account less any applicable premium tax
charge deducted at this time, to the income payment tables in the Contract. The
first Variable Annuity Income Payment is divided by the Sub-Account's then
current Annuity Unit Value to determine the number of Annuity Units upon which
later Income Payments will be based. Variable Annuity Income Payments after the
first will be equal to the sum of the number of Annuity Units determined in this
manner for each Sub-Account times the then current Annuity Unit Value for each
respective Sub-Account.
The value of an Annuity Unit in each Sub-Account of the Variable Account is
set at $10. Annuity Units in each Sub-Account are valued separately and Annuity
Unit Values will depend upon the investment experience of the particular
Portfolios in which the Sub-Account invests. The value of the Annuity Unit for
each Sub-Account at the end of any Valuation Period is calculated by: (a)
multiplying the prior value by the Sub-Account's Net Investment Factor during
the period; and then (b) dividing the product by the sum of 1.0 plus the assumed
investment rate for the period. The assumed investment rate adjusts for the
interest rate assumed in the annuity tables used to determine the dollar amount
of the first Variable Annuity Income Payment, and is an effective annual rate of
4.0%.
Currently, the amount of the first Income Payment paid under an Annuity
Option is determined using 4% interest and the 1971 Individual Annuity Mortality
Table with the following age adjustment (The revised Contract is based on the
1983A Individual Annuity Mortality Table.) An annuitant's age at his or her last
birthday on or prior to the Income Starting Date will be set back one year each
six full years between January 1, 1971 and the Income Starting Date (except in
the case of Contracts based on the 1983A Table). Due to judicial or legislative
developments regarding the use of tables which do not differentiate on the basis
of sex, in some cases different annuity tables may be used.
GENERAL MATTERS
Recordkeeping Services
In 1993, the Company paid $29,213.58 to Vantage for its services. The basis
for the fee was an annual fee of $16 per policy, plus out of pocket expenses and
fees for enhancements.
As of October 4, 1993, the Company performs all Contract recordkeeping
services.
7
<PAGE>
Additions, Deletions or Substitutions of Investments
The Company retains the right, subject to any applicable law, to make
additions to, deletions the from or substitutions for the Portfolio shares held
by any Sub-Account of the Variable Account. The Company reserves the right to
eliminate the shares of any of the Portfolios and to substitute shares of
another Portfolio of the Fund, or of another open-end, registered investment
company, if the shares of the Portfolio are no longer available for investment,
or if, in the Company's judgment, investment in any Portfolio would become
inappropriate in view of the purposes of the Variable Account. Substitutions of
shares attributable to an Owner's interest in a Sub-Account will not be made
until the Owner has been notified of the change, and until the Securities and
Exchange Commission has approved the change, to the extent such notification and
approval is required by the Investment Company Act of 1940. Nothing contained in
this Statement of Additional Information shall prevent the Variable Account from
purchasing other securities for other series or classes of contracts, or from
effecting a conversion between series or classes of contracts on the basis of
requests made by Owners.
The Company may also establish additional Sub-Accounts of the Variable
Account. Each additional Sub-Account would purchase shares in a new Portfolio of
the Fund or in another mutual fund. New Sub-Accounts may be established when, in
the sole discretion of the Company, marketing needs or investment conditions
warrant. Any new Sub-Accounts will be made available to existing Owners on a
basis to be determined by the Company. The Company may also eliminate one or
more Sub-Accounts if, in its sole discretion, marketing, tax or investment
conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contract as may be necessary
or appropriate to reflect such substitution or change. If deemed to be in the
best interests of persons having voting rights under the policies, the Variable
Account may be operated as a management company under the Investment Company Act
of 1940 or it may be deregistered under such Act in the event such registration
is no longer required.
Reinvestment
All dividends and capital gains distributions from the Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value.
Incontestability
The Contract will not be contested after it is issued.
Settlements
The Contract must be returned to the Company prior to any settlement. Due
proof of the Owner(s) or the Annuitant's (and any Joint Annuitant's) death must
be received prior to settlement of a death claim.
Safekeeping of the Variable Account's Assets
The Company holds title to the assets of the Variable Account. The assets
are kept physically segregated and held separate and apart from the Company's
general corporate assets. Records are maintained of all purchases and
redemptions of the Portfolio shares held by each of the Sub-Accounts.
The Dean Witter Variable Investment Series ("Fund") does not issue
certificates and, therefore, the Company holds the Account's assets in open
account in lieu of stock certificates. See the Fund's Prospectus for a more
complete description of the Fund's custodian.
8
<PAGE>
Experts
The financial statements of the Variable Account and the financial
statements and financial statement schedules of the Company appearing in this
Statement of Additional Information (which is incorporated by reference in the
prospectus of Allstate Life of New York Variable Annuity Account II of Allstate
Life Insurance Company of New York) have been audited by Deloitte & Touche LLP,
Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, Illinois, independent
auditors, as stated in their reports appearing herein and are included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
Legal Matters
Legal advice regarding certain matters relating to the federal securities
laws applicable to the issue and sale of the Contracts has been provided by
Routier and Johnson, P.C., of Washington, D.C.. All matters of New York law
pertaining to the Contracts, including the validity of the Contracts and the
Company's right to issue such Contracts under New York insurance law, have been
passed upon by Michael J. Velotta, General Counsel of Allstate Life Insurance
Company of New York.
FEDERAL TAX MATTERS
Introduction
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or receipt of distributions under an annuity contract
depend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
Taxation of Allstate Life Insurance Company of New York
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code. The following discussion assumes that the
Company is taxed as a life insurance company under Part I of Subchapter L. Since
the Variable Account is not an entity separate from the Company, and its
operations form a part of the Company, it will not be taxed separately as a
"regulated Investment Company" under Subchapter M of the Code. Investment income
and realized capital gains are automatically applied to increase reserves under
the contract. Under existing federal income tax law, the Company believes that
the Variable Account investment income and realized net capital gains will not
be taxed to the extent that such income and gains are applied to increase the
reserves under the contract.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Variable Account, and therefore the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the Company
being taxed on income or gains attributable to the Variable Account, then the
Company may impose a charge against the Variable Account (with respect to some
or all contracts) in order to set aside provisions to pay such taxes.
Exceptions to the Non-Natural Owner Rule
There are several exceptions to the general rule that contracts held by a
non-natural owner are not treated as annuity contracts for federal income tax
purposes. Contracts will generally be treated as held by a natural person if the
nominal owner is a trust or other entity which holds the contract as agent for a
natural person. However, this special exception will not apply
9
<PAGE>
in the case of an employer who is the nominal owner of an annuity contract under
a non-qualified deferred compensation arrangement for its employees. Other
exceptions to the non-natural owner rule are: (1) contracts acquired by an
estate of a decedent by reason of the death of the decedent; (2) certain
qualified contracts; (3) contracts purchased by employers upon the termination
of certain qualified plans; (4) certain contracts used in connection with
structured settlement agreements, and (5) contracts purchased with a single
premium when the annuity starting date is no later than a year from purchase of
the annuity and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period.
Penalty Tax on Premature Distributions
There is a 10% penalty tax on the taxable amount of any payment received
from a non-qualified annuity contract unless: (1) made after the owner reaches
59 1/2; (2) attributable to the owner's disability; (3) attributable to
investment before August 14, 1982, including earnings on pre-August 14, 1982
investment; (4) made from certain qualified contracts; (5) made after the death
of the owner; (6) made under an immediate annuity contract; (7) made from an
annuity purchased and held by an employer upon the termination of a qualified
retirement plan; (8) made under a qualified funding asset; (9) made as part of a
series of substantially equal periodic payments (not less frequently than
annually) for the life of or life expectancy of the owner or the joint lives of
joint life expectancies of the owner and designated beneficiary. Similar rules
apply in the case of qualified contracts.
IRS Required Distribution at Death Rules
In order to be considered an annuity contract for federal income tax
purposes, an annuity contract must provide: (1) if any owner dies on or after
the annuity start date but before the entire interest in the contract has been
distributed, the remaining portion of such interest must be distributed at least
as rapidly as under the method of distribution being used as of the date of the
owner's death; (2) if any owner dies prior to the annuity start date, the entire
interest in the contract will be distributed within five years after the date of
the owner's death. These requirements are satisfied if any portion of the
owner's interest which is payable to (or for the benefit of) a designated
beneficiary is distributed over the life of such beneficiary (or over a period
not extending beyond the life expectancy of the beneficiary) and the
distributions begin within one year of the owner's death. If the owner's
designated beneficiary is the surviving spouse of the owner, the contract may be
continued with the surviving spouse as the new owner. If the owner of the
contract is a non-natural person, then the annuitant will be treated as the
owner for purposes of applying the distribution at death rules. In addition, a
change in the annuitant on a contract owned by a non-natural person will be
treated as the death of the owner.
Qualified Plans
This annuity contract may be used with several types of qualified plans. The
tax rules applicable to participants in such qualified plans vary according to
the type of plan and the terms and conditions of the plan itself. Adverse tax
consequences may result from excess contributions, premature distributions,
distributions that do not conform to specified commencement and minimum
distribution rules, excess distributions and in other circumstances. Owners and
participants under the plan and annuitants and beneficiaries under the contract
may be subject to the terms and conditions of the plan regardless of the terms
of the contract.
10
<PAGE>
TYPES OF QUALIFIED PLANS
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity.
Individual Retirement Annuities are subject to limitations on the amount that
can be contributed and on the time when distributions may commence. Certain
distributions from other types of qualified plans may be "rolled over" on a
tax-deferred basis into an Individual Retirement Annuity.
Simplified Employee Pension Plans
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees using the employees' individual retirement
annuities if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to their individual retirement annuities.
Tax Sheltered Annuities
Section 403(b) of the Code permits public school employees and employees of
certain types of tax-exempt organizations (specified in Section 501(c)(3) of the
Code) to have their employers purchase annuity contracts for them, and subject
to certain limitations, to exclude the purchase payments from the employees'
gross income. An annuity contract used for a Section 403(b) plan must provide
that distributions attributable to salary reduction contributions made after
12/31/88, and all earnings on salary reduction contributions, may be made only
after the employee attains age 59 1/2, separates from service, dies, becomes
disabled or in the case of hardship (earnings on salary reduction contributions
may not be distributed for hardship).
Corporate and Self-Employed Pension and Profit Sharing Plans
Sections 401(a) and 403(a) of the Code permit corporate employers to
establish various types of tax favored retirement plans for employees. The
Self-Employed Individuals Retirement Act of 1962, as amended, (commonly referred
to as "H.R. 10" or "Keogh") permits self-employed individuals to establish tax
favored retirement plans for themselves and their employees. Such retirement
plans may permit the purchase of annuity contracts in order to provide benefits
under the plans.
State and Local Government and Tax-Exempt Organization Deferred Compensation
Plans
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current taxes. The employees must be participants in an eligible deferred
compensation plan. Generally, under the non-natural owner rules, such contracts
are not treated as annuity contracts for federal income tax purposes.
VOTING RIGHTS
The number of votes which a person has the right to instruct will be
calculated separately for each Sub-Account. That number will be determined by
applying his/her percentage interest, if any, in a particular Sub-Account to the
total number of votes attributable to the Sub-Account.
The number of votes of the Portfolio which an Owner has a right to instruct
will be determined as of the date coincident with the date established by that
Portfolio for determining shareholders eligible to vote at the meeting of the
Fund. Voting instructions will be solicited by written communication prior to
such meeting in accordance with procedures established by the Fund.
11
<PAGE>
Fund shares as to which no timely instructions are received will be voted in
proportion to the voting instructions which are received with respect to all
Contracts participating in that Sub-Account. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
Each person having a voting interest in a Sub-Account will receive proxy
material, reports and other materials relating to the appropriate Portfolio.
SALES COMMISSIONS
The Company pays Dean Witter for its underwriting and general agent's
services a sales commission of up to 6.0% of the Purchase Payments and sales
administration expense allowance of up to 0.125% of the average net assets of
the Fixed Account. These commissions are intended to cover Dean Witter's
expenses in distributing and selling the Contracts.
Under the Underwriting Agreement and Managing General Agent's Agreement
between Dean Witter and the Company, Dean Witter is responsible for paying costs
and expenses associated with licensing its agents, paying agent's commissions,
printing, mailing and distributing the Prospectus to prospective purchasers; and
preparing, printing and distributing sales literature. In the event the
commissions fail to adequately compensate Dean Witter for these expenses, Dean
Witter will pay these expenses from its own funds.
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK:
We have audited the accompanying Statements of Financial Position of Allstate
Life Insurance Company of New York (the "Company") as of December 31, 1996 and
1995, and the related Statements of Operations, Shareholder's Equity and Cash
Flows for each of the three years in the period ended December 31, 1996. Our
audits also included Schedule IV -- Reinsurance and Schedule V -- Valuation and
Qualifying Accounts. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Allstate Life Insurance Company of New York
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
Schedule IV -- Reinsurance and Schedule V -- Valuation and Qualifying Accounts,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 21, 1997
F-1
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
------------------------
1996 1995
----------- -----------
($ in thousands)
<S> <C> <C>
Assets
Investments
Fixed income securities, at fair value (amortized cost
$1,378,155 and $1,219,418)............................. $ 1,500,783 $ 1,424,893
Mortgage loans.......................................... 84,657 86,394
Policy loans............................................ 25,359 22,785
Short-term.............................................. 25,855 7,257
----------- -----------
Total investments................................... 1,636,654 1,541,329
Deferred acquisition costs................................ 61,559 53,944
Accrued investment income................................. 20,321 18,828
Reinsurance recoverables.................................. 2,566 3,331
Cash...................................................... 1,027 1,472
Other assets.............................................. 7,489 3,924
Separate Accounts......................................... 260,668 220,141
----------- -----------
Total assets........................................ $ 1,990,284 $ 1,842,969
----------- -----------
----------- -----------
Liabilities
Reserve for life-contingent contract benefits............. $ 911,457 $ 838,739
Contractholder funds...................................... 572,480 499,548
Deferred income taxes..................................... 3,692 23,659
Other liabilities and accrued expenses.................... 6,405 8,950
Net payable to affiliates................................. 2,515 1,865
Separate Accounts......................................... 260,668 220,141
----------- -----------
Total liabilities................................... 1,757,217 1,592,902
----------- -----------
Shareholder's Equity
Common stock, $25 par value, 80,000 shares authorized,
issued and outstanding................................... 2,000 2,000
Additional capital paid-in................................ 45,787 45,787
Unrealized net capital gains.............................. 36,852 74,413
Retained income........................................... 148,428 127,867
----------- -----------
Total shareholder's equity.......................... 233,067 250,067
----------- -----------
Total liabilities and shareholder's equity.......... $ 1,990,284 $ 1,842,969
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
($ in thousands)
<S> <C> <C> <C>
Revenues
Life and annuity premiums (net of reinsurance ceded of
$2,273, $2,147 and $2,198)............................... $ 91,825 $ 126,713 $ 70,070
Contract charges.......................................... 25,281 21,603 18,490
Net investment income..................................... 112,862 104,384 96,911
Realized capital gains and losses......................... (1,581) (1,846) 778
--------- --------- ---------
228,387 250,854 186,249
--------- --------- ---------
Costs and expenses
Life and annuity contract benefits (net of reinsurance
recoveries of $2,827, $1,581 and $1,860)................. 172,772 198,055 137,434
Amortization of deferred acquisition costs................ 6,512 5,502 3,875
Operating costs and expenses.............................. 16,874 17,864 16,330
Early retirement program.................................. -- -- 1,210
--------- --------- ---------
196,158 221,421 158,849
--------- --------- ---------
Income from operations before income tax expense............ 32,229 29,433 27,400
Income tax expense.......................................... 11,668 9,911 9,179
--------- --------- ---------
Net income.................................................. $ 20,561 $ 19,522 $ 18,221
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
($ in thousands)
<S> <C> <C> <C>
Common stock................................................ $ 2,000 $ 2,000 $ 2,000
--------- --------- ---------
Additional capital paid-in.................................. 45,787 45,787 45,787
--------- --------- ---------
Unrealized net capital gains and losses
Balance, beginning of year.................................. 74,413 (6,891) 25,391
Net (decrease) increase..................................... (37,561) 81,304 (32,282)
--------- --------- ---------
Balance, end of year...................................... 36,852 74,413 (6,891)
--------- --------- ---------
Retained income
Balance, beginning of year.................................. 127,867 108,345 90,124
Net income.................................................. 20,561 19,522 18,221
--------- --------- ---------
Balance, end of year...................................... 148,428 127,867 108,345
--------- --------- ---------
Total shareholder's equity.................................. $ 233,067 $ 250,067 $ 149,241
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
($ in thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................ $ 20,561 $ 19,522 $ 18,221
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation, amortization and other non-cash items..... (26,172) (22,348) (18,969)
Realized capital gains and losses....................... 1,581 1,846 (778)
Interest credited to contractholder funds............... 25,817 26,924 27,233
Increase in life-contingent contract benefits and
contractholder funds................................... 75,217 103,513 55,233
Increase in deferred acquisition costs.................. (6,859) (5,537) (6,850)
Increase in accrued investment income................... (1,493) (2,497) (102)
Change in deferred income taxes......................... 257 (2,677) (5,993)
Changes in other operating assets and liabilities......... (4,234) 3,897 (18,082)
---------- ---------- ----------
Net cash provided by operating activities............. 84,675 122,643 49,913
---------- ---------- ----------
Cash flows from investing activities
Proceeds from sales of fixed income securities............ 28,454 13,526 49,903
Investment collections
Fixed income securities available for sale.............. 72,751 30,871 54,796
Fixed income securities held to maturity................ -- 3,067 17,186
Mortgage loans.......................................... 12,508 6,499 9,744
Investment purchases
Fixed income securities available for sale.............. (236,252) (142,205) (137,684)
Fixed income securities held to maturity................ -- (32,046) (38,709)
Mortgage loans.......................................... (10,325) (9,864) (10,132)
Change in short-term investments, net..................... (18,598) (45) 41,528
Change in policy loans, net............................... (2,574) (859) (2,133)
---------- ---------- ----------
Net cash used in investing activities................. (154,036) (131,056) (15,501)
---------- ---------- ----------
Cash flows from financing activities
Contractholder fund deposits.............................. 115,420 76,534 57,468
Contractholder fund withdrawals........................... (46,504) (68,412) (92,574)
---------- ---------- ----------
Net cash provided by (used in) financing activities... 68,916 8,122 (35,106)
---------- ---------- ----------
Net decrease in cash........................................ (445) (291) (694)
Cash at beginning of year................................... 1,472 1,763 2,457
---------- ---------- ----------
Cash at end of year......................................... $ 1,027 $ 1,472 $ 1,763
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
1. General
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Allstate Life
Insurance Company of New York (the "Company"). The Company is wholly owned by a
wholly owned subsidiary ("Parent") of Allstate Insurance Company ("AIC"), a
wholly owned subsidiary of The Allstate Corporation (the "Corporation"). On June
30, 1995, Sears, Roebuck and Co. ("Sears") distributed its 80.3% ownership in
the Corporation to Sears common shareholders through a tax-free dividend (the
"Distribution"). These financial statements have been prepared in conformity
with generally accepted accounting principles.
To conform with the 1996 presentation, certain items in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets a broad line of life insurance and annuity products in
the State of New York. Life insurance includes traditional products such as
whole life and term life insurance, as well as universal life and other
interest-sensitive life products. Annuities include deferred annuities, such as
variable annuities and fixed rate single and flexible premium annuities, and
immediate annuities such as structured settlement annuities. The Company
distributes its products using a combination of Allstate agents, banks and other
financial institutions, brokers and direct response marketing.
Structured settlement annuity contracts issued by the Company are long-term
in nature and involve fixed guarantees relating to the amount and timing of
benefit payments. In addition, single and flexible premium deferred annuity
contracts issued by the Company are subject to discretionary withdrawal or
surrender by the contractholder, subject to applicable surrender charges. In a
low interest rate environment, funds from maturing investments, particularly
those supporting long-term structured settlement annuity obligations, may be
reinvested at substantially lower interest rates than those which prevailed when
the funds were previously invested.
The Company utilizes various modeling techniques in managing the
relationship between assets and liabilities. The fixed income securities
supporting the Company's obligations have been selected to meet, to the extent
possible, the anticipated cash flow requirements of the related liabilities. The
Company employs strategies to minimize its exposure to interest rate risk and to
maintain investments which are sufficiently liquid to meet obligations to
contractholders in various interest rate scenarios.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal
legislation and regulation that would allow banks greater participation in
securities and insurance businesses, which could present an increased level of
competition for sales of the Company's annuity contracts. Furthermore, the
market for deferred annuities and interest-sensitive life insurance is enhanced
by the tax incentives available under current law. Any legislative changes which
lessen these incentives are likely to negatively impact the market for these
products.
F-6
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
2. Summary of Significant Accounting Policies
INVESTMENTS
Fixed income securities include bonds and mortgage-backed and asset-backed
securities. All fixed income securities are carried at fair value and may be
sold prior to their contractual maturity ("available for sale"). The difference
between amortized cost and fair value, net of deferred income taxes, certain
deferred acquisition costs and reserves for life-contingent contract benefits,
is reflected as a component of shareholder's equity. Provisions are recognized
for declines in the value of fixed income securities that are other than
temporary. Such writedowns are included in realized capital gains and losses.
Mortgage loans are carried at outstanding principal balance, net of
unamortized premium or discount and valuation allowances. Valuation allowances
are established for impaired loans when it is probable that contractual
principal and interest will not be collected. Valuation allowances for impaired
loans reduce the carrying value to the fair value of the collateral or the
present value of the loan's expected future repayment cash flows discounted at
the loan's original effective interest rate. Valuation allowances on loans not
considered to be impaired are established based on consideration of the
underlying collateral, borrower financial strength, current and expected future
market conditions and other factors.
Short-term investments are carried at cost which approximates fair value.
Policy loans are carried at the unpaid principal balances.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed and asset-backed securities is
determined on the effective yield method, based on estimated principal
repayments. Accrual of income is suspended for fixed income securities and
mortgage loans that are in default or when the receipt of interest payments is
in doubt. Realized capital gains and losses are determined on a specific
identification basis.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes futures contracts which are derivative financial
instruments. When futures meet specific criteria they may be designated as
accounting hedges and accounted for on a deferral basis, depending upon the
nature of the hedge strategy, and the method used to account for the hedged
item.
If, subsequent to entering into a hedge transaction, the future becomes
ineffective (including if the hedged item is sold or otherwise extinguished or
the occurrence of a hedged anticipatory transaction is no longer probable), the
Company terminates the derivative position. Gains and losses on these
terminations are reported in realized capital gains and losses in the period
they occur. The Company may also terminate the derivatives as a result of other
events or circumstances. Gains and losses on these terminations are either
deferred and amortized over the remaining life of the hedged item or are
reported in shareholder's equity, consistent with the accounting for the hedged
item.
When the Company uses futures as hedging instruments, the derivative must
reduce the primary market risk exposure on an enterprise basis in conjunction
with the hedge strategy; be designated as a hedge at the inception of the
transaction; and be highly correlated with the fair value of, or interest income
or expense associated with, the hedged item at inception and throughout the
hedge period.
F-7
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
2. Summary of Significant Accounting Policies (Continued)
Under deferral accounting, gains and losses on derivatives are deferred on
the statement of financial position and recognized in earnings in conjunction
with earnings on the hedged item. The Company accounts for interest rate futures
as hedges using deferral accounting for anticipatory investment purchases and
sales when the criteria discussed above are met. In addition, anticipated
transactions must be probable of occurrence and their significant terms and
characteristics identified.
Changes in fair values of these derivatives are initially deferred as other
liabilities and accrued expenses. Once the anticipated transaction occurs, the
deferred gains or losses are considered part of the cost basis of the asset and
reported net of tax in shareholder's equity or recognized as a gain or loss from
disposition of the asset, as appropriate. The Company reports initial margin
deposits on futures in short-term investments. Fees and commissions paid on
these derivatives are also deferred as an adjustment to the carrying value of
the hedged item.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Premiums for traditional life insurance are recognized as revenue when due.
Accident and disability premiums are earned on a pro rata basis over the policy
period. Revenues on interest-sensitive life insurance contracts are comprised of
contract charges and fees, and are recognized when assessed against the
policyholder account balance. Revenues on investment contracts include contract
charges and fees for contract administration and surrenders. These revenues are
recognized when levied against the contract balances. Gross premium in excess of
the net premium on limited payment contracts, primarily structured settlement
annuities when sold with life contingencies, are deferred and recognized over
the contract period.
REINSURANCE
Certain premiums and contract benefits are ceded and reflected net of such
cessions in the statements of operations. Reinsurance recoverable and the
related reserves for life-contingent contract benefits are reported separately
in the statements of financial position. The Company continues to have primary
liability as the direct insurer for risks reinsured.
DEFERRED ACQUISITION COSTS
Certain costs of acquiring life and annuity business, principally agents'
remuneration, premium taxes, certain underwriting costs and direct mail
solicitation expenses are deferred and amortized to income. For traditional
life, limited payment contracts and accident and disability, these costs are
amortized in proportion to the estimated revenues on such business. For
interest-sensitive life insurance and investment contracts, the costs are
amortized in relation to the present value of estimated gross profits on such
business. Changes in the amount or timing of estimated gross profits will result
in adjustments in the cumulative amortization of these costs. To the extent that
unrealized gains or losses on fixed income securities carried at fair value
would result in an adjustment of deferred acquisition costs had those gains or
losses actually been realized, the related unamortized deferred acquisition
costs are recorded as a reduction of the unrealized gains or losses included in
shareholder's equity.
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities and the enacted tax
regulations. The principal assets and liabilities giving rise to such
differences are insurance reserves and deferred acquisition costs. Deferred
income taxes also arise from unrealized capital gains or losses on fixed income
securities carried at fair value.
F-8
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
2. Summary of Significant Accounting Policies (Continued)
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity contracts, the
assets and liabilities of which are legally segregated and reflected in the
accompanying statements of financial position as assets and liabilities of the
Separate Accounts. Assets and liabilities of the Separate Accounts represent
funds of Allstate Life of New York Variable Annuity Account, Allstate Life of
New York Variable Annuity Account II and Allstate Life of New York Separate
Account A ("Separate Accounts"), unit investment trusts registered with the
Securities and Exchange Commission.
Assets of the Separate Accounts are invested in funds of management
investment companies, and are carried at fair value. Investment income and
realized capital gains and losses of the Separate Accounts accrue directly to
the contractholders and, therefore, are not included in the Company's statements
of operations. Revenues to the Company from the Separate Accounts consist of
contract maintenance fees, administration fees and mortality and expense risk
charges.
RESERVES FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to
traditional life insurance, group annuities and structured settlement annuities
with life contingencies, disability insurance and accident insurance, is
computed on the basis of assumptions as to future investment yields, mortality,
morbidity, terminations and expenses. These assumptions, which for traditional
life insurance are applied using the net level premium method, include
provisions for adverse deviation and generally vary by such characteristics as
type of coverage, year of issue and policy duration. Reserve interest rates
ranged from 4.0% to 9.51% during 1996. To the extent that unrealized gains on
available for sale securities would result in a premium deficiency had those
gains actually been realized, the related increase in reserves is recorded as a
reduction of the unrealized gains included in shareholder's equity.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group
contracts that include an investment component, including most annuities and
interest-sensitive life insurance contracts. Payments received are recorded as
interest-bearing liabilities. Contractholder funds are equal to deposits
received and interest credited to the benefit of the contractholder less
withdrawals, mortality charges and administrative expenses. Credited interest
rates on contractholder funds ranged from 3.1% to 9.75% for those contracts with
fixed interest rates and from 3.55% to 8.42% for those with flexible rates
during 1996.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Commitments to extend mortgage loans have only off-balance-sheet risk
because their contractual amounts are not recorded in the Company's statements
of financial position.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-9
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
3. Related Party Transactions
REINSURANCE
The Company cedes business to the Parent under reinsurance treaties to limit
aggregate and single exposures on large risks. Premiums and policy benefits
ceded totaled $1,383 and $1,662 in 1996, $1,259 and $278 in 1995, and $1,181 and
$1,877 in 1994, respectively. Included in the reinsurance recoverable at
December 31, 1996 and 1995 are amounts due from the Parent of $965 and $1,212.
STRUCTURED SETTLEMENT ANNUITIES
AIC, through an affiliate, purchased $15,610, $11,243, and $7,568 of
structured settlement annuities from the Company in 1996, 1995 and 1994,
respectively. Of these amounts, $8,517, $4,164 and $1,221 relate to structured
settlement annuities with life contingencies and are included in premium income
in 1996, 1995 and 1994, respectively. Additionally, the reserve for
life-contingent contract benefits was increased by approximately 94% of such
premium received in each of these years.
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on its behalf. The cost to the
Company is determined by various allocation methods and is primarily related to
the level of the services provided. Expenses allocated to the Company were
$23,134, $21,288 and $17,320 in 1996, 1995 and 1994, respectively. A portion of
these expenses related to the acquisition of life and annuity business is
deferred and amortized over the contract period.
F-10
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
4. Investments
FAIR VALUES
The amortized cost, gross unrealized gains and losses and fair value for
fixed income securities are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized -------------------- Fair
At December 31, 1996 Cost Gains Losses Value
- --------------------------------------------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
U.S. government and agencies................. $ 387,806 $ 54,349 $ (2,642) $ 439,513
Municipal.................................... 36,158 1,883 (406) 37,635
Corporate.................................... 734,500 68,022 (4,592) 797,930
Mortgage-backed securities................... 188,480 6,793 (1,106) 194,167
Asset-backed securities...................... 31,211 394 (67) 31,538
----------- --------- --------- -----------
Total fixed income securities............ $ 1,378,155 $ 131,441 $ (8,813) $ 1,500,783
----------- --------- --------- -----------
----------- --------- --------- -----------
<CAPTION>
At December 31, 1995
- ---------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and agencies................. $ 336,331 $ 99,750 $ (526) $ 435,555
Municipal.................................... 36,002 2,831 (92) 38,741
Corporate.................................... 633,731 92,073 (767) 725,037
Mortgage-backed securities................... 189,436 11,600 (164) 200,872
Asset-backed securities...................... 23,918 770 -- 24,688
----------- --------- --------- -----------
Total fixed income securities............ $ 1,219,418 $ 207,024 $ (1,549) $ 1,424,893
----------- --------- --------- -----------
----------- --------- --------- -----------
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at
December 31, 1996:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less................................................ $ 16,350 $ 16,842
Due after one year through five years.................................. 85,776 89,809
Due after five years through ten years................................. 228,717 240,079
Due after ten years.................................................... 827,621 928,348
----------- -----------
1,158,464 1,275,078
Mortgage-backed and asset-backed securities.......................... 219,691 225,705
----------- -----------
Total.............................................................. $ 1,378,155 $ 1,500,783
----------- -----------
----------- -----------
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers.
F-11
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
4. Investments (Continued)
NET INVESTMENT INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed income securities...................................... $ 104,583 $ 95,212 $ 88,149
Mortgage loans............................................... 7,113 7,999 8,092
Other........................................................ 2,942 2,744 2,246
--------- --------- ---------
Investment income, before expense........................ 114,638 105,955 98,487
Investment expense....................................... 1,776 1,571 1,576
--------- --------- ---------
Net investment income.................................... $ 112,862 $ 104,384 $ 96,911
--------- --------- ---------
--------- --------- ---------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed income securities...................................... $ (1,522) $ 422 $ 1,570
Mortgage loans............................................... (59) (2,268) (792)
--------- --------- ---------
Realized capital losses and gains.......................... (1,581) (1,846) 778
Income taxes............................................... (553) (646) 272
--------- --------- ---------
Realized capital losses and gains, after tax............... $ (1,028) $ (1,200) $ 506
--------- --------- ---------
--------- --------- ---------
</TABLE>
PROCEEDS FROM SALES OF FIXED INCOME SECURITIES
Proceeds from sales of investments in fixed income securities were $28,454,
$13,526 and $49,903 in 1996, 1995 and 1994, respectively. Gross gains of $480,
$172 and $1,743 and gross losses of $2,308, $105 and $973 were realized on sales
of fixed income securities during 1996, 1995 and 1994, respectively.
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Cost/ Unrealized
Amortized Fair Net
Cost Value Gains
----------- ----------- -----------
<S> <C> <C> <C>
Fixed income securities................................. $ 1,378,155 $ 1,500,783 $ 122,628
----------- -----------
----------- -----------
Reserves for life insurance policy benefits............. (65,300)
Deferred income taxes................................... (19,844)
Deferred acquisition costs and other.................... (632)
-----------
Unrealized net capital gains........................ $ 36,852
-----------
-----------
</TABLE>
F-12
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
4. Investments (Continued)
CHANGE IN UNREALIZED NET CAPITAL GAINS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed income securities.................................... $ (82,847) $ 216,975 $ (52,740)
Reserves for life insurance policy benefits................ 24,300 (89,600) --
Deferred income taxes...................................... 20,224 (43,779) 17,382
Deferred acquisition costs and other....................... 762 (2,292) 3,076
--------- --------- ---------
Change in unrealized net capital gains................. $ (37,561) $ 81,304 $ (32,282)
--------- --------- ---------
--------- --------- ---------
</TABLE>
INVESTMENT LOSS PROVISIONS AND VALUATION ALLOWANCES
Pretax provisions for investment losses, principally relating to other than
temporary declines in value on fixed income securities and valuation allowances
on mortgage loans were $208, $2,448 and $627 in 1996, 1995 and 1994,
respectively.
MORTGAGE LOAN IMPAIRMENT
A mortgage loan is impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement.
The Company had no impaired loans at December 31, 1996. The net carrying
value of impaired loans at December 31, 1995 was $9,647, measured at the fair
value of the collateral. The total investment in impaired mortgage loans before
valuation allowance at December 31, 1995 was $11,581 and the related allowance
on these impaired loans was $1,934.
Activity in the valuation allowance for all mortgage loans for the years
ended December 31, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Balance at January 1..................................................... $ 1,952 $ 1,179
Additions.............................................................. 207 1,930
Direct write-downs..................................................... (1,934) (1,157)
--------- ---------
Balance at December 31................................................... $ 225 $ 1,952
--------- ---------
--------- ---------
</TABLE>
Interest income is recognized on a cash basis for impaired loans carried at
the fair value of the collateral, beginning at the time of impairment. For other
impaired loans, interest is accrued based on the net carrying value. The Company
recognized interest income of $281 and $1,398 on impaired loans during 1996 and
1995, respectively, of which $281 and $1,194 was received in cash during 1996
and 1995, respectively. The average recorded investment in impaired loans was
$5,154 and $8,900 during 1996 and 1995, respectively.
F-13
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
4. Investments (Continued)
INVESTMENT CONCENTRATION FOR MUNICIPAL BOND AND COMMERCIAL MORTGAGE
PORTFOLIOS AND OTHER INVESTMENT INFORMATION
The Company maintains a diversified portfolio of municipal bonds. The
largest concentrations in the portfolio are presented below. Except for the
following, holdings in no other state exceeded 2.7% of the carrying value of the
portfolio at December 31, 1996:
(% of municipal bond portfolio carrying value)
<TABLE>
<CAPTION>
At December 31,
--------------------
1996 1995
--- ---
<S> <C> <C>
Ohio..................................................................... 25.9% 26.8%
California............................................................... 24.3 23.1
Illinois................................................................. 19.0 19.7
Maryland................................................................. 7.8 7.6
Maine.................................................................... 5.7 5.7
New York................................................................. 5.3 5.3
Minnesota................................................................ 5.3 5.2
</TABLE>
The Company's mortgage loans are collateralized by a variety of commercial
real estate property types located throughout the United States. Substantially
all of the commercial mortgage loans are non-recourse to the borrower. The
states with the largest portion of the commercial mortgage loan portfolio are as
listed below. Except for the following, holdings in no other state exceed 2.3%
of the portfolio at December 31, 1996:
(% of commercial mortgage portfolio carrying value)
<TABLE>
<CAPTION>
At December 31,
--------------------
1996 1995
--- ---
<S> <C> <C>
California............................................................... 49.1% 56.7%
Illinois................................................................. 21.3 22.9
New York................................................................. 21.1 11.1
</TABLE>
F-14
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
4. Investments (Continued)
The types of properties collateralizing the commercial mortgage loans are as
follows:
(% of commercial mortgage portfolio carrying value)
<TABLE>
<CAPTION>
At December 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Retail................................................................... 39.1% 39.5%
Warehouse................................................................ 24.2 32.1
Apartment complex........................................................ 14.6 4.5
Office buildings......................................................... 14.3 16.0
Industrial............................................................... 6.8 6.9
Other.................................................................... 1.0 1.0
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1996, fixed income securities with a carrying value of
$1,829 were on deposit with regulatory authorities as required by law.
5. Financial Instruments
In the normal course of business, the Company invests in various financial
assets, incurs various financial liabilities and enters into agreements
involving derivative financial instruments and other off-balance-sheet financial
instruments. The fair value estimates of financial instruments presented below
are not necessarily indicative of the amounts the Company might pay or receive
in actual market transactions. Potential taxes and other transaction costs have
not been considered in estimating fair value. The disclosures that follow do not
reflect the fair value of the Company as a whole since a number of the Company's
significant assets (including deferred acquisition costs and reinsurance
recoverables) and liabilities (including reserve for life-contingent contract
benefits and deferred income taxes) are not considered financial instruments and
are not carried at fair value. Other assets and liabilities considered financial
instruments, including accrued investment income and cash, are generally of a
short-term nature. It is assumed that their carrying value approximates fair
value.
FINANCIAL ASSETS
<TABLE>
<CAPTION>
Carrying
At December 31, 1996 Value Fair Value
- ----------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Fixed income securities.......................................... $ 1,500,783 $ 1,500,783
Mortgage loans................................................... 84,657 83,789
Short-term investments........................................... 25,855 25,855
Policy loans..................................................... 25,359 25,359
Separate Accounts................................................ 260,668 260,668
</TABLE>
F-15
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
5. Financial Instruments (Continued)
<TABLE>
<CAPTION>
Carrying
At December 31, 1995 Value Fair Value
- ----------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Fixed income securities.......................................... $ 1,424,893 $ 1,424,893
Mortgage loans................................................... 86,394 89,517
Short-term investments........................................... 7,257 7,257
Policy loans..................................................... 22,785 22,785
Separate Accounts................................................ 220,141 220,141
</TABLE>
Carrying value and fair value include the effects of derivative financial
instruments where applicable.
Fair values for fixed income securities are based on quoted market prices
where available. Non-quoted securities are valued based on discounted cash flows
using current interest rates for similar securities. Mortgage loans are valued
based on discounted contractual cash flows. Discount rates are selected using
current rates at which similar loans would be made to borrowers with similar
characteristics, using similar properties as collateral. Loans that exceed 100%
loan-to-value are valued at the estimated fair value of the underlying
collateral. Short-term investments are highly liquid investments with maturities
of less than one year whose carrying value approximates fair value. The carrying
value of policy loans approximates its fair value. Assets of the Separate
Accounts are carried in the statements of financial position at fair value.
FINANCIAL LIABILITIES
<TABLE>
<CAPTION>
Carrying Fair
At December 31, 1996 Value Value
- ------------------------------------------------------------------- ------------- ---------
<S> <C> <C>
Contractholder funds on investment contracts....................... $ 421,642 $ 430,696
Separate Accounts.................................................. 260,668 260,668
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995
- -------------------------------------------------------------------
<S> <C> <C>
Contractholder funds on investment contracts....................... $ 366,481 $ 392,111
Separate Accounts.................................................. 220,141 220,141
</TABLE>
The fair value of contractholder funds on investment contracts is based on
the terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
F-16
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
5. Financial Instruments (Continued)
Derivative Financial Instruments
The Company primarily uses derivative financial instruments to reduce its
exposure to interest rate risk in conjunction with asset/liability management.
The Company does not hold or issue these instruments for trading purposes. The
following table summarizes the contract or notional amount, credit exposure,
fair value and carrying value of the Company's derivative financial instruments:
<TABLE>
<CAPTION>
Contract/
Notional Credit Carrying Fair
At December 31, 1996 Amount Exposure Value Value
- --------------------------------------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Financial futures contracts.................. $ 6,700 $ -- $ 266 $ 56
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995
- ---------------------------------------------
<S> <C> <C> <C> <C>
Financial futures contracts.................. $ 22,900 $ -- $ 576 $ --
</TABLE>
The contract or notional amounts are used to calculate the exchange of
contractual payments under the agreements and are not representative of the
potential for gain or loss on these agreements.
Credit exposure represents the Company's potential loss if all of the
counterparties failed to perform under the contractual terms of the contracts
and all collateral, if any, became worthless. This exposure is represented by
the fair value of contracts with a positive fair value at the reporting date
reduced by the effect, if any, of master netting agreements.
The Company manages its exposure to credit risk by utilizing highly rated
counterparties, establishing risk control limits, executing legally enforceable
master netting agreements and obtaining collateral where appropriate. To date,
the Company has not incurred any losses on derivative financial instruments due
to counterparty nonperformance.
Fair value is the estimated amount that the Company would receive (pay) to
terminate or assign the contracts at the reporting date, thereby taking into
account the current unrealized gains or losses of open contracts. Deal and
exchange quotes are available for the Company's derivatives.
Financial futures are commitments to either purchase or sell designated
financial instruments at a future date for a specified price or yield. They may
be settled in cash or through delivery. As part of its asset/liability
management, the Company generally utilizes futures contracts to manage its
market risk related to fixed income securities and anticipatory investment
purchases and sales. Futures used as hedges of anticipatory transactions pertain
to identified transactions which are probable to occur and are generally
completed within ninety days. Futures contracts have limited off-balance-sheet
credit risk as they are executed on organized exchanges and require security
deposits, as well as the daily cash settlement of margins.
Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. Market risk exists for all of the derivative
financial instruments that the Company currently holds, as these instruments may
become less valuable due to adverse changes in market conditions. The Company
mitigates this risk through established risk limits set by senior management. In
addition, the change in the value of the Company's derivative financial
instruments designated as hedges are generally offset by the change in the value
of the related assets.
F-17
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Commitments to extend mortgage loans are agreements to lend to a customer
provided there is no violation of any condition established in the contract. The
Company enters these agreements to commit to future loan fundings at a
predetermined interest rate. Commitments generally have fixed expiration dates
or other termination clauses. Commitments to extend mortgage loans, which are
secured by the underlying properties, are valued based on estimates of fees
charged by other institutions to make similar commitments to similar borrowers.
At December 31, 1996, the Company had $6,190 in mortgage loan commitments which
had a fair value of $62. No such commitments existed at December 31, 1995.
6. Income Taxes
Consolidated federal income tax returns are filed by the Corporation and its
eligible subsidiaries, including the Company. Tax liabilities and benefits
realized by the consolidated group are allocated as generated by the respective
entities.
Prior to the Distribution, the Corporation and all of its domestic
subsidiaries, including the Company, (the "Allstate Group") joined with Sears
and its domestic business units (the "Sears Group") in the filing of a
consolidated federal income tax return (the "Sears Tax Group") and were parties
to a federal income tax allocation agreement (the "Tax Sharing Agreement").
Under the Tax Sharing Agreement, the Company, through the Corporation, paid to
or received from the Sears Group the amount, if any, by which the Sears Tax
Group's federal income tax liability was affected by virtue of inclusion of the
Company in the consolidated federal income tax return. Effectively, this
resulted in the Company's annual income tax provision being computed as if the
Company filed a separate return, except that items such as net operating losses,
capital losses or similar items, which might not be recognized in a separate
return, were allocated according to the Tax Sharing Agreement.
The Allstate Group and Sears Group have entered into an agreement which
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Distribution ("Consolidated Tax Years"). The
agreement provides that all Consolidated Tax Years will continue to be governed
by the Tax Sharing Agreement with respect to the Company's federal income tax
liability.
F-18
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
6. Income Taxes (Continued)
The components of the deferred income tax assets and liabilities at December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
At December 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred assets
Life-contingent contract reserves....................................... $ 27,951 $ 25,562
Difference in tax bases of investments.................................. 270 1,536
Loss on disposal of discontinued operations............................. 375 376
Other postretirement benefits........................................... 524 496
Other assets............................................................ 1,789 1,701
--------- ---------
Total deferred assets................................................. 30,909 29,671
--------- ---------
Deferred liabilities
Unrealized net capital gains............................................ (19,844) (40,069)
Deferred acquisition costs.............................................. (14,020) (12,655)
Prepaid commission expense.............................................. (717) (578)
Other liabilities....................................................... (20) (28)
--------- ---------
Total deferred liabilities............................................ (34,601) (53,330)
--------- ---------
Net deferred liability................................................ $ (3,692) $ (23,659)
--------- ---------
--------- ---------
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current........................................................ $ 11,411 $ 12,588 $ 15,172
Deferred....................................................... 257 (2,677) (5,993)
--------- --------- ---------
Total income tax expense..................................... $ 11,668 $ 9,911 $ 9,179
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company paid income taxes of $11,968, $11,000 and $27,682 in 1996, 1995
and 1994, respectively, to the Parent. The Company had an income tax recoverable
from the Parent of $105 at December 31, 1996, and an income tax payable of
$1,729 at December 31, 1995.
Prior to January 1, 1984, the Company was entitled to exclude certain
amounts from taxable income and accumulate such amounts in a "policyholder
surplus" account. The balance in this account at December 31, 1996,
approximately $389, will result in taxes payable of $136 if distributed by the
Company to the Parent. No provision for taxes has been made as the Company has
no plan to distribute amounts from this account. No further additions to the
account are allowed under the Tax Reform Act of 1984.
F-19
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
7. Statutory Financial Information
The following tables reconcile net income and shareholder's equity as
reported herein in conformity with generally accepted accounting principles with
statutory net income and capital and surplus, determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities:
<TABLE>
<CAPTION>
Net Income
-------------------------------
Year Ended December 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance per generally accepted accounting principles.......... $ 20,561 $ 19,522 $ 18,221
Deferred acquisition costs.................................. (6,859) (5,537) (6,850)
Deferred income taxes....................................... 257 (2,677) (5,993)
Non-admitted assets and statutory reserves.................. 6,224 12,786 6,900
Other postretirement and postemployment benefits............ (34) 71 105
Other....................................................... (2,004) (965) (1,442)
--------- --------- ---------
Balance per statutory accounting practices.................... $ 18,145 $ 23,200 $ 10,941
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Shareholder's Equity
---------------------
At December 31,
---------------------
1996 1995
--------- ----------
<S> <C> <C>
Balance per generally accepted accounting principles.......... $ 233,067 $ 250,067
Deferred acquisition costs.................................. (61,559) (53,944)
Deferred income taxes....................................... 3,692 23,659
Unrealized net capital gains................................ (57,102) (114,500)
Non-admitted assets and statutory reserves.................. 48,426 43,624
Other postretirement and postemployment benefits............ 968 1,058
Other....................................................... (2,473) (1,667)
--------- ----------
Balance per statutory accounting practices.................... $ 165,019 $ 148,297
--------- ----------
--------- ----------
</TABLE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the New York
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners,
as well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed.The Company does not follow any permitted statutory accounting
practices that have a material effect on statutory surplus or risk-based
capital.
F-20
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (Continued)
($ in thousands)
7. Statutory Financial Information (Continued)
DIVIDENDS
The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant factors.
Under New York Insurance Law, a notice of intention to distribute any dividend
must be filed with the New York Superintendent of Insurance not less than 30
days prior to the distribution. Such proposed declaration is subject to the
Superintendent's disapproval.
8. Benefit Plans
PENSION PLANS
Defined benefit pension plans, sponsored by the Corporation, cover domestic
full-time employees and certain part-time employees. Benefits under the pension
plans are based upon the employee's length of service, average annual
compensation and estimated social security retirement benefits. The
Corporation's funding policy for the pension plans is to make annual
contributions in accordance with accepted actuarial cost methods. The costs to
the Company included in net income were $490, $446, and $344 for the pension
plans in 1996, 1995 and 1994, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Corporation provides certain health care and life insurance benefits for
retired employees. Qualified employees may become eligible for these benefits if
they retire in accordance with the Corporation's established retirement policy
and are continuously insured under the Corporation's group plans or other
approved plans for 10 or more years prior to retirement. The Corporation shares
the cost of the retiree medical benefits with retirees based on years of service
with the Corporation's share being subject to a 5% limit on annual medical cost
inflation after retirement. The Corporation's postretirement benefit plans
currently are not funded. The Corporation has the right to modify or terminate
these plans.
PROFIT SHARING FUND
Employees of the Corporation and its domestic subsidiaries are also eligible
to become members of The Savings and Profit Sharing Fund of Allstate Employees
("Allstate Plan"). The Corporation contributions are based on the Corporation's
matching obligation and performance. The Allstate Plan includes an Employee
Stock Ownership Plan ("Allstate ESOP") to pre-fund a portion of the
Corporation's anticipated contribution. The Allstate Plan and the Allstate ESOP
split from The Savings and Profit Sharing Fund of Sears Employees ("Sears Plan")
on the date of the Distribution. In connection with this, the Corporation paid
Sears $327 million, and in return received a note from the Allstate ESOP for a
like principal amount and 50% of the unallocated shares. The Corporation will
make contributions to the Allstate ESOP annually in the amount necessary to
allow the Allstate ESOP to fund interest and principal payments on the note
after considering the dividends paid on ESOP shares, which are available for
debt service. The Company's defined contribution to the Allstate Plan was $111
and $141 in 1996 and 1995, respectively. The cost to the Company prior to the
Distribution and the split from the Sears Plan was $123 in 1994.
F-21
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE IV--REINSURANCE
($ in thousands)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Gross
amount Ceded Net amount
----------- --------- -----------
<S> <C> <C> <C>
Life insurance in force................................. $ 9,962,300 $ 553,628 $ 9,408,672
----------- --------- -----------
----------- --------- -----------
Premiums and contract charges:
Life and annuities.................................... $ 114,296 $ 1,398 $ 112,898
Accident and health................................... 5,044 834 4,210
----------- --------- -----------
$ 119,340 $ 2,232 $ 117,108
----------- --------- -----------
----------- --------- -----------
</TABLE>
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Gross
amount Ceded Net amount
----------- --------- -----------
<S> <C> <C> <C>
Life insurance in force................................. $ 8,513,295 $ 398,025 $ 8,115,270
----------- --------- -----------
----------- --------- -----------
Premiums and contract charges:
Life and annuities.................................... $ 146,732 $ 1,246 $ 145,486
Accident and health................................... 3,731 901 2,830
----------- --------- -----------
$ 150,463 $ 2,147 $ 148,316
----------- --------- -----------
----------- --------- -----------
</TABLE>
Year Ended December 31, 1994
<TABLE>
<CAPTION>
Gross
amount Ceded Net amount
----------- --------- -----------
<S> <C> <C> <C>
Life insurance in force................................. $ 7,598,374 $ 321,623 $ 7,276,751
----------- --------- -----------
----------- --------- -----------
Premiums and contract charges:
Life and annuities.................................... $ 87,562 $ 1,193 $ 86,369
Accident and health................................... 3,276 1,005 2,271
----------- --------- -----------
$ 90,838 $ 2,198 $ 88,640
----------- --------- -----------
----------- --------- -----------
</TABLE>
F-22
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
($ in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
- --------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for estimated losses on mortgage
loans..................................... $ 1,952 $ 207 $ 1,934 $ 225
Year Ended December 31, 1995
Allowance for estimated losses on mortgage
loans..................................... $ 1,179 $ 2,170 $ 1,397 $ 1,952
Year Ended December 31, 1994
Allowance for estimated losses on mortgage
loans..................................... $ 2,297 $ 667 $ 1,785 $ 1,179
</TABLE>
F-23
<PAGE>
(This page has been left blank intentionally.)
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK:
We have audited the accompanying Statement of Net Assets of Allstate Life of
New York Variable Annuity Account II (the "Account") as of December 31, 1996,
and the related Statement of Operations for the year then ended and the
Statement of Changes in Net Assets for each of the two years in the period ended
December 31, 1996 of the Money Market, High Yield, Equity, Quality Income Plus,
Strategist, Dividend Growth, Utilities, European Growth, Capital Growth, Global
Dividend Growth and Pacific Growth portfolios that comprise the Account. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1996. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Account as of December 31, 1996, the
results of its operations for the year then ended, and the changes in its net
assets for each of the two years in the period then ended, of each of the
portfolios comprising the Account, in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 21, 1997
F-25
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments in the Dean Witter Variable Investment Series:
Money Market Portfolio
15,081 shares (cost: $15,081).................................................... $ 15,081
High Yield Portfolio
1,582 shares (cost: $10,247)..................................................... 9,778
Equity Portfolio
833 shares (cost: $19,148)....................................................... 21,984
Quality Income Plus Portfolio
2,943 shares (cost: $31,227)..................................................... 30,516
Strategist Portfolio
2,182 shares (cost: $27,299)..................................................... 29,943
Dividend Growth Portfolio
3,739 shares (cost: $49,201)..................................................... 68,800
Utilities Portfolio
1,548 shares (cost: $20,311)..................................................... 23,750
European Growth Portfolio
783 shares (cost: $11,952)....................................................... 16,890
Capital Growth Portfolio
248 shares (cost: $3,208)........................................................ 4,126
Global Dividend Growth Portfolio
1,238 shares (cost: $13,490)..................................................... 16,255
Pacific Growth Portfolio
823 shares (cost: $8,083)........................................................ 8,192
---------
Total assets................................................................... 245,315
Liabilities
Payable to Allstate Life Insurance Company of New York:
Accrued contract maintenance charges 78
---------
Net assets..................................................................... $ 245,237
---------
---------
</TABLE>
See notes to financial statements.
F-26
<PAGE>
(This page has been left blank intentionally.)
F-27
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Dean Witter Variable Investment Series
----------------------------------------------------------------------
Quality
Money Income Dividend
Market High Yield Equity Plus Strategist Growth
(Dollars in thousands) Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends................................................ $ 656 $ 989 $ 2,402 $ 2,153 $ 1,398 $ 2,813
Charges from Allstate Life Insurance Company of New York:
Mortality and expense risk............................. (162) (103) (234) (395) (369) (738)
Administrative expense................................. (13) (8) (18) (31) (29) (59)
--------- ----- ----- --------- ----------- ---------
Net investment income (loss)............................. 481 878 2,150 1,727 1,000 2,016
--------- ----- ----- --------- ----------- ---------
Realized and unrealized (losses)
gains on investments:
Realized gains (losses) from sales of investments:
Proceeds from sales.................................... 4,896 932 630 5,094 4,271 3,101
Cost of investments sold............................... (4,896) (973) (511) (5,251) (4,093) (2,254)
--------- ----- ----- --------- ----------- ---------
Net realized (losses) gains................................ -- (41) 119 (157) 178 847
--------- ----- ----- --------- ----------- ---------
Change in unrealized gains (losses)........................ -- (32) (378) (1,699) 2,509 9,042
--------- ----- ----- --------- ----------- ---------
Net (losses) gains on investments.......................... -- (73) (259) (1,856) 2,687 9,889
--------- ----- ----- --------- ----------- ---------
Change in net assets resulting from operations............. $ 481 $ 805 $ 1,891 $ (129) $ 3,687 $ 11,905
--------- ----- ----- --------- ----------- ---------
--------- ----- ----- --------- ----------- ---------
</TABLE>
See notes to financial statements.
F-28
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Dean Witter Variable Investment Series
------------------------------------------------------------------------
Global
European Capital Dividend Pacific
Utilities Growth Growth Growth Growth
(Dollars In Thousands) Portfolio Portfolio Portfolio Portfolio Portfolio Total
--------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends......................................... $ 948 $ 712 $ 68 $ 605 $ 95 $ 12,839
Charges from Allstate Life Insurance Company of
New York:
Mortality and expense risk........................ (302) (169) (45) (165) (96) (2,778)
Administrative expense............................ (24) (13) (4) (13) (8) (220)
--------- ----- ----- ----- ----- ---------
Net investment income (loss).................. 622 530 19 427 (9) 9,841
--------- ----- ----- ----- ----- ---------
Realized and unrealized (losses) gains on
investments
Realized gains (losses) from sales of investments:
Proceeds from sales............................... 3,235 615 355 541 649 24,319
Cost of investments sold.......................... (2,847) (462) (265) (466) (637) (22,655)
--------- ----- ----- ----- ----- ---------
Net realized (losses) gains....................... 388 153 90 75 12 1,664
--------- ----- ----- ----- ----- ---------
Change in unrealized gains (losses)............... 651 2,748 223 1,476 55 14,595
--------- ----- ----- ----- ----- ---------
Net (losses) gains on investments................. 1,039 2,901 313 1,551 67 16,259
--------- ----- ----- ----- ----- ---------
Change in net assets resulting from operations.... $ 1,661 $ 3,431 $ 332 $ 1,978 $ 58 $ 26,100
--------- ----- ----- ----- ----- ---------
--------- ----- ----- ----- ----- ---------
</TABLE>
See notes to financial statements.
F-29
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Dean Witter Variable Investment Series
---------------------------------------------------------------------
Quality
Money High Income Dividend
(Dollars and Units in Thousands, Market Yield Equity Plus Strategist Growth
Except Value per Unit) Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss).................... $ 481 $ 878 $ 2,150 $ 1,727 $ 1,000 $ 2,016
Net realized (losses) gains..................... -- (41) 119 (157) 178 847
Net change in unrealized (losses) gains......... -- (32) (378) (1,699) 2,509 9,042
--------- --------- --------- --------- --------- ---------
Change in net assets resulting from
operations..................................... 481 805 1,891 (129) 3,687 11,905
--------- --------- --------- --------- --------- ---------
From capital transactions:
Deposits........................................ 5,196 2,216 4,073 1,274 1,305 8,044
Benefit payments................................ (55) (10) (105) (275) (100) (447)
Payments on termination......................... (1,541) (347) (511) (1,880) (2,978) (3,461)
Contract maintenance charges.................... (7) (5) (12) (18) (21) (40)
Transfers among the portfolios and with the
Fixed Account -- net........................... (366) 49 1,300 (2,867) (1,400) 2,142
--------- --------- --------- --------- --------- ---------
Change in net assets resulting from capital
transactions................................... 3,227 1,903 4,745 (3,766) (3,194) 6,238
--------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets................. 3,708 2,708 6,636 (3,895) 493 18,143
Net assets at beginning of period................. 11,368 7,067 15,341 34,401 29,440 50,635
--------- --------- --------- --------- --------- ---------
Net assets at end of period....................... $ 15,076 $9,775 $ 21,977 $ 30,506 $29,933 $ 68,778
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net asset value per unit at end of period......... $ 12.08 $24.14 $ 28.67 $ 16.40 $ 19.20 $ 26.30
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Units outstanding at end of period................ 1,246 405 767 1,860 1,559 2,615
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
See notes to financial statements.
F-30
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Dean Witter Variable Investment Series
----------------------------------------------------------------------
Global
European Capital Dividend Pacific
Utilities Growth Growth Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Total
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss).................... $ 622 $ 530 $ 19 $ 427 $ (9) $ 9,841
Net realized (losses) gains..................... 388 153 90 75 12 1,664
Net change in unrealized (losses) gains......... 651 2,748 223 1,476 55 14,595
--------- --------- --------- --------- --------- ----------
Change in net assets resulting from
operations....................................... 1,661 3,431 332 1,978 58 26,100
--------- --------- --------- --------- --------- ----------
From capital transactions:
Deposits........................................ 1,052 1,959 590 3,269 1,620 30,598
Benefit payments................................ (49) (108) (2) (111) (57) (1,319)
Payments on termination......................... (1,153) (304) (216) (485) (175) (13,051)
Contract maintenance charges.................... (15) (10) (2) (10) (5) (145)
Transfers among the portfolios and with the
Fixed Account -- net............................. (2,252) 997 166 1,579 1,175 523
--------- --------- --------- --------- --------- ----------
Change in net assets resulting from capital
transactions..................................... (2,417) 2,534 536 4,242 2,558 16,606
--------- --------- --------- --------- --------- ----------
Increase (decrease) in net assets............... (756) 5,965 868 6,220 2,616 42,706
Net assets at beginning of period............... 24,498 10,920 3,257 10,030 5,574 202,531
--------- --------- --------- --------- --------- ----------
Net assets at end of period..................... $ 23,742 $16,885 $ 4,125 $ 16,250 $ 8,190 $ 245,237
--------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- ----------
Net asset value per unit at end of period......... $ 19.30 $ 24.33 $ 16.42 $ 13.84 $ 9.86
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Units outstanding at end of period.............. 1,230 694 251 1,174 831
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to financial statements.
F-31
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Dean Witter Variable Investment Series
--------------------------------------------------------------------
Quality
Money Income Dividend
(Dollars and Units in Thousands, Market High Yield Equity Plus Strategist Growth
Except Value per Unit) Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss)............................. $ 458 $ 649 $ (30) $ 1,771 $ 2,209 $ 1,450
Net realized (losses) gains.............................. -- (28) 64 (200) (40) 355
Net change in unrealized gains........................... -- 96 3,993 4,812 94 10,707
--------- ----- --------- --------- ----------- ---------
Change in net assets resulting from operations........... 458 717 4,027 6,383 2,263 12,512
--------- ----- --------- --------- ----------- ---------
From capital transactions:
Deposits................................................. 2,335 893 2,125 1,790 1,074 4,864
Benefit payments......................................... (91) (15) (31) (325) (43) (690)
Payments on termination.................................. (916) (160) (675) (1,603) (1,213) (1,952)
Contract maintenance charges............................. (5) (4) (10) (21) (22) (34)
Transfers among the portfolios and with the Fixed Account
-- net.................................................. (2,530) 1,027 428 (439) (1,810) 990
--------- ----- --------- --------- ----------- ---------
Change in net assets resulting from capital
transactions............................................ (1,207) 1,741 1,837 (598) (2,014) 3,178
--------- ----- --------- --------- ----------- ---------
Increase (decrease) in net assets.......................... (749) 2,458 5,864 5,785 249 15,690
Net assets at beginning of period.......................... 12,117 4,609 9,477 28,616 29,191 34,945
--------- ----- --------- --------- ----------- ---------
Net assets at end of period................................ $ 11,368 $ 7,067 $ 15,341 $ 34,401 $ 29,440 $ 50,635
--------- ----- --------- --------- ----------- ---------
--------- ----- --------- --------- ----------- ---------
Net asset value per unit at end of period.................. $ 11.65 $ 21.86 $ 25.86 $ 16.37 $ 16.92 $ 21.51
--------- ----- --------- --------- ----------- ---------
--------- ----- --------- --------- ----------- ---------
Units outstanding at end of period......................... 975 323 593 2,101 1,740 2,355
--------- ----- --------- --------- ----------- ---------
--------- ----- --------- --------- ----------- ---------
</TABLE>
See notes to financial statements.
F-32
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
European Capital Global Pacific
Utilities Growth Growth Dividend Growth
($ and units in thousands, except value per unit) Portfolio Portfolio Portfolio Portfolio Portfolio Total
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss).................... $ 668 $ 289 $ (22) $ 99 $ (22) $ 7,519
Net realized (losses) gains..................... (7) 170 93 21 (15) 413
Net change in unrealized gains.................. 4,653 1,574 715 1,399 222 28,265
--------- -------- --------- -------- --------- --------
Change in net assets resulting from operations.. 5,314 2,033 786 1,519 185 36,197
--------- -------- --------- -------- --------- --------
From capital transactions:
Deposits...................................... 898 990 345 1,437 927 17,678
Benefit payments.............................. (194) (67) (7) (80) (25) (1,568)
Payments on termination....................... (1,386) (631) (326) (250) (121) (9,233)
Contract maintenance charges.................. (17) (7) (2) (7) (3) (132)
Transfers among the portfolios and with the
Fixed Account - net............................ (107) 204 (126) 710 678 (975)
--------- -------- --------- -------- --------- --------
Change in net assets resulting from capital
transactions................................... (806) 489 (116) 1,810 1,456 5,770
--------- -------- --------- -------- --------- --------
Increase (decrease) in net assets............... 4,508 2,522 670 3,329 1,641 41,967
Net assets at beginning of period............... 19,990 8,398 2,587 6,701 3,933 160,564
--------- -------- --------- -------- --------- --------
Net assets at end of period..................... $ 24,498 $10,920 $3,257 $ 10,030 $5,574 $202,531
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
Net asset value per unit at end of period....... $ 18.00 $ 18.98 $14.92 $ 11.94 $ 9.62
--------- -------- --------- -------- ---------
--------- -------- --------- -------- ---------
Units outstanding at end of period................ 1,362 577 218 840 579
--------- -------- --------- -------- ---------
--------- -------- --------- -------- ---------
</TABLE>
See notes to financial statements.
F-33
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
1. Organization
Allstate Life of New York Variable Annuity Account II (the "Account"), a
unit investment trust registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, is a Separate Account of Allstate Life
Insurance Company of New York ("ALNY"). The assets of the Account are legally
segregated from those of ALNY. ALNY is wholly owned by a wholly owned subsidiary
("Parent") of Allstate Insurance Company ("Allstate"), a wholly-owned subsidiary
of The Allstate Corporation (the "Corporation").
ALNY writes certain annuity contracts, the proceeds of which are invested at
the direction of the contractholder. Contractholders primarily invest in units
of the portfolios comprising the Account, for which they bear all of the
investment risk, but may also invest in the general account of ALNY ("Fixed
Account"). The Account, in turn, invests solely in shares of the portfolios of
the Dean Witter Variable Investment Series ("Fund"). ALNY provides
administrative and insurance services to the Account for a fee.
Dean Witter Reynolds, Inc., a wholly owned subsidiary of Dean Witter,
Discover and Co., is a distributor of ALNY's flexible premium deferred variable
annuity contracts and certain single and flexible premium annuities. Dean Witter
InterCapital, Inc. ("InterCapital"), a wholly owned subsidiary of Dean Witter,
Discover and Co., is the investment manager for the Fund. InterCapital receives
investment management fees from the Fund.
Effective September 1, 1995, the name of the Managed Assets Portfolio of the
Fund changed to the Strategist Portfolio. While certain of the investment
policies of the portfolio have changed, the overall investment strategy has
remained the same.
2. Summary of Significant Accounting Policies
Valuation of Investments
Investments consist of shares in the portfolios of the Fund, and are stated
at fair value based on quoted market prices.
Recognition of Investment Income
Investment income consists of dividends declared by the portfolios of the
Fund, and is recognized on the date of record.
Realized Gains and Losses
Realized gains and losses represent the difference between the proceeds from
sales of shares by the Account and the cost of such shares, which is determined
on a weighted average basis.
Contractholder Account Activity
Account activity is reflected in individual contractholder accounts on a
daily basis.
Federal Income Taxes
Net investment income and realized gains and losses on investments of the
Account are taxable to contractholders generally upon distribution. Accordingly,
no provision for income taxes has been recorded.
Account Value
Certain calculations that could be made in the financial statements may
differ from published amounts due to truncation of actual Account values.
F-34
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
YEAR ENDED DECEMBER 31, 1996
3. Contract Maintenance, Mortality and Expense Risk, and Administrative Expense
Charges
For each year or portion of a year a contract is in effect, ALNY deducts a
fixed annual contract maintenance charge of $30 as reimbursement for expenses
related to the maintenance of each contract and the Account. The amount of this
charge is guaranteed not to increase over the life of the contract.
ALNY assumes mortality and expense risks related to the operations of the
Account and deducts charges daily at a rate, on an annual basis, equal to 1.25%
of the daily net assets of the Account. ALNY guarantees that the amount of this
charge will not increase over the life of the contract.
ALNY deducts administrative expense charges daily at a rate, on an annual
basis, equal to 0.1% of the daily net assets of the Account. This charge is
designed to cover administrative expense.
4. Financial Instruments
The investments of the Separate Accounts are carried at fair value, based
upon quoted market prices. Accrued contract maintenance charges are of a short
term nature. It is assumed that their carrying value approximates fair value.
F-35
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
YEAR ENDED DECEMBER 31, 1996
5. Units Issued and Redeemed
Units issued and redeemed by the Account during 1996 were as follows:
<TABLE>
<CAPTION>
Dean Witter Variable Investment Series
----------------------------------------------------------
Quality
Money High Income
Market Yield Equity Plus Strategist
(units in thousands) Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Units outstanding at beginning of period.......... 975 323 593 2,101 1,740
Unit activity during 1996:
Issued.......................................... 874 129 216 98 107
Redeemed........................................ (603) (47) (42) (339) (288)
--------- --------- --------- --------- -----
Units outstanding at end of period................ 1,246 405 767 1,860 1,559
--------- --------- --------- --------- -----
--------- --------- --------- --------- -----
</TABLE>
Units redeemed includes units deducted for accrued contract maintenance charges.
F-36
<PAGE>
ALLSTATE LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
YEAR ENDED DECEMBER 31, 1996
5. Units Issued and Redeemed (Continued)
<TABLE>
<CAPTION>
Dean Witter Variable Investment Series
------------------------------------------------------------------
Global
Dividend European Capital Dividend Pacific
Growth Utilities Growth Growth Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at beginning of period.......... 2,355 1,362 577 218 840 579
Unit activity during 1996:
Issued.......................................... 504 68 160 59 415 340
Redeemed........................................ (244) (200) (43) (26) (81) (88)
-------- --------- --- --- -------- ---
Units outstanding at end of period................ 2,615 1,230 694 251 1,174 831
-------- --------- --- --- -------- ---
-------- --------- --- --- -------- ---
</TABLE>
Units redeemed includes units deducted for accrued contract maintenance charges.
F-37
