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VARIABLE ANNUITY PROSPECTUS
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T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
An Individual Flexible Premium
Deferred Variable Annuity Contract
May 1, 1999
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ISSUED BY:
First Security Benefit Life Insurance and Annuity
Company of New York
70 West Red Oak Lane, 4th Floor
White Plains, New York 10604
1-914-697-4748
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INTRODUCTION
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* THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THE PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
* THIS PROSPECTUS IS ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE T. ROWE
PRICE EQUITY SERIES, INC., THE T. ROWE PRICE FIXED INCOME SERIES, INC.
AND THE T. ROWE PRICE INTERNATIONAL SERIES, INC. YOU SHOULD READ THE
PROSPECTUSES CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
This Prospectus describes the T. Rowe Price No-Load Variable Annuity--a
flexible premium deferred variable annuity contract (the "Contract") issued
by First Security Benefit Life Insurance and Annuity Company of New York
(the "Company"). The Contract is available for individuals as a non-tax
qualified retirement plan. The Contract is also available as an individual
retirement annuity ("IRA") qualified under Section 408 of the Internal
Revenue Code. The Contract is designed to give you flexibility in planning
for retirement and other financial goals.
You may allocate your purchase payments to one or more of the Subaccounts
that comprise a separate account of the Company called the T. Rowe Price
Variable Annuity Account of First Security Benefit Life Insurance and
Annuity Company of New York, or to the Fixed Interest Account of the
Company. Each Subaccount invests in a corresponding Portfolio of the T. Rowe
Price Equity Series, Inc., the T. Rowe Price Fixed Income Series, Inc., or
the T. Rowe Price International Series, Inc. (the "Funds"). Each Portfolio
is listed under its respective Fund below.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price New America Growth Portfolio
T. Rowe Price Mid-Cap Growth Portfoli
T. Rowe Price Equity Income Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
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The investments made by the Funds at any given time are not expected to be
the same as the investments made by other mutual funds sponsored by T. Rowe
Price Associates, Inc., including other mutual funds with investment
objectives and policies similar to those of the Funds. Different performance
will result due to differences in cash flows into and out of the Fund,
different fees and expenses and differences in portfolio size and position.
Amounts that you allocate to the Subaccounts will vary based on investment
performance of the Subaccounts to which the Account Value is allocated. The
Company does not guarantee any minimum amount of Account Value in the
Subaccounts.
Amounts that you allocate to the Fixed Interest Account will accrue interest
at rates that are paid by the Company as described in "The Fixed Interest
Account," page 28. The Company guarantees Account Value in the Fixed
Interest Account.
When you are ready to begin receiving annuity payments, the Contract
provides several options for annuity payments (see "Annuity Options," page
25.)
You may return a Contract according to the terms of its Free-Look Right (see
"Free-Look Right," page 21). This Prospectus concisely sets forth
information about the Contract and the T. Rowe Price Variable Annuity
Account that you should know before purchasing the Contract. The "Statement
of Additional Information," dated May 1, 1999, which has been filed with the
Securities and Exchange Commission (the "SEC") contains certain additional
information. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference into this
Prospectus and is available at no charge, by writing the Company at 70 West
Red Oak Lane, 4th Floor, White Plains, New York 10604. The table of contents
of the Statement of Additional Information is set forth on page 43 of this
Prospectus.
Date: May 1, 1999
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CONTENTS
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* THE CONTRACT IS AVAILABLE ONLY IN NEW YORK. YOU SHOULD NOT CONSIDER THIS
PROSPECTUS TO BE AN OFFERING IF THE CONTRACT MAY NOT BE LAWFULLY OFFERED
IN YOUR STATE. YOU SHOULD ONLY RELY UPON INFORMATION CONTAINED IN THIS
PROSPECTUS OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
Definitions 5
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Summary 7
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Expense Table 9
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Condensed Financial Information 11
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Information About the Company, the Separate Account, and the Funds 12
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The Contract 15
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Charges and Deductions 23
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Annuity Payments 24
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The Fixed Interest Account 28
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More About the Contract 31
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Federal Tax Matters 32
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Other Information 39
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Performance Information 41
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Additional Information 42
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DEFINITIONS
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* VARIOUS TERMS COMMONLY USED IN THIS PROSPECTUS ARE DEFINED AS FOLLOWS:
ACCOUNT VALUE The total value of a Contract, which includes amounts
allocated to the Subaccounts and the Fixed Interest Account. The Company
determines Account Value as of each Valuation Date prior to the Annuity
Payout Date and on and after the Annuity Payout Date under Annuity Options 5
through 7.
ACCUMULATION PERIOD The period commencing on the Contract Date and ending on
the Annuity Payout Date or, if earlier, when the Contract is terminated
through a full withdrawal, payment of charges, or payment of the death
benefit proceeds.
ACCUMULATION UNIT A unit of measure used to calculate Account Value.
ANNUITANT The person or persons on whose life annuity payments depend under
Annuity Options 1 through 4. If Joint Annuitants are named in the Contract,
"Annuitant" means both Annuitants unless otherwise stated. The Annuitant
receives Annuity Payments during the Annuity Period.
ANNUITY A series of periodic income payments made by the Company to an
Annuitant, Joint Annuitant, or Beneficiary during the period specified in
the Annuity Option.
ANNUITY OPTIONS or OPTIONS Options under the Contract that prescribe the
provisions under which a series of Annuity Payments are made.
ANNUITY PAYMENTS Payments made beginning on the Annuity Payout Date
according to the provisions of the Annuity Option selected. Annuity Payments
are made on the same day of each month, on a monthly, quarterly, semiannual
or annual basis depending upon the Annuity Option selected.
ANNUITY PERIOD The period beginning on the Annuity Payout Date during which
annuity payments are made.
ANNUITY PAYOUT DATE The date when Annuity Payments are scheduled to begin.
AUTOMATIC INVESTMENT PROGRAM A program pursuant to which purchase payments
are automatically paid from your checking account on a specified day of the
month, on a monthly, quarterly, semiannual or annual basis, or a salary
reduction arrangement.
CONTRACT DATE The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually
the date that the initial purchase payment is credited to the Contract.
CONTRACTOWNER or OWNER The person entitled to the ownership rights under the
Contract and in whose name the Contract is issued.
CONTRACT YEAR Each 12-month period measured from the Contract Date.
DESIGNATED BENEFICIARY The person having the right to the death benefit, if
any, payable upon the death of the Owner or the Joint Owner during the
Accumulation Period or the death of the Annuitant during the Annuity Period.
The Designated Beneficiary is the first person on the following list who is
alive on the date of death of the Owner or the Joint Owner: the Owner; the
Joint Owner; the Primary Beneficiary; the Secondary Beneficiary; the
Annuitant; or if none of the above is alive, the Owner's Estate.
FIXED INTEREST ACCOUNT An account that is part of the Company's General
Account in which all or a portion of the Account Value may be held for
accumulation at fixed rates of interest (which may not be less than 3%)
declared by the Company periodically at its discretion.
FUNDS T. Rowe Price Equity Series, Inc., T. Rowe Price Fixed Income Series,
Inc., and T. Rowe Price International Series, Inc. The Funds are
diversified, open-end management investment companies commonly referred to
as mutual funds.
GENERAL ACCOUNT All assets of the Company other than those allocated to the
Separate Account or to any other separate account of the Company.
PAYMENT UNIT A unit of measure used to calculate Annuity Payments under
Options 1 through 4.
PURCHASE PAYMENT The amounts paid to the Company as consideration for the
Contract.
SEPARATE ACCOUNT The T. Rowe Price Variable Annuity Account of First
Security Benefit Life Insurance and Annuity Company of New York, a separate
account of the Company. Account Value may be allocated to Subaccounts of the
Separate Account for variable accumulation.
SUBACCOUNT A division of the Separate Account of the Company which invests
in a separate Portfolio of one of the Funds. Currently, seven Subaccounts
are available under the Contract.
VALUATION DATE Each date on which the Separate Account is valued, which
currently includes each day that the Company and the New York Stock Exchange
are both open for trading. The Company and the New York Stock Exchange are
closed on weekends and on the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
VALUATION PERIOD A period used in measuring the investment experience of
each Subaccount. The Valuation Period begins at the close of one Valuation
Date and ends at the close of the next succeeding Valuation Date.
WITHDRAWAL VALUE The amount a Contractowner receives upon full withdrawal of
the Contract, which is equal to Account Value less any premium taxes due and
paid by the Company.
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SUMMARY
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This summary provides a brief overview of the more significant aspects of
the Contract. Further detail is provided in this Prospectus, the Statement
of Additional Information, and the Contract. Unless the context indicates
otherwise, the discussion in this summary and the remainder of the
Prospectus relate to the portion of the Contract involving the Separate
Account. The Fixed Interest Account is briefly described under "The Fixed
Interest Account," page 28 and in the Contract.
PURPOSE OF THE CONTRACT
The flexible premium deferred variable annuity contract ("Contract")
described in this Prospectus is designed to give you flexibility in planning
for retirement and other financial goals.
You may purchase the Contract as a non-tax qualified retirement plan for an
individual ("Non-Qualified Plan"). If you are eligible, you may also
purchase the Contract as an individual retirement annuity ("IRA") qualified
under Section 408 of the Internal Revenue Code of 1986, as amended
("Qualified Plan"). See the discussion of IRAs under "Section 408," page 36.
THE SEPARATE ACCOUNT AND THE FUNDS
You may allocate your purchase payments to the T. Rowe Price Variable
Annuity Account of First Security Benefit Life Insurance and Annuity Company
of New York (the "Separate Account"). See "Separate Account," page 13. The
Separate Account is currently divided into seven divisions referred to as
Subaccounts. Each Subaccount invests exclusively in shares of a specific
Portfolio of one of the Funds. Each of the Funds' Portfolios has a different
investment objective or objectives. Each Portfolio is listed under its
respective Fund below.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price New America Growth Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
Amounts that you allocate to the Subaccounts will increase or decrease in
dollar value depending on the investment performance of the corresponding
Portfolio in which such Subaccount invests. The Contractowner bears the
investment risk for amounts allocated to a Subaccount.
FIXED INTEREST ACCOUNT
You may allocate all or part of your purchase payments to the Fixed Interest
Account, which is part of the Company's General Account. Amounts that you
allocate to the Fixed Interest Account earn interest at rates determined at
the discretion of the Company and that are guaranteed to be at least an
effective annual rate of 3%. See "The Fixed Interest Account," page 28.
PURCHASE PAYMENTS
If you are purchasing a Contract as a Non-Qualified Plan, the minimum
initial purchase payment is $10,000 ($5,000 if made pursuant to an Automatic
Investment Program). If you are purchasing a Contract as a Qualified Plan,
the minimum initial purchase payment is $2,000 ($25 if made pursuant to an
Automatic Investment Program). Thereafter, you may choose the amount and
frequency of purchase payments, except that the minimum subsequent purchase
payment is $1,000 ($200 if made pursuant to an Automatic Investment Program)
for a Non-Qualified Plan or $500 ($25 if made pursuant to an Automatic
Investment Program) for a Qualified Plan. See "Purchase Payments," page 16.
CONTRACT BENEFITS
You may exchange Account Value among the Subaccounts and to and from the
Fixed Interest Account, subject to certain restrictions as described in "The
Contract," page 15, "Annuity Payments," page 24 and "The Fixed Interest
Account," page 28.
At any time before the Annuity Payout Date, you may surrender your Contract
for its Withdrawal Value and may make partial withdrawals, including
systematic withdrawals, from Account Value. On or after the Annuity Payout
Date, you may withdraw your Account Value under Annuity Options 5 through 7.
Withdrawals of Account Value allocated to the Fixed Interest Account are
subject to certain restrictions described in "The Fixed Interest Account,"
page 28. See "Full and Partial Withdrawals," page 20, "Annuity Payments,"
page 24 and "Federal Tax Matters," page 32 for more information about
withdrawals, including the 10% penalty tax that may be imposed upon full and
partial withdrawals (including systematic withdrawals) made prior to the
Owner attaining age 59 1/2.
The Contract provides for a death benefit upon the death of the Owner prior
to the Annuity Start Date. See "Death Benefit," page 21 for more
information. The Contract provides for several Annuity Options on either a
variable basis, a fixed basis, or both. The Company guarantees Annuity
Payments under the fixed Annuity Options. See "Annuity Payments," page 24.
FREE-LOOK RIGHT
You may return the Contract within the Free-Look Period, which is generally
a 10-day period beginning when you receive the Contract. In this event, the
Company will refund to you the amount of purchase payments allocated to the
Fixed Interest Account plus the Account Value in the Subaccounts. The
Company will refund purchase payments allocated to the Subaccounts rather
than the Account Value in those circumstances in which it is required to do
so. See "Free-Look Right," on page 21.
CHARGES AND DEDUCTIONS
The Company does not deduct a sales load from purchase payments. The Company
will deduct certain charges in connection with the Contract as described
below.
* MORTALITY AND EXPENSE RISK CHARGE The Company deducts a daily charge from
the assets of each Subaccount for mortality and expense risks equal to an
annual rate of .55% of each Subaccount's average daily net assets. See
"Mortality and Expense Risk Charge," page 23.
* PREMIUM TAX CHARGE The Company assesses a premium tax charge to reimburse
itself for any premium taxes that it incurs with respect to this
Contract. This charge will usually be deducted when Annuity Payments
begin or upon full withdrawal if the Company incurs a premium tax.
Partial withdrawals, including systematic withdrawals, may be subject to
a premium tax charge if a premium tax is incurred on the withdrawal by
the Company and is not refundable. No premium tax is currently imposed in
the State of New York. The Company reserves the right to deduct such
taxes, if imposed, when due or anytime thereafter. See "Premium Tax
Charge," page 23.
* OTHER EXPENSES The Company pays the operating expenses of the Separate
Account. Investment management fees and operating expenses of the Funds
are paid by the Funds and are reflected in the net asset value of Fund
shares. For a description of these charges and expenses, see the
prospectus for the Funds.
CONTACTING THE COMPANY
You should direct all written requests, notices, and forms required by the
Contract, and any questions or inquiries to First Security Benefit Life
Insurance and Annuity Company of New York, 70 West Red Oak Lane, 4th Floor,
White Plains, New York 10604.
EXPENSE TABLE
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The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly and indirectly if you
allocate Account Value to the Subaccounts. The table reflects any
contractual charges, expenses of the Separate Account, and charges and
expenses of the Funds. The table does not reflect premium taxes that may be
imposed by various jurisdictions. See "Premium Tax Charge," page 23. The
information contained in the table is not applicable to amounts allocated to
the Fixed Interest Account.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," page 23. For a more complete description of each Fund's
costs and expenses, see the Funds' prospectus, which accompanies this
Prospectus.
TABLE 1
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CONTRACTOWNER TRANSACTION EXPENSES
Sales Load on Purchase Payments None
Annual Maintenance Fee None
ANNUAL SEPARATE ACCOUNT EXPENSES
Annual Mortality and Expense Risk Charge
(as a percentage of each Subaccount's average daily net assets) .55%
Total Annual Separate Account Expenses .55%
ANNUAL PORTFOLIO EXPENSES (AS A PERCENTAGE OF EACH PORTFOLIO'S
AVERAGE DAILY NET ASSETS)
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<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER PORTFOLIO
FEE* EXPENSES EXPENSES
<S> <C> <C> <C> <C>
T. Rowe Price New America Growth Portfolio .85% 0% .85%
T. Rowe Price International Stock Portfolio 1.05% 0% 1.05%
T. Rowe Price Mid-Cap Growth Portfolio .85% 0% .85%
T. Rowe Price Equity Income Portfolio .85% 0% .85%
T. Rowe Price Personal Strategy Balanced Portfolio .90% 0% .90%
T. Rowe Price Limited-Term Bond Portfolio .70% 0% .70%
T. Rowe Price Prime Reserve Portfolio .55% 0% .55%
</TABLE>
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* The management fee includes the ordinary expenses of operating the Funds.
EXAMPLES
The example presented below shows expenses that you would pay at the end of
one, three, five, or ten years. The example shows expenses based upon an
allocation of $1,000 to each of the Subaccounts and a hypothetical annual
return of 5%. The information presented applies if, at the end of those time
periods, the Contract is (1) surrendered, (2) annuitized, or (3) not
surrendered or annuitized.
You should not consider the example below a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown. The 5%
return assumed in the example is hypothetical and should not be considered a
representation of past or future actual returns, which may be greater or
lesser than the assumed amount.
EXAMPLE - You would pay the expenses shown below during the Accumulation
Period and during the Annuity Period:
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
New America Growth Subaccount $14 $44 $77 $168
International Stock Subaccount $16 $50 $87 $190
Mid-Cap Growth Subaccount $14 $44 $77 $168
Equity Income Subaccount $14 $44 $77 $168
Personal Strategy Balanced Subaccount $15 $46 $79 $174
Limited-Term Bond Subaccount $13 $40 $69 $151
Prime Reserve Subaccount $11 $35 $61 $134
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CONDENSED FINANCIAL INFORMATION
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The following condensed financial information presents accumulation unit
values for the years ended December 31, 1998, 1997 and 1996, as well as
ending accumulation units outstanding under each Subaccount.
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1996 1997 1998
NEW AMERICA GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period $10.00 $16.00 $19.27
End of period $16.00 $19.27 $22.72
Accumulation units:
Outstanding at the end of period 143,768 170,990 188,096
INTERNATIONAL STOCK SUBACCOUNT
Accumulation unit value:
Beginning of period $10.00 $12.77 $13.09
End of period $12.77 $13.09 $15.08
Accumulation units:
Outstanding at the end of period 86,235 123,502 126,224
EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period $10.00 $14.70 $18.84
End of period $14.70 $18.84 $20.42
Accumulation units:
Outstanding at the end of period 181,250 320,917 341,036
PERSONAL STRATEGY BALANCED SUBACCOUNT
Accumulation unit value:
Beginning of period $10.00 $13.51 $15.86
End of period $13.51 $15.86 $18.04
Accumulation units:
Outstanding at the end of period 39,697 76,311 94,177
LIMITED TERM-BOND SUBACCOUNT
Accumulation unit value:
Beginning of period $10.00 $10.92 $11.60
End of period $10.92 $11.60 $12.37
Accumulation units:
Outstanding at the end of period 33,375 41,943 40,576
MID-CAP GROWTH SUBACCOUNT*
Accumulation unit value:
Beginning of period $10.00 $11.82
End of period $11.82 $14.34
Accumulation units:
Outstanding at the end of period 91,142 155,295
PRIME RESERVE SUBACCOUNT*
Accumulation unit value:
Beginning of period $10.00 $10.47
End of period $10.47 $10.97
Accumulation units:
Outstanding at the end of period 75,383 99,654
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*The Mid-Cap Growth and Prime Reserve Subaccounts commenced operations on
January 2, 1997.
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INFORMATION ABOUT THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUNDS
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FIRST SECURITY BENEFIT LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
The Company is a stock life insurance company organized under the laws of
the State of New York on November 8, 1994. The Company offers variable
annuity contracts in New York and is admitted to do business in that state.
On September 8, 1995, the Company merged with and is the successor
corporation of Pioneer National life Insurance Company, a stock life
insurance company organized under the laws of the State of Kansas. The
Company is a wholly-owned subsidiary of Security Benefit Group, Inc., a
financial services holding company which is wholly-owned by Security Benefit
Life Insurance Company, a stock life insurance company, organized under the
laws of the State of Kansas. On July 31, 1998, Security Benefit Life
Insurance Company converted from a mutual life insurance company to a stock
life insurance company ultimately controlled by Security Benefit Mutual
Holding Company, a Kansas mutual holding company. Membership interests of
persons who owned Security Benefit Life policies as of July 31, 1998 became
membership interests in Security Benefit Mutual Holding Company as of that
date, and persons who acquire policies from Security Benefit Life after that
date automatically become members in the mutual holding company.
YEAR 2000 COMPLIANCE
Like other insurance companies, as well as other financial and business
organizations around the world, the Company could be adversely affected if
the computer systems used by the Company in performing its administrative
functions do not properly process and calculate date-related information and
data before, during, and after January 1, 2000. Some computer software and
hardware systems currently cannot distinguish between the year 2000 and the
year 1900 or some other date because of the way date fields were encoded.
This is commonly known as the "Year 2000 Problem." If not addressed, the
Year 2000 Problem could impact (i) the administrative services provided by
the Company with respect to the Contract, and (ii) the management services
provided to the Funds by T. Rowe Price, as well as transfer agency,
accounting, custody, distribution, and other services provided to the Funds.
For more information on T. Rowe Price Year 2000 compliance efforts, see the
Funds' prospectus, which accompanies this Prospectus.
The Company has adopted a plan to be "Year 2000 Compliant" with respect to
both its internally built systems as well as systems provided by external
vendors. We consider a system Year 2000 Compliant when it is able to
correctly process, provide, and/or receive data before, during and after the
Year 2000. The Company's overall approach to addressing the Year 2000 issue
is as follows: (1) to inventory its internal and external hardware,
software, telecommunications and data transmissions to customers, and
conduct a risk assessment with respect to the impact that a failure on any
such system would have on its business operations; (2) to modify or replace
its internal systems and obtain vendor certifications of Year 2000
compliance for systems provided by vendors or replace such systems that are
not Year 2000 Compliant; and (3) to implement and test its systems for Year
2000 compliance. The Company has completed the inventory of its internal and
external systems and has made substantial progress toward completing the
modification/replacement of its internal systems as well as towards
obtaining Year 2000 Compliant certifications from its external vendors.
Overall systems testing commenced in early 1998 and will extend into the
first six months of 1999.
Although the Company has taken steps to ensure that its systems will
function properly before, during, and after the Year 2000, external vendors
provide its key operating systems and information sources, which creates
uncertainty to the extent the Company is relying on the assurance of such
vendors as to whether its systems will be Year 2000 Compliant. The costs or
consequences of incomplete or untimely resolution of the Year 2000 issue are
unknown to the Company at this time but could have a material adverse impact
on the operations of the Separate Account and administration of the
Contract.
The Year 2000 Problem is also expected to impact companies, which may
include issuers of portfolio securities held by the Funds, to varying
degrees based upon various factors, including, but not limited to, the
company's industry sector and degree of technological sophistication. The
Company is unable to predict what impact, if any, the Year 2000 Problem will
have on issuers of the portfolio securities held by the Funds.
PUBLISHED RATINGS
The Company may from time to time publish in advertisements, sales
literature, and reports to Owners, the ratings and other information
assigned to it by one or more independent rating organizations such as A.M.
Best Company and Standard & Poor's. The purpose of the ratings is to reflect
the financial strength and/or claims-paying ability of the Company and
should not be considered as bearing on the investment performance of assets
held in the Separate Account. Each year the A.M. Best Company reviews the
financial status of thousands of insurers, culminating in the assignment of
Best's Ratings. These ratings reflect their current opinion of the relative
financial strength and operating performance of an insurance company in
comparison to the norms of the life/health insurance industry. In addition,
the claims-paying ability of the Company as measured by Standard & Poor's
Insurance Ratings Services may be referred to in advertisements or sales
literature or in reports to Owners. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of
its insurance and annuity policies in accordance with their terms. Such
ratings do not reflect the investment performance of the Separate Account or
the degree of risk associated with an investment in the Separate Account.
SEPARATE ACCOUNT
T. ROWE PRICE VARIABLE ANNUITY ACCOUNT OF FIRST SECURITY BENEFIT LIFE
INSURANCE AND ANNUITY COMPANY OF NEW YORK
The Company established the T. Rowe Price Variable Annuity Account as a
separate account under New York law on November 1, 1994. The Contract
provides that the income, gains, or losses of the Separate Account, whether
or not realized, are credited to or charged against the assets of the
Separate Account without regard to other income, gains, or losses of the
Company. Section 4240 of the New York Insurance Law provides that assets in
a separate account attributable to the reserves and other liabilities under
the contracts may not be charged with liabilities arising from any other
business that the insurance company conducts if, and to the extent the
contracts so provide. The Contract contains such a provision. The Company
owns the assets in the Separate Account and is required to maintain
sufficient assets in the Separate Account to meet all Separate Account
obligations under the Contract. The Company may transfer to its General
Account assets that exceed anticipated obligations of the Separate Account.
All obligations arising under the Contracts are general corporate
obligations of the Company. The Company may invest its own assets in the
Separate Account for other purposes, but not to support contracts other than
variable annuity contracts, and may accumulate in the Separate Account
proceeds from Contract charges and investment results applicable to those
assets.
The Separate Account is currently divided into seven Subaccounts. The
Contract provides that income, gains and losses, whether or not realized,
are credited to, or charged against, the assets of each Subaccount without
regard to the income, gains, or losses in the other Subaccounts. Each
Subaccount invests exclusively in shares of a specific Portfolio of one of
the Funds. The Company may in the future establish additional Subaccounts of
the Separate Account, which may invest in other Portfolios of the Funds or
in other securities, mutual funds, or investment vehicles. Under its
contract with the distributor, T. Rowe Price Investment Services, Inc.
("Investment Services"), the Company cannot add new Subaccounts, or
substitute shares of another portfolio, without the consent of Investment
Services, unless (1) such change is necessary to comply with applicable
laws, (2) shares of any or all of the Portfolios should no longer be
available for investment, or (3) the Company receives an opinion from
counsel acceptable to Investment Services that substitution is in the best
interest of Contractowners and that further investment in shares of the
Portfolio(s) would cause undue risk to the Company. For more information
about the distributor, see "Distribution of the Contract," page 41.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with
the SEC does not involve supervision by the SEC of the administration or
investment practices of the Separate Account or of the Company.
THE FUNDS
The T. Rowe Price Equity Series, Inc., the T. Rowe Price Fixed Income
Series, Inc., and the T. Rowe Price International Series, Inc. are
diversified, open-end management investment companies of the series type.
The Funds are registered with the SEC under the 1940 Act. Such registration
does not involve supervision by the SEC of the investments or investment
policy of the Funds. Together, the Funds currently have seven separate
Portfolios, each of which pursues different investment objectives and
policies.
In addition to the Separate Account, shares of the Funds are being sold to
variable life insurance and variable annuity separate accounts of other
insurance companies, including insurance companies affiliated with the
Company. In the future, it may be disadvantageous for variable annuity
separate accounts of other life insurance companies, or for both variable
life insurance separate accounts and variable annuity separate accounts, to
invest simultaneously in the Funds. Currently neither the Company nor the
Funds foresee any such disadvantages to either variable annuity owners or
variable life insurance owners. The management of the Funds intends to
monitor events in order to identify any material conflicts between or among
variable annuity owners and variable life insurance owners and to determine
what action, if any, should be taken in response. In addition, if the
Company believes that any Fund's response to any of those events or
conflicts insufficiently protects Owners, it will take appropriate action on
its own. For more information see the Funds' prospectus.
A summary of the investment objective of each Portfolio of the Funds is set
forth below. There can be no assurance that any Portfolio will achieve its
objective. More detailed information is contained in the accompanying
prospectus of the Funds, including information on the risks associated with
the investments and investment techniques of each Portfolio.
THE FUNDS' PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO
The investment objective of the New America Growth Portfolio is long-term
growth of capital through investments primarily in the common stocks of U.S.
growth companies that operate in service industries.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
The investment objective of the International Stock Portfolio is to seek
long-term growth of capital through investments primarily in common stocks
of established, non-U.S. companies.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO
The investment objective of the Mid-Cap Growth Portfolio is to provide
long-term capital appreciation by investing primarily in common stocks of
medium-sized growth companies.
T. ROWE PRICE EQUITY INCOME PORTFOLIO
The investment objective of the Equity Income Portfolio is to provide
substantial dividend income and also capital appreciation by investing
primarily in dividend-paying common stocks of established companies.
T. ROWE PRICE PERSONAL STRATEGY BALANCED PORTFOLIO
The investment objective of the Personal Strategy Balanced Portfolio is to
seek the highest total return over time consistent with an emphasis on both
capital appreciation and income.
T. ROWE PRICE LIMITED-TERM BOND PORTFOLIO
The investment objective of the Limited-Term Bond Portfolio is to seek a
high level of income consistent with moderate price fluctuation by investing
primarily in short- and intermediate-term investment grade debt securities.
T. ROWE PRICE PRIME RESERVE PORTFOLIO
The investment objectives of the Prime Reserve Portfolio are preservation of
capital, liquidity, and, consistent with these, the highest possible current
income, by investing primarily in high-quality money market securities.
THE INVESTMENT ADVISERS
T. Rowe Price Associates, Inc. ("T. Rowe Price"), located at 100 East Pratt
Street, Baltimore, Maryland 21202, serves as Investment Adviser to each
Portfolio, except the T. Rowe Price International Stock Portfolio. Rowe
Price-Fleming International, Inc. ("Price-Fleming"), an affiliate of T. Rowe
Price, serves as Investment Adviser to the T. Rowe Price International Stock
Portfolio. Price-Fleming's U.S. office is located at 100 East Pratt Street,
Baltimore, Maryland 21202. As Investment Adviser to the Portfolios, T. Rowe
Price and Price-Fleming are responsible for selection and management of
portfolio investments. T. Rowe Price and Price-Fleming are registered with
the SEC as investment advisers.
T. Rowe Price and Price-Fleming are not affiliated with the Company, and the
Company has no responsibility for the management or operations of the
Portfolios.
THE CONTRACT
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GENERAL
The Company issues the Contract offered by this Prospectus. It is a flexible
premium deferred variable annuity. To the extent that you allocate all or a
portion of your purchase payments to the Subaccounts, the Contract is
significantly different from a fixed annuity contract in that it is the
Owner who assumes the risk of investment gain or loss rather than the
Company. When you are ready to begin receiving annuity payments, the
Contract provides several Annuity Options under which the Company will pay
periodic annuity payments on a variable basis, a fixed basis, or both,
beginning on the Annuity Payout Date. The amount that will be available for
annuity payments will depend on the investment performance of the
Subaccounts to which you have allocated Account Value and the amount of
interest credited on Account Value that you have allocated to the Fixed
Interest Account.
The Contract is available for purchase by an individual as a non-tax
qualified retirement plan ("Non-Qualified Plan"). The Contract is also
eligible for purchase as an individual retirement annuity ("IRA") qualified
under Section 408, or a Roth IRA under Section 408A, of the Internal Revenue
Code ("Qualified Plan"). You may name Joint Owners only on a Contract issued
pursuant to a Non-Qualified Plan.
APPLICATION FOR A CONTRACT
If you wish to purchase a Contract, you may submit an application and an
initial purchase payment to the Company, as well as any other form or
information that the Company may require. The initial purchase payment may
be made by check or, if you own shares of one or more Funds distributed by
Investment Services ("T. Rowe Price Funds"), you may elect on the
application to redeem shares of that fund(s) and forward the redemption
proceeds to the Company. Any such transaction shall be effected by
Investment Services, the distributor of the T. Rowe Price Funds and the
Contract. If you redeem fund shares, it is a sale of shares for tax
purposes, which may result in a taxable gain or loss. You may obtain an
application by contacting the Company. The Company reserves the right to
reject an application or purchase payment for any reason, subject to the
Company's underwriting standards and guidelines and any applicable state or
federal law relating to nondiscrimination.
The maximum age of an Owner or Annuitant for which a Contract will be issued
is 85. If there are Joint Owners or Annuitants, the maximum issue age will
be determined by reference to the older Owner or Annuitant.
PURCHASE PAYMENTS
If you are purchasing a Contract as a Non-Qualified Plan, the minimum
initial purchase payment is $10,000 ($5,000 if made pursuant to an Automatic
Investment Program). If you are purchasing a Contract as a Qualified Plan,
the minimum initial purchase payment is $2,000 ($25 if made pursuant to an
Automatic Investment Program). Thereafter, you may choose the amount and
frequency of purchase payments, except that the minimum subsequent purchase
payment is $1,000 ($200 if made pursuant to an Automatic Investment Program)
for Non-Qualified Plans and $500 ($25 if made pursuant to an Automatic
Investment Program) for Qualified Plans. The Company may reduce the minimum
purchase payment requirements under certain circumstances, such as for group
or sponsored arrangements. Cumulative purchase payments exceeding $1 million
will not be accepted under a Contract without prior approval of the Company.
The Company will apply the initial purchase payment not later than the end
of the second Valuation Date after the Valuation Date it is received by the
Company at P.O. Box 2788, Topeka, Kansas 66601-9804; provided that the
purchase payment is preceded or accompanied by an application that contains
sufficient information to establish an account and properly credit such
purchase payment. If the Company does not receive a complete application,
the Company will notify you that it does not have the necessary information
to issue a Contract. If you do not provide the necessary information within
five Valuation Dates after the Valuation Date on which the Company first
receives the initial purchase payment or if the Company determines it cannot
otherwise issue the Contract, the Company will return the initial purchase
payment to you unless you consent to the Company retaining the purchase
payment until the application is made complete.
The Company will credit subsequent purchase payments as of the end of the
Valuation Period in which they are received. You may make purchase payments
after the initial purchase payment at any time prior to the Annuity Payout
Date, so long as the Owner is living. Subsequent purchase payments under a
Qualified Plan may be limited by the terms of the plan and provisions of the
Internal Revenue Code. Subsequent purchase payments may be paid under an
Automatic Investment Program or, if you own shares of one or more T. Rowe
Price Funds, you may direct Investment Services to redeem shares of that
fund(s) and forward the redemption proceeds to the Company as a subsequent
purchase payment. The minimum initial purchase payment must be paid before
the Company will accept an Automatic Investment Program. If you redeem fund
shares, it is a sale of shares for tax purposes, which may result in a
taxable gain or loss.
ALLOCATION OF PURCHASE PAYMENTS
In an application for a Contract, you select the Subaccounts or the Fixed
Interest Account to which purchase payments will be allocated. The
allocation must be a whole percentage. Purchase payments will be allocated
according to your instructions contained in the application or more recent
instructions received, if any, except that no purchase payment allocation is
permitted that would result in less than 5% of any payment being allocated
to any one Subaccount or the Fixed Interest Account. Available allocation
alternatives include the seven Subaccounts and the Fixed Interest Account.
You may change the purchase payment allocation instructions by submitting a
proper written request to the Company. A proper change in allocation
instructions will be effective upon receipt by the Company and will continue
in effect until subsequently changed. You may change your purchase payment
allocation instructions by telephone or by sending a request in writing to
the Company. Changes in the allocation of future purchase payments have no
effect on existing Account Value. You may, however, exchange Account Value
among the Subaccounts and the Fixed Interest Account as described in
"Exchanges of Account Value," page 19.
DOLLAR COST AVERAGING OPTION
Prior to the Annuity Payout Date, you may dollar cost average your Account
Value by authorizing the Company to make periodic exchanges of Account Value
from any one Subaccount to one or more of the other Subaccounts. Dollar cost
averaging is a systematic method of investing in which securities are
purchased at regular intervals in fixed dollar amounts so that the cost of
the securities gets averaged over time and possibly over various market
cycles. The option will result in the exchange of Account Value from one
Subaccount to one or more of the other Subaccounts. Amounts exchanged under
this option will be credited at the Subaccount's price as of the end of the
Valuation Dates on which the exchanges are effected. Since the price of a
Subaccount's Accumulation Units will vary, the amounts allocated to a
Subaccount will result in the crediting of a greater number of units when
the price is low and a lesser number of units when the price is high.
Similarly, the amounts exchanged from a Subaccount will result in a debiting
of a greater number of units when the Subaccount's price is low and a lesser
number of units when the price is high. Dollar cost averaging does not
guarantee profits, nor does it assure that you will not have losses.
You may request a Dollar Cost Averaging Request form from the Company. On
the form, you must designate whether Account Value is to be exchanged on the
basis of a specific dollar amount, a fixed period or earnings only, the
Subaccount or Subaccounts to and from which the exchanges will be made, the
desired frequency of the exchanges, which may be on a monthly, quarterly,
semiannual, or annual basis, and the length of time during which the
exchanges shall continue or the total amount to be exchanged over time.
To elect the Dollar Cost Averaging Option, your Account Value must be at
least $5,000, ($2,000 for a Contract funding a Qualified Plan), and a Dollar
Cost Averaging Request in proper form must be received by the Company. The
Company will not consider the Dollar Cost Averaging Request form to be
complete until the your Account Value is at least the required amount. You
may not have in effect at the same time Dollar Cost Averaging and Asset
Rebalancing Options.
After the Company has received a Dollar Cost Averaging Request in proper
form, the Company will exchange Account Value in the amounts you designate
from the Subaccount from which exchanges are to be made to the Subaccount or
Subaccounts you have chosen. The minimum amount that may be exchanged is
$200 and the minimum amount that may be allocated to any one Subaccount is
$25. The Company will effect each exchange on the date you specify or if no
date is specified, on the monthly, quarterly, semiannual, or annual
anniversary, whichever corresponds to the period selected, of the date of
receipt at the Company of a Dollar Cost Averaging Request in proper form.
Exchanges will be made until the total amount elected has been exchanged, or
until the Account Value in the Subaccount from which exchanges are made has
been depleted. Amounts periodically exchanged under this option are not
included in the six exchanges per Contract Year that are allowed as
discussed in "Exchanges of Account Value," page 19.
You may instruct the Company at any time to terminate the option by written
request to the Company. In that event, the Account Value in the Subaccount
from which exchanges were being made that has not been exchanged will remain
in that Subaccount unless you instruct us otherwise. If you wish to continue
exchanging on a dollar cost averaging basis after the expiration of the
applicable period, the total amount elected has been exchanged, or the
Subaccount has been depleted, or after the Dollar Cost Averaging Option has
been canceled, you must complete a new Dollar Cost Averaging Request and
send it to the Company. The Contract must meet the $5,000 ($2,000 for a
Contract funding a Qualified Plan) minimum required amount of Account Value
at that time. The Company may discontinue, modify, or suspend the Dollar
Cost Averaging Option at any time provided that, as required by its contract
with Investment Services, the Company first obtains the consent of
Investment Services.
Account Value also may be dollar cost averaged to or from the Fixed Interest
Account, subject to certain restrictions described under "The Fixed Interest
Account," page 28.
ASSET REBALANCING OPTION
Prior to the Annuity Payout Date, you may authorize the Company to
automatically exchange Account Value each quarter to maintain a particular
percentage allocation among the Subaccounts. The Account Value allocated to
each Subaccount will grow or decline in value at different rates during the
quarter, and Asset Rebalancing automatically reallocates the Account Value
in the Subaccounts each quarter to the allocation you select. Asset
Rebalancing is intended to exchange Account Value from those Subaccounts
that have increased in value to those Subaccounts that have declined in
value. Over time, this method of investing may help you to buy low and sell
high, although there can be no assurance of this. This investment method
does not guarantee profits, nor does it assure that you will not have
losses.
To elect the Asset Rebalancing Option, the Account Value must be at least
$10,000 ($2,000 for a Contract funding a Qualified Plan) and an Asset
Rebalancing Request in proper form must be received by the Company. You may
not have in effect at the same time Dollar Cost Averaging and Asset
Rebalancing Options. An Asset Rebalancing Request form is available upon
request. On the form, you must indicate the applicable Subaccounts and the
percentage of Account Value which should be allocated to each of the
applicable Subaccounts each quarter under the Asset Rebalancing Option. If
the Asset Rebalancing Option is elected, all Account Value allocated to the
Subaccounts must be included in the Asset Rebalancing Option.
This option will result in the exchange of Account Value to one or more of
the Subaccounts on the date you specify or, if no date is specified, on the
date of the Company's receipt of the Asset Rebalancing Request in proper
form and on each quarterly anniversary of the applicable date thereafter.
The amounts exchanged will be credited at the price of the Subaccount as of
the end of the Valuation Dates on which the exchanges are effected. Amounts
periodically exchanged under this option are not included in the six
exchanges per Contract Year that are allowed as discussed below.
You may instruct us to terminate this option at any time by written request
to the Company. This option will terminate automatically in the event that
you exchange Account Value by written request or telephone instructions. In
either event, the Account Value in the Subaccounts that has not been
exchanged will remain in those Subaccounts regardless of the percentage
allocation unless you instruct us otherwise. If you wish to resume Asset
Rebalancing after it has been canceled, you must complete a new Asset
Rebalancing Request form and send it to the Company. The Account Value at
the time the request is made must be at least $10,000 ($2,000 for a Contract
funding a Qualified Plan). The Company may discontinue, modify, or suspend
the Asset Rebalancing Option at any time provided that, as required by its
contract with Investment Services, the Company first obtains the consent of
Investment Services.
Account Value allocated to the Fixed Interest Account may be included in
Asset Rebalancing, subject to certain restrictions described under "The
Fixed Interest Account," page 28.
EXCHANGES OF ACCOUNT VALUE
Prior to the Annuity Payout Date, you may exchange Account Value among the
Subaccounts upon proper written request to the Company. You may exchange
Account Value (other than exchanges in connection with the Dollar Cost
Averaging or Asset Rebalancing Options) by telephone if an Authorization for
Telephone Requests form has been properly completed, signed, and filed at
the Company. Up to six exchanges are allowed in any Contract Year. The
minimum exchange amount is $500 ($200 under the Dollar Cost Averaging
Option), or the amount remaining in a given Subaccount.
You may also exchange Account Value between the Subaccounts and the Fixed
Interest Account; however, exchanges from the Fixed Interest Account to the
Subaccounts are restricted as described in "The Fixed Interest Account,"
page 28. For a discussion of exchanges after the Annuity Payout Date, see
"Annuity Payments," page 24.
ACCOUNT VALUE
The Account Value is the sum of the amounts under the Contract held in each
Subaccount and the Fixed Interest Account. Account Value is determined as of
any Valuation Date during the Accumulation Period and during the Annuity
Period under Annuity Options 5 through 7.
On each Valuation Date, the portion of the Account Value allocated to any
particular Subaccount will be adjusted to reflect the investment experience
of that Subaccount for that date. See "Determination of Account Value,"
below. No minimum amount of Account Value is guaranteed. You bear the entire
investment risk relating to the investment performance of Account Value
allocated to the Subaccounts.
DETERMINATION OF ACCOUNT VALUE
Account Value will vary to a degree that depends upon several factors,
including investment performance of the Subaccounts to which you have
allocated Account Value, payment of subsequent purchase payments, partial
withdrawals, annuity payments under Options 5 through 7 , and the charges
assessed in connection with the Contract. The amounts allocated to the
Subaccounts will be invested in shares of the corresponding Portfolios of
the Funds. The investment performance of the Subaccounts will reflect
increases or decreases in the net asset value per share of the corresponding
Portfolios and any dividends or distributions declared by the corresponding
Portfolios. Any dividends or distributions from any Portfolio will be
automatically reinvested in shares of the same Portfolio, unless the
Company, on behalf of the Separate Account, elects otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Subaccount. When you allocate purchase payments to a
Subaccount, your Contract is credited with Accumulation Units. The number of
Accumulation Units to be credited is determined by dividing the dollar
amount allocated to the particular Subaccount by the price for the
particular Subaccount as of the end of the Valuation Period in which the
purchase payment is credited. In addition, other transactions including full
or partial withdrawals, exchanges, annuity payments under Options 5 through
7, and assessment of premium taxes against the Contract, all affect the
number of Accumulation Units credited to a Contract. The number of units
credited or debited in connection with any such transaction is determined by
dividing the dollar amount of such transaction by the price of the affected
Subaccount. The price of each Subaccount is determined as of each Valuation
Date. The number of Accumulation Units credited to a Contract will not be
changed by any subsequent change in the value of an Accumulation Unit, but
the price of an Accumulation Unit may vary from Valuation Date to Valuation
Date depending upon the investment experience of the Subaccount and charges
against the Subaccount.
The price of each Subaccount's units initially was $10. Determination of the
price of a Subaccount takes into account the following: (1) the investment
performance of the Subaccount, which is based upon the investment
performance of the corresponding Portfolio of the Funds, (2) any dividends
or distributions paid by the corresponding Portfolio, (3) the charges, if
any, that may be assessed by the Company for taxes attributable to the
operation of the Subaccount, and (4) the mortality and expense risk charge
under the Contract.
FULL AND PARTIAL WITHDRAWALS
Prior to the Annuity Payout Date, you may surrender the Contract for its
Withdrawal Value or make a partial withdrawal of Account Value. A full or
partial withdrawal, including a systematic withdrawal, may be taken from the
Account Value at any time while the Owner is living, subject to restrictions
on partial withdrawals of Account Value from the Fixed Interest Account and
limitations under applicable law. Withdrawals after the Annuity Payout Date
are permitted only under Annuity Options 5 through 7. See "Annuity
Payments," page 24. A full or partial withdrawal request will be effective
as of the end of the Valuation Period that a proper written request is
received by the Company. A proper written request must include the written
consent of any effective assignee or irrevocable Beneficiary, if applicable.
You may direct Investment Services to apply the proceeds of a full or
partial withdrawal to the purchase of shares of one or more of the T. Rowe
Price Funds by so indicating in your written withdrawal request.
The proceeds received upon a full withdrawal will be the Contract's
Withdrawal Value. The Withdrawal Value is equal to the Account Value as of
the end of the Valuation Period during which a proper withdrawal request is
received by the Company, less any premium taxes due and paid by the Company.
You may request a partial withdrawal as a specified percentage or dollar
amount of Account Value. Each partial withdrawal must be for at least $500
except systematic withdrawals discussed below. A request for a partial
withdrawal will result in a payment by the Company in accordance with the
amount specified in the partial withdrawal request. Upon payment, the
Account Value will be reduced by an amount equal to the payment and any
applicable premium tax. If a partial withdrawal is requested that would
leave the Withdrawal Value in the Contract less than $2,000, the Company
reserves the right to treat the partial withdrawal as a request for a full
withdrawal.
The amount of a partial withdrawal will be deducted from the Account Value
in the Subaccounts and the Fixed Interest Account, according to your
instructions to the Company, subject to the restrictions on partial
withdrawals from the Fixed Interest Account. See "The Fixed Interest
Account," page 28. If you do not specify the allocation, the Company will
contact you for instructions, and the withdrawal will be effected as of the
end of the Valuation Period in which such instructions are obtained. A full
or partial withdrawal, including a systematic withdrawal, may be subject to
a premium tax charge to reimburse the Company for any tax on premiums on a
Contract that may be imposed by various states and municipalities. See
"Premium Tax Charge," page 23.
A full or partial withdrawal, including a systematic withdrawal, may result
in receipt of taxable income to the Owner and, if made prior to the Owner's
attaining age 59 1/2, may be subject to a 10% penalty tax. You should
carefully consider the tax consequences of a withdrawal under the Contract.
See "Federal Tax Matters," page 32.
SYSTEMATIC WITHDRAWALS
The Company currently offers a feature under which you may elect to receive
systematic withdrawals of Account Value by sending a properly completed
Systematic Withdrawal Request form to the Company. Systematic withdrawals
are available only prior to the Annuity Payout Date. You may direct
Investment Services to apply the proceeds of a systematic withdrawal to the
purchase of shares of one or more of the T. Rowe Price Funds by so
indicating on the Systematic Withdrawal Request form. A proper request must
include the written consent of any effective assignee or irrevocable
Beneficiary, if applicable. You may designate the systematic withdrawal
amount as a percentage of Account Value allocated to the Subaccounts and/or
Fixed Interest Account, as a specified dollar amount, as all earnings in the
Contract, or as based upon the life expectancy of the Owner or the Owner and
a beneficiary, and the desired frequency of the systematic withdrawals,
which may be monthly, quarterly, semiannually, or annually. You may stop or
modify systematic withdrawals upon proper written request to the Company at
least 30 days in advance of the requested date of termination or
modification.
Each systematic withdrawal must be at least $100. Upon payment, your Account
Value will be reduced by an amount equal to the payment proceeds plus any
applicable premium taxes. Any systematic withdrawal that equals or exceeds
the Withdrawal Value will be treated as a full withdrawal. In no event will
payment of a systematic withdrawal exceed the Withdrawal Value. The Contract
will automatically terminate if a systematic withdrawal causes the
Contract's Withdrawal Value to equal zero.
The Company will effect each systematic withdrawal as of the end of the
Valuation Period during which the withdrawal is scheduled. The deduction
caused by the systematic withdrawal will be allocated to your Account Value
in the Subaccounts and the Fixed Interest Account based on your
instructions.
The Company may, at any time, discontinue, modify, or suspend systematic
withdrawals provided that, as required by its contract with Investment
Services, the Company first obtains the consent of Investment Services.
Systematic withdrawals from Account Value allocated to the Fixed Interest
Account must provide for payments over a period of not less than 36 months
as described under "The Fixed Interest Account," page 28. You should
consider carefully the tax consequences of a systematic withdrawal,
including the 10% penalty tax imposed on withdrawals made prior to the
Owner's attaining age 59 1/2. See "Federal Tax Matters," page 32.
FREE-LOOK RIGHT
You may return a Contract within the Free-Look Period, which is a 30-day
period beginning when you receive the Contract. The returned Contract will
then be deemed void and the Company will refund any purchase payments
allocated to the Fixed Interest Account plus the Account Value in the
Subaccounts as of the end of the Valuation Period during which the returned
Contract is received by the Company. The Company will return purchase
payments allocated to the Subaccounts rather than Account Value in those
circumstances in which it is required to do so.
DEATH BENEFIT
If the Owner dies during the Accumulation Period, the Company will pay the
death benefit proceeds to the Designated Beneficiary upon receipt of due
proof of death and instructions regarding payment to the Designated
Beneficiary. If there are Joint Owners, the death benefit proceeds will be
payable upon receipt of due proof of death of either Owner during the
Accumulation Period and instructions regarding payment. If the surviving
spouse of the deceased Owner is the sole Designated Beneficiary, such spouse
may elect to continue the Contract in force, subject to certain limitations.
See "Distribution Requirements" below. If the Owner is not a natural person,
the death benefit proceeds will be payable upon receipt of due proof of
death of the Annuitant during the Accumulation Period and instructions
regarding payment, and the amount of the death benefit is based on the age
of the oldest Annuitant on the date the Contract was issued. If the death of
an Owner occurs on or after the Annuity Payout Date, no death benefit
proceeds will be payable under the Contract, except that any guaranteed
annuity payments remaining unpaid will continue to be paid to the Annuitant
pursuant to the Annuity Option in force at the date of death. See "Annuity
Options," page 25.
The death benefit proceeds will be the death benefit reduced by any premium
taxes due or paid by the Company. If an Owner dies during the Accumulation
Period and the age of each Owner was 75 or younger on the date the Contract
was issued, the amount of the death benefit will be the greatest of (1) the
Account Value as of the end of the Valuation Period in which due proof of
death and instructions regarding payment are received by the Company, (2)
the aggregate purchase payments received less any reductions caused by
previous withdrawals, or (3) the stepped-up death benefit. The stepped-up
death benefit is: (a) the highest death benefit on any annual Contract
anniversary that is both an exact multiple of five and occurs prior to the
oldest Owner attaining age 76, plus (b) any purchase payments made since the
applicable fifth annual Contract anniversary, less (c) any withdrawals since
the applicable anniversary.
If an Owner dies during the Accumulation Period and the Contract was issued
to the Owner after age 75, the amount of the death benefit will be the
Account Value as of the end of the Valuation Period in which due proof of
death and instructions regarding payment are received by the Company.
The Company will pay the death benefit proceeds to the Designated
Beneficiary in a single sum or under one of the Annuity Options, as elected
by the Designated Beneficiary. If the Designated Beneficiary is to receive
annuity payments under an Annuity Option, there may be limits under
applicable law on the amount and duration of payments that the Beneficiary
may receive, and requirements respecting timing of payments. A tax adviser
should be consulted in considering Annuity Options. See "Federal Tax
Matters," page 32 for a discussion of the tax consequences in the event of
death.
DISTRIBUTION REQUIREMENTS
For Contracts issued in connection with Non-Qualified Plans, if the
surviving spouse of the deceased Owner is the sole Designated Beneficiary,
such spouse may elect to continue the Contract in force until the earlier of
the surviving spouse's death or the Annuity Payout Date or to receive the
death benefit proceeds. For any Designated Beneficiary other than a
surviving spouse, only those options may be chosen that provide for complete
distribution of the Owner's interest in the Contract within five years of
the death of the Owner. If the Designated Beneficiary is a natural person,
that person alternatively can elect to begin receiving annuity payments
within one year of the Owner's death over a period not extending beyond his
or her life or life expectancy. If the Owner of the Contract is not a
natural person, these distribution rules are applicable upon the death of or
a change in the primary Annuitant.
For Contracts issued in connection with Qualified Plans, the terms of any
Qualified Plan and the Internal Revenue Code should be reviewed with respect
to limitations or restrictions on distributions following the death of the
Owner or Annuitant. Because the rules applicable to Qualified Plans are
extremely complex, a competent tax adviser should be consulted.
DEATH OF THE ANNUITANT
If the Annuitant dies prior to the Annuity Payout Date, and the Owner is a
natural person and is not the Annuitant, no death benefit proceeds will be
payable under the Contract. The Owner may name a new Annuitant within 30
days of the Annuitant's death. If a new Annuitant is not named, the Company
will designate the Owner as Annuitant. On the death of the Annuitant on or
after the Annuity Payout Date, any guaranteed annuity payments remaining
unpaid will continue to be paid to the Designated Beneficiary pursuant to
the Annuity Option in force at the date of death. See "Annuity Options,"
page 25.
CHARGES AND DEDUCTIONS
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MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a daily charge from the assets of each Subaccount for
mortality and expense risks assumed by the Company under the Contracts. The
charge is equal to an annual rate of .55% of each Subaccount's average daily
net assets. This amount is intended to compensate the Company for certain
mortality and expense risks the Company assumes in offering and
administering the Contracts and in operating the Subaccounts.
The expense risk borne by the Company is the risk that the Company's actual
expenses in issuing and administering the Contracts and operating the
Subaccounts will be more than the profit realized from the mortality and
expense risk charge. The mortality risk borne by the Company is the risk
that Annuitants, as a group, will live longer than the Company's actuarial
tables predict. In this event, the Company guarantees that annuity payments
will not be affected by a change in mortality experience that results in the
payment of greater annuity income than assumed under the Annuity Options in
the Contract. The Company assumes a mortality risk in connection with the
death benefit under the Contract.
The Company may ultimately realize a profit from the mortality and expense
risk charge to the extent it is not needed to cover mortality and
administrative expenses, but the Company may realize a loss to the extent
the charge is not sufficient. The Company may use any profit derived from
this charge for any lawful purpose, including any promotional and
administrative expenses, including compensation paid by the Company to T.
Rowe Price Investment Services, Inc. or an affiliate thereof. The Company
pays Investment Services at the annual rate of .10% of each Subaccount's
average daily net assets for administrative services.
PREMIUM TAX CHARGE
Various states and municipalities impose a tax on premiums on annuity
contracts received by insurance companies. Whether or not a premium tax is
imposed will depend upon, among other things, the Owner's state of
residence, the Annuitant's state of residence, and the insurance tax laws
and the Company's status in a particular state. The Company assesses a
premium tax charge to reimburse itself for premium taxes that it incurs in
connection with a Contract. This charge will be deducted upon the Annuity
Payout Date, upon full or partial withdrawal, or upon payment of the death
benefit, if premium taxes are incurred at that time and are not refundable.
No premium tax is currently imposed in the State of New York. The Company
reserves the right to deduct premium taxes, if imposed, when due or any time
thereafter.
OTHER CHARGES
The Company may charge the Separate Account or the Subaccounts for the
federal, state, or local taxes incurred by the Company that are attributable
to the Separate Account or the Subaccounts, or to the operations of the
Company with respect to the Contracts, or that are attributable to payment
of premiums or acquisition costs under the Contracts. No such charge is
currently assessed. See "Tax Status of the Company and the Separate Account"
and "Charge for the Company's Taxes," page 32.
GUARANTEE OF CERTAIN CHARGES
The Company guarantees that the charge for mortality and expense risks will
not exceed an annual rate of .55% of each Subaccount's average daily net
assets.
FUND EXPENSES
Each Subaccount purchases shares at the net asset value of the corresponding
Portfolio of the Funds. Each Portfolio's net asset value reflects the
investment management fee and any other expenses that are deducted from the
assets of the Fund. These fees and expenses are not deducted from the
Subaccount, but are paid from the assets of the corresponding Portfolio. As
a result, you indirectly bear a pro rata portion of such fees and expenses.
The management fees and other expenses, if any, which are more fully
described in the Funds' prospectus, are not specified or fixed under the
terms of the Contract, and the Company bears no responsibility for such fees
and expenses.
ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
GENERAL
You may select the Annuity Payout Date at the time of application. You may
not defer the Annuity Payout Date beyond the Annuitant's 90th birthday,
although the terms of a Qualified Plan and the laws of certain states may
require you to begin receiving annuity payments at an earlier age. If you do
not select an Annuity Payout Date, the Annuity Payout Date will be the later
of the Annuitant's 70th birthday or the fifth annual Contract Anniversary.
See "Selection of an Option," page 26. If there are Joint Annuitants, the
birth date of the older Annuitant will be used to determine the latest
Annuity Payout Date.
On the Annuity Payout Date, the Account Value as of that date, less any
premium taxes, will be applied to provide an annuity under one of the
options described below. Each option is available either as a variable
annuity supported by the Subaccounts or as a fixed annuity supported by the
Fixed Interest Account. A combination variable and fixed annuity is also
available under Options 5 through 7. Your payment choices for each annuity
option are set forth in the table below.
----------------------------------------------------------------------------
COMBINATION
VARIABLE
ANNUITY OPTION VARIABLE FIXED AND FIXED
ANNUITY ANNUITY ANNUITY
----------------------------------------------------------------------------
Option 1 - Life Income X X
----------------------------------------------------------------------------
Option 2 - Life Income with Period Certain X X
----------------------------------------------------------------------------
Option 3 - Life Income with Installment Refund X X
----------------------------------------------------------------------------
Option 4 - Joint and Last Survivor X X
----------------------------------------------------------------------------
Option 5 - Payments for a Specified Period X X X
----------------------------------------------------------------------------
Option 6 - Payments of a Specified Amount X X X
----------------------------------------------------------------------------
Option 7 - Age Recalculation X X X
----------------------------------------------------------------------------
Variable annuity payments will fluctuate with the investment performance of
the applicable Subaccounts while fixed annuity payments will not. Unless you
direct otherwise, Account Value allocated to the Subaccounts will be applied
to purchase a variable annuity and Account Value allocated to the Fixed
Interest Account will be applied to purchase a fixed annuity.The Company
will make annuity payments on a monthly, quarterly, semiannual, or annual
basis. No annuity payments will be made for less than $20. You may direct
Investment Services to apply the proceeds of an annuity payment to shares of
one or more of the T. Rowe Price Funds by submitting a written request to
the Company. If the frequency of payments selected would result in payments
of less than $20, the Company reserves the right to change the frequency.
You may designate or change an Annuity Payout Date, Annuity Option and
Annuitant, provided proper written notice is received at the Company at
least 30 days prior to the Annuity Payout Date. The date selected as the new
Annuity Payout Date must be at least 30 days after the date written notice
requesting a change of Annuity Payout Date is received by the Company.
EXCHANGES AND WITHDRAWALS
During the Annuity Period, the Owner may exchange Account Value or Payment
Units among the Subaccounts upon proper written request to the Company. Up
to six exchanges are allowed in any Contract Year. Exchanges are not allowed
within 30 days of the Annuity Payout Date. Exchanges of Account Value or
Payment Units during the Annuity Period will result in future annuity
payments based upon the performance of the Subaccounts to which the exchange
is made.
The Owner may exchange Payment Units under Options 1 through 4 and may
exchange Account Value among the Subaccounts and the Fixed Interest Account
under Options 5 through 7, subject to the restrictions on exchanges from the
Fixed Interest Account described under the "Fixed Interest Account," page
28. The minimum amount of Account Value that may be exchanged is $500 or, if
less, the amount remaining in the Fixed Interest Account or Subaccount.
Once annuity payments have commenced, an Annuitant or Owner cannot change
the Annuity Option and generally cannot surrender his or her annuity for the
Withdrawal Value. Full and partial withdrawals of Account Value are
available, however, during the Annuity Period under Options 5 through 7,
subject to the restrictions on withdrawals from the Fixed Interest Account.
Partial withdrawals during the Annuity Period will reduce the amount of
future annuity payments.
ANNUITY OPTIONS
The Contract provides for seven Annuity Options. Other Annuity Options may
be available upon request at the discretion of the Company. If no Annuity
Option has been selected, annuity payments will be made to the Annuitant
under Option 2 which shall be an annuity payable monthly during the lifetime
of the Annuitant with payments guaranteed to be made for 10 years. The
Annuity Options are set forth below.
OPTION 1 - LIFE INCOME Periodic annuity payments will be made during the
lifetime of the Annuitant. It is possible under this Option for an Annuitant
to receive only one annuity payment if the Annuitant's death occurred prior
to the due date of the second annuity payment, two if death occurred prior
to the due date of the third annuity payment, etc. THERE IS NO MINIMUM
NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE
DEATH OF THE ANNUITANT, REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 2 - LIFE INCOME WITH PERIOD CERTAIN OF 5, 10, 15, OR 20 YEARS
Periodic annuity payments will be made during the lifetime of the Annuitant
with the promise that if, at the death of the Annuitant, payments have been
made for less than a stated period, which may be 5, 10, 15, or 20 years, as
elected, annuity payments will be continued during the remainder of such
period to the Designated Beneficiary. UPON THE ANNUITANT'S DEATH AFTER THE
PERIOD CERTAIN, NO FURTHER ANNUITY PAYMENTS WILL BE MADE.
OPTION 3 - LIFE INCOME WITH INSTALLMENT OR UNIT REFUND OPTION Periodic
annuity payments will be made during the lifetime of the Annuitant with the
promise that, if at the death of the Annuitant, the number of payments that
has been made is less than the number determined by dividing the amount
applied under this Option by the amount of the first payment, annuity
payments will be continued to the Designated Beneficiary until that number
of annuity payments has been made.
OPTION 4 - JOINT AND LAST SURVIVOR Periodic annuity payments will be made
during the lifetime of the Annuitants. Annuity payments will be made as long
as either Annuitant is living. Upon the death of one Annuitant, annuity
payments continue to the surviving annuitant at the same or a reduced level
of 75%, 66 2/3% or 50% of annuity payments as elected by the Owner at the
time the Annuity Option is selected. With respect to fixed annuity payments,
the amount of the annuity payment and, with respect to variable annuity
payments, the number of Payment Units used to determine the annuity payment
is reduced as of the first annuity payment following the Annuitant's death.
It is possible under this Option for only one annuity payment to be made if
both Annuitants died prior to the second annuity payment due date, two if
both died prior to the third annuity payment due date, etc. AS IN THE CASE
OF OPTION 1, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS
OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT,
REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 5 - PAYMENTS FOR SPECIFIED PERIOD Periodic annuity payments will be
made for a fixed period, which may be from 5 to 20 years, as elected by the
Owner. The amount of each annuity payment is determined by dividing Account
Value by the number of annuity payments remaining in the period. If, at the
death of the Annuitant, payments have been made for less than the selected
fixed period, the remaining unpaid payments will be paid to the Designated
Beneficiary.
OPTION 6 - PAYMENTS OF A SPECIFIED AMOUNT Periodic annuity payments of the
amount elected by the Owner will be made until Account Value is exhausted,
with the guarantee that, if, at the death of the Annuitant, all guaranteed
payments have not yet been made, the remaining unpaid payments will be paid
to the Designated Beneficiary. This Option is available only for Contracts
issued in connection with Non-Qualified Plans.
OPTION 7 - AGE RECALCULATION Periodic annuity payments will be made based
upon the Annuitant's life expectancy, or the joint life expectancy of the
Annuitant and a beneficiary, at the Annuitant's attained age (and the
beneficiary's attained or adjusted age, if applicable) each year. The
payments are computed by reference to government actuarial tables and are
made until Account Value is exhausted. Upon the Annuitant's death, any
Account Value will be paid to the Designated Beneficiary.
SELECTION OF AN OPTION
You should carefully review the Annuity Options with your financial or tax
adviser. For Contracts used in connection with a Qualified Plan, reference
should be made to the terms of the particular plan and the requirements of
the Internal Revenue Code for pertinent limitations respecting annuity
payments and other matters. For instance, Qualified Plans generally require
that annuity payments begin no later than April 1 of the calendar year
following the year in which the Annuitant reaches age 70 1/2. In addition,
under Qualified Plans, the period elected for receipt of annuity payments
under Annuity Options (other than life income) generally may be no longer
than the joint life expectancy of the Annuitant and beneficiary in the year
that the Annuitant reaches age 70 1/2, and must be shorter than such joint
life expectancy if the beneficiary is not the Annuitant's spouse and is more
than 10 years younger than the Annuitant. For Non-Qualified Plans, the
Company does not allow annuity payments to be deferred beyond the
Annuitant's 90th birthday.
ANNUITY PAYMENTS
Annuity payments under Options 1 through 4 are based upon annuity rates that
vary with the Annuity Option selected. The annuity rates will vary based
upon the age and sex of the Annuitant, except that unisex rates are used
where required by law. The annuity rates reflect your life expectancy based
upon your age as of the Annuity Payout Date and gender, unless unisex rates
apply. The annuity rates are based upon the 1983(a) mortality table adjusted
to reflect an assumed interest rate of 3.5% or 5%, compounded annually, as
selected by the Owner. In the case of Options 5, 6 and 7, annuity payments
are based upon Account Value without regard to annuity rates. The Company
calculates variable annuity payments under Options 1 through 4 using Payment
Units. The value of a Payment Unit for each Subaccount is determined as of
each Valuation Date and was initially $1.00. The Payment Unit value of a
Subaccount as of any subsequent Valuation Date is determined by adjusting
the Payment Unit value on the previous Valuation Date for (1) the interim
performance of the corresponding Portfolio of the Funds; (2) any dividends
or distributions paid by the corresponding Portfolio; (3) the mortality and
expense risk charge; (4) the charges, if any, that may be assessed by the
Company for taxes attributable to the operation of the Subaccount; and (5)
the assumed interest rate.
The Company determines the number of Payment Units used to calculate each
variable annuity payment as of the Annuity Payout Date. As discussed above,
the Contract specifies annuity rates for Options 1 through 4, which are the
guaranteed minimum dollar amount of monthly annuity payment for each $1,000
of Account Value, less any applicable premium taxes, applied to an Annuity
Option. The Account Value as of the Annuity Payout Date, less any applicable
premium taxes, is divided by $1,000 and the result is multiplied by the rate
per $1,000 specified in the annuity tables to determine the initial annuity
payment for a variable annuity and the guaranteed monthly annuity payment
for a fixed annuity.
On the Annuity Payout Date, the Company divides the initial variable annuity
payment by the value as of that date of the Payment Unit for the applicable
Subaccount to determine the number of Payment Units to be used in
calculating subsequent annuity payments. If variable annuity payments are
allocated to more than one Subaccount, the number of Payment Units will be
determined by dividing the portion of the initial variable annuity payment
allocated to a Subaccount by the value of that Subaccount's Payment Unit as
of the Annuity Payout Date. The initial variable annuity payment is
allocated to the Subaccounts in the same proportion as the Account Value is
allocated as of the Annuity Payout Date. The number of Payment Units will
remain constant for subsequent annuity payments, unless the Owner exchanges
Payment Units among Subaccounts.
Subsequent variable annuity payments are calculated by multiplying the
number of Payment Units allocated to a Subaccount by the value of the
Payment Unit as of the date of the annuity payment. If the annuity payment
is allocated to more than one Subaccount, the annuity payment is equal to
the sum of the payment amount determined for each Subaccount. An example is
set forth below of an annuity payment calculation under Option 2, assuming
purchase of a Contract by a 60-year-old male with Account Value of $100,000.
----------------------------------------------------------------------------
Account Value $100,000
Premium Tax - 0 $100,000
-------- -------- =100
Proceeds Under the Contract $100,000 $1,000
Amount determined by reference to annuity table for a male,
age 60 under Option 2.......................................... $4.78
First Variable Annuity Payment (100 x $4.78)................... $478
<TABLE>
<CAPTION>
ALLOCATION OF FIRST VARIABLE PAYMENT UNIT NUMBER OF PAYMENT
ACCOUNT VALUE ANNUITY PAYMENT VALUE ON ANNUITY UNITS USED TO DETERMINE
SUBACCOUNT UNDER ALLOCATION PAYOUT DATE SUBSEQUENT PAYMENTS
THE CONTRACT
<S> <C> <C> <C> <C> <C> <C>
Equity Income 50% $239.00 / $1.51 = 158.2781
International Stock 50% 239.00 / 1.02 = 234.3137
------
$478.00
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF PAYMENT UNITS PAYMENT UNIT VALUE ON SUBSEQUENT AMOUNT OF SUBSEQUENT
SUBACCOUNT USED TO DETERMINE PAYMENT DATE ANNUITY PAYMENT
SUBSEQUENT PAYMENTS
<S> <C> <C> <C> <C> <C>
Equity Income 158.2781 x $1.60 = $253.24
International Stock 234.3137 x 1.10 = 257.74
</TABLE>
Subsequent Variable Annuity Payment............................ $510.98
- --------------------------------------------------------------------------------
ASSUMED INTEREST RATE
As discussed above, the annuity rates for Options 1 through 4 are based upon
an assumed interest rate of 3.5% or 5%, compounded annually, as you elect at
the time the Annuity Option is selected. Variable annuity payments generally
increase or decrease from one annuity payment date to the next based upon
the performance of the applicable Subaccounts during the interim period
adjusted for the assumed interest rate. If the performance of the
Subaccounts is equal to the assumed interest rate, annuity payments will
remain constant. If the performance of the Subaccounts is greater than the
assumed interest rate, the amount of the annuity payments will increase and
if it is less than the assumed interest rate, the amount of the annuity
payments will decline. A higher assumed interest rate, for example 5%, would
mean a higher initial variable annuity payment, but the amount of the
annuity payments would increase more slowly in a rising market (or the
amount of the annuity payments would decline more rapidly in a falling
market). Conversely, a lower assumed interest rate, for example 3.5%, would
mean a lower initial variable annuity payment and more rapidly rising
annuity payment amounts in a rising market and more slowly declining payment
amounts in a falling market.
THE FIXED INTEREST ACCOUNT
- --------------------------------------------------------------------------------
You may allocate all or a portion of your purchase payments and exchange
Account Value to the Fixed Interest Account. Amounts allocated to the Fixed
Interest Account become part of the Company's General Account, which
supports the Company's insurance and annuity obligations. The Company's
General Account is subject to regulation and supervision by the New York
Department of Insurance. In reliance on certain exemptive and exclusionary
provisions, interests in the Fixed Interest Account have not been registered
as securities under the Securities Act of 1933 (the "1933 Act") and the
Fixed Interest Account has not been registered as an investment company
under the Investment Company Act of 1940 (the "1940 Act"). Accordingly,
neither the Fixed Interest Account nor any interests therein are generally
subject to the provisions of the 1933 Act or the 1940 Act. The Company has
been advised that the staff of the SEC has not reviewed the disclosure in
this Prospectus relating to the Fixed Interest Account. This disclosure,
however, may be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of
statements made in the Prospectus. This Prospectus is generally intended to
serve as a disclosure document only for aspects of a Contract involving the
Separate Account and contains only selected information regarding the Fixed
Interest Account. For more information regarding the Fixed Interest Account,
see "The Contract," page 15.
Amounts allocated to the Fixed Interest Account become part of the General
Account of the Company, which consists of all assets owned by the Company
other than those in the Separate Account and other separate accounts of the
Company. Subject to applicable law, the Company has sole discretion over the
investment of the assets of its General Account.
INTEREST
Account Value allocated to the Fixed Interest Account earns interest at a
fixed rate or rates that are paid by the Company. The Account Value in the
Fixed Interest Account earns interest at an interest rate that is guaranteed
to be at least an annual effective rate of 3% which will accrue daily
("Guaranteed Rate"). Such interest will be paid regardless of the actual
investment experience of the Company's General Account. In addition, the
Company may in its discretion pay interest at a rate ("Current Rate") that
exceeds the Guaranteed Rate. The Company will determine the Current Rate, if
any, from time to time.
Account Value allocated or exchanged to the Fixed Interest Account will earn
interest at the Current Rate, if any, in effect on the date such portion of
Account Value is allocated or exchanged to the Fixed Interest Account. The
Current Rate paid on any such portion of Account Value allocated or
exchanged to the Fixed Interest Account will be guaranteed for rolling
one-year periods (each a "Guarantee Period"). Upon expiration of any
Guarantee Period, a new Guarantee Period begins with respect to that portion
of Account Value, which will earn interest at the Current Rate, if any,
declared by the Company as of the first day of the new Guarantee Period.
Account Value allocated or exchanged to the Fixed Interest Account at one
point in time may be credited with a different Current Rate than amounts
allocated or exchanged to the Fixed Interest Account at another point in
time. For example, amounts allocated to the Fixed Interest Account in June
may be credited with a different Current Rate than amounts allocated to the
Fixed Interest Account in July. Therefore, at any time, various portions of
a Contractowner's Account Value in the Fixed Interest Account may be earning
interest at different Current Rates depending upon the point in time such
portions were allocated or exchanged to the Fixed Interest Account. The
Company bears the investment risk for the Account Value allocated to the
Fixed Interest Account and for paying interest at the Guaranteed Rate on
amounts allocated to the Fixed Interest Account.
For purposes of determining the interest rates to be credited on Account
Value in the Fixed Interest Account, withdrawals or exchanges from the Fixed
Interest Account will be deemed to be taken first from any portion of
Account Value allocated to the Fixed Interest Account for which the
Guarantee Period expires during the calendar month in which the withdrawal
or exchange is effected, then in the order beginning with that portion of
such Account Value which has the longest amount of time remaining before the
end of its Guarantee Period and ending with that portion which has the least
amount of time remaining before the end of its Guarantee Period. For more
information about exchanges and withdrawals from the Fixed Interest Account,
see "Exchanges and Withdrawals" below.
DEATH BENEFIT
The death benefit under the Contract will be determined in the same fashion
for a Contract that has Account Value in the Fixed Interest Account as for a
Contract that has Account Value allocated to the Subaccounts. See "Death
Benefit," page 21.
CONTRACT CHARGES
Premium taxes will be the same for Contractowners who allocate purchase
payments or exchange Account Value to the Fixed Interest Account as for
those who allocate purchase payments to the Subaccounts. The charge for
mortality and expense risks will not be assessed against the Fixed Interest
Account, and any amounts that the Company pays for income taxes allocable to
the Subaccounts will not be charged against the Fixed Interest Account. In
addition, the investment management fees and any other expenses paid by the
Funds will not be paid directly or indirectly by Contractowners to the
extent the Account Value is allocated to the Fixed Interest Account;
however, such Contractowners will not participate in the investment
experience of the Subaccounts.
EXCHANGES AND WITHDRAWALS
Amounts may be exchanged from the Subaccounts to the Fixed Interest Account
and from the Fixed Interest Account to the Subaccounts, subject to the
following limitations. Exchanges from the Fixed Interest Account are allowed
only (1) from Account Value, the Guarantee Period of which expires during
the calendar month in which the exchange is effected, (2) pursuant to the
Dollar Cost Averaging Option provided that such exchanges are scheduled to
be made over a period of not less than one year, and (3) pursuant to the
Asset Rebalancing Option, provided that upon receipt of the Asset
Rebalancing Request, Account Value is allocated among the Fixed Interest
Account and the Subaccounts in the percentages selected by the Contractowner
without violating the restrictions on exchanges from the Fixed Interest
Account set forth in (1) above. Accordingly, a Contractowner who desires to
implement the Asset Rebalancing Option should do so at a time when Account
Value may be exchanged from the Fixed Interest Account to the Subaccounts in
the percentages selected by the Contractowner without violating the
restrictions on exchanges from the Fixed Interest Account. Once an Asset
Rebalancing Option is implemented, the restrictions on exchanges will not
apply to exchanges made pursuant to the Option. Up to six exchanges are
allowed in any Contract Year and exchanges pursuant to the Dollar Cost
Averaging and Asset Rebalancing Options are not included in the six
exchanges allowed per Contract Year. The minimum exchange amount is $500
($200 under the Dollar Cost Averaging Option) or the amount remaining in the
Fixed Interest Account.
If Account Value is being exchanged from the Fixed Interest Account pursuant
to the Dollar Cost Averaging or Asset Rebalancing Option or withdrawn from
the Fixed Interest Account pursuant to systematic withdrawals, any purchase
payment allocated to, or Account Value exchanged to or from, the Fixed
Interest Account will automatically terminate such Dollar Cost Averaging or
Asset Rebalancing Option or systematic withdrawals, and any withdrawal from
the Fixed Interest Account or the Subaccounts will automatically terminate
the Asset Rebalancing Option. In the event of automatic termination of any
of the foregoing options, the Company shall so notify the Contractowner, and
the Contractowner may reestablish Dollar Cost Averaging, Asset Rebalancing,
or systematic withdrawals by sending a written request to the Company,
provided that the Owner's Account Value at that time meets any minimum
amount required for the Dollar Cost Averaging or Asset Rebalancing Option.
The Contractowner may also make full withdrawals to the same extent as a
Contractowner who has allocated Account Value to the Subaccounts. A
Contractowner may make a partial withdrawal from the Fixed Interest Account
only (1) from Account Value, the Guarantee Period of which expires during
the calendar month in which the partial withdrawal is effected, (2) pursuant
to systematic withdrawals, and (3) once per Contract Year in an amount up to
the greater of $5,000 or 10% of Account Value allocated to the Fixed
Interest Account at the time of the partial withdrawal. Systematic
withdrawals from Account Value allocated to the Fixed Interest Account must
provide for payments over a period of not less than 36 months. See "Full and
Partial Withdrawals," page 20 and "Systematic Withdrawals," page 21.
PAYMENTS FROM THE FIXED INTEREST ACCOUNT
The Company reserves the right to delay for up to six months after a written
request in proper form is received by the Company, full and partial
withdrawals and exchanges from the Fixed Interest Account. During the period
of deferral, interest at the applicable interest rate or rates will continue
to be credited to the amounts allocated to the Fixed Interest Account. The
Company does not expect to delay payments from the Fixed Interest Account
and will notify you if there will be a delay.
MORE ABOUT THE CONTRACT
- --------------------------------------------------------------------------------
OWNERSHIP
The Contractowner is the person named as such in the application or in any
later change shown in the Company's records. While living, the Contractowner
alone has the right to receive all benefits and exercise all rights that the
Contract grants or the Company allows. The Owner may be an entity that is
not a living person, such as a trust or corporation, referred to herein as
"Non-Natural Persons." See "Federal Tax Matters," below.
JOINT OWNERS. The Joint Owners will be joint tenants with rights of
survivorship and upon the death of an Owner, the surviving Owner shall be
the sole Owner. Any Contract transaction requires the signature of all
persons named jointly. Joint Owners are permitted only on a Contract issued
pursuant to a Non-Qualified Plan.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary is the individual named as such in the application or any
later change shown in the Company's records. The Contractowner may change
the Beneficiary at any time while the Contract is in force by written
request on a form provided by the Company and received by the Company. The
change will not be binding on the Company until it is received and recorded
by the Company. The change will be effective as of the date this form is
signed subject to any payments made or other actions taken by the Company
before the change is received and recorded. A Secondary Beneficiary may be
designated. The Owner may designate a permanent Beneficiary whose rights
under the Contract cannot be changed without the Beneficiary's consent.
NON-PARTICIPATING
The Company is a stock life insurance company and, accordingly, no dividends
are paid by the Company on the Contract.
PAYMENTS FROM THE SEPARATE ACCOUNT
The Company will pay any full or partial withdrawal benefit or death benefit
proceeds from Account Value allocated to the Subaccounts, and will effect an
exchange between Subaccounts or from a Subaccount to the Fixed Interest
Account within seven days from the Valuation Date a proper request is
received by the Company. However, the Company can postpone the calculation
or payment of such a payment or exchange of amounts from the Subaccounts to
the extent permitted under applicable law, for any period: (a) during which
the New York Stock Exchange is closed other than customary weekend and
holiday closings, (b) during which trading on the New York Stock Exchange is
restricted as determined by the SEC, or (c) during which an emergency, as
determined by the SEC, exists as a result of which (i) disposal of
securities held by the Separate Account is not reasonably practicable, or
(ii) it is not reasonably practicable to determine the value of the assets
of the Separate Account.
PROOF OF AGE AND SURVIVAL
The Company may require proof of age or survival of any person on whose life
annuity payments depend.
MISSTATEMENTS
If the age or sex of an Annuitant or age of an Owner has been misstated, the
correct amount paid or payable by the Company under the Contract shall be
such as the Account Value would have provided for the correct age or sex
(unless unisex rates apply).
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
INTRODUCTION
The Contract described in this Prospectus is designed for use by individuals
in retirement plans which may or may not be Qualified Plans under the
provisions of the Internal Revenue Code ("Code").
The ultimate effect of federal income taxes on the amounts held under a
Contract, on annuity payments, and on the economic benefits to the Owner,
the Annuitant, and the Beneficiary or other payee will depend upon the type
of retirement plan for which the Contract is purchased, the tax and
employment status of the individuals involved, and a number of other
factors. The discussion of the federal income tax considerations relating to
a contract contained herein and in the Statement of Additional Information
is general in nature and is not intended to be an exhaustive discussion of
all questions that might arise in connection with a Contract. It is based
upon the Company's understanding of the present federal income tax laws as
currently interpreted by the Internal Revenue Service ("IRS"), and is not
intended as tax advice. No representation is made regarding the likelihood
of continuation of the present federal income tax laws or of the current
interpretations by the IRS or the courts. Future legislation may affect
annuity contracts adversely. Moreover, no attempt has been made to consider
any applicable state or other laws. Because of the inherent complexity of
the tax laws and the fact that tax results will vary according to the
particular circumstances of the individual involved and, if applicable, the
Qualified Plan, a person should consult a qualified tax adviser regarding
the purchase of a Contract, the selection of an Annuity Option under a
Contract, the receipt of annuity payments under a Contract, or any other
transaction involving a Contract (including an exchange). THE COMPANY DOES
NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX CONSEQUENCES
ARISING FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACT.
TAX STATUS OF THE COMPANY AND THE SEPARATE ACCOUNT
GENERAL
The Company intends to be taxed as a life insurance company under Part I,
Subchapter L of the Code. Because the operations of the Separate Account
form a part of the Company, the Company will be responsible for any federal
income taxes that become payable with respect to the income of the Separate
Account and its Subaccounts.
CHARGE FOR THE COMPANY'S TAXES
A charge may be made against the Separate Account for any federal taxes
incurred by the Company that are attributable to the Separate Account, the
Subaccounts, or to the operations of the Company with respect to the
Contracts or attributable to payments, premiums, or acquisition costs under
the Contracts. The Company will review the question of a charge to the
Separate Account, the Subaccounts, or the Contracts for the Company's
federal taxes periodically. Charges may become necessary if, among other
reasons, the tax treatment of the Company or of income and expenses under
the Contracts is ultimately determined to be other than what the Company
currently believes it to be, if there are changes made in the federal income
tax treatment of variable annuities at the insurance company level, or if
there is a change in the Company's tax status.
Under current laws, the Company may incur state and local taxes (in addition
to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, the Company reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS
Each of the Portfolios will be required to adhere to regulations issued by
the Treasury Department pursuant to Section 817(h) of the Code prescribing
asset diversification requirements for investment companies whose shares are
sold to insurance company separate accounts funding variable contracts.
Pursuant to these regulations, on the last day of each calendar quarter (or
on any day within 30 days thereafter), no more than 55% of the total assets
of a Portfolio may be represented by any one investment, no more than 70%
may be represented by any two investments, no more than 80% may be
represented by any three investments, and no more than 90% may be
represented by any four investments. For purposes of Section 817(h),
securities of a single issuer generally are treated as one investment, but
obligations of the U.S. Treasury and each U.S. Governmental agency or
instrumentality generally are treated as securities of separate issuers. The
Separate Account, through the Portfolios, intends to comply with the
diversification requirements of Section 817(h).
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contractowner's gross income. The IRS has stated in published
rulings that a variable contractowner will be considered the owner of
separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise investment
control over the assets. The Treasury Department also announced, in
connection with the issuance of regulations concerning diversification, that
those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor (i.e., the policyowner), rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by way of regulations
or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has
been issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, in the present case the Contractowner has additional flexibility in
allocating purchase payments and Contract Values than in the cases described
in the rulings. These differences could result in a Contractowner being
treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, the Company does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department
has stated it expects to issue. The Company therefore reserves the right to
modify the Contract, as deemed appropriate by the Company, to attempt to
prevent a Contractowner from being considered the owner of a pro rata share
of the assets of the Separate Account. Moreover, in the event that
regulations or rulings are promulgated, there can be no assurance that the
Portfolios will be able to operate as currently described in the Prospectus,
or that the Funds will not have to change any Portfolio's investment
objective or investment policies.
INCOME TAXATION OF ANNUITIES IN GENERAL-NON-QUALIFIED PLANS
Section 72 of the Code governs the taxation of annuities. In general, a
Contractowner is not taxed on increases in value under an annuity contract
until some form of distribution is made under the contract. However, the
increase in value may be subject to tax currently under certain
circumstances. See "Contracts Owned by Non-Natural Persons" on page 35 and
"Diversification Standards" on page 33. Withholding of federal income taxes
on all distributions may be required unless a recipient who is eligible
elects not to have any amounts withheld and properly notifies the Company of
that election.
* SURRENDERS OR WITHDRAWALS PRIOR TO THE ANNUITY PAYOUT DATE Code Section
72 provides that amounts received upon a total or partial withdrawal
(including systematic withdrawals) from a Contract prior to the Annuity
Payout Date generally will be treated as gross income to the extent that
the cash value of the Contract (determined without regard to any
surrender charge in the case of a partial withdrawal) exceeds the
"investment in the contract." The "investment in the contract" is that
portion, if any, of purchase payments paid under a Contract less any
distributions received previously under the Contract that are excluded
from the recipient's gross income. The taxable portion is taxed at
ordinary income tax rates. For purposes of this rule, a pledge or
assignment of a Contract is treated as a payment received on account of a
partial withdrawal of a Contract. Similarly, loans under a Contract are
generally treated as distributions under the Contract.
* SURRENDERS OR WITHDRAWALS ON OR AFTER THE ANNUITY PAYOUT DATE Upon a
complete surrender, the receipt is taxable to the extent that the cash
value of the Contract exceeds the investment in the Contract. The taxable
portion of such payments will be taxed at ordinary income tax rates. For
fixed annuity payments, the taxable portion of each payment generally is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the
total expected amount of annuity payments for the term of the Contract.
That ratio is then applied to each payment to determine the non-taxable
portion of the payment. The remaining portion of each payment is taxed at
ordinary income rates. For variable annuity payments, the taxable portion
of each payment is determined by using a formula known as the "excludable
amount," which establishes the non-taxable portion of each payment. The
non-taxable portion is a fixed dollar amount for each payment, determined
by dividing the investment in the Contract by the number of payments to
be made. The remainder of each variable annuity payment is taxable. Once
the excludable portion of annuity payments to date equals the investment
in the Contract, the balance of the annuity payments will be fully
taxable.
* PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS With respect to amounts
withdrawn or distributed before the taxpayer reaches age 59 1/2, a
penalty tax is generally imposed equal to 10% of the portion of such
amount which is includible in gross income. However, the penalty tax is
not applicable to withdrawals: (i) made on or after the death of the
owner (or where the owner is not an individual, the death of the "primary
annuitant," who is defined as the individual the events in whose life are
of primary importance in affecting the timing and amount of the payout
under the Contract); (ii) attributable to the taxpayer's becoming totally
disabled within the meaning of Code Section 72(m)(7); (iii) which are
part of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
taxpayer, or the joint lives (or joint life expectancies) of the taxpayer
and his or her beneficiary; (iv) from certain qualified plans; (v) under
a so-called qualified funding asset (as defined in Code Section 130(d));
(vi) under an immediate annuity contract; or (vii) which are purchased by
an employer on termination of certain types of qualified plans and which
are held by the employer until the employee separates from service.
If the penalty tax does not apply to a surrender or withdrawal as a
result of the application of item (iii) above, and the series of payments
are subsequently modified (other than by reason of death or disability),
the tax for the first year in which the modification occurs will be
increased by an amount (determined by the regulations) equal to the tax
that would have been imposed but for item (iii) above, plus interest for
the deferral period, if the modification takes place (a) before the close
of the period which is five years from the date of the first payment and
after the taxpayer attains age 59 1/2, or (b) before the taxpayer reaches
age 59 1/2.
ADDITIONAL CONSIDERATIONS
* DISTRIBUTION-AT-DEATH RULES In order to be treated as an annuity
contract, a Contract must provide the following two distribution rules:
(a) if any owner dies on or after the Annuity Payout Date, and before the
entire interest in the Contract has been distributed, the remainder of
the owner's interest will be distributed at least as quickly as the
distribution method in effect on the owner's death; and (b) if any owner
dies before the Annuity Payout Date, the entire interest in the Contract
must generally be distributed within five years after the date of death,
or, if payable to a designated beneficiary, must be annuitized over the
life of that designated beneficiary or over a period not extending beyond
the life expectancy of that beneficiary, commencing within one year after
the date of death of the owner. If the sole designated beneficiary is the
spouse of the deceased owner, the Contract (together with the deferral of
tax on the accrued and future income thereunder) may be continued in the
name of the spouse as owner.
Generally, for purposes of determining when distributions must begin
under the foregoing rules, where an owner is not an individual, the
primary annuitant is considered the owner. In that case, a change in the
primary annuitant will be treated as the death of the owner. Finally, in
the case of joint owners, the distribution-at-death rules will be applied
by treating the death of the first owner as the one to be taken into
account in determining generally when distributions must commence, unless
the sole Beneficiary is the deceased owner's spouse.
* GIFT OF ANNUITY CONTRACTS Generally, gifts of Non-Qualified Plan
Contracts prior to the Annuity Payout Date will trigger tax on the gain
on the Contract, with the donee getting a stepped-up basis for the amount
included in the donor's income. The 10% penalty tax and gift tax also may
be applicable. This provision does not apply to transfers between spouses
or incident to a divorce.
* CONTRACTS OWNED BY NON-NATURAL PERSONS If the Contract is held by a
non-natural person (for example, a corporation), the income on that
Contract (generally the increase in net surrender value less the purchase
payments) is includible in taxable income each year. The rule does not
apply where the Contract is acquired by the estate of a decedent, where
the Contract is held by certain types of retirement plans, where the
Contract is a qualified funding asset for structured settlements, where
the Contract is purchased on behalf of an employee upon termination of a
qualified plan, and in the case of a so-called immediate annuity. An
annuity contract held by a trust or other entity as agent for a natural
person is considered held by a natural person.
* MULTIPLE CONTRACT RULE For purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as annuities)
that is includible in gross income, all Non-Qualified annuity contracts
issued by the same insurer to the same Contractowner during any calendar
year are to be aggregated and treated as one contract. Thus, any amount
received under any such contract prior to the contract's Annuity Payout
Date, such as a partial withdrawal, dividend, or loan, will be taxable
(and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts.
In addition, the Treasury Department has broad regulatory authority in
applying this provision to prevent avoidance of the purposes of this
rule. It is possible that, under this authority, the Treasury Department
may apply this rule to amounts that are paid as annuities (on and after
the Annuity Payout Date) under annuity contracts issued by the same
company to the same owner during any calendar year. In this case, annuity
payments could be fully taxable (and possibly subject to the 10% penalty
tax) to the extent of the combined income in all such contracts and
regardless of whether any amount would otherwise have been excluded from
income because of the "exclusion ratio" under the contract.
* POSSIBLE TAX CHANGES In recent years, legislation has been proposed that
would have adversely modified the federal taxation of certain annuities,
and President Clinton's fiscal-year 1999 Budget proposal includes a
provision that, if adopted, would impose new taxes on owners of variable
annuities. There is always the possibility that the tax treatment of
annuities could change by legislation or other means (such as IRS
regulations, revenue rulings, and judicial decisions). Moreover, although
unlikely, it is also possible that any legislative change could be
retroactive (that is, effective prior to the date of such change).
* TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A CONTRACT A transfer of
ownership of a Contract, the designation of an Annuitant, Payee, or other
Beneficiary who is not also the Owner, the selection of certain Annuity
Payout Dates or the exchange of a Contract may result in certain tax
consequences to the Owner that are not discussed herein. An Owner
contemplating any such transfer, assignment, selection, or exchange
should contact a qualified tax adviser with respect to the potential
effects of such a transaction.
QUALIFIED PLANS
The Contract may be used as a Qualified Plan that meets the requirements of
an individual retirement annuity ("IRA") under Section 408 of the Code. No
attempt is made herein to provide more than general information about the
use of the Contract as a Qualified Plan. Contractowners, Annuitants, and
Beneficiaries are cautioned that the rights of any person to any benefits
under such Qualified Plans may be limited by applicable law, regardless of
the terms and conditions of the Contract issued in connection therewith.
The amount that may be contributed to a Qualified Plan is subject to
limitations under the Code. In addition, early distributions from Qualified
Plans may be subject to penalty taxes. Furthermore, distributions from most
Qualified Plans are subject to certain minimum distribution rules. Failure
to comply with these rules could result in disqualification of the Plan or
subject the Owner or Annuitant to penalty taxes. As a result, the minimum
distribution rules may limit the availability of certain Annuity Options to
certain Annuitants and their beneficiaries. These rules and requirements may
not be incorporated into our Contract administration procedures. Therefore,
Contractowners, Annuitants, and Beneficiaries are responsible for
determining that contributions, distributions, and other transactions with
respect to the Contracts comply with applicable law.
THE FOLLOWING IS A BRIEF DESCRIPTION OF QUALIFIED PLANS AND THE USE OF THE
CONTRACT THEREWITH:
* SECTION 408
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to establish individual retirement programs through the
purchase of Individual Retirement Annuities ("traditional IRAs"). The
Contract may be purchased as an IRA. The IRAs described in this paragraph
are called "traditional IRAs" to distinguish them from "Roth IRAs" which
became available in 1998.
IRAs are subject to limitations on the amount that may be contributed,
the persons who may be eligible, and on the time when distributions must
commence. Depending upon the circumstances of the individual,
contributions to a traditional IRA may be made on a deductible or
nondeductible basis. IRAs may not be transferred, sold, assigned,
discounted, or pledged as collateral for a loan or other obligation. The
annual premium for an IRA may not be fixed and may not exceed $2,000. Any
refund of premium must be applied to the payment of future premiums or
the purchase of additional benefits.
Sale of the Contracts for use with IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the
Contracts for such purposes will be provided with such supplementary
information as may be required by the Internal Revenue Service and will
have the right to revoke the Contract under certain circumstances. See
the IRA Disclosure Statement which accompanies this Prospectus.
An individual's interest in a traditional IRA must generally be
distributed or begin to be distributed not later than April 1 of the
calendar year following the calendar year in which the individual reaches
age 70 1/2 ("required beginning date"). The Contractowner's retirement
date, if any, will not affect his or her required beginning date.
Periodic distributions must not extend beyond the life of the individual
or the lives of the individual and a designated beneficiary (or over a
period extending beyond the life expectancy of the individual or the
joint life expectancy of the individual and a designated beneficiary).
If an individual dies before reaching his or her required beginning date,
the individual's entire interest must generally be distributed within
five years of the individual's death. However, the five-year rule will be
deemed satisfied if distributions begin before the close of the calendar
year following the individual's death to a designated beneficiary and are
made over the life of the beneficiary (or over a period not extending
beyond the life expectancy of the beneficiary). If the designated
beneficiary is the individual's surviving spouse, distributions may be
delayed until the individual would have reached age 70 1/2.
If an individual dies after reaching his or her required beginning date,
the individual's interest must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
individual's death.
Distributions from IRAs are generally taxed under Code Section 72. Under
these rules, a portion of each distribution may be excludable from
income. The amount excludable from the individual's income is the amount
of the distribution which bears the same ratio as the individual's
nondeductible contributions bear to the expected return under the IRA.
The Internal Revenue Service has not reviewed the Contract for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether a death benefit provision such as the provision in
the Contract comports with IRA qualification requirements.
* TAX PENALTIES
PREMATURE DISTRIBUTION TAX. Distributions from a Qualified Plan before
the owner reaches age 59 1/2 are generally subject to an additional tax
equal to 10% of the taxable portion of the distribution. The 10% penalty
tax does not apply to distributions: (i) made on or after the death of
the Owner; (ii) attributable to the Owner's disability; (iii) which are
part of a series of substantially equal periodic payments made (at least
annually) for the life (or life expectancy) of the Owner or the joint
lives (or joint life expectancies) of the Owner and a designated
beneficiary; (iv) made to pay for certain medical expenses; (v) that are
exempt withdrawals of an excess contribution; (vi) that are rolled over
or transferred in accordance with Code requirements; or (vii) which,
subject to certain restrictions, do not exceed the health insurance
premiums paid by unemployed individuals in certain cases. Starting
January 1, 1998, there are two additional exceptions to the 10% penalty
tax on withdrawals from IRAs before age 59 1/2: withdrawals made to pay
"qualified higher education expenses" and certain "qualified first-time
homebuyer distributions."
MINIMUM DISTRIBUTION TAX. If the amount distributed from a Qualified Plan
is less than the minimum required distribution for the year, the Owner is
subject to a 50% tax on the amount that was not properly distributed.
EXCESS DISTRIBUTION/ACCUMULATION TAX. The penalty tax of 15% which was
imposed (in addition to any ordinary income tax) on large plan
distributions and the "excess retirement accumulations" of an individual
has been repealed, effective January 1, 1997.
* WITHHOLDING
Periodic distributions (e.g., annuities and installment payments) from a
Qualified Plan that will last for a period of 10 or more years are
generally subject to voluntary income tax withholding. The amount
withheld on such periodic distributions is determined at the rate
applicable to wages. The recipient of a periodic distribution may
generally elect not to have withholding apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than 10 years) from an IRA are subject to income tax
withholding at a flat 10% rate. The recipient of such a distribution may
elect not to have withholding apply.
The above description of the federal income tax consequences applicable
to Qualified Plans which may be funded by the Contract offered by this
Prospectus is only a brief summary and is not intended as tax advice. The
rules governing the provisions of Qualified Plans are extremely complex
and often difficult to comprehend. Anything less than full compliance
with the applicable rules, all of which are subject to change, may have
adverse tax consequences. A prospective Contractowner considering
adoption of a Qualified Plan and purchase of a Contract in connection
therewith should first consult a qualified and competent tax adviser,
with regard to the suitability of the Contract as an investment vehicle
for the Qualified Plan.
OTHER INFORMATION
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VOTING OF FUND SHARES
The Company is the legal owner of the shares of the Funds held by the
Subaccounts. The Company will exercise voting rights attributable to the
shares of each Portfolio of the Funds held in the Subaccounts at any regular
and special meetings of the shareholders of the Funds on matters requiring
shareholder voting under the 1940 Act. In accordance with its view of
presently applicable law, the Company will exercise these voting rights
based on instructions received from persons having the voting interest in
corresponding Subaccounts. However, if the 1940 Act or any regulations
thereunder should be amended, or if the present interpretation thereof
should change, and as a result the Company determines that it is permitted
to vote the shares of the Funds in its own right, it may elect to do so.
The person having the voting interest under a Contract is the Owner. Unless
otherwise required by applicable law, the number of shares of a particular
Portfolio as to which voting instructions may be given to the Company is
determined by dividing a Contractowner's Account Value in a Subaccount on a
particular date by the net asset value per share of that Portfolio as of the
same date. Fractional votes will be counted. The number of votes as to which
voting instructions may be given will be determined as of the date
coincident with the date established by the Fund for determining
shareholders eligible to vote at the meeting of the Fund. If required by the
SEC, the Company reserves the right to determine in a different fashion the
voting rights attributable to the shares of the Funds. Voting instructions
may be cast in person or by proxy.
Voting rights attributable to the Contractowner's Account Value in a
Subaccount for which no timely voting instructions are received will be
voted by the Company in the same proportion as the voting instructions that
are received in a timely manner for all Contracts participating in that
Subaccount. The Company will also exercise the voting rights from assets in
each Subaccount that are not otherwise attributable to Contractowners, if
any, in the same proportion as the voting instructions that are received in
a timely manner for all Contracts participating in that Subaccount.
SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to compliance with the law as then
in effect, to make additions to, deletions from, substitutions for, or
combinations of the securities that are held by the Separate Account or any
Subaccount or that the Separate Account or any Subaccount may purchase. If
shares of any or all of the Portfolios of the Funds should no longer be
available for investment, or if the Company receives an opinion from counsel
acceptable to Investment Services that substitution is in the best interest
of Contractowners and that further investment in shares of the Portfolio(s)
would cause undue risk to the Company, the Company may substitute shares of
another Portfolio of the Funds or of a different fund for shares already
purchased, or to be purchased in the future under the Contract. The Company
may also purchase, through the Subaccount, other securities for other
classes of contracts, or permit a conversion between classes of contracts on
the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, the Company will, to the
extent required under applicable law, provide notice, seek Owner approval,
seek prior approval of the SEC, and comply with the filing or other
procedures established by applicable state insurance regulators.
The Company also reserves the right to establish additional Subaccounts of
the Separate Account that would invest in a new Portfolio of one of the
Funds or in shares of another investment company, a series thereof, or other
suitable investment vehicle. New Subaccounts may be established by the
Company with the consent of Investment Services, and any new Subaccount will
be made available to existing Owners on a basis to be determined by the
Company and Investment Services. The Company may also eliminate or combine
one or more Subaccounts if marketing, tax, or investment conditions so
warrant.
Subject to compliance with applicable law, the Company may transfer assets
to the General Account with the consent of Investment Services. The Company
also reserves the right, subject to any required regulatory approvals, to
transfer assets of any Subaccount of the Separate Account to another
separate account or Subaccount with the consent of Investment Services.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in these and other contracts as
may be necessary or appropriate to reflect such substitution or change. If
deemed by the Company to be in the best interests of persons having voting
rights under the Contracts, the Separate Account may be operated as a
management investment company under the 1940 Act or any other form permitted
by law; it may be deregistered under that Act in the event such registration
is no longer required; or it may be combined with other separate accounts of
the Company or an affiliate thereof. Subject to compliance with applicable
law, the Company also may combine one or more Subaccounts and may establish
a committee, board, or other group to manage one or more aspects of the
operation of the Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend
sales of the Contract as presently offered and to make any change to the
provisions of the Contracts to comply with, or give Owners the benefit of,
any federal or state statute, rule, or regulation, including but not limited
to requirements for annuity contracts and retirement plans under the
Internal Revenue Code and regulations thereunder or any state statute or
regulation. The Company also reserves the right to limit the amount and
frequency of subsequent purchase payments.
REPORTS TO OWNERS
A statement will be sent annually to each Contractowner setting forth a
summary of the transactions that occurred during the year, and indicating
the Account Value as of the end of each year. In addition, the statement
will indicate the allocation of Account Value among the Fixed Interest
Account and the Subaccounts and any other information required by law.
Confirmations will also be sent out upon purchase payments, exchanges, and
full and partial withdrawals. Certain transactions will be confirmed
quarterly. These transactions include exchanges under the Dollar Cost
Averaging and Asset Rebalancing Options, purchase payments made under an
Automatic Investment Program, systematic withdrawals, and annuity payments.
Each Contractowner will also receive an annual and semiannual report
containing financial statements for the Portfolios, which will include a
list of the portfolio securities of the Portfolios, as required by the 1940
Act, and/or such other reports as may be required by federal securities
laws.
TELEPHONE EXCHANGE PRIVILEGES
You may request an exchange of Account Value by telephone if an
Authorization for Telephone Requests form ("Telephone Authorization") has
been completed, signed, and filed with the Company. The Company has
established procedures to confirm that instructions communicated by
telephone are genuine and will not be liable for any losses due to
fraudulent or unauthorized instructions, provided that it complies with its
procedures. The Company's procedures require that any person requesting an
exchange by telephone provide the account number and the Owner's tax
identification number and such instructions must be received on a recorded
line. The Company reserves the right to deny any telephone exchange request.
If all telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), Contractowners might not be
able to request exchanges by telephone and would have to submit written
requests.
By authorizing telephone exchanges, a Contractowner authorizes the Company
to accept and act upon telephonic instructions for exchanges involving the
Contractowner's Contract, and agrees that neither the Company, nor any of
its affiliates, nor the Funds, nor any of their directors, trustees,
officers, employees, or agents, will be liable for any loss, damages, cost,
or expense (including attorney's fees) arising out of any requests effected
in accordance with the Telephone Authorization and believed by the Company
to be genuine, provided that the Company has complied with its procedures.
As a result of this policy on telephone requests, the Contractowner will
bear the risk of loss arising from the telephone exchange privileges. The
Company may discontinue, modify, or suspend telephone exchange privileges at
any time.
DISTRIBUTION OF THE CONTRACT
T. Rowe Price Investment Services, Inc. ("Investment Services"), is the
distributor of the Contracts. Investment Services also acts as the
distributor of certain mutual funds advised by T. Rowe Price and
Price-Fleming. Investment Services is registered with the SEC as a
broker-dealer under the Securities Exchange Act of 1934, and in all 50
states, the District of Columbia, and Puerto Rico. Investment Services is a
member of the National Association of Securities Dealers, Inc. Investment
Services is a wholly owned subsidiary of T. Rowe Price and is an affiliate
of the Funds.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Separate Account is a
party, or which would materially affect the Separate Account.
LEGAL MATTERS
Legal matters relating to New York law have been passed upon by LeBoeuf,
Lamb, Greene & MacRae, New York, New York.
Legal matters relating to the federal securities and federal income tax laws
have been passed upon by Dechert Price & Rhoads, Washington, D.C.
PERFORMANCE INFORMATION
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Performance information for the Subaccounts of the Separate Account,
including the yield and total return of all Subaccounts may appear in
advertisements, reports, and promotional literature to current or
prospective Owners.
Current yield for the Prime Reserve Subaccount will be based on investment
income received by a hypothetical investment over a given seven-day period
(less expenses accrued during the period), and then "annualized" (i.e.,
assuming that the seven-day yield would be received for 52 weeks, stated in
terms of an annual percentage return on the investment). "Effective yield"
for the Prime Reserve Subaccount is calculated in a manner similar to that
used to calculate yield but reflects the compounding effect of earnings.
For the other Subaccounts, quotations of yield will be based on all
investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will
be computed by dividing net investment income by the value of an
Accumulation Unit on the last day of the period. Quotations of average
annual total return for any Subaccount will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in a
Contract over a period of 1, 5, and 10 years (or, if less, up to the life of
the Subaccount), and will reflect the deduction of the mortality and expense
risk charge and may simultaneously be shown for other periods. Where the
Portfolio in which a Subaccount invests was established prior to inception
of the Subaccount, quotations of total return may include quotations for
periods beginning prior to the Subaccount's date of inception. Such
quotations of total return are based upon the performance of the
Subaccount's corresponding Portfolio adjusted to reflect deduction of the
mortality and expense risk charge.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which Account Value is allocated to a
Subaccount during a particular time period on which the calculations are
based. Performance information should be considered in light of the
investment objectives and policies, characteristics, and quality of the
Portfolio in which the Subaccount invests, and the market conditions during
the given time period, and should not be considered as a representation of
what may be achieved in the future. For a description of the methods used to
determine yield and total return for the Subaccounts and the usage of other
performance related information, see the Statement of Additional
Information.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT
A Registration Statement under the 1933 Act has been filed with the SEC
relating to the offering described in this Prospectus. This Prospectus has
been filed as a part of the Registration Statement and does not contain all
of the information set forth in the Registration Statement and exhibits
thereto, and reference is made to such Registration Statement and exhibits
for further information relating to the Company and the Contract. Statements
contained in this Prospectus, as to the content of the Contract and other
legal instruments, are summaries. For a complete statement of the terms
thereof, reference is made to the instruments filed as exhibits to the
Registration Statement. The Registration Statement and the exhibits thereto
may be inspected and copied at the SEC's office, located at 450 Fifth
Street, N.W., Washington, D.C.
FINANCIAL STATEMENTS
The financial statements of the Company at December 31, 1998 and 1997, and
for each of the three years in the period ended December 31, 1998, and the
financial statements of the Separate Account as of December 31, 1998, and
for the years ended December 31, 1998 and 1997, are included in the
Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to the Company and the Separate Account.
The Table of Contents of the Statement of Additional Information is set
forth below.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
General Information and History 1
----------------------------------------------------------------------------
Distribution of the Contract 1
----------------------------------------------------------------------------
Limits on Premiums Paid Under Tax-Qualified Retirement Plans 1
----------------------------------------------------------------------------
Experts 2
----------------------------------------------------------------------------
Performance Information 2
----------------------------------------------------------------------------
Financial Statements 4
----------------------------------------------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
T. ROWE PRICE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: MAY 1, 1999
Individual Flexible Premium Deferred Variable Annuity Contract
- --------------------------------------------------------------------------------
ISSUED BY: MAILING ADDRESS:
First Security Benefit Life Insurance First Security Benefit Life Insurance
and Annuity Company of New York and Annuity Company of New York
70 West Red Oak Lane, 4th Floor c/o T. Rowe Price Variable Annuity
White Plains, New York 10604 Service Center
1-800-355-4570 P.O. Box 750106
Topeka, Kansas 66675-0106
1-800-469-6587
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current Prospectus for the T. Rowe Price Variable
Annuity dated May 1, 1999. A copy of the Prospectus may be obtained from the T.
Rowe Price Variable Annuity Service Center by calling 1-800-469-6587 or by
writing P.O. Box 750106, Topeka, Kansas 66675-0106.
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
General Information and History ............................................ 1
Distribution of the Contract ............................................... 1
Limits on Premiums Paid Under Tax-Qualified Retirement Plans ............... 1
Experts .................................................................... 2
Performance Information .................................................... 2
Financial Statements ....................................................... 4
<PAGE>
GENERAL INFORMATION AND HISTORY
- --------------------------------------------------------------------------------
For a description of the Individual Flexible Premium Deferred Variable
Annuity Contract (the "Contract"), First Security Benefit Life Insurance and
Annuity Company of New York (the "Company"), and the T. Rowe Price Variable
Annuity Account of First Security Benefit Life Insurance and Annuity Company
of New York (the "Separate Account"), see the Prospectus. This Statement of
Additional Information contains information that supplements the information
in the Prospectus. Defined terms used in this Statement of Additional
Information have the same meaning as terms defined in the section entitled
"Definitions" in the Prospectus.
SAFEKEEPING OF ASSETS
The Company is responsible for the safekeeping of the assets of the
Subaccounts. These assets, which consist of shares of the Portfolios of the
Funds in non-certificated form, are held separate and apart from the assets
of the Company's General Account and its other separate accounts.
DISTRIBUTION OF THE CONTRACT
- --------------------------------------------------------------------------------
T. Rowe Price Investment Services, Inc. ("Investment Services"), a Maryland
corporation formed in 1980 as a wholly-owned subsidiary of T. Rowe Price
Associates, Inc., is Principal Underwriter of the Contract. Investment
Services is registered as a broker/ dealer with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934 and is a member
of the National Association of Securities Dealers, Inc. ("NASD"). The
offering of the Contract is continuous.
Investment Services serves as Principal Underwriter under a Distribution
Agreement with the Company. Investment Services' registered representatives
are required to be authorized under applicable state regulations to make the
Contract available to its customers. Investment Services is not compensated
under its Distribution Agreement with the Company.
LIMITS ON PREMIUMS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS
- --------------------------------------------------------------------------------
SECTION 408
Premiums (other than rollover contributions) paid under a Contract used in
connection with an individual retirement annuity (IRA) that is described in
Section 408 of the Internal Revenue Code are subject to the limits on
contributions to IRA's under Section 219(b) of the Internal Revenue Code.
Under Section 219(b) of the Code, contributions (other than rollover
contributions) to an IRA are limited to the lesser of $2,000 per year or the
Owner's annual earned income. An additional $2,000 may be contributed if the
Owner has a spouse with little or no earned income for the year, provided
distinct accounts are maintained for the Owner and his or her spouse, and no
more than $2,000 is contributed to either account in any one year. The
extent to which an Owner may deduct contributions to an IRA depends on the
type of IRA (Traditional or Roth) and the modified adjusted gross income of
the Owner and his or her spouse for the year and whether either participates
in another employer-sponsored retirement plan.
Premiums under a Contract used in connection with a simplified employee
pension plan described in Section 408 of the Internal Revenue Code are
subject to limits under Section 402(h) of the Internal Revenue Code. Section
402(h) currently limits employer contributions and salary reduction
contributions (if permitted) under a simplified employee pension plan to the
lesser of (a) 15% of the compensation of the participant in the Plan, or (b)
$30,000. Salary reduction contributions, if any, are subject to additional
annual limits. Salary reduction simplified employee pensions ("SARSEPs")
have been repealed; however, SARSEPs established prior to January 1, 1997
may continue to receive contributions.
EXPERTS
- --------------------------------------------------------------------------------
Ernst & Young LLP, independent auditors, perform certain auditing services
for the Company and the Separate Account. The financial statements of the
Company at December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998, are contained in this Statement of
Additional Information. The financial statements of the Separate Account as
of December 31, 1998, and for the years ended December 31, 1998 and 1997,
are also included in this Statement of Additional Information. The financial
statements have been audited by Ernst & Young LLP, as set forth in their
reports thereon appearing herein and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Performance information for the Subaccounts of the Separate Account,
including the yield and total return of all Subaccounts, may appear in
advertisements, reports, and promotional literature provided to current or
prospective Owners.
Quotations of yield for the Prime Reserve Subaccount will be based on the
change in the value, exclusive of capital changes, of a hypothetical
investment in a Contract over a particular seven day period, less a
hypothetical charge reflecting deductions from the Contract during the
period (the "base period") and stated as a percentage of the investment at
the start of the base period (the "base period return"). The base period
return is then annualized by multiplying by 365/7, with the resulting yield
figure carried to at least the nearest one hundredth of one percent. Any
quotations of effective yield for the Prime Reserve subaccount assume that
all dividends received during an annual period have been reinvested.
Calculation of "effective yield" begins with the same "base period return"
used in the yield calculation, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)^365/7] - 1
For the seven-day period ended December 31, 1998, the yield of the Prime
Reserve Subaccount was 4.35% and the effective yield of the Subaccount was
4.44%.
Quotations of yield for the Subaccounts, other than the Prime Reserve
Subaccount, will be based on all investment income per Accumulation Unit
earned during a particular 30-day period, less expenses accrued during the
period ("net investment income"), and will be computed by dividing net
investment income by the value of the Accumulation Unit on the last day of
the period, according to the following formula:
YIELD = 2[(a - b + 1)^6 - 1]
-----
cd
where a = net investment income earned during the period by the
Portfolio attributable to shares owned by the Subaccount,
b = expenses accrued for the period (net of any reimbursements),
c = the average daily number of Accumulation Units outstanding
during the period that were entitled to receive dividends,
and
d = the maximum offering price per Accumulation Unit on the last
day of the period.
For the 30-day period ended December 31, 1998, the yield of the Limited-Term
Bond Subaccount was 5.48%.
Quotations of average annual total return for any Subaccount will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of one, five and ten
years (or, if less, up to the life of the Subaccount), calculated pursuant
to the following formula: P(1 + T)^n = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return, n = the number of
years, and ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period). All total return figures
reflect the deduction of the mortality and expense risk charge. Quotations
of total return may simultaneously be shown for other periods.
Where the Portfolio in which a Subaccount invests was established prior to
inception of the Subaccount, quotations of total return may include
quotations for periods beginning prior to the Subaccount's date of
inception. Such quotations of total return are based upon the performance of
the Subaccount's corresponding Portfolio adjusted to reflect deduction of
the mortality and expense risk charge.
----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF
DECEMBER 31, 1998
--------------------------------------
FROM DATE OF INCEPTION
SUBACCOUNT ONE-YEAR (APRIL 3, 1995)
----------------------------------------------------------------------------
International 15.20% 11.59%
New America Growth 17.84 24.50
Mid-Cap Growth 21.42 19.75*
Equity Income 8.39 21.00
Personal Strategy Balanced 13.75 17.06
Limited-Term Bond 6.47 5.80
----------------------------------------------------------------------------
*Average annual total return from Mid-Cap Growth Subaccount date of
inception December 31, 1996.
----------------------------------------------------------------------------
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index, or other indices that
measure performance of a pertinent group of securities so that investors may
compare a Subaccount's results with those of a group of securities widely
regarded by investors as representative of the securities markets in general
or representative of a particular type of security; (ii) other variable
annuity separate accounts, insurance product funds, or other investment
products tracked by Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds and other investment companies by
overall performance, investment objectives, and assets, or tracked by The
Variable Annuity Research and Data Service ("VARDS"), an independent service
which monitors and ranks the performance of variable annuity issues by
investment objectives on an industry-wide basis or tracked by other
services, companies, publications, or persons who rank such investment
companies on overall performance or other criteria; and (iii) the Consumer
Price Index (measure for inflation) to assess the real rate of return from
an investment in the Contract. Unmanaged indices may assume the reinvestment
of dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which an Owner's Account Value is allocated to
a Subaccount during a particular time period on which the calculations are
based. Performance information should be considered in light of the
investment objectives and policies, characteristics, and quality of the
Portfolio of the Funds in which the Subaccount invests, and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of
variable annuity separate accounts, insurance product funds, or other
investment products tracked by Lipper Analytical Services, Inc.,
Morningstar, Inc. or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on
overall performance or other criteria, (ii) the effect of a tax-deferred
compounding on a Subaccount's investment returns, or returns in general,
which may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis, and
(iii) personal or general hypothetical illustrations of accumulation and
payout period Account Values and annuity payments.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of the Company at December 31, 1998 and 1997, and
for each of the three years in the period ended December 31, 1998 and the
financial statements of the Separate Account as of December 31, 1998, and
for the years ended December 31, 1998 and 1997, are set forth herein,
starting on page 5.
The financial statements of the Company, which are included in this
Statement of Additional Information, should be considered only as bearing on
the ability of the Company to meet its obligations under the Contracts. They
should not be considered as bearing on the investment performance of the
assets held in the Separate Account.
T. Rowe Price Variable Annuity Account
of First Security Benefit Life Insurance
and Annuity Company of New York
Financial Statements
Years ended December 31, 1998 and 1997
CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Auditors ......................................... 5
Audited Financial Statements
Balance Sheet .......................................................... 6
Statements of Operations and Changes in Net Assets ..................... 7
Notes to Financial Statements .......................................... 9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Contract Owners of T. Rowe Price Variable Annuity
Account of First Security Benefit Life Insurance and
Annuity Company of New York and the Board of
Directors of First Security Benefit Life Insurance and
Annuity Company of New York
We have audited the accompanying balance sheet of T. Rowe Price Variable
Annuity Account of First Security Benefit Life Insurance and Annuity Company
of New York (the Account) (comprised of the individual series as indicated
therein) as of December 31, 1998 and the related statements of operations
and changes in net assets for each of the two years in the period then
ended. 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 investments owned as of December 31,
1998 by correspondence with the transfer agent. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of the individual series of
T. Rowe Price Variable Annuity Account of First Security Benefit Life
Insurance and Annuity Company of New York at December 31, 1998 and the
results of their operations and changes in their net assets for each of the
two years in the period then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 5, 1999
<PAGE>
T. ROWE PRICE VARIABLE ANNUITY ACCOUNT OF
FIRST SECURITY BENEFIT LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
BALANCE SHEET
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
ASSETS
Investments:
T. Rowe Price Portfolios:
New America Growth Portfolio - 172,709 shares at net asset
value of $24.74 per share (cost, $3,371) $ 4,273
International Stock Portfolio - 131,338 shares at net asset
value of $14.52 per share (cost, $1,725) 1,907
Equity Income Portfolio - 362,391 shares at net asset value
of $19.24 per share (cost, $6,278) 6,972
Personal Strategy Balanced Portfolio - 105,605 shares at net
asset value of $16.16 per share (cost, $1,569) 1,707
Limited-Term Bond Portfolio - 102,684 shares at net asset
value of $5.02 per share (cost, $511) 515
Mid-Cap Growth Portfolio - 156,109 shares at net asset value
of $14.27 per share (cost, $1,870) 2,228
Prime Reserve Portfolio - 1,092,990 shares at net asset
value of $1.00 per share (cost, $1,093) 1,093
-------
Total assets $18,695
=======
<PAGE>
NUMBER UNIT
OF UNITS VALUE AMOUNT
---------------------------------------
NET ASSETS
Net assets are represented by (NOTE 3):
New America Growth Subaccount:
Accumulation units 188,096 $22.72 $4,273
International Stock Subaccount:
Accumulation units 126,224 15.08 $ 1,903
Annuity reserves 236 15.08 4 1,907
-------
Equity Income Subaccount:
Accumulation units 341,036 20.42 6,964
Annuity reserves 413 20.42 8 6,972
-------
Personal Strategy Balanced Subaccount:
Accumulation units 94,177 18.04 1,699
Annuity reserves 447 18.04 8 1,707
-------
Limited-Term Bond Subaccount:
Accumulation units 40,576 12.37 502
Annuity reserves 1,089 12.37 13 515
-------
Mid-Cap Growth Subaccount:
Accumulation units 155,295 14.34 2,228
Prime Reserve Subaccount:
Accumulation units 99,654 10.97 1,093
--------
Total net assets $18,695
========
See accompanying notes.
<PAGE>
T. ROWE PRICE VARIABLE ANNUITY ACCOUNT OF
FIRST SECURITY BENEFIT LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERSONAL
NEW AMERICA INTERNATIONAL EQUITY STRATEGY LIMITED- MID-CAP PRIME
GROWTH STOCK INCOME BALANCED TERM BOND GROWTH RESERVE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions $ - $ 22 $ 134 $ 48 $ 27 $ - $ 52
Expenses (NOTE 2):
Mortality and expense risk fee (21) (10) (36) (9) (3) (9) (6)
-------------------------------------------------------------------------------------------------
Net investment income (loss) (21) 12 98 39 24 (9) 46
Capital gain distributions 85 7 213 61 2 32 -
Realized gain on investments 200 63 379 68 3 65 -
Unrealized appreciation
(depreciation) on investments 347 167 (167) 24 2 238 -
-------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 632 237 425 153 7 335 -
-------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 611 249 523 192 31 326 46
Net assets at beginning of year 3,296 1,620 6,053 1,218 500 1,077 790
Variable annuity deposits
(NOTES 2 AND 3) 1,057 471 1,652 581 206 1,058 2,018
Terminations and withdrawals
(NOTES 2 AND 3) (691) (432) (1,255) (284) (220) (233) (1,761)
Annuity payments (NOTES 2 AND 3) - (1) (1) - (2) - -
-------------------------------------------------------------------------------------------------
Net assets at end of year $4,273 $1,907 $6,972 $1,707 $515 $2,228 $1,093
=================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
T. ROWE PRICE VARIABLE ANNUITY ACCOUNT OF
FIRST SECURITY BENEFIT LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERSONAL
NEW AMERICA INTERNATIONAL EQUITY STRATEGY LIMITED- MID-CAP PRIME
GROWTH STOCK INCOME BALANCED TERM BOND GROWTH RESERVE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions $ - $ 15 $ 108 $ 30 $ 22 $ - $ 25
Expenses (NOTE 2):
Mortality and expense risk fee (15) (8) (25) (5) (2) (3) (3)
-------------------------------------------------------------------------------------------------
Net investment income (loss) (15) 7 83 25 20 (3) 22
Capital gain distributions 8 21 182 18 - - -
Realized gain (loss) on investments 63 48 122 10 (1) 4 -
Unrealized appreciation
(depreciation) on investments 452 (50) 680 90 3 120 -
-------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 523 19 984 118 2 124 -
-------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 508 26 1,067 143 22 121 22
Net assets at beginning of year 2,301 1,101 2,664 536 365 - -
Variable annuity deposits
(NOTES 2 AND 3) 1,004 815 2,969 603 281 1,210 1,714
Terminations and withdrawals
(NOTES 2 AND 3) (517) (322) (647) (64) (168) (254) (946)
------------------------------------------------------------------------------------------------
Net assets at end of year $3,296 $1,620 $6,053 $1,218 $500 $1,077 $ 790
=================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
T. Rowe Price Variable Annuity Account (the Account) is a separate account
of First Security Benefit Life Insurance and Annuity Company of New York
(FSBL). The Account is registered as a unit investment trust under the
Investment Company Act of 1940 as amended. The Account currently is divided
into seven subaccounts. Each subaccount invests exclusively in shares of a
single corresponding mutual fund or series thereof. Purchase payments
received by the Account are invested in one of the portfolios of either T.
Rowe Price Equity Series, Inc., T. Rowe Price Fixed Income Series, Inc. or
T. Rowe Price International Series, Inc. mutual funds not otherwise
available to the public. As directed by the owners, purchase payments are
invested in shares of New America Growth Portfolio - emphasis on long-term
capital growth through investments in common stocks of domestic companies,
International Stock Portfolio - emphasis on long-term capital growth through
investments in common stocks of established foreign companies, Equity Income
Portfolio - emphasis on substantial dividend income and capital appreciation
by investing primarily in dividend-paying common stocks, Personal Strategy
Balanced Portfolio - emphasis on both capital appreciation and income,
Limited-Term Bond Portfolio - emphasis on income with moderate price
fluctuation by investing in short- and intermediate-term investment-grade
debt securities, Mid-Cap Growth Portfolio - emphasis on long-term capital
appreciation through investments in companies with proven products or
services and Prime Reserve Portfolio - emphasis on preservation of capital
and liquidity while generating the highest possible current income by
investing primarily in high-quality money market securities.
T. Rowe Price Associates, Inc. (T. Rowe Price) serves as the investment
advisor to each portfolio except the International Stock Portfolio, which is
managed by Rowe Price-Fleming International, Inc., an affiliate of T. Rowe
Price. The investment advisors are responsible for managing the portfolios'
assets in accordance with the terms of the investment advisory contracts.
INVESTMENT VALUATION
Investments in mutual fund shares are carried in the balance sheet at market
value (net asset value of the underlying mutual fund). The first-in,
first-out cost method is used to determine gains and losses. Security
transactions are accounted for on the trade date.
The cost of investments purchased and proceeds from investments sold for the
year ended December 31 were as follows:
1998 1997
-----------------------------------------------
COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
-----------------------------------------------
(IN THOUSANDS)
New America Growth Portfolio $1,184 $ 754 $1,029 $549
International Stock Portfolio 540 483 861 340
Equity Income Portfolio 2,107 1,400 3,293 706
Personal Strategy Balanced
Portfolio 738 341 656 74
Limited-Term Bond Portfolio 279 269 293 160
Mid-Cap Growth Portfolio 1,112 264 1,248 295
Prime Reserve Portfolio 2,072 1,769 1,766 976
ANNUITY RESERVES
Annuity reserves relate to contracts that have matured and are in the payout
stage. Such reserves are computed on the basis of published mortality tables
using assumed interest rates that will provide reserves as prescribed by
law. In cases where the payout option selected is life contingent, FSBL
periodically recalculates the required annuity reserves, and any resulting
adjustment is either charged or credited to FSBL and not to the Account.
REINVESTMENT OF DIVIDENDS
Dividend and capital gains distributions paid by the mutual fund to the
Account are reinvested in additional shares of each respective portfolio.
Dividend income and capital gains distributions are recorded as income on
the ex-dividend date.
FEDERAL INCOME TAXES
The operations of the account are part of the operations of FSBL. Under
current law, no federal income taxes are allocated by FSBL to the operations
of the Account.
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.
2. VARIABLE ANNUITY CONTRACT CHARGES
Mortality and expense risks assumed by FSBL are compensated for by a fee
equivalent to an annual rate of 0.55% of the average daily net assets of
each account.
When applicable, an amount for state premium taxes is deducted as provided
by pertinent state law either from the purchase payments or from the amount
applied to effect an annuity at the time annuity payments commence.
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
----------------------
Year ended December 31
1998 1997
----------------------
(IN THOUSANDS)
New America Growth Subaccount:
Variable annuity deposits 51 58
Terminations, withdrawals and annuity payments 34 31
International Stock Subaccount:
Variable annuity deposits 33 61
Terminations, withdrawals and annuity payments 31 23
Equity Income Subaccount:
Variable annuity deposits 86 180
Terminations, withdrawals and annuity payments 66 40
Personal Strategy Balanced Subaccount:
Variable annuity deposits 36 41
Terminations, withdrawals and annuity payments 19 4
Limited-Term Bond Subaccount:
Variable annuity deposits 17 24
Terminations, withdrawals and annuity payments 19 14
Mid-Cap Growth Subaccount:
Variable annuity deposits 82 116
Terminations, withdrawals and annuity payments 18 25
Prime Reserve Subaccount:
Variable annuity deposits 188 168
Terminations, withdrawals and annuity payments 164 92
<PAGE>
FIRST SECURITY BENEFIT LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
CONTENTS
Report of Independent Auditors............................................. 13
Audited Financial Statements
Balance Sheets............................................................. 14
Statements of Income....................................................... 15
Statements of Changes in Stockholder's Equity.............................. 16
Statements of Cash Flows................................................... 17
Notes to Financial Statements.............................................. 18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors
First Security Benefit Life Insurance and Annuity Company of New York
We have audited the accompanying balance sheets of First Security Benefit
Life Insurance and Annuity Company of New York (the Company), an indirect
wholly-owned subsidiary of Security Benefit Mutual Holding Company, as of
December 31, 1998 and 1997, and the related statements of income, changes in
stockholder's equity and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits 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, the financial statements referred to above present fairly,
in all material respects, the financial position of First Security Benefit
Life Insurance and Annuity Company of New York at December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 5, 1999
<PAGE>
FIRST SECURITY BENEFIT LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
BALANCE SHEET
DECEMBER 31
1998 1997
-------------------------------------
(IN THOUSANDS)
ASSETS
Fixed maturities available-for-sale $ 6,729 $ 6,752
Cash 495 508
Accrued investment income 108 95
Reinsurance recoverable 209 219
Deferred policy acquisition costs 62 58
Other assets 150 132
Separate account assets 18,695 14,554
-------------------------------------
$26,448 $22,318
=====================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy reserves and annuity
account values $ 555 $ 586
Deferred income taxes 86 102
Other liabilities 74 101
Separate account liabilities 18,695 14,554
-------------------------------------
Total liabilities 19,410 15,343
Stockholder's equity:
Common capital stock, par
value $10 per share;
200,000 shares authorized,
issued and outstanding 2,000 2,000
Additional paid-in capital 4,600 4,600
Accumulated other comprehensive income 119 118
Retained earnings 319 257
-------------------------------------
Total stockholder's equity 7,038 6,975
-------------------------------------
$26,448 $22,318
=====================================
See accompanying notes.
<PAGE>
FIRST SECURITY BENEFIT LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31
1998 1997 1996
---------------------------------------
(IN THOUSANDS)
Revenues:
Net investment income $441 $478 $474
Asset based fees 92 60 19
---------------------------------------
Total revenues 533 538 493
Benefits and expenses:
Interest credited to annuity
account balances 16 20 16
Operating expenses 418 336 357
Amortization of deferred
policy acquisition costs 9 7 2
---------------------------------------
Total benefits and expenses 443 363 375
---------------------------------------
Income before income taxes 90 175 118
Income taxes 28 63 48
---------------------------------------
Net income $ 62 $112 $ 70
=======================================
See accompanying notes.
<PAGE>
FIRST SECURITY BENEFIT LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED
STOCK CAPITAL INCOME EARNINGS TOTAL
--------------------------------------------------
(IN THOUSANDS)
Balance at December 31, 1995 $2,000 $4,600 $233 $ 75 $6,908
Comprehensive income:
Net income - - - 70 70
Other comprehensive
income, net - - (117) - (117)
--------
Comprehensive income (47)
---------------------------------------------------
Balance at December 31, 1996 2,000 4,600 116 145 6,861
Comprehensive income:
Net income - - - 112 112
Other comprehensive
income, net - - 2 - 2
--------
Comprehensive income 114
---------------------------------------------------
Balance at December 31, 1997 2,000 4,600 118 257 6,975
Comprehensive income:
Net income - - - 62 62
Other comprehensive,
income, net - - 1 - 1
--------
Comprehensive income 63
---------------------------------------------------
Balance at December 31, 1998 $2,000 $4,600 $119 $319 $7,038
===================================================
See accompanying notes.
<PAGE>
FIRST SECURITY BENEFIT LIFE INSURANCE AND ANNUITY COMPANY OF NEW YORK
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31
1998 1997 1996
---------------------------------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 62 $112 $ 70
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Decrease in reinsurance recoverable 10 21 7
Policy acquisition costs deferred (13) (30) (37)
Policy acquisition costs amortized 9 7 2
Provision for deferred income taxes (19) 9 12
Decrease in policy reserves (11) (20) (7)
Interest credited to annuity account
balances 16 20 16
Increase (decrease) in other liabilities (27) 75 (505)
Other (30) 17 43
--------------------------------------
Net cash provided by (used in)
operating activities (3) 211 (399)
INVESTING ACTIVITIES
Sale, maturity or repayment of fixed
maturities available-for-sale 1,521 558 1,022
Acquisition of fixed maturities
available-for-sale (1,495) (323) (855)
-------------------------------------
Net cash provided by investing activities 26 235 167
FINANCING ACTIVITIES
Deposits credited to annuity account
balances 113 227 470
Withdrawals from annuity account
balances (149) (240) (702)
-------------------------------------
Net cash used in financing activities (36) (13) (232)
-------------------------------------
Net increase (decrease) in cash (13) 433 (464)
Cash at beginning of year 508 75 539
-------------------------------------
Cash at end of year $ 495 $508 $ 75
=====================================
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
First Security Benefit Life Insurance and Annuity Company of New York (the
Company) is licensed to transact life insurance business in New York and
Kansas and was organized to offer insurance products in New York. The
Company's business activities are concentrated in a variable annuity product
with separate account assets managed by a single investment advisor. The
Company is a wholly-owned subsidiary of Security Benefit Group, Inc., which
is an indirect wholly-owned subsidiary of Security Benefit Mutual Holding
Company (SBMHC). SBMHC was formed July 31, 1998 in conjunction with the
conversion of Security Benefit Life Insurance Company (the Company's
previous ultimate parent) from a mutual life insurance company to a stock
life insurance company under a mutual holding company structure.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform to current
year presentation.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accom-panying notes. Actual results could differ from those
estimates.
INVESTMENTS
Fixed maturities are classified as available-for-sale and are stated at fair
value with the unrealized gain or loss, net of deferred income taxes,
reported as a separate component of accumulated other comprehensive income.
Premiums and discounts are recognized over the estimated lives of the assets
adjusted for prepayment activity.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits,
commissions and other policy-issue, underwriting and marketing costs that
are primarily related to the acquisition or renewal of deferred annuity
business have been deferred.
For deferred annuity business, deferred policy acquisition costs are
amortized in proportion to the present value (discounted at the crediting
rate) of expected gross profits from investment, mortality and expense
margins. That amortization is adjusted retrospectively when estimates of
current or future gross profits to be realized from a group of products are
revised.
SEPARATE ACCOUNT
The separate account assets and liabilities reported in the accompanying
balance sheets represent funds that are separately administered for the
benefit of contractholders who bear the investment risk. The separate
account is established in conformity with New York insurance laws and is not
chargeable with liabilities that arise from any other business of the
Company. Assets held in the separate account are carried at quoted market
values or, where quoted market values are not available, at fair market
value as determined by the investment manager. The separate account assets
recorded by the Company are invested in subaccounts which are managed by T.
Rowe Price Associates, Inc. (or an affiliated company). Revenues and
expenses related to the separate account assets and liabilities, to the
extent of benefits paid or provided to the separate account contractholders,
are excluded from the amounts reported in the accompanying statements of
income. Investment income and gains or losses arising from the separate
account accrue directly to the contractholders and are, therefore, not
included in investment earnings in the accompanying statements of income.
Revenues to the Company from the separate account consist principally of
mortality and expense risk charges.
POLICY RESERVES AND ANNUITY ACCOUNT VALUES
Liabilities for future policy benefits for deferred annuity products
represent accumulated contract values, without reduction for potential
surrender charges that are amortized over the life of the policy. Interest
on accumulated contract values is credited to contracts as earned. Crediting
rates ranged from 3.40% to 4.75% during 1998, from 4.85% to 5.70% during
1997 and from 4.35% to 5.55% during 1996.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and income tax bases of assets and
liabilities and are measured using the enacted tax rates and laws. Deferred
income tax expenses or benefits reflected in the Company's statements of
income are based on changes in deferred tax assets or liabilities from
period to period (excluding unrealized gains or losses on available-for-sale
securities).
RECOGNITION OF REVENUES
Revenues from investment-type contracts (deferred annuities) consist of
mortality and expense risk charges assessed against contractholder account
balances during the period.
ACCOUNTING CHANGE
In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this statement had no impact on the
Company's net income or stockholder's equity. SFAS No. 130 requires
unrealized gains or losses on the Company's available-for-sale securities,
which prior to adoption were reported separately in equity, to be included
in other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheets for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturities are based on
quoted market prices, if available. For fixed maturities not actively
traded, fair values are estimated using values obtained from independent
pricing services or estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality and
maturity of the investments.
Investment-type contracts: Fair values for the Company's liabilities
under investment-type insurance contracts are estimated using the
assumption reinsurance method, whereby the amount of statutory profit the
assuming company would realize from the business is calculated. Those
amounts are then discounted at a rate of return commensurate with the
rate presently offered by the Company on similar contracts. The carrying
amounts reported in the balance sheets approximate their fair values.
STATUTORY FINANCIAL INFORMATION
The Company prepares statutory-basis financial statements in accordance with
accounting practices prescribed or permitted by the New York insurance
regulatory authorities. Accounting practices used to prepare statutory-basis
financial statements for regulatory filings of stock life insurance
companies differ in certain instances from generally accepted accounting
principles (GAAP). Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance
Commissioners (NAIC), as well as state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed; such practices may differ from state
to state, may differ from company to company within a state and may change
in the future. In addition, in March 1998, the NAIC adopted the codification
of Statutory Accounting Principles (the Codification). Once implemented, the
definitions of what comprises prescribed versus permitted statutory
accounting practices may result in changes to accounting policies that
insurance enterprises use to prepare their statutory financial statements.
The implementation date is ultimately dependent on an insurer's state of
domicile. The Company does not expect a material impact on its statutory
financial statements resulting from the implementation of codification. The
New York Insurance Department recognizes only statutory accounting practices
for determining and reporting the financial condition and results of
operations of an insurance company and for determining its solvency under
the New York insurance laws. The following reconciles the Company's net
income and statutory surplus determined in accordance with accounting
practices prescribed or permitted by the New York Insurance Department with
net income and stockholder's equity on a GAAP basis.
NET INCOME STOCKHOLDER'S EQUITY
-----------------------------------------------
YEAR ENDED DECEMBER 31 DECEMBER 31
1998 1997 1996 1998 1997
-----------------------------------------------
IN THOUSANDS
Based on statutory
accounting practices $ 27 $ 97 $47 $6,758 $6,689
Investment carrying amounts - - - 201 199
Deferred policy acquisition
costs 4 23 35 62 58
Income taxes 23 (24) (23) (86) (102)
Investment reserve - - - 6 7
Nonadmitted assets - - - 82 122
Other 8 16 11 15 2
-----------------------------------------------
Based on GAAP $62 $112 $70 $7,038 $6,975
===============================================
Under the laws of the state of New York, the Company is required to maintain
minimum capital and surplus of $6,000,000.
2. INVESTMENTS
Information as to the amortized cost, gross unrealized gains and losses, and
fair values of the Company's portfolio of fixed maturities
available-for-sale at December 31, 1998 and 1997 is as follows:
1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------
(IN THOUSANDS)
U.S. Treasury securities $4,442 $161 $ - $4,603
Corporate securities 1,121 18 - 1,139
Asset-backed securities 153 3 - 156
Mortgage-backed securities 812 19 - 831
------------------------------------------------
Total fixed maturities $6,528 $201 $ - $6,729
================================================
1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------
(IN THOUSANDS)
U.S. Treasury securities $3,987 $149 $ - $4,136
Corporate securities 482 10 - 492
Asset-backed securities 339 2 - 341
Mortgage-backed securities 1,745 38 - 1,783
------------------------------------------------
Total fixed maturities $6,553 $199 $ - $6,752
================================================
The amortized cost and fair value of fixed maturities available-for-sale at
December 31, 1998, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
AMORTIZED FAIR
COST VALUE
------------------------------------
(IN THOUSANDS)
Due in one year or less $1,610 $1,625
Due after one year through five years 3,720 3,850
Due after five years through 10 years 233 267
Due after 10 years - -
Asset-backed securities 153 156
Mortgage-backed securities 812 831
------------------------------------
$6,528 $6,729
====================================
The composition of the Company's portfolio of fixed maturities by quality
rating at December 31, 1998 is as follows:
QUALITY RATING CARRYING AMOUNT %
------------------------------------------------------------------------
(IN THOUSANDS)
AAA $5,991 89.0%
AA 354 5.3
A 384 5.7
---------------------------------------------
$6,729 100.0%
=============================================
At December 31, 1998, fixed maturities available-for-sale with a carrying
amount of $568,000 were held in joint custody with the New York Insurance
Department to comply with statutory regulations.
Major categories of net investment income for the years ended December 31,
1998, 1997 and 1996 are summarized as follows:
1998 1997 1996
--------------------------------------
(IN THOUSANDS)
Interest on fixed maturities $452 $500 $497
Other 17 7 7
--------------------------------------
Total investment income 469 507 504
Less investment expenses 28 29 30
--------------------------------------
Net investment income $441 $478 $474
======================================
There were no proceeds from sales of fixed maturities available-for-sale and
related realized gains and losses, including valuation adjustments for the
years ended December 31, 1998 and 1997. There were proceeds from sales in
the amount of $574,000 with gross realized gains and losses of $3,000 and
$5,000, respectively, for the year ended December 31, 1996.
3. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return with
SBMHC. Income taxes are allocated to the Company on the basis of its filing
a separate return. The provision for income taxes includes current federal
income tax expense or benefit and deferred income tax expense or benefit due
to temporary differences between the financial reporting and income tax
bases of assets and liabilities. Such differences relate principally to
deferred policy acquisition costs.
Income tax expense (benefit) consists of the following for the years ended
December 31, 1998, 1997 and 1996:
1998 1997 1996
------------------------------------------------
(IN THOUSANDS)
Current $47 $54 $36
Deferred (19) 9 12
------------------------------------------------
Income tax expense $28 $63 $48
================================================
Income taxes paid by the Company were $51,000, $89,000 and $32,000 during
1998, 1997 and 1996, respectively.
Net deferred tax liabilities primarily consist of the unrealized
appreciation on fixed maturities available for sale.
4. RELATED-PARTY TRANSACTIONS
The Company paid $152,000 in 1998 and $144,000 in 1997 and 1996 to
affiliates for providing management, investment and administrative services.
5. REINSURANCE
Principal reinsurance transactions for the years ended December 31, 1998,
1997 and 1996 are summarized as follows:
1998 1997 1996
------------------------------------------------
(IN THOUSANDS)
Reinsurance ceded:
Premiums paid $3 $ 2 $4
================================================
Claim recoveries $8 $13 $9
================================================
In the accompanying financial statements, premiums and benefits are reported
net of reinsurance ceded; policy liabilities and accruals are reported gross
of reinsurance ceded. The Company remains liable to policyholders if the
reinsurer is unable to meet its contractual obligations under the applicable
reinsurance agreement. At December 31, 1998 and 1997, the Company had
established a receivable totaling $209,000 and $219,000, respectively, for
reinsurance claims and other receivables from its reinsurer.
6. IMPACT OF YEAR 2000 (UNAUDITED)
Over the past few years, SBL has been assessing the potential impact of the
year 2000 on its systems, procedures, customers and business processes (some
of which are used by the Company). SBL will continue to use internal and
external resources to modify, replace and test the year 2000 changes. All
identified modifications to critical operating systems have been completed
as of December 31, 1998, and SBL continues to validate completed systems to
ensure ongoing compliance. Management estimates 100% of the identified
modifications to other less important operating systems will be completed by
June 30, 1999. In any event, all identified modifications are expected to be
completed prior to any anticipated impact on the Company's operations.
The Company does face the risk that one or more of its critical suppliers or
customers (external relationships) will not be able to interact with the
Company due to the third party's inability to resolve its own year 2000
issues. SBL completed an inventory of external relationships, is engaged in
discussions with third parties and is requesting information as to those
parties' year 2000 plans and state of readiness. The Company, however, is
unable to predict with certainty whether all of its external relationships
will be year 2000 ready. However, third-party vendors of the Company's
primary administrative systems have represented to the Company that the
systems are or will be year 2000 ready.
While the Company believes that it has addressed its year 2000 concerns, the
Company has begun to strengthen its contingency/recovery plans aimed at
ensuring the continuity of critical business functions before, on and after
December 31, 1999. The year 2000 contingency plans will be reviewed
periodically throughout 1999 and revised as needed. The Company believes its
year 2000 contingency plans, coupled with existing "disaster recovery" and
"business resumption" plans, minimize the impact year 2000 issues may have
on its business and customers.
