S-6
Filed with the Securities and Exchange Commission on August 19, 1999
Registration No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT
INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: Variable Account II
B. Name of depositor: AIG Life Insurance Company
C. Complete address of depositor's principal executive offices:
One Alico Plaza, 600 King Street, Wilmington, DE 19801
D. Name and address of agent for service:
Kenneth D. Walma, Assistant Secretary and General Counsel
One Alico Plaza
600 King Street
Wilmington, DE 19801
COPIES TO:
Michael Berenson, Esq. and Ernest T. Patrikis, Esq.
Jorden Burt Boros Cicchetti Senior Vice President and General Counsel
Berenson & Johnson, LLP American International Group, Inc.
Suite 400 East 70 Pine Street
1025 Thomas Jefferson Street, NW New York, NY 10270
Washington, DC 20007-0805
E. Title and amount of securities being registered:
Joint and Last Survivor Flexible Premium Variable Universal Life
Insurance Policy.
Pursuant to rule 24f-2 under the Investment Company Act of 1940, the
Registrant hereby declares that an indefinite amount of its Joint and
Last Survivor Flexible Premium Universal Variable Life Group Insurance
Policies and Certificates are being registered under the Securities
Act of 1933.
F. Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration
Statement.
The Registrant hereby amends this Registration Statement on such date
as may be necessary to delay it effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
G. Amount of Filing Fee: N/A
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
1 About Us and the Accounts, The Separate Account
2 About Us and the Accounts
3 Not Applicable
4 Distribution of the Policy
5 The Separate Account
6(a) Not Applicable
6(b) Not Applicable
9 Legal Proceedings
10 Purchasing a Policy
11 The Separate Account, The Investment Options
12 The Separate Account, The Investment Options
13 Expenses of the Policy
14 Purchasing a Polaris LSVUL Policy
15 The Separate Account
16 The Separate Account, The Investment Options
17 Purchasing a Polaris LSVUL Policy
18 Investing Your Account Value
19 Purchasing a Polaris LSVUL Policy, Investing Your Account Value
20 Not Applicable
21 Cash Benefits During the Insured's Lifetime
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 About Us and the Accounts
26 Not Applicable
27 About Us and the Accounts
28 About Us and the Accounts
29 About Us and the Accounts
30 About Us and the Accounts
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Distribution of the Policy
35 About Us and the Accounts
37 Not Applicable
38 Distribution of the Policy
39 Distribution of the Policy
40 Not Applicable
41(a) Distribution of the Policy
42 Not Applicable
43 Not Applicable
44 Purchasing a Polaris LSVUL Policy
45 Not Applicable
46 Purchasing a Polaris LSVUL Policy
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Purchasing a Polaris LSVUL Policy
About Us and the Accounts
52 The Investment Options
53 Federal Income Tax Considerations
54 Financial Statements
55 Not Applicable
Part I
AIG Life Insurance Company ("we," "our" or "us"), is offering life insurance
coverage on two individuals under the Polaris Joint and Last Survivor Variable
Universal Life policy (the "Policy"). We pay the death benefit after both
Insureds die. The Policy is a flexible premium joint and last survivor variable
universal life policy that allows "you," the owner of the Policy, within limits,
to:
o Select the face amount of life insurance. You may
within limits change your initial selection as your
insurance needs change.
o Select the amount and timing of premiums payments. You
may make more premium payments than scheduled or stop
making premium payments.
o Allocate premium payments and your Policy's Account
Value among the variable investment options and the
guaranteed investment option.
o Receive payments from your Policy while at least one
Insured is alive through loans, partial withdrawals or
a total surrender.
This document contains information about the Policy. You should read this
document carefully before you decide to purchase the Policy. You should also
keep this document for future reference.
Interest in the Policies and shares of the Portfolios are not deposits or
obligations of or guaranteed by a bank, and are not federally insured by the
Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of the Policy or determined that this document is
accurate or complete. Any representation to the contrary is a criminal offense.
Prospectus _________, 1999
Investment Options
Variable Investment Options
The Separate Account is divided into Subaccounts. Each Subaccount invests in
shares of a specific portfolio of the Anchor Series Trust or SunAmerica Series
Trust. Each portfolio is named below. The prospectuses for Anchor Series Trust
and SunAmerica Series Trust contain information about each portfolio. You should
read these prospectuses carefully. These prospectuses may be obtained by calling
1-800-340-2765,
Anchor Series Trust
Managed by Wellington Management Company, LLP
o Capital Appreciation Portfolio
o Government and Quality Bond Portfolio
o Growth Portfolio
o Natural Resources Portfolio
SunAmerica Series Trust
Managed by Alliance Capital Management L.P. Managed by Massachusetts
o Global Equities Portfolio Financial Services Company
o Alliance Growth Portfolio o MFS Growth and Income
o Growth-Income Portfolio Portfolio
o MFS Mid-Cap Growth Portfolio
o MFS Total Return Portfolio
Managed by Davis Selected Advisers, L.P. Managed by Morgan Stanley Asset
o Real Estate Portfolio Management
o Venture Value Portfolio o International Diversified
Equities Portfolio
o Worldwide High Income
Portfolio
Managed by Federated Investment Counseling Managed by Putnam Investment
o Corporate Bond Portfolio Management, Inc.
o Federated Value Portfolio o Emerging Markets Portfolio
o Utility Portfolio o Putnam Growth Portfolio
o International Growth and
Income Portfolio
Managed by Goldman Sachs Asset Managed by SunAmerica Asset
Management/Goldman Sachs Asset Management Corp.
Management International o Aggressive Growth Portfolio
o Asset Allocation Portfolio o SunAmerica Balanced Portfolio
o Global Bond Portfolio o Cash Management Portfolio
o "Dogs" of Wall Street
Portfolio
o High-Yield Bond Portfolio
Guaranteed Investment Option
You may allocate your Account Value to the Guaranteed Account. The Guaranteed
Account is part of our general account. We will credit interest equal to at
least an effective rate of 4% per year, compounded annually on that portion of
Account Value that you allocate to the Guaranteed Account. We may, in our
discretion, elect to credit a higher rate of interest. This document generally
describes only that portion of the Account Value allocated to the Separate
Account.
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Table of Contents
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Special Terms used in this Document............................................i
Summary of the Policy..........................................................1
Overview .............................................................1
Applying for a Policy.................................................1
Premium Payments......................................................2
Account Value.........................................................2
Death Benefit.........................................................3
Cash Benefits Available While the Policy is in Force..................4
Expenses of the Policy................................................5
Federal Tax Considerations............................................8
Purchasing a Polaris Joint and Last Survivor VUL Policy.......................10
Applying for a Policy................................................10
Your Right to Cancel the Policy......................................11
Premiums ............................................................11
Restrictions on Premiums.............................................11
Minimum Initial Premium..............................................12
Planned Periodic Premiums............................................12
Additional Premiums..................................................12
Effect of Premium Payments...........................................12
No Lapse Provision...................................................13
Grace Period.........................................................13
Premium Allocations..................................................14
Crediting Premiums...................................................15
The Investment Options........................................................16
Variable Investment Options..........................................16
Guaranteed Investment Option.........................................20
Investing Your Account Value..................................................22
Determining the Account Value........................................22
Transfers............................................................25
Dollar Cost Averaging (DCA)..........................................26
Automatic Rebalancing................................................28
Death Benefits................................................................29
Life Insurance Proceeds..............................................29
Death Benefit Options................................................30
Changes in Death Benefit Options.....................................31
Changes in Face Amount...............................................32
Changes in Owner or Beneficiary......................................34
Cash Benefits Available While the Policy is in Force .........................35
Policy Loans.........................................................35
Partial Withdrawals..................................................37
Systematic Withdrawal Program........................................39
Surrendering the Policy for Net Cash Surrender Value.................40
Payment Options for Benefits..................................................41
Expenses of the Policy........................................................42
Deductions From Premiums.............................................42
Monthly Deductions From Account Value................................42
Deduction From Subaccount Assets.....................................46
Deductions Upon Policy Transactions .................................47
Supplemental Benefits and Riders.............................................51
Other Policy Provisions.......................................................52
Right to Exchange....................................................52
Policy Split Option..................................................52
Limits on our Rights to Contest the Policy...........................53
Changes in the Policy or Benefits....................................54
When Proceeds Are Paid...............................................55
Reports to Owners....................................................55
Assignment...........................................................56
Reinstatement........................................................56
Performance Information.......................................................58
Federal Income Tax Considerations.............................................61
Distribution of the Policy....................................................68
About Us and the Accounts.....................................................69
The Company..........................................................69
The Separate Account.................................................70
The Guaranteed Account...............................................72
Our Directors and Executive Officers..........................................74
Other Information.............................................................76
State Regulation.....................................................76
Legal Proceedings....................................................76
Experts ............................................................76
Legal Matters........................................................76
Published Ratings....................................................77
Financial Statements..........................................................77
Appendix A
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Special Terms used in this Document
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We have capitalized some special terms we use in this document. We have
defined these terms here.
Accounts. The Separate Account and the Guaranteed Account of the Company.
We use Account Value to determine your Policy benefits. How we determine Account
Value is described on page 22.
Account Value. The total amount in the Accounts credited to your Policy.
If you have a request, please write to us at this address.
Administrative Office. One Alico Plaza, P.O. Box 8718, Wilmington, DE 19801.
Age. Each Insured's age as of his or her nearest birthday on the Policy Date.
Attained Age. Each Insured's Age as of the Policy Date plus the number of full
Policy years since the Policy Date.
Beneficiary. The person(s) who is (are) entitled to the Life Insurance Proceeds
under the Policy.
How we determine the Cash Surrender Value is shown on page 24.
Cash Surrender Value. The Account Value less any applicable surrender charge
that would be deducted upon surrender.
Code. The Internal Revenue Code of 1986, as amended.
Company, we, our, us. AIG Life Insurance Company.
Death Benefit. The amount of life insurance coverage which is based upon the
death benefit option you select and the Face Amount.
i
You will specify the initial Face Amount in your Policy application. The Policy
will also show the initial Face Amount.
Face Amount. The amount of insurance specified by the Owner and the base for
calculating the Death Benefit.
Grace Period. The period of time during which your Policy will continue in force
even though your Net Cash Surrender Value is insufficient. It begins on a
monthly anniversary when the Net Cash Surrender Value is less than the total
monthly deduction then due.
Guaranteed Account. An account within our general account which consists of all
of our assets other than the assets of the Separate Account and any of our other
separate accounts.
Insured(s). The person(s) who has (have) life insurance coverage
under the Policy.
We measure contestability periods from the Issue Date.
Issue Date. The date the Policy is actually issued. It may be later than the
Policy Date.
Last Surviving Insured. The remaining Insured after the death of one of the two
Insureds covered under this Policy.
Life Insurance Proceeds. The amount payable to a Beneficiary if the Last
Surviving Insured dies while life insurance coverage under the Policy is in
force.
Loan Account. The portion of the Account Value held in the Guaranteed Account as
collateral for Policy loans.
Monthly Anniversary. The same day as the Policy Date for each succeeding month,
except that, for any month not having such a day, it is the last day of that
month.
We use this value to determine if your Policy is in force.
Net Cash Surrender Value. The Cash Surrender Value less any Outstanding Loan.
Net Premium. Any premium paid less any expense charges deducted from the premium
payment.
ii
Outstanding Loan. The total amount of Policy loans including both principal and
accrued interest.
You may be an Owner even if you are not the Insured.
Owner(s), you, your. The person(s) who purchased the Policy as shown in the
application, unless later changed. If there is more than one Owner, then all
Owners must agree to any changes regarding the Policy.
Policy. The flexible premium joint and last survivor variable universal life
insurance coverage we issue. We may issue coverage under an individual contract
form or under a certificate issued under a group contract form. The term Policy
includes the individual contract form and the certificate and group contract
form.
We use the Policy Date as the date coverage begins and to determine all
anniversary dates.
Policy Date. The date as of which we have received the initial premium and an
application in good order. If a policy is issued, life insurance coverage is
effective as of the Policy Date.
Separate Account. Variable Account II, a separate investment account of ours.
Subaccount. A division of the Separate Account established to invest in shares
of a corresponding portfolio of a fund that is available for investment under
the Policy.
Valuation Date. Each day the New York Stock Exchange is open for trading.
Valuation Period. A period commencing with the close of trading on the New York
Stock Exchange (currently 4 P.M., Eastern Time) on any Valuation Date and ending
as of the close of the New York Stock Exchange on the next succeeding Valuation
Date.
iii
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Summary of the Policy
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Because this is a summary, it does not contain all the information that may be
important to you. You should read this entire document carefully before you
decide to purchase a Policy.
If you select any variable investment options, your Policy benefits will vary
based upon the returns earned by those variable investment options. The returns
may be zero or negative and you bear this risk.
Overview
The Policy is a flexible premium joint and last survivor variable universal life
policy. Like traditional life insurance, the Policy provides an initial minimum
death benefit and cash benefits that you can access through loans, partial
withdrawals or a surrender. Unlike traditional life insurance, you may choose
how to invest your Account Value.
The Policy is a "joint and last survivor" policy because unlike a single life
policy, it insures the lives of two Insureds and provides a death benefit that
is payable upon the death of the Last Surviving Insured. No death benefit is
payable upon the first Insured's death.
The Policy allows you to make certain choices that will tailor the Policy to
your needs. When you apply for the Policy, we will ask you to make some of these
choices. You may also change your choices to meet your changing insurance needs.
In addition, we may in the future offer several riders to the Policy. These
riders provide you with the flexibility to design an insurance product that
meets your specific needs.
Applying for a Policy
You may apply for a Policy to cover individuals, the "Insureds," who are both
younger than Age 86. Amount of life insurance benefits. When you apply for a
Policy, you must select the Face Amount. The Face Amount must be at least
$200,000.
1
When your coverage will become effective. Your policy will become effective
after:
o We accept your application.
o We receive an initial premium payment, in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your right to cancel the Policy.
Once you receive your Policy, you should read the Policy. You have the right to
cancel the Policy for any reason no later than 10 days after you receive the
Policy. If required by the state where you live, we will extend the 10 days to
the number required by law.
Premium Payments
Minimum initial premium.
Before your Policy is effective, you must pay the minimum initial premium. We
will calculate the minimum initial premium based on a number of factors, such as
the Age, sex and underwriting rate class of the proposed Insureds, the desired
Face Amount, and any supplemental benefits or riders applied for and whether
premiums will be paid by pre-authorized checking.
Planned periodic premium.
When you apply for a Policy you will select the amount of premium payments you
plan to pay during the term of the Policy. We will establish a minimum for this
amount. You will also select intervals when you plan to pay this premium amount.
This may be monthly, quarterly, semiannually, or annually. Pre-authorized
checking may be required for monthly payments.
Flexibility in premium payments.
During the term of the Policy, you may pay premiums at any time and in any
amount, within limits. Thus, you are not required to pay the planned periodic
premium and you may make payments in addition to the planned periodic premium.
2
Account Value
We will measure your benefits under the Policy by your Account Value. Your
Account Value will reflect:
o the premiums you pay;
o the returns earned by the Subaccounts you select;
o the interest credited on amounts allocated to the Guaranteed Account;
o any loans or partial withdrawals; and
o the Policy charges and expenses we deduct.
Death Benefit
Death Benefit Selections.
When you apply for a Policy, you must select:
o The Face Amount.
o The death benefit option, which will be the manner in which we calculate
the death benefit for your Policy.
o The tax qualification option, which will determine the manner in which we
test your Policy under the Code for meeting the definition of life
insurance.
Death Benefit Options.
You may select from two death benefit options. They are:
Level Death Benefit Option.
o Level Death Benefit Option (Option I)
The basic Death Benefit will be the greater of:
(1) The Face Amount; or
(2) Account Value on the date of the Last Surviving Insured's
death multiplied by the appropriate minimum death benefit
factor on that date.
Variable Death Benefit Option.
o Variable Death Benefit Option (Option II)
The basic Death Benefit will be the greater of:
(1) The Face Amount plus the Account Value; or
(2) Account Value on the date of the Last Surviving Insured's death
multiplied by the appropriate minimum death benefit factor on that
date.
3
The minimum death benefit factors we use are based upon the tax qualification
option you select and the Policy duration. Your Policy will state the minimum
death factors applicable and are determined by the Attained Age, sex and rate
class of each Insured.
Tax Qualification Options.
You may select from two tax qualification options. They are:
o Guideline Premium/Cash Value Corridor Test. The minimum death benefit
factors are based upon the Code.
o Cash Value Accumulation Test. The minimum death benefit factors are
based upon the 1980 Commissioners Standard Ordinary Mortality Tables
and a 4% effective annual interest rate.
Changes You May Make.
Within limits, after the first Policy anniversary, you may change the death
benefit option and may make changes to the Face Amount. You may not change
the tax qualification option.
Cash Benefits Available While the Policy is in Force
While the Policy is in force, your Policy has cash benefits that you can access
within limits through loans, partial withdrawals or a surrender.
o Loans -- You may borrow against your Net Cash Surrender Value at any
time. If your Policy is a modified endowment contract, the loan is
treated as a distribution for tax purposes, which may be taxable.
o Partial Withdrawal -- You may withdraw part of your Net Cash Surrender
Value after the first Policy year. We may deduct an administrative
charge. If you make a partial withdrawal during the surrender charge
period, we may deduct a surrender charge. A partial withdrawal may
result in a decrease in the Face Amount of your Policy, depending upon
your death benefit option.
4
o Surrender -- You may surrender your Policy for its Net Cash Surrender
Value. If you surrender your Policy during the surrender charge
period, we will deduct a surrender charge. A surrender will terminate
your Policy.
Expenses of the Policy
Expenses reduce your returns under the Policy.
Deductions from Premiums
For state premium taxes, DAC taxes and other sales expenses, we currently charge
5% of each premium payment for Policy years 1- 10 which will reduce to 3% in
Policy years 11+. The maximum we will charge is 8%.
Account Value Charges (deducted monthly)
Cost of Insurance Charge(1)
Current Guaranteed
Ranges from 0.00001 per Ranges from 0.00004 per
$1,000 of net amount at risk $1,000 of net amount risk
to 83.33333 per $1,000 of net to 83.33333 per $1,000 of net
amount at risk(2) amount at risk(2)
Monthly Administrative
Charge
Current Guaranteed
Policy Years 1-5 $15.00 $15.00
Policy Years 6+ $ 7.50 $15.00
In addition, there will be a charge of $0.03 per month for each $1,000 in Face
Amount until the Policy is terminated.
Acquisition Charge
During the first 5 Policy years or the first 5 Policy years after a Face Amount
increase there will be a yearly charge for each $1,000 in Face Amount based on
the Insureds' Age sex and rate class.(3)
Separate Account Charges
(deducted daily and shown as an annualized percentage of average net assets)
5
Mortality and Expense Risk Charge
Current Guaranteed
Policy Years 1-10 0.75% 0.90%
Policy Years 11-20 0.15% 0.90%
Policy Years 21and thereafter 0.10% 0.90%
Transaction Charges
Transfer Charge
$25 for each transfer in excess of 12 each Policy year.
Surrender Charge
During the first 10 Policy years and for 10 Policy years following a Face Amount
increase there will be a surrender charge based on the initial Face Amount or
the increase in Face Amount. (4)
Surrender Charge on Partial Withdrawal
The surrender charge on a partial withdrawal is equal to the applicable
surrender charge multiplied by a fraction (equal to the amount of partial
withdrawal plus any administrative charge, if applicable, for the partial
withdrawal, divided by the Net Cash Surrender Value immediately prior to the
partial withdrawal).
Surrender Charge on Decrease in Face Amount
The surrender charge on a decrease in Face Amount is equal to the applicable
surrender charge multiplied by a fraction (equal to the decrease in Face Amount
divided by the Face Amount of the Policy prior to the decrease).
Partial Withdrawal Administrative Charge
Currently, four partial withdrawals are allowed per year. We may charge a $25
administrative charge per partial withdrawal. In certain states the charge may
be the lesser of $25 or 2% of the amount withdrawn.
Policy Split Option Charge
Not to exceed $500.
(1) The current cost of insurance charge will never exceed the guaranteed
cost of insurance charge shown in the policy. If the Death Benefit is
equal to the Face Amount or the Face Amount plus Account Value, the net
amount at risk is the difference between the Death Benefit divided by
1.0032737 and the current Account Value. Otherwise, the net amount at
risk is the difference between the Death Benefit and the Account Value.
(See "Expenses of the Policy - Cost of Insurance Charge.")
(2) Current and guaranteed cost of insurance rates are based on the Age (or
Attained Age in the case of increase in Face Amount), sex and rate
class of the Insureds, and Policy Year.
6
(3) A Policy's acquisition charge is based on the Age, sex and rate class
status of both Insureds and Face Amount. For a 65 year old non-smoking
male and a 65 year old non-smoking female policy with a $200,000 Face
Amount, the initial acquisition charge would be $2,087. The lowest and
highest acquisition charge are $0.59 and $61.71 per $1,000 of the Face
Amount, respectively.
(4) A Policy's surrender charge is based on the Age, sex and smoker status
of both Insureds and Face Amount. For a 65 year old non-smoking male
and a 65 year old non-smoking female policy with a $200,000 Face
Amount, the initial surrender charge would be $6,834.00. The lowest and
highest surrender charge are $10.19 and $60.00 per $1,000 of the Face
Amount, respectively.
Expenses of the variable investment options also reduce your returns.
In addition, you will indirectly bear the costs of the investment management
fees and expenses paid from the assets of the portfolios you select. The annual
portfolio expenses of the variable investment options are set forth below.
PORTFOLIO EXPENSES BEFORE WAIVERS AND/OR REIMBURSEMENTS
As of November 30, 1998
The purpose of this table is to assist the you in understanding the various
costs and expenses that will be incurred, directly or indirectly. It is based on
historical expenses as a percentage of net assets before waivers and/or
reimbursements, if applicable, for the year ended November 30, 1998. Expenses of
the portfolios are not fixed or specified under the terms of the Policy. Actual
expenses may vary.
Total
Management Other Operating
Fees Expenses(1) Expenses
Anchor Series Trust
Wellington Management Company, LLP
Capital Appreciation Portfolio .64% .04% .68%
Government and Quality Bond Portfolio .61% .06% .67%
Growth Portfolio .70% .05% .75%
Natural Resources Portfolio .75% .13% .88%
SunAmerica Series Trust
Alliance Capital Management, L.P.
Global Equities Portfolio .74% .14% .88%
Alliance Growth Portfolio(2) .61% .03% .64%
Growth-Income Portfolio .56% .04% .60%
Davis Selected Advisers, L.P.
Real Estate Portfolio(3) .80% .15% .95%
Venture Value Portfolio .72% .03% .75%
7
Federated Investment Counseling
Corporate Bond Portfolio .65% .12% .77%
Federated Value Portfolio .75% .08% .83%
Utility Portfolio(3) .75% .26% 1.01%
Goldman Sachs Asset Management/Goldman
Sachs Asset Management International
Asset Allocation Portfolio .59% .05% .64%
Global Bond Portfolio .70% .15% .85%
Massachusetts Financial Services Company
MFS Growth and Income Portfolio(2) .70% .03% .73%
MFS Mid-Cap Growth Portfolio(2)(4) .75% .40% 1.15%
MFS Total Return Portfolio(2) .67% .10% .77%
Morgan Stanley Asset Management
International Diversified Equities Portfolio 1.00% .26% 1.26%
Worldwide High Income Portfolio 1.00% .08% 1.08%
Putnam Investment Management, Inc.
Emerging Markets Portfolio(4) 1.25% .76% 2.01%
Putnam Growth Portfolio .81% .05% .86%
International Growth and Income Portfolio(3) 1.00% .46% 1.46%
SunAmerica Asset Management Corp.
Aggressive Growth Portfolio .74% .09% .83%
SunAmerica Balanced Portfolio .68% .10% .78%
Cash Management Portfolio .53% .05% .58%
"Dogs" of Wall Street Portfolio(4) .60% .32% .92%
High-Yield Bond Portfolio .63% .06% .69%
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(1) Other expenses are based on the expenses outlined in the funds'
prospectuses.
(2) The expenses noted here are restated to reflect an estimate of fees for
each portfolio for the current fiscal year.
(3) Certain Portfolios have recoupment by the Adviser of expenses for the
fiscal year ended November 30, 1998. Such recoupments are as follows:
International Growth and Income Portfolio - $52,507; Real Estate Portfolio
- $7,874; and Utility Portfolio - $41,753. Such recoupments have been
included in the Total Operating Expenses shown above. If there had been no
recoupment, the Total Operating Expenses percentages shown would be as
follows: International Growth and Income Portfolio - 1.40%; Real Estate
Portfolio - .93%; Utility Portfolio - .92%.
With respect to any fees the Adviser waived or expenses it reimbursed after
June 3, 1996, the Adviser has reserved the right to recoup the waived or
reimbursed amounts for the following two years, provided that the
8
Portfolio is able to effect such payment to the Adviser and remain in
compliance with the stated expense limitations.
(4) The Adviser has voluntarily agreed to waive fees or reimburse expenses, if
necessary, to keep annual operating expenses at or below the lesser of the
following percentages of each of the following Portfolio's average net
assets: Emerging Markets Portfolio - 1.90%, "Dogs" of Wall Street Portfolio
- .85% and Mid-Cap Growth Portfolio -1.15%. The Adviser may terminate all
such waiver and/or reimbursements at any time. For the fiscal year ended
November 30, 1998, the amounts voluntarily waived or reimbursed (and
reflected in the Total Operating Expenses percentage shown above) are as
follows: Emerging Markets - $29,562, "Dogs" of Wall Street - $15,116.
You should consider the impact of the Code.
Federal Tax Considerations
Your purchase of, and transactions under, your Policy may have tax consequences
that you should consider before purchasing the Policy. You may wish to consult a
tax adviser. In general, the Life Insurance Proceeds will not be taxable income
to the Beneficiary. You will not be taxed as your Account Value increases.
However, you may be taxed upon a distribution from your Policy.
9
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Purchasing a Polaris Joint and Last Survivor VUL Policy
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Applying for a Policy
To purchase a Policy, you must complete an application and submit it to us. You
must specify certain information in the application, including the Face Amount,
the death benefit option, tax qualification option and supplemental benefits or
riders, if any. We may also require information to determine if the Insureds are
an acceptable risk to us. We may require a medical examination of the Insureds
and ask for additional information.
Our age requirement for the Insureds.
You may apply for a Policy to cover individuals who are younger than Age 86.
The minimum Face Amount.
The Face Amount must be at least $200,000.
We require a minimum initial premium.
We require that you pay a minimum initial premium before the policy is effective
and we will issue the Policy.
We will not issue a Policy until we have accepted the application. We will
accept an application if it meets our underwriting rules. We reserve the right
to reject an application for any reason or "rate" either Insured as a
substandard risk. When your coverage will be effective. Your policy will become
effective after:
o We accept your application.
o We receive an initial premium payment, in an amount we determine.
o We have completed our review of your application to our satisfaction.
10
Your Right to Cancel the Policy
Period to Examine and Cancel.
Once you receive your Policy, you should read the Policy. You have the right to
cancel the Policy for any reason no later than 10 days after you receive the
Policy. If required by the state where you live, we will extend the 10 days to
the number required by law. This is your "Period to Examine and Cancel."
Your right to cancel also applies to the amount of any requested increase in
Face Amount. This does not apply to any increase in Face Amount under the
Automatic Face Amount Increase Option.
How to cancel your Policy.
You may cancel the Policy by returning it to our Administrative Office or to our
agent within the applicable time with a written request for cancellation. We
will refund you the premium paid on the Policy. Thus, the amount we return will
not reflect the returns of the Subaccounts or the Guaranteed Account that you
selected in your application.
Premiums
The Policy allows you to select the timing and amount of premium payments within
limits. You should send premium payments to our Administrative Office.
All your premium payments must comply with our requirements.
Restrictions on Premiums. We may not accept any premium payment:
o If it is less than $25 ($50 for monthly pre-authorized checking).
o If the premium would cause the Policy to fail to qualify as a life
insurance contract as defined in Section 7702 of the Code. We will refund
any portion of any premium that causes the Policy to fail. In addition, we
will monitor the Policy and will attempt to notify you on a timely basis if
a Policy is in jeopardy of becoming a modified endowment contract under the
Code.
o If the premium would increase the amount of our risk under your Policy by
an amount greater than that premium amount. In such cases, we may require
satisfactory evidence of insurability of each living Insured before
accepting that premium.
11
Types of premium payments.
Minimum Initial Premium. We will calculate the minimum initial premium. The
amount is based on a number of factors, including the Age, sex and rate class of
each proposed Insured, the desired Face Amount and any supplemental benefits or
riders applied for and whether premiums will be paid by pre-authorized checking.
We establish a minimum planned periodic premium.
Planned Periodic Premiums. When you apply for a Policy, you select a plan for
paying level premiums at specified intervals. The intervals may be monthly,
quarterly, semi-annually or annually, for the life of the Policy. Pre-authorized
checking may be required for monthly payments. We will establish a minimum
amount that may be used as the planned periodic premium.
You are not required to pay premiums in accordance with this plan. Rather, you
can pay more or less than the planned periodic premium or skip a planned
periodic premium entirely.
At any time you may request a change in the amount and frequency of planned
periodic premium by sending a written notice to our Administrative Office.
Additional Premiums. Additional premiums are premiums other than planned
premiums. Additional premiums may be paid in any amount and at any time subject
to the Code and our restrictions on premiums.
Depending on the Account Value at the time of an increase in the Face Amount and
the amount of the increase requested, an additional premium may be needed to
prevent your Policy from terminating.
Paying premiums may not ensure that your Policy remains in force.
Effect of Premium Payments. In general, unless the no- lapse provision is in
effect, paying all planned periodic premiums may not prevent your Policy from
lapsing. In addition, if you fail to pay any planned periodic premiums, your
Policy will not necessarily lapse.
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Your Policy will lapse only when the Net Cash Surrender Value on a monthly
anniversary is less than the amount of that date's monthly deduction. This could
happen if the Net Cash Surrender Value has decreased because:
o of the negative return or insufficient return earned by one or more of the
Subaccounts or the Guaranteed Account you selected; or
o of any combination of the following -- you have Outstanding Loans, you have
taken partial withdrawals, we have deducted Policy expenses, or you have
made insufficient premium payments to offset the monthly deduction.
No lapse premium guarantee.
No Lapse Provision. In general, during the no lapse period, which is currently
the first five Policy years, if you pay a sufficient amount of premiums, your
Policy will not lapse even if your Net Cash Surrender Value is insufficient to
pay the monthly deductions then due. You will be eligible for the no lapse
premium guarantee if:
o Your Policy has not been reinstated.
o All your premiums paid to date, reduced by any partial withdrawals and
Outstanding Loans, are at least equal to the product of the minimum premium
shown in your Policy Information Section multiplied by the number of months
that have elapsed since the Policy Date.
If you have requested a decrease in the Face Amount, we may not be able to
accept any subsequent premiums if these premiums would cause the Policy to fail
to qualify as a life insurance contract under the Code. In this event, the no
lapse provision will end.
Your Policy will not terminate immediately after your Account Value is
insufficient.
Grace Period. Unless the no lapse provision is in effect, in order for insurance
coverage to remain in force, the Net Cash Surrender Value on each monthly
anniversary must be equal to or greater than the total monthly deductions to be
charged on that monthly anniversary. If it is not, you have a Grace Period of 61
days during which the Policy will continue in force. The Grace Period begins on
the monthly anniversary that the Net Cash Surrender Value is less than the total
monthly deductions then due. If we do not receive a sufficient premium before
the end of the Grace Period, the Policy may terminate without value.
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We will send you a written notice within 30 days of the beginning of any Grace
Period. The notice will state:
o A Grace Period of 61 days has begun.
How much you must pay to prevent your policy from terminating.
o The amount of premium required to prevent your Policy from terminating.
This amount is equal to the amount needed to increase the Net Cash
Surrender Value sufficiently to cover total monthly deductions for the next
three (3) monthly anniversaries.
If the Last Surviving Insured dies during the Grace Period, we will still pay
the Life Insurance Proceeds to the Beneficiary. The amount we pay will reflect a
reduction for the unpaid monthly deductions due on or before the date of the
Last Surviving Insured's death.
If your Policy lapses with an Outstanding Loan, you may have taxable income.
Premium Allocations. In the application, you specify the percentage of Net
Premiums to be allocated to each Subaccount and to the Guaranteed Account.
However, until the Period to Examine and Cancel expires, we invest this amount
in the Money Market Subaccount. The first business day after this period
expires, we will reallocate your Account Value in the Money Market Subaccount
based on the premium allocation percentages in your application.
For all subsequent premiums, we will use the allocation percentages you
specified in the application until you change them. You can change the
allocation percentages at any time, by sending written notice to our
Administrative Office. The change will apply to all premiums received with or
after your notice.
Allocation Rules. Your allocation instructions must meet the
following requirements:
o Each allocation percentage must be a whole number; and
o Any allocation to a Subaccount or to the Guaranteed Account must be at
least 5%; and the sum of your allocations must equal 100%.
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Crediting Premiums. Your initial Net Premium, will be credited to your Account
Value as of the Policy Date. On the first business day after the Period to
Examine and Cancel expires, we will allocate it in accordance with your
allocation percentages. We will credit and invest subsequent Net Premiums on the
date we receive the premium or notice of deposit at our Administrative Office.
If any premium requires us to accept additional risk, we may allocate this
amount to the Money Market Subaccount until we complete our underwriting.
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The Investment Options
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You may allocate your Account Value to:
o the Subaccounts which invest in the variable investment options; or
o the Guaranteed Account.
Variable Investment Options
Under the Policy, you may currently allocate your Account Value into any of the
available Subaccounts. Each Subaccount invests in a distinct portfolio of the
Anchor Series Trust or the SunAmerica Series Trust. SunAmerica Asset Management
Corp., an affiliate of ours, is the investment adviser to the Anchor Series
Trust and SunAmerica Series Trust. These portfolios operate similarly to a
mutual fund but are only available through the purchase of certain insurance
contracts.
These portfolios may serve as the underlying investment vehicles for other
variable insurance contracts issued by us and other affiliated/unaffiliated
insurance companies. We do not believe that offering these portfolios in this
manner is disadvantageous to you. The Trusts' management monitor the portfolios
for any conflicts between contract owners.
Anchor Series Trust
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust Portfolios. Anchor Series Trust has additional portfolios which are not
available for allocations under your Policy. The investment objectives of the
available portfolios are set forth below. Please see the prospectus for detailed
information about the available portfolios.
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Portfolios Managed by Wellington Management Company, LLP
The Capital Appreciation Portfolio seeks long-term capital appreciation. This
Portfolio invests in growth equity securities which are widely diversified by
industry and company.
The Government and Quality Bond Portfolio seeks relatively high current income,
liquidity and security of principal. This Portfolio invests in obligations
issued, guaranteed or insured by the U.S. Government, its agencies or
instrumentalities and in investment grade corporate debt securities.
The Growth Portfolio seeks capital appreciation primarily through investments in
growth equity securities.
The Natural Resources Portfolio seeks a total return in excess of the U.S. rate
of inflation as represented by the Consumer Price Index. This Portfolio invests
primarily in equity securities of U.S. or foreign companies which are expected
to provide favorable returns in periods of rising inflation.
SunAmerica Series Trust
Various subadvisers provide investment advice for the SunAmerica Series Trust
portfolios. SunAmerica Series Trust has additional portfolios which are not
available for allocations under your Policy. The available portfolios, the
investment objectives of each and the subadvisers are set forth below. Please
see the prospectus for detailed information about the available portfolios.
Portfolios Managed by Alliance Capital Management L.P.
The Global Equities Portfolio seeks long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics of
U.S. and foreign issuers that demonstrate the potential for appreciation and
engaging in transactions in foreign currencies.
The Alliance Growth Portfolio seeks long-term growth of capital by investing
primarily in equity securities of a limited number of large, carefully selected
high quality U.S. companies that are judged likely to achieve superior earnings.
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The Growth-Income Portfolio seeks growth of capital and income by investing
primarily in common stocks or securities which demonstrate the potential for
appreciation and/or dividends.
Portfolio Managed by Davis Selected Advisers, L.P.
The Venture Value Portfolio seeks growth of capital by investing primarily in
common stocks of companies with market capitalizations of at least $5 billion.
The Real Estate Portfolio seeks total return through a combination of growth and
income by investment primarily in securities in companies principally engaged in
or related to the real estate industry or which own significant real estate
assets or which primarily invest in real estate instruments.
Portfolios Managed by Federated Investment Counseling
The Corporate Bond Portfolio seeks high total return with only moderate price
risk by investing primarily in investment grade fixed income securities.
The Utility Portfolio seek high current income and moderate capital appreciation
by investing primarily in the equity and debt securities of utility companies.
The Federated Value Portfolio seeks growth of capital and income by investing
primarily in the securities of high quality companies.
Portfolios Managed by Goldman Sachs Asset Management/Goldman Sachs Asset
Management International
The Asset Allocation Portfolio seeks high total return (including income and
capital gains) consistent with preservation of capital over the long-term by
investing in a diversified portfolio that may include common stocks and other
securities having common stock characteristics, bonds and other intermediate and
long-term fixed income securities and money market instruments.
The Global Bond Portfolio seeks high total return, emphasizing current income
and, to a lesser extent, providing opportunities for capital appreciation, by
investing in high quality fixed income securities of U.S. and foreign issuers
and transactions in foreign currencies.
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Portfolios Managed by Massachusetts Financial Services Company
The MFS Growth and Income Portfolio seeks reasonable current income and
long-term growth of capital and income by investing primarily in equity
securities.
The MFS Total Return Portfolio seeks reasonable current income, long-term
capital growth and conservation of capital by investing primarily in common
stocks and fixed income securities, with an emphasis on income-producing
securities which appear to have some potential for capital enhancement.
The MFS Mid-Cap Growth Portfolio seeks long term growth of capital by investing
primarily in equity securities of medium-sized companies generally with market
capitalizations between $1 billion and $5 billion, that its subadvisers believes
have above-average growth potential.
Portfolios Managed by Morgan Stanley Asset Management
The International Diversified Equities Portfolio seeks long-term capital
appreciation by investing (in accordance with country and sector weightings
determined by its subadviser) in common stocks of foreign issuers that, in the
aggregate, replicate broad country and sector indices.
The Worldwide High Income Portfolio seeks high current income and, secondarily,
capital appreciation, by investing primarily in a portfolio of high-yielding
fixed income securities of issuers located throughout the world.
Portfolios Managed by Putnam Investment Management, Inc.
The Emerging Markets Portfolio seeks long-term capital appreciation by investing
primarily in the common stocks and other equity securities of companies that its
subadviser believes have above-average growth prospects primarily in emerging
markets outside the United States.
The Putnam Growth Portfolio seeks long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics which
its subadviser believes have above-average growth prospects.
The International Growth and Income Portfolio seeks growth of capital with
current income as a secondary objective by investing primarily in common stocks
traded on markets outside the U.S.
19
Portfolios Managed by SunAmerica Asset Management Corp.
The Aggressive Growth Portfolio seeks capital appreciation by investing
primarily in equity securities of high growth companies including small growth
companies with market capitalizations under $1 billion.
The SunAmerica Balanced Portfolio seeks to conserve principal by maintaining, at
all times, a balanced portfolio of stocks and bonds, with at least 25% invested
in fixed income securities.
The Cash Management Portfolio seeks high current yield while preserving capital
by investing in a diversified selection of money market instruments. The Cash
Management Portfolio does not seek to maintain a stable net asset value of
$1.00.
The "Dogs" of Wall Street Portfolio seeks total return (including capital
appreciation and current income) by investing in thirty high dividend yielding
common stocks from the Dow Jones Industrial Average and the broader market.
The High-Yield Bond Portfolio seeks high current income and, secondarily seeks
capital appreciation, by investing primarily in intermediate and long-term
corporate obligations, with emphasis on higher-yielding, higher-risk,
lower-rated or unrated securities with a primary focus on "B" rated high-yield
bonds.
Guaranteed Investment Option
Under the Policy, you may currently allocate your Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part of
your Account Value to the Loan Account which is part of the Guaranteed Account.
We treat each allocation and transfer separately for purposes of crediting
interest and making deductions from the Guaranteed Account.
20
Interest Credited On the Guaranteed Account. All of your Account Value held in
the Guaranteed Account will earn interest at a rate we determine, in our sole
discretion. This rate will never be less than an effective rate of 4% per year
compounded annually. The Loan Account portion of your Account Value may earn a
different interest rate than the remaining portion of your Account Value in the
Guaranteed Account.
Deductions from the Guaranteed Account. We will deduct any transfers, partial
withdrawals or any Policy expenses from the Guaranteed Account and the
Subaccounts on a pro rata basis, unless you provide other directions. No portion
of the Loan Account may be used for this purpose.
We treat amounts transferred from the Loan Account to the remaining portion of
the Guaranteed Account Value as a new allocation to the Guaranteed Account. We
will credit this transfer with interest at the rate then in effect for
Guaranteed Account allocations.
Payments from the Guaranteed Account. If we must pay any part of the proceeds
for a loan or partial withdrawal or surrender from the Guaranteed Account, we
may defer the payment for up to six months from the date we receive the written
request. If we defer payment from the Guaranteed Account for 30 days or more, we
will pay interest on the amount we deferred at an effective rate of 4% per year,
compounded annually, until we make payment.
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Investing Your Account Value
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The Policy allows you to choose how to invest your Account Value. Your Account
Value will increase or decrease based on:
o The returns earned by the Subaccounts you select.
o Interest credited on amounts allocated to the Guaranteed Account.
We will determine your Policy benefits based upon your Account Value. If your
Account Value is insufficient, your Policy may terminate, subject to any no
lapse guarantee. If the Net Cash Surrender Value on a monthly anniversary is
less than the amount of that date's monthly deduction, the Policy will lapse and
a Grace Period will begin.
Determining the Account Value
On the Policy Date, your Account Value is equal to your initial Net Premium. If
the Policy Date and the Issue Date are the same day, the Account Value is equal
to your initial premium, less the premium expenses and monthly deduction we
deduct.
On each Valuation Date thereafter, your Account Value is equal to:
o Your Account Value held in the Subaccounts; and
o Your Account Value held in the Guaranteed Account.
Your Account Value will reflect:
o the premiums you pay;
22
o the returns earned by the Subaccounts you select;
o the interest credited on amounts allocated to the Guaranteed Account;
o any loans or partial withdrawals; and
o the Policy charges and expenses we deduct.
Account Value in the Subaccounts. We measure your Account Value in the
Subaccounts by the value of the Subaccounts' accumulation units we credit to
your Policy. When you allocate premiums or transfer part of your Account Value
to a Subaccount, we credit your Policy with accumulation units in that
Subaccount. The number of accumulation units equals the amount allocated to the
Subaccount divided by that Subaccount's accumulation unit value for the
Valuation Date when the allocation is effected.
The number of Subaccount accumulation units we credit to your Policy will:
o increase -- when Net Premium is allocated to the Subaccount, amounts are
transferred to the Subaccount and loan repayments are credited to the
Subaccount.
o decrease -- when the allocated portion of the monthly deduction is taken
from the Subaccount, a Policy loan is taken from the Subaccount, an amount
is transferred from the Subaccount, or a partial withdrawal, including the
partial withdrawal administrative and surrender charges, is taken from the
Subaccount.
Accumulation Unit Values. A Subaccount's accumulation unit value varies to
reflect the return of the portfolio, and may increase or decrease from one
Valuation Date to the next. We arbitrarily set the accumulation unit value for
each Subaccount at $10 when the Subaccount was established. Thereafter, the
accumulation unit value equals the accumulation unit value for the prior
Valuation Period multiplied by the net investment factor for the current
Valuation Period.
23
Net Investment Factor. The net investment factor is an index we use to measure
the investment return earned by a Subaccount during a Valuation Period. It is
based on the change in net asset value of the portfolio shares held by the
Subaccount, and reflects any dividend or capital gain distributions on the
portfolio shares and the deduction of the daily mortality and expense risk
charge.
Guaranteed Account Value. On any Valuation Date, the Guaranteed Account portion
of your Policy's Account Value equals:
o the total of all Net Premium, allocated to the Guaranteed Account, plus
o any amounts transferred to the Guaranteed Account, plus
o interest credited on the amounts allocated and transferred to the
Guaranteed Account, less
o the amount of any transfers from the Guaranteed Account, less
o the amount of any partial withdrawals, including the partial withdrawal
charges, taken from the Guaranteed Account, and less
o the allocated portion of the monthly deductions, if any, deducted from the
Guaranteed Account, plus
o the amount of the Loan Account. If you take a Policy loan, we transfer the
amount of the loan to the Loan Account held in the Guaranteed Account. The
value of your Loan Account includes transfers to and from the Loan Account
as you take and repay loans, and interest, charged and credited on the Loan
Account.
Cash Surrender Value. The Cash Surrender Value on a Valuation Date is the
Account Value reduced by any surrender charge that would be assessed if the
Policy were surrendered on that date.
24
The amount you would receive on a Surrender of your Policy.
Net Cash Surrender Value. The Net Cash Surrender Value on a Valuation Date is
equal to:
o the Cash Surrender Value, less
o any Outstanding Loan on that date.
Transfers
You may transfer Account Value among the Subaccounts and to and from the
Guaranteed Account after the Period to Examine and Cancel. All transfer
requests, except for those made under the Dollar Cost Averaging, Automatic
Rebalancing and Systematic Withdrawal programs, must satisfy the following
requirements:
o Minimum amount of transfer -- You must transfer at least $250 or, the balance
in the Subaccount or the Guaranteed Account, if less.
o Form of transfer request -- You must make a written request unless you have
established prior authorization to make telephone transfers or by other means
we make available.
o Transfers from the Guaranteed Account -- The maximum you may transfer in a
Policy year is equal to 25% of your Guaranteed Account value that is not in
the Loan Account on the most recent Policy anniversary reduced by all prior
partial withdrawals and transfers taken from the Guaranteed Account during
that Policy year.
Date We Process Your Transfer Request. We must receive your transfer request at
our Administrative Office. We process transfers on the same date we receive your
transfer request subject to the NYSE being open for trading. The transfer will
be made at the price next computed after we receive your transfer request. We
may, however, defer transfers under the same conditions as described in "When
Proceeds Are Paid."
25
Number of Allowable Transfers/Transfer Fee. We do not currently limit the number
of transfers you may make. We will currently assess a $25 transfer fee, however,
for each transfer in excess of 12 during a Policy year. All transfers processed
on the same business day will count as one transfer for purposes of determining
the number of transfers you have made in a Policy year. Transfers in connection
with the Dollar Cost Averaging and Automatic Rebalancing features will not count
against the 12 free transfers in a Policy year. We reserve the right to increase
the number of "free" transfers allowed in any Policy year.
Telephone Transfers. If you have completed an authorization form allowing
telephone transfers, you may request transfers by telephone. We confirm all
telephone transfers in writing. You should review all confirmations to determine
if there have been any unauthorized transfers.
We will use reasonable procedures to confirm that telephone transfer requests
are genuine. We will not be liable for any loss due to unauthorized or
fraudulent instructions.
We reserve the right to suspend telephone transfer privileges at any time, for
some or all Policies.
Dollar Cost Averaging (DCA)
Dollar Cost Averaging is a systematic method of investing at regular intervals.
By investing at regular intervals, the cost of the securities is averaged over
time and perhaps over various market cycles.
You may request Dollar Cost Averaging. Under this program we will automatically
transfer monthly a portion of your Account Value on a monthly, quarterly,
semi-annual, or annual basis, as you request. Unless you give us other
instructions, we will allocate the transfer as you have specified in your most
current premium allocation instructions. However, not less than 5% may be
allocated to any Subaccount or to the Guaranteed Account. You may instruct us to
make the transfers from any Subaccount or the Guaranteed Account so long as the
Account Value in that Account is initially at least $2,000. There is no charge
for this option.
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Dollar Cost Averaging From the Guaranteed Account with Six Month Bonus Rate. We
may make available a six-month bonus interest rate if you use the dollar cost
averaging feature from the Guaranteed Account. For the bonus interest rate to
apply, an initial premium payment of at least $2,000 made in connection with the
purchase of a Policy is eligible for dollar cost averaging with a bonus rate of
interest. We will credit the Net Premiums to the 6-month DCA Guaranteed Account.
This dollar cost averaging option must be elected at the time of application and
only applies to the initial premium payment. We will transfer monthly, one-sixth
of your Account Value in the 6-month DCA Guaranteed Account over a period of six
months. The sixth transfer from the 6- month DCA Guaranteed Account will include
interest earnings for the six-month period.
During this period, we may credit an additional interest rate over the interest
rate that we are crediting on allocations or transfers to the Guaranteed Account
made at that time. Additional amounts may not be allocated to the 6-month DCA
Guaranteed Account.
If you terminate the dollar cost averaging while your Account Value includes
amounts in the 6-month DCA Guaranteed Account, we will transfer this amount to
the Guaranteed Account. It will earn interest at the rate we are crediting on
allocations or transfers to the Guaranteed Account made at that time.
We reserve the right to establish transfer limits, to restrict the Subaccounts
from which transfers may be made, and to eliminate this feature all together.
When We will Process your Automatic DCA Transfers. We will begin to process your
automatic transfers:
o If you requested the automatic DCA transfers when you applied for your Policy
-- on the first monthly anniversary following the end of the Period to
Examine and Cancel.
o If you elect the option after you applied for the Policy -- on the second
monthly anniversary following the receipt of your request at our
Administrative Office.
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We will stop processing automatic DCA transfers if:
o The funds in the transferring Subaccount or the Guaranteed Account have
been depleted;
o We receive your written request at our Administrative Office to cancel
future transfers;
o We receive notification of death of the last Surviving Insured; or
o Your Policy goes into a Grace Period.
Dollar Cost Averaging may lessen the impact of market fluctuations on your
investment. Using Dollar Cost Averaging does not guarantee investment gains or
protect against loss in a declining market.
Automatic Rebalancing
We may offer an Automatic Rebalancing program to rebalance your Account Value to
match your allocation instructions. This program is offered because the Account
Value in the Guaranteed Account and the Subaccounts will accumulate at different
rates as a result of different investment returns. Automatic Rebalancing will
restate the Account Value of the Guaranteed Account and the Subaccounts to your
most recent allocation instructions. You may elect the frequency (monthly,
quarterly, semi-annually, or annually) as measured from the Policy anniversary.
On each date elected, we will rebalance the Account Value by generating
transfers to reallocate the Account Values according to your most recent
allocation instructions.
Transfers resulting from Automatic Rebalancing will not be counted against the
total number of transfers allowed before a charge is applied.
We reserve the right to suspend or modify Automatic Rebalancing or to charge an
administrative fee for excessive election or allocation changes. Automatic
Rebalancing is not available if the grace period has commenced.
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Death Benefits
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Life Insurance Proceeds
During the Policy term, we will pay the Life Insurance Proceeds to the
Beneficiary after both Insureds die. To make payment, we must receive at our
Administrative Office:
o satisfactory proof of the Last Surviving Insured's death while the Policy
was in force;
o return of the Policy; and
o all other requirements we deem necessary.
The Beneficiary may receive the Life Insurance Proceeds in one lump sum or under
any other payment option available.
Payment of Life Insurance Proceeds. We will pay the Life Insurance Proceeds
generally within seven days after we receive the information we require. We will
pay the Life Insurance Proceeds to the Beneficiary in one lump sum or, if
elected, under an available payment option. Payment of the Life Insurance
Proceeds may also be affected by other provisions of the Policy.
We will pay interest on the Life Insurance Proceeds from the date of the Last
Surviving Insured's death to the date of payment as required by applicable state
law.
Amount of Life Insurance Proceeds. We will determine the Life Insurance Proceeds
as of the date of the Last Surviving Insured's death. The Life Insurance
Proceeds will depend on the death benefit option and tax qualification option in
effect on the date of death of the Last Surviving Insured and will equal:
o the Death Benefit amount determined according to the death benefit option
selected; plus
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o any other benefits then due from riders to the Policy; minus
o the Outstanding Loan, if any, minus
o any overdue monthly deductions if the Last Surviving Insured dies during a
Grace Period.
Death Benefit Options
You may select from two death benefit options. They are:
Level Death Benefit Option.
o Level Death Benefit Option (Option I)
The basic Death Benefit will be the greater of:
(1) The Face Amount; or
(2) Account Value at date of the Last Surviving Insured's death multiplied
by the appropriate minimum death benefit factor on that date.
This death benefit option should be considered if you want to minimize your cost
of insurance.
Variable Death Benefit Option.
o Variable Death Benefit Option (Option II)
The basic Death Benefit will be the greater of:
(1) The Face Amount plus the Account Value; or
(2) Account Value at date of the Last Surviving Insured's death multiplied
by the appropriate minimum death benefit factor on that date.
This death benefit option should be considered if you want your Death Benefit to
vary with your Policy's Account Value.
30
Tax Qualification Options.
Section 7702 of the Code provides alternative testing procedures for meeting the
definition of life insurance. Each Policy must qualify under one of these two
tests and you may select the test we use for ensuring your Policy meets the
definition of life insurance.
For both tests under Section 7702, there is a minimum Death Benefit required at
all times. This is equal to the Account Value multiplied by the appropriate
minimum death benefit factor. These factors depend on the tax qualification
option and will be based on the Attained Ages, sex and rate classes of the
Insureds. A table of the applicable factors is located in the Policy.
The two tax qualification options are:
Guideline Premium/Cash Value Corridor Test.
o Guideline Premium/Cash Value Corridor Test.
Cash Value Accumulation Test.
o Cash Value Accumulation Test. This tax qualification option should be
considered if you want to maximize the premiums permitted for your Policy.
Once you have selected the tax qualification option for your Policy, it may not
be changed.
Changes in Death Benefit Options
At any time after the first Policy anniversary while your Policy is in force,
you may request a change in death benefit option. If you have selected the Level
Death Benefit Option, you may change to the Variable Death Benefit Option. You
may also change from the Variable Death Benefit Option to the Level Death
Benefit Option.
How to request a change.
You may change your death benefit option by providing your Agent with a written
request or by writing us at our Administrative Office. We may require that you
submit satisfactory evidence of insurability of both Insureds to us.
31
If you request a change from the Level Death Benefit Option to the Variable
Death Benefit Option, we will decrease the Face Amount by an amount equal to
Your Account Value on the date the change takes effect. However, we will not
allow such a change if it would reduce the Face Amount below the minimum Face
Amount. This change will also cancel all future Face Amount increases under the
Automatic Face Amount Increase Option.
If you request a change from the Variable Death Benefit Option to the Level
Death Benefit Option, we will increase the Face Amount by an amount equal to
your Account Value on the date the change takes effect. Such decreases and
increases in the Face Amount are made so that the Death Benefit remains the same
on the date the change takes effect.
Once a change is approved, we will issue new Policy information pages and attach
a copy of your application for change. The change will take effect at the
beginning of the Policy month that coincides with or next follows the date we
approve your request. We reserve the right to decline to make any changes that
we determine would cause the Policy to fail to qualify as life insurance under
our interpretation of the Code.
Changes in Face Amount
When you apply for a Policy, you may select the Automatic Face Amount Increase
Option. In addition, you may request a change in the Face Amount at any time
after the first Policy anniversary while the Policy is in force. We will not
make a change in Face Amount that causes your Policy to fail to qualify as life
insurance under the Code.
Automatic Face Amount Increase Option. Under the Automatic Face Amount Increase
Option, the Face Amount will be automatically increased on specified Policy
anniversaries, up to a maximum total for all increases that is twice the initial
Face Amount. You may select the Automatic Face Amount Increase Option only if
you also select the Level Death Benefit Option. When you select this option, you
must specify:
o the Policy anniversaries on which the Face Amount increase will begin. The
increase must begin no later than the tenth Policy anniversary.
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o the amount of increase, which may be no less than 1% and no more than 6% of
the initial Face Amount.
You may elect to cancel the automatic increase. If you do so, we will cancel all
future increases. We require written notice of at least 30 days before the
effective date of an increase. In addition, any request to change the Face
Amount, any change in Face Amount as a result of a partial withdrawal or a
change from the Level Death Benefit Option to the Variable Death Benefit Option,
will cancel all future automatic increases.
Requested Increases in Face Amount. Any request for an increase:
o Must be made after the first Policy anniversary.
o Must be for at least $10,000.
o May not be requested more than once each Policy year.
o May not be requested after the oldest living Insured reaches Attained Age 90.
How to request a change.
A written application must be submitted to our Administration Office along with
satisfactory evidence of insurability for each living Insured. You must return
the Policy so we can amend the Policy to reflect the increase. The requested
increase in Face Amount will become effective on the monthly anniversary on or
next following the date the increase is approved, and the Account Value will be
adjusted to the extent necessary to reflect a monthly deduction as of the
effective date of the increase in Face Amount.
Decreases in Face Amount. Any request for a decrease:
o Must be at least $5,000.
o Must not cause the Face Amount after the decrease to be less than the
minimum Face Amount at which we would issue a Policy.
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o We do not allow a decrease in the first Policy year. During the second
through the fifth Policy years, you may decrease the Face Amount by up to
25% of the initial Face Amount each Policy year. The decreases may be
cumulative. If the Face Amount is decreased during the first 10 Policy
years or within 10 Policy years of an increase in Face Amount, a surrender
charge will be applicable. Decrease will first be applied against the most
recent increase in Face Amount.
Consequences of a Change in Face Amount. An increase or decrease in Face Amount
will change the net amount at risk for your Policy. This will affect the monthly
deduction related to the cost of insurance charge. Both requested increases and
decreases in Face Amount may impact the surrender charge. We will charge an
acquisition charge for the first five years following a requested increase in
Face Amount. In addition, a requested increase or decrease in Face Amount may
impact the status of the Policy as a modified endowment contract. A decrease in
Face Amount, will cause the termination of the Policy's no-lapse provision. A
requested change in the Face Amount will also cancel the Automatic Face Amount
Increase Option.
Changes in Owner or Beneficiary
While either Insured is living, you may request a change in the Owner or
Beneficiary. The change will take effect on the date you sign the notice, but
will not apply to any payment we make or other action we take before we receive
the notice.
Changes in Owner Due to Death. More than one person may own the Policy. Unless
otherwise provided, if a joint Owner dies, ownership passes to any surviving
joint Owner(s). Unless otherwise provided, when the Owner, or the last surviving
joint Owner dies, ownership passes to that person's estate.
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Cash Benefits Available While the Policy is in Force
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While the Policy is in force, your Policy has cash benefits which you may access
within limits by taking loans, partial withdrawals or a surrender.
Policy Loans
You may request a loan against your Policy at any time while the Policy has a
Net Cash Surrender Value. We limit the minimum and maximum amount of a loan you
may take as follows:
o Maximum Loan Amount
During the first Policy year, you may take a loan so long as the total
Outstanding Loan after taking into account the loan does not exceed 50% of
the Cash Surrender Value.
After the first Policy Year, the maximum loan amount you may take is:
* Your Net Cash Surrender Value, less
* Loan interest to the next Policy anniversary on the loan amount , less
* The amount we calculate for the monthly deductions for each monthly
anniversary up to the next Policy anniversary.
o Minimum Loan Amount -- $500.
How to request a loan.
You must submit a written request for a loan to the Administrative Office.
Policy loans will be processed as of the date we receive the request at our
Administrative Office. Loan proceeds generally will be sent to you within seven
days.
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Interest. We charge interest daily on any Outstanding Loan at a declared annual
rate not in excess of 8%. The maximum net cost (the difference between the rate
of interest we charge on Policy loans and the amount we credit on the equivalent
amount held in the Loan Account) of a loan is 2% per year . Currently, after the
tenth Policy anniversary, the net cost is 0.25%. While we believe such loans
after the tenth Policy anniversary will be treated as valid indebtedness for tax
purposes, there is some risk they would be treated as distributions. Interest is
due and payable at the end of each Policy year while a Policy loan is
outstanding. If interest is not paid when due, the amount of the interest is
added to the loan and becomes part of the Outstanding Loan.
Loan Account. You may direct us to take an amount equal to the loan proceeds and
any amount attributed to unpaid interest from any Subaccount or from the
Guaranteed Account. Otherwise, we will withdraw this amount from each Subaccount
and Guaranteed Account on a pro rata basis. We transfer this amount to the Loan
Account in the Guaranteed Account.
When a loan is repaid, an amount equal to the repayment will be transferred from
the Loan Account to the Subaccounts and Guaranteed Account in accordance with
your premium allocation percentages in effect at the time of repayment.
Effect of Policy Loan. A Policy loan, whether or not repaid, will have a
permanent effect on the Life Insurance Proceeds and Account Value because the
investment results of the Subaccounts and current interest rates credited in the
Guaranteed Account will apply only to the non-loaned portion of the Account
Value. The longer the loan is outstanding, the greater this effect is likely to
be. Depending on the investment results of the Subaccounts or credited interest
rates for the Guaranteed Account while the Policy loan is outstanding, the
effect could be favorable or unfavorable.
In addition, loans from modified endowment contracts are treated for tax
purposes as distributions, which may be taxable.
If the Life Insurance Proceeds become payable while a Policy loan is
outstanding, the Outstanding Loan will be deducted in calculating the Life
Insurance Proceeds.
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If the Outstanding Loan exceeds the Net Cash Surrender Value on any monthly
anniversary, the Policy will lapse. We will send you, and any assignee of
record, notice of the lapse. You will have a 61-day Grace Period to submit a
sufficient payment to avoid termination. The notice will specify the amount that
must be repaid to prevent termination.
Outstanding Loan. The Outstanding Loan on a Valuation Date equals:
o All Policy loans that have not been repaid (including past due unpaid
interest added to the loan), plus
o accrued interest not yet due.
Loan Repayment. You may repay all or part of your Outstanding Loan at any time
while the Policy is in force. Loan repayments must be sent to our Administrative
Office and will be credited as of the date received. You must indicate that the
amount paid is for a loan repayment.
Partial Withdrawals
Requirements for Partial Withdrawals.
You may request a partial withdrawal at any time after the first Policy
anniversary while the Policy is in force. Currently, we limit the number of
partial withdrawals to four each Policy year unless made under the systematic
withdrawal program. We may limit the minimum and maximum amount of withdrawals.
o Maximum Partial Withdrawal Amount -- Your Policy's Net Cash Surrender Value
except that the withdrawal may not cause the Policy Face Amount to be less
than the required minimum Face Amount.
o Minimum Partial Withdrawal Amount -- $250. This limit is waived for
withdrawals under the systematic withdrawal program.
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o Maximum Partial Withdrawal from the Guaranteed Account -- during any Policy
year you may only withdraw from the Guaranteed Account 25% of your
Guaranteed Account value that is not in the Loan Account on the most recent
Policy anniversary reduced by all prior partial withdrawals and transfers
from the Guaranteed Account during that Policy year.
o The Maximum Partial Withdrawal from the Guaranteed Account if you are a
participant in the systematic withdrawal program -- under this circumstance
during any Policy year you may only withdraw the greater of:
* 25% of your Guaranteed Account value that is not in the Loan Account on the
most recent Policy anniversary; or
* The maximum amount you may have withdrawn from the Guaranteed Account in
any of the prior Policy years.
How to request a partial withdrawal.
You must submit a written request to our Administrative Office. We will reduce
your Account Value by the partial withdrawal amount plus any applicable charges.
When you request a partial withdrawal, you may direct us to take the requested
amount from any Subaccount or from the Guaranteed Account. If you do not direct
us or if the Guaranteed Account or Subaccount value is insufficient to withdraw
the amount requested, we will withdraw all or the difference from the remaining
Accounts on a pro rata basis.
We will process partial withdrawal requests at the price next computed after we
receive your written request at our Administrative Office. We will generally pay
partial withdrawals within seven days.
Expenses for Partial Withdrawal. During the first ten Policy years or for the
ten Policy years following a requested increase in Face Amount, we will deduct
the applicable surrender charge on a partial withdrawal. This charge will be
deducted from your Account Value along with the amount requested to be
surrendered and will be considered part of the partial withdrawal (together, the
"partial withdrawal amount"). Currently, we do not assess a processing fee for
partial withdrawals. However, we reserve the right to assess a $25 processing
charge for each withdrawal.
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Effect of Partial Withdrawal on your Face Amount. The Face Amount of your Policy
will be reduced by the partial withdrawal amount if you selected the Level Death
Benefit Option.
We will reduce the Face Amount by the amount of the partial withdrawal in the
following order:
1. The most recent increase in the Face Amount, if any, will be reduced first.
2. The next most recent increases in the Face Amount, if any, will then be
successively decreased.
3. The initial Face Amount will then be decreased.
No partial withdrawal may be made that would reduce the Face Amount below the
minimum Face Amount.
If a Variable Death Benefit Option is in effect a partial withdrawal does not
affect the Face Amount.
Partial withdrawals from your Policy may have tax consequences.
Systematic Withdrawal Program
You may request the systematic withdrawal program at any time after the first
Policy anniversary. You may access your Account Value by electing the systematic
withdrawal program. This program allows you to automatically receive payments on
a monthly, quarterly, semi-annual or annual basis.
You have the option to switch to borrowing from your Account Value once a
specified amount of withdrawals has been reached. You may also elect to borrow
the interest due on your outstanding loan balance in order to continue to
receive a steady stream of income. Loans taken under this program are not
subject to the minimum loan amount.
Some withdrawals may be taxable.
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Surrendering the Policy for Net Cash Surrender Value
You may surrender your Policy at any time while the Policy is in force for its
Net Cash Surrender Value by submitting a written request to our Administrative
Office. We will require the return of the Policy. A surrender charge may apply.
We will process a surrender request as of the date we receive your written
request and all required documents. Your surrender request generally will be
paid within seven days. The Net Cash Surrender Value may be taken in one sum or
it may be applied to a payment option. Your Policy will terminate and cease to
be in force if it is surrendered and no life insurance proceeds will be payable.
It cannot later be reinstated.
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Payment Options for Benefits
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We offer a wide variety of optional ways of receiving proceeds payable under the
Policy, such as on a surrender or death, other than in a lump sum. Any agent
authorized to sell this Policy can explain these options upon request. None of
these options vary with the investment performance of a separate account because
they are all forms of guaranteed benefit payments.
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Expenses of the Policy
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Periodically, we will deduct expenses related to your Policy. We will deduct
these:
o from premiums, Account Value and from Subaccount assets; and
o upon certain transactions.
The amount of these expenses are described in your Policy as either guaranteed
or current. We will never charge more than the guaranteed amount. We may in our
discretion deduct expenses on a current basis that is less than the guaranteed
amount.
Deductions From Premiums
We will deduct up to a maximum of 8% from each premium payment. This charge is
intended to provide for state premium taxes, DAC taxes and for other expenses
associated with acquiring and servicing a Policy. Currently, the deduction is 5%
for the first ten Policy years and 3% thereafter.
Monthly Deductions From Account Value
On the Policy Date and each monthly anniversary thereafter, we make a deduction
from the Account Value. The amount deducted on the Issue Date is for the Policy
Date and any monthly anniversaries that have elapsed since the Policy Date. For
this purpose, the Policy Date is treated as a monthly anniversary.
We will deduct on each monthly anniversary charges for:
o The administration of your Policy.
42
o The acquisition and underwriting costs of your Policy.
o The cost of insurance for your Policy.
o The cost of any supplemental benefits or riders.
Subject to our approval, you may request us to take the monthly deductions from
your un-loaned Account Value allocated to the Money Market Subaccount,
Guaranteed Account or a specified Subaccounts. Otherwise, we will take the
monthly deductions from each Subaccount and the Guaranteed Account on a pro rata
basis.
Administrative Charge. This charge compensates us for administrative expenses
associated with the Policy and the Separate Account. These expenses relate to
premium billing and collection, record keeping, processing claims, Policy loans,
Policy changes, reporting and overhead costs, processing applications and
establishing Policy records.
This charge will be no more than $15 per month for all Policy years. Currently,
after the fifth Policy year the charge is $7.50 per month. In addition, there
will be a charge of $.03 per $1,000 of Face Amount per month until the Policy is
terminated.
Acquisition Charge. We will make a deduction from your Policy Account Value for
expenses associated with the acquisition and underwriting costs to issue your
Policy. This charge will vary based on the Insured's Age, sex and rate class.
The charge is assessed for the first five Policy years and if you request an
increase in the Face Amount, for the first five years following that increased
Face Amount the term of the Policy. The lowest and highest acquisition charge
are $0.59 and $61.71 per $1,000 of Face Amount, respectively. The amount of the
acquisition charge for your Policy is specified in the Policy Information
section of your Policy.
43
Cost of Insurance Charge. This charge compensates us for providing insurance
coverage. The charge depends on a number of factors, such as Attained Age, sex
and rate class of each Insured and reflects the fact that the Death Benefit is
not payable until the death of the Last Surviving Insured. Therefore this charge
will vary from Policy to Policy and from month to month. For any Policy the cost
of insurance on a monthly anniversary is calculated by multiplying the
applicable cost of insurance rate by the Net Amount at Risk under the Policy on
that monthly anniversary.
Net Amount at Risk.
If the Death Benefit is equal to the Face Amount, or the Face Amount plus the
Account Value, then the Net Amount at Risk is calculated as (a) minus (b) where:
(a) is the current Death Benefit at the beginning of the Policy month divided by
1.0032737; and
(b) is the current total Account Value.
If the Death Benefit is equal to the Account Value multiplied by the appropriate
minimum death benefit factor, then the Net Amount at Risk is calculated as (a)
minus (b) where:
(a) is the current Death Benefit at the beginning of the Policy month; and
(b) is the current total Account Value
Rate Classes for Insureds. We currently rate Insureds in one of following basic
rate classifications, based on our underwriting: o preferred nonsmoker; o
standard plus nonsmoker; o standard nonsmoker; o smoker; o substandard for those
involving a higher mortality risk.
44
We place each Insured in a rate class when we issue the Policy based on our
underwriting determination. This original rate class applies to the initial Face
Amount, as well as subsequent automatic increases in Face Amount under the
Automatic Face Amount Increase Option under the Policy. When an increase in Face
Amount is requested, we conduct underwriting before approving the increase
(except as noted below) to determine whether a different rate class will apply
to the increase. If the rate class for the increase has lower guaranteed cost of
insurance rates than the original rate class, the rate class for the increase
also will be applied to the initial Face Amount. If the rate class for the
increase has higher guaranteed cost of insurance rates than the original rate
class, the rate class for the increase will apply only to the increase in Face
Amount, and the original rate class will continue to apply to the initial Face
Amount and to automatic increases in the Face Amount.
If there have been requested increases in the Face Amount, we may use different
cost of insurance rates for the requested increased portions of the Face Amount.
For purposes of calculating the cost of insurance charge after the Face Amount
has been increased, the Account Value will be applied to the initial Face Amount
first and then to any subsequent requested increases in Face Amount. If at the
time an increase is requested, the Account Value exceeds the initial Face Amount
(or any subsequently increased Face Amount) divided by 1.0032737, the excess
will then be applied to the subsequent increase in Face Amount in the sequence
of the increases.
In order to maintain the Policy in compliance with Section 7702 of the Code,
under certain circumstances an increase in Account Value will cause an automatic
increase in the Death Benefit. The Attained Age and rate class for such
requested increase will be the same as that used for the most recent increase in
Face Amount (that has not been eliminated through a subsequent decrease in Face
Amount).
The guaranteed cost of insurance charges at any given time for a substandard
policy with flat extra charges will be based on the guaranteed maximum cost of
insurance rate for the Policy (including table rating multiples, if applicable),
the then current Net Amount at Risk, plus the actual dollar amount of the flat
extra charge.
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Our current cost of insurance rates may be less than the guaranteed rates. Our
current cost of insurance rates will be determined based on our expectations as
to future mortality, investment, expense and persistency experience. These rates
may change from time to time. In our discretion, the current charge may be
increased in any amount up to the maximum guaranteed charge shown in the table.
Cost of insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker rate class are generally lower than rates for an Insured of the same
age and sex in a smoker rate class. Cost of insurance rates (whether guaranteed
or current) for an Insured in a nonsmoker or smoker rate class are generally
lower than rates for an Insured of the same age and sex and smoking status in a
substandard rate class.
Legal Considerations Relating to Sex-Distinct Premiums and Benefits. Mortality
tables for the Policy generally distinguish between males and females. Thus,
premiums and benefits under the Policy covering two males, two females or one
male and one female of the same age will differ.
We may also offer the Policy based on unisex mortality tables if required by
state law. Employers and employee organizations considering the purchase of a
Policy should consult their legal advisers to determine whether purchase of a
Policy based on sex- distinct actuarial tables is consistent with Title VII of
the Civil Rights Act of 1964 or other applicable law. Upon request, we may offer
the Policy with unisex mortality tables to such prospective purchasers.
Deduction From Subaccount Assets
Mortality and Expense Risk Charge. We deduct a daily charge from the net assets
in the Subaccounts for assuming certain mortality and expense risks under the
Policy. This charge does not apply to the amounts you allocate to the Guaranteed
Account. Currently, we charge an annual rate of 0.75% of the Subaccount assets
for the first 10 Policy years and 0.25% thereafter. The guaranteed charge is at
an annual rate of 0.90%. Although the charge may be increased or decreased in
our sole discretion, it is guaranteed not to exceed an annual rate of 0.90% of
your Account Value in the Subaccounts for the duration of a Policy.
46
The mortality risk we assume is that the Insureds under a Policy may die sooner
than anticipated, and therefore we will pay an aggregate amount of Life
Insurance Proceeds greater than anticipated. The expense risk we assume is that
expenses incurred in issuing and administering all Policies and the Separate
Account will exceed the amounts realized from the administrative charges
assessed against all Policies.
Deductions Upon Policy Transactions
Transfer Charge. We currently impose a $25 transfer charge on any transfer of
Account Value among the Subaccounts and the Guaranteed Account in excess of the
12 free transfers permitted each Policy year. If the charge is imposed, we will
deduct it from the amount requested to be transferred before allocation to the
new Subaccount(s) or Guaranteed Account and shown in the confirmation of the
transaction.
Surrender Charge. If the Policy is surrendered or there is a decrease in Face
Amount during the first 10 Policy years, we will deduct a surrender charge based
on the initial Face Amount. If a Policy is surrendered or there is a decrease in
Face Amount within 10 years after a requested increase in Face Amount, we will
deduct a surrender charge based on the increase in Face Amount. The surrender
charge will be deducted before any surrender proceeds are paid.
Surrender Charge Calculation. In general, the surrender charge is based on the
Face Amount. The Surrender Charge will be no greater than the product of (1)
times (2) times (3) where:
(1) is equal to the Face Amount divided by $1,000;
(2) is equal to a surrender charge factor per $1,000 based on the Insureds'
Age, sex and smoker status; and
(3) is equal to the factor based upon the number of years that has elapsed
since the Policy Date or requested increase in Face Amount, as described in
the following table:
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Year Factor
1...................... 100%
2...................... 90%
3...................... 80%
4...................... 70%
5...................... 60%
6...................... 50%
7...................... 40%
8...................... 30%
9...................... 20%
10...................... 10%
11+...................... 0%
The product of (1) and (2) will be capped at a level not to exceed a maximum
surrender charge based on a rate per $1,000 of Face Amount. The lowest and
highest surrender charge are $10.23 and $60.00 per $1,000 of Face Amount,
respectively. The surrender charge for your Policy is specified in the Policy
Information section of your Policy.
Surrender Charge Based On An Increase Or Decrease In Face Amount. A requested
increase in Face Amount of the Policy will result in an additional surrender
charge during the 10 Policy years immediately following the requested increase.
The additional surrender charge period will begin on the effective date of the
requested increase. If the Face Amount of the Policy is reduced before the end
of the 10th Policy year or within 10 years immediately following a Face Amount
increase, we may also deduct a pro rata share of any applicable surrender charge
from your Account Value. Decreases in Face Amount will first be applied against
the most recent increase in the Face Amount of the Policy. They will then be
applied to prior increases in Face Amount of the Policy in the reverse order in
which such increases took place, and then to the initial Face Amount of the
Policy.
48
Surrender Charges Upon Partial Withdrawal. During the surrender charge period we
will deduct a surrender charge:
o Upon a partial withdrawal; and
o If you decrease your Policy Face Amount.
We deduct the surrender charge from the Subaccounts or the Guaranteed Account in
the same proportion as we deduct the amounts for your partial withdrawal.
Surrender Charge Due to Partial Withdrawal. We deduct an amount equal to the
applicable surrender charge multiplied by a fraction (equal to the amount of
partial withdrawal plus any administrative charge, if applicable, for the
partial withdrawal, divided by the Net Cash Surrender Value immediately prior to
the partial withdrawal).
Surrender Charge Due to A Decrease in Face Amount. We deduct an amount equal to
the applicable surrender charge multiplied by a fraction (equal to the decrease
in Face Amount divided by the Face Amount of the Policy prior to the decrease).
Partial Withdrawal Administrative Charge. We reserve the right to deduct an
administrative charge upon a partial withdrawal of up to $25 per partial
withdrawal. Currently, we do not assess an administrative charge for partial
withdrawals. In certain states the charge may be the lesser of $25 or 2% of the
amount withdrawn.
Policy Split Option Charge. If you elect to surrender your Policy in exchange
for separate individual permanent life insurance policies under the Policy Split
Option, we reserve the right to deduct a charge of up to $500.
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Discount Purchase Programs
The amount of the surrender charge and other charges under the Policy may be
reduced or eliminated when sales of the Policy are made to individuals or to
groups of individuals in a manner that in our opinion results in expense
savings. For purchases made by officers, directors and employees of the Company,
an affiliate, or any individual, firm, or a company that has executed the
necessary agreements to sell the Policy, and members of the immediate families
of such officers, directors, and employees, we may reduce or eliminate the
surrender charge. Any variation in charges under the Policy, including the
surrender charge, administrative charge or mortality and expense risk charge,
will reflect differences in costs or services and will not be unfairly
discriminatory.
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Supplemental Benefits and Riders
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We intend to make available certain supplemental benefits and riders which may
in the future be issued with the Policy. Any monthly charges for these
supplemental benefits and riders, as listed below, will be deducted from the
Policy Account Value. The addition of riders may affect the cost of insurance.
Automatic Face Amount Increase Option (AFAIO)
Renewable No Lapse Rider (RNLR)
Joint and Last Survivor Renewable Term Rider (JLSRTR)
Joint and Last Survivor Term Insurance Rider (Estate Preservation Term Rider
Waiver of Monthly Deduction Rider (WMDR) Waiver of Specified Premium Rider
(WSPR)
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Other Policy Provisions
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Right to Exchange
You may exchange this Policy to a flexible premium fixed benefit life insurance
policy on the lives of the Insureds, without evidence of insurability. While the
Policy is in force this exchange may be made:
(a) within 24 months after the Issue Date while the Policy is in
force;
(b) within 24 months of any increase in Face Amount of the Policy, other than
under the Automatic Face Amount Increase Option and other than increase due
to a Death Benefit Option change; or
(c) within 60 days of the effective date of a material change in the investment
policy of a Subaccount, or within 60 days of the notification of such
change, if later. In the event of such a change, we will notify you and
give you information on the options available.
When an exchange is requested, we accomplish the exchange by transferring all of
the Account Value to the Guaranteed Account. There is no charge for this
transfer. Once this option is exercised, the entire Account Value must remain in
the Guaranteed Account for the remaining life of the policy. The Face Amount in
effect at the time of the exchange will remain unchanged. The Effective Date,
Issue Date and Age of each Insured will remain unchanged. The Owner and
Beneficiary are the same as were recorded immediately before the exchange.
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Policy Split Option
In certain cases, you may elect to surrender Policy in exchange for separate
individual permanent life insurance policies on the life of both Insureds. The
Policy may be split if:
o The Insureds were married on the policy date and a final annulment or
divorce decree dissolving the Insureds' marriage has been issued. We must
receive your written request to split the Policy not earlier than 180 days,
or later than 360 days, after the date a decree of annulment or divorce
becomes final. We must also receive a copy of the final decree.
o a change to the Federal Estate Tax Law has occurred which results in
either:
* the repeal of the unlimited marital deduction provided by the Internal
Revenue Code of 1986, as amended; or
* a change to the Internal Revenue Code of 1986, as amended, which
reduces the maximum Federal Estate Tax rate to 25% or less.
We must receive your written request to split the Policy within 180 days of
the date of a change in the Federal Estate Tax Law.
We will require evidence satisfactory to us of the insurability of both Insureds
and we will also require evidence satisfactory to us of insurable interest of
the new owner(s) in both Insureds on the date the Policy is split. We will also
require that any Outstanding Loan be repaid on the date of exchange.
Before the Policy is split and the new policies are issued, we must receive the
initial premium due on each of the new policies and any fee we charge to process
the exchange. The fee to process the exchange will not exceed $500.00. The date
of the Policy split will be the Policy anniversary after we receive all the
requirements for a Policy split. The features of the new policies are described
in the Policy.
The surrender of the Policy in exchange for separate individual permanent life
insurance on the life of both Insureds will be subject to tax.
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Limits on our Rights to Contest the Policy
Incontestability. We will not contest the Policy after it has been in force
during both Insureds' lifetime for two years from the Issue Date. Any increase
in the Face Amount will be incontestable with respect to statements made in the
evidence of insurability for that increase after the increase has been in force
during the life of both Insureds for two years after the effective date of the
increase.
Suicide Exclusion. If either Insured commits suicide (while sane or insane)
within two years (unless otherwise specified by state law) after the Issue Date,
the Policy will terminate on the date of the death. Our liability will be
limited to the payment of a single sum equal to the premiums paid, minus any
Outstanding Loan and minus any partial withdrawal and minus the cost of any
riders attached to the Policy. If either Insured commits suicide (while sane or
insane) within two years (unless otherwise specified by state law) after the
effective date of a requested increase in the Face Amount, then the additional
insurance coverage provided by the requested increase in Face Amount will
terminate on the date of the death. Our liability as to the increase in amount
will be limited to the payment of a single sum equal to the monthly cost of
insurance deductions made for such increase plus the expense charge deducted for
the increase.
Changes in the Policy or Benefits
Misstatement of Age or Sex. If either Insured's Age or sex has been misstated in
the Policy, the Death Benefit and any benefits provided by riders shall be those
which would be purchased at the most recent monthly deduction for the cost of
insurance charge for the correct Ages and sexes.
Other Changes. At any time we may make such changes in the Policy as are
necessary to assure compliance at all times with the definition of life
insurance prescribed by the Code or to make the Policy conform with any law or
regulation issued by any government agency to which it is subject.
54
When Proceeds Are Paid
We will ordinarily pay any Life Insurance Proceeds, loan proceeds or partial or
full surrender proceeds within seven days after receipt at our Administrative
Office of all the required documents. Other than the Life Insurance Proceeds,
which is determined as of the date of death of the Last Surviving Insured, the
amount will be determined as of the date of receipt of required documents.
However, we may delay making a payment or processing a transfer request if:
(1) the disposal or valuation of the Separate Account's assets is not
reasonably practicable because the New York Stock Exchange is closed for
other than a regular holiday or weekend, trading is restricted by the SEC,
or the SEC declares that an emergency exists; or
(2) the SEC by order permits postponement of payment for your protection.
In addition we may delay making deductions from the Guaranteed Account for up to
6 months after we receive your request.
Reports to Owners
You will receive a confirmation within seven days of the transaction of:
o the receipt of any unplanned premium (and any premium received before the
Issue Date);
o any change of allocation of premiums;
o any transfer between Subaccounts;
o any loan, interest repayment, or loan repayment;
55
o any partial withdrawal;
o any return of premium necessary to comply with applicable maximum receipt
of any premium payment;
o any exercise of your right to cancel;
o an exchange of the Policy;
o full surrender of the Policy; or
o payment of the Life Insurance Proceeds under the Policy.
Within 30 days after each Policy anniversary we will send you an annual
statement. The statement will show the Death Benefit currently payable, and the
current Account Value, Cash Surrender Value, and the Outstanding Loan. The
statement will also show premiums paid, all charges deducted during the Policy
year, and all transactions. We will also send to you annual and semi-annual
reports of the Separate Account.
Assignment
You may assign the Policy, if we agree, in accordance with its terms on a form
provided by us. We will not be deemed to know of an assignment unless we receive
a copy of this assignment form at our Administrative Office. We assume no
responsibility for the validity or sufficiency of any assignment. Any assignment
or pledge of a modified endowment contract as collateral for a loan may result
in a taxable event.
Reinstatement
If the Policy has ended without value, you may reinstate Policy benefits while
at least one Insured is alive if you:
1. Request in writing a reinstatement of Policy benefits within three (3)
years (unless otherwise specified by state law) from the end of the Grace
Period;
56
2. Provide evidence of insurability satisfactory for each Insured who is alive
at the end of the Grace Period to us;
3. Make a payment of an amount sufficient to cover (i) total monthly
deductions for three (3) months, calculated from the effective date of
reinstatement; and (ii) the premium expense charge. We will determine the
amount of this required payment as if no interest or investment performance
were credited to or charged against your Account Value; and
4. Repay or reinstate any Outstanding Loan which existed on the date the
Policy ended.
The effective date of the reinstatement of Policy benefits will be the next
monthly anniversary which coincides with or next follows the date we approve
your request. From the required payment we will deduct the premium expenses. The
monthly expense charges, Account Value, Outstanding Loan and surrender charges
that will apply upon reinstatement will be those that were in effect on the date
the Policy lapsed. We will start to make monthly deductions again as of the
effective date of reinstatement.
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Performance Information
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From time to time we may advertise the "total return" and the "average annual
total return" of the Subaccounts and the Funds. Both total return and average
total return figures are based on historical earnings and are not intended to
indicate future
performance.
"Total Return" for a portfolio refers to the total of the income generated by
the portfolio net of total portfolio operating expenses plus capital gains and
losses, realized or unrealized. "Total Return" for the Subaccounts refers to the
total of the income generated by the portfolio net of total portfolio operating
expenses plus capital gains and losses, realized or unrealized, and the
mortality and expense risk charge. "Average Annual Total Return" reflects the
hypothetical annually compounded return that would have produced the same
cumulative return if a Fund's portfolio's or Subaccount's performance had been
constant over the entire period. Because average annual total returns tend to
smooth out variations in the return of the portfolio, they are not the same as
actual year-by-year results.
The performance information set forth in Appendix A reflects the total of the
income generated by the portfolio net of the total portfolio operating expenses
(i.e., management fees and other portfolio expenses), plus capital gains and
losses, realized or unrealized. The performance results do not reflect charges
deducted from premiums, contract values or separate account assets, including,
mortality and expense risk deductions, monthly deductions, cost of insurance,
surrender charges, sales loads, DAC taxes, and any state or local premium taxes.
If these charges were included, the total return figures would be lower.
58
Performance information may be compared, in reports and promotional literature,
to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other unmanaged
indices so that investors may compare the Subaccount results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities markets in general; (ii) other groups of variable life separate
accounts or other investment products tracked by Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds and other
investment products by overall performance, investment objectives, and assets,
or tracked by other services, companies, publications, or persons, such as
Morningstar, Inc., who rank such investment products on overall performance or
other criteria; or (iii) the Consumer Price Index (a measure for inflation) to
assess the real rate of return from an investment in the Subaccount. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
We may provide in advertising, sales literature, periodic publications or other
materials information on various topics of interest to Owners and prospective
Owners. These topics may include the relationship between sectors of the economy
and the economy as a whole and its effect on various securities markets,
investment strategies and techniques (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer and account
rebalancing), the advantages and disadvantages of investing in tax-deferred and
taxable investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and investment
alternatives to certificates of deposit and other financial instruments,
including comparisons between the Policy and the characteristics of and market
for such financial instruments.
59
Total return data may be advertised based on the period of time that the
portfolios have been in existence. The results for any period prior to the
Policy being offered will be calculated as if the Policy had been offered during
that period of time, with all charges assumed to be those applicable to the
Policy. Performance information for any Subaccount in any advertising will
reflect only the performance of a hypothetical investment in the Subaccount
during the particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio in which
the Subaccount invests and the market conditions during the given time period,
and should not be considered as a representation of what may be achieved in the
future. Actual returns may be more or less than those shown in any advertising
and will depend on a number of factors, including the investment allocations by
an Owner and the different investment rates of return for the portfolios.
60
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Federal Income Tax Considerations
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The following summarizes the current federal income tax law that applies to life
insurance in general. No attempt is made to consider any applicable state or
other tax laws. This summary does not cover all situations. This summary is
based upon our understanding of the current federal income tax laws and current
interpretations by the Internal Revenue Service. We cannot predict whether the
Code will change. You should speak to a competent tax adviser to discuss how the
purchase of a Policy and the transactions you make under the Policy will impact
your federal tax liability.
Tax Status of the Policy
A Policy has certain tax advantages when it is treated as a "life insurance
contract" under the Code. We believe that the Policy meets the definition of a
life insurance contract under Section 7702 of the Code. You bear the risk that
the Policy may not meet the definition of a life insurance contract. You should
consult your own tax advisers to discuss these risks.
The Company
We are taxed as a life insurance company under the Code. For federal tax
purposes, the Separate Account and its operations are considered to be part of
our operations and are not taxed separately.
Diversification and Investor Control
The Code requires that we diversify the investments underlying variable
insurance contracts. If the investments are not properly diversified and any
remedial period has passed, Section 817(h) of the Code provides in general the
contract is immediately disqualified from treatment as a life insurance contract
for federal income tax purposes. Disqualification of the Policy as a life
insurance contract would result in taxable income to you for prior and current
earnings, and future earnings if not corrected, even though you have not
received any payments under the Policy.
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To the extent that any segregated asset account with respect to a variable life
insurance contract invests exclusively in securities issued by the U.S.
Treasury, the diversification standard is satisfied. A segregated asset account
underlying life insurance contracts such as the Policy will also meet the
diversification requirements if, as of the close of each quarter:
o the assets of the account are diversified in accordance with the
diversification rules applicable to regulated investment companies; and
o not more than 55 percent of the value of the assets of the account are
attributable to cash and cash items (including receivables), Government
securities and securities of other regulated investment companies.
The diversification requirements may also be met for each if:
o no more than 55% of the value of the total assets of the portfolio is
represented by any one investment;
o no more than 70% of the value of the total assets of the portfolio is
represented by any two investments;
o no more than 80% of the value of the total assets of the portfolio is
represented by any three investments; and
o no more than 90% of the value of the total assets of the portfolio is
represented by any four investments.
Generally, each United States government agency or instrumentality is treated as
a separate issuer under these rules.
All securities of the same issuer are generally treated as a single investment.
We intend that each portfolio in which the Subaccounts invest will be managed by
its investment adviser in compliance with these diversification requirements.
62
A variable life insurance policy could fail to be treated as a life insurance
contract for tax purposes if the owner of the policy has such control over the
investments underlying the policy (e.g., by being able to transfer values among
many subaccounts with only limited restrictions) so as to be considered the
owner of the underlying investments. There is some uncertainty on this point
because no guidelines have been issued by the Treasury Department. If and when
guidelines are issued, we may be required to impose limitations on your rights
to control investment designations under the Policy. We do not know whether any
such guidelines will be issued or whether any such guidelines would have
retroactive effect. We, therefore, reserve the right to make changes that we
deem necessary to insure that the Policy qualifies as a life insurance contract.
Tax Treatment of the Policy
Section 7702 of the Code sets forth a detailed definition of a life insurance
contract for federal tax purposes. The Treasury Department has not issued final
regulations so that the extent of the official guidance as to how Section 7702
is to be applied is quite limited. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, that Policy would not qualify
for the favorable tax treatment normally provided to a life insurance contract.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes that such a Policy should meet the Section 7702 definition of a
life insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a premium
class involving higher than standard mortality risk), there is less certainty,
in particular as to how the mortality and other expense requirements of Section
7702 are to be applied in determining whether such a Policy meets the definition
of a life insurance contract set forth in section 7702. Thus, it is not clear
that such a Policy would satisfy Section 7702, particularly if you pay the full
amount of premiums permitted under the Policy.
63
If subsequent guidance issued under Section 7702 leads us to conclude that a
Policy does not (or may not) satisfy Section 7702, we will take appropriate and
necessary steps for the purpose of bringing the Policy into compliance, but we
can give no assurance that it will be possible to achieve that result. We
expressly reserve the right to restrict Policy transactions if we determine such
action to be necessary to qualify the Policy as a life insurance contracts under
Section 7702.
Tax Treatment of Policy Benefits In General
This discussion assumes that each Policy will qualify as a life insurance
contract for federal income tax purposes under Section 7702. The Life Insurance
Proceeds under the Policy should be excluded from the gross income of the
Beneficiary. In addition, the increases in a Policy's Account Value should not
be taxed until there has been a distribution from the Policy such as a
surrender, partial surrender or lapse with outstanding loan.
Pre-Death Distribution
The tax treatment of any distribution you receive before the Last Surviving
Insured's death depends on whether the Policy is classified as a modified
endowment contract.
Policies Not Classified as Modified Endowment Contracts
o If you surrender the Policy or allow it to lapse, you will be taxed to the
extent the amount you receive is in excess of the premiums you paid less
the untaxed portion of any prior withdrawals. For this purpose, you will be
treated as receiving any portion of the cash surrender value used to repay
Policy debt. The tax consequences of a surrender may differ if you take the
proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premiums you paid for the Policy less the untaxed
portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Policy years, all or a portion of a
withdrawal may be taxed even if total withdrawals do not exceed total
premiums paid.
64
o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the Policy for the purposes of determining
whether a withdrawal is taxable.
o Loans you take against the Policy are ordinarily treated as debt and are
not considered distributions subject to tax.
Modified Endowment Contracts
o The rules change if the Policy is classified as a modified endowment
contract (or "MEC"). The Policy could be classified as a MEC if premiums
substantially in excess of scheduled premiums are paid or a decrease in the
face amount of insurance is made (or a rider removed). The addition of a
rider or an increase in the face amount of insurance may also cause the
Policy to be classified as a MEC. The rules on whether a Policy will be
treated as a MEC are very complex and cannot be fully described in this
summary. You should consult a qualified tax adviser to determine whether a
Policy transaction will cause the Policy to be classified as a MEC. We will
monitor your Policy and will take steps reasonably necessary to notify you
on a timely basis if your Policy is in jeopardy of becoming a MEC.
o If the Policy is classified as a MEC, and you fully surrender the policy,
you will be taxed to the extent the amount you receive, including any
portion of the cash surrender value used to repay Policy debt, in excess of
the premiums you paid for the Policy increased by the amount of any loan
previously included in income and reduced by untaxed amounts previously
received other than the amount of any loans excludable from income. Other
amounts you receive under the Policy before the Last Surviving Insured's
death, including loans and withdrawals, are included in income to the
extent that the cash value before surrender charges exceeds the premiums
paid for the Policy increased by the amount of any loans previously
included in income and reduced by any untaxed amounts previously received
other than the amount of any loans excludable from income. An assignment of
a MEC is taxable in the same way. These rules also apply to pre-death
distributions, including loans, made during the two-year period before the
time that the Policy became a MEC.
65
o Any taxable income on pre-death distributions (including full surrenders)
is subject to a penalty of 10% unless the amount is received on or after
age 59 1/2, on account of your becoming disabled or as a life annuity. It
is presently unclear how the penalty tax provisions apply to the Policies
owned by businesses.
o All MECs issued by us to you during the same calendar year are treated as a
single Policy for purposes of applying these rules.
Interest on Policy Loans. Except in special circumstances, interest paid on a
loan under a Policy which is owned by an individual is treated as personal
interest under the Code and thus will not be tax deductible. In addition, the
deduction of interest that is incurred on any loan under a Policy owned by a
taxpayer and covering the life of any individual who is an officer or employee
of or who is financially interested in the business carried on by that taxpayer
may also be subject to certain restrictions set forth in Section 264 of the
Code. Before taking a Policy loan, you should consult a tax adviser as to the
tax consequences of such a loan. (Also Section 264 of the Code may preclude
business Owners from deducting premium payments.)
Policy Exchanges and Modifications. Depending on the circumstances, the exchange
of a Policy, a change in the Policy's death benefit option, a Policy loan, a
partial surrender, a surrender, a change in ownership, or an assignment of the
Policy may have federal income tax consequences. In addition, the federal, state
and local transfer, and other tax consequences of ownership or receipt of Policy
proceeds will depend on the circumstances of each Owner or Beneficiary.
Withholding. We are required to withhold federal income taxes on the taxable
portion of any amounts received under the Policy unless you elect to not have
any withholding or in certain other circumstances. You are not permitted to
elect out of withholding if you do not provide a social security number or other
taxpayer identification number. Special withholding rules apply to payments made
to non-resident aliens.
You are liable for payment of federal income taxes on the taxable portion of any
amounts received under the Policy. You may be subject to penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
66
Generation Skipping Transfer Tax. A transfer of the Policy or the designation of
a beneficiary who is either 37 1/2 years younger than the Owner or a grandchild
of the Owner may have generation skipping transfer tax consequences.
Possible Charge for the Company's Taxes
At the present time, we do not deduct any charges for any federal, state or
local income taxes. However, we do currently deduct charges for state and
federal premium based taxes and the federal DAC tax. We reserve the right in the
future to deduct a charge for any such tax or other economic burden resulting
from the application of the tax laws that we determine to be properly
attributable to the Separate Account or to the Policy.
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Distribution of the Policy
- --------------------------------------------------------------------------------
The Policy is sold by licensed insurance agents, where the Policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The Policy will be distributed through the principal underwriter for the
Separate Account, AIG Equity Sales Corp. (AIGESC) 80 Pine Street, New York, New
York, an affiliate of ours. AIGESC may also enter into selling agreements with
other broker dealers that will offer the policy.
Commissions may be paid to registered representatives based on premiums paid for
Policies sold. Other expense reimbursements, allowances, and overrides may also
be paid. Registered representatives who meet certain productivity and
profitability standards may be eligible for additional compensation. Additional
payments may be made for administrative or other services not directly related
to the sale of the Policies.
Other Policies Issued by the Company
The Company may offer other policies similar to those offered herein.
68
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About Us and the Accounts
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The Company
We are a member of the American International Group, Inc.
AIG Life Insurance Company is a stock life insurance company operating under the
laws of the State of Delaware. It was incorporated in 1962. We provide a full
range of individual and group life, disability, accidental death and
dismemberment policies and annuities. We are a subsidiary of American
International Group, Inc., which is a holding company for a number of companies
engaged in the international insurance business, both life and general, in
approximately 130 countries and jurisdictions around the world.
Year 2000.
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the year 2000, causing
disruption of our operations and of our lessees, vendors, or business partners.
We have developed a plan to address the Year 2000 issue as it affects our
internal IT and non-IT systems, and to assess Year 2000 issues relating to third
parties with whom we have critical relationships.
Our plan for addressing internal systems includes:
o an assessment of internal IT and non-IT systems and
equipment affected by the Year 2000 issue;
o definition of strategies to address affected systems and equipment;
o remediation of identified affected systems and equipment; and
o internal certification that each internal system is Year 2000 compliant.
69
We have remediated, tested and returned to production substantially all of our
internal IT systems. We continue to remediate and test internal non-IT systems
and expect to complete our remediation in 1999.
We have also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with us. Currently, we
are unable to ascertain whether all such third parties will successfully address
the Year 2000 issue, particularly those third parties outside the United States
where it is believed that remediation efforts relating to the Year 2000 issue
may be less advanced. While we expect to have no interruption of operations as a
result of internal IT and non-IT systems, significant uncertainties remain about
the effect on us of third parties who are not Year 2000 compliant. We will
continue to monitor third party Year 2000 issue readiness to determine whether
additional or alternative measures may be necessary. Such measures may include
selecting alternate third parties or other actions designed to mitigate the
effects of a third party's lack of preparedness. There can be no assurance that
unresolved Year 2000 issues of third parties will not have a material adverse
impact on our results of operations, financial condition or liquidity. We are
considering the effects of Year 2000 related failures on our business and, as
the most reasonably likely worst case scenarios become more clearly identified,
we will develop appropriate contingency plans.
The Separate Account
We established the Separate Account as a separate investment account on June 5,
1986. It may be used to support the Policy and other variable life insurance
policies, and used for other permitted purposes. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the federal securities laws and qualifies as a "separate account"
within the meaning of these laws.
Although you may have allocated your Account Values to the Subaccounts, you do
not own these assets. You only own your Policy.
We own the assets in the Separate Account. The Separate Account is divided into
Subaccounts. The Subaccounts available under the Policy invest in shares of a
specific portfolio of the Anchor Series Trust or SunAmerica Trust. The Separate
Account may include other Subaccounts which are not currently available under
the Policy.
70
Income, gains and losses, realized or unrealized, of a Subaccount are credited
to or charged against the Subaccount without regard to any of our other income,
gains or losses. Assets equal to the reserves and other contract liabilities
with respect to each Subaccount are not chargeable with liabilities arising out
of any of our other businesses or separate accounts. If the assets exceed the
required reserves and other liabilities, we may transfer the excess to our
general account. We are obligated to pay all benefits provided under the Policy.
Rights we have reserved.
We have reserved certain rights regarding the Separate Account. We will exercise
these rights only in compliance with all applicable regulatory requirements. We
have the right to:
o Change, add or delete designated investment options.
o Add or remove Subaccounts.
o Withdraw assets of a class of policies to which the Policy belongs from a
Subaccount and put them in another Subaccount.
o Combine any two or more Subaccounts.
o Register other separate accounts or deregister the Separate Account with
the Securities and Exchange Commission.
o Run the Separate Account under the direction of a committee, and discharge
such committee at any time.
o Restrict or eliminate any voting rights of Owners, or other persons who
have voting rights as to the Separate Account.
o Operate the Separate Account or one or more of the Subaccounts by making
direct investments or in any other form. If we do so, we may invest the
assets of the Separate Account or one or more of the Subaccounts in any
investments that are legal, as determined by our own or outside counsel.
71
We will not change any investment policy of a Subaccount of our Separate Account
unless approved by the Commissioner of Insurance of the State of Delaware or
deemed approved in accordance with such law or regulation. Any approval process
is on file with the insurance supervisory official of the jurisdiction in which
this Policy is delivered.
If any change we make results in a material change in the underlying investments
of a Subaccount, we will notify you of such change. If you have value in that
Subaccount:
o We will transfer it at your written direction from that Subaccount (without
charge) to another Subaccount or to the Guaranteed Account, and
o You may then change your premium allocation percentages.
Voting Rights
We are the legal owner of shares held by the Subaccounts and as such have the
right to vote on all matters submitted to shareholders of the portfolios.
However, as required by law, we will vote shares held in the Subaccounts at
regular and special meetings of shareholders of the portfolios in accordance
with instructions we receive from Owners with Account Value in the Subaccounts.
If allowed by law or required by law we may vote shares of the portfolios
without obtaining instructions or in disregard to instructions we have received.
If we ever disregard voting instructions, we will advise you of that action and
our reasons for such action in the next semiannual report.
The Guaranteed Account
The Guaranteed Account is an account within the general account of the Company.
Our general account assets are used to support our insurance and annuity
obligations other than those funded by separate accounts. Subject to applicable
law, we have sole discretion over the investment of the assets of the general
account.
72
We have not registered:
o Interests in the Guaranteed Account under the Securities Act of 1933, and
o the Guaranteed Account as an investment company.
The staff of the Securities and Exchange Commission has not reviewed our
disclosure on the Guaranteed Account. Our disclosure regarding the Guaranteed
Account must comply with generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
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Our Directors and Executive Officers
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The directors and principal officers of the Company are listed below with their
current principal business affiliation and their principal occupations during
the past five (5) years. All officers have been affiliated with the Company
during the past five (5) years unless otherwise indicated.
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
Michele L. Abruzzo Director, Senior Senior Vice President of
80 Pine Street Executive American International
New York, NY 10005 Vice President Life Assurance Company
of New York
Paul S. Bell Director, Sr. Vice Sr. Vice President and
One Alico Plaza President and Chief Actuary of American
600 King Street Actuary International Life
Wilmington, DE 19801 Assurance Company of
New York
Maurice R. Greenberg Director Director, Chairman and
70 Pine Street Chief Executive Officer
New York, NY 10270 AIG, Inc.
Howard E. Gunton, Jr. Chief Financial Officer, Sr. Vice President and
One Alico Plaza Senior Vice President Comptroller of American
600 King Street International Life
Wilmington, DE 19801 Assurance Company of
New York
Edward Easton Matthews Director, Senior Vice Vice Chairman of
70 Pine Street President Investments and Financial
New York, NY 10270 Services of AIG, Inc.
Jerome T. Muldowney Director, Senior Vice Senior Vice President of
175 Water Street President American International
New York, NY 10038 Life Assurance Company
of New York, Senior
Managing Director of AIG
Global Investment Corp.
74
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
Robinson K. Nottingham Director, Chairman of the Chairman of the Board and
70 Pine Street Board Chief Executive Officer
New York, NY 10270 of American International
Life Insurance Company
(ALICO)
Nicholas A. O'Kulich Director, Vice Chairman, Vice President, Sr. Vice
70 Pine Street Treasurer President of AIG, Inc.
New York, NY 10270
Howard Ian Smith Director Director, Executive Vice
70 Pine Street President,Chief Financial
New York, NY 10270 Officer and Comptroller
of AIG, Inc.
Edmund Sze-Wing Tse Director Vice Chairman of AIG,
70 Pine Street Inc.
New York, NY 10270
Elizabeth M. Tuck Secretary Secretary and Assistant
70 Pine Street Secretary of AIG, Inc.,
New York, NY 10270 and certain affiliates
Gerald Walter Wyndorf Director, Chief Executive Executive Vice President
80 Pine Street Officer and President of American International
New York, NY 10038 Life Assurance Company
of New York
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Other Information
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State Regulation
We are subject to the laws of Delaware governing insurance companies and to
regulation by the Delaware Insurance Department. We file an annual statement in
a prescribed form with the Insurance Department each year covering our operation
for the preceding year and our final condition as of the end of such year.
Regulation by the Insurance Department includes periodic examinations to
determine our Policy liabilities and reserves so that the Insurance Department
may certify the items are correct. Our books and accounts are subject to review
by the Insurance Department at all times and a full examination of its
operations is conducted periodically by the staff of the Insurance Department
pursuant to the National Association of Insurance Commissioners. Such regulation
does not, however, involve any supervision of management or investment practices
or policies. In addition, we are subject to regulation under the insurance laws
of other jurisdictions in which we may operate.
Legal Proceedings
There are no legal proceedings to which the Separate Account or the principal
underwriter is a party. We are engaged in various kinds of routine litigation
which, in our opinion, are not of material importance in relation to our total
capital and surplus.
Experts
Our financial statements which appear in this Prospectus have been audited by
[to be provided by subsequent amendment to this filing], independent certified
public accountants, as stated in their reports, and have been included in
reliance upon the authority of such firm as experts in accounting and auditing.
76
Legal Matters
Legal matters relating to the federal securities laws are being passed upon by
the firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP of Washington,
D.C.
Published Ratings
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to us by one or more independent rating
organizations such as A.M. Best Company, Moody's and Standard & Poor's . The
purpose of the ratings is to reflect the rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the Separate Account.
The ratings are not recommendations to purchase our life insurance or annuity
products or to hold or sell these products, and the ratings do not comment on
the suitability of such products for a particular investor. There can be no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn entirely by a rating
organization if, in such organization's judgment, future circumstances so
warrant. The ratings do not reflect the investment performance of the Separate
Account or the degree of risk associated with an investment in the Separate
Account.
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
[To be provided by a subsequent amendment to this filing]
77
APPENDIX A
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1998
Inception Since
Date 1 Year 3 Years 5 Years 10 Years Inception
---- ------ ------- ------- -------- ---------
Anchor Series Trust
Wellington Management Company, LLP
Capital Appreciation Portfolio 3/23/87 22.20 24.25 19.95 20.01 16.87
Growth Portfolio 9/5/84 28.96 28.12 20.41 17.89 17.44
Government and Quality Bond Portfolio 9/5/84 9.18 7.18 7.33 9.19 10.60
Natural Resources Portfolio 1/4/88 -17.33 -4.82 0.46 4.18 4.84
SunAmerica Series Trust
Alliance Capital Management L.P.
Global Equities Portfolio 2/9/93 22.86 17.31 13.91 n/a 14.78
Alliance Growth Portfolio 2/9/93 52.23 37.21 29.44 n/a 26.80
Growth-Income Portfolio 2/9/93 30.74 29.51 23.18 n/a 20.94
Davis Selected Advisers, L.P.
Venture Value Portfolio 10/28/94 13.73 23.98 n/a n/a 25.66
Real Estate Portfolio 6/2/97 -14.11 n/a n/a n/a 0.04
Federated Investment Counseling
Corporate Bond Portfolio 7/1/93 6.05 7.11 6.98 n/a 6.78
Federated Value Portfolio 6/3/96 17.96 n/a n/a n/a 22.24
Utility Portfolio 6/3/96 14.04 n/a n/a n/a 19.02
Managed by Goldman Sachs Asset Management/
Goldman Sachs Asset Management International
Asset Allocation Portfolio 7/1/93 3.32 14.40 13.53 n/a 13.39
Global Bond Portfolio 7/1/93 10.87 10.09 8.40 n/a 8.52
Massachusetts Financial Services
MFS Growth and Income Portfolio 2/9/93 29.28 22.71 17.56 n/a 16.67
MFS Total Return Portfolio 10/28/94 19.53 15.39 n/a n/a 17.42
MFS Mid-Cap Growth Portfolio 4/1/99 n/a n/a n/a n/a n/a
A-1
Morgan Stanley Asset Management
International Diversified Equities
Portfolio 10/28/94 18.53 11.28 n/a n/a 9.63
Worldwide High Income Portfolio 10/28/94 -17.07 6.29 n/a n/a 8.78
Putnam Investment Management, Inc.
Emerging Markets Portfolio 6/2/97 -24.27 n/a n/a n/a -25.17
Putnam Growth Portfolio 2/9/93 34.76 29.05 21.42 n/a 18.43
International Growth and Income Portfolio 6/2/97 10.83 n/a n/a n/a 10.91
SunAmerica Asset Management Corp.
Aggressive Growth Portfolio 6/3/96 17.43 n/a n/a n/a 13.59
SunAmerica Balanced Portfolio 6/3/96 24.61 n/a n/a n/a 23.17
Cash Management Portfolio 2/9/93 5.05 5.06 4.89 n/a 4.52
"Dogs" of Wall Street Portfolio 4/1/98 n/a n/a n/a n/a -0.60
High-Yield Bond Portfolio 2/9/93 -2.95 8.36 6.55 n/a 7.73
This portfolio performance information is for illustrative purposes only and is
not intended to indicate or predict future performance.
The performance information reflects the total of the income generated by the
portfolio net of the total portfolio operating expenses (i.e., management fees
and other portfolio expenses), plus capital gains and losses, realized or
unrealized. The performance results do not reflect charges deducted from
premiums, contract values or separate account assets, including, mortality and
expense risk deductions, monthly deductions, cost of insurance, surrender
charges, sales loads, DAC taxes, and any state or local premium taxes. If these
charges were included, the total return figures would be lower.
A-2
[Back cover]
The Securities and Exchange Commission maintains an Internet Web site
(http://www.sec.gov.) That contains additional information about AIG Life
Insurance Company, the Policy and the Separate Account which may be of interest
to you. The Web site also contains additional information about the Policy's
variable investment options.
Investment Company Act File Number 811-4687.
Part II - Other Information
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission theretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION
AIG Life Insurance Company represents that the fees and charges
deducted under the Policy covered by this registration statement, in the
aggregate are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Company.
INDEMNIFICATION
Under its Bylaws, the Company, to the full extent permitted by Delaware
law shall indemnify any person who was or is a party to any proceeding (whether
brought by or in right of the Company or otherwise) by reason of the fact that
he or she is or was a Director of the Company, or while a Director of the
Company, is or was serving at the request of the Company as a Director, Officer,
partner, Trustee, Employee, or Agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by him or her in connection with such proceeding.
The company shall extend such indemnification, as is provided to
directors above, to any person, not a director of the Company, who is or was an
officer of the Company or is or was serving at the request of the Company as a
director, officer, partner, trustee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan. In addition, the Board of Directors of the Company may, by
resolution, extend such further indemnification to an officer or such other
person as may to it seem fair and reasonable in view of all relevant
circumstances.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to such provision of the bylaws or statutes or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any such action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Policies issued by Variable Account II, the Company will
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in said Act and
will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of ___ pages.
The undertaking to file reports.
Representation.
The signatures
Written consents of the following persons:
Kenneth D. Walma
Jorden Burt Cicchetti Berenson & Johnson LLP
Independent Accountants
(to be filed by a subsequent amendment to this filing)
Powers of Attorney
The following exhibits:
A. Copies of all exhibits required by paragraph A of instructions for Exhibits
in Form N-8B-2, unless indicated otherwise.
1. Certificate of Resolution for AIG Life Insurance Company dated June 5,
1986, authorizing the issuance and sale of variable life contracts.*
2. N/A
3. Principal Underwriter's Agreement between AIG Life Insurance Company
and American International Fund Distributors, dated August 15, 1989;*
4. N/A
5. (a) Form of Joint and Last Survivor Flexible Premium Variable Life
Insurance Policy (16SVUL699) (filed electronically herein)
6. (a) By-Laws of AIG Life Insurance Company as amended through December
31, 1991;*
(b) Certificate of Incorporation of AIG Life Insurance Company,
dated December 31, 1991*
(c) Restated Certificate of Incorporation, of AIG Life Insurance
Company, dated December 31, 1991. The original Certificate of
Incorporation was filed in Pennsylvania on June 18, 1962*
7. N/A.
8. N/A.
9. N/A.
10. (a) Form of Life Insurance Application (14APP0396)*
11. Powers of Attorney (filed electronically herein)
B. Opinion and Consent of Counsel (filed electronically herein)
D. Consent of Independent Certified Public Accountants (to be filed by a
subsequent amendment to this filing)
E. Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP (filed
electronically herein)
F. Memorandum Regarding Administrative Procedures*
* Incorporated by reference to Registrant's Post-Effective Amendment, No. 4
filed on Form S-6 (File No. 33-90684), dated October 27, 1998.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(a) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf, in the City
of Wilmington, and State of Delaware on this 19th day of August, 1999.
VARIABLE ACOUNT II
-------------------------------
(Registrant)
By: AIG LIFE INSURANCE COMPANY
-----------------------------------------
(Sponsor)
By: /s/ Kenneth D. Walma
-----------------------------------------
Kenneth D. Walma, Assistant Secretary and
General Counsel
Pursuant to the requirements of the Securities and Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
Michele L. Abruzzo Director August 18, 1999
- ------------------
/s/ Michele L. Abruzzo
Paul S. Bell Director August 18, 1999
- ------------------
/s/ Paul Bell
Maurice R. Greenberg Director August 18, 1999
- ------------------
/s/ Maurice R. Greenberg
Howard E. Gunton, Jr. Chief Financial August 18, 1999
__________________ Officer
/s/ Howard E. Gunton, Jr
Edward Easton Matthews Director August 18, 1999
- ------------------
/s/ Edward Easton Matthews
Jerome T. Muldowney Director August 18, 1999
- ------------------
/s/ Jerome T. Muldowney
Robinson K. Nottingham Director August 18, 1999
- ------------------
/s/ Robinson K. Nottingham
Nicholas A. O'Kulich Director August 18, 1999
- ------------------
/s/ Nicholas A. O'Kulich
Howard Ian Smith Director August 18, 1999
- ------------------
/s/ Howard Ian Smith
Edmund Sze-Wing Tse Director August 18, 1999
- ------------------
/s/ Edmund Sze-Wing Tse
Elizabeth M. Tuck Secretary August 18, 1999
- ------------------
/s/ Elizabeth M. Tuck
Gerald Walter Wyndorf Director August 18, 1999
- ------------------
/s/ Gerald Walter Wyndorf
INDEX TO EXHIBITS
EXHIBIT PAGE
A. Form of Joint and Last Survivor Flexible Premium Variable Universal Life
Insurance Policy
B. Opinion of Counsel
D. Consent of Independent Accountants (to be filed by a subsequent amendment
to this filing)
E. Consent of Counsel