As Filed with the Securities and Exchange Commission on January 31, 2002
Registration File No. 333-62162
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------
FORM S-6/A
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
PRE-EFFECTIVE AMENDMENT NO. 1
TIAA-CREF LIFE SEPARATE ACCOUNT VLI-1
(EXACT NAME OF REGISTRANT)
TIAA-CREF LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
730 THIRD AVENUE
NEW YORK, NY 10017-3206
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
LISA SNOW, ESQ.
TIAA-CREF LIFE INSURANCE COMPANY
730 THIRD AVENUE
NEW YORK, NY 10017-3206
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPY TO:
STEVE B. BOEHM, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004-2415
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: as soon as practicable after the
effective date.
TITLE OF SECURITIES BEING REGISTERED: Flexible Premium Individual Variable
Universal Life Insurance Policies and Flexible Premium Last Survivor Variable
Universal Life Insurance Policies.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its 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 shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
PROSPECTUS
________, 2002
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FLEXIBLE PREMIUM
INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE POLICY
and
FLEXIBLE PREMIUM
LAST SURVIVOR INDIVIDUAL VARIABLE UNIVERSAL LIFE INSURANCE POLICY
Issued by
TIAA-CREF LIFE SEPARATE ACCOUNT VLI-I
and
TIAA-CREF LIFE INSURANCE COMPANY
730 THIRD AVENUE
NEW YORK, NEW YORK 10017-3206
TELEPHONE (800) 233-1200
================================================================================
This prospectus describes a flexible Premium variable universal life insurance
policy (the "Policy") issued by TIAA-CREF Life Insurance Company (the
"Company"). We issue the policy on either a single life or last survivor basis.
If you purchase the Policy on a single life basis, we will pay the Death Benefit
Proceeds upon the death of the Insured. If you purchase the Policy on a last
survivor basis, we will pay the Death Benefit Proceeds only upon the death of
the Last Insured.
The Policy is a long-term investment designed to provide significant life
insurance benefits for the Insured(s). This prospectus provides information that
a prospective Owner should know before investing in the Policy. You should
consider the Policy in conjunction with other insurance you own. It may not be
advantageous to replace existing insurance with the Policy.
You can allocate your Policy's values to:
o the Fixed-Rate Account, which credits a specified rate of interest; or
o TIAA-CREF Life Separate Account VLI-1 (the "Separate Account"), which
invests in the following Portfolios of the TIAA-CREF Life Funds:
o Stock Index Fund
o Growth Equity Fund
o Growth and Income Fund
o International Equity Fund
o Social Choice Equity Fund
A prospectus for these Portfolios must accompany this prospectus. Please read
these documents carefully before investing and save them for future reference.
PLEASE NOTE THAT THE POLICY AND THE PORTFOLIOS:
o ARE NOT GUARANTEED TO ACHIEVE THEIR GOALS;
o ARE NOT FEDERALLY INSURED;
o ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND
o ARE SUBJECT TO RISKS, INCLUDING LOSS OF THE AMOUNT INVESTED.
================================================================================
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
POLICY OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
================================================================================
GLOSSARY.............................................................. 3
POLICY SUMMARY........................................................ 6
Premiums.......................................................... 6
Right to Cancel Period............................................ 6
Investment Options................................................ 7
Policy Value...................................................... 7
Charges and Deductions............................................ 7
Annual Portfolio Operating Expenses Table......................... 9
Surrenders and Partial Withdrawals................................10
Death Benefit.....................................................10
Transfers.........................................................10
Loans.............................................................11
Illustrations.....................................................11
RISK SUMMARY..........................................................12
THE COMPANY AND THE FIXED-RATE ACCOUNT................................13
TIAA-CREF Life Insurance Company...................................13
The Fixed-Rate Account.............................................13
THE SEPARATE ACCOUNT AND THE PORTFOLIOS...............................14
The Separate Account...............................................14
The Portfolios.....................................................14
THE POLICY............................................................16
Purchasing a Policy................................................16
When Insurance Coverage Takes Effect...............................16
Right to Cancel....................................................16
Ownership Rights...................................................16
PREMIUMS..............................................................18
Allocating Premiums................................................19
POLICY VALUES.........................................................20
Policy Value.......................................................20
Cash Surrender Value...............................................20
Investment Account Value...........................................21
Unit Value.........................................................21
Fixed-Rate Account Value...........................................21
CHARGES AND DEDUCTIONS................................................22
Premium Expense Charge.............................................23
Monthly Charge.....................................................23
Certain Daily Charges..............................................26
Transfer Charge....................................................26
Portfolio Expenses.................................................26
DEATH BENEFIT.........................................................27
Death Benefit Proceeds.............................................27
Death Benefit Options..............................................27
Changing Death Benefit Options.....................................28
Changing the Face Amount...........................................30
Payment Methods....................................................31
Accelerated Death Benefit..........................................31
SURRENDERS AND PARTIAL WITHDRAWALS....................................31
Surrenders.........................................................31
Partial Withdrawals................................................32
TRANSFERS.............................................................32
Dollar Cost Averaging..............................................33
LOANS.................................................................34
Effect of Policy Loans.............................................35
1
POLICY LAPSE AND REINSTATEMENT........................................36
Lapse..............................................................36
Reinstatement......................................................36
FEDERAL TAX CONSIDERATIONS............................................36
Tax Treatment of Policy Benefits..................................37
Our Income Taxes..................................................40
OTHER POLICY INFORMATION..............................................40
Payment of Policy Benefits.........................................40
The Policy.........................................................41
Telephone and Internet Requests....................................41
Our Right to Contest the Policy....................................42
Suicide Exclusion..................................................42
Misstatement of Age or Sex.........................................43
Modifying the Policy...............................................43
Policy Cost Factors................................................43
Payments We Make...................................................44
Additional Transfer Rights.........................................44
Reports to Owners..................................................45
Records............................................................45
Policy Termination.................................................46
Accelerated Death Benefits.........................................46
Riders.............................................................46
PERFORMANCE DATA......................................................47
ADDITIONAL INFORMATION................................................48
Sale of the Policies...............................................48
Potential Conflicts of Interest....................................48
Changes to the Separate Account....................................48
Legal Developments Regarding Unisex
Actuarial Tables..............................................49
Voting Portfolio Shares............................................49
Legal Matters......................................................49
Legal Proceedings..................................................50
Experts............................................................50
Financial Statements...............................................50
Additional Information about the Company...........................50
Executive Officers and Directors...................................50
AUDITED FINANCIAL STATEMENTS, DECEMBER 31, 2000 ..................... A-1
UNAUDITED FINANCIAL STATEMENTS, SEPTEMBER 30, 2001 and 2000 ......... B-1
APPENDIX A -- ILLUSTRATIONS.......................................... C-1
2
GLOSSARY
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ACCEPTABLE NOTICE OR REQUEST
The notice or request you must deliver to us at our Administrative Office to
request or exercise your rights as Owner under the Policy. To be complete, each
such notice or request must: (1) be in a form we accept; (2) contain the
information and documentation that we determine in our sole discretion is
necessary for us to take the action you request or for you to exercise the right
specified (including your policy number, your full name, the full name of the
Insured(s), and your current address); and (3) be received at our Administrative
Office.
ADMINISTRATIVE OFFICE
The office you must contact to exercise any of your rights under the Policy. You
should send all payments and requests to: TIAA-CREF Life Insurance Company,
Administrative Office, 730 Third Avenue, New York, New York 10017-3206,
Telephone: (800) 223-1200.
ATTAINED AGE
A person's age on the Policy Date, plus the number of full Policy Years
completed since the Policy Date. We increase "Attained Age" by one year on each
Policy Anniversary.
BENEFICIARY
The person(s) you select to receive the Death Benefit Proceeds from the Policy.
BUSINESS DAY
Any day that the New York Stock Exchange or its successor is open for trading.
It usually ends at 4:00 PM Eastern Time or when trading closes on the New York
Stock Exchange or its successor, whichever is earlier. If we receive your
payment or request after the end of a Business Day, we'll process it as of the
end of the next Business Day.
CASH SURRENDER VALUE
The amount we pay when you Surrender your Policy. It is equal to the Policy
Value less any Outstanding Loan Amount.
CODE
The Internal Revenue Code of 1986, as amended, and its related rules and
regulations.
COMPANY (WE, US, OUR)
TIAA-CREF Life Insurance Company.
DEATH BENEFIT PROCEEDS
The amount we pay to your beneficiaries when we receive satisfactory proof of
the death of the Insured on a single life Policy or both Insureds on a last
survivor Policy. The amount equals the death benefit under the death benefit
option you've chosen plus any Riders you've added, minus any Outstanding Loan
Amount and any overdue Monthly Charges. Death proceeds under a last survivor
Policy's Single Life Level Term Insurance Rider, if attached, are payable when
the person insured by the rider dies.
FACE AMOUNT
The dollar amount of insurance selected by the Owner. The Face Amount may be
increased or decreased after issue, subject to certain conditions. The Face
Amount may be affected by any accelerated death benefit payments, changes in
death benefit options, partial withdrawals, and automatic increases in Face
Amount. The Face Amount is a factor in determining the death benefit and certain
charges.
FINAL POLICY DATE
The date the Insured on a single life Policy or the younger Insured on a last
survivor Policy reaches Attained Age 100. After the Final Policy Date, the death
benefit will equal the Policy Value, we will not accept any additional Premiums,
and we will not make Monthly Charges.
FIXED-RATE ACCOUNT
An Investment Option supported by our general account. Policy Value allocated to
the Fixed-Rate Account earns at least 3% annual interest.
FUND
An investment company that is registered with the Securities and Exchange
Commission. The Policy allows you to invest in certain Portfolios of TIAA-
3
CREF Life Funds that are listed on the front page of this prospectus.
GRACE PERIOD
The period after which a Policy will Lapse if you do not make a sufficient
payment.
GUIDELINE PREMIUM TEST
One of the two alternative tests under the Code to analyze whether a policy
qualifies as a life insurance contract that is eligible for special tax
treatment under the Code
INITIAL FACE AMOUNT
The Face Amount on the Issue Date.
INSURED
A person whose life is insured by the Policy.
INVESTMENT ACCOUNTS
Each Investment Account is a subaccount of the Separate Account, and invests its
assets in shares of a corresponding Portfolio of the TIAA-CREF Life Funds.
INVESTMENT OPTIONS
The options you can choose from when you're allocating Net Premiums under the
Policy. The Investment Options for the Policy include the Investment Accounts
and the Fixed-Rate Account.
ISSUE AGE
An Insured's age as of his or her last birthday on or prior to the Policy Date.
ISSUE DATE
The date on which the Policy is issued at our Administrative Office. This date
is used to measure suicide and contestable periods.
LAPSE
When your Policy terminates without value after a Grace Period. You may
reinstate a Lapsed Policy, subject to certain conditions.
LAST INSURED
The Last Insured to die under a last survivor Policy.
LOAN ACCOUNT
The account within our general account to which we transfer Policy Value from
the Investment Options as collateral when you take out a policy loan.
MEC
A Modified Endowment Contract, which is a special kind of life insurance policy
as defined under the Code. A MEC doesn't receive the same tax advantages as
other life insurance policies.
MONTHLY CHARGE
This is the monthly amount we deduct from the Policy Value on each Monthly
Charge Date. The Monthly Charge includes the policy unit charge, policy fee,
cost of insurance charge, and charges for any Riders.
MONTHLY CHARGE DATE
The day we deduct the Monthly Charge from your Policy Value. It's the same date
of each calendar month as the Policy Date, or it's the last day of the month if
that comes first.
NET PREMIUM
The portion of a Premium payment allocated to the Investment Options. It equals
the Premium less the Premium expense charge.
OUTSTANDING LOAN AMOUNT
The amount in the Loan Account plus any unpaid and accrued interest you owe.
OWNER (YOU, YOUR)
The person entitled to exercise all rights as Owner under the Policy.
POLICY ANNIVERSARY
The same date of each calendar year as the Policy Date. If the Policy Date is
February 29th and the current calendar year is not a leap year, the Policy
Anniversary will be February 28th.
0
POLICY DATE
The effective date of the Policy as set forth in the Policy. The Policy Date is
used to determine Monthly Charge Dates and Policy Years. The Policy Date is
generally the same as the Issue Date but, subject to state approval, may be
another date agreed upon by us and the proposed Insured(s).
POLICY VALUE
The sum of your Policy's values in the Investment Accounts, the Fixed-Rate
Account, and the Loan Account.
4
POLICY YEAR
A year that starts on the Policy Date or on a policy anniversary.
PORTFOLIO
A separate investment Portfolio of the TIAA-CREF Life Funds. Each Investment
Account invests exclusively in one Portfolio.
PREMIUMS
All payments you make under the Policy other than repayments of Outstanding Loan
Amounts.
RIDER
An amendment, addition, or endorsement to the Policy that changes the terms of
the Policy by: (1) expanding Policy benefits; (2) restricting Policy benefits;
or (3) excluding certain conditions from the Policy's coverage. A Rider that is
added to the Policy becomes part of the Policy.
RIGHT TO CANCEL PERIOD
The period shown on your Policy's cover page during which you may examine and
return the Policy to us at our Administrative Office and receive a refund. The
length of the Right to Cancel Period varies by state.
SEPARATE ACCOUNT
TIAA-CREF Life Separate Account, VLI-1. The Separate Account is divided into
Investment Accounts, each of which invests in shares of a corresponding
Portfolio of the TIAA-CREF Life Funds.
SURRENDER
To cancel the Policy by Acceptable Request from the Owner or the Owner's
assignee and return of the Policy to us at our Administrative Office.
UNDERWRITING CLASS
A class we assign to the person insured by the policy and use to calculate cost
of insurance charges. Classes are based on health, tobacco use, and other
non-medical factors. The classes are: preferred non-tobacco, select non-tobacco,
and standard tobacco. There are also various substandard non-tobacco and
substandard tobacco classes. These classes may include any flat or temporary
extra mortality charges.
UNIT
A unit of measure used to calculate the amount of Policy Value in any Investment
Account.
5
POLICY SUMMARY
================================================================================
This summary describes the Policy's important features and corresponds to
prospectus sections that discuss the topics in more detail. THE GLOSSARY DEFINES
CERTAIN WORDS AND PHRASES USED IN THIS PROSPECTUS.
PREMIUMS
o You must pay the minimum first Premium before we issue the Policy.
o After you pay the first Premium, you can pay subsequent Premiums at any
time and in any amount (but not less than $25). We reserve the right to
limit total Premiums allocated to the Fixed-Rate Account under a Policy to
$500,000 a year.
o We deduct a Premium expense charge from each Premium you pay. We allocate
the resulting amount (the Net Premium) to the Investment Options in
accordance with your allocation instructions.
o We will not accept any Premiums after the Final Policy Date.
o You must send all Premiums to our Administrative Office.
o You select a Premium payment plan in your application to pay planned
Premiums monthly, quarterly, semiannually, annually, or in a single-sum.
You are not required to pay Premiums according to the plan. However, you
may greatly increase your risk of Lapse if you do not regularly pay
Premiums.
o PAYING YOUR PLANNED PREMIUMS WILL NOT NECESSARILY KEEP YOUR POLICY IN
FORCE. Even if you make Premium payments according to your payment plan,
your Policy will Lapse if the Cash Surrender Value is not enough to pay the
Monthly Charge.
o There will be a Grace Period before your Policy Lapses. Your Policy will
not Lapse if you make a payment before the end of the Grace Period that is
sufficient to make your Cash Surrender Value positive. You may reinstate a
Lapsed Policy if you meet certain requirements.
RIGHT TO CANCEL PERIOD
o When you receive your Policy, the Right to Cancel Period begins. You may
return your Policy during this period and receive a refund.
o Some states require us to refund all payments if you return your Policy
during the Right to Cancel Period. In those states, we will allocate Net
Premiums received at our Administrative Office during the Right to Cancel
Period to the Fixed-Rate Account. On the fifth day following the end of the
Right to Cancel Period, we will allocate that Policy Value among the
Investment Accounts as indicated in your current Premium allocation
instructions. If the fifth day following the end of the Right to Cancel
Period is not a Business Day, we will allocate Policy Value among the
Investment Accounts using Unit values as of the immediately preceding
Business Day. We invest all Net Premiums paid thereafter based on the
allocation percentages then in effect. For the limited purpose of
allocating Policy Value on the fifth day following the end of the Right to
Cancel Period, we will assume that the Right to Cancel Period begins on the
day we send you your Policy.
6
INVESTMENT OPTIONS
FIXED-RATE ACCOUNT:
o You may place money in the Fixed-Rate Account, where it earns at least 3%
annual interest. We may declare higher rates of interest, but are not
obligated to do so.
SEPARATE ACCOUNT:
o You may direct the money in your Policy to any of the Investment Accounts
of the Separate Account. WE DO NOT GUARANTEE ANY MONEY YOU PLACE IN THE
INVESTMENT ACCOUNTS. THE VALUE OF EACH INVESTMENT ACCOUNT WILL INCREASE OR
DECREASE, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE CORRESPONDING
PORTFOLIO. YOU COULD LOSE SOME OR ALL OF YOUR MONEY.
o Each Investment Account invests exclusively in one of the following
Portfolios of the TIAA-CREF Life Funds:
o Stock Index Fund
o Growth Equity Fund
o Growth and Income Fund
o International Equity Fund
o Social Choice Equity Fund
For more information on these Portfolios, see the attached prospectus for the
TIAA-CREF Life Funds.
POLICY VALUE
o Policy Value is the sum of your amounts in the Investment Accounts, the
Fixed-Rate Account, and the Loan Account. Policy Value is the starting
point for calculating important values under the Policy, such as the Cash
Surrender Value and, in some cases, the death benefit.
o Policy Value varies from day to day depending on factors such as the amount
and timing of your premium payments, the performance of the investment
accounts you've chosen, the interest rates on the fixed-rate account and
the loan account, policy charges, how much you've borrowed or withdrawn
from the policy and the level of policy and rider benefits. WE DO NOT
GUARANTEE A MINIMUM POLICY VALUE.
CHARGES AND DEDUCTIONS
PREMIUM EXPENSE CHARGE: We deduct a Premium expense charge from each Premium and
credit the remaining amount (the Net Premium) according to your allocation
instructions. The Premium expense charge currently equals 4% of each Premium
payment. We may increase this charge to a maximum of 6% of each Premium payment.
MONTHLY CHARGE: On the Policy Date and on each Monthly Charge Date thereafter,
we deduct from the Policy Value:
o the monthly policy unit charge
o the monthly policy fee
o the monthly cost of insurance charge
o the monthly charges for any Riders
The monthly policy unit charge is assessed to compensate us for administrative
and operating expenses that vary with the size of the policy. On a single life
Policy, we currently deduct this charge each month during the first 15 Policy
Years (and during the 15 years following an increase in Face Amount) at the
annual rate of $0.60 per $1,000 of Face Amount (or increase in Face Amount). On
a last survivor Policy, we currently deduct this charge each month during the
first 20 Policy Years (and during the 20
7
years following an increase in Face Amount) at the annual rate of $0.96 per
$1,000 of Face Amount (or increase in Face Amount). In no event will the annual
rates imposed exceed the following amounts:
================================================================================
AMOUNT
ISSUE AGES POLICY YEARS (PER $1,000)
================================================================================
SINGLE LIFE POLICY 0-9 1-15 $0.84
16+ $0.24
-----------------------------------------------
10-29 1-15 $0.96
16+ $0.36
-----------------------------------------------
30-49 1-15 $1.08
16+ $0.48
-----------------------------------------------
50+ 1-15 $1.20
16+ $0.60
- --------------------------------------------------------------------------------
LAST SURVIVOR POLICY 30-39 1-20 $0.96
21+ $0.00
------------------------------------ ----------
40-49 1-20 $1.20
21+ $0.24
-----------------------------------------------
50+ 1-20 $1.50
21+ $0.54
- --------------------------------------------------------------------------------
The monthly policy fee varies by Issue Age and Policy Year and is assessed to
compensate us for administrative and operating expenses that do not vary with
the size of the policy. Currently, the following annualized policy fees apply:
================================================================================
PER POLICY
ISSUE AGES POLICY YEARS FEE
================================================================================
SINGLE LIFE POLICY 0-24 1-4 $150
5+ $120
--------------------------------------------------
25-29 1-3 $198
4+ $102
--------------------------------------------------
30-49 1-2 $300
3+ $84
--------------------------------------------------
50+ 1 $600
2+ $72
- --------------------------------------------------------------------------------
LAST SURVIVOR POLICY 30-34 1-3 $324
4+ $72
--------------------------------------------------
35-49 1-2 $492
3+ $72
8
================================================================================
PER POLICY
ISSUE AGES POLICY YEARS FEE
================================================================================
50+ 1 $996
2+ $72
- --------------------------------------------------------------------------------
In no event will the policy fees imposed exceed the annualized rates provided
above.
SURRENDER CHARGES: We do not deduct any Surrender charges if you Surrender the
Policy or take any partial withdrawals.
CERTAIN DAILY CHARGES: We deduct a daily Mortality and Expense Risk Charge and a
daily Administrative Expense Charge equal to annual rates of 0.10% and 0.20%,
respectively, of the average daily Policy Value in the Investment Accounts. We
may increase the Mortality and Expense Risk Charge and the Administrative
Expense Charge, but the sum of these two charges will not exceed an annual rate
of 1.20% of the average daily Policy Value in the Investment Accounts.
TRANSFER CHARGE: We currently do not assess any fee on transfers among the
various accounts available under the Investment Options. We reserve the right to
assess a $25 fee for the 13th and each additional transfer in a Policy Year.
ACCELERATED DEATH BENEFIT FEE: If you qualify for and elect to receive a
one-time lump-sum accelerated death benefit payment, we will deduct an
administrative expense charge not to exceed $200. For more information on
accelerated death benefits, see "Other Policy Information -- Accelerated Death
Benefit."
PORTFOLIO EXPENSES: The Portfolios deduct management fees and other expenses
from their assets. These fees and expenses (shown in the following table) vary
by Portfolio and currently range from 0.07% to 0.29% per year of the average
Portfolio assets.
The following table shows the fees and expenses charged by the Portfolios for
the fiscal year ended December 31, 2000. The purpose of the table is to assist
you in understanding the various costs and expenses that you will bear directly
and indirectly. Expenses of the Portfolios may be higher or lower in the future.
Please refer to the prospectus for the TIAA-CREF Life Funds for more
information.
ANNUAL PORTFOLIO OPERATING EXPENSES (as a percentage of average Portfolio assets
AFTER fee waivers and expense reimbursements)
TOTAL
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES (1) EXPENSES EXPENSES
--------- ---------- -------- --------
TIAA-CREF LIFE FUNDS
Stock Index Fund 0.07% None 0.07%
Growth Equity Fund 0.25% None 0.25%
Growth & Income Fund 0.23% None 0.23%
International Equity Fund 0.29% None 0.29%
Social Choice Equity Fund 0.18% None 0.18%
(1) Teachers Advisors, Inc. (Advisors), the investment adviser for each of the
TIAA-CREF Life Funds, has agreed to waive a portion of its fee. Without
these waivers, total fund annual expenses would be 0.30% for the Stock
Index Fund, 0.46% for the Growth Equity Fund, 0.44% for the Growth & Income
Fund, 0.53% for the International Equity Fund, and 0.39% for the Social
Choice Equity Fund. This waiver is contractual and will remain in effect
until July 1, 2006.
9
SURRENDERS AND PARTIAL WITHDRAWALS
SURRENDER: At any time while the Policy is in force, you may make an Acceptable
Request to Surrender your Policy and receive the Cash Surrender Value. A
SURRENDER MAY HAVE TAX CONSEQUENCES. SEE "FEDERAL TAX CONSIDERATIONS."
PARTIAL WITHDRAWALS: After the first Policy Year, you may make an Acceptable
Request to withdraw part of the Cash Surrender Value, subject to the following
rules. PARTIAL WITHDRAWALS MAY HAVE TAX CONSEQUENCES. SEE "FEDERAL TAX
CONSIDERATIONS."
o You must request at least $1,000 or the entire value in a specified
Investment Option, if less.
o If Death Benefit Option 1 is in effect, we will reduce the Initial
Face Amount and any in force Face Amount increases you've asked for by
the amount of the partial withdrawal in proportion to your Face Amount
before the withdrawal. See "Death Benefit - Death Benefit Options."
o Unless you specify otherwise, we will deduct the requested partial
withdrawal from the accounts available under the Investment Options in
proportion to the value in each account.
DEATH BENEFIT
o DEATH BENEFIT PROCEEDS: We pay Death Benefit Proceeds to the Beneficiary
upon receipt at our Administrative Office of satisfactory proof of death of
the Insured on a single life Policy or both Insureds on a last survivor
Policy. The Death Benefit Proceeds equal the death benefit and any
additional insurance provided by Riders less: (a) any Outstanding Loan
Amounts and (b) any unpaid Monthly Charges.
o DEATH BENEFIT OPTION 1 AND OPTION 2: You may choose between two death
benefit options under the Policy. After the first Policy Year, you may
change death benefit options while the Policy is in force. We calculate the
death benefit under each death benefit option as of the date of death of
the Insured on a single life Policy or the Last Insured on a last survivor
Policy. A CHANGE IN DEATH BENEFIT OPTION MAY HAVE TAX CONSEQUENCES. SEE
"FEDERAL TAX CONSIDERATIONS."
-> DEATH BENEFIT OPTION 1 is equal to the greater of:
the Face Amount (which is the amount of insurance you select); OR
the minimum death benefit required under the Code.
-> DEATH BENEFIT OPTION 2 is equal to the greater of:
the Face Amount PLUS the Policy Value; or
the minimum death benefit required under the Code.
o ACCELERATED DEATH BENEFIT: Under the Accelerated Death Benefit feature, you
may receive accelerated payment of part or all of your death benefit if an
Insured develops a terminal illness. AN ACCELERATION OF DEATH BENEFITS MAY
HAVE TAX CONSEQUENCES. SEE "OTHER POLICY INFORMATION - ACCELERATED DEATH
BENEFIT."
TRANSFERS
o You may make transfers among the various accounts available under the
Investment Options.
10
o We currently do not charge any fees on transfers. We reserve the right to
charge $25 for the 13th and each additional transfer during a Policy Year.
We also reserve the right to limit transfers in the future.
o The minimum amount you may transfer from an Investment Account or the
Fixed-Rate Account is the lesser of $250 or the total value in the
Investment Account or Fixed-Rate Account.
o If you don't have enough Policy Value in an account to cover a transfer,
we'll transfer the remaining amount in that account into the account you
are transferring to. If you are transferring to more than one account, we
will transfer the remaining amount in the account into the accounts you are
transferring to in proportion to your transfer instructions.
LOANS
o You may take a loan (minimum $1,000) from your Policy at any time after the
end of the Right to Cancel Period while the Insured is still living or, in
the case of a last survivor Policy, while either Insured is still living.
The maximum loan amount you may take is 90% of the Cash Surrender Value.
You may increase your risk of Lapse if you take a loan. LOANS MAY HAVE TAX
CONSEQUENCES. SEE "FEDERAL TAX CONSIDERATIONS."
o As collateral for the loan, we transfer an amount equal to the loan from
the Separate Account and Fixed-Rate Account to the Loan Account in
accordance with your instructions. If we have not received any instructions
from you, we will transfer such amount on a pro rata basis.
o We charge you interest on your loan ("charged interest rate") at a maximum
annual interest rate of the greater of 4% or the published monthly average
for the calendar month ending 2 months before the month in which a Policy
Year begins. Charged interest is due and payable on the earlier of the
Policy Anniversary or when the Cash Surrender Value is insufficient to pay
the Monthly Charge. Unpaid interest becomes part of the outstanding loan
and accrues interest if it is not paid by that time.
o We credit interest on amounts in the Loan Account ("earned interest rate")
at a minimum annual interest rate of 2% less than the charged interest rate
then in effect for the first 15 Policy Years, and 0.5% less than the
charged interest rate then in effect thereafter. The earned interest rate
will never be less than 3%.
o You may repay all or part of your Outstanding Loan Amounts at any time
while an Insured is alive and the Policy is in force.
o We deduct any Outstanding Loan Amounts from the Policy Value upon
Surrender, and from the Death Benefit Proceeds payable on the death of the
Insured on a single life Policy or the Last Insured on a last survivor
Policy.
ILLUSTRATIONS
The illustrations provided in Appendix A at the end of this prospectus
illustrate Death Benefit Proceeds, Policy Values, and Cash Surrender Values.
These illustrations are based on hypothetical rates of return that are not
guaranteed. The illustrations also assume costs of insurance and expense charges
for a hypothetical person. Your rates of return and insurance charges may be
higher or lower than these illustrations. YOU SHOULD OBTAIN A PERSONALIZED
ILLUSTRATION BEFORE PURCHASING A POLICY.
11
RISK SUMMARY
================================================================================
The following are some of the risks associated with the Policy.
INVESTMENT RISK If you invest your Policy Value in one or more Investment
Accounts, then you will be subject to the risk that
investment performance will be unfavorable and that the
Policy Value will decrease. You COULD lose everything you
invest. If you allocate Net Premiums to the Fixed-Rate
Account, then we credit your Policy Value (in the Fixed-Rate
Account) with a declared rate of interest, but you assume
the risk that the rate may decrease, although it will never
be lower than a guaranteed minimum annual effective rate of
3%.
RISK OF LAPSE If your Cash Surrender Value is not enough to pay the
Monthly Charge, your Policy may enter a Grace Period. We
will notify you that the Policy will Lapse unless you make a
sufficient payment during the Grace Period. Your Policy
generally will not Lapse if you make a payment before the
end of the Grace Period that is sufficient to make your Cash
Surrender Value positive. You may reinstate a Lapsed Policy,
subject to certain conditions.
TAX RISKS We anticipate that the Policy should qualify as a life
insurance contract under Federal tax law. However, due to
limited guidance under the Federal tax law, there is some
uncertainty about the application of the Federal tax law to
insurance policies. Assuming that a Policy qualifies as a
life insurance contract for Federal income tax purposes, you
should not be deemed to be in constructive receipt of Policy
Value under a Policy until there is a distribution from the
Policy. Moreover, the death benefit under a Policy is
excludable from the gross income of the Beneficiary. As a
result, the Beneficiary generally should not be subject to
federal income tax on these proceeds.
Depending on the total amount of Premiums you pay or changes
you make to the Policy, the Policy may be treated as a
modified endowment contract ("MEC") under Federal tax laws.
If a Policy is treated as a MEC, then Surrenders, partial
withdrawals, and loans under the Policy will be taxable as
ordinary income to the extent there are earnings in the
Policy. In addition, a 10% penalty tax may be imposed on
Surrenders, partial withdrawals, and loans taken before you
reach age 59 1/2. If the Policy is not a MEC, distributions
generally will be treated first as a return of basis or
investment in the contract and then as taxable income.
Moreover, loans will not be treated as distributions unless
the Policy Lapses while a loan is outstanding. Finally,
distributions and loans from a Policy that is not a MEC are
not subject to the 10% penalty tax. It is not clear that we
can take effective action in all possible circumstances to
prevent a Policy from being classified as a MEC.
The tax consequences associated with keeping a Policy in
force after the Insured on a single life Policy or the
younger Insured on a last survivor Policy reaches Attained
Age 100 are unclear. A tax adviser should be consulted about
these consequences.
SEE "FEDERAL TAX CONSIDERATIONS." YOU SHOULD CONSULT A
QUALIFIED TAX ADVISER FOR ASSISTANCE IN ALL POLICY-RELATED
TAX MATTERS.
12
LOAN RISKS A policy loan, whether or not repaid, will affect Policy
Value over time because we subtract the amount of the loan
from the Investment Accounts and/or Fixed-Rate Account as
collateral, and this loan collateral does not participate in
the investment performance of the Investment Accounts and
may not be credited with the same interest rate accruing on
the Fixed-Rate Account.
We reduce the amount we pay on the death of the Insured on a
single life Policy or the Last Insured on a last survivor
Policy by the amount of any Outstanding Loan Amounts. Your
Policy may Lapse if your Outstanding Loan Amounts reduce the
Cash Surrender Value to zero.
- --------------------------------------------------------------------------------
THE COMPANY AND THE FIXED-RATE ACCOUNT
================================================================================
TIAA-CREF LIFE INSURANCE COMPANY
We are a stock life insurance company incorporated under the laws of the State
of New York on November 20, 1996. We are a wholly owned subsidiary of TIAA-CREF
Enterprises, Inc., which is a wholly-owned subsidiary of Teachers Insurance and
Annuity Association of America ("TIAA").
TIAA is a stock life insurance company, organized under the laws of the State of
New York. It was founded on March 4, 1918, by the Carnegie Foundation for the
Advancement of Teaching. TIAA is the companion organization of the College
Retirement Equities Fund ("CREF"), the first company in the United States to
issue a variable annuity. CREF is a nonprofit membership corporation established
in the State of New York in 1952. Together, TIAA and CREF, serving approximately
2.2 million people, form the principal retirement system for the nation's
education and research communities and one of the largest retirement systems in
the world, based on assets under management. As of December 31, 2000, TIAA's
assets were approximately $114.3 billion; the combined assets for TIAA and CREF
totaled approximately $275.6 billion. Neither TIAA nor CREF stands behind our
guarantees with respect to the Policies.
We are subject to regulation by the Insurance Department of the State of New
York, as well as by the insurance departments of all other states and
jurisdictions in which we do business. We established the Separate Account to
support the Investment Accounts under the Policy and under other variable life
insurance policies we may issue. Our general account supports the Fixed-Rate
Account and the Loan Account under the Policy.
THE FIXED-RATE ACCOUNT
The Fixed-Rate Account is part of our general account. We own the assets in the
general account, and we use these assets to support our insurance and annuity
obligations other than those funded by our separate Investment Accounts. These
assets are subject to our general liabilities from business operations. Subject
to applicable law, we have sole discretion over investment of the Fixed-Rate
Account's assets. We bear the full investment risk for all amounts allocated or
transferred to the Fixed-Rate Account. We guarantee that the amounts allocated
to the Fixed-Rate Account will be credited interest daily at a net effective
annual interest rate of at least 3%. The principal less charges and deductions
is also guaranteed. We will determine any interest rate credited in excess of
the guaranteed rate at our sole discretion.
The Fixed-Rate Account value will not share in the investment performance of our
general account. We anticipate changing the current interest rate from time to
time at our sole discretion. You assume the risk that interest credited to
amounts in the Fixed-Rate Account may not exceed the minimum 3% guaranteed rate.
WE HAVE NOT REGISTERED THE FIXED-RATE ACCOUNT WITH THE SECURITIES AND EXCHANGE
COMMISSION, AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED-RATE ACCOUNT.
13
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
================================================================================
THE SEPARATE ACCOUNT
We established the TIAA-CREF Life Separate Account VLI-1 as a separate
Investment Account under New York law on May 23, 2001. We own the assets in the
Separate Account and we are obligated to pay all benefits under the Policies. We
may use the Separate Account to support other variable life insurance policies
we issue. The Separate Account is registered with the Securities and Exchange
Commission as a unit investment trust under the Investment Company Act of 1940
(the "1940 Act"). This registration does not involve supervision of the
management or investment practices or policies of the Separate Account by the
Securities and Exchange Commission. As part of the Company, the Separate Account
is also subject to regulation by the State of New York Insurance Department
("NYID") and the insurance departments of some other jurisdictions in which the
Policy is offered.
We have divided the Separate Account into Investment Accounts, each of which
invests in shares of one Portfolio of the TIAA-CREF Life Funds. The Investment
Accounts buy and sell Portfolio shares at net asset value. Any dividends and
distributions from a Portfolio are reinvested at net asset value in shares of
that Portfolio.
The Separate Account is used to provide values and benefits for the Policy and
other similar policies. We own the assets in the Separate Account. The assets in
the Separate Account are kept separate from our general account and our other
separate accounts. Assets equal to the reserves and contract liabilities of the
Separate Account will not be charged with liabilities that arise from any other
business we may conduct. We may transfer assets, in excess of the reserves and
contract liabilities of the Separate Account to our general account. All income,
gains and losses, whether or not realized, of an Investment Account will be
credited to or charged against that Investment Account without regard to our
other income, gains or losses. The valuation of all assets in the Separate
Account will be determined in accordance with all applicable laws and
regulations. The Separate Account may include other Investment Accounts that are
not available under the Policies and are not discussed in this prospectus.
We can add new Investment Accounts in the future that would invest in other fund
Portfolios or other Funds. We don't guarantee that the Separate Account, any
existing Investment Account, or any Investment Account added in the future will
always be available. We reserve the right to add or close Investment Accounts,
substitute another Fund or Portfolio without your consent, or combine Investment
Accounts or Portfolios. A substituted Fund or Portfolio may have different fees
and expenses. Substitutions and Investment Account closings may be made with
respect to existing investments or the investment of future Premiums, or both.
However, no substitution will be made without any necessary approval of the
Securities and Exchange Commission. The Fund also may discontinue offering its
shares to the Investment Accounts. In addition, we reserve the right to make
other structural and operational changes affecting the Separate Account and the
Policy. See "Additional Information -- Changes to the Separate Account."
THE PORTFOLIOS
The Separate Account invests in shares of certain Portfolios. Each Portfolio is
part of TIAA-CREF Life Funds, a business trust organized under Delaware law on
August 13, 1998 that is registered with the Securities and Exchange Commission
as an open-end management investment company. This registration does not involve
supervision of the management or investment practices or policies of the
Portfolios or mutual funds by the Securities and Exchange Commission.
Each Portfolio's assets are held separate from the assets of the other
Portfolios, and each Portfolio has investment objectives and policies that are
different from those of the other Portfolios. Thus, each Portfolio
14
operates as a separate investment fund, and the income or losses of one
Portfolio generally have no effect on the investment performance of any other
Portfolio.
Teachers Advisors, Inc. ("Advisors"), an indirect subsidiary of TIAA, is the
investment adviser for each of the five Portfolios of the TIAA-CREF Life Funds.
Advisors also manages the TIAA-CREF Mutual Funds and TIAA-CREF Institutional
Mutual Funds. The same personnel also manage the CREF accounts on behalf of
TIAA-CREF Investment Management, LLC, an investment adviser which is also a TIAA
subsidiary.
The following table summarizes each Portfolio's investment objective(s). THERE
IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED OBJECTIVE(S).
You can find more detailed information about the Portfolios, including a
description of risks and expenses, in the prospectus for the TIAA-CREF Life
Funds that accompanies this prospectus. You should read this prospectus
carefully.
PORTFOLIO INVESTMENT OBJECTIVE
--------- --------------------
STOCK INDEX FUND Seeks a favorable long-term rate of
return from a diversified portfolio
selected to track the overall market
for common stocks publicly traded in
the U.S., as represented by a broad
stock market index.
GROWTH EQUITY FUND Seeks a favorable long-term return,
mainly through capital appreciation,
primarily from a diversified
portfolio of common stocks that
present the opportunity for
exceptional growth.
GROWTH AND INCOME Seeks a favorable long-term return
FUND through capital appreciation and
investment income, by investing in a
broadly diversified portfolio of
common stocks selected for their
investment potential.
INTERNATIONAL EQUITY Seeks favorable long-term returns,
FUND mainly through capital
appreciation, by investing in a
broadly diversified portfolio of
primarily foreign equity
investments.
SOCIAL CHOICE EQUITY Seeks a favorable long-term rate of
FUND return that tracks the investment
performance of the U.S. stock
market while giving special
consideration to certain social
criteria.
THESE PORTFOLIOS ARE NOT AVAILABLE FOR PURCHASE DIRECTLY BY THE GENERAL PUBLIC,
AND ARE NOT THE SAME AS OTHER MUTUAL FUND PORTFOLIOS WITH VERY SIMILAR OR NEARLY
IDENTICAL NAMES THAT ARE SOLD DIRECTLY TO THE PUBLIC. However, the investment
objectives and policies of certain Portfolios available under the Policy are
very similar to the investment objectives and policies of other portfolios that
are or may be managed by the same investment adviser or manager. Nevertheless,
the investment performance of the Portfolios available under the Policy may be
lower or higher than the investment performance of these other (publicly
available) portfolios. THERE CAN BE NO ASSURANCE, AND WE MAKE NO REPRESENTATION,
THAT THE INVESTMENT PERFORMANCE OF ANY OF THE PORTFOLIOS AVAILABLE UNDER THE
POLICY WILL BE COMPARABLE TO THE INVESTMENT PERFORMANCE OF ANY OTHER PORTFOLIO,
EVEN IF THE OTHER PORTFOLIO HAS THE SAME INVESTMENT ADVISER OR MANAGER, THE SAME
INVESTMENT OBJECTIVES AND POLICIES, AND A VERY SIMILAR OR NEARLY IDENTICAL NAME.
PLEASE READ THE PROSPECTUS FOR THE TIAA-CREF LIFE FUNDS TO OBTAIN MORE COMPLETE
INFORMATION REGARDING THE PORTFOLIOS. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE.
15
THE POLICY
================================================================================
PURCHASING A POLICY
To purchase a Policy, you must submit a completed application to us at our
Administrative Office. The minimum Face Amount is $100,000 for a single life
Policy, and $250,000 for a last survivor Policy.
Generally, the Policy is available for Insureds between Issue Ages 0-80 for a
single life Policy and 30-80 for a last survivor Policy. We can provide you with
details as to our underwriting standards when you apply for a Policy. We reserve
the right to modify our underwriting requirements at any time. We must receive
evidence of insurability that satisfies our underwriting standards before we
will issue a Policy. We reserve the right to reject an application for any
reason permitted by law.
We will notify you when our underwriting process has been completed. The minimum
first premium may not be paid and insurance coverage will not take effect prior
to that time.
WHEN INSURANCE COVERAGE TAKES EFFECT
Insurance coverage under the Policy will take effect only if the proposed
Insured on a single life Policy or the proposed Insureds on a last survivor
Policy are alive and in the same condition of health as described in the
application when we deliver the Policy to you, and if the minimum first Premium
has been paid.
RIGHT TO CANCEL
You may cancel a Policy during the Right to Cancel Period by providing
Acceptable Notice of cancellation and returning the Policy to us. The Right to
Cancel Period begins when you receive the Policy and generally expires after a
period determined under state law. If you decide to cancel the Policy during the
Right to Cancel Period, we will treat the Policy as if we never issued it.
Within 7 days after we receive the returned Policy, we will refund an amount
equal to the sum of:
o The Policy Value as of the date we receive the returned Policy, plus
o Any Premium expense charges deducted from Premiums paid, plus
o Any Monthly Charges charged against the Policy Value, plus
o An amount reflecting other charges deducted under the Policy.
The Right to Cancel Period may be longer in some states and, where state law
requires, the refund will equal all payments you made.
OWNERSHIP RIGHTS
The Policy belongs to the Owner named in the application. While an Insured is
living, the Owner may exercise all of the rights and options described in the
Policy. On a single life Policy, the Owner is the Insured unless the application
specifies a different person as the Owner or the Owner is changed thereafter. On
a last survivor Policy, both Insureds own the Policy unless the application
specifies a different person as the Owner or the Owner is changed thereafter. If
the Owner is not an Insured and dies before the Insured on a single life Policy
or the Last Insured on a last survivor Policy, ownership of the Policy will pass
to the next named Owner then living, or if no Owner is living, to the Owner's
estate. To the extent permitted by law, Policy benefits are not subject to any
legal process for the payment of any claim against the payee, and no right or
benefit will be subject to claims of creditors (except as may be provided by
assignment).
The Owner may exercise certain rights described below.
16
- --------------------------------------------------------------------------------
SELECTING AND o You designate the Beneficiary (the person to receive
CHANGING THE the Death Benefit Proceeds when the Insured dies on a
BENEFICIARY single life Policy or the Last Insured dies on a last
survivor Policy) in the application.
o There are two Beneficiary classes -- primary and
contingent. You may designate more than one Beneficiary
in a class. If you designate more than one primary
Beneficiary, then each primary Beneficiary that
survives the Insured on a single life Policy or the
Last Insured on a last survivor Policy shares equally
in any Death Benefit Proceeds unless you instruct us
otherwise in an Acceptable Notice.
o If no primary beneficiaries survive the Insured on a
single life Policy or the Last Insured on a last
survivor Policy, then all those named as contingent
beneficiaries who are still living will receive an
equal portion of the Death Benefit Proceeds, unless you
instruct us otherwise in an Acceptable Notice.
o If there is not a designated Beneficiary surviving at
the death of the Insured on a single life Policy or the
Last Insured on a last survivor Policy, we will pay the
Death Benefit Proceeds in a lump sum to you, if living,
or to your estate.
o You may also designate a Beneficiary as revocable or
irrevocable. The consent of any irrevocable Beneficiary
is needed to exercise any policy rights except changing
the amount or timing of Premiums, reinstating the
Policy, changing Premium allocations, and transferring
among Investment Options.
o You can change a revocable Beneficiary by providing us
with Acceptable Notice while an Insured is living.
o The change is effective as of the date you complete an
Acceptable Notice, regardless of whether the Insured on
a single life Policy or the Last Insured on a last
survivor Policy is living when we receive the notice.
o We are not liable for any payment or other actions we
take based on existing beneficiary designations before
we receive your Acceptable Notice.
o A Beneficiary generally may not pledge, commute, or
otherwise encumber or alienate payments under the
Policy before they are due.
- --------------------------------------------------------------------------------
CHANGING o You may change the Owner by providing an Acceptable
THE OWNER Notice to us at any time while an Insured is alive. If
you change the Owner, your ownership rights terminate
and the new Owner will be entitled to all rights
available under the Policy.
o The change is effective as of the date you complete an
Acceptable Notice, regardless of whether the Insured on
a single life Policy or the Last Insured on a last
survivor Policy is living when we receive the request.
o We are not liable for any payment or other actions we
take before we receive your Acceptable Notice.
o Changing the Owner does not automatically change the
Beneficiary or the Insured(s).
o CHANGING THE OWNER MAY HAVE TAX CONSEQUENCES. SEE
GENERALLY "FEDERAL TAX CONSIDERATIONS - TAX TREATMENT
OF POLICY BENEFITS - OTHER TAX CONSIDERATIONS." YOU
SHOULD CONSULT A TAX ADVISER BEFORE CHANGING THE OWNER.
- --------------------------------------------------------------------------------
17
ASSIGNING THE o You may assign Policy rights while an Insured is alive
POLICY by submitting an Acceptable Notice to us. You retain
any ownership rights that are not assigned.
o An absolute assignment of the Policy will cause the
assignee to become the Owner. A collateral assignment
will not cause a change of ownership. However, your
interests and the interests of any Beneficiary or other
person will be subject to any collateral assignment.
o Assignments are subject to any outstanding policy loan.
o We are not:
=> bound by any assignment unless we receive an
Acceptable Notice of the assignment;
=> responsible for the validity of any assignment or
determining the extent of an assignee's interest;
or
=> liable for any payment we make before we receive
Acceptable Notice of the assignment.
o ASSIGNING THE POLICY MAY HAVE TAX CONSEQUENCES. YOU
SHOULD CONSULT A TAX ADVISER BEFORE ASSIGNING THE
POLICY.
- --------------------------------------------------------------------------------
PREMIUMS
================================================================================
MINIMUM FIRST PREMIUM. The minimum first Premium is due on or before the date
the Policy is delivered. No insurance will take effect until the minimum first
Premium is paid, and the health and other conditions of the Insured(s) described
in the application must not have changed.
PREMIUM FLEXIBILITY. When you apply for a Policy, you will elect to pay Premiums
on a monthly, quarterly, semiannual, annual, or single-sum basis (planned
Premiums). However, you do not have to pay Premiums according to any schedule.
You have flexibility to determine the frequency and the amount of the Premiums
you pay, and you can change the planned periodic Premium schedule at any time.
If you are submitting a Premium payment pursuant to a Premium reminder notice,
the address for payment will be enclosed with the notice. You may also send your
Premium payments to our Administrative Office. If you have an outstanding policy
loan, we will credit all payments you send to us as Premium payments unless you
provide Acceptable Notice for the payments to be applied as loan repayments. You
may also choose to have Premium payments automatically deducted periodically
from your bank account under the automatic payment plan. Payment of the planned
Premiums does not guarantee that the Policy will remain in force. See "Policy
Lapse and Reinstatement."
You may not pay any Premiums after the Policy's Final Policy Date. You may not
pay Premiums less than $25, and we reserve the right to limit total Premiums
allocated to the Fixed-Rate Account under a Policy to $500,000 a year. We have
the right to limit or refund all or part of your Premium payment if:
o The Premium would disqualify the Policy as a life insurance contract
under the Code;
o The Premium would cause the Policy to become a Modified Endowment
Contract under the Code; or
o The Premium would cause an immediate increase in the death benefit as
a result of Section 7702 of the Code (unless you provide us with
satisfactory evidence of insurability).
You can stop paying Premiums at any time and your Policy will continue in force
until the date when either: (1) the Insured on a single life Policy or the Last
Insured on a last survivor Policy dies; (2) the Grace Period ends without a
sufficient payment (see "Policy Lapse and Reinstatement"); or (3) we receive
your Acceptable Notice requesting a Surrender of the Policy.
18
PREMIUM LIMITATIONS. If the Guideline Premium Test is used to test if the Policy
qualifies as life insurance under the Code, total Premium payments must not
exceed certain stated limits. We have established procedures to monitor whether
aggregate Premiums paid under a Guideline Premium Test Policy exceed those
limits. If a Premium is paid which would result in total Premiums exceeding
these limits, we will accept only that portion of the Premium which would make
total Premiums equal the maximum amount which may be paid under the Policy. We
will not refund any Premium necessary to keep the Policy in force.
The maximum Premium limitations set forth in the Code depend in part upon the
amount of the death benefit at any time. As a result, any Policy changes that
affect the amount of the death benefit may affect whether cumulative Premiums
paid under the Policy exceed the maximum Premium limitations.
MODIFIED ENDOWMENT CONTRACTS ("MECS"). There are special federal income tax
rules for distributions from life insurance policies that are MECs. These rules
apply to policy loans, Surrenders, and partial withdrawals. These rules apply if
the Premiums we receive are greater than the "seven-pay limit" for your Policy
as determined under Section 7702A of the Code. The "seven-pay limit" means that,
during the first seven years of the policy, the sum of the actual premiums paid
may not exceed the sum of the "seven-pay premium." Generally, the "seven-pay
premium" is the level annual premium, such that if it were paid for each of the
first seven years, will fully pay for all future life insurance and endowment
benefits under a life insurance policy. For example, if the "seven-pay premiums"
were $1,000, the maximum premiums that could be paid during the first seven
years of a policy to avoid MEC status would be $1,000 in the first year, $2,000
through the first two years and $3,000 through the first three years, etc. Under
this test, a policy may or may not be a MEC, depending on the amount of premiums
paid during each of the policy's first seven years. A policy received in
exchange for a MEC will be taxed as a MEC even if it would otherwise satisfy the
7-pay test.
Prior to the Policy Date, if we find that your planned periodic Premium would
cause your policy to become a MEC, we will notify you and request further
instructions. We will then issue your Policy based on the planned periodic
Premium you have selected. If you do not want your Policy to become a MEC, you
may reduce your planned periodic Premium to a level that does not cause your
Policy to become a MEC. We will then issue your Policy based on the revised
planned periodic Premium. See "Federal Tax Considerations - Tax Treatment of
Policy Benefits - Modified Endowment Contracts."
After the Policy Date, if we discover that you have made a Premium payment that
would cause your policy to become a MEC, we will place the Premium amount in a
suspense account. We will not apply this amount to your Policy unless and until
you acknowledge that you know that the Policy will become a MEC and that you
nevertheless wish us to apply this amount to your Policy. Similarly, we will not
honor your instructions regarding withdrawals, changes in Death Benefit Options
or changes in Face Amounts if any such action would result in the Policy
becoming a MEC until you acknowledge that you know that the Policy will become a
MEC and that you nevertheless wish us to take such action. Additionally, if your
Policy has inadvertently become classified as a MEC, and assuming that you do
not want your Policy to be a MEC, we will attempt to enable your Policy to
continue to meet the seven-pay test for federal income tax purposes (and not be
a MEC) by refunding any excess Premium and related earnings to you. It is not
clear, however, if we can take effective action in all possible circumstances to
prevent a Policy that has exceeded the applicable Premium limitation from being
classified as a MEC.
TAX-FREE EXCHANGES (SECTION 1035 EXCHANGES). We may accept as part of your first
Premium, money from another life insurance contract that qualifies for a
tax-free exchange under Section 1035 of the Code, contingent upon receipt of the
cash from that contract. Contract exchanges may have tax consequences. See
"Federal Tax Considerations."
ALLOCATING PREMIUMS
When you apply for a Policy, you must instruct us on the application form to
allocate your Net Premium to one or more accounts offered under the Investment
Options according to the following rules:
19
o Allocation percentages must be in whole numbers and the sum of the
percentages must equal 100%.
o We will allocate the Net Premium as of the Business Day we receive it
at our Administrative Office according to your current Premium
allocation instructions.
o You can change the allocation instructions for additional Net Premiums
without charge by providing us with Acceptable Notice. Any change in
allocation instructions will be effective on the Business Day we
receive your request.
Investment returns from amounts allocated to the Investment Accounts will vary
with the investment performance of these Investment Accounts and will be reduced
by Policy charges. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE
TO THE INVESTMENT ACCOUNTS. You should periodically review your allocation
schedule in light of market conditions and your overall financial objectives.
Some states require us to refund all payments if you return your Policy during
the Right to Cancel Period. In those states, we will allocate Net Premiums
received at our Administrative Office during the Right to Cancel Period to the
Fixed-Rate Account. On the fifth day following the end of the Right to Cancel
Period, we will allocate that Policy Value among the Investment Accounts as
indicated in your current Premium allocation instructions. If the fifth day
following the end of the Right to Cancel Period is not a Business Day, we will
allocate Policy Value among the Investment Accounts using Unit values as of the
immediately preceding Business Day. We invest all Net Premiums paid thereafter
based on the allocation percentages then in effect. For the limited purpose of
allocating Policy Value on the fifth day following the end of the Right to
Cancel Period, we will assume that the Right to Cancel Period begins on the day
we send you your Policy.
POLICY VALUES
================================================================================
POLICY VALUE
The Policy Value serves as the starting point for calculating values under a
Policy.
POLICY o Equals the sum of all values in the Fixed-Rate Account,
VALUE: the Loan Account, and in each Investment Account;
o is determined first on the Policy Date and then on each
date thereafter; and
o has no guaranteed minimum amount and may be more or
less than Premiums paid.
CASH SURRENDER VALUE
The Cash Surrender Value is the amount we pay to you when you Surrender your
Policy. We determine the Cash Surrender Value as of the end of the Business Day
when we receive your Acceptable Request to Surrender.
CASH o the Policy Value as of such date; MINUS
SURRENDER VALUE
AT THE END o any Outstanding Loan Amount.
OF ANY DAY
EQUALS:
20
INVESTMENT ACCOUNT VALUE
On the Policy Date, the Investment Account value is equal to the Net Premiums
allocated to the Investment Accounts, less the portion of the first Monthly
Charge taken from the Investment Accounts.
At the end of any other day, the Investment Account value is equal to the number
of Units in the Investment Account attributable to the Policy multiplied by the
Unit value for that Investment Account.
THE NUMBER OF o the initial Units purchased at the Unit value on the
UNITS IN ANY Policy Date; PLUS
INVESTMENT
ACCOUNT AT THE o Units purchased with additional Net Premiums; PLUS
END OF ANY DAY
EQUALS: o Units purchased via transfers from another Investment
Account, the Fixed-Rate Account, or the Loan Account;
MINUS
o Units redeemed to pay for Monthly Charges; MINUS
o Units redeemed to pay for partial withdrawals; MINUS
o Units redeemed to pay transfer charges or any other
charges incurred in connection with the exercise of
rights under the contract; MINUS
o Units redeemed as part of a transfer to another
Investment Account, the Fixed-Rate Account, or the Loan
Account.
Every time you allocate or transfer money to or from an Investment Account, we
convert that dollar amount into Units. We determine the number of Units we
credit to, or subtract from, your Policy by dividing the dollar amount of the
transaction by the Unit value for that Investment Account at the end of the day.
UNIT VALUE
We determine a Unit value for each Investment Account to reflect how investment
performance affects the Policy Value. Unit values will vary among Investment
Accounts. The Unit value may increase or decrease from one Business Day to the
next.
THE UNIT VALUE OF o the Unit value of the Investment Account on the
ANY INVESTMENT immediately preceding Business Day; MULTIPLIED BY
ACCOUNT AT THE
END OF ANY o the net investment factor for that Investment Account
BUSINESS DAY on that Business Day.
EQUALS:
THE NET o measures the investment performance of an Investment
INVESTMENT Account from one Business Day to the next;
FACTOR:
o increases to reflect investment income and capital
gains (realized and unrealized) for the shares of the
underlying Portfolio; and
o decreases to reflect any capital losses (realized and
unrealized) for the shares of the underlying Portfolio,
as well as the mortality and expense risk charge, the
administrative expense charge, and the investment
advisory fee.
Unit values on any non-Business Day are determined using the Unit values as of
the most recent Business Day.
FIXED-RATE ACCOUNT VALUE
On the Policy Date, the Fixed-Rate Account value is equal to the Net Premiums
allocated to the Fixed-Rate Account, less the portion of the first Monthly
Charge taken from the Fixed-Rate Account.
21
THE FIXED-RATE o the Net Premium(s) allocated to the Fixed-Rate Account;
ACCOUNT VALUE AT plus
THE END OF ANY
DAY IS EQUAL TO: o any amounts transferred to the Fixed-Rate Account
(including amounts transferred from the Loan Account);
PLUS
o interest credited to the Fixed-Rate Account; MINUS
o amounts deducted to pay for Monthly Charges; MINUS
o amounts withdrawn from the Fixed-Rate Account; MINUS
o amounts used to pay transfer charges, charges to
execute rights under the policy Riders, and charges to
exercise the accelerated death benefit feature; MINUS
o amounts transferred from the Fixed-Rate Account to an
Investment Account or to the Loan Account.
CHARGES AND DEDUCTIONS
================================================================================
We make certain charges and deductions under the Policy. These charges and
deductions compensate us for: (1) services and benefits we provide; (2) costs
and expenses we incur; and (3) risks we assume.
SERVICES AND o the death benefit, cash, and loan benefits under the
BENEFITS WE Policy
PROVIDE:
o Investment Options, including Premium allocations
o administration of elective options
o the distribution of reports to Owners
COSTS AND o costs associated with processing and underwriting
EXPENSES WE applications, and with issuing and administering the
INCUR: Policy (including any Riders)
o overhead and other expenses for providing services and
benefits
o sales and marketing expenses
o other costs of doing business, such as collecting
Premiums, maintaining records, processing claims,
effecting transactions, and paying Federal, state, and
local income, premium, and other taxes and fees
RISKS WE ASSUME: o that the cost of insurance charges we may deduct are
insufficient to meet our actual claims because the
Insured(s) dies sooner than we estimate
o that the cost of providing the services and benefits
under the Policies exceed the charges we deduct
o that our investment returns in the general account will
be less than the interest rate credited in the
Fixed-Rate Account
22
PREMIUM EXPENSE CHARGE
Prior to allocation of Net Premium, we deduct a Premium expense charge from each
Premium to compensate us for certain taxes. We credit the remaining amount (the
Net Premium) to your Policy Value according to your allocation instructions.
The Premium expense charge currently equals 4% of each Premium payment. We may
increase this charge to a maximum of 6% of each Premium payment.
MONTHLY CHARGE
We deduct a Monthly Charge from the Policy Value on the Policy Date and on each
Monthly Charge Date prior to the Final Policy Date to compensate us for
underwriting, issue, and administrative expenses and for the Policy's insurance
coverage including rider benefits, if any. We will make deductions from each
Investment Option on a pro rata basis (i.e., in the same proportion that the
value in each Investment Option bears to the Cash Surrender Value prior to the
deduction). Because portions of the Monthly Charge can vary from month to month,
the Monthly Charge will also vary.
If the Policy Date is set prior to the Issue Date, a Monthly Charge will accrue
on the Policy Date and on each Monthly Charge Date until and including the Issue
Date. On the Issue Date, these accrued Monthly Charges will be deducted from the
Policy Value. We will then deduct a Monthly Charge from the Policy Value on each
Monthly Charge Date thereafter as described above.
The Monthly Charge has 4 components:
o the monthly policy unit charge
o the monthly policy fee
o the monthly cost of insurance charge
o charges for any riders (as specified in the applicable rider(s))
POLICY UNIT CHARGE. We assess a monthly policy unit charge to compensate us for
administrative and operating expenses that vary with the size of the policy. On
a single life Policy, we currently deduct this charge each month during the
first 15 Policy Years (and during the 15 years following an increase in Face
Amount) at the annual rate of $0.60 per $1,000 of Face Amount (or increase in
Face Amount). On a last survivor Policy, we currently deduct this charge each
month during the first 20 Policy Years (and during the 20 years following an
increase in Face Amount) at the annual rate of $0.96 per $1,000 of Face Amount
(or increase in Face Amount).
In no event will the annual rates imposed exceed the following amounts:
AMOUNT
ISSUE AGES POLICY YEARS (PER $1,000)
================================================================================
SINGLE LIFE POLICY 0-9 1-15 $0.84
16+ $0.24
-----------------------------------------------
10-29 1-15 $0.96
16+ $0.36
-----------------------------------------------
30-49 1-15 $1.08
16+ $0.48
-----------------------------------------------
23
50+ 1-15 $1.20
16+ $0.60
- --------------------------------------------------------------------------------
LAST SURVIVOR POLICY 30-39 1-20 $0.96
21+ $0.00
-----------------------------------------------
40-49 1-20 $1.20
21+ $0.24
-----------------------------------------------
50+ 1-20 $1.50
21+ $0.54
- --------------------------------------------------------------------------------
POLICY FEE. We assess a monthly policy fee that varies by Issue Age and Policy
Year to compensate us for administrative and operating expenses that do not vary
with the size of the policy. Currently, the following annualized policy fees
apply:
PER POLICY
ISSUE AGES POLICY YEARS FEE
================================================================================
SINGLE LIFE POLICY 0-24 1-4 $150
5+ $120
---------------------------------------------
25-29 1-3 $198
4+ $102
---------------------------------------------
30-49 1-2 $300
3+ $84
---------------------------------------------
50+ 1 $600
2+ $72
- --------------------------------------------------------------------------------
LAST SURVIVOR POLICY 30-34 1-3 $324
4+ $72
---------------------------------------------
35-49 1-2 $492
3+ $72
---------------------------------------------
50+ 1 $996
2+ $72
- --------------------------------------------------------------------------------
In no event will the policy fees imposed exceed the annualized rates provided
above.
COST OF INSURANCE. We assess a monthly cost of insurance charge to compensate us
for providing the death benefit. We may use part of the monthly cost of
insurance charge to recover sales and promotional expenses arising from the
issuance of the Policy. This expense recovery component is higher in early
Policy Years.
The charge depends on a number of variables (including Issue Age, Underwriting
Class, Policy Year, Policy Value, death benefit option, Face Amount, and in most
states, sex) that would cause it to vary from Policy to Policy and from Monthly
Charge Date to Monthly Charge Date.
24
COST OF The cost of insurance charge is equal to:
INSURANCE
CHARGE o the monthly cost of insurance rate; multiplied by
o the net amount at risk for your Policy on the Monthly
Charge Date.
The net amount at risk is equal to:
o the death benefit divided by an interest discount
factor on the Monthly Charge Date; minus
o the Policy Value on the Monthly Charge Date.
We calculate the monthly cost of insurance charge after the Monthly Charge for
the policy unit charge and policy fee. However, depending on the particular
rider attached to the Policy, the Monthly Charge for that rider may be
calculated either before or after the monthly cost of insurance charge. Any
rider attached to the Policy will specify the order in which we calculate the
Monthly Charge for that rider.
We calculate the cost of insurance charge separately for the Initial Face Amount
and for any increase in Face Amount. If we approve an increase in your Policy's
Face Amount, then a different Underwriting Class and a different cost of
insurance rate may apply to the increase, based on an Insured's circumstances at
the time of the increase.
Net Amount at Risk. We also calculate the net amount at risk separately for the
Initial Face Amount and for any increase in Face Amount. In determining each net
amount at risk, we allocate the Policy Value among the Initial Face Amount and
any increments of Face Amount in proportion to the total Face Amount. If the
death benefit is increased because of the requirements of Section 7702 of the
Code, we will allocate such increase among the Initial Face Amount and any
increments of Face Amount in proportion to the total Face Amount.
Cost of insurance rates. We base the cost of insurance rates on an Insured's
Underwriting Class, Issue Age, Face Amount, death benefit option, number of full
years insurance has been in force, and in most states, sex. The actual monthly
cost of insurance rates are based on our expectations as to future mortality and
expense experience. We reserve the right to change monthly cost of insurance
rates; however, these rates will never be greater than the guaranteed cost of
insurance rates stated in your Policy. These guaranteed rates are based on the
1980 Commissioners Standard Ordinary Mortality Table, Age Last Birthday, Smoker
or Nonsmoker, Male or Female. For Insureds with Attained Ages below 20, these
guaranteed rates are based on the 1980 Commissioners Standard Ordinary Mortality
Table, Aggregated Smoker, Male or Female. Separate scales of the guaranteed
maximum cost of insurance rates apply to substandard risk classifications or
policies with flat or temporary extra mortality charges. For Policies issued in
states which require "unisex" policies or in conjunction with employee benefit
plans, the maximum cost of insurance charge depends only on an Insured's
Attained Age, Underwriting Class, Policy Year and a blend of the 1980
Commissioners Standard Ordinary Mortality Tables for males and females. Any
change in the cost of insurance rates will be on a uniform basis for all
Insureds of the same sex, Underwriting Class, Issue Age, Face Amount, death
benefit option, and number of full years insurance has been in force.
Underwriting Class. The Underwriting Class of an Insured will affect the cost of
insurance rates, as will the incurrence of any flat or temporary extra mortality
charges. We currently place Insureds into one of the following classes:
preferred non-tobacco, select non-tobacco, or standard tobacco. Insureds can
also be placed into one of a number of substandard non-tobacco or substandard
tobacco classes. Substandard classes reflect higher mortality risks.
o In an otherwise identical Policy, an Insured in the preferred class
will have a lower cost of insurance rate than an Insured in a select
class, and an Insured in a select class will have a lower cost of
insurance rate than an Insured in a substandard class.
o Juveniles will be classified as standard tobacco until Attained Age
20. Shortly before an Insured attains age 20, we will notify the
Insured about reclassification and will send the Insured an
25
application for change in Underwriting Class. If the Insured does not
qualify as a preferred non-tobacco or select non-tobacco or does not
return the application, cost of insurance rates for standard tobacco
will be used. However, if the Insured returns the application and
qualifies as a preferred non-tobacco, the cost of insurance rates will
be changed to reflect the preferred non-tobacco classification. If the
Insured returns the application and qualifies as a select non-tobacco,
the cost of insurance rates will reflect the select non-tobacco
classification.
o Nonsmoking Insureds will generally incur lower cost of insurance rates
than Insureds who are classified as smokers in the same Underwriting
Class.
CHARGES FOR RIDERS. The Monthly Charge includes charges for any supplemental
insurance benefits you add to your Policy by rider. See "Other Policy
Information -- Riders."
CERTAIN DAILY CHARGES
We deduct daily charges from each Investment Account (but not the Fixed-Rate
Account) to compensate us for certain mortality and expense risks we assume, and
for certain administrative expenses we incur.
The mortality risk is the risk that an Insured will live for a shorter time than
we project. The expense risk is the risk that the expenses that we incur will
exceed the administrative charge limits we set in the Policy. Currently, the
mortality and expense risk charge is equal to the assets in each Investment
Account, multiplied by 0.0002740%, which is the daily portion of the annual
mortality and expense risk charge rate of 0.10% during all Policy Years.
The administrative expense charge is equal to the assets in each Investment
Account, multiplied by 0.0005479%, which is the daily portion of the annual
administrative expense charge of 0.20% during all Policy Years.
If these charges do not cover our actual costs, we absorb the loss. Conversely,
if the charges more than cover actual costs, the excess is added to our surplus.
We expect to profit from these charges and may use these profits for any lawful
purpose including covering distribution expenses.
TRANSFER CHARGE
We currently allow you to make 12 transfers among the various accounts available
under the Investment Options each Policy Year with no additional charge.
o We may deduct $25 for the 13th and each additional transfer made
during a Policy Year to compensate us for the cost of processing these
transfers.
o For purposes of assessing the transfer charge, we consider each
Acceptable Request to be one transfer, regardless of the number of
Investment Options affected by the transfer.
o We deduct the transfer charge from the target Investment Option.
o Transfers due to dollar cost averaging, loans, the exchange privilege,
change in Investment Account investment policy, or the initial
reallocation of account values from the Fixed-Rate Account do NOT
count as transfers for the purpose of assessing any transfer charge.
PORTFOLIO EXPENSES
The value of the net assets of each Investment Account reflects the management
fees and other expenses incurred by the corresponding Portfolio in which the
Investment Account invests. For further information,
26
consult the Portfolios' prospectuses and the Annual Portfolio Operating Expenses
table included in the summary of this prospectus.
DEATH BENEFIT
================================================================================
DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the Death Benefit Proceeds to the
Beneficiary once we receive satisfactory proof of the death of the Insured on a
single life Policy or both Insureds on a last survivor Policy. We may require
you to return the Policy. We will pay the Death Benefit Proceeds in a lump sum
or under another payment method. If all beneficiaries die before the Insured on
a single life Policy and the Last Insured on a last survivor Policy, we will pay
the Death Benefit Proceeds in a lump sum to you or your estate. See "Death
Benefit -- Payment Methods" and "Other Policy Information -- Payment of Policy
Benefits."
Death Benefit Proceeds from a Single Life Term Rider on a last survivor Policy
are paid once we receive satisfactory proof of the death of the Insured covered
under the rider. Death Benefit Proceeds are calculated as of the end of the date
of the death of the last surviving Insured.
DEATH BENEFIT o the death benefit (described below); PLUS
PROCEEDS EQUAL:
o any additional insurance provided by rider; MINUS
o any unpaid Monthly Charges; MINUS
o any Outstanding Loan Amounts.
If all or part of the Death Benefit Proceeds are paid in one sum, we will pay
interest on this sum from the date of death to the date of payment as required
by applicable state law.
We may further adjust the amount of the Death Benefit Proceeds under certain
circumstances. See "Other Policy Information -- Our Right to Contest the
Policy," and "Other Policy Information -- Misstatement of Age or Sex."
DEATH BENEFIT OPTIONS
The Policy provides two death benefit options: Option 1 and Option 2. Option 1
provides a level death benefit, while Option 2 provides an increasing death
benefit. We calculate the amount available under each death benefit option as of
the date of the death of the Insured on a single life Policy or the Last Insured
on a last survivor Policy. Under either option, the length of the death benefit
coverage depends upon the Policy's Cash Surrender Value. See "Policy Lapse and
Reinstatement."
The Death Benefit o the Face Amount; AND
under OPTION 1 is
the greater of: o the minimum death benefit required under the tax test
you select (described below)
The Death Benefit o the Face Amount PLUS the Policy Value (determined on
under OPTION 2 is the date of the death of the Insured on a single life
the greater of: Policy or the Last Insured on a last survivor Policy);
AND
o the minimum death benefit required under the tax test
you select (described below).
27
WHICH DEATH BENEFIT OPTION TO CHOOSE. If you prefer to have Premium payments and
favorable investment performance reflected partly in the form of an increasing
death benefit, you should choose Option 2. If you are satisfied with the amount
of the existing insurance coverage and prefer to have Premium payments and
favorable investment performance reflected in a reduced cost of insurance charge
and a corresponding maximization of policy value over time, you should choose
Option 1.
The amount of the death benefit may vary with the Policy Value.
o Under Option 1, the death benefit will vary with the Policy Value
whenever the minimum death benefit required under the tax test you
choose is greater than the Face Amount.
o Under Option 2, the death benefit will always vary with the Policy
Value.
CHOICE OF TAX TEST. The Code requires that the Policy's death benefit not be
less than certain amounts defined in the Code. In most states, when you apply
for your Policy the Guideline Premium Test will be used as the tax law test
applicable to your Policy unless you specifically elect the Cash Value
Accumulation Test. ONCE THE POLICY IS ISSUED, YOU MAY NOT CHANGE THE TAX LAW
TEST. YOU SHOULD CONSULT A TAX ADVISER AS TO THE SELECTION OF THE TAX LAW TEST
BEFORE APPLYING FOR THE POLICY.
o Under the Guideline Premium Test, the death benefit will not be less
than the Policy Value times the corridor factor set by the Code and
shown in the Table of Death Benefit Factors in your Policy. The
corridor factors vary by and are shown based on the age of the Insured
(or, in the case of a last survivor Policy, the age of the younger
Insured) at the start of the Policy Year, as follows.
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------ ----------
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
For Attained Ages not shown, the percentages will decrease pro rata each year.
o Under the Cash Value Accumulation Test, the death benefit will not be
less than 1,000 times the Policy Value divided by the net single
Premium factor per $1,000 of death benefit shown in the Table of Net
Single Premiums in your Policy. The Net Single Premium will vary based
on each Insured's sex (in most cases), Underwriting Class, and age at
issue, Policy Year and applicable flat or temporary extra mortality
charges, if any. Net single Premium factors may also be affected by
riders.
In general, the Cash Value Accumulation Test allows the Owner to maximize his or
her Policy Value during the earlier Policy Years because more premiums may be
paid into the Policy under that test than under the Guideline Premium Test. The
Guideline Premium Test allows the Owner to obtain a specified amount of
insurance coverage at the most economic cost because the Owner can maintain a
higher cash value in relation to the death benefit options and, thereby, reduce
the net amount at risk under the Policy.
CHANGING DEATH BENEFIT OPTIONS
After the first Policy Year, you may change death benefit options with no
additional charge while the Policy is in force. Changing the death benefit
option may affect the net amount at risk over time (which would affect the
monthly cost of insurance charge). However, we will not permit any change that
would result in your Policy being disqualified as a life insurance contract
under Section 7702 of the Code. This may occur, for example, if you seek to
change the death benefit option of an outstanding Policy that qualifies as life
insurance under the Guideline Premium Test and which has a high Policy Value
based on investment
28
experience, but which may not satisfy the Guideline Premium Test if the change
in death benefit option requires us to re-test the Policy's eligibility under
Section 7702 as of the effective date of the requested change in death benefit
option. In that event, we will not permit the change in death benefit option,
unless the Owner withdraws the requisite amount to stay within the applicable
limits. We also will not permit any change that would make your Policy a
Modified Endowment Contract under the Code without specific instructions to that
effect, provided to us in an Acceptable Notice. A CHANGE OF DEATH BENEFIT OPTION
MAY HAVE TAX CONSEQUENCES. YOU SHOULD CONSULT A TAX ADVISER BEFORE CHANGING
DEATH BENEFIT OPTIONS.
o You must submit an Acceptable Request for any change in death benefit
options.
o The effective date of the change in death benefit option will be the
Monthly Charge Date on or following the date when we approve your
request for a change.
o Under a single life Policy, we will not permit a change in death
benefit option if Monthly Charges are then being waived under any
Waiver of Monthly Charges Rider attached to the Policy.
If you change from OPTION 1 TO OPTION 2:
o For a single life policy, the Insured must be alive, and for a last
survivor Policy, both Insureds must be alive.
o Where permitted by law, we may require satisfactory evidence of
insurability for this change.
o We will decrease the Face Amount (beginning with the most recent
increase, then the next most recent increases in succession, and then
the Initial Face Amount) on the effective date of the change by the
Policy Value.
o The death benefit will remain approximately the same on the effective
date of the change.
o The net amount at risk will generally remain level. This means there
may be a relative increase in the cost of insurance charges over time
because the net amount at risk will remain level rather than decrease
as the Policy Value increases (unless the death benefit is based on
the applicable percentage of Policy Value).
o If the Face Amount would be reduced to less than the minimum Face
Amount in which the Policy could be issued, then we will not allow the
change in death benefit option.
o If, before the change, the Face Amount is less than the minimum death
benefit required by Code Section 7702, then we will not allow the
change in death benefit option.
If you change from OPTION 2 TO OPTION 1:
o For a single life policy, the Insured must be alive, and for a last
survivor Policy, at least one of the Insureds must be alive.
o We do not require evidence of insurability for this change.
o The Face Amount will be increased on the effective date of the change
by the Policy Value.
o The death benefit will remain approximately the same on the effective
date of the change.
29
o Unless the death benefit is based on the minimum death benefit
required by Code Section 7702, if the Policy Value increases, the net
amount at risk will decrease, thereby reducing the cost of insurance
charge. Similarly, if the Policy Value decreases, the net amount at
risk will increase, thereby raising the cost of insurance charge.
CHANGING THE FACE AMOUNT
You select the Face Amount when you apply for the Policy. After the first Policy
Year and while the Policy is in force, you may change the Face Amount subject to
the conditions described below. We will not permit any change that would result
in your Policy being disqualified as a life insurance contract under Section
7702 of the Code. CHANGING THE FACE AMOUNT MAY HAVE TAX CONSEQUENCES. YOU SHOULD
CONSULT A TAX ADVISER BEFORE DOING SO.
INCREASING THE FACE AMOUNT
o You may increase the Face Amount by submitting an application and
providing evidence of insurability satisfactory to us at our
Administrative Office.
o The minimum increase is $10,000.
o On the effective date of an increase, and taking the increase into
account, the Cash Surrender Value must be equal to the Monthly Charges
then due.
o An increase will be effective on the Monthly Charge Date on or next
following the date we approve the change, provided that an Insured is
living on that date.
o Under a single life Policy, we will not permit an increase in Face
Amount if Monthly Charges are then being waived under any Waiver of
Monthly Charges Rider attached to the Policy.
o You may not increase the Face Amount on or after the Insured's
Attained Age 81 for a single life Policy or the older Insured's
Attained Age 81 for a last survivor Policy. The Insured (or, in a last
survivor policy, both Insureds) must be alive on the date we receive
your request in order to increase the Face Amount.
o The total net amount at risk will be affected, which will increase the
monthly cost of insurance charges.
o Each increase in Face Amount will have its own Underwriting Class,
cost of insurance rates and policy unit charges.
o We reserve the right to limit increases in the Face Amount to one
increase in any 12-month period.
DECREASING THE FACE AMOUNT
o You must submit an Acceptable Request to decrease the Face Amount, but
you may not decrease the Face Amount below the minimum Face Amount.
o The Insured (or, in a last survivor policy, at least one Insured) must
be alive on the date we receive your request in order to decrease the
Face Amount.
o The minimum decrease is $10,000.
o Any decrease will be effective on the Monthly Charge Date on or next
following the date we approve your request.
30
o To apply the decrease, we'll first reduce any increases in the Face
Amount you've asked for, starting with the most recent. Then we'll
reduce the Initial Face Amount.
o A decrease in Face Amount generally will decrease the net amount at
risk, which will decrease the cost of insurance charges. For purposes
of determining the cost of insurance charge, any decrease will first
be used to reduce the most recent increase, then the next most recent
increases in succession, and then the Initial Face Amount.
o We will not allow a decrease in Face Amount if, after the decrease,
the death benefit would be less than the minimum death benefit
required by Code Section 7702.
o If a decrease in Face Amount would cause your Policy to be classified
as a Modified Endowment Contract, we will not process the decrease
until you complete an Acceptable Notice with specific instructions to
that effect.
PAYMENT METHODS
There are several ways of receiving proceeds under the death benefit and
Surrender provisions of the Policy, other than in a lump sum. None of these
options vary with the investment performance of a Separate Account. More
detailed information concerning these payment methods is available on request
from our Administrative Office. See "Other Policy Information -- Payment of
Policy Benefits."
ACCELERATED DEATH BENEFIT
In states where the benefit is available, you may receive an accelerated payment
of part or all of the Policy's death benefit when the Insured (or, in a last
survivor policy, the last remaining Insured) develops a terminal illness, which
is expected to result in his or her death within 12 months. See "Other Policy
Information - Accelerated Death Benefit."
SURRENDERS AND PARTIAL WITHDRAWALS
================================================================================
SURRENDERS
You may request to Surrender your Policy for its Cash Surrender Value as
calculated at the end of the Business Day when we receive your request, subject
to the following conditions:
o An Insured must be alive and the Policy must be in force when you make
your request. We may require that you return the Policy.
o The Surrender will take effect and the Policy will terminate on the
date we receive your request.
o Once you Surrender your Policy, all coverage and other benefits under
it cease and cannot be reinstated.
o We generally will pay the Cash Surrender Value to you in a lump sum
within 7 days after we receive your Acceptable Request unless you
request other arrangements.
o A SURRENDER MAY HAVE TAX CONSEQUENCES. YOU SHOULD CONSULT A TAX
ADVISER BEFORE SURRENDERING THE POLICY. SEE "FEDERAL TAX
CONSIDERATIONS."
31
PARTIAL WITHDRAWALS
After the first Policy Year, you may make a request to withdraw part of the Cash
Surrender Value subject to the following conditions:
o You must request at least $1,000, or the entire value in a specified
account, if less.
o An Insured must be alive and the Policy must be in force when you make
your request.
o You can specify the account from which to make the partial withdrawal.
Otherwise, we will deduct the amount from the accounts available under
the Investment Options in proportion to the Policy Value attributable
to each account before the partial withdrawal.
o We reserve the right to restrict you to one withdrawal from any one
account within a 90-day period.
o If Death Benefit Option 1 is in effect, we will reduce the Face Amount
by the amount of the partial withdrawal. Any decrease in Face Amount
due to a partial withdrawal will reduce the Initial Face Amount and
any increases in Face Amount you've asked for in proportion to your
Face Amount before the partial withdrawal. If a partial withdrawal
would cause the Face Amount to be less than the minimum Face Amount,
you may either reduce the amount of the partial withdrawal or
Surrender the Policy for its Cash Surrender Value. A partial cash
withdrawal will not reduce the Face Amount if Death Benefit Option 2
is in effect.
o We will process the partial withdrawal at the Unit values next
determined after we receive your request.
o We generally will pay a partial withdrawal request within 7 days after
the Business Day when we receive the request.
o A partial withdrawal can affect the Face Amount, death benefit, and
net amount at risk (which is used to calculate the cost of insurance
charge (see "Charges and Deductions -- Monthly Charge")).
o If a partial withdrawal would cause the Policy to fail to qualify as
life insurance under the Code, you may either reduce the amount of the
withdrawal or Surrender the Policy.
o If a partial withdrawal would cause your Policy to be classified as a
Modified Endowment Contract under the Code, we will not process the
partial withdrawal until you complete an Acceptable Notice with
specific instructions to that effect.
o PARTIAL WITHDRAWALS MAY HAVE TAX CONSEQUENCES. YOU SHOULD CONSULT A
TAX ADVISER BEFORE MAKING A PARTIAL WITHDRAWAL UNDER THE POLICY. SEE
"FEDERAL TAX CONSIDERATIONS."
TRANSFERS
================================================================================
You may make transfers between and among the Investment Options. We determine
the amount you have available for transfers at the end of the Business Day when
we receive your Acceptable Request. The following features apply to transfers
under the Policy:
o You must transfer at least $250, or the total value in the Investment
Account or Fixed-Rate Account you are transferring from, if less.
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o We reserve the right to deduct a $25 charge for the 13th and each
additional transfer in a Policy Year. We will deduct any transfer
charge from the balance of the account to which the amount is
transferred. Transfers due to dollar cost averaging, loans, the
exchange privilege, change in Investment Account investment policy, or
the initial reallocation of account values from the Fixed-Rate Account
do NOT count as transfers for the purpose of assessing the transfer
charge. See "Transfers -- Dollar Cost Averaging" and "Other Policy
Information -- Additional Transfer Rights."
o We consider each request to be a single transfer, regardless of the
number of Investment Option accounts involved. If the transfer targets
more than one Investment Option, we'll deduct any transfer charge from
all the target options in proportion to the amount transferred into
each option.
o We process transfers based on Unit values determined at the end of the
Business Day when we receive your transfer request. We will process
any transfer request we receive after the end of a business day based
on the Unit value determined at the end of the next Business Day.
o If you don't have enough Policy Value in an account to cover a
transfer, we'll transfer the remaining amount in that account into the
account you are transferring to. If you are transferring to more than
one account, we will transfer the remaining amount in the account into
the accounts you are transferring to in proportion to your transfer
instructions.
o We reserve the right to restrict you to one transfer from any one
account within a 90-day period.
DOLLAR COST AVERAGING
You may elect to participate in a dollar cost averaging program by providing us
with Acceptable Notice. Dollar cost averaging is an investment strategy designed
to reduce the investment risks associated with market fluctuations. The strategy
spreads the allocation of your Premium into the Investment Accounts over a
period of time by systematically and automatically transferring, on a periodic
basis, specified dollar amounts from the Fixed-Rate Account to any Investment
Account(s). This allows you to potentially reduce the risk of investing most of
your Premium into the Investment Accounts at a time when prices are high. We do
not assure the success of this strategy, and success depends on market trends.
We cannot guarantee that dollar cost averaging will result in a profit or
protect against loss. You should carefully consider your financial ability to
continue the program over a long enough period of time to purchase Units when
their value is low as well as when it is high.
You choose whether transfers will be made on a monthly or a quarterly basis. If
you don't select a timing basis, we will make monthly transfers. Equal amounts
(minimum $100) are automatically transferred from the Fixed-Rate Account to your
designated "target accounts" in the percentages selected. You may have multiple
target accounts.
In most states, the first transfer will take place on the first Monthly Charge
Date after our receipt of your Acceptable Request. In states which require us to
refund payments made during the Right to Cancel period, the first transfer will
be made on the first Monthly Charge Date after the later of: (a) the end of the
Right to Cancel Period, or (b) our receipt of your request to start the program.
When the Monthly Charge Date falls on a day that is not a Business Day, we will
allocate Policy Value among the Investment Accounts using Unit values as of the
immediately preceding Business Day.
You also decide how many scheduled transfers to make, although we require a
minimum of 6 transfers for this program. If you don't choose a number, transfers
will be made until there is no Policy Value remaining in the Fixed-Rate Account.
We won't charge you for any transfers made under this program.
We reserve the right to only allow you to start one dollar cost averaging
program in any Policy Year.
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DOLLAR COST o we receive your Acceptable Request to cancel your
AVERAGING WILL participation;
END IF:
o the value in the Fixed-Rate Account is insufficient to make
the transfer; or
o the specified number of transfers has been completed.
You will receive notice of transfers made under the dollar cost averaging
program in your quarterly statement. You are responsible for reviewing the
quarterly statement to verify that the transfers are being made as requested.
There is no additional charge for dollar cost averaging. A transfer under this
program is not considered a transfer for purposes of assessing any transfer fee.
We may modify, suspend, or discontinue the dollar cost averaging program at any
time.
LOANS
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While the Policy is in force, you may submit an Acceptable Request to borrow
money from us using the Policy as the only collateral for the loan. You may
increase your risk of Lapse if you take a loan. A LOAN THAT IS TAKEN FROM, OR
SECURED BY, A POLICY MAY HAVE TAX CONSEQUENCES. YOU SHOULD CONSULT A TAX ADVISER
BEFORE TAKING A LOAN UNDER THE POLICY OR SECURED BY THE POLICY. SEE "FEDERAL TAX
CONSIDERATIONS."
LOAN CONDITIONS:
o The MINIMUM LOAN you may take is $1,000.
o The MAXIMUM LOAN you may take is 90% of the Cash Surrender Value on
the date of the loan.
o The loan will take effect on the Business Day we receive your request.
o Loans may not be taken in the Right to Cancel Period.
o To secure the loan, we transfer an amount equal to the loan to the
Loan Account as collateral. You may request that we transfer this
amount from specific Investment Option accounts. If you do not specify
any particular accounts, we will transfer the loan on a pro rata basis
from all of your accounts with a positive value. Such amount will
remain in the Loan Account until you repay the policy loan.
o We charge you interest on your loan ("charged interest rate") at a
maximum annual interest rate of the greater of 4% or the published
monthly average of corporate bond yields for the calendar month ending
2 months before the month in which a Policy Year begins. We set the
charged interest rate as of the beginning of the Policy Year. That
rate will then apply for the entire Policy Year.
o Charged interest is due and payable on the earlier of the Policy
Anniversary or when the Cash Surrender Value is insufficient to pay
the Monthly Charge. At that time, any unpaid interest becomes part of
the outstanding loan and accrues interest at the then current rate. On
each Policy Anniversary, we will also transfer on a pro rata basis an
amount equal to the unpaid interest to the Loan Account so that the
Loan Account will be equal to the Outstanding Loan Amounts as of the
date on which charged interest is due and payable.
o We credit interest on amounts in the Loan Account ("earned interest
rate") for the first 15 Policy Years at a minimum annual interest rate
of 2% less than the charged interest rate then in effect, and
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thereafter, at a minimum annual interest rate of 0.5% less than the
charged interest rate then in effect. The earned interest rate will
never be less than 3%.
o We transfer earned loan interest to or from the Investment Option
accounts and recalculate collateral: (a) when loan interest is paid;
(b) when a new loan is made; (c) when a loan repayment is made; (d) on
each Policy Anniversary; and (e) when the Cash Surrender Value is
insufficient to pay the Monthly Charge. A transfer to or from the Loan
Account will be made to reflect any recalculation of collateral.
o You may repay all or part of your Outstanding Loan Amounts at any time
while an Insured is alive and the Policy is in force. The minimum
policy loan repayment is $100, or the total Outstanding Loan Amounts,
if less. Upon each loan repayment, we will transfer from the Loan
Account an amount equal to your loan repayment. We will allocate such
amount to the Investment Option accounts in accordance with your
instructions, as contained in an Acceptable Notice. If we do not
receive specific instructions with respect to a loan repayment, we
will allocate such amount in accordance with your current Premium
allocation instructions.
o While your loan is outstanding, we will credit all payments you send
to us as Premium payments unless you provide Acceptable Notice for the
payments to be applied as loan repayments.
o We deduct any Outstanding Loan Amounts from the Policy Value upon
Surrender, and from the Death Benefit Proceeds payable on the death of
the Insured on a single life Policy or the Last Insured on a last
survivor Policy.
o If your Outstanding Loan Amounts cause the Cash Surrender Value on a
Monthly Charge Date to be less than the Monthly Charge due, your
Policy will enter a Grace Period. See "Policy Lapse and
Reinstatement."
o We normally pay the amount of the loan within 7 days after we receive
a proper loan request. We may postpone payment of loans under certain
conditions. See "Other Policy Information -- Payments We Make."
EFFECT OF POLICY LOANS
A loan, whether or not repaid, affects the Policy, the Policy Value, the Cash
Surrender Value, and the death benefit. The Death Benefit Proceeds and Cash
Surrender Value include reductions for the amount of any Outstanding Loan
Amounts. As long as a loan is outstanding, we hold an amount as collateral for
the loan in the Loan Account. This amount is not affected by the investment
performance of the Investment Accounts and may not be credited with the interest
rates accruing on the Fixed-Rate Account. Amounts transferred from the
Investment Accounts to the Loan Account will affect the Policy Value, even if
the loan is repaid, because we credit these amounts with an interest rate we
declare rather than with a rate of return that reflects the investment
performance of the Investment Accounts. Accordingly, the effect of a loan could
be favorable or unfavorable, depending on whether the investment performance of
the Investment Accounts and the interest credited to the Fixed-Rate Account are
less than or greater than the interest being credited on the Loan Account while
the loan is outstanding. The longer a loan is outstanding, the greater the
effect of a policy loan is likely to be.
There are risks involved in taking a loan, including the potential for a Policy
to Lapse if projected earnings, taking into account outstanding loans, are not
achieved. In addition, if a loan is taken from a Policy that is part of a plan
subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), the
loan will be treated as a "prohibited transaction" subject to certain penalties
unless additional ERISA requirements are satisfied. THE OWNER OF SUCH A POLICY
SHOULD SEEK COMPETENT ADVICE BEFORE REQUESTING A POLICY LOAN. THE LAPSE OF A
POLICY WITH LOANS OUTSTANDING MAY HAVE TAX CONSEQUENCES. SEE "FEDERAL TAX
CONSIDERATIONS."
35
POLICY LAPSE AND REINSTATEMENT
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LAPSE
Your Policy may enter a Grace Period and possibly Lapse when the Cash Surrender
Value is not enough to pay the Monthly Charge. If your Policy Lapses, all
coverage under the Policy will terminate and you will receive no benefits.
Your Policy will NOT Lapse if you make a payment before the end of the Grace
Period that is sufficient to make your Cash Surrender Value positive.
If your Policy enters a Grace Period, we will mail you a Premium reminder notice
at least 15 days prior to Lapse that indicates the necessary payment amount and
final payment date to prevent Lapse. If the Insured on a single life Policy or
the Last Insured on a last survivor Policy dies during the Grace Period, we will
pay the Death Benefit Proceeds.
REINSTATEMENT
Unless you have Surrendered your Policy, you may reinstate a Lapsed Policy at
any time while the Insured on a single life Policy or both insureds on a last
survivor Policy are alive and within 3 years (5 years in Missouri and North
Carolina) after the end of the Grace Period (and prior to the Final Policy Date)
by submitting all of the following items to us at our Administrative Office:
o An Acceptable Notice requesting reinstatement;
o Evidence of insurability we deem satisfactory;
o Payment or reinstatement of any Outstanding Loan Amounts as of the
date of Lapse; and
o Payment of an amount that is sufficient to make your Cash Surrender
Value positive, with any unpaid Monthly Charges on the date of Lapse
in states other than Pennsylvania accruing interest at an annual
effective rate of 6% from the date of Lapse to the date of
reinstatement.
The effective date of reinstatement is the later of the date the application for
reinstatement is approved by us or the date we receive the required payment for
reinstatement. The reinstated Policy will have the same Policy Date as it had
prior to the Lapse. The Policy Value on the date of reinstatement will equal the
amounts paid at reinstatement and then decreased by any Outstanding Loan Amount
repayment, any unpaid Monthly Charges with interest, and any Premium expense
charge.
FEDERAL TAX CONSIDERATIONS
================================================================================
INTRODUCTION. The following summary provides a general description of the
Federal income tax considerations associated with the Policy and does not
purport to be complete or to cover all tax situations. This discussion is not
intended as tax advice. Counsel or other competent tax advisers should be
consulted for more complete information. This discussion is based upon our
understanding of the present Federal income tax laws. No representation is made
as to the likelihood of continuation of the present Federal income tax laws or
as to how they may be interpreted by the Internal Revenue Service ("IRS").
TAX STATUS OF THE POLICY. In order to qualify as a life insurance contract for
Federal income tax purposes and to receive the tax treatment normally accorded
life insurance contracts under Federal tax law, a Policy must
36
satisfy certain requirements which are set forth in the Internal Revenue Code.
Although guidance as to how these requirements are to be applied is limited, we
believe that the Policy should satisfy the applicable requirements. There is
less guidance, however, with respect to Policies issued on a substandard basis
(i.e., an Underwriting Class involving higher than standard mortality risk) and
Policies insuring two lives, and there is more uncertainty as to those
contracts. If it is subsequently determined that a Policy does not satisfy the
applicable requirements, we may take appropriate steps to bring the Policy into
compliance with such requirements and we reserve the right to restrict Policy
transactions in order to do so.
In certain circumstances, owners of variable life insurance contracts have been
considered for Federal income tax purposes to be the owners of the assets of the
variable account supporting their contracts due to their ability to exercise
investment control over those assets. Where this is the case, the contract
owners have been currently taxed on income and gains attributable to the
variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of an Owner to allocate
Premiums and cash values, have not been explicitly addressed in published IRS
rulings. While we believe that the Policies do not give Owners investment
control over Separate Account assets, we reserve the right to modify the
Policies or to limit the number of variable options available under the Policy
in order to seek to prevent an Owner from being treated as the Owner of a pro
rata share of the assets in the Separate Account.
In addition, the Code requires that the investments of the Separate Account be
"adequately diversified" in order for the Policies to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Separate Account, through the underlying Funds, will satisfy these
diversification requirements.
CHANGES TO COMPLY WITH THE LAW. So that your Policy continues to qualify as life
insurance under the Code or to avoid having the Policy become a MEC, we reserve
the right to limit or refund all or part of your Premium payments. We may refuse
to allow you to make partial withdrawals that would cause your Policy to fail to
qualify as life insurance under the Code. We also may:
o make changes to your Policy or its riders; or
o make distributions from your Policy to the degree that we deem
necessary to qualify your Policy as life insurance for tax purposes.
If we make any changes of this type, we will make similar changes to all
affected policies.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that Death Benefit Proceeds under a Policy are excludable
from the gross income of the Beneficiary for federal income tax purposes.
Federal, state and local transfer, and other tax consequences of ownership or
receipt of Policy proceeds depend on the circumstances of each Owner or
Beneficiary. A tax adviser should be consulted as to these consequences.
Generally, the Owner will not be deemed to be in constructive receipt of the
Policy Value until there is a distribution. (The tax consequences associated
with keeping a Policy in force after the Insured on a single life Policy or the
younger Insured on a last survivor Policy reaches Attained Age 100 are unclear.
A tax adviser should be consulted about such consequences.) When distributions
from a Policy occur, or when loans are taken out from or secured by a Policy,
the tax consequences depend on whether the Policy is classified as a MEC.
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain life
insurance contracts are classified as MECs with less favorable tax treatment
than other life insurance contracts. Due to the flexibility of the Policies as
to Premiums and benefits, the individual circumstances of each Policy will
determine whether it is classified as a MEC. The Policy will be a MEC if the
premiums we receive are
37
greater than the "seven-pay limit" as determined under Section 7702A of the
Code. The "seven-pay limit" means that, during the first seven years of the
policy, the sum of the actual premiums paid may not exceed the sum of the
"seven-pay premium." Generally, the "seven-pay premium" is the level annual
premium, such that if it were paid for each of the first seven years, will fully
pay for all future life insurance and endowment benefits under a life insurance
policy. For example, if the "seven-pay premiums" were $1,000, the maximum
premiums that could be paid during the first seven years of a policy to avoid
MEC status would be $1,000 in the first year, $2,000 through the first two years
and $3,000 through the first three years, etc. Under this test, a policy may or
may not be a MEC, depending on the amount of premiums paid during each of the
policy's first seven years.
Certain changes in a Policy after it is issued could also cause it to be
classified as a MEC. For example, a reduction in benefits during the first seven
contract years for a Policy issued on a single life, or at any time for a Policy
issued on two or more lives, may cause the Policy to be classified as a MEC. A
Policy that is acquired in exchange for a life insurance contract classified as
a MEC prior to the exchange will be classified as a MEC. A Policy that is
acquired in exchange for a life insurance contract not classified as a MEC prior
to the exchange will generally not be classified as a MEC if no Premiums are
paid under the Policy during the first seven Policy Years after the exchange. A
current or prospective Owner should consult with a competent adviser to
determine whether a Policy transaction will cause the Policy to be classified as
a MEC.
If a Policy becomes a MEC, all distributions during the contract year in which
the policy becomes a MEC will be taxed as distributions from a MEC. In addition,
distributions from a Policy within two years before it becomes a MEC will be
taxed in this manner. This means that a distribution made from a Policy that is
not a MEC could later become taxable as a distribution from a MEC.
MULTIPLE POLICIES. All MECs that are issued (or that subsequently become a MEC)
by us or our affiliates to the same Owner during any calendar year are treated
as one MEC for purposes of determining the amount includible in the Owner's
income when a taxable distribution occurs.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS.
Policies classified as MECs are subject to the following tax rules:
o All distributions other than death benefits, including distributions
upon full or partial Surrenders and withdrawals, from a MEC will be
treated first as distributions of gain taxable as ordinary income and
as tax-free recovery of the Owner's investment in the Policy only
after all gain has been distributed.
o Loans taken from or secured by a Policy classified as a MEC are
treated as distributions and taxed accordingly, as described above.
o A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Owner has
Attained Age 59 1/2 or is disabled, or where the distribution is part
of a series of substantially equal periodic payments for the life (or
life expectancy) of the Owner or the joint lives (or joint life
expectancies) of the Owner and the Owner's Beneficiary or designated
Beneficiary. YOU SHOULD CONSULT A TAX ADVISER TO DETERMINE IF YOU MAY
BE SUBJECT TO THE 10% PENALTY TAX ON ANY DISTRIBUTION OR LOAN THAT YOU
RECEIVE UNDER THE POLICY.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS. Distributions other than death benefits from a Policy that
is not classified as a MEC are generally treated first as a recovery of the
Owner's investment in the Policy and, only after the recovery of all investment
in the Policy, as taxable income. However, certain distributions that must be
made in order to enable the Policy to continue to qualify as a life insurance
contract for Federal income tax purposes if Policy benefits are reduced during
the first 15 Policy Years may be treated in whole or in part as ordinary income
subject to tax.
Loans from or secured by a Policy that is not a MEC are generally not treated as
distributions.
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Finally, distributions and loans from or secured by a Policy that is not a MEC
are not subject to the 10 percent additional income tax.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally your
aggregate Premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free. When a loan is taken out under a Policy that is a MEC, your investment
in the Policy is increased by the amount of the loan that is treated as a
taxable distribution.
POLICY LOANS. In general, interest on a Policy loan will not be deductible. If a
Policy loan is outstanding when a Policy is Surrendered, canceled, or allowed to
Lapse, the amount of the outstanding indebtedness (plus accrued interest) will
be added to the amount distributed and will be taxed accordingly. Before taking
out a Policy loan, you should consult a tax adviser as to the tax consequences.
WITHHOLDING. Withholding of Federal income taxes on the taxable portion of all
distributions may be required unless the recipient elects not to have any such
amounts withheld and properly notifies the Company of that election. If the
amount withheld for you is insufficient to cover income taxes, you may have to
pay income taxes and possibly penalties later. Different rules may apply to
United States citizens or expatriates living abroad. In addition, some states
have enacted legislation requiring withholding.
SECTION 1035 EXCHANGES. Code section 1035 generally provides that no gain or
loss shall be recognized by the Owner on the exchange of one life insurance
contract for another life insurance contract, an annuity contract or an
endowment contract. Contracts subject to tax rules in effect prior to certain
legislative changes are likely to be treated as new contracts for purposes of
both section 7702, which establishes the tests for whether a contract is a life
insurance contract for Federal income tax purposes, and section 7702A, which
provides the criteria for determining whether a contract is a MEC. Prospective
purchasers wishing to take advantage of section 1035 should consult their tax
advisers.
BUSINESS USES OF POLICY. Businesses can use the Policies in various
arrangements, including nonqualified deferred compensation or salary continuance
plans, split dollar insurance plans, executive bonus plans, tax exempt and
nonexempt welfare benefit plans, retiree medical benefit plans and others. The
tax consequences of such plans may vary depending on the particular facts and
circumstances. If you are purchasing the Policy for any arrangement the value of
which depends in part on its tax consequences, you should consult a qualified
tax adviser. In recent years, moreover, Congress has adopted new rules relating
to life insurance owned by businesses. Any business contemplating the purchase
of a new Policy or a change in an existing Policy should consult a tax adviser.
OTHER TAX CONSIDERATIONS. The transfer of the Policy or designation of a
Beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-skipping
transfer taxes. For example, the transfer of the Policy to, or the designation
as a Beneficiary of, or the payment of proceeds to, a person who is assigned to
a generation which is two or more generations below the generation assignment of
the Owner may have generation skipping transfer tax consequences under federal
tax law. The particular situation of each Owner or Beneficiary will determine
the extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how ownership or receipt of Policy proceeds will be
treated for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes. A tax adviser should be consulted as to these
consequences.
ACCELERATED DEATH BENEFITS. Payments received under the accelerated death
benefit will be excludable from the gross income of the recipient if applicable
tax law requirements are met. However, you should consult a qualified tax
adviser about the consequences of requesting payment under this benefit.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the Policy
could change by legislation or otherwise. Consult a tax adviser with respect to
legislative developments and their effect on the Policy.
39
OUR INCOME TAXES
Under current Federal income tax law, as a life insurance company we are not
taxed on the Separate Account's operations. Thus, currently we do not deduct a
charge from the Separate Account for Federal income taxes. We reserve the right
to charge the Separate Account for any future Federal income taxes we may incur.
Under current laws in several states, we may incur state and local taxes in
addition to Premium taxes. These other taxes are not now significant and we are
not currently charging for them. If they increase, we may deduct charges for
such taxes. If we charge for such taxes in the future, such charges will be
imposed on all affected policies.
OTHER POLICY INFORMATION
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PAYMENT OF POLICY BENEFITS
DEATH BENEFIT PROCEEDS. Death Benefit Proceeds will ordinarily be paid to the
Beneficiary within 7 days after we receive satisfactory proof of the death of
the Insured on a single life Policy or both Insureds on a last survivor Policy
and all other requirements are satisfied, including receipt by us at our
Administrative Office of all required documents. We determine the amount of a
payment from the Separate Account as of the date of death. If you don't choose a
payment method, your Beneficiary can choose one when he or she files a claim
after the death of the Insured. If Death Benefit Proceeds are paid in a single
sum, we pay interest from the date of death to the date of payment or as
required by applicable state law.
Death Benefit Proceeds from a Single Life Term Rider on a last survivor Policy
are paid once we receive satisfactory proof of the death of the chosen Insured.
PAYMENT METHODS. In lieu of a single sum payment on death, Surrender, or
maturity, you may elect one of the following payment methods. Payment under
these payment methods will not be affected by the investment performance of any
Investment Accounts after proceeds are applied. YOU SHOULD CONSULT A TAX ADVISER
AS TO THE TAX CONSEQUENCES OF ELECTING THE INCOME PAYMENT METHOD BEFORE MAKING
SUCH ELECTION.
The choice of payment method may be made by you or changed during the lifetime
of an Insured. If you do not make a choice, the Beneficiary may choose a method
when filing a claim following the death of the Insured on a single life Policy
or the Last Insured on a last survivor Policy. If you change the Beneficiary,
the payment method you had chosen is revoked. You may name contingent
(secondary) payees for Methods 1 and 2, and for the guaranteed period of Method
3. A payment method for these contingent payees may be chosen within our rules.
We may void a choice of method for any of the following reasons:
o you assign the Policy after making a choice of method;
o the proceeds are payable to a corporation, association, partnership or
estate, either in or out of trust;
o the proceeds to be applied for any person under Method 1 are less than
$5,000; or
o any monthly payment under Method 2 or 3 would be less than $25.
The following payment methods are available:
o METHOD 1 -- INTEREST PAYMENTS. We will hold the proceeds and make
interest payments at an effective rate of at least 2.5% per year,
until the death of the payee or the end of a chosen period of
40
not more than thirty years, whichever comes first. At any time, the
payee can Surrender the Policy and the Surrender value will be the
proceeds then held by us.
o METHOD 2 -- PAYMENTS FOR A FIXED PERIOD. We will make payments each
month for the number of years chosen based on interest at an effective
rate of at least 2.5% per year. The guaranteed minimum amount of each
monthly payment per thousand dollars of proceeds is shown in your
Policy. At any time, the payee can Surrender the Policy and the
Surrender value will be the commuted value of any unpaid payments. The
commuted value is based on interest at the effective rate of 2.5% per
year and is less than the sum of the remaining payments.
o METHOD 3 -- LIFE ANNUITY WITH A 0-, 10-, 15-, OR 20-YEAR GUARANTEED
PERIOD. A payment will be made to the payee each month for life. The
guaranteed minimum amount of each monthly payment per thousand dollars
of proceeds is shown in your Policy. If the payee dies within the
guaranteed period, the person you or the payee chooses can Surrender
the Policy and the Surrender value will be the commuted value of any
unpaid monthly payments for the period chosen. The commuted value is
based on interest at the effective rate of 2.5% per year and is less
than the sum of the remaining payments.
PAYMENTS AFTER THE DEATH OF A PAYEE. Any monthly payments still due at the death
of the payee during a guaranteed or fixed period will be continued to the person
or persons named by you or by the payee to receive them. The commuted value of
these payments may be paid in one sum unless we are directed otherwise. If a
person receiving these payments dies before the end of the guaranteed or fixed
period, the commuted value of any payments still due that person will be paid to
any other surviving person or persons named to receive it. If no one so named is
then living, the commuted value will be paid to the estate of the last person
who was receiving these payments. If no one has been named to receive these
payments, or if no one so named is living at the death of the payee, the
commuted value will be paid in one sum to the payee's estate.
If the payee dies while all or part of the proceeds is held by us under the
Interest Payments Method, that amount will be paid in one sum to the person or
persons you or the payee has named to receive it. If no such person survives the
payee, the amount will be paid in one sum to the payee's estate.
THE POLICY
The Policy, application(s), policy schedule pages, and any riders are the entire
contract. Only statements made in the applications can be used to void the
Policy or to deny a claim. We assume that all statements in an application are
true to the best knowledge and belief of the person(s) who made them, and, in
the absence of fraud, those statements are considered representations and not
warranties. We rely on those statements when we issue or change a Policy. As a
result of differences in applicable state laws, certain provisions of the Policy
may vary from state to state.
TELEPHONE AND INTERNET REQUESTS
You can use our Automated Telephone Service (ATS) or the TIAA-CREF Web Center's
account access feature to check your account value and current allocation
percentages, and make transfers. You will be asked to enter your Personal
Identification Number (PIN) and Social Security number for both systems. Both
will lead you through the transaction process and will use reasonable procedures
to confirm that instructions given are genuine. All transactions made over the
ATS and through the Web Center are electronically recorded.
To use the ATS, you need a touch-tone phone. The toll free number for the ATS is
(800) 842-2252. To use the Web Center's account access feature, access the
TIAA-CREF Internet home page at www.tiaa-cref.org.
41
We can suspend or terminate your ability to transact by telephone, fax, or over
the Internet at any time for any reason.
OUR RIGHT TO CONTEST THE POLICY
In issuing the Policy, we rely on all statements made by or for you and/or an
Insured in the application or in a supplemental application. Therefore, we may
contest the validity of the Policy based on material misstatements made in the
application (or any supplemental application).
However, we will not contest the Policy after the Policy has been in force
during the lifetime of the Insured(s) for 2 years from the Issue Date, except
for nonpayment of Premium. Likewise, we will not contest any Policy change that
requires evidence of insurability, or any reinstatement of the Policy, after
such change or reinstatement has been in effect during the lifetime of the
Insured(s) for 2 years. However, if we issue the Policy as a result of a
conversion option from term insurance, we will measure the contestable period
from the Issue Date of the term policy.
If your Policy Lapses and we reinstate it, we have the right to contest the
validity of your Policy for two years from the date that it was reinstated. Once
your reinstated Policy has been in force for two years from the reinstatement
date during the lifetime of the person Insured by the Policy, we generally lose
the right to contest its validity.
If you change the Death Benefit Option from 1 to 2, we may contest the amount of
any increase in the death benefit due to such change after such change has been
in force during the lifetime of the Insured(s) for 2 years from the date the
change takes effect. If the Face Amount has been increased subject to evidence
of insurability, we will not contest such increase after it has been in force
during the lifetime of the Insured(s) for 2 years from the date the increase
takes effect. If we successfully contest a change from Death Benefit Option 1 to
2 or an increase in Face Amount subject to evidence of insurability, the death
benefit will be what would have been payable had such change or increase not
taken effect. We will refund to your Policy Value any additional cost of
insurance, policy unit, and rider charges associated with such increase or
change.
Our right to contest a last survivor Policy will vary from state to state. In
most states, with respect to each life insured, this policy will be
incontestable after it has been in force during the lifetime of that insured for
two years from its issue date. If the death of the first insured to die occurs
within two years after the issue date, we will not contest this policy due to a
material misrepresentation concerning only the first insured to die more than 12
months after receipt of proof of such death.
SUICIDE EXCLUSION
If an Insured commits suicide within 2 years of the Issue Date, the Policy will
terminate and our liability will be limited to an amount equal to the Premiums
paid, less any Outstanding Loan Amounts, and less any partial withdrawals
previously paid. However, if the Policy is issued as a result of a conversion
option from term insurance, the suicide period will be measured from the Issue
Date of the term policy.
If an Insured commits suicide within 2 years from the effective date of any
increase in Face Amount for which evidence of insurability had been provided, or
within 2 years from the effective date of a change from Death Benefit Option 1
to 2, the Policy will terminate and our liability will be limited to the death
benefit that would have been payable had the increase or change not taken
effect. We will also refund to your Policy Value any additional cost of
insurance, policy unit, and rider charges associated with such increase or
change.
For last survivor Policies, the suicide exclusion varies from state to state. In
certain states, if either Insured commits suicide, the suicide exclusion will
apply and the Policy will terminate and our liability will be limited to an
amount equal to the Premiums paid, less any Outstanding Loan Amounts, and less
any partial
42
withdrawals previously paid. In these states, we will generally offer the
surviving Insured a single life Policy without evidence of insurability. In the
remaining states, the suicide exclusion will apply only upon the suicide of the
Last Insured.
MISSTATEMENT OF AGE OR SEX
If an Insured's age or, in most states, sex was stated incorrectly in the
application and we discover such misstatement after the death of the Insured on
a single life Policy or the Last Insured on a last survivor Policy, the amount
of death benefit will be that which would be purchased by the most recent
deduction for the cost of insurance charge at the correct age or sex. The amount
of death benefit for any riders will be that which would be purchased by the
most recent deduction for rider charges at the correct age or sex.
However, in most states, if we discover such misstatement while the Insured on a
single life Policy or the Last Insured on a last survivor Policy is living, we
will retroactively adjust the Policy Value to reflect the Monthly Charges that
should have been made for the correct age or sex of the Insured(s).
MODIFYING THE POLICY
Any modification or waiver of our rights or requirements under the Policy must
be in writing and signed by our president, a vice president, or our secretary.
Upon notice to you, we may modify the Policy:
o to conform the Policy, our operations, or the Separate Account's
operations to the requirements of any law (or regulation issued by a
government agency) to which the Policy, our Company, or the Separate
Account is subject;
o to assure continued qualification of the Policy as a life insurance
contract under the Federal tax laws; OR
o to reflect a change in the Separate Account's operation.
If we modify the Policy, we will make appropriate endorsements to the Policy. If
any provision of the Policy conflicts with the laws of a jurisdiction that
govern the Policy, we reserve the right to amend the provision to conform with
these laws.
POLICY COST FACTORS
We may change monthly cost of insurance rates, excess interest rates, Premium
expense charges, policy fees, mortality and expense risk charges, administrative
expense charges, rider charges and policy unit charges. Any change will be
determined in accordance with the procedures and standards on file with the
insurance department of the state in which this policy is delivered. Any changes
in policy cost factors will be based on changes in future expectations for (1)
mortality; (2) expenses; (3) persistency; (4) investment earnings; (5) federal
taxes; and (6) state or local taxes.
Changes in policy cost factors will be determined prospectively, will not occur
because of a change in an Insured's health or occupation, and will not be made
to recoup any prior losses. We will not change policy cost factors more
frequently than once a month. We will review the Policy for a class of Insureds
to determine whether an adjustment in policy cost factors should be made at
least once a year for interest and at least once every five Policy Years for
other policy cost factors.
In addition, Portfolio expenses for the Investment Accounts may also change
periodically.
43
PAYMENTS WE MAKE
We usually pay the amounts of any Surrender, partial withdrawal, Death Benefit
Proceeds, loan, or payment methods within 7 days after we receive all applicable
Acceptable Notices, and/or due proofs of death.
However, we can postpone these payments if:
o the New York Stock Exchange is closed for trading, other than
customary weekend and holiday closing, or trading on the New York
Stock Exchange is restricted as determined by the Securities and
Exchange Commission; OR
o an emergency exists, as a result of which the Securities and Exchange
Commission determines that (A) the disposal of shares in an Investment
Account's corresponding Fund is not reasonably practicable, or (B) it
is not reasonably practicable to fairly determine the value of the net
assets of an Investment Account's corresponding Fund; OR
o an Investment Account's corresponding Fund otherwise suspends payment
or redemption of its shares pursuant to an order of the Securities and
Exchange Commission; OR
o you have submitted a check or draft to our Administrative Office, in
which case we have the right to defer payment of Surrenders, partial
withdrawals, Death Benefit Proceeds, or payments under a payment
method until the check or draft has been honored.
We have the right to defer payment of amounts from the Fixed-Rate Account for up
to 6 months after receipt of Acceptable Notice, but will not defer a payment
from the Fixed-Rate Account that is to be applied to pay required Premiums on
other policies in force with us. We pay interest at an annual rate from the
effective date of the withdrawal, Surrender or loan if we delay any payment for
10 days or more. This annual rate will be the same rate that's offered under
Payment Method 1 as described in "Other Policy Information - Payment of Policy
Benefits."
ADDITIONAL TRANSFER RIGHTS
OPTION TO EXCHANGE THIS POLICY FOR A PAID-UP LIFE INSURANCE POLICY
In some states, you may exchange this Policy for a paid-up life insurance policy
on the life of the Insured(s) if the Insured or Insured(s) are still alive and
your Cash Surrender Value is greater than zero. An exchange can have tax
consequences. You should consult a tax adviser before exchanging the policy. See
"Federal Tax Consequences."
Here's how it works:
o The exchange will become effective on the next Policy Anniversary
after we receive your Acceptable Request for the exchange.
o All coverage previously provided by this Policy and any attached
riders will end.
o In its place, the paid-up life insurance policy will provide a level
death benefit. The amount of the death benefit will be what your
Policy Value can purchase at the age, gender, and most recent
Underwriting Class of the person or persons Insured by this Policy,
based on a 3% interest rate and guaranteed cost of insurance charges.
o Any Outstanding Loan Amount will be continued under the paid-up life
insurance policy. The Death Benefit Proceeds will continue to be
reduced by any Outstanding Loan Amount.
o No Premiums will be accepted under the paid-up life insurance policy.
44
o The paid-up life insurance policy will have a Policy Value and an
amount available for loans. We will send you policy pages reflecting
the guaranteed minimum levels of these amounts.
o If you make a withdrawal from the paid-up life insurance policy, we
will reduce its Policy Value and death benefit. The Policy Value will
be reduced by the amount of the withdrawal. The new death benefit will
be the old death benefit multiplied by the ratio of the Policy Value
after the change to the Policy Value before the change. We will send
you new policy pages reflecting the new values.
o When this option is elected, you may still exercise your right to
accelerate the death benefit.
CHANGE IN INVESTMENT ACCOUNT INVESTMENT POLICY
If the investment policy of an Investment Account is materially changed, you may
transfer the portion of the Policy Value in that Investment Account to another
Investment Account or to the Fixed-Rate Account without a transfer charge and
without having the transfer count toward the number of transfers permitted
without charge during a Policy Year.
REPORTS TO OWNERS
At least once each year, we will send you a report showing the following
information as of the end of the report period:
o the current Policy Value
o the current Face Amount
o the current Cash Surrender Value
o the current Death Benefit Proceeds
o the current Outstanding Loan Amounts
o the current interest rates applicable to the Fixed-Rate Account and
Loan Account
o any activity since the last report (e.g., Premiums paid, partial
withdrawals, charges and deductions)
o any other information required by law
We currently send these reports within 45 days of each Policy Anniversary. In
addition, we will send you a quarterly statement as well as confirmation
statements reflecting the status of the Policy following certain transactions,
including the transfer of amounts from one Investment Option to another
(excluding amounts transferred under the dollar cost averaging plan), the taking
of a loan, the repayment of a loan, a partial withdrawal, and the payment of any
Premiums (excluding those paid by bank draft or otherwise under an automatic
payment plan). Scheduled transactions such as electronic premium payments,
monthly charges, and transfers under our dollar cost averaging program will not
generate a confirmation but will be reported on your quarterly statement.
We can prepare a similar report for you at other times for a reasonable fee. We
may limit the scope and frequency of these requested reports.
We will send you a semi-annual report containing the financial statements of
each Portfolio in which you are invested.
RECORDS
We will maintain all records relating to the Separate Account and the Fixed-Rate
Account at our Administrative Office.
45
POLICY TERMINATION
Your Policy will terminate on the earliest of:
o the end of the Grace Period without a sufficient payment;
o the date the Insured on a single life Policy or the Last Insured on a
last survivor Policy dies;
o the effective date of the exchange of this policy for a paid-up life
insurance policy;
o the date this policy is exchanged for another life insurance or
annuity policy; or
o the date you Surrender the Policy.
ACCELERATED DEATH BENEFIT
In some states, prior to the Final Policy Date and while the Policy is in force,
you may elect to receive a one-time lump-sum accelerated death benefit when an
Insured suffers from a terminal illness. A terminal illness means a state of
health in which an Insured's life expectancy is twelve months or less.
Subject to state variations, you may elect to accelerate all or only a portion
of the Death Benefit Proceeds before reduction for any Outstanding Loan Amounts
and unpaid Monthly Charges (the "available proceeds"). However, you may not
elect to accelerate an amount that is less than 25% of available proceeds or
$50,000, whichever is less.
The accelerated death benefit payment will vary from state to state but will
generally equal the requested available proceeds discounted for one year of
interest and reduced by:
o an administrative expense charge not to exceed $200;
o any amounts due within the Policy's Grace Period which are unpaid on
the date we approve your application for an accelerated death benefit;
and
o any Outstanding Loan Amounts existing on the date we approve your
application for an accelerated death benefit multiplied by the ratio
of the accelerated available proceeds to the available proceeds before
the acceleration.
If we approve your application for partial acceleration of available proceeds,
the unaccelerated portion of the Policy's Death Benefit Proceeds will remain in
effect. After the payment of an accelerated death benefit, the Policy's Face
Amount, Policy Value, and any Outstanding Loan Amounts will be reduced by the
ratio of the accelerated available proceeds to the available proceeds before the
acceleration. The acceleration of all available proceeds will result in the
termination of the Policy.
There is no restriction on the use of an accelerated death benefit payment.
Death benefit amounts under a four-year level term insurance rider or a single
life term rider aren't available for acceleration.
Receipt of an accelerated death benefit payment may affect eligibility for
Medicaid and other government assistance programs. Receipt of an accelerated
death benefit payment may also have tax consequences. Consult your tax adviser.
YOUR RIGHT TO RECEIVE PAYMENT UNDER THIS OPTION IS SUBJECT TO A NUMBER OF
CONDITIONS STATED IN YOUR POLICY. YOU SHOULD CONSULT YOUR POLICY FOR THE EFFECTS
OF AN ACCELERATED DEATH BENEFIT ON INCONTESTABILITY AND SUICIDE.
RIDERS
The following riders offering supplemental benefits are available under the
Policy. Most of these riders are subject to age and underwriting requirements
and, unless otherwise indicated, must be purchased when the Policy is issued. We
deduct any Monthly Charges for these riders from the Policy Value as part of the
Monthly Charge. These riders (which are summarized below) provide fixed benefits
that do not vary with
46
the investment performance of the Separate Account. These riders may not be
available in all states. Please contact us for further details.
AUTOMATIC INCREASE RIDER. This rider is available both for a Policy issued
on a single life or a Policy issued on a last survivor basis. This rider
increases the Face Amount of the Policy by 5% of the Initial Face Amount on
each of the first ten policy anniversaries. You can only select this rider
at issue. Guaranteed and current charges are the same as for the Initial
Face Amount of the base policy.
FOUR-YEAR TERM BENEFIT RIDER. This rider is available both for a Policy
issued on a single life or a Policy issued on a last survivor basis.
Subject to our underwriting requirements, this rider provides level term
insurance coverage equal to 125% of the Initial Face Amount for 4 years
from the Issue Date. You can only select this rider at issue.
GUARANTEED MINIMUM DEATH BENEFIT RIDER. This rider is available both for a
Policy issued on a single life or a Policy issued on a last survivor basis.
Under this rider, your Policy and any other riders added to it will remain
in force even if the Cash Surrender Value is less than the Monthly Charge
when due if you satisfy the rider's premium requirement. This rider
requires that the total Premium payments you've made are equal to or
greater than: (a) the total monthly guaranteed minimum death benefit
Premiums (as specified in the Policy) for each Monthly Charge Date starting
with the Policy Date; (b) any Outstanding Loan Amount; and (c) the total
withdrawals you've made. There is no specific charge to add this rider to
your policy, although required Premium levels must be paid in order to
activate its benefits.
WAIVER OF MONTHLY CHARGES RIDER. This rider is available only for a Policy
issued on a single life basis at issue for Issue Ages 20-60 and at Attained
Age 20 for Issue Ages 0-19. This rider waives the Monthly Charge while the
Insured is disabled, as defined in the rider, as long as the disability
commenced prior to the Insured's Attained Age 65 and has continued for at
least six consecutive months without any period of recovery. We impose a
charge each month as part of the Monthly Charge if you select this rider,
which depends on the Issue Age and, in most states, sex of the Insured (the
charge is higher for females than males). Additional restrictions and
charges apply if you have selected this rider and later increase your Face
Amount.
POLICY SPLIT RIDER. This rider is available only for Policies issued on a
last survivor basis. It allows the base policy to be split into two single
life Policies in the event of a divorce between two married Insureds, or a
business dissolution between two Insured partners or significant
shareholders. The election to split the policy must be made between 6
months and 1 year of the triggering event. YOU SHOULD CONSULT A TAX ADVISER
ABOUT POSSIBLE TAX IMPLICATIONS BEFORE SPLITTING A POLICY.
SINGLE LIFE TERM RIDER. This rider is available only at issue for Policies
issued on a last survivor basis. This rider is available for one of the
covered Insureds. It provides a level death benefit on the death of the
covered Insured in the form of term insurance. It is available only at
issue and will provide coverage through the Insured's age 80. The rider
will be taken into account in determining the minimum guarantee Premiums
under the Guaranteed Minimum Death Benefit Rider.
PERFORMANCE DATA
================================================================================
In order to demonstrate how the actual investment performance of the Portfolios
could have affected the death benefit, Policy Value, and Cash Surrender Value of
the Policy, we may provide hypothetical illustrations using the actual
investment performance of each Portfolio since its inception. THESE HYPOTHETICAL
ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE RESULTED IF
THE POLICY HAD BEEN IN EXISTENCE DURING THE PERIOD ILLUSTRATED AND ARE NOT
INDICATIVE OF FUTURE PERFORMANCE.
47
The values we illustrate for death benefit, Policy Value, and Cash Surrender
Value take into account all applicable charges and deductions from the Policy,
the Separate Account and the Portfolios, presenting separate sets of values
based on current and guaranteed charges. We have not deducted charges for any
riders. These charges would lower the performance figures significantly if
reflected.
ADDITIONAL INFORMATION
================================================================================
SALE OF THE POLICIES
The Policy is offered continuously by Teachers Personal Investors Services, Inc.
("TPIS"), a subsidiary of TIAA which is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the NASD. TPIS may be
considered the "principal underwriter" for interests in the Policy. Anyone
distributing the Policy must be a registered representative of TPIS, whose main
office is at 730 Third Avenue, New York, New York 10017-3206. No commissions are
paid in connection with the distribution of the Policies. Although TIAA-CREF
Life will pay TPIS a fee from its general account assets, this fee will include
amounts derived from the mortality and expense risk charge.
POTENTIAL CONFLICTS OF INTEREST
In addition to the Separate Account, the Portfolios may sell shares to other
separate accounts of the Company to support variable annuity contracts and
variable life insurance policies. It is possible that, in the future, it may
become disadvantageous for variable life insurance separate accounts and
variable annuity separate accounts to invest in the Portfolios simultaneously.
CHANGES TO THE SEPARATE ACCOUNT
Where permitted by applicable law, we reserve the right to take certain actions
that we deem necessary to serve your best interests and appropriate to carry out
the purposes of this Policy. When required by law, we will obtain approval by
you, the Securities and Exchange Commission, and any appropriate regulatory
authority. The actions that we may take include:
o deregistering the Separate Account under the 1940 Act;
o operating the Separate Account in any form permitted under the 1940
Act, or in any other form permitted by law;
o taking any action necessary to comply with or obtain and continue any
exemptions from the 1940 Act;
o transferring any assets from an Investment Account: (a) into another
Investment Account; or (b) into one or more separate accounts; or (c)
into our general account;
o adding, combining or removing Investment Accounts in the Separate
Account;
o substituting, for the Fund shares held in any Investment Accounts, the
shares of another class issued by the Fund, or the shares of another
investment company or any other investment permitted by law;
o change the way we deduct or collect charges under the Policy, but
without increasing the charges unless and to the extent permitted by
other provisions of this Policy;
48
o modifying this Policy as necessary to ensure that it continues to
qualify as life insurance under Section 7702 of the Code;
o making any other necessary technical changes in this Policy in order
to conform with any action this provision permits us to take; and
o adding to, eliminating, or suspending your ability to allocate Net
Premiums or transfer the unloaned Policy Value into any Investment
Option.
We will notify you if any of these changes result in a material change in the
underlying investments of an Investment Account of the Separate Account to which
any part of your Policy Value is allocated. Details of any such change will be
filed with any regulatory authority where required and will be subject to any
required approval.
If you object to the material change and a portion of your Policy Value is
attributable to the affected Investment Account, then you may transfer that
value into:
o another Investment Account; or
o the Fixed-Rate Account.
To effect such transfer, we must receive your Acceptable Request at our
Administrative Office within 60 days of the postmarked notice of material
change. We will not deduct a transfer charge for this transaction.
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employee's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. In that case, the Supreme Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate
that, in other factual circumstances, the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit the use of sex-distinct
mortality tables under certain circumstances. The Policies offered by this
prospectus, other than Policies issued in states which require "unisex" policies
(currently Montana), are based upon actuarial tables which distinguish between
men and women and, thus, the Policy provides different benefits to men and women
of the same age. Accordingly, employers and employee organizations should
consider, in consultation with legal counsel, the impact of these authorities on
any employment-related insurance or benefits program before purchasing the
Policy.
VOTING PORTFOLIO SHARES
The Separate Account is the legal owner of the shares of the Funds of the
TIAA-CREF Life Funds offered through your contract. It therefore has the right
to vote its shares at any meeting of the TIAA-CREF Life Funds' shareholders. The
TIAA-CREF Life Funds doesn't plan to hold annual meetings of shareholders.
However, if and when shareholder meetings are held, we will give you the right
to instruct us how to vote the shares attributable to your contract. If we don't
receive timely instructions, your shares will be voted by TIAA-CREF Life in the
same proportion as the voting instructions received on all outstanding
contracts. TIAA-CREF Life may vote the shares of the Funds in its own right in
some cases, if it determines that it may legally do so.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters relating to the Policy under the Federal securities laws.
Charles Stamm, Esq., has provided advice on certain matters relating to the laws
of New York regarding the Policies and our issuance of the Policies.
49
LEGAL PROCEEDINGS
Neither the Separate Account, the Company, nor Advisors is involved in any legal
action that we consider material to the Separate Account.
EXPERTS
The Financial Statements have been included in this prospectus in reliance on
the reports of Ernst & Young LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
Actuarial matters included in the prospectus have been examined by Jeffrey
Goldin, Associate Actuary, as stated in his opinion filed as an exhibit to the
Registration Statement.
FINANCIAL STATEMENTS
Our financial statements appear at the end of this prospectus. You should
consider our financial statements only as bearing upon our ability to meet our
obligations under the Policies.
ADDITIONAL INFORMATION ABOUT THE COMPANY
We are subject to regulation by the Insurance Department of the State of New
York, as well as by the insurance departments of all other states and
jurisdictions in which we do business. We are engaged in the business of issuing
life insurance policies and annuity contracts, and we are currently licensed to
do business in 45 states and the District of Columbia.
We submit annual statements on our operations and finances to insurance
officials in all states and jurisdictions in which we do business. To the extent
required, we have filed the Policy described in this prospectus with insurance
officials in those jurisdictions in which the Policy is sold.
WE INTEND TO REINSURE A PORTION OF THE RISKS ASSUMED UNDER THE POLICIES.
EXECUTIVE OFFICERS AND DIRECTORS
We are governed by a board of directors. The following tables set forth the
name, address, and principal occupation during the past 5 years of each of our
executive officers and directors. Each person is located at 730 Third Avenue,
New York, New York 10017-3206.
50
PRINCIPAL OCCUPATION DURING
NAME POSITION WITH THE COMPANY PAST 5 YEARS
- ---- ------------------------- ---------------------------
Richard J. Adamski Vice President and Treasurer Vice President and Treasurer
Edwin H. Betz Illustration Actuary June 1999 to present -- Actuary, TIAA
Individual Insurance Services; 1988 to
June 1999 -- Vice President and Actuary,
Equitable Life Assurance Society of the
United States
Gary Chinery Assistant Treasurer Second Vice President and Associate
Treasurer
Matthew Daitch Assistant Actuary December 2000 to present -- Actuary, TIAA;
July 2000 to December 2000 -- Associate
Actuary, TIAA; September 1998 to June 2000
-- Assistant Actuary, TIAA; 1995 to
September 1998 -- Actuarial Assistant, TIAA
Roderic Eaton Assistant Investment Officer 1997 to present -- Managing Director,
Securities; 1986 to 1997 -- Managing
Director - Private Placements
Scott C. Evans Director Executive Vice President, TIAA and CREF,
Advisors and Investment Management, since
September 1997. Previously, Managing
Director, TIAA, CREF, Advisors and
Investment Management from March 1997 to
September 1997. Previously Second Vice
President, TIAA and CREF, Advisors and
Investment Management.
Dennis D. Foley Director 1998 to present -- Vice President,
Annuities and Mutual Funds; 1998 --
Vice President, Accumulation Products;
1997 to 1998 -- Vice President, Product
Research and Development; 1996 to 1997 --
Director, Product Research and
Development; 1994 to 1996 -- Product
Research and Development Officer
51
PRINCIPAL OCCUPATION DURING
NAME POSITION WITH THE COMPANY PAST 5 YEARS
- ---- ------------------------- ---------------------------
Martin E. Galt, III Director President, Investment Products, TIAA and
CREF, since January 2000. Previously,
Executive Vice President, Bank of America
since 1997. Previously, Chairman,
President and Chief Executive Officer,
Boatmen's Trust Company.
Richard L. Gibbs Director, Executive Vice President Executive Vice President, TIAA and CREF,
since March 1993. Executive Vice
President, Advisors, Investment
Management, Teachers Personal Investors
Services, Inc. ("TPIS") and TIAA-CREF
Individual & Institutional Services, Inc.
("Services").
Don W. Harrell Director Executive Vice President -- External
Affairs
Matina S. Horner Director Executive Vice President -- Human Resources
Harry Klaristenfeld Appointed Actuary March 2000 to present -- Executive Vice
President and Chief Actuary, TIAA, CREF
and Services; October 1994 to March 2000
-- Vice president and Chief Actuary,
Retirement Services (PAS), CREF
Edward J. Leahy Assistant Secretary November 1998 to present -- Director,
Corporate Tax; June 1997 to October 1998
-- Corporate Tax Officer; August 1992 to
June 1997 -- New York Life, Director, Tax
Accounting
Martin L. Leibowitz Director November 1995 to present -- Vice Chairman
and Chief Investment Officer; June 1995 to
November 1995 -- Executive Vice President,
CREF Investments
52
PRINCIPAL OCCUPATION DURING
NAME POSITION WITH THE COMPANY PAST 5 YEARS
- ---- ------------------------- ---------------------------
Benjamin Leiser Assistant Secretary March 1998 to present -- Second Vice
President and Actuary; 1997 to February
1998 -- Second Vice President and
Associate Actuary; 1996 to 1997 --
Corporate Financial Reporting Officer;
1991 to 1996 -- Actuarial Assistant
Glenn A. MacFarlane Director, Vice President and Chief March 2001 to present -- Vice
Financial Officer President-Finance & Planning, TIAA;
November 1996 to March 2001 -- Chief
Financial Officer, Horizon Mercy
Morlee J. Miller Chief Administrative Officer 1997 to present -- Second Vice President
and Director, Corporate Projects; March
1993 to 1997 -- Second Vice President and
Manager, Group Policyholder Services
Michael T. O'Kane Chief Investment Officer 1996 to present -- Senior Managing
Director-Securities; 1986 to 1996
-- Managing Director, TIAA Investments
Bertram L. Scott Director, Chairman, President and Chief November 2000 to present -- Executive Vice
Executive Officer President, TIAA-CREF, and Chairman,
President and Chief Executive Officer,
TIAA-CREF Life Insurance Company; May 1996
to November 2000 -- President and Chief
Executive Officer, Horizon-Mercy
Mark L. Serlen Secretary Senior Counsel
John A. Somers Director April 1996 to present -- Executive Vice
President, TIAA Investments; December
1981 to March 1997 -- Senior Vice
President, Mortgage & Real Estate
Charles H. Stamm Director Executive Vice President and General
Counsel
53
PRINCIPAL OCCUPATION DURING
NAME POSITION WITH THE COMPANY PAST 5 YEARS
- ---- ------------------------- ---------------------------
Kathleen VanNoy-Pineda Director, Compliance June 2001 to present -- Chief Compliance
Officer, TIAA-CREF Enterprises; December
1997 to May 2001 -- Director, Insurance
Services Compliance; March 1996 to January
1998 -- Compliance Officer
Roger A. Vellekamp Assistant Secretary August 1998 to present -- Vice President,
Corporate Tax; April 1989 to July 1998 --
Mutual Benefit Life Insurance Company,
Second Vice President
Mary Ann Werner Director December 1999 to present -- Executive Vice
President and President, Shared Services;
June 1998 to November 1999 -- Executive
Vice President; September 1988 to June
1998 -- Vice President
Bruce Wallach Assistant Secretary 1997 to present -- Vice President and
Corporate Actuary; 1993 to 1996 -- Vice
President, Corporate Financial Planning
and Reporting
James A. Wolf Director January 2000 to Present -- Executive Vice
President and President, Retirement
Services; June 1998 to December 1999 --
Executive Vice President, Corporate MIS;
November 1985 to June 1998 -- Senior Vice
President, Corporate MIS
We hold the Separate Account's assets physically segregated and apart from the
general account. We maintain records of all purchases and sales of Portfolio
shares by each of the Investment Accounts.
54
FINANCIAL STATEMENTS
TIAA-CREF Life Insurance Company
- --------------------------------------------------------------------------------
Audited Statutory-Basis
Financial Statements
December 31, 2000
[LOGO]
TIAA-CREF LIFE INSURANCE COMPANY
INDEX TO AUDITED STATUTORY-BASIS FINANCIAL STATEMENTS
DECEMBER 31, 2000
Page
----
Chairman's Letter......................................................... A-2
Report of Management Responsibility....................................... A-3
Report of the Audit Committee............................................. A-4
Report of Independent Auditors............................................ A-5
Statutory-Basis Financial Statements:
Balance Sheets....................................................... A-6
Statements of Operations............................................. A-7
Statements of Changes in Capital and Surplus......................... A-8
Statements of Cash Flows............................................. A-9
Notes to Statutory-Basis Financial Statements........................ A-10
[LOGO]
CHAIRMAN'S LETTER
To the Policyholders of
TIAA-CREF Life Insurance Company:
We are pleased to provide you with the accompanying audited statutory-basis
financial statements of TIAA-CREF Life Insurance Company ("TIAA-CREF Life") for
the year-ended December 31, 2000. We continue to manage TIAA-CREF Life in a
prudent manner with the goal of maximizing our long-term performance within
reasonable risk parameters for the long-term benefit of our policyholders. As
you review these statements, it is also important to note that TIAA-CREF Life
continues to maintain the highest possible financial strength ratings from each
of the four nationally recognized independent rating organizations.
The report of management responsibility, on the following page, demonstrates our
ongoing commitment to conduct TIAA-CREF Life's activities in a well-controlled
management environment. Additionally, the accompanying audit report indicates an
unqualified opinion regarding TIAA-CREF Life's statutory-basis financial
statements from the independent auditing firm of Ernst & Young LLP. These
statements have been prepared consistently in accordance with statutory
accounting practices, a comprehensive basis of accounting comprised of
accounting practices prescribed or permitted by the New York State Insurance
Department ("Department").
There is also a reference in the auditors' report to accounting principles
generally accepted in the United States ("GAAP"); this reference to GAAP is
required by the auditors' professional standards. GAAP is an overall accounting
methodology that, while similar in many respects to statutory accounting
practices, is a separate basis of accounting. Statutory accounting is generally
more conservative than GAAP, and these statutory-basis financial statements are
not intended to be in conformity with GAAP.
Statutory accounting is the only basis of accounting recognized by the
Department for regulatory purposes, and it is the only basis of accounting used
by the Department in measuring the financial condition and results of operations
of an insurance company. It is also the basis for determining insurance company
solvency under the New York Insurance Law. While we could prepare a separate set
of GAAP financial statements, there is no legal requirement for us to do so.
Additionally, TIAA-CREF Life does not believe at this time that it would be a
worthwhile expenditure to maintain another separate set of financial records,
particularly since it would provide little additional value for our
policyholders. Accordingly, we believe that it is prudent for us to continue to
manage and report on the operations of TIAA-CREF Life under the conservative
statutory accounting methodology that we have always utilized.
[SIGNATURE]
---------------------------
Chairman, President and
Chief Executive Officer
A-2
[LOGO]
REPORT OF MANAGEMENT RESPONSIBILITY
To the Policyholders of
TIAA-CREF Life Insurance Company:
The accompanying statutory-basis financial statements of TIAA-CREF Life
Insurance Company ("TIAA-CREF Life") are the responsibility of management. They
have been prepared on the basis of statutory accounting practices, a
comprehensive basis of accounting comprised of accounting practices prescribed
or permitted by the New York State Insurance Department. The financial
statements of TIAA-CREF Life have been presented fairly and objectively in
accordance with such statutory accounting practices.
TIAA-CREF Life has established and maintains a strong system of internal control
designed to provide reasonable assurance that assets are properly safeguarded
and transactions are properly executed in accordance with management's
authorization, and to carry out the ongoing responsibilities of management for
reliable financial statements.
The accompanying statutory-basis financial statements of TIAA-CREF Life have
been audited by the independent auditing firm of Ernst & Young LLP. For the
periods covered by these financial statements, all services provided by Ernst &
Young LLP were limited exclusively to auditing. It is TIAA-CREF Life's policy
that any non-audit services be obtained from a firm other than the external
financial audit firm. The independent auditors' report, which appears on page
five, expresses an independent opinion on the fairness of presentation of these
statutory-basis financial statements.
[SIGNATURE]
---------------------------------
Chairman, President and
Chief Executive Officer
[SIGNATURE]
---------------------------------
Executive Vice President and
Chief Financial Officer
A-3
[LOGO]
REPORT OF THE AUDIT COMMITTEE
To the Policyholders of
TIAA-CREF Life Insurance Company:
The Audit Committee oversees the financial reporting process of TIAA-CREF Life
Insurance Company ("TIAA-CREF Life") on behalf of the Company's Board of
Directors. The Audit Committee is a standing committee of the Board and operates
in accordance with a formal written charter (copies are available upon request)
which describes the Audit Committee's responsibilities.
The Committee reviewed and discussed the accompanying audited financial
statements with management, including a discussion of the quality and
appropriateness of the accounting principles and financial reporting practices
followed, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements. The Committee has also discussed the
audited financial statements with Ernst & Young LLP, the independent auditing
firm responsible for expressing an opinion on the conformity of these audited
financial statements with statutory accounting principles.
The discussion with Ernst & Young LLP focused on their judgments concerning the
quality and appropriateness of the accounting principles and financial reporting
practices followed by TIAA-CREF Life, the clarity of the financial statements
and related disclosures, and other significant matters, such as any significant
changes in accounting policies, management judgments and estimates, and the
nature of any uncertainties or unusual transactions. In addition, the Committee
discussed with Ernst & Young LLP the auditors' independence from management and
the Company, and has received a written disclosure regarding such independence,
as required by the Independence Standards Board.
Based on the review and discussions referred to above, the Committee has
approved the release of the accompanying audited financial statements for
publication and filing with appropriate regulatory authorities.
Martin L. Leibowitz, Audit Committee Chair
Richard L. Gibbs, Audit Committee Member
Charles H. Stamm, Audit Committee Member
Mary Ann Werner, Audit Committee Member
James A. Wolf, Audit Committee Member
A-4
[LOGO] ERNST & YOUNG LLP o 787 Seventh Avenue o Phone 212 773 3000
New York, New York 10019
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
TIAA-CREF Life Insurance Company:
We have audited the accompanying statutory-basis balance sheets of TIAA-CREF
Life Insurance Company ("TIAA-CREF Life") as of December 31, 2000 and 1999, and
the related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of TIAA-CREF Life's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 2 to the financial statements, TIAA-CREF Life presents its
financial statements in conformity with accounting practices prescribed or
permitted by New York State Insurance Department, which practices differ from
accounting principles generally accepted in the United States. The variances
between such practices and accounting principles generally accepted in the
United States and the effect on the accompanying financial statements are
described in Note 2.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of TIAA-CREF Life at December 31, 2000 or 1999 or the
results of its operations or its cash flows for each of the three years in the
period ended December 31, 2000.
However, in our opinion, the statutory-basis financial statements referred to
above present fairly, in all material respects, the financial position of
TIAA-CREF Life at December 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000 in conformity with accounting practices prescribed or permitted by the New
York State Insurance Department.
/s/ ERNST & YOUNG LLP
---------------------------------
ERNST & YOUNG LLP
February 15, 2001
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
A-5
TIAA-CREF LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31,
------------------------------
2000 1999
------------ ------------
ASSETS
Bonds .......................................... $471,444,081 $251,708,760
Mortgages ...................................... 28,705,881 29,119,139
Cash and short-term investments ................ 55,907,109 27,141,880
Investment income due and accrued .............. 6,929,121 3,781,907
Separate account assets ........................ 100,778,600 22,704,294
Federal income tax recoverable ................. 2,396,974 363,351
Other assets ................................... 1,023,069 1,429,121
------------ ------------
TOTAL ASSETS $667,184,835 $336,248,452
============ ============
LIABILITIES, CAPITAL AND SURPLUS
Policy and contract reserves ................... $284,386,743 $ 39,284,860
Asset Valuation Reserve ........................ 1,762,391 1,061,394
Interest Maintenance Reserve ................... -- 116,028
Separate account liabilities ................... 100,325,778 22,577,272
Other liabilities .............................. 20,187,551 9,833,605
------------ ------------
TOTAL LIABILITIES $406,662,463 $ 72,873,159
------------ ------------
Capital: (2,500 shares of $1,000 par
value common stock issued and outstanding) ... $ 2,500,000 $ 2,500,000
Additional paid-in capital ..................... 242,500,000 242,500,000
Surplus ........................................ 15,522,372 18,375,293
------------ ------------
TOTAL CAPITAL AND SURPLUS 260,522,372 263,375,293
------------ ------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $667,184,835 $336,248,452
============ ============
See notes to statutory-basis financial statements.
A-6
TIAA-CREF LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
2000 1999 1998
------------ ----------- -----------
INCOME
Insurance and annuity premiums and
deposits ................................ $333,585,653 $59,475,280 $ 13,634
Net investment income ..................... 25,338,088 18,893,955 13,295,128
Supplementary contract considerations ..... 116,327 -- --
------------ ----------- -----------
TOTAL INCOME $359,040,068 $78,369,235 $13,308,762
============ =========== ===========
EXPENSES
Policy and contract benefits .............. $ 7,225,942 $ 368,586 $ 7,986
Increase in policy and contract reserves .. 245,101,883 39,247,125 967
Operating expenses ........................ 17,901,369 4,317,655 1,345,564
Transfers to separate accounts, net ....... 89,322,735 20,728,316 --
Other, net ................................ (196,575) (23,690) --
------------ ----------- -----------
TOTAL EXPENSES $359,355,354 $64,637,992 $ 1,354,517
------------ ----------- -----------
INCOME (LOSS) BEFORE FEDERAL INCOME TAXES (315,286) 13,731,243 11,954,245
FEDERAL INCOME TAX EXPENSE 1,542,008 5,195,474 4,176,454
------------ ----------- -----------
NET INCOME (LOSS) $ (1,857,294) $ 8,535,769 $ 7,777,791
============ =========== ===========
See notes to statutory-basis financial statements.
A-7
TIAA-CREF LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
FOR THE THREE YEARS ENDED DECEMBER 31, 2000
CAPITAL ADDITIONAL
STOCK PAID-IN CAPITAL SURPLUS TOTAL
---------- --------------- ----------- ------------
BALANCE, DECEMBER 31, 1997 ...... $2,500,000 $ 77,500,000 $ 2,908,241 $ 82,908,241
Net income ...................... -- -- 7,777,791 7,777,791
Transfer to the Asset
Valuation Reserve ............. -- -- (447,648) (447,648)
Capital contribution ............ -- 165,000,000 -- 165,000,000
Increase in value of seed money
in separate account ........... -- -- 4,388 4,388
---------- ------------ ----------- ------------
BALANCE, DECEMBER 31, 1998 ...... 2,500,000 242,500,000 10,242,772 255,242,772
---------- ------------ ----------- ------------
Net income ...................... -- -- 8,535,769 8,535,769
Transfer to the Asset
Valuation Reserve ............. -- -- (425,882) (425,882)
Increase in value of seed money
in separate account ........... -- -- 22,634 22,634
---------- ------------ ----------- ------------
BALANCE, DECEMBER 31, 1999 ...... 2,500,000 242,500,000 18,375,293 263,375,293
---------- ------------ ----------- ------------
Net loss ........................ -- -- (1,857,294) (1,857,294)
Transfer to the Asset
Valuation Reserve ............. -- -- (700,997) (700,997)
Decrease in value of seed money
in separate account ........... -- -- (74,200) (74,200)
Increase in non-admitted assets . -- -- (220,430) (220,430)
---------- ------------ ----------- ------------
BALANCE, DECEMBER 31, 2000 ...... $2,500,000 $242,500,000 $15,522,372 $260,522,372
========== ============ =========== ============
See notes to statutory-basis financial statements.
A-8
TIAA-CREF LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
------------ ----------- -----------
CASH PROVIDED
By operating activities:
Insurance and annuity premiums, deposits
and other considerations ..................... $333,203,007 $59,475,280 $ 13,634
Investment income, net ......................... 19,985,947 17,922,072 11,386,874
------------ ----------- -----------
TOTAL RECEIPTS 353,188,954 77,397,352 11,400,508
------------ ----------- -----------
Policy and contract benefits ................... 7,111,574 368,537 7,961
Operating expenses ............................. 8,032,317 1,509,587 1,348,388
Federal income tax expense ..................... 3,375,162 5,860,300 4,150,443
Transfers to separate accounts, net ............ 89,382,573 20,604,591 100,000
Other, net ..................................... (3,114,956) (5,190,253) (334,678)
------------ ----------- -----------
TOTAL DISBURSEMENTS 104,786,670 23,152,762 5,272,114
------------ ----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 248,402,284 54,244,590 6,128,394
------------ ----------- -----------
By financing activities:
Additional paid-in capital ..................... -- -- 165,000,000
CASH PROVIDED BY FINANCING ACTIVITIES -- -- 165,000,000
------------ ----------- -----------
By investing activities:
Sales and redemptions of bonds and
stocks ....................................... 16,339,557 18,909,925 602,103
Repayment of mortgage principal ................ 413,257 366,218 151,553
Other, net ..................................... 156 1,396 22,328
------------ ----------- -----------
CASH PROVIDED BY INVESTING ACTIVITIES 16,752,970 19,277,539 775,984
------------ ----------- -----------
TOTAL CASH PROVIDED 265,155,254 73,522,129 171,904,378
DISBURSEMENTS FOR NEW INVESTMENTS
Investments acquired:
Bonds .......................................... 236,390,025 50,478,719 154,950,254
Mortgages ...................................... -- 2,000,000 18,400,000
------------ ----------- -----------
TOTAL DISBURSEMENTS FOR
NEW INVESTMENTS 236,390,025 52,478,719 173,350,254
------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 28,765,229 21,043,410 (1,445,876)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF YEAR 27,141,880 6,098,470 7,544,346
------------ ----------- -----------
CASH AND SHORT-TERM INVESTMENTS
AT END OF YEAR $ 55,907,109 $27,141,880 $ 6,098,470
============ =========== ===========
See notes to statutory-basis financial statements.
A-9
TIAA-CREF LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND OPERATIONS
TIAA-CREF Life Insurance Company commenced operations as a legal reserve life
insurance company under the insurance laws of the State of New York on December
18, 1996, under its former name, TIAA Life Insurance Company and changed its
name to TIAA-CREF Life Insurance Company ("TIAA-CREF Life") on May 1, 1998.
TIAA-CREF Life is a wholly-owned subsidiary of TIAA-CREF Enterprises, Inc.
("Enterprises"), which is a wholly-owned subsidiary of Teachers Insurance and
Annuity Association of America ("TIAA"), a legal reserve life insurance company
established under the insurance laws of the State of New York in 1918. As of
December 31, 2000, TIAA-CREF Life was licensed in 44 jurisdictions.
Effective December 18, 1996, TIAA-CREF Life entered into an indemnity
reinsurance agreement with TIAA to reinsure a limited number of individual life
insurance policies on a 50% coinsurance basis. Beginning in 1999, TIAA-CREF Life
began issuing non-qualified annuity contracts with fixed and variable
components. Beginning in 2000, TIAA-CREF Life began issuing fixed universal life
contracts, individual long term care insurance contracts and funding agreements.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
TIAA-CREF Life's statutory-basis financial statements have been prepared on the
basis of statutory accounting practices prescribed or permitted by the New York
State Insurance Department ("Department"), a comprehensive basis of accounting
that differs from accounting principles generally accepted in the United States
("GAAP"). (Refer to the separate section entitled "Accounting Principles
Generally Accepted in the United States", within this note and Note 10 -
Codification.)
The preparation of TIAA-CREF Life's financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, income and expenses. Actual results could differ from those
estimates. The following is a summary of the significant accounting policies
consistently followed by TIAA-CREF Life.
VALUATION OF INVESTMENTS: Bonds, mortgage loans and short-term investments (debt
securities with maturities of one year or less at the time of acquisition) are
generally stated at amortized cost. For loan-backed bonds and structured
securities, amortized cost is determined using actual and anticipated cash flows
under the retrospective method. Anticipated prepayments are based on life-to-
date payment speeds, using historical cash flows and internal estimates.
Separate account assets are stated at market value.
ACCOUNTING FOR INVESTMENTS: Investment transactions are accounted for as of the
date the investments are settled (settlement date). Realized capital gains and
losses on investment transactions are accounted for under the specific
identification method.
POLICY AND CONTRACT RESERVES: Policy and contract reserves are determined in
accordance with standard valuation methods approved by the Department and are
computed in accordance with standard actuarial formulae. The reserves
established utilize assumptions for interest (at an average rate of
approximately 5.6%), mortality and other risks insured. Such reserves establish
a sufficient provision for all contractual benefits guaranteed under policy and
contract provisions.
ASSET VALUATION RESERVE: The Asset Valuation Reserve ("AVR"), which covers all
invested asset classes, is an explicit liability reserve required by the
National Association of Insurance Commissioners ("NAIC") and is intended to
provide for potential future credit and equity losses. Formula calculations
determine the required contribution amounts, and contributions to the AVR are
reported as transfers from surplus.
A-10
TIAA-CREF LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
INTEREST MAINTENANCE RESERVE: The Interest Maintenance Reserve ("IMR") is a
liability reserve required by the NAIC which accumulates realized capital gains
and losses resulting from interest rate fluctuations. Such capital gains and
losses are amortized out of the IMR, under the grouped method of amortization,
as an adjustment to net investment income over the remaining lives of the assets
sold. All net capital gains on short-term investments were fully amortized out
of the IMR by the end of each period presented. At December 31, 2000, the IMR
Balance was negative, representing unamortized net capital losses. The balance
was ($220,430) which is treated as an non-admitted asset.
FEDERAL INCOME TAXES: Effective January 1, 1998 TIAA-CREF Life began filing a
consolidated federal income tax return with its qualifying affiliates. The tax
sharing agreement follows the current reimbursement method, whereby members of
the consolidated group are generally reimbursed for their losses on a pro-rata
basis by other members of the group to the extent they have taxable income,
subject to limitations imposed under the Internal Revenue Code. The federal
income tax provisions in the accompanying statements of operations are based on
taxes actually paid or anticipated to be paid under the tax sharing agreement.
Income before federal income taxes differs from taxable income principally due
to policy acquisition costs and differences in reserves for policy and contract
liabilities for tax and financial purposes. TIAA-CREF Life incurred a net
capital loss of $573,000 for tax purposes in 2000. This loss will be carried
forward to future tax years and will expire on December 31, 2005 if not offset
against consolidated capital gains.
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES: The Financial
Accounting Standards Board ("FASB") requires that financial statements that are
intended to be in conformity with GAAP should follow all applicable
authoritative accounting pronouncements. As a result, TIAA-CREF Life cannot
refer to financial statements prepared in accordance with statutory accounting
practices as having been prepared in accordance with GAAP. The differences
between accounting principles generally accepted in the United States and
statutory accounting practices would have a material effect on TIAA-CREF Life's
financial statements, and the primary differences can be summarized as follows.
Under GAAP:
o The AVR is eliminated and valuation allowances are established as contra
assets based on asset-specific analyses rather than the formula-based AVR
being reflected as a liability reserve;
o The IMR is eliminated and realized gains and losses resulting from interest
rate fluctuations are reported as a component of net income rather than
being accumulated in and subsequently amortized out of the IMR;
o The "non-admitted" asset designation is not utilized;
o Policy acquisition costs are deferred and amortized over the lives of the
policies issued rather than being charged to operations as incurred;
o Policy and contract reserves are based on estimates of expected mortality
and interest rather than being based on statutory mortality and interest
requirements;
o Long-term bond investments considered to be "available for sale" are
carried at fair value rather than at amortized cost;
o Deferred tax assets and liabilities are determined based on the differences
between the financial statement amounts and the tax bases of assets and
liabilities rather than not being recognized.
Management believes that the effects of these differences would increase
TIAA-CREF Life's total capital if GAAP were implemented.
RECLASSIFICATION: Certain amounts in the 1999 and 1998 financial statements have
been reclassified to conform with the 2000 presentation.
A-11
TIAA-CREF LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - INVESTMENTS
SECURITIES INVESTMENTS: At December 31, 2000 and 1999, the carrying values
(balance sheet amounts) and estimated market values of long-term bond
investments, and the gross unrealized gains and losses with respect to such
market values, are shown below:
GROSS GROSS
CARRYING UNREALIZED UNREALIZED ESTIMATED
VALUE GAINS LOSSES MARKET VALUE
------------ ---------- ----------- ------------
DECEMBER 31, 2000
- -----------------
U.S. Treasury securities and
obligations of U.S.
government agencies and
corporations ................ $ 12,090,889 $ 690,469 $ (14,740) $ 12,766,618
Corporate securities .......... 318,820,203 5,959,959 (5,937,018) 318,843,144
Mortgage-backed securities .... 25,514,691 30,828 (360,378) 25,185,141
Asset-backed securities ....... 115,018,298 1,822,137 (762,591) 116,077,844
------------ ---------- ----------- ------------
Total ..................... $471,444,081 $8,503,393 $(7,074,727) $472,872,747
============ ========== =========== ============
GROSS GROSS
CARRYING UNREALIZED UNREALIZED ESTIMATED
VALUE GAINS LOSSES MARKET VALUE
------------ ---------- ----------- ------------
DECEMBER 31, 1999
- -----------------
U.S. Treasury securities and
obligations of U.S.
government agencies and
corporations ................ $ 11,706,305 $ -- $ (871,164) $ 10,835,141
Corporate securities .......... 143,027,045 140,663 (6,773,515) 136,394,193
Mortgage-backed securities .... 25,703,921 -- (2,373,932) 23,329,989
Asset-backed securities ....... 71,271,489 -- (4,654,224) 66,617,265
------------ ---------- ------------ ------------
Total ..................... $251,708,760 $ 140,663 $(14,672,835) $237,176,588
============ ========== ============ ============
Debt securities amounting to approximately $8,277,000 and $7,888,000 at December
31, 2000 and 1999, respectively, were on deposit with governmental authorities
or trustees, as required by law.
The carrying values and estimated market values of long-term bond investments at
December 31, 2000, by contractual maturity, are shown below:
CARRYING ESTIMATED
VALUE MARKET VALUE
------------ ------------
Due after one year through five years $151,584,210 $154,523,099
Due after five years through ten years 72,519,342 72,350,634
Due after ten years .................. 106,807,540 104,736,029
------------ ------------
Subtotal ......................... 330,911,092 331,609,762
Mortgage-backed securities ........... 25,514,691 25,185,141
Asset-backed securities .............. 115,018,298 116,077,844
------------ ------------
Total ............................ $471,444,081 $472,872,747
============ ============
Bonds not due at a single maturity date have been included in the preceding
table based on the year of final maturity. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations, although prepayment premiums may be applicable.
A-12
TIAA-CREF LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - INVESTMENTS (CONCLUDED)
At December 31, 2000 and 1999, the carrying values of long-term bond investments
were diversified by industry classification as follows:
2000 1999
----- -----
Manufacturing ....................... 23.2% 32.4%
Finance and financial services ...... 16.3 12.7
Asset-backed securities ............. 16.1 19.8
Commercial mortgage-backed securities 8.3 8.5
Public utilities .................... 5.7 2.0
Mortgage-backed securities .......... 5.4 10.2
Communication ....................... 5.0 --
Government .......................... 4.0 4.7
Oil and gas ......................... 3.7 3.9
Retail and wholesale trade .......... 2.6 3.9
Other ............................... 9.7 1.9
----- -----
Total ........................... 100.0% 100.0%
===== =====
MORTGAGE LOAN INVESTMENTS: TIAA-CREF Life makes mortgage loans that are
principally collateralized by commercial real estate. TIAA-CREF Life's mortgage
underwriting standards generally result in first mortgage liens on completed
income-producing properties for which the loan-to-value ratio at the time of
closing generally ranges between 65% and 75%. TIAA-CREF Life employs a system to
monitor the effects of current and expected market conditions and other factors
on the collectability of mortgage loans. This system is utilized to identify and
quantify any permanent impairments in value (none had been identified as of
December 31, 2000).
The mortgage loan investments outstanding at December 31, 2000 are primarily
collateralized by shopping centers (67.9%), and apartments (32.1%) and are
primarily located in the South Atlantic (67.9%) and East North Central (32.1%)
regions of the United States.
At December 31, 2000, the contractual maturity schedule of mortgage loans is
shown below:
CARRYING
VALUE
-----------
Due in one year or less .......................................... $ 444,129
Due after one year through five years ............................ 2,134,176
Due after five years through ten years ........................... 18,347,414
Due after ten years .............................................. 7,780,162
-----------
Total ........................................................ $28,705,881
==========
ASSET VALUATION RESERVE: The AVR balances at December 31, 2000 and 1999 were
comprised of the following asset-specific reserves:
2000 1999
---------- ----------
Bonds ................................................ $1,179,713 $ 614,364
Mortgages ............................................ 582,678 447,030
---------- ----------
Total .............................................. $1,762,391 $1,061,394
========== ==========
A-13
TIAA-CREF LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES
NET INVESTMENT INCOME: For the years ended December 31, 2000, 1999 and 1998, the
components of net investment income were as follows:
2000 1999 1998
----------- ----------- -----------
Gross investment income:
Bonds ................................ $23,538,859 $15,597,349 $ 8,564,192
Mortgages ............................ 2,062,238 2,053,110 881,292
Cash and short-term investments ...... 1,657,009 1,143,214 3,963,348
Other ................................ (870,195) 287,700 --
----------- ----------- -----------
Total ............................ 26,387,911 19,081,373 13,408,832
Less investment expenses ............. (1,013,981) (194,176) (128,217)
----------- ----------- -----------
Net investment income before
amortization of IMR ................ 25,373,930 18,887,197 13,280,615
Amortization of IMR .................. (35,842) 6,758 14,513
----------- ----------- -----------
Net investment income ................ $25,338,088 $18,893,955 $13,295,128
=========== =========== ===========
REALIZED CAPITAL GAINS AND LOSSES: For the years ended December 31, 2000, 1999
and 1998, the net realized capital gains (losses) on sales and redemptions of
investments were as follows:
2000 1999 1998
--------- -------- -------
Bonds ......................................... $(572,925) $187,504 $ --
Short-term investments ........................ 156 1,396 22,328
--------- -------- -------
Total realized gains (losses) before capital
gains tax ................................... (572,769) 188,900 22,328
Capital gains tax (expense) benefit ........... 200,469 (66,115) (7,815)
--------- -------- -------
Total ..................................... $(372,300) $122,785 $14,513
========= ======== =======
NOTE 5 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments presented in the
following tables have been determined by TIAA-CREF Life using market information
available as of December 31, 2000 and 1999 and appropriate valuation
methodologies. However, considerable judgement is necessarily required to
interpret market data in developing the estimates of fair value for financial
instruments for which there are no available market value quotations. The
estimates presented are not necessarily indicative of the amounts TIAA-CREF Life
could have realized in a market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
CARRYING ESTIMATED
VALUE FAIR VALUE
------------ ------------
DECEMBER 31, 2000
- -----------------
Assets
Bonds ...................................... $471,444,081 $472,872,747
Mortgages .................................. 28,705,881 28,379,371
Cash and short-term investments ............ 55,907,109 55,907,109
Separate account seed money investment ..... 452,821 452,821
Liabilities
Personal Annuity Select-Fixed Account ...... 171,038,864 171,038,864
Funding Agreements ......................... 110,640,584 110,640,584
A-14
TIAA-CREF LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONCLUDED)
CARRYING ESTIMATED
DECEMBER 31, 1999 VALUE MARKET VALUE
- ----------------- ------------ ------------
Assets
Bonds ...................................... $251,708,760 $237,176,588
Mortgages .................................. 29,119,139 27,009,740
Cash and short-term investments ............ 27,141,880 27,141,880
Separate account seed money investment ..... 127,022 127,022
Liabilities
Personal Annuity Select - Fixed Account .... 38,909,874 38,909,874
BONDS: The fair values for publicly traded long-term bond investments are
determined using quoted market prices. For privately placed long-term bond
investments without a readily ascertainable market value, such values are
determined with the assistance of an independent pricing service utilizing a
discounted cash flow methodology based on coupon rates, maturity provisions and
assigned credit ratings. The aggregate carrying values and estimated fair values
of publicly traded and privately placed bonds at December 31, 2000 and 1999 are
as follows:
2000 1999
---------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
Publicly traded bonds ......... $356,569,668 $355,612,007 $217,617,100 $205,094,804
Privately placed bonds ........ 114,874,413 117,260,740 34,091,660 32,081,784
------------ ------------ ------------ ------------
Total ..................... $471,444,081 $472,872,747 $251,708,760 $237,176,588
============ ============ ============ ============
MORTGAGES: The fair values of mortgages are determined with the assistance of an
independent pricing service utilizing a discounted cash flow methodology based
on coupon rates, maturity provisions and assigned credit ratings.
CASH AND SHORT-TERM INVESTMENTS AND SEPARATE ACCOUNT SEED MONEY INVESTMENT: The
carrying values are reasonable estimates of their fair values.
PERSONAL ANNUITY SELECT-FIXED ACCOUNT: The carrying values of the liabilities
are reasonable estimates of their fair values.
INSURANCE AND ANNUITY CONTRACTS: TIAA-CREF Life's insurance and annuity
contracts, other than the Personal Annuity Select contract disclosed above,
entail mortality risks and are, therefore, exempt from the fair value disclosure
requirements related to financial instruments.
FUNDING AGREEMENTS: The carrying values of the liabilities are reasonable
estimates of their fair values.
NOTE 6 - MANAGEMENT AGREEMENTS
The majority of services for the operation of TIAA-CREF Life are provided, at
cost, by TIAA pursuant to a Service Agreement. Expense reimbursement payments
under the Service Agreement are made quarterly by TIAA-CREF Life to TIAA based
on TIAA's costs for providing such services. TIAA-CREF Life also reimburses TIAA
on a quarterly basis for certain investment management services, at cost, as per
the terms of an Investment Management Agreement.
A-15
TIAA-CREF LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - ANNUITY RESERVES AND DEPOSIT LIABILITIES
At December 31, 2000 and 1999, TIAA-CREF Life's general account annuity reserves
and deposit liabilities are summarized as follows:
2000 1999
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ------- ----------- -------
Subject to discretionary withdrawal:
At book value without adjustment ................ $281,991,501 99.5% $39,186,814 100.0%
At market value ................................. -- -- -- --
Not subject to discretionary withdrawal ........... 1,512,595 0.5 14,118 0.0
------------ ---- ----------- -----
Total annuity reserves and deposit
liabilities ..................................... 283,504,096 100.0% 39,200,932 100.0%
===== =====
Reconciliation to total policy and contract
reserves shown on the balance sheets:
Reserves on other life policies and
contracts ................................... 101,547 83,928
Reserves on accident and health
policies .................................... 781,100 --
------------ -----------
Total policy and contract reserves ................ $284,386,743 $39,284,860
============ ===========
NOTE 8 - SEPARATE ACCOUNT
TIAA-CREF Life Separate Account VA-1 ("VA-1") is a unit investment trust with
all of its assets invested in an underlying portfolio of mutual funds, TIAA-CREF
Life Funds. Currently, TIAA-CREF Life Funds have five investment portfolios, the
Growth Equity Fund, Growth and Income Fund, International Equity Fund, Stock
Index Fund and Social Choice Equity Fund. VA-1 was established on July 22, 1998
and received a $100,000 seed money investment from TIAA-CREF Life on December 1,
1998 and $400,000 on February 29, 2000. The value of the seed money investment
at December 31, 2000 and 1999 was approximately $452,822 and $127,022,
respectively.
The balance sheet captions for separate account assets and liabilities (which
include participant account values) are stated at market value. The separate
account's operating results are reflected in the changes to these assets and
liabilities. Total separate account premiums were approximately $83,541,566 for
2000, $20,407,270 for 1999 and $0 for 1998. Total separate account net transfers
from other accounts were approximately $8,871,050 for 2000, $532,628 for 1999
and $0 for 1998. Annuities offered through VA-1 include a nominal guaranteed
minimum death benefit. The account offers full or partial withdrawal at market
value with no surrender charge.
NOTE 9 - CONTINGENCIES
It is the opinion of management that any liabilities which might arise from
litigation, state guaranty fund assessments, and other matters, over and above
amounts already provided for in the financial statements, are not considered
material in relation to TIAA-CREF Life's financial position or the results of
its operations.
NOTE 10 - CODIFICATION
The NAIC revised its Accounting Practices and Procedures Manual (the "Manual")
with a process referred to as Codification. The revised Manual will be effective
January 1, 2001. The Department has adopted the provisions of the Manual with
certain exceptions where there is a conflict with New York Insurance Law. The
Manual has changed, to some extent, prescribed statutory accounting practices
and will result in changes to the accounting practices that TIAA-CREF Life uses
to prepare its statutory-basis financial statements. The cumulative effect of
changes in accounting principles adopted to conform to the Manual will be
reported as an adjustment to surplus as of January 1, 2001. Management believes
that the cumulative net impact of these changes will not result in a material
change in TIAA-CREF Life's statutory-basis capital and surplus upon adoption of
the Manual.
A-16
TIAA-CREF LIFE INSURANCE COMPANY
UNAUDITED STATUTORY-BASIS FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
TIAA-CREF LIFE INSURANCE COMPANY
UNAUDITED STATUTORY-BASIS BALANCE SHEETS
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
ASSETS
Bonds .................................................................. $672,202,267 $365,701,059
Mortgages .............................................................. 28,375,802 28,812,003
Cash and short-term investments ........................................ 69,416,452 24,579,037
Investment income due and accrued ...................................... 9,848,568 5,269,051
Separate account assets ................................................ 102,241,451 92,720,477
Federal income tax recoverable ......................................... 1,086,893 994,360
Other assets ........................................................... 19,573,026 537,210
------------ ------------
TOTAL ASSETS .................................... $902,744,459 $518,613,197
============ ============
LIABILITIES, CAPITAL AND SURPLUS
Policy and contract reserves
Regular Insurance .................................................... $ 1,390,702 $ 77,870
Universal Life ....................................................... 844,791 0
Long-Term Care ....................................................... 2,457,481 87,085
Annuities ............................................................ 330,938,696 139,925,924
Funding Agreements ................................................... 134,485,391 3,038,588
Asset Valuation Reserve ................................................ 2,819,386 1,595,926
Interest Maintenance Reserve ........................................... 0 106,704
Separate account liabilities ........................................... 101,899,359 92,215,173
Other liabilities ...................................................... 46,749,055 16,829,032
------------ ------------
TOTAL LIABILITIES ............................... $621,584,861 $253,876,302
------------ ------------
Capital: (2,500 shares of $1,000 par value common stock
issued and outstanding) .............................................. $ 2,500,000 $ 2,500,000
Additional paid-in capital ............................................. 267,500,000 242,500,000
Surplus ................................................................ 11,159,598 19,736,895
------------ ------------
TOTAL CAPITAL AND SURPLUS ....................... 281,159,598 264,736,895
------------ ------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS .......... $902,744,459 $518,613,197
============ ============
B-1
TIAA-CREF LIFE INSURANCE COMPANY
UNAUDITED STATUTORY-BASIS STATEMENTS OF OPERATIONS
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------- ------------------
INCOME
Insurance and annuity premiums and deposits ........ $ 195,615,436 $ 172,640,088
Net investment income .............................. 32,046,185 17,912,579
------------- -------------
TOTAL INCOME ...... $ 227,661,621 $ 190,552,667
============= =============
EXPENSES
Policy and contract benefits ....................... $ 11,625,630 $ 2,706,947
Increase in policy and contract reserves ........... 162,309,066 103,959,291
Interest and adjustments on policy or deposit-type
contract funds ................................... 4,840,891 65,520
Operating expenses ................................. 22,547,232 9,237,837
Transfers to separate accounts, net ................ 31,917,201 70,000,486
Other, net ......................................... (1,613,308) (126,031)
------------- -------------
TOTAL EXPENSES .... $ 231,626,712 $ 185,844,050
------------- -------------
INCOME (LOSS) BEFORE FEDERAL INCOME TAXES . (3,965,091) 4,708,617
FEDERAL INCOME TAX EXPENSE ....... (716,227) 2,790,767
------------- -------------
NET INCOME (LOSS) ................ $ (3,248,864) $ 1,917,850
============= =============
B-2
TIAA-CREF LIFE INSURANCE COMPANY
UNAUDITED STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
CAPITAL ADDITIONAL
STOCK PAID-IN CAPITAL SURPLUS TOTAL
------------ --------------- ------------ -------------
BALANCE, DECEMBER 31, 1999 ............ $ 2,500,000 $ 242,500,000 $ 18,375,295 $ 263,375,295
Net loss .............................. -- -- 1,917,850 1,917,850
Transfer to the Asset
Valuation Reserve ................... -- -- (534,532) (534,532)
Surplus contributed to Separate Account -- -- (400,000) (400,000)
Increase in value of seed money
in separate account ................. -- -- 378,282 378,282
Change in valuation basis of
policy reserves ..................... -- -- -- --
Decrease in non-admitted assets ....... -- -- -- --
----------- ------------- ------------ -------------
BALANCE, SEPTEMBER 30, 2000 ........... $ 2,500,000 $ 242,500,000 $ 19,736,895 $ 264,736,895
=========== ============= ============ =============
BALANCE, DECEMBER 31, 2000 ............ $ 2,500,000 $ 242,500,000 $ 15,522,372 $ 260,522,372
Net loss .............................. -- -- (3,248,864) (3,248,864)
Transfer to the Asset
Valuation Reserve ................... -- -- (1,056,996) (1,056,996)
Capital contribution .................. -- 25,000,000 -- 25,000,000
Decrease in value of seed money
in separate account ................. -- -- (110,730) (110,730)
Change in valuation basis of
policy reserves ..................... 58,606 58,606
Decrease in non-admitted assets ....... -- -- (4,790) (4,790)
----------- ------------- ------------ -------------
BALANCE, SEPTEMBER 30, 2001 ........... $ 2,500,000 $ 267,500,000 $ 11,159,598 $ 281,159,598
=========== ============= ============ =============
B-3
TIAA-CREF LIFE INSURANCE COMPANY
UNAUDITED STATUTORY-BASIS STATEMENTS OF CASH FLOW
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
CASH PROVIDED
By operating activities:
Insurance and annuity premiums, deposits
and other considerations ....................... $ 194,181,262 $ 172,569,199
Investment income, net ........................... 29,392,637 13,808,299
Other, net ....................................... (6,265,080) 4,969,704
------------- -------------
TOTAL RECEIPTS ....... 217,308,819 191,347,202
------------- -------------
Policy and contract benefits ..................... 11,250,787 5,630,113
Operating expenses ............................... 8,859,906 4,006,553
Federal income tax expense ....................... (1,885,026) 3,421,818
Transfers to separate accounts, net .............. 32,033,396 70,341,298
------------- -------------
TOTAL DISBURSEMENTS .. 50,259,063 83,399,782
------------- -------------
CASH PROVIDED BY OPERATING ACTIVITIES ... 167,049,756 107,947,420
------------- -------------
By financing activities:
Net deposits on deposit-type contract funds ...... 18,638,965 2,977,014
Additional paid-in capital ....................... 25,000,000 0
------------- -------------
CASH PROVIDED BY FINANCING ACTIVITIES ... 43,638,965 2,977,014
------------- -------------
By investing activities:
Sales and redemptions of bonds and stocks ........ 25,162,226 5,125,589
Repayment of mortgage principal .................. 330,079 307,135
Other, net ....................................... 3,761 122
------------- -------------
CASH PROVIDED BY INVESTING ACTIVITIES ... 25,496,066 5,432,846
------------- -------------
TOTAL CASH PROVIDED ...... 236,184,787 116,357,280
DISBURSEMENTS FOR NEW INVESTMENTS
Investments acquired:
Bonds ............................................ 222,675,444 118,920,123
Mortgages ........................................ -- --
------------- -------------
TOTAL DISBURSEMENTS FOR NEW INVESTMENTS ............ 222,675,444 118,920,123
------------- -------------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS ............. 13,509,343 (2,562,843)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF YEAR ............... 55,907,109 27,141,880
------------- -------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF YEAR ..................... $ 69,416,452 $ 24,579,037
============= =============
B-4
APPENDIX A -- ILLUSTRATIONS
================================================================================
THE FOLLOWING ILLUSTRATIONS HAVE BEEN PREPARED TO HELP SHOW HOW CERTAIN VALUES
UNDER THE POLICY CHANGE WITH DIFFERENT RATES OF INVESTMENT PERFORMANCE OVER AN
EXTENDED PERIOD OF TIME. THE HYPOTHETICAL INVESTMENT RETURNS ARE PROVIDED ONLY
TO ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST
OR FUTURE PERFORMANCE. Actual rates of return for a particular Policy may be
more or less than the hypothetical investment rates of return. The actual return
on your Policy Value will depend on factors such as the amount and timing of
your premium payments, the performance of the investment accounts you've chosen,
the interest rates on the Fixed-Rate Account and the Loan Account, Policy
charges, how much you've borrowed or withdrawn from the Policy and the level of
Policy and rider benefits.
The illustrations provided below assume returns at hypothetical, uniform gross
annual rates of 0% and 10%. These assumptions are unrealistic since actual
returns will fluctuate from year to year. Nevertheless, these assumptions help
to show how the Contract values will change with investment experience. Premiums
are assumed to be paid at the beginning of the premium mode indicated, while the
cash surrender values, policy values and death benefit proceeds are at the end
of the year. The illustrations provided below assume that no policy loans are
taken.
The first column in each illustration shows the Policy Year. The second column,
to provide context, shows the aggregate accumulation if the premiums had been
invested in a savings account paying 5% compounded interest. The next three
columns show the Policy Value, Cash Surrender Value and Death Benefit Proceeds
assuming a 0% gross rate of return. The remaining three columns show these
amounts assuming a 10% gross rate of return.
Note that the gross return and the net return are shown at the top of each
column. The gross return represents the return on the Investment Accounts before
any reduction is made for charges and deductions incurred under the Policy. The
net return represents investment return after reductions for certain daily
charges incurred at the Policy and the underlying Fund levels.
Daily charges at the Policy level are currently comprised of a .20%
administrative expense charge and a .10% mortality and expense risk charge, for
a total daily charge of .30%. The sum of the administrative expense and the
mortality and expense risk charges is guaranteed not to exceed 1.20% of the
Policy Value in the Investment Accounts each year.
For purposes of reflecting daily charges incurred at the underlying Fund level,
each illustration assumes that the Policy Value has been invested in equal
amounts in each of the Investment Accounts of the Separate Account and no
portion of the Policy Value has been allocated to the Fixed-Rate Account,
resulting in an average expense charge of .20% at the underlying Fund level.
This charge reflects a voluntary waiver of a portion of the investment
management fee. This waiver is contractual and will remain in effect until at
least July 1, 2006. Without the waiver, the values illustrated would be lower.
Taking into account the current total Policy level daily charge of .30% and the
underlying Fund level daily charge of .20%, the gross annual rates of return of
0% and 10% correspond to net annual rates of -.50% and 9.50%, respectively. The
guaranteed maximum charge of 1.20% at the Policy level, combined with the
underlying Fund level daily charge of .20%, produce corresponding net annual
rates of -1.40% and 8.60%, respectively. For more information on charges and
deductions, see "Charges and Deductions."
C-1
Upon request, we will provide illustrations of future benefits under the Policy
based upon the proposed Insured age and Underwriting Class, the death benefit
option, Face Amount, planned Premiums, and riders requested. You may also
request an illustration reflecting an assumed gross return different from that
shown in the tables below, although currently any such return may not be higher
than 10%. We reserve the right to charge a reasonable fee for this service to
persons who request more than one policy illustration during a Policy Year.
C-2
Hypothetical Illustrations for VUL Prospectus
Male Preferred Non-tobacco Issue Age 35
Face Amount: $250,000
Death Benefit Option: 1
Tax Test: Guideline Premium Test
Annual Premium: $2,500
Current Charges
Total Premiums
Paid plus Current Charges, 0% gross return Current Charges, 10% gross return
Interest at 5% (-.50% net return) (9.50% net return)
-------------- ----------------------------------- --------------------------------------
End of Cash Death Cash Death
Policy Accumulated Policy Surrender Benefit Policy Surrender Benefit
Year Premiums Value Value Proceeds Value Value Proceeds
------ ----------- ------- --------- -------- --------- ---------- ---------
1 2,625 1,702 1,702 250,000 1,906 1,906 250,000
2 5,381 3,388 3,388 250,000 3,984 3,984 250,000
3 8,275 5,269 5,269 250,000 6,475 6,475 250,000
4 11,314 7,125 7,125 250,000 9,187 9,187 250,000
5 14,505 8,954 8,954 250,000 12,140 12,140 250,000
6 17,855 10,754 10,754 250,000 15,354 15,354 250,000
7 21,373 12,517 12,517 250,000 18,847 18,847 250,000
8 25,066 14,239 14,239 250,000 22,642 22,642 250,000
9 28,945 15,915 15,915 250,000 26,763 26,763 250,000
10 33,017 17,537 17,537 250,000 31,236 31,236 250,000
15 56,644 25,929 25,929 250,000 61,342 61,342 250,000
20 86,798 34,771 34,771 250,000 110,081 110,081 250,000
25 125,284 42,307 42,307 250,000 186,773 186,773 250,276
30 174,402 47,859 47,859 250,000 307,512 307,512 375,165
35 237,091 50,419 50,419 250,000 496,026 496,026 575,390
40 317,099 48,307 48,307 250,000 790,972 790,972 846,340
45 419,213 38,454 38,454 250,000 1,254,304 1,254,304 1,317,019
50 549,538 14,917 14,917 250,000 1,974,512 1,974,512 2,073,237
55 715,871 3,086,568 3,086,568 3,240,896
60 928,157 4,825,577 4,825,577 4,873,833
65 1,199,095 7,611,962 7,611,962 7,611,962
The following illustrations have been prepared to help show how certain values
under the Policy change with different rates of investment performance over an
extended period of time. The hypothetical investment returns are provided only
to illustrate the mechanics of a hypothetical Policy and do not represent past
or future performance. Actual rates of return for a particular Policy may be
more or less than the hypothetical investment rates of return. The actual return
on your Policy Value will depend on factors such as the amount and timing of
your premium payments, the performance of the investment accounts you've chosen,
the interest rates on the Fixed-Rate Account and the Loan Account, Policy
charges, how much you've borrowed or withdrawn from the Policy and the level of
Policy and rider benefits. The values shown above would be different if actual
rates of return averaged the rates shown above over a period of years, but
fluctuated above or below those averages from year to year.
C-3
Hypothetical Illustrations for VUL Prospectus
Male Preferred Non-tobacco Issue Age 35
Face Amount: $250,000
Death Benefit Option: 1
Tax Test: Guideline Premium Test
Annual Premium: $2,500
Guaranteed Charges
Total Premiums
Paid plus Guaranteed Charges, 0% gross return Guaranteed Charges, 10% gross return
Interest at 5% (-1.40% net return) (8.60% net return)
---------------- ----------------------------------- --------------------------------------
End of Cash Death Cash Death
Policy Accumulated Policy Surrender Benefit Policy Surrender Benefit
Year Premiums Value Value Proceeds Value Value Proceeds
------ ----------- ------- -------- -------- --------- --------- --------
1 2,625 1,326 1,326 250,000 1,508 1,508 250,000
2 5,381 2,614 2,614 250,000 3,125 3,125 250,000
3 8,275 4,071 4,071 250,000 5,079 5,079 250,000
4 11,314 5,479 5,479 250,000 7,173 7,173 250,000
5 14,505 6,837 6,837 250,000 9,417 9,417 250,000
6 17,855 8,138 8,138 250,000 11,816 11,816 250,000
7 21,373 9,380 9,380 250,000 14,383 14,383 250,000
8 25,066 10,564 10,564 250,000 17,132 17,132 250,000
9 28,945 11,684 11,684 250,000 20,075 20,075 250,000
10 33,017 12,738 12,738 250,000 23,226 23,226 250,000
15 56,644 16,845 16,845 250,000 42,655 42,655 250,000
20 86,798 19,044 19,044 250,000 70,987 70,987 250,000
25 125,284 16,798 16,798 250,000 111,342 111,342 250,000
30 174,402 6,971 6,971 250,000 171,012 171,012 250,000
35 237,091 263,960 263,960 306,193
40 317,099 402,693 402,693 430,881
45 419,213 610,171 610,171 640,680
50 549,538 906,395 906,395 951,715
55 715,871 1,314,294 1,314,294 1,380,009
60 928,157 1,913,531 1,913,531 1,932,666
65 1,199,095 2,904,462 2,904,462 2,904,462
The following illustrations have been prepared to help show how certain values
under the Policy change with different rates of investment performance over an
extended period of time. The hypothetical investment returns are provided only
to illustrate the mechanics of a hypothetical Policy and do not represent past
or future performance. Actual rates of return for a particular Policy may be
more or less than the hypothetical investment rates of return. The actual return
on your Policy Value will depend on factors such as the amount and timing of
your premium payments, the performance of the investment accounts you've chosen,
the interest rates on the Fixed-Rate Account and the Loan Account, Policy
charges, how much you've borrowed or withdrawn from the Policy and the level of
Policy and rider benefits. The values shown above would be different if actual
rates of return averaged the rates shown above over a period of years, but
fluctuated above or below those averages from year to year.
C-4
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 heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
The TIAA-CREF Life bylaws provide that the TIAA-CREF Life Insurance Company
will indemnify, in the manner and to the fullest extent permitted by law, each
person made or threatened to be made a party to any action, suit or proceeding,
whether or not by or in the right of the TIAA-CREF Life Insurance Company, and
whether civil, criminal, administrative, investigative or otherwise, by reason
of the fact that he or she or his or her testator or intestate is or was a
director, officer or employee of the TIAA-CREF Life Insurance Company, or is or
was serving at the request of the TIAA-CREF Life Insurance Company as director,
officer or employee of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, if such director, officer or employee
acted, in good faith, for a purpose which he reasonably believed to be in, or in
the case of service for any other corporation or any partnership, joint venture
trust, employee benefit plan or other enterprise, not opposed to, the best
interests of the TIAA-CREF Life Insurance Company and in criminal actions or
proceedings, in addition, had no reasonable cause to believe his or her conduct
was unlawful. To the fullest extent permitted by law such indemnification shall
include judgments, fines, amounts paid in settlement, and reasonable expenses,
including attorneys' fees. No payment of indemnification, advance or allowance
under the foregoing provisions shall be made unless a notice shall have been
filed with the Superintendent of Insurance of the State of New York not less
than thirty days prior to such payment specifying the persons to be paid, the
amounts to be paid, the manner in which payment is authorized and the nature and
status, at the time of such notice, of the litigation or threatened litigation.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to officers and directors of the Depositor, pursuant to
the foregoing provision or otherwise, the Depositor has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Depositor of expenses incurred or paid by a director or
officer in connection with the successful defense of any action, suit or
proceeding) is asserted by a director or officer in connection with the
securities being registered, the Depositor 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 that Act and will be governed by the final
adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)
TIAA-CREF Life Insurance Company hereby represents that the fees and
charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by TIAA-CREF Life Insurance Company.
II-1
TIAA-CREF
OFFICERS AND DIRECTORS
AS OF JANUARY 2002
DIRECTORS
Scott C. Evans Dennis D. Foley
Martin E. Galt, III Richard L. Gibbs
Don W. Harrell Matina S. Horner
Martin L. Leibowitz Glenn A. MacFarlane
Bertram L. Scott John A. Somers
Charles H. Stamm Mary Ann Werner
James A. Wolf
OFFICERS
Richard J. Adamski Vice President and Treasurer
Gary Chinery Assistant Treasurer
Matthew Daitch Assistant Actuary
Roderic Eaton Assistant Investment Officer
Richard L. Gibbs Executive Vice President
Harry Klaristenfeld Appointed Actuary
Edward J. Leahy Assistant Secretary
Benjamin Leiser Assistant Secretary
Glenn A. MacFarlane Vice President and Chief Financial Officer
Morlee J. Miller Chief Administrative Officer
Michael T. O'Kane Chief Investment Officer
Bertram L. Scott Chairman, President and Chief Executive Officer
Mark L. Serlen Secretary
Edwin H. Betz Illustration Actuary
Kathleen VanNoy-Pineda Director, Compliance
Roger A. Vellekamp Assistant Secretary
Bruce Wallach Assistant Secretary
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 80 pages.
Undertaking to file reports.
Rule 484 Undertaking.
Representation Pursuant to Section 26(e).
The signatures.
II-2
Written Consents of the Following Persons:
(a) Charles H. Stamm, Esq.
(b) Jeffrey Goldin, FSA
(c) Sutherland Asbill & Brennan LLP
(d) Ernst & Young LLP, Independent Auditors
The following exhibits:
1.A. (1) Resolution of the Board of Directors of
TIAA-CREF Life Insurance Company establishing
TIAA-CREF Life Separate Account VLI-1*
(2) Not applicable
(3) (a) Form of Distribution Agreement by and among TIAA-CREF Life,
TIAA-CREF Life on behalf of the Registrant, and
Teachers Personal Investors Services, Inc.
(b) Not applicable
(c) Not applicable
(4) Not applicable
(5) (a) (1) Flexible Premium Variable Universal Life Insurance Policy
(2) Automatic Increase Rider
(3) Four Year Level Term Insurance Rider
(4) Guaranteed Minimum Death Benefit Rider
(5) Waiver of Monthly Charges Rider
(6) Aviation Limitation Endorsement
(b) (1) Last Survivor Flexible Premium Variable Universal Life Insurance Policy
(2) Last Survivor Automatic Increase Rider
(3) Last Survivor Four-year Level Term Insurance Rider
(4) Last Survivor Guaranteed Minimum Death Benefit Rider
(5) Last Survivor Policy Split Option
(6) Last Survivor Single Life Level Term Insurance Rider
(7) Last Survivor Aviation Limitation Endorsement
(6) (a) Charter of TIAA-CREF Life Insurance Company
(b) By-laws of TIAA-CREF Life Insurance Company
(7) Not applicable
(8) Form of Participation/Distribution Agreement with TIAA-CREF Life Funds
II-3
(9) Not applicable
(10) Form of Application
(11) Policy Statement on Personal Trading
(12) Description Of Issuance, Transfer And Redemption
Procedures For Individual and Last Survivor Flexible
Premium Variable Universal Life Insurance Policies
Issued by TIAA-CREF Life Insurance Company
2. Opinion and Consent of Charles H. Stamm, Esq. as to the legality of the securities
being registered
3. Not applicable
4. Not applicable
5. Opinion and Consent of Jeffrey Goldin, F.S.A. as to actuarial matters pertaining to
the securities being registered
6. (a) Written Consent of Charles H. Stamm, Esq.(1)
(b) Written Consent of Jeffrey Goldin, F.S.A.(2)
(c) Written Consent of Sutherland Asbill & Brennan LLP
(d) Written Consent of Ernst & Young LLP, Independent Auditors
* Incorporated by reference to the initial filing of the Registration Statement
on Form S-6, filed June 1, 2001 (File No. 333-62162).
1. See Exhibit 2 above.
2. See Exhibit 5 above.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
TIAA-CREF Life Separate Account VLI-1, has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
New York and the State of New York, on the 31st day of January, 2002.
TIAA-CREF LIFE SEPARATE ACCOUNT VLI-1
By: TIAA-CREF Life Insurance Company
(On behalf of the Registrant and itself)
By: /S/ BERTRAM L. SCOTT
-----------------------------------
Bertram L. Scott
Chairman, President and
Chief Executive Officer
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/S/ BERTRAM L. SCOTT Chairman, President and 1/31/02
- ----------------------------------- Chief Executive Officer (Principal Executive
Bertram L. Scott Officer)
/S/ GLENN A. MACFARLANE Vice President and Chief Financial 1/31/02
- ----------------------------------- Officer (Principal Financial and
Glenn A. MacFarlane Accounting Officer)
SIGNATURE OF DIRECTOR DATE SIGNATURE OF DIRECTOR DATE
- --------------------- ---- --------------------- ----
/S/ SCOTT C. EVANS 1/31/02 /S/ GLENN A. MACFARLANE 1/31/02
- ----------------------------- -----------------------------
Scott C. Evans Glenn A. MacFarlane
/S/ DENNIS D. FOLEY 1/31/02 /S/ BERTRAM L. SCOTT 1/31/02
- ----------------------------- -----------------------------
Dennis D. Foley Bertram L. Scott
/S/ MARTIN E. GALT, III 1/31/02 /S/ JOHN A. SOMERS 1/31/02
- ----------------------------- -----------------------------
Martin E. Galt, III John A. Somers
/S/ RICHARD L. GIBBS 1/31/02 /S/ CHARLES H. STAMM 1/31/02
- ----------------------------- -----------------------------
Richard L. Gibbs Charles H. Stamm
/S/ DON W. HARRELL 1/31/02 /S/ MARY ANN WERNER 1/31/02
- ----------------------------- -----------------------------
Don W. Harrell Mary Ann Werner
/S/ MATINA S. HORNER 1/31/02 /S/ JAMES A. WOLF 1/31/02
- ----------------------------- -----------------------------
Matina S. Horner James A. Wolf
/S/ MARTIN L. LEIBOWITZ 1/31/02
- -----------------------------
Martin L. Leibowitz
EXHIBIT INDEX
1.A. (1) Resolution of the Board of Directors of
TIAA-CREF Life Insurance Company establishing
TIAA-CREF Life Separate Account VLI-1*
(2) Not applicable
(3) (a) Form of Distribution Agreement by and among TIAA-CREF Life,
TIAA-CREF Life on behalf of the Registrant, and
Teachers Personal Investors Services, Inc.
(b) Not applicable
(c) Not applicable
(4) Not applicable
(5) (a) (1) Flexible Premium Variable Universal Life Insurance Policy
(2) Automatic Increase Rider
(3) Four Year Level Term Insurance Rider
(4) Guaranteed Minimum Death Benefit Rider
(5) Waiver of Monthly Charges Rider
(6) Aviation Limitation Endorsement
(b) (1) Last Survivor Flexible Premium Variable Universal Life Insurance Policy
(2) Last Survivor Automatic Increase Rider
(3) Last Survivor Four-year Level Term Insurance Rider
(4) Last Survivor Guaranteed Minimum Death Benefit Rider
(5) Last Survivor Policy Split Option
(6) Last Survivor Single Life Level Term Insurance Rider
(7) Last Survivor Aviation Limitation Endorsement
(6) (a) Charter of TIAA-CREF Life Insurance Company
(b) By-laws of TIAA-CREF Life Insurance Company
(7) Not applicable
(8) Form of Participation/Distribution Agreement with TIAA-CREF Life Funds
(9) Not applicable
(10) Form of Application
(11) Policy Statement on Personal Trading
(12) Description Of Issuance, Transfer And Redemption
Procedures For Individual and Last Survivor Flexible
Premium Variable Universal Life Insurance Policies
Issued by TIAA-CREF Life Insurance Company
2. Opinion and Consent of Charles H. Stamm, Esq. as to the legality of the securities
being registered
3. Not applicable
4. Not applicable
5. Opinion and Consent of Jeffrey Goldin, F.S.A. as to actuarial matters pertaining to
the securities being registered
6. (a) Written Consent of Charles H. Stamm, Esq.(1)
(b) Written Consent of Jeffrey Goldin, F.S.A.(2)
(c) Written Consent of Sutherland Asbill & Brennan LLP
(d) Written Consent of Ernst & Young LLP, Independent Auditors
* Incorporated by reference to the initial filing of the Registration Statement
on Form S-6, filed June 1, 2001 (File No. 333-62162).
1. See Exhibit 2 above.
2. See Exhibit 5 above.