Registration No. 333-57062
As filed with the Securities and Exchange Commission on October 31, 2001
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
SEPARATE ACCOUNT USL VL-R
(Exact Name of Trust)
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
(Exact Name of Depositor)
390 Park Avenue, 5/th/ Floor
New York, New York 10022
(Complete Address of Depositor's Principal Executive Offices)
Pauletta P. Cohn, Esq.
Deputy General Counsel
American General Life Companies
2929 Allen Parkway
Houston, Texas 77019-2155
(Name and Complete Address of Agent for Service)
Title and Amount of Securities Being Registered:
An Indefinite Amount of Units of Interest in
The United States Life Insurance Company in the City of New York
Separate Account USL VL-R
Under Variable Life Insurance Policies
Securities Being Offered: Flexible Premium Variable Life Insurance Policies
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date 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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
SEPARATE ACCOUNT USL VL-R
RECONCILIATION AND TIE BETWEEN ITEMS IN FORM
N-8B-2 AND THE PROSPECTUS
(PURSUANT TO INSTRUCTION 4 OF FORM S-6)
CROSS REFERENCE SHEET
ITEM NO. OF FORM N-8B-2* PROSPECTUS CAPTION
-----------------------------------------------------------------------------------------
1 Additional Information: Separate Account USL VL-R.
2 Additional Information: USL.
3 Inapplicable.
4 Additional Information: Distribution of Policies.
5, 6 Additional Information: Separate Account USL VL-R.
7 Inapplicable.**
8 Inapplicable.**
9 Additional Information: Legal Matters.
10(a) Additional Information: Your Beneficiary. Assigning
Your Policy.
10(b) Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
10(c)(d) Basic Questions You May Have: How can I change
my Policy's insurance coverage? How can I access my
investment in a Policy? Can I choose the form in which
USL pays out any proceeds from my Policy? Additional
Information: Tax Effects.
Assigning Your Policy. Payment of Policy Proceeds.
10(e) Basic Questions You May Have: Must I invest any
minimum amount in a policy? Additional Information:
Tax Effects.
10(f) Additional Information: Voting Privileges.
10(g)(1), 10(g)(4), 10(h)(3), 10(h)(2) Basic Questions You May Have: To what extent will
USL vary the terms and conditions of the Policies in
particular cases? Additional Information: Voting
Privileges; Additional Rights That We Have.
10(g)(3), 10(g)(4), 10(h)(3), 10(h)(4) Inapplicable.**
10(i) Basic Questions You May Have: How can I change my
Policy's insurance coverage? What additional rider
benefits might I select? Additional Information:
Separate Account USL VL-R. Tax Effects.
11 Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
Additional Information: Separate Account USL VL-R.
12(a) Additional Information: Separate Account USL VL-R.
Front Cover.
12(b) Inapplicable.**
12(c), 12(d) Inapplicable.**
12(e) Inapplicable, because the Separate Account has not
commenced operations.
13(a) Basic Questions You May Have: What charges will
USL deduct from my investment in a Policy? What
charges and expenses will the Mutual Funds deduct
from amounts I invest through my Policy? How can I
change my Policy's insurance coverage? How can I
access my investment? Additional Information: More
About Policy Charges. More about our Declared Fixed
Interest Account Option.
13(b) Inapplicable.
13(c) Inapplicable.**
13(d) Basic Questions You May Have: To what extent will
USL vary the terms and conditions of the Policy in
particular cases?
13(e) None.
13(f), 13(g) Inapplicable.**
14 Basic Questions You May Have: How can I invest
money in a Policy? How will the value of my
investment in a Policy change over time? Additional
Information: Service Agreements.
15 Basic Questions You May Have: How can I invest
money in a Policy? How do I communicate with
USL? Additional Information: Effective Date of Policy
and Related Transactions.
16 Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
Additional Information: Separate Account USL VL-R.
ITEM NO. ADDITIONAL INFORMATION
---------------------------------------------------------------------------------------------
17(a), 17(b) Captions referenced under Items 10(c), 10(d), and
10(e).
17(c) Inapplicable.**
18(a) Captions referred to under Item 16.
18(b), 18(d) Inapplicable.**
18(c) Additional Information: Separate Account USL VL-R.
19 Additional Information: Separate Account USL VL-R.
Performance Information: Our Reports to Policy
Owners.
20(a), 20(b), 20(c), 20(d), 20(e), 20(f) Inapplicable.**
21(a), 21(b) Basic Questions You May Have: How can I access
my investment in a Policy? Additional Information:
Payment of Policy Proceeds.
21(c) Inapplicable.**
22 Additional Information: USL. Tax Effects. Payment of
Policy Proceeds. Service Agreements.
23 Inapplicable.**
24 Additional Information: Additional Rights That We
Have.
25 Additional Information: USL.
26 Inapplicable, because the Separate Account has
not commenced operations.
27 Inapplicable, because the Separate Account has
not commenced operations.
28 Additional Information: USL's Management.
29 Additional Information: USL.
30, 31, 32, 33, 34 Inapplicable, because the Separate Account has
not commenced operations.
35 Inapplicable, because the Separate Account has not
commenced operations.
36 Inapplicable.**
37 None.
38, 39 Additional Information: Distribution of the Policies.
40 Inapplicable, because the Separate Account has not
commenced operations.
41(a) Additional Information: Distribution of the Policies.
41(b), 41(c) Inapplicable**
42,43 Inapplicable, because the Separate Account has not
commenced operations or issued any securities.
44(a)(1) Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
44(a)(2) Inapplicable.
44(a)(3), 44(a)(4), 44(a)(5), 44(a)(6) Basic Questions You May Have: What charges will
USL deduct from my investment in a Policy?
Additional Information: Tax Effects.
44(b) Inapplicable.**
44(c) Caption referenced in 13(a), 13(c) and 13(d) above.
45 Inapplicable, because the Separate Account has not
commenced operations.
46(a) Captions referenced in 44(a) above.
46(b) Inapplicable.**
47, 48, 49 Inapplicable.**
50 Inapplicable.**
51 Inapplicable.**
52(a), 52(c) Basic Questions You May Have: To what extent can
USL vary the terms and conditions of the Policy in
particular cases? Additional Information:
Additional Rights That We Have.
52(b) Inapplicable, because the Separate Account has not
commenced operations or issued any securities.
52(d) None.
53(a) Additional Information: Separate Account USL VL-R.
Tax Effects.
53(b), 54 Inapplicable.**
55 Illustrations of Hypothetical Policy Benefits.
56-58 Inapplicable.**
59 Financial Statements.
* Registrant includes this Reconciliation and Tie in its Registration
Statement in compliance with Instruction 4 as to the Prospectus as set out
in Form S-6. Separate Account USL VL-R (Account) has previously filed a
notice of registration as an investment company on Form N-8A under the
Investment Company Act of 1940 (Act), and a Form N-8B-2 Registration
Statement. Pursuant to Sections 8 and 30(b)(1) of the Act, Rule 30a-1 under
the Act, and Forms N-8B-2 and N-SAR under that Act, the Account will keep
its Form N-8B-2 Registration Statement current through the filing of
periodic reports required by the Securities and Exchange Commission
(Commission).
** Not required pursuant to either Instruction 1(a) as to the Prospectus as
set out in Form S-6 or the administrative practice of the Commission and
its staff of adapting the disclosure requirements of the Commission's
registration statement forms in recognition of the differences between
variable life insurance policies and other periodic payment plan
certificates issued by investment companies and between separate accounts
organized as management companies and unit investment trusts.
PLATINUM INVESTOR (SM) SURVIVOR
Last Survivor Flexible Premium Variable Life Insurance Policy (the "Policy")
Issued by
The United States Life Insurance Company in the City of New York ("USL")
ADMINISTRATIVE CENTER: HOME OFFICE: PREMIUM PAYMENTS:
(Express Delivery) 390 Park Avenue, (Express Delivery)
2727-A Allen Parkway 5TH Floor The United States Life
Houston, Texas 77019-2191 New York, New York Insurance Company in
1-800-251-3720; 10022-4684 the City of New York
1-713-831-3913 1-212-709-6000 c/o Southwest Bank of Texas
(Hearing Impaired) 4400 Post Oak Parkway
1-888-436-5258 Houston, Texas 77027
Fax: 1-877-445-3098 Attention: Lockbox Processing
(Except premium payments)
(U.S. Mail) (U.S. Mail)
VUL Administration The United States Life
P. O. Box 4880 Insurance Company in the City
Houston, Texas 77210-4880 of New York
P. O. Box 4728, Dept. L
Houston, Texas 77210-4728
This booklet is called the "prospectus."
Investment options. The USL declared fixed interest account is the fixed
investment option for these Policies. You can also use USL's Separate Account
USL VL-R ("Separate Account") to invest in the following variable investment
options. You may change your selections from time to time:
Fund Investment Adviser Investment Option
---- ------------------ -----------------
o AIM Variable Insurance Funds A I M Advisors, Inc. AIM V.I. International Equity Fund
AIM V.I. Value Fund
o American Century Variable Portfolios, American Century Investment VP Value Fund
Inc. Management, Inc.
o Ayco Series Trust The Ayco Company, L.P. Ayco Growth Fund
o Credit Suisse Warburg Pincus Trust Credit Suisse Asset Management, LLC Small Company Growth Portfolio
o Dreyfus Investment Portfolios The Dreyfus Corporation MidCap Stock Portfolio - Initial shares
o Dreyfus Variable Investment Fund The Dreyfus Corporation Quality Bond Portfolio - Initial shares
Small Cap Portfolio - Initial shares
o Fidelity Variable Insurance Products Fidelity Management & Research VIP Asset Manager(SM) Portfolio
Fund Company VIP Contrafund(R) Portfolio
VIP Equity-Income Portfolio
VIP Growth Portfolio
o Janus Aspen Series - Service Shares Janus Capital Aggressive Growth Portfolio
International Growth Portfolio
Worldwide Growth Portfolio
o J. P. Morgan Series Trust II J. P. Morgan Investment Management J. P. Morgan Small Company
Inc. Portfolio
o MFS Variable Insurance Trust Massachusetts Financial Services MFS Capital Opportunities Series
Company MFS Emerging Growth Series
MFS New Discovery Series
MFS Research Series
o Neuberger Berman Advisers Management Neuberger Berman Management Inc. Mid-Cap Growth Portfolio
Trust
o North American Funds Variable Product VALIC International Equities Fund
Series I MidCap Index Fund
Money Market Fund
Nasdaq-100 Index Fund
Science & Technology Fund
Small Cap Index Fund
Stock Index Fund
o PIMCO Variable Insurance Trust Pacific Investment Management PIMCO Real Return Bond Portfolio
Administrative Class Company LLC PIMCO Short-Term Bond Portfolio
PIMCO Total Return Bond Portfolio
o Putnam Variable Trust Putnam Investment Management, LLC. Putnam VT Diversified Income Fund - Class IB
Putnam VT Growth and Income Fund - Class IB
Putnam VT International Growth and
Income Fund - Class IB
o SAFECO Resource Series Trust SAFECO Asset Management RST Equity Portfolio
Company RST Growth Opportunities Portfolio
o The Universal Institutional Funds, Inc. Morgan Stanley Asset Management Equity Growth Portfolio
Morgan Stanley Investments LP High Yield Portfolio
o Vanguard Variable Insurance Fund Wellington Management Company, llp High Yield Bond Portfolio
The Vanguard Group REIT Index Portfolio
o Van Kampen Life Investment Trust Van Kampen Asset Management. Inc. Strategic Stock Portfolio
- Class I Shares
Separate prospectuses contain more information about the Mutual Funds
("Funds" or "Mutual Funds") in which we invest the amounts that you allocate to
any of the above-listed investment options (other than our declared fixed
interest account option). The formal name of each such Fund is set forth in the
chart that appears on page 1. Your investment results in any such option will
depend on those of the related Fund. You should be sure you also read the
prospectus of the Mutual Fund for any such investment option you may be
interested in. You can request free copies of any or all of the Mutual Fund
prospectuses from your USL representative or from us at our Administrative
Center listed above.
Right to return. If for any reason you are not satisfied with your Policy,
you may return it to us and we will refund you the greater of (i) any premium
payments received by us or (ii) your accumulation value plus any charges that
have been deducted. To exercise your right to return your Policy, you must mail
it directly to the Administrative Center address shown on the first page of this
prospectus or return it to the USL representative through whom you purchased the
Policy within 10 days after you receive it. Because you have this right, we will
invest your initial net premium payment in the money market investment option
from the date your investment performance begins until the first business day
that is at least 15 days later. Then we will automatically allocate your
investment among the available investment options in the ratios you have chosen.
Any additional premium we receive during the 15-day period will also be invested
in the money market investment option and allocated to the investment options at
the same time as your initial net premium.
Charges and expenses. We deduct charges and expenses from the amounts you
invest in the Policy. These are described beginning on page 6.
Neither the Securities and Exchange Commission ("SEC") nor any state
securities commission has approved or disapproved these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense. The Policies are not available in all states.
The Policies are not insured by the FDIC, The Federal Reserve Board or any
similar agency. They are not a deposit or other obligation of, nor are they
guaranteed or endorsed by, any bank or depository institution. An investment in
a variable universal life insurance policy is subject to investment risk,
including possible loss of principal invested.
This prospectus is dated November 1, 2001
2
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you
purchase a Platinum Investor(SM) Survivor variable life policy ("Policy") or
exercise any of your rights or privileges under a Policy. Please read this
prospectus carefully and keep it for future reference.
Basic Information. Here are the page numbers in this prospectus where you
may find answers to most of your questions:
-------------------------------------------------------------------------------
Page to
See in this
Basic Questions You May Have Prospectus
---------------------------- -----------
o What are the Policies? 4
o How can I invest money in a Policy? 4
o How will the value of my investment in a Policy change over time? 6
o What charges will USL deduct from my investment in a Policy? 6
o What charges and expenses will the Mutual Funds deduct from
amounts I invest through my Policy? 9
o What is the amount of insurance ("death benefit")
that USL pays when the last surviving contingent insured person dies? 14
o What is joint equal age? 16
o Must I invest any minimum amount in a Policy? 16
o How can I change my Policy's investment options? 18
o How can I change my Policy's insurance coverage? 18
o What additional rider benefits might I select? 19
o How can I access my investment in a Policy? 21
o Can I choose the form in which USL pays out proceeds from my Policy? 23
o To what extent can USL vary the terms and conditions of the Policy
in particular cases? 24
o How will my Policy be treated for income tax purposes? 25
o How do I communicate with USL? 25
Financial statements. We have included certain financial statements of USL
in this prospectus. These begin on page Q-1.
Special words and phrases. If you want more information about any words or
phrases that you read in this prospectus, you may wish to refer to the Index of
Words and Phrases that appears at the end of this prospectus (page 53, which
follows all of the financial pages). That index will refer you to pages that
contain more about many of the words and phrases that we use.
3
BASIC QUESTIONS YOU MAY HAVE
What are the Policies?
Summary. This prospectus describes the last survivor flexible premium
variable life insurance Policy issued by USL (Policy Form No. 99206N). The
Policy is based on the lives of two persons. We call each person a contingent
insured. We pay the death benefit proceeds upon the death of the last surviving
contingent insured.
We apply your net premiums to your Policy. You may invest your premiums
in our declared fixed interest account or in one or more of the variable
investment options, or both. The value of your investment in a variable
investment option depends on the investment results of the related Mutual Fund.
We do not guarantee any minimum cash value for amounts allocated to the variable
investment options. If the Fund investments go down, the value of a Policy can
decline. The value of our declared fixed interest account will depend on the
interest rates that we declare.
Other choices you have. During the insured persons' lifetimes, you may,
within limits, (1) request an increase or decrease in the amount of insurance,
(2) borrow or withdraw amounts you have invested, (3) choose when and how much
you invest, (4) choose whether your accumulation value under your Policy, upon
the last surviving contingent insured person's death, will be added to the
insurance proceeds we otherwise will pay to the beneficiary, and (5) add or
delete certain other optional benefits that we make available by rider to your
Policy. At the time of purchase, you can decide whether your policy will be
subject to certain tax rules that maximize the cash value or rules that maximize
the insurance coverage.
Illustrations of a hypothetical Policy. Starting on page 26, we have
included some examples of how the values of a sample Policy would change over
time, based on certain assumptions we have made. Because your circumstances may
vary considerably from our assumptions, your USL representative will also
provide you with a similar sample illustration that is more tailored to your own
circumstances and wishes.
Additional information. You may find the answers to any other questions
you have under "Additional Information" beginning on page 29 or in the forms of
our Policy and riders. A table of contents for the "Additional Information"
portion of this prospectus also appears on page 29. You can obtain copies of our
Policy and rider forms from (and direct any other questions to) your USL
representative or our Administrative Center (shown on the first page of this
prospectus).
How can I invest money in a Policy?
Premium payments. We call the payments you make "premiums" or "premium
payments." The amount we require as your initial premium varies depending on the
specifics of your Policy and the contingent insureds. We can refuse to accept a
subsequent premium payment that is less than $25. Policies issued with automatic
premium payment plans may have different minimums. Otherwise, with a few
exceptions mentioned below, you can make premium payments at any time and in any
amount. Premium payments we receive after your right to return expires, as
discussed on page 2, will be allocated upon receipt to the available investment
options you have chosen.
4
Limits on premium payments. Federal tax law may limit the amount of
premium payments you can make (relative to the amount of your Policy's insurance
coverage) and may impose penalties on amounts you take out of your Policy if you
do not observe certain additional requirements. These tax law requirements and a
discussion of modified endowment contracts are summarized further under "How
will my Policy be treated for income tax purposes?" beginning on page 25 and
"Tax Effects" beginning on page 31. We will monitor your premium payments,
however, to be sure that you do not exceed permitted amounts or inadvertently
incur any tax penalties. The tax law limits can vary as a result of changes you
make to your Policy. For example, a reduction in the specified amount of your
Policy can reduce the amount of premiums you can pay.
Also, in certain limited circumstances additional premiums may cause
the death benefit to increase by more than they increase your accumulation
value. In such case, we may refuse to accept an additional premium if the
contingent insureds do not provide us with adequate evidence that they continue
to meet our requirements for issuing insurance.
Checks and money orders. You may pay premiums by check or money order
drawn on a U.S. bank in U.S. dollars and made payable to "The United States Life
Insurance Company in the City of New York," or "USL." Premiums after the initial
premium should be sent directly to the appropriate address shown on your billing
statement. If you do not receive a billing statement, send your premium directly
to the address for premium payments shown on the first page of this prospectus.
We also accept premium payments by bank draft, wire or by exchange from
another insurance company. You may obtain further information about how to make
premium payments by any of these methods from your USL representative or from
our Administrative Center shown on the first page of this prospectus.
Dollar cost averaging. Dollar cost averaging is an investment strategy
designed to reduce the risks that result from market fluctuations. The strategy
spreads the allocation of your accumulation value among your chosen variable
investment options over a period of time. This allows you to reduce the risk of
investing most of your funds at a time when prices are high. The success of this
strategy depends on market trends and is not guaranteed.
Under dollar cost averaging, we automatically make transfers of your
accumulation value from the money market investment option to one or more of the
other variable investment options that you choose. You tell us whether you want
these transfers to be made monthly, quarterly, semi-annually or annually. We
make the transfers as of the end of the valuation period that contains the day
of the month that you select other than the 29th, 30th or 31st day of the month.
(The term "valuation period" is described on page 39.) You must have at least
$5,000 of accumulation value to start dollar cost averaging and each transfer
under the program must be at least $100. Dollar cost averaging ceases upon your
request, or if your accumulation value in the money market investment option
becomes exhausted. You cannot use dollar cost averaging at the same time you are
using automatic rebalancing. We do not charge you for using this service.
Automatic rebalancing. This feature automatically rebalances the
proportion of your accumulation value in each investment option under your
Policy to correspond to your then current premium allocation designation. You
tell us whether you want us to do the rebalancing quarterly,
5
semi-annually or annually. Automatic rebalancing will occur as of the end of the
valuation period that contains the date of the month your Policy was issued. For
example, if your Policy is dated January 17, and you have requested automatic
rebalancing on a quarterly basis, automatic rebalancing will start on April 17,
and will occur quarterly thereafter. You must have a total accumulation value of
at least $5,000 to begin automatic rebalancing. Rebalancing ends upon your
request. You cannot use automatic rebalancing at the same time you are using
dollar cost averaging. We do not charge you for using this service.
How will the value of my investment in a Policy change over time?
Your accumulation value. From each premium payment you make, we deduct
the charges that we describe on page 6 under "Premium tax charge" and "Other
deductions from each premium payment." We invest the rest in one or more of the
investment options listed in the chart on the first page of this prospectus. We
call the amount that is at any time invested under your Policy (including any
loan collateral we are holding for your Policy loans) your "accumulation value."
Your investment options. We invest the accumulation value that you have
allocated to any variable investment option in shares of a corresponding Mutual
Fund. Over time, your accumulation value in any such investment option will
increase or decrease by the same amount as if you had invested in the related
Fund's shares directly (and reinvested all dividends and distributions from the
Fund in additional Fund shares); except that your accumulation value will also
be reduced by certain charges that we deduct. We describe these charges
beginning on page 6 under "What charges will USL deduct from my investment in a
Policy?"
You can review other important information about the Mutual Funds that
you can choose in the separate prospectuses for those Funds. You can request
additional free copies of these prospectuses from your USL representative or
from our Administrative Center shown on the first page of this prospectus.
We invest any accumulation value you have allocated to our declared
fixed interest account option as part of our general assets. We credit interest
on that accumulation value at a rate, which we declare from time to time. We
guarantee that the interest will be credited at an effective annual rate of at
least 4%. Although this interest increases the amount of any accumulation value
that you have in our declared fixed interest account option, such accumulation
value will also be reduced by any charges that are allocated to this option
under the procedures described under "Allocation of charges" on page 9. The
"daily charge" described on page 7 and the charges and expenses of the Mutual
Funds discussed on pages 9 - 14 do not apply to our declared fixed interest
account option.
Policies are "non-participating." You will not be entitled to any
dividends from USL.
What charges will USL deduct from my investment in a Policy?
Premium tax charge. We deduct from each premium a charge for the tax
that is then applicable to us in your state or other jurisdiction. These taxes,
if any, currently range from 0.75% to 3.5%. You are not permitted to deduct the
amount of these taxes on your income tax return.
6
Other deductions from each premium payment. After we deduct premium tax
from your premium payment, we will deduct 6.5% from the remainder on all
premiums received during the first 10 years. Thereafter we will deduct 1% of
each premium, after deducting premium taxes. Your Policy refers to these
deductions as a Premium Expense Charge. We use these charges to cover sales
expenses, including commissions.
Daily charge. We will deduct a daily charge at an annual effective rate
of 0.40% of your accumulation value that is then being invested in any of the
variable investment options. After a Policy has been in effect for 10 years,
however, we will reduce this rate to an annual effective rate of 0.20%, and
after 30 years, to an annual effective rate of 0.10%. We guarantee these rate
reductions. We apply this charge to pay for our mortality and expense risks.
Flat monthly charge. We will deduct $6 from your accumulation value
each month. The flat monthly charge makes up a part of the Monthly
Administration Fee shown on page 3 of your Policy. We use this charge to pay for
the cost of administrative services we provide under the Policies. See "Monthly
charge per $1,000 of specified amount" below for a description of the balance of
the Monthly Administration Fee.
Monthly charge per $1,000 of specified amount. We also deduct this
charge monthly from your accumulation value for the first 10 Policy years, or
for 10 Policy years for any increase in specified amount. The dollar amount of
this charge changes whenever there is any change in your Policy's specified
amount. (We describe the specified amount under "Your specified amount of
insurance" on page 14.) This charge varies according to the specified amount and
the premium classes of the contingent insureds. This charge is a maximum of
$0.60 for each $1,000 of specified amount. The actual amount of this charge for
your Policy is the amount in excess of the first $6 of the Monthly
Administration Fee shown on page 3 of your Policy. We use this charge to pay for
underwriting costs and other costs of issuing the Policies, and also to help pay
for the administrative services we provide under the Policies.
Monthly insurance charge. Every month we will deduct from your
accumulation value a charge based on the cost of insurance rates applicable to
your Policy on the date of the deduction and our "amount at risk" on that date.
Our amount at risk is the difference between (a) the death benefit that would be
payable before reduction by policy loans if the last surviving contingent
insured died on that date and (b) the then total accumulation value under the
Policy. For otherwise identical Policies, a greater amount at risk results in a
higher monthly insurance charge.
For otherwise identical Policies, a higher cost of insurance rate also
results in a higher monthly insurance charge. Our cost of insurance rates are
guaranteed not to exceed those that will be specified in your Policy. Our
current rates are lower for insured persons in most age and premium classes,
although we have the right at any time to raise these rates to not more than the
guaranteed maximum. In general, the longer you own your Policy, the higher the
cost of insurance rate will be as the contingent insureds grow older.
Also our cost of insurance rates will generally be lower if one or both
of the contingent insureds is a female than if a male. Similarly, our current
cost of insurance rates are generally lower for non-tobacco users than tobacco
users. On the other hand, contingent insureds who present particular health,
occupational or non-work related risks may require higher cost of insurance
rates
7
and other additional charges based on the specified amount of insurance
coverage under their Policy.
We use this charge primarily to fund the death benefits we pay under
the Policies.
Under New York law, a portion of our cost of insurance rates is used to
recover acquisition costs associated with issuing your Policy. Such acquisition
costs are higher in the early policy years.
Under New York law, any changes in the cost of insurance rates,
interest rates, mortality and expense charges, percentage of premium charges or
the monthly administration fee will be based on our expectations as to
investment earnings, mortality, persistency and expenses (including, reinsurance
costs and applicable tax charges). Such changes in policy cost factors will be
determined in accordance with procedures and standards on file with the New York
Insurance Department and will be determined at least every five years.
Surrender Charge. The Policies have a surrender charge that applies for
a maximum of the first 10 Policy years (and for a maximum of the first 10 Policy
years after any requested increase in the Policy's specified amount).
The amount of the surrender charge depends on the ages and other
insurance characteristics of the contingent insureds. The maximum amount of your
Policy's surrender charge will be shown in the table beginning on page 25 of the
Policy. It may initially be as high as $16.52 per $1,000 of specified amount or
as low as $0.47 per $1,000 of specified amount (or any increase in the specified
amount).
We will deduct the entire amount of any then applicable surrender
charge from the accumulation value at the time of a full surrender. Upon a
requested decrease in a Policy's specified amount, we will deduct any remaining
amount of the surrender charge that was associated with the specified amount
that is canceled. This includes any decrease that results from any requested
partial surrender. See "Partial surrender" beginning on page 21 and "Change of
death benefit option" beginning on page 19. For those Policies that lapse in the
first 10 Policy years, we use this charge to help recover sales expenses.
Partial surrender fee. We will charge a maximum fee equal to the lesser
of 2% of the amount withdrawn or $25 for each partial surrender you make. We use
this charge to help pay for the expense of making a partial surrender.
Transfer charges. We may charge a $25.00 transfer fee for each transfer
between investment options that exceeds 12 each policy year. We do not currently
assess this charge, but reserve the right to do so in the future. Any such
suspension or charge will be administered in a nondiscriminatory manner. The
$25.00 charge will not apply to transfers made under the Dollar Cost Averaging
or Automatic Rebalancing provisions.
Charge for taxes. Although we don't currently do so, we can make a
charge in the future for taxes we incur or reserves we set aside for taxes in
connection with the Policies. This would reduce the investment experience of
your accumulation value.
8
For a further discussion regarding the charges we will deduct from your
investment in a Policy, see "More About Policy Charges" on page 38.
Allocation of charges. You may choose the investment options from which
we deduct all monthly charges and any applicable surrender charges. If you do
not have enough accumulation value in those investment options, we will deduct
these charges in the same ratio the charges bear to the unloaned accumulation
value you then have in each investment option.
What charges and expenses will the Mutual Funds deduct from amounts I invest
through my Policy?
Each Mutual Fund pays its investment management fees and other
operating expenses. Because they reduce the investment return of a Fund, these
fees and expenses also will reduce indirectly the return you will earn on any
accumulation value that you have invested in that Fund. The charges and expenses
that we show in the following table are for each Fund's most recent fiscal year
ended, unless we indicate otherwise:
9
THE MUTUAL FUNDS' ANNUAL EXPENSES1 (as a percentage of average net assets)
Fund Other Fund Total Fund
Management Operating Operating
Fees (After Expenses (After Expenses (After
Expense 12b-1 Expense Expense
Name of Fund Reimbursement)3 Fees Reimbursement)3 Reimbursement)3
------------ -------------- ---- -------------- -------------
AIM Variable Insurance Funds:1
AIM V.I. International Equity Fund 0.73% 0.29% 1.02%
AIM V.I. Value Fund 0.61% 0.23% 0.84%
American Century Variable Portfolios,
Inc.:1
VP Value Fund 1.00% 0.00% 1.00%
Ayco Series Trust:2
Ayco Growth Fund 0.00% 1.00% 1.00%
Credit Suisse Warburg Pincus Trust:1
Small Company Growth Portfolio3 0.90% 0.21% 1.11%
Dreyfus Investment Portfolios:1
MidCap Stock Portfolio - Initial shares3,4 0.75% 0.25% 1.00%
Dreyfus Variable Investment Fund:1
Quality Bond Portfolio - Initial shares 0.65% 0.07% 0.72%
Small Cap Portfolio - Initial shares 0.75% 0.03% 0.78%
Fidelity Variable Insurance Products
Fund:1,5
VIP Asset ManagerSM Portfolio 0.53% 0.25% 0.10% 0.88%
VIP Contrafund(R)Portfolio6 0.57% 0.25% 0.10% 0.92%
VIP Equity-Income Portfolio6 0.48% 0.25% 0.10% 0.83%
VIP Growth Portfolio6 0.57% 0.25% 0.09% 0.91%
Janus Aspen Series-Service Shares:7
Aggressive Growth Portfolio 0.65% 0.25% 0.02% 0.92%
International Growth Portfolio 0.65% 0.25% 0.06% 0.96%
Worldwide Growth Portfolio 0.65% 0.25% 0.05% 0.95%
J. P. Morgan Series Trust II:1
J. P. Morgan Small Company 0.60% 0.55% 1.15%
Portfolio3
10 (Footnotes begin on page 12)
Fund Other Fund Total Fund
Management Operating Operating
Fees (After Expenses (After Expenses (After
Expense 12b-1 Expense Expense
Name of Fund Reimbursement)3 Fees Reimbursement)3 Reimbursement)3
------------ -------------- ---- -------------- -------------
MFS Variable Insurance Trust:1
MFS Capital Opportunities Series8 0.75% 0.16% 0.91%
MFS Emerging Growth Series8 0.75% 0.10% 0.85%
MFS New Discovery Series3,8 0.90% 0.16% 1.06%
MFS Research Series8 0.75% 0.10% 0.85%
Neuberger Berman Advisers
Management Trust:1
Mid-Cap Growth Portfolio 0.84% 0.14% 0.98%
North American Funds Variable
Product Series I:1, 9
International Equities Fund 0.35% 0.07% 0.42%
MidCap Index Fund 0.30% 0.08% 0.38%
Money Market Fund 0.50% 0.10% 0.60%
Nasdaq-100(R)Index Fund 0.40% 0.12% 0.52%
Science & Technology Fund 0.90% 0.10% 1.00%
Small Cap Index Fund 0.35% 0.09% 0.44%
Stock Index Fund 0.26% 0.08% 0.34%
PIMCO Variable Insurance Trust
Administrative Class:1, 10
PIMCO Real Return Bond Portfolio 0.25% 0.40% 0.65%
PIMCO Short-Term Bond Portfolio 0.25% 0.35% 0.60%
PIMCO Total Return Bond Portfolio3 0.25% 0.40% 0.65%
Putnam Variable Trust11
Putnam VT Diversified Income Fund 0.68% 0.25% 0.10% 1.03%
- Class IB12
Putnam VT Growth and Income Fund 0.46% 0.25% 0.04% 0.75%
- Class IB12
Putnam VT International Growth and 0.80% 0.25% 0.17% 1.22%
Income Fund - Class IB12
SAFECO Resource Series Trust:1
11 (Footnotes begin on page 12)
Fund Other Fund Total Fund
Management Operating Operating
Fees (After Expenses (After Expenses (After
Expense 12b-1 Expense Expense
Name of Fund Reimbursement)3 Fees Reimbursement)3 Reimbursement)3
------------ -------------- ---- -------------- -------------
RST Equity Portfolio 0.74% 0.04% 0.78%
RST Growth Opportunities Portfolio 0.74% 0.03% 0.77%
The Universal Institutional Funds, Inc.:1
Equity Growth Portfolio3 0.48% 0.37% 0.85%
High Yield Portfolio3 0.26% 0.54% 0.80%
Vanguard Variable Insurance Fund:
High Yield Bond Portfolio 0.18% 0.08% 0.26%
REIT Index Portfolio 0.34% 0.13% 0.47%
Van Kampen Life Investment Trust - Class
I Shares:1
Strategic Stock Portfolio3 0.13% 0.53% 0.66%
-----------------
1 Most of the Mutual Fund's advisers or administrators have entered into
arrangements under which they pay certain amounts to USL for services such a
proxy mailing and tabulation, mailing of fund related information and
responding to Policy owners' inquiries about the Funds. PIMCO Variable
Insurance Trust has entered into such an arrangement directly with us. The
fees shown above for Total Fund Operating Expenses are unaffected by these
arrangements. To the extent we receive these fees, we do not lower the Policy
fees we charge you. We do not generate a profit from these fees, but only
offset the cost of the services. (See "Certain Arrangements" on page 39 and
"Services Agreements" on page 51.)
2 The Ayco Growth Fund is a new Fund that became effective in December 2000. The
Fund has an expense limitation agreement in place to limit its 2001 fees and
charges to 1.00%.
3 For the Funds indicated, management fees and other expenses as shown for
fiscal year 2000 would have been the percentages shown below without certain
voluntary fee waivers and expense reimbursements from the investment adviser
or other parties. Current and future fees and expenses may vary from the
fiscal year 2000 fees and expenses.
12 (Footnotes continue on page 13)
Management Other Total
Fees Expenses Annual Expenses
------------------- ---------------- ------------------------
Credit Suisse Warburg Pincus Trust:
Small Company Growth Portfolio 0.90% 0.23% 1.13%
Dreyfus Investment Portfolios:
MidCap Stock Portfolio - Initial 0.75% 0.29% 1.04%
shares
J.P. Morgan Series Trust II:
J.P. Morgan Small Company 0.60% 0.72% 1.32%
Portfolio
MFS Variable Insurance Trust:
MFS New Discovery Series 0.90% 0.19% 1.09%
PIMCO Variable Insurance Trust Administrative
Class:
PIMCO Total Return Bond Portfolio 0.25% 0.41% 0.66%
The Universal Institutional Funds, Inc.:
Equity Growth Portfolio 0.55% 0.37% 0.92%
High Yield Portfolio 0.50% 0.54% 1.04%
Van Kampen Life Investment Trust - Class I Shares:
Strategic Stock Portfolio 0.50% 0.53% 1.03%
No other Funds received any fee waivers and expense reimbursements.
4 The expenses shown in THE MUTUAL FUNDS' ANNUAL EXPENSES table above reflect
the MidCap Stock Portfolio adviser's waiver of fees or reimbursement of
expenses for the fiscal year ended December 31, 2000. For such fiscal year,
the Portfolio's adviser further reimbursed the Portfolio for other expenses so
that the total annual Portfolio expenses were 0.98% instead of 1.00%. This
additional expense reimbursement was voluntary. The "Other Fund Operating
Expenses" information provided in THE MUTUAL FUNDS' ANNUAL EXPENSES table has
been restated to reflect the amount the fees would have been without the
additional voluntary reimbursement. The Portfolio's adviser has agreed, until
December 31, 2001, to waive receipt of its fees and/or assume the expenses of
the Portfolio so that the expenses of the Portfolio (excluding taxes,
brokerage commissions, extraordinary expenses, interest expenses and
commitment fees on borrowing) do not exceed 1.00%. See the accompanying MidCap
Stock Portfolio prospectus for more details.
5 The prospectuses for Fidelity Variable Insurance Products Fund under "Fund
Distribution" discuss this 12b-1 fee.
6 Actual annual class operating expenses were lower because a portion of the
brokerage commissions that the Fund paid was used to reduce the Fund's
expenses, and/or because through arrangements with the Fund's custodian,
credits realized as a result of uninvested cash balances were used to reduce a
portion of the Fund's custodian expenses. See the accompanying prospectuses
for Fidelity Variable Insurance Product Fund for details.
7 Expenses are based upon expenses for the fiscal year ended December 31, 2000,
restated to reflect a reduction in the management fee for the Aggressive
Growth, International Growth and Worldwide Growth Portfolios. All expenses are
shown without the effect of any expense offset arrangements. The prospectus
for Janus Aspen Series under "Fees and Expenses" discusses the 12b-1 fee.
8 Each of the MFS Capital Opportunities, MFS Emerging Growth, MFS New Discovery
and MFS Research Series has an expense offset arrangement which reduces the
Series' custodian fee based upon the amount of cash maintained by the Series
with its custodian and dividend disbursing agent. Each Series may enter into
other such arrangements and directed brokerage arrangements, which would also
have the effect of reducing the Series' expenses. The "Other Fund Operating
Expenses" in THE MUTUAL FUNDS' ANNUAL EXPENSES table above do not take into
account these expense reductions, and are therefore higher than the actual
expenses of the Series. Had these fee reductions been taken into account,
"Total Fund Operating Expenses (After Expense Reimbursements)" in THE MUTUAL
FUNDS' ANNUAL
13 (Footnotes continue on page 14)
EXPENSES table above would be lower for the Series and would equal 0.90% for MFS
Capital Opportunities Series, 0.84% for MFS Emerging Growth Series, 1.05% for
MFS New Discovery Series, and 0.84% for MFS Research Series. See the
accompanying MFS Variable Insurance Trust prospectus for more details.
9 The Expenses have been restated to reflect contractual changes effective
May 1, 2001.
10USL has entered into a service agreement with PIMCO Variable Insurance Trust
under which a portion of the Other Fund Operating Expenses is paid to USL to
reimburse USL for services provided to the PIMCO Variable Insurance Trust.
11The prospectus for Putnam Variable Trust under "Distribution Plan" discusses
this 12b-1 fee.
12The Fund's fees have been restated to reflect an increase in 12b-1 fees
currently payable to Putnam Retail Management. The Trustees of Putnam Variable
Trust currently limit 12b-1 fee payments on Class IB shares to 0.25% of
average net assets.
What is the amount of insurance ("death benefit") that USL pays when the last
surviving contingent insured dies?
Your specified amount of insurance. In your application to buy a
Platinum Investor Survivor Policy, you tell us how much life insurance coverage
you want. We call this the "specified amount" of insurance. We also provide a
guaranteed minimum death benefit equal to the initial specified amount. We
provide more information about the specified amount and the guaranteed minimum
death benefit under "Monthly guarantee premiums," beginning on page 17. You
should read this other discussion carefully because it contains important
information about how the choices you make can affect your benefits and the
amount of premiums and charges you may have to pay.
Your death benefit. The death benefit we will pay is reduced by any
outstanding Policy loans and increased by any unearned loan interest we may have
already charged. At any time before the death of the last surviving contingent
insured, you can choose whether the death benefit we will pay is
o Option 1--The specified amount on the date of the last surviving
contingent insured's death; or
o Option 2--The specified amount plus the Policy's accumulation value
on the date of the last surviving contingent insured's death.
Under Option 2, your death benefit will tend to be higher than under
Option 1. However, the monthly insurance charge we deduct will also be higher to
compensate us for our additional risk. Because of this, your accumulation value
for the same amount of premium will tend to be higher under Option 1 than under
Option 2.
Any premiums we receive after the last surviving contingent insured's
death will be returned and not included in your accumulation value.
We may pay a larger death benefit depending on the amount of the
accumulation value on the date of death, as explained below.
Federal tax law requires a minimum death benefit in relation to the
accumulation value in order for a Policy to qualify as life insurance. We will
automatically increase the death benefit of a Policy if necessary to ensure that
the Policy will continue to qualify as life insurance. One of two tests under
current federal tax law can be used: the "guideline premium test" or the "cash
value
14
accumulation test." You must elect one of these tests at issue, and, once
elected, the choice may not be changed. Factors you should consider in making
this choice are discussed below.
The "guideline premium test" limits the amount of premiums paid under a
Policy at any time to a certain amount which depends on the size of the Policy
and the age and gender of the contingent insureds. Therefore, the maximum
premiums you can pay are generally more limited under this test than under the
cash value accumulation test.
The other major difference between the two tax tests involves the
Policy's "alternative death benefit." The alternative death benefit is
calculated as shown in the tables that follow. During any time when the
alternative death benefit works out to be more than the Option 1 or Option 2
death benefit you have chosen, we would automatically deem the death benefit to
be such higher amount.
As illustrated in the tables below, choosing the cash value accumulation test
for tax law compliance generally makes it more likely that an alternative death
benefit will apply. Therefore, if you anticipate that your Policy may have a
substantial accumulation value in relation to its death benefit, you should be
aware that the alternative death benefit may cause your Policy's death benefit
to be higher if you choose that test than if you choose the guideline premium
test. To the extent that the alternative death benefit does result in a higher
death benefit, the cost of insurance charges deducted from your Policy will also
tend to be higher. (This compensates us for the additional risk that we might
have to pay the higher alternative death benefit.)
If you have selected the guideline premium test, we calculate the
alternative death benefit by multiplying your Policy's accumulation value by the
following percentages:
SPECIMEN ALTERNATIVE DEATH BENEFITS AS A PERCENTAGE
MULTIPLE OF POLICY ACCUMULATION VALUE (ASSUMING YOU
SELECT THE GUIDELINE PREMIUM TEST)
YOUNGER
CONTINGENT
INSURED's
AGE* 40 45 50 55 60 65 70 75 100
% 250% 215% 185% 150% 130% 120% 115% 105% 100%
-------------
* Age nearest birthday at the beginning of the Policy year in which the last
surviving contingent insured dies. We use the younger contingent insured's age
for this purpose even if the younger contingent insured is the first to die.
If you have selected the cash value accumulation test, we calculate the
alternative death benefit by multiplying your Policy's accumulation value by a
percentage that will be set forth on page 4 of your Policy. The percentage
varies based on the insurance characteristics of the contingent insureds. Below
is an example of applicable alternative death benefit percentages for the cash
value accumulation test. The example is for a male non-tobacco user and a female
non-tobacco user both preferred premium class and issue age 55.
15
SPECIMEN ALTERNATIVE DEATH BENEFITS AS A PERCENTAGE
MULTIPLE OF POLICY ACCUMULATION VALUE (ASSUMING YOU
SELECT THE CASH VALUE ACCUMULATION TEST)
Policy Year 1 2 3 5 10 20 30 40 45
% 313% 301% 290% 268% 222% 159% 126% 111% 104%
-------------
Your Policy calls the multipliers used for each test the "Death Benefit Corridor
Rate."
What is joint equal age?
Your Policy has been issued on the basis of a joint equal age. Joint
equal age is a calculation that blends the ages and insurance risks of the
contingent insureds. We use the joint equal age in the Policy to help determine
some of the charges under the Policy. We determine the joint equal age by using
the contingent insureds' individual ages nearest their birthdays, with an
adjustment which is a function of:
o the age of each contingent insured;
o the gender of each contingent insured; and
o the premium class of each contingent insured.
We show the joint equal age as of the date of issue on the Policy's
schedule page. The attained joint equal age increases one year on each Policy
anniversary. The attained joint equal age continues to increase after the death
of either contingent insured.
Must I invest any minimum amount in a Policy?
Planned periodic premiums. Page 3 of your Policy will specify a
"Planned Periodic Premium." This is the amount that you (within limits) choose
to pay. Our current practice is to bill quarterly, semi-annually or annually.
However, payment of these or any other specific amounts of premiums is not
mandatory. After payment of your initial premium, you need only invest enough to
ensure that your Policy's cash surrender value stays above zero or that the
guaranteed minimum death benefit (described under "Monthly guarantee premiums"
on page 17) remains in effect ("Cash surrender value" is explained under "Full
surrender" on page 21). The less you invest, the more likely it is that your
Policy's cash surrender value could fall to zero, as a result of the market
performance and/or deductions we periodically make from your accumulation value.
Policy lapse and reinstatement. If your Policy's cash surrender value
falls to an amount insufficient to cover the monthly charges, we will notify you
and give you a grace period to pay at least the amount we estimate is necessary
to keep your Policy in force for a reasonable time. If we do not receive your
payment by the end of the grace period, your Policy and all riders will end
16
without value and all coverage under your Policy will cease. Although you can
apply to have your Policy "reinstated," you must do this within 5 years (or, if
earlier, before the Policy's maturity date), and you must present evidence that
each contingent insured who was living when the Policy lapsed is still living
and meets our requirements for issuing coverage. Also, you will have to pay at
least the amount of premium that we estimate will keep your Policy in force for
two months, as well as pay or reinstate any indebtedness. You will find
additional information in the Policy about the values and terms of a Policy
after it is reinstated.
Monthly guarantee premiums. Page 3 of your Policy will specify a
"Guaranteed Minimum Death Benefit Monthly Premium." If you pay these guarantee
premiums, we will provide an Option 1 death benefit, even if your policy's cash
surrender value has declined to zero, and even if you have selected Option 2 as
the death benefit for your Policy.
We call this our "guaranteed minimum death benefit," and here are its
terms and conditions. On the first day of each Policy month that the cash
surrender value is not sufficient to pay the monthly deduction, we check to see
if the cumulative amount of premiums paid under the Policy, less any Policy
loans, is at least equal to the sum of the monthly guarantee premiums for all
Policy months to date, including the Policy month then starting. (Policy months
are measured from the "Date of Issue" that will also be shown on page 3 of your
Policy.) So long as at least this amount of premium payments has been paid by
the beginning of that Policy month, the Policy will not enter a grace period or
terminate (i.e., lapse) because of insufficient cash surrender value, unless the
guaranteed minimum death benefit has terminated as discussed in the paragraph
immediately below.
The guaranteed minimum death benefit terminates if
o The Policy terminates following a grace period.
o You change the death benefit Option.
o You request any decrease in specified amount.
o You make a partial surrender.
o You surrender the Policy.
We change the monthly guarantee premium whenever
o We approve any request you make to increase your Policy's specified
amount.
o We approve any application you make after your Policy is issued for
an additional rider benefit or any increase in a rider benefit.
o You request removal or decrease of a rider benefit that provides
term life insurance coverage.
Once the guaranteed minimum death benefit terminates for any reason, it
can never be restored or reinstated, even if the Policy itself continues or is
reinstated. At any time before your
17
guaranteed minimum death benefit terminates, however, you may pay any monthly
guarantee premiums that you have not yet paid to date and thereby continue to
have the protection that the guarantee affords.
The amount of premiums that must be paid to maintain the guaranteed
minimum death benefit will be increased by the cumulative amount of any loans
(including any loan increases to pay interest) you have taken from your Policy.
How can I change my Policy's investment options?
Future premium payments. You may at any time change the investment
options in which future premiums you pay will be invested. Your allocation must,
however, be in whole percentages that total 100%.
Transfers of existing accumulation value. You may also transfer your
existing accumulation value from one investment option under the Policy to
another. The first 12 transfers in a year are free of charge. We may charge you
$25 for each additional transfer. We do not currently assess this charge, but
reserve the right to do so in the future. You may make transfers from the
variable investment options at any time. You may make transfers from the
declared fixed interest account only during the 60-day period following each
Policy anniversary. The amount that you can transfer each year from the declared
fixed interest account is limited to the greater of:
o 25% of the unloaned accumulation value you have in the declared
fixed interest account as of the Policy anniversary; or
o the sum of any amounts you transferred or surrendered from the
declared fixed interest account during the previous Policy year.
Unless you are transferring the entire amount you have in an investment
option, each transfer must be at least $500. See "Additional Rights That We
Have" on page 44.
Market Timing. The Policy is not designed for professional market
timing organizations or other entities using programmed and frequent transfers
involving large amounts. We may not unilaterally terminate or discontinue
transfer privileges. However, we reserve the right to suspend such privileges
for a reasonable time with reasonable notice to prevent market timing efforts
that could disadvantage other Policy owners.
How can I change my Policy's insurance coverage?
Increase in coverage. At any time while both contingent insureds are
living, you may request an increase in the specified amount of coverage under
your Policy. You must, however, provide us with satisfactory evidence that both
contingent insureds continue to meet our requirements for issuing insurance
coverage.
We treat an increase in specified amount in many respects as if it were
the issuance of a new Policy. For example, the monthly insurance charge for the
increase will be based on the ages and premium classes of the contingent
insureds at the time of the increase. Also, a new amount of
18
surrender charge applies to the specified amount. These amounts are the same as
it would be if we were instead issuing the same amount of additional coverage as
a new Platinum Investor Survivor Policy.
Decrease in coverage. After the first Policy year, you may request a
reduction in the specified amount of coverage, but not below certain minimums.
After any decrease, the specified amount cannot be less than the greater of (i)
$100,000, and (ii) any minimum amount which, in view of the amount of premiums
you have paid, is necessary for the Policy to continue to meet the Federal tax
law definition of life insurance. We will apply a reduction in specified amount
proportionately against the specified amount provided under the original
application and any specified amount increases. We will deduct from your
accumulation value any remaining surrender charge. If there is not sufficient
accumulation value to pay the surrender charge at the time you request a
reduction, the decrease will not be allowed.
Change of death benefit option. You may at any time, before the death
of the last surviving contingent insured request us to change your coverage from
death benefit Option 1 to Option 2 or vice-versa.
o If you change from Option 1 to Option 2, we also automatically
reduce your Policy's specified amount of insurance by the amount of
your Policy's accumulation value (but not below zero) at the time
of the change. The change will go into effect on the monthly
deduction day following the date we receive your request for change
at our Administrative Center shown on the first page of this
prospectus. We will not charge a surrender charge for this
reduction in coverage.
o If you change from Option 2 to Option 1, we automatically increase
your Policy's specified amount by the amount of your Policy's
accumulation value.
Tax consequences of changes in insurance coverage. Please read "Tax
Effects" starting on page 31 of this prospectus to learn about possible tax
consequences of changing your insurance coverage under your Policy.
Effect of changes in insurance coverage on guaranteed minimum death
benefit. Most types of changes in coverage will result in termination of our
guarantee that, if you pay certain prescribed amounts of premiums, we will pay a
death benefit even if your policy's cash surrender value declines to zero. The
details of this guarantee are discussed under "Monthly guarantee premiums,"
beginning on page 17.
What additional rider benefits might I select?
You can request that your Policy include the additional rider benefits
described below. Eligibility for and changes in these benefits are subject to
our rules and procedures as in effect from time to time. More details are
included in the form of each rider, which we suggest that you review if you
choose these benefits.
19
Maturity Extension Rider
------------------------
o This rider permits you to extend the Policy's maturity date beyond
what it otherwise would be. The rider provides for a death benefit
after the original maturity date that is equal to the accumulation
value on the date of the last surviving contingent insured's death.
With this rider, all accumulation value that is in the Separate
Account can remain there. There is no additional charge for this
rider.
o No additional premium payments or Policy changes will be allowed
after the original maturity date. Any outstanding loans must be
paid.
o You cannot revoke this rider after you have elected it.
o Extension of the maturity date beyond the younger contingent
insured's age 100 may result in the current taxation of increases
in your Policy's accumulation value as a result of interest or
investment experience after that time. You should consult a
qualified tax adviser before making such an extension.
Split Policy Exchange Rider
---------------------------
This rider provides you with the right at any time while both
contingent insureds are living to request that the Policy be split into two
separate policies, insuring each of the contingent insureds under new, single
life policies. In order for you to exercise this right, neither contingent
insured could have the "uninsurable" premium class when the original Policy was
issued.
Here are the additional features about this rider:
o You can choose the amount of coverage on each policy, as long as
the total equals the death benefit amount of the Policy. We will
transfer the cash surrender value of the Policy, after paying off
any outstanding loan, to the new policies in the same proportion as
the new face amounts are to each other.
o The new policies can be any flexible or level premium whole life
policy or endowment plan we would ordinarily issue when this rider
is exercised.
o The Policy terminates when we issue the new policies.
o Under each of the new policies, if the insured commits suicide
within the first two policy years, we will limit the death benefit
proceeds to the total of all premiums that have been paid on the
Policy insuring the deceased person to the time of death minus any
outstanding policy loans (plus any unearned loan interest) and
partial surrenders.
o There is no additional charge for exercising this rider.
You can choose to exchange only if the contingent insureds were married
to one another and have divorced, the Federal unlimited marital deduction is
repealed, or there is a reduction of at least 50% of the tax rate in the maximum
Federal estate tax bracket. However, in the case of divorce, the
20
divorce decree must have been final at least 24 months before the exchange. In
these situations, the original Policy's specified amount and cash surrender
value will be split equally between the two new policies.
The new policies are subject to underwriting based on our established
procedures. This rider requires that both contingent insureds are found to be
insurable.
How can I access my investment in a Policy?
Full surrender. You may at any time surrender your Policy in full. If
you do, we will pay you the accumulation value, less any Policy loans, plus any
unearned loan interest, and less any surrender charge that then applies. We call
this amount your "cash surrender value."
Partial surrender. You may, at any time after the first Policy year,
make a partial surrender of your Policy's cash surrender value. A partial
surrender must be at least $500. We will automatically reduce your Policy's
accumulation value by the amount of your withdrawal and any related charges. We
do not allow partial surrenders that would reduce the death benefit below
$100,000.
If the Option 1 death benefit is then in effect, we also will reduce
your Policy's specified amount by the amount of such withdrawal and charges, but
not below $25,000. If the Option 2 death benefit is then in effect, we will
automatically reduce your accumulation value.
You may choose the investment option or options from which money that
you withdraw will be taken. Otherwise, we will allocate the partial surrender in
the same proportions as then apply for deducting monthly charges under your
Policy or, if that is not possible, in proportion to the amount of accumulation
value you then have in each investment option.
There is a partial surrender fee equal to the lesser of 2% of the
amount withdrawn or $25 for each partial surrender you make.
Option to Exchange Policy During First 18 Months. Under New York law,
at any time during the first 18 months from the Date of Issue of your Policy,
and while the Policy is in force on a premium paying basis, it may be exchanged
for any general account fixed benefit plan of life insurance, based on the lives
of two persons, offered by us for exchange, subject to the following conditions:
o the new policy will be issued with the same Date of Issue,
insurance age, and risk classification as your Policy;
o the amount of insurance will be the same as the initial amount of
insurance under your Policy;
o the new policy may include any additional benefit rider included in
this Policy if such rider is available for issue with the new
policy;
21
o the exchange will be subject to an equitable premium or cash value
adjustment that takes appropriate account of the premiums and cash
values under the original and new policies; and
o evidence of insurability will not be required for the exchange.
Right to Convert in the Event of a Material Change in Investment
Policy. Under New York law, if there is a material change in the investment
policy of Separate Account USL VL-R which has been approved by the
Superintendent of the New York Insurance Department, and you object to such
change, you shall have the option to convert, without evidence of insurability,
to a general account fixed benefit life insurance policy, based on the lives of
two persons, within 60 days after the later of: (1) the effective date of such
change in investment policy; or (2) the receipt of the notice of the options
available.
Policy loans. You may at any time borrow from us an amount equal to
your Policy's cash surrender value less the interest that will be payable on
your loan through your next Policy anniversary.
We remove from your investment options an amount equal to your loan and
hold that part of your accumulation value in the declared fixed interest account
as collateral for the loan. We will credit your Policy with interest on this
collateral amount at an effective annual rate of 4% (rather than any amount you
could otherwise earn in one of our investment options), and we will charge you
interest on your loan at an effective annual rate of 4.50% during the first 10
Policy years and 4.25% thereafter. Loan interest is payable annually, on the
Policy anniversary, in advance, at a rate of 4.31% for loans you make during the
first 10 Policy years and 4.08% for loans you make thereafter. These are
equivalent to the effective annual rates of 4.50% and 4.25%, respectively. Any
amount not paid by its due date will automatically be added to the loan balance
as an additional loan. Interest you pay on Policy loans will not, in most cases,
be deductible on your tax returns.
You may choose which of your investment options the loan will be taken
from. If you do not so specify, we will allocate the loan in the same way that
charges under your Policy are being allocated. If this is not possible, we will
make the loan pro-rata from each investment option that you then are using.
You may repay all or part (but not less than $10 unless it is the final
payment) of your loan at any time before the death of the last surviving
contingent insured while the Policy is in force. You must designate any loan
repayment as such. Otherwise, we will treat it as a premium payment instead. Any
loan repayments go first to repay all loans that were taken from our declared
fixed interest account option. We will invest any additional loan repayments you
make in the investment options you request. In the absence of such a request we
will invest the repayment in the same proportion as you then have selected for
premium payments that we receive from you. Any unpaid loan (plus any unearned
loan interest) will be deducted from the proceeds we pay following the last
surviving contingent insured's death.
Preferred loan interest rate. We will charge a lower interest rate on
preferred loans (available after the first 10 Policy years). The maximum amount
of new loans that will receive this preferred loan interest rate for any year
is:
22
o 10% of your Policy's accumulation value (which includes any loan
collateral we are holding for your Policy loans) at the beginning
of the Policy year; or
o if less, your Policy's maximum remaining loan value at that
anniversary.
We will always credit your preferred loan collateral amount at a
guaranteed effective annual rate of 4.0%. We intend to set the rate of interest
you are paying to the same 4.0% rate we credit to your preferred loan collateral
amount, resulting in a zero net cost (0.00%) of borrowing for that amount. We
have full discretion to vary the rate we charge you, provided that the rate:
o will always be greater than or equal to the guaranteed preferred
loan collateral rate of 4.0%, and
o will never exceed an effective annual rate of 4.24%.
Maturity of your Policy. If one or both contingent insureds are living
on the "Maturity Date" shown on page 3 of your Policy, we will pay you the cash
surrender value of the Policy, and the Policy will end. The maturity date can be
no later than the Policy anniversary nearest the younger contingent insured's
100th birthday.
Tax considerations. Please refer to "How will my Policy be treated for
income tax purposes?" for information about the possible tax consequences to you
when you receive any loan, surrender or other funds from your Policy. A Policy
loan may cause the Policy to lapse which will result in adverse tax
consequences.
Can I choose the form in which USL pays out the proceeds from my Policy?
Choosing a payment option. You will receive the full proceeds from the
Policy as a single sum, unless you elect another method of payment within 60
days of the last surviving contingent insured's death. This also includes
proceeds that become payable upon full surrender or the maturity date. You can
elect that all or part of such proceeds be applied to one or more of the
following payment options:
o Option 1--Equal monthly payments for a specified period of time.
o Option 2--Equal monthly payments of a selected amount of at least
$60 per year for each $1,000 of proceeds until all amounts are paid
out.
o Option 3--Equal monthly payments for the payee's life, but with
payments guaranteed for a specified number of years. These payments
are based on annuity rates that are set forth in the Policy or, at
the payee's request, the annuity rates that we then are using.
o Option 4--Proceeds left to accumulate at an interest rate of 3%
compounded annually for any period up to 30 years. At your request
we will make payments to you monthly, quarterly, semiannually, or
annually. You can also request a partial withdrawal of any amount
of $500 or more.
23
Additional payment options may also be available with our consent. We
have the right to veto any payment option, if the payee is a corporation or
other entity. You can read more about each of these options in our Policy form
and in the separate form of payment contract that we issue when any such option
takes effect.
Within 60 days after the last surviving contingent insured's death, any
payee entitled to receive proceeds as a single sum may elect one or more payment
options.
Interest rates that we credit under each option will be at least 3%.
Change of payment option. You may give us written instructions to
change any payment option you have elected at any time while the Policy is in
force and before the start date of the payment option.
Tax impact. If a payment option is chosen, you or your beneficiary may
have tax consequences. You should consult with a qualified tax adviser before
deciding whether to elect one or more payment options.
To what extent can USL vary the terms and conditions of the Policy in particular
cases?
Here are some variations we may make in the terms and conditions of a
Policy. Any variations will be made only in accordance with uniform rules that
we establish.
Underwriting and premium classes. We have seven premium classes we use
to decide how much the monthly insurance charges under any particular Policy
will be: preferred non-tobacco, standard non-tobacco, preferred tobacco,
standard tobacco, special non-tobacco, special tobacco and uninsurable. They are
each described in your Policy.
The term "uninsurable" is used in a special way when we issue a Policy.
"Uninsurable" describes a person proposed to become insured under a Policy who
would not pass our requirements to be insured under one of our policies that
insures only one life. Under some conditions a person who is uninsurable can
become a contingent insured under a Policy. The other contingent insured cannot
be uninsurable.
Policies purchased through "internal rollovers." We maintain published
rules that describe the procedures necessary to replace another life insurance
policy we issued with a Policy. Not all types of other insurance we issue are
eligible to be replaced with a Policy. Our published rules may be changed from
time to time, but are evenly applied to all our customers.
Variations in expenses or risks. USL may vary the charges and other
terms of the Policy where special circumstances result in sales, administrative
or other expenses, mortality risks or other risks that are different from those
normally associated with the Policy. The New York Insurance Department may
require that we seek their prior approval before we make some of these changes.
24
How will my Policy be treated for income tax purposes?
Generally, the death benefit paid under a Policy is not subject to
income tax, and earnings on your accumulation value are not subject to income
tax as long as we do not pay them out to you If we do pay any amount of your
Policy's accumulation value upon surrender, partial surrender, or maturity of
your Policy, all or part of that distribution may be treated as a return of the
premiums you paid, which is not subject to income tax.
Amounts you receive as Policy loans are not taxable to you, unless you
have paid such a large amount of premiums that your Policy becomes what the tax
law calls a "modified endowment contract." In that case, the loan will be taxed
as if it were a partial surrender. Furthermore, loans, partial surrenders and
other distributions from a modified endowment contract may require you to pay
additional taxes and penalties that otherwise would not apply. If your Policy
lapses, you may have to pay income tax on a portion of any outstanding loan.
For further information about the tax consequences of owning a Policy,
please read "Tax Effects" starting on page 31.
How do I communicate with USL?
When we refer to "you," we mean the person who is authorized to take
any action with respect to a Policy. Generally, this is the owner named in the
Policy. Where a Policy has more than one owner, each owner generally must join
in any requested action, except for transfers and changes in the allocation of
future premiums or changes among the investment options.
General You should mail or express checks and money orders for premium
payments and loan repayments directly to the address for premium payments shown
on the first page of the prospectus.
You must make the following requests in writing:
o transfer of accumulation value;
o loan;
o full surrender;
o partial surrender;
o change of beneficiary or contingent beneficiary;
o change of allocation percentages for premium payments;
o change of allocation percentages for policy deductions;
o loan repayments or loan interest payments;
25
o change of death benefit option or manner of death benefit payment;
o changes in specified amount;
o addition or cancellation of, or other action with respect to,
election of a payment option for Policy proceeds; and
o tax withholding elections.
You should mail or express these requests to our Administrative Center at the
appropriate address shown on the first page of this prospectus. You should also
communicate notice of each contingent insured's death, and related
documentation, to our Administrative Center.
We have special forms which should be used for loans, assignments,
partial and full surrenders, changes of owner or beneficiary, and all other
contractual changes. You will be asked to return your Policy when you request a
full surrender. You may obtain these forms from our Administrative Center or
from your USL representative. Each communication must include your name, Policy
number and the names of both contingent insureds. We cannot process any
requested action that does not include all required information.
ILLUSTRATIONS OF HYPOTHETICAL POLICY BENEFITS
To help explain how our Policy works, we have prepared the following
tables:
Page to
See in this
Prospectus
----------
Death Benefit Option 1--Current Charges 28
Death Benefit Option 1--Guaranteed Maximum Charges 28
The tables show how death benefits, accumulation values, and cash
surrender values ("Policy benefits") under a sample Policy would change over
time if the investment options had constant hypothetical gross annual investment
returns of 0%, 6% or 12% over the years covered by each table. The tables are
for a male non-tobacco user and female non-tobacco user both preferred premium
class and issue age 55. An annual premium payment of $1,500 for an initial
$100,000 of specified amount of coverage is assumed to be paid. The
illustrations assume no Policy loan has been taken. The differences between the
accumulation values and the cash surrender values for the first 10 years in the
tables are because of the Policy's surrender charges. As illustrated, this
Policy would not be classified as a modified endowment contract (See "Tax
Effects" beginning on page 31 for further discussion).
Although the tables that follow do not include an example of a Policy
with an Option 2 death benefit, such a Policy would have higher death benefits
and lower cash surrender values.
Separate tables are included to show both current and guaranteed
maximum charges. The charges assumed in the following tables include:
26
o a charge for state premium tax assumed to be 2.0% (for both current
and guaranteed maximum charges);
o after we deduct premium taxes, a deduction from the remainder of
each premium payment of 6.5% for each premium we receive during the
first 10 Policy years; and 1% thereafter after deducting premium
taxes;
o a daily charge for the first 10 Policy years at an annual effective
rate of 0.40% (for both current and guaranteed maximum charges);
o a daily charge after 10 Policy years at an annual effective rate of
0.20% (for both current and guaranteed maximum charges);
o a daily charge after 30 Policy years at an annual effective rate of
0.10% (for both current and guaranteed maximum charges);
o a flat monthly charge of $6 (for both current and guaranteed
maximum charges);
o a monthly charge for each $1,000 of specified amount of $0.216 (for
both current and guaranteed maximum charges); and
o the monthly insurance charge (for both current and guaranteed
maximum charges).
The charges assumed by both the current and guaranteed maximum charge
tables also include Mutual Fund expenses of 0.79% of aggregate Mutual Fund
assets, which is the arithmetic average of the advisory fees payable with
respect to each Mutual Fund plus the arithmetic average of all other operating
expenses of each such Fund after all reimbursements, as reflected on pages 9 -
14 of this prospectus. We expect the reimbursement arrangements to continue in
the future. If the reimbursement arrangements were not currently in effect, the
arithmetic average of Mutual Fund expenses would equal 0.82% of aggregate Mutual
Fund assets.
Preliminary Information Statement and Policy Summary. We will provide
you with a Buyer's Guide and a preliminary information statement describing some
of the values and benefits of your Policy at the time of policy application. If
you request us to do so when you apply for your Policy, we will furnish you with
additional preliminary information statements based on other characteristics.
These characteristics could include different annual investment returns, your
choice of investment options which show your premium payment invested in
percentages of your choice, the weighted average of Fund expenses, and other
differences you request. We will also provide you with a policy summary at the
time that your Policy is delivered demonstrating the values and benefits
contained in your Policy as issued.
27
Platinum Investor Survivor
Annual Premium $1,500 Initial Specified Amount $100,000
Death Benefit Option 1
Male and Female, Age 55
Non-Tobacco Users, Preferred Premium Class
Assuming Current Charges
End of Death Benefit Accumulation Value Cash Surrender Value
Policy Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Year Annual Investment Return of Annual Investment Return of Annual Investment Return of
0.0% 6.0% 12.0% 0.0% 6.0% 12.0% 0.0% 6.0% 12.0%
1 100,000 100,000 100,000 1,028 1,099 1,171 307 378 450
2 100,000 100,000 100,000 2,040 2,248 2,464 1,409 1,617 1,830
3 100,000 100,000 100,000 3,040 3,451 3,896 2,499 2,910 3,356
4 100,000 100,000 100,000 4,025 4,708 5,480 3,574 4,258 5,029
5 100,000 100,000 100,000 4,995 6,024 7,232 4,635 5,663 6,871
6 100,000 100,000 100,000 5,952 7,400 9,170 5,664 7,112 8,882
7 100,000 100,000 100,000 6,895 8,840 11,316 6,679 8,624 11,100
8 100,000 100,000 100,000 7,824 10,346 13,690 7,680 10,202 13,546
9 100,000 100,000 100,000 8,740 11,924 16,320 8,668 11,852 16,248
10 100,000 100,000 100,000 9,644 13,576 19,233 9,644 13,576 19,233
15 100,000 100,000 100,000 15,683 25,167 41,822 15,683 25,167 41,822
20 100,000 100,000 100,000 21,072 39,677 79,830 21,072 39,677 79,830
The values in both tables will change if premiums are paid in different amounts
or frequencies.
The investment results are an example only and are not a representation of past
or future investment results. Actual investment results may be more or less than
those shown.
Platinum Investor Survivor
Annual Premium $1,500 Initial Specified Amount $100,000
Death Benefit Option 1
Male and Female, Age 55
Non-Tobacco Users, Preferred Premium Class
Assuming Guaranteed Charges
End of Death Benefit Accumulation Value Cash Surrender Value
Policy Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Year Annual Investment Return of Annual Investment Return of Annual Investment Return of
0.0% 6.0% 12.0% 0.0% 6.0% 12.0% 0.0% 6.0% 12.0%
1 100,000 100,000 100,000 1,025 1,096 1,168 304 376 447
2 100,000 100,000 100,000 2,028 2,235 2,451 1,397 1,604 1,820
3 100,000 100,000 100,000 3,006 3,415 3,859 2,466 2,874 3,318
4 100,000 100,000 100,000 3,958 4,637 5,403 3,507 4,186 4,952
5 100,000 100,000 100,000 4,881 5,899 7,096 4,520 5,538 6,735
6 100,000 100,000 100,000 5,771 7,200 8,949 5,483 6,912 8,661
7 100,000 100,000 100,000 6,625 8,538 10,978 6,409 8,322 10,762
8 100,000 100,000 100,000 7,437 9,909 13,195 7,293 9,765 13,051
9 100,000 100,000 100,000 8,199 11,307 15,614 8,127 11,235 15,542
10 100,000 100,000 100,000 8,902 12,724 18,252 8,902 12,724 18,252
15 100,000 100,000 100,000 12,968 21,959 38,060 12,968 21,959 38,060
20 100,000 100,000 100,000 13,344 30,613 69,882 13,344 30,613 69,882
The values in both tables will change if premiums are paid in different amounts
or frequencies.
The investment results are an example only and are not a representation of past
or future investment results. Actual investment results may be more or less than
those shown.
28
ADDITIONAL INFORMATION
A general overview of the Policy appears at pages 1 - 28. The
additional information that follows gives more details, but generally does not
repeat what is set forth above.
Page to
See in this
Contents of Additional Information Prospectus
---------------------------------- -----------
USL ................................................................ 30
Separate Account USL VL-R .......................................... 30
Tax Effects ........................................................ 31
Voting Privileges .................................................. 37
Your Beneficiary ................................................... 37
Assigning Your Policy .............................................. 38
More About Policy Charges .......................................... 38
Effective Date of Policy and Related Transactions .................. 39
More About Our Declared Fixed Interest Account Option .............. 41
Distribution of the Policy ......................................... 41
Payment of Policy Proceeds ......................................... 42
Adjustments to Death Benefit ....................................... 43
Additional Rights That We Have ..................................... 44
Performance Information ............................................ 45
Our Reports to Policy Owners ....................................... 45
USL's Management ................................................... 46
Principal Underwriter's Management ................................. 49
Legal Matters ...................................................... 51
Accounting and Auditing Experts .................................... 51
Actuarial Expert ................................................... 51
Services Agreements ................................................ 51
Certain Potential Conflicts ........................................ 51
Financial Statements ............................................... 52
Special words and phrases. If you want more information about any words
or phrases that you read in this prospectus, you may wish to refer to the Index
of Words and Phrases that appears at the end of this prospectus (pages 53 and
54, which follow all of the financial pages). That index will tell you on what
page you can read more about many of the words and phrases that we use.
29
USL
We are The United States Life Insurance Company in the City of New York
("USL"). USL is a stock life insurance company, which was organized under the
laws of the State of New York on February 25, 1850. USL is an indirect,
wholly-owned subsidiary of American General Corporation ("AGC"), a diversified
financial services holding company engaged primarily in the insurance business.
American General Financial Group is the marketing name for American General
Corporation and its subsidiaries. The commitments under the Policies are USL's,
and American General Corporation has no legal obligation to back those
commitments.
On May 11, 2001, AGC, a Texas corporation, American International
Group, Inc. ("AIG"), a Delaware corporation and Washington Acquisition
Corporation, a Texas corporation and a wholly-owned subsidiary of AIG, entered
into an agreement pursuant to which AGC would become a wholly-owned subsidiary
of AIG (the "Transaction"). On August 15, 2001, the shareholders of AGC voted to
approve the Transaction. On August 29, 2001, the Transaction was completed. As a
result of the Transaction, USL is now an indirect, wholly-owned subsidiary of
AIG.
USL is a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is a voluntary membership organization created by the life
insurance industry to promote ethical market conduct for individual life
insurance and annuity products. USL's membership in IMSA applies only to USL and
not its products.
Separate Account USL VL-R
We hold the Mutual Fund shares in which any of your accumulation value
is invested in Separate Account USL VL-R. Separate Account USL VL-R is
registered as a unit investment trust with the SEC under the Investment Company
Act of 1940. We created the separate account on August 8, 1997 under New York
law.
For record keeping and financial reporting purposes, Separate Account
USL VL-R is divided into 41 separate "divisions," each of which corresponds to
one of the 41 variable "investment options" available since the inception of the
Policy. The 41 divisions are also currently available under other variable life
policies offered by an affiliate of USL. We hold the Mutual Fund shares in which
we invest your accumulation value for an investment option in the division that
corresponds to that investment option.
The assets in Separate Account USL VL-R are our property. The assets in
Separate Account USL VL-R would be available only to satisfy the claims of
owners of the Policies, to the extent they have allocated their accumulation
value to Separate Account USL VL-R. Our other creditors could reach only those
Separate Account USL VL-R assets (if any) that are in excess of the amount of
our reserves and other contract liabilities under the Policies with respect to
Separate Account USL VL-R.
USL also issues variable annuities through its Separate Account USL
VA-R, which is also a registered investment Company.
30
Tax Effects
This discussion is based on current federal income tax law and
interpretations. It assumes that the policy owner is a natural person who is a
U.S. citizen and resident. The tax consequences for corporate taxpayers,
non-U.S. residents or non-U.S. citizens, may be different. This discussion is
general in nature, and should not be considered tax advice, for which you should
consult a qualified tax adviser.
General. The Policy will be treated as "life insurance" for federal
income tax purposes (a) if it meets the definition of life insurance under
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code") and
(b) for as long as the investments made by the underlying Mutual Funds satisfy
certain investment diversification requirements under Section 817(h) of the
Code. We believe that the Policy will meet these requirements and that:
. the death benefit received by the beneficiary under your Policy
will not be subject to federal income tax; and
. increases in your Policy's accumulation value as a result of
interest or investment experience will not be subject to federal
income tax unless and until there is a distribution from your
Policy, such as a surrender or a partial surrender.
Although USL believes that the Policies are in compliance with Section
7702 of the Code, the manner in which Section 7702 should be applied to certain
features of a last survivor life insurance policy is not directly addressed by
Section 7702. In the absence of final regulations or other guidance issued under
Section 7702, there is necessarily some uncertainty whether survivor life
insurance policies, like Platinum Investor Survivor Policies will meet the
Section 7702 definition of a life insurance contract.
The federal income tax consequences of a distribution from your Policy
can be affected by whether your Policy is determined to be a "modified endowment
contract,"as you can see from the following discussion. In all cases, however,
the character of all income that is described as taxable to the payee will be
ordinary income (as opposed to capital gain).
Testing for modified endowment contract status. The Code provides for a
"seven-pay test." This test determines if your Policy will be a "modified
endowment contract."
If, at any time during the first seven Policy years:
. you have paid a cumulative amount of premiums;
. the cumulative amount exceeds the premiums you would have paid by
the same time under a similar fixed-benefit life insurance policy;
and
. the fixed benefit policy was designed (based on certain assumptions
mandated under the Code) to provide for paid-up future benefits
("paid-up" means no future premium payments are required) after the
payment of seven level annual premiums;
31
then your Policy will be a modified endowment contract.
Whenever there is a "material change" under a policy, the policy will
generally be (a) treated as a new contract for purposes of determining whether
the policy is a modified endowment contract and (b) subjected to a new seven-pay
period and a new seven-pay limit. The new seven-pay limit would be determined
taking into account, under a prescribed formula, the accumulation value of the
policy at the time of such change. A materially changed policy would be
considered a modified endowment contract if it failed to satisfy the new
seven-pay limit at any time during the new seven-pay period. A "material change"
for these purposes could occur as a result of a change in death benefit option.
A material change will occur as a result of an increase in your Policy's
specified amount of coverage, and certain other changes.
If your Policy's benefits are reduced during the first seven Policy
years (or within seven years after a material change), the calculated seven-pay
premium limit will be redetermined based on the reduced level of benefits and
applied retroactively for purposes of the seven-pay test. (Such a reduction in
benefits could include, for example, a decrease in the specified amount that you
request or that results from a partial surrender). If the premiums previously
paid are greater than the recalculated seven-payment premium level limit, the
Policy will become a modified endowment contract.
A life insurance policy that is received in a tax free 1035 exchange
for a modified endowment contract will also be considered a modified endowment
contract.
Other effects of Policy changes. Changes made to your Policy (for
example, a decrease in specified amount that you request or that results from a
partial surrender that you request) may also have other effects on your Policy.
Such effects may include impacting the maximum amount of premiums that can be
paid under your Policy, as well as the maximum amount of accumulation value that
may be maintained under your Policy.
Taxation of pre-death distributions if your Policy is not a modified
endowment contract. As long as your Policy remains in force during the
contingent insureds' lifetime and not as a modified endowment contract, a Policy
loan will be treated as indebtedness, and no part of the loan proceeds will be
subject to current federal income tax. Interest on the Policy loan generally
will not be tax deductible.
After the first 15 Policy years, the proceeds from a partial surrender
will not be subject to federal income tax except to the extent such proceeds
exceed your "basis" in your Policy. (Your basis generally will equal the
premiums you have paid, less the amount of any previous distributions from your
Policy that were not taxable.) During the first 15 Policy years, however, the
proceeds from a partial surrender could be subject to federal income tax, under
a complex formula, to the extent that your accumulation value exceeds your basis
in your Policy.
On the maturity date or upon full surrender, any excess in the amount
of proceeds we pay (including amounts we use to discharge any Policy loan) over
your basis in the Policy, will be subject to federal income tax. In addition, if
a Policy ends after a grace period while there is a policy loan, the
cancellation of such loan and any accrued loan interest will be treated as a
distribution and could be subject to tax under the above rules. Finally, if you
make an assignment of rights or benefits
32
under your Policy you may be deemed to have received a distribution from your
Policy, all or part of which may be taxable.
Taxation of pre-death distributions if your Policy is a modified
endowment contract. If your Policy is a modified endowment contract, any
distribution from your Policy while either contingent insured is still living
will be taxed on an "income-first" basis. Distributions:
o include loans (including any increase in the loan amount to pay
interest on an existing loan, or an assignment or pledge to secure
a loan) or partial surrenders;
o will be considered taxable income to you to the extent your
accumulation value exceeds your basis in the Policy; and
o have their taxability determined by aggregating all modified
endowment contracts issued by the same insurer (or its affiliates)
to the same owner (excluding certain qualified plans) during any
calendar year.
For modified endowment contracts, your basis:
o is similar to the basis described above for other policies; and
o will be increased by the amount of any prior loan under your Policy
that was considered taxable income to you.
A 10% penalty tax also will apply to the taxable portion of most
distributions from a policy that is a modified endowment contract. The penalty
tax will not, however, apply:
o to taxpayers 59 1/2 years of age or older;
o in the case of a disability (as defined in the Code); or
o to distributions received as part of a series of substantially
equal periodic annuity payments for the life (or life expectancy)
of the taxpayer or the joint lives (or joint life expectancies) of
the taxpayer and his or her beneficiary.
If your Policy ends after a grace period while there is a Policy loan,
the cancellation of the loan will be treated as a distribution to the extent not
previously treated as such and could be subject to tax, including the 10%
penalty tax, as described above. In addition, on the maturity date or upon a
full surrender, any excess of the proceeds we pay (including any amounts we use
to discharge any Policy loan) over your basis in the Policy, will be subject to
federal income tax and, unless one of the above exceptions applies, the 10%
penalty tax.
Distributions that occur during a Policy year in which your Policy
becomes a modified endowment contract, and during any subsequent Policy years,
will be taxed as described in the two preceding paragraphs. In addition,
distributions from a policy within two years before it becomes a modified
endowment contract also will be subject to tax in this manner. This means that a
33
distribution made from a policy that is not a modified endowment contract could
later become taxable as a distribution from a modified endowment contract.
Policy lapses and reinstatements. A Policy which has lapsed may have
the tax consequences described above, even though you may be able to reinstate
that Policy. For tax purposes, some reinstatements may be treated as the
purchase of a new insurance contract.
Taxation of Exchange Option. You can split the policy into two other
single life insurance policies under some circumstances. A policy split could
have adverse tax consequences if it is not treated as a nontaxable exchange
under Section 1035 of the Code. This could include, among other things,
recognition as taxable income an amount up to any gain in the Policy at the time
of the exchange.
Diversification. Under Section 817(h) of the Code, the Treasury
Department has issued regulations that implement investment diversification
requirements. Our failure to comply with these regulations would disqualify your
Policy as a life insurance policy under Section 7702 of the Code. If this were
to occur, you would be subject to federal income tax on the income under the
Policy for the period of the disqualification and for subsequent periods. Also,
if the last surviving contingent insured died during such period of
disqualification or subsequent periods, a portion of the death benefit proceeds
would be taxable to the beneficiary. Separate Account USL VL-R, through the
Mutual Funds, intends to comply with these requirements. Although we do not have
direct control over the investments or activities of the Mutual Funds, we will
enter into agreements with them requiring the Mutual Funds to comply with the
diversification requirements of the Section 817(h) Treasury Regulations.
The Treasury Department has stated that it anticipates the issuance of
guidelines prescribing the circumstances in which the ability of a policy owner
to direct his or her investment to particular Mutual Funds within Separate
Account USL VL-R may cause the policy owner, rather than the insurance company,
to be treated as the owner of the assets in the account. Due to the lack of
specific guidance on investor control, there is some uncertainty about when a
policy owner is considered the owner of the assets for tax purposes. If you were
considered the owner of the assets of Separate Account USL VL-R, income and
gains from the account would be included in your gross income for federal income
tax purposes. Under current law, however, we believe that USL, and not the owner
of a Policy, would be considered the owner of the assets of Separate Account USL
VL-R.
Estate and generation skipping taxes. If the last surviving contingent
insured is the Policy's owner, the death benefit under the Policy will generally
be includable in the owner's estate for purposes of federal estate tax. If the
owner is not the last surviving contingent insured, under certain conditions,
only an amount approximately equal to the cash surrender value of the Policy
would be includable. The federal estate tax is integrated with the federal gift
tax under a unified rate schedule and unified credit. The Taxpayer Relief Act of
1997 gradually raises the value of the credit to $1,000,000 in 2006. In 2001,
the value of the unified credit is $675,000. In addition, an unlimited marital
deduction may be available for federal estate tax purposes.
On May 26, 2001, our Congress passed legislation which gradually phases
out the estate tax between the years 2002 and 2010. However, if Congress does
not take any further action, the current estate tax rules will automatically be
reinstated in 2011. During this phase out period between 2002
34
and 2010, the estate tax continues with the exemption amount increasing from $1
million in 2002 up to $3.5 million in 2009. During the same period, the top
estate tax rate gradually decreases from 50% in 2002 down to 45% in 2007 and
later years.
As a general rule, if a "transfer" is made to a person two or more
generations younger than the Policy's owner, a generation skipping tax may be
payable at rates similar to the maximum estate tax rate in effect at the time.
The generation skipping tax provisions generally apply to "transfers" that would
be subject to the gift and estate tax rules. Individuals are generally allowed
an aggregate generation skipping tax exemption of $1 million. Because these
rules are complex, you should consult with a qualified tax adviser for specific
information, especially where benefits are passing to younger generations.
The particular situation of each Policy owner, contingent insured or
beneficiary will determine how ownership or receipt of Policy proceeds will be
treated for purposes of federal estate and generation skipping taxes, as well as
state and local estate, inheritance and other taxes.
Life insurance in split dollar arrangements. The IRS has released a
technical advice memorandum ("TAM") on the taxability of insurance policies used
in certain split dollar arrangements. A TAM provides advice as to the internal
revenue laws, regulations, and related statutes with respect to a specified set
of facts and a specified taxpayer. In the TAM, among other things, the IRS
concluded that an employee was subject to current taxation on the excess of the
cash surrender value of the policy over the premiums to be returned to the
employer. Purchasers of life insurance policies to be used in split dollar
arrangements are strongly advised to consult with a qualified tax adviser to
determine the tax treatment resulting from such an arrangement.
The Internal Revenue Service ("IRS") recently issued Notice 2001-10 in
an effort to clarify its position and provide guidance regarding split-dollar
life insurance arrangements. As part of this Notice, the IRS concluded that the
P.S. 58 rates, which have been used to determine the fair market value of life
insurance protection, are no longer appropriate and may not be used after
December 31, 2001. The Notice indicates that in 2002, the rate table issued
under section 79 of the Code must be used to reflect the economic value of the
life insurance protection in split dollar arrangements. The parties to a split
dollar arrangement also may elect to use published alternate term rates,
provided by the issuing insurance company, if the parties comply with certain
new conditions.
In cases of reverse split dollar or equity split dollar arrangements,
the IRS has also stated that an employee will be taxed on the value of any
economic benefit above and beyond the employer's investment in the contract. We
urge you to contact your tax adviser regarding the federal income tax
consequences of split dollar arrangements or reverse split dollar arrangements
as a result of the recent IRS Notice 2001-10.
Pension and profit-sharing plans. If a life insurance policy is
purchased by a trust or other entity that forms part of a pension or
profit-sharing plan qualified under Section 401(a) of the Code for the benefit
of participants covered under the plan, the federal income tax treatment of such
policies will be somewhat different from that described above.
The reasonable net premium cost for such amount of insurance that is
purchased as part of a pension or profit-sharing plan is required to be included
annually in the plan participant's gross
35
income. This cost (generally referred to as the "P.S. 58" cost) is reported to
the participant annually. If the plan participant dies while covered by the plan
and the policy proceeds are paid to the participant's beneficiary, then the
excess of the death benefit over the policy's accumulation value will not be
subject to federal income tax. However, the policy's accumulation value will
generally be taxable to the extent it exceeds the participant's cost basis in
the policy. The participant's cost basis will generally include the costs of
insurance previously reported as income to the participant. Special rules may
apply if the participant had borrowed from the policy or was an owner-employee
under the plan.
There are limits on the amounts of life insurance that may be purchased
on behalf of a participant in a pension or profit-sharing plan. Complex rules,
in addition to those discussed above, apply whenever life insurance is purchased
by a tax qualified plan. You should consult a qualified tax adviser.
Other employee benefit programs. Complex rules may also apply when a
policy is held by an employer or a trust, or acquired by an employee, in
connection with the provision of other employee benefits. These policy owners
must consider whether the policy was applied for by or issued to a person having
an insurable interest under applicable state law and with both contingent
insureds' consent. The lack of an insurable interest or consent may, among other
things, affect the qualification of the policy as life insurance for federal
income tax purposes and the right of the beneficiary to receive a death benefit.
ERISA. Employers and employer-created trusts may be subject to
reporting, disclosure and fiduciary obligations under the Employee Retirement
Income Security Act of 1974, as amended. You should consult a qualified legal
adviser.
Our taxes. We report the operations of Separate Account USL VL-R in our
federal income tax return, but we currently pay no income tax on Separate
Account USL VL-R's investment income and capital gains, because these items are,
for tax purposes, reflected in our variable universal life insurance policy
reserves. We currently make no charge to any Separate Account USL VL-R division
for taxes. We reserve the right to make a charge in the future for taxes
incurred; for example, a charge to Separate Account USL VL-R for income taxes we
incur that are allocable to the Policy.
We may have to pay state, local or other taxes in addition to
applicable taxes based on premiums. At present, these taxes are not substantial.
If they increase, we may make charges for such taxes when they are attributable
to Separate Account USL VL-R or allocable to the Policy.
Certain Mutual Funds in which your accumulation value is invested may
elect to pass through to USL taxes withheld by foreign taxing jurisdictions on
foreign source income. Such an election will result in additional taxable income
and income tax to USL. The amount of additional income tax, however, may be more
than offset by credits for the foreign taxes withheld which are also passed
through. These credits may provide a benefit to USL.
When we withhold income taxes. Generally, unless you provide us with an
election to the contrary before we make the distribution, we are required to
withhold income tax from any proceeds we distribute as part of a taxable
transaction under your Policy. In some cases, where generation
36
skipping taxes may apply, we may also be required to withhold for such taxes
unless we are provided satisfactory written notification that no such taxes are
due.
In the case of non-resident aliens who own a Policy, the withholding
rules may be different. With respect to distributions from modified endowment
contracts, non-resident aliens are generally subject to federal income tax
withholding at a statutory rate of 30% of the distributed amount. In some cases,
the non-resident alien may be subject to lower or even no withholding if the
United States has entered into a tax treaty with his or her country of
residence.
Tax changes. The U.S. Congress frequently considers legislation that,
if enacted, could change the tax treatment of life insurance policies. Congress
recently passed tax legislation on May 26, 2001 which modified the existing
estate tax law. In addition, the Treasury Department may amend existing
regulations, issue regulations on the qualification of life insurance and
modified endowment contracts, or adopt new interpretations of existing law.
State and local tax law or, if you are not a U.S. citizen and resident, foreign
tax law, may also affect the tax consequences to you, the contingent insureds or
your beneficiary, and are subject to change. Any changes in federal, state,
local or foreign tax law or interpretation could have a retroactive effect. We
suggest you consult a qualified tax adviser.
Voting Privileges
We are the legal owner of the Funds' shares held in Separate Account
USL VL-R. However, you may be asked to instruct us how to vote the Fund shares
held in the various Mutual Funds that are attributable to your Policy at
meetings of shareholders of the Funds. The number of votes for which you may
give directions will be determined as of the record date for the meeting. The
number of votes that you may direct related to a particular Fund is equal to (a)
your accumulation value invested in that Fund divided by (b) the net asset value
of one share of that Fund. Fractional votes will be recognized.
We will vote all shares of each Fund that we hold of record, including
any shares we own on our own behalf, in the same proportions as those shares for
which we have received instructions from owners participating in that Fund
through Separate Account USL VL-R.
If you are asked to give us voting instructions, we will send you the
proxy material and a form for providing such instructions. Should we determine
that we are no longer required to send the owner such materials, we will vote
the shares as we determine in our sole discretion.
In certain cases, we may disregard instructions relating to changes in
a Fund's investment manager or its investment policies. We will advise you if we
do and explain the reasons in our next report to policy owners. USL reserves the
right to modify these procedures in any manner that the laws in effect from time
to time allow.
Your Beneficiary
You name your beneficiary when you apply for a Policy. The beneficiary
is entitled to the insurance benefits of the Policy. You may change the
beneficiary during the lifetime of either contingent insured unless your
previous designation of beneficiary provides otherwise. In this case
37
the previous beneficiary must give us permission to change the beneficiary and
then we will accept your instructions. A new beneficiary designation is
effective as of the date you sign it, but will not affect any payments we may
make before we receive it. If no beneficiary is living when the last surviving
contingent insured dies, we will pay the insurance proceeds to the owner or the
owner's estate.
Assigning Your Policy
You may assign (transfer) your rights in a Policy to someone else as
collateral for a loan or for some other reason. We will not be bound by an
assignment unless it is received in writing. You must provide us with two copies
of the assignment. We are not responsible for any payment we make or any action
we take before we receive a complete notice of the assignment in good order. We
are also not responsible for the validity of the assignment. An absolute
assignment is a change of ownership. Because there may be unfavorable tax
consequences, including recognition of taxable income and the loss of income
tax-free treatment for any death benefit payable to the beneficiary, you should
consult a qualified tax adviser before making an assignment.
More About Policy Charges
Purpose of our charges. The charges under the Policy are designed to
cover, in total, our direct and indirect costs of selling, administering and
providing benefits under the Policy. They are also designed, in total, to
compensate us for the risks we assume and services that we provide under the
Policy. These include:
o mortality risks (such as the risk that contingent insureds will, on
average, die before we expect, thereby increasing the amount of
claims we must pay);
o sales risks (such as the risk that the number of Policies we sell
and the premiums we receive net of withdrawals, are less than we
expect, thereby depriving us of expected economies of scale);
o regulatory risks (such as the risk that tax or other regulations
may be changed in ways adverse to issuers of variable life
insurance policies); and
o expense risks (such as the risk that the costs of administrative
services that the Policy requires us to provide will exceed what we
currently project).
The current monthly insurance charge has been designed primarily to
provide funds out of which we can make payments of death benefits under the
Policy as the last surviving contingent insured dies.
If the charges that we collect from the Policy exceed our total costs
in connection with the Policy, we will earn a profit. Otherwise we will incur a
loss.
Although the paragraphs above describe the primary purposes for which
charges under the Policies have been designed, these purposes are subject to
considerable change over the life of a Policy. We can retain or use the revenues
from any charge for any purpose.
38
Gender neutral policies. Congress and the legislatures of various
states have from time to time considered legislation that would require
insurance rates to be the same for males and females of the same age, premium
class and tobacco user status. In addition, employers and employee organizations
should consider, in consultation with counsel, the impact of Title VII of the
Civil Rights Act of 1964 on the purchase of life insurance policies in
connection with an employment-related insurance or benefit plan. In a 1983
decision, the United States Supreme Court held that, under Title VII, optional
annuity benefits under a deferred compensation plan could not vary on the basis
of gender. In general, we do not offer the Platinum Investor Survivor Policy for
sale in situations which, under current law, require gender-neutral premiums or
benefits.
Cost of insurance rates. Because of specified amount increases,
different cost of insurance rates may apply to different increments of specified
amount under your Policy. If so, we attribute your accumulation value
proportionately to each increment of specified amount to compute our net amount
at risk. See "Monthly insurance charge" on page 7.
Certain arrangements. Most of the distributors or advisers of the
Mutual Funds listed on page 10 of this prospectus make certain payments to us,
on a quarterly basis, for certain administrative, Policy, and policy owner
support expenses. These amounts will be reasonable for the services performed
and are not designed to result in a profit. These amounts are paid by the
distributors or the advisers, and will not be paid by the Mutual Funds, the
divisions or Policy owners. No payments have yet been made under these
arrangements, because the number of Policies issued does not require a payment.
Effective Date of Policy and Related Transactions
Valuation dates, times, and periods. We compute values under a Policy
on each day that the New York Stock Exchange is open for business. We call each
such day a "valuation date" or a "business day."
We compute policy values as of 3:00 p.m., Central time, on each
valuation date. We call this our "close of business." We call the time from the
close of business on one valuation date to the close of business of the next
valuation date a "valuation period."
Date of receipt. Generally we consider that we have received a premium
payment or another communication from you on the day we actually receive it in
full and proper order. If we receive it after the close of business on any
valuation date, however, we consider that we have received it on the day
following that valuation date.
Commencement of insurance coverage. After you apply for a Policy, it
can sometimes take up to several weeks for us to gather and evaluate all the
information we need to decide whether to issue a Policy to you and, if so, what
the contingent insureds' premium classes should be. We will not pay a death
benefit under a Policy unless (a) it has been delivered to and accepted by the
owner and at least the initial premium has been paid, and (b) at the time of
such delivery and payment, there have been no adverse developments in the
contingent insureds' health or risk of death. However, if you pay at least the
minimum first premium payment with your application for a Policy, we will
provide temporary coverage of up to $300,000 provided the contingent insureds
meet certain medical and risk requirements. The terms and conditions of this
coverage are described in our "Limited
39
Temporary Life Insurance Agreement." You can obtain a copy from our
Administrative Center by writing to the address shown on the first page of this
prospectus or from your USL representative.
Date of issue; Policy months and years. We prepare the Policy only
after we approve an application for a Policy and assign an appropriate premium
class. The day we begin to deduct charges will appear on page 3 of your Policy
and is called the "Date of Issue." Policy months and years are measured from the
date of issue. To preserve a younger age at issue for the contingent insureds,
we may assign a date of issue to a Policy that is up to 6 months earlier than
otherwise would apply.
Monthly deduction days. Each charge that we deduct monthly is assessed
against your accumulation value at the close of business on the date of issue
and at the end of each subsequent valuation period that includes the first day
of a Policy month. We call these "monthly deduction days."
Commencement of investment performance. We begin to credit an
investment return to the accumulation value resulting from your initial premium
payment on the later of (a) the date of issue, or (b) the date all requirements
needed to place the Policy in force have been satisfied, including underwriting
approval and receipt of the necessary premium. In the case of a back-dated
Policy, we do not credit an investment return to the accumulation value
resulting from your initial premium payment until the date stated in (b) above.
Effective date of other premium payments and requests that you make.
Premium payments (after the first) and transactions made in response to your
requests and elections are generally effected at the end of the valuation period
in which we receive the payment, request or election and based on prices and
values computed as of that same time. Exceptions to this general rule are as
follows:
o Increases you request in the specified amount of insurance,
reinstatements of a Policy that has lapsed, and changes in death
benefit option take effect on the Policy's monthly deduction day on
or next following our approval of the transaction;
o We may return premium payments, make a partial surrender or reduce
the death benefit if we determine that such premiums would cause
your Policy to become a modified endowment contract or to cease to
qualify as life insurance under federal income tax law or exceed
the maximum net amount at risk;
o If you exercise the right to return your Policy described on the
second page of this prospectus, your coverage will end when you
deliver it to your USL representative, or if you mailed it to us,
the day it is postmarked; and
o If you pay a premium in connection with a request which requires
our approval, your payment will be applied when received rather
than following the effective date of the change requested so long
as your coverage is in force and the amount paid will not cause you
to exceed premium limitations under the Code. If we do not approve
your request, no premium will be refunded to you except to the
extent necessary to cure
40
any violation of the maximum premium limitations under the Code.
We will not apply this procedure to premiums you pay in connection
with reinstatement requests.
More About Our Declared Fixed Interest Account Option
Our general account. Our general account assets are all of our assets
that we do not hold in legally segregated separate accounts. Our general account
supports our obligations to you under your Policy's declared fixed interest
account option. Because of applicable exemptions, no interest in this option has
been registered under the Securities Act of 1933, as amended. Neither our
general account nor our declared fixed interest account is an investment company
under the Investment Company Act of 1940. We have been advised that the staff of
the SEC has not reviewed the disclosures that are included in this prospectus
for your information about our general account or our declared fixed interest
account option. Those disclosures, however, may be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
How we declare interest. We can at any time change the rate of interest
we are paying on any accumulation value allocated to our declared fixed interest
account option, but it will always be at an effective annual rate of at least
4%.
Under these procedures, it is possible that at any time different
interest rates will apply to different portions of your accumulation value,
depending on when each portion was allocated to our declared fixed interest
account option. Any charges, partial surrenders, or loans that we take from any
accumulation value that you have in our declared fixed interest account option
will be taken from each portion in reverse chronological order based on the date
that accumulation value was allocated to this option.
Distribution of the Policies
American General Securities Incorporated ("AGSI") is the principal
underwriter of the Policies. AGSI is an affiliate of USL. AGSI's principal
office is at 2727 Allen Parkway, Houston, Texas 77019. AGSI was organized as a
Texas corporation on March 8, 1983 and is a registered broker-dealer under the
Securities Exchange Act of 1934, as amended ("1934 Act") and is a member of the
National Association of Securities Dealers, Inc. ("NASD"). AGSI is also the
principal underwriter for USL's Separate Account USL VA-R. This separate account
and Separate Account USL VL-R are both registered investment companies. AGSI, as
the principal underwriter, is not paid any fees on the Policies.
We and AGSI have sales agreements with various broker-dealers and banks
under which the Policies will be sold by registered representatives of the
broker-dealers or employees of the banks. These registered representatives and
employees are also required to be authorized under applicable state regulations
as life insurance agents to sell variable life insurance. The broker dealers are
ordinarily required to be registered with the SEC and must be members of the
NASD.
We pay compensation to broker-dealers and banks for promotion and sales
of the Policies. AGSI also has its own registered representatives who will sell
the Policies, and we will pay compensation to AGSI for these sales.
41
The compensation payable to broker-dealers or banks for sales of the
Policies may vary with the sales agreement, but is generally not expected to
exceed:
o 85% of the premiums paid in the first Policy year up to a "target"
amount;
o 3% of the premiums up to the target amount received in each of
Policy years two through 10;
o 3% of the premiums in excess of the target amount received in any
of Policy years one through 10;
o 1.5% of the premiums paid in each Policy year after Policy year 10;
o 0.20% of the Policy's accumulation value (reduced by any
outstanding loans) in the investment options in each of Policy
years two through 30; and
o 0.10% of the Policy's accumulation value (reduced by any
outstanding loans) in the investment options in each Policy year
after Policy year 30.
We may pay additional compensation in the event a representative, a
broker-dealer or a bank reaches certain premium production levels.
The target amount is an amount of level annual premium that would be
necessary to support the benefits under your Policy, based on certain
assumptions that we believe are reasonable.
The maximum value of any alternative amounts we may pay for sales of
the Policies is expected to be equivalent over time to the amounts described
above. For example, we may pay a broker-dealer compensation in a lump sum which
will not exceed the aggregate compensation described above.
We pay a comparable amount of compensation to the broker-dealers or
banks with respect to any increase in the specified amount of coverage that you
request as long as additional premium is paid on the increase. In addition, we
may pay broker-dealers or banks expense allowances, bonuses, wholesaler fees and
training allowances. We will comply with New York insurance laws and regulations
whenever we make these payments.
We pay the compensation directly to any other selling broker-dealer
firm or bank. We pay the compensation from our own resources which does not
result in any additional charge to you that is not described beginning on page
6. Each broker-dealer firm or bank, in turn, may compensate its registered
representative or employee who acts as agent in selling you a Policy.
Payment of Policy Proceeds
General. We will pay any death benefit, maturity benefit, cash
surrender value or loan proceeds within seven days after we receive the last
required form or request (and any other documents that may be required for
payment of a death benefit). If we do not have information about the desired
manner of payment within 60 days after the date we receive notification of the
42
insured person's death, we will pay the proceeds as a single sum, normally
within seven days thereafter.
Delay of declared fixed interest account option proceeds. We have the
right, however, to defer payment or transfers of amounts out of our declared
fixed interest account option for up to six months. If we delay more than 10
days in paying you such amounts, we will pay interest of at least 3% a year from
the date we receive all items we require to make the payment.
Delay for check clearance. We reserve the right to defer payment of
that portion of your accumulation value that is attributable to a payment made
by check for a reasonable period of time (not to exceed 15 days) to allow the
check to clear the banking system.
Delay of Separate Account USL VL-R proceeds. We reserve the right to
defer payment of any death benefit, loan or other distribution that comes from
that portion of your accumulation value that is allocated to Separate Account
USL VL-R, if:
o the New York Stock Exchange is closed other than customary weekend
and holiday closings, or trading on the New York Stock Exchange is
restricted;
o an emergency exists, as a result of which disposal of securities is
not reasonably practicable or it is not reasonably practicable to
fairly determine the accumulation value; or
o the SEC by order permits the delay for the protection of owners.
Transfers and allocations of accumulation value among the investment
options may also be postponed under these circumstances. If we need to defer
calculation of Separate Account USL VL-R values for any of the foregoing
reasons, all delayed transactions will be processed at the next values that we
do compute.
Delay to challenge coverage. We may challenge the validity of your
insurance Policy based on any material misstatements in your application or any
application for a change in coverage. However,
o We cannot challenge the Policy after it has been in effect, during
either contingent insured's lifetime, for two years from the date
the Policy was issued or restored after termination.
o We cannot challenge any Policy change that requires evidence of
insurability (such as an increase in specified amount) after the
change has been in effect for two years during either contingent
insured's lifetime.
Adjustments to Death Benefit
Suicide. If the last surviving contingent insured commits suicide
during the first two Policy years, we will limit the death benefit proceeds to
the total of all premiums that have been paid to the
43
time of death minus any outstanding Policy loans (plus credit for any unearned
interest) and any partial surrenders.
A new two year period begins if you increase the specified amount. You
can increase the specified amount only if both contingent insureds are living at
the time of the increase. In this case, if the last surviving contingent insured
commits suicide during the first two years following the increase, we will
refund the monthly insurance deductions attributable to the increase. The death
benefit will then be based on the specified amount in effect before the
increase.
Wrong age or gender. If the age or gender of either contingent insured
was misstated on your application for a Policy (or for any increase in
benefits), we will adjust any death benefit to be what the monthly insurance
charge deducted for the current month would have purchased based on the correct
information.
Death during grace period. We will deduct from the insurance proceeds
any monthly charges that remain unpaid because the last surviving contingent
insured died during a grace period.
Additional Rights That We Have
We have the right at any time to:
o transfer the entire balance in an investment option in accordance
with any transfer request you make that would reduce your
accumulation value for that option to below $500;
o transfer the entire balance in proportion to any other investment
options you then are using, if the accumulation value in an
investment option is below $500 for any other reason;
o end the automatic rebalancing feature if your accumulation value
falls below $5,000;
o change the underlying Mutual Fund that any investment option uses;
o add, delete or limit investment options, combine two or more
investment options, or withdraw assets relating to the Policies
from one investment option and put them into another;
o operate Separate Account USL VL-R under the direction of a
committee or discharge such a committee at any time;
o change our underwriting and premium class guidelines;
o operate Separate Account USL VL-R, or one or more investment
options, in any other form the law allows, including a form that
allows us to make direct investments. Separate Account USL VL-R may
be charged an advisory fee if its investments are made directly
rather than through another investment company. In that case, we
may make any legal investments we wish; or
44
o make other changes in the Policy that in our judgment are
necessary or appropriate to ensure that the Policy continues to
qualify for tax treatment as life insurance, or that do not reduce
any cash surrender value, death benefit, accumulation value, or
other accrued rights or benefits.
You will be notified as required by law if there are any material
changes in the underlying investments of an investment option that you are
using. We intend to comply with all applicable laws in making any changes and,
if necessary, we will seek policy owner approval.
Performance Information
From time to time, we may quote performance information for the
divisions of Separate Account USL VL-R in advertisements, sales literature, or
reports to owners or prospective investors.
We may quote performance information in any manner permitted under
applicable law. We may, for example, present such information as a change in a
hypothetical owner's cash value or death benefit. We also may present the yield
or total return of the division based on a hypothetical investment in a Policy.
The performance information shown may cover various periods of time, including
periods beginning with the commencement of the operations of the division or the
Mutual Funds in which it invests. The performance information shown may reflect
the deduction of one or more charges, such as the premium charge, and we
generally expect to exclude costs of insurance charges because of the individual
nature of these charges.
We may compare a division's performance to that of other variable life
separate accounts or investment products, as well as to generally accepted
indices or analyses, such as those provided by research firms and rating
services. In addition, we may use performance ratings that may be reported
periodically in financial publications, such as Money Magazine, Forbes, Business
Week, Fortune, Financial Planning and The Wall Street Journal. We also may
advertise ratings of USL's financial strength or claims-paying ability as
determined by firms that analyze and rate insurance companies and by nationally
recognized statistical rating organizations.
Performance information for any division reflects the performance of a
hypothetical Policy and is not illustrative of how actual investment performance
would affect the benefits under your Policy. You should not consider such
performance information to be an estimate or guarantee of future performance.
Our Reports to Policy Owners
Shortly after the end of each Policy year, we will mail you a report
that includes information about your Policy's current death benefit,
accumulation value, cash surrender value and policy loans. We will send you
notices to confirm premium payments, transfers and certain other Policy
transactions. We will mail to you at your last known address of record, these
and any other reports and communications required by law. You should give us
prompt written notice of any address change.
45
USL's Management
The directors, executive officers, and (to the extent responsible for
variable life operations) the other principal officers of USL are listed below.
Name Business Experience Within Past Five Years
-------------------------------------------------------------------------------
Rodney O. Martin, Jr. Director and Chairman of the Board of
USL since June 1997. Chief Executive Officer of USL
since March 2000. President and CEO of American
General Life Insurance Company (August 1996 - July
1998). President of American General Life Insurance
Company of New York (November 1995 - August 1996).
Vice President Agencies, with Connecticut Mutual Life
Insurance Company (1990 - 1995).
James P. Corcoran Director of USL since September 1999 and
Vice Chairman since March 2000. Partner with
Cadwalader, Wickersham & Taft, New York, New York
(1995 - 1998). Partner with Donovan, Leisure, Newton &
Irvine, New York, New York (1992 - 1995).
Donald W. Britton President of USL since September 1999.
Director of USL since June 1999. Director of American
General Life Insurance Company since April 1999 and
President since April 2000. President of First Colony
Life, Lynchburg, Virginia (1996 - April 1999) and
Executive Vice President of First Colony Life (1992 -
1996).
David J. Dietz President - Individual Insurance Operations
of USL since September 1997. Director of USL since
November 1997. President of Prudential Select Life,
Newark New Jersey (August 1990 - September 1997).
William M. Keeler President - Group Insurance Operations of
USL since June 1998. President and Chief Executive
Officer of American General Indemnity Company, USLIFE
Agency Services and American General Assurance
Company, Schaumburg, Illinois since July 1998.
President and Chief Executive Officer of USLIFE
Indemnity Company (May 1995 - May 1998.)
46
David A. Fravel Executive Vice President of USL since
September 1998 and a Director of USL since November
1997. Director and Senior Vice President of American
General Life Insurance Company since November 1996.
Elected Executive Vice President in April, 1998.
Senior Vice President Massachusetts Mutual,
Springfield, Missouri (March 1996 - June 1996); Vice
President, New Business, Connecticut Mutual Life,
Hartford, Connecticut (December 1978 - March 1996).
David L. Herzog Director and Executive Vice President and
Chief Financial Officer of USL since March 2000.
Executive Vice President and Chief Financial Officer
of American General Life Insurance Company since
February 2000. Vice President of General American, St.
Louis, Missouri (June 1991 - February 2000).
John V. LaGrasse Director of USL since September 1999.
Executive Vice President and Chief Technology Officer
of USL since June 1998. Director, Senior Vice
President and Chief Systems Officer of American
General Life Insurance Company since August 1996.
Elected Executive Vice President in July, 1998. Prior
thereto, Director of Citicorp Insurance Services,
Inc., Dover, Delaware (1986 - 1996).
Gary D. Reddick Director and Executive Vice President of
USL since March 2001. Executive Vice President of
American General Life Insurance Company since April
1998. Vice Chairman since July 1997 and Executive Vice
President-Administration of the Franklin Life
Insurance Company since February 1995.
Don M. Ward Executive Vice President of USL since March
2000. Elected Executive Vice President of American
General Life Insurance Company in April 2000. Senior
Vice President - Variable Products - Marketing of
American General Life Insurance Company in (February
1998 - April 2000). Vice President of Pacific Life
Insurance Company, Newport Beach, CA (1991 - February
1998).
Wayne A. Barnard Senior Vice President of USL since
September 1998. Senior Vice President of American
General Life Insurance Company since November 1997 and
Vice President since February, 1991.
47
Robert M. Beuerlein Senior Vice President and Chief Actuary
of USL since September 1999. Senior Vice President and
Chief Actuary of American General Life Insurance
Company since September 1999. Previously held position
of Vice President of American General Life Insurance
Company since December 1998. Director, Senior Vice
President and Chief Actuary of The Franklin Life
Insurance Company, Springfield, Illinois (January 1991
- June 1999).
Felix C. Curcuru Senior Vice President of USL since 1967.
William F. Guterding Senior Vice President and Chief
Underwriting Officer of USL since October of 1991.
Robert F. Herbert, Jr. Senior Vice President of USL since
September 1998 and a Director of USL since June 1997.
Director, Senior Vice President and Treasurer of
American General Life Insurance Company since May
1996, and Controller and Actuary from June 1988 to May
1996.
William J. Leary Senior Vice President of USL since June 1999.
Vice President of Aetna U.S. Healthcare, Hartford,
Connecticut (1995 - 1999). Vice President of
Healthnetwork, Oakbrook, Illinois (1994 - 1995).
Simon J. Leech Senior Vice President of USL since September
1998. In July 1997 named as Senior Vice President -
Houston Service Center for American General Life
Insurance Company. Various positions with American
General Life Insurance Company since 1981, including
Director of Policy Owners' Service Department in 1993,
and Vice President - Policy Administration in 1995.
Randy J. Marash Senior Vice President of USL since July 1991.
Robert Stuchiner Senior Vice President of USL since September
1998. Chief Marketing Office of TowerMark Brokerage
Services, Inc., New York, New York (September 1990 -
September 1998).
Roy Van Washington Senior Vice President and Chief
Compliance Officer of USL since May 2000. Vice
President of Lincoln National Life, Fort Wayne,
Indiana (August 1989 - May 2000).
William A. Bacas, Sr. Director of USL since June 1997. Partner
with Bacas & Krogmann, Attorneys at Law, Glens Falls,
NY since 1972.
48
Ronald E. Blaylock Director of USL since November 2000.
Chairman and Chief Executive Officer of Blaylock &
Partners, L.P, New York, New York since 1993.
J. Edward Easler, II Director of USL since July 2001.
Director of AGC, Houston, Texas since December 1998.
President of The Easler Group, Atlanta, Georgia since
September 2000.
Patricia O. Ewers Director of USL since June 1997. President of
Pace University, New York, New York since 1990.
Thomas H. Fox Director of USL since June 1997. Currently
retired. Director of Echo Networks, Inc. since 2000
and Director of Swiss Re America Holding Corporation,
New York, New York since 1992.
William J. O'Hara, Jr. Director of USL since June 1997. Chief
Executive Officer of A J Tech, Vista, California since
1997. President of William J. O'Hara, New York, New
York (1992 - 1996).
The principal business address of each officer listed above is our Home
Office; except that the street number for Messrs. Fravel, Reddick, LaGrasse,
Martin, Herzog and Britton is 2929 Allen Parkway, the street number for Mr.
Friend is 2727 Allen Parkway, the street address for Messrs. Herbert, Barnard,
Murphy, Beuerlein and Leech is 2727-A Allen Parkway, the street address for
Messrs. Keeler, Curcuru, Leary and Marash is 3600 Rt. 66, Neptune, New Jersey
and the street address for Mr. Bolen is 6363 Forest Park Road, Dallas, Texas
75235.
Principal Underwriter's Management
The directors and principal officers of the principal underwriter are:
Position and Offices
with Underwriter,
Name and Principal American General
Business Address Securities Incorporated
-------------------------------------------------------------------------
J. Andrew Kalbaugh Director and Chairman,
2727 Allen Parkway President and Chief Executive Officer
Houston, TX 77019
Rodney O. Martin, Jr. Director and Vice Chairman
2929 Allen Parkway
Houston, TX 77019
49
Position and Offices
with Underwriter,
Name and Principal American General
Business Address Securities Incorporated
-------------------------------------------------------------------------
Donald W. Britton Director and Assistant
2929 Allen Parkway Vice President
Houston, TX 77019
Royce G. Imhoff, II Director
2727-A Allen Parkway
Houston, TX 77019
Alice T. Kane Director
125 Maiden Lane
New York, NY 10038
Sander J. Ressler Vice President,
2727 Allen Parkway Chief Compliance Officer and
Houston, TX 77019 Secretary
Don M. Ward Vice President
2727 Allen Parkway
Houston, TX 77019
Lucille S. Martinez Treasurer and Controller
2727-A Allen Parkway
Houston, TX 77019
Pauletta P. Cohn Assistant Secretary
2727 Allen Parkway
Houston, TX 77019
Robert F. Herbert, Jr. Assistant Treasurer
2727-A Allen Parkway
Houston, TX 77019
D. Lynne Walters Assistant Tax Officer
2929 Allen Parkway
Houston, TX 77019
50
Legal Matters
We are not involved in any legal proceedings that would be considered
material with respect to a policy owner's interest in Separate Account USL VL-R.
Pauletta P. Cohn, Esquire, Deputy General Counsel of the American General Life
Companies, an affiliate of USL, has opined as to the validity of the Policies.
Accounting and Auditing Experts
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 2000 and 1999 and for each of the three
years in the period ended December 31, 2000, as set forth in their report. We
have included our financial statements in the prospectus in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing. The address of Ernst & Young LLP is 787 Seventh Avenue, New York, New
York 10019.
Actuarial Expert
Actuarial matters have been examined by Robert M. Beuerlein who is
Senior Vice President and Chief Actuary of USL. His opinion on actuarial matters
is filed as an exhibit to the registration statement we have filed with the SEC
in connection with the Policies.
Service Agreements
American General Life Companies ("AGLC") is party to an existing
general services agreement with USL. AGLC, an affiliate of USL, is a business
trust established in Delaware on December 30, 2000. Prior to that date, AGLC was
a Delaware corporation. Pursuant to this agreement, AGLC provides services to
USL, including most of the administrative, data processing, systems, customer
services, product development, actuarial, auditing, accounting and legal
services for USL and the Policies.
We have entered into various services agreements with most of the
advisers or administrators for the Mutual Funds. We receive fees for the
administrative services we perform. These fees do not result in any additional
charges under the Policies that are not described under "What charges will USL
deduct from my investment in a Policy?"
We have entered into a services agreement with PIMCO Variable Insurance
Trust under which we receive fees paid directly by this Mutual Fund for services
we perform.
Certain Potential Conflicts
The Mutual Funds sell shares to separate accounts of insurance
companies (and may sell in the future, certain qualified plans), both affiliated
and not affiliated with USL. We currently do not foresee any disadvantages to
you arising out of such sales. Differences in treatment under tax and other
laws, as well as other considerations, could cause the interests of various
owners to conflict. For example, violation of the federal tax laws by one
separate account investing in the Funds could cause the contracts funded through
another separate account to lose their tax-deferred status, unless remedial
action were taken. However, each Mutual Fund has advised us that its board of
trustees (or directors) intends to
51
monitor events to identify any material irreconcilable conflicts that possibly
may arise and to determine what action, if any, should be taken in response. If
we believe that a Fund's response to any such event insufficiently protects our
policy owners, we will see to it that appropriate action is taken to do so as
well as report any material irreconcilable conflicts that we know exist to each
Mutual Fund as soon as a conflict arises. If it becomes necessary for any
separate account to replace shares of any Mutual Fund in which it invests, that
Fund may have to liquidate securities in its portfolio on a disadvantageous
basis.
Financial Statements
The financial statements of USL contained in this prospectus should be
considered to bear only upon the ability of USL to meet its obligations under
the Policies. They should not be considered as bearing upon the investment
experience of Separate Account USL VL-R. No financial statements of Separate
Account USL VL-R are included because, at the date of this prospectus, none of
the Divisions of Separate Account USL VL-R were available under the Policies.
Page to
Financial Statements of See in this
The United States Life Insurance Company in the City of New York Prospectus
---------------------------------------------------------------- -----------
Unaudited Balance Sheets as of June 30, 2001 and 2000 ............. Q-3
Unaudited Statements of Income for the six months
ended June 30, 2001 and 2000 .................................. Q-5
Unaudited Statements of Comprehensive Income as of six months
ended June 30, 2001 and 2000 .................................. Q-6
Unaudited Statements of Shareholder's Equity as of six months
ended June 30, 2001 and 2000 .................................. Q-7
Unaudited Statements of Cash Flow as of six months
ended June 30, 2001 and 2000 .................................. Q-8
Report of Ernst & Young LLP, Independent Auditors ................. F-1
Balance Sheets as of December 31, 2000 and 1999 ................... F-2
Statements of Income for the years ended
December 31, 2000, 1999 and 1998 .............................. F-4
Statements of Comprehensive Income for
the years ended December 31, 2000, 1999, and 1998 ............. F-5
Statements of Shareholder's Equity for the years
ended December 31, 2000, 1999 and 1998 ........................ F-6
Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 .............................. F-7
Notes to Financial Statements ..................................... F-8
52
Financial Statements
The United States Life Insurance Company in the City of New York
Six months ended June 30, 2001 and 2000
Q-1
The United States Life Insurance Company in the City of New York
Financial Statements
Six months ended June 30, 2001 and 2000
Contents
Balance Sheets........................................................... Q - 3
Statements of Income..................................................... Q - 5
Statements of Comprehensive Income....................................... Q - 6
Statements of Shareholder's Equity....................................... Q - 7
Statements of Cash Flows................................................. Q - 8
Q-2
The United States Life Insurance Company in the City of New York
Balance Sheets
June 30, December 31,
2001 2000
(unaudited)
---------------------------------
(In Thousands)
Assets
Investments:
Fixed maturity securities, at fair value (amortized cost -
$1,808,079 in 2001 and $1,807,155 in 2000) $ 1,833,397 $ 1,811,628
Equity securities, at fair value (cost - $25,072 in 2001 and
$20,394 in 2000) 25,050 20,440
Mortgage loans on real estate 125,293 122,806
Policy loans 77,609 77,871
Other long-term investments 424 424
Short-term investments 295,933 65,815
---------------------------------
Total investments 2,357,706 2,098,984
Cash 9,889 13,099
Indebtedness from affiliates 1,440 3,946
Accrued investment income 31,839 33,079
Accounts and premiums receivable 104,810 93,236
Reinsurance recoverable 649,191 652,247
Deferred policy acquisition costs 145,908 144,320
Property and equipment 4,308 4,422
Assets held in separate accounts 2,211 1,880
Other assets 26,213 25,164
---------------------------------
Total assets $ 3,333,515 $ 3,070,377
=================================
Q-3
June 30, December 31,
2001 2000
(unaudited)
------------------------------
(In Thousands)
Liabilities and shareholder's equity
Liabilities:
Future policy benefits
Life and Annuity $ 1,663,100 $ 1,641,586
Accident & Health 431,654 430,575
Other policy claims and benefits payable 99,960 106,105
Other policyholders' funds 101,939 107,440
Federal income taxes (40,148) (36,818)
Indebtedness to affiliates 5,262 2,791
Reinsurance payable 100,562 108,425
Short-term collateralized financings 253,336 -
Liabilities held in separate accounts 2,211 1,880
Other liabilities 239,447 250,269
------------------------------
Total liabilities 2,857,323 2,612,253
------------------------------
Shareholder's equity:
Common stock, $2 par value, 1,980,658 shares
authorized, issued, and outstanding 3,961 3,961
Additional paid-in capital 8,361 8,361
Accumulated other comprehensive income 4,811 (2,437)
Retained earnings 459,059 448,239
------------------------------
Total shareholder's equity 476,192 458,124
------------------------------
Total liabilities and shareholder's equity $ 3,333,515 $ 3,070,377
==============================
Q-4
The United States Life Insurance Company in the City of New York
Statements of Income (Unaudited)
Six months ended June 30,
2001 2000
-------------------------------
(In Thousands)
Revenues:
Premiums and other considerations $ 87,249 $ 109,301
Net investment income 72,846 77,495
Net realized investment (losses) gains (3,401) (3,532)
Other 3,900 3,153
-------------------------------
Total revenues 160,594 186,417
-------------------------------
Benefits and expenses:
Benefits 98,398 96,606
Operating costs and expenses 44,388 49,725
-------------------------------
Total benefits and expenses 142,786 146,331
-------------------------------
Income before income tax expense 17,808 40,086
Income tax expense 6,988 13,660
-------------------------------
Net income $ 10,820 $ 26,426
===============================
Q-5
The United States Life Insurance Company in the City of New York
Statements of Comprehensive Income (Unaudited)
Six months ended June 30,
2001 2000
----------------------------
(In Thousands)
Net income $ 10,820 $ 26,426
----------------------------
Other comprehensive income (loss):
Gross change in unrealized gains (losses) 18,211 (21,411)
DPAC (9,335) 9,018
Tax expense (benefit) 3,107 (4,338)
----------------------------
Net gain (loss) 5,769 (8,055)
----------------------------
Less:
(Losses) gains realized in net income (2,396) (3,992)
DPAC 122 378
Tax (benefit) expense (795) (1,265)
----------------------------
Net (loss) gain (1,479) (2,349)
----------------------------
Change in net unrealized gains (losses) 7,248 (5,706)
----------------------------
Comprehensive income $ 18,068 $ 20,720
============================
Q-6
The United States Life Insurance Company in the City of New York
Statements of Shareholder's Equity
June 30, December 31,
2001 2000
(unaudited)
---------------------------------
(In Thousands)
Common stock:
Balance at beginning of year $ 3,961 $ 3,961
Change during period - -
---------------------------------
Balance at end of period 3,961 3,961
---------------------------------
Additional paid-in capital:
Balance at beginning of year 8,361 8,361
Change during period - -
---------------------------------
Balance at end of period 8,361 8,361
---------------------------------
Accumulated other comprehensive income:
Balance at beginning of year (2,437) (12,915)
Change in unrealized (losses) gains on
securities 7,248 10,478
---------------------------------
Balance at end of period 4,811 (2,437)
---------------------------------
Retained earnings:
Balance at beginning of year 448,239 395,660
Net income (loss) 10,820 52,579
---------------------------------
Balance at end of period 459,059 448,239
---------------------------------
Total shareholder's equity $ 476,192 $ 458,124
=================================
Q-7
The United States Life Insurance Company in the City of New York
Statements of Cash Flows (Unaudited)
Six months ended June 30,
2001 2000
---------------------------------
(In Thousands)
Operating activities
Net income $ 10,820 $ 26,426
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in accounts and premiums receivable 2,175 15,320
Change in future policy benefits (14,417) (10,598)
Amortization of policy acquisition costs 16,602 20,339
Policy acquisition costs deferred (27,525) (18,479)
Change in other policyholders' funds (5,671) 2,793
Provision for deferred income tax expense (665) 58
Depreciation 1,030 839
Amortization (270) (4,070)
Change in indebtedness to/from affiliates 4,977 (258)
Change in reinsurance balances (4,807) 1,322
Net loss (gain) on sale of investments 3,279 3,532
Other, net (23,566) (11,446)
---------------------------------
Net cash (used in) provided by operating activities (38,038) 25,778
---------------------------------
Investing activities
Purchases of investments and loans made (1,644,147) (3,884,640)
Sales or maturities of investments and receipts from
repayment of loans 1,389,322 3,707,832
Sales and purchases of property, equipment, and
software, net (693) (952)
---------------------------------
Net cash (used in) investing activities (255,518) (177,760)
---------------------------------
Financing activities
Policyholder account deposits 96,196 91,620
Policyholder account withdrawals (59,186) (105,701)
Short-term collateralized financings 253,336 167,836
---------------------------------
Net cash provided by financing activities 290,346 153,755
---------------------------------
(Decrease) increase in cash (3,210) 1,773
Cash at beginning of period 13,099 8,571
---------------------------------
Cash at end of period $ 9,889 $ 10,344
=================================
There was no interest paid for the six months ended June 30, 2001. Interest paid
for the six months ended June 30, 2000 was approximately $33 thousand.
Q-8
FINANCIAL STATEMENTS
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
The United States Life Insurance Company in the City of New York
Financial Statements
Years ended December 31, 2000, 1999 and 1998
CONTENTS
Report of Independent Auditors..........................................1
Audited Financial Statements
Balance Sheets..........................................................2
Statements of Income....................................................4
Statements of Comprehensive Income......................................5
Statements of Shareholder's Equity......................................6
Statements of Cash Flows................................................7
Notes to Financial Statements...........................................8
Report of Independent Auditors
Board of Directors and Shareholder
The United States Life Insurance Company
in the City of New York
We have audited the accompanying balance sheets of The United States Life
Insurance Company in the City of New York (an indirectly wholly owned subsidiary
of American General Corporation) as of December 31, 2000 and 1999, and the
related statements of income, comprehensive income, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The United States Life
Insurance Company in the City of New York 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 principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
---------------------------------
March 16, 2001 ERNST & YOUNG LLP
F-1
The United States Life Insurance Company in the City of New York
Balance Sheets
DECEMBER 31
2000 1999
------------------------------
(In Thousands)
ASSETS
Investments:
Fixed maturity securities, at fair value
(amortized cost - $1,807,155 in 2000 and
$1,688,015 in 1999) $1,811,628 $1,665,005
Equity securities, at fair value (cost -
$20,394 in 2000 and $13,304 in 1999) 20,440 13,366
Mortgage loans on real estate 122,806 112,031
Policy loans 77,871 82,784
Investment real estate - 1,556
Other long-term investments 424 317
Short-term investments 65,815 191,474
------------------------------
Total investments 2,098,984 2,066,533
Cash 13,099 8,571
Indebtedness from affiliates 3,946 1,170
Accrued investment income 33,079 33,724
Accounts and premiums receivable 93,236 93,275
Reinsurance recoverable 652,247 629,306
Deferred policy acquisition costs 144,320 146,686
Property and equipment 4,422 4,345
Assets held in separate accounts 1,880 -
Other assets 25,164 18,369
------------------------------
Total assets $3,070,377 $3,001,979
==============================
See accompanying notes.
F-2
December 31
2000 1999
-----------------------------
(In Thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits
Life and Annuity $1,641,586 $1,675,300
Accident & Health 430,575 385,877
Other policy claims and benefits payable 106,105 117,684
Other policyholders' funds 107,440 109,832
Federal income taxes (36,818) (50,189)
Indebtedness to affiliates 2,791 1,568
Reinsurance payable 108,425 122,852
Liabilities held in separate accounts 1,880 -
Other liabilities 250,269 243,988
-----------------------------
Total liabilities 2,612,253 2,606,912
-----------------------------
Shareholder's equity:
Common stock, $2 par value, 1,980,658 shares
authorized, issued, and outstanding 3,961 3,961
Additional paid-in capital 8,361 8,361
Accumulated other comprehensive income (2,437) (12,915)
Retained earnings 448,239 395,660
-----------------------------
Total shareholder's equity 458,124 395,067
-----------------------------
Total liabilities and shareholder's equity $3,070,377 $3,001,979
=============================
See accompanying notes.
F-3
The United States Life Insurance Company in the City of New York
Statements of Income
YEAR ENDED DECEMBER 31
2000 1999 1998
------------------------------------------
(In Thousands)
Revenues:
Premiums and other considerations $212,295 $205,554 $594,155
Net investment income 162,345 166,695 185,838
Net realized investment (losses) gains (4,601) 4,689 (3,951)
Other 7,259 6,330 4,901
------------------------------------------
Total revenues 377,298 383,268 780,943
------------------------------------------
Benefits and expenses:
Benefits 201,107 203,967 514,020
Operating costs and expenses 95,427 124,372 221,115
Loss on reinsurance settlements - - 59,878
Litigation settlement - - 30,689
------------------------------------------
Total benefits and expenses 296,534 328,339 825,702
------------------------------------------
Income (loss) before income tax
expense (benefit) 80,764 54,929 (44,759)
Income tax expense (benefit) 28,185 19,167 (19,308)
------------------------------------------
Net income (loss) $ 52,579 $ 35,762 $(25,451)
==========================================
See accompanying notes.
F-4
The United States Life Insurance Company in the City of New York
Statements of Comprehensive Income
YEAR ENDED DECEMBER 31
2000 1999 1998
-----------------------------------------
(In Thousands)
Net income (loss) $52,579 $ 35,762 $(25,451)
-----------------------------------------
Other comprehensive income (loss):
Gross change in unrealized gains (losses) 18,668 (162,179) 8,995
DPAC (6,471) 61,197 (13,917)
Tax expense (benefit) 4,269 (35,345) (1,724)
-----------------------------------------
Net gain (loss) 7,928 (65,637) (3,198)
-----------------------------------------
Less:
(Losses) gains realized in net (8,158) 5,321 (4,166)
income
DPAC 4,235 (4,289) (85)
Tax (benefit) expense (1,373) 360 (1,489)
-----------------------------------------
Net (loss) gain (2,550) 672 (2,762)
-----------------------------------------
Change in net unrealized gains (losses) 10,478 (66,309) (436)
-----------------------------------------
Comprehensive income (loss) $63,057 $ (30,547) $(25,887)
=========================================
See accompanying notes.
F-5
The United States Life Insurance Company in the City of New York
Statements of Shareholder's Equity
YEAR ENDED DECEMBER 31
2000 1999 1998
-----------------------------------------------
(In Thousands)
Common stock:
Balance at beginning of year $ 3,961 $ 3,961 $ 3,961
Change during year - - -
-----------------------------------------------
Balance at end of year 3,961 3,961 3,961
-----------------------------------------------
Additional paid-in capital:
Balance at beginning of year 8,361 8,361 8,361
Change during year - - -
-----------------------------------------------
Balance at end of year 8,361 8,361 8,361
-----------------------------------------------
Accumulated other comprehensive income:
Balance at beginning of year (12,915) 53,394 53,830
Change in unrealized gains (losses) on securities 10,478 (66,309) (436)
-----------------------------------------------
Balance at end of year (2,437) (12,915) 53,394
-----------------------------------------------
Retained earnings:
Balance at beginning of year 395,660 457,898 483,349
Net income (loss) 52,579 35,762 (25,451)
Dividends paid - (98,000) -
-----------------------------------------------
Balance at end of year 448,239 395,660 457,898
-----------------------------------------------
Total shareholder's equity $458,124 $395,067 $523,614
===============================================
See accompanying notes.
F-6
The United States Life Insurance Company in the City of New York
Statements of Cash Flows
YEAR ENDED DECEMBER 31
2000 1999 1998
-------------------------------------------------------------
(In Thousands)
OPERATING ACTIVITIES
Net income (loss) $ 52,579 $ 35,762 $ (25,451)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accounts and premiums receivable 14,093 138,588 (167,146)
Change in future policy benefits 13,357 (52,714) 174,629
Amortization of policy acquisition costs 37,553 44,123 66,331
Policy acquisition costs deferred (41,658) (31,030) (62,766)
Change in other policyholders' funds (3,033) 5,927 22,573
Provision for deferred income tax expense 8,139 2,495 (45,403)
Depreciation 1,713 1,294 1,327
Amortization (4,754) (4,858) (1,734)
Change in indebtedness to/from affiliates (1,553) 5,382 (8,019)
Change in reinsurance balances (37,368) 4,668 (321,733)
Net loss (gain) on sale of investments 366 (4,689) 3,951
Other, net (11,869) (21,051) 118,537
-------------------------------------------------------------
Net cash provided by (used in) operating activities 27,565 123,897 (244,904)
-------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investments and loans made (5,983,061) (4,284,385) (2,833,731)
Sales or maturities of investments and receipts
from repayment of loans 5,964,176 4,286,356 3,183,379
Sales and purchases of property, equipment, and
software, net (1,779) (1,290) (3,674)
-------------------------------------------------------------
Net cash (used in) provided by investing activities (20,664) 681 345,974
-------------------------------------------------------------
FINANCING ACTIVITIES
Policyholder account deposits 170,698 138,580 131,386
Policyholder account withdrawals (173,071) (161,632) (232,245)
Dividends paid - (98,000) -
-------------------------------------------------------------
Net cash (used in) financing activities (2,373) (121,052) (100,859)
-------------------------------------------------------------
Increase in cash 4,528 3,526 211
Cash at beginning of year 8,571 5,045 4,834
-------------------------------------------------------------
Cash at end of year $ 13,099 $ 8,571 $ 5,045
=============================================================
Interest paid amounted to approximately $38 thousand, $367 thousand and $5.3
million in 2000, 1999 and 1998 respectively.
See accompanying notes.
F-7
The United States Life Insurance Company in the City of New York
Notes to Financial Statements
December 31, 2000
NATURE OF OPERATIONS
The United States Life Insurance Company in the City of New York (the "Company")
is domiciled in the State of New York. The Company is a wholly owned subsidiary
of USLIFE Corporation. Through the acquisition of USLIFE Corporation by American
General Corporation (the "Parent Company") on June 17, 1997, American General
Corporation became the ultimate parent of the Company.
The Company offers a broad portfolio of individual life and annuity products as
well as group and credit insurance.
The individual life line of business includes universal life, variable universal
life, level term, whole life and interest sensitive whole life as well as fixed
and variable annuities. These individual and annuity products are sold primarily
to affluent markets, generally through independent general agencies and
producers as well as financial institutions. The Company also provides products
for preferred international markets and other target markets through lower cost
distribution channels.
Group insurance products include group life, accidental death & dismemberment
("AD&D"), dental, vision and disability coverage and are sold through
independent general agents and producers as well as third party administrators.
These products are marketed nationwide to employers, professional and affinity
associations.
1. ACCOUNTING POLICIES
1.1 PREPARATION OF FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Transactions with the Parent Company
and other subsidiaries of the Parent Company are not eliminated from the
financial statements of the Company.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
disclosures of contingent assets and liabilities. Ultimate results could differ
from those estimates.
1.2 INSURANCE CONTRACTS
The insurance contracts accounted for in these financial statements include both
long-duration and short-duration contracts.
Long-duration contracts include traditional whole life, endowment, guaranteed
renewable term life, universal life, limited payment, and investment contracts.
Long-duration
F-8
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.2 INSURANCE CONTRACTS (CONTINUED)
contracts generally require the performance of various functions and services
over a period of more than one year.
Short-duration contracts include group major medical, dental, term life, AD&D,
excess major medical, hospital indemnity and long-term and short-term disability
policies. Short-term contracts generally require the performance of various
functions and services over a period of one year or less.
The contract provisions generally cannot be changed or canceled by the insurer
during the contract period; however, most new contracts written by the Company
allow the insurer to revise certain elements used in determining premium rates
or policy benefits, subject to guarantees stated in the contracts.
1.3 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities were classified as available-for-sale
and recorded at fair value at December 31, 2000, 1999 and 1998. After adjusting
related balance sheet accounts as if the unrealized gains (losses) had been
realized, the net adjustment is recorded in accumulated other comprehensive
income within shareholder's equity. If the fair value of a security classified
as available-for-sale declines below its amortized cost and this decline is
considered to be other than temporary, the security is reduced to its fair
value, and the reduction is recorded as a realized loss.
MORTGAGE LOANS
Mortgage loans are reported at amortized cost, net of an allowance for losses.
The allowance for losses covers all non-performing loans and loans for which
management has a concern based on its assessment of risk factors, such as
potential non-payment or non-monetary default. The allowance is based on a loan-
specific review and a formula that reflects past results and current trends.
Loans for which the Company determines that collection of all amounts due under
the contractual terms is not probable are considered to be impaired. The Company
generally looks to the underlying collateral for repayment of impaired loans.
Therefore, impaired loans are considered to be collateral dependent and are
reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated cost to sell.
F-9
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.3 INVESTMENTS (CONTINUED)
POLICY LOANS
Policy loans are reported at unpaid principal balance.
INVESTMENT REAL ESTATE
Investment real estate is classified as held for investment or available for
sale, based on management's intent. Real estate held for investment is carried
at cost, less accumulated depreciation and impairment write-downs. Real estate
available for sale is carried at the lower of cost (less accumulated
depreciation, if applicable) or fair value less cost to sell.
INVESTMENT INCOME
Interest on fixed maturity securities and performing and restructured mortgage
loans is recorded as income when earned and is adjusted for any amortization of
premium or discount. Interest on delinquent mortgage loans is recorded as income
when received. Dividends are recorded as income on ex-dividend dates.
REALIZED INVESTMENT GAINS
Realized investment gains (losses) are recognized using the specific-
identification method.
1.4 DEFERRED POLICY ACQUISITION COSTS ("DPAC")
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC.
DPAC associated with interest-sensitive life contracts is charged to expense in
relation to the estimated gross profits of those contracts. DPAC associated with
insurance investment contracts is effectively charged off over the period ending
one year beyond the surrender charge period. DPAC associated with all other
insurance contracts is charged to expense over the premium-paying period or as
the premiums are earned over the life of the contract.
DPAC associated with interest-sensitive life contracts is adjusted for the
impact on estimated future gross profits as if net unrealized gains (losses) on
securities had been realized at the balance sheet date. The impact of this
adjustment is included in accumulated other comprehensive income within
shareholder's equity.
The Company reviews the carrying amount of DPAC on at least an annual basis.
Management considers estimated future gross profits or future premiums, future
lapse
F-10
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.4 DEFERRED POLICY ACQUISITION COSTS ("DPAC") (CONTINUED)
rates, expected mortality/morbidity, interest earned and credited rates,
persistency, and expenses in determining whether the carrying amount is
recoverable.
1.5 PREMIUM RECOGNITION
Most receipts for annuities and interest-sensitive life insurance policies are
classified as deposits instead of revenue. Revenues for these contracts consist
of mortality, expense, and surrender charges. Policy charges that compensate the
Company for future services are deferred and recognized in income over the
period earned, using the same assumptions used to amortize DPAC (see Note 1.4).
For all other contracts, premiums are recognized when due.
1.6 POLICY AND CONTRACT CLAIMS RESERVES
The Company's insurance and annuity liabilities relate to both long-duration and
short-duration contracts. The contracts normally cannot be changed or canceled
by the Company during the contract period.
For long-duration contracts such as interest-sensitive life and insurance
investment contracts, reserves equal the sum of the policy account balance and
deferred revenue charges. Reserves for other long-duration contracts are based
on estimates of the cost of future policy benefits. Reserves are determined
using the net level premium method. Interest assumptions used to compute
reserves ranged from 2.25% to 11.25% at December 31, 2000.
Short-duration contracts are rated based on attained age and are guaranteed
issue and thus not subject to the normal wear-off mortality/morbidity patterns.
No policy reserves other than unearned premium reserves are held. The unearned
premium reserve is based on gross premium and is calculated on a pro rata basis.
Incurred but not reported claim reserves are based upon patterns demonstrated
through run-out studies. Reserves for open long-term disability claims are based
on the 1985 Commissioner Disability Tables, modified for company experience. The
interest rate assumption varies by year of incurral, but averages 6.91%.
Waiver of premium reserves for life insurance are based on the 1970 Krieger
table, modified for company experience. The interest rate used for waiver of
premium reserves is the same as that used for open long-term disability
reserves.
F-11
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.7 REINSURANCE
The Company limits its exposure to loss on any single insured to $2.5 million by
ceding additional risks through reinsurance contracts with other insurers. The
Company diversifies its risk of reinsurance loss by using a number of reinsurers
that have strong claims-paying ability ratings. The Company remains obligated
for amounts ceded in the event that the reinsurers do not meet their
obligations.
A recoverable is recorded for the portion of benefits paid and insurance
liabilities that have been reinsured. The cost of reinsurance is recognized over
the life of the reinsured policies using assumptions consistent with those used
to account for the underlying policies.
Benefits paid and future policy benefits related to ceded insurance contracts
are recorded as reinsurance recoverables. The cost of reinsurance is recognized
over the life of the underlying reinsured policies using assumptions consistent
with those used to account for the underlying policies.
1.8 PARTICIPATING POLICY CONTRACTS
Participating life insurance accounted for approximately 41.6%, 38.7%, and 36.7%
of individual life insurance in force at December 31, 2000, 1999 and 1998
respectively.
The portion of earnings allocated to participating policyholders that cannot be
expected to inure to shareholders is excluded from net income and shareholder's
equity. Dividends to be paid on participating life insurance contracts are
determined annually based on estimates of the contracts' earnings. Policyholder
dividends were $2.0 million, $2.2 million and $2.4 million in 2000, 1999 and
1998 respectively.
1.9 INCOME TAXES
The Company was acquired by American General Corporation on June 17, 1997.
Following the acquisition, the Company will file a separate life company federal
income tax return for five years.
Deferred tax assets and liabilities are established for temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities, at the enacted tax rates expected to be in effect when the
temporary differences reverse. The effect of a tax rate change is recognized in
income in the period of enactment.
A valuation allowance for deferred tax assets is provided if it is more likely
than not that some portion of the deferred tax asset will not be realized. An
increase or decrease in a
F-12
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.9 INCOME TAXES (CONTINUED)
valuation allowance that results from a change in circumstances that causes a
change in judgment about the realizability of the related deferred tax asset is
included in income. Changes related to fluctuations in fair value of available-
for-sale securities are included in accumulated other comprehensive income in
shareholder's equity.
1.10 CHANGES IN ACCOUNTING AND REPORTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS 133, which
was amended by Statements 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 and 138,
Accounting for Derivative Instruments and Certain Hedging Activities issued in
June 1999 and June 2000, respectively (collectively referred to as Statement
133). Statement 133 requires all derivative instruments to be recognized at fair
value of a derivative, accounting for which requires all derivative instruments
to be recognized at fair value as either assets or liabilities in the balance
sheet. Changes in the fair value of a derivative instrument are to be reported
as earnings or other comprehensive income, depending upon the intended use of
the derivative instrument. This statement is effective for fiscal years
beginning after June 15, 2000. Adoption of SFAS 133 is not expected to have a
material impact on the Company's results of operations or financial position.
1.11 SEPARATE ACCOUNT BUSINESS
Separate Accounts are assets and liabilities associated with certain contracts,
principally variable universal life and variable annuities; for which the
investment risk lies solely with the contract holder. Therefore, the Company's
liability for these accounts equals the value of the account assets. Investment
income, realized investment gains (losses), and policyholder account deposits
and withdrawals related to Separate Accounts are excluded from the statements of
income, comprehensive income, and cash flows. Assets held in Separate Accounts
are primarily shares in mutual funds, which are carried at fair value based on
the quoted net asset value per share.
1.12 RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current year
presentation.
F-13
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS
2.1 Investment Income
Investment income by type of investment was as follows:
2000 1999 1998
---------------------------------------------
(In Thousands)
Investment income:
Fixed maturities $135,140 $145,074 $176,449
Equity securities 1,597 35 49
Mortgage loans on real estate 9,270 7,750 5,766
Investment real estate 137 744 1,556
Policy loans 5,196 5,468 5,521
Other long-term investments 156 2,866 310
Short-term investments 13,547 8,307 2,742
Investment income from affiliates 139 370 57
---------------------------------------------
Gross investment income 165,182 170,614 192,450
Investment expenses 2,837 3,919 6,612
---------------------------------------------
Net investment income $162,345 $166,695 $185,838
=============================================
2.2 NET REALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) by type of investment were as follows:
2000 1999 1998
------------------------------------------------
(In Thousands)
Fixed maturities:
Gross gains $ 5,714 $14,200 $ 2,860
Gross losses (13,872) (8,879) (7,026)
DPAC 4,235 (4,289) (85)
------------------------------------------------
Total fixed maturities (3,923) 1,032 (4,251)
Other investments (678) 3,657 300
------------------------------------------------
Net realized investment (losses)
gains before tax (4,601) 4,689 (3,951)
Income tax (benefit) expense (1,610) 1,641 (1,383)
Net realized investment (losses)
gains after tax $ (2,991) $ 3,048 $(2,568)
================================================
F-14
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities are classified as available-for-sale
and reported at fair value (see Note 1.3). Amortized cost and fair value at
December 31, 2000 and 1999 were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------------------------------------------------------
December 31, 2000 (In Thousands)
Fixed maturity securities:
Corporate securities:
Investment-grade $1,360,149 $39,966 $(36,908) $1,363,207
Below investment-grade 78,177 1,280 (12,503) 66,954
Mortgage-backed securities* 191,087 2,471 (453) 193,105
U.S. government obligations 135,522 7,125 - 142,647
Foreign governments 34,487 3,665 - 38,152
State and political 4,640 81 - 4,721
subdivisions
Redeemable preferred stocks 2,886 - (251) 2,635
Derivatives 207 - - 207
----------------------------------------------------------
Total fixed maturity $1,807,155 $54,588 $(50,115) $1,811,628
securities
==========================================================
Equity securities $ 20,394 $ 60 $ (14) $ 20,440
==========================================================
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------------------------------------------------------
December 31, 1999 (In Thousands)
Fixed maturity securities:
Corporate securities:
Investment-grade $1,422,946 $21,597 $(37,943) $1,406,600
Below investment-grade 100,502 1,240 (8,904) 92,838
Mortgage-backed securities* 111,666 256 (1,067) 110,855
U.S. government obligations 8,699 535 (79) 9,155
Foreign governments 36,839 1,447 (77) 38,209
State and political 4,466 - (161) 4,305
subdivisions
Redeemable preferred stock 2,897 159 (13) 3,043
----------------------------------------------------------
Total fixed maturity $1,688,015 $25,234 $(48,244) $1,665,005
securities
=========================================================
Equity securities $ 13,304 $ 62 $ - $ 13,366
=========================================================
* Primarily include pass-through securities guaranteed by the U.S. government
and government agencies for both December 31, 2000 and 1999.
F-15
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
Net unrealized gains (losses) on securities included in accumulated
comprehensive income in shareholder's equity at December 31 were as follows:
2000 1999
-------------------------------
(In Thousands)
Gross unrealized gains $ 54,648 $ 25,296
Gross unrealized losses (50,129) (48,244)
DPAC and other fair value adjustments (8,267) 3,079
Deferred federal income taxes 1,311 6,954
-------------------------------
Net unrealized gains on securities $ (2,437) $(12,915)
===============================
The contractual maturities of fixed maturity securities at December 31, 2000 and
1999 were as follows:
2000 1999
------------------------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
------------------------------------------------------------
(In Thousands) (In Thousands)
Fixed maturity securities,
excluding mortgage-
backed securities:
Due in one year or less $ 123,246 $ 124,195 $ 168,709 $ 168,912
Due after one year
through five years 500,288 510,238 346,556 348,443
Due after five years
through ten years 352,879 344,782 421,727 409,119
Due after ten years 639,655 639,308 639,357 627,676
Mortgage-backed securities 191,087 193,105 111,666 110,855
------------------------------------------------------------
Total fixed maturity
securities $1,807,155 $1,811,628 $1,688,015 $1,665,005
============================================================
Actual maturities may differ from contractual maturities, since borrowers may
have the right to call or prepay obligations. In addition, corporate
requirements and investment strategies may result in the sale of investments
before maturity. Proceeds from sales of fixed maturities were $873.6 million,
$779.4 million, and $587.3 million during 2000, 1999, and 1998 respectively.
F-16
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.4 INVESTMENT SUMMARY
Investments of the Company were as follows:
December 31, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------
CARRYING CARRYING
COST FAIR VALUE AMOUNT COST FAIR VALUE AMOUNT
------------------------------------------------------------------------------------------------------
(In Thousands) (In Thousands)
Fixed maturities:
Bonds:
United States government
and government agencies
and authorities $ 135,522 $ 142,647 $ 142,647 $ 8,699 $ 9,155 $ 9,155
States, municipalities,
and political subdivisions 4,640 4,721 4,721 4,466 4,305 4,305
Foreign governments 34,487 38,152 38,152 36,839 38,209 38,209
Public utilities 176,848 180,178 180,178 189,957 189,115 189,115
Mortgage-backed securities 191,087 193,105 193,105 111,666 110,855 110,855
All other corporate bonds 1,261,478 1,249,983 1,249,983 1,333,491 1,310,323 1,310,323
Redeemable preferred stocks 2,886 2,635 2,635 2,897 3,043 3,043
Derivatives 207 207 207 - - -
-----------------------------------------------------------------------------------------------
Total fixed maturities 1,807,155 1,811,628 1,811,628 1,688,015 1,665,005 1,665,005
Equity securities:
Nonredeemable preferred
stocks 568 574 574 568 575 575
Common stocks 19,826 19,866 19,866 12,736 12,791 12,791
-----------------------------------------------------------------------------------------------
Total fixed maturities and
equity securities 1,827,549 $1,832,068 1,832,068 1,701,319 $1,678,371 1,678,371
========== ==========
Mortgage loans on real estate* 122,806 122,806 112,031 112,031
Investment real estate - - 1,556 1,556
Policy loans 77,871 77,871 82,784 82,784
Other long-term investments 424 424 317 317
Short-term investments** 65,815 65,815 191,474 191,474
---------- --------------------------- ----------
Total investments $2,094,465 $2,098,984 $2,089,481 $2,066,533
========== =========================== ==========
* Amount is net of allowance for losses of $0.6 million at December 31, 2000
and 1999 respectively.
** Includes $125 million on deposit to satisfy regulatory requirements at
December 31, 1999. There were no short-term investments on deposit at
December 31, 2000.
F-17
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
3. DEFERRED POLICY ACQUISITION COSTS
The balance of DPAC at December 31 and the components of the change reported in
operating costs and expenses for the years then ended were as follows:
2000 1999 1998
-----------------------------------------------
(In Thousands)
Balance at January 1 $146,686 $ 98,552 $185,243
Capitalization 41,658 31,030 62,766
Amortization (37,553) (44,123) (66,331)
Effect of unrealized gains and
losses on securities (10,706) 65,486 (13,832)
Effect of realized gains and losses 4,235 (4,289) (85)
Reinsurance transfer - 30 (69,209)
-----------------------------------------------
Balance at December 31 $144,320 $146,686 $ 98,552
===============================================
4. FEDERAL INCOME TAXES
4.1 TAX LIABILITIES
Income tax liabilities were as follows:
December 31
2000 1999
-------------------------------
(In Thousands)
Current tax (recoverable) payable $ (4,567) $ (4,156)
Deferred tax (assets) liabilities, applicable to:
Net income (30,940) (39,079)
Net unrealized investment (losses) gains (1,311) (6,954)
------------------------
Total net deferred tax (assets) (32,251) (46,033)
------------------------
Total current and deferred tax (assets)
liabilities $(36,818) $(50,189)
========================
F-18
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
4. FEDERAL INCOME TAXES (CONTINUED)
4.1 TAX LIABILITIES (CONTINUED)
Components of deferred tax liabilities and assets at December 31 were as
follows:
2000 1999
-------------------------------
(In Thousands)
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 23,224 $ 49,455
Basis differential of investments 2,672 (5,380)
Other (4,664) (10,225)
------------------------
Total deferred tax liabilities 21,232 33,850
Deferred tax assets applicable to:
Policy reserves (59,441) (51,387)
Other 5,958 (28,496)
------------------------
Total deferred tax assets (53,483) (79,883)
------------------------
Net deferred tax (assets) liabilities $(32,251) $(46,033)
========================
A portion of life insurance income earned prior to 1984 is not taxable unless it
exceeds certain statutory limitations or is distributed as dividends. Such
income, accumulated in policyholders' surplus accounts, totaled $37.8 million at
December 31, 2000 and 1999.
At current corporate rates, the maximum amount of tax on such income is
approximately $13.2 million. Deferred taxes on these accumulations are not
required because no distributions are expected.
F-19
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
4. FEDERAL INCOME TAXES (CONTINUED)
4.2 TAX EXPENSE
Components of income tax expense (benefit) for the years were as follows:
2000 1999 1998
-----------------------------------------------
(In Thousands)
Current tax expense $20,046 $16,672 $ 26,095
Deferred tax expense (benefit):
Deferred policy acquisition cost 65 4,412 2,673
Policy reserves 2,123 (1,947) (12,552)
Basis differential of investments (799) (1,070) 132
Litigation settlement - - (10,272)
Reinsurance transaction - - (22,133)
Other, net 6,750 1,100 (3,251)
---------------------------------------
Total deferred tax expense (benefit) 8,139 2,495 (45,403)
---------------------------------------
Income tax expense (benefit) $28,185 $19,167 $(19,308)
=======================================
A reconciliation between the income tax expense computed by applying the federal
income tax rate (35%) to income before taxes and the income tax expense reported
in the financial statement is presented below.
2000 1999 1998
-----------------------------------------------
(In Thousands)
Income tax at statutory percentage
of GAAP pretax income $28,267 $19,225 $(15,666)
Tax-exempt investment income (138) (131) (121)
Other 56 73 (3,521)
---------------------------------------
Income tax expense (benefit) $28,185 $19,167 $(19,308)
=======================================
F-20
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
4. FEDERAL INCOME TAXES (CONTINUED)
4.3 TAXES PAID
Income taxes paid amounted to approximately $20.5 million, $27.0 million, and
$20.5 million in 2000, 1999, and 1998, respectively.
4.4 TAX RETURN EXAMINATIONS
The Internal Revenue Service ("IRS") has completed examinations of the Company's
tax returns through 1994. The IRS has begun its audit of the 1995 through June
17, 1997 tax returns during 2000.
5. TRANSACTIONS WITH AFFILIATES
American General Corporation and certain affiliated companies provide services
to the Company, principally data processing, investment management, professional
and administrative services. During 2000, 1999 and 1998, the Company incurred
$32.5 million, $28.8 million and $25.3 million, respectively, for these
services. In addition, the Company provides services to certain affiliated
companies. During 2000, 1999 and 1998, the Company was reimbursed $10.0 million,
$4.3 million and $3.5 million, respectively, for these services. During 2000,
the Company transferred a liability to an affiliate and reduced operating
expenses by $10.5 million to match the services to be provided by the affiliate.
The Company periodically borrows funds from the Parent Company under an
intercompany short-term borrowing agreement entered into during 1997. These
borrowings are on demand and are unsecured. Interest is charged on the average
borrowing based on the commercial paper rate. At December 31, 2000, no amounts
were outstanding under the borrowing agreement.
Affiliated accounts receivable were $3.9 million and $1.2 million in 2000 and
1999, respectively.
Following regulatory approval from the necessary authorities, the Company
reinsured 49% of its credit life and credit accident and health business to
American General Assurance Company, an affiliate, effective January 1, 1998.
This transaction resulted in the cession of approximately 218,000 life policies
representing $379.5 million of insurance in-force and approximately 41,000 A&H
policies. Assets of approximately $10 million were transferred, which resulted
in a pretax loss of approximately $4 million.
Following regulatory approval from the necessary authorities, the Company also
reinsured 49% of its New York and 100% of its non-New York group life (excluding
permanent policies), group accident and health, and individual accident and
health business to American General Assurance Company effective October 1, 1998.
This transaction resulted in the cession of approximately 21,000 life policies
representing $32.6 billion of insurance in-force
F-21
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
5. TRANSACTIONS WITH AFFILIATES (CONTINUED)
and approximately 24,000 A&H policies. Assets of approximately $254 million were
transferred. The Company received a $13 million ceding commission on this
transaction, which resulted in a pretax loss of approximately $56 million.
The losses on these transactions resulted from the pricing of the business to
yield a competitive market return.
Amounts recoverable of $492 million and $485 million and amounts payable of $101
million and $109 million, relating to this affiliated reinsurance, are included
under the captions "Reinsurance recoverable" and "Reinsurance payable" in the
balance sheets at December 31, 2000 and 1999, respectively.
6. ACCIDENT AND HEALTH RESERVES
Activity in the liability for unpaid claims and claim adjustment expenses for
the Company's accident and health coverage is summarized as follows:
YEAR ENDED DECEMBER 31
2000 1999 1998
---------------------------------------------
(In Thousands)
Balance as of January 1, net of reinsurance
recoverable $20,599 $19,782 $ 85,974
-------------------------------------
Reinsurance settlements (1) - - (43,736)
-------------------------------------
Add: Incurred losses (2) 19,626 25,440 135,175
-------------------------------------
Deduct: Paid losses related to:
Current year 9,881 14,680 93,013
Prior years 12,960 9,943 64,618
-------------------------------------
Total paid losses 22,841 24,623 157,631
-------------------------------------
Balance as of December 31, net of reinsurance 17,384 20,599 19,782
recoverable
Reinsurance recoverable 36,374 45,019 45,419
-------------------------------------
Balance as of December 31, gross of
reinsurance recoverable $53,758 $65,618 $ 65,201
=====================================
(1) See Note 5.
(2) Substantially all of the Company's incurred claims and claim adjustment
expenses relate to the respective current year.
F-22
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
6. ACCIDENT AND HEALTH RESERVES (CONTINUED)
The liability for unpaid claims and claim adjustment expenses relating to the
Company's accident and health business is based on the estimated amount payable
on claims reported prior to the date of the balance sheets which have not yet
been settled: claims reported subsequent to the date of the balance sheets which
have been incurred during the period than ended, and an estimate (based on past
experience) of incurred but unreported claims relating to such periods.
7. BENEFIT PLANS
7.1 PENSION PLANS
The Company has non-contributory defined benefit pension plans covering most
employees. Pension benefits are based on the participant's compensation and
length of credited service.
At December 31, 2000, the plans' assets were invested as follows: (1) 65% in
equity mutual funds managed outside the company; (2) 28% in fixed income mutual
funds managed by one of American General Corporation's subsidiaries and (3) 6%
in American General Common Stock.
The benefit plans have purchased annuity contracts from American General
Corporation's subsidiaries to provide approximately $58 million of future annual
benefits to certain retirees.
The components of pension expense and underlying assumptions were as follows:
2000 1999 1998
-------------------------------------------------
(In Thousands)
Service cost (benefits earned) $ 173 $ 1,050 $ 193
Interest cost 1,515 2,159 1,205
Expected return on plan assets (2,241) (2,864) (1,714)
Amortization (323) (424) (309)
----------------------------------------
Pension (income) $ (876) $ (79) $ (625)
========================================
Discount rate on benefit obligation 8.00% 7.75% 7.00%
Rate of increase in compensation
levels 4.50% 4.25% 4.25%
Expected long-term rate of return on
plan assets 10.35% 10.35% 10.25%
F-23
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
7. BENEFIT PLANS (CONTINUED)
7.1 PENSION PLANS (CONTINUED)
The Company's funding policy is to contribute annually no more than the maximum
deductible for federal income tax purposes. The funded status of the plans and
the prepaid pension expense included in other assets at December 31 were as
follows:
2000 1999
-------------------------------
(In Thousands)
Projected benefit obligation (PBO) $19,731 $29,314
Plan assets at fair value 21,636 29,789
-----------------------
Plan assets at fair value in excess of PBO 1,905 475
Other unrecognized items, net (591) 140
-----------------------
Prepaid pension expense $ 1,314 $ 615
=======================
The change in PBO was as follows:
2000 1999
-------------------------------
(In Thousands)
PBO at January 1 $29,314 $18,022
Service and interest costs 1,688 3,208
Benefits paid (1,551) (1,419)
Actuarial (gain) loss (2,685) (282)
Transfers and other (7,035) 9,785
-----------------------
PBO at December 31 $19,731 $29,314
=======================
The change in the fair value of plan assets was as follows:
2000 1999
-------------------------------
(In Thousands)
Fair value of plan assets at January 1 $29,789 $18,110
Actual return on plan assets 1,066 3,217
Benefits paid (1,552) (1,419)
Transfers (7,667) 9,881
-----------------------
Fair value of plan assets at December 31 $21,636 $29,789
=======================
F-24
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
7. BENEFIT PLANS (CONTINUED)
7.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has life, medical, supplemental major medical, and dental plans for
certain retired employees and agents. Most plans are contributory, with retiree
contributions adjusted annually to limit employer contributions to predetermined
amounts. The Company has reserved the right to change or eliminate these
benefits at any time.
The life plans are insured through December 31, 1999. A portion of the retiree
medical and dental plans is funded through a voluntary employees' beneficiary
association (VEBA); the remainder is unfunded and self-insured. All of the
retiree medical and dental plans' assets held in the VEBA were invested in
readily marketable securities at its most recent balance sheet date.
Postretirement benefit expense (benefit) in 2000, 1999, and 1998 was $(585)
thousand, $(574) thousand, and $(290) thousand, respectively. The accrued
liability for postretirement benefits was $2.2 million and $5.5 million at
December 31, 2000 and 1999, respectively. These liabilities were discounted at
the same rates used for the pension plans.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and fair values for certain of the Company's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all the Company's assets and liabilities,
and (2) the reporting of investments at fair value without a corresponding
evaluation of related policyholders liabilities can be misinterpreted.
2000 1999
------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
------------------------------------------------------------
(In Millions) (In Millions)
Assets:
Fixed maturity and
equity securities $1,832 $1,832 $1,678 $1,678
Mortgage loans on real
estate $ 123 $ 123 $ 106 $ 112
Policy loans $ 78 $ 78 $ 83 $ 83
Liabilities:
Insurance investment
contracts $ 347 $ 360 $ 447 $ 458
F-25
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
8. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value of
financial instruments:
FIXED MATURITY AND EQUITY SECURITIES
Fair values of fixed maturity and equity securities were based on quoted
market prices, where available. For investments not actively traded, fair
values were estimated using values obtained from independent pricing
services or, in the case of some private placements, by discounting
expected future cash flows using a current market rate applicable to yield,
credit quality, and average life of investments.
MORTGAGE LOANS ON REAL ESTATE
Fair value of mortgage loans was estimated primarily using discounted cash
flows, based on contractual maturities and risk-adjusted discount rates.
POLICY LOANS
Fair value of policy loans was estimated using discounted cash flows and
actuarially determined assumptions, incorporating market rates.
INSURANCE INVESTMENT CONTRACTS
Fair value of insurance investment contracts was estimated using cash flows
discounted at market interest rates.
F-26
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
9. STATUTORY FINANCIAL INFORMATION; DIVIDEND PAYING CAPABILITY
The Company's statutory basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the State of New York
Insurance Department. "Prescribed" statutory accounting practices include state
laws, regulations and general administrative rules, as well as a variety of
publications by the NAIC. "Permitted" statutory accounting practices encompass
all accounting practices that are not prescribed; such practices may differ from
state to state, from company to company within a state, and may change in the
future. There were no material permitted practices utilized by the Company in
2000, 1999 or 1998.
Policyholder's surplus and net income, as reported to the domiciliary state
insurance department in accordance with its prescribed or permitted statutory
accounting practices is summarized as follows:
2000 1999 1998
---------------------------------------------
(In Thousands)
Statutory net income for the year $ 54,623 $ 48,003 $ 31,151
Statutory surplus at year-end $226,434 $146,841 $212,130
Statutory accounting practices require acquisition costs on new business
(including commissions and underwriting and issue costs) to be charged to
expense when incurred. Regulatory net income includes income (loss) attributed
to participating policyholders of $2.8 million, $(2.0) million and $(6.0)
million in 2000, 1999 and 1998, respectively. The 2000 gain is primarily the
result of less conservative reserving requirements adopted by New York State.
The 1999 and 1998 losses were primarily a result of higher levels of sales of
participating term insurance products. Regulatory equity capital includes
capital attributed to participating policyholders of $(29.7) million, $(45.4)
million and $(37.0) million at December 31, 2000, 1999 and 1998 respectively.
Capital attributed to participating policyholders is not available for payment
of dividends to shareholders.
The Company is subject to New York Business Corporation Law, which imposes
restrictions on shareholder dividends. The maximum amount of dividends that can
be paid by New York domiciled life insurance companies without the prior
approval of the New York State Superintendent of Insurance in a calendar year is
the lesser of: (1) 10% of surplus as regards policyholders as of the immediately
preceding calendar year or (2) the net gain from operations of such insurer for
the immediately preceding calendar year. The Company did not pay any dividends
in 2000 or 1998. The Company paid $98 million in dividends in 1999.
F-27
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
9. STATUTORY FINANCIAL INFORMATION; DIVIDEND PAYING CAPABILITY (CONTINUED)
The NAIC revised the Accounting Practices and Procedures Manual in a process
referred to as Codification. The revised manual will be effective January 1,
2001. The New York Department of Insurance has adopted the provisions of the
revised manual except where there are conflicts with the provisions of New York
Insurance Law, the most significant being deferred taxes. The revised manual has
changed, to some extent, prescribed statutory accounting practices and will
result in changes to the accounting practices that the company uses to prepare
their statutory-basis financial statements. Management believes the impact of
these changes to the Company's statutory-basis capital and surplus as of January
1, 2001 will not be significant based on current New York Insurance Law.
10. LEASES
The Company has various leases for office space and facilities. At December 31,
2000 the future minimum rental commitments under all of the Company's
noncancellable leases were as follows:
YEAR ENDED
DECEMBER 31
-----------------------------------------------
(In Thousands)
2001 $2,047
2002 2,069
2003 1,987
2004 (589)
2005 (645)
Thereafter (645)
------
Total $4,224
======
Rent expense incurred in 2000, 1999 and 1998 was $4.7 million, $4.7 million and
$4.6 million, respectively.
11. COMMITMENTS AND CONTINGENCIES
In recent years, various life insurance companies have been named as defendants
in class action lawsuits relating to life insurance pricing and sales practices,
and a number of these lawsuits have resulted in substantial settlements. On
December 16, 1998, American General Corporation announced that certain of its
life insurance subsidiaries had entered into agreements to resolve all pending
market conduct class action lawsuits. All of these settlements were finalized in
1999.
F-28
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In conjunction with the 1998 agreement, the Company recorded a charge of $30.7
million ($19.9 million after-tax) in the fourth quarter of 1998. The charge
covers the cost of policyholder benefits and other anticipated expenses
resulting from the proposed settlements, as well as other administrative and
legal costs.
The litigation liability was reduced by payments of $17.7 million and $2.5
million in 1999 and 2000, respectively. The remaining balance of $11.7 million
and $9.2 million at December 31, 1999 and 2000, respectively, was included in
other liabilities on the Company's balance sheet.
In addition to the charges recorded in 1998, the Company will incur additional
expenses for claim administration, outside counsel and actuarial services, and
regulatory expenses, related to the resolution of the litigation, which will be
recorded as incurred. Such expenses are not expected to have a material adverse
effect on the Company's financial position or results of operations.
In 1997, prior to the acquisition by American General Corporation, USLIFE
Corporation entered the workers' compensation reinsurance business. In 1998, the
Company discontinued writing new workers' compensation reinsurance business. The
largest workers' compensation contract was a quota share reinsurance agreement
with Superior National Insurance Group (Superior National), effective May 1,
1998. On November 29, 1999, the Company initiated an arbitration proceeding to
rescind this contract from its inception, based in part on misrepresentations
and nondisclosures which the Company believes were made by Superior National.
In 2000, the California Department of Insurance ordered seizure of Superior
National's insurance subsidiaries as a result of their financial condition and
Superior National Insurance Group, Inc. voluntarily filed for bankruptcy.
Through the arbitration with Superior National, the Company plans to fully
pursue all remedies. Although management believes, based on the advice of
counsel, that the Company will succeed in rescinding the contract, risks and
uncertainties remain with respect to the ultimate outcome. In the unlikely event
the Company does not prevail in the arbitration, management does not expect the
after tax losses from the Company's workers' compensation business to exceed $85
million, after recoveries from reinsurers. In addition, it is the current policy
of the Company's ultimate parent, American General Corporation, to manage the
capital levels in each of its principal life insurance subsidiaries to a target
of 2.5 times the NAIC Company Action Level Risk-Based Capital. If the Company
does not prevail in the arbitration, American General Corporation has committed
to make contributions to the capital of the Company sufficient to meet its
obligations under the treaty.
F-29
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is also party to various other lawsuits and proceedings arising in
the ordinary course of business. These lawsuits and proceedings include certain
class action claims and claims filed by individuals who excluded themselves from
settlement of class action lawsuits relating to life insurance pricing and sales
practices. In addition, many of these proceedings are pending in jurisdictions
that permit damage awards disproportionate to the actual economic damages
alleged to have been incurred. Based upon information presently available, the
Company believes that the total amounts that will ultimately be paid, if any,
arising from these lawsuits and proceedings will not have a material adverse
effect on the Company's results of operations and financial position. However,
it should be noted that the frequency of large damage awards, including large
punitive damage awards that bear little or no relation to actual economic
damages incurred by plaintiffs in some jurisdictions, continues to create the
potential for an unpredictable judgment in any given suit.
12. REINSURANCE
Reinsurance recoverable on paid losses was approximately $5.0 million, $7.5
million, and $10.6 million at December 31, 2000, 1999 and 1998, respectively.
Reinsurance recoverable on unpaid losses was approximately $36.4 million, $84.0
million, and $81.7 million at December 31, 2000, 1999 and 1998, respectively.
The effect of reinsurance on benefits to policyholders and beneficiaries was
$317 million, $357 million, and $131 million during 2000, 1999 and 1998,
respectively.
The Company terminated its participation in both the Federal Employee Government
Life Insurance (FEGLI) and State Government Life Insurance (SGLI) pools in 1998.
The assumed premiums for these pools in 1998 were $19.5 million and $2.5
million, respectively.
The Company participates in several reinsurance pools. These pools are managed
and administered by reinsurance intermediaries on behalf of the Company. The
pools involved various coverages including life, medical and disability.
F-30
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
12. REINSURANCE (CONTINUED)
Reinsurance transactions for the years ended December 31, 2000, 1999 and 1998
were as follows:
2000 1999 1998
-------------------------------------------------------------------
(In Thousands)
LIFE INSURANCE IN FORCE
Gross $73,348,279 $71,277,741 $70,948,300
Assumed - - -
Ceded 48,226,467 44,938,362 44,441,277
--------------------------------------------------------
Net $25,121,812 $26,339,379 $26,507,023
========================================================
LIFE AND ANNUITY PREMIUMS
Gross $ 222,111 $ 218,536 $ 214,384
Assumed 1 3 22,020
Ceded 151,919 151,258 58,924
--------------------------------------------------------
Net $ 70,193 $ 67,281 $ 177,480
========================================================
A&H PREMIUMS
Written
Gross $ 399,864 $ 443,363 $ 459,562
Assumed 13,859 17,335 170,120
Ceded 360,820 401,656 285,628
--------------------------------------------------------
Net $ 52,903 $ 59,042 $ 344,054
========================================================
Earned
Gross $ 391,406 $ 437,454 $ 452,348
Assumed 15,040 17,498 168,331
Ceded 354,235 396,408 276,313
--------------------------------------------------------
Net $ 52,211 $ 58,544 $ 344,366
========================================================
13. SUBSEQUENT EVENTS
American General Corporation, the Company's ultimate parent, has declared a two-
for-one stock split payable March 1, 2001. Disclosures of the number of shares,
option prices, and fair market value prices of American General Corporation
common stock in these notes and the accompanying financial statements have not
been restated to reflect the stock split.
F-31
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
13. SUBSEQUENT EVENTS (CONTINUED)
On March 11, 2001, American General Corporation entered into a definitive merger
agreement with Prudential plc. Under the agreement, American General
Corporation's shareholders will exchange shares of American General
Corporation's common stock for 3.6622 shares of Prudential plc common stock.
The transaction, which is subject to shareholder and regulatory approvals, is
expected to be completed in third quarter 2001.
F-32
INDEX OF WORDS AND PHRASES
This index should help you to locate more information about some of the
terms and phrases used in this prospectus.
Page to
See in this
Defined Term Prospectus
------------ ----------
accumulation value .......................................... 6
Administrative Center ....................................... 1
AGLC ........................................................ 51
USL ......................................................... 30
amount at risk .............................................. 7
automatic rebalancing ....................................... 5
basis ....................................................... 32
beneficiary ................................................. 37
cash surrender value ........................................ 21
cash value accumulation test ................................ 16
close of business ........................................... 39
Code ........................................................ 31
contingent insured .......................................... 4
cost of insurance rates ..................................... 39
daily charge ................................................ 7
date of issue ............................................... 40
death benefit ............................................... 14
declared fixed interest account option ...................... 41
dollar cost averaging ....................................... 5
full surrender .............................................. 21
Fund, Funds ................................................. 1
guideline premium test ...................................... 15
guaranteed minimum death benefit ............................ 17
investment option ........................................... 1
joint equal age ............................................. 16
lapse ....................................................... 16
last surviving contingent insured ........................... 4
loan, loan interest ......................................... 22
maturity, maturity date ..................................... 23
modified endowment contract ................................. 25
monthly deduction day ....................................... 40
monthly guarantee premium ................................... 17
monthly insurance charge .................................... 7
Mutual Fund ................................................. 10
53
Page to
See in this
Defined Term Prospectus
------------ ----------
option 1, 2 .................................................. 14
partial surrender ............................................ 21
payment option ............................................... 23
planned periodic premium ..................................... 16
Policy ....................................................... 1
Policy loan .................................................. 22
Policy month, year ........................................... 40
premium payments ............................................. 4
reinstate, reinstatement ..................................... 16
SEC .......................................................... 2
separate account ............................................. 1
Separate Account USL VL-R .................................... 30
seven-pay test ............................................... 31
specified amount ............................................. 14
surrender .................................................... 21
transfers .................................................... 18
uninsurable .................................................. 20
USL .......................................................... 30
valuation date, period ....................................... 39
variable investment option ................................... 1
We have filed a registration statement relating to Separate Account USL
VL-R and the Policy with the SEC. The registration statement, which is required
by the Securities Act of 1933, includes additional information that is not
required in this prospectus. If you would like the additional information, you
may obtain it from the SEC's Website at http://www.sec.gov or main office in
Washington, D.C. You will have to pay a fee for the material.
You should rely only on the information contained in this prospectus or
sales materials we have approved. We have not authorized anyone to provide you
with information that is different. The policies are not available in all
states. This prospectus is not an offer in any state to any person if the offer
would be unlawful.
54
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 United States Life Insurance Company in the City of New York's
Bylaws provide in Article XI for indemnification of directors, officers and
employees of the Company.
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant 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 the Act and will
be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT COMPANY ACT
OF 1940
The United States Life Insurance Company in the City of New York hereby
represents that the fees and charges deducted under the Policy, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and risks assumed by The United States Life Insurance
Company in the City of New York.
II-1
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
The facing sheet.
Cross-Reference Table.
Prospectus, consisting of 54 pages of text, plus 42 financial pages of
The United States Life Insurance Company in the City of New York.
The undertaking to file reports.
The Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
The signatures.
Written Consents of the following persons:
Independent Auditors
The following exhibits:
1. Exhibits required by Article IX, paragraph A of Form N-8B-2:
(1) The United States Life Insurance Company in the City
of New York Board of Directors resolution authorizing
the establishment of The United States Life Insurance
Company in the City of New York Separate Account USL
VL-R and among other things the marketing of variable
life products in New York. (3)
(2) Not applicable.
(3)(a) Specimen form of Distribution Agreement by and among
The United States Life Insurance Company in the City
of New York and American General Distributors, Inc.
(7)
(3)(b) Specimen form of Selling Group Agreement by and among
The United States Life Insurance Company in the City
of New York, American General Distributors, Inc., and
Selling Group Member. (7)
(3)(c) Schedule of Commissions (incorporated by reference
from the text included under the heading
"Distribution of the Policies" in the prospectus that
is filed as part of this Registration Statement).
(4) Not applicable.
(5) Specimen form of the "Platinum Investor Survivor"
Second-to-Die Variable Universal Life Insurance
Policy (Policy Form No. 99206N). (7)
II-2
(6)(a) Copy of the Restated Charter of The United States
Life Insurance Company in the City of New York). (1)
(6)(b) Copy of the Bylaws, as amended May 24, 1994, of The
United States Life Insurance Company in the City of
New York). (1)
(7) Not applicable.
(8)(a)(i) Participation Agreement by and among The United
States Life Insurance Company in the City of New
York, American General Securities Incorporated, Van
Kampen Life Investment Trust, Van Kampen Asset
Management, Inc., and Van Kampen Distributors, Inc.
(2)
(8)(a)(ii) Form of Amendment No. 2 to Participation Agreement by
and among The United States Life Insurance Company in
the City of New York, American General Distributors,
Inc., Van Kampen Life Investment Trust, Van Kampen
Asset Management Inc., and Van Kampen Distributors,
Inc. (7)
(8)(b)(i) Participation Agreement by and among The United
States Life Insurance Company in the City of New
York, Morgan Stanley Universal Funds, Inc., Morgan
Stanley Asset Management, Inc., and Miller Anderson &
Sherrerd. (2)
(8)(b)(ii) Form of Amendment No. 2 to Participation Agreement by
and among The United States Life Insurance Company in
the City of New York, Morgan Stanley Universal Funds,
Inc., Morgan Stanley Asset Management, Inc., and
Miller Anderson & Sherrerd. (7)
(8)(c)(i) Form of Participation Agreement by and among A I M
Variable Insurance Funds, Inc., A I M Distributors,
Inc., The United States Life Insurance Company in the
City of New York, on behalf of itself and its
separate accounts, and American General Securities
Incorporated. (4)
(8)(c)(ii) Form of Amendment No. 1 to Participation Agreement by
and among A I M Variable Insurance Funds Inc., A I M
Distributors, Inc., The United States Life Insurance
Company in the City of New York, on behalf of itself
and its separate accounts, and American General
Securities Incorporated. (7)
(8)(c)(iii) Form of Agreement with respect to Trademarks and Fund
Names by and among A I M Distributors Inc., A I M
Variable Insurance Funds Inc., The United States Life
Insurance Company in the City of New York and
American General Securities Incorporated. (4)
(8)(d)(i) Form of Participation Agreement among The United
States Life Insurance Company in the City of New
York, American General Securities Incorporated,
American General Series Portfolio Company and The
Variable Annuity Life Insurance Company. (4)
II-3
(8)(e) Form of Fund Participation Agreement between The
United States Life Insurance Company in the City of
New York and Dreyfus Variable Insurance Fund. (4)
(8)(f)(i) Form of Participation Agreement among MFS Variable
Insurance Trust, The United States Life Insurance
Company in the City of New York and Massachusetts
Financial Services. (4)
(8)(f)(ii) Form of Amendment No. 1 to Participation Agreement
among MFS Variable Insurance Trust, The United States
Life Insurance Company in the City of New York and
Massachusetts Financial Services Company. (5)
(8)(g) Form of Participation Agreement among Putnam Variable
Trust, Putnam Mutual Funds Corp. and The United
States Life Insurance Company in the City of New
York. (4)
(8)(h)(i) Form of Participation Agreement among The United
States Life Insurance Company in the City of New
York, American General Securities Incorporated,
Safeco Resource Series Trust and Safeco Securities,
Inc. (4)
(8)(h)(ii) Form of Amendment No. 1 to Participation Agreement
among The United States Life Insurance Company in the
City of New York, American General Distributors,
Inc., Safeco Resource Series Trust and Safeco
Securities, Inc. (7)
(8)(i) Form of Administrative Services Agreement between
Safeco Asset Management Company and The United States
Life Insurance Company in the City of New York. (4)
(8)(j) Form of Administrative Services Agreement between
Morgan Stanley Dean Witter Investment Management
Inc., Miller Anderson & Sherred, LLP and The United
States Life Insurance Company in the City of New
York. (4)
(8)(k) Form of Administrative Services Agreement between
Dreyfus Corporation and The United States Life
Insurance Company in the City of New York. (4)
(8)(l) Form of Administrative Services Agreement between The
United States Life Insurance Company in the City of
New York and A I M Advisors, Inc. (4)
(8)(m) Form of Administrative Services Agreement between The
United States Life Insurance Company in the City of
New York and Van Kampen Asset Management Inc., dated
as of December 1, 1998. (2)
(8)(n) Form of Shareholder Services Agreement by and between
the United States Life Insurance Company in the City
of New York and American Century Investment Services,
Inc. (5)
II-4
(8)(o) Form of Fund Participation Agreement by and between
Neuberger Berman Advisers Management Trust, Neuberger
Berman Management Inc. and The United States Life
Insurance Company in the City of New York (5)
(8)(p)(i) Form of Participation Agreement among Vanguard
Variable Insurance Funds, The Vanguard Group, Inc.,
Vanguard Marketing Corporation and The United States
Life Insurance Company in the City of New York. (5)
(8)(p)(ii) Form of Amendment No. 1 to Participation Agreement
among Vanguard Variable Insurance Funds, The Vanguard
Group, Inc., Vanguard Marketing Corporation and The
United States Life Insurance Company in the City of
New York. (7)
(8)(q)(i) Form of Participation Agreement among Ayco Asset
Management, Ayco Series Trust and The United States
Life Insurance Company in the City of New York. (5)
(8)(q)(ii) Form of Amendment No. 1 to Participation Agreement
among Ayco Asset Management, Ayco Series Trust and
The United States Life Insurance Company in the City
of New York. (7)
(8)(r) Form of Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors
Corporation and The United States Life Insurance
Company in the City of New York. (5)
(8)(s) Form of Participation Agreement among Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and The United States Life Insurance
Company in the City of New York. (5)
(8)(t) Form of Fund Participation Agreement by and between
The United States Life Insurance Company in the City
of New York and J.P. Morgan Series Trust II. (5)
(8)(u) Form of Fund Participation Agreement by and between
The United States Life Insurance Company in the City
of New York and Janus Aspen Series. (5)
(8)(v) Form of Participation Agreement by and among The
United States Life Insurance Company in the City of
New York, Warburg, Pincus Trust, Credit Suisse Asset
Management, LLC and Credit Suisse Asset Management
Securities, Inc. (5)
(8)(w) Form of Participation Agreement by and among The
United States Life Insurance Company in the City of
New York, PIMCO Variable Insurance Trust and PIMCO
Funds Distributors LLC. (5)
(8)(x) Form of Services Agreement by and between Pacific
Investment Management Company, LLC and The United
States Life Insurance Company in the City of New
York. (5)
II-5
(8)(y) Form of Administrative Services Agreement by and
between The United States Life Insurance Company in
the City of New York and Credit Suisse Asset
Management, LLC. (5)
(8)(z) Form of Administrative Services Agreement by and
between Ayco Asset Management and The United States
Life Insurance Company in the City of New York. (5)
(8)(z)(ii) Form of Amendment No. 1 to Administrative Services
Agreement by and between Ayco Asset Management, Ayco
Series Trust and The United States Life Insurance
Company in the City of New York. (7)
(8)(aa) Form of Service Contract by and between Fidelity
Distributors Corporation and The United States Life
Insurance Company in the City of New York. (5)
(8)(bb) Form of Service Agreement by and between Fidelity
Investments Institutional Operations Company, Inc.
and The United States Life Insurance Company in the
City of New York. (5)
(8)(cc) Form of Administrative Services Agreement by and
between The United States Life Insurance Company in
the City of New York and Morgan Guaranty Trust
Company of New York. (5)
(8)(dd) Form of Distribution and Shareholder Services
Agreement by and between Janus Distributors, Inc. and
The United States Life Insurance Company in the City
of New York. (5)
(8)(ee) Form of PIMCO Variable Insurance Trust Services
Agreement by and between The United States Life
Insurance Company in the City of New York and PIMCO
Variable Insurance Trust. (5)
(8)(ff) Form of Administrative Services Agreement by and
between Neuberger Berman Management Inc. and The
United States Life Insurance Company in the City of
New York (5)
(9) Not applicable.
(10)(a) Specimen form of application for life insurance
issued by USL. (3)
(10)(b) Specimen form of supplemental application for
variable life insurance issued by USL on Policy Form
No. 99206N. (6)
(10)(c) Amended Service Request Form for Home Office. (7)
(11) Not applicable. Rule 17j(1)(c)(i) of the Investment
Company Act of 1940 specifically exempts the Separate
Account from adopting a code of ethics.
II-6
Other Exhibits
2(a) Opinion and Consent of Pauletta P. Cohn, Deputy
General Counsel of American General Life Companies.
(7)
2(b) Opinion and Consent of USL's actuary. (7)
3 Not applicable.
4 Not applicable.
5 Financial Data Schedule. (Not applicable.)
6 Consent of Independent Auditors. (Filed herewith)
7 Powers of Attorney. (Filed herewith on signature
pages)
27 Financial Data Schedule. (Inapplicable, because no
financial statements of the Separate Account are
being filed herewith)
/1/ Incorporated by reference to initial filing of Form N-4 Registration
Statement (File No. 333-63673) of The United States Life Insurance Company in
the City of New York Separate Account USL VA-R filed on September 18, 1998.
/2/ Incorporated by reference to Pre-Effective Amendment No. 1 of Form N-4
Registration Statement (File No. 333-63673) of The United States Life Insurance
Company in the City of New York Separate Account USL VA-R filed on May 26, 1999.
/3/ Incorporated by reference to initial filing of Form S-6 Registration
Statement (File No. 333-79471) of The United States Life Insurance Company in
the City of New York Separate Account USL VL-R filed on May 27, 1999.
/4/ Incorporated by reference to Pre-Effective Amendment No. 1 of Form S-6
Registration Statement (File No. 333-79471) of The United States Life Insurance
Company in the City of New York Separate Account USL VL-R filed on November 5,
1999.
/5/ Incorporated by reference to Post-Effective Amendment No. 2 of Form S-6
Registration Statement (File No. 333-79471) of The United States Life Insurance
Company in the City of New York Separate Account USL VL-R filed on October 20,
2000.
/6/ Incorporated by reference to initial filing of Form S-6 Registration
Statement (File No. 333-57062) of The United States Life Insurance Company in
the City of New York Separate Account USL VL-R filed on March 15, 2001.
/7/ Incorporated by reference to Pre-Effective Amendment No. 1 of Form S-6
Registration Statement (File No. 333-57062) of The United States Life Insurance
Company in the City of New York Separate Account USL VL-R Filed on October 26,
2001.
II-7
POWERS OF ATTORNEY
Each person whose signature appears below hereby appoints Robert F.
Herbert, Jr. and Pauletta P. Cohn and each of them, any one of whom may act
without the joinder of the others, as his/her attorney-in-fact to sign on
his/her behalf and in the capacity stated below and to file all amendments to
this Registration Statement, which amendment or amendments may make such changes
and additions to this Registration Statement as such attorney-in-fact may deem
necessary or appropriate.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, The United States Life Insurance Company in the City of New York
Separate Account USL VL-R, has duly caused this amended 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 Houston, and State
of Texas, on the 30/th/ day of October, 2001.
THE UNITED STATES LIFE INSURANCE
COMPANY IN THE CITY OF NEW YORK
SEPARATE ACCOUNT USL VL-R
(Registrant)
BY: THE UNITED STATES LIFE INSURANCE
COMPANY IN THE CITY OF NEW YORK
(On behalf of the Registrant and itself)
BY: /s/ ROBERT F. HERBERT, JR.
--------------------------------
Robert F. Herbert, Jr.
Senior Vice President
[SEAL]
ATTEST: /s/ LAUREN W. JONES
------------------------
Lauren W. Jones
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amended Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
RODNEY O. MARTIN, JR.* Director, Chairman and October 30, 2001
----------------------
(Rodney O. Martin, Jr.) Chief Executive Officer
DAVID L. HERZOG* Director, Executive Vice October 30, 2001
----------------
(David L. Herzog) President and Chief
Financial Officer
WILLIAM A. BACAS* Director October 30, 2001
-----------------
(William A. Bacas)
RONALD E. BLAYLOCK* Director October 30, 2001
-------------------
(Ronald E. Blaylock)
DONALD W. BRITTON* Director October 30, 2001
------------------
(Donald W. Britton)
JAMES P. CORCORAN* Director October 30, 2001
------------------
(James P. Corcoran)
DAVID J. DIETZ* Director October 30, 2001
---------------
(David J. Dietz)
/s/ J. EDWARD EASLER, II* Director October 30, 2001
-------------------------
J. Edward Easler, II
DR. PATRICIA O. EWERS* Director October 30, 2001
----------------------
(Dr. Patricia O. Ewers)
THOMAS H. FOX* Director October 30, 2001
--------------
(Thomas H. Fox)
DAVID A. FRAVEL* Director October 30, 2001
----------------
(David A. Fravel)
JOHN V. LAGRASSE* Director October 30, 2001
-----------------
(John V. LaGrasse)
WILLIAM J. O'HARA, JR.* Director October 30, 2001
-----------------------
(William J. O'Hara, Jr.)
/s/ GARY D. REDDICK* Director October 30, 2001
----------------------
Gary D. Reddick
*/s/ ROBERT F. HERBERT, JR.
----------------------------
By: Robert F. Herbert, Jr.
Attorney-in-Fact
EXHIBIT INDEX:
The following exhibits:
1. Exhibits required by Article IX, paragraph A of Form N-8B-2:
Other Exhibits
6 Consent of Independent Auditors.
E-1