ALLSTATE LIFE INSURANCE CO OF NEW YORK
As filed with the Securities and Exchange Commission on April 26, 2021
FILE NO. 333-254871
_____________________________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
PRE-EFFECTIVE AMENDMENT NO. 1
TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
(Exact Name of Registrant as specified in its charter)
NEW YORK (State or Other Jurisdiction of Incorporation or Organization) | 36-2608394 (I.R.S. Employer Identification Number) | |||||||
6311 | ||||||||
(Primary Standard Industrial Classification Code Number) | ||||||||
878 VETERAN’S MEMORIAL HIGHWAY SUITE 400 | ||||||||
HAUPPAUGE, NEW YORK 11788 | ||||||||
(631) 357-8920 | ||||||||
(Address, including zip code, and telephone Number, including area code, of registrant’s Principal Executive Offices) | ||||||||
_____________________ | ||||||||
CT CORPORATION SYSTEM 111 EIGHTH AVENUE | ||||||||
13TH FLOOR NEW YORK, NY 10011 | ||||||||
(212) 894-8800 | ||||||||
(Name, address, including zip code, Address and Telephone Number, including area code, of Agent for Service) | ||||||||
_____________________ | ||||||||
COPIES TO: | ||||||||
ANGELA K. FONTANA | ||||||||
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK | ||||||||
2775 SANDERS ROAD SUITE A2E | ||||||||
NORTHBROOK, IL 60062 | ||||||||
_____________________ |
Approximate date of commencement of proposed sale to the Public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ☐
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
CALCULATION OF REGISTRATION FEE
Title of each class of securities being registered | Amount to be registered | Proposed maximum offering price per unit(1) | Proposed maximum aggregate offering price | Amount of registration fee(2) | ||||||||||
Deferred annuity interests and participating interests therein | $11,668,648.00 | $1.00 | $0 | $0 |
1.The Contract does not provide for a predetermined amount or number of units.
2.This filing is being made under the Securities Act of 1933 to register $11,668,648 of deferred annuity interests and participating interests therein. The interests being registered herein are carried over, as unsold securities, from an existing Form S-1 registration statement of the same issuer (333-224078) filed on April 2, 2018. Because a filing fee of $1,539 previously was paid with respect to those securities, there is no filing fee due under this registration statement. In accordance with Rule 415(a)(6), the offering of securities on the earlier registration statement will be deemed terminated as of the effective date of this Registration Statement.
This Registration Statement contains a combined prospectus under Rule 429 under the Securities Act of 1933 which relates to the Form S-1 registration statement (File Nos. 333-224078 and 333-203177), filed on April 2, 2018 and April 1, 2015, respectively, by Allstate Life Insurance Company of New York. Upon effectiveness, this Registration Statement, which is a new Registration Statement, will also act as a post-effective amendment to such earlier Registration Statements.
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Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.
Neither the Securities and Exchange Commission nor any State securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Allstate Distributors, L.L.C. (“ADLLC”) serves as distributor of the securities registered herein. The securities offered herein are sold on a continuous basis, and there is no specific end date for the offering. ADLLC, an affiliate of Allstate Life Insurance Company of New York, is a wholly owned subsidiary of Allstate Life Insurance Company. ADLLC is a registered broker dealer under the Securities and Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority. ADLLC is not required to sell any specific number or dollar amount of securities, but will use its best efforts to sell the securities offered. Commissions earned by ADLLC are described in the notes to the insurer financial statements, under the heading “Broker-Dealer Agreements.” The prospectuses, dated as of the date indicated therein, by which the securities registered in this Form S-1 are described, are included in this registration statement.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
Supplement Dated April 30, 2021
To the following Prospectuses, as supplemented
ALLSTATE PROVIDER PROSPECTUS DATED MAY 1, 2002
SELECT DIRECTIONS PROSPECTUS DATED APRIL 30, 2005
AIM LIFETIME PLUS PROSPECTUS DATED APRIL 30, 2005
AIM LIFETIME PLUS II PROSPECTUS DATED APRIL 30, 2005
CUSTOM PORTFOLIO PROSPECTUS DATED APRIL 30, 2005
The following information supplements the prospectus for your variable annuity contract issued by Allstate Life Insurance Company of New York.
INDEX
Item 3(c) | Risk Factors | |||||||
Item 11(a) | Description of Business | |||||||
Item 11(b) | Description of Property | |||||||
Item 11(c) | Legal Proceedings | |||||||
Item 11(e) | Financial Statements and Notes to Financial Statements | |||||||
Item 11(f) | Selected Financial Data | |||||||
Item 11(h) | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||
Item 11(i) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |||||||
Item 11(j) | Quantitative and Qualitative Disclosures About Market Risk | |||||||
Item 11(k) | Directors, Executive Officers, Promoters and Control Persons | |||||||
Item 11(l) | Executive Compensation | |||||||
Item 11(m) | Security Ownership of Certain Beneficial Owners and Management | |||||||
Item 11(n) | Transactions with Related Persons, Promoters and Certain Control Persons | |||||||
Other Information |
Item 3(c). Risk Factors
Forward-Looking Statements
This document contains “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update any forward-looking statements as a result of new information or future events or developments. In addition, forward-looking statements are subject to certain risks or uncertainties that could cause actual results to differ materially from those communicated in these forward-looking statements.
Risks are categorized by (1) insurance and financial services, (2) business, strategy and operations and (3) macro, regulatory and risk environment. Many risks may affect more than one category and are included where the impact is most significant. Consider these cautionary statements carefully together with other factors discussed elsewhere in this document, in filings with the Securities and Exchange Commission (“SEC”) or in materials incorporated therein by reference.
Insurance and financial services
Changes in reserve estimates and amortization of deferred acquisition costs (“DAC”) could materially affect our results of operations and financial condition
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We use long-term assumptions, including future investment yields, mortality, morbidity, persistency and expenses in pricing and valuation. If experience differs significantly from assumptions, adjustments to reserves and amortization of DAC may be required that could have a material adverse effect on our results of operations and financial condition.
We may not be able to mitigate the capital impact associated with statutory reserving and capital requirements
Regulatory capital and reserving requirements affect the amount of capital required. Changes to capital or reserving requirements or regulatory interpretations may result in holding additional capital and could require us to increase prices, reduce our sales of certain products, and/or accept a return on equity below original levels assumed in pricing.
A downgrade in financial strength ratings may have an adverse effect on our business
Financial strength ratings are important factors in establishing the competitive position of insurance companies. Rating agencies could downgrade or change the outlook on our ratings due to:
•Changes in statutory capital
•Changes in a rating agency’s determination of the amount of capital required to maintain a particular rating
•Increases in the perceived risk of our investment portfolio, a reduced confidence in management or our business strategy, as well as a number of other considerations that may or may not be under our control
•Changes in ownership resulting from divestiture of business
A downgrade in our ratings could have a material effect on our sales, competitiveness, retention, the marketability of our product offerings, liquidity, results of operations and financial condition.
Changes in tax laws may adversely affect profitability of life insurance products
Changes in taxation of life insurance products could reduce sales and result in the surrender of some existing contracts and policies, which may have a material effect on our profitability and financial condition.
Our investment portfolio is subject to market risk and declines in quality which may adversely affect or create volatility in our investment income and cause realized and unrealized losses
We continually evaluate investment management strategies since we are subject to risk of loss due to adverse changes in interest rates, credit spreads, equity prices, real estate values, currency exchange rates and liquidity. Adverse changes may occur due to changes in monetary and fiscal policy and the economic climate, liquidity of a market or market segment, investor return expectations or risk tolerance, insolvency or financial distress of key market makers or participants, or changes in market perceptions of credit worthiness. Adverse changes in market conditions could cause the value of our investments to decrease significantly and impact our results of operations and financial condition.
Our investments are subject to risks associated with economic and capital market conditions and factors that may be unique to our portfolio, including:
•General weakening of the economy, which is typically reflected through higher credit spreads and lower equity and real estate valuations
•Declines in credit quality
•Declines in market interest rates, credit spreads or sustained low interest rates could lead to further declines in portfolio yields and investment income
•Increases in market interest rates, credit spreads or a decrease in liquidity could have an adverse effect on the value of our fixed income securities that form a substantial majority of our investment portfolio
•Weak performance of general and joint venture partners and underlying investments unrelated to general market or economic conditions could lead to declines in investment income and cause realized losses in our limited partnership interests
•Concentration in any particular issuer, industry, collateral type, group of related industries, geographic sector or risk type
The amount and timing of net investment income, capital contributions and distributions from our performance-based investments, which primarily include limited partnership interests, can fluctuate significantly due to the underlying investments’ performance or changes in market or economic conditions. Additionally, these investments are less liquid than similar, publicly-traded investments and a decline in market liquidity could impact our ability to sell them at their current carrying values.
Determination of the fair value and amount of credit losses for investments includes subjective judgments and could materially impact our results of operations and financial condition
The valuation of the portfolio is subjective, and the value of assets may differ from the actual amount received upon the
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sale of an asset. The degree of judgment required in determining fair values increases when:
•Market observable information is less readily available
•The use of different valuation assumptions may have a material effect on the assets’ fair values
•Changing market conditions could materially affect the fair value of investments
The determination of the amount of credit losses varies by investment type and is based on ongoing evaluation and assessment of known and inherent risks associated with the respective asset class or investment.
Such evaluations and assessments are highly judgmental and are revised as conditions change and new information becomes available.
We update our evaluations regularly and reflect changes in credit losses in our results of operations. Our conclusions may ultimately prove to be incorrect as assumptions, facts and circumstances change. Historical loss trends, consideration of current conditions, and forecasts may not be indicative of future changes in credit losses and additional amounts may need to be recorded in the future.
Changes in market interest rates or performance-based investment returns may lead to a significant decrease in the profitability of our spread-based products
Spread-based products, such as fixed annuities, are dependent upon maintaining profitable spreads between investment returns and interest crediting rates. When market interest rates decrease or remain at low levels, investment income may decline. Lowering interest crediting rates on some products in such an environment can partially offset decreases in investment yield. However, these changes could be limited by regulatory minimum rates or contractual minimum rate guarantees on many contracts and may not match the timing or magnitude of changes in investment yields.
Increases in market interest rates can lead to increased surrenders at a time when fixed income investment asset values are lower due to the increase in interest rates. Liquidating investments to fund surrenders could result in a loss that would adversely impact results of operations.
Performance-based net investment income, capital contributions and distributions can fluctuate significantly due to the underlying investments’ performance or changes in market or economic conditions.
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Business, strategy and operations
We operate in markets that are highly competitive and may be impacted by new or changing technologies
Markets in which we operate are highly competitive, and we must continually allocate resources to refine and improve products and services to remain competitive.
There is also significant competition for producers such as exclusive financial specialists. Growth and retention may be materially affected if we are unable to attract and retain effective producers or if those producers further emphasize sales of non-life insurance products. Similarly, growth and retention may be impacted if customer preferences change and we are unable to effectively adapt our business model and processes.
Technology and customer preference changes may impact the ways in which we interact, do business with our customers and design our products. We may not be able to respond effectively to these changes, which could have a material effect on our results of operations and financial condition.
Many voluntary benefits contracts are renewed annually. There is a risk that employers may be able to obtain more favorable terms from competitors than they could by renewing coverage with us. These competitive pressures may adversely affect the renewal of these contracts, as well as our ability to sell products.
Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business
Market conditions beyond our control impact the availability and cost of the reinsurance we purchase. Reinsurance may not remain continuously available to us to the same extent and on the same terms and rates as is currently available. If we cannot maintain our current level of reinsurance or purchase new reinsurance protection in amounts we consider sufficient at acceptable prices, we would have to either accept an increase in our risk exposure, reduce our insurance exposure or seek other alternatives.
Reinsurance subjects us to counterparty risk and may not be adequate to protect us against losses arising from ceded insurance
Collecting from reinsurers is subject to uncertainty arising from whether reinsurers or their affiliates have the financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract. Our inability to recover from a reinsurer could have a material effect on our results of operations and financial condition.
Divestitures of businesses may not produce anticipated benefits
We may divest portions of our businesses either through a sale or financial arrangements. These transactions may result in continued financial involvement in the divested businesses, such as through reinsurance, guarantees or other financial arrangements, following the transaction. If the acquiring companies do not perform under the arrangements, our financial results could be negatively impacted.
In connection with the Allstate Life Insurance Company (“ALIC”) sale, we announced that Allstate Insurance Company will retain ownership of Allstate Life Insurance Company of New York (“ALNY”) while pursuing to sell or otherwise transfer risk to a third party.
We may be subject to the risks and costs associated with intellectual property infringement, misappropriation and third-party claims
We rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and protect our intellectual property. Third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect intellectual property and to determine its scope, validity or enforceability, which could divert significant resources and prove unsuccessful. An inability to protect intellectual property or an inability to successfully defend against a claim of intellectual property infringement could have a material effect on our business.
We may be subject to claims by third parties for patent, trademark or copyright infringement or breach of usage rights. Any such claims and any resulting litigation could result in significant expense and liability. If third-party providers or we are found to have infringed a third-party intellectual property right, either of us could be enjoined from providing certain products or services or from utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets or licenses. Alternatively, we could be required to enter into costly licensing arrangements with third parties or implement costly work-arounds. Any of these scenarios could have a material effect on our business and results of operations.
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Macro, regulatory and risk environment
Conditions in the global economy and capital markets could adversely affect our business and results of operations
Global economic and capital market conditions could adversely impact demand for our products, returns on our investment portfolio and results of operations. The conditions that would have the largest impact on our business include;
•Low or negative economic growth
•Sustained low interest rates
•Rising inflation
•Substantial increases in delinquencies or defaults on debt
•Significant downturns in the market value or liquidity of our investment portfolio
•Reduced consumer spending and business investment
Stressed conditions, volatility and disruptions in global capital markets or financial asset classes could adversely affect our investment portfolio.
Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs or obtain credit on acceptable terms
In periods of extreme volatility and disruption in the capital and credit markets, liquidity and credit capacity may be severely restricted. Our access to additional financing depends on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to our industry, our credit ratings and credit capacity, as well as lenders’ perception of our long- or short-term financial prospects. In such circumstances, our ability to obtain capital to fund operating expenses may be limited, and the cost of any such capital may be significant.
A large-scale pandemic, the occurrence of terrorism, military actions, social unrest or other actions may have an adverse effect on our business
A large-scale pandemic, such as the Coronavirus and its impacts, the occurrence of terrorism, military actions, social unrest or other actions, may result in loss of life, property damage, and disruptions to commerce and reduced economic activity. Some of the assets in our investment portfolio may be adversely affected by declines in the equity markets, changes in interest rates, reduced liquidity and economic activity caused by a large-scale pandemic. Additionally, a large-scale pandemic or terrorist act could have a material effect on sales, liquidity and operating results.
The Coronavirus resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which have included the implementation of travel restrictions, government-imposed shelter-in-place orders, quarantine periods, social distancing, and restrictions on large gatherings, have caused material disruption to businesses globally, resulting in increased unemployment, a recession and increased economic uncertainty. Additionally, there is no way of predicting with certainty how long the pandemic might last, including the potential for restrictions being restored or new restrictions being implemented that could result in further economic volatility.
The Coronavirus has affected our operations and depending on its length and severity may continue to significantly affect our results of operations, financial condition and liquidity, including sales of new and retention of existing policies, life insurance mortality, hospital and outpatient claim costs and annuity reserves, investment valuations and returns and credit allowance exposure.
The failure in cyber or other information security controls, as well as the occurrence of events unanticipated in our disaster recovery processes and business continuity planning, could result in a loss or disclosure of confidential information, damage to our reputation, additional costs and impair our ability to conduct business effectively
We depend heavily on computer systems, mathematical algorithms and data to perform necessary business functions. There are threats that could impact our ability to protect our data and systems; if the threats are successful, they could impact confidentiality, integrity and availability:
•Confidentiality - protecting our data from disclosure to unauthorized parties
•Integrity - ensuring data is not changed accidentally or without authorization and is accurate
•Availability - ensuring our data and systems are accessible to meet our business needs
We collect, use, store or transmit a large amount of confidential, proprietary and other information (including personal information of customers or employees) in connection with the operation of our business. Systems are subject to increased attempted cyberattacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering.
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We constantly defend against threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. Events like these could jeopardize the information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties or customer dissatisfaction.
These risks may increase in the future as threats become more sophisticated and we continue to expand internet and mobile strategies, develop additional remote connectivity solutions to serve our employees and customers and build and maintain an integrated digital enterprise. Our increased use of third-party services (e.g., cloud technology and software as a service) can make it more difficult to identify and respond to cyberattacks in any of the above situations. Although we may review and assess third-party vendor cybersecurity controls, our efforts may not be successful in preventing or mitigating the effects of such events. Third parties to whom we outsource certain functions are also subject to cybersecurity risks.
Personal information is subject to an increasing number of federal, state, local and international laws and regulations regarding privacy and data security, as well as contractual commitments. Any failure or perceived failure by us to comply with such obligations may result in governmental enforcement actions and fines, litigation or public statements against us by consumer advocacy groups or others and could cause our employees and customers to lose trust in us, which could have an adverse effect on our reputation and business.
The occurrence of a disaster, such as a natural catastrophe, pandemic, industrial accident, blackout, terrorist attack, war, cyberattack, computer virus, insider threat, unanticipated problems with our disaster recovery processes, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of employees were unavailable in the event of a disaster, our ability to effectively conduct business could be severely compromised. Our systems are also subject to compromise from internal threats.
We are subject to extensive regulation, and potential further restrictive regulation may increase operating costs and limit growth
We operate in the highly regulated insurance sector and are subject to extensive laws and regulations that are complex and subject to change. Changes may lead to additional expenses, increased legal exposure, or increased reserve or capital requirements limiting our ability to grow or to achieve targeted profitability. Moreover, laws and regulations are administered and enforced by governmental authorities that exercise interpretive latitude, including state insurance regulators; state securities administrators; state attorneys general as well as federal agencies including the SEC, the Financial Industry Regulatory Authority, the Department of Labor, and the U.S. Department of Justice. Consequently, compliance with one regulator’s or enforcement authority’s interpretation of a legal issue may not result in compliance with another’s interpretation of the same issue.
In addition, there is risk that one regulator’s or enforcement authority’s interpretation of a legal issue may change to our detriment. There is also a risk that changes in the overall legal environment may cause us to change our views regarding the actions we need to take from a legal risk management perspective. This could necessitate changes to our practices that may adversely impact our business. In some cases, state insurance laws and regulations are generally intended to protect or benefit purchasers or users of insurance products. These laws and regulations may limit our ability to grow or to improve the profitability of our business.
Regulatory reforms, and the more stringent application of existing regulations, may make it more expensive for us to conduct our business
The federal government has enacted comprehensive regulatory reforms for financial services entities. As part of a larger effort to strengthen the regulation of the financial services market, certain reforms are applicable to the insurance industry.
The Federal Insurance Office and Financial Stability Oversight Council have been established and the federal government may enact reforms that affect the state insurance regulatory framework. The potential impact of state or federal measures that change the nature or scope of insurance and financial regulation is uncertain but may make it more expensive for us to conduct business and limit our ability to grow or achieve profitability.
Losses from legal and regulatory actions may be material to our results of operations, cash flows and financial condition
From time to time, we are involved in various legal actions, some of which involve claims for substantial or indeterminate amounts. We are also involved in various regulatory actions and inquiries, including market conduct exams by state insurance regulatory agencies. In the event of an unfavorable outcome in any of these matters, the ultimate liability may be more than amounts currently accrued, and may be material to our results of operations, cash flows and financial condition.
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Changes in or the application of accounting standards issued by standard-setting bodies and changes in tax laws may adversely affect our results of operations and financial condition
Our financial statements are subject to the application of accounting principles generally accepted in the United States of America, which are periodically revised, interpreted and/or expanded. Accordingly, we may be required to adopt new guidance or interpretations, which may have a material effect on our results of operations and financial condition and could adversely impact financial strength ratings.
•Pending changes to accounting for long-duration insurance contracts such as traditional life, life-contingent immediate annuities and certain voluntary accident and health insurance products will have a material effect on reserves and could adversely impact financial strength ratings
•Realization of our deferred tax assets assumes that we can fully utilize the deductions recognized for tax purposes; we may recognize additional tax expense if these assets are not fully utilized
•New tax legislative initiatives may be enacted that may impact our effective tax rate and could adversely affect our tax positions or tax liabilities
Loss of key vendor relationships or failure of a vendor to protect our data, confidential and proprietary information, or personal information of our customers or employees could adversely affect our operations
We rely on services and products provided by many vendors in the U.S. and abroad. These include, vendors of computer hardware, software, cloud technology and software as a service, as well as vendors and/or outsourcing of services such as:
•Call center services
•Human resource benefits management
•Information technology support
•Investment management services
If any vendor becomes unable to continue to provide products or services, or fails to protect our confidential, proprietary, and other information, we may suffer operational impairments and financial losses.
Our ability to attract, develop, and retain talent to maintain appropriate staffing levels, and establish a successful work culture is critical to our success
Competition from within the insurance industry and from other industries, including the technology sector, for qualified employees with highly specialized knowledge in areas such as underwriting, data and analytics, technology and e-commerce has often been intense and we have experienced increased competition in hiring and retaining employees.
Factors that affect our ability to attract and retain such employees include:
•Compensation and benefits
•Training and re-skilling programs
•Reputation as a successful business with a culture of fair hiring, and of training and promoting qualified employees
•Recognition of and response to changing trends and other circumstances that affect employees
The unexpected loss of key personnel, including those affected by the pending sale of ALIC, could have a material adverse impact on our business because of the loss of their skills, knowledge of our products and offerings and years of industry experience and, in some cases, the difficulty of promptly finding qualified replacement personnel.
Misconduct or fraudulent acts by employees, agents and third parties may expose us to financial loss, disruption of business, regulatory assessments and reputational harm
The company and the insurance industry are inherently susceptible to past and future misconduct or fraudulent activities by employees, representative agents, vendors, customers and other third parties. These activities could include:
•Fraud against the company, its employees and its customers through illegal or prohibited activities
•Unauthorized acts or representations, unauthorized use or disclosure of personal or proprietary information, deception, and misappropriation of funds or other benefits
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Item 11(a). Description of Business
Allstate Life Insurance Company of New York (“Allstate Life of New York” or “ALNY”) was incorporated in 1967 as a stock life insurance company under the laws of the State of New York. In 1984, Allstate Life of New York was purchased by Allstate Life Insurance Company (“ALIC”). Allstate Life of New York is a wholly owned subsidiary of ALIC, a stock life insurance company incorporated under the laws of the State of Illinois. ALIC is a wholly owned subsidiary of Allstate Insurance Company (“AIC”), a stock property-liability insurance company organized under the laws of the State of Illinois. All of the outstanding stock of AIC is owned by Allstate Insurance Holdings, LLC, which is wholly owned by The Allstate Corporation (the “Corporation”), a publicly owned holding company incorporated under the laws of the State of Delaware.
On January 26, 2021, AIC entered into an agreement to sell ALIC to Antelope US Holdings Company, an affiliate of an investment fund associated with The Blackstone Group Inc. On March 29, 2021, AIC and ALIC entered into an agreement to sell ALNY to Wilton Reassurance Company. The sales transactions are expected to close in the second half of 2021, subject to regulatory approvals and other customary closing conditions.
In our reports, we occasionally refer to statutory financial information. All domestic United States insurance companies are required to prepare statutory-basis financial statements. As a result, industry data is available that enables comparisons between insurance companies, including competitors that are not required to prepare financial statements in conformity with accounting principles generally accepted in the United States of America. We frequently use industry publications containing statutory financial information to assess our competitive position.
Products and distribution
We sell traditional, interest-sensitive and variable life insurance and voluntary accident and health insurance products to customers in the state of New York. We sell products through Allstate exclusive agents and exclusive financial specialists, and workplace enrolling independent agents. We previously offered and continue to have in force deferred fixed annuities and immediate fixed annuities (including standard and sub-standard structured settlements). We expect to discontinue sales of proprietary life and voluntary accident and health insurance products during the second quarter of 2021.
The table below lists our current distribution channels with the associated products and target customers.
Distribution Channels | Proprietary Products | Target Customers | ||||||
Allstate exclusive agents and exclusive financial specialists | Term life insurance Whole life insurance Interest-sensitive life insurance Variable life insurance | Middle market consumers with family and financial protection needs | ||||||
Workplace enrolling independent agents and benefits brokers | Workplace voluntary accident and health insurance: Short-term disability income insurance Accident and critical illness insurance | Middle market consumers with family financial protection needs employed by small, medium, and large size firms |
We compete on a variety of factors, including product offerings, brand recognition, financial strength and ratings, price, distribution and customer service. The market for life insurance continues to be highly fragmented and competitive. As of December 31, 2019, there were approximately 335 groups of life insurance companies in the United States.
REGULATION
Allstate Life of New York is subject to extensive regulation, primarily, but not exclusively, from the New York Department of Financial Services (“NYDFS”). The method, extent and substance of such regulation generally has its source in statutes that establish standards and requirements for conducting the business of insurance and that delegate regulatory authority to the NYDFS. These rules have a substantial effect on our business and relate to a wide variety of matters, including insurer solvency and statutory surplus sufficiency, reserve adequacy, insurance company licensing and examination, agent licensing, agent and broker compensation, policy forms, rate setting, the nature and amount of investments, claims and sales practices, participation in guaranty funds, transactions with affiliates, the payment of dividends, underwriting standards, statutory accounting methods, trade practices, privacy regulation and data security, corporate governance and risk management.
Further, the NYDFS cybersecurity regulation and the National Association of Insurance Commissioners (“NAIC”) Insurance Data Security Model Law, which has been adopted in some form by several states, establish standards for data security and for the investigation of and notification to insurance commissioners of cybersecurity events. We cannot predict the impact on our business of possible future legislative measures regarding privacy or cybersecurity.
In addition, state legislators and insurance regulators continue to examine the appropriate nature and scope of state insurance regulation. For a discussion of statutory financial information, see Note 13 of the financial statements included in
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Item 11(e). For a discussion of regulatory contingencies, see Note 11 of the financial statements included in Item 11(e). Notes 11 and 13 are incorporated in this Item 11(a) by reference.
As part of an effort to strengthen the regulation of the financial services market, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was enacted in 2010. Dodd-Frank created the Federal Insurance Office (“FIO”) within the U.S. Department of the Treasury. The FIO monitors the insurance industry, provides advice to the Financial Stability Oversight Council (“FSOC”), represents the U.S. on international insurance matters, and studies the current regulatory system.
Additional regulations or new requirements may emerge from the activities of various regulatory entities, including the Federal Reserve Board, FIO, FSOC, the NAIC, and the International Association of Insurance Supervisors (“IAIS”), that are evaluating solvency and capital standards for insurance company groups. In addition, the NAIC has adopted amendments to its model holding company law that have been adopted by some jurisdictions. The outcome of these actions is uncertain; however, these actions may result in changes in the level of capital and liquidity required by insurance holding companies.
We cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of insurance or what effect any such measures would have on Allstate Life of New York.
Item 11(b). Description of Property
Allstate Life of New York occupies office space in Hauppauge, New York, and Northbrook, Illinois, that is owned or leased by Allstate Insurance Company. Expenses associated with these facilities are allocated to us. We believe that these facilities are suitable and adequate for our current operations.
Item 11(c). Legal Proceedings
Information required for Item 11(c) is incorporated by reference to the discussion under the heading “Regulation and compliance” in Note 11 of the financial statements included in Item 11(e).
Item 11(e). Financial Statements and Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of
Allstate Life Insurance Company of New York
Hauppauge, New York 11788
Opinion on the Financial Statements
We have audited the accompanying Statements of Financial Position of Allstate Life Insurance Company of New York (the “Company”), an affiliate of The Allstate Corporation, as of December 31, 2020 and 2019, and the related Statements of Operations and Comprehensive Income, Shareholder’s Equity, and Cash Flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Schedule I-Summary of Investments Other Than Investments in Related Parties, Schedule IV-Reinsurance, and Schedule V-Valuation Allowances and Qualifying Accounts, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
9
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Reserve for Life-Contingent Contract Benefits and Premium Deficiency Reserve for Life-Contingent Immediate Annuities – Refer to Notes 2 and 8 to the Financial Statements
Critical Audit Matter Description
As of December 31, 2020, the reserve for life-contingent contract benefits for Life-Contingent Immediate Annuities was $2.4 billion. Due to the long-term nature of life-contingent immediate annuities, benefits are payable over many years. The Company establishes reserves as the present value of future expected benefits to be paid, reduced by the present value of future expected net premiums. Long-term actuarial assumptions, such as future investment yields and mortality, are used when establishing the reserve. These assumptions are established at the time the contract is issued and are generally not changed during the life of the contract. The Company periodically performs a gross premium valuation (“GPV”) analysis to review the adequacy of reserves using actual experience and current assumptions. If actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized deferred acquisition costs (“DAC”) balance would be expensed to the extent not recoverable, and the establishment of a premium deficiency reserve may be required for any remaining deficiency. During the year-ended December 31, 2020, annuitants living longer than originally anticipated and lower long-term investment yield assumptions resulted in a premium deficiency. The deficiency was recognized as an increase in the reserve for life-contingent contract benefits and life contract benefits of $196 million. The original assumptions used to establish reserves were updated to reflect current assumptions and the primary changes included mortality expectations and long-term investment yields.
The Company also reviews these policies for circumstances where projected profits would be recognized in early years followed by projected losses in later years through a profits followed by losses (“PFBL”) analysis. If this circumstance exists, the Company will accrue a liability, during the period of profits, to offset the losses at such time as the future losses are expected to commence using a method updated prospectively over time. The Company’s analyses did not indicate periods of profits followed by periods of losses; therefore, the Company has not established a PFBL reserve as of December 31, 2020.
Given the subjectivity involved in selecting the current assumptions for projected investment yields and mortality, the sensitivity of the estimate to these assumptions, and the establishment of a premium deficiency reserve, the related audit effort to evaluate the reserve for life-contingent contract benefits, the GPV, the resulting premium deficiency reserve, and the PFBL analysis for life-contingent immediate annuities required a high degree of auditor judgment and an increased extent of effort, including involvement of our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the reserve for life-contingent contract benefits and the premium deficiency reserve, including the GPV and PFBL analysis for life-contingent immediate annuities, included the following:
•We tested the effectiveness of controls over management’s reserve for life-contingent contract benefits, premium deficiency reserve, GPV, and PFBL analysis, including those over the Company’s selection of assumptions.
•With the assistance of our actuarial specialists, we evaluated the reasonableness of assumptions and their incorporation into the projection model used by the Company to perform its analysis by:
•Testing the underlying data that served as the basis for the assumptions setting and the underlying data used in the projection model to ensure the inputs were complete and accurate
•Comparing mortality assumptions selected to actual historical experience
•Comparing projected investment yields selected to historical portfolio returns, evaluating for consistency with current investment portfolio yields and the Company’s long-term reinvestment strategy, and comparing to independently obtained market data
•With the assistance of our actuarial specialists, we independently calculated the GPV reserves from the Company’s projection model for a sample of contracts and compared our estimates to management’s estimates.
•With the assistance of our actuarial specialists, we evaluated the reasonableness of the total gross premium valuation reserve at the date the premium deficiency was determined by the Company and at year-end based on known changes to long-term investment yield assumptions and current market data.
•We agreed the recorded premium deficiency reserve amount to the Company’s GPV analysis.
•With the assistance of our actuarial specialists, we evaluated the aggregate cash flows generated through the Company’s premium deficiency reserve testing for evidence of potential PFBL scenarios that would require the accrual of additional reserves to cover such future losses.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 12, 2021 (March 30, 2021, as to the subsequent events described in Note 1)
We have served as the Company’s auditor since 1995.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
($ in thousands) | Year Ended December 31, | ||||||||||||||||
2020 | 2019 | 2018 | |||||||||||||||
Revenues | |||||||||||||||||
Premiums (net of reinsurance ceded of $10,004, $10,600 and $11,054) | $ | 79,942 | $ | 108,452 | $ | 103,447 | |||||||||||
Contract charges (net of reinsurance ceded of $7,978, $7,945 and $8,279) | 77,476 | 77,314 | 77,194 | ||||||||||||||
Other revenue | 644 | 1,186 | 1,414 | ||||||||||||||
Net investment income | 222,087 | 256,006 | 287,883 | ||||||||||||||
Realized capital gains and losses | 128,265 | 106,627 | (20,554) | ||||||||||||||
Total revenues | 508,414 | 549,585 | 449,384 | ||||||||||||||
Costs and expenses | |||||||||||||||||
Contract benefits (net of reinsurance ceded of $11,666, $13,687 and $11,016) | 434,641 | 259,013 | 237,578 | ||||||||||||||
Interest credited to contractholder funds (net of reinsurance ceded of $4,503, $4,307 and $4,533) | 84,324 | 86,464 | 91,482 | ||||||||||||||
Amortization of deferred policy acquisition costs | 20,346 | 30,396 | 16,299 | ||||||||||||||
Operating costs and expenses | 32,975 | 45,162 | 45,964 | ||||||||||||||
Total costs and expenses | 572,286 | 421,035 | 391,323 | ||||||||||||||
(Loss) income from operations before income tax (benefit) expense | (63,872) | 128,550 | 58,061 | ||||||||||||||
Income tax (benefit) expense | (11,993) | 30,926 | 12,827 | ||||||||||||||
Net (loss) income | (51,879) | 97,624 | 45,234 | ||||||||||||||
Other comprehensive income (loss), after-tax | |||||||||||||||||
Change in unrealized net capital gains and losses | 86,101 | 67,612 | (50,575) | ||||||||||||||
Change in unrealized foreign currency translation adjustments | 1,519 | (3,131) | 98 | ||||||||||||||
Other comprehensive income (loss), after-tax | 87,620 | 64,481 | (50,477) | ||||||||||||||
Comprehensive income (loss) | $ | 35,741 | $ | 162,105 | $ | (5,243) |
See notes to financial statements.
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ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION
($ in thousands, except par value data) | December 31, | ||||||||||
2020 | 2019 | ||||||||||
Assets | |||||||||||
Investments | |||||||||||
Fixed income securities, at fair value (amortized cost, net $4,293,492 and $4,023,107) | $ | 4,918,874 | $ | 4,434,362 | |||||||
Mortgage loans, net | 621,702 | 733,258 | |||||||||
Equity securities, at fair value (cost $182,261 and $233,118) | 251,437 | 274,133 | |||||||||
Limited partnership interests | 343,251 | 386,310 | |||||||||
Short-term, at fair value (amortized cost $132,970 and $224,111) | 133,045 | 224,098 | |||||||||
Policy loans | 37,294 | 38,583 | |||||||||
Other | 8,097 | 5,237 | |||||||||
Total investments | 6,313,700 | 6,095,981 | |||||||||
Cash | 10,840 | 9,273 | |||||||||
Deferred policy acquisition costs | 101,212 | 124,118 | |||||||||
Reinsurance recoverable | 223,349 | 229,759 | |||||||||
Accrued investment income | 45,790 | 46,846 | |||||||||
Current income taxes receivable | 7,654 | 0 | |||||||||
Other assets, net | 332,338 | 399,126 | |||||||||
Reinsurance receivable from parent | 4,919 | 1,218 | |||||||||
Separate Accounts | 286,751 | 265,546 | |||||||||
Total assets | $ | 7,326,553 | $ | 7,171,867 | |||||||
Liabilities | |||||||||||
Contractholder funds | $ | 2,464,770 | $ | 2,547,968 | |||||||
Reserve for life-contingent contract benefits | 2,698,383 | 2,411,809 | |||||||||
Current income taxes payable | 0 | 31,713 | |||||||||
Deferred income taxes | 166,881 | 154,849 | |||||||||
Other liabilities and accrued expenses | 108,440 | 188,362 | |||||||||
Payable to affiliates, net | 4,349 | 4,973 | |||||||||
Separate Accounts | 286,751 | 265,546 | |||||||||
Total liabilities | 5,729,574 | 5,605,220 | |||||||||
Commitments and Contingent Liabilities (Note 11) | 0 | 0 | |||||||||
Shareholder’s Equity | |||||||||||
Common stock, $25 par value, 100 thousand shares authorized, issued and outstanding | 2,500 | 2,500 | |||||||||
Additional capital paid-in | 140,529 | 140,529 | |||||||||
Retained income | 1,242,580 | 1,299,868 | |||||||||
Accumulated other comprehensive income: | |||||||||||
Unrealized net capital gains and losses on fixed income securities with credit losses | 0 | 664 | |||||||||
Other unrealized net capital gains and losses | 493,834 | 324,055 | |||||||||
Unrealized adjustment to DAC, DSI and insurance reserves | (283,024) | (200,010) | |||||||||
Total unrealized net capital gains and losses | 210,810 | 124,709 | |||||||||
Unrealized foreign currency translation adjustments | 560 | (959) | |||||||||
Total accumulated other comprehensive income (“AOCI”) | 211,370 | 123,750 | |||||||||
Total shareholder’s equity | 1,596,979 | 1,566,647 | |||||||||
Total liabilities and shareholder’s equity | $ | 7,326,553 | $ | 7,171,867 |
See notes to financial statements.
10
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF SHAREHOLDER’S EQUITY
($ in thousands) | Year Ended December 31, | ||||||||||||||||
2020 | 2019 | 2018 | |||||||||||||||
Common stock | $ | 2,500 | $ | 2,500 | $ | 2,500 | |||||||||||
Additional capital paid-in | 140,529 | 140,529 | 140,529 | ||||||||||||||
Retained income | |||||||||||||||||
Balance, beginning of year | 1,299,868 | 1,202,244 | 1,117,020 | ||||||||||||||
Net (loss) income | (51,879) | 97,624 | 45,234 | ||||||||||||||
Cumulative effect of change in accounting principle | (5,409) | — | 39,990 | ||||||||||||||
Balance, end of year | 1,242,580 | 1,299,868 | 1,202,244 | ||||||||||||||
Accumulated other comprehensive income | |||||||||||||||||
Balance, beginning of year | 123,750 | 59,269 | 143,219 | ||||||||||||||
Change in unrealized net capital gains and losses | 86,101 | 67,612 | (50,575) | ||||||||||||||
Change in unrealized foreign currency translation adjustments | 1,519 | (3,131) | 98 | ||||||||||||||
Cumulative effect of change in accounting principle | — | — | (33,473) | ||||||||||||||
Balance, end of year | 211,370 | 123,750 | 59,269 | ||||||||||||||
Total shareholder’s equity | $ | 1,596,979 | $ | 1,566,647 | $ | 1,404,542 |
See notes to financial statements.
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ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
($ in thousands) | Year Ended December 31, | ||||||||||||||||
2020 | 2019 | 2018 | |||||||||||||||
Cash flows from operating activities | |||||||||||||||||
Net income | $ | (51,879) | $ | 97,624 | $ | 45,234 | |||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
Amortization and other non-cash items | (15,343) | (27,136) | (27,152) | ||||||||||||||
Realized capital gains and losses | (128,265) | (106,627) | 20,554 | ||||||||||||||
Interest credited to contractholder funds | 84,324 | 86,464 | 91,482 | ||||||||||||||
Changes in: | |||||||||||||||||
Policy benefits and other insurance reserves | 136,304 | (29,174) | (46,890) | ||||||||||||||
Deferred policy acquisition costs | 9,171 | 13,625 | (3,278) | ||||||||||||||
Income taxes | (49,282) | 29,817 | (3,424) | ||||||||||||||
Other operating assets and liabilities | 60,431 | 14,996 | 15,481 | ||||||||||||||
Net cash provided by operating activities | 45,461 | 79,589 | 92,007 | ||||||||||||||
Cash flows from investing activities | |||||||||||||||||
Proceeds from sales | |||||||||||||||||
Fixed income securities | 439,542 | 295,930 | 292,026 | ||||||||||||||
Equity securities | 430,217 | 141,893 | 165,147 | ||||||||||||||
Limited partnership interests | 31,418 | 25,195 | 31,337 | ||||||||||||||
Mortgage loans | 50,364 | 0 | 0 | ||||||||||||||
Investment collections | |||||||||||||||||
Fixed income securities | 298,583 | 345,540 | 334,019 | ||||||||||||||
Mortgage loans | 72,725 | 76,582 | 50,627 | ||||||||||||||
Investment purchases | |||||||||||||||||
Fixed income securities | (850,671) | (411,139) | (421,643) | ||||||||||||||
Equity securities | (371,576) | (190,441) | (171,271) | ||||||||||||||
Limited partnership interests | (27,847) | (41,881) | (56,986) | ||||||||||||||
Mortgage loans | (26,800) | (113,712) | (116,996) | ||||||||||||||
Change in short-term investments, net | 13,890 | (46,116) | 12,231 | ||||||||||||||
Change in policy loans and other investments, net | 2,288 | 1,228 | 576 | ||||||||||||||
Net cash provided by investing activities | 62,133 | 83,079 | 119,067 | ||||||||||||||
Cash flows from financing activities | |||||||||||||||||
Contractholder fund deposits | 96,917 | 95,390 | 96,954 | ||||||||||||||
Contractholder fund withdrawals | (202,944) | (257,264) | (304,412) | ||||||||||||||
Net cash used in financing activities | (106,027) | (161,874) | (207,458) | ||||||||||||||
Net increase in cash | 1,567 | 794 | 3,616 | ||||||||||||||
Cash at beginning of year | 9,273 | 8,479 | 4,863 | ||||||||||||||
Cash at end of year | $ | 10,840 | $ | 9,273 | $ | 8,479 |
See notes to financial statements.
12
NOTES TO FINANCIAL STATEMENTS
1. General
Basis of presentation
The accompanying financial statements include the accounts of Allstate Life Insurance Company of New York (the “Company”), a wholly owned subsidiary of Allstate Life Insurance Company (“ALIC”), which is wholly owned by Allstate Insurance Company (“AIC”). AIC is wholly owned by Allstate Insurance Holdings, LLC, a wholly owned subsidiary of The Allstate Corporation (the “Corporation”). These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
The Company operates as a single segment entity based on the manner in which the Company uses financial information to evaluate business performance and to determine the allocation of resources.
Nature of operations
The Company offers traditional, interest-sensitive and variable life insurance and voluntary accident and health insurance products to customers in the State of New York. The Company distributes its products through Allstate exclusive agencies and exclusive financial specialists, and workplace enrolling independent agents and benefits brokers. The Company previously offered and continues to have in force fixed annuities such as deferred and immediate annuities. The Company also previously offered variable annuities and all of this business is reinsured. The Company expects to discontinue sales of proprietary life and voluntary accident and health insurance products during the second quarter of 2021.
The following table summarizes premiums and contract charges by product.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Premiums | |||||||||||||||||
Traditional life insurance | $ | 62,575 | $ | 61,980 | $ | 59,185 | |||||||||||
Accident and health insurance | 17,367 | 46,472 | 44,262 | ||||||||||||||
Total premiums | 79,942 | 108,452 | 103,447 | ||||||||||||||
Contract charges | |||||||||||||||||
Interest-sensitive life insurance | 77,557 | 77,324 | 76,931 | ||||||||||||||
Fixed annuities | (81) | (10) | 263 | ||||||||||||||
Total contract charges | 77,476 | 77,314 | 77,194 | ||||||||||||||
Total premiums and contract charges | $ | 157,418 | $ | 185,766 | $ | 180,641 |
Subsequent event
On January 26, 2021, AIC entered into an agreement to sell ALIC to Antelope US Holdings Company, an affiliate of an investment fund associated with The Blackstone Group Inc. On March 29, 2021, AIC and ALIC entered into an agreement to sell ALNY to Wilton Reassurance Company. The sales transactions are expected to close in the second half of 2021, subject to regulatory approvals and other customary closing conditions.
2. Summary of Significant Accounting Policies
Investments
Fixed income securities include bonds, asset-backed securities (“ABS”) and mortgage-backed securities (“MBS”). MBS includes residential and commercial mortgage-backed securities. Fixed income securities, which may be sold prior to their contractual maturity, are designated as available-for-sale (“AFS”) and are carried at fair value. The difference between amortized cost, net of credit loss allowances (“amortized cost, net”) and fair value, net of deferred income taxes and related deferred policy acquisition costs (“DAC”), deferred sales inducement costs (“DSI”) and reserves for life-contingent contract benefits, is reflected as a component of AOCI. The Company excludes accrued interest receivable from the amortized cost basis of its AFS fixed income securities. Cash received from calls and make-whole payments is reflected as a component of proceeds from sales and cash received from maturities and pay-downs is reflected as a component of investment collections within the Statements of Cash Flows.
Mortgage loans are carried at amortized cost, net which represent the amount expected to be collected. The Company excludes accrued interest receivable from the amortized cost basis of its mortgage loans. Credit loss allowances are estimates of expected credit losses established for loans upon origination or purchase, and are established considering all relevant
13
information available, including past events, current conditions, and reasonable and supportable forecasts over the life of the loans. Loans are evaluated on a pooled basis when they share similar risk characteristics; otherwise, they are evaluated individually.
Equity securities primarily include common stocks, exchange traded funds, non-redeemable preferred stocks and real estate investment trust equity investments. Certain exchange traded funds have fixed income securities as their underlying investments. Equity securities are carried at fair value. Equity securities without readily determinable or estimable fair values are measured using the measurement alternative, which is cost less impairment, if any, and adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.
Investments in limited partnership interests are primarily accounted for in accordance with the equity method of accounting (“EMA”) and include interests in private equity funds, real estate funds and other funds. Investments in limited partnership interests purchased prior to January 1, 2018 where the Company’s interest is so minor that it exercises virtually no influence over operating and financial policies are accounted for at fair value primarily utilizing the net asset value (“NAV”) as a practical expedient to determine fair value.
Short-term investments, including money market funds, commercial paper, U.S. Treasury bills and other short-term investments, are carried at fair value. Policy loans are carried at unpaid principal balances. Other investments consist of derivatives. Derivatives are carried at fair value.
Investment income primarily consists of interest, dividends, income from limited partnership interests, and income from certain derivative transactions. Interest is recognized on an accrual basis using the effective yield method and dividends are recorded at the ex-dividend date. Interest income for ABS and MBS is determined considering estimated pay-downs, including prepayments, obtained from third party data sources and internal estimates. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. For ABS and MBS of high credit quality with fixed interest rates, the effective yield is recalculated on a retrospective basis. For all others, the effective yield is generally recalculated on a prospective basis. Net investment income for AFS fixed income securities includes the impact of accreting the credit loss allowance for the time value of money. Accrual of income is suspended for fixed income securities when the timing and amount of cash flows expected to be received is not reasonably estimable. Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable. Accrued income receivable is monitored for recoverability and when not expected to be collected is written off through net investment income. Cash receipts on investments on nonaccrual status are generally recorded as a reduction of amortized cost. Income from limited partnership interests carried at fair value is recognized based upon the changes in fair value of the investee’s equity primarily determined using NAV. Income from EMA limited partnership interests is recognized based on the Company’s share of the partnerships’ earnings. Income from EMA limited partnership interests is generally recognized on a three month delay due to the availability of the related financial statements from investees.
Realized capital gains and losses include gains and losses on investment sales, changes in the credit loss allowances related to fixed income securities and mortgage loans, impairments, valuation changes of equity investments, including equity securities and certain limited partnerships where the underlying assets are predominately public equity securities, and periodic changes in fair value and settlements of certain derivatives including hedge ineffectiveness. Realized capital gains and losses on investment sales are determined on a specific identification basis and are net of credit losses already recognized through an allowance.
Derivative and embedded derivative financial instruments
Derivative financial instruments include equity futures, options, interest rate caps, foreign currency forwards and a reinvestment related risk transfer reinsurance agreement with ALIC that meets the accounting definition of a derivative (see Note 4). Derivatives required to be separated from the host instrument and accounted for as derivative financial instruments (“subject to bifurcation”) are embedded in equity-indexed life contracts and reinsured variable annuity contracts.
All derivatives are accounted for on a fair value basis and reported as other investments, other assets, other liabilities and accrued expenses or contractholder funds. The income statement effects of derivatives, including fair value gains and losses and accrued periodic settlements, are reported either in realized capital gains and losses or in a single line item together with the results of the associated asset or liability for which risks are being managed. Embedded derivative instruments subject to bifurcation are also accounted for on a fair value basis and are reported together with the host contract. The change in fair value of derivatives embedded in life and annuity product contracts and subject to bifurcation is reported in contract benefits or interest credited to contractholder funds. Cash flows from embedded derivatives subject to bifurcation are reported consistently with the host contracts within the Statements of Cash Flows. Cash flows from other derivatives are reported in cash flows from investing activities within the Statements of Cash Flows.
14
Securities loaned
The Company’s business activities include securities lending transactions, which are used primarily to generate net investment income. The proceeds received in conjunction with securities lending transactions can be reinvested in short-term investments or fixed income securities. These transactions are short-term in nature, usually 30 days or less.
The Company receives cash collateral for securities loaned in an amount generally equal to 102% and 105% of the fair value of domestic and foreign securities, respectively, and records the related obligations to return the collateral in other liabilities and accrued expenses. The carrying value of these obligations approximates fair value because of their relatively short-term nature. The Company monitors the market value of securities loaned on a daily basis and obtains additional collateral as necessary under the terms of the agreements to mitigate counterparty credit risk. The Company maintains the right and ability to repossess the securities loaned on short notice.
Recognition of premium revenues and contract charges, and related benefits and interest credited
Traditional life insurance products consist principally of products with fixed and guaranteed premiums and benefits, primarily term and whole life insurance products. Voluntary accident and health insurance products are expected to remain in force for an extended period and therefore are primarily classified as long-duration contracts. Premiums from these products are recognized as revenue when due from policyholders, net of any credit loss allowance for uncollectible premiums. Benefits are reflected in contract benefits and recognized over the life of the policy in relation to premiums.
Immediate annuities with life contingencies, including certain structured settlement annuities, provide benefits over a period that extends beyond the period during which premiums are collected. Premiums from these products are recognized as revenue when received at the inception of the contract. Benefits are recognized in relation to premiums with the establishment of a reserve. The change in reserve over time is recorded in contract benefits and primarily relates to accumulation at the discount rate and annuitant mortality. Profits from these policies come primarily from investment income, which is recognized over the life of the contract.
Interest-sensitive life contracts, such as universal life and single premium life, are insurance contracts whose terms are not fixed and guaranteed. The terms that may be changed include premiums paid by the contractholder, interest credited to the contractholder account balance and contract charges assessed against the contractholder account balance. Premiums from these contracts are reported as contractholder fund deposits. Contract charges consist of fees assessed against the contractholder account balance for the cost of insurance (mortality risk), contract administration and surrender of the contract prior to contractually specified dates. These contract charges are recognized as revenue when assessed against the contractholder account balance. Contract benefits include life-contingent benefit payments in excess of the contractholder account balance.
Contracts that do not subject the Company to significant risk arising from mortality or morbidity are referred to as investment contracts. Fixed annuities, including market value adjusted annuities and immediate annuities without life contingencies, are considered investment contracts. Consideration received for such contracts is reported as contractholder fund deposits. Contract charges for investment contracts consist of fees assessed against the contractholder account balance for maintenance, administration and surrender of the contract prior to contractually specified dates, and are recognized when assessed against the contractholder account balance.
Interest credited to contractholder funds represents interest accrued or paid on interest-sensitive life and investment contracts. Crediting rates for certain fixed annuities and interest-sensitive life contracts are adjusted periodically by the Company to reflect current market conditions subject to contractually guaranteed minimum rates. Crediting rates for indexed life contracts are generally based on an equity index, such as the Standard & Poor’s 500 Index (“S&P 500”). Interest credited also includes amortization of DSI expenses. DSI is amortized into interest credited using the same method used to amortize DAC.
Contract charges for variable life and variable annuity products consist of fees assessed against the contractholder account balances for contract maintenance, administration, mortality, expense and surrender of the contract prior to contractually specified dates. Contract benefits incurred for variable annuity products include guaranteed minimum death, income, withdrawal and accumulation benefits. All of the Company’s variable annuity business is ceded through reinsurance agreements and the contract charges and contract benefits related thereto are reported net of reinsurance ceded.
Other revenue
Other revenue represents gross dealer concessions received in connection with sales of non-proprietary products by Allstate exclusive agents and exclusive financial specialists. Other revenue is recognized when performance obligations are fulfilled.
Deferred policy acquisition and sales inducement costs
Costs that are related directly to the successful acquisition of new or renewal life insurance policies are deferred and recorded as DAC. These costs are principally agent and broker remuneration and certain underwriting expenses. DSI costs,
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which are deferred and recorded as other assets, relate to sales inducements offered on sales to new customers, principally on interest-sensitive life contracts. These sales inducements are primarily in the form of additional credits to the customer’s account balance or enhancements to interest credited for a specified period which are in excess of the rates currently being credited to similar contracts without sales inducements. All other acquisition costs are expensed as incurred and included in operating costs and expenses. Amortization of DAC is included in amortization of deferred policy acquisition costs and is described in more detail below. DSI is amortized into income using the same methodology and assumptions as DAC and is included in interest credited to contractholder funds.
For traditional life and voluntary accident and health insurance, DAC is amortized over the premium paying period of the related policies in proportion to the estimated revenues on such business. Assumptions used in the amortization of DAC and reserve calculations are established at the time the policy is issued and are generally not revised during the life of the policy. Any deviations from projected business in force resulting from actual policy terminations differing from expected levels and any estimated premium deficiencies may result in a change to the rate of amortization in the period such events occur. Generally, the amortization periods for these policies approximates the estimated lives of the policies. The Company periodically reviews the recoverability of DAC using actual experience and current assumptions. Traditional life insurance products, immediate annuities with life contingencies, and voluntary accident and health insurance products are reviewed individually. If actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance would be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required for any remaining deficiency.
For interest-sensitive life insurance, DAC and DSI are amortized in proportion to the incidence of the total present value of gross profits, which includes both actual historical gross profits (“AGP”) and estimated future gross profits (“EGP”) expected to be earned over the estimated lives of the contracts. The amortization is net of interest on the prior period DAC balance using rates established at the inception of the contracts. Actual amortization periods generally range from 15-30 years; however, incorporating estimates of the rate of customer surrenders, partial withdrawals and deaths generally results in the majority of the DAC being amortized during the surrender charge period, which is typically 10-20 years for interest-sensitive life. The rate of DAC and DSI amortization is reestimated and adjusted by a cumulative charge or credit to income when there is a difference between the incidence of actual versus expected gross profits in a reporting period or when there is a change in total EGP. When DAC or DSI amortization or a component of gross profits for a quarterly period is potentially negative (which would result in an increase of the DAC or DSI balance) as a result of negative AGP, the specific facts and circumstances surrounding the potential negative amortization are considered to determine whether it is appropriate for recognition in the financial statements. Negative amortization is only recorded when the increased DAC or DSI balance is determined to be recoverable based on facts and circumstances. Recapitalization of DAC and DSI is limited to the originally deferred costs plus interest.
AGP and EGP primarily consist of the following components: contract charges for the cost of insurance less mortality costs and other benefits; investment income and realized capital gains and losses less interest credited; and surrender and other contract charges less maintenance expenses. The principal assumptions for determining the amount of EGP are mortality, persistency, expenses, investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of any hedges. For products whose supporting investments are exposed to capital losses in excess of the Company’s expectations which may cause periodic AGP to become temporarily negative, EGP and AGP utilized in DAC and DSI amortization may be modified to exclude the excess capital losses.
The Company performs quarterly reviews of DAC and DSI recoverability for interest-sensitive life contracts using current assumptions. If a change in the amount of EGP is significant, it could result in the unamortized DAC or DSI not being recoverable, resulting in a charge which is included as a component of amortization of deferred policy acquisition costs or interest credited to contractholder funds, respectively.
The DAC and DSI balances presented include adjustments to reflect the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized capital gains or losses in the respective product investment portfolios were actually realized. The adjustments are recorded net of tax in AOCI. DAC, DSI and deferred income taxes determined on unrealized capital gains and losses and reported in AOCI recognize the impact on shareholder’s equity consistently with the amounts that would be recognized in the income statement on realized capital gains and losses.
Customers of the Company may exchange one insurance policy or investment contract for another offered by the Company, or make modifications to an existing investment or life contract issued by the Company. These transactions are identified as internal replacements for accounting purposes. Internal replacement transactions determined to result in replacement contracts that are substantially unchanged from the replaced contracts are accounted for as continuations of the replaced contracts. Unamortized DAC and DSI related to the replaced contracts continue to be deferred and amortized in connection with the replacement contracts. For interest-sensitive life contracts, the EGP of the replacement contracts are treated as a revision to the EGP of the replaced contracts in the determination of amortization of DAC and DSI. For traditional life insurance policies, any changes to unamortized DAC that result from replacement contracts are treated as prospective revisions.
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Any costs associated with the issuance of replacement contracts are characterized as maintenance costs and expensed as incurred. Internal replacement transactions determined to result in a substantial change to the replaced contracts are accounted for as an extinguishment of the replaced contracts, and any unamortized DAC and DSI related to the replaced contracts are eliminated with a corresponding charge to amortization of deferred policy acquisition costs or interest credited to contractholder funds, respectively.
Reinsurance
In the normal course of business, the Company seeks to limit aggregate and single exposure to losses on large risks by purchasing reinsurance. The Company has also used reinsurance to effect the disposition of certain blocks of business. The amounts reported as reinsurance recoverables include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance reserves and contractholder funds that have not yet been paid. Reinsurance recoverables on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance reserves are reported gross of reinsurance recoverables. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish the Company’s primary liability under the policies written. Therefore, the Company evaluates reinsurer counterparty credit risk and records reinsurance recoverables net of credit loss allowances. The Company assesses counterparty credit risk for individual reinsurers separately when more relevant or on a pooled basis when shared risk characteristics exist. The evaluation considers the credit quality of the reinsurer and the period over which the recoverable balances are expected to be collected. The Company considers factors including past events, current conditions and reasonable and supportable forecasts in the development of the estimate of credit loss allowances.
The Company uses a probability of default and loss given default model developed independently of the Company to estimate current expected credit losses. The model utilizes factors including historical industry factors based on the probability of liquidation, and incorporates current loss given default factors reflective of the industry.
The Company monitors the credit ratings of reinsurer counterparties and evaluates the circumstances surrounding credit rating changes as inputs into its credit loss assessments. Uncollectible reinsurance recoverable balances are written off against the allowances when there is no reasonable expectation of recovery. The changes in the allowance are reported in contract benefits.
The Company has a reinsurance treaty with ALIC through which it cedes reinvestment related risk on its structured settlement annuities. The terms of the treaty meet the accounting definition of a derivative. Accordingly, the treaty is recorded in the Statement of Financial Position at fair value. Changes in the fair value of the treaty, premiums paid to ALIC and settlements received from ALIC are recognized in realized capital gains and losses.
Income taxes
Income taxes are accounted for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial reporting and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments (including unrealized capital gains and losses), insurance reserves and DAC. A deferred tax asset valuation allowance is established when it is more likely than not such assets will not be realized. The Company recognizes interest expense related to income tax matters in income tax expense and penalties in operating costs and expenses.
Reserve for life-contingent contract benefits
The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance, life-contingent immediate annuities and voluntary accident and health insurance products, is computed on the basis of long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses. These assumptions, which for traditional life insurance are applied using the net level premium method, include provisions for adverse deviation and generally vary by characteristics such as type of coverage, year of issue and policy duration. The assumptions are established at the time the policy is issued and are generally not changed during the life of the policy. The Company periodically reviews the adequacy of reserves using actual experience and current assumptions. If actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance would be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required for any remaining deficiency. Traditional life insurance products, immediate annuities with life contingencies, and voluntary accident and health insurance are reviewed individually. The Company also reviews these policies for circumstances where projected profits would be recognized in early years followed by projected losses in later years. If this circumstance exists, the Company will accrue a liability, during the period of profits, to offset the losses at such time as the future losses are expected to commence using a method updated prospectively over time. To the extent that unrealized gains on fixed income securities would result in a premium deficiency if those gains were realized, the related
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increase in reserves for certain immediate annuities with life contingencies is recorded net of tax as a reduction of unrealized net capital gains included in AOCI.
Contractholder funds
Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance and fixed annuities. Contractholder funds primarily comprise cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses. Contractholder funds also include reserves for secondary guarantees on interest-sensitive life insurance and certain fixed annuity contracts and reserves for certain guarantees on reinsured variable annuity contracts.
Separate accounts
Separate accounts assets are carried at fair value. The assets of the separate accounts are legally segregated and available only to settle separate accounts contract obligations. Separate accounts liabilities represent the contractholders’ claims to the related assets and are carried at an amount equal to the separate accounts assets. Investment income and realized capital gains and losses of the separate accounts accrue directly to the contractholders and therefore are not included in the Company’s Statements of Operations and Comprehensive Income. Deposits to and surrenders and withdrawals from the separate accounts are reflected in separate accounts liabilities and are not included in cash flows.
Absent any contract provision wherein the Company provides a guarantee, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts’ funds may not meet their stated investment objectives. All of the Company’s variable annuity business was reinsured beginning in 2006.
Measurement of credit losses
The Company carries an allowance for expected credit losses for all financial assets measured at amortized cost on the Statements of Financial Position. The Company considers past events, current conditions and reasonable and supportable forecasts in estimating an allowance for credit losses. The Company also carries a credit loss allowance for fixed income securities where applicable and, when amortized cost is reported, it is net of credit loss allowances. For additional information, refer to the Investments or Reinsurance topics of this section.
The Company also estimates a credit loss allowance for commitments to fund mortgage loans unless they are unconditionally cancellable by the Company. The related allowance is reported in other liabilities and accrued expenses.
The Company’s allowance for credit losses is presented in the following table.
($ in millions) | December 31, 2020 | January 1, 2020 | ||||||||||||
Mortgage loans | $ | 11,093 | $ | 6,129 | ||||||||||
Investments | 11,093 | 6,129 | ||||||||||||
Reinsurance recoverables | 624 | 655 | ||||||||||||
Other assets | 4,130 | 4,259 | ||||||||||||
Assets | 15,847 | 11,043 | ||||||||||||
Commitments to fund mortgage loans | 0 | 97 | ||||||||||||
Liabilities | 0 | 97 | ||||||||||||
Total | $ | 15,847 | $ | 11,140 |
Off-balance sheet financial instruments
Commitments to invest, commitments to purchase private placement securities, commitments to fund mortgage loans and financial guarantees have off-balance sheet risk because their contractual amounts are not recorded in the Company’s Statements of Financial Position (see Note 7 and Note 11).
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Adopted accounting standard
Measurement of Credit Losses on Financial Instruments
Effective January 1, 2020 the Company adopted new Financial Accounting Standards Board (“FASB”) guidance related to the measurement of credit losses on financial instruments that primarily affected mortgage loans and reinsurance recoverables.
Upon adoption of the guidance, the Company recorded a total allowance for expected credit losses of $11.1 million, pre-tax. After consideration of existing valuation allowances maintained prior to adopting the new guidance, the Company increased its valuation allowances for credit losses to conform to the new requirements which resulted in recognizing a cumulative effect decrease in retained income of $5.4 million, after-tax, at the date of adoption.
The measurement of credit losses for AFS fixed income securities measured at fair value is not affected except that credit losses recognized are limited to the amount by which fair value is below amortized cost and the credit loss adjustment is recognized through a valuation allowance which may change over time but once recorded cannot subsequently be reduced to an amount below zero. Previously these credit loss adjustments were recorded as other than temporary impairments and were not reversed once recorded.
Pending accounting standards
Accounting for Long-Duration Insurance Contracts
In August 2018, the FASB issued guidance revising the accounting for certain long-duration insurance contracts. The new guidance introduces material changes to the measurement of the Company’s reserves for traditional life, life-contingent immediate annuities and certain voluntary accident and health insurance products.
Under the new guidance, measurement assumptions, including those for mortality, morbidity and policy terminations, will be required to be reviewed and updated at least annually. The effect of updating measurement assumptions other than the discount rate are required to be measured on a retrospective basis and reported in net income. In addition, reserves under the new guidance are required to be discounted using an upper-medium grade fixed income instrument yield that is updated through OCI at each reporting date. Current GAAP requires the measurement of reserves to utilize assumptions set at policy issuance unless updated current assumptions indicate that recorded reserves are deficient.
The new guidance also requires DAC and other capitalized balances currently amortized in proportion to premiums or gross profits to be amortized on a constant level basis over the expected term for all long-duration insurance contracts. DAC will not be subject to loss recognition testing but will be reduced when actual lapse experience exceeds expected experience. The new guidance will no longer require adjustments to DAC and DSI related to unrealized gains and losses on investment securities supporting the related business.
All market risk benefit product features will be measured at fair value with changes in fair value recorded in net income with the exception of changes in the fair value attributable to changes in the reporting entity’s own credit risk, which are required to be recognized in OCI. Substantially all of the Company’s market risk benefits relate to variable annuities that are reinsured and therefore these impacts are not expected to be material to the Company.
The new guidance is effective for financial statements issued for reporting periods beginning after December 15, 2022, and restatement of prior periods presented is required. Early adoption is permitted and if elected, restatement of only one prior period is required. The new guidance will be applied to affected contracts and DAC on the basis of existing carrying amounts at the earliest period presented or retrospectively using actual historical experience as of contract inception. The new guidance for market risk benefits is required to be adopted retrospectively.
The Company is evaluating the anticipated impacts of applying the new guidance to both retained income and AOCI. The requirements of the new guidance represent a material change from existing GAAP, however, the underlying economics of the business and related cash flows are unchanged. The Company anticipates the financial statement impact of adopting the new guidance to be material, largely attributed to the impact of transitioning to a discount rate based on an upper-medium grade fixed income investment yield. The Company expects the most significant impacts will occur in the run-off annuity business. The revised accounting for DAC will be applied prospectively using the new model and any DAC effects existing in AOCI as a result of applying existing GAAP at the date of adoption will be eliminated.
Simplifications to the Accounting for Income Taxes
In December 2019, the FASB issued amendments to simplify the accounting for income taxes. The amendments eliminate certain exceptions in the existing guidance including those related to intraperiod tax allocation and deferred tax liability recognition when a subsidiary meets the criteria to apply the equity method of accounting. The amendments require recognition of the effect of an enacted change in tax laws or rates in the period that includes the enactment date, provide an option to not allocate taxes to a legal entity that is not subject to tax as well as other minor changes. The amendments are effective for
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reporting periods beginning after December 15, 2020. The new guidance specifies which amendments should be applied prospectively, retrospectively or on a modified retrospective basis through a cumulative-effect adjustment to retained income as of the beginning of the year of adoption. The impact of adoption is not expected to be material to the Company’s results of operations or financial position.
3. Supplemental Cash Flow Information
Non-cash investing activities include $412 thousand, $8.0 million and $8.2 million related to mergers and exchanges completed with equity securities, fixed income securities and modifications of certain mortgage loans in 2020, 2019 and 2018, respectively.
Liabilities for collateral received in conjunction with the Company’s securities lending program were $76.4 million, $158.1 million and $69.8 million as of December 31, 2020, 2019 and 2018, respectively, and are reported in other liabilities and accrued expenses.
The accompanying cash flows are included in cash flows from operating activities in the Statements of Cash Flows along with the activities resulting from management of the proceeds, which for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Net change in proceeds managed | |||||||||||||||||
Net change in short-term investments | $ | 81,718 | $ | (88,323) | $ | (10,721) | |||||||||||
Operating cash flow provided (used) | $ | 81,718 | $ | (88,323) | $ | (10,721) | |||||||||||
Net change in liabilities | |||||||||||||||||
Liabilities for collateral, beginning of year | $ | (158,111) | $ | (69,788) | $ | (59,067) | |||||||||||
Liabilities for collateral, end of year | (76,393) | (158,111) | (69,788) | ||||||||||||||
Operating cash flow (used) provided | $ | (81,718) | $ | 88,323 | $ | 10,721 |
4. Related Party Transactions
Business operations
The Company uses services performed by AIC, ALIC and other affiliates, and business facilities owned or leased and operated by AIC in conducting its business activities. In addition, the Company shares the services of employees with AIC. The Company reimburses its affiliates for the operating expenses incurred on behalf of the Company. The Company is charged for the cost of these operating expenses based on the level of services provided. Operating expenses, including compensation, retirement and other benefit programs (see Note 14), allocated to the Company were $38.0 million, $45.0 million and $46.2 million in 2020, 2019 and 2018, respectively. A portion of these expenses relate to the acquisition of business, which are deferred and amortized into income as described in Note 2.
Structured settlement annuities
The Company previously issued structured settlement annuities, a type of immediate annuity, to fund structured settlements in matters involving AIC. In most cases, these annuities were issued under a “qualified assignment” whereby Allstate Assignment Company and prior to July 1, 2001 Allstate Settlement Corporation (“ASC”), both wholly owned subsidiaries of ALIC, purchased annuities from the Company and assumed AIC’s obligation to make future payments.
AIC issued surety bonds to guarantee the payment of structured settlement benefits assumed by ASC (from both AIC and non-related parties) and funded by certain annuity contracts issued by the Company through June 30, 2001. ASC entered into a General Indemnity Agreement pursuant to which it indemnified AIC for any liabilities associated with the surety bonds and gave AIC certain collateral security rights with respect to the annuities and certain other rights in the event of any defaults covered by the surety bonds. ALIC guaranteed the payment of structured settlement benefits on all contracts issued on or after July 1, 2001. Reserves recorded by the Company for annuities that are guaranteed by the surety bonds of AIC were $1.58 billion and $1.42 billion as of December 31, 2020 and 2019, respectively. Reserves recorded by the Company for annuities that are guaranteed by ALIC were $557.2 million and $559.5 million as of December 31, 2020 and 2019, respectively.
Broker-Dealer agreements
The Company receives distribution services from Allstate Financial Services, LLC, an affiliated broker-dealer company, for certain annuity and variable life insurance contracts sold by Allstate exclusive agencies and exclusive financial specialists. For these services, the Company incurred commission and other distribution expenses of $380 thousand, $317 thousand and $215 thousand in 2020, 2019 and 2018, respectively.
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The Company has a service agreement with Allstate Distributors, LLC (“ADLLC”), a broker-dealer company owned by ALIC, whereby ADLLC promotes and markets products sold by the Company. In return for these services, the Company recorded expense of $9 thousand, $3 thousand and $5 thousand in 2020, 2019 and 2018, respectively.
Reinsurance
The Company has reinsurance agreements with ALIC whereby a portion of the Company’s premiums and policy benefits are ceded to ALIC (see Note 9).
The Company has a reinsurance treaty (the “structured settlement annuity reinsurance agreement”) through which it cedes reinvestment related risk on its structured settlement annuities to ALIC. Under the terms of the treaty, the Company pays a premium to ALIC that varies with the aggregate structured settlement annuity statutory reserve balance. In return, ALIC guarantees that the yield on the portion of the Company’s investment portfolio that supports structured settlement annuity liabilities will not fall below contractually determined rates. The Company ceded premium related to structured settlement annuities to ALIC of $3.3 million, $4.2 million and $3.4 million in 2020, 2019 and 2018, respectively. The Company received settlements from ALIC of $21.7 million, $1.0 million and 0 in 2020, 2019 and 2018, respectively. As of December 31, 2020 and 2019, the carrying value of the structured settlement reinsurance treaty was $313.9 million and $231.5 million, respectively, which is recorded in other assets. The premiums ceded and changes in the fair value of the reinsurance treaty are reflected as a component of realized capital gains and losses as the treaty is recorded as a derivative instrument. In 2019, ALIC established a trust for the benefit of the Company and maintains it with assets equal to or greater than the Company’s statutory-basis cession. As of December 31, 2020 and 2019, the trust held $1.56 billion and $1.45 billion of investments, respectively.
Income taxes
The Company is a party to a federal income tax allocation agreement with the Corporation (see Note 12).
Intercompany loan agreement
The Company has an intercompany loan agreement with the Corporation. The amount of intercompany loans available to the Company is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. The Corporation may use commercial paper borrowings, bank lines of credit and securities lending to fund intercompany borrowings. The Company had 0 amounts outstanding under the intercompany loan agreement as of December 31, 2020 or 2019.
5. Investments
Portfolio composition
The composition of the investment portfolio is presented as follows:
As of December 31, | |||||||||||
($ in thousands) | 2020 | 2019 | |||||||||
Fixed income securities, at fair value | $ | 4,918,874 | $ | 4,434,362 | |||||||
Mortgage loans, net | 621,702 | 733,258 | |||||||||
Equity securities, at fair value | 251,437 | 274,133 | |||||||||
Limited partnership interests | 343,251 | 386,310 | |||||||||
Short-term investments, at fair value | 133,045 | 224,098 | |||||||||
Policy loans | 37,294 | 38,583 | |||||||||
Other | 8,097 | 5,237 | |||||||||
Total | $ | 6,313,700 | $ | 6,095,981 |
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Fair values
The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:
($ in thousands) | Amortized cost, net | Gross unrealized | Fair value | ||||||||||||||||||||
Gains | Losses | ||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||
U.S. government and agencies | $ | 134,490 | $ | 10,415 | $ | 0 | $ | 144,905 | |||||||||||||||
Municipal | 402,728 | 141,825 | 0 | 544,553 | |||||||||||||||||||
Corporate | 3,685,510 | 471,999 | (3,782) | 4,153,727 | |||||||||||||||||||
Foreign government | 67,435 | 4,652 | 0 | 72,087 | |||||||||||||||||||
MBS | 3,329 | 273 | 0 | 3,602 | |||||||||||||||||||
Total fixed income securities | $ | 4,293,492 | $ | 629,164 | $ | (3,782) | $ | 4,918,874 | |||||||||||||||
December 31, 2019 | |||||||||||||||||||||||
U.S. government and agencies | $ | 43,280 | $ | 9,534 | $ | 0 | $ | 52,814 | |||||||||||||||
Municipal | 433,038 | 119,242 | 0 | 552,280 | |||||||||||||||||||
Corporate | 3,400,471 | 277,338 | (2,564) | 3,675,245 | |||||||||||||||||||
Foreign government | 133,635 | 6,531 | 0 | 140,166 | |||||||||||||||||||
MBS | 12,683 | 1,174 | 0 | 13,857 | |||||||||||||||||||
Total fixed income securities | $ | 4,023,107 | $ | 413,819 | $ | (2,564) | $ | 4,434,362 |
Scheduled maturities
The scheduled maturities for fixed income securities are as follows:
($ in thousands) | As of December 31, 2020 | ||||||||||
Amortized cost, net | Fair value | ||||||||||
Due in one year or less | $ | 236,261 | $ | 241,561 | |||||||
Due after one year through five years | 1,259,325 | 1,348,880 | |||||||||
Due after five years through ten years | 1,686,785 | 1,900,883 | |||||||||
Due after ten years | 1,107,792 | 1,423,948 | |||||||||
4,290,163 | 4,915,272 | ||||||||||
MBS | 3,329 | 3,602 | |||||||||
Total | $ | 4,293,492 | $ | 4,918,874 |
Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. MBS is shown separately because of potential prepayment of principal prior to contractual maturity dates.
Net investment income
Net investment income for the years ended December 31 is as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Fixed income securities | $ | 188,432 | $ | 208,816 | $ | 214,039 | |||||||||||
Mortgage loans | 34,510 | 32,566 | 30,920 | ||||||||||||||
Equity securities | 3,267 | 4,283 | 5,565 | ||||||||||||||
Limited partnership interests | 817 | 15,348 | 43,365 | ||||||||||||||
Short-term investments | 1,600 | 4,393 | 2,966 | ||||||||||||||
Policy loans | 2,272 | 2,343 | 2,339 | ||||||||||||||
Investment income, before expense | 230,898 | 267,749 | 299,194 | ||||||||||||||
Investment expense | (8,811) | (11,743) | (11,311) | ||||||||||||||
Net investment income | $ | 222,087 | $ | 256,006 | $ | 287,883 |
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Realized capital gains and losses
Realized capital gains (losses) by asset type for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Fixed income securities | $ | (2,190) | $ | 1,389 | $ | (1,306) | |||||||||||
Mortgage loans | (9,390) | 0 | 466 | ||||||||||||||
Equity securities | 36,110 | 40,780 | (16,364) | ||||||||||||||
Limited partnership interests | 3,520 | 5,383 | (3,895) | ||||||||||||||
Derivatives | 100,412 | 59,087 | 638 | ||||||||||||||
Short-term investments | (197) | (12) | (93) | ||||||||||||||
Realized capital gains (losses) | $ | 128,265 | $ | 106,627 | $ | (20,554) |
Realized capital gains (losses) by transaction type for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Sales | $ | (1,861) | $ | 4,698 | $ | (1,548) | |||||||||||
Credit losses (1) | (10,388) | (169) | (285) | ||||||||||||||
Valuation of equity investments (2) | 40,102 | 43,011 | (19,359) | ||||||||||||||
Valuation and settlements of derivative instruments | 100,412 | 59,087 | 638 | ||||||||||||||
Realized capital gains (losses) | $ | 128,265 | $ | 106,627 | $ | (20,554) |
____________________
(1)Due to the adoption of the measurement of credit losses on financial instruments accounting standard, prior period other-than-temporary impairment write-downs are now presented as credit losses.
(2)Includes valuation of equity securities and certain limited partnership interests where the underlying assets are predominately public equity securities.
Gross realized gains (losses) on sales of fixed income securities for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | |||||||||||||||||
Gross realized gains | $ | 3,165 | $ | 4,863 | $ | 4,397 | ||||||||||||||
Gross realized losses | (5,099) | (3,305) | (5,418) |
The following table presents the net pre-tax appreciation (decline) recognized in net income of equity securities and limited partnership interests carried at fair value that are still held as of December 31, 2020 and 2019, respectively.
For the years ended December 31, | ||||||||||||||
($ in thousands) | 2020 | 2019 | ||||||||||||
Equity securities | $ | 39,830 | $ | 29,558 | ||||||||||
Limited partnership interests carried at fair value | 13,787 | 9,165 | ||||||||||||
Total | $ | 53,617 | $ | 38,723 |
Credit losses recognized in net income (1) for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | |||||||||||||||||
Fixed income securities: | ||||||||||||||||||||
MBS | $ | (255) | $ | (169) | $ | (285) | ||||||||||||||
Total fixed income securities | (255) | (169) | (285) | |||||||||||||||||
Mortgage loans | (9,691) | 0 | 0 | |||||||||||||||||
Limited partnership interests | (538) | 0 | 0 | |||||||||||||||||
Total credit losses by asset type | (10,484) | (169) | (285) | |||||||||||||||||
Liabilities | ||||||||||||||||||||
Commitments to fund commercial mortgage loans | 97 | 0 | 0 | |||||||||||||||||
Total | $ | (10,387) | $ | (169) | $ | (285) |
_______________
(1)Due to the adoption of the measurement of credit losses on financial instruments accounting standard, realized capital losses previously reported as other-than-temporary impairment write-downs are now presented as credit losses.
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Unrealized net capital gains and losses
Unrealized net capital gains and losses included in AOCI are as follows:
($ in thousands) | Fair value | Gross unrealized | Unrealized net gains (losses) | ||||||||||||||||||||
December 31, 2020 | Gains | Losses | |||||||||||||||||||||
Fixed income securities | $ | 4,918,874 | $ | 629,164 | $ | (3,782) | $ | 625,382 | |||||||||||||||
Short-term investments | 133,045 | 76 | (1) | 75 | |||||||||||||||||||
EMA limited partnerships (1) | (350) | ||||||||||||||||||||||
Unrealized net capital gains and losses, pre-tax | 625,107 | ||||||||||||||||||||||
Amounts recognized for: | |||||||||||||||||||||||
Insurance reserves (2) | (321,591) | ||||||||||||||||||||||
DAC and DSI (3) | (36,668) | ||||||||||||||||||||||
Amounts recognized | (358,259) | ||||||||||||||||||||||
Deferred income taxes | (56,038) | ||||||||||||||||||||||
Unrealized net capital gains and losses, after-tax | $ | 210,810 | |||||||||||||||||||||
December 31, 2019 | |||||||||||||||||||||||
Fixed income securities | $ | 4,434,362 | $ | 413,819 | $ | (2,564) | $ | 411,255 | |||||||||||||||
Short-term investments | 224,098 | 4 | (17) | (13) | |||||||||||||||||||
EMA limited partnerships | (205) | ||||||||||||||||||||||
Unrealized net capital gains and losses, pre-tax | 411,037 | ||||||||||||||||||||||
Amounts recognized for: | |||||||||||||||||||||||
Insurance reserves | (231,357) | ||||||||||||||||||||||
DAC and DSI | (21,820) | ||||||||||||||||||||||
Amounts recognized | (253,177) | ||||||||||||||||||||||
Deferred income taxes | (33,151) | ||||||||||||||||||||||
Unrealized net capital gains and losses, after-tax | $ | 124,709 |
____________________
(1)Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ OCI. Fair value and gross unrealized gains and losses are not applicable.
(2)The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at lower interest rates, resulting in a premium deficiency. This adjustment primarily relates to structured settlement annuities with life contingencies (a type of immediate annuity with life contingencies).
(3)The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.
Change in unrealized net capital gains and losses
The change in unrealized net capital gains and losses for the years ended December 31 is as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Fixed income securities | $ | 214,127 | $ | 256,021 | $ | (212,483) | |||||||||||
Short-term investments | 88 | (9) | 9 | ||||||||||||||
EMA limited partnerships | (145) | (155) | (40) | ||||||||||||||
Total | 214,070 | 255,857 | (212,514) | ||||||||||||||
Amounts recognized for: | |||||||||||||||||
Insurance reserves | (90,234) | (150,729) | 141,714 | ||||||||||||||
DAC and DSI | (14,848) | (19,543) | 6,780 | ||||||||||||||
Amounts recognized | (105,082) | (170,272) | 148,494 | ||||||||||||||
Deferred income taxes | (22,887) | (17,973) | 13,445 | ||||||||||||||
Increase (decrease) in unrealized net capital gains and losses, after-tax | $ | 86,101 | $ | 67,612 | $ | (50,575) |
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Mortgage loans
The Company’s mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located across the United States and totaled $621.7 million and $733.3 million, net of credit loss allowance, as of December 31, 2020 and 2019, respectively. Substantially all of the commercial mortgage loans are non-recourse to the borrower.
The following table shows the principal geographic distribution of commercial real estate represented in the Company’s mortgage loan portfolio. No other state represented more than 5% of the portfolio as of December 31.
(% of mortgage loan portfolio carrying value) | 2020 | 2019 | |||||||||
Texas | 23.9 | % | 19.9 | % | |||||||
California | 15.8 | 16.7 | |||||||||
North Carolina | 9.3 | 8.2 | |||||||||
Utah | 6.7 | 5.9 | |||||||||
New Jersey | 4.2 | 5.6 | |||||||||
Nevada | 2.9 | 5.8 | |||||||||
Illinois | 2.0 | 5.5 |
The types of properties collateralizing the mortgage loans as of December 31 are as follows:
(% of mortgage loan portfolio carrying value) | 2020 | 2019 | |||||||||
Apartment complex | 30.6 | % | 32.6 | % | |||||||
Office buildings | 28.4 | 27.4 | |||||||||
Retail | 16.6 | 15.6 | |||||||||
Warehouse | 13.2 | 16.5 | |||||||||
Other | 11.2 | 7.9 | |||||||||
Total | 100.0 | % | 100.0 | % |
The contractual maturities of the mortgage loan portfolio as of December 31, 2020 are as follows:
($ in thousands) | Number of loans | Amortized cost, net | Percent | ||||||||||||||
2021 | 6 | $ | 44,345 | 7.1 | % | ||||||||||||
2022 | 8 | 46,326 | 7.5 | ||||||||||||||
2023 | 11 | 82,043 | 13.2 | ||||||||||||||
2024 | 12 | 97,143 | 15.6 | ||||||||||||||
Thereafter | 46 | 351,845 | 56.6 | ||||||||||||||
Total | 83 | $ | 621,702 | 100.0 | % |
Limited partnerships
Investments in limited partnership interests include interests in private equity funds, real estate funds and other funds. Principal factors influencing carrying value appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. For equity method limited partnerships, the Company recognizes an impairment loss when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. Changes in fair value limited partnerships are recorded through net investment income and therefore are not tested for impairment.
The carrying value for limited partnership interest as of December 31 is as follows:
2020 | 2019 | |||||||||||||||||||||||||||||||||||||
($ in thousands) | EMA | Fair Value | Total | EMA | Fair Value | Total | ||||||||||||||||||||||||||||||||
Private equity | $ | 204,573 | $ | 107,500 | $ | 312,073 | $ | 251,154 | $ | 107,500 | $ | 358,654 | ||||||||||||||||||||||||||
Real estate | 15,814 | 987 | 16,801 | 15,357 | 1,566 | 16,923 | ||||||||||||||||||||||||||||||||
Other (1) | 14,377 | 0 | 14,377 | 10,733 | 0 | 10,733 | ||||||||||||||||||||||||||||||||
Total | $ | 234,764 | $ | 108,487 | $ | 343,251 | $ | 277,244 | $ | 109,066 | $ | 386,310 |
____________
(1)Other consists of certain limited partnership interests where the underlying assets are predominately public equity and debt securities.
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Municipal bonds
The Company maintains a diversified portfolio of municipal bonds which totaled $544.6 million and $552.3 million as of December 31, 2020 and 2019, respectively. The municipal bond portfolio includes general obligations of state and local issuers and revenue bonds (including pre-refunded bonds, which are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest). The following table shows the principal geographic distribution of municipal bond issuers represented in the Company’s portfolio as of December 31. No other state represents more than 5% of the portfolio.
(% of municipal bond portfolio carrying value) | 2020 | 2019 | |||||||||
California | 35.2 | % | 33.3 | % | |||||||
Oregon | 11.6 | 10.6 | |||||||||
Texas | 10.9 | 10.8 | |||||||||
Illinois | 8.7 | 8.0 |
Short-term investments
Short-term investments, including money market funds, commercial paper, U.S. Treasury bills and other short-term investments, are carried at fair value. As of December 31, 2020 and 2019, the fair value of short-term investments totaled $133.0 million and $224.1 million, respectively.
Policy loans
Policy loans are carried at unpaid principal balances. As of December 31, 2020 and 2019, the carrying value of policy loans totaled $37.3 million and $38.6 million, respectively.
Other investments
Other investments consist of derivatives. Derivatives are carried at fair value. As of December 31, 2020 and 2019, the fair value of derivatives totaled $8.1 million and $5.2 million, respectively.
Concentration of credit risk
As of December 31, 2020, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company’s shareholder’s equity, other than the U.S. government and its agencies.
Securities loaned
The Company’s business activities include securities lending programs with third parties, mostly large banks. As of December 31, 2020 and 2019, fixed income and equity securities with a carrying value of $73.8 million and $152.3 million, respectively, were on loan under these agreements. Interest income on collateral, net of fees, was $235 thousand, $342 thousand and $286 thousand in 2020, 2019 and 2018, respectively.
Other investment information
Included in fixed income securities are below investment grade assets totaling $471.8 million and $406.0 million as of December 31, 2020 and 2019, respectively.
As of December 31, 2020, fixed income securities with a carrying value of $2.1 million were on deposit with regulatory authorities as required by law.
As of December 31, 2020, there were 0 fixed income securities or other investments that were non-income producing.
Portfolio monitoring and credit losses
Fixed income securities The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income security that may require a credit loss allowance.
For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, any existing credit loss allowance would be written-off against the amortized cost basis of the asset along with any remaining unrealized losses, with incremental losses recorded in earnings.
If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value based on the best estimate of future cash flows considering past events, current conditions and
26
reasonable and supportable forecasts. The estimated future cash flows are discounted at the security’s current effective rate and is compared to the amortized cost of the security.
The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security is considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement.
If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, a credit loss allowance is recorded in earnings for the shortfall in expected cash flows; however, the amortized cost, net of the credit loss allowance, may not be lower than the fair value of the security. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
When a security is sold or otherwise disposed or when the security is deemed uncollectible and written off, the Company removes amounts previously recognized in the credit loss allowance. Recoveries after write-offs are recognized when received. Accrued interest excluded from the amortized cost of fixed income securities totaled $42.5 million as of December 31, 2020 and is reported within the accrued investment income line of the Statements of Financial Position. The Company monitors accrued interest and writes off amounts when they are not expected to be received.
The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below internally established thresholds. The process also includes the monitoring of other credit loss indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential credit losses using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of credit losses for these securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value requires a credit loss allowance are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the extent to which the fair value has been less than amortized cost.
Rollforward of credit loss allowance for fixed income securities for the year ended December 31, 2020 is as follows:
($ in thousands) | 2020 | |||||||
Beginning balance | $ | 0 | ||||||
Credit losses on securities for which credit losses not previously reported | (255) | |||||||
Reduction of allowance related to sales | 255 | |||||||
Write-offs | 0 | |||||||
Ending balance | $ | 0 |
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The following table summarizes the gross unrealized losses and fair value of securities by the length of time that individual securities have been in a continuous unrealized loss position.
($ in thousands) | Less than 12 months | 12 months or more | Total unrealized losses | ||||||||||||||||||||||||||||||||||||||
Number of issues | Fair value | Unrealized losses | Number of issues | Fair value | Unrealized losses | ||||||||||||||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
Fixed income securities | |||||||||||||||||||||||||||||||||||||||||
Corporate | 46 | $ | 154,414 | $ | (2,984) | 9 | $ | 15,133 | $ | (798) | $ | (3,782) | |||||||||||||||||||||||||||||
MBS | 1 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||
Total fixed income securities | 47 | $ | 154,414 | $ | (2,984) | 9 | $ | 15,133 | $ | (798) | $ | (3,782) | |||||||||||||||||||||||||||||
Investment grade fixed income securities | 20 | $ | 111,172 | $ | (1,883) | 0 | $ | 0 | $ | 0 | $ | (1,883) | |||||||||||||||||||||||||||||
Below investment grade fixed income securities | 27 | 43,242 | (1,101) | 9 | 15,133 | (798) | (1,899) | ||||||||||||||||||||||||||||||||||
Total fixed income securities | 47 | $ | 154,414 | $ | (2,984) | 9 | $ | 15,133 | $ | (798) | $ | (3,782) | |||||||||||||||||||||||||||||
December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||
Fixed income securities | 3 | ||||||||||||||||||||||||||||||||||||||||
Corporate | 44 | 104,484 | (815) | 17 | 31,900 | (1,749) | (2,564) | ||||||||||||||||||||||||||||||||||
MBS | 2 | 38 | 0 | 2 | 1 | 0 | 0 | ||||||||||||||||||||||||||||||||||
Total fixed income securities | 46 | $ | 104,522 | $ | (815) | 19 | $ | 31,901 | $ | (1,749) | $ | (2,564) | |||||||||||||||||||||||||||||
Investment grade fixed income securities | 22 | $ | 82,142 | $ | (347) | 3 | $ | 9,845 | $ | (130) | $ | (477) | |||||||||||||||||||||||||||||
Below investment grade fixed income securities | 24 | 22,380 | (468) | 16 | 22,056 | (1,619) | (2,087) | ||||||||||||||||||||||||||||||||||
Total fixed income securities | 46 | $ | 104,522 | $ | (815) | 19 | $ | 31,901 | $ | (1,749) | $ | (2,564) |
The following table summarizes gross unrealized losses by unrealized loss position and credit quality as of December 31, 2020.
($ in thousands) | Investment grade | Below investment grade | Total | ||||||||||||||
Fixed income securities with unrealized loss position less than 20% of amortized cost, net (1) (2) | $ | (1,883) | $ | (1,635) | $ | (3,518) | |||||||||||
Fixed income securities with unrealized loss position greater than or equal to 20% of amortized cost, net (3) (4) | 0 | (264) | (264) | ||||||||||||||
Total unrealized losses | $ | (1,883) | $ | (1,899) | $ | (3,782) |
_______________
(1)Below investment grade fixed income securities include $1.1 million that have been in an unrealized loss position for less than twelve months.
(2)Related to securities with an unrealized loss position less than 20% of amortized cost, net, the degree of which suggests that these securities do not pose a high risk of having credit losses.
(3)NaN below investment grade fixed income securities have been in an unrealized loss position for a period of twelve or more consecutive months.
(4)Evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations.
Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P Global Ratings (“S&P”), a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third-party rating. Unrealized losses on investment grade securities are principally related to an increase in market yields which may include increased risk-free interest rates or wider credit spreads since the time of initial purchase. The unrealized losses are expected to reverse as the securities approach maturity.
MBS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread. Municipal bonds in an unrealized loss position were evaluated based on the underlying credit quality of the primary obligor, obligation type and quality of the underlying assets.
As of December 31, 2020, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.
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Mortgage loans The Company establishes a credit loss allowance for mortgage loans when they are originated, and for unfunded commitments unless they are unconditionally cancellable by the Company. The Company uses a probability of default and loss given default model to estimate current expected credit losses that considers all relevant information available including past events, current conditions, and reasonable and supportable forecasts over the life of an asset. The Company also considers such factors as historical losses, expected prepayments and various economic factors, origination vintage year and property level information such as debt service coverage, property type, property location and collateral value.
Mortgage loans are evaluated on a pooled basis when they share similar risk characteristics. The Company monitors these loans through a quarterly credit monitoring process to determine when they no longer share similar risk characteristics and are to be evaluated individually when estimating credit losses.
Mortgage loans are written off against their corresponding allowances when there is no reasonable expectation of recovery. If a loan recovers after a write-off, the estimate of expected credit losses includes the expected recovery.
Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable. Accrued income receivable is monitored for recoverability and when not expected to be collected is written off through net investment income. Cash receipts on mortgage loans on non-accrual status are generally recorded as a reduction of amortized cost.
Accrued interest is excluded from the amortized cost of loans and is reported within the accrued investment income line of the Statements of Financial Position. As of December 31, 2020, accrued interest totaled $2.0 million for mortgage loans.
When it is determined a mortgage loan shall be evaluated individually, the Company uses various methods to estimate credit losses on individual loans such as using collateral value less estimated costs to sell where applicable, including when foreclosure is probable or when repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. When collateral value is used, the mortgage loans may not have a credit loss allowance when the fair value of the collateral exceeds the loan’s amortized cost. An alternative approach may be utilized to estimate credit losses using the present value of the loan’s expected future repayment cash flows discounted at the loan’s current effective interest rate.
Individual loan credit loss allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell, when applicable, or present value of the loan’s expected future repayment cash flows.
Debt service coverage ratio is considered a key credit quality indicator when mortgage loan credit loss allowances are estimated. Debt service coverage ratio represents the amount of estimated cash flow from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.
The following table reflects mortgage loans amortized cost by debt service coverage ratio distribution and year of origination as of December 31.
($ in thousands) | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||
2015 and prior | 2016 | 2017 | 2018 | 2019 | Current | Total | Total | ||||||||||||||||||||||||||||||||||||||||
Below 1.0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||||||||||||||||
1.0 - 1.25 | 31,451 | 0 | 16,187 | 5,000 | 14,078 | 13,800 | 80,516 | 48,780 | |||||||||||||||||||||||||||||||||||||||
1.26 - 1.50 | 79,681 | 6,290 | 27,786 | 12,009 | 52,456 | 0 | 178,222 | 221,384 | |||||||||||||||||||||||||||||||||||||||
Above 1.50 | 171,774 | 60,568 | 13,216 | 61,913 | 53,586 | 13,000 | 374,057 | 463,094 | |||||||||||||||||||||||||||||||||||||||
Amortized cost before allowance | $ | 282,906 | $ | 66,858 | $ | 57,189 | $ | 78,922 | $ | 120,120 | $ | 26,800 | $ | 632,795 | $ | 733,258 | |||||||||||||||||||||||||||||||
Allowance (1) | (11,093) | 0 | |||||||||||||||||||||||||||||||||||||||||||||
Amortized cost, net | $ | 621,702 | $ | 733,258 |
_______________
(1)Due to the adoption of the measurement of credit losses on financial instruments accounting standard, prior valuation allowance is now presented as an allowance for expected credit losses.
Payments on all mortgage loans were current as of December 31, 2020, 2019 and 2018. During the fourth quarter of 2020, the Company sold $50.1 million of mortgage loans, net of a $4.7 million credit loss allowance, resulting in a net realized capital gain of $238 thousand.
29
The rollforward of credit loss allowance for mortgage loans for the years ended December 31 is as follows:
($ in thousands) | 2020 | ||||||||||||||||
Beginning balance | $ | 0 | |||||||||||||||
Cumulative effect of change in accounting principle | (6,129) | ||||||||||||||||
Net increases related to credit losses | (9,691) | ||||||||||||||||
Reduction of allowance related to sales | 4,727 | ||||||||||||||||
Write-offs | 0 | ||||||||||||||||
Ending balance | $ | (11,093) |
6. Fair Value of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:
Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access.
Level 2: Assets and liabilities whose values are based on the following:
(a) Quoted prices for similar assets or liabilities in active markets;
(b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or
(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities.
The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment. The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3. In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments.
The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third- party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.
The Company has two types of situations where investments are classified as Level 3 in the fair value hierarchy:
(1) Specific inputs significant to the fair value estimation models are not market observable. This primarily occurs in the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable, and the use of valuation models that use significant non-market observable inputs.
(2) Quotes continue to be received from independent third-party valuation service providers and all significant inputs are market observable; however, there has been a significant decrease in the volume and level of activity for the asset when
30
compared to normal market activity such that the degree of market observability has declined to a point where categorization as a Level 3 measurement is considered appropriate. The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources.
Certain assets are not carried at fair value on a recurring basis, including mortgage loans and policy loans, and these are only included in the fair value hierarchy disclosure when the individual investment is reported at fair value.
In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments. To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies. For the majority of Level 2 and Level 3 valuations, a combination of the market and income approaches is used.
Summary of significant inputs and valuation techniques for Level 2 and Level 3 assets and liabilities measured at fair value on a recurring basis
Level 2 measurements
•Fixed income securities:
U.S. government and agencies, municipal, corporate - public and foreign government: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.
Corporate - privately placed: Privately placed are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer.
Corporate - privately placed also includes redeemable preferred stock that are valued using quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.
MBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads. Residential MBS includes prepayment speeds as a primary input for valuation.
•Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active.
•Short-term: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.
•Other investments: Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active.
Over-the-counter (“OTC”) derivatives, including foreign exchange forward contracts and options, are valued using models that rely on inputs such as currency rates that are observable for substantially the full term of the contract. The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant judgment.
Level 3 measurements
•Fixed income securities:
Municipal: Comprise municipal bonds that are not rated by third-party credit rating agencies. The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads. Also included are municipal bonds valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.
Corporate - public and privately placed and ABS: Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Other inputs for corporate fixed income securities include an interest rate yield curve, as well as published credit spreads for similar assets that incorporate the credit quality and industry sector of the issuer.
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•Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.
•Other investments: Certain OTC derivatives, such as interest rate caps, are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility. Other primary inputs include interest rate yield curves.
•Other assets: Includes a structured settlement annuity reinsurance agreement accounted for as a derivative instrument that is valued internally. The model primarily uses stochastically determined cash flows, ultimate reinvestment spreads and applicable market data, such as interest rate and volatility assumptions. This item is categorized as Level 3 as a result of the significance of non-market observable inputs.
•Contractholder funds: Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions. These are categorized as Level 3 as a result of the significance of non-market observable inputs.
Investments excluded from the fair value hierarchy
Limited partnerships carried at fair value, which do not have readily determinable fair values, use NAV provided by the investees and are excluded from the fair value hierarchy. These investments are generally not redeemable by the investees and generally cannot be sold without approval of the general partner. The Company receives distributions of income and proceeds from the liquidation of the underlying assets of the investees, which usually takes place in years 4-9 of the typical contractual life of 10-12 years. As of December 31, 2020, the Company has commitments to invest $23.9 million in these limited partnership interests.
The following table summarizes the Company’s assets and liabilities measured at fair value as of December 31, 2020.
($ in thousands) | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Counterparty and cash collateral netting | Total | ||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Fixed income securities: | |||||||||||||||||||||||||||||
U.S. government and agencies | $ | 102,167 | $ | 42,738 | $ | 0 | $ | 144,905 | |||||||||||||||||||||
Municipal | 0 | 528,272 | 16,281 | 544,553 | |||||||||||||||||||||||||
Corporate - public | 0 | 3,122,120 | 5,560 | 3,127,680 | |||||||||||||||||||||||||
Corporate - privately placed | 0 | 1,021,072 | 4,975 | 1,026,047 | |||||||||||||||||||||||||
Foreign government | 0 | 72,087 | 0 | 72,087 | |||||||||||||||||||||||||
MBS | 0 | 3,602 | 0 | 3,602 | |||||||||||||||||||||||||
Total fixed income securities | 102,167 | 4,789,891 | 26,816 | 4,918,874 | |||||||||||||||||||||||||
Equity securities | 243,076 | 590 | 7,771 | 251,437 | |||||||||||||||||||||||||
Short-term investments | 112,293 | 20,752 | 0 | 133,045 | |||||||||||||||||||||||||
Other investments: Free-standing derivatives | 0 | 8,451 | 23 | $ | (377) | 8,097 | |||||||||||||||||||||||
Separate account assets | 286,751 | 0 | 0 | 286,751 | |||||||||||||||||||||||||
Other assets | 0 | 0 | 313,900 | 313,900 | |||||||||||||||||||||||||
Total recurring basis assets | $ | 744,287 | $ | 4,819,684 | $ | 348,510 | $ | (377) | $ | 5,912,104 | |||||||||||||||||||
% of total assets at fair value | 12.6 | % | 81.5 | % | 5.9 | % | 0 | % | 100.0 | % | |||||||||||||||||||
Investments reported at NAV | 108,487 | ||||||||||||||||||||||||||||
Total | $ | 6,020,591 | |||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | 0 | $ | 0 | $ | (20,193) | $ | (20,193) | |||||||||||||||||||||
Other liabilities: Free-standing derivatives | 0 | (5,808) | 0 | $ | 287 | (5,521) | |||||||||||||||||||||||
Total recurring basis liabilities | $ | 0 | $ | (5,808) | $ | (20,193) | $ | 287 | $ | (25,714) | |||||||||||||||||||
% of total liabilities at fair value | 0 | % | 22.6 | % | 78.5 | % | (1.1) | % | 100.0 | % |
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The following table summarizes the Company’s assets and liabilities measured at fair value as of December 31, 2019.
($ in thousands) | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Counterparty and cash collateral netting | Total | ||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Fixed income securities: | |||||||||||||||||||||||||||||
U.S. government and agencies | $ | 2,250 | $ | 50,564 | $ | 0 | $ | 52,814 | |||||||||||||||||||||
Municipal | 0 | 530,584 | 21,696 | 552,280 | |||||||||||||||||||||||||
Corporate - public | 0 | 2,688,680 | 5,221 | 2,693,901 | |||||||||||||||||||||||||
Corporate - privately placed | 0 | 962,072 | 19,272 | 981,344 | |||||||||||||||||||||||||
Foreign government | 0 | 140,166 | 0 | 140,166 | |||||||||||||||||||||||||
MBS | 0 | 13,857 | 0 | 13,857 | |||||||||||||||||||||||||
Total fixed income securities | 2,250 | 4,385,923 | 46,189 | 4,434,362 | |||||||||||||||||||||||||
Equity securities | 265,195 | 858 | 8,080 | 274,133 | |||||||||||||||||||||||||
Short-term investments | 124,763 | 99,335 | 0 | 224,098 | |||||||||||||||||||||||||
Other investments: Free-standing derivatives | 0 | 6,008 | 75 | $ | (846) | 5,237 | |||||||||||||||||||||||
Separate account assets | 265,546 | 0 | 0 | 265,546 | |||||||||||||||||||||||||
Other assets | 0 | 0 | 231,491 | 231,491 | |||||||||||||||||||||||||
Total recurring basis assets | $ | 657,754 | $ | 4,492,124 | $ | 285,835 | $ | (846) | $ | 5,434,867 | |||||||||||||||||||
% of total assets at fair value | 12.1 | % | 82.6 | % | 5.3 | % | 0 | % | 100.0 | % | |||||||||||||||||||
Investments reported at NAV | 109,066 | ||||||||||||||||||||||||||||
Total | $ | 5,543,933 | |||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | 0 | $ | 0 | $ | (16,653) | $ | (16,653) | |||||||||||||||||||||
Other liabilities: Free-standing derivatives | 0 | (2,920) | 0 | $ | 15 | (2,905) | |||||||||||||||||||||||
Total recurring basis liabilities | $ | 0 | $ | (2,920) | $ | (16,653) | $ | 15 | $ | (19,558) | |||||||||||||||||||
% of total liabilities at fair value | 0 | % | 15.0 | % | 85.1 | % | (0.1) | % | 100.0 | % |
The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.
($ in thousands) | Fair value | Valuation technique | Unobservable input | Range | Weighted average | ||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||
Other assets – Structured settlement annuity reinsurance agreement | $ | 313,900 | Stochastic cash flow model | Ultimate reinvestment spreads | 119.0 - 226.0 basis points | 170.3 basis points | |||||||||||||||||||||||
Derivatives embedded in life contracts – equity-indexed and forward starting options | $ | (19,478) | Stochastic cash flow model | Projected option cost | 3.9 - 4.2% | 4.01% | |||||||||||||||||||||||
December 31, 2019 | |||||||||||||||||||||||||||||
Other assets – Structured settlement annuity reinsurance agreement | $ | 231,491 | Stochastic cash flow model | Ultimate reinvestment spreads | 129.8 - 203.6 basis points | 165.7 basis points | |||||||||||||||||||||||
Derivatives embedded in life contracts - equity indexed and forward starting options | $ | (14,239) | Stochastic cash flow model | Projected option cost | 3.9 - 4.2% | 4.00% |
If the ultimate reinvestment spreads increased (decreased), it would result in a lower (higher) fair value for the structured settlement annuity reinsurance agreement. The embedded derivatives are equity-indexed and forward starting options in certain life products that provide customers with interest crediting rates based on the performance of the S&P 500. If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value.
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As of December 31, 2020 and 2019, Level 3 fair value measurements of fixed income securities total $26.8 million and $46.2 million, respectively, and include $9.6 million and $8.4 million, respectively, of securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. As the Company does not develop the Level 3 fair value unobservable inputs for these fixed income securities, they are not included in the table above. However, an increase (decrease) in credit spreads for fixed income securities valued based on non-binding broker quotes would result in a lower (higher) fair value.
The following table presents the rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2020.
($ in thousands) | Total gains (losses) included in: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2019 | Net income | OCI | Transfers into Level 3 | Transfers out of Level 3 | Purchases | Sales | Issues | Settlements | Balance as of December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Municipal | $ | 21,696 | $ | (30) | $ | 87 | $ | 6,013 | $ | (10,619) | $ | 0 | $ | (866) | $ | 0 | $ | 0 | $ | 16,281 | ||||||||||||||||||||||||||||||||||||||||||
Corporate - public | 5,221 | 1 | 338 | 0 | 0 | 0 | 0 | 0 | 0 | 5,560 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate - privately placed | 19,272 | 11 | (168) | 2,141 | (11,130) | 0 | (4,685) | 0 | (466) | 4,975 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total fixed income securities | 46,189 | (18) | 257 | 8,154 | (21,749) | 0 | (5,551) | 0 | (466) | 26,816 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 8,080 | (310) | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 7,771 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Free-standing derivatives, net | 75 | (38) | 0 | 0 | 0 | 25 | 0 | 0 | (39) | 23 | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets | 231,491 | 82,409 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 313,900 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total recurring Level 3 assets | $ | 285,835 | $ | 82,043 | $ | 257 | $ | 8,154 | $ | (21,749) | $ | 26 | $ | (5,551) | $ | 0 | $ | (505) | $ | 348,510 | ||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | (16,653) | $ | (1,822) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | (2,763) | $ | 1,045 | $ | (20,193) | ||||||||||||||||||||||||||||||||||||||||||
Total recurring Level 3 liabilities | $ | (16,653) | $ | (1,822) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | (2,763) | $ | 1,045 | $ | (20,193) |
____________________
(1)Comprises $23 thousand of assets.
The following table presents the total Level 3 gains (losses) included in net income for the year ended December 31, 2020.
($ in thousands) | Net investment income | Realized capital gains and losses | Contract benefits | Interest credited to contractholder funds | Total | |||||||||||||||||||||||||||
Components of net income | $ | (1,467) | $ | 83,510 | $ | 1,699 | $ | (3,521) | $ | 80,221 |
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The following table presents the rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2019.
($ in thousands) | Total gains (losses) included in: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2018 | Net income | OCI | Transfers into Level 3 | Transfers out of Level 3 | Purchases | Sales | Issues | Settlements | Balance as of December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Municipal | $ | 20,821 | $ | 0 | $ | 1,695 | $ | 0 | $ | 0 | $ | 0 | $ | (820) | $ | 0 | $ | 0 | $ | 21,696 | ||||||||||||||||||||||||||||||||||||||||||
Corporate - public | 6,761 | 1 | 542 | 0 | (2,083) | 0 | 0 | 0 | 0 | 5,221 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate - privately placed | 11,190 | 6 | 422 | 13,987 | 0 | 0 | 0 | 0 | (6,333) | 19,272 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total fixed income securities | 38,772 | 7 | 2,659 | 13,987 | (2,083) | 0 | (820) | 0 | (6,333) | 46,189 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 12,162 | 2,653 | 0 | 0 | (16) | 210 | (6,768) | 0 | (161) | 8,080 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Free-standing derivatives, net | 394 | (200) | 0 | 0 | 0 | 18 | 0 | 0 | (137) | 75 | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets | 169,386 | 62,105 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 231,491 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total recurring Level 3 assets | $ | 220,714 | $ | 64,565 | $ | 2,659 | $ | 13,987 | $ | (2,099) | $ | 228 | $ | (7,588) | $ | 0 | $ | (6,631) | $ | 285,835 | ||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | (3,801) | $ | (1,664) | $ | 0 | $ | (10,128) | $ | 0 | $ | 0 | $ | 0 | $ | (1,283) | $ | 223 | $ | (16,653) | ||||||||||||||||||||||||||||||||||||||||||
Total recurring Level 3 liabilities | $ | (3,801) | $ | (1,664) | $ | 0 | $ | (10,128) | $ | 0 | $ | 0 | $ | 0 | $ | (1,283) | $ | 223 | $ | (16,653) |
____________________
(1)Comprises $75 thousand of assets.
The following table presents the total Level 3 gains (losses) included in net income for the year ended December 31, 2019.
($ in thousands) | Net investment income | Realized capital gains and losses | Contract benefits | Interest credited to contractholder funds | Total | |||||||||||||||||||||||||||
Components of net income | $ | (535) | $ | 65,100 | $ | 987 | $ | (2,651) | $ | 62,901 |
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The following table presents the rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2018.
($ in thousands) | Total gains (losses) included in: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2017 | Net income | OCI | Transfers into Level 3 | Transfers out of Level 3 | Purchases | Sales | Issues | Settlements | Balance as of December 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Municipal | $ | 21,178 | $ | 0 | $ | (357) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 20,821 | ||||||||||||||||||||||||||||||||||||||||||
Corporate - public | 7,312 | 1 | (383) | 0 | 0 | 0 | 0 | 0 | (169) | 6,761 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate - privately placed | 55,979 | 4 | (639) | 0 | (22,957) | 0 | 0 | 0 | (21,197) | 11,190 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
ABS | 15,205 | 0 | (205) | 0 | 0 | 0 | 0 | 0 | (15,000) | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total fixed income securities | 99,674 | 5 | (1,584) | 0 | (22,957) | 0 | 0 | 0 | (36,366) | 38,772 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 7,159 | 2,600 | (5) | 0 | 0 | 3,723 | (1,315) | 0 | 0 | 12,162 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Free-standing derivatives, net | 336 | 65 | 0 | 0 | 0 | 66 | 0 | 0 | (73) | 394 | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets | 166,290 | 3,096 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 169,386 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total recurring Level 3 assets | $ | 273,459 | $ | 5,766 | $ | (1,589) | $ | 0 | $ | (22,957) | $ | 3,789 | $ | (1,315) | $ | 0 | $ | (36,439) | $ | 220,714 | ||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | (4,796) | $ | 995 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | (3,801) | ||||||||||||||||||||||||||||||||||||||||||
Total recurring Level 3 liabilities | $ | (4,796) | $ | 995 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | (3,801) |
____________________
(1)Comprises $394 thousand of assets.
The following table presents the total Level 3 gains (losses) included in net income for the year ended December 31, 2018.
($ in thousands) | Net investment income | Realized capital gains and losses | Contract benefits | Interest credited to contractholder funds | Total | |||||||||||||||||||||||||||
Components of net income | $ | 3 | $ | 5,763 | $ | (326) | $ | 1,321 | $ | 6,761 |
Transfers into Level 3 during 2020, 2019 and 2018 included situations where a quote was not provided by the Company’s independent third-party valuation service provider and as a result the price was stale or had been replaced with a broker quote where the inputs had not been corroborated to be market observable resulting in the security being classified as Level 3. Transfers into Level 3 during 2019 also included derivatives embedded in equity-indexed universal life contracts due to refinements in the valuation modeling resulting in an increase in significance of non-market observable inputs.
Transfers out of Level 3 during 2020, 2019 and 2018 included situations where a broker quote was used in the prior period and a quote became available from the Company’s independent third-party valuation service provider in the current period. A quote utilizing the new pricing source was not available as of the prior period, and any gains or losses related to the change in valuation source for individual securities were not significant.
36
The table below provides valuation changes included in net income and OCI for Level 3 assets and liabilities held as of December 31.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Assets | |||||||||||||||||
Fixed income securities: | |||||||||||||||||
Municipal | $ | (30) | $ | 0 | $ | 0 | |||||||||||
Corporate - public | 1 | 1 | 1 | ||||||||||||||
Corporate - privately placed | 2 | 2 | 2 | ||||||||||||||
Total fixed income securities | (27) | 3 | 3 | ||||||||||||||
Free-standing derivatives, net | (38) | (200) | 65 | ||||||||||||||
Equity securities | (310) | 82 | 2,594 | ||||||||||||||
Other assets | 82,409 | 62,105 | 3,096 | ||||||||||||||
Total recurring Level 3 assets | $ | 82,034 | $ | 61,990 | $ | 5,758 | |||||||||||
Liabilities | |||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | (1,822) | $ | (1,664) | $ | 995 | |||||||||||
Total recurring Level 3 liabilities | $ | (1,822) | $ | (1,664) | $ | 995 | |||||||||||
Total included in net income | $ | 80,212 | $ | 60,326 | $ | 6,753 | |||||||||||
Components of net income | |||||||||||||||||
Net investment income | $ | (1,467) | $ | (535) | $ | 3 | |||||||||||
Realized capital gains (losses) | 83,501 | 62,525 | 5,755 | ||||||||||||||
Contract benefits | 1,699 | 987 | (326) | ||||||||||||||
Interest credited to contractholder funds | (3,521) | (2,651) | 1,321 | ||||||||||||||
Total included in net income | $ | 80,212 | $ | 60,326 | $ | 6,753 | |||||||||||
Assets | |||||||||||||||||
Municipal | $ | 87 | |||||||||||||||
Corporate - public | 338 | ||||||||||||||||
Corporate - privately placed | 27 | ||||||||||||||||
Changes in unrealized net capital gains and losses reported in OCI (1) | $ | 452 |
___________________
(1)Effective January 1, 2020, the Company adopted the fair value accounting standard that prospectively requires the disclosure of valuation changes reported in OCI.
Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.
($ in thousands) | December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||
Financial assets | Fair value level | Amortized cost, net | Fair value | Amortized cost, net | Fair value | |||||||||||||||||||||||||||
Mortgage loans | Level 3 | $ | 621,702 | $ | 660,862 | $ | 733,258 | $ | 764,201 | |||||||||||||||||||||||
Financial liabilities | Fair value level | Carrying value (1) | Fair value | Carrying value (1) | Fair value | |||||||||||||||||||||||||||
Contractholder funds on investment contracts | Level 3 | $ | 1,504,295 | $ | 1,735,933 | $ | 1,605,574 | $ | 1,730,341 | |||||||||||||||||||||||
Liability for collateral | Level 2 | 76,393 | 76,393 | 158,111 | 158,111 |
___________________
(1)Represents the amounts reported on the Statements of Financial Position.
7. Derivative Financial Instruments and Off-balance sheet Financial Instruments
The Company uses derivatives for risk reduction focused on managing the risks with certain assets and liabilities arising from the potential adverse impacts from changes in risk-free interest rates, changes in equity market valuations and foreign currency fluctuations.
Asset-liability management is a risk management strategy that is principally employed to balance the respective interest-rate sensitivities of the Company’s assets and liabilities. Depending upon the attributes of the assets acquired and liabilities issued, derivative instruments such as interest rate caps are utilized to change the interest rate characteristics of existing assets and liabilities to ensure the relationship is maintained within specified ranges and to reduce exposure to rising or falling interest rates. Futures and options are used for hedging the equity exposure contained in the Company’s equity-indexed life product
37
contracts that offer equity returns to contractholders. Foreign currency forwards are primarily used by the Company to reduce the foreign currency risk associated with holding foreign currency denominated investments. The Company also has a reinsurance treaty that is recorded as a derivative instrument, under which it primarily cedes reinvestment related risk on its structured settlement annuities to ALIC.
The Company also has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of embedded derivatives reported in net income. The Company’s primary embedded derivatives are guaranteed minimum accumulation and withdrawal benefits in reinsured variable annuity contracts, and equity options in life product contracts, which provide returns linked to equity indices to contractholders.
The notional amounts specified in the contracts are used to calculate the exchange of contractual payments under the agreements and are generally not representative of the potential for gain or loss on these agreements.
Fair value, which is equal to the carrying value, is the estimated amount that the Company would receive or pay to terminate the derivative contracts at the reporting date. The carrying value amounts for OTC derivatives are further adjusted for the effects, if any, of enforceable master netting agreements and are presented on a net basis, by counterparty agreement, in the Statements of Financial Position.
Non-hedge accounting is generally used for “portfolio” level hedging strategies where the terms of the individual hedged items do not meet the strict homogeneity requirements to permit the application of hedge accounting. For non-hedge derivatives, net income includes changes in fair value and accrued periodic settlements, when applicable. With the exception of non-hedge embedded derivatives, all of the Company’s derivatives are evaluated for their ongoing effectiveness as either accounting hedge or non-hedge derivative financial instruments on at least a quarterly basis.
The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Statement of Financial Position as of December 31, 2020. None of these derivatives are designated as accounting hedging instruments.
($ in thousands, except number of contracts) | Volume (1) | ||||||||||||||||||||||||||||||||||
Balance sheet location | Notional amount | Number of contracts | Fair value, net | Gross asset | Gross liability | ||||||||||||||||||||||||||||||
Asset derivatives | |||||||||||||||||||||||||||||||||||
Interest rate contracts | |||||||||||||||||||||||||||||||||||
Interest rate cap agreements | Other investments | $ | 13,100 | n/a | $ | 23 | $ | 23 | $ | 0 | |||||||||||||||||||||||||
Equity and index contracts | |||||||||||||||||||||||||||||||||||
Options | Other investments | n/a | 132 | 8,000 | 8,000 | $ | 0 | ||||||||||||||||||||||||||||
Foreign currency contracts | |||||||||||||||||||||||||||||||||||
Foreign currency forwards | Other investments | 3,513 | n/a | (200) | 17 | (217) | |||||||||||||||||||||||||||||
Other contracts | |||||||||||||||||||||||||||||||||||
Structured settlement annuity reinsurance agreement | Other assets | n/a | 1 | 313,900 | 313,900 | 0 | |||||||||||||||||||||||||||||
Total asset derivatives | $ | 16,613 | 133 | $ | 321,723 | $ | 321,940 | $ | (217) | ||||||||||||||||||||||||||
Liability derivatives | |||||||||||||||||||||||||||||||||||
Equity and index contracts | |||||||||||||||||||||||||||||||||||
Options | Other liabilities & accrued expenses | n/a | 132 | $ | (5,411) | $ | 0 | $ | (5,411) | ||||||||||||||||||||||||||
Foreign currency contracts | |||||||||||||||||||||||||||||||||||
Foreign currency forwards | Other liabilities & accrued expenses | 11,071 | n/a | 250 | 430 | (180) | |||||||||||||||||||||||||||||
Embedded derivative financial instruments | |||||||||||||||||||||||||||||||||||
Guaranteed accumulation benefits | Contractholder funds | 18,322 | n/a | (423) | 0 | (423) | |||||||||||||||||||||||||||||
Guaranteed withdrawal benefits | Contractholder funds | 14,146 | n/a | (292) | 0 | (292) | |||||||||||||||||||||||||||||
Equity-indexed options in life product contracts | Contractholder funds | 52,340 | n/a | (19,478) | 0 | (19,478) | |||||||||||||||||||||||||||||
Total liability derivatives | 95,879 | 132 | (25,354) | $ | 430 | $ | (25,784) | ||||||||||||||||||||||||||||
Total derivatives | $ | 112,492 | 265 | $ | 296,369 |
_________________
(1)Volume for OTC derivative contracts is represented by their notional amounts. Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded. (n/a = not applicable)
38
The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Statement of Financial Position as of December 31, 2019. None of these derivatives are designated as accounting hedging instruments.
($ in thousands, except number of contracts) | Volume | ||||||||||||||||||||||||||||||||||
Balance sheet location | Notional amount | Number of contracts | Fair value, net | Gross asset | Gross liability | ||||||||||||||||||||||||||||||
Asset derivatives | |||||||||||||||||||||||||||||||||||
Equity and index contracts | |||||||||||||||||||||||||||||||||||
Options | Other investments | n/a | 140 | $ | 5,232 | $ | 5,232 | 0 | |||||||||||||||||||||||||||
Other contracts | |||||||||||||||||||||||||||||||||||
Structured settlement annuity reinsurance agreement | Other assets | n/a | 0 | 231,491 | 231,491 | 0 | |||||||||||||||||||||||||||||
Total asset derivatives | 140 | $ | 236,723 | $ | 236,723 | $ | 0 | ||||||||||||||||||||||||||||
Liability derivatives | |||||||||||||||||||||||||||||||||||
Interest rate contracts | |||||||||||||||||||||||||||||||||||
Interest rate cap agreements | Other liabilities & accrued expenses | $ | 13,400 | n/a | $ | 75 | $ | 75 | $ | 0 | |||||||||||||||||||||||||
Equity and index contracts | |||||||||||||||||||||||||||||||||||
Options | Other liabilities & accrued expenses | n/a | 139 | (2,832) | 0 | (2,832) | |||||||||||||||||||||||||||||
Futures | Other liabilities & accrued expenses | n/a | 1 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
Foreign currency contracts | |||||||||||||||||||||||||||||||||||
Foreign currency forwards | Other liabilities & accrued expenses | 17,984 | n/a | 683 | 771 | (88) | |||||||||||||||||||||||||||||
Embedded derivative financial instruments | |||||||||||||||||||||||||||||||||||
Guaranteed accumulation benefits | Contractholder funds | 23,629 | n/a | (1,987) | 0 | (1,987) | |||||||||||||||||||||||||||||
Guaranteed withdrawal benefits | Contractholder funds | 15,369 | n/a | (427) | 0 | (427) | |||||||||||||||||||||||||||||
Equity-indexed options in life product contracts | Contractholder funds | 43,855 | n/a | (14,239) | 0 | (14,239) | |||||||||||||||||||||||||||||
Total liability derivatives | 114,237 | 140 | (18,727) | $ | 846 | $ | (19,573) | ||||||||||||||||||||||||||||
Total derivatives | $ | 114,237 | 280 | $ | 217,996 |
The following table provides gross and net amounts for the Company’s OTC derivatives, all of which are subject to enforceable master netting agreements.
($ in thousands) | Offsets | ||||||||||||||||||||||||||||||||||
Gross amount | Counter- party netting | Cash collateral (received) pledged | Net amount on balance sheet | Securities collateral (received) pledged | Net amount | ||||||||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||||||||
Asset derivatives | $ | 470 | $ | (647) | $ | 270 | $ | 93 | $ | 0 | $ | 93 | |||||||||||||||||||||||
Liability derivatives | (397) | 647 | (360) | (110) | 0 | (110) | |||||||||||||||||||||||||||||
December 31, 2019 | |||||||||||||||||||||||||||||||||||
Asset derivatives | $ | 846 | $ | (846) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||||||||
Liability derivatives | (88) | 846 | (831) | (73) | 0 | (73) |
39
The following tables present gains and losses from valuation and settlements reported on derivatives in the Statements of Operations and Comprehensive Income.
($ in thousands) | Realized capital gains and losses | Contract benefits | Interest credited to contractholder funds | Total gain (loss) recognized in net income on derivatives | |||||||||||||||||||
2020 | |||||||||||||||||||||||
Interest rate contracts | $ | (37) | $ | 0 | $ | 0 | $ | (37) | |||||||||||||||
Equity and index contracts | (1) | 0 | 845 | 844 | |||||||||||||||||||
Embedded derivative financial instruments | 0 | 1,699 | (5,239) | (3,540) | |||||||||||||||||||
Foreign currency contracts | (304) | 0 | 0 | (304) | |||||||||||||||||||
Other contracts - structured settlement annuity reinsurance agreement | 100,754 | 0 | 0 | 100,754 | |||||||||||||||||||
Total | $ | 100,412 | $ | 1,699 | $ | (4,394) | $ | 97,717 | |||||||||||||||
2019 | |||||||||||||||||||||||
Interest rate contracts | $ | (200) | $ | 0 | $ | 0 | $ | (200) | |||||||||||||||
Equity and index contracts | 1 | 0 | 1,987 | 1,988 | |||||||||||||||||||
Embedded derivative financial instruments | 0 | 987 | (3,711) | (2,724) | |||||||||||||||||||
Foreign currency contracts | 364 | 0 | 0 | 364 | |||||||||||||||||||
Other contracts - structured settlement annuity reinsurance agreement | 58,922 | 0 | 0 | 58,922 | |||||||||||||||||||
Total | $ | 59,087 | $ | 987 | $ | (1,724) | $ | 58,350 | |||||||||||||||
2018 | |||||||||||||||||||||||
Interest rate contracts | $ | 65 | $ | 0 | $ | 0 | $ | 65 | |||||||||||||||
Equity and index contracts | 0 | 0 | (768) | (768) | |||||||||||||||||||
Embedded derivative financial instruments | 0 | (326) | 1,321 | 995 | |||||||||||||||||||
Foreign currency contracts | 887 | 0 | 0 | 887 | |||||||||||||||||||
Other contracts - structured settlement annuity reinsurance agreement | (314) | 0 | 0 | (314) | |||||||||||||||||||
Total | $ | 638 | $ | (326) | $ | 553 | $ | 865 |
The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally enforceable master netting agreements (“MNAs”) and obtaining collateral where appropriate. The Company uses MNAs for OTC derivative transactions that permit either party to net payments due for transactions and collateral is either pledged or obtained when certain predetermined exposure limits are exceeded. As of December 31, 2020, counterparties pledged $360 thousand in collateral to the Company, and the Company pledged $270 thousand in cash and securities to counterparties posted under MNAs for contracts without credit-risk contingent features. The Company has not incurred any losses on derivative financial instruments due to counterparty nonperformance. Other derivatives, including futures and certain option contracts, are traded on organized exchanges which require margin deposits and guarantee the execution of trades, thereby mitigating any potential credit risk.
Counterparty credit exposure represents the Company’s potential loss if all of the counterparties concurrently fail to perform under the contractual terms of the contracts and all collateral, if any, becomes worthless. This exposure is measured by the fair value of OTC derivative contracts with a positive fair value at the reporting date reduced by the effect, if any, of legally enforceable master netting agreements.
The following table summarizes the counterparty credit exposure as of December 31 by counterparty credit rating as it relates to the Company’s OTC derivatives.
($ in thousands) | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
Rating (1) | Number of counter-parties | Notional amount (2) | Credit exposure (2) | Exposure, net of collateral (2) | Number of counter-parties | Notional amount (2) | Credit exposure (2) | Exposure, net of collateral (2) | ||||||||||||||||||||||||||||||||||||||||||
A+ | 1 | $ | 8,341 | $ | 349 | $ | 0 | 2 | $ | 30,670 | $ | 770 | $ | 0 | ||||||||||||||||||||||||||||||||||||
_________________
(1)Allstate uses the lower of S&P’s or Moody’s long-term debt issuer ratings.
(2)Only OTC derivatives with a net positive fair value are included for each counterparty.
40
For certain exchange traded derivatives, margin deposits are required as well as daily cash settlements of margin accounts. As of December 31, 2020, the Company pledged $400 thousand in the form of margin deposits.
Market risk is the risk that the Company will incur losses due to adverse changes in market rates and prices. Market risk exists for all of the derivative financial instruments the Company currently holds, as these instruments may become less valuable due to adverse changes in market conditions. To limit this risk, the Company’s senior management has established risk control limits. In addition, changes in fair value of the derivative financial instruments that the Company uses for risk management purposes are generally offset by the change in the fair value or cash flows of the hedged risk component of the related assets, liabilities or forecasted transactions.
Certain of the Company’s derivative instruments contain credit-risk-contingent cross-default provisions. Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative agreement if the Company defaults by pre-determined threshold amounts on certain debt instruments.
The following summarizes the fair value of derivative instruments with credit-risk-contingent features that are in a gross liability position as of December 31, as well as the fair value of assets and collateral that are netted against the liability in accordance with provisions within legally enforceable MNAs.
($ in thousands) | 2020 | 2019 | |||||||||
Gross liability fair value of contracts containing credit-risk-contingent features | $ | 101 | $ | 83 | |||||||
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs | (2) | (70) | |||||||||
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently | $ | 99 | $ | 13 |
Off-balance sheet financial instruments
The contractual amounts of off-balance sheet financial instruments as of December 31 are as follows:
($ in thousands) | 2020 | 2019 | |||||||||
Commitments to invest in limited partnership interests | $ | 98,858 | $ | 127,515 | |||||||
Commitments to extend mortgage loans | 0 | 13,000 | |||||||||
Private placement commitments | 21 | 15,000 | |||||||||
In the preceding table, the contractual amounts represent the amount at risk if the contract is fully drawn upon, the counterparty defaults and the value of any underlying security becomes worthless. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet financial instruments with credit risk.
Commitments to invest in limited partnership interests represent agreements to acquire new or additional participation in certain limited partnership investments. The Company enters into these agreements in the normal course of business. Because the investments in limited partnerships are not actively traded, it is not practical to estimate the fair value of these commitments.
Commitments to extend mortgage loans are agreements to lend to a borrower provided there is no violation of any condition established in the contract. The Company enters into these agreements to commit to future loan fundings at predetermined interest rates. Commitments generally have fixed expiration dates or other termination clauses. The fair value of these commitments is insignificant.
Private placement commitments represent commitments to purchase private placement private debt and equity securities at a future date. The Company enters into these agreements in the normal course of business. The fair value of the debt commitments generally cannot be estimated on the date the commitment is made as the terms and conditions of the underlying private placement securities are not yet final. Because the private equity securities are not actively traded, it is not practical to estimate fair value of the commitments.
41
8. Reserve for Life-Contingent Contract Benefits and Contractholder Funds
As of December 31, the reserve for life-contingent contract benefits consists of the following:
($ in thousands) | 2020 | 2019 | |||||||||
Immediate fixed annuities: | |||||||||||
Structured settlement annuities | $ | 2,347,415 | $ | 2,051,363 | |||||||
Other immediate fixed annuities | 58,832 | 61,039 | |||||||||
Traditional life insurance | 273,067 | 265,971 | |||||||||
Accident and health insurance | 18,218 | 32,261 | |||||||||
Other | 851 | 1,175 | |||||||||
Total reserve for life-contingent contract benefits | $ | 2,698,383 | $ | 2,411,809 |
The following table highlights the key assumptions generally used in calculating the reserve for life-contingent contract benefits.
Product | Mortality | Interest rate | Estimation method | |||||||||||||||||
Structured settlement annuities | Actual company experience with projected calendar year improvements | 6.0% | Present value of contractually specified future benefits and expenses | |||||||||||||||||
Other immediate fixed annuities | Actual company experience with projected calendar year improvements | 6.0% | Present value of expected future benefits and expenses | |||||||||||||||||
Traditional life insurance | Actual company experience plus loading | Interest rate assumptions range from 3.0% to 8.0% | Net level premium reserve method using the Company’s withdrawal experience rates; includes reserves for unpaid claims | |||||||||||||||||
Accident and health insurance | Actual company experience plus loading | Interest rate assumptions range from 3.5% to 6.0% | Unearned premium; additional contract reserves for mortality risk and unpaid claims | |||||||||||||||||
Other: Variable annuity guaranteed minimum death benefits (1) | Annuity 2012 mortality table with internal modifications | Interest rate assumptions range from 1.4% to 5.8% | Projected benefit ratio applied to cumulative assessments |
______________________
(1)In 2006, the Company disposed of its variable annuity business through a reinsurance agreement with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. (collectively “Prudential”).
In the third quarter of 2020, the premium deficiency evaluation of the Company’s immediate annuities with life contingencies resulted in a premium deficiency reserve of $196.0 million. The long-term investment yield assumption was lowered, which resulted in the prior sufficiency changing to a deficiency. The deficiency was recognized as an increase in the reserve for life contingent contract benefits. The original assumptions used to establish reserves were updated to reflect current assumptions, and the primary changes included mortality expectations, where annuitants are living longer than originally anticipated, and long-term investment yields. In 2019, the Company’s reviews concluded that no premium deficiency adjustments were necessary.
To the extent that unrealized gains on fixed income securities would result in a premium deficiency had those gains actually been realized, an insurance reserves adjustment is recorded for certain immediate annuities with life contingencies. This liability is included in the reserve for life-contingent contract benefits with respect to this unrealized deficiency. The offset to this liability is recorded as a reduction of the unrealized net capital gains included in AOCI. This liability was $321.6 million and $231.4 million as of December 31, 2020 and 2019, respectively.
42
As of December 31, contractholder funds consist of the following:
($ in thousands) | 2020 | 2019 | |||||||||
Interest-sensitive life insurance | $ | 773,531 | $ | 756,995 | |||||||
Investment contracts: | |||||||||||
Fixed annuities | 1,639,591 | 1,741,488 | |||||||||
Other investment contracts | 51,648 | 49,485 | |||||||||
Total contractholder funds | $ | 2,464,770 | $ | 2,547,968 |
The following table highlights the key contract provisions relating to contractholder funds.
Product | Interest rate | Withdrawal/surrender charges | ||||||||||||
Interest-sensitive life insurance | Interest rates credited range from 0.0% to 8.3% for equity-indexed life (whose returns are indexed to the S&P 500) and 2.0% to 5.1% for all other products | Either a percentage of account balance or dollar amount grading off generally over 20 years | ||||||||||||
Fixed annuities | Interest rates credited range from 0.6% to 7.0% for immediate annuities and 1.0% to 5.0% for other fixed annuities | Either a declining or a level percentage charge generally over ten years or less. Additionally, approximately 12.2% of fixed annuities are subject to market value adjustment for discretionary withdrawals | ||||||||||||
Other investment contracts: Guaranteed minimum income, accumulation and withdrawal benefits on variable annuities (1) and secondary guarantees on interest-sensitive life insurance and fixed annuities | Interest rates used in establishing reserves range from 1.7% to 10.3% | Withdrawal and surrender charges are based on the terms of the related variable annuity or interest-sensitive life contract |
_______________________
(1)In 2006, the Company disposed of its variable annuity business through a reinsurance agreement with Prudential.
Contractholder funds activity for the years ended December 31 is as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Balance, beginning of year | $ | 2,547,968 | $ | 2,681,300 | $ | 2,874,884 | |||||||||||
Deposits | 104,355 | 104,850 | 107,606 | ||||||||||||||
Interest credited | 83,769 | 86,338 | 91,430 | ||||||||||||||
Benefits | (102,483) | (104,681) | (114,006) | ||||||||||||||
Surrenders and partial withdrawals | (100,697) | (152,898) | (190,873) | ||||||||||||||
Contract charges | (76,801) | (75,879) | (75,483) | ||||||||||||||
Net transfers (to) from separate accounts | (84) | 88 | 256 | ||||||||||||||
Other adjustments | 8,743 | 8,850 | (12,514) | ||||||||||||||
Balance, end of year | $ | 2,464,770 | $ | 2,547,968 | $ | 2,681,300 |
The Company offered various guarantees to variable annuity contractholders. In 2006, the Company disposed of its variable annuity business through a reinsurance agreement with Prudential. Liabilities for variable contract guarantees related to death benefits are included in the reserve for life-contingent contract benefits and the liabilities related to the income, withdrawal and accumulation benefits are included in contractholder funds. All liabilities for variable contract guarantees are reported on a gross basis on the balance sheet with a corresponding reinsurance recoverable asset.
Absent any contract provision wherein the Company guarantees either a minimum return or account value upon death, a specified contract anniversary date, partial withdrawal or annuitization, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts’ funds may not meet their stated investment objectives. The account balances of variable annuity contracts’ separate accounts with guarantees included $237.9 million and $222.2 million of equity, fixed income and balanced mutual funds and $22.3 million and $21.7 million of money market mutual funds as of December 31, 2020 and 2019, respectively.
43
The table below presents information regarding the Company’s variable annuity contracts with guarantees. The Company’s variable annuity contracts may offer more than one type of guarantee in each contract; therefore, the sum of amounts listed exceeds the total account balances of variable annuity contracts’ separate accounts with guarantees.
($ in thousands) | As of December 31, | ||||||||||
2020 | 2019 | ||||||||||
In the event of death | |||||||||||
Separate account value | $ | 260,159 | $ | 243,833 | |||||||
Net amount at risk (1) | $ | 4,081 | $ | 4,392 | |||||||
Average attained age of contractholders | 71 years | 68 years | |||||||||
At annuitization (includes income benefit guarantees) | |||||||||||
Separate account value | $ | 21,409 | $ | 18,849 | |||||||
Net amount at risk (2) | $ | 1,674 | $ | 1,750 | |||||||
Weighted average waiting period until annuitization options available | None | None | |||||||||
For cumulative periodic withdrawals | |||||||||||
Separate account value | $ | 13,999 | $ | 15,173 | |||||||
Net amount at risk (3) | $ | 234 | $ | 421 | |||||||
Accumulation at specified dates | |||||||||||
Separate account value | $ | 18,285 | $ | 24,033 | |||||||
Net amount at risk (4) | $ | 117 | $ | 224 | |||||||
Weighted average waiting period until guarantee date | 2 years | 3 years |
________________________
(1)Defined as the estimated current guaranteed minimum death benefit in excess of the current account balance as of the balance sheet date.
(2)Defined as the estimated present value of the guaranteed minimum annuity payments in excess of the current account balance.
(3)Defined as the estimated current guaranteed minimum withdrawal balance (initial deposit) in excess of the current account balance as of the balance sheet date.
(4)Defined as the estimated present value of the guaranteed minimum accumulation balance in excess of the current account balance.
The liability for death and income benefit guarantees is equal to a benefit ratio multiplied by the cumulative contract charges earned, plus accrued interest less contract excess guarantee benefit payments. The benefit ratio is calculated as the estimated present value of all expected contract excess guarantee benefits divided by the present value of all expected contract charges. The establishment of reserves for these guarantees requires the projection of future fund values, mortality, persistency and customer benefit utilization rates. These assumptions are periodically reviewed and updated. For guarantees related to death benefits, benefits represent the projected excess guaranteed minimum death benefit payments. For guarantees related to income benefits, benefits represent the present value of the minimum guaranteed annuitization benefits in excess of the projected account balance at the time of annuitization.
Projected benefits and contract charges used in determining the liability for certain guarantees are developed using models and stochastic scenarios that are also used in the development of estimated expected gross profits. Underlying assumptions for the liability related to income benefits include assumed future annuitization elections based on factors such as the extent of benefit to the potential annuitant, eligibility conditions and the annuitant’s attained age. The liability for guarantees is re-evaluated periodically, and adjustments are made to the liability balance through a charge or credit to contract benefits.
Guarantees related to withdrawal and accumulation benefits are considered to be derivative financial instruments; therefore, the liability for these benefits is established based on its fair value.
44
The following table summarizes the liabilities for guarantees.
($ in thousands) | Liability for guarantees related to death benefits and interest-sensitive life products | Liability for guarantees related to income benefits | Liability for guarantees related to accumulation and withdrawal benefits | Total | |||||||||||||||||||
Balance, December 31, 2019 | $ | 34,135 | $ | 336 | $ | 2,414 | $ | 36,885 | |||||||||||||||
Less reinsurance recoverables | 1,189 | 333 | 2,414 | 3,936 | |||||||||||||||||||
Net balance as of December 31, 2019 | 32,946 | 3 | 0 | 32,949 | |||||||||||||||||||
Incurred guarantee benefits | 6,041 | 0 | 0 | 6,041 | |||||||||||||||||||
Paid guarantee benefits | (745) | 0 | 0 | (745) | |||||||||||||||||||
Net change | 5,296 | 0 | 0 | 5,296 | |||||||||||||||||||
Net balance as of December 31, 2020 | 38,242 | 3 | 0 | 38,245 | |||||||||||||||||||
Plus reinsurance recoverables | 877 | 267 | 715 | 1,859 | |||||||||||||||||||
Balance, December 31, 2020 | $ | 39,119 | $ | 270 | $ | 715 | $ | 40,104 | |||||||||||||||
Balance, December 31, 2018 | $ | 30,674 | $ | 572 | $ | 3,401 | $ | 34,647 | |||||||||||||||
Less reinsurance recoverables | 1,752 | 568 | 3,401 | 5,721 | |||||||||||||||||||
Net balance as of December 31, 2018 | 28,922 | 4 | 0 | 28,926 | |||||||||||||||||||
Incurred guarantee benefits | 4,412 | (1) | 0 | 4,411 | |||||||||||||||||||
Paid guarantee benefits | (388) | 0 | 0 | (388) | |||||||||||||||||||
Net change | 4,024 | (1) | 0 | 4,023 | |||||||||||||||||||
Net balance as of December 31, 2019 | 32,946 | 3 | 0 | 32,949 | |||||||||||||||||||
Plus reinsurance recoverables | 1,189 | 333 | 2,414 | 3,936 | |||||||||||||||||||
Balance, December 31, 2019 | $ | 34,135 | $ | 336 | $ | 2,414 | $ | 36,885 |
The following table summarizes reserves included in total liability balance for guarantees by type of benefit as of December 31.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Variable annuity | |||||||||||||||||
Death benefits | $ | 851 | $ | 1,174 | $ | 1,752 | |||||||||||
Income benefits | 267 | 333 | 568 | ||||||||||||||
Accumulation benefits | 423 | 1,987 | 3,003 | ||||||||||||||
Withdrawal benefits | 292 | 427 | 398 | ||||||||||||||
Other guarantees | 38,271 | 32,964 | 28,926 | ||||||||||||||
Total | $ | 40,104 | $ | 36,885 | $ | 34,647 |
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9. Reinsurance
The Company reinsures certain of its risks to unaffiliated reinsurers and ALIC under yearly renewable term, coinsurance and modified coinsurance agreements. These agreements result in a passing of the agreed-upon percentage of risk to the reinsurer in exchange for negotiated reinsurance premium payments. Modified coinsurance is similar to coinsurance, except that the cash and investments that support the liability for contract benefits are not transferred to the assuming company and settlements are made on a net basis between the companies.
As of December 31, 2020 and 2019, for certain term life insurance policies, the Company ceded up to 90% of the mortality risk depending on the year of policy issuance. Further, the Company cedes the mortality risk associated with coverage in excess of $2.0 million per life to ALIC. Prior to July 1, 2013, the Company ceded mortality risk in excess of $250 thousand per life to ALIC.
In addition, the Company has used reinsurance to effect the disposition of certain blocks of business. The Company had reinsurance recoverables of $162.9 million and $166.9 million as of December 31, 2020 and 2019, respectively, due from Prudential related to the disposal of its variable annuity business that was effected through reinsurance agreements.
The amounts ceded to Prudential for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Premiums and contract charges | $ | 4,750 | $ | 4,797 | $ | 5,189 | |||||||||||
Contract benefits | (1,524) | (890) | 1,459 | ||||||||||||||
Interest credited to contractholder funds | 4,503 | 4,307 | 4,533 | ||||||||||||||
Operating costs and expenses | 712 | 867 | 868 |
As of December 31, 2020 and 2019, the Company had reinsurance recoverables of $282 thousand and $579 thousand, respectively, due from a subsidiary of Citigroup (Triton Insurance Company) and Scottish Re (U.S.), Inc. in connection with the disposition of the direct response distribution business in 2003.
As of December 31, 2020, the gross life insurance in force was $42.27 billion of which $433.3 million and $7.90 billion were ceded to affiliated and unaffiliated reinsurers, respectively.
The effects of reinsurance on premiums and contract charges for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Direct | $ | 174,812 | $ | 203,614 | $ | 199,289 | |||||||||||
Assumed - non-affiliate | 588 | 697 | 685 | ||||||||||||||
Ceded | |||||||||||||||||
Affiliate | (2,308) | (2,186) | (1,972) | ||||||||||||||
Non-affiliate | (15,674) | (16,359) | (17,361) | ||||||||||||||
Premiums and contract charges, net of reinsurance | $ | 157,418 | $ | 185,766 | $ | 180,641 |
The effects of reinsurance on contract benefits for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Direct | $ | 445,983 | $ | 272,200 | $ | 248,008 | |||||||||||
Assumed - non-affiliate | 324 | 500 | 586 | ||||||||||||||
Ceded | |||||||||||||||||
Affiliate | (945) | (2,354) | (55) | ||||||||||||||
Non-affiliate | (10,721) | (11,333) | (10,961) | ||||||||||||||
Contract benefits, net of reinsurance | $ | 434,641 | $ | 259,013 | $ | 237,578 |
The effects of reinsurance on interest credited to contractholder funds for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Direct | $ | 88,814 | $ | 90,758 | $ | 96,002 | |||||||||||
Assumed - non-affiliate | 13 | 13 | 13 | ||||||||||||||
Ceded - non-affiliate | (4,503) | (4,307) | (4,533) | ||||||||||||||
Interest credited to contractholder funds, net of reinsurance | $ | 84,324 | $ | 86,464 | $ | 91,482 |
In addition to amounts included in the table above are reinsurance premiums ceded to ALIC of $3.3 million, $4.2 million and $3.4 million and settlements received from ALIC of $21.7 million, $1.0 million and 0 in 2020, 2019 and 2018, respectively, under the terms of the structured settlement annuity reinsurance agreement (see Note 4).
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The following table shows the rollforward of the credit loss allowance for reinsurance recoverables for the year ended December 31.
($ in thousands) | 2020 | ||||
Beginning balance | $ | (34) | |||
Cumulative effect of change in accounting principle | (621) | ||||
Decrease in the provision for credit losses | 31 | ||||
Write-offs | 0 | ||||
Ending Balance | $ | (624) |
10. Deferred Policy Acquisition and Sales Inducement Costs
Deferred policy acquisition costs for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Balance, beginning of year | $ | 124,118 | $ | 155,887 | $ | 146,333 | |||||||||||
Acquisition costs deferred | 11,175 | 16,771 | 19,577 | ||||||||||||||
Amortization charged to income | (20,346) | (30,396) | (16,299) | ||||||||||||||
Effect of unrealized gains and losses | (13,735) | (18,144) | 6,276 | ||||||||||||||
Balance, end of year | $ | 101,212 | $ | 124,118 | $ | 155,887 |
DSI activity, which primarily relates to interest-sensitive life contracts, for the years ended December 31 was as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Balance, beginning of year | $ | 1,776 | $ | 2,391 | $ | 2,278 | |||||||||||
Sales inducements deferred | 64 | 125 | 128 | ||||||||||||||
Amortization charged to income | (619) | (251) | (181) | ||||||||||||||
Effect of unrealized gains and losses | 549 | (489) | 166 | ||||||||||||||
Balance, end of year | $ | 1,770 | $ | 1,776 | $ | 2,391 |
11. Guarantees and Contingent Liabilities
Guaranty funds
Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, for certain obligations of insolvent insurance companies to policyholders and claimants. Amounts assessed to each company are typically related to its proportion of business written in each state. The Company’s policy is to accrue assessments when the entity for which the insolvency relates has met its state of domicile’s statutory definition of insolvency and the amount of the loss is reasonably estimable. In most states, the definition is met with a declaration of financial insolvency by a court of competent jurisdiction. In certain states there must also be a final order of liquidation. Since most states allow a credit against premium or other state related taxes for assessments, an asset is recorded based on paid and accrued assessments for the amount the Company expects to recover on the respective state’s tax return and is realized over the period allocated by each state. As of December 31, 2020 and 2019, the liability balance included in other liabilities and accrued expenses was $758 thousand and $759 thousand, respectively. The related premium tax offsets included in other assets were $911 thousand and $916 thousand as of December 31, 2020 and 2019, respectively.
Guarantees
In the normal course of business, the Company provides standard indemnifications to contractual counterparties in connection with numerous transactions, including acquisitions and divestitures. The types of indemnifications typically provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third-party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations.
The aggregate liability balance related to all guarantees was not material as of December 31, 2020.
47
Regulation and compliance
The Company is subject to extensive laws, regulations and regulatory actions. From time to time, regulatory authorities or legislative bodies seek to impose additional regulations regarding agent and broker compensation, regulate the nature of and amount of investments, impose fines and penalties for unintended errors or mistakes, impose additional regulations regarding cybersecurity and privacy, and otherwise expand overall regulation of insurance products and the insurance industry. In addition, the Company is subject to laws and regulations administered and enforced by federal agencies, international agencies, and other organizations, including but not limited to the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the U.S. Department of Justice. The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting. The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies. As a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies. Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs being incurred. The ultimate changes and eventual effects of these actions on the Company’s business, if any, are uncertain.
12. Income Taxes
The Company joins with the Corporation and its other subsidiaries (the “Allstate Group”) in the filing of a consolidated federal income tax return and is party to a federal income tax allocation agreement (the “Allstate Tax Sharing Agreement”). Under the Allstate Tax Sharing Agreement, the Company pays to or receives from the Corporation the amount, if any, by which the Allstate Group’s federal income tax liability is affected by virtue of inclusion of the Company in the consolidated federal income tax return. Effectively, this results in the Company’s annual income tax provision being computed, with adjustments, as if the Company filed a separate return.
Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted through income tax expense as changes in tax laws or rates are enacted.
The Internal Revenue Service (“IRS”) has completed its exam of the Allstate Group’s 2013 through 2016 federal income tax returns. The 2017 and 2018 audit cycle is expected to begin in the first quarter of 2021. Any adjustments that may result from IRS examinations of the Allstate Group’s tax return are not expected to have a material effect on the financial statements.
The Company recognizes tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the financial statements.
The Company had 0 liability for unrecognized tax benefits as of December 31, 2020, 2019 or 2018, and believes that the unrecognized tax benefits balance will not materially increase within the next twelve months.
The components of the deferred income tax assets and liabilities as of December 31 are as follows:
($ in thousands) | 2020 | 2019 | |||||||||
Deferred tax assets | |||||||||||
Accrued liabilities | $ | 25 | $ | 25 | |||||||
Unrealized foreign currency translation adjustments on limited partnerships | 0 | 317 | |||||||||
Other assets | 148 | 20 | |||||||||
Total deferred tax assets | 173 | 362 | |||||||||
Deferred tax liabilities | |||||||||||
Investments | (96,249) | (78,081) | |||||||||
Unrealized net capital gains | (56,038) | (33,151) | |||||||||
DAC | (11,521) | (14,447) | |||||||||
Life and annuity reserves | (2,483) | (29,048) | |||||||||
Unrealized foreign currency translation adjustments on limited partnerships | (180) | 0 | |||||||||
Other liabilities | (583) | (484) | |||||||||
Total deferred tax liabilities | (167,054) | (155,211) | |||||||||
Net deferred tax liability | $ | (166,881) | $ | (154,849) |
Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized based on the Company’s assessment that the deductions ultimately recognized for tax purposes will be fully utilized.
48
The components of income tax (benefit) expense for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Current | $ | (2,078) | $ | 36,766 | $ | 11,257 | |||||||||||
Deferred | (9,915) | (5,840) | 1,570 | ||||||||||||||
Total income tax (benefit) expense | $ | (11,993) | $ | 30,926 | $ | 12,827 |
The Company paid income taxes of $37.2 million, $1.0 million and $16.0 million in 2020, 2019 and 2018, respectively.
A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations for the years ended December 31 is as follows:
2020 | 2019 | 2018 | |||||||||||||||
Statutory federal income tax rate - (benefit) expense | (21.0) | % | 21.0 | % | 21.0 | % | |||||||||||
State income taxes | 3.7 | 1.8 | 5.4 | ||||||||||||||
Adjustments to prior year tax liabilities | (1.1) | 1.4 | (0.1) | ||||||||||||||
Tax Legislation benefit | 0 | 0 | (3.9) | ||||||||||||||
Other | (0.4) | (0.1) | (0.3) | ||||||||||||||
Effective income tax rate - (benefit) expense | (18.8) | % | 24.1 | % | 22.1 | % |
13. Statutory Financial Information and Dividend Limitations
The Company prepares its statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the New York Department of Financial Services (“NYDFS”). Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (“NAIC”), as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed.
The State of New York requires insurance companies domiciled in its state to prepare statutory-basis financial statements in conformity with the NAIC Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the NYDFS. Statutory accounting practices differ from GAAP primarily since they require charging policy acquisition and certain sales inducement costs to expense as incurred, establishing life insurance reserves based on different actuarial assumptions, and valuing certain investments and establishing deferred taxes on a different basis.
Statutory net (loss) income was $(66.1) million, $(34.0) million and $68.0 million in 2020, 2019 and 2018, respectively. Statutory capital and surplus was $555.9 million and $614.2 million as of December 31, 2020 and 2019, respectively.
Dividend Limitations
The ability of the Company to pay dividends is dependent on business conditions, income, cash requirements and other relevant factors. The payment of shareholder dividends by the Company without the prior approval of the NYDFS is limited to formula amounts based on capital and surplus and net gain from operations excluding realized capital gains and losses, determined in conformity with statutory accounting practices, as well as the timing and amount of dividends paid in the preceding twelve months. The Company did 0t pay any dividends in 2020. The Company cannot pay dividends without prior NYDFS approval at any given point in time during 2021. Any dividend must be paid out of unassigned surplus excluding unrealized appreciation from investments, which totaled $317.7 million as of December 31, 2020, and cannot result in capital and surplus being less than the minimum amount required by law.
Under state insurance laws, insurance companies are required to maintain paid up capital of not less than the minimum capital requirement applicable to the types of insurance they are authorized to write. Insurance companies are also subject to risk-based capital (“RBC”) requirements adopted by state insurance regulators. A company’s “authorized control level RBC” is calculated using various factors applied to certain financial balances and activity. Companies that do not maintain adjusted statutory capital and surplus at a level in excess of the company action level RBC, which is two times authorized control level RBC, are required to take specified actions. Company action level RBC is significantly in excess of the minimum capital requirements. Total adjusted statutory capital and surplus and authorized control level RBC of the Company were $643.6 million and $92.1 million, respectively, as of December 31, 2020.
49
14. Benefit Plans
Pension and other postretirement plans
Defined benefit pension plans and other postretirement plans, sponsored by the Corporation, cover most full-time employees, certain part-time employees and employee-agents. Benefits under the pension plans are based upon the employee’s length of service and eligible annual compensation. The Corporation also provides a medical coverage subsidy for eligible employees hired before January 1, 2003, including their eligible dependents, when they retire. In September 2020, the Corporation announced it will eliminate the medical coverage subsidy effective January 1, 2021 for employees who are not eligible to retire as of December 31, 2020. The cost allocated to the Company for these plans was $303 thousand, $609 thousand and $439 thousand in 2020, 2019 and 2018, respectively.
The Corporation has reserved the right to modify or terminate its benefit plans at any time and for any reason.
Allstate 401(k) Savings Plan
Employees of AIC are eligible to become members of the Allstate 401(k) Savings Plan (“Allstate Plan”). The Corporation’s contributions are based on the Corporation’s matching obligation. The cost allocated to the Company for the Allstate Plan was $743 thousand, $953 thousand and $1.0 million in 2020, 2019 and 2018, respectively.
15. Other Comprehensive Income
The components of other comprehensive income (loss) on a pre-tax and after-tax basis for the years ended December 31 are as follows:
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Pre- tax | Tax | After- tax | Pre- tax | Tax | After- tax | Pre- tax | Tax | After- tax | |||||||||||||||||||||||||||||||||||||||||||||
Unrealized net holding gains and losses arising during the period, net of related offsets | $ | 106,690 | $ | (22,404) | $ | 84,286 | $ | 86,980 | $ | (18,266) | $ | 68,714 | $ | (65,379) | $ | 13,730 | $ | (51,649) | |||||||||||||||||||||||||||||||||||
Less: reclassification adjustment of realized capital gains and losses | (2,298) | 483 | (1,815) | 1,395 | (293) | 1,102 | (1,359) | 285 | (1,074) | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized net capital gains and losses | 108,988 | (22,887) | 86,101 | 85,585 | (17,973) | 67,612 | (64,020) | 13,445 | (50,575) | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized foreign currency translation adjustments | 1,923 | (404) | 1,519 | (3,963) | 832 | (3,131) | 124 | (26) | 98 | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | $ | 110,911 | $ | (23,291) | $ | 87,620 | $ | 81,622 | $ | (17,141) | $ | 64,481 | $ | (63,896) | $ | 13,419 | $ | (50,477) |
50
`ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2020
($ in thousands) | Cost/ amortized cost | Fair value | Amount shown in the Balance Sheet | ||||||||||||||
Type of investment | |||||||||||||||||
Fixed maturities: | |||||||||||||||||
Bonds: | |||||||||||||||||
United States government, government agencies and authorities | $ | 134,490 | $ | 144,905 | $ | 144,905 | |||||||||||
States, municipalities and political subdivisions | 402,728 | 544,553 | 544,553 | ||||||||||||||
Foreign governments | 67,435 | 72,087 | 72,087 | ||||||||||||||
Public utilities | 683,019 | 789,742 | 789,742 | ||||||||||||||
All other corporate bonds | 3,002,491 | 3,363,985 | 3,363,985 | ||||||||||||||
Mortgage-backed securities | 3,329 | 3,602 | 3,602 | ||||||||||||||
Total fixed maturities | 4,293,492 | $ | 4,918,874 | 4,918,874 | |||||||||||||
Equity securities: | |||||||||||||||||
Common stocks: | |||||||||||||||||
Public utilities | 4,299 | $ | 5,794 | 5,794 | |||||||||||||
Banks, trusts and insurance companies | 19,835 | 27,477 | 27,477 | ||||||||||||||
Industrial, miscellaneous and all other | 156,462 | 215,930 | 215,930 | ||||||||||||||
Nonredeemable preferred stocks | 1,665 | 2,236 | 2,236 | ||||||||||||||
Total equity securities | 182,261 | $ | 251,437 | 251,437 | |||||||||||||
Mortgage loans on real estate (NaN acquired in satisfaction of debt) | 621,702 | $ | 660,862 | 621,702 | |||||||||||||
Policy loans | 37,294 | 37,294 | |||||||||||||||
Derivative instruments | 8,097 | $ | 8,097 | 8,097 | |||||||||||||
Limited partnership interests | 343,251 | 343,251 | |||||||||||||||
Short-term investments | 132,970 | $ | 133,045 | 133,045 | |||||||||||||
Total investments | $ | 5,619,067 | $ | 6,313,700 |
51
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE IV - REINSURANCE
($ in thousands) | Gross amount | Ceded to other companies (1) | Assumed from other companies | Net amount | Percentage of amount assumed to net | ||||||||||||||||||||||||
Year ended December 31, 2020 | |||||||||||||||||||||||||||||
Life insurance in force | $ | 41,853,809 | $ | 8,329,864 | $ | 416,082 | $ | 33,940,027 | 1.2 | % | |||||||||||||||||||
Premiums and contract charges: | |||||||||||||||||||||||||||||
Life insurance | $ | 156,594 | $ | 17,131 | $ | 588 | $ | 140,051 | 0.4 | % | |||||||||||||||||||
Accident and health insurance | 18,218 | 851 | 0 | 17,367 | 0 | % | |||||||||||||||||||||||
Total premiums and contract charges | $ | 174,812 | $ | 17,982 | $ | 588 | $ | 157,418 | 0.4 | % | |||||||||||||||||||
Year ended December 31, 2019 | |||||||||||||||||||||||||||||
Life insurance in force | $ | 42,654,371 | $ | 8,581,710 | $ | 436,841 | $ | 34,509,502 | 1.3 | % | |||||||||||||||||||
Premiums and contract charges: | |||||||||||||||||||||||||||||
Life insurance | $ | 156,192 | $ | 17,595 | $ | 697 | $ | 139,294 | 0.5 | % | |||||||||||||||||||
Accident and health insurance | 47,422 | 950 | 0 | 46,472 | 0 | % | |||||||||||||||||||||||
Total premiums and contract charges | $ | 203,614 | $ | 18,545 | $ | 697 | $ | 185,766 | 0.4 | % | |||||||||||||||||||
Year ended December 31, 2018 | |||||||||||||||||||||||||||||
Life insurance in force | $ | 42,502,450 | $ | 8,914,558 | $ | 455,594 | $ | 34,043,486 | 1.3 | % | |||||||||||||||||||
Premiums and contract charges: | |||||||||||||||||||||||||||||
Life insurance | $ | 154,016 | $ | 18,322 | $ | 685 | $ | 136,379 | 0.5 | % | |||||||||||||||||||
Accident and health insurance | 45,273 | 1,011 | 0 | 44,262 | 0 | % | |||||||||||||||||||||||
Total premiums and contract charges | $ | 199,289 | $ | 19,333 | $ | 685 | $ | 180,641 | 0.4 | % |
__________________
(1) NaN reinsurance or coinsurance income was netted against premiums ceded in 2020, 2019 or 2018.
52
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE V - VALUATION ALLOWANCES AND QUALIFYING ACCOUNTS
($ in thousands) | Additions | ||||||||||||||||||||||||||||||||||
Description | Balance as of beginning of period | Cumulative effect of change in accounting principle (1) | Charged to costs and expenses | Other additions | Deductions | Balance as of end of period | |||||||||||||||||||||||||||||
Year ended December 31, 2020 | |||||||||||||||||||||||||||||||||||
Allowance for credit losses on fixed income securities | $ | 0 | $ | 0 | $ | 255 | $ | 0 | $ | 255 | $ | 0 | |||||||||||||||||||||||
Allowance for credit losses on mortgage loans | 0 | 6,129 | 9,691 | 0 | 4,727 | 11,093 | |||||||||||||||||||||||||||||
Allowance for credit losses on reinsurance recoverables | 34 | 621 | 0 | 0 | 31 | 624 | |||||||||||||||||||||||||||||
Allowance for credit losses on other assets | 4,259 | 0 | 0 | 0 | 129 | 4,130 | |||||||||||||||||||||||||||||
Allowance for credit losses on commitments to fund mortgage loans | 0 | 97 | 0 | 0 | 97 | 0 | |||||||||||||||||||||||||||||
Year ended December 31, 2019 | |||||||||||||||||||||||||||||||||||
Allowance for reinsurance recoverables | $ | 0 | $ | 34 | $ | 0 | $ | 0 | $ | 34 | |||||||||||||||||||||||||
Allowance for estimated losses on mortgage loans | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Year ended December 31, 2018 | |||||||||||||||||||||||||||||||||||
Allowance for estimated losses on mortgage loans | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
(1)Effective January 1, 2020, the Company adopted the measurement of credit losses on financial instruments accounting standard that primarily affected mortgage loans and reinsurance recoverables.
Item 11(f).
None.
53
Item 11(h). Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The following discussion highlights significant factors influencing the financial position and results of operations of Allstate Life Insurance Company of New York (referred to in this document as “we,” “our,” “us,” the “Company” or “ALNY”). It should be read in conjunction with the financial statements and related notes found under Item 11(e) contained herein. We operate as a single segment entity based on the manner in which we use financial information to evaluate business performance and to determine the allocation of resources.
The most important factors we monitor to evaluate the financial condition and performance of our company include:
•For operations: benefit and investment spread, asset-liability matching, expenses, net income, new business sales, and premiums and contract charges.
•For investments: exposure to market risk, asset allocation, credit quality/experience, total return, net investment income, cash flows, realized capital gains and losses, unrealized capital gains and losses, stability of long-term returns, and asset and liability duration.
•For financial condition: liquidity, financial strength ratings, capital position, and return on equity.
This Management’s Discussion and Analysis (“MD&A”) generally discusses 2020 and 2019 results and year-to-year comparisons between 2020 and 2019. Discussions of 2018 results and year-to-year comparisons between 2019 and 2018 that are not included in this MD&A can be found in Item 11(h) of our registration statement on Form S-1, filed April 1, 2020.
OPERATIONS
Overview and strategy
We currently sell traditional, interest-sensitive and variable life insurance and voluntary accident and health insurance products. We serve customers through Allstate exclusive agents and exclusive financial specialists and workplace enrolling independent agents and benefits brokers. We previously offered and continue to have in force deferred fixed annuities and immediate fixed annuities. We also previously offered variable annuities which are reinsured. We expect to discontinue sales of proprietary life and voluntary accident and health insurance products during the second quarter of 2021.
Our overall strategy is to broaden Allstate’s customer relationships and value proposition. We also distribute non-proprietary retirement products offered by third-party providers. Our target customers are middle market consumers with family and financial protection needs.
Our product positioning provides solutions to help meet customer needs during various phases of life. Term and whole life insurance products offer basic life protection solutions. Universal life and retirement products cover more advanced needs. Allstate exclusive agencies partner with exclusive financial specialists to deliver life and retirement solutions to their customers. These specialists have expertise with advanced life and retirement cases and other more complex customer needs. Successful partnerships assist agencies with building stronger and deeper customer relationships. Improvements in sales education and technology are being made to ensure agencies have the tools and information needed to help customers meet their needs and build personal relationships.
Allstate Benefits (Allstate’s workplace distribution business) is among the industry leaders in the growing and highly competitive voluntary benefits market, offering a broad range of products through workplace enrollment, including critical illness, accident and short-term disability. Allstate Benefits uses ALNY to write its business in New York. Products are offered through independent agents, benefits brokers and Allstate exclusive agents. Allstate Benefits is differentiated through its broad product portfolio, flexible enrollment solutions, strong national accounts team and well-recognized brand. Allstate Benefits’ strategy for growth is to deliver substantially more value through innovative products and technology, tailored solutions and exceptional service through investments in future-state technologies and data and analytics capabilities.
We discontinued the sale of annuities over an eight year period from 2006 to 2014, reflecting our expectations of declining returns. As a result, the declining volume of business is managed with a focus on increasing lifetime economic value. Both the deferred and immediate annuity businesses have been adversely impacted by the historically low interest rate environment. Our immediate annuity business has also been impacted by medical advancements that have resulted in annuitants living longer than anticipated when many of these contracts were originated. We focus on the distinct risk and return profiles of the specific products when developing investment and liability management strategies. The level of legacy deferred annuities in force has been significantly reduced and the investment portfolio and crediting rates are proactively managed to improve profitability of the business while providing appropriate levels of liquidity. The investment portfolio supporting our immediate annuities is managed to ensure the assets match the characteristics of the liabilities and provide the long-term returns needed to support this business. To better match the long-term nature of our immediate annuities, we use performance-based investments (primarily
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limited partnership investments) in which we have ownership interests and a greater proportion of return is derived from idiosyncratic assets or operating performance.
The Coronavirus resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which have included the implementation of travel restrictions, government-imposed shelter-in-place orders, quarantine periods, social distancing and restrictions on large gatherings, have caused material disruption to businesses globally, resulting in increased unemployment, a recession and increased economic uncertainty. Additionally, there is no way of predicting with certainty how long the pandemic might last, including the potential for restrictions being restored or new restrictions being implemented that could result in further economic volatility. The magnitude and duration of the global pandemic and the impact of actions taken by governmental authorities, businesses and consumers, including timing of vaccine distribution, to mitigate health risks create significant uncertainty. We will continue to closely monitor and proactively adapt to developments and changing conditions. Currently, it is not possible to reliably estimate the length and severity of the pandemic or its impact to our operations, but the effects could be material.
On January 26, 2021, AIC entered into an agreement to sell ALIC to Antelope US Holdings Company, an affiliate of an investment fund associated with The Blackstone Group Inc. On March 29, 2021, AIC and ALIC entered into an agreement to sell ALNY to Wilton Reassurance Company. The sales transactions are expected to close in the second half of 2021, subject to regulatory approvals and other customary closing conditions.
Summary analysis Summarized financial data for the years ended December 31 is presented in the following table.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Revenues | |||||||||||||||||
Premiums | $ | 79,942 | $ | 108,452 | $ | 103,447 | |||||||||||
Contract charges | 77,476 | 77,314 | 77,194 | ||||||||||||||
Other revenue | 644 | 1,186 | 1,414 | ||||||||||||||
Net investment income | 222,087 | 256,006 | 287,883 | ||||||||||||||
Realized capital gains and losses | 128,265 | 106,627 | (20,554) | ||||||||||||||
Total revenues | 508,414 | 549,585 | 449,384 | ||||||||||||||
Costs and expenses | |||||||||||||||||
Contract benefits | (434,641) | (259,013) | (237,578) | ||||||||||||||
Interest credited to contractholder funds | (84,324) | (86,464) | (91,482) | ||||||||||||||
Amortization of DAC | (20,346) | (30,396) | (16,299) | ||||||||||||||
Operating costs and expenses | (32,975) | (45,162) | (45,964) | ||||||||||||||
Total costs and expenses | (572,286) | (421,035) | (391,323) | ||||||||||||||
Income tax benefit (expense) | 11,993 | (30,926) | (12,827) | ||||||||||||||
Net (loss) income | $ | (51,879) | $ | 97,624 | $ | 45,234 |
Net loss was $51.9 million in 2020 compared to net income of $97.6 million in 2019, primarily due to higher contract benefits, including a premium deficiency for immediate annuities with life contingencies of $196.0 million, and lower net investment income.
We periodically review the adequacy of reserves for immediate annuities with life contingencies using actual experience and current assumptions. In the event actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, the establishment of a premium deficiency reserve is required.
In third quarter 2020, our long-term investment yield assumption was lowered, which resulted in the prior sufficiency changing to a deficiency. The deficiency was recognized as an increase in the reserve for life-contingent contract benefits. The original assumptions used to establish reserves were updated to reflect current assumptions, and the primary changes included mortality expectations, where annuitants are living longer than originally anticipated, and long-term investment yields.
Analysis of revenues Total revenues decreased 7.5% or $41.2 million in 2020 compared to 2019, primarily due to lower net investment income and premiums, partially offset by higher net realized capital gains.
Premiums represent revenues generated from traditional life insurance, accident and health insurance products, and immediate annuities with life contingencies that have significant mortality or morbidity risk.
Contract charges are revenues generated from interest-sensitive and variable life insurance and fixed annuities for which deposits are classified as contractholder funds or separate account liabilities. Contract charges are assessed against the contractholder account values for maintenance, administration, cost of insurance and surrender prior to contractually specified dates.
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The following table summarizes premiums and contract charges by product for the years ended December 31.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Underwritten products | |||||||||||||||||
Traditional life insurance premiums | $ | 62,575 | $ | 61,980 | $ | 59,185 | |||||||||||
Accident and health insurance premiums | 17,367 | 46,472 | 44,262 | ||||||||||||||
Interest-sensitive life insurance contract charges | 77,557 | 77,324 | 76,931 | ||||||||||||||
Subtotal | 157,499 | 185,776 | 180,378 | ||||||||||||||
Annuities | |||||||||||||||||
Fixed annuity contract charges | (81) | (10) | 263 | ||||||||||||||
Premiums and contract charges (1) | $ | 157,418 | $ | 185,766 | $ | 180,641 |
____________________
(1)Contract charges related to the cost of insurance totaled $56.9 million, $55.6 million and $54.5 million in 2020, 2019 and 2018, respectively.
Premiums and contract charges decreased 15.3% or $28.3 million in 2020 compared to 2019, primarily due to decreases in voluntary accident and health premiums from the non-renewal of a large underperforming account in the fourth quarter of 2019.
Other revenue decreased 45.7% or $542 thousand in 2020 compared to 2019, primarily due to lower gross dealer concessions earned on Allstate agents’ or exclusive financial specialists’ sales of non-proprietary products.
Analysis of costs and expenses Total costs and expenses increased 35.9% or $151.3 million in 2020 compared to 2019, primarily due to higher contract benefits, partially offset by lower operating costs and expenses and lower amortization of DAC.
Contract benefits increased 67.8% or $175.6 million in 2020 compared to 2019, primarily due to the premium deficiency for immediate annuities and higher claim experience related to Coronavirus on interest-sensitive and traditional life insurance, partially offset by the non-renewal of a large underperforming account in the fourth quarter of 2019. Estimated Coronavirus claims, net of reinsurance and reserve releases, totaled $12.4 million in 2020.
Our annual review of assumptions in 2020 and 2019 resulted in a $2.1 million and $256 thousand increase in reserves, respectively, primarily for secondary guarantees on interest-sensitive life insurance due to decreased projected interest rates that result in lower projected policyholder account values which increases benefits on guaranteed products.
We analyze our mortality and morbidity results using the difference between premiums and contract charges earned for the cost of insurance and contract benefits excluding the portion related to the implied interest on immediate annuities with life contingencies (“benefit spread”). This implied interest totaled $114.0 million and $112.2 million in 2020 and 2019, respectively.
The benefit spread by product group for the years ended December 31 is disclosed in the following table.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Life insurance | $ | 23,491 | $ | 38,194 | $ | 34,246 | |||||||||||
Accident and health insurance | 9,500 | 6,660 | 12,554 | ||||||||||||||
Annuities | (216,731) | (27,608) | (12,815) | ||||||||||||||
Total benefit spread | $ | (183,740) | $ | 17,246 | $ | 33,985 |
Benefit spread decreased to $(183.7) million in 2020 compared to $17.2 million in 2019, primarily due to the premium deficiency for immediate annuities with life contingencies and higher claim experience on interest-sensitive and traditional life insurance.
Interest credited to contractholder funds decreased 2.5% or $2.1 million in 2020 compared to 2019, primarily due to lower average annuity contractholder funds, partially offset by valuation changes on derivatives embedded in equity-indexed life contracts that are not hedged. Valuation changes on derivatives embedded in equity-indexed life contracts that are not hedged increased interest credited to contractholder funds by $2.5 million in 2020 compared to $568 thousand in 2019.
In order to analyze the impact of net investment income and interest credited to contractholders on net income, we monitor the difference between net investment income and the sum of interest credited to contractholder funds and the implied interest on immediate annuities with life contingencies, which is included as a component of contract benefits on the Statements of Operations and Comprehensive Income (“investment spread”).
Investment spread totaled $23.7 million, $57.3 million and $82.8 million in 2020, 2019 and 2018, respectively. Investment spread decreased 58.6% or $33.6 million in 2020 compared to 2019, primarily due to lower net investment income, partially offset by lower interest credited to contractholder funds.
To further analyze investment spreads, the following table summarizes the weighted average investment yield on assets supporting product liabilities and capital, interest crediting rates and investment spreads. Investment spreads may vary
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significantly between periods due to the variability in investment income, particularly for immediate fixed annuities where the investment portfolio includes performance-based investments.
Weighted average investment yield | Weighted average interest crediting rate | Weighted average investment spreads | |||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||
Interest-sensitive life insurance | 4.4 | % | 4.7 | % | 4.7 | % | 3.6 | % | 3.7 | % | 3.7 | % | 0.8 | % | 1.0 | % | 1.0 | % | |||||||||||||||||||||||||||||||||||
Deferred fixed annuities | 3.8 | 3.8 | 3.7 | 2.8 | 2.8 | 2.7 | 1.0 | 1.0 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||||
Immediate fixed annuities with and without life contingencies | 4.2 | 5.3 | 6.6 | 5.9 | 5.9 | 6.0 | (1.7) | (0.6) | 0.6 | ||||||||||||||||||||||||||||||||||||||||||||
Investments supporting capital, traditional life and other products | 3.1 | 3.4 | 3.5 | n/a | n/a | n/a | n/a | n/a | n/a |
Amortization of DAC The components of amortization of DAC for the years ended December 31 are summarized in the following table.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions | $ | 11,307 | $ | 27,498 | $ | 15,771 | |||||||||||
Amortization relating to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged (1) | (868) | 476 | 933 | ||||||||||||||
Amortization acceleration (deceleration) for changes in assumptions (“DAC unlocking”) | 9,907 | 2,422 | (405) | ||||||||||||||
Total amortization of DAC | $ | 20,346 | $ | 30,396 | $ | 16,299 |
_________________
(1) The impact of realized capital gains and losses on amortization of DAC is dependent upon the relationship between the assets that give rise to the gain or loss and the product liability supported by the assets. Fluctuations result from changes in the impact of realized capital gains and losses on actual and expected gross profits.
Amortization of DAC decreased 33.1% or $10.1 million in 2020 compared to 2019, primarily due to prior year amortization related to the non-renewal of a large underperforming voluntary benefits account and lower amortization from lower gross profits on interest-sensitive life insurance, partially offset by higher amortization acceleration for changes in assumptions.
Our annual comprehensive review of assumptions underlying estimated future gross profits for our interest-sensitive life contracts covers assumptions for mortality, persistency, expenses, investment returns, including capital gains and losses, interest crediting rates to policyholders, and the effect of any hedges. An assessment is made of future projections to ensure the reported DAC balances reflect current expectations.
In 2020, the review resulted in an acceleration of DAC amortization (decrease to income) of $9.9 million. DAC amortization acceleration primarily related to the investment margin component of estimated gross profits and was due to lower projected future interest rates and investment returns compared to our previous expectations. This was partially offset by DAC amortization deceleration (increase to income) for changes in the expense margin due to a decrease in projected expenses.
In 2019, the review resulted in an acceleration of DAC amortization (decrease to income) of $2.4 million related to interest sensitive life insurance. The acceleration related to the investment margin component of estimated gross profits and was due to lower projected future interest rates and investment returns compared to our previous expectations. The acceleration related to benefit margin was primarily due to more refined policy level information and assumptions.
For additional detail related to the DAC annual review, see the Application of Critical Accounting Estimates section of this document.
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The changes in DAC for the years ended December 31 are detailed in the following table.
($ in thousands) | Traditional life and accident and health | Interest-sensitive life insurance | Total | ||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 56,459 | $ | 65,076 | $ | 67,659 | $ | 90,811 | $ | 124,118 | $ | 155,887 | |||||||||||||||||||||||||||||||||||
Acquisition costs deferred | 5,551 | 9,816 | 5,624 | 6,955 | 11,175 | 16,771 | |||||||||||||||||||||||||||||||||||||||||
Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions (1) | (6,752) | (18,433) | (4,555) | (9,065) | (11,307) | (27,498) | |||||||||||||||||||||||||||||||||||||||||
Amortization relating to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged (1) | — | — | 868 | (476) | 868 | (476) | |||||||||||||||||||||||||||||||||||||||||
Amortization acceleration for changes in assumptions (“DAC unlocking”) (1) | — | — | (9,907) | (2,422) | (9,907) | (2,422) | |||||||||||||||||||||||||||||||||||||||||
Effect of unrealized capital gains and losses (2) | — | — | (13,735) | (18,144) | (13,735) | (18,144) | |||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 55,258 | $ | 56,459 | $ | 45,954 | $ | 67,659 | $ | 101,212 | $ | 124,118 |
______________
(1)Included as a component of amortization of DAC on the Statements of Operations and Comprehensive Income.
(2)Represents the change in the DAC adjustment for unrealized capital gains and losses. The DAC adjustment represents the amount by which the amortization of DAC would increase or decrease if the unrealized gains and losses in the respective product portfolios were realized.
Operating costs and expenses decreased 27.0% or $12.2 million in 2020 compared to 2019, primarily due to lower expenses related to the non-renewal of a large underperforming account in the fourth quarter of 2019 and lower employee-related expenses.
Analysis of reserves and contractholder funds
The following table summarizes our product liabilities as of December 31.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Traditional life insurance | $ | 273,067 | $ | 265,971 | $ | 258,336 | |||||||||||
Accident and health insurance | 18,218 | 32,261 | 25,360 | ||||||||||||||
Immediate fixed annuities with life contingencies | |||||||||||||||||
Sub-standard structured settlements (1) | 1,628,749 | 1,416,305 | 1,274,723 | ||||||||||||||
Standard structured settlements and SPIA (2) | 777,498 | 696,097 | 671,965 | ||||||||||||||
Other | 851 | 1,175 | 1,752 | ||||||||||||||
Reserve for life-contingent contract benefits | $ | 2,698,383 | $ | 2,411,809 | $ | 2,232,136 | |||||||||||
Interest-sensitive life insurance | $ | 773,531 | $ | 756,995 | $ | 740,694 | |||||||||||
Deferred fixed annuities | 1,298,906 | 1,372,890 | 1,496,565 | ||||||||||||||
Immediate fixed annuities without life contingencies | 340,685 | 368,598 | 399,657 | ||||||||||||||
Other | 51,648 | 49,485 | 44,384 | ||||||||||||||
Contractholder funds | $ | 2,464,770 | $ | 2,547,968 | $ | 2,681,300 |
_______________________
(1) Comprises structured settlement annuities for annuitants with severe injuries or other health impairments which increased their expected mortality rate at the time the annuity was issued (“sub-standard structured settlements”). Sub-standard structured settlements comprise 14% of our immediate annuity policies in force and 68% of the immediate annuity reserve for life-contingent contract benefits.
(2) Comprises structured settlement annuities for annuitants with standard life expectancy (“standard structured settlements”) and single premium immediate annuities (“SPIA”) with life contingencies.
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Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance and fixed annuities. The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses.
The following table shows the changes in contractholder funds for the years ended December 31.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Contractholder funds, beginning balance | $ | 2,547,968 | $ | 2,681,300 | $ | 2,874,884 | |||||||||||
Deposits | |||||||||||||||||
Interest-sensitive life insurance | 100,147 | 102,233 | 104,466 | ||||||||||||||
Fixed annuities | 4,208 | 2,617 | 3,140 | ||||||||||||||
Total deposits | 104,355 | 104,850 | 107,606 | ||||||||||||||
Interest credited | 83,769 | 86,338 | 91,430 | ||||||||||||||
Benefits, withdrawals and other adjustments | |||||||||||||||||
Benefits | (102,483) | (104,681) | (114,006) | ||||||||||||||
Surrenders and partial withdrawals | (100,697) | (152,898) | (190,873) | ||||||||||||||
Contract charges | (76,801) | (75,879) | (75,483) | ||||||||||||||
Net transfers (to) from separate accounts | (84) | 88 | 256 | ||||||||||||||
Other adjustments (1) | 8,743 | 8,850 | (12,514) | ||||||||||||||
Total benefits, withdrawals and other adjustments | (271,322) | (324,520) | (392,620) | ||||||||||||||
Contractholder funds, ending balance | $ | 2,464,770 | $ | 2,547,968 | $ | 2,681,300 |
_______________________
(1)The table above illustrates the changes in contractholder funds, which are presented gross of reinsurance recoverables on the Statements of Financial Position. The table above is intended to supplement our discussion and analysis of revenues, which are presented net of reinsurance on the Statements of Operations and Comprehensive Income. As a result, the net change in contractholder funds associated with products reinsured is reflected as a component of the other adjustments line.
Contractholder funds decreased 3.3% in 2020, primarily due to the continued runoff of our deferred fixed annuity business. We discontinued the sale of annuities, but still accept additional deposits on existing contracts.
Surrenders and partial withdrawals decreased 34.1% or $52.2 million in 2020 compared to 2019. 2018 had elevated surrenders on fixed annuities resulting from an increased number of contracts reaching the 30-45 day period during which there is no surrender charge. The surrender and partial withdrawal rate, based on the beginning of year contractholder funds, was 5.1% in 2020 compared to 7.3% in 2019.
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Reinsurance Ceded
In the normal course of business, we seek to limit aggregate and single exposure to losses on large risks by purchasing reinsurance. In addition, we have used reinsurance to effect the disposition of certain blocks of business. We retain primary liability as a direct insurer for all risks ceded to reinsurers. As of December 31, 2020, 20% of our face amount of life insurance in force was reinsured. Additionally, we ceded all of the risk associated with our variable annuity business to Prudential Insurance Company of America.
Our reinsurance recoverables, net of allowance, summarized by reinsurer as of December 31, are shown in the following table.
($ in thousands) | S&P financial strength rating (1) | Reinsurance recoverable on paid and unpaid benefits | ||||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Prudential Insurance Company of America | AA- | $ | 162,944 | $ | 166,876 | |||||||||||||||
Transamerica Life Group | A+ | 40,133 | 40,682 | |||||||||||||||||
Swiss Re Life and Health America, Inc. | AA- | 8,968 | 9,755 | |||||||||||||||||
RGA Reinsurance Company | AA- | 6,899 | 6,790 | |||||||||||||||||
Canada Life | AA | 2,230 | 2,460 | |||||||||||||||||
Security Life of Denver | A+ | 661 | 899 | |||||||||||||||||
SCOR Global Life | AA- | 571 | 565 | |||||||||||||||||
Scottish Re (U.S.), Inc. (2) | N/A | 518 | 224�� | |||||||||||||||||
American United Life Insurance Company | AA- | 448 | 472 | |||||||||||||||||
Allstate Life Insurance Company (3) | N/A | 294 | 268 | |||||||||||||||||
Metropolitan Life | AA- | 94 | 93 | |||||||||||||||||
Triton Insurance Company (4) | N/A | 79 | 577 | |||||||||||||||||
General Re | AA+ | 51 | 71 | |||||||||||||||||
Minnesota Mutual | AA- | 43 | 38 | |||||||||||||||||
Mutual of Omaha | A+ | 38 | 23 | |||||||||||||||||
Hanover Insurance Group | AA- | 2 | — | |||||||||||||||||
Credit loss allowance (5) | (624) | $ | (34) | |||||||||||||||||
Total | $ | 223,349 | $ | 229,759 |
__________________________
(1)N/A reflects no S&P Global Ratings (“S&P”) rating available.
(2)In December 2018, the Delaware Insurance Commissioner placed Scottish Re (U.S.), Inc. under regulatory supervision and in March 2019, the reinsurer was placed in rehabilitation. We have been permitted to exercise certain setoff rights while the parties address any potential disputes.
(3)Affiliate company.
(4)A.M. Best rating is B++.
(5)Due to the adoption of the measurement of credit losses on financial instruments accounting standard, prior valuation allowance is now presented as an allowance for expected credit losses.
We continuously monitor the creditworthiness of reinsurers in order to determine our risk of recoverability on an individual and aggregate basis. In connection with the adoption of the measurement of credit losses on financial instruments accounting standard in 2020, the method of calculating the allowance for reinsurance recoverables changed. See Note 2 of the financial statements in Item 11(e) for additional details. No reinsurance recoverables have been written off in the three-years ended December 31, 2020.
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INVESTMENTS
Overview and strategy The return on our investment portfolio is an important component of our ability to offer good value to customers. We identify a strategic asset allocation which considers both the nature of the liabilities and the risk and return characteristics of the various asset classes in which we invest. This allocation is informed by our long-term business and market expectations, as well as other considerations such as risk appetite, portfolio diversification, duration, desired liquidity and capital. Within appropriate ranges relative to strategic allocations, tactical allocations are made in consideration of prevailing and potential future market conditions. We manage risks that involve uncertainty related to interest rates, credit spreads, equity returns and currency exchange rates.
Our portfolio is comprised of assets chosen to generate returns to support corresponding liabilities, within an asset-liability framework that targets an appropriate return on capital. For shorter-term annuity liability cash flows and life insurance liabilities, we invest primarily in fixed income securities and commercial mortgage loans with maturity profiles aligned with liability cash flow requirements. For longer-term immediate annuity liability cash flows, we invest primarily in performance-based investments, such as limited partnerships and public equity securities.
We utilize two primary strategies to manage risks and returns and to position our portfolio to take advantage of market opportunities while attempting to mitigate adverse effects. As strategies and market conditions evolve, the asset allocation may change or assets may be moved between strategies.
Market-based strategy includes investments primarily in public fixed income and equity securities. It seeks to deliver predictable earnings aligned to business needs and take advantage of short-term opportunities primarily through public and private fixed income investments and public equity securities.
Performance-based strategy seeks to deliver attractive risk-adjusted returns and supplement market risk with idiosyncratic risk. Returns are impacted by a variety of factors including general macroeconomic and public market conditions as public benchmarks are often used in the valuation of underlying investments. Variability in earnings will also result from the performance of the underlying assets or business and the timing of sales of those investments. Earnings from the sales of investments may be recorded as net investment income or realized capital gains and losses. The portfolio, which primarily includes private equity and real estate with a majority being limited partnerships, is diversified across a number of characteristics, including managers or partners, vintage years, strategies, geographies (including international) and industry sectors or property types. These investments are generally illiquid in nature, often require specialized expertise, typically involve a third party manager, and often enhance returns and income through transformation at the company or property level. A portion of these investments seek returns in markets or asset classes that are dislocated or special situations, primarily in private markets.
Coronavirus impacts
Ongoing uncertainty related to the future path of the pandemic has and may continue to create market volatility that has impacted the valuations, liquidity, prospects and risks of fixed income securities, equity securities and performance-based investments, primarily limited partnership interests, during 2020. Although fixed income and equity security values generally increased since the first quarter, future investment results will depend on developments, including the duration and spread of the outbreak, preventive measures to combat the spread of the virus, and capital market conditions, including the pace of economic recovery and effectiveness of the fiscal and monetary policy responses. During the second quarter of 2020, short-term loan modifications were executed to grant temporary partial deferral of payments on $8.3 million of commercial mortgage loans with $186 thousand of modified payments outstanding as of December 31, 2020.
The ongoing impact of the Coronavirus on financial markets and the overall economy remain uncertain. Some of the restrictions implemented to contain the pandemic have been relaxed, but reduced economic activity, limits on large gatherings and events and higher unemployment continue. Additionally, there is no way of predicting with certainty how long the pandemic might last, including the potential for restrictions being restored or new restrictions being implemented that could result in further economic volatility.
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Portfolio composition The composition of the investment portfolio is presented in the following table.
($ in thousands) | December 31, 2020 | Percent to total | |||||||||
Fixed income securities (1) | $ | 4,918,874 | 77.9 | % | |||||||
Mortgage loans, net | 621,702 | 9.9 | |||||||||
Equity securities (2) | 251,437 | 4.0 | |||||||||
Limited partnership interests | 343,251 | 5.4 | |||||||||
Short-term investments (3) | 133,045 | 2.1 | |||||||||
Policy loans | 37,294 | 0.6 | |||||||||
Other | 8,097 | 0.1 | |||||||||
Total | $ | 6,313,700 | 100.0 | % |
________________
(1)Fixed income securities are carried at fair value. Amortized cost, net for these securities was $4.29 billion.
(2)Equity securities are carried at fair value. The fair value of equity securities held as of December 31, 2020 was $69.2 million in excess of cost. These net gains were primarily concentrated in the technology and consumer goods sectors and in equity index funds.
(3)Short-term investments are carried at fair value.
Investments totaled $6.31 billion as of December 31, 2020, increasing from $6.10 billion as of December 31, 2019, primarily due to higher fixed income valuations and positive operating cash flows, partially offset by net reductions in contractholder funds.
Portfolio composition by investment strategy The following table presents the investment portfolio by strategy as of December 31, 2020.
($ in thousands) | Market-based | Performance-based | Total | ||||||||||||||
Fixed income securities | $ | 4,917,945 | $ | 929 | $ | 4,918,874 | |||||||||||
Mortgage loans, net | 621,702 | — | 621,702 | ||||||||||||||
Equity securities | 243,667 | 7,770 | 251,437 | ||||||||||||||
Limited partnership interests | 14,377 | 328,874 | 343,251 | ||||||||||||||
Short-term investments | 133,045 | — | 133,045 | ||||||||||||||
Policy loans | 37,294 | — | 37,294 | ||||||||||||||
Other | 8,298 | (201) | 8,097 | ||||||||||||||
Total | $ | 5,976,328 | $ | 337,372 | $ | 6,313,700 | |||||||||||
Percent to total | 94.7 | % | 5.3 | % | 100.0 | % | |||||||||||
Unrealized net capital gains (losses) | |||||||||||||||||
Fixed income securities | $ | 625,391 | $ | (9) | $ | 625,382 | |||||||||||
Limited partnership interests | — | (350) | (350) | ||||||||||||||
Short-term investments | 75 | — | 75 | ||||||||||||||
Total | $ | 625,466 | $ | (359) | $ | 625,107 |
During 2020, strategic actions focused on optimizing portfolio yield, return and risk in the low interest rate environment. We increased the maturity profile of fixed income securities in our portfolio. Invested assets and market-based income declined with reductions in contractholder funds. Performance-based investments and equity securities will continue to be allocated primarily to the longer-term immediate annuity liabilities to reduce the risk that investment returns are below levels required to meet their funding needs while shorter-term annuity liabilities will be invested in market-based investments.
Fixed income securities by type are listed in the following table.
Fair value as of | |||||||||||
($ in thousands) | December 31, 2020 | December 31, 2019 | |||||||||
U.S. government and agencies | $ | 144,905 | $ | 52,814 | |||||||
Municipal | 544,553 | 552,280 | |||||||||
Corporate | 4,153,727 | 3,675,245 | |||||||||
Foreign government | 72,087 | 140,166 | |||||||||
Mortgage-backed securities (“MBS”) | 3,602 | 13,857 | |||||||||
Total fixed income securities | $ | 4,918,874 | $ | 4,434,362 |
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Fixed income securities are rated by third party credit rating agencies or are internally rated. As of December 31, 2020, 90.4% of the fixed income securities portfolio was rated investment grade, which is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P, a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Credit ratings below these designations are considered lower credit quality or below investment grade, which includes high yield bonds. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third-party rating. Our initial investment decisions and ongoing monitoring procedures for fixed income securities are based on a due diligence process which includes, but is not limited to, an assessment of the credit quality, sector, structure and liquidity risks of each issue.
Fixed income portfolio monitoring is a comprehensive process to identify and evaluate each fixed income security that may require a credit loss allowance. The process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below internally established thresholds. For further detail on our fixed income portfolio monitoring process, see Note 5 of the financial statements in Item 11(e).
The following table summarizes the fair value and unrealized net capital gains (losses) for fixed income securities by credit quality as of December 31, 2020.
($ in thousands) | Investment grade | Below investment grade | Total | ||||||||||||||||||||||||||||||||||||||
Fair value | Unrealized gain (loss) | Fair value | Unrealized gain (loss) | Fair value | Unrealized gain (loss) | Percent rated investment grade | |||||||||||||||||||||||||||||||||||
U.S. government and agencies | $ | 144,905 | $ | 10,415 | $ | — | $ | — | $ | 144,905 | $ | 10,415 | 100.0 | % | |||||||||||||||||||||||||||
Municipal | 544,553 | 141,825 | — | — | 544,553 | 141,825 | 100.0 | ||||||||||||||||||||||||||||||||||
Corporate | |||||||||||||||||||||||||||||||||||||||||
Public | 2,926,668 | 375,681 | 201,012 | 13,445 | 3,127,680 | 389,126 | 93.6 | ||||||||||||||||||||||||||||||||||
Privately placed | 755,212 | 70,708 | 270,835 | 8,383 | 1,026,047 | 79,091 | 73.6 | ||||||||||||||||||||||||||||||||||
Total corporate | 3,681,880 | 446,389 | 471,847 | 21,828 | 4,153,727 | 468,217 | 88.6 | ||||||||||||||||||||||||||||||||||
Foreign government | 72,087 | 4,652 | — | — | 72,087 | 4,652 | 100.0 | ||||||||||||||||||||||||||||||||||
MBS | 3,600 | 271 | 2 | 2 | 3,602 | 273 | 99.9 | ||||||||||||||||||||||||||||||||||
Total fixed income securities | $ | 4,447,025 | $ | 603,552 | $ | 471,849 | $ | 21,830 | $ | 4,918,874 | $ | 625,382 | 90.4 |
Municipal bonds include general obligations of state and local issuers and revenue bonds.
Our practice for acquiring and monitoring municipal bonds is predominantly based on the underlying credit quality of the primary obligor. We currently rely on the primary obligor to pay all contractual cash flows and are not relying on bond insurers for payments. As a result of downgrades in the insurers’ credit ratings, the ratings of the insured municipal bonds generally reflect the underlying ratings of the primary obligor.
Corporate bonds include publicly traded and privately placed securities. Privately placed securities primarily consist of corporate issued senior debt securities that are negotiated with the borrower or are issued by public entities in unregistered form.
Our portfolio of privately placed securities is diversified by issuer, industry sector and country. The portfolio is made up of 265 issuers. Privately placed corporate obligations may contain structural security features such as financial covenants and call protections that provide investors greater protection against credit deterioration, reinvestment risk or fluctuations in interest rates than those typically found in publicly registered debt securities. Additionally, investments in these securities are made after due diligence of the issuer, typically including discussions with senior management and on-site visits to company facilities. Ongoing monitoring includes direct periodic dialogue with senior management of the issuer and continuous monitoring of operating performance and financial position. Every issue not rated by an independent rating agency is internally rated with a formal rating affirmation at least once a year. Liquidity of securities issued by public entities in unregistered form is similar to public debt markets.
Our corporate bonds portfolio includes $471.8 million of below investment grade bonds, $270.8 million of which are privately placed. These securities are diversified by issuer and industry sector. The below investment grade corporate bonds portfolio is made up of 231 issuers. We employ fundamental analyses of issuers and sectors along with macro and asset class views to identify investment opportunities. This results in a portfolio with broad exposure to the high yield market with an emphasis on idiosyncratic positions reflective of our views of market conditions and opportunities.
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Foreign government securities are all backed by the U.S. government.
MBS are structured securities that are primarily collateralized by consumer or corporate borrowings and residential and commercial real estate loans. The cash flows from the underlying collateral paid to the securitization trust are generally applied in a pre-determined order and are designed so that each security issued by the trust, typically referred to as a “class”, qualifies for a specific original rating.
For example, the “senior” portion or “top” of the capital structure, or rating class, which would originally qualify for a rating of Aaa typically has priority in receiving principal repayments on the underlying collateral and retains this priority until the class is paid in full. In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full. Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings.
The payment priority and class subordination included in these securities serves as credit enhancement for holders of the senior or top portions of the structures. These securities continue to retain the payment priority features that existed at the origination of the securitization trust. Other forms of credit enhancement may include structural features embedded in the securitization trust, such as overcollateralization, excess spread and bond insurance. The underlying collateral may contain fixed interest rates, variable interest rates (such as adjustable rate mortgages), or both fixed and variable rate features.
MBS includes residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”). RMBS is subject to interest rate risk, but unlike other fixed income securities, is additionally subject to prepayment risk from the underlying residential mortgage loans. RMBS consists of a U.S. agency portfolio having collateral issued or guaranteed by U.S. government agencies and a non-agency portfolio consisting of securities collateralized by Prime, Alt-A and Subprime loans. CMBS investments are traditional conduit transactions collateralized by commercial mortgage loans and typically are diversified across property types and geographical area.
Mortgage loans mainly comprise loans secured by first mortgages on developed commercial real estate. Key considerations used to manage our exposure include property type and geographic diversification. For further detail on our mortgage loan portfolio, see Note 5 of the financial statements in Item 11(e).
Equity securities primarily include common stocks, exchange traded and mutual funds, non-redeemable preferred stocks and real estate investment trust equity investments. Certain exchange traded and mutual funds have fixed income securities as their underlying investments.
Limited partnership interests include $312.1 million of interests in private equity funds, $16.8 million of interests in real estate funds and $14.4 million of interests in other funds as of December 31, 2020. We have commitments to invest additional amounts in limited partnership interests totaling $98.9 million as of December 31, 2020.
Short-term investments primarily comprise money market funds, commercial paper, U.S. Treasury bills and other short-term investments, including securities lending collateral of $77.1 million.
Policy loans are carried at unpaid principal balances.
Other investments comprise $8.1 million of derivatives as of December 31, 2020. For further detail on our use of derivatives, see Note 7 of the financial statements in Item 11(e).
The following table presents unrealized net capital gains (losses) as of December 31.
($ in thousands) | 2020 | 2019 | |||||||||
U.S. government and agencies | $ | 10,415 | $ | 9,534 | |||||||
Municipal | 141,825 | 119,242 | |||||||||
Corporate | 468,217 | 274,774 | |||||||||
Foreign government | 4,652 | 6,531 | |||||||||
MBS | 273 | 1,174 | |||||||||
Fixed income securities | 625,382 | 411,255 | |||||||||
Short-term investments | 75 | (13) | |||||||||
Equity method of accounting (“EMA”) limited partnerships | (350) | (205) | |||||||||
Unrealized net capital gains and losses, pre-tax | $ | 625,107 | $ | 411,037 |
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Gross unrealized gains (losses) on fixed income securities by type as of December 31, 2020 are provided in the following table.
($ in thousands) | Amortized | Gross unrealized | Fair | ||||||||||||||||||||
cost | Gains | Losses | value | ||||||||||||||||||||
Corporate | $ | 3,685,510 | $ | 471,999 | $ | (3,782) | $ | 4,153,727 | |||||||||||||||
U.S. government and agencies | 134,490 | 10,415 | — | 144,905 | |||||||||||||||||||
Municipal | 402,728 | 141,825 | — | 544,553 | |||||||||||||||||||
Foreign government | 67,435 | 4,652 | — | 72,087 | |||||||||||||||||||
MBS | 3,329 | 273 | — | 3,602 | |||||||||||||||||||
Total fixed income securities | $ | 4,293,492 | $ | 629,164 | $ | (3,782) | $ | 4,918,874 |
The consumer goods, utilities and capital goods sectors comprise 31%, 19% and 11%, respectively, of the carrying value of our corporate fixed income securities portfolio as of December 31, 2020. The utilities, technology and financial services sectors comprise 34%, 21% and 14%, respectively, of the gross unrealized losses of our corporate fixed income securities portfolio as of December 31, 2020. In general, the gross unrealized losses are related to an increase in market yields, which may include increased risk-free interest rates or wider credit spreads since the time of initial purchase. Similarly, gross unrealized gains reflect a decrease in market yields since the time of initial purchase.
Net investment income The following table presents net investment income for the years ended December 31.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Fixed income securities | $ | 188,432 | $ | 208,816 | $ | 214,039 | |||||||||||
Mortgage loans | 34,510 | 32,566 | 30,920 | ||||||||||||||
Equity securities | 3,267 | 4,283 | 5,565 | ||||||||||||||
Limited partnership interests | 817 | 15,348 | 43,365 | ||||||||||||||
Short-term investments | 1,600 | 4,393 | 2,966 | ||||||||||||||
Policy loans | 2,272 | 2,343 | 2,339 | ||||||||||||||
Investment income, before expense | 230,898 | 267,749 | 299,194 | ||||||||||||||
Investment expense | |||||||||||||||||
Investee level expenses (1) | — | — | — | ||||||||||||||
Securities lending expense | (494) | (2,482) | (1,507) | ||||||||||||||
Operating costs and expenses | (8,317) | (9,261) | (9,804) | ||||||||||||||
Total investment expense | (8,811) | (11,743) | (11,311) | ||||||||||||||
Net investment income | $ | 222,087 | $ | 256,006 | $ | 287,883 | |||||||||||
Market-based | $ | 231,415 | $ | 252,842 | $ | 255,689 | |||||||||||
Performance-based | (517) | 14,907 | 43,505 | ||||||||||||||
Investment income, before expense | $ | 230,898 | $ | 267,749 | $ | 299,194 |
______________________________
(1)Beginning January 1, 2020, depreciation previously included in investee level expenses is reported as realized capital gains or losses.
Net investment income decreased 13.2% or $33.9 million in 2020 compared to 2019, primarily due to a decline in market-based income driven by lower interest-bearing portfolio yields and lower performance-based results, primarily from limited partnerships.
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Performance-based investments primarily include private equity and real estate. The following table presents investment income for performance-based investments for the years ended December 31.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Limited partnerships | |||||||||||||||||
Private equity | $ | 626 | $ | 14,617 | $ | 43,264 | |||||||||||
Real estate | 191 | 731 | 101 | ||||||||||||||
Performance-based - limited partnerships | 817 | 15,348 | 43,365 | ||||||||||||||
Non-limited partnerships | |||||||||||||||||
Private equity | (1,334) | (441) | 140 | ||||||||||||||
Real estate | — | — | — | ||||||||||||||
Performance-based - non-limited partnerships | (1,334) | (441) | 140 | ||||||||||||||
Total | |||||||||||||||||
Private equity | (708) | 14,176 | 43,404 | ||||||||||||||
Real estate | 191 | 731 | 101 | ||||||||||||||
Total performance-based | $ | (517) | $ | 14,907 | $ | 43,505 | |||||||||||
Investee level expenses (1) | $ | — | $ | — | $ | — |
______________________________
(1)Investee level expenses include depreciation and asset level operating expenses reported in investment expense. Beginning January 1, 2020, depreciation previously included in investee level expenses is reported as realized capital gains or losses.
Performance-based investment loss was $517 thousand in 2020 compared to income of $14.9 million in 2019 due to lower valuations of private equity and real estate investments.
Performance-based investment results and income can vary significantly between periods and are influenced by economic conditions, equity market performance, comparable public company earnings multiples, capitalization rates, operating performance of the underlying investments and the timing of asset sales.
Realized capital gains and losses The following table presents the components of realized capital gains (losses) and the related tax effect for the years ended December 31.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Sales (1) | $ | (1,861) | $ | 4,698 | $ | (1,548) | |||||||||||
Credit losses (2) | |||||||||||||||||
Fixed income securities | (256) | (169) | (285) | ||||||||||||||
Mortgage loans | (9,594) | — | — | ||||||||||||||
Limited partnership interests | (538) | — | — | ||||||||||||||
Total credit losses | (10,388) | (169) | (285) | ||||||||||||||
Valuation of equity investments - appreciation (decline): | |||||||||||||||||
Equity securities | 36,110 | 40,780 | (16,364) | ||||||||||||||
Limited partnerships (3) | 3,992 | 2,231 | (2,995) | ||||||||||||||
Total valuation of equity investments | 40,102 | 43,011 | (19,359) | ||||||||||||||
Valuation and settlements of derivative instruments | 100,412 | 59,087 | 638 | ||||||||||||||
Realized capital gains (losses), pre-tax | 128,265 | 106,627 | (20,554) | ||||||||||||||
Income tax (expense) benefit | (26,936) | (22,392) | 4,316 | ||||||||||||||
Realized capital gains (losses), after-tax | $ | 101,329 | $ | 84,235 | $ | (16,238) | |||||||||||
Market-based | $ | 127,616 | $ | 100,112 | $ | (23,400) | |||||||||||
Performance-based | 649 | 6,515 | 2,846 | ||||||||||||||
Realized capital gains (losses), pre-tax | $ | 128,265 | $ | 106,627 | $ | (20,554) |
______________________________
(1)Beginning January 1, 2020, depreciation previously included in investee level expenses is reported as realized capital gains or losses.
(2)Due to the adoption of the measurement of credit losses on financial instruments accounting standard, realized capital losses previously reported as other-than-temporary impairment write-downs are now presented as credit losses.
(3)Relates to limited partnerships where the underlying assets are predominately public equity securities.
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Sales in 2020 related primarily to fixed income securities in connection with ongoing portfolio management. Sales in 2019 related primarily to gains from limited partnerships, as well as fixed income securities in connection with ongoing portfolio management.
Valuation and settlements of derivative instruments in both 2020 and 2019 primarily comprised the change in fair value of the structured settlement annuity reinsurance agreement.
The table below presents realized capital gains (losses) for performance-based investments for the years ended December 31.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Sales (1) | $ | 74 | $ | 3,155 | $ | (897) | |||||||||||
Credit losses (2) | (537) | — | — | ||||||||||||||
Valuation of equity investments | 1,416 | 2,996 | 2,856 | ||||||||||||||
Valuation and settlements of derivative instruments | (304) | 364 | 887 | ||||||||||||||
Total performance-based | $ | 649 | $ | 6,515 | $ | 2,846 |
______________________________
(1)Beginning January 1, 2020, depreciation previously included in investee level expenses is reported as realized capital gains or losses.
(2)Due to the adoption of the measurement of credit losses on financial instruments accounting standard, realized capital losses previously reported as other-than-temporary impairment write-downs are now presented as credit losses.
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MARKET RISK
Market risk is the risk that we will incur losses due to adverse changes in interest rates, credit spreads, equity prices, commodity prices or currency exchange rates. Adverse changes to these rates and prices may occur due to changes in fiscal policy, the economic climate, the liquidity of a market or market segment, insolvency or financial distress of key market makers or participants or changes in market perceptions of credit worthiness or risk tolerance. Our primary market risk exposures are to changes in interest rates, credit spreads and equity prices. We also have direct and indirect exposure to commodity price changes through our diversified investments in infrastructure and energy primarily held in limited partnership interests.
The active management of market risk is integral to our results of operations. We may use the following approaches to manage exposure to market risk within defined tolerance ranges: 1) rebalancing existing asset or liability portfolios, 2) changing the type of investments purchased in the future and 3) using derivative instruments to modify the market risk characteristics of existing assets and liabilities or assets expected to be purchased.
Overview In formulating and implementing guidelines for investing funds, we seek to earn attractive risk adjusted returns that enhance our ability to offer competitive rates and prices to customers while contributing to stable profits and long-term capital growth. Accordingly, our investment decisions and objectives are informed by the underlying risks and product profiles.
Investment policies define the overall framework for managing market and other investment risks, including accountability and controls over risk management activities. These investment activities follow policies that have been approved by our board of directors and which specify the investment limits and strategies that are appropriate given the liquidity, surplus, product profile and regulatory requirements. Executive oversight of investment activities is conducted primarily through our board of directors and investment committee. Asset-liability management (“ALM”) policies further define the overall framework for managing market and investment risks and are approved by our board of directors. ALM focuses on strategies to enhance yields, mitigate market risks and optimize capital to improve profitability and returns while incorporating future expected cash requirements to repay liabilities. These ALM policies specify limits, ranges or targets for investments that best meet business objectives in light of the unique demands and characteristics of the product liabilities and are intended to result in a prudent, methodical and effective adjudication of market risk and return.
We use widely-accepted quantitative and qualitative approaches to measure, monitor and manage market risk. We evaluate our market risk exposure using multiple measures including but not limited to duration, value-at-risk, scenario analysis and sensitivity analysis. Duration measures the price sensitivity of assets and liabilities to changes in interest rates. For example, if interest rates increase 100 basis points, the fair value of an asset with a duration of 5 is expected to decrease in value by 5%. Value-at-risk is a statistical estimate of the probability that the change in fair value of a portfolio will exceed a certain amount over a given time horizon. Scenario analysis estimates the potential changes in the fair value of a portfolio that could occur under hypothetical market conditions defined by changes to multiple market risk factors: interest rates, credit spreads, equity prices or currency exchange rates. Sensitivity analysis estimates the potential changes in the fair value of a portfolio that could occur under different hypothetical shocks to a market risk factor. The selection of measures used in our sensitivity analysis should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event. In general, we establish investment portfolio asset allocation and market risk limits based upon a combination of these measures. The asset allocation limits place restrictions on the total funds that may be invested within an asset class. Comprehensive day-to-day management of market risk within defined tolerance ranges occurs as portfolio managers buy and sell within their respective markets based upon the acceptable boundaries established by investment policies. Although we apply a similar overall philosophy to market risk, the underlying business frameworks and the accounting and regulatory environments may differ between our products and therefore affect investment decisions and risk parameters.
Interest rate risk is the risk that we will incur a loss due to adverse changes in interest rates relative to the characteristics of our interest-bearing assets and liabilities. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key risk-free reference yields. This risk arises from many of our primary activities, as we invest substantial funds in interest-sensitive assets and issue interest-sensitive liabilities. Changes in interest rates can have favorable and unfavorable effects on our results. For example, increases in rates can improve investment income, but decrease the fair value of our fixed income securities portfolio and increase policyholder surrenders requiring us to liquidate assets. Decreases in rates could increase the fair value of our fixed income securities portfolio while decreasing investment income due to reinvesting at lower market yields and accelerating pay-downs and prepayments of certain investments.
We manage the interest rate risk in our assets relative to the interest rate risk in our liabilities and our assessment of overall economic and capital risk. One of the measures used to quantify this exposure is duration. The difference in the duration of our assets relative to our liabilities is our duration gap. To calculate the duration gap between assets and liabilities, we project asset and liability cash flows and calculate their net present value using a risk-free market interest rate adjusted for credit quality, sector attributes, liquidity and other specific risks. Duration is calculated by revaluing these cash flows at alternative interest rates and determining the percentage change in aggregate fair value. The cash flows used in this calculation include the
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expected maturity and repricing characteristics of our derivative financial instruments, all other financial instruments, and certain other items including annuity liabilities and other interest-sensitive liabilities.
The projections include assumptions (based upon historical market experience and our experience) that reflect the effect of changing interest rates on the prepayment, lapse, leverage and/or option features of instruments, where applicable. The preceding assumptions relate primarily to callable municipal and corporate bonds, fixed rate single and flexible premium deferred annuities, mortgage-backed securities and municipal housing bonds.
As of December 31, 2020, the difference between our asset and liability duration was a (17.62) gap compared to a (9.93) gap as of December 31, 2019. A negative duration gap indicates that the fair value of our liabilities is more sensitive to interest rate movements than the fair value of our assets, while a positive duration gap indicates that the fair value of our assets is more sensitive to interest rate movements than the fair value of our liabilities. We may have a positive or negative duration gap, as the duration of our assets and liabilities vary based on the characteristics of the products in force and investing activity.
Shorter-term annuity liability cash flows are invested in market-based investments to generate cash flows that will fund future claims, benefits and expenses, and that will earn stable returns across a wide variety of interest rate and economic scenarios. To reduce the risk that investment returns are below levels required to meet the funding needs of longer-term liabilities, we are executing our performance-based strategy that supplements market risk with idiosyncratic risk. We are using these investments, in addition to public equity securities, to support our long-term annuity liability cash flows. Performance-based investments and public equity securities are generally not interest-bearing; accordingly, using them to support interest-bearing liabilities contributes toward a negative duration gap.
Based upon the information and assumptions used in the duration calculation, and market interest rates as of December 31, 2020, we estimate that a 100 basis point immediate, parallel increase in interest rates (“rate shock”) would increase the net fair value of the assets and liabilities by $717.5 million, compared to an increase of $389.6 million as of December 31, 2019, reflecting year to year changes in duration and the amount of assets and liabilities. The estimate excludes traditional and interest-sensitive life insurance and accident and health insurance products that are not considered financial instruments. The assets supporting these products totaled $1.50 billion and $1.40 billion as of December 31, 2020 and 2019, respectively. Based on assumptions described above, these assets would decrease in value by $88.5 million as of December 31, 2020 compared to a decrease of $71.4 million as of December 31, 2019.
To the extent that conditions differ from the assumptions we used in these calculations, duration and rate shock measures could be significantly impacted. Additionally, our calculations assume the current relationship between short-term and long-term interest rates (the term structure of interest rates) will remain constant over time. As a result, these calculations may not fully capture the effect of non-parallel changes in the term structure of interest rates or large changes in interest rates.
Credit spread risk is the risk that we will incur a loss due to adverse changes in credit spreads (“spreads”). Credit spread is the additional yield on fixed income securities and loans above the risk-free rate (typically referenced as the yield on U.S. Treasury securities) that market participants require to compensate them for assuming credit, liquidity or prepayment risks. The magnitude of the spread will depend on the likelihood that a particular issuer will default. This risk arises from many of our primary activities, as we invest substantial funds in spread-sensitive fixed income assets.
We manage the spread risk in our assets. One of the measures used to quantify this exposure is spread duration. Spread duration measures the price sensitivity of the assets to changes in spreads. For example, if spreads increase 100 basis points, the fair value of an asset exhibiting a spread duration of 5 is expected to decrease in value by 5%.
Spread duration is calculated similarly to interest rate duration. As of December 31, 2020, the spread duration was 6.03, compared to 5.31 as of December 31, 2019. Based upon the information and assumptions we use in this spread duration calculation, and market spreads as of December 31, 2020, we estimate that a 100 basis point immediate, parallel increase in spreads across all asset classes, industry sectors and credit ratings would decrease the net fair value of the assets by $326.0 million compared to $277.3 million as of December 31, 2019.
Equity price risk is the risk that we will incur losses due to adverse changes in the general levels of the markets. As of December 31, 2020, we held $265.8 million in equity securities, excluding those with fixed income securities as their underlying investments, and limited partnership interests where the underlying assets are predominately public equity securities, compared to $178.2 million as of December 31, 2019. As of December 31, 2020, these investments had an equity market portfolio beta of 1.04, compared to a beta of 1.05 as of December 31, 2019. Beta represents a widely used methodology to describe, quantitatively, an investment’s market risk characteristics relative to an index such as the Standard & Poor’s 500 Composite Price Index (“S&P 500”). Based upon the information and assumptions we used to calculate beta as of December 31, 2020, we estimate that an immediate increase or decrease in the S&P 500 of 10% would increase or decrease the net fair value of these investments by $27.7 million, compared to $18.7 million as of December 31, 2019.
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As of December 31, 2020, we held $328.9 million in limited partnership interests excluding those limited partnership interests where the underlying assets are predominately public equity securities compared to $375.6 million as of December 31, 2019. These investments are primarily comprised of private equity and real estate funds. These investments are idiosyncratic in nature and a greater portion of the return is derived from asset operating performance. They are not actively traded, and valuation changes typically reflect the performance of the underlying asset. Based upon the information and assumptions used as of December 31, 2020, we estimate that a 10% immediate increase or decrease in private market valuations would increase or decrease the net fair value of these limited partnership interests by $32.9 million, compared to $37.6 million as of December 31, 2019.
For limited partnership interests, quarterly changes in fair values may not be highly correlated to equity indices in the short term and changes in value of these investments are generally recognized on a three-month delay due to the availability of the related investee financial statements. The illustrations noted above may not reflect our actual experience if the future composition of the portfolio (hence its beta) and correlation relationships differ from the historical relationships.
As of December 31, 2020 and 2019, we had separate account assets, related to variable annuity and variable life contracts with account values totaling $286.8 million and $265.5 million, respectively. Equity risk exists for contract charges based on separate account balances and guarantees for death and/or income benefits provided by our variable products. In 2006, we disposed of all of the variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial Inc. and therefore mitigated this aspect of our risk. Equity risk for our variable life business relates to contract charges and policyholder benefits. Total variable life contract charges for both 2020 and 2019 were $1.3 million. Separate account liabilities related to variable life contracts were $19.2 million and $15.8 million as of December 31, 2020 and 2019, respectively.
As of December 31, 2020 and 2019, we had $57.8 million and $46.7 million, respectively, in equity-indexed life liabilities that provide customers with interest crediting rates based on the performance of the S&P 500. We hedge the majority of the risk associated with these liabilities using equity-indexed options and futures and eurodollar futures, maintaining risk within specified value-at-risk limits.
Foreign currency exchange rate risk is the risk that we will incur economic losses due to adverse changes in foreign currency exchange rates. This risk primarily arises from our foreign equity investments, including common stocks and limited partnership interests. We use foreign currency derivative contracts to partially offset this risk.
As of December 31, 2020, we had $118.8 million in foreign currency denominated equity investments, including the impact of foreign currency derivative contracts, and $1.2 million in unhedged non-U.S. dollar fixed income securities. As of December 31, 2019, we had $110.0 million in foreign currency denominated equity investments and $1.4 million in unhedged non-U.S. dollar fixed income securities.
Based upon the information and assumptions used, including the impact of foreign currency derivative contracts, as of December 31, 2020, we estimate that a 10% immediate unfavorable change in each of the foreign currency exchange rates to which we are exposed would decrease the value of our foreign currency denominated instruments by $13.6 million, compared with an estimated $12.8 million decrease as of December 31, 2019.
The modeling technique we use to report our currency exposure does not take into account correlation among foreign currency exchange rates. Even though we believe it is very unlikely that all of the foreign currency exchange rates that we are exposed to would simultaneously decrease by 10%, we nonetheless stress test our portfolio under this and other hypothetical extreme adverse market scenarios. Our actual experience may differ from these results because of assumptions we have used or because significant liquidity and market events could occur that we did not foresee.
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CAPITAL RESOURCES AND LIQUIDITY
Capital resources consist of shareholder’s equity. The following table summarizes our capital resources as of December 31.
($ in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
Common stock, retained income and additional capital paid-in | $ | 1,385,609 | $ | 1,442,897 | $ | 1,345,273 | |||||||||||
Accumulated other comprehensive income | 211,370 | 123,750 | 59,269 | ||||||||||||||
Total shareholder’s equity | $ | 1,596,979 | $ | 1,566,647 | $ | 1,404,542 |
Shareholder’s equity increased in 2020, primarily due to increased unrealized net capital gains on investments, partially offset by the net loss. Shareholder’s equity increased in 2019, primarily due to net income and increased unrealized net capital gains on investments.
Financial ratings and strength The following table summarizes our insurance financial strength ratings as of December 31, 2020.
Rating agency | Rating | ||||
A.M. Best Company, Inc. | A+ | ||||
Moody’s Investors Service, Inc. | A2 |
Our ratings are influenced by many factors including our operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks, the current level of operating leverage, ALIC’s ratings and our strategic integration with Allstate Insurance Company (“AIC”).
In June 2020, A.M. Best affirmed our insurance financial strength rating of A+. Subsequent to the announcement of the pending sale of ALIC in January 2021, A.M. Best downgraded our insurance financial strength rating to A from A+ and placed the rating under review with negative implications.
In January 2021, subsequent to the announcement of the pending sale of ALIC, Moody’s downgraded our insurance financial strength rating to A3 from A2 and placed the rating under review for potential further downgrade.
Effective June 25, 2020, we are no longer requesting a rating from S&P, which was rated A+ with a stable outlook at the time of withdrawal.
We prepare our statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the New York State Department of Financial Services. Statutory surplus is a measure that is often used as a basis for determining dividend paying capacity, operating leverage and premium growth capacity, and it is also reviewed by rating agencies in determining their ratings. As of December 31, 2020, our statutory surplus was $555.9 million compared to $614.2 million as of December 31, 2019.
The National Association of Insurance Commissioners (“NAIC”) has developed financial relationships or tests known as the Insurance Regulatory Information System to assist state insurance regulators in monitoring the financial condition of insurance companies and identifying companies that require special attention or actions by state insurance regulators. The NAIC analyzes financial data provided by insurance companies using prescribed ratios, each with defined “usual ranges”. Additional regulatory scrutiny may occur if a company’s ratios fall outside the usual ranges for four or more of the ratios. Four of our ratios are outside of the usual ranges.
Liquidity sources and uses Our potential sources and uses of funds principally include the following activities below.
Potential sources of funds | Potential uses of funds | ||||
Receipt of insurance premiums | Payment of contract benefits, surrenders and withdrawals | ||||
Contractholder fund deposits | Reinsurance cessions and payments | ||||
Reinsurance recoveries | Operating costs and expenses | ||||
Receipts of principal, interest and dividends on investments | Purchase of investments | ||||
Sales of investments | Repayment of securities lending | ||||
Funds from securities lending | Payment or repayment of intercompany loans | ||||
Intercompany loans | Dividends and return of capital to parent | ||||
Capital contributions from parent | Tax payments/settlements | ||||
Tax refunds/settlements |
Contractual obligations and commitments We have short-term and long-term contractual obligations and commitments. We manage our short-term liquidity position to ensure the availability of a sufficient amount of liquid assets to extinguish short-term liabilities as they come due in the normal course of business, including utilizing potential sources of liquidity. Long-term obligations include known contractual commitments that require cash needs beyond 12 months.
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Short-term contractual obligations are typically settled with cash or short-term investments and operating cash flows. Most of these obligations are paid within one year. These include other liabilities and accrued expenses, including liabilities for collateral and payable to affiliates.
Long-term contractual obligations include reserve for life-contingent contract benefits and contractholder funds. For our reserve for life-contingent contract benefits and contractholder funds, we estimate the present value of cash payments to be made to contractholders and policyholders. We are currently making payments for contracts where the timing of a portion or all of the payments has been determined by the contract. Certain of these contracts, such as immediate annuities without life contingencies, involve payment obligations where the amount and timing of the payment are essentially fixed and determinable. Other contracts, such as interest-sensitive life, fixed deferred annuities, traditional life insurance and voluntary accident and health insurance, involve payment obligations where a portion or all of the amount and timing of future payments is uncertain. For immediate annuities with life contingencies, the amount of future payments is uncertain since payments will continue as long as the annuitant lives. We have estimated the timing of payments related to these contracts based on historical experience and our expectation of future payment patterns. Uncertainties relating to these liabilities include mortality, morbidity, expenses, customer lapse and withdrawal activity, estimated additional deposits for interest-sensitive life contracts, and renewal premium for life policies, which may significantly impact both the timing and amount of future payments. See Note 8 of the financial statements in Item 11(e) and Application of Critical Accounting Estimates section of the MD&A for further information.
Intercompany loan agreement We have an intercompany loan agreement with the Corporation. The amount of intercompany loans available to the Company is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. The Corporation may use commercial paper borrowings, bank lines of credit and securities lending to fund intercompany borrowings. There were no borrowings by the Company under this agreement during 2020.
Liquidity exposure A portion of our product portfolio, including fixed annuities and interest-sensitive life insurance, is subject to surrender and withdrawal at the discretion of contractholders. Contractholder funds were $2.46 billion as of December 31, 2020. The following table summarizes contractholder funds by their contractual withdrawal provisions.
($ in thousands) | December 31, 2020 | Percent to total | |||||||||
Not subject to discretionary withdrawal | $ | 403,606 | 16.4 | % | |||||||
Subject to discretionary withdrawal with adjustments (1) | 624,662 | 25.3 | |||||||||
Subject to discretionary withdrawal without adjustments | 1,436,502 | 58.3 | |||||||||
Total contractholder funds | $ | 2,464,770 | 100.0 | % |
____________
(1)Includes $148.9 million of liabilities with a contractual surrender charge of less than 5% of the account balance.
Certain remote events and circumstances could constrain our or the Corporation’s liquidity. Those events and circumstances include, for example, a catastrophe resulting in extraordinary losses, a downgrade in the Corporation’s senior long-term debt ratings to non-investment grade status, a downgrade in AIC’s financial strength ratings, or a downgrade in our financial strength ratings. The rating agencies also consider the interdependence of the Corporation’s individually rated entities; therefore, a rating change in one entity could potentially affect the ratings of other related entities.
Cash flows As reflected in our Statements of Cash Flows, lower cash provided by operating activities in 2020 compared to 2019 was primarily due to lower premiums, partially offset by lower payments for operating expenses.
Lower cash provided by investing activities in 2020 compared to 2019 was primarily due to higher purchases of fixed income securities, partially offset by higher sales of equity and fixed income securities.
Lower cash used in financing activities in 2020 compared to 2019 was primarily due to decreased payments for contractholder benefits and withdrawals on fixed annuities.
Contractual commitments represent investment commitments such as limited partnership interests and mortgage loans. Limited partnership interests are typically funded over the commitment period which is shorter than the contractual expiration date of the partnership and as a result, the actual timing of the funding may vary. For a more detailed discussion of our off-balance sheet arrangements, see Note 7 of the financial statements in Item 11(e).
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APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the financial statements. The most critical estimates, presented in the order they appear in the Statements of Financial Position, include those used in determining:
•Fair value of financial assets
•Impairment of fixed income securities
•Deferred policy acquisition costs amortization
•Reserve for life-contingent contract benefits estimation
In making these determinations, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. It is reasonably likely that changes in these estimates could occur from period to period and result in a material impact on our financial statements.
A summary of each of these critical accounting estimates follows. For a more detailed discussion of the effect of these estimates on our financial statements, and the judgments and assumptions related to these estimates, see the referenced sections of this document. For a more detailed summary of our significant accounting policies, see the notes to the financial statements in Item 11(e).
Fair value of financial assets Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We use independent third-party valuation service providers, broker quotes and internal pricing methods to determine fair values. We obtain or calculate only one single quote or price for each financial instrument.
Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed income and other securities for which a fair value has been requested under the terms of our agreements. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates, and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial instruments. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued including its term, interest rate, credit rating, industry sector, and where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience. For certain equity securities, valuation service providers provide market quotations for completed transactions on the measurement date. In cases where market transactions or other market observable data is limited, the extent to which judgment is applied varies inversely with the availability of market observable information.
For certain of our financial assets measured at fair value, where our valuation service providers cannot provide fair value determinations, we obtain a single non-binding price quote from a broker familiar with the security who, similar to our valuation service providers, may consider transactions or activity in similar securities among other information. The brokers providing price quotes are generally from the brokerage divisions of financial institutions with market making, underwriting and distribution expertise regarding the security subject to valuation.
The fair value of certain financial assets, including privately placed corporate fixed income securities and free-standing derivatives, for which our valuation service providers or brokers do not provide fair value determinations, is developed using valuation methods and models widely accepted in the financial services industry. Our internal pricing methods are primarily based on models using discounted cash flow methodologies that develop a single best estimate of fair value. Our models generally incorporate inputs that we believe are representative of inputs other market participants would use to determine fair value of the same instruments, including yield curves, quoted market prices of comparable securities or instruments, published credit spreads, and other applicable market data as well as instrument-specific characteristics that include, but are not limited to, coupon rates, expected cash flows, sector of the issuer, and call provisions. Because judgment is required in developing the fair values of these financial assets, they may differ from the amount actually received to sell an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the financial assets’ fair values.
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For most of our financial assets measured at fair value, all significant inputs are based on or corroborated by market observable data and significant management judgment does not affect the periodic determination of fair value. The determination of fair value using discounted cash flow models involves management judgment when significant model inputs are not based on or corroborated by market observable data. However, where market observable data is available, it takes precedence, and as a result, no range of reasonably likely inputs exists from which the basis of a sensitivity analysis could be constructed.
We gain assurance that our financial assets are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, our processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, we assess the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. We perform procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, we may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third-party valuation sources for selected securities. We perform ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, we validate them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.
We also perform an analysis to determine whether there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity, and if so, whether transactions may not be orderly. Among the indicators we consider in determining whether a significant decrease in the volume and level of market activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, level of credit spreads over historical levels, bid-ask spread, and price consensuses among market participants and sources. If evidence indicates that prices are based on transactions that are not orderly, we place little, if any, weight on the transaction price and will estimate fair value using an internal model. As of December 31, 2020 and 2019, we did not adjust fair values provided by our valuation service providers or brokers or substitute them with an internal model for such securities.
The following table identifies fixed income and equity securities and short-term investments as of December 31, 2020 by source of fair value determination.
($ in thousands) | Fair value | Percent to total | |||||||||
Fair value based on internal sources | $ | 328,232 | 6.2 | % | |||||||
Fair value based on external sources (1) | 4,975,124 | 93.8 | |||||||||
Total | $ | 5,303,356 | 100.0 | % |
________________
(1)Includes $9.6 million that are valued using broker quotes and $7.8 million that are valued using quoted prices or quoted net asset values from deal sponsors.
For additional detail on fair value measurements, see Note 6 of the financial statements in Item 11(e).
Impairment of fixed income securities For fixed income securities classified as available-for-sale, the difference between amortized cost, net of credit loss allowance (“amortized cost, net”) and fair value, net of certain other items and deferred income taxes, (as disclosed in Note 5 of the financial statements in Item 11(e)), is reported as a component of accumulated other comprehensive income (“AOCI”) on the Statements of Financial Position and is not reflected in the operating results of any period until reclassified to net income upon the consummation of a transaction with an unrelated third party or when a credit loss allowance is recorded. We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income security that may require a credit loss allowance.
For each fixed income security in an unrealized loss position, we assess whether management with the appropriate authority has made the decision to sell or whether it is more likely than not we will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, any existing credit loss allowance would be written-off against the amortized cost basis of the asset along with any remaining unrealized losses, with the incremental losses recorded in earnings.
If we have not made the decision to sell the fixed income security and it is not more likely than not we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We calculate the estimated recovery value based on the best estimate of future cash flows, considering past events, current conditions and reasonable and supportable forecasts. The
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estimated future cash flows are discounted at the security’s current effective rate, and are compared to the amortized cost of the security. The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if we determine that the security is dependent on the liquidation of collateral for ultimate settlement.
If we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, a credit loss allowance is recorded in earnings for the shortfall in expected cash flows; however, the amortized cost, net of the credit loss allowance, may not be lower than the fair value of the security. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If we determine that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
When a security is sold or otherwise disposed or the security is deemed uncollectible and written off, we remove amounts previously recognized in the credit loss allowance. Recoveries after write-offs are recognized when received.
For additional detail on investment impairments, see Note 5 of the financial statements in Item 11(e).
Deferred policy acquisition costs amortization We incur significant costs in connection with acquiring insurance policies. In accordance with GAAP, costs that are related directly to the successful acquisition of new or renewal insurance policies are deferred and recorded as an asset on the Statements of Financial Position.
DAC related to traditional life and voluntary accident and health insurance is amortized over the premium paying period of the related policies in proportion to the estimated revenues on such business. Significant assumptions relating to estimated premiums, investment returns, as well as mortality, persistency and expenses to administer the business are established at the time the policy is issued and are generally not revised during the life of the policy. The assumptions for determining the timing and amount of DAC amortization are consistent with the assumptions used to calculate the reserve for life-contingent contract benefits. Any deviations from projected business in force resulting from actual policy terminations differing from expected levels and any estimated premium deficiencies may result in a change to the rate of amortization in the period such events occur. Generally, the amortization periods for these policies approximate the estimated lives of the policies. The recovery of DAC is dependent upon the future profitability of the business. We periodically review the adequacy of reserves and recoverability of DAC using actual experience and current assumptions. We evaluate our traditional life insurance products, immediate annuities with life contingencies, and voluntary accident and health insurance products individually. In the event actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance must be expensed to the extent not recoverable and a premium deficiency reserve may be required if the remaining DAC balance is insufficient to absorb the deficiency. In 2020 and 2019, our DAC recoverability evaluation concluded that all recorded DAC balances were recoverable. For additional detail on reserve adequacy, see the Reserve for life-contingent contract benefits estimation section.
DAC related to interest-sensitive life insurance is amortized in proportion to the incidence of the total present value of gross profits, which includes both actual historical gross profits (“AGP”) and estimated future gross profits (“EGP”) expected to be earned over the estimated lives of the contracts. The amortization is net of interest on the prior period DAC balance using rates established at the inception of the contracts. Actual amortization periods generally range from 15-30 years; however, incorporating estimates of the rate of customer surrenders, partial withdrawals and deaths generally results in the majority of the DAC being amortized during the surrender charge period, which is typically 10-20 years for interest-sensitive life. The rate of DAC amortization is reestimated and adjusted by a cumulative charge or credit to income when there is a difference between the incidence of actual versus expected gross profits in a reporting period or when there is a change in total EGP.
AGP and EGP primarily consist of the following components: contract charges for the cost of insurance less mortality costs and other benefits (benefit margin); investment income and realized capital gains and losses less interest credited (investment margin); and surrender and other contract charges less maintenance expenses (expense margin). The principal assumptions for determining the amount of EGP are mortality, persistency, expenses, investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of any hedges. These assumptions are reasonably likely to have the greatest impact on the amount of DAC amortization. Changes in these assumptions can be offsetting and we are unable to reasonably predict their future movements or offsetting impacts over time.
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Each reporting period, DAC amortization is recognized in proportion to AGP for that period adjusted for interest on the prior period DAC balance. This amortization process includes an assessment of AGP compared to EGP, the actual amount of business remaining in force and realized capital gains and losses on investments supporting the product liability. The impact of realized capital gains and losses on amortization of DAC depends upon which product liability is supported by the assets that give rise to the gain or loss. If the AGP is greater than EGP in the period, but the total EGP is unchanged, the amount of DAC amortization will generally increase, resulting in a current period decrease to earnings. The opposite result generally occurs when the AGP is less than the EGP in the period, but the total EGP is unchanged. However, when DAC amortization or a component of gross profits for a quarterly period is potentially negative (which would result in an increase of the DAC balance) as a result of negative AGP, the specific facts and circumstances surrounding the potential negative amortization are considered to determine whether it is appropriate for recognition in the financial statements. Negative amortization is only recorded when the increased DAC balance is determined to be recoverable based on facts and circumstances. For products whose supporting investments are exposed to capital losses in excess of our expectations which may cause periodic AGP to become temporarily negative, EGP and AGP utilized in DAC amortization may be modified to exclude the excess capital losses.
Annually, we review and update the assumptions underlying the projections of EGP, including mortality, persistency, expenses, investment returns, comprising investment income and realized capital gains and losses, interest crediting rates and the effect of any hedges, using our experience and industry experience. At each reporting period, we assess whether any revisions to assumptions used to determine DAC amortization are required. These reviews and updates may result in amortization acceleration or deceleration, which are referred to as “DAC unlocking”. If the update of assumptions causes total EGP to increase, the rate of DAC amortization will generally decrease, resulting in a current period increase to earnings. A decrease to earnings generally occurs when the assumption update causes the total EGP to decrease.
The following table provides the effect on DAC amortization of changes in assumptions relating to the gross profit components of investment margin, benefit margin and expense margin during the years ended December 31.
($ in thousands) | 2020 | 2019 | |||||||||||||||
Investment margin | $ | 13,414 | $ | 903 | |||||||||||||
Benefit margin | (709) | 1,563 | |||||||||||||||
Expense margin | (2,798) | (44) | |||||||||||||||
Net acceleration | $ | 9,907 | $ | 2,422 |
In 2020, DAC amortization acceleration for changes in the investment margin component of EGP related to interest-sensitive life insurance and was due to lower projected future interest rates and investment returns compared to our previous expectations. The deceleration related to benefit margin was due to decreased projected mortality. The expense margin deceleration was due to a decrease in projected expenses.
In 2019, DAC amortization acceleration for changes in the investment margin component of EGP was due to lower projected future interest rates and investment returns compared to our previous expectations. The acceleration related to benefit margin was primarily due to more refined policy level information and assumptions.
The following table displays the sensitivity of reasonably likely changes in assumptions included in the gross profit components of investment margin or benefit margin to amortization of the DAC balance as of December 31, 2020.
($ in thousands) | Increase/(reduction) | ||||||||||
Increase in future investment margins of 25 basis points | $ | 5,122 | |||||||||
Decrease in future investment margins of 25 basis points | (5,660) | ||||||||||
Decrease in future life mortality by 1% | $ | 1,403 | |||||||||
Increase in future life mortality by 1% | (1,439) |
Any potential changes in assumptions discussed above are measured without consideration of correlation among assumptions. Therefore, it would be inappropriate to add them together in an attempt to estimate overall variability in amortization.
For additional detail related to DAC, see the Operations section of this document.
Reserve for life-contingent contract benefits estimation Due to the long-term nature of traditional life insurance, life-contingent immediate annuities and voluntary accident and health insurance products, benefits are payable over many years; accordingly, the reserves are calculated as the present value of future expected benefits to be paid, reduced by the present value of future expected net premiums. Long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses are used when establishing the reserve for life-contingent contract benefits payable under these insurance policies. These assumptions, which for traditional life insurance are applied using the net level premium method, include provisions for adverse deviation and generally vary by characteristics such as type of coverage, year of issue and policy
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duration. Future investment yield assumptions are determined based upon prevailing investment yields as well as estimated reinvestment yields. Mortality, morbidity and policy termination assumptions are based on our experience and industry experience. Expense assumptions include the estimated effects of inflation and expenses to be incurred beyond the premium-paying period. These assumptions are established at the time the policy is issued, are consistent with assumptions for determining DAC amortization for these policies, and are generally not changed during the policy coverage period. However, if actual experience emerges in a manner that is significantly adverse relative to the original assumptions, adjustments to DAC or reserves may be required resulting in a charge to earnings which could have a material effect on our operating results and financial condition.
We periodically review the adequacy of reserves and recoverability of DAC using actual experience and current assumptions. In the event actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance must be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required.
We evaluate our traditional life insurance products, immediate annuities with life contingencies, and voluntary accident and health insurance individually.
In the third quarter of 2020, the premium deficiency evaluation of our immediate annuities with life contingencies resulted in a premium deficiency reserve of $196.0 million. Our long-term investment yield assumption was lowered, which resulted in the prior sufficiency changing to a deficiency. The deficiency was recognized as an increase in the reserve for life contingent contract benefits. The original assumptions used to establish reserves were updated to reflect current assumptions, and the primary changes included mortality expectations, where annuitants are living longer than originally anticipated, and long-term investment yields. As of December 31, 2020, our reviews concluded that no additional premium deficiency adjustments were necessary for our immediate annuities with life contingencies.
As of December 31, 2020, traditional life insurance and accident and health insurance both have a substantial sufficiency. In 2019, our reviews concluded that no premium deficiency adjustments were necessary.
We also review these policies for circumstances where projected profits would be recognized in early years followed by projected losses in later years. In 2020 and 2019, our reviews concluded that there were no projected losses following projected profits in each long-term projection.
We will continue to monitor the experience of our traditional life insurance and immediate annuities. We periodically complete comprehensive mortality studies for our structured settlement annuities with life contingencies to determine whether annuitants are living for a longer period than originally estimated. We anticipate that investment and reinvestment yields, mortality, and policy terminations are the factors that would be most likely to require premium deficiency adjustments to reserves or related DAC. Mortality rates and investment and reinvestment yields are the factors that would be most likely to require a profits followed by losses liability accrual.
For further detail on the reserve for life-contingent contract benefits, see Note 8 of the financial statements in Item 11(e).
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REGULATION AND LEGAL PROCEEDINGS
We are subject to extensive regulation and we are involved in various legal and regulatory actions, all of which have an effect on specific aspects of our business. For a detailed discussion of the legal and regulatory actions in which we are involved, see Note 11 of the financial statements in Item 11(e).
PENDING ACCOUNTING STANDARDS
There are pending accounting standards that we have not implemented because the implementation date has not yet occurred. For a discussion of these pending standards, see Note 2 of the financial statements in Item 11(e).
The effect of implementing certain accounting standards on our financial results and financial condition is often based in part on market conditions at the time of implementation of the standard and other factors we are unable to determine prior to implementation. For this reason, we are sometimes unable to estimate the effect of certain pending accounting standards until the relevant authoritative body finalizes these standards or until we implement them.
Item 11(i). Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 11(j). Quantitative and Qualitative Disclosures About Market Risk
Information required for Item 11(j) is incorporated by reference to the material under the caption “Market Risk” in Item 11(h) of this registration statement.
Item 11(k). Directors, Executive Officers, Promoters and Control Persons.
Identification of Directors and Executive Officers
Directors are elected at each annual meeting of shareholders for a term of one year. The biographies of each of the directors and executive officers below contain information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, if applicable, and the experiences, qualifications, attributes or skills that caused the company management to determine that a director or executive officer should serve as such for Allstate Life of New York.
Maureen A. Buckley, 60, became a director in March 2016. She has significant executive experience in the insurance industry, having served in various leadership roles for over thirty years, and is currently a consultant at Inspire Confidence Group, an advisory practice of Ameriprise Financial Services, Inc. From 2010 to 2015, Ms. Buckley served as Chairman, President and Chief Executive Officer of RiverSource Life Insurance Company of New York, a subsidiary of Ameriprise Financial Services, Inc. She is also a former board member of the Life Insurance Council of New York (LICONY). Ms. Buckley was selected to serve on Allstate Life of New York’s board because she has extensive experience in providing executive, fiscal, strategic and operational leadership and possesses a thorough understanding of New York State insurance regulations, regulatory compliance, legal entity operations and government relations.
James M. Flewellen, 63, has been a director since June 2020 and Senior Vice President since December 2016. Mr. Flewellen is also a Senior Vice President of Allstate Life Insurance Company (ALIC) and Allstate Insurance Company (AIC), each a parent company of Allstate Life of New York. He is responsible for leading the life and retirement sales strategy across the field organization. Prior to joining Allstate in November 2016, Mr. Flewellen served for over four years as Chief Distribution Officer at Transamerica, where he managed a diverse distribution portfolio including the Transamerica Career Agency System, Independent Brokerage, World Financial Group and Transamerica Financial Advisors. Mr. Flewellen was selected to serve on Allstate Life of New York’s board because he has extensive experience in building distribution capabilities that support customer needs.
Angela K. Fontana, 52, has been a director, General Counsel and Secretary since December 2012, and Senior Vice President since October 2019. She previously served as Vice President from December 2012 to October 2019. Ms. Fontana is also a director, Vice President, General Counsel and Secretary of ALIC and a Vice President, Assistant General Counsel and Assistant Secretary of AIC, each a parent company of Allstate Life of New York. Since joining Allstate in 1995, Ms. Fontana has progressed through various positions, including serving as Chief Compliance Officer of Allstate Life of New York and ALIC and supporting the Allstate personal lines and Allstate life and retirement business units. Ms. Fontana serves as a member of the Board of Directors of LICONY and is the President-Elect of the Association of Life Insurance Counsel. Ms. Fontana has been selected to serve on Allstate Life of New York’s board because she has a deep understanding of the insurance business generally and has extensive experience in regulatory compliance and government relations. In addition, Ms. Fontana has extensive knowledge regarding Allstate Life of New York’s business, including its products, distribution channels and customers.
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John R. Hurley, 70, became a director in March 2016. Mr. Hurley was Vice President of Park Strategies, LLC, from May 2013 to December 2019, where he consulted and lobbied on legislative and regulatory matters affecting the life insurance industry and related businesses. Mr. Hurley has served on various insurance industry association boards and held various leadership roles, including chair of the American Council of Life Insurers State Legislative Advisory Group and chair of the Legislative Committee of LICONY. He is a member of the Association of Life Insurance Counsel and admitted to practice law in New York State and the United States Courts for the Southern and Eastern Districts of New York. Mr. Hurley has been selected to serve on Allstate Life of New York’s board because he has decades of experience advising senior management of life and health insurance companies on critical government relations and legal issues and strategic and operational matters in the insurance industry.
Mario Imbarrato, 48, has been a director since March 2015 and Senior Vice President and Chief Financial Officer since June 2020. He previously served as Vice President from March 2015 to September 2019 and as Chief Financial Officer from March 2015 to December 2019. He is also a director and Chief Financial Officer of ALIC and a Senior Vice President of AIC, each a parent company of Allstate Life of New York. Since joining Allstate in 1993, Mr. Imbarrato has held various leadership roles, including leading the planning, financial analysis, expense management, reinsurance, capital planning, strategic operations and financial actuarial teams. Mr. Imbarrato is a Fellow of the Society of Actuaries, a Member of the American Academy of Actuaries and a Chartered Financial Analyst charterholder. Mr. Imbarrato has been selected to serve on Allstate Life of New York’s board because he has extensive experience in actuarial analysis as well as financial, capital, asset and liability, reinsurance and risk management.
Rebecca D. Kennedy, 48, has been a director since January 2020 and Vice President since July 2018. She is also a Vice President of ALIC and AIC, each a parent company of Allstate Life of New York. Ms. Kennedy is responsible for leading the claims, annuity operations, life compliance, underwriting and risk management services and medical team. Since joining Allstate in 1999, Ms. Kennedy has held various positions of progressive responsibility within the investments and life and retirement organizations. Ms. Kennedy is a Fellow of the Society of Actuaries and a Chartered Financial Analyst. Ms. Kennedy has been selected to serve on Allstate Life of New York’s board because she has extensive experience in the life insurance industry, especially in life and annuity operations.
Gene L. Lunman, 61, has served as a director since June 2018. Mr. Lunman previously served as a Senior Advisor at Quaera Insights, LLC from November 2016 to November 2018. From 2005 to 2016, Mr. Lunman held numerous leadership positions at Metropolitan Life Insurance Company, most recently as Executive Vice President. Mr. Lunman is a Fellow of the Society of Actuaries. Mr. Lunman has been selected to serve on Allstate Life of New York’s board because he has a deep knowledge of the life insurance and annuity industry as well as extensive actuarial, product design and operational expertise.
Jesse E. Merten, 46, has been a director, Chairman of the Board, President and Chief Executive Officer since June 2020. Mr. Merten is also a director of ALIC and AIC, each a parent company of Allstate Life of New York, and President, Financial Products of AIC. Mr. Merten previously served as Executive Vice President and Chief Risk Officer of AIC from December 2017 to May 2020. In 2015, Mr. Merten was elected Senior Vice President and Treasurer, and in 2018 as Executive Vice President and Treasurer, of Allstate Life of New York as well as The Allstate Corporation, AIC and ALIC, each a parent of Allstate Life of New York. Mr. Merten has been selected to serve on Allstate Life of New York’s board because he has extensive experience overseeing corporate risk, liquidity management, capital sourcing and deployment and corporate financial planning and analysis.
John E. Dugenske, 55, has been President, Investments and Financial Products, since March 2020. He is also a director and Chief Executive Officer of ALIC and a director and President, Investments and Financial Products, of AIC, each a parent company of Allstate Life of New York. Mr. Dugenske is responsible for overseeing Allstate’s $92.24 billion investment portfolio. Mr. Dugenske previously served as Executive Vice President and Chief Investment Officer beginning in March 2017 and Corporate Strategy Officer beginning in January 2018 of Allstate Life of New York and AIC. Prior to joining Allstate in March 2017, Mr. Dugenske held various roles at UBS Global Asset Management beginning in 2008, most recently as the group managing director and global head of Fixed Income, overseeing more than $200 billion in assets. He was also a member of the UBS Asset Management Executive Committee. Mr. Dugenske has extensive experience in managing and overseeing large portfolios and has held various leadership, research and portfolio management roles at Lehman Brothers, Deutsche Asset Management, and NISA Investment Advisors, LLC.
Julie Parsons, 48, has been Executive Vice President, Chief Operating Officer, Personal Property-Liability of AIC, a parent company of Allstate Life of New York, since January 2020. She is also a director of ALIC, the direct parent company of Allstate Life of New York. She previously served as Executive Vice President, Product Operations of AIC beginning in May 2017, and as Senior Vice President, Vehicle Product Management of AIC beginning in October 2014. Ms. Parsons is a fellow of the Casualty Actuarial Society. Ms. Parsons has a deep understanding of the insurance business, especially in developing and delivering insurance solutions, pricing and underwriting.
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Theresa Resnick, 58, has been Appointed Actuary since October 2007 and became Vice President in September 2016. She is also Vice President and Appointed Actuary for ALIC and Vice President of AIC, each a parent company of Allstate Life of New York. Ms. Resnick is responsible for all aspects of GAAP, statutory and tax valuation in connection with the life, annuity and health liabilities of Allstate’s life companies. Ms. Resnick has deep knowledge of the insurance industry as well as extensive experience in life and health insurance company financial management.
Item 11(l). | Corporate Governance. |
Compensation Committee Interlocks and Insider Participation
Allstate Life of New York’s Board of Directors does not have a compensation committee. All compensation decisions are made by The Allstate Corporation, as the ultimate parent of Allstate Life of New York. No executive officer of Allstate Life of New York served as a member of the compensation committee of another entity for which any executive officer served as a director of Allstate Life of New York.
Item 11(m). | Security Ownership of Certain Beneficial Owners and Management. |
Security Ownership of Certain Beneficial Owners
The following table shows the number of Allstate Life of New York shares owned by any beneficial owner who owned more than five percent of any class of Allstate Life of New York’s voting securities as of March 1, 2021.
Title of Class (a) | Name and Address of Beneficial Owner (b) | Amount and Nature of Beneficial Ownership (c) | Percent of Class (d) | ||||||||||||||||||||
Capital Stock | Allstate Life Insurance Company 3075 Sanders Road, Northbrook, IL 60062 | 100,000 | 100% | ||||||||||||||||||||
N/A | Allstate Insurance Company 2775 Sanders Road, Northbrook, IL 60062 | Indirect voting and investment power of shares owned by Allstate Life Insurance Company(1) | N/A | ||||||||||||||||||||
N/A | Allstate Insurance Holdings, LLC 2775 Sanders Road, Northbrook, IL 60062 | Indirect voting and investment power of shares owned by Allstate Life Insurance Company(2) | N/A | ||||||||||||||||||||
N/A | The Allstate Corporation 2775 Sanders Road, Northbrook, IL 60062 | Indirect voting and investment power of shares owned by Allstate Life Insurance Company(3) | N/A |
(1) Allstate Life Insurance Company is a wholly owned subsidiary of Allstate Insurance Company.
(2) Allstate Insurance Company is a wholly owned subsidiary of Allstate Insurance Holdings, LLC.
(3) Allstate Insurance Holdings, LLC is a wholly owned subsidiary of The Allstate Corporation.
Security Ownership of Directors and Executive Officers
The following table shows common shares of The Allstate Corporation (Allstate), the ultimate parent company of Allstate Life of New York, beneficially owned as of March 1, 2021, by each director and named executive officer of Allstate Life of New York individually, and by all executive officers and directors of Allstate Life of New York as a group. Shares reported as beneficially owned include shares held indirectly through the Allstate 401(k) Savings Plan and other shares held indirectly. It also includes shares subject to stock options exercisable on or before April 30, 2021, and restricted stock units and performance stock awards with restrictions that expire on or before April 30, 2021. The percentage of Allstate common shares beneficially owned by any Allstate Life of New York director, named executive officer or by all directors and executive officers of Allstate Life of New York as a group does not exceed 1%. As of March 1, 2021, none of these shares were pledged as security.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
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Name of Beneficial Owner | Amount and Nature of Beneficial Ownership of Allstate Common Stock (a) | Common Stock Subject to Options Exercisable and Restricted Stock Units and Performance Stock Awards for which restrictions expire on or prior to April 30, 2021 --- Included in Column (a) (b) | Percent of Class | ||||||||
Maureen A. Buckley | 0 | 0 | * | ||||||||
James M. Flewellen | 24,867 | 20,919 | * | ||||||||
Angela K. Fontana | 11,503 | 11,503 | * | ||||||||
John R. Hurley | 0 | 0 | * | ||||||||
Mario Imbarrato | 26,619 | 25,353 | * | ||||||||
Rebecca D. Kennedy | 4,326 | 4,225 | * | ||||||||
Gene L. Lunman | 0 | 0 | * | ||||||||
Jesse E. Merten | 66,334 | 51,099 | * | ||||||||
Mary Jane Fortin | 4,980 | 0 | * | ||||||||
Mario Rizzo | 180,529 | 140,927 | * | ||||||||
All directors and executive officers as a group (13 total) | 664,454 | 515,223 | * |
* Less than 1% of the outstanding shares of common stock.
Item 11(n). Transactions with Related Persons, Promoters, and Certain Control Persons
Transactions with Related Persons.
This table describes certain intercompany agreements involving amounts greater than $120,000 between Allstate Life of New York and the following companies:
•Allstate Life Insurance Company (“ALIC”), the direct parent of Allstate Life of New York;
•Allstate Insurance Company (“AIC”), an indirect parent of Allstate Life of New York;
•Allstate Insurance Holdings, LLC (“AIH”), an indirect parent of Allstate Life of New York; and
•The Allstate Corporation (“AllCorp”), the ultimate indirect parent of Allstate Life of New York.
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Transaction Description | Approximate dollar value of the amount involved in the transaction, per fiscal year | Related Person(s) involved in the transaction and the approximate dollar value of the Related Person’s interest in the transaction ($) | ||||||||||||||||||
($) | ALIC | AIC | AIH | AllCorp | ||||||||||||||||
Amended and Restated Service and Expense Agreement between Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2004, as amended by Amendment No. 1 effective January 1, 2009, and as supplemented by New York Insurer Supplement to Amended and Restated Service and Expense Agreement between Allstate Insurance Company, The Allstate Corporation, Allstate Life Insurance Company of New York and Intramerica Life Insurance Company, effective March 5, 2005.2 | 2018 2019 2020 | 5,804,734,6871 5,455,724,5001 5,410,520,3751 | 215,649,446 206,839,133 170,271,485 | 1,240,766,409 1,132,529,633 1,145,601,127 | 0 0 0 | 24,791,339 24,562,359 36,757,481 | ||||||||||||||
Investment Advisory Agreement and Amendment to Services Agreement as of January 1, 2002 between Allstate Insurance Company, Allstate Investments, LLC and Allstate Life Insurance Company of New York. | 2018 2019 2020 | 9,313,5461 8,857,8951 7,913,1221 | N/A | 0 0 0 | N/A | N/A | ||||||||||||||
Reinsurance Agreements between Allstate Life Insurance Company and Allstate Life Insurance Company of New York: Reinsurance Agreement effective January 1, 1984, as amended by Amendment No. 1 effective September 1, 1984, Amendment No. 2 effective January 1, 1987, Amendment No. 3 effective October 1, 1988, Amendment No. 4 effective January 1, 1994, Amendment No. 5 effective December 31, 1995, Amendment No. 6 effective December 1, 2007, Amendment No. 7 effective November 1, 2009, Amendment No. 8 effective July 1, 2013, and Amendment No. 9 effective December 31, 2019; Assumption Reinsurance Agreement between Allstate Life Insurance Company and Allstate Life Insurance Company of New York effective July 1, 1984; Reinsurance Agreement effective January 1, 1991, as amended by Amendment No. 1 effective December 31, 1995, and Amendment No. 2 effective December 31, 2019; Stop Loss Reinsurance Agreement effective December 31, 2001, as amended by Amendment No. 1 effective December 31, 2019. | 2018 2019 2020 | 2,228,9091,3 59,091,3331,3 100,753,8931,3 | 2,228,909 (59,091,333) (100,753,893) | N/A | N/A | N/A | ||||||||||||||
Intercompany Loan Agreement among The Allstate Corporation, Allstate Life Insurance Company, and other certain subsidiaries of the Allstate Corporation dated February 1, 1996.2 | 2018 2019 2020 | 1,115,026,4501 247,543,1641 199,388,8711 | 0 0 0 | 0 0 0 | 0 0 0 | 1,115,026,450 (247,543,164) 199,388,871 | ||||||||||||||
Tax Sharing Agreement among The Allstate Corporation and certain affiliates dated as of November 12, 1996.2 | 2018 2019 2020 | 650,000,0011,4 584,887,7341,4 1,303,358,6971,4 | 20,823,175 52,327,294 9,578,548 | 720,044,054 533,996,157 1,270,024,372 | 0 0 0 | (107,580,643) (87,501,759) (80,120,904) | ||||||||||||||
Assignment and Delegation of Administrative Services Agreements, Underwriting Agreements, and Selling Agreements entered into as of September 1, 2011 between ALFS, Inc., Allstate Life Insurance Company, Allstate Life Insurance Company of New York, Allstate Distributors, LLC, Intramerica Life Insurance Company, and Allstate Financial Services, LLC. | 2018 2019 2020 | 340,7501 444,1051 509,5841 | (103,854) (117,322) (118,021) | N/A | N/A | N/A |
(1)Gross amount of expense received under the transaction.
(2)Each identified Related Person is a Party to the transaction.
(3)Net reinsurance expense.
(4)Total amounts paid to the Internal Revenue Service.
Policies and Procedures for Review and Approval of Related Person Transactions
All intercompany agreements to which Allstate Life of New York is a party are approved by the Board as well as by the board of any other affiliate of The Allstate Corporation which is a party to the agreement. Intercompany agreements are also submitted for approval to the New York State Insurance Department, Allstate Life of New York’s domestic regulator pursuant to the applicable state’s insurance holding company systems act. This process is documented in writing in an internal procedure that captures the review and approval process of all intercompany agreements. All approvals are maintained in Allstate Life of New York’s corporate records.
While there is no formal process for the review and approval of related person transactions between unaffiliated entities specific to Allstate Life of New York, all directors and executive officers of Allstate Life of New York are subject to the Global Code of Business Conduct (“Code”). The Code includes a written conflict of interest policy that was adopted by the Board of Directors of The Allstate Corporation, the ultimate parent company of Allstate Life of New York. Any potential relationship or activity that could impair independent thinking and judgment, including holding a financial interest in a business venture that is similar to Allstate, or in a business that has a relationship with Allstate, must be disclosed to Human Resources. Human Resources will work with representatives from the Law Department, including Enterprise Business Conduct, to determine whether an actual conflict of interest exists. Each director and executive officer must sign a certification annually.
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Independence Standards for Directors
Outside directors of Allstate Life of New York are subject to independence standards based on New York insurance law. Generally, these independence standards require that an independent director cannot be an employee or a beneficial owner of a controlling interest in Allstate Life of New York or any other affiliate of The Allstate Corporation. Applying these independence standards, Ms. Buckley and Messrs. Hurley and Lunman are independent.
Although not subject to the independence standards of the New York Stock Exchange, for purposes of this S-1 registration statement, Allstate Life of New York has applied the independence standards required for listed companies of the New York Stock Exchange to the Board. Applying these standards, Allstate Life of New York has determined that Ms. Buckley and Messrs. Hurley and Lunman are considered to be independent.
Other Information:
A section entitled “Experts” is added to your prospectus as follows:
Experts:
The financial statements included in this Prospectus and the related financial statement schedules included elsewhere in this Registration Statement, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the Registration Statement. Such financial statements and financial statement schedules are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
Under the “More Information” section, the subsection entitled “Legal Matters” is deleted and replaced with the following:
Legal Matters:
Certain matters of state law pertaining to the Contracts, including the validity of the Contracts and Allstate Life of New York’s right to issue such Contracts under applicable state insurance law, have been passed upon by Angela K. Fontana, General Counsel of Allstate Life of New York.
Principal Underwriter:
Allstate Distributors, L.L.C. (“ADLLC”) serves as the principal underwriter and distributor of the securities registered herein. The securities offered herein are sold on a continuous basis, and there is no specific end date for the offering. ADLLC, an affiliate of Allstate Life Insurance Company of New York, is a wholly owned subsidiary of Allstate Life Insurance Company. ADLLC is a registered broker dealer under the Securities Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority. ADLLC is not required to sell any specific number or dollar amount of securities, but will use its best efforts to sell the securities offered.
Administration:
Administration. We have primary responsibility for all administration of the Contracts and the Variable Account. We entered into an administrative services agreement with The Prudential Insurance Company of America (“PICA”) whereby, PICA or an affiliate provides administrative services to the Variable Account and the Contracts on our behalf. In addition, PICA entered into a master services agreement with se2, LLC, of 5801 SW 6th Avenue, Topeka, Kansas 66636, whereby se2, LLC provides certain business process outsourcing services with respect to the Contracts. se2, LLC may engage other service providers to provide certain administrative functions. These service providers may change over time, and as of December 31, 2020, consisted of the following: Donnelley Financial Solutions, formerly an RR Donnelley company (compliance printing and mailing) located at 35 West Wacker Drive, Chicago, IL 60601; Iron Mountain Information Management, LLC (file storage and document destruction) located at 1 Federal Street, Boston, MA 02110; TierPoint, LLC (back-up printing and disaster recovery) located at 9394 West Dodge Rd, Suite 100, Omaha, NE 68114; SOVOS Compliance (withholding calculations and tax statement mailing) located at 3650 Annapolis Lane, Suite 190, Plymouth, MN 55447; Records Center of Topeka, a division of Underground Vaults & Storage, Inc. (back-up tapes storage) located at 1540 NW Gage Blvd. #6, Topeka, KS 66618; Venio LLC, d/b/a Keane (lost shareholder search) located at PO Box 1508, Southeastern, PA 19399-1508; Broadridge Output Solutions, Inc., successor in interest to Broadridge Customer Communications Central, LLC (printing and mailing anniversary
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statements, financial confirmations, automated letters and quarterly statements) located at 2600 Southwest Blvd., Kansas City, MO 64108.
In administering the Contracts, the following services are provided, among others:
• maintenance of Contract Owner records;
• Contract Owner services;
• calculation of unit values;
• maintenance of the Variable Account; and
• preparation of Contract Owner reports.
We will send you Contract statements at least annually. We will also send you transaction confirmations. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement or a confirmation. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error.
Correspondence sent by regular mail to our Annuity Service Center should be sent to the address shown above. Your correspondence will be picked up at this address and then delivered to our Annuity Service Center. Your correspondence is not considered received by us until it is received at our Annuity Service Center. Where this prospectus refers to the day when we receive a purchase payment, request, election, notice, transfer or any other transaction request from you, we mean the day on which that item (or the last requirement needed for us to process that item) arrives in complete and proper form at our Annuity Service Center or via the appropriate telephone or fax number if the item is a type we accept by those means. There are two main exceptions: if the item arrives at our Annuity Service Center (1) on a day that is not a business day, or (2) after the close of a business day, then, in each case, we are deemed to have received that item on the next business day.
We will also provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws.
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Supplement dated March 16, 2021 to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York. Your variable annuity contract may not offer all of the variable sub-accounts described below. Please check your annuity prospectus to determine which of the following changes affect the annuity contract that you own.
Fund Additions
The following investment options will be added to your Variable Annuity as noted below, effective close of business on April 30, 2021.
Portfolio | Investment Objective | Investment Adviser | ||||||
Invesco V.I. American Value Fund – Series I | Long-term capital appreciation. | Invesco Advisers, Inc. | ||||||
Invesco V.I. American Value Fund – Series II | Long-term capital appreciation. | Invesco Advisers, Inc. | ||||||
Invesco V.I. Equity and Income Fund – Series I | Both capital appreciation and current income. | Invesco Advisers, Inc. |
Portfolio Mergers
The following Target Portfolios will be merged into the Acquiring Portfolios as noted below, effective close of business on April 30, 2021 (“Merger Date”), subject to approval by the shareholders of the Target Portfolios. After the Merger Date, all references to the Target Portfolios in your Annuity prospectus should be disregarded.
Target Portfolio | Acquiring Portfolio | ||||
Invesco V.I. Value Opportunities Fund – Series I | Invesco V.I. American Value Fund – Series I | ||||
Invesco V.I. Value Opportunities Fund – Series II | Invesco V.I. American Value Fund – Series II | ||||
Invesco V.I. Managed Volatility Fund – Series I | Invesco V.I. Equity and Income Fund – Series I | ||||
Invesco V.I. Managed Volatility Fund – Series II | Invesco V.I. Equity and Income Fund – Series II |
On the Merger Date, the Target Portfolios will no longer be available under any of our annuity contracts, and any Contract Value remaining in the sub-accounts investing in the Target Portfolios on the Merger Date will be transferred to the sub-accounts investing in the corresponding Acquiring Portfolios. Your Contract Value in the units of the sub-accounts investing in the Acquiring Portfolios will be equal to your Contract Value of the units of the sub-accounts investing in the corresponding Target Portfolios immediately prior to merger.
Please note that you have the ability to transfer out of the sub-accounts investing in the Target Portfolios any time prior to the Merger Date. Such transfers will be free of charge and will not count as one of your annual free transfers under your annuity contract. Also, for a period of 60 days after the Merger Date, any Contract Value that was transferred to the sub-accounts investing in the Acquiring Portfolios as the result of the merger can be transferred free of charge and will not count as one of your annual free transfers.
It is important to note that any transfer limitations applicable to the investment option to which a transfer is made will apply as described in your prospectus. Please refer to your prospectus for information about investment options.
After the Merger Date, the Target Portfolios will no longer exist and, unless you instruct us otherwise, any outstanding instruction you have on file with us that designates the sub-accounts investing in the Target Portfolios will be deemed instruction for the sub-accounts investing in the corresponding Acquiring Funds. This includes, but is not limited to, systematic withdrawals and Dollar Cost Averaging.
Additionally, if the Target Portfolio is part of an allocation model for your Contract, you may need to make a new election of an available investment option within the asset allocation model for the model to continue to operate for your Contract following the Merger Date. You may wish to consult with your financial professional about the impact of the mergers on any allocation instructions and asset allocation models in effect for your Contract.
Portfolio Closures
Following the Portfolio mergers, the following variable sub-accounts will be closed to all Contract Owners except those Contract Owners who have Contract Value invested in the variable sub-accounts as a result of the mergers:
For Contract Owners of (including New York versions of these contracts) | Portfolio Closure | ||||
AIM Lifetime Enhanced Choice Variable Annuity AIM Lifetime Plus Variable Annuity AIM Lifetime Plus II Variable Annuity | Invesco V.I. American Value Fund – Series I | ||||
AIM Lifetime America Classic AIM Lifetime America Regal AIM Lifetime America Freedom | Invesco V.I. American Value Fund – Series II | ||||
The Allstate Provider Variable Annuity (Original) | Invesco V.I. Equity and Income – Series I |
Contract Owners who have Contract Value invested in these variable sub-accounts as of the Merger Date may continue to submit additional investments into the variable sub-accounts thereafter, although they will not be permitted to invest in the variable sub-accounts if they withdraw or otherwise transfer their entire Contract Value from the variable sub-accounts following the Merger Date. Contract Owners who do not have Contract Value invested in the variable sub-accounts before the Merger Date will not be permitted to invest in these variable sub-accounts thereafter.
Any applicable Dollar Cost Averaging, category models and/or auto-rebalancing programs, if elected by a Contract Owner prior to the Merger Date, will not be affected by the closure unless a Contract Owner withdraws or otherwise transfers his entire Contract Value from the sub-account. In that case, the program would terminate and no further allocations to the variable sub-account will be permitted.
If you have any questions, please contact your financial professional or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Supplement dated March 16, 2021, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company of New York.
Fund Additions
The following investment option will be added to your Variable Annuity as noted below, effective close of business on April 30, 2021.
Portfolio | Investment Objective | Investment Adviser | ||||||
LVIP Delaware SMID Cap Core Fund – Standard Class | Seeks long-term capital appreciation. | Lincoln Investment Advisors Corporation |
Portfolio Merger
The following Target Portfolio will be merged into the Acquiring Portfolio as noted below, effective close of business on April 30, 2021 (“Merger Date”), subject to approval by the shareholders of the Target Portfolio. After the Merger Date, all references to the Target Portfolio in your Annuity prospectus should be disregarded.
Target Portfolio | Acquiring Portfolio | ||||
Delaware VIP Smid Cap Core – Standard Class | LVIP Delaware SMID Cap Core Fund – Standard Class |
Please note that you have the ability to transfer out of the sub-account investing in the Target Portfolio any time prior to the Merger Date. Such transfers will be free of charge and will not count as one of your annual free transfers under your annuity contract. Also, for a period of 60 days after the Merger Date, any Contract Value that was transferred to the sub-account investing in the Acquiring Portfolio as the result of the merger can be transferred free of charge and will not count as one of your annual free transfers.
It is important to note that any transfer limitations applicable to the investment option to which a transfer is made will apply as described in your prospectus. Please refer to your prospectus for information about investment options.
After the Merger Date, the Target Portfolio will no longer exist and, unless you instruct us otherwise, any outstanding instruction you have on file with us that designates the sub-account investing in the Target Portfolio will be deemed instruction for the sub-account investing in the Acquiring Fund. This includes, but is not limited to, systematic withdrawals and Dollar Cost Averaging.
Additionally, if the Target Portfolio is part of an allocation model for your Contract, you may need to make a new election of an available investment option within the asset allocation model for the model to continue to operate for your Contract following the Merger Date. You may wish to consult with your financial professional about the impact of the mergers on any allocation instructions and asset allocation models in effect for your Contract.
Portfolio Closure
Following the Portfolio merger, the following variable sub-account available in your Variable Annuity will be closed to all Contract Owners except those Contract Owners who have Contract Value invested in the variable sub-account:
LVIP Delaware SMID Cap Core Fund – Standard Class
Contract Owners who have Contract Value invested in the variable sub-account as of the Merger Date may continue to submit additional investments into the variable sub-account thereafter, although they will not be permitted to invest in the variable sub-account if they withdraw or otherwise transfer their entire Contract Value from the variable sub-account following the Merger Date. Contract Owners who do not have Contract Value invested in the variable sub-account before the Merger Date will not be permitted to invest in the variable sub-account thereafter.
Any applicable Dollar Cost Averaging, category models and/or auto-rebalancing programs, if elected by a Contract Owner prior to the Merger Date, will not be affected by the closure unless a Contract Owner withdraws or otherwise transfers his entire Contract Value from the sub-account. In that case, the program would terminate and no further allocations to the variable sub-account will be permitted.
If you have any questions, please contact your financial professional or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Supplement dated June 22, 2020 to the
Prospectus for your Variable Annuity
Issued by:
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
The following information supplements the prospectus for your variable annuity contract issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York. This Supplement contains information about a service address change. Effective on or after June 30, 2020, the following service addresses appearing in your Prospectus are revised as follows:
Old P.O. Box | New P.O. Box | ||||
P.O. Box 758560 Topeka, KS 66675 | P.O. Box 758537 Topeka, KS 66675 | ||||
P.O. Box 758565 Topeka, KS 66675 | P.O. Box 758598 Topeka, Kansas 66675 | ||||
P.O. Box 758566 Topeka, Kansas 66675 | P.O. Box 758543 Topeka, Kansas 66675 |
If you have any questions, please contact your financial professional or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement together with your prospectus for future reference. No other action is required of you.
Supplement dated May 1, 2020, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
This Supplement should be read in conjunction with the current Prospectus for your Annuity and should be retained for future reference. This Supplement is intended to update certain information in the Prospectus for the variable annuity you own and is not intended to be a prospectus or offer for any other variable annuity that you do not own. Defined terms used herein and not otherwise defined herein shall have the meanings given to them in the Prospectuses and Statements of Additional Information. If you have any questions, please contact your financial professional or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Note: You should consult with us and your tax advisor as provisions enacted in response to the COVID-19 outbreak continue to evolve, as additional information is received and communicated by the IRS and the Department of Labor.
On March 27, 2020 (Date of Enactment), Congress passed and President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act. This law includes provisions that impact Individual Retirement Annuities (IRAs), Roth IRAs and employer sponsored qualified retirement plans.
Waiver of Required Minimum Distributions (RMDs) for 2020
The requirement to take minimum distributions from defined contribution plans and IRAs is waived for 2020. The waiver would apply to any RMD due from such an arrangement in 2020, even RMDs with respect to the 2019 tax year that are due in 2020. For example, if an IRA owner turned age 70½ in 2019, they owe an RMD for the 2019 tax year but can wait until 4/1/20 to take it. If they did not take that first RMD in 2019, the bill waives it, along with the requirement to take their second RMD (for the 2020 tax year) by the end of 2020. The relief applies both to lifetime and post-death RMDs. In that regard, if the post-death 5-year rule applies, the 5-year period is determined without regard to calendar year 2020 and thus, the 5 year rule is extended by one year. It is unclear whether this treatment applies for the 10-year period imposed by the SECURE Act. Although also unclear, the 1-year election rule for life expectancy payments by an eligible beneficiary may be extended based on the position the IRS took in Notice 2009-82.
Withdrawals from Employer Plans and IRAs, including Roth IRAs
Relief is provided for “coronavirus-related distributions” from qualified plans and IRAs. The relief applies to such distributions made at any time during the 2020 calendar year, as follows:
•Permits such distributions to be treated as in-service distributions, even if such amounts are not otherwise distributable from the plan under sections 401(k), 403(b), or 457, as applicable;
•Provides an exception to the 10% early distribution penalty under Code section 72(t) (but not for the similar penalty tax under Code section 72(q) that applies to non-qualified annuities);
•Exempts such distributions from the 402(f) notice requirements and mandatory 20% withholding applicable to eligible rollover distributions, as applicable;
•Permits the individual to include income attributable to such distributions ratably over the three-year period beginning with the year the distribution would otherwise be taxable (this spreading would apply unless the taxpayer elects out); and
•Permits recontribution of such distribution to a plan or IRA within three years, in which case the recontribution is generally treated as a direct trustee-to-trustee transfer within 60 days of the distribution.
The distribution must come from an “eligible retirement plan” within the meaning of Code section 402(c)(8)(B), i.e., an IRA, 401(a) plan, 403(a) plan, 403(b) plan, or governmental 457(b) plan. The relief would be limited to aggregate distributions of $100,000. See below for a description of who is eligible for the relief.
Plan Loans
The following relief is provided with respect to plan loans (if available under a contract) taken by any “qualified individual” who is affected by the coronavirus:
•For loans made during the 180-day period beginning on the date of enactment, the maximum loan amount would be increased from $50,000 or 50% of the vested account balance to $100,000 or 100% of the vested account balance. Note that Department of Labor regulations require that plan loans be secured by no more than half of the account balance. It is not clear whether this is an impediment to increasing the loan limit to 100% of the account balance. We understand that DOL is aware of this issue.
•The due date for any repayment on a loan that otherwise is due between the date of enactment and December 31, 2020, would be delayed for one year. This also would extend the maximum loan period (normally five years).
Based on prior IRS guidance involving similar relief for natural disasters, all of the changes would be optional for plans See below for a description of who is eligible for the plan loan relief.
Eligible Individuals for Withdrawal and Loan Relief
The administrator of an eligible retirement plan may rely on an employee’s certification that the employee satisfies the conditions for eligibility. The eligibility criteria for the relief remain the same, meaning the individual must fall within one of the following categories:
•The individual is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
•The individual’s spouse or dependent is diagnosed with such virus or disease; or
•The individual experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.
IRS Guidance
Extension of IRA Contribution Deadline
The deadline for making an IRA or Roth IRA contribution has been extended until July 15, 2020, the extended deadline for filing an individual’s 2019 tax return.
THIS SUPPLEMENT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
Supplement dated March 4, 2020, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York. Your variable annuity contract does not offer all of the variable sub-accounts described below. Please check your annuity prospectus to determine which of the following changes affect the annuity contract that you own.
Portfolio Mergers
The following Target Portfolios will be merged into the Acquiring Portfolios as noted below, effective on or about May 1, 2020 (“Merger Date”), subject to approval by the shareholders of the Target Portfolios. After the Merger Date, all references to the Target Portfolios in your Annuity prospectus should be disregarded.
Target Portfolio | Acquiring Portfolio | ||||
Invesco V.I. Mid Cap Growth Fund – Series I | Invesco Oppenheimer V.I. Discovery Mid Cap Growth Fund – Series I | ||||
Invesco V.I. Mid Cap Growth Fund – Series II | Invesco Oppenheimer V.I. Discovery Mid Cap Growth Fund – Series II |
On the Merger Date, the Target Portfolios will no longer be available under any of our annuity contracts, and any Contract Value allocated to the sub-accounts investing in the Target Portfolios will be transferred, as of the Merger Date, to the sub-accounts investing in the Acquiring Portfolios. This transfer will be made by replacing your contract’s units of the sub-accounts investing in the Target Portfolios with units of the sub-accounts investing in the Acquiring Portfolios based on the unit value of each Portfolio at the time of the merger.
Please note that you have the ability to transfer out of the sub-accounts investing in the Target Portfolios any time prior to the Merger Date. Such transfers will be free of charge and will not count as one of your annual free transfers under your annuity contract. Also, for a period of 60 days after the Merger Date, any Contract Value that was transferred to the sub-accounts investing in the Acquiring Portfolios as the result of the merger can be transferred free of charge and will not count as one of your annual free transfers.
It is important to note that any transfer limitations applicable to the investment option to which a transfer is made will apply as described in your prospectus. Please refer to your prospectus for information about investment options.
After the Merger Date, the Target Portfolios will no longer exist and, unless you instruct us otherwise, any outstanding instruction you have on file with us that designates the sub-accounts investing in the Target Portfolios will be deemed instruction for the sub-accounts investing in the Acquiring Funds. This includes, but is not limited to, systematic withdrawals and Dollar Cost Averaging.
Additionally, if the Target Portfolio is part of an allocation model for your Contract, you may need to make a new election of an available portfolio within the asset allocation model for the model to continue to operate for your Contract following the Merger Date. You may wish to consult with your financial professional about the impact of the mergers on any allocation instructions and asset allocation models in effect for your Contract.
Portfolio Closures
Following the close of business on May 1, 2020 (the Closure Date), the following variable sub-accounts available in your Variable Annuity will be closed to all Contract Owners except those Contract Owners who have contract value invested in the variable sub-accounts as of the Closure Date:
Invesco Oppenheimer V.I. Discovery Mid Cap Growth Fund – Series I
Invesco Oppenheimer V.I. Discovery Mid Cap Growth Fund – Series II
Contract Owners who have contract value invested in these variable sub-accounts as of the Closure Date may continue to submit additional investments into the variable sub-accounts thereafter, although they will not be permitted to invest in the variable sub-accounts if they withdraw or otherwise transfer their entire contract value from the variable sub-accounts following the Closure Date. Contract Owners who do not have contract value invested in the variable sub-accounts before the Closure Date will not be permitted to invest in these variable sub-accounts thereafter.
Any applicable dollar cost averaging, category models and/or auto-rebalancing programs, if elected by a Contract Owner prior to the Closure Date, will not be affected by the closure unless a Contract Owner withdraws or otherwise transfers his entire Account Value
from the sub-account. In that case, the program would terminate and no further allocations to this variable sub-account will be permitted. If you have any questions, please contact your financial professional or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement together with your prospectus for future reference. No other action is required of you.
Supplement dated May 17, 2019, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York.
Effective on or about June 3, 2019, the funds and trusts listed below will change their names. In addition, the investment adviser, The Dreyfus Corporation, will change its name to BNY Mellon Investment Adviser, Inc.
Fund - Current Name | Fund – New Name | Trust – Current Name | Trust – New Name | ||||||||
Dreyfus Stock Index Fund, Inc. – Initial Shares | BNY Mellon Stock Index Fund, Inc. – Initial Shares | Dreyfus Stock Index Fund, Inc. | BNY Mellon Stock Index Fund, Inc. | ||||||||
Dreyfus Variable Investment Fund – Appreciation Portfolio – Initial Shares | BNY Mellon Variable Investment Fund, Appreciation Portfolio – Initial Shares | Dreyfus Variable Investment Fund | BNY Mellon Variable Investment Fund | ||||||||
Dreyfus Variable Investment Fund – Growth and Income Portfolio – Initial Shares | BNY Mellon Variable Investment Fund, Growth and Income Portfolio – Initial Shares | Dreyfus Variable Investment Fund | BNY Mellon Variable Investment Fund | ||||||||
The Dreyfus Sustainable U.S. Equity Portfolio, Inc. – Initial Shares | BNY Mellon Sustainable U.S. Equity Portfolio, Inc. – Initial Shares | The Dreyfus Sustainable U.S. Equity Portfolio, Inc | BNY Mellon Sustainable U.S. Equity Portfolio, Inc. | ||||||||
Dreyfus Variable Investment Fund – Government Money Market Portfolio | BNY Mellon Variable Investment Fund, Government Money Market Portfolio | Dreyfus Variable Investment Fund | BNY Mellon Variable Investment Fund |
If you have any questions, please contact your financial professional or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement together with your prospectus for future reference. No other action is required of you.
Supplement dated November 7, 2016, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York.
Effective December 23, 2016 (the Closure Date), the following variable sub-accounts available in your Variable Annuity will be closed to all contract owners except those contract owners who have contract value invested in the variable sub-accounts as of the Closure Date:
Invesco V.I. Core Equity Fund – Series I
Invesco V.I. Core Equity Fund – Series II
Contract owners who have contract value invested in these variable sub-accounts as of the Closure Date may continue to submit additional investments into the variable sub-accounts thereafter, although they will not be permitted to invest in the variable sub-accounts if they withdraw or otherwise transfer their entire contract value from the variable sub-accounts following the Closure Date. Contract owners who do not have contract value invested in the variable sub-accounts as of the Closure Date will not be permitted to invest in these variable sub-accounts thereafter.
Dollar cost averaging, category models and/or auto-rebalancing programs, if elected by a Contract owner prior to the Closure Date, will not be affected by the closure unless a contract owner withdraws or otherwise transfers his entire Account Value from the sub-accounts.
If you have any questions, please contact your financial professional or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement together with your prospectus for future reference. No other action is required of you.
Supplement dated February 29, 2016, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company of New York.
The following Fund will be liquidated effective on April 29, 2016 (“Liquidation Date”):
Wells Fargo VT Intrinsic Value Fund – class 2
On the Liquidation Date, the above Fund will no longer be available under your Annuity contract, and any Contract Value allocated to this liquidated Fund will be transferred, as of the close of business on the Liquidation Date, to the Default Transfer Fund, as follows:
Liquidated Fund
Wells Fargo VT Intrinsic Value Fund – class 2
Default Transfer Fund
Dreyfus VIF – Money Market Portfolio*
*Effective May 1, 2016, subject to shareholder approval, the Dreyfus VIF – Money Market Portfolio will implement several changes to enable it to operate as a government money market fund. Specifically, the Portfolio will: (i) remove the Portfolio’s fundamental investment restriction that requires the Portfolio to invest at least 25% of its assets in obligations issued by banks under normal market conditions; and (ii) invest at least 99.5% of its total assets in securities issued or guaranteed by the U.S government or its agencies or instrumentalities, repurchase agreements collateralized solely by cash and/or government securities, and cash. In addition, the name of the Portfolio will be changed to Dreyfus VIF – Government Money Market Portfolio.
Please note that you have the ability to transfer out of the above Liquidated Fund any time prior to the Liquidation Date. Such transfers will be free of charge and will not count as one of your annual free transfers under your Annuity contract. Also, for a period of 60 days after the Liquidation Date, any Contract Value that was transferred to the Dreyfus VIF - Government Money Market Portfolio as the result of the liquidation can be transferred free of charge and will not count as one of your annual free transfers. It is important to note that any Portfolio into which you make your transfer will be subject to the transfer limitations described in your prospectus. Please refer to your prospectus for detailed information about investment options.
After the Liquidation Date, the above-listed Liquidated Fund will no longer exist and, unless you instruct us otherwise, any outstanding instruction you have on file with us that designates the above Liquidated Fund will be deemed instruction for the Dreyfus VIF - Government Money Market Portfolio. This includes but is not limited to, systematic withdrawals, Dollar Cost Averaging, and Auto Rebalancing.
You may wish to consult with your financial representative to determine if your existing allocation instructions should be changed before or after the Liquidation Date.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement together with your prospectus for future reference. No other action is required of you.
Supplement dated August 7, 2015, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York.
Effective September 1, 2015 (the Closure Date), the following variable sub-accounts available in your Variable Annuity will be closed to all contract owners except those contract owners who have contract value invested in the variable sub-accounts as of the Closure Date:
Invesco V.I. Mid Cap Core Equity Fund – Series I
Invesco V.I. Mid Cap Core Equity Fund – Series II
Contract owners who have contract value invested in these variable sub-account as of the Closure Date may continue to submit additional investments into the variable sub-accounts thereafter, although they will not be permitted to invest in the variable sub-accounts if they withdraw or otherwise transfer their entire contract value from the variable sub-accounts following the Closure Date. Contract owners who do not have contract value invested in the variable sub-accounts as of the Closure Date will not be permitted to invest in these variable sub-accounts thereafter.
Dollar cost averaging and/or auto-rebalancing programs, if elected by a Contract owner prior to the Closure Date, will not be affected by the closure unless a contract owner withdraws or otherwise transfers his entire Account Value from the sub-account.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement for future reference together with your prospectus. No other action is required of you.
Supplement dated January 3, 2014, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York, as applicable.
Effective as of January 31, 2014 (the Closure Date), the following variable sub-accounts available in your Variable Annuity will be closed to all contract owners except those contract owners who have contract value invested in the variable sub-accounts as of the Closure Date:
Oppenheimer Capital Appreciation Fund/VA - Class 2
Oppenheimer Capital Appreciation Fund/VA - Class A
Contract owners who have contract value invested in these variable sub-accounts as of the Closure Date may continue to submit additional investments into the variable sub-accounts thereafter, although they will not be permitted to invest in the variable sub-accounts if they withdraw or otherwise transfer their entire contract value from the variable sub-accounts following the Closure
Date. Contract owners who do not have contract value invested in the variable sub-accounts as of the Closure Date will not be permitted to invest in these variable sub-accounts thereafter.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Dollar cost averaging and/or auto-rebalancing, if elected by a contract owner prior to the Closure Date, will not be affected by the closure.
Please keep this supplement for future reference together with your prospectus. No other action is required of you.
Supplement dated September 30, 2013, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York, as applicable.
Effective as of October 18, 2013 (the Closure Date), the following variable sub-accounts available in your Variable Annuity will be closed to all contract owners except those contract owners who have contract value invested in the variable sub-accounts as of the Closure Date:
Invesco V.I. Global Core Equity - Series I
Invesco V.I. Global Core Equity - Series II
Contract owners who have contract value invested in these variable sub-accounts as of the Closure Date may continue to submit additional investments into the variable sub-accounts thereafter, although they will not be permitted to invest
in the variable sub-accounts if they withdraw or otherwise transfer their entire contract value from the variable sub-accounts following the Closure Date. Contract owners who do not have contract value invested in the variable sub-accounts as of the Closure Date will not be permitted to invest in these variable sub-accounts thereafter.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Dollar cost averaging and/or auto-rebalancing, if elected by a contract owner prior to the Closure Date, will not be affected by the closure.
Please keep this supplement for future reference together with your prospectus. No other action is required of you.
SUPPLEMENT, DATED JULY 6, 2011,
TO THE PROSPECTUS FOR YOUR VARIABLE ANNUITY
ISSUED BY
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
LINCOLN BENEFIT LIFE COMPANY
This supplement amends the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York or Lincoln Benefit Life Company, as applicable.
Effective as of August 19, 2011 (the Closure Date), the following variable sub-accounts available in your Variable Annuity will be closed to all contract owners except those contract owners who have contract value invested in the variable sub-accounts as of the Closure Date:
Invesco V.I. Basic Value Fund-Series I
Invesco V.I. Basic Value Fund-Series II
Contract owners who have contract value invested in these variable sub-accounts as of the Closure Date may continue to submit additional investments into the variable sub-accounts thereafter, although they will not be permitted to invest in the variable sub-accounts if they withdraw or otherwise transfer their entire contract value from the variable sub-accounts following the Closure Date. Contract owners who do not have contract value invested in the variable sub-accounts as of the Closure Date will not be permitted to invest in these variable sub-accounts thereafter.
Dollar cost averaging and/or auto-rebalancing, if elected by a contract owner, will not be affected by the closure.
If you have any questions, please contact your financial representative or our Variable Annuity Service Center at (800) 457-7617. Our representatives are available to assist you from 7:30 a.m. to 5 p.m. Central time.
Please read the prospectus supplement carefully and then file it with your important papers. No other action is required of you.
Supplement, dated October 18, 2010,
to the Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
LINCOLN BENEFIT LIFE COMPANY
This supplement amends the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York or Lincoln Benefit Life Company, as applicable.
Effective as of November 19, 2010 (the Closure Date), the following variable sub-accounts available in the above-referenced Variable Annuities will be closed to all contract owners except those contract owners who have contract value invested in the variable sub-accounts as of the Closure Date:
Invesco V.I. Capital Appreciation Fund--Series I
Invesco V.I. Capital Appreciation Fund--Series II
Contract owners who have contract value invested in these variable sub-accounts as of the Closure Date may continue to submit additional investments into the variable sub-accounts thereafter, although they will not be permitted to invest in the variable sub-accounts if they withdraw or otherwise transfer their entire contract value from the variable sub-accounts following the Closure Date.
Contract owners who do not have contract value invested in the variable sub-accounts as of the Closure Date will not be permitted to invest in these variable sub-accounts thereafter.
Dollar cost averaging and/or auto-rebalancing, if elected by a contract owner, will not be affected by the closure.
If you have any questions, please contact your financial representative or our Variable Annuity Service Center at (800) 457-7617. Our representatives are available to assist you from 7:30 a.m. to 5 p.m. Central time.
Please read the prospectus supplement carefully and then file it with your important papers. No other action is required of you.
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
LINCOLN BENEFIT LIFE COMPANY
Supplement, dated October 18, 2010, to the
following Prospectuses, as supplemented:
Allstate Provider, dated May 1, 2002
Premier Planner, dated May 1, 2004
This supplement amends the above-referenced prospectuses for certain Variable Annuity contracts issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York or Lincoln Benefit Life Company, as applicable.
Effective as of November 19, 2010 (the Closure Date), the following variable sub-account available in the Allstate Provider and Premier Planner Variable Annuities will be closed to all contract owners except those contract owners who have contract value invested in the variable sub-account as of the Closure Date:
Goldman Sachs VIT Strategic International Equity Fund
Contract owners who have contract value invested in this variable sub-account as of the Closure Date may continue to submit additional investments into the variable sub-account thereafter, although they will not be permitted to invest in the variable sub-account if they withdraw or otherwise transfer their entire contract value from the variable sub-account following the Closure Date.
Contract owners who do not have contract value invested in the variable sub-account as of the Closure Date will not be permitted to invest in this variable sub-account thereafter.
Dollar cost averaging and/or auto-rebalancing, if elected by a contract owner, will not be affected by the closure.
If you have any questions, please contact your financial representative or our Variable Annuity Service Center at (800) 457-7617. Our representatives are available to assist you from 7:30 a.m. to 5 p.m. Central time.
Please read the prospectus supplement carefully and then file it with your important papers. No other action is required of you.
Allstate Life Insurance Company of New York
Supplement Dated August 31, 2010
to the following Prospectus, as supplemented:
The Custom Portfolio Variable Annuity Prospectus, dated April 30, 2005
We are issuing this supplement to announce that the Delaware VIP Trend Series is expected to merge into the Delaware VIP Smid Cap Growth Series in October 2010.
To reflect this merger, all references and information relating to the Delaware VIP Trend Series are hereby deleted as of the merger date. To further reflect this merger, the section entitled "Investment Alternatives: The Variable Sub-Accounts" is amended by adding the Delaware VIP Smid Cap Growth Series to the table of available Portfolios, and denoting that the Portfolio seeks capital appreciation.
If you have any questions, please contact your financial representative or our Annuities Service Center at (800) 457-8207. Our representatives are available to assist you from 7:30 a.m. to 5 p.m. Central time.
Please read the prospectus supplement carefully and then file it with your important papers. No other action is required of you.
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
Supplement Dated July 23, 2010
To the following Prospectuses, as supplemented
Allstate Provider Prospectus, dated May 1, 2002
Allstate Provider Prospectus, dated May 1, 2004
Custom Portfolio Prospectus, dated April 30, 2005
SelectDirections Prospectus, dated May 1, 2003
SelectDirections Prospectus, dated April 30, 2005
This supplement amends certain disclosure contained in the above-referenced prospectuses for certain variable annuity contracts issued by Allstate Life Insurance Company or Allstate Life Insurance Company of New York, as applicable.
Effective as of August 30, 2010 (the Closure Date), the following variable sub-accounts available, as applicable, in the above-referenced Variable Annuities will be closed to all contract owners except those contract owners who have contract value invested in either of these variable sub-accounts as of the Closure Date:
Oppenheimer High Income Fund/VA (Initial Class)
Oppenheimer Small- & Mid-Cap Growth Fund/VA (Initial Class)*
Contract owners who have contract value invested in either of these variable sub-accounts as of the Closure Date may continue to submit additional investments into the respective variable sub-account thereafter, although they will not be permitted to invest in the respective variable sub-account if they withdraw or otherwise transfer their entire contract value from the respective
variable sub-account following the Closure Date. Contract owners who do not have contract value invested in the respective variable sub-account as of the Closure Date will not be permitted to invest in these variable sub-accounts thereafter.
Dollar cost averaging and/or auto-rebalancing, if elected by a contract owner, will not be affected by the closures.
If you have any questions, please contact your financial representative or our Annuities Service Center at (800) 457-7617. Our representatives are available to assist you from 7:30 a.m. to 5 p.m. Central time.
Please read the prospectus supplement carefully and then file it with your important papers. No other action is required of you
* Note: Oppenheimer Small- & Mid-Cap Growth Fund/VA was formerly known as Oppenheimer MidCap Fund/VA.
Supplement Dated December 31, 2009
To the Prospectus for Your Variable Annuity
Issued By
Allstate Life Insurance Company
Allstate Life Insurance Company of New York
Lincoln Benefit Life Company
This supplement amends the prospectus for your variable annuity contract issued by Allstate Life Insurance Company, Allstate Life Insurance Company of New York, or Lincoln Benefit Life Company.
The following provision is added to your prospectus:
WRITTEN REQUESTS AND FORMS IN GOOD ORDER. Written requests must include sufficient information and/or documentation, and be sufficiently clear, to enable us to complete your request without the need to exercise discretion on our part to carry it out. You may contact our Customer Service Center to learn what information we require for your particular request to be in "good order." Additionally, we may require that you submit your request on our form. We reserve the right to determine whether any particular request is in good order, and to change or waive any good order requirements at any time.
If you have any questions, please contact your financial representative or call our Customer Service Center at 1-800-457-7617. If you own a Putnam contract, please call 1-800-390-1277.
For future reference, please keep this supplement together with your prospectus.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
Supplement dated August 14, 2009
To the following Prospectuses, as supplemented:
Allstate Provider, Prospectus Dated May 1, 2002
SelectDirections, Prospectus Dated April 30, 2005
AIM Lifetime Plus, Prospectus Dated April 30, 2005
AIM Lifetime Plus II, Prospectus Dated April 30, 2005
Custom Portfolio, Prospectus Dated April 30, 2005
This prospectus supplement amends certain disclosure contained in the prospectuses referenced above for your variable annuity contract issued by Allstate Life Insurance Company of New York ("Allstate New York").
The "Annual Reports and Other Documents" Section is deleted and replaced with the following:
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission ("SEC") recently adopted rule 12h-7 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule 12h- 7 exempts an insurance company from filing reports under the Exchange Act when the insurance company issues certain types of insurance products that are registered under the Securities Act of 1933 and such products are regulated under state law. Each of the variable annuities described in the prospectuses referenced above fall within the exemption provided under rule 12h-7. Allstate New York is hereby providing notice that it is electing to rely on the exemption provided under rule 12h-7 effective as of the date of this prospectus supplement or as soon as possible thereafter, and will be suspending filing reports under the Exchange Act.
The SEC allows us to "incorporate by reference" information that we file with the SEC into this prospectus supplement which means that incorporated documents are considered part of this prospectus supplement. We can disclose important information to you by referring you to those documents. This prospectus supplement incorporates by reference our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 18, 2009, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed with the SEC on May 12, 2009.
Allstate New York will provide to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the information that has been incorporated by reference into the prospectus but not delivered with the prospectus. Such information will be provided upon written or oral request at no cost to the requester by writing to Allstate New York, P.O. Box 758565, Topeka, KS 66675-8565 or by calling 1-800-457-8207. The public may read and copy any materials that Allstate New York files with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC (see http://www.sec.gov).
Allstate Life Insurance Company of New York
AIM Lifetime Plus
AIM Lifetime Plus II
Allstate Provider Variable Annuity
Custom Portfolio
Select Directions
Supplement, dated May 1, 2009
This supplement amends certain disclosure contained in the prospectus for certain annuity contracts issued by Allstate Life Insurance Company of New York.
Under the "More Information" section, the subsection entitled "Legal Matters" is deleted and replaced with the following:
LEGAL MATTERS
Certain matters of state law pertaining to the Contracts, including the validity of the Contracts and Allstate New York's right to issue such Contracts under applicable state insurance law, have been passed upon by Susan L. Lees, General Counsel of Allstate New York.
The "Annual Reports and Other Documents" section is deleted and replaced with the following:
ANNUAL REPORTS AND OTHER DOCUMENTS
Allstate Life Insurance Company of New York ("Allstate New York") incorporates by reference into the prospectus its latest annual report on Form 10-K filed pursuant to Section 13(a) or Section 15(d) of the Exchange Act since the end of the fiscal year covered by its latest annual report, including filings made on Form 10-Q and Form 8-K. In addition, all documents subsequently filed by Allstate New York pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act also are incorporated into the prospectus by reference. Allstate New York will provide to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the information that has been incorporated by reference into the prospectus but not delivered with the prospectus. Such information will be provided upon written or oral request at no cost to the requester by writing to Allstate New York, P.O. Box 70178, Philadelphia, PA 19176 or by calling 1-877-234-8688. Allstate New York files periodic reports as required under the Securities Exchange Act of 1934. The public may read and copy any materials that Allstate New York files with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC (see http://www.sec.gov).
EXPERTS
In the prospectus for Allstate Provider Variable Annuity, the section entitled"Experts" is deleted.
AIM LIFETIME PLUS(SM) VARIABLE ANNUITY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STREET ADDRESS: 2940 S. 84TH STREET, LINCOLN, NE 68506-4142 MAILING ADDRESS:
P.O. BOX 82656, LINCOLN, NE 68501-2656 TELEPHONE NUMBER: 1-800-692-4682
PROSPECTUS DATED APRIL 30, 2005
P.O. BOX 82656, LINCOLN, NE 68501-2656 TELEPHONE NUMBER: 1-800-692-4682
PROSPECTUS DATED APRIL 30, 2005
Allstate Life Insurance Company of New York (“Allstate New York”) has issued the AIM Lifetime Plus(SM) Variable Annuity, a group flexible premium deferred variable annuity contract (“CONTRACT”). This prospectus contains information about the Contract that you should know before investing. Please keep it for future reference.
The Contract currently offers 19 investment alternatives (“INVESTMENT ALTERNATIVES”). The investment alternatives include the fixed account (“FIXED ACCOUNT”) and 18 variable sub-accounts (“VARIABLE SUB-ACCOUNTS”) of the Allstate Life of New York Separate Account A (“VARIABLE ACCOUNT”). Each Variable Sub-Account invests exclusively in shares of one of the following funds (“FUNDS”) of AIM Variable Insurance Funds (Series I shares):
AIM V.I. AGGRESSIVE GROWTH FUND - SERIES I | AIM V.I. GOVERNMENT SECURITIES FUND - SERIES I | ||||
AIM V.I. BALANCED FUND - SERIES I* | AIM V.I. GROWTH FUND - SERIES I | ||||
AIM V.I. BASIC VALUE FUND - SERIES I | AIM V.I. HIGH YIELD FUND - SERIES I | ||||
AIM V.I. BLUE CHIP FUND - SERIES I | AIM V.I. INTERNATIONAL GROWTH FUND - SERIES I | ||||
AIM V.I. CAPITAL APPRECIATION FUND - SERIES I | AIM V.I. MID CAP CORE EQUITY FUND - SERIES I | ||||
AIM V.I. CAPITAL DEVELOPMENT FUND - SERIES I | AIM V.I. MONEY MARKET FUND - SERIES I | ||||
AIM V.I. CORE EQUITY FUND - SERIES I | AIM V.I. PREMIER EQUITY FUND - SERIES I | ||||
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND - SERIES I** | AIM V.I. TECHNOLOGY FUND - SERIES I | ||||
AIM V.I. DIVERSIFIED INCOME FUND - SERIES I | AIM V.I. UTILITIES FUND - SERIES I | ||||
* Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its name to AIM V.I. Basic Balanced Fund-Series I.
** Effective July 1, 2005, the AIM V.I. Dent Demographic Trends Fund - Series I will change its name to AIM V.I. Demographic Trends Fund - Series I.
THE SECURITIES AND EXCHANGE | |||||
COMMISSION HAS NOT APPROVED | |||||
OR DISAPPROVED THE | |||||
SECURITIES DESCRIBED IN | |||||
THIS PROSPECTUS, NOR HAS IT | |||||
PASSED UPON THE ACCURACY OR | |||||
ADEQUACY OF THIS | |||||
PROSPECTUS. ANYONE WHO | |||||
TELLS YOU OTHERWISE IS | |||||
COMMITTING A FEDERAL CRIME. | |||||
THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS | |||||
IMPORTANT | THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL | ||||
NOTICES | INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS. HOWEVER, THE | ||||
CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED | |||||
BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY AGENCY. | |||||
INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS, | |||||
INCLUDING POSSIBLE LOSS OF PRINCIPAL. | |||||
THE CONTRACTS ARE NOT FDIC INSURED. | |||||
THE CONTRACTS WERE ONLY | |||||
AVAILABLE IN NEW YORK, BUT | |||||
ARE NO LONGER AVAILABLE FOR | |||||
SALE. |
WE (Allstate New York) have filed a Statement of Additional Information, dated April 30, 2005, with the Securities and Exchange Commission (“SEC”). It contains more information about the Contract and is incorporated herein by reference, which means it is legally a part of this prospectus. Its table of contents appears on page 40 of this prospectus. For a free copy, please write or call us at the address or telephone number above, or go to the SEC’s Web site (http:// www.sec.gov) You can find other information and documents about us, including documents that are legally part of this prospectus, at the SEC’s Web site.
1 PROSPECTUS
TABLE OF CONTENTS | |||||
PAGE | |||||
OVERVIEW | |||||
Important Terms | 3 | ||||
The Contract at a Glance | 4 | ||||
How the Contract Works | 6 | ||||
Expense Table | 6 | ||||
Financial Information | 8 | ||||
CONTRACT FEATURES | |||||
The Contract | 8 | ||||
Purchases | 10 | ||||
Contract Value | 11 | ||||
Investment Alternatives | 12 | ||||
The Variable Sub-Accounts | 12 | ||||
The Fixed Account | 13 | ||||
Transfers | 15 | ||||
Expenses | 18 | ||||
Other Expenses | 20 | ||||
Access To Your Money | 20 | ||||
PAGE | |||||
Income Payments | 21 | ||||
Death Benefits | 23 | ||||
OTHER INFORMATION | |||||
More Information: | 26 | ||||
Allstate New York | 26 | ||||
The Variable Account | 26 | ||||
The Funds | 27 | ||||
The Contract | 28 | ||||
Non-Qualified Annuities Held Within a Qualified Plan | 28 | ||||
Legal Matters | 29 | ||||
Taxes | 29 | ||||
Annual Reports and Other Documents | 36 | ||||
APPENDIX A-ACCUMULATION UNIT VALUES AND NUMBER OF ACCUMULATION | |||||
UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED | 37 | ||||
APPENDIX B-MARKET VALUE ADJUSTMENT | 41 | ||||
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS | 44 |
2 PROSPECTUS
IMPORTANT TERMS
This prospectus uses a number of important terms that you may not be familiar with. The index below identifies the page that describes each term. The first use of each term in this prospectus appears in highlights.
PAGE | |||||||||||
Accumulation Phase | 6 | ||||||||||
Accumulation Unit | 11 | ||||||||||
Accumulation Unit Value | 11 | ||||||||||
Allstate New York (“We” and/or “us”) | 1, 24 | ||||||||||
Anniversary Values | 22 | ||||||||||
Annuitant | 9 | ||||||||||
Automatic Additions Program | 10 | ||||||||||
Automatic Fund Rebalancing Program | 17 | ||||||||||
Beneficiary | 9 | ||||||||||
*Contract | 9 | ||||||||||
Contract Anniversary | 5 | ||||||||||
Contract Owner (“You”) | 6 | ||||||||||
Contract Value | 5 | ||||||||||
Contract Year | 5 | ||||||||||
Death Benefit Anniversary | 22 | ||||||||||
Dollar Cost Averaging Program | 17 | ||||||||||
Due Proof of Death | 22 | ||||||||||
Fixed Account | 13 | ||||||||||
PAGE | |||||||||||
Funds | 24 | ||||||||||
Guarantee Periods | 13 | ||||||||||
Income Plans | 20 | ||||||||||
Investment Alternatives | 12 | ||||||||||
Issue Date | 6 | ||||||||||
Market Value Adjustment | 5, 14 | ||||||||||
Payout Phase | 6 | ||||||||||
Payout Start Date | 20 | ||||||||||
Preferred Withdrawal Amount | 18 | ||||||||||
SEC | 1 | ||||||||||
Settlement Value | 22 | ||||||||||
Systematic Withdrawal Program | 20 | ||||||||||
Tax Qualified Contracts | 30 | ||||||||||
Treasury Rate | 15 | ||||||||||
Valuation Date | 10 | ||||||||||
Variable Account | 24 | ||||||||||
Variable Sub-Account | 12 |
* The AIM Lifetime Plus(SM) Variable Annuity is a group contract, and your ownership is represented by certificates. References to “Contract” in this prospectus include certificates, unless the context requires otherwise.
3 PROSPECTUS
THE CONTRACT AT A GLANCE
The following is a snapshot of the Contract. Please read the remainder of this prospectus for more information.
FLEXIBLE | PAYMENTS You can purchase a Contract with as little as $5,000 ($2,000 for “QUALIFIED CONTRACTS”, which are Contracts issued with qualified plans). You can add to your Contract as often and as much as you like, but each payment must be at least $500 ($100 for automatic purchase payments to the variable investment options). You must maintain a minimum account size of $1,000. | ||||||||||
RIGHT TO CANCEL | You may cancel your Contract by returning it to us within 10 days after receipt (“CANCELLATION PERIOD”). Upon cancellation, as permitted by federal or state law, we will return your purchase payments adjusted to reflect the investment experience of any amounts allocated to the Variable Account. The adjustment will reflect the deduction of mortality and expense risk charges and administrative expense charges. | ||||||||||
EXPENSES | You will bear the following expenses: | ||||||||||
• | Total Variable Account annual fees equal to 1.45% of average daily net assets | ||||||||||
• | Annual contract maintenance charge of $35 (with certain exceptions) | ||||||||||
• | Withdrawal charges ranging from 0% to 7% of payment withdrawn (with certain | ||||||||||
exceptions) | |||||||||||
• | Transfer fee of $10 after 12th transfer in any CONTRACT YEAR (fee currently | ||||||||||
waived) | |||||||||||
• | State premium tax (New York currently does not impose one). | ||||||||||
In addition, each Fund pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. | |||||||||||
INVESTMENT | The Contract offers 19 investment alternatives including: | ||||||||||
ALTERNATIVES | |||||||||||
• | the Fixed Account (which credits interest at rates we guarantee), and | ||||||||||
• | 18 Variable Sub-Accounts investing in Funds offering professional money | ||||||||||
management by A I M Advisors, Inc. | |||||||||||
To find out current rates being paid on the Fixed Account, or to find out how the Variable Sub-Accounts have performed, please call us at 1-800-692-4682. | |||||||||||
SPECIAL SERVICES | For your convenience, we offer these special services: | ||||||||||
• | AUTOMATIC FUND REBALANCING PROGRAM | ||||||||||
• | AUTOMATIC ADDITIONS PROGRAM | ||||||||||
• | DOLLAR COST AVERAGING PROGRAM |
• | SYSTEMATIC WITHDRAWAL PROGRAM | ||||||||||
INCOME PAYMENTS | You can choose fixed income payments, variable income payments, or a combination of the two. You can receive your income payments in one of the following ways: | ||||||||||
• | life income with guaranteed payments | ||||||||||
• | a joint and survivor life income with guaranteed payments | ||||||||||
• | guaranteed payments for a specified period (5 to 30 years). | ||||||||||
DEATH BENEFITS | If you or the Annuitant (if the Contract is owned by a non-living person) die before the PAYOUT START DATE, we will pay the death benefit described in the Contract. | ||||||||||
4 PROSPECTUS
TRANSFERS | Before the Payout Start Date, you may transfer your Contract value (“CONTRACT VALUE”) among the investment alternatives, with certain restrictions. Transfers to the Fixed Account must be at least $500. | ||||
We do not currently impose a fee upon transfers. However, we reserve the right to charge $10 per transfer after the 12th transfer in each “CONTRACT YEAR,” which we measure from the date we issue your contract or a Contract anniversary (“CONTRACT ANNIVERSARY”). | |||||
WITHDRAWALS | You may withdraw some or all of your Contract Value at anytime during the Accumulation Phase. Full or partial withdrawals are available under limited circumstances on or after the Payout Start Date. | ||||
In general, you must withdraw at least $50 at a time. ($1,000 for withdrawals made during the Payout Phase.) Withdrawals taken prior to annuitization (referred to in this prospectus as the Payout Phase) are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. A withdrawal charge and MARKET VALUE ADJUSTMENT also may apply. | |||||
5 PROSPECTUS
HOW THE CONTRACT WORKS
The Contract basically works in two ways.
First, the Contract can help you (we assume you are the CONTRACT OWNER) save for retirement because you can invest in up to 19 investment alternatives and generally pay no federal income taxes on any earnings until you withdraw them. You do this during what we call the “ACCUMULATION PHASE” of the Contract. The Accumulation Phase begins on the date we issue your Contract (we call that date the “ISSUE DATE”) and continues until the Payout Start Date, which is the date we apply your money to provide income payments. During the Accumulation Phase, you may allocate your purchase payments to any combination of the Variable Sub-Accounts and/or the Fixed Account. If you invest in the Fixed Account, you will earn a fixed rate of interest that we declare periodically. If you invest in any of the Variable Sub-Accounts, your investment return will vary up or down depending on the performance of the corresponding Funds.
Second, the Contract can help you plan for retirement because you can use it to receive retirement income for life and/ or for a pre-set number of years, by selecting one of the income payment options (we call these “INCOME PLANS”) described on page 20. You receive income payments during what we call the “PAYOUT PHASE” of the Contract, which begins on the Payout Start Date and continues until we make the last payment required by the Income Plan you select. During the Payout Phase, if you select a fixed income payment option, we guarantee the amount of your payments, which will remain fixed. If you select a variable income payment option, based on one or more of the Variable Sub-Accounts, the amount of your payments will vary up or down depending on the performance of the corresponding Funds. The amount of money you accumulate under your Contract during the Accumulation Phase and apply to an Income Plan will determine the amount of your income payments during the Payout Phase.
The timeline below illustrates how you might use your Contract.
Issue Date | Payout Start | |||||||||||||
Accumulation Phase | Date | Payout Phase | ||||||||||||
You buy a Contract | You save for retirement | You elect to receive income payments or receive a lump sum payment | You can receive income payments for a set period | Or you can receive income payments for life |
As the Contract owner, you exercise all of the rights and privileges provided by the Contract. If you die, any surviving Contract owner, or if there is none, the BENEFICIARY will exercise the rights and privileges provided by the Contract. See “The Contract.” In addition, if you die before the Payout Start Date, we will pay a death benefit to any surviving Contract owner or, if none, to your Beneficiary. See “Death Benefits.”
Please call us at 1-800-692-4682 if you have any questions about how the Contract works.
6 PROSPECTUS
EXPENSE TABLE
The table below lists the expenses that you will bear directly or indirectly when you buy a Contract. The table and the examples that follow do not reflect premium taxes because New York currently does not impose premium taxes on annuities. For more information about Variable Account expenses, see “Expenses,” below. For more information about Fund expenses, please refer to the accompanying prospectus for the Funds.
CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of purchase payments withdrawn)*
Number of Complete Years Since We Received the Purchase Payment | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+ | |||||||||||||||||||||||||||||||||
Being Withdrawn | |||||||||||||||||||||||||||||||||||||||||
Applicable Charge | 7 | % | 6 | % | 5 | % | 4 | % | 3 | % | 2 | % | 1 | % | 0 | % | |||||||||||||||||||||||||
Annual Contract Maintenance Charge | $35.00** | ||||||||||||||||||||||||||||||||||||||||
Transfer Fee | $10.00*** | ||||||||||||||||||||||||||||||||||||||||
* Each Contract Year, you may withdraw up to 10% of purchase payments without incurring a withdrawal charge or a Market Value Adjustment.
** We will waive this charge in certain cases. See “Expenses.”
*** Applies solely to the thirteenth and subsequent transfers within a Contract Year excluding transfers due to dollar cost averaging or automatic fund rebalancing. We are currently waiving the transfer fee.
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSET VALUE
DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT)
Mortality and Expense Risk Charge | 1.35% | ||||
Administrative Expense Charge | 0.10% | ||||
Total Variable Account Annual Expense | 1.45% | ||||
FUND ANNUAL EXPENSES
(as a percentage of Fund average daily net assets) (1)
The next table shows the minimum and maximum total operating expenses charged by the Funds that you may pay periodically during the time that you own the Contract. Advisers and/or other service providers of certain Funds may have agreed to waive their fees and/or reimburse Fund expenses in order to keep the Funds’ expenses below specified limits. The range of expenses shown in this table does not show the effect of any such fee waiver or expense reimbursement.
More detail concerning each Fund’s fees and expenses appears in the prospectus for each Fund.
ANNUAL FUND EXPENSES
Minimum | Maximum | |||||||
Total Annual Fund Operating Expenses (1) (expenses that are deducted from Fund assets, which may include management fees, distribution and/or services (12b-1) fees, and other expenses) | 0.75% | 1.16% | ||||||
(1) Expenses are shown as a percentage of Fund average daily net assets (before any waiver or reimbursement) as of December 31, 2004.
7 PROSPECTUS
EXAMPLE 1
This Example is intended to help you compare the cost of investing in the Contracts with the cost of investing in other variable annuity contracts. These costs include Contract owner transaction expenses, Contract fees, Variable Account annual expenses, and Fund fees and expenses. The example below shows the dollar amount of expenses that you would bear directly or indirectly if you:
• invested $10,000 in the Contract for the time periods indicated,
• earned a 5% annual return on your investment, and
• surrendered your Contract, or you began receiving income payments for a specified period of less than 120 months, at the end of each time period.
The first line of the example assumes that the maximum fees and expenses of any of the Funds are charged. The second line of the example assumes that the minimum fees and expenses of any of the Funds are charged. Your actual expenses may be higher or lower than those shown below.
THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT.
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||
Costs Based on Maximum Annual Fund Expenses | $842 | $1,283 | $1,746 | $3,278 | ||||||||||
Costs Based on Minimum Annual Fund Expenses | $800 | $1,158 | $1,538 | $2,866 | ||||||||||
EXAMPLE 2
This Example uses the same assumptions as Example 1 above, except that it assumes you decided not to surrender your Contract, or you began receiving income payments for a specified period of at least 120 months, at the end of each time period.
1 Year | 3 Years | 5 Years | 10 Years | ||||||||||||||
Costs Based on Maximum Annual Fund Expenses | $302 | $923 | $1,566 | $3,278 | |||||||||||||
Costs Based on Minimum Annual Fund Expenses | $260 | $798 | $1,358 | $2,866 | |||||||||||||
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE LOWER OR GREATER THAN THOSE SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LOWER OR GREATER THAN 5%, WHICH IS NOT GUARANTEED. THE EXAMPLES DO NOT ASSUME THAT ANY FUND EXPENSE WAIVERS OR REIMBURSEMENT ARRANGEMENTS ARE IN EFFECT FOR THE PERIODS PRESENTED. THE ABOVE EXAMPLES ASSUME A MORTALITY AND EXPENSE RISK CHARGE OF
1.35%, AN ADMINISTRATIVE EXPENSE CHARGE OF 0.10% AND AN ANNUAL CONTRACT CHARGE OF $35. THE ABOVE EXAMPLES ASSUME TOTAL ANNUAL FUND EXPENSES LISTED IN THE EXPENSE TABLE WILL CONTINUE THROUGHOUT THE PERIODS SHOWN.
8 PROSPECTUS
FINANCIAL INFORMATION
To measure the value of your investment in the Variable Sub-Accounts during the Accumulation Phase, we use a unit of measure we call the “ACCUMULATION UNIT.” Each Variable Sub-Account has a separate value for its Accumulation Units we call “ACCUMULATION UNIT VALUE.” Accumulation Unit Value is analogous to, but not the same as, the share price of a mutual fund.
Attached as Appendix A to this prospectus are tables showing the Accumulation Unit Values of each Variable Sub-Account since the date we first offered the Contracts. To obtain a fuller picture of each Variable Sub-Account’s finances, please refer to the Variable Account’s financial statements contained in the Statement of Additional Information. The financial statements of Allstate New York also appear in the Statement of Additional Information.
THE CONTRACT
CONTRACT OWNER
The AIM Lifetime Plus(SM) Variable Annuity is a contract between you, the Contract owner, and Allstate New York, a life insurance company. As the Contract Owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted):
• the investment alternatives during the Accumulation and Payout Phases,
• the amount and timing of your purchase payments and withdrawals,
• the programs you want to use to invest or withdraw money,
• the income payment plan you want to use to receive retirement income,
• the Annuitant (either yourself or someone else) on whose life the income payments will be based,
• the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract Owner or Annuitant dies, and
• any other rights that the Contract provides.
If you die, any surviving Contract Owner or, if none, the Beneficiary may exercise the rights and privileges provided to them by the Contract.
The Contract cannot be jointly owned by both a non-living person and a living person. If the Contract Owner is a Grantor Trust, the Owner will be considered a non-living person for purpose of this section and the Death Benefit section. The maximum issue age of a Contract owner is age 90 as of the date we receive the completed application to purchase the Contract.
Changing ownership of this Contract may cause adverse tax consequences and may not be allowed under qualified plans. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner.
The Contract can also be purchased as an IRA or TSA (also known as a 403(b)). The endorsements required to qualify these annuities under the Internal Revenue Code of 1986, as amended, (“Code”) may limit or modify your rights and privileges under the Contract.
ANNUITANT
The Annuitant is the individual whose life determines the amount and duration of income payments (other than under Income Plans with guaranteed payments for a specified period). You initially designate an Annuitant in your application. If the Contract Owner is a living person you may change the Annuitant prior to the Payout Start Date. In our discretion, we may permit you to designate a joint Annuitant, who is a second person on whose life income payments depend, on the Payout Start Date. The maximum issue age of an Annuitant cannot exceed age 80 as of the date we receive the completed application to purchase the Contract.
If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be:
• the youngest Contract Owner if living, otherwise
• the youngest Beneficiary.
BENEFICIARY
The Beneficiary is the person who may elect to receive the Death Benefit or become the new Contract Owner, subject to the Death of Owner provisions, if the sole surviving Contract Owner dies before the Payout Start Date. (See section titled “Death Benefits” for more details.) If the sole surviving Contract Owner dies after the Payout Start Date, the Beneficiary will receive any guaranteed Income Payments scheduled to continue.
You may name one or more Beneficiaries when you apply for a Contract. You may also name one or more contingent Beneficiaries who will receive any Death Benefit or guaranteed income benefit if there are no surviving primary Beneficiaries upon the death of the sole surviving Contract Owner. You may change or add Beneficiaries at any time by writing to us, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed and filed with us. Any change will be effective at the time you sign the written notice, whether or not the Annuitant is living when we receive the notice. Until we receive your written
9 PROSPECTUS
notice to change a Beneficiary, we are entitled to rely on the most recent Beneficiary information in our files. We will not be liable as to any payment or settlement made prior to receiving the written notice. Accordingly, if you wish to change your Beneficiary, you should deliver your written notice to us promptly.
If you did not name a Beneficiary or if the named Beneficiary is no longer living and there are no other surviving Beneficiaries, the new Beneficiary will be:
• your spouse or, if he or she is no longer alive,
• your surviving children equally, or if you have no surviving children,
• your estate.
If more than one Beneficiary survives you, we will divide the Death Benefit among your Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the Death Benefit in equal amounts to the surviving Beneficiaries.
You may restrict income payments to Beneficiaries by providing us a written request. Once we accept the written request, the change or restriction will take effect as of the date you signed the request. Any change is subject to any payment we make or other action we take before we accept the change.
MODIFICATION OF THE CONTRACT
Only an Allstate New York officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law.
ASSIGNMENT
No Owner has a right to assign any interest in a Contract as collateral or security for a loan. However, you may assign periodic income payments under the Contract prior to the Payout Start Date. No Beneficiary may assign benefits under the Contract until they are due. We will not be bound by any assignment until the assignor signs it and files it with us. We are not responsible for the validity of any assignment. Federal law prohibits or restricts the assignment of benefits under many types of retirement plans and the terms of such plans may themselves contain restrictions on assignments. An assignment may also result in taxes or tax penalties. YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN YOUR CONTRACT.
PURCHASES
MINIMUM PURCHASE PAYMENTS
Your initial Purchase Payment must be at least $5,000 ($2,000 for a Qualified Contract). All subsequent Purchase Payments must be $500 or more. The maximum Purchase Payment is $2,000,000 without prior approval. We reserve the right to change the minimum Purchase Payment and to change the maximum Purchase Payment. You may make Purchase Payments of at least $500 at any time prior to the Payout Start Date. We also reserve the right to reject any application.
AUTOMATIC ADDITIONS PROGRAM
You may make additional purchase payments of at least $100 ($500 for allocation to the Fixed Account) by automatically transferring amounts from your bank account. Please consult with your sales representative for detailed information.
ALLOCATION OF PURCHASE PAYMENTS
At the time you apply for a Contract, you must decide how to allocate your Purchase Payments among the Investment Alternatives. The allocation you specify on your application will be effective immediately. All allocations must be in whole percents that total 100% or in whole dollars. You can change your allocations by notifying us in writing. We reserve the right to limit the availability of the Investment Alternatives.
We will allocate your additional purchase payments to the investment alternatives according to your most recent instructions on file with us. Unless you notify us in writing otherwise, we will allocate subsequent purchase payments according to the allocation for the previous purchase payment. We will effect any change in allocation instructions at the time we receive written notice of the change in good order.
We will credit the initial purchase payment that accompanies your completed application to your Contract within 2 business days after we receive the payment at our service center. If your application is incomplete, we will ask you to complete your application within 5 business days. If you do so, we will credit your initial purchase payment to your Contract within that 5 business day period. If you do not, we will return your purchase payment at the end of the 5 business day period unless you expressly allow us to hold it until you complete the application. We will credit additional Purchase Payments to the Contract at the close of the business day on which we receive the purchase payment at our service center located in Vernon Hills, Illinois (mailing address: P.O. BOX 82656, LINCOLN, NE 68501-2656).
We are open for business each day Monday through Friday that the New York Stock Exchange is open for business. We also refer to these days as “VALUATION DATES.” Our business day closes when the New York Stock Exchange closes, usually 4:00 p.m. Eastern Time
10 PROSPECTUS
(3:00 p.m. Central Time). If we receive your purchase payment after 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date, we will credit your purchase payment using the Accumulation Unit Values computed on the next Valuation Date.
RIGHT TO CANCEL
You may cancel the Contract by returning it to us within the Cancellation Period, which is the 10 day period after you receive the Contract (60 days if you are exchanging another contract for the Contract described in this prospectus.) You may return it by delivering it or mailing it to us. If you exercise this “RIGHT TO CANCEL,” the Contract terminates and we will pay you the full amount of your purchase payments allocated to the Fixed Account Options. Upon cancellation, as permitted by federal or state law, we will return your purchase payments allocated to the Variable Account after an adjustment to reflect investment gain or loss and any applicable charges that occurred from the date of allocation through the date of cancellation. If your Contract is qualified under Code Section 408(b), we will refund the greater of any purchase payment or the Contract Value,
CONTRACT VALUE
Your Contract Value at any time during the Accumulation Phase is equal to the sum of the value of your Accumulation Units in the Variable Sub-Accounts you have selected, plus the sum of Sub-Account values in the Fixed Account.
ACCUMULATION UNITS
To determine the number of Accumulation Units of each Variable Sub-Account to credit to your Contract, we divide (i) the amount of the purchase payment or transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of that Variable Sub-Account next computed after we receive your payment or transfer. For example, if we receive a $10,000 purchase payment allocated to a Variable Sub-Account when the Accumulation Unit Value for the Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Sub-Account allocated to your Contract.
ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect:
• changes in the share price of the Fund in which the Variable Sub-Account invests, and
• the deduction of amounts reflecting the mortality and expense risk charge, administrative expense charge, and any provision for taxes that have accrued since we last calculated the Accumulation Unit Value.
We determine contract maintenance charges, withdrawal charges, and transfer fees (currently waived) separately for each Contract. They do not affect Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we calculate Accumulation Unit Value, please refer to the Statement of Additional Information.
We determine a separate Accumulation Unit Value for each Variable Sub-Account on each Valuation Date.
YOU SHOULD REFER TO THE PROSPECTUS FOR THE FUNDS THAT ACCOMPANIES THIS PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH FUND ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE.
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INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS
You may allocate your purchase payments to up to 18 Variable Sub-Accounts. Each Variable Sub-Account invests in the shares of a corresponding Fund. Each Fund has its own investment objective(s) and policies. We briefly describe the Funds below.
For more complete information about each Fund, including expenses and risks associated with the Fund, please refer to the accompanying prospectus for the Fund. You should carefully review the Fund prospectus before allocating amounts to the Variable Sub-Accounts. A I M Advisors, Inc. serves as the investment advisor to each Fund.
SERIES I SHARES: | EACH FUND SEEKS*: | INVESTMENT ADVISOR | |||||||||
AIM V.I. Aggressive Growth Fund - Series I** | Long-term growth of capital | ||||||||||
AIM V.I. Balanced Fund - Series I*** | As high a total return as possible, consistent with preservation of capital | ||||||||||
AIM V.I. Basic Value Fund - Series I | Long-term growth of capital | ||||||||||
AIM V.I. Blue Chip Fund - Series I | Long-term growth of capital with a secondary objective of current income | ||||||||||
AIM V.I. Capital Appreciation Fund - Series I | Growth of capital | ||||||||||
AIM V.I. Capital Development Fund - Series I | Long-term growth of capital | ||||||||||
AIM V.I. Core Equity Fund - Series I | Growth of capital A I M ADVISORS, INC | ||||||||||
AIM V.I. Dent Demographic Trends Fund - Series I**** | Long-term growth of capital | ||||||||||
AIM V.I. Diversified Income Fund – Series I | High level of current income | ||||||||||
AIM V.I. Government Securities Fund - Series I | High level of current income consistent with reasonable concern for safety of principal | ||||||||||
AIM V.I. Growth Fund - Series I | Growth of capital | ||||||||||
AIM V.I. High Yield Fund - Series I | High level of current income | ||||||||||
AIM V.I. International Growth Fund - Series I | Long-term growth of capital | ||||||||||
AIM V.I. Mid Cap Core Equity Fund – Series I | Long-term growth of capital | ||||||||||
AIM V.I. Money Market Fund - Series I | As high a level of current income as is consistent with the preservation of capital and liquidity | ||||||||||
AIM V.I. Premier Equity Fund – Series I | Long-term growth of capital with income as a secondary objective | ||||||||||
AIM V.I. Technology Fund - Series I | Capital growth | ||||||||||
AIM V.I. Utilities Fund - Series I | Capital growth and current income | ||||||||||
* A Fund’s investment objective(s) may be changed by the Fund’s Board of Trustees without shareholder approval.
** Due to the sometime limited availability of common stocks of small-cap companies that meet the investment criteria for AIM V.I. Aggressive Growth Fund - Series I, the Fund may periodically suspend or limit the offering of its shares and it will be closed to new participants when Fund assets reach $200 million. During the closed periods the Fund will accept additional investments from existing Contract owners maintaining an allocation in the Fund.
*** Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its name to AIM V.I. Basic Balanced Fund-Series I. In addition, the Fund’s objective will change to long-term growth of capital and current income.
**** The AIM V.I. Dent Demographic Trends Fund - Series I is sub-advised by H.S. Dent Advisors, Inc. Effective July 1, 2005, the AIM V.I. Dent Demographic Trends Fund - Series I will change its name to AIM V.I. Demographic Trends Fund - Series I. In addition, H.S. Dent Advisors, Inc. will no longer be the sub-advisor to the Fund effective June 30, 2005.
AMOUNTS YOU ALLOCATE TO VARIABLE SUB-ACCOUNTS MAY GROW IN VALUE, DECLINE IN VALUE, OR GROW LESS THAN YOU EXPECT, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE FUNDS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE FUNDS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE FUNDS
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ARE NOT DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT
You may allocate all or a portion of your purchase payments to the Fixed Account. The Fixed Account supports our insurance and annuity obligations. The Fixed Account consists of our general assets other than those in segregated asset accounts. We have sole discretion to invest the assets of the Fixed Account, subject to applicable law. Any money you allocate to the Fixed Account does not entitle you to share in the investment experience of the Fixed Account.
GUARANTEE PERIODS
Each payment or transfer allocated to a Guarantee Period earns interest at a specified rate that we guarantee for a period of years. Guarantee Periods may range from 1 to 10 years. In the future, we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods.
You select the Guarantee Period for each payment or transfer. If you do not select a Guarantee Period, we will assign the same period(s) you selected for your most recent purchase payment(s), if available.
Each purchase payment or transfer allocated to a Guarantee Period must be at least $500. We reserve the right to limit the number of additional purchase payments that you may allocate to the Fixed Account. Please consult with your sales representative for more information.
INTEREST RATES. We will tell you what interest rates and Guarantee Periods we are offering at a particular time. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. We will not change the interest rate that we credit to a particular allocation until the end of the relevant Guarantee Period.
We have no specific formula for determining the rate of interest that we will declare initially or in the future. We will set those interest rates based on investment returns available at the time of the determination. In addition, we may consider various other factors in determining interest rates including regulatory and tax requirements, our sales commission and administrative expenses, general economic trends, and competitive factors. WE DETERMINE THE INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE CAN NEITHER PREDICT NOR GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE. For current interest rate information, please contact your sales representative or Allstate New York at 1-800-692-4682. The interest rate will never be less than the minimum guaranteed amount stated in the Contract.
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HOW WE CREDIT INTEREST.
We will credit interest daily to each amount allocated to a Guarantee Period at a rate that compounds to the effective annual interest rate that we declared at the beginning of the applicable Guarantee Period.
The following example illustrates how a purchase payment allocated to the Fixed Account would grow, given an assumed Guarantee Period and effective annual interest rate:
Purchase Payment | $10,000 | |||||||
Guarantee Period | 5 years | |||||||
Annual Interest Rate | 4.50% |
YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | |||||||||||||
Beginning Contract Value | $10,000.00 | ||||||||||||||||
X (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$10,450.00 | |||||||||||||||||
Contract Value at end of Contract Year | $10,450.00 | ||||||||||||||||
X (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$10,920.25 | |||||||||||||||||
Contract Value at end of Contract Year | $10,920.25 | ||||||||||||||||
X (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$11,411.66 | |||||||||||||||||
Contract Value at end of Contract Year | $11,411.66 | ||||||||||||||||
X (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$11,925.19 | |||||||||||||||||
Contract Value at end of Contract Year | $11,925.19 | ||||||||||||||||
X (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$12,461.82 |
TOTAL INTEREST CREDITED DURING GUARANTEE PERIOD = $2,461.82 ($12,461.82-$10,000)
This example assumes no withdrawals during the entire 5 year Guarantee Period. If you were to make a withdrawal, you may be required to pay a withdrawal charge. In addition, the amount withdrawn may be increased or decreased by a Market Value Adjustment that reflects changes in interest rates since the time you invested the amount withdrawn. The hypothetical interest rate is for illustrative purposes only and is not intended to predict current or future interest rates to be declared under the Contract. Actual interest rates declared for any given Guarantee Period may be more or less than shown above but will never be less than the guaranteed minimum rate stated in the Contract.
RENEWALS. Prior to the end of each Guarantee Period, we will mail you a notice asking you what to do with your money, including the accrued interest. At the end of the Guarantee Period, we will automatically renew the Guarantee Period value to a new Guarantee Period of the shortest duration available, to be established on the day the previous Guarantee Period expired, or to the Money Market Variable Sub-account if no Guarantee Periods are available at the time of expiration of the previous Guarantee Period. Please consult with your representative. During the 30-day period after the end of the Guarantee Period, you may:
1) Take no action. We will automatically apply your money to a Guarantee Period of the shortest duration available or the Money Market Variable Sub-account. The new Guarantee Period will begin on the day the previous Guarantee Period ends. Please consult with your representative. The new interest rate will be the rate in effect on the 1/ST/ day of the New Period; or
2) Instruct us to apply your money to one or more new Guarantee Periods of your choice. The new Guarantee Period(s) will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for those Guarantee Periods; or
3) Instruct us to transfer all or a portion of your money to one or more Variable Sub-Accounts. We will effect the transfer on the day we receive your instructions. We will not adjust the amount transferred to include a Market Value Adjustment; or
4) Withdraw all or a portion of your money. You may be required to pay a withdrawal charge, but we will not adjust the amount withdrawn to include a Market Value Adjustment. You may also be required to pay premium taxes and withholding (if applicable). The amount withdrawn will be deemed to have been withdrawn on the day the previous Guarantee Period ends. Unless you specify otherwise, amounts not withdrawn will be applied to a new Guarantee Period of the shortest duration available. The new Guarantee Period will begin on the day the previous Guarantee Period ends.
MARKET VALUE ADJUSTMENT. All withdrawals in excess of the Preferred Withdrawal Amount, transfers, and amounts applied to an Income Plan from a Guarantee Period, other than those taken or applied during the 30 day period after such Guarantee Period expires, are subject to a Market Value Adjustment. A Market Value Adjustment also will apply when you apply amounts currently invested in a Guarantee Period to an Income Plan (unless applied during the 30 day period after such Guarantee Period expires). A Market Value Adjustment may apply in the calculation of the Settlement Value described below in the “Death Benefit Amount” section below. We will not apply a Market Value Adjustment to a transfer you make as part of a Dollar Cost Averaging Program. We also will not apply a Market Value Adjustment to a withdrawal you make:
• within the Preferred Withdrawal Amount as described on page 18; or
• to satisfy the IRS minimum distribution rules.
We apply the Market Value Adjustment to reflect changes in interest rates from the time you first allocate money to a Guarantee Period to the time it is removed from that Guarantee Period. We calculate the Market Value Adjustment by comparing the Treasury Rate for a period equal to the Guarantee Period at its inception to the Treasury Rate for a period equal to the time remaining in the Guarantee Period when you remove your money. “TREASURY RATE” means the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Board Statistical Release H.15.
The Market Value Adjustment may be positive or negative, depending on changes in interest rates. As such, you bear the investment risk associated with changes in interest rates. If interest rates increase significantly, the Market Value Adjustment and any withdrawal charge, premium taxes, and income tax withholding (if applicable) could reduce the amount you receive upon full withdrawal of your Contract Value to an amount that is less than the purchase payment plus interest at the minimum guaranteed interest rate under the Contract.
Generally, if the Treasury Rate at the time you allocate money to a Guarantee Period is higher than the applicable current Treasury Rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a higher amount payable to you, transferred, or applied to an Income Plan. Conversely, if the Treasury Rate at the time you allocate money to a Guarantee Period is lower than the applicable Treasury Rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a lower amount payable to you, transferred, or applied to an Income Plan.
For example, assume that you purchase a Contract and you select an initial Guarantee Period of 5 years and the 5 year Treasury Rate for that duration is 4.50%. Assume that at the end of 3 years, you make a partial withdrawal. If, at that later time, the current 2 year Treasury Rate is 4.20%, then the Market Value Adjustment will be positive, which will result in an increase in the amount payable to you. Conversely, if the current 2 year Treasury Rate is 4.80%, then the Market Value Adjustment will be negative, which will result in a decrease in the amount payable to you.
The formula for calculating Market Value Adjustments is set forth in Appendix B to this prospectus, which also contains additional examples of the application of the Market Value Adjustment.
INVESTMENT ALTERNATIVES: TRANSFERS
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer Contract Value among the investment alternatives. You may request in writing on a form that we provide or by telephone according to the procedure described below. The minimum amount that you may transfer into a Guarantee Period is $500. We currently do not assess, but reserve the right to assess, a $10 charge on each transfer in excess of 12 per Contract Year. We treat transfers to or from more than one Fund on the same day as one transfer.
We will process transfer requests that we receive before 4:00 p.m. Eastern Time on any Valuation Date using the Accumulation Unit Values for that Date. We will process requests completed after 4:00 p.m. on any Valuation Date using the Accumulation Unit Values for the next Valuation Date. The Contract permits us to defer transfers from the Fixed Account for up to 6 months from the date we receive your request. If we decide to postpone transfers from any Guarantee Period for 10 days or more, we will pay interest as required by applicable law. Any interest would be payable from the date we receive the transfer request to the date we make the transfer. If you transfer an amount from a Guarantee Period other than during the 30 day period after such Guarantee Period expires, we will increase or decrease the amount by a Market Value Adjustment.
TRANSFERS DURING THE PAYOUT PHASE
During the Payout Phase, you may make transfers among the Variable Sub-Accounts to change the relative weighting of the Variable Sub-Accounts on which your variable income payments will be based. In addition, you will have a limited ability to make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. You may not, however, convert any portion of your right to receive fixed income payments into variable income payments.
You may not make any transfers for the first 6 months after the Payout Start Date. Thereafter, you may make transfers among the Variable Sub-Accounts or make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. Your transfers must be at least 6 months apart.
TELEPHONE TRANSFERS
You may make transfers by telephone by calling 1-800-692-4682, if you first send us a completed authorization form. The cut off time for telephone transfer requests is 4:00 p.m. Eastern Time. In the event that the New York Stock Exchange closes early, i.e., before 4:00 p.m. Eastern Time, or in the event that the Exchange closes early for a period of time but then reopens for trading on the same day, we will process telephone transfer requests as of the close of the Exchange on that particular day. We will not accept telephone requests received at any telephone number other than the number that appears in this paragraph or received after the close of trading on the Exchange.
We may suspend, modify or terminate the telephone transfer privilege, as well as any other electronic or automated means we previously approved, at any time without notice.
We use procedures that we believe provide reasonable assurance that the telephone transfers are genuine. For example, we tape telephone conversations with persons purporting to authorize transfers and request identifying information. Accordingly, we disclaim any liability for losses resulting from allegedly unauthorized telephone transfers. However, if we do not take reasonable steps to help ensure that a telephone authorization is valid, we may be liable for such losses.
MARKET TIMING & EXCESSIVE TRADING
The Contracts are intended for long-term investment. Market timing and excessive trading can potentially dilute the value of Variable Sub-Accounts and can disrupt management of a Fund and raise its expenses, which can impair Fund performance and adversely affect your Contract Value. Our policy is not to accept knowingly any money intended for the purpose of market timing or excessive trading.
Accordingly, you should not invest in the Contract if your purpose is to engage in market timing or excessive trading, and you should refrain from such practices if you currently own a Contract.
We seek to detect market timing or excessive trading activity by reviewing trading activities. Funds also may report suspected market-timing or excessive trading activity to us. If, in our judgment, we determine that the transfers are part of a market timing strategy or are otherwise harmful to the underlying Fund, we will impose the trading limitations as described below under “Trading Limitations.” Because there is no universally accepted definition of what constitutes market timing or excessive trading, we will use our reasonable judgment based on all of the circumstances.
While we seek to deter market timing and excessive trading in Variable Sub-Accounts, because our procedures involve the exercise of reasonable judgment, we may not identify or prevent some market timing or excessive trading. Moreover, imposition of trading limitations is triggered by the detection of market timing or excessive trading activity, and the trading limitations are not applied prior to detection of such trading activity. Therefore, our policies and procedures do not prevent such trading activity before it is detected. As a result, some investors may be able to engage in market timing and excessive trading, while others are prohibited, and the portfolio may experience the adverse effects of market timing and excessive trading described above.
TRADING LIMITATIONS
We reserve the right to limit transfers among the investment alternatives in any Contract Year, or to refuse any transfer request, if:
• we believe, in our sole discretion, that certain trading practices, such as excessive trading, by, or on behalf of, one or more Contract Owners, or a specific transfer request or group of transfer requests, may have a detrimental effect on the Accumulation Unit Values of any Variable Sub-Account or on the share prices of the corresponding Fund or otherwise would be to the disadvantage of other Contract Owners; or
• we are informed by one or more of the Funds that they intend to restrict the purchase, exchange, or redemption of Fund shares because of excessive trading or because they believe that a specific transfer or group of transfers would have a detrimental effect on the prices of Fund shares.
In making the determination that trading activity constitutes market timing or excessive trading, we will consider, among other things:
• the total dollar amount being transferred, both in the aggregate and in the transfer request;
• the number of transfers you make over a period of time and/or the period of time between transfers (note: one set of transfers to and from a Variable Sub-Account in a short period of time can constitute market timing);
• whether your transfers follow a pattern that appears designed to take advantage of short term market fluctuations, particularly within certain Variable Sub-Account underlying Funds that we have identified as being susceptible to market timing activities;
• whether the manager of the underlying Fund has indicated that the transfers interfere with Fund management or otherwise adversely impact the Fund; and
• the investment objectives and/or size of the Variable Sub-Account underlying Fund.
We seek to apply these trading limitations uniformly. However, because these determinations involve the exercise of discretion, it is possible that we may not detect some market timing or excessive trading activity. As a result, it is possible that some investors may be able to engage in market timing or excessive trading activity, while others are prohibited, and the Fund may experience the adverse effects of market timing and excessive trading described above.
If we determine that a Contract Owner has engaged in a pattern of market timing or excessive trading activity involving multiple Variable Sub-Accounts, we will require that all future transfer requests be submitted through regular U.S. mail thereby refusing to accept transfer requests via telephone, facsimile, Internet, or overnight delivery. In addition, for Contracts issued on or after May 1, 2000, if we determine that a Contract Owner has engaged in market timing or excessive trading activity, we will also restrict that Contract Owner from making future additions or transfers into the impacted Variable Sub-Account(s).
In our sole discretion, we may revise our Trading Limitations at any time as necessary to better deter or minimize market timing and excessive trading or to comply with regulatory requirements.
DOLLAR COST AVERAGING PROGRAM
Through the Dollar Cost Averaging Program, you may automatically transfer a set amount at regular intervals during the Accumulation Phase from any Variable Sub-Account, or the 1 year Guarantee Period of the Fixed Account, to any other Variable Sub-Account. The interval between transfers may be monthly, quarterly, semi-annually, or annually. You may not use dollar cost averaging to transfer amounts to the Fixed Account.
We will not charge a transfer fee for transfers made under this Program, nor will such transfers count against the 12 transfers you can make each Contract Year without paying a transfer fee. In addition, we will not apply the Market Value Adjustment to these transfers.
The theory of dollar cost averaging is that if purchases of equal dollar amounts are made at fluctuating prices, the aggregate average cost per unit will be less than the average of the unit prices on the same purchase dates. However, participation in this program does not assure you of a greater profit from your purchases under the Program nor will it prevent or necessarily reduce losses in a declining market. Call or write us for instructions on how to enroll.
AUTOMATIC FUND REBALANCING PROGRAM
Once you have allocated your money among the Variable Sub-Accounts, the performance of each Sub-Account may cause a shift in the percentage you allocated to each Sub-Account. If you select our Automatic Fund Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. Money you allocate to the Fixed Account will not be included in the rebalancing.
We will rebalance your account each quarter according to your instructions. We will transfer amounts among the Variable Sub-Accounts to achieve the percentage allocations you specify. You can change your allocations at any time by contacting us in writing or by telephone. The new allocation will be effective with the first rebalancing that occurs after we receive your request. We are not responsible for rebalancing that occurs prior to receipt of your request.
Example:
Assume that you want your initial purchase payment split among 2 Variable Sub-Accounts. You want 40% to be in the AIM V.I. Diversified Income Variable Sub-Account and 60% to be in the AIM V.I. Growth Variable Sub-Account. Over the next 2 months the bond market does very well while the stock market performs poorly. At the end of the first quarter, the AIM V.I. Diversified Income Variable Sub-Account now represents 50% of your holdings because of its increase in value. If you choose to have your holdings rebalanced quarterly, on the first day of the next quarter we would sell some of your units in the AIM V.I. Diversified Income Variable Sub-Account and use the money to buy more units in the AIM V.I. Growth Variable Sub-Account so that the percentage allocations would again be 40% and 60% respectively.
The Automatic Fund Rebalancing Program is available only during the Accumulation Phase. The transfers made under the Program do not count towards the 12 transfers you can make without paying a transfer fee, and are not subject to a transfer fee.
Fund rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Contract Value allocated to the better performing segments.
EXPENSES
As a Contract owner, you will bear, directly or indirectly, the charges and expenses described below.
CONTRACT MAINTENANCE CHARGE
During the Accumulation Phase, on each Contract Anniversary, we will deduct a $35 contract maintenance charge from your Contract Value invested in each Variable Sub-Account in proportion to the amount invested. We also will deduct a full contract maintenance charge if you withdraw your entire Contract Value, unless your Contract qualifies for a waiver, described below. During the Payout Phase, we will deduct the charge proportionately from each income payment.
The charge is for the cost of maintaining each Contract and the Variable Account. Maintenance costs include expenses we incur in billing and collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract owners and regulatory agencies. We cannot increase the charge. We will waive this charge if:
• total purchase payments equal $50,000 or more, or
• all money is allocated to the Fixed Account on a Contract Anniversary.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily at an annual rate of 1.35% of the average daily net assets you have invested in the Variable Sub-Accounts. The mortality and expense risk charge is for all the insurance benefits available with your Contract (including our guarantee of annuity rates and the death benefits), for certain expenses of the Contract, and for assuming the risk (expense risk) that the current charges will not be sufficient in the future to cover the cost of administering the Contract. If the charges under the Contract are not sufficient, then we will bear the loss.
We guarantee the mortality and expense risk charge and we cannot increase it. We assess the mortality and expense risk charge during both the Accumulation Phase and the Payout Phase.
ADMINISTRATIVE EXPENSE CHARGE
We deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-Accounts. We intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed to that Contract. We assess this charge each day during the Accumulation Phase and the Payout Phase. We guarantee that we will not raise this charge.
TRANSFER FEE
We do not currently impose a fee upon transfers among the investment alternatives. However, we reserve the right to charge $10 per transfer after the 12th transfer in each Contract Year. We will not charge a transfer fee on transfers that are part of a Dollar Cost Averaging Program or Automatic Fund Rebalancing Program.
WITHDRAWAL CHARGE
We may assess a withdrawal charge of up to 7% of the purchase payment(s) you withdraw in excess of the Preferred Withdrawal Amount, adjusted by a Market Value Adjustment. The charge declines annually to 0% after 7 complete years from the day we receive the purchase payment being withdrawn. A schedule showing how the charge declines appears on page 7. During each Contract Year, you can withdraw up to 10% of purchase payments without paying the charge. Unused portions of this 10% “PREFERRED WITHDRAWAL AMOUNT” are not carried forward to future Contract Years.
We determine the withdrawal charge by;
• multiplying the percentage corresponding to the number of complete years since we received the purchase payment being withdrawn by
• the part of each purchase payment withdrawal that is in excess of the Preferred Withdrawal Amount, adjusted by a Market Value Adjustment.
We will deduct withdrawal charges, if applicable, from the amount paid. For purposes of the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings in the Contract. Thus, for tax purposes, earnings are considered to come out first, which means you pay taxes on the earnings portion of your withdrawal.
If you make a withdrawal before the Payout Start Date, we will apply the withdrawal charge percentage in effect on the date of the withdrawal, or the withdrawal charge percentage in effect on the following day, whichever is lower. We do not apply a withdrawal charge in the following situations:
• on the Payout Start Date (a withdrawal charge may apply if you elect to receive income payments for a specified period of less than 120 months);
• the death of the Contract owner or Annuitant (unless the Settlement Value is used);
• withdrawals taken to satisfy IRS minimum distribution rules for the Contract; or
• withdrawals made after all purchase payments have been withdrawn.
We use the amounts obtained from the withdrawal charge to pay sales commissions and other promotional or distribution expenses associated with marketing the Contracts. To the extent that the withdrawal charge does not cover all sales commissions and other promotional or distribution expenses, we may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or any other charges or fee described above, to make up any difference.
Withdrawals may be subject to tax penalties or income tax and a Market Value Adjustment. You should consult your own tax counsel or other tax advisers regarding any withdrawals.
We reserve the right to waive the withdrawal charge with respect to Contracts issued to employees and registered representatives of any broker-dealer that has entered into a sales agreement with ALFS, Inc. (“ALFS”) to sell the Contracts and all wholesalers and their employees that are under agreement with ALFS to wholesale the Contract.
PREMIUM TAXES
Currently, we do not make deductions for premium taxes under the Contract because New York does not charge premium taxes on annuities. We may deduct taxes that may be imposed in the future from purchase payments or the Contract Value when the tax is incurred or at a later time.
DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES
We are not currently making a provision for taxes. In the future, however, we may make a provision for taxes if we determine, in our sole discretion, that we will incur a tax as a result of the operation of the Variable Account. We will deduct for any taxes we incur as a result of the operation of the Variable Account, whether or not we previously made a provision for taxes and whether or not it was sufficient. Our status under the Internal Revenue Code is briefly described in the Taxes section.
OTHER EXPENSES
Each Fund deducts advisory fees and other expenses from its assets. You indirectly bear the charges and expenses of the Fund whose shares are held by the Variable Sub-Accounts. These fees and expenses are described in the accompanying prospectus for the Funds. For a summary of current estimates of those charges and expenses, see pages 7-8 above.
We may receive compensation from A I M Advisors, Inc., for administrative services we provide to the Funds.
ACCESS TO YOUR MONEY
You can withdraw some or all of your Contract Value at any time prior to the Payout Start Date. Withdrawals also are available under limited circumstances on or after the Payout Start Date. See “Income Plans” on page 20.
The amount payable upon withdrawal is the Contract Value next computed after we receive the request for a withdrawal at our service center, adjusted by any Market Value Adjustment, less any withdrawal charges, contract maintenance charges, income tax withholding, and any premium taxes. We will pay withdrawals from the Variable Account within 7 days of receipt of the request, subject to postponement in certain circumstances.
You can withdraw money from the Variable Account or the Fixed Account. To complete a partial withdrawal from the Variable Account, we will cancel Accumulation Units in an amount equal to the withdrawal and any applicable withdrawal charge and premium taxes.
You have the opportunity to name the investment alternative(s) from which you are taking the withdrawal. If none is specified, we will deduct your withdrawal pro-rata from the investment alternatives according to the value of your investments therein.
In general, you must withdraw at least $50 at a time. You also may withdraw a lesser amount if you are withdrawing your entire interest in a Variable Sub- Account.
If you request a total withdrawal, we may require that you return your Contract to us. We also will deduct a Contract Maintenance Charge of $35, unless we have waived the Contract Maintenance Charge on your Contract.
Withdrawals taken prior to annuitization (referred to in this prospectus as the Payout Phase) are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under the Contract if:
1.The New York Stock Exchange is closed for other than usual weekends or holidays, or trading on the Exchange is otherwise restricted;
2.An emergency exists as defined by the SEC; or
3.The SEC permits delay for your protection.
In addition, we may delay payments or transfers from the Fixed Account for up to 6 months or shorter period if required by law. If we delay payment or transfer for 10 days or more, we will pay interest as required by law. Any interest would be payable from the date we receive the withdrawal request to the date we make the payment or transfer.
SYSTEMATIC WITHDRAWAL PROGRAM
You may choose to receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or annual basis at any time prior to the Payout Start Date. The minimum amount of each systematic withdrawal is $50. At our discretion, systematic withdrawals may not be offered in conjunction with the Dollar Cost Averaging or the Automatic Fund Rebalancing Programs.
Depending on fluctuations in the accumulation unit value of the Variable Sub-Accounts and the value of the Fixed Account, systematic withdrawals may reduce or even exhaust the Contract Value. We will make systematic withdrawal payments to you or your designated payee. We may modify or suspend the Systematic Withdrawal Program and charge a processing fee for the service. If we modify or suspend the Systematic Withdrawal Program, existing systematic withdrawal payments will not be affected.
MINIMUM CONTRACT VALUE
If your request for a partial withdrawal would reduce the amount in any Guarantee Period to less than $500, we will treat it as a request to withdraw the entire amount invested in such Guarantee Period. In addition, if your request for a partial withdrawal would reduce the Contract Value to less than $1,000, we may treat it as a request to withdraw your entire Contract Value. Before terminating any Contract whose value has been reduced by withdrawals to less than $1,000, we would inform you in writing of our intention to terminate your Contract and give you at least 30 days in which to make an additional Purchase Payment to restore your Contract’s value to the contractual minimum of $1,000. Your Contract will terminate if you withdraw all of your Contract Value. We will, however, ask you to confirm your withdrawal request before terminating your Contract. If we terminate your Contract, we will distribute to you its Contract Value, adjusted by any applicable Market Value Adjustment, less withdrawal and other charges, and applicable taxes. Your Contract will terminate if you withdraw all of your Contract Value.
INCOME PAYMENTS
PAYOUT START DATE
The Payout Start Date is the day that we apply your Contract Value, adjusted by any Market Value Adjustment and less any applicable taxes, to an Income Plan. The Payout Start Date must be no later than the Annuitant’s 90th birthday.
You may change the Payout Start Date at any time by notifying us in writing of the change at least 30 days before the scheduled Payout Start Date. Absent a change, we will use the Payout Start Date stated in your Contract.
INCOME PLANS
An “Income Plan” is a series of payments on a scheduled basis to you or to another person designated by you. You may choose and change your choice of Income Plan until 30 days before the Payout Start Date. If you do not select an Income Plan, we will make income payments in accordance with Income Plan 1 with guaranteed payments for 10 years. After the Payout Start Date, you may not make withdrawals (except as described below) or change your choice of Income Plan. Three Income Plans are available under the Contract. Each is available to provide:
• fixed income payments;
• variable income payments; or
• a combination of the two.
A portion of each payment will be considered taxable and the remaining portion will be a non-taxable return of your investment in the Contract, which is also called the “basis”. Once the basis in the Contract is depleted, all remaining payments will be fully taxable. If the Contract is tax-qualified, generally, all payments will be fully taxable. Taxable payments taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
The three Income Plans are:
INCOME PLAN 1 - LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as the Annuitant lives. If the Annuitant dies before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract.
INCOME PLAN 2 - JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as either the Annuitant or the joint Annuitant is alive. If both the Annuitant and the joint Annuitant die before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract.
INCOME PLAN 3 - GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD (5 YEARS TO 30 YEARS). Under this plan, we make periodic income payments for the period you have chosen. These payments do not depend on the Annuitant’s life. Income payments for less than 120 months may be subject to a withdrawal charge. We will deduct the mortality and expense risk charge from the Variable Sub-Account assets that support the variable income payments even though we may not bear any mortality risk.
The length of any guaranteed payment period under your selected Income Plan generally will affect the dollar amounts of each income payment. As a general rule, longer guarantee periods result in lower income payments, all other things being equal. For example, if you choose an Income Plan with payments that depend on the life of the Annuitant but with no minimum specified period for guaranteed payments, the income payments generally will be greater than the income payments made under the same Income Plan with a minimum specified period for guaranteed payments.
If you choose Income Plan 1 or 2, or, if available, another Income Plan with payments that continue for the life of the Annuitant or joint Annuitant, we may require proof of age and sex of the Annuitant or joint Annuitant before starting income payments, and proof that the Annuitant or joint Annuitant is alive before we make each payment. Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on.
Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or part of the Variable Account portion of the income payments at any time and receive a lump sum equal to the present value of the remaining variable payments associated with the amount withdrawn. To determine the present value of any remaining variable income payments being withdrawn, we use a discount rate equal to the assumed annual investment rate that we use to compute such variable income payments. The minimum amount you may withdraw under this feature is $1,000. A withdrawal charge may apply. We deduct applicable premium taxes from the Contract Value at the Payout Start Date.
We may make other Income Plans available. You may obtain information about them by writing or calling us.
You must apply at least the Contract Value in the Fixed Account on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account balance to provide variable income payments, you should plan ahead and transfer that amount to the Variable Sub-Accounts prior to the Payout Start Date. If you do not tell us how to allocate your Contract Value among fixed and variable income payments, we will apply your Contract Value in the Variable Account to variable income payments and your Contract Value in the Fixed Account to fixed income payments.
We will apply your Contract Value, adjusted by any applicable Market Value Adjustment, less applicable taxes to your Income Plan on the Payout Start Date. If the amount available to apply under an Income Plan is less than $2,000 or not enough to provide an initial payment of at least $20, and state law permits, we may:
• pay you the Contract Value, adjusted by any Market Value Adjustment and less any applicable taxes, in a lump sum instead of the periodic payments you have chosen; or
• reduce the frequency of your payments so that each payment will be at least $20.
VARIABLE INCOME PAYMENTS
The amount of your variable income payments depends upon the investment results of the Variable Sub-Accounts you select, the premium taxes you pay, the age and sex of the Annuitant, and the Income Plan you choose. We guarantee that the payments will not be affected by (a) actual mortality experience and (b) the amount of our administration expenses.
We cannot predict the total amount of your variable income payments. Your variable income payments may be more or less than your total purchase payments because (a) variable income payments vary with the investment results of the underlying Funds and (b) the Annuitant could live longer or shorter than we expect based on the tables we use.
In calculating the amount of the periodic payments in the annuity tables in the Contract, we assumed an annual investment rate of 3%. If the actual net investment return of the Variable Sub-Accounts you choose is less than this assumed investment rate, then the dollar amount of your variable income payments will decrease. The dollar amount of your variable income payments will increase, however, if the actual net investment return exceeds the assumed investment rate. The dollar amount of the variable income payments stays level if the net investment return equals the assumed investment rate. Please refer to the Statement of Additional Information for more detailed information as to how we determine variable income payments.
FIXED INCOME PAYMENTS
We guarantee income payment amounts derived from the Fixed Account for the duration of the Income Plan. We calculate the fixed income payments by:
1)adjusting the portion of the Contract Value in the Fixed Account on the Payout Start Date by any applicable Market Value Adjustment;
2) deducting any applicable premium tax; and
3) applying the resulting amount to the greater of (a) the appropriate value from the income payment table in your Contract or (b) such other value as we are offering at that time.
We may defer making fixed income payments for a period of up to 6 months or such shorter time as state law may require. If we defer payments for 10 business days or more, we will pay interest as required by law from the date we receive the withdrawal request to the date we make payment.
CERTAIN EMPLOYEE BENEFIT PLANS
The Contracts offered by this prospectus contain income payment tables that provide for different payments to men and women of the same age. However, we reserve the right to use income payment tables that do not distinguish on the basis of sex to the extent permitted by law. In certain employment-related situations, employers are required by law to use the same income payment tables for men and women. Accordingly, if the Contract is to be used in connection with an employment-related retirement or benefit plan, you should consult with legal counsel as to whether the purchase of a Contract is appropriate. For qualified plans, where it is appropriate, we may use income payment tables that do not distinguish on the basis of sex.
DEATH BENEFITS
We will pay a death benefit if, prior to the Payout Start Date:
1.any Contract owner dies; or
2.the Annuitant dies, if the Contract owner is not a living person.
We will pay the death benefit to the new Contract owner who is determined immediately after the death. The new Contract owner would be a surviving Contract owner or, if none, the Beneficiary(ies). In the case of a Contract owned by a non-living owner, upon death of an Annuitant, we will pay the death benefit to the current Contract owner.
We will not settle any death claim until we receive DUE PROOF OF DEATH.
We will accept the following documentation as Due Proof of Death:
• a certified copy of a death certificate; or
• a certified copy of a decree of a court of competent jurisdiction as to a finding of death; or any other proof acceptable to us.
Where there are multiple beneficiaries, we will only value the death benefit at the time the first beneficiary submits the necessary documentation in good order. Any death benefit amounts attributable to any beneficiary which remain in the investment divisions are subject to investment risk.
DEATH BENEFIT AMOUNT
Prior to the Payout Start Date, the death benefit is equal to the greatest of:
1. the Contract Value as of the date we determine the death benefit; or
2. the SETTLEMENT VALUE (that is, the amount payable on a full withdrawal of Contract Value) on the date we determine the death benefit; or
3. the Contract Value on the DEATH BENEFIT ANNIVERSARY immediately preceding the date we determine the death benefit, adjusted by any purchase payments, partial withdrawals and charges made since that Death Benefit Anniversary. A “Death Benefit Anniversary” is every seventh Contract Anniversary beginning with the Issue Date. For example, the Issue Date, 7th and 14th Contract Anniversaries are the first three Death Benefit Anniversaries; or
4. the greatest of the ANNIVERSARY VALUES as of the date we determine the death benefit. An “Anniversary Value” is equal to the Contract Value on a Contract Anniversary, increased by purchase payments made since that Anniversary and reduced by the amount of any partial withdrawals since that anniversary. Anniversary Values will be calculated for each Contract Anniversary prior to the earlier of: (i) the date we determine the death benefit; or (ii) the deceased’s 75th birthday or 5 years after the Issue Date, if later.
In calculating the Settlement Value, the amount in each individual Guarantee Period may be subject to a Market Value Adjustment. A Market Value Adjustment will apply to amounts in a Guarantee Period, unless we calculate the Settlement Value during the 30-day period after the expiration of the Guarantee Period. Also, the Settlement Value will reflect deduction of any applicable withdrawal charges, contract maintenance charges, and premium taxes.
We will determine the value of the death benefit as of the end of the Valuation Date on which we receive a complete request for payment of the death benefit, which includes Due Proof of Death. If we receive a request after 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on a Valuation Date, we will process the request as of the end of the following Valuation Date.
DEATH BENEFIT PAYMENTS
If the new Owner is your spouse, the new Owner may:
1. elect to receive the Death Benefit in a lump sum, or
2. elect to apply the Death Benefit to an Income Plan. Payments from the Income Plan must begin within 1 year of the date of death and must be payable throughout:
• The life of the new Owner; or
• for a guaranteed number of payments from 5 to 50 years, but not to exceed the life expectancy of the new Owner; or
• over the life of the new Owner with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the new Owner.
If your spouse does not elect one of the above options above, the Contract will continue in the Accumulation
Phase as if the death had not occurred. If the Contract is continued in the Accumulation Phase, the following restrictions apply:
• On the date the Contract is continued, the Contract Value will equal the amount of the Death Benefit as determined as of the Valuation Date on which we received the completed request for settlement of the Death Benefit (the next Valuation Date, if we receive the completed request for settlement of the Death Benefit after 3 p.m. Central Time). Unless otherwise instructed by the continuing spouse, the excess, if any, of the Death Benefit over the Contract Value will be allocated to the Sub-Accounts of the Variable Account. This excess will be allocated in proportion to your Contract Value in those Sub-accounts as of the end of the Valuation Period during which we receive the completed request for settlement of the Death Benefit, except that any portion of this excess attributable to the Fixed Account Options will be allocated to the Money Market Sub-account. Within 30 days of the date the Contract is continued, your surviving spouse may choose one of the following transfer alternatives without incurring a transfer fee:
• transfer all or a portion of the excess among the Variable Sub-Accounts;
• transfer all or a portion of the excess into the Guaranteed Maturity Fixed Account and begin a new Guarantee Period; or
• transfer all or a portion of the excess into a combination of Variable Sub-Accounts and the Guaranteed Maturity Fixed Account.
Any such transfer does not count as one of the free transfers allowed each Contract Year and is subject to any minimum allocation amount specified in your Contract.
The surviving spouse may make a single withdrawal of any amount within one year of the date of death without incurring a Withdrawal Charge.
Only one spousal continuation is allowed under this Contract.
If the new Owner is not your spouse but is a living person, the new Owner may:
1) elect to receive the Death Benefit in a lump sum, or
2) elect to apply the Death Benefit to an Income Plan. Payments from the Income Plan must begin within 1 year of the date of death and must be payable throughout:
• the life of the new Owner; or
• for a guaranteed number of payments from 5 to 50 years, but not to exceed the life expectancy of the new Owner; or
• over the life of the new Owner with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the new Owner.
If the new Owner does not elect one of the above options above, then the new Owner must receive the Contract Value payable within 5 years of your date of death. The Contract Value will equal the amount of the Death Benefit as determined as of the Valuation Date on which we received the completed request for settlement of the Death Benefit (the next Valuation Date, if we receive the completed request for settlement of the Death Benefit after 3 p.m. Central Time). Unless otherwise instructed by the new Owner, the excess, if any, of the Death Benefit over the Contract Value will be allocated to the Money Market Variable Sub-Account. The new Owner may exercise all rights as set forth in the TRANSFERS section during this 5 year period.
No additional Purchase Payments may be added to the Contract under this election. Withdrawal Charges will be waived for any withdrawals made during this 5 year period.
If the new Owner dies prior to the receiving all of the Contract Value, then the new Owner’s named Beneficiary(ies) will receive the greater of the Settlement Value or the remaining Contract Value. This amount must be received as a lump sum within 5 years of the date of the original Owner’s death.
We reserve the right to offer additional options upon Death of Owner.
If the new Owner is a corporation, trust, or other non-living person:
(a) The new Owner may elect, within 180 days of the date of death, to receive the Death Benefit in a lump sum; or
(b) If the new Owner does not elect the option above, then the new Owner must receive the Contract Value payable within 5 years of your date of death. On the date we receive the complete request for settlement of the Death Benefit, the Contract Value under this option will be the Death Benefit. Unless otherwise instructed by the new Owner, the excess, if any of the Death Benefit over the Contract Value will be allocated to the Money Market Variable Sub-Account. The new Owner may exercise all rights set forth in the Transfers provision during this 5 year period.
We reserve the right to offer additional options upon Death of Owner.
If any new Owner is a non-living person, all new Owners will be considered to be non-living persons for the above purposes.
Under any of these options, all ownership rights, subject to any restrictions previously placed upon the Beneficiary, are available to the new Owner from the date of your death to the date on which the death proceeds are paid.
DEATH OF ANNUITANT
If the Annuitant who is not also the Contract Owner dies prior to the Payout Start Date and the Contract Owner is a living person, then the Contract will continue with a new Annuitant as designated by the Contract Owner.
If the Annuitant who is not also the Contract Owner dies prior to the Payout Start Date and the Contract Owner is a non-living person, the following apply:
(a) The Contract Owner may elect to receive the Death Benefit in a lump sum; or
(b) If the new Owner does not elect the option above, then the Owner must receive the Contract Value payable within 5 years of the Annuitant’s date of death. On the date we receive the complete request for settlement of the Death Benefit, the Contract Value under this option will be the Death Benefit. Unless otherwise instructed by the Contract Owner, the excess, if any, of the Death Benefit over the Contract Value will be allocated to the Money Market Variable Sub-Account. The Contract Owner may then exercise all rights set forth in the Transfers provision during this 5 year period.
We reserve the right to offer additional options upon Death of Annuitant.
MORE INFORMATION
ALLSTATE NEW YORK
Allstate New York is the issuer of the Contract. Allstate New York is a stock life insurance company organized under the laws of the State of New York. Allstate New York was incorporated in 1967 and was known as “Financial Life Insurance Company” from 1967 to 1978. From 1978 to 1984, Allstate New York was known as “PM Life Insurance Company.” Since 1984 the company has been known as “Allstate Life Insurance Company of New York.”
Allstate New York is currently licensed to operate in New York. Our home office is located at 100 Motor Parkway, Hauppauge,
NY 11788-5107. Our service center is located in Vernon Hills, Illinois.
NY 11788-5107. Our service center is located in Vernon Hills, Illinois.
Allstate New York is a wholly owned subsidiary of Allstate Life Insurance Company (“Allstate Life”), a stock life insurance company incorporated under the laws of the State of Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance Company, a stock property-liability insurance company incorporated under the laws of Illinois. With the exception of the directors qualifying shares, all of the outstanding capital stock of Allstate Insurance Company is owned by The Allstate Corporation.
THE VARIABLE ACCOUNT
Allstate New York established the Allstate Life of New York Separate Account A on December 15, 1995. We have registered the Variable Account with the SEC as a unit investment trust. The SEC does not supervise the management of the Variable Account or Allstate New York.
We own the assets of the Variable Account. The Variable Account is a segregated asset account under New York law. That means we account for the Variable Account’s income, gains and losses separately from the results of our other operations. It also means that only the assets of the Variable Account that are in excess of the reserves and other Contract liabilities with respect to the Variable Account are subject to liabilities relating to our other operations. Our obligations arising under the Contracts are general corporate obligations of Allstate New York.
The Variable Account consists of multiple Variable Sub-Accounts, 18 of which are available through the Contracts. Each Variable Sub-Account invests in a corresponding Fund. We may add new Variable Sub-Accounts or eliminate one or more of them, if we believe marketing, tax, or investment conditions so warrant. We do not guarantee the investment performance of the Variable Account, its Sub-Accounts or the Funds. We may use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account.
THE FUNDS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Funds in shares of the distributing Fund at their net asset value.
VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Funds held by the Variable Sub-Accounts to which you have allocated your Contract Value. Under current law, however, you are entitled to give us instructions on how to vote those shares on certain matters. Based on our present view of the law, we will vote the shares of the Funds that we hold directly or indirectly through the Variable Account in accordance with instructions that we receive from Contract owners entitled to give such instructions.
As a general rule, before the Payout Start Date, the Contract owner or anyone with a voting interest is the person entitled to give voting instructions. The number of shares that a person has a right to instruct will be determined by dividing the Contract Value allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Fund as of the record date of the meeting. After the Payout Start Date, the person receiving income payments has the voting interest. The payee’s number of votes will be determined by dividing the reserve for such Contract allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Fund. The votes decrease as income payments are made and as the reserves for the Contract decrease.
We will vote shares attributable to Contracts for which we have not received instructions, as well as shares attributable to us, in the same proportion as we vote shares for which we have received instructions, unless we determine that we may vote such shares in our own discretion. We will apply voting instructions to abstain on any item to be voted on a pro-rata basis to reduce the votes eligible to be cast.
We reserve the right to vote Fund shares as we see fit without regard to voting instructions to the extent permitted by law. If we disregard voting instructions, we will include a summary of that action and our reasons for that action in the next semi-annual financial report we send to you.
CHANGES IN FUNDS. If the shares of any of the Funds are no longer available for investment by the Variable Account or if, in our judgment, further investment in such shares is no longer desirable in view of the purposes of the Contract, we may eliminate that Fund and substitute shares of another eligible investment fund. Any substitution of securities will comply with the requirements of the 1940 Act. We also may add new Variable Sub-Accounts that invest in underlying Funds. We will notify you in advance of any changes.
CONFLICTS OF INTEREST. Certain of the Funds sell their shares to Variable Accounts underlying both variable life insurance and variable annuity contracts. It is conceivable that in the future it may be unfavorable for variable life insurance Variable Accounts and variable annuity Variable Accounts to invest in the same Fund. The boards of trustees of these Funds monitor for possible conflicts among Variable Accounts buying shares of the Funds. Conflicts could develop for a variety of reasons. For example, differences in treatment under tax and other laws or the failure by a Variable Account to comply with such laws could cause a conflict. To eliminate a conflict, a Fund’s board of trustees may require a Variable Account to withdraw its participation in a Fund. A Fund’s net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a Variable Account withdrawing because of a conflict.
THE CONTRACT
DISTRIBUTION. ALFS, Inc. (“ALFS”), located at 3100 Sanders Road, Northbrook, Illinois 60062, serves as principal underwriter of the Contracts. ALFS is a wholly owned subsidiary of Allstate Life Insurance Company. ALFS is a registered broker dealer under the Securities and Exchange Act of 1934, as amended (“EXCHANGE ACT”), and is a member of the NASD.
We will pay commissions to broker-dealers who sell the Contracts. Commissions paid may vary, but we estimate that the total commissions paid on all Contract sales will not exceed 8 1/2% of any purchase payments. Sometimes, we also pay the broker-dealer a persistency bonus in addition to the standard commissions. A persistency bonus is not expected to exceed .56%, on an annual basis, of the purchase payments considered in connection with the bonus. These commissions are intended to cover distribution expenses.
Allstate New York does not pay ALFS a commission for distribution of the Contracts. The underwriting agreement with ALFS provides that we will reimburse ALFS for any liability to Contract owners arising out of services rendered or Contracts issued.
ADMINISTRATION. We have primary responsibility for all administration of the Contracts and the Variable Account.
We provide the following administrative services, among others:
• issuance of the Contracts;
• maintenance of Contract owner records;
• Contract owner services;
• calculation of unit values;
• maintenance of the Variable Account; and
• preparation of Contract owner reports.
We will send you Contract statements and transaction confirmations at least annually. The annual statement details values and specific Contract data for each particular Contract. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error.
We also will provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws.
NON-QUALIFIED ANNUITIES HELD WITHIN A QUALIFIED PLAN
If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitations on withdrawals, waivers of withdrawal charges, death benefits, Payout Start Dates, income payments and other Contract features. In addition, adverse tax consequences may result if qualified plan limits on distributions and other conditions are not met. Please consult your qualified plan administrator for more information. Allstate Life Insurance Company of New York no longer issues deferred annuities to employer sponsored qualified retirement plans.
LEGAL MATTERS
All matters of New York law pertaining to the Contracts, including the validity of the Contracts and Allstate New York’s right to issue such Contracts under New York insurance law, have been passed upon by Michael J. Velotta, General Counsel of Allstate New York.
TAXES
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. ALLSTATE NEW YORK MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of distributions under an annuity contract depend on your individual circumstances. If you are concerned about any tax consequences with regard to your individual circumstances, you should consult a competent tax adviser.
TAXATION OF ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
Allstate New York is taxed as a life insurance company under Part I of Subchapter L of the Code. Since the Variable Account is not an entity separate from Allstate New York, and its operations form a part of Allstate New York, it will not be taxed separately. Investment income and realized capital gains of the Variable Account are automatically applied to increase reserves under the Contract. Under existing federal income tax law, Allstate New York believes that the Variable Account investment income and capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contract. Accordingly, Allstate New York does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore Allstate New York does not intend to make provisions for any such taxes. If Allstate New York is taxed on investment income or capital gains of the Variable Account, then Allstate New York may impose a charge against the Variable Account in order to make provision for such taxes.
TAXATION OF VARIABLE ANNUITIES IN GENERAL
TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value until a distribution occurs. This rule applies only where:
• the Contract Owner is a natural person,
• the investments of the Variable Account are “adequately diversified” according to Treasury Department regulations, and
• Allstate New York is considered the owner of the Variable Account assets for federal income tax purposes.
NON-NATURAL OWNERS. Non-natural owners are also referred to as Non Living Owners in this prospectus. As a general rule, annuity contracts owned by non-natural persons such as corporations, trusts, or other entities are not treated as annuity contracts for federal income tax purposes. The income on such contracts does not enjoy tax deferral and is taxed as ordinary income received or accrued by the non-natural owner during the taxable year.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE. There are several exceptions to the general rule that annuity contracts held by a non-natural owner are not treated as annuity contracts for federal income tax purposes. Contracts will generally be treated as held by a natural person if the nominal owner is a trust or other entity which holds the contract as agent for a natural person. However, this special exception will not apply in the case of an employer who is the nominal owner of an annuity contract under a non-Qualified deferred compensation arrangement for its employees. Other exceptions to the non-natural owner rule are: (1) contracts acquired by an estate of a decedent by reason of the death of the decedent; (2) certain qualified contracts; (3) contracts purchased by employers upon the termination of certain qualified plans; (4) certain contracts used in connection with structured settlement agreements; and (5) immediate annuity contracts, purchased with a single premium, when the annuity starting date is no later than a year from purchase of the annuity and substantially equal periodic payments are made, not less frequently than annually, during the annuity period.
GRANTOR TRUST OWNED ANNUITY. Contracts owned by a grantor trust are considered owned by a non-natural owner. Grantor trust owned contracts receive tax deferral as described in the Exceptions to the Non-Natural Owner Rule section. In accordance with the Code, upon the death of the annuitant, the death benefit must be paid. According to your Contract, the Death Benefit is paid to the surviving Contract Owner. Since the trust will be the surviving Contract Owner in all cases, the Death Benefit will be payable to the trust notwithstanding any beneficiary designation on the annuity contract. A trust, including a grantor trust, has two options for receiving any death benefits: 1) a lump sum payment; or 2) payment deferred up to five years from date of death.
DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for federal income tax purposes, the investments in the Variable Account must be “adequately diversified” consistent with standards under Treasury Department regulations. If the investments in the Variable Account are not adequately diversified, the Contract will not be treated as an annuity contract for federal income tax purposes. As a result, the income on the Contract will be taxed as ordinary income received or accrued by the Contract owner during the taxable year. Although Allstate New York does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements.
OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a Contract owner to be treated as the owner of the separate account. The Treasury Department also stated that future guidance would be issued regarding the extent that owners could direct sub-account investments without being treated as owners of the underlying assets of the separate account.
Your rights under the Contract are different than those described by the IRS in private and published rulings in which it found that Contract owners were not owners of separate account assets. For example, if your contract offers more than twenty (20) investment alternatives you have the choice to allocate premiums and contract values among a broader selection of investment alternatives than described in such rulings. You may be able to transfer among investment alternatives more frequently than in such rulings. These differences could result in you being treated as the owner of the Variable Account. If this occurs, income and gain from the Variable Account assets would be includible in your gross income. Allstate New York does not know what standards will be set forth in any regulations or rulings which the Treasury Department may issue. It is possible that future standards announced by the Treasury Department could adversely affect the tax treatment of your Contract. We reserve the right to modify the Contract as necessary to attempt to prevent you from being considered the federal tax owner of the assets of the Variable Account. However, we make no guarantee that such modification to the Contract will be successful.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal under a Non-Qualified Contract, amounts received are taxable to the extent the Contract Value, without regard to surrender charges, exceeds the investment in the Contract. The investment in the Contract is the gross premium paid for the contract minus any amounts previously received from the Contract if such amounts were properly excluded from your gross income. If you make a full withdrawal under a Non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract.
TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of annuity payments received from a Non-Qualified Contract provides for the return of your investment in the Contract in equal tax-free amounts over the payment period. The balance of each payment received is taxable. For fixed annuity payments, the amount excluded from income is determined by multiplying the payment by the ratio of the investment in the Contract (adjusted for any refund feature or period certain) to the total expected value of annuity payments for the term of the Contract. If you elect variable annuity payments, the amount excluded from taxable income is determined by dividing the investment in the Contract by the total number of expected payments. The annuity payments will be fully taxable after the total amount of the investment in the Contract is excluded using these ratios. If any variable payment is less than the excludable amount you should contact a competent tax advisor to determine how to report any unrecovered investment. The federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. If you die, and annuity payments cease before the total amount of the investment in the Contract is recovered, the unrecovered amount will be allowed as a deduction for your last taxable year.
WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding the taxation of any additional withdrawal received after the Payout Start Date. It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine.
DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide:
• if any Contract Owner dies on or after the Payout Start Date but before the entire interest in the Contract has been distributed, the remaining portion of such interest must be distributed at least as rapidly as under the method of distribution being used as of the date of the Contract Owner’s death;
• if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owner’s death. These requirements are satisfied if any portion of the Contract Owner’s interest that is payable to (or for the benefit of) a designated Beneficiary is distributed over the life of such Beneficiary (or over a period not extending beyond the life expectancy of the Beneficiary) and the distributions begin within 1 year of the Contract Owner’s death.
If the Contract Owner’s designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner;
• if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract Owner for purposes of applying the distribution at death rules. In addition, a change in the Annuitant on a Contract owned by a non-natural person will be treated as the death of the Contract Owner.
TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit amounts are included in income as follows:
• if distributed in a lump sum, the amounts are taxed in the same manner as a total withdrawal, or
• if distributed under an Income Plan, the amounts are taxed in the same manner as annuity payments.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable amount of any premature distribution from a non-Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
• made on or after the date the Contract Owner attains age 59 1/2,
• made as a result of the Contract Owner’s death or becoming totally disabled,
• made in substantially equal periodic payments over the Contract Owner’s life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
• made under an immediate annuity, or
• attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owner’s attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream.
TAX FREE EXCHANGES UNDER INTERNAL REVENUE CODE SECTION 1035. A 1035 exchange is a tax-free exchange of a non-qualified life insurance contract, endowment contract or annuity contract into a non-Qualified annuity contract. The contract owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them.
PARTIAL EXCHANGES. The IRS has issued a ruling that permits partial exchanges of annuity contracts. Under this ruling, if you take a withdrawal from a receiving or relinquishing annuity contract within 24 months of the partial exchange, then special aggregation rules apply for purposes of determining the taxable amount of a distribution. The IRS has issued limited guidance on how to aggregate and report these distributions. The IRS is expected to provide further guidance; as a result, it is possible that the amount we calculate and report to the IRS as taxable could be different. Your Contract may not permit partial exchanges.
TAXATION OF OWNERSHIP CHANGES. If you transfer a non-Qualified Contract without full and adequate consideration to a person other than your spouse (or to a former spouse incident to a divorce), you will be taxed on the difference between the Contract Value and the investment in the Contract at the time of transfer. Any assignment or pledge (or agreement to assign or pledge) of the Contract Value is taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax.
AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-Qualified deferred annuity contracts issued by Allstate New York (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution.
INCOME TAX WITHHOLDING
Generally, Allstate New York is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory.
Allstate New York is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
Generally, Code Section 1441 provides that Allstate New York as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident alien’s country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number (“ITIN”). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities.
TAX QUALIFIED CONTRACTS
The income on tax sheltered annuity (TSA) and IRA investments is tax deferred, and the income from annuities held by such plans does not receive any additional tax deferral. You should review the annuity features, including all benefits and expenses, prior to purchasing an annuity as a TSA or IRA. Tax Qualified Contracts are contracts purchased as or in connection with:
• Individual Retirement Annuities (IRAs) under Code Section 408(b);
• Roth IRAs under Code Section 408A;
• Simplified Employee Pension (SEP IRA) under Code Section 408(k);
• Savings Incentive Match Plans for Employees (SIMPLE IRA) under Code Section 408(p);
• Tax Sheltered Annuities under Code Section 403(b);
• Corporate and Self Employed Pension and Profit Sharing Plans under Code Section 401; and
• State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Code Section 457.
Allstate New York reserves the right to limit the availability of the Contract for use with any of the retirement plans listed above or to modify the Contract to conform with tax requirements. If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitations on withdrawals, waiver of charges, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if qualified plan limits on distributions and other conditions are not met. Please consult your qualified plan administrator for more information. Allstate New York no longer issues deferred annuities to employer sponsored qualified retirement plans.
The tax rules applicable to participants with tax qualified annuities vary according to the type of contract and the terms and conditions of the endorsement. Adverse tax consequences may result from certain transactions such as excess contributions, premature distributions, and, distributions that do not conform to specified commencement and minimum distribution rules. Allstate New York can issue an individual retirement annuity on a rollover or transfer of proceeds from a decedent’s IRA, TSA, or employer sponsored retirement plan under which the decedent’s surviving spouse is the beneficiary. Allstate New York does not offer an individual retirement annuity that can accept a transfer of funds for any other, non-spousal, beneficiary of a decedent’s IRA, TSA, or employer sponsored qualified retirement plan.
Please refer to your Endorsement for IRAs or 403(b) plans, if applicable, for additional information on your death settlement options. In the case of certain qualified plans, the terms of the Qualified Plan Endorsement and the plans may govern the right to benefits, regardless of the terms of the Contract.
TAXATION OF WITHDRAWALS FROM AN INDIVIDUALLY OWNED TAX QUALIFIED CONTRACT. If you make a partial withdrawal under a Tax Qualified Contract other than a Roth IRA, the portion of the payment that bears the same ratio to the total payment that the investment in the Contract (i.e., nondeductible IRA contributions) bears to the Contract Value, is excluded from your income. We do not keep track of nondeductible contributions, and generally all tax reporting of distributions from Tax Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable.
“Qualified distributions” from Roth IRAs are not included in gross income. “Qualified distributions” are any distributions made more than five taxable years after the taxable year of the first contribution to any Roth IRA and which are:
• made on or after the date the Contract Owner attains age 59 1/2,
• made to a beneficiary after the Contract Owner’s death,
• attributable to the Contract Owner being disabled, or
• made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000).
“Nonqualified distributions” from Roth IRAs are treated as made from contributions first and are included in gross income only to the extent that distributions exceed contributions.
REQUIRED MINIMUM DISTRIBUTIONS. Generally, Tax Qualified Contracts (excluding Roth IRAs) require minimum distributions upon reaching age 70 1/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the Contract. Not all income plans offered under the Contract satisfy the requirements for minimum distributions. Because these distributions are required under the Code and the method of calculation is complex, please see a competent tax advisor.
THE DEATH BENEFIT AND TAX QUALIFIED CONTRACTS. Pursuant to the Code and IRS regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may not invest in life insurance contracts. However, an IRA may provide a death benefit that equals the greater of the purchase payments or the Contract Value. The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or the Contract Value. We believe that the Death Benefits offered by your Contract do not constitute life insurance under these regulations.
It is also possible that certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under qualified plans, such as in connection with a TSA or employer sponsored qualified retirement plan.
Allstate New York reserves the right to limit the availability of the Contract for use with any of the qualified plans listed above.
PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM TAX QUALIFIED CONTRACTS. A 10% penalty tax applies to the taxable amount of any premature distribution from a Tax Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
• made on or after the date the Contract Owner attains age 59 1/2,
• made as a result of the Contract Owner’s death or total disability,
• made in substantially equal periodic payments over the Contract Owner’s life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
• made after separation from service after age 55 (does not apply to IRAs),
• made pursuant to an IRS levy,
• made for certain medical expenses,
• made to pay for health insurance premiums while unemployed (applies only for IRAs),
• made for qualified higher education expenses (applies only for IRAs), and
• made for a first time home purchase (up to a $10,000 lifetime limit and applies only for IRAs).
During the first 2 years of the individual’s participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON TAX QUALIFIED CONTRACTS. With respect to Tax Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayer’s attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream.
INCOME TAX WITHHOLDING ON TAX QUALIFIED CONTRACTS. Generally, Allstate New York is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered “eligible rollover distributions.” The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. Allstate New York is required to withhold federal income tax at a rate of 20% on all “eligible rollover distributions” unless you elect to make a “direct rollover” of such amounts to an IRA or eligible retirement plan. Eligible rollover distributions generally include all distributions from Tax Qualified Contracts, including TSAs but excluding IRAs, with the exception of:
• required minimum distributions, or,
• a series of substantially equal periodic payments made over a period of at least 10 years, or,
• a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or,
• hardship distributions.
For all annuitized distributions that are not subject to the 20% withholding requirement, Allstate New York is required to withhold federal income tax using the wage withholding rates. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
Generally, Code Section 1441 provides that Allstate New York as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien or to certain other ‘foreign persons’. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident alien’s country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number (“ITIN”). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities.
INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408(b) permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity (IRA). Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence. Certain distributions from other types of qualified retirement plans may be “rolled over” on a tax-deferred basis into an Individual Retirement Annuity.
ROTH INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408A permits eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth Individual Retirement Annuity. Roth Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence.
Subject to certain limitations, a traditional Individual Retirement Account or Annuity may be converted or “rolled over” to a Roth Individual Retirement Annuity. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions.
ANNUITIES HELD BY INDIVIDUAL RETIREMENT ACCOUNTS (COMMONLY KNOWN AS CUSTODIAL
IRAS). Code Section 408 permits a custodian or trustee of an Individual Retirement Account to purchase an annuity as an investment of the Individual Retirement Account. If an annuity is purchased inside of an Individual Retirement Account, then the Annuitant must be the same person as the beneficial owner of the Individual Retirement Account.
Generally, the death benefit of an annuity held in an Individual Retirement Account must be paid upon the death of the Annuitant. However, in most states, the Contract permits the custodian or trustee of the Individual Retirement Account to continue the Contract in the accumulation phase, with the Annuitant’s surviving spouse as the new Annuitant, if the following conditions are met:
1)The custodian or trustee of the Individual Retirement Account is the owner of the annuity and has the right to the death proceeds otherwise payable under the Contract;
2)The deceased Annuitant was the beneficial owner of the Individual Retirement Account;
3)We receive a complete request for settlement for the death of the Annuitant; and
4)The custodian or trustee of the Individual Retirement Account provides us with a signed certification of the following:
(a)The Annuitant’s surviving spouse is the sole beneficiary of the Individual Retirement Account;
(b)The Annuitant’s surviving spouse has elected to continue the Individual Retirement Account as his or her own Individual Retirement Account; and
(c)The custodian or trustee of the Individual Retirement Account has continued the Individual Retirement Account pursuant to the surviving spouse’s election.
SIMPLIFIED EMPLOYEE PENSION IRA. Code Section 408(k) allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. These employers may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE IRA). Code Section 408(p) allows eligible employers with 100 or fewer employees to establish SIMPLE retirement plans for their employees using individual retirement annuities. In general, a SIMPLE IRA consists of a salary deferral program for eligible employees and matching or nonelective contributions made by employers. Employers intending to purchase the Contract as a SIMPLE IRA should seek competent tax and legal advice.
TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS (TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND YOUR COMPETENT TAX ADVISOR.
TAX SHELTERED ANNUITIES. Code Section 403(b) provides tax-deferred retirement savings plans for employees of certain non-profit and educational organizations. Under Section 403(b), any contract used for a 403(b) plan must provide that distributions attributable to salary reduction contributions made after 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee:
• attains age 59 1/2,
• severs employment,
• dies,
• becomes disabled, or
• incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship).
These limitations do not apply to withdrawals where Allstate New York is directed to transfer some or all of the Contract Value to another 403(b) plan. Generally, we do not accept funds in 403(b) contracts that are subject to the Employee Retirement Income Security Act of 1974 (ERISA).
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS.
Section 401(a) of the Code permits corporate employers to establish various types of tax favored retirement plans for employees. Self-employed individuals may establish tax favored retirement plans for themselves and their employees (commonly referred to as “H.R.10” or “Keogh”). Such retirement plans may permit the purchase of annuity contracts. Allstate New York no longer issues annuity contracts to employer sponsored qualified retirement plans.
There are two owner types for contracts intended to qualify under Section 401(a): a qualified plan fiduciary or an annuitant owner.
• A qualified plan fiduciary exists when a qualified plan trust that is intended to qualify under Section 401(a) of the Code is the owner. The qualified plan trust must have its own tax identification number and a named trustee acting as a fiduciary on behalf of the plan. The annuitant should be the person for whose benefit the contract was purchased.
• An annuitant owner exists when the tax identification number of the owner and annuitant are the same, or the annuity contract is not owner by a qualified plan trust. The annuitant should be the person for whose benefit the contract was purchased.
If a qualified plan fiduciary is the owner of the contract, the qualified plan must be the beneficiary so that death benefits from the annuity are distributed in accordance with the terms of the qualified plan. Annuitant owned contracts require that the beneficiary be the annuitant’s spouse (if applicable), which is consistent with the required IRS language for qualified plans under Section 401(a). A completed Annuitant Owned Qualified Plan Designation of Beneficiary form is required in order to change the beneficiary of an annuitant owned Qualified Plan contract.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION
PLANS. Section 457 of the Code permits employees of state and local governments and tax-exempt organizations to defer a portion of their compensation without paying current taxes. The employees must be participants in an eligible deferred compensation plan. In eligible governmental plans, all assets and income must be held in a trust/ custodial account/annuity contract for the exclusive benefit of the participants and their beneficiaries. To the extent the Contracts are used in connection with a non-governmental eligible plan, employees are considered general creditors of the employer and the employer as owner of the Contract has the sole right to the proceeds of the Contract. Under eligible 457 plans, contributions made for the benefit of the employees will not be includible in the employees’ gross income until distributed from the plan. Allstate New York no longer issues annuity contracts to employer sponsored qualified retirement plans. Contracts that have been previously sold to State and Local government and Tax-Exempt organization Deferred Compensation Plans will be administered consistent with the rules for contracts intended to qualify under Section 401(a).
ANNUAL REPORTS AND OTHER DOCUMENTS
Allstate New York’s annual report on Form 10-K for the year ended December 31, 2004 is incorporated herein by reference, which means that it is legally a part of this prospectus.
After the date of this prospectus and before we terminate the offering of the securities under this prospectus, all documents or reports we file with the SEC under the Exchange Act are also incorporated herein by reference, which means that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC and that legally become a part of this prospectus, may change or supersede statements in other documents that are legally part of this prospectus. Accordingly, only the statement that is changed or replaced will legally be a part of this prospectus.
We file our Exchange Act documents and reports, including our annual and quarterly reports on Form 10-K and Form 10-Q electronically on the SEC’s “EDGAR” system using the identifying number CIK No. 0000839759. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov. You also can view these materials at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. For more information on the operations of SEC’s Public Reference Room, call 1-800-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of any document incorporated herein by reference (other than exhibits not specifically incorporated by reference into the text of such documents), please write or call us at: Customer Service, 2940 S. 84TH STREET, LINCOLN, NE 68506-4142 (telephone: 1-800-692-4682).
APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED*
BASIC POLICY
For the period beginning January 1 and ending December 31, | 1996 | 1997 | 1998 | 1999 | 2000 | ||||||||||||
AIM V.I. AGGRESSIVE GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | $ | 10.000 | $ | 13.988 | ||||||||||
Accumulation Unit Value, End of Period | - | - | - | $ | 13.988 | $ | 14.15 | ||||||||||
Number of Units Outstanding, End of Period | - | - | - | 12,661 | 53,890 | ||||||||||||
AIM V.I. BALANCED - SERIES I SUB-ACCOUNT ** | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | $ | 10.000 | $ | 13.162 | ||||||||||
Accumulation Unit Value, End of Period | - | - | - | $ | 13.162 | $ | 12.43 | ||||||||||
Number of Units Outstanding, End of Period | - | - | - | 6,382 | 24,499 | ||||||||||||
AIM V.I. BASIC VALUE - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | - | - | ||||||||||||
Accumulation Unit Value, End of Period | - | - | - | - | - | ||||||||||||
Number of Units Outstanding, End of Period | - | - | - | - | - | ||||||||||||
AIM V.I. BLUE CHIP - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | - | $ | 10.000 | |||||||||||
Accumulation Unit Value, End of Period | - | - | - | - | $ | 8.82 | |||||||||||
Number of Units Outstanding, End of Period | - | - | - | - | 11,309 | ||||||||||||
AIM V.I. CAPITAL APPRECIATION - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 9.855 | $ | 11.387 | $ | 12.739 | $ | 14.979 | $ | 21.350 | |||||||
Accumulation Unit Value, End of Period | $ | 11.387 | $ | 12.739 | $ | 14.979 | $ | 21.350 | $ | 18.75 | |||||||
Number of Units Outstanding, End of Period | 7,681 | 161,013 | 287,336 | 425,748 | 456,761 | ||||||||||||
AIM V.I. CAPITAL DEVELOPMENT - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | $ | 10.000 | $ | 11.655 | ||||||||||
Accumulation Unit Value, End of Period | - | - | - | $ | 11.655 | $ | 12.55 | ||||||||||
Number of Units Outstanding, End of Period | - | - | - | 3,948 | 18,297 | ||||||||||||
AIM V.I. CORE EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 9.926 | $ | 11.699 | $ | 14.496 | $ | 18.243 | $ | 24.138 | |||||||
Accumulation Unit Value, End of Period | $ | 11.699 | $ | 14.496 | $ | 18.243 | $ | 24.138 | $ | 20.33 | |||||||
Number of Units Outstanding, End of Period | 5,371 | 167,625 | 361,890 | 645,133 | 674,689 | ||||||||||||
AIM V.I. DENT DEMOGRAPHIC TRENDS - SERIES I SUB-ACCOUNT *** | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | - | $ | 10.000 | |||||||||||
Accumulation Unit Value, End of Period | - | - | - | - | $ | 7.89 | |||||||||||
Number of Units Outstanding, End of Period | - | - | - | - | 32,307 | ||||||||||||
AIM V.I. DIVERSIFIED INCOME - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.086 | $ | 10.934 | $ | 11.789 | $ | 12.035 | $ | 12.002 |
Accumulation Unit Value, End of Period | $ | 10.934 | $ | 11.789 | $ | 12.035 | $ | 12.002 | $ | 11.55 | |||||||
Number of Units Outstanding, End of Period | 4,618 | 58,958 | 146,644 | 227,201 | 204,561 | ||||||||||||
AIM V.I. GOVERNMENT SECURITIES - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.080 | $ | 10.164 | $ | 10.834 | $ | 11.829 | $ | 11.189 | |||||||
Accumulation Unit Value, End of Period | $ | 10.164 | $ | 10.834 | $ | 11.829 | $ | 11.189 | $ | 12.15 | |||||||
Number of Units Outstanding, End of Period | 0 | 39,009 | 301,983 | 108,494 | 99,531 | ||||||||||||
AIM V.I. GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 9.892 | $ | 11.466 | $ | 14.338 | $ | 18.954 | $ | 25.263 | |||||||
Accumulation Unit Value, End of Period | $ | 11.466 | $ | 14.338 | $ | 18.954 | $ | 25.263 | $ | 19.80 | |||||||
Number of Units Outstanding, End of Period | 2,384 | 97,039 | 220,831 | 383,214 | 403,785 | ||||||||||||
AIM V.I. HIGH YIELD - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | $ | 10.000 | $ | 9.957 | ||||||||||
Accumulation Unit Value, End of Period | - | - | - | $ | 9.957 | $ | 7.95 | ||||||||||
Number of Units Outstanding, End of Period | - | - | - | 1,751 | 834 | ||||||||||||
AIM V.I. INTERNATIONAL GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.168 | $ | 11.953 | $ | 12.598 | $ | 14.340 | $ | 21.914 | |||||||
Accumulation Unit Value, End of Period | $ | 11.953 | $ | 12.598 | $ | 14.340 | $ | 21.914 | $ | 15.90 | |||||||
Number of Units Outstanding, End of Period | 5,404 | 85,934 | 136,898 | 220,690 | 245,480 | ||||||||||||
AIM V.I. MID CAP CORE EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | - | - | ||||||||||||
Accumulation Unit Value, End of Period | - | - | - | - | - | ||||||||||||
Number of Units Outstanding, End of Period | - | - | - | - | - | ||||||||||||
AIM V.I. MONEY MARKET - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.023 | $ | 10.369 | $ | 10.745 | $ | 11.126 | $ | 11.479 | |||||||
Accumulation Unit Value, End of Period | $ | 10.369 | $ | 10.745 | $ | 11.126 | $ | 11.479 | $ | 11.98 | |||||||
Number of Units Outstanding, End of Period | 4,373 | 42,128 | 87,010 | 137,433 | 95,879 | ||||||||||||
AIM V.I. PREMIER EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 9.800 | $ | 11.090 | $ | 13.520 | $ | 17.644 | $ | 22.589 | |||||||
Accumulation Unit Value, End of Period | $ | 11.090 | $ | 13.520 | $ | 17.644 | $ | 22.589 | $ | 19.00 | |||||||
Number of Units Outstanding, End of Period | 5,921 | 180,440 | 405,246 | 987,076 | 1,000,356 | ||||||||||||
AIM V.I. TECHNOLOGY - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | - | - | ||||||||||||
Accumulation Unit Value, End of Period | - | - | - | - | - | ||||||||||||
Number of Units Outstanding, End of Period | - | - | - | - | - | ||||||||||||
AIM V.I. UTILITIES - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | - | - | ||||||||||||
Accumulation Unit Value, End of Period | - | - | - | - | - | ||||||||||||
Number of Units Outstanding, End of Period | - | - | - | - | - |
For the period beginning January 1 and ending December 31, | 2001 | 2002 | 2003 | 2004 | ||||||||||
AIM V.I. AGGRESSIVE GROWTH - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 14.15 | $ | 10.308 | $ | 7.856 | $ | 9.809 | ||||||
Accumulation Unit Value, End of Period | $ | 10.308 | $ | 7.856 | $ | 9.809 | $ | 10.809 | ||||||
Number of Units Outstanding, End of Period | 51,176 | 37,549 | 30,613 | 28,619 | ||||||||||
AIM V.I. BALANCED - SERIES I SUB-ACCOUNT ** | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 12.43 | $ | 10.849 | $ | 8.865 | $ | 10.167 | ||||||
Accumulation Unit Value, End of Period | $ | 10.849 | $ | 8.865 | $ | 10.167 | $ | 10.774 | ||||||
Number of Units Outstanding, End of Period | 29,494 | 29,105 | 30,281 | 23,748 | ||||||||||
AIM V.I. BASIC VALUE - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 11.200 | $ | 8.594 | $ | 11.319 | ||||||
Accumulation Unit Value, End of Period | $ | 11.200 | $ | 8.594 | $ | 11.319 | $ | 12.390 | ||||||
Number of Units Outstanding, End of Period | 6,325 | 22,360 | 26,204 | 45,919 | ||||||||||
AIM V.I. BLUE CHIP - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 8.82 | $ | 6.736 | $ | 4.902 | $ | 6.046 | ||||||
Accumulation Unit Value, End of Period | $ | 6.736 | $ | 4.902 | $ | 6.046 | $ | 6.238 | ||||||
Number of Units Outstanding, End of Period | 8,408 | 33,025 | 34,736 | 36,134 | ||||||||||
AIM V.I. CAPITAL APPRECIATION - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 18.75 | $ | 14.176 | $ | 10.569 | $ | 13.491 | ||||||
Accumulation Unit Value, End of Period | $ | 14.176 | $ | 10.569 | $ | 13.491 | $ | 14.178 | ||||||
Number of Units Outstanding, End of Period | 393,890 | 342,465 | 300,657 | 272,332 | ||||||||||
AIM V.I. CAPITAL DEVELOPMENT - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 12.55 | $ | 11.369 | $ | 8.812 | $ | 11.757 | ||||||
Accumulation Unit Value, End of Period | $ | 11.369 | $ | 8.812 | $ | 11.757 | $ | 13.383 | ||||||
Number of Units Outstanding, End of Period | 15,528 | 17,080 | 14,370 | 15,343 | ||||||||||
AIM V.I. CORE EQUITY - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 20.33 | $ | 15.460 | $ | 12.863 | $ | 15.774 | ||||||
Accumulation Unit Value, End of Period | $ | 15.460 | $ | 12.863 | $ | 15.774 | $ | 16.941 | ||||||
Number of Units Outstanding, End of Period | 590,855 | 490,936 | 436,022 | 385,401 |
AIM V.I. DENT DEMOGRAPHIC TRENDS - SERIES I SUB-ACCOUNT *** | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 7.89 | $ | 5.294 | $ | 3.537 | $ | 4.793 | ||||||
Accumulation Unit Value, End of Period | $ | 5.294 | $ | 3.537 | $ | 4.793 | $ | 5.114 | ||||||
Number of Units Outstanding, End of Period | 23,934 | 21,406 | 21,473 | 20,823 | ||||||||||
AIM V.I. DIVERSIFIED INCOME - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 11.55 | $ | 11.788 | $ | 11.886 | $ | 12.797 |
Accumulation Unit Value, End of Period | $ | 11.788 | $ | 11.886 | $ | 12.797 | $ | 13.248 | ||||||
Number of Units Outstanding, End of Period | 179,226 | 153,878 | 158,069 | 118,523 | ||||||||||
AIM V.I. GOVERNMENT SECURITIES - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 12.15 | $ | 12.738 | $ | 13.759 | $ | 13.706 | ||||||
Accumulation Unit Value, End of Period | $ | 12.738 | $ | 13.759 | $ | 13.706 | $ | 13.855 | ||||||
Number of Units Outstanding, End of Period | 110,454 | 147,016 | 91,728 | 73,112 | ||||||||||
AIM V.I. GROWTH - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 19.80 | $ | 12.901 | $ | 8.777 | $ | 11.353 | ||||||
Accumulation Unit Value, End of Period | $ | 12.901 | $ | 8.777 | $ | 11.353 | $ | 12.110 | ||||||
Number of Units Outstanding, End of Period | 338,025 | 291,782 | 263,392 | 237,475 | ||||||||||
AIM V.I. HIGH YIELD - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 7.95 | $ | 7.443 | $ | 6.908 | $ | 8.717 | ||||||
Accumulation Unit Value, End of Period | $ | 7.443 | $ | 6.908 | $ | 8.717 | $ | 9.558 | ||||||
Number of Units Outstanding, End of Period | 4,833 | 5,236 | 4,236 | 4,779 | ||||||||||
AIM V.I. INTERNATIONAL GROWTH - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 15.90 | $ | 11.980 | $ | 9.957 | $ | 12.665 | ||||||
Accumulation Unit Value, End of Period | $ | 11.980 | $ | 9.957 | $ | 12.665 | $ | 15.480 | ||||||
Number of Units Outstanding, End of Period | 213,691 | 190,512 | 160,288 | 141,698 | ||||||||||
AIM V.I. MID CAP CORE EQUITY - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 11.357 | $ | 9.950 | $ | 12.486 | ||||||
Accumulation Unit Value, End of Period | $ | 11.357 | $ | 9.950 | $ | 12.486 | $ | 14.007 | ||||||
Number of Units Outstanding, End of Period | 2,829 | 13,588 | 15,110 | 19,232 | ||||||||||
AIM V.I. MONEY MARKET - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 11.98 | $ | 12.231 | $ | 12.198 | $ | 12.092 | ||||||
Accumulation Unit Value, End of Period | $ | 12.231 | $ | 12.198 | $ | 12.092 | $ | 12.000 | ||||||
Number of Units Outstanding, End of Period | 151,830 | 129,079 | 84,943 | 46,009 | ||||||||||
AIM V.I. PREMIER EQUITY - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 19.00 | $ | 16.376 | $ | 11.256 | $ | 13.877 | ||||||
Accumulation Unit Value, End of Period | $ | 16.376 | $ | 11.256 | $ | 13.877 | $ | 14.466 | ||||||
Number of Units Outstanding, End of Period | 881,690 | 685,598 | 606,188 | 538,069 | ||||||||||
AIM V.I. TECHNOLOGY - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | $ | 10.000 | |||||||||
Accumulation Unit Value, End of Period | - | - | - | $ | 11.090 | |||||||||
Number of Units Outstanding, End of Period | - | - | - | 4,500 | ||||||||||
AIM V.I. UTILITIES - SERIES I SUB-ACCOUNT | ||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | $ | 10.000 | |||||||||
Accumulation Unit Value, End of Period | - | - | - | $ | 12.230 | |||||||||
Number of Units Outstanding, End of Period | - | - | - | 61,438 |
* The Contracts were first offered on October 14, 1996. The inception date of the following Variable Sub-Accounts is October 14, 1996: AIM V.I. Capital Appreciation - Series I Sub-Account, AIM V.I. Diversified Income - Series I Sub-Account, AIM V.I. Government Securities - Series I Sub-Account, AIM V.I. Growth - Series I Sub-Account, AIM V.I. Core Equity - Series I Sub-Account, AIM V.I. International Growth - Series I Sub-Account, AIM V.I. Money Market - Series I Sub-Account, AIM V.I. Premier Equity - Series I Sub-Account. The inception date of the AIM V.I. Aggressive Growth - Series I Sub-Account, AIM V.I. Balanced - Series I Sub-Account, AIM V.I. Capital Development - Series I Sub-Account, and AIM V.I. High Yield - Series I Sub-Account is October 25, 1999. The inception date of the AIM V.I. Blue Chip - Series I Sub-Account and AIM V.I. Dent Demographic Trends - Series I Sub-Account is January 3, 2000. The inception date of the AIM V.I. Basic Value - Series I Sub-Account and AIM V.I. Mid Cap Core Equity - Series I Sub-Account is October 1, 2001. The inception date of the AIM V.I. Technology - Series I Sub-Account and the AIM V.I. Utilities - Series I Sub-Account is October 15, 2004.The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.35% and an administrative charge of 0.10%.
** Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its name to AIM V.I. Basic Balanced Fund-Series I. Effective July 1, 2005, a corresponding change in the name of the Variable Sub-Account that invests in that Fund will be made.
*** Effective July 1, 2005, the AIM V.I. Dent Demographic Trends Fund - Series I will change its name to AIM V.I. Demographic Trends Fund - Series I. Effective July 1, 2005, a corresponding change in the name of the Variable Sub-Account that invests in that Fund will be made.
APPENDIX B MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I = the Treasury Rate for a maturity equal to the applicable Guarantee Period for the week preceding the establishment of the Guarantee Period.
N = the number of whole and partial years from the date we receive the withdrawal, transfer, or death benefit request, or from the Payout Start Date, to the end of the Guarantee Period.
J = the Treasury Rate for a maturity equal to the Guarantee Period for the week preceding the receipt of the withdrawal, transfer, death benefit, or income payment request. If a note for a maturity of length N is not available, a weighted average will be used. If N is one year or less, J will be the 1-year Treasury Rate.
“Treasury Rate” means the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Board Statistical Release H.15.
The Market Value Adjustment factor is determined from the following formula:
.9 X (I - J) X N
To determine the Market Value Adjustment, we will multiply the Market Value Adjustment factor by the amount transferred (in excess of the Free Withdrawal Amount) paid as a death benefit, or applied to an Income Plan, from a Guarantee Period at any time other than during the 30 day period after such Guarantee Period expires.
EXAMPLES OF MARKET VALUE ADJUSTMENT
Purchase Payment: $10,000
Guarantee Period: 5 years
Treasury Rate (at the time the Guarantee Period was established): 4.50%
Assumed Net Annual Earnings Rate in Money Market Variable Sub-Account: 4.50%
Full Surrender: End of Contract Year 3
NOTE: These examples assume that premium taxes are not applicable.
Step 1. Calculate Contract | $10,000.00 X (1.045)/3/ = $11,411.66 | ||||||||||
Value at End of Contract | |||||||||||
Year 3: | |||||||||||
Step 2. Calculate the | .10 | X $10,000.00 = $1,000.00 | |||||||||
Preferred Withdrawal | |||||||||||
Amount: | |||||||||||
Step 3. Calculate the | I = | 4.50% | |||||||||
Market Value Adjustment: | J = | 4.20% | |||||||||
730 days | |||||||||||
N = | = 2 | ||||||||||
365 days | |||||||||||
Market Value Adjustment Factor: .9 X (I - J) X N = | |||||||||||
.9 X (.045 - .042) X (2) = .0054 | |||||||||||
Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: | |||||||||||
= .0054 X ($11,411.66 - $1,000.00) = $56.22 | |||||||||||
Step 4. Calculate the | .05 | X ($10,000.00 - $1,000.00 + $56.22) = $452.81 | |||||||||
Withdrawal Charge: | |||||||||||
Step 5. Calculate the amount received by a Contract owner as a result of full withdrawal at the end of Contract Year 3: | $11,411.66 - $452.81 + $56.22 = $11,015.07 | ||||||||||
EXAMPLE 1 (ASSUME DECLINING INTEREST RATES)
EXAMPLE 2: (ASSUMES RISING INTEREST RATES)
Step 1. Calculate Contract Value at End of Contract Year 3: | $10,000.00 X (1.045)/3/ = $11,411.66 | |||||||||||||
Step 2. Calculate the Preferred Withdrawal Amount: | .10 | X $10,000.00 = $1,000.00 | ||||||||||||
Step 3. Calculate the Market Value Adjustment: | I = | 4.50% | ||||||||||||
J = | 4.80% | |||||||||||||
730 days | ||||||||||||||
N = | = 2 | |||||||||||||
365 days | ||||||||||||||
Market Value Adjustment Factor: .9 X (I - J) X N = | ||||||||||||||
.9 X (.045 - .048) X (2) = - .0054 | ||||||||||||||
Market Value Adjustment = Market Value Adjustment | ||||||||||||||
Factor X Amount Subject to Market Value Adjustment: | ||||||||||||||
-.0054 X ($11,411.66 - $1,000.00) = $-56.22 | ||||||||||||||
Step 4. Calculate the Withdrawal Charge: | .05 | X ($10,000.00 - $1,000.00 - $56.22) = $447.19 | ||||||||||||
Step 5. Calculate the amount received by a Contract owner as a result of full withdrawal at the end of Contract Year | $11,411.66 - $447.19 - $56.22 = $10,908.25 | |||||||||||||
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
THE CONTRACT
Purchase of Contracts
CALCULATION OF ACCUMULATION UNIT VALUES
NET INVESTMENT FACTOR
CALCULATION OF VARIABLE INCOME PAYMENTS
CALCULATION OF ANNUITY UNIT VALUES
GENERAL MATTERS
Incontestability
Settlements
Safekeeping of the Variable Account’s Assets
Premium Taxes
Tax Reserves
EXPERTS
FINANCIAL STATEMENTS
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
AIM LIFETIME PLUS(SM) II VARIABLE ANNUITY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STREET ADDRESS: 2940 S. 84TH STREET, LINCOLN, NE 68506-4142 MAILING ADDRESS: P.O. BOX 82656, LINCOLN,
NE 68501-2656 TELEPHONE NUMBER: 1-800-692-4682 PROSPECTUS DATED APRIL 30, 2005
NE 68501-2656 TELEPHONE NUMBER: 1-800-692-4682 PROSPECTUS DATED APRIL 30, 2005
Allstate Life Insurance Company of New York (“ALLSTATE NEW YORK”) is offering the AIM Lifetime Plus(SM) II Variable Annuity, a group flexible premium deferred variable annuity contract (“CONTRACT”). This prospectus contains information about the Contract that you should know before investing. Please keep it for future reference.
The Contract currently offers 21 investment alternatives (“INVESTMENT ALTERNATIVES”). The investment alternatives include 3 fixed account options
(“FIXED ACCOUNT OPTIONS”) and 18 variable sub-accounts (“VARIABLE SUB-ACCOUNTS”) of the Allstate Life of New York Separate Account A (“VARIABLE ACCOUNT”). Each Variable Sub-Account invests exclusively in shares of one of the following funds (“FUNDS”) of AIM Variable Insurance Funds, Inc. (SERIES I SHARES):
AIM V.I. AGGRESSIVE GROWTH FUND - SERIES I | AIM V.I. GOVERNMENT SECURITIES FUND - SERIES I | ||||
AIM V.I. BALANCED FUND - SERIES I* | AIM V.I. GROWTH FUND - SERIES I | ||||
AIM V.I. BASIC VALUE FUND - SERIES I | AIM V.I. HIGH YIELD FUND - SERIES I | ||||
AIM V.I. BLUE CHIP FUND - SERIES I | AIM V.I. INTERNATIONAL GROWTH FUND - SERIES I | ||||
AIM V.I. CAPITAL APPRECIATION FUND - SERIES I | AIM V.I. MID CAP CORE EQUITY FUND - SERIES I | ||||
AIM V.I. CAPITAL DEVELOPMENT FUND - SERIES I | AIM V.I. MONEY MARKET FUND - SERIES I | ||||
AIM V.I. CORE EQUITY FUND - SERIES I | AIM V.I. PREMIER EQUITY FUND - SERIES I | ||||
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND - SERIES I** | AIM V.I. TECHNOLOGY FUND - SERIES I | ||||
AIM V.I. DIVERSIFIED INCOME FUND - SERIES I | AIM V.I. UTILITIES FUND - SERIES I |
* Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its name to AIM V.I. Basic Balanced Fund-Series I.
** Effective July 1, 2005, the AIM V.I. Dent Demographic Trends Fund - Series I will change its name to AIM V.I. Demographic Trends Fund - Series I.
WE (Allstate New York) have filed a Statement of Additional Information, dated April 30, 2005, with the Securities and Exchange Commission (“SEC”). It contains more information about the Contract and is incorporated herein by reference, which means it is legally a part of this prospectus. Its table of contents appears on page 41 of this prospectus. For a free copy, please write or call us at the address or telephone number above, or go to the SEC’s Web site (http:www.sec.gov). You can find other information and documents about us, including documents that are legally part of this prospectus, at the SEC’s Web site (http:\\www.sec.gov).
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR HAS IT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A FEDERAL CRIME. | |||||
IMPORTANT NOTICES | THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS. HOWEVER, THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY AGENCY.INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. | ||||
THE CONTRACTS ARE NOT FDIC INSURED. | |||||
THE CONTRACTS WERE ONLY AVAILABLE IN NEW YORK, BUT ARE NO LONGER AVAILABLE FOR SALE. |
1 PROSPECTUS
TABLE OF CONTENTS
PAGE | |||||
OVERVIEW | |||||
Important Terms | 3 | ||||
The Contract at a Glance | 4 | ||||
How the Contract Works | 6 | ||||
Expense Table | 6 | ||||
Financial Information | 9 | ||||
CONTRACT FEATURES | |||||
The Contract | 9 | ||||
Purchases | 10 | ||||
Contract Value | 11 | ||||
Investment Alternatives | 13 | ||||
The Variable Sub-Accounts | 13 | ||||
The Fixed Account Options | 14 | ||||
Transfers | 17 | ||||
Expenses | 20 | ||||
Other Expenses | 22 | ||||
Access To Your Money | 22 | ||||
PAGE | |||||
Income Payments | 23 | ||||
Death Benefits | 25 | ||||
OTHER INFORMATION | |||||
More Information: | |||||
Allstate New York | 28 | ||||
The Variable Account | 29 | ||||
The Funds | 29 | ||||
The Contract | 30 | ||||
Non-Qualified Annuities Held Within a Qualified Plan | 30 | ||||
Legal Matters | 30 | ||||
Taxes | 30 | ||||
Annual Reports and Other Documents | 38 | ||||
APPENDIX A-ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED | 39 | ||||
APPENDIX B-MARKET VALUE ADJUSTMENT | 43 | ||||
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS | 46 | ||||
2 PROSPECTUS
IMPORTANT TERMS
This prospectus uses a number of important terms that you may not be familiar with. The index below identifies the page that describes each term. The first use of each term in this prospectus appears in highlights.
PAGE | |||||
Accumulation Phase | 6 | ||||
Accumulation Unit | 11 | ||||
Accumulation Unit Value | 11 | ||||
Allstate New York (“We and/or “Us”) | 1, 25 | ||||
Anniversary Values | 23 | ||||
Annuitant | 9 | ||||
Automatic Additions Program | 10 | ||||
Automatic Fund Rebalancing Program | 17 | ||||
Beneficiary | 9 | ||||
Cancellation Period | 4 | ||||
Contract* | 26 | ||||
Contract Anniversary | 5 | ||||
Contract Owner (“You”) | 9 | ||||
Contract Value | 5 | ||||
Contract Year | 5 | ||||
Death Benefit Anniversary | 22 | ||||
Dollar Cost Averaging Option | 13 | ||||
Dollar Cost Averaging Program | 17 | ||||
Due Proof of Death | 22 | ||||
Enhanced Death Benefit Option | 23 | ||||
PAGE | |||||
Fixed Account Options | 13 | ||||
Funds | 25 | ||||
Guarantee Periods | 13 | ||||
Income Plans | 20 | ||||
Investment Alternatives | 4 | ||||
Issue Date | 6 | ||||
Market Value Adjustment | 14 | ||||
Payout Phase | 6 | ||||
Payout Start Date | 20 | ||||
Preferred Withdrawal Amount | 18 | ||||
Right to Cancel | 10 | ||||
SEC | 1 | ||||
Settlement Value | 22 | ||||
Systematic Withdrawal Program | 20 | ||||
Tax Qualified Contracts | 30 | ||||
Treasury Rate | 15 | ||||
Valuation Date | 10 | ||||
Variable Account | 25 | ||||
Variable Sub-Account | 12 |
3 PROSPECTUS
* The AIM Lifetime Plus(SM) II Variable Annuity is a group contract and your ownership is represented by certificates. References to “Contract” in this prospectus include certificates, unless the context requires otherwise.
4 PROSPECTUS
THE CONTRACT AT A GLANCE
The following is a snapshot of the Contract. Please read the remainder of this prospectus for more information.
FLEXIBLE PAYMENTS | You can purchase a Contract with an initial purchase payment of $5,000 ($2,000 for “QUALIFIED CONTRACTS,” which are Contracts issued with QUALIFIED PLANS). You can add to your Contract as often and as much as you like, but each payment must be at least $500 ($100 for automatic purchase payments to the variable investment options). You must maintain a minimum account size of $1,000. | |||||||
RIGHT TO CANCEL | You may cancel your Contract within 10 days after receipt (“CANCELLATION PERIOD”). Upon cancellation, as permitted by federal or state law, we will return your purchase payments adjusted to reflect the investment experience of any amounts allocated to the Variable Account. The adjustment will reflect the deduction of mortality and expense risk charges and administrative expense charges. | |||||||
EXPENSES | You will bear the following expenses: | |||||||
• Total Variable Account annual fees equal to 1.10% of average daily net Assets (1.30% if you select the ENHANCED DEATH BENEFIT OPTION) • Annual contract maintenance charge of $35 (with certain exceptions) • Withdrawal charges ranging from 0% to 7% of payment withdrawn (with certain exceptions) • Transfer fee of $10 after 12th transfer in any CONTRACT YEAR (fee currently waived) • State premium tax (New York currently does not impose one). | ||||||||
In addition, each Fund pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. | ||||||||
INVESTMENT | The Contract offers 21 investment alternatives including: | |||||||
ALTERNATIVES | ||||||||
• 3 Fixed Account Options (which credit interest at rates we guarantee), and • 18 Variable Sub-Accounts investing in Funds offering professional money management by A I M Advisors, Inc. | ||||||||
To find out current rates being paid on the Fixed Account Options, or to find out how the Variable Sub-Accounts have performed, please call us at 1-800-692-4682. | ||||||||
SPECIAL SERVICES | For your convenience, we offer these special services: | |||||||
• AUTOMATIC FUND REBALANCING PROGRAM • AUTOMATIC ADDITIONS PROGRAM • DOLLAR COST AVERAGING PROGRAM • SYSTEMATIC WITHDRAWAL PROGRAM | ||||||||
INCOME PAYMENTS | You can choose fixed income payments, variable income payments, or a combination of the two. You can receive your income payments in one of the following ways: | |||||||
• life income with guaranteed payments • a joint and survivor life income with guaranteed payments • guaranteed payments for a specified period (5 to 30 years) | ||||||||
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DEATH | BENEFITS If you or the Annuitant (if the Contract is owned by a non-living person) die before the PAYOUT START DATE, we will pay the death benefit described in the Contract. We also offer an Enhanced Death Benefit Option. | |||||||
TRANSFERS | Before the Payout Start Date, you may transfer your Contract value (“CONTRACT VALUE”) among the investment alternatives, with certain restrictions. | |||||||
We do not currently impose a fee upon transfers. However, we reserve the right to charge $10 per transfer after the 12th transfer in each “CONTRACT YEAR,” which we measure from the date we issue your contract or a Contract anniversary (“CONTRACT ANNIVERSARY”). | ||||||||
WITHDRAWALS | You may withdraw some or all of your Contract Value at any time during the Accumulation Phase. Full or partial withdrawals are available under limited circumstances on or after the Payout Start Date. In general, you must withdraw at least $50 at a time ($1,000 for withdrawals made during the Payout Phase.) Withdrawals in the Payout Phase are only available if the Payout Option is a Variable Income Payment using Guaranteed Payments for a Specified Period. Withdrawals taken prior to annuitization (referred to in this prospectus as the Payout Phase) are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. A withdrawal charge and MARKET VALUE ADJUSTMENT also may apply. | |||||||
6 PROSPECTUS
HOW THE CONTRACT WORKS
The Contract basically works in two ways.
First, the Contract can help you (we assume you are the CONTRACT OWNER) save for retirement because you can invest in up to 21 investment alternatives and generally pay no federal income taxes on any earnings until you withdraw them. You do this during what we call the “ACCUMULATION PHASE” of the Contract. The Accumulation Phase begins on the date we issue your Contract (we call that date the “ISSUE DATE”) and continues until the Payout Start Date, which is the date we apply your money to provide income payments. During the Accumulation Phase, you may allocate your purchase payments to any combination of the Variable Sub-Accounts and/or Fixed Account Options. If you invest in the Fixed Account Options, you will earn a fixed rate of interest that we declare periodically. If you invest in any of the Variable Sub-Accounts, your investment return will vary up or down depending on the performance of the corresponding Funds.
Second, the Contract can help you plan for retirement because you can use it to receive retirement income for life and/ or for a pre-set number of years, by selecting one of the income payment options (we call these “INCOME PLANS”) described on page 20. You receive income payments during what we call the “PAYOUT PHASE” of the Contract, which begins on the Payout Start Date and continues until we make the last payment required by the Income Plan you select. During the Payout Phase, if you select a fixed income payment option, we guarantee the amount of your payments, which will remain fixed. If you select a variable income payment option, based on one or more of the Variable Sub-Accounts, the amount of your payments will vary up or down depending on the performance of the corresponding Funds. The amount of money you accumulate under your Contract during the Accumulation Phase and apply to an Income Plan will determine the amount of your income payments during the Payout Phase.
The timeline below illustrates how you might use your Contract.
Issue Date | Accumulation Phase | Payout Start Date | Payout Phase | |||||||||||
You buy a Contract | You save for retirement | You elect to receive income payments or receive a lump sum payment | You can receive income payments for a set period | Or you can receive income payments for life |
As the Contract owner, you exercise all of the rights and privileges provided by the Contract. If you die, any surviving Contract owner, or if there is none, the BENEFICIARY will exercise the rights and privileges provided by the Contract. See “The Contract.” In addition, if you die before the Payout Start Date, we will pay a death benefit to any surviving Contract owner or, if none, to your Beneficiary. See “Death Benefits.”
Please call us at 1-800-692-4682 if you have any questions about how the Contract works.
EXPENSE TABLE
The table below lists the expenses that you will bear directly or indirectly when you buy a Contract. The table and the examples that follow do not reflect premium taxes because New York currently does not impose premium taxes on annuities. For more information about Variable Account expenses, see “Expenses,” below. For more information about Fund expenses, please refer to the accompanying prospectuses for the Funds.
CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years Since We Received the Purchase Payment Being Withdrawn | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+ | |||||||||||||||||||||
Applicable Charge | 7% | 6% | 5 | % | 4% | 3% | 2% | 1% | 0 | % | |||||||||||||||||||
Annual Contract Maintenance Charge | $35.00** | ||||||||||||||||||||||||||||
Transfer Fee | $10.00*** | ||||||||||||||||||||||||||||
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* Each Contract Year, you may withdraw up to 15% of the Contract Value as of the beginning of the Contract Year without incurring a withdrawal charge or Market Value Adjustment.
** We will waive this charge in certain cases. See “Expenses.”
*** Applies solely to the thirteenth and subsequent transfers within a Contract Year excluding transfers due to dollar cost averaging or automatic fund rebalancing. We are currently waiving the transfer fee.
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT)
WITHOUT ENHANCED DEATH BENEFIT OPTION Mortality and Expense Risk Charge | 1.00 | % | |||
Administrative Expense Charge | 0.10 | % | |||
Total Variable Account Annual Expense | 1.10 | % | |||
WITH ENHANCED DEATH BENEFIT OPTION Mortality and Expense Risk Charge | 1.20 | % | |||
Administrative Expense Charge | 0.10 | % | |||
Total Variable Account Annual Expense | 1.30 | % | |||
FUND ANNUAL EXPENSES
(as a percentage of Fund average daily net assets) (1) The next table shows the minimum and maximum total operating expenses charged by the Funds that you may pay periodically during the time that you own the Contract. Advisers and/or other service providers of certain Funds may have agreed to waive their fees and/or reimburse Fund expenses in order to keep the Funds’ expenses below specified limits. The range of expenses shown in this table does not show the effect of any such fee waiver or expense reimbursement.
More detail concerning each Fund’s fees and expenses appears in the prospectus for each Fund.
ANNUAL FUND EXPENSES
Minimum | Maximum | |||||||||||||
Total Annual Fund Operating Expenses (1) (expenses that are deducted from Fund assets, which may include management fees, distribution and/or services (12b-1) fees, and other expenses) | 0.75% | 1.16% | ||||||||||||
(1) Expenses are shown as a percentage of Fund average daily net assets (before any waiver or reimbursement) as of December 31, 2004.
EXAMPLE 1
This Example is intended to help you compare the cost of investing in the Contracts with the cost of investing in other variable annuity contracts. These costs include Contract owner transaction expenses, Contract fees, Variable Account annual expenses, and Fund fees and expenses. The example below shows the dollar amount of expenses that you would bear directly or indirectly if you:
• invested $10,000 in the Contract for the time periods indicated,
• earned a 5% annual return on your investment, and
• surrendered your Contract, or you began receiving income payments for a specified period of less than 120 months, at the end of each time period, and
8 PROSPECTUS
• elected the Enhanced Death Benefit Option.
The first line of the example assumes that the maximum fees and expenses of any of the Funds are charged. The second line of the example assumes that the minimum fees and expenses of any of the Funds are charged. Your actual expenses may be higher or lower than those shown below.
THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT.
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||
Costs Based on Maximum Annual Fund Expenses | $797 | $1,215 | $1,658 | $3,129 | ||||||||||
Costs Based on Minimum Annual Fund Expenses | $755 | $1,088 | $1,447 | $2,711 | ||||||||||
EXAMPLE 2
This Example uses the same assumptions as Example 1 above, except that it assumes you decided not to surrender your Contract, or you began receiving income payments for a specified period of at least 120 months, at the end of each time period.
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||
Costs Based on Maximum Annual Fund Expenses | $287 | $877 | $1,490 | $3,129 | ||||||||||
Costs Based on Minimum Annual Fund Expenses | $245 | $751 | $1,280 | $2,711 | ||||||||||
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE LOWER OR GREATER THAN THOSE SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LOWER OR GREATER THAN 5%, WHICH IS NOT GUARANTEED. THE EXAMPLES DO NOT ASSUME THAT ANY FUND EXPENSE WAIVERS OR REIMBURSEMENT ARRANGEMENTS ARE IN EFFECT FOR THE PERIODS PRESENTED. THE ABOVE EXAMPLES ASSUME THE ELECTION OF THE ENHANCED DEATH BENEFIT OPTION, WITH A MORTALITY AND EXPENSE RISK CHARGE OF 1.20%, AN ADMINISTRATIVE EXPENSE CHARGE OF 0.10% AND AN ANNUAL CONTRACT MAINTENANCE CHARGE OF $35. IF THE ENHANCED DEATH BENEFIT HAS NOT ELECTED, THE EXPENSE FIGURES SHOWN ABOVE WOULD BE SLIGHTLY LOWER. THE ABOVE EXAMPLES ASSUME TOTAL ANNUAL FUND EXPENSES LISTED IN THE EXPENSE TABLE WILL CONTINUE THROUGHOUT THE PERIODS SHOWN.
9 PROSPECTUS
FINANCIAL INFORMATION
To measure the value of your investment in the Variable Sub-Accounts during the Accumulation Phase, we use a unit of measure we call the “ACCUMULATION UNIT.” Each Variable Sub-Account has a separate value for its Accumulation Units we call “ACCUMULATION UNIT VALUE.” Accumulation Unit Value is analogous to, but not the same as, the share price of a mutual fund.
Attached as Appendix A to this prospectus are tables showing the Accumulation Unit Values of each Variable Sub-Account since the date we first offered the Contracts. To obtain a fuller picture of each Variable Sub-Account’s finances, please refer to the Variable Account’s financial statements contained in the Statement of Additional Information. The financial statements of Allstate New York also appear in the Statement of Additional Information.
THE CONTRACT
CONTRACT OWNER
The AIM Lifetime Plus(SM) II Variable Annuity is a contract between you, the Contract Owner, and Allstate New York, a life insurance company. As the Contract owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted):
• the investment alternatives during the Accumulation and Payout Phases,
• the amount and timing of your purchase payments and withdrawals,
• the programs you want to use to invest or withdraw money,
• the income payment plan you want to use to receive retirement income,
• the Annuitant (either yourself or someone else) on whose life the income payments will be based,
• the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract Owner or Annuitant dies, and
• any other rights that the Contract provides.
If you die, any surviving Contract owner or, if none, the Beneficiary may exercise the rights and privileges provided to them by the Contract.
The Contract cannot be jointly owned by both a non-living person and a living person. If the Contract Owner is a Grantor Trust, the Contract Owner will be considered a non-living person for purposes of this section and the Death Benefit section. The maximum age of the oldest Contract owner cannot exceed age 90 as of the date we receive the completed application to purchase the Contract.
Changing ownership of this Contract may cause adverse tax consequences and may not be allowed under qualified plans. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner.
The Contract can also be purchased as an IRA or TSA (also known as a 403(b)). The endorsements required to qualify these annuities under the Internal Revenue Code of 1986, as amended, (“Code”) may limit or modify your rights and privileges under the Contract.
ANNUITANT
The Annuitant is the individual whose life determines the amount and duration of income payments (other than under Income Plans with guaranteed payments for a specified period). You initially designate an Annuitant in your application. The maximum age of the Annuitant cannot exceed age 90 as of the date we receive the completed application to purchase the Contract. If the Contract Owner is a living person you may change the Annuitant prior to the Payout Start Date. In our discretion, we may permit you to designate a joint Annuitant, who is a second person on whose life income payments depend, on the Payout Start Date.
If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be:
• the youngest Contract Owner, if living, otherwise
• the youngest Beneficiary.
10 PROSPECTUS
BENEFICIARY
The Beneficiary is the person who may elect to receive the Death Benefit or become the new Contract Owner, subject to the Death of Owner provision, if the sole surviving Contract Owner dies before the Payout Start Date (See section titled “Death Benefits” for details.) If the sole surviving Contract owner dies after the Payout Start Date, the Beneficiary will receive any guaranteed income payments scheduled to continue.
You may name one or more Beneficiaries when you apply for a Contract. You may change or add Beneficiaries at any time by writing to us, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed and filed with us. Any change will be effective at the time you sign the written notice, whether or not the Annuitant is living when we receive the notice. Until we receive your written notice to change a Beneficiary, we are entitled to rely on the most recent Beneficiary information in our files. We will not be liable as to any payment or settlement made prior to receiving the written notice. Accordingly, if you wish to change your Beneficiary, you should deliver your written notice to us promptly.
If you do not name a Beneficiary or if the named Beneficiary is no longer living and there are no other surviving Beneficiaries, the new Beneficiary will be:
• your spouse or, if he or she is no longer alive,
• your surviving children equally, or if you have no surviving children,
• your estate.
If more than one Beneficiary survives you, we will divide the death benefit among your Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the death benefit in equal amounts to the surviving Beneficiaries
MODIFICATION OF THE CONTRACT
Only an Allstate New York officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law.
ASSIGNMENT
No Owner has the right to assign any interest in a Contract as collateral or security for a loan. However, you may assign periodic income payments under the Contract prior to the Payout Start Date. No Beneficiary may assign benefits under the Contract until they are due. We will not be bound by any assignment until the assignor signs it and files it with us. We are not responsible for the validity of any assignment. Federal law prohibits or restricts the assignment of benefits under many types of retirement plans and the terms of such plans may themselves contain restrictions on assignments. An assignment may also result in taxes or tax penalties. YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN YOUR CONTRACT.
PURCHASES
MINIMUM PURCHASE PAYMENTS
Your initial Purchase Payment must be at least $5,000 ($2,000 for a Qualified Contract). All subsequent Purchase Payments must be $500 or more. The maximum Purchase Payment is $2,000,000 without prior approval. We reserve the right to change the minimum Purchase Payment and to change the maximum Purchase Payment. You may make Purchase Payments of at least $500 at any time prior to the Payout Start Date. We also reserve the right to reject any application.
AUTOMATIC ADDITIONS PROGRAM
You may make subsequent purchase payments of at least $100 ($500 for allocation to the Fixed Account Options) by automatically transferring amounts from your bank account. Please consult with your sales representative for detailed information.
11 PROSPECTUS
ALLOCATION OF PURCHASE PAYMENTS
At the time you apply for a Contract, you must decide how to allocate your purchase payments among the investment alternatives. The allocation you specify on your application will be effective immediately. All allocations must be in whole percents that total 100% or in whole dollars. You can change your allocations by notifying us in writing. We reserve the right to limit the availability of the investment alternatives.
We will allocate your purchase payments to the investment alternatives according to your most recent instructions on file with us. Unless you notify us in writing otherwise, we will allocate subsequent purchase payments according to the allocation for the previous purchase payment. We will effect any change in allocation instructions at the time we receive written notice of the change in good order.
We will credit the initial purchase payment that accompanies your completed application to your Contract within 2 business days after we receive the payment at our servicing center. If your application is incomplete, we will ask you to complete your application within 5 business days. If you do so, we will credit your initial purchase payment to your Contract within that 5 business day period. If you do not, we will return your purchase payment at the end of the 5 business day period unless you expressly allow us to hold it until you complete the application. We will credit subsequent purchase payments to the Contract at the close of the business day on which we receive the purchase payment at our service center located in Vernon Hills, Illinois (mailing address: 2940 S. 84TH STREET, LINCOLN, NE 68506-4142).
We are open for business each day Monday through Friday that the New York Stock Exchange is open for business. We also refer to these days as “VALUATION DATES.” Our business day closes when the New York Stock Exchange closes, usually 4:00 p.m. Eastern Time (3:00 p.m. Central Time). If we receive your purchase payment after 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date, we will credit your purchase payment using the Accumulation Unit Values computed on the next Valuation Date.
RIGHT TO CANCEL
You may cancel the Contract by returning it to us within the Cancellation Period, which is the 10 day period after you receive the Contract (60 days if you are exchanging another contract for the Contract described in this prospectus.) You may return it by delivering it or mailing it to us. If you exercise this “RIGHT TO CANCEL,” the Contract terminates and we will pay you the full amount of your purchase payments allocated to the Fixed Account Options. Upon cancellation, as permitted by federal or state law, we will return your purchase payments allocated to the Variable Account after an adjustment to reflect investment gain or loss and applicable charges that occurred from the date of allocation through the date of cancellation. If your Contract is qualified under ode Section 408(b), we will refund the greater of any purchase payment or the Contract Value.
CONTRACT VALUE
On the issue date, the Contract Value is equal to the initial purchase payment. Thereafter, your Contract Value at any time during the Accumulation Phase is equal to the sum of the value of your Accumulation Units in the Variable Sub-Accounts you have selected, plus the value of your investment in the Fixed Account Options.
ACCUMULATION UNITS
To determine the number of Accumulation Units of each Variable Sub-Account to allocate to your Contract, we divide (i) the amount of the purchase payment or transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of that Variable Sub-Account next computed after we receive your payment or transfer. For example, if we receive a $10,000 purchase payment allocated to a Variable Sub-Account when the Accumulation Unit Value for the Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Sub-Account allocated to your Contract.
12 PROSPECTUS
ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect:
• changes in the share price of the Fund in which the Variable Sub-Account invests, and
• the deduction of amounts reflecting the mortality and expense risk charge, administrative expense charge, and any provision for taxes that have accrued since we last calculated the Accumulation Unit Value.
We determine contract maintenance charges, withdrawal charges, and transfer fees (currently waived) separately for each Contract. They do not affect Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we calculate Accumulation Unit Value, please refer to the Statement of Additional Information.
We determine a separate Accumulation Unit Value for each Variable Sub-Account on each Valuation Date. We also determine a separate set of Accumulation Unit Values reflecting the cost of the Enhanced Death Benefit Option described on page 23.
YOU SHOULD REFER TO THE PROSPECTUS FOR THE FUNDS THAT ACCOMPANIES THIS PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH FUND ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE.
13 PROSPECTUS
INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS
You may allocate your purchase payments to up to 18 Variable Sub-Accounts. Each Variable Sub-Account invests in the shares of a corresponding Fund. Each Fund has its own investment objective(s) and policies. We briefly describe the Funds below.
For more complete information about each Fund, including expenses and risks associated with the Fund, please refer to the accompanying prospectus for the Fund. You should carefully review the Fund prospectuses before allocating amounts to the Variable Sub-Accounts. A I M Advisors, Inc. serves as the investment advisor to each Fund.
SERIES I SHARES: | EACH FUND SEEKS*: | INVESTMENT ADVISOR | ||||||
AIM V.I. Aggressive Growth Fund – Series I** | Long-term growth of capital | |||||||
AIM V.I. Balanced Fund - Series I*** | As high a total return as possible, consistent with preservation of capital | |||||||
AIM V.I. Basic Value Fund - Series I | Long-term growth of capital | |||||||
AIM V.I. Blue Chip Fund - Series I | Long-term growth of capital with a secondary objective of current income | |||||||
AIM V.I. Capital Appreciation Fund - Series I | Growth of capital | |||||||
AIM V.I. Capital Development Fund - Series I | Long-term growth of capital | |||||||
AIM V.I. Core Equity Fund - Series I | Growth of capital | A I M ADVISORS, INC.. | ||||||
AIM V.I. Dent Demographic Trends Fund - Series I**** | Long-term growth of capital | |||||||
AIM V.I. Diversified Income Fund - Series I | High level of current income | |||||||
AIM V.I. Government Securities Fund - Series I | High level of current income consistent with reasonable concern for safety of principal | |||||||
AIM V.I. Growth Fund - Series I | Growth of capital | |||||||
AIM V.I. High Yield Fund - Series I | High level of current income | |||||||
AIM V.I. International Growth Fund - Series I | Long-term growth of capital | |||||||
AIM V.I. Mid Cap Core Equity Fund - Series I | Long-term growth of capital | |||||||
AIM V.I. Money Market Fund - Series I | As high a level of current income as is consistent with the preservation of capital and liquidity | |||||||
AIM V.I. Premier Equity Fund – Series I | Long-term growth of capital with income as a secondary objective | |||||||
AIM V.I. Technology Fund - Series I | Capital growth | |||||||
AIM V.I. Utilities Fund - Series I | Capital growth and current income |
* A Fund’s investment objective(s) may be changed by the Fund’s Board of Trustees without shareholder approval.
14 PROSPECTUS
** Due to the sometime limited availability of common stocks of small-cap companies that meet the investment criteria for AIM V.I. Aggressive Growth Fund - Series I, the Fund may periodically suspend or limit the offering of its shares and it will be closed to new participants when Fund assets reach $200 million. During closed periods the Fund will accept additional investments from existing Contract owners maintaining an allocation in the Fund.
*** Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its name to AIM V.I. Basic Balanced Fund-Series I. In addition, the Fund’s objective will cahnge to long-term growth of capital and current income.
*** The AIM V.I. Dent Demographic Trends Fund - Series I is sub-advised by H.S. Dent Advisors, Inc. Effective July 1, 2005, the AIM V.I. Dent Demographic Trends Fund - Series I will change its name to AIM V.I. Demographic Trends Fund - Series I. In addition, H.S. Dent Advisors, Inc. will no longer be the sub-advisor to the Fund effective June 30, 2005.
AMOUNTS YOU ALLOCATE TO VARIABLE SUB-ACCOUNTS MAY GROW IN VALUE, DECLINE IN VALUE, OR GROW LESS THAN YOU EXPECT, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE FUNDS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE FUNDS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE FUNDS
ARE NOT DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT OPTIONS
You may allocate all or a portion of your purchase payments to the Fixed Account. You may choose from among 3 Fixed Account Options, including 2 DOLLAR COST AVERAGING FIXED ACCOUNT OPTIONS (“DOLLAR COST AVERAGING OPTION”), and the option to invest in one or more GUARANTEE PERIODS. The Fixed Account Options may not be available in all states. Please consult with your sales representative for current information. The Fixed Account supports our insurance and annuity obligations. The Fixed Account consists of our general assets other than those in segregated asset accounts. We have sole discretion to invest the assets of the Fixed Account, subject to applicable law. Any money you allocate to a Fixed Account Option does not entitle you to share in the investment experience of the Fixed Account.
DOLLAR COST AVERAGING OPTION. You may establish a Dollar Cost Averaging Program, as described on page 17, by allocating purchase payments to the Dollar Cost Averaging Option either for 6 months (the “6 Month Dollar Cost Averaging Option”) or for 12 months (the “12 Month Dollar Cost Averaging Option”). Your purchase payments that you allocate to the Dollar Cost Averaging Option will earn interest for the period you select at the current rate in effect at the time of allocation. Rates may differ from those available for the Guarantee Periods described below.
We will credit interest daily at a rate that will compound over the 6 or 12 month period to the annual interest rate we guaranteed at the time of allocation. You must transfer all of your money out of the 6 or 12 Month Dollar Cost Averaging Options to other investment alternatives in equal monthly installments beginning within 30 days of allocation. The number of monthly installments must be no more than 6 for the 6 Month Dollar Cost Averaging Option, and no more than 12 for the 12 Month Dollar Cost Averaging Option.
If we do not receive allocation instructions from you within one month of the date of the payment, the payment plus associated interest will be transferred to the Money Market Variable Sub-Account in equal monthly installments using the longest transfer period being offered at the time the Purchase Payment is made.
At the end of the applicable transfer period, any nominal amounts remaining in the Dollar Cost Averaging Option will be allocated to the Money Market Variable Sub-Account.
You may not transfer funds from other investment alternatives to the Dollar Cost Averaging Option.
Transfers out of the Dollar Cost Averaging Option do not count towards the 12 transfers you can make without paying a transfer fee.
We may declare different interest rates for different amounts allocated to the Dollar Cost Averaging Option depending on when they were allocated. For current interest rate information, please contact your Financial Advisor or our Customer Service unit
at 1-800-692-4682.
at 1-800-692-4682.
15 PROSPECTUS
GUARANTEE PERIODS
Each payment or transfer allocated to a Guarantee Period earns interest at a specified rate that we guarantee for a period of years. Guarantee Periods may range from 1 to 10 years. In the future we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods. You select one or more Guarantee Periods for each purchase payment or transfer. If you do not select the Guarantee Period for a purchase payment or transfer, we will assign the shortest Guarantee Period available under the Contract for such payment or transfer. We reserve the right to limit the number of additional purchase payments that you may allocate to this Option. Please consult with your sales representative for more information. Each Purchase Payment or transfer allocated to a Guarantee Period must be at least $500.
INTEREST RATES. We will tell you what interest rates and Guarantee Periods we are offering at a particular time. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. We will not change the interest rate that we credit to a particular allocation until the end of the relevant Guarantee Period.
We have no specific formula for determining the rate of interest that we will declare initially or in the future. We will set those interest rates based on investment returns available at the time of the determination. In addition, we may consider various other factors in determining interest rates including regulatory and tax requirements, our sales commission and administrative expenses, general economic trends, and competitive factors. WE DETERMINE THE INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE CAN NEITHER PREDICT NOR GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE. For current interest rate information, please contact your sales representative or Allstate New York at 1-800-692-4682. The interest rates we credit for the Dollar Cost Averaging Option will never be less than 3% annually.
HOW WE CREDIT INTEREST. We will credit interest daily to each amount allocated to a Guarantee Period at a rate that compounds to the effective annual interest rate that we declared at the beginning of the applicable Guarantee Period.
The following example illustrates how a purchase payment allocated to a Guarantee Period would grow, given an assumed Guarantee Period and effective annual interest rate:
Purchase Payment | $ | 10,000 | |||
Guarantee Period | 5 years | ||||
Annual Interest Rate | 4.50 | % |
16 PROSPECTUS
END OF CONTRACT YEAR
YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | |||||||||||||
Beginning Contract Value | $10,000.00 | ||||||||||||||||
X (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$10,450.00 | |||||||||||||||||
Contract Value at end of Contract Year | $10,450.00 | ||||||||||||||||
X (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$10,920.25 | |||||||||||||||||
Contract Value at end of Contract Year | $10,920.25 | ||||||||||||||||
X (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$11,411.66 | |||||||||||||||||
Contract Value at end of Contract Year | $11,411.66 | ||||||||||||||||
X (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$11,925.19 | |||||||||||||||||
Contract Value at end of Contract Year | $11,925.19 | ||||||||||||||||
X (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$12,461.82 |
TOTAL INTEREST CREDITED DURING GUARANTEE PERIOD = $2,461.82 ($12,461.82-$10,000)
This example assumes no withdrawals during the entire 5 year Guarantee Period. If you were to make a withdrawal, you may be required to pay a withdrawal charge. In addition, the amount withdrawn may be increased or decreased by a Market Value Adjustment that reflects changes in interest rates since the time you invested the amount withdrawn. The hypothetical interest rate is for illustrative purposes only and is not intended to predict current or future interest rates to be declared under the Contract. Actual interest rates declared for any given Guarantee Period may be more or less than shown above but will never be less than the guaranteed minimum rate stated in the Contract, if any.
RENEWALS. At least 15 but not more than 45 days prior to the end of each Guarantee Period, we will mail you a notice asking you what to do with your money, including the accrued interest. During the 30-day period after the end of the Guarantee Period, you may:
1) Take no action. We will automatically apply your money to a new Guarantee Period of the shortest duration available. The new Guarantee Period will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for a Guarantee Period of that length; or
2) Instruct us to apply your money to one or more new Guarantee Periods of your choice. The new Guarantee Period(s) will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for those Guarantee Periods; or
3) Instruct us to transfer all or a portion of your money to one or more Variable Sub-Accounts. We will effect the transfer on the day we receive your instructions. We will not adjust the amount transferred to include a Market Value Adjustment; or
4) Withdraw all or a portion of your money. You may be required to pay a withdrawal charge, but we will not adjust the amount withdrawn to include a Market Value Adjustment. You may also be required to pay premium taxes and withholding (if applicable). The amount withdrawn will be deemed to have been withdrawn on the day the previous Guarantee Period ends. Unless you specify otherwise, amounts not withdrawn will be applied to a new Guarantee Period of the shortest duration available. The new Guarantee Period will begin on the day the previous Guarantee Period ends.
17 PROSPECTUS
18 PROSPECTUS
MARKET VALUE ADJUSTMENT. All withdrawals in excess of the Preferred Withdrawal Amount, transfers, and amounts applied to an Income Plan from a Guarantee Period, other than those taken or applied during the 30 day period after such Guarantee Period expires, are subject to a Market Value Adjustment. A Market Value Adjustment also will apply when you apply amounts currently invested in a Guarantee Period to an Income Plan (unless applied during the 30 day period after such Guarantee Period expires). A Market Value Adjustment may apply in the calculation of the Settlement Value described below in the “Death Benefit Amount” section below. We will not apply a Market Value Adjustment to a transfer you make as part of a Dollar Cost Averaging Program. We also will not apply a Market Value Adjustment to a withdrawal you make:
• within the Preferred Withdrawal Amount as described on page 18, or
• to satisfy the IRS minimum distribution rules for the Contract.
We apply the Market Value Adjustment to reflect changes in interest rates from the time you first allocate money to a Guarantee Period to the time it is removed from that Guarantee Period. We calculate the Market Value Adjustment by comparing the Treasury Rate for a period equal to the Guarantee Period at its inception to the Treasury Rate for a period equal to the time remaining in the Guarantee Period when you remove your money. “TREASURY RATE” means the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Board Statistical Release H.15.
The Market Value Adjustment may be positive or negative, depending on changes in interest rates. As such, you bear the investment risk associated with changes in interest rates. If interest rates increase significantly, the Market Value Adjustment and any withdrawal charge, premium taxes, and income tax withholding (if applicable) could reduce the amount you receive upon full withdrawal of your Contract Value to an amount that is less than the purchase payment plus interest at the minimum guaranteed interest rate under the Contract. Death benefits will not be subject to a negative Market Value Adjustment.
Generally, if the Treasury Rate at the time you allocate money to a Guarantee Period is higher than the applicable current Treasury Rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a higher amount payable to you, transferred, or applied to an Income Plan. Conversely, if the Treasury Rate at the time you allocate money to a Guarantee Period is lower than the applicable Treasury Rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a lower amount payable to you, transferred, or applied to an Income Plan.
For example, assume that you purchase a Contract and you select an initial Guarantee Period of 5 years and the 5 year Treasury Rate for that duration is 4.50%. Assume that at the end of 3 years, you make a partial withdrawal. If, at that later time, the current 2 year Treasury Rate is 4.20%, then the Market Value Adjustment will be positive, which will result in an increase in the amount payable to you. Conversely, if the current 2 year Treasury Rate is 4.80%, then the Market Value Adjustment will be negative, which will result in a decrease in the amount payable to you.
The formula for calculating Market Value Adjustments is set forth in Appendix A to this prospectus, which also contains additional examples of the application of the Market Value Adjustment.
INVESTMENT ALTERNATIVES: TRANSFERS
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer Contract Value among the investment alternatives. You may not transfer Contract Value into the Dollar Cost Averaging Option. You may request transfers in writing on a form that we provided or by telephone according to the procedure described below. The minimum amount that you may transfer into a Guarantee Period is $500. We currently do not assess, but reserve the right to assess, a $10 charge on each transfer in excess of 12 per Contract Year. We treat transfers to or from more than one Fund on the same day as one transfer. Transfers you make as part of a Dollar Cost Averaging Program or Automatic Fund Rebalancing Program do not count against the 12 free transfers per Contract Year.
We will process transfer requests that we receive before 4:00 p.m. Eastern Time on any Valuation Date using the Accumulation Unit Values for that Date. We will process requests completed after 4:00 p.m. Eastern Time on any Valuation Date using the Accumulation Unit Values for the next Valuation Date. The Contract permits us to defer transfers from the Fixed Account for up to 6 months from the date we receive your request. If we decide to postpone transfers from the Fixed Account Options for 10 days or more, we will pay interest as required by applicable law. Any interest would be payable from the date we receive the transfer request to the date we make the transfer.
If you transfer an amount from a Guarantee Period other than during the 30 day period after such Guarantee Period expires, we will increase or decrease the amount by a Market Value Adjustment.
19 PROSPECTUS
We reserve the right to waive any transfer restrictions.
TRANSFERS DURING THE PAYOUT PHASE
During the Payout Phase, you may make transfers among the Variable Sub-Accounts to change the relative weighting of the Variable Sub-Accounts on which your variable income payments will be based. In addition, you will have a limited ability to make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. You may not, however, convert any portion of your right to receive fixed income payments into variable income payments.
You may not make any transfers for the first 6 months after the Payout Start Date. Thereafter, you may make transfers among the Variable Sub-Accounts or make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. Your transfers must be at least 6 months apart.
TELEPHONE TRANSFERS
You may make transfers by telephone by calling 1-800-692-4682, if you first send us a completed authorization form. The cut off time for telephone transfer requests is 4:00 p.m. Eastern Time. In the event that the New York Stock Exchange closes early, i.e., before 4:00 p.m. Eastern Time, or in the event that the Exchange closes early for a period of time but then reopens for trading on the same day, we will process telephone transfer requests as of the close of the Exchange on that particular day. We will not accept telephone requests received at any telephone number other than the number that appears in this paragraph or received after the close of trading on the Exchange.
We may suspend, modify or terminate the telephone transfer privilege at any time without notice.
We use procedures that we believe provide reasonable assurance that the telephone transfers are genuine. For example, we tape telephone conversations with persons purporting to authorize transfers and request identifying information. Accordingly, we disclaim any liability for losses resulting from allegedly unauthorized telephone transfers. However, if we do not take reasonable steps to help ensure that a telephone authorization is valid, we may be liable for such losses.
MARKET TIMING & EXCESSIVE TRADING
The Contracts are intended for long-term investment. Market timing and excessive trading can potentially dilute the value of Variable Sub-Accounts and can disrupt management of a Fund and raise its expenses, which can impair Fund performance and adversely affect your Contract Value. Our policy is not to accept knowingly any money intended for the purpose of market timing or excessive trading. Accordingly, you should not invest in the Contract if your purpose is to engage in market timing or excessive trading, and you should refrain from such practices if you currently own a Contract.
We seek to detect market timing or excessive trading activity by reviewing trading activities. Funds also may report suspected market-timing or excessive trading activity to us. If, in our judgment, we determine that the transfers are part of a market timing strategy or are otherwise harmful to the underlying Fund, we will impose the trading limitations as described below under “Trading Limitations.” Because there is no universally accepted definition of what constitutes market timing or excessive trading, we will use our reasonable judgment based on all of the circumstances.
While we seek to deter market timing and excessive trading in Variable Sub-Accounts, because our procedures involve the exercise of reasonable judgment, we may not identify or prevent some market timing or excessive trading. Moreover, imposition of trading limitations is triggered by the detection of market timing or excessive trading activity, and the trading limitations are not applied prior to detection of such trading activity. Therefore, our policies and procedures do not prevent such trading activity before it is detected. As a result, some investors may be able to engage in market timing and excessive trading, while others are prohibited, and the Fund may experience the adverse effects of market timing and excessive trading described above.
20 PROSPECTUS
TRADING LIMITATIONS
We reserve the right to limit transfers among the investment alternatives in any Contract Year, or to refuse any transfer request, if:
• we believe, in our sole discretion, that certain trading practices, such as excessive trading, by, or on behalf of, one or more Contract Owners, or a specific transfer request or group of transfer requests, may have a detrimental effect on the Accumulation Unit Values of any Variable Sub-Account or on the share prices of the corresponding Fund or otherwise would be to the disadvantage of other Contract Owners; or
• we are informed by one or more of the Funds that they intend to restrict the purchase, exchange, or redemption of Fund shares because of excessive trading or because they believe that a specific transfer or group of transfers would have a detrimental effect on the prices of Fund shares.
In making the determination that trading activity constitutes market timing or excessive trading, we will consider, among other things:
• the total dollar amount being transferred, both in the aggregate and in the transfer request;
• the number of transfers you make over a period of time and/or the period of time between transfers (note: one set of transfers to and from a Variable Sub-Account in a short period of time can constitute market timing);
• whether your transfers follow a pattern that appears designed to take advantage of short term market fluctuations, particularly within certain Variable Sub-Account underlying Funds that we have identified as being susceptible to market timing activities;
• whether the manager of the underlying Fund has indicated that the transfers interfere with Fund management or otherwise adversely impact the Fund; and
• the investment objectives and/or size of the Variable Sub-Account underlying Fund.
We seek to apply these trading limitations uniformly. However, because these determinations involve the exercise of discretion, it is possible that we may not detect some market timing or excessive trading activity. As a result, it is possible that some investors may be able to engage in market timing or excessive trading activity, while others are prohibited, and the Fund may experience the adverse effects of market timing and excessive trading described above.
If we determine that a Contract Owner has engaged in market timing or excessive trading activity, we will restrict that Contract Owner from making future additions or transfers into the impacted Variable Sub-Account(s). If we determine that a Contract Owner has engaged in a pattern of market timing or excessive trading activity involving multiple Variable Sub-Accounts, we will also require that all future transfer requests be submitted through regular U.S. mail thereby refusing to accept transfer requests via telephone, facsimile, Internet, or overnight delivery.
In our sole discretion, we may revise our Trading Limitations at any time as necessary to better deter or minimize market timing and excessive trading or to comply with regulatory requirements.
DOLLAR COST AVERAGING PROGRAM
Through the Dollar Cost Averaging Program, you may automatically transfer a set amount at regular intervals during the Accumulation Phase from any Variable Sub-Account, the Dollar Cost Averaging Option, or interest credited from the 3, 5, 7 or 10 year Guarantee Periods, to any Variable Sub-Account. The interval between transfers may be monthly, quarterly, semi-annually, or annually. Transfers made through dollar cost averaging must be $50 or more. You may not use dollar cost averaging to transfer amounts into the Dollar Cost Averaging Option.
We will not charge a transfer fee for transfers made under this Program, nor will such transfers count against the 12 transfers you can make each Contract Year without paying a transfer fee. In addition, we will not apply the Market Value Adjustment to these transfers.
The theory of dollar cost averaging is that if purchases of equal dollar amounts are made at fluctuating prices, the aggregate average cost per unit will be less than the average of the unit prices on the same purchase dates. However, participation in this program does not assure you of a greater profit from your purchases under the Program nor will it prevent or necessarily reduce losses in a declining market.
Call or write us for instructions on how to enroll.
21 PROSPECTUS
AUTOMATIC FUND REBALANCING PROGRAM
Once you have allocated your money among the Variable Sub-Accounts, the performance of each Sub-Account may cause a shift in the percentage you allocated to each Sub-Account. If you select our Automatic Fund Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. Money you allocate to the Fixed Account Options will not be included in the rebalancing.
We will rebalance your account each quarter according to your instructions. We will transfer amounts among the Variable Sub-Accounts to achieve the percentage allocations you specify. You can change your allocations at any time by contacting us in writing or by telephone. The new allocation will be effective with the first rebalancing that occurs after we receive your request. We are not responsible for rebalancing that occurs prior to receipt of your request.
Example:
Assume that you want your initial purchase payment split among 2 Variable Sub-Accounts. You want 40% to be in the AIM V.I. Diversified Income Variable Sub-Account and 60% to be in the AIM V.I. Growth Variable Sub-Account. Over the next 2 months the bond market does very well while the stock market performs poorly. At the end of the first quarter, the AIM V.I. Diversified Income Variable Sub-Account now represents 50% of your holdings because of its increase in value. If you choose to have your holdings rebalanced quarterly, on the first day of the next quarter we would sell some of your units in the AIM V.I. Diversified Income Variable Sub-Account and use the money to buy more units in the AIM V.I. Growth Variable Sub-Account so that the percentage allocations would again be 40% and 60% respectively.
The Automatic Fund Rebalancing Program is available only during the Accumulation Phase. The transfers made under the Program do not count towards the 12 transfers you can make without paying a transfer fee, and are not subject to a transfer fee.
Fund rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Contract Value allocated to the better performing segments.
EXPENSES
As a Contract owner, you will bear, directly or indirectly, the charges and expenses described below.
CONTRACT MAINTENANCE CHARGE
During the Accumulation Phase, on each Contract Anniversary, we will deduct a $35 contract maintenance charge from your Contract Value invested in each Variable Sub-Account in proportion to the amount invested. We also will deduct a full contract maintenance charge if you withdraw your entire Contract Value, unless your Contract qualifies for a waiver, described below. During the Payout Phase, we will deduct the charge proportionately from each income payment.
The charge is for the cost of maintaining each Contract and the Variable Account. Maintenance costs include expenses we incur in billing and collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract owners and regulatory agencies. We cannot increase the charge. We will waive this charge if:
• total purchase payments equal $50,000 or more, or
• all money is allocated to the Fixed Account Options, as of the Contract Anniversary.
After the Payout Start Date, we will waive this charge if:
• as of the Payout Start Date, the Contract Value is $50,000 or more, or
• all income payments are fixed amount income payments.
22 PROSPECTUS
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily at an annual rate of 1.00% of the average daily net assets you have invested in the Variable Sub-Accounts (1.20% if you select the Enhanced Death Benefit Option). The mortality and expense risk charge is for all the insurance benefits available with your Contract (including our guarantee of annuity rates and the death benefits), for certain expenses of the Contract, and for assuming the risk (expense risk) that the current charges will not be sufficient in the future to cover the cost of administering the Contract. If the charges under the Contract are not sufficient, then we will bear the loss. We charge an additional .20% for the Enhanced Death Benefit Option to compensate us for the additional risk that we accept by providing the rider.
We guarantee the mortality and expense risk charge and we cannot increase it. We assess the mortality and expense risk charge during both the Accumulation Phase and the Payout Phase.
ADMINISTRATIVE EXPENSE CHARGE
We deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-Accounts. We intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed to that Contract. We assess this charge each day during the Accumulation Phase and the Payout Phase. We guarantee that we will not raise this charge.
TRANSFER FEE
We do not currently impose a fee upon transfers among the investment alternatives. However, we reserve the right to charge $10 per transfer after the 12th transfer in each Contract Year. We will not charge a transfer fee on
transfers that are part of a Dollar Cost Averaging or Automatic Fund Rebalancing Program.
WITHDRAWAL CHARGE
We may assess a withdrawal charge of up to 7% of the purchase payment(s) you withdraw in excess of the Preferred Withdrawal Amount, adjusted by a Market Value Adjustment. The charge declines annually to 0% after 7 complete years from the day we receive the purchase payment being withdrawn. A schedule showing how the charge declines appears on page 7. During each Contract Year, you can withdraw up to 15% of the Contract Value as of the beginning of that Contract Year without paying the charge. Unused portions of this 15% “PREFERRED WITHDRAWAL AMOUNT” are not carried forward to future Contract Years.
We determine the withdrawal charge by:
• multiplying the percentage corresponding to the number of complete years since we received the purchase payment being withdrawn, times
• the part of each purchase payment withdrawal that is in excess of the Preferred Withdrawal Amount, adjusted by a Market Value Adjustment.
We will deduct withdrawal charges, if applicable, from the amount paid. For purposes of the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings in the Contract. Thus, for tax purposes, earnings are considered to come out first, which means you pay taxes on the earnings portion of your withdrawal.
If you make a withdrawal before the Payout Start Date, we will apply the withdrawal charge percentage in effect on the date of the withdrawal, or the withdrawal charge percentage in effect on the following day, whichever is lower.We do not apply a withdrawal charge in the following situations:
• on the Payout Start Date (a withdrawal charge may apply if you elect to receive income payments for a specified period of less than 120 months);
• the death of the Contract owner or Annuitant (unless the Settlement Value is used);
• withdrawals taken to satisfy IRS minimum distribution rules for the Contract; and
• withdrawals made after all purchase payments have been withdrawn.
23 PROSPECTUS
We use the amounts obtained from the withdrawal charge to pay sales commissions and other promotional or distribution expenses associated with marketing the Contracts. To the extent that the withdrawal charge does not cover all sales commissions and other promotional or distribution expenses, we may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or any other charges or fee described above, to make up any difference.
Withdrawals may be subject to tax penalties or income tax and a Market Value Adjustment. You should consult your own tax counsel or other tax advisers regarding any withdrawals.
PREMIUM TAXES
Currently, we do not make deductions for premium taxes under the Contract because New York does not charge premium taxes on annuities. We may deduct taxes that may be imposed in the future from purchase payments or the Contract Value when the tax is incurred or at a later time.
DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES
We are not currently making a provision for taxes. In the future, however, we may make a provision for taxes if we determine, in our sole discretion, that we will incur a tax as a result of the operation of the Variable Account. We will deduct for any taxes we incur as a result of the operation of the Variable Account, whether or not we previously made a provision for taxes and whether or not it was sufficient. Our status under the Internal Revenue Code is briefly described in the Taxes section.
OTHER EXPENSES
Each Fund deducts advisory fees and other expenses from its assets. You indirectly bear the charges and expenses of the Fund whose shares are held by the Variable Sub-Accounts. These fees and expenses are described in the accompanying prospectus for the Funds. For a summary of current estimates of those charges and expenses, see pages 7-8.
We may receive compensation from A I M Advisors, Inc., for administrative services we provide to the Funds.
ACCESS TO YOUR MONEY
You can withdraw some or all of your Contract Value at any time prior to the Payout Start Date. Withdrawals also are available under limited circumstances on or after the Payout Start Date. See “Income Plans” on page 20.
The amount payable upon withdrawal is the Contract Value next computed after we receive the request for a withdrawal at our service center, adjusted by any Market Value Adjustment, less any withdrawal charges, contract maintenance charges, income tax withholding, and any premium taxes. We will pay withdrawals from the Variable Account within 7 days of receipt of the request, subject to postponement in certain circumstances.
You can withdraw money from the Variable Account or the Fixed Account Options. To complete a partial withdrawal from the Variable Account, we will cancel Accumulation Units in an amount equal to the withdrawal and any applicable withdrawal charge and premium taxes.
You have the opportunity to name the investment alternative(s) from which you are taking the withdrawal. If none is specified, we will deduct your withdrawal pro-rata from the investment alternatives according to the value of your investments therein.
In general, you must withdraw at least $50 at a time. You also may withdraw a lesser amount if you are withdrawing your entire interest in a Variable Sub-Account.
If you request a total withdrawal, we may request that you return your Contract to us. We also will deduct a Contract Maintenance Charge of $35, unless we have waived the Contract Maintenance Charge on your Contract.
Withdrawals taken prior to annuitization (referred to in this prospectus as the Payout Phase) are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
24 PROSPECTUS
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under the Contract if:
1. The New York Stock Exchange is closed for other than usual weekends or holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the SEC; or
3. The SEC permits delay for your protection.
In addition, we may delay payments or transfers from the Fixed Account Options for up to 6 months or shorter period if required by law. If we delay payment or transfer for 10 days or more, we will pay interest as required by law. Any interest would be payable from the date we receive the withdrawal request to the date we make the payment or transfer.
SYSTEMATIC WITHDRAWAL PROGRAM
You may choose to receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or annual basis at any time prior to the Payout Start Date. The minimum amount of each systematic withdrawal is $50. Systematic Withdrawals are not available from the Dollar Cost Averaging Option. At our discretion, systematic withdrawals may not be offered in conjunction with the Dollar Cost Averaging Program or the Automatic Fund Rebalancing Program.
Depending on fluctuations in the accumulation unit value of the Variable Sub-Accounts and the value of the Fixed Account Options, systematic withdrawals may reduce or even exhaust the Contract Value. Please consult your tax advisor before taking any withdrawal.
We will make systematic withdrawal payments to you or your designated payee. We may modify or suspend the Systematic Withdrawal Program and charge a processing fee for the service. If we modify or suspend the Systematic Withdrawal Program, existing systematic withdrawal payments will not be affected.
MINIMUM CONTRACT VALUE
If your request for a partial withdrawal would reduce the amount in any Guarantee Period to less than $500, we may treat it as a request to withdraw the entire amount invested in such Guarantee Period. If your request for a partial withdrawal would reduce the Contract Value to less than $1,000, we may treat it as a request to withdraw your entire Contract Value. Your Contract will terminate if you withdraw all of your Contract Value. We will, however, ask you to confirm your withdrawal request before terminating your Contract. Before terminating any Contract value whose value has been reduced by withdrawals to less than $1,000, we would inform you in writing of our intention to terminate your Contact and give you at least 30 days in which to make an additional Purchase Payment to restore your Contract’s value to the contractual minimum of $1,000. If we terminate your Contract, we will distribute to you its Contract Value, adjusted by any applicable Market Value Adjustment, less withdrawal and other charges, and applicable taxes.
INCOME PAYMENTS
PAYOUT START DATE
The Payout Start Date is the day that we apply your Contract Value, adjusted by any Market Value Adjustment and less any applicable taxes, to an Income Plan. The Payout Start Date must be no later than the Annuitant’s 90th birthday.
You may change the Payout Start Date at any time by notifying us in writing of the change at least 30 days before the scheduled Payout Start Date. Absent a change, we will use the Payout Start Date stated in your Contract.
INCOME PLANS
An “Income Plan” is a series of payments on a scheduled basis to you or to another person designated by you. You may choose and change your choice of Income Plan until 30 days before the Payout Start Date. If you do not select an Income Plan, we will make income payments in accordance with Income Plan 1 with guaranteed payments for 10 years. After the Payout Start Date, you may not make withdrawals (except as described below) or change your choice of Income Plan. Three Income Plans are available under the Contract. Each is available to provide:
• fixed income payments;
• variable income payments; or
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• a combination of the two.
A portion of each payment will be considered taxable and the remaining portion will be a non-taxable return of your investment in the Contract, which is also called the “basis”. Once the basis in the Contract is depleted, all remaining payments will be fully taxable. If the Contract is tax-qualified, generally, all payments will be fully taxable. Taxable payments taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
The three Income Plans are:
INCOME PLAN 1 - LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as the Annuitant lives. If the Annuitant dies before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract.
INCOME PLAN 2 - JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as either the Annuitant or the joint Annuitant is alive. If both the Annuitant and the joint Annuitant die before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract.
INCOME PLAN 3 - GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD (5 YEARS TO 30 YEARS). Under this plan, we make periodic income payments for the period you have chosen. These payments do not depend on the Annuitant’s life. Income payments for less than 120 months may be subject to a withdrawal charge. We will deduct the mortality and expense risk charge from the Variable Sub-Account assets that support variable income payments even though we may not bear any mortality risk.
The length of any guaranteed payment period under your selected Income Plan generally will affect the dollar amounts of each income payment. As a general rule, longer guarantee periods result in lower income payments, all other things being equal. For example, if you choose an Income Plan with payments that depend on the life of the Annuitant but with no minimum specified period for guaranteed payments, the income payments generally will be greater than the income payments made under the same Income Plan with a minimum specified period for guaranteed payments.
If you choose Income Plan 1 or 2, or, if available, another Income Plan with payments that continue for the life of the Annuitant or joint Annuitant, we may require proof of age and sex of the Annuitant or joint Annuitant before starting income payments, and proof that the Annuitant or joint Annuitant is alive before we make each payment. Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on.
Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or a portion of the Variable Account portion of the income payments at any time and receive a lump sum equal to the present value of the remaining variable payments associated with the amount withdrawn. To determine the present value of any remaining variable income payments being withdrawn, we use a discount rate equal to the assumed annual investment rate that we use to compute such variable income payments. The minimum amount you may withdraw under this feature is $1,000. A withdrawal charge may apply. We deduct applicable premium taxes from the Contract Value at the Payout Start Date.
We may make other Income Plans available. You may obtain information about them by writing or calling us.
You must apply at least the Contract Value in the Fixed Account Options on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account Option balance to provide variable income payments, you should plan ahead and transfer that amount to the Variable Sub-Accounts prior to the Payout Start Date. If you do not tell us how to allocate your Contract Value among fixed and variable income payments, we will apply your Contract Value in the Variable Account to variable income payments and your Contract Value in the Fixed Account Options to fixed income payments.
We will apply your Contract Value, adjusted by any applicable Market Value Adjustment, less applicable taxes to your Income Plan on the Payout Start Date. If the Contract owner has not made any purchase payments for at least 3 years preceding the Payout Start Date, and either the Contract Value is less than $2,000 or not enough to provide an initial payment of at least $20, and state law permits, we may:
• terminate the Contract and pay you the Contract Value, adjusted by any Market Value Adjustment and less any applicable taxes, in a lump sum instead of the periodic payments you have chosen, or
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• reduce the frequency of your payments so that each payment will be at least $20.
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VARIABLE INCOME PAYMENTS
The amount of your variable income payments depends upon the investment results of the Variable Sub-Accounts you select, the premium taxes you pay, the age and sex of the Annuitant, and the Income Plan you choose. We guarantee that the payments will not be affected by (a) actual mortality experience and (b) the amount of our administration expenses.
We cannot predict the total amount of your variable income payments. Your variable income payments may be more or less than your total purchase payments because (a) variable income payments vary with the investment results of the underlying Funds and (b) the Annuitant could live longer or shorter than we expect based on the tables we use.
In calculating the amount of the periodic payments in the annuity tables in the Contract, we assumed an annual investment rate of 3%. If the actual net investment return of the Variable Sub-Accounts you choose is less than this assumed investment rate, then the dollar amount of your variable income payments will decrease. The dollar amount of your variable income payments will increase, however, if the actual net investment return exceeds the assumed investment rate. The dollar amount of the variable income payments stays level if the net investment return equals the assumed investment rate. Please refer to the Statement of Additional Information for more detailed information as to how we determine variable income payments.
FIXED INCOME PAYMENTS
We guarantee income payment amounts derived from any Fixed Account Option for the duration of the Income Plan. We calculate the fixed income payments by:
1) adjusting the portion of the Contract Value in any Fixed Account Option on the Payout Start Date by any applicable Market Value Adjustment;
2) deducting any applicable premium tax; and
3) applying the resulting amount to the greater of (a) the appropriate value from the income payment table in your Contract or (b) such other value as we are offering at that time.
We may defer making fixed income payments for a period of up to 6 months or such shorter time as state law may require. If we defer payments for 10 business days or more, we will pay interest as required by law from the date we receive the withdrawal request to the date we make payment.
CERTAIN EMPLOYEE BENEFIT PLANS
The Contracts offered by this prospectus contain income payment tables that provide for different payments to men and women of the same age. However, we reserve the right to use income payment tables that do not distinguish on the basis of sex to the extent permitted by law. In certain employment-related situations, employers are required by law to use the same income payment tables for men and women. Accordingly, if the Contract is to be used in connection with an employment-related retirement or benefit plan, you should consult with legal counsel as to whether the purchase of a Contract is appropriate. For qualified plans, where it is appropriate, we may use income payment tables that do not distinguish on the basis of sex.
DEATH BENEFITS
We will pay a death benefit if, prior to the Payout Start Date:
1. any Contract owner dies or,
2. the Annuitant dies, if the Contract owner is not a living person.
We will pay the death benefit to the new Contract owner who is determined immediately after the death. The new Contract owner would be a surviving Contract owner or, if none, the Beneficiary(ies). In the case of the death of an Annuitant, we will pay the death benefit to the current Contract owner. A request for payment of the death benefit must include “DUE PROOF OF DEATH.” We will accept the following documentation as Due Proof of Death:
• a certified copy of a death certificate,
• a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or
• any other proof acceptable to us.
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Where there are multiple beneficiaries, we will only value the death benefit at the time the first beneficiary submits the necessary documentation in good order. Any death benefit amounts attributable to any beneficiary which remain in the investment divisions are subject to investment risk.
DEATH BENEFIT AMOUNT
Prior to the Payout Start Date, the death benefit is equal to the greatest of:
1. the Contract Value as of the date we determine the death benefit, or
2. the SETTLEMENT VALUE (that is, the amount payable on a full withdrawal of Contract Value) on the date we determine the death benefit, or
3. the sum of all purchase payments reduced by a withdrawal adjustment, as defined below, or
4. the greatest of the Contract Value on each DEATH BENEFIT ANNIVERSARY prior to the date we determine the death benefit, increased by purchase payments made since that Death Benefit Anniversary and reduced by a withdrawal adjustment as defined below.
In calculating the Settlement Value, the amount in each individual Guarantee Period may be subject to a Market Value Adjustment. A Market Value Adjustment will apply to amounts in a Guarantee Period, unless we calculate the Settlement Value during the 30-day period after the expiration of the Guarantee Period. Also, the Settlement Value will reflect deduction of any applicable withdrawal charges, contract maintenance charges, and premium taxes.
A “Death Benefit Anniversary” is every seventh Contract Anniversary during the Accumulation Phase. For example, the 7th, 14th, and 21st Contract Anniversaries are the first three Death Benefit Anniversaries.
The “withdrawal adjustment” is equal to (a) divided by (b), with the result multiplied by (c), where:
(a) is the withdrawal amount;
(b) is the Contract Value immediately prior to the withdrawal; and
(b) is the value of the applicable death benefit alternative immediately prior to the withdrawal.
Please see Appendix B to this prospectus, which contains examples of the application of the withdrawal adjustment.
We will determine the value of the death benefit as of the end of the Valuation Date on which we receive a complete request for payment of the death benefit. If we receive a request after 4:00 p.m. Eastern Time on a Valuation Date, we will process the request as of the end of the following Valuation Date.
ENHANCED DEATH BENEFIT OPTION
If the oldest Contract owner and Annuitant is less than or equal to age 80 as of the date we receive the completed application, the Enhanced Death Benefit Option, is an optional benefit that you may select. If the Contract owner is a living individual, the Enhanced Death Benefit applies only for the death of the Contract owner. If the Contract owner is not a living individual, the enhanced death benefit applies only for the death of the Annuitant. For Contracts with the Enhanced Death Benefit Rider, the death benefit will be the greatest of (1) through (4) above, or (5) the Enhanced Death Benefit, described below. The Enhanced Death Benefit will never be greater than the maximum death benefit allowed by any state nonforfeiture laws which govern the Contract.
ENHANCED DEATH BENEFIT. The Enhanced Death Benefit on the Issue Date is equal to the initial purchase payment. On each Contract Anniversary, we will recalculate your Enhanced Death Benefit to equal the greater of your Contract Value on that date, or the most recently calculated Enhanced Death Benefit. We also will recalculate your Enhanced Death Benefit whenever you make an additional purchase payment or a partial withdrawal. Additional purchase payments will increase the Enhanced Death Benefit dollar-for-dollar. Withdrawals will reduce the Enhanced Death Benefit by an amount equal to a withdrawal adjustment computed in the manner described above under “Death Benefit Amount.” In the absence of any withdrawals or purchase payments, the Enhanced Death Benefit will be the greatest of all Contract Anniversary Contract Values on or before the date we calculate the death benefit.
We will calculate ANNIVERSARY VALUES for each Contract Anniversary prior to the oldest Contract owner’s or the oldest Annuitant’s, if the Contract owner is not a living person, 85th birthday. After age 85, we will recalculate the Enhanced Death Benefit only for purchase payments and withdrawals. The Enhanced Death Benefit will never be greater than the maximum death benefit allowed by any non-forfeiture laws which govern the Contract.
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DEATH BENEFIT PAYMENTS
IF THE NEW OWNER IS YOUR SPOUSE, THE NEW OWNER MAY:
1. elect to receive the death benefit in a lump sum, or
2. elect to apply the death benefit to an Income Plan. Payments from the Income Plan must begin within 1 year of the date of death and must be payable throughout:
• the life of the new Owner; or
• for a guaranteed number of payments from 5 to 50 years, but not to exceed the life expectancy of the new Owner; or
• over the life of the new Owner with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the new Owner.
If your spouse does not elect one of the above options, the Contract will continue in the Accumulation Phase as if the death had not occurred. If the Contract is continued in the Accumulation Phase, the following restrictions apply:
• On the date the Contract is continued, the Contract Value will equal the amount of the Death Benefit as determined as of the Valuation Date on which we received the completed request for settlement of the death benefit (the next Valuation Date, if we receive the completed request for settlement of the death benefit after 3 p.m. Central Time). Unless otherwise instructed by the continuing spouse, the excess, if any, of the death benefit over the Contract Value will be allocated to the Sub-Accounts of the Variable Account. This excess will be allocated in proportion to your Contract Value in those Sub-accounts as of the end of the Valuation Period during which we receive the completed request for settlement of the death benefit, except that any portion of this excess attributable to the Fixed Account Options will be allocated to the Money Market Sub-account. Within 30 days of the date the Contract is continued, your surviving spouse may choose one of the following transfer alternatives without incurring a transfer fee:
• transfer all or a portion of the excess among the Variable Sub-Accounts;
• transfer all or a portion of the excess into the Guaranteed Maturity Fixed Account and begin a new Guarantee Period; or
• transfer all or a portion of the excess into a combination of Variable Sub-Accounts and the Guaranteed Maturity Fixed Account.
Any such transfer does not count as one of the free transfers allowed each Contract Year and is subject to any minimum allocation amount specified in your Contract.
The surviving spouse may make a single withdrawal of any amount within one year of the date of death without incurring a Withdrawal Charge.
Only one spousal continuation is allowed under this Contract.
IF THE NEW OWNER IS NOT YOUR SPOUSE BUT IS A LIVING PERSON, THE NEW OWNER MAY:
1) elect to receive the death benefit in a lump sum, or
2) elect to apply the death benefit to an Income Plan. Payments from the Income Plan must begin within 1 year of the date of death and must be payable throughout:
• the life of the new Owner; or
• for a guaranteed number of payments from 5 to 50 years, but not to exceed the life expectancy of the new Owner; or
• over the life of the new Owner with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the new Owner.
If the new Owner does not elect one of the above options then the new Owner must receive the Contract Value payable within 5 years of your date of death. The Contract Value will equal the amount of the death benefit as determined as of the Valuation Date on which we received a completed request for settlement of the death benefit (the next Valuation Date, if we receive a completed request for settlement of the death benefit after 3 p.m. Central Time). Unless otherwise instructed by the new Owner, the excess, if any, of the death benefit over the Contract Value will be allocated to the Money Market Variable Sub-Account. The new Owner may exercise all rights as set forth in the TRANSFERS section during this 5 year period.
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No additional Purchase Payments may be added to the Contract under this election. Withdrawal Charges will be waived for any withdrawals made during this 5 year period.
If the new Owner dies prior to the receiving all of the Contract Value, then the new Owner’s named Beneficiary(ies) will receive the greater of the Settlement Value or the remaining Contract Value. This amount must be received as a lump sum within 5 years of the date of the original Owner’s death.
We reserve the right to offer additional options upon Death of Owner.
IF THE NEW OWNER IS A CORPORATION, TRUST, OR OTHER NON-LIVING PERSON:
(a) The new Owner may elect to receive the death benefit in a lump sum; or
(b) If the new Owner does not elect the option above, then the new Owner must receive the Contract Value payable within 5 years of your date of death. On the date we receive the complete request for settlement of the Death Benefit, the Contract Value under this option will be the death benefit. Unless otherwise instructed by the new Owner, the excess, if any of the death benefit over the Contract Value will be allocated to the Money Market Variable Sub-Account. The new Owner may exercise all rights set forth in the TRANSFERS provision during this 5 year period. No additional Purchase Payments may be added to the Contract under this election. Withdrawal Charges will be waived during this 5 year period.
We reserve the right to offer additional options upon Death of Owner.
If any new Owner is a non-living person, all new Owners will be considered to be non-living persons for the above purposes.
Under any of these options, all ownership rights, subject to any restrictions previously placed upon the Beneficiary, are available to the new Owner from the date of your death to the date on which the death proceeds are paid.
DEATH OF ANNUITANT
If the Annuitant who is not also the Contract Owner dies prior to the Payout Start Date and the Contract Owner is a living person, then the Contract will continue with a new Annuitant as designated by the Contract Owner.
If the Annuitant who is not also the Contract Owner dies prior to the Payout Start Date and the Contract Owner is a non-living person, the following apply:
(a) The Contract Owner may elect to receive the death benefit in a lump sum; or
(b) If the new Owner does not elect the option above, then the Owner must receive the Contract Value payable within 5 years of the Annuitant’s date of death. On the date we receive the complete request for settlement of the death benefit, the Contract Value under this option will be the death benefit. Unless otherwise instructed by the Contract Owner, the excess, if any, of the death benefit over the Contract Value will be allocated to the Money Market Variable Sub-Account. The Contract Owner may then exercise all rights set forth in the TRANSFERS provision during this 5 year period. No additional Purchase Payments may be added to the Contract under this election. Withdrawal Charges will be waived during this 5 year period.
We reserve the right to offer additional options upon Death of Owner.
MORE INFORMATION
ALLSTATE NEW YORK
Allstate New York is the issuer of the Contract. Allstate New York is a stock life insurance company organized under the laws of the State of New York. Allstate New York was incorporated in 1967 and was known as “Financial Life Insurance Company” from 1967 to 1978. From 1978 to 1984, Allstate New York was known as “PM Life Insurance Company.” Since 1984 the company has been known as “Allstate Life Insurance Company of New York.”
Allstate New York is currently licensed to operate in New York. Our home office is located at 100 Motor Parkway, Hauppauge, NY 11788-5107. Our service center located in Northbrook, Illinois.
Allstate New York is a wholly owned subsidiary of Allstate Life Insurance Company (“ALLSTATE LIFE”), a stock life insurance company incorporated under the laws of the State of Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance
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Company, a stock property-liability insurance company incorporated under the laws of Illinois. With the exception of the directors qualifying shares, all of the outstanding capital stock of Allstate Insurance Company is owned by The Allstate Corporation.
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THE VARIABLE ACCOUNT
Allstate New York established the Allstate Life of New York Separate Account A on December 15, 1995. We have registered the Variable Account with the SEC as a unit investment trust. The SEC does not supervise the management of the Variable Account or Allstate New York.
We own the assets of the Variable Account. The Variable Account is a segregated asset account under New York law. That means we account for the Variable Account’s income, gains and losses separately from the results of our other operations. It also means that only the assets of the Variable Account that are in excess of the reserves and other Contract liabilities with respect to the Variable Account are subject to liabilities relating to our other operations.
Our obligations arising under the Contracts are general corporate obligations of Allstate New York.
The Variable Account consists of multiple Variable Sub-Accounts, 18 of which are available through the Contracts. Each Variable Sub-Account invests in a corresponding Fund. We may add new Variable Sub-Accounts or eliminate one or more of them, if we believe marketing, tax, or investment conditions so warrant. We do not guarantee the investment performance of the Variable Account, its Sub-Accounts or the Funds. We may use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account.
THE FUNDS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Funds in shares of the distributing Fund at their net asset value.
VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Funds held by the Variable Sub-Accounts to which you have allocated your Contract Value. Under current law, however, you are entitled to give us instructions on how to vote those shares on certain matters. Based on our present view of the law, we will vote the shares of the Funds that we hold directly or indirectly through the Variable Account in accordance with instructions that we receive from Contract owners entitled to give such instructions.
As a general rule, before the Payout Start Date, the Contract owner or anyone with a voting interest is the person entitled to give voting instructions. The number of shares that a person has a right to instruct will be determined by dividing the Contract Value allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Fund as of the record date of the meeting. After the Payout Start Date, the person receiving income payments has the voting interest. The payee’s number of votes will be determined by dividing the reserve for such Contract allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Fund. The votes decrease as income payments are made and as the reserves for the Contract decrease.
We will vote shares attributable to Contracts for which we have not received instructions, as well as shares attributable to us, in the same proportion as we vote shares for which we have received instructions, unless we determine that we may vote such shares in our own discretion. We will apply voting instructions to abstain on any item to be voted on a pro-rata basis to reduce the votes eligible to be cast.
We reserve the right to vote Fund shares as we see fit without regard to voting instructions to the extent permitted by law. If we disregard voting instructions, we will include a summary of that action and our reasons for that action in the next semi-annual financial report we send to you.
CHANGES IN FUNDS. If the shares of any of the Funds are no longer available for investment by the Variable Account or if, in our judgment, further investment in such shares is no longer desirable in view of the purposes of the Contract, we may eliminate that Fund and substitute shares of another eligible investment fund. Any substitution of securities will comply with the requirements of the 1940 Act. We also may add new Variable Sub-Accounts that invest in underlying Funds. We will notify you in advance of any changes.
CONFLICTS OF INTEREST. Certain of the Funds sell their shares to Variable Accounts underlying both variable life insurance and variable annuity contracts. It is conceivable that in the future it may be unfavorable for variable life insurance Variable Accounts and variable annuity Variable Accounts to invest in the same Fund. The boards of trustees of these Funds monitor for possible conflicts among Variable Accounts buying shares of the Funds. Conflicts could develop for a variety of reasons. For example, differences in treatment under tax and other laws or the failure by a Variable Account to comply with such laws could cause a conflict. To eliminate a conflict, a Fund’s board of trustees may require a Variable Account to withdraw its participation in a Fund. A Fund’s net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a Variable Account withdrawing because of a conflict.
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THE CONTRACT
DISTRIBUTION. ALFS, Inc.* (“ALFS”), located at 3100 Sanders Road, Northbrook, IL 60062-7154, serves as principal underwriter of the Contracts. ALFS is a wholly owned subsidiary of Allstate Life Insurance Company. ALFS is a registered broker dealer under the Securities and Exchange Act of 1934, as amended (“EXCHANGE ACT”), and is a member of the NASD.
We will pay commissions to broker-dealers who sell the Contracts. Commissions paid may vary, but we estimate that the total commissions paid on all Contract sales will not exceed 8 1/2% of any purchase payments. Sometimes, we also pay the broker-dealer a persistency bonus in addition to the standard commissions. A persistency bonus is not expected to exceed 1.2%, on an annual basis, of the purchase payments considered in connection with the bonus. These commissions are intended to cover distribution expenses. Contracts may be sold by representatives or employees of banks which may be acting as broker-dealers without separate registration under the Exchange Act, pursuant to legal and regulatory exceptions.
Allstate New York does not pay ALFS a commission for distribution of the Contracts. The underwriting agreement with ALFS provides that we will reimburse ALFS for any liability to Contract owners arising out of services rendered or Contracts issued.
ADMINISTRATION. We have primary responsibility for all administration of the Contracts and the Variable Account. We provide the following administrative services, among others:
• issuance of the Contracts;
• maintenance of Contract owner records;
• Contract owner services;
• calculation of unit values;
• maintenance of the Variable Account; and
• preparation of Contract owner reports.
We will send you Contract statements and transaction confirmations at least annually. The annual statement details values and specific Contract data for each particular Contract. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error.
We also will provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws.
NON-QUALIFIED ANNUITIES HELD WITHIN A QUALIFIED PLAN
If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitations on withdrawals, waivers of withdrawal charges, death benefits, Payout Start Dates, income payments and other Contract features. In addition, adverse tax consequences may result if qualified plan limits on distributions and other conditions are not met. Please consult your qualified plan administrator fr more information. Allstate Life Insurance Company of New York no longer issues deferred annuities to employer sponsored qualified retirement plans.
LEGAL MATTERS
All matters of New York law pertaining to the Contracts, including the validity of the Contracts and Allstate New York’s right to issue such Contracts under New York insurance law, have been passed upon by Michael J. Velotta, General Counsel of Allstate New York.
TAXES
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. ALLSTATE NEW YORK MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION INVOLVING A CONTRACT.
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Federal, state, local and other tax consequences of ownership or receipt of distributions under an annuity contract depend on your individual circumstances. If you are concerned about any tax consequences with regard to your individual circumstances, you should consult a competent tax adviser.
TAXATION OF ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
Allstate New York is taxed as a life insurance company under Part I of Subchapter L of the Code. Since the Variable Account is not an entity separate from Allstate New York, and its operations form a part of Allstate New York, it will not be taxed separately. Investment income and realized capital gains of the Variable Account are automatically applied to increase reserves under the Contract. Under existing federal income tax law, Allstate New York believes that the Variable Account investment income and capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contract. Accordingly, Allstate New York does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore Allstate New York does not intend to make provisions for any such taxes. If Allstate New York is taxed on investment income or capital gains of the Variable Account, then Allstate New York may impose a charge against the Variable Account in order to make provision for such taxes.
TAXATION OF VARIABLE ANNUITIES IN GENERAL
TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value until a distribution occurs. This rule applies only where:
• the Contract Owner is a natural person,
• the investments of the Variable Account are “adequately diversified” according to Treasury Department regulations, and
• Allstate New York is considered the owner of the Variable Account assets for federal income tax purposes.
NON-NATURAL OWNERS. Non-natural owners are also referred to as Non Living Owners in this prospectus. As a general rule, annuity contracts owned by non-natural persons such as corporations, trusts, or other entities are not treated as annuity contracts for federal income tax purposes. The income on such contracts does not enjoy tax deferral and is taxed as ordinary income received or accrued by the non-natural owner during the taxable year.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE. There are several exceptions to the general rule that annuity contracts held by a non-natural owner are not treated as annuity contracts for federal income tax purposes. Contracts will generally be treated as held by a natural person if the nominal owner is a trust or other entity which holds the contract as agent for a natural person. However, this special exception will not apply in the case of an employer who is the nominal owner of an annuity contract under a non-Qualified deferred compensation arrangement for its employees. Other exceptions to the non-natural owner rule are: (1) contracts acquired by an estate of a decedent by reason of the death of the decedent; (2) certain qualified contracts; (3) contracts purchased by employers upon the termination of certain qualified plans; (4) certain contracts used in connection with structured settlement agreements; and (5) immediate annuity contracts, purchased with a single premium, when the annuity starting date is no later than a year from purchase of the annuity and substantially equal periodic payments are made, not less frequently than annually, during the annuity period.
GRANTOR TRUST OWNED ANNUITY. Contracts owned by a grantor trust are considered owned by a non-natural owner. Grantor trust owned contracts receive tax deferral as described in the Exceptions to the Non-Natural Owner Rule section. In accordance with the Code, upon the death of the annuitant, the death benefit must be paid. According to your Contract, the Death Benefit is paid to the surviving Contract Owner. Since the trust will be the surviving Contract Owner in all cases, the Death Benefit will be payable to the trust notwithstanding any beneficiary designation on the annuity contract. A trust, including a grantor trust, has two options for receiving any death benefits: 1) a lump sum payment; or 2) payment deferred up to five years from date of death.
DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for federal income tax purposes, the investments in the Variable Account must be “adequately diversified” consistent with standards under Treasury Department regulations. If the investments in the Variable Account are not adequately diversified, the Contract will not be treated as an annuity contract for federal income tax purposes. As a result, the income on the Contract will be taxed as ordinary income received or accrued by the Contract owner during the taxable year. Although Allstate New York does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements.
OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a Contract owner to be treated as the owner of
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the separate account. The Treasury Department also stated that future guidance would be issued regarding the extent that owners could direct sub-account investments without being treated as owners of the underlying assets of the separate account.
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Your rights under the Contract are different than those described by the IRS in private and published rulings in which it found that Contract owners were not owners of separate account assets. For example, if your contract offers more than twenty (20) investment alternatives you have the choice to allocate premiums and contract values among a broader selection of investment alternatives than described in such rulings. You may be able to transfer among investment alternatives more frequently than in such rulings. These differences could result in you being treated as the owner of the Variable Account. If this occurs, income and gain from the Variable Account assets would be includible in your gross income. Allstate New York does not know what standards will be set forth in any regulations or rulings which the Treasury Department may issue. It is possible that future standards announced by the Treasury Department could adversely affect the tax treatment of your Contract. We reserve the right to modify the Contract as necessary to attempt to prevent you from being considered the federal tax owner of the assets of the Variable Account. However, we make no guarantee that such modification to the Contract will be successful.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal under a Non-Qualified Contract, amounts received are taxable to the extent the Contract Value, without regard to surrender charges, exceeds the investment in the Contract. The investment in the Contract is the gross premium paid for the contract minus any amounts previously received from the Contract if such amounts were properly excluded from your gross income. If you make a full withdrawal under a Non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract.
TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of annuity payments received from a Non-Qualified Contract provides for the return of your investment in the Contract in equal tax-free amounts over the payment period. The balance of each payment received is taxable. For fixed annuity payments, the amount excluded from income is determined by multiplying the payment by the ratio of the investment in the Contract (adjusted for any refund feature or period certain) to the total expected value of annuity payments for the term of the Contract. If you elect variable annuity payments, the amount excluded from taxable income is determined by dividing the investment in the Contract by the total number of expected payments. The annuity payments will be fully taxable after the total amount of the investment in the Contract is excluded using these ratios. If any variable payment is less than the excludable amount you should contact a competent tax advisor to determine how to report any unrecovered investment. The federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. If you die, and annuity payments cease before the total amount of the investment in the Contract is recovered, the unrecovered amount will be allowed as a deduction for your last taxable year.
WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding the taxation of any additional withdrawal received after the Payout Start Date. It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine.
DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide:
• if any Contract Owner dies on or after the Payout Start Date but before the entire interest in the Contract has been distributed, the remaining portion of such interest must be distributed at least as rapidly as under the method of distribution being used as of the date of the Contract Owner’s death;
• if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owner’s death. These requirements are satisfied if any portion of the Contract Owner’s interest that is payable to (or for the benefit of) a designated Beneficiary is distributed over the life of such Beneficiary (or over a period not extending beyond the life expectancy of the Beneficiary) and the distributions begin within 1 year of the Contract Owner’s death. If the Contract Owner’s designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner;
• if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract Owner for purposes of applying the distribution at death rules. In addition, a change in the Annuitant on a Contract owned by a non-natural person will be treated as the death of the Contract Owner.
TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit amounts are included in income as follows:
• if distributed in a lump sum, the amounts are taxed in the same manner as a total withdrawal, or
• if distributed under an Income Plan, the amounts are taxed in the same manner as annuity payments.
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PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable amount of any premature distribution from a non-Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
• made on or after the date the Contract Owner attains age 59 1/2,
• made as a result of the Contract Owner’s death or becoming totally disabled,
• made in substantially equal periodic payments over the Contract Owner’s life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
• made under an immediate annuity, or
• attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owner’s attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream.
TAX FREE EXCHANGES UNDER INTERNAL REVENUE CODE SECTION 1035. A 1035 exchange is a tax-free exchange of a non-qualified life insurance contract, endowment contract or annuity contract into a non-Qualified annuity contract. The contract owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them.
PARTIAL EXCHANGES. The IRS has issued a ruling that permits partial exchanges of annuity contracts. Under this ruling, if you take a withdrawal from a receiving or relinquishing annuity contract within 24 months of the partial exchange, then special aggregation rules apply for purposes of determining the taxable amount of a distribution. The IRS has issued limited guidance on how to aggregate and report these distributions. The IRS is expected to provide further guidance; as a result, it is possible that the amount we calculate and report to the IRS as taxable could be different. Your Contract may not permit partial exchanges.
TAXATION OF OWNERSHIP CHANGES. If you transfer a non-Qualified Contract without full and adequate consideration to a person other than your spouse (or to a former spouse incident to a divorce), you will be taxed on the difference between the Contract Value and the investment in the Contract at the time of transfer. Any assignment or pledge (or agreement to assign or pledge) of the Contract Value is taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax.
AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-Qualified deferred annuity contracts issued by Allstate New York (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution.
INCOME TAX WITHHOLDING
Generally, Allstate New York is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory.
Allstate New York is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
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Generally, Code Section 1441 provides that Allstate New York as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident alien’s country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number (“ITIN”). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities.
TAX QUALIFIED CONTRACTS
The income on tax sheltered annuity (TSA) and IRA investments is tax deferred, and the income from annuities held by such plans does not receive any additional tax deferral. You should review the annuity features, including all benefits and expenses, prior to purchasing an annuity as a TSA or IRA. Tax Qualified Contracts are contracts purchased as or in connection with:
• Individual Retirement Annuities (IRAs) under Code Section 408(b);
• Roth IRAs under Code Section 408A;
• Simplified Employee Pension (SEP IRA) under Code Section 408(k);
• Savings Incentive Match Plans for Employees (SIMPLE IRA) under Code Section 408(p);
• Tax Sheltered Annuities under Code Section 403(b);
• Corporate and Self Employed Pension and Profit Sharing Plans under Code Section 401; and
• State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Code Section 457.
Allstate New York reserves the right to limit the availability of the Contract for use with any of the retirement plans listed above or to modify the Contract to conform with tax requirements. If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitations on withdrawals, waiver of charges, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if qualified plan limits on distributions and other conditions are not met. Please consult your qualified plan administrator for more information. Allstate New York no longer issues deferred annuities to employer sponsored qualified retirement plans.
The tax rules applicable to participants with tax qualified annuities vary according to the type of contract and the terms and conditions of the endorsement. Adverse tax consequences may result from certain transactions such as excess contributions, premature distributions, and, distributions that do not conform to specified commencement and minimum distribution rules. Allstate New York can issue an individual retirement annuity on a rollover or transfer of proceeds from a decedent’s IRA, TSA, or employer sponsored retirement plan under which the decedent’s surviving spouse is the beneficiary. Allstate New York does not offer an individual retirement annuity that can accept a transfer of funds for any other, non-spousal, beneficiary of a decedent’s IRA, TSA, or employer sponsored qualified retirement plan.
Please refer to your Endorsement for IRAs or 403(b) plans, if applicable, for additional information on your death settlement options. In the case of certain qualified plans, the terms of the Qualified Plan Endorsement and the plans may govern the right to benefits, regardless of the terms of the Contract.
TAXATION OF WITHDRAWALS FROM AN INDIVIDUALLY OWNED TAX QUALIFIED CONTRACT. If you make a partial withdrawal under a Tax Qualified Contract other than a Roth IRA, the portion of the payment that bears the same ratio to the total payment that the investment in the Contract (i.e., nondeductible IRA contributions) bears to the Contract Value, is excluded from your income. We do not keep track of nondeductible contributions, and generally all tax reporting of distributions from Tax Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable.
“Qualified distributions” from Roth IRAs are not included in gross income. “Qualified distributions” are any distributions made more than five taxable years after the taxable year of the first contribution to any Roth IRA and which are:
• made on or after the date the Contract Owner attains age 59 1/2,
• made to a beneficiary after the Contract Owner’s death,
• attributable to the Contract Owner being disabled, or
• made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000).
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“Nonqualified distributions” from Roth IRAs are treated as made from contributions first and are included in gross income only to the extent that distributions exceed contributions.
REQUIRED MINIMUM DISTRIBUTIONS. Generally, Tax Qualified Contracts (excluding Roth IRAs) require minimum distributions upon reaching age 70 1/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the Contract. Not all income plans offered under the Contract satisfy the requirements for minimum distributions. Because these distributions are required under the Code and the method of calculation is complex, please see a competent tax advisor.
THE DEATH BENEFIT AND TAX QUALIFIED CONTRACTS. Pursuant to the Code and IRS regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may not invest in life insurance contracts. However, an IRA may provide a death benefit that equals the greater of the purchase payments or the Contract Value. The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or the Contract Value. We believe that the Death Benefits offered by your Contract do not constitute life insurance under these regulations.
It is also possible that certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under qualified plans, such as in connection with a TSA or employer sponsored qualified retirement plan.
Allstate New York reserves the right to limit the availability of the Contract for use with any of the qualified plans listed above.
PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM TAX QUALIFIED CONTRACTS. A 10% penalty tax applies to the taxable amount of any premature distribution from a Tax Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
• made on or after the date the Contract Owner attains age 59 1/2,
• made as a result of the Contract Owner’s death or total disability,
• made in substantially equal periodic payments over the Contract Owner’s life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
• made after separation from service after age 55 (does not apply to IRAs),
• made pursuant to an IRS levy,
• made for certain medical expenses,
• made to pay for health insurance premiums while unemployed (applies only for IRAs),
• made for qualified higher education expenses (applies only for IRAs), and
• made for a first time home purchase (up to a $10,000 lifetime limit and applies only for IRAs).
During the first 2 years of the individual’s participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON TAX QUALIFIED CONTRACTS. With respect to Tax Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayer’s attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream.
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INCOME TAX WITHHOLDING ON TAX QUALIFIED CONTRACTS. Generally, Allstate New York is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered “eligible rollover distributions.” The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. Allstate New York is required to withhold federal income tax at a rate of 20% on all “eligible rollover distributions” unless you elect to make a “direct rollover” of such amounts to an IRA or eligible retirement plan. Eligible rollover distributions generally include all distributions from Tax Qualified Contracts, including TSAs but excluding IRAs, with the exception of:
• required minimum distributions, or,
• a series of substantially equal periodic payments made over a period of at least 10 years, or,
• a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or,
• hardship distributions.
For all annuitized distributions that are not subject to the 20% withholding requirement, Allstate New York is required to withhold federal income tax using the wage withholding rates. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
Generally, Code Section 1441 provides that Allstate New York as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien or to certain other ‘foreign persons’. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident alien’s country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number (“ITIN”). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities.
INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408(b) permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity (IRA). Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence. Certain distributions from other types of qualified retirement plans may be “rolled over” on a tax-deferred basis into an Individual Retirement Annuity.
ROTH INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408A permits eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth Individual Retirement Annuity. Roth Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence.
Subject to certain limitations, a traditional Individual Retirement Account or Annuity may be converted or “rolled over” to a Roth Individual Retirement Annuity. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions.
ANNUITIES HELD BY INDIVIDUAL RETIREMENT ACCOUNTS (COMMONLY KNOWN AS CUSTODIAL
IRAS). Code Section 408 permits a custodian or trustee of an Individual Retirement Account to purchase an annuity as an investment of the Individual Retirement Account. If an annuity is purchased inside of an Individual Retirement Account, then the Annuitant must be the same person as the beneficial owner of the Individual Retirement Account.
Generally, the death benefit of an annuity held in an Individual Retirement Account must be paid upon the death of the Annuitant. However, in most states, the Contract permits the custodian or trustee of the Individual Retirement Account to continue the Contract in the accumulation phase, with the Annuitant’s surviving spouse as the new Annuitant, if the following conditions are met:
1) The custodian or trustee of the Individual Retirement Account is the owner of the annuity and has the right to the death proceeds otherwise payable under the Contract;
2) The deceased Annuitant was the beneficial owner of the Individual Retirement Account;
3) We receive a complete request for settlement for the death of the Annuitant; and
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4) The custodian or trustee of the Individual Retirement Account provides us with a signed certification of the following:
(a) The Annuitant’s surviving spouse is the sole beneficiary of the Individual Retirement Account;
(b) The Annuitant’s surviving spouse has elected to continue the Individual Retirement Account as his or her own Individual Retirement Account; and
(c) The custodian or trustee of the Individual Retirement Account has continued the Individual Retirement Account pursuant to the surviving spouse’s election.
SIMPLIFIED EMPLOYEE PENSION IRA. Code Section 408(k) allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. These employers may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE IRA). Code Section 408(p) allows eligible employers with 100 or fewer employees to establish SIMPLE retirement plans for their employees using individual retirement annuities. In general, a SIMPLE IRA consists of a salary deferral program for eligible employees and matching or nonelective contributions made by employers. Employers intending to purchase the Contract as a SIMPLE IRA should seek competent tax and legal advice.
TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS (TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND YOUR COMPETENT TAX ADVISOR.
TAX SHELTERED ANNUITIES. Code Section 403(b) provides tax-deferred retirement savings plans for employees of certain non-profit and educational organizations. Under Section 403(b), any contract used for a 403(b) plan must provide that distributions attributable to salary reduction contributions made after 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee:
• attains age 59 1/2,
• severs employment,
• dies,
• becomes disabled, or
• incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship).
These limitations do not apply to withdrawals where Allstate New York is directed to transfer some or all of the Contract Value to another 403(b) plan. Generally, we do not accept funds in 403(b) contracts that are subject to the Employee Retirement Income Security Act of 1974 (ERISA).
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS.
Section 401(a) of the Code permits corporate employers to establish various types of tax favored retirement plans for employees. Self-employed individuals may establish tax favored retirement plans for themselves and their employees (commonly referred to as “H.R.10” or “Keogh”). Such retirement plans may permit the purchase of annuity contracts. Allstate New York no longer issues annuity contracts to employer sponsored qualified retirement plans.
There are two owner types for contracts intended to qualify under Section 401(a): a qualified plan fiduciary or an annuitant owner.
• A qualified plan fiduciary exists when a qualified plan trust that is intended to qualify under Section 401(a) of the Code is the owner. The qualified plan trust must have its own tax identification number and a named trustee acting as a fiduciary on behalf of the plan. The annuitant should be the person for whose benefit the contract was purchased.
• An annuitant owner exists when the tax identification number of the owner and annuitant are the same, or the annuity contract is not owner by a qualified plan trust. The annuitant should be the person for whose benefit the contract was purchased.
If a qualified plan fiduciary is the owner of the contract, the qualified plan must be the beneficiary so that death benefits from the annuity are distributed in accordance with the terms of the qualified plan. Annuitant owned contracts require that the beneficiary be the annuitant’s spouse (if applicable), which is consistent with the required IRS language for qualified plans under Section 401(a). A completed Annuitant Owned Qualified Plan Designation of Beneficiary form is required in order to change the beneficiary of an annuitant owned Qualified Plan contract.
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STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION
PLANS. Section 457 of the Code permits employees of state and local governments and tax-exempt organizations to defer a portion of their compensation without paying current taxes. The employees must be participants in an eligible deferred compensation plan. In eligible governmental plans, all assets and income must be held in a trust/ custodial account/annuity contract for the exclusive benefit of the participants and their beneficiaries. To the extent the Contracts are used in connection with a non-governmental eligible plan, employees are considered general creditors of the employer and the employer as owner of the Contract has the sole right to the proceeds of the Contract. Under eligible 457 plans, contributions made for the benefit of the employees will not be includible in the employees’ gross income until distributed from the plan. Allstate New York no longer issues annuity contracts to employer sponsored qualified retirement plans. Contracts that have been previously sold to State and Local government and Tax-Exempt organization Deferred Compensation Plans will be administered consistent with the rules for contracts intended to qualify under Section 401(a).
ANNUAL REPORTS AND OTHER DOCUMENTS
Allstate New York’s annual report on Form 10-K for the year ended December 31, 2004 is incorporated herein by reference, which means that it is legally a part of this prospectus.
After the date of this prospectus and before we terminate the offering of the securities under this prospectus, all documents or reports we file with the SEC under the Exchange Act are also incorporated herein by reference, which means that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC and that legally become a part of this prospectus, may change or supersede statements in other documents that are legally part of this prospectus. Accordingly, only the statement that is changed or replaced will legally be a part of this prospectus.
We file our Exchange Act documents and reports, including our annual and quarterly reports on Form 10-K and Form 10-Q electronically on the SEC’s “EDGAR” system using the identifying number CIK No. 0000839759. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov. You also can view these materials at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. For more information on the operations of SEC’s Public Reference Room, call 1-800-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of any document incorporated herein by reference (other than exhibits not specifically incorporated by reference into the text of such documents), please write or call us at Customer Service, 2940 S. 84TH STREET, LINCOLN, NE 68506-4142 (telephone: 1-800-692-4682).
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APPENDIX A
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED* WITHOUT THE ENHANCED DEATH BENEFIT OPTION
For the period beginning January 1 and ending December 31, | 2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||||
AIM V.I. AGGRESSIVE GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 13.988 | $ | 14.15 | $ | 8.049 | $ | 6.157 | $ | 7.714 | |||||||||||||
Accumulation Unit Value, End of Period | $ | 14.15 | $ | 8.049 | $ | 6.157 | $ | 7.714 | $ | 8.530 | |||||||||||||
Number of Units Outstanding, End of Period | 53,890 | 238,485 | 200,136 | 197,069 | 198,533 | ||||||||||||||||||
AIM V.I. BALANCED - SERIES I SUB-ACCOUNT ** | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 13.162 | $ | 12.43 | $ | 8.541 | $ | 7.003 | $ | 8.060 | |||||||||||||
Accumulation Unit Value, End of Period | $ | 12.43 | $ | 8.541 | $ | 7.003 | $ | 8.060 | $ | 8.571 | |||||||||||||
Number of Units Outstanding, End of Period | 24,499 | 329,610 | 320,917 | 290,941 | 274,548 | ||||||||||||||||||
AIM V.I. BASIC VALUE - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | $ 10.000 | $ 11.210 | $ | 8.632 | $ | 11.408 | ||||||||||||||||
Accumulation Unit Value, End of Period | - | $ 11.210 | $ | 8.632 | $ | 11.408 | $ | 12.532 | |||||||||||||||
Number of Units Outstanding, End of Period | - | 38,643 | 120,510 | 141,541 | 146,383 | ||||||||||||||||||
AIM V.I. BLUE CHIP - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 8.82 | $ | 6.784 | $ | 4.955 | $ | 6.133 | |||||||||||||
Accumulation Unit Value, End of Period | $ | 8.82 | $ | 6.784 | $ | 4.955 | $ | 6.133 | $ | 6.349 | |||||||||||||
Number of Units Outstanding, End of Period | 11,309 | 507,018 | 549,430 | 546,965 | 519,012 | ||||||||||||||||||
AIM V.I. CAPITAL APPRECIATION - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 21.350 | $ | 18.75 | $ | 7.233 | $ | 5.411 | $ | 6.932 | |||||||||||||
Accumulation Unit Value, End of Period | $ | 18.75 | $ | 7.233 | $ | 5.411 | $ | 6.932 | $ | 7.311 | |||||||||||||
Number of Units Outstanding, End of Period | 456,761 | 284,137 | 242,299 | 241,264 | 226,743 | ||||||||||||||||||
AIM V.I. CAPITAL DEVELOPMENT - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 11.655 | $ | 12.55 | $ 10.536 | $ | 8.195 | $ 10.971 | |||||||||||||||
Accumulation Unit Value, End of Period | $ | 12.55 | $ | 10.536 | $ | 8.195 | $ | 10.971 | $ | 12.533 | |||||||||||||
Number of Units Outstanding, End of Period | 18,297 | 67,296 | 63,097 | 59,597 | 39,783 | ||||||||||||||||||
AIM V.I. CORE EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 24.138 | $ | 20.33 | $ | 6.944 | $ | 5.798 | $ | 7.134 | |||||||||||||
Accumulation Unit Value, End of Period | $ | 20.33 | $ | 6.944 | $ | 5.798 | $ | 7.134 | $ | 7.689 | |||||||||||||
Number of Units Outstanding, End of Period | 674,689 | 426,488 | 397,515 | 369,211 | 378,980 | ||||||||||||||||||
AIM V.I. DENT DEMOGRAPHIC TRENDS - SERIES I SUB-ACCOUNT *** | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 7.89 | $ | 5.332 | $ | 3.575 | $ | 4.861 | |||||||||||||
Accumulation Unit Value, End of Period | $ | 7.89 | $ | 5.332 | $ | 3.575 | $ | 4.861 | $ | 5.205 | |||||||||||||
Number of Units Outstanding, End of Period | 32,307 | 191,409 | 143,535 | 156,869 | 137,352 | ||||||||||||||||||
AIM V.I. DIVERSIFIED INCOME - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 12.002 | $ | 11.55 | $ 10.095 | $ | 10.214 | $ | 11.036 | ||||||||||||||
Accumulation Unit Value, End of Period | $ | 11.55 | $ | 10.095 | $ 10.214 | $ | 11.036 | $ | 11.464 | ||||||||||||||
Number of Units Outstanding, End of Period | 204,561 | 76,653 | 85,995 | 84,651 | 83,355 | ||||||||||||||||||
AIM V.I. GOVERNMENT SECURITIES - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 11.189 | $ | 12.15 | $ 11.357 | $ | 12.311 | $ | 12.306 | ||||||||||||||
Accumulation Unit Value, End of Period | $ | 12.15 | $ | 11.357 | $ 12.311 | $ | 12.306 | $ | 12.484 | ||||||||||||||
Number of Units Outstanding, End of Period | 99,531 | 187,943 | 248,521 | 167,459 | 152,610 | ||||||||||||||||||
AIM V.I. GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 25.263 | $ | 19.80 | $ | 5.446 | $ | 3.718 | $ 4.826 |
44 PROSPECTUS
Accumulation Unit Value, End of Period | $ | 19.80 | $ | 5.446 | $ | 3.718 | $ | 4.826 | $ | 5.166 | |||||||||||||
Number of Units Outstanding, End of Period | 403,785 | 302,438 | 270,471 | 271,832 | 265,169 | ||||||||||||||||||
AIM V.I. HIGH YIELD - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 9.957 | $ | 7.95 | $ | 7.547 | $ | 7.028 | $ | 8.900 | |||||||||||||
Accumulation Unit Value, End of Period | $ | 7.95 | $ | 7.547 | $ | 7.028 | $ | 8.900 | $ | 9.793 | |||||||||||||
Number of Units Outstanding, End of Period | 834 | 35,116 | 36,928 | 103,920 | 49,255 | ||||||||||||||||||
AIM V.I. INTERNATIONAL GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ 21.914 | $ 15.90 | $ 6.136 | $ 5.117 | $ 6.532 | ||||||||||||||||||
Accumulation Unit Value, End of Period | $ 15.90 | $ 6.136 | $ 5.117 | $ 6.532 | $ 8.012 | ||||||||||||||||||
Number of Units Outstanding, End of Period | 245,480 | 141,910 | 129,999 | 152,651 | 206,187 | ||||||||||||||||||
AIM V.I. MID CAP CORE EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | $ | 10.000 | $ | 11.367 | $ 9.994 | $ | 12.585 | |||||||||||||||
Accumulation Unit Value, End of Period | - | $ | 11.367 | $ 9.994 | $ | 12.585 | $ | 14.167 | |||||||||||||||
Number of Units Outstanding, End of Period | - | 3,984 | 21,093 | 31,766 | 29,472 | ||||||||||||||||||
AIM V.I. MONEY MARKET - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 11.479 | $ 11.98 | $ | 10.751 | $ 10.759 | $ | 10.703 | |||||||||||||||
Accumulation Unit Value, End of Period | $ 11.98 | $ | 10.751 | $ | 10.759 | $ 10.703 | $ | 10.659 | |||||||||||||||
Number of Units Outstanding, End of Period | 95,879 | 186,834 | 148,120 | 104,438 | 97,730 | ||||||||||||||||||
AIM V.I. PREMIER EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 22.589 | $ 19.00 | $ 7.602 | $ 5.243 | $ 6.487 | |||||||||||||||||
Accumulation Unit Value, End of Period | $ 19.00 | $ 7.602 | $ 5.243 | $ 6.487 | $ 6.786 | ||||||||||||||||||
Number of Units Outstanding, End of Period | 1,000,356 | 623,432 | 589,373 | 560,684 | 523,477 | ||||||||||||||||||
AIM V.I. TECHNOLOGY - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | - | $ | 10.000 | |||||||||||||||||
Accumulation Unit Value, End of Period | - | - | - | - | $ | 11.117 | |||||||||||||||||
Number of Units Outstanding, End of Period | - | - | - | - | 36,911 | ||||||||||||||||||
AIM V.I. UTILITIES - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | - | $ | 10.000 | |||||||||||||||||
Accumulation Unit Value, End of Period | - | - | - | - | $ | 12.259 | |||||||||||||||||
Number of Units Outstanding, End of Period | - | - | - | - | 53,862 |
* The Contracts were first offered on January 17, 2000. All Variable Sub-Accounts were first offered under the Contracts on January 17, 2000, except the AIM V.I. Basic Value Fund - Series I and AIM V.I. Mid Cap Core Equity Fund - Series I, which commenced operations on October 1, 2001, and the AIM V.I. Technology Fund - Series I and the AIM V.I. Utilities Fund - Series I, which were first offered on October 15, 2004. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.00% and an administrative charge of 0.10%.
** Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its name to AIM V.I. Basic Balanced Fund-Series I. Effective July 1, 2005, a corresponding change in the name of the Variable Sub-Account that invests in that Fund will be made.
*** Effective July 1, 2005, the AIM V.I. Dent Demographic Trends Fund - Series I will change its name to AIM V.I. Demographic Trends Fund - Series I. Effective July 1, 2005, a corresponding change in the name of the Variable Sub-account that invests in that Portfolio will be made.
45 PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED* WITH THE ENHANCED DEATH BENEFIT OPTION
For the period beginning January 1 and ending December 31, | 2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||||||
AIM V.I. AGGRESSIVE GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ 10.000 | $ 10.985 | $ | 8.016 | $ | 6.119 | $ | 7.651 | |||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ 10.985 | $ | 8.016 | $ | 6.119 | $ | 7.651 | $ | 8.444 | ||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 102,502 | 198,010 | 219,455 | 202,257 | 178,359 | ||||||||||||||||||||||||||||||
AIM V.I. BALANCED - SERIES I SUB-ACCOUNT ** | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ 10.000 | $ | 9.729 | $ | 8.506 | $ | 6.960 | $ | 7.995 | ||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.729 | $ | 8.506 | $ | 6.960 | $ | 7.995 | $ | 8.485 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 75,164 | 345,629 | 371,207 | 354,606 | 328,989 | ||||||||||||||||||||||||||||||
AIM V.I. BASIC VALUE - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | $ 10.000 | $ | 11.204 | $ | 8.610 | $ 11.357 | ||||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | - | $ 11.204 | $ | 8.610 | $ | 11.357 | $ | 12.451 | |||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | - | 17,531 | 51,089 | 59,320 | 55,305 | ||||||||||||||||||||||||||||||
AIM V.I. BLUE CHIP - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ 10.000 | $ | 8.837 | $ | 6.757 | $ 4.924 | $ | 6.083 | |||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 8.837 | $ | 6.757 | $ | 4.924 | $ 6.083 | $ | 6.285 | ||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 177,304 | 474,975 | 497,574 | 476,681 | 449,033 | ||||||||||||||||||||||||||||||
AIM V.I. CAPITAL APPRECIATION - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ 10.000 | $ | 9.513 | $ | 7.203 | $ | 5.378 | $ | 6.876 | ||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.513 | $ | 7.203 | $ | 5.378 | $ | 6.876 | $ | 7.237 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 131,409 | 235,836 | 252,981 | 236,372 | 215,174 | ||||||||||||||||||||||||||||||
AIM V.I. CAPITAL DEVELOPMENT - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ 10.000 | $ | 11.566 | $ | 10.493 | $ | 8.145 | $ 10.883 | |||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ 11.566 | $ | 10.493 | $ | 8.145 | $ | 10.883 | $ 12.407 | |||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 7,338 | 19,877 | 20,402 | 17,651 | 16,020 | ||||||||||||||||||||||||||||||
AIM V.I. CORE EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ 10.000 | $ | 9.080 | $ | 6.915 | $ | 5.762 | $ | 7.077 | ||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.080 | $ | 6.915 | $ | 5.762 | $ | 7.077 | $ | 7.612 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 136,401 | 356,510 | 352,466 | 321,497 | 297,145 | ||||||||||||||||||||||||||||||
AIM V.I. DENT DEMOGRAPHIC TRENDS - SERIES I SUB-ACCOUNT *** | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 7.902 | $ | 5.310 | $ 3.554 $ | 4.822 | |||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 7.902 | $ | 5.310 | $ | 3.554 | $ | 4.822 | $ | 5.153 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 78,274 | 164,204 | 168,918 | 142,509 | 127,214 | ||||||||||||||||||||||||||||||
AIM V.I. DIVERSIFIED INCOME - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.833 | $ 10.054 | $ | 10.152 | $ | 10.947 | ||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.833 | $ 10.054 | $ | 10.152 | $ 10.947 | $ 11.349 | ||||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 6,486 | 40,016 | 55,291 | 54,298 | 46,642 | ||||||||||||||||||||||||||||||
AIM V.I. GOVERNMENT SECURITIES - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ 10.770 | $ 11.311 | $ 12.236 | $ 12.207 | |||||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 10.770 | $ 11.311 | $ 12.236 | $ 12.207 | $ 12.358 | |||||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 15,884 | 96,743 | 129,085 | 105,262 | 88,690 | ||||||||||||||||||||||||||||||
AIM V.I. GROWTH - SERIES I SUB-ACCOUNT |
46 PROSPECTUS
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 8.312 | $ | 5.424 | $ | 3.696 | $ 4.788 | ||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 8.312 | $ | 5.424 | $ | 3.696 | $ | 4.788 | $ 5.114 | ||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 122,705 | 241,384 | 245,046 | 206,466 | 194,304 | ||||||||||||||||||||||||||||||
AIM V.I. HIGH YIELD - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 8.015 | $ | 7.516 | $ | 6.985 | $ 8.829 | ||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 8.015 | $ | 7.516 | $ | 6.985 | $ | 8.829 | $ | 9.695 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 15,188 | 36,553 | 32,747 | 35,695 | 36,742 | ||||||||||||||||||||||||||||||
AIM V.I. INTERNATIONAL GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ 10.000 | $ 8.096 | $ 6.110 | $ 5.086 | $ 6.479 | ||||||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ 8.096 | $ 6.110 | $ 5.086 | $ 6.479 | $ 7.931 | ||||||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 108,706 | 96,654 | 102,940 | 94,381 | 87,589 | ||||||||||||||||||||||||||||||
AIM V.I. MID CAP CORE EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | $ 10.000 | $ | 11.361 | $ 9.969 | $ | 12.528 | ||||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | - | $ 11.361 | $ 9.969 | $ 12.528 | $ | 14.075 | |||||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | - | 3,675 | 19,816 | 26,343 | 26,487 | ||||||||||||||||||||||||||||||
AIM V.I. MONEY MARKET - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ 10.000 | $ 10.468 | $ | 10.707 | $ 10.694 | $ | 10.617 | ||||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ 10.468 | $ 10.707 | $ | 10.694 | $ 10.617 | $ | 10.552 | ||||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 15,332 | 121,447 | 140,442 | 81,551 | 72,126 | ||||||||||||||||||||||||||||||
AIM V.I. PREMIER EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ 10.000 | $ 8.772 | $ 7.570 | $ 5.211 | $ 6.434 | ||||||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ 8.772 | $ 7.570 | $ 5.211 | $ 6.434 | $ 6.718 | ||||||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 212,887 | 470,018 | 497,394 | 460,643 | 410,137 | ||||||||||||||||||||||||||||||
AIM V.I. TECHNOLOGY - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | - | $ | 10.000 | |||||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | - | - | - | - | $ | 11.102 | |||||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | - | - | - | - | 42,692 | ||||||||||||||||||||||||||||||
AIM V.I. UTILITIES - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | - | $ | 10.000 | |||||||||||||||||||||||||||||
Accumulation Unit Value, End of Period | - | - | - | - | $ | 12.242 | |||||||||||||||||||||||||||||
Number of Units Outstanding, End of Period | - | - | - | - | 32,969 |
* The Contracts were first offered on January 17, 2000. All Variable Sub-Accounts were first offered under the Contracts on January 17, 2000, except the AIM V.I. Basic Value Fund - Series I and AIM V.I. Mid Cap Core Equity Fund - Series I, which commenced operations on October 1, 2001, and the AIM V.I. Technology Fund - Series I and the AIM V.I. Utilities Fund - Series I, which were first offered on October 15, 2004. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.20% and an administrative charge of 0.10%.
** Effective July 1, 2005, the AIM V.I. Balanced Fund-Series I will change its name to AIM V.I. Basic Balanced Fund-Series I. Effective July 1, 2005, a corresponding change in the name of the Variable Sub-Account that invests in that Fund will be made.
*** Effective July 1, 2005, the AIM V.I. Dent Demographic Trends Fund - Series I will change its name to AIM V.I. Demographic Trends Fund - Series I. Effective July 1, 2005, a corresponding change in the name of the Variable Sub-Account that invests in that Fund will be made.
47 PROSPECTUS
APPENDIX B MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I = the Treasury Rate for a maturity equal to the applicable Guarantee Period for the week preceding the establishment of the Guarantee Period.
N = the number of whole and partial years from the date we receive the withdrawal, transfer, or death benefit request, or from the Payout Start Date, to the end of the Guarantee Period.
J = the Treasury Rate for a maturity equal to the Guarantee Period for the week preceding the receipt of the withdrawal, transfer, death benefit, or income payment request. If a note for a maturity of length N is not available, a weighted average will be used. If N is one year or less, J will be the 1-year Treasury Rate.
“Treasury Rate” means the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Board Statistical Release H.15.
The Market Value Adjustment factor is determined from the following formula: .9 X (I - J) X N
To determine the Market Value Adjustment, we will multiply the Market Value Adjustment factor by the amount transferred (in excess of the Free Withdrawal Amount) paid as a death benefit, or applied to an Income Plan, from a Guarantee Period at any time other than during the 30 day period after such Guarantee Period expires.
48 PROSPECTUS
EXAMPLES OF MARKET VALUE ADJUSTMENT
Purchase Payment: $10,000
Guarantee Period: 5 years
Treasury Rate (at the time the Guarantee Period was established): 4.50%
Assumed Net Annual Earnings Rate in Money Market Variable Sub-Account: 4.50%
Full Surrender: End of Contract Year 3
NOTE: These examples assume that premium taxes are not applicable.
Step 1. Calculate Contract Value at End of Contract Year 3: | $10,000.00 X (1.045)3 = $11,411.66 | ||||||||||
Step 2. Calculate the Free Withdrawal Amount: | 15%X $10,000.00 X (1.045)2 = $1,638.04 | ||||||||||
Step 3. Calculate the Market Value Adjustment: | I | = | 4.50% | ||||||||
J | = | 4.20% | |||||||||
730 days | |||||||||||
N | = | ———— = 2 | |||||||||
365 days | |||||||||||
Market Value Adjustment Factor: .9 X(I - J) X N = .9 X (.045 - .042) X (730/365) = .0054 | |||||||||||
Market Value Adjustment = Market | |||||||||||
Value Adjustment Factor X Amount | |||||||||||
Subject to Market Value Adjustment | |||||||||||
= | .0054 X ($11,411.66 - $1,638.04) | ||||||||||
= | $52.78 | ||||||||||
Step 4. Calculate the Withdrawal Charge: | .05 | X ($10,000.00 - $1,638.04 + $52.78) = $420.74 | |||||||||
Step 5. Calculate the amount received by a Contract owner as a result of full withdrawal at the end of Contract Year 3: | $11,411.66 - $420.74 + $52.78 = $11,043.70 |
49 PROSPECTUS
EXAMPLE 1 (ASSUME DECLINING INTEREST RATES)
EXAMPLE 2: (ASSUMES RISING INTEREST RATES)
Step 1. Calculate Contract Value at | $10,000.00 X (1.045)3= $11,411.66 | |||||||
End of Contract Year 3: | ||||||||
Step 2. Calculate the Preferred | .15X $10,000.00 X (1.045)2= $1,638.04 | |||||||
Withdrawal Amount: | ||||||||
Step 3. Calculate the Market Value Adjustment: | I = | 4.5% | ||||||
J = | 4.8% | |||||||
730 days | ||||||||
N = | ———— = 2 | |||||||
365 days | ||||||||
Market Value Adjustment Factor: .9 | ||||||||
X (I - J) X N =.9 X (.045 - .048) X (730/365) =- .0054 | ||||||||
Market Value Adjustment = Market | ||||||||
Value Adjustment Factor X Amount | ||||||||
Subject to Market Value | ||||||||
Adjustment: | ||||||||
= -.0054 X ($11,411.66 -$1,638.04) = -$52.78 | ||||||||
$1,638.04) = -$52.78 | ||||||||
Step 4. Calculate the Withdrawal Charge: | .05 X ($10,000.00 - $1,638.04 -$52.78) = $415.46 | |||||||
Step 5. Calculate the amount received by a Contract owner as a result of full withdrawal at the end of Contract Year 3: | $11,411.66 - $415.46 - $52.78 = $10,943.42 |
50 PROSPECTUS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
THE CONTRACT
Purchase of Contracts
CALCULATION OF ACCUMULATION UNIT VALUES
NET INVESTMENT FACTOR
CALCULATION OF VARIABLE INCOME PAYMENTS
CALCULATION OF ANNUITY UNIT VALUES
GENERAL MATTERS
Incontestability
Settlements
Safekeeping of the Variable Account’s Assets
Premium Taxes
Tax Reserves
EXPERTS
FINANCIAL STATEMENTS
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
51 PROSPECTUS
ALLSTATE PROVIDER VARIABLE ANNUITY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
300 N. MILWAUKEE AVE.
VERNON HILLS, IL 60061
TELEPHONE NUMBER: 1-800-692-4682 PROSPECTUS DATED MAY 1, 2002
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK (“ALLSTATE NEW YORK”) is offering the Allstate Provider Variable Annuity, a group flexible premium deferred variable annuity contract (“CONTRACT”). This prospectus contains information about the Contract that you should know before investing. Please keep it for future reference.
The Contract currently offers 42 investment alternatives (“INVESTMENT ALTERNATIVES”). The investment alternatives including 3 fixed account options (“FIXED ACCOUNT”) and 39 variable sub-accounts (“VARIABLE SUB-ACCOUNTS”) of the Allstate Life of New York Separate Account A (“VARIABLE ACCOUNT”). Each Variable Sub-Account invests exclusively in shares of one of the following mutual fund portfolios (“Portfolios”):
AIM Variable Insurance Funds
The Dreyfus Socially Responsible Growth Products
Trust Fund, Inc.
Trust Fund, Inc.
Dreyfus Stock Index Fund
Dreyfus Variable Investment Fund (VIF)
Fidelity Variable Insurance Products Fund (VIP)
Franklin Templeton Variable Insurance Products Trust (VIP)
Goldman Sachs Variable Insurance Trust (VIT)
MFS Variable Insurance Trust
The Universal Institutional Funds, Inc.
1 PROSPECTUS
WE (ALLSTATE NEW YORK) have filed a Statement of Additional Information, May 1, 2002, with the Securities and Exchange Commission (“SEC”). It contains more information about the Contract and is incorporated herein by reference, which means it is legally a part of this prospectus. Its table of contents appears on page D-1 of this prospectus. For a free copy, please write or call us at the address or telephone number above, or go to the SEC’s Web site (http:// www.sec.gov). You can find other information and documents about us, including documents that are legally part of this prospectus, at the SEC’s Web site.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR HAS IT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A FEDERAL CRIME. | |||||
IMPORTANT NOTICES | THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS. HOWEVER, THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY AGENCY. INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. | ||||
THE CONTRACTS ARE NOT FDIC INSURED. | |||||
THE CONTRACTS ARE ONLY AVAILABLE IN NEW YORK. |
2 PROSPECTUS
TABLE OF CONTENTS
PAGE | |||||
OVERVIEW | |||||
Important Terms | 3 | ||||
The Contract at a Glance | 4 | ||||
How the Contract Works | 6 | ||||
Expense Table | 7 | ||||
Financial Information | 13 | ||||
CONTRACT FEATURES | |||||
The Contract | 13 | ||||
Purchases | 14 | ||||
Contract Value | 15 | ||||
Investment Alternatives | 16 | ||||
The Variable Sub-Accounts | 16 | ||||
The Fixed Account | 20 | ||||
Transfers | 23 | ||||
Expenses | 25 | ||||
Access To Your Money | 27 | ||||
Income Payments | 28 | ||||
Death Benefits | 30 | ||||
OTHER INFORMATION | |||||
More Information: | 32 | ||||
ALLSTATE NEW YORK | 32 | ||||
The Variable Account | 32 | ||||
The Portfolios | 33 | ||||
The Contract | 33 | ||||
Tax Qualified Plans | 33 | ||||
Legal Matters | 34 | ||||
Taxes | 34 | ||||
Annual Reports and Other Documents | 40 | ||||
Performance Information | 41 | ||||
Experts | 41 | ||||
APPENDIX A - MARKET VALUE ADJUSTMENT | 42 | ||||
APPENDIX B - WITHDRAWAL ADJUSTMENT EXAMPLES | 44 |
3 PROSPECTUS
IMPORTANT TERMS
This prospectus uses a number of important terms that you may not be familiar with. The index below identifies the page that describes each term. The first use of each term in this prospectus appears in highlights.
PAGE | |||||
Accumulation Phase | 6 | ||||
Accumulation Unit | 15 | ||||
Accumulation Unit Value | 15 | ||||
ALLSTATE NEW YORK (“We” or “Us”) | 29 | ||||
Anniversary Values | 28 | ||||
Annuitant | 13 | ||||
Automatic Additions Program | 14 | ||||
Automatic Portfolio Rebalancing Program | 23 | ||||
Beneficiary | 13 | ||||
Cancellation Period | 14 | ||||
Contract* | 29 | ||||
Contract Anniversary | 5 | ||||
Contract Owner (“You”) | 13 | ||||
Contract Value | 15 | ||||
Contract Year | 4 | ||||
Death Benefit Anniversary | 27 | ||||
Dollar Cost Averaging Program | 23 | ||||
Due Proof of Death | 28 | ||||
Fixed Accounts | 19 | ||||
Guarantee Periods | 19 | ||||
Income Plan | 26 | ||||
Investment Alternatives | 16 | ||||
Issue Date | 6 | ||||
Market Value Adjustment | 21 | ||||
Payout Phase | 6 | ||||
Payout Start Date | 6 | ||||
Portfolios | 30 | ||||
Preferred Withdrawal Amount | 24 | ||||
Qualified Contracts | 33 | ||||
Right to Cancel | 14 | ||||
SEC | 1 | ||||
Settlement Value | 27 | ||||
Systematic Withdrawal Program | 25 | ||||
Treasury Rate | 21 | ||||
Valuation Date | 14 | ||||
Variable Account | 29 | ||||
Variable Sub-Account | 16 |
* The Allstate Provider Variable Annuity is a group contract and your ownership is represented by certificates. References to “Contract” in this prospectus include certificates, unless the context requires otherwise.
4 PROSPECTUS
THE CONTRACT AT A GLANCE
The following is a snapshot of the Contract. Please read the remainder of this prospectus for more information.
FLEXIBLE PAYMENTS | You can purchase a Contract with as little as $3,000 ($2,000 for a “QUALIFIED CONTRACT,” which is a Contract issued with a qualified plan). You can add to your Contract as often and as much as you like, but each payment must be at least $100, $500 for allocations to the Fixed Account. You must maintain a minimum account size of $1,000. | |||||||
RIGHT TO CANCEL | You may cancel your Contract within 10 days after receipt (60 days if you are exchanging another contract for the Contract described in this prospectus) (“CANCELLATION PERIOD”). Upon cancellation we will return your purchase payments adjusted to the extent federal or state law permits to reflect the investment experience of any amounts allocated to the Variable Account. | |||||||
EXPENSES | You will bear the following expenses: | |||||||
• | Total Variable Account annual fees equal to 1.25% of average daily net assets | |||||||
• | Annual contract maintenance charge of $30 (with certain exceptions) | |||||||
• | Withdrawal charges ranging from 0% to 7% of payment withdrawn (with certain exceptions) | |||||||
• | Transfer fee of $10 after 12th transfer in any CONTRACT YEAR (fee currently waived) | |||||||
• | State premium tax (New York currently does not impose one). | |||||||
In addition, each Portfolio pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. | ||||||||
INVESTMENT ALTERNATIVES | The Contract offers 42 investment alternatives including: | |||||||
• | 3 Fixed Account Options (which credit interest at rates we guarantee), and | |||||||
• | 39 Variable Sub-Accounts investing in portfolios (“Portfolios”) offering professional money management by: | |||||||
• | A I M Advisors, Inc. | |||||||
• | The Dreyfus Corporation | |||||||
• | Fidelity Management & Research Company | |||||||
• | Franklin Advisers, Inc. | |||||||
• | Franklin Mutual Advisers, LLC | |||||||
• | Goldman Sachs Asset Management | |||||||
• | Goldman Sachs Asset Management International | |||||||
• | MFS Investment Management/(R)/ | |||||||
• | Miller Anderson & Sherrerd, LLP | |||||||
• | Morgan Stanley Asset Management | |||||||
• | Oppenheimer Funds, Inc. | |||||||
• | Templeton Global Advisors Limited | |||||||
• | Templeton Investment Counsel, LLC | |||||||
• | Templeton Asset Management LTD. | |||||||
To find out current rates being paid on the Fixed Account, or to find out how the Variable Sub-Accounts have performed, please call us at 1-800-692-4682. |
5 PROSPECTUS
SPECIAL SERVICES | For your convenience, we offer these special services: | |||||||
• | AUTOMATIC PORTFOLIO REBALANCING PROGRAM | |||||||
• | AUTOMATIC ADDITIONS PROGRAM | |||||||
• | DOLLAR COST AVERAGING PROGRAM | |||||||
• | SYSTEMATIC WITHDRAWAL PROGRAM | |||||||
INCOME PAYMENTS | You can choose fixed income payments, variable income payments, or a combination of the two. You can receive your income payments in one of the following ways: | |||||||
• | life income with guaranteed payments | |||||||
• | a joint and survivor life income with guaranteed payments | |||||||
• | guaranteed payments for a specified period (5 to 30 years) | |||||||
DEATH BENEFITS | If you die before the PAYOUT START DATE, we will pay the death benefit described in the Contract. | |||||||
TRANSFERS | Before the Payout Start Date, you may transfer your Contract value (“CONTRACT VALUE”) among the investment alternatives, with certain restrictions. Transfers to the Fixed Account must be at least $500. | |||||||
We do not currently impose a fee upon transfers. However, we reserve the right to charge $10 per transfer after the 12th transfer in each “CONTRACT YEAR,” which we measure from the date we issue your Contract or a Contract anniversary (“CONTRACT ANNIVERSARY”). | ||||||||
WITHDRAWALS | You may withdraw some or all of your Contract Value at any time during the Accumulation Phase. Full or partial withdrawals also are available under limited circumstances on or after the Payout Start Date. | |||||||
In general, you must withdraw at least $50 at a time ($1,000 for withdrawals made during the Payout Phase). Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. A withdrawal charge and MARKET VALUE ADJUSTMENT also may apply. |
6 PROSPECTUS
HOW THE CONTRACT WORKS
The Contract basically works in two ways.
First, the Contract can help you (we assume you are the CONTRACT OWNER) save for retirement because you can invest in up to 40 investment alternatives and generally pay no federal income taxes on any earnings until you withdraw them. You do this during what we call the “ACCUMULATION PHASE” of the Contract. The Accumulation Phase begins on the date we issue your Contract (we call that date the “ISSUE DATE”) and continues until the Payout Start Date, which is the date we apply your money to provide income payments. During the Accumulation Phase, you may allocate your purchase payments to any combination of the Variable Sub-Accounts and/or Fixed Accounts. If you invest in the Fixed Accounts, you will earn a fixed rate of interest that we declare periodically. If you invest in any of the Variable Sub-Accounts, your investment return will vary up or down depending on the performance of the corresponding Portfolios.
Second, the Contract can help you plan for retirement because you can use it to receive retirement income for life and/ or for a pre-set number of years, by selecting one of the income payment options (we call these “INCOME PLANS”) described on page 26. You receive income payments during what we call the “PAYOUT PHASE” of the Contract, which begins on the Payout Start Date and continues until we make the last payment required by the Income Plan you select. During the Payout Phase, if you select a fixed income payment option, we guarantee the amount of your payments, which will remain fixed. If you select a variable income payment option, based on one or more of the Variable Sub-Accounts, the amount of your payments will vary up or down depending on the performance of the corresponding Portfolios. The amount of money you accumulate under your Contract during the Accumulation Phase and apply to an Income Plan will determine the amount of your income payments during the Payout Phase.
The timeline below illustrates how you might use your Contract.
Issue Date | Accumulation Phase | Payout Start Date | Payout Phase | |||||||||||
You buy a Contract | You save for retirement | You elect to receive income payments or receive a lump sum payment | You can receive income payments for a set period | Or you can receive income payments for life |
As the Contract Owner, you exercise all of the rights and privileges provided by the Contract. If you die, any surviving Contract Owner, or if there is none, the BENEFICIARY will exercise the rights and privileges provided by the Contract. See “The Contract.” In addition, if you die before the Payout Start Date, we will pay a death benefit to any surviving Contract Owner or, if none, to your Beneficiary. See “Death Benefits.”
Please call us at 1-800-692-4682 if you have any questions about how the Contract works.
7 PROSPECTUS
EXPENSE TABLE
The table below lists the expenses that you will bear directly or indirectly when you buy a Contract. The table and the examples that follow do not reflect premium taxes because New York currently does not impose premium taxes on annuities. For more information about Variable Account expenses, see “Expenses,” below. For more information about Portfolio expenses, please refer to the accompanying prospectuses for the Portfolios.
CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years Since We Received the Purchase Payment Being Withdrawn | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+ | ||||||||||||||||||
Applicable Charge | 7% | 6% | 5% | 4% | 3% | 2% | 1% | 0 | % | |||||||||||||||||
Annual Contract Maintenance Charge | $30.00** | |||||||||||||||||||||||||
Transfer Fee | $10.00*** |
* Each Contract Year, you may withdraw up to 15% of purchase payments without incurring a withdrawal charge or a Market Value Adjustment.
** We will waive this charge in certain cases. See “Expenses.”
*** Applies solely to the thirteenth and subsequent transfers within a Contract Year excluding transfers due to dollar cost averaging or automatic portfolio rebalancing. We are currently waiving the transfer fee.
VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT)
Mortality and Expense Risk Charge | 1.15%* | ||||
Administrative Expense Charge | 0.10% | ||||
Total Variable Account Annual Expense | 1.25% |
8 PROSPECTUS
PORTFOLIO ANNUAL EXPENSES (as a percentage of Portfolio average daily net assets)1 (After contractual Reductions andReimbursements)
Portfolio | Management Fees | 12b-1 Fees | Other Expenses | Total Portfolio Annual Expenses | ||||||||||
AIM V.I. Balanced Fund - Series I | 0.75% | N/A | 0.37% | 1.12% | ||||||||||
AIM V.I. Core Equity Fund - Series I (2) | 0.61% | N/A | 0.21% | .82% | ||||||||||
AIM V.I. Diversified Income Fund - Series I | 0.60% | N/A | 0.33% | 0.93% | ||||||||||
AIM V.I. Government Securities Fund - Series I | 0.50% | N/A | 0.58% | 1.08% | ||||||||||
AIM V.I. Growth Fund - Series I | 0.62% | N/A | 0.26% | 0.88% | ||||||||||
AIM V.I. International Growth Fund - Sereis I (2) | 0.73% | N/A | 0.32% | 1.05% | ||||||||||
AIM V.I. Premier Equity Fund - Series I (2) | 0.60% | N/A | 0.25% | 0.85% | ||||||||||
The Dreyfus Socially Responsible Growth Fund, Inc.: | ||||||||||||||
Initial Shares | 0.75% | N/A | 0.03% | 0.78% | ||||||||||
Dreyfus Stock Index Fund: Initial Shares | 0.25% | N/A | 0.01% | 0.26% | ||||||||||
Dreyfus VIF - Growth & Income Portfolio: Initial Shares | 0.75% | N/A | 0.05% | 0.80% | ||||||||||
Dreyfus VIF - Money Market Portfolio | 0.50% | N/A | 0.08% | 0.58% | ||||||||||
Fidelity VIP Contrafund Portfolio - Initial Class (3) | 0.58% | N/A | 0.10% | 0.68% | ||||||||||
Fidelity VIP Equity-Income Portfolio - Initial Class (3) | 0.48% | N/A | 0.10% | 0.58% | ||||||||||
Fidelity VIP Growth Portfolio - Initial Class (3) | 0.58% | N/A | 0.10% | 0.68% | ||||||||||
Fidelity VIP High Income Portfolio - Initial Class (3) | 0.58% | N/A | 0.13% | 0.71% | ||||||||||
Franklin Small Cap Fund-Class 2 (4,5) | 0.45% | 0.25% | 0.31% | 1.01% | ||||||||||
Mutual Shares Securities Fund - Class 2 (4) | 0.60% | 0.25% | 0.19% | 1.04% | ||||||||||
Templeton Developing Markets Securities Fund - Class 2 (4) | 1.25% | 0.25% | 0.32% | 1.82% | ||||||||||
Templeton Foreign Securities Fund - Class 2 (4,6,7) | 0.68% | 0.25% | 0.22% | 1.15% | ||||||||||
Templeton Growth Securities Fund - Class 2 (4,8) | 0.80% | 0.25% | 0.05% | 1.10% | ||||||||||
Goldman Sachs VIT Capital Growth Fund (9) | 0.75% | N/A | 0.94% | 1.69% | ||||||||||
Goldman Sachs VIT CORE(SM) Small Cap Equity Fund (9) | 0.75% | N/A | 0.47% | 1.22% | ||||||||||
Goldman Sachs VIT CORE(SM) U.S. Equity Fund (9) | 0.70% | N/A | 0.12% | 0.82% | ||||||||||
Goldman Sachs VIT International Equity Fund (9) | 1.00% | N/A | 1.05% | 2.05% | ||||||||||
MFS Emerging Growth Series - Initial Class (10) | 0.75% | N/A | 0.12% | 0.87% | ||||||||||
MFS Investors Trust Series - Initial Class (10) | 0.75% | N/A | 0.15% | 0.90% | ||||||||||
MFS New Discovery Series (10,11) | 0.90% | N/A | 0.16% | 1.06% | ||||||||||
MFS Research Series - Initial Class (10) | 0.75% | N/A | 0.15% | 0.90% | ||||||||||
Oppenheimer Aggressive Growth Fund/VA | 0.64% | N/A | 0.04% | 0.68% | ||||||||||
Oppenheimer Capital Appreciation Fund/VA | 0.64% | N/A | 0.04% | 0.68% | ||||||||||
Oppenheimer Global Securities Fund/VA | 0.64% | N/A | 0.06% | 0.70% | ||||||||||
Oppenheimer Main Street Growth & Income Fund/VA | 0.68% | N/A | 0.05% | 0.73% | ||||||||||
Oppenheimer Strategic Bond Fund/VA(12) | 0.74% | N/A | 0.05% | 0.79% | ||||||||||
Van Kampen UIF Core Plus Fixed Income Portfolio (13,14) | 0.40% | N/A | 0.31% | 0.71% | ||||||||||
Van Kampen UIF Equity Growth Portfolio (13,14) | 0.55% | N/A | 0.36% | 0.91% | ||||||||||
Van Kampen UIF Global Equity Portfolio (13,14) | 0.80% | N/A | 0.48% | 1.28% | ||||||||||
Van Kampen UIF Mid Cap Value Portfolio (13,14) | 0.75% | N/A | 0.35% | 1.10% | ||||||||||
Van Kampen UIF Value Portfolio (13,14) | 0.55% | N/A | 0.38% | 0.93% |
(1) Figures shown in the Table are for the year ended December 31, 2001(except as otherwise noted).
9 PROSPECTUS
(2) Effective May 1, 2002 the AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively.
(3) Actual “Total Portfolio Annual Expenses” were lower because a portion of the brokerage commissions that the Portfolios paid was used to reduce the Portfolios’ expenses. In addition, through arrangements with the Portfolios’ custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the Portfolios’ custodian expenses. These offsets may be discontinued at any time. Had these offsets been taken into account, “Total Portfolio Annual Expenses” would have been 0.64% for Contrafund Portfolio, 0.57% for Equity-Income Portfolio, 0.65% for Growth Portfolio and 0.70% for High Income Portfolio.
(4) The Portfolio’s Class 2 distribution plan or “rule 12b-1 plan” is described in the Portfolio’s prospectus.
10 PROSPECTUS
(5) The manager had agreed in advance to make an estimated reduction of 0.08% to its management fee to reflect reduced services resulting from the Portfolio’s investment in a Franklin Templeton money fund. This reduction is required by the Portfolio’s Board of Trustees and an order of the Securities and Exchange Commission. Without this reduction, “Total Portfolio Annual Expenses” would have been 1.09%.
(6) Effective May 1, 2002 the Templeton International Securities Fund - Class 2 changed its name to the Templeton Foreign Securities Fund - Class 2.
(7) The manager had agreed in advance to make an estimated reduction of 0.01% to its management fee to reflect reduced services resulting from the Portfolio’s investment in a Franklin Templeton money fund. This reduction is required by the Portfolio’s Board of Trustees and an order of the Securities and Exchange Commission. Without this reduction, “Total Portfolio Annual Expenses” would have been 1.16%.
(8) The Portfolio administration fee is paid indirectly through the management fee.
(9) “Total Portfolio Annual Expenses” listed in the table above reflect gross ratios prior to any voluntary waivers/ reimbursements of expenses. Goldman Sachs Asset Management and Goldman Sachs Asset Management International, the investment advisers, have voluntarily agreed to reduce or limit certain other expenses (excluding management fees, taxes, interest, brokerage fees, litigation, indemnification and other extraordinary expenses) to the extent “Total Portfolio Annual Expenses” exceed 1.00% for Capital Growth Fund, 1.00% for CORESM Small Cap Equity Fund, 0.90% for CORESM U.S. Equity Fund and 1.35% for International Equity Fund. With these limitations taken into consideration, “Management Fees”, “Rule 12b-1 Fees”, “Other Expenses” and “Total Portfolio Annual Expenses” were as follows:
Portfolio | Management Fees | 12b-1 Fees | Other Expenses | Total Portfolio Annual Expenses | ||||||||||
Goldman Sachs VIT Capital Growth Fund | 0.75% | N/A | 0.25% | 1.00% | ||||||||||
Goldman Sachs VIT CORE(SM) Small Cap Equity Fund | 0.75% | N/A | 0.25% | 1.00% | ||||||||||
Goldman Sachs VIT CORE(SM) U.S. Equity Fund | 0.70% | N/A | 0.11% | 0.81% | ||||||||||
Goldman Sachs VIT International Equity Fund | 1.00% | N/A | 0.35% | 1.35% |
(10) Each Portfolio has an expense offset arrangement which reduces the Portfolios’ custodian fee based upon the amount of cash maintained by the Portfolio with its custodian and dividend disbursing agent. Each Portfolio may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the Portfolios’ expenses. “Other Expenses” do not take these expense reductions into account, and are therefore higher than the actual expenses of the Portfolios. Had these fee reductions been taken into account, “Total Portfolio Annual Expenses” would have been lower and would equal 0.86% for Emerging Growth Series, 0.89% for Investors Trust Series, 1.05% for New Discovery Series and 0.89 for Research Series.
(11) MFS has contractually agreed, subject to reimbursement, to bear expenses for the Portfolio such that “Other Expenses” (after taking into account the expense offset arrangement described in note 10 above), do not exceed 0.15% of the average daily net assets of the Portfolios during the current fiscal year. Without these fee arrangements “Total Portfolio Annual Expenses” would have been 1.09%. These contractual fee arrangements will continue at least until May 1, 2003, unless changed with the consent of the board of trustees which oversee the Portfolios.
(12) Oppenheimer Funds, Inc. (OFI) will reduce the management fee by 0.10% as long as the fund’s trailing 12-month performance at the end of the quarter is in the fifth Lipper peer-group quintile; and by 0.05% as long as it is in the fourth quintile. If the fund emerges from a “penalty box” position for a quarter but then slips back in the next quarter, OFI will reinstate the waiver. The waiver is voluntary and may be terminated by the Manager at any time.
(13) “Total Portfolio Annual Expenses” listed in the table above reflect gross ratios prior to any voluntary waivers/ reimbursements of expenses by the adviser. For the year ended December 31, 2001, the management fee was reduced to reflect the voluntary waiver of a portion or all of the management fee and the reimbursement by the Portfolios’ adviser to the extent “Total Portfolio Annual Expenses” exceed the following percentages:
11 PROSPECTUS
Van Kampen UIF Core Plus Fixed Income Portfolio 0.70%; Van Kampen UIF Equity Growth Portfolio 0.85%; Van Kampen UIF Global Value Equity Portfolio 1.15%; Van Kampen UIF Mid Cap Value Portfolio 1.05%; Van Kampen UIF Value Portfolio 0.85%. The adviser may terminate this voluntary waiver at any time at its sole discretion. After such reductions, the “Management Fees”, “Rule 12b-1 Fees”, “Other Expenses” and “Total Portfolio Annual Expenses” were as follows:
Portfolio | Management Fees | 12b-1 Fees | Other Expenses | Total Portfolio Annual Expenses | ||||||||||
Van Kampen UIF Core Plus Fixed Income Portfolio | 0.39% | N/A | 0.31% | 0.70% | ||||||||||
Van Kampen UIF Equity Growth Portfolio | 0.49% | N/A | 0.36% | 0.85% | ||||||||||
Van Kampen UIF Global Equity Portfolio | 0.67% | N/A | 0.48% | 1.15% | ||||||||||
Van Kampen UIF Mid Cap Value Portfolio | 0.70% | N/A | 0.35% | 1.05% | ||||||||||
Van Kampen UIF Value Portfolio | 0.47% | N/A | 0.38% | 0.85% |
(14) Effective May 1, 2002 the Portfolios have been re-branded and have changed names from Morgan Stanley UIF Fixed Income Portfolio to Van Kampen UIF Core Plus Fixed Income Portfolio, Morgan Stanley UIF Equity Growth Portfolio to Van Kampen UIF Equity Growth Portfolio, Morgan Stanley UIF Global Value Equity Portfolio to Van Kampen UIF Global Value Equity Portfolio, Morgan Stanley UIF Mid Cap Value Portfolio to Van Kampen UIF Mid Cap Value Portfolio and Morgan Stanley UIF Value Portfolio to Van Kampen UIF Value Portfolio.
EXAMPLE 1
The example below shows the dollar amount of expenses that you would bear directly or indirectly if you:
• invested $1,000 in a Variable Sub-Account,
• earned a 5% annual return on your investment, and
• earned a 5% annual return on your investment, surrendered your Contract, or began receiving income payments for a specified period of less than 120 months, at the end of each time period.
12 PROSPECTUS
THE EXAMPLE DOES NOT INCLUDE ANY TAXES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT OR RECEIVE INCOME PAYMENTS. THE EXAMPLE DOES NOT INCLUDE DEDUCTIONS FOR PREMIUM TAXES BECAUSE NEW YORK DOES NOT CHARGE PREMIUM TAXES ON ANNUITIES.
Variable Sub-Account | 1 Year | 3 Years | 5 Years | 10 Years | ||||||||||
AIM V.I. Balanced | $76 | $111 | $148 | $279 | ||||||||||
AIM V.I. Core Equity | $73 | $101 | $133 | $248 | ||||||||||
AIM V.I. Diversified Income | $74 | $105 | $138 | $259 | ||||||||||
AIM V.I. Government Securities | $76 | $109 | $146 | $275 | ||||||||||
AIM V.I. Growth | $73 | $103 | $136 | $254 | ||||||||||
AIM V.I. International Growth | $75 | $109 | $144 | $272 | ||||||||||
AIM V.I. Premier Equity | $73 | $102 | $134 | $251 | ||||||||||
The Dreyfus Socially Responsible Growth, Inc. | $72 | $100 | $130 | $244 | ||||||||||
Dreyfus Stock Index | $67 | $84 | $103 | $187 | ||||||||||
Dreyfus VIF - Growth & Income | $73 | $101 | $131 | $246 | ||||||||||
Dreyfus VIF - Money Market | $70 | $94 | $120 | $222 | ||||||||||
Fidelity VIP Contrafund | $71 | $97 | $125 | $233 | ||||||||||
Fidelity VIP Equity-Income | $70 | $94 | $120 | $222 | ||||||||||
Fidelity VIP Growth | $71 | $97 | $125 | $233 | ||||||||||
Fidelity VIP High Income | $72 | $98 | $127 | $236 | ||||||||||
Franklin Small Cap | $75 | $107 | $142 | $268 | ||||||||||
Mutual Shares Securities | $75 | $108 | $144 | $271 | ||||||||||
Templeton Developing Markets | $75 | $108 | $144 | $271 | ||||||||||
Templeton Foreign Securities | $76 | $112 | $150 | $282 | ||||||||||
Templeton Growthl Securitie | $76 | $110 | $147 | $277 | ||||||||||
Goldman Sachs VIT Capital Growth | $82 | $128 | $177 | $335 | ||||||||||
Goldman Sachs VIT CORE(SM) Small Cap Equity | $77 | $114 | $153 | $289 | ||||||||||
Goldman Sachs VIT CORE(SM) U.S. Equity | $73 | $101 | $133 | $248 | ||||||||||
Goldman Sachs VIT International Equity | $85 | $139 | $195 | $369 | ||||||||||
MFS Emerging Growth | $73 | $103 | $135 | $253 | ||||||||||
MFS Investors Trust | $74 | $104 | $137 | $256 | ||||||||||
MFS New Discovery | $75 | $109 | $145 | $273 | ||||||||||
MFS Research | $74 | $104 | $137 | $256 | ||||||||||
Oppenheimer Aggressive Growth/VA | $71 | $97 | $125 | $233 | ||||||||||
Oppenheimer Capital AppreciationVA | $71 | $97 | $125 | $233 | ||||||||||
Oppenheimer Global Securities/VA | $64 | $76 | $89 | $158 | ||||||||||
Oppenheimer Main Street Growth & Income/VA | $72 | $99 | $128 | $238 | ||||||||||
Oppenheimer Strategic Bond/VA | $73 | $101 | $131 | $245 | ||||||||||
Van Kampen UIF Core Plus Fixed Income | $72 | $98 | $127 | $236 | ||||||||||
Van Kampen UIF Equity Growth | $74 | $104 | $137 | $257 | ||||||||||
Van Kampen UIF Global Equity | $74 | $105 | $138 | $259 | ||||||||||
Van Kampen UIF Mid Cap Value | $78 | $110 | $156 | $277 | ||||||||||
Van Kampen UIF Value | $78 | $116 | $156 | $295 |
13 PROSPECTUS
14 PROSPECTUS
EXAMPLE 2
Same assumptions as Example 1 above, except that you decided not to surrender your Contract, or you began receiving income payments (for at least 120 months if under an Income Plan with a specified period), at the end of each period.
Variable Sub-Account | 1 Year | 3 Years | 5 Years | 10 Years | ||||||||||
AIM V.I. Balanced | $25 | $77 | $131 | $279 | ||||||||||
AIM V.I. Core Equity | $22 | $67 | $116 | $248 | ||||||||||
AIM V.I. Diversified Income | $23 | $71 | $121 | $259 | ||||||||||
AIM V.I. Government Securities | $25 | $75 | $129 | $275 | ||||||||||
AIM V.I. Growth | $22 | $69 | $119 | $254 | ||||||||||
AIM V.I. International Growth | $24 | $75 | $127 | $272 | ||||||||||
AIM V.I. Premier Equity | $22 | $68 | $117 | $251 | ||||||||||
The Dreyfus Socially Responsible Growth, Inc. | $21 | $66 | $113 | $244 | ||||||||||
Dreyfus Stock Index | $16 | $50 | $86 | $187 | ||||||||||
Dreyfus VIF - Growth & Income | $22 | $67 | $114 | $246 | ||||||||||
Dreyfus VIF - Money Market | $19 | $60 | $103 | $222 | ||||||||||
Fidelity VIP Contrafund | $20 | $63 | $108 | $233 | ||||||||||
Fidelity VIP Equity-Income | $19 | $60 | $103 | $222 | ||||||||||
Fidelity VIP Growth | $20 | $63 | $108 | $233 | ||||||||||
Fidelity VIP High Income | $24 | $64 | $110 | $236 | ||||||||||
Franklin Small Cap | $24 | $73 | $125 | $268 | ||||||||||
Mutual Shares Securities | $24 | $74 | $127 | $271 | ||||||||||
Templeton Developing Markets | $25 | $74 | $127 | $271 | ||||||||||
Templeton Foreign Securities | $25 | $78 | $133 | $282 | ||||||||||
Templeton Growthl Securitie | $25 | $76 | $130 | $277 | ||||||||||
Goldman Sachs VIT Capital Growth | $31 | $94 | $160 | $335 | ||||||||||
Goldman Sachs VIT CORE(SM) Small Cap Equity | $26 | $80 | $136 | $289 | ||||||||||
Goldman Sachs VIT CORE(SM) U.S. Equity | $22 | $67 | $116 | $248 | ||||||||||
Goldman Sachs VIT International Equity | $34 | $105 | $178 | $369 | ||||||||||
MFS Emerging Growth | $22 | $69 | $118 | $253 | ||||||||||
MFS Investors Trust | $23 | $70 | $120 | $256 | ||||||||||
MFS New Discovery | $24 | $75 | $128 | $273 | ||||||||||
MFS Research | $23 | $70 | $120 | $256 | ||||||||||
Oppenheimer Aggressive Growth/VA | $20 | $63 | $108 | $233 | ||||||||||
Oppenheimer Capital AppreciationVA | $20 | $63 | $108 | $233 | ||||||||||
Oppenheimer Global Securities/VA | $13 | $42 | $72 | $158 | ||||||||||
Oppenheimer Main Street Growth & Income/VA | $21 | $65 | $111 | $238 | ||||||||||
Oppenheimer Strategic Bond/VA | $22 | $67 | $114 | $245 | ||||||||||
Van Kampen UIF Core Plus Fixed Income | $21 | $64 | $110 | $236 | ||||||||||
Van Kampen UIF Equity Growth | $23 | $70 | $120 | $257 | ||||||||||
Van Kampen UIF Global Equity | $23 | $71 | $121 | $259 | ||||||||||
Van Kampen UIF Mid Cap Value | $25 | $76 | $130 | $277 | ||||||||||
Van Kampen UIF Value | $27 | $82 | $139 | $295 |
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. THE EXAMPLES ASSUME THAT ANY PORTFOLIO EXPENSE WAIVERS OR REIMBURSEMENT ARRANGEMENTS DESCRIBED IN THE FOOTNOTES ON PAGE 8-9 ARE IN EFFECT FOR THE TIME PERIODS PRESENTED ABOVE. YOUR ACTUAL EXPENSES MAY BE LESSER OR GREATER THAN THOSE SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LESSER OR GREATER THAN 5%, WHICH IS NOT GUARANTEED. TO
15 PROSPECTUS
REFLECT THE CONTRACT MAINTENANCE CHARGE IN THE EXAMPLES, WE ESTIMATED AN EQUIVALENT PERCENTAGE CHARGE, BASED ON AN ASSUMED AVERAGE CONTRACT SIZE OF $45,000.
16 PROSPECTUS
FINANCIAL INFORMATION
To measure the value of your investment in the Variable Sub-Accounts during the Accumulation Phase, we use a unit of measure we call the “ACCUMULATION UNIT.” Each Variable Sub-Account has a separate value for its Accumulation Units we call “ACCUMULATION UNIT VALUE.” Accumulation Unit Value is analogous to, but not the same as, the share price of a mutual fund.
No Accumulation Unit Values are reported because as of the date of this prospectus, no sales of the Contract had occurred.
To obtain more information on each Variable Sub-Account’s finances, please refer to the Variable Account’s financial statements contained in the Statement of Additional Information. The financial statements of ALLSTATE NEW YORK also appear in the Statement of Additional Information. The Variable Account Financial Statements do not reflect any assets attributed to the Contracts offered by this prospectus because no sales of the Contract have occurred as of the date of this prospectus.
THE CONTRACT
CONTRACT OWNER
The Allstate Provider Variable Annuity is a contract between you, the Contract Owner, and Allstate New York, a life insurance company. As the Contract Owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted):
• the investment alternatives during the Accumulation and Payout Phases,
• the amount and timing of your purchase payments and withdrawals,
• the programs you want to use to invest or withdraw money,
• the income payment plan you want to use to receive retirement income,
• the Annuitant (either yourself or someone else) on whose life the income payments will be based,
• the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract Owner dies, and
• any other rights that the Contract provides.
If you die, any surviving Contract Owner or, if none, the Beneficiary may exercise the rights and privileges provided to them by the Contract.
The Contract cannot be jointly owned by both a non-natural person and a natural person. The maximum age of the oldest Contract Owner cannot exceed 85 as of the date we receive the completed application.
Changing ownership of this Contract may cause adverse tax consequences and may not be allowed under qualified plans. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner.
You can use the Contract with or without a qualified plan. A qualified plan is a retirement savings plan, such as an IRA or tax-sheltered annuity, that meets the requirements of the Internal Revenue Code. Qualified plans may limit or modify your rights and privileges under the Contract. We use the term “QUALIFIED CONTRACT” to refer to a Contract issued with a qualified plan. See “Qualified Contracts” on page 33.
ANNUITANT
The Annuitant is the individual whose life determines the amount and duration of income payments (other than under Income Plans with guaranteed payments for a specified period). You initially designate an Annuitant in your application. The maximum age of the oldest Annuitant cannot exceed 85 as of the date we receive the completed application. If the Contract Owner is a natural person you may change the Annuitant prior to the Payout Start Date. In our discretion, we may permit you to designate a joint Annuitant, who is a second person on whose life income payments depend, on the Payout Start Date.
17 PROSPECTUS
If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be:
• the youngest Contract Owner, if living, otherwise
• the youngest Beneficiary.
BENEFICIARY
The Beneficiary is the person who may elect to receive the death benefit or become the new Contract Owner subject to the Death of Owner provision if the sole surviving Contract Owner dies before the Payout Start Date. See “Death Benefits” on page 27. If the sole surviving Contract Owner dies after the Payout Start Date, the Beneficiary will receive any guaranteed income payments scheduled to continue.
You may name one or more Beneficiaries when you apply for a Contract. You may change or add Beneficiaries at any time by writing to us, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed and filed with us. Any change will be effective at the time you sign the written notice, whether or not the Annuitant is living when we receive the notice. Until we receive your written notice to change a Beneficiary, we are entitled to rely on the most recent Beneficiary information in our files. We will not be liable as to any payment or settlement made prior to receiving the written notice. Accordingly, if you wish to change your Beneficiary, you should deliver your written notice to us promptly.
If you do not name a Beneficiary or, if the named Beneficiary is no longer living and there are no other surviving Beneficiaries, the new Beneficiary will be:
• your spouse or, if he or she is no longer alive,
• your surviving children equally, or if you have no surviving children,
• your estate.
If more than one Beneficiary survives you (or the Annuitant if the Contract Owner is not a natural person), we will divide the death benefit among your Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the death benefit in equal amounts to the surviving Beneficiaries.
MODIFICATION OF THE CONTRACT
Only an Allstate New York officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law.
ASSIGNMENT
You may not assign any interest in a Contract as collateral or security for a loan. However, you may assign periodic income payments under the Contract prior to the Payout Start Date. No Beneficiary may assign benefits under the Contract until they are due. We will not be bound by any assignment until the assignor signs it and files it with us. We are not responsible for the validity of any assignment.
Federal law prohibits or restricts the assignment of benefits under many types of retirement plans and the terms of such plans may themselves contain restrictions on assignments. An assignment may also result in taxes and tax penalties. YOU SHOULD CONSULT WITH YOUR ATTORNEY BEFORE TRYING TO ASSIGN YOUR CONTRACT.
PURCHASES
MINIMUM PURCHASE PAYMENTS
Your initial purchase payment must be at least $3,000 ($2,000 for a Qualified Contract). All subsequent purchase payments must be $100 ($500 for allocations to the Fixed Account) or more. You may make purchase payments at any time prior to the Payout Start Date. We reserve the right to limit the maximum amount of purchase payments, or reduce the minimum purchase payment we will accept. We reserve the right to reject any application.
18 PROSPECTUS
AUTOMATIC ADDITIONS PROGRAM
You may make subsequent purchase payments of at least $100 ($500 for allocation to the Fixed Account) by automatically transferring amounts from your bank account. Please consult with your representative for detailed information.
ALLOCATION OF PURCHASE PAYMENTS
At the time you apply for a Contract, you must decide how to allocate your purchase payments among the investment alternatives. The allocation you specify on your application will be effective immediately. All allocations must be in whole percents that total 100% or in whole dollars. You can change your allocations by notifying us in writing. We reserve the right to limit the availability of the investment alternatives.
We will allocate your purchase payments to the investment alternatives according to your most recent instructions on file with us. Unless you notify us in writing otherwise, we will allocate subsequent purchase payments according to the allocation for the previous purchase payment. We will effect any change in allocation instructions at the time we receive written notice of the change in good order.
We will credit the initial purchase payment that accompanies your completed application to your Contract within 2 business days after we receive the payment at our service center. If your application is incomplete, we will ask you to complete your application within 5 business days. If you do so, we will credit your initial purchase payment to your Contract within that 5 business day period. If you do not, we will return your purchase payment at the end of the 5 business day period unless you expressly allow us to hold it until you complete the application. We will credit subsequent purchase payments to the Contract at the close of the business day on which we receive the purchase payment at our service center located in Vernon Hills, Illinois (mailing address: 300 N. Milwaukee Ave., Vernon Hills, IL 60061.
We are open for business each day Monday through Friday that the New York Stock Exchange is open for business. We also refer to these days as “VALUATION DATES.” Our business day closes when the New York Stock Exchange closes, usually 4:00 p.m. Eastern Time (3:00 p.m. Central Time). If we receive your purchase payment after 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date, we will credit your purchase payment using the Accumulation Unit Values computed on the next Valuation Date.
RIGHT TO CANCEL
You may cancel the Contract by returning it to us within the Cancellation Period, which is the 10 day period after you receive the Contract (60 days if you are exchanging another contract for the Contract described in this prospectus). You may return it by delivering it or mailing it to us. If you exercise this “RIGHT TO CANCEL,” the Contract terminates and we will pay you the full amount of your purchase payments allocated to the Fixed Account. Upon cancellation, as permitted by federal or state law, we will return your purchase payments allocated to the Variable Account after an adjustment to the extent federal or state law permits to reflect investment gain or loss that occurred from the date of allocation through the date of cancellation. If your Contract is qualified under Section 408 of the Internal Revenue Code, we will refund the greater of any purchase payments or the Contract Value.
CONTRACT VALUE
On the Issue Date, the Contract Value is equal to the initial purchase payment. Your Contract Value at any other time during the Accumulation Phase is equal to the sum of the value as of the most recent Valuation Date of your Accumulation Units in the Variable Sub-Accounts you have selected, plus the value of your investment in the Fixed Account.
ACCUMULATION UNITS
To determine the number of Accumulation Units of each Variable Sub-Account to credit to your Contract, we divide (i) the amount of the purchase payment or transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of that Variable Sub-Account next computed after we receive your payment or transfer. For example, if we receive a $10,000 purchase payment allocated to a Variable Sub-Account when the Accumulation Unit Value for the Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Sub-Account allocated to your Contract.
19 PROSPECTUS
ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect:
• changes in the share price of the Portfolio in which the Variable Sub-Account invests, and
• the deduction of amounts reflecting the mortality and expense risk charge, administrative expense charge, and any provision for taxes that have accrued since we last calculated the Accumulation Unit Value.
We determine contract maintenance charges, withdrawal charges, and transfer fees (currently waived) separately for each Contract. They do not affect Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we calculate Accumulation Unit Value, please refer to the Statement of Additional Information.
We determine a separate Accumulation Unit Value for each Variable Sub-Account on each Valuation Date.
YOU SHOULD REFER TO THE PROSPECTUSES FOR THE PORTFOLIOS THAT ACCOMPANY THIS PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE.
INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS
You may allocate your purchase payments to up to 39 Variable Sub-Accounts. Each Variable Sub-Account invests in the shares of a corresponding Portfolio. Each Portfolio has its own investment objective(s) and policies. We briefly describe the Portfolios below.
For more complete information about each Portfolio, including expenses and risks associated with the Portfolio, please refer to the accompanying prospectuses for the Portfolios. You should carefully review the Portfolio prospectuses before allocating amounts to the Variable Sub-Accounts.
PORTFOLIO: | EACH PORTFOLIO SEEKS: | |||||||
AIM VARIABLE INSURANCE FUNDS | ||||||||
AIM V.I. Balanced Fund* | Achieve as high a total return as possible, consistent with preservation of capital. | |||||||
AIM V.I. Core Equity Fund*** | Growth of capital with a secondary objective of current income | AIM ADVISORS, INC. | ||||||
AIM V.I. Diversified Income Fund* | A high level of current income | |||||||
AIM V.I. Government Securities Fund* | A high level of current income consistent with a reasonable concern for safety of principal | |||||||
AIM V.I. Growth Fund* | Growth of capital | |||||||
AIM V.I. International Growth Fund**** | Long-term growth of capital | |||||||
AIM V.I. Premier Equity Fund***** | Long-term growth of capital. Income is a secondary objective. |
20 PROSPECTUS
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; THE DREYFUS STOCK INDEX FUND; AND THE DREYFUS VARIABLE INVESTMENT FUND (VIF) (COLLECTIVELY, THE DREYFUS FUNDS)
The Dreyfus Socially Responsible Growth Fund, Inc. | Capital growth and, secondarily, current income | |||||||
Dreyfus Stock Index Fund | To match the total return Stock Price Index of the Standard & Poor’s(C) 500 Composite | THE DREYFUS CORPORATION | ||||||
Dreyfus VIF Growth & Income Portfolio | Long-term capital growth, income current and growth of income, consistent with reasonable investment risk | |||||||
Dreyfus VIF Money Market Portfolio | A high level of current income as is consistent with the preservation of capital and the maintenance of liquidity |
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Fidelity VIP Equity-Income Portfolio | Reasonable income | |||||||
Fidelity VIP Growth Portfolio | Capital appreciation | FIDELITY MANAGEMENT & RESEARCH COMPANY | ||||||
Fidelity VIP High Income Portfolio | High level of current income while also considering growth of capital | |||||||
Fidelity VIP Contrafund(R) | Portfolio Long-term capital appreciation |
21 PROSPECTUS
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (VIP) -- CLASS 2
Franklin Small Cap Fund | Long-term capital growth | FRANKLIN ADVISERS, INC. | ||||||
Mutual Shares Securities Fund | Capital appreciation. Secondary goal is income. | FRANKLIN MUTUAL ADVISORS, LLC. | ||||||
Templeton Developing Markets Securities Fund | Long-term capital Appreciation | TEMPLETON ASSET MANAGEMENT LTD. | ||||||
Templeton Growth Securities Fund | Long-term capital growth | TEMPLETON GLOBAL ADVISORS LIMITED | ||||||
Templeton International Securities Fund | Long-term capital growth | TEMPLETON INVESTMENT COUNSEL, LLC. | ||||||
GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT) | ||||||||
Goldman Sachs VIT Capital Growth Fund | Long-term growth of capital | |||||||
Goldman Sachs VIT Core(SM)Small Cap Equity Fund | Long-term growth of capital | GOLDMAN SACHS ASSET MANAGEMENT | ||||||
Goldman Sachs VIT Core(SM)U.S. Equity Fund | Long-term growth of capital and dividend income | |||||||
Goldman Sachs VIT International Equity Fund | Long-term capital appreciation | GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL | ||||||
MFS(R) VARIABLE INSURANCE TRUST(SM) | ||||||||
MFS Emerging Growth Series | Long-term growth of capital | |||||||
MFS Investors Trust Series** | Long-term growth of capital with a secondary objective to seek reasonable current income | MFS INVESTMENT MANAGEMENT(R) | ||||||
MFS New Discovery Series | Capital appreciation | |||||||
MFS Research Series | Long-term growth of capital and future income | |||||||
THE UNIVERSAL INSTITUTIONAL FUNDS, INC. | ||||||||
Van Kampen UIF Equity Growth****** | Long-term capital appreciation | |||||||
Van Kampen UIF Core Plus Fixed Income****** | Above-average total return over a market cycle of three to five years | MORGAN STANLEY ASSET MANAGEMENT | ||||||
Van Kampen UIF Global Equity****** | Long-term capital appreciation | |||||||
Van Kampen UIF Mid Cap Value****** | Above-average total return over a market cycle of three to five years | |||||||
Van Kampen UIF Value****** | Above-average total return over a market cycle of three to five years | MILLER ANDERSON & SHERRERD, LLP |
22 PROSPECTUS
OPPENHEIMER VARIABLE ACCOUNT FUNDS | ||||||||
Oppenheimer Aggressive Growth Fund/VA | Capital appreciation | |||||||
Oppenheimer Capital Appreciation Fund/VA | Capital appreciation | |||||||
OPPENHEIMER FUNDS, INC. | ||||||||
Oppenheimer Global Securities Fund/VA | Long-term capital appreciation | |||||||
Oppenheimer Main Street Growth & Income Fund/VA | High total return, which includes growth in the value of its shares as well as current income, from equity and debt securities | |||||||
Oppenheimer Strategic Bond Fund/VA | High level of current income |
* | The Portfolio’s investment objectives may be changed by the Portfolio’s Board of Trustees without shareholder approval. | ||||
** | Effective May 1, 2001, the MFS Growth with Income Series changed its name to MFS Investors Trust Series, and changed its investment policies. | ||||
*** | Effective May 1, 2002, the Portfolio changed its name from AIM V.I. Growth and Income Fund to AIM V.I. Core Equity Fund. We have made a corresponding change in the name of the Variable Sub-Account that invests in that Portfolio. | ||||
**** | Effective May 1, 2002, the Portfolio changed its name from AIM V.I. International Equity Fund to AIM V.I. International Growth Fund. We have made a corresponding change in the name of the Variable Sub-Account that invests in that Portfolio. | ||||
***** | Effective May 1, 2002, the Portfolio changed its name from AIM V.I. Value Fund to AIM V.I. Premier Equity Fund. We have made a corresponding change in the name of the Variable Sub-Account that invests in that Portfolio. | ||||
****** | Effective May 1, 2002, the Portfolio changed its name from Morgan Stanley to Van Kampen. We have made a corresponding change in the name of the Variable Sub-Account that invests in that Portfolio. |
AMOUNTS YOU ALLOCATE TO VARIABLE SUB-ACCOUNTS MAY GROW IN VALUE, DECLINE IN VALUE, OR GROW LESS THAN YOU EXPECT, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
VARIABLE INSURANCE PORTFOLIOS MIGHT NOT BE MANAGED BY THE SAME PORTFOLIO MANAGERS WHO MANAGE RETAIL MUTUAL FUNDS WTH SIMILAR NAMES. THESE PORTFOLIOS ARE LIKELY TO DIFFER FROM SIMILARLY NAMED RETAIL FUNDS IN ASSETS, CASH FLOW, AND TAX MATTERS. ACCORDINGLY, THE HOLDINGS ARE RESULT OF VARIABLE INSURANCE PORTFOLIO CAN BE EXPECTED TO BE HIGHER AS LEVELS THAN THE INVESTMENT RESULTS OF A SIMILARLY NAMED RETAIL MUTUAL FUND.
23 PROSPECTUS
INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT OPTIONS
You may allocate all or a portion of your purchase payments to the Fixed Account Options. We will credit a minimum annual interest rate of 3% to money you allocate to any of the Fixed Account Options. Please consult with your representative for current information. The Fixed Account consists of our general account assets other than those in segregated asset accounts. We have sole discretion to invest the assets of the Fixed Account, subject to applicable law. Any money you allocate to the Fixed Account Option does not entitle you to share in the investment experience of the Fixed Account.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTIONS
SIX MONTH DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. Under this Option, you may establish a Dollar Cost Averaging Program by allocating purchase payments to The Six Month Dollar Cost Averaging Fixed Account Option (“Six Month DCA Fixed Account Option”). We will credit interest to purchase payments you allocate to this Option for six months at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound at the annual interest rate we guaranteed at the time of allocation.
We will follow your instructions in transferring amounts monthly from the Six Month DCA Fixed Account Option. You must transfer all of your money out of the Six Month DCA Fixed Account Option to the Variable Sub-Accounts in six equal monthly installments. If you discontinue the Six Month Dollar Cost Averaging Option before the end of the transfer period, we will transfer the remaining balance in this Option to the Dreyfus VIF Money Market Variable Sub-Account unless you request a different investment alternative. No transfers are permitted into the Six Month DCA Fixed Account.
For each purchase payment allocated to this Option, your first monthly transfer will occur at the end of the first month following such purchase payment. If we do not receive an allocation from you within one month of the date of payment, we will transfer the payment plus associated interest to the Dreyfus VIF Money Market Variable Sub-Account in equal monthly installments. Transfering Account Value to the Money Market Variable Sub-Account in this manner may not be consistent with the theory of Dollar Cost Averaging described on page 23.
TWELVE MONTH DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. Under this Option, you may establish a Dollar Cost Averaging Program by allocating purchase payments to The Twelve Month Dollar Cost Averaging Fixed Account Option (“Twelve Month DCA Fixed Account Option”). We will credit interest to purchase payments you allocate to this Option for twelve months at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound at the annual interest rate we guaranteed at the time of allocation.
We will follow your instructions in transferring amounts monthly from the Twelve Month DCA Fixed Account Option. You must transfer all of your money out of the Twelve Month DCA Fixed Account Option to the Variable Sub-Accounts in twelve equal monthly installments. If you discontinue the Twelve Month Dollar Cost Averaging Option before the end of the transfer period, we will transfer the remaining balance in this Option to the Dreyfus VIF Money Market Variable Sub-Account unless you request a different investment alternative. No transfers are permitted into the Twelve Month DCA Fixed Account.
For each purchase payment allocated to this Option, your first monthly transfer will occur at the end of the first month following such purchase payment. If we do not receive an allocation from you within one month of the date of payment, we will transfer the payment plus associated interest to the Dreyfus VIF Money Market Variable Sub-Account in equal monthly installments. Transferring Account Value to the Money Market Variable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 23.
At the end of the transfer period, any nominal amounts remaining in the Six Month Dollar Cost Averaging Fixed Account or the Twelve Month Dollar Cost Averaging Fixed Account will be allocated to the Dreyfus VIF Money Market Variable Sub-Account.
Transfers out of the Dollar Cost Averaging Fixed Account Options do not count towards the 12 transfers you can make without paying a transfer fee.
INVESTMENT RISK. We bear the investment risk for all amounts allocated to the Six Month DCA Fixed Account Option and the Twelve Month DCA Fixed Account Option. That is because we guarantee the current interest rates we credit to the amounts you allocate to either of these Options, which will never be less than the minimum guaranteed rate in the Contract. Currently, we determine, in our sole discretion, the amount of interest credited in excess of the guaranteed rate.
We may declare more than one interest rate for different monies based upon the date of allocation to the Six Month DCA Fixed Account Option and the Twelve Month DCA Fixed Account Option. For current interest rate information, please contact your representative or our customer support unit at 1-800-692-4682.
24 PROSPECTUS
GUARANTEE PERIODS
Under this option, each payment or transfer allocated to the Fixed Account earns interest at a specified rate that we guarantee for a period of years we call a GUARANTEE PERIOD. Guarantee Periods may range from 1 to 10 years. We are currently offering Guarantee Periods of 1, 3, 5, 7, and 10 years in length. In the future we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods. You select one or more Guarantee Periods for each purchase payment or transfer. If you do not select the Guarantee Period for a purchase payment or transfer, we will assign the shortest Guarantee Period available under the Contract for such payment or transfer.
Each payment or transfer allocated to a Guarantee Period must be at least $500. We reserve the right to limit the number of additional purchase payments that you may allocate to the Fixed Account. Please consult with your sales representative for more information.
INTEREST RATES. We will tell you what interest rates and Guarantee Periods we are offering at a particular time. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. We will not change the interest rate that we credit to a particular allocation until the end of the relevant Guarantee Period.
We have no specific formula for determining the rate of interest that we will declare initially or in the future. We will set those interest rates based on investment returns available at the time of the determination. In addition, we may consider various other factors in determining interest rates including regulatory and tax requirements, our sales commission and administrative expenses, general economic trends, and competitive factors. We determine the interest rates to be declared in our sole discretion. We can neither predict nor guarantee what those rates will be in the future. For current interest rate information, please contact your sales representative or ALLSTATE NEW YORK at 1-800-692-4682. The interest rate will never be less than the minimum guaranteed amount stated in the Contract.
HOW WE CREDIT INTEREST. We will credit interest daily to each amount allocated to a Guarantee Period at a rate that compounds to the effective annual interest rate that we declared at the beginning of the applicable Guarantee Period.
The following example illustrates how a purchase payment allocated to the Fixed Account would grow, given an assumed Guarantee Period and effective annual interest rate:
Purchase Payment | $10,000 | ||||
Guarantee Period | 5 years | ||||
Annual Interest Rate | 4.50 | % |
END OF CONTRACT YEAR | |||||||||||||||||
YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | |||||||||||||
Beginning Contract Value | $10,000.00 | ||||||||||||||||
x (1 + Annual Interest Rate) | x 1.045 | ||||||||||||||||
$10,450.00 | |||||||||||||||||
Contract Value at end of Contract Year | $10,450.00 | ||||||||||||||||
x (1 + Annual Interest | x 1.045 | ||||||||||||||||
$10,920.25 | |||||||||||||||||
Contract Value at end of Contract Year | $10,920.25 | ||||||||||||||||
x (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$11,411.66 | |||||||||||||||||
Contract Value at end of Contract Year | $11,411.66 | ||||||||||||||||
x (1 + Annual Interest Rate) | x 1.045 | ||||||||||||||||
$11,925.19 | |||||||||||||||||
Contract Value at end of Contract Year | $11,925.19 | ||||||||||||||||
x (1 + Annual Interest Rate) | 1.045 | ||||||||||||||||
$12,461.82 |
25 PROSPECTUS
26 PROSPECTUS
TOTAL INTEREST CREDITED DURING GUARANTEE PERIOD = $2,461.82 ($12,461.82-$10,000)
This example assumes no withdrawals during the entire 5 year Guarantee Period. If you were to make a withdrawal, you may be required to pay a withdrawal charge. In addition, the amount withdrawn may be increased or decreased by a Market Value Adjustment that reflects changes in interest rates since the time you invested the amount withdrawn. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. The hypothetical interest rate is for illustrative purposes only and is not intended to predict future interest rates to be declared under the Contract. Actual interest rates declared for any given Guarantee Period may be more or less than shown above but will never be less than the guaranteed minimum rate stated in the Contract.
RENEWALS. At least 15 but not more than 45 days prior to the end of each Guarantee Period, we will mail you a notice asking you what to do with your money, including the accrued interest. During the 30-day period after the end of the Guarantee Period, you may:
1) take no action. We will automatically apply your money to a new Guarantee Period of the shortest duration available. The new Guarantee Period will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for a Guarantee Period of that length; or
2) Instruct us to apply your money to one or more new Guarantee Periods of your choice. The new Guarantee Period(s) will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for those Guarantee Periods; or
3) Instruct us to transfer all or a portion of your money to one or more Variable Sub-Accounts. We will effect the transfer on the day we receive your instructions. We will not adjust the amount transferred to include a Market Value Adjustment. We will pay interest from the day the Guarantee Period expired until the date of the transfer. The interest will be the rate for the Shortest Guarantee Period then being offered; or
4) Withdraw all or a portion of your money. You may be required to pay a withdrawal charge, but we will not adjust the amount withdrawn to include a Market Value Adjustment. You may also be required to pay premium taxes and withholding (if applicable). The amount withdrawn will be deemed to have been withdrawn on the day the previous Guarantee Period ends. Unless you specify otherwise, amounts not withdrawn will be applied to a new Guarantee Period of the shortest duration available. The new Guarantee Period will begin on the day the previous Guarantee Period ends. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
Under our automatic laddering program (“Automatic Laddering Program”), you may choose, in advance, to use Guarantee Periods of the same length for all renewals. You can select this Program at any time during the Accumulation Phase, including on the Issue Date. We will apply renewals to Guarantee Periods of the selected length until you direct us in writing to stop. We may stop offering this Program at any time. For additional information on the Automatic Laddering Program, please call our customer service center at 1-800-692-4682.
MARKET VALUE ADJUSTMENT. All withdrawals in excess of the PREFERRED WITHDRAWAL AMOUNT, and transfers from a Guarantee Period, other than those taken during the 30 day period after such Guarantee Period expires, are subject to a Market Value Adjustment. A Market Value Adjustment also applies when you apply amounts currently invested in a Guarantee Period to an Income Plan (unless paid or applied during the 30 day period after such Guarantee Period expires). A positive Market Value Adjustment will apply to amounts currently invested in a Guarantee Period that are paid out as death benefits. We will not apply a Market Value Adjustment to a transfer you make as part of a Dollar Cost Averaging Program. We also will not apply a Market Value Adjustment to a withdrawal you make:
• within the Preferred Withdrawal Amount as described on page 24, or
• to satisfy the IRS minimum distribution rules for the Contract.
We apply the Market Value Adjustment to reflect changes in interest rates from the time you first allocate money to a Guarantee Period to the time it is removed from that Guarantee Period. We calculate the Market Value Adjustment by comparing the Treasury Rate for a period equal to the Guarantee Period at its inception to the Treasury Rate for a period equal to the time remaining in the Guarantee Period when you remove your money. “TREASURY RATE” means the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Bulletin Release H.15.
27 PROSPECTUS
The Market Value Adjustment may be positive or negative, depending on changes in interest rates. As such, you bear the investment risk associated with changes in interest rates. If interest rates increase significantly, the Market Value Adjustment and any withdrawal charge, premium taxes, and income tax withholding (if applicable) could reduce the amount you receive upon full withdrawal of your Contract Value to an amount that is less than the purchase payment plus interest at the minimum guaranteed interest rate under the Contract.
Generally, if the Treasury Rate at the time you allocate money to a Guarantee Period is higher than the applicable current Treasury Rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a higher amount payable to you or transferred. Conversely, if the Treasury Rate at the time you allocate money to a Guarantee Period is lower than the applicable Treasury Rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a lower amount payable to you or transferred.
For example, assume that you purchase a Contract and you select an initial Guarantee Period of 5 years and the 5 year Treasury Rate for that duration is 4.50%. Assume that at the end of 3 years, you make a partial withdrawal. If, at that later time, the current 2 year Treasury Rate is 4.20%, then the Market Value Adjustment will be positive, which will result in an increase in the amount payable to you. Conversely, if the current 2 year Treasury Rate is 4.80%, then the Market Value Adjustment will be negative, which will result in a decrease in the amount payable to you.
The formula for calculating Market Value Adjustments is set forth in Appendix A to this prospectus, which also contains additional examples of the application of the Market Value Adjustment.
INVESTMENT ALTERNATIVES: TRANSFERS
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer Contract Value among the investment alternatives at any time. The minimum amount that you may transfer into a Guarantee Period is $500. You may request transfers in writing on a form that we provided or by telephone according to the procedure described below. We currently do not assess, but reserve the right to assess, a $10 charge on each transfer in excess of 12 per Contract Year. We treat transfers to or from more than one Portfolio on the same day as one transfer. Transfers you make as part of a Dollar Cost Averaging Program or Automatic Portfolio Rebalancing Program do not count against the 12 free transfers per Contract Year.
We will process transfer requests that we receive before 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date using the Accumulation Unit Values for that Date. We will process requests completed after 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date using the Accumulation Unit Values for the next Valuation Date. The Contract permits us to defer transfers from the Fixed Account for up to 6 months from the date we receive your request. If we decide to postpone transfers from the Fixed Account for 10 days or more, we will pay interest as required by applicable law. Any interest would be payable from the date we receive the transfer request to the date we make the transfer.
If you transfer an amount from a Guarantee Period other than during the 30 day period after such Guarantee Period expires, we will increase or decrease the amount by a Market Value Adjustment. If any transfer reduces your value in such Guarantee Period to less than $500, we will treat the request as a transfer of the entire value in such Guarantee Period.
We reserve the right to waive any transfer fees and restrictions.
TRANSFERS DURING THE PAYOUT PHASE
During the Payout Phase, you may make transfers among the Variable Sub-Accounts to change the relative weighting of the Variable Sub-Accounts on which your variable income payments will be based. In addition, you will have a limited ability to make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. You may not, however, convert any portion of your right to receive fixed income payments into variable income payments.
You may not make any transfers for the first 6 months after the Payout Start Date. Thereafter, you may make transfers among the Variable Sub-Accounts or make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. Your transfers must be at least 6 months apart.
28 PROSPECTUS
TELEPHONE TRANSFERS
You may make transfers by telephone by calling 1-800-692-4682, if you first send us a completed authorization form. The cut off time for telephone transfer requests is 4:00 p.m. Eastern Time (3:00 p.m. Central Time). In the event that the New York Stock Exchange closes early, i.e., before 4:00 p.m. Eastern Time (3:00 p.m. Central Time), or in the event that the Exchange closes early for a period of time but then reopens for trading on the same day, we will process telephone transfer requests as of the close of the Exchange on that particular day. We will not accept telephone requests received at any telephone number other than the number that appears in this paragraph or received after the close of trading on the Exchange.
We may suspend, modify or terminate the telephone transfer privilege at any time without notice.
We use procedures that we believe provide reasonable assurance that the telephone transfers are genuine. For example, we tape telephone conversations with persons purporting to authorize transfers and request identifying information. Accordingly, we disclaim any liability for losses resulting from allegedly unauthorized telephone transfers. However, if we do not take reasonable steps to help ensure that a telephone authorization is valid, we may be liable for such losses.
EXCESSIVE TRADING LIMITS
We reserve the right to limit transfers among the Variable Sub-Accounts in any Contract year, or to refuse any Variable Sub-Account transfer request, if:
• we believe, in our sole discretion, that excessive trading by such Contract Owner or Owners, or a specific transfer request or group of transfer requests, may have a detrimental effect on the Accumulation Unit Values of any Variable Sub-Account or the share prices of the corresponding Portfolio or would be to the disadvantage of other Contract owners; or
• we are informed by one or more of the Portfolios that they intend to restrict the purchase or redemption of Portfolio shares because of excessive trading or because they believe that a specific transfer or groups of transfers would have a detrimental effect on the prices of Portfolio shares.
We may apply the restrictions in any manner reasonably designed to prevent transfers that we consider disadvantageous to other Contract Owners.
DOLLAR COST AVERAGING PROGRAM
Through the Dollar Cost Averaging Program, you may automatically transfer a set amount every month during the Accumulation Phase from any Variable Sub-Account, or the the Six Month DCA Fixed Account, or the Twelve Month DCA Fixed Account Option, to any other Variable Sub-Account. You may not use dollar cost averaging to transfer amounts to the Fixed Account.
We will not charge a transfer fee for transfers made under this Program, nor will such transfers count against the 12 transfers you can make each Contract Year without paying a transfer fee. In addition, we will not apply the Market Value Adjustment to these transfers.
The theory of dollar cost averaging is that if purchases of equal dollar amounts are made at fluctuating prices, the aggregate average cost per unit will be less than the average of the unit prices on the same purchase dates. However, participation in this Program does not assure you of a greater profit from your purchases under the Program nor will it prevent or necessarily reduce losses in a declining market.
Call or write us for instructions on how to enroll.
AUTOMATIC PORTFOLIO REBALANCING PROGRAM
Once you have allocated your money among the Variable Sub-Accounts, the performance of each Sub-Account may cause a shift in the percentage you allocated to each Sub-Account. If you select our Automatic Portfolio Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. Money you allocate to the Fixed Account will not be included in the rebalancing.
We will rebalance your account each quarter according to your instructions. We will transfer amounts among the Variable Sub-Accounts to achieve the percentage allocations you specify. You can change your allocations at any time by contacting us in writing or by telephone. The new allocation will be effective with the first rebalancing that occurs after we receive your request. We are not responsible for rebalancing that occurs prior to receipt of your request.
29 PROSPECTUS
Example:
Assume that you want your initial purchase payment split among 2 Variable Sub-Accounts. You want 40% to be in the AIM V.I. Balanced Variable Sub-Account and 60% to be in the Fidelity VIP Growth Variable Sub-Account. Over the next 2 months the bond market does very well while the stock market performs poorly. At the end of the first quarter, the AIM V.I. Balanced Variable Sub-Account now represents 50% of your holdings because of its increase in value. If you choose to have your holdings rebalanced quarterly, on the first day of the next quarter we would sell some of your units in the AIM V.I. Balanced Variable Sub-Account and use the money to buy more units in the Fidelity VIP Growth Variable Sub-Account so that the percentage allocations would again be 40% and 60% respectively.
The Automatic Portfolio Rebalancing Program is available only during the Accumulation Phase. The transfers made under the Program do not count towards the 12 transfers you can make without paying a transfer fee, and are not subject to a transfer fee.
Portfolio rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Contract Value allocated to the better performing segments.
You may not use the Dollar Cost Averaging and Automatic Portfolio Rebalancing programs at the same time.
EXPENSES
As a Contract Owner, you will bear, directly or indirectly, the charges and expenses described below.
CONTRACT MAINTENANCE CHARGE
During the Accumulation Phase, on each Contract Anniversary, we will deduct a $30 contract maintenance charge from your Contract Value invested in each Variable Sub-Account in proportion to the amount invested. We also will deduct a full contract maintenance charge if you withdraw your entire Contract Value, unless your Contract qualifies for a waiver, described below. During the Payout Phase, we will deduct the charge proportionately from each income payment.
The charge is for the cost of maintaining each Contract and the Variable Account. Maintenance costs include expenses we incur in billing and collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract Owners and regulatory agencies. We cannot increase the charge. We will waive this charge if:
• total purchase payments equal $50,000 or more, or
• all of your money is allocated to the Fixed Account on a Contract Anniversary.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily at an annual rate of 1.15% of the average daily net assets you have invested in the Variable Sub-Accounts. The mortality and expense risk charge is for all the insurance benefits available with your Contract (including our guarantee of annuity rates and the death benefits), for certain expenses of the Contract, and for assuming the risk (expense risk) that the current charges will be sufficient in the future to cover the cost of administering the Contract. If the charges under the Contract are not sufficient, then we will bear the loss.
We guarantee the mortality and expense risk charge and we cannot increase it. We assess the mortality and expense risk charge during both the Accumulation Phase and the Payout Phase.
ADMINISTRATIVE EXPENSE CHARGE
We deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-Accounts. We intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed to that Contract. We assess this charge each day during the Accumulation Phase and the Payout Phase. We guarantee that we will not raise this charge.
30 PROSPECTUS
TRANSFER FEE
We do not currently impose a fee upon transfers among the investment alternatives. However, we reserve the right to charge $10 per transfer after the 12th transfer in each Contract Year. We will not charge a transfer fee on transfers that are part of a Dollar Cost Averaging or Automatic Portfolio Rebalancing Program.
WITHDRAWAL CHARGE
We may assess a withdrawal charge of up to 7% of the purchase payment(s) you withdraw in excess of the Preferred Withdrawal Amount, adjusted by a Market Value Adjustment. The charge declines by 1% annually to 0% after 7 complete years from the day we receive the purchase payment being withdrawn. A schedule showing how the charge declines appears on page 6. During each Contract Year, you can withdraw up to 15% of purchase payments without paying the charge. Unused portions of this 15% “PREFERRED WITHDRAWAL AMOUNT” are not carried forward to future Contract Years.
We determine the withdrawal charge by:
• multiplying the percentage corresponding to the number of complete years since we received the purchase payment being withdrawn, times
• the part of each purchase payment withdrawal that is in excess of the Preferred Withdrawal Amount, adjusted by a Market Value Adjustment.
We will deduct withdrawal charges, if applicable, from the amount paid. For purposes of the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings in the Contract, which means you pay taxes on the earnings portion of your withdrawal.
We do not apply a withdrawal charge in the following situations:
• on the Payout Start Date (a withdrawal charge may apply if you elect to receive income payments for a specified period of less than 120 months);
• the death of the Contract Owner or Annuitant (unless the Settlement Value is used);
• withdrawals taken to satisfy IRS minimum distribution rules for the Contract; or
• withdrawals made after all purchase payments have been withdrawn.
We use the amounts obtained from the withdrawal charge to pay sales commissions and other promotional or distribution expenses associated with marketing the Contracts. To the extent that the withdrawal charge does not cover all sales commissions and other promotional or distribution expenses, we may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or any other charges or fee described above, to make up any difference.
Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. Withdrawals may also be subject to a Market Value Adjustment. You should consult your own tax counsel or other tax advisers regarding any withdrawals.
PREMIUM TAXES
Currently, we do not make deductions for premium taxes under the Contract because New York does not charge premium taxes on annuities. We may deduct taxes that may be imposed in the future from purchase payments or the Contract Value when the tax is incurred or at a later time.
DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES
We are not currently making a provision for such taxes. In the future, however, we may make a provision for taxes if we determine, in our sole discretion, that we will incur a tax as a result of the operation of the Variable Account. We will deduct for any taxes we incur as a result of the operation of the Variable Account, whether or not we previously made a provision for taxes and whether or not it was sufficient. Our status under the Internal Revenue Code is briefly described in the Taxes section.
31 PROSPECTUS
OTHER EXPENSES
Each Portfolio deducts advisory fees and other expenses from its assets. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Variable Sub-Accounts. These fees and expenses are described in the accompanying prospectuses for the Portfolios. For a summary of these charges and expenses, see pages 8-10. We may receive compensation from the investment advisers or administrators of the Portfolios for administrative services we provide to the Portfolios.
ACCESS TO YOUR MONEY
You can withdraw some or all of your Contract Value at any time prior to the Payout Start Date. Full or partial withdrawals also are available under limited circumstances on or after the Payout Start Date. See “Income Plans” on page 25.
The amount payable upon withdrawal is the Contract Value next computed after we receive the request for a withdrawal at our customer service center, adjusted by any Market Value Adjustment, less any withdrawal charges, contract maintenance charges, income tax withholding, and any premium taxes. We will pay withdrawals from the Variable Account within 7 days of receipt of the request, subject to postponement in certain circumstances.
You can withdraw money from the Variable Account or the Fixed Account. To complete a partial withdrawal from the Variable Account, we will cancel Accumulation Units in an amount equal to the withdrawal and any applicable withdrawal charge and premium taxes.
Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
You must name the investment alternative from which you are taking the withdrawal. If none is named, then the withdrawal request is incomplete and cannot be honored.
In general, you must withdraw at least $50 at a time. You also may withdraw a lesser amount if you are withdrawing your entire interest in a Variable Sub-Account.
If you request a total withdrawal, you must return your Contract to us.
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under the Contract if:
1. The New York Stock Exchange is closed for other than usual weekends or holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the SEC; or
3. The SEC permits delay for your protection.
In addition, we may delay payments or transfers from the Fixed Account for up to 6 months or a shorter period if required by law. If we delay payment or transfer for 10 business days or more, we will pay interest as required by law. Any interest would be payable from the date we receive the withdrawal request to the date we make the payment or transfer.
SYSTEMATIC WITHDRAWAL PROGRAM
You may choose to receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or annual basis at any time prior to the Payout Start Date. The minimum amount of each systematic withdrawal is $50. At our discretion, systematic withdrawals may not be offered in conjunction with the Dollar Cost Averaging Program or the Automatic Portfolio Rebalancing Program.
Depending on fluctuations in the net asset value of the Variable Sub-Accounts and the value of the Fixed Account, systematic withdrawals may reduce or even exhaust the Contract Value. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. Please consult your tax advisor before taking any withdrawal.
We will make systematic withdrawal payments to you or your designated payee. We may modify or suspend the Systematic Withdrawal Program and charge a processing fee for the service. If we modify or suspend the Systematic Withdrawal Program, existing systematic withdrawal payments will not be affected.
32 PROSPECTUS
MINIMUM CONTRACT VALUE
If your request for a partial withdrawal would reduce the amount in any Guarantee Period to less than $500, we will treat it as a request to withdraw the entire amount invested in such Guarantee Period. If your request for a partial withdrawal would reduce your Contract Value to less than $1,000, we may treat it as a request to withdraw your entire Contract Value. Your Contract will terminate if you withdraw all of your Contract Value. We will, however, ask you to confirm your withdrawal request before terminating your Contract.
Before terminating any Contract whose value has been reduced by withdrawals to less than $1,000, we will inform you in writing of our intention to terminate your Contract and give you ast least 30 days in which to make an additional purchase payment to restore your Contract’s value to the contractual minimum of $1,000. If we terminate your Contract, we will distribute to you its Contract Value, adjusted by any applicable Market Value Adjustment, less withdrawal and other charges and applicable taxes.
INCOME PAYMENTS
PAYOUT START DATE
The Payout Start Date is the day that we apply your money to an Income Plan. The Payout Start Date must be no later than the day the Annuitant reaches age 90, or the 10th Contract Anniversary, if later.
You may change the Payout Start Date at any time by notifying us in writing of the change at least 30 days before the scheduled Payout Start Date. Absent a change, we will use the Payout Start Date stated in your Contract.
INCOME PLANS
An “Income Plan” is a series of payments on a scheduled basis to you or to another person designated by you. You may choose and change your choice of Income Plan until 30 days before the Payout Start Date. If you do not select an Income Plan, we will make income payments in accordance with Income Plan 1 with guaranteed payments for 10 years if you have designated only one Annuitant or Income Plan 2 with guaranteed payments for 10 years if you have desginated joint Annuitants. After the Payout Start Date, you may not make withdrawals (except as described below) or change your choice of Income Plan.
Three Income Plans are available under the Contract. Each is available to provide:
• fixed income payments;
• variable income payments; or
• a combination of the two.
The three Income Plans are:
INCOME PLAN 1 - LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as the Annuitant lives. If the Annuitant dies before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract.
INCOME PLAN 2 - JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as either the Annuitant or the joint Annuitant is alive. If both the Annuitant and the joint Annuitant die before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract.
INCOME PLAN 3 - GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD (5 YEARS TO 30 YEARS). Under this plan, we make periodic income payments for the period you have chosen. These payments do not depend on the Annuitant’s life. Income payments for less than 120 months may be subject to a withdrawal charge. We will deduct the mortality and expense risk charge from the Variable Sub-Account assets that support variable income payments even though we may not bear any mortality risk.
The length of any guaranteed payment period under your selected Income Plan generally will affect the dollar amounts of each income payment. As a general rule, longer guarantee periods result in lower income payments, all other things being equal. For example, if you choose an Income Plan with payments that depend on the life of the Annuitant but with no minimum specified period for
33 PROSPECTUS
guaranteed payments, the income payments generally will be greater than the income payments made under the same Income Plan with a minimum specified period for guaranteed payments.
If you choose Income Plan 1 or 2, or, if available, another Income Plan with payments that continue for the life of the Annuitant or joint Annuitant, we may require proof of age and sex of the Annuitant or joint Annuitant before starting income payments, and proof that the Annuitant or joint Annuitant is alive before we make each payment.
Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on.
Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or part of the Variable Account portion of the income payments at any time and receive a lump sum equal to the present value of the remaining variable income payments associated with the amount withdrawn. To determine the present value of any remaining variable income payments being withdrawn, we use a discount rate equal to the assumed annual investment rate that we use to compute such variable income payments. The minimum amount you may withdraw under this feature is $1,000. A withdrawal charge may apply. You will also have a limited ability to make transfers from the Variable Account portion of the income payments to increase the proportion of your income payments consisting of fixed income payments. You may not, however, convert any portion of your right to receive fixed income payments into variable income payments. We deduct applicable premium taxes, if any, from the Contract Value at the Payout Start Date. New York does not currently impose a premium tax.
We may make other Income Plans available. You may obtain information about them by writing or calling us.
You must apply at least the Contract Value in the Fixed Account on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account balance to provide variable income payments, you should plan ahead and transfer that amount to the Variable Sub-Accounts prior to the Payout Start Date. If you do not tell us how to allocate your Contract Value among fixed and variable income payments, we will apply your Contract Value in the Variable Account to variable income payments and your Contract Value in the Fixed Account to fixed income payments.
We will apply your Contract Value, adjusted by a Market Value Adjustment, less applicable taxes to your Income Plan on the Payout Start Date. If the Contract Value is less than $2,000 or not enough to provide an initial payment of at least $20, and state law permits, we may:
• terminate the Contract and pay you the Contract Value, adjusted by any Market Value Adjustment and less any applicable taxes, in a lump sum instead of the periodic payments you have chosen, or
• reduce the frequency of your payments so that each payment will be at least $20.
VARIABLE INCOME PAYMENTS
The amount of your variable income payments depends upon the investment results of the Variable Sub-Accounts you select, the premium taxes you pay, the age and sex of the Annuitant, and the Income Plan you choose. We guarantee that the payments will not be affected by (a) actual mortality experience and (b) the amount of our administration expenses.
We cannot predict the total amount of your variable income payments. Your variable income payments may be more or less than your total purchase payments because (a) variable income payments vary with the investment results of the underlying Portfolio and (b) the Annuitant could live longer or shorter than we expect based on the tables we use.
In calculating the amount of the periodic payments in the annuity tables in the Contract, we assumed an annual investment rate of 3%. If the actual net investment return of the Variable Sub-Accounts you choose is less than this assumed investment rate, then the dollar amount of your variable income payments will decrease. The dollar amount of your variable income payments will increase, however, if the actual net investment return exceeds the assumed investment rate. The dollar amount of the variable income payments stays level if the net investment return equals the assumed investment rate.
Please refer to the Statement of Additional Information for more detailed information as to how we determine variable income payments.
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FIXED INCOME PAYMENTS
We guarantee income payment amounts derived from the Fixed Account for the duration of the Income Plan. We calculate the fixed income payments by:
1. adjusting the portion of the Contract Value in the Fixed Account on the Payout Start Date by any applicable Market Value Adjustment;
2. deducting any applicable premium tax; and
3. applying the resulting amount to the greater of (a) the appropriate value from the income payment table in your Contract or (b) such other value as we are offering at that time.
We may defer making fixed income payments for a period of up to 6 months or such shorter time as state law may require. If we defer payments for 10 business days or more, we will pay interest as required by law from the date we receive the withdrawal request to the date we make payment.
CERTAIN EMPLOYEE BENEFIT PLANS
The Contracts offered by this prospectus contain income payment tables that provide for different payments to men and women of the same age. However, we reserve the right to use income payment tables that do not distinguish on the basis of sex to the extent permitted by law. In certain employment-related situations, employers are required by law to use the same income payment tables for men and women. Accordingly, if the Contract is to be used in connection with an employment-related retirement or benefit plan, you should consult with legal counsel as to whether the purchase of a Contract is appropriate. For qualified plans, where it is appropriate, we may use income payment tables that do not distinguish on the basis of sex.
DEATH BENEFITS
We will pay a death benefit if, prior to the Payout Start Date:
1. any Contract owner dies or,
2. the Annuitant dies, if the Contract Owner is not a natural person.
We will pay the death benefit to the new Contract Owner who is determined immediately after the death. The new Contract Owner would be a surviving Contract Owner or, if none, the Beneficiary(ies).
DEATH BENEFIT AMOUNT
Prior to the Payout Start Date, the death benefit is equal to the greatest of:
1. the Contract Value as of the date we determine the death benefit, or
2. the SETTLEMENT VALUE (that is, the amount payable on a full withdrawal of Contract Value) on the date we determine the death benefit, or
3. the Contract Value on the DEATH BENEFIT
ANNIVERSARY immediately preceding the date we determine the death benefit, adjusted by any purchase payments, withdrawal adjustment as defined below, and charges made since that Death Benefit Anniversary. A “Death Benefit Anniversary” is every seventh Contract Anniversary beginning with the Issue Date. For example, the Issue Date, 7th and 14th Contract Anniversaries are the first three Death Benefit Anniversaries, or
4. the greatest of the Anniversary Values as of the date we determine the death benefit. An “Anniversary Value” is equal to the Contract Value on a Contract Anniversary, increased by purchase payments made since that anniversary and reduced by the amount of any withdrawal adjustment, as defined below, since that anniversary. Anniversary Values will be calculated for each Contract Anniversary prior to the earlier of:
(i) the date we determine the death benefit, or
(ii) the deceased’s 75th birthday or 5 years after the Issue Date, if later.
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A positive Market Value Adjustment will apply to amounts currently invested in a Guarantee Period that are paid out as death benefits.
The value of the death benefit will be determined at the end of the Valuation Date on which we receive a complete request for payment of the death benefit, which includes Due Proof of Death.
The withdrawal adjustment is equal to (a) divided by (b), with the result multiplied by (c), where:
(a) = the withdrawal amount,
(b) = the Contract Value immediately prior to the withdrawal, and
(c) = the value of the applicable death benefit alternative immediately prior to the withdrawal.
See Appendix C for an example representative of how the withdrawal adjustment applies.
We will not settle any death claim until we receive Due Proof of Death. We will accept the following documentation as Due Proof of Death:
• a certified copy of a death certificate; or
• a certified copy of a decree of a court of competent jurisdiction as to a finding of death; or
• any other proof acceptable to us.
DEATH BENEFIT PAYMENTS
A death benefit will be paid:
1. if the new Contract Owner elects to receive the death benefit distributed in a single payment within 180 days of the date of death, and
2. if the death benefit is paid as of the day the value of the death benefit is determined.
Otherwise, the Settlement Value will be paid. The new Contract Owner may make a single withdrawal of any amount within one year of the date of death without incurring a withdrawal charge. However, any applicable Market Value Adjustment, determined as of the date of the withdrawal, will apply.
We reserve the right to waive the 180 day limit on a non-discriminatory basis. The Settlement Value paid will be the Settlement Value next computed on or after the requested distribution date for payment, or on the mandatory distribution date of 5 years after the date of death.
In any event, the entire value of the Contract must be distributed within 5 years after the date of death unless an Income Plan is elected or a surviving spouse continues the Contract in accordance with the provisions described below.
If the Contract Owner eligible to receive the death benefit is not a natural person, the Contract Owner may elect to receive the distribution upon death in one or more distributions. However, the entire value of the Contract must be distributed within five years after the date of death.
If the Contract Owner is a natural person, the Contract Owner may elect to receive the distribution upon death either in one or more distributions, or by periodic payments through an Income Plan. Payments from the Income Plan must begin within one year of the date of death and must be payable throughout:
• the life of the Contract Owner; or
• a period not to exceed the life expectancy of the Contract Owner; or
• the life of the Contract Owner with payments guaranteed for a period not to exceed the life expectancy of the Contract Owner.
If the surviving spouse of the deceased Contract Owner is the sole new Contract Owner, then the spouse may elect one of the options listed above or may continue the Contract in the Accumulation Phase as if the death had not occurred. The Contract may only be continued once.
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If the Contract is continued in the Accumulation Phase, the surviving spouse may make a single withdrawal of any amount within one year of the date of death without incurring a withdrawal charge. However, any applicable Market Value Adjustment, determined as of the date of the withdrawal, will apply. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
MORE INFORMATION
ALLSTATE NEW YORK
Allstate New York is the issuer of the Contract. Allstate New York is a stock life insurance company organized under the laws of the State of New York.
Allstate New York was incorporated in 1967 and was known as “Financial Life Insurance Company” from 1967 to 1978. From 1978 to 1984, Allstate New York was known as “PM Life Insurance Company.” Since 1984 the company has been known as “Allstate Life Insurance Company of New York.”
Allstate New York is currently licensed to operate in New York. Our home office is One Allstate Drive, Farmingville, New York 11738. Our service center is located in Vernon Hills, Illinois.
Allstate New York is a wholly owned subsidiary of Allstate Life Insurance Company (“Allstate Life”), a stock life insurance company incorporated under the laws of the State of Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance Company, a stock property-liability insurance company incorporated under the laws of the State of Illinois. With the exception of the directors qualifying shares, all of the outstanding capital stock of Allstate Insurance Company is owned by The Allstate Corporation.
Independent rating agencies regularly evaluate life insurers’ claims-paying ability, quality of investments, and overall stability. A.M. Best Company assigns an A+ (Superior) financial strength rating to Allstate Life, which results in A+g rating to Allstate New York due to its group affiliation with Allstate Life. Standard & Poor’s Insurance Rating Service assigns an AA+ (Very Strong) financial strength rating and Moody’s Investors Service assigns an Aa2 (Excellent) financial strength rating to Allstate New York, sharing the same ratings of its parents, Allstate Life. These ratings do not reflect the performance of the Variable Account.We may from time to time advertise these ratings in our sales literature.
THE VARIABLE ACCOUNT
Allstate New York established the Allstate Life of New York Separate Account A on December 15, 1995. We have registered the Variable Account with the SEC as a unit investment trust. The SEC does not supervise the management of the Variable Account or Allstate New York.
We own the assets of the Variable Account. The Variable Account is a segregated asset account under New York law. That means we account for the Variable Account’s income, gains and losses separately from the results of our other operations. It also means that only the assets of the Variable Account that are in excess of the reserves and other Contract liabilities with respect to the Variable Account are subject to liabilities relating to our other operations.
Our obligations arising under the Contracts are general corporate obligations of Allstate New York.
The Variable Account consists of multiple Variable Sub-Accounts, 39 of which are available through the Contracts. Each Variable Sub-Account invests in a corresponding Portfolio. We may add new Variable Sub-Accounts or eliminate one or more of them, if we believe marketing, tax, or investment conditions so warrant. We do not guarantee the investment performance of the Variable Account, its Sub-Accounts or the Portfolios. We may use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account.
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THE CONTRACT
DISTRIBUTION. ALFS, Inc. (“ALFS”), located at 3100 Sanders Road, Northbrook, Illinois 60062, serves as principal underwriter of the Contracts. ALFS is a wholly owned subsidiary of Allstate Life Insurance Company. ALFS is a registered broker-dealer under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), and is a member of the National Association of Securities Dealers, Inc.
The Contracts described in this prospectus are sold by registered representatives of broker-dealers who are our licensed insurance agents, either individually or through an incorporated insurance agency. Commission paid to broker-dealers may vary, but we estimate that the total commissions paid on all Contract sales to broker-dealers will not exceed 6.25% of any purchase payments. These commissions are intended to cover distribution expenses. From time to time, we may offer additional sales incentives of up to 1% of purchase payments to broker-dealers who maintain certain sales volume levels.
Allstate New York does not pay ALFS a commission for distribution of the Contracts. The underwriting agreement with ALFS provides that we will reimburse ALFS for any liability to Contract Owners arising out of services rendered or Contracts issued.
ADMINISTRATION. We have primary responsibility for all administration of the Contracts and the Variable Account. We provide the following administrative services, among others:
• issuance of the Contracts;
• maintenance of Contract Owner records;
• Contract Owner services;
• calculation of unit values;
• maintenance of the Variable Account; and
• preparation of Contract Owner reports.
We will send you Contract statements and transaction confirmations at least annually. The annual statement details values and specific Contract data for each particular Contract. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error.
We also will provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws.
TAX QUALIFIED PLANS
If you use the Contract with a qualified plan, the plan may impose different or additional conditions or limitations on withdrawals, waivers of withdrawal charges, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if qualified plan limits on distributions and other conditions are not met. Please consult your qualified plan administrator for more information.
THE PORTFOLIOS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value.
VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Portfolios held by the Variable Sub-Accounts to which you have allocated your Contract Value. Under current law, however, you are entitled to give us instructions on how to vote those shares on certain matters. Based on our present view of the law, we will vote the shares of the Portfolios that we hold directly or indirectly through the Variable Account in accordance with instructions that we receive from Contract owners entitled to give such instructions.
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As a general rule, before the Payout Start Date, the Contract Owner or anyone with a voting interest is the person entitled to give voting instructions. The number of shares that a person has a right to instruct will be determined by dividing the Contract Value allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Portfolio as of the record date of the meeting. After the Payout Start Date, the person receiving income payments has the voting interest. The payee’s number of votes will be determined by dividing the reserve for such Contract allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Portfolio. The votes decrease as income payments are made and as the reserves for the Contract decrease.
We will vote shares attributable to Contracts for which we have not received instructions, as well as shares attributable to us, in the same proportion as we vote shares for which we have received instructions, unless we determine that we may vote such shares in our own discretion. We will apply voting instructions to abstain on any item to be voted on a pro-rata basis to reduce the votes eligible to be cast.
We reserve the right to vote Portfolio shares as we see fit without regard to voting instructions to the extent permitted by law. If we disregard voting instructions, we will include a summary of that action and our reasons for that action in the next semi-annual financial report we send to you.
CHANGES IN PORTFOLIOS. If the shares of any of the Portfolios are no longer available for investment by the Variable Account or if, in our judgment, further investment in such shares is no longer desirable in view of the purposes of the Contract, we may eliminate that Portfolio and substitute shares of another eligible investment portfolio. Any substitution of securities will comply with the requirements of the 1940 Act. We also may add new Variable Sub-Accounts that invest in additional mutual funds. We will notify you in advance of any changes.
CONFLICTS OF INTEREST. Certain of the Portfolios sell their shares to Variable Accounts underlying both variable life insurance and variable annuity contracts.
It is conceivable that in the future it may be unfavorable for variable life insurance Variable Accounts and variable annuity Variable Accounts to invest in the same Portfolio. The boards of directors of these Portfolios monitor for possible conflicts among Variable Accounts buying shares of the Portfolios.
Conflicts could develop for a variety of reasons. For example, differences in treatment under tax and other laws or the failure by a Variable Account to comply with such laws could cause a conflict. To eliminate a conflict, a Portfolio’s board of directors may require a Variable Account to withdraw its participation in a Portfolio. A Portfolio’s net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a Variable Account withdrawing because of a conflict.
LEGAL MATTERS
JordenBurt LLP, Washington, D.C., has advised ALLSTATE NEW YORK on certain federal securities law matters. All matters of New York law pertaining to the Contracts, including the validity of the Contracts and ALLSTATE NEW YORK’s right to issue such Contracts under New York insurance law, have been passed upon by Michael J. Velotta, General Counsel of Allstate New York.
TAXES
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. ALLSTATE NEW YORK MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of distributions under an annuity contract depend on your individual circumstances. If you are concerned about any tax consequences with regard to your individual circumstances, you should consult a competent tax adviser.
TAXATION OF ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
ALLSTATE NEW YORK is taxed as a life insurance company under Part I of Subchapter L of the Internal Revenue Code. Since the Variable Account is not an entity separate from ALLSTATE NEW YORK, and its operations form a part of ALLSTATE NEW YORK, it will not be taxed separately. Investment income and realized capital gains of the Variable Account are automatically applied to increase reserves under the Contract. Under existing federal income tax law, ALLSTATE NEW YORK believes that the Variable Account investment income and capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contract. Accordingly, ALLSTATE NEW YORK does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore ALLSTATE NEW YORK does not intend to make provisions for any such
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taxes. If ALLSTATE NEW YORK is taxed on investment income or capital gains of the Variable Account, then ALLSTATE NEW YORK may impose a charge against the Variable Account in order to make provision for such taxes.
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TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value until a distribution occurs. This rule applies only where:
1. the Contract Owner is a natural person,
2. the investments of the Variable Account are “adequately diversified” according to Treasury Department regulations, and
3. ALLSTATE NEW YORK is considered the owner of the Variable Account assets for federal income tax purposes.
NON-NATURAL OWNERS. As a general rule, annuity contracts owned by non-natural persons such as corporations, trusts, or other entities are not treated as annuity contracts for federal income tax purposes. The income on such contracts does not enjoy tax deferral and is taxed as ordinary income received or accrued by the owner during the taxable year.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE. There are several exceptions to the general rule that annuity contracts held by a non-natural owner are not treated as annuity contracts for federal income tax purposes. contracts will generally be treated as held by a natural person if the nominal owner is a trust or other entity which holds the contract as agent for a natural person. However, this special exception will not apply in the case of an employer who is the nominal owner of an annuity contract under a non-qualified deferred compensation arrangement for its employees. Other exceptions to the non-natural owner rule are: (1) contracts acquired by an estate of a decedent by reason of the death of the decedent; (2) certain qualified contracts; (3) contracts purchased by employers upon the termination of certain qualified plans; (4) certain contracts used in connection with structured settlement agreements, and (5) immediate annuity contracts, purchased with a single premium, when the annuity starting date is no later than a year from purchase of the annuity and substantially equal periodic payments are made, not less frequently than annually, during the annuity period.
DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for federal income tax purposes, the investments in the Variable Account must be “ADEQUATELY DIVERSIFIED” consistent with standards under Treasury Department regulations. If the investments in the Variable Account are not adequately diversified, the Contract will not be treated as an annuity contract for federal income tax purposes. As a result, the income on the Contract will be taxed as ordinary income received or accrued by the Contract Owner during the taxable year. Although ALLSTATE NEW YORK does not have control over the Funds or their investments, we expect the Funds to meet the diversification requirements.
OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a contract owner to be treated as the owner of the separate account. The Treasury Department also stated that future guidance would be issued regarding the extent that owners could direct sub-account investments without being treated as owners of the underlying assets of the separate account.
Your rights under the Contract are different than those described by the IRS in rulings in which it found that contract owners were not owners of separate account assets. For example, you have the choice to allocate premiums and Contract Values among a broader selection of investment alternatives. Also, you may be able to transfer among investment alternatives more frequently than in such rulings. These differences could result in you being treated as the owner of the Variable Account. If this occurs, income and gain from the Variable Account assets would be includible in your gross income.
ALLSTATE NEW
YORK does not know what standards will be set forth in any regulations or rulings which the Treasury Department may issue. It is possible that future standards announced by the Treasury Department could adversely affect the tax treatment of your Contract. We reserve the right to modify the Contract as necessary to attempt to prevent you from being considered the federal tax owner of the assets of the Variable Account. However, we make no guarantee that such modification to the Contract will be successful.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal under a non-qualified Contract, amounts received are taxable to the extent the Contract Value, without regard to surrender charges, exceeds the investment in the Contract. The investment in the Contract is the gross premium paid for the contract minus any amounts previously received from the Contract if such amounts were properly excluded from your gross income. If you make a full withdrawal under a non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract.
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TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of annuity payments received from a nonqualified contract provides for the return of your investment in the Contract in equal tax-free amounts over the payment period. The balance of each payment received is taxable. For fixed annuity payments, the amount excluded from income is determined by multiplying the payment by the ratio of the investment in the Contract (adjusted for any refund feature or period certain) to the total expected value of annuity payments for the term of the Contract. If you elect variable annuity payments, the amount excluded from taxable income is determined by dividing the investment in the Contract by the total number of expected payments. The annuity payments will be fully taxable after the total amount of the investment in the Contract is excluded using these ratios. The Federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. If you die, and annuity payments cease before the total amount of the investment in the Contract is recovered, the unrecovered amount will be allowed as a deduction for your last taxable year.
WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding the taxation of any additional withdrawal received after the Payout Start Date.
It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine.
DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide:
1. if any Contract Owner dies on or after the Payout Start Date but before the entire interest in the Contract has been distributed, the remaining portion of such interest must be distributed at least as rapidly as under the method of distribution being used as of the date of the Contract Owner’s death;
2. if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owner’s death. These requirements are satisfied if any portion of the Contract Owner’s interest that is payable to (or for the benefit of) a designated Beneficiary is distributed over the life of such Beneficiary (or over a period not extending beyond the life expectancy of the Beneficiary) and the distributions begin within 1 year of the Contract Owner’s death. If the Contract Owner’s designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner.
3. if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract Owner for purposes of applying the distribution at death rules. In addition, a change in the Annuitant on a Contract owned by a non-natural person will be treated as the death of the Contract Owner.
TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit amounts are included in income as follows:
1. if distributed in a lump sum, the amounts are taxed in the same manner as a full withdrawal, or
2. if distributed under an Income Plan, the amounts are taxed in the same manner as annuity payments.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable amount of any premature distribution from a non-Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
1. made on or after the date the Contract Owner attains age 59 1/2,
2. made as a result of the Contract Owner’s death or becoming totally disabled,
3. made in substantially equal periodic payments over the Contract Owner’s life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
4. made under an immediate annuity, or
5. attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
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SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owner’s attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. You should consult a competent tax advisor prior to taking a withdrawal.
TAX FREE EXCHANGES UNDER IRC SECTION 1035. A 1035 exchange is a tax-free exchange of a non-qualified life insurance contract, endowment contract or annuity contract for a new non-qualified annuity contract. The Contract Owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them.
TAXATION OF OWNERSHIP CHANGES. If you transfer a non-Qualified Contract without full and adequate consideration to a person other than your spouse (or to a former spouse incident to a divorce), you will be taxed on the difference between the Contract Value and the investment in the Contract at the time of transfer. Except for certain Qualified Contracts, any amount you receive as a loan under a Contract, and any assignment or pledge (or agreement to assign or pledge) of the Contract Value is taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax. Currently we do not allow assignments.
AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-qualified deferred annuity contracts issued by ALLSTATE NEW YORK (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution.
INCOME TAX WITHHOLDING
Generally, ALLSTATE NEW YORK is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory.
ALLSTATE NEW YORK is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
QUALIFIED CONTRACTS
The income on qualified plan and IRA investments is tax deferred, and the income on variable annuities held by such plans does not receive any additional tax deferral. You should review the annuity features, including all benefits and expenses, prior to purchasing a variable annuity in a qualified plan or IRA. Contracts may be used as investments with certain qualified plans such as:
• Individual Retirement Annuities or Accounts (IRAs) under Section 408 of the Code;
• Roth IRAs under Section 408A of the Code;
• Simplified Employee Pension Plans under Section 408(k) of the Code;
• Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section 408(p) of the Code;
• Tax Sheltered Annuities under Section 403(b) of the Code;
• Corporate and Self Employed Pension and Profit Sharing Plans under Sections 401 and 403; and
• State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Section 457.
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ALLSTATE NEW YORK reserves the right to limit the availability of the Contract for use with any of the Qualified Plans listed above or to modify the Contract to conform with tax requirements. The tax rules applicable to participants in such qualified plans vary according to the type of plan and the terms and conditions of the plan itself. Adverse tax consequences may result from certain transactions such as excess contributions, premature distributions, and distributions that do not conform to specified commencement and minimum distribution rules.
In the case of certain qualified plans, the terms of the plans may govern the right to benefits, regardless of the terms of the Contract.
TAXATION OF WITHDRAWALS FROM A QUALIFIED CONTRACT. If you make a partial withdrawal under a Qualified Contract other than a Roth IRA, the portion of the payment that bears the same ratio to the total payment that the investment in the Contract (i.e., nondeductible IRA contributions, after tax contributions to qualified plans) bears to the Contract Value, is excluded from your income. We do not keep track of nondeductible contributions, and all tax reporting of distributions from Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable.
“QUALIFIED DISTRIBUTIONS” from Roth IRAs are not included in gross income. “Qualified distributions” are any distributions made more than five taxable years after the taxable year of the first contribution to any Roth IRA and which are:
• made on or after the date the Contract Owner attains age 59 1/2,
• made to a beneficiary after the Contract Owner’s death,
• attributable to the Contract Owner being disabled, or
• made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000).
“NONQUALIFIED DISTRIBUTIONS” from Roth IRAs are treated as made from contributions first and are included in gross income only to the extent that distributions exceed contributions. All tax reporting of distributions from Roth IRAs will indicate that the taxable amount is not determined.
REQUIRED MINIMUM DISTRIBUTIONS. Generally, qualified plans require minimum distributions upon reaching age 70 1/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the contract. Not all income plans offered under this annuity contract satisfy the requirements for minimum distributions. Because these distributions are required under the code and the method of calculation is complex, please see a competent tax advisor.
THE DEATH BENEFIT AND QUALIFIED CONTRACTS. Pursuant to the Code and IRS regulations, an IRA may not invest in life insurance contracts. However, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may provide a death benefit that equals the greater of the purchase payments or the Contract Value.
The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or the Contract Value. It is possible that the Death Benefit could be viewed as violating the prohibition on investment in life insurance contracts, with the result that the Contract would not satisfy the requirements of an IRA. We believe that these regulations do not prohibit all forms of optional death benefits; however, at this time we are not allowing the Enhanced Earnings Death Benefit Plus Option to be sold with an IRA.
It is also possible that the certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under qualified plans, such as in connection with a 403(b) plan.
ALLSTATE NEW YORK reserves the right to limit the availability of the Contract for use with any of the qualified plans listed above.
PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM QUALIFIED CONTRACTS. A 10% penalty tax applies to the taxable amount of any premature distribution from a Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
1. made on or after the date the Contract Owner attains age 59 1/2,
2. made as a result of the Contract Owner’s death or total disability,
3. made in substantially equal periodic payments over the Contract Owner’s life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Contract Beneficiary,
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4. made pursuant to an IRS levy,
5. made for certain medical expenses,
6. made to pay for health insurance premiums while unemployed (only applies for IRAs),
7. made for qualified higher education expenses (only applies for IRAs), and
8. made for a first time home purchase (up to a $10,000 lifetime limit and only applies for IRAs).
During the first 2 years of the individual’s participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON QUALIFIED CONTRACTS. With respect to Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayer’s attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. You should consult a competent tax advisor prior to taking a withdrawal.
INCOME TAX WITHHOLDING ON QUALIFIED CONTRACTS. Generally, ALLSTATE NEW YORK is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered “ELIGIBLE ROLLOVER DISTRIBUTIONS.” The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. ALLSTATE NEW YORK is required to withhold federal income tax at a rate of 20% on all “ELIGIBLE ROLLOVER DISTRIBUTIONS” unless you elect to make a “DIRECT ROLLOVER” of such amounts to an IRA or eligible retirement plan. Eligible rollover distributions generally include all distributions from Qualified Contracts, excluding IRAs, with the exception of:
1. required minimum distributions, or
2. a series of substantially equal periodic payments made over a period of at least 10 years, or,
3. a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or,
4. hardship distributions.
For all annuitized distributions that are not subject to the 20% withholding requirement, ALLSTATE NEW YORK is required to withhold federal income tax using the wage withholding rates from all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form.
If no election is made, we will automatically withhold using married with three exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity (IRA). Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence. Certain distributions from other types of qualified plans may be “ROLLED OVER” on a tax-deferred basis into an Individual Retirement Annuity.
ROTH INDIVIDUAL RETIREMENT ANNUITIES. Section 408A of the Code permits eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth Individual Retirement Annuity. Roth Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence.
Subject to certain limitations, a traditional Individual Retirement Account or Annuity may be converted or “ROLLED OVER” to a Roth Individual Retirement Annuity. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions.
45 PROSPECTUS
SIMPLIFIED EMPLOYEE PENSION PLANS. Section 408(k) of the Code allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS). Sections 408(p) and 401(k) of the Code allow eligible employers with 100 or fewer employees to establish SIMPLE retirement plans for their employees. SIMPLE plans may be structured as a SIMPLE retirement account using an IRA or as a Section 401(k) qualified cash or deferred arrangement. In general, a SIMPLE plan consists of a salary deferral program for eligible employees and matching or nonelective contributions made by employers. Employers intending to use the Contract in conjunction with SIMPLE plans should seek competent tax and legal advice.
TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS (TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND YOUR COMPETENT TAX ADVISOR.
TAX SHELTERED ANNUITIES. Section 403(b) of the Tax Code provides tax-deferred retirement savings plans for employees of certain non-profit and educational organizations. Under Section 403(b), any contract used for a 403(b) plan must provide that distributions attributable to salary reduction contributions made after 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee:
• attains age 59 1/2,
• separates from service,
• dies,
• becomes disabled, or
• incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship).
These limitations do not apply to withdrawals where ALLSTATE NEW YORK is directed to transfer some or all of the Contract Value to another 403(b) plan.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS. Sections 401(a) and 403(a) of the Code permit corporate employers to establish various types of tax favored retirement plans for employees. Self-employed individuals may establish tax favored retirement plans for themselves and their employees. Such retirement plans (commonly referred to as “H.R.10” or “KEOGH”) may permit the purchase of annuity contracts.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION PLANS. Section 457 of the Code permits employees of state and local governments and tax-exempt organizations to defer a portion of their compensation without paying current taxes. The employees must be participants in an eligible deferred compensation plan. In eligible governmental plans, all assets and income must be held in a trust/ custodial account/annuity contract for the exclusive benefit of the participants and their beneficiaries. To the extent the Contracts are used in connection with a non-governmental eligible plan, employees are considered general creditors of the employer and the employer as owner of the Contract has the sole right to the proceeds of the Contract. Under eligible 457 plans, contributions made for the benefit of the employees will not be includible in the employees’ gross income until distributed from the plan.
ANNUAL REPORTS AND OTHER DOCUMENTS
ALLSTATE NEW YORK’s annual report on Form 10-K for the year ended December 31, 2001 is incorporated herein by reference, which means that it is legally a part of this prospectus.
After the date of this prospectus and before we terminate the offering of the securities under this prospectus, all documents or reports we file with the SEC under the Exchange Act are also incorporated herein by reference, which means that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC and that legally become a part of this prospectus, may change or supersede statements in other documents that are legally part of this prospectus. Accordingly, only the statement that is changed or replaced will legally be a part of this prospectus.
We file our Exchange Act documents and reports, including our annual and quarterly reports on Form 10-K and Form 10-Q electronically on the SEC’s “EDGAR” system using the identifying number CIK No. 0000948255. The SEC maintains a Web site that
46 PROSPECTUS
contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http:// www.sec.gov. You also can view these materials at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. For more information on the operations of SEC’s Public Reference Room, call 1-800-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of any document incorporated herein by reference (other than exhibits not specifically incorporated by reference into the text of such documents), please write or call us at: Customer Service, P.O. Box 94038, Palatine, Illinois 60094-4038 (telephone: 1-800-692-4682).
PERFORMANCE INFORMATION
We may advertise the performance of the Variable Sub-Accounts, including yield and total return information. Yield refers to the income generated by an investment in a Variable Sub-Account over a specified period. Total return represents the change, over a specified period of time, in the value of an investment in a Variable Sub-Account after reinvesting all income distributions.
All performance advertisements will include, as applicable, standardized yield and total return figures that reflect the deduction of insurance charges, the contract maintenance charge, and withdrawal charge. Performance advertisements also may include total return figures that reflect the deduction of insurance charges, but not the contract maintenance or withdrawal charges. The deduction of such charges would reduce the performance shown. In addition, performance advertisements may include aggregate, average, year-by-year, or other types of total return figures.
Performance information for periods prior to the inception date of the Variable Sub-Accounts will be based on the historical performance of the corresponding Portfolios for the periods beginning with the inception dates of the Portfolios and adjusted to reflect current Contract expenses. You should not interpret these figures to reflect actual historical performance of the Variable Account.
We may include in advertising and sales materials tax deferred compounding charts and other hypothetical illustrations that compare currently taxable and tax deferred investment programs based on selected tax brackets. Our advertisements also may compare the performance of our Variable Sub-Accounts with: (a) certain unmanaged market indices, including but not limited to the Dow Jones Industrial Average, the Standard & Poor’s 500, and the Shearson Lehman Bond Index; and/or (b) other management investment companies with investment objectives similar to the underlying funds being compared. In addition, our advertisements may include the performance ranking assigned by various publications, including the Wall Street Journal, Forbes, Fortune, Money, Barron’s, Business Week, USA Today, and statistical services, including Lipper Analytical Services Mutual Fund Survey, Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey, and SEI.
EXPERTS
The financial statements of Allstate New York as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 and related financial statement schedules incorporated herein by reference from the Annual Report on Form 10-K of Allstate New York and from the STatement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon the authority as experts in accounting and auditing.
The financial statements of the Variable Accounts as of December 31, 2001 and for each of the periods in the two years then ended incorporated herein by reference from the Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
47 PROSPECTUS
APPENDIX A MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I = the Treasury Rate for a maturity equal to the applicable Guarantee Period for the week preceding the establishment of the Guarantee Period.
N = the number of whole and partial years from the date we receive the withdrawal, transfer, or death benefit request, or from the Payout Start Date, to the end of the Guarantee Period; and
J = the Treasury Rate for a maturity equal to the Guarantee Period for the week preceding the receipt of the withdrawal, transfer, death benefit, or income payment request. If a note for a maturity of length N is not available, a weighted average will be used.
“Treasury Rate” means the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Bulletin Release H.15.
The Market Value Adjustment factor is determined from the following formula:
.9 x (I - J) x N
To determine the Market Value Adjustment, we will multiply the Market Value Adjustment factor by the amount transefered (in excess of the Free Withdrawal Amount) paid as a death benefit, or applied to an Income Plan, from a Guarantee Period at any time other than during the 30 day period after such Guarentee Period expires.
EXAMPLES OF MARKET VALUE ADJUSTMENT
Purchase Payment: $10,000 allocated to a Guarantee Period
Guarantee Period: 5 years
Guaranteed Interest Rate: 4.50%
5 Year Treasury Rate at the time the Guarantee Period is established: 4.50%
Full Surrender: End of Contract Year 3
NOTE: These examples assume that premium taxes are not applicable.
EXAMPLE 1 (ASSUME DECLINING INTEREST RATES)
48 PROSPECTUS
Step 1. Calculate Contract Value at End of Contract Year 3: | $10,000.00 X (1.045) /3/ = $11,411.66 | |||||||
Step 2. Calculate the Preferred Withdrawal Amount: | .15 X 10,000.000 = $1,500.00 | |||||||
Step 3. Calculate the Market Value Adjustment: | I = 4.5% J = 4.2% N = 730 days | |||||||
= 2 | ||||||||
365 days | ||||||||
Market Value Adjustment Factor: .9 X (I - J) X N = .9 X (.045 - .042) X (730/365) = .0054 | ||||||||
Market Value Adjustment = Market Value Adjustment Factor x Amount Subject to Market Value Adjustment: = .0054 X ($11,411.66 - $1,500.00) = $53.32 | ||||||||
Step 4. Calculate the Withdrawal Charge: | = .05 X (10,000.00 - 1,500.00 + 53.52) = $427.68 | |||||||
Step 5. Calculate the amount received by a Contract Owner as a result of full withdrawal at the end of Contract Year 3: | 11,411.66 - 427.68 + 53.52 = $11,037.50 |
37 PROSPECTUS
EXAMPLE 2: (ASSUMES RISING INTEREST RATES)
Step 1. Calculate Contract Value at End of Contract Year 3: | 10,000.00 X (1.045)/3/ = $11,411.66 | |||||||
Step 2. Calculate the Preferred Withdrawal Amount: | .15 X 10,000.00 = $1,500.00 | |||||||
Step 3. Calculate the Market Value Adjustment: | I = 4.5% | |||||||
J = 4.8% | ||||||||
N = 730 days | ||||||||
= 2 | ||||||||
365 days | ||||||||
Market Value Adjustment Factor: .9 X (I-J) X N | ||||||||
= .9 X (.045 - .048) X (730/365) = -.0054 | ||||||||
Market Value Adjustment = Market Value Adjustment | ||||||||
Factor X Amount Subject to Market Value Adjustment: | ||||||||
-.0054 X (11,411.66 - 1,500.00) = -$53.52 | ||||||||
Step 4. Calculate the Withdrawal Charge: | .05 X (10,000.00 - 1,500.00 - 53.52) = $422.32 | |||||||
Step 5. Calculate the amount received by a Contract Owner as a result of full withdrawal at the end of Contract Year 3: | 11,411.66 - 422.32 - 53.52 = $10,935.82 |
49 PROSPECTUS
APPENDIX B WITHDRAWAL ADJUSTMENT EXAMPLE
Issue Date: January 1, 2002
Initial Purchase Payment: $50,000
Death Benefit Amount
Date | Type of Occurence | Contract Value Before Occurrence | Contract Transaction Amount | Death Benefit Value After Occurence | Anniversary Value | Greatest Anniversary Value | ||||||||||||||
1/1/01 | Issue Date | - | $50,000 | $50,000 | $50,000 | $50,000 | ||||||||||||||
1/1/02 | Contract | |||||||||||||||||||
Anniversary | $55,000 | - | $55,000 | $50,000 | $55,000 | |||||||||||||||
7/1/02 | Partial Withdrawal | $60,000 | $15,000 | $45,000 | $37,500 | $41,250 |
Withdrawal adjustment equals the partial withdrawal amount divided by the Contract Value immediately prior to the partial withdrawal multiplied by the value of the applicable death benefit amount alternative immediately prior to the partial withdrawal.
DEATH BENEFIT ANNIVERSARY VALUE DEATH BENEFIT | ||||||||
PARTIAL WITHDRAWAL AMOUNT | (w) | $15,000 | ||||||
Contract Value Immediately Prior to Partial Withdrawal | (a) | $60,000 | ||||||
Value of Applicable Death Benefit Amount Immediately | ||||||||
Prior to Partial Withdrawal | (d) | $50,000 |
50 PROSPECTUS
Withdrawal Adjustment | [(w)/(a)]x(d) | $12,500 | ||||||
Adjusted Death Benefit | $37,500 | |||||||
GREATEST ANNIVERSARY VALUE DEATH BENEFIT | ||||||||
PARTIAL WITHDRAWAL AMOUNT | (w) | $15,000 | ||||||
Contract Value Immediately Prior to Partial Withdrawal | (a) | $60,000 | ||||||
Value of Applicable Death Benefit Amount Immediately | ||||||||
Prior to Partial Withdrawal | (d) | $55,000 | ||||||
Withdrawal Adjustment | [(w)/(a)]x(d) | $13,750 | ||||||
Adjusted Death Benefit | $41,250 |
Please remember that you are looking at a hypothetical example, and that your investment performance may be greater or less than the figures shown.
51 PROSPECTUS
CUSTOM PORTFOLIO VARIABLE ANNUITY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STREET ADDRESS: 2940 S. 84TH STREET, LINCOLN, NE 68506-4142 MAILING ADDRESS: P.O. BOX 82656, LINCOLN, NE 68501-2656 TELEPHONE NUMBER: 1-800-692-4682 PROSPECTUS DATED APRIL 30, 2005
Allstate Life Insurance Company of New York (“ALLSTATE NEW YORK”) is offering the Custom Portfolio Variable Annuity, a group flexible premium deferred variable annuity contract (“CONTRACT”). This prospectus contains information about the Contract that you should know before investing. Please keep it for future reference.
The Contract currently offers 29 investment alternatives (“INVESTMENT ALTERNATIVES”). The investment alternatives include 3 fixed account options (“FIXED ACCOUNT”) and 26 variable sub-accounts (“VARIABLE SUB-ACCOUNTS”) of the Allstate Life of New York Separate Account A (“VARIABLE ACCOUNT”). Each Variable Sub-Account invests exclusively in shares of one of the following underlying fund portfolios (“PORTFOLIOS”):
AIM VARIABLE INSURANCE FUNDS
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
OPPENHEIMER VARIABLE ACCOUNT FUNDS
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
DREYFUS STOCK INDEX FUND
DREYFUS VARIABLE INVESTMENT FUND
(VIF)
(VIF)
WELLS FARGO VARIABLE TRUST FUNDS
DELAWARE VIP TRUST
DELAWARE VIP TRUST
WE (Allstate New York) have filed a Statement of Additional Information, dated April 30, 2005, with the Securities and Exchange Commission (“SEC”). It contains more information about the Contract and is incorporated herein by reference, which means it is legally a part of this prospectus. Its table of contents appears on page 40 of this prospectus. For a free copy, please write or call us at the address or telephone number above, or go to the SEC's Web site (http:// www.sec.gov). You can find other information and documents about us, including documents that are legally part of this prospectus, at the SEC's Web site.
IMPORTANT NOTICES | THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR HAS IT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A FEDERAL CRIME. | ||||
THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS. HOWEVER, THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY AGENCY. INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. | |||||
THE CONTRACTS ARE NOT FDIC INSURED. | |||||
THE CONTRACTS ARE ONLY AVAILABLE IN NEW YORK. |
1 PROSPECTUS
TABLE OF CONTENTS
PAGE | |||||
OVERVIEW | |||||
Important Terms | 3 | ||||
The Contract at a Glance | 4 | ||||
How the Contract Works | 6 | ||||
Expense Table | 7 | ||||
Financial Information | 9 | ||||
CONTRACT FEATURES | |||||
The Contract | 9 | ||||
Purchases | 10 | ||||
Contract Value | 11 | ||||
Investment Alternatives | 11 | ||||
The Variable Sub-Accounts | 11 | ||||
The Fixed Account | 13 | ||||
Transfers | 17 | ||||
Expenses | 19 | ||||
Access To Your Money | 20 | ||||
Income Payments | 21 | ||||
PAGE | |||||
Death Benefits | 23 | ||||
OTHER INFORMATION | |||||
More Information: | 26 | ||||
Allstate New York | 26 | ||||
The Variable Account | 26 | ||||
The Portfolios | 27 | ||||
The Contract | 27 | ||||
Non-Qualified Annuities Held Within a Qualified Plan | 28 | ||||
Legal Matters | 28 | ||||
Taxes | 29 | ||||
Annual Reports and Other Documents | 35 | ||||
APPENDIX A-ACCUMULATION UNIT VALUE | 34 | ||||
APPENDIX B-MARKET VALUE ADJUSTMENT | 37 | ||||
APPENDIX C-WITHDRAWAL ADJUSTMENT EXAMPLE | 39 | ||||
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS | 40 |
2 PROSPECTUS
IMPORTANT TERMS
This prospectus uses a number of important terms that you may not be familiar with. The index below identifies the page that describes each term. The first use of each term in this prospectus appears in highlights.
PAGE | |||||
Accumulation Phase | 6 | ||||
Accumulation Unit | 11 | ||||
Accumulation Unit Value | 11 | ||||
Allstate New York (“We” or “Us”) | 1 | ||||
Anniversary Values | 23 | ||||
Annuitant | 9 | ||||
Automatic Additions Program | 10 | ||||
Automatic Portfolio Rebalancing Program | 18 | ||||
Beneficiary | 9 | ||||
Cancellation Period | 11 | ||||
Contract* | 9 | ||||
Contract Anniversary | 5 | ||||
Contract Owner (“You”) | 9 | ||||
Contract Value | 5 | ||||
Contract Year | 5 | ||||
Death Benefit Anniversary | 24 | ||||
Dollar Cost Averaging Program | 18 | ||||
Due Proof of Death | 24 | ||||
Fixed Account | 13 | ||||
PAGE | |||||
Guarantee Periods | 14 | ||||
Income Payments | 21 | ||||
Investment Alternatives | 11 | ||||
Issue Date | 6 | ||||
Market Value Adjustment | 16 | ||||
Payout Phase | 6 | ||||
Payout Start Date | 21 | ||||
Portfolios | 27 | ||||
Preferred Withdrawal Amount | 20 | ||||
Tax Qualified Contracts | 32 | ||||
Right to Cancel | 11 | ||||
SEC | 1 | ||||
Settlement Value | 24 | ||||
Systematic Withdrawal Program | 21 | ||||
Treasury Rate | 16 | ||||
Valuation Dates | 11 | ||||
Variable Account | 26 | ||||
Variable Sub-Account | 11 |
* The Allstate Custom Portfolio Variable Annuity is a group contract and your ownership is represented by certificates. References to “Contract” in this prospectus include certificates, unless the context requires otherwise.
3 PROSPECTUS
THE CONTRACT AT A GLANCE
The following is a snapshot of the Contract. Please read the remainder of this prospectus for more information.
FLEXIBLE PAYMENTS | You can purchase a Contract with as little as $3,000 ($2,000 for a “QUALIFIED CONTRACT” which is a Contract issued with a qualified endorsement). You can add to your Contract as often and as much as you like, but each payment must be at least $100. For allocations to the Fixed Account the minimum payment must be at least $500. You must maintain a minimum account size of $1,000. | ||||
RIGHT TO CANCEL | You may cancel your Contract within 10 days after receipt (60 days if you are exchanging another contract for the Contract described in this prospectus) (“CANCELLATION PERIOD”). Upon cancellation we will return your purchase payments adjusted to the extent federal or state law permits to reflect the investment experience of any amounts allocated to the Variable Account. | ||||
EXPENSES | You will bear the following expenses: | ||||
• Total Variable Account annual fees equal to 1.25% of average daily net assets | |||||
• Annual contract maintenance charge of $30 (with certain exceptions) | |||||
• Withdrawal charges ranging from 0% to 7% of payment withdrawn (with certain exceptions) | |||||
• Transfer fee of $10 after 12th transfer in any CONTRACT YEAR (fee currently waived) | |||||
• State premium tax (New York currently does not impose one). | |||||
In addition, each Portfolio pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. | |||||
INVESTMENT ALTERNATIVES | The Contract offers 29 investment alternatives including: | ||||
• 3 Fixed Account Options (which credits interest at rates we guarantee), and | |||||
• 26 Variable Sub-Accounts investing in Portfolios offering professional money management by: | |||||
• A I M Advisors, Inc. | |||||
• Fidelity Management & Research Company | |||||
• Templeton Investment Counsel, LLC | |||||
• OppenheimerFunds, Inc. | |||||
• The Dreyfus Corporation | |||||
• Wells Fargo Funds Management, LLC | |||||
• Delaware Management Company | |||||
To find out current rates being paid on the Fixed Account, or to find out how the Variable Sub-Accounts have performed, please call us at 1-800-692- 4682. |
SPECIAL SERVICES | For your convenience, we offer these special services: | ||||
• AUTOMATIC PORTFOLIO REBALANCING PROGRAM | |||||
• AUTOMATIC ADDITIONS PROGRAM | |||||
• DOLLAR COST AVERAGING PROGRAM | |||||
• SYSTEMATIC WITHDRAWAL PROGRAM |
4 PROSPECTUS
INCOME PAYMENTS | You can choose fixed income payments, variable income payments, or a combination of the two. You can receive your income payments in one of the following ways: | ||||
• life income with guaranteed payments | |||||
• a joint and survivor life income with guaranteed payments | |||||
• guaranteed payments for a specified period (5 to 30 years) | |||||
DEATH BENEFITS | If you die before the PAYOUT START DATE, we will pay the death benefit described in the Contract. | ||||
TRANSFERS | Before the Payout Start Date, you may transfer your Contract value (“CONTRACT VALUE”) among the investment alternatives, with certain restrictions. Transfers to the Fixed Account must be at least $500. | ||||
We do not currently impose a fee upon transfers. However, we reserve the right to charge $10 per transfer after the 12th transfer in each Contract Year, which we measure from the date we issue your Contract or a Contract anniversary (“CONTRACT ANNIVERSARY”). | |||||
WITHDRAWALS | You may withdraw some or all of your Contract Value at any time during the Accumulation Phase. Full or partial withdrawals also are available under limited circumstances on or after the Payout Start Date. In general, you must withdraw at least $50 at a time ($1,000 for withdrawals made during the Payout Phase). Withdrawals taken during the Accumulation Phase are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. A withdrawal charge and MARKET VALUE ADJUSTMENT also may apply. | ||||
5 PROSPECTUS
HOW THE CONTRACT WORKS
The Contract basically works in two ways.
First, the Contract can help you (we assume you are the CONTRACT OWNER) save for retirement because you can invest in up to 29 investment alternatives and generally pay no federal income taxes on any earnings until you withdraw them. You do this during what we call the “ACCUMULATION PHASE” of the Contract. The Accumulation Phase begins on the date we issue your Contract (we call that date the “ISSUE DATE”) and continues until the Payout Start Date, which is the date we apply your money to provide income payments. During the Accumulation Phase, you may allocate your purchase payments to any combination of the Variable Sub-Accounts and/or Fixed Account. If you invest in the Fixed Account, you will earn a fixed rate of interest that we declare periodically. If you invest in any of the Variable Sub-Accounts, your investment return will vary up or down depending on the performance of the corresponding Portfolios.
Second, the Contract can help you plan for retirement because you can use it to receive retirement income for life and/ or for a pre-set number of years, by selecting one of the income payment options (we call these “INCOME PLANS”) described on page 22. You receive income payments during what we call the “PAYOUT PHASE” of the Contract, which begins on the Payout Start Date and continues until we make the last payment required by the Income Plan you select. During the Payout Phase, if you select a fixed income payment option, we guarantee the amount of your payments, which will remain fixed. If you select a variable income payment option, based on one or more of the Variable Sub-Accounts, the amount of your payments will vary up or down depending on the performance of the corresponding Portfolios. The amount of money you accumulate under your Contract during the Accumulation Phase and apply to an Income Plan will determine the amount of your income payments during the Payout Phase.
The timeline below illustrates how you might use your Contract.
Issue Date | Accumulation Phase | Payout Start Date | Payout Phase | |||||||||||
You buy a Contract | You save for retirement | You elect to receive income payments or receive a lump sum payment | You can receive income payments for a set period | Or you can receive income payments for life |
As the Contract Owner, you exercise all of the rights and privileges provided by the Contract. If you die, any surviving Contract Owner, or if there is none, the BENEFICIARY will exercise the rights and privileges provided by the Contract. See “The Contract.” In addition, if you die before the Payout Start Date, we will pay a death benefit to any surviving Contract Owner or, if none, to your Beneficiary. See “Death Benefits.”
Please call us at 1-800-692-4682 if you have any question about how the Contract works.
EXPENSE TABLE
The following tables show the fees and expenses that you will pay when buying, owning, making withdrawals or surrendering the Contract. The first table describes the fees and expenses that you will pay when you make a withdrawal, surrender the Contract, or transfer Contract Value among the investment alternatives. Premium taxes are not reflected in the tables because New York currently does not impose premium taxes on annuities.
CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of purchase payments)*
6 PROSPECTUS
Number of Complete Years Since We Received the Purchase | ||||||||||||||||||||||||||
Payment Being Withdrawn | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | ||||||||||||||||||
Applicable Charge | 7% | 6% | 5% | 4% | 3% | 2% | 1% | 0% | ||||||||||||||||||
Transfer Fee | $10.00** | |||||||||||||||||||||||||
* Each Contract Year, you may withdraw up to 15% of purchase payments without incurring a Withdrawal Charge or a Market Value Adjustment.
** Applies solely to the thirteenth and subsequent transfers within a Contract Year excluding transfers due to dollar cost averaging or automatic portfolio rebalancing. We are currently waiving the transfer fee.
The next tables describe the fees and expenses that you will pay periodically during the time you own the Contract, not including Portfolio fees and expenses.
Annual Contract Maintenance Charge | $30.00(1) | ||||||||||||||||||||||||||||
(1) We will waive this charge in certain cases.
VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT) | |||||||||||||||||||||||||||||
Mortality and Expense Risk Charge | 1.15% | ||||||||||||||||||||||||||||
Administrative Expense Charge | 0.10% | ||||||||||||||||||||||||||||
Total Variable Account Annual Expense | 1.25% | ||||||||||||||||||||||||||||
PORTFOLIO ANNUAL EXPENSES
(as a percentage of Portfolio average daily net assets) (1)
The next table shows the minimum and maximum total operating expenses charged by the Portfolios that you may pay periodically during the time that you own the Contract. Advisers and/or other service providers of certain Portfolios may have agreed to waive their fees and/or reimburse Portfolio expenses in order to keep the Portfolios' expenses below specified limits. The range of expenses shown in this table does not show the effect of any such fee waiver or expense reimbursement. More detail concerning each Portfolio's fees and expenses appears in the prospectus for each Portfolio.
7 PROSPECTUS
ANNUAL PORTFOLIO EXPENSES | ||||||||||||||||||||||||||||||||
Minimum | Maximum | |||||||||||||||||||||||||||||||
Total Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets, which may include management fees, and other expenses) | 0.26 | % | 1.14 | % | ||||||||||||||||||||||||||||
(1) Expenses are shown as a percentage of Portfolio average daily net assets (before any waiver or reimbursement) as of December 31, 2004.
EXAMPLES
Example 1
This Example is intended to help you compare the cost of investing in the Contracts with the cost of investing in other variable annuity contracts. These costs include Contract owner transaction expenses, Contract fees, Variable Account annual expenses, and Portfolio fees and expenses.
The example shows the dollar amount of expenses that you would bear directly or indirectly if you:
• invested $10,000 in the Contract for the time periods indicated,
• earned a 5% annual return on your investment, and
• surrendered your Contract, or you began receiving income payments for a specified period of less than 120 months, at the end of each time period.
8 PROSPECTUS
THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT.
The first line of the example assumes that the maximum fees and expenses of any of the Portfolios are charged. The second line of the example assumes that the minimum fees and expenses of any of the Portfolios are charged. Your actual expenses may be higher or lower than those shown below because of variations in a Portfolio's expense ratio from year to year.
1Year | 3 Years | 5 Years | 10 Years | |||||||||||||||||||||||||||||||||||
Costs Based on | ||||||||||||||||||||||||||||||||||||||
Maximum Annual | ||||||||||||||||||||||||||||||||||||||
Portfolio Expenses | $785 | $1,181 | $1,601 | $3,015 | ||||||||||||||||||||||||||||||||||
Costs Based on | ||||||||||||||||||||||||||||||||||||||
Minimum Annual | ||||||||||||||||||||||||||||||||||||||
Portfolio Expenses | $695 | $909 | $1,144 | $2,088 | ||||||||||||||||||||||||||||||||||
EXAMPLE 2
This Example uses the same assumptions as Example 1 above, except that it assumes you decided not to surrender your Contract, or you began receiving income payments for a specified period of at least 120 months, at the end of each time period.
1Year | 3 Years | 5 Years | 10 Years | ||||||||||||||||||||||||||||||||
Costs Based on | |||||||||||||||||||||||||||||||||||
Maximum Annual | |||||||||||||||||||||||||||||||||||
Portfolio Expenses | $275 | $841 | $1,431 | $3,015 | |||||||||||||||||||||||||||||||
Costs Based on | |||||||||||||||||||||||||||||||||||
Minimum Annual | |||||||||||||||||||||||||||||||||||
Portfolio Expenses | $185 | $569 | $974 | $2,088 | |||||||||||||||||||||||||||||||
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR RATE OF RETURN MAY BE HIGHER OR LOWER THAN 5%, WHICH IS NOT GUARANTEED. THE EXAMPLES DO NOT ASSUME THAT ANY PORTFOLIO EXPENSE WAIVERS OR REIMBURSEMENT ARRANGEMENTS ARE IN EFFECT FOR THE PERIODS PRESENTED. THE EXAMPLES REFLECT THE FREE WITHDRAWAL AMOUNTS, IF APPLICABLE, AND THE DEDUCTION OF THE ANNUAL CONTRACT MAINTANENCE CHARGE OF $30 EACH YEAR.
FINANCIAL INFORMATION
To measure the value of your investment in the Variable Sub-Accounts during the Accumulation Phase, we use a unit of measure we call the “ACCUMULATION UNIT.” Each Variable Sub-Account has a separate value for its Accumulation Units we call “ACCUMULATION UNIT VALUE.” Accumulation Unit Value is analogous to, but not the same as, the share price of a mutual fund.
Attached as Appendix A to this prospectus are tables showing the Accumulation Unit Values for each Variable Sub-Account since the date the Contracts were first offered. To obtain a fuller picture of each Variable Sub-Account's finances, please refer to the Variable Account's financial statements contained in the Statement of Additional Information. The financial statements of Allstate New York also appear in the Statement of Additional Information.
THE CONTRACT
CONTRACT OWNER
9 PROSPECTUS
The Custom Portfolio Variable Annuity is a contract between you, the Contract Owner, and Allstate New York, a life insurance company. As the Contract Owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted):
• the investment alternatives during the Accumulation and Payout Phases,
• the amount and timing of your purchase payments and withdrawals,
• the programs you want to use to invest or withdraw money,
• the income payment plan you want to use to receive retirement income,
• the Annuitant (either yourself or someone else) on whose life the income payments will be based,
• the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract Owner dies, and
• any other rights that the Contract provides.
If you die prior to the Payout Start Date, the new Contract Owner will be the surviving Owner. If there is no surviving Owner, the new Contract Owner will be the Beneficiary(ies) as described in the Beneficiary provision. The new Contract Owner may exercise the rights and privileges provided by the Contract, except that if the new Contract Owner took ownership as the Beneficiary, the new Contract Owner's rights will be subject to any restrictions previously placed upon the Beneficiary.
The Contract cannot be jointly owned by both a non-living person and a living person. If the Owner is a Grantor Trust, the Contract Owner will be considered a non-living person for purposes of the Death of Owner and Death of Annuitant provisions of your Contract. The maximum age of the oldest Contract Owner cannot exceed 85 as of the date we receive the completed application. Changing ownership of this Contract may cause adverse tax consequences and may not be allowed under qualified plans. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner.
The Contract can also be purchased as an IRA or TSA (also known as a 403(b)). The endorsements required to qualify these annuities under the Internal Revenue Code of 1986, as amended, (“Code”) may limit or modify your rights and privileges under the Contract.
ANNUITANT
The Annuitant is the individual whose life determines the amount and duration of income payments (other than under Income Plans with guaranteed payments for a specified period). You initially designate an Annuitant in your application. The maximum age of the oldest Annuitant cannot exceed 85 as of the date we receive the completed application. If the Contract Owner is a living person you may change the Annuitant prior to the Payout Start Date. In our discretion, we may permit you to designate a joint Annuitant, who is a second person on whose life income payments depend, on the Payout Start Date.
If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be:
• the youngest Contract Owner, if living, otherwise
• the youngest Beneficiary.
BENEFICIARY
The Beneficiary is the person who may elect to receive the death benefit or become the new Contract Owner subject to the Death of Owner provision if the sole surviving Contract Owner dies before the Payout Start Date. See “Death Benefits” on page 23. If the sole surviving Contract Owner dies after the Payout Start Date, the Beneficiary will receive any guaranteed income payments scheduled to continue.
You may name one or more primary and contingent Beneficiaries when you apply for a Contract. The primary Beneficiary is the Beneficiary(ies) who is first entitled to receive benefits under the Contract upon the death of the sole surviving Contract Owner. The contingent Beneficiary is the Beneficiary(ies) entitled to receive benefits under the Contract when all primary Beneficiaries predecease the sole surviving Contract Owner.
You may restrict income payments to Beneficiaries by providing us a written request. Once we accept the written request, the change or restriction will take effect as of the date you signed the request. Any change is subject to any payment we make or other action we take before we accept the change.
10 PROSPECTUS
You may change or add Beneficiaries at any time by writing to us, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed and filed with us. After we accept the form, the change of Beneficiary will be effective as of the date you signed the form, whether or not the Annuitant is living when we receive the notice. Each change is subject to any payment made by us or any other action we take before we accept the change. Accordingly, if you wish to change your Beneficiary, you should deliver your written notice to us promptly.
11 PROSPECTUS
If you do not name a Beneficiary or, if the named Beneficiary is no longer living and there are no other surviving Beneficiaries, the new Beneficiary will be:
• your spouse or, if he or she is no longer alive,
• your surviving children equally, or if you have no surviving children,
• your estate.
If more than one Beneficiary survives you, we will divide the death benefit among your Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the death benefit in equal amounts to the surviving Beneficiaries.
MODIFICATION OF THE CONTRACT
Only an Allstate New York officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law.
ASSIGNMENT
No owner has a right to assign any interest in a Contract as collateral or security for a loan. However, you may assign periodic income payments under the Contract prior to the Payout Start Date. No Beneficiary may assign benefits under the Contract until they are due. We will not be bound by any assignment until the assignor signs it and files it with us. We are not responsible for the validity of any assignment. Federal law prohibits or restricts the assignment of benefits under many types of qualified plans and the terms of such plans may themselves contain restrictions on assignments. An assignment may also result in taxes and tax penalties. YOU SHOULD CONSULT WITH YOUR ATTORNEY BEFORE TRYING TO ASSIGN YOUR CONTRACT.
PURCHASES
MINIMUM PURCHASE PAYMENTS
Your initial purchase payment must be at least $3,000 ($2,000 for a Qualified Contract). All subsequent purchase payments must be $100 ($500 for an allocation to the Fixed Account) or more. You may make purchase payments at any time prior to the Payout Start Date. We reserve the right to limit the maximum amount of purchase payments we will accept. We also reserve the right to reject any application.
AUTOMATIC ADDITIONS PROGRAM
You may make subsequent purchase payments of at least $100 ($500 for allocation to the Fixed Account) by automatically transferring amounts from your bank account. Please consult with your representative for detailed information.
ALLOCATION OF PURCHASE PAYMENTS
At the time you apply for a Contract, you must decide how to allocate your purchase payments among the investment alternatives. The allocation you specify on your application will be effective immediately. All allocations must be in whole percents that total 100% or in whole dollars. You can change your allocations by notifying us in writing. We reserve the right to limit the availability of the investment alternatives.
We will allocate your purchase payments to the investment alternatives according to your most recent instructions on file with us. Unless you notify us in writing otherwise, we will allocate subsequent purchase payments according to the allocation for the previous purchase payment. We will effect any change in allocation instructions at the time we receive written notice, in good order, of the change.
We will credit the initial purchase payment that accompanies your completed application to your Contract within 2 business days after we receive the payment at our service center. If your application is incomplete, we will ask you to complete your application within 5 business days. If you do so, we will credit your initial purchase payment to your Contract within that 5 business day period. If you do not, we will return your purchase payment at the end of the 5 business day period unless you expressly allow us to hold it until you complete the application. We will credit subsequent purchase payments to the Contract at the close of the business day on which we
12 PROSPECTUS
receive the purchase payment at our service center located in Vernon Hills, Illinois (mailing address: 300 N. Milwaukee Ave, Vernon Hills, Illinois 60061).
We are open for business each day Monday through Friday that the New York Stock Exchange is open for business. We also refer to these days as “VALUATION DATES.” Our business day closes when the New York Stock Exchange closes, usually 4:00 p.m. Eastern Time (3:00 p.m. Central Time). If we receive your purchase payment after 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date, we will credit your purchase payment using the Accumulation Unit Values computed on the next Valuation Date.
RIGHT TO CANCEL
You may cancel the Contract by returning it to us within the Cancellation Period, which is the 10 day period after you receive the Contract (60 days if you are exchanging another contract for the Contract described in this prospectus). You may return it by delivering it or mailing it to us. If you exercise this “RIGHT TO CANCEL,” the Contract terminates and we will pay you the full amount of your purchase payments allocated to the Fixed Account. Upon cancellation, as permitted by federal or state law, we will return your purchase payments allocated to the Variable Account after an adjustment to the extent federal or state law permits to reflect investment gain or loss that occurred from the date of allocation through the date of cancellation. If your Contract is qualified under Code Section 408(b), we will refund the greater of any purchase payment or the Contract Value.
CONTRACT VALUE
On the Issue Date, the Contract Value is equal to the initial purchase payment. Your Contract Value at any other time during the Accumulation Phase is equal to the sum of the value as of the most recent Valuation Date of your Accumulation Units in the Variable Sub-Accounts you have selected, plus the value of your investment in the Fixed Account.
ACCUMULATION UNITS
To determine the number of Accumulation Units of each Variable Sub-Account to credit to your Contract, we divide (i) the amount of the purchase payment or transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of that Variable Sub-Account next computed after we receive your payment or transfer. For example, if we receive a $10,000 purchase payment allocated to a Variable Sub-Account when the Accumulation Unit Value for the Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Sub-Account allocated to your Contract.
ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect:
• changes in the share price of the Portfolio in which the Variable Sub-Account invests, and
• the deduction of amounts reflecting the mortality and expense risk charge, administrative expense charge, and any provision for taxes that have accrued since we last calculated the Accumulation Unit Value.
We determine contract maintenance charges, withdrawal charges, and transfer fees (currently waived) separately for each Contract. They do not affect Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we calculate Accumulation Unit Value, please refer to the Statement of Additional Information.
We determine a separate Accumulation Unit Value for each Variable Sub-Account on each Valuation Date.
YOU SHOULD REFER TO THE PROSPECTUSES FOR THE PORTFOLIOS THAT ACCOMPANY THIS PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE.
INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS
You may allocate your purchase payments to up to 26 Variable Sub-Accounts. Each Variable Sub-Account invests in the shares of a corresponding Portfolio. Each Portfolio has its own investment objective(s) and policies. We briefly describe the Portfolios below.
13 PROSPECTUS
For more complete information about each Portfolio, including expenses and risks associated with the Portfolio, please refer to the accompanying prospectus for the Portfolio. You should carefully review the Portfolio prospectuses before allocating amounts to the Variable Sub-Accounts.
PORTFOLIO: | EACH PORTFOLIO SEEKS | INVESTMENT ADVISER: | |||||||||||||||||||||||||||||||||
AIM VARIABLE INSURANCE FUNDS - SERIES I SHARES: (*) | |||||||||||||||||||||||||||||||||||
AIM V.I. Balanced Fund – Series I 1 | As high a total return as possible, consistent with preservation of capital | ||||||||||||||||||||||||||||||||||
AIM V.I. Capital Appreciation Fund – Series I | Growth of capital | ||||||||||||||||||||||||||||||||||
AIM V.I. Government Securities Fund – Series I | High level of current income consistent with reasonable concern for safety of principal | A I M ADVISORS, INC. | |||||||||||||||||||||||||||||||||
AIM V.I. Growth Fund – Series I | Growth of capital | ||||||||||||||||||||||||||||||||||
AIM V.I. High Yield Fund –Series I | High level of current income | ||||||||||||||||||||||||||||||||||
AIM V.I. International Growth Fund - Series I | Long-term growth of capital | ||||||||||||||||||||||||||||||||||
AIM V.I. Premier Equity Fund - Series I | Long-term growth of capital with income as a secondary objective | ||||||||||||||||||||||||||||||||||
FIDELITY(R) VARIABLE INSURANCE PRODUCTS | |||||||||||||||||||||||||||||||||||
Fidelity VIP Contrafund(R) Portfolio - Initial Class | Long-term capital appreciation. | ||||||||||||||||||||||||||||||||||
Fidelity VIP Equity-Income Portfolio - Initial Class | Reasonable income by investing primarily in income-producing equity securities. In choosing these securities, the fund will also consider the potential for capital appreciation. The fund’s & goal is to achieve a yield which exceeds the composite yield on the securities comprising the S&P 500. | FIDELITY MANAGEMENT RESEARCH COMPANY | |||||||||||||||||||||||||||||||||
Fidelity VIP Growth Portfolio - Initial Class | To achieve capital appreciation. | ||||||||||||||||||||||||||||||||||
14 PROSPECTUS
Fidelity VIP Growth Opportunities Portfolio - Initial Class | To provide capital growth | ||||||||||||||||||||||||||||||||||
Fidelity VIP Overseas Portfolio – Initial Class | Long-term growth of capital. | ||||||||||||||||||||||||||||||||||
DELAWARE VIP TRUST | |||||||||||||||||||||||||||||||||||
Delaware VIP Small Cap Value Series - Standard Class | Capital appreciation | DELAWARE MANAGEMENT COMPANY | |||||||||||||||||||||||||||||||||
Delaware VIP Trend Series - Standard Class | Long-term capital appreciation |
15 PROSPECTUS
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; DREYFUS STOCK INDEX FUND; | |||||||||||||||||||||||||||||||||||
AND DREYFUS VARIABLE INVESTMENT FUND (VIF) | |||||||||||||||||||||||||||||||||||
The Dreyfus Socially Responsible Growth Fund, Inc.: Initial Shares | Capital growth and, secondarily, current income | ||||||||||||||||||||||||||||||||||
Dreyfus Stock Index Fund, Inc.: Initial Shares | To match the total return of the Standard & Poor’s 500 Composite Stock Price Index | THE DREYFUS CORPORATION | |||||||||||||||||||||||||||||||||
Dreyfus VIF – Appreciation Portfolio: Initial Shares (2) | Long-term capital growth consistent with the preservation of capital. Its secondary goal is current income. | ||||||||||||||||||||||||||||||||||
Dreyfus VIF - Money Market Portfolio | A high level of current income as is consistent with the preservation of capital and the maintenance of liquidity | ||||||||||||||||||||||||||||||||||
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST | |||||||||||||||||||||||||||||||||||
FTVIP Templeton Global Asset Allocation Fund - Class 2 | High total return | TEMPLETON INVESTMENT COUNSEL, LLC | |||||||||||||||||||||||||||||||||
FTVIP Templeton Foreign Securities Fund - Class 2 | Long-term capital growth. | ||||||||||||||||||||||||||||||||||
16 PROSPECTUS
OPPENHEIMER VARIABLE ACCOUNT FUNDS | ||||||||||||||||||||||||||||||||
Oppenheimer Aggressive Growth Fund/VA | Capital appreciation by investing in “ growth type” companies. | |||||||||||||||||||||||||||||||
Oppenheimer Main Street Fund/VA | High total return (which includes growth in the value of its shares as well as current income) from equity and debt securities. | OPPENHEIMERFUNDS, INC. | ||||||||||||||||||||||||||||||
Oppenheimer Strategic Bond Fund/VA | A high level of current income principally derived from interest on debt securities. | |||||||||||||||||||||||||||||||
WELLS FARGO VARIABLE TRUST FUNDS | ||||||||||||||||||||||||||||||||
Wells Fargo Advantage Asset Allocation Fund (3) | Long-term total return, consistent with reasonable risk | |||||||||||||||||||||||||||||||
Wells Fargo Advantage Equity Income Fund (4) | Long-term capital appreciation and above-average dividend income | WELLS FARGO FUNDS MANAGEMENT, LLC | ||||||||||||||||||||||||||||||
Wells Fargo Advantage Large Company Core Fund (5) | Total return comprised of long-term capital appreciation and current income | |||||||||||||||||||||||||||||||
* The Portfolio's investment objective(s) may be changed by the Portfolio's Board of Trustees without shareholder approval.
(1) Effective July 1, 2005, the AIM V.I. Balanced Fund- Series I will change its name to AIM V.I Basic Balanced Fund-Series I. In addition, the Portfolio's objective will change to long-term growth of capital and current income.
(2) Sub-Advised by Fayez Sarofim & Co.
(3) Effective April 11, 2005 the Wells Fargo VT Asset Allocation Fund changed its name toWells Fargo Advantage Asset Allocation Fund. The Portfolio's objective has not changed.
(4) Effective April 11, 2005 the Wells Fargo VT Equity Income Fund changed its name to Wells Fargo Advantage Equity Income Fund. The Portfolio's objective has not changed.
(5) Effective April 11, 2005 the Wells Fargo VT Growth Fund changed its name to Wells Fargo Advantage Large Company Core Fund. In addition, the Portfolio's objective has changed.
AMOUNTS YOU ALLOCATE TO VARIABLE SUB-ACCOUNTS MAY GROW IN VALUE, DECLINE IN VALUE, OR GROW LESS THAN YOU EXPECT, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
VARIABLE INSURANCE PORTFOLIOS MIGHT NOT BE MANAGED BY THE SAME PORTFOLIO MANAGERS WHO MANAGE RETAIL MUTUAL FUNDS WITH SIMILAR NAMES. THESE PORTFOLIOS ARE LIKELY TO DIFFER FROM SIMILARLY NAMED RETAIL FUNDS IN ASSETS, CASH FLOW, AND TAX MATTERS. ACCORDINGLY, THE HOLDINGS AND RESULTS OF A VARIABLE INSURANCE PORTFOLIO CAN BE EXPECTED TO BE HIGHER OR LOWER THAN THE INVESTMENT RESULTS OF A SIMILARLY NAMED RETAIL MUTUAL FUND.
INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT
17 PROSPECTUS
You may allocate all or a portion of your purchase payments to the Fixed Account Options. We will credit a minimum annual interest rate of 3% to money you allocate to any of the Fixed Account Options. Please consult with your representative for current information. The Fixed Account supports our insurance and annuity obligations. The Fixed Account consists of our general account assets other than those in segregated asset accounts. We have sole discretion to invest the assets of the Fixed Account, subject to applicable law. Any money you allocate to a Fixed Account Option does not entitle you to share in the investment experience of the Fixed Account.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
SIX MONTH DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. Under this Option, you may establish a Dollar Cost Averaging Program by allocating purchase payments to the Six Month Dollar Cost Averaging Fixed Account Option (“Six Month DCA Fixed Account Option”). We will credit interest to purchase payments you allocate to this Option for six months at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound at the annual interest rate we guaranteed at the time of allocation.
We will follow your instructions in transferring amounts monthly from the Six Month DCA Fixed Account Option.
You must transfer all of your money out of the Six Month DCA Fixed Account Option to the Variable Sub-Accounts in six equal monthly installments. If you discontinue the Dollar Cost Averaging Option before the end of the transfer period, we will transfer the remaining balance in this Option to the Dreyfus VIF Money Market Variable Sub-Account unless you request a different investment alternative. No transfers are permitted into the Six Month DCA Fixed Account.
For each purchase payment allocated to this Option, your first monthly transfer will occur at the end of the first month following such purchase payment. If we do not receive an allocation from you within one month of the date of payment, we will transfer the payment plus associated interest to the Dreyfus VIF Money Market Variable Sub-Account in equal monthly installments. Transferring Account Value to the Dreyfus Money Market Variable Sub-Account in this manner may not be consistent with the theory of Dollar Cost Averaging described on page 18.
TWELVE MONTH DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. Under this Option, you may establish a Dollar Cost Averaging Program by allocating purchase payments to the Twelve Month Dollar Cost Averaging Fixed Account Option (“Twelve Month DCA Fixed Account Option”). We will credit interest to purchase payments you allocate to this Option for twelve months at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound at the annual interest rate we guaranteed at the time of allocation.
We will follow your instructions in transferring amounts monthly from the Twelve Month DCA Fixed Account Option.
You must transfer all of your money out of the Twelve Month DCA Fixed Account Option to the Variable Sub-Accounts in twelve equal monthly installments. If you discontinue the Dollar Cost Averaging Option before the end of the transfer period, we will transfer the remaining balance in this Option to the Dreyfus VIF Money Market Variable Sub-Account unless you request a different investment alternative. No transfers are permitted into the Twelve Month DCA Fixed Account.
For each purchase payment allocated to this Option, your first monthly transfer will occur at the end of the first month following such purchase payment. If we do not receive an allocation from you within one month of the date of payment, we will transfer the payment plus associated interest to the Dreyfus VIF Money Market Variable Sub-Account in equal monthly installments. Transferring Account Value to the Money Market Variable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 18.
At the end of the transfer period, any nominal amounts remaining in the Six Month Dollar Cost Averaging Fixed Account or the Twelve Month Dollar Cost Averaging Fixed Account will be allocated to the Dreyfus VIF Money Market Variable Sub-Account.
Transfers out of the Dollar Cost Averaging Fixed Account Options do not count towards the 12 transfers you can make without paying a transfer fee.
INVESTMENT RISK. We bear the investment risk for all amounts allocated to the Six Month DCA Fixed Account Option and the Twelve Month DCA Fixed Account Option. That is because we guarantee the current interest rates we credit to the amounts you allocate to either of these Options, which will never be less than the minimum guaranteed rate in the Contract. Currently, we determine, in our sole discretion, the amount of interest credited in excess of the guaranteed rate.
We may declare more than one interest rate for different monies based upon the date of allocation to the Six Month DCA Fixed Account Option and the Twelve Month DCA Fixed Account Option. For current interest rate information, please contact your representative or our customer support unit at 1-800-692-4682.
18 PROSPECTUS
GUARANTEE PERIODS
Under this option, each payment or transfer allocated to the Fixed Account earns interest at a specified rate that we guarantee for a period of years we call a Guarantee Period. Guarantee Periods may range from 1 to 10 years. We are currently offering Guarantee Periods of 1, 3, 5, 7, and 10 years in length. In the future we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods. You select one or more Guarantee Periods for each purchase payment or transfer. If you do not select the Guarantee Period for a purchase payment or transfer, we will assign the shortest Guarantee Period available under the Contract for such payment or transfer.
Each payment or transfer allocated to a Guarantee Period must be at least $500. We reserve the right to limit the number of additional purchase payments that you may allocate to the Fixed Account. Please consult with your representative for more information.
INTEREST RATES. We will tell you what interest rates and Guarantee Periods we are offering at a particular time. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. We will not change the interest rate that we credit to a particular allocation until the end of the relevant Guarantee Period.
We have no specific formula for determining the rate of interest that we will declare initially or in the future. We will set those interest rates based on investment returns available at the time of the determination. In addition, we may consider various other factors in determining interest rates including regulatory and tax requirements, our sales commission and administrative expenses, general economic trends, and competitive factors. We determine the interest rates to be declared in our sole discretion. We can neither predict nor guarantee what those rates will be in the future. For current interest rate information, please contact your representative or Allstate New York at 1-800-692-4682. The interest rate will never be less than the minimum guaranteed amount stated in the Contract.
HOW WE CREDIT INTEREST. We will credit interest daily to each amount allocated to a Guarantee Period at a rate that compounds to the effective annual interest rate that we declared at the beginning of the applicable Guarantee Period.
The following example illustrates how a purchase payment allocated to the Fixed Account would grow, given an assumed Guarantee Period and effective annual interest rate:
Purchase Payment | $10,000 | ||||
Guarantee Period | 5 years | ||||
Annual Interest Rate | 4.50 | % |
19 PROSPECTUS
END OF CONTRACT YEAR
YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | |||||||||||||
Beginning Contract | |||||||||||||||||
Value | $10,000.00 | ||||||||||||||||
X (1 +Annual Interest | |||||||||||||||||
Rate) | X 1.045 | ||||||||||||||||
$10,450.00 | |||||||||||||||||
Contract Value at end | |||||||||||||||||
of Contract Year | $10,450.00 | ||||||||||||||||
X (1 + Annual | |||||||||||||||||
Interest Rate) | X 1.045 | ||||||||||||||||
$10,920.25 | |||||||||||||||||
Contract Value at end | |||||||||||||||||
of Contract Year | $10,920.25 | ||||||||||||||||
X (1 + Annual | |||||||||||||||||
Interest Rate) | X 1.045 | ||||||||||||||||
$11,411.66 | |||||||||||||||||
Contract Value at end | |||||||||||||||||
of Contract Year | $11,411.66 | ||||||||||||||||
X (1 + Annual | |||||||||||||||||
Interest Rate) | X 1.045 | ||||||||||||||||
$11,925.19 | |||||||||||||||||
Contract Value at end | |||||||||||||||||
of Contract Year | $11,925.19 | ||||||||||||||||
X (1 + Annual | |||||||||||||||||
Interest Rate) | X 1.045 | ||||||||||||||||
$12,461.82 |
This example assumes no withdrawals during the entire 5 year Guarantee Period. If you were to make a withdrawal, you may be required to pay a Withdrawal Charge. In addition, the amount withdrawn may be increased or decreased by a Market Value Adjustment that reflects changes in interest rates since the time you invested the amount withdrawn. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. The hypothetical interest rate is for illustrative purposes only and is not intended to predict future interest rates to be declared under the Contract. Actual interest rates declared for any given Guarantee Period may be more or less than shown above but will never be less than the guaranteed minimum rate stated in the Contract.
RENEWALS. At least 15 but not more than 45 days prior to the end of each Guarantee Period, we will mail you a notice asking you what to do with your money, including the accrued interest. During the 30-day period after the end of the Guarantee Period, you may:
1) Take no action. We will automatically apply your money to a new Guarantee Period of the shortest duration available. The new Guarantee Period will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for a Guarantee Period of that length; or
20 PROSPECTUS
2) Instruct us to apply your money to one or more new Guarantee Periods of your choice. The new Guarantee Period(s) will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for those Guarantee Periods; or
3) Instruct us to transfer all or a portion of your money to one or more Variable Sub-Accounts. We will effect the transfer on the day we receive your instructions. We will not adjust the amount transferred to include a Market Value Adjustment. We will pay interest from the day the Guarantee Period expired until the date of the transfer. The interest will be the rate for the shortest Guarantee Period then being offered; or
4) Withdraw all or a portion of your money. You may be required to pay a withdrawal charge, but we will not adjust the amount withdrawn to include a Market Value Adjustment. You may also be required to pay premium taxes and withholding (if applicable). The amount withdrawn will be deemed to have been withdrawn on the day the previous Guarantee Period ends. Unless you specify otherwise, amounts not withdrawn will be applied to a new Guarantee Period of the shortest duration available. The new Guarantee Period will begin on the day the previous Guarantee Period ends. Withdrawal of earnings are taxed as ordinary income, and, if taken prior to age 59 1/2, may be subject to an additional tax penalty
Under our automatic laddering program (“Automatic Laddering Program”), you may choose, in advance, to use Guarantee Periods of the same length for all renewals. You can select the Automatic Laddering Program at any time during the Accumulation Phase, including on the Issue Date. We will apply renewals to Guarantee Periods of the selected length until you direct us in writing to stop. We may stop offering the Automatic Laddering Program at any time. For additional information on the Automatic Laddering Program, please call our customer service center at 1-800-692-4682.
MARKET VALUE ADJUSTMENT. All withdrawals in excess of the PREFERRED WITHDRAWAL AMOUNT, and transfers from a Guarantee Period, other than those taken during the 30 day period after such Guarantee Period expires, are subject to a Market Value Adjustment. A Market Value Adjustment also applies when you apply amounts currently invested in a Guarantee Period to an Income Plan (unless paid or applied during the 30 day period after such Guarantee Period expires). A positive Market Value Adjustment will apply to amounts currently invested in a Guarantee Period that are paid out as death benefits. We will not apply a Market Value Adjustment to a transfer you make as part of a Dollar Cost Averaging Program. We also will not apply a Market Value Adjustment to a withdrawal you make:
• within the Preferred Withdrawal Amount as described on page 19, or
• to satisfy the IRS minimum distribution rules for the Contract.
We apply the Market Value Adjustment to reflect changes in interest rates from the time you first allocate money to a Guarantee Period to the time it is removed from that Guarantee Period. We calculate the Market Value Adjustment by comparing the Treasury Rate for a period equal to the Guarantee Period at its inception to the Treasury Rate for a period equal to the time remaining in the Guarantee Period when you remove your money. “TREASURY RATE” means the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Board Statistical Release H.15.
The Market Value Adjustment may be positive or negative, depending on changes in interest rates. As such, you bear the investment risk associated with changes in interest rates. If interest rates increase significantly, the Market Value Adjustment and any withdrawal charge, premium taxes, and income tax withholding (if applicable) could reduce the amount you receive upon full withdrawal of your Contract Value to an amount that is less than the purchase payment plus interest at the minimum guaranteed interest rate under the Contract.
Generally, if the Treasury Rate at the time you allocate money to a Guarantee Period is higher than the applicable current Treasury Rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a higher amount payable to you or transferred. Conversely, if the Treasury Rate at the time you allocate money to a Guarantee Period is lower than the applicable Treasury Rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a lower amount payable to you or transferred.
For example, assume that you purchase a Contract and you select an initial Guarantee Period of 5 years and the 5 year Treasury Rate for that duration is 4.50%. Assume that at the end of 3 years, you make a partial withdrawal. If, at that later time, the current 2 year Treasury Rate is 4.20%, then the Market Value Adjustment will be positive, which will result in an increase in the amount payable to you. Conversely, if the current 2 year Treasury Rate is 4.80%, then the Market Value Adjustment will be negative, which will result in a decrease in the amount payable to you.
The formula for calculating Market Value Adjustments is set forth in Appendix B to this prospectus, which also contains additional examples of the application of the Market Value Adjustment.
21 PROSPECTUS
INVESTMENT ALTERNATIVES: TRANSFERS
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer Contract Value among the investment alternatives. The minimum amount that you may transfer into a Guarantee Period is $500. You may request transfers in writing on a form that we provided or by telephone according to the procedure described below. We currently do not assess, but reserve the right to assess, a $10 charge on each transfer in excess of 12 per Contract Year. We treat transfers to or from more than one Portfolio on the same day as one transfer. Transfers you make as part of a Dollar Cost Averaging Program or Automatic Portfolio Rebalancing Program do not count against the 12 free transfers per Contract Year.
We will process transfer requests that we receive before 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date using the Accumulation Unit Values for that Date. We will process requests completed after 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date using the Accumulation Unit Values for the next Valuation Date. The Contract permits us to defer transfers from the Fixed Account for up to 6 months from the date we receive your request. If we decide to postpone transfers from the Fixed Account for 10 days or more, we will pay interest as required by applicable law. Any interest would be payable from the date we receive the transfer request to the date we make the transfer.
If you transfer an amount from a Guarantee Period other than during the 30 day period after such Guarantee Period expires, we will increase or decrease the amount by a Market Value Adjustment. If any transfer reduces your value in such Guarantee Period to less than $500, we will treat the request as a transfer of the entire value in such Guarantee Period.
We reserve the right to waive any transfer fees and restrictions.
TRANSFERS DURING THE PAYOUT PHASE
During the Payout Phase, you may make transfers among the Variable Sub-Accounts to change the relative weighting of the Variable Sub-Accounts on which your variable income payments will be based. In addition, you will have a limited ability to make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. You may not, however, convert any portion of your right to receive fixed income payments into variable income payments.
You may not make any transfers for the first 6 months after the Payout Start Date. Thereafter, you may make transfers among the Variable Sub-Accounts or make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. Your transfers must be at least 6 months apart.
TELEPHONE TRANSFERS
You may make transfers by telephone by calling 1-800-692-4682, if you first send us a completed authorization form. The cut off time for telephone transfer requests is 4:00 p.m. Eastern Time (3:00 p.m. Central Time). In the event that the New York Stock Exchange closes early, i.e., before 4:00 p.m. Eastern Time (3:00 p.m. Central Time), or in the event that the Exchange closes early for a period of time but then reopens for trading on the same day, we will process telephone transfer requests as of the close of the Exchange on that particular day. We will not accept telephone requests received at any telephone number other than the number that appears in this paragraph or received after the close of trading on the Exchange.
We may suspend, modify or terminate the telephone transfer privilege, as well as any other electronic or automated means we previously approved, at any time without notice.
We use procedures that we believe provide reasonable assurance that the telephone transfers are genuine. For example, we tape telephone conversations with persons purporting to authorize transfers and request identifying information. Accordingly, we disclaim any liability for losses resulting from allegedly unauthorized telephone transfers. However, if we do not take reasonable steps to help ensure that a telephone authorization is valid, we may be liable for such losses.
MARKET TIMING & EXCESSIVE TRADING
The Contracts are intended for long-term investment. Market timing and excessive trading can potentially dilute the value of Variable Sub-Accounts and can disrupt management of a Portfolio and raise its expenses, which can impair Portfolio performance and adversely affect your Contract Value. Our policy is not to accept knowingly any money intended for the purpose of market timing or excessive trading. Accordingly, you should not invest in the Contract if your purpose is to engage in market timing or excessive trading, and you should refrain from such practices if you currently own a Contract.
22 PROSPECTUS
We seek to detect market timing or excessive trading activity by reviewing trading activities. Portfolios also may report suspected market-timing or excessive trading activity to us. If, in our judgment, we determine that the transfers are part of a market timing strategy or are otherwise harmful to the underlying Portfolio, we will impose the trading limitations as described below under “Trading Limitations.” Because there is no universally accepted definition of what constitutes market timing or excessive trading, we will use our reasonable judgment based on all of the circumstances.
While we seek to deter market timing and excessive trading in Variable Sub-Accounts, because our procedures involve the exercise of reasonable judgment, we may not identify or prevent some market timing or excessive trading. Moreover, imposition of trading limitations is triggered by the detection of market timing or excessive trading activity, and the trading limitations are not applied prior to detection of such trading activity. Therefore, our policies and procedures do not prevent such trading activity before it is detected. As a result, some investors may be able to engage in market timing and excessive trading, while others are prohibited, and the portfolio may experience the adverse effects of market timing and excessive trading described above.
TRADING LIMITATIONS
We reserve the right to limit transfers among the investment alternatives in any Contract year, or to refuse any transfer request, if:
• we believe, in our sole discretion, that certain trading practices, such as excessive trading, by, or on behalf of, one or more Contract Owners, or a specific transfer request or group of transfer requests, may have a detrimental effect on the Accumulation Unit Values of any Variable Sub-Account or on the share prices of the corresponding Portfolio or otherwise would be to the disadvantage of other Contract Owners; or
• we are informed by one or more of the Portfolios that they intend to restrict the purchase, exchange, or redemption of Portfolio shares because of excessive trading or because they believe that a specific transfer or group of transfers would have a detrimental effect on the prices of Portfolio shares.
In making the determination that trading activity constitutes market timing or excessive trading, we will consider, among other things:
• the total dollar amount being transferred, both in the aggregate and in the transfer request;
• the number of transfers you make over a period of time and/or the period of time between transfers (note: one set of transfers to and from a Variable Sub-Account in a short period of time can constitute market timing);
• whether your transfers follow a pattern that appears designed to take advantage of short term market fluctuations, particularly within certain Variable Sub-Account underlying Portfolios that we have identified as being susceptible to market timing activities;
• whether the manager of the underlying Portfolio has indicated that the transfers interfere with Portfolio management or otherwise adversely impact the Portfolio; and
• the investment objectives and/or size of the Variable Sub-Account underlying Portfolio.
We seek to apply these trading limitations uniformly. However, because these determinations involve the exercise of discretion, it is possible that we may not detect some market timing or excessive trading activity. As a result, it is possible that some investors may be able to engage in market timing or excessive trading activity, while others are prohibited, and the Portfolio may experience the adverse effects of market timing and excessive trading described above.
If we determine that a Contract Owner has engaged in market timing or excessive trading activity, we will restrict that Contract Owner from making future additions or transfers into the impacted Variable Sub-Account(s). If we determine that a Contract Owner has engaged in a pattern of market timing or excessive trading activity involving multiple Variable Sub-Accounts, we will also require that all future transfer requests be submitted through regular U.S. mail thereby refusing to accept transfer requests via telephone, facsimile, Internet, or overnight delivery.
In our sole discretion, we may revise our Trading Limitations at any time as necessary to better deter or minimize market timing and excessive trading or to comply with regulatory requirements.
DOLLAR COST AVERAGING PROGRAM
Through the Dollar Cost Averaging Program, you may automatically transfer a set amount every month during the Accumulation Phase from any Variable Sub-Account, the Six Month Dollar Cost Averaging Fixed Account, or the Twelve Month Dollar Cost Averaging Fixed Account, to any other Variable Sub-Account. You may not use dollar cost averaging to transfer amounts to the Fixed Account.
23 PROSPECTUS
We will not charge a transfer fee for transfers made under this Program, nor will such transfers count against the 12 transfers you can make each Contract Year without paying a transfer fee.
The theory of dollar cost averaging is that if purchases of equal dollar amounts are made at fluctuating prices, the aggregate average cost per unit will be less than the average of the unit prices on the same purchase dates. However, participation in this Program does not assure you of a greater profit from your purchases under the Program nor will it prevent or necessarily reduce losses in a declining market.
Call or write us for instructions on how to enroll.
AUTOMATIC PORTFOLIO REBALANCING PROGRAM
Once you have allocated your money among the Variable Sub-Accounts, the performance of each Variable Sub-Account may cause a shift in the percentage you allocated to each Variable Sub-Account. If you select our Automatic Portfolio Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. Money you allocate to the Fixed Account will not be included in the rebalancing.
We will rebalance your account each quarter according to your instructions. We will transfer amounts among the Variable Sub-Accounts to achieve the percentage allocations you specify. You can change your allocations at any time by contacting us in writing or by telephone. The new allocation will be effective with the first rebalancing that occurs after we receive your request. We are not responsible for rebalancing that occurs prior to receipt of your request.
Example:
Assume that you want your initial purchase payment split among 2 Variable Sub-Accounts. You want 40% to be in the AIM V.I. Balanced - Series I Sub-Account Variable Sub-Account and 60% to be in the Fidelity VIP Growth - Initial Class Sub-Account Variable Sub-Account. Over the next 2 months the bond market does very well while the stock market performs poorly. At the end of the first quarter, the AIM V.I. Balanced - Series I Sub-Account Variable Sub-Account now represents 50% of your holdings because of its increase in value. If you choose to have your holdings rebalanced quarterly, on the first day of the next quarter we would sell some of your units in the AIM V.I. Balanced - Series I Sub-Account Variable Sub-Account and use the money to buy more units in the Fidelity VIP Growth - Initial Class Sub-Account Variable Sub-Account so that the percentage allocations would again be 40% and 60% respectively.
The Automatic Portfolio Rebalancing Program is available only during the Accumulation Phase. The transfers made under the Program do not count towards the 12 transfers you can make without paying a transfer fee, and are not subject to a transfer fee.
Portfolio rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Contract Value allocated to the better performing segments.
You may not use the Dollar Cost Averaging and automatic Portfolio Rebalancing programs at the same time.
EXPENSES
As a Contract Owner, you will bear, directly or indirectly, the charges and expenses described below.
CONTRACT MAINTENANCE CHARGE
During the Accumulation Phase, on each Contract Anniversary, we will deduct a $30 contract maintenance charge from your Contract Value invested in each Variable Sub-Account in proportion to the amount invested. We also will deduct a full contract maintenance charge if you withdraw your entire Contract Value, unless your Contract qualifies for a waiver, described below. During the Payout Phase, we will deduct the charge proportionately from each income payment.
The charge is for the cost of maintaining each Contract and the Variable Account. Maintenance costs include expenses we incur in billing and collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract Owners and regulatory agencies. We cannot increase the charge. We will waive this charge if:
• total purchase payments equal $50,000 or more, or
• all of your money is allocated to the Fixed Account on a Contract Anniversary.
24 PROSPECTUS
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily at an annual rate of 1.15% of the average daily net assets you have invested in the Variable Sub-Accounts. The mortality and expense risk charge is for all the insurance benefits available with your Contract (including our guarantee of annuity rates and the death benefits), for certain expenses of the Contract, and for assuming the risk (expense risk) that the current charges will not be sufficient in the future to cover the cost of administering the Contract. If the charges under the Contract are not sufficient, then we will bear the loss.
We guarantee the mortality and expense risk charge and we cannot increase it. We assess the mortality and expense risk charge during both the Accumulation Phase and the Payout Phase.
ADMINISTRATIVE EXPENSE CHARGE We deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-Accounts. We intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed to that Contract. We assess this charge each day during the Accumulation Phase and the Payout Phase. We guarantee that we will not raise this charge.
TRANSFER FEE
We do not currently impose a fee upon transfers among the investment alternatives. However, we reserve the right to charge $10 per transfer after the 12th transfer in each Contract Year. We will not charge a transfer fee on transfers that are part of a Dollar Cost Averaging or Automatic Portfolio Rebalancing Program.
WITHDRAWAL CHARGE We may assess a Withdrawal Charge of up to 7% of the purchase payment(s) you withdraw in excess of the Preferred Withdrawal Amount, adjusted by a Market Value Adjustment. The charge declines by 1% annually to 0% after 7 complete years from the day we receive the purchase payment being withdrawn. Beginning on January 1, 2004, if you make a withdrawal before the Payout Start Date, we will apply the Withdrawal Charge percentage in effect on the date of the withdrawal, or the Withdrawal Charge percentage in effect on the following day, whichever is lower. A schedule showing how the Withdrawal Charge declines appears on page 7. During each Contract Year, you can withdraw up to 15% of purchase payments without paying the Withdrawal Charge. Unused portions of this 15% “PREFERRED WITHDRAWAL AMOUNT” are not carried forward to future Contract Years.
We determine the Withdrawal Charge by:
• multiplying the percentage corresponding to the number of complete years since we received the purchase payment being withdrawn, times
• the part of each purchase payment withdrawal that is in excess of the Preferred Withdrawal Amount, adjusted by a Market Value Adjustment.
We will deduct Withdrawal Charges, if applicable, from the amount paid. For purposes of the Withdrawal Charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings in the Contract, which means you pay taxes on the earnings portion of your withdrawal.
We do not apply a Withdrawal Charge in the following situations:
• on the Payout Start Date (a Withdrawal Charge may apply if you elect to receive income payments for a specified period of less than 120 months);
• the death of the Contract Owner or Annuitant (unless the Settlement Value is used);
• withdrawals taken to satisfy IRS required minimum distribution rules for the Contract; or
• withdrawals made after all purchase payments have been withdrawn.
We use the amounts obtained from the Withdrawal Charge to pay sales commissions and other promotional or distribution expenses associated with marketing the Contracts. To the extent that the Withdrawal Charge does not cover all sales commissions and other promotional or distribution expenses, we may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or any other charges or fee described above, to make up any difference.
25 PROSPECTUS
Withdrawals taken during the Accumulation Phase are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. Withdrawals may also be subject to a Market Value Adjustment. You should consult your own tax counsel or other tax advisers regarding any withdrawals.
PREMIUM TAXES
Currently, we do not make deductions for premium taxes under the Contract because New York does not charge premium taxes on annuities. We may deduct taxes that may be imposed in the future from purchase payments or the Contract Value when the tax is incurred or at a later time.
DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES
We are not currently making a provision for such taxes. In the future, however, we may make a provision for taxes if we determine, in our sole discretion, that we will incur a tax as a result of the operation of the Variable Account. We will deduct for any taxes we incur as a result of the operation of the Variable Account, whether or not we previously made a provision for taxes and whether or not it was sufficient. Our status under the Internal Revenue Code is briefly described in the Taxes section.
OTHER EXPENSES
Each Portfolio deducts advisory fees and other expenses from its assets. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Variable Sub-Accounts. These fees and expenses are described in the accompanying prospectus for the Portfolios. For a summary of the maximum and minimum amounts for these charges and expenses, see pages 7-8. We may receive compensation from the investment advisers or administrators of the Portfolios for administrative services we provide to the Portfolios.
ACCESS TO YOUR MONEY
You can withdraw some or all of your Contract Value at any time prior to the Payout Start Date. Full or partial withdrawals also are available under limited circumstances on or after the Payout Start Date. See “Income Plans” on page 22.
The amount payable upon withdrawal is the Contract Value next computed after we receive the request for a withdrawal at our customer service center, adjusted by any Market Value Adjustment, less any Withdrawal Charges, contract maintenance charges, income tax withholding, and any premium taxes. We will pay withdrawals from the Variable Account within 7 days of receipt of the request, subject to postponement in certain circumstances.
You can withdraw money from the Variable Account or the Fixed Account. To complete a partial withdrawal from the Variable Account, we will cancel Accumulation Units in an amount equal to the withdrawal and any applicable Withdrawal Charge and premium taxes.
Withdrawals taken during the Accumulation Phase are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
You have the opportunity to name the investment alternative(s) from which you are taking the withdrawal. If none is specified, we will deduct your withdrawal pro-rata from the investment alternatives according to the value of your investments therein.
In general, you must withdraw at least $50 at a time. You also may withdraw a lesser amount if you are withdrawing your entire interest in a Variable Sub- Account.
If you request a total withdrawal, you must return your Contract to us.
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under the Contract if:
1. The New York Stock Exchange is closed for other than usual weekends or holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the SEC; or
3. The SEC permits delay for your protection.
26 PROSPECTUS
In addition, we may delay payments or transfers from the Fixed Account for up to 6 months or a shorter period if required by law. If we delay payment or transfer for 10 business days or more, we will pay interest as required by law. Any interest would be payable from the date we receive the withdrawal request to the date we make the payment or transfer.
SYSTEMATIC WITHDRAWAL PROGRAM
You may choose to receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or annual basis at any time prior to the Payout Start Date. The minimum amount of each systematic withdrawal is $50. At our discretion, systematic withdrawals may not be offered in conjunction with the Dollar Cost Averaging Program or the Automatic Portfolio Rebalancing Program.
Depending on fluctuations in the net asset value of the Variable Sub-Accounts and the value of the Fixed Account, systematic withdrawals may reduce or even exhaust the Contract Value. Please consult your tax advisor before taking any withdrawal.
We will make systematic withdrawal payments to you or your designated payee. We may modify or suspend the Systematic Withdrawal Program and charge a processing fee for the service. If we modify or suspend the Systematic Withdrawal Program, existing systematic withdrawal payments will not be affected.
MINIMUM CONTRACT VALUE
If your request for a partial withdrawal would reduce the amount in any Guarantee Period to less than $500, we will treat it as a request to withdraw the entire amount invested in such Guarantee Period. If your request for a partial withdrawal would reduce your Contract Value to less than $1,000, we may treat it as a request to withdraw your entire Contract Value. Your Contract will terminate if you withdraw all of your Contract Value. We will, however, ask you to confirm your withdrawal request before terminating your Contract. Before terminating any Contract whose value has been reduced by withdrawals to less than $1,000, we will inform you in writing of our intention to terminate your Contract and give you at least 30 days in which to make an additional purchase payment to restore your Contract's value to the contractual minimum of $1,000. If we terminate your Contract, we will distribute to you its Contract Value, adjusted by any applicable Market Value Adjustment, less withdrawal and other charges and applicable taxes.
INCOME PAYMENTS
PAYOUT START DATE
The Payout Start Date is the day that we apply your money to an Income Plan. The Payout Start Date must be no later than the day the Annuitant reaches age 90, or the 10th Contract Anniversary, if later. You may change the Payout Start Date at any time by notifying us in writing of the change at least 30 days before the scheduled Payout Start Date. Absent a change, we will use the Payout Start Date stated in your Contract.
INCOME PLANS
An “Income Plan” is a series of payments on a scheduled basis to you or to another person designated by you. You may choose and change your choice of Income Plan until 30 days before the Payout Start Date. If you do not select an Income Plan, we will make income payments in accordance with Income Plan 1 with guaranteed payments for 10 years if you have designated only one annuitant or Income Plan 2 with guaranteed payments for 10 years if you have designated a joint Annuitant. After the Payout Start Date, you may not make withdrawals (except as described below) or change your choice of Income Plan.
Three Income Plans are available under the Contract. Each is available to provide:
• fixed income payments;
• variable income payments; or
• a combination of the two.
A portion of each payment will be considered taxable and the remaining portion will be a non-taxable return of your investment in the Contract, which is also called the “basis”. Once the investment in the Contract is depleted, all remaining payments will be fully taxable. If the Contract is tax-qualified, generally, all payments will be fully taxable. Taxable payments taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
27 PROSPECTUS
The three Income Plans are:
INCOME PLAN 1 - LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as the Annuitant lives. If the Annuitant dies before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract. The number of months guaranteed may be 0 months, or range from 60 to 360 months.
INCOME PLAN 2 - JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as either the Annuitant or the joint Annuitant is alive. If both the Annuitant and the joint Annuitant die before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract. The number of months guaranteed may be 0 months, or range from 60 to 360 months.
INCOME PLAN 3 - GUARANTEED PAYMENT FOR A SPECIFIED PERIOD (5 YEARS TO 30 YEARS). Under this plan, we make periodic income payments for the period you have chosen. These payments do not depend on the Annuitant's life. Income payments for less than 120 months may be subject to a withdrawal charge. We will deduct the mortality and expense risk charge from the Variable Sub-Account assets that support variable income payments even though we may not bear any mortality risk.
The length of any guaranteed payment period under your selected Income Plan generally will affect the dollar amounts of each income payment. As a general rule, longer guarantee periods result in lower income payments, all other things being equal. For example, if you choose an Income Plan with payments that depend on the life of the Annuitant but with no minimum specified period for guaranteed payments, the income payments generally will be greater than the income payments made under the same Income Plan with a minimum specified period for guaranteed payments.
If you choose Income Plan 1 or 2, or, if available, another Income Plan with payments that continue for the life of the Annuitant or joint Annuitant, we may require proof of age and sex of the Annuitant or joint Annuitant before starting income payments, and proof that the Annuitant or joint Annuitant is alive before we make each payment.
Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on.
Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or part of the Variable Account portion of the income payments at any time and receive a lump sum equal to the present value of the remaining variable income payments associated with the amount withdrawn. To determine the present value of any remaining variable income payments being withdrawn, we use a discount rate equal to the assumed annual investment rate that we use to compute such variable income payments. The minimum amount you may withdraw under this feature is $1,000. A withdrawal charge may apply. You will also have a limited ability to make transfers from the Variable Account portion of the income payments to increase the proportion of your income payments consisting of fixed income payments. You may not, however, convert any portion of your right to receive fixed income payments into variable income payments. We deduct applicable premium taxes, if any, from the Contract Value at the Payout Start Date. New York does not currently impose a premium tax.
We may make other Income Plans available. You may obtain information about them by writing or calling us.
You must apply at least the Contract Value in the Fixed Account on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account balance to provide variable income payments, you should plan ahead and transfer that amount to the Variable Sub-Accounts prior to the Payout Start Date. If you do not tell us how to allocate your Contract Value among fixed and variable income payments, we will apply your Contract Value in the Variable Account to variable income payments and your Contract Value in the Fixed Account to fixed income payments.
We will apply your Contract Value, adjusted by a Market Value Adjustment, less applicable taxes to your Income Plan on the Payout Start Date. If the Contract Value is less than $2,000 or not enough to provide an initial payment of at least $20, and state law permits, we may:
• terminate the Contract and pay you the Contract Value, adjusted by any Market Value Adjustment and less any applicable taxes, in a lump sum instead of the periodic payments you have chosen, or
• reduce the frequency of your payments so that each payment will be at least $20.
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VARIABLE INCOME PAYMENTS
The amount of your variable income payments depends upon the investment results of the Variable Sub-Accounts you select, the premium taxes you pay, if any, the age and sex of the Annuitant, and the Income Plan you choose. We guarantee that the payments will not be affected by (a) actual mortality experience and (b) the amount of our administration expenses.
We cannot predict the total amount of your variable income payments. Your variable income payments may be more or less than your total purchase payments because (a) variable income payments vary with the investment results of the underlying Portfolio and (b) the Annuitant could live longer or shorter than we expect based on the tables we use.
In calculating the amount of the periodic payments in the annuity tables in the Contract, we assumed an annual investment rate of 3%. If the actual net investment return of the Variable Sub-Accounts you choose is less than this assumed investment rate, then the dollar amount of your variable income payments will decrease. The dollar amount of your variable income payments will increase, however, if the actual net investment return exceeds the assumed investment rate. The dollar amount of the variable income payments stays level if the net investment return equals the assumed investment rate. Please refer to the Statement of Additional Information for more detailed information as to how we determine variable income payments.
FIXED INCOME PAYMENTS
We guarantee income payment amounts derived from the Fixed Account for the duration of the Income Plan. We calculate the fixed income payments by:
1. adjusting the portion of the Contract Value in the Fixed Account on the Payout Start Date by any applicable Market Value Adjustment;
2. deducting any applicable premium tax; and
3. applying the resulting amount to the greater of (a) the appropriate value from the income payment table in your Contract or (b) such other value as we are offering at that time.
We may defer making fixed income payments for a period of up to 6 months or such shorter time as state law may require. If we defer payments for 10 business days or more, we will pay interest as required by law from the date we receive the withdrawal request to the date we make payment.
CERTAIN EMPLOYEE BENEFIT PLANS
The Contracts offered by this prospectus contain income payment tables that provide for different payments to men and women of the same age, except in states that require unisex tables. We reserve the right to use income payment tables that do not distinguish on the basis of sex to the extent permitted by law. In certain employment-related situations, employers are required by applicable law to use the same income payment tables for men and women. Accordingly, if the Contract is to be used in connection with an employment-related retirement or benefit plan, and we do not offer unisex annuity tables in your state, you should consult with legal counsel as to whether the purchase of a Contract is appropriate. For qualified plans, where it is appropriate, we may use income payment tables that do not distinguish on the basis of sex.
DEATH BENEFITS
We will pay the death proceeds prior to the Payout Start Date on:
(a) the death of any Contract Owner, or
(b) the death of the Annuitant, if the Contract is owned by a non-living person.
We will pay the death proceeds to the new Contract Owner as determined immediately after the death. The new Contract Owner would be a surviving Contract Owner or, if none, the Beneficiary(ies). In the case of a Contract owned by a non-living owner, upon the death of the Annuitant, we will pay the death proceeds to the current Contract Owner.
We will determine the value of the death proceeds as of the end of the Valuation Date on which we receive a complete request for settlement of the death proceeds. If we receive a request after 3 p.m. Central Time on a Valuation Date, we will process the request as of the end of the following Valuation Date.
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A complete request for settlement of the death proceeds must include DUE PROOF OF DEATH. We will accept the following documentation as “Due Proof of Death:”
• a certified copy of the death certificate,
• a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or
• any other proof acceptable to us.
DEATH PROCEEDS
If we receive a complete request for settlement of the death proceeds within 180 days of the date of the death of any Contract Owner, or the death of the Annuitant, if the Contract is owned by a non-living owner, the death proceeds are equal to the Death Benefit described below. Otherwise, the death proceeds are equal to the greater of the Contract Value or the Settlement Value.
We reserve the right to extend, on a non-discriminatory basis, the 180-day period in which the death proceeds will equal the Death Benefit as described below. This right applies only to the amount payable as death proceeds and in no way restricts when a claim may be filed.
If we do not receive a complete request for settlement of the death proceeds within 180 days of the date of death, the death proceeds are equal to the greater of:
1) the Contract Value as of the date we determine the death proceeds; or
2) the Settlement Value as of the date we determine the death proceeds.
DEATH BENEFIT AMOUNT
Prior to the Payout Start Date, the Death Benefit is equal to the greatest of:
1. the Contract Value as of the date we receive a complete request for settlement of the death proceeds, or
2. the SETTLEMENT VALUE (that is, the amount payable on a full withdrawal of Contract Value) on the date we determine the death proceeds, or
3. the Contract Value on the Death Benefit Anniversary immediately preceding the date we receive a complete request for settlement of the death proceeds, adjusted by any purchase payments, withdrawal adjustment as defined below, and charges made since that Death Benefit Anniversary. A “DEATH BENEFIT ANNIVERSARY” is every seventh Contract Anniversary beginning with the Issue Date. For example, the Issue Date, 7th and 14th Contract Anniversaries are the first three Death Benefit Anniversaries, or
4. the greatest of the Anniversary Values as of the date we receive a complete request for settlement of the death proceeds. An “ANNIVERSARY VALUE” is equal to the Contract Value on a Contract Anniversary, increased by purchase payments made since that Anniversary and reduced by the amount of any withdrawal adjustment, as defined below, since that anniversary. Anniversary Values will be calculated for each Contract Anniversary prior to the earlier of:
(i) the date we determine the death benefit, or
(ii) the deceased's 75th birthday or 5 years after the Issue Date, if later.
The withdrawal adjustment is equal to (a) divided by (b), with the result multiplied by (c), where:
(a) = the withdrawal amount,
(b) = the Contract Value immediately prior to the withdrawal, and
(c) = the value of the applicable death benefit alternative immediately prior to the withdrawal.
See Appendix C for an example representative of how the withdrawal adjustment applies.
In calculating the Settlement Value, the amount in each individual Guarantee Period may be subject to a Market Value Adjustment. A Market Value Adjustment will apply to amounts in a Guarantee Period, unless we calculate the Settlement Value during the 30-day period after the expiration of the Guarantee Period. Also, the Settlement Value will reflect the deduction of any applicable Withdrawal Charges, contract maintenance charges, and premium taxes. Contract maintenance charges will be pro rated for the part of the Contract Year elapsed as of the date we determine the Settlement Value, unless your Contract qualifies for a waiver of such charges described in the “Contract Maintenance Charge” section above.
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DEATH BENEFIT PAYMENTS DEATH OF OWNER
1. If your spouse is the sole surviving Contract Owner, or is the sole Beneficiary:
a. Your spouse may elect to receive the Death Proceeds in a lump sum; or
b. Your spouse may elect to receive the Death Proceeds paid out under one of the Income Plans (described in “Income Payments” above), subject to the following conditions:
The Payout Start Date must be within one year of your date of death. Income payments must be payable:
i. over the life of your spouse; or
ii. for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of your spouse; or
iii. over the life of your spouse with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of your spouse.
c. If your spouse does not elect one of these options, the Contract will continue in the Accumulation
Phase as if the death had not occurred. If the Contract is continued in the Accumulation Phase, the following conditions apply: The Contract Value of the continued Contract will be the Death Proceeds. Unless otherwise instructed by the continuing spouse, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the Sub-Accounts of the Variable Account. This excess will be allocated in proportion to your Contract Value in those Variable Sub-Accounts as of the end of the Valuation Date on which we receive the complete request for settlement of the Death Proceeds (the next Valuation Date if we receive the request after 3:00 p.m. Central Time), except that any portion of this excess attributable to the Fixed Account Options will be allocated to the money market Variable Sub-Account. Within 30 days of the date the Contract is continued, your surviving spouse may choose one of the following transfer alternatives without incurring a transfer fee:
i. transfer all or a portion of the excess among the Variable Sub-accounts;
ii. transfer all or a portion of the excess into the Fixed Account and begin a new Guarantee Period; or
iii. transfer all or a portion of the excess into a combination of Variable Sub-Accounts and the Fixed Account.
Any such transfer does not count as one of the free transfers allowed each Contract Year and is subject to any minimum allocation amount specified in the Contract.
The surviving spouse may make a single withdrawal of any amount within one year of the date of your death without incurring a Withdrawal Charge or Market Value Adjustment.
Prior to the Payout Start Date, the Death Proceeds of the continued Contract will be described under “Death Benefit Amount.”
Only one spousal continuation is allowed under the Contract.
2. If the new Contract Owner is not your spouse but is a living person or if there are multiple living-person new Contract Owners:
a. The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or
b. The new Contract Owner may elect to receive the Death Proceeds paid out under one of the Income Plans (described in “Income Payments” on page 21), subject to the following conditions:
The Payout Start Date must be within one year of your date of death. Income payments must be payable:
i. over the life of the new Contract Owner; or
ii. for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of the new Contract Owner; or
iii. over the life of the new Contract Owner with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the new Contract Owner.
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c. If the new Contract Owner does not elect one of the options above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. The Contract Value will equal the amount of the Death Proceeds as determined as of the end of the Valuation Date on which we receive a complete request for settlement of the Death Proceeds (the next Valuation Date if we receive the request after 3:00 p.m. Central Time). Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers (as described in “Transfers During the Payout Phase” on page 18) during this 5 year period. No additional purchase payments may be added to the Contract under this election. Withdrawal Charges will be waived for any withdrawals made during this 5 year period.
We reserve the right to offer additional options upon the death of the Contract Owner.
If the new Contract Owner dies prior to the omplete liquidation of the Contract Value, then the new Contract Owner's named Beneficiary(ies) will receive the greater of the Settlement Value or the remaining Contract Value. This amount must be liquidated as a lump sum within 5 years of the date of the original Contract Owner's death.
3. If the new Contract Owner is a corporation or other type of non-living person:
a. The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or
b. If the new Contract Owner does not elect the option above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. The Contract Value will equal the amount of the Death Proceeds as determined as of the end of the Valuation Date on which we receive a complete request for settlement of the Death Proceeds (the next Valuation Date if we receive the request after 3:00 p.m. Central Time). Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers (as described in “Transfers During the Payout Phase” on page 18) during this 5 year period.
No additional purchase payments may be added to the Contract under this election. Withdrawal charges will be waived during this 5 year period.
We reserve the right to make additional options available to the new Contract Owner upon the death of the Contract Owner.
If any new Contract Owner is a non-living person, all new Contract Owners will be considered to be non-living persons for the above purposes. Under any of these options, all ownership rights, subject to any restrictions previously placed upon the Beneficiary, are available to the new Contract Owner from the date of your death to the date on which the Death Proceeds is paid.
DEATH OF ANNUITANT
If the Annuitant who is not also the Contract Owner dies prior to the Payout Start Date, the following apply:
1. If the Contract Owner is a living person, then the Contract will continue with a new Annuitant, who will be:
a. the youngest Contract Owner; otherwise
b. the youngest Beneficiary. You may change the Annuitant before the Payout Start Date.
2. If the Contract Owner is a non-living person:
a. The Contract Owner may elect to receive the Death Proceeds in a lump sum; or
b. If the Contract Owner does not elect the option above, then the Contract Owner must receive the Contract Value payable within 5 years of the Annuitant's date of death. The Contract Value will equal the amount of the Death Proceeds as determined as of the end of the Valuation Date on which we receive a complete request for settlement of the Death Proceeds (the next Valuation Date if we receive the request after 3:00 p.m. Central Time). Unless otherwise instructed by the Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the Contract Owner may make transfers (as described in “Transfers During the Payout Phase” on page 18) during this 5 year period.
No additional purchase payments may be added to the Contract under this election. Withdrawal Charges will be waived during this 5 year period.
We reserve the right to make additional options available to the Contract Owner upon the death of the Annuitant.
Under any of these options, all ownership rights are available to the non-living Contract Owner from the date of the Annuitant's death to the date on which the Death Proceeds is paid.
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MORE INFORMATION
ALLSTATE NEW YORK
Allstate New York is the issuer of the Contract. Allstate New York is a stock life insurance company organized under the laws of the State of New York. Allstate New York was incorporated in 1967 and was known as “Financial Life Insurance Company” from 1967 to 1978. From 1978 to 1984, Allstate New York was known as “PM Life Insurance Company.” Since 1984 the company has been known as “Allstate Life Insurance Company of New York.”
Allstate New York is currently licensed to operate in New York. Our home office is located 100 Motor Parkway, Hauppauge, New York 11788-5107. Our service center is located in Vernon Hills, Illinois.
Allstate New York is a wholly owned subsidiary of Allstate Life Insurance Company (“Allstate Life”) , a stock life insurance company incorporated under the laws of the State of Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance Company, a stock property-liability insurance company incorporated under the laws of the State of Illinois. With the exception of the directors qualifying shares, all of the outstanding capital stock of Allstate Insurance Company is owned by The Allstate Corporation.
THE VARIABLE ACCOUNT
Allstate New York established the Allstate Life of New York Separate Account A on December 15, 1995. We have registered the Variable Account with the SEC as a unit investment trust. The SEC does not supervise the management of the Variable Account or Allstate New York.
We own the assets of the Variable Account. The Variable Account is a segregated asset account under New York law. That means we account for the Variable Account's income, gains and losses separately from the results of our other operations. It also means that only the assets of the Variable Account that are in excess of the reserves and other Contract liabilities with respect to the Variable Account are subject to liabilities relating to our other operations.
Our obligations arising under the Contracts are general corporate obligations of Allstate New York.
The Variable Account consists of multiple Variable Sub-Accounts, 26 of which are available through the Contracts. Each Variable Sub-Account invests in a corresponding Portfolio. We may add new Variable Sub-Accounts or eliminate one or more of them, if we believe marketing, tax, or investment conditions so warrant. We do not guarantee the investment performance of the Variable Account, its Sub-Accounts or the Portfolios. We may use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account.
THE PORTFOLIOS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value.
VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Portfolios held by the Variable Sub-Accounts to which you have allocated your Contract Value. Under current law, however, you are entitled to give us instructions on how to vote those shares on certain matters. Based on our present view of the law, we will vote the shares of the Portfolios that we hold directly or indirectly through the Variable Account in accordance with instructions that we receive from Contract owners entitled to give such instructions.
As a general rule, before the Payout Start Date, the Contract Owner or anyone with a voting interest is the person entitled to give voting instructions. The number of shares that a person has a right to instruct will be determined by dividing the Contract Value allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Portfolio as of the record date of the meeting. After the Payout Start Date, the person receiving income payments has the voting interest. The payee's number of votes will be determined by dividing the reserve for such Contract allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Portfolio. The votes decrease as income payments are made and as the reserves for the Contract decrease.
We will vote shares attributable to Contracts for which we have not received instructions, as well as shares attributable to us, in the same proportion as we vote shares for which we have received instructions, unless we determine that we may vote such shares in our own discretion. We will apply voting instructions to abstain on any item to be voted on a pro-rata basis to reduce the votes eligible to be cast.
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We reserve the right to vote Portfolio shares as we see fit without regard to voting instructions to the extent permitted by law. If we disregard voting instructions, we will include a summary of that action and our reasons for that action in the next semi-annual financial report we send to you.
CHANGES IN PORTFOLIOS. If the shares of any of the Portfolios are no longer available for investment by the Variable Account or if, in our judgment, further investment in such shares is no longer desirable in view of the purposes of the Contract, we may eliminate that Portfolio and substitute shares of another eligible investment portfolio. Any substitution of securities will comply with the requirements of the Investment Company Act of 1940. We also may add new Variable Sub-Accounts that invest in additional portfolios. We will notify you in advance of any changes.
CONFLICTS OF INTEREST. Certain of the Portfolios sell their shares to Variable Accounts underlying both variable life insurance and variable annuity contracts.
It is conceivable that in the future it may be unfavorable for variable life insurance Variable Accounts and variable annuity Variable Accounts to invest in the same Portfolio. The boards of directors of these Portfolios monitor for possible conflicts among Variable Accounts buying shares of the Portfolios.
Conflicts could develop for a variety of reasons. For example, differences in treatment under tax and other laws or the failure by a Variable Account to comply with such laws could cause a conflict. To eliminate a conflict, a Portfolio's board of directors may require a Variable Account to withdraw its participation in a Portfolio. A Portfolio's net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a Variable Account withdrawing because of a conflict.
THE CONTRACT
DISTRIBUTION. ALFS, Inc. (“ALFS”), located at 3100 Sanders Road, Northbrook, Illinois 60062, serves as principal underwriter of the Contracts. ALFS is a wholly owned subsidiary of Allstate Life Insurance Company. ALFS is a registered broker-dealer under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), and is a member of the NASD.
Contracts described in this prospectus are sold by registered representatives of broker-dealers who are our licensed insurance agents, either individually or through an incorporated insurance agency. Commissions paid to broker-dealers may vary, but we estimate that the total commissions paid on all Contract sales to broker-dealers will not exceed 8.5% of any purchase payments. These commissions are intended to cover distribution expenses. From time to time, we may offer additional sales incentives of up to 1% of purchase payments to broker-dealers who maintain certain sales volume levels.
Allstate New York does not pay ALFS a commission for distribution of the Contracts. The underwriting agreement with ALFS provides that we will reimburse ALFS for any liability to Contract Owners arising out of services rendered or Contracts issued.
ADMINISTRATION. We have primary responsibility for all administration of the Contracts and the Variable Account. We provide the following administrative services, among others:
• issuance of the Contracts;
• maintenance of Contract Owner records;
• Contract Owner services;
• calculation of unit values;
• maintenance of the Variable Account; and
• preparation of Contract Owner reports.
We will send you Contract statements and transaction confirmations at least annually. The annual statement details values and specific Contract data for each particular Contract. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error.
We also will provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws.
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35 PROSPECTUS
NON-QUALIFIED ANNUITIES HELD WITHIN A QUALIFIED PLAN
If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitations on withdrawals, waivers of withdrawal charges, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if qualified plan limits on distributions and other conditions are not met. Please consult your qualified plan administrator for more information. We no longer issue deferred annuities to employer sponsored qualified retirement plans.
LEGAL MATTERS
All matters of New York law pertaining to the Contracts, including the validity of the Contracts and Allstate New York's right to issue such Contracts under New York insurance law, have been passed upon by Michael J. Velotta, General Counsel of Allstate New York.
TAXES
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. ALLSTATE NEW YORK MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of distributions under an annuity contract depend on your individual circumstances. If you are concerned about any tax consequences with regard to your individual circumstances, you should consult a competent tax adviser.
TAXATION OF ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
Allstate New York is taxed as a life insurance company under Part I of Subchapter L of the Code. Since the Variable Account is not an entity separate from Allstate New York, and its operations form a part of Allstate New York, it will not be taxed separately. Investment income and realized capital gains of the Variable Account are automatically applied to increase reserves under the Contract. Under existing federal income tax law, Allstate New York believes that the Variable Account investment income and capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contract. Accordingly, Allstate New York does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore Allstate New York does not intend to make provisions for any such taxes. If Allstate New York is taxed on investment income or capital gains of the Variable Account, then Allstate New York may impose a charge against the Variable Account in order to make provision for such taxes.
TAXATION OF VARIABLE ANNUITIES IN GENERAL
TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value until a distribution occurs. This rule applies only where:
• the Contract Owner is a natural person,
• the investments of the Variable Account are “adequately diversified” according to Treasury Department regulations, and
• Allstate New York is considered the owner of the Variable Account assets for federal income tax purposes.
NON-NATURAL OWNERS. Non-natural owners are also referred to as Non Living Owners in this prospectus. As a general rule, annuity contracts owned by non-natural persons such as corporations, trusts, or other entities are not treated as annuity contracts for federal income tax purposes. The income on such contracts does not enjoy tax deferral and is taxed as ordinary income received or accrued by the non-natural owner during the taxable year.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE. There are several exceptions to the general rule that annuity contracts held by a non-natural owner are not treated as annuity contracts for federal income tax purposes. Contracts will generally be treated as held by a natural person if the nominal owner is a trust or other entity which holds the contract as agent for a natural person. However, this special exception will not apply in the case of an employer who is the nominal owner of an annuity contract under a non-Qualified deferred compensation arrangement for its employees. Other exceptions to the non-natural owner rule are: (1) contracts acquired by an estate of a decedent by reason of the death of the decedent; (2) certain qualified contracts; (3) contracts purchased by employers upon the termination of certain qualified plans; (4) certain contracts used in connection with structured settlement agreements; and (5) immediate annuity contracts, purchased with a single premium, when the annuity starting date is no later than a year from purchase of the annuity and substantially equal periodic payments are made, not less frequently than annually, during the annuity period.
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GRANTOR TRUST OWNED ANNUITY. Contracts owned by a grantor trust are considered owned by a non-natural owner. Grantor trust owned contracts receive tax deferral as described in the Exceptions to the Non-Natural Owner Rule section. In accordance with the Code, upon the death of the annuitant, the death benefit must be paid. According to your Contract, the Death Benefit is paid to the surviving Contract Owner. Since the trust will be the surviving Contract Owner in all cases, the Death Benefit will be payable to the trust notwithstanding any beneficiary designation on the annuity contract. A trust, including a grantor trust, has two options for receiving any death benefits: 1) a lump sum payment; or 2) payment deferred up to five years from date of death.
DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for federal income tax purposes, the investments in the Variable Account must be “adequately diversified” consistent with standards under Treasury Department regulations. If the investments in the Variable Account are not adequately diversified, the Contract will not be treated as an annuity contract for federal income tax purposes. As a result, the income on the Contract will be taxed as ordinary income received or accrued by the Contract owner during the taxable year. Although Allstate New York does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements.
OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a Contract owner to be treated as the owner of the separate account. The Treasury Department also stated that future guidance would be issued regarding the extent that owners could direct sub-account investments without being treated as owners of the underlying assets of the separate account.
Your rights under the Contract are different than those described by the IRS in private and published rulings in which it found that Contract owners were not owners of separate account assets. For example, if your contract offers more than twenty (20) investment alternatives you have the choice to allocate premiums and contract values among a broader selection of investment alternatives than described in such rulings. You may be able to transfer among investment alternatives more frequently than in such rulings. These differences could result in you being treated as the owner of the Variable Account. If this occurs, income and gain from the Variable Account assets would be includible in your gross income. Allstate New York does not know what standards will be set forth in any regulations or rulings which the Treasury Department may issue. It is possible that future standards announced by the Treasury Department could adversely affect the tax treatment of your Contract. We reserve the right to modify the Contract as necessary to attempt to prevent you from being considered the federal tax owner of the assets of the Variable Account. However, we make no guarantee that such modification to the Contract will be successful.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal under a Non-Qualified Contract, amounts received are taxable to the extent the Contract Value, without regard to surrender charges, exceeds the investment in the Contract. The investment in the Contract is the gross premium paid for the contract minus any amounts previously received from the Contract if such amounts were properly excluded from your gross income. If you make a full withdrawal under a Non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract.
TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of annuity payments received from a Non-Qualified Contract provides for the return of your investment in the Contract in equal tax-free amounts over the payment period. The balance of each payment received is taxable. For fixed annuity payments, the amount excluded from income is determined by multiplying the payment by the ratio of the investment in the Contract (adjusted for any refund feature or period certain) to the total expected value of annuity payments for the term of the Contract. If you elect variable annuity payments, the amount excluded from taxable income is determined by dividing the investment in the Contract by the total number of expected payments. The annuity payments will be fully taxable after the total amount of the investment in the Contract is excluded using these ratios. If any variable payment is less than the excludable amount you should contact a competent tax advisor to determine how to report any unrecovered investment. The federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. If you die, and annuity payments cease before the total amount of the investment in the Contract is recovered, the unrecovered amount will be allowed as a deduction for your last taxable year.
WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding the taxation of any additional withdrawal received after the Payout Start Date. It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine.
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DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide:
• if any Contract Owner dies on or after the Payout Start Date but before the entire interest in the Contract has been distributed, the remaining portion of such interest must be distributed at least as rapidly as under the method of distribution being used as of the date of the Contract Owner's death;
• if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owner's death. These requirements are satisfied if any portion of the Contract Owner's interest that is payable to (or for the benefit of) a designated Beneficiary is distributed over the life of such Beneficiary (or over a period not extending beyond the life expectancy of the Beneficiary) and the distributions begin within 1 year of the Contract Owner's death. If the Contract Owner's designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner;
• if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract Owner for purposes of applying the distribution at death rules. In addition, a change in the Annuitant on a Contract owned by a non-natural person will be treated as the death of the Contract Owner.
TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit amounts are included in income as follows:
• if distributed in a lump sum, the amounts are taxed in the same manner as a total withdrawal, or
• if distributed under an Income Plan, the amounts are taxed in the same manner as annuity payments.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable amount of any premature distribution from a non-Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
• made on or after the date the Contract Owner attains age 59 1/2,
• made as a result of the Contract Owner's death or becoming totally disabled,
• made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
• made under an immediate annuity, or
• attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owner's attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream.
TAX FREE EXCHANGES UNDER INTERNAL REVENUE CODE SECTION 1035. A 1035 exchange is a tax-free exchange of a non-qualified life insurance contract, endowment contract or annuity contract into a non-Qualified annuity contract. The contract owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them.
PARTIAL EXCHANGES. The IRS has issued a ruling that permits partial exchanges of annuity contracts. Under this ruling, if you take a withdrawal from a receiving or relinquishing annuity contract within 24 months of the partial exchange, then special aggregation rules apply for purposes of determining the taxable amount of a distribution. The IRS has issued limited guidance on how to aggregate and report these distributions. The IRS is expected to provide further guidance; as a result, it is possible that the amount we calculate and report to the IRS as taxable could be different. Your Contract may not permit partial exchanges.
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TAXATION OF OWNERSHIP CHANGES. If you transfer a non-Qualified Contract without full and adequate consideration to a person other than your spouse (or to a former spouse incident to a divorce), you will be taxed on the difference between the Contract Value and the investment in the Contract at the time of transfer. Any assignment or pledge (or agreement to assign or pledge) of the Contract Value is taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax.
AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-Qualified deferred annuity contracts issued by Allstate New York (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution.
INCOME TAX WITHHOLDING
Generally, Allstate New York is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory.
Allstate New York is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
Generally, Code Section 1441 provides that Allstate New York as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident alien's country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number (“ITIN”). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities.
TAX QUALIFIED CONTRACTS
The income on tax sheltered annuity (TSA) and IRA investments is tax deferred, and the income from annuities held by such plans does not receive any additional tax deferral. You should review the annuity features, including all benefits and expenses, prior to purchasing an annuity as a TSA or IRA. Tax Qualified Contracts are contracts purchased as or in connection with:
• Individual Retirement Annuities (IRAs) under Code Section 408(b);
• Roth IRAs under Code Section 408A;
• Simplified Employee Pension (SEP IRA) under Code Section 408(k);
• Savings Incentive Match Plans for Employees (SIMPLE IRA) under Code Section 408(p);
• Tax Sheltered Annuities under Code Section 403(b);
• Corporate and Self Employed Pension and Profit Sharing Plans under Code Section 401; and
• State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Code Section 457.
Allstate New York reserves the right to limit the availability of the Contract for use with any of the retirement plans listed above or to modify the Contract to conform with tax requirements. If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitations on withdrawals, waiver of charges, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if qualified plan limits on distributions and other conditions are not met. Please consult your qualified plan administrator for more information. Allstate New York no longer issues deferred annuities to employer sponsored qualified retirement plans.
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The tax rules applicable to participants with tax qualified annuities vary according to the type of contract and the terms and conditions of the endorsement. Adverse tax consequences may result from certain transactions such as excess contributions, premature distributions, and, distributions that do not conform to specified commencement and minimum distribution rules. Allstate New York can issue an individual retirement annuity on a rollover or transfer of proceeds from a decedent's IRA, TSA, or employer sponsored retirement plan under which the decedent's surviving spouse is the beneficiary. Allstate New York does not offer an individual retirement annuity that can accept a transfer of funds for any other, non-spousal, beneficiary of a decedent's IRA, TSA, or employer sponsored qualified retirement plan.
Please refer to your Endorsement for IRAs or 403(b) plans, if applicable, for additional information on your death settlement options. In the case of certain qualified plans, the terms of the Qualified Plan Endorsement and the plans may govern the right to benefits, regardless of the terms of the Contract.
TAXATION OF WITHDRAWALS FROM AN INDIVIDUALLY OWNED TAX QUALIFIED CONTRACT. If you make a partial withdrawal under a Tax Qualified Contract other than a Roth IRA, the portion of the payment that bears the same ratio to the total payment that the investment in the Contract (i.e., nondeductible IRA contributions) bears to the Contract Value, is excluded from your income. We do not keep track of nondeductible contributions, and generally all tax reporting of distributions from Tax Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable.
“Qualified distributions” from Roth IRAs are not included in gross income. “Qualified distributions” are any distributions made more than five taxable years after the taxable year of the first contribution to any Roth IRA and which are:
• made on or after the date the Contract Owner attains age 59 1/2,
• made to a beneficiary after the Contract Owner's death,
• attributable to the Contract Owner being disabled, or
• made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000).
“Nonqualified distributions” from Roth IRAs are treated as made from contributions first and are included in gross income only to the extent that distributions exceed contributions.
REQUIRED MINIMUM DISTRIBUTIONS. Generally, Tax Qualified Contracts (excluding Roth IRAs) require minimum distributions upon reaching age 70 1/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the Contract. Not all income plans offered under the Contract satisfy the requirements for minimum distributions. Because these distributions are required under the Code and the method of calculation is complex, please see a competent tax advisor.
THE DEATH BENEFIT AND TAX QUALIFIED CONTRACTS. Pursuant to the Code and IRS regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may not invest in life insurance contracts. However, an IRA may provide a death benefit that equals the greater of the purchase payments or the Contract Value. The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or the Contract Value. We believe that the Death Benefits offered by your Contract do not constitute life insurance under these regulations.
It is also possible that certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under qualified plans, such as in connection with a TSA or employer sponsored qualified retirement plan.
Allstate New York reserves the right to limit the availability of the Contract for use with any of the qualified plans listed above.
PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM TAX QUALIFIED CONTRACTS. A 10% penalty tax applies to the taxable amount of any premature distribution from a Tax Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
• made on or after the date the Contract Owner attains age 59 1/2,
• made as a result of the Contract Owner's death or total disability,
• made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
• made after separation from service after age 55 (does not apply to IRAs),
40 PROSPECTUS
• made pursuant to an IRS levy,
• made for certain medical expenses,
• made to pay for health insurance premiums while unemployed (applies only for IRAs),
• made for qualified higher education expenses (applies only for IRAs), and
• made for a first time home purchase (up to a $10,000 lifetime limit and applies only for IRAs).
During the first 2 years of the individual's participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON TAX QUALIFIED CONTRACTS. With respect to Tax Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayer's attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream.
INCOME TAX WITHHOLDING ON TAX QUALIFIED CONTRACTS. Generally, Allstate New York is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered “eligible rollover distributions.” The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. Allstate New York is required to withhold federal income tax at a rate of 20% on all “eligible rollover distributions” unless you elect to make a “direct rollover” of such amounts to an IRA or eligible retirement plan. Eligible rollover distributions generally include all distributions from Tax Qualified Contracts, including TSAs but excluding IRAs, with the exception of:
• required minimum distributions, or,
• a series of substantially equal periodic payments made over a period of at least 10 years, or,
• a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or,
• hardship distributions.
For all annuitized distributions that are not subject to the 20% withholding requirement, Allstate New York is required to withhold federal income tax using the wage withholding rates. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
Generally, Code Section 1441 provides that Allstate New York as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien or to certain other 'foreign persons'. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident alien's country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number (“ITIN”). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities.
INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408(b) permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity (IRA). Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence. Certain distributions from other types of qualified retirement plans may be “rolled over” on a tax-deferred basis into an Individual Retirement Annuity.
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ROTH INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408A permits eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth Individual Retirement Annuity. Roth Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence.
Subject to certain limitations, a traditional Individual Retirement Account or Annuity may be converted or “rolled over” to a Roth Individual Retirement Annuity. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions.
ANNUITIES HELD BY INDIVIDUAL RETIREMENT ACCOUNTS (COMMONLY KNOWN AS CUSTODIAL IRAS). Code Section 408 permits a custodian or trustee of an Individual Retirement Account to purchase an annuity as an investment of the Individual Retirement Account. If an annuity is purchased inside of an Individual Retirement Account, then the Annuitant must be the same person as the beneficial owner of the Individual Retirement Account.
Generally, the death benefit of an annuity held in an Individual Retirement Account must be paid upon the death of the Annuitant. However, in most states, the Contract permits the custodian or trustee of the Individual Retirement Account to continue the Contract in the accumulation phase, with the Annuitant's surviving spouse as the new Annuitant, if the following conditions are met:
1) The custodian or trustee of the Individual Retirement Account is the owner of the annuity and has the right to the death proceeds otherwise payable under the Contract;
2) The deceased Annuitant was the beneficial owner of the Individual Retirement Account;
3) We receive a complete request for settlement for the death of the Annuitant; and
4) The custodian or trustee of the Individual Retirement Account provides us with a signed certification of the following:
(a) The Annuitant's surviving spouse is the sole beneficiary of the Individual Retirement Account;
(b) The Annuitant's surviving spouse has elected to continue the Individual Retirement Account as his or her own Individual Retirement Account; and
(c) The custodian or trustee of the Individual Retirement Account has continued the Individual Retirement Account pursuant to the surviving spouse's election.
SIMPLIFIED EMPLOYEE PENSION IRA. Code Section 408(k) allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. These employers may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE IRA). Code Section 408(p) allows eligible employers with 100 or fewer employees to establish SIMPLE retirement plans for their employees using individual retirement annuities. In general, a SIMPLE IRA consists of a salary deferral program for eligible employees and matching or nonelective contributions made by employers. Employers intending to purchase the Contract as a SIMPLE IRA should seek competent tax and legal advice.
TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS (TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND YOUR COMPETENT TAX ADVISOR.
TAX SHELTERED ANNUITIES. Code Section 403(b) provides tax-deferred retirement savings plans for employees of certain non-profit and educational organizations. Under Section 403(b), any contract used for a 403(b) plan must provide that distributions attributable to salary reduction contributions made after 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee:
• attains age 59 1/2,
• severs employment,
• dies,
• becomes disabled, or
• incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship).
These limitations do not apply to withdrawals where Allstate New York is directed to transfer some or all of the Contract Value to another 403(b) plan.
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Generally, we do not accept funds in 403(b) contracts that are subject to the Employee Retirement Income Security Act of 1974 (ERISA).
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS.
Section 401(a) of the Code permits corporate employers to establish various types of tax favored retirement plans for employees. Self-employed individuals may establish tax favored retirement plans for themselves and their employees (commonly referred to as “H.R.10” or “Keogh”). Such retirement plans may permit the purchase of annuity contracts. Allstate New York no longer issues annuity contracts to employer sponsored qualified retirement plans.
There are two owner types for contracts intended to qualify under Section 401(a): a qualified plan fiduciary or an annuitant owner.
• A qualified plan fiduciary exists when a qualified plan trust that is intended to qualify under Section 401(a) of the Code is the owner. The qualified plan trust must have its own tax identification number and a named trustee acting as a fiduciary on behalf of the plan. The annuitant should be the person for whose benefit the contract was purchased.
• An annuitant owner exists when the tax identification number of the owner and annuitant are the same, or the annuity contract is not owner by a qualified plan trust. The annuitant should be the person for whose benefit the contract was purchased.
If a qualified plan fiduciary is the owner of the contract, the qualified plan must be the beneficiary so that death benefits from the annuity are distributed in accordance with the terms of the qualified plan. Annuitant owned contracts require that the beneficiary be the annuitant's spouse (if applicable), which is consistent with the required IRS language for qualified plans under Section 401(a). A completed Annuitant Owned Qualified Plan Designation of Beneficiary form is required in order to change the beneficiary of an annuitant owned Qualified Plan contract.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION
PLANS. Section 457 of the Code permits employees of state and local governments and tax-exempt organizations to defer a portion of their compensation without paying current taxes. The employees must be participants in an eligible deferred compensation plan. In eligible governmental plans, all assets and income must be held in a trust/ custodial account/annuity contract for the exclusive benefit of the participants and their beneficiaries. To the extent the Contracts are used in connection with a non-governmental eligible plan, employees are considered general creditors of the employer and the employer as owner of the Contract has the sole right to the proceeds of the Contract. Under eligible 457 plans, contributions made for the benefit of the employees will not be includible in the employees' gross income until distributed from the plan. Allstate New York no longer issues annuity contracts to employer sponsored qualified retirement plans. Contracts that have been previously sold to State and Local government and Tax-Exempt organization Deferred Compensation Plans will be administered consistent with the rules for contracts intended to qualify under Section 401(a).
ANNUAL REPORTS AND OTHER DOCUMENTS
Allstate New York's annual report on Form 10-K for the year ended December 31, 2004, is incorporated herein by reference, which means that it is legally a part of this prospectus.
After the date of this prospectus and before we terminate the offering of the securities under this prospectus, all documents or reports we file with the SEC under the Exchange Act are also incorporated herein by reference, which means that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC and that legally become a part of this prospectus, may change or supersede statements in other documents that are legally part of this prospectus. Accordingly, only the statement that is changed or replaced will legally be a part of this prospectus.
We file our Exchange Act documents and reports, including our annual and quarterly reports on Form 10-K and Form 10-Q electronically on the SEC's “EDGAR” system using the identifying number CIK No. 0000839759. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov. You also can view these materials at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. For more information on the operations of SEC's Public Reference Room, call 1-800-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of any document incorporated herein by reference (other than exhibits not specifically incorporated by reference into the text of such documents), please write or call us at Customer Service, P.O. Box 82656, Lincoln, NE 68501-2656 (telephone: 1-800-692-4682).
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APPENDIX A
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED*
For the period beginning January 1 and ending December 31, | 2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||||||
AIM V.I. BALANCED - SERIES I SUB-ACCOUNT ** | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 10.154 | $ | 8.881 | $ | 7.270 | $ | 8.354 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 10.154 | $ | 8.881 | $ | 7.270 | $ | 8.354 | $ | 8.870 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 26,413 | 122,945 | 252,907 | 290,005 | 278,556 | ||||||||||||||||||||||||||||||
AIM V.I. CAPITAL APPRECIATION - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.242 | $ | 7.001 | $ | 5.230 | $ | 6.689 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.242 | $ | 7.001 | $ | 5.230 | $ | 6.689 | $ | 7.043 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 10,595 | 65,809 | 134,666 | 161,621 | 175,396 | ||||||||||||||||||||||||||||||
AIM V.I. GOVERNMENT SECURITIES - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 10.807 | $ | 11.356 | $ | 12.290 | $ | 12.226 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 10.807 | $ | 11.356 | $ | 12.290 | $ | 12.226 | $ | 12.423 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 12.496 | 51,574 | 205,419 | 280,241 | 227,477 | ||||||||||||||||||||||||||||||
AIM V.I. GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 8.338 | $ | 5.443 | $ | 3.710 | $ | 4.809 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 8.338 | $ | 5.443 | $ | 3.710 | $ | 4.809 | $ | 5.139 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 14,487 | 66,340 | 103,684 | 128,420 | 114,786 | ||||||||||||||||||||||||||||||
AIM V.I. HIGH YIELD - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 8.362 | $ | 7.845 | $ | 7.294 | $ | 9.223 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 8.362 | $ | 7.845 | $ | 7.294 | $ | 9.223 | $ | 10.132 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 7,031 | 27,476 | 54,243 | 74,581 | 106,724 | ||||||||||||||||||||||||||||||
AIM V.I. INTERNATIONAL GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 8.989 | $ | 6,787 | $ | 5.652 | $ | 7.203 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 8.989 | $ | 6.787 | $ | 5.652 | $ | 7.203 | $ | 8.820 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 6,197 | 51,835 | 95,690 | 96,516 | 92,690 | ||||||||||||||||||||||||||||||
AIM V.I. PREMIER EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 8.980 | $ | 7.754 | $ | 5.339 | $ | 6.595 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 8.980 | $ | 7.754 | $ | 5.339 | $ | 6.595 | $ | 6.889 |
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Number of Units Outstanding, End of Period | 29,890 | 132,390 | 194,292 | 196,079 | 182,257 | ||||||||||||||||||||||||||||||
FIDELITY VIP CONTRAFUND(R) - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.950 | $ | 8.621 | $ | 7.718 | $ | 9.791 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.950 | $ | 8.621 | $ | 7.718 | $ | 9.791 | $ | 11.165 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 16,726 | 54,431 | 130,889 | 142,815 | 143,910 | ||||||||||||||||||||||||||||||
FIDELITY VIP EQUITY-INCOME - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 10.810 | $ | 10.145 | $ | 8.320 | $ | 10.708 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 10.810 | $ | 10.145 | $ | 8.320 | $ | 10.708 | $ | 11.794 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 1,655 | 98,345 | 343,378 | 427,122 | 427,302 | ||||||||||||||||||||||||||||||
FIDELITY VIP GROWTH - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.389 | $ | 7.634 | $ | 5.269 | $ | 6.913 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.389 | $ | 7.634 | $ | 5.269 | $ | 6.913 | $ | 7.057 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 12,984 | 111,676 | 271,819 | 292,079 | 287,423 | ||||||||||||||||||||||||||||||
FIDELITY VIP GROWTH OPPORTUNITIES - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.350 | $ | 7.901 | $ | 6.098 | $ | 7.820 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.350 | $ | 7.901 | $ | 6.098 | $ | 7.820 | $ | 8.278 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 4,746 | 23,416 | 49,139 | 63,281 | 75,230 | ||||||||||||||||||||||||||||||
FIDELITY VIP OVERSEAS - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.314 | $ | 7.251 | $ | 5.707 | $ | 8.081 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.314 | $ | 7.251 | $ | 5.707 | $ | 8.081 | $ | 9.068 | |||||||||||||||||||||||||
Number of Units Outstanding, End of Period | 4,880 | 29,515 | 84,428 | 84,019 | 86,851 |
45 PROSPECTUS
FTVIP TEMPLETON GLOBAL ASSET ALLOCATION - CLASS 2 SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 10.443 | $ | 9.286 | $ | 8.768 | $ | 11.425 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 10.443 | $ | 9.286 | $ | 8.768 | $ | 11.425 | $ | 13.055 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 632 | 13,934 | 25,836 | 37,170 | 38,129 | |||||||||||||||||||||||||||
FTVIP TEMPLETON FOREIGN SECURITIES - CLASS 2 SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 10.522 | $ | 8.728 | $ | 7.019 | $ | 9.164 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 10.522 | $ | 8.728 | $ | 7.019 | $ | 9.164 | $ | 10.276 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 7,881 | 44,999 | 110,201 | 121,630 | 115,042 | |||||||||||||||||||||||||||
OPPENHEIMER AGGRESSIVE GROWTH/VA SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.162 | $ | 6.218 | $ | 4.434 | $ | 5.499 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.162 | $ | 6.218 | $ | 4.434 | $ | 5.499 | $ | 6.504 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 10,578 | 137,154 | 289,514 | 301,948 | 293,993 | |||||||||||||||||||||||||||
OPPENHEIMER MAIN STREET/VA SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.274 | $ | 8.227 | $ | 6.597 | $ | 8.256 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.274 | $ | 8.227 | $ | 6.597 | $ | 8.256 | $ | 8.924 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 35,354 | 173,074 | 401,718 | 494,003 | 512,442 | |||||||||||||||||||||||||||
OPPENHEIMER STRATEGIC BOND/VA SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 10.320 | $ | 10.685 | $ | 11.336 | $ | 13.218 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 10.320 | $ | 10.685 | $ | 11.336 | $ | 13.218 | $ | 14.185 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 8,730 | 96,313 | 220,809 | 276,973 | 263,324 | |||||||||||||||||||||||||||
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.: INITIAL SHARES SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.249 | $ | 7.071 | $ | 4.962 | $ | 6.174 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.249 | $ | 7.071 | $ | 4.962 | $ | 6.174 | $ | 6.475 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 11.070 | 32,951 | 39,724 | 41,869 | 39,582 | |||||||||||||||||||||||||||
DREYFUS STOCK INDEX FUND, INC.: INITIAL SHARES SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.409 | $ | 8.159 | $ | 6.255 | $ | 7.929 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.409 | $ | 8.159 | $ | 6.255 | $ | 7.929 | $ | 8.663 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 28,181 | 185,335 | 611,361 | 703,922 | 677,882 | |||||||||||||||||||||||||||
DREYFUS VIF - APPRECIATION: INITIAL SHARES SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.931 | $ | 8.894 | $ | 7.314 | $ | 8.752 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.931 | $ | 8.894 | $ | 7.314 | $ | 8.752 | $ | 9.079 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 1,285 | 27,925 | 80,006 | 97,355 | 93,398 | |||||||||||||||||||||||||||
DREYFUS VIF - MONEY MARKET SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | - | $ | 10.000 | $ | 8.752 | |||||||||||||||||||||||||
Accumulation Unit Value, End of Period | - | - | - | $ | 9.957 | $ | 9.911 |
46 PROSPECTUS
Number of Units Outstanding, End of Period | - | - | - | 398,378 | 329,692 | |||||||||||||||||||||||||||
WELLS FARGO ADVANTAGE ASSET ALLOCATION SUB-ACCOUNT *** | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 10.012 | $ | 9.198 | $ | 7.916 | $ | 9.544 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 10.012 | $ | 9.198 | $ | 7.916 | $ | 9.544 | $ | 10.306 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 667 | 13,021 | 54,392 | 66,680 | 59,351 | |||||||||||||||||||||||||||
WELLS FARGO ADVANTAGE EQUITY INCOME SUB-ACCOUNT **** | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 10.429 | $ | 9.741 | $ | 7.766 | $ | 9.679 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 10.429 | $ | 9.741 | $ | 7.766 | $ | 9.679 | $ | 10.617 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 264 | 8,467 | 23,695 | 25,815 | 30,383 | |||||||||||||||||||||||||||
WELLS FARGO ADVANTAGE LARGE COMPANY CORE SUB-ACCOUNT ***** | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.048 | $ | 7.218 | $ | 5.286 | $ | 6.451 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.048 | $ | 7.218 | $ | 5.286 | $ | 6.451 | $ | 6.904 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 390 | 4,893 | 20,443 | 40,250 | 55,986 | |||||||||||||||||||||||||||
DELAWARE VIP SMALL CAP VALUE - STANDARD CLASS SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 11.593 | $ | 12.802 | $ | 11.934 | $ | 16.732 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 11.593 | $ | 12.802 | $ | 11.934 | $ | 16.732 | $ | 20.073 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 7,204 | 45,515 | 133,174 | 157,546 | 161,967 | |||||||||||||||||||||||||||
DELAWARE VIP TREND - STANDARD CLASS SUB-ACCOUNT | ||||||||||||||||||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.000 | $ | 9.265 | $ | 7.745 | $ | 6.124 | $ | 8.170 | ||||||||||||||||||||||
Accumulation Unit Value, End of Period | $ | 9.265 | $ | 7.745 | $ | 6.124 | $ | 8.170 | $ | 9.084 | ||||||||||||||||||||||
Number of Units Outstanding, End of Period | 5,514 | 24,184 | 80,076 | 112,774 | 114,856 |
* The Contracts were first offered on June 1, 2000. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.15% and an administrative charge of 0.10%. All of the Variable Sub-Accounts, with the exception of the Dreyfus VIF - Money Market Sub-Account which was first offered on April 30, 2003, were first offered under the Contracts on June 1, 2000.
** Effective July 1, 2005, the AIM V.I. Balanced Fund -Series I will change its name to AIM V.I Basic Balanced Fund-Series I. Effective July 1, 2005, a corresponding change in the name of the Variable Sub-Account that invests in that Portfolio will be made.
*** Effective April 11, 2005 the Wells Fargo VT Asset Allocation Fund changed its name to Wells Fargo Advantage Asset Allocation Fund. We have made a corresponding change in the name of the Variable Sub-Account that invests in that Portfolio.
**** Effective April 11, 2005 the Wells Fargo VT Equity Income Fund changed its name to Wells Fargo Advantage Equity Income Fund. We have made a corresponding change in the name of the Variable Sub-Account that invests in that Portfolio.
***** Effective April 11, 2005 the Wells Fargo VT Growth Fund changed its name to Wells Fargo Advantage Large Company Core Fund. We have made a corresponding change in the name of the Variable Sub-Account that invests in that Portfolio.
47 PROSPECTUS
48 PROSPECTUS
APPENDIX B MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I = the Treasury Rate for a maturity equal to the applicable Guarantee Period for the week preceding the establishment of the Guarantee Period.
N = the number of whole and partial years from the date we receive the withdrawal, transfer, or death benefit request, or from the Payout Start Date, to the end of the Guarantee Period; and
J = the Treasury Rate for a maturity equal to N years for the week preceding the receipt of the withdrawal, transfer, death benefit, or income payment request. If a note for a maturity of length N is not available, a weighted average will be used.
“Treasury Rate” means the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Board Statistical Release H.15.
The Market Value Adjustment factor is determined from the following formula:
.9 X (I - J) X N
To determine the Market Value Adjustment, we will multiply the Market Value Adjustment factor by the amount transferred (in excess of the Free Withdrawal Amount) paid as a death benefit, or applied to an Income Plan, from a Guarantee Period at any time other than during the 30 day period after such Guarantee Period expires.
49 PROSPECTUS
EXAMPLES OF MARKET VALUE ADJUSTMENT
Purchase Payment: $10,000 allocated to a Guarantee Period
Guarantee Period: 5 years
Guaranteed Interest Rate: 4.50%
5 Year Treasury Rate at the time the Guarantee Period is established: 4.50%
Full Surrender: End of Contract Year 3
NOTE: These examples assume that premium taxes are not applicable.
EXAMPLE 1 (ASSUME DECLINING INTEREST RATES)
Step 1. Calculate Contract | $10,000.00 X (1.045)3 = $11,411.66 | ||||||||||
Value at End of Contract Year 3: | |||||||||||
Step 2. Calculate the Preferred | .15 | X $10,000.00 = $1,500.00 | |||||||||
Withdrawal Amount: | |||||||||||
Step 3. Calculate the Market | I = | 4.5% | |||||||||
Value Adjustment: | J = | 4.2% | |||||||||
N = | 730 days | = 2 | |||||||||
365 days | |||||||||||
Market Value Adjustment Factor: .9 X (I - J) X | |||||||||||
N = | .9 X (.045 - .042) X (730/365) = .0054 | ||||||||||
Market Value Adjustment = Market Value | |||||||||||
Adjustment Factor X Amount Subject to Market | |||||||||||
Value Adjustment: | |||||||||||
= .0054 X ($11,411.66 - $1,500.00) = $53.32 | |||||||||||
EXAMPLE 2: (ASSUMES RISING INTEREST RATES) | |||||||||||
Step 1. Calculate Contract | $10,000.00 X (1.045)3 = $11,411.66 | ||||||||||
Value at End of Contract Year 3: | |||||||||||
Step 2. Calculate the Preferred | .15 | X $10,000.00 = $1,500.00 | |||||||||
Withdrawal Amount: | |||||||||||
Step 3. Calculate the Market | I = | 4.5% | |||||||||
Value Adjustment: | J = | 4.8% | |||||||||
N = | 730 days | = 2 | |||||||||
365 days | |||||||||||
MARKET VALUE ADJUSTMENT FACTOR: .9 X (I - J) | |||||||||||
X N | = .9 X (.045 - .048) X (730/365) = -.0054 | ||||||||||
Market Value Adjustment = Market Value | |||||||||||
Adjustment Factor X Amount Subject to Market | |||||||||||
Value Adjustment: | |||||||||||
= -.0054 X ($11,411.66 - $1,500.00) = -$53.52 |
50 PROSPECTUS
51 PROSPECTUS
APPENDIX C
WITHDRAWAL ADJUSTMENT EXAMPLE
Issue Date: January 1, 2005
Initial Purchase Payment: $50,000
Death Benefit Amount | ||||||||||||||||||||
Date | Type of Occurrence | Contract Value Before Occurrence | Transaction Amount | Contract Value After Occurrence | Death Benefit Anniversary Value | Greatest Anniversary Value | ||||||||||||||
1/1/05 | Issue Date | - | $50,000 | $50,000 | $50,000 | $50,000 | ||||||||||||||
1/1/06 | Contract Anniversary | $55,000 | - | $55,000 | $50,000 | $55,000 | ||||||||||||||
7/1/06 | Partial Withdrawal | $60,000 | $15,000 | $45,000 | $37,500 | $41,250 | ||||||||||||||
Withdrawal adjustment equals the partial withdrawal amount divided by the Contract Value immediately prior to the partial withdrawal multiplied by the value of the applicable death benefit amount alternative immediately prior to the partial withdrawal.
52 PROSPECTUS
DEATH BENEFIT ANNIVERSARY VALUE DEATH BENEFIT | ||||||||
Partial Withdrawal Amount | (w) | $15,000 | ||||||
Contract Value Immediately Prior to Partial Withdrawal | (a) | $60,000 | ||||||
Value of Applicable Death Benefit Amount Immediately Prior to Partial | (d) | $50,000 | ||||||
Withdrawal | ||||||||
Withdrawal Adjustment | $12,500 | |||||||
[(w)/(a)] X (d) | ||||||||
Adjusted Death Benefit | $37,500 | |||||||
GREATEST ANNIVERSARY VALUE DEATH BENEFIT | ||||||||
Partial Withdrawal Amount | (w) | $15,000 | ||||||
Contract Value Immediately Prior to Partial Withdrawal | (a) | $60,000 | ||||||
Value of Applicable Death Benefit Amount Immediately Prior to Partial | (d) | $55,000 | ||||||
Withdrawal | ||||||||
Withdrawal Adjustment | $13,750 | |||||||
[(w)/(a)] * (d) | ||||||||
Adjusted Death Benefit | $41,250 | |||||||
Please remember that you are looking at a hypothetical example, and that your investment performance may be greater or less than the figures shown.
53 PROSPECTUS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Additions, Deletions or Substitutions of Investments
The Contract
Purchase of Contracts
Calculation of Accumulation Unit Values
Calculation of Variable Income Payments
General Matters
Incontestability
Settlements
Safekeeping of the Variable Account's Assets
Experts
Financial Statements
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
54 PROSPECTUS
SELECTDIRECTIONS(SM) VARIABLE ANNUITY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STREET ADDRESS: 2940 S. 84TH STREET, LINCOLN, NE 68506-4142 MAILING ADDRESS: P.O. BOX 82656, LINCOLN, NE 68501-2656 TELEPHONE NUMBER: 1-800-632-3492 PROSPECTUS DATED APRIL 30, 2005
Allstate Life Insurance Company of New York (“Allstate New York”) is offering the SelectDirections(SM) Variable Annuity, a group flexible premium deferred variable annuity contract (“CONTRACT”). This prospectus contains information about the Contract that you should know before investing. Please keep it for future reference.
The Contract currently offers 27 investment alternatives (“INVESTMENT ALTERNATIVES”). The investment alternatives including 3 fixed accounts (“FIXED ACCOUNT”) and 24 variable sub-accounts (“VARIABLE SUB-ACCOUNTS”) of the Allstate Life of New York Separate Account A (“VARIABLE ACCOUNT”). Each Variable Sub-Account invests exclusively in shares of one of the following underlying fund portfolios (“PORTFOLIOS”):
AIM VARIABLE INSURANCE FUNDS: | MFS(R) VARIABLE INSURANCE TRUST(SM): | ||||
AIM V.I. Capital Appreciation Fund - Series I | MFS Research Bond Series – Initial Class* | ||||
AIM V.I. Core Equity Fund - Series I | MFS High Income Series - Initial Class | ||||
AIM V.I. Diversified Income Fund - Series I | MFS Investors Trust Series – Initial Class | ||||
AIM V.I. International Growth Fund - Series I | MFS New Discovery Series – Initial Class | ||||
AIM V.I. Premier Equity Fund - Series I |
FIDELITY(R) VARIABLE INSURANCE PRODUCTS: | OPPENHEIMER VARIABLE ACCOUNT FUNDS: | ||||
Fidelity VIP Contrafund(R) Portfolio - Initial Class | Oppenheimer Core Bond Fund/VA ** | ||||
Fidelity VIP Growth Portfolio – Initial Class | Oppenheimer Capital Appreciation Fund/VA | ||||
Fidelity VIP High Income Portfolio - Initial Class | Oppenheimer Global Securities Fund/VA | ||||
Fidelity VIP Index 500 Portfolio - Initial Class | Oppenheimer High Income Fund/VA | ||||
Fidelity VIP Investment Grade Bond Portfolio - Initial Class | Oppenheimer Main Street Small Cap Fund/VA | ||||
Fidelity VIP Overseas Portfolio - Initial Class | |||||
VAN KAMPEN LIFE INVESTMENT TRUST: | |||||
Van Kampen LIT Comstock Portfolio, Class I | |||||
Van Kampen LIT Emerging Growth Portfolio, Class I | |||||
Van Kampen LIT Government Portfolio, Class I | |||||
Van Kampen LIT Money Market Portfolio, Class I |
* Effective May 1, 2005, the MFS Bond Series - Initial Class will change its name to MFS Research Bond Series - Initial Class.
** Effective Apil 29, 2005, the Oppenheimer Bond Fund/VA changed its name to Oppenheimer Core Bond Fund/VA.
WE (Allstate New York) have filed a Statement of Additional Information, dated April 30, 2005, with the Securities and Exchange Commission (“SEC”). It contains more information about the Contract and is incorporated herein by reference, which means it is legally a part of this prospectus. Its table of contents appears on page 41 of this prospectus. For a free copy, please write or call us at the address or telephone number above, or go to the SEC's Web site (http:// www.sec.gov). You can find other information and documents about us, including documents that are legally part of this prospectus, at the SEC's Web site.
1 PROSPECTUS
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR HAS IT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOUOTHERWISE IS COMMITTING A FEDERAL CRIME. | |||||
IMPORTANT NOTICES | THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS. HOWEVER, THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY AGENCY. INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. | ||||
THE CONTRACTS ARE NOT FDIC INSURED. | |||||
THE CONTRACTS ARE ONLY AVAILABLE IN NEW YORK. |
2 PROSPECTUS
TABLE OF CONTENTS
PAGE | |||||
OVERVIEW | |||||
Important Terms | 3 | ||||
The Contract at a Glance | 4 | ||||
How the Contract Works | 5 | ||||
Expense Table | 5 | ||||
Financial Information | 7 | ||||
CONTRACT FEATURES | |||||
The Contract | 7 | ||||
Purchases | 9 | ||||
Contract Value | 10 | ||||
Investment Alternatives | 11 | ||||
The Variable Sub-Accounts | 11 | ||||
The Fixed Account | 12 | ||||
Transfers | 16 | ||||
Expenses | 18 | ||||
Access To Your Money | 20 | ||||
Income Payments | 21 | ||||
PAGE | |||||
Death Benefits | 23 | ||||
OTHER INFORMATION | |||||
More Information: | 27 | ||||
Allstate New York | 27 | ||||
The Variable Account | 27 | ||||
The Portfolios | 27 | ||||
The Contract | 28 | ||||
Non-Qualified Annuities Held Within a Qualified Plan | 29 | ||||
Legal Matters | 29 | ||||
Federal Tax Matters | 29 | ||||
Annual Reports and Other Documents | 36 | ||||
APPENDIX A-ACCUMULATION UNIT VALUES AND NUMBER OF ACCUMULATION | |||||
UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS | |||||
WERE FIRST OFFERED | 37 | ||||
APPENDIX B -MARKET VALUE ADJUSTMENT | 39 | ||||
APPENDIX C - WITHDRAWAL ADJUSTMENT EXAMPLE | 41 | ||||
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS | 42 |
3 PROSPECTUS
IMPORTANT TERMS
This prospectus uses a number of important terms that you may not be familiar with. The index below identifies the page that describes each term. The first use of each term in this prospectus appears in highlights.
PAGE | ||||||||
Accumulation Phase | 6 | |||||||
Accumulation Unit | 11 | |||||||
Accumulation Unit Value | 11 | |||||||
Allstate New York (“We” or “Us”) | 1 | |||||||
Anniversary Values | 24 | |||||||
Annuitant | 9 | |||||||
Automatic Additions Program | 10 | |||||||
Automatic Portfolio Rebalancing Program | 18 | |||||||
Beneficiary | 9 | |||||||
Cancellation Period | 4 | |||||||
Contract* | 9 | |||||||
Contract Anniversary | 5 | |||||||
Contract Owner (“You”) | 9 | |||||||
Contract Value | 5 | |||||||
Contract Year | 4 | |||||||
Death Benefit Anniversary | 24 | |||||||
Dollar Cost Averaging Program | 18 | |||||||
Due Proof of Death | 24 | |||||||
Fixed Account | 14 | |||||||
PAGE | ||||||||
Guarantee Periods | 15 | |||||||
Income Plans | 22 | |||||||
Investment Alternatives | 12 | |||||||
Issue Date | 6 | |||||||
Market Value Adjustment | 16 | |||||||
Payout Phase | 6 | |||||||
Payout Start Date | 6 | |||||||
Portfolios | 27 | |||||||
Preferred Withdrawal Amount | 20 | |||||||
Right to Cancel | 11 | |||||||
SEC | 1 | |||||||
Settlement Value | 24 | |||||||
Systematic Withdrawal Program | 21 | |||||||
Tax Qualified Contracts | 32 | |||||||
Treasury Rate | 16 | |||||||
Valuation Dates | 11 | |||||||
Variable Account | 26 | |||||||
Variable Sub-Account | 12 |
* The SelectDirections(SM) Variable Annuity is a group contract and your ownership is represented by certificates. References to “CONTRACT” in this prospectus include certificates, unless the context requires otherwise.
4 PROSPECTUS
THE CONTRACT AT A GLANCE
The following is a snapshot of the Contract. Please read the remainder of this prospectus for more information.
FLEXIBLE PAYMENTS | You can purchase a Contract with as little as $3,000 ($2,000 for a “QUALIFIED CONTRACT” which is a Contract issued with a qualified endorsement). You can add to your Contract as often and as much as you like, but each payment must be at least $100. You must maintain a minimum account size of $1,000. | ||||
RIGHT TO CANCEL | You may cancel your Contract within 10 days after receipt (60 days if you are exchanging another contract for the Contract described in this prospectus) (“CANCELLATION PERIOD”). Upon cancellation we will return your purchase payments adjusted, to the extent federal or state law permits, to reflect the investment experience of any amounts allocated to the Variable Account. | ||||
EXPENSES | You will bear the following expenses: | ||||
• Total Variable Account annual fees equal to 1.25% of average daily net assets | |||||
• Annual contract maintenance charge of $30 (with certain exceptions) | |||||
• Withdrawal charges ranging from 0% to 7% of payment withdrawn (with certain exceptions) | |||||
• Transfer fee of $10 after 12th transfer in any CONTRACT YEAR (fee currently waived) | |||||
• State premium tax (New York currently does not impose one). | |||||
In addition, each Portfolio pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. | |||||
INVESTMENT ALTERNATIVES | The Contract offers 27 investment alternatives including: | ||||
• 3 Fixed Account Options (which credits interest at rates we guarantee), and | |||||
• 24 Variable Sub-Accounts investing in Portfolios offering professional money management by: | |||||
• A I M Advisors, Inc. | |||||
• Fidelity Management & Research Company | |||||
• MFS(TM) Investment Management | |||||
• OppenheimerFunds, Inc. | |||||
• Van Kampen Asset Management | |||||
To find out current rates being paid on the Fixed Account, or to find out how the Variable Sub-Accounts have performed, please call us at 1-800-632-3492. | |||||
SPECIAL SERVICES | For your convenience, we offer these special services: | ||||
• AUTOMATIC PORTFOLIO REBALANCING PROGRAM | |||||
• AUTOMATIC ADDITIONS PROGRAM | |||||
• DOLLAR COST AVERAGING PROGRAM | |||||
• SYSTEMATIC WITHDRAWAL PROGRAM | |||||
INCOME PAYMENTS | You can choose fixed income payments, variable income payments, or a combination of the two. You can receive your income payments in one of the following ways: | ||||
• life income with guaranteed payments | |||||
• joint and survivor life income with guaranteed payments | |||||
• guaranteed payments for a specified period (5 to 30 years) | |||||
5 PROSPECTUS
DEATH BENEFITS | If you die before the PAYOUT START DATE, we will pay the death benefit described in the Contract. | ||||
TRANSFERS | Before the Payout Start Date, you may transfer your Contract value (“CONTRACT VALUE”) among the investment alternatives, with certain restrictions. Transfers to the Fixed Account must be at least $500. We do not currently impose a fee upon transfers. However, we reserve the right to charge $10 per transfer after the 12th transfer in each “Contract Year,” which we measure from the date we issue your Contract or a Contract anniversary (“CONTRACT ANNIVERSARY”). | ||||
WITHDRAWALS | You may withdraw some or all of your Contract Value at anytime during the Accumulation Phase. Full or partial withdrawals also are available under limited circumstances on or after the Payout Start Date. In general, you must withdraw at least $50 at a time ($1,000 for withdrawals made during the Payout Phase). Withdrawals taken during the Accumulation Phase are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. A withdrawal charge and MARKET VALUE ADJUSTMENT also may apply. | ||||
6 PROSPECTUS
HOW THE CONTRACT WORKS
The Contract basically works in two ways.
First, the Contract can help you (we assume you are the CONTRACT OWNER) save for retirement because you can invest in up to 27 investment alternatives and generally pay no federal income taxes on any earnings until you withdraw them. You do this during what we call the “ACCUMULATION PHASE” of the Contract. The Accumulation Phase begins on the date we issue your Contract (we call that date the “ISSUE DATE”) and continues until the Payout Start Date, which is the date we apply your money to provide income payments. During the Accumulation Phase, you may allocate your purchase payments to any combination of the Variable Sub-Accounts and/or the Fixed Account. If you invest in the Fixed Account, you will earn a fixed rate of interest that we declare periodically. If you invest in any of the Variable Sub-Accounts, your investment return will vary up or down depending on the performance of the corresponding Portfolios.
Second, the Contract can help you plan for retirement because you can use it to receive retirement income for life and/ or for a pre-set number of years, by selecting one of the income payment options (we call these “INCOME PLANS”) described on page 22. You receive income payments during what we call the “PAYOUT PHASE” of the Contract, which begins on the Payout Start Date and continues until we make the last payment required by the Income Plan you select. During the Payout Phase, if you select a fixed income payment option, we guarantee the amount of your payments, which will remain fixed. If you select a variable income payment option, based on one or more of the Variable Sub-Accounts, the amount of your payments will vary up or down depending on the performance of the corresponding Portfolios. The amount of money you accumulate under your Contract during the Accumulation Phase and apply to an Income Plan will determine the amount of your income payments during the Payout Phase.
The timeline below illustrates how you might use your Contract.
Issue Date | Accumulation Phase | Payout Start Date | Payout Phase | |||||||||||
You buy a Contract | You save for retirement | You elect to receive income payments or receive a lump sum payment | You can receive income payments for a set period | Or you can receive income payments for life |
As the Contract Owner, you exercise all of the rights and privileges provided by the Contract. If you die, any surviving Contract Owner, or if there is none, the BENEFICIARY will exercise the rights and privileges provided by the Contract. See “The Contract.” In addition, if you die before the Payout Start Date, we will pay a death benefit to any surviving Contract Owner or, if none, to your Beneficiary. See “Death Benefits.”
Please call us at 1-800-632-3492 if you have any question about how the Contract works.
EXPENSE TABLE
The following tables describe the fees and expenses that you will pay when buying, owning, making withdrawals or surrendering the Contract. The first table describes the fees and expenses that you will pay when you make a withdrawal, surrender the Contract, or transfer Contract Value among the investment alternatives. Premium taxes are not reflected in the tables because New York currently does not impose premium taxes on annuities.
CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of purchase payments)*
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Number of Complete Years Since We Received the Purchase | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+ | ||||||||||||||||||
Payment Being Withdrawn | ||||||||||||||||||||||||||
Applicable Charge | 7% | 6% | 5% | 4% | 3% | 2% | 1% | 0% | ||||||||||||||||||
Transfer Fee | $10.00** | |||||||||||||||||||||||||
* Each Contract Year, you may withdraw up to 15% of purchase payments without incurring a Withdrawal Charge or a Market Value Adjustment.
** Applies solely to the thirteenth and subsequent transfers within a Contract Year, excluding transfers due to dollar cost averaging or automatic portfolio rebalancing. We are currently waiving the transfer fee.
The next tables describe the fees and expenses that you will pay periodically during the time you own the Contract, not including Portfolio fees and expenses.
Annual Contract Maintenance Charge | $30.00(1) | ||||
(1) We will waive this charge in certain cases.
VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT) | |||||
Mortality and Expense Risk Charge | 1.15 | % | |||
Administrative Expense Charge | 0.10 | % | |||
Total Variable Account Annual Expense | 1.25 | % | |||
PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE DAILY NET ASSETS)(1)
The next table shows the minimum and maximum total operating expenses charged by the Portfolios that you may pay periodically during the time that you own the Contract. Advisers and/or other service providers of certain Portfolios may have agreed to waive their fees and/or reimburse Portfolio expenses in order to keep the Portfolios' expenses below specified limits. The range of expenses shown in this table does not show the effect of any such fee waiver or expense reimbursement. More detail concerning each Portfolio's fees and expenses appears in the prospectus for each Portfolio.
ANNUAL PORTFOLIO EXPENSES
Minimum | Maximum | |||||||
Total Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets, which may include management fees, and other expenses) | 0.10 | % | 1.14 | % | ||||
(1) Expenses are shown as a percentage of Portfolio average daily net assets (before any waiver or reimbursement) as of December 31, 2004.
EXAMPLES
EXAMPLE 1
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This Example is intended to help you compare the cost of investing in the Contracts with the cost of investing in other variable annuity contracts. These costs include Contract owner transaction expenses, Contract fees, Variable Account annual expenses, and Portfolio fees and expenses.
The example shows the dollar amount that you would bear directly or indirectly if you:
• invested $10,000 in the Contract for the time periods indicated,
• earned a 5% annual return on your investment, and
• surrendered your Contract, or you began receiving income payments for a specified period of less than 120 months, at the end of each time period.
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THE EXAMPLES DO NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT.
The first line of the example assumes that the maximum fees and expenses of any of the Portfolios are charged. The second line of the example assumes that the minimum fees and expenses of any of the Portfolios are charged. Your actual expenses may be higher or lower than those shown below, because of variations in a Portfolio's expense ratio from year to year.
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||
Costs Based on Maximum Annual | ||||||||||||||
Portfolio Expenses | $785 | $1,181 | $1,601 | $3,015 | ||||||||||
Costs Based on Minimum Annual | ||||||||||||||
Portfolio Expenses | $678 | $859 | $1,059 | $1,911 | ||||||||||
EXAMPLE 2
This Example uses the same assumptions as Example 1 above, except that it assumes you decided not to surrender your Contract, or you began receiving income payments for a specified period of at least 120 months, at the end of each time period.
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||
Costs Based on | ||||||||||||||
Maximum Annual | ||||||||||||||
Portfolio Expenses | $275 | $841 | $1,431 | $3,015 | ||||||||||
Costs Based on | ||||||||||||||
Minimum Annual | ||||||||||||||
Portfolio Expenses | $168 | $519 | $889 | $1,911 | ||||||||||
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR RATE OF RETURN MAY BE HIGHER OR LOWER THAN 5%, WHICH IS NOT GUARANTEED. THE EXAMPLES DO NOT ASSUME THAT ANY PORTFOLIO EXPENSE WAIVERS OR REIMBURSEMENT ARRANGEMENTS ARE IN EFFECT FOR THE PERIODS PRESENTED. THE EXAMPLES REFLECT THE FREE WITHDRAWAL AMOUNTS, IF APPLICABLE, AND THE DEDUCTION OF THE ANNUAL CONTRACT MAINTANENCE CHARGE OF $30 EACH YEAR.
FINANCIAL INFORMATION
To measure the value of your investment in the Variable Sub-Accounts during the Accumulation Phase, we use a unit of measure we call the “ACCUMULATION UNIT.” Each Variable Sub-Account has a separate value for its Accumulation Units we call “ACCUMULATION UNIT VALUE.” Accumulation Unit Value is analogous to, but not the same as, the share price of a mutual fund.
Attached as Appendix A to this prospectus are tables showing the Accumulation Unit Values of each Variable Sub-Account since the date the Contracts were first offered. To obtain a fuller picture of each Variable Sub-Account's finances, please refer to the Variable Account's financial statements contained in the Statement of Additional Information. The financial statements of Allstate New York also appear in the Statement of Additional Information.
THE CONTRACT
CONTRACT OWNER
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The SelectDirections(SM) Variable Annuity is a contract between you, the Contract Owner, and Allstate New York, a life insurance company. As the Contract Owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted):
• the investment alternatives during the Accumulation and Payout Phases,
• the amount and timing of your purchase payments and withdrawals,
• the programs you want to use to invest or withdraw money,
• the income payment plan you want to use to receive retirement income,
• the Annuitant (either yourself or someone else) on whose life the income payments will be based,
• the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract Owner dies, and
• any other rights that the Contract provides.
If you die prior to the Payout Start Date, the new Contract Owner will be the surviving Owner. If there is no surviving Owner, the new Contract Owner will be the Beneficiary(ies) as described in the Beneficiary provision. The new Contract Owner may exercise the rights and privileges provided by the Contract, except that if the new Contract Owner took ownership as the Beneficiary, the new Contract Owner's rights will be subject to any restrictions previously placed upon the Beneficiary.
The Contract cannot be jointly owned by both a non-living person and a living person. If the Owner is a Grantor Trust, the Contract Owner will be considered a non-living person for purposes of the Death of Owner and Death of Annuitant provisions of your Contract. The maximum age of the oldest Contract Owner cannot exceed 85 as of the date we receive the completed application. Changing ownership of this Contract may cause adverse tax consequences and may not be allowed under qualified plans. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner.
The Contract can alo be purchased as an IRA or TSA (also known as 403(b)). The endorsements required to qualify these annuities under the Internal Revenue Code of 1986, as amended, (“Code”) may limit or modify your rights and privileges under the Contract.
ANNUITANT
The Annuitant is the individual whose life determines the amount and duration of income payments (other than under Income Plans with guaranteed payments for a specified period). You initially designate an Annuitant in your application. The maximum age of the oldest Annuitant cannot exceed 85 as of the date we receive the completed application. If the Contract Owner is a living person you may change the Annuitant prior to the Payout Start Date. In our discretion, we may permit you to designate a joint Annuitant, who is a second person on whose life income payments depend, on the Payout Start Date.
If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be:
• the youngest Contract Owner, if living, otherwise
• the youngest Beneficiary.
BENEFICIARY
The Beneficiary is the person who may elect to receive the death benefit or become the new Contract Owner subject to the Death of Owner provision if the sole surviving Contract Owner dies before the Payout Start Date. See “Death Benefits” on page 24. If the sole surviving Contract Owner dies after the Payout Start Date, the Beneficiary will receive any guaranteed income payments scheduled to continue.
You may name one or more primary and contingent Beneficiaries when you apply for a Contract. The primary Beneficiary is the Beneficiary(ies) who is first entitled to receive benefits under the Contract upon the death of the sole surviving Contract Owner. The contingent Beneficiary is the Beneficiary(ies) entitled to receive benefits under the Contract when all primary Beneficiaries predecease the sole surviving Contract Owner.
You may restrict income payments to Beneficiaries by providing us a written request. Once we accept the written request, the change or restriction will take effect as of the date you signed the request. Any change is subject to any payment we make or other action we take before we accept the change.
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You may change or add Beneficiaries at any time by writing to us, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed and filed with us. After we accept the form, the change of Beneficiary will be effective as of the date you signed the form, whether or not the Annuitant is living when we receive the notice. Each change is subject to any payment made by us or any other action we take before we accept the change. Accordingly, if you wish to change your Beneficiary, you should deliver your written notice to us promptly.
12 PROSPECTUS
If you do not name a Beneficiary or, if the named Beneficiary is no longer living and there are no other surviving Beneficiaries, the new Beneficiary will be:
• your spouse or, if he or she is no longer alive,
• your surviving children equally, or if you have no surviving children,
• your estate.
If more than one Beneficiary survives you, we will divide the death benefit among your Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the death benefit in equal amounts to the surviving Beneficiaries.
MODIFICATION OF THE CONTRACT
Only an Allstate New York officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law.
ASSIGNMENT
You may not assign any interest in a Contract as collateral or security for a loan. However, you may assign periodic income payments under the Contract prior to the Payout Start Date. No Beneficiary may assign benefits under the Contract until they are due. We will not be bound by any assignment until the assignor signs it and files it with us. We are not responsible for the validity of any assignment. Federal law prohibits or restricts the assignment of benefits under many types of qualified plans and the terms of such plans may themselves contain restrictions on assignments. An assignment may also result in taxes or tax penalties. YOU SHOULD CONSULT WITH YOUR ATTORNEY BEFORE TRYING TO ASSIGN YOUR CONTRACT.
PURCHASES
MINIMUM PURCHASE PAYMENTS
Your initial purchase payment must be at least $3,000 ($2,000 for a Qualified Contract). All subsequent purchase payments must be $100 ($500 for allocation to the Fixed Account or the Dollar Cost Averaging Fixed Account) or more. You may make purchase payments at any time prior to the Payout Start Date. We reserve the right to limit the maximum amount of purchase payments, or reduce the minimum purchase payment we will accept. We reserve the right to reject any application.
AUTOMATIC ADDITIONS PROGRAM
You may make subsequent purchase payments of at least $100 ($500 for allocation to the Fixed Account) by automatically transferring amounts from your bank account. Please consult with your Personal Financial Representative for detailed information.
ALLOCATION OF PURCHASE PAYMENTS
At the time you apply for a Contract, you must decide how to allocate your purchase payments among the investment alternatives. The allocation you specify on your application will be effective immediately. All allocations must be in whole percents that total 100% or in whole dollars. You can change your allocations by notifying us in writing. We reserve the right to limit the availability of the investment alternatives.
We will allocate your purchase payments to the investment alternatives according to your most recent instructions on file with us. Unless you notify us in writing otherwise, we will allocate subsequent purchase payments according to the allocation for the previous purchase payment. We will effect any change in allocation instructions at the time we receive, in good order, written notice of the change.
We will credit the initial purchase payment that accompanies your completed application to your Contract within 2 business days after we receive the payment at our service center. If your application is incomplete, we will ask you to complete your application within 5 business days. If you do so, we will credit your initial purchase payment to your Contract within that 5 business day period. If you do not, we will return your purchase payment at the end of the 5 business day period unless you expressly allow us to hold it until you complete the application. We will credit subsequent purchase payments to the Contract at the close of the business day on which we
13 PROSPECTUS
receive the purchase payment at our service center located in Lincoln, Nebraska (mailing address: P.O. Box 82656, Lincoln, NE 68501-2656).
We are open for business each day Monday through Friday that the New York Stock Exchange is open for business. We also refer to these days as “VALUATION DATES.” Our business day closes when the New York Stock Exchange closes, usually 4:00 p.m. Eastern Time (3:00 p.m. Central Time). If we receive your purchase payment after 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date, we will credit your purchase payment using the Accumulation Unit Values computed on the next Valuation Date.
RIGHT TO CANCEL
You may cancel the Contract by returning it to us within the Cancellation Period, which is the 10 day period after you receive the Contract (60 days if you are exchanging another contract for the Contract described in this prospectus). You may return it by delivering it or mailing it to us. If you exercise this “RIGHT TO CANCEL,” the Contract terminates and we will pay you the full amount of your purchase payments allocated to the Fixed Account. Upon cancellation, as permitted by federal or state law, we will return your purchase payments allocated to the Variable Account after an adjustment to the extent federal or state law permits to reflect investment gain or loss that occurred from the date of allocation through the date of cancellation. If your Contract is qualified under Code Section 408(b), we will refund the greater of any purchase payment or the Contract Value.
CONTRACT VALUE
On the Issue Date, the Contract Value is equal to the initial purchase payment. Your Contract Value at any other time during the Accumulation Phase is equal to the sum of the value as of the most recent Valuation Date of your Accumulation Units in the Variable Sub-Accounts you have selected, plus the value of your investment in the Fixed Account.
ACCUMULATION UNITS
To determine the number of Accumulation Units of each Variable Sub-Account to credit to your Contract, we divide (i) the amount of the purchase payment or transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of that Variable Sub-Account next computed after we receive your payment or transfer. For example, if we receive a $10,000 purchase payment allocated to a Variable Sub-Account when the Accumulation Unit Value for the Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Sub-Account allocated to your Contract.
ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect:
• changes in the share price of the Portfolio in which the Variable Sub-Account invests, and
• the deduction of amounts reflecting the mortality and expense risk charge, administrative expense charge, and any provision for taxes that have accrued since we last calculated the Accumulation Unit Value.
We determine contract maintenance charges, withdrawal charges, and transfer fees (currently waived) separately for each Contract. They do not affect Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we calculate Accumulation Unit Value, please refer to the Statement of Additional Information.
We determine a separate Accumulation Unit Value for each Variable Sub-Account on each Valuation Date.
YOU SHOULD REFER TO THE PROSPECTUSES FOR THE PORTFOLIOS THAT ACCOMPANY THIS PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE.
14 PROSPECTUS
INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS
You may allocate your purchase payments to up to 24 Variable Sub-Accounts. Each Variable Sub-Account invests in the shares of a corresponding Portfolio. Each Portfolio has its own investment objective(s) and policies. We briefly describe the Portfolios below.
For more complete information about each Portfolio, including expenses and risks associated with the Portfolio, please refer to the accompanying prospectus for the Portfolio. You should carefully review the Portfolio prospectuses before allocating amounts to the Variable Sub-Accounts.
PORTFOLIO: | EACH PORTFOLIO SEEKS: | INVESTMENT ADVISOR: | ||||||||||||
AIM VARIABLE INSURANCE FUNDS | ||||||||||||||
AIM V.I. Capital Appreciation Fund – Series I* | Growth of capital | |||||||||||||
AIM V.I. Core Equity Fund - Series I* | Growth of capital | A I M ADVISORS, INC. | ||||||||||||
AIM V.I. Diversified Income Fund – Series I* | High level of current income | |||||||||||||
AIM V.I. International Growth Fund – Series I* | Long-term growth of capital | |||||||||||||
AIM V.I. Premier Equity Fund – Series I* | Long-term growth of capital with income as a secondary objective | |||||||||||||
FIDELITY(R) VARIABLE INSURANCE PRODUCTS | ||||||||||||||
Fidelity VIP Contrafund(R) Portfolio - Initial Class | Long-term capital appreciation. | |||||||||||||
Fidelity VIP Growth Portfolio – Initial Class | To achieve capital appreciation. | |||||||||||||
Fidelity VIP High Income Portfolio – Initial Class | High level of current income, while also considering growth of capital. | FIDELITY MANAGEMENT & RESEARCH COMPANY | ||||||||||||
Fidelity VIP Index 500 Portfolio – Initial Class | Investment results that correspond to the total return of common stocks publicly traded in the United States, as represented by the Standard & Poor’s 500(SM) Index (S&P 500(R)). | |||||||||||||
Fidelity VIP Investment As high a level of current Grade Bond Portfolio - income as is consistent Initial Class with the preservation of capital. | ||||||||||||||
Fidelity VIP Overseas Long-term growth of capital. Portfolio - Initial Class |
15 PROSPECTUS
MFS(R) VARIABLE INSURANCE TRUST(SM) | ||||||||||||||
MFS Research Bond Series – Initial Class** | To provide total return (high current income and long-term growth of | |||||||||||||
OPPENHEIMER VARIABLE ACCOUNT FUNDS | ||||||||||||||
Oppenheimer Core Bond Fund/VA*** | High level of current income. As a secondary objective, the Portfolio seeks capital appreciation when consistent with its primary objective. | |||||||||||||
Oppenheimer Capital Appreciation Fund/VA | Capital appreciation by investing in securities of well-known, established companies. | |||||||||||||
Oppenheimer Global Securities Fund/VA | Long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, growth-type companies, cyclical industries and special situations that are considered to have appreciation possibilities. | OPPENHEIMERFUNDS, INC. | ||||||||||||
Oppenheimer High Income Fund/VA | A high level of current income from investment in high-yield fixed-income securities. | |||||||||||||
Oppenheimer Main Street Small Cap Fund/VA | Capital appreciation. | |||||||||||||
VAN KAMPEN LIFE INVESTMENT TRUST | ||||||||||||||
Van Kampen LIT Comstock Portfolio, Class I | Capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks. | VAN KAMPEN ASSET MANAGEMENT | ||||||||||||
Van Kampen LIT Emerging Growth Portfolio, Class I | Capital appreciation. | |||||||||||||
Van Kampen LIT Government Portfolio, Class I | High current return consistent with preservation of capital | |||||||||||||
Van Kampen LIT Money Market Portfolio, Class I | Protection of capital and high current income through investments in money market instruments. | |||||||||||||
* The Portfolio's investment objective(s) may be changed by the Portfolio's Board of Trustees without shareholder approval
** Effective May 1, 2005, the MFS Bond Series-Initial Class will change its name to MFS Research Bond Series-Initial Class. In addition, the Portfolio's objective will change as described above.
16 PROSPECTUS
*** Effective April 29, 2005, the Oppenheimer Bond Fund/VA changed its name to Oppenheimer Core Bond Fund/VA. The Portfolio's objective has not changed.
AMOUNTS YOU ALLOCATE TO VARIABLE SUB-ACCOUNTS MAY GROW IN VALUE, DECLINE IN VALUE, OR GROW LESS THAN YOU EXPECT, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
VARIABLE INSURANCE PORTFOLIOS MIGHT NOT BE MANAGED BY THE SAME PORTFOLIO MANAGERS WHO MANAGE RETAIL MUTUAL FUNDS WITH SIMILAR NAMES. THESE PORTFOLIOS ARE LIKELY TO DIFFER FROM SIMILARLY NAMED RETAIL FUNDS IN ASSETS, CASH FLOW, AND TAX MATTERS. ACCORDINGLY, THE HOLDINGS AND RESULTS OF A VARIABLE INSURANCE PORTFOLIO CAN BE EXPECTED TO BE HIGHER OR LOWER THAN THE INVESTMENT RESULTS OF A SIMILARLY NAMED RETAIL MUTUAL FUND.
INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT
You may allocate all or a portion of your purchase payments to the Fixed Account Options. We will credit a minimum annual interest rate of 3% to money you allocate to any of the Fixed Account Options. Please consult with your representative for current information. The Fixed Account supports our insurance and annuity obligations. The Fixed Account consists of our general assets other than those in segregated asset accounts. We have sole discretion to invest the assets of the Fixed Account, subject to applicable law. Any money you allocate to the Fixed Account Option does not entitle you to share in the investment experience of the Fixed Account.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTIONS
SIX MONTH DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
Under this Option, you may establish a Dollar Cost Averaging Program allocating purchase payments to the Six Month Dollar Cost Averaging Fixed Account Option (“Six Month DCA Fixed Account Option”). We will credit interest to purchase payments you allocate to this Option for six months at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound at the annual interest rate we guaranteed at the time of allocation.
We will follow your instructions in transferring amounts monthly from the Six Month DCA Fixed Account Option. You must transfer all of your money out of the Six Month DCA Fixed Account Option to the Variable Sub-Accounts in six equal monthly installments. If you discontinue the Six Month DCA Fixed Account Option before the end of the transfer period, we will transfer the remaining balance in this Option to the Van Kampen LIT Money Market Variable Sub-Account unless you request a different investment alternative. No transfers are permitted into the Six Month DCA Fixed Account.
For each purchase payment allocated to this Option, your first monthly transfer will occur at the end of the first month following such purchase payment. If we do not receive an allocation from you within one month of the date of payment, we will transfer the payment plus associated interest to the Van Kampen LIT Money Market Variable Sub-Account in equal monthly installments. Transferring Account Value to the Van Kampen LIT Money Market Variable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 19.
TWELVE MONTH DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
Under this Option, you may establish a Dollar Cost Averaging Program by allocating purchase payments to the Twelve Month Dollar Cost Averaging Fixed Account Option (“Twelve Month DCA Fixed Account Option”). We will credit interest to purchase payments you allocate to this Option for twelve months at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound at the annual interest rate we guaranteed at the time of allocation.
We will follow your instructions in transferring amounts monthly from the Twelve Month DCA Fixed Account Option. You must transfer all of your money out of the Twelve Month DCA Fixed Account Option to the Variable Sub-Accounts in twelve equal monthly installments. If you discontinue the Dollar Cost Averaging Option before the end of the transfer period, we will transfer the remaining balance in this Option to the Van Kampen LIT Money Market Variable Sub-Account unless you request a different investment alternative. No transfers are permitted into the Twelve Month DCA Fixed Account.
For each purchase payment allocated to this Option, your first monthly transfer will occur at the end of the first month following such purchase payment. If we do not receive an allocation from you within one month of the date of payment, we will transfer the payment
17 PROSPECTUS
plus associated interest to the Van Kampen LIT Money Market Variable Sub-Account in equal monthly installments. Transferring Account Value to the Van Kampen LIT Money Market Variable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 19.
At the end of the transfer period, any nominal amounts remaining in the Six Month Dollar Cost Averaging Fixed Account or the Twelve Month Term Dollar Cost Averaging Fixed Account will be allocated to the Van Kampen LIT Money Market Variable Sub-Account.
Transfers out of the Dollar Cost Averaging Fixed Account Options do not count towards the 12 transfers you can make without paying a transfer fee.
INVESTMENT RISK
We bear the investment risk for all amounts allocated to the Six Month DCA Fixed Account Option and the Twelve Month DCA Fixed Account Option. That is because we guarantee the current interest rates we credit to the amounts you allocate to either of these Options, which will never be less than the minimum guaranteed rate in the Contract. Currently, we determine, in our sole discretion, the amount of interest credited in excess of the guaranteed rate.
We may declare more than one interest rate for different monies based upon the date of allocation to the Six Month DCA Fixed Account Option and the Twelve Month DCA Fixed Account Option. For current rate information, please contact your representative or our customer support unit at 1-800-632-3492.
GUARANTEE PERIODS
Under this option, each payment or transfer allocated to the Fixed Account earns interest at a specified rate that we guarantee for a period of years we call a Guarantee Period. Guarantee Periods may range from 1 to 10 years. We are currently offering Guarantee Periods of 1, 3, 5, 7, and 10 years in length. In the future we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods. You select one or more Guarantee Periods for each purchase payment or transfer. If you do not select the Guarantee Period for a purchase payment or transfer, we will assign the shortest Guarantee Period available under the Contract for such payment or transfer.
Each payment or transfer allocated to a Guarantee Period must be at least $500. We reserve the right to limit the number of additional purchase payments that you may allocate to the Fixed Account. Please consult with your Personal Financial Representative for more information.
INTEREST RATES. We will tell you what interest rates and Guarantee Periods we are offering at a particular time. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. We will not change the interest rate that we credit to a particular allocation until the end of the relevant Guarantee Period.
We have no specific formula for determining the rate of interest that we will declare initially or in the future. We will set those interest rates based on investment returns available at the time of the determination. In addition, we may consider various other factors in determining interest rates including regulatory and tax requirements, our sales commission and administrative expenses, general economic trends, and competitive factors. We determine the interest rates to be declared in our sole discretion. We can neither predict nor guarantee what those rates will be in the future. For current interest rate information, please contact your Personal Financial Representative or Allstate New York at 1-800-632-3492. The interest rate will never be less than the minimum guaranteed amount stated in the Contract.
HOW WE CREDIT INTEREST. We will credit interest daily to each amount allocated to a Guarantee Period at a rate that compounds to the effective annual interest rate that we declared at the beginning of the applicable Guarantee Period.
The following example illustrates how a purchase payment allocated to the Fixed Account would grow, given an assumed Guarantee Period and effective annual interest rate:
Purchase Payment | $10,000 | ||||
Guarantee Period | 5 years | ||||
Annual Interest Rate | 4.50 | % |
Total Interest Credited During Guarantee Period = $2,461.82 ($12,461.82-$10,000)
END OF CONTRACT YEAR
18 PROSPECTUS
YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | |||||||||||||
Beginning Contract Value | $10,000.00 | ||||||||||||||||
X (1 + Annual Interest Rate) | X 1.045 | ||||||||||||||||
$10,450.00 | |||||||||||||||||
Contract Value at end of Contract Year | $10,450.00 | ||||||||||||||||
X (1 + Annual Interest | X 1.045 | ||||||||||||||||
$10,920.25 | |||||||||||||||||
Contract Value at end of Contract Year | $10,920.25 | ||||||||||||||||
X (1 + Annual Interest Rate) | X 1.045 | ||||||||||||||||
$11,411.66 | |||||||||||||||||
Contract Value at end of Contract Year | $11,411.66 | ||||||||||||||||
X (1 + Annual Interest Rate) | X 1.045 | ||||||||||||||||
$11,925.19 |
This example assumes no withdrawals during the entire 5 year Guarantee Period. If you were to make a withdrawal, you may be required to pay a Withdrawal Charge. In addition, the amount withdrawn may be increased or decreased by a Market Value Adjustment that reflects changes in interest rates since the time you invested the amount withdrawn. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. The hypothetical interest rate is for illustrative purposes only and is not intended to predict future interest rates to be declared under the Contract. Actual interest rates declared for any given Guarantee Period may be more or less than shown above but will never be less than the guaranteed minimum rate stated in the Contract.
RENEWALS. At least 15 but not more than 45 days prior to the end of each Guarantee Period, we will mail you a notice asking you what to do with your money, including the accrued interest. During the 30-day period after the end of the Guarantee Period, you may:
1) take no action. We will automatically apply your money to a new Guarantee Period of the shortest duration available. The new Guarantee Period will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for a Guarantee Period of that length; or
2) instruct us to apply your money to one or more new Guarantee Periods of your choice. The new Guarantee Period(s) will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for those Guarantee Periods; or
19 PROSPECTUS
3) instruct us to transfer all or a portion of your money to one or more Variable Sub-Accounts. We will effect the transfer on the day we receive your instructions. We will not adjust the amount transferred to include a Market Value Adjustment. We will pay interest from the day the Guarantee Period expired until the date of the transfer. The interest will be the rate for the Shortest Guarantee Period then being offered; or
4) withdraw all or a portion of your money. You may be required to pay a withdrawal charge, but we will not adjust the amount withdrawn to include a Market Value Adjustment. You may also be required to pay premium taxes and withholding (if applicable). The amount withdrawn will be deemed to have been withdrawn on the day the previous Guarantee Period ends. Unless you specify otherwise, amounts not withdrawn will be applied to a new Guarantee Period of the shortest duration available. The new Guarantee Period will begin on the day the previous Guarantee Period ends. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
Under our automatic laddering program (“Automatic Laddering Program”), you may choose, in advance, to use Guarantee Periods of the same length for all renewals. You can select the Automatic Laddering Program at any time during the Accumulation Phase, including on the Issue Date. We will apply renewals to Guarantee Periods of the selected length until you direct us in writing to stop. We may stop offering the Automatic Laddering Program at any time. For additional information on the Automatic Laddering Program, please call our customer service center at 1-800-632-3492.
MARKET VALUE ADJUSTMENT. All withdrawals in excess of the Preferred Withdrawal Amount, and transfers from a Guarantee Period, other than those taken during the 30 day period after such Guarantee Period expires, are subject to a Market Value Adjustment. A Market Value Adjustment also applies when you apply amounts currently invested in a Guarantee Period to an Income Plan (unless paid or applied during the 30 day period after such Guarantee Period expires). A positive Market Value Adjustment will apply to amounts currently invested in a Guarantee Period that are paid out as death benefits. We will not apply a Market Value Adjustment to a transfer you make as part of a Dollar Cost Averaging Program. We also will not apply a Market Value Adjustment to a withdrawal you make:
• within the Preferred Withdrawal Amount as described on page 20, or
• to satisfy the IRS minimum distribution rules for a qualified Contract.
We apply the Market Value Adjustment to reflect changes in interest rates from the time you first allocate money to a Guarantee Period to the time it is removed from that Guarantee Period. We calculate the Market Value Adjustment by comparing the Treasury Rate for a period equal to the Guarantee Period at its inception to the Treasury Rate for a period equal to the time remaining in the Guarantee Period when you remove your money. “TREASURY RATE” means the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Board Statistical Release H.15.
The Market Value Adjustment may be positive or negative, depending on changes in interest rates. As such, you bear the investment risk associated with changes in interest rates. If interest rates increase significantly, the Market Value Adjustment and any withdrawal charge, premium taxes, and income tax withholding (if applicable) could reduce the amount you receive upon full withdrawal of your Contract Value to an amount that is less than the purchase payment plus interest at the minimum guaranteed interest rate under the Contract.
Generally, if the Treasury Rate at the time you allocate money to a Guarantee Period is higher than the applicable current Treasury Rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a higher amount payable to you or transferred. Conversely, if the Treasury Rate at the time you allocate money to a Guarantee Period is lower than the applicable Treasury Rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a lower amount payable to you or transferred.
For example, assume that you purchase a Contract and you select an initial Guarantee Period of 5 years and the 5 year Treasury Rate for that duration is 4.50%. Assume that at the end of 3 years, you make a partial withdrawal. If, at that later time, the current 2 year Treasury Rate is 4.20%, then the Market Value Adjustment will be positive, which will result in an increase in the amount payable to you. Conversely, if the current 2 year Treasury Rate is 4.80%, then the Market Value Adjustment will be negative, which will result in a decrease in the amount payable to you.
The formula for calculating Market Value Adjustments is set forth in Appendix B to this prospectus, which also contains additional examples of the application of the Market Value Adjustment.
20 PROSPECTUS
INVESTMENT ALTERNATIVES: TRANSFERS
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer Contract Value among the investment alternatives. The minimum amount that you may transfer into a Guarantee Period is $500. You may request transfers in writing on a form that we provided or by telephone according to the procedure described below. We currently do not assess, but reserve the right to assess, a $10 charge on each transfer in excess of 12 per Contract Year. We treat transfers to or from more than one Portfolio on the same day as one transfer. Transfers you make as part of a Dollar Cost Averaging Program or Automatic Portfolio Rebalancing Program do not count against the 12 free transfers per Contract Year.
We will process transfer requests that we receive before 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date using the Accumulation Unit Values for that Date. We will process requests completed after 4:00 p.m. Eastern Time (3:00 p.m. Central Time) on any Valuation Date using the Accumulation Unit Values for the next Valuation Date. The Contract permits us to defer transfers from the Fixed Account for up to 6 months from the date we receive your request. If we decide to postpone transfers from the Fixed Account for 10 days or more, we will pay interest as required by applicable law. Any interest would be payable from the date we receive the transfer request to the date we make the transfer.
If you transfer an amount from a Guarantee Period other than during the 30 day period after such Guarantee Period expires, we will increase or decrease the amount by a Market Value Adjustment. If any transfer reduces your value in such Guarantee Period to less than $500, we will treat the request as a transfer of the entire value in such Guarantee Period.
We reserve the right to waive any transfer fees and restrictions.
TRANSFERS DURING THE PAYOUT PHASE
During the Payout Phase, you may make transfers among the Variable Sub-Accounts to change the relative weighting of the Variable Sub-Accounts on which your variable income payments will be based. In addition, you will have a limited ability to make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. You may not, however, convert any portion of your right to receive fixed income payments into variable income payments.
You may not make any transfers for the first 6 months after the Payout Start Date. Thereafter, you may make transfers among the Variable Sub-Accounts or make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. Your transfers must be at least 6 months apart.
TELEPHONE TRANSFERS
You may make transfers by telephone by calling 1-800-632-3492, if you first send us a completed authorization form. The cut off-time for telephone transfer requests is 4:00 p.m. Eastern Time (3:00 p.m. Central Time). In the event that the New York Stock Exchange closes early, i.e., before 4:00 p.m. Eastern Time (3:00 p.m. Central Time), or in the event that the Exchange closes early for a period of time but then reopens for trading on the same day, we will process telephone transfer requests as of the close of the Exchange on that particular day. We will not accept telephone requests received at any telephone number other than the number that appears in this paragraph or received after the close of trading on the Exchange.
We may suspend, modify or terminate the telephone transfer privilege, as well as any other electronic or automated means we previously approved, at any time without notice.
We use procedures that we believe provide reasonable assurance that the telephone transfers are genuine. For example, we tape telephone conversations with persons purporting to authorize transfers and request identifying information. Accordingly, we disclaim any liability for losses resulting from allegedly unauthorized telephone transfers. However, if we do not take reasonable steps to help ensure that a telephone authorization is valid, we may be liable for such losses.
MARKET TIMING & EXCESSIVE TRADING
The Contracts are intended for long-term investment. Market timing and excessive trading can potentially dilute the value of Variable Sub-Accounts and can disrupt management of a Portfolio and raise its expenses, which can impair Portfolio performance. Our policy is not to accept knowingly any money intended for the purpose of market timing or excessive trading. Accordingly, you should not invest in the Contract if your purpose is to engage in market timing or excessive trading, and you should refrain from such practices if you currently own a Contract.
21 PROSPECTUS
We seek to detect market timing or excessive trading activity by reviewing trading activities. Portfolios also may report suspected market-timing or excessive trading activity to us. If, in our judgment, we determine that the transfers are part of a market timing strategy or are otherwise harmful to the underlying Portfolio, we will impose the trading limitations as described below under “Trading Limitations.” Because there is no universally accepted definition of what constitutes market timing or excessive trading, we will use our reasonable judgment based on all of the circumstances.
While we seek to deter market timing and excessive trading in Variable Sub-Accounts, not all market timing or excessive trading is identifiable or preventable. Imposition of trading limitations is triggered by the detection of market timing or excessive trading activity, and the trading limitations are not applied prior to detection of such trading activity. Therefore, our policies and procedures do not prevent such trading activity before it first occurs. To the extent that such trading activity occurs prior to detection and the imposition of trading restrictions, the portfolio may experience the adverse effects of market timing and excessive trading described above.
TRADING LIMITATIONS
We reserve the right to limit transfers among the investment alternatives in any Contract year, or to refuse any transfer request, if:
• we believe, in our sole discretion, that certain trading practices, such as excessive trading, by, or on behalf of, one or more Contract Owners, or a specific transfer request or group of transfer requests, may have a detrimental effect on the Accumulation Unit Values of any Variable Sub-Account or on the share prices of the corresponding Portfolio or otherwise would be to the disadvantage of other Contract Owners; or
• we are informed by one or more of the Portfolios that they intend to restrict the purchase, exchange, or redemption of Portfolio shares because of excessive trading or because they believe that a specific transfer or group of transfers would have a detrimental effect on the prices of Portfolio shares.
In making the determination that trading activity constitutes market timing or excessive trading, we will consider, among other things:
• the total dollar amount being transferred, both in the aggregate and in the transfer request;
• the number of transfers you make over a period of time and/or the period of time between transfers (note: one set of transfers to and from a sub-account in a short period of time can constitute market timing);
• whether your transfers follow a pattern that appears designed to take advantage of short term market fluctuations, particularly within certain Sub-account underlying portfolios that we have identified as being susceptible to market timing activities;
• whether the manager of the underlying portfolio has indicated that the transfers interfere with portfolio management or otherwise adversely impact the portfolio; and
• the investment objectives and/or size of the Sub-account underlying portfolio.
If we determine that a contract owner has engaged in market timing or excessive trading activity, we will restrict that contract owner from making future additions or transfers into the impacted Sub-account(s). If we determine that a contract owner has engaged in a pattern of market timing or excessive trading activity involving multiple Sub-accounts, we will also require that all future transfer requests be submitted through regular U.S. mail thereby refusing to accept transfer requests via telephone, facsimile, Internet, or overnight delivery. Any Sub-account or transfer restrictions will be uniformly applied.
In our sole discretion, we may revise our Trading Limitations at any time as necessary to better deter or minimize market timing and excessive trading or to comply with regulatory requirements.
DOLLAR COST AVERAGING PROGRAM
Through the Dollar Cost Averaging Program, you may automatically transfer a set amount every month during the Accumulation Phase from any Variable Sub-Account, the Six Month Dollar Cost Averaging Fixed Account, or the Twelve Month Dollar Cost Averaging Fixed Account, to any other Variable Sub-Account. You may not use dollar cost averaging to transfer amounts to the Fixed Account.
We will not charge a transfer fee for transfers made under this Program, nor will such transfers count against the 12 transfers you can make each Contract Year without paying a transfer fee.
22 PROSPECTUS
The theory of dollar cost averaging is that if purchases of equal dollar amounts are made at fluctuating prices, the aggregate average cost per unit will be less than the average of the unit prices on the same purchase dates. However, participation in this Program does not assure you of a greater profit from your purchases under the Program nor will it prevent or necessarily reduce losses in a declining market.
Call or write us for instructions on how to enroll.
AUTOMATIC PORTFOLIO REBALANCING PROGRAM
Once you have allocated your money among the Variable Sub-Accounts, the performance of each Variable Sub-Account may cause a shift in the percentage you allocated to each Variable Sub-Account. If you select our Automatic Portfolio Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. Money you allocate to the Fixed Account will not be included in the rebalancing.
We will rebalance your account each quarter according to your instructions. We will transfer amounts among the Variable Sub-Accounts to achieve the percentage allocations you specify. You can change your allocations at any time by contacting us in writing or by telephone. The new allocation will be effective with the first rebalancing that occurs after we receive your request. We are not responsible for rebalancing that occurs prior to receipt of your request.
Example:
Assume that you want your initial purchase payment split among 2 Variable Sub-Accounts. You want 40% to be in the AIM V.I. Capital Appreciation Variable Sub-Account and 60% to be in the Fidelity VIP Growth Variable Sub-Account. Over the next 2 months the bond market does very well while the stock market performs poorly. At the end of the first quarter, the AIM V.I. Capital Appreciation Variable Sub-Account now represents 50% of your holdings because of its increase in value. If you choose to have your holdings rebalanced quarterly, on the first day of the next quarter we would sell some of your units in the AIM V.I. Capital Appreciation Variable Sub-Account and use the money to buy more units in the Fidelity VIP Growth Variable Sub-Account so that the percentage allocations would again be 40% and 60% respectively.
The Automatic Portfolio Rebalancing Program is available only during the Accumulation Phase. The transfers made under the Program do not count towards the 12 transfers you can make without paying a transfer fee, and are not subject to a transfer fee.
Portfolio rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Contract Value allocated to the better performing segments.
You may not use the Dollar Cost Averaging and the Automatic Portfolio Rebalancing programs at the same time.
EXPENSES
As a Contract Owner, you will bear, directly or indirectly, the charges and expenses described below.
CONTRACT MAINTENANCE CHARGE
During the Accumulation Phase, on each Contract Anniversary, we will deduct a $30 contract maintenance charge from your Contract Value invested in each Variable Sub-Account in proportion to the amount invested. We also will deduct a full contract maintenance charge if you withdraw your entire Contract Value, unless your Contract qualifies for a waiver, described below. During the Payout Phase, we will deduct the charge proportionately from each income payment.
The charge is for the cost of maintaining each Contract and the Variable Account. Maintenance costs include expenses we incur in billing and collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract Owners and regulatory agencies. We cannot increase the charge. We will waive this charge if:
• total purchase payments equal $50,000 or more, or
• all of your money is allocated to the Fixed Account on a Contract Anniversary.
23 PROSPECTUS
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily at an annual rate of 1.15% of the average daily net assets you have invested in the Variable Sub-Accounts. The mortality and expense risk charge is for all the insurance benefits available with your Contract (including our guarantee of annuity rates and the death benefits), for certain expenses of the Contract, and for assuming the risk (expense risk) that the current charges will be sufficient in the future to cover the cost of administering the Contract. If the charges under the Contract are not sufficient, then we will bear the loss.
We guarantee the mortality and expense risk charge and we cannot increase it. We assess the mortality and expense risk charge during both the Accumulation Phase and the Payout Phase.
ADMINISTRATIVE EXPENSE CHARGE
We deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-Accounts. We intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed to that Contract. We assess this charge each day during the Accumulation Phase and the Payout Phase. We guarantee that we will not raise this charge.
TRANSFER FEE
We do not currently impose a fee upon transfers among the investment alternatives. However, we reserve the right to charge $10 per transfer after the 12th transfer in each Contract Year. We will not charge a transfer fee on transfers that are part of a Dollar Cost Averaging or Automatic Portfolio Rebalancing Program.
WITHDRAWAL CHARGE
We may assess a Withdrawal Charge of up to 7% of the purchase payment(s) you withdraw in excess of the Preferred Withdrawal Amount, adjusted by a Market Value Adjustment. The charge declines by 1% annually to 0% after 7 complete years from the day we receive the purchase payment being withdrawn. Beginning on January 1, 2004, if you make a withdrawal before the Payout Start Date, we will apply the Withdrawal Charge percentage in effect on the date of the withdrawal, or the Withdrawal Charge percentage in effect on the following day, whichever is lower. A schedule showing how the Withdrawal Charge declines appears on page 7. During each Contract Year, you can withdraw up to 15% of purchase payments without paying the Withdrawal Charge. Unused portions of this 15% “PREFERRED WITHDRAWAL AMOUNT” are not carried forward to future Contract Years.
We determine the Withdrawal Charge by:
• multiplying the percentage corresponding to the number of complete years since we received the purchase payment being withdrawn, times
• the part of each purchase payment withdrawal that is in excess of the Preferred Withdrawal Amount, adjusted by a Market Value Adjustment.
We will deduct Withdrawal Charges, if applicable, from the amount paid. For purposes of the Withdrawal Charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings in the Contract, which means you pay taxes on the earnings portion of your withdrawal.
We do not apply a Withdrawal Charge in the following situations:
• on the Payout Start Date (a Withdrawal Charge may apply if you elect to receive income payments for a specified period of less than 120 months);
• the death of the Contract Owner or Annuitant (unless the Settlement Value is used);
• withdrawals taken to satisfy IRS required minimum distribution rules for the Contract; or
• withdrawals made after all purchase payments have been withdrawn.
24 PROSPECTUS
We use the amounts obtained from the Withdrawal Charge to pay sales commissions and other promotional or distribution expenses associated with marketing the Contracts. To the extent that the Withdrawal Charge does not cover all sales commissions and other promotional or distribution expenses, we may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or any other charges or fee described above, to make up any difference.
Withdrawals taken during the Accumulation Phase are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. Withdrawals may also be subject to a Market Value Adjustment. You should consult your own tax counsel or other tax advisers regarding any withdrawals.
PREMIUM TAXES
Currently, we do not make deductions for premium taxes under the Contract because New York does not charge premium taxes on annuities. We may deduct taxes that may be imposed in the future from purchase payments or the Contract Value when the tax is incurred or at a later time.
DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES
We are not currently making a provision for such taxes. In the future, however, we may make a provision for taxes if we determine, in our sole discretion, that we will incur a tax as a result of the operation of the Variable Account. We will deduct for any taxes we incur as a result of the operation of the Variable Account, whether or not we previously made a provision for taxes and whether or not it was sufficient. Our status under the Internal Revenue Code is briefly described in the Federal Tax Matters section.
OTHER EXPENSES
Each Portfolio deducts advisory fees and other expenses from its assets. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Variable Sub-Accounts. These fees and expenses are described in the accompanying prospectuses for the Portfolios. For a summary of the maximum and minimum amounts for these charges and expenses, see pages 8-9. We may receive compensation from the investment advisers or administrators of the Portfolios for administrative services we provide to the Portfolios.
ACCESS TO YOUR MONEY
You can withdraw some or all of your Contract Value at any time prior to the Payout Start Date. Full or partial withdrawals also are available under limited circumstances on or after the Payout Start Date. See “Income Plans” on page 22.
The amount payable upon withdrawal is the Contract Value next computed after we receive the request for a withdrawal at our customer service center, adjusted by any Market Value Adjustment, less any Withdrawal Charges, contract maintenance charges, income tax withholding, and any premium taxes. We will pay withdrawals from the Variable Account within 7 days of receipt of the request, subject to postponement in certain circumstances.
You can withdraw money from the Variable Account or the Fixed Account. To complete a partial withdrawal from the Variable Account, we will cancel Accumulation Units in an amount equal to the withdrawal and any applicable Withdrawal Charge and premium taxes.
Withdrawals taken during the Accumulation Phase are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
You have the opportunity to name the investment alternative(s) from which you are taking the withdrawal. If none is specified, we will deduct your withdrawal pro-rata from the investment alternatives according to the value of your investments therein.
In general, you must withdraw at least $50 at a time. You also may withdraw a lesser amount if you are withdrawing your entire interest in a Variable Sub-Account.
If you request a total withdrawal, you must return your Contract to us.
25 PROSPECTUS
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under the Contract if:
1. The New York Stock Exchange is closed for other than usual weekends or holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the SEC; or
3. The SEC permits delay for your protection.
In addition, we may delay payments or transfers from the Fixed Account for up to 6 months or a shorter period if required by law. If we delay payment or transfer for 10 business days or more, we will pay interest as required by law. Any interest would be payable from the date we receive the withdrawal request to the date we make the payment or transfer.
SYSTEMATIC WITHDRAWAL PROGRAM
You may choose to receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or annual basis at any time prior to the Payout Start Date. The minimum amount of each systematic withdrawal is $50. At our discretion, systematic withdrawals may not be offered in conjunction with the Dollar Cost Averaging Program or the Automatic Portfolio Rebalancing Program.
Depending on fluctuations in the net asset value of the Variable Sub-Accounts and the value of the Fixed Account, systematic withdrawals may reduce or even exhaust the Contract Value. Please consult your tax advisor before taking any withdrawal.
We will make systematic withdrawal payments to you or your designated payee. We may modify or suspend the Systematic Withdrawal Program and charge a processing fee for the service. If we modify or suspend the Systematic Withdrawal Program, existing systematic withdrawal payments will not be affected.
MINIMUM CONTRACT VALUE
If your request for a partial withdrawal would reduce the amount in any Guarantee Period to less than $500, we will treat it as a request to withdraw the entire amount invested in such Guarantee Period. If your request for a partial withdrawal would reduce your Contract Value to less than $1,000, we may treat it as a request to withdraw your entire Contract Value. Your Contract will terminate if you withdraw all of your Contract Value. We will, however, ask you to confirm your withdrawal request before terminating your Contract. Before terminating any Contract whose value has been reduced by withdrawals to less than $1,000, we will inform you in writing of our intention to terminate your Contract and give you at least 30 days in which to make an additional purchase payment to restore your Contract's value to the contractual minimum of $1,000. If we terminate your Contract, we will distribute to you its Contract Value, adjusted by any applicable Market Value Adjustment, less withdrawal and other charges and applicable taxes.
INCOME PAYMENTS
PAYOUT START DATE
The Payout Start Date is the day that we apply your money to an Income Plan. The Payout Start Date must be no later than the day the Annuitant reaches age 90, or the 10th Contract Anniversary, if later. You may change the Payout Start Date at any time by notifying us in writing of the change at least 30 days before the scheduled Payout Start Date. Absent a change, we will use the Payout Start Date stated in your Contract.
INCOME PLANS
An “Income Plan” is a series of payments on a scheduled basis to you or to another person designated by you. You may choose and change your choice of Income Plan until 30 days before the Payout Start Date. If you do not select an Income Plan, we will make income payments in accordance with Income Plan 1 with guaranteed payments for 10 years if you have designated only one Annuitant, or Income Plan 2 with guaranteed payments for 10 years if you have designated joint Annuitants. After the Payout Start Date, you may not make withdrawals (except as described below) or change your choice of Income Plan.
Three Income Plans are available under the Contract. Each is available to provide:
• fixed income payments;
• variable income payments; or
26 PROSPECTUS
• a combination of the two.
A portion of each payment will be considered taxable and the remaining portion will be a non-taxable return of your investment in the Contract, which is also called the “basis”. Once the basis in the Contract is depleted, all remaining payments will be fully taxable. If the Contract is tax-qualified, generally, all payments will be fully taxable. Taxable payments taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
The three Income Plans are:
INCOME PLAN 1 - LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as the Annuitant lives. If the Annuitant dies before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract. The number of months guaranteed may be 0 months, or range from 60 to 360 months.
INCOME PLAN 2 - JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as either the Annuitant or the joint Annuitant is alive. If both the Annuitant and the joint Annuitant die before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract. The number of months guaranteed may be 0 months, or range from 60 to 360 months.
INCOME PLAN 3 - GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD (5 YEARS TO 30 YEARS). Under this plan, we make periodic income payments for the period you have chosen. These payments do not depend on the Annuitant's life. Income payments for less than 120 months may be subject to a withdrawal charge. We will deduct the mortality and expense risk charge from the Variable Sub-Account assets that support variable income payments even though we may not bear any mortality risk.
The length of any guaranteed payment period under your selected Income Plan generally will affect the dollar amounts of each income payment. As a general rule, longer guarantee periods result in lower income payments, all other things being equal. For example, if you choose an Income Plan with payments that depend on the life of the Annuitant but with no minimum specified period for guaranteed payments, the income payments generally will be greater than the income payments made under the same Income Plan with a minimum specified period for guaranteed payments.
If you choose Income Plan 1 or 2, or, if available, another Income Plan with payments that continue for the life of the Annuitant or joint Annuitant, we may require proof of age and sex of the Annuitant or joint Annuitant before starting income payments, and proof that the Annuitant or joint Annuitant is alive before we make each payment.
Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on.
Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or part of the Variable Account portion of the income payments at any time and receive a lump sum equal to the present value of the remaining variable income payments associated with the amount withdrawn. To determine the present value of any remaining variable income payments being withdrawn, we use a discount rate equal to the assumed annual investment rate that we use to compute such variable income payments. The minimum amount you may withdraw under this feature is $1,000. A withdrawal charge may apply. You will also have a limited ability to make transfers from the Variable Account portion of the income payments to increase the proportion of your income payments consisting of fixed income payments. You may not, however, convert any portion of your right to receive fixed income payments into variable income payments. We deduct applicable premium taxes, if any, from the Contract Value at the Payout Start Date. New York does not currently impose a Premium Tax.
We may make other Income Plans available. You may obtain information about them by writing or calling us.
You must apply at least the Contract Value in the Fixed Account on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account balance to provide variable income payments, you should plan ahead and transfer that amount to the Variable Sub-Accounts prior to the Payout Start Date. If you do not tell us how to allocate your Contract Value among fixed and variable income payments, we will apply your Contract Value in the Variable Account to variable income payments and your Contract Value in the Fixed Account to fixed income payments.
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We will apply your Contract Value, adjusted by a Market Value Adjustment, less applicable taxes to your Income Plan on the Payout Start Date. If the Contract Value is less than $2,000 or not enough to provide an initial payment of at least $20, and state law permits, we may:
• terminate the Contract and pay you the Contract Value, adjusted by any Market Value Adjustment and less any applicable taxes, in a lump sum instead of the periodic payments you have chosen, or
• reduce the frequency of your payments so that each payment will be at least $20.
VARIABLE INCOME PAYMENTS
The amount of your variable income payments depends upon the investment results of the Variable Sub-Accounts you select, the premium taxes you pay, the age and sex of the Annuitant, and the Income Plan you choose. We guarantee that the payments will not be affected by (a) actual mortality experience and (b) the amount of our administration expenses.
We cannot predict the total amount of your variable income payments. Your variable income payments may be more or less than your total purchase payments because (a) variable income payments vary with the investment results of the underlying Portfolio and (b) the Annuitant could live longer or shorter than we expect based on the tables we use.
In calculating the amount of the periodic payments in the annuity tables in the Contract, we assumed an annual investment rate of 3%. If the actual net investment return of the Variable Sub-Accounts you choose is less than this assumed investment rate, then the dollar amount of your variable income payments will decrease. The dollar amount of your variable income payments will increase, however, if the actual net investment return exceeds the assumed investment rate. The dollar amount of the variable income payments stays level if the net investment return equals the assumed investment rate. Please refer to the Statement of Additional Information for more detailed information as to how we determine variable income payments.
FIXED INCOME PAYMENTS
We guarantee income payment amounts derived from the Fixed Account for the duration of the Income Plan. We calculate the fixed income payments by:
1. adjusting the portion of the Contract Value in the Fixed Account on the Payout Start Date by any applicable Market Value Adjustment;
2. deducting any applicable premium tax; and
3. applying the resulting amount to the greater of (a) the appropriate value from the income payment table in your Contract or (b) such other value as we are offering at that time.
We may defer making fixed income payments for a period of up to 6 months or such shorter time as state law may require. If we defer payments for 10 business days or more, we will pay interest as required by law from the date we receive the withdrawal request to the date we make payment.
CERTAIN EMPLOYEE BENEFIT PLANS
The Contracts offered by this prospectus contain income payment tables that provide for different payments to men and women of the same age, except in states that require unisex tables. We reserve the right to use income payment tables that do not distinguish on the basis of sex to the extent permitted by applicable law. In certain employment-related situations, employers are required by law to use the same income payment tables for men and women. Accordingly, if the Contract is to be used in connection with an employment-related retirement or benefit plan and we do not offer unisex annuity tables in your state, you should consult with legal counsel as to whether the purchase of a Contract is appropriate.
DEATH BENEFITS
We will pay the death proceeds prior to the Payout Start Date on:
(a) the death of any Contract Owner, or
(b) the death of the Annuitant, if the Contract is owned by a non-living person.
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We will pay the death proceeds to the new Contract Owner as determined immediately after the death. The new Contract Owner would be a surviving Contract Owner or, if none, the Beneficiary(ies). In the case of a Contract owned by a non-living owner, upon the death of the Annuitant, we will pay the death proceeds to the current Contract Owner.
We will determine the value of the death proceeds as of the end of the Valuation Date on which we receive a complete request for settlement of the death proceeds. If we receive a request after 3 p.m. Central Time on a Valuation Date, we will process the request as of the end of the following Valuation Date.
A complete request for settlement of the death proceeds must include DUE PROOF OF DEATH. We will accept the following documentation as “Due Proof of Death:”
• a certified copy of the death certificate,
• a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or
• any other proof acceptable to us.
DEATH PROCEEDS If we receive a complete request for settlement of the death proceeds within 180 days of the date of the death of any Contract Owner, or the death of the Annuitant, if the Contract is owned by a non-living owner, the death proceeds are equal to the Death Benefit described below. Otherwise, the death proceeds are equal to the greater of the Contract Value or the Settlement Value.
We reserve the right to extend, on a non-discriminatory basis, the 180-day period in which the death proceeds will equal the Death Benefit as described below. This right applies only to the amount payable as death proceeds and in no way restricts when a claim may be filed.
If we do not receive a complete request for settlement of the death proceeds within 180 days of the date of death, the death proceeds are equal to the greater of:
1) the Contract Value as of the date we determine the death proceeds; or
2) the Settlement Value as of the date we determine the death proceeds.
DEATH BENEFIT AMOUNT
Prior to the Payout Start Date, the Death Benefit is equal to the greatest of:
1. the Contract Value as of the date we receive a complete request for settlement of the death proceeds, or
2. the SETTLEMENT VALUE (that is, the amount payable on a full withdrawal of Contract Value) on the date we determine the death proceeds, or
3. the Contract Value on the Death Benefit Anniversary immediately preceding the date we receive a complete request for settlement of the death proceeds, adjusted by any purchase payments, withdrawal adjustment as defined below, and charges made since that Death Benefit Anniversary. A “DEATH BENEFIT ANNIVERSARY” is every seventh Contract Anniversary beginning with the Issue Date. For example, the Issue Date, 7th and 14th Contract Anniversaries are the first three Death Benefit Anniversaries, or
4. the greatest of the Anniversary Values as of the date we receive a complete request for settlement of the death proceeds. An “ANNIVERSARY VALUE” is equal to the Contract Value on a Contract Anniversary, increased by purchase payments made since that Anniversary and reduced by the amount of any withdrawal adjustment, as defined below, since that anniversary. Anniversary Values will be calculated for each Contract Anniversary prior to the earlier of:
(i) the date we determine the death benefit, or
(ii) the deceased's 75th birthday or 5 years after the Issue Date, if later.
The withdrawal adjustment is equal to (a) divided by (b), with the result multiplied by (c), where:
(a) = the withdrawal amount,
(b) = the Contract Value immediately prior to the withdrawal, and
(c) = the value of the applicable death benefit alternative immediately prior to the withdrawal.
See Appendix C for an example representative of how the withdrawal adjustment applies.
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In calculating the Settlement Value, the amount in each individual Guarantee Period may be subject to a Market Value Adjustment. A Market Value Adjustment will apply to amounts in a Guarantee Period, unless we calculate the Settlement Value during the 30-day period after the expiration of the Guarantee Period. Also, the Settlement Value will reflect the deduction of any applicable Withdrawal Charges, contract maintenance charges, and premium taxes. Contract maintenance charges will be pro rated for the part of the Contract Year elapsed as of the date we determine the Settlement Value, unless your Contract qualifies for a waiver of such charges described in the “Contract Maintenance Charge” section above.
DEATH BENEFIT PAYMENTS DEATH OF OWNER
1. If your spouse is the sole surviving Contract Owner, or is the sole Beneficiary:
a. Your spouse may elect to receive the Death Proceeds in a lump sum; or
b. Your spouse may elect to receive the Death Proceeds paid out under one of the Income Plans (described in “Income Payments” above), subject to the following conditions:
The Payout Start Date must be within one year of your date of death. Income payments must be payable:
i. over the life of your spouse; or
ii. for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of your spouse; or
iii. over the life of your spouse with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of your spouse.
c. If your spouse does not elect one of these options, the Contract will continue in the Accumulation Phase as if the death had not occurred. If the Contract is continued in the Accumulation Phase, the following conditions apply: The Contract Value of the continued Contract will be the Death Proceeds. Unless otherwise instructed by the continuing spouse, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the Sub-Accounts of the Variable Account. This excess will be allocated in proportion to your Contract Value in those Variable Sub-Accounts as of the end of the Valuation Date on which we receive the complete request for settlement of the Death Proceeds (the next Valuation Date if we receive the request after 3:00 p.m. Central Time), except that any portion of this excess attributable to the Fixed Account Options will be allocated to the money market Variable Sub-Account. Within 30 days of the date the Contract is continued, your surviving spouse may choose one of the following transfer alternatives without incurring a transfer fee:
i. transfer all or a portion of the excess among the Variable Sub-accounts;
ii. transfer all or a portion of the excess into the Fixed Account and begin a new Guarantee Period; or
iii. transfer all or a portion of the excess into a combination of Variable Sub-Accounts and the Fixed Account.
Any such transfer does not count as one of the free transfers allowed each Contract Year and is subject to any minimum allocation amount specified in the Contract.
The surviving spouse may make a single withdrawal of any amount within one year of the date of your death without incurring a Withdrawal Charge or Market Value Adjustment.
Prior to the Payout Start Date, the Death Proceeds of the continued Contract will be described under “Death Benefit Amount.”
Only one spousal continuation is allowed under the Contract.
2. If the new Contract Owner is not your spouse but is a living person or if there are multiple living-person new Contract Owners:
a. The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or
b. The new Contract Owner may elect to receive the Death Proceeds paid out under one of the Income Plans (described in “Income Payments” on page 22), subject to the following conditions:
The Payout Start Date must be within one year of your date of death. Income payments must be payable:
i. over the life of the new Contract Owner; or
ii. for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of the new Contract Owner; or
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iii. over the life of the new Contract Owner with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the new Contract Owner.
c. If the new Contract Owner does not elect one of the options above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. The Contract Value will equal the amount of the Death Proceeds as determined as of the end of the Valuation Date on which we receive a complete request for settlement of the Death Proceeds (the next Valuation Date if we receive the request after 3:00 p.m. Central Time). Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers (as described in “Transfers During the Payout Phase” on page 18) during this 5 year period. No additional purchase payments may be added to the Contract under this election. Withdrawal Charges will be waived for any withdrawals made during this 5 year period.
We reserve the right to offer additional options upon the death of the Contract Owner.
If the new Contract Owner dies prior to the complete liquidation of the Contract Value, then the new Contract Owner's named Beneficiary(ies) will receive the greater of the Settlement Value or the remaining Contract Value. This amount must be liquidated as a lump sum within 5 years of the date of the original Contract Owner's death.
3. If the new Contract Owner is a corporation or other type of non-living person:
a. The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or
b. If the new Contract Owner does not elect the option above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. The Contract Value will equal the amount of the Death Proceeds as determined as of the end of the Valuation Date on which we receive a complete request for settlement of the Death Proceeds (the next Valuation Date if we receive the request after 3:00 p.m. Central Time). Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers (as described in “Transfers During the Payout Phase” on page 18) during this 5 year period.
No additional purchase payments may be added to the Contract under this election. Withdrawal charges will be waived during this 5 year period.
We reserve the right to make additional options available to the new Contract Owner upon the death of the Contract Owner.
If any new Contract Owner is a non-living person, all new Contract Owners will be considered to be non-living persons for the above purposes. Under any of these options, all ownership rights, subject to any restrictions previously placed upon the Beneficiary, are available to the new Contract Owner from the date of your death to the date on which the Death Proceeds is paid.
DEATH OF ANNUITANT
If the Annuitant who is not also the Contract Owner dies prior to the Payout Start Date, the following apply:
1. If the Contract Owner is a living person, then the Contract will continue with a new Annuitant, who will be:
a. the youngest Contract Owner; otherwise
b. the youngest Beneficiary. You may change the Annuitant before the Payout Start Date.
2. If the Contract Owner is a non-living person:
a. The Contract Owner may elect to receive the Death Proceeds in a lump sum; or
b. If the Contract Owner does not elect the option above, then the Contract Owner must receive the Contract Value payable within 5 years of the Annuitant's date of death. The Contract Value will equal the amount of the Death Proceeds as determined as of the end of the Valuation Date on which we receive a complete request for settlement of the Death Proceeds (the next Valuation Date if we receive the request after 3:00 p.m. Central Time). Unless otherwise instructed by the Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the Contract Owner may make transfers (as described in “Transfers During the Payout Phase” on page 18) during this 5 year period.
No additional purchase payments may be added to the Contract under this election. Withdrawal Charges will be waived during this 5 year period.
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We reserve the right to make additional options available to the Contract Owner upon the death of the Annuitant.
Under any of these options, all ownership rights are available to the non-living Contract Owner from the date of the Annuitant's death to the date on which the Death Proceeds is paid.
MORE INFORMATION
ALLSTATE NEW YORK
Allstate New York is the issuer of the Contract. Allstate New York is a stock life insurance company organized under the laws of the State of New York.
Allstate New York was incorporated in 1967 and was known as “Financial Life Insurance Company” from 1967 to 1978. From 1978 to 1984, Allstate New York was known as “PM Life Insurance Company.” Since 1984 the company has been known as “Allstate Life Insurance Company of New York.”
Allstate New York is currently licensed to operate in New York. Our home office is located at 100 Motor Parkway, Hauppauge, New York 11788-5107.
Allstate New York is a wholly owned subsidiary of Allstate Life Insurance Company (“Allstate Life”), a stock life insurance company incorporated under the laws of the State of Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance Company, a stock property-liability insurance company incorporated under the laws of the State of Illinois. With the exception of the directors' qualifying shares, all of the outstanding capital stock of Allstate Insurance Company is owned by The Allstate Corporation.
THE VARIABLE ACCOUNT
Allstate New York established the Allstate Life of New York Separate Account A on December 15, 1995. We have registered the Variable Account with the SEC as a unit investment trust. The SEC does not supervise the management of the Variable Account or Allstate New York.
We own the assets of the Variable Account. The Variable Account is a segregated asset account under New York law. That means we account for the Variable Account's income, gains and losses separately from the results of our other operations. It also means that only the assets of the Variable Account that are in excess of the reserves and other Contract liabilities with respect to the Variable Account are subject to liabilities relating to our other operations.
Our obligations arising under the Contracts are general corporate obligations of Allstate New York.
The Variable Account consists of multiple Variable Sub-Accounts, 24 of which are available through the Contracts. Each Variable Sub-Account invests in a corresponding Portfolio. We may add new Variable Sub-Accounts or eliminate one or more of them, if we believe marketing, tax, or investment conditions so warrant. We do not guarantee the investment performance of the Variable Account, its Sub-Accounts or the Portfolios. We may use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account.
THE PORTFOLIOS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value.
VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Portfolios held by the Variable Sub-Accounts to which you have allocated your Contract Value. Under current law, however, you are entitled to give us instructions on how to vote those shares on certain matters. Based on our present view of the law, we will vote the shares of the Portfolios that we hold directly or indirectly through the Variable Account in accordance with instructions that we receive from Contract owners entitled to give such instructions.
As a general rule, before the Payout Start Date, the Contract Owner or anyone with a voting interest is the person entitled to give voting instructions. The number of shares that a person has a right to instruct will be determined by dividing the Contract Value allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Portfolio as of the record date of the meeting. After the Payout Start Date, the person receiving income payments has the voting interest. The payee's number of votes will be determined by dividing the reserve for such Contract allocated to the applicable Variable Sub-Account by the net asset
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value per share of the corresponding Portfolio. The votes decrease as income payments are made and as the reserves for the Contract decrease.
We will vote shares attributable to Contracts for which we have not received instructions, as well as shares attributable to us, in the same proportion as we vote shares for which we have received instructions, unless we determine that we may vote such shares in our own discretion. We will apply voting instructions to abstain on any item to be voted on a pro-rata basis to reduce the votes eligible to be cast.
We reserve the right to vote Portfolio shares as we see fit without regard to voting instructions to the extent permitted by law. If we disregard voting instructions, we will include a summary of that action and our reasons for that action in the next semi-annual financial report we send to you.
CHANGES IN PORTFOLIOS. If the shares of any of the Portfolios are no longer available for investment by the Variable Account or if, in our judgment, further investment in such shares is no longer desirable in view of the purposes of the Contract, we may eliminate that Portfolio and substitute shares of another eligible investment portfolio. Any substitution of securities will comply with the requirements of the Investment Company Act of 1940. We also may add new Variable Sub-Accounts that invest in additional Portfolios. We will notify you in advance of any changes.
CONFLICTS OF INTEREST. Certain of the Portfolios sell their shares to Variable Accounts underlying both variable life insurance and variable annuity contracts.
It is conceivable that in the future it may be unfavorable for variable life insurance Variable Accounts and variable annuity Variable Accounts to invest in the same Portfolio. The boards of directors of these Portfolios monitor for possible conflicts among Variable Accounts buying shares of the Portfolios.
Conflicts could develop for a variety of reasons. For example, differences in treatment under tax and other laws or the failure by a Variable Account to comply with such laws could cause a conflict. To eliminate a conflict, a Portfolio's board of directors may require a Variable Account to withdraw its participation in a Portfolio. A Portfolio's net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a Variable Account withdrawing because of a conflict.
THE CONTRACT
DISTRIBUTION. ALFS, Inc. (“ALFS”), located at 3100 Sanders Road, Northbrook, Illinois 60062, serves as principal underwriter of the Contracts. ALFS is a wholly owned subsidiary of Allstate Life Insurance Company. ALFS is a registered broker-dealer under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), and is a member of the NASD, Inc.
The Contracts described in this prospectus are sold by registered representatives of broker-dealers who are our licensed insurance agents, either individually or through an incorporated insurance agency. Commissions paid to broker-dealers may vary, but we estimate that the total commissions paid on all Contract sales to broker-dealers will not exceed 8.5% of any purchase payments.
These commissions are intended to cover distribution expenses.
From time to time, we may offer additional sales incentives of up to 1% of purchase payments to broker-dealers who maintain certain sales volume levels.
Allstate New York does not pay ALFS a commission for distribution of the Contracts. The underwriting agreement with ALFS provides that we will reimburse ALFS for any liability to Contract Owners arising out of services rendered or Contracts issued.
ADMINISTRATION. We have primary responsibility for all administration of the Contracts and the Variable Account. We provide the following administrative services, among others:
• issuance of the Contracts;
• maintenance of Contract Owner records;
• Contract Owner services;
• calculation of unit values;
• maintenance of the Variable Account; and
• preparation of Contract Owner reports.
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We will send you Contract statements and transaction confirmations at least annually. The annual statement details values and specific Contract data for each particular Contract. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error. We also will provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws.
NON-QUALIFIED ANNUITIES HELD WITHIN A QUALIFIED PLAN
If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitaitons on withdrawals, waivers of withdrawal charges, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if qualified plan limits on distributions and other conditions are not met. Please consult your qualified plan administrator for more information. Allstate Life Insurance Company of New York no longer issues deferred annuities to employer spnsored qualified retirement plans.
LEGAL MATTERS
All matters of New York law pertaining to the Contracts, including the validity of the Contracts and Allstate New York's right to issue such Contracts under New York insurance law, have been passed upon by Michael J. Velotta, General Counsel of Allstate New York.
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. ALLSTATE NEW YORK MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of distributions under an annuity contract depend on your individual circumstances. If you are concerned about any tax consequences with regard to your individual circumstances, you should consult a competent tax adviser.
TAXATION OF ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
Allstate New York is taxed as a life insurance company under Part I of Subchapter L of the Code. Since the Variable Account is not an entity separate from Allstate New York, and its operations form a part of Allstate New York, it will not be taxed separately. Investment income and realized capital gains of the Variable Account are automatically applied to increase reserves under the Contract. Under existing federal income tax law, Allstate New York believes that the Variable Account investment income and capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contract. Accordingly, Allstate New York does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore Allstate New York does not intend to make provisions for any such taxes. If Allstate New York is taxed on investment income or capital gains of the Variable Account, then Allstate New York may impose a charge against the Variable Account in order to make provision for such taxes.
TAXATION OF VARIABLE ANNUITIES IN GENERAL
TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value until a distribution occurs. This rule applies only where:
• the Contract Owner is a natural person,
• the investments of the Variable Account are “adequately diversified” according to Treasury Department regulations, and
• Allstate New York is considered the owner of the Variable Account assets for federal income tax purposes.
NON-NATURAL OWNERS. Non-natural owners are also referred to as Non Living Owners in this prospectus. As a general rule, annuity contracts owned by non-natural persons such as corporations, trusts, or other entities are not treated as annuity contracts for federal income tax purposes. The income on such contracts does not enjoy tax deferral and is taxed as ordinary income received or accrued by the non-natural owner during the taxable year.
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EXCEPTIONS TO THE NON-NATURAL OWNER RULE. There are several exceptions to the general rule that annuity contracts held by a non-natural owner are not treated as annuity contracts for federal income tax purposes. Contracts will generally be treated as held by a natural person if the nominal owner is a trust or other entity which holds the contract as agent for a natural person. However, this special exception will not apply in the case of an employer who is the nominal owner of an annuity contract under a non-Qualified deferred compensation arrangement for its employees. Other exceptions to the non-natural owner rule are: (1) contracts acquired by an estate of a decedent by reason of the death of the decedent; (2) certain qualified contracts; (3) contracts purchased by employers upon the termination of certain qualified plans; (4) certain contracts used in connection with structured settlement agreements; and (5) immediate annuity contracts, purchased with a single premium, when the annuity starting date is no later than a year from purchase of the annuity and substantially equal periodic payments are made, not less frequently than annually, during the annuity period.
GRANTOR TRUST OWNED ANNUITY. Contracts owned by a grantor trust are considered owned by a non-natural owner. Grantor trust owned contracts receive tax deferral as described in the Exceptions to the Non-Natural Owner Rule section. In accordance with the Code, upon the death of the annuitant, the death benefit must be paid. According to your Contract, the Death Benefit is paid to the surviving Contract Owner. Since the trust will be the surviving Contract Owner in all cases, the Death Benefit will be payable to the trust notwithstanding any beneficiary designation on the annuity contract. A trust, including a grantor trust, has two options for receiving any death benefits: 1) a lump sum payment; or 2) payment deferred up to five years from date of death.
DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for federal income tax purposes, the investments in the Variable Account must be “adequately diversified” consistent with standards under Treasury Department regulations. If the investments in the Variable Account are not adequately diversified, the Contract will not be treated as an annuity contract for federal income tax purposes. As a result, the income on the Contract will be taxed as ordinary income received or accrued by the Contract owner during the taxable year. Although Allstate New York does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements.
OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a Contract owner to be treated as the owner of the separate account. The Treasury Department also stated that future guidance would be issued regarding the extent that owners could direct sub-account investments without being treated as owners of the underlying assets of the separate account.
Your rights under the Contract are different than those described by the IRS in private and published rulings in which it found that Contract owners were not owners of separate account assets. For example, if your contract offers more than twenty (20) investment alternatives you have the choice to allocate premiums and contract values among a broader selection of investment alternatives than described in such rulings. You may be able to transfer among investment alternatives more frequently than in such rulings. These differences could result in you being treated as the owner of the Variable Account. If this occurs, income and gain from the Variable Account assets would be includible in your gross income. Allstate New York does not know what standards will be set forth in any regulations or rulings which the Treasury Department may issue. It is possible that future standards announced by the Treasury Department could adversely affect the tax treatment of your Contract. We reserve the right to modify the Contract as necessary to attempt to prevent you from being considered the federal tax owner of the assets of the Variable Account. However, we make no guarantee that such modification to the Contract will be successful.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal under a Non-Qualified Contract, amounts received are taxable to the extent the Contract Value, without regard to surrender charges, exceeds the investment in the Contract. The investment in the Contract is the gross premium paid for the contract minus any amounts previously received from the Contract if such amounts were properly excluded from your gross income. If you make a full withdrawal under a Non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract.
TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of annuity payments received from a Non-Qualified Contract provides for the return of your investment in the Contract in equal tax-free amounts over the payment period. The balance of each payment received is taxable. For fixed annuity payments, the amount excluded from income is determined by multiplying the payment by the ratio of the investment in the Contract (adjusted for any refund feature or period certain) to the total expected value of annuity payments for the term of the Contract. If you elect variable annuity payments, the amount excluded from taxable income is determined by dividing the investment in the Contract by the total number of expected payments. The annuity payments will be fully taxable after the total amount of the investment in the Contract is excluded using these ratios. If any variable payment is less than the excludable amount you should contact a competent tax advisor to determine how to report any unrecovered investment. The federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. If you die, and annuity payments cease before the total amount of the investment in the Contract is recovered, the unrecovered amount will be allowed as a deduction for your last taxable year.
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WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding the taxation of any additional withdrawal received after the Payout Start Date. It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine.
DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide:
• if any Contract Owner dies on or after the Payout Start Date but before the entire interest in the Contract has been distributed, the remaining portion of such interest must be distributed at least as rapidly as under the method of distribution being used as of the date of the Contract Owner's death;
• if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owner's death. These requirements are satisfied if any portion of the Contract Owner's interest that is payable to (or for the benefit of) a designated Beneficiary is distributed over the life of such Beneficiary (or over a period not extending beyond the life expectancy of the Beneficiary) and the distributions begin within 1 year of the Contract Owner's death. If the Contract Owner's designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner;
• if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract Owner for purposes of applying the distribution at death rules. In addition, a change in the Annuitant on a Contract owned by a non-natural person will be treated as the death of the Contract Owner.
TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit amounts are included in income as follows:
• if distributed in a lump sum, the amounts are taxed in the same manner as a total withdrawal, or
• if distributed under an Income Plan, the amounts are taxed in the same manner as annuity payments.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable amount of any premature distribution from a non-Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
• made on or after the date the Contract Owner attains age 59 1/2,
• made as a result of the Contract Owner's death or becoming totally disabled,
• made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
• made under an immediate annuity, or
• attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owner's attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream.
TAX FREE EXCHANGES UNDER INTERNAL REVENUE CODE SECTION 1035. A 1035 exchange is a tax-free exchange of a non-qualified life insurance contract, endowment contract or annuity contract into a non-Qualified annuity contract. The contract owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them.
PARTIAL EXCHANGES. The IRS has issued a ruling that permits partial exchanges of annuity contracts. Under this ruling, if you take a withdrawal from a receiving or relinquishing annuity contract within 24 months of the partial exchange, then special
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aggregation rules apply for purposes of determining the taxable amount of a distribution. The IRS has issued limited guidance on how to aggregate and report these distributions. The IRS is expected to provide further guidance; as a result, it is possible that the amount we calculate and report to the IRS as taxable could be different. Your Contract may not permit partial exchanges.
TAXATION OF OWNERSHIP CHANGES. If you transfer a non-Qualified Contract without full and adequate consideration to a person other than your spouse (or to a former spouse incident to a divorce), you will be taxed on the difference between the Contract Value and the investment in the Contract at the time of transfer. Any assignment or pledge (or agreement to assign or pledge) of the Contract Value is taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax.
AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-Qualified deferred annuity contracts issued by Allstate New York (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution.
INCOME TAX WITHHOLDING
Generally, Allstate New York is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory.
Allstate New York is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
Generally, Code Section 1441 provides that Allstate New York as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident alien's country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number (“ITIN”). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities.
TAX QUALIFIED CONTRACTS
The income on tax sheltered annuity (TSA) and IRA investments is tax deferred, and the income from annuities held by such plans does not receive any additional tax deferral. You should review the annuity features, including all benefits and expenses, prior to purchasing an annuity as a TSA or IRA. Tax Qualified Contracts are contracts purchased as or in connection with:
• Individual Retirement Annuities (IRAs) under Code Section 408(b);
• Roth IRAs under Code Section 408A;
• Simplified Employee Pension (SEP IRA) under Code Section 408(k);
• Savings Incentive Match Plans for Employees (SIMPLE IRA) under Code Section 408(p);
• Tax Sheltered Annuities under Code Section 403(b);
• Corporate and Self Employed Pension and Profit Sharing Plans under Code Section 401; and
• State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Code Section 457.
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Allstate New York reserves the right to limit the availability of the Contract for use with any of the retirement plans listed above or to modify the Contract to conform with tax requirements. If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitations on withdrawals, waiver of charges, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if qualified plan limits on distributions and other conditions are not met. Please consult your qualified plan administrator for more information. Allstate New York no longer issues deferred annuities to employer sponsored qualified retirement plans.
The tax rules applicable to participants with tax qualified annuities vary according to the type of contract and the terms and conditions of the endorsement. Adverse tax consequences may result from certain transactions such as excess contributions, premature distributions, and, distributions that do not conform to specified commencement and minimum distribution rules. Allstate New York can issue an individual retirement annuity on a rollover or transfer of proceeds from a decedent's IRA, TSA, or employer sponsored retirement plan under which the decedent's surviving spouse is the beneficiary. Allstate New York does not offer an individual retirement annuity that can accept a transfer of funds for any other, non-spousal, beneficiary of a decedent's IRA, TSA, or employer sponsored qualified retirement plan.
Please refer to your Endorsement for IRAs or 403(b) plans, if applicable, for additional information on your death settlement options. In the case of certain qualified plans, the terms of the Qualified Plan Endorsement and the plans may govern the right to benefits, regardless of the terms of the Contract.
TAXATION OF WITHDRAWALS FROM AN INDIVIDUALLY OWNED TAX QUALIFIED CONTRACT. If you make a partial withdrawal under a Tax Qualified Contract other than a Roth IRA, the portion of the payment that bears the same ratio to the total payment that the investment in the Contract (i.e., nondeductible IRA contributions) bears to the Contract Value, is excluded from your income. We do not keep track of nondeductible contributions, and generally all tax reporting of distributions from Tax Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable.
“Qualified distributions” from Roth IRAs are not included in gross income. “Qualified distributions” are any distributions made more than five taxable years after the taxable year of the first contribution to any Roth IRA and which are:
• made on or after the date the Contract Owner attains age 59 1/2,
• made to a beneficiary after the Contract Owner's death,
• attributable to the Contract Owner being disabled, or
• made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000).
“Nonqualified distributions” from Roth IRAs are treated as made from contributions first and are included in gross income only to the extent that distributions exceed contributions.
REQUIRED MINIMUM DISTRIBUTIONS. Generally, Tax Qualified Contracts (excluding Roth IRAs) require minimum distributions upon reaching age 70 1/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the Contract. Not all income plans offered under the Contract satisfy the requirements for minimum distributions. Because these distributions are required under the Code and the method of calculation is complex, please see a competent tax advisor.
THE DEATH BENEFIT AND TAX QUALIFIED CONTRACTS. Pursuant to the Code and IRS regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may not invest in life insurance contracts. However, an IRA may provide a death benefit that equals the greater of the purchase payments or the Contract Value. The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or the Contract Value. We believe that the Death Benefits offered by your Contract do not constitute life insurance under these regulations.
It is also possible that certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under qualified plans, such as in connection with a TSA or employer sponsored qualified retirement plan.
Allstate New York reserves the right to limit the availability of the Contract for use with any of the qualified plans listed above.
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PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM TAX QUALIFIED CONTRACTS. A 10% penalty tax applies to the taxable amount of any premature distribution from a Tax Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
• made on or after the date the Contract Owner attains age 59 1/2,
• made as a result of the Contract Owner's death or total disability,
• made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
• made after separation from service after age 55 (does not apply to IRAs),
• made pursuant to an IRS levy,
• made for certain medical expenses,
• made to pay for health insurance premiums while unemployed (applies only for IRAs),
• made for qualified higher education expenses (applies only for IRAs), and
• made for a first time home purchase (up to a $10,000 lifetime limit and applies only for IRAs).
During the first 2 years of the individual's participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON TAX QUALIFIED CONTRACTS. With respect to Tax Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayer's attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream.
INCOME TAX WITHHOLDING ON TAX QUALIFIED CONTRACTS. Generally, Allstate New York is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered “eligible rollover distributions.” The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. Allstate New York is required to withhold federal income tax at a rate of 20% on all “eligible rollover distributions” unless you elect to make a “direct rollover” of such amounts to an IRA or eligible retirement plan. Eligible rollover distributions generally include all distributions from Tax Qualified Contracts, including TSAs but excluding IRAs, with the exception of:
• required minimum distributions, or,
• a series of substantially equal periodic payments made over a period of at least 10 years, or,
• a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or,
• hardship distributions.
For all annuitized distributions that are not subject to the 20% withholding requirement, Allstate New York is required to withhold federal income tax using the wage withholding rates. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
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Generally, Code Section 1441 provides that Allstate New York as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien or to certain other 'foreign persons'. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident alien's country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number (“ITIN”). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities.
INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408(b) permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity (IRA). Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence. Certain distributions from other types of qualified retirement plans may be “rolled over” on a tax-deferred basis into an Individual Retirement Annuity.
ROTH INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408A permits eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth Individual Retirement Annuity. Roth Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence.
Subject to certain limitations, a traditional Individual Retirement Account or Annuity may be converted or “rolled over” to a Roth Individual Retirement Annuity. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions.
ANNUITIES HELD BY INDIVIDUAL RETIREMENT ACCOUNTS (COMMONLY KNOWN AS CUSTODIAL
IRAS). Code Section 408 permits a custodian or trustee of an Individual Retirement Account to purchase an annuity as an investment of the Individual Retirement Account. If an annuity is purchased inside of an Individual Retirement Account, then the Annuitant must be the same person as the beneficial owner of the Individual Retirement Account.
Generally, the death benefit of an annuity held in an Individual Retirement Account must be paid upon the death of the Annuitant. However, in most states, the Contract permits the custodian or trustee of the Individual Retirement Account to continue the Contract in the accumulation phase, with the Annuitant's surviving spouse as the new Annuitant, if the following conditions are met:
1) The custodian or trustee of the Individual Retirement Account is the owner of the annuity and has the right to the death proceeds otherwise payable under the Contract;
2) The deceased Annuitant was the beneficial owner of the Individual Retirement Account;
2) We receive a complete request for settlement for the death of the Annuitant; and
3) The custodian or trustee of the Individual Retirement Account provides us with a signed certification of the following:
(a) The Annuitant's surviving spouse is the sole beneficiary of the Individual Retirement Account;
(b) The Annuitant's surviving spouse has elected to continue the Individual Retirement Account as his or her own Individual Retirement Account; and
(c) The custodian or trustee of the Individual Retirement Account has continued the Individual Retirement Account pursuant to the surviving spouse's election.
SIMPLIFIED EMPLOYEE PENSION IRA. Code Section 408(k) allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. These employers may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE IRA). Code Section 408(p) allows eligible employers with 100 or fewer employees to establish SIMPLE retirement plans for their employees using individual retirement annuities. In general, a SIMPLE IRA consists of a salary deferral program for eligible employees and matching or nonelective contributions made by employers. Employers intending to purchase the Contract as a SIMPLE IRA should seek competent tax and legal advice.
TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS (TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND YOUR COMPETENT TAX ADVISOR.
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TAX SHELTERED ANNUITIES. Code Section 403(b) provides tax-deferred retirement savings plans for employees of certain non-profit and educational organizations. Under Section 403(b), any contract used for a 403(b) plan must provide that distributions attributable to salary reduction contributions made after 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee:
• attains age 59 1/2,
• severs employment,
• dies,
• becomes disabled, or
• incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship).
These limitations do not apply to withdrawals where Allstate New York is directed to transfer some or all of the Contract Value to another 403(b) plan. Generally, we do not accept funds in 403(b) contracts that are subject to the Employee Retirement Income Security Act of 1974 (ERISA).
ANNUAL REPORTS AND OTHER DOCUMENTS
Allstate New York's Annual Report on Form 10-K for the year ended December 31, 2004, is incorporated herein by reference, which means that it is legally a part of this prospectus.
After the date of this prospectus and before we terminate the offering of the securities under this prospectus, all documents or reports we file with the SEC under the Exchange Act are also incorporated herein by reference, which means that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC and that legally become a part of this prospectus, may change or supersede statements in other documents that are legally part of this prospectus. Accordingly, only the statement that is changed or replaced will legally be a part of this prospectus.
We file our Exchange Act documents and reports, including our annual and quarterly reports on Form 10-K and Form 10-Q electronically on the SEC's “EDGAR” system using the identifying number CIK No. 0000839759. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov. You also can view these materials at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. For more information on the operations of SEC's Public Reference Room,
call 1-800-SEC-0330.
call 1-800-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of any document incorporated herein by reference (other than exhibits not specifically incorporated by reference into the text of such documents), please write or call us at Customer Service, P.O. Box 82656, Lincoln, NE 68501-2656 (telephone: 1-800-632-3492).
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APPENDIX A
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED*
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For the period beginning January 1 and ending December 31, | 2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||
AIM V.I. CAPITAL APPRECIATION - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 7.63 | $ | 5.779 | $ | 4.317 | $ | 5.521 | |||||||
Accumulation Unit Value, End of Period | $ | 7.63 | $ | 5.779 | $ | 4.317 | $ | 5.521 | $ | 5.813 | |||||||
Number of Units Outstanding, End of Period | 1,991 | 35,576 | 91,317 | 117,184 | 160,308 | ||||||||||||
AIM V.I. CORE EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 8.18 | $ | 6.231 | $ | 5.195 | $ | 6.382 | |||||||
Accumulation Unit Value, End of Period | $ | 8.18 | $ | 6.231 | $ | 5.195 | $ | 6.382 | $ | 6.868 | |||||||
Number of Units Outstanding, End of Period | 1,488 | 34,966 | 62,419 | 79,425 | 94,314 | ||||||||||||
AIM V.I. DIVERSIFIED INCOME - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 9.99 | $ | 10.223 | $ | 10.328 | $ | 11.141 | |||||||
Accumulation Unit Value, End of Period | $ | 9.99 | $ | 10.223 | $ | 10.328 | $ | 11.141 | $ | 11.555 | |||||||
Number of Units Outstanding, End of Period | 364 | 5,443 | 24,375 | 33,509 | 47,763 | ||||||||||||
AIM V.I. INTERNATIONAL GROWTH - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 8.66 | $ | 6.538 | $ | 5.444 | $ | 9.938 | |||||||
Accumulation Unit Value, End of Period | $ | 8.66 | $ | 6.538 | $ | 5.444 | $ | 9.938 | $ | 8.496 | |||||||
Number of Units Outstanding, End of Period | 305 | 11,638 | 15,358 | 20,763 | 28,603 | ||||||||||||
AIM V.I. PREMIER EQUITY - SERIES I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 8.67 | $ | 7.482 | $ | 5.153 | $ | 6.365 | |||||||
Accumulation Unit Value, End of Period | $ | 8.67 | $ | 7.482 | $ | 5.153 | $ | 6.365 | $ | 6.648 | |||||||
Number of Units Outstanding, End of Period | 21,939 | 71,223 | 158,710 | 177,633 | 197,713 | ||||||||||||
FIDELITY VIP CONTRAFUND(R) - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 9.39 | $ | 8.138 | $ | 7.285 | $ | 9.242 | |||||||
Accumulation Unit Value, End of Period | $ | 9.39 | $ | 8.138 | $ | 7.285 | $ | 9.242 | $ | 10.539 | |||||||
Number of Units Outstanding, End of Period | 2,196 | 31,995 | 97,646 | 147,589 | 197,911 | ||||||||||||
FIDELITY VIP GROWTH - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 8.53 | $ | 6.934 | $ | 4.786 | $ | 6.279 | |||||||
Accumulation Unit Value, End of Period | $ | 8.53 | $ | 6.934 | $ | 4.786 | $ | 6.279 | $ | 6.410 | |||||||
Number of Units Outstanding, End of Period | 27,151 | 90,481 | 208,536 | 257,920 | 354,754 | ||||||||||||
FIDELITY VIP HIGH INCOME - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 8.40 | $ | 7.317 | $ | 7.474 | $ | 9.393 | |||||||
Accumulation Unit Value, End of Period | $ | 8.40 | $ | 7.317 | $ | 7.474 | $ | 9.393 | $ | 10.166 | |||||||
Number of Units Outstanding, End of Period | 33 | 20,582 | 43,029 | 63,385 | 103,282 | ||||||||||||
FIDELITY VIP INDEX 500 - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 9.04 | $ | 7.845 | $ | 6.025 | $ | 7.640 | |||||||
Accumulation Unit Value, End of Period | $ | 9.04 | $ | 7.845 | $ | 6.025 | $ | 7.640 | $ | 8.345 | |||||||
Number of Units Outstanding, End of Period | 0 | 67,571 | 215,402 | 267,570 | 404,671 | ||||||||||||
FIDELITY VIP INVESTMENT GRADE BOND - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 10.44 | $ | 11.179 | $ | 12.181 | $ | 12.655 | |||||||
Accumulation Unit Value, End of Period | $ | 10.44 | $ | 11.179 | $ | 12.181 | $ | 12.655 | $ | 13.054 | |||||||
Number of Units Outstanding, End of Period | 132 | 26,618 | 143,699 | 202, | 195,735 | ||||||||||||
FIDELITY VIP OVERSEAS - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 8.97 | $ | 6.982 | $ | 5.496 | $ | 7.781 | |||||||
Accumulation Unit Value, End of Period | $ | 8.97 | $ | 6.982 | $ | 5.496 | $ | 7.781 | $ | 8.732 | |||||||
Number of Units Outstanding, End of Period | 92 | 25,188 | 36,513 | 43,249 | 52,535 | ||||||||||||
MFS RESEARCH BOND - INITIAL CLASS SUB-ACCOUNT ** | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 10.39 | $ | 11.150 | $ | 11.993 | $ | 12.949 | |||||||
Accumulation Unit Value, End of Period | $ | 10.39 | $ | 11.150 | $ | 11.993 | $ | 12.949 | $ | 13.563 | |||||||
Number of Units Outstanding, End of Period | 0 | 18,271 | 100,799 | 121,895 | 110,249 |
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MFS HIGH INCOME - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 9.22 | $ | 9.298 | $ | 9.417 | $ | 10.969 | |||||||
Accumulation Unit Value, End of Period | $ | 9.22 | $ | 9.298 | $ | 9.417 | $ | 10.969 | $ | 11.823 | |||||||
Number of Units Outstanding, End of Period | 108 | 10,338 | 9,733 | 15,277 | 49,548 | ||||||||||||
MFS INVESTORS TRUST - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 9.73 | $ | 8.078 | $ | 6.305 | $ | 7.605 | |||||||
Accumulation Unit Value, End of Period | $ | 9.73 | $ | 8.078 | $ | 6.305 | $ | 7.605 | $ | 8.363 | |||||||
Number of Units Outstanding, End of Period | 0 | 27,560 | 73,504 | 87,690 | 114,180 | ||||||||||||
MFS NEW DISCOVERY - INITIAL CLASS SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 8.89 | $ | 8.336 | $ | 5.628 | $ | 7.432 | |||||||
Accumulation Unit Value, End of Period | $ | 8.89 | $ | 8.336 | $ | 5.628 | $ | 7.432 | $ | 7.817 | |||||||
Number of Units Outstanding, End of Period | 6,891 | 19,369 | 66,020 | 77,933 | 86,243 | ||||||||||||
OPPENHEIMER CORE BOND/VA SUB-ACCOUNT *** | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 10.20 | $ | 10.857 | $ | 11.695 | $ | 12.332 | |||||||
Accumulation Unit Value, End of Period | $ | 10.20 | $ | 10.857 | $ | 11.695 | $ | 12.332 | $ | 12.847 | |||||||
Number of Units Outstanding, End of Period | 0 | 25,776 | 106,484 | 121,184 | 143,175 | ||||||||||||
OPPENHEIMER CAPITAL APPRECIATION/VA SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 8.95 | $ | 7.723 | $ | 5.578 | $ | 7.213 | |||||||
Accumulation Unit Value, End of Period | $ | 8.95 | $ | 7.723 | $ | 5.578 | $ | 7.213 | $ | 7.617 | |||||||
Number of Units Outstanding, End of Period | 91 | 107,889 | 186,591 | 237,209 | 299,956 | ||||||||||||
OPPENHEIMER GLOBAL SECURITIES/VA SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 9.63 | $ | 8.363 | $ | 6.431 | $ | 9.082 | |||||||
Accumulation Unit Value, End of Period | $ | 9.63 | $ | 8.363 | $ | 6.431 | $ | 9.082 | $ | 10.687 | |||||||
Number of Units Outstanding, End of Period | 0 | 41,075 | 84,628 | 108,776 | 130,413 | ||||||||||||
OPPENHEIMER HIGH INCOME/VA SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 9.46 | $ | 9.520 | $ | 9.176 | $ | 11.232 | |||||||
Accumulation Unit Value, End of Period | $ | 9.46 | $ | 9.520 | $ | 9.176 | $ | 11.232 | $ | 12.087 | |||||||
Number of Units Outstanding, End of Period | 0 | 23,570 | 52,432 | 63,049 | 95,050 | ||||||||||||
OPPENHEIMER MAIN STREET SMALL CAP/VA SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 8.73 | $ | 8.589 | $ | 7.146 | $ | 10.187 | |||||||
Accumulation Unit Value, End of Period | $ | 8.73 | $ | 8.589 | $ | 7.146 | $ | 10.187 | $ | 12.013 | |||||||
Number of Units Outstanding, End of Period | 240 | 22,387 | 77,910 | 119,444 | 164,702 | ||||||||||||
VAN KAMPEN LIT COMSTOCK, CLASS I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 11.58 | $ | 11.154 | $ | 8.894 | $ | 11.505 | |||||||
Accumulation Unit Value, End of Period | $ | 11.58 | $ | 11.154 | $ | 8.894 | $ | 11.505 | $ | 13.379 | |||||||
Number of Units Outstanding, End of Period | 337 | 38,811 | 117,684 | 175,133 | 232,285 | ||||||||||||
VAN KAMPEN LIT EMERGING GROWTH, CLASS I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 7.47 | $ | 5.053 | $ | 3.369 | $ | 4.237 | |||||||
Accumulation Unit Value, End of Period | $ | 7.47 | $ | 5.053 | $ | 3.369 | $ | 4.237 | $ | 4.478 | |||||||
Number of Units Outstanding, End of Period | 16,637 | 65,356 | 138,721 | 171,774 | 182,412 | ||||||||||||
VAN KAMPEN LIT GOVERNMENT, CLASS I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | - | - | $ | 10.000 | $ | 10.642 | $ | 10.692 | |||||||||
Accumulation Unit Value, End of Period | - | - | $ | 10.642 | $ | 10.692 | $ | 10.999 | |||||||||
Number of Units Outstanding, End of Period | - | - | 46,592 | 56,776 | 48,986 | ||||||||||||
VAN KAMPEN LIT MONEY MARKET, CLASS I SUB-ACCOUNT | |||||||||||||||||
Accumulation Unit Value, Beginning of Period | $ | 10.00 | $ | 10.14 | $ | 10.381 | $ | 10.377 | $ | 10.305 | |||||||
Accumulation Unit Value, End of Period | $ | 10.14 | $ | 10.381 | $ | 10.377 | $ | 10.305 | $ | 10.258 | |||||||
Number of Units Outstanding, End of Period | 0 | 129,426 | 199,118 | 192,771 | 199,636 |
45 PROSPECTUS
* The Contracts were first offered on September 22, 2000. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.15% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts were first offered under the Contracts on September 19, 2000, with the exception of the Van Kampen LIT Government, Class I Sub-Account that was first offered April 30, 2002.
** Effective May 1, 2005, the MFS Bond Series - Initial Class will change its name to MFS Research Bond Series - Initial Class. We will make a corresponding change in the name of the Variable Sub-Account that invests in that Portfolio.
*** Effective Apil 29, 2005, the Oppenheimer Bond Fund/VA changed its name to Oppenheimer Core Bond Fund/VA. We have made a corresponding change in the name of the Variable Sub-Account that invests in that Portfolio.
46 PROSPECTUS
APPENDIX B MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I = the Treasury Rate for a maturity equal to the applicable Guarantee Period for the week preceding the establishment of the Guarantee Period.
N = the number of whole and partial years from the date we receive the withdrawal, transfer, or death benefit request, or from the Payout Start Date, to the end of the Guarantee Period; and
J = the Treasury Rate for a maturity equal to N years for the week preceding the receipt of the withdrawal, transfer, death benefit, or income payment request. If a note for a maturity of length N is not available, a weighted average will be used.
“Treasury Rate” means the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Board Statistical Release H.15.
The Market Value Adjustment factor is determined from the following formula:
.9 X (I - J) X N
To determine the Market Value Adjustment, we will multiply the Market Value Adjustment factor by the amount transferred (in excess of the Preferred Withdrawal Amount) paid as a death benefit, or applied to an Income Plan, from a Guarantee Period at any time other than during the 30 day period after such Guarantee Period expires.
EXAMPLES OF MARKET VALUE ADJUSTMENT
Purchase Payment: $10,000 allocated to a Guarantee Period
Guarantee Period: 5 years
Guaranteed Interest Rate: 4.50%
5 Year Treasury Rate at the time the Guarantee Period is established: 4.50%
Full Surrender: End of Contract Year 3
NOTE: These examples assume that premium taxes are not applicable.
47 PROSPECTUS
EXAMPLE 1 (ASSUME DECLINING INTEREST RATES)
Step 1. Calculate Contract | $10,000.00 X (1.045)3 = $11,411.66 | ||||||||||||||||
Value at End of Contract Year3: | |||||||||||||||||
Step 2. Calculate the Preferred .15 X | |||||||||||||||||
$10,000.00 = $1,500.00 Withdrawal Amount: | |||||||||||||||||
Step 3. Calculate the Market | I | = | 4.5% | ||||||||||||||
Value Adjustment: | J | = | 4.2% | ||||||||||||||
730 days | |||||||||||||||||
N | = | = 2 | |||||||||||||||
365 days | |||||||||||||||||
Market Value Adjustment Factor: .9 X (I - J) X | |||||||||||||||||
N = .9 X (.045 - .042) X (730/365) = .0054 | |||||||||||||||||
Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: | |||||||||||||||||
= | .0054 X ($11,411.66 - $1,500.00) = $53.32 |
EXAMPLE 2: (ASSUMES RISING INTEREST RATES)
Step 1. Calculate Contract | $10,000.00 X (1.045)3 = $11,411.66 | |||||||||||||
Value at End of Contract Year3: | ||||||||||||||
Step 2. Calculate the Preferred .15 X | ||||||||||||||
$10,000.00 = $1,500.00 Withdrawal Amount: | ||||||||||||||
Step 3. Calculate the Market | I | = 4.5% | ||||||||||||
Value Adjustment: | J | = 4.8% | ||||||||||||
730days | ||||||||||||||
N | = | = 2 | ||||||||||||
365days | ||||||||||||||
Market Value Adjustment Factor: .9 X (I - J) X N = .9 X (.045 - .048) X (730/365) = -.0054 | ||||||||||||||
Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: | ||||||||||||||
= -.0054 X ($11,411.66 - $1,500.00) = -$53.52 |
48 PROSPECTUS
APPENDIX C WITHDRAWAL ADJUSTMENT EXAMPLE
Issue Date: January 1, 2005
Initial Purchase Payment: $50,000
Death Benefit Amount
Date | Type of Occurrence Value | Contract Value Before Occurrence | Transaction Amount | Contract Value After Occurrence | Death Benefit Anniversary | Greatest Anniversary Value | |||||||||||||||||
1/1/05 | IssueDate | - | $50,000 | $50,000 | $50,000 | $50,000 | |||||||||||||||||
1/1/06 | Contract | $55,000 | - | $55,000 | $50,000 | $55,000 | |||||||||||||||||
Anniversary | |||||||||||||||||||||||
7/1/06 | Partial | $60,000 | $15,000 | $45,000 | $37,500 | $41,250 | |||||||||||||||||
Withdrawal |
Withdrawal adjustment equals the partial withdrawal amount divided by the Contract Value immediately prior to the partial withdrawal multiplied by the value of the applicable death benefit amount alternative immediately prior to the partial withdrawal.
DEATH BENEFIT ANNIVERSARY VALUE DEATH BENEFIT | ||||||||
PARTIAL WITHDRAWAL AMOUNT | (w) | $15,000 | ||||||
Contract Value Immediately Prior to Partial Withdrawal | (a) | $60,000 | ||||||
Value of Applicable Death Benefit Amount Immediately Prior to Partial | (d) | $50,000 | ||||||
Withdrawal | ||||||||
Withdrawal Adjustment | [(w)/(a)] X (d) | $12,500 | ||||||
Adjusted Death Benefit | $37,500 | |||||||
GREATEST ANNIVERSARY VALUE DEATH BENEFIT | ||||||||
PARTIAL WITHDRAWAL AMOUNT | (w) | $15,000 | ||||||
Contract Value Immediately Prior to Partial Withdrawal | (a) | $60,000 | ||||||
Value of Applicable Death Benefit Amount Immediately Prior to Partial Withdrawal | (d) | $55,000 | ||||||
Withdrawal Adjustment | [(w)/(a)] X (d) | $13,750 | ||||||
Adjusted Death Benefit | $41,250 | |||||||
Please remember that you are looking at a hypothetical example, and that your investment performance may be greater or less than the figures shown.
49 PROSPECTUS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Additions, Deletions or Substitutions of Investments
The Contract
Purchase of Contracts
Calculation of Accumulation Unit Values
Calculation of Variable Income Payments
General Matters
Incontestability
Settlements
Safekeeping of the Variable Account's Assets
Experts
Financial Statements
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
50 PROSPECTUS
PART II—INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registrant anticipates that it will incur the following approximate expenses in connection with the issuance and distribution of the securities to be registered:
Registration fees | $0 | ||||
Cost of printing and engraving | $351 | ||||
Legal fees | $0 | ||||
Accounting fees | $6,000 | ||||
Mailing fees | $1,471 |
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-laws of Allstate Life Insurance Company of New York (“Registrant”) provide that Registrant will indemnify all of its directors, former directors, officers and former officers, to the fullest extent permitted under law, who were or are a party or are threatened to be made a party to any proceeding by reason of the fact that such persons were or are directors or officers of Registrant, against liabilities, expenses, judgments, fines, excise taxes or penalties assessed with respect to an employee benefit plan or trust and amounts paid in settlement actually and reasonably incurred by them. The indemnity shall not be deemed exclusive of any other rights to which directors or officers may be entitled by law or under any articles of incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. In addition, the indemnity shall inure to the benefit of the legal representatives of directors and officers or of their estates, whether such representatives are court appointed or otherwise designated, and to the benefit of the heirs of such directors and officers. The indemnity shall extend to and include claims for such payments arising out of any proceeding commenced or based on actions of such directors and officers taken prior to the effectiveness of the indemnity; provided that payment of such claims had not been agreed to or denied by Registrant before such date.
The directors and officers of Registrant have been provided liability insurance for certain losses arising from claims or charges made against them while acting in their capacities as directors or officers of Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES | ||
Not Applicable. | ||
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | ||
(16)(1) | ||
Exhibit No. Description | ||
(2) None | ||
(8) None | ||
(9) None | ||
(10) Material Contracts | ||
(15) Not Applicable. | ||
(16) Letter re: change in certifying accountant. Not Applicable. | ||
(21) Subsidiaries of the registrant. Not Applicable. | ||
(24) Powers of Attorney for Maureen A. Buckley, James M. Flewellen, Angela K. Fontana, John R. Hurley, Mario Imbarrato, Rebecca D. Kennedy, Gene L. Lunman, Jesse E. Merten and John C. Pintozzi. (Incorporated herein by reference to Allstate Life Insurance Company of New York’s Form S-1 Registration Statement filed on March 30, 2021. (SEC File No. 333-254871) | ||
(25) None | ||
Exhibit List for XBRL Docs: | ||
(101)(INS XBRL) Instance Document | ||
(101)(SCH XBRL) Taxonomy Extension Schema | ||
(101)(CAL XBRL) Taxonomy Extension Calculation Linkbase | ||
(101)(DEF XBRL) Taxonomy Extension Definition Linkbase | ||
(101)(LAB XBRL) Taxonomy Extension Label Linkbase | ||
(101)(PRE XBRL) Taxonomy Extension Presentation Linkbase | ||
(16)(2) Financial statement schedules required by Regulation S-X (17 CFR Part 210) and Item 11(e) of Form S-1 are included in Part I. |
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 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 Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the Township of Northfield, State of Illinois on the 26th day of April, 2021.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK | |||||
(REGISTRANT) | |||||
By: | /s/Angela K. Fontana | ||||
Angela K. Fontana Director, Senior Vice President, General Counsel and Secretary |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated and on the 26th day of April, 2021.
*/ Maureen A. Buckley | Director | ||||
Maureen A. Buckley | |||||
/s/ James M. Flewellen | Director | ||||
James M. Flewellen | |||||
/s/ Angela K. Fontana | Director | ||||
Angela K. Fontana | |||||
*/ John R. Hurley | Director | ||||
John R. Hurley | |||||
*/ Mario Imbarrato | Director and Chief Financial Officer | ||||
Mario Imbarrato | |||||
*/ Rebecca D. Kennedy | Director | ||||
Rebecca D. Kennedy | |||||
*/ Gene L. Lunman | Director | ||||
Gene L. Lunman | |||||
/s/ Jesse E. Merten | Director and Chief Executive Officer | ||||
Jesse E. Merten | |||||
*/ John C. Pintozzi | Controller | ||||
John C. Pintozzi | |||||
* By: Angela K. Fontana, pursuant to Power of Attorney, incorporated by reference to Registrant’s Form S-1 Registration Statement filed on March 30, 2021. (SEC File No. 333-254871) |
____________________________________________________________
____________________________________________________________
EXHIBIT LIST
The following exhibit is filed herewith:
Exhibit No. | Description | |||||||
(23) | ||||||||